TNG.L Regulatory News (TNG)

16 May 2007 07:02

Tangent Communications PLC16 May 2007 Date: 16 May 2007 On behalf of: Tangent Communications PLC ("Tangent" or the "Company") Embargoed until: 0700hrs TANGENT COMMUNICATIONS PLC RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2007 Tangent Communications plc, the direct marketing business, today announces itsresults for the year ended 28 February 2007. Highlights Financial: •Turnover up 30% to £8.61m (2006: £6.61m) •EBITDA* up 58% to £1.41m (2006: £0.9m) •Operating profit* up 71% to £1.07m (2006: £0.63m) •Operating margin* up 2.9% points to 12.4% •Earnings per share* up 16% to 0.95p (2006: 0.82p) •Net cash of £1.05m (2006: £0.8m) *before goodwill and exceptional items Operating: •Sales and integration of Ravensworth ahead of budget and schedule •Tangent Marketing Services launch site for FTSE 100 company •New client wins continue in current year Nicholas Green, Joint Chief Executive, said: "We have significantly expanded the technology and products we offer for highlytargeted marketing. All areas of our business have started the current yearahead of budget and I look forward with confidence to the opportunities ahead." Further enquiries: Tangent Communications plc 020 7553 6600 Nicholas Green (Joint CEO) Graeme Harris (Finance Director) Redleaf Communications Duncan McCormick, Emma Kane 020 7822 0200 Collins Stewart Seema Paterson, Stewart Wallace 020 7523 8350 CHAIRMAN'S STATEMENT Tangent's financial performance in the year to February 2007 showed stronggrowth in all the key performance indicators. Adjusted basic earnings per sharebefore exceptional items increased by 16% to 0.95p and net cash inflow fromoperations more than doubled to £1.18m. We acquired C360 UK Ltd (now re-named Tangent Labs) in July 2006 which greatlyenhanced our ability to provide customised marketing services across theinternet, mobile and print media. Since taking ownership, Tangent Labs' salesrun rate has increased by over 100% by developing and selling its proprietarytechnology to an increasing customer base including Tangent clients. The companynow plays a central role in creating the group's value-add and indifferentiating our client proposition. In March 2007, subsequent to the year end, we acquired Ravensworth DigitalServices for £5.85m mainly funded by the issue of 46.6 million shares placed at13p. Ravensworth is a digital marketing business serving the property sector andhas focused on installing its software and web based ordering system withinestate agents and providing them with an overnight print and delivery servicefor their marketing materials. In its financial year ended December 2006,turnover was £6.9m with adjusted operating profits of £1.1m. Based in Newcastle,in a modern, purpose built facility, the Ravensworth management team are quicklydemonstrating how their customers and the plant utilisation can benefit fromTangent's technology and marketing. We are currently ahead of budget inachieving anticipated phase one cost savings. Tangent Marketing Services continued to grow and in November 2006 we announcedthe launch of the Wolseley branch marketing Toolkit site which immediatelyexceeded our usage expectations and continues to expand across a number of otherindividual brands which use the site. Prospects The positive momentum has continued into the current financial year and eacharea of our business has started the year ahead of budget. As it is the executives and all our employees who deliver the revenues andprofits that drive shareholder value, I feel able to congratulate and thank themfor a year of excellent achievements and for a lot more hard work below thesurface working on potential opportunities. Finally, following his appointment in March, I would also like to welcome PaulMurray to the Board. Paul brings significant corporate experience coupled with agreat understanding of the marketing services and technology sectors. Piers Caldecote Non-executive Chairman 16 May 2007 CHIEF EXECUTIVES' REVIEW In the year ended February 2007, Tangent increased its performance in each ofits internal key performance indicators. Turnover increased by 30% to £8.61m,adjusted operating margin increased by 2.9 percentage points to 12.4%, adjustedoperating profits increased by 71% to £1.07m and cashflow from operations forthe year increased from £0.54m to £1.18m. Technology Marketing departments are increasingly looking to technology to improve theeffectiveness of their campaigns. However they often do not have the tools toextract information from their databases. This is where Tangent's services comein to play. Technology sits at the heart of our business strategy and last year we took asignificant step in increasing our capabilities through the acquisition of C360UK (now Tangent Labs) with its proprietary engine TaoBase. Furthermore wecontinued our investment into Toolkit, our proprietary web tool. Today, throughTaoBase and Toolkit we can offer our clients a range of technology-drivenservices which include: - Database management, construction