TNG.L Regulatory News (TNG)

Tangent Communications PLC ("Tangent or the Company")

Results for the year ended 28 February 2015

Financial highlights

· Revenues were £26.25m (2014: £26.50m) down 0.9%

· Underlying operating profit fell 52.8% to £1.18m (2014: £2.50m)

· Profit before tax fell 80.4% to £0.46m (2014: £2.35m)

· Revenues from our retail websites were up at 37.1% of group total (2014: 34.4%)

· Underlying earnings per share1 fell by 52.4% to 0.30p (2014: 0.63p)

· Net cash2 is £1.58m (2014: £2.81m)

1 Underlying earnings per share is before non-recurring expenses, net of tax and on a fully diluted basis

2 Net cash and cash equivalents less all borrowings

3 Prior year comparisons restated to reflect discontinued operations

Tangent's Chief Executive, Timothy Green, commented:

"2014-15 was a challenging year for Tangent; our profits were down and performance in certain areas of our business fell short of expectations.

People and businesses will continue to buy more print online and the range of products they demand will expand. Tangent remains well positioned and committed to grow its share of this exciting market place.

We are moving towards a more streamlined approach to the online print market to allow us to maximise our potential and ensure we are providing our customers with the best possible choice, value and experience".

For further information, please contact:

Tangent Communications PLCTimothy Green - Chief Executive 020 7462 6101Jamie Beaumont - Chief Financial Officer 020 7462 6101

Canaccord Genuity Limited - Nominated adviser and brokerBruce Garrow / Emma Gabriel 020 7523 8000

STRATEGIC REPORT

CEO REPORT

Consolidated performanceSales of £26.25m for the full year 2014-15 were 0.9% lower than the prior year. Gross profit margin was down 2.2%. Sales of high margin products, notably business card sales, declined and were replaced with lower margin sales.

Underlying operating profit was £1.18m, with margin down from 9.4% to 4.5%, a direct result of the lower sales and gross profit margin. Costs of £0.71m associated with downsizing Tangent Snowball in the first half, rationalising Ravensworth in the second half and relocation expenses reduced profit before tax to £0.46m.Our businesses

Online

Tangent generates the majority of its print revenues online. Our broad customer base includes design professionals, print buyers and a growing number of design savvy consumers. They purchase from a broad range of products including business cards, brochures, leaflets and flyers, posters, wedding stationery and personalised wrapping paper (wrap.me). The majority are produced in-house at our Newcastle facility.

Overall, online print sales in FY 2015 grew more slowly than anticipated to £17.19m (2014: £15.94m), up 7.8%.

General demand to buy print online remains buoyant, demonstrated by a 25% year on year increase in sales at printed.com across a broadening range of products. Measures have been taken to rationalise our approach to the online print business, focusing more intently on driving sales through the growing printed.com platform. This will include the transfer of the goodprint business in to printed.com. For small businesses and sole traders, the printed.com offer is particularly compelling, with a dedicated part of the website tailored for particular groups, from wedding stationers to photographers. The opportunity to develop a greater breadth in our product offering and reach more customers remains significant.

We believe this streamlined approach will enable us to maximise our potential in the online print market. We will continue to launch new products where demand is growing and capacity from existing manufacturing can be most effectively utilised.

In line with this approach, going forwards, we will report the performance of printed.com, goodprint and Ravensworth combined. This more accurately reflects the overall structure of our print business which shares key overheads in production.

printed.comSales in printed.com of £7.60m were up 25.2% on the prior year (2014: £6.07m). The key to printed.com's success is constant innovation, with a relentless push to get the right products onto our website at the right price. This strategy continues to attract new customers, with 25,000+ ordering in the year. We also continue to see more customers returning year on year.

goodprintThe decrease in sales was acute for business cards, down 34.0% at £2.14m (2014: £3.24m) as the market has become increasingly competitive. Following the acquisition of Goodprint UK Ltd ("goodprint") in 2012, we integrated all of goodprint's print operations with those of printed.com, but retained the customer facing brands. We are now in the process of merging those brands. This will reduce costs, provide both printed.com and goodprint customers with a better range of products, and allow us to attract new customers with greater efficiency.

RavensworthRavensworth benefitted from a strengthening of the residential property market into the early part of FY 2015, but saw the market cool significantly with sales from October dropping 20% below the trend set in the first eight months of the year. This impacted profitability as the business experienced substantial diseconomies of scale before it was able to fully adjust to the changing market conditions.

Sales in FY 2015 were £7.45m, up 12.4% on the prior year, supported by a buoyant residential property market during the first half of the year. Following the cooling of the market from October 2014 onwards which severely impacted profitability in the business, costs have been reduced to reflect current business levels.

Agency

Tangent Snowball ("TS")TS is a digital marketing agency offering a blend of technology and creative insight. Its customer base includes global brands such as Carlsberg, PepsiCo, SAP and the Wolseley Group.

Sales during the year of £6.67m are down 18.5% (2014: £8.18m). TS revenues were affected by budget cuts from two key clients at the start of the year and the previously announced divestment of operations in Australia.

