21st Mar 2007 07:03
Huntsworth PLC21 March 2007 Huntsworth PLC Audited Preliminary Results for the year ended 31 December 2006 Successful Transitional Year Huntsworth PLC, the international Public Relations group, today announces itspreliminary results for the year ended 31 December 2006. Summary • Continuing revenue £139.7m (2005: £108.3m) • Underlying operating profit £20.2m (2005: £12.4m) • Reported operating profit £6.5m (2005: Loss of £30.0m) • Profit before tax and highlighted items £17.7m (2005: £9.0m) • Profit after tax and highlighted items £3.0m (2005: Loss of £30.0m) • Underlying basic earnings per share after cost of new share incentive schemes up 35% to 7.3p (2005: 5.4p) • Reported basic earnings per share of 1.5p (2005: Loss per share of 20.9p) • Proposed final dividend of 1.3p per share giving a 12% rise in the total dividend • £53m of net new business • Underlying operating margin before central costs and highlighted items for Public Relations businesses of 21.0%, Non Public Relations activities 9.6%. Overall Group operating margin before central costs of 20.0% • Like-for-like revenue growth from Public Relations businesses up 6.7%, non-Public Relations activities down 16.5%. Overall like-for-like growth of 4.3% • Like-for-like operating profit growth after central costs of 40.8% • Cash flow from operating activities before outflows on highlighted items of £26.4m, representing a cash conversion of 130% • Net debt increased to £38.9m, which is better than management's expectation Notes: 1. The 2006 underlying results are stated before taking account ofhighlighted items of £11.1m (post tax). These comprise amortisation andimpairment of goodwill and intangible assets and merger, re-structuring andother non-recurring costs. 2. 2005 comparatives have been re-stated for the re-classification of IFRScharges relating to share incentives of £0.6m and imputed interest on deferredconsideration £0.2m. These were previously treated as highlighted items buthave now been absorbed into underlying profits. 3 Like-for-like revenues include pre-acquisition revenues for all currentbusinesses owned for over one year and exclude Mmd and Quiller. Peter Chadlington, Chief Executive of Huntsworth, said: "This has been a very successful transitional year. Our organic growth gives usconfidence for the future and the strategic acquisitions that we made at the endof 2006 are settling in very well. The first two months of trading in our newfinancial year suggest that we will continue to build on our achievements in2007." Contacts: Huntsworth PLC +44 (0)20 7408 2232Peter Chadlington, Chief ExecutiveSally Withey, Finance Director Citigate Dewe Rogerson +44 (0)20 7638 9571Simon RigbyBrett JacobsGeorge Cazenove A presentation to analysts will take place at 9.00am on 21 March 2007 at theoffices of Numis Securities Limited, 5th Floor, 10 Paternoster Square, London,EC4M 7LT. CHIEF EXECUTIVE'S STATEMENT The record trading results for 2006 have established a firm base from whichHuntsworth can grow in the years ahead. All the key objectives that were established at the beginning of the year havebeen met or exceeded: • 6.7% organic growth in PR businesses • Operating margins of over 20% in the PR companies • Cash conversion of profits exceeded 100% • £53m of net new business recognised in the year • Group margins after central costs but before share incentives stood at 15.8% • Net debt below £40m • Central cost savings better than forecast at the time of the Incepta merger • 70% of the ongoing PR business on annual retainer or repeat business Having achieved such a strong platform, what are the priorities and prospectsfor 2007 and beyond? Key Success Factors Firstly, we must continue to build the organic growth across the Group. We cansee some parts of our business - Eastern Europe, for example - growing at morethan 10% per annum. Growth in other, more established, markets should continueto grow in line with the market at 4% to 5%. As our multinational andmulti-client marketing programme gets into full swing we would hope to dosignificantly better than this over the next two to three years. Overall, weexpect annual revenue growth of between 5% and 6%. Secondly, we remain committed to achieving a 20% operating margin before centralcosts. The share incentive schemes are a cost of employment and have thereforebeen embedded in the 2007 budgets for the operating companies. Even after theyhave been expensed we expect to reach our 20% margin target. During 2006 whilstthese costs were not embedded into operating companies they have been fullyabsorbed in our underlying earnings as well as the imputed interest fromearn-outs. After central costs and the IFRS charges associated with incentive schemes weachieved a margin of 14.5% in 2006 and are targeting a 15% margin going forward. Thirdly, we aim to continue converting at least 100% of our profit into cashbefore