TIDMMSQ
RNS Number : 0146T
Media Square PLC
30 November 2011
Media Square Plc
INTERIM REPORT
FOR THE SIX MONTHS ENDED 31 AUGUST 2011
Business Review
for the six months ended 31 August 2011
Overview
The results for the six month period reflect the challenging
environment. Revenue was slightly down on the same period as last
year, although headline operating profit was at the same level.
The prospects for the Group remain constrained by its level of
debt and the associated funding cost. Developing a long term
solution to the Group's debt position has been the main priority of
the Board for the past twelve months and we believe it is
especially critical that concrete progress is made in this area in
order for the Group to have an appropriate capital and funding
structure in place that provides a solid platform on which to
deliver profitable growth.
Satisfactory progress at an operating level
During the six months under review, the Group achieved revenue
of GBP21.8m (2010 restated: GBP22.3m), headline EBITDA of GBP1.1m
(2010 restated: GBP1.2m) and headline operating profit of GBP0.7m
(2010 restated: GBP0.7m).
The 2% revenue decline reflects the more challenging trading
environment relative to the prior year. However, through prudent
cost control, the Group was able to maintain operating profit at
the same level as last year.
New business momentum also picked up towards the end of the
period after a sluggish start to the new financial year, although
this has to be set against continued caution around budgets from
many existing clients. Major new client assignments won during the
period include: Associated British Foods, Kraft, Dixons, Iron
Mountain, Air Partner, Genworth, MTV, NHS, Santander and
Unilever.
The Group also took steps to build a stronger platform for
future growth, including the hiring of new CEOs for both CST The
Gate (Luke Mugliston - formerly Global Head of Brand at Aviva) and
CMW (Liz Wilson formerly MD of Albion), as well as significantly
enhancing the quality of the team within Holmes and Marchant, the
Group's consumer design agency.
Material exceptional and financing costs
As previously announced, the Board of Media Square believes that
during the relevant period, David Wright, CEO of Porta
Communications (an AIM-listed plc), sought to execute an unlawful
conspiracy as part of a project to allow Porta to back the
acquisition of all, or part of the Media Square Group.
The Group incurred significant exceptional costs in dealing with
the matter. The Group has initiated proceedings and through this
process will be seeking to recover the losses that it has
sustained. At this stage, the Board anticipates that the
proceedings will be defended.
After inclusion of exceptional items and share-based payments
the post-exceptional operating loss is GBP0.1m (2010 restated:
profit of GBP0.5m).
As is well known, the Group has a significant financing burden
relating to its high level of debt. Net finance costs for the
six-months to the 31 August 2011 were GBP1.3m (2010: GBP1.3m) and
include non-cash, fair value movements of derivative instruments,
being the Group's interest rate hedge, and amortisation of loan
costs.
Taking these finance costs into account, the Group made a loss
before tax of GBP1.4m (2010 restated: GBP1.1m).
Potential changes to working capital flows
As at 31 August 2011, underlying net debt was GBP21.5m (28 Feb
2011: GBP19.5m), representing an increase over the six month period
of GBP2.0m. This increase in net debt over the figure as of 28
February 2011 is in line with the Group's typical working capital
pattern which sees an outflow of working capital over the first
half of the financial year that is reversed in the second half of
the financial year.
Looking forward, however, the Group anticipates a greater level
of uncertainty in working capital patterns driven by changes in
media related payments, which have historically helped limit the
Group's overall working capital requirement. The likely impact of
this trend (which reflects broader market practice) is that the
Group will have a higher working capital requirement in the future,
which would, in turn, mean that historical working capital patterns
over the second half of the year may not be repeated.
This situation also adds further urgency to the need to find a
long-term solution to the Group's capital structure, and, as such,
the Board is actively considering the options available to the
Group to strengthen its balance sheet. At the same time, the Group
also continues to have discussions with stakeholders, including its
Bank, about the Group's funding position. The Board is close to
completing an updated detailed 12 month cash flow forecast (to 30
November 2012) which will show the Group's position with regard to
covenants and cash headroom over this future period and will be
discussed with our Bank when available. If appropriate, we will
also update shareholders as to the results of this exercise.
Current trading
The Group continues to face challenging conditions and as
previously announced the full year's operating profit will be below
the level of last year. This uncertain macro outlook makes it all
the more important that the Group successfully delivers on a long
term solution to the historical debt position, given the potential
pressure on its funding position going forward.
