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Freshwater UK PLC (FWUK)

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Thursday 15 May, 2008

Freshwater UK PLC

Interim Results

RNS Number : 4943U
Freshwater UK PLC
15 May 2008
 



Date:                      15 May 2008

On behalf of:          Freshwater UK PLC ('Freshwater', 'the Company' or 'the Group')

Embargoed until:   0700hrs



Freshwater UK PLC

Interim Results 


Freshwater UK PLC (AIM: FWUK), the integrated PR and marketing services group with a UK regional network, announces its first interim results as an AIM-listed Company for the six months ended 29 February 2008.


Financial highlights


  • Turnover up 54% to £4.10m (2007: £2.66m)

  • Revenue (gross profit) up 72% to £3.25m (2007: £1.89m)

  • Earnings before interest, tax, depreciation and amortisation up 30% to £0.51m (2007: £0.39m)

  • Operating profit up 35% to £0.45m (2007: £0.33m)

  • Profit before taxation up 50% to £0.46m (2007: £0.30m)

  • Interim dividend per share of 1.5p (2007: 1.4655p) 


Operational highlights


  • Acquisition of Lynx Public Relations, a Leeds-based community relations specialist, on 1 November 2007

  • Acquisition of the Waterfront Partnership, a London and Brussels-based public affairs agency, and the Waterfront Conference Company on December 2007

  • Acquisition of Merlin Marketing and Public Relations, a Cardiff-based agency, on February 2008

  • Continued to diversify our services and the sectors in which we have a presence, giving further protection from future difficulties in any specific market  

  • Integrated Attenborough SaffronFreshwater Healthcare and Freshwater Academy staff in one office  securing ongoing cost savings

  • Delivered 7.3% like-for-like organic growth from existing Freshwater-branded businesses

  • Appointed Marie-Louise Windeler, former Chief Executive of Hill & Knowlton UK (WPP Group), as a non-executive director


Post balance sheet events


  • Exchanged contracts for the sale of Freshwater House at £750,000, with an anticipated profit on disposal on completion (2 June 2008) of £130,000

  • Integrated Cardiff-based Freshwater and Merlin staff at new leased offices on 12 May 2008 to deliver ongoing savings 

  • Attenborough Saffron achieves highest target for one year earn-out


Commenting on the interim results, Steve Howell, Chief Executive of Freshwater, said: 


'I am pleased with the Group's progress made in the past six months. The results show strong growth across the business and the recent acquisitions are performing wellWe look forward to further developing combined and cross selling opportunities and continue to expand the Group through targeted acquisitions.


'The Board believes that the Group is well placed for further growth and remains optimistic about future prospects.'  


- Ends -


Enquiries to:


Freshwater UK


Steve Howell, Chief Executive

Haydn Evans, Finance Director

Edward Carter, Executive Director

Alex Love, Corporate Affairs Director

Sian Grieve, Communications Executive

Tel: 029 2054 5383

Tel: 029 2054 5383

Tel: 0121 633 7775

Tel: 0779 120 0391

Tel: 07849 126 796

Charles Stanley Securities (Nominated Adviser)

Mark Taylor/ Freddy Crossley



Tel: 020 7149 6000

Redleaf Communications


Emma Kane/ Sanna Sumner/ Anna Dunkin 


Tel: 020 7822 0200


Notes to Editors

 

Freshwater UK PLC was founded in 1997 by Steve Howell, CEO and listed on AIM on 16 July 2007

Freshwater  aims to become one of the top providers of regional PR services to major national brands while also retaining and developing strong client portfolios in each region

Freshwater is an integrated PR and marketing business that combines a UK regional network with specialist expertise in sectors including technology, healthcare, consumer, the public sector, community relations, policy conferences and public affairs

 

Freshwater provides marketing support services from three divisions:

 

Creative 

Graphic design and media buying to its own portfolio of clients as well as PR  and  marketing clients  across the Group

 

Academy

Training, coaching and consultancy across Britain to clients in the public and private sector

 

Digital

Digital services, including broadcast quality video DVDs, websites, podcasts, video streaming and  electronic newsletters

 

Freshwater has completed ten acquisitions since 2004, six of which are now trading under the Freshwater brand. The directors believe that the Group has established a strong brand within the PR and marketing services sector and is well placed to achieve further growth both organically and through targeted acquisitions in keeping with the Group's overall strategy


 

Chief Executive's Statement


The Board is pleased to report that Freshwater's first interim results as an AIM-listed company show strong growth in revenue up 72% and profit before taxation up 50as the Group implements the strategy outlined to investors when it joined AIM in July 2007.


Freshwater continues to make excellent progress towards its goal of developing a substantial integrated PR and marketing group with a UK regional network and specialist expertise. In the half year to 29 February 2008, the Group has achieved like-for-like organic growth of 7.3% from Freshwater-branded operations and benefited from the inclusion of Attenborough Saffron for the whole period and contributions from businesses acquired more recently - Lynx (4 months), Waterfront (3 months) and Merlin (1 month). 


All four acquisitions are trading profitably and have been successfully integrated into the Group. Each has added further depth and breadth to the Freshwater offering and increased opportunities for synergy savings and combined and cross selling.  


Freshwater continues to be one of the UK's fastest growing PR consultancies and is rapidly climbing the industry's league tables.  


The Group's strong performance has given the Board confidence to declare an interim dividend of 1.5p based on our estimate of prospects for the full year and in line with our policy of 2.5 times cover.

 

Financial results


Freshwater has maintained its history of profitable growth, delivering a 72% growth in revenue for the first half of financial year 2007-2008.  