exceptional cash flows. As the exceptional cash outflows from theIncepta merger decline, we will generate higher levels of free cash flow whichcan be used to meet earn-outs and reduce debt. 75% of our operating profits arenot under earn-out and all of our earn-outs are self financing so that no growth- or a slower than expected increase in incremental profits - in our earn-outcompanies will result in no, or low, earn-out payments. At the end of theyear we had earn-out liabilities of £18.4m payable up to 2009. These are the three cardinal rules around which the Group is built - challengingbut sustainable organic growth targets; sector-leading margins both at operatingcompany and Group level; and consistent conversion of profit into cash. Completing the Network Our core strategy is to complete an international network of PR focused agencieswhich will give us leading positions in key world markets. Most of this work isnow done. The acquisition of Dorland in the US in March 2007 increases ourpresence in the fast growing healthcare market. We have strengthened ourbusiness significantly in Central and Eastern Europe over the last couple ofyears including our acquisition of Mmd in October 2006. In 2006 the UK accounted for 48% of our business and Continental Europe 23%, butwe see further network opportunities in the US in general PR and in PublicAffairs. The US - the largest PR market in the world - accounted for just 26%of our continuing income. In Asia Pacific - which is about 3% of our revenues -we are represented by Citigate and by Grayling. These divisions also have wellrecognised and highly professional, albeit small, PR businesses in China,Singapore and Hong Kong. Our policy on acquisitions remains unchanged. We will only acquire businesseswhere we see a long term strategic fit and clear opportunities for integrationand improvement as part of our Group. Our policy is clear. First, we need to get to know the target companies; thenwe need to work together; finally we need to make sure that - as a result ofworking together - the new partner shares not only our professional aspirationsbut also our financial disciplines. Winning and Building Client Relationships The absolute key to our success is winning more business from blue chip clients.We have an outstanding list of over 2,700 clients. 11% of the Group revenue was earned by two or more Group companies workingtogether and 266 of our clients, representing 35% of our group revenue, wereserved by more than one type of public relations practice. This demonstratesour increasing ability to drive revenues across our network, but we can do more. We have established a central marketing group whose terms of reference are toensure that our clients fully appreciate Huntsworth's geographic reach and thebreadth of PR skills and services which are now available through our network. Our Non-PR Businesses Our non-PR businesses now represent 8.5% of our revenues. These businesses arecharacterised by a stronger reliance on project income than our PR companies andare more dependent on the economic cycle, which means that revenue and margingrowth is less predictable. Like-for-like revenues were down 16.5% in 2006 andmargins were 9.6%, clearly some way below our performance targets for the Group.However, all of our non-PR businesses are now profitable, have stable andproven management and financial controls as good as any other part of our Group. In 2007 we expect all our non-PR businesses to contribute double digit profitmargins and have strong cash conversion. Keeping the Key People Without the best people, a public relations company lacks the vital competitiveedge. That is why we have a director on the PLC Board, Tracey Reid, whose taskit is to ensure that our people - how they are recruited, inducted into thebusiness, financially rewarded and developed - are a central focus of the GroupBoard. We now have a number of leadership and business skills programmesrunning across the UK and Europe, complementing our internal PR trainingprogrammes and aimed at both broadening and improving the skill sets of ourpeople. The success we have had in 2006 - against the backdrop of a very challengingtransitional year for the Group - has been the result of support from our loyalclients, patience from shareholders and the skills of our Huntsworthprofessionals around the world. I would like to thank the more than 1,650 people who are now part of Huntsworthwho, through their hard work and dedication, have contributed to another recordyear for the Group. Outlook 2006 was a transitional year. We have reached all our targets and Huntsworth isin robust shape. 