8th Sep 2006 07:00
Davis Service Group PLC08 September 2006 FOR IMMEDIATE RELEASE 8 September 2006 DAVIS SERVICE GROUP Interim results announcement for the six months ended 30 June 2006 GROWTH IN SALES AND EARNINGS CONTINUED POSITIVE MOMENTUM ON CONTINENT Financial Highlights Continuing operations Revenue Up 6% to £348.8 million (2005: £328.1 million) Adjusted operating profit* Up 2% to £43.3 million (2005: £42.4 million) Adjusted profit before tax* Up 5% to £38.9 million (2005: £37.0 million) Profit before tax Up 28% to £39.9 million (2005: £31.2 million) Adjusted earnings per share* Up 24% to 16.2p (2005: 13.1p) Earnings per share 16.9p (2005: 44.8p) Interim dividend Up 5% to 5.8 pence (2005: 5.5 pence) *before exceptional items and amortisation of customer contracts Additional Highlights • Further operating margin growth in Continental Europe with encouraging new contract wins • UK margin down but acquisitions expected to benefit the 2006 second half results • Investments in new plants in Poland and Norway • £32 million investment in acquired contracts and bolt-on acquisitions • Successful US $250 million debt private placement Christopher Kemball, Chairman of Davis Service Group, commented: "I am pleased to report revenue growth of 6% for the Group and a continuedincrease in earnings. The result in Continental Europe was particularlyencouraging, while the UK faced the more significant challenge from increasedcosts and competition. "We expect the first half trading conditions to continue into the second half,with positive momentum in Continental Europe. In the UK and Ireland, marketpressures will remain but we expect a more stable performance in the secondhalf. We continue to target acquisition opportunities. Overall the Boardcontinues to expect to deliver a satisfactory outcome for 2006." For further information contact: Davis Service Group Financial DynamicsRoger Dye, Chief Executive Richard Mountain/Harriet KeenKevin Quinn, Finance Director Telephone 020 7269 7291Telephone 020 7269 7291 (today until 11.00am Telephone 020 7259 6663 (thereafter) Interim Statement for the six months ended 30 June 2006 I am pleased to report that the Group grew its revenues by 6% in the first sixmonths of the year while continuing to increase earnings on behalf ofshareholders. The markets in which we operate in Continental Europe weregenerally stronger than in 2005 and we also increased volumes in the UK andIreland through organic growth. We also grew through bolt-on acquisitions, inline with our strategy, and we expect these to deliver good returns. In Continental Europe we have already seen the benefits of this additionalrevenue in our profitability and increased our operating margin once again inthe period. The UK market continued to face the more significant challenge fromincreased costs and competition. We expect to see the benefit of theacquisitions we have made in the UK in the second half of 2006. Overall, the Group traded in line with our expectations in the first half andthe level of new contract wins in Continental Europe was particularlyencouraging. Results Revenue from continuing operations in the period was £348.8 million (2005:£328.1 million). Operating profit before exceptional items and amortisation ofcustomer contracts (adjusted operating profit) was £43.3 million compared with£42.4 million last year, an increase of 2%. Adjusted earnings per share rose24% from 13.1 pence to 16.2 pence as a result of this increase, the reduction inthe net interest charge and the five for six consolidation of shares followingthe return of capital to shareholders last year. Our headline tax rate was 29%,consistent with last year. During the period we realised exceptional income totalling £3.4 million from thesale of property and further receipt of cash from the sale of the HSS business.Amortisation of acquired customer contracts amounted to £2.4 million (2005:£0.9 million). Operating profit after these items was £44.3 million (2005:£36.6 million). In 2005 we realised a profit of £68.2 million on the sale ofthe Elliott business resulting in the total earnings per share that year of 44.8pence