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RNS
Communisis PLC  -  CMS   

Interim Results

Released 07:00 31-Jul-2014

RNS Number : 8064N
Communisis PLC
31 July 2014
 



 

31 July 2014

 

Communisis plc

("Communisis" or the "Group")

Interim Results for the six months ended 30 June 2014

 

Leading provider of personalised customer communication services Communisis plc (LSE: CMS), reports interim results for the six months ended 30 June 2014.

 

A significant increase in revenue, higher profits, strong cash flow, important new contracts, accelerated growth in international markets and acquisition activity combined to deliver another successful half year.

 

Financial Highlights

 

§ Total revenue 40% ahead at £169.3m (H1 2013 £121.2m). Revenue (excluding pass through) up 28% at £116.3m (H1 2013 £91.1m)

 

§ Overseas revenue increased faster than expected to 19% of total revenue (H1 2013 13%), close to the Group's 20% target

 

§ Adjusted operating profit* up 18% to £6.1m (H1 2013 £5.1m)

-     Transitional costs on major new contracts caused operating margin on revenue (excluding pass through) to be lower at 5.2% (H1 2013 5.6%). Further progress toward the double-digit target is expected on a full-year basis

 

§ Profit after tax and basic earnings per share more than doubled to £2.2m (H1 2013 £1.0m) and 1.11p

    (H1 2013 0.55p) respectively

 

§ Adjusted earnings per share** grew 18% to 1.75p (H1 2013 1.49p)

 

§ Interim dividend 12% higher at 0.67p (H1 2013 0.60p)

 

§ Operating cash flows improved by £13.3m. Working capital unchanged despite a 40% increase in revenue

 

§ Substantial investments in acquisitions and market-leading technology funded by operating cash flow and additional debt. Net debt increased to £36.2m (December 2013 £25.7m), with net bank debt less than 50% of available facilities at £33.3m

 

Continued Growth

 

§ Significant new multi-year contractual relationship secured

-     Lloyds Banking Group for new in-bound customer communication services - ten-year term

 

§ Strategically important contract extended

-     Procter & Gamble Europe SA for external brand building services in Europe - five-year term

 

§ Integrated agency model developed and higher margin creative services expanded through the acquisitions of The Communications Agency, Jacaranda and Public Creative

 

Board Changes from 1 August 2014

 

§ Nigel Howes will become Strategic and Corporate Development Director

 

§ Mark Stoner will be promoted from a senior executive role within the Group to Finance Director

 

§ Helen Keays will join as a non-executive Director

 

* Adjusted operating profit means profit from operations before exceptional items and the amortisation of

acquired intangibles.

 

** Adjusted earnings per share means fully diluted after new share issues and excluding the after tax effects

of exceptional items and the amortisation of acquired intangibles.

 

Commenting on the results Communisis Chief Executive, Andy Blundell, said:

 

"This was another strong half-year performance. It demonstrates that our strategy is delivering consistent and profitable growth and the Board is confident about the Group's prospects for the remainder of the year."

 

For further information, please contact:

 

Communisis plc

020 7382 8952

Andy Blundell / Nigel Howes




FTI Consulting

020 3727 1000

Matt Dixon / Lucy Delaney




Cenkos Securities

020 7397 8900

Ivonne Cantu / Alex Aylen




N+1 Singer                      

Sandy Fraser / Richard Lindley

020 7496 3000 / 0113 388 4789

 

 

About Communisis

 

Communisis is the leading provider of personalised customer communication services that specialises in helping clients communicate with their customers more effectively and more profitably in fast-changing markets.

 

Communisis has a reputation for production excellence and innovation and is trusted by many leading, consumer-facing brands to design, produce and deploy multi-channel personalised customer communications accurately, securely, reliably and at scale.

 

Performance Review

 

The Group's aspiration and strategic initiatives, set out below, were described in the Strategic Report within the 2013 Annual Report. This review summarises the performance against those strategic initiatives and the key financial targets during the first half of 2014.

 

Aspiration

 

The Group's aspiration is to be a market leader in providing personalised customer communication services both in the UK and internationally.

The key financial targets for the medium term are to deliver a double-digit margin on revenue (excluding pass through) and to derive more than 20% of revenue from overseas sources whilst continuing to grow those in the UK.

Strategic initiatives

 

The Group's aspiration is pursued through a number of strategic initiatives including:

§ Growing revenue both organically and through niche acquisitions;

§ extending activities to broaden and deepen the service offering;

§ further diversifying the client portfolio beyond the financial services sector;

§ following international clients into overseas markets;

§ investing in specialist, market-leading technologies; and

§ continuing to optimise the direct cost and overhead base.

Improvement in margins is delivered through the combined effect of better capacity utilisation, the benefit of cost reduction programmes, synergies from acquisitions and a focus on growing volumes of higher-margin services.

Optimising the capital structure and managing the exposure to the pension deficit are also priorities as is the continuation of a progressive dividend policy that has become of increasing importance to all investor categories.

Summary financial performance

 

Communisis continued to deliver profitable growth in the first half of 2014. The results were on target and considerably ahead of the same period last year, enabling the Group to maintain its progressive dividend policy. The interim dividend for the first six months of 2014 has consequently been increased by 12%.

 

Despite a very significant increase in revenue, tight working capital control delivered strong operating cash flow that was used, together with additional debt, to fund substantial acquisition and investment activity in pursuit of the Group's strategy for profitable growth.

 

Further details are included in the segmental results and cash and net debt sections below.

 

Growth and diversification

 

New business development included a second, very significant ten-year contract with Lloyds Banking Group ("LBG") for the outsourcing of all in-bound imaging and mail processing services, which commenced on 1 April 2014, and a five year extension of an existing contract for external brand building services with Procter & Gamble Europe SA ("P&G") through to December 2019.

