Ascential Regulatory News (ASCL)

22 September 2023

Ascential plc

Half year results

Strong growth in all four segments

Performance in line with expectations

London: Ascential plc (LSE: ASCL.L), the specialist information, analytics, events and eCommerce optimisation company, today announces results for the six-month period to 30 June 2023.

Highlights

● Strong organic revenue growth in all segments, led by Events (up 25%).

● Organic revenue growth of 16% with Adjusted EBITDA growing 17% - in line with expectations.

● Strategic actions to maximise shareholder value and position each business within the portfolio for long-term success are well advanced. Market update expected before the end of the year.

Operational highlights

● Events (comprising the Marketing and Retail & Financial Services segments) revenue up 25%.

○ Marketing segment up 28%.

■ Lions' revenue up 30%.

■ Continued double-digit growth from WARC's subscription business up 12%.

○ Retail & Financial Services segment up 17%.

■ Money20/20 Europe continued to grow very strongly (up 19%).

● Digital Commerce segment revenue up 10%.

○ Strong revenue growth, outpacing a market impacted by the continuing challenging retail environment, with continued key client wins in the first half.

○ H1 investments in technology and marketing delivering and enabling:

■ September launch of Flywheel Commerce Cloud, the integrated go-to-market operating platform which brings together our best-in-class solutions and products.

■ Implementation of integration synergies now underway in H2 to drive stronger second half and full year margins.

■ October launch of unitary, single-brand, Digital Commerce organisation structure.

● Product Design segment revenue up 8%.

○ Subscription billings up 7% with continued strong retention.

○ Non-fashion products driving growth (up 13%) and now account for just under 50% of subscriptions.

○ Fashion product growth continues at 2%.

Financial highlights

● Group revenues of £307.4m (H122: £260.7m).

○ Reported revenue growth of £46.7m or 18% (organic: 16%, proforma: 16%).

● Adjusted EBITDA of £78.6m (H122: £67.2m). Margin of 25.6% (H122: 25.8%).

○ Reported growth of £11.4m or 17% (organic: 17%, proforma: 18%).

○ Events Adjusted EBITDA up 26% to £64.6m.

○ Digital Commerce Adjusted EBITDA at break-even for the half - prior to the H2 reorganisation synergies enabled by the launch of Flywheel Commerce Cloud under a single go-to-market brand.

○ Product Design Adjusted EBITDA up 8% to £27.4m.

● Reported Operating profit of £0.7m (H122: loss of £35.1m) stated after charging Adjusting items of £63.5m (H122: £89.7m) reflecting:

○ Amortisation and impairment of acquired intangibles of £29.0m (H122: £48.9m).

○ Non-trading items of £25.7m (H122: £33.2m).

○ Share-based payments of £8.8m (H122: £7.6m).

● Adjusted diluted EPS of 7.7p (H122: 8.0p) and total EPS loss of 3.8p (H122: EPS loss of 8.7p).

● The Group continues to deliver strong operational cash flows with operating cash flow conversion of 99% (H1 2022: 128%) and free cash flow conversion after tax and capex of 72% (H1 2022: 107%). Closing net debt at £205.6m was a leverage ratio of 1.6x EBITDA (December 2022: £216.7m and 1.9x EBITDA).

Duncan Painter, Chief Executive Officer, commented:

"Our businesses have continued to trade strongly in the first half of 2023. In particular, both Cannes Lions and Money20/20 enjoyed extremely successful editions in June and have progressed even further ahead of their pre-pandemic benchmarks. Digital Commerce has once again outperformed the underlying retail market it serves and action taken in the first half to create an integrated enterprise customer product and organisation have set the Digital Commerce business up to deliver sustainable margins and operating leverage going forward. Product Design continues to drive growth by extending its world-class trend forecasting expertise to a wider range of products and end markets.

The strategic actions to maximise shareholder value and position each business within the portfolio for long-term success are well advanced and we will look to update the market again by the end of the year.

After our seasonally stronger first half, we have had a solid start to the second half. Despite continued macro uncertainty impacting the industries we serve and currency headwinds, our businesses remain well set for the year, supported by multiple growth levers. The structural long-term growth in our end markets, and the success of our marquee events, underpins the Board's confidence in the prospects of our businesses for the future."

Contacts

Ascential will host a presentation for analysts and investors at 9.00 am on 22 September 2023, at the offices of Numis, 45 Gresham St, London, EC2V 7BF. This presentation will be webcast on www.ascential.com, and a recording will also be available on-demand from our website in due course.

About Ascential

Ascential delivers specialist information, analytics, events, and eCommerce optimisation to the world's leading consumer brands and their ecosystems. Our world-class businesses improve performance and solve customer problems by delivering immediately actionable information combined with visionary longer-term thinking across Digital Commerce, Product Design, Marketing and Retail & Financial Services.