compared with 16.9 pence in 2006. Free cash flow of £24.2 million was generated compared with £34.4 million lastyear, which included £1.8 million from the Elliott business. As planned, weincreased our capital expenditure in the period as we invested in new plants inNorway and Poland, both of which are growing markets, with further investmenttargeted in the second half of 2006. We have also increased our investment intextiles for new contracts. Net borrowings at 30 June were £248.0 millioncompared with £214.2 million at 31 December 2005, following investments of £32million for acquisitions. Our gearing level was 64% at 30 June 2006. The Board has resolved to pay an interim dividend of 5.8 pence (2005: 5.5pence), a 5% increase. This dividend will be paid on 17 October 2006 toshareholders on the register at the close of business on 22 September 2006. The financial statements for the six months ended 30 June 2006 have beenreviewed by PricewaterhouseCoopers LLP with their full review opinion set out inNote 10. Continental Europe The Berendsen management and staff, headed by Christer Strom, again achievedtheir objectives. Revenue increased to £202.6 million from £196.3 million in2005 and adjusted operating profit was £30.5 million compared with £28.2 millionlast year. The adjusted operating margin improved from 14.4% in the first halfof 2005 to 15.1% in the period. Foreign exchange decreased these results byrevenue of £1.9 million and operating profit of £0.3 million compared to theequivalent period last year. Organic growth in revenue was 2% and we have made14 bolt-on acquisitions in the first half of 2006 investing £16 million. Our businesses in Scandinavia performed well, growing both revenue and profitwhile improving margins. We saw higher new sales than in recent years and thelevel of business confidence is encouraging. We have made a number ofacquisitions and there remains a good pipeline of opportunities reflecting ourstrong position in these markets. In July, we sold our last remaining flatlinen plant in Norway and we continue to focus on the higher margin garments,mats and washroom segments. Our workwear business in Holland started to show the benefits of the investmentswe made last year in increasing our sales force, with revenues ahead and asatisfactory level of new contract wins. Germany remained our most challengingmarket, being predominantly a healthcare business, as it continued to facestructural change in the provision of its healthcare service. The business heldup well following the strengthening of senior management and restructuring wemanaged last year. We expect the challenges faced by the healthcare part ofour business to continue while we look to grow in garments. Our Polish businesscontinued to grow strongly both in terms of revenue and profit, and our secondplant in the south of the country has already been extended and is operatingwell. Plans are advanced for further plants. We entered the Finnish market in the second half of 2005 with a smallacquisition and in the first half of 2006 we invested further in the market,which we see as offering good opportunities for growth. Elsewhere, we continueto pursue opportunities to enter new markets, particularly in Central Europe. UK and Ireland This was another challenging period for our UK and Ireland operations. Theteam, headed by Steve Finch, grew revenue by 11% to £146.2 million (2005:£131.8 million) and adjusted operating profit was £15.0 million compared with£16.4 million in 2005. Excluding the impact of acquisitions the business grewrevenues by 2%, predominantly through increased volumes. Our margin decline from 12.5% to 10.3% was expected and reflected primarily thesignificant increase in wage and energy costs, which came through from thesecond half of 2005. Our linen business performed well in difficult circumstances and the combinationof additional volume and efficiencies meant that our profits held up wellcompared with a strong first half last year. In the healthcare business wecontinued to win key contracts and revenues were up in the period. However, theefficiencies we achieved were not sufficient to