 

The LBG contract resulted in Communisis taking on fourteen existing LBG sites in the UK, including the main operational centres in Edinburgh, Leeds and Andover with approximately 310 roles transferring from LBG to Communisis under TUPE arrangements. The Group already produces all of LBG's out-bound transactional communications, under an existing outsourcing arrangement, and is now also responsible for handling more than 30 million incoming documents from LBG customers annually, scanning them into a digital format before indexing and distributing them to the relevant department within LBG for onward processing. By combining its out-bound and in-bound customer communication activities under the management of a single trusted partner, LBG now has considerable scope for optimising its entire, end-to-end customer communication process.

 

With the LBG contract Communisis effectively acquired a new in-bound service capability; one that has relevance for other clients and offers considerable scope for growth in the Produce segment.

 

The extension of the P&G contract, coupled with ongoing expansion into other territories, signals further development of the Group's brand building services across Europe and provides a solid platform for further growth in the Deploy segment.

 

Communisis continued to develop its differentiated and integrated agency model through the acquisitions of three creative businesses during the period.

 

Jacaranda Productions Limited ("Jacaranda") and Public Creative Limited ("Public Creative") were acquired in April 2014 for £1.5m (with £0.9m being paid in cash and £0.6m in Communisis shares) and £0.4m in cash respectively with up to a further £0.5m being payable for Jacaranda dependent on the gross profit generated in the three years after acquisition.

 

The Communications Agency ("TCA") was acquired in June 2014 for up to £8m (with up to £5.8m being paid in cash and £1.45m in Communisis shares) of which up to £0.5m is dependent on the delivery of projected EBITDA for TCA's financial year to 31 October 2014.

 

Jacaranda is a video and film production specialist, creating, managing and measuring the effectiveness of video content for global brands. It is based in London with a team of six people. For over 15 years Jacaranda has been voted in the top ten independent production companies in Televisual's annual 'Corporate Top 50' awards and has won over 250 creative awards including The Digital Impact Awards, Cannes Corporate Media and TV Awards and New York Film and TV Awards.

 

Public Creative creates and drives brand awareness with digital media using web and mobile applications to build loyalty and encourage customer advocacy. It is based in London with a team of eight people.

 

TCA is a long-established award-winning agency, with broad capabilities and experience across all media channels including TV, experiential and digital that specialises in brand response and customer relationship marketing. TCA has long-standing client relationships with leading brands in the financial services, retail and consumer goods sectors. It is based in London with 42 employees.

 

Operational excellence

 

The Group has made a substantial commitment to the development of a second transactional centre of excellence at Copley, West Yorkshire to mirror that at Liverpool. This follows the progressive commencement of the LBG outsourcing contract for the production of transactional communications from October 2013. Net capital expenditure during the period has consequently been higher than normal at £8.1m of which £2.5m was acquired under finance leases. Of this £8.1m, £6.3m relates to Copley, including £1.3m purchased from LBG. Additional expenditure of £2.8m to complete the facility will be incurred in the second half of 2014.  Two market-leading HP T400 high-speed colour digital platforms were also commissioned under operating leases.

 

A further rationalisation at the Leeds facility has also been announced in order to align the cost base with the changing demands of the direct mail market. This, together with certain ongoing costs from previously announced restructuring programmes and acquisition related expenses, has resulted in an exceptional charge of £1.2m in the first half of 2014 with most of the associated cash cost falling in the second half.

 

Segmental results

 

Revenue, operating profit and margins before exceptional items are reported in three segments, being Design, Produce and Deploy. Pass through revenue, being those purchased materials that are passed on to clients at cost with no added value, are reported separately, as are unallocated central costs that support integrated service offerings. Certain of these central costs were reallocated on a directly attributable basis to the operating segments during the period and the comparatives have been restated on a consistent basis accordingly.

 

Profitability

 

The table below is an extract from the Group's segmental Income Statement.



HY 2014

£m

HY 2013

£m




Revenue




Design

11.5

9.6


Produce

77.8

55.2


Deploy

27.0

26.3


Pass Through

53.0

30.1



169.3

121.2

Adjusted profit from operations




Design

1.6

1.4


Produce

8.7

8.2


Deploy

5.6

3.8


Central Costs

(6.5)

(5.5)


Corporate Costs

(3.3)

(2.8)



6.1

5.1






Amortisation of acquired intangibles

(0.4)

(0.3)




Profit from operations before exceptional items

5.7

4.8









 

Contribution to overheads (on adjusted operating profit excluding pass through)




Design

13.9%

14.6%


Produce

11.2%

14.9%


Deploy

20.7%

14.4%

Operating margin (on adjusted operating profit excluding pass through)

5.2%

5.6%









Exceptional items

(1.2)

(2.1)





Profit from operations after exceptional items

4.5

2.7


Net finance costs

(1.6)

(1.4)

Profit before tax

2.9

1.3


Tax

(0.7)

(0.3)

Profit after tax

2.2

1.0

Earnings per share




Basic (p)

1.11

0.55


Adjusted (p)

1.79

1.53


Adjusted fully diluted (p)

1.75

1.49

 

Total revenue was 40% ahead at £169.3m (H1 2013 £121.2m) with the proportion derived from overseas being 19%, approaching the medium-term target of 20% and earlier than expected. Revenue (excluding pass through) increased by 28% to £116.3m (H1 2013 £91.1m).

 

Adjusted operating profit increased 18% to £6.1m (H1 2013 £5.1m) whilst operating margin on the same basis, which is a key financial metric, was lower at 5.2% (H1 2013 5.6%), principally due to the transition costs on the major new transactional contracts. Progress toward the double-digit target is expected on a full- year basis.