With more than 3,500 employees across six continents, we combine local expertise with a global footprint for clients in over 120 countries. Ascential is listed on the London Stock Exchange.

Cautionary statement

Certain statements in this announcement constitute, or may be deemed to constitute, forward-looking statements, projections and information (including beliefs or opinions) with respect to the Company and its subsidiary undertakings ("the Group"). An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They include, without limitation, statements regarding the Group's future expectations, operations, financial performance, financial condition and business. Such forward looking statements are based on current expectations and are subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from any expected future results in forward-looking statements. These risks, uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement.

Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation, the UK Listing Rules, Disclosure and Transparency Rules of the Financial Conduct Authority) no undertaking is given by the Group to update any forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise. Accordingly, no assurance can be given that any particular expectation will be met and investors are cautioned not to place undue reliance on the forward-looking statements.

This announcement has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to the Group when viewed as a whole.

Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge and information available to the Directors on the date of this announcement.

Financial highlights - continuing operations

1 Refer to the glossary of Alternative Performance Measures below.

2 H122 included £5.6m of revenue and £0.8m of Adjusted EBITDA from the disposed RWRC business.

OPERATING REVIEW

The first half of 2023 has seen continued strong performance from all four business segments, following the record levels of revenue achieved in 2022. Overall revenue grew by 16%, with EBITDA growing by 17%, (both on an organic basis). After adjusting items, we recorded an operating profit of £0.7m (H122 £35.1m loss)

The Events business enjoyed an excellent half, with the two principal events in the period, the Cannes Lions Festival and Money20/20 Europe, both growing strongly. This was especially pleasing as the products had already exceeded their pre-Covid levels of performance in the prior year. Overall, Events revenue grew 25%, with EBITDA growing by 26%. Within Marketing, Lions grew by 30%, led by further record levels of strong sponsorship engagement, supported by growth from awards, delegates and subscription revenue streams. For Retail & Financial Services, Money20/20 delivered strongly, with revenue growth of 19% and attendee numbers now reaching in excess of 8,500. Customer engagement with the US show (in October 2023) remains good and preparations for the launch of the Asian event in Bangkok (in April 2024) continue to progress well.

The Digital Commerce segment delivered a strong revenue performance in the first half of 2023 against a backdrop of continuing challenges in the global retail sector due to sustained high inflation and the continuing volatility in consumer activity that impacts our clients. Revenue grew by 10% on an organic basis driven by the performance of our Enterprise customers. In the same period, for example, the sales growth of Flywheel's customers outstripped that of Amazon vendors overall by a factor of 5 highlighting the competitive edge that our services deliver for brands trading on the major marketplaces. The strong progress of the integration has enabled us to start to deliver material cost synergies after the half year end that will drive higher margins in H2 and in 2024.

Product Design delivered a strong performance in the period. Revenue grew by 8%, while billings from subscription products grew at 7%, driven by continuing high levels of retention. Growth continues to be driven by non-fashion products, such as Insight, which collectively accounted for almost half of the billings in the period, growing at 13%, while Fashion also grew 2% in-line with expectations, driven in part by the 2022 launch of our advanced, AI-driven, trend forecasting service, TrendCurve+.

Finally, as previously announced, we were pleased that our significant minority investment in Hudson MX, was strengthened by fresh investment capital from a new majority investor to help the Hudson business advance closer to sustainable success. Hudson made good progress deploying its technology and with key customers in the first half 2023.

Operating Responsibly

This year we have published a standalone Sustainability Report for the first time, containing our key ESG information, enabling stakeholders to understand our approach and commitments in this area.

Carbon Emissions data capture and reporting has been a core focus this half. We are embedding emissions measurements across the business to be able to report on scope 3 emissions in our value chain for 2023, along with the scope 1 and 2 emissions we already report. Measuring the emissions associated with our events has also been a focus. We have appointed Isla, a non-profit organisation founded by event professionals and industry leaders focusing on a sustainable future for events, to measure the carbon footprint of our event operations. From this baseline will work to set reduction targets and develop a sustainability charter that sets the standard for sustainable event operations across all of our events.

Internally, our focus remains to attract, retain, develop and engage a diverse workforce. Our Employee Networks are key to that focus and this year have organised education and engagement activities for colleagues globally around International Women's Day, Pride and Juneteenth. Externally, the partnerships our Brands continue to build are key to the impact we have in this area. These include Lion's partnership with the Black Executive CMO Alliance, which supported a group of young Black marketers to attend Cannes Lions in June, and Flywheel Digital's partnership with Next One Up, a long-term mentoring non-profit that transforms the lives of young men in Baltimore city.

Progress against our 2023 Priorities

We have made good progress on the priorities we set for 2023 - which can be summarised as follows:

Engage with our shareholders on the proposals resulting from the strategic review and, subject to their approval, implement them.