The increase in revenue to £3.25 million (2007: £1.89 million) is particularly encouraging and highlights our capacity for trading strongly while making acquisitions. It also illustrates our ability to deliver in the face of the more challenging economic circumstances of recent months.


Operating profit increased by 35% to £0.45 million (2007: £0.33 million) despite a bad debt write-off of £155,807 owed by a long standing client in the property sector, which was unexpectedly put into administration in March 2008.  Profit before taxation increased by 50% to £0.46 million (2007: £0.30 million) and basic earnings per share in the period was 2.81 pence (2007: 3.43 pence). Diluted earnings per share was 2.61 pence (2007: 3.42 pence). Basic earnings per share would have been 3.77 pence if the bad debt had not been fully written off. 


The written off debt was sizeable because of the level of media and print buying that we had undertaken for the client. The Group has taken additional measures to control credit to safeguard against further losses as companies come under pressure from tightening credit. Moreover, we have continued to diversify our services and the sectors in which we have a presence, giving further insulation from difficulties in any specific market.  


Of the 307 clients to which we provided services in the first half, only three accounted for more than 3% of the Group's revenue - National Grid, QVC and Morphy Richards. The acquisitions of Lynx and Waterfront have given Freshwater a substantial presence in the utilities and transport sectors respectively, adding to our existing strengths in the public sector, professional services, property, retail and consumer.


Our increased presence in the transport and utilities sectors has also enhanced the defensive capabilities of our business in building market share in sectors which tend to remain reasonably buoyant, even when the economy faces short-term challenges.


Since the end of the half year, the Group has also exchanged contracts for the sale of Freshwater House (3,838sq ft) at a price of £750,000, with completion due on 2 June. The sale will produce an anticipated profit on disposal of £130,000 boosting profit before taxation in the second half.


The Group had net cash and cash equivalents at the half year of £1.34 million, of which £0.90 million was, and remains, on short and medium-term deposits on the money markets. 


At 29 February 2008, the Group had net debt (defined as cash and cash equivalents less debt) of £150,997 (31 August 2007: net cash of £1,929,206) and exhibited a gearing ratio of 17% (31 August 2007: 20%). The Group's gearing will reduce substantially with the sale of Freshwater House and the repayment of the mortgage of £521,346.


After a negative operating cash flow of £0.13 million in the period under review, caused by the one-off resolution of various items in the balance sheets of newly acquired companies, the Group expects cash flow from operating activities to return to a healthy percentage of its operating profit in the second half of the year.


Dividend


An interim dividend of 1.5p per share (2007: 1.4655p) will be paid on 23 June 2008 to shareholders on the register on 23 May 2008. This is in line with the Group's policy of maintaining 2.5 times dividend cover. 


Operational review


The sale of Freshwater House is part of a plan to move all the Cardiff-based staff of Freshwater and recently-acquired Merlin PR and Marketing into leased offices to integrate the businesses and deliver ongoing savings. The joint 45-strong team, including 14 Group head office staff, have from 12 May 2008 been working together in the new 8,000 sq ft leased offices in Raglan House, Cardiff Gate Business Park. The new premises incorporate video-DVD editing and production facilities, a graphic design studio, training and meeting rooms, and a library. 


The acquisition of Merlin on 1 February 2008 enhanced Freshwater's position as Wales' leading PR agency and expanded our capabilities in interactive media, graphic design, video-DVD production, event management and marketing. This brought an immediate boost for cross-selling and substantial further benefits are expected to arise in the second half of the financial year and in future years.


The period also saw the acquisitions of Leeds-based Lynx Public Relations on November 2007 and of London and Brussels-based Waterfront Public Affairs and Waterfront Conference Company on December 2007. Lynx specialises in community relations and has a strong position in the utilities sector, including framework contracts with National Grid. Waterfront is a leading UK and EU public affairs and government relations consultancy and a UK market leader in policy conferences in the areas of transport, planning and regeneration. 


The three acquisitions have added a number of blue chip clients to Freshwater's portfolio, including Maersk, Port of London Authority, Bristol Port Company, Civil Aviation Authority, Association of Train Operating Companies, Transpennine Express, Mersey Travel, D P World, HBOS Card Services, International Business Wales, General Teaching Council for Wales, National Grid, Halifax (a division of HBOS) and Recycling Action Yorkshire.


Meanwhile, the 12-month earn-out relating to the acquisition in February 2007 of Attenborough Saffron, a London-based consumer PR agency, was successfully completed with the highest target surpassed. Nick Attenborough, the agency's Managing Director, was appointed to Freshwater's Executive Committee in February 2008, meaning four of the Committee's six members are former principals of acquired businesses. Attenborough Saffron will be re-named Freshwater Consumer on July 2008 in line with the Group's policy of integrating the acquired businesses behind a single brand to achieve economies of scale in marketing


The nine regional and specialist businesses already trading under the Freshwater brand continued to perform well, with particularly strong growth in the Midlands and the North of England. Ongoing annual cost savings of more than £100,000 were also achieved by moving the staff of Freshwater Healthcare and Freshwater Academy into the Attenborough Saffron offices at Holborn, London in January 2008.


The enlarged Group now has 135 staff operating from nine offices across Britain and one in Brussels.

 

New business


The Board is very pleased to be able to report that the Group has scored numerous new business successes in a wide range of markets. Notable additions to our client list include ShellNorthamptonshire Teaching and Primary Care TrustTescoBoots Centre for InnovationRosebys Interiors and energy company E.ON


The Healthcare team also won a competitive pitch to be placed on a roster for the NHS Blood and Transplant Agency, making it one of only five agencies eligible to provide communications for the Agency. 


New business from existing clients also continues, as Freshwater Creative won a national contract from the Environment Agency to buy media space for all of its public and legal notices. Freshwater also won a contract with existing client John Lewis to launch its summer homes collection in the regions. This was in addition to the Group's brief to provide PR support for John Lewis' store opening programme, which has so far involved working on the Cambridge (now open), Leicester, Liverpool and Cardiff openings.


Market


Public relations is one of the fastest growing disciplines within the marketing mix. Recently published data showed that the fee income of the top 150 PR agencies increased by 22% to £779 million in 2007. This reflects the fact that PR - as the manager of reputation and a provider of content - is becoming more important in a diversifying communication marketplace and in a world where the challenges to reputation can come from many different sources.


The PR industry itself remains highly fragmented, but there is a strong trend towards consolidation, with Freshwater recognised as a consolidator of regional and specialist agencies.


We believe that our model of combining regional and specialist PR services under one brand and operating in a wide range of markets puts us in a strong position to take advantage of growth opportunities. The recent acquisitions have enhanced this by giving the Group greater strength in sectors such as utilities and transport and specialisms such as public affairs and digital communication.


The Board will continue to be selective in making acquisitions and pursue only those that closely fit our strategy and offer substantial synergies and the prospect of ongoing commitment of their principals and teams.


Outlook 


Freshwater is well placed to deliver a good set of results for the full year. The first two months of the second half have seen the enlarged business trading in line with expectations. The recent acquisitions are performing well, and we are beginning to see the benefits of synergy savings. We are also leveraging increased opportunities for combined and cross selling through a stronger new business team.


Despite the current economic environment impacting on some housing clients, which is a relatively small proportion of our client base we continue to see growth in demand in the public sector, utilities, transport and technology sectors.


When the net gain from the sale of Freshwater House is taken into account alongside the exceptional bad debt provision at 29 February 2008, the Board is confident of meeting expectations for the full year.



Steve Howell

Chief Executive

14 May 2008

    

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 29 FEBRUARY 2008





6 months to 29 Feb 2008


6 months to 

28 Feb 2007


Year ended 

31 Aug 2007


Note

£



£



£


 

TURNOVER


4,096,282


2,655,589


6,535,746









REVENUE


3,254,282


1,886,219


4,655,145

 

Administrative expenses

4

(2,807,810)


(1,556,235)


(3,638,030)

OPERATING PROFIT


446,472


329,984


1,017,115


Finance income


75,159


-


38,759


Finance costs


(65,762)


(25,507)


(135,173)

PROFIT BEFORE INCOME TAX

4

455,869


304,477


920,701

 

Income tax expense

5

(136,761)


(97,278)


(270,415)

PROFIT 


319,108


207,199


650,286















Basic earnings per share

11

2.81p


3.43p


9.66p

Diluted earnings per share

11

2.61p


3.42p


9.48p





UNAUDITED CONSOLIDATED BALANCE SHEET

AS AT 29 FEBRUARY 2008





29 Feb 2008


31 Aug 2007


28 Feb 2007


Note

£



£



£


ASSETS














Non-current assets







Property, plant and equipment


1,183,612


1,011,175


967,369

Intangible assets

6, 7

7,849,127


5,336,122


5,090,874



 

9,032,739


6,347,297


6,058,243

Current assets







Inventories


 

164,480


55,434


82,695

Trade and other receivables


 

2,449,799


1,608,987


1,787,090

Derivative financial instruments


 

700


700


-

Cash and cash equivalents


 

1,343,645


3,570,459


2,072,790



 

3,958,624


5,235,580


3,942,575








Total assets


 

12,991,363


11,582,877


10,000,818








EQUITY














Issued equity capital

9

 

1,176,801


1,115,300


624,713

Share premium

9

 

5,730,748


5,266,624


2,031,412

Other reserves


 

940,000


720,000


886,096

Retained earnings


 

1,114,819


970,391


618,864



 

8,962,368


8,072,315


4,161,085








LIABILITIES














Non-current liabilities







Long term borrowings

8

 

1,143,779


1,296,656


893,250

Liability component of preference shares


 

-


-


167,300

Deferred tax liabilities


 

38,070


38,070


43,320



 

1,181,849


1,334,726


1,103,870

Current liabilities







Bank overdraft 


 

-


-


377,927

Trade and other payables


 

2,145,452


1,554,624


2,812,359

Short-term borrowings

8

 

350,863


344,597


1,301,804

Liability component of preference shares


 

-


-


11,700

Current tax liabilities


 

350,831


276,615


232,073



 

2,847,146


2,175,836


4,735,863








Total liabilities


 

4,028,995


3,510,562


5,839,733








Total equity and liabilities


 

12,991,363


11,582,877


10,000,818






UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE PERIOD ENDED 29 FEBRUARY 2008




Note

Ordinary shares


Preferred ordinary shares


Share premium


Share option 


Other reserves


Retained earnings



£


£


£


£


£


£

1 September 2006


439,059


130,000


1,607,104


7,753


143,102


490,934














Issue of ordinary shares

9

44,226


-


335,738


-


-


-

Issue of preferred shares

9

-


11,428


88,570


-


-


-

Share option reserve


-


-


-


3,343


-


-

Movement in contingent consideration


-


-


-


-


731,898


-

Profit for the year


-


-


-


-


-


207,199

Dividends

10

-


-


-


-


-


(79,269)

