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RNS
Huntsworth PLC   -  HNT   

Interim Results

Released 07:00 23-Jul-2019

RNS Number : 3444G
Huntsworth PLC
23 July 2019
 

Huntsworth plc

 

Interim results for the six months to 30 June 2019

 

Huntsworth plc, the healthcare and communications Group, today announces its interim results for the six months to 30 June 2019.

Positive order book indicates strong second half performance; full year outcome on track

 

Highlights

Strong growth from Medical (LFL2: +8.6%) and Immersive (LFL: +9.2%) divisions

Marketing division (LFL: flat) in line with expectations. Increased number of new business pitches and clients wins indicate a return to growth in second half

Communications division ahead of expectations and returns to growth (LFL: +0.9%)

Investment of over £3 million in staff and property ahead of expected stronger second half performance

Acquisition of two agencies performing well, adding key additional capabilities

 

Creativ-Ceutical

 

KYNE

Working capital continues to improve with cash conversion of 100% (H1 2018: -14%)

Net debt lower than expected. Group remains committed to a target of around 1.5x leverage at year end

Exceptional charges in relation to onerous leases and sale of Grayling Middle East

Interim dividend increased by 7% to 0.75p (H1 2018: 0.7p)

 

 

Financial highlights

 

30 June

 2019

30 June

 2018

 

Revenue

£123.5m

£102.2m

+21%

(Loss) / profit before tax

£(1.1m)

£10.3m

 

Basic & diluted EPS

(0.6)p

2.3p

 

 

 

 

 

Headline operating profit1

£14.0m

£11.8m

+19%

Headline profit before tax1

£11.4m

£11.0m

+3%

Headline diluted EPS1

2.4p

2.6p

 

 

 

 

 

Dividend per share

0.75p

0.70p

+7%

Net debt3

£85.8m

£38.9m

 

 

 

 

Paul Taaffe, CEO of Huntsworth plc, commented:

"The first half of the year has seen the Group continue to focus on extending its capabilities to meet its client needs through investment in new staff, offices and two new agencies. With the acquisition of Creativ-Ceutical and KYNE, we have added world-class award-winning agencies which will help us to continue to grow our business.

 

"The Group expects to see a strong performance in the Marketing and Medical divisions in the second half of the year following recent client wins, and this will be further enhanced by the first-time inclusion of KYNE and Creativ-Ceutical. The Communications division will continue to show improved revenue and profit performance, although Immersive is expected to be flat against strong comparatives.

 

"The Group retains a strong balance sheet and as we head into the stronger cash-generating second half of the year, we anticipate a reduction in our gearing levels from the current 1.8x EBITDA towards our target of 1.5x. The Board remains confident in the full year outcome and the longer-term prospects of the Group."

 

Notes:

1.

Unless otherwise stated, results have been adjusted to exclude highlighted items. An explanation of how all adjusted measures have been calculated is included in Appendix 1.

 

2.

Like-for-like (LFL) results are stated at constant exchange rates and excludes the effect of acquisitions and disposals. A reconciliation of IFRS measures to like-for-like measures is included in Appendix 1.

 

3.

Unless otherwise stated, net debt and leverage figures exclude the impact of IFRS 16

 

Enquiries

 

 

 

Huntsworth

020 3861 3750

Paul Taaffe, Chief Executive Officer

 

Neil Jones, Chief Financial Officer

 

 

 

Citigate Dewe Rogerson

020 7638 9571

Angharad Couch

 

Nick Reading

 

Elizabeth Kittle

 

 

Chief Executive's Statement

Group overview

Healthcare remains our focus for growth and investment, as it continues to be a fast-growing sector led by increasing global demand for new drugs to help ageing populations. This demand is driving a complex marketplace that requires a combination of higher margin consultancy services, medical affairs and more effective marketing which is being seen in client demand patterns across all our healthcare-focused divisions. Increasingly, clients are looking for a full service and digitally-driven offering to help launch, distribute and differentiate their products.

The Group has made good progress in the first half of the year. We have expanded our capabilities to better meet the changing and increasing needs of our clients and secured key new hires in all Health divisions. Revenues for the first half of 2019 were £123.5 million (2018: £102.2 million), an increase of 21% compared to the prior year (3.1% on like-for-like basis) largely due to the contribution from newly acquired businesses.  Headline profit before tax and highlighted items was £11.4 million (2018: £11.0 million), an increase of 3% compared to the prior year. During the period we invested in staff to enable the expanded Group to benefit from its larger scale.  That larger scale was seen in an increase number of new business pitches and wins which have contributed to a stronger second half pipeline. We also rationalised our UK property portfolio, bringing expanded space in London to accommodate the growth of the Health divisions whilst reducing excess space in the Communications division.  We expect profits to be second half weighted as a result.

To further support our ability to meet our client needs, we added two agencies to the Group in May 2019, both bringing key new capabilities as we seek to create a full service offering for our clients. We acquired 70% of Creativ-Ceutical S.A.R.L. ("CC"), for an initial cash consideration of €15.5 million. CC is a fast-growing strategic market access, health economics and outcomes research consultancy serving global pharma and biotech customers. The business closely aligns with our Apothecom agency and forms an extension of the services within the Group's Medical division. In addition, we acquired 85% of Kyne Communications, LLC and Kyne Communications Limited (together, "KYNE") for an initial cash consideration of $17.4 million. KYNE is an award-winning global health communications agency providing public relations and patient advocacy services to a broad range of pharmaceutical and biotech clients, as well as working with a number of foundations to support their goals on disease awareness and eradication. The business will sit within the Group's Marketing division, complementing its existing US-focused PR business and creating one of the world's leading health-focused public relations agencies. This greater scale will allow the Group to participate in bigger global assignments.

As previously outlined, our efforts to restructure and rightsize the operations within the Communications division are beginning to be reflected in a return to like-for-like revenue growth (+0.9%) after a number of years of decline. A restructured cost base and the elimination of further underperforming business will continue to improve profitability as the year progresses.

The Group remains focused on its debt levels. The first half of the year has seen significantly stronger cash generation than the same period last year, with a net cash operating cashflow inflow before highlighted items and after lease payments of £12.9 million (2018: £1.6 million outflow). Net debt at 30 June 2019 was £85.8 million (2018: £38.9 million) equivalent to 1.8x EBITDA. We remain committed to a target of around 1.5x EBITDA.

 

Divisional overview

Marketing

Divisional revenues grew by £16.3 million (49%) to £49.7 million (H1 2018: £33.3 million) helped by the recently acquired agencies Giant and Navience. On a like-for-like basis, the division was flat compared to H1 2018, as clients shifted product delivery to the second half of the year. The first half of the year was focused on the integration of Giant and Navience and investment in staff to enable the expanded Group to benefit from its larger scale. That larger scale was seen in an increased number of new business pitches and client wins. Those wins, together with the shift in work streams, will see the second half of the year produce stronger like-for-like growth. Excluding investment in staff and expanded property costs of £2.1 million, underlying operating margin was 19%.

Medical

 

The Medical division, led by its largest agency Apothecom, continued to perform very strongly, building on new client mandates won in late 2018. Revenues grew by 20% to £18.7 million (2018: £15.6 million), or 8.6% on a like-for-like basis. The Group again invested in staff and property to support this growth and launched the division's consulting arm Medistrava, which has won several new mandates which will help further drive the division's growth. Excluding investment in staff and expanded property costs of £0.7 million, underlying operating margin was 22%. With significant recent wins and a strong pipeline of new opportunities, we anticipate further strong growth in the second half of the year.

 

Immersive

 

The Immersive division, led by The Creative Engagement Group, has performed strongly in the first half of the year, with revenue up by 9.2% on a like-for-like basis to £18.8 million (H1 2018: £17.0 million) as it continues to expand its offering to Healthcare clients in particular. The division has continued to invest in staff, boosting its US and internal communications strength, and has also moved to new expanded space in London. The division continues to seek to differentiate itself in the market and expand on its success with the launch of two new agencies. Axiom Europe will build on the success of the US-based Axiom pharma sales training agency, and Forty1 will seek to exploit the increasing need for employee engagement which most contemporary businesses struggle with. Excluding investment in staff and expanded property costs of £0.7 million, underlying operating margin was 14%. The outlook for the second half of the year is less positive for the division, as a slow-down in spend at some larger clients and drug failures (leading to less congress and event activity) mean that H2 is likely to be flat against tough H2 2018 comparatives (which were up 23% on H1 2018). This pause in growth is not unexpected given the 35% like-for-like growth the division has achieved in the past 18 months.

