TIDMTNG
RNS Number : 7976D
Tangent Communications PLC
22 May 2012
Tangent Communications PLC
("Tangent" or the "Company")
Results for the year ended 29 February 2012
Tangent is an AIM listed company, a leading integrator of
technology and marketing strategy, with industry leading digital
print facilities.
Business Highlights:
-- Underlying Operating Profit increased by 13.3% to GBP1.53m (2011: GBP1.35m).
-- Gross Profit increased by 7.8% to GBP11.83m (2011: GBP10.97m).
-- Profit Before tax increased by 38.1% to GBP1.45m (2011: GBP1.05m).
-- Underlying earnings per share increased to 0.60p (2011: 0.55p).
-- E-commerce contract signed with TATA targeting online retail in India.
-- Launch of printed.com as a leading destination for buying printed products.
"Tangent's performance for the year ended February 2012 saw
profit before tax increase by 38.1% to GBP1.45m. Digital revenues
reported operating margins of 9.3% (up from 7% in 2011), as we
retained our quality customer base and won international web
development contracts with Carlsberg and TATA. Print performance
remained static, as reducing contribution from estate agents was
buoyed by the growing revenues of printed.com.
We go into 2012-13 with clear objectives of growing our Digital
revenues and printed.com. Both areas represent significant
opportunities in the UK and internationally to expand Tangent over
the next few years".
(1) Underlying operating profit is defined as operating profit
after share based payment charges before non-recurring costs
(2) Underlying EPS is calculated after share based payments
before non-recurring costs net of tax
For further information, please contact:
Tangent Communications plc Timothy Green 020 7462 6100
Canaccord Genuity Limited Bruce Garrow 020 7523 8350
About the Company: Tangent employs 240 people across four
locations in London, Newcastle, Cheltenham and Melbourne and is
traded on AIM (AIM: TNG). For more information please visit
www.tangentplc.com
Chairman's Statement for the year ended 29 February 2012
Tangent's underlying operating profits increased by 13.3% from
GBP1.35m to GBP1.53m whilst turnover at GBP21.72m was 3.0% lower.
On the plus side our Digital marketing operations grew strongly,
customising our proprietary core technology and marketing skills
for a range of leading brands.
However our Print business was impacted by its major customer
segment of estate agents. This was a worse decline than we had
expected and there was also the absence of last year's GBP1m of
General Election business. However overall Print sales were
GBP10.83m versus GBP11.27m and profits were GBP0.82m versus
GBP0.81m. This was achieved with the growing success of our
e-commerce print service to SMEs. Thus our digital print facility
remained substantially loaded, albeit with a more varied workload,
the efficient handling of which the production team are to be
congratulated.
The proposed dividend of 0.2p per share is maintained at last
year's level.
Piers Caldecote Non-executive chairman
Chief Executive's Statement for the year ended 29 February
2012
Revenues
Sales of GBP21.72m for the year delivered GBP11.83m of gross
margin above the GBP10.97m in 2010-11. Three key factors drove this
5.5% improvement in margin; the reduction in straight through
income (postage from the general election revenues in 1H 2010), a
higher proportion of income from digital services rather than
manufacturing and an improving price point for our print.
The focus in 2011-12 was for an improved sales mix and certainly
at this level our objectives were reached with GBP0.86m of
additional gross profit which was 7.8% up on 2010-11.
Digital
The re-branding of Tangent One and Snowball into Tangent
Snowball was completed early in the year bringing together what was
once as many as 6 separate agencies (Tangent Direct, Snowball,
Tangent One, Lateral, Tangent Labs and C360). This has had a
binding effect for the business and ranks Tangent Snowball as a Top
20 digital marketing agency in the UK (Marketing Magazine). Tangent
Snowball creates marketing strategies and delivers them. The
integrated agency offers a blend of CRM and digital communications
that cuts across media channels and strategies. With the benefit of
in-house data, web development and creative skills, our client
services assemble teams to drive digital strategies with particular
effectiveness in the B2B, leisure and luxury sectors. We will now
target breaking into the top 10 lists as the agency grows its
existing clients and expands with new account wins. Sales of
GBP10.90m delivered operating profits of GBP1.02m, just under the
targeted 10% net margin set for the business. The UK digital market
is well established and much of our work is now international with
implementations across the globe. A note on international revenues
is included below.
International Revenues
Australia performed strongly as the contract with Pearson to
design, build and market www.borders.com.au was maintained through
the year. This contract is up for renewal in 2012-13 which may
impact future revenues. The win with TATA to deliver
www.landmarkonthenet.com has opened an opportunity for Tangent to
position itself as experts in the fast growing Indian e-commerce
market. Managing this contract remotely has proven successful
although the opportunity of having a Tangent office locally to
Mumbai has been explored and is targeted for Q3 / Q4. Contracts
with Bang & Olufsen, Carlsberg, Dunhill and SAP are all
international with delivery across Europe, the United States and
the growing Asian markets.
Print
Print revenues declined in the 1H where comparisons to the
previous year included the exceptional GBP1m contract from The
Labour Party general election campaign. In the 2H print revenues
grew on a like for like basis as new revenues from printed.com
began to offset any decline in estate agency revenues. Customer
numbers have grown dramatically as the concentration of large print
contracts has been overrun by a mass of small business customers.