28 February 2007 


483,285


141,428


2,031,412


11,096


875,000


618,864














Issue of ordinary shares

9

20,007


-


156,101


-


-


-

Conversion of preferred shares 

9

141,428


(141,428)


179,000


-


-


-

Issue of ordinary shares (IPO)

9

470,580


-


2,900,111


-


-


-

Share option reserve


-


-


-


8,904


-


-

Movement in contingent consideration


-


-


-


-


(175,000)


-

Profit for the year 


-


-


-


-


-


443,087

Dividends

10

-


-


-


-


-


(91,560)

31 August 2007 


1,115,300


-


5,266,624


20,000


700,000


970,391














Issue of ordinary shares

9

61,501


-


464,124


-


-


-

Movement in contingent consideration

7

-


-


-


-


220,000


-

Profit for the year 


-


-


-


-


-


319,108

Dividends

10

-


-


-


-


-


(174,680)

29 February 2008 


1,176,801


-


5,730,748


20,000


920,000


1,114,819















Other reserves comprises the estimated value of ordinary shares in the Company that will be issued as a result of the earn-out arrangements associated with the Company's acquisitions. 

    



UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD ENDED 29 FEBRUARY 2008





6 months to 29 Feb 2008


6 months to 28 Feb 

2007


Year ended 31 Aug 2007


Note

£



£



£


Operating profit


446,472


329,984


1,017,115

Depreciation of property, plant and equipment

4

59,903


33,421


99,810

Impairment of goodwill

4

-


26,470


26,470

Amortisation of other intangible assets 

4

499


498


898

Unrealised gain on derivative financial instrument


-


-


(700)

Loss on disposal of fixed assets


549


4,664


4,664

Change in inventories


(30,397)


(22,635)


4,626

Change in trade and other receivables


103,218


(254,902)


(76,301)

Change in trade and other payables


(613,536)


(7,312)


18,925

Change in share option reserve


-


3,343


12,247



(33,292)


113,531


1,107,754

Interest received


75,159


-


38,759

Interest paid


(65,762)


(25,507)


(135,173)

Income taxes paid 


(108,138)


(66,012)


(199,857)

Net cash flow from operating activities 


(132,033)


22,012


811,483








Net cash flow arising from acquisitions


(1,656,178)


(8,955)


(2,662,624)

Disposal of property plant and equipment 


3,696


-


-

Purchase of property plant and equipment


(92,568)


(65,769)


(171,626)

Net cash flow from investing activities


(1,745,050)


(74,724)


(2,834,250)








Proceeds from the issue of share capital

9

-


430,513


3,802,309

Change in borrowings

8

   (175,051)


547,559


1,112,974

Dividends paid

10

(174,680)


 (79,269)


(170,829)

Net cash flow from financing activities


(349,731)


898,803


4,744,454








(Decrease) / increase in cash and cash equivalents


(2,226,814)


846,091


2,721,687

Cash and cash equivalents at the start of the period


3,570,459


848,772


848,772

Cash and cash equivalent at the end of the period 


1,343,645


1,694,863


3,570,459






          NOTES TO THE INTERIM REPORT

FOR THE SIX MONTHS ENDED 29 FEBRUARY 2008



1.     INTERIM REPORT FOR THE SIX MONTHS ENDING 29 FEBRUARY 2008 

    

Freshwater Group ('the Group') comprises Freshwater UK PLC (the 'Company') and its subsidiary undertakings. The Company is a limited liability company incorporated and domiciled in the United Kingdom. The Company's registered number is 4059741 (England and Wales) and its registered office is at Freshwater House, Cardiff Gate Business Park, Cardiff, CF23 8RS.

    

This document constitutes the Group's interim report for the six months ending 29 February 2008 (the 'Group's interim report'). It has been produced in accordance with IAS 34 - Interim Financial Reporting. The interim accounts for the six months ended 29 February 2008 and the comparative figures for the six months ended 28 February 2007 are neither audited nor reviewed by the Group's auditors. The comparative figures for the twelve months ended 31 August 2007 are not statutory accounts within the meaning of Section 240 of the Companies Act 1985 but are abridged from such accounts. The financial statements for the twelve months ended 31 August 2007 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain any statement under Sections 237(2) or 237(3) of the Companies Act 1985. 


The Group's interim report contains forward-looking statements. By their nature forward-looking statements involve risks and uncertainties and actual results may differ from those expressed or implied in such statements. The Group undertakes no obligation to update any forward-looking statements as a result of new information, future events or otherwise. 


        The Group's interim report will be sent to the Company's shareholders. The report will also     be     available, free of charge, from the Company's registered office and on the Company's website: www.     freshwater-uk.com.


2.    ACCOUNTING POLICIES

 

The accounting policies applied in preparing this report are the same as applied by the Group in preparing its financial statements for the year ended 31 August 2007 in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU and applicable provisions of the Companies Act 1985. The Company's directors (the 'Directors') have considered those IFRS and interpretations thereof developed by the International Financial Reporting Interpretations Committee ('IFRIC') which will apply for the first time to the Group's financial statements for the year ending 31 August 2008 and have concluded that they have no impact on the Group's interim report. 


3.     CHANGES TO FRESHWATER GROUP 


Since 1 September 2006 the Company has acquired Attenborough Saffron Limited, Lynx Public Relations Limited, the Waterfront Conference Company Limited, the Waterfront Partnership and Merlin Marketing and Public Relations Limited. Information on these combinations is provided in note 7. The composition and structure of the Group has otherwise remained unchanged since 1 September 2006.


