Final Results

RNS Number : 5192V

Infoserve Group PLC

13 July 2009

 



Infoserve Group plc  

('Infoserve' or 'the Group')

Preliminary Results  

Infoserve, a leading online local search marketing specialist, today announces its final results for the year ended 31 March 2009.  

Highlights

• Turnover increased by 20% to £5.6 million (2008: £4.7m)

• EBITDA profit achieved in three of the six months in the second half of the financial year

• Operating loss substantially reduced to £0.8 million from £2.7 million

• Productivity per sales person increased by 18% to £54,800 per sales person per annum

• Admin expenses down £527k (18%) as prior year cost reductions maintained despite growing sales

• Gross margin increased to 32.4% from 11.4%

For further information, please contact:

Infoserve Group plc Steve Barnes, Chief Executive   [e-mail] Jonathan Simpson, Interim Finance Director [e-mail]	Steve Barnes, Chief Executive www.infoservegroup.com   Tel [phone] www.infoservegroup.com
Nominated Adviser WH Ireland  Robin Gwyn [e-mail]	Tel [phone]
Media Enquiries  Source Marketing Communications Peter Downey [e-mail]	Tel [phone]

Chairman's Statement

Infoserve Group plc is an e-marketing company, specialising in local search. The Company helps businesses, particularly SMEs, to maximise their performance through online marketing.

I am pleased to report a year of good progress, both financially and commercially, with the second half of the year building on the improved performance in the first half. 

Results

Turnover for the year increased by approximately 20% to £5.60 million (2008: £4.65 million) and follows a 25% growth the previous year. This growth in turnover was an excellent achievement in a difficult economic climate for much of the Group's customer base but reflected the growing interest in online marketing and local search.

Following on from last year's substantial improvement in productivity per person, this again increased to £54,800 per active sales person from £46,600 last year. As a result, gross margins also improved from 11.4% to 32.4% helped by the introduction of new products, better staff training and higher renewal levels, thus continually increasing the Group's customer base, which should give better transparency of future revenue. 

Overheads were well down on the previous year, following the strategic cost review in October 2007, when a substantial amount of overhead expenditure was taken out of the business without affecting the day to day operations. During the second half of the year, a number of actions have been taken by the Board, which will further reduce the ongoing overheads of the business in this current financial year.

As a consequence of the increased sales, better margins and reduced overheads, the operating loss of £812,000 is substantially lower than £2.70 million last year. After taking into account the net interest payable, there was a loss before taxation of £992,000 (2008: £2.89 million).

The loss per share was 5.20p compared to 16.22p in 2008. 

Cash and going concern

The improved trading performance has meant that the cash outflow from trading and investment activities in the year has been only £419,000, of which only £108,000 relates to the second half. 

However, the Group remains undercapitalised as it has been since the IPO in 2006. Whilst a further £2 million was raised in 2007, the high cost associated with growing the sales team and developing new products has left the Group able to operate at current trading levels but unlikely to be able to continue to grow at its current rate without additional funding.

On an underlying basis, the Group is now trading at almost a breakeven EBITDA, with cash outflows on this basis at relatively low levels. All directors and staff have taken pay cuts, very little capital expenditure has been authorised by the Board and other overheads have been reduced to the bare minimum to assist in preserving the short term cash position.

This situation is, however, not sustainable in the longer term if growth is to be achieved. The Board is therefore considering a number of potential financing options including the possibility of raising new capital from existing shareholders and has also commenced discussions with its major shareholder, David Hood about the raising of further funds. Additional funding details are included in the Financial Review below. 

Dividend

The Board is not recommending a dividend as all funds are required for the development of the business (2008 : £nil).

External discussions

On 15 August 2008, the Group made an announcement that it was in early discussions, which may or may not have led to an offer being made for the Group (the 'Discussions'). The Group announced on 10 June 2009 that these Discussions had terminated.

Board changes

In July 2008, Mark Riley was appointed to the Board as Sales Director and has been responsible for the significant improvement, not only in sales performance but in the recruitment and training of our sales staff.

In March 2008, we announced that David Balbi, our Finance Director, was leaving the Group to pursue other interests. On behalf of the Board, I would like to thank David for his very valuable contribution to the development of the Group, especially during some difficult trading periods, and wish him well for the future.

