AVS.L Regulatory News (AVS)

AVESCO GROUP plc

RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED 30 JUNE 2013

Avesco Group plc (AIM: AVS), a leading international provider of services to the corporate presentation, entertainment and broadcast markets, announces its results for the three months and nine months ended 30 June 2013.

KEY HIGHLIGHTS

Nine months to 30 June 2013

· Revenue down 7% to £98.6m (nine months ended 30 June 2012: £105.8m)

· Operating profit decreased to a loss of £0.5m (nine months ended 30 June 2012: profit of £3.3m)

· Trading profit decreased to £3.8m (nine months ended 30 June 2012: £4.1m)*

· Trading EBITDA down 8% to £17.3m (nine months ended 30 June 2012: £18.7m)*

· Basic loss per share from continuing operations of 14.5p (nine months ended 30 June 2012: earnings per share of 7.6p)

· Adjusted basic earnings per share of 9.6p (nine months ended 30 June 2012: 11.0p)*

Three months to 30 June 2013

· Revenue down 15% to £32.7m (three months ended 30 June 2012: £38.3m)

· Operating profit decreased to a loss of £3.3m (three months ended 30 June 2012: profit of £1.5m)

· Trading profit decreased to £1.0m (three months ended 30 June 2012: £2.1m)*

· Trading EBITDA down 22% to £5.5m (three months ended 30 June 2012: £7.1m)*

· Basic loss per share from continuing operations of 19.1p (three months ended 30 June 2012: earnings per share of 3.9p)

· Adjusted basic earnings per share of 2.0p (three months ended 30 June 2012: 5.9p)*

* As described in note 3, the Group uses certain non-GAAP alternative measures to assess underlying operating performance.

Court Case Settlement

· Profit in respect of Disney litigation of £45.6m (net of tax)

· A distribution will be made to shareholders and LTIP holders (equivalent to £1.10 per share/LTIP) subject to shareholder approval

Richard Murray, Chairman, commented:

"The results for the three and nine months ended 30 June 2013 include the receipt of the proceeds of the Disney litigation. As a result, the overall profit for the Quarter of £40.6m was substantial and the net assets of the Group have increased to £3.09 per share as at 30 June 2013. However, when the significant benefit of the litigation is removed, it is clear that the difficult trading conditions indicated in my statement in June 2013 have continued to affect revenue and profit. While the Group is still profitable at the trading level, pricing remains under pressure in a number of markets while the pick-up in demand in the UK has yet to reach the levels that we anticipated.

In Presteigne Charter, where trading in relation to major projects has disappointed, we are planning to refocus the business back to its dry hire roots, which should even out some of the trading peaks and troughs experienced in recent years. In CT China, significant year on year improvements have been made but we shall not quite achieve the breakeven target that we set ourselves last year. Our main issue, however, has been the departure of key staff in CT Germany, resulting in a revenue and profit shortfall that has proved very difficult to replace. As a result, and despite a strong performance in our CT US business, we now believe that it is likely that the Group's results for the full year to 30 September 2013 will be below previous market expectations.

The Group has previously announced that the Board is proposing, subject to shareholder approval, to return £30.6m of the funds received on the Disney settlement to shareholders by way of a B & C Share Scheme ("The Scheme") and to LTIP holders by way of a cash bonus. The Scheme will provide for a payment, equivalent to £1.10 for each ordinary share, and is intended to be structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds either as income or capital. A detailed circular setting out the full terms of The Scheme and detailed timings will be sent to shareholders in November and, if approved, it is expected that payments will be made in December to shareholders on the register at that time."

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Chairman's Statement

The results for the three and nine months ended 30 June 2013 include the receipt of the proceeds of the Disney litigation. As a result, the overall profit for the Quarter of £40.6m was substantial and the net assets of the Group have increased to £3.09 per share as at 30 June 2013. However, when the significant benefit of the litigation is removed, it is clear that the difficult trading conditions indicated in my statement in June 2013 have continued to affect revenue and profit. While the Group is still profitable at the trading level, the underlying trading in the third Quarter is below the Board's previous expectations. In particular, the loss of key staff in our CT Germany operation and the consequent restructuring, have affected results more than expected.