The preparations for the separation of the three businesses of Ascential have progressed well and include branding, tax and legal structuring, preparation of standalone cost bases and initial SEC filings. We have engaged with shareholders throughout the period since our announcement in January 2023 and have a good understanding of their feedback and priorities. As it implements its plans, the Board remains agile and focused on its primary objective of maximising shareholder value and positioning each business within the Group for long-term success. 

Digital Commerce: Creation of an integrated operating platform, bringing together our digital products, aligning them with our customer base.

The Flywheel Commerce Cloud, our integrated operating platform, initially for Enterprise customers has been developed and launched with key early-stage customers already migrating. This is a key enabler to release the economic and operational benefits of the integration of the Digital Commerce business.

Product Design: Continue to drive growth in non-fashion horizontal offerings, underpin fashion's growth and accelerate our high value advisory services.

Non fashion products grew by 13% overall in the half, now accounting for just under half of billings with Fashion products up 2% supported by the new TrendCurve+ product. Our smaller and more economically sensitive Advisory services declined marginally in the half.

Events: Double down on the successful return of live events including preparations for Money20/20 Asia, growing digital revenues, with targeted M&A delivering an enhanced offer for customers.

Both Lions and Money20/20 grew very strongly in the half and non-event dependent revenues, including digital, were up by 16%. The post period acquisition of Contagious brings expertise in creative trends insights to the Marketing segment.

Outlook

After a strong first half for the Group, our second half operational focus is to build upon this performance. In terms of Events, we look forward to delivering a successful edition of Money20/20 USA and preparing for the launch of Money20/20 Asia in 2024. In WGSN we will continue to drive growth through our non-Fashion products and, in Digital Commerce, complete the launch and roll out of Flywheel Commerce Cloud, accompanied by integration synergies to drive margins. As our results in H1 have demonstrated, our business-facing teams remain fully focused on delivering for customers. 

After our seasonally stronger first half, we have had a solid start to the second half. Despite continued macro uncertainty impacting the industries we serve and currency headwinds, our businesses remain well set for the year, supported by multiple growth levers. The structural long-term growth in our end markets, and the success of our marquee events, underpins the Board's confidence in the prospects of our businesses for the future."

SEGMENTAL REVIEW

Events

This division comprises the Marketing and Retail & Financial Services segments and the combined performance for the half year was as follows:

In terms of the Lions benchmark awards, entry volumes of just under 27,000 were received, up 6% on prior year. This included an 18% increase in submissions directly from brand customers, with strong engagement in categories representing emerging channels such as B2B, Gaming, Commerce and Businesses Transformation. This year saw the launch of the Entertainment Lion for Gaming, where strong participation highlighted the increased collaboration between brands and this growing industry. Lions' regional awards (Dubai Lynx and Spikes) also saw growth in award entries, demonstrating the importance of the Middle East and Asian markets within the industry.

Lions also provides year-round intelligence and consulting services through its subscription and advisory products and this now accounts for 10% of the last twelve months' revenues. Subscription revenues from Lions membership and The Work, continued to grow well, up 8%, with annual renewal rates for The Work remaining strong, at over 90%. Advisory, which provides insights using Lions' awards intelligence and respected creative excellence training programmes, more than doubled vs H122, with projects for major brands such as Colgate, Pepsi and Heineken.

Further expanding Marketing's digital subscription base, WARC saw strong revenue growth of 12%, with renewal rates continuing to exceed 95%, building on the launch of the Marketing Effectiveness Platform last year. June also saw the launch, at the Lions Festival, of the Lions & WARC Creative Impact track, a joint content stream, examining what it takes to drive business performance through commercial creativity in 2023.

Acquired in August, Contagious, a multi-format creative insights business, brings to the Marketing segment deep expertise in the analysis of creative trends. The business, which provides forward-looking creative inspiration and trend analysis for agency and brand customers, is highly complementary to the offerings of Lions and WARC and further strengthens our product set across the industry.

Money20/20 is the world's leading platform where the global fintech communities come together to do business. The Retail and Financial Services segment also comprises Acuity Pricing, our Retail Price & Promotion data provider.

*Prior year results include £5.6m of revenue and £0.8m of Adjusted EBITDA from Retail Week World Retail Congress which was sold in December 2022.

The Retail & Financial Services segment performed very strongly in the first six months of 2023. Its year over year organic growth of 17% in revenue and 15% in Adjusted EBITDA was especially pleasing considering that Money20/20 Europe had already returned to significantly higher than pre-COVID levels of revenue in the previous half year.