 

All segments contributed to the overall increase in revenue. Produce revenue grew significantly as the major new transactional contracts from 2013 took effect but this underlying growth was offset by reduced demand for direct mail and accelerated erosion in the higher-margin chequebook volumes. The growth in overseas managed services was reflected in both the Deploy segment as fees and in pass through revenue. Fees generated by the creative and digital agencies acquired in the last nine months have increased revenue in the Design segment but they have been offset by lower sales in data caused by a decline in demand for prospect lists from the insurance sector which has been the historical focus of the Group's data activities.

 

The changing mix of activities together with the costs incurred during the learning curve and transitioning phases of major new transactional contracts largely account for the overall reduction in margin during the period and for the various changes in contribution margins between the segments. Central and corporate costs have increased by £1.5m as a result of the additional expenditure on systems infrastructure, strategic account management and support services needed for the growing business.

 

The exceptional charge of £1.2m largely reflects the further rationalisation and restructuring costs referred to above.

 

The 2014 tax charge is based on the estimated effective rate for the year of 24.6% which is higher than the standard rate of 21.5% as it includes the taxation of certain overseas profits in higher-rate jurisdictions.

 

Profit after tax and basic earnings per share more than doubled to £2.2m (H1 2013 £1.0m) and 1.11p (2013 0.55p) respectively, reflecting the lower level of exceptional items in 2014 and a reduction in the dilutive effect of new share issues in the first half of 2013.

 

Dividends of 1.20p per share were paid in the first half of 2014 in respect of 2013 and an interim dividend of 0.67p per share will be paid for 2014, an increase of 12% on the prior year. The dividend will be paid on 9 October 2014 to shareholders on the register at the close of business on 12 September 2014.

 

Cash and net debt

 

The table below summarises the cash flows for the period and the closing net debt position.

 



HY 2014

HY 2013



£m

£m

Profit from operations before exceptional items


5.7

4.8

Depreciation and other non-cash items


5.6

4.5

Increase in working capital


(0.2)

(12.2)

Pension scheme contributions


(0.6)

(0.6)

Interest and tax


(1.9)

(0.7)

Net operating cash flow before exceptional items


8.6

(4.2)

Exceptional items


(1.9)

(2.4)

Net operating cash flow


6.7

(6.6)

Net capital expenditure


(5.6)

(2.7)

Free cash flow


1.1

(9.3)

Investment in new contracts


(1.4)

(0.4)

Acquisition of subsidiary undertakings


(5.8)

                   -

Dividends paid


(2.3)

(2.1)

Debt arrangement fees


(0.1)

                   -

Share issues net of directly attributable expenses


0.3

18.4

Other


(0.3)

0.2

(Increase) / decrease in bank debt


(8.5)

6.8

Opening bank debt


(25.4)

(18.5)

Closing bank debt


(33.9)

(11.7)





Bank debt


(33.9)

(11.7)

Unamortised borrowing costs


0.6

0.2

Net bank debt


(33.3)

(11.5)





Finance lease creditor


(2.9)

(1.4)

Net debt


(36.2)

(12.9)

 

Operating cash flow was £13.3m better than in the corresponding period in 2013 as a result of increased profitability and tighter working capital management. Working capital was virtually unchanged during the period despite a 40% increase in revenue, a pattern that is expected to continue.

 

The operating cash flow of £6.7m, together with additional debt, has been used to fund investments in the Group's strategy for profitable growth. These comprised the acquisitions of the Jacaranda, Public Creative and TCA agencies, investment in new contracts and the capital expenditure associated with the development of a second transactional centre of excellence at Copley, West Yorkshire.

 

The resulting net bank debt of £33.3m was less than 50% of the Group's enlarged facilities of £70m, as described below, but intra-period fluctuations in working capital increased the level of indebtedness between reporting periods so that average net bank debt during the period was £45.1m. Net bank debt at the period end and average net bank debt during the period were respectively 1.5 times and 2 times EBITDA for the twelve months to June 2014. Interest cover from adjusted operating profit for the period was 3.8 times. Both measures reflect the Group's disciplined approach to debt management.

 

Capital structure

 

The Group's financial position was strengthened with a £10m extension of its banking facilities in June 2014 on the same terms. The enlarged facilities now comprise a £65m revolving credit facility committed until March 2018 and a £5m overdraft that is renewable annually.

 

Board appointments

 

The Board is being strengthened, with changes in responsibility and two new appointments.

 

After three years as Finance Director, during which the Group's financial performance and position has been radically improved and strengthened, Nigel Howes will be relinquishing this role to concentrate on his other executive responsibilities as Strategic and Corporate Development Director. These include the continuing acquisition programme, international expansion and other initiatives that are key elements of the Group's growth strategy.

 

Mark Stoner, who has held a number of senior financial and operational management roles within Communisis over the last six years, will join the Board on 1 August 2014 as Finance Director. He is a chartered management accountant. Prior to joining Communisis, Mark was UK Finance Director of NASDAQ quoted Atmel Inc. having previously held finance roles within KPMG, Siemens plc, Rolls Royce Industrial Power Group and British Steel plc.

 

Helen Keays will also join the Board on 1 August 2014 as a non-executive Director. She is currently a non-executive Director of Majestic Wine plc and Domino's Pizza Group plc and was previously a non-executive Director of Mattioli Woods plc. Helen has considerable marketing and consumer communications experience across a number of sectors including retail, telecommunications and financial services having held executive management positions within Vodafone plc, Sears plc and GE Capital.

 

Outlook

 

Communisis operates in fast-moving markets that have different challenges and opportunities. The progressive migration from paper to digital formats suits the integrated model within the Design segment. Produce specialises in in-bound and out-bound transactional communications and is gaining market share through the adoption of high-speed colour technology. This, together with the increasing trend toward outsourcing, provides opportunities to offset volume erosion in the more mature markets. There is a developing interest in the Group's efficient and consistent approach to brand building services both in the UK and internationally, leading to growth in the Deploy segment.