Results

Revenue in the three months ended 30 June 2013 was down 15% to £32.7m (three months ended 30 June 2012: £38.3m), leaving the total revenue for the nine months to 30 June 2013 down 7% at £98.6m (nine months ended 30 June 2012: £105.8m). If the revenue from the 2012 London Olympics events and from CT Germany is excluded, the prior period comparison shows that the underlying business on a like for like basis over the nine month period has been flat.

The US operations of our Creative Technology division and MCL in our Full Service division have both continued to grow over the nine month period. However, revenue in our other divisions was either flat or showed some decline. CT Germany, with a £2.3m reduction in revenue compared to the same nine month period last year, experienced by far the largest decrease. The CT Germany management team and business is undergoing an extensive reorganisation, resulting in a £0.5m restructuring charge to date. Presteigne Charter also experienced a decrease in revenue as a result of the disappointing trading in major projects.

The operating loss for the three months ended 30 June 2013 was £3.3m (three months ended 30 June 2012: profit of £1.5m) and £0.5m for the nine months to the same date (nine months ended 30 June 2012: profit of £3.3m).

Trading profits (which exclude restructuring costs, compensation for loss of office, payments to LTIP holders and bonuses in connection with the Disney settlement, and other non-recurring costs) for the three months ended 30 June 2013 were £1.0m (three months ended 30 June 2012 £2.1m). The adjusted basic earnings per share were 2.0p (three months ended 30 June 2012: 5.9p).

For the nine months ended 30 June 2013, the trading profit was £3.8m (nine months ended 30 June 2012: £4.1m). The adjusted basic earnings per share were 9.6p (three months ended 30 June 2012: 11.0p).

Due to the availability of trading losses in certain territories, our current tax charge remains low. However, although our continued profitability in the US means that historic losses in that region are being utilised, we are unable to utilise losses in other territories across borders. As a result, there has been an increase in our total tax charge for the nine months ended 30 June 2013 to £2.0m (nine months ended 30 June 2012: £0.1m), although the increase relates almost entirely to deferred tax rather than current tax.

Disney

The Group has previously announced that the Board is proposing, subject to shareholder approval, to return £30.6m of the funds received on the Disney settlement to shareholders by way of a B & C Share Scheme ("The Scheme") and to LTIP holders by way of a cash bonus. The Scheme will provide for a payment, equivalent to £1.10 for each ordinary share, and is intended to be structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds either as income or capital. A detailed circular setting out the full terms of The Scheme and detailed timings will be sent to shareholders in November and, if approved, it is expected that payments will be made in December to shareholders on the register at that time.

Net Debt and Assets per Share

We continue to spend significantly less on new equipment than last year, with net investments in fixed assets during the first nine months of the year amounting to £12.3m (nine months ended 30 June 2012: £24.7m). 

Net cash generated from operating activities has been strong. During the Quarter to 30 June 2013 the Group generated £8.3m of cash from operating activities (three months ended 30 June 2012: £4.0m), and £14.2m during the nine months ended on the same date (nine months ended 30 June 2012: £10.0m).

Furthermore, on 4 June 2013 the Group received its share of the Disney litigation award which, after making an immediate on account corporation tax payment, amounted to a net receipt of £50.1m in the period. Future outflows of £36.1m are earmarked for tax, indemnities, bonuses, LTIP holders and shareholders.

Consequently, after paying dividends of £0.8m in April 2013, the Group generated net funds of £55.2m in the Quarter ended 30 June 2013 (Quarter ended 30 June 2012: net funds outflow of £2.8m), leaving the Group in a net cash position on 30 June 2013 of £25.1m (30 June 2012: net debt of £27.1m).

On 30 June 2013, the net assets of the Group were £80.3m (30 June 2012: £38.6m) or £3.09 per share (30 June 2012: £1.52 per share).

Outlook

Whilst the final settlement of the Disney litigation has seen a substantial inflow of cash, the Board is committed to resolving the various operational and trading issues around the Group.

