Pz Cussons Regulatory News (PZC)

1 Aug 2006 07:00

PZ CUSSONS PLC01 August 2006 1st August 2006 PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE YEAR TO 31ST MAY 2006 Results (before exceptional items1) YE YE % change 31/05/06 31/05/05 Revenue £539.9m £480.1m + 12%Operating profit £60.2m £53.5m + 13%Profit before tax £63.6m £58.1m + 9%Adjusted basic earnings per share 88.96p 78.51p + 13% Statutory resultsOperating profit £57.8m £48.8m + 18%Profit before tax £61.2m £53.4m + 15%Basic earnings per share 83.30p 66.01p + 26%Dividend per share 38.80p 35.25p + 10%Net funds2 £51.9m £74.0m 1 Exceptional items are detailed in note 2.2 Net funds, above and hereafter, is defined as cash, short term deposits and current asset investments less borrowings. Highlights • Successful completion of the milk factory in Nigeria, constructed with Glanbia Plc, with sales of milk exceeding expectations. • Significant growth in our white goods business with Haier in Nigeria with further expansion of the product range. • Commissioning of the new bar soap factory in Thailand. • Completion of the restructuring of our Eastern European business. • Commencement of roll-out of Charles Worthington brand into UK nationwide trade. • Planned investment in a new UK liquids factory and further expansion of the Nigeria milk joint venture. • Planned succession of new Chief Executive, new Finance Director and new Regional Director Africa. • Proposed ten for one share split. Commenting today, Anthony Green (Chairman) said: "2006 has been another year of considerable progress for PZ Cussons. Revenue andprofits have improved as a result of good performance in all key territories,particularly Nigeria, and the elimination of losses incurred last year in Russia. The new board appointments from within our planned succession programmemean that we now have younger directors in place to complement the currenthighly experienced team. Our strategic focus remains on growth and marginimprovement in selected markets and we face the future with confidence." Press Enquiries PZ Cussons Graham Calder (Deputy Chairman) Alex Kanellis (Chief Executive) Brandon Leigh (Finance Director) Weber Shandwick Terry Garrett, John MoriartyOn 1st August 2006 c/o Weber Shandwick on: 020 7067 0700After 1st August to Graham Calder on: 0161 491 8000 An analysts' presentation will be held at 9.30am at the office of WeberShandwick, 14 Gray's Inn Road, London, WC1X 8WS Overview PZ Cussons is pleased to report another year of considerable progress for thetwelve months to 31st May 2006. Profit before tax and exceptional items rose 9%to £63.6m (2005: £58.1m) on revenue up 12% to £539.9m (2005: £480.1m). Afterexceptional items reported profit before tax increased by 15% to £61.2m (2005:£53.4m). Basic earnings per share were 83.30p (2005: 66.01p). Adjusted forexceptional items, adjusted earnings per share rose 13% to 88.96p (2005:78.51p). As at 31st May 2006 the Group had net funds of £51.9m (2005: £74.0m). The board is recommending a dividend increase of 10.1% for the year with aproposed final dividend of 29.50p per share (2005: 26.60p) to give a totaldividend for the year of 38.80p per share (2005: 35.25p). Subject to approval atthe annual general meeting, the final dividend will be paid on 27th September2006 to shareholders on the register at the close of business on 25th August2006. Trading performance - overview Operating profit before exceptional items rose by 13% to £60.2m (2005: £53.5m)on revenue up 12% to £539.9m (2005: £480.1m). This reflected good performancesin all key territories, particularly Nigeria, and the elimination of lossesincurred last year in Russia. Mature marketsIn mature markets, trade has been strong as a result of successful branddevelopment although this has required a higher level of investment to grow ourbrands in an increasingly competitive environment. Pressure on margins hascontinued with zero or negative inflation in selling prices as well as costincreases on materials, utilities and freight largely as a result of highercommodity and oil prices. Emerging marketsIn emerging markets, growth has largely arisen from our continued success inNigeria, where both the underlying business and new projects have contributed toincreased profitability. However, pressure on selling prices has been evident,particularly in the more mature product categories where competition isincreasing. The highlight of the year was the successful completion of the milkfactory in Nigeria, constructed ahead of schedule in conjunction with GlanbiaPlc, with sales of milk exceeding expectations. Financial position - overview The Group's balance sheet remains strong with net funds at 31st May 2006 of£51.9m (2005: £74.0m). Major expenditure in the year included £15.5m incurred onthe repayment of preference share capital and further investment in capitalexpenditure and working capital, principally in Nigeria. Cash generated frommature market operations effectively funds investment in emerging markets. Inaddition, the group's equity investment portfolio was liquidated during the yearto