6th Dec 2006 07:02
Smith (DS) PLC06 December 2006 6 December 2006 DS Smith Plc - 2006/07 Interim Results DS Smith Plc (LSE:SMDS), the international packaging manufacturer and officeproducts wholesaler, announces its results for the six months to 31 October2006. Financial Summary H1 2006/07 H1 2005/06Revenue £868.5m £821.6mAdjusted operating profit(1) £30.4m £33.2mOperating profit £40.4m £31.3mAdjusted profit before tax(1) £29.0m £30.5mProfit before tax £39.0m £28.6mAdjusted earnings per share(1) 5.1p 5.5pBasic earnings per share 8.5p 4.8pFree cash flow before dividends, acquisitions and disposals(2) £18.5m £23.2mGearing 44.0% 52.2%Interim dividend per share 2.6p 2.6p (1) before an exceptional profit of £10.0m (H1 2005/06: exceptional charge of £1.9m) (2) including the £30.3m of proceeds from the sale of the Taplow site Operational Highlights • Paper and Corrugated Packaging: - Adjusted operating profit lower due to higher input costs, particularly energy - Corrugated case material (CCM) prices up; box prices increasing - UK businesses benefited from previous restructuring and cost reduction - Sale of the Taplow site and restructuring in UK Paper and Corrugated Packaging resulted in a £10.0m exceptional profit and a £27.4m net free cash flow benefit • Plastic Packaging: better sales mix and underlying growth • Office Products Wholesaling (Spicers): - UK: operating profit sharply lower; turnaround programme under way - Continental Europe: continued encouraging performance Commenting on the half-year results, Chairman, Antony Hichens said: "The Group's result in the first half of 2006/07 was, as anticipated, affectedby increases in input costs in Packaging and by lower profits in our UK OfficeProducts Wholesaling business. The impact of these factors was partly mitigatedby our drive to pass on the increased input costs through raising selling pricesand the benefits of the strategic actions we have taken to exit unprofitableoperations and reduce costs. "The outlook for the Group for the second half of the financial year remainsunchanged. The turnaround programme at Spicers UK is under way and we expectsome initial benefits in the second half of the year with more coming through in2007/08. In Paper and Corrugated Packaging, although input costs continue to behigh, better pricing should result in an improving trend." Enquiries DS Smith Plc 020 7932 5000Tony Thorne, Group Chief ExecutiveGavin Morris, Group Finance DirectorPeter Aubusson, Group Communications Manager Financial Dynamics 020 7269 7221Richard Mountain/Susanne Walker A briefing for analysts and investors will take place today at 9.30am atFinancial Dynamics, Holborn Gate, 28 Southampton Buildings, London WC2A 1PB.The presentation slides from this briefing will be posted on the Group's website(www.dssmith.uk.com) at 9.30am and an audio recording of the briefing will beavailable on the website by approximately 1.00pm. OVERVIEW Group revenue for the half-year to 31 October 2006 increased to £868.5 million(H1 2005/06: £821.6 million) and adjusted operating profit (before exceptionalitems) was £30.4 million (H1 2005/06: £33.2million). Adjusted operating marginwas 3.5% (H1 2005/06: 4.0%) while adjusted return on average capital employedwas 6.7% (H1 2005/06: 7.1%). Our ongoing restructuring actions resulted in a net exceptional profit of £10.0million (H1 2005/06: an exceptional charge of £1.9 million). This comprisedexceptional costs of £10.5 million, relating to restructuring in UK Paper andCorrugated Packaging, which were more than offset by an exceptional profit of£20.5 million resulting from the sale of the Taplow paper mill site. Profit before tax and exceptional items was £29.0 million (H1 2005/06: £30.5million) and earnings per share before exceptional items were 5.1 pence (H1 2005/06: 5.5pence). Profit before tax after exceptional items was £39.0 million (H12005/06: £28.6 million) and earnings per share after exceptional items were 8.5pence (H1 2005/06: 4.8 pence). Cash flow, before dividends, acquisitions and disposals was £18.5 million (H12005/06: £23.2 million). The £30.3 million cash flow benefit from the disposalof the Taplow site was partially offset by greater working capital requirements.Net debt was £238.6 million at the end of first half 2006/07 (end of 2005/06:£237.8 million) resulting in gearing of 44.0% (end of 2005/06: 43.9%). 