Final Results

RNS Number : 8858H

Printing.com plc

06 June 2011

 



For Release

7.00am

6 June 2011

PRINTING.COM PLC

("Printing.com" or "the Group")

Preliminary Results for year ended 31 March 2011

Printing.com, a specialist retail chain with Outlets across the UK, Ireland, France and Holland, today announces its preliminary results for the year ended 31 March 2011. 

Financial highlights

	2011	2010	Change
Turnover	£17.02m	£14.46m	17.7%
EBITDA - pre Acq costs	£3.02m	£3.11m	-2.7%
Profit Before Tax - pre Acq costs	£1.47m	£1.70m	-13.5%
Profit Before Tax	£1.31m	£1.70m	-23.1%
Earnings Per Share - Basic	2.04p	2.87p	-28.9%
EPS - Fully Diluted	2.02p	2.86p	-29.4%
Dividend	3.15p	3.15p	-
Capital expenditure	£1.50m	£1.04m
Net Cash	£2.00m	£2.14m
Net Funds	£1.21m	£1.29m

Operational highlights

·      Acquisition of Media Facility Group in November 2010 provides additional scale in Europe

·      New online channels successfully developed and now revenue generating

·      Underlying sales volumes steady

·      Total dividend maintained at 3.15p

Commenting on the results, Tony Rafferty, Chief Executive of Printing.com, said:  "In what has been a challenging year for the Company, Printing.com has remained profitable and cash generative throughout the period.  The acquisition of MFG in 2010 has increased the Company's sales in the European market which, together with the recent launch of our new online template system, will help drive the Company's future growth." 

For further information:

Printing.com plc Tony Rafferty (Chief Executive) Alan Roberts (Finance Director)	07966 517 336 0161 848 5713
Cubitt Consulting Chris Lane/Alice Coubrough	0207 367 5100
Brewin Dolphin Ltd (Nominated Adviser)
Mark Brady	0845 213 4730

Chairman's Statement

The financial year ended 31 March 2011 has been a challenging period for the Company reflecting low commercial confidence across the Company's predominantly SME marketplace. However, in spite of these demanding trading conditions, Printing.com has remained profitable and cash generative throughout the period. 

During the year, turnover increased by 17.7% to £17.02m (2010: £14.46m), primarily reflecting the Company's acquisition of Media Facility Group BV ("MFG").  Profit before Tax ("PBT") decreased to £1.31m (2010: £1.70m), albeit after an exceptional charge of £161,000 relating to the acquisition. 

New initiatives, involving online channels and proprietary systems, have now moved from the development stage to being revenue generating.  We believe these new initiatives will be of significant importance to the Group in future years. 

During the year the Company made its first significant acquisition, MFG, on 5 November 2010.  The acquisition provides additional scale for the Company in continental Europe, together with further channels to market. 

Cash

The Company finished the financial year with cash of £2.00m (2010: £2.14m).

During the year capital investment totalled £1.5m (2010: £1.04m), none of which was financed. This principally reflects an increase in the expenditure made on the Company's proprietary Template and Flyerlink software.

The cash figure also takes into account £329,000 that had been paid in consideration of the acquisition of MFG and the payment of £161,000 relating to acquisition costs.

Final Dividend

Your Board is proposing a maintained Final Dividend of 2.1p, to be paid on 28 July 2011 to Shareholders on the register at the close of business on 17 June 2011. This would make a total dividend for the year of 3.15p (2010: 3.15p).

Your Board is very mindful that the dividend, at this level, continues to be uncovered.  We have, however, taken into account the stronger underlying cash generation and the anticipated cash needs of the Company.

As I indicated in the Interim Report, maintaining the dividend, whilst restoring earnings to a level providing full cover, remains central to our strategy. 

People in Printing.com

As always, I thank all the people involved in Printing.com, including the Company's direct employees, and its Franchisees along with their teams. I would especially like to welcome all the employees of MFG and thank them for their endeavours post the acquisition.

Outlook

Given that the economic climate may not improve in the short term, we believe that the introduction of new online initiatives is timely and will enable Printing.com to develop and progress over the coming years.

These initiatives embrace new software developments that allow online transactions, including the graphic design element, to take place. This platform opens up a number of new market segments and revenue opportunities which, we believe, will drive volume through the Company's Hub.

