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8 December 2009
2009 Results From the Preliminary Statement for the year ended 31 October 2009
RESILIENT PERFORMANCE IN A CHALLENGING ECONOMIC ENVIRONMENT
		2009		2008	Change
Revenue		£256.1m		£253.4m	+1%
Operating profit before amortisation and exceptional costs (note 10)		£35.7m		£34.9m	+2%
Profit before taxation		£28.0m		£25.2m	+11%
Underlying profit before taxation (note 10)		£35.7m		£35.3m	+1%
Net cash inflow from operating activities before taxation		£45.4m		£38.5m	+18%
Earnings per share		17.81p		15.33p	+16%
Underlying earnings per share (note 2)		23.68p		22.95p	+3%
Dividends per share		13.02p		11.83p	+10%
Highlights The 31st consecutive year of revenue growth Benefits of restructuring driving operational efficiencies and profit improvement Continued commitment to Research and Development Record underlying profit before taxation Strong growth in recently acquired products - Print and Apply Labelling Machinery, Thermal Transfer Overprinters and Thermal Ink Jet Continued strong cash generation from operations; closing net cash balances of £29.1 million Dividend increased by 10 per cent Peter Byrom, Chairman, commented "The Group has performed strongly in challenging economic conditions demonstrating the resilience of the business and the benefit of early action to reduce cost in anticipation of the global economic downturn. The relative weakness of sterling has contributed to the results, enabling the Group to report an unbroken record of sales growth in the 31 years since the Company was formed in 1978. Reported revenues grew by 1 per cent. At like for like exchange rates revenues were 11 per cent below prior year.  Underlying profit before taxation increased by 1 per cent to £35.7 million. "New equipment sales were down 19 per cent in local currencies as customers cut back their capital expenditure programmes. Sales of fluids and consumable products, which were 12 per cent below prior year in the first half, have steadily recovered during the second half of the year. For the year as a whole, fluids and consumable revenues were 7 per cent below prior year in local terms.  Spares and service revenues have remained at prior year levels. "We are pleased with progress in our recently acquired businesses and have reported growth in revenues from all of our newer product ranges.  We remain committed to a full programme of new product development and invested £11.5 million in research and development.   "During the year further restructuring actions were taken in order to improve operational efficiency. An exceptional charge of £4.9 million has been made against operating profits.  The saving from these changes is expected to be £3 million per annum.  "The Group has a strong balance sheet and increased its net cash balances to £29.1 million at year end.   "While demand for new equipment remains below levels experienced before world economies entered recession, we are optimistic about prospects for the business in 2010 and beyond."  For further information visit our website:  www.domino-printing.com
Issued on behalf of Domino Printing Sciences plc by Smithfield Consultants Limited  - John Antcliffe
Enquiries: Peter Byrom Chairman	Nigel Bond Group Managing Director		Andrew Herbert Group Finance Director
T+44 (0)20 7360 4900  until 12.00 /  T+44 (0)1954 781888 after 14.30

Chairman's Statement

I am delighted to report that the business has performed strongly in the challenging economic environment that has persisted through the last year. The early actions to reduce costs in anticipation of the global economic downturn and the weakening of sterling have contributed to these results. Sales and operating profits before exceptional costs are again a record for the Group. Cash performance has been strong. Net cash inflow from operating activities exceeded operating profits and the Group has a strong balance sheet and no net debt.

Our commitment to new product development has been maintained and we invested £11.5 million in research and development during the year. 

The Board is proposing a final dividend of 8.45p per share, making a total of 13.02p per share for the year, an increase of 10 per cent over the dividends for last year.

The results are a tribute to the professionalism and endeavour of the 2,070 employees of the Group around the world and I thank them for their efforts.

Jerry Smith, who has served as a non-executive director on the Board for 23 years will be retiring at the Annual General Meeting in March. We are grateful to him for his wise counsel and considerable contribution to the Group.

Outlook

Results in 2009 have demonstrated the underlying strength and resilience of the business and although demand for new equipment remains below levels experienced before world economies entered recession, the Board is optimistic about prospects for further progress in 2010 and beyond. 

Actions taken at the end of 2008 and during 2009 have improved the operating efficiency of the business. We have a full programme of new product developments and we are preparing to increase investment in our sales capacity once we see improvement in market conditions.

The Group has a strong balance sheet, is cash positive and remains well placed once global economies return to more normal levels of growth. 

  To the members of Domino Printing Sciences plc

Business Review 

This Business Review has been prepared solely to provide additional information to shareholders. The Business Review contains statements that are forward looking. These statements are made by the directors in good faith based on the information available to them up to the time of approval of this report. Such statements should be treated with caution due to the inherent uncertainties and risks associated with forward looking information.

Going concern

The Group's business activities together with the factors likely to affect its future development, performance and position are described within this Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described below.  

The Group has considerable financial resources together with a broad spread of customers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.  

