James Halstead Regulatory News (JHD)

1 Oct 2007 07:01

James Halstead PLC01 October 2007 1 October 2007 JAMES HALSTEAD PLC PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2007 Key Figures • Turnover increased to £142.9 million (2006: £126 million) - up 13% • Pre tax profit increased to £23.3 million (2006: £17.48 million) - up 33% • Final dividend per ordinary share proposed of 11.25p ( 2006 : 8p) - up 41% • Underlying earnings per 5p ordinary share 31.2p (2006: 23.8p) - up 31% The Chief Executive, Mark Halstead, said: "This year was the most successful in the Group's history. Overall, havingregard to the operations we have around the globe, I am confident that ourprogress can be consolidated in the current year and beyond." Enquiries: Mark Halstead, Chief ExecutiveGordon Oliver, Finance Director Telephone: 0161 767 2500 Nick Lyon - Hudson Sandler Telephone: 020 7796 4133 CHAIRMAN'S STATEMENT The results for the year to 30 June 2007 show the highest sales and profit everreported by the Group, with sales levels achieved being £142.9 million (2006 :£126.0 million), an increase of 13.4%. Profit before taxation is £23.3 million(2006 : £17.5 million) which is 33% above last year. I believe that theseresults are commendable and reflect our simple approach of sourcing andproducing the right products, effectively servicing our customers' needs,defending our market position and maintaining our reputation and credibility forthe future. Our technical knowledge and worldwide industry recognised expertisecontinue to keep our products on the short list of choice for commercialflooring installations in a vast array of projects around the world. As usual our year featured many interesting flooring projects that are keenlycontested and attract attention. This year we have supplied product to theGrand Egyptian Museum in Giza, dubbed the "fourth pyramid". Our Chinese sales office also secured the largest single hospital buildingproject of 2007, the Chongqing South West Hospital. In addition, closer to home our computerised design service, using water jetcutting, is producing flooring inserts to highlight Manchester Hope Hospital'sinitiative to combat MRSA in an innovative use of our in-house facilities. Dividend The Board proposes to increase the final dividend to 11.25p (2006 : 8p) anincrease of 40.6%. Acknowledgements All of our companies succeeded in meeting the challenges of very diverse marketconditions across the globe to make progress and on behalf of the Board Icommend their achievements and extend our thanks to all involved. In April 2007 the Group gained recognition by receiving the Queen's Award forEnterprise in the category of innovation and continuous development. This wasin respect of our market leading Polysafe range of slip resistant flooring andfollowed the Queen's Award in 2006 for international trade. I believe theseawards recognise years of effort and hard work by our workforce. I would like, specifically, to acknowledge the significant contribution to thebusiness of Mr John Kay who has retired as the Technical Director of PolyflorLtd after over thirty five years' service with the company. His expertise willnot be lost as he will continue to act as a consultant on special projects. Outlook The drive onward has not become easier, but in taking stock of the Group at thepresent point in time we are in good standing. Compared to our competitors ourturnover is relatively modest, and on the global scale of flooring there ismarket share to be gained. There are initiatives in place to move us forward and whilst there are, as ever,challenges in the marketplace and strong competition, we look forward, withevery confidence, to building upon this year's growth. Geoffrey Halstead, Chairman CHIEF EXECUTIVE'S REPORT In the past year sales growth of 13.4% resulted in record turnover of £142.9million (2006 : £126.0 million). This growth in turnover was the key driver inincreasing profit before tax to £23.3 million (2006 : £17.48 million), up byover 33% on the previous year. Turnover was ahead in all geographic areas. UK turnover increased by 10.5%,European turnover by 13.8%, Australasian turnover by 17.3% and the otheroverseas markets (including North America) progressed by 27%. Our internationalsales overall achieved £80.8 million (2006 : £69.7 million), an increase of justunder 16%. Whilst there were some markets reporting less than double digit growth, it isencouraging that our product offering and our strategy were effective fromNorway to Australia and from Canada to China. The increasing levels of product sourced from third party/joint ventureoperations have, this year, as in recent years, offset some of the increasedcost of UK manufacturing. They form a significant proportion of sales in many ofour