Final Results

RNS Number : 9844N

Infoserve Group PLC

22 June 2010

 



Infoserve Group plc  

("Infoserve" or "the Group")

Final Results for the year ended 31 March 2010  

Infoserve, a leading online local search marketing specialist, today announces its final results for the year ended 31 March 2010.  

Highlights

·            Turnover increased by 11% to £6.1 million (2009: £5.5m)  

·            The Group achieved a pre tax profit for the first time, with profits up £1.1m on last financial year.

·            Productivity per sales person increased by 15% to £62,775 per sales person per annum  

·            Admin expenses down £264k (11%) as prior year cost reductions maintained despite growing sales

·            In February 2010, the Group announced the successful restructuring of its debts, converting £2m debt

                    into equity and arranging a new £800k loan facility

·            Post year end the Group has signed a joint venture agreement with newspaper group Iliffe News and

              Media Limited to enable the offering of a combined internet and print advertising package.

For further information, please contact:

Infoserve Group plc
Steve Barnes, Executive Chairman   [e-mail] Jonathan Simpson, Finance Director [e-mail]	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]

Executive Chairman's Statement and Financial Review

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.

We are pleased to report another year of good progress, both financially and commercially, with the Group achieving profitability for the first time in Infoserve's history.

		2010	2009
		£000	£000
			Restated
Revenue		6,119	5,495
Cost of sales		(3,836)	(3,959)
Gross profit		2,283	1,536
Administrative expenses		(2,184)	(2,448)
Operating profit/(loss)		99	(912)
Financial income		7	3
Financial expenses		(100)	(183)
Net financing expense		(93)	(180)
Profit/(loss) before tax		6	(1,092)

Revenue

Revenue for the year has increased by 11% and the performance per sales executive increased from £54,800 to £62,775, a rise of 15% on last year. The 11% growth in sales compares to 4% growth in internet advertising in 2009 (according to the Internet Advertising Bureau).

Margins

Gross margins have improved from 28% to 37% during the financial year, reflecting the increased sales productivity and streamlining of the sales force.

Results

Despite increased sales, cost control remains tight, and in addition to increased margins, overheads were £0.3 million lower than the prior year. As a result EBITDA, EBIT and PBT were all positive for the first time in the Group's history with profit before tax £1.1 million better than in the prior year.

Cash flow

Overall cash outflow in the year was just £47,000 down from £169,000 in the prior year. As a result of the profits generated, and a £200,000 drawdown on the new long term loan facility from Mr D R Hood, the Group has reduced trade and other payables by £560,000 (includes £18,000 of non-cash movements).

Going concern

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Market Developments

·      Online advertising continues to grow despite the recession, increasing 4.2% in 2009 over the prior year. This growth is mainly driven by migration from more traditional media.

·      In H1 2009 The Internet Advertising Bureau confirmed that the internet has now overtaken TV advertising to become the UK's single biggest advertising medium.

·      Paid-for search accounted for 60.7% of all online advertising in 2009 and grew by 9.5%.

·      Online display and classified were down 4.4% and 5.3% on the prior year respectively showing that even online is not immune from the current economic climate.

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

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

·      Figures from searchenginewatch show that online searches have grown in length by 10% over the last 2 years as people become more specific in their searches.

·      The combination of the growing sophistication of search engines and more specific user searches are driving more searches to a local outcome, as evidenced by the increasing prominence of Google maps.

Business developments

The market is beginning to mature with numerous small providers purporting to offer the "same thing for less". The Group has updated and repackaged many of its products and the primary focus of the entire product group is to create products that continue to deliver measurable and quantifiable business leads to our customers. This in turn gives us the opportunity to offer real return on investment (ROI) to customers, thereby maintaining our market USP.

The Group's exclusive partnership with Yahoo! continues to offer a point of difference from all competitors and Infoserve will continue to use this unique relationship over the next 12 months to offer its SME customers prominent positions on the Yahoo! search engine.

On 10 May 2010 the Company announced that it had entered into a joint venture agreement with Iliffe News and Media Limited ("INML"), the media arm of Yattendon Investment Trust with interests in local media including newspaper publishing and television.