TS has reacted to the challenges with a smaller headcount and has started to see the benefits of operating with this leaner team. Digital marketing remains in demand but competition and in house skills continue to develop. New business was slower than targeted to relieve the current dependency on our existing customer base and senior management changes have now taken place.

Tangent On Demand ("T/OD")T/OD is our innovative, print supplier, based in the City of London, with a focus on producing design-inspired print solutions to fashion retailers and advertising agencies.

Sales at T/OD grew by 0.4% to £2.39m (2014: £2.38m).

T/OD moved premises in FY 2015 and no longer shares overheads with Tangent Snowball. In FY 2016 we will report T/OD within the Online segment where all the print sales in Tangent reside. Historic comparisons will reflect this.

Outlook

We have started the year in line with expectations, however profits are anticipated to be lower year on year in the first half of the year.

This year will see the rationalisation in our online print business take effect to better address our markets. We continue to drive innovation, developing new products and platforms to maximise revenues from existing customers and attract new ones.

We have also invested in our people and have welcomed some new talent in to key areas of the business to help drive growth and profitability.

Despite the challenges of the last year, there is a sizeable market to exploit and customers want the products we are offering. We believe the business is well placed to capitalise on these opportunities.

CFO REPORT

Non-recurring expensesDuring the year the board reviewed the operational and management structure of all business segments. That review resulted in a reduction in headcount and lead to restructuring and redundancy costs of £0.59m. In addition all of Tangent's London based businesses moved premises during the year, which resulted in £0.12m in one off relocation expenses.

Discontinued operationsOn 12 March 2014, Tangent completed the disposal of 81% of the issued share capital in Tangent Snowball PTY Limited, a company incorporated in Australia. Fees and expenses related to the sale (£0.06m) together with the loss on disposal (£0.06m) have been shown in the statement of comprehensive income under discontinued operations. The results of Tangent Snowball PTY Limited have not been included in the consolidated financial statements for the year to 28 February 2015 and have been included under discontinued operations in the consolidated statement of comprehensive income for the year to 28 February 2014.Cash FlowsTangent's cash and cash equivalents at 28 February 2015 amounted to £1.88m (2014: £3.09m), net cash, after deducting all outstanding debt, amounted to £1.58m (2014: £2.81m), a reduction of £1.23m over the year.

Cash generated from operations amounted to £1.86m (2014: £2.93m), representing 157.6% (2014: 117.2%) of underlying operating profit and 404.3% (2014: 124.7%) of profit before tax.Capital ExpenditureTangent continues to invest in printing equipment, IT infrastructure and the development of software platforms and websites to increase online sales. In addition, during 2014, Tangent re-located all of its London based businesses and investment was made in leasehold improvements as part of that move.

During the year, £0.57m (2014: £0.50m) was spent on printing equipment and IT, £0.28m (2014: £0.03m) on leasehold improvements and £0.64m (2014: £0.56m) on software. Investment in equipment and IT is expected to continue at a similar level in the year to February 2016, reduce in software and not recur in leasehold improvements.

Balance SheetTangents' balance sheet remains strong with net assets of £31.30m. This was £0.81m lower than 28 February 2014, impacted by £0.38m in share re-purchase costs and dividends paid (£0.66m) which exceeded retained earnings for the year ended 28 February 2015 by £0.45m.

Goodwill continues to be the largest asset on Tangent's balance sheet at £24.80m (2014: £24.80m). The carrying value of goodwill is tested annually for signs of impairment. Lower operating profits have resulted in a reduction in the headroom within the valuation of goodwill but no impairment was present at 28 February 2015. Full details are included in note 6 to the financial statements.

Trade and other receivables were £4.49m (2014: £5.31m) a reduction of £0.82m reflecting the increasing proportion of customers that pay upfront and online with debit and credit cards.

Dividend DeclarationThe board is not proposing the payment of a final dividend.

Share BuybackDuring the year Tangent bought back 3,945,000 £0.01 ordinary shares at a total cost £0.38m, these shares are being held in treasury. The Board has no current intention to make any further share buybacks.

Key performance indicatorsFinancial KPI'sThe key financial performance indicators that are noted and commented upon individually in the strategic report are as follows:-

All KPI's are based on continuing activities only.

Non-financial KPIsWaste management and recyclingTangent is committed to mitigating the impact on the environment of its operations and to measuring the amount of waste sent to landfill. Our aim remains to ensure that no waste created in our Newcastle print facility is sent to landfill.

Tangent recognises the value created by accreditation to the Forestry Stewardship Council (FSC) and has continued its commitment thereto. This ensures that paper stocks used conform to the FSC's chain of custody requirements.

Our ongoing commitment to ISO14001 (Environmental Management), continues to form a key part of our environmental and waste management policy.

Tangent is pleased to confirm that again this year, no waste produced in our Newcastle facility was sent to landfill.

Staff retentionTangent recognises that staff retention is an important issue for both business continuity and profitability. Tangent offers competitive salary packages and uses staff appraisal systems to identify and satisfy training needs.

To monitor retention, Tangent reviews staff turnover to identify any trends and take action as and when required.

During the year to 28 February 2015, average monthly staff turnover was 2.0% (2014: 2.1%).