Our marketing optimisation team continues to deliver but with few
year-on-year trends established, forecasting remains a challenge.
We expect Print revenues to grow in 2012-13 and will begin to
communicate and report on printed.com metrics as the year
continues.
Estate agency revenues were lower in 2011-12 and are forecast to
reduce further in the coming year although the quality of sales is
targeted to improve. Utilisation of our investment in the latest
digital presses has ensured we have a high proportion of satisfied
and repeat customers which should provide an excellent platform for
us to build on.
International
Digital print revenues are yet to be established outside the UK
although we expect to support an international roll-out during
2012-13. For European fulfilment we will utilise existing capacity
from our Newcastle facility in the short term and aim to take
advantage of competitive pricing from the GBP/euro exchange.
Furthermore we will establish local fulfilment partners for Asian
(India) and US markets before the end of the year.
Expenditure
The capital expenditure programme that commenced in 2010-11 to
upgrade the Ravensworth digital print facility has continued with a
further GBP0.98m spent during the year. There is further
expenditure planned in 2012-13 although this year is expected to
complete the investment programme. We should be able to deliver a
further 30% of digital print revenues before further investment
would be considered.
IT spend continues to increase as the cost of hosting and
maintenance, and the sheer number of digital and office headcount
grow in the business. No significant expenditure is planned
although a move to Cloud-based frameworks is likely in the near
future.
Innovation
During the year we will invest in our software platforms TaoShop
and TaoMAP.
TaoShop provides open source e-commerce for retailers - the
platform originally designed in 2005 using a bespoke PHP platform.
Whilst stable and successful, this closed framework has been a
limiting factor in adoption. Market trends have moved to favour the
adoption of open source platforms as they provide the added
flexibility and perceived optionality of the customer not to be
tied into support and services from the agency. This can be seen
most clearly in the success of open source platforms such as
Magento commerce. Moving to our open source framework "Oscar"
ensures we can provide expertise without ownership. Although in its
infancy, awareness is starting to build and the framework has
already been adopted by external development teams. As we ramp up
the PR of our launch client TATA we will target the Indian
e-commerce marketplace in Q3/Q4.
TaoMAP provides sales and marketing automation software for
enterprises. Grown from our Toolkit software developed since 2001
the solution has evolved from a tool to order business cards online
to multi-faceted automation software. TaoMAP provides multi-channel
communications (mobile, email, print, data management, CMS, website
creation, merchandising, e-commerce, payment facilities). The
growth of features over the past ten years has provided the
opportunity to refine the solution into a more modular framework.
This approach will speed up future implementations and provide a
slicker user experience to increase the effectiveness of the
software for existing clients.
With customers Carlsberg, Citroen, GalaCoral, Greene King, The
Labour Party and Wolseley, just some of our lead clients, this will
ensure the underpinning of on-going license fees and the references
for a significant new business push in the latter part of the
year.
Outlook
For 2012-13 Tangent will focus on revenue growth; increasing
customer numbers to our printed.com service and new contractual
income to our Digital business. We will increase advertising
expenditure to promote printed.com both in the UK and
internationally as we build our brand and the utilisation of our
print facility. We will continue to invest in our Digital offering
by driving the reputation of our marketing effectiveness and web
development to attract new clients and projects. We look to the 2H
of the year to best demonstrate growth prospects from increased
customer numbers and new business.
Timothy Green Chief executive
Financial review for the year ended 29 February 2012
Tangent is pleased to report an increase in gross profit and
operating profit for the year to 29 February 2012.
Highlights
-- Profit before tax increased by 38.1% to GBP1.45m (2011: GBP1.05m)
-- Underlying operating profit increased by 13.3% to GBP1.53m (2011: GBP1.35m)
-- Underlying operating margin increased to 7.0% (2011: 6.0%)
-- Diluted basic earnings per share increased by 34.9% to 0.58p (2011: 0.43p)
-- Gross margin increased by GBP0.86m (7.8%) to GBP11.83m (2011: GBP10.97m)
-- Underlying operating profit from Digital segment increased by
27.5% to GBP1.02m (2011: GBP0.80m)
-- Cash generated from operations GBP1.80m (2011: GBP1.83m)
represented 118% of underlying operating profit (2011: 136%)
-- Proposed final dividend 0.2p per share (2011: 0.2p per share)
Trading Performance Revenue for the year to 29 February 2012 was
GBP21.72m.This was in line with the year to 28 February 2011
(GBP21.39m) after excluding GBP1.0m from General Election Campaign
work undertaken during the prior year.
The mix of revenues in Tangent has continued to improve as
higher margin digital sales increased, customer service and support
fees grew and print revenues moved from contract to direct sales
channels.
This lead to a reduction in bought-in costs of GBP1.68m to
GBP6.13m (2011: GBP7.81m) reflecting the growing level of service
and support based income and direct channel print revenues together
with reduced pass-through postage costs.
Gross profit increased by GBP0.86m to GBP11.83m (2011:
GBP10.97m) with gross margin improving from 49.0% to 54.5%.
Average staff numbers grew 10% over 2011-12 with employment
costs rising by GBP0.94m to GBP9.73m (2011: GBP8.79m). As customer
numbers increased and product lines developed, additional resource
was added in our print production facility. During the year Tangent
also established a dedicated new business team and invested further
in development, customer and support services as revenues continued
to change. This combined with the additional share-based payment
charge, as noted below, accounted for the increase in employment
costs over the year.