Under the agreement, a joint venture company ("2i Local") will offer SMEs the opportunity to purchase a combined internet and print advertising package. This will give businesses guaranteed exposure to their target market through online local search and local newspaper coverage.  Infoserve and INML will each own 50% of the issued share capital of 2i Local.

Change in accounting policies

The Board has changed the method by which the Group recognises revenue under IAS18, a change which the Board believes to be a more appropriate recognition of revenue as the service is delivered. Revenue for directory listings are now spread evenly over the life of the listings, dispensing with any weighting towards the start of the listing. The effect on current and prior years has been clearly disclosed in notes 1 and 26 of the financial statements of Infoserve Group plc for the financial year ended 31 March 2010.

Deferred tax asset

The Board has prepared appropriate forecasts and continues to believe that the Group will be 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 statement of financial position.

Dividend

The Group has insufficient distributable reserves to pay a dividend, therefore the directors do not recommend the payment of a dividend (2009 : £nil).

Board changes

In October 2009, Jonathan Simpson was appointed to the Board as Finance Director following his appointment as interim finance director in June 2009. Jonathan is the former Finance Director of Ultralase, a leading UK laser eye surgery provider.

In May 2010, we announced that James Newman, our Chairman, was leaving the Group to concentrate on his other interests. The Board would like to thank James for his very valuable contribution to the development of the Group, especially during some difficult trading periods, and wish him well for the future. Steve Barnes has taken up the position of Executive Chairman. The Board believe that it is appropriate for the two roles to be combined in the short to medium term given the size of the company.

Outlook and summary

The macro economic difficulties have affected most businesses in the UK, and we have seen marked evidence of a substantial downturn in marketing expenditure in certain of our customer categories. While online advertising, and the Group's revenues continue to grow, in the medium term the wider economy is unlikely to provide stimulus and impetus on its own. We believe that initiatives such as our joint venture that bring together a range of media will continue to provide the best opportunity for the Group as customers will seek to purchase a number of services from a single trusted source. We will continue to focus our efforts on delivering not only prominent online search positions to our customers, but also measurable, transparent and quantifiable ROI offerings.

Google and others pioneered pay per performance marketing and SME's now seek a simple model that covers a range of products and services from a trusted supplier.

We cannot ignore the difficult paradigm shift faced by UK businesses, and our customer base is of course affected by the difficult trading conditions. We will need to remain flexible in switching focus away from those business categories most affected by the downturn in order to concentrate resources on growth areas. Once again, forecasters predict that online paid-for local search will continue to grow and lead online advertising and marketing, but the Group expects that this growth will be at lower rates than in previous years and that we will have to work hard to continue the business and profitability growth experienced in each of the last four years.

Stephen M Barnes	Jonathan P Simpson
Executive Chairman	Finance Director

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2010

	2010	2009
	£000	£000
		Restated
Revenue - continuing operations	6,119	5,495
Cost of sales	(3,836)	(3,959)
Gross profit	2,283	1,536
Administrative expenses	(2,184)	(2,448)
Operating profit/(loss) - continuing operations	99	(912)
Financial income	7	3
Financial expenses	(100)	(183)
Net financing expense	(93)	(180)
Profit/(loss) before tax	6	(1,092)
Taxation	-	-
Profit/(loss) for the year	6	(1,092)

Basic and diluted earnings/(loss) per share	0.03p	(5.72p)

Statements of Financial Position

At 31 March 2010

	2010	2009
	£000	£000
		Restated
Non-current assets
Property, plant and equipment	177	251
Intangible assets	485	534
Investment in subsidiary	-	-
Deferred tax assets	838	838
	1,500	1,623
Current assets
Trade and other receivables	267	345
Cash and cash equivalents	363	410
	630	755
Total assets	2,130	2,378
Current liabilities
Bank overdraft	(250)	(250)
Interest-bearing loans and borrowings	(37)	(3,278)
Trade and other payables	(2,885)	(3,568)
Provisions	(80)	(80)
	(3,252)	(7,176)
Non-current liabilities
Interest-bearing loans and borrowings	(1,816)	(287)
Trade and other payables	(143)	(20)
	(1,959)	(307)
Total liabilities	(5,211)	(7,483)
Net (liabilities)/assets	(3,081)	(5,105)
Equity attributable to equity holders of the parent
Share capital	2,954	954
Share premium	3,871	3,871
Retained earnings	(9,906)	(9,930)
Total equity	(3,081)	(5,105)

