TIDMDIGI
RNS Number : 2729K
Digital Marketing Group PLC
13 July 2011
Date: 13 July 2011
On behalf of: Digital Marketing Group plc ("DMG", "the Company"
or "the Group")
Embargoed: 0700hrs 13 July 2011
Digital Marketing Group plc
Preliminary Results 2011
Digital Marketing Group plc (AIM: DIGI), the UK's largest
digital marketing specialists, today announced its preliminary
results for the year ended 31 March 2011.
IMPROVED SECOND HALF, NET DEBT AT GBP4.2 MILLION DOWN GBP3.1
MILLION
Performance Highlights
-- Revenues GBP44.7m (2010: GBP48.5m)
-- Gross profit GBP36.0m (2010: GBP35.5m)
-- Adjusted* EBITD GBP5.8m(2010: GBP8.3m)
-- Adjusted* profit before tax GBP4.8m (2010: GBP7.2m)
-- Adjusted* basic earnings per share 5.52p (2010: 8.77p)
-- Net cash flow generated from operations GBP5.3m (2010:
GBP8.4m)
-- Net debt GBP4.2m (2010: GBP7.3m)
-- Statutory loss before tax and after amortisation, share based
payment charges and exceptional charges GBP13.5 million (2010: loss
GBP1.4m)
*Adjusted means before amortisation, share based charges,
impairment and exceptional items
Commenting on the results, Stephen Davidson, Chairman of Digital
Marketing Group plc, said: "The start to the year again has been a
mixed bag. The performance of our data services business has
improved markedly and our Technology business continues to perform
very well. The new business pipeline within our Agency business is
better than at the same time last year. However our Agency clients
continue to defer expenditure decisions which is impacting the
financial performance."
Enquiries:
Digital Marketing Group plc
Keith Sadler COO Tel: 0845 6045503
Email: keith.sadler@weare2020.com
Jane Booth Head of Marketing and Tel: 07786 863 830
Communications
Email: jane.booth@weare2020.com
finnCap Ltd
Charles Cunningham, Corporate Finance Tel: 0207 600 1658
Tom Jenkins, Corporate Broking
Notes to Editors:
-- Digital Marketing Group (AIM: DIGI) listed on AIM in October
2006, employs over 500 people.
-- Digital Marketing Group is the UKs biggest digital marketing
agency (Campaign Magazine Jan 2011).
Chairman's statement
For the year ended 31 March 2011 the Group reported an operating
profit before interest, tax, depreciation, amortisation, share
based payment charges and exceptional items of GBP5.8 million
(2010: GBP8.3 million). Revenue has fallen from GBP48.5 million to
GBP44.7 million, whereas gross profit has improved from GBP35.5
million to GBP36.0 million. This is a result of the change in the
mix of our revenue with an increase from Technology and a decrease
within our Agency business.
We have completed the consolidation of the business into a
single brand, 20:20. Based on this consolidation we present our
number in the three practice areas the businesses are reported
internally, namely 20:20 Agency, 20:20 Technology and 20:20
Dialogue (data services). Disclosed under other income are
distributions received from the administrator of a previous client.
These receipts have reduced to GBP1.3 million from GBP1.7 million
received in the year to 31 March 2010. It is anticipated that
further dividends will be made but the quantum will reduce. In May
2011 we received a further distribution of GBP0.3 million.
To complete the consolidation of the business it is intended to
put a resolution to members at the Annual General Meeting to change
the name of the Group to WEARE 2020 plc.
Our debt at the year-end was GBP4.2 million down from GBP7.3
million last year. We will make the final payments on the deferred
consideration for the acquisition of our Technology business in the
first half of this financial year of GBP2.4 million. The Group will
then have only GBP0.3 million of deferred consideration payments to
make.
As testing market conditions continue, the Board has reviewed,
in accordance with IAS 36, the carrying value of our intangible
assets and goodwill held on the balance sheet. As a result of this
review an impairment loss of GBP15.3 million (2010: GBP3.8 million)
has been recognised in accordance with the requirements of
IFRS.
On 3 April 2011 Ben Langdon, the Group's founding CEO, resigned.
I would like to thank Ben for his hard work and dedication to the
business over the last six years. The Board is conducting a
strategic review of the business and will begin a process to
identify a replacement in due course.
As for the previous year, the year to 31 March 2011 has been
tough but our management and employees have worked very hard to
deliver these results. I would like to thank all staff and clients
for their continuing commitment.
Outlook
The start to the year again has been a mixed bag. The
performance of our data services business has improved markedly and
our Technology business continues to perform very well. The new
business pipeline within our Agency business is better than at the
same time last year. However our Agency clients continue to defer
expenditure decisions which is impacting the financial
performance.
Stephen Davidson
Chairman
12 July 2011
Business Review
Digital Marketing Group plc reported a statutory loss before tax
of GBP13.5 million (2010: loss GBP1.4 million). The adjusted
performance at the operating performance line, before interest,
tax, depreciation, amortisation, share based payment charges and
exceptional items, shows profits of GBP5.8 million (2010: GBP8.3
million).
During the year the Group benefited from the receipt of GBP1.3
million (2010: GBP1.7 million) from the administrator of a client
where a contractual obligation existed. Removing the benefit of
these receipts from the above adjusted numbers results in an
operating performance for the year of GBP4.5 million compared to
GBP6.6 million for the year ended 31 March 2010. A further
distribution has been received by the Group in May 2011 in the sum
of GBP0.3 million. Based on communication from the administrator,
the Board believes there will be further distributions but do not
know the quantum.
