REG-Infoserve Group PLC Final ResultsReleased: 13/07/2009
com:20090713:RnsM5192V
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RNS Number : 5192V
Infoserve Group PLC
13 July 2009
Infoserve Group plc
("Infoserve" or "the Group")
Preliminary Results
Infoserve, a leading online local search marketing specialist, today announces
its final results for the year ended 31 March 2009.
Highlights
* Turnover increased by 20% to £5.6 million (2008: £4.7m)
* EBITDA profit achieved in three of the six months in the second half of the
financial year
* Operating loss substantially reduced to £0.8 million from £2.7 million
* Productivity per sales person increased by 18% to £54,800 per sales person
per annum
* Admin expenses down £527k (18%) as prior year cost reductions maintained
despite growing sales
* Gross margin increased to 32.4% from 11.4%
For further information, please contact:
Infoserve Group plc
Steve Barnes, Chief Executive Steve Barnes, Chief Executive
steve.barnes@infoserve.com www.infoservegroup.com
Jonathan Simpson, Interim Finance Director Tel +44 (0)113 238 6200
jonathan.simpson@infoserve.com www.infoservegroup.com
Nominated Adviser
WH Ireland
Robin Gwyn Tel +44 (0) 161 832 2174
robin.gwyn@wh-ireland.co.uk
Media Enquiries
Source Marketing Communications
Peter Downey Tel +44 (0) 113 380 1644
peter@sourcemc.co.uk
Chairman's Statement
Infoserve Group plc is an e-marketing company, specialising in local search. The
Company helps businesses, particularly SMEs, to maximise their performance
through online marketing.
I am pleased to report a year of good progress, both financially and
commercially, with the second half of the year building on the improved
performance in the first half.
Results
Turnover for the year increased by approximately 20% to £5.60 million (2008:
£4.65 million) and follows a 25% growth the previous year. This growth in
turnover was an excellent achievement in a difficult economic climate for much
of the Group's customer base but reflected the growing interest in online
marketing and local search.
Following on from last year's substantial improvement in productivity per
person, this again increased to £54,800 per active sales person from £46,600
last year. As a result, gross margins also improved from 11.4% to 32.4% helped
by the introduction of new products, better staff training and higher renewal
levels, thus continually increasing the Group's customer base, which should give
better transparency of future revenue.
Overheads were well down on the previous year, following the strategic cost
review in October 2007, when a substantial amount of overhead expenditure was
taken out of the business without affecting the day to day operations. During
the second half of the year, a number of actions have been taken by the Board,
which will further reduce the ongoing overheads of the business in this current
financial year.
As a consequence of the increased sales, better margins and reduced overheads,
the operating loss of £812,000 is substantially lower than £2.70 million last
year. After taking into account the net interest payable, there was a loss
before taxation of £992,000 (2008: £2.89 million).
The loss per share was 5.20p compared to 16.22p in 2008.
Cash and going concern
The improved trading performance has meant that the cash outflow from trading
and investment activities in the year has been only £419,000, of which only
£108,000 relates to the second half.
However, the Group remains undercapitalised as it has been since the IPO in
2006. Whilst a further £2 million was raised in 2007, the high cost associated
with growing the sales team and developing new products has left the Group able
to operate at current trading levels but unlikely to be able to continue to grow
at its current rate without additional funding.
On an underlying basis, the Group is now trading at almost a breakeven EBITDA,
with cash outflows on this basis at relatively low levels. All directors and
staff have taken pay cuts, very little capital expenditure has been authorised
by the Board and other overheads have been reduced to the bare minimum to assist
in preserving the short term cash position.
This situation is, however, not sustainable in the longer term if growth is to
be achieved. The Board is therefore considering a number of potential financing
options including the possibility of raising new capital from existing
shareholders and has also commenced discussions with its major shareholder,
David Hood about the raising of further funds. Additional funding details are
included in the Financial Review below.
Dividend
The Board is not recommending a dividend as all funds are required for the
development of the business (2008 : £nil).
External discussions
On 15 August 2008, the Group made an announcement that it was in early
discussions, which may or may not have led to an offer being made for the Group
(the "Discussions"). The Group announced on 10 June 2009 that these Discussions
had terminated.
Board changes
In July 2008, Mark Riley was appointed to the Board as Sales Director and has
been responsible for the significant improvement, not only in sales performance
but in the recruitment and training of our sales staff.