Communications

The Group is very pleased to report like-for-like growth in revenue from the Communications division for the first time in a number of years. The strategy of eliminating unprofitable client contracts and operations, streamlining infrastructure and investing in quality staff is beginning to be rewarded. Overall revenue was flat at £36.3 million, representing like-for-like growth of 0.9% (H1 2018: -5.4%). Operating profit of £3.2 million is ahead of last year (H1 2018: £2.7million), with margin increasing from 7.4% to 8.7%.

Grayling revenues fell by 3.2% on a like-for-like basis, to £17.1 million, resulting in a loss for the period of £0.1 million (2018: loss of £0.3 million). This performance is largely the result of a decline in revenues in the USA for clients terminated last year and an underperformance in the Middle East. The UK continued to be the standout performer with 10.9% like-for-like revenue growth on the back of further good client wins. Red's revenue grew by 1.5% on a like-for-like basis in the period to £8.5 million. Good client wins continue to underpin the business and we anticipate further growth in H2.

Citigate Dewe Rogerson has performed well during the period with revenues up by 7.2% like-for-like to £10.7 million (2018: £9.9 million) and a further strong improvement in profitability. The improved performance was driven by good trading in Asia, especially in Hong Kong and China, along with the UK and France. The Netherlands continues to operate in a difficult market with little transaction and IPO activity. The second half of the year may prove softer in the UK, but this is likely to be offset by continued good trading in Asia.

Dividend

Given the underlying strength of the Group's H1 performance and the outlook for the remainder of the year, together with the anticipated contribution from the newly acquired businesses, the interim dividend is being raised by 7% to 0.75p (H1 2018: 0.7p). This will be paid on 6 November 2019 to shareholders on the register at 27 September 2019.

Group outlook

The Group expects to see a strong performance in the Marketing and Medical divisions in the second half of the year following recent client wins, and this will be further enhanced by the first-time inclusion of KYNE and CC. The Communications division will continue to show an improved revenue and profit performance, although Immersive is expected to be flat following a slower rate of new project demand and strong comparatives.

 

The Group retains a strong balance sheet and as we head into the stronger cash-generating second half of the year, we anticipate a reduction in our gearing levels from the current 1.8x EBITDA towards our target of 1.5x EBITDA. The Board remains confident in the full year outcome and the longer-term prospects of the Group.

 

 

Nothing in this announcement should be construed as a profit forecast.

 

Review of Financial Results

 

Summary of financial results for the six months ended 30 June 2019

 

 

2019

Like-for-like growth

2018

 

6 months ended 30 June

£m

%

£m

 

Revenue

 

 

 

 

Marketing

49.7

-

33.3

 

Medical

18.7

8.6%

15.6

 

Immersive

18.8

9.2%

17.0

 

Communications

36.3

0.9%

36.3

 

Total revenue

123.5

3.1%

102.2

 

 

2019

Margin

2018

Margin

6 months ended 30 June

£m

%

£m

%

Operating profit

 

 

 

 

Marketing

7.9

15.9%

7.4

22.1%

Medical

3.6

19.1%

3.6

23.1%

Immersive

1.9

9.9%

2.3

13.8%

Communications

3.2

8.7%

2.7

7.4%

Total operations

16.5

13.4%

16.0

15.6%

Central costs

(2.6)

 

(4.3)

 

Associates

0.1

 

0.1

 

Operating profit before highlighted items

14.0

11.4%

11.8

11.6%

Highlighted items (Note 4)

(12.1)

 

(0.6)

 

Reported operating profit

1.9

 

11.2

 

 

 

 

 

 

Adjusted basic EPS

2.5p

 

2.6p

 

Adjusted diluted EPS

2.4p

 

2.6p

 

Reported basic & diluted EPS

(0.6)p

 

2.3p

 

 

 

Revenue and profit before highlighted items

 

Revenue in the six months to 30 June 2019 increased by £21.3 million to £123.5 million (H1 2018: £102.2 million).

 

On a like-for-like basis, revenues increased by 8.6% in Medical, 9.2% in Immersive and 0.9% in Communications, and were flat in Marketing.

 

Group operating margins were broadly flat at 11.4%  (H1 2018: 11.6%) despite significant investments to support the future growth of the Group. On an underlying basis, margins rose to  14.2%.

 

Highlighted operating items

 

Highlighted items of £12.1 million charged to operating expenses in the first half of 2019 related primarily to the £5.2 million cost of consolidating the Group's property portfolio (H1 2018: £nil), the £3.4 million write down of the Grayling MEA business to its fair value (H1 2018: £nil), £3.2 million of amortisation of acquired intangible assets and £1.0 million of acquisition related costs.

 

After highlighted items, the statutory reported operating profit was £1.9 million (H1 2018: £11.2 million).

 

Currency 

 

The impact of changes in exchange rates against H1 2018 was to increase revenues by £3.1 million and increase headline profit before tax by £2.7 million, which includes £2.0 million of incremental gains on hedging instruments. In addition, a credit of £1.5 million (H1 2018: £1.5 million) was recognised in Other Comprehensive Income and Expense arising from the retranslation of the Group's overseas assets.

 

Tax

 

The total tax charge of £0.6 million comprises a tax charge of £2.1 million on underlying earnings and a credit of £1.5 million on highlighted items.  The pre-highlighted tax expense of £2.1 million is based on the expected full year tax rate of 18% (year ended 31 December 2018: 18%). 

 

Earnings per share

 

Profits attributable to ordinary shareholders before highlighted items were £8.8 million (H1 2018: £8.7 million). Adjusted basic earnings per share decreased to 2.5 pence (H1 2018: 2.6 pence), and adjusted diluted earnings per share decreased to 2.4 pence (H1 2018: 2.6 pence) as result of the increased number of shares in issue.

Losses attributable to ordinary shareholders after highlighted items were £2.2 million (H1 2018: profits of £7.6 million), resulting in basic and diluted losses per share of 0.6 pence (H1 2018: earnings of 2.3 pence).

Dividends

The interim dividend is being raised by 7% to 0.75 pence (H1 2018: 0.7 pence).  This will be paid on 6 November 2019 to shareholders on the register at 27 September 2019. A scrip dividend alternative will be available.

Balance sheet and cash flow

Operating cashflow inflow before highlighted items and after lease payments was £12.9 million (H1 2018: £1.6 million outflow), representing cash conversion of 100%. Other principal cashflows during the period were the net outflow on acquisitions and disposals of £10.4 million, net payments for interest and tax of £3.8 million, capital expenditure of £3.6 million, and a cash outflow on highlighted items of £2.5 million.

Net debt at 30 June 2019 was £85.8 million (30 June 2018: £38.9 million; 31 December 2018: £77.0 million) which is comfortably within the Group's available facilities. Financial covenants based on the Group's facility agreements continue to be comfortably met.

Key risks and uncertainties

The Directors monitor the risks that the Group is exposed to and the risk management processes and internal controls in place to mitigate these risks. Our risk management approach is led by the Risk Committee and is designed to identify risks to the Group using both a bottom-up and top-down approach.  

The Directors have considered whether the nature or level of risk that the Group is exposed to has changed significantly in the first half of 2019 and have concluded that the risk profile is largely unchanged.  The Directors continue to review risk levels and will act to mitigate any increased risks accordingly.