The acquisition of MFG will allow elements of the MFG operation to be added into the UK marketplace and vice versa.  It will also provide a greater 'footprint' to exploit the Company's new online initiatives.

Having put in place these initiatives and completed the acquisition of MFG, we now believe the framework exists to generate meaningful revenues from new markets that will contribute to the earnings of your Company. 

George Hardie

Chairman

6 June 2011

Chief Executive's Statement

Review of Trading UK

	31 March 2011	31 March 2010
Company Owned Stores	7	7
Territory Franchise Stores	22	28
Bolt-on and Boutique Franchises	259	246
Total	288	281

During the year under review, revenues across the UK remained stable at £13.4m (2010: £13.6m), a marginal contraction of 1.2%, albeit underlying operating margin eroded, predominantly due to continued promotional support. The performance across London and the South East proved to be more robust, with growth of 5.1%. However, other UK regions collectively contracted by 1.8%. In previous years, regional trading patterns were more uniform. We remain of the belief that the difference is due to increased confidence within the SME community across the London and South East region. We believe that this indicates that the underlying demand for the Printing.com service will strengthen as and when economic conditions improve.

Encouragingly, the Printing.com network across the UK exhibited marginal growth in the number of outlets.  The decrease in the number of Territory Franchises reflects the conversion of several of these to other formats.  Moving forward, it is the Company's intention to continue to grant Franchises, however, it intends to discontinue the grant of the established 'Territory' format.  This strategy is being adopted to remove a 'layer' from the Company and make it more agile in embracing new initiatives.  Accordingly, in future the Company will report simply the total number of Franchisees at large. 

Review of Trading - France

	31 March 2011	31 March 2010
Company Owned Stores	1	-
Bolt-on Franchises	21	19
Total	22	19

French revenue grew to £455,000, an increase of 39.6% (2010: £326,000).

At the start of the financial year, the Company's first directly owned store opened in Montpellier, Languedoc, France. This provided the opportunity to refine the Printing.com model and the retail offering in France.

Moving forward, our strategy incorporates the grant of additional Printing.com licences, coupled with the additional new channels to market enabled by our online initiatives.

Review of Trading - Ireland

	31 March 2011	31 March 2010
Company Owned Stores	1	1
Bolt-on  Franchises	9	6
Total	10	7

Trading across Ireland exhibited further contraction, with revenues dropping by 19% to £343,000 (2010: £424,000).  The conditions in Ireland continue to be very difficult, with little immediate prospect of a significant upturn, save for the grant of a number of new Franchises.  However, we are optimistic that some of the new online initiatives will at least provide the prospect for some limited growth during the current financial year. 

Printing.com International Licences

New Zealand

The grant of the Printing.com Master Licence in New Zealand in 2006 permitted our partner to continue to operate for a period of time under its established Printstop brand. We are pleased to report that, during the year, the full Printing.com brand was adopted in New Zealand. We believe that this points towards the basis of a lasting beneficial partnership.

US

Across Northern Florida and Southern Georgia, the Printing.com model has been successfully established, embracing 32 Franchisees. However, the penetration of the US market at large remains marginal, given its size and scale.

Working with our US partner we hope, by the close of the Interim Period, to establish a roadmap for the future, which we believe is likely to embrace many of the new Printing.com online initiatives. 

Acquisition of Media Facility Group BV ("MFG"). Netherlands

In the Interim Results we reported the acquisition of MFG for a consideration of €2m (£1.78m), satisfied in cash, convertible loan notes and shares. We also reported that MFG Director, Hans Scheffer, previously a 50% owner of MFG, had joined your Company's Board.

MFG operates from Rotterdam, Holland, with 25 employees across sales, marketing and operations, vending a range of printed items, including flyers, leaflets, business cards and letterheads via its proprietary websites, 'Flyerzone.nl', 'Drukland.nl' and 'Printrepublic.nl'. MFG subcontracts production to a number of Dutch commercial printers.

The acquisition was progressed to enable Printing.com to add to its French initiative and further develop a meaningful operation in continental Europe. It also provided significant expertise, knowledge and insight into the northern European market and the operation of online channels.

Post the acquisition, MFG has performed well, contributing revenues of €3.1m (£2.6m) during the last 5 months of the year. Over this period, its sales were 10.7% higher than the equivalent period in the previous year, in which MFG generated revenues of €2.8m (£2.4m) (unaudited figures). Also, the MFG team has successfully launched a new channel, 'Drukland.be' to target the Flemish speaking region of Belgium.