 

The strong half-year performance demonstrates that the Group's strategy is delivering consistent and profitable growth and the Board is confident about the Group's prospects for the remainder of the year.

 

 

Andy Blundell

Chief Executive

Nigel Howes

Finance Director

 

 

Consolidated Income Statement

for the half year ended 30 June 2014: unaudited

 



Half year ended 30 June

Half year ended 30 June

Year ended 31 Dec



2014

2013

2013



 

 

 

 

 

 

 

 

Before amortisation of acquired intangibles and exceptional items

 

 

 

 

 

 

 

 

 

Amortisation of acquired intangibles and  exceptional items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Before amortisation of acquired intangibles and exceptional items

 

 

 

 

 

 

 

 

 

Amortisation of acquired intangibles and  exceptional items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Before amortisation of acquired intangibles and exceptional items

 

 

 

 

 

 

 

 

 

Amortisation of acquired intangibles and  exceptional items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total



£000

£000

£000

£000

£000

£000

£000

£000

£000


Note










Revenue

 

1

 

169,343

 

-

 

169,343

 

121,213

 

-

 

121,213

 

270,148

 

-

 

270,148












Changes in inventories of finished goods and work in progress


 

 

 

 

357

 

 

 

 

-

 

 

 

 

357

 

 

 

 

14

 

 

 

 

-

 

 

 

 

14

 

 

 

 

(459)

 

 

 

 

-

 

 

 

 

(459)












Raw materials and consumables used


 

 

(97,436)

 

 

-

 

 

(97,436)

 

 

(65,493)

 

 

-

 

 

(65,493)

 

 

(149,921)

 

 

-

 

 

(149,921)












Employee benefits expense


 

(41,791)

 

(706)

 

(42,497)

 

(31,347)

 

(2,800)

 

(34,147)

 

(67,053)

 

(3,882)

 

(70,935)












Other operating expenses


 

(19,441)

 

(501)

 

(19,942)

 

(15,576)

 

684

 

(14,892)

 

(31,887)

 

407

 

(31,480)












Depreciation and amortisation expense


 

 

(4,973)

 

 

(429)

 

 

(5,402)

 

 

(3,664)

 

 

(357)

 

 

(4,021)

 

 

(7,571)

 

 

(827)

 

 

(8,398)












Profit from operations

 

1

 

6,059

 

(1,636)

 

4,423

 

5,147

 

(2,473)

 

2,674

 

13,257

 

(4,302)

 

8,955












Finance revenue

 

3

 

6

 

-

 

6

 

52

 

-

 

52

 

34

 

-

 

34

Finance costs

 

3

 

(1,550)

 

-

 

 (1,550)

 

(1,479)

 

-

 

 (1,479)

 

(2,540)

 

(176)

 

(2,716)

 

Profit before taxation


 

4,515

 

(1,636)

 

2,879

 

3,720

 

(2,473)

 

1,247

 

10,751

 

(4,478)

 

6,273












Income tax expense

 

4

 

(1,012)

 

303

 

(709)

 

(1,070)

 

770

 

(300)

 

(2,844)

 

1,431

 

(1,413)

Profit for the period attributable to equity holders of the parent


 

 

 

 

3,503

 

 

 

 

(1,333)

 

 

 

 

2,170

 

 

 

 

2,650

 

 

 

 

(1,703)

 

 

 

 

947

 

 

 

 

7,907

 

 

 

 

(3,047)

 

 

 

 

4,860












Earnings per share

 

5










On profit for the period attributable to equity holders and from continuing operations










          - basic


1.79p


1.11p

1.53p


0.55p

4.31p


2.65p

          - diluted


1.75p


1.08p

1.49p


0.53p

4.19p


2.58p












Dividend per share

 

6










          - paid




1.20p



1.10p



1.68p

          - proposed




0.67p



0.60p



1.20p

 

 

Dividends paid and proposed during the period were £2.3 million and £1.3 million respectively (30 June 2013 £2.1 million and £1.1 million respectively, 31 December 2013 £3.3 million and £2.3 million respectively).The accompanying notes are an integral part of these Consolidated Financial Statements. All income and expenses relate to continuing operations.

 

Consolidated Statement of Comprehensive Income  

for the half year ended 30 June 2014: unaudited

 

 

 



Half year

 ended

Half year

 ended

Year

 ended



30 June

30 June

31 Dec



2014

2013

2013








£000

£000

£000

Profit for the period


2,170

947

4,860






Other comprehensive (loss) / income to be reclassified to profit or loss in subsequent periods:





Exchange differences on translation of foreign operations


(223)

38

(118)

Gain on cash flow hedges taken directly to equity


15

31

43

Income tax thereon


(4)

(7)

(10)






Items not to be reclassified to profit or loss in subsequent periods:





Actuarial losses on defined benefit pension plans


(3,812)

(109)

(6,622)

Income tax thereon


762

25

1,322

Adjustments in respect of prior years due to change in tax rate


-

-

(651)

Other comprehensive loss for the period, net of tax


(3,262)

(22)

(6,036)

Total comprehensive (loss) / income for the period, net of tax


(1,092)

925

(1,176)











Attributable to:










Equity holders of the parent


(1,092)

925

(1,176)






 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

Consolidated Balance Sheet

30 June 2014: unaudited

 


Half year ended

Half year ended

Year

ended


30 June

30 June

31 Dec


2014

2013

2013


£000

£000

£000

ASSETS




Non-current assets




Property, plant and equipment

24,509

18,370

21,254

Intangible assets

195,841

169,436

181,721

Trade and other receivables

240

69

203

Deferred tax assets

3,091

2,364

2,510


223,681

190,239

205,688

Current assets




Inventories

8,131

8,283

9,609

Trade and other receivables

61,285

49,394

52,955

Cash and cash equivalents

21,095

15,307

18,642


90,511

72,984

81,206





TOTAL ASSETS

314,192

263,223

286,894





EQUITY AND LIABILITIES




Equity attributable to the equity holders of the parent




Equity share capital

49,728

47,850

48,601

Share premium

8,032

5,852

6,799

Merger reserve

11,427

11,427

11,427

Capital redemption reserve

1,375

1,375

1,375

ESOP reserve

(72)