As described more fully on pages 23 to 26 of the 2018 Annual Report and Accounts, the Group's principal risks and uncertainties are identified as:

·  

economic downturn - this can result in fewer new client mandates, longer procurement processes, pricing pressures and an increased risk of bad debt;

·  

political instability - changes in the political landscape of countries the Group operate in may impact on our ability to operate, for example through licensing or regulatory changes; 

·  

currency risk - this can cause earnings to fluctuate, particularly as a substantial proportion of the Group operates in the US and Europe;

·  

over-reliance on the Health sector - by focusing on the Health sector, the Group exposes itself to a single sector, and as such can be materially affected by fluctuations in this market;

·  

service offering fails to evolve to meet changing market needs - failure to evolve can result in loss of market share, client losses and pressures on pricing;

·  

investment decisions fail to deliver expected growth - investments may be less financially beneficial than anticipated;

·  

loss of key clients - this would directly impact revenue, profits and potentially the ability to recover amounts due under the contract;

·  

loss of key talent - key individuals maintain client relationships and service quality;

·  

poor profitability - overservicing or underpricing on new and / or existing client contracts would decrease profits, even if revenues were increasing;

·  

information systems access and security - breaches could compromise operations and the Group's reputation;

·  

unethical business practices - such practices would cause reputational damage to the Group;

·  

loan facility and covenant headroom risk - resulting in reputational damage and/or impairing the Group's ability to make future acquisitions or settle existing obligations;

·  

legal and regulatory compliance - potentially giving rise to reputational and/or financial damage.

 

The Group has a number of ongoing processes to identify, evaluate and manage the key financial, operating and compliance risks faced by the Group and for determining the appropriate course of action to manage and mitigate those risks.  The Board delegates the monitoring of these internal control and risk management processes to the Audit Committee, and in turn to the Risk Committee.  Further details of the risk management processes undertaken are included on page 39 to 41 of the 2018 Annual Report and Accounts.

Forward looking statements

The interim management report contains certain forward looking statements in respect of Huntsworth plc and the operation of its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

 

Condensed Consolidated Income Statement

for the six months ended 30 June 2019

 

 

 

Notes

Unaudited

6 months ended 30 June

2019

£000

Unaudited

6 months ended 30 June

2018

£000

Audited

Year ended

31 December 2018

 £000

 

Turnover

 

191,600

159,601

352,455

 

 

 

 

 

 

 

Revenue

3

123,462

102,184

224,956

 

Operating expenses

 

(121,634)

(91,131)

(193,860)

 

Share of profit from associate

10

100

117

267

 

Operating profit

3

1,928

11,170

31,363

 

Finance income

5

6

11

15

 

Finance costs

5

(3,028)

(842)

(2,774)

 

(Loss) / profit before tax

 

(1,094)

10,339

28,604

 

 

 

 

 

 

 

Comprising:

 

 

 

 

 

Profit before tax and highlighted items

4

11,355

10,982

30,857

 

Highlighted items

4

(12,449)

(643)

(2,253)

 

 

 

(1,094)

10,339

28,604

 

 

 

 

 

 

 

Taxation expense

6

(597)

(2,624)

(6,883)

 

(Loss) / profit for the period

 

(1,691)

7,715

21,721

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

Owners of the Parent Company

 

(2,167)

7,628

21,291

 

Non-controlling interests

 

476

87

430

 

(Loss) / profit for the period

 

(1,691)

7,715

21,721

 

 

(Loss) / earnings per share

 

 

 

 

Basic - pence

8

(0.6)

2.3

6.4

Diluted - pence

8

(0.6)

2.3

6.1

Condensed Consolidated Statement of Comprehensive Income and Expense

for the six months ended 30 June 2019

 

 

 

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

(Loss) / profit for the period

(1,691)

7,715

21,721

 

 

 

 

Other comprehensive income and expense

 

 

 

Items that may be reclassified subsequently to the Income Statement

 

 

 

Currency translation differences

1,493

1,520

7,264

Tax credit on currency translation differences

120

170

54

Amounts recognised in the Income Statement on interest rate swaps

80

103

176

Movement in valuation of interest rate swaps

(517)

(155)

(170)

Tax credit/(expense) on interest rate swaps

83

10

(1)

Tax credit on share-based payments

-

-

400

Total items that may be reclassified subsequently to profit or loss

1,259

1,648

7,723

Other comprehensive income and expense for the period

1,259

1,648

7,723

Total comprehensive income and expense for the period

(432)

9,363

29,444

 

 

 

 

Attributable to:

 

 

 

Owners of the Parent Company

(908)

9,276

29,014

Non-controlling interests

476

87

430

Total comprehensive income and expense for the period

(432)

9,363

29,444

 

Condensed Consolidated Balance Sheet

as at 30 June 2019

 

 

 

Notes

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

 

Non-current assets

 

 

 

 

 

Intangible assets

9

344,942

185,421

287,288

 

Property, plant and equipment

 

10,926

9,707

9,751

 

Right-of-use assets

15

41,468

-

-

 

Investment in associate

10

529

329

479

 

Other receivables

 

2,259

2,252

2,594

 

Deferred tax assets

 

678

273

205

 

 Total non-current assets

 

400,802

197,982

300,317

 

Current assets

 

 

 

 

 

Work in progress

 

9,119

12,655

8,440

 

Trade and other receivables

 

94,129

81,766

81,997

 

Current tax receivable

 

1,237

427

1,077

 

Derivative financial assets

11

191

-

-

 

Cash and short-term deposits

14

18,557

11,638

22,787

 

 

 

123,233

106,486

114,301

 

Assets classified as held for sale

 

695

-

-

 

Total current assets

 

123,928

106,486

114,301

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Lease liabilities

15

(7,107)

(2)

(2)

 

Bank overdraft

14

(7,025)

(514)

(357)

 

Trade and other payables

 

(86,795)

(78,038)

(69,423)

 

Derivative financial liabilities

11

-

(529)

(122)

 

Current tax payable

 

(1,205)

(993)

(2,258)

 

Provisions

13

(1,906)

(1,059)

(6,396)

 

 Total current liabilities

 

(104,038)

(81,135)

(78,558)

 

Non-current liabilities

 

 

 

 

 

Bank loans

12

(96,841)

(49,241)

(99,214)

 

Lease liabilities

15

(38,848)

(1)

(1)

 

Trade and other payables

 

-

(3,738)

(4,105)

 

Derivative financial liabilities

11

(652)

(273)

(93)

 

Deferred tax liabilities

 

(12,811)

(2,850)

(8,705)

 

Provisions

13

(68,045)

(4,621)

(27,975)

 

 Total non-current liabilities

 

(217,197)

(60,724)

(140,093)

 

Net assets

 

203,495

162,609

195,967

 

 

Equity

 

 

 

 

 

Called up share capital

 

107,568

107,203

107,380

 

Share premium account

 

98,034

63,843

82,423

 

Merger reserve

 

29,468

29,468

29,468

 

Foreign currency translation reserve

 

44,519

37,282

43,026

 

Hedging reserve

 

(652)

(273)

(215)

 

Put option reserve

 

(36,395)

(1,877)

(18,825)

 

Treasury shares

 

-

(1,166)

-

 

Investment in own shares held in the Employee Benefit Trusts

 

(302)

(1,086)

(516)

 

Accumulated losses

 

(68,649)

(71,920)

(61,306)

 

Equity attributable to equity holders of the parent

 

173,591

161,474

181,435

 

Non-controlling interest

 

29,904

1,135

14,532

 

Total equity

 

203,495

162,609

195,967

 

                   

 

 

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2019

 

Notes

Unaudited

  6 months ended 30 June 2019

£000

Unaudited

  6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

Cash inflow/(outflow) from operating activities

 

 

 

 

Cash inflow/(outflow) from operations

14(a)

14,678

(2,106)

22,100

Interest paid

 

(1,333)

(709)

(1,910)

Interest received

 

6

11

15

Cash flows on derivative financial instruments

 

43

(162)

(943)

Net tax paid

 

(2,510)

(2,271)

(4,127)

Net cash inflow/(outflow) from operating activities

 

10,884

(5,237)

15,135

 

 

 

 

 

Cash (outflow)/inflow from investing activities

 

 

 

 

Acquisition of subsidiary - cash paid

 

(30,529)

(1,103)

(72,118)

Exercise of put option - cash paid

 

(380)

-

-

Cash classified as held for sale

 

(232)

-

-

Cash acquired through acquisition

 