An additional reason for the acquisition was to manufacture product for the Dutch market via the Company's UK Hub. The integration of MFG and Printing.com systems and establishment of robust logistics has taken longer than originally anticipated, however, the shipment of UK manufactured product to the Dutch market is about to commence.

Background and Context to the Template Initiative

During the Company's early development it operated not only via Printing.com outlets, but also via an online channel, embracing early template technology which enabled simple printed items, such as business cards, to be personalised online. As the Franchise initiative gathered momentum, the online template channel accounted for a very small proportion of revenues. Furthermore, it was believed that to develop the legacy system to a level of functionality that would have enabled a broader application was prohibitive, and accordingly the initiative was discontinued. 

We remained of the view that as and when template technology was available to suitably augment the Company's offering, such a solution should be developed and integrated within the Group's systems at large. Accordingly, commencing January 2010, we set about building the necessary software comprising certain licensed elements together with a significant proprietary component.

The course of the year was essentially given over to the building of the system with the first revenues generated in the penultimate month.

The core technology is now ready to be exploited across a number of channels in the UK, Netherlands, France, Ireland and Belgium - and also via our Master Licence Partners further afield.

Template Application for Larger Businesses - BrandDemand

As reported in the Interim statement, during the year we launched BrandDemand; a solution aimed at larger, multi-site businesses, including other franchised networks. BrandDemand enables individual outlets to personalise and order their printing online and thereby save the associated cost of involving a professional graphic designer, yet maintain brand alignment.

BrandDemand systems have been in operation for essentially three months, with a number of client implementations delivered. Given the strong pipeline that exists for client implementations, we remain optimistic that revenues from BrandDemand will build on a month-by-month basis.

BrandDemand is presently being launched in France; it is anticipated that it will also be launched in the Netherlands and Ireland prior to the close of the Interim Period.

Template Application for SME Clients - Flyerzone

This initiative utilises both the template technology and the expertise of the MFG team in operating online channels.  We believe that a niche exists for SME clients who wish to embrace high quality graphic design, together with the efficiency and cost-effectiveness of the online environment.

This online channel is intended to launch in the UK during early summer 2011. Moving forward, a Flyerzone launch is planned for both France and Ireland prior to the close of the Interim Period.

The template technology will also be added to one or more of the established Dutch channels during this period. We believe this will provide the scope for additional value adding from the established client base.

Current Trading and Outlook

Across the UK, trading during April 2011 proved understandably soft, given the timing of Public Holidays.  Elsewhere, volumes were in line with the Company's expectations.  Across the Company's principal markets, trading during May proved more in line with its expectations. 

Over the past year, we have dedicated a lot of time and resource to developing the aforementioned online initiatives which, we believe, have been well received by both current and prospective clients. We further believe that these new initiatives, coupled with the acquisition of MFG, will be important to the long-term growth of Printing.com and your Board remains confident in the Company's future prospects. 

Tony Rafferty

Chief Executive

6 June 2011

Financial Review

Group Financials

The acquisition of Media Facility Group BV ("MFG") on 5 November 2010, and its contribution to Group trading since, has resulted in material variances in a number of financial report headings year-on-year. 

Revenue

Group revenues increased by 17.7% to £17.02m from £14.46m. This was due mainly to the sales generated by MFG in the 5 months in which they were part of the Group. Sales excluding MFG show a slight reduction of 0.76%. Revenue from the Eurozone, with only 5 months contribution from MFG, was 20.2% of the total (2010: 5.5%).

Total Retail Sales (TRS) UK and Ireland

The Company has long since used TRS as a key metric of Network volumes, across the UK and Ireland, being the estimated retail price paid by the client for product sourced from the  Manchester Hub through the Company's outlets and those of Franchise partners. This materially differs from the revenue recognised in the Statement of Comprehensive Income as the Group recognises the price paid by the Franchisee.  In the period to 31 March 2011 it is estimated that TRS decreased by 1.5% to £25.59m (2010: £25.99m).

With the number of new online initiatives and growth in new markets TRS will become obsolete as an indicator of Group performance.