Money20/20 is the leading platform for the global fintech community, driving progress, growth and success for customers, by creating connections, enabling deals and generating fresh insights. The brand's European event, held in Amsterdam in June 2023, delivered growth of 19% compared to the 2022 edition (and over 50% compared to 2019), driven by increases in both attendees (now over 8,500), where revenue grew 11% and sponsorship business where revenue grew 23%. The event saw attendees from over 2,300 companies attend, representing over 100 countries, with over 18,000 customer meetings booked via the Money20/20 app (an increase of over 20%). An increase in the Net Promoter Score illustrates continued strong customer engagement.

Customer engagement ahead of the flagship US show, to be held in Las Vegas, in October remains good. After delivering an exceptional result in the prior year 2022 edition (where revenue was up 64% on pre-pandemic levels), and in light of disruption to the funding environment for the early-stage financial technology sector, in particular payments, we are expecting 2023 revenues to be flat to slightly down on a constant currency basis (noting that we also expect a 14% US Dollar currency headwind compared to 2022).

Preparations for the launch of the Asian show, in Bangkok in April 2024 are progressing well, with strong early engagement from key regional players and an excellent regional line up of content. 

The Retail Price & Promotion business saw a slight decline in revenue, although billings grew modestly, supported by product enhancements and renewed marketing efforts including a re-brand in H1 to "Acuity Pricing".

The fintech end market and the broader payments ecosystem which Money20/20 serves remained robust throughout the pandemic underlining that it continues to represent a long-term global growth sector. Despite recent significant reductions in funding and valuations of companies in certain sub-segments of the customer base from their 2021 highs, the long-term trend is expected to be positive.

Digital Commerce

Our Digital Commerce segment operates a leading cloud-based platform enabling brand manufacturer customers to optimise their sales, share, and profit across the world's major digital commerce marketplaces.

Execution products (81% of revenue): Flywheel Digital, OneSpace, WhyteSpyder, DZ, and Intrepid provide managed execution services to global enterprise brands across the world's leading marketplaces. Perpetua and 4K Miles provide self-service execution to challenger brands, while ASR provides content optimisation services.

Measurement & Benchmarking products (19% of revenue): Edge and Yimian primarily offer market share insight, with digital shelf optimisation, across the key global marketplaces, while Intellibrand specialises in digital shelf services in the Latam region.

Digital Commerce delivered a strong performance in the first half of 2023 against a backdrop of continuing widespread economic challenges. In the six months ended 30 June 2023, revenue grew by 10% on an organic basis (11% on a proforma basis). We were pleased to see H1 growth ahead of that of the leading marketplace.

This growth was led by expansion of the Enterprise customer offering, where revenue grew by 11% on an organic basis (13% on a proforma basis) with our Challenger customer division growing at 10% on an organic basis (6% on a proforma basis). Growth in China was subdued at 2% as the region recovers from the pandemic disruption in the first quarter of the year. Our performance was once again led by the growth of our Execution products which grew by 14% proforma while Measurement & Benchmarking products declined slightly.

This robust underlying revenue performance continues to be driven by a mix of gross new customer additions and net revenue retention*. We added over 1,150 new customers in H123 (over 150 Enterprise customers and over 1,000 Challenger customers) and delivered net revenue retention for the last 6 months of over 100%.

Revenue continued to be weighted to the US with 62% of revenue from the US, 23% from Asia and 15% from Europe and other. Revenue from Digital Subscriptions and Platforms continued to make up the vast majority of revenue with approximately 50% paid on a fixed retainer or subscription and 50% variable with customer sales or media spend.

As previously reported, we planned for our margins to be weighted towards the second half of the year. Overall Adjusted EBITDA margin for the half was breakeven (H122: 2%), including £3.3m of losses from businesses newly acquired in 2022. We are now approaching the completion of our multi-year investment programme to reorganise and integrate the business and products, including the launch of Flywheel Commerce Cloud. This enables us to realise synergies from H2 2023 as part of the benefits of this programme and we are targeting a high single digit margin in 2023 and a mid-teens margin in 2024. 

Flywheel Commerce Cloud was a critical focus for the business in the first half, enabling us to move to a unitary business structure, with key clients already commencing migration to the new integrated platform. This brings together the capabilities of our Flywheel, OneSpace, WhyteSpyder and Edge products into a single experience, all leveraging the same, aggregated, cross-marketplace data. This integrated platform fully enables our Enterprise clients to manage their end-to-end execution in real time across the world's leading marketplaces utilising AI automation programmes as well as new real-time retail optimisation utilities. 

In addition to this critical launch of the first fully integrated platform for Digital Commerce at this scale, we have also been aggressively rolling out new capabilities with our marketplace partners to maximise our ability to optimise our clients' eCommerce trading on a real time basis. We have successfully launched products leveraging Amazon Market Cloud, Amazon Stream, Amazon DSP services, Walmart Quality Content Programme as well as Target, Instacart, and Uber.

