Ukrproduct Regulatory News (UKR)

24 Apr 2007 07:01

Ukrproduct Group Ltd24 April 2007 24 April 2007 UKRPRODUCT GROUP LTD ('UKRPRODUCT' OR 'UKRPRODUCT GROUP') Preliminary Results for the year ended 31 December 2006 Ukrproduct Group Ltd is a leading Ukraine-based producer and distributor of branded dairy foods. Highlights (2005 - in brackets, as reported and alternate prior year figure*) • Sales: £35.1 million (£39.9 million); (£39.9 million*)• EBITDA: £2.8 million (£3.5 million); (£2.9 million*)• PBT: £1.2 million (£2.3 million); (£1.8 million*)• Net profit: £1.1 million (£2.0 million); (£1.4 million*)• Gross margin: 20.7 % (16.9%); (16.9%*)• Basic earnings per share: 2.6p (5.0); (3.6p*)• Proposed final dividend of 0.51p per share giving 0.61p for the full year• Maintained market position in core segments of processed cheese and packaged butter• Asset base modernised and prepared for upmarket product initiatives * The results of the prior year 2005 benefited from the foreign exchange gain ontranslation differences of £0.6 million. As a result of the change in accountingestimate (please refer to Note 1), there is no comparable income in the currentyear 2006. The comparable figures for EBITDA, PBT and net profit adjusted forthis item show the alternate prior year figures to reflect the underlyingtrading performance of the business. Numbers rounded up. For the complete numbers please refer to the FinancialStatements. Commenting on the 2006 results, Iryna Yevets, Chief Executive of UkrproductGroup Ltd., said: "In 2006, Ukrproduct Group combatted the adverse consequences of the Russianimport ban on Ukrainian dairy products and finished the year with good operatingprofit and a strong balance sheet. In an extremely challenging environment, westrengthened the Group's asset base, retained its market-leading positions andpreserved the Group's core distribution capability. By improving the quality ofearnings, we believe that foundations have been built for healthy organic growthin the future." For further information: Ukrproduct Group April 24 2007Iryna Yevets, CEO, and Dmitry Dragun, CFO +44 (0)778 646 6639 Thereafter +38 044 502 8014 WH Ireland Limited +44 (0)161 832 2174David Youngman CHAIRMAN'S STATEMENT Results In the context of the challenging environment, I am pleased to announce theGroup's annual results for 2006. Sales were £35.1 million, down from £39.9million in the previous year. On a comparable basis, EBITDA is reported at £2.8million, as against £3.5 million (£2.9 million (See Note 1)) in the previousyear. Profit before tax was £1.2 million compared to £2.3 million (£1.8 million(See Note 1)) in 2005. Significantly, gross profit margin improved to 20.7% from16.9% in 2005. As one of Ukraine's leading dairy producers, we are ingrained in the fabric ofthe country's business environment. As a significant food exporter, we are alsodependent on world markets and international politics. Imposed in January 2006,the Russian import ban on Ukrainian dairy products was as much a politicaldecision as it was a turning point for the entire dairy industry of Ukraine.Under huge pricing pressure and a massive transfer of value to the consumers,Ukrproduct Group successfully resisted the industry-wide price reductions. I amdelighted to confirm that this strategy has worked well - the Group can reporttrading results for 2006 that are broadly in line with the pre-crisis resultsfor 2005. Dividends The Group is committed to a balanced dividend policy whereby the shareholdersare rewarded in line with the trading performance while a balance betweenreinvesting profits and dividend distributions is maintained. As a result, theBoard is recommending a final dividend payment of 0.51 pence per ordinary sharefor the year ended 31 December 2006 which would lead to 0.61 pence per ordinaryshare for the full year. If approved at the AGM, the final dividend will be paidon 29 June 2007 to shareholders on the register as at 1 June 2007. Strategy Ukrproduct Group continued with its strategy of developing and retaining itsmarket position in two core product segments - processed cheese and packagedbutter. These will be supplemented soon by hard cheese - a product that weexpect will play a key role in expanding the Group's range and in helping toretain and expand the customer base. The Group's manufacturing capability remains one of the most up-to-date inUkraine; a significant amount of capital expenditure was dedicated this year toboth building the new hard cheese plant and to improving the existing asset baseto ensure high quality of the product offering. The largest single asset putinto operation in 2006 was the new skimmed milk powder (SMP) production facility- this is a timely addition to the Group's existing SMP capacity in the midst ofa very favourable price trend in the world market. Brands remain the backbone of our business but it is true to say that this yearthey have had to withstand a number of challenges. Intense price pressure, aglut of substitute products in the market and more discerning consumers have allcombined to provide for the most challenging trading environment in years. Underthese conditions, the Group's premier brands such as "Our Dairyman" retainedtheir leading market positions and substantially improved margins. We arededicated to strengthening our core brands, as well as cautiously nurturing newbrands in hard cheese. Our distribution network, as in prior years, played a key role in supporting theGroup's sales. While retail chains develop dynamically in Ukraine, the moretraditional channels of distribution, such as open-air markets, continue to playa material role in selling the Group's products. Our distribution subsidiariesthroughout Ukraine provide valuable services, and supply the Group's executiveswith quality feedback on most recent developments. We are satisfied with thecurrent distribution arrangements and in the future we shall be making everyeffort to make sure that this distribution structure is supported andmaintained. Since becoming a public company in 2005, the Group has undergone a substantialtransformation and is now a vertically integrated, pan-Ukrainian operator with asignificant asset base and leading domestic market shares in processed cheeseand packaged butter. We are also encouraged by our established exportoperations. On behalf of the Board, it is with pride and confidence that I congratulateeveryone at the Group for their steadfast achievements in what was a very tryingbusiness environment last year. Success is built by people and for people - I amextremely confident that the coming years will see the significant results ofour joint effort. Jack Rowell Chairman 24 April 2007 Note 1: In brackets are comparable alternate prior year figures adjusted forthe foreign exchange gain on translation differences. CHIEF EXECUTIVE'S STATEMENT Introduction Much as we are used to the vibrant nature of Ukraine's business environment,2006 proved exceptionally volatile by any measure. The year started withintroduction by the Russian veterinary authorities, of what effectively becamean import ban on Ukrainian dairy products. Remaining in force throughout theyear, the ban was the year-defining event. It most profoundly affected theUkrainian manufacturers of hard cheese; in particular, those who traditionallysupplied close to 100% of their output to Russia. Suddenly deprived of thelong-accustomed access to the Russian market, these manufacturers dramaticallyincreased supply into the Ukraine domestic market resulting in substantiallyreduced prices for hard cheeses. Although Ukrproduct Group did not produce hardcheese or export to Russia at the time, the indirect effects of significantoversupply were felt by the Group almost immediately. Some of the surplus inhard cheese was re-processed into soft cheese thus flooding the Group's coremarkets and putting intense price pressure on its entire product range. Productsubstitution effect also had a negative impact: given the plentiful supply oflow-priced (albeit often low-quality) hard cheese, some customers switched fromprocessed cheese in favour of hard cheese. In their totality, by mid-year all these developments caused a significantdeterioration of the business environment for the entire dairy industry inUkraine. In the first six months of the year, basic product prices remained lowand the determination of dairy producers to maintain sales volumes added topricing pressures. In this situation, Ukrproduct Group, albeit better positionedthan some of its competitors to withstand these pressures, was unable to preventthe first monthly operating loss in its history in May. Moreover, furthermargin compression resulted in June and July. As an immediate response to these pressures, a cost rationalisation programmewas launched, resulting by September in a significant improvement of the Group'sfinancial position and a leaner cost base. In parallel, as a matter of businessprinciple, the Board adopted a strategy of maintaining margins at the sake ofvolume sales, in particular, by reducing its presence at open-air markets whichtraditionally had been a high volume outlet for processed cheese and butter butat margins lower than those achievable in other areas. In the remainder of theyear, our strategy proved successful and, despite lower sales volumes forprocessed cheese, margins and volumes in every other product were maintained.In particular, sales of packaged butter finished the year at a similar volume tothe previous year and at better margins. Our emphasis, at all times, on qualityfound favour with consumers who, encouragingly, appear to be prepared to pay ahigher price for a better quality product. Throughout the entire year, sales ofskimmed milk powder ("SMP"), our third major product, remained strong althoughdepressed world prices impacted upon margins in the first half. The secondhalf, however, proved reasonably successful as the concurrent droughts in the USand Australia reduced the supply of SMP to the world market and lead toincreased prices. As a result of these developments, the Group's sales of £35.1 million in 2006were below those of 2005. However, we believe the quality of sales and earningshave been substantially enhanced and, as a consequence of our firm decision topreserve profitability, gross margins have improved at the gross level to 20.9%in 2006 from 16.9% in the previous year. Overall, it is my firm belief that not only did we finish 2006 in much betterfinancial shape than an overwhelming majority of competitors in Ukraine but wealso managed to achieve greater efficiencies throughout the entire business ofthe Group. Operating review In the 2005 Annual Report, we noted "slowing GDP growth and weaker consumerspending" in Ukraine. Subsequently, the economy appeared to gather steam but, bythe middle of the year it was clear that food consumption was not going torecover to the levels observed in 2003-2005; consecutive increases in gas andelectricity prices and accumulation of mortgage and personal debts combined toput pressure on consumers' food budgets. Against this background for food consumption, we are pleased with the productionand sales of the Group. Production of processed cheese was 12,800 tonnes (2005:14,700 tonnes) while output of packaged butter remained stable at 9,200 tonnesin both 2006 and 2005. Production of milk powder also increased during the yeartotalling over 4,000 tonnes (2005: 3,700 tonnes). During the year, operating developments of the Group continued according toplan. Notwithstanding the challenging business environment, the capital expenditureprogramme continued as planned. The majority of expenditure was deployed in thebuilding of a new hard-cheese plant at the site of one of our operating plants,Starkon. The hard-cheese plant is scheduled to become fully operational in May2007, with trial batches coming off in June and full capacity likely to beachieved by the end of the year. When fully operational, the plant will beproducing up to 3,600 tonnes of hard cheese annually. Encouragingly, thetrading environment and timing for our entry into the domestic hard cheesemarket appears very favourable for the Group as small-scale manufacturers areincreasingly being put out of business by a combination of high raw milk prices,inadequate product quality and an inability to reach customers efficiently. Withour national network, we believe the Group is much better positioned to mitigatethese factors and to capitalise on the opportunities that the hard cheesesegment offers. Another important capital expenditure item was the installation, in December2006, of the new SMP dryer at the Starkon plant. The timing of its installationproved fortunate as, by the end of 2006, world SMP prices recovered. The newSMP dryer has nearly doubled the Group's SMP production capacity and, mostimportantly, allowed the Group to produce an output of excellent quality withbroader customer acceptance. At the beginning of 2007, the new installation wasrunning at full capacity and is expected to provide the Group with furthersignificant sales in 2007. As in the previous year, the Group's distribution capability was a cornerstoneof our performance in 2006. We made selective investments in our distributionsubsidiaries which, in turn, provided the guidance and support to the Group'ssales team in strengthening relationships with leading retailers. We are seeingthe results of our continuing efforts as retailers are keen to retain andsupport pan-Ukrainian food manufacturers. At this stage of development, theorganised retail chains in Ukraine are keenly interested in securing a reliablesupply of quality foods to their stores. The directors of the company areaiming for Ukrproduct Group to be a partner of choice for such retailers. Prospects The Board believes that the Group's core markets in Ukraine of processed cheeseand packaged butter have reached a certain level of maturity. Consumption-onlydriven growth has moderated and is unlikely to deliver substantial benefits tothe Group. The board is looking for future growth by expanding the Group'smarket share in traditional products, entering adjacent markets and exploitingopportunities outside of Ukraine. We are keen to pursue all these routes. Domestically in Ukraine, our market share in processed cheese and packagedbutter should remain intact. Although still challenged by low-quality, low-priceproducers, we are observing a gradual return to more normal trading patterns.Stable quality and predictability of supply from Ukrproduct Group remain themajor factors of attraction for emerging retail chains. Over the years, Ukrproduct Group has paid particular attention to building avertically integrated operation to maintain the stability of sales andprofitability, notwithstanding the fluctuations in the operating environment.Our industrial assets are now capable of producing all semi-processed materialsrequired for production of processed cheese and butter; with the launch of thehard-cheese plant we will extend the value-added chain into reprocessing of wheyand production of whey powder. Various stages of our value-added process helpthe Group to remain a balanced dairy producer thus securing the overallstability of business. Another important aspect of our business is customer differentiation. Whendeveloping the Group's distribution capability in the years of fast growth, wehave always kept in mind various customer segments and distribution channels.Some of these channels, such as independent distributors, have been - andlargely remain - reliable partners; their margins are determined by theirability to deliver agreed sales targets with planned margins. Some otherchannels, such as open-air markets and small shops, have proved more of achallenge from the viewpoint of cost of service and margins. Recognisingdifferences in customer requirements, we have divided our product trademarksamong various distribution channels. Such trademarks as "Our Dairyman" and "Kremlin" will only be supplied to the retail distribution channels whereas "People's Product", "Nash CyrOK" and "Divogray" will be channelled throughopen-air markets. This division allows the Group to cater to different customeraudiences and maintain a cost-effective balance between customer value andprofitability. Our brand portfolio is another important facet of our business. We believe ourbrands preserve our sales base and secure profit margins by ensuring customerrecognition and delivering a price premium over comparable products. Duringtimes of intense price pressure, our brands such as "Our Dairyman" havemaintained volumes and the margins. Two new brands will be introduced with thelaunch of our own hard cheese production in May this year. These brands will bepositioned in the quality segment of the market. Outlook Following the events of 2006, the executive team intends to put a renewedemphasis on the development of branded quality products for the medium andhigh-income consumers. For the first time in the Group's history, our major newinitiative - the entry into the hard cheese market - will be specificallyintended for high-end customers. In our other core segments, we are following asimilar approach and are keen to move products upwards both in terms of customervalue and price. Our approach is balanced; we are conscious that dairy productsare staple food for the majority of the population, thus any upmarket initiativemust be based on the strength and recognition of our core brands. Importantly,the upmarket product segments have very high entry barriers as capitalexpenditure and quality requirements are substantial. Over recent years, we haveconducted a substantial modernisation programme of the Group's plants resultingin a solid asset base. We believe that we are well-positioned to capitalise onthe growing taste for quality foods among Ukrainian consumers. On the basis of our expertise in launching new products and building dairyplants, we are currently working on an expansion programme for the next fiveyears. 2006 was a significant test of the Group's ability to progress in afast-changing, demanding business environment. Our response to this test givesus confidence for the future. Iryna Yevets Chief Executive Officer 24 April 2007 FINANCIAL REVIEW Results Sales are reported at £35.1 million compared with £39.9 million for 2005. Bysegment, processed cheese accounted for 36% of sales or £12.7 million; butterfor 33% or £11.6 million and milk powders for 20% or £7.0 million with thebalance made up by third-party products and services. EBITDA for the year was£2.8 million versus £3.5 million (£2.9 million (See Note 2)) in 2005. Profitbefore taxes (PBT) was £1.2 million compared to £2.3 million (£1.8 million (SeeNote 2)) with net profit of £1.1 million versus £2.0 million (£1.4 million (SeeNote 2)) in 2005. Gross profit margin increased from 16.9% in 2005 to 20.7% inthe year under review. Profitability was adversely affected by a significant increase in thedepreciation charge. In 2006, this amounted to £1.4 million compared to £0.9million in 2005 and was a reflection of the substantial increase in the Group'sasset base. Product segments The following table shows the gross and PBT margins for 2005 and 2006. Product / Year Cheese Butter Milk powders 2006 2005 2006 2005 2006 2005Gross margin, % 24.1 23.3 24.7 14.8 12.3 11.4PBT margin, % 5.0 9.6 10.1 3.7 9.2 9.5 The gross margin in cheese improved slightly as a result of the executivedecision to preserve profitability by restricting the sales volumes. In butter,the dramatic improvement in margins is mostly attributable to a greaterproduction of the own butter with higher margins. In milk powders, the marginsessentially remained stable. Cash flow and capital expenditure The net cash flow from operating activities during the year was £3.8 millionversus a net outflow of £1.2 million in 2005. This reflected a decrease in tradereceivables and inventory; the former reflecting the tighter credit terms andthe latter, the reduction in the inventory stored due to the improvedavailability of semi-processed dairy materials. The underlying cash generationof the Group remained strong thus allowing the Group to carry on with theplanned capital expenditure of £4.5 million. The main investments were made atthe Starkon plant - the installation of the new SMP dryer - and building worksand equipment for the hard-cheese plant. Bank facilities The Group has a working capital facility of up to £4.5 million provided byUkraine OTP bank at interest rates fixed in both Hryvna and US Dollar. Overdraftfacilities of up to £0.5 million are also available to the Group from variousbanks in Ukraine. The facility is renewable in May 2008 and has various clausesprotecting the Group from the occurrence of unexpected events. Further fundingfor working capital needs and project finance, if necessary, is available fromeither the principal bankers or other banking institutions in Ukraine. Earnings per share The basic earnings per share (EPS) in the year were 2.6 pence as compared to 5.0pence (3.6 pence2) in 2005. The basic EPS has been calculated by dividing netprofit attributable to ordinary shareholders by the time-weighted average numberof shares in issue throughout the year. The diluted earnings per share were 2.6pence for the year versus 4.8 pence (3.4 pence2) in 2005. Dividends In view of the Group's positive trading performance and strong cash generation,the Board is recommending a final dividend of 0.51 pence per ordinary share forthe year ended 31 December 2006 which would lead to 0.61 pence per ordinaryshare for the full year (2005: 0.85 pence). If approved at the AGM, the finaldividend will be paid on 29 June 2007 to shareholders on the register as at 1June 2007. Dmitry Dragun Chief Financial Officer 24 April 2007 Note 2: In brackets are comparable alternate prior year figures adjusted forthe foreign exchange gain on translation differences. CONSOLIDATED INCOME STATEMENT Notes Year ended Year ended 31 December 2006 31 December 2005 (restated) £ '000 £ '000Revenue 3 35,053 39,962 Cost of Sales -27,805 -33,194 Gross profit 7,248 6,768 Other operating income - 594 Administrative expenses -2,720 -2 ,167 Selling and distribution -2,616 -2,084 expenses Other operating expenses -477 -563 Profit from operations 1,435 2,548 Finance income - 41 Finance expense -237 -244 Profit before taxation 1,198 2,345 Income tax expense -119 -337 Profit for the year 1,079 2,008 Attributable to: Equity holders 1,095 2,003 Minority interest -16 5 1,079 2,008Earnings per share: Basic 4 2.6 5.0 Diluted 4 2.6 4.8 CONSOLIDATED BALANCE SHEET Notes As at As at 31 December 2006 31 December 2005 (restated) £ '000 £ '000AssetsNon-Current Assets Property, Plant and equipment 4 10,865 9,528 Intangible assets 1,237 1,333 Financial assets 244 97 Deferred tax assets 42 90Total non-current assets 12,388 11,048 Current assets Inventories 2,650 4,523 Trade and other receivables 3,710 4,013 Other financial assets 116 357 Cash and cash equivalents 159 453Total Current assets 6,635 9,346 Total assets 19,023 20,394 Equity and liabilitiesEquity attributable to equity holders Share capital 4,121 4,121 Other reserves 4,181 5,200 Retained earnings 4,141 3,815Total equity attributable to equity holders of the 12,443 13,136parent Minority interest 199 246Total equity 12,642 13,382 LiabilitiesNon-Current Liabilities Long-term loans 102 152 Deferred tax liabilities 767 989Total Non-Current Liabilities 869 1,141 Current Liabilities Bank loans and overdrafts 3,146 3,042 Trade and other payables 1,953 2,606 Current portion of long term 389 67 liabilities Current income tax liabilities 24 156Total Current Liabilities 5,512 5,871Total equity and liabilities 19,023 20,394 These financial statements were approved and authorised for issue by the Boardof Directors on April 20, 2007. Iryna Yevets, CEO _________________________________ CONSOLIDATED CASH FLOW STATEMENT Notes Year ended Year ended 31 December 2006 31 December 2005 £ '000 (restated) £ '000Cash flows from operating activities Net profit before taxation 1,198 2,345Adjustments for: Exchange difference 20 -594 Depreciation and amortisation 1,359 892 Loss on disposal of non-current assets 16 - Interest expense 237 244 Interest income - -41 Share based payments 19 76 (Increase) / decrease in inventories 1,396 -1,507 (Increase) / decrease in trade and other receivables 159 -1,026 (Decrease) in trade and other payables -577 -990 Cash (used by)/generated from operations 3,827 -601 Interest paid -237 -244 Interest received - 41 Income tax paid/(refunded) 259 -384 Net cash (used in)/generated by operating activities 3,849 -1,188 Cash flows from investing activities Payments for property, plant and equipment -4,551 -3,480 Payments for investments (net of cash acquired) -169 -1 283 Proceeds from sale of property, plant and equipment 35 - Proceeds from sale of investments - - Net cash used in investing activities -4,685 -4,763 Cash flows from financing activities Net proceeds/(repayments) from long term -34 -99 borrowing Proceeds / (repayments) from issue of bonds 357 -964 Proceeds from issue of shares - 5,158 Cash paid on liquidation of Ukrproduct Group plc - -12 Dividends paid 5 -247 -148 Net proceeds from short term borrowing 511 1,656 Loans repaid (issued) 25 197 Net cash generated by/(used in) financing activities 612 5,788 Net increase/(decrease) in cash and cash equivalents -224 -163 Effect of exchange rate changes and restatements on cash and cash equivalents -70 316 Cash and cash equivalents at the beginning of the year 453 300Cash and cash equivalents at the end of the year 159 453 1. Change in accounting estimate Effective from 1 January 2006, the Group changed the accounting estimate ofintra-group loans. In the previously reported periods, such loans gave rise tothe currency exchange differences that were recorded in the Income Statement.From 1 January 2006, intra-group loans are accounted for as investments in theUkrainian subsidiaries and reflected in equity reserves. Had the estimate beenchanged on 1 January 2005, the net income for year 2005 would have been£1,438,000. The impact on the current year 2006 was an exchange loss of£283,000. 2. Prior year adjustment In November 2005, the Group acquired Letichiv and Jhmerinka plants. IFRS 3requires the Purchase Price Allocation (PPA) exercise to be performed within 12months from the date of acquisition. Such exercise was performed by anindependent valuer Uvecon within the period of twelve months from the date ofacquisition. The corresponding Adjustment to reflect the effects of the PPAexercise on Balance Sheet as at 31 December 2005 was made in the accounts. Therewas no effect of the prior year adjustment on Income Statement and Cash FlowStatement. 2005 (as Adjustment 2005 previously (restated) reported) £ '000 £ '000 £ '000AssetsNon-Current AssetsProperty, Plant and equipment 9,034 494 9,528Intangible assets 1,551 -218 1,333Investments 97 97Deferred tax assets 90 90Total non-current assets 10,772 11,048Current assetsInventories 4,523 4,523Trade and other receivables 4,068 -56 4,012Other Financial Assets 358 358Cash and cash at bank 453 453Total Current assets 9,402 9,346Total assets 20,174 20,394 Equity capital and reservesattributable to equity holdersShare capital 4,121 4,121Other reserves 5,192 8 5,200Retained earnings 3,815 - 3,815Minority interest 186 60 246Total equity 13,314 13,382LiabilitiesNon-Current LiabilitiesLong-term loans 152 152Deferred tax liabilities 837 152 989Total Non-Current Liabilities 989 1,141Current LiabilitiesBank loans and overdrafts 3,042 3,042Trade and other payable 2,606 2,606Current portion of long term 67 67liabilitiesCurrent income tax liabilities 156 156Total Current Liabilities 5,871 5,871Total equity and liabilities 20,174 20,394 3. Segment information At 31 December 2006, the Group was organised on a worldwide basis into threemain business segments: (1) Cheese; (2) Butter; and (3) Milk powders The segment results for the year ended 31 December 2006 are as follows: £ '000 Cheese Butter Milk Total Services Other Un-allocated Total powders dairySales, Total 33,399 40,206 16,572 90,177 3,625 6,196 - 99,998Sales to internal customers 20,655 28,550 9,536 58,741 2,734 3,470 - 64,945Sales to external customers 12,744 11,656 7,036 31,436 891 2,726 - 35,053Gross profit 3,075 2,878 866 6,819 171 258 - 7,248Administrative expenses -1,088 -796 -189 -2,073 -40 - -607 -2,720Selling and distribution -1,347 -909 -32 -2,288 -45 - -283 -2,616expensesOther operating income / - - - - - - -457 -457expensesIncome / loss from exchange - - - - - - -20 -20differencesProfit before interest and 640 1,173 645 2,458 86 258 -1,367 1,435taxationInterest expenses - - - - - - -237 -237Interest income - - - - - - - -Profit before taxation 640 1,173 645 2,458 86 258 -1,604 1,198Taxation - - - - - - -119 -119Profit after taxation 640 1,173 645 2,458 86 258 -1,723 1,079 Segment assets 9,237 4,627 2,549 16,413 198 807 - 17,418Unallocated corporate - - - - - - 1,563 1,563assetsUnallocated deferred tax - - - - - - 42 42Consolidated total assets 9,237 4,627 2,549 16,413 198 807 1,604 19,023 Segment Liabilities 584 565 208 1,357 57 349 - 1,763Unallocated corporate - - - - - - 3,851 3,851liabilitiesUnallocated deferred tax - - - - - - 767 767Consolidated total 584 565 208 1,357 57 349 4,618 6,381liabilities Other segment information:Depresiation 775 351 131 1,257 34 - 68 1,359Capital expenditure 2,259 480 1,293 4,032 36 - 28 4,096 The basis of pricing of the inter-segment transfers is the current market priceat which the goods could be bought on the spot market externally but not lowerthan the full production costs plus the accompanying transport expenses. 4. Earnings per share Basic earnings per share has been calculated by dividing net profit attributableto the ordinary shareholders (profit for the year) by the weighted averagenumber of shares in issue. The diluted earnings per share take into account thepotential exercise of all options and warrants in existence and in the money atthe date of this report. The options were granted to the Directors of theCompany on 31 January, 2005 and are exercisable until 11 February 2009 at theprice of £0.57. The warrants were granted to the Company's Brokers on 31 January2005 and are exercisable until 31 January 2008 at the price of £ 0.535. 31 December 2006 31 December 2005Net profit attributable to ordinary shareholders, £'000 1,095 2,003Weighted number of ordinary shares in issue 41,214,953 39,924,465Basic earnings per share, pence 2.6 5.0Weighted number of WH Ireland warrants in the money - 1,152,974Weighted number of Directors' option shares in the money - 807,082Diluted average number of shares 41,214,953 41,884,521Diluted earnings per share, pence 2.6 4.8 Although no potentially dilutive instruments existed at 31 December 2006, thecompany has 1,302,896 share warrants issued to the nominated broker WH Irelandexercisable until 11 February 2008 at a price 53.5 pence and 912,028 shareoptions issued to the Directors exercisable until 11 February 2009 at a price 57pence. 5. Dividends As at 20 April 2007, the Board of Directors proposed the final dividend paymentof 0.51 pence per ordinary share for the year ended 31 December 2006 which wouldlead to 0.61 pence per ordinary share for the full year. If approved at the AGM,the final dividend will be paid on 29 June 2007 to the shareholders on theregister as at 1 June 2007. No tax consequences for the Group will arise out ofthis transaction as the Group's parent company is an entity registered under theJersey laws. £ '000 Year ended 31 Year ended 31 December 2006 December 2005Final dividend for 2005 of 0.50 pence (2004 - nil) per ordinary 206 -share proposed and paid during the year relating to the previousyear's resultsInterim dividend of 0.10 pence (2005 - 0.35 pence) per ordinary 41 148share paid during the yearTotal 247 148 The directors are proposing a final dividend of 0.51 pence (2005 - 0.50 pence)per share totalling £210,000 (2005: £206,000). This dividend has not beenaccrued at the balance sheet date. 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