Like For Like TRS

The Company's like-for-like measure has been centred on the performance of larger geographic areas, aligned with the Company's 'Territory Franchise' structure (or indeed Company owned Stores where that was the case). On this basis the like for like comparison for the year under review showed a decline of 2.36% (decline 2010: 1.26%), with 32 (2010: 35) managed territories contributing to this metric.

Given the decision to discontinue the further grant of Territory Franchises, this metric will also be discontinued, but regard will be given for alternative, more pertinent metrics.

Gross Profit

The Group's simple definition of Gross Profit has been revenue less direct materials (including the cost of distribution when made direct to customers). MFG cost of sales include the manufacturing conversion cost, as they are supplied by third party commercial printers, therefore Gross Profit has reduced as a percentage of revenue.

Gross Profit increased by 4.7% to £9.94m from £9.49m.  In percentage terms it reduced to 58.4% (2010: 65.6%) of revenue, due to the continued support of the Franchise network in the UK and Ireland through monthly sales offers and, from November, the inclusion of MFG's cost of sales.

EBITDA

After removing the impact of acquisition related costs EBITDA decreased from £3.11m to £3.02m (2.7%). 

Pre-Tax Profit

The Group recorded a pre-tax profit of £1.31m (2010: £1.70m), being 7.7% (2010: 11.8%) of Group revenue. Adjusted for the £161,000 of acquisition costs; pre-tax profit was £1.47m and 8.6% of Group revenue.

Staff costs increased in the year to £3.95m (2010: £3.57m), but fell as a percentage of revenue from 24.7% to 23.2%. The depreciation and amortisation charge for the year was £1.56m (2010: £1.36m).

Interest Received and Charged

Interest received of £0.04m (2010: £0.06m) reflects interest on the cash balances held and interest charged to Franchisees on loans to them from Printing.com. Interest paid of £0.05m (2010: £0.07m), primarily on lease finance repayments, falls away in the first quarter of the current year.

Taxation

In the year the standard rate for tax was 28% (2010: 28%). The charge for the current year is £0.39m or 29.8% of PBT (2010: £0.43m or 25.3%). The effective tax rate was reduced through the inclusion of enhanced tax relief on research and development expenditure.

Acquisition

The acquisition of Rotterdam based MFG, on 5 November 2010, was for a consideration of £1.78 million, satisfied in cash of £0.44m, loan notes valued at £0.41m and share consideration comprised 2,562,164 ordinary shares in the Company, satisfied by the issuance of 1,948,462 new ordinary shares and 613,702 ordinary shares from Treasury. The shares issued were at the price of shares at the acquisition date.

The loan notes are convertible or repayable, at the option of the vendors, into ordinary shares, at 33.2p in equal tranches at months 3, 6, 9 and 12 from November 2010.

Earnings Per Share (EPS)

Basic EPS achieved was 2.04p (2010: 2.87p), the weighted average number of shares used was 45,407,444. Diluted EPS achieved was 2.02p (2010: 2.86p), the weighted average number of shares used was 45,907,619, which took account of the convertible loan notes issued as part of the consideration for the acquisition of MFG. The year closed with 46,941,927 ordinary shares in issue.

Cash Flow

At the year end the Group had cash balances of £2.0m (2010: £2.14m). After debt of £0.20m on old finance leases, MFG legacy bank loans of £0.23m and the loan notes of £0.36m, Net Funds were £1.22m (2010: £1.29m). The outstanding finance leases will all be repaid by September 2011 and the convertible loan notes are scheduled to be satisfied by March 2012. Operational cash inflow remained strong at £4.16m (2010: £3.42m). The most significant cash outflow being dividends paid of £1.43m (2010: £2.28m).  

Capital Expenditure

The total expenditure for the year was £1.55m (2010: £1.04m). The major item being Software development charges for the online initiatives and computing infrastructure £0.87 (2010: £0.39m) Franchises reverting to Company ownership resulted in Customer Lists valued at £0.52m (2010 :£0.38m) being acquired.

Manufacturing capacity at the Manchester Hub provides scope for significant growth without additional capital expenditure. Capital expenditure will therefore continue to be mainly incurred on software development and enhancement.

Share Capital and Share Options

No employee options were exercised or granted during the year.

During the year the Company did not purchase any shares. The maximum number of shares held by the Company during the year was 643,702 (1.4% of the total called up share capital).  These shares were released and utilised as part of the consideration for MFG.