Peter Reid
Chief Executive Officer
29 November 2011
Consolidated income statement
for the six months ended 31 August 2011
6 months ended 6 months ended Year ended
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
Note Unaudited Unaudited Audited
Restated
------------------------------------------- ---- -------------- -------------- -----------
Revenue 3 21,827 22,347 45,377
------------------------------------------- ---- -------------- -------------- -----------
Administrative expenses (21,131) (21,598) (43,315)
------------------------------------------- ---- -------------- -------------- -----------
Headline operating profit 3 696 749 2,062
Exceptional items (704) - -
Share-based payments (77) (243) (282)
------------------------------------------- ---- -------------- -------------- -----------
Operating (loss)/profit 3 (85) 506 1,780
Loss on closure of subsidiary undertakings - (479) (479)
Profit on sale of an investment - 173 173
Fair value movement on warrant derivative 39 - 137
Finance cost (988) (871) (1,808)
Finance cost relating to amortisation
of loan arrangement fees (133) (266) (410)
Finance (cost)/ income relating to
derivative (194) (167) 155
Finance income 8 5 13
Net finance cost (1,307) (1,299) (2,050)
Loss from continuing operations before
tax (1,353) (1,099) (439)
Tax on loss (241) 309 110
------------------------------------------- ---- -------------- -------------- -----------
Loss from continuing operations (1,594) (790) (329)
Loss from discontinued operations - (449) (2,427)
------------------------------------------- ---- -------------- -------------- -----------
Loss for the period (1,594) (1,239) (2,756)
------------------------------------------- ---- -------------- -------------- -----------
6 months ended 6 months Year ended
ended
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
Unaudited Unaudited Audited
Restated
------------------------------------ -------------- --------- -----------
Loss for the period (1,594) (1,239) (2,756)
Other comprehensive income:
Exchange differences on translating
foreign operations (10) 60 165
------------------------------------ -------------- --------- -----------
Other comprehensive income for
the period (10) 60 165
Total comprehensive income for
the period (1,604) (1,179) (2,591)
------------------------------------ -------------- --------- -----------
Consolidated statement of financial position
as at 31 August 2011
At At At
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
Note Unaudited Unaudited Audited
Non-current assets
Intangible assets 136 90 163
Goodwill 23,381 23,670 23,381
Property, plant and equipment 2,243 5,460 1,854
Investment property 3,160 - 3,160
Financial assets 8 348 8
Deferred tax 1,601 1,776 1,801
------------------------------ ---- ---------- ---------- ------------
30,529 31,344 30,367
------------------------------ ---- ---------- ---------- ------------
Current assets
Inventories 1,129 1,218 924
Trade and other receivables 14,776 19,038 17,048
Corporation tax - 18 -
Cash and cash equivalents 6,654 4,789 7,945
------------------------------ ---- ---------- ---------- ------------
22,559 25,063 25,917
------------------------------ ---- ---------- ---------- ------------
Total assets 53,088 56,407 56,284
------------------------------ ---- ---------- ---------- ------------
Current liabilities
Trade and other payables (25,515) (25,349) (30,237)
Corporation tax (172) - (161)
Borrowings 6 (114) (176) (176)
Financial liabilities - (12) (1)
------------------------------ ---- ---------- ---------- ------------
(25,801) (25,537) (30,575)
------------------------------ ---- ---------- ---------- ------------
Non-current liabilities
Borrowings 6 (25,232) (25,113) (22,167)
Financial liabilities (1,115) (1,207) (942)
Provisions for liabilities (807) (1,517) (940)
------------------------------ ---- ---------- ---------- ------------
(27,154) (27,837) (24,049)
------------------------------ ---- ---------- ---------- ------------
Total liabilities (52,955) (53,374) (54,624)
------------------------------ ---- ---------- ---------- ------------
Net assets 133 3,033 1,660
------------------------------ ---- ---------- ---------- ------------
Shareholders' funds
Share capital 3,617 3,617 3,617
Share premium account 37,866 37,866 37,866
Capital redemption reserve 13,268 13,268 13,268
Merger reserve 5,078 5,078 5,078
Share-based payment reserve 386 957 309
Investment in own shares (953) (1,385) (953)
Translation reserve 366 271 376
Retained earnings (59,495) (56,639) (57,901)
Total equity shareholders'
funds 133 3,033 1,660
------------------------------ ---- ---------- ---------- ------------