The fall in operating performance of GBP2.1 million reflects the
continued difficulty in the financial services sector of our data
services business (Jaywing), which saw a decline of 57.2% in
operating profits and the Agency business where we saw the full
year impact of the loss of significant clients within the direct
marketing and Search Engine Optimisation/Pay Per Click parts of
that business. Gross profit within the Agency business fell from
GBP15.8 million to GBP12.6 million. However, the data services
business has started the current financial year well ahead of the
previous year and also ahead of its internal budget. As this is a
consultancy led business it is difficult to predict if this will
continue throughout this financial year but the first quarter
performance indicates data services has already made a significant
proportion of the profit contribution this business made for the
full year to 31 March 2011.
Our Technology business reported a 25% increase in its operating
performance from GBP1.6 million to GBP2.0 million on increased
revenues to GBP11.0 million from GBP6.5 million for the year ended
31 March 2010. We are accredited by IBM for their Websphere and
Sterling products and we believe this relationship will continue to
enhance the performance of the Group in the future.
The second half of the year saw an improvement in the operating
performance of the Group. The table below shows the adjusted first
and second half year analysis and adjustments made against the
reported numbers:
Six months Six months Full year
to to to
30 September 31 March 31 March
2010 2011 2011
GBP'000 GBP'000 GBP'000
Reported 850 (13,877) (13,027)
Amortisation 967 967 1,934
Depreciation 265 222 487
Impairment and exceptional
charges - 15,769 15,769
Share based payment charge 387 200 587
-------------- ----------- ----------
Adjusted operating profit 2,469 3,281 5,750
Other income (856) (457) (1,313)
-------------- ----------- ----------
Adjusted operating profit before
other income 1,613 2,824 4,437
-------------- ----------- ----------
Including other income the Group produced GBP3.3 million
adjusted operating profit in the six months to 31 March 2011
against GBP2.5 million in the first half. Excluding other income,
the improvement in operating performance is more notable with an
adjusted operating profit before other income of GBP2.8 million for
the six months to 31 March 2011 compared to GBP1.6 million in the
first half of the financial year ended 31 March 2011.
The segmental performance of our business, now shown in the
three practice areas of Agency, Technology and Dialogue (data
services), is shown below together with the comparative performance
from the previous year.
Segmental performance
For the year ended 31 March 2011
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue from
external
customers 20,499 14,276 11,005 (1,075) 44,705
Direct costs (7,936) (1,190) (602) 994 (8,734)
--------- --------- ----------- ------------ ---------
Gross profit 12,563 13,086 10,403 (81) 35,971
Other operating
income 8 1,305 - - 1,313
Operating
expenses
excluding
depreciation,
amortisation and
charges for
share based
payments (10,467) (11,853) (8,405) (809) (31,534)
--------- --------- ----------- ------------ ---------
Operating profit
before
depreciation,
amortisation and
charges for
share based
payments 2,104 2,538 1,998 (890) 5,750
Depreciation (230) (205) (50) (2) (487)
Amortisation (885) (684) (365) - (1,934)
Impairment and
exceptional
charges (13,305) (2,170) - (294) (15,769)
Charges for share
based payments (131) (61) - (395) (587)
--------- --------- ----------- ------------ ---------
Operating
(loss)/profit (12,447) (582) 1,583 (1,581) (13,027)
--------- --------- ----------- ------------ ---------
For the year
ended 31 March
2010
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue from
external
customers 28,195 14,453 6,506 (690) 48,464
Direct costs (12,417) (968) (157) 538 (13,004)
--------- --------- ----------- ------------ ---------
Gross profit 15,778 13,485 6,349 (152) 35,460
Other operating
income 7 1,702 - - 1,709
Operating
expenses
excluding
depreciation,
amortisation and
charges for
share based
payments (11,749) (11,599) (4,735) (739) (28,822)
--------- --------- ----------- ------------ ---------
Operating profit
before
depreciation,
amortisation and
charges for
share based
payments 4,036 3,588 1,614 (891) 8,347
Depreciation (241) (266) (42) (25) (574)
Amortisation (850) (722) (366) - (1,938)
Impairment (2,519) (1,254) - (14) (3,787)
Charges for share
based payments (339) (1,064) - (1,522) (2,925)
--------- --------- ----------- ------------ ---------
Operating
profit/(loss) 87 282 1,206 (2,452) (877)
--------- --------- ----------- ------------ ---------
Liquidity review
The Group has renewed its banking facilities for a further three
years from June 2011. The Group's facilities comprise an amortising
revolving credit facility for an initial GBP6.3 million and a bank
overdraft of GBP1.0 million. The existing term loans mature in
October 2011.
The consolidated cash flow statement shows the Group to have
generated cash from operating activities of GBP5.3 million (2010:
GBP8.4 million) before changes in working capital.
We paid GBP0.6 million in tax (2010: GBP2.4 million) which is
down on the previous year due to the benefit of the share based
payment charge allowed on exercise of share options. In addition,
we repaid GBP1.8 million of term loans (2010: GBP1.8 million) and
reduced the revolving credit facility by GBP1.2 million (2010:
increased GBP0.6 million).
