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RNS Number:6441Q
Incepta Group PLC
08 October 2003
Incepta Group plc
Interim results reflect second quarter improvement in trading
Incepta Group plc, the international marketing and communications group, today
announces its interim results for the six months to 31 August 2003:
* Results in line with expectations - significant improvement in second
quarter
* Underlying operating margins* robust
* Financial strength substantially improved
- Successful #27.7 million capital raising in August
- Over 80% of earn-outs now settled
* Good new client wins: DVLA, BAA, Barclaycard, HSH Nordbank, T-Mobile,
Freeserve, Kwik-Fit, AngloGold, Saban Capital Group, Investec, Sainsbury's
Bank and Telefonica
* before goodwill and exceptional items
Richard Nichols, Chief Executive of Incepta Group plc, said:
"The half year began with weak economic conditions, exacerbated by the
uncertainties created by the Iraq conflict. Despite this, the group has
produced results in line with expectations and, within this, has maintained
robust margins and has seen significantly stronger trading in the second
quarter.
Our businesses have continued to demonstrate their market leading
positions. We have maintained high client loyalty, won a significant number
of new retained clients and worked on a substantial proportion of the high
profile assignments over the period. We have also substantially improved our
financial strength with our successful capital raising which has enabled us to
manage the earn-out commitments from our past acquisitions. Currently, over
80% of the earn-outs have been settled with the balance spread over the next
four years.
Looking ahead, we shall continue to be affected by the general economic climate
and cannot be certain that the current improvement in client and market
sentiment will be sustained. Our group, however, is in good shape and our
current high level of operational gearing should see profits, margins and cash
generation improve significantly once market conditions improve."
For further information contact:
Richard Nichols, Chief Executive, Incepta Group plc ) Tel: 020 7282 2865
Mike Butterworth, Group Finance Director, Incepta Group plc)
Patrick Toyne Sewell/Fiona Bradshaw, Citigate Dewe Rogerson Tel: 020 7638 9571
For further investor information please visit: www.incepta.com
Financial Summary
Half year Half year Half year
ended ended Change ended Change
31 Aug 2003 31 Aug 2002 % 28 Feb 2003 %
Turnover #122.0m #132.7m (8) #118.3m 3
Gross revenue
(gross profit) #76.9m #82.8m (7) #77.7m (1)
Operating profit* #7.4m #11.0m (32) #8.4m (12)
Adjusted profit
before tax* #5.9m #9.7m (40) #7.1m (18)
Profit/(loss)
before tax #1.3m #3.0m (59) #(33.5)m n/a
Adjusted diluted
earnings per share* 2.49p 4.81p (48) 2.03p 23
Diluted (loss)/
earnings per share (0.20)p 0.08p n/a (33.91)p n/a
Cash inflow from
operating activities** #5.7m #9.3m (39) #10.7m (47)
* before goodwill and exceptional items
** before exceptional items
Overview
From a weak start, we have seen a steady improvement in levels of investor
confidence and corporate activity, and this has been reflected in the group's
trading and financial performance during the first half.
The quality and reputation of our leading brands, coupled with continued
active management of our cost base, has helped us withstand the downturn and
leaves us operationally geared to benefit from any continuing improvement in
market conditions.
Our long term positioning remains a core strength as client spend continues
to migrate from traditional consumer advertising to below-the-line activities
such as public relations, direct marketing and promotional marketing. More
recently, there have been clear signs of increased planning activity and
enquiries, a potential precursor to increasing activity in 2004. The level of
pitching activity, especially in public relations and promotional marketing,
has increased of late and our win rate remains good. Whilst not all pitches
have resulted in spend at the originally anticipated levels, they have added
to our internal momentum and strengthen our platform for potential future
growth in the medium term.
We have also substantially improved our financial strength with our successful
capital raising. This has enabled us to manage the earn-out commitments from
our past acquisitions. Since the beginning of the last financial year, over
80% of these have been settled, with the balance scheduled over the next
four years.
Financial review
In the first half to 31 August 2003, gross revenue (gross profit) fell 7% to
#76.9 million compared to the same period last year. However, gross revenues
for the first half are broadly in line with the second half of last year,
indicating that revenues now appear to be stabilising. Operating profit
(before goodwill and exceptional items) was #7.4 million, one-third lower than
the first half of last year and 12% lower than the second half of last year.
Operating margins (before goodwill and exceptional items) were 9.7%, with a
strong bias towards the second quarter which saw margins of around 13%.
The margin performance reflects both the difficult trading environment in the
first quarter of the year and the impact of weak trading at two US businesses,
Citigate Global Intelligence & Security ('CGIS') and Citigate Broad Street.