The creation of Flywheel Commerce Cloud has also enabled us to create a unitary organisation structure with all elements of the operation migrating to a single brand "Flywheel" in October. As clients experience a fully integrated global platform, they will also have a simplified engagement experience with us under a single team.

* We calculate our net revenue retention rate on a constant currency basis as of the end of a period by using (i) the revenue from our clients during the twelve-month period ending one year prior to such period as the denominator; and (ii) the revenue from those same clients during the twelve months ending as of the end of such period as the numerator.

Product Design

WGSN, a leading global supplier of trend forecasts, market intelligence and consumer insight, helps customers understand the future demands of consumers. Information is delivered principally through digital subscriptions to over 6,500 customers in more than 90 countries. The Product Design segment also includes trend products for SMEs in the fashion market (WGSN Start) and the innovative colour system Coloro.

The WGSN Group delivered a good performance in the first half of 2023. In the six months ended 30 June 2023, revenue grew organically by 8% compared to the six months ended 30 June 2022, while billings from subscription products grew at 7%, driven by continuing strong levels of retention, which continues to be at rates of over 95%. Growth continues to be driven by non-fashion products, such as Insight, which collectively accounted for almost half of the billings in the period and grew at 13%. Fashion grew at 2% with good take up of our advanced, AI-driven, data-rich trend forecasting service, TrendCurve+, launched in 2022. This product combines inputs from WGSN's unique proprietary data sources, applying deep machine-learning algorithms to generate trend projections across thousands of key items, silhouettes and colours, and is now being utilised by leading brands and retailers across the globe to inform their buying decisions.

In the smaller, non-subscriptions part of the business, the more economically sensitive Mindset advisory revenue declined by 13% in H1, while there was an offsetting strong performance from the Coloro business, which was up 60% compared to H122.

Signature white papers released this year include Future Consumer 2025, which has already been downloaded more than 13,000 times and presented at key events such as Vidcon São Paulo, Outdoor Retailer and Cannes Lions. WGSN's strategic use of AI to enhance its products continued, with the launch of machine-translated versions of its Food & Drink platform into Spanish and Japanese, with future releases due later in 2023 of WGSN Fashion in German and French.

WGSN's ongoing roadmap of innovation and platform upgrades delivered an important update this July, addressing a key customer need, with the WGSN interface now serving up personalised forecast recommendations depending on a user's job role, industry and brand. Finally, the business has also continued to maintain outstanding levels of NPS in the last 2 years, underlining the value of the information delivered to customers and the strength of its brand.

FINANCIAL REVIEW

Overview

The results for the half are set out in the condensed consolidated statement of profit or loss and show revenue of £307.4m (H122: £260.7m) and an operating profit of £0.7m (H122: £35.1m loss). Adjusted EBITDA was £78.6m (H122: £67.2m) with the improvement driven mainly by Lions and WGSN. The £0.7m operating profit (H122: £35.1m loss) for the half includes adjusting items such as amortisation and impairment of acquired intangibles, share-based payments and non-trading items as set out in more detail below.

We delivered strong operating cash flow performance for the year with free cash flow from operations after tax and capex of £56.9m (H122: £72.2m), an operating cash flow conversion of 99% (H122: 128%) and a free cash flow conversion of 72% (H122: 107%) with the reduction driven by a £12.0m unwind in drawings under the Digital Commerce working capital financing and by higher capital expenditure.

Alternative Performance Measures

A core KPI and strategic goal of the Company is Organic revenue growth rate. We believe that this is the most efficient method of growth, measures the underlying health of the business and is a key driver of shareholder value creation. Organic revenue growth rate eliminates the impact of acquisitions (counting them only once they have been owned for 12 months) and disposals and that element of growth which is driven by changes in foreign exchange rates. It also eliminates the impact on growth rates of changes, if any, in timing of live events and of products that are being curtailed. Proforma growth rate is measured in a similar way to Organic growth rate but assumes that the Group's acquisitions were all made on 1 January 2022 and is therefore a measure of the like-for-like rate of growth of the brands owned today.

Adjusted EBITDA is also an Alternative Performance Measure and is used in the day-to-day management of the business to aid comparisons with peer companies, manage banking covenants and provide a reference point for assessing our operational cash generation. It eliminates items arising from portfolio investment and divestment decisions, and from changes to capital structure. Such items arise from non-trading activities, intermittent or non-recurring events, and while they may generate substantial income statement amounts, do not relate to the ongoing operational performance that underpins long-term value generation.

Further details on Alternative Performance Measures are set out at the end of this report.

Segmental results

The Group has four reportable segments. These are Marketing, Retail & Financial Services, Digital Commerce and Product Design. Information regarding the results of each is included below.

