AVS.L Regulatory News (AVS)

AVESCO GROUP plc

RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2014

Avesco Group plc (AIM: AVS), a leading international provider of services to the corporate presentation, entertainment and broadcast markets, announces its results for the six months ended 31 March 2014.

KEY HIGHLIGHTS FOR THE SIX MONTHS TO 31 MARCH 2014

Financial highlights

· Revenues broadly flat at £65.4m (six months ended 31 March 2013: £65.9m)

· Operating profit decreased to a loss of £0.5m (six months ended 31 March 2013: profit of £2.7m)

· Trading profit increased to £4.7m (six months ended 31 March 2013: £2.8m)*

· Trading EBITDA up 13% to £13.5m (six months ended 31 March 2013: £12.0m)*

· Interim dividend increased to 1.5p (six months ended 31 March 2013: 1.0p)

· Basic loss per share from continuing operations of 12.4p (six months ended 31 March 2013: earnings per share of 4.8p)

· Adjusted basic earnings per share of 15.7p (six months ended 31 March 2013: 7.5p)*

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

Operational highlights

· Trading ahead of plan during the first half with full year results likely to exceed the Board's prior expectations

· Restructuring of European based operations substantially complete

· Increased focus of equipment in fewer locations, with consequential overhead savings and improved gross margins (up 1% point at 38%) already in evidence

· Bank facilities renewed on improved terms

Return of Cash to Shareholders and Buy-back of Shares from Taya

· A distribution equivalent to £1.10 per share was made to shareholders and LTIP holders on 31 January 2014 totalling £30.4m

· Buy-back of 7,584,724 ordinary shares of the Company from Taya for a total consideration of £9.4m completed on 5 February 2014

Richard Murray, Chairman, commented:

Trading in the six months to 31 March 2014 has exceeded our expectations and the outlook for the final six months of the financial year is similarly encouraging with some major sporting events due to take place in the second half, including the World Cup in Brazil and the 2014 Ryder Cup. As a sign of the Board's confidence in the outcome for the current year, we are increasing the interim dividend to 1.5p per share (2013: 1.0p per share). 

We believe that the difficult steps we have taken in the period to eliminate or restructure those businesses that have been a drag on the Group's performance will leave us in good stead to produce more stable and less volatile trading results, not only in even years where we have the benefit of major sporting events, but also in the odd years which have traditionally been more challenging for the Group."

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Chairman's Statement

I am very pleased to report that the Group's restructuring plan is now almost complete and already bearing fruit, with a significant improvement in trading profits in the six month period to 31 March 2014, compared to the equivalent period last year.

Results

Revenue in the six months ended 31 March 2014 was down very slightly at £65.4m (six months ended 31 March 2013: £65.9m). If the effect of major events in each of these periods is excluded, the prior period comparison shows that the underlying business on a like for like basis continued to make progress, with 5% growth over the six month period.

The main driver behind the improved performance was the continued strong results produced by our Creative Technology division in the US. We also saw the benefits of the recent restructuring in Presteigne and, in addition, results in our Creative Technology business in China continued to improve as it approaches profitability.

The operating loss for the six months ended 31 March 2014 of £0.5m (six months ended 31 March 2013: £2.7m profit) includes £5.2m in charges of a non-operational nature, the vast majority of which relate to the restructuring of our CT business in Germany ("CTG"). This restructuring is discussed in more detail below.

Trading profits (which exclude restructuring costs, compensation for loss of office, payments to LTIP holders and bonuses in connection with the Disney litigation receipt, and other non-recurring costs) for the six months ended 31 March 2014 grew strongly to £4.7m (six months ended 31 March 2013: £2.8m). The adjusted basic earnings per share increased to 15.7p (six months ended 31 March 2013: 7.5p).

Our continued profitability in the US means that historic tax losses there are close to being fully utilised. As a result, there has been an increase in our total tax charge for the six months ended 31 March 2014 to £1.9m (six months ended 31 March 2013: £0.7m), although the increase relates almost entirely to deferred tax rather than current tax.

We continue to manage our cash resources carefully and have reduced our spend on new equipment compared to the same period last year, with net investment in fixed assets during the first half year of £7.4m (six months ended 31 March 2013: £10.1m). 

On 31 March 2014, the net assets of the Group were £31.5m (31 March 2013: £39.6m) or £1.67 per share (31 March 2013: £1.53 per share).

As a sign of the Board's confidence in the outcome for the current year, we are increasing the interim dividend to 1.5p per share (2013: 1.0p per share). This payment will be made on 1 October 2014 to shareholders on the register on 5 September 2014 and the shares will be quoted ex dividend from 3 September 2014.

Disney, Return of Cash to Shareholders and Buy-back of Shares from Taya

During the six months ended 31 March 2014, we completed two significant transactions funded by our share of the proceeds of the Disney litigation.