Treasury Policies and Financial Risk

Surplus funds are intended to support the Group's short term working capital requirements.  These funds are invested through the use of short term deposits and the policy is to maximise returns, as well as provide the flexibility required to fund on-going operations. It is not the Group's policy to enter into financial derivatives for speculative or trading purposes.

Interest rate risk, liquidity risk and currency risk

Interest rate risks are limited to the fixed element of finance lease agreements.  The Group uses leasing or hire purchase at periods of up to 5 years to finance purchases of major items of plant where it is considered to be a more effective use of funds.

The Group has overseas assets and liabilities which are income generating and thus any currency movements are considered to be a low risk.

Alan Q. Roberts

Finance Director

6 June 2011

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2011

	Note			2011	2010
				£000	£000
Revenue	4			17,016	14,456
Changes in inventory of finished goods and work in progress				49	31
Raw materials and consumables used				(7,123)	(5,002)
Gross profit				9,942	9,485
Staff costs				(3,952)	(3,571)
Other operating charges				(2,968)	(2,809)
Depreciation and amortisation				(1,560)	(1,361)
Total expenses				(8,480)	(7,741)
Operating profit before acquisition related costs				1,462	1,744
Acquisition related costs				(161)	-
Operating profit				1,301	1,744
Financial income				56	55
Financial expenses				(46)	(95)
Net financing income/(expense)				10	(40)
Profit before tax				1,311	1,704
Taxation	5			(385)	(429)
Profit for the year				926	1,275
Other comprehensive income for the year				-	-
Total comprehensive income for the year				926	1,275
Basic earnings per share	6			2.04p	2.87p
Diluted earnings per share	6			2.02p	2.86p

Consolidated Statement of Changes in Equity

Year ended 31 March 2010

	Share Capital	Share premium	Merger reserve	Retained Earnings	Total
	£000	£000	£000	£000	£000
Balance at 1 April 2009	450	3,881	211	2,524	7,066
Profit and total comprehensive income for the year	-	-	-	1,275	1,275
Dividends paid	-	-	-	(2,284)	(2,284)
Attributable to equity holders of the Company
Proceeds from disposal of treasury shares	-	-	-	10	10
Total movement in equity	-	-	-	(999)	(999)
Balance at 31 March  2010	450	3,881	211	1,525	6,067
Year ended 31 March 2011
Balance at 1 April 2010	450	3,881	211	1,525	6,067
Profit and total comprehensive income for the year	-	-	-	926	926
Dividends paid	-	-	-	(1,425)	(1,425)
Shares issued and released from Treasury	19	-	627	-	646
Proceeds from disposal of treasury shares	-	-	-	285	285
Total movement in equity	19	-	627	(214)	432
Balance at 31 March 2011	469	3,881	838	1,311	6,499

Consolidated  Statement of Financial Position

At 31 March 2011

		Group	Group
		2011	2010
		£000	£000
Non-current assets
Property, plant and equipment		2,951	3,672
Investments in subsidiaries		-	-
Intangible assets		4,619	1,614
Deferred tax assets		2	3
Other receivables		20	103
Total non-current assets		7,592	5,392
Current assets
Inventories		190	141
Trade and other receivables		3,490	3,239
Cash and cash equivalents		2,002	2,138
Total current assets		5,682	5,518
Total assets		13,274	10,910
Current liabilities
Other interest-bearing loans and borrowings		(676)	(653)
Amounts owed to Group Undertakings		-	-
Trade and other payables		(3,340)	(2,118)
Current tax payable		(423)	(221)
Accruals and deferred income		(1,392)	(993)
Other liabilities		(231)	(145)
Total current liabilities		(6,062)	(4,130)
Non-current liabilities
Other interest-bearing loans and borrowings		(109)	(200)
Deferred tax liabilities		(604)	(513)
Total non-current liabilities		(713)	(713)
Total liabilities		(6,775)	(4,843)
Net assets		6,499	6,067
Equity attributable to equity holders of the parent
Share capital		469	450
Share premium		3,881	3,881
Merger reserve		838	211
Retained earnings		1,311	1,525
Total equity		6,499	6,067