4.    PROFIT BEFORE TAX


Profit before tax is stated after charging the following:





6 months to 29 Feb 2008


6 months to 28 Feb 2007


Year ended 31 Aug 2007




£



£



£




Depreciation of property, plant and equipment:








         -owned by the Group 

50,319


26,087


84,056



        - held under finance leases by   the Group 

9,584


7,334


15,754



Impairment of goodwill

-


26,470


26,470



Amortisation of other intangible assets

499


498


898



Operating lease rentals:








        - property, plant and equipment

8,000


8,470


5,000



        - other operating leases

90,000


97,978


189,319



Employee costs 

1,820,487


1,063,060


2,528,189


The amounts reported are included within administrative expenses. Administrative expenses for the period ended 29 February 2008 includes £155,807 being the write-off in full of the amount net of VAT owed by one of the Group's clients that has been placed into administration.


5.    TAXATION


The income tax expense for the period ended 29 February 2008 is an estimate based on the Directors     best estimate of the effective rate of income tax that will apply to the Group's profit for the year ending 31 August 2008





6 months to 29 Feb 2008 


6 months to 28 Feb 2007


Year ended 31 Aug 2007




£



£



£




Profit before income tax

455,869


304,477


920,701



Income tax expense

136,761


97,278


270,415



Effective tax rate 

30%


31.9%


29.3%


6.    INTANGIBLE FIXED ASSETS





Goodwill 


Other 


Total 




£


£


£



Cost








31 August 2007

 

5,356,655


 

66,712


 

5,423,367



Business combinations - Pre 31 August 2007

 

 5,914


 

-


 

5,914



Business combinations - Post 31 August 2007

  2,507,590


 

-


 

2,507,590



29 February 2008

 

7,870,159


 

66,712


 

7,936,871











Amortisation and impairment








31 August 2007

 

30,089


 

57,156


 

87,245



Amortisation

 

-


 

499


 

499



29 February 2008

 

30,089


 

57,655


 

87,744











Carrying value at 29 February 2008 

 

7,840,070


 

9,057


 

7,849,127



Carrying value at 31 August 2007

 

5,326,566


 

9,556


 

5,336,122


7.    BUSINESS COMBINATIONS  


Information on business combinations since 31 August 2006 is provided below. 


    Attenborough Saffron Limited 


On 28 February 2007 the Company acquired control of Attenborough Saffron LimitedAttenborough Saffron Limited contributed £821,222 (£nil: £855,464) to revenue and £222,075 (£nil: £251,752to profit before income tax for the period ended 29 February 2008 (the latter figure excludes any charges by the Company for management services). The figures in brackets are for the period ended 28 February 2007 and for the year ended 31 August 2007 respectively.


Details of the consideration provided by the Company and of Attenborough Saffron Limited's identifiable assets, liabilities and contingent liabilities at the date of acquisition are provided in the Group's financial statements for the year ended 31 August 2007. No changes to the reported amounts have occurred since the year end. The earn-out period ended on 29 February 2008 and the cash amount payable and the number of shares to be issued under the earn-out arrangements have been agreed at the same levels as disclosed in the Group's financial statements for the year ended 31 August 2007. 


Acquisition of Lynx Public Relations Limited  


On 1 November 2007 the Company acquired control of Lynx Public Relations Limited by acquiring its Class A and Class B ordinary share capital in exchange for a cash payment of £350,000, the issue of 109,890 10p ordinary shares and certain contingent consideration. The contingent consideration provided included the promise of an additional cash payment dependent on what subsequently was agreed as Lynx Public Relations Limited's net tangible assets at the completion date. It further included the promise of an additional cash payment and the issue of an additional value of 10p ordinary shares dependant upon Lynx Public Relations Limited's financial performance in the 12 months subsequent to the completion date. The acquired Class B ordinary shares carried no voting rights but in all other respects ranked pari passu with the Class A ordinary shares. Upon completion the Class A and Class B ordinary shares were converted into a single class of ordinary shares on a one for one basis. Lynx Public Relations Limited had, and continues to have, no subsidiaries or associates.





Provisional








29 Feb 08








Book

Adj.

Fair 








£


£


£











Assets and liabilities acquired










Tangible assets

 

585

 

-

 

585







Stocks

 

1,932

 

-

 

1,932







Debtors

 

326,809

 

-

 

326,809







Cash at bank and at hand

 

147,499

 

-

 

147,499







Creditors

 

(176,658)

 

-

 

(176,658)







Net assets acquired

 

300,167


 

300,167







Goodwill



717,332










1,017,499







Cost of business combination










Cash



 

350,000







109,890 ordinary shares



 

100,000







Contingent consideration










Net assets - Cash



 

297,499







Earn-out - Cash - Estimate



 

50,000







Earn-out - Shares - Estimate



 

120,000










 

467,499







Direct costs - Estimate



 

100,000










 

1,017,499






What is considered as having been the fair value of Lynx Public Relations Limited's identifiable assets, liabilities, and contingent liabilities at the date of acquisition has remained unchanged since completion. The values reported are provisional IFRS values. The Company and the vendors agreed that the fair value of each of the 109,890 10p ordinary shares issued upon completion should be considered 91p after due regard to the recent quoted mid-market price of the Company's shares. The contingent net asset based cash payment was agreed and made in December 2007.The estimated values of the cash payment that will be made and the shares that will be issued as a result of the earn-out arrangements are based on the current expectation of Lynx Public Relations Limited's financial performance during the earn-out period. The number of shares issued as a result of the earn-out arrangements will be such as to yield an agreed value based on the average quoted mid-market closing price of the Company's shares in the last month of the earn-out period.