principal markets. It is important to note that, in the main, these are notproprietary factored products, but are designed, tested and trialled by JamesHalstead. Our technical and support expertise was historically dedicated to ourManchester manufacturing operation, but has been and will be additionallyfocused on James Halstead branded, out-sourced products, since we demand thatthese must meet the high standards established over many years in the UK.Patenting, branding and ownership of intellectual rights plus fifty years ofexpertise underpin the confidence of our customers in "James Halstead" flooringproducts, which, like our company logo, bear our founder's signature. There were significant currency movements during the year and whilst diligenthedging of transactions was, as usual, in place, market movements inevitablyaffected results. The weak US dollar affected sales margins, not only in theUSA, but in many of the Far Eastern markets whose currencies tend to mirror itsmovements. Benefits gained from purchases made in US dollars and favourablemovements on exports in other currencies to a large degree mitigated theseeffects. Polyflor, the UK based operation Our active sales representatives support local distributors throughout the UKand globally, working on specifications and projects from inception toinstallation in a very wide range of applications. The variety of installationswas perhaps best illustrated when recently our Voyager Marine product was usedon the "50 Let Pobedy", a 25,000 tonne nuclear powered Russian ice breaker ableto break ice up to 2.8 metres thick. Turnover in the year increased in the UK, to overseas subsidiaries and mostparticularly in third party export markets. Almost all direct export marketsshowed good growth, and all significant markets were well ahead of last year.North America has historically presented a challenge for Polyflor, but thecurrent year has shown very good results. In the USA sales are 60% ahead of lastyear with Polyflor homogeneous flooring supplied to a number of importanthospitals. In addition, Polyflor supplied luxury vinyl tiles for installation insome of North America's largest retail chain stores including "Rite-Aid" and "Bed, Bath and Beyond". Sales to the Mediterranean region are also worthy of mention with the countriessurrounding the Mediterranean having become some of our largest third partyexport markets. Particularly pleasing were the results of a change indistribution in Turkey, where our new representative has really shown what canbe achieved in this market within a very short time frame. Sales growth in the UK has been solid, and some 10% ahead of last year. The mixof product was favourable, with good growth in the higher added value productssuch as luxury vinyl tile, heterogeneous product and safety flooring. Polyflorare now the only UK manufacturer of homogenous vinyl flooring and though thisgives the logistical advantage of being local it does mean that the factory mustcontinue to improve productivity as competitors move to lower labour costcountries. It is true to say that a significant part of the growth in salesemanating from Polyflor has come from Halstead branded products and this is atrend that seems set to continue. Manchester manufactured volumes increased by over 6%, which is encouraging, andthis increase in output helped to offset margin erosion resulting from ourinability to raise selling prices whilst facing increased costs. During the yearthere was no respite from high raw material prices and little relief fromincreased energy costs, but increased sales volumes, the benefit of product mixand the increased level of James Halstead branded products avoided marginerosion. The increased sales volume has meant that the logistics anddistribution functions of the company have also been developed to handle thegreater volumes. We continue to work with our local authority on sitedevelopments for the future. During the last twelve months there have been several product launches, forexample Bevel Line Wood, a luxury vinyl tile, Gallery FX Acoustic and Forest FXAcoustic flooring, which are particularly suitable for affordable and socialhousing, "Sport 67" and "Sport 80" flooring, aimed at the UK secondary schoolrebuild programme, together with Polysafe Strata and new colours for Polyflor2000 PUR. Each of these is targeted at our core markets in the UK where ourmarket share continues to be supported with strong initiatives and a portfolioof products focused on end user requirements. The strong focus in the UK on initiatives to combat the recent rise ininfections such as MRSA and E-Coli emphasises the extremely powerful case forthe use of homogenous sheet vinyl, providing no sanctuary for dirt and bacteria,in healthcare establishments. For