(77)

(77)

Cumulative translation adjustment

(562)

(183)

(339)

Retained earnings

70,380

76,353

73,369

Total equity

140,308

142,597

141,155





Non-current liabilities




Interest-bearing loans and borrowings

56,438

27,271

43,672

Trade and other payables

3,915

223

192

Retirement benefit obligations

31,432

21,705

27,670


91,785

49,199

71,534

Current liabilities




Interest-bearing loans and borrowings

885

924

677

Trade and other payables

79,276

67,781

71,419

Income tax payable

1,291

823

1,441

Provisions

641

1,868

647

Financial liability

6

31

21


82,099

71,427

74,205





Total liabilities

173,884

120,626

145,739





TOTAL EQUITY AND LIABILITIES

314,192

263,223

286,894

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

Consolidated Cash Flow Statement

for the half year ended 30 June 2014: unaudited

 



Half year

 ended

30 June

Half year

 ended

30 June

Year

 ended

31 Dec



2014

2013

2013


Note

 

£000

 

£000

 

£000

Cash flows from operating activities





Cash generated from operations

7

8,699

(5,866)

4,732

Interest paid


(732)

(795)

(1,458)

Interest received


6

28

37

Income tax (paid) / received


(1,191)

30

(570)

Net cash flows from operating activities


6,782

(6,603)

2,741






Cash flows from investing activities





Acquisition of subsidiary undertakings (net of cash acquired)


(5,818)

(13)

(4,070)

Purchase of property, plant and equipment


(4,141)

(1,957)

(5,592)

Proceeds from the sale of property, plant and equipment


5

1,150

1,210

Purchase of intangible assets


(2,765)

(2,251)

(15,638)

Net cash flows from investing activities


(12,719)

(3,071)

(24,090)






Cash flows from financing activities





Share issues net of directly attributable expenses


310

18,429

18,407

New borrowings


11,000

-

44,000

Repayment of borrowings


-

(13,000)

(40,000)

Debt arrangement fees


(100)

-

(550)

Dividends paid

6

(2,333)

(2,104)

(3,270)

Net cash flows from financing activities


8,877

3,325

18,587






Net increase / (decrease) in cash and cash equivalents


2,940

(6,349)

(2,762)






Cash and cash equivalents at 1 January


18,642

21,548

21,548

Exchange rate effects


(487)

108

(144)

Cash and cash equivalents at end of period


21,095

15,307

18,642






Cash and cash equivalents consist of:





Cash and cash equivalents


21,095

15,307

18,642


The accompanying notes are an integral part of these Consolidated Financial Statements.

 

Consolidated Statement of Changes in Equity 

for the half year ended 30 June 2014: unaudited

 

 


Issued capital

Share premium

Merger reserve

ESOP reserve

Capital redemption reserve

Cumulative translation adjustment

Retained earnings

Total equity


£000

£000

£000

£000

£000

£000

£000

£000

As at 1 January 2014

48,601

6,799

11,427

(77)

1,375

(339)

73,369

141,155

Profit for the period

-

-

-

-

-

-

2,170

2,170

Other comprehensive loss

-

-

-

-

-

(223)

(3,039)

(3,262)

Total comprehensive loss

-

-

-

-

-

(223)

(869)

(1,092)

Employee share option schemes: - value of services provided

-

-

-

-

-

-

218

218

Shares issued - exercise of options

298

12

-

-

-

-

-

310

Acquisition of subsidiaries

829

1,221

-

-

-

-

-

2,050

Shares issued from ESOP

-

-

-

5

-

-

(5)

-

Dividends paid

-

-

-

-

-

-

(2,333)

(2,333)

As at 30 June 2014

49,728

8,032

11,427

(72)

1,375

(562)

70,380

140,308

 

 

As at 1 January 2013

35,251

22

11,427

(346)

1,375

(221)

77,679

125,187

Profit for the period

-

-

-

-

-

-

947

947

Other comprehensive income / (loss)

-

-

-

-

-

38

(60)

(22)

Total comprehensive income

-

-

-

-

-

38

887

925

Employee share option schemes: - value of services provided

-

-

-

-

-

-

160

160

Shares issued - firm placing and placing & open offer

12,500

7,500

-

(20)

-

-

20

20,000

Transaction costs

-

(1,670)

-

-

-

-

-

(1,670)

Shares issued - exercise of options

99

-

-

-

-

-

-

99

Shares issued from ESOP

-

-

-

289

-

-

(289)

-

Dividends paid

-

-

-

-

-

-

(2,104)

(2,104)

As at 30 June 2013

47,850

5,852

11,427

(77)

1,375

(183)

76,353

142,597

 

As at 1 January 2013

35,251

22

11,427

(346)

1,375

(221)

77,679

125,187

Profit for the year

-

-

-

-

-

-

4,860

4,860

Other comprehensive loss

-

-

-

-

-

(118)

(5,918)

(6,036)

Total comprehensive loss

-

-

-

-

-

(118)

(1,058)

(1,176)

Employee share option schemes: - value of services provided

-

-

-

-

-

-

307

307

Shares issued - firm placing and placing and open offer

12,500

7,500

-

(20)

-

-

-

19,980

Transaction costs

-

(1,672)

-

-

-

-

-

(1,672)

Shares issued - exercise of options

99

-

-

-

-

-

-

99

Shares issued from ESOP

-

-

-

289

-

-

(289)

-

Acquisition of subsidiary

751

949

-

-

-

-

-

1,700

Dividends paid

-

-

-

-

-

-

(3,270)