As at 31 March 2011 the Group had net debt of GBP4.2 million
(2010: GBP7.3 million).
Impairment
As required by IAS 38 we have carried out an impairment review
of the carrying value of our intangible assets and goodwill. We
calculate our weighted average cost of capital with reference to
long term market costs of debt and equity and the Company's own
cost of debt and equity, adjusted for the size of the business and
risk premiums. Based on this calculation a rate of 12.7% has been
derived. This is applied to cash flows for each of the business
units using growth rates in perpetuity of 2% from 2018. As a result
of these calculations the Board have reviewed the carrying value of
intangible assets and goodwill on the Group's balance sheet and
have recognised an impairment charge of GBP15.3 million (2010:
GBP3.8 million).
Contingent payments
The estimate of payments to be made for past acquisitions is
GBP2.6 million (2010: GBP4.2 million). GBP2.4 million for the
purchase of 20:20 Technology (formerly known as CyberDMG) has
crystallised and is due for payment between May and September 2011.
GBP250,000 is due for the purchase of 20:20 London and is subject
to performance criteria being met.
Key performance indicators
For the year ended 31 March 2011 the following KPIs were
set:
-- Recovery in our data services division.
-- Winning of blue chip digital accounts through the new 20:20
pillar.
-- Increased sales of Digital Brain: Search as well as more
profitable social media marketing assignments.
-- Emergence of 20:20 Mobile as a significant revenue generator,
focused on applications, mobile content, games and commerce.
In the second half of 2011 we began to see an improvement in the
data services division and this has continued into the first
quarter of the financial year ending 31 March 2012. We continue to
win clients throughout the Group. Significantly we have been added
to the Sky roster and have begun some work on their behalf. In the
current economic market it has been difficult to sell Digital Brain
Search and we have mothballed this product to allow the market to
pick up and focus our resources on existing capability. We continue
to exploit the mobile platform for our clients with innovative
ideas where we have produced an eCommerce mobile solution for Comet
to a mobile centric site on behalf of Carlsberg.
Our aim for the current financial year is to improve the
performance of each of our practice areas and reinforce our
credentials within the market place as a leading player in the
digital marketing space.
Keith Sadler
Chief Operating Officer
12 July 2011 Consolidated statement of comprehensive income
For the year
ended 31 March 2011 2011 2011 2010 2010 2010
Continuing
operations Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Before
impairment Impairment Before
of goodwill of goodwill impairment Impairment
and and of of
intangible intangible goodwill goodwill
assets and assets and and and
exceptional exceptional intangible intangible
costs costs Total assets assets Total
Revenue 44,705 - 44,705 48,464 - 48,464
Direct costs (8,734) - (8,734) (13,004) - (13,004)
----------- ----------- -------- ---------- ---------- --------
Gross profit 35,971 - 35,971 35,460 - 35,460
Other operating
income 2 1,313 - 1,313 1,709 - 1,709
Amortisation (1,934) - (1,934) (1,938) - (1,938)
Operating
expenses 3 (32,608) (15,769) (48,377) (32,321) (3,787) (36,108)
----------- ----------- -------- ---------- ---------- --------
Operating
profit/(loss) 2,742 (15,769) (13,027) 2,910 (3,787) (877)
----------- ----------- -------- ---------- ---------- --------
Finance income 1 - 1 2 - 2
Finance costs (498) - (498) (534) - (534)
----------- ----------- -------- ---------- ---------- --------
Net financing
costs (497) - (497) (532) - (532)
----------- ----------- -------- ---------- ---------- --------
Profit/(loss)
before tax 2,245 (15,769) (13,524) 2,378 (3,787) (1,409)
Tax
credit/(expense) 4 396 - 396 (576) - (576)
----------- ----------- -------- ---------- ---------- --------
Profit/(loss) for
the year
attributable to
equity holders
of the parent 2,641 (15,769) (13,128) 1,802 (3,787) (1,985)
Other
comprehensive
income:
Cash flow hedging 172 - 172 65 - 65
----------- -----------
Total
comprehensive
income for the
period
attributable to
equity holders
of the parent 2,813 (15,769) (12,956) 1,867 (3,787) (1,920)
----------- ----------- -------- ---------- ---------- --------
Loss per share 5
From continuing
operations
- basic (17.64)p (2.88)p
- diluted (17.64)p (2.88)p
----------- ----------- -------- ---------- ---------- --------
Consolidated balance sheet
As at 31 March 2011 2010 2009
Note GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 6 1,586 1,752 2,057
Goodwill 7 29,777 45,653 47,051
Other intangible assets 8 11,273 14,272 16,116
------- ------- -------
42,636 61,677 65,224
------- ------- -------
Current assets
Inventories 143 212 196
Trade and other receivables 10,425 11,832 10,683
Cash and cash equivalents 9 9,307 7,399 12,227
------- ------- -------
19,875 19,443 23,106
------- ------- -------
Total assets 62,511 81,120 88,330
------- ------- -------
Current liabilities
Bank overdraft 9 8,159 6,443 8,806
Other interest-bearing loans
and borrowings 9 5,311 1,691 1,691
Financial derivatives 244 416 481