Consolidated Statement of Cash Flows

for year ended 31 March 2011

		Group	Group
		2011	2010
		£000	£000
Cash flows from operating activities
Profit for the year		926	1,275
Adjustments for:
Depreciation, amortisation and impairment		1,560	1,361
Net finance expense / (income)		(10)	40
Foreign exchange (loss)/gains		18	(28)
Tax expense / (income)		385	429
Operating cash flow before changes in working capital and provisions		2,879	3,077
Change in trade and other receivables		609	224
Change in inventories		(49)	(31)
Change in trade and other payables		719	147
Cash generated from / (used in) Operations		4,158	3,417
Interest paid		(46)	(67)
Income tax paid		(230)	(624)
Net cash inflow/(outflow) from operating activities		3,882	2,726
Cash flows from investing activities
Proceeds from sale of plant and equipment		-	-
Interest received		42	55
Acquisition of plant and equipment		(145)	(268)
Capitalised development expenditure		(246)	(118)
Acquisition of other intangible assets		(1,156)	(649)
Acquisition of Subsidiary net of cash acquired		(329)	-
Dividends received		-	-
Net cash (used in) / generated by investing activities		(1,834)	(980)
Cash flows from financing activities
Proceeds from the issue of share capital		-	10
Payment of finance lease liabilities		(653)	(725)
Repayment of Bank Loans		(52)	-
Repayment of Loan Notes		(54)	-
Dividends paid		(1,425)	(2,284)
Net cash used in financing activities		(2,184)	(2,999)
Net (decrease)/increase in cash and cash equivalents		(136)	(1,253)
Exchange losses on cash and cash equivalents		-	-
Cash and cash equivalents at start of year		2,138	3,391
Cash and cash equivalents at 31 March 2011		2,002	2,138

Notes

(forming part of the financial statements)

1              Basis of preparation

Printing.com plc (the "Company") is a company incorporated and domiciled in the UK.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). 

The Group financial statements are authorised for issue by the Board of Directors on 6 June 2011.

The financial information does not constitute the Company's statutory accounts for the years ended 31 March 2011 or 31 March 2010 (but is derived from those accounts).  Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course.  The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The statutory accounts for the financial year ended 31 March 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Cautionary note regarding forward looking statements

This announcement includes statements that are forward looking in nature.  Forward looking statements may involve known and unknown risks, assumptions, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements.  Except as required by listing rules, disclosure and transparency rules and applicable law, the Company undertakes no obligations to update, revise or change any forward looking statements to reflect events or developments occurring on or after the date such statements are published.  

2              Going concern

The Group has considerable financial resources and the opportunities open to the Group continues to grow.  As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.  After making enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Cash flow forecasts indicate continuing cash inflows to ensure that sufficient cash is available for future trading and dividends.  The Group's external funding is made up of finance leases, bank loans and loan notes which total £0.43m against cash balances of £2.00m at the year end.  Accordingly they continue to adopt the going concern basis in preparing the annual report and financial statements.

3              Acquisitions of subsidiaries

Acquisitions in the current period

On 5 November 2010 the Group acquired all of the ordinary shares in Media Facility Group BV for £1.78 million, satisfied in cash, loan notes and the allotment of ordinary shares of the Company. The company is a Netherland's-based supplier of a similar range of products to Printing.com via online channels.

The rationale for the acquisition reflects the synergies between Printing.com and MFG when aspects of the Printing.com systems will be added to the MFG offering, enriching and commercially exploiting their knowledge of using online channels. MFG also has a number of resellers operating in its domestic marketplace it is hoped they will form the basis for a 'Bolt-on' Franchise network in the Netherlands. MFG does not presently manufacture relying upon contractual arrangements with commercial printers. This provides Printing.com the scope to supply some of the Dutch product directly from the Manchester Hub exploiting unutilised UK capacity.

In the five months to 31 March 2011 the subsidiary contributed net profit of £207,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 April 2010, Group revenue would have been an estimated £20.2million and net profit before tax would have been an estimated £1.5million. In determining these amounts,

Notes (continued)

3              Acquisition of Subsidiaries (continued)

management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2010.

Effect of acquisition

The acquisition had the following effect on the Group's assets and liabilities.