example Polyflor's Mystique PUR is installedin the wards and corridors of Reading's Royal Berkshire hospital and ourproducts are in use throughout Alder Hey Hospital in Liverpool. For many yearsthe ease of maintenance and cleanability of our ranges have made them the bestflooring solution for almost every conceivable area within a hospital. Ourresearch and development ensures that our products continue to maintain theirsuperiority over the alternatives. The Polyflor campaign, "4 steps to safety", is the largest communicationcampaign we have ever undertaken with UK architects. It seeks to be balanced andeducational about slip management and, we feel, underlines our position as theclear market leading brand, emphasising and reinforcing the Polysafe reputationfor credibility and trust. A new initiative to raise the profile of slipresistant flooring in Germany has commenced with the German trade press visitingthe UK to learn more about the UK market, which leads the world in sustainableslip resistant flooring. It has been especially pleasing that the upgrades to the Polysafe line,installed to deliver greater capacity and, potentially, new products, wascommissioned without any disruption to our day to day safety flooring business.In April 2007 the Polysafe range was awarded the Queen's Award for innovationand continuous product development. Our training facility in Manchester, noted last year, has been opened and willnot only showcase our work but be a working facility to train new floor layershopefully combating skills shortages in our industry. I see this as animportant initiative for our industry and have confidence that its cost will bejustified. New product development is a key priority to enable us to maintain growth, enternew market sectors and maximise plant utilisation in all areas of ourmanufacturing units. Furthermore, we will need to continue to ensure that ourservice levels match the requirements of a growing business, and our customers,who have delivered this growth, continue to be provided with an excellentproduct backed up with outstanding service levels. Objectflor Art & Design, and Karndean International GmbH, our German basedoperations The year to June 2007 was Objectflor's most successful to date. Turnoverincreased by nearly 16%. As the year progressed, it was clear that a moreconfident economic environment increased business despite intense competitivepressure which was a feature of the whole year. The German business is solid interms of turnover and profitability and is a significant player in the world'sforemost vinyl flooring market. The initiative noted earlier to raise the profile of safety flooring is beingwell reported and received in Germany and Central Europe. It is clear thatlobbying and presenting to decision makers professionally and in detail isenhancing trading opportunities in the long term. Two new updated collections were also launched during this business year.Performa, our homogeneous range, was received throughout the market with greatinterest, and the new collection, launched in January of this year, has raisedthe profile of our homogeneous business. In addition, the Expona DomesticCollection was revitalised and consolidated this brand's status as one of themost successful luxury vinyl tile range in the German market. We believe thatboth businesses increased their market share in Germany and in the neighbouringcountries. In addition to servicing day to day demand this level of growth was achieved bythe sales force securing important projects against our competition - such asMechelen Hospital and IKEA, Dusseldorf. Some of the reasons for the successful result of our German based operations inthe past financial year are: improved stock levels in the market place, astable, experienced and motivated staff combined with outstanding trainingschools for customers, providing not only installation training but in addition,training in sales techniques. Underlying these factors we have very clear salesconcepts and consistent implementation in each of the Central European marketsthat the companies service. It is clear that the strong sales growth in Germany and the surrounding marketswill require additional warehousing and plans for further expansion are at anadvanced stage. The German market is one of the most developed markets for vinyl flooring in theworld and our success in this market continues with attention to product rangeand design that will be crucial to further expansion. Both businesses are wellplaced and well structured for continued progress. Polyflor Nordic, comprising Polyflor Norway, based in Oslo and Falck Designbased in Gothenburg 2006/07 has been a year of significant growth for the Scandinavian region. Falck Design, our business in Sweden, acquired three years ago, has grownstrongly with turnover very significantly ahead of the previous year. The newlydesigned Megastrong range of luxury vinyl tiles was re-launched during the yearand the product offering has been augmented by adding the Polyflor range intomarkets where our products were previously under-represented. During the yearFalck confirmed distributor arrangements with local parties to ensure thatproducts were more readily available ex-stock. This process is on-going and theprospect for increasing market share in Sweden is particularly good. In the Norwegian market, where we have been longer established, this was anotheryear of growth which saw our strong position in this market place maintained andexpanded. Overall our ranges saw significant growth and the company made gainsin market share with sales of rubber floor coverings being particularlyencouraging. Polyflor Pacific, encompassing our businesses in Australia and New Zealand The year saw the reorganisation of the Pacific Region bringing Australia, NewZealand and peripheral markets under a single management structure. Thisprovides synergy between the Australian and New Zealand businesses, with thebenefits having an encouraging impact over the course of the year. The Australian business reported a 16% increase in turnover over the previousyear with growth in all States and as a consequence profit moved strongly ahead. During the year there was significant focus on logistics and on delivering addedvalue following recent investment in operating systems. An Operations businessteam was established with resultant improvements in stock holding and stock turnwhich improved cash flow and customer service. The sales growth not only came from recent product launches, most significantlyluxury vinyl tile, but also the sales in Polyflor sheet vinyl which showeddouble digit volume growth on the previous year. As well as ensuring product availability and maintaining customer service thecompany continued with successful marketing initiatives such as the prestigiousPolyflor Highflyers awards. The Melbourne Cup is a high profile sporting event in Australia and our companyhas supplied flooring to the "Bird Cage Restaurant" overlooking the famousFlemington Racecourse at this legendary venue. Whilst our day to day businessis more mundane these prestigious installations enhance the profile of theproduct offering. The year also saw the introduction by the Australian business of the Kieselrange of cementitious screeds and adhesives which have been sold in Europe formany years but were sourced for the first time by the Australian business, andhave taken significant market share in their first year in the market. This notonly increases sales but, just as importantly, means that the company can offera total flooring package to its customers. The New Zealand business recovered after a slow start to record improvedturnover, up 4% on the previous year. The centralisation of some administrationfunctions and an improved sales mix contributed to a healthier net profit thanthe prior year. Major changes were also made to improve focus on customerservice. Whilst maintaining a full sales presence in the area, our Wellingtonwarehouse was closed and we plan to expand the Christchurch and Aucklandwarehouse operations. At the same time there was a radical consolidation of thecarpet portfolio to a smaller, more focused range of products. This enables thebusiness to present a more balanced branded flooring products range and to givefocus to the core ranges of James Halstead and, most particularly, Forbo brandedproducts. From the 1 August 2007 the New Zealand company changed its name to JamesHalstead Flooring New Zealand to emphasise its affiliation to the parent and itsmulti-brand credentials, as a major distributor of flooring products. The Sky Tower in Auckland looms over the city and again is fitted with productssupplied by ourselves. Polyflor Hong Kong, sales office for Asian and Far East Markets We have a significant presence in Asia and during the year there was modestsales growth in the region reflecting the effect of a very weak US Dollar, thisbeing the currency of trade in most Asian markets. Polyflor continued to beshort listed and to be specified in diverse government and private buildingprojects across China, in the face of very strong competition. The diversity isillustrated by the examples of the Beijing Rolex Customer Service Centre, whichwill repair, locally, luxury watches, and the Chinese People's Liberation ArmyShenyang Military Area Command Headquarters. During the year we have built up local stock holding on mainland China toservice and support a wider distribution base which has increased localday-to-day business. In addition, one of the major European manufacturers hasopened a manufacturing facility in China but we continue to be competitive withour UK manufacturing capabilities in which we have invested heavily in over theyears. With lower price point products it seems clear that basic homogenous vinyl isbecoming a commodity product but increasingly we look to specify and supplyhigher value products, such as the Polysafe range, which offers added benefitsand more unique selling features to a marketplace that is ever moresophisticated. Phoenix Distribution, based in Stoke-on-Trent, distributor of motorcycleaccessories The strategy of focusing on the core Arai business, commenced eighteen monthsago, has been successful. New motorcycle sales, as evidenced by registrationstatistics, have been static and despite the sluggishness in the accessoriesmarket Phoenix has performed exceptionally well. Arai motorcycle helmet saleshave increased by 14% year on year, Abus motorcycle locks, introduced in 2006,showed continued growth and other brands (Yoshimura, Kappa, Fog City, Pinlockand Shift It) have all performed steadily in a depressed market. Phoenix was appointed the UK Arai car helmet distributor in January 2007. Thisspecialised market, although smaller than the motorcycle market, opens up manynew exciting sales opportunities and ties in nicely with their public relationsand promotional activities with high profile racing drivers such as LewisHamilton, Fernando Alonso, Jensen Button and David Coulthard, all using the Araiproduct. Sales activities are focused through the Arai "Five Star" retailer concept whichhas proved its value, and a strong network of premier dealers add strength anddepth to the brand; each of these dealers has staff fully trained by Phoenix andhave detailed technical knowledge to underline the difference between cheaperbrands that use marketing to create an image of race performance and Arai whichis a race led brand. Given the market conditions and the very wet summer, tight control of workingcapital has been a key task but there has also been a very significantimprovement in bottom line performance. In 2008 we look forward to additionalhelmet standards coming into force which will affect the UK helmet market and,hopefully, make it clearer to the customer how important it is to invest in ahigh quality product, such as Arai, that far exceeds the basic European Standardfor motorcycle helmets. The input of ideas and cross fertilisation of conceptswith our much larger flooring operations are, over time, beneficial. Environment In the UK, as a manufacturer and supplier, we continue to issue a regularenvironmental report. We continue to see this as one of the criteria aresponsible manufacturer should meet. We continue to support our EN 14001accreditation and some of the key achievements are: ongoing reduction in energyusage (down 20% over the last five years), reduction in wet and dry waste (downover 23% in the last year) and ongoing initiatives to increase the use ofpost-consumer waste and recycled content. Looking Forward This year was the most successful in our Group's history. New productionequipment was installed to upgrade our facilities in Manchester, and newdistribution facilities were added in key areas. The volume of productmanufactured in Manchester has risen but price pressure is constant. There is nodoubt that out-sourcing additional James Halstead branded product is a majorpart of our activities and will continue. In recent years sales price increases have been, in many markets, precluded byvolume-driven competitors offering ever more price incentives. The year aheadshows signs of inflationary pressures and in certain areas selling prices willneed to reflect these pressures. Some initiatives envisaged may detract from short term profit opportunities butas the Group approaches its centenary we must look to the future. Overall, having regard to the operations we have around the globe I am confidentthat this excellent year can be consolidated in the next year and look forwardto further progress. I and the Board have a proud regard for our long historyof dividend growth and see this as the bulwark of a strategy of deliveringshareholder value. Mark Halstead, Chief Executive FINANCIAL DIRECTORS REPORT I preface my report by noting that these accounts have been prepared inaccordance with generally accepted accounting principles, using accountingpolicies which the directors consider are appropriate to give a true and fairview. The directors do not take their responsibility in presenting the accountslightly and the fundamental principles of going concern, matching of costs andrevenues, consistency and prudence, are the basis for their policies. Profit before tax at £23.3 million (2006: £17.5 million) shows an increase of33% despite high raw material and energy costs. Some of the key statistics are: • Group turnover at £142.9 million (2006: £126 million) up 13% • Underlying earnings per share at 31.2p (2006: 23.8p) up 31% • Dividends at 16.50p (2006: 12.25p) up 34.7%, being interim paid May 2007 and final proposed December 2007 • Trade debtors at £18.8 million (2006: £18.4 million) up 2% • Net cash at £22.8 million (2006: £30 million), despite spending £15.3 million on the special dividend During the year we returned cash of £15.3 million to shareholders by way of aspecial dividend of 30p per ordinary share. The final proposed dividendrepresents the 31st year of dividend increases. Defined Benefit Pension Scheme In recent years the final salary scheme has become an area of increasing work,partly the result of the growing cost of the provision of this type of pensionand partly the increasing legislative environment. The final salary scheme was closed to new members some years ago and a newdefined contribution scheme introduced. This has not meant that the issuesassociated with the original scheme have lessened, merely that they are notcompounded. I noted last year that several changes were made to the final salary scheme,effectively reducing future benefit accrual for individual members (with reducedcontributions from the employee but not the employer). To date these changeshave mitigated the increased cost of the scheme to the group. Individualemployees can choose to augment their future benefits by way of personalcontributions to the group's defined contribution scheme. The full accounts will detail the FRS 17 analysis of the scheme and whilst thisseems to be the main focus of attention for analysts and shareholders, it givesonly a snapshot of the scheme and the creditor in the balance sheet is veryfluid. It is sensitive to gilt yields and other assumptions and is at best arough guide to the ongoing liability. Certainly it falls well short of a 'buy-out' figure. It is important to appreciate that whilst the scheme is closed to new membersand future accrual rates for benefits have been reduced, the liabilities of thescheme are not capped but will continue to be determined not just by investmentreturns but also by longevity of pensioners. It is worth noting the decline inthe FRS 17 deficit despite all this, but as many of the factors that dictatethis figure are outside the group's control the issue remains under closescrutiny. The group will adopt International Financial Reporting Standards ("IFRS") forthe first time in its annual report for the year ending 30 June 2008.Consequently the group's interim results for the six months to 31 December 2007will be presented under IFRS. All UK employees are offered, by way of gift, share participation. Thisreflects the longer-term objective of rewarding employees for the success of theGroup. Rewarding employees by way of shares has extended the shareholder baseand a significant number of employees retain shares. Allocation is on variouscriteria but heavily biased to length of service Cash inflow from operating activities remained strong at £26.3 million (2006:£25.1 million).The overall decrease in cash of £7.3 million is after net capitalexpenditure of £3.3 million, payment of taxation and dividends (including thespecial dividend) less interest of £29.3 million and the repayment of borrowingsof £1.5 million. £0.5 million was received from share issues. The net funds(cash net of loans and preference shares classed as borrowings under FRS 25) at£19.9 million (2006: £25.6 million) show a healthy ungeared position. The overall decrease in net assets is £1.4 million with the increase fromprofits after tax and ordinary dividends of £8.9 million and exchange movements,actuarial gains (net of deferred tax) and share issues of £5.0 million beingoffset by the effects of the special dividend of £15.3 million. Net assets perordinary share decreased to 79.5p (2006: 82.6p). However to give a faircomparison, the 2006 figure should be adjusted to 52.6p to reflect the 30p pershare special dividend. Treasury The group's UK cash and bank balances are managed centrally at the group's headoffice. As a norm, the group makes use of foreign currency bank balances andfixed forward exchange contracts rather than more exotic financial derivativesin managing its currency exposures. Foreign currency bank accounts are operatedin all major currencies in which the group's UK subsidiaries have transactionalexposures. Balances on these accounts are monitored daily. Where appropriate, overseas subsidiaries have borrowing facilities with theirlocal banks. At 30 June 2007 all overseas subsidiaries had positive bankbalances. The group has significant transactional exposures relating to both sales andpurchases denominated in foreign currencies. In particular it is the group'sstated policy to undertake much of its export trade in local currency. Thisworks to our advantage by ensuring the sales volume does not fluctuate as aresult of exchange rate movements and removes risks from our trading partners. The level of forward cover in place is reported to the group board on a regularbasis. Overall, our approach to treasury management is to identify appropriateinstruments to facilitate the group's trading activities, and to be risk averse.There is no intention to trade in financial instruments or for the grouptreasury department to act as a profit centre in its own right and,consequently, "speculative" instruments and practices are avoided. Key Performance Indicators The group's subsidiaries are measured against detailed budgets and prior yearcomparatives. Monthly reports to the group executive directors and seniormanagement are required from their function directors. In terms of key performance indicators for the group as a whole the boardconsiders growth in profit before tax and growth in dividend levels to be ofmost importance. Since increase in the former is heavily linked to growth inturnover, close attention at main board level is given to sales strategies,product mix and gross margin. Dividend payments require sales to be translated into cash, and control ofworking capital is closely monitored. Levels of stock, debtors and creditors arecollated and reported to the board on a monthly basis. Our focus is on stockavailability, stock turn and appropriate credit being given to and received fromour customers and suppliers respectively, rather than performance indicatorsassociated with cash flow directly. No individual key performance indicator is regarded so highly that it canreplace the informed background knowledge, at board level, of our individualbusinesses, which underpins the way our group is managed. The board seeks to give an informative business review, but remains consciousthat the group's competitors do not offer significant disclosure of theirindividual key performance indicators. The board remains reluctant to publishkey statistics which may lead to loss of competitive advantage. The nature of key performance indicators is information and given the complexityof large scale manufacture many indicators are non-ratio or statistically basedand are assessed on absolute monetary cost to the group. Cost of 'sick pay' inmanufacturing can and does attract more attention than product margin in manycases, as indeed can corporate entertaining, customer complaints, employeeliability claims and consultancy fees. Principal Business Risks and Uncertainties The ongoing nature of a business such as ours dictates that the board bothunderstands the nature of the business and its direction. I would like tounderline the importance of detailed strategic board meetings held regularly atGroup and subsidiary level. The board constantly assesses risks. To the extentrisk is insurable the board is risk averse and is widely insured. The board is of the belief that internal control, risk management andstewardship are linked and inseparable. Whilst principally risk and control aremeasured and assessed from a financial prospective, this is not to the exclusionof non-financial risks and uncertainties. A comprehensive insurance appraisal takes place annually to mitigate riskexposures to business interruption, fire, etc. but obviously key risks such asescalating raw material prices and energy costs fall outside any insurableevent. There are key customers and key suppliers which create dependencies. Sales and purchasing policies are under regular review to assess thesedependencies. It is clear that scenarios can be envisaged where the group's activities may bedisrupted and little could be done to mitigate the negative effects. In Conclusion The nature of our annual report is to give information and demonstrateaccountability to our owners. The board's role is also to fulfil theobligations of stewardship and to maintain and defend shareholder value. Thereis a vast increase in prescribed disclosure and a lengthening of the annualreport which has the potential to detract from the core objectives, profit,dividend and growth. The Board welcomes shareholder views on this matter Gordon Oliver, Finance Director Accounting Standards and Prior Year Adjustments There is one new Financial Reporting Standard which has an effect on theseaccounts. FRS 20 - Share Based Payment, requires the inclusion of a charge tothe profit and loss account in respect of share options granted to employees.This charge, spread over the vesting period, is based on the fair value of theoption at the date of grant. There is no adjustment to the results of prior years in respect of the adoptionof this accounting standard since the effects are immaterial. Audited Consolidated Profit and Loss Account for the year ended 30 June 2007 2007 2006 £'000 £'000 Turnover 142,948 126,024 Operating profit 22,452 16,567 Interest and other finance costs 856 914 Profit on ordinary activities before taxation 23,308 17,481 Taxation on ordinary activities (7,657) (5,647) Profit on ordinary activities after taxation 15,651 11,834 Earnings per ordinary share (as defined in Note 4)-basic earnings per ordinary share 30.7p 23.3p-diluted earnings per ordinary share 30.5p 23.2p All the above results derive from continuing operations. Audited Consolidated Balance Sheet as at 30 June 2007 2007 2006 £'000 £'000 Fixed assets Intangible assets 3,004 3,232Tangible assets 18,334 18,687 21,338 21,919 Current assetsStocks 23,899 19,770Debtors 22,511 21,093Cash at bank, in hand and on short-term deposit 22,756 30,050 69,166 70,913 Creditors - amounts falling due within one year (44,880) (37,685)Net current assets 24,286 33,228 Total assets less current liabilities 45,624 55,147 Creditors - amounts falling due after more than one year (506) (4,441) Net assets excluding pension scheme deficit 45,118 50,706 Pension scheme deficit (4,502) (8,681) 40,616 42,025 Capital and reservesEquity share capital 2,555 2,543Equity share capital (B shares) 160 160Called up share capital 2,715 2,703 Share premium account 803 321Revaluation reserve 3,544 3,544Capital redemption reserve 3,626 3,449Profit and loss account 29,928 32,008 40,616 42,025 Audited Consolidated Cash Flow Statement for the year ended 30 June 2007 2007 2006 £'000 £'000 Net cash inflow from operating activities 26,309 25,130 Returns on investments and servicing of finance 945 856 Taxation paid (8,182) (6,866) Capital expenditure (3,289) (1,035) Equity dividends paid (22,013) (18,113) Cash outflow before financing (6,230) (28) Financing:Shares issued 494 285Decrease in debt (1,539) (1,794) Decrease in cash (7,275) (1,537) Reconciliation of net cash flow to movement in net fundsDecrease in cash (7,275) (1,537)Movement in debt 1,539 1,794 Change in net funds resulting from cash flows (5,736) 257Effect of exchange differences 18 (151) Movement in net funds for the period (5,718) 106 Net funds at start of year 25,621 25,515Net funds at end of year 19,903 25,621 Statement of Total Recognised Gains and Losses for the year ended 30 June 2007 2007 2006 £'000 £'000 Profit for the financial year 15,651 11,834Currency translation differences on foreign currency net investments 284 (438)Actuarial gain on the pension scheme 5,943 1,546Movement on deferred tax asset relating to the pension scheme (1,783) (464)Total recognised gains relating to the year 20,095 12,478 Prior year adjustment (implementation of FRS 17) - (9,790) Total recognised gains since the last report 20,095 2,688 Reconciliation of Movements in Shareholders' Funds for the year ended 30 June 2007 2007 2006 £'000 £'000 Profit for the financial year 15,651 11,834Equity dividends paid (22,013) (18,113) (6,362) (6,279) Other recognised gains and losses relating to the financial year 4,444 644FRS 20 share option charge 15 -New share capital subscribed 494 285 Net decrease in shareholders' funds for the year (1,409) (5,350) Opening equity shareholders' funds 42,025 47,375(at 1 July 2005 originally £57,475,000 before prior year adjustments of£10,100,000) Closing equity shareholders' funds 40,616 42,025 NOTES 1. The final dividend of 11.25p per ordinary share will be paidon 7 December 2007 to shareholders on the register as at 9 November 2007. Thefull report and accounts will be posted to shareholders on 29 October 2007. 2. The financial information on pages 15 to 20 does notrepresent the statutory accounts of the Group. Statutory accounts for the yearended 30 June 2006 have been delivered to the Registrar of Companies, carryingan unqualified audit report and no statement under section 237 (2) or (3) of theCompanies Act 1985. 3. Statutory accounts for the year ended 30 June 2007 have notyet been delivered to the Registrar of Companies. They will carry anunqualified audit report and no statement under section 237 (2) or (3) of theCompanies Act 1985. 4. Calculation of earnings per ordinary share 2007 2006 £'000 £'000 Basic earnings 15,651 11,834 Goodwill amortisation charge 228 228 Underlying earnings 15,879 12,062 Weighted average number of ordinary shares in issue 50,897,640 50,764,031 Weighted average number of ordinary shares in issue 51,273,344 51,008,831(diluted for the effect of outstanding share options) Basic earnings per ordinary share 30.7p 23.3pUnderlying earnings per ordinary share 31.2p 23.8pDiluted earnings per ordinary share 30.5p 23.2p This information is provided by RNS The company news service from the London Stock Exchange