7th Dec 2005 07:02
Smith (DS) PLC07 December 2005 7 December 2005 DS Smith Plc - 2005/06 Interim Results DS Smith Plc (LSE:SMDS), the international packaging manufacturer and officeproducts wholesaler, announces its results for the six months to 31 October2005. FIRST HALF 2005/06 HIGHLIGHTS • Revenue: £821.6m (H1 2004/05: £800.1m)• Operating profit(1): £33.2m (H1 2004/05: £42.6m)• Profit before tax(1): £30.5m (H1 2004/05: £37.4m)• Earnings per share(1): 5.5p (H1 2004/05: 7.3p)• Cash inflow before dividends and acquisitions: £23.2m (H1 2004/05: inflow of £26.5m)• Gearing: 52.2% (end of 2004/05: 50.2%)• Interim dividend unchanged at 2.6p• Results after exceptional items: profit before tax £28.6m (H1 2004/05: £37.4m); earnings per share 4.8p (H1 2004/05: 7.3p) (1) before exceptional item - loss of £1.9m on the sale of the Office Products Manufacturing operations Commenting on the half year results, Chairman, Antony Hichens said: "The trading environment was particularly tough during the first half of thefinancial year but many of our operations performed well. We made furtherprogress in strengthening the Group. In our enlarged UK Paper and CorrugatedPackaging business, we are achieving the expected synergy benefits and animproved product mix in Paper. We expanded further our Corrugated Packagingoperations in eastern Europe. Spicers continued its development in continentalEurope and acquired the leading office products wholesaler in Benelux. We soldthe unprofitable Office Products Manufacturing business. The benefits of thesestrategic moves are significant but in the half year were more than offset bythe effects of price erosion, considerably higher energy costs and unrecoveredpolymer cost increases. "Trading conditions are expected to continue to be challenging during the secondhalf of the year. We are achieving price increases within our packagingbusinesses but it is too early to be certain of the impact on our overallresults. In the light of the sustained difficult market conditions, we areintensifying our efforts to reduce costs. Although energy costs remain anuncertainty, the outlook for the Group for 2005/06 as a whole remains unchangedfrom that stated in our October trading update." Enquiries DS Smith Plc 020 7932 5000Tony Thorne, Group Chief ExecutiveGavin Morris, Group Finance DirectorPeter Aubusson, Group Communications Manager Financial Dynamics 020 7269 7291Richard Mountain/Robert Gurner Adoption of International Financial Reporting Standards (IFRS) DS Smith, along with all EU listed companies, is now required to produce itsresults under IFRS. In October 2005, DS Smith published IFRS informationrelating to its consolidated balance sheet at 1 May 2004, its half-year resultsto 31 October 2004 and the full year results to 30 April 2005. Details of theseresults, together with reconciliations between previously published UK GAAPreported results and those reported under IFRS, are available on theDS Smith website www.dssmith.uk.com. All references in this statement and in the attached financial statementsreflect results prepared on the basis of IFRS. OVERVIEW Group revenue for the half year to 31 October 2005 increased to £821.6 million(H1 2004/05: £800.1 million) and operating profit before exceptional items was£33.2 million (H1 2004/05: £42.6million). Group operating margin beforeexceptional items was 4.0% (H1 2004/05: 5.3%) while return on average capitalemployed for the six months was 7.1% (H1 2004/05: 9.1%). Profit before tax and exceptional items was £30.5 million (H1 2004/05: £37.4million) and earnings per share before exceptional items were 5.5 pence (H1 2004/05: 7.3 pence). A cash inflow before dividends and acquisitions of £23.2 million (H1 2004/05:inflow of £26.5 million) enabled the Group to maintain a healthy balance sheet.Net borrowings were £270.7 million at the end of first half 2005/06 (end of 2004/05: £260.7 million) resulting in gearing of 52.2% (end of 2004/05: 50.2%). The primary factors which impacted the business in the first half of 2005/06were the fall in paper and corrugated packaging prices, the continued rise inenergy costs and higher polymer costs. Many of our operations are performingwell and we are achieving the expected synergies in our enlarged UK CorrugatedPackaging business. However, the difficult trading environment and higher costshave resulted in a marked deterioration in the