Consolidated statement of change in equity
for the six months ended 31 August 2011
Share Capital Share-based Investment
Issued premium redemption Merger payment in own Translation Retained Total
capital account reserve reserve reserve shares reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Balance at 28
February 2010 3,617 37,866 13,268 5,078 714 (1,385) 211 (55,400) 3,969
Exchange gain
arising on
consolidation - - - - - - 165 - 165
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Net income
recognised
directly in
other
comprehensive
income - - - - - - 165 - 165
Loss for the
financial
year - - - - - - - (2,756) (2,756)
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Total
comprehensive
income for the
year - - - - - - 165 (2,756) (2,591)
Employee
share-based
compensation - - - - 282 - - - 282
Share-based
compensation
vested in the
year - - - - (687) 432 - 255 -
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Balance at 28
February 2011 3,617 37,866 13,268 5,078 309 (953) 376 (57,901) 1,660
Exchange loss
arising on
consolidation - - - - - - (10) - (10)
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Net income
recognised
directly in
other
comprehensive
income - - - - - - (10) - (10)
Loss for the
period - - - - - - - (1,594) (1,594)
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Total
comprehensive
income for the
period - - - - - - (10) (1,594) (1,604)
Employee
share-based
compensation - - - - 77 - - - 77
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Balance at 31
August 2011 3,617 37,866 13,268 5,078 386 (953) 366 (59,495) 133
---------------- -------- -------- ----------- -------- ----------- ---------- ------------ --------- -------
Consolidated cash flow statement
for the six months ended 31 August 2011
6 months
6 months ended ended Year ended
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
Note Unaudited Unaudited Audited
--------------------------------------- ---- -------------- ---------- ------------
Cash (outflow)/ inflow from operating
activities
Cash (outflow)/ inflow from operating
activities before tax 7 (2,007) (5,779) 1,391
Corporation tax (paid)/ received (28) 109 58
--------------------------------------- ---- -------------- ---------- ------------
Net cash (outflow)/ inflow from
operating activities after tax (2,035) (5,670) 1,449
Cash (outflow)/ inflow from investing
activities
Finance income received 8 4 8
Acquisition of subsidiary undertakings (90) 280 415
Purchase of property, plant and
equipment (797) (400) (776)
Disposal of subsidiary undertakings (434) 11 79
Sale of investment - 240 580
Proceeds from disposals of property,
plant and equipment 14 1 -
Net cash (outflow)/ inflow from
investing activities (1,299) 136 306
--------------------------------------- ---- -------------- ---------- ------------
Cash inflow/ (outflow) from financing
activities
Finance cost paid (602) (780) (1,736)
Repayment of borrowings (190) (156) (1,011)
Drawdown of revolving credit facility 2,800 2,800 700
Fees in relation to refinancing - (160) -
Capital element of hire purchase
agreements 18 8 (5)
--------------------------------------- ---- -------------- ---------- ------------
Net cash inflow/ (outflow) from
financing activities 2,026 1,712 (2,052)
--------------------------------------- ---- -------------- ---------- ------------
Net decrease in cash and cash
equivalents (1,308) (3,822) (297)
--------------------------------------- ---- -------------- ---------- ------------
Cash and cash equivalents at beginning
of period 7,945 8,634 8,634
Effect of exchange rate changes
on the balance of cash held in
foreign subsidiaries 17 (23) (392)
--------------------------------------- ---- -------------- ---------- ------------
Cash and cash equivalents at end
of period 6,654 4,789 7,945
--------------------------------------- ---- -------------- ---------- ------------
Notes to the consolidated financial statements
for the six months ended 31 August 2011
1. GENERAL INFORMATION
Media Square plc and its subsidiaries' principal activities are
marketing communications and marketing services.
Media Square plc, a Public Limited Company is incorporated and
domiciled in the United Kingdom.
The financial information set out in the interim report does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 28 February 2011, prepared under International
Financial Reporting Standards (IFRS), have been filed with the
Registrar of Companies. The auditor's report on those financial
statements was unqualified and did not contain a statement under
Sections 498 (2) or (3) of the Companies Act 2006.
The interim report was approved by the Board on 29 November
2011.
2. BASIS OF PREPARATION
This consolidated financial information for the six months ended
31 August 2011 has been prepared in accordance with IAS 34,
"Interim Financial Reporting" as adopted by the European Union. The
half yearly consolidated financial report should be read in
conjunction with the annual financial statements for the year ended
28 February 2011, which have been prepared in accordance with IFRS
as adopted by the European Union.
This interim financial information has been prepared using the
accounting policies set out in the Group's 2011 statutory
accounts.
Copies of the interim results for the six months ended 31 August
2011 are being sent to all shareholders. A copy can also be found
on the Company's website at www.mediasquare.co.uk.
Prior year restatement of income statement
The income statement for the six months ended 31 August 2010 has
been restated to separate the income statement and cash flows of
the discontinued arken, twentysix New York and Lloyd Northover Hong
Kong from those of the continuing operations as required under IFRS
5 Non Current Assets Held for Sale and Discontinued Operations.
3. segmental analysis
6 months ended 31 August Advertising Marketing Design Unallocated Eliminations Total
2011
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- --------- ------- ----------- ------------ -------
Revenue
From external customers 12,840 5,346 3,641 - - 21,827
From other segments - 15 - - (15) -
------------------------------ ----------- --------- ------- ----------- ------------ -------
Segment revenues 12,840 5,361 3,641 - (15) 21,827
------------------------------ ----------- --------- ------- ----------- ------------ -------
Headline operating profit/
(loss) 933 475 61 (773) - 696
------------------------------ ----------- --------- ------- ----------- ------------ -------
The unallocated operating loss relates to central costs and rent
receivable from investment properties of GBP118k.
6 months ended 31 August Advertising Marketing Design Unallocated Eliminations Total
2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Restated Restated Restated Restated Restated Restated
------------------------------ ----------- --------- -------- ----------- ------------ --------
Revenue
From external customers 13,291 5,497 3,559 - - 22,347
From other segments 40 28 - - (68) -
------------------------------ ----------- --------- -------- ----------- ------------ --------
Segment revenues 13,331 5,525 3,559 - (68) 22,347
Headline operating profit/
(loss) 1,463 168 100 (982) - 749
------------------------------ ----------- --------- -------- ----------- ------------ --------
The unallocated operating loss relates to central costs.
Year ended 28 February Advertising Marketing Design Unallocated Eliminations Total
2011
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- --------- ------- ----------- ------------ -------
Revenue
From external customers 27,273 11,018 7,086 - - 45,377
From other segments 17 29 15 - (61) -
------------------------------ ----------- --------- ------- ----------- ------------ -------
Segment revenues 27,290 11,047 7,101 - (61) 45,377
------------------------------ ----------- --------- ------- ----------- ------------ -------
Headline operating profit/
(loss) 3,251 758 294 (2,241) - 2,062
------------------------------ ----------- --------- ------- ----------- ------------ -------
The unallocated operating loss relates to central costs.
A reconciliation of segment headline operating profit to loss
from continuing operations before tax is provided below:
6 months ended 6 months ended Year ended
31 August 2011 31 August 28 February
2010 2011
GBP'000 GBP'000 GBP'000
Restated
-------------------------------- --------------- --------------- ------------
Segment headline operating
profit 696 749 2,062
Exceptional items (704) - -
Share-based payments (77) (243) (282)
-------------------------------- --------------- --------------- ------------
Operating (loss)/ profit (85) 506 1,780
Loss on closure of subsidiary
undertakings - (479) (479)
Profit on sale of an investment - 173 173
Fair value movement on warrant
derivative 39 - 137
Net finance costs (1,307) (1,299) (2,050)
-------------------------------- --------------- --------------- ------------
Loss from continuing operations
before tax (1,353) (1,099) (439)
-------------------------------- --------------- --------------- ------------
4. LOSS PER SHARE
The calculation of the basic loss per share is based on the loss
on ordinary activities after tax and on the weighted average number
of Ordinary shares in issue during the year.
Given the loss incurred in the six months ended 31 August 2011,
the six months ended 31 August 2010 and the year ended 28 February
2011 the effect of the share options and warrants are anti dilutive
and as such no diluted earnings per share figure has been
produced.