offset the cost increases andwith pricing under pressure, mainly as a result of NHS Trust budget deficits,profits were lower. We do not expect this pressure to alleviate in theshort-term. While the level of new contract wins in our workwear division demonstrated thatthe market continues to develop, it remained very competitive with the changefrom higher price industrial garments to the lighter service industriesadversely impacting the overall mix of pricing and margin. Following RentokilInitial's exit from the textile market we took on some contracts, but only wherethere were acceptable pricing levels, and these have underpinned revenues inline with our expectations. In Ireland we grew both organically and through acquisition resulting inimproved profits. So far in 2006 we have made acquisitions for a total consideration of £16.0million. The integration of these has progressed well, with associated costsbeing incurred in the first half. We expect these acquisitions to contribute toprofits more strongly from the second half of this year. Financing and Other In May 2006 we concluded a private placement transaction to provide the groupwith additional sources of financing, to extend the term of committed fundingand to increase the level of fixed borrowing. The private placement was with USinstitutions for $250 million at attractive rates, which we swapped principallyinto fixed Euro, Danish krone and Swedish krona borrowings. We used these torepay amounts drawn under our Revolving Credit Facility, which remains at £420million. We now have the Sterling equivalent of £215 million of borrowingsfixed in three tranches through to 2010, 2016 and 2018 at a blended rate of3.97% in these currencies. In May 2006 we completed our B share programme with the repurchase of theremaining shares for £6.5 million. In May and June 2006 we purchased 825,000Davis shares in the market for a total cost of £3.6 million, and hold them astreasury shares. These purchases are expected to result in a small enhancementto 2006 earnings per share. The Board is planning to make a one off payment of approximately £25 millionfrom existing resources into the group's UK pension plan and is in the processof seeking the required clearances. The deficit on this plan was £30.6 millionat 30 June 2006. The Board expects to make this payment during the second halfof this financial year. Outlook We expect the first half trading conditions to continue into the second half of2006. With the positive momentum we saw in Continental Europe in the first halfwe remain confident in our outlook for the business for the remainder of theyear. In the UK and Ireland, market pressures will remain but we expect a morestable performance in the second half due to the benefits of the acquisitions wemade and the comparison to a weaker second half last year due to the impact ofthe July London bombings. We continue to target acquisition opportunities,particularly in Continental Europe. Overall, the Board continues to expect to deliver a satisfactory outcome for2006. CONSOLIDATED INTERIM INCOME STATEMENT For the six months ended 30th June 2006 Six months to Six months to Year to Notes 30th June 30th June 31st December 2006 2005 2005 £m £m £m Continuing operations Revenue 1 348.8 328.1 661.7Cost of sales (194.3) (178.0) (361.9)Gross profit 154.5 150.1 299.8 Other operating income 3.7 1.0 5.9Distribution costs (66.1) (61.4) (123.9)Administrative expenses (44.8) (46.0) (81.9)Other operating expenses (3.0) (7.1) (12.0)Operating profit 1 44.3 36.6 87.9 Analysed as:Operating profit before exceptional items andamortisation of customer contracts 1 43.3 42.4 91.7Exceptional items 2 3.4 (4.9) (1.8)Amortisation of customer contracts (2.4) (0.9) (2.0)Operating profit 1 44.3 36.6 87.9 Interest payable and similar charges (6.9) (8.5) (14.5)Interest receivable 2.5 3.1 7.3Profit before taxation 39.9 31.2 80.7Taxation 3 (11.0) (8.8) (23.2) Profit for the period from continuing operations 28.9 22.4 57.5 Discontinued operationsProfit for the period from discontinued operations - 2.5 2.6Profit on sale of discontinued operations - 65.7 66.9 Profit for the period