The Board is currently searching for a successor and an announcement will be made in due course. To assist the Group through the current situation, the Board has appointed Jonathan Simpson as interim Finance Director. Jonathan is the former Finance Director of Ultralase, a leading UK laser eye surgery provider.

Outlook

The market for online local search continues to grow and the Group now has almost 3.5 million businesses listed on its own business directories and a network of over 120 single industry vertical websites. 

The contracts with Yahoo! and Google have given the business a unique position to exploit the ever growing local search market through its close ties with both companies, who represent over 96% of the UK's search and online advertising market.

The Board is confident, that despite the current economic turmoil, it will continue to grow its revenues and customer base and sustain the progress made in the last financial year. The Board is actively considering possible financing options to enable it to achieve these objectives.

James H Newman  

Chairman  

10 July 2009  

Chief Executive's Review

• During the last financial year the background to the market has been coloured by the much-publicised financial turmoil across the world. Despite this, online marketing and advertising in general, and paid for search in particular have seen continued growth in expenditure and focus.

• Paid-for search accounted for 59.3% of all online advertising in 2008.

• 60% of all online searches appear to be local in nature.

• Traditional media (outdoor, radio, press - black and white and colour, and TV) spend in 2008 is estimated to be 8% down on 2007. Contrasting with this, online advertising grew by 17% in 2008 (World Advertising Research Centre and PwC). Furthermore IAB & PwC expect growth in internet advertising to continue in 2009 albeit at a reduced level.

• The Internet Advertising Bureau estimate online advertising spend in H2 2008 to have overtaken press display's share of total UK advertising for the first time.

• 90% of household consumer spend on goods and services takes place within 20 miles of where individual consumers live or work.

• New figures from ComScore show that the use of online search to find local businesses, products or services grew by 58% last year. By comparison, overall internet searches increased by only 21% in 2008, highlighting that local search continues to drive market growth.

• ComScore also highlighted that 75% of all local searches were non branded and non-business specific, clearly indicating that most searchers do not have a specific business in mind when they are actively seeking a supplier.

Business developments

We continue to reinforce our position as one of the UK's leading online local search specialists. The Company continued to improve its service levels, product propositions, value for money offering and breadth of product coverage throughout the year.

We continued to closely monitor costs and reduce these wherever possible, and at the same time managed our cash outflows tightly. Strong increased sales per head were the cornerstone of continued revenue growth; these increases were the result of improved disciplines, a greater emphasis and more detailed implementation of training and development and overall product portfolio enhancements. Whilst market share increases are difficult to measure, we believe that the Company has grown in importance within our operating sector. The revenue increases and cost controls together contributed to the achievement of an EBITDA profit for three of the six months in the second half of the financial year.

During the last year we have continued to focus on improving and integrating our systems, and I am pleased that we have gone some way to delivering a complete end-to-end system solution that utilises our business data throughout and culminates in better customer service. Our GEMS bespoke in-house system is now used to collect, collate and store our data, to use that data to deliver intelligent campaigns to our sales executives, to re-populate our data with any updates or orders taken, to populate an online sales tool which provides customer information and access to search traffic statistics, as well as keyword suggestions and an aide-memoire for the sales executive. The system now includes an improved automated credit card transaction and approval process and culminates in a streamlined production technique which makes the final product process more efficient. We are also able to use this for control of Google AdWords campaign management.

We have begun to undertake a series of ongoing email campaigns explaining to SMEs how we can help them build an online presence that will give them a strong return on investment. These campaigns will improve our business model by providing easier commercial targets as people request a call back for further information. 

During this year we began offering website optimisation to our SME customers. Our www.city-visitor.com site currently enjoys more than 11 million number 1 positions on the main search engines for searches involving specific keywords and locations, and we have begun to use our search engine optimisation skills for the direct benefit of our SME customers within their own websites. I envisage this area of business growing substantially over the next 2 years. 

We continue to work closely with Google and Yahoo! on their respective products in our portfolio, and these two search engine partners, who today account for more than 96% of all UK searches, will continue to be important contributors to our market offering.

We have recently launched our first complete marketing package that covers our complete product range as well as developing the customer's own website and I envisage this 'bundle' package product will become considerably more important over time as we establish ourselves increasingly as a one-stop online marketing support agency for SMEs.