The loss and weighted average number of shares used in the
calculations are set out below:
6 months ended 6 months ended Year ended
31 August 2011 31 August 2010 28 February 2011
---------------------------- ---------------------------- ---------------------------- ----------------------------
Basic loss per share Loss Loss Loss
per per per
Loss share Loss share Loss share
---------- ---------- ----------
Weighted Weighted Weighted
average average average
number number number
GBP'000 of shares pence GBP'000 of shares pence GBP'000 of shares pence
---------------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Basic loss per share
from total operations
Loss attributable
to ordinary shareholders (1,594) 33,677,670 (4.73p) (1,239) 32,238,713 (3.84p) (2,756) 32,772,740 (8.41p)
---------------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Basic loss per share
on continuing operations
Loss attributable
to ordinary shareholders (1,594) 33,677,670 (4.73p) (790) 32,238,713 (2.45p) (329) 32,772,740 (1.00p)
---------------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
Basic loss per share
on discontinued operations
Loss attributable
to ordinary shareholders - 33,677,670 - (449) 32,238,713 (1.39p) (2,427) 32,772,740 (7.41p)
---------------------------- ------- ---------- ------- ------- ---------- ------- ------- ---------- -------
5. Dividend
The Board of Directors does not recommend the payment of a
dividend.
6. BorrowingS
At At At
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- ------------
Borrowings (current) (114) (176) (176)
Borrowings (non-current) (25,232) (25,113) (22,167)
(25,346) (25,289) (22,343)
------------------------- ---------- ---------- ------------
As at 31 August 2011, bank loans amounted to GBP25,798,000
consisting of three term loan facilities (mezzanine facility of
GBP12,238,000, senior term facility of GBP9,110,000, property loan
facility of GBP750,000) and the revolver facility of GBP3,700,000.
All bank loans are repayable in July 2013. Loan arrangement costs
to date in respect of these facilities, amounting to GBP452,000,
have been deducted from the gross proceeds of the bank loans and
are being amortised over the expected periods of the facilities as
part of the finance costs.
7. Net cash (OUTFLOW)/ Inflow from operating activities
6 months 6 months Year
ended ended ended
31 August 31 August 28 February
2011 2010 2011
GBP'000 GBP'000 GBP'000
------------------------------------------ ---------- ---------- ------------
Operating (loss)/ profit (85) 506 1,780
Operating loss from discontinued
operations - (98) (453)
Depreciation 407 532 1,021
Amortisation of intangible asset 27 10 37
Loss on disposal of property, plant
& equipment (7) - 1
Share-based payment 77 243 282
Increase in inventories (193) (198) (309)
Decrease/ (increase) in receivables 2,173 (424) (428)
Decrease in payables (4,406) (6,350) (540)
------------------------------------------ ---------- ---------- ------------
Net cash (outflow)/ inflow from operating
activities (2,007) (5,779) 1,391
------------------------------------------ ---------- ---------- ------------
The cash outflow from operating activities for the 6 months
ended 31 August 2011 predominantly relates to the unwind of cash
held for use on specific client projects at 28 February 2011 of
GBP2.3m. On an underlying basis, excluding the effect of the unwind
of cash held for use on specific client projects, there was a net
cash inflow from operating activities of GBP295k.
8. ANALYSIS OF CHANGES IN NET DEBT
At At
28 February Non cash 31 August
2011 Cash flows transactions 2011
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ---------- ------------- ----------
Cash at bank 7,945 (1,308) 17 6,654
Borrowings (22,343) (2,610) (393) (25,346)
Obligations under finance lease
and hire purchase agreements (9) (17) - (26)
-------------------------------- ------------ ---------- ------------- ----------
Net debt (14,407) (3,935) (376) (18,718)
Cash held for use on specific
client projects (5,056) 2,302 - (2,754)
-------------------------------- ------------ ---------- ------------- ----------
Underlying net debt (19,463) (1,633) (376) (21,472)
-------------------------------- ------------ ---------- ------------- ----------
Cash and cash equivalents held for use on specific client
projects was GBP2.8m at 31 August 2011 (28 February 2011: GBP5.1m).
Underlying net debt, which excludes cash for use on specific client
projects, has moved from GBP19.5m at 28 February 2011 to GBP21.5m
at 31 August 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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