Revenue

The Company benefits from diverse revenue streams across its segments ranging from digital subscriptions to live events to advisory. Most of these revenue streams are digital and have recurring or repeat characteristics benefiting from our focus on customer retention.

Total revenue grew to £307.4m (H122: £260.7m), an increase of £46.7m or 18%. Adjusting for currency impacts, acquisitions, disposals and discontinued products, revenue increased by 16% on both an Organic basis and Proforma basis. This was driven by the strong growth across all our segments.

Adjusted EBITDA

Adjusted EBITDA grew to £78.6m (H122: £67.2m) an increase of £11.4m or 17%. This represented Organic growth of 17% slightly ahead of the growth in revenue. Adjusted EBITDA margin was in line with the prior year at 25.6% (H122: 25.8%). Adjusted EBITDA from operations is reconciled to statutory operating profit/loss as shown in the table below

Reconciliation between Adjusted EBITDA and statutory operating profit/(loss)

Amortisation of acquired intangibles

The small reduction in amortisation of acquired intangibles from £17.5m in H122 to £17.3m in H123 reflects the amortisation of intangibles on assets acquired in 2022 (Sellics and Intrepid) less the impact of fully amortised intangibles.

Impairment of acquired intangible assets

The Company undertakes a periodic review of the carrying value of its goodwill and indefinite life intangible assets and, if there is an indicator of impairment, its definite life intangible assets.

In H123 we have impaired acquired intangibles by £11.7m. This primarily relates to acquired brand intangibles within Digital Commerce as result of the decision to move to a single brand "Flywheel Digital" from the second half of 2023. An impairment was identified in the comparative period of H122 when, as reported last year, the decision was made to change the focus of the Edge Digital Shelf offering to our clients within the Digital Commerce segment. As a result of this change, certain intangible assets associated with this product no longer generated sufficient value to support the carrying value and an impairment charge of £31.4m was recorded in the first half of 2022.

Non-Trading items

The Company has incurred significant Non-Trading items in H123 which have been treated on a basis consistent with our policy and with previous years as set out below and further explained in Note 5.

The charge for deferred contingent consideration of £7.8m (H122: £12.2m) reflects the earnout that is contingent on the continuing employment of the founders on the acquisitions of Perpetua, WhyteSpyder, 4K Miles, and Intrepid. The credit for deferred contingent consideration of £17.1m (H122: £4.6m) reflects, primarily, the renegotiation of the Perpetua earnout to facilitate integration with the Digital Commerce business. 

The costs of implementing the strategic actions constitute a significant non-trading item across both 2022 and 2023. These costs relate to resources and professional fees for project management, tax and legal structuring, US GAAP conversion and PCAOB audits for 2021 and 2022 and legal advice as well as severance and retention incentives for key personnel impacted by the proposed separation of the Group.

A 2021 IFRIC decision resulted in an amendment to the treatment of costs incurred in respect of the Company's new ERP and, in prior years, Salesforce systems, such that the majority of costs on implementation of SaaS software are no longer capitalised but expensed as incurred. Costs relating to this significant and non-recurring programme in the period totalled £3.9m (H122: £13.3m).

Transaction and integration costs comprise professional fees for diligence and legal costs for acquisitions and investments as well as the costs of integrating acquisitions, chiefly those of Sellics and Intrepid and the integration of our operating platform within Digital Commerce. 

Net finance costs

The net finance cost for the period was £5.7m (H122: £5.2m) as set out in the table below:

The Group's adjusted net finance costs have increased from £5.2m in H122 to £8.0m in H123 driven mainly by the significantly higher interest expense payable since the second half of 2022 as interest rates have risen for both our USD and Euro borrowings. The major items in interest income (£8.0m) relate to interest receivable from Hudson MX of £5.3m (H122: £0.9m) together with interest income on our interest rate caps amounting to £1.6m (H122: nil). The unwind of the discount on deferred consideration and lease liabilities is lower than the prior period, totalling £3.2m (H122: £4.6m) due to the final settlement of older earnout agreements.

Profit before tax

Adjusted profit before tax of £49.8m increased compared to the prior period (H122: £48.4m). This reflects the growth in adjusted EBITDA to £78.6m (H122: £67.2m), partly offset by higher levels of depreciation and software amortisation and of net finance costs (see above), together with an increase in losses relating to the share of associates (to £6.4m, from £1.0m) as a result of an increase in our ownership of Hudson which is currently loss making (see below).

Total loss before tax for the half was £11.8m for the half down from a total loss of £41.6m in the prior period. The reduction in losses is driven by a £28.4m reduction in Adjusting items as set out above.

Taxation

A total tax charge of £5.0m (H122: £3.6m credit) was incurred on the reported loss before tax of £11.8m (H122: £41.6m) with the lower levels of tax deductibility of Adjusting items (with an effective tax rate of 16.6% or 17.5% in the prior period) driving this outcome. 