2007 has started well and the new business book is strong.All our companies reporting a very high level of new business enquiries - and weare confident that the focus of our business, and the breadth of our PR skillsand geography, should all contribute to a continued strong performance. Peter ChadlingtonChief Executive21 March 2007 REVIEW OF FINANCIAL RESULTS SUMMARY OF FINANCIAL RESULTS 2006 2005 £m £mRevenuePublic Relations 127.9 94.9Non-Public Relations 11.8 13.4Total Operations 139.7 108.3 Operating Profit Margin MarginPublic Relations 26.8 21.0% 18.2 19.2%Non-Public Relations 1.2 9.6% 1.9 14.2%Total Operations 28.0 20.0% 20.1 18.6% Central Costs (5.9) (7.1)Share Incentives (1.9) (0.6)Underlying Operating Profit 20.2 14.5% 12.4 11.4% Highlighted Items (13.7) (42.4) Reported Operating Profit 6.5 (30.0) Adjusted Basic EPS 7.3p 5.4pReported Basic EPS 1.5p (20.9)p Notes: 2005 comparatives have been re-stated for the re-classification of IFRS chargesrelating to share incentives of £0.6m and imputed interest on deferredconsideration £0.2m. These were previously treated as highlighted items buthave now been absorbed into underlying profits. Continuing revenue of £139.7m includes a full 12 months of contribution from thecontinuing operations acquired through the merger of Huntsworth and Incepta(2005 comparatives include eight months of contribution from continuing Inceptabusinesses). Revenue and Profits Revenues for the year ended 31 December 2006 increased by 29% to £139.7m (2005:£108.3m). On a like-for-like basis, revenue growth from Public Relationsbusinesses was up 6.7% and non-Public Relations activities down 16.5%, giving anoverall like-for-like growth of 4.3%. Operating profits before central costs and highlighted items were £28.0m (2005:£20.1m). Like-for-like operating profit growth before central costs andhighlighted items was 10.5%. Like-for-like operating profit growth after centralcosts but before highlighted items was 40.8%. Underlying operating profit (after central costs) for the year was £20.2m (2005:£12.4m). This is stated before highlighted items of £13.7m comprisingamortisation and impairment of goodwill and intangible assets and merger,restructuring and non-recurring costs to give statutory reported operatingprofit of £6.5m (2005: operating loss of £30.0m). Profit before tax and highlighted items was £17.7m (2005: £9.0m) Underlying operating margins (before central costs and highlighted items) were21.0% for Public Relations businesses, 9.6% for Non Public Relations activitiesand 20.0% overall. IFRS non-cash charges of £1.9m in respect of share incentives were taken intounderlying profits for the first time in 2006. Had we not taken this chargeinto underlying profits we would have shown profit before tax and highlighteditems of £19.6m and an underlying basic earnings per share of 8.2p, 12% ahead ofour reported figure. We expect the charges for granted share incentives to beapproximately £2.7m in 2007, the bulk of which will be absorbed into theoperating companies. We expect to reach our target Group operating margin of20% (before central costs) even after taking this charge. Underlying operating margin before highlighted items but after central costs was14.5%. (2005: 11.4%). Before share incentive charges which were absorbed at thecentre in 2006, the underlying operating margin was 15.8% (2005: 12.0%). Ourtarget Group operating margin after central costs is 15.0%. Highlighted Items Highlighted items of £13.7m before tax comprise £4.1m for the amortisation ofintangibles, £3.7m for the impairment of goodwill in respect of Citigate SardVerbinnen ("CSV"), £4.2m of other impairment of goodwill (principally in respectof Citigate Demuth), and restructuring and non-recurring costs of £1.7m. In February 2006 we reached an agreement to sell 51% of CSV to certainexecutives of the company on 1 January 2007 for $2.5m (£1.4m). The remaining49% will be acquired no later than 31 December 2009 for a total cashconsideration of not less than $17.5m (such amounts to total $20m in presentvalue terms as at 1 January 2006). These amounts will be reduced by the amountof cash distributions from CSV since 1 January 2006. In 2006, the Group income statement includes the trading results of CSV togetherwith an equal and opposite charge for the impairment of goodwill. The assetsand liabilities of CSV, together with related goodwill, are shown in the Groupbalance sheet as assets and liabilities held for sale respectively and arevalued at the remaining net recoverable amount expected from the disposaltransaction which equated to £7.9m as at 31 December 2006. From 2007, after the disposal of the Group's 51% interest, CSV will be accountedfor as an associate. The Group income statement will show the Group's share ofCSV profits earned in each year offset by an equal and opposite charge for theimpairment of the remaining related goodwill balance. In March 2007 we sold Citigate Demuth, predominately an advertising business, toMedia Square plc for the value of the net tangible assets. The disposal ofDemuth continues Huntsworth's strategy to sell non-core subsidiaries leaving theGroup to pursue its focused international public