	Pre-acquisition carrying amount	Fair value adjustments	Provisional fair values on acquisition
	£000	£000	£000
Acquiree's net assets at the acquisition date:
Property, plant and equipment	82	-	82
Intangible assets	242	695	937
Deferred tax asset	-	22	22
Inventories	-	-	-
Trade and other receivables	780	-	780
Cash and cash equivalents	112	-	112
Interest-bearing loans and borrowings	(282)	-	(282)
Trade and other payables	(988)	-	(988)
Deferred tax liabilities	-	(161)	(161)
Net identifiable assets and liabilities	(54)	556	502
Consideration paid:
Cash consideration relating to business combination			441
Loan note consideration relating to business combination			409
Equity instruments issued			932
Total consideration			1,782
Goodwill on acquisition			1,280

A detailed description of the different intangible assets which have been identified within the acquired business and the methods used to value them are provided below.  The deferred tax liability represents the tax effect which will result from the amortisation of the intangible assets, estimated using the tax rate substantively enacted at the balance sheet date and the fair value of the different classes of asset.   The gross amount of trade receivables at the acquisition date was £638,000 against which there was a doubtful debt provision of £62,000.  

Goodwill has arisen on the acquisition because of the operational synergies referred to above and the opportunities for the expanded Group to exploit access to a wider market through a combination of the technology in PDC with the expertise in online sales of MFG.  None of the goodwill is deductable for tax purposes.    

The share consideration comprised 2,562,164 ordinary shares in Printing.com satisfied by the issuance of 1,948,462 new ordinary shares and 613,702 ordinary shares from Treasury. The shares issued were at the share price in effect at the acquisition date.  Half of the Shares allotted pursuant to the transaction, are subject to a 'lock-in' period of one year, the remainder two years.

The total cash consideration amounted to £441,000 funded from the Group's cash resources. £409,000 was met via the issue of a Convertible Loan note, repayable (or convertible, at the option of the vendors, into ordinary shares at 33.2p) in equal tranches at months 3, 6, 9 and 12 post completion.  Any equity component attached to this instrument is considered to be nominal therefore the loan note has been classified within other interest bearing liabilities.

Notes (continued)

3              Acquisition of Subsidiaries (continued)

Shares of Media Facility Group BV

The fair value of the intangible assets recognised upon the acquisition of MFG have been calculated as set out below.

Customer list

This asset represents the value of the customer data held by MFG at the date of acquisition.  The valuation is based on the cash flows that are expected to result from these customers during the three year useful economic life of the asset, adjusted for estimated future attrition following the date of acquisition.  The Group has based the estimate on forecasts made for the next three years with an assumed attrition rate of 33% p.a. based on management's expectations based on previous experience.  A discount rate of 12% has been used to calculate the present value of the future benefit of these customers. 

Website domains

These assets represents the four major websites used by MFG to sell printing services and are valued at the cost of recreating such websites using in-house estimates based on previous experience.

Software

This asset represents the 'PrintLinQ' software used by MFG to process sales of printing services and is valued at the cost of recreating such an asset using in-house estimates based on previous experience. 

Goodwill

The goodwill balance recognised upon the acquisition of MFG represents the value the Group expects to generate through applying the:-

· existing technology and skills and expertise of the Groups workforce to the acquired business and assets;

· skills and expertise of the MFG workforce to the existing Group operations. 

4              Segmental information

In applying IFRS 8 - Operating Segments, the Group has previously disclosed two reportable operating segments based on nature of service, being printing services and franchise income.  Following the acquisition of MFG there has been an increased focus on expansion into new territories and it is now considered that the primary operating segments are geographic being UK& Ireland, Europe and others.  The segmental analysis by nature of service has also been amended to include a third reportable segment, being online sales of Printing services. 

This disclosure correlates with the information which is presented to the Chief Operating Decision Maker, the Chief Executive (CEO), who reviews revenue (which is considered to be the primary growth indicator) by segment.  The Group's costs, finance income, tax charges, non-current liabilities, net assets and capital expenditure are only reviewed by the CEO at a consolidated level and therefore have not been allocated between segments in the analysis below. 

Of the Group revenue of £17,016,000, £13,395,000 was generated in the UK (2010: £13,555,000).  Revenue generated outside the UK is primarily attributable to the Holland & Belgium (£2,640,000, 2010: Nil), France (£455,000, 2010: £326,000) and Republic of Ireland (£343,000, 2010: £424,000). No single customer provided the Group with over 10% of its revenue.  

