Released: 27/08/2009
27 Aug 2009 06:00 REG-Office2office PLCHalf Yearly Results 2009 - Part 1 -------------------------------------------------------------------------------- http://pdf.reuters.com/Regnews/regnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20090827:Rnsa0731Y . RNS Number : 0731Y Office2office PLC 27 August 2009 HALF YEARLY RESULTS 2009 office2office plc (the Company or the Group), the managed procurement and business critical services group, announces its unaudited results for the six months ended 30 June 2009. Highlights: * Revenue increased to £96.0m (2008: £84.0m) * Underlying profit before income tax* increased to £6.4m (2008: £5.6m) * Profit before income tax £4.5m (2008: £5.6m) * Basic earnings per share of 9.1p (2008: 11.2p) * Recommended interim dividend of 3.6p (2008: 3.5p) per share * Net cash generated from operating activities £3.9m (2008: cash outflow £2.0m) * Net debt at £30.2m (2008: £30.9m) * Profit before income tax, exceptional and non-recurring costs, amortisation and share option (expense) / income. David Callear, Chairman, said: "The way that the businesses have responded to difficult trading conditions, combined with recent significant contract wins and some reduction in product cost pressures, gives the Board confidence in the Group's trading prospects. Whilst we are mindful that the public sector may come under tougher budgetary constraints in the medium term, we firmly believe that the strength of the core Banner brand, our open book managed procurement model and the Group's newly expanded service offering, ideally position office2office to manage these pressures and create new business opportunities from them." For further information, please contact: office2office plc Today only: 01653 618016 Simon Moate, Chief Executive Thereafter: 01603 691102 Mark Cunningham, Finance Director www.office2office.co.uk Rawlings Financial PR Limited Tel: 01653 618016 Catriona Valentine www.rawlingsfinancial.co.uk Keeley Clarke Chairman's Statement I am pleased to report the results for the six months to 30 June 2009. Banner Business Services (BBS), which services public sector and large corporate contracts, performed resiliently during the period and secured a number of significant contract wins and retentions. Our new business process outsourcing and secure document destruction activities, which started in 2008, continue to make good progress in diversifying the service we offer customers. This, together with determined management action and further cost efficiencies, increased underlying profit before income tax by 13% to £6.4m (2008: £5.6m), despite significant product cost increases across the Group. Profit before tax, after exceptional costs and amortisation and share option charges, was £4.5m (2008: £5.6m). Results Revenue increased to £96.0m (2008: £84.0m), principally driven by the full six month contribution of £22.0m (2008: £6.9m) from AccessPlus, Accord and Banner Document Services. Gross profit was £29.8m (2008: £25.7m). The overall gross margin percentage improved slightly in the period to 31.0% (2008: 30.6%), mainly due to the accretive gross margin impact of our new business activities and despite significant product cost increases over the last nine months which we have not been able to recover in full in the period. Distribution costs were contained at £9.8m (2008: £9.7m) as continued efficiency gains effectively offset six months of cost from the new business activities of £1.1m (2008: £0.4m). Administrative expenses increased to £14.9m (2008: £10.1m) and included £5.4m (2008: £1.5m) from the new business activities, increased amortisation and share option charges of £0.6m (2008: £nil) and restructuring costs of £1.3m (2008: £nil), compensated for by savings of £1.0m. Underlying profit before income tax increased to £6.4m (2008: £5.6m). The restructuring costs of £1.3m (2008: £nil), together with increased amortisation and share option charges of £0.6m (2008: £nil), resulted in profit before tax of £4.5m (2008: £5.6m). Profit after tax was £3.4m (2008: £4.0m) and basic earnings per share were 9.1p (2008: 11.2p). Net cash generated from operating activities increased to £3.9m (2008: £2.0m outflow). Net indebtedness, after payment of the 2008 final dividend of £2.7m (2008: £2.4m), income tax of £1.6m (2008: £0.8m), and capital expenditure, including leased shredding vehicles for Banner Document Services, of £1.8m (2008: £0.1m), was £30.2m (2008: £30.9m). Debt management remains a prime focus and we expect to reduce net indebtedness by the end of the year. Review of operations Managed procurement Revenue and profit at BBS held up well in the period and, as previously announced, BBS secured a new Ministry of Justice contract and retained its Barclays and NHS supply arrangements. BBS is currently engaged with a number of government departments to achieve savings as part of the public sector drive to streamline purchasing activity. The open book pricing principles pioneered in the BBS managed procurement model have been adopted in recent framework tenders and this presents a significant opportunity for BBS to retain and grow business. Since the half year end, BBS has secured a number of new public sector contract awards, including DVLA, Metronet and the right to supply office products and computer consumables to the Central Buying Consortium framework, which represents local authorities from the Midlands to the South-East. In the corporate sector, BBS has won notable new contract supply arrangements with WS Atkins, Tui, Stagecoach and Berwin Leighton Paisner. The softening in sales volumes and decline in gross margin percentages experienced in Q1 of this year by Accord, our mid market business servicing the private sector, stabilised by the end of Q2. Since then, the gross margin percentage has recovered to 2008 levels. Business critical services Our new business process outsourcing activities, trading under the AccessPlus brand, are continuing to benefit the Group. This wider service offering is proving attractive to BBS's corporate and public sector customers and a number of significant new contracts have been jointly secured by BBS and AccessPlus, including combined supply and service arrangements with NHS Direct, G4S and Shaw Trust. General economic conditions led to a decline in non-contracted print volumes at AccessPlus; cost saving measures have been implemented to combat this shortfall. Banner Document Services, our secure document destruction business, successfully rolled out its first major supply arrangement with HMRC. A national infrastructure has been established and we are now actively marketing this service to our customer base. Principal risks and uncertainties A full review of the Group's principal risks and uncertainties is included in the 2008 Annual Report. These remain unchanged, other than the possibility of budgetary constraints within the public sector as highlighted below. Outlook and dividends The way that the businesses have responded to difficult trading conditions, combined with recent significant contract wins and some reduction in product cost pressures, gives the Board confidence in the Group's trading prospects. Whilst we are mindful that the public sector may come under tougher budgetary constraints in the medium term, we firmly believe that the strength of the core Banner brand, our open book managed procurement model and the Group's newly expanded service offering, ideally position office2office to manage these pressures and create new business opportunities from them. In recognition of the improvement in underlying profit, despite the difficult trading conditions, the Board has concluded it appropriate to declare an interim dividend of 3.6p (2008: 3.5p). This will be payable on 13 November 2009 to shareholders on the register at close of business on 9 October 2009. D J Callear Chairman 26 August 2009 UNAUDITED CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2009 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 09 30 Jun 08 31 Dec 08 Note £000 £000 £000 Revenue 4 96,026 84,002 180,999 Cost of sales (66,268) (58,314) (124,168) Gross profit 29,758 25,688 56,831 Distribution costs (9,837) (9,690) (20,082) Administrative expenses (14,916) (10,083) (25,783) Operating profit 5,005 5,915 10,966 Finance income - 181 190 Finance costs (501) (452) (1,549) Profit before income tax 4,504 5,644 9,607 Analysed as: Underlying profit before income tax * 6,400 5,644 12,066 Share option (expense)/income (151) 78 (23) Exceptional and non-recurring costs 6 (1,257) - (1,812) Amortisation (488) (78) (624) Profit before income tax 4,504 5,644 9,607 Income tax expense 7 (1,129) (1,655) (2,995) Profit for the period 3,375 3,989 6,612 Profit attributable to: Equity holders of the Company 3,257 3,989 6,612 Minority interest 118 - - 3,375 3,989 6,612 Earnings per Ordinary share: Basic 8 9.1p 11.2p 18.5p Diluted 8 9.1p 11.1p 18.5p * Profit before income tax, exceptional and non-recurring costs, amortisation and share option (expense)/income. All amounts relate to continuing operations. During the period a final dividend of 7.5p per Ordinary share was paid in respect of the year ended 31 December 2008. Subsequent to the period end, the Directors declared an interim dividend of 3.6p per Ordinary share which will be accounted for as an appropriation from retained earnings for the year to 31 December 2009. UNAUDITED STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME for the six months ended 30 June 2009 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 09 30 Jun 08 31 Dec 08 £000 £000 £000 Profit for the period 3,375 3,989 6,612 Other comprehensive income: Currency translation differences (146) 54 240 Total comprehensive income for the period 3,229 4,043 6,852 Total comprehensive income attributable to: Equity holders of the Company 3,111 4,043 6,852 Minority interest 118 - - 3,229 4,043 6,852 UNAUDITED CONSOLIDATED BALANCE SHEET as at 30 June 2009 Unaudited Unaudited Audited 30 Jun 09 30 Jun 08* 31 Dec 08* Note £000 £000 £000 Assets Non-current assets Intangible assets 9 58,836 59,781 59,263 Property, plant and equipment 9 3,960 2,895 2,599 Deferred income tax asset 1,249 1,464 1,197 64,045 64,140 63,059 Current assets Inventories 8,522 9,263 8,371 Trade and other receivables 27,411 34,245 26,713 Cash and cash equivalents 1,866 2,957 2,691 37,799 46,465 37,775 Total assets 101,844 110,605 100,834 Equity Equity attributable to owners of the Company Ordinary shares 363 363 363 Share premium account 5,009 5,009 5,009 Other reserves 140 100 286 Retained earnings 15,198 13,035 14,502 20,710 18,507 20,160 Equity attributable to minority interest 118 - - Total equity 20,828 18,507 20,160 Non-current liabilities Borrowings 10 23,623 25,410 25,374 Deferred income tax liability 2,329 2,623 2,623 Provisions 2,194 1,572 2,143 Retirement benefit liability 11 973 1,098 1,044 29,119 30,703 31,184 Current liabilities Trade and other payables 41,939 51,241 40,955 Borrowings 10 8,492 8,462 6,978 Current income tax liabilities 1,466 1,692 1,557 51,897 61,395 49,490 Total liabilities 81,016 92,098 80,674 Total equity and liabilities 101,844 110,605 100,834 The half yearly financial report was approved by the Board of Directors on 26 August 2009. *Restated to reflect fair value adjustments arising on acquisitions made in the six month period ended 30 June 2008 (see note 2). There is no impact on total equity. UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2009 Ordinary Share premium account Other reserves Retained earnings Total Minority Total equity shares interest Note £000 £000 £000 £000 £000 £000 £000 Balance at 1 January 2008 363 5,009 46 11,489 16,907 - 16,907 Currency translation differences - - 54 - 54 - 54 Net income recognised directly in equity - - 54 - 54 - 54 Profit for the period - - - 3,989 3,989 - 3,989 Total recognised income for the period ended 30 June 2008 - - 54 3,989 4,043 - 4,043 Employee share options: - value of employee services - - - (77) (77) - (77) - deferred tax on share options - - - 24 24 - 24 Sale of shares by employee benefit trust - - - 37 37 - 37 Dividends and other appropriations: - Ordinary shares 13 - - - (2,427) (2,427) - (2,427) - - 54 1,546 1,600 - 1,600 Balance at 30 June 2008 363 5,009 100 13,035 18,507 - 18,507 Ordinary Share premium account Other Retained earnings Total Minority Total equity shares reserves interest Note £000 £000 £000 £000 £000 £000 £000 Balance at 1 January 2009 363 5,009 286 14,502 20,160 - 20,160 Currency translation differences - - (146) - (146) - (146) Net expenditure recognised directly in equity - - (146) - (146) - (146) Profit for the period - - - 3,257 3,257 118 3,375 Total recognised income for the period ended 30 June 2009 - - (146) 3,257 3,111 118 3,229 Employee share options: - value of employee services - - - 107 107 - 107 - deferred tax on share options - - - 3 3 - 3 Sale of shares by employee benefit trust - - - 10 10 - 10 Dividends and other appropriations: - Ordinary shares 13 - - - (2,681) (2,681) - (2,681) - - (146) 696 550 118 668 Balance at 30 June 2009 363 5,009 140 15,198 20,710 118 20,828 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2009 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 09 30 Jun 08 31 Dec 08 Note £000 £000 £000 Cash flows from operating activities Cash generated from/(used in) operations 12 6,004 (891) 5,636 Interest received - 181 190 Interest paid (475) (436) (1,487) Interest element of finance lease repayments (26) (16) (62) Income tax paid (1,563) (793) (2,030) Net cash generated from/(used in) operating activities 3,940 (1,955) 2,247 Cash flows from investing activities Purchase of property, plant and equipment (721) (58) (290) Purchase of intangible assets (61) - (17) Acquisition of subsidiaries, including overdrafts - (19,949) (21,438) Net cash used in investing activities (782) (20,007) (21,745) Cash flows from financing activities Finance lease principal payments (165) (77) (219) Increase in borrowings - 25,000 25,000 Repayment of borrowings - (12,613) (12,613) Sale of shares by employee benefit trust 10 - 37 Dividends paid to Company's shareholders 13 (2,681) (2,427) (3,676) Net cash (used in)/generated from financing activities (2,836) 9,883 8,529 Net increase/(decrease) in cash and cash equivalents 322 (12,079) (10,969) Cash, cash equivalents and bank overdrafts at 1 January (4,006) 6,963 6,963 Cash, cash equivalents and bank overdrafts at period end (3,684) (5,116) (4,006) Net debt at period end comprises: £000 £000 £000 Cash, cash equivalents and bank overdrafts (3,684) (5,116) (4,006) Finance leases (1,565) (799) (655) Bank loans (25,000) (25,000) (25,000) Net debt at period end (30,249) (30,915) (29,661) NOTES TO THE INTERIM FINANCIAL INFORMATION for the six months ended 30 June 2009 1. General information office2office plc (the Company) and its subsidiaries (the Group) provide managed procurement and business critical services. The Group operates in the United Kingdom and Republic of Ireland. The Company is a limited liability company incorporated and domiciled in the United Kingdom and is listed on the London Stock Exchange. The address of its registered office is St Crispins, Duke Street, Norwich, NR3 1PD. The half yearly financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008 were approved by the Board of Directors on 25 February 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985. The half yearly financial report has been reviewed, not audited and was approved for issue by the Directors on 26 August 2009. 2. Basis of preparation This half yearly financial report for the six months ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half yearly financial report should be read in conjunction with the annual report and accounts for the year ended 31 December 2008, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Provisional goodwill and fair value adjustments were made in the interim financial information for the 6 month period to 30 June 2008 and the year to 31 December 2008 in respect of the acquisitions of TripleArc plc on 15 May 2008 and Accord Office Supplies Limited on 2 June 2008. Such adjustments have been finalised in the interim financial information at 30 June 2009. In accordance with IFRS 3 'Business combinations', such final adjustments have now been reflected in the financial information at 30 June 2008 and 31 December 2008. In respect of the financial information at 30 June 2008, the final adjustments have been to reduce property, plant and equipment by £268,000, increase intangibles-goodwill by £11,785,000, decrease intangibles-customer relationships by £10,219,000, increase intangibles-brands by £3,938,000, increase intangibles-software by £103,000, increase deferred income tax liability by £2,651,000, decrease inventories by £207,000, increase trade and other receivables by £809,000, increase provisions by £970,000, increase trade and other payables by £2,436,000 and decrease current income tax liabilities by £116,000. In respect of the financial information at 31 December 2008, the final adjustments have been to increase intangibles-goodwill by £3,113,000, increase trade and other payables by £490,000 and increase deferred income tax liability by £2,623,000. There is no material impact from these adjustments on the reported profit for either period. The Group had net current liabilities as at 30 June 2009. The Group has traded profitably since the balance sheet date with the profits generated contributing to the funding of the Group's working capital requirements. In addition, the Group meets its day-to-day working capital requirements through sufficient and appropriate credit facilities that are committed until April 2013. The Group's forecasts indicate that it is able to operate within the level of its current facilities for the foreseeable future. Accordingly, the Directors, having made appropriate enquiries, consider it reasonable to assume that the Group and the Company have adequate resources to continue for the foreseeable future and, for this reason, have continued to adopt the going concern basis in preparing the interim financial information. 3. Accounting policies The accounting policies applied are consistent with those of the annual report and financial statements for the year ended 31 December 2008, as described in the annual report and accounts with the exception of the adoption as of 1 January 2009 of standards, amendments and interpretations described below: * IAS 1 (revised), 'Presentation of financial statements'. The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All 'non-owner changes in equity' are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present two statements. The interim financial information has been prepared under the revised disclosure requirements. * IFRS 8, 'Operating segments'. IFRS 8 replaces IAS 14, 'Segment reporting'. It requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. Management have confirmed that the Group operates in two distinct segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board has determined the operating segments based on these reports. * 'Improvements to IFRSs' contains amendments to various existing standards, most being effective from 1 January 2009. The adoption of the remaining 'Improvements to IFRSs' did not result in any changes to the Group's accounting policies. The following amendments to existing standards and interpretations were also effective for the current period, but the adoption of these amendments to existing standards and interpretations did not have a material impact on the interim financial information of the Group. * IFRS 1 (amendment), 'First-time adoption of IFRS', and IAS 27 (amendment), 'Consolidated and Separate Financial Statements'. * IFRS 2 (amendment), 'Share Based Payment' - Vesting Conditions and Cancellations. * IAS 23, 'Borrowing costs' - as revised. The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2009, but are not currently relevant for the Group. * IFRIC 13, 'Customer loyalty programmes'. * IFRIC 15, 'Agreements for the construction of real estate'. * IFRIC 16, 'Hedges of a net investment in a foreign operation'. * IAS 32, 'Financial instruments: presentation'. * IAS 39 (amendment), 'Financial instruments: Recognition and measurement'. 4. Segmental information IFRS 8, 'Operating Segments', replaces IAS 14, 'Segment Reporting', and requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The operating segments are identified on the basis of internal reports regularly reviewed by the Board of Directors, the Board of Directors being the chief operating decision-maker, in order to allocate resources to the segments and to assess their respective performance. The Board considers the business from a service perspective. The Group is organised into two main business segments: * managed procurement; and * business critical services. The business units of each reportable segment, Banner Business Services and Accord in respect of managed procurement and AccessPlus and Banner Document Services in respect of business critical services, do not qualify as reportable segments as decisions about the allocation of resources and the assessment of performance are not made at this level. The Board assesses the performance of the operating segments based on a measure of adjusted earnings before interest, income tax and amortisation (EBITA). This measurement basis excludes the effects of exceptional and non-recurring expenditure from the operating segments, such as restructuring costs. Other information provided to the Board, except as noted below, is measured in a manner consistent with that in the financial statements. Total assets exclude the bank balance of office2office plc, which is managed for the basis of dividend distributions. This is part of the reconciliation to total balance sheet assets. Business Managed critical Total procurement services £000 £000 £000 Six months ended 30 June 2009 Revenue 78,511 17,515 96,026 Adjusted EBITA 6,716 1,384 8,100 Six months ended 30 June 2008 Revenue 75,740 8,262 84,002 Adjusted EBITA 7,034 368 7,402 Total assets 30 June 2009 54,309 47,534 101,843 30 June 2008 59,880 50,724 110,604 A reconciliation of total adjusted EBITA to profit before income tax is provided as follows: Six months ended Six months 30 Jun 09 ended £000 30 Jun 08 £000 Adjusted EBITA for reportable segments: 8,100 7,402 Group costs (1,199) (1,487) Finance income - 181 Finance costs (501) (452) Underlying profit before income tax 6,400 5,644 Share option expense (151) 78 Exceptional and non-recurring costs (1,257) - Amortisation (488) (78) Profit before income tax 4,504 5,644 Reportable segments' assets are reconciled to total assets as follows: 30 Jun 09 30 Jun 08 31 Dec 08 More to follow, for following part double-click [nRn2a0731Y]