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
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