Notes (continued)

4                      Segmental information (continued)

Analysis by location of sales

Period ended 31 March 2011	UK & Ireland	Europe	Other	Total
	£000	£000	£000	£000
Segment revenues	13,738	3,095	183	17,016
Operating Expenses
Results from operating activities				1,301
Net finance income				10
Profit before tax				1,311
Tax				(385)
Profit for the period				926
Assets
Unallocated net assets				6,499

 

Period ended 31 March 2010	UK & Ireland	Europe	Other	Total
	£000	£000	£000	£000
Segment revenues	13,979	326	151	14,456
Operating Expenses				12,712
Results from operating activities				1,744
Net finance income				(40)
Profit before tax				1,704
Tax				(429)
Profit for the period				1,275
Assets
Unallocated net assets				6,067

Analysis by type

Period ended 31 March 2011	Printing services - online sales	Printing services	Licence Income	Total
	£000	£000	£000	£000
Segment revenues	2,640	13,323	1,053	17,016
Operating Expenses
Results from operating activities				1,462
Exceptional Items				(161)
Net finance income				10
Profit before tax				1,311
Tax				(398)
Profit for the period				913
Assets
Unallocated net assets				6,842
Period ended 31 March 2010	Printing services - online sales	Printing services	Licence Income	Total
	£000	£000	£000	£000
Segment revenues	-	13,458	998	14,456
Operating Expenses				12,712
Results from operating activities				1,744
Net finance income				(40)
Profit before tax				1,704
Tax				(429)
Profit for the period				1,275
Assets
Unallocated net assets				6,067

 

5             Taxation

Recognised in profit and loss

	2011	2010
	£000	£000
Current tax expense
Current year	588	682
Foreign tax	23	11
Adjustments for prior years	(179)	(219)
	432	474
Deferred tax expense
Origination and reversal of temporary differences (see note 11)	(120)	(154)
Movement due to change in rate of tax	(45)	-
Adjustment in respect of prior year for intangibles	118	110
Other adjustments for prior years	-	(1)
Total tax in profit and loss	385	429

The adjustment in the tax expense for prior years is primarily due to R&D tax reclaims.  These amounts are only recognised by the Group when the claims have been completed and cash received.  The amounts reclaimed differ from the development costs capitalised under IAS and therefore the difference is not recognised as part of the tax base of these assets.  

Reconciliation of effective tax rate

	2011	2010
	£000	£000
Profit for the period	1,311	1,704
Total tax expense	(385)	(429)
Profit after taxation	926	1,275
Tax using the UK corporation tax rate of 28% (2010:28%)	367	477
Permanent differences	116	45
Overseas tax losses not recognised	33	17
Difference in overseas tax rate	(36)	-
Consolidation adjustments	1	-
Adjustments in respect of prior periods - current tax	(179)	(219)
Adjustments in respect of prior periods - deferred tax	118	109
Movement due to change in tax rate	(35)	-
Total tax expense	385	429
The Group Tax Creditor amounts to £423,000 (2010:£ 221,000)

The deferred tax assets and liabilities as at 31 March 2011 have been calculated using the tax rate of 26% which was substantively enacted at the balance sheet date. 

Further reductions to the UK corporation tax rate have been announced in the March 2011 Budget which have not been substantively enacted at the balance sheet date but are expected to impact on future tax charges.  It is proposed to reduce the rate by 1% each year to 23% by 1 April 2014.  These changes are expected to be enacted separately each year and have not been recognized in these financial statements.

6             Earnings per share

The calculations of earnings per share are based on the following profits and numbers of shares.

	2011	2010
	£000	£000
Profit after taxation for the financial year	926	1,275

Weighted average number of shares.

	2011	2010
	Number of Shares	Number of shares
For basic earnings per ordinary share	45,407,444	44,360,807
Exercise of share options	500,175	282,891
For diluted earnings per ordinary share	45,907,619	44,643,698

7              Dividends

	2011	2010
	£000	£000
Final dividends paid in respect of prior year but not recognised as liabilities in that year	932	931
Interim dividends paid in respect of the current year	493	466
Special Dividend declared in the prior year	-	887
Total dividend paid in the year	1,425	2,284

After the balance sheet date dividends of £986,000 /2.10p per qualifying ordinary share (2010: £932,000/2.10p per qualifying ordinary share) were proposed by the Directors. The dividends have not been provided for.

 

END

 

 

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