Trade and other payables 9,148 12,741 15,678
Current tax liabilities 286 254 1,475
Provisions 123 187 147
------- ------- -------
23,271 21,732 28,278
------- ------- -------
Non-current liabilities
Other interest-bearing loans
and borrowings 9 - 6,522 7,612
Deferred tax liabilities 3,119 4,133 4,661
------- ------- -------
3,119 10,655 12,273
------- ------- -------
Total liabilities 26,390 32,387 40,551
------- ------- -------
Net assets 36,121 48,733 47,779
------- ------- -------
Equity attributable to owners
of the parent
Share capital 10 34,051 34,026 33,689
Share premium 6,608 6,608 6,608
Hedging reserve (244) (416) (481)
Capital redemption reserve 125 125 125
Shares purchased for treasury (42) - -
Share option reserve 329 419 5,810
Retained earnings (4,706) 7,971 2,028
------- ------- -------
Total equity 36,121 48,733 47,779
------- ------- -------
Consolidated cash flow statement
For the year ended 31 March 2011 2010
Note GBP'000 GBP'000
Cash flow from operating activities
Loss after tax (13,128) (1,985)
Adjustments for:
Depreciation, amortisation and impairment 17,773 6,299
Loss on disposal of property, plant and
equipment 7 28
Movement in provision (64) 40
Financial income (1) (2)
Financial expenses 498 534
Share-based payment expense 587 2,874
Taxation (396) 576
-------- --------
Operating cash flow before changes in working
capital 5,276 8,364
Decrease/(increase) in trade and other receivables 1,407 (1,034)
Decrease/(increase) in inventories 69 (16)
Decrease in trade and other payables (2,018) (2,543)
-------- --------
Cash generated from operations 4,734 4,771
Interest received 1 2
Interest paid (422) (482)
Tax paid (586) (2,355)
-------- --------
Net cash flow from operating activities 3,727 1,936
-------- --------
Cash flow from investing activities
Proceeds from sale of property, plant and
equipment - 4
Acquisitions of subsidiaries, net of cash
acquired - (1,632)
Repayment/(payment) of contingent consideration
for prior year acquisitions 150 (600)
Acquisition of intangible assets (89) (694)
Acquisition of property, plant and equipment (375) (301)
-------- --------
Net cash outflow from investing activities (314) (3,223)
-------- --------
Cash flows from financing activities
Proceeds from new loan and draw down of
bank facilities - 600
Repayment of borrowings (2,978) (1,778)
Cash settlement of equity share options (126) -
Purchase of treasury shares (117) -
-------- --------
Net cash outflow from financing activities (3,221) (1,178)
-------- --------
Net increase/(decrease) in cash and cash
equivalents 192 (2,465)
Cash and cash equivalents at beginning of
year 956 3,421
-------- --------
Cash and cash equivalents at end of year 1,148 956
-------- --------
Cash and cash equivalents comprise:
Cash at bank and in hand 9 9,307 7,399
Bank overdrafts 9 (8,159) (6,443)
-------- --------
Cash and cash equivalents at end of year 9 1,148 956
-------- --------
Consolidated statement of changes in equity
Total
attributed
to the
Capital Share owners of
Share Share Hedging redemption Treasury option Retained the
capital premium reserve reserve shares reserve earnings parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April
2009 33,689 6,608 (481) 125 - 5,810 2,028 47,779
------- ------- ------- ---------- -------- ------- -------- ----------
Allotment of
5p Ordinary
shares 337 - - - - (337) - -
Credit in
respect of
share-based
payments - - - - - - 2,874 2,874
Transfer from
share option
reserve - - - - - (5,054) 5,054 -
------- ------- ------- ---------- -------- ------- -------- ----------
Transactions
with owners 337 - - - - (5,391) 7,928 2,874
------- ------- ------- ---------- -------- ------- -------- ----------
Loss for the
year - - - - - - (1,985) (1,985)
Other
comprehensive
income:
Cash flow
hedges - - 65 - - - - 65
------- ------- ------- ---------- -------- ------- -------- ----------
Total
comprehensive
income for
the year - - 65 - - - (1,985) (1,920)
------- ------- ------- ---------- -------- ------- -------- ----------
At 31 March
2010 34,026 6,608 (416) 125 - 419 7,971 48,733
------- ------- ------- ---------- -------- ------- -------- ----------
Allotment of
5p Ordinary
shares on the
exercise of
share
options 25 - - - - (25) - -
Shares
purchased for
Treasury - - - - (117) - - (117)
Allotment of
shares from
Treasury on
the exercise
of options - - - - 75 - (75) -
Credit in
respect of
share-based
payments - - - - - - 587 587
Transfer from
share option
reserve - - - - - (65) 65 -
Cash settled
share
options - - - - - - (126) (126)
------- ------- ------- ---------- -------- ------- -------- ----------
Transactions
with owners 25 - - - (42) (90) 451 344
------- ------- ------- ---------- -------- ------- -------- ----------
Loss for the
year - - - - - - (13,128) (13,128)
Other
comprehensive
income:
Cash flow
hedges - - 172 - - - - 172
------- ------- ------- ---------- -------- ------- -------- ----------
Total
comprehensive
income for
the year - - 172 - - - (13,128) (12,956)
------- ------- ------- ---------- -------- ------- -------- ----------
At 31 March
2011 34,051 6,608 (244) 125 (42) 329 (4,706) 36,121
------- ------- ------- ---------- -------- ------- -------- ----------
Notes to the preliminary announcement of results
Principal accounting policies
Digital Marketing Group plc is a Company incorporated in the
UK.