Against this backdrop, the Group has continued to proactively manage its cost
base without compromising its competitive position. We anticipate generating
additional annualised savings of approximately #3.5 million, principally
through the recent reduction in our headcount by around 120 people (6% of our
total workforce). These cost saving programmes have resulted in an exceptional
charge in the period of #1.9 million.
Profit before tax (before goodwill and exceptional items) was reduced to #5.9
million and diluted earnings per share (before goodwill and exceptional items)
were 2.49 pence. In line with our normal practice, no interim dividend is
being paid.
Our continued focus on the strength of our balance sheet has ensured that the
Group remains in a strong financial position and our businesses continue to
generate good operating cash flows. Cash inflow from operating activities
(excluding the impact of exceptional items) amounted to #5.7 million and cash
conversion (of operating profit to operating cash flows) was broadly in line
with the first half of last year. In August, we completed a capital raising
for #27.7 million (gross of expenses), comprising a #17.7 million Rights Issue
and a #10.0 million Issue for Cash. Both issues were made at an issue price
(post the subsequent share consolidation) of 65 pence, representing a discount
of 14.7% to the then market price. The capital raising has reinforced our
financial position and flexibility. Significant headroom exists between the
level of net debt at the end of the period (which includes the proceeds from
the capital raising) of #63.0 million and the #102.0 million of committed
medium-term bank facilities that we have in place.
Our earn-out commitments have been substantially reduced since the beginning
of the last financial year. Following the settlement of the share element of
The Red Consultancy and Su Yeang earn-outs in early October 2003, the total
commitment for earn-outs is now estimated to be #19.1 million (cash or loan
notes #13.5 million; shares to be issued #5.6 million), which is payable over
the next four years. This represents less than 20% of the amount as at 28
February 2002.
Marketing Services
The Marketing Services division's gross revenues decreased marginally by 4% to
#27.4 million compared to the same period last year but were broadly in line
with the second half of last year. This division accounted for over one-third
of the Group's gross revenue and generated half of our operating profits.
Finex, Dynamo and The RED Consultancy have all performed strongly over the
period with new client projects for Marks & Spencer, the DVLA, BAA and
Sainsbury's Bank, amongst others. Our recently merged Marketing Intelligence
businesses, DVL Smith and Hauck Research Services, have recovered well
following a weak first quarter, and are working with new clients such as
Barclaycard and Aventis. Our two leading sponsorship consultancies, Karen Earl
and Redmandarin, continue to act for clients such as Philips, Orange and
Siemens. Park Avenue, our specialist communications business in the UK,
enjoyed a good half year organising a major event to celebrate the formation of
a major new German banking group, HSH Nordbank, in addition to significant
projects for worldwide brands including Orange and British Airways. Our New
York based specialist communications business, Citigate Broad Street, has
however been operating in weak markets in the first half, exacerbated by the
impact of the Iraq conflict in the first quarter.
Incepta Online has also had a strong half year with new client wins including
Cisco, XL Capital Assurance, Capcom, Lords and Granada.
The reduction in Marketing Services' operating margins to 13.6% (before
goodwill and exceptional items) reflects the weak performance from Citigate
Broad Street in the US. Without that impact, operating margins would have
remained strong at 18.5%.
Financial & Corporate Communications
Gross revenues in our Financial & Corporate Communications division were #39.8
million, a marginal decrease of 3% compared to both the same period last year
and the second half of last year, indicating that revenues are now starting to
stabilise.
Our Financial & Corporate Communications businesses are underpinned by their
significant retained client base and have won a notable number of new clients
including T-Mobile, Telewest, Freeserve, Iberdrola, Kwik-Fit and Halfords.
Our businesses also retain their strong market positions and continue to be
successful in winning a significant proportion of the high profile transactions
that have taken place. Recent transaction work has included advising CVC and
Texas Pacific on their bid for Debenhams; AngloGold on its proposed acquisition
of Ashanti Goldfields; Yell on its IPO; Alcan on its bid for Pechiney; Saban
Capital Group on its acquisition of a controlling stake in German television
group ProSieben from Kirch Media; Airborne on its merger with DHL; Iberdrola on
its successful defence against Gas Natural's hostile offer; Telefonica on its
tender offer for Terra Networks; and handling the communications for HSH
Nordbank, Martha Stewart, and the acquisition of Chelsea Village.
CGIS, our business and competitive intelligence business, continues to develop
its market position although weak market conditions have meant that it is
taking longer than originally anticipated for this business to achieve a
break-even trading position, although the business is now on target to achieve
this in the second half of the year.
The reduction in operating margins in the division to 7.4% (before
goodwill and exceptional items) reflects the lower level of corporate
activity but particularly, the trading losses at CGIS. Without the impact
of CGIS, operating margins would have been 12.0%.
Specialist Advertising
The Specialist Advertising division's gross revenue was #10.1 million, a
decrease of just over a quarter compared to the first half last year, but only
13% below in the second half of last year.
Our UK and US financial and corporate advertising businesses have continued to
operate in very weak markets although their market leading positions were
demonstrated by their work on high profile campaigns for clients such as New
Star Asset Management, Investec and Scottish Widows. Our Continental European
corporate advertising businesses (notably in Germany) also experienced weak
market conditions although there have been signs of tentative recovery compared
to the second half of last year.
Our people
As always, our people are our major strength, and they have responded
unstintingly to what has undoubtedly been a testing time. I would like to
express my sincere thanks for their commitment and effectiveness. We continue
to safeguard the entrepreneurial culture which is at the heart of our group and
to create an environment in which creativity thrives and we can increasingly
leverage the combined resources and skills within our group.
Outlook
Looking ahead, we shall continue to be affected by the general economic climate
and cannot be certain that the current improvement in client and market
sentiment will be sustained. Our group, however, is in good shape and our
current high level of operational gearing should see profits, margins and cash
generation improve significantly once market conditions improve.
Incepta Group plc
Consolidated summarised profit and loss account
for the half year ended 31 August 2003
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
Note #'000 #'000 #'000
Turnover 121,999 132,680 250,984
Gross profit (gross revenue) 2,3 76,873 82,838 160,514
Administrative expenses (74,537) (79,107) (187,822)
Other operating income 494 537 1,097
Operating profit before
goodwill amortisation
and exceptional items 2,3 7,423 10,968 19,395
Goodwill amortisation (2,661) (667) (1,796)
Exceptional items:
Goodwill impairment charges 4 - (3,468) 35,923)
Restructuring costs 4 (1,932) (2,565) (7,887)
Operating profit/(loss) 2,830 4,268 (26,211)
Amounts written off investments - - (1,720)
Net interest payable (1,573) (1,236) (2,540)
Profit on ordinary activities
before goodwill amortisation,
exceptional items and tax 5,850 9,732 16,855
Goodwill amortisation (2,661) (667) (1,796)
Exceptional items:
Goodwill impairment charges 4 - (3,468) (35,923)
Restructuring costs 4 (1,932) (2,565) (7,887)
Amounts written off investments 4 - - (1,720)
Profit/(loss) on ordinary
activities before tax 1,257 3,032 (30,471)
Tax on profit/(loss) on
ordinary activities 5 (1,570) (2,984) (5,044)
(Loss)/profit on ordinary
activities after tax (313) 48 (35,515)
Minority interests 41 57 47
(Loss)/profit attributable
to group shareholders (272) 105 (35,468)
Dividend - - (1,328)
(Loss)/profit transferred
to reserves (272) 105 (36,796)
(Loss)/earnings per share 6
Basic (0.20)p 0.10p (33.83)p
Diluted (0.20)p 0.08p (33.83)p
Basic before goodwill
and exceptional items 2.93p 6.11p 10.31p
Diluted before goodwill
and exceptional items 2.49p 4.81p 6.84p
Incepta Group plc
Consolidated summarised balance sheet
as at 31 August 2003
Unaudited Unaudited Audited
As at As at As at
31 Aug 2003 31 Aug 2002 28 Feb 2003
Note #'000 #'000 #'000
Fixed assets
Intangible assets 311,657 337,043 311,260
Tangible assets 14,751 15,761 15,254
Investments 580 1,467 532
326,988 354,271 327,046
Current assets
Work in progress 1,990 2,209 1,695
Debtors 56,074 53,465 54,170
Cash at bank and in hand 10,531 22,515 7,440
68,595 78,189 63,305
Creditors: amounts falling due within
one year
Borrowings (3,229) (16,435) (8,287)
Other (55,146) (59,596) (73,860)
(58,375) (76,031) (82,147)
Net current assets/(liabilities) 10,220 2,158 (18,842)
Total assets less current liabilities 337,208 356,429 308,204
Creditors: amounts falling due
after more than one year
Borrowings (70,277) (57,675) (61,122)
Other (208) (401) (351)
(70,485) (58,076) (61,473)
Provisions for liabilities
and charges (10,909) (28,249) (19,478)
Net assets 255,814 270,104 227,253
Equity shareholders'funds 255,675 269,926 227,092
Minority interests (equity) 139 178 161
Total equity capital employed 255,814 270,104 227,253
Incepta Group plc
Consolidated summarised cash flow statement
for the half year ended 31 August 2003
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
Cash inflow from operating activities 3,193 7,398 14,416
Returns on investments and servicing
of finance (1,874) (1,063) (2,401)
Taxation (1,191) (3,882) (7,090)
Capital expenditure and financial
investment (2,144) (3,246) (6,581)
Acquisitions (21,405) (6,069) (10,463)
Equity dividends paid (882) (3,398) (3,397)
Net cash outflow before financing (24,303) (10,260) (15,516)
Financing 27,296 13,095 2,868
Increase/(decrease) in cash 2,993 2,835 (12,648)
Reconciliation of operating profit/(loss) to cash inflow from operating
activities
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
Operating profit/(loss) 2,830 4,268 (26,211)
Goodwill 2,661 4,135 37,719
Depreciation 2,550 2,888 5,544
Net (profit)/loss on disposal of
fixed assets (25) 216 343
Increase in working capital (4,869) (4,793) (3,203)
Other non-cash items 46 684 224
Cash inflow from operating activities 3,193 7,398 14,416
Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
Increase/(decrease) in cash 2,993 2,835 (12,648)
Cash inflow from increase in debt (1,074) (12,992) (2,788)
Issue costs of new bank loans 502 113 170
Movement in net debt resulting
from cash flows 2,421 (10,044) (15,266)
Debt acquired with subsidiary
undertakings and businesses - (55) (81)
Inception of finance leases (49) (61) (121)
Issue of loan notes for non-cash
consideration (3,345) (8,500) (14,585)
Other non-cash changes (176) (85) (175)
Effect of foreign exchange 330 (105) 817
Movement in net debt (819) (18,850) (29,411)
Opening net debt (62,156) (32,745) (32,745)
Closing net debt (62,975) (51,595) (62,156)
Incepta Group plc
Statement of total recognised gains and losses
for the half year ended 31 August 2003
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
(Loss)/profit attributable to group
shareholders (272) 105 (35,468)
Exchange differences on foreign
currency net investments 1,763 (3,151) 2,990
Total recognised gains and losses 1,491 (3,046) (32,478)
Reconciliation of movements in equity shareholders' funds
for the half year ended 31 August 2003
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
(Loss)/profit attributable to group
shareholders (272) 105 (35,468)
Dividend - - (1,328)
(272) 105 (36,796)
Other recognised gains and losses 1,763 (3,151) 2,990
Contributions to Qualifying Employee
Share Trust - (96) (96)
Issue of shares net of issue costs 45,473 13,122 20,930
Net movement in estimated value of
shares to be issued as consideration
for acquisitions (18,381) (17,334) (37,220)
Goodwill previously written off to
reserves - 105 109
Net change in equity shareholders' funds 28,583 (7,249) (50,083)
Opening equity shareholders' funds 227,092 277,175 277,175
Closing equity shareholders' funds 255,675 269,926 227,092
Notes to the financial statements
31 August 2003
1. Basis of preparation
The consolidated interim financial statements, which were approved by the board
on 8 October 2003, have been prepared under the accounting policies set out on
pages 77 and 78 of the Group's 2003 Annual Report.
The information relating to the half years ended 31 August 2003 and 31 August
2002 is unaudited and does not constitute statutory accounts. The comparative
figures for the financial year ended 28 February 2003 are not the company's
statutory accounts for that financial year. Those accounts have been reported
on by the company's auditors and delivered to the Registrar of Companies. The
report of the auditors was unqualified and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985.
2. Divisional analyses
Gross profit (gross revenue)
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
Financial & Corporate Communications 39,756 41,096 82,070
Marketing Services 27,430 28,581 56,634
Specialist Advertising 10,136 14,032 25,709
Intra-group trading (449) (871) (3,899)
76,873 82,838 160,514
Operating profit before goodwill and exceptional items
Financial & Corporate Communications 2,928 4,394 7,913
Marketing Services 3,737 5,130 9,163
Specialist Advertising 758 1,444 2,319
7,423 10,968 19,395
Financial & Corporate Communications was previously reported as
Public Relations.
3. Geographical analyses
Gross profit (gross revenue)
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
UK 39,204 43,770 84,633
Rest of the world 38,118 39,939 79,780
Intra-group trading (449) (871) (3,899)
76,873 82,838 160,514
Operating profit before goodwill and exceptional items
UK 4,568 6,527 11,194
Rest of the world 2,855 4,441 8,201
7,423 10,968 19,395
4. Exceptional items
Unaudited Unaudited Audited
Half year Half year Year
ended ended ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
#'000 #'000 #'000
Restructuring costs:
- redundancy 1,278 1,226 2,276
- property 654 1,114 4,736
- other - 225 875
1,932 2,565 7,887
Goodwill impairment - 3,468 35,923
Amounts written off investments - - 1,720
1,932 6,033 45,530
Exceptional restructuring costs relate to a number of restructuring and cost
reduction programmes initiated during the period.
Goodwill impairment relates to the write down of the carrying value of goodwill
held on the Group balance sheet following the directors' impairment review.
Amounts written off investments principally relates to a provision to write
down shares held by employee benefit trusts to the market value of Incepta
Group plc shares as at 28 February 2003.
The tax effect of exceptional restructuring costs is a credit of #0.4 million
(first half 2002/3: #0.5 million; full year 2002/3: #1.0 million). Cash flow
from operating activities includes cash outflows of #2.5 million (first half
2002/3: #1.9 million; full year 2002/3: #5.6 million) in respect of exceptional
restructuring costs in the current and prior periods.
5. Tax on profit/(loss) on ordinary activities
The tax charge for the half year ended 31 August 2003 has been based on an
estimated effective tax rate on profit on ordinary activities (excluding
goodwill and exceptional restructuring costs) for the full year of 33% (year
ended 28 February 2003: 36%).
6. Earnings per share
Earnings per share (EPS) has been calculated using the following:
Unaudited Unaudited Audited
Half year ended Half year ended Year ended
31 Aug 2003 31 Aug 2002 28 Feb 2003
Weighted Weighted Weighted
(Loss)/ average (Loss)/ average (Loss)/ average
earnings number of earnings number of earnings number of
#'000 shares #'000 shares #'000 shares
Basic (272) 135,110,190 105 102,909,537 (35,468) 104,850,229
Diluted (272) 135,110,190** 105 130,761,171 (35,468) 104,850,229**
Basic before
goodwill and
exceptional
items 3,961 135,110,190 6,287 102,909,537 10,813 104,850,229
Diluted before
goodwill and
exceptional
items 3,961 159,191,395 6,287 130,761,171 10,813 158,003,656
* In accordance with FRS 14: 'Earnings per share', comparative figures for
weighted average number of shares have been adjusted to reflect the impact of
the rights issue and share consolidation during the period.
** Because the basic EPS results in a loss per share, FRS 14: 'Earnings per
share' requires that the diluted EPS is calculated using the undiluted weighted
average number of shares.
7. Intangible fixed assets
Goodwill
#'000
At 1 March 2003 311,260
Goodwill arising on acquisitions in the period 516
Adjustments in relation to acquisitions in prior years 1,396
Goodwill amortisation (2,661)
Foreign exchange movements 1,146
At 31 August 2003 311,657
8. Deferred consideration for acquisitions
Acquisitions made by the Group typically involve an earn-out arrangement
whereby the consideration payable includes a deferred element that is
contingent on the future financial performance of the acquired entity. No
material contingent consideration will become payable unless the acquired
entity delivers greater revenues or profits during the earn-out period than
prior to acquisition.
Provisions for liabilities and charges include a provision for deferred
consideration for acquisitions of #6.2 million (28 February 2003: #14.5 million)
as at 31 August 2003. This represents the directors' best estimate of the
amount expected to be payable in cash or loan notes. The estimated value of
contingent consideration payable by issue of new ordinary shares in the Company
of #3.6 million (28 February 2003: #12.4 million) is included in the balance
sheet within equity shareholders' funds.
Maturity of estimated deferred consideration for acquisitions
Cash or Shares to
loan notes be issued
#'000 #'000
Within six months 720 -
Six to twelve months 376 -
Twelve to eighteen months 1,417 1,178
Eighteen to twenty four months - 688
Twenty four to thirty six months 1,056 56
More than thirty six months 2,645 1,666
6,214 3,588
In addition to the above amounts, Creditors falling due within one year and
Shares to be issued include consideration for acquisitions of #7.3 million and
#9.0 million (28 February 2003: #22.4 million and #18.5 million) respectively
in respect of completed earn-out periods for which consideration (payable in
either cash, loan notes or by the issue of new shares) has become due but has
not yet been settled as at the period end.
9. Interim Report
Copies of this Interim Report will be sent to shareholders and are also
available from the Company's registered office, 3 London Wall Buildings, London
Wall, London EC2M 5SY.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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