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 6 March2007 to ordinary shareholders on the register at the close of business on 2February 2007. GROUP INPUT COSTS The Group's operating profit in the first half of 2006/07 was affected by acirca £17 million increase in underlying energy, net waste paper and polymerinput costs, compared with the first half of 2005/06. Although market energyprices remain at high levels there has been some recent easing. In the secondhalf of the financial year any benefit from the present lower level of energymarket prices will be largely offset by the effects of lagged price increases inthe energy contracts for some of our operations. The net cost of waste paper,the principal raw material for our recycled CCM manufacturing operations, islikely to remain high due to continuing strong demand from Asia and a fall inthe value of paper Packaging Recovery Notes. OPERATING REVIEW UK Paper and Corrugated Packaging Half-year ended Half-year ended 31 31 October 2006 October 2005 Revenue £342.6m £331.1mAdjusted operating profit £13.5m £14.4mAdjusted operating margin 3.9% 4.3%Adjusted return on average capital employed 5.5% 5.5% The UK Paper and Corrugated Packaging segment, which is a net seller of paper,continued to be affected by rising input costs. Faced with an increase for thesegment of circa £12 million in the costs of energy and waste paper, wemitigated a large proportion of this through reducing operating costs, partly asa result of our previous restructuring actions, and, increasingly, throughraising selling prices. The UK market for corrugated packaging (boxes), by weight, in the first ninemonths of calendar year 2006 was flat compared with the same period of 2005.This represented an improvement on recent years but the UK continued to lag wellbehind the 4% growth rate of Europe as a whole*. Until late 2005, European over-capacity in CCM depressed selling prices andconstrained any recovery of the sharp increase in energy costs. Following somestrengthening of box demand and significant reductions in CCM capacity in theEuropean market, we have increased prices. At the end of the first half of 2006/07, CCM prices were circa 35% higher than at the end of the first half of 2005/06 and in the same period we have achieved a circa 10% average price increaseacross our corrugated products. These price increases are enabling us torecover a substantial proportion of the margin erosion we experienced during the2005 calendar year. In addition to benefiting from the improving pricing environment, this segment'sresults are being assisted by growing our market share in higher added-valuecorrugated products and maintaining good sales of speciality paper products.Our programme to develop sales of plasterboard liner continued with extensivecapital expenditure to upgrade existing machines at the Kemsley and WansbroughMills. Taplow Mill made losses in 2005/06 as a result of the difficult marketconditions and the substantial increases in energy costs. It was not consideredto be an economic proposition over the longer-term, even under a more benignexternal environment, and was closed at the end of October 2006. The Taplowsite was sold to a commercial property developer for a cash consideration of£30.3 million. The previously announced closure of the smaller of the two paper machines (PM1)at Wansbrough Mill, which was planned to take place at the end of June, wasreviewed following the closure in mid-June of another UK paper producer. Inview of the consequent favourable change in the market environment for envelopeand imitation kraft paper grades, products PM1 is highly suited to producing, itwas decided to continue operating PM1 to satisfy the increased demand for thesespeciality grades. Although input costs are likely to remain high, the segment's results in thesecond half of the year are expected to benefit from the higher pricing. Continental European Corrugated Packaging Half-year ended Half-year ended 31 31 October 2006 October 2005 Revenue £151.4m £135.3mOperating profit £8.6m £9.9mOperating margin 5.7% 7.3%Return on average capital employed 10.4% 12.5% Revenue in Continental European Corrugated Packaging advanced strongly,principally as a result of strong growth in sales volumes. This segment, whichis a net buyer of paper, was affected by the higher costs of CCM which it wasnot able fully to recover through increased box prices in the first half of theyear. During the first nine months of 2006, the market for corrugated packaging incontinental Europe grew by 5% by weight with growth in demand in continentalwestern Europe of 4% while that in central and eastern Europe was 8%*. Boxprice increases were slower to take effect on the continent as the impact ofenergy cost increases on the supply chain occurred later and with less severitythan in the UK. We achieved some modest box price increases in the spring of2006 and followed this up with a further price increase programme in all ourmarkets during the autumn of 2006. By the end of the first half of 2006/07, wehave achieved a circa 8% average increase in corrugated prices across the wholeof our continental European business compared with the end of the first half of2005/06. This still represents an under-recovery relative to the increase inour input costs. In France, our paper business maintained good growth, assisted by thedevelopment of speciality products. The French Corrugated Packaging operationsachieved good volume growth, but were unable to pass on the rise in CCM costs infull during the first half of the year. The Italian, Polish and Turkishbusinesses grew sales particularly strongly, which enabled them largely tooffset the effects of higher bought-in paper costs. Our associate business inthe Ukraine continued to perform well and is investing further to meet demandand to broaden its product range. The principal goal in this segment for the second half of the year is to raisebox prices further in order to recover more fully the increased CCM costs thatit will have incurred. * Source: Federation of European Corrugated Board Manufacturers Plastic Packaging Half-year ended Half-year ended 31 31 October 2006 October 2005 Revenue £103.7m £101.7mOperating profit £5.1m £2.0mOperating margin 4.9% 2.0%Return on average capital employed 8.2% 3.0% Plastic Packaging continued its improving profit trend with a significantadvance in operating profit compared with the difficult trading experienced inthe first half of 2005/06. Although there was a further £3 million increase inpolymer costs in the half-year, this was recovered through higher selling pricesand a better sales mix. The result also benefited from an 11% underlyingadvance in revenue, excluding BSK, which was sold in December 2005. Within returnable transit packaging, beverage crate sales were particularlystrong during the first quarter of the financial year due to the fulfilment of anumber of large contracts; sales slowed in the second quarter as these contractscame to an end - these are likely to remain at a lower level during the thirdquarter before picking up again later in the year. The extruded productbusinesses continued to benefit from our actions to strengthen the salesfunction and improve the sales mix. However, margins remain under pressure fromthe sustained high polymer costs which we have only partially recovered inhigher product prices over the last two years. The liquid packaging and dispensing sector benefited from a higher-margin salesmix, sales growth as a result of its strengthened product range, and improvedoperating performance following the restructuring undertaken during 2005/06. We will continue to push for further sales growth and mix improvement in thissegment, notwithstanding the project-related uneven nature of the demand forcertain of its products. Office Products Wholesaling Half-year ended Half-year ended 31 31 October 2006 October 2005 Revenue £270.8m £248.1m Operating profit £3.2m £6.9mOperating margin 1.2% 2.8%Return on average capital employed 4.9% 11.2% Spicers' revenue increased strongly, largely as a result of a full six months'contribution from Timmermans, the Benelux business acquired in October 2005.Operating profit was sharply lower due to the decline in the profitability ofthe UK business. Spicers' continental European businesses continued theirencouraging performance. Revenue in the UK increased slightly but profit was significantly affected bystronger competition and higher operating costs. A turnaround programme isunder way in Spicers UK, aimed at raising operating performance and rebuildingprofits; the UK management team has been strengthened and extensive action hasbeen taken to improve the sales mix on the back of raised service levels. Thereis an ongoing programme of cost reduction. We expect to see some initialbenefits from the turnaround programme in the second half of the financial yearand we are confident that our actions will lead to a re-building of profits asthe programme gathers momentum through next year. On the continent, the French business achieved good sales and profit progresswhile the Benelux business, acquired in 2005, continued to performsatisfactorily. The Spanish business exceeded its planned sales growth andopened its new distribution centre near to Madrid in October. Spicers Italy,which is now in its second year of development, continued to build salesrapidly. In the seasonally stronger second half of the year, we expect Spicers' resultsto reflect some initial benefits of the ongoing UK turnaround programme as wellas the continued development of the continental businesses. BOARD CHANGES As announced previously, Antony Hichens will retire from the Board at the end of2006 and Peter Johnson will become Chairman with effect from 1 January 2007.Also as previously announced, Jean-Paul Loison stepped down from the Board atthe end of September 2006 on his retirement. On 6 September 2006, PhilippeMellier was appointed as a non-Executive Director. Philippe, aged 51, iscurrently President of Alstom Transport and an Executive Vice-President ofAlstom Group. Previously he was Chairman and CEO of Renault Trucks and a Memberof the Executive Committee of AB Volvo. EXTERNAL AUDITOR Following a recent tender process, in accordance with good corporate governancepractice, the Board appointed Deloitte & Touche LLP as its external auditor witheffect from 20 October 2006. Accordingly, Deloitte & Touche will conduct theaudit of the Group's accounts for the financial year ending 30 April 2007 and aresolution to appoint Deloitte & Touche as the Group's auditor will be put toshareholders at the 2007 Annual General Meeting. OUTLOOK The outlook for the Group for the second half of the financial year remainsunchanged. The turnaround programme at Spicers UK is under way and we expectsome initial benefits in the second half of the year with more coming through in2007/08. In Paper and Corrugated Packaging, although input costs continue to behigh, better pricing should result in an improving trend. Consolidated Income Statement (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 Note £m £m £m Revenue 2 868.5 821.6 1,652.7 Operating profitBefore exceptional items 2 30.4 33.2 60.4Exceptional items 3 10.0 (1.9) (42.4)Operating profit 40.4 31.3 18.0 Finance income 2.3 1.1 2.3Finance costs (9.4) (6.9) (14.6)Employment benefit finance income 3.8 0.9 1.2Net financing costs (3.3) (4.9) (11.1) Profit after financing costs 37.1 26.4 6.9 Share of profit of associates 1.9 2.2 4.1 Profit before income taxBefore exceptional items 29.0 30.5 53.4Exceptional items 10.0 (1.9) (42.4) Profit before income tax 39.0 28.6 11.0 Income tax (expense)/creditOn profit before exceptional items (8.7) (8.8) (13.4)On exceptional items 3.2 (1.0) 7.7Income tax (expense) 4 (5.5) (9.8) (5.7) Profit for the financial period 33.5 18.8 5.3 Profit for the financial period attributable to:DS Smith Plc equity shareholders 33.0 18.4 4.2Minority interest 0.5 0.4 1.1 33.5 18.8 5.3 Earnings per share - pence: 5 Adjusted for exceptional items 5.1p 5.5p 10.0p Basic 8.5p 4.8p 1.1p Diluted 8.5p 4.7p 1.1p Interim Interim Total Proposed/actual dividends per share 6 2.6p 2.6p 8.4p Consolidated Statement of Recognised Income and Expense (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 £m £m £m Actuarial gains on defined benefit pension schemes - - 54.4Movements on deferred tax relating to the actuarial gains - - (16.5) Currency translation differences, after tax of £ (2.3)m (half-year to 31 October 2005: tax of£0.3m; year to 30 April 2006: tax of £1.8m) (10.8) 4.5 9.7Changes in the fair value of cash flow hedges, after tax of £0.2m (half-year to 31 October2005: tax of £0.5m; year to 30 April 2006: taxof £0.1m) (0.4) (1.3) 0.2Net (expense)/income recognised directly in equity (11.2) 3.2 47.8 Profit for the financial period 33.5 18.8 5.3Total recognised income and expense attributable to the equity shareholders and minority interestrelating to the financial period 22.3 22.0 53.1Changes in accounting policy - adoption of IAS 39, from 1 May 2005, after tax of £0.6m - (1.5) (1.5)Total recognised income and expense since the lastfinancial statements 22.3 20.5 51.6 Total recognised income and expense relating to thefinancial period attributable to: DS Smith Plc equity shareholders 21.8 20.1 50.5 Minority interest 0.5 0.4 1.1 Consolidated Balance Sheet (unaudited) Note As at As at As at 31 October 31 October 30 April 2006 2005 2006 £m £m £mAssetsNon-current assetsIntangible assets 194.3 196.7 195.4Property, plant and equipment 510.5 558.7 536.1Investments in associates 28.6 27.4 29.2Other investments 0.5 9.6 0.5Deferred tax assets 21.9 38.5 24.0Other receivables 1.4 3.5 2.5Derivative financial instruments 0.8 0.9 1.4Total non-current assets 758.0 835.3 789.1 Current assetsInventories 154.9 156.5 163.3Other investments 0.1 - 0.1Income tax receivable 4.8 - 4.8Trade and other receivables 376.8 361.1 347.2Cash and cash equivalents 51.2 54.4 60.4Derivative financial instruments 1.4 1.1 3.7Total current assets 589.2 573.1 579.5Total assets 1,347.2 1,408.4 1,368.6 LiabilitiesNon-current liabilitiesInterest-bearing loans and borrowings (252.0) (297.1) (264.9)Post-retirement benefits (42.8) (108.2) (50.3)Other creditors (2.9) (1.9) (3.6)Provisions (2.6) (9.2) (2.8)Deferred tax liabilities (76.5) (82.8) (76.3)Derivative financial instruments (23.1) (13.8) (25.0)Total non-current liabilities (399.9) (513.0) (422.9) Current liabilitiesBank overdrafts (10.0) (11.0) (1.5)Interest-bearing loans and borrowings (6.0) (3.9) (7.7)Trade and other payables (356.7) (338.6) (355.3)Income tax liabilities (19.7) (22.3) (21.0)Provisions (13.0) (0.2) (16.7)Derivative financial instruments (0.2) (0.7) (2.0)Total current liabilities (405.6) (376.7) (404.2)Total liabilities (805.5) (889.7) (827.1)Net assets 541.7 518.7 541.5 EquityIssued capital 39.1 38.9 39.1Share premium 259.4 257.3 259.4Reserves 233.3 213.7 233.6DS Smith Plc shareholders' equity 9 531.8 509.9 532.1Minority interest 9.9 8.8 9.4Total equity 541.7 518.7 541.5 Gearing: Net debt expressed as a percentage of totalequity 44.0% 52.2% 43.9% Consolidated Cash Flow Statement (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 Note £m £m £mOperating Activities Cash generated from operations 7 26.8 69.9 138.2 Interest received 0.2 0.4 0.8Interest paid (6.9) (6.4) (12.8)Income tax paid (6.3) (8.9) (13.5)Net cash from operating activities 13.8 55.0 112.7 Investing ActivitiesAcquisition of subsidiary businesses, net of cash and cash equivalents acquired - (10.3) (10.5)Divestment of subsidiary businesses, net of cash and cash equivalents disposed of 1.4 5.6 11.0Capital expenditure (31.2) (35.3) (62.7)Proceeds from the sale of assets 35.9 1.9 9.7Proceeds from the sale of associate and other non-current investments - 1.6 3.5Cash flows from investing activities 6.1 (36.5) (49.0) Financing ActivitiesProceeds from issue of share capital - 0.3 2.6(Repayment of)/increase in borrowings (10.9) 5.6 (17.2)(Repayment of) finance lease obligations (2.1) (0.9) (0.9)Dividends paid (22.5) (22.4) (32.6)Cash flows from financing activities (35.5) (17.4) (48.1) Net (decrease)/ increase in cash and cash equivalents (15.6) 1.1 15.6 Cash and cash equivalents at 1 May 58.9 41.2 41.2 Exchange (losses)/gains on cash and cash equivalents (2.1) 1.1 2.1 Closing cash and cash equivalents 41.2 43.4 58.9 Notes to the Accounts 1 Basis of preparation This interim financial information, which was approved by the Board of Directorson 5 December 2006, does not constitute statutory accounts within the meaning ofsection 240 of the Companies Act 1985. The financial information presented inthis document is unaudited. The interim financial information has been preparedusing the same accounting policies as those adopted in the financial statementsfor the year-ended 30 April 2006. Those accounts were reported on by theCompany's auditors and delivered to the Registrar of Companies. The report ofthe auditors was unqualified and did not contain an adverse statement undersection 237 (2) or (3) of the Companies Act 1985. 2 Analysis of Group revenue, operating profit and capital employed (unaudited) Half-year ended Half-year ended Year ended 31 October 31 October 30 April 2006 2005 2006 £m £m £mRevenue UK Paper and Corrugated Packaging 342.6 331.1 649.6Continental European Corrugated Packaging 151.4 135.3 276.6Plastic Packaging 103.7 101.7 202.4Office Products Wholesaling 270.8 248.1 518.7Other - 5.4 5.4Group total 868.5 821.6 1,652.7 Adjusted operating profit (1) UK Paper and Corrugated Packaging 13.5 14.4 20.5Continental European Corrugated Packaging 8.6 9.9 20.1Plastic Packaging 5.1 2.0 7.2Office Products Wholesaling 3.2 6.9 12.6Group total 30.4 33.2 60.4 Period-end capital employed (2) UK Paper and Corrugated Packaging 467.3 498.6 471.4Continental European Corrugated Packaging 160.8 156.0 162.0Plastic Packaging 115.9 131.1 109.9Office Products Wholesaling 122.0 134.8 122.8Group total 866.0 920.5 866.1 Adjusted return on sales - % (1) UK Paper and Corrugated Packaging 3.9% 4.3% 3.2%Continental European Corrugated Packaging 5.7% 7.3% 7.3%Plastic Packaging 4.9% 2.0% 3.6%Office Products Wholesaling 1.2% 2.8% 2.4%Group total 3.5% 4.0% 3.7% Adjusted return on average capital employed - % 1, 3UK Paper and Corrugated Packaging 5.5% 5.5% 4.0%Continental European Corrugated Packaging 10.4% 12.5% 12.4%Plastic Packaging 8.2% 3.0% 5.6%Office Products Wholesaling 4.9% 11.2% 9.9%Group total 6.7% 7.1% 6.5% (1) before exceptional items, as described in note 3 (2) capital employed is defined below (3) average capital employed is defined below The Group's primary format for segment reporting is business segments based onthe Group's management and internal reporting structure. The secondary format isgeographical segments showing the geographical origin of the Group's revenue andadjusted operating profit. The Group operates in two principal geographicalareas: the UK and Western continental Europe. Two further segments areidentified: Eastern continental Europe and the Rest of the World. Segment results include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Central administration costsare allocated to the individual segments on a consistent basis year-on-year.Assets and liabilities have been analysed by segment at a capital employedlevel. Capital employed excludes items of a financing nature, taxation balances,pension liabilities and fixed asset investments; segmental capital employedcomprises identifiable segment assets less segmental liabilities. Averagecapital employed is the average monthly capital employed. The adjusted return onaverage capital employed is calculated as twice the operating profit beforeexceptional items divided by the average capital employed in the reportingperiod. Secondary reporting format - geographical segments Half-year ended Half-year Year ended 31 October 2006 ended 30 April 31 October 2006 2005 £m £m £mRevenue UK 492.8 491.7 