from discontinued operations - 68.2 69.5 Profit for the period 28.9 90.6 127.0 Profit/(loss) attributable to minority interest 0.2 (0.3) (0.1)Profit attributable to equity shareholders 28.7 90.9 127.1 28.9 90.6 127.0 Earnings per share expressed in pence per share- Basic 4 16.9 44.8 66.8- Diluted 4 16.8 44.5 66.5 Earnings per share from continuing operations- Basic 4 16.9 11.2 30.3- Diluted 4 16.8 11.1 30.2 Dividend per share expressed in pence per share 5.8 5.5 11.8 INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30th June 2006 Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 £m £m £m Profit for the period 28.9 90.6 127.0 Exchange adjustments offset in reserves (1.9) (11.1) (8.2) Actuarial gains/(losses) recognised in the pension scheme 9.2 (7.5) (14.4) Deferred tax (liability)/asset arising on actuarial gains/losses (2.5) 2.4 4.3 Net gains/(losses) not recognised in income statement 4.8 (16.2) (18.3) Total recognised income for the period 33.7 74.4 108.7 Attributable to: Minority interests 0.2 (0.3) (0.1) Equity shareholders 33.5 74.7 108.8 CONSOLIDATED INTERIM BALANCE SHEET As at 30th June 2006 As at As at As at Notes 30th June 30th June 31st December 2006 2005 2005 £m £m £mAssetsGoodwill 295.9 280.6 287.1Intangible assets 26.9 11.2 16.4Property, plant and equipment 391.6 358.8 367.2Investments - 12.5 -Assets classified as held for sale 5.0 0.9 4.4Derivative financial instruments 2.8 - -Deferred tax assets 23.7 26.0 27.9Total non-current assets 745.9 690.0 703.0 Inventories 13.0 11.2 12.3Income tax receivable 3.2 2.3 4.0Trade and other receivables 125.9 112.6 118.1Cash and cash equivalents 126.3 222.3 117.6Current assets 268.4 348.4 252.0 LiabilitiesBank overdrafts 0.6 - 0.5Interest bearing loans and borrowings 3.3 9.3 3.2Income tax payable 4.5 9.2 7.1Trade and other payables 86.5 71.1 76.2Accruals and deferred income 55.7 58.6 55.7Provisions 2.8 3.8 3.3Total current liabilities 153.4 152.0 146.0 Net current assets 115.0 196.4 106.0 Interest bearing loans and borrowings 370.4 281.6 328.1Derivative financial instruments 12.5 - -Retirement benefit obligations 45.9 74.0 57.2Other payables 0.5 0.4 0.8Deferred tax liabilities 45.6 33.3 45.1Total non-current liabilities 474.9 389.3 431.2 Net assets 386.0 497.1 377.8 EquityShare capital 51.2 50.9 57.7Share premium 93.5 242.5 93.2Other reserves 4.8 0.4 0.5Capital redemption reserve 150.9 - 144.4Retained earnings 84.0 202.0 80.5Total shareholders' equity 384.4 495.8 376.3Minority interest in equity 1.6 1.3 1.5Total equity 386.0 497.1 377.8 Net debt 6 248.0 250.5 214.2Gearing 64% 50% 57% CONSOLIDATED INTERIM CASH FLOW STATEMENT For the six months ended 30th June 2006 Notes Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 £m £m £m Cash flows from operating activities Cash generated from operations 5 104.1 114.5 219.5Interest paid (6.3) (12.4) (18.0)Interest received 2.6 2.7 7.7Income tax paid (10.3) (8.7) (19.0)Net cash generated from operating activities 90.1 96.1 190.2 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (27.8) (9.4) (19.3)Purchases of property, plant and equipment (66.4) (65.9) (132.8)Proceeds from the sale of property, plant and equipment 2.1 5.6 11.1Purchases of intangible assets (1.6) (1.4) (3.9)Proceeds from sale of businesses, net of overdrafts - 142.8 153.2Special pension contribution payments (2.6) - (23.0)Repayment of loan notes 2.4 8.4 20.5Redemption of promissory loan notes - - 5.0Net cash (used in)/from investing activities (93.9) 80.1 10.8 Cash flows from financing activities Net proceeds from issue of ordinary share capital 0.3 2.5 4.9Purchase of treasury shares (3.6) - -Drawdown of borrowings 193.4 393.1 443.6Repayment of borrowings (148.6) (383.9) (412.4)Repayment of finance leases/hire purchase liabilities (2.1) (3.3) (3.6)Dividends paid to Company's shareholders (20.3) (22.8) (32.2)Dividends paid to minority interests (0.1) - -Redemption of B Shares (6.5) - (144.4)Share redemption issue costs - - (0.5)Net cash from/(used) in financing activities 12.5 (14.4) (144.6) Net increase in cash and bank overdrafts 8.7 161.8 56.4Cash and bank overdrafts at beginning of period 117.1 61.7 61.7Exchange losses on cash and bank overdrafts (0.1) (1.2) (1.0)Cash and bank overdrafts at end of period (note i) 125.7 222.3 117.1 Free cash flow 24.2 34.4 64.6 Analysis of free cash flowNet cash generated from operating activities 90.1 96.1 190.2Purchases of property, plant and equipment (66.4) (65.9) (132.8)Proceeds from the sale of property, plant and equipment 2.1 5.6 11.1Purchases of intangible assets (1.6) (1.4) (3.9)Free cash flow 24.2 34.4 64.6 Free cash flow of continuing operations 24.2 32.6 62.8 (i) Included within cash and bank overdrafts are £0.6m of overdrafts (2005: Nil) NOTES TO THE INTERIM RESULTS 1 SEGMENTAL INFORMATION (a) Primary reporting format - business segments At 30th June 2006, the group has only one business segment being textilemaintenance within the UK, Ireland and on the Continent. Based on the risks and returns the directors consider that the primary reportingformat is by business segment and that the secondary reporting format is bygeographical analysis by origin and destination. The segments results for the six months ended 30th June 2006 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £mContinuing operationsRevenue 202.6 146.2 348.8 - 348.8Operating profit/(loss) before exceptionalitems and amortisation of customer contracts 30.5 15.0 45.5 (2.2) 43.3Exceptional items 0.8 0.2 1.0 2.4 3.4Amortisation of customer contracts (1.4) (1.0) (2.4) - (2.4)Segment result 29.9 14.2 44.1 0.2 44.3Net interest payable (4.4)Profit before taxation 39.9Taxation (11.0)Profit for the period 28.9Profit attributable to minority interests 0.2Profit attributable to equity shareholders 28.7Capital expenditure 50.1 46.5 96.6 - 96.6Depreciation and amortisation 35.0 28.9 63.9 0.1 64.0 Capital expenditure comprises additions to property, plant and equipment andintangible assets, including additions resulting from acquisitions throughbusiness combinations. 1 SEGMENTAL INFORMATION CONTINUED The segment results for the six months ended 30th June 2005 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Revenue 196.3 131.8 328.1 - 328.1 Operating profit/(loss) beforeexceptional items and amortisation ofcustomer contracts 28.2 16.4 44.6 (2.2) 42.4Exceptional items (5.6) 0.7 (4.9) - (4.9)Amortisation of customer contracts (0.7) (0.2) (0.9) - (0.9)Segment result 21.9 16.9 38.8 (2.2) 36.6Net interest payable (5.4)Profit before taxation 31.2Taxation (8.8)Profit from continuing operations 22.4Profit from discontinued operations 2.5Profit on sale of discontinued 65.7operationsProfit for the period 90.6Loss attributable to minority (0.3)interestsProfit attributable to equity 90.9shareholdersCapital expenditure 32.5 29.3 61.8 0.1 61.9Depreciation and amortisation 32.0 27.2 59.2 0.1 59.3 Revenue and operating profit for discontinued operations was £52.5 million and£3.9 million respectively. The capital expenditure and depreciation andamortisation were £7.3 million and £5.6 million respectively. The segmental assets and liabilities at 30th June 2006 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Operating assets 613.1 286.4 899.5 80.1 979.6Derivative financial instruments - - - 2.8 2.8Deferred tax assets 4.4 6.6 11.0 12.7 23.7Income tax assets 1.4 - 1.4 1.8 3.2Non current assets held for sale 2.6 2.4 5.0 - 5.0Total assets 621.5 295.4 916.9 97.4 1,014.3 Operating liabilities 83.3 56.4 139.7 6.4 146.1Derivative financial instruments - - - 12.5 12.5Bank loans & finance leases - - - 373.7 373.7Deferred tax liabilities 29.1 14.4 43.5 2.1 45.6Income tax liabilities 1.5 1.5 3.0 1.5 4.5Retirement benefit obligations 13.5 22.8 36.3 9.6 45.9Total liabilities 127.4 95.1 222.5 405.8 628.3 1 SEGMENTAL INFORMATION CONTINUED The segment assets and liabilities at 31st December 2005 are as follows: Textile Textile Total maintenance maintenance Textile Continent UK and Ireland maintenance Unallocated Group £m £m £m £m £m Operating assets 598.5 261.6 860.1 58.6 918.7Deferred tax assets 5.2 7.4 12.6 15.3 27.9Income tax assets 2.0 - 2.0 2.0 4.0Non current assets held for sale 2.9 1.5 4.4 - 4.4Total assets 608.6 270.5 879.1 75.9 955.0 Operating liabilities 75.2 52.7 127.9 8.6 136.5Bank loans and finance leases - - - 331.3 331.3Deferred tax liabilities 27.9 12.8 40.7 4.4 45.1Income tax liabilities 5.5 0.5 6.0 1.1 7.1Retirement benefit obligations 13.4 26.2 39.6 17.6 57.2Total liabilities 122.0 92.2 214.2 363.0 577.2 Segmental assets consist primarily of operating assets such as property, plantand equipment, intangible assets, goodwill, inventories, receivables andoperating cash. Assets such as investments, deferred taxation, income taxassets and assets classified as held for sale are separately identified. Segment liabilities comprise operating liabilities and separately identifyretirement obligations, deferred tax liabilities, income tax liabilities andcorporate borrowings. (b) Secondary reporting format - geographical segments The group's operations are based in three main geographical areas. The UK isthe home country of the parent. The main operations in the principalterritories are as follows: UK and Ireland Scandinavia Other Europe The sales analysis in the information below is based on the location of thecustomer, which is not materially different from the location where the order isreceived and where the assets are located. Segmental assets, which comprisetotal assets, including financial assets, and capital expenditure are allocatedon the basis of location. Revenue Segmental assets Capital expenditure Six months Six months As at As at Six months to Six months to to 30th June to 30th June 30th June 31st December 30th June 30th June 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Continuing operationsUK and Ireland 146.2 131.8 371.7 321.7 46.5 29.4Scandinavia 125.2 120.4 393.1 386.7 29.3 16.4Other Europe 85.9 83.5 222.6 214.7 20.8 16.1Inter segment sales (8.5) (7.6) 26.9 31.9 - - 348.8 328.1 1,014.3 955.0 96.6 61.9 Discontinued operationsUK and Ireland - 52.5 - - - 7.3 348.8 380.6 1,014.3 955.0 96.6 69.2 The Group's continuing operations revenue is predominantly from services 2 Exceptional Items Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 £m £m £mProperty sales (note i) 1.0 0.7 0.3Release of loan note provision (note ii) 2.4 - -Closure costs of laundries (note iii) - (5.6) (7.1)Income from loan note redemptions (note iv) - - 5.0Total 3.4 (4.9) (1.8) (i) The profit on the sale of properties realised in the first half of 2006 relates primarily to the sale of properties within the UK and Sweden (tax charge of £0.3m) (ii) This represents a partial release of the provision for US vendor loan notes created on the disposal of the HSS Hire Service Group in 2004 following further receipts (tax effect: Nil) (iii) The closure costs reported in 2005 related to charges for the restructuring of the group's German operations. (iv) The exceptional income reported in 2005 related to the settlement of promissory notes and debts which had previously been fully provided. 3 TAXATION The income tax expense is based on an effective annual tax rate estimatedindividually for each tax jurisdiction in which the group operates and appliedto the pre-tax profit, excluding exceptional items, of the relevant entity. Taxon exceptional items is calculated separately and specifically on those itemsand is disclosed in note 2. The tax charge for the period comprises: Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 £m £m £mUK taxation 2.7 2.5 6.2Overseas taxation 8.3 6.3 17.0 11.0 8.8 23.2 4 EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share are based on the group profit for the periodand a weighted average of 170,479,234 (2005: 202,905,717) ordinary shares in issue during the period and exclude the treasury shares. Diluted earnings per share are based on the group profit for the period and aweighted average of ordinary shares in issue during the period calculated asfollows: 30th June 30th June 31st December 2006 2005 2005 Number Number Number of shares of shares of shares In issue 170,479,234 202,905,717 190,186,349Dilutive potential ordinary shares arising from unexercised share 511,932 1,544,426 959,694options 170,991,166 204,450,143 191,146,043 An adjusted earnings per ordinary share figure has been presented to eliminatethe effects of property sales, exceptional