TNG.L Regulatory News (TNG)

Tangent Communications plc

("Tangent" or the "Company")

Results for the half-year ended 31 August 2011

Tangent, a leading integrator of technology and marketing strategy, with industry leading digital print facilities, today announces interim results for the period March to August 2011.

Highlights

• Underlying operating profit(1) up by 10.3% to £0.95m (2010: £0.86m)

• Operating profit up 34% to £0.95m (2010: £0.70m)

• Underlying operating margin 8.6% (2010: 7.3%)

• Basic earnings per share up 36% to 0.38p (2010: 0.28p)

• Cash generated from operations £0.89m (2010: £0.56m)

• Launch of printed.com to accelerate online revenues for print products

• Combined Tangent Snowball launches and secures new business with Experian, Pearson and Aston Martin.

(1) Underlying operating profit is defined as operating profit after share based payment charges before restructuring costs

Tangent's CEO, Timothy Green commented:

"Improved margins and increased profits have been delivered in the first half, notably at the operating level. We have seen a growing demand, for printed products online and for our web development services. The commercial exploitation of these areas is expected to deliver significant value for the business and will be supported by a growing investment".

For further information, please contact:

Tangent Communications plc

Timothy Green 020 7462 6100

Collins Stewart Europe Ltd

Matt Goode / Ileana Antypas 020 7523 8350

About the Company: Tangent employs 230 people across four locations in London, Newcastle, Cheltenham and Melbourne and is quoted on AIM (AIM: TNG). For more information please visit www.tangentplc.com

Chief executive's review

Period Performance

First half operating profits increased by 34%. The strategy set 18 months ago to consolidate and grow the business organically has generated another period of good results. The comparison to 2010-11 performance is particularly positive given that as expected revenues from the General Election project were not repeated.

The sales mix continues to improve with higher margin services replacing high volume work leaving total revenues for the first half lower than 2010-11 by £759k. However, excluding the one-off £1m+ revenues from the General Election campaign in 2010-11, sales would have been marginally higher for the period. With the exception of seasonal fluctuations we now expect the revenue trend to turn upwards, as growth of fee income and online print sales are expected to outstrip any decline from low margin services.

Operating margin improved by 1% as pricing was improved and costs of production were reduced. There is still room for further margin growth as the quality and efficiency of our customer engagements improve.

The launch of printed.com now takes over from our previous online presence. Advertising expenditure for the site has increased to an annual run rate above £300,000, as the next period of growth for the business gains momentum. The costs of acquiring new customers to the site are being recovered by immediate sales but the full potential value is yet to be factored into our forecasts. When a longer period of trading can be analysed, lifetime customer value will be measured and the full return on this investment becomes clearer.

Segment Performance - Software and Communications (Tangent Snowball)

Revenues

Fee income continues to grow and is now above 70% of revenues for this segment. The reduction in revenues has come in print and postage as the £1m in revenue from last year's General Election campaign was not repeated. New business activities have started to pick up pace following the rebranding of Tangent One and Snowball into Tangent Snowball at the end of July 2011. New agreements have been formed with Aston Martin, Experian, Pearson and Richemont showing the high calibre of our customer engagements. 

E-commerce Platform Investment

Investment has stepped up above an annual run rate of £250,000, as resources are now expended on the development and support for our TaoShop platform. The cost has not been capitalised although we do expect to gain from increasing margins on projects in 2012 / 13 and beyond. The open source nature of the platform allows for more flexible and collaborative resourcing models, generating fast and cost effective solutions. .

Outlook

The digital market is competitive yet we continue to win larger budgets from both new and existing customers as the breadth of our offering develops. The consolidation of this business segment into one unit is complete with sales growth and margin benefits set to continue for the remainder of the year and into 2012-13.

Segment Performance - Design and Print (Ravensworth, printed.com and T/OD)

Revenues

Revenues for the segment increased, in aggregate by 3% over the same period in the previous year. Higher revenues through the online print shop were offset by static revenues from the estate agency sector and reduced direct mail sales. The shift in the sales mix to higher value digital print products is set to continue and will be reflected in an improving gross margin for print sales. The dependency on large budgets from single clients will diminish as the volume of customers climbs. Over 500 new customers have been added through the online channel in the first six months of the year and a similar build up is expected over the second half.

Advertising

Our marketing expenditure is growing, as the cost of attracting new customers to printed.com shifts away from traditional sales methods to PPC (Pay Per Click) and SEO (Search Engine Optimisation). We are experiencing excellent returns on this expenditure and budgets are increasing monthly as we aim to capture a greater share of the market. We are investing in a brand which will increase its share of the expanding market place of printed products ordered via the internet.

Production

With control over our own manufacturing, we are able to increase our product range swiftly, placing us at an advantage against some competitors that outsource. As sales for each product in the range builds we will realise increased efficiencies of production and this will result in our margins increasing yet further. This efficiency cycle is yet to be fully developed as the market is new and fast moving, yet we are confident that it represents a greater opportunity for long term returns rather than an immediate challenge.