Summary

We cannot ignore the harsh reality of the overall market and our customer base is of course affected by the difficult trading conditions. We will have to be flexible and agile in switching focus away from those business categories most affected by the downturn in order to concentrate resources on growth areas. All indications are that online paid-for local search will continue to spearhead overall growth in online advertising and marketing but we will have to work hard to continue to drive productivity improvements from existing sales executives as well as seeking out further growth.

Steve Barnes  

Chief Executive

10 July 2009

Financial Review

		2009	2008
		£000	£000
Revenue		5,595	4,651
Cost of sales		(3,785)	(4,122)
		_______	_______
Gross profit		1,810	529
Amortisation of intangible assets		(174)	(251)
Administrative expenses		(2,448)	(2,975)
		______	_______
Operating loss		(812)	(2,697)
Financial income		3	34
Financial expenses		(183)	(227)
		_______	_______
Net financing expense		(180)	(193)
		_______	_______
Loss before tax		(992)	(2,890)
		_______	_______

Revenue

Revenue for the year has increased by approximately 20% year on year and the performance per sales executive increased from £46,600 to £54,800 a rise of 18% on last year and 71% on the same period two years ago. 

Margins

Gross margins have improved from 11% to 32% during the financial year reflecting the increased sales productivity, streamlining of the sales force and cost savings negotiated with key suppliers. 

Results

Operating losses have reduced by £1.88 million as a result of the improved sales margins and the continuation of cost control policies following the strategic review of overhead costs in October 2007.

Significantly, the Group achieved an EBITDA profit in three of the last six months prior to the end of the financial year.

Cash flow

As a result of the operating loss for the year and the Group's continuing investment in systems and technology, the cash outflow of the Group during the year was £419,000. This was offset by a loan from David Hood in October 2008 of £250,000. 

Deferred tax asset

The Board has prepared forecasts and continues to believe that the Group will become profitable in the future and therefore utilise the considerable tax losses built up over the last few years. It has accordingly carried forward a proportion of this recovery as a deferred tax asset in the balance sheet.

Going concern

The financial statements have been prepared on a going concern basis, notwithstanding the net liabilities, net current liabilities and trading loss in the year, which the directors believe to be appropriate for the following reasons.

The Group meets its day to day working capital requirements through an overdraft, currently guaranteed by its major shareholder, David Hood. The recent overdraft facility, which expired in February 2009 has a limit of £250,000. The Group continues to operate within this facility; June management accounts place the overdraft at £159,000. Whilst the bank has neither renewed this facility nor called in the overdraft, Mr Hood has indicated that he will make available an equivalent facility should repayment be demanded.

The Group has also received loans from Mr Hood totalling £3.47 million including accrued interest. In addition, one of the Group's landlords, Amerdale LLP (of which Mr Hood is the majority partner) has currently agreed to defer rent payments for the six month period to 31 March 2009, totalling £148,591, which will be repaid in full at £24,765 per month from December 2009 until May 2010. Rent for the subsequent period has been paid when due. Additionally, in January 2009 the Group agreed with HM Revenue and Customs to defer £253,000 of pay as you earn and value added tax. Repayments commenced in February 2009 and continue until September 2009 and the Group has, to date, complied fully with all repayments in respect of this agreement. 

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.  

The current economic environment is challenging. Whilst the Group has reported an operating loss for the year the directors note that as at the year end the Group has achieved EBITDA profitability for three of the last six months, and that the Group has operated within its overdraft facility. The directors still consider the Group to be within its growth phase and sales and gross margins are expected to increase. The directors believe that the general economic conditions will continue to present challenges in terms of sales revenues although the local search market, in which the Group operates, continues to grow. Whilst the directors have implemented a number of cost saving measures to preserve cash and are investigating potential sources of additional finance, these general economic conditions do create some uncertainties over future trading results and cash flows.  The directors have prepared cash flow forecasts for the period to March 2011.  The cash flow forecast assumes increased sales and gross margin and no unnecessary capital expenditure.  On the basis of these forecasts the Group is expected to continue to operate within its current bank overdraft limit for at least the next twelve months (assuming that interest on the loans from Mr Hood continues to be deferred) though the amount of headroom is minimal.  Sensitised cash flow projections indicate that the Group may need to obtain further short term funding until the Group becomes cash positive.

Mr Hood has not sought repayment of the capital and interest on his loans and has indicated that he will, if necessary, consider providing further funding. The directors understand that it is not Mr Hood's intention to finance the Group on this basis for the long term. As a result the directors are currently considering a number of potential financing options including the possibility of raising new capital from the existing shareholders, to provide additional capital for the Group. The Group has also commenced discussions with Mr Hood about additional working capital facilities should they be needed or if other potential financing options do not prove possible. Any additional funding would potentially involve the conversion of existing debt to equity. Mr Hood has indicated that he will not enforce loan repayments in the short term whilst these discussions are in progress.  

Whilst the directors remain confident of continuing to operate within the current bank overdraft and of securing alternative funding, which may require shareholder approval, there can be no certainty in these respects. Accordingly the directors believe that the combination of these circumstances represents a material uncertainty that may cast significant doubt upon the Group's and the Company's ability to continue as a going concern and it may therefore be unable to realise assets and discharge liabilities in the ordinary course of business. Nevertheless after making full enquiries, and considering all the uncertainties described above, the directors have no reason to believe that the Group and the Company will be unable to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the Annual report and financial statements. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

Steve Barnes  

Chief Executive  

10 July 2009  

Consolidated Income Statement

For the year ended 31 March 2009

		2009	2008
		£000	£000
Revenue - continuing operations		5,595	4,651
Cost of sales		(3,785)	(4,122)
		_______	_______
Gross profit		1,810	529
Amortisation of intangible assets		(174)	(251)
Administrative expenses		(2,448)	(2,975)
		_______	_______
Total administrative expenses		(2,622)	(3,226)
		_______	_______
Operating loss - continuing operations		(812)	(2,697)
		_______	_______
Financial income		3	34
Financial expenses		(183)	(227)
		_______	_______
Net financing expense		(180)	(193)
		_______	_______
Loss before tax		(992)	(2,890)
Taxation		0	(55)
		_______	_______
Loss for the year		(992)	(2,945)
		_______	_______

Basic and diluted loss per share

(5.20p)

(16.22p)

Consolidated Balance Sheet

At 31 March 2009

				2009	2008
				£000	£000
Non-current assets
Property, plant and equipment				251	397
Intangible assets				534	594
Investment in subsidiary				-	-
Deferred tax assets				838	838
				_______	_______
				1,623	1,829
				_______	_______
Current assets
Trade and other receivables				345	282
Cash and cash equivalents				410	329
				_______	_______
				755	611
				_______	_______
Total assets				2,378	2,440
				_______	_______
Current liabilities
Bank overdraft				(250)	-
Interest-bearing loans and borrowings				(3,278)	(2,123)
Trade and other payables				(3,050)	(2,825)
Provisions				(80)	(80)
				_______	_______
				(6,658)	(5,028)
				_______	_______
Non-current liabilities
Interest-bearing loans and borrowings				(287)	(1,023)
Trade and other payables				(20)	(21)
				_______	_______
				(307)	(1,044)
				_______	_______
Total liabilities				(6,965)	(6,072)
				_______	_______
Net (liabilities)/assets				(4,587)	(3,632)
				_______	_______
Equity attributable to equity holders of the parent
Share capital				954	954
Share premium				3,871	3,871
Retained earnings				(9,412)	(8,457)
				_______	_______
Total equity				(4,587)	(3,632)
				_______	_______

Consolidated Statement of Cash Flows

For the year ended 31 March 2009

				2009	2008
				£000	£000
Cash flows from operating activities
Loss for the year				(992)	(2,945)
Adjustments for:
Depreciation				151	166
Amortisation				174	251
Financial income				(3)	(34)
Financial expense				183	227
Loss on sale of property, plant and equipment				10	11
Equity-settled share-based payment expenses				37	89
Taxation				-	55
				_______	_______
				(440)	(2,180)
(Increase)/decrease in trade and other receivables				(63)	123
Increase in trade and other payables				220	512
Increase in provisions				-	80
Change in deferred government grant				(1)	(2)
				_______	_______
				(284)	(1,467)
Interest paid				(9)	(1)
				_______	_______
Net cash from operating activities				(293)	(1,468)
				_______	_______
Cash flows from investing activities
Proceeds from sale of property, plant and equipment				-	5
Interest received				3	34
Acquisition of property, plant and equipment				(15)	(100)
Acquisition of other intangible assets				(114)	(331)
				_______	_______
Net cash from investing activities				(126)	(392)
				_______	_______
Cash flows from financing activities
Proceeds from the issue of share capital (net of costs)				-	1,884
Repayment of borrowings				-	(50)
Proceeds from the receipt of government grants				-	25
Advance of loans				250	-
				_______	_______
Net cash from financing activities				250	1,859
				_______	_______
Net decrease in cash and cash equivalents				(169)	(1)
Cash and cash equivalents at 1 April				329	330
				_______	_______
Cash and cash equivalents at 31 March				160	329
				_______	_______

Notes to the Financial Statements  

1.    Accounting policies and basis of information  

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies set out in the financial statements of Infoserve Group plc for the financial year ended 31 March 2009. The financial information in this document does not constitute the company's statutory financial statements for the financial year but is derived from those financial statements. Statutory financial statements for the period will be delivered following the company's Annual General Meeting. The auditors opinion was unqualified and does not include any statements under sections 237 (2) or (3) of the Companies Act 1985 but does include an emphasis of matter paragraph cross referring to the basis of preparation paragraph on going concern. 

2.    Earnings per share  

The calculation of earnings per share is based upon the loss after taxation of £992,178 (2008: £2,945,465) divided by 19,073,241 (2008: 18,162,494), being the weighted average number of ordinary shares in issue during the year. Share options in issue did not have a dilutive impact on the loss per share calculation.

3.     Consolidated reconciliation of movement in capital and reserves  

			Share capital	Share premium	Retained earnings	Total equity
			£000	£000	£000	£000
Balance at 1 April 2007			731	2,210	(5,601)	(2,660)
Total recognised income and expense			-	-	(2,945)	(2,945)
Equity-settled share-based payment transactions			-	-	89	89
Equity shares issued in the year			223	-	-	223
Premium on shares issued in the year			-	1,778	-	1,778
Costs on issue of shares			-	(117)	-	(117)
			_______	_______	_______	_______
Balance at 31 March 2008			954	3,871	(8,457)	(3,632)
			_______	_______	_______	_______
Balance at 1 April 2008			954	3,871	(8,457)	(3,632)
Total recognised income and expense			-	-	(992)	(992)
Equity-settled share-based payment transactions			-	-	37	37
			_______	_______	_______	_______
Balance at 31 March 2009			954	3,871	(9,412)	(4,587)
			_______	_______	_______	_______

4.  Interest-bearing loans and borrowings

			2009	2008
			£000	£000
Non-current liabilities
D R Hood loan account			187	923
Shares classified as a liability			100	100
			_______	_______
			287	1,023
			_______	_______
Current liabilities
Current portion of D R Hood loan account			3,278	2,123
			_______	_______
			3,278	2,123
			_______	_______

Terms and debt repayment schedule 

	Currency	Nominal interest rate	Year of maturity	Face value	Carrying amount	Face value	Carrying amount
				2009	2009	2008	2008
				£000	£000	£000	£000
D R Hood loan	£	Linked to base rate	2010	3,209	3,209	3,046	3,046
D R Hood loan	£	Linked to base rate	2011	256	256	-	-
Shares classified as a liability	£	5% per annum	N/A	100	100	100	100
				_______	_______	_______	_______
				3,565	3,565	3,146	3,146
				_______	_______	_______	_______

Mr Hood has not sought repayment of the capital and interest on his loans and Mr Hood has indicated that he will not enforce loan repayments in the short term whilst discussions over refinancing the group are in progress.

5.  Trade and other payables

			2009	2008
			£000	£000
Trade payables			690	513
Non-trade payables and accrued expenses			1,287	1,113
Deferred income			1,071	1,197
Deferred government grants			2	2
			_______	_______
Current liabilities			3,050	2,825
			_______	_______
Deferred government grants			20	21
			_______	_______
Non-current liabilities			20	21
			_______	_______

Included within trade and other payables is £nil (2008: £45,000) for the Group and £nil (2008: £nil) for the Company expected to be settled in more than 12 months.

Included within accrued expenses is £15,000 (2008: £10,000) in respect of accrued interest on shares classified as a liability. This amount is payable when the Company has distributable profits.

During 2008, the Group received a government grant of £25,000 for the fit out of the leased property at Pioneer House in Darlington, £1,667 of the grant has been recognised within administrative expenses in the Income Statement.

Deferred income relates to sales invoiced for which the revenue has not yet been recognised.

6.    Post balance sheet events  

There are no significant post balance sheet events.  

 

END

 

 

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