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Oakhill Group plc
Unaudited Interim Results of Oakhill Group plc for the six months ended 30 June 2006
Financial summary
* before goodwill impairment provision ** including goodwill impairment provision
Income statement
In the six months to 30 June 2006 revenues are €16.814 million an increase of 7% compared with 2005. Operating profit (before goodwill impairment provision) is €0.162 million compared to €0.618 million in 2005. Ongoing pricing pressures have negatively impacted margins.
After tax and interest there is a loss of €0.110 million and the adjusted loss per share is (0.19) cent per share compared to adjusted earnings of 0.45 cent in 2005.
Operating review
Managed Services
This division offers a comprehensive portfolio of card and print based products and services. Card services has three main market areas: Telco, Membership and Retail. Print services offer a range of litho, digital print and fulfilment services.
*net operating assets includes property, plant and equipment, inventories, trade and other receivables and payables and excludes corporate tax and net debt.
In Managed Services, sterling revenues have increased by 6%, comprised of a 15% increase in card services revenues to £6.493 million and a 21% decrease in marketing materials third party print revenues to £1.478 million.
The Group previously reported on an apparent problem with a specialised product in Managed Services. A resolution of this matter has been substantially agreed. Although the final costs cannot be fully determined at this point the results include a provision of €102,000.
There is continuing downward price pressure across all products and services. The sectoral decline in plastic card based electronic top-up for the UK Telco market is being replaced by the emerging gift card market, which is building more slowly than originally expected. Margins in the newer product areas are lower than historic levels in card services and revenues are more seasonal with an increasing emphasis on the second half of the year.
Excluding the impact of the provision referred to above operating profit in Cards is 9% behind last year. In Print there has been a very significant decrease with the results approximately £0.25 million behind last year.
Prospects in Managed Services are mixed. There have been a number of encouraging signs in the cards business with new contracts having been won and the sales outlook becoming stronger. However, the revenue prospects in marketing materials are less encouraging and operating losses have increased in spite of the cost savings from the reorganisation in 2004. A further review of our print activities and associated cost base is in progress and a process has commenced to refocus the print activities and concentrate on more profitable customers and products. This will involve a number of redundancies and a related cost estimated at €250,000 with expected annualised cost savings in excess of this. The Group has invested in new capability to both reduce production costs through improved efficiency and productivity and to develop new products and services to increase revenue and replace declining products.
Books & Journals
This business comprises the printing of academic books and journals in the United Kingdom.
*net operating assets includes property, plant and equipment, inventories, trade and other receivables and payables and excludes corporate tax and net debt.
In Books & Journals, sterling revenue is 10% ahead of last year and operating profit is in line with 2005. Increased revenues from litho print books and journals contributed 3.4% of this and digital print made a small contribution to revenue. Low margin paper sales contributed 4.5% to the increased revenue.
Book and journal volumes are continuing to increase but margins are being reduced by the ongoing price decreases. The upgrading of capability in previous years gives the business the opportunity to introduce new products to its portfolio and increase its sales in an increasingly competitive environment and to react to downward pricing pressures.
Net interest expense
Net interest expense for the first half of 2006 is higher than 2005 mainly as a result of higher borrowings due to capital expenditure.
Cash flow and net debt
The table below summarises the cash flow for the period.
* Operating profit from continuing activities before impairment provision
Capital expenditure in the period was €1.2 million of which €1.1 million is in Managed Services and €0.1 million is in Books & Journals. The increase in working capital reflects sales and trading trends in the first half of 2006. In July 2006 working capital in the operations decreased by €0.8 million and Group net debt at 31 July 2006 was €5.3 million. At 30 June 2006 the net debt was as follows:
Trading Outlook
Both Managed Services and Books & Journals are targeting a strong revenue performance in the second half of the year but falling prices and reduced margins will continue to be an issue for both businesses.
Consolidated income statement
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