9,846

3,738

5,474

Deferred consideration paid

 

(6,421)

-

-

Proceeds from sale of businesses, net of cash disposed

 

1,409

1,183

1,183

Cost of internally developed intangible assets

 

-

(202)

(234)

Purchases of property, plant and equipment

 

(3,454)

(1,001)

(2,227)

Payments for initial direct costs at lease inception

 

(160)

-

-

Proceeds from sale of property, plant and equipment

 

21

49

53

Dividends received from associates

 

50

-

-

Net cash (outflow)/inflow from investing activities

 

(29,850)

2,664

(67,869)

 

 

 

 

 

Cash inflow/(outflow) from financing activities

 

 

 

 

Proceeds from issue of ordinary shares

 

15,895

-

17,608

Purchase of treasury shares

 

-

-

(172)

(Purchases of) / proceeds from sale of own shares to settle share options

 

(14)

303

474

Repayment of finance lease liabilities

 

(4,300)

(1)

(1)

Net movement in borrowings

 

(2,595)

3,424

53,247

Dividends paid to equity holders of the parent

 

-

-

(5,920)

Dividends paid to non-controlling interests

 

(720)

-

(182)

Net cash inflow from financing activities

 

8,266

3,726

65,054

(Decrease)/increase in cash and cash equivalents

 

(10,700)

1,153

12,320

 

 

 

 

 

Movements in cash and cash equivalents

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

(10,700)

1,153

12,320

Effects of exchange rate fluctuations on cash held

 

(198)

316

455

Cash and cash equivalents at 1 January

 

22,430

9,655

9,655

Cash and cash equivalents at end of period

14(b)

11,532

11,124

22,430

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2019

 

Called

 

 

Foreign

 

 

 

 

 

 

 

 

 

up

Share

 

currency

 

Put

 

Investment

 

 

Non-

 

 

share

premium

Merger

translation

Hedging

option

Treasury

in own

Accumulated

 

controlling

Total

 

capital

account

reserve

reserve

reserve

reserve

shares

shares

losses

Total

interest

Equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

At 1 January 2018 (audited)

107,203

63,843

29,468

35,762

(221)

-

(1,166)

(1,658)

(75,830)

157,401

-

157,401

Profit for the period

-

-

-

-

-

-

-

-

7,628

7,628

87

7,715

Other comprehensive income/(expense)

-

-

-

1,520

(52)

-

-

-

180

1,648

-

1,648

Total comprehensive (expense)/income

-

-

-

1,520

(52)

-

-

-

7,808

9,276

87

9,363

Charge for share-based payments

-

-

-

-

-

-

-

-

704

704

-

704

Tax on share-based payments

-

-

-

-

-

-

-

-

428

428

-

428

Settlement of share options

-

-

-

-

-

-

-

572

(269)

303

-

303

Acquisition of subsidiaries

-

-

-

-

-

(1,877)

-

-

-

(1,877)

1,048

(829)

Equity dividends

-

-

-

-

-

-

-

-

(4,761)

(4,761)

-

(4,761)

At 30 June 2018 (unaudited)

107,203

63,843

29,468

37,282

(273)

(1,877)

(1,166)

(1,086)

(71,920)

161,474

1,135

162,609

Profit for the period

-

-

-

-

-

-

-

-

 13,663

 13,663

 343

 14,006

Other comprehensive income/(expense)

-

-

-

 5,744

 58

-

-

-

 273

 6,075

-

 6,075

Total comprehensive (expense)/income

-

-

-

 5,744

 58

-

-

-

 13,936

 19,738

 343

 20,081

Purchase of own shares

-

-

-

-

-

-

-

(172)

-

(172)

-

(172)

Share issue costs

 - 

(526)

-

-

-

-

-

-

-

(526)

-

(526)

Issue of shares

166

17,968

-

-

-

-

-

-

-

18,134

-

18,134

Charge for share-based payments

-

-

-

-

-

-

-

-

714

714

-

714

Tax on share-based payments

-

-

-

-

-

-

-

-

9

9

-

9

Settlement of share options

-

-

-

-

-

-

-

1,908

(1,737)

171

-

171

Transfers

-

-

-

-

-

-

1,166

(1,166)

-

-

-

 -  

Acquisition of subsidiaries

-

-

-

-

-

(16,948)

-

-

-

(16,948)

13,236

(3,712)

Scrip dividends

11

1,138

-

-

-

-

-

-

-

1,149

 -  

1,149

Equity dividends

 -  

 -  

-

-

-

-

-

-

(2,308)

(2,308)

(182)

(2,490)

At 31 December 2018 (audited)

107,380

82,423

29,468

43,026

(215)

(18,825)

-

(516)

(61,306)

181,435

14,532

195,967

Profit for the period

-

-

-

-

-

-

-

-

(2,167)

 (2,167)

 476

 (1,691)

Other comprehensive income/(expense)

-

-

-

 1,493

 (437)

-

-

-

 203

 1,259

-  

1,259

Total comprehensive (expense)/income

-

-

-

 1,493

 (437)

-

-

-

 (1,964)

 (908)

 476

 (432)

Share issue costs

-  

(469)

-

-

-

-

-

-

-

(469)

-

(469)

Issue of shares

188

16,080

-

-

-

-

-

-

-

16,268

-

16,268

Charge for share-based payments

-

-

-

-

-

-

-

-

709

709

-

709

Tax on share-based payments

-

-

-

-

-

-

-

-

3

3

-

3

Settlement of share options

-

-

-

-

-

-

-

214

(228)

(14)

-

(14)

Adjustments relating to prior acquisitions

-

-

-

-

-

-

-

-

-

-

 260

260  

Acquisition of subsidiaries

-

-

-

-

-

(17,621)

-

-

-

(17,621)

15,412

(2,209)

Exercise of put option

-

-

-

-

-

51

-

-

5  

56

(56)

-

Equity dividends

-

-

-

-

-

-

-

-

(5,868)

(5,868)

(720)

(6,588)

At 30 June 2019 (unaudited)

107,568

98,034

29,468

44,519

(652)

(36,395)

-

(302)

(68,649)

173,591

29,904

203,495

 

 

Notes to the Financial Statements continued

for the six months ended 30 June 2019

 

1. Basis of preparation

The condensed consolidated unaudited interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, IAS 34 "Interim Financial Reporting" as adopted by the EU and the Group's accounting policies.

The Group's accounting policies are in accordance with International Financial Reporting Standards as adopted by the European Union and are set out in the Group's Annual Report and Accounts 2018 on pages 90 - 95, except as noted below. These are consistent with the accounting policies which the Group expects to adopt in its 2019 Annual Report. The Group has not early adopted any Standard, Interpretation or Amendment that has been issued but is not yet effective.

The information relating to the six months ended 30 June 2019 and 30 June 2018 is unaudited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The information has however been reviewed by the auditors and their report to the Board of Huntsworth plc is set out on page 33 of this document. The comparative figures for the year ended 31 December 2018 have been extracted from the Group's Annual Report and Accounts 2018, on which the auditors gave an unmodified opinion and did not include a statement under section 498 (2) or (3) of the Companies Act 2006. The Group Annual Report and Accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies.

 

Changes in accounting policies

A number of new or amended standards became applicable for the current reporting period. The impact of the adoption of IFRS 16 Leases is disclosed in note 15 below. The other standards adopted did not have any impact on the Group's accounting policies.

 

Going concern

After reviewing the Group's performance, future forecasted performance and cash flows, ability to draw down on its facilities and the covenant requirements of those facilities, and after considering the key risks and uncertainties set out on pages 9 - 10, the Directors consider that the Group has sufficient resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group's financial statements.

 

Judgements and estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2018.

 

 

2. Acquisitions

 

KYNE

On 21 May 2019, the Group acquired 85% of Kyne Communicati-ons, LLC and Kyne Communications Limited through direct and indirect interests (together, "KYNE"). Acquisition accounting has been performed in accordance with IFRS 3 (revised) Business Combinations.