(3,270)

As at 31 December 2013

48,601

6,799

11,427

(77)

1,375

(339)

73,369

141,155

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

 

1        Segmental information 

 

Business segments 

 

The segment results for the half year ended 30 June 2014 are as follows:

 

 


Design

Produce

Deploy

Pass Through

Central Costs

Corporate Costs

Total


£000

£000

£000

£000

£000

£000

£000









Revenue

11,566

77,784

27,024

52,969

-

-

169,343









Profit from operations before amortisation of acquired intangibles and exceptional items

1,619

8,716

5,637

-

(6,561)

(3,352)

6,059

Amortisation of acquired intangibles

(223)

(206)

-

-

-

-

(429)

Profit from operations before exceptional items

1,396

8,510

5,637

-

(6,561)

(3,352)

5,630

Exceptional items

-

(939)

-

-

(198)

(70)

(1,207)

Profit from operations

1,396

7,571

5,637

-

(6,759)

(3,422)

4,423

 

The restated* segment results for the half year ended 30 June 2013 were as follows:

 


Design

Produce

Deploy

Pass Through

Central Costs

Corporate Costs

Total


£000

£000

£000

£000

£000

£000

£000









9,616

55,203

26,294

30,100

-

-

121,213









Profit from operations before amortisation of acquired intangibles and exceptional items

1,421

8,237

3,809

-

(5,454)

(2,866)

5,147

Amortisation of acquired intangibles

(132)

(225)

-

-

-

-

(357)

Profit from operations before exceptional items

1,289

8,012

3,809

-

(5,454)

(2,866)

4,790

Exceptional items

207

(1,728)

(112)

-

(468)

(15)

(2,116)

1,496

6,284

3,697

-

(5,922)

(2,881)

2,674

The restated* segment results for the year ended 31 December 2013 were as follows:

 


Design

Produce

Deploy

Pass Through

Central Costs

Corporate Costs

Total


£000

£000

£000

£000

£000

£000

£000









Revenue

20,939

117,357

55,887

75,965

-

-

270,148









Profit from operations before amortisation of acquired intangibles and exceptional items

3,605

17,049

9,632

-

(11,389)

(5,640)

13,257

Amortisation of acquired intangibles

(378)

(449)

-

-

-

-

(827)

Profit from operations before exceptional items

3,227

16,600

9,632

-

(11,389)

(5,640)

12,430

Exceptional items

123

(2,942)

(112)

-

(380)

(164)

(3,475)

Profit from operations

3,350

13,658

9,520

-

(11,769)

(5,804)

8,955

 

* Certain central costs were reallocated on a directly attributable basis to the operating segments during the period and the comparatives have been restated on a consistent basis accordingly.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

2        Amortisation of acquired intangibles and exceptional items

 


Half year      ended             30 June      2014

Half year ended      30 June 2013

Year

 ended

   31 Dec

2013


£000

£000

£000

Profit from operations is arrived at after charging the following items:




Acquisition and set up costs

198

-

105

Exceptional restructuring costs

939

2,395

3,500

Net benefit from TGML restructuring

-

(294)

(294)

Pension deficit reduction project

70

15

164

Exceptional items

1,207

2,116

3,475

Non-exceptional depreciation and amortisation - amortisation of acquired intangibles

429

357

827


1,636

2,473

4,302

 

3           Net finance costs  

 


Half year

 ended

Half year

 ended

Year

ended


30 June

30 June

31 Dec


2014

2013

2013






£000

£000

£000





Interest on financial assets measured at amortised cost

6

31

33

Interest on financial liabilities measured at amortised cost

(810)

(1,032)

(1,831)

Net interest from financial assets and financial liabilities not at fair value through Income Statement

(804)

(1,001)

(1,798)

(Loss) / gain on foreign currency financial liabilities

(151)

21

1

Retirement benefit related cost

(589)

(447)

(885)

Net finance costs

(1,544)

(1,427)

(2,682)

 

4           Income tax  

 

The tax charge on continuing operations for the period is based upon an effective rate of 24.62%.

 

Finance Act 2013 confirmed that the corporation tax rate was to be reduced to 21% from 1 April 2014; the rate will fall to 20% from 1 April 2015. As the legislation introducing these reductions has been substantively enacted the provision for deferred tax has been made at 20%.

 

5           Earnings per share  

 


Half year

 ended

Half year

 ended

Year

 ended


30 June

30 June

31 Dec


2014

2013

2013






£000

£000

£000

Basic and diluted earnings per share are calculated as follows:








Profit attributable to equity holders of the parent

2,170

947

4,860













Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share ('000)

195,218

173,145

183,402

Effect of dilution:




     Share options

5,013

4,866

5,195

Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution

 

200,231

 

178,011

 

188,597

 

 

134,675 (30 June 2013 143,964, 31 December 2013 143,964) shares were held in trust at 30 June 2014.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

5        Earnings per share (continued)

 

Earnings per share from continuing operations before exceptional items and amortisation of acquired intangibles

 

Net profit from continuing operations before exceptional items and amortisation of acquired intangibles, attributable to equity holders of the parent is derived as follows:

 


Half year

 ended

Half year

 ended

Year

 ended


30 June

30 June

31 Dec


2014

2013

2013






£000

£000

£000





Profit after taxation from continuing operations

2,170

947

4,860





Exceptional items

1,207

2,116

3,475

Taxation on the above

(217)

(689)

(895)

Amortisation of acquired intangibles

429

357

827

Taxation on the above

(86)

(81)

(210)

Exceptional interest charge

-

-

176

Taxation on the above

-

-

(41)

Taxation - adjustments in respect of prior years

-

-

(285)

Profit after taxation from continuing operations excluding exceptional items and amortisation of acquired intangibles

 

3,503

 

2,650

 

7,907

 