The financial information set out in this preliminary
announcement does not constitute statutory information as defined
in section 434 of the Companies Act 2006.
The consolidated balance sheet at 31 March 2011 and the
consolidated statement of comprehensive income, consolidated cash
flow statement, consolidated statement of changes in equity and
associated notes for the year then ended have been extracted from
the Group's 2011 statutory financial statements upon which the
auditor's opinion is unmodified and does not include any statement
under section 498 (2) or (3) of the Companies Act 2006.
Those financial statements have not yet been delivered to the
registrar of companies.
The consolidated financial statements consolidate those of the
Company and its subsidiaries (together referred to as the
'Group').
The consolidated financial statements have been prepared and
approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the EU (Adopted IFRSs).
The consolidated financial statements have been prepared under the
historical cost convention, except for certain financial
instruments that are held at fair value.
The accounting policies which remained unchanged from the
previous year, unless otherwise stated, have been applied
consistently to all periods presented in those consolidated
financial statements.
Judgements made by the Directors in the application of these
accounting policies that have a significant effect on the
consolidated financial statements together with estimates with a
significant risk of material adjustment in the next year are
discussed in note 12.
Going concern
The Directors have reviewed the forecasts for 2011/12 and
2012/13 which have been adjusted to take account of the current
trading environment. The Directors consider the forecasts to be
prudent and have assessed the impact of them on the Group's cash
flow, facilities and headroom within its banking covenants.
Further, the Directors have assessed the future funding
requirements of the Group and compared them with the level of
available borrowing facilities. Based on this work, the Directors
are satisfied that the Group has adequate resources to continue in
operational existence for 12 months from the date of these
accounts. For this reason they continue to adopt the going concern
basis in preparing the financial statements.
1. Segmental analysis
The Group now reports its business activities in three areas:
Agency, Dialogue and Technology, its three primary business
activities. In previous years this has been reported on a pillar
business activity basis based around geography and business
activity. The comparative information has been amended to reflect
this change of management reporting. Unallocated represents the
Group's head office function, along with intragroup
transactions.
The Group derives its revenue from the provision of digital
marketing services in the UK to customers all of which are based in
the UK. No single customer accounts for more than 10% or more of
the Group's revenues.
For the year ended 31 March 2011
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 20,499 14,276 11,005 (1,075) 44,705
Direct costs (7,936) (1,190) (602) 994 (8,734)
--------- --------- ----------- ------------ ---------
Gross profit 12,563 13,086 10,403 (81) 35,971
Other operating
income 8 1,305 - - 1,313
Operating
expenses
excluding
depreciation,
amortisation and
charges for
share based
payments (10,467) (11,853) (8,405) (809) (31,534)
--------- --------- ----------- ------------ ---------
Operating profit
before
depreciation,
amortisation and
charges for
share based
payments 2,104 2,538 1,998 (890) 5,750
Depreciation (230) (205) (50) (2) (487)
Amortisation (885) (684) (365) - (1,934)
Impairment and
exceptional
charges (13,305) (2,170) - (294) (15,769)
Charges for share
based payments (131) (61) - (395) (587)
--------- --------- ----------- ------------ ---------
Operating
(loss)/profit (12,447) (582) 1,583 (1,581) (13,027)
--------- --------- ----------- ------------
Finance income 1
Finance costs (498)
---------
Loss before tax (13,524)
Taxation 396
---------
Loss for the
period from
continuing
operations (13,128)
---------
For the year
ended 31 March
2010
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 28,195 14,453 6,506 (690) 48,464
Direct costs (12,417) (968) (157) 538 (13,004)
--------- --------- ----------- ------------ ---------
Gross profit 15,778 13,485 6,349 (152) 35,460
Other operating
income 7 1,702 - - 1,709
Operating
expenses
excluding
depreciation,
amortisation and
charges for
share based
payments (11,749) (11,599) (4,735) (739) (28,822)
--------- --------- ----------- ------------ ---------
Operating profit
before
depreciation,
amortisation and
charges for
share based
payments 4,036 3,588 1,614 (891) 8,347
Depreciation (241) (266) (42) (25) (574)
Amortisation (850) (722) (366) - (1,938)
Impairment (2,519) (1,254) - (14) (3,787)
Charges for share
based payments (339) (1,064) - (1,522) (2,925)
--------- --------- ----------- ------------ ---------
Operating
profit/(loss) 87 282 1,206 (2,452) (877)
--------- --------- ----------- ------------
Finance income 2
Finance costs (534)
---------
Loss before tax (1,409)
Taxation (576)
---------
Loss for the
period from
continuing
operations (1,985)
---------
Year ended 31
March 2011
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets 3,561 16,679 9,066 33,445 62,751
Liabilities (5,047) (4,146) (3,900) (13,537) (26,630)
-------- --------- ----------- ------------ ---------
Capital employed (1,486) 12,533 5,166 19,908 36,121
-------- --------- ----------- ------------ ---------
Year ended 31
March 2010
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets 30,831 20,368 8,094 22,033 81,326
Liabilities (9,449) (4,038) (2,224) (16,879) (32,590)
-------- --------- ----------- ------------ ---------
Capital employed 21,382 16,330 5,870 5,154 48,736
-------- --------- ----------- ------------ ---------
Unallocated assets and liabilities consist predominantly of
cash, external borrowings and deferred tax liabilities on
intangible assets which have not been allocated to the business
segments. All of the Group's assets are based in the UK.