 

KYNE has contributed £1.2 million to revenue and £0.4 million to profit before tax for the period between the date of acquisition and 30 June 2019. If the acquisition of KYNE had been completed on the first day of the financial year, Group revenues for the period would have been £126.9 million and Group operating profit would have been £2.6 million.

 

The provisional fair values of the net assets at the date of acquisition were as follows:

 

 

 

Provisional

                                                                                                               
 

 

Fair value recognised on acquisition

£000

Customer relationships

 

7,577

Brands

 

1,703

Property, plant and equipment

 

78

Trade and other receivables

 

2,642

Cash and cash equivalents

 

1,390

Trade and other payables

 

(594)

Deferred tax liability

 

(348)

Non-controlling interest

 

(3,948)

Net assets acquired

 

8,500

Provisional goodwill arising on acquisition

 

13,874

Total cost of acquisition

 

22,374

Discharged by:

 

 

Cash consideration

 

13,385

Deferred contingent consideration

 

8,989

Total consideration

 

22,374

 

 

 

Net cash inflow arising on acquisition:

 

 

Cash consideration

 

13,385

Cash and cash equivalents acquired

 

(1,390)

 

 

11,995

 

Goodwill comprises the value of expected synergies arising from the acquisition and other intangible assets that do not qualify for separate recognition.

 

Acquisition related costs of £0.2 million were incurred and these are included within highlighted items in the Consolidated Income Statement. KYNE forms part of the Marketing Operating Segment.

 

Simultaneous put/call options exist over the remaining 15% equity interest.

 

2. Acquisitions continued

 

Creativ-Ceutical

On 21 May 2019, the Group acquired 70% of Creati-v-Ceuti-cal S.A.R.L. ("CC"). Acquisition accounting has been performed in accordance with IFRS 3 (revised) Business Combinations.

 

CC has contributed £1.0 million to revenue and £0.3 million to profit before tax for the period between the date of acquisition and 30 June 2019. If the acquisition of CC had been completed on the first day of the financial year, Group revenues for the period would have been £126.6 million and Group operating profit would have been £2.7 million.

 

The provisional fair values of the net assets at the date of acquisition were as follows:

 

 

 

Provisional

                                                                                                               
 

 

Fair value recognised on acquisition

£000

Customer relationships

 

14,382

Brands

 

2,357

Property, plant and equipment

 

55

Trade and other receivables

 

1,076

Cash and cash equivalents

 

8,456

Trade and other payables

 

(4,450)

Deferred tax liability

 

(4,185)

Provisions

 

(28)

Non-controlling interest

 

(11,464)

Net assets acquired

 

6,199

Provisional goodwill arising on acquisition

 

20,544

Total cost of acquisition

 

26,743

Discharged by:

 

 

Cash consideration

 

17,144

Deferred contingent consideration

 

9,599

Total consideration

 

26,743

 

 

 

Net cash inflow arising on acquisition:

 

 

Cash consideration

 

17,144

Cash and cash equivalents acquired

 

(8,456)

 

 

8,688

 

Cash consideration comprised €15.5 million for the trade of CC plus €4.0 million in respect of assets acquired.

 

Goodwill comprises the value of expected synergies arising from the acquisition and other intangible assets that do not qualify for separate recognition.

 

Acquisition related costs of £0.6 million were incurred and these are included within highlighted items in the Consolidated Income Statement. CC forms part of the Medical Operating Segment.

 

Simultaneous put/call options exist over the remaining 30% equity interest.

 

3. Segmental analysis

The following is an analysis of the Group's revenue and operating profit before highlighted items by reportable segment.

 

The Group's business activities are split into four operating divisions: Marketing, Medical, Immersive and Communications. These divisions are the basis on which information is reported to the Group's Chief Operating Decision Maker, which has been determined to be the Group Board. The segment result is the measure used for the purposes of performance assessment and represents profit earned by each segment, but before highlighted operating expenses, net finance costs and taxation.

 

 

Marketing

Medical

Immersive

Communications

Total

6 months to 30 June 2019

£000

£000

£000

£000

£000

USA

45,632

12,338

6,943

1,846

66,759

UK

3,887

5,290

11,852

18,001

39,030

Europe

-

1,024

-

11,876

12,900

Rest of World

154

-

-

4,619

4,773

Segment revenue

49,673

18,652

18,795

36,342

123,462

Segment operating profit before

highlighted items

7,905

3,554

1,852

3,179

16,490

 

 

Marketing

Medical

Immersive

Communications

Total

6 months to 30 June 2018

£000

£000

£000

£000

£000

USA

29,286

10,642

3,895

2,461

46,284

UK

3,899

4,919

13,074

17,255

39,147

Europe

-

-

-

11,825

11,825

Rest of World

139

-

-

4,789

4,928

Segment revenue

33,324

15,561

16,969

36,330

102,184

Segment operating profit before highlighted items

7,359

3,587

2,342

2,689

15,977

 

 

 

Marketing

Medical

Immersive

Communications

Total

Year ended 31 December 2018

£000

£000

£000

£000

£000

USA

73,785

24,236

9,380

4,695

112,096

UK

7,805

9,926

26,043

35,083

78,857

Europe

-

-

-

23,545

23,545

Rest of World

410

-

-

10,048

10,458

Segment revenue

82,000

34,162

35,423

73,371

224,956

Segment operating profit before highlighted items

20,012

9,774

5,117

5,989

40,892

 

3. Segmental analysis continued

 

Highlighted items are not presented to the Board on a segmental basis.

 

A reconciliation of segment operating profit before highlighted items to profit before tax is provided below:

 

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

Segment operating profit before highlighted items

16,490

15,977

40,892

Unallocated costs

(2,575)

(4,281)

(7,965)

Share of profit from associate

100

117

267

Operating profit before highlighted items

14,015

11,813

33,194

Highlighted items in operating profit

(12,087)

(643)

(1,831)

Operating profit

1,928

11,170

31,363

Net finance costs

(3,022)

(831)

(2,759)

(Loss) / profit before tax

(1,094)

10,339

28,604

 

 

 

4. Highlighted items

 

Notes

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

(Loss) / profit before tax

 

(1,094)

10,339

28,604

Adjustments charged/(credited) to operating expenses:

 

 

 

 

Amortisation of acquired intangible assets

9

3,167

1,058

3,529

Property consolidation

 

5,205

-

-

Disposal related charge /(credit)

 

3,409

(562)

(921)

Remeasurement of deferred consideration

 

(663)

-

(1,753)

Acquisition and transaction related charge

 

969

147

976

Total adjustments charged to operating expenses

 

12,087

643

1,831

Adjustments charged to finance costs:

 

 

 

 

Imputed interest on deferred consideration and redemption liability

 

362

-

422

Adjusted profit before tax and highlighted items

 

11,355

10,982

30,857

Charged to profit before tax

 

12,449

643

2,253

Taxation (credit) / expense on highlighted items

6

(1,455)

428

1,341

Charged to profit for the period

 

10,994

1,071

3,594

 

 

The Group presents highlighted items charged to profit before tax by making adjustments for costs and credits which management believe to be significant by virtue of their size, nature or incidence or which have a distortive effect on current year earnings. The Group uses these adjusted measures to evaluate performance and as a method to provide shareholders with clear and consistent reporting.

 

4. Highlighted items continued

 

Amortisation of acquired intangible assets

Intangible assets are amortised systematically over their estimated useful lives, which vary from two to 20 years depending on the nature of the asset. The amortisation charge in respect of intangible assets is excluded from adjusted results as they relate to historic business combinations rather than normal ongoing operations. Amortisation on software development costs is not considered a highlighted item.

 

Property consolidation

These are costs associated with property consolidations across the Group, and include double rent costs and provision for onerous leases. These costs are excluded from adjusted results as they are one-off in nature.

 

Acquisition and transaction related costs

In 2019 and 2018, costs were incurred relating to the acquisition of subsidiaries. These costs are excluded from adjusted results as they are one-off in nature.

 

Remeasurement of deferred consideration

The credit relates to subsequent remeasurement of the fair value of deferred contingent consideration. This credit is excluded from adjusted results as they relate to historic business combinations rather than ongoing operations.