The increase in operating expenses of GBP0.6m to GBP10.20m
(2011: GBP9.60m) was mainly due to the increase in employment costs
as noted above. In addition Tangent has continued to invest in the
expansion of its e-commerce printed.com revenues, driven through
increased spend on advertising and marketing which rose by GBP0.30m
during the year to GBP0.51m (2011: GBP0.21m). This increase was
largely offset by a reduction in charges for impairment on trade
receivables of GBP0.16m and a reduction in professional fees of
GBP0.13m.
The 2012 charge for share-based payments was GBP0.11m (2011:
GBP0.02m). Included in this year's share-based payment charge is an
additional GBP0.07m to reflect the potential cash bonus payable on
phantom options which have currently vested, further detail on
which are included below.
The additional gross margin generated was more than enough to
cover the increase in operating expenses, with underlying operating
profits increasing by 13.3% to GBP1.53m (2011: GBP1.35m).
Profit before tax increased by 38.1% to GBP1.45m (2011:
GBP1.05m).The major difference to underlying operating profits
being a significantly reduced charge for non-recurring expenses
GBP0.06m (2011: GBP0.30m).
The tax charge of GBP0.41m (2011: GBP0.28m) equates to 28.5% of
profit before tax, GBP0.04m higher than the standard rate of
corporation tax of 26%. This additional charge arises as Tangent
has investment in capital assets from which no allowances for tax
purposes arise, namely land and buildings, together with expenses
that are not deductible for tax purposes. Underlying fully diluted
earnings per share for the year (calculated after share-based
payments but before non-recurring costs net of tax) was 0.60p per
share, an increase of 9.1% (2011: 0.55p per share).
Segments As noted in the 2011 annual report, from 1 March 2011
Tangent amended its operating segments. In prior years our direct
marketing business had a significant overlap with our print
business. However as our digital revenues have grown, the
interaction between the segments has become significantly reduced.
The realignment of the segments has allowed Tangent to consolidate
its printing activities under "Print" and our agency, digital and
marketing activities under "Digital", thus providing a clearer view
of Tangent's activities both internally and externally. All
comparative numbers included in these financial statements have
been amended to reflect this. The amendment does not have any
impact on previously reported operating profits, net assets or
earnings per share of Tangent.
Digital
Revenue for 2011-12, at GBP10.90m, was marginally lower than the
prior year (2011: GBP11.13m).
Over the last 12 months the focus for this segment has been on
improving the mix of sales, significantly increasing the proportion
of digital fees, which accounted for 70% of segment revenue in 2012
(2011: 64%). As a result gross income (sales less all bought-in
costs) improved to 73% (2011: 69%) adding an additional GBP0.40m at
this level.
Digitalcontinued to invest both in software platforms and human
resources across the year, increasing operating expenses by
GBP0.46m, offset by a significant reduction in impairment charges
on trade receivables of GBP0.16m (2011 having included a one-off
charge in respect of Red Group Retail in Australia) and in
professional fees of GBP0.10m.
Changing sales mix and improved margin were the drivers for the
increase in underlying operating profit which increased by 27.5% to
GBP1.02m (2011: GBP0.80m) with operating margin improving to 9.3%
(2011: 7.1%).
Print
Revenue for Print, at GBP10.83m, was marginally lower than 2011
(GBP11.27m), which included GBP1.0m in revenues from the General
Election. Excluding this, sales on a like-for-like basis were 5%
ahead of 2011.
Over the course of the last year the focus of this segment has
been to move away from commercial contract print and increase
customer numbers in the SME market, where margins are higher, via
our e-commerce sales channel printed.com. Customers ordering via
that channel have increased threefold over the last twelve months.
Revenue growth has been somewhat offset by the move away from
contract sales and static estate agency revenues.
In order to service the increasing number of customers, orders
and product lines developed by our growing advertising and
marketing activity, staff numbers and thereby employment costs in
this segment increased by GBP0.45m to GBP4.14m (2011:
GBP3.69m).
As Tangent targets smaller business clients with our e-commerce
offering, the methodology to attract those customers has moved to
an advertising model rather than traditional sales activity. As a
result advertising spend increased by GBP0.30m to GBP0.40m, 4% of
segment revenues.
The improved gross margin earned from the developing sales mix
was more than sufficient to cover the additional operating costs.
Underlying operating profit for 2012 was GBP0.82m, in line 2011
(GBP0.81m) with operating margin improving to 7.6% (2011:
7.2%).
The half year reported figures to 31 August 2011 included a
charge of GBP0.1m in respect of royalties, as noted below under
Non-recurring income and expenses this has been revised to zero at
29 February 2012.
Central
Central costs, excluding share-based payment charges of GBP0.11m
(2011: GBP0.02m) were GBP0.04m lower than 2011 as a result of
reduced expenditure on professional fees.
Non-recurring income and expenses
Non-recurring income and expenses for the year amounted to
GBP0.06m (2011: GBP0.30m).
In order to provide a clear view on operating performance
Tangent shows separately on the face of the statement of
comprehensive income those items that are both significant and
non-recurring in nature. To that end Tangent has excluded the
following items from underlying operating profit:
Impairment Loss
In April 2008 Tangent established a joint venture, Zui Limited,
to provide services to the Enterprise Resource Planning market.