Capital additions; Property, plant and equipment
Agency Dialogue Technology Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 March 2011 143 163 68 1 375
------- -------- ---------- ----------- -------
Year ended 31 March 2010 114 177 10 - 301
------- -------- ---------- ----------- -------
2. Other operating income
2. 2011 2010
GBP'000 GBP'000
Other operating income 1,313 1,709
------- -------
During the year to 31 March 2011 and 2010 the Group received
part settlement from the administrator of a client for a
contractual obligation to perform services on their behalf. It is
anticipated there may be further distributions in the future but
the Board is unaware of the quantum or timing of these potential
receipts.
3. Other operating expenses
3. 2011 2010
GBP'000 GBP'000
Wages and salaries 22,228 21,961
Share based payments 587 2,925
Administration 9,793 7,435
Impairment of intangible assets and goodwill
and exceptional costs 15,769 3,787
------- -------
48,377 36,108
------- -------
Exceptional costs of GBP464,000 represents compensation for loss
of office in respect of a director and the costs of closure of an
operating site.
4. Tax expense
2011 2010
GBP'000 GBP'000
Recognised in the consolidated statement of
comprehensive income:
Current year tax 645 1,134
Origination and reversal of temporary differences (1,041) (558)
-------- -------
Total tax (credit) /charge (396) 576
-------- -------
Reconciliation of total tax (credit) /charge:
Loss before tax (13,524) (1,409)
-------- -------
Taxation using the UK Corporation Tax rate of
28% (2010: 28%) (3,787) (395)
Effects of:
Non deductible expenses (943) 94
Impairment of goodwill 4,285 892
Share based payment charges 164 804
Capital allowances in excess of depreciation 42 -
Schedule 23 deductions (96) (805)
Other (5) (68)
Prior year adjustment (56) 54
Total tax charge (396) 576
-------- -------
5. Loss per share
2011 2010
Pence per Pence per
Share Share
Basic (17.64)p (2.88)p
Diluted (17.64)p (2.88)p
--------- ---------
Loss per share has been calculated by dividing the profit
attributable to shareholders by the weighted average number of
ordinary shares in issue during the year. As the basic earnings per
share is a loss a dilution does not take place.
The calculations of basic and diluted earnings per share
are:
2011 2010
GBP'000 GBP'000
Loss for the year attributable to shareholders (13,128) (1,985)
-------- -------
Weighted average number of ordinary shares in issue:
2011 2010
Number Number
Basic 74,421,106 69,009,912
Adjustment for share options 3,280,491 6,934,553
Diluted 77,701,597 75,944,465
---------- ----------
Adjusted earnings per share
2011 2010
Pence per Pence per
Share Share
From continuing and discontinued operations:
Basic adjusted earnings per share 5.52p 8.77p
Diluted adjusted earnings per share 5.29p 7.97p
--------- ---------
Adjusted earnings per share have been calculated by dividing the
profit attributable to shareholders before amortisation and charges
for share options by the weighted average number of ordinary shares
in issue during the year. The numbers used in calculating the basic
and diluted adjusted earnings per share are reconciled below:
2011 2010
GBP'000 GBP'000
Loss before tax (13,524) (1,409)
Amortisation 1,934 1,938
Impairment of carrying value of goodwill and
other intangible assets and exceptional charges 15,769 3,787
Charges for share options 587 2,874
-------- -------
Adjusted profit attributable to shareholders 4,766 7,190
Current year tax charge (654) (1,134)
-------- -------
4,112 6,056
-------- -------
6. Property, plant and equipment
Freehold
land and Leasehold Motor Office
buildings improvements vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 April 2009 1,150 302 6 1,956 3,414
Additions - 6 12 283 301
Disposals - (80) (6) (291) (377)
At 31 March 2010 1,150 228 12 1,948 3,338
Additions - 10 - 365 375
Disposals - (22) - (67) (89)
---------- ------------- --------- ---------- -------
At 31 March 2011 1,150 216 12 2,246 3,624
---------- ------------- --------- ---------- -------
Depreciation
At 1 April 2009 51 122 6 1,178 1,357
Depreciation charge
for the year 29 54 - 491 574
Depreciation on
disposals - (53) (6) (286) (345)
---------- ------------- --------- ---------- -------
At 31 March 2010 80 123 - 1,383 1,586
Depreciation charge
for the year 28 47 3 409 487
Impaired assets - - - 47 47
Depreciation on
disposals - (19) - (63) (82)
---------- ------------- --------- ---------- -------
At 31 March 2011 108 151 3 1,776 2,038
---------- ------------- --------- ---------- -------
Net book value
At 31 March 2011 1,042 65 9 470 1,586
---------- ------------- --------- ---------- -------
At 31 March 2010 1,070 105 12 565 1,752
---------- ------------- --------- ---------- -------
At 1 April 2009 1,099 180 - 778 2,057
---------- ------------- --------- ---------- -------
The assets are covered by a fixed charge in favour of the
Group's lenders.