relations strategy. Net restructuring and non-recurring costs for the Group in 2006 amounted to£1.7m. Of this amount, £0.9m was in respect of the launch of Huntsworth Health,unifying the branding of the Group's healthcare communications businesses, and£0.6m was for aborted acquisition costs. Head Office Core central costs were £5.9m in 2006, within our target of £6.0m. Totalcentral costs of £7.8m include Group share incentive charges of £1.9m. Earnings Underlying profits attributable to ordinary shareholders amounted to £13.9m(2005: £2.4m). Underlying continuing basic earnings per share were up 35% to7.3p (2005: 5.4p). Unadjusted continuing basic earnings per share were 1.5p(2005: loss per share of 20.9p) and continuing diluted earnings per share were1.4p (2005: loss per share of 20.9p). Dividends The Board will propose at the forthcoming AGM on 12 June 2007 a final dividendof 1.3 pence per share, which will provide an increased total dividend of 1.9pence. The record date for this dividend will be 1 June 2007 and it is payableon 6 July 2007. A scrip dividend alternative will also be available. Balance Sheet and Cash Flow The cash flow from underlying operating activities of £26.4m represents a cashconversion of 130% which exceeds our target of 100%. This is before an £8.2mcash impact relating to highlighted items, mainly provided for in prior years.These primarily relate to the merger with Incepta and are expected to reducesignificantly in 2007. Other principal movements in net debt during the year were payments for netinterest, tax and tangible fixed assets of £6.4m, acquisitions, disposals andearn out payments of £20.7m, dividends payable of £3.4m and purchase of sharesfor share incentive schemes of £3.3m, resulting in an overall increase in netdebt of £15.5m, from £23.4m to £38.9m. Huntsworth has committed unsecured term, overdraft and guarantee facilitiestotalling £80m in place until April 2008. EBITDA interest cover (excludinghighlighted items) was 8.6 times. Tax The tax charge of £1.0m gives a full year rate of 25% and comprises anunderlying tax charge of £3.6m less £2.6m for tax credits on highlighted items. The underlying charge includes a credit of £1.0m for non-recurring items andprior year adjustments, without which the underlying rate would have been 26%.Whilst we continue to benefit from our US tax losses, underlying tax as apercentage of profits is likely to increase towards approximately 28% in 2007. Earn-out Payments Future earn-out payments are estimated at £18.4m, comprising £10.3m payable incash or in shares at Huntsworth's option, £3.1m in shares and £5.0m in cash.The timing of the aggregate of these payments is £9.8m in 2007, £1.9m in 2008and £6.7m in 2009. REVIEW OF OPERATIONS Full Service Public Relations Our full service agencies - EHPR, Grayling, Harrison Cowley, Haslimann Taylor,SCPR, The Red Consultancy, Trimedia and Citigate Cunningham had a successfulyear with like-for-like revenues growing by 3.7% against a backdrop of stableeconomic conditions across Europe and continued strong economic growth in Asia. The UK is especially competitive but it is also a market in which clients areinvesting increasing amounts of budget. Importantly, PR is no longer an add-onin the wake of advertising. It is increasingly seen as key to any effectivemarketing campaign, and in some instances is the lead discipline. Successful new business pitches added some high profile names to our clientlist. The Red Consultancy landed work for John Lewis Partnership and theFootball Association. Harrison Cowley was appointed by Anheuser-Busch Europefor PR support across its portfolio of famous brands including Budweiser andMichelob. In addition they successfully pitched for Mornflake, part of MorningFoods, to support its cereal brands and Ordnance Survey to drive customers tothe retail environment and the e-channel. EHPR secured consumer work fromWilkinson Sword shaving brands and SCPR won high profile fashion house Joseph.Grayling's integrated PR and Public Affairs offer proved successful in thecorporate communications sector and clients buying this powerful combinationincluded RHM, English Heritage and Royal Mint. The Group's work in the public sector delivered a number of high profilecontracts. The Department for Culture, Media and Sport appointed HarrisonCowley to support digital switchover amongst vulnerable audiences. TheDepartment of Work and Pensions awarded The Red Consultancy a three yearcampaign to deter current and potential benefit fraud and three Huntsworthagencies - Grayling, Harrison Cowley and The Red Consultancy succeeded inwinning a place on the Department of Health's roster. Margins in our mainland European companies improved from 17.5% in 2005 to 18.8%in 2006. Trimedia, our network in 11 European countries, continued to makesolid progress as a result of the company changing its mix of business andmoving higher up the