 

Disposal related (charge) / credit

This represents profit on disposals of subsidiaries and the loss recognised on the fair value measurement of assets held for sale. These amounts have been excluded from adjusted results as they do not relate to ongoing operations.

 

Imputed interest on deferred consideration and redemption liability

Amounts payable as deferred consideration and the redemption liability contain a significant financing component. This represents the unwinding of the financing component.

 

Taxation

The tax related to highlighted items is the tax effect of the items above. The Group presents highlighted items charged to profit before tax by making adjustments for costs and credits which management believe to be significant by virtue of their size, nature or incidence or which have a distortive effect on current year earnings. The Group uses these adjusted measures to evaluate performance and as a method to provide shareholders with clear and consistent reporting.

 

5. Finance costs and income

 

Unaudited

6 months ended

30 June 2019

£000

Unaudited

6 months ended

30 June 2018

£000

Audited

Year ended

31

December 2018

 £000

Bank interest payable

1,605

842

2,352

Interest on lease liability

1,061

-

-

Finance costs before highlighted

2,666

842

2,352

Finance costs recognised in highlighted items

 

 

 

Imputed interest on deferred consideration and redemption liability

362

-

422

Finance costs

3,028

842

2,774

Bank interest receivable

(4)

(6)

(10)

Other interest receivable

(2)

(5)

(5)

Finance income

(6)

(11)

(15)

Net finance costs

3,022

831

2,759

 

6. Tax

The tax expense for the six months ended 30 June 2019 has been based on an estimated effective tax rate on profit before tax and highlighted items for the full year of 18.0% (year ended 31 December 2019: 18.0%).  The tax expense is analysed as follows:

 

 

                              

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

£000

Total:

 

 

 

Current tax

1,610

2,297

4,935

Deferred tax

(1,013)

327

1,948

Total tax expense

597

2,624

6,883

 

Comprising:

 

 

 

 

 

Income tax expense on profit before tax and highlighted items

 

2,052

2,196

5,542

 

Income tax expense on highlighted items

 

(1,455)

428

1,341

 

 

 

597

2,624

6,883

 

 

The main rate of UK corporation tax will reduce from 19% to 17% from 1 April 2020.  The expected impact of the reduction in the UK rate is reflected in the closing deferred tax position.

The Group presents the adjusted effective tax rate to help users of this report better understand its tax charge. In arriving at this rate, the Group removes the tax effect of items which are adjusted for in arriving at the adjusted profit before income tax disclosed in note 4. The Group considers that the resulting adjusted effective tax rate is more representative of its tax payable position.

7. Dividends

 

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

Equity dividends on ordinary shares

 

 

 

Final dividend for the year ended 2017 - 1.45 pence

-

4,761

4,761

Interim dividend for the year ended 2018 - 0.70 pence

-

-

2,308

Final dividend for the year ended 2018 - 1.60 pence

5,868

-

-

 Total dividend expense

5,868

4,761

7,069

 

The final dividend for the year ended 31 December 2018 of 1.60 pence per share was approved by shareholders at the Annual General Meeting on 9 May 2019 and was paid on 4 July 2019. This dividend is included in trade and other payables at 30 June 2019.

 

The 2019 interim dividend of 0.75 pence per share was approved by the Board on 22 July 2019. The dividend will be paid on 6 November 2019 to those shareholders on the register on 27 September 2019.

 

8. Earnings per share

 

 

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2019

 £000

 

Basic (loss) / earnings per share - pence

(0.6)

2.3

6.4

 

Diluted (loss) / earnings per share - pence

(0.6)

2.3

6.1

 

Adjusted basic earnings per share - pence

2.5

2.6

7.5

 

Adjusted diluted earnings per share - pence

2.4

2.6

7.1

 

 

 

The data used in the calculation of the (loss)/earnings per share numbers is summarised in the table below:

 

 

 

 

 

 

Unaudited 6 months ended 30 June 2019

Unaudited 6 months ended 30 June 2018

 Audited Year ended 31 December 2018

 

(Loss)/earnings

£000

Weighted average number of shares

000's

Earnings

£000

Weighted average number of shares

000's

Earnings

£000

Weighted average number of shares

000's

Basic

(2,167)

350,909

7,628

328,438

21,291

333,638

Diluted

(2,167)

350,9091

7,628

334,043

21,291

350,010

Adjusted basic

8,827

350,909

8,699

328,438

24,885

333,638

Adjusted diluted

8,827

362,275

8,699

334,043

24,885

350,010

1 As the basic EPS results in a loss per share, the diluted EPS is calculated using the undiluted weighted average number of shares.

 

 

The basic earnings per share calculation is based on the profit for the period attributable to parent company shareholders divided by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated based on the profit for the period attributable to parent company shareholders divided by the weighted average number of ordinary shares outstanding during the period adjusted for the potentially dilutive impact of employee share option schemes and shares that could be issued as part of contingent consideration on acquisition of subsidiaries.

8. Earnings per share continued

 

Adjusted earnings per share is calculated in order to provide information to shareholders about continuing trading performance and is based on the profit attributable to parent company shareholders excluding highlighted items together with related tax effects as set out below:

 

Earnings:

 

 

 

(Loss)/profit for the period attributable to the owners of the Parent Company

(2,167)

7,628

21,291

Highlighted items (net of tax) attributable to the owners of the Parent Company

10,994

1,071

3,594

Adjusted earnings

8,827

8,699

24,885

 

 

 

Unaudited

6 months ended 30 June 2019

000's

Unaudited

6 months ended 30 June 2018

000's

Audited

Year ended

31 December 2018

000's

 

Number of shares:

 

 

 

 

Weighted average number of ordinary shares - basic and adjusted basic

350,909

328,438

333,638

 

Effect of share options in issue

11,366

4,958

12,238

 

Effect of deferred contingent consideration

-

647

4,134

 

Weighted average number of ordinary shares -adjusted diluted

362,275

334,043

350,010

         

 

9. Intangible assets

 

 

Brands

Customer

relationships

Goodwill

Software

development costs

Total

 

£000

£000

£000

£000

£000

Cost

 

 

 

 

 

At 1 January 2019

38,923

65,120

426,568

5,103

535,714

Acquisitions

4,060

21,959

34,418

-

60,437

Adjustments relating to prior acquisitions

-

-

1,125

-

1,125

Classified as held for sale

(258)

(365)

(5,710)

-

(6,333)

Foreign exchange movement

220

689

2,068

17

2,994

At 30 June 2019

42,945

87,403

458,469

5,120

593,937

Amortisation and impairment charges

 

 

 

 

 

At 1 January 2019

25,562

37,132

182,573

3,159

248,426

Charge for the period

944

2,223

-

176

3,343

Classified as held for sale

(258)

(365)

(2,838)

-

(3,461)

Write-offs

-

-

-

24

24

Foreign exchange movement

74

149

430

10

663

At 30 June 2019

26,322

39,139

180,165

3,369

248,995

Net book value at 30 June 2019

16,623

48,264

278,304

1,751

344,942

Net book value at 31 December 2018

13,361

27,988

243,995

1,944

287,288

Net book value at 30 June 2018

4,253

9,197

169,918

2,053

185,421

 

There are no indicators of impairment for any of the CGUs at 30 June 2019.

 

10. Investment in associate

The carrying amount of equity-accounted investments has changed as follows in the six months to June 2019:

 

 

6 months ended 30 June

2019

£000

Carrying amount

 

At 1 January 2019

479

Share of profit of associate

100

Dividend Received

(50)

At 30 June 2019

529

 

11. Financial risk management and financial instruments

 

The Group's activities expose it to a variety of financial risks including foreign exchange risk, interest rate risk, credit risk and liquidity risk.

 

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's Annual Financial Statements as at 31 December 2018. There have been no changes in the Group's risk management policies since the year end. 

