Revenue
Group revenue was £974.6m, an increase of £49.8m year on year (5.4% reported growth). Group revenue benefited from Sterling’s depreciation in the year most notably against the Euro and US Dollar (14% at average rates). Underlying revenue declined by around 5% year on year.
Group revenue was significantly impacted by the deteriorating economic environment across the world. This deterioration accelerated as the year progressed and particularly affected the Group’s second half year sales performance. First half underlying revenue growth of 1% was followed by a second half decline of 11%.
All the Group’s regions were affected by the economic downturn: our UK business was in decline throughout the year, Continental Europe moved into decline in May and our North American and Asia Pacific businesses declined from November.
Gross margin
Gross margin for the year was 49.5% with the second half margin improving by 0.4% points on the first half due to more targeted use of customer discounts, better buying and selling price increases. Year on year, the 0.7% points reduction in the gross margin was primarily due to increasing promotional activities, customer discounts and large customer performance in the UK, and country mix and foreign exchange impacts in Asia Pacific.
Costs
At constant currency, operating costs were flat year on year. Operating costs grew by 0.9% points of sales reflecting the downturn in sales in the second half of the year together with the high proportion of the Group’s costs that are fixed. The Group’s Process costs increased by 0.1% points of sales while the operating company costs increased by 0.8% points of sales.
The Group’s management has taken action to reduce operating costs going forward. This has been across all regions of the business, principally during the final quarter of the year, and will realise annualised savings of around £18m of which around £15m will be realised in the next financial year. As a result of these actions, the Group will reduce its headcount by around 500 heads from the level in the second half of the year. This will represent around 8% of the total headcount. To deliver these benefits, one‑off reorganisation costs, principally employee severance, of £7.1m were incurred. The resulting cash outflow in the year was around £1.5m and a further cash outflow relating to this reorganisation of around £4.6m is expected in the financial year ending 31 March 2010 (a balance of £1m is non‑cash).
Profit before tax
The Group’s headline profit before tax was £86.6m, down £9.8m (10.2%) year on year due to the decline in contribution from the UK business and increase in reported Process costs which were only partially offset by the increased contribution from the International business.
Reported profit before tax was £96.5m, which benefited from one‑off net income of £9.9m. This performance was £1.1m (1.2%) above the prior year. This one‑off net income, below headline profit, of £9.9m comprised a first half income of £17.0m and a second half cost of £7.1m. The first half income was due to the accounting benefits of the changes made to the UK defined benefit pension scheme in June 2008 of £17.5m net of £0.5m costs associated with reorganisation activities. In the second half the Group incurred £7.1m costs due to its reorganisation activities including £0.8m UK defined benefit pension scheme costs.
Earnings per share
Headline earnings per share of 13.6p reduced by 8% year on year with the 10% reduction in headline profit before tax being partially offset by a reduction in the Group’s effective headline tax rate of 1% to 32%. This reduction in the tax rate was principally due to the lowering of tax rates in certain territories within which the Group operates.
Dividend
In May 2008, the Board announced that for the 2009 financial year, the ordinary dividend would be 11p per share, comprising an interim dividend of 5p per share and a final dividend of 6p per share. The interim dividend was paid in January 2009 and the Board will recommend the payment of the final dividend of 6p per share to be paid in July 2009.
In the current difficult trading environment, our focus is on maintaining the Group’s financial strength. Therefore, as previously announced, the Board decided that it would not be appropriate to pay the special dividend of 7.4p per share which was also proposed in May 2008.
Cash flow
The Group’s free cash flow for the year of £78.0m was £3m ahead of the prior year and represented 118% of profit after tax. This strong performance was delivered through continued tight control over working capital, stable stock turn at constant foreign exchange rates, debtor days reducing by around three days, and capital expenditure less than half the level of depreciation.
Financial position
The Group has robust financial metrics with interest cover of 13 times and net debt to headline EBITDA of 1.7 times, with significant headroom to the Group’s banking covenants.
At 31 March 2009, net debt was £203.2m which was £52.1m higher than last year, almost entirely due to foreign exchange rates with free cash flow of £78.0m exceeding dividend payments of £76.6m. At the year end, the Group had total committed bank facilities of £314m with £281m having a maturity of September 2012. The headroom between the committed facilities and net debt at the year end was £111m. Year end net debt comprised gross borrowings of £205.2m (currency split: £91m US Dollars, £43m Sterling, £43m Euros, £14m Japanese Yen and the balance in other currencies), and financial assets of £2.0m. The currency mix is designed to help hedge the Group’s translation exposures. The peak month‑end net borrowing during the year (using monthly exchange rates) was £241m.
The Group’s main source of debt finance is a syndicated multicurrency facility from ten banks which was established in September 2008 for US $137m, £142m and €47m maturing in September 2012. The Group has other bilateral facilities of £25m (maturing in March 2010), Yen800m (maturing December 2010) and an amortising bilateral of currently €2.7m (maturing December 2011).