and integration - Website design and build - Build of local marketing applications - Targeted email marketing with optimising tracking capabilities - SMS and MMS marketing services - Display, point of sale and direct mail communications The group currently employs over 20 full time programmers focused on clientrequirements and increasing the scope of Tangent's digital services. Market development Orders generated via Toolkit, Tangent's proprietary online ordering systemincreased by 65% year on year and by 225% over a three year period. This is inpart due to the increased functionality but primarily due to the increase incustomer numbers and willingness to change the way in which marketing collateralis created and used. The retail market is the primary target sector forTangent's online marketing tool. Online marketing continues to grow at significant rates. Tangent is now firmlyestablished as a company capable of building complex and innovative websolutions which culminated in April 2007 with Tangent being selected via acompetitive pitch to build the new website for the Labour Party. Tangent wonagainst competition with larger, more developed agencies within larger networkgroups. Tangent believes that its success derives from being a younger, moreinnovative business, well positioned to participate in technologicaldevelopments in the market, including the introduction of web2.0. The directorsbelieve that this firmly sets the foundation for Tangent to grow this side ofour business. Market researchers predict that marketing applications are one of the fastestgrowing CRM areas in the IT sector and Tangent expects to benefit from thecontinued migration of marketing budgets from offline to online. Financial control Margins have now improved each year since Tangent was formed in July 2005.Despite parts of the business operating in what is sometimes perceived as acompetitive market place, Tangent's value add and focus on technology serviceshave allowed the group to increase its margin year on year. Cash conversion also remains at the heart of our business practice and this yearoperating cash more than doubled. The group's strong cash position allows it toretain a strong negotiating stance with suppliers, clients and acquisitiontargets and cash generation will continue to remain a core focus going forward. Ravensworth The acquisition of Ravensworth was completed in March 2007 and brings asignificant number of different opportunities for the group. As a stand alone business Ravensworth's sales grew by 15% last year on a netmargin of 16%. Over 365 new clients were won in the last six months of 2006. Ravensworth is the leading supplier of full colour marketing literature to theUK property sector. The company operates from a purpose built 23,000 square footproduction digital facility housing the latest in digital printing equipment.From a client list of over 2,500 estate agency branches, Ravensworth receivesover 2,000 orders per day producing over 7 million full colour A4 pages a month. Ravensworth's experience and unique understanding of its core market have led tothe continued growth in all areas of business with customer numbers increasingby 24% in the last twelve months. It now accounts for approximately 20% of theUK market and is more than three times the size of its closest competitor. Having established a market leading position, we are confident in its ability tocontinue expanding its core market together with offering further value addedservices to its current customer base. Tangent's expertise in direct mail represents a great opportunity when appliedto the Ravensworth client base. Within Tangent's existing business we havewitnessed a great take-up from property clients looking to increase newcustomers via targeted direct mail. This new approach will be sold by theRavensworth team to its client base which has not previously used Ravensworthfor this service. It is also our intention to launch a web portal which willallow every estate agent in the UK the ability to create, personalise, proof andorder online a targeted direct mail campaign. It is probable that new government legislation will mean that, from 1 June 2007,a Home Information Pack (HIP) will have to be created and produced by the vendorwith each property sold via the estate agent. Ravensworth were part of thetrials in the creation of HIPs. If the legislation is enacted, we expectRavensworth to benefit, having signed indicative agreements with most of the HIPproviders in the UK. The directors have not included any contribution from thisopportunity into the management budget, however if legislation is enacted webelieve the opportunity will be significant. Outlook The new financial year, started March 2007, has begun with all group areas aheadof budget. The integration of Ravensworth and transfer of work from London toNewcastle are currently ahead of schedule and the company is on track to realiseannual savings of in excess of £100,000. This leaves the company in a strongposition to begin examining phase two of the work transfer process. Ravensworthexperienced its strongest ever months in March and April with new client revenuefrom the wins in 2006 coming through. In the coming year we will integrate TaoBase with Toolkit, creating a unifiedtechnology platform within Tangent, which will provide clients with increasedfunctionality within a central operating environment. Finally we would like to thank the team for working so hard to help us achieveour objectives. It is their passion, creativity and ability to deliver clientexceeding results that continues to fuel Tangent's growth. We look forward tobuilding on Tangent's strong performance in the year ahead. Nicholas Green and Timothy Green Joint Chief Executives 16 May 2007 FINANCIAL REVIEW Overview Tangent achieved growth in turnover, profits, earnings per share and cashbalances for the year ended 28 February 2007. The Tangent Labs business acquiredin July 2006 was integrated quickly and its profits have grown substantiallysince acquisition. Trading performance We run the Tangent business with a focus on turnover, adjusted operating profit,adjusted earnings per share and operating cash generation. Adjustments tooperating profits and earnings per share are to exclude amortisation of goodwilland exceptional items. We believe that our focus on these key performanceindicators (KPI) will in the medium and long term deliver value forshareholders. Tangent performed well against each KPI: •Turnover grew by 30% to £8.61m (2006: £6.61m) •Adjusted operating profit improved by 71% to £1.07m (2006: £0.63m) to give an adjusted operating profit margin of 12.4% (2006: 9.5%) •Adjusted basic earnings per share increased by 16% to 0.95 pence (2006: 0.82 pence) •Operating cash generation more than doubled to £1.18m (2006: £0.54m) representing 110% (2005: 85%) of adjusted operating profit Goodwill amortisation and exceptional items Goodwill amortisation increased by £0.2m to £0.39m. The increase arose equallyfrom the acquisition of Tangent Labs during the year and a full year ofamortisation for the prior year acquisition. The operating exceptional item is a £0.39m charge for the fair value of shareoptions in accordance with FRS 20. There is no underlying cash flow or financialliability associated with the charge and it does not reduce shareholders' funds. The costs associated with Tangent's proposal during the year to make an offerfor St Ives have been included within normal administrative expenses because thedirectors do not consider them to be sufficiently material to be classified asexceptional. The proposal was withdrawn in November 2006. Taxation The taxation charge of £0.09m (2006 £0.02m) represents 28.2% of profit beforetax. After adding back amortisation of goodwill and the share option charge(both are excluded from taxable profits), the taxation rate is 8% (2006: 3.6%).The taxation charge is low because the group has the benefit of past tax losses.The increased tax rate over the prior year is because profits from thebusinesses acquired during the last two years do not benefit from these taxlosses, so profits from these businesses are taxed without the same relief. Atthe year end the group had £1.16m of tax losses available to offset againstfuture profits. Acquisitions In July 2006 Tangent acquired a marketing technology business C360 UK (now namedTangent Labs) for an initial cost of £2.64m including expenses. The initial costwas funded by issuing 16.67m new shares to the vendors and £0.64m frominternally generated cash. A further maximum amount of £2m could be duedepending on profit performance and continuing employment of the vendors overthe three years following the acquisition. The directors have estimated that £1mof this will become due and have accrued this further amount. In the period since acquisition Tangent Labs contributed £0.26m to adjustedoperating profit, which is a 27.8% margin on sales of £0.93m. The run rates forsales and operating profit are just over three times the levels reported in thelast audited accounts prior to acquisition. Cash flow and net funds Operating cash generation was strong and after insignificant interest andtaxation cash flows, there was a net inflow of £1.16m which was applied to£0.44m of net capital expenditure and £0.48 of net payments in respect of theacquisition. Net funds improved by £0.25m to £1.05m (2006: £0.8m). Balance sheet The year end net assets were £9.84m compared with £6.73m for the prior year. Themain change arises from the £3.05m net increase in goodwill resulting from theacquisition of Tangent Labs. Accounting standards For the year under review Tangent adopted FRS 20 which deals with share-basedpayments. The fair value of share options granted is spread over the period fromgrant until the date it is anticipated the options will become exercisable. Theprior year comparative figures have been restated in accordance with the newstandard. The effect of FRS 20 was to increase administrative expenses for theprior year by £29,000. The group's net assets and cash flow statement wereunaffected. For the year ending 28 February 2008 Tangent will adopt International FinancialReporting Standards (IFRS) in accordance with the AIM guidelines. The mostsignificant change will be that goodwill will not be amortised under IFRS. Treasury, funding and exchange risk The group finances its operations through shareholders' funds, finance leaseborrowings and working capital management. The funding structure comprisesvariable rate borrowings and cash balances to maintain a high level of financialflexibility for potential acquisitions and investments. Regular reports on cashbalances and borrowings are provided to the board. The majority of trade is conducted in sterling. The directors monitor exposureto ensure that foreign currency risk is not material to the group. Subsequent events On 6 March 2007 Tangent agreed a £1m overdraft facility at a rate of 1.25% overbase rate secured by cross guarantees and debentures. The overdraft remainsundrawn but improves the financial flexibility of the group. On 27 March 2007 Tangent acquired a digital marketing business RavensworthDigital Services for consideration of £5.85m plus costs. Completion accountshave not been finalised, although we expect that the net assets acquired exceed£0.6m and net debt on acquisition was below £0.1m, which is significantly lowerthan the £0.85m limit under the purchase agreement. To fund the acquisition Tangent issued 50m new shares, mostly placed withinstitutional fund managers that invested in Tangent for the first time. Weconsider that the overall broadening of the shareholder base, which has resultedin a 60% free float of Tangent shares, is beneficial for all shareholders. Graeme HarrisFinance Director16 May 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 28 February 2007 2007 2006 (Restated) Notes £000 £000TurnoverContinuing operations 7,672 6,608 Acquisitions 933 - 8,605 6,608Cost of sales 3 (4,515) (3,723) Gross profit 4,090 2,885 Administrative expenses excludingGoodwill amortisation and 3 (3,020) (2,259)exceptional items Operating profit before goodwillAmortisation and exceptional items Continuing operations 811 626 Acquisitions 259 - 1,070 626 Amortisation of goodwill (385) (181) Operating exceptional items 4 (388) (161) Total administrative expenses 3 3,793 2,601 Operating profitContinuing operations 147 284 Acquisitions 150 - 297 284 Non-operating exceptional items 4 - (176) Profit on ordinary activities before 297 108interest Net interest receivable/(payable) 8 (6) Profit on ordinary activities before 305 102taxation Taxation (86) (16) Profit for the financial year 219 86 CONSOLIDATED PROFIT AND LOSS ACCOUNT (continued)for the year ended 28 February 2007 Notes 2007 2006 (Restated) Basic earnings per share 5 Total operations 0.21p 0.12p Excluding goodwill amortisation andexceptional items 0.95p 0.82p Fully diluted earnings per share 5 Total operations 0.19p 0.11p Excluding goodwill amortisation andexceptional items 0.86p 0.77p CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSESfor the year ended 28 February 2007 Notes 2007 2006 (Restated) £000 £000 Retained profit for the year 219 86 Prior year adjustment (FRS 20) 2 (29) Total recognised gains and lossessince the last financial statements 190 CONSOLIDATED BALANCE SHEETAt 28 February 2007 2007 2006 (Restated) £000 £000 Fixed AssetsIntangible assets 8,102 5,051Tangible assets 675 516 8,777 5,567 Current AssetsStocks 87 98Debtors 2,268 1,656Cash at bank 1,334 922 3,689 2,676Creditors: amounts falling due withinone year (1,908) (1,472) Net current assets 1,781 1,204 Total assets less current liabilities 10,558 6,771 Creditors: amounts falling due aftermore than one year (215) (13) Provisions for liabilities and (500) (32)charges 9,843 6,726 Capital and ReservesCalled up share capital 1,118 951Share premium account 7,860 7,860Merger reserve 7,022 5,189ESOP reserve (3) (4)Other reserve 2,211 1,323Profit and loss account (8,365) (8,593) Shareholders' funds - equity 9,843 6,726interests These financial statements were approved by the board of directors on 16 May2007 and were signed on its behalf by: Nicholas Green Graeme HarrisDirector Director CONSOLIDATED CASH FLOW STATEMENT for the year ended 28 February 2007 2007 2006 Notes £000 £000Net cash inflow from operating 8 1,177 535activities Returns on investments and servicingof financeNet interest received/(paid) 8 (6) Taxation (27) (15) Capital expenditurePurchase of tangible fixed assets (498) (54)Receipts from sale of tangible fixed 61 10assets Net cash outflow from capital (437) (44)expenditure Acquisitions and disposalsPurchase of subsidiary including (636) (229)costsCash acquired with subsidiary 153 542 Net cash (outflow)/inflow fromacquisitions and disposals (483) 313 Net cash inflow before financing 238 783 FinancingFinance lease drawdown 308 20Finance lease capital repayments (144) (86)Bank loan repaid - (9)Exercise of share options under ESOP 10 152 Net cash inflow from financing 174 77 Increase in cash 9 412 860 NOTES TO THE PRELIMINARY STATEMENTfor the year ended 28 February 2007 1. FINANCIAL INFORMATION The financial information contained in this preliminary announcement does notconstitute statutory accounts of the company within the meaning of Section 240of the Companies Act 1985. The balance sheet at 28 February 2007 and the profit and loss account, cash flowstatement and associated notes for the year then ended have been extracted fromthe group's audited financial statements. 2. NEW ACCOUNTING POLICIES From 1 March 2006 the group adopted FRS 20 which deals with share-based paymentsmade for services or goods rendered. The fair value of share options granted iscalculated using the Black Scholes option pricing model. The expense is spreadover the period from the date of grant to the date that options vest and areexercisable, based on the company's best estimate of the number of shares thatwill eventually vest. The prior year comparative figures have been restated in accordance with the newstandard. The effect of FRS 20 was to increase administrative expenses for theyear ended 28 February 2006 by £29,000. The group's net assets and cash flowstatement were unaffected. 3. COST OF SALES AND ADMINISTRATIVE EXPENSES Continuing Acquisitions TotalYear ended 28 February 2007 £000 £000 £000 Cost of sales 4,364 151 4,515 Administrative expenses - normal 2,497 523 3,020- goodwill amortisation 276 109 385- exceptional charge 388 - 388 Total administrative expenses 3,161 632 3,793 Continuing Acquisitions Total (Restated) (Restated)Year ended 28 February 2006 £000 £000 £000 Cost of sales 3,723 - 3,723 Administrative expenses - normal 2,259 - 2,259- goodwill amortisation 181 - 181- exceptional charge 161 - 161 Total administrative expenses 2,601 - 2,601 4. EXCEPTIONAL ITEMS 2007 2006 (Restated) £000 £000 Share option charge in accordance with FRS 20 (388) (161) Restructuring and integration costs - (176) The share option charge relates principally to the share options granted todirectors in September 2005. 5. EARNINGS PER SHARE Earnings per share have been calculated by dividing the earnings available toordinary shareholders by the weighted average number of shares in issue duringthe year after excluding the shares owned by the employee share ownership trust.Diluted earnings per share take into account the potentially dilutive effect ofshare options. 2007 2006 (Restated) £000 £000Earnings excluding goodwill amortisation andexceptional items 992 590 Exceptional items net of tax (388) (323) Goodwill amortisation (385) (181) Basic and diluted earnings 219 86 Number Number 000 000 Weighted average number of ordinary shares in 104,278 71,561issue Effect of dilutive options 11,637 5,211 Diluted weighted average number of shares in 115,915 76,772issue 6. ACQUISTIONS On 11 July 2006 the company acquired the entire issued share capital of TangentLabs Limited (formerly C360 UK Limited). Details of the acquisition are asfollows: Net assets acquired £000 Tangible fixed assets 8Debtors 148Cash at bank 153Other creditors (109) Book and fair value of net assets 200 Goodwill 3,436 Total consideration for acquisition 3,636 Satisfied by: Issue of shares at market value (12p) 2,000Cash paid 500Costs of acquisition 136Estimated future consideration 1,000 3,636 The maximum future consideration payable under the purchase agreement forTangent Labs Limited is £2,000,000 comprising £500,000 in cash and 12,500,000new ordinary shares with a contractual valuation of 12 pence each. Potentialfuture payments are dependent on performance of the Tangent Labs business andthe continuing employment of the vendors over the three years to 31 July 2009.The directors estimate that future consideration will be £1,000,000 comprising£500,000 in cash and 4,166,667 new ordinary shares. 7. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2007 2006 (Restated) £000 £000 Profit for the financial year 219 86Issue of shares 2,000 5,739Deferred equity consideration 500 -Share option charge (FRS 20) 388 161Disposal of own shares held by ESOP 10 152 Net increase in shareholders' funds 3,117 6,138 Opening shareholders' funds 6,726 588 Closing shareholders' funds 9,843 6,726 8. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATINGACTIVITIES 2007 2006 £000 £000 Operating profit/(loss) 297 284Share option charge (FRS 20) 388 161Non-operating exceptional items - (176)Amortisation of goodwill 385 181Depreciation charge 342 270Profit on disposal of fixed assets (56) (3)Decrease in stock 11 7(Increase)/decrease in debtors (464) 383Increase/(decrease) in creditors and provisions 274 (572) Net cash inflow from operating activities 1,177 535 9. ANALYSIS OF NET FUNDS At 1 Cash flows At 28 Feb March 2006 2007 £000 £000 £000 Cash at bank 922 412 1,334 Finance (121) (164) (285)leases Net funds 801 248 1,049 10. ANNUAL REPORT The group's annual report will be posted to shareholders shortly. Further copieswill be available on request from the company's registered office: TruscottHouse, 32-42 East Road, London N1 6AD. This information is provided by RNS The company news service from the London Stock Exchange