value chain. Early in the year we strengthened ourposition in the French market with the acquisition of Eurotandem that has nowmerged with Trimedia France. In October we completed the important acquisitionof Mmd, the leading full service public relations and public affairs companywith 180 staff in 18 offices in Central and Eastern Europe, Russia and Eurasia.This now gives Huntsworth the most comprehensive geographic coverage of any PRnetwork in Europe. As a result Microsoft Online Services Group, which already works with The RedConsultancy, has appointed Trimedia and Mmd to handle marketing PR activityacross seven emerging European markets for its MSN and Windows Live brands.Swiss energy company ATEL now utilises Trimedia not only in Switzerland andSpain but also Mmd in Czech Republic, Hungary and Poland. In 2006 Mmd expandedits relationship with easyJet, as the leading low-cost airline entered a numberof new territories. The partnership has grown to cover a total of ninecountries, with Turkey and Croatia added in the last six months. Mmd has alsobeen working with Lenovo since the company acquired the personal computerdivision from IBM in 2005. This work has extended to seven countries includingCzech Republic, Hungary, Poland, Slovakia, Croatia and Russia. Grayling's Brussels consultancy achieved strong growth in revenue andprofitability in a highly competitive market. Among notable client wins was theappointment by Transfrigoroute International, the international transport tradebody of perishable foodstuffs, to act as its secretariat, as well as PR andPublic Affairs advisor. In Asia, Grayling won the Diageo corporate PR business and has since extendedthis remit to include brands such as The Singleton of Glen Ord and JohnnieWalker. An office was opened in Bangkok to support our regional appointment byBritish Airways, while Grayling Hong Kong carried out a number of assignments onbehalf of Thomson Scientific. In the US, Citigate Cunningham, our leading technology agency, enjoyed healthyrevenue growth with significant new business wins including NewStar,SurfControl, InterSense, Consumer Direct and Sybase 365. Financial and Corporate Communications and Public Affairs 2006 was the biggest year for corporate activity since the height of the dotcomboom of 2000, both as far as mergers and acquisitions were concerned andinvestment in marketing and public relations, and saw our like-for-like revenuesgrow by 9.7%. Citigate Dewe Rogerson ("CDR") benefited from this renewed confidence,reinforcing its position as a top three ranked public relations adviser formergers and acquisitions in Europe and ranked number one in the world foradvising private equity companies (source: mergermarket 2006) and establishingrelationships with major companies to build their corporate brands and launchnew products and services. CDR worked on some of the most high profile and challenging transactions, bothdomestically and internationally, from Ferrovial's acquisition of BAA to the IPOof QinetiQ, the acquisition of Scottish Power by Iberdrola and advising themanagement of ITV as it addressed two unsolicited approaches. Citigate has a pre-eminent position globally as an adviser to a broad range ofprivate equity firms and their portfolio companies. In 2006 Citigate FirstFinancial, our Amsterdam-based firm advised on Europe's biggest private equitytransaction, the €8.3bn acquisition of Phillips Semiconductors by aconsortium-led by KKR. Working for private equity firms in Germany, UK, France and the Netherlandsresulted in CDR being ranked as the number one global PR adviser in privateequity transactions in 2006, acting in 119 deals totalling £135.5bn (source:mergermarket 2006). New client wins in the corporate division included Abbey, Branston, DeutscheBorse, The AA and Unilever. CDR London won the 2006 PR Week "Best FinancialCampaign" for Axa Avenue, an innovative campaign which was the UK's firstfinancial social experiment. In Hong Kong, Citigate Dewe Rogerson was communications advisor to Bank of Chinain the world's fourth largest IPO, which raised US $11bn. The team then advisedIndustrial and Commercial Bank of China on the world's largest IPO raisingUS$21.9bn. This high profile IPO was the first simultaneous dual listing on theHong Kong and Shanghai Stock Exchanges. The success of ICBC's offering andcommunication with investors was recognised with a number of high profileawards, including Deal of the Year by Finance Asia magazine. On the corporateside, the team won retainers to support Cazenove across Asia Pacific and OaktreeCapital. Hudson Sandler advised on M&A transactions worth £23.6bn across the year(source: Zephus). Deals included advising PAI Partners on their acquisition ofUnited Biscuits and Lafarge, Stanley Leisure on an offer from Genting, FirstChoice Holidays on the acquisition of Late Rooms and Isotron on a unilateraloffer from Synergy Healthcare. Hudson