Whilst successful at first, the last two years have seen little
activity and as such an impairment provision has been made in
respect of the trade receivable due from Zui, amounting to
GBP0.14m.
Legal Fees
During the year Tangent engaged professional advisers to defend
an action brought by VLM Holdings Limited, as detailed under
'Royalties' below. Fees incurred of GBP0.10m do not form part of
the normal operating expenses of Tangent and have therefore been
included in Non-recurring Income and Expenses and excluded from
underlying operating profit. Further costs are expected to be
incurred during 2012-13 of up to GBP0.2m.
Redundancy and Termination Costs
During the year to 28 February 2011 the Board completed the
merger of Snowball and Tangent One resulting in redundancy and
termination costs. Some of these costs have been incurred in the
year to 29 February 2012. As these costs do not form part of the
normal operating expenses of Tangent they have been separately
identified in the consolidated statement of comprehensive income
and excluded from underlying operating profit.
Royalties
In March 2009 Tangent entered an agreement to acquire rights to
certain intellectual property from VLM Holdings Limited. Under the
terms of that agreement all rights would transfer to Tangent
following payment of royalties over a three year period from March
2009 to March 2012. In November 2009 Tangent served notice
terminating the agreement following an irremediable breach. VLM
Holdings Limited subsequently disputed the termination. Tangent
made provision for royalty fees payable under the agreement.
During 2011-12 VLM Holdings instigated proceedings for recovery
of unpaid royalties and damages. Tangent's lawyers have advised
that they do not consider the claim has merit and recommended that
it be contested. As such the Board considers that it is possible
but not probable that any award will be made in respect of the
action brought by VLM Holdings Limited. The estimate of royalties
as at 28 February 2011 has therefore been revised to GBPnil
resulting in a credit of GBP0.22m, included in non-recurring income
and expenses and excluded from underlying operating profit.
Included at note 29 is further detail in respect of the contingent
liability.
Share-based payment charges
The 2012 charge for share-based payments was GBP0.11m (2011:
GBP0.02m). The current capital structure of Tangent does not allow
for equity to be issued in satisfaction of options granted, which
subsequently vest and become exercisable, to Timothy Green and
Nicholas Green. As such, since June 2007, phantom options have been
issued which may result in a cash bonus being paid, subject to
relevant performance criteria being met. In all cases the Board
retains the right to satisfy the options in shares rather than
through a cash bonus. Included in this year's share-based payment
charge is an additional GBP0.07m to reflect the potential cash
bonus payable on phantom options which have currently vested. As in
prior years this charge has been shown separately on the face of
the consolidated statement of comprehensive income and included
within underlying operating profits.
Cash Flows
Tangent's cash and cash equivalents at 29 February 2012 amounted
to GBP1.82m (2011: GBP1.93m). Cash generated from operations was
GBP1.80m representing 118% (2011: 136%) of underlying operating
profit and 122% (2011: 174%) of operating profit. As in prior
years, charges for amortisation and depreciation were the major
reason for operating cash flow exceeding operating profit.
Operating cash flow reduced following a negative movement in
working capital of GBP0.37m. This was a result of lower outsource
costs during the year and therefore trade payables at the year end
and the major reason for the lower cash conversion percentage this
year.
The major items included within the consolidated cash flow
statement are as follows:
-- Capital expenditure of GBP0.98m was spent on the acquisition
of digital printing and finishing equipment and IT
infrastructure.
-- Tax payments of GBP0.49m (2011: GBP0.1m), this represents
settlement of Tangent's 2011 tax liabilities together with
instalment payments in respect of the year to 29 February 2012.
-- Payment of GBP0.36m in deferred consideration for the acquisition of "Snowball".
-- Dividends of GBP0.35m were paid during the year.
-- New finance lease amounting to GBP0.37m was raised during the
year for the acquisition of digital printing equipment and GBP0.12m
of finance leases were repaid.
Balance Sheet
Tangent's net assets increased by GBP0.89m to GBP20.98m (2011:
GBP20.09m). The major item on the balance sheet is goodwill.
The carrying value of goodwill is tested at least annually or
when there is an indication that an impairment charge may be
likely, no such impairment was present at the year end. At 29
February 2012 the carrying value of goodwill on Tangent's balance
sheet was GBP16.87m (2011: GBP16.26m), an increase of GBP0.61m
following settlement of deferred consideration on the previous
acquisition of "Snowball".
Dividends
The Board believes that paying a dividend is an important part
of providing returns to shareholders. To that end the Board will
recommend payment of a dividend of 0.2 pence (2011: 0.2 pence) at
the Annual General Meeting payable on 18 July 2012 to shareholders
registered on 6 July 2012.
Treasury, Funding and Exchange Risk Tangent finances its
operations through funds raised from shareholders, retained
earnings and finance lease borrowings. In addition the group has a
variable rate GBP1m overdraft facility which has rarely been used.
Regular reports on cash balances and borrowings are provided to the
Board. The majority of Tangent's trade is conducted in Sterling
although a material amount is denominated in Euros and Australian
Dollars. The directors monitor exposure and where possible match
Euro and Australian Dollar denominated revenues and expenditure to
mitigate foreign exchange risk.