In March 2008, we announced that David Balbi, our Finance Director, was leaving
the Group to pursue other interests. On behalf of the Board, I would like to
thank David for his very valuable contribution to the development of the Group,
especially during some difficult trading periods, and wish him well for the
future.
The Board is currently searching for a successor and an announcement will be
made in due course. To assist the Group through the current situation, the Board
has appointed Jonathan Simpson as interim Finance Director. Jonathan is the
former Finance Director of Ultralase, a leading UK laser eye surgery provider.
Outlook
The market for online local search continues to grow and the Group now has
almost 3.5 million businesses listed on its own business directories and a
network of over 120 single industry vertical websites.
The contracts with Yahoo! and Google have given the business a unique position
to exploit the ever growing local search market through its close ties with both
companies, who represent over 96% of the UK's search and online advertising
market.
The Board is confident, that despite the current economic turmoil, it will
continue to grow its revenues and customer base and sustain the progress made in
the last financial year. The Board is actively considering possible financing
options to enable it to achieve these objectives.
James H Newman
Chairman
10 July 2009
Chief Executive's Review
* During the last financial year the background to the market has been coloured
by the much-publicised financial turmoil across the world. Despite this, online
marketing and advertising in general, and paid for search in particular have
seen continued growth in expenditure and focus.
* Paid-for search accounted for 59.3% of all online advertising in 2008.
* 60% of all online searches appear to be local in nature.
* Traditional media (outdoor, radio, press - black and white and colour, and
TV) spend in 2008 is estimated to be 8% down on 2007. Contrasting with this,
online advertising grew by 17% in 2008 (World Advertising Research Centre and
PwC). Furthermore IAB & PwC expect growth in internet advertising to continue in
2009 albeit at a reduced level.
* The Internet Advertising Bureau estimate online advertising spend in H2 2008
to have overtaken press display's share of total UK advertising for the first
time.
* 90% of household consumer spend on goods and services takes place within 20
miles of where individual consumers live or work.
* New figures from ComScore show that the use of online search to find local
businesses, products or services grew by 58% last year. By comparison, overall
internet searches increased by only 21% in 2008, highlighting that local search
continues to drive market growth.
* ComScore also highlighted that 75% of all local searches were non branded and
non-business specific, clearly indicating that most searchers do not have a
specific business in mind when they are actively seeking a supplier.
Business developments
We continue to reinforce our position as one of the UK's leading online local
search specialists. The Company continued to improve its service levels, product
propositions, value for money offering and breadth of product coverage
throughout the year.
We continued to closely monitor costs and reduce these wherever possible, and at
the same time managed our cash outflows tightly. Strong increased sales per head
were the cornerstone of continued revenue growth; these increases were the
result of improved disciplines, a greater emphasis and more detailed
implementation of training and development and overall product portfolio
enhancements. Whilst market share increases are difficult to measure, we believe
that the Company has grown in importance within our operating sector. The
revenue increases and cost controls together contributed to the achievement of
an EBITDA profit for three of the six months in the second half of the financial
year.
During the last year we have continued to focus on improving and integrating our
systems, and I am pleased that we have gone some way to delivering a complete
end-to-end system solution that utilises our business data throughout and
culminates in better customer service. Our GEMS bespoke in-house system is now
used to collect, collate and store our data, to use that data to deliver
intelligent campaigns to our sales executives, to re-populate our data with any
updates or orders taken, to populate an online sales tool which provides
customer information and access to search traffic statistics, as well as keyword
suggestions and an aide-memoire for the sales executive. The system now includes
an improved automated credit card transaction and approval process and
culminates in a streamlined production technique which makes the final product
process more efficient. We are also able to use this for control of Google
AdWords campaign management.
We have begun to undertake a series of ongoing email campaigns explaining to
SMEs how we can help them build an online presence that will give them a strong
return on investment. These campaigns will improve our business model by
providing easier commercial targets as people request a call back for further
information.
During this year we began offering website optimisation to our SME customers.
Our www.city-visitor.com site currently enjoys more than 11 million number 1
positions on the main search engines for searches involving specific keywords
and locations, and we have begun to use our search engine optimisation skills
for the direct benefit of our SME customers within their own websites. I
envisage this area of business growing substantially over the next 2 years.
We continue to work closely with Google and Yahoo! on their respective products
in our portfolio, and these two search engine partners, who today account for
more than 96% of all UK searches, will continue to be important contributors to
our market offering.