Summary of 2009

In late 2008 global economies entered recession after a period of many years of sustained growth. This change in market conditions had an immediate impact on our business and as we entered 2009 customers buying patterns had already changed. Throughout the whole of the year to 31 October 2009 we experienced a very different market place for our products as compared to the period from 2001 to 2008, and although we have started to see improvement in some of the market sectors we serve and in some of the geographical regions of the world, we enter 2010 cautious about the trading environment in the year ahead. Revenues in our fluids, consumables, spares and services products have now recovered close to pre-recession levels, but capital expenditure by our customers on new equipment, whilst improving, is still at an overall lower level than in the early part of 2008.

 

Domino Printing Sciences plc is a strong Group with a very resilient business model. Despite the trading difficulties of 2009 we have been able to produce a reported increase in sales of 1 per cent, assisted by the relative weakness in the year of sterling, making this the 31st year of uninterrupted sales growth. In addition, the actions taken at the end of 2008 and during the current year have enabled us to report a small improvement in the underlying profits of the Group for the year.  

 

Once again the business has converted operating profits into strong cash generation. Net cash inflow from operating activities before taxation was £45.4m, the tenth consecutive year this figure has exceeded operating profit.

Business overview

The Group develops, manufactures and sells a comprehensive range of products and solutions that enable manufacturers to code, identify, mark or personalise their products and packaging. Legislation, industry directives and company mandates require variable information to be applied, usually in real time, directly onto products or their packaging. We supply customers who operate in a wide and diverse range of industries and market sectors, from food producers, dairies, beverage manufacturers and the healthcare industry to sectors such as automotive and aerospace components, building products and the timber industry.

 

The Group operates globally and is capable of selling and supporting customers anywhere in the world. The Group has wholly owned sales and service operations in many of the existing and emerging major industrial countries; elsewhere we have an extensive distributor partnership network working to the same high standards as our direct offices. 

 

The business has two main revenue streams: sales of new equipment and sales of after market products and services. Equipment sales are made to new and existing customers for both new applications, increasing the installed base of products around the world, and for replacement of equipment reaching the end of its useful life. In 2009, 37 per cent of our turnover came from new equipment sales, down from 42 per cent in 2008, reflecting the overall reduction in capital expenditure of our customers. The remaining 63 per cent of our turnover comes from the products which support the day to day operation of our installed base such as inks, ribbons, filters, spares and services. It is the size of our installed base and the breadth of our customer base which provides such resilience to our business.

Trading during 2009

Sales in the year to 31 October 2009 grew by 1 per cent over the previous year. Each year, reported revenue is impacted to some extent by movements in exchange rates and in 2009 the impact was significant and favourable. At constant exchange rates our turnover for the year was down 11 per cent; like for like sales down 14 per cent, new acquisitions contributing 3 per cent growth. The weakness of sterling has allowed us to maintain our record of growth every year since incorporation.

 

New equipment sales were down 19 per cent in local currencies when compared to the corresponding period last year. Volumes have declined across the global sales network with exceptions only in those countries where a particularly large contract was won or in regions where the global economic slowdown has had less impact. New equipment sales fell most sharply in the early months of 2009 as customers cut back their capital expenditure and assessed the impact of the changes in the banking sector on the availability of finance. Since mid 2009 sales volumes have improved as some new projects have received funding and as replacement programmes can no longer be delayed. In addition, volumes of some of our newer products and technologies have grown steadily during the year. 

 

At the end of 2006 the Group acquired Mectec, a Swedish Print and Apply Labelling Machinery ('PALM') business. As well as maintaining distribution through its own brand network, volumes of Mectec products sold through Domino channels are growing strongly. Overall the business has reported growth in PALM equipment revenues of 6 per cent compared to 2008. 

Also at the end of 2006 we acquired Easyprint, a Danish Thermal Transfer Overprinter ('TTO') business. This business has been integrated into the Domino sales operation and product manufacturing has been transferred to the Group's headquarters in Cambridge. After a period of product development and enhancement, equipment revenues in this business grew by 15 per cent on last year. 

 

At the end of 2008 we acquired APS, a German integrator of Thermal Ink Jet ('TIJ'), a new technology for industrial applications with significant growth potential in a number of the market sectors we serve. Sales of this product range, which were made in a limited number of markets during the first full year, have been encouraging and the business is poised for strong growth in 2010 as we launch the product range across the whole Group.

 

Volumes of our more traditional products, continuous ink jet, drop on demand ink jet, lasers and fume extraction equipment have declined in 2009 in the face of the global recession. As is always the situation in more difficult times, our Commercial Printing revenues fell sharply, but this business, unlike in previous downturns, remained profitable.

 

The acquisition programme of recent years, with the objective of building the most comprehensive range of products and solutions in the industry and the continual enhancement of core products through internal development, has meant we have been able to take full advantage of the opportunities that have existed in the market. We have been able to maintain our equipment margins throughout the year and maintain our overall global market share.