results of a number of businesseswithin the Group; we have these businesses under close scrutiny. Over recentyears we have successfully implemented a determined cost reduction programme,particularly in our more mature businesses. In the light of the sustaineddifficult trading conditions, we are intensifying these efforts, targetingfurther cost reduction as part of our drive to improve returns. The Group's total costs for energy increased from circa £34 million in the firsthalf of 2004/05 to circa £41 million in the first half of 2005/06 principallydue to the extraordinary rise in the UK average market price of gas, which wehad partially hedged. The Group's previous fixed price UK electricity contractended in October 2005 and a new contract, including flexible hedgingarrangements, is now in place. In our AGM trading update in September 2005, westated that we expected our energy and fuel costs for the full year 2005/06 toincrease by approximately £18 million from the £73 million incurred in 2004/05.Following the recent further sharp rise in energy prices we anticipate that thisincrease will now be in the range of £20-23 million but we expect to be able tomitigate most of this recent further increase. However, the outcome for theyear will be dependent upon the degree to which the current high energy pricesare sustained through the winter months. INTERIM DIVIDEND The Board announces an interim dividend of 2.6 pence per share, which isunchanged from the previous year's interim dividend. It will be paid on 7 March2006 to ordinary shareholders on the register at the close of business on 3February 2006. OPERATING REVIEW UK Paper and Corrugated Packaging Half year ended Half year ended 31 31 October 2005 October 2004 Revenue £331.1m £312.7mOperating profit £14.4m £19.8mOperating margin 4.3% 6.3%Return on average capital employed 5.5% 7.5% The recent actions we have taken to develop our integrated UK Paper andCorrugated Packaging segment have strengthened the Group. We are achieving theexpected synergies from our enlarged UK Corrugated Packaging business; thesebenefited the result in the first half by some £7 million and we are confidentof achieving the anticipated £14.5 million annual run-rate as we enter the nextfinancial year. However, this benefit in the first half was more than offset bylower selling prices and higher energy costs. The UK market for corrugated packaging in 2005 has been weak, principally due tothe slowdown in retail sales. In the first nine months of calendar year 2005,demand in the UK was 2.9% down by weight on the same period in 2004*. Prices ofcorrugated case material (CCM) throughout Europe fell as a result of patchydemand and excess CCM capacity. Paper producers' margins have been furthersqueezed by substantial increases in energy costs and the relatively high costof recovered paper, our principal raw material. The lower CCM prices and slackdemand resulted in a fall in corrugated box prices. In both CCM and boxproduction, a number of companies have recently announced restructuring andcapacity reduction plans to address the effects of the poor market conditions. In our Paper business, the effects on results of the adverse trading environmentand higher energy costs were partly mitigated by the recent strategic moves wehave made within the Group. The enlargement of our corrugated packagingoperations through our recent major acquisition enabled us to maintain highlevels of capacity utilisation, and allowed us to increase the proportion ofboth our UK CCM sales, which have better margins than export sales, and thosepaper grades that we produce most efficiently. As a result of our strategicsupply agreement with BPB Plc we have grown our sales of higher added-valueplasterboard liner to an annual run-rate of over 140,000 tonnes and consequentlyreduced the proportion of CCM within our total paper sales mix. Our Corrugated Packaging operations benefited from the synergies arising fromthe enlarged business but results were adversely affected by the lower overallmarket demand, price pressure and increased energy costs. The tradingenvironment has been tough and we have had some disruption as a result of theclosure of two large facilities and the subsequent transfer of production toother plants. Nevertheless, we remain confident that our market-leadingposition is capable of generating good overall returns. Towards