income, restructuring items andamortisation of customer contracts. The presentation shows the trend in earnings per ordinary share that isattributable to the underlying trading activities for both the group andcontinuing group. The reconciliation between the basic and adjusted figures for continuingoperations is as follows: Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 Earnings Earnings Earnings per share per share per share £m pence £m pence £m pence Profit attributable to equity holders of theCompany for basic earnings per share calculation 28.7 16.9 22.7 11.2 57.6 30.3(Profit)/loss on sale of properties (after (0.7) (0.4) (0.4) (0.2) 0.3 0.2taxation)Exceptional income (after taxation) (2.4) (1.4) - - (3.7) (2.0)Restructuring items (after taxation) - - 3.6 1.8 4.5 2.3Amortisation of customer contracts (after taxation) 1.8 1.1 0.7 0.3 1.6 0.9Adjusted earning per share 27.4 16.2 26.6 13.1 60.3 31.7Diluted earnings per share 16.8 11.1 30.2 The reconciliation between the basic and adjusted figures for the total group isas follows: Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 Earnings Earnings Earnings per share per share per share £m pence £m pence £m pence Profit attributable to equity shareholders of theCompany for basic earnings per share calculation 28.7 16.9 90.9 44.8 127.1 66.8Profit on sale of business (after taxation) - - (65.8) (32.4) (66.9) (35.1)(Profit)/loss on sale of properties (after taxation) (0.7) (0.4) (0.4) (0.2) 0.3 0.2Exceptional income (after taxation) (2.4) (1.4) - - (3.7) (2.0)Restructuring items (after taxation) - - 3.6 1.8 4.5 2.3Amortisation of customer contracts (after taxation) 1.8 1.1 0.7 0.3 1.6 0.9Adjusted earnings per share 27.4 16.2 29.0 14.3 62.9 33.1Diluted earnings per share 16.8 44.5 66.5 5 CASH GENERATED FROM OPERATIONS Reconciliation of operating profit to net cash inflow from operating activities. Six months to Six months to Year to Six months to Six months to Year to 30th June 30th June 31st December 30th June 30th June 31st December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m Total Group Discontinued operations Profit for the period 28.9 90.6 127.0 - 68.2 69.5 Adjustments for:Taxation 11.0 9.9 24.7 - 1.5 1.5Amortisation ofintangible fixed assets 3.0 1.3 3.0 - - -Impairment of goodwill - - 0.2 - - -Negative goodwill (0.5) - - - - -Depreciation of 61.0 63.6 125.4 - 5.6 5.6tangible fixed assetsProfit on sale of (1.0) (0.7) (0.3) - - -propertyProfit on sale of plant (0.2) (0.3) (0.2) - (1.3) (1.3)and equipment Profit on sale of - (66.4) (68.0) - (66.4) (68.0)business Redemption/receipt ofpromissory loan notes (2.4) - (5.0) - - -Interest income (2.5) (3.0) (6.8) - - -Interest expense 6.9 9.3 15.0 - 0.8 0.8Exchange losses onborrowings - - (0.1) - - -Other non cashmovements 0.1 - - - - - Changes in workingcapital (excludingeffect of acquisitions,disposals and exchangedifferences onconsolidation): Inventories (0.2) (1.7) (1.6) - (0.8) (0.8) Trade and otherreceivables (3.7) 2.6 0.6 - (3.5) (3.5)Trade and other 3.9 3.8 2.3 - 5.3 5.6payables Provisions (0.2) 5.5 3.3 - - - Cash generated fromoperations 104.1 114.5 219.5 - 9.4 9.4 In the cash flow statement, proceeds from sale of property, plant and equipment comprise: Six months to Six months to Year to Six months to Six months to Year to 30th June 30th June 31st December 30th June 30th June 31st December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m Net book amount 0.9 4.6 10.6 - 0.6 0.6Profit on sale ofproperty, plant andequipment 1.2 1.0 0.5 - 1.3 1.3Proceeds from sale ofproperty, plant andequipment 2.1 5.6 11.1 - 1.9 1.9 6 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Six months to Six months to Year to 30th June 30th June 31st December 2006 2005 2005 £m £m £m Increase in cash 8.7 161.8 56.4Cash (outflow)/inflow from movement in debt and lease financing (42.6) 9.6 (27.7)Changes in net debt resulting from cash flows (33.9) 171.4 28.7 New finance leases (1.5) (1.9) (3.9) Bank loans and lease (acquired)/obligations disposed with (4.3) 1.4 5.4subsidiariesTranslation difference 5.9 11.0 6.1Movement in net debt in period (33.8) 181.9 36.3 Net debt at