 

In the first half of the financial year, November 2008 to April 2009, revenues in our fluids and consumables business fell by 12 per cent in local currencies. Our fluids and consumables sales are directly correlated to our customers' output levels. Demand for these products was impacted by extended shutdowns over the Christmas and New Year period in many industries. This was followed by a period of de-stocking before a return to more normal buying patterns started to emerge towards the end of the first half. For the full year, revenues of our fluids and consumables products fell by 7 per cent in local currencies. In the second half of the year customers usage levels steadily grew and by the end of the year, sales had returned to more normal pre-recession levels. 

 

Throughout the year customers have been looking to extend the useful life of their equipment and reduce capital investment wherever possible. This has resulted in a busy year for our service organisation and revenues from spares and service products have continued at previous levels. 

 

Operations

Throughout the last 18 months the Group has been involved in an active restructuring programme to improve the operating efficiency of the business. This was in part to address the reductions in volume we anticipated would happen in 2009 as the recession took hold, but more fundamentally to improve the longer term efficiency of the Group following a period where multiple acquisitions had significantly increased the complexity of our organisation.

 

In October 2008, just before the start of our new financial year, we closed our manufacturing operation in Denmark and transferred the production of all TTO products to our facility in Cambridge. This transfer was completed satisfactorily during the first quarter of 2009. In October 2008 we commenced production of laser products in Cambridge, and subsequently announced the closure of our operation in California. This was completed in February 2009 and we are pleased with the production efficiencies and product improvements which have been delivered by the move. In October 2008 we announced a further 125 job losses, which together with the job reductions associated with the 2 factory closures, amounted to a reduction of approximately 10 per cent in the Group's workforce. This additional programme was completed in January 2009.

 

During the first half of this year we transferred the manufacture of Purex North America Limited ('PNA') products from Canada to our main Purex facility in Rotherham, UK. We intend to move the remainder of the PNA business to Fort Worth, Texas to utilise the capacity in the Citronix facility and close the operation in Montreal, a project which will be completed by March 2010. We also absorbed our USA based Integrated Solutions provider, DISG, into our US sales division and integrated Control Information Technology, our recent acquisition in Germany, into our German sales division.

 

We have announced further restructuring in Germany in the second half of 2009. The production of Photon Energy's solid state laser systems has been integrated into our Sator Laser manufacturing operation in Hamburg. This project will be completed in December 2009; first production units have already been manufactured. The remainder of the Photon Energy business will remain in Nuremburg and focus on specialised laser development work and laser sources and components for niche industries. In October 2009 we commenced restructuring of the Wiedenbach business, including outsourcing a greater proportion of the manufacturing activity and increased integration of its selling and support functions with the core Domino business. This programme will be completed in the first half of 2010. These moves, which will reduce Group headcount by approximately 50 jobs, will improve the overall efficiency of our German based businesses.

 

The restructuring activities, together with a very tight control on cost, have produced substantial reductions in the operating costs of the business. Selling costs and administrative expenses combined (before exceptional costs but after including the additional costs in the business resulting from the acquisitions of APS, PNA and Photon Energy in 2008 and the costs of the acquisition in 2009 of our former Portuguese distributor) have been reduced by 11 per cent in local currencies. In making these changes to our cost structure we have sought to protect the Group's core competencies. We believe none of the actions taken have diminished our capacity or capability to grow as markets recover.

Research and Development

Maintaining product leadership in the market is a key strategic goal for the business. The Group has a wide and extensive industry leading portfolio of products, something we seek to maintain and expand through considerable investment in Research and Development and through product related acquisitions. We have kept our commitment to new product development throughout a period of significant restructuring of the Group and released a number of new and innovative products during 2009. We have a full programme of new products scheduled for 2010, which will require additional investment in resources and materials. Reported Research and Development costs (before exceptional costs) for 2009 were £11.5 million (2008: £12.8 million).

KPI's

Sales growth, profitability, cash generation and return on capital are the most important indicators of financial performance measured by the Group. These are variously reported to management on a daily, weekly and monthly basis. At top level, the Board monitors five key financial performance indicators as follows:

Performance with comparatives:

	2009	2008	2007	2006
Sales growth	1%	9%	11%	9%
Gross margin before exceptional costs	46.4%	47.6%	48.1%	49.2%
Operating return on sales (1)	14.0%	13.8%	13.9%	14.5%
Operating cash flow / operating profit before exceptional items (2)	135%	115%	112%	120%
Return on capital employed (3)	21.3%	22.6%	23.0%	24.6%

(1) Operating return on sales is the ratio of operating profit before amortisation of acquired intangible assets and exceptional costs as a percentage of Group sales.  

(2) Operating cash flow is the net cash inflow from operating activities before tax. This is compared to operating profit before exceptional items as an indicator of the cash conversion performance of the business

(3) Return on capital employed is the ratio of operating profit before exceptional costs as a percentage of average total assets less current liabilities before deferred and contingent consideration on acquisitions due in less than one year. 