A tax charge of £15.2m (H122: £12.2m) was incurred on Adjusted profit before tax of £49.8m (H122: £48.4m) resulting in an Adjusted effective tax rate for the period of 31% (H122: 25%) with the increase driven by the increased loss on Associates for which no deferred tax asset has been recognised.

The composition of the tax charge is summarised in the table below.

The Group has a total recognised net deferred tax asset of £47.5m (H122: £49.1m) comprising a £23.7m (H122: £35.5m) deferred tax liability on non-deductible intangibles and an asset of £71.2m (H122: £84.6m) relating to UK and US losses, accelerated capital allowances and US acquired intangibles. The gross asset is expected to be realised in cash over the next ten years with the majority recovered in the next four years. When considering the net deferred tax balance by entity this is presented as a gross asset of £54.5m offset by a deferred tax liability of £7.0m. 

Foreign currency translation impact

The Group's reported performance is sensitive to movements in both the Euro and US dollar against pounds sterling with significant acquisitions denominated in US Dollars and events revenues in Euro and US Dollars. In particular, the Dollar exchange rate has benefited our reported financial performance in the first half as set out below.

When comparing H123 and H122, changes in currency exchange rates had a favourable impact on revenue and adjusted EBITDA of £6.9m and £2.4m. On a segmental basis, the impact of changes in foreign currency exchange rates was as follows:

● Digital Commerce: £3.7m impact on revenue and £0.6m impact on Adjusted EBITDA

● Product Design: £1.8m impact on revenue and £0.8m impact on Adjusted EBITDA

● Marketing: £1.2m impact on revenue and £0.2m impact on Adjusted EBITDA

● Retail & Financial Services: £0.2m impact on revenue and no impact on Adjusted EBITDA.

The second half of 2022 benefited from a very weak Sterling exchange rate relative to the US Dollar and we are expecting currency headwinds of 11% in the second half of 2023 overall as a result.

For illustrative purposes, the table below provides details of the impact on revenue and Adjusted EBITDA if the results were restated for Sterling weakening by 1% against the Euro and US Dollar in isolation.

Furthermore, each 1% movement in the Euro to pounds Sterling exchange rate has a £0.8m (H122: £1.1m) impact on the carrying value of borrowings. Each 1% movement in the US Dollar has a circa £2.2m (H122: £2.8m) impact on the carrying value of borrowings.

Earnings per share

Adjusted diluted earnings per share were 7.7p per share (H122: 8.0p). Total diluted loss per share was 3.8p (H122: loss of 8.7p) with the prior period impacted by higher levels of Adjusting Items.

Investments

The Group holds minority investments in several companies including Shanghai Coloro Technology, Tracksuit, Infosum, Hashtag Paid, Symbiosis and Hudson MX ("Hudson"). 

The largest investment, totalling £98.0m in equity and debt, is in Hudson, an advertising software business providing media buying and media accounting solutions through a cloud-based SaaS platform. Hudson completed a financing round in February 2023 attracting fresh investment of $51.5m of which $30.0m was provided by a new investor, MT II Holdings, LP ("MT II"), and $21.5m from Ascential. As part of this refinancing Hudson's capital structure was revised and MT II purchased part of Ascential's holding of preference shares for £24.9m. Following the restructuring, MT II holds 51% of Hudson's common stock, Ascential holds 36.5% and Hudson's management team and pre-existing shareholders hold 12.5%. 

Ascential continues to exert significant influence over Hudson and now holds a £10.3m (December 2022: £73.8m) equity investment consisting of ordinary shares measured using the equity method. In H123, we therefore recorded our share of the losses of the Hudson businesses totalling £6.8m (H122: £0.9m). Ascential also holds debt instruments in Hudson totalling £87.7m (December 2022: £42.7m) including accrued interest. In H123, we recorded interest receivable on these debt instruments totalling £5.3m (H122: £1.0m).

In addition, as part of the restructuring in February 2023 Ascential has agreed on arrangements that provide a potential path to a majority stake in the future. These arrangements include granting a put option to MT II, exercisable from 1 April 2024 to 31 December 2025 and subject to a maximum consideration payable by Ascential of US$52m. If exercised, this put option would result in Ascential holding a 79% common equity interest in Hudson with Ascential then holding the right to call the remaining shares owned by MT II in the two years following any exercise of their put option. Finally, and looking further ahead, between February 2026 and December 2028, both the Group and Hudson's management team, along with other existing investors, have agreed options with a total consideration ceiling of US$40 million that would, if executed, increase the Group's equity stake in Hudson to 49%.

Further details of the restructuring and the accounting for Hudson can be found in Note 10.