Statement of Cash Flows

For the year ended 31 March 2010

	2010	2009
	£000	£000
		Restated
Cash flows from operating activities
Profit/(loss) for the year	6	(1,092)
Adjustments for:
Depreciation	102	151
Amortisation	122	174
Financial income	(7)	(3)
Financial expense	100	183
(Profit)/loss on sale of property, plant and equipment	(21)	10
Equity-settled share-based payment expenses	18	37
	320	(540)
Decrease/(increase) in trade and other receivables	78	(63)
(Decrease)/increase in trade and other payables	(542)	320
Change in deferred government grant	(2)	(1)
	(146)	(284)
Interest paid	(7)	(9)
Net cash from operating activities	(153)	(293)
Cash flows from investing activities
Interest received	7	3
Acquisition of property, plant and equipment	(28)	(15)
Acquisition of other intangible assets	(73)	(114)
Net cash from investing activities	(94)	(126)
Cash flows from financing activities
Advance of loans	200	250
Net cash from financing activities	200	250
Net decrease in cash and cash equivalents	(47)	(169)
Cash and cash equivalents at 1 April	160	329
Cash and cash equivalents at 31 March	113	160

1               Accounting policies and basis of information  

The financial information in this 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 2010. 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 to the registrar of companies following the company's Annual General Meeting. The auditors' opinion was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and does not include any statements under sections 498(2) or 498(3) of the Companies Act 2006.

Basis of preparation

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

The Group meets its day to day working capital requirements through an overdraft. The terms of the overdraft are still being finalised with the bank, however under the Group's loan facility with David Hood a further £250,000, equivalent to the value of the overdraft, can be drawn down in the event that this overdraft facility is withdrawn. The Group continues to operate within this facility; April management accounts place the headroom at £233,000 and the Group has been regularly generating cash from trading activities.

During the year, the Group has agreed a restructuring of its loans. This has resulted in reducing capital and interest outstanding to Mr D R Hood to £1.85m from £3.57m, and a reduction in the amount due within one year to £0.04m from £3.28m. In addition, one of the Group's landlords, Amerdale LLP (of which Mr D R Hood is the majority partner) has agreed to a long term deferral of rent payments. Rent payments outstanding for part of 2009 total £223,000. Since November 2009, rent for each of the subsequent periods has been paid in full when due.

As the Group has now reached breakeven and it has greater certainty of funding than in the prior year, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Change in revenue recognition accounting policy

The Group's policy was to recognise a fixed percentage of new customer sales of term advertising at the point of sale to reflect the cost of acquiring the customer and producing the advert.  The balance was spread evenly over the agreed initial term.  Renewal revenues were spread evenly over the term of the agreement.

Following a review, all term advertising revenue is recognised evenly over the agreed term, as this better matches the period over which the service is provided by Infoserve.

The change to the treatment of term advertising revenue has the following impact on the financial results of the Group:

		Year ended 31 March 2009			Year ended 31 March 2008
		As reported	Adjustment	Restated	As reported	Adjustment	Restated
		£000	£000	£000	£000	£000	£000
Statement of comprehensive income
Revenue		5,595	(100)	5,495	4,651	487	5,138
Loss/(profit) before tax		(992)	(100)	(1,092)	(2,890)	487	(2,403)
Loss/(profit) before tax		(992)	(100)	(1,092)	(2,945)	487	(2,458)
Earnings/(loss) per share (p)		(5.20)	(0.52)	(5.72)	(16.22)	2.68	(13.54)
Statement of financial position
Current liabilities - trade and other payables		(3,050)	(518)	(3,568)	(2,825)	(418)	(3,243)
		(4,587)	(518)	(5,105)	(3,632)	(418)	(4,050)