Operational risks and uncertaintiesThe principal risks and uncertainties faced by Tangent are detailed below. Some risks remain beyond the control of Tangent and we cannot therefore provide absolute assurance that all risks are managed to an acceptable level.

Consolidated statement of comprehensive incomefor the year ended 28 February 2015

Consolidated statement of changes in equityfor the year ended 28 February 2015

Consolidated balance sheetAt 28 February 2015

Consolidated statement of cash flowsfor the year ended 28 February 2015

1. Basis of preparation

Tangent Communications plc is quoted on the AIM market of the London Stock Exchange. It has the TIDM code TNG and is incorporated in England.

The Group's consolidated financial statements for the year ended 28 February 2015, from which this financial information has been extracted, and for the comparative year ended 29 February 2014 are prepared on a going concern basis and in accordance with IFRS as adopted by the EU ("IFRS"), and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 but it is derived from those accounts. The financial information for the year ended 28 February 2014 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The consolidated statement of financial position at 28 February 2015, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes for the year then ended have been extracted from the Group's 2015 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under s498(2) or s498(3) of the Companies Act 2006.

The announcement has been agreed with the company's auditor for release.

2. Non-recurring expensesIn order to provide a clear view on operating performance, Tangent shows separately on the face of the statement of comprehensive income those items that are both significant and non-recurring in nature.

During the year, the board reviewed the operational and management structure of all business segments. That review resulted in a reduction in headcount, restructuring and employment termination costs. In addition, Tangent moved its London head offices, resulting in one off relocation costs. These costs have been included in non-recurring expenses as they do not form part of the normal activities of Tangent and were as follows:-

3. Segmental informationManagement has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions, which reviews revenues and operating profits by segment but assets at a consolidated level.

The group had two reportable segments. Unallocated corporate expenses are shown below under PLC.

Online - ComprisesRavensworth, printed.com and goodprint.

Agency - Comprises Tangent Snowball and T/OD (Tangent on Demand).

PLC - PLC costs relate to the cost of non-executive directors, maintenance of Tangent's stock market listing, general professional advice together with the share-based payment charge as set out in note 25. Executive directors' costs are allocated to the Online and Agency business segments.

The segment results for the year ended 28 February 2015 were as follows:

Major customers         

During the year, Tangent had no customer that represented more than 10% of revenues.

Online had no customer that represented more than 10% of that segment's revenues.

Agency customers representing more than 10% of that segment's revenue for the year were as follows:

Customer one 23%

Customer two 16%The segment results for the year ended 28th February 2014 were as follows:     

Major customers         

During the year, Tangent had no customer that represented more than 10% of revenues.

Online had no customer that represented more than 10% of that segment's revenues.

Agency customers representing more than 10% of that segment's revenue for the year were as follows:

Customer one 15%

Customer two 11%

Non-current assets for this purpose consist of property, plant and equipment, intangible assets and deferred tax assets.

4. Earnings per shareThe calculation of the basic and diluted earnings per share is based on the following:

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.

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 Directors do not recommend a final dividend in respect of the year ending 28 February 2015.

The addition to software assets represents the acquisition and development of software platforms for the group. These assets are being amortised over their expected useful life, estimated to be 5 years.

Impairment of goodwill

Goodwill acquired in a business combination is allocated for impairment testing to the cash-generating units (CGUs) that are expected to benefit from that business combination.

Tangent has the following business segments:-

OnlineThis business segment includes printed.com, goodprint and Ravensworth; and

AgencyThis business segment includes Tangent Snowball and T/OD (Tangent on Demand).

The above represents the lowest level within Tangent at which goodwill is reviewed for impairment.

Tangent tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the CGU's are determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to forecast profitability. These assumptions have been revised in the year to take account of the current economic environment. Management estimates discount rates using pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to each CGU. 

Future cash flows are derived from the most recent financial budget approved by management for the next five years, beyond that period cash flows are extrapolated using a growth rate of 3% (2014: 3%).

The rate used to discount forecast future cash flows for both business segments is 8.5% (2014: 10%).

In 2015, no impairment charge has been made against goodwill for either CGU (2014: £nil). Headroom in the Online CGU is £6.96 million and £4.11million in the Agency CGU.

Tangent has conducted a sensitivity analysis on the impairment test of each CGU's carrying value with the following results:

· The discount rate would need to increase to 11.4% to remove the headroom in the Online CGU and to 10.5% to remove the headroom in the Agency CGU.

· Removing the long term growth rate for the Online CGU does not result in any impairment and the rate would need to fall below 0.3% to create any impairment in the Agency CGU.

· Cash flows over the next five years would need to reduce by 34% to remove the headroom in the Online CGU and by 26% to remove the headroom in the Agency CGU.

The company has one class of ordinary share which carries no right to fixed income, each share carries the right to one vote at general meetings of the company.At 28 February 2015 the number of shares in issue was 281,267,536 and at the date of this report 281,267,536 were in issue.

The own shares reserve represents the cost of shares in Tangent Communications PLC purchased in the market and held in treasury. The number of ordinary shares held in treasury by the company at 28 February 2015 was 3,945,000.

9. Cash generated from operations