 

Fair value measurement

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, Grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

·

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

·

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

At 30 June 2019

 Level 1

                     £000

                 Level 2

                    £000

Level 3

£000

Total

£000

Financial liabilities

 

 

 

 

Interest rate swap

                   -

652

                   -

652

Deferred contingent consideration and redemption liability

                   -

                   -

62,671

62,671

 

                   -

652

62,671

63,323

Financial assets

 

 

 

 

Foreign exchange derivative

                   -

191

-                   

191

 

                   -

191

-                   

191

 

At 30 June 2018

 Level 1

                     £000

                 Level 2

                    £000

Level 3

£000

Total

£000

Financial liabilities

 

 

 

 

Foreign exchange derivative

                   -

529

-                   

529

Interest rate swap

                   -

273

                   -

273

Deferred contingent consideration and redemption liability

                   -

                   -

3,825

3,825

 

-

802

3,825

4,627

 

At 31 December 2018

Level 1

£000

Level 2

£000

Level 3

£000

Total

£000

Financial liabilities

 

 

 

 

Interest rate swap

-

215

-

215

Deferred contingent consideration and redemption liability

-

-

31,956

31,956

 

-

215

31,956

32,171

11. Financial risk management and financial instruments continued

Valuation techniques used to derive Level 2 fair values

Level 2 derivatives comprise foreign exchange derivatives and interest rate swaps. The foreign exchange derivatives have been fair valued using exchange rates that are quoted in an active market. Interest rate swaps are valued using forward interest rates extracted from observable yield curves.

 

Valuation techniques used to derive Level 3 fair values

Level 3 derivatives comprise deferred consideration and redemption liability. Deferred contingent consideration and redemption liabilities are valued using a discounted cash flow methodology. The liability is based on the acquired business' forecast average profits. The significant unobservable inputs to this valuation include forecast average profits.

 

Fair values of other financial liabilities and assets

All financial assets and financial liabilities have been recognised at their carrying values which are not materially different to their fair values.

 

12. Bank loans and overdrafts

Following an amend and extend of its banking facilities in February 2019, the Group completed a further amend and extend of its facility, as a result of which the Group has available a £130 million multi-currency revolving credit facility with a £50 million accordion option, committed until March 2023, together with a £5 million uncommitted overdraft and a $10 million uncommitted overdraft.

 

 

13. Provisions

 

Redemption liability

£000

Deferred contingent consideration

£000

Property

£000

Reorganisation

and other

£000

Total

£000

At 1 January 2019

15,237

16,719

1,865

550

34,371

Arising during the year

-

-

4,069

6

4,075

Remeasurements

966

(272)

-

-

694

Acquisitions

17,621

18,588

28

1,786

38,023

Utilised

(380)

(6,421)

(930)

(12)

(7,743)

Released

-

-

(50)

(35)

(85)

Unwind of discount

202

160

-

-

362

Foreign exchange movements

135

116

2

1

254

At 30 June 2019

33,781

28,890

4,984

2,296

69,951

Current

-

-

1,361

545

1,906

Non-current

33,781

28,890

3,623

1,751

68,045

 

 

Redemption liability for acquisitions

Certain acquisitions made by the Group include a put/call option to purchase the non-controlling interests' equity share at a future date, payable in either cash or a combination of cash and shares at the Company's option, which is contingent on the future financial performance of the acquired entity. The amount utilised in the year represents the cash paid or shares issued under the earn-out arrangements. The amount arising or released in the year represents a change in the estimated future financial performance of the acquired company.

 

Deferred contingent consideration for acquisitions

Acquisitions made by the Group typically involve an earn-out arrangement whereby the consideration payable includes a deferred element, payable in either cash or a combination of cash and shares at the Company's option, which is contingent on the future financial performance of the acquired entity. The amount utilised in the year represents the cash paid or shares issued under the earn-out arrangements. The amount arising or released in the year represents a change in the estimated future financial performance of the acquired company. Where deferred consideration is not contingent on the outcome of future events the amount was included in trade and other payables.

 

 

13. Provisions continued

Property provisions

Provisions for property represent amounts set aside in respect of property leases which are onerous and the unavoidable costs of restoring leasehold properties to the condition specified in the lease at the end of the contractual term. The quantification of these provisions has been determined based on external professional advice and is dependent on the Group's ability to exit the leases early or to sub-let the properties. In general, property costs are expected to be incurred over a range of one to eight years.

 

Reorganisation and other provisions

This provision relates principally to redundancy provisions and contingent liabilities arising on acquisitions.

 

14. Cash flow analysis

(a)        Reconciliation of operating profit to net cash inflow/(outflow) from operations

 

 

Unaudited

6 months ended 30 June 2019

£000

Unaudited

6 months ended 30 June 2018

£000

Audited

Year ended

31 December 2018

 £000

Operating profit

1,928

11,170

31,363

Share of profit from associate

(100)

(117)

(267)

Amortisation of intangible assets

3,343

1,210

3,854

Operating profit before non-cash highlighted items

5,171

12,263

34,950

Depreciation

5,386

1,529

3,234

Share option charge

709

704

1,418

Loss/(profit) on disposal of property, plant and equipment

1,189

(17)

3

Unrealised (gain)/loss on financial instruments

(314)

588

767

Loss/(profit) on disposal of subsidiaries and investments

3,409

(562)

(921)

Remeasurement of deferred consideration

(665)

-

-

Operating cash flow before movements in working capital

14,885

14,505

39,451

Increase in work in progress

(637)

(2,707)

3,536

Increase in debtors

(8,016)

(9,617)

(8,239)

Increase/(decrease) in creditors

5,912

(4,219)

(10,890)

Increase/(decrease) in provisions

2,534

(68)

(1,758)

Net cash inflow/(outflow) from operations

14,678

(2,106)

22,100

Cash flows from highlighted items

2,539

503

1,349

Net cash inflow/(outflow) from operations before highlighted items

17,217

(1,603)

23,449

 

 

 

 

 

 

 

14. Cash flow analysis continued

(b)        Reconciliation of net cash flow to movement in net debt

 

 

 

 

 

 

Non-cash changes

 

 

31 December 2018

£000

Cashflow

 

 

Acquisitions

Initial application of IFRS 16

New leases capitalised

Amortisation

Fair value changes

Foreign exchange

30 June 2019

£000

 

Cash and short-term deposits

 22,787

(14,100)

9,846

-

-

-

-

24

18,557

 

Overdraft

(357)

(6,446)

-

-

-

-

-

(222)

(7,025)

 

Cash and cash equivalents

22,430

(20,546)

9,846

-

-

-

-

(198)

11,532

 

Bank loans

(99,214)

2,595

-

-

-

(223)

-

1

(96,841)

 

Finance lease liabilities

(3)

-

-

3

-

-

-

-

-

 

Net derivative financial liabilities

(215)

(43)

-

-

-

-

(203)

-

(461)

 

Net debt

(77,002)

(17,994)

9,846

3

-

(223)

(203)

(197)

(85,770)

 

Lease liabilities

-

4,300

-

(38,775)

(11,301)

-

-

(179)

(45,955)

 

Total

(77,002)

(13,694)

9,846

(38,772)

(11,301)

(223)

(203)

(376)

(131,725)

 

                               

 

15. Changes in accounting policies

 

This note explains the impact of the adoption of IFRS 16 Leases on the Group's financial statements and discloses the new accounting policies that have been applied from 1 January 2019 in note 15(b) below.

 

The Group has adopted IFRS 16 retrospectively from 1 January 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.

 

(a) Adjustments recognised on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.1%.

For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date.

The remeasurements to the lease liabilities were recognised as adjustments to the related right-of-use assets immediately after the date of initial application.

 

 

30 June 2019

£000

Operating lease commitments disclosed as at 31 December 2018

45,567

 

 

Discounted using the lessee's incremental borrowing rate of at the date of initial application

34,373

Add finance lease liabilities recognised as at 31 December 2018

3

Less short-term leases recognised on a straight-line basis as expense

(793)

Less low-value leases recognised on a straight-line basis as expense

(160)

Add adjustments as a result of a different treatment of extension and termination options

5,349

Lease liability recognised as at 1 January 2019

38,772

Current

7,106

Non-current

31,666

 

15. Changes in accounting policies continued

 

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. Other right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018.