The cash received, after deductions for estimated tax liabilities, indemnities, and related bonuses, was £44.5m or $68.1m ("Net Receipt"). An amount of £1.10 per ordinary share, representing 68% (£30.4m) of the total Net Receipt, was returned to shareholders in cash by way of a B & C Share Scheme and to LTIP holders by way of a cash bonus on 31 January 2014. The return of cash was structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds as either income or capital.

On 5 February 2014, we also completed the buy-back of 7,584,724 ordinary shares of the Company from Taya Communications Ltd ("Taya") for a total consideration of £9.4m. Upon completion of the share buy-back, the Taya representatives on the Board, Mr Amiram Giniger and Ms Carmit Hoomash, both resigned. I would very much like to thank them for their contribution to the Company in recent years.

After allowing for £0.4m of costs for these two transactions (full details of which were included in the circular to shareholders dated 27 December 2013), we have applied the remaining £4.3m of the Disney litigation receipt to reduce the Group's debt. Net debt as at 31 March 2014 was £21.7m (31 March 2013: £30.0m).

CT Germany

CTG was originally set up in 2003 to service our German clients (mainly from the auto industry) in territories all over the world. Traditionally these clients have required German-speaking staff and German-owned equipment at each global venue and we had built up a substantial operation in Germany to service their needs. Over the last 12 to 18 months, however, we have seen these clients change their policies and they now wish to source equipment and personnel closer to the venue in question, with a smaller German-speaking requirement and a consequent cost saving for the client.

In addition, our CTG business last year was adversely affected by the departure of the entire fee earning team from its TV and film division to set up their own business. The activities of this division had previously generated useful infill revenue between the auto shows. With the loss of this revenue and the change in our clients' preferences as outlined above, it became clear that CTG in its then form was no longer viable. Consequently we have reduced staffing levels at CTG by almost 80% from their peak of 68 in October 2013, and we are relocating the bulk of CTG's equipment to our other subsidiaries around the world where we expect to achieve greater utilisation, with business both from our German auto industry clients and from our other local customers.

We plan to vacate our 66,000 square feet warehouse facility near Stuttgart and to relocate to smaller premises more suitable to the size of CTG's new operation. We have provided for the costs associated with this onerous lease, which expires in 2023, as we seek to sublet the Stuttgart warehouse.

In the Strategic Report contained in our 2012/13 Annual Report, we indicated that we were in the process of restructuring all our loss making businesses in Europe, of which CTG was by far the largest. This process is now virtually complete, with the Presteigne businesses in Holland and Germany and the CTG business in Dusseldorf all closed down and the restructuring of the CTG Stuttgart operation well advanced.

Of the total restructuring costs of £5.0m booked in the first six months of the year, those for CTG amount to £4.3m, with a further £0.5m of costs to come in the second half of the financial year.

Group Strategy

The restructuring of our European businesses reflects the Board's desire to focus the Group on those operations capable of generating sustainable profits, even if sometimes at the expense of a reduction in revenue. We have sought to improve our margins by concentrating our equipment in fewer locations, with a consequent reduction in overheads, thus de-risking the business substantially. The early signs are that this strategy is already proving to be beneficial, with gross margins increasing in the six months to 31 March 2014 to 38% (31 March 2013: 37%), and trading operating expenses reducing down from £21.6m to £20.4m over the same period.

The Group is now better placed to pursue its aim of developing the Group's core businesses to provide cash generation and dividend growth for shareholders.

Financing

For many years the Group's lead bank has been HSBC and we were pleased earlier this month to renew our facilities with them, totalling £32m until June 2018, on improved terms.

Outlook

Trading in the six months to 31 March 2014 has exceeded our expectations and the outlook for the final six months of the financial year is similarly encouraging with some major sporting events due to take place in the second half, including the World Cup in Brazil and the 2014 Ryder Cup. As a result of the improved trading, full year results are likely to exceed the Board's prior expectations.

We believe that the difficult steps we have taken this year to eliminate or restructure those businesses that have been a drag on the Group's performance will leave us in good stead to produce more stable and less volatile trading results, not only in even years where we have the benefit of major sporting events, but also in the odd years which have traditionally been more challenging for the Group.

Unaudited condensed consolidated income statement

For the six months ended 31 March 2014

Alternative performance measures (non-GAAP)

For the six months ended 31 March 2014

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 six months ended 31 March 2014

 Unaudited condensed consolidated balance sheet

As at 31 March 2014

Refer to Note 3 for a description of the prior period restatements.

For the six months ended 31 March 2014

For the six months ended 31 March 2014

Refer to Note 3 for a description of the prior period restatements.

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 17 June 2014, are not full accounts within the meaning of section 434 of the Companies Act 2006.

The figures for the year ended 30 September 2013 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 2014. Except as set out below, these are consistent with those included in the previously published annual report and accounts for the year ended 30 September 2013, 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.

Change in accounting policy

In the current period the Group has adopted the amendment to IAS 16 Property, Plant and Equipment which clarifies that major spare parts and servicing equipment that meet the definitions of property, plant and equipment should not be classified as inventory. As a result of this amendment the Group has revised its accounting policy for the classification of cable. The balance of £524,000 as at 30 September 2013 was previously classified as inventory, and in light of this amendment has been reclassified as property, plant and equipment.

There has been no impact on the equity or results of the Group as a result of this change in policy. The consolidated balance sheet and cash flow statement have been restated as a result of this change in policy.

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, payments to LTIP holders and bonuses in connection with the Disney settlement, 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, payments to LTIP holders and bonuses in connection with the Disney settlement, 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. Trading EBITDA includes profits on disposal of property, plant and equipment. The Directors believe that trading EBITDA is an important measure of the underlying performance of the Group.

d) Trading operating expenses

'Trading operating expenses' is separately disclosed, being defined as operating expenses adjusted to exclude restructuring costs and compensation for loss of office, payments to LTIP holders and bonuses in connection with the Disney settlement, and other non-recurring costs. The Directors believe that trading operating expenses are an important measure of the underlying performance of the Group.

4. Segmental information

Following a review of the Group's continental European businesses, the allocation of the Group's subsidiaries to operating segments was changed to align them with the revised organisational reporting structure. Our Spanish and Dutch Full Service businesses have now been integrated in to the operations of Creative Technology. These segments are set out below. Results for prior periods have been restated to facilitate comparison.

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 2013 of 4.0p per ordinary share amounting to a total of £754,000 was approved and was paid on 7 April 2014 to shareholders on the register on 14 March 2014.

An interim dividend for the year ended 30 September 2013 of 1.0p per ordinary share amounting to a total of £259,000 was approved and was paid on 1 October 2013 to shareholders on the Register on 6 September 2013.

An interim dividend of 1.5p per ordinary share will be paid on 1 October 2014 to shareholders on the Register at 6.00pm on 5 September 2014. The shares will be quoted ex dividend from 3 September 2014.

A special dividend of £1.10 per C share was approved and was paid on 24 January 2014 under the Return of Cash (see note 10).

10. Return of cash and buy-back agreement

The Company returned £28.5m of the net cash receipt from the Disney litigation funds to shareholders by way of a B & C Share Scheme (the "Return of Cash" or "Scheme). On 24 January 2014 10,992,850 B shares and 14,958,700 C shares were allotted to shareholders through the capitalisation of the share premium reserve. On 24 January 2014 the Company redeemed the B shares for £1.10 per share, totalling £12.1m, and a dividend of £1.10 per share was declared on each C share, totalling £16.4m. Following redemption of the B Shares, all of the B Shares were then cancelled. Following the declaration of dividend on the C shares, these shares became deferred shares which carried no rights to participate in the profits of the Company or a return of capital. The deferred shares were purchased by the Company for an aggregate sum of 1p, and cancelled. None of the B shares, C shares and deferred shares were admitted to trading on AIM or admitted to listing or trading on any recognised investment exchange.

The Company and Taya Communications Ltd ("Taya") entered into a Buy-back agreement on 23 December 2013 pursuant to which the Company bought back from Taya 7,584,724 ordinary shares of the Company, out of Taya's total holding of 7,784,878 ordinary shares, at a price of 124p per ordinary share on 5 February 2014, leaving Taya holding a balance of 200,154 ordinary shares, representing 1.09% of the total voting rights of the Company as reduced by the cancellation or transfer to treasury of the Buy-back Shares. The price payable for the Buy-back Shares represented a five percent premium over the average closing mid-market price per ordinary share for the forty-five business day period ending on 17 December 2013, being the latest practicable date prior to the date of the release of the Company's Preliminary Results, less the amount of 110 pence (being the cash entitlement payable per Buy-back Share under the Return of Cash). The total consideration payable was £9.4m plus legal and professional fees of £0.4m. Of the 7,584,724 ordinary shares brought back from Taya, 5,539,149 were cancelled immediately and the balance transferred to treasury, leaving 2,095,475 shares held in treasury as at 31 March 2014.

11. 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 concluded in the prior year and the Group has received its share of the Disney litigation award. Cash received was £50.6m although this was reduced by estimated tax liabilities of £4.1m and indemnities of £1.0m, offset by a net credit of £0.2m in relation to professional fees resulting in a profit on discontinued operations of £45.7m. Further provision was made in the prior year for returns to LTIP holders of £2.1m and related bonuses of £1.2m, both of which were classified as non-recurring costs. As a result of further refinement of the tax base cost on the associated chargeable gain the Group's estimated tax liability has been reduced by £1.2m in the current period.

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

12. 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. 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.

13. 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 half-yearly financial report for the six months ended 31 March 2014, 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 half-yearly financial report 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 half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report 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 half-yearly financial report 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 half-yearly financial report 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 half-yearly financial report for the six months ended 31 March 2014 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

17 June 2014