7. Goodwill
Goodwill
GBP'000
Cost and net book value
At 1 April 2009 47,051
Reduction in deferred contingent
consideration (294)
Impairment (3,187)
Acquisitions through business combinations 2,083
--------
At 31 March 2010 45,653
Reduction in deferred contingent
consideration (1,575)
Refund of consideration paid (150)
Impairment (14,151)
--------
At 31 March 2011 29,777
--------
At 31 March 2010 45,653
--------
1 April 2009 47,051
--------
Goodwill is attributed to the following cash generating units:
2011 2010 2009
GBP'000 GBP'000 GBP'000
20:20 Technology 5,156 5,156 5,151
20:20 Agency:
20:20 Media and Analytics 438 7,763 9,620
DigforFire 5,550 5,550 5,550
20:20 Agency 5,817 5,817 6,017
Hyperlaunch - 1,432 2,007
Inbox - 1,711 1,711
20:20 London - 2,083 -
20:20 Dialogue:
HSM 3,201 4,209 4,209
Gasbox 273 1,598 2,182
Jaywing 9,342 10,334 10,604
29,777 45,653 47,051
---------- --------- ---------
Goodwill and other intangible assets have been tested for
impairment by assessing the value in use of the relevant cash
generating units. The value in use calculations were based on
projected cash flows in perpetuity. Budgeted cash flows for
2011/2012 were used. Subsequent years were based on reducing rates
of growth declining to a 2% growth rate by 2018.
The average year on year growth in earnings before interest,
tax, depreciation and amortisation (EBITDA) which has been used as
the basis for forecasting cash flows for each of the cash
generating units when testing for impairment were:
Year on year
growth
2011/12 5.0% - 10%
2012/13 5.0% - 10%
2013/14 5.0% - 10%
2014/15 2.5% - 10%
2015/16 2.5% - 10%
Perpetuity 2.0%
The growth rates shown are the average applied to the cash flows
of the individual cash generating units and do not form a basis for
estimating the consolidated profits of the Group in the future.
The discount rate used to test the cash generating units was the
Group's pre-tax Weighted Average Cost of Capital ("WACC") of 12.7%
(2010:12.9%). The individual cash generating units were assessed
for risk variances from the WACC, but in the absence of
geographical risk, currency risk and any significant price risk
variations, the WACC was used for all the cash generating
units.
The reason for the impairment is the current economic
environment and the future assumed expectations for each of the
business units.
As a result of these tests a total impairment of GBP15.3 million
(2010: GBP3.2 million) was considered necessary, GBP14.1 million of
which relates to goodwill and GBP1.2 million relates to other
intangible assets.
The Directors have performed sensitivity analysis in relation to
the WACC used which showed that further impairment would be
required for WACCs above 12.7%. At a discount rate of 13.7% a
further impairment charge of GBP398,000 would be required.
The Directors have also performed sensitivity analysis in
relation to the year on year growth in EBITDA. If the growth rates
were to be reduced by 1.0% (from 10% to 9% and 5.0% to 4.0%) no
additional impairment charge would be required.
8. Other intangible assets
Customer
relationships,
trademarks and
development costs
GBP'000
Cost
At 1 April 2009 19,707
Additions during the year 694
------------------
At 31 March 2010 20,401
Additions during the year 89
------------------
At 31 March 2011 20,490
------------------
Amortisation
At 1 April 2009 3,591
Impairment 600
Amortisation charge for the year 1,938
------------------
At 31 March 2010 6,129
Impairment 1,154
Amortisation charge for the year 1,934
------------------
At 31 March 2011 9,217
------------------
Net book amount
At 31 March 2011 11,273
------------------
At 1 April 2010 14,272
------------------
At 1 April 2009 16,116
------------------
The cost of customer relationships was determined as at the date
of acquisition of the subsidiaries by professional valuers. The
valuations used the discounted cash flow method, assuming rates of
customer attrition at 10% and sales growth at 2% each year. The
discount rate applied at that time to the future cash flows were
specific to each subsidiary and were all in the range 14.6% to
15.5%.
Goodwill and other intangible assets have been tested for
impairment. The method, key assumptions and results of the
impairment review are detailed in note 7. On the basis of this
review the carrying value of these intangible assets has been
impaired.
9. Bank and overdraft, loans and borrowings
2011 2010 2009
GBP'000 GBP'000 GBP'000
Summary
Bank overdraft 8,159 6,443 8,806
Borrowings 5,311 8,213 9,303
--------- --------- ---------
13,470 14,656 18,109
--------- --------- ---------
Borrowings are repayable as follows:
Within one year
Bank overdraft 8,159 6,443 8,806
Borrowings 5,374 1,865 1,984
--------- --------- ---------
Total payments due within one year 13,533 8,308 10,790
Less future interest (63) (174) (293)
--------- --------- ---------
Total due within one year 13,470 8,134 10,497
--------- --------- ---------
In more than one year but not more
than two years - 6,596 1,928
In more than two years but not more
than three years - - 6,021
Total payments due in more than one
year - 6,596 7,949
Less future interest - (74) (337)
--------- --------- ---------
Total due in more than one year - 6,522 7,612
--------- --------- ---------
Average interest rates at the
balance sheet date were: GBP'000 % % %
Overdraft 8,159 2.75 2.75 5.00
Term loan 822 2.13 1.96 2.96
Term loan 300 2.63 2.46 3.46
Revolver loan 4,189 2.39 2.33 3.46
As the loans are at variable market rates their carrying amount
is equivalent to their fair value.