Our goal is to maintain an appropriate balance between sales growth and profit improvement while seeking to convert at least 100% of operating profit into cash and achieving a return on capital employed in excess of 20%.

 

Financial performance

The Group has delivered another strong set of results in 2009, reporting progress in sales, profits and earnings per share and increasing net cash balances. 

There have been a number of factors impacting reported results. Key was the action taken at the end of the last financial year to reduce the cost base in anticipation of more difficult trading conditions. This, along with the benefit of the relative weakness of sterling, helped protect profit margins. The international spread of the business and the number of currencies in which we trade means reported results are impacted by volatility in exchange rates. During the year currency movements significantly improved reported results and the translation effects helped deliver another year of growth. 

Reported sales of £256.1 million were 1 per cent ahead of the prior year. Sales at constant exchange rates before the effect of acquisitions declined by 14 per cent. Sales made by businesses acquired during the period contributed 3 per cent.  

The gross margin rate of 46.4 per cent compares to 47.6 per cent in 2008. The movement in rate includes a 1.1 percentage point decline as a result of currency translation effects.  Local product margins have been relatively stable with no material impact from changes in selling prices or component costs.

Selling costs and administrative expenses before exceptional costs were collectively 11 per cent below prior year at constant exchange rates. The investment in Research and Development in the year was £11.5 million. At constant currency and before the effect of acquisitions and exceptional costs the reduction in total operating expenditure including Research and Development was 15 per cent, a total year on year saving of £12.8 million. Year on year growth in operating expenses in acquired businesses (PNA, Photon Energy, APS and Labeljet) was £2.9 million.

Operating profit before amortisation of acquired intangible assets and exceptional costs was £35.7 million, 2 per cent ahead of prior year.  Had profits been stated on the basis of rates of exchange prevailing in 2008 (including forward contracts), profits would have been approximately £3.4 million lower.  The operating return on sales was 14.0 per cent (2008: 13.8 per cent).  

During the year the Group incurred exceptional costs associated with further restructuring actions. In June we announced that the acquired businesses of PNA, DISG and Control Information Technology had been integrated with existing operations in the UK, USA and Germany respectively. Further restructuring has been announced in Germany since the half year. The solid state laser manufacturing business of Photon Energy has been integrated with the Sator Laser manufacturing operation in Hamburg and latterly we have announced the restructuring of the Wiedenbach business. These further actions will result in a decrease of Group headcount by approximately 50 positions and have attracted an exceptional charge of £4.9 million including the write down of goodwill of £1.5 million. Annualised savings as a result of these actions are expected to be in the order of £3.0 million.

Operating profits of the Group after amortisation and exceptional costs were £28.8 million (2008: £25.3 million)

Interest

The Group has been net cash positive throughout the year. Prevailing interest rates have remained at low levels and as a consequence, despite higher average cash balances, interest income of £0.5 million is below prior year levels (2008: £0.8 million). The Group has incurred interest charges on the short term euro debt utilised in the acquisitions of Photon Energy and APS last year and on other short term overdrafts and borrowings in local operations. Interest payable was £0.6 million (2008: £0.4 million). Notional interest on deferred consideration associated with acquisitions was £0.8 million (2008: £0.5 million).  

Taxation

The tax charge of £8.7 million reflects an effective tax rate of 31.3 per cent. Tax payable on profits before exceptional costs is £9.8 million, an effective rate of 29.7 per cent. The rates of tax the Group is subject to on income earned in different jurisdictions around the world continue to change. In particular, the underlying tax rate on profits made in China is now above the UK marginal rate after withholding taxes on dividends paid are taken into account. The international nature of the business does mean that the mix of profits in any particular year can impact the rate of tax paid.

Earnings per share

The weighted average number of shares in issue decreased in the period by 1 per cent when compared to prior year. This was a result of a full 12 months effect of the Company's purchase and cancellation of 3.6 million of its own shares during 2008.  

Profit after tax attributable to shareholders was £19.2 million resulting in basic earnings per share of 17.81 pence. Underlying earnings per share (note 2) was 23.68 pence, an increase of 3 per cent on prior year (2008: 22.95 pence). Full diluted earnings per share was 17.76 pence (2008: 15.26 pence)

Dividends

The Board is recommending a final dividend of 8.45 pence per share which together with the interim dividend of 4.57 pence makes a total of 13.02 pence for the year as a whole, an increase of 10 per cent on prior year (2008: 11.83 pence). Dividend cover is 1.4 times. During the year two dividend payments were made which totalled £13.2 million in cash, equivalent to 69 per cent of the profit after tax for the year.  

Cash

Tight working capital management has released £6.1 million of cash in the year with reductions in both trade receivables and inventory and an increase in short term creditors. Capital expenditure has been maintained at normal levels (2009: £4.8 million, 2008: £4.9 million) as the Group continues to invest in IT system enhancements that help to improve both customer service and internal productivity. 

