3rd Aug 2005 07:00
4imprint Group PLC03 August 2005 4imprint Group plc - Interim results 2005 Highlights Prepared under IFRS Half year Half year Full year 2005 2004 2004 £m £m £m Sales 47.02 43.37 93.59 Operating profit 3.07 0.68 3.61 Operating profit before exceptional items and pension charges 3.35 1.46 5.02 Basic EPS 12.38p 9.08p 22.97p Dividend per share - interim 2.50p 1.75p 1.75p - final - - 3.50p Cash and bank overdrafts 3.39 10.16 14.67 • Sales at £47m are 8.4% up on 2004 • Operating profit before exceptional items and pension charges more than doubled at £3.35m, operating profit is £3.07m compared to £0.68m for the first half of 2004 • Dividend of 2.5p per share, an increase of 42.8% on 2004 interim • Share buy back returned £9.6m to Shareholders in April • Adventures in Advertising, a US subsidiary, was sold on 21 July 2005 for $11.3m consideration • Sales of the web/catalogue based US direct marketing business increased by 33% over prior year Chairman's Statement I am pleased to report to Shareholders that the results for the first half of2005 are evidence of further substantial progress in the drive to rebuild thevalue of your company. Sales of £47.02m were 8.4% ahead of the first half of last year, with allbusinesses except European Premium Promotions (the PPI business) contributing tothis growth. Operating profit before exceptional items and pension charges at £3.35m comparedwith £1.46m for last year, and operating margins before exceptional items andpension charges were increased to 7.1% from 3.4%. Operating profit was £3.07mcompared to £0.68m for last year. After interest income of £0.16m, pre tax profits were £3.78m comprising £3.23mfrom continuing operations and £0.55m from discontinued operations (release ofprovision relating to the disposal of a US supplier business in 1999) comparedwith £0.80m for last half year. The tax rate for the half year was 10%, Group post tax profit was £3.41m(continuing operations £3.04m and discontinued operations £0.37m). Earnings per share at 12.38p compares with 9.08p for last year, reflecting boththe strong operational performance achieved, and the reduced number of shares inissue after the 'share buy back' executed earlier this year. In addition theprior half year earning per share value benefited from one-off tax provisionreleases. Net cash at the end of the period was £3.4m. The Board has declared a dividend of 2.50p per share which compares with 1.75pper share for the first half of 2004. The first half of 2005 was a period of significant activity for the Group, andseveral major initiatives were carried out including the following: Firstly, in April, the Group completed the share buy back plan, approved at the2005 Annual General Meeting. A total of 3.9 million shares were repurchasedrepresenting 13% of the issued capital at a price of 245 pence with a totalvalue of £9.6m. The number of shares in issue reduced to 25 million. Secondly, on 22 July 2005, the Group announced the sale of its US basedsubsidiary franchise company, Adventures in Advertising, to the RiversideCompany, a US based Private Investment Group for a consideration of $11.3m.Shareholders will recall that AiA was acquired in 2000, and that the subsequentfinancial performance of AiA gave rise to significant problems for the Group andresulted in substantial destruction of value. A major effort by new managementreversed the financial weakness, and the AiA business had been restored to asustainable profitability. However, AiA was the only Franchise business in theGroup and it did not fit with the other core businesses. The Group's net cashposition at the end of July was around £8m. Thirdly, the 4imprint Group in the USA, which comprises principally a DirectMarketing enterprise using web/catalogue/telephone sales and marketing methods,is developing into one of the strongest and most rapidly growing companies inthe Group. In the first half of this year, sales increased by 17% and profitswere almost double those of prior year. Significantly, sales of the webcatalogue based direct marketing business at $33m increased by 33% over lastyear, sales in corporate programmes were reduced but profits increased as thebusiness was downsized and refocused. Further investments have been made in webexpertise and catalogue coverage to underpin all growth plans, and 4imprint'sposition as the leading direct marketer of promotional products using web/catalogue/telephone systems. Fourthly, the European Corporate Programmes and Direct Marketing Division, whichincludes the Manchester based Broadway business and the German based Kreyercompany delivered an impressive performance in the first half with sales 11%ahead of the previous year and operating profits over four times those of thefirst half of 2004. All sections of the business did well with CorporateProgrammes showing substantial improvement. During the first half of 2005 amajor initiative was put underway to develop the existing Direct MarketingBusiness into a web/catalogue/telephone business, modelled on the 4imprint Incbusiness in the USA, and with significant input from the US sister company. In addition, the European Premium Promotions Business (PPI) is being integratedinto the Broadway business. The rewards are expected to be significant, notonly from a reduced cost base, but with increased management and commercialsupport from closer integration with the other promotional product streams. Outlook: In general, the market for the Group's products in North America remains good,while in the UK the position is stable. The initiatives underway in the Groupare expected to underpin progress in the second half. Ken MintonExecutive Chairman3 August 2005 Finance Director's Report Results Summary: Total sales, at £47.02m, increased by 8.4% over the same period last year, 9.7%before exchange movements, with strong performances in both the European DirectMarketing and Corporate Programmes business and the US Direct MarketingBusiness. Operating profit before exceptional items and pension charges was £3.35m, a£1.89m increase over 2004. All businesses, apart from the European Premium Promotions business, achievedsignificant operating profit growth due to a combination of higher sales,improved margins and tight cost control. Group overheads before IFRS 2 charges for share options and IAS 19 definedbenefit pension charges are below £0.5m. In accordance with IFRS 2 the expense for senior management share options andSAYE options is £0.21m in the first half year. The Group defined benefit pension scheme deficit net of deferred taxation is£11.49m and this is now shown on the balance sheet as a liability in accordancewith IAS19. The defined benefit scheme charge for the first six months is£0.24m and cash payments into the scheme were £0.72m. The charge for the definedcontribution scheme was £0.18m. The taxation charge for the period is calculated at a rate of 10%, the Group'sbest estimate of the underlying rate for the year. The disposal of AiA willresult in the crystallisation of a deferred tax asset relating to the associatedgoodwill which had previously been written off to reserves. Basic earnings per share in the first half were 12.38p compared to 9.08p lastyear. However, excluding the large tax credit in 2004 the underlying growth issignificant. Basic earnings per share for the first half of 2004 were 10.19p(under UK GAAP), the movement to IFRS reduced this to 9.08p. In addition, in2004 there was a significant tax credit of £1.95m, which contributed 6.80p toearnings per share, whereas in 2005 there is a small tax charge. In 2005 theaverage number of shares has been reduced as a consequence of the share buyback, the impact of this is an increase of 0.64p. The Board has declared a dividend of 2.50p an improvement of 42.8% over prioryear. The Group completed the share buy back in April 2005, returning £9.57m toshareholders; the closing net cash balance at the end of June was £3.39m. The average US dollar exchange rate was $1.8631 (2004: $1.8202), the exchangerate at the balance sheet date was $1.7714 (2004: $1.8213). This resulted in anincrease in reserves of £0.54m. International Financial Reporting Standards: The Group is required to adopt International Financial Reporting Standards forthe first time in its financial statements to 31 December 2005. The interimresults for the period ended 2 July 2005 have been prepared in accordance withthe accounting policies under IFRS published on the 4imprint website(www.4imprint.co.uk). The principal adjustments relate to: • Adoption of IAS 19 "Employee benefits," recognising employee benefit obligations, particularly pensions on the balance sheet. • Goodwill is no longer amortised, but is subject to impairment review, in line with IFRS 3 "Business Combinations". • Recognition of the cost of share based payments granted after 7 November 2002 in line with IFRS 2 "Share based payment". • Dividends are recognised in the period in which they are approved in line with IAS 37 "Provisions, contingent liabilities and contingent assets". • Tax implications of the adjustments outlined above in accordance with IAS12 "Income taxes". The Group's unaudited estimate of the results under UK GAAP for the first halfof 2005 has been included for Shareholder information, the defined benefitpension scheme charge is assumed to be the same for full year 2005 as 2004. UK GAAP IFRS UK GAAP IFRS UK GAAP IFRS Half year Half year Half year Half year Full year Full year 2005 2005 2004 2004 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 Operating profit before 3,635 3,348 1,558 1,455 5,075 5,018goodwill amortisation,exceptional items andpension chargesGoodwill amortisation (138) - (138) - (276) -Exceptional items 134 134 (308) (308) (525) (525)Pension charges (633) (415) (207) (470) (1,154) (887)Operating profit 2,998 3,067 905 677 3,120 3,606Basic earnings per share 12.13p 12.38p 10.19p 9.08p 21.53p 22.97pNet assets 29,268 16,068 33,805 20,355 34,877 22,683 Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000 Operating profit under UK 2,998 905 3,120GAAP* IFRS 2 share option charge (213) (6) (20)IAS 19 holiday pay accrual (75) (89) (9)Write off of deferred - (9) (29)charges, which do not meetthe IFRS definition of anassetWrite back of goodwill 138 138 276amortisationAdjustment of pension 218 (263) 267charges on an IAS 19 basisOther sundry items 1 1 1Operating profit under IFRS 3,067 677 3,606 * before adoption of FRS 20 "Accounting for share based payment" in 2005. 2 July 26 June 2004 31 December 2005 2004 Note £'000 £'000 £'000 Net assets under UK GAAP 1 29,268 33,805 34,877IAS19 recognition of pension (16,418) (17,305) (16,902)liabilityWrite off of UK GAAP pension (1,925) (2,069) (1,659)prepaymentWrite back of goodwill 138 138 276amortisationWrite off of deferred (443) (411) (414)charges, which do not meetthe IFRS definition of anassetIAS 19 holiday pay accrual (165) (172) (90)Tax on above adjustments 5,613 5,866 5,603Dividend Recognition - 503 992Net assets under IFRS 16,068 20,355 22,683 Note 1: net assets at 2 July 2005 include the impact of the £9.6m share buyback. Gillian DaviesGroup Finance Director3 August 2005 Operating Review European Direct Marketing and Corporate Programmes Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000 Sales 18,233 16,487 35,727Operating profit before exceptional items 1,444 377 1,907and pension chargesOperating profit 1,381 327 1,682 The Manchester based business which accounts for 85% of this division's sales,comprises the following divisions: (a) Trade division - supplies a wide range of promotional products on a regular basis to end user suppliers. It provides bespoke printing and engraving services through its own 'in house' printing facilities. The sector again had an excellent period with sales up 7% on 2004. (b) Corporate Programmes division - this division builds on its product base by providing sophisticated design and artwork and additional support functions, including warehousing, distribution and product range consultancy, delivering a fully out-sourced solution for specific corporate promotional programmes for major clients. The drive for profitability over the last 2 years is producing positive results and sales in this area are returning to a growth phase, up 11% on H1 2004. (c) Direct Marketing division - both sales and profits increased over the same period last year. Direct Marketing uses catalogue, telephone and web selling techniques and the foundations to accelerate growth have been put in place, utilising the advanced skills and methods employed by 4imprint Inc. in the US. This includes a re-development of the website and revised end customer acquisition and retention techniques. Investment is being made in marketing activity to generate increased sales growth. (d) Field Sales division - This division supplies promotional merchandise to a range of corporate entities on either a preferred supplier or 'ad hoc' basis through a number of sales account managers. It has produced sales growth of 7% compared to 2004. Kreyer Promotions, in Germany, increased its turnover by 28% compared to prioryear due to growth of existing business and acquisition of new customers.Despite tough conditions in the market place the business has focussed onimplementation of high potential corporate programmes and development ofexisting programmes. These sales have been managed on a similar cost baseresulting in the business producing a profit in the period compared to a smallloss in the same period last year. European Premium Promotions Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000Sales 5,809 6,528 13,328Operating profit before exceptional items 320 466 925and pension chargesOperating profit 291 133 523 This division comprises the Product Plus International (PPI) company based inLondon, which specialises in the supply of promotional products and services toa range of blue chip clients. In the first half of 2005 the business achieved sales at 90% of prior year, withthe airlines, cosmetics and retail sectors performing strongly; however thepublishing sector was less buoyant. Steps have been taken during the period tointegrate the PPI business with the Manchester based European Direct Marketingand Corporate Programmes business; resulting in one strongly managed Europeanbusiness, reduced costs via the integration and increased focus on sales growth.The integration process will be fully completed by the end of 2005. Operating Review (continued) US Direct Marketing and Corporate Programmes Half year Half year Half year Half year Full year Full year 2005 2005 2004 2004 2004 2004 US$'000 £'000 US$'000 £'000 US$'000 £'000Sales 38,502 20,666 33,003 18,132 73,083 39,910Operating profit before pension 2,750 1,476 1,429 785 4,477 2,445chargesOperating profit 2,642 1,418 1,331 731 4,278 2,336 4imprint Inc consists of a core Direct Marketing business with a small CorporateProgrammes business. Direct Marketing activities, which now account for morethan 86% of total sales, are up 33% over the same period in 2004. Plannedrestructuring in Corporate Programmes resulted in a decrease in revenue in thisarea. The net effect for the site is a 17% increase in sales at mid-year and a98% improvement in operating profit. The strong growth pattern seen in Direct Marketing in 2004 has continued. Anintegrated marketing strategy utilising the latest web, catalogue and telephonetechniques has led to a number of positive results. Orders received in the firsthalf of 2005 are up 25% over prior year, with orders from new customers up morethan 35%. The percentage of web orders increased 58% and now constitutes 36% ofall orders received. In 2005 the same strategy was adopted for the Canadianbusiness and early results are encouraging with orders up 30%. This business operates under favourable working capital conditions whichgenerally average 5% of full year sales. US Franchising Half year Half year Half year Half year Full year Full year 2005 2005 2004 2004 2004 2004 US$'000 £'000 US$'000 £'000 US$'000 £'000 Fee income 4,302 2,309 4,039 2,219 8,471 4,626Operating profit before exceptional 1,397 750 788 433 1,833 1,001items and pension chargesOperating profit 1,623 871 768 422 1,795 980 The franchising division, Adventures in Advertising (AiA), has generated feeincome growth due to increased system wide sales. Further improvement inoperating profit is attributable to tight cost control and reduced externalfees. The AiA business was sold on 21 July 2005. Ken MintonExecutive Chairman3 August 2005 Consolidated income statement (unaudited) Half year Half year Full year 2005 2004 2004 Note £'000 £'000 £'000Continuing operations:Sales 2 47,017 43,366 93,591Operating expenses (43,950) (42,689) (89,985)Operating profit 2 3,067 677 3,606Operating profit before exceptional items and pension charges 3,348 1,455 5,018Exceptional items 3 134 (308) (525)Pension charges 10 (415) (470) (887)Operating profit 2 3,067 677 3,606Finance income - net 163 121 290Profit before tax 3,230 798 3,896Taxation 5 (190) 1,810 2,676Profit for the period from continuing operations 3,040 2,608 6,572Discontinued operations:Release of provision relating to disposal of US supplier business 6 366 - -in 1999Profit attributable to equity shareholders 3,406 2,608 6,572 Earnings per shareBasic 7 12.38p 9.08p 22.97pDiluted 7 11.86p 8.97p 22.21p Earnings per share from continuing operationsBasic 7 11.05p 9.08p 22.97pDiluted 7 10.58p 8.97p 22.21p At At AtConsolidated balance sheet (unaudited) 2 July 26 June 31 Dec 2005 2004 2004 £'000 £'000 £'000Non Current AssetsProperty, plant and equipment 1,677 1,928 1,682Goodwill 4,341 4,341 4,341Intangible assets 2,510 2,874 2,743Investments 7 - 8Deferred income tax assets 7,910 7,373 8,081 16,445 16,516 16,855Current Assets Inventories 5,919 6,295 4,640Trade and other receivables 22,352 24,241 22,977Cash and cash equivalents 4,757 10,858 15,310 33,028 41,394 42,927Current Liabilities Trade and other payables 16,015 15,730 16,077Current income tax liabilities 783 695 697Borrowings 7 2,630 2,572Provisions and other liabilities 164 1,146 832 16,969 20,201 20,178Net Current Assets 16,059 21,193 22,749 Non Current LiabilitiesRetirement benefit obligations 16,418 17,305 16,902Borrowings 18 23 19Provisions and other liabilities - 26 - 16,436 17,354 16,921Net Assets 16,068 20,355 22,683 Shareholders' EquityShare capital 9,633 11,054 11,063Share premium reserve 37,683 37,655 37,659Capital redemption reserve 208 208 208Treasury shares (889) - (889)Cumulative translation differences (77) (343) (614)Fair value and other reserves 236 9 23Retained earnings (30,726) (28,228) (24,767)Total Equity 16,068 20,355 22,683 Consolidated statement of changes in shareholders' equity (unaudited) Share Capital Cumulative Fair value Share premium redemption Treasury translation and other Retained Total capital reserve reserve shares differences reserves earnings Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 28 December 2003 11,044 37,630 208 (7) - 3 (29,975) 18,903Treasury shares issued - - - - - 7 - 7Profit for the period - - - - - - 2,608 2,608Currency translation adjustments - - - - (343) - - (343)Shares issued 10 25 - - - - - 35Employee options - - - - - 6 - 6Dividends - - - - - - (861) (861)Balance at 26 June 2004 11,054 37,655 208 - (343) 9 (28,228) 20,355 Balance at 28 December 2003 11,044 37,630 208 (7) - 3 (29,975) 18,903Treasury shares issued - - - 7 - - - 7Treasury shares purchased - - - (889) - - - (889)Profit for the period - - - - - - 6,572 6,572Currency translation - - - - (614) - - (614)adjustments Shares issued 19 29 - - - - - 48Employee options - - - - - 20 - 20Dividends - - - - - - (1,364) (1,364)Balance at 31 December 2004 11,063 37,659 208 (889) (614) 23 (24,767) 22,683 Balance at 1 January 2005 11,063 37,659 208 (889) (614) 23 (24,767) 22,683Profit for the period - - - - - - 3,406 3,406Currency translation - - - - 537 - - 537adjustmentsShares issued 72 24 - - - - - 96Own shares purchased and (1,502) - - - - - (8,373) (9,875)cancelledEmployee options - - - - - 213 - 213Dividends - - - - - - (992) (992)Balance at 2 July 2005 9,633 37,683 208 (889) (77) 236 (30,726) 16,068 Consolidated cash flow statement (unaudited) Half year Half year Full year 2005 2004 2004 Note £'000 £'000 £'000Cash flows from operating activities Cash generated from operations 9 1,635 1,539 7,697Income tax (paid)/received (36) 384 470Interest received 301 106 339Interest paid (45) (49) (142)Net cash generated from operating activities 1,855 1,980 8,364 Cash flows from investing activities Purchases of property, plant and equipment (289) (143) (289)Purchases of intangible assets (245) (413) (946)Proceeds from sale of property, plant and equipment 124 - -Net cash used in investing activities (410) (556) (1,235) Cash flows from financing activities Movements in borrowings • Net proceeds from the issue of new borrowings - - 345 • Repayment of borrowings (1,941) (275) (538) Proceeds from issuance of ordinary shares 96 32 44Purchase of own shares for cancellation (9,840) - -Purchase of treasury shares - - (889)Dividends paid to shareholders (992) (860) (1,367)Net cash used in financing activities (12,677) (1,103) (2,405) Net (decrease)/ increase in cash and bank overdrafts (11,232) 321 4,724Cash and bank overdrafts at beginning of the period 14,666 9,905 9,905Exchange (losses)/gains on cash and bank overdrafts (40) (69) 37Cash and bank overdrafts at end of the period 3,394 10,157 14,666 These financial statements should be read in conjunction with the notes to theaccounts. 1 Basis of preparation The interim financial statements of 4imprint Group plc for the half year periodended 2 July 2005 are unaudited and do not comprise statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. From 1 January 2005, 4imprint Group plc is required to prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) endorsed by the European Union. Reconciliations anddescriptions of the effect of the transition from UK GAAP to IFRS on the Group'sequity and its income statement are provided in an attachment to the interimreport. The financial information set out in this interim statement has been prepared inaccordance with the accounting policies under IFRS published on the 4imprintwebsite (www.4imprint.co.uk). Standards currently in issue and adopted by the EU are subject to interpretationissued from time to time by the International Financial ReportingInterpretations Committee (IFRIC). Further standards may be issued by theInternational Accounting Standards Board that will be adopted for financialyears beginning on or after 1 January 2005. Additionally, IFRS is currentlybeing applied in the United Kingdom and in a large number of countriessimultaneously for the first time. Furthermore, due to a number of new andrevised Standards included within the body of the Standards that comprise IFRS,there is not yet a significant body of established practice on which to draw informing options regarding interpretation and application. Accordingly, practiceis continuing to evolve. At this preliminary stage, therefore, the fullfinancial effect of reporting under IFRS as it will be applied and reported onin the Company's first IFRS Financial Statements for the year ended 31 December2005 may be subject to change. 2 Segmental analysis At 2 July 2005, the Group is organised into four main business segments asdetailed in the Chairman's statement. The segmental results for the period ended2 July 2005 are as follows: Gross segment sales Inter-segment sales Sales Half Half Full Half Half Full Half Half Full year year year year year year year year year 2005 2004 2004 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 European Direct 18,272 16,494 35,904 (39) (7) (177) 18,233 16,487 35,727 Marketing and Corporate ProgrammesEuropean Premium 6,066 6,727 13,882 (257) (199) (554) 5,809 6,528 13,328Promotions US Direct Marketing 20,666 18,132 39,910 - - - 20,666 18,132 39,910and CorporateProgrammesUS Franchising 2,309 2,219 4,626 - - - 2,309 2,219 4,626Continuing 47,313 43,572 94,322 (296) (206) (731) 47,017 43,366 93,591operations Operating profit/ Exceptional items Pension charges Operating profit/ (loss) before (loss) exceptional items and pension charges Half Half Full Half Half Full Half Half Full Half Half Full year year year year year year year year year year year year 2005 2004 2004 2005 2004 2004 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 European Direct 1,444 377 1,907 - - (168) (63) (50) (57) 1,381 327 1,682Marketing andCorporate ProgrammesEuropean Premium 320 466 925 - (308) (357) (29) (25) (45) 291 133 523PromotionsUS Direct Marketing 1,476 785 2,445 - - - (58) (54) (109) 1,418 731 2,336and CorporateProgrammesUS Franchising 750 433 1,001 134 - - (13) (11) (21) 871 422 980Unallocated costs (642) (606) (1,260) - - - (252) (330) (655) (894) (936) (1,915)Continuing 3,348 1,455 5,018 134 (308) (525) (415) (470) (887) 3,067 677 3,606operations A review of the segments is included in the operating review. Costs have been allocated in terms of resources required and contain someindirect costs not dependant on the level of business conducted. Unallocatedcosts relate to Head Office costs and IAS19 "Employee Benefits" charge for thedefined benefit pension scheme. 3 Exceptional items Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000Release of bad debt provision 134 - -Product recall charges - (308) (267)European restructuring charges - - (258)Total - continuing operations 134 (308) (525) Items are considered exceptional when their size and/or nature are consideredsufficiently material to warrant separate disclosure. The release of the bad debt provision in 2005 relates to a review undertaken inthe US Franchising segment. The restructuring and product recall charge in 2004 relates to the cost of aproduct recall issue in the European Premium Promotions segment, which has beendisclosed separately due to its rare occurrence and size and to restructuringcosts at December 2004 of £90,000 in the European Premium Promotions divisionand £168,000 in the European Direct Marketing and Corporate Programmes division. 4 Post balance sheet event - sale of Adventures in Advertising On 21 July 2005, 4imprint Group plc completed the sale of Adventures inAdvertising (AiA) to The Riverside Company, a US Private Investment Group forconsideration of $11.3m. AiA constitutes the US Franchising segment in note 2and being the only franchise business in the Group did not fit with the longterm strategy, which is to concentrate on the core activities of providingproducts and support services for Corporate and Product Promotions, using "inhouse" resources. 5 Taxation Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000UK Taxation:Corporate tax charge (190) (51) -Adjustment in respect of previous years - 1,953 1,945 Overseas Taxation:Current tax - - 34Adjustment in respect of previous years - - 10 Deferred Taxation:Current tax (188) (92) 592Adjustment in respect of previous years - - 95 (378) 1,810 2,676The total taxation (charge)/credit above comprises:Continuing operations (190) 1,810 2,676Discontinued operations (188) - - (378) 1,810 2,676The taxation charge for the period to 2 July 2005 has been calculated byapplying the best estimate of the Group's annual tax rate to the profit beforetax for the period. 6 Discontinued operations Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000 Release of provision relating to disposal of Norwood, a US supplier 554 - -business, in 1999Associated deferred tax charge (188) - - 366 - - 7 Earnings per share The earnings per share for the half year is based on the profit on ordinaryactivities after taxation and weighted average shares in issue, excludingordinary shares purchased by the Company and held as treasury shares, of27,503,813 (26 June 2004: 28,729,765 shares, 31 December 2004: 28,606,434). Theshares in issue at 2 July 2005 are 25,043,818. The diluted earnings per share for the half year is based on the same incomestatement figures as above, but takes into account the dilutive effect of shareoptions outstanding. The weighted average number of shares in issue for dilutedearnings per share purposes is therefore 28,720,947 (26 June 2004: 29,081,207, 31 December 2004: 29,586,860). 8 Dividends The interim dividend for 2005 of 2.50p per ordinary share (interim 2004: 1.75p,final 2004: 3.50p) will be paid on 14 September 2005 to ordinary shareholders onthe register at the close of business on 19 August 2005. Dividends paid in the period totalled £992,000 (period to 26 June 2004:£861,000, period to 31 December 2004: £1,364,000). 9 Cash generated from operations Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000Profit for the period 3,406 2,608 6,572Adjustments for:Tax 378 (1,810) (2,676)Depreciation 256 408 714Amortisation 588 593 1,177(Profit)/loss on sale of property, plant and equipment (16) 4 44Net movement in provisions for liabilities and charges (685) (62) (350)Interest income (208) (170) (432)Interest expense 45 49 142Option charges 213 6 20Exchange (gains)/losses on borrowings 19 (56) (139)Changes in working capital :Inventories (1,276) (397) 1,261Trade and other receivables 1,385 1,998 2,869Trade and other payables (2,470) (1,632) (1,505)Cash generated from operations 1,635 1,539 7,697 Included in the above is cash generated from discontinued operations of£1,687,000 (relating to the disposal of Norwood, a US supplier business, in1999). 10 Retirement benefits Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000The net pension charges are made up as follows:Defined contribution plans 179 147 247Defined benefit schemes: Regular cost 38 35 75 Interest expensed 2,331 2,270 4,506 Expected return on assets (2,133) (1,982) (3,941) 415 470 887 Defined contribution plans The Group operates defined contribution plans for the majority of its UK and USemployees. The regular contributions are charged to the profit and loss accountas they are incurred. Defined benefit scheme - IAS 19 costs The defined benefit scheme is closed to new members. IAS 19 "Employee Benefits"was adopted at the transition date, 28 December 2003. The corridor approach,allowed under IAS19, has been adopted. During the period the financial position of the defined benefit scheme has beenupdated in line with the anticipated annual cost for current and past service,the expected return on scheme assets, the interest on scheme liabilities andcash contributions made to the scheme. No interim valuation of the scheme's assets or liabilities has been carried out,accordingly, there are no further recognised or unrecognised actuarial gains orlosses since 31 December 2004. The next actuarial update will be carried out asat 31 December 2005. The movements in the net pension liability were: Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000Net pension liability at beginning of period (11,831) (12,391) (12,391)Movement in period;Total expenses charged in the income statement (236) (323) (640)Contributions paid 720 720 1,440Movement in deferred tax asset (146) (120) (240)Net pension liability at end of period (11,493) (12,114) (11,831) 11 Share based payments Share options are granted to senior management and in addition a SAYE scheme isavailable to all UK and US employees. The exercise price of options designedfor senior management is nil and for SAYE options is equal to the market rate,plus any discount up to the limit imposed by the local tax authority at thepricing date. The fair value of options granted after 7 November 2002 are determined using theMonte Carlo valuation model for executive options and the Binomial model forSAYE options and are spread over the vesting period of the options. Thesignificant inputs into the model are an expected life of between 1.9 and 3years for all options, the volatility measured at the standard deviation ofexpected share price returns is based on statistical analysis of daily shareprices over the last 3 years and a risk-free rate based on a 36 month UK LIBOR. Half year Half year Full year 2005 2004 2004 £'000 £'000 £'000Charge resulting from spreading the fair value of options granted after 7 213 6 20November 2002 over the vesting period of the options The Group has no legal or constructive obligation to repurchase or settle theoptions in cash. IFRS Restatement Information Transition to IFRS The following reconciliations show the differences between figures presentedunder UK GAAP and IFRS. Transitional arrangements - Application of IFRS 1 The Group's financial statements for the year ended 31 December 2005 will be theGroup's first annual financial statements in compliance with IFRS. 4imprintGroup plc's transition date is 28 December 2003. The Group prepared its openingIFRS balance sheet at that date. The Group's IFRS adoption date is 1 January2005. On transition to IFRS, an entity is generally required to apply IFRSretrospectively, except where an exemption is available under IFRS 1 'First-timeAdoption of International Financial Reporting Standards'. The Group has appliedthe mandatory exemptions and certain of the optional exemptions from fullretrospective application of IFRS. The following is a summary of the keyelections from IFRS 1 that were made by the Group: • The Group has elected to adopt the IFRS 1 exemption in relation to business combinations and will only apply IFRS 3 'Business Combinations' prospectively from 28 December 2003. As a result, the balance of goodwill under UK GAAP as at 27 December 2003 will be deemed the cost of goodwill at 28 December 2003. • The Group has elected to adopt the IFRS 1 option to reset foreign currency cumulative translation reserves to zero on transition to IFRS. • Cumulative actuarial gains and losses at the date of transition on the valuation of post employment benefit assets and liabilities have been recognised as an adjustment to equity. • The Group has elected to apply the share-based payment exemption. It has applied IFRS 2 from 28 December 2003 to those options that were issued after 7 November 2002 but have not vested by 1 January 2005. Reconciliation of the income statement (unaudited) UK GAAP IFRS UK GAAP IFRS Ref 26 June 04 26 June 04 Diff 31 Dec 04 31 Dec 04 Diff £'000 £'000 £'000 £'000 £'000 £'000Sales 43,366 43,366 - 93,591 93,591 -Operating expenses (42,461) (42,689) (228) (90,471) (89,985) 486Operating profit 905 677 (228) 3,120 3,606 486Operating profit before goodwill amortisation, exceptional itemsand pension charges 1.1 1,558 1,455 (103) 5,075 5,018 (57) Goodwill amortisation 1.2 (138) - 138 (276) - 276Exceptional items (308) (308) - (525) (525) -Pension charges 1.3 (207) (470) (263) (1,154) (887) 267Operating profit 905 677 (228) 3,120 3,606 486Net finance income 1.4 122 121 (1) 291 290 (1)Profit before tax 1,027 798 (229) 3,411 3,896 485Taxation 1.5 1,902 1,810 (92) 2,748 2,676 (72)Profit attributable to equity shareholders 2,929 2,608 (321) 6,159 6,572 413 Basic EPS 10.19p 9.08p (1.11p) 21.53p 22.97p 1.44p The effect of adopting International Financial Reporting Standards upon theprofit attributable to the equity shareholders was: Reference 1.1 26 June 31 Dec 2004 2004Continuing operations £'000 £'000Adoption of IFRS 2 "Share-based Payment" requires the assignment of fair values at thedate of grant to the options granted to employees after 7 November 2002 and not vested by1 January 2005. The expense is spread over the vesting period of those options. (6) (20)The adoption of IAS 17 "Leases" resulted in the reclassification of certain motor vehiclesheld from operating to finance leases, the capitalised assets have been depreciated overthe useful economic life and the interest associated with the lease reclassified from 1 1operating expenses to finance expenses.Write off of deferred charges which do not meet the IFRS definition of an asset. (9) (29)IAS 19 "Employee Benefits" requires the recognition of liabilities relating to holiday pay (89) (9)not previously accounted for under UK GAAP (103) (57) Reference 1.2 26 June 31 Dec 2004 2004Continuing operations £'000 £'000The adoption of IFRS 3 "Business Combinations" resulted in the write back of goodwillamortisation in 2004. No impairment charge arose. 138 276 Reference 1.3 26 June 31 Dec 2004 2004Continuing operations £'000 £'000Adoption of IAS 19 "Employee Benefits" in relation to the defined benefit pension scheme.The Group has adopted the corridor approach of spreading the deficit. (263) 267 Reference 1.4 26 June 31 Dec 2004 2004Continuing operations £'000 £'000The adoption of IAS 17 "Leases" resulted in the reclassification of certain motor vehiclesheld from operating to finance leases, the capitalised assets have been depreciated overthe useful economic life and the interest associated with the lease reclassified from (1) (1)operating expenses to finance expenses. Reference 1.5 26 June 31 Dec 2004 2004Continuing operations £'000 £'000The effect on taxation of the adoption of IAS 19 "Employee Benefits" was • a deferred taxation charge relating to movements in the pension creditor: (120) (240) • a deferred taxation credit relating to the reversal of the movement in the - 160 pension prepayment under SSAP 24 • deferred taxation arising from the charges in relation to the recognition of liabilities relating to holiday pay not previously accounted for under UK GAAP 26 2 • The associated deferred taxation arising from the charges for employee options under IFRS2 in the period 2 6 (92) (72) Reconciliation of equity (unaudited) UK GAAP IFRS Ref 26 June 26 June UK GAAP IFRS UK GAAP IFRS 2004 2004 Diff 31 Dec 04 31 Dec 04 Diff 27 Dec 03 27 Dec 03 DiffRelated Shares:
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