During the four month period ended 29 February 2008 Lynx Public Relations Limited contributed £246,600 to revenue and £123,726 to profit before income tax (the latter figure excludes any charges by the Company for management services).


Acquisition of the Waterfront Conference Company Limited  


On 2 December 2007 the Company acquired control of the Waterfront Conference Company Limited by    acquiring its ordinary and preference share capital in exchange for a cash payment of £140,000, the issue of 30,110 10p ordinary shares and certain contingent consideration. The contingent consideration provided included the promise of an additional cash payment dependent on what subsequently was agreed as the Waterfront Conference Company Limited's net tangible assets at the completion date. It further included the promise of an additional cash payment and the issue of an additional value of 10p ordinary shares dependant upon the Waterfront Conference Company Limited's financial performance in the 15 months subsequent to the completion date. Upon completion the acquired preference shares were converted on a one for one basis into ordinary shares. The Waterfront Conference Company Limited had, and continues to have, no subsidiaries or associates. 





Provisional








29 Feb 08








Book

Adj.

Fair 








£


£


£











Assets and liabilities acquired










Tangible assets

   

45,740

 

-

 

45,740







Debtors

 

183,905

 

-

 

183,905







Cash at bank and at hand

 

2,741

 

-

 

2,741







Creditors

 

(247,419)

 

-

 

(247,419)







Net liabilities acquired

 

(15,033)


 

(15,033)







Goodwill



 

215,000










 

199,967







Cost of business combination










Cash



 

140,000







30,110 ordinary shares



 

25,000







Contingent consideration:










Net liabilities - Estimate



 

(15,033)







Direct costs - Estimate



 

50,000










 

199,967






What is considered as having been the fair value of the Waterfront Conference Company Limited's identifiable assets, liabilities, and contingent liabilities at the date of acquisition has remained unchanged since completion. The values reported are provisional IFRS values. The Company and the vendors agreed that the fair value of each of the 30,110 10p ordinary shares issued upon completion should be considered 83p after due regard to the recent quoted mid-market price of the Company's shares. The contingent net asset based cash payment has yet to be agreed. It is not currently expected that the financial performance of the Waterfront Conference Company will be such as to warrant a payment of cash or the issue of a value of shares under the earn-out arrangements. 


During the three month period ended 29 February 2008 The Waterfront Conference Company Limited contributed £77,931 to revenue and £(24,794) to profit before income tax (the latter figure excludes any charges by the Company for management services). 


Acquisition of the Waterfront Partnership 


On 2 December 2007 the Company acquired the business of the Waterfront Partnership together with certain of its assets and liabilities in exchange for a cash payment of £580,000, the issue of 240,876 10p ordinary shares and certain contingent consideration. The contingent consideration provided included the promise of an additional cash payment dependent on what subsequently was agreed as the value of the assets and liabilities acquired at the completion date. It further included the promise of an additional cash payment and the issue of an additional value of 10p ordinary shares dependant upon the acquired business's financial performance in the 15 months subsequent to completion. Immediately upon completion the Company transferred the acquired business, assets and liabilities at book value to Waterfront Public Affairs Limited, a 'Newco' and 100% direct subsidiary of the Company.





Provisional








29 Feb 08








Book

Adj.

Fair 








£


£


£











Assets and liabilities acquired










Tangible assets

 

5,767

 

-

 

  5,767







Debtors

 

182,474

 

-

 

182,474







Creditors

 

(334,135)

 

-

 

(334,135)







Net liabilities acquired

 

(145,894)


 

(145,894)







Goodwill



 

880,000










 

734,106







Cost of business combination










Cash



 

580,000







240,876 ordinary shares



 

200,000







Contingent consideration










Net liabilities - Cash - Estimate



 

(145,894)







Direct costs - Estimate 



 

100,000










 

734,106






What is considered as having been the fair value of the acquired identifiable assets, liabilities, and contingent liabilities at the date of acquisition has remained unchanged since completion. The values reported are provisional IFRS values. The Company and the vendors agreed that the fair value of each of the 30,110 10p ordinary shares issued upon completion should be considered 83p after due regard to the recent quoted mid-market price of the Company's shares. The contingent net asset based cash payment has yet to be agreed. It is not currently expected that the financial performance of the acquired business will be such as to warrant a payment of cash or the issue of shares under the earn-out arrangements. 


During the three month period ended 29 February 2008 the acquired business contributed £226,530 to revenue and £26,794 to profit before income tax (the latter figure excludes any charges by the Company for management services).


Acquisition of Merlin Marketing and Public Relations Limited


On 1 February 2008 the Company acquired control of Merlin Marketing and Public Relations Limited by acquiring its recognised ordinary share capital in exchange for a cash payment of £300,000, the issue of 234,137 10p ordinary shares and certain contingent consideration. The contingent consideration provided included the promise of an additional cash payment dependent on what subsequently was agreed as Merlin Marketing and Public Relations Limited's net tangible assets at the completion date. It further included a promise to issue an additional value of 10p ordinary shares dependant on the combined financial performance of Merlin Marketing and Public Relations Limited, Freshwater Creative Limited and Freshwater Wales Limited in the 12 months subsequent to the completion date. It is intended that by the end of the financial year the business, assets and liabilities of Merlin Marketing and Public Relations will have been transferred at book value to a 'Newco' and 100% direct subsidiary of the Company and that the legal entity, Merlin Marketing and Public Relations Limited, will have been wound up via a members voluntary liquidation. 





Provisional








29 Feb 08








Book

Adj.

Fair 








£


£


£











Assets and liabilities acquired










Tangible assets

  

93,211  

 

-

 

    93,211 







Debtors

 

348,427

 

-

 

348,427







Cash at bank and at hand

 

184,078

 

-

 

184,078







Creditors

 

(220,942)

 

-

 

(220,942)







Net assets acquired

 

 404,774


 

 404,774







Goodwill



 

695,226










1,100,000







Cost of business combination










Cash



 

300,000







234,137 ordinary shares



 

200,000







Contingent consideration










Net assets - Cash - Estimate



 

400,000







Earn-out - Shares - Estimate



 

100,000










 

500,000







Direct costs - Estimate



 

100,000










 

1,100,000






What is considered as having been the fair value of Merlin Marketing and Public Relations Limited's identifiable assets, liabilities, and contingent liabilities at the date of acquisition has remained unchanged since completion. The values reported are provisional IFRS values. The Company and the vendors agreed that the fair value of each of the 234,137 10p ordinary shares issued upon completion should be considered 85p after due regard to the recent quoted mid-market price of the Company's shares. The contingent net asset based cash payment has yet to be made. The estimated value of the shares that will be issued as a result of the earn-out arrangements is based on the current expectation of the combined financial performance of Merlin Marketing and Public Relations Limited, Freshwater Creative Limited and Freshwater Wales Limited during the earn-out period. The number of shares issued as a result of the earn-out arrangements will be such as to yield an agreed value based on the average quoted mid-market closing price of the Company's shares in the last month of the earn-out period.


During the one month period ended 29 February 2008 Merlin Marketing and Public Relations Limited contributed £96,816 to revenue and £35,420 to profit before income tax (the latter figure excludes any charges by the Company for management services). 


8.    BORROWINGS






Current


Non current


Total





Feb 08


Aug 07


Feb 08


Aug 07


Feb 08


Aug 07





£



£



£



£



£



£




Lease and HP 


13,936


9,431


 

13,937


 

-


 

27,873


 

9,431



Mortgage


32,675


30,914


 

521,346


 

536,034


 

554,021


 

566,948



Term loan


304,252


304,252


 

608,496


 

760,622


 

912,748


 

1,064,874





350,863


344,597


 

1,143,779


 

1,296,656


 

1,494,642


 

1,641,253


    The maturity profile of non current borrowings is as follows:

 



Due in

greater than 1 but less than 2 yrs

greater than 2 but less than 5 yrs

more than 5yrs

Total







Feb 08


Aug 07


Feb 08


Aug 07


Feb 08


Aug 07


Feb 08


Aug 07




£



£



£



£



£



£



£



£




Lease and HP

 

13,937


 

-


 

-


 

-


 

-


 

-


 

13,937


 

-



Mortgage

 

35,037


 

33,314


 

121,054


 

116,278


 

365,255


 

386,442


 

521,346


 

536,034



Term Loan

 

304,252


 

304,252


 

304,244


 

456,370


 

-


 

-


 

608,496


 

760,622




353,226


337,566


425,298


572,648


365,255


386,442


1,143,779


1,296,656




















The Group has entered into no new loan arrangements since the 31 August 2007 and the arrangements in place at that date continue in-force. The overdraft facility that was in place at 31 August 2007 continues in-force. 


9.    SHARE CAPITAL 






Authorised

Allotted, called up and fully paid





Ordinary

Preferred ordinary

Ordinary

Preferred ordinary





No


Par

No


Par

No


Par

No


Par



31 August 2006


 

2,300,000

 

20p

 

700,000

 

20p

 

2,195,297

 

20p

 

650,000

 

20p



Authorised issued


 

700,000


 

50,000


 

221,116


 

57,142




28 February 2007


 

3,000,000

 

20p 

 

750,000

 

20p

    

2,416,413

 

20p

 

707,142

 

20p



Authorised / issued 


 

6,250,000


 

-


 

100,000


 

-




Conversion of preferred shares


 

750,000


 

(750,000)


 

707,142


 

(707,142)






 

10,000,000


 

-


 

3,223,555


 

-




June 2007 2:1 split


 

10,000,000


 

-


 

3,223,555


 

-






 

20,000,000

 

10p

 

-


 

6,447,110

 

10p

 

-




July 2007 Initial Public Offering


 

-


 

-


 

4,705,891


 

-




31 August 2007 


 

20,000,000

 

10p

 

-


 

11,153,001

 

10p

 

-




Authorised / issued


 

-


 

-


 

615,013


 

-




29 February 2008


 

20,000,000

 

10p

 

-


  

11,768,014

 

10p

 

-



Changes since 31 August 2007


On 1 November 2007 109,890 ordinary shares were allotted to the vendors of Lynx Public Relations Limited at a deemed issue price of 91p. On 2 December 2007 30,110 ordinary shares were allotted to the vendors of the Waterfront Conference Company Limited at a deemed issue price of 83p. On 2 December 2007 240,876 ordinary shares were allotted to the vendors of the business of the Waterfront Partnership at a deemed issue price of 83p each. On 1 February 2008 234,137 ordinary shares were allotted to the vendors of Merlin Marketing and Public Relations Limited at a deemed issue price of 85p.


10.    DIVIDENDS




Paid during the six months ended 28 February 2007:





Final 05/06 ordinary dividend at 2.8p (1.4p) per qualifying share


 

79,269








Paid during the six months ended 31 August 2007:





Interim 06/07 ordinary dividend at 2.931p (1.4655p) per qualifying share


 

91,560








Paid during the six months ended 29 February 2008:





Final 06/07 ordinary dividend at 1.5145p per qualifying share


 

174,680


The figures in brackets reflect the 2:1 split that occurred in June 2007The Directors have declared an interim dividend for the year ended 31 August 2008 of 1.5p per qualifying share. The Group's interim report does not reflect this dividend which will be accounted for as an appropriation of equity when paid


11.    EARNINGS PER SHARE


In June 2007 a 2:1 split occurred with each of the Company's authorised and allotted 20p ordinary shares being divided into two 10p ordinary shares. The calculations of basic and diluted earnings per share have been adjusted accordingly.


    Basic earnings per share





6 months to 29 Feb 2008


6 months to 28 Feb 2007


Year ended 31 Aug 2007




£ / no.



£ / no.



£ / no.




Profit attributable to ordinary shareholders

 

    319,108


  207,199


650,286



Weighted average number of ordinary shares

   

 

  11,349,527


6,033,034


6,732,996











Basic earnings per share 

     

 2.81p


3.43p


9.66p


The 20p preferred ordinary shares in issue during 2007 were regarded as a compound instrument comprising an ordinary share and a debt instrument. Their number was taken into account when calculating the weighted average number of ordinary shares used in the calculation of basic earnings per share for the period ended 28 February 2007 and for the year ended 31 August 2007.


Diluted earnings per share





6 months to 29 Feb 2008


6 months to 28 Feb 2007


Year ended 31 Aug 2007




£ / no.



£ / no.



£ / no.




Profit attributable to ordinary shareholders 

319,108


207,199


650,286



Weighted average number of ordinary shares

11,349,527


6,033,034


6,732,996



Share options

11,087




34,108



Business combin. - Contingent consideration 

857,612


27,728


91,667



Weighted average number of shares  

12,218,226


6,060,762


6,858,771











Diluted earnings per share 

2.61p


3.42p


9.48p


The weighted average number of ordinary shares used to calculate diluted earnings per share is equal to that used to calculate basic earning per share as adjusted for the effects of all dilutive potential ordinary shares.


Share options 


The Company entered similar share option contracts in February 2005, January 2006, July 2006 and July 2007 that differed only with regard to exercise pricePrior to the Company listing on the Alternative Investment Market on 16 July 2007 the vesting of the options under these contracts was subject to a performance related condition and the options were considered contingently issuable shares. None of the options were taken into account when calculating diluted earnings per share for the period ended 28 February 2007 as at this point their vesting was subject to a performance related condition that had neither been met in full nor in partThe options under the contracts issued in February 2005 and January 2006 being dilutive were taken into account when calculating diluted earnings per share for the year ended 31 August 2007. The options under those contracts issued in February 2005, January 2006 and July 2007 being dilutive were taken into account being when calculating diluted earnings per share for the period ended 29 February 2008. 


Contingent share consideration 


Contingent share consideration that forms part of a business combination is taken into account when calculating diluted earnings per share from the earlier of the beginning of the period and the date of the combination in a manner that reflects the extent to which the relevant conditions have been met by the balance sheet date provided the effect is dilutive. It should be noted that this approach can lead to a mismatch between the calculation of diluted earnings per share and the contingent share consideration provided for in the balance sheet which reflects future expectations. For example implicit in the consolidated balance sheet at 29 February 2008 is the estimate that the earn-out arrangements associated with the acquisition of Merlin Marketing and Public Relations Limited will result in the issue of ordinary shares of value of £100,000 whereas when calculating diluted earnings per share for the period ended 29 February 2008 it was assumed that no shares would be issued in view of Merlin's financial performance by 29 February 2008.


12.    EVENTS AFTER THE BALANCE SHEET DATE 

    

The following material non-adjusting events occurred subsequent to the balance sheet date and prior to the authorisation of the Group's interim report. 


Attenborough Saffron Limited


On 29 February 2008 the earn-out period associated with the acquisition of Attenborough Saffron Limited ended. It was subsequently agreed that Attenborough Saffron Limited's financial performance during the earn-out period warranted the payment of the maximum deferred consideration of £1.3 million to be satisfied by the issue of 800,000 ordinary shares in the Company and the payment of £600,000 in cash. The cash payment was made in early April 2008. The 800,000 ordinary shares have been issued and rank pari passu with the existing ordinary shares of the Company. Following the issue of these shares the Company had 12,569,015 ordinary shares in issue, each share holding one voting right.


Freshwater House 


Subsequent to the balance sheet date the Group exchanged contracts for the sale of Freshwater House whose purchase had been funded by the Group's mortgage contract and which is included in the Group's balance sheet at 29 February 2008 at cost of £648,717 and net book value of £608,516. Completion of the sale is expected to take place on 2 June 2008. The sale price of Freshwater House is

£750,000 and the anticipated profit on disposal after transaction costs is £130,000. Any profit that arises will be recognised in the six months ending 31 August 2008. To date Freshwater House has served as the Group's head office and prior to the acquisition of Merlin Marketing and Public Relations Limited the sole base of its Welsh operations. It has also been the Company's registered office. Subsequent to the balance sheet date the Group leased new offices at Raglan House, Cardiff Gate Business Park, CF23 8RA that with effect from 12 May 2008 have served as the Group's head office and the sole base of all its Welsh operations including Merlin Marketing and Public Relations Limited. Raglan House will be the Company's registered office. 

This information is provided by RNS
The company news service from the London Stock Exchange
 
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