Adjusted earnings per share




Basic

1.79p

1.53p

4.31p

Diluted

1.75p

1.49p

4.19p

 

The basis of measurement of adjusted EPS is to reflect more accurately the measure of EPS used by the market. Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

 

6           Dividends paid and proposed 

 


Half  year ended

Half  year ended

Year ended


30 June

30 June

31 Dec


2014

2013

2013


£000

£000

£000

Declared and paid during the period




Amounts recognised as distributions to equity holders in the period:




Final dividend of the year ended 31 December 2012 of 1.10p per share

-

2,104

2,104

Interim dividend of the year ended 31 December 2013 of 0.60p per share

-

-

1,166

Final dividend of the year ended 31 December 2013 of 1.20p per share

2,333

-

-


2,333

2,104

3,270

Proposed for approval by the Board

(not recognised as a liability at period end)




Interim equity dividend on ordinary shares for 2014 of 0.67p

(30 June 2013 interim 0.60p, 31 December 2013 final 1.20p) per share

1,333

1,148

2,333

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

7           Cash generated from operations   

 


Half year

ended

30 June

 

Half year

ended

30 June

 

 

Year

ended

31 Dec


2014

2013

2013


£000

£000

£000

Continuing operations




Profit before tax

2,879

1,247

6,273

Adjustments for:




Amortisation of intangible assets arising on business acquisitions

429

357

827

Depreciation and other amortisation

4,973

3,664

7,571

Excess of contributions paid over Income Statement pension costs (net of expenses)

-

274

(214)

Exceptional items

1,207

2,116

3,475

Profit  on sale of property, plant and equipment

(5)

-

(15)

Share-based payment charge

218

160

307

Net finance costs

1,544

1,427

2,682

Additional contribution to the defined benefit pension plan

(575)

(575)

(1,650)

Cash cost of exceptional items

(1,890)

(2,366)

(5,253)





Changes in working capital:




Decrease /(Increase) in inventories

1,614

(855)

(2,186)

Increase in trade and other receivables

(10,468)

(8,004)

(21,572)

Increase /(decrease) in trade and other payables

8,773

(3,311)

14,487

Cash generated from operations

8,699

(5,866)

4,732





 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

8        Acquisitions  

 

On 25 April 2014, the Group acquired the entire issued share capital of Jacaranda Productions Limited ("Jacaranda"). Jacaranda is a video and film production specialist, creating, managing and measuring the effectiveness of video content for global brands. It is based in London with a team of six people. For over 15 years Jacaranda has been voted in the top ten independent production companies in Televisual's annual 'Corporate Top 50' awards and has won over 250 creative awards including The Digital Impact Awards, Cannes Corporate Media and TV Awards and New York Film and TV Awards.

 

The consideration payable by Communisis amounted to £1,676,000, including acquired cash of £117,000. The consideration was satisfied in cash of £876,000 and through the issue of 913,242 new ordinary shares of 25p each in the share capital of Communisis (the "Consideration Shares") to the value of £600,000 based on the middle market closing price of 65.7 pence per ordinary share.

 

As part of the purchase agreement a contingent consideration has been agreed. An amount equal to ten percent of annual gross profits of the company will be payable to the sellers at the end of each of the three earn-out periods, being the years ended 30 April 2015, 2016 and 2017. The total contingent consideration shall in no circumstance exceed the value of £500,000. As at the date of acquisition, the fair value of the contingent consideration has been estimated at £200,000, determined using a discounted cash flow method.

 

Details of the consideration paid and book values of assets and liabilities as at the date of acquisition are set out below:

 

 



Fair value to Group



£000

Property, plant and equipment


21

Inventories


85

Customer relationships


195

Software


438

Trade and other receivables


230

Trade and other payables


(269)

Income tax payable


(8)

Cash at bank


117

Deferred tax


(127)

Fair value of net assets acquired


682

Goodwill


994

Consideration


1,676




Satisfied by:



Cash


876

Shares


600

Contingent consideration


200

Total consideration


1,676



The net cash outflow arising from the acquisition was as follows:





Cash consideration, as above


(876)

Cash acquired, as above


117

Net outflow of cash


(759)

 

 

The goodwill recognised above comprises certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the expected value of synergies through future earning capacity and cost savings. None of the goodwill recognised above is expected to be deductible for income tax purposes.

 

 

The results of this business are included within the Design business segment.

 

The acquired business contributed revenue of £213,000 and a loss of £23,000 from the date of acquisition (25 April 2014) to 30 June 2014. If the combination had taken place at the beginning of the year the consolidated profit of the Group to June 2014 would have been £2,138,000 and revenue from continuing operations would have been £169,600,000.

 

Acquisition and set up costs of £34,000 have been expensed and included in exceptional items in 2014.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

8        Acquisitions (continued) 

 

On 25 April 2014, the Group acquired the entire issued share capital of Public Creative Limited ("Public Creative"). Public Creative creates and drives brand awareness with digital media using web and mobile applications to build loyalty and encourage customer advocacy. It is based in London with a team of eightpeople.

 

Details of the consideration paid and book values of assets and liabilities as at the date of acquisition are set out below:

 



Fair value to Group



£000

Customer relationships


62

Trade and other receivables


37

Trade and other payables


(81)

Cash at bank


78

Deferred tax


(12)

Fair value of net assets acquired


84

Goodwill


275

Consideration


359




Satisfied by:



   Cash


359



The net cash outflow arising from the acquisition was as follows:





Cash consideration, as above


(359)

Cash acquired, as above


78

Net outflow of cash


(281)

 

The goodwill recognised above comprises certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the expected value of synergies through future earning capacity and cost savings. None of the goodwill recognised above is expected to be deductible for income tax purposes.

 

 

The results of this business are included within the Design business segment.