We have recently launched our first complete marketing package that covers our
complete product range as well as developing the customer's own website and I
envisage this 'bundle' package product will become considerably more important
over time as we establish ourselves increasingly as a one-stop online marketing
support agency for SMEs.
Summary
We cannot ignore the harsh reality of the overall market and our customer base
is of course affected by the difficult trading conditions. We will have to be
flexible and agile in switching focus away from those business categories most
affected by the downturn in order to concentrate resources on growth areas. All
indications are that online paid-for local search will continue to spearhead
overall growth in online advertising and marketing but we will have to work hard
to continue to drive productivity improvements from existing sales executives as
well as seeking out further growth.
Steve Barnes
Chief Executive
10 July 2009
Financial Review
2009 2008
£000 £000
Revenue 5,595 4,651
Cost of sales (3,785) (4,122)
_______ _______
Gross profit 1,810 529
Amortisation of intangible assets (174) (251)
Administrative expenses (2,448) (2,975)
______ _______
Operating loss (812) (2,697)
Financial income 3 34
Financial expenses (183) (227)
_______ _______
Net financing expense (180) (193)
_______ _______
Loss before tax (992) (2,890)
_______ _______
Revenue
Revenue for the year has increased by approximately 20% year on year and the
performance per sales executive increased from £46,600 to £54,800 a rise of 18%
on last year and 71% on the same period two years ago.
Margins
Gross margins have improved from 11% to 32% during the financial year reflecting
the increased sales productivity, streamlining of the sales force and cost
savings negotiated with key suppliers.
Results
Operating losses have reduced by £1.88 million as a result of the improved sales
margins and the continuation of cost control policies following the strategic
review of overhead costs in October 2007.
Significantly, the Group achieved an EBITDA profit in three of the last six
months prior to the end of the financial year.
Cash flow
As a result of the operating loss for the year and the Group's continuing
investment in systems and technology, the cash outflow of the Group during the
year was £419,000. This was offset by a loan from David Hood in October 2008 of
£250,000.
Deferred tax asset
The Board has prepared forecasts and continues to believe that the Group will
become profitable in the future and therefore utilise the considerable tax
losses built up over the last few years. It has accordingly carried forward a
proportion of this recovery as a deferred tax asset in the balance sheet.
Going concern
The financial statements have been prepared on a going concern basis,
notwithstanding the net liabilities, net current liabilities and trading loss in
the year, which the directors believe to be appropriate for the following
reasons.
The Group meets its day to day working capital requirements through an
overdraft, currently guaranteed by its major shareholder, David Hood. The recent
overdraft facility, which expired in February 2009 has a limit of £250,000. The
Group continues to operate within this facility; June management accounts place
the overdraft at £159,000. Whilst the bank has neither renewed this facility nor
called in the overdraft, Mr Hood has indicated that he will make available an
equivalent facility should repayment be demanded.
The Group has also received loans from Mr Hood totalling £3.47 million including
accrued interest. In addition, one of the Group's landlords, Amerdale LLP (of
which Mr Hood is the majority partner) has currently agreed to defer rent
payments for the six month period to 31 March 2009, totalling £148,591, which
will be repaid in full at £24,765 per month from December 2009 until May 2010.
Rent for the subsequent period has been paid when due. Additionally, in January
2009 the Group agreed with HM Revenue and Customs to defer £253,000 of pay as
you earn and value added tax. Repayments commenced in February 2009 and continue
until September 2009 and the Group has, to date, complied fully with all
repayments in respect of this agreement.
The Group's business activities, together with the factors likely to affect its
future development, performance and position are set out in the Chief
Executive's Review. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Financial
Review.
The current economic environment is challenging. Whilst the Group has reported
an operating loss for the year the directors note that as at the year end the
Group has achieved EBITDA profitability for three of the last six months, and
that the Group has operated within its overdraft facility. The directors still
consider the Group to be within its growth phase and sales and gross margins are
expected to increase. The directors believe that the general economic conditions
will continue to present challenges in terms of sales revenues although the
local search market, in which the Group operates, continues to grow. Whilst the
directors have implemented a number of cost saving measures to preserve cash and
are investigating potential sources of additional finance, these general
economic conditions do create some uncertainties over future trading results and
cash flows. The directors have prepared cash flow forecasts for the period to
March 2011. The cash flow forecast assumes increased sales and gross margin and
no unnecessary capital expenditure. On the basis of these forecasts the Group
is expected to continue to operate within its current bank overdraft limit for
at least the next twelve months (assuming that interest on the loans from Mr
Hood continues to be deferred) though the amount of headroom is minimal.
Sensitised cash flow projections indicate that the Group may need to obtain
further short term funding until the Group becomes cash positive.
Mr Hood has not sought repayment of the capital and interest on his loans and
has indicated that he will, if necessary, consider providing further funding.
The directors understand that it is not Mr Hood's intention to finance the Group
on this basis for the long term. As a result the directors are currently
considering a number of potential financing options including the possibility of
raising new capital from the existing shareholders, to provide additional
capital for the Group. The Group has also commenced discussions with Mr Hood
about additional working capital facilities should they be needed or if other
potential financing options do not prove possible. Any additional funding would
potentially involve the conversion of existing debt to equity. Mr Hood has
indicated that he will not enforce loan repayments in the short term whilst
these discussions are in progress.
Whilst the directors remain confident of continuing to operate within the
current bank overdraft and of securing alternative funding, which may require
shareholder approval, there can be no certainty in these respects. Accordingly
the directors believe that the combination of these circumstances represents a
material uncertainty that may cast significant doubt upon the Group's and the
Company's ability to continue as a going concern and it may therefore be unable
to realise assets and discharge liabilities in the ordinary course of business.
Nevertheless after making full enquiries, and considering all the uncertainties
described above, the directors have no reason to believe that the Group and the
Company will be unable to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going concern basis in
preparing the Annual report and financial statements. The financial statements
do not include any adjustments that would result from the basis of preparation
being inappropriate.
Steve Barnes
Chief Executive
10 July 2009
Consolidated Income Statement
For the year ended 31 March 2009
2009 2008
£000 £000
Revenue - continuing operations 5,595 4,651
Cost of sales (3,785) (4,122)
_______ _______
Gross profit 1,810 529
Amortisation of intangible assets (174) (251)
Administrative expenses (2,448) (2,975)
_______ _______
Total administrative expenses (2,622) (3,226)
_______ _______
Operating loss - continuing operations (812) (2,697)
_______ _______
Financial income 3 34
Financial expenses (183) (227)
_______ _______
Net financing expense (180) (193)
_______ _______
Loss before tax (992) (2,890)
Taxation 0 (55)
_______ _______
Loss for the year (992) (2,945)
_______ _______
Basic and diluted loss per share (5.20p) (16.22p)
Consolidated Balance Sheet
At 31 March 2009
2009 2008
£000 £000
Non-current assets
Property, plant and equipment 251 397
Intangible assets 534 594
Investment in subsidiary - -
Deferred tax assets 838 838
_______ _______
1,623 1,829
_______ _______
Current assets
Trade and other receivables 345 282
Cash and cash equivalents 410 329
_______ _______
755 611
_______ _______
Total assets 2,378 2,440
_______ _______
Current liabilities
Bank overdraft (250) -
Interest-bearing loans and borrowings (3,278) (2,123)
Trade and other payables (3,050) (2,825)
Provisions (80) (80)
_______ _______
(6,658) (5,028)
_______ _______
Non-current liabilities
Interest-bearing loans and borrowings (287) (1,023)
Trade and other payables (20) (21)
_______ _______
(307) (1,044)
_______ _______
Total liabilities (6,965) (6,072)
_______ _______
Net (liabilities)/assets (4,587) (3,632)
_______ _______
Equity attributable to equity holders of the parent
Share capital 954 954
Share premium 3,871 3,871
Retained earnings (9,412) (8,457)
_______ _______
Total equity (4,587) (3,632)
_______ _______
Consolidated Statement of Cash Flows
For the year ended 31 March 2009
2009 2008
£000 £000
Cash flows from operating activities
Loss for the year (992) (2,945)
Adjustments for:
Depreciation 151 166
Amortisation 174 251
Financial income (3) (34)
Financial expense 183 227
Loss on sale of property, plant and equipment 10 11
Equity-settled share-based payment expenses 37 89
Taxation - 55
_______ _______
(440) (2,180)
(Increase)/decrease in trade and other receivables (63) 123
Increase in trade and other payables 220 512
Increase in provisions - 80
Change in deferred government grant (1) (2)
_______ _______
(284) (1,467)
Interest paid (9) (1)
_______ _______
Net cash from operating activities (293) (1,468)
_______ _______
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 5
Interest received 3 34
Acquisition of property, plant and equipment (15) (100)
Acquisition of other intangible assets (114) (331)
_______ _______
Net cash from investing activities (126) (392)
_______ _______
Cash flows from financing activities
Proceeds from the issue of share capital (net of costs) - 1,884
Repayment of borrowings - (50)
Proceeds from the receipt of government grants - 25
Advance of loans 250 -
_______ _______
Net cash from financing activities 250 1,859
_______ _______
Net decrease in cash and cash equivalents (169) (1)
Cash and cash equivalents at 1 April 329 330
_______ _______
Cash and cash equivalents at 31 March 160 329
_______ _______
Notes to the Financial Statements
1. Accounting policies and basis of information
The financial information in this preliminary announcement has been prepared in
accordance with the accounting policies set out in the financial statements of
Infoserve Group plc for the financial year ended 31 March 2009. The financial
information in this document does not constitute the company's statutory
financial statements for the financial year but is derived from those financial
statements. Statutory financial statements for the period will be delivered
following the company's Annual General Meeting. The auditors opinion was
unqualified and does not include any statements under sections 237 (2) or (3) of
the Companies Act 1985 but does include an emphasis of matter paragraph cross
referring to the basis of preparation paragraph on going concern.
2. Earnings per share
The calculation of earnings per share is based upon the loss after taxation of
£992,178 (2008: £2,945,465) divided by 19,073,241 (2008: 18,162,494), being the
weighted average number of ordinary shares in issue during the year. Share
options in issue did not have a dilutive impact on the loss per share
calculation.
3. Consolidated reconciliation of movement in capital and reserves
Share Share Retained Total
capital premium earnings equity
£000 £000 £000 £000
Balance at 1 April 2007 731 2,210 (5,601) (2,660)
Total recognised income and expense - - (2,945) (2,945)
Equity-settled share-based payment transactions - - 89 89
Equity shares issued in the year 223 - - 223
Premium on shares issued in the year - 1,778 - 1,778
Costs on issue of shares - (117) - (117)
_______ _______ _______ _______
Balance at 31 March 2008 954 3,871 (8,457) (3,632)
_______ _______ _______ _______
Balance at 1 April 2008 954 3,871 (8,457) (3,632)
Total recognised income and expense - - (992) (992)
Equity-settled share-based payment transactions - - 37 37
_______ _______ _______ _______
Balance at 31 March 2009 954 3,871 (9,412) (4,587)
_______ _______ _______ _______
4. Interest-bearing loans and borrowings
2009 2008
£000 £000
Non-current liabilities
D R Hood loan account 187 923
Shares classified as a liability 100 100
_______ _______
287 1,023
_______ _______
Current liabilities
Current portion of D R Hood loan account 3,278 2,123
_______ _______
3,278 2,123
_______ _______
Terms and debt repayment schedule
Currency Nominal interest rate Face value Carrying amount Face value Carrying amount
Year of maturity
2009 2009 2008 2008
£000 £000 £000 £000
D R Hood loan £ Linked to base rate 2010 3,209 3,209 3,046 3,046
D R Hood loan £ Linked to base rate 2011 256 256 - -
Shares classified as a liability £ 5% per annum N/A 100 100 100 100
_______ _______ _______ _______
3,565 3,565 3,146 3,146
_______ _______ _______ _______
Mr Hood has not sought repayment of the capital and interest on his loans and Mr
Hood has indicated that he will not enforce loan repayments in the short term
whilst discussions over refinancing the group are in progress.
5. Trade and other payables
2009 2008
£000 £000
Trade payables 690 513
Non-trade payables and accrued expenses 1,287 1,113
Deferred income 1,071 1,197
Deferred government grants 2 2
_______ _______
Current liabilities 3,050 2,825
_______ _______
Deferred government grants 20 21
_______ _______
Non-current liabilities 20 21
_______ _______
Included within trade and other payables is £nil (2008: £45,000) for the Group
and £nil (2008: £nil) for the Company expected to be settled in more than 12
months.
Included within accrued expenses is £15,000 (2008: £10,000) in respect of
accrued interest on shares classified as a liability. This amount is payable
when the Company has distributable profits.
During 2008, the Group received a government grant of £25,000 for the fit out of
the leased property at Pioneer House in Darlington, £1,667 of the grant has been
recognised within administrative expenses in the Income Statement.
Deferred income relates to sales invoiced for which the revenue has not yet been
recognised.
6. Post balance sheet events
There are no significant post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
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