the end of the half year, CCM prices were increased in continentalEurope and, subsequently, we have raised our prices in the UK with a view torecovering some of the cost increases. We also raised corrugated box pricesduring November. As yet, it is uncertain as to the effect these price moveswill have on our results in the second half of the financial year and much willdepend upon market demand during the coming months. * Source: Federation of European Corrugated Board Manufacturers Continental European Corrugated Packaging Half year ended Half year ended 31 31 October 2005 October 2004 Revenue £135.3m £131.5mOperating profit £9.9m £9.9mOperating margin 7.3% 7.5%Return on average capital employed 12.5% 13.9% Our Continental European Corrugated Packaging operations, which are principallylocated in France, Italy, Poland and Turkey, performed solidly. During the first nine months of 2005, the market for corrugated packaging inEurope as a whole grew by 0.9% by weight. Demand in our main continentalwestern European markets of France and Italy grew by 0.1% and 1.2%,respectively, while growth in central and eastern Europe was stronger with ourprincipal markets of Poland and Turkey advancing by 10.2% and 5.4%, respectively*. In France and Italy, prices fell substantially, reflecting intensecompetition, but the impact of the lower prices was to a large extent offset bythe lower cost of the raw material, CCM, and our development of value-addedproducts. Sales continued to advance strongly at our Polish business; its newfactory at Kutno, west of Warsaw, commenced production in November. Our Turkishbusiness, which moved into profit in 2004/05, made further progress indeveloping its customer base for higher added value products. Our associatebusiness in the Ukraine continues to perform well and we are supporting it inits expansion into plasterboard liner. The French solid board paper businessbenefited from recent investment which enabled it to increase sales and it isperforming well in the context of challenging market conditions. The recent rise in CCM prices is resulting in a squeeze on margins in thissegment. We will be looking to raise box prices to recover our higher inputcosts and the extent to which these price increases are achieved will affectthis segment's results in the second half of the financial year. We remainalert to good development opportunities consistent with our strategy to expandfurther our Continental European Corrugated Packaging operations. * Source: Federation of European Corrugated Board Manufacturers Plastic Packaging Half year ended Half year ended 31 October 2005 31 October 2004 Revenue £101.7m £99.9mOperating profit £2.0m £6.2mOperating margin 2.0% 6.2%Return on average capital employed 3.0% 8.9% Plastic Packaging had a very tough first half in both of its principal marketsectors, although both sectors remained profitable. In returnable transitpackaging, results were significantly lower owing to reduced crate sales volumesand under-recovery of higher polymer costs, while in liquid packaging anddispensing there was significant price erosion. The three small specialitybusinesses showed an improvement and were in profit in aggregate. Within returnable transit packaging, the previously highlighted slowdown insales and the squeeze on margins from high polymer costs, continued in the firsthalf of 2005/06. Our forward order book in this sector has recentlystrengthened. In liquid packaging and dispensing, our USA operations performed satisfactorilyon the back of good product development and we continued to enjoy stronger salesin dispensing products. In contrast, we faced increased competition in Europe,particularly in higher margin products, and profits were well down on the prioryear. We have introduced new products and taken action to reduce costs; thefirst half result included the costs of restructuring. Against the background of further rises in polymer costs during the autumn, wehave increased prices but to date this has been insufficient to restore ourmargins to acceptable levels. Our primary goal in this division is to rebuild profitability. In addition toraising prices, we are taking action to strengthen substantially our sales andproduct development capability and to increase productivity. Office Products Wholesaling Half year ended Half year ended 31 October 2005 31 October 2004 Revenue £248.1m £240.0mOperating profit £6.9m £6.9mOperating margin 2.8% 2.9%Return on average capital employed 11.2% 12.1% Operating profit in the Spicers Office Products Wholesaling business was steadywith a lower result in the UK being offset by progress in Continental Europe. Sales advanced in the UK, but continuing price erosion across the product rangeand a larger-than-expected proportion of lower margin electronic office suppliesresulted in reduced profits. Action has been taken to improve the sales mix andto lower costs. The French business performed well and further increased itsmarket share. The development business in Germany was in profit while that inSpain made further good progress and the Italian business continued itsencouraging build-up of sales in its first year of trading. On 1 October, weacquired Timmermans NV, the largest office products wholesaler in the Beneluxregion, which further extended Spicers' sales coverage in continental Europe. In the light of the trading difficulties in the UK, and as outlined in ourOctober trading update, it will be challenging for Spicers to exceed last year'sresult for the full year. The Office Products Manufacturing business, John Dickinson, was sold to GroupeHamelin in July 2005. OUTLOOK Trading conditions are expected to continue to be challenging during the secondhalf of the year. We are achieving price increases within our packagingbusinesses but it is too early to be certain of the impact on our overallresults. In the light of the sustained difficult market conditions, we areintensifying our efforts to reduce costs. Although energy costs remain anuncertainty, the outlook for the Group for 2005/06 as a whole remains unchangedfrom that stated in our October trading update. Group Income Statement (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Note £m £m £m Revenue 3 821.6 800.1 1,624.9 Group operating profitBefore exceptional items 3 33.2 42.6 82.6Exceptional operating items:- Loss on sale of office products manufacturing (1.9) - -operations- Costs of restructuring acquired business - - (4.9)- Impairment of goodwill - - (5.8) Operating profit 31.3 42.6 71.9 Net interest expense (5.8) (6.8) (13.2)Employment benefit finance income 0.9 0.5 1.1 Net finance expense (4.9) (6.3) (12.1) Profit after financing costs 26.4 36.3 59.8 Share of profit of associates (after tax) 2.2 1.1 3.4Exceptional item: - reversal of previousimpairment of associate - - 1.1 Profit before income tax 28.6 37.4 64.3 Income tax on:Profit before exceptional items 4 (8.8) (9.1) (17.6)Exceptional items (1.0) - 1.4Income tax expense (9.8) (9.1) (16.2) Profit for the financial period 18.8 28.3 48.1 Profit for the financial period attributable to: Equity holders of the parent 18.4 28.1 47.1 Minority interest 0.4 0.2 1.0 18.8 28.3 48.1 Earnings per share: 5Basic 4.8p 7.3p 12.2pDiluted 4.7p 7.2p 12.1p Interim Interim TotalProposed dividends per share 6 2.6p 2.6p 8.4p Group Statement of Recognised Income and Expense (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Note £m £m £mActuarial (losses) on defined benefit pensionschemes - - (31.2)Movements on deferred tax relating to theactuarial losses - - 9.5Currency translation differences arising in 4.5 3.5 (0.3)periodChanges in fair value of cash flow hedges, net (1.3) - -of taxEffect of adoption of IAS 32 and IAS 39 from 1 2 (1.5) - -May 2005 Net income/(expense) recognised directly in equity 1.7 3.5 (22.0)Profit for the financial period 18.8 28.3 48.1 Total recognised income and expense relating to thefinancial period 20.5 31.8 26.1 Attributable to: Equity holders of the parent 20.1 31.6 25.1 Minority interest 0.4 0.2 1.0 20.5 31.8 26.1 Group Balance Sheet (unaudited) As at As at As at 31 October 2005 31 October 30 April 2004 2005 Note £m £m £mASSETSNon-current assetsProperty, plant and equipment 558.7 563.5 559.3Intangible assets 196.7 196.8 190.9Investments in associates 27.4 22.0 22.1Other investments 9.6 10.3 10.1Deferred tax assets 38.5 24.2 35.6Other receivables 3.5 3.4 1.0Derivative financial instruments 0.9 - - Total non-current assets 835.3 820.2 819.0 Current assetsInventories 156.5 156.1 161.7Other investments 18.7 21.3 28.4Income tax receivable - 1.0 1.0Trade and other receivables 361.1 361.9 358.4Cash and cash equivalents 35.7 42.3 30.4Derivative financial instruments 1.1 - - Total current assets 573.1 582.6 579.9 Total assets 1,408.4 1,402.8 1,398.9 LIABILITIESNon-current liabilitiesInterest-bearing loans and borrowings (297.1) (320.2) (294.1)Employee benefits (before associated deferred (108.2) (83.2) (114.8)tax asset)Other creditors (1.9) (1.9) (2.4)Provisions (9.2) (6.2) (7.2)Deferred tax liabilities (82.8) (73.9) (78.7)Derivative financial instruments (13.8) - -Total non-current liabilities (513.0) (485.4) (497.2) Current liabilitiesBank overdrafts (11.0) (19.5) (17.6)Interest-bearing loans and borrowings (3.9) (11.7) (7.8)Trade and other payables (338.6) (326.0) (335.5)Income tax liabilities (22.3) (25.3) (18.7)Provisions (0.2) (5.0) (2.3)Derivative financial instruments (0.7) - -Total current liabilities (376.7) (387.5) (381.9)Total liabilities (889.7) (872.9) (879.1)NET ASSETS 518.7 529.9 519.8 EQUITYIssued capital 38.9 38.7 38.9Share premium 257.3 254.7 257.0Other reserves 7.5 12.0 7.7Retained earnings 206.2 216.6 207.9 Total equity attributable to equity holders of 9 the parent 509.9 522.0 511.5Minority interests 8.8 7.9 8.3 TOTAL EQUITY 518.7 529.9 519.8 Gearing:Net debt expressed as a percentage of totalequity 2,10 52.2% 54.3% 50.2% Group Cash Flow Statement (unaudited) Half year to 31 Half year to Year to October 2005 31 October 30 April 2004 2005 Note £m £m £mOperating ActivitiesCash generated from operations 7 69.9 70.2 139.7Interest paid (6.0) (6.5) (13.3)Income tax paid (8.9) (13.0) (23.7) Net cash from operating activities 55.0 50.7 102.7 Investing ActivitiesNet (acquisitions)/disposals of subsidiaries (5.5) (10.5) (11.7)Purchases of property, plant and equipment (35.3) (25.1) (53.6)Proceeds from sale of non-current assets 3.5 0.9 6.7 Cash flows from investing activities (37.3) (34.7) (58.6) Financing ActivitiesProceeds from issue of share capital 0.3 0.1 2.6Purchase of own shares - (2.3) (2.1)Increase in borrowings 5.6 19.2 -Repayment of borrowings - - (3.7)Payments under finance leases (0.9) (0.5) (0.9)Dividends paid (22.4) (21.6) (31.6) Cash flows from financing activities (17.4) (5.1) (35.7) Net increase in cash and cash equivalents 0.3 10.9 8.4Cash and cash equivalent at 1 May 41.2 31.1 31.1Acquired with subsidiary undertaking 0.8 - -Exchange gains on cash and cash equivalents 1.1 2.3 1.7 Closing cash and cash equivalents 43.4 44.3 41.2 Notes to the Accounts 1 Basis of preparation This interim financial information, which was approved by the Board of Directorson 6th December 2005, does not constitute statutory accounts within the meaningof section 240 of the Companies Act 1985. The financial information presentedin this document is unaudited. Financial information for the year ended 30 April 2005 and for the six monthsended 31 October 2004, presented as comparative figures in this report, has beenrestated from UK GAAP in accordance with the Group's best knowledge of expectedInternational Financial Reporting Standards ('IFRSs') (including InternationalAccounting Standards ('IASs') and interpretations issued by the InternationalAccounting Standards Board ('IASB') and its committees). These are subject toongoing amendment by the IASB and subsequent endorsement by the EuropeanCommission and are therefore subject to possible change. Further changes maytherefore be required to this information before it is published as comparativeinformation in the Company's 2006 Annual Report and Accounts. A comprehensive analysis and explanation of the adjustments made by the Companyto its comparative consolidated financial statements on transition to IFRS fromUK GAAP, as disclosed in the Company's statutory Annual Report and Accounts for2005, was first published in an announcement made on 13 October 2005. A copy ofthis announcement can be found on the Company's website www.dssmith.uk.com/invest-report.asp and is obtainable from the Group Company Secretary at theCompany's registered address. The IFRS information for the year ended 30 April 2005 was derived by restatementof information extracted from the statutory financial statements prepared underUK GAAP. Those statutory financial statements were filed with the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain statements under section 237(2) or 237(3) of the UK Companies Act 1985.The restated IFRS financial information provided for the year ended 30 April2005 does not constitute statutory accounts within the meaning of section 240 ofthe Companies Act 1985. However, they are anticipated