957.6Western continental Europe 311.5 268.4 570.5Eastern continental Europe 39.0 36.0 74.5Rest of the World 25.2 25.5 50.1Total 868.5 821.6 1,652.7 Operating profit UK 9.9 15.3 18.4Western continental Europe 15.6 12.1 33.1Eastern continental Europe 3.3 3.1 5.5Rest of the World 1.6 2.7 3.4Total 30.4 33.2 60.4 3 Exceptional items Items are presented as 'exceptional' in the financial statements where they aresignificant items of financial performance that the Directors consider should beseparately disclosed, to assist in the understanding of the underlying tradingand financial results achieved by the Group. Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 £m £m £m Gain on sale of Taplow Mill 20.5 - -UK Paper and Corrugated Packaging segment restructuring (10.5) - (28.9)costs Loss on disposal of business - (1.9) (4.3)Impairment charges - - (9.2)Total exceptional items 10.0 (1.9) (42.4) The exceptional profit of £20.5m resulted from the sale of the Taplow site, inthe UK Paper and Corrugated Packaging segment, for £30.3m. The UK Paper and Corrugated Packaging restructuring costs in the half-year to 30October 2006 of £10.5m relate to the closure of paper-making operations atTaplow Mill and related restructuring. The UK Paper and Corrugated Packaging restructuring costs in the full-year to 30April 2006 related to the closure of paper-making operations at Sudbrook Mill(£20.3m), the planned closure of a paper machine at Wansbrough Mill (£5.0m), andother restructuring costs (£3.6m). The loss on disposal of businesses arose on the disposal of the Office ProductsManufacturing business (loss of £1.9m recognised at the half-year to 30 October2005; final loss of £1.7m recognised in the full-year to 30 April 2006) and abusiness in the Plastic Packaging segment (loss of £2.6m). The impairment charge in 2005/06 relates to an investment in the debt securitiesof an independent UK packaging business, the performance of which had beenaffected by difficult trading conditions and the high costs of energy. 4 Taxation Tax on profits has been charged at an effective rate, before exceptional itemsand share of profits of associates, of 32.1% (half-year to 31 October 2005:31.1%; year to 30 April 2006: 27.2%), being the expected full-year effectiverate. The tax charge on profit before exceptional items and share of profits ofassociates for the period of £8.7m (half-year to 31 October 2005: £8.8m; year to30 April 2006: £13.4m) consists of UK taxation of £2.0m (half-year to 31 October2005: £3.1m; year to 30 April 2006: £2.3m) and overseas taxation of £6.7m(half-year to 31 October 2005: £5.7m; year to 30 April 2006: £11.1m). 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 £33.0m (half-year to 31October 2005: £18.4m; year to 30 April 2006: £4.2m) and on 388.7m ordinaryshares (half-year to 31 October 2005: 386.7m; year to 30 April 2006: 387.2m),being the weighted average number in issue and fully paid during the period. Diluted earnings per share are calculated assuming the 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 number ofordinary shares to 390.2m (half-year to 31 October 2005: 388.0m; year to 30April 2006: 388.8m). Adjusted earnings per share The Directors believe that the presentation of an adjusted earnings per shareamount, being the basic earnings per share adjusted for exceptional items, helpsto explain the underlying performance of the Group. A reconciliation of basic toadjusted earning per share is as follows: Half-year ended Half-year ended Year ended 31 October 31 October 30 April 2006 2005 2006 £m Pence per £m Pence per £m Pence per share share share Basic earnings 33.0 8.5 18.4 4.8 4.2 1.1(Deduct)/add back: exceptional (gains)/losses, after tax (13.2) (3.4) 2.9 0.7 34.7 8.9 Adjusted earnings 19.8 5.1 21.3 5.5 38.9 10.0 6 Dividends The following dividends were paid by the Group: £mSeptember 2005 Final dividend for the 2004/05 year of 5.8 pence per share 22.4March 2006 Interim dividend for the 2005/06 year of 2.6 pence per share 10.1September 2006 Final dividend for the 2005/06 year of 5.8 pence per share 22.5 The Directors have announced an interim dividend for the 2006/07 year of 2.6pence per share, totalling £10.1m. 7 Reconciliation of profit for the period to cash generated from operations (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 £m £m £m Profit for the period 33.5 18.8 5.3Adjustments for:- Exceptional items - non-cash amounts (12.7) 1.9 37.8- Depreciation and amortisation 31.2 33.4 67.2- Profit on sale of non-current assets (2.5) (1.6) (7.1)- Share-based payments 0.4 0.4 0.1- Share of profit of associates (1.9) (2.2) (4.1)- Other finance income (3.8) (0.9) (1.2)- Interest income (2.3) (1.1) (2.3)- Interest expense 9.4 6.9 14.6- Income tax expense 5.5 9.8 5.7 56.8 65.4 116.0Changes in:- inventories 2.7 (10.5) (4.2)- trade and other receivables (41.7) 14.0 13.1- trade and other payables 14.4 5.3 18.5- provisions and employee benefits (5.4) (4.3) (5.2)Cash generated from operations 26.8 69.9 138.2 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 2006 Cash flow Acquisition Other At 31 October and non-cash 2006 disposals £m £m £m £m £m Cash and cash equivalents 60.4 (6.9) - (2.3) 51.2Overdrafts (1.5) (8.7) - 0.2 (10.0)Net cash and cash equivalents 58.9 (15.6) - (2.1) 41.2Interest-bearing loans andborrowings due after one year (264.9) 11.0 - 6.8 (247.1) Interest-bearing loans andborrowings due within one year (5.7) (0.1) - 0.1 (5.7) Finance leases (2.0) 2.1 - (5.3) (5.2)Derivative financial instruments- assets 0.8 - - - 0.8- liabilities (24.9) - - 2.3 (22.6) (296.7) 13.0 - 3.9 (279.8) Total net debt (237.8) (2.6) - 1.8 (238.6) Other non-cash movements in the period relate to the effect of movements inforeign exchange and interest rates on borrowings and related derivativefinancial instruments, and the entering into of finance leases. Derivative financial instrument amounts in the table above relate to interestrate and cross-currency swaps hedging the Group's borrowings. The differencebetween the amounts shown above and the total derivative financial instrumentassets and liabilities in the Group's balance sheet relates to derivativefinancial instruments that hedge forecast foreign currency transactions and theGroup's purchases of energy. 9 Reconciliation of movements in shareholders' equity (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 £m £m £mOpening shareholders' equity:As previously reported 532.1 511.5 511.5Effect of adoption of IAS 39 as at 1 May 2005 - (1.5) (1.5)As restated 532.1 510.0 510.0 Profit for the period 33.0 18.4 4.2 Actuarial gains recognised in the pension schemes - - 54.4Movement on deferred tax relating to the actuarial gains - - (16.5)Currency translation differences (after tax) (10.8) 4.5 9.7Changes in the fair value of cash flow hedges (after tax) (0.4) (1.3) 0.2New share capital issued - 0.3 2.6Share-based payments 0.4 0.4 0.1Dividends paid to shareholders (22.5) (22.4) (32.6) Closing shareholders' equity 531.8 509.9 532.1 10 Reconciliation of net cash flow to movement in net debt (unaudited) Half-year ended Half-year Year ended 31 October ended 30 April 2006 31 October 2006 2005 Note £m £m £m Operating profit before exceptional items 30.4 33.2 60.4Depreciation and amortisation 31.2 33.4 67.2EBITDA 61.6 66.6 127.6Working capital movement (24.6) 8.8 27.4Exceptional restructuring cash costs (2.7) - (4.6) Other (7.5) (5.5) (12.2) Cash generated from operations 7 26.8 69.9 138.2Capital expenditure (31.2) (35.3) (62.7)Proceeds from sales of assets and investments 35.9 3.5 13.2Taxation paid (6.3) (8.9) (13.5)Interest paid (6.7) (6.0) (12.0)Free cash flow before net (acquisitions)/disposals and dividends 18.5 23.2 63.2Dividends (22.5) (22.4) (32.6)Net disposals/(acquisitions) of subsidiaries 1.4 (4.7) 0.5Net cash flow (2.6) (3.9) 31.1Proceeds from the issue of share capital - 0.3 2.6Net debt acquired - (2.5) (2.6)Non-cash movements 1.8 (1.8) (6.1)Net debt (increase)/decrease (0.8) (7.9) 25.0Opening net debt (237.8) (262.8) (262.8)Closing net debt 8 (238.6) (270.7) (237.8) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Smith (DS)