RNS Number:1587H
Tangent Communications PLC
07 November 2007
TANGENT COMMUNICATIONS PLC
Interim Report
For the six months ended
31 August 2007
Tangent Communications plc ("Tangent" or the "Company")
Interim Results for the Six Months Ended 31 August 2007
7 November 2007
Tangent (AIM: TNG) the technology-led digital marketing company, today announces
its interim results for the six months ended 31 August 2007.
Financial Highlights
* Revenue up 121% to #8.74m (2006: #3.96m)
* Underlying operating profit up 169% to #1.41m (2006: #0.52m)
* Underlying operating margin up 22% to 16.1% (2006: 13.2%)
* Underlying basic earnings per share up 51% to 0.71p (2006: 0.47p)
* Cash from operations up 315% to #1.39m (2006: #0.33m)
* Net funds of #2.3m
Operational Highlights
* 70% of total revenue realised through Tangent's proprietary technology
platforms
* Ravensworth client base grows to 3,000 up 27% against prior year
* Two year contractual agreement with Gala Coral Group for online
marketing system
* Dividend block being removed by capital reorganisation
* Six figure website design and build win confirmed
Commenting on the first six months, Nicholas Green, Joint CEO, said:
"Our sales run rate has more than doubled from an average of #660,000 a month to
#1.46m. Our customer numbers have increased from the hundreds to the thousands
and revenues derived from our technology have increased to 70% of total
revenues. All of the businesses within the group have started the second six
months well, putting Tangent on a strong footing for its next stage of growth."
Further Enquiries:
Tangent Communications plc 020 7553 6600
Nicholas Green (Joint CEO)
Graeme Harris (Finance Director)
Redleaf Communications
Tom Newman/Emma Kane 020 7822 0200
Collins Stewart
Seema Paterson/Stewart Wallace 020 7523 8350
These interim results can also be viewed on the Tangent Communications plc
website: www.tangentuk.com
Joint Chief Executives' Statement
Overview
During the first six months of the current financial year, Tangent has made
significant strides in leveraging its proprietary technology into its clients'
businesses. This creates the glue between us and our clients and allows us to
market our products and services more effectively. We are pleased to report that
70% of Tangent's revenue is currently generated directly from our proprietary
technology platforms. The close nature of the relationship means that Tangent is
positioned strongly in being able to identify growth opportunities.
Our acquisition in March 2007 of Ravensworth has performed above expectations
and provided us with the capacity of a modern digital plant for high volume
services. The business has been successfully integrated and we have realised the
planned operational synergies and continue to exploit revenue synergies.
Tangent's focus is now on increasing business from existing clients and
concentrating on broadening its relationship with SAP. Furthermore there have
been strong new business wins across all services and new digital products have
been launched creating new revenue streams.
Financial review
We run the business with a focus on revenue, underlying operating profit,
underlying profit margin, underlying earnings per share and operating cash
generation. In the first six months of the year we have moved ahead in each of
these key performance indicators and at the start of the second half of our year
the momentum has continued. This is partly achieved through an increase in
revenues from pure technology sales, a higher percentage of recurring revenues
and more online sales.
Revenue grew by 121% to #8.74m and underlying operating profit grew by 169% to
#1.41m. The underlying operating margin of 16.1% is up 22% against the prior
year. As the percentage of revenue from pure technology sales grows and the
online work expands, we expect our margin to continue to increase.
Operating cash more than quadrupled to #1.39m which represents a 99% conversion
rate on underlying operating profit. Underlying basic earnings per share grew by
51% to 0.71p.
Dividend
The board believes that paying a dividend is an important part in providing
total shareholder return and therefore we have taken steps to create
distributable reserves before the year end so that we can pay dividends.
Shareholders will receive notification in due course of a General Meeting at
which a resolution will be tabled and, if passed and approved by the High Court,
will enable Tangent to pay dividends, and it is our intention to do so.
Integration of Ravensworth
At the end of March 2007, we completed the acquisition of Ravensworth, a digital
marketing business based in Newcastle, for #5.85m. Since then we have
transferred all property artwork and template design from our Cheltenham office
to Newcastle. This resulted in operational efficiencies within the group and was
achieved with no client loss. In addition, we shut down a legacy template system
and transferred 46 clients onto our software platform, again with no client
loss. The number of live clients now integrated and using our software platform
reached a record 3,000 in October and the business has no single client
accounting for more than 5% of turnover. Between April and August 2007, we
produced a record 15 million individual sales' particulars on behalf of our
clients and brought on 244 new clients. New client sign-ups have continued to
perform well in the second half of the year and, whereas we expect seasonality
to play a role over the winter months as it did last year, we expect our growing
market share to continue to outweigh possibly weaker market conditions.
Product Development
We are investing substantially in the development of new and complementary
online products. Like-for-like revenue from our data and web services grew by
120% and this continues to increase our operating margin. The development team
has grown to 27 people compared to 14 a year ago. The new employees are engaged
in project delivery for existing clients and new client account management for
new business. The increased headcount is part of our laying of foundations for
future growth as we expand our range of services.
Webcreator
Developed internally, Webcreator is a Tangent product for generating national
and local websites, complementing our Toolkit product which generates local and
national printed marketing materials. Already, three high profile Toolkit
customers have adopted Webcreator to generate over 2,000 local websites. The
Webcreator product is now being rolled out to a wider base of existing customers
and recently played a significant role in differentiating Tangent during a
successful pitch.
Toolkit data integration
We have taken a significant step in enabling integration of customers' data into
the Toolkit product. Customers are now able to upload, view and select their own
data within the Toolkit system and then use this data to drive customised
marketing programmes. Introducing this element into the system increases
Tangent's potential share of a client's marketing spend. The solution has
already been sold to two key clients and it is now being rolled out across our
client base.
Home Information Packs (HIPs)
In August 2007, HIPs were introduced as a legal requirement for vendors of
residential property with four or more bedrooms. Since September, when
legislation changed to require HIPs for the sale of three or more bedroom
properties, we have seen a significant increase in volume and in October we
produced more HIPs in one day than in the whole of August. We have integrated
our digital workflow with systems used by 20 HIPs' providers and in January
2008, when legislation is expected to change again and HIPs will be required for
the sale of all residential properties, we expect to see a further significant
increase in volume and revenue.
Growth opportunities
Website design and build
In October 2007 Tangent won its largest project for web build and design. The
fee associated with the project is 100% above any previous fee charged by the
group. This step change in charging, opens up a new audience for larger high
value web projects in a huge market place. Tangent is now invited to more pitch
rosters for large brands with big budgets for web projects. Tangent was chosen
by HarperCollins publishers to establish their first eCommerce enabled websites
and supply end-to-end web purchase functionality from site design to secure
fulfilment and customer service, further expanding the services that we are able
to offer.
SAP
At our AGM in July 2007 we announced that we had signed a Global Vendor
Agreement with SAP. In addition we have developed interfaces which plug directly
into their software platform. These interfaces offer SAP users customised
navigation around SAP software and data. Our approach is two-fold. We continue
to be retained by SAP to create interfaces and marketing applications. In
addition we aim to create SAP approved products which can be sold to SAP global
customers. These products will require SAP certification and would be sold as
part of the SAP partner programme.
Gala Coral Group
In September 2007 Tangent was confirmed, after a competitive pitch, as the
supplier of online marketing material for the Gala Coral Group. Designed, built
and live we are now focussed on expanding the commercial relationship between
Tangent and Gala Coral. There are 200 Gala Coral sites in the UK and five
million members on their database.
Data-driven Marketing
In July 2007, we invited Lloyds TSB to conduct a site survey of our Newcastle
facility which resulted in Tangent being awarded its first data-driven direct
marketing campaign for the bank. Since then Barclays has visited this site and a
meeting with a leading high street supermarket is planned. In Newcastle we have
one of the leading digital facilities in the UK and we expect more large
corporate brands to use this facility for high value data-driven marketing
material.
Outlook
The second half of the year has started well. The roll-out of the Gala Coral
online marketing system, continuing work with SAP and expansion of services to
existing clients place Tangent in a strong position and we look forward with
confidence to the next six months.
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Six months Six months Year ended
ended ended
31 August 31 August 28 February
2007 2006 2007
Notes (Unaudited) (Unaudited) (Audited)
#000 #000 #000
Revenue 8,740 3,960 8,605
Cost of sales (4,523) (2,112) (4,515)
Gross profit 4,217 1,848 4,090
Operating expenses 2,810) (1,324) (3,020)
Underlying operating profit 1,407 524 1,070
Share based payment charge 8 (200) (196) (388)
Operating profit 1,207 328 682
Finance income 10 7 8
Profit before tax 1,217 335 690
Tax (330) (69) (86)
Profit for the period 887 266 604
Earnings per share (pence) * 4
Basic 0.58 0.27 0.58
Diluted 0.52 0.25 0.52
* Earnings per share based on underlying profit is shown in the notes to the
financial information.
The results shown above relate to continuing operations and are attributable to
equity shareholders of the Company.
CONSOLIDATED BALANCE SHEET
AT 31 AUGUST 2007
31 August 31 August 28 February
2007 2006 2007
Notes (Unaudited) (Unaudited) (Audited)
#000 #000 #000
Assets
Non-current assets
Intangible assets - goodwill 5 14,463 7,986 8,487
Property, plant and equipment 1,400 739 675
15,863 8,725 9,162
Current assets
Inventories 102 90 87
Trade and other receivables 3,936 1,948 2,268
Cash and cash equivalents 2,610 695 1,334
6,648 2,733 3,689
Total assets 22,511 11,458 12,851
Liabilities
Current liabilities
Borrowings (116) (110) (70)
Trade and other payables (3,085) (1,318) (1,721)
Current tax liabilities (561) (69) (117)
(3,762) (1,497) (1,908)
Non-current liabilities
Borrowings (181) (249) (215)
Provisions for liabilities (539) (514) (500)
and charges
(720) (763) (715)
Total liabilities (4,482) (2,260) (2,623)
Net assets 18,029 9,198 10,228
Equity
Share capital 7 1,618 1,118 1,118
Share premium account 13,165 7,860 7,860
Merger reserve 7,430 7,022 7,022
Other reserves 2,909 1,515 2,208
Retained losses (7,093) (8,317) (7,980)
Total equity - attributable to 18,029 9,198 10,228
equity shareholders of the
Company
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Six months Six months Year ended
ended ended
31 August 31 August 28 February
2007 2006 2007
(Unaudited) (Unaudited) (Audited)
Notes #000 #000 #000
Net cash inflow from operations
Cash generated from operations 9 1,387 334 1,177
Interest paid (17) (8) (19)
Tax paid (115) - (27)
Net cash inflow from operating 1,255 326 1,131
activities
Investing activities
Acquisition of subsidiary, net of (5,480) (482) (483)
cash acquired
Purchase of property, plant and (152) (395) (498)
equipment
Sale of property, plant and 2 61 61
equipment
Interest received 27 15 27
Net cash used in investing (5,603) (801) (893)
activities
Financing activities
Proceeds from issue of shares, 5,771 - -
net of costs
Repayment of borrowings (147) (70) (144)
New borrowings raised - 308 308
Proceeds from exercise of share - 10 10
options
Net cash inflow from financing 5,624 248 174
activities
Net increase/(decrease) in cash 1,276 (227) 412
and cash equivalents
Cash and cash equivalents at 1,334 922 922
beginning of period
Cash and cash equivalents at end 10 2,610 695 1,334
of period
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Share Share Merger Other Retained Total
capital premium reserve reserves losses equity
#000 #000 #000 #000 #000 #000
Six months ended 31 August 2007
At 1 March 2007 1,118 7,860 7,022 2,208 (7,980) 10,228
Share-based payment - - - 200 - 200
charge
Issue of shares 500 5,594 408 - - 6,502
Share issue costs - (289) - - - (289)
Contingent consideration - - - 501 - 501
Retained profit for the - - - - 887 887
period
At 31 August 2007 1,618 13,165 7,430 2,909 (7,093) 18,029
Six months ended 31 August 2006
At 1 March 2006 951 7,860 5,189 1,319 (8,593) 6,726
Share-based payment - - - 196 - 196
charge
Release of funds on - - - 1 9 10
share distribution
Issue of shares 167 - 1,833 - - 2,000
Retained profit for the - - - - 266 266
period
At 31 August 2006 1,118 7,860 7,022 1,516 (8,318) 9,198
Year ended 28 February 2007
At 1 March 2006 951 7,860 5,189 1,319 (8,593) 6,726
Share-based payment - - - 388 - 388
charge
Release of funds on - - 1 9 10
share distribution
-
Issue of shares 167 - 1,833 - - 2,000
Contingent consideration - - - 500 - 500
Retained profit for the - - - - 604 604
period
At 28 February 2007 1,118 7,860 7,022 2,208 (7,980) 10,228
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
1 Introduction
In the year ended 28 February 2007, Tangent Communications plc ("the Company")
and its subsidiaries (together "Tangent") prepared its consolidated financial
statements under UK generally accepted accounting principles ("UK GAAP"). With
effect from 1 March 2007, the Company is required to prepare its consolidated
financial statements in accordance with International Financial Reporting
Standards ("IFRS"). Tangent will therefore prepare both its consolidated
financial statements and its parent company financial statements for the year
ending 28 February 2008 in compliance with IFRS. Tangent will present one year
of comparative IFRS information for the year ended 28 February 2007, and
consequently the date of transition is 1 March 2006 ("transition date"), being
the first day of the comparative period. The first published results to be
prepared on an IFRS basis are these results for the six months ended 31 August
2007, which include comparative IFRS financial statements for the six months
ended 31 August 2006.
The comparative figures for the year ended 28 February 2007 prepared under IFRS
are not Tangent's statutory accounts for that financial year. Those accounts,
which were prepared under UK GAAP, have been reported on by Tangent's auditors
and delivered to the registrar of companies. The report of the auditors was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 237(2) or (3) of the Companies
Act 1985. The financial information for the six months ended 31 August 2007 and
31 August 2006 is unaudited.
Tangent provides customised marketing services. Tangent's operations are all
located within the UK and it makes sales primarily to UK based customers. During
the year, Tangent acquired control of Ravensworth Digital Services Limited, a
digital marketing business operating in the UK.
The Company is a public limited company, incorporated and domiciled in England.
The address of its registered office is Truscott House, 32-42 East Road, London
N1 6AD.
Information required by AIM Rule 26 is available in the investor relations
section of Tangent's website at www.tangentuk.com
The Company is listed on AIM, the Alternative Investment Market of the London
Stock Exchange, and has the TIDM code TNG.
This Interim Report, including Tangent's consolidated financial information, was
authorised for issue by the board of directors on 7 November 2007.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial information are set out below. These policies have been
consistently applied to all the periods presented.
2.1 Basis of preparation
This interim consolidated financial information of the Company and its
subsidiaries are for the six months ended 31 August 2007. This has been prepared
in accordance with IAS 34 'Interim Financial Reporting', and is covered by IFRS
1 'First-time adoption of IFRS', because it is part of the period covered by
Tangent's first IFRS financial statements for the year ending 28 February 2008.
This interim financial information has been prepared in accordance with those
IFRS standards effective as at the time of preparing this Interim Report. The
IFRS standards that will be applicable at 28 February 2008 including those that
will be applicable on an optional basis, are not known with certainty at the
time of preparing this Interim Report.
UK GAAP differs in some areas from IFRS. In preparing this consolidated interim
financial information, the directors have amended certain accounting, valuation
and consolidation methods applied in the UK GAAP financial statements to comply
with IFRS. The comparative figures have been restated to reflect these
adjustments.
Reconciliations and descriptions of the effect of the transition from UK GAAP to
IFRS on Tangent's equity, net assets, net income and cashflows are provided in
note 11.
The consolidated financial information has been prepared under the historical
cost convention and on a going concern basis.
2.2 Consolidation
Subsidiaries are all entities which Tangent has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights. Subsidiaries are fully consolidated from the
date on which control is transferred to Tangent. They are de-consolidated from
the date that control ceases. All active subsidiaries were held by a direct 100%
shareholding by the parent company at the balance sheet date.
The purchase method of accounting is used to account for the acquisition of
subsidiaries. The cost of an acquisition is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair value at the date
of acquisition. The excess of the cost of acquisition over the fair value of
Tangent's share of the identifiable net assets acquired is recorded as goodwill.
Intra-group transactions, balances and unrealised gains on transactions between
group companies are eliminated. Accounting policies of subsidiaries have been
changed, where necessary, to ensure consistency with the policies adopted by
Tangent.
2.3 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for
the sale of goods and services in the ordinary course of Tangent's activities.
Revenue is shown net of value-added tax, returns, rebates and discounts and
after eliminating intra-group sales.
Tangent recognises revenue when the amount of revenue can be reliably measured,
it is probable that future economic benefits will flow to Tangent and specific
delivery criteria have been met.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
2.4 Segmental reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those of segments operating
in other economic environments. In the directors' opinion Tangent operates in
one segment which cannot be subdivided in a meaningful way.
2.5 Foreign currency translation
(a) Functional and presentational currency
Items included in the financial information of each of Tangent's entities are
measured in Sterling, which is the Company's and the Group's functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into Sterling using the exchange
rates prevailing at the dates of the transactions. Exchange differences arising
from the translation at the year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income
statement.
2.6 Employee benefits
(a) Pension obligations
Tangent has defined contribution plans under which Tangent pays fixed
contributions into a separate entity. Tangent has no legal or constructive
obligations to pay further contributions relating to employee service in the
current and prior periods. The contributions are recognised as an employee
benefit expense when they are due.
(b) Share-based compensation
Tangent operates a number of equity-settled, share-based compensation plans. The
fair value of the employee services received in exchange for the grant of the
options is recognised as an expense. The total amount to be expensed over the
period until the option can be exercised is determined by reference to the fair
value of the options granted, excluding the impact of any non-market vesting
conditions (e.g. profitability and revenue growth targets). Non-market vesting
conditions are included in the assumptions about the number of options that are
expected to vest. At each balance sheet date, Tangent revises its estimates of
the number of options that are expected to vest. It recognises the impact of the
revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
2.7 Intangible assets - goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of Tangent's share of the net identifiable assets of the acquired subsidiary at
the date of acquisition. Goodwill on acquisition of subsidiaries is included in
intangible assets. Goodwill is tested annually for impairment and carried at
cost less accumulated impairment losses. Any impairment on goodwill is
recognised immediately in the income statement and is not subsequently reversed.
Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units or groups of
cash-generating units that are expected to benefit from the business combination
in which the goodwill arose. Tangent currently allocates goodwill to a single
business segment.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
2.8 Property, plant and equipment
Property plant and equipment are stated at historic cost less subsequent
depreciation and impairment. Historic cost includes expenditure that is directly
attributable to the acquisition of the items.
Depreciation on assets is calculated using the straight-line method to allocate
their cost less their residual values over their estimated useful lives, as
follows:
Buildings Over the term of the lease
Plant and equipment 2 to 10 years
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
Subsequent costs are included in an asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to Tangent and the cost of the item
can be measured reliably. The carrying amount of a replaced part is
derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
An asset's carrying amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the
carrying amount and are recognised in the income statement.
2.9 Inventories
Inventories are stated at the lower of cost and net realisable value.
2.10 Trade receivables
Trade receivables are recognised initially at fair value. A provision for
impairment of trade receivables is established when there is objective evidence
that the group will not be able to collect all amounts due according to the
original terms of the receivables. The amount of the provision is the difference
between the asset's carrying amount and the present value of estimated future
cash flows. The carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the loss is recognised in the income
statement within operating expenses. When a trade receivable is uncollectible,
it is written off against the allowance account for trade receivables.
Subsequent recoveries of amounts previously written off are credited against
operating expenses in the income statement.
2.11 Cash and cash equivalents
Cash and cash equivalents on the balance sheet include cash in hand, short term
deposits held with banks. Bank overdrafts are shown within borrowings in current
liabilities on the balance sheet. For the purposes of the cash flow statement,
cash and cash equivalents also include the bank overdrafts.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
2.12 Leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments under
operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
Tangent leases certain plant and equipment where Tangent has substantially all
the risks and rewards of ownership. These leases are classified as finance
leases. Finance leases are capitalised at the lease commencement at the lower of
the fair value of the leased property and the present value of the minimum lease
payments.
Each finance lease payment is allocated between the liability and finance
charges so as to achieve the explicit or implicit interest rate on the finance
balance outstanding. The corresponding rental obligations, net of finance
charges, are included in other short term and other long term borrowings. The
interest element of the finance cost is charged to the income statement over the
lease period. The property plant and equipment acquired under finance leases is
depreciated over the shorter of the useful life of the asset and the lease term.
2.13 Provisions
Provisions are recognised when Tangent has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation and the amount has been
reliably estimated. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the
obligation. The increase in the provision due to the passage of time is
recognised as interest expense.
2.14 Deferred tax
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is not
accounted for if it arises from initial recognition of an asset or liability in
a transaction other than a business combination that, at the time of the
transaction, affects neither accounting nor taxable profit or loss. Deferred tax
is determined using tax rates that are expected to apply when the related
deferred tax asset is realised or when the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profits will be available against which the temporary differences can be
utilised.
2.15 Share capital
Ordinary shares are classified as equity. Costs directly attributable to the
issue of new shares are shown as equity as a deduction from the proceeds.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
3 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Tangent makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, rarely equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to carrying amounts of assets and liabilities within the
next financial year are outlined below:
(a) Intangible fixed assets
Tangent tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 2. The recoverable amounts
from cash-generating units are determined based on value-in-use calculations.
These calculations require the use of estimates. In arriving at the fair value
of goodwill, Tangent estimates the future consideration payable for acquisitions
where the final consideration is contingent upon future events or performance.
Estimated future consideration is reviewed and accrued at each balance sheet
date.
If recoverable amounts of cash-generating units are below the estimated levels
or if the future consideration payable on acquisitions is higher than estimated
an impairment loss may be triggered.
(b) Deferred tax
Tangent estimates future profitability in arriving at the fair value of the
deferred tax assets and liabilities. If the final tax outcome is different to
the estimated deferred tax amount the resulting changes will be reflected in the
income statement, unless the tax relates to an item charged to equity in which
case the changes in tax estimates will also be reflected in equity.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
4 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following:
Six months Six months
ended ended
Year ended
31 August 2007 31 August 2006 28 February 2007
#000 #000 #000
Profit attributable to 887 266 604
shareholders
Share based payments 200 196 388
Underlying profit
attributable to
shareholders 1,087 462 992
Weighted average number of Number 000 Number 000 Number 000
shares:
For basic earnings per 153,161 98,297 104,278
share
Adjustment for options 9,578 9,278 8,972
outstanding
Adjustment for contingent 8,342 - 2,665
shares
For diluted earnings per 171,081 107,575 115,915
share
Earnings per share: Pence per share Pence per share Pence per share
Basic 0.58 0.27 0.58
Underlying basic 0.71 0.47 0.95
Diluted 0.52 0.25 0.52
Underlying diluted 0.64 0.43 0.86
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. Tangent has two categories of dilutive potential
ordinary shares: share options and shares contingently issuable as consideration
for an acquisition.
A calculation is performed for the share options to determine the number of
shares that could have been acquired at fair value based on the monetary value
of the subscription rights attached to the outstanding share options. The number
of shares from this calculation is compared with the number of shares that would
have been issued assuming the exercise of the options and the difference is
deemed to be the number of dilutive shares attributable to share options.
The estimated number of shares that will be issued in the future as purchase
consideration for current subsidiaries is deemed to be the number of dilutive
shares issuable as consideration for acquisitions.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
5 Intangible assets - Goodwill
#000
Cost and net book value:
At 1 March 2007 8,487
Additions 5,976
At 31 August 2007 14,463
Additions to goodwill comprise #5,475,000 on the acquisition of Ravensworth
Digital Services Limited (note 6) and an additional #501,000 of contingent
equity consideration that the directors estimate will be payable on the
acquisition of Tangent Labs Limited.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
6 Acquisition
On 27 March 2007 Tangent acquired 100% of the share capital of Ravensworth
Digital Services Limited ("Ravensworth"), a digital marketing business based in
Newcastle, principally serving the property sector. The assets and liabilities
arising from the acquisition are as follows:
Book values Fair value Fair values
adjustments
#000 #000 #000
Property, plant and equipment 963 (139) 824
Inventories 32 - 32
Trade and other receivables 1,867 (56) 1,811
Cash and cash equivalents 120 - 120
Borrowings (159) - (159)
Provisions for liabilities and charges (39) - (39)
Trade and other payables (1,805) - (1,805)
Current tax liabilities (234) 17 (217)
Net assets 745 (178) 567
Goodwill 5,475
Total consideration 6,042
Total consideration was paid as
follows:
Cash 5,408
Direct costs of acquisition 192
Issue of shares 442
6,042
Net cash outflow arising from the
acquisition was as follows:
Purchase consideration settled in cash 5,408
Costs of acquisition 192
Cash and cash equivalents in (120)
subsidiary acquired
5,480
No deferred or contingent consideration is payable as part of the acquisition of
Ravensworth.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
7 Share capital
The movements in share capital during the period was as
follows:
Number of
ordinary shares Nominal value
000 #000
At 1 March 2007 111,780 1,118
Issue of shares for cash at 13p per 46,615 466
share
Issue of shares as part of
consideration for acquisition of
subsidiary at 13p per share 3,396 34
At 31 August 2007 161,791 1,618
8 Share options and share-based payment charge
The movements in share options and the corresponding weighted
average exercise prices during the period were as follows:
Weighted
Number of average
share options exercise
price
000 Pence
At 1 March 2007 13,525 4.44
Share options granted 790 7.15
Share options lapsed (93) 12.12
At 31 August 2007 14,222 4.70
For the share options outstanding at 31 August 2007 exercise prices ranged
between 1p and 13.25p per share and the weighted average remaining contractual
life was 7.9 years. No options were exercised in the period.
The fair value of share options granted in the period was calculated using a
Black-Scholes option pricing model. The volatility, measured as the standard
deviation of expected share price return, is based on statistical analysis of
the FTSE Support Services Index over the past four years which resulted in an
assumed volatility of 14%. The risk free interest rate has been assumed as 5.3%.
The total share option charge for the period was #200,000 which relates
principally to the share options granted to directors in September 2005.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
9 Cash generated from operations
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2007 2006 2007
#000 #000 #000
Profit before tax for the period 1,217 335 690
Depreciation 249 175 342
Profit on sale of plant and equipment - (56) (56)
Net interest income (10) (7) (8)
Share based payment charge 200 196 388
Decrease in inventories 17 8 11
Decrease/(increase) in trade and other 144 (157) (464)
receivables
(Decrease)/increase in trade and other (430) (160) 274
payables
Cash generated from operations 1,387 334 1,177
10 Analysis of net funds
At 1 Acquisition Cash At 31
March Flows August
2007 2007
#000 #000 #000 #000
Cash at bank 1,334 120 1,156 2,610
Bank borrowings - (52) 52 -
Finance leases (285) (107) 95 (297)
1,049 (39) 1,303 2,313
11. Transition from UK GAAP to IFRS
Tangent's first published results which have been prepared on an IFRS basis are
these for the six months ended 31 August 2007, which include comparative IFRS
financial information for the six months ended 31 August 2006 and the year ended
28 February 2007.
Set out below are extracts from Tangent's consolidated financial statements for
the year ended 28 February 2007 and the consolidated financial information for
the six months ended 31 August 2006 restated in accordance with IFRS including
the income statements and balance sheets showing in each case the equivalent
statement under UK GAAP and reconciliations between UK GAAP and IFRS. These
statements constitute preliminary comparative IFRS financial information in the
context of the financial information for the six months ended 31 August 2007.
This note also includes Tangent's balance sheet under IFRS at the transition
date (1 March 2006), together with a reconciliation to the originally published
UK GAAP balance sheet at that date. Cash flow statements have not been prepared
as there are no adjustments.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
There are no changes to the parent company's financial information resulting
from the transition from UK GAAP to IFRS at the transition date of 1 March 2006
and for the six months ended 31 August 2006 and the year ended 28 February 2007,
therefore, no financial information is shown below for the Company.
The changes on the transition to IFRS arise from the following principal
factors:
(i) Presentation of financial information
Presentation has been changed to be in compliance with IAS 1: 'Presentation of
Financial Statements' and terminology has also been changed to reflect headings
used in IFRS.
The cash flow statements are presented in accordance with IAS 7 'Cash Flow
Statements'. Cash flows have been grouped under three main headings, cash flows
from operating, investing and financing activities; these headings differ from
those presented under UK GAAP.
(ii) IFRS 3 'Business Combinations'
Under IFRS, goodwill arising on acquisition is capitalised and subject to an
annual impairment review. Under UK GAAP, goodwill was amortised over its
estimated useful life. Consequently under IFRS, this amortisation charge has
been reversed from the consolidated income statement and added back to the net
book value of goodwill.
IFRS 1 'First-time Adoption of International Financial Reporting Standards'
permits companies adopting IFRS for the first time to take certain exemptions
from the full requirements of IFRS in the transition period. The interim
financial information has been prepared on the basis of the following material
exemptions:
Net book value as deemed cost
IFRS 1 does not require a company to recreate cost information for property,
plant and equipment and goodwill. The Group's net book value of goodwill at 1
March 2006 is the deemed cost under IFRS going forward. These costs will
therefore be used as the basis for subsequent impairment tests for goodwill.
Accounting estimates
IFRS 1 prohibits the use of hindsight to correct estimates made under previous
GAAP unless there is objective evidence of error. The Group used the same
estimates made under UK GAAP for the opening IFRS balance sheet at 1 March 2006.
Statement of directors' responsibilities
The directors consider, in preparing the preliminary comparative IFRS financial
information, that the Company and the Group have used appropriate accounting
policies, consistently applied and supported by reasonable and supportable
judgments and estimates; and these accounting principles include the assumptions
the directors have made about the standards and interpretations expected to be
effective, and the policies expected to be adopted, when they prepare the first
complete set of IFRS financial statements for the year ending 28 February 2008.
All accounting standards which the directors consider to be applicable have
therefore been followed including the preparation of the preliminary comparative
IFRS financial information.
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Balance sheet at 1 March 2006 (date of transition)
Effect of
transition
UK GAAP to IFRS IFRS
#000 #000 #000
Assets
Non-current assets
Intangible assets - goodwill 5,051 - 5,051
Property plant and equipment 516 - 516
5,567 - 5,567
Current assets
Inventories 98 - 98
Trade and other receivables 1,656 - 1,656
Cash and cash equivalents 922 - 922
2,676 - 2,676
Total assets 8,243 - 8,243
Liabilities
Current liabilities
Borrowings (108) - (108)
Trade and other payables (1,362) - (1,362)
Current tax liabilities (2) - (2)
(1,472) - (1,472)
Non-current liabilities
Borrowings (13) - (13)
Provisions for liabilities (32) - (32)
and charges
(45) - (45)
Total liabilities (1,517) - (1,517)
Net assets 6,726 - 6,726
Equity
Share capital 951 - 951
Share premium account 7,860 - 7,860
Merger reserve 5,189 - 5,189
Other reserves 1,319 - 1,319
Retained losses (8,593) - (8,593)
Total equity and reserves 6,726 - 6,726
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Balance sheet at 31 August 2006 (comparative interim date)
Effect of
transition
UK GAAP to IFRS IFRS
#000 #000 #000
Assets
Non-current assets
Intangible assets - goodwill 7,827 159 7,986
Property plant and equipment 739 - 739
8,566 159 8,725
Current assets
Inventories 90 - 90
Trade and other receivables 1,948 - 1,948
Cash and cash equivalents 695 - 695
2,733 - 2,733
Total assets 11,299 159 11,458
Liabilities
Current liabilities -
Borrowings (110) - (110)
Trade and other payables (1,318) - (1,318)
Current tax liabilities (69) - (69)
(1,497) - (1,497)
Non-current liabilities
Borrowings (249) - (249)
Provisions for liabilities (514) - (514)
and charges
(763) - (763)
Total liabilities (2,260) - (2,260)
Net assets 9,039 159 9,198
Equity
Share capital 1,118 - 1,118
Share premium account 7,860 - 7,860
Merger reserve 7,022 - 7,022
Other reserves 1,516 - 1,516
Retained losses (8,477) 159 (8,318)
Total equity and reserves 9,039 159 9,198
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Balance sheet at 28 February 2007 (comparative year end date)
Effect of
transition
UK GAAP to IFRS IFRS
#000 #000 #000
Assets
Non-current assets
Intangible assets - goodwill 8,102 385 8,487
Property plant and equipment 675 - 675
8,777 385 9,162
Current assets
Inventories 87 - 87
Trade and other receivables 2,268 - 2,268
Cash and cash equivalents 1,334 - 1,334
3,689 - 3,689
Total assets 12,466 385 12,851
Liabilities
Current liabilities
Borrowings (70) - (70)
Trade and other payables (1,721) - (1,721)
Current tax liabilities (117) - (117)
(1,908) - (1,908)
Non-current liabilities
Borrowings (215) - (215)
Provisions for liabilities (500) - (500)
and charges
(715) - (715)
Total liabilities (2,623) - (2,623)
Net assets 9,843 385 10,228
Equity
Share capital 1,118 - 1,118
Share premium account 7,860 - 7,860
Merger reserve 7,022 - 7,022
Other reserves 2,208 - 2,208
Retained losses (8,365) 385 (7,980)
Total equity and reserves 9,843 385 10,228
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
Income statement for six months ended 31 August 2006 (comparative interim
period)
Effect of
transition
UK GAAP to IFRS IFRS
#000 #000 #000
Revenue 3,960 - 3,960
Cost of sales (2,112) - (2,112)
Gross profit 1,848 - 1,848
Operating expenses (1,324) - (1,324)
Underlying operating profit 524 - 524
Amortisation of goodwill (159) 159 -
Share-based payments (196) - (196)
Operating profit 169 159 328
Finance costs - net 7 - 7
Profit before tax 176 159 335
Tax (69) - (69)
Profit for the period 107 159 266
Income statement for year ended 28 February 2007 (comparative annual period)
Effect of
transition
UK GAAP to IFRS IFRS
#000 #000 #000
Revenue 8,605 - 8,605
Cost of sales (4,515) - (4,515)
Gross profit 4,090 - 4,090
Operating expenses (3,020) - (3,020)
Underlying operating profit 1,070 - 1,070
Amortisation of goodwill (385) 385 -
Share-based payments (388) - (388)
Operating profit 297 385 682
Finance costs - net 8 - 8
Profit before tax 305 385 690
Tax (86) - (86)
Profit for the period 219 385 604
NOTES TO THE FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 AUGUST 2007
12. Further copies of the Interim Report
The interim report is being sent to shareholders and further copies are
available at the Tangent Communications plc registered office, Truscott House,
32-42 East Road, London N1 6AD.
COMPANY INFORMATION
AS AT 31 AUGUST 2007
Directors Piers Caldecote Non-executive chairman
Nicholas Green Joint chief executive
Timothy Green Joint chief executive
Graeme Harris Finance director
Paul Murray Non-executive director
Company secretary Graeme Harris
Company number 3967805
Registered office Truscott House
32-42 East Road
London N1 6AD
Nominated adviser and broker Collins Stewart Europe Limited
88 Wood Street
London EC2V 7QR
Solicitors Rosenblatt
St Andrew House
18-20 St Andrew Street
London EC4A 3AF
Group auditors UHY Hacker Young LLP
St. Alphage House
2 Fore Street
London EC2Y 5DH
Registrars Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire HD8 0LA
Bankers HSBC Bank plc
60 Queen Victoria Street
London EC4N 4TR
INDEPENDENT REVIEW REPORT BY THE AUDITORS
TO TANGENT COMMUNICATIONS PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 August 2007 which comprises the consolidated income
statement, consolidated balance sheet, consolidated statement of changes in
equity, consolidated cash flow statement and related notes. We have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with the terms of our
engagement. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the AIM rules
which require that the half-yearly report must be presented and prepared in a
form consistent with that which will be adopted in the AIM company's annual
accounts having regard to the accounting standards applicable to such annual
financial statements.
As disclosed in note 1 to the financial information, the next annual financial
statements of the group will be prepared in accordance with IFRSs as adopted by
the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with IFRSs as adopted by the European Union.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the UK. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with International Standards on
Auditing (UK and Ireland) and therefore provides a lower level of assurance than
an audit. Accordingly, we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 August 2007.
UHY Hacker Young LLP
Chartered Accountants
London 7 November 2007
Notes
1. The maintenance and integrity of the Tangent Communications plc
website is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to the
interim report or the auditors' review report since they were initially
presented on the website.
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKAKPCBDDDDK
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