Sandler acquired Quiller in October 2006which broadens their offer to span financial and corporate PR, InvestorRelations and Public Affairs. Combining the complementary expertise of HudsonSandler and Quiller has created significant new business developmentopportunities with the combined offer already winning new mandates in theshipping, insurance and financial services sectors. This broader offer has alsocreated opportunities to expand our support with existing clients. The Global Consulting Group saw an expansion of the relationship with majorRussian oil company Lukoil. In addition they landed new assignments fromShiffrin & Barroway, a major US law firm, Chinese autoparts manufacturerAutoparts, Bank Hapoalim, the largest Israeli bank and Harrah's Entertainment.The firm represented Freescale Semiconductor, the world's largest leveragedbuy-out (US$17.6bn) and Vonage Holdings, the largest technology IPO. Healthcare Communications Huntsworth has always been committed to an integrated healthcare offering. Weacquired PBC, a successful healthcare advertising business headed by DavidRowley in 2001. Since then the Healthcare group has grown to include VBCommunications (advertising) and Avenue HKM (PR) in 2004 and Context ResearchInternational and Brand Health International in 2005 to give the group acomplete healthcare offering in the UK. Healthcare PR revenues grew by 9.6% in2006. In 2007, with the acquisition of Dorland, we have shifted to a globalpresence in order to address client needs. Huntsworth's healthcare strategy since inception has been to build an integratedcommunications business that offers a breadth of service to clients,encompassing PR, advertising, medical education and market research in thePharmaceutical, Biotech, Diagnostic and Device sectors. 2006 was a year ofsignificant change, as the individual businesses were all brought together underthe 'Huntsworth Health' brand, with one management team and one core vision. The new approach was launched in September, and the response from the market hasbeen positive. We are increasingly providing a range of services to individualclients, delivering much more integration across disciplines, whichsignificantly improves the revenue per client. Over 35% of clients now use morethan one communication discipline from the Huntsworth Health stable, and newclients are choosing us on the basis of this integrated approach. This combined strength now makes Huntsworth Health the largest integratedhealthcare agency in the UK, but with strengths that makes it a top five playerin the individual disciplines of PR, medical education and advertising. Thebusiness continues to win top industry awards, with 'Best Professional' campaignwon for work on behalf of Servier, whilst 'Advertisement of the Year' at thePharmaceutical Marketing Society awards was won for Prostrakan. A 'highlycommended' for 'Innovation in New Media' on behalf of Baxter was also testamentto our growing new media presence across all disciplines. In addition, we topped the healthcare category at Europe's Premier InternationalCreative Awards for work on behalf of Boehringer Ingelheim. These awards werepan-European and highlight the significant strides taken across Europe during2006, particularly post-integration. In working with Trimedia our Europeannetwork, we have won assignments from a number of European clients includingSanofi-Aventis, Roche Diagnostics and Archimedes Pharma, on top of UK focusedassignments from Schering Plough, Wyeth, GSK, IMS, Abacus and Quintiles. The acquisition of Dorland in March 2007 extends the reach of Huntsworth Healthinto the largest healthcare market in the world where many major pharmaceuticalcompanies are headquartered. Dorland offers advertising, medical education, andpublic and professional relations services, which mirror and extend the servicesthat Huntsworth Health provides. Non-PR Business - Events Our non-PR events businesses - Grayling's RS Live and Park Avenue in the UK andBroadstreet in the US - had a difficult year in 2006. In the UK, after two record years in 2004 and 2005, the new business pipelinebecame weak as a result of significant tightening in UK public spending. Amajor restructuring was carried out mid-year, RS Live and Park Avenue weremerged and significant cost reductions were achieved. The commercial offer isnow impressive and enabled Grayling Events to win the launch of Dr Stanley Ho'snew flagship casino, Grand Lisboa, in Macau in February 2007 on behalf ofSociedade de Jogos de Macau. In the US, Broadstreet focuses on events management, interactive services (newmedia and video) and learning and performance improvement solutions. Broadstreet was placed in the Group's recovery programme in early 2006. Are-structuring was carried out, assigning a new management team and introducingnew financial and project management processes. As a result, the company hasdelivered revenue growