5th Dec 2007 07:01
Smith (DS) PLC05 December 2007 5 December 2007 DS Smith Plc - 2007/08 Interim Results DS Smith Plc, the international packaging manufacturer and office productswholesaler, announces its results for the six months to 31 October 2007. Financial Summary H1 2007/08 H1 2006/07Revenue £942.7m £868.5mAdjusted operating profit(1) £60.4m £30.4mOperating profit £60.4m £40.4mAdjusted profit before tax(1) £56.1m £29.0mProfit before tax £56.1m £39.0mAdjusted earnings per share(1) 10.4p 5.1pBasic earnings per share 10.4p 8.5pFree cash flow before dividends, acquisitions and disposals(2) £18.5m £18.5mInterim dividend per share 2.6p 2.6p (1) H1 2006/07: before an exceptional profit of £10.0m(2) H1 2006/07: included £29.6m of proceeds from the sale of the Taplow site Highlights • Like-for-like revenue up 10%, primarily reflecting input cost recovery through price increases• UK Paper and Corrugated Packaging operating profit substantially up• Office Products Wholesaling - Spicers - good progress in rebuilding profits• Return on average capital employed 13.6% Chairman, Peter Johnson said: "This is a strong set of first half results which maintained the momentum of thesecond half of last financial year. The higher profits reflect the management'sactions to lower costs, improve the sales mix and recover the higher input coststhrough better pricing." Group Chief Executive, Tony Thorne said: "The outcome for the year will be principally influenced by how well demandholds up, the extent to which we recover recent input cost rises and our successin further rebuilding profits at Spicers UK. The Board remains confident thatthe Group will make substantial progress this financial year." EnquiriesDS Smith Plc 020 7932 5000Tony Thorne, Group Chief ExecutiveGavin Morris, Group Finance DirectorPeter Aubusson, Group Communications Manager Financial Dynamics 020 7269 7221Richard Mountain/Susanne Yule A briefing for analysts and investors will take place today at 9.30am atFinancial Dynamics, Holborn Gate, 28 Southampton Buildings, London WC2A 1PB.This briefing may be heard live by dialling in on: +44 (0)1452 562815 (callreference: 24805574). The presentation slides from this briefing will be postedon the Group's website (www.dssmith.uk.com) at 9.30am. A replay of the briefingwill be available by telephone for five days, from 30 minutes after the meetinghas ended, on: +44 (0)1452 550000 (call reference: 24805574#) and an audiorecording of the briefing will be available on the Group's website byapproximately 1.00pm. OVERVIEW Group revenue for the half-year to 31 October 2007 increased by 8.5% to £942.7million (H1 2006/07: £868.5 million). On a like-for-like basis, excluding thetwo paper mills which were closed during 2006 and adjusting for foreign exchangeeffects, revenue increased by 9.6%. Operating profit was sharply higher at£60.4 million (H1 2006/07 adjusted operating profit: £30.4million). There wereno exceptional items in the result for the first half of 2007/08 whereas in thefirst half of 2006/07 there was a net exceptional profit of £10.0 million, whichincluded the exceptional profit that resulted from the sale of the Taplow papermill site. Operating margin increased to 6.4% (H1 2006/07 adjusted operating margin: 3.5%)and return on average capital employed (ROACE) advanced to 13.6% (H1 2006/07adjusted ROACE: 6.7%). Net interest expense increased to £10.6 million (H1 2006/07: £7.1 million),principally due to a charge from an increase in the fair value of put options(in accordance with IAS 32 / 39), held by minority, non-controlling shareholdersin a subsidiary of the Group. Profit before tax was £56.1 million (H1 2006/07 before exceptional items: £29.0million; H1 2006/07 after exceptional items: £39.0 million) and earnings pershare were 10.4 pence (H1 2006/07 before exceptional items: 5.1 pence; H1 2006/07 after exceptional items: 8.5 pence). Tax on profits has been charged at an underlying rate, before the share ofprofits of associates, of 32.1% (H1 2006/07: 32.1%), being the expectedfull-year underlying rate. The tax charge for the current period has beenreduced by a release of £2.4 million of the deferred tax provision following thereduction in the UK rate of corporation tax from 30% to 28% with effect from 1April 2008. Including this release, the effective rate of tax before the shareof profits of associates, for the current period, is 27.8%. Cash flow, before dividends, acquisitions and disposals was £18.5 million (H12006/07: £18.5 million, which included the £29.6 million cash flow benefit fromthe disposal of the Taplow site). Net debt was £188.5 million at the end offirst half 2007/08 (end of 2006/07: £181.2 million) resulting in gearing of31.7% (end of 2006/07: 32.0%). 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 4 March2008 to ordinary shareholders on the register at the close of business on 1February 2008. OPERATING REVIEW UK Paper and Corrugated Packaging Half-year ended Half-year ended 31 31 October 2007 October 2006 Revenue £367.1m £342.6m Adjusted operating profit £39.9m £13.5m Adjusted return on sales 10.9% 3.9% Adjusted return on average capital employed 17.2% 5.5% The substantial advance in adjusted operating profit in UK Paper and CorrugatedPackaging reflected the benefits of the price increases achieved to recoverhigher input costs and the previous actions taken to strengthen further theGroup's UK market positions in waste paper collection, recycled paper andcorrugated packaging (boxes). In the first nine months of calendar year 2007, the UK market for corrugatedpackaging was broadly flat compared with the same period of 2006*; overall saleswere affected by softer consumer demand during the summer, particularly forseasonal products such as beverages. The UK market remains in the forefront ofthe trend towards the greater use of lighter-weight boxes for cost andenvironmental reasons. Within the total market, demand for retail-readypackaging (RRP) continued to grow strongly; RRP boxes, which can be readilyconverted into a box or tray that can be placed directly on display on the shelfin the retail store, require a greater design and production capability. The better pricing environment in both CCM and boxes, throughout 2007, has beenunderpinned by the balanced supply and demand position for recycled corrugatedcase material (CCM) across Europe. No significant CCM capacity additions areexpected in western Europe during 2008. Several European CCM producers haveannounced their intentions to invest in new capacity some of which is expectedto come on stream from late 2009; the additional capacity announced to dateshould broadly be absorbed by current levels of market growth. Input costs ofenergy and waste paper, the principal raw material for recycled CCM, have bothrisen from already high levels; the price of waste paper in the UK has increasedby circa 30% since the start of 2007 as a result of the continued strong demandfor it from Asia. Our waste collection business, Severnside Recycling, grew on the back ofincreased demand for recycling services and government action to reduce theamount of waste going to landfill. In addition to its primary role of securingthe required quantities of fibre for our UK paper mills, we are looking todevelop its value-added waste management services. Severnside works closelywith DS Smith Packaging, our UK box business, in marketing our cradle-to-cradleenvironmental capability which encompasses: the Group's expertise in designingpackaging that will minimise waste throughout the supply chain; theenvironmental benefits of the recyclability of corrugated packaging; andSevernside's capability for managing customers' entire waste recycling anddisposal needs. St Regis, our UK paper business, increased the sales volume from its ongoingmills and maintained its focus on higher added-value products. It raised itsmargin as a result of the improved recovery of its higher input costs, thebenefits of the restructuring carried out in 2006 and our investment programmeto upgrade existing machines at Kemsley and Wansbrough Mills. In September2007, it implemented a further increase in CCM prices in order to recover themost recent rise in waste paper costs. * Source: Federation of European Corrugated Board Manufacturers; volume inmillion square metres DS Smith Packaging grew its sales further in higher added-value, convertedproducts, in particular the rapidly-growing RRP sector of the market. Salesvolumes in sheet feeding were lower as a result of our emphasis on recoveringthe higher CCM costs. The ongoing programme to raise prices across all ourcorrugated products has broadly recovered the higher raw material costs incurredprior to the most recent increases. As we start the second half of the financial year, box margins have again beenlowered significantly by further input cost increases. We are now raising boxprices to recover these most recent cost increases; this process will continueinto the first half of next financial year. The second half performance in thissegment will be influenced by the extent of the cost recovery, the level ofenergy costs in the winter season and the degree to which box demand may beaffected by any economic slow-down, especially in the retail sector. Continental European Corrugated Packaging Half-year ended Half-year ended 31 31 October 2007 October 2006 Revenue £165.0m £151.4m Operating profit £8.0m £8.6m Return on sales 4.8% 5.7% Return on average capital employed 9.1% 10.4% Margins in the Continental European Corrugated Packaging segment, which is a netbuyer of paper, were adversely affected by the higher costs of CCM which it wasnot able fully to recover through increased box prices in the first half of theyear. Market growth in corrugated packaging has continued to be generally satisfactoryacross continental Europe but it has been lower than in 2006, being primarilyaffected by slower demand from the beverage and other seasonal product sectorsin August and September. In the first nine months of the 2007 calendar year,market growth for continental Europe as a whole was 4% with eastern Europeperforming well above this average*. CCM costs rose significantly in all continental markets and our box businessesmaintained their price increase programmes to recover the higher input costs.We are making good progress on raising box prices but were not able to recoverall our increased input costs during the first half of the year. We expect tohave recovered a large proportion of the CCM cost increases incurred to date aswe enter financial year 2008/09. The French corrugated packaging operations were affected by the generalslow-down in their market during the summer and early autumn; the effect of thison profit was partly mitigated by improved productivity. Our Polish business,which we have developed through substantial recent investment, grew its salesvolume strongly and gained market share; its profits were additionally boostedby its concentration on higher added-value sectors of the market. In Italy, wegrew revenue well but our Turkish business experienced weaker sales dueprincipally to the effect of the strengthening of the Turkish Lira on the exportbusiness of our customers in the brown and white goods sectors. Our associatebusiness in the Ukraine continued its good performance; the major investmentproject to increase its capacity and broaden its product range is well underwayand a financing package for this has been established. The principal goal in this segment for the second half of the year is to recoverthe recently incurred increase in CCM costs through our continuing drive toraise prices. * Source: Federation of European Corrugated Board Manufacturers; volume inmillion square metres Plastic Packaging Half-year ended Half-year ended 31 31 October 2007 October 2006 Revenue £109.6m £103.7m Operating profit £5.7m £5.1m Return on sales 5.2% 4.9% Return on average capital employed 9.2% 8.2% Profits in Plastic Packaging were ahead of those of last year despite marginsremaining under pressure as a result of further rises in polymer costs; ourprogramme to recover these additional input costs through price increases iscontinuing. Revenue and profit advanced well in returnable transit packaging (RTP) despitelower sales volume in beverage crates during the period. We grew RTP salesstrongly in central Europe and the construction of the new extrusion facility inSlovakia progressed well. The result in liquid packaging and dispensing (LP&D)was adversely affected by competitive pressure on tap prices in the USA andlower wine bag sales in Europe. We continue to place considerable emphasis onnew product development to counter the competitive pressure. The consultationwith employees on the proposed restructuring of our LP&D operations in Germanyis continuing. The packaging management business benefited from our recent investment andprevious restructuring actions while the modified atmosphere packaging businesscontinued to grow sales strongly. Our priorities for the second half of the year in this segment are to recoverthe higher polymer costs through price increases, to complete the restructuringof our European liquid packaging and dispensing business and to make furtherprogress on enhancing the segment's sales mix. Office Products Wholesaling Half-year ended Half-year ended 31 31 October 2007 October 2006 Revenue £301.0m £270.8m Operating profit £6.8m £3.2m Return on sales 2.3% 1.2% Return on average capital employed 10.8% 4.9% The significantly improved result in Office Products Wholesaling was due tofurther progress in the continental European businesses and a good advance inthe UK, in line with our three-year plan to restore profits. Spicers UK grew its revenue well and increased its profit strongly, reflectingthe actions taken by the new management team to raise service levels in order tobuild sales and to reduce costs. The result benefited from the closure, in June2007, of the Park Royal distribution centre in London. We continue to considerfurther steps for lowering costs and improving the longer-term competitivenessof our network of distribution centres. On the continent, the two well-established businesses in France and the Beneluxgrew their revenue and maintained their good profit performance. In Germany, weachieved a significant sales advance with our dealer customers and improvedprofits. At the more recently developed businesses in Spain and Italy we grewsales strongly. In the seasonally stronger second half of the year, we expect Spicers'performance to reflect further benefits of the ongoing programme to rebuildprofits in the UK and the continued development of the continental businesses. BOARD CHANGES On 4 December 2007, the Company announced the appointment of Steve Dryden asGroup Finance Director; the date on which he will join the Company will beconfirmed in due course. Steve, aged 39, has held the position of FinanceDirector of Filtrona plc since its demerger from Bunzl plc in 2005. Prior tothat, he was divisional Finance Director of the Filtrona businesses and heldother senior finance positions within Bunzl plc. Steve began his career atPrice Waterhouse and has also held various finance roles within Rolls-Royce plc. As announced previously, Gavin Morris, Group Finance Director, will be steppingdown from the Board of Directors by mutual agreement. It is expected that MrMorris will remain with the Company to assist with the handover of hisresponsibilities until the end of the financial year. The Board thanks MrMorris for his contribution to the significant development of the Company inrecent years and wishes him every future success. Also as announced previously, George Adams is appointed as a non-ExecutiveDirector with effect from 29 January 2008. George, aged 51, is currentlyManaging Director, European Development and Chief Executive Officer, UK Trade atKingfisher Plc. Previously he held senior management positions at B&Q UK, FWWoolworth Plc, Makro UK and Management Horizons Europe Management Consultancy.He is a non-Executive Director of the specialist economics consultancy, FrontierEconomics, and of Hornbach Holding AG. OUTLOOK The outcome for the year will be principally influenced by how well demand holdsup, the extent to which we recover recent input cost rises and our success infurther rebuilding profits at Spicers UK. The Board remains confident that theGroup will make substantial progress this financial year. Consolidated Income Statement (unaudited) Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 Note £m £m £m Revenue 2 942.7 868.5 1,766.1 Cost of Sales (702.7) (655.7) (1,342.1) Gross profit 240.0 212.8 424.0 Operating expenses (179.6) (172.4) (344.4) Operating profitBefore exceptional items 2 60.4 30.4 77.7Exceptional items 3 - 10.0 1.9 Operating profit 60.4 40.4 79.6 Finance income 1.9 2.3 1.7Finance costs 4 (12.5) (9.4) (16.7)Employment benefit finance income 4.3 3.8 8.0Net financing costs (6.3) (3.3) (7.0) Profit after financing costs 54.1 37.1 72.6 Share of profit of associatesBefore exceptional items 2.0 1.9 3.9Exceptional items 3 - - 2.0 Profit before income taxBefore exceptional items 56.1 29.0 74.6Exceptional items - 10.0 3.9 Profit before income tax 56.1 39.0 78.5 Income tax (expense)/creditOn profit before exceptional items 5 (15.0) (8.7) (22.8)On exceptional items - 3.2 5.6Income tax (expense)/credit (15.0) (5.5) (17.2) Profit for the financial period 41.1 33.5 61.3 Profit for the financial period attributable to:DS Smith Plc equity shareholders 40.7 33.0 60.6Minority interest 0.4 0.5 0.7 41.1 33.5 61.3 Earnings per share - pence: 6Adjusted for exceptional items 10.4p 5.1p 13.1pBasic 10.4p 8.5p 15.6pDiluted 10.2p 8.5p 15.4p Interim Interim Total Proposed/actual dividends per share 7 2.6p 2.6p 8.6p Consolidated Statement of Recognised Income and Expense (unaudited) Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 £m £m £m Actuarial gains on defined pension - - 17.0 schemes Movement on deferred tax relating to the - - (5.1)actuarial gains Currency translation differences, including tax 6.1 (10.8) (6.7)of £1.2m(half-year to 31 October 2006: tax of £2.3m;year to 30 April 2007: tax of £1.5m)Changes in the fair value of cash flow hedges, 2.3 (0.4) (1.2)including tax of £1.0m (half-year to 31 October2006: tax of £0.2m; year to 30 April 2007: taxof £0.4m)Net income/(expense) recognised directly in 8.4 (11.2) 4.0equity Profit for the financial period 41.1 33.5 61.3Total recognised income and expense since the lastfinancial statements 49.5 22.3 65.3 Total recognised income and expense relating to thefinancial period attributable to:DS Smith Plc equity shareholders 48.9 21.8 64.7Minority interest 0.6 0.5 0.6 Consolidated Balance Sheet (unaudited) Note As at As at As at 31 October 2007 31 October 30 April 2006 2007 £m £m £mAssetsNon-current assetsIntangible assets 192.7 194.3 192.9Property, plant and equipment 517.5 510.5 517.1Investments in associates 32.6 28.6 30.5Other investments 0.5 0.5 0.5Deferred tax assets 20.6 21.9 21.4Other receivables 2.3 1.4 2.4Derivative financial instruments 1.5 0.8 0.2Total non-current assets 767.7 758.0 765.0 Current assetsInventories 161.7 154.9 160.5Other investments 0.1 0.1 0.1Income tax receivable 0.9 4.8 0.9Trade and other receivables 388.0 376.8 350.2Cash and cash equivalents 72.4 51.2 92.4Derivative financial instruments 2.0 1.4 0.7Total current assets 625.1 589.2 604.8Total assets 1,392.8 1,347.2 1,369.8 LiabilitiesNon-current liabilitiesInterest-bearing loans and borrowings (206.3) (252.0) (230.9)Post-retirement benefits (11.2) (42.8) (18.6)Other payables (5.8) (2.9) (5.1)Provisions (8.7) (2.6) (8.9)Deferred tax liabilities (80.5) (76.5) (81.4)Derivative financial instruments (37.9) (23.1) (31.7)Total non-current liabilities (350.4) (399.9) (376.6) Current liabilitiesBank overdrafts (13.6) (10.0) (10.8)Interest-bearing loans and borrowings (4.3) (6.0) (1.6)Trade and other payables (396.8) (356.7) (384.8)Income tax liabilities (24.0) (19.7) (16.6)Provisions (8.0) (13.0) (10.6)Derivative financial instruments (1.4) (0.2) (1.7)Total current liabilities (448.1) (405.6) (426.1)Total liabilities (798.5) (805.5) (802.7)Net assets 594.3 541.7 567.1 EquityIssued capital 39.3 39.1 39.3Share premium 263.1 259.4 262.9Reserves 293.6 233.3 267.2DS Smith Plc shareholders' equity 10 596.0 531.8 569.4Minority interests (1.7) 9.9 (2.3)Total equity 594.3 541.7 567.1 Gearing: Net debt expressed as a percentage of totalequity 31.7% 44.0% 32.0% Consolidated Cash Flow Statement (unaudited) Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 Note £m £m £mOperating activities Cash generated from operations 8 66.1 26.8 128.0 Interest received 0.9 0.2 2.8Interest paid (8.7) (6.9) (16.9)Income tax paid (7.6) (6.3) (15.1)Net cash from operating activities 50.7 13.8 98.8 Investing activitiesAcquisition of subsidiary businesses, net of (0.3) - (0.8)cash and cash equivalents acquiredDisposal of subsidiary businesses, net of 1.0 1.4 1.0cash and cash equivalents disposed ofCapital expenditure (37.7) (31.2) (55.8)Proceeds from the sale of assets 5.5 35.9 39.2Proceeds from the sale of associates and - - 1.8other non-current investmentsCash flows from investing activities (31.5) 6.1 (14.6) Financing activitiesProceeds from issue of share capital 0.2 - 3.7Purchase of own shares (0.2) - -Repayment of borrowings (19.7) (10.9) (28.7)Repayment of finance lease obligations (0.2) (2.1) (2.5)Dividends paid (23.5) (22.5) (32.7)Cash flows from financing activities (43.4) (35.5) (60.2) Net increase / (decrease) in cash and cash (24.2) (15.6) 24.0equivalents Cash and cash equivalents at 1 May 81.6 58.9 58.9 Exchange gains on cash and cash equivalents 1.4 (2.1) (1.3) Closing cash and cash equivalents 58.8 41.2 81.6 Notes to the Accounts (unaudited) 1 Basis of preparation This interim financial information, which was approved by the Board of Directorson 4 December 2007, does not constitute statutory accounts within the meaning ofsection 240 of the Companies Act 1985. The financial information presented inthis document is unaudited. Except as noted below, the interim financialinformation has been prepared using the same accounting policies as thoseadopted in the financial statements for the year-ended 30 April 2007. Thoseaccounts were reported on by the Company's auditors and delivered to theRegistrar of Companies. The report of the auditors was unqualified and did notcontain an adverse statement under section 237 (2) or (3) of the Companies Act1985. During the half-year ended 31 October 2007, the Group has applied IAS 34Interim Financial Reporting for the first time which has resulted in enhanceddisclosures of financial information in the unaudited consolidated incomestatement. 2 Analysis of Group revenue, operating profit and capital employed Half-year ended Half-year ended Year 31 October 2007 31 October 2006 ended 30 April 2007 £m £m £mRevenue UK Paper and Corrugated Packaging 367.1 342.6 687.1Continental European Corrugated Packaging 165.0 151.4 308.0Plastic Packaging 109.6 103.7 201.8Office Products Wholesaling 301.0 270.8 569.2Group total 942.7 868.5 1,766.1 Adjusted operating profit (1)UK Paper and Corrugated Packaging 39.9 13.5 36.5Continental European Corrugated Packaging 8.0 8.6 18.2Plastic Packaging 5.7 5.1 10.2Office Products Wholesaling 6.8 3.2 12.8 Group total 60.4 30.4 77.7 Period-end capital employed (2) UK Paper and Corrugated Packaging 453.9 467.3 444.6Continental European Corrugated Packaging 170.4 160.8 146.4Plastic Packaging 120.5 115.9 110.9Office Products Wholesaling 116.3 122.0 115.4Group total 861.1 866.0 817.3 Adjusted return on sales - % (1) UK Paper and Corrugated Packaging 10.9% 3.9% 5.3%Continental European Corrugated Packaging 4.8% 5.7% 5.9%Plastic Packaging 5.2% 4.9% 5.1%Office Products Wholesaling 2.3% 1.2% 2.2%Group total 6.4% 3.5% 4.4% Adjusted return on average capital employed - % 1, 3UK Paper and Corrugated Packaging 17.2% 5.5% 7.6%Continental European Corrugated Packaging 9.1% 10.4% 11.1%Plastic Packaging 9.2% 8.2% 8.3%Office Products Wholesaling 10.8% 4.9% 9.8%Group total 13.6% 6.7% 8.7% (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,net 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 ended Year ended 31 October 2007 31 October 30 April 2006 2007 £m £m £mRevenue UK 533.0 492.8 999.7Western continental Europe 330.8 311.5 632.8Eastern continental Europe 50.2 39.0 82.5Rest of the World 28.7 25.2 51.1Total 942.7 868.5 1,766.1 Operating profit UK 37.4 9.9 28.6Western continental Europe 16.5 15.6 37.5Eastern continental Europe 3.2 3.3 6.1Rest of the World 3.3 1.6 5.5Total 60.4 30.4 77.7 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 ended Year ended 31 October 2007 31 October 30 April 2006 2007 £m £m £m Gain on sale of Taplow Mill - 20.5 20.5UK Paper and Corrugated Packaging restructuring costs - (10.5) (13.8)Plastic Packaging restructuring costs - - (1.9)Office Products Wholesaling restructuring costs - - (2.9)Total exceptional items recognised in operating profit - 10.0 1.9 Negative goodwill recognised in associate accounting - - 2.0 Total exceptional items - 10.0 3.9 In the half-year ended 31 October 2007, the Group recorded no exceptional items. In the half-year ended 31 October 2006, the exceptional profit of £20.5mresulted from the sale of the Taplow site, in the UK Paper and CorrugatedPackaging segment, for £29.6m. In the half-year ended 31 October 2006, the UK Paper and Corrugated Packagingrestructuring costs of £10.5m related to the closure of paper-making operationsat Taplow Mill and related restructuring. The UK Paper and Corrugated Packaging restructuring costs in the year to 30April 2007 of £13.8m related to the closure of paper-making operations at TaplowMill and related restructurings. The Plastic Packaging restructuring costs inthe year to 30 April 2007 related to the proposed restructuring of our Europeanliquid packaging and dispensing operations. The Office Products Wholesalingrestructuring costs in the year to 30 April 2007 related to the closure of aregional distribution centre within the UK operations and related restructuring.The negative goodwill credit recognised in associate accounting of £2.0m arosein respect of an increase in the Group's investment in Rubezhansk. 4. Finance costs Finance costs for the half-year ended 31 October 2007 of £12.5m (half-year to 31October 2006: £9.4m; year to 30 April 2007: £16.7m) include a charge of £2.7mrelating to an increase in the fair value of put options, in accordance with IAS32 / 39, held by minority, non-controlling shareholders in a subsidiary of theGroup. 5. Taxation Tax on profits has been charged at an underlying rate, before exceptional itemsand share of profits of associates, of 32.1% (half-year to 31 October 2006:32.1%; year to 30 April 2007: 32.2%), being the expected full-year underlyingrate. The tax charge for the current period has been reduced by a release of£2.4m of the deferred tax provision following the reduction in the UK rate ofcorporation tax from 30% to 28% with effect from 1 April 2008. Including thisrelease, the effective rate of tax before exceptional items and share of profitsof associates, for the current period, is 27.8%. The tax charge on profit before exceptional items and share of profits ofassociates for the period of £15.0m (half-year to 31 October 2006: £8.7m; yearto 30 April 2007: £22.8m) consists of UK taxation of £7.0m (half-year to 31October 2006: £2.0m; year to 30 April 2007: £8.2m) and overseas taxation of£8.0m (half-year to 31 October 2006: £6.7m; year to 30 April 2007: £14.6m). 6. 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 £40.7m (half-year to 31October 2006: £33.0m; year to 30 April 2007: £60.6m) and on 391.7m ordinaryshares (half-year to 31 October 2006: 388.7m; year to 30 April 2007: 389.5m),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. These adjustments give riseto an increase in the weighted average number of ordinary shares to 397.5m(half-year to 31 October 2006: 390.2m; year to 30 April 2007: 392.9m). 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 earnings per share is as follows: Half-year ended Half-year ended Year ended 31 October 31 October 30 April 2007 2006 2007 £m pence £m pence £m pence per share per share per share Basic earnings 40.7 10.4 33.0 8.5 60.6 15.6Deduct exceptional items after tax - - (13.2) (3.4) (9.5) (2.5) Adjusted earnings 40.7 10.4 19.8 5.1 51.1 13.1 7. Dividends The following dividends were paid by the Group: £mSeptember 2006 Final dividend for the 2005/06 year of 5.8 pence per share 22.5March 2007 Interim dividend for the 2006/07 year of 2.6 pence per share 10.2September 2007 Final dividend for the 2006/07 year of 6.0 pence per share 23.5 The Directors have announced an interim dividend for the 2007/08 year of 2.6pence per share, totalling £10.2m. 8. Reconciliation of profit for the period to cash generated fromoperations Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 £m £m £m Profit for the period 41.1 33.5 61.3Adjustments for:- Exceptional items (2.5) (12.7) (11.1)- Depreciation and amortisation 30.1 31.2 62.9- Profit on sale of non-current assets (1.5) (2.5) (6.6)- Share-based payments 1.2 0.4 1.0- Share of profit of associates (2.0) (1.9) (3.9)- Employment benefit finance income (4.3) (3.8) (8.0)- Interest income (1.9) (2.3) (1.7)- Interest expense 12.5 9.4 16.7- Income tax expense 15.0 5.5 17.2 87.7 56.8 127.8Changes in:- inventories 0.7 2.7 (1.9)- trade and other receivables (35.3) (41.7) (11.5)- trade and other payables 16.5 14.4 21.9- provisions and employee benefits (3.5) (5.4) (8.3)Cash generated from operations 66.1 26.8 128.0 9. Analysis of net debt 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 2007 Cash flow Acquisition Other At and non-cash 31 October 2007 disposals £m £m £m £m £mCash and cash equivalents 92.4 (21.6) - 1.6 72.4Overdrafts (10.8) (2.6) - (0.2) (13.6)Net cash and cash equivalents 81.6 (24.2) - 1.4 58.8Interest-bearing loans andborrowings due after one year (226.4) 22.2 - 2.4 (201.8)Interest-bearing loans andborrowings due within one year (1.3) (2.5) - (0.2) (4.0)Finance leases (4.8) 0.2 - (0.2) (4.8)Derivative financial instruments- assets 0.2 - - 0.3 0.5- liabilities (30.5) - - (6.7) (37.2) (262.8) 19.9 - (4.4) (247.3) Total net debt (181.2) (4.3) - (3.0) (188.5) 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. 10. Reconciliation of movements in shareholders' equity Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 £m £m £mOpening shareholders' equity 569.4 532.1 532.1Profit for the period 40.7 33.0 60.6 Actuarial gains recognised in the pension schemes - - 17.0Movement on deferred tax relating to the actuarial gains - - (5.1)Currency translation differences (after tax) 5.9 (10.8) (6.6)Changes in the fair value of cash flow hedges (after tax) 2.3 (0.4) (1.2)New share capital issued 0.2 - 3.7Purchase of own shares (0.2) - -Share-based payments (after tax) 1.2 0.4 1.6Dividends paid to shareholders (23.5) (22.5) (32.7)Closing shareholders' equity 596.0 531.8 569.4 11. Reconciliation of net cash flow to movement in net debt Half-year ended Half-year ended Year ended 31 October 2007 31 October 30 April 2006 2007 Note £m £m £m Operating profit before exceptional items 60.4 30.4 77.7Depreciation and amortisation 30.1 31.2 62.9EBITDA 90.5 61.6 140.6Working capital movement (18.1) (24.6) 8.5Exceptional cash costs (2.5) (2.7) (7.2) Other (3.8) (7.5) (13.9) Cash generated from operations 8 66.1 26.8 128.0Capital expenditure (37.7) (31.2) (55.8)Proceeds from sales of assets and investments 5.5 35.9 41.0Taxation paid (7.6) (6.3) (15.1)Net interest paid (7.8) (6.7) (14.1)Free cash flow before net disposals/(acquisitions)and dividends 18.5 18.5 84.0Dividends (23.5) (22.5) (32.7)Net disposals/(acquisitions) of subsidiaries 0.7 1.4 0.2Net cash flow (4.3) (2.6) 51.5Proceeds from the issue of share capital 0.2 - 3.7Purchase of own shares (0.2) - -Non-cash movements (3.0) 1.8 1.4Net debt (increase)/decrease (7.3) (0.8) 56.6Opening net debt (181.2) (237.8) (237.8)Closing net debt 9 (188.5) (238.6) (181.2) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Smith (DS)