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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Cagney | LSE:CGNY | London | Ordinary Share | GB00B0R80514 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.35 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:1025R Cagney PLC 31 March 2008 CAGNEY Plc ("Cagney" or the "Company") FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 31 March 2008 Cagney, an integrated group of marketing services firms, today announces full year results for the year ended 31 December 2007. Financial highlights * Total revenue increased by 37% to £11.3m (2006 - £8.2m) * Total gross profit increased by 36% to £7.5m (2006 - £5.5m) * Operating loss of £547,000, in line with earlier guidance Operational highlights * Successful acquisition and integration of Tree, a market research and data analysis business, which contributed strongly for the year * Action to reduce the Company's underlying cost base impacted positively on Q4 profitability and subsequently * Recruitment and successful integration of new members of the senior management team, with appointments at The Media Foundry, Exedra, Tree and Cubo * Successful business development, with new clients including Sacla, Virgin Trains, Budweiser, The Belfast Telegraph and 11 new assignments for the Central Office of Information * Three largest clients have agreed to renew contracts; two for two years and one for a year * Despite economic circumstances the Board is optimistic about the current year Commenting on the results, Chief Executive Paul Simons said: "In what has been a challenging year for the management team, we have been pleased with the progress we have made, despite a disappointing performance at the operating level. The actions we took in the last quarter of the year have already had, and will continue to have, a significant positive impact. "The successful acquisition of Tree has underlined the validity of our strategic approach, having contributed both to the Group's profitability, and to its operations, by working well with the other Group businesses. "We have made a number of senior hires in the operating companies and while these have had an impact on the costs, we see them as a valuable investment in the Group's future. We are pleased with the way that our new colleagues are contributing to their businesses and to the Group as a whole. "The macro economic environment has yet to have any material impact on our business and 2008 has started well. Our new business capability is stronger than ever before, and we remain committed to further earnings enhancing acquisitions, particularly in the areas of digital, direct marketing and media planning and buying. We are optimistic about the outcome for the current year." ENDS Enquiries: Cagney Plc Tel: 020 7637 4198 Paul Simons, Chief Executive Smith & Williamson Tel: 0117 376 2213 Nick Reeve Cubitt Consulting Tel: 020 7367 5100 Michael Henman/Allison Reid About Cagney Plc Cagney Plc is an integrated group of marketing services firms. It combines five businesses: Exedra (retaining BrandAid as a division), Chick Smith Trott (advertising and design), Cubo (promotional marketing), The Media Foundry (public relations) and Tree (market research and data analysis). The Group floated on the AIM market in February 2006. www.cagneyplc.com CEO STATEMENT For the year ended 31 December 2007 Overview 2007 was Cagney's second year as a group and as a public company. Revenue increased by 37% to £11.3m (from £8.2m in 2006), and gross profit increased by 36% to £7.5m (from £5.5m in 2006). The acquisition of Tree, a research and data analysis business, in January 2007 provided the growth in gross profit. There was an operating loss of £547,000, which was broadly in line with previous expectations. Our second year was challenging for the management team. We were absorbing a new business into the Group; effecting property consolidations; and integrating new senior management. However, it was a year which saw the profitability of our businesses develop as the year progressed, with the actions taken by management meaning that the Group as a whole was profitable in the final quarter of the year. The operating loss was disappointing given the growth in gross profit. This was due to three main factors: overall less new business than forecast; a decline in gross profit within the advertising business; and the addition of senior management in key roles across the Group. Adjustments to the underlying cost base were made in the last quarter of 2007 which have been reflected in the positive trend of profitability in Q4 2007 and Q1 2008. In the latter part of 2006 and the first half of 2007 we recruited several new members of our senior management team. The full cost impact of these hires began to be felt in the second and third quarters of 2007, whereas the benefits started to come through in the fourth quarter of 2007 and the first quarter of this year. The primary focus of the new management team has been on the new business pipeline, which has produced incremental revenues and profit. Overall, client growth has been good with new clients including Sacla, Virgin Trains, Budweiser and The Belfast Telegraph. In addition, government assignments via the Central Office of Information increased from 3 in 2006 to 14 in 2007. Whilst we remain aware of the macro economic environment, there has yet to be any material impact on our business. As we look at the start of 2008 we have recorded a strong increase in gross profit in the first quarter on a like for like basis, and a significant increase in profitability. Further, we have the benefit of contract renewals with our top three clients during the start of 2008 - two for two years and one for a year. CST was particularly pleased to retain National Savings & Investments following a statutory review. We are very pleased with the integration of the Group; the senior management team has continued to work closely together. The Board is optimistic about 2008 despite the financial climate. Impairment Review The Board have considered whether it would be appropriate to reduce the carrying value of CST and Exedra (both businesses were combined within the WTCS entity, the original acquisition). Whilst both businesses are currently profitable; have aggressive new business plans in place for 2008; and have strengthened management teams, the loss made by CST in 2007 undeniably has a short term impact on the carrying value in our balance sheet. Therefore, after due consideration, we have taken the decision to write down the goodwill by £2m to £1.2m, which we believe fairly reflects the fair value of the businesses. However, current trading is positive and profitable in both businesses and CST's 2008 Q1 performance is substantially improved over Q1 2007. Similarly, Exedra has enjoyed a good start to the year and has just been awarded a 12 month assignment by The Belfast Telegraph. We are confident that both businesses will continue to develop positively in 2008. 2008 Macro Outlook The global financial issues that are widely reported clearly have a potentially depressing impact on the marketing services sector but the detail is not so generally understood. As a general observation our client interests are widely distributed and therefore the economic climate varies between clients, markets and communication channels. Our business is concerned with market intelligence and the provision of content for all communication channels. Whereas a client may divert expenditure from one channel, e.g. television, to another, e.g. the internet, we remain the provider of strategy and content. Furthermore, the majority of our clients are fee based, not expenditure based, therefore the service provision remains irrespective of tactical shifts in channel deployment. The strategy we continue to pursue is to create a broad portfolio of disciplines that are able to flex with the changing needs of clients on a case by case basis. Industry trends support this strategy, as we predicted upon admission to AIM in February 2006. 2008 Operational Outlook Our operational approach is very specific: high levels of service for current clients plus additional resource dedicated to the new business pipeline. Whilst it is always important to regard new business very seriously, it is absolutely critical when the economic environment is more challenging. Across the Group we have added resource at a senior level to ensure we have the best balance of current and prospective client focus. Nick Dudley-Williams joined The Media Foundry last year; Mark Phillips joined Tree London in February 2008; and Cal Ledward joined Cubo in March 2008. Currently we are looking for a similar level of candidate for CST. The addition of these people underpins our commitment to organic growth of the businesses already in the Group. The senior team continues to collaborate and explore all opportunities as a collective group in addition to the specific opportunities business by business. CEO STATEMENT (continued) We have managed our cost base very carefully via prudent measures taken in the second half of 2007 which continue into 2008, and we have found ways of recruiting senior staff and driving up margins across all operating businesses. Before central costs, four of the operating companies are currently exceeding the target of a 20% operating margin, and the other is growing its margin and will strive to hit double digits this year. 2008 Developments Cagney remains committed to the continued development of the Group's range of skills and services. We continue to explore further acquisitions and also pursue selective experiments from within the Group. One such experiment, AGL (A Good Listener), is a web based research tool developed by Tree which is in the process of being soft launched. With regard to acquisitions, we have held various discussions with potential vendors in the second half of 2007, some of which continue. We remain focused on acquiring assets that would enhance the Group and increase shareholder value. We have also declined several opportunities for a variety of reasons. Outlook Our commitment to strengthening the management team is delivering progressive results and we are very focused on maintaining an aggressive approach to increasing our market share. We operate in a very large market and therefore the scope to grow remains very real despite the economic environment. We will continue to review all opportunities to acquire businesses that provide incremental skills and revenues and we will also continue to experiment with interesting ideas. We believe a key success factor is being nimble and flexible given the speed of change in our world. We have maintained a lean structure capable of making decisions in 'real time', and the senior team is connected at all times. Our agenda for further businesses in the Group remain digital, direct marketing, media planning and buying, and other businesses complementary to the existing Group. We look to the future with optimism and regard 2008 as another step forward in the development of Cagney. Paul Simons Chief Executive Officer 31 March 2008 FINANCIAL REVIEW For the year ended 31 December 2007 HIGHLIGHTS The Group generated an operating loss of £0.5m (2006 - operating profit of £0.6m) on gross profit of £7.5m (2006 - £5.5m). The loss before tax was £3.1m (2006 - profit before tax of £0.3m), which is stated after having deducted a £2.0m impairment provision in respect of the Group's investment in CST (2006 - nil); interest and similar charges of £0.2m (2006 - £0.1m); and a notional finance charge in respect of deferred consideration of £0.4m (2006 - £0.2m). The loss after tax for the year was £2.9m (2006 - profit after tax £0.2m). EARNINGS PER SHARE The basic and fully diluted loss per share were 2.6p. In 2006, basic earnings per share was 0.3p, and fully diluted earnings per share was 0.2p. KEY PERFORMANCE INDICATORS Group management monitors three primary KPIs - (i) operating margin; (ii) staff costs as a percentage of gross profit; and (iii) gross profit per head. Each of these KPIs can vary significantly from business to business. Operating margin is operating profit divided by gross profit. We would like each of our business to achieve an operating margin of at least 20%. Some achieve margins greater than this, but it can be a difficult mark to achieve in smaller companies. Having fixed a forecast for operating profit, we then also monitor what we call incremental operating margin. This is the percentage of any additional gross profit that flows into operating profit. This not only varies from business to business, but also varies depending on whether or not a business has surplus capacity - for example a business with a lot of surplus capacity would expect to be able to service a certain amount of additional gross profit without employing any additional staff. Staff costs as a percentage of gross profit is self-explanatory. It is particularly important in a service industry, as people are the main cost to the business, and therefore one of the main factors in determining operating margin. We would normally expect this measure to fall between 45% and 55%, but it can be higher than this. Gross profit per head is a measure of productivity. The 'holy grail' is said to be gross profit of £100,000 per head, but it can be greater than this. Each of our businesses produces an initial profit plan - including a profit forecast and a cash flow forecast - in October for the following year. The holding company management team reviews each plan in the light of the forecast for the current year, and the KPIs above, and discusses the plans with company management. The agreed plans are then presented to all the Group's senior management teams, usually in early November. The plans are updated in January in the light of activity since the original plan, and progress is monitored thereafter on a monthly basis, both in terms of profit and cash flow. DEFERRED CONSIDERATION Under the terms of most of the Group's acquisitions, the vendors can earn additional consideration if certain profit targets are achieved. Cubo, TMF and Tree were eligible for deferred payments based on their 2007 profitability. Cubo did not meet the necessary criteria for any additional payment, having performed exceptionally well in 2006. TMF did not meet the necessary criteria for any additional payment in 2007, but are expected to do so in 2008. Tree qualified for an additional payment based on their 2007 performance, and are expected to qualify for a further payment based on their 2008 performance. BORROWINGS The Group's balance sheet combines liabilities payable in cash with deferred consideration capable of being settled in shares. On this combined basis, the Group had net current liabilities at 31 December 2007 of £4.1m, and total net debt of £6.6m. However, if we remove liabilities expected to be settled in shares, the Group's net current liabilities would be £1.1m, and the Group's total net debt would be £2.7m. Total net debt of £2.9m includes a bank overdraft with Coutts of £0.4m; the £1m balance of the £1.2m term loan provided by Coutts; and £1.5m of deferred consideration. The term loan including interest is repayable in monthly instalments amounting to approximately £344,000, and is scheduled to be fully repaid by May 2011. Of the deferred consideration of £1.5m, £0.7m is expected to fall due for payment in April or May 2008, and the balance in 2009. CURRENT LIABILITIES During the year the Group secured a £1.2 million medium term loan from Coutts. The loan is repayable in monthly instalments over 4 years and interest is charged at 1.75% above Coutts' base rate from time to time. The loan and bank overdraft are secured by fixed and floating charges over the assets of the Group, with cross guarantees. The Group's banking facilities are to be reviewed by Coutts in April 2008 and, as a result, it is possible that conditions may be attached to their continued lending. FINANCIAL REVIEW (continued) RISKS AND UNCERTAINTIES The nature of the business is such that there is always a risk that existing clients might reduce expenditure or find alternative providers, and groups of our nature are always seeking to find a way to measure the extent of this risk. The preference of this author is to seek to demonstrate how much of the year's gross profit is genuinely secure - barring default or liquidation on the part of the client - and that is the total of gross profit already earned, plus retainer fees covered by contractual notice periods. Of the current forecast gross profit for 2008, we estimate that nearly 40% is secure on the stated basis. That is reassuring, given that we are only 25% through the year. STAFF NUMBERS Total full-time staff numbers increased from 55 to 98 during the year, of which 27 are in Tree, our acquisition. PROPERTY During the year Tree vacated its premises and moved in with CST and Exedra, saving approximately £80,000 on an annualised basis. The Group incurred move costs of approximately £100,000 which will not be repeated in 2008. DIVIDENDS The Directors do not propose a dividend, and would not consider paying dividends until the Group is much closer to achieving its strategy, as described in the CEO Statement. POST BALANCE SHEET EVENTS To date there have been no significant post balance sheet events. Patrick Oram Chief Financial Officer 31 March 2008 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 2007 2006 Note Continuing Acqui- Total Operations sitions £000 £000 £000 £000 Revenue 1,2 8,529 2,722 11,251 8,219 Direct costs (3,203) (521) (3,724) (2,696) Gross profit 5,326 2,201 7,527 5,523 Administrative expenses (6,333) (1,741) (8,074) (4,935) Operating (loss)/profit 3 (1,007) 460 (547) 588 Impairment of goodwill 9 (2,000) - Interest receivable 5 13 13 Interest payable and similar 6 (188) (117) charges Finance cost of deferred 17 (368) (150) consideration (Loss)/profit on ordinary 2 (3,090) 334 activities before taxation Tax credit/(charge) on (loss)/ 7 147 (145) profit on ordinary activities (Loss)/profit on ordinary 22 (2,943) 189 activities after taxation (Loss)/earnings per ordinary share on continuing 2007 2006 operations: Basic 8 (2.6p) 0.3p Diluted 8 (2.6p) 0.2p CONSOLIDATED BALANCE SHEET As at 31 December 2007 2007 2006 Note £000 £000 Non-current assets Goodwill 9 10,509 9,369 Tangible assets 11 249 168 10,758 9,537 Current assets Trade and other receivables 13 2,972 2,126 Cash at bank and in hand - 391 2,972 2,517 Current liabilities Trade and other payables 14 (2,181) (1,478) Current tax liabilities (142) (151) Bank overdrafts, loans and loan notes 15 (1,120) (674) Short term provisions 17 (3,636) (2,000) (7,079) (4,303) Net current liabilities 18 (4,107) (1,786) Total assets less current liabilities 6,651 7,751 Non-current liabilities: Deferred taxation 16 - (2) Bank loans and loan notes 15 (764) - Long term provisions 17 (1,773) (3,006) Total net assets 2 4,114 4,743 Capital and reserves Called up share capital 22 1,344 831 Share premium 5,986 4,191 Share option reserve 6 - Merger reserve (150) (150) Profit and loss account (3,072) (129) Equity shareholders' funds 4,114 4,743 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 2007 2006 Note £000 £000 Cash flows from operating activities Operating (loss)/profit (547) 588 Charge in respect of share option scheme 21 6 - Depreciation charge 11 103 66 Operating (loss)/profit before working capital (438) 654 changes Increase in trade and other receivables (710) (225) Increase in trade and other payables 676 17 Net cash (outflow)/inflow from operating activities (472) 446 Investing activities Interest received 13 13 Purchases less disposals of property, plant and (116) (62) equipment Purchases of subsidiary undertakings - (3,017) Net cash from purchase of subsidiary undertakings - 880 Purchase of business and assets 10 (882) - Settlement of deferred consideration (1,633) - Net cash used in investing activities (2,618) (2,186) Taxation UK corporation tax paid - (113) Financing activities Interest paid (123) (18) Proceeds on issue of shares (net of expenses) 1,811 1,768 Proceeds from loan financing 1,200 587 Loan repayments (606) (115) Net cash from financing activities 2,282 2,222 Net change in cash and cash equivalents (808) 369 Net cash and cash equivalents at beginning of year 391 22 Cash and cash equivalents at end of year (417) 391 Analysed as: Cash at bank and in hand and short term deposits - 391 Bank overdrafts 15 (417) - Cash and cash equivalents at end of year (417) 391 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007 Called up Share Share Other Profit Total share premium options reserves and loss capital account reserve account £000 £000 £000 £000 £000 £000 Balance at 1 January 243 348 - (150) (318) 123 2006 Retained profit for the - - - - 189 189 year Shares issued during the 588 4,108 - - - 4,696 year Costs of fundraising - (265) - - - (265) At 31 December 2006 831 4,191 - (150) (129) 4,743 Retained loss for the - - - - (2,943) (2,943) year Provision for share - - 6 - - 6 based payment Shares issued during the 513 1,994 - - - 2,507 year Costs of fundraising - (199) - - - (199) At 31 December 2007 1,344 5,986 6 (150) (3,072) 4,114 Other reserves represents the merger reserve arising from the prior year merger of Cagney Plc with Paul Simons & Partners Limited. Merger relief under S131 of the Companies Act has been taken and the premium arising on the issue of these shares has been disregarded as permitted under S133 of the Companies Act. NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies a) Statement of compliance The consolidated financial statements have been prepared in accordance with IFRS and interpretations for use in the European Union and issued by the International Accounting Standards Board. b) Basis of preparation The financial statements have been prepared in sterling, the currency in which the majority of the Group's transactions are denominated, under the historical cost convention and in accordance with applicable International Financial Reporting Standards ("IFRS"). The principal accounting policies which have been consistently applied are described below. The Directors have satisfied themselves that the Company will in due course to be able to satisfy all its liabilities within its present banking facilities, and have therefore prepared the financial statements on the going concern basis. c) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its subsidiaries for financial periods ended 31 December 2007. Control is achieved where the Group has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. On acquisition the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (ie discount on acquisition) is credited to the income statement in the period of acquisition. The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition. Where necessary, adjustments are made to the financial statements of subsidiary undertakings to bring the accounting policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. d) Gross revenue recognition Revenue is taken on fee income in the period to which it relates. Project income is recognised in the period in which the project is worked on. For projects which fall over the financial year end, income is recognised to reflect the partial performance of the contractual obligations in accordance with IAS 18. Third party costs and the associated income relating to bought in costs directly rechargeable to clients are recognised in the period to which they relate. e) Retirement benefit costs The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period. f) Finance costs Finance costs - including interest, bank charges and the unwinding of the discount on deferred consideration - are recognised as profit or loss in the period in which they are incurred. g) Taxation The tax charge or credit represents the sum of the current tax and deferred tax. The current tax charge or credit is based on taxable profit or loss for the year. Taxable profit or loss differs from profit or loss before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it also excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. g) Taxation (continued) Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. h) Goodwill Goodwill arising from the purchase of subsidiary undertakings represents the difference between the purchase consideration and the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary acquired, and is capitalised in accordance with the requirements of IFRS 3. Future anticipated payments to vendors in respect of earn-outs are based on the Directors' best estimates of these obligations. Earn-outs are dependent on the future performance of the relevant business and are reviewed annually. The deferred consideration is discounted to its fair value in accordance with IFRS 3 and IAS 39. The difference between the fair value of these liabilities and the actual amounts payable is charged to the income statement as notional finance costs over the life of the associated liability. Goodwill impairment is assessed by comparing the carrying value of goodwill to the net present value of future cash flows expected to be generated by the business under review. In accordance with IFRS 3 the carrying value of goodwill will continue to be reviewed for impairment and adjusted should this be required. Impairment is recognised in the income statement and is not subsequently reversed. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. i) Operating Leases Rental costs under operating leases are charged to the income statement in equal annual amounts over the periods of the leases. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term or the period to the next review. j) Plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any provision for impairment. Depreciation is provided in equal instalments over the estimated useful economic lives of assets, using the following rates: Plant and machinery - 25-33% straight line Any gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. k) Cash and cash equivalents Cash and cash equivalents comprises cash, overdrafts and cash held on short-term deposit. l) Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. m) Share-based payment The Company grants options over its shares to certain directors and employees under the Group's Enterprise Management Incentive Plan. The value of these share-based payments is measured at the date of grant using the Black-Scholes pricing model, and is expensed on a straight-line basis over the vesting period. 2. Segment reporting The Group's gross profit and its (loss)/profit on ordinary activities before taxation were derived from the following business segments (including the market research and data analysis segment which reflects the acquisition of Tree (London) Limited): 2007 2006 £000 £000 Gross profit Creative services 4,280 4,518 Public relations 1,046 1,005 Market research and data analysis 2,201 - 7,527 5,523 (Loss)/profit on ordinary activities before taxation Creative services 210 1,222 Public relations 57 157 Market research and data analysis 348 - Head office (3,705) (1,045) (3,090) 334 Segmental net assets were as follows: Net assets 2007 2006 Creative services 1,122 965 Public relations 202 193 Market research and data analysis 277 - Head office 2,513 3,585 4,114 4,743 The Group's revenue was earned from clients based in the following geographical markets: UK Rest of Total World £000 £000 £000 Year ended 31 December 2007 Creative services 4,603 2,813 7,416 Public relations 1,113 - 1,113 Market research and data analysis 2,722 - 2,722 8,438 2,813 11,251 Year ended 31 December 2006 Creative services 4,114 3,069 7,183 Public relations 1,036 - 1,036 5,150 3,069 8,219 All assets and liabilities are located within the UK with the exception of certain trade receivables which relate to the revenue noted above. 3. Operating (loss)/profit Operating (loss)/profit is stated after charging: 2007 2006 £000 £000 Staff costs (note 4) 5,728 3,289 Directors' emoluments (note 4) 457 406 Depreciation - owned plant and equipment (note 103 66 11) Operating lease rentals - land and buildings 285 226 Operating lease rentals - plant and machinery 59 41 Auditors' remuneration for audit services 63 38 4. Staff costs The average monthly number of employees (including non-executive Directors) was: 2007 2006 £000 £000 Directors 5 6 Creative services 51 38 Public relations 16 11 Market research and data analysis 25 - Head office 3 - 100 55 Their total aggregate remuneration comprised: 2007 2006 £000 £000 Wages and salaries 5,173 2,899 Social security costs 519 356 Pension costs 36 34 5,728 3,289 Directors' remuneration during the year was as follows: 2007 2006 £000 £000 Emoluments 422 376 Pension contributions 35 28 457 404 Pension contributions made during the year were in respect of three directors (2006 - three). Amounts paid to the highest paid Director were £198,000 (2006 - £175,000). 5. Interest receivable Interest receivable comprises interest on bank deposits. 6. Interest payable and similar charges 2007 2006 £000 £000 Interest and charges on bank overdrafts and 76 12 loans Interest on convertible loan notes 22 31 Interest on other loans 90 74 188 117 7. Tax on (loss)/profit on ordinary activities 2007 2006 £000 £000 Current tax (UK corporation tax at 30%): Current year (22) 145 Prior year 13 - Total current tax (credit)/charge (9) 145 Deferred tax: Current year (138) - Total deferred tax credit (138) - Total tax (credit)/charge (147) 145 7. Tax on (loss)/profit on ordinary activities (continued) The charge for the year can be reconciled to the (loss)/profit per the income statement as follows: 2007 2006 £000 £000 (Loss)/profit before tax (3,090) 334 Tax (credit)/charge at UK corporation tax rate (927) 100 of 30% Tax effect of: Impairment provision 600 - Finance charge on deferred consideration 110 50 Expenditure disallowed for tax purposes 22 12 Excess of depreciation over capital allowances 2 2 Profits taxed at small company rate - (16) Losses carried forward at the 2008 tax rate 7 - Losses carried back at small company rates 13 (6) Movement in provisions 13 3 Charges relating to prior year 13 - Tax (credit)/charge for year (147) 145 8. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 2007 2006 (Loss)/earnings £000 £000 (Loss)/earnings for the purposes of basic earnings (2,943) 189 per share, being net profit attributable to equity holders Interest and redemption premium on convertible 34 73 loan notes Adjusted (loss)/earnings for diluted earnings per (2,909) 262 share 2007 2006 Number of shares Number Number Weighted average number of ordinary shares for 114,497,772 75,976,245 basic earnings per share Effect of dilutive potential ordinary shares: Shares to be issued in respect of deferred 89,559,339 56,570,666 acquisition consideration Convertible loan notes 2,500,000 6,250,000 Weighted average number of ordinary shares for 206,557,110 138,796,911 diluted earnings per share Diluted earnings per share for the year ended 31 December 2007 is the same as basic earnings per share, given that the above instruments were anti-dilutive as a result of the losses incurred during that year. 9. Goodwill The movement on goodwill in the year ended 31 December 2007 is set out below. Cost: £000 At beginning of year 9,369 Acquisition of Tree 2,541 Deferred consideration in respect of The Media Foundry 681 Deferred consideration in respect of other subsidiary (82) undertakings Impairment provision in respect of CST (2,000) At end of year 10,509 9. Goodwill (continued) Goodwill is comprised of the following substantial holdings: £000 Chick Smith Trott and Exedra 1,201 Cubo 4,791 The Media Foundry 1,976 Tree 2,541 Total goodwill 10,509 Impairment reviews have been undertaken in respect of goodwill in accordance with the policy set out in note 1(h). The assumptions generally used in the impairment reviews include a discount rate of 7.5 per cent (the weighted average cost of capital) and growth rates of between 7.5 and 10.0 per cent, applied over a 20 year period. 10. Acquisitions On 19 January 2007 the Group, through its wholly owned subsidiary Tree (London) Limited, acquired the business and the fixed assets of Tree (London) LLP. Analysis of the acquisition: £000 Cash consideration 800 Share consideration 213 Acquisition fees 82 Initial consideration 1,095 Deferred cash consideration 960 Deferred share consideration 640 Total consideration 2,695 Tangible fixed assets acquired (61) Finance leases acquired 19 Finance charge on deferred consideration (112) Goodwill 2,541 The fair value of assets was deemed to be the net book value of assets acquired. The estimated deferred consideration due of £1,600,000 is based on current and future profits on ordinary activities after taxation. The profit on ordinary activities after taxation of Tree (London) Limited from the date of acquisition to 31 December 2007 was £277,000. 11. Tangible assets For the year ended 31 December 2007: Short Plant and Total leasehold machinery premises £000 £000 £000 Cost At beginning of year 203 678 881 On acquisitions of subsidiary undertakings - 87 87 Additions - 131 131 Disposals - (75) (75) At end of year 203 821 1,024 Depreciation At beginning of year 125 588 713 On acquisitions of subsidiary undertakings - 26 26 Charge for year 19 84 103 Disposals - (67) (67) At end of year 144 631 775 Net book value At beginning of year 78 90 168 At end of year 59 190 249 For the year ended 31 December 2006: Short Plant and Total leasehold machinery premises £000 £000 £000 Cost At beginning of year - 10 10 On acquisitions of subsidiary undertakings 200 634 834 Additions 3 66 69 Disposals - (32) (32) At end of year 203 678 881 Depreciation At beginning of year - 2 2 On acquisitions of subsidiary undertakings 107 564 671 Charge for year 18 48 66 Disposals - (26) (26) At end of year 125 588 713 Net book value At beginning of year - 8 8 At end of year 78 90 168 12. Subsidiaries Country of Principal activity Holding incorporation Chick Smith Trott Limited UK Advertising 100% Cubo Brand Communications UK Promotional 100% Limited Marketing The Media Foundry International UK Public Relations 100% Limited Paul Simons and Partners UK Dormant 100% Limited Tree (London) Limited UK Research and Data 100% Analysis Exedra Consultancy Limited* UK Brand Consultancy 100% *Exedra, formerly Brand Aid Consultancy Limited, is 100% owned by Chick Smith Trott. 13. Trade and other receivables 2007 2006 £000 £000 Amounts receivable from provision of services 2,198 1,133 Prepayments and accrued income 444 658 Other debtors 192 335 Deferred tax asset 138 - 2,972 2,126 The Directors consider that the carrying value of trade and other receivables approximates their fair market value. 14. Trade and other payables 2007 2006 £000 £000 Trade creditors 650 526 Other taxation and social security 369 301 Accruals and deferred income 1,023 613 Other creditors 139 38 2,181 1,478 15. Bank overdrafts, loans and loan notes 2007 2006 £000 £000 Bank overdrafts 417 - Bank loans 1,044 51 Convertible loan notes 200 623 Loan notes issued in settlement of deferred 223 - consideration 1,884 674 Analysed as: Current liabilities 1,120 674 Non-current liabilities 764 - 1,884 674 During the year the Group secured a £1.2 million medium term loan from Coutts. The loan is repayable in monthly instalments over 4 years and interest is charged at 1.75% above Coutts' base rate from time to time. The loan and bank overdraft are secured by fixed and floating charges over the assets of the Group, with cross guarantees. The Group's banking facilities are to be reviewed by Coutts in April 2008 and, as a result, it is possible that conditions may be attached to their continued lending. 16. Deferred tax At the year end the Group and Company had unprovided deferred tax assets of £96,000 (2006 - £104,000) relating to losses carried forward. 17. Provisions The Directors' best estimate of the fair value of future earn-out obligations is set out below: Shares Cash Loan Notes Total £000 £000 £000 £000 At beginning of year 3,135 1,809 62 5,006 On acquisitions made during the 622 934 - 1,556 year On acquisitions made during the 448 250 200 898 prior year Deferred consideration settled (26) (1,521) (262) (2,051) during the year At end of year 3,937 1,472 - 5,409 Analysed as: Current liabilities 2,960 676 - 3,636 Non-current liabilities 977 796 - 1,773 3,937 1,472 - 5,409 The non-current portion of the deferred consideration liability is due to be settled in 2009. The Directors consider that the above liabilities approximate to their fair value. The amounts payable are dependent on the future profits of the companies acquired. The future obligations have been discounted using a rate of 4.65%, and the total obligation expected to be paid before discounting is £5.58 million, of which £1.77 million is dependent on future profitability. The discounting charge taken to the profit and loss account for the year was £368,000. 18. Net current liabilities A significant portion of the Group's net current liabilities are capable of settlement by the issue of shares. Those liabilities expected to be settled in the form of shares are indicated below. As at: 2007 2006 £000 £000 Expected to be settled in the form of: Shares 2,960 1,695 Cash 1,147 91 Net current liabilities 4,107 1,786 19. Pensions The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the Company to the scheme and amounted to £36,000 (2006 - £34,000). 20. Operating lease commitments At the end of the year the Group had annual commitments under operating leases as set out below: Plant and machinery Land and buildings 2007 2006 2007 2006 £000 £000 £000 £000 Expiring in one year or less - 12 - - Expiring between one and five 15 - 119 119 years Expiring after more than five - 5 166 166 years 15 17 285 285 21. Share based payments During the year options were granted under the Cagney Plc 2007 Enterprise Management Incentive Plan. The number of options granted in the year and their exercise price in pence per share was as follows: Number Exercise price in pence Granted during the year (less any 1,442,800 4.125 surrendered) Granted during the year (less any 1,790,000 2.750 surrendered) Outstanding at end of year 3,232,800 Exercisable at end of year - No options were exercised during the year. The options outstanding at 31 December 2007 had a weighted average remaining minimum life of 2 years. The value of the options is measured by the use of the Black-Scholes valuation model, assuming volatility of 50%, an expected life of 1-3 years, based on contractual life of the options, and a risk free rate of 4.65%, based on the Bank of England 10 year gilt rate. Expected volatility is based on historic volatility of the Group's share price and from review of similar AIM listed companies. The Group recognised a charge of £6,000 in relation to share-based payment transactions in the year. 22. Share capital The Company's authorised share capital is £2 million, comprising 200 million ordinary shares of 1 penny each. Called-up, allotted and fully-paid Number of 1p Nominal ordinary value shares £000 At beginning of year 83,051,731 831 5 April 2007 placing 2,200,000 22 23 May 2007 placing 38,000,000 380 Issued in part settlement of the consideration for 5,488,000 54 the business and assets of Tree Issued in part settlement of the deferred 5,354,607 54 consideration for The Media Foundry Issued in settlement of director's bonus 300,000 3 At end of year 134,394,338 1,344 The two placings together raised £1.8 million net of expenses. 23. 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 note. Other transactions with related parties are detailed below. During the year £150,000 of convertible loan notes and a £50,000 redemption premium were repaid to Alex Hambro, chairman and non-executive director of Cagney Plc. At 31 December 2007 £100,000 of these convertible loan notes remained outstanding, which is due to be settled on 31 May 2008. Interest is payable on these notes at a rate of one percent above the base rate of the Bank of England. During the year an amount of £150,000 was owed by Paul Simons, the Group's Chief Executive Officer, to the Company in relation to share capital he committed to acquire as part of the 23 May 2007 placing. No interest was charged on this balance, which was paid to the Company on 9 October 2007. 24. Financial instruments The Group's financial instruments principally comprise borrowings, cash at bank and various items such as trade debtors and creditors that arise directly from operations. The main purpose of these financial instruments is to raise money for the Group's operations. The Group's policy is to ensure that adequate cash is available and the Group does not trade in financial instruments and has not entered into any derivative transactions. All the material activities of the Group take place in the United Kingdom and consequently there is minimal exchange risk. As at 31 December 2007 the Group had no material foreign currency exposures. The main risks arising from the Group's financial instruments are interest rate risk and liquidity risk. The Directors monitor the cash flows of the Group to ensure that there is sufficient liquidity to meet foreseeable needs. The operations of the Group generate cash and the planned growth activities are cash generative. The Group has taken advantage of the exemption in respect of the disclosure of short-term debtors and creditors. The fair value of the Group's financial assets and liabilities is not considered to be materially different from their book values. 25. Post balance sheet events There are no post balance sheet events. This information is provided by RNS The company news service from the London Stock Exchange END FR SESFAASASEED
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