Outlook

Currently we are funding all our growth activities with a view to deliver immediate returns. We will need to move to a longer term strategy to ensure we can build scale and barriers to entry that ensure the print asset in Tangent is both protected and expanded. We are currently reviewing the options available to us to best achieve our objective. We expect to report more fully on the progress of printed.com at the full year and set out our plans for expansion.

The results shown above relate to continuing operations and are attributable to equity shareholders of the company.

Notes to the financial information for the half-year ended 31 August 2011

1. Basis of preparation

This consolidated half-yearly financial information, which is condensed and unaudited for the half-year ended 31 August 2011, has been prepared in accordance with the accounting policies which the group expects to adopt in its next annual report and is consistent with those adopted in the consolidated financial statements for the year ended 28 February 2011. These accounting policies are based on the EU-adopted International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations that the group expects to be applicable at that time. This consolidated half-yearly information for the half-year ended 31 August 2011 has been prepared in accordance with IAS 34: Interim Financial Reporting, as adopted by the EU and under the historical cost convention.

The information relating to the half-years ended 31 August 2011 and 31 August 2010 is unaudited and does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. It has, however, been reviewed by the auditors and their report is set out at the end of this document. The comparative figures for the year ended 28 February 2011 have been extracted from the consolidated financial statements, on which the auditors gave an unqualified opinion and did not include a statement under section 498 (2) or (3) of the Companies Act 2006. The annual report and accounts for the year ended 28 February 2011 has been filed with the Registrar of Companies.

The group's financial risk management objectives and policies are consistent with those disclosed in the 2011 annual report and accounts.

The half-yearly report was approved by the board of directors on 28 October 2011.

The half-yearly report is available on Tangent's website, www.tangentplc.com, and is being sent to shareholders. Further copies are available at the Tangent's registered office, 84-86 Great Portland Street, London W1W 7NR.

Going concern

The directors are satisfied that the group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

2. Operating segments

On 1st March 2011 Tangent revised its business segments as follows:-

Software and communications

This segment includes Tangent Snowball and Tangent Labs.

Design and print

This segment includes Ravensworth and Tangent on Demand.

This disclosure correlates with the information that is presented to the group's chief decision maker, the board of directors, which reviews revenues and operating profits by segment but assets at a consolidated level.

The comparative periods below have been amended to reflect the change in business segments as noted above, this change does not have any impact on previously reported operating profits, net assets or earnings per share of the group.

2. Operating segments (continued)

3. Share options and share-based payment charge

The total share-based payment charge for the period was £15,000 (half-year ended 31 August 2010: £6,000 and year ended 28 February 2011: £17,000) and has been included with operating expenses.

The movements in share options and the corresponding weighted average exercise prices ("WAEP") are summarised below:

For the share options outstanding at 31 August 2011 exercise prices ranged between 1p and 13.25p per share and the weighted average remaining contractual life was 4.23 years.

4. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following:

4. Earnings per share (continued)

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Tangent has two categories of dilutive potential ordinary shares: share options and shares contingently issuable as consideration for an acquisition.

A calculation is performed for the share options to determine the number of shares that could have been acquired at fair value based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares from this calculation is compared with the number of shares that would have been issued assuming the exercise of the options and the difference is deemed to be the number of dilutive shares attributable to share options.

The estimated number of shares that will be issued in the future as purchase consideration for current subsidiaries is deemed to be the number of dilutive shares issuable as consideration for acquisitions.

5. Property, plant and equipment

During the period the group spent £278,195 on additions to plant, equipment and computers to upgrade production facilities and enhance client services.

6. Dividends

Amounts recognised as distributions to equity holders in the period:

The Tangent employee share ownership trust holds 1,428,340 shares and it has waived its right to receive dividends.

The dividend for the year ended 28 February 2011 was approved by shareholders at the annual general meeting on 30 August 2011 and paid on 21 September 2011 it has therefore been recognised as a liability at 31 August 2011.

7. Provisions

Provisions are for the cash consideration payable for the acquisition of the entire share capital of The DDG Network Limited together with the business and assets of Double D Management LLP.

8. Share Capital

Allotted and fully paid

8. Share Capital (continued)

9. Cash flow from operations

10. Analysis of net funds

Independent review report by the auditors for the half-year ended 31 August 2011

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the half-year ended 31 August 2011 which comprises the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated balance sheet, consolidated statement of cash flows and related notes. 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.

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 for Companies.

As disclosed in note 1, 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 International Accounting Standard 34: Interim Financial Reporting, as adopted by the European Union.

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) 2010: 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 half-year ended 31 August 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.

UHY Hacker Young LLP

Chartered Accountants

Quadrant House

4 Thomas More Square

London E1W 1YW 

28 October 2011

Notes

1. The maintenance and integrity of the Tangent Communications plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the half-yearly report or the auditors' review report since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.