to form the comparativeperiod for the statutory accounts for the year ending 30 April 2006, the Group'sfirst Annual Report and Accounts to be prepared in accordance with IFRS. The significant changes to accounting policies used in preparing thisinformation that resulted from the adoption of IFRS are set out in note 2. As allowed by IFRS 1, 'First-time Adoption of IFRSs', the Group adopted IAS 32,'Financial Instruments: Disclosure and Presentation' and IAS 39, 'FinancialInstruments: Recognition and Measurement', prospectively from 1 May 2005. As aresult, the comparative financial statements exclude the effect of the adoptionof these standards. Summary details of the effect of adopting these standardsas at 1 May 2005 are included in the announcement on 13 October 2005 and arefurther shown in note 2 to these accounts. 2 Accounting policies: changes resulting from the adoption of IFRS The most significant changes for the Group in its financial statements for 2005/06 following the adoption of IFRS are: • changes in presentation and disclosure (IAS 1); • a change to the segments presented for segmental reporting (IAS 14); • the ending of goodwill amortisation (IFRS 3); • the recognition of an expense for share-based payments (IFRS 2); • the statement of the Group's share of the associates' results after interest and tax (IAS 1); • the recognition of additional deferred tax liabilities on historical temporary differences, with a consequent effect in the income statement as any deferred tax raised will reverse when the underlying book to tax temporary differences are amortised (IAS 12); • the recognition of dividends only after they have been declared (IAS 10); and • the recognition of the fair values of derivative financial instruments (IAS 39) - see also below. Items are presented as 'exceptional' in the accounts where they are significantitems of financial performance that the directors consider should be separatelydisclosed, to assist in the understanding of the underlying trading andfinancial results achieved by the Group. The Group adopted IAS 32, 'Financial Instruments: Disclosure and Presentation',and IAS 39, 'Financial Instruments: Recognition and Measurement', from 1 May2005. The effect of the adoption of IAS 39 on the Group's borrowings andshareholders' equity is shown in the table below: 1 May 2005: Effect of adoption 1 May 2005: (before IAS 39 of IAS 39 (after IAS 39 adjustments) adjustments) £m £m £m Cash and cash equivalents 58.8 - 58.8Overdrafts (17.6) - (17.6) Net cash 41.2 - 41.2Interest-bearing loans and borrowings due after one year (292.1) 16.2 (275.9)Interest-bearing loans and borrowings due within one year (6.9) - (6.9)Finance leases (2.9) - (2.9)Derivative financial instruments - assets - 2.1 2.1 - liabilities - (20.4) (20.4) Total net debt (260.7) (2.1) (262.8) Other assets and liabilities* - 0.6 0.6 Net assets 519.8 (1.5) 518.3 Gearing (total net debt as a percentage ofnet assets) 50.2% 50.7% * The effect of the adoption of IAS 39 on other assets and liabilities in thetable above relates to deferred tax on derivative financial instruments' fairvalue and on changes in the fair value of borrowings. The effect of the adoption of IAS 39 on net debt was an increase as at 1 May2005 of £(2.1)m, on previous total net debt of £(260.7)m to result in net debtof £(262.8)m. This compares with the previous UK GAAP measure of £(260.4)m.The adoption of IAS 39 resulted in an increase in gearing of 0.5 percentagepoints to 50.7%; this compares with the previous UK GAAP measure of 53.1%, thedecrease being largely the result of the higher level of net assets under IFRS. 3 Analysis of Group revenue, operating profit and capital employed (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 £m £m £mRevenueUK Paper and Corrugated Packaging 331.1 312.7 631.2Continental European Corrugated Packaging 135.3 131.5 265.7Plastic Packaging 101.7 99.9 195.9Office Products Wholesaling 248.1 240.0 499.7Other 5.4 16.0 32.4 Group Total 821.6 800.1 1,624.9 By origin: United Kingdom 495.8 482.5 970.7 Rest of World 325.8 317.6 654.2 Group Total 821.6 800.1 1,624.9 3 Analysis of Group revenue, operating profit and capital employed (unaudited) (continued) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 £m £m £m Operating profit before exceptional items(see a) below)UK Paper and Corrugated Packaging 14.4 19.8 31.6Continental European Corrugated Packaging 9.9 9.9 20.2Plastic Packaging 2.0 6.2 9.3Office Products Wholesaling 6.9 6.9 21.5Other - (0.2) - Group Total 33.2 42.6 82.6 By origin: United Kingdom 18.2 27.5 45.5 Rest of World 15.0 15.1 37.1 Group Total 33.2 42.6 82.6 Capital employed (see b) below) UK Paper and Corrugated Packaging 498.6 520.7 508.3Continental European Corrugated Packaging 156.0 143.7 149.6Plastic Packaging 131.1 141.6 132.2Office Products Wholesaling 134.8 119.9 126.2Other - 13.3 12.6 Group Total 920.5 939.2 928.9 By origin: United Kingdom 621.0 643.6 631.5 Rest of World 299.5 295.6 297.4 Group Total 920.5 939.2 928.9 Return on sales UK Paper and Corrugated Packaging 4.3% 6.3% 5.0%Continental European Corrugated Packaging 7.3% 7.5% 7.6%Plastic Packaging 2.0% 6.2% 4.7%Office Products Wholesaling 2.8% 2.9% 4.3%Other - (1.3)% - Group Total 4.0% 5.3% 5.1% By origin: United Kingdom 3.7% 5.7% 4.7% Rest of World 4.6% 4.8% 5.7% Group Total 4.0% 5.3% 5.1% 3 Analysis of Group revenue, operating profit and capital employed (unaudited) (continued) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Return on average capital employed (see c) below)UK Paper and Corrugated Packaging 5.5% 7.5% 6.0%Continental European Corrugated Packaging 12.5% 13.9% 13.7%Plastic Packaging 3.0% 8.9% 6.6%Office Products Wholesaling 11.2% 12.1% 18.1%Other - (2.8)% - Group Total 7.1% 9.1% 8.7% By origin: United Kingdom 5.7% 8.6% 7.0% Rest of World 10.0% 10.1% 12.3% Group Total 7.1% 9.1% 8.7% a) Operating profit is stated before exceptional items. The exceptional itemswere: in the six months to 31 October 2005, a loss on the disposal of the officeproducts manufacturing business (£1.9m); in the year to 30 April 2005,restructuring expenses in the UK Paper and Corrugated Packaging segment (£4.9m)and the impairment of goodwill in a business in the Plastic Packaging segment(£5.8m). There were no exceptional items in the six months to 31 October 2004. b) Capital employed excludes net debt (see note 8), non-current investments,income tax balances, deferred tax balances and employee benefit liabilities. c) Return on average capital employed for the half year is calculated as twicethe operating profit before exceptional items divided by the average capitalemployed in the reporting period. 4 Taxation Tax on profits has been charged at an effective rate, before exceptional itemsand share of profits of associates, of 31.1% (half year to 31 October 2004:25.1%; year to 30 April 2005: 25.0%), being the expected full-year effectiverate. The effective tax rate after exceptional items and the share of profitsof associates was 34.3% (half year to 31 October 2004: 24.3%; year to 30 April2005: 25.2%). The tax charge on profit before exceptional items and share of profits ofassociates for the period of £8.8m (half year to 31 October 2004: £9.1m; year to30 April 2005: £17.6m) consists of UK taxation of £3.1m (half year to 31 October2004: £5.7m; year to 30 April 2005: £11.1m) and overseas taxation of £5.7m (halfyear to 31 October 2004: £3.4m; year to 30 April 2005: £6.5m). 5 Earnings per share The basic earnings per share have been calculated on the profit for the periodattributable to equity holders of the parent company of £18.4m (half year to 31October 2004: £28.1m; year to 30 April 2005: £47.1m) and on 386.7m (half year to31 October 2004: 385.2m; year to 30 April 2005: 385.3m) ordinary shares, beingthe weighted average in issue and fully paid during the period. Diluted earnings per share are calculated assuming conversion of potentiallydilutive shares issued under share option schemes and the Restricted Share Plan. These adjustments give rise to an increase in the weighted average of ordinaryshares to 388.0m (half year to 31 October 2004: 388.2m; year to 30 April 2005:387.3m). 6 Dividends The following dividends were paid by the Group: £m September 2004 Final dividend for the 2003/04 year of 5.6 pence per share 21.6March 2005 Interim dividend for the 2004/05 year of 2.6 pence per share 9.9September 2005 Final dividend for the 2004/05 year of 5.8 pence per share 22.4 The directors have announced an interim dividend for the 2005/06 year of 2.6pence per share, totalling £10.1m. 7 Reconciliation of profit for the period to cash generated from operations (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 £m £m £m Profit for the period 18.8 28.3 48.1Exceptional items - non-cash amounts 1.9 - 7.1Depreciation and amortisation 33.4 34.4 68.6Profit on sale of non-current assets (1.6) (0.2) (1.8)Equity settled share-based payment expenses 0.4 0.4 1.1Share of profit of associates (after tax) (2.2) (1.1) (3.4)Other finance income (0.9) (0.5) (1.1)Net interest expense 5.8 6.8 13.2Income tax expense 9.8 9.1 16.2Changes in working capital 8.8 (4.2) (6.9)Other non-cash operating items - changes in pensions (2.6) (1.8) 1.9 - changes in provisions (1.7) (1.0) (3.3)Cash generated from operations 69.9 70.2 139.7 8 Analysis of net debt (unaudited) Net debt analysed in the table below comprises the book amount of cash, otherinvestments in current assets (which are treated as cash equivalents),overdrafts, interest-bearing loans and borrowings together with the fair valueof derivative financial instruments that hedge the Group's borrowings. At 1 May Cash flow Acquisition Other At 31 2005* and disposals non-cash October 2005 £m £m £m £m £m Cash and cash equivalents 58.8 (6.4) 0.8 1.2 54.4Overdrafts (17.6) 6.7 - (0.1) (11.0) Net cash and cash equivalents 41.2 0.3 0.8 1.1 43.4 Interest -bearing loans and borrowings due after one year (275.9) (10.8) (0.6) (7.8) (295.1)Interest -bearing loans andborrowings due within one year (6.9) 5.2 (1.9) - (3.6)Finance leases (2.9) 0.9 - (0.3) (2.3)Derivative financial instruments- assets 2.1 - - (1.4) 0.7- liabilities (20.4) - - 6.6 (13.8) (304.0) (4.7) (2.5) (2.9) (314.1) Total net debt (262.8) (4.4) (1.7) (1.8) (270.7) * after the adoption of IAS 39 - see note 2. Other non-cash movements in the period relate to the effect of movements inforeign exchange and interest rates on borrowings and related derivativefinancial instruments. Derivative financial instruments assets and liabilities relate to interest rateand cross currency swaps hedging the Group's borrowings. The difference betweenthe amounts shown above and the total derivative financial instrument assets andliabilities in the Group's balance sheet relates to derivative financialinstruments which hedge forecast foreign currency transactions and the Group'spurchases of energy. 9 Reconciliation of movements in shareholders' equity (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Note £m £m £mOpening shareholders' equity:As previously reported 511.5 494.4 494.4Adjustments on adoption of IFRS from 1 May 2004 - 19.2 19.2Adjustments on adoption of IAS 32 and IAS 39 from 1 2May 2005 (1.5) - - As restated 510.0 513.6 513.6 Profit for the financial period 18.4 28.1 47.1Dividends (22.4) (21.7) (31.6) Retained (loss)/profit for the financial period (4.0) 6.4 15.5Actuarial (losses) recognised in the pension - - (31.2)schemesMovement on deferred tax relating to the actuarial - - 9.5lossesCurrency translation differences in period 4.5 3.5 (0.3)Changes in fair value of cash flow hedges, net of (1.3) - -taxNew share capital issued 0.3 0.1 2.6Share-based payments 0.4 0.5 3.7Share trust arrangements - (2.1) (1.9) (Decrease)/increase in shareholders' equity (0.1) 8.4 (2.1) Closing shareholders' equity 509.9 522.0 511.5 10 Reconciliation of net cash flow to movement in net debt (unaudited) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Note £m £m £m Operating profit before exceptional items 33.2 42.6 82.6Depreciation and amortisation 33.4 34.4 68.6 EBITDA 66.6 77.0 151.2Working capital movement 8.8 (4.2) (6.9)Exceptional cash costs - - (2.5)Other (5.5) (2.6) (2.1) Cash generated from operations 7 69.9 70.2 139.7Capital expenditure payments (31.8) (24.2) (46.9)Taxation (8.9) (13.0) (23.7)Interest (6.0) (6.5) (13.3) Free cash flow before net (acquisitions)/disposals 23.2 26.5 55.8and dividendsDividends (22.4) (21.6) (31.6) Free cash flow before net (acquisitions)/disposals 0.8 4.9 24.2Net (acquisitions)/disposals of subsidiaries (5.5) (10.5) (11.7) Net cash flow (4.7) (5.6) 12.5 10 Reconciliation of net cash flow to movement in net debt (unaudited) (continued) Half year to Half year to Year to 31 October 2005 31 October 30 April 2004 2005 Note £m £m £m Net cash flow (4.7) (5.6) 12.5Proceeds from issue of share capital 0.3 0.1 2.6Net purchase of own shares - (2.3) (2.1)Net debt acquired/disposed of (1.7) - -Non-cash movements (1.8) (4.6) 1.7 Net debt movement (7.9) (12.4) 14.7Opening net debt (262.8) (275.4) (275.4) Closing net debt 8 (270.7) (287.8) (260.7) -------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Smith (DS)