In CT Germany, the process to restructure the business has already begun. Our main issue there, however has been the departure of key staff, resulting in a revenue and profit shortfall that has proved very difficult to replace.

In Presteigne Charter, we are planning to refocus the business back to its dry hire roots, which should even out some of the trading peaks and troughs experienced in recent years, but will necessitate some redundancies and other costs.

In CT China, significant year on year improvements have been made but we shall not quite achieve the breakeven target that we set ourselves last year.

Pricing remains under pressure in a number of markets, while the pick-up in demand in the UK has yet to reach the levels that we anticipated. As a result, and despite a strong performance in our CT US business, we now believe that it is likely that the Group's results for the full year to 30 September 2013 will be below previous market expectations.

Looking ahead to 2014, the expected benefits of the headcount and cost reductions arising from the restructuring work and other measures that we are taking across the Group this year should flow through to the results. We also look forward to an increase in demand for our services with a number of major "even year" sporting events being held, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil.

We remain committed to our strategy of developing our core businesses to provide cash generation and dividend growth for shareholders. Our balance sheet has been significantly strengthened by the receipt of the Disney funds, which, even after tax and returns to shareholders and others, should see a net debt reduction of over £14m, leaving gearing low, and the Group well placed for the future.

Unaudited condensed consolidated income statement

For the three months and nine months ended 30 June 2013

Alternative performance measures (non-GAAP)

For the three months and nine months ended 30 June 2013

Refer to note 3 for a full description of the alternative performance measures adopted by the Group.

Unaudited condensed consolidated statement of comprehensive income

For the three months and nine months ended 30 June 2013

 Unaudited condensed consolidated balance sheet

As at 30 June 2013

For the three months and nine months ended 30 June 2013

For the three months and nine months ended 30 June 2013

1. General information

Avesco Group plc ('the Company') and its subsidiaries (together 'the Group') is an international media services business. The Group has subsidiaries around the world and sells in the UK, USA, Europe, Asia Pacific and the Middle East.

The Company is a public limited company which is admitted to trading on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.

The registered number of the Company is 01788363.

2. Status of interim report and accounts

The interim report and accounts are unaudited but have been reviewed by the auditors, Ernst & Young LLP, and their independent review report is appended to this document. The interim report and accounts, which were approved by the Board of Directors on 9 September 2013, are not full accounts within the meaning of section 434 of the Companies Act 2006.

The figures for the year ended 30 September 2012 have been extracted from the audited annual report and accounts that have been delivered to the Registrar of Companies. The auditors, Ernst & Young LLP, reported on those accounts under section 495 of the Companies Act 2006. Their report was unqualified and did not contain a statement under section 498 of that Act.

3. Basis of preparation

The interim report and accounts have been prepared using the accounting policies to be applied in the annual report and accounts for the year ending 30 September 2013. These are consistent with those included in the previously published annual report and accounts for the year ended 30 September 2012, which have been prepared in accordance with IFRS as adopted by the European Union.

The directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future, and for this reason they have adopted the going concern basis of preparation in the consolidated quarterly financial statements.

Alternative performance measures

The Group uses alternative non-Generally Accepted Accounting Practice ("non-GAAP") financial measures which are not defined within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and as such, these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in these interim report and accounts.

a) Trading profit/loss

'Trading profit/loss' is separately disclosed, being defined as operating profit adjusted to exclude restructuring costs and compensation for loss of office and other non-recurring costs. Other non-recurring costs relate to items which management believe do not accurately reflect the underlying trading performance of the business in the period. Examples of other non-recurring costs are one off costs and charges incurred which management believe do not accurately reflect the trading performance of the business. The Directors believe that trading profit/loss is an important measure of the underlying performance of the Group.

b) Adjusted earnings per share

'Adjusted earnings per share' is calculated by dividing the profit for the period excluding restructuring costs and compensation for loss of office, other non-recurring costs and the deferred tax charge/credit by the weighted average number of ordinary shares in issue during the period. The Directors believe that adjusted earnings per share provides an important measure of the underlying performance of the Group.

c) Trading EBITDA

Trading earnings before interest, taxation, depreciation and amortisation ('EBITDA') is separately disclosed, being defined as trading profit/loss adjusted to exclude depreciation and amortisation of software. The Directors believe that trading EBITDA is an important measure of the underlying performance of the Group.

4. Segmental information

5. Trading earnings before interest, taxation, depreciation and amortisation ('EBITDA')

Trading EBITDA is defined in note 3.

6. Taxation

7. Earnings per share

Basic earnings per share have been calculated by dividing profit/loss for the period by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share have been calculated by dividing profit/loss for the period by the weighted average number of ordinary shares in issue during the period, adjusted for any awards under the Company's Long Term Incentive Plan ("LTIP") where pre-specified performance conditions have been satisfied and any required conversion of dilutive potential options.

Adjusted earnings per share have been calculated as per note 3.

8. Analysis of net debt

9. Interim and final dividends

A final dividend for the year ended 30 September 2012 of 3.0p per share amounting to a total of £778,000 was approved and was paid on 8 April 2013 to shareholders on the register at 6.00pm on 15 March 2013.

An interim dividend for the year ended 30 September 2012 of 1.0p per share amounting to a total of £254,000 was approved and was paid on 1 October 2012 to shareholders on the Register at 6.00pm on 14 September 2012.

An interim dividend of 1.0p per share will be paid on 1 October 2013 to shareholders on the Register at 6.00pm on 6 September 2013. The shares were quoted ex dividend from 4 September 2013.

10. Discontinued operations

InvestinMedia Holdings Limited ("InvestinMedia"), a subsidiary of the Company, sold its investment in Complete Communications Corporation Limited ("Complete") on 20 December 2006. The buyer of Complete pursued legal action in the United States against Disney on behalf of InvestinMedia and other vendors. This legal action has now concluded and as announced on 4 June 2013 the Group has received its share of the Disney litigation award. Cash received was £50.6m although this is reduced by estimated tax liabilities of £4.1m and indemnities of £1.0m to £45.6m. Further provision has been made in the accounts for returns to LTIP holders of £2.1m and related bonuses of £1.0m, both of which have been classified as other non-recurring costs.

The consolidated income statement and consolidated cash flow statement include the following amounts in relation to discontinued operations:

11. Contingent liabilities and assets

Contingent liabilities

InvestinMedia Holdings Limited ("InvestinMedia"), a subsidiary of the Company, sold its investment in Complete Communications Corporation Limited ("Complete") on 20 December 2006. In connection with the sale, InvestinMedia and other vendors gave certain warranties and indemnities to the buyer, in respect of which the period for notification of claims runs for periods of up to seven years from the date of completion. So far as the Company is aware, no legal claims have been brought against any company in the Complete group that are outstanding and would give rise to liability on the part of InvestinMedia and other vendors under the warranties and indemnities.

Contingent assets

InvestinMedia has given certain indemnities to the buyer of Complete in respect of the distribution of the Disney litigation award. No revenue has been recognised for these indemnities which amount to £990,982, and in respect of which the period of notification runs to 7 April 2015.

12. Distribution of interim report and accounts

Copies of this interim report and accounts are available from the Company's web site (www.avesco.com) or from the Company's registered office: Avesco Group plc, Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH. Telephone: +44 (0) 1293 583 400. Fax: +44 (0) 1293 583 410. E-mail: mail@avesco.com.

INDEPENDENT REVIEW REPORT TO AVESCO GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Interim Report and Accounts for the three and nine months ended 30 June 2013, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement and the related explanatory notes that have been reviewed. We have read the other information contained in the Interim Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The Interim Report and Accounts is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report and Accounts in accordance with the AIM Rules issued by the London Stock Exchange which require that it is presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

 As disclosed in note 3, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Interim Report and Accounts has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report and Accounts based on our review.

Scope of Review

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 Ireland) 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report and Accounts for the three and nine months ended 30 June 2013 is not prepared, in all material respects, in accordance with the accounting policies outlined in Note 3, which comply with IFRS's as adopted by the European Union and in accordance with the AIM Rules issued by the London Stock Exchange.

Ernst & Young LLP

Reading

9 September 2013