Key Performance Indicators
In order to monitor Tangent's performance the Board regularly
reviews a number of KPI's which measure the underlying operating
performance of the group, the key ones being gross profit,
underlying operating profit, underlying operating margin, profit
before tax, basic earnings per share and operating cash flow
conversion.
In addition Tangent monitors the following non-financial
KPI's:
Waste management and recycling
Tangent recognises that its activities have an impact on the
environment. To mitigate this Tangent is registered with the
Forestry Stewardship Council to ensure that all paper stock used in
the business conforms to FSC's chain of custody requirements. In
addition Tangent is committed to reducing the levels of waste
created in our print facility and increasing the percentage of
waste that can be recycled. To that end, at the start of the
2011-12 financial year a formal waste management programme was
implemented and a recycling target of 98% set. Whilst not quite at
the original target, Tangent is pleased to confirm that over the
course of the 2011-12 financial year 97.5% of the waste produced by
our print facility was processed for recycling. Over the coming
year Tangent will continue to measure the levels of waste produced
and that being recycled with an aim to improving upon that achieved
during 2011-12.
Staff retention
Tangent recognises that people are our major asset and staff
retention is an important issue for business continuity. To monitor
and manage this, monthly staff turnover was reviewed and during the
course of 2011-12 was1.9%.
This is a key non-financial KPI for Tangent and will be kept
under review.
Tangent will continue to offer competitive salary and benefits
packages together with identifying staff training and development
needs to improve long term staff retention.
Kevin Cameron Finance Director
Consolidated statement of comprehensive income
for the year ended 29 February 2012
2012 2011
Notes GBP000 GBP000
------------------------------- ------ --------- ---------
Revenue 21,724 22,394
Cost of sales (9,891) (11,426)
------------------------------- ------ --------- ---------
Gross profit 11,833 10,968
Operating expenses (10,195) (9,600)
Share-based payment charge (110) (17)
------------------------------- ------ --------- ---------
Underlying operating profit 1,528 1,351
Non-recurring expenses 2 (57) (297)
Operating profit 1,471 1,054
Finance costs (17) (2)
------------------------------- ------ --------- ---------
Profit before tax 1,454 1,052
Tax (414) (279)
------------------------------- ------ --------- ---------
Profit for the year 1,040 773
------------------------------- ------ --------- ---------
Other comprehensive income
Exchange differences on translating
foreign operations 13 4
--------------------------------------- --------- ---------
Total comprehensive income
for the year 1,053 777
------------------------------- ------ --------- ---------
Earnings per share (pence) 4
Basic 0.59 0.45
Diluted 0.58 0.43
------------------------------- ------ --------- ---------
The results shown above relate entirely to continuing operations
and are attributable to equity shareholders of the company.
Consolidated statement of changes in equity for the year ended
29 February 2012
Share Share Merger Other Retained Total
capital premium reserve reserves earnings equity
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ------ -------- -------- -------- --------- --------- -------
At 28 February 2010 1,706 12 917 2,856 14,078 19,569
Comprehensive income:
Profit for the year - - - - 773 773
Other comprehensive
income - - - - 4 4
----------------------- ------ -------- -------- -------- --------- --------- -------
Total comprehensive
income - - - - 777 777
Transactions with
owners:
Dividend 5 - - - - (347) (347)
Credit to equity for
equity-settled
share-based payments - - - 17 -- 17
Shares to be issued - - - 69 - 69
Issue of shares 42 - 457 (499) - -
----------------------- ------ -------- -------- -------- --------- --------- -------
Total transactions
with owners 42 - 457 (413) (347) (261)
At 28 February 2011 1,748 12 1,374 2,443 14,508 20,085
----------------------- ------ -------- -------- -------- --------- --------- -------
Comprehensive income:
Profit for the year - - - - 1,040 1,040
Other comprehensive
income - - - - 13 13
----------------------- ------ -------- -------- -------- --------- --------- -------
Total comprehensive
income - - - - 1,053 1,053
Transactions with
owners:
Dividend 5 - - - - (347) (347)
Credit to equity for
equity-settled
share-based payments - - - 40 - 40
Shares to be issued - - - 107 - 107
Issue of shares 18 89 - (69) - 38
----------------------- ------ -------- -------- -------- --------- --------- -------
Total transactions
with owners 18 89 - 78 (347) (162)
At 29 February 2012 1,766 101 1,374 2,521 15,214 20,976
----------------------- ------ -------- -------- -------- --------- --------- -------
Consolidated balance sheet at 29 February 2012
2012 2011
Notes GBP000 GBP000
------------------------------------- ------ -------- --------
Assets
Non-current assets
Intangible assets 6 16,867 16,261
Property, plant and equipment 2,126 1,796
Deferred tax asset 138 112
------------------------------------- ------ -------- --------
19,131 18,169
------------------------------------- ------ -------- --------
Current assets
Inventories 129 135
Trade and other receivables 5,055 5,358
Cash and cash equivalents 1,819 1,934
------------------------------------- ------ -------- --------
7,003 7,427
------------------------------------- ------ -------- --------
Total assets 26,134 25,596
------------------------------------- ------ -------- --------
Liabilities
Current liabilities
Borrowings (177) (112)
Trade and other payables (3,769) (4,450)
Current tax liabilities (383) (432)
Provisions (358) (233)
------------------------------------- ------ -------- --------
(4,687) (5,227)
------------------------------------- ------ -------- --------
Non-current liabilities
Borrowings (471) (284)
Total liabilities (5,158) (5,511)
------------------------------------- ------ -------- --------
Net assets 20,976 20,085
------------------------------------- ------ -------- --------
Equity
Share capital 7 1,766 1,748
Share premium 101 12
Merger reserve 1,374 1.374
Other reserves 2,521 2,443
Retained earnings 15,214 14,508
------------------------------------- ------ -------- --------
Total equity attributable to equity
shareholders of the company 20,976 20,085
------------------------------------- ------ -------- --------
Consolidated statement of cash flows for the year ended 29
February 2012
2012 2011
Notes GBP000 GBP000
-------------------------------------------- ------ -------- -------
Cash from operations
Cash generated from operations 8 1,804 1,827
Interest paid (17) (2)
Tax paid (489) (100)
-------------------------------------------- ------ -------- -------
Net cash inflow from operating activities 1,298 1,725
-------------------------------------------- ------ -------- -------
Investing activities
Payment of contingent consideration (361) -
Purchase of property, plant and equipment (977) (903)
Sale of property, plant and equipment 20 5
Net cash used in investing activities (1,318) (898)
-------------------------------------------- ------ -------- -------
Financing activities
Dividends paid (347) (347)
Repayment of borrowings (119) (62)
New finance leases raised 371 371
Net cash outflow from financing activities (95) (38)
-------------------------------------------- ------ -------- -------
(Decrease)/increase in cash and cash
equivalents (115) 789
-------------------------------------------- ------ -------- -------
Cash and cash equivalents at beginning
of year 1,934 1,145
-------------------------------------------- ------ -------- -------
Cash and cash equivalents at end of
year 1,819 1,934
-------------------------------------------- ------ -------- -------
1. Basis of preparation
Tangent Communications plc is quoted on AIM, a market of the
London Stock Exchange, has the TIDM code TNG and it is incorporated
in England.
The Group's consolidated financial statements for the year ended
29 February 2012, from which this financial information has been
extracted, and for the comparative year ended 28 February 2011 are
prepared on a going concern basis and in accordance with IFRS as
adopted by the EU ("IFRS"), and in accordance with those parts of
the Companies Act 2006 applicable to companies reporting under
IFRS.
The financial information set out in this preliminary
announcement does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006 but it is derived from those
accounts. The financial information for the year ended 28 February
2011 is derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies. The auditors
reported on those accounts; their report was unqualified and did
not contain a statement under s498(2) or s498(3) of the Companies
Act 2006. The consolidated statement of financial position at 29
February 2012, the consolidated statement of comprehensive income,
the consolidated statement of changes in equity, the consolidated
statement of cash flows and the related notes for the year then
ended have been extracted from the Group's 2012 statutory financial
statements upon which the auditor's opinion is unqualified and does
not include any statement under s498(2) or s498(3) of the Companies
Act 2006.
The announcement has been agreed with the company's auditor for
release.
2. Non-recurring Income and Expenses
In order to provide a clear view on operating performance
Tangent shows separately on the face of the statement of
comprehensive income those items that are both significant and
non-recurring in nature.
Impairment Loss
In April 2008 Tangent established a joint venture, Zui Limited,
to provide services to the Enterprise Resource Planning market.
Whilst successful at first the last two years has seen little
activity and as such an impairment provision has been made in
respect the trade receivable due from Zui, amounting to
GBP0.14m.
Legal Fees
During the year Tangent engaged professional advisers to defend
an action brought by VLM Holdings Limited, as detailed under
'Royalties' below. Fees incurred of GBP0.10m do not form part of
the normal operating expenses of Tangent and have therefore been
included in Non-recurring Income and Expenses and excluded from
underlying operating profit. Further costs are expected to be
incurred during 2012-13 of up to GBP0.2m.
Redundancy and Termination Costs
During the year to 28 February 2011 the Board completed the
merger of Snowball and Tangent One this resulted in redundancy and
termination costs some of which have been settled in the year to 29
February 2012. As these costs do not form part of the normal
operating expenses of Tangent they have been separately identified
in the consolidated statement of income and excluded from
underlying operating profit.
Royalties
In March 2009 Tangent entered an agreement to acquire rights to
certain intellectual property from VLM Holdings Limited. Under the
terms of that agreement all rights would transfer to Tangent
following payment of royalties over a three year period from March
2009 to March 2012. In November 2009 Tangent served notice
terminating the agreement following an irremediable breach. VLM
Holdings Limited subsequently disputed the termination. Tangent
made provision for royalty fees payable under the agreement.
During the financial year VLM Holdings instigated proceedings
for recovery of unpaid royalties and damages. Tangent's lawyers
have advised that they do not consider the claim has merit and
recommended that it be contested. As such the Board considers that
it is possible but not probable that any award will be made in
respect of the action brought by VLM Holdings Limited. The estimate
of royalties as at 28 February 2011 has therefore been revised to
GBPnil resulting in a credit of GBP0.22m, included in non-recurring
income and expenses and excluded from underlying operating profit.
Included at note 9 is further detail in respect of this contingent
liability.
Non-recurring expenses are set out below:
GBP000
Impairment loss 143
Legal fees 104
Redundancy and termination costs 30
Royalties write back (220)
57
-------
3. Segment Information
Management has determined the operating segments based on the
reports reviewed by the Board of Directors that are used to make
strategic decisions, which reviews revenues and operating profits
by segment but assets at a consolidated level.
On 1 March 2011 Tangent revised its business segments, on this
basis the group had two reportable segments, Digital and Print.
Unallocated corporate expenses are shown below under Central.
Digital - ComprisesTangent Snowball
Print -Comprises Ravensworth, printed.com and T/OD (Tangent on
Demand).
Central - Central costs relate to the cost of non-executive
directors, maintenance of Tangent's stock market listing, general
professional advice together with the share-based payment charge.
Executive directors' costs are allocated to the Digital and Print
business segments.
The comparative period below has been amended to reflect the
change in business segments as noted above, this change does not
have any impact on previously reported operating profits, net
assets or earnings per share of Tangent.
The segment results for the year ended 29th February 2012 were
as follows:
Digital Print Central Total
GBP000 GBP000 GBP000 GBP000
Revenue 11,132 12,629 - 23,761
Less inter segment sales (237) (1,800) - (2,037)
-------- ---------- -------- --------
Revenues from external customers 10,895 10,829 - 21,724
Results
Underlying operating profit 1,018 822 (312) 1,528
Non-recurring (costs)/income (173) 116 - (57)
-------- ---------- -------- --------
Profit from
operations 845 938 (312) 1,471
Net finance
costs (17)
--------
Profit before
tax 1,454
Income tax expense (414)
--------
Profit for the
year 1,040
--------
Other segment information
Digital Print Central Total
GBP000 GBP000 GBP000 GBP000
Depreciation 180 467 - 647
Amortisation - 25 - 25
-------- ---------- -------- --------
Major customers
During the year Tangent had no customer that represented more
than 10% of revenues.
Digitalcustomers representing more than 10% of that segment's
revenues were as follows:
Customer one 16%
Customer two 14%
Customer three 13%
Print had no customers representing more than 10% of that
segment's revenue.
The segment results for the year ended 28th February 2011 were
as follows:
Digital Print Central Total
GBP000 GBP000 GBP000 GBP000
Revenue 13,777 11,357 - 25,134
Less inter segment sales (2,650) (90) - (2,740)
-------- ------- -------- --------
Revenues from external customers 11,127 11,267 - 22,394
Results
Underlying operating profit 795 814 (258) 1,351
Restructuring
costs (170) (69) (58) (297)
-------- ------- -------- --------
Profit from
operations 625 745 (316) 1,054
Net finance
costs (2)
--------
Profit before
tax 1,052
Income tax expense (279)
--------
Profit for the
year 773
--------
Digital Print Central Total
GBP000 GBP000 GBP000 GBP000
Other segment information
Depreciation 191 496 - 687
Amortisation 20 25 - 45
-------- ------- -------- --------
Major customers
During the year Tangent had one customer that represented 12% of
total revenues for the year.
Digitalcustomers representing more than 10% of that segment's
revenues for the year were as follows:
Customer one 14%
Customer two 12%
Print had one customers representing 20% of that segment's
revenue for the year
Geographical information
2012 2011
GBP000 GBP000
-------- -----------
Revenues from external customers
United Kingdom 19,333 20,043
Other countries 2,391 2,351
21,724 22,394
-------- -----------
Non-current Assets
United Kingdom 19,119 18,154
Australia 12 15
-------- -----------
19,131 18,169
-------- -----------
Non-current assets for this purpose consist of property, plant
and equipment, intangible assets and deferred tax assets.
4. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following:
2012 2011
GBP000 GBP000
-------------------------------------------- -------- --------
Profit attributable to shareholders 1,040 773
-------------------------------------------- -------- --------
Number Number
000 000
-------------------------------------------- -------- --------
Weighted average number of shares:
For basic earnings per share 175,017 173,264
Adjustment for options outstanding 3,926 3,814
Adjustment for consideration shares yet to
be issued 1,753 1,126
-------------------------------------------- -------- --------
For diluted earnings per share 180,696 178,204
-------------------------------------------- -------- --------
Pence per Pence per
Share Share
--------------------- ---------- ----------
Earnings per share:
Basic 0.59 0.45
Diluted 0.58 0.43
--------------------- ---------- ----------
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. At 29
February 2012 Tangent had 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.
5. Dividends
2012 2011
GBP000 GBP000
-------------------------------------------- ------- -------
Recommended final dividend for the year of
0.2p (2011: 0.2p) per share 350 349
-------------------------------------------- ------- -------
The recommended final dividend is subject to approval by
shareholders at the 2012 annual general meeting and has not been
included as a liability in these financial statements.
The Tangent employee share ownership trust, which holds a total
of 1,428,340 ordinary shares, has agreed to waive all dividends so
the directors estimate that the dividend will be payable on
approximately 175m ordinary shares.
2012 2011
GBP000 GBP000
------------------------------------------------- ------- -------
Final dividend paid for the year of 0.2p (2011:
0.2p) per share 347 347
------------------------------------------------- ------- -------
6. Intangible assets
Goodwill Other Intangible Total
assets
GBP000 GBP000 GBP000
------------------------------ --------- ----------------- -------
Cost
At 1 March 2010 15,932 117 16,049
Additions 302 - 302
At 28 February 2011 16,234 117 16,351
Additions 631 - 631
------------------------------ --------- ----------------- -------
At 29 February 2012 16,865 117 16,982
------------------------------ --------- ----------------- -------
Amortisation and impairment
At 1 March 2010 - 45 45
Amortisation during the year - 45 45
------------------------------ --------- ----------------- -------
At 28 February 2011 - 90 90
Amortisation during the year - 25 25
At 29 February 2012 - 115 115
------------------------------ --------- ----------------- -------
Net book value
At 29 February 2012 16,865 2 16,867
------------------------------ --------- ----------------- -------
At 28 February 2011 16,234 27 16,261
------------------------------ --------- ----------------- -------
The addition of GBP631,000 to intangible assets represents the
payment of contingent consideration for the acquisition of the
entire share capital of The DDG Network Limited together with the
business and assets of Double D Management LLP, collectively known
as "Snowball".
Impairment of goodwill
Goodwill acquired in a business combination is allocated for
impairment testing to the cash-generating units (CGUs) that are
expected to benefit from that business combination.
Tangent has two CGU's:
Digital This business segment includes Tangent Snowball.
Print This business segment includes Ravensworth, printed.com
and T/OD.
These represent the lowest level within Tangent at which
goodwill is reviewed for impairment.
The carrying value of goodwill allocated to each CGU is as
follows:
2012 2011
-------- --------
GBP,000 GBP'000
Digital 6,339 5,708
Print 10,526 10,526
-------- --------
Total unimpaired goodwill 16,865 16,234
-------- --------
Tangent tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired.
The recoverable amounts of the CGU's are determined from
value-in-use calculations. The key assumptions for the value-in-use
calculations are those regarding the discount rates, growth rates
and expected changes to forecast profitability. These assumptions
have been revised in the year to take account of the current
economic environment. Management estimates discount rates using
pre-tax rates that reflect the current market assessments of the
time value of money and the risks specific to each CGU.
Future cash flows are derived from the most recent financial
budget approved by management for the next five years, beyond that
period cash flows are extrapolated using a growth rate of 3% (2011:
3%).
The rate used to discount forecast future cash flows for both
business segments is 10% (2011: 13%).
In 2012 no impairment charge has been made against goodwill for
either CGU (2011: GBPnil). Headroom in the Digital CGU is GBP17.0
million and GBP3.9 million in the Print CGU
Tangent has conducted a sensitivity analysis on the impairment
test of each CGU's carrying value with the following results:
-- The discount rate would need to increase to 27.81% to remove
the headroom in the Digital CGU and to 12.55% to remove the
headroom in the Print CGU.
-- Reducing the long term growth rate to 0% does not create an
impairment charge in either CGU.
-- Cash flows over the next five years would need to reduce by
72.8% to remove the headroom in the Digital CGU and by 27.06% to
remove the headroom in the Print CGU.
7. Share capital
Number of ordinary 1p Nominal value
shares
------------------------ ----------------
2012 2011 2012 2011
000 000 GBP000 GBP000
---------------------------- ----------- ----------- ------- -------
Authorised
At 1 March and 29 February 225,000 225,000 2,250 2,250
---------------------------- ----------- ----------- ------- -------
Number of ordinary 1p Nominal value
shares
----------------
2012 2011 2012 2011
000 000 GBP000 GBP000
---------------------------- ----------- ----------- ------- -------
Allotted and fully paid
At 1 March 174,692 170,534 1,748 1,706
Issued in the year 1,753 4,158 18 42
---------------------------- ----------- ----------- ------- -------
At 29 February 176,445 174,692 1,766 1,748
---------------------------- ----------- ----------- ------- -------
The company has one class of ordinary share which carries no
right to fixed income, each share carries the right to one vote at
general meetings of the company. At 29 February 2012 and at the
date of this report the number of issued ordinary shares is
176,445,113.
8. Cash generated from operations
2012 2011
Group GBP000 GBP000
----------------------------------------------------- ------- -------
Profit before tax for the year 1,454 1,052
Depreciation and amortisation of non-current assets 672 732
Profit on sale of plant and equipment (20) (3)
Net interest charge 17 2
Net foreign exchange gain 13 4
Share-based payment charge 40 17
------- -------
2,176 1,804
Movements in working capital
Decrease/(increase) in inventories 6 (29)
Decrease/(increase) in trade and other receivables 303 (72)
(Decrease)/increase in trade and other payables (681) 124
----------------------------------------------------- ------- -------
Cash generated from operations 1,804 1,827
----------------------------------------------------- ------- -------
9. Contingent Liabilities
In March 2009 Tangent entered an agreement to acquire rights to
certain intellectual property from VLM Holdings Limited used to
generate digital printing. Under the terms of that agreement all
rights would transfer to Tangent following payment of royalties
over a three year period from March 2009 to March 2012.
In November 2009 Tangent served notice terminating the agreement
following an irremediable breach. VLM Holdings Limited have since
disputed the termination and during the financial year instigated
proceedings for recovery of royalties (up to GBP800,000) and
recovery of costs (up to GBP150,000). Tangent's lawyers have
advised that they do not consider that the claim has merit and
recommended it be contested as such no provision has been made in
these financial statements as the directors do not consider that
there is any probable liability.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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