beginning of period (214.2) (250.5) (250.5) Net debt at end of period (248.0) (68.6) (214.2) 7 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Attributable to Equity Holders of the Company Capital Share Share Other Redemption Retained Minority Total Capital Premium Reserves Reserve Earnings Interest Equity £m £m £m £m £m £m £m At 1st January 2005 50.7 240.2 1.1 - 148.0 1.7 441.7 Issue of share capital in respectof share option schemes 0.5 4.4 - - - - 4.9Share redemption issue costs - (0.5) - - - - (0.5)Issue of B shares 150.9 (150.9) - - - - -Redemption of B shares (144.4) - - - - - (144.4)Transfer of capital redemptionreserve arising from redemption ofB shares - - - 144.4 (144.4) - -Dividends - - - - (32.2) - (32.2)Actuarial losses net of deferred - - - - (10.1) - (10.1)taxDeferred tax on arising on shareoptions - - - - 0.3 - 0.3Profit for the year - - - - 127.1 (0.1) 127.0Currency translation - - (0.6) - (8.2) (0.1) (8.9) At 31st December 2005 57.7 93.2 0.5 144.4 80.5 1.5 377.8 Issue of share capital in respectof share option schemes - 0.3 - - - - 0.3Purchase of treasury shares - - - - (3.6) - (3.6)Redemption of B shares (6.5) - - - - - (6.5)Transfer of capital redemptionreserve arising from redemption ofB shares - - - 6.5 (6.5) - -Dividends - - - - (20.3) (0.1) (20.4)Actuarial gains net of deferred tax - - - - 6.7 - 6.7Cash flow hedges - - 3.8 - - - 3.8Value of employee service inrespect of share options - - - - 0.4 - 0.4Profit for the period - - - - 28.7 0.2 28.9Currency translation - - 0.5 - (1.9) - (1.4)At 30th June 2006 51.2 93.5 4.8 150.9 84.0 1.6 386.0 8 PREPARATION OF THE INTERIM RESULTS The financial information for the six months ended 30 June 2006 included in thisinterim report (hereinafter referred to as the 'interim financial information')comprises the consolidated income statement, the consolidated balance sheet, theconsolidated cash flow statement, the statement of recognised income and expenseand the related notes. This interim financial information has been prepared in accordance with theListing Rules of the Financial Services Authority. In preparing this interimfinancial information management has used the principal accounting policies asset out in the group's annual financial statements for the year ended 31December 2005 on pages 30 to 33. The group has chosen not to adopt IAS 34, 'Interim financial statements', inpreparing its 2006 interim statements and, therefore, this interim financialinformation is not in compliance with IFRS. The group has reviewed new standards and amendments to standards andinterpretations issued on or after 1 January 2006 and reports that they areeither not relevant or have no material impact on their financial statements. The interim financial information is unaudited but has been reviewed by theauditors and their review opinion is included in this interim report. Thefinancial information set out in this report does not constitute statutoryaccounts as defined by the Companies Act 1985. Financial information for theyear ended 31 December 2005 included herein is derived from the statutoryaccounts for that year, which have been delivered to the Registrar of Companies.The auditors' report on those accounts was unqualified and did not contain astatement under section 237(2) or section 237(3) of the Companies Act 1985 9 WEBSITE POLICY The directors are responsible for the maintenance and integrity of the company'swebsite. Information published on the internet is accessible in many countrieswith different legal requirements. Legislation in the United Kingdom governingthe preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions. 10 REVIEW OPINION OF PRICEWATERHOUSECOOPERS LLP We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprise the consolidated incomestatement, consolidated balance sheet, the consolidated cash flow statement, thestatement of recognised income and expense and related notes 1 to 9. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 8. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon8th September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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