generate funds, principally to fund the investment in Nigeria. New projects The Group announces two significant new projects: In the UK, the Group is planning construction of a new, purpose built liquidsfactory to provide additional capacity to meet the long-term supply needs of ourgrowing UK business. The new factory will be located close to the current sitein North Manchester which will close when production fully transfers across tothe new site in 2008. Net costs of the project are estimated at £15m over thenext two years, which should largely be funded by the proceeds from the UKfactory sites in Nottingham and Manchester. In Nigeria, PZ Cussons and Glanbia are pleased to announce agreement to furtherinvestment in their joint venture with an expansion of the current milk factoryto provide additional capacity. Plans to invest in the development of furthernutritional products are at an advanced stage. Work to extend the currentfactory will commence later this year, with completion expected in 2008. TheGroup's share of this cost will be approximately £5m. Regional reviews Performance by region Operating profit before Revenue (£m) exceptional items1 (£m) 2006 2005 2006 2005 Africa 211.8 159.4 25.1 20.8 Asia 113.9 107.7 12.5 11.9 Europe 214.2 213.0 22.6 20.8 _____ _____ _____ _____Total 539.9 480.1 60.2 53.5 _____ _____ _____ _____ Africa Performance in Nigeria has been strong with both revenue and profitability up onthe previous year. The division of the business into separate business units,carried out during 2005, has proved very successful in its first full year ofoperation, with increased focus brought to each of the following areas: • Soaps and detergents; • Health and beauty; • Electrical goods (HPZ); • Milk and nutrition (Nutricima); and • Distribution. Strong brand renovation across the core portfolios of soaps, detergents andhealth and beauty resulted in improved revenue and profitability despite highercosts and increased competition. Growth in sales of fridges, freezers and air-conditioners continued withsignificant increases in both revenue and profitability compared to the prioryear. Further growth is expected from the expansion of current distribution andthe introduction of further electrical products to the range. The highlight of the year was the successful completion of the milk factorywhich was constructed ahead of schedule in conjunction with Glanbia Plc, withsales of milk in the year exceeding expectations. Sales of both powdered milkand evaporated milk have been made under the brand name 'Nunu' and have beenvery well received in the market. The Nigerian currency has remained steady against the dollar during the year asa result of continued political and economic stability, although the weakness ofthe dollar against sterling in the second half has negatively impacted resultsin that period. The Nigerian business concluded a rights issue in the year resulting in furtherinvestment from the UK of circa £20m which took the Group's holding toapproximately 61%. Funds raised are being used for the capital investmentprogramme which is focused on four key areas: • Expansion of production capacities • Improvements to factory infrastructures • Installation of gas power generation capability • Investment in nationwide depot network This investment not only provides a sound capital investment platform for thefuture but also complements the continuing margin improvement programme tocounter ongoing cost increases. Revenue and profitability in Ghana and Kenya are ahead of last year as a resultof both growth and margin improvement. African brands are being'pan-regionalised' to leverage the strength of the brands and to maximiseefficiencies, with haircare selected as the first such pan-regional project. Asia Australia continues to contribute significantly to the Group with excellentinnovation across its product portfolio of detergent, dishwash and personal carebrands. Radiant has maintained its position as a top two brand in the laundrycategory through creative technical developments such as adding UV protection toits formulation. Morning Fresh continues to be a significant brand in both theautomatic and manual dishwash market. The company's total dishwash share hasgrown with the acquisition of the Trix manual dishwash brand in May 2005. Theintegration of this brand into the business is progressing to plan with allproduction now brought in-house. Whilst profitability of the total Australiabusiness improved year on year, raw material and freight cost increases impactedon the business performance. Consumer disposable income in Indonesia declined during the year as a result ofsignificant increases in the price of oil following the withdrawal of governmentsubsidies. Despite this, revenue and profitability were maintained at lastyear's level due to consumer loyalty to the product portfolio, and in particularthe baby range where Cussons Baby continues to hold the number one position interms of market share. A significant margin improvement programme was rolled outduring the year to counter the effects of both competition and cost increases. In the other Asian units, Thailand, Malaysia and the Middle East, revenue andprofitability were maintained at last year's level. Europe In the UK, whilst the market remains competitive with continued pressure onselling prices, additional investment in brand development resulted in goodperformance. The Imperial Leather shower range was relaunched with exciting new fragrancesand supported by a nationwide media campaign. The Original Source brand,purchased in 2002, has been completely renovated with distinctive packaging andhas been favourably received by the consumer. The Carex range continues to bestrong with the bathroom variants, launched last year, performing well. A decision was taken earlier this year to expand the distribution of the CharlesWorthington brand into the nationwide trade. The supply into all key retailershas now begun with significant in-store displays being rolled out over thecoming months. Initial feedback from both the trade and the consumer is veryfavourable. The Nottingham factory has now closed ahead of schedule and all bar soap isbeing supplied from the newly constructed Thailand factory which is operating toplan. A conditional contract for the sale of the Nottingham site has now beensigned with completion expected within two years. The restructuring programme for the business in Poland, announced last year, hasbeen successfully completed with losses of the unit now eliminated following thewithdrawal of a direct presence in the Russian market. The cost base of thedomestic operation has been considerably reduced through closure of the liquidsand creams factory in Warsaw, which was sold prior to the year-end, and throughoverhead reduction at the head office. Whilst the Polish market remainsextremely competitive, successful brand renovation of the 'E' detergent andLuksja soap ranges has resulted in improved margins. Both revenue and margins in Greece have improved in the year. The portfolio ofproducts has been expanded with the launch of Minerva Benecol margarine and thepurchase of a small local pomace oil brand. The core Minerva olive oil rangewill also be relaunched later this year. Exceptional items A net operating charge of £2.4m (2005: £4.7m) for exceptional items, whichcomprises restructuring costs, profit on disposal of fixed assets and incomefrom debts previously written off. Further details are given in note 2. Taxation The effective tax rate before exceptional items was lower than the previous yearat 29.2% (2005: 30.5%) mainly due to the new Nigerian ventures being initiallyeligible for tax free status. Enfranchisement and preference share repayment In June 2005 shareholder approval was given for the enfranchisement of the 'A'non-voting shares and the repayment of the preference shares by a reduction ofshare capital which has now been completed. As part of the enfranchisement, acompensatory bonus issue, on the basis of one new ordinary share for every tenordinary shares held by each ordinary shareholder, was made on 29th June 2005.This has resulted in dividends being paid on an enhanced number of shares. Proposed share split The board is now proposing to shareholders that a share split is undertaken tofurther improve the liquidity of the company's shares. A proposal, therefore, ofa share split of ten shares per one share currently in issue is to be consideredas a resolution at the forthcoming annual general meeting. Further details canbe found in the separate circular containing the notice of meeting which will beposted to shareholders with the Annual Report and Financial Statements. Management As planned, Nigel Green retired as Chief Executive on 31st May 2006 and wassucceeded by Alex Kanellis. Two other new executive directors also joined theboard during the year. Brandon Leigh, previously Group Financial Controllerbecame Finance Director on 1st January 2006 following Graham Calder's promotionto Deputy Chairman and Chris Davis joined the board as Regional Director,Africa. Outlook The Group's focus on selected markets, leading brands and first classdistribution continues to provide a clear strategy for the future. Over the nextyear, the Group will be pursuing growth in all businesses as well as continuinga sustained margin improvement programme to counter ongoing pressures on bothselling prices and costs. The current economic and political stability in our key market of Nigeria hasgreatly assisted our growth and encouraged our recent new investments. With ourplans for further expansion we look forward to the continuation of thissituation after the forthcoming elections in the spring of 2007. The balance sheet remains strong with all projects currently being financed fromGroup net funds. Trading to date has been in line with management expectations. With a clearstrategy and continuing cadre of experienced senior management the directorsface the future with confidence. Consolidated income statement for the year to 31st May 2006 Notes Before Exceptional Total Before Exceptional Total exceptional items 2006 exceptional items 2005 items (note 2) items (note 2) £m £m £m £m £m £m____________________________________________________________________________________________________________Revenue 1 539.9 - 539.9 480.1 - 480.1Cost of sales (330.9) 1.0 (329.9) (284.5) (6.1) (290.6)____________________________________________________________________________________________________________Gross profit 209.0 1.0 210.0 195.6 (6.1) 189.5Selling and distribution expenses (86.7) (0.7) (87.4) (85.6) (0.5) (86.1)Administrative expenses (62.0) - (62.0) (56.5) - (56.5)Other (costs) / income - (2.7) (2.7) - 1.9 1.9Share of results of joint venture (0.1) - (0.1) - - -____________________________________________________________________________________________________________Operating profit 1 60.2 (2.4) 57.8 53.5 (4.7) 48.8Finance income 4.3 - 4.3 5.3 - 5.3Finance costs (0.9) - (0.9) (0.7) - (0.7)____________________________________________________________________________________________________________Net finance income 3 3.4 - 3.4 4.6 - 4.6____________________________________________________________________________________________________________Profit before taxation 63.6 (2.4) 61.2 58.1 (4.7) 53.4Taxation 4 (18.6) - (18.6) (17.7) (0.6) (18.3)____________________________________________________________________________________________________________Profit for the year 45.0 (2.4) 42.6 40.4 (5.3) 35.1____________________________________________________________________________________________________________Attributable to:Equity holders of the parent 37.8 (2.4) 35.4 34.1 (5.3) 28.8Minority interest 7.2 - 7.2 6.3 - 6.3____________________________________________________________________________________________________________ 45.0 (2.4) 42.6 40.4 (5.3) 35.1____________________________________________________________________________________________________________Basic EPS (p) 6 83.30 66.01Diluted EPS (p) 6 82.34 65.31____________________________________________________________________________________________________________Adjusted basic EPS (p) 6 88.96 78.51Adjusted diluted EPS (p) 6 87.94 77.66____________________________________________________________________________________________________________ The results shown above for both 2006 and 2005 relate to continuing operations. Consolidated balance sheet as at 31st May 2006 31st May 2006 31st May 2005 £m £m _________________________________________________________________________________ AssetsNon-current assetsGoodwill and other intangible assets 54.0 54.1Property, plant and equipment 140.1 139.3Investments in joint ventures - 0.1Other investments 0.8 0.5Receivables 0.1 0.1Non-current assets held for sale 1.3 -Retirement benefit surplus 23.4 23.1_________________________________________________________________________________ 219.7 217.2_________________________________________________________________________________Current assetsInventories 142.7 128.9Receivables and prepayments 87.2 70.6Investments 2.2 16.2Cash and short term deposits 65.8 65.7Current taxation receivable 2.7 1.5_________________________________________________________________________________ 300.6 282.9_________________________________________________________________________________Total assets 520.3 500.1_________________________________________________________________________________LiabilitiesCurrent liabilitiesBorrowings (14.0) (5.2)Trade and other payables (83.8) (81.9)Current taxation payable (13.3) (11.4)Provisions (1.9) -_________________________________________________________________________________ (113.0) (98.5)_________________________________________________________________________________Non-current liabilitiesBorrowings (2.1) (2.7)Other liabilities (3.6) (5.8)Deferred tax liabilities (24.6) (25.1)UK retirement benefit obligation (30.5) (27.9)Provisions (8.1) (12.1)_________________________________________________________________________________ (68.9) (73.6)_________________________________________________________________________________Total liabilities (181.9) (172.1)_________________________________________________________________________________Net assets 338.4 328.0_________________________________________________________________________________ EquityOrdinary share capital 4.3 4.1Preference share capital - 7.9Capital redemption reserve 0.7 0.7Revaluation reserve 27.3 28.1Other reserve (2.9) (1.1)Equity reserve 0.8 0.4Currency translation reserve 3.3 5.5Retained earnings 258.5 245.4_________________________________________________________________________________Equity attributable to equity holders of the parent 292.0 291.0 Equity minority interest 46.4 37.0_________________________________________________________________________________Total equity 338.4 328.0_________________________________________________________________________________ Consolidated cash flow statement for the year to 31st May 2006 Year to Year to 31st May 31st May 2006 2005 £m £m_________________________________________________________________________________Operating activitiesCash generated from operations 35.8 53.9Taxation (18.3) (18.7)_________________________________________________________________________________Net cash flow from operating activities 17.5 35.2_________________________________________________________________________________ Investing activitiesInvestment income received 8.5 7.1Purchase of property, plant and equipment (25.5) (18.3)Sale of property, plant and equipment 10.2 19.2Purchase of intangible assets (0.2) (6.0)Purchase of subsidiaries, including overdrafts acquired - (24.5)Net cash balances disposed of with subsidiary undertaking (0.4) (0.2)Payments to acquire interests in joint ventures - (0.5)Purchase of non-current asset investments (0.3) -Purchase of current asset investments - (9.3)Sale of current asset investments 14.0 8.6Loans to joint ventures - (6.2)_________________________________________________________________________________Net cash flow from investing activities 6.3 (30.1)_________________________________________________________________________________ Financing activitiesInterest paid (0.9) (0.6)Preference dividends paid (0.1) (0.8)Dividends paid to minority shareholders in subsidiary companies (2.5) (1.9)Purchase of shares for ESOT (2.6) (0.3)Ordinary dividends paid (15.2) (13.1)Net (decrease) / increase in short term borrowings (3.4) 2.8Cash received from minority shareholders in respect of rights issue 5.3 -Repayment of preference share capital (15.5) -_________________________________________________________________________________Net cash flow from financing activities (34.9) (13.9)_________________________________________________________________________________Net decrease in cash and cash equivalents (11.1) (8.8)Cash and cash equivalents at the beginning of the year 65.4 73.6Effect of foreign exchange rates (0.4) 0.6_________________________________________________________________________________Cash and cash equivalents at the end of the year 53.9 65.4_________________________________________________________________________________ Reconciliation of operating profit to cash generated from operations 2006 2005 £m £m________________________________________________________________________________Profit before tax 61.2 53.4Adjustment for finance income (3.4) (4.6)________________________________________________________________________________Operating profit 57.8 48.8________________________________________________________________________________Depreciation and adjustments on disposals 10.1 6.3Loss on sale or termination of operations - 3.3Add back charge for shares purchased for ESOT 0.8 0.2Impairment of tangible fixed assets 3.3 -________________________________________________________________________________Operating cash flows before movements in working capital 72.0 58.6Movements in working capital:Inventories (14.0) (13.4)Receivables (18.2) 6.7Payables (1.9) (3.4)Provisions (2.1) 5.4________________________________________________________________________________Cash generated from operations 35.8 53.9________________________________________________________________________________ Consolidated statement of total recognised income and expense for the year to 31st May 2006 2006 2005 £m £m________________________________________________________________________________Actuarial losses on defined benefit pension schemes (3.8) (3.6)Exchange differences on translation of foreign operations (2.4) 5.9Taxation on items taken directly to equity 1.8 1.7________________________________________________________________________________Net (expense) / income recognised directly in equity (4.4) 4.0Profit for the year 42.6 35.1Adoption of IAS 39 2.0 -________________________________________________________________________________Total net income and expense recognised for the year 40.2 39.1________________________________________________________________________________Attributable to:Equity holders of the parent 33.2 32.3Minority interests 7.0 6.8________________________________________________________________________________ NOTES 1 Segmental reporting Geographic segments 2006 Africa Asia Europe Eliminations Total £m £m £m £m £m_________________________________________________________________________________Total gross segment revenue 211.9 116.8 355.4 (144.2) 539.9Inter segment revenue (0.1) (2.9) (141.2) 144.2 -_________________________________________________________________________________Revenue 211.8 113.9 214.2 - 539.9Segmental operating profit before exceptional items 25.1 12.5 22.6 - 60.2Exceptional items (0.5) (0.2) (1.7) - (2.4)_________________________________________________________________________________Segmental operating profit 24.6 12.3 20.9 - 57.8_________________________________________________________________________________ 2005_________________________________________________________________________________Total gross segment revenues 159.5 108.7 329.9 (118.0) 480.1Inter segment revenues (0.1) (1.0) (116.9) 118.0 -_________________________________________________________________________________ Revenue 159.4 107.7 213.0 - 480.1Segmental operating profit before exceptional items 20.8 11.9 20.8 - 53.5Exceptional items - (3.4) (1.3) - (4.7)_________________________________________________________________________________Segmental operating profit 20.8 8.5 19.5 - 48.8_________________________________________________________________________________ Business segments Revenue by business segment 2006 2005 £m £m________________________________________________________________________________Toiletries and household 435.8 416.9Other 104.1 63.2________________________________________________________________________________ 539.9 480.1________________________________________________________________________________ 2 Exceptional items The Group has adopted a columnar income statement format which seeks tohighlight significant items within the Group's results for the period. Suchitems are considered by the directors to be exceptional in nature rather thanbeing representative of the underlying trading of the Group, and may includesuch items as fundamental restructuring costs, material impairments ofnon-current assets, and profit or loss on disposal or termination of operations.The directors believe that the separate disclosure of these items is relevant toan understanding of the Group's financial performance. Year to 31st May 2006 Profit Profit before after taxation Taxation taxationExceptional items included within operating profit: Effect on: £m £m £m_________________________________________________________________________________Restructuring of UK operations (i) (6.5) 1.6 (4.9)Restructuring of smaller overseas operations (ii) (3.1) - (3.1)Profit on disposal of property, plant and equipment (iii) 1.9 - 1.9Income from bad debts previously written off (iv) 5.3 (1.6) 3.7_________________________________________________________________________________Total (2.4) - (2.4)_________________________________________________________________________________ (i) Restructuring of UK operationsA decision was taken in the previous financial year to close the soapmanufacturing factory in Nottingham and transfer the production to PZ CussonsThailand. The exceptional charge to the consolidated income statement of £6.5million comprises impairment provisions for plant and machinery of £3.3 millionand other associated restructuring costs of £3.2 million. (ii) Restructuring of smaller overseas operationsCosts of £3.1 million in relation to the rationalisation of the Group's smalleroperations, being the Cameroun business which has been put up for sale and theUSA operation which has been converted from direct sale to a licencearrangement. (iii) Profit on disposal of property, plant and equipmentDuring the year, the sale of the Group's liquids and cream factory in Warsawresulted in an exceptional gain on disposal of £1.9 million. (iv) Income from bad debts previously written offNet income of £5.3 million has been recognised in the period as a result ofrecoveries from ECGD of bad debts written off several years ago, which have nowbeen recovered as a result of Nigeria's settlement with the Paris Club ofcreditors. 3 Net finance income 2006 2005 £m £m_______________________________________________________________________________Current asset investment income:Net investment gains 2.7 3.0Interest and dividends receivable 1.6 2.3_______________________________________________________________________________ 4.3 5.3Interest payable on bank loans and overdrafts (0.9) (0.7)_______________________________________________________________________________ 3.4 4.6_______________________________________________________________________________ 4 Taxation 2006 2005 £m £m________________________________________________________________________________Current tax 18.1 20.3Deferred tax 0.5 (2.0)________________________________________________________________________________Total tax charge 18.6 18.3________________________________________________________________________________ UK corporation tax is calculated at 30% (2005: 30%) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. The tax charge for the year can be reconciled to the profit per the consolidatedincome statement as follows: 2006 2005 £m £m________________________________________________________________________________Profit before tax 61.2 53.4________________________________________________________________________________ Tax at the UK corporation tax rate of 30% (2005: 30%) 18.4 16.0Tax effect of expenses that are not deductible indetermining taxable profit 1.3 2.1Tax effect of timing differences on which deferred tax isnot provided (0.2) (0.1)Tax effect of utilisation of tax losses not recognisedin deferred tax (0.8) 1.8Effect of different tax rates of subsidiaries in overseasjurisdictions (0.7) (1.2)Sale of properties - 0.5Prior period adjustment 0.6 (0.8)________________________________________________________________________________Tax charge for the year 18.6 18.3________________________________________________________________________________ 5 AGM and dividend The board is recommending a dividend increase of 10.1% for the year with aproposed final dividend of 29.50p (2005: 26.60p) per share for a total of 38.80p(2005: 35.25p).The gross amount for the proposed final dividend and interimdividend is £16.4 million (2005: £14.8 million). The date of the annual general meeting has been fixed for 25th September 2006and dividend warrants in respect of the proposed final dividend, subject toshareholders' approval, will be posted on 27th September 2006 to members on theregister at 5.00 pm on 25th August 2006. 6 Earnings per share Basic earnings per share and diluted earnings per share are calculated bydividing profit for the period attributable to equity holders by the weightedaverage number of shares in issue: Year ended Year ended 31st May 31st May 2006 2005________________________________________________________________________________Basic weighted average (000) 42,375 42,415________________________________________________________________________________Diluted weighted average (000) 42,872 42,872________________________________________________________________________________ The difference between the basic and diluted weighted average number of sharesrepresents the dilutive effect of the deferred annual share bonus scheme and theexecutive share option scheme. The profit attributable to equity holders for the period is as follows: 2006 2005 £m £m________________________________________________________________________________Profit attributable to ordinary equity shareholders 35.3 28.0Exceptional items (note 2) 2.4 5.3________________________________________________________________________________Adjusted profit 37.7 33.3________________________________________________________________________________ Adjusted earnings per share 2006 2005________________________________________________________________________________Basic earnings per share 83.30p 66.01pExceptional items 5.66p 12.50p________________________________________________________________________________Adjusted basic earnings per share 88.96p 78.51p________________________________________________________________________________Diluted earnings per share 82.34p 65.31pExceptional items 5.60p 12.35p________________________________________________________________________________Adjusted diluted earnings per share 87.94p 77.66p________________________________________________________________________________ 7 Net funds 2006 2005 £m £m________________________________________________________________________________Cash at bank and in hand 25.9 14.9Deposits 39.9 50.8Current asset investments 2.2 16.2Overdrafts (11.9) (0.3)Loans due within one year (2.1) (4.9)Loans due after one year (2.1) (2.7)________________________________________________________________________________Net funds 51.9 74.0________________________________________________________________________________ 8 Accounting policies The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted for use in the European Union(EU), including International Accounting Standards (IAS) and interpretationsissued by the International Financial Reporting Interpretations Committee(IFRIC). Results for the comparative period have been restated under IFRS asadopted for use in the EU. IFRS, as adopted by the EU, differs in certain respects from IFRS as issued bythe International Accounting Standards Board (IASB). However, the consolidatedfinancial statements for the periods presented would be no different had theGroup applied IFRS as issued by the IASB. References to IFRS hereafter should beconstrued as references to IFRS as adopted by the EU. The preparation of financial statements, in conformity with generally acceptedaccounting principles under IFRS, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Although these estimates are based onmanagement's best knowledge of the amount, event or actions, actual resultsultimately may differ from those estimates. The disclosures required by IFRS 1 'First-time adoption of InternationalFinancial Reporting Standards' concerning the transition from UK GAAP (UnitedKingdom generally accepted accounting practice) to IFRS are given in theconsolidated financial statements. The financial statements have been prepared on a historical cost basis.Whilst the financial information in this preliminary announcement has beencomputed in accordance with IFRS this announcement does not itself containsufficient information to comply with IFRS. The company expects to publish fullfinancial statements that comply with IFRS on 24th August 2006. 9 Basis of financial statements The 2006 results are an abridged version of the statutory financial statementsfor the year ended 31st May 2006 which have been approved by the board ofdirectors and which carry an unqualified audit report. The 2005 results for theyear ended 31st May 2005 which were prepared under UK GAAP carry an unqualifiedaudit report and have been filed with the Registrar of Companies. Neitherfinancial statements contain a statement in respect of s.237(2) or (3) of theCompanies Act 1985. Approved by the board of directors on 1st August 2006. This information is provided by RNS The company news service from the London Stock Exchange