Deferred contingent consideration

The Company's preferred structure for acquisitions is to enter into long-term earnout arrangements with the founders of acquired companies and to link this to the post-acquisition performance of the acquired company and for certain elements make this contingent on the continuing employment of the founders. Accounting for the earnout is complex and requires considerable judgements to be made about the expected future performance of the acquired company at the both the point of acquisition and at each reporting date. This is especially difficult in the type of high growth, early stage, companies that Ascential acquires.

The earnout is accounted for in three ways:

1. A liability for deferred contingent consideration is established on the balance sheet at the point of acquisition based on that element of the earnout which is not dependent on the continuing employment of the founders. Any subsequent change in estimate is recorded as a Non-Trading item and in H123 we recorded a revaluation credit of £17.1m (H122: £4.6m) primarily attributable to the renegotiation of the earnout of Perpetua to facilitate early integration of the business. During the period we made cash payments of £14.3m (H122: £35.4m) in relation to this element of deferred contingent consideration.

2. This liability is discounted to present value with the reversal of this discount being recorded as a finance cost. This amounted to a finance cost of £2.7m for the period (H122: £4.1m).

3. Finally, that element of the deferred contingent consideration that is also contingent on the continuing employment of the founders is charged to the consolidated statement of profit or loss as a Non-Trading item over the service life of those founders (typically three years). This amounted to a charge of £7.8m (H122: £12.2m). During the period we made cash payments of £16.6m (H122: £18.0m) in relation to this element of deferred contingent consideration.

The liability for deferred contingent consideration amounted to £65.0m at 30 June 2023 (H122: £80.6m). 

In total, when combining this liability with the future income statement charges for discount unwind and for deferred contingent consideration that is contingent on continuing employment of the founders, the Company expects to pay out deferred contingent consideration of up to £90m over the next three years for acquisitions to date. £14m is due in the second half of 2023 with the balance due in 2024, 2025 and 2026 contingent on the 2023, 2024 and 2025 performance of the relevant businesses.

Cash flow

The Company generated Adjusted operating cash flow of £77.8m (H122: £85.7m), being a 99% (H122: 128%) operating cash flow conversion in the first half.

A feature of our cash flow is the working capital required in the Digital Commerce segment for the purchasing of advertising media on behalf of customers where the payment terms agreed with the customer can differ from those agreed with the marketplace. At 30 June 2023 we had £182.5m of these media reimbursables receivable from customers and £170.9m payable to the marketplaces up from £122.6m and £116.4m respectively at 30 June 2022 with the balances recorded in Other Debtors and Other Creditors respectively. In order to reduce the impact of this working capital dynamic on the Group, we have a facility with a bank to sell certain of the customer receivables for an attractive rate of interest that is lower than our overall cost of borrowing. Drawings under this facility amounted to £18.3m (H122: £29.0m) at the period end representing a cash outflow of £12.0m in the half. The resultant net working capital position relating to such media reimbursables of a net receivable of £11.6m (H122: £6.2m) therefore does not have a significant overall impact on the Group's balance sheet. 

The Group's capital spend increased by £6.0m from the prior year to £19.9m (H122: £13.9m) driven by increased product development in the Digital Commerce business with the increase primarily related to the creation of the single operating platform as part of our integration activities. Tax paid on profits was £1.0m in the current period (H122: £0.4m refund). Tax liabilities continue to be sheltered by prior period losses and tax-deductible acquisition consideration particularly in the US.

As a result, the Company generated free cash flow of £56.9m (H122: £72.2m) as shown in the table below:

The cash flow statement and net debt position are summarised as follows.

Returns to shareholders

Following the impact of Covid-19 on the business, no dividends were paid in 2020 or 2021 and in 2022 cash flow was prioritised for acquisitions. The Board continues to prioritise capital for investment to support our growth strategy and also, in the context of the ongoing strategic review, has decided not to declare an interim 2023 dividend at this time.

Strong balance sheet and access to liquidity

Ascential manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt-to-equity balance. The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to equity holders of the parent comprising capital, reserves and retained earnings. The Group's policy is to borrow centrally to meet anticipated funding requirements. These borrowings, together with cash generated from the operations, are on-lent at market-based interest rates and on commercial terms and conditions or contributed as equity to subsidiaries.

Going concern

The Board is required to assess going concern at each reporting period. These assessments require judgement to determine the impact of future economic conditions on the Group, including the impact of downward recessionary pressures. After considering the current financial projections and the bank facilities available and then applying a severe but plausible sensitivity, the Directors of the Company are satisfied that the Group has sufficient resources for its operational needs and will remain in compliance with the financial covenants in its bank facilities for at least the next 12 months from the date of approving these financial statements.

The process and key judgements the Directors have considered in reaching their conclusions on going concern relate to liquidity, covenants and scenario planning and are set out in Note 1.

Condensed Consolidated Statement of Profit and Loss

Condensed Consolidated Statement of Other Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows