AVS.L Regulatory News (AVS)

AVESCO GROUP plc

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2015

Avesco Group plc ("Avesco" or the "Group") (AIM: AVS), the international provider of services to the corporate presentation, entertainment and broadcast markets, announces its preliminary results for the year ended 30 September 2015.

KEY HIGHLIGHTS

· Revenue up 6% to £133.7m (2014: £126.4m)

· Operating profit up £4.0m to £4.9m (2014: £0.9m)

· Trading profit up 18% to £7.4m (2014: £6.3m)*

· Trading EBITDA up 8% to £27.0m (2014: £25.0m)*

· Continuing operations earnings per share of 12.4p (2014: loss per share of 12.8p)

· Annual dividend increased by 17% to 7.0p per share (2014: 6.0p)

· Profit from discontinued operations of £1.1m (2014: £1.2m)

· Net debt reduced £3.9m to £17.5m (2014: £21.4m)

* As described in note 8, the Group uses certain non-GAAP alternative measures to assess underlying operating performance.

Richard Murray, Chairman, commented:

"2015 has been another record breaking year for the Group with operating profit even higher than in 2012 when we had the benefit of the London Olympics in our home territory. The fact that this has been achieved in an odd year is particularly pleasing.

The sale of the land and buildings at Fountain announced earlier today will realise substantial value for shareholders, the full value of which will be reported in the coming year, and will significantly reduce our net Group debt down to very modest levels.

The current financial year has started well, with Creative Technology performing strongly in both Europe and the US. With the Group now carrying a much lower debt burden, streamlined and refocused, we expect to be able to continue our drive to increase profitability, to generate cash and to grow dividends." 

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Results

2015 has been another record breaking year for the Group with operating profit even higher than in 2012 when we had the benefit of the London Olympics in our home territory. The fact that this has been achieved in an odd year is particularly pleasing.

The main drivers behind this strong performance were CT Europe, which had the benefit of both the first European Games in Baku in June and the near elimination of losses in CT Germany (as a result of last year's restructuring there) and CTUS, which continues to be the Group's biggest profit contributor.

During the 12 months ended 30 September 2015, our revenue grew by 6% to £133.7m (2014: £126.4m), whilst trading profits grew 18% to £7.4m (2014: £6.3m), trading EBITDA was up 8% to £27.0m (2014: £25.0m), and net debt was further reduced to £17.5m (2014: £21.4m).

The increase in trading profits includes a margin increase of 1%. Overheads increased at a much lower rate than the rate of profit increase, aided by an overhead reduction of £1.1m resulting from our prior year restructuring in CT Germany. These savings were again mainly derived from the full year effect of the 2014 reductions in staff numbers. Our average staff numbers during the year were reduced by another 3% to 685 (2014: 705) from a 2013 high of 765.

Our operating profit was £4.9m (2014: £0.9m) and, after taking account of net interest costs of £1.7m (2014: £1.3m), the result before income tax was a profit of £3.2m (2014: £0.4m loss). The tax charge for the year was £0.9m (2014: £2.3m) and the profit from discontinued operations was £1.1m (2014: £1.2m profit). The basic earnings per share was 18.0p and the diluted earnings per share was 17.9p (2014: basic and diluted loss per share of 7.2p).

Non trading items, which have been removed from the operating results in order to calculate the trading profit, gave a net cost of £2.5m in the 12 months ended September 2015 (2014: £5.4m). Significant restructuring costs within this balance in 2015 include £1.3m for the impairment of fixtures and fittings at Fountain (due to the sale of the Wembley site), an onerous lease provision of £0.7m necessitated by the streamlining of the London branch of mclcreate and a £0.4m increase to the amount provided in the prior year in relation to the onerous lease in CT Germany. Other non-recurring items in 2015 include a cost of £0.2m caused by a change in estimate of dilapidation provisions in the UK, a cost of £0.2m relating to potential claims relating to prior year activities in the US and credits of £0.3m relating to prior period transactions in the South East Asian region and the UK. Exceptional items in 2014 were mainly in respect of the substantial restructuring costs in CT Germany.

Discontinued operations relate to the successful outcome of our litigation with the Walt Disney Company and others in 2013. In 2015, we recorded a £1.1m gain from the release of an accrual for a related indemnity that is no longer required (2014: a £1.2m reduction in our estimate of the tax payable on the gain). No further gains or losses are expected to be recognised in discontinued operations as a result of the Disney litigation.

In 2016, we expect the net gain from the Fountain transaction to amount to approximately £7m after tax and related costs.

Creative Technology (CT)

The Creative Technology division saw revenues climb £11.0m to £107.1m (2014: £96.1m) and trading profit more than doubled to £9.1m (2014: £4.4m). Our main profit driver, CTUS, saw revenue grow by a further 21%, on top of last year's 18% increase, and profits there rose commensurately. Revenue in CT Europe was down slightly but profits were significantly increased as we reaped the benefit of our much lower cost base in Germany. The European Games in Baku were also very beneficial, generating over £5m in revenue.

Creative Technology Asia Pacific ("CTAP") again failed to reach its break even target but results there were on a par with last year's much improved set of numbers. CTAP remains a significant asset to our other larger CT operations seeking to service their clients in the region and we continue to work towards creating a profitable business there.

Full Service

mclcreate, our full service business, had a solid year. Revenue fell to £14.0m (2014: £14.4m) but trading profit rose to £0.3m (2014: £0.2m), reflecting a 2% margin improvement. The business lost a significant exhibition based client and has reshaped its business around fewer, larger warehouses across the UK, the benefits of which are expected to begin to flow in 2015/16.

Broadcast Services

Our Broadcast Services division performed poorly this year, with revenue dropping to £12.5m (2014: £15.8m) resulting in a trading loss of £1.9m (2014: £1.7m profit). Presteigne was unable to build on the strong progress made last year as it struggled in a very competitive, commodity driven market. The results were also impacted by a £0.9m write off as a result of a customer suffering cashflow issues and being unable to fully repay a debt brought forward from the prior year. Steps have been taken to bolster the sales team in Presteigne and we expect to see an improved performance in 2016, an even year.

Fountain Studios suffered a small trading loss of £0.1m (2014: breakeven) as pricing pressures pushed margins down by 3%. This is clearly an inadequate return on the investment we have in this asset and on 12 January 2016 we announced that we had sold the land and buildings for £16m with a lease back agreement until at least 31 December 2016. It is likely that this will lead to the closure of the business in Wembley and we are therefore commencing a consultation process with the affected staff. At the end of our lease the equipment there will be moved or sold and we have therefore recorded an impairment of £1.3m in exceptional items in anticipation of these eventual disposals. The further anticipated £7m net profit of the Fountain transaction will be reported in the 2016 accounts.

Taxation

The total income tax expense for the year was £0.9m (2014: £2.3m). The Group tax charge has benefited significantly from our success in discussions with HMRC to allow prior period losses and other allowances from our partnership in Germany to be set against tax payable in the UK.

The income tax expense for the year consists of a £1.7m current tax charge (2014: £0.0m) and a deferred tax credit of £0.9m (2014: charge of £2.3m). The current tax charge primarily relates to charges in the US (high taxable profits earned in the US cannot be offset against taxable losses elsewhere in the world) and is mitigated somewhat by a £1.5m credit arising from the availability of the German losses. The deferred tax credit has arisen due to the availability of German capital allowances in the UK tax group.

Our deferred tax asset at the year end stood at £4.6m (2014: £3.9m). Tax losses represent £0.6m (2014: £1.0m) of this asset, with the balance of £4.0m (2014: £2.9m) mostly resulting from the temporary difference between the tax base and the book value of property, plant and equipment.

Further deferred tax assets amounting to £7.2m at the year end (2014: £4.5m) remain unrecognised on the balance sheet.

The majority of the deferred tax liability of £5.3m (2014: £5.3m) relates to temporary differences between the tax base and the book value of property, plant and equipment and has primarily arisen due to the availability of high levels of first year allowances on equipment purchases in CTUS.

Cash Generation and Capital Expenditure

During the year the Group reduced net debt by £3.9m to £17.5m (2014: 21.4m).

This was derived from a trading EBITDA of £27.0m (2014: £25.0m), net investments in new equipment of £16.0m (2014: £19.0m), 70% of which went to CTUS, net outflows of working capital and other balance sheet items of £0.7m (2014: £2.3m outflow), cash held on the acquisition of Sports Technology of £0.6m, dividends of £1.5m (including those paid to minority interests), interest and tax payments of £4.6m (2014: £1.9m) and adverse foreign exchange movements of £0.9m.

The Group's cash flow (and interest expense) during 2014 was impacted by the £30.5m return of cash to shareholders and LTIP holders, the £9.8m buy-back of shares from Taya Communications Ltd (both in January 2014, following receipt of our £44.5m net share of the proceeds from the Disney litigation in 2013) and the Group restructuring programme.

The net assets of the Group increased over the year to £34.4m at 30 September 2015 (2014: £32.1m). This equates to a net asset value of £1.80 per share (2014: £1.70 per share or £1.67 on a fully diluted basis when the then remaining 0.4m shares subject to LTIP awards were taken into account).

In addition to the Group's cash balances of £12.7m, the Group had unutilised banking and HP facilities of £19.9m at the year end and was comfortably within its finance and banking facilities of some £50.1m. The main component of the Group's facilities was a £20m multi currency revolving loan from HSBC, which will be reduced to £10m, in light of the approximate £13m net receipt from the Fountain asset disposal. The remaining £10m line with HSBC is now in place until June 2018, with other facilities comprising a combination of overdraft and leasing lines.

Dividend

At the half year, we increased the interim dividend to 2.0p per share (2014: 1.5p), which was paid in October 2015. The Board is now pleased to announce that it proposes to increase the final dividend this year to 5.0p (2014: 4.5p) per share, thus making a total dividend for the year of 7.0p per share (2014: 6.0p), reflecting our continued confidence in the longer term prospects for the Group.

Subject to shareholder approval, the proposed dividend is expected to be paid on 6 April 2016 to shareholders on the register at the close of business on 11 March 2016.

People

This has been another tremendously busy year and our staff have yet again risen to the occasion, maintaining the high levels of quality and technical expertise our customers have come to expect, often under pressure and in difficult conditions. I thank them most sincerely for their loyalty, efforts and exceptional skill in performing their duties.

Current Trading and Outlook

We have now realised the cost savings anticipated by the Group's previous restructuring programmes and believe that the Group's profitability has been effectively rebased. The sale of the land and buildings at Fountain will realise substantial value for shareholders, the full value of which will be reported in the coming year, and significantly reduce our net Group debt down to very modest levels.

As for trading, the current financial year has started well, with CT performing strongly in both Europe and the US. With the Group now carrying a much lower debt burden, streamlined and refocused, we expect to be able to continue our drive to increase profitability, to generate cash and to grow dividends.

Richard Murray

12 January 2016

For the year ended 30 September 2015

Avesco Group plc

For the year ended 30 September 2015

Refer to note 8 for a full description of the alternative performance measures adopted by the Group.

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2015

As at 30 September 2015

Consolidated Statement of Changes in Equity

For the year ended 30 September 2015

For the year ended 30 September 2015

Avesco Group plc

For the year ended 30 September 2015

1. Segmental information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions.

The Board of Directors categorises Group companies based on the services they provide and as a result the business is split into four segments. These correspond to three operating segments (Creative Technology, Full Service and Broadcast Services) which together provide the Group's principal activity of services to the corporate presentation, entertainment and broadcast markets. In addition, the Group recognises a further segment, Head Office, which provides administrative support to the rest of the Group.

Creative Technology provides specialist AV services and equipment to the live events, broadcast and entertainment markets. The Full Service segment provides full technical support for conferences, sports, music, corporate and television programmes. Finally, the Broadcast Services segment provides broadcast equipment, systems and services to the broadcast industry.

The Board of Directors assesses performance of the operating segments based on trading profit (see note 8). As segmental performance does not therefore include finance costs and tax, such items are not allocated to segments.

The segmental results for the year ended 30 September 2015 are as follows:

The segmental results for the year ended 30 September 2014 are as follows:

Inter-segment transactions are entered into under the normal commercial terms and conditions that would be available to unrelated third parties.

No single customer contributed revenues of greater than 10% of the Group's total revenue for 2015 or 2014.

The Group's main business segments operate in four main geographical areas. Details of the segmental allocation of revenue can be found below.

Revenue is allocated based on the country in which the customer is located.

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

Trading EBITDA is defined in note 8.

3. Income tax expense

4. Earnings/(losses) 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 8.

5. Dividends

An interim dividend for the year ended 30 September 2015 of 2.0p per ordinary share amounting to a total of £382,000 was approved and was paid on 1 October 2015 to shareholders on the Register at 6.00pm on 4 September 2015.

A final dividend for the year ended 30 September 2015 of 5.0p per share has been proposed and, subject to shareholders' approval, will be paid on 6 April 2016 to shareholders on the register at the close of business on 11 March 2016.

An interim dividend for the year ended 30 September 2014 of 1.5p per ordinary share amounting to a total of £283,000 was approved and was paid on 1 October 2014 to shareholders on the Register at 6.00pm on 5 September 2014.

A final dividend for the year ended 30 September 2014 of 4.5p per ordinary share amounting to a total of £858,000 was approved and was paid on 8 April 2015 to shareholders on the register on 12 March 2015.

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

6. Analysis of net debt

7. Status of preliminary announcement

The financial information set out in this announcement for the year ended 30 September 2015 does not constitute the Group's statutory accounts as defined by s435 of the Companies Act but has been extracted from the 2015 statutory accounts on which an unqualified audit report has been made by the auditors, and which did not contain an emphasis of matter paragraph nor a statement under section 498(2) or (3) of the Companies Act 2006.

Statutory Accounts for the year ended 30 September 2014 have been delivered to the Registrar of Companies and the auditors' report on these accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006.

8. Basis of preparation

The preliminary results for the year ended 30 September 2015 have been prepared in accordance with the accounting policies set out in the annual report and accounts for the year ended 30 September 2014.

Non-GAAP financial measures

For the purposes of this preliminary announcement and the annual report and accounts, 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 the preliminary announcement:

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) Trading EBITDA

Trading earnings before interest, taxation, depreciation and amortisation ('Trading EBITDA') is separately disclosed in note 2, being defined as trading profit/loss adjusted to exclude depreciation and amortisation of software, as well as any impairment which has been included in trading profit/loss. 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.

9. Post balance sheet event

On 12 January 2016 the Group announced that its subsidiary, Fountain Television Limited ("Fountain") entered into an agreement to sell the freehold land and buildings at its television studios in Wembley to Quintain Wembley Fulton Road Limited, for a cash consideration of £16 million. At the same time, Fountain has agreed with effect from completion of the sale to enter into a lease back of the premises from the buyer at a nominal rent for a term of five years. The lease will be capable of termination by either party on not less than six months' notice, expiring no earlier than 31 December 2016.

The sale of the premises is likely to lead to the closure of the Fountain Studios business in Wembley and Fountain will therefore commence a consultation process with its staff. During the year ended September 2015, Fountain reported revenues of £5.6m and a loss before tax (and before impairment) of £0.4m. At the end of its lease of the premises, the plant and equipment owned by Fountain will be moved or sold and, in anticipation of these eventual disposals, an impairment charge of £1.3m has been recorded in exceptional items for the year ended 30 September 2015.

Once the net book value of the land and buildings plus tax and other additional costs are taken into account, it is estimated that a profit of approximately £7m in relation to the Fountain transaction will be reported in the accounts for the year ending 30 September 2016.

10. Annual general meeting

The Annual General Meeting of the Company will be held at 10am on 29 March 2016 at Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.

11. Annual report and accounts

Copies of the full Statutory Accounts will be dispatched to shareholders in due course. Copies will also be available on the Company's website (www.avesco.com) and from the registered office of the Company: Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.