Net cash inflow from operating activities before taxation ('operating cash flow') was £45.4 million, an increase of 18 per cent on prior year. Operating cash flow represented 135 per cent of operating profit before exceptional costs.

The Group made one acquisition during the year, disposed of assets in our Australian subsidiary and continued to pay deferred consideration earned based on the performance of acquisitions made in prior years.

In July, the Group acquired Labeljet SA, a company incorporated in Portugal. Labeljet, based in Porto, was Domino's distributor in the Portuguese market and has a strong market position. The business was acquired on a deferred cash basis with an initial sum of €5.7 million either payable in full on 30 April 2010, or payable in equal instalments over three years on 30 April each year commencing 2010. In the case of payment by instalment, interest of 3 per cent is payable on the deferred element. In addition there is a final payment, due on or around the third anniversary, the value of which is subject to performance conditions. Total cost including the final variable element and costs is expected to be £8.6 million. Tangible assets acquired were £1.4 million; intangible assets net of tax have been valued at £2.1 million. Resulting goodwill was £5.1 million (see note 6). 

In May, in a move to increase market coverage and improve profitability, the Group appointed a new distributor in Australia. Certain assets held by the Group's subsidiary were sold to the distributor.  The net gain on disposal after costs was £56,000.  

A final payment of £0.8 million was made to the former owners of Purex International Limited under the terms of the earn-out agreement. In addition staged earn-out payments were made in respect of Citronix (£1.3 million), Easyprint (£0.2 million) and On-Line Coding (£42,000).

Gross cash at year end was £39.0 million. Short term debt totalled £10.0 million including euro loans utilised to finance the acquisition of German subsidiaries. This debt is subject to a 'back to back' arrangement with the parent company in the UK providing a natural hedge against short term currency movements and is being paid down as cash is released from the German businesses.  

The Group is cash positive with net cash balances of £29.1 million, an increase of £17.2 million in the year.

Treasury

The business remains exposed to interest rates and to movements in exchange rates. The Board approves treasury policy and monitors performance through regular monthly reports and formally reviews treasury performance at least annually. 

The Group has cash on short term deposit with a small number of banks all of whom meet explicit credit rating requirements. Debt and overdraft facilities are maintained sufficient to meet expected needs of the business. The Group's principal facilities are committed until 2011.  Draw down is priced relative to LIBOR.  

Exposure to movements in currency rates is managed at the transaction level through forward contracts. Expected net cash inflows in US dollar and euro are sold forward on a rolling 12 month basis, and expected inflows in Canadian dollar and outflows in Swedish kronor and Swiss franc are sold/purchased forward on a rolling three month basis. These contracts provide certainty and fix a significant percentage of the transaction based exposure of the Group. Certain currencies such as the Chinese renminbi are significant to the Group but are subject to local fiscal controls and cannot be traded. In these cases cash remittance to the UK is subject to local conversion at spot rates. During 2009 the average rates at which forward contracts matured had the effect of increasing net sterling receipts by £1.5 million when compared to contract rates realised during 2008.

Contracts in place for the year to October 2010 will realise gains of £1.5 million when compared to rates applicable in 2009. 

Reported results are subject to translation from local currency at average rates. No action is taken to hedge the effect of this translation. In 2009 the relative weakness of sterling meant profits translated at prevailing rates were £1.9 million better than they would have been had currency rates remained constant.  This together with the effect of forward contract rates (£1.5 million) reflects the approximate impact of currency on reported profits in the year. 

The Group does not take action to hedge the impact of movements in currency on the value of investments denominated in foreign currency. The value of any gain or loss is taken directly to reserves. In 2009 this resulted in an increase in the value of reserves of £5.3 million.

Risk management

The Group has an established risk management process. The Board reviews and approves risk policy and the process of risk management. Risks and uncertainties are formally identified by management across each of the businesses of the Group using a risk assessment tool that helps identify both likelihood and magnitude of impact. 

The Group maintains a register of the principal risks it faces. The senior executive team takes responsibility for the principal risks and ensures that each has visibility across the business and receives appropriate attention. A risk management committee, comprising senior executives, monitors the risk process and reviews status of risk mitigation actions.  

The Group operates an Internal Audit process which additionally includes a formal risk assessment relevant to the business or function being audited. The Board receives a summary report on each internal audit.

Risks are identified in a number of areas. Principal risks for the Group as a whole and mitigation actions are summarised: 

• Failure to maintain a competitive product range or anticipate impact of technological changes. The Group has an active programme of competitor product review and regularly reviews relevant patent filings. There is an Advanced Development Group, chaired by the Group Technical Director and with input from product and business management, which investigates and researches new technology.  

• Loss of after market business to third party suppliers.  The Group operates a Customer Relationship Management ('CRM') approach built on use of common sales management systems. This involves monitoring customers' purchasing patterns and deploying our extensive field service team to maintain strong customer relationships.

• Increasing legislation surrounding use and transportation of certain chemicals and substances affecting materials or business processes. The Group monitors legislation and regulation through a formal Group Regulatory Affairs function. This team maintain close links with industry bodies and collaborates with other companies in providing feedback and advice on matters affecting legislation in our industry area. The Group maintains an active programme re-developing products which use materials that are, or are likely to be, withdrawn or restricted.

• Failure of a supplier or disruption to the supply chain for critical components. The Group has an active supplier management and quality assurance programme. We operate a dual sourcing policy where possible or, if not, we hold strategic stocks to protect against supply chain failure impacting the Group's ability to deliver products in an acceptable lead time.  

• Loss of a manufacturing facility impairing the Group's ability to supply. Formal disaster recovery plans are maintained by all manufacturing sites. We operate two fully functional fluids plants, each with the capability to scale up to meet global demand if necessary.

• Failure to successfully deliver product developments to the market on time or early life failure of new designs. The Group operates a formal gated process controlling product specification, design, development and pre-launch validation of all new products. The process includes risk assessments, peer review and use of performance metrics

• Product failure resulting in customer downtime and damage to the value of the Domino Group brand. Comprehensive quality control processes are operated in the manufacture of our products including formal measurement of delivered product quality and formal management and monitoring of field performance. Use of common helpdesk software systems allows correlation of reported incidents and monitoring of actions

• Volatility in exchange rates. The Group's formal treasury policy requires use of forward contracts to provide certainty of short term position. Longer term sourcing actions are in place that will increase the natural hedge effect of matching costs and revenues. No action is taken to mitigate the effect on translation of local profits into sterling.

Outlook

Results in 2009 have demonstrated the underlying strength and resilience of the business and although demand for new equipment remains below levels experienced before world economies entered recession, the Board is optimistic about prospects for further progress in 2010 and beyond. 

Actions taken at the end of 2008 and during 2009 have improved the operating efficiency of the business. We have a full programme of new product developments and we are preparing to increase investment in our sales capacity once we see improvement in market conditions.

The Group has a strong balance sheet, is cash positive and remains well placed once global economies return to more normal levels of growth. 

  

Condensed Consolidated Income Statement

For the year ended 31 October 2009

		2009	2009	2009	2008	2008	2008
	Note	Before excep-tionals	Excep-tional (Note 11)	Total	Before excep-tionals	Excep-tional (Note 11)	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	3	256,148	-	256,148	253,356	-	253,356
Cost of sales		(137,331)	(1,134)	(138,465)	(132,838)	(1,998)	(134,836)
Gross profit		118,817	(1,134)	117,683	120,518	(1,998)	118,520
Selling and distribution expenses		(43,731)	(548)	(44,279)	(46,588)	(1,965)	(48,553)
Administrative expenses		(27,868)	(3,075)	(30,943)	(26,192)	(3,482)	(29,674)
Research and development expenses		(11,480)	(182)	(11,662)	(12,836)	(884)	(13,720)
		(83,079)	(3,805)	(86,884)	(85,616)	(6,331)	(91,947)
Operating profit before amortisation of acquired intangibles		35,738	(4,939)	30,799	34,902	(8,329)	26,573
Amortisation of acquired intangibles		(2,017)	-	(2,017)	(1,283)	-	(1,283)
Operating profit		33,721	(4,939)	28,782	33,619	(8,329)	25,290
Investment income				537			794
Finance costs				(1,355)			(934)
Profit before taxation	3			27,964			25,150
Taxation	4			(8,744)			(8,516)
Profit for the year				19,220			16,634
Attributable to:
Equity shareholders of the Company				19,164			16,621
Minority interest				56			13
				19,220			16,634
Basic earnings per share (pence)	2			17.81p			15.33p
Diluted earnings per share (pence)	2			17.76p			15.26p

  

Condensed Consolidated Statement of Recognised Income and Expense
For the year ended 31 October 2009
	2009	2008
	£'000	£'000
Profit for the year	19,220	16,634
Currency translation differences on foreign currency net investments	5,327	9,152
Gains/(losses) on cash flow hedges	1,104	(1,663)
Tax on items taken directly to equity	215	(582)
Total recognised income and expense in the year	25,866	23,541
Attributable to:
Equity shareholders of the Company	25,810	23,528
Minority interest	56	13
	25,866	23,541

  

Condensed Consolidated Balance Sheet
As at 31 October 2009
	2009	2008
	£'000	£'000
Non-current assets
Goodwill	71,504	71,817
Other intangible assets	13,779	11,403
Property, plant and equipment	24,883	25,173
Available-for-sale investments	1,484	1,494
Investment in associate	191	26
Deferred tax assets	6,396	5,310
	118,237	115,223
Current assets
Inventories	25,677	27,360
Trade and other receivables	50,227	52,018
Cash and cash equivalents	39,011	26,608
Derivative financial instruments	23	75
	114,938	106,061
Total assets	233,175	221,284
Current liabilities
Bank loans and overdrafts	(9,958)	(14,709)
Trade and other payables	(57,163)	(53,506)
Derivative financial instruments	(557)	(1,712)
	(67,678)	(69,927)
Net current assets	47,260	36,134
Non-current liabilities
Deferred tax liabilities	(6,765)	(5,745)
Other payables	(16,678)	(17,567)
	(23,443)	(23,312)
Total liabilities	(91,121)	(93,239)
Net assets	142,054	128,045
Equity share capital	5,467	5,454
Reserves
Own shares	(3,783)	(4,111)
Share premium account	32,226	31,731
Capital redemption reserve	908	908
Revaluation reserve	904	917
Taxation reserve	314	99
Exchange reserve	12,504	6,073
Retained earnings	93,329	86,845
Total reserves	136,402	122,462
Equity distributable to shareholders of the Company	141,869	127,916
Minority interest in equity	185	129
Total equity	142,054	128,045

  

Condensed Consolidated Cash Flow Statement
For the year ended 31 October 2009
		2009	2008
	Note	£'000	£'000
Net cash inflow from operating activities	8	35,557	27,923
Investing activities
Interest received		537	794
Interest paid		(599)	(409)
Proceeds on disposal of property, plant and equipment		399	211
Purchase of property, plant and equipment		(4,778)	(4,888)
Purchase of intangible assets		(121)	(111)
Payment of contingent acquisition consideration		(2,365)	(953)
Proceeds on disposal of available-for-sale investments		110	-
Proceeds on disposal of trade and assets of subsidiary undertakings	12	524	-
Acquisition of subsidiary undertakings		(176)	(19,543)
Net cash used in investing activities		(6,469)	(24,899)
Financing activities
Dividends paid		(13,227)	(11,470)
New bank loans raised		-	13,516
Repayment of borrowings		(3,971)	(1,502)
Repayment of obligations under finance leases		(47)	(10)
Own shares purchased		(61)	(3,080)
Share buy-backs and cancellations		-	(10,215)
Issue of equity share capital		508	1,501
Net cash used in financing activities		(16,798)	(11,260)
Effects of foreign exchange on cash balances		893	1,491
Net increase/(decrease) in cash and cash equivalents		13,183	(6,745)
Cash and cash equivalents at the beginning of the year		25,828	32,573
Cash and cash equivalents at the end of the year		39,011	25,828
Comprising:
Cash and cash equivalents		39,011	26,608
Overdrafts		-	(780)
		39,011	25,828

 

Notes

1.     Accounting policies

 

The results for the year ended 31 October 2009 have been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively 'IFRS') as adopted by the European Union at 31 October 2009 and the financial information contained herein is presented on a consistent basis with the IFRS accounting policies of Domino Printing Sciences plc. The policies that the Group considers to be its principal accounting policies were set out in full in the most recently published annual report for Domino Printing Sciences plc.

 

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in January 2010.

General information

The financial information set out in the announcement does not constitute statutory accounts for the years ended 31 October 2009 or 2008. The financial information for the year ended 31 October 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s237(2) or (3) Companies Act 1985. The audit of the statutory accounts for the year ended 31 October 2009 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

2.    Earnings per share

Earnings per share are calculated by dividing the profit on ordinary activities attributable to shareholders by the weighted average number of shares in issue during the year (109,186,927) less the weighted average shares in the Company purchased by the Company's Employment Benefit Trust (1,434,202) less the weighted average shares issued to the Company's QUEST scheme (35,867) less the weighted average shares held to satisfy the Group's Share Incentive Plan obligations (126,717).  The weighted average number of shares used is 107,590,141 (2008: 108,417,825).

The weighted average number of shares used in the diluted earnings per share calculation is the figure used in the basic earnings per share calculation adjusted by 278,179, being the number of shares deemed to be issued for no consideration if all share options had been exercised. The weighted average number of shares used is 107,868,320 (2008: 108,901,047).  The earnings used in the diluted earnings per share calculation are the profit on ordinary activities attributable to shareholders.

The Group presents an alternative measure of earnings per share ('underlying earnings per share') before the post-tax effects of:

• Amortisation of intangible assets arising on business combinations (2009: £1.4 million; 2008: £0.9 million).

• The notional, non-cash interest charge on discounted long term contingent consideration (2009: £0.8 million; 2008: £0.5 million).

• Exceptional costs arising on impairment of goodwill and acquisition intangibles, business restructuring and redundancies (2009: £4.1 million; 2008: £6.8 million).

