RNS Number:7507J
EQ Group PLC
08 April 2003
eq group plc
Preliminary Announcement of Results
Year ended 31 December 2002
Financial Highlights
Year ended Year ended
31 December 31 December
2002 2001
Notes
Adjusted operating profit before goodwill and exceptional items(1) #663,000 #358,000
Operating profit / (loss) (1) #403,000 #(7,828,000)
Adjusted profit on ordinary activities before taxation, goodwill and
exceptional items(1) #392,000 #63,000
Profit / (loss) on ordinary activities before taxation(1) #132,000 #(8,350,000)
Adjusted basic earnings per share before goodwill and
exceptional items(1) 3 5.39p 2.81p
Basic earnings / (loss) per share(1) 3 0.99p (177.49p)
(1) Exceptional items in 2001 comprise non-recurring costs associated with
the re-structuring of TVI.
For further information:
eq group plc Binns & Co
Bob Bond, Chief Executive Keeley Clarke/Sophie Morton
Tel: 01422 301917 Tel: 0113 242 1171
Chairman's Statement
This year has seen eq group execute successfully on the strategy announced last
year. As a result, your group has produced a solid financial performance,
despite a very difficult trading environment and is well positioned to continue
its growth in 2003 and beyond.
Your Group
We began the year with three businesses in the group: TVI (USA), Broadnet and
Buckingham Research.
TVI maintained profitability during the period and is now solely focused on
providing marketing communications services to the healthcare industry. These
include: Healthy Solutions, TVI's news-magazine format television show sponsored
by pharmaceutical companies and its (Pi) Patient Interaction services,
previously branded as PRC. (Pi) is a suite of educational media services
developed by TVI to help pharmaceutical companies recruit and retain patients
for clinical study. (Pi) sales in 2002 were $300,000 (#199,349) 7% of total
revenues. Your board remains optimistic about the potential of these services in
an industry where there is a lack of credible health-related information and a
dramatic shortage of patients prepared to take part in clinical study. However,
our optimism is tempered by recognition that underlying economic indicators in
the USA are still weak and that a recovery is unlikely before mid 2004.
Broadnet performed well in 2002 despite adverse conditions in the commercial
radio industry. Seven new radio stations were won during the year including
three in Ireland, however the expected upturn in the local TV station market did
not materialise. Broadnet maintained its market-leading position and is well
placed to capitalise on organic growth within the industry when radio
advertising recovers and licence grants increase. In the meantime your board
will be working closely with local management to develop incremental revenue
streams outside of radio that complement the activities of other members of the
group.
Buckingham Research was acquired in December 2001 and has been successfully
integrated into the group. During 2002 TVI and Buckingham worked closely
together and their research expertise now forms part of TVI's (Pi) service. We
reported in our interim statement that trading in the first half of the year was
below the board's expectations due to a major project being delayed. This
project, which had been awarded to Buckingham in the previous two years and was
won again via competitive tender, was ultimately cancelled by the client due to
internal issues. After removing this project from the previous year, underlying
sales increased by 32% against 2001. To mitigate the revenue shortfall
Buckingham launched an aggressive business development initiative winning new
business with Beverage Partners, Coors, McCormick's and Tetra. This resulted in
a very strong fourth quarter performance and a positive outlook for 2003.
Group development
During the course of the year we continued to focus on acquiring complementary
businesses with skills in marketing communications, information services and
systems that support the marketing process. In December 2002 we acquired
Quaestor Research and Marketing Strategists Limited and The Lead Agency, both
based in Yorkshire.
Quaestor brings significant expertise in conducting qualitative and quantitative
market research for predominantly blue-chip clients. Its competitive advantage
lies in its people who are creative, highly knowledgeable about the industries
they operate in and very focused on the quality of service provided to their
clients. As a full service agency operating mainly in the UK, Quaestor's skills
are highly complementary to those of Buckingham Research which are more
international in nature and focused primarily on quantitative analysis.
The Lead Agency, an early stage business, adds tele-marketing skills to the
group's marketing communications portfolio and enables us to target the
lucrative market for business-to-business tele-marketing. It also provides us
with the ability to offer our blue-chip client base the means to both understand
a market (through market research) and interact with their target audience
either as a discrete tele-marketing activity or as part of a broader marketing
campaign.
With the addition of these businesses to the group we have broadened our service
offering, increased our active blue chip customer base by 56% and diversified
our sectoral coverage so that 80% of our revenues are derived from five sectors,
namely Media, FMCG, Healthcare, Financial Services and Retail.
Vision
We have always made it clear that we view "knowledge" as a pre-requisite to
successful marketing and business planning. Market research provides significant
insights into brands, products, consumers and markets and as such it is an
important part of the group's information-related services. However, market
research doesn't typically tap into the data that already exists within many
large organisations. This specialisation often referred to as database marketing
is an area that we will be targeting in the future as a complement to our
existing research businesses.
In addition to providing major organisations with the ability to make informed
business decisions either through market research or database marketing we also
intend to broaden our marketing communications skills beyond tele-marketing. Our
goal is to extend our communications capability so that we can help our client's
conduct effective marketing across a wide variety of specialisations (such as
branding and packaging) and media (such as print, direct mail, web, TV and
mobile telephony). This will enable us to offer an integrated set of services,
where required and will also provide a strong basis for collaboration within the
group.
Our software development activities will continue to focus on the management and
provision of data for marketing purposes with particular emphasis being placed
on systems that address the needs of our blue-chip clients.
Prospects
Your board is confident that we can maintain the progress achieved in 2002.
Current trading is strong, we have identified a number of interesting
acquisition targets and collaboration is occurring between group businesses.
Despite the uncertainty that exists within the global economy we believe our
diverse customer base and broad range of services will enable us to deliver
strong growth in earnings and cash generation.
Phillip Bennett
Chairman
Chief Executive's Review
In 2002 your group made significant progress on all fronts. We acquired two new
businesses, Quaestor and The Lead Agency, we re-branded the group to more
accurately reflect the nature of our activities and we built a solid platform
for future acquisitions with a clear focus on marketing services. Our goal of
building a collaborative group of profitable, well run businesses is now
becoming a reality.
In the year being reported on the group consisted of three profitable marketing
services businesses: TVI in the USA, Broadnet and Buckingham Research in the UK.
Group turnover was up 7.3% on last year at #5.1m. Operating profit, before
amortisation of goodwill and exceptional items, increased by 85.2% to #663,000.
Adjusted earnings per share, before amortisation of goodwill and exceptional
items, were 5.39 pence, up 91.8%, its highest level since the group was formed
in March 2000. The reported profit before tax was #132,000 (2001 - loss of #
(8,350,000)) and the reported earnings per share were 0.99p (2001 - loss
(177.49p)).
Net debt increased by 26.3% to #6.6m as we continued to fund acquisitions using
eq group shares and cash from our ongoing facility with Barclays Bank. There has
been minimal dilution from these acquisitions in the year being reported on as
both took place close to the year end.
This increase in net debt was attributable to an out-performance consideration
of #145,000 paid in cash to the previous owners of Broadnet Limited and the
acquisition of Quaestor Research and Marketing Strategists Limited in December
2002.
Acquisitions
Quaestor was acquired for an initial consideration of #1m in cash and 1,086,602
ordinary shares. Additional consideration of up to #500,000 may be payable based
on performance in the year to 31st December 2003 and further consideration may
be payable based on cumulative profits growth over the period 2003 to 2005
inclusive. In the eleven months to 30th November 2002 Quaestor produced
operating profits of #459,000. The full benefits of this acquisition will be
seen in the current year.
The Lead Agency was acquired for an initial consideration of #15,000, payable
over the 12 months to 31st December 2003. We took the decision to purchase an
early stage business so that we could capitalise on a market opportunity that
was not readily being addressed by more established businesses. We have combined
The Lead Agency's tele-marketing knowledge with the group's market research
skills to develop a set of highly differentiated services for the technology
sector. These services were launched in January 2003 and a number of projects
have already been undertaken for major technology companies. The Lead Agency
will be profitable in its first quarter of trading within eq and is expected to
make a positive contribution to group earnings in 2003. Additional consideration
may be payable based on profits generated over the period 2003 to 2005
inclusive.
Integrated group
Both businesses are now fully integrated into the group and are performing ahead
of expectations.
The acquisition of Quaestor and The Lead Agency in December 2002 underlined our
commitment to creating a world-class marketing services group with a broad set
of skills and a diverse customer base. Our services now include: brand
modelling, product innovation, media research, customer satisfaction, marketing
communications, tele-marketing, event management, educational media services and
software development.
Our growing list of blue chip clients now includes: Boots, Quaker, Gillette,
Sainsbury's, Coors, Hilton, Walt Disney, BBC Worldwide, GE Capital, Telewest,
Scottish Media Group, Channel 4, Prudential Assurance, HBOS, Barclays Bank,
DairyCrest, Cirio Delmonte, Campbells, Freemans, Sony, Fujitsu, 3M, GSK and Eli
Lilly.
During the course of the year our businesses (including Quaestor) worked with
312 clients. No single client accounted for more than 14% of revenue and no
service type contributed more than 35% of total revenues. By sector, our most
significant markets were Media (19%), Fast Moving Consumer Goods (18%) and
Healthcare (18%).
As the group expands the potential for collaboration between the businesses is
increasing. During the last year a working relationship was established between
TVI and Buckingham Research, which has enabled TVI to offer a research-related
component to its (Pi) Patient Interaction services. Buckingham Research and
Quaestor are now working closely together; key areas of collaboration are:
international projects, telephone interviewing, data processing and brand
modelling. The Lead Agency is actively collaborating with both Quaestor and
Buckingham Research and after only two months of trading within eq two joint
projects were won with many more being planned.
Outlook
Looking to the next financial year we expect our primary areas of growth to be
information services (including market research) and marketing communications.
Quaestor's current commissions are higher than the same period last year and
business development activity is up compared to the first three months of 2002.
We expect Buckingham Research to make greater in-roads into its two largest
clients as they conduct more international projects and the business development
activities conducted in the fourth quarter of last year begin to produce
results. The Lead Agency exceeded our internal expectations and became
profitable in its second month with eq. It has a strong order book through to
the beginning of June and is expected to make a positive contribution to
earnings in the coming financial year.
Whilst this has been a very positive year and the prospects for 2003 are good
there are some challenges that need to be addressed in short to medium term.
Our fourth quarter performance in the USA was weak. This was primarily due to
uncertain economic conditions, a temporary slowdown in clinical study activity
and difficulty sourcing experienced individuals capable of marketing TVI's (Pi)
Patient Interaction services. We have now addressed the recruitment issues, a
clear sales and marketing plan has been agreed with an emphasis being placed on
Tier 2 pharmaceutical companies and new marketing tools have been created to
support these efforts. Local management are now tasked with executing these
plans and producing a positive result by the half year.
Buckingham Research produced very strong fourth quarter results despite a major
project being cancelled by the client earlier in the year due to internal
issues. This performance was the result of significant endeavour by the
Buckingham team and a series of tactical marketing activities aimed at
broadening the customer base. Our challenge this year lies in translating this
initial success into a reliable business development function that can identify
new briefs on an ongoing basis while the core of the company concentrates on
project delivery. Your board is confident that this can be achieved and looks
forward to further growth from this promising acquisition.
Broadnet, our radio software business, performed consistently throughout 2002
and is expected to make a significant contribution to group earnings in 2003,
but earnings growth will be limited by our strong position in radio advertising
software. Our challenge this year is to identify new sources of revenue,
possibly outside radio, that can capitalise on Broadnet's software development
capabilities and drive future earnings growth. A number of opportunities are
currently being investigated and most promising is a potential partnership with
a major technology provider. We anticipate making a decision on these
initiatives by the half year.
Looking to the future we will continue to broaden the services of the group
through acquisition. Our likely areas of focus for the coming financial year
will be database marketing, branding and marketing agencies and direct
marketing. We will target high quality, earnings-enhancing acquisitions that
have complementary skills to those that already exist in the group. We will look
for companies that have similar clients, cultures and work ethics to our
existing businesses.
We have no doubt in the continued growth potential of the business. We have made
significant progress in the last year and we expect to continue in the same vein
in 2003.
Bob Bond
Chief Executive
Consolidated profit and loss account
for the year ended 31 December 2002
2002 2001
Pre
amortisation
and Amortisation
exceptional and
Pre items exceptional
amortisation items
of goodwill Amortisation Total (note 2) Total
of goodwill
(note 2)
Notes #'000 #'000 #'000 #'000 #'000 #'000
Turnover 5,151 - 5,151 4,802 - 4,802
Cost of sales (2,535) - (2,535) (2,323) - (2,323)
Gross profit 2,616 - 2,616 2,479 - 2,479
Administrative expenses (1,953) (260) (2,213) (2,121) (8,186) (10,307)
Operating profit before
amortisation and impairment of
goodwill 663 - 663 358 (178) 180
Amortisation and impairment of
goodwill - (260) (260) - (8,008) (8,008)
Operating profit/(loss) 663 (260) 403 358 (8,186) (7,828)
Net interest payable (271) - (271) (295) (227) (522)
Profit/(loss) before 392 (260) 132 63 (8,413) (8,350)
taxation
Taxation (73) - (73) 69 - 69
Profit/(loss) after 319 (260) 59 132 (8,413) (8,281)
taxation
Minority interests - - - - (59) (59)
Profit/(loss) for the 319 (260) 59 132 (8,472) (8,340)
year
All items dealt with in arising at the profit / (loss) on ordinary activities before taxation relate to
continuing operations.
Basic earnings / (loss) per 3 0.99p (177.49p)
share
Adjusted earnings per 3 5.39p 2.81p
share
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December 2002
2002 2001
#'000 #'000
Profit/(loss) for the 59 (8,340)
year
Currency adjustments 249 207
Total recognised gains 308 (8,133)
and losses
Balance sheet
as at 31 December 2002
2002 2001
Group Group
#'000 #'000
FIXED ASSETS
Intangible assets 6,407 5,051
Tangible assets 849 227
7,256 5,278
CURRENT ASSETS
Stock 145 44
Debtors 2,009 402
Cash 338 250
2,492 696
CREDITORS: amounts falling due within one year (3,747) (2,995)
Net current liabilities (1,255) (2,299)
Total assets less current liabilities 6,001 2,979
CREDITORS: amounts falling due after more than one year (6,047) (4,441)
PROVISIONS FOR LIABILITIES AND CHARGES (18) -
Net liabilities (64) (1,462)
CAPITAL AND RESERVES
Called up equity share capital 698 585
Share premium account 7,335 6,358
Profit and loss account - deficit (8,097) (8,405)
Equity shareholders' deficit (64) (1,462)
Consolidated cashflow statement
for the year ended 31 December 2002
2002 2001
#'000 #'000
Net cash inflow/(outflow) from operating activities 75 (510)
Returns on investment and servicing of finance (261) (221)
Taxation (76) -
Capital expenditure (29) 42
Acquisitions (1,000) (415)
Net cash outflow before financing (1,291) (1,104)
Financing 1,250 182
Decrease in cash in the year (41) (922)
Reconciliation of net cashflow to movement in net debt 2002 2001
#'000 #'000
Decrease in cash in the year (41) (922)
Cash inflow from increase in debt (1,250) (182)
(1,291) (1,104)
Finance leases acquired with subsidiary undertakings (143) -
Other non-cash changes (145) (1,911)
Currency adjustments 184 (47)
Movement in net debt (1,395) (3,062)
Opening net debt (5,215) (2,153)
Closing net debt (6,610) (5,215)
Notes:
1.Basis of preparation
This preliminary announcement, which has been prepared on a basis consistent
with the previous period, does not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. The announcement has been
agreed with the company's auditors for release.
The financial information above is derived from the Group's full statutory
accounts on which the auditors have reported; their report was unqualified and
did not contain a statement under section 237(2) or (3) of the Companies Act
1985. The statutory accounts for the year ended 31 December 2001 have been filed
with the Register of Companies and those for 2002 will be delivered following
the Annual General Meeting.
2.Amortisation and exceptional items
2002 2001
Amortisation and exceptional items comprise: #'000 #'000
Restructuring costs - 178
Impairment of goodwill - 7,959
Amortisation of goodwill 260 49
Finance costs - 227
Minority interests - 59
260 8,472
3. Earnings per Share
The calculation of basic earnings per share is based on a profit after taxation
of #59,000 (2001: loss of #8,340,000) divided by the weighted average number of
Ordinary shares in issue during the year of 5,895,728 (basic) (2001: 4,698,601).
An adjusted earnings per share figure before the amortisation of goodwill and
exceptional items has been presented, to facilitate comparison of the trading
results from year to year. This is based on an adjusted profit after taxation
of #319,000 (2001: #132,000) after adding back goodwill amortisation of #260,000
(2001: #49,000) and exceptional items of #nil (2001: #8,423,000).
4. Acquisitions
On 18th December 2002 the Company acquired Quaestor Research & Marketing
Services Limited, and on 20 December 2002 the Company acquired the Lead Agency
Limited. The book value of the assets acquired, to which no fair value
adjustments are made, was #1,364,000 and give rise to goodwill of #1,516,000.
This information is provided by RNS
The company news service from the London Stock Exchange
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