In 2007 the Group purchased an interest rate swap of 6.19% for
the period June 2007 to June 2012 for GBP4,000,000 of its
borrowings.
The borrowing facilities available to the Group at 31 March 2011
was GBP8.47 million (2010: GBP11.24 million) and, taking into
account cash balances within the Group companies, there was GBP4.3
million (2010: GBP3.99 million) of available borrowing
facilities.
A Composite Accounting System is set up with the Group's
bankers, which allows debit balances on overdraft to be offset
across the Group with credit balances.
Reconciliation of net debt
1 April Non-cash 31 March
2010 Cash flow items 2011
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents 7,399 1,908 - 9,307
Overdraft (6,443) (1,716) - (8,159)
-------- ---------- --------- ---------
956 192 - 1,148
Borrowings (8,213) 2,957 (55) (5,311)
-------- ---------- --------- ---------
Net Debt (7,257) 3,149 (55) (4,163)
-------- ---------- --------- ---------
The non-cash movement relates to the pre-paid loan fees on the
Group's term loans.
10. Share capital
Authorised:
45p deferred 5p ordinary
shares shares
GBP'000 GBP'000
Authorised share capital
at 31 March 2010 45,000 10,000
At 31 March 2011 45,000 10,000
------------- ------------
Allotted, issued and fully paid
50p ordinary 45p deferred 5p ordinary
shares shares shares
Number Number Number GBP'000
Issued share capital
at 31 March 2009 67,378,520 - - 33,689
Conversion (67,378,520) 67,378,520 67,378,520 -
Issue of ordinary
shares during the
year - - 6,742,985 337
At 31 March 2010 - 67,378,520 74,121,505 34,026
Shares allotted on
exercise of options - - 483,494 25
------------- ------------- ------------ --------
At 31 March 2011 - 67,378,520 74,604,999 34,051
------------- ------------- ------------ --------
The 5 pence ordinary shares have the same rights (including
voting and dividend rights and rights on a return of capital) as
the previous 50 pence ordinary shares. Holders of the 45 pence
deferred shares do not have any right to receive notice of any
general meeting of the Company or any right to attend, speak or
vote at any such meeting. The deferred share holders are not
entitled to receive any dividend or other distribution and shall on
a return of assets in a winding up of the Company entitle the
holders only to the repayment of the amounts paid up on the shares
after the amount paid to the holders of the new ordinary shares
exceeds GBP1,000,000 per new ordinary share. The deferred shares
will also be incapable of transfer and no share certificates will
be issued in respect of them.
During the year the Company has issued 483,494 5 pence ordinary
shares and has reissued 307,953 5 pence ordinary shares which were
previously held as treasury shares to settle share options
exercised by employees. In addition holders of 498,709 share
options received cash in lieu of the share options they were
entitled to exercise.
11. Contingent liabilities
Some acquisitions by the Group involve an earn-out agreement
whereby the consideration payable includes a deferred element of
cash or shares or both which is contingent on the future financial
performance of the acquired entity. As such there is uncertainty
about the amount (but not timing) of these future potential
outflows.
The maximum liability is GBP2,650,000 (2010: GBP9,000,000) and
the Directors have assessed the likely payments based on forecasts
and have provided GBP2,650,000 (2010: GBP4,225,000), leaving GBPnil
(2010: GBP4,775,000) as an unprovided liability.
The amounts provided for are payable as follows:
2011 2010
GBP'000 GBP'000
In one year or less 2,400 -
In more than one year but less than five
years 250 4,225
------- -------
2,650 4,225
------- -------
The amounts provided have not been discounted.
12. Accounting estimates and judgements
Accounting estimates
Impairment of goodwill
The carrying amount of goodwill is GBP29,777,000 (2010:
GBP45,653,000). The Directors are confident that the carrying
amount of goodwill is fairly stated, and have carried out an
impairment review.
Other intangible assets
The valuation of customer lists is based on key assumptions
which the Directors have assessed, and are satisfied that the
carrying value of these assets is fairly stated. An impairment
review has been carried out.
Share-based payment
The share based payment charge consists of two charges.
A charge for the fair value at the date of grant of the share
based remuneration calculated using the Black-Scholes method, in
previous years a trinomial pricing model was adopted. In
considering an appropriate charge the Directors have used an
internally generated calculation to derive an appropriate charge.
Based on these calculations a charge of GBP587,000 has been made.
In the year ended 31 March 2010 a charge of GBP2,874,000 was
made.
The Group has charged GBPnil (2010: GBP51,000) in the year as an
additional Share Based Payment charge. The future Employers NI
liability has been discounted over the three year period using a
discount rate of 10%.
Fair values on acquisition
The Directors have assessed the fair value of assets and
liabilities on the acquisition of the subsidiary companies.
Deferred consideration
The Directors have provided an estimate of the amount payable in
respect of deferred contingent consideration. See note 11.
Accounting judgements
Recognition of revenue as principal or agent
The Directors consider that they act as a principal in
transactions where the Group assumes the credit risk. Where this is
via an agency arrangement and the Group assumes the credit risk for
all billings it therefore recognises gross billings as revenue.
13. Annual report and Accounts
Copies of the annual report and accounts for the year ended 31
March 2011 together with the notice of Annual General Meeting will
be issued to shareholders shortly and will be available to view and
download from the Company's website: www.weare2020.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFFFMEFFSEEW
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