 

Recognised right-of-use assets:

 

 

30 June 2019

£000

1 January 2019

£000

Properties

41,468

34,847

 

 

 

 

The change in accounting policy affected the following items in the balance sheet on 1 January 2019

 

 

1 January 2019

£000

·      Property, plant and equipment

(219)

·      Right-of-use assets

34,847

·      Prepayments

(258)

·      Leasehold property incentives included in other payables

(4,340)

·      The net impact on retained earnings on 1 January 2019 was

-

 

Earnings per share disclosure

Segmental operating profit has increased as a result of the change in accounting policy (refer to Appendix 1 for the impact of IFRS 16 on segmental operating profit).

Earnings per share decreased by 0.16 pence per share for the six months to 30 June 2019 as a result of the adoption of IFRS 16.

 

Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: 

·

the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

·

reliance on previous assessments on whether leases are onerous

·

the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases

·

the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and

·

the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

 

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.

 

(b) The Group's leasing activities and how these are accounted for

The Group leases various offices and equipment. Rental contracts are typically made for fixed periods of 1 to 6 years but may have extension options as described in below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

 

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

 

15. Changes in accounting policies continued

 

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 

·

fixed payments (including in-substance fixed payments), less any lease incentives receivable

·

variable lease payment that are based on an index or a rate

·

amounts expected to be payable by the lessee under residual value guarantees

·

the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

·

payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

 

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions

 

Right-of-use assets are measured at cost comprising the following:  

·

the amount of the initial measurement of lease liability

·

any lease payments made at or before the commencement date less any lease incentives received

·

any initial direct costs, and

·

restoration costs.

 

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.

 

Critical judgements in determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

 

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. The financial effect of revising lease terms to reflect the effect of exercising extension and termination options is illustrated above.

 

16. Related party transactions

The ultimate controlling party of the Group is Huntsworth plc (incorporated in the United Kingdom). The Group has a related party relationship with Directors and executive officers. There were no material related party transactions other than the remuneration of Directors and executive officers of £0.8 million in the six months ended 30 June 2019 (2018: £1.2 million).

 

Transactions with other related parties

The following transactions occurred with related parties:

 

30 June 2019

30 June 2018

 

£000

£000

Sales and purchases of services

 

 

Sale of services to associates

25

10

 

25

10

 

Outstanding balances arising from sales/purchases of services

The following balances are outstanding at the end of the reporting year in relation to transactions with related parties:

 

 

30 June 2019

30 June 2018

 

£000

£000

Current receivables (sale of services)

 

 

Due from associates

8

10

 

8

10

Independent review report to Huntsworth plc

 

Report on the consolidated interim financial statements

 

Our conclusion

We have reviewed Huntsworth plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results of Huntsworth plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

1.    

the Condensed Consolidated Balance Sheet as at 30 June 2019;

2.    

the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Comprehensive Income for the period then ended;

3.    

the Condensed Consolidated Cash Flow Statement for the period then ended;

4.    

the Condensed Consolidated Statement of Changes in Equity for the period then ended; and

5.    

the explanatory notes to the interim financial statements.

                       

The interim financial statements included in the half year report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

 

The Interim Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

22 July 2019

 

Statement of Directors' Responsibilities

for the six months ended 30 June 2019

        We confirm that to the best of our knowledge this interim report:

                                                           

-

has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

 

-

includes a fair review of the information required by the Financial Conduct Authority's Disclosure and Transparency Rules ('DTR') 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

-

includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

Neil Jones

Chief Financial Officer

 

Appendix 1: non-IFRS measures continued

This report makes reference to various non-IFRS measures, which are defined below. All performance-based measures are presented to provide insight into ongoing profit generation, both individually and relative to other companies.

Turnover

Turnover represents amounts received or receivable from clients, exclusive of value added tax, for the rendering of services and comprises charges for fees, commissions, rechargeable expenses incurred on behalf of clients and sales of marketing products.

 

Headline operating profit/profit before tax

Calculated as operating profit/profit before tax excluding highlighted items. Highlighted items comprise amortisation of intangible assets, acquisition and transaction related costs, remeasurement of deferred consideration and disposal related credits as well as imputed interest on deferred consideration and redemption liability. Both headline profit and IFRS profit measures are presented in the income statement. An analysis of highlighted items is presented in Note 4.

Margin

Headline operating profit as a percentage of revenue.

Headline basic and diluted EPS

Headline basic EPS is calculated using profit for the period before highlighted items. Headline diluted EPS is the same calculation but takes into account the impact of share options in issue and deferred consideration that could be settled in shares. Details of the underlying inputs to headline and IFRS measures of EPS are included in Note 8.

Net debt

Net debt is the total of current and non-current borrowings and derivative financial instruments, less cash and cash equivalents. The Group uses this as a measure of indebtedness. An analysis of net debt is included in Note 14.

Highlighted cash flows

Highlighted cash flows are the cash flows directly attributable to the items presented within highlighted items in the income statement. A reconciliation of the difference between cash flows before highlighted items and IFRS cash flows is included in Note 14.

Effective tax rate

The effective tax rate is the tax expense incurred by the Group on profit before tax and highlighted items, expressed as a percentage. This provides a more comparable basis to analyse our tax rate both individually and relative to other companies.

Like-for-like

Like-for-like results are stated at constant exchange rates and excluding the effect of acquisitions and disposals. Constant currency results are calculated by translating prior period foreign currency results using the current period exchange rate. This provides insight into the organic growth of the business. A reconciliation of the material adjustments made between IFRS revenues and operating profit and like-for-like results are included in the tables below:

Revenue 6 months ended 30 June 2019

Marketing

Medical

Immersive

Communications

Total Group

£000

£000

£000

£000

£000

Segmental revenue (Note 3)

49,673

18,652

18,795

36,342

123,462

Acquisitions

 

(14,577)

(1,024)

-

-

(15,601)

Business disposal

-

-

-

(1,163)

(1,163)

Like-for-like revenue

35,096

17,628

18,795

35,179

106,698

 

 

Revenue 6 months ended 30 June 2018

Marketing

Medical

Immersive

Communications

Total Group

£000

£000

£000

£000

£000

Segmental revenue (Note 3)

33,324

15,561

16,969

36,330

102,184

Business disposal

-

-

-

(1,798)

(1,798)

Constant currency

1,863

672

242

335

3,112

Like-for-like revenue

35,187

16,233

17,211

34,867

103,498

 

 

 

Operating profit 6 months ended 30 June 2019

Marketing

Medical

Immersive

Communications

Centre

Total Group

£000

£000

£000

£000

£000

£000

Segmental operating profit (Note 3)

7,905

3,554

1,852

3,179

-

16,490

Unallocated costs

-

-

-

-

(2,575)

(2,575)

Share of profit from associate

-

-

-

-

100

100

IAS 17 incremental rent costs

(232)

(84)

112

(322)

11

(515)

Constant exchange rates

(12)

18

(67)

115

(1,245)

(1,191)

Acquisitions

(1,774)

(269)

-

-

529

(1,514)

Business disposal

-

-

-

88

-

88

Like-for-like operating profit

5,887

3,219

1,897

3,060

           (3,180)

10,883

Net finance cost (note 5)

-

-

-

-

(2,660)

(2,660)

Acquisition finance cost

-

-

-

-

872

872

IFRS 16 lease finance cost

-

-

-

-

1,061

1,061

Like-for-like headline profit before tax

5,887

3,219

1,897

              3,060

(3,907)

10,156

               

 

Operating profit 6 months ended 30 June 2018

Marketing

Medical

Immersive

Communications

Centre

Total Group

£000

£000

£000

£000

£000

£000

Segmental operating profit (Note 3)

7,359

3,587

2,342

2,689

-

15,977

Unallocated costs

-

-

-

-

(4,281)

(4,281)

Share of profit from associate

-

-

-

-

117

117

Constant exchange rates

369

147

35

107

805

1,463

Business disposals

-

-

-

(101)

-

(101)

Like-for-like operating profit

7,728

3,734

2,377

2,695

(3,359)

13,175

IFRS Net finance cost (note 5)

-

-

-

-

(831)

(831)

Like-for-like headline profit before tax

7,728

3,734

2,377

2,695

(4,190)

12,344

 


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