						Year ended 31 March 2010
						As reported	Impact on current year	Results under old revenue recognition policy
						£000	£000	£000
Statement of comprehensive income
Revenue						6,119	(171)	5,948
Profit/(loss) before tax						6	(171)	(165)
Profit/(loss) after tax						6	(171)	(165)
Earnings/(loss) per share (p)						0.03	(0.73)	(0.70)
Statement of financial position
Current liabilities - trade and other payables						(2,885)	328	(2,557)
Net liabilities						(3,081)	328	(2,753)

2               Earnings per share

The calculation of earnings per share is based upon the profit after taxation of £5,927 (2009 restated loss: £1,092,865) divided by 23,566,392 (2009: 19,073,241), being the weighted average number of ordinary shares in issue during the year.  Share options in issue do not have a material dilutive impact on the earnings/(loss) per share calculation.

3               Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group and Company's interest-bearing loans and borrowings. 

	2010	2009
	£000	£000
Non-current liabilities
D R Hood loan account	1,716	187
Shares classified as a liability	100	100
	1,816	287
Current liabilities
Current portion of D R Hood loan account	37	3,278
	37	3,278

Terms and debt repayment schedule

	Currency	Nominal interest rate	Year of maturity	Fair value	Carrying amount	Fair  value	Carrying amount
				2010	2010	2009	2009
				£000	£000	£000	£000
D R Hood loan	£	Linked to base rate	2024	1,533	1,533	3,209	3,209
D R Hood loan	£	Linked to base rate	N/A	18	18	256	256
D R Hood loan	£	10% per annum	2014	202	202	-	-
Shares classified as a liability	£	5% per annum	N/A	100	100	100	100
				1,853	1,853	3,565	3,565

4               Trade and other payables

	2010	2009
	£000	£000
		Restated
Trade payables	477	690
Non-trade payables and accrued expenses	882	1,287
Deferred income	1,524	1,589
Deferred government grants	2	2
Current liabilities	2,885	3,568
Trade payables	125	-
Deferred government grants	18	20
Non-current liabilities	143	20

Included within accrued expenses is £20,000 (2009: £15,000) 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 Consolidated Statement of Comprehensive Income.

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

5               Capital and reserves

Reconciliation of movement in capital and reserves - Group

			Share capital	Share premium	Retained earnings	Total equity
			£000	£000	£000	£000
Balance at 1 April 2008 (restated)			954	3,871	(8,875)	(4,050)
Total recognised income and expense (restated)			-	-	(1,092)	(1,092)
Equity-settled share-based payment transactions			-	-	37	37
Balance at 31 March 2009 (restated)			954	3,871	(9,930)	(5,105)
Balance at 1 April 2009 (restated)			954	3,871	(9,930)	(5,105)
Total recognised income and expense			-	-	6	6
Equity-settled share-based payment transactions			-	-	18	18
Equity shares issued in the year			2,000	-	-	2,000
Balance at 31 March 2010			2,954	3,871	(9,906)	(3,081)

6              Post balance sheet events

In May 2010, we announced that James Newman, our Chairman, was leaving the Group to concentrate on his other interests.  Steve Barnes has taken up the position of Executive Chairman. The Board believe that it is appropriate for the two roles to be combined in the short to medium term given the size of the Company.

On 10 May 2010 the Company announced that it had entered into a joint venture agreement with Iliffe News and Media Limited ("INML"), the media arm of Yattendon Investment Trust with interests in local media including newspaper publishing and television.

Under the agreement, a joint venture company ("2i Local") will offer SMEs the opportunity to purchase a combined internet and print advertising package. This will give businesses guaranteed exposure to their target market through online local search and local newspaper coverage.  Infoserve Limited and INML each own 50% of the issued share capital of 2i Local.

Delivery of the year end accounts to shareholders

The Group will post the annual accounts to shareholders and make them available on the Group's website www.infoservegroup.com on 22 June 2010.

Notice of AGM

The Annual General Meeting of Infoserve Group plc is to be held at The Café Bar, Multiflight Training Centre, South Side Aviation, Leeds Bradford International Airport, Leeds LS19 7UG at 9.00 a.m. on 20 July 2010. Notification will be sent to shareholders with the annual accounts.

 

END

 

 

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