   

  The effect of the above items on basic earnings per share is presented below:

		2009		2008
Basic earnings per share (pence)		17.81		15.33
Effect of acquired intangibles amortisation (pence)		1.35		0.85
Effect of exceptional expenses (pence)		3.82		6.29
Effect of notional interest charge on discounted contingent consideration (pence)		0.70		0.48
Underlying earnings per share (pence)		23.68		22.95
Diluted earnings per share (pence)		17.76		15.26
Underlying diluted earnings per share (pence)		23.62		22.85

3.  Segment reporting

		2009		2008
		£'000		£'000
Revenue by location of subsidiary
Europe		150,277		149,021
Americas		54,382		56,838
Rest of the World		51,489		47,497
		256,148		253,356
Segment result by location of subsidiary
Europe		26,330		28,799
Americas		(620)		286
Rest of the World		12,902		10,127
Eliminations		1,832		(202)
		40,444		39,010
Research and development		(11,662)		(13,720)
		28,782		25,290
Net interest		(818)		(140)
Profit before taxation		27,964		25,150

4.     Taxation

    Tax for the period is charged at a composite tax rate of 31.3 per cent (2008: 33.9 per cent). 

5.     Dividends

	2009	2008
	£'000	£'000
Amounts recognised as distributions in the year:
Final dividend for the year ended 31 October 2008 of 7.68 pence per share (2007: 6.4 pence)	8,289	6,946
Interim paid of 4.57 pence per share (2008: 4.15 pence)	4,938	4,524
	13,227	11,470

Dividends distributed in the year amount to 12.25 pence per share (2008: 10.55 pence). The directors recommend a final dividend of 8.45 pence per share bringing the total dividends declared for the year to 13.02 pence per share (2008: 11.83 pence).  The final dividend will be paid on 1 April 2010, subject to approval at the Annual General Meeting, to those shareholders appearing on the Register at close of business on 5 March 2010.  The final dividend has not been included as a liability at 31 October 2009.

 6.     Fixed asset investments - acquisitions

On 22 June 2009, the Group acquired 100 per cent of the share capital of Labeljet SA and its wholly owned subsidiary Marque TDI SA. The following table gives details of the provisional fair values of the assets and liabilities acquired, the consideration paid and the goodwill that has been transferred to the balance sheet:

    

	Book	Fair value	Fair
	value	adjustments	value
	£'000	£'000	£'000
Assets and liabilities acquired
Property, plant and equipment	533	-	533
Inventories	940	(364)	576
Trade and other receivables	2,069	(478)	1,591
Cash and cash equivalents	288	-	288
Loans	(335)	-	(335)
Trade and other payables	(1,225)	-	(1,225)
Net assets acquired	2,270	(842)	1,428
Assets arising on consolidation
Intangible assets acquired as part of the business combination			2,988
Deferred tax liability arising on valuation of acquired intangible assets			(837)
			2,151
Total assets arising on acquisition			3,579
Purchase consideration
Deferred consideration			4,814
Contingent consideration			3,691
Directly attributable costs			128
Total consideration			8,633
Goodwill			5,054

7.     Share capital

  During the year a total of 257,813 new ordinary shares of 5p each were issued under the Company's Executive and Savings  
  Related Option Schemes for £508,000. 

 

8.     Net cash inflow from operating activities

		2009		2008
		£'000		£'000
Operating profit		28,782		25,290
Depreciation of property, plant and equipment		5,425		4,828
Amortisation of intangible assets acquired through business combination		2,017		1,283
Amortisation of other intangible assets		224		328
Share-based compensation charges		1,194		670
Decrease in inventories*		775		3,480
Decrease/(increase) in receivables*		1,266		(3,469)
Increase/(decrease) in payables*		5,918		(2,125)
(Decrease)/increase in restructuring and redundancy provisions		(1,811)		4,914
Non-cash write down of goodwill and acquisition intangibles		1,457		3,069
Other non-cash items		162		227
Net cash inflow from operating activities
before taxation		45,409		38,495
Tax paid		(9,852)		(10,572)
Net cash inflow from operating activities		35,557		27,923

* Net of effect of change in exchange rates

9.  Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this statement. Transactions between the Group and its associate are immaterial and are not disclosed in this statement. 

10.     Underlying profit before taxation

 Underlying profit before taxation is calculated as follows:

		2009		2008
		£'000		£'000
Operating profit		28,782		25,290
Amortisation of acquired intangibles		2,017		1,283
Exceptional costs (note 12)		4,939		8,329
Underlying operating profit		35,738		34,902
Investment income		537		794
Finance costs excluding accounting for discounted  deferred consideration (2009: £756,000; 2008: £525,000)		(599)		(409)
Underlying profit before tax		35,676		35,287

11.     Exceptional costs

 The Group has incurred exceptional costs in the year as follows:

	2009	2008
	£'000	£'000
Relocation of manufacturing operations	1,653	1,828
Redundancy costs	1,829	3,432
Impairment of goodwill and acquisition intangibles	1,457	3,069
	4,939	8,329

12.  Disposal

On 20 May 2009, the Group disposed of the trade and certain assets of Domino (Australia) Pty Ltd to Insignia Pty Ltd for a cash consideration of A$1,084,000 (£524,000). The profit arising on disposal was £56,000.

ENDFR UUGGAPUPBGMM