 

The acquired business contributed revenue of £66,000 and a loss of £5,000 from the date of acquisition (25 April 2014) to 30 June 2014. If the combination had taken place at the beginning of the year the consolidated profit of the Group to June 2014 would have been £2,191,000 and revenue from continuing operations would have been £169,482,000.

 

Acquisition and set up costs of £29,000 have been expensed and included in exceptional items in 2014.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

8        Acquisitions (continued) 

 

On 9 June 2014, the Group acquired the entire issued share capital of The Communications Agency Limited ("TCA"). TCA is a long-established, award-winning agency that specialises in brand response and customer relationship marketing. Its broad capabilities and experience across all media channels including TV, experiential and digital are central to the development of Communisis' integrated and differentiated agency model. TCA also brings long-standing client relationships with leading brands in the financial services, retail and consumer goods sectors. The acquisition offers considerable scope for growth and revenue synergies with the Group's existing client portfolio and the cross-selling of other marketing services in social media, video, digital development and content marketing.

 

The consideration payable by Communisis amounted to £7,438,000, including acquired cash of £522,000. The consideration was satisfied in cash of £5,300,000 and through the issue of 2,404,643 new ordinary shares of 25p each in the share capital of Communisis (the "Consideration Shares") to the value of £1,450,000 based on the middle market closing price of 60.3 pence per ordinary share. The £188,000 deferred consideration was paid in July 2014.

 

As part of the purchase agreement a contingent consideration has been agreed. An amount of up to a maximum of £500,000 will be payable to the sellers at the end of the earn-out period (being the year ended 31 October 2014) subject to the company generating an adjusted EBITDA of £888,000. If the company fails to generate an adjusted EBITDA of £888,000 in the earn-out period, the contingent consideration will be reduced by a multiple of eight times the shortfall in adjusted EBITDA. As at the date of acquisition, the fair value of the contingent consideration has been estimated at £500,000, determined using a discounted cash flow method.

 

Details of the consideration paid and book values of assets and liabilities as at the date of acquisition are set out below:

 



Fair value to Group



£000

Fixed assets


99

Inventories


72

Customer relationships


1,329

Trade name


261

Trade and other receivables


862

Trade and other payables


(946)

Cash at bank


522

Income tax payable


(59)

Deferred tax


(331)

Fair value of net assets acquired


1,809

Goodwill


5,629

Consideration


7,438




Satisfied by:



   Cash


5,300

   Shares

1,450

   Deferred consideration

188

   Contingent consideration

500

Total consideration

7,438



The net cash outflow arising from the acquisition was as follows:





Cash consideration, as above


(5,300)

Cash acquired


522

Net outflow of cash


(4,778)

 

The goodwill recognised above comprises certain intangible assets that cannot be individually separated and reliably measured due to their nature. These items include the expected value of synergies through future earning capacity and cost savings. Goodwill has also been recognised in relation to the value of the workforce of highly skilled technical professionals which did not meet the criteria for recognition as intangible assets as at the date of acquisition. None of the goodwill recognised above is expected to be deductible for income tax purposes.

 

The results of this business are included within the Design business segment.

 

The acquired business contributed revenue of £427,000 and a profit of £23,000 from the date of acquisition (9 June 2014) to 30 June 2014. If the combination had taken place at the beginning of the year the consolidated profit of the Group to June 2014 would have been £2,325,000 and revenue from continuing operations would have been £171,396,000.

 

Acquisition and set up costs of £135,000 have been expensed and included in exceptional items in 2014.

 

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

 

9        Directors' responsibility statement   

 

The directors are responsible for preparing the condensed set of financial statements, in accordance with applicable law and regulations.  Andy Blundell, Chief Executive and Nigel Howes, Finance Director confirm that, to the best of their knowledge:

 

·          the condensed set of financial statements on pages 8 to 20 has been prepared in accordance with IAS 34 - Interim Financial Reporting, as adopted by the European Union; and

 

·          the information set out on this page and on pages 1 to 7 includes a fair review of the information required by Sections DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

There were no related party transactions during the period which require disclosure.

 

10      Risks and Uncertainties    

 

Communisis has a robust internal control and risk management process outlined on pages 44 to 45 of the Corporate Governance Report in the 2013 Annual Report.

 

The principal risks and uncertainties relating to the business at 31 December 2013 were set out in the Strategic Report on pages 20 to 21 of the 2013 Annual Report. These include the ability of the Group to adapt products and services to technological change, the degree of customer concentration within the Group, the complexity of the Group's framework contracts, the smooth and uninterrupted operation of the Group's IT networks to ensure safe guarding of data and uninterrupted delivery of products/services, talent and skills shortage, deterioration in the economic environment which may decrease the Group's profitability, a high operational gearing which means that a reduction in revenues could significantly impact profitability, the Group being able to successfully integrate the operations of new acquisitions, the Group's continuing obligations under defined benefit pension scheme arrangements and contingent liabilities arising from lease commitment guarantees on past disposals.
 

The view of the Board of Directors is that the nature of the risks has not changed since 6 March 2014 and that they represent our current best understanding of the situation faced by the Group.  In terms of risk mitigation, management will continue to be alert to the need for action in respect of any problems caused or exacerbated by the current economic climate, especially as it affects our ability to forecast reliably the market demand for some of our newer services.

 

11      Additional information  

 

General information 

 

The information for the year ended 31 December 2013 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The financial information for the half year ended 30 June 2014 and for the equivalent period in 2013 has not been audited or reviewed. It has been prepared in accordance with IAS 34 ('Interim Financial Reporting') and on the basis of the accounting policies as set out in the 2013 Annual Report and Financial Statements.

 

Bank facilities extension

 

On 30 June 2014, Communisis extended the existing £55 million revolving credit facility by £10 million. Facilities now total £65 million of revolving credit facility committed until March 2018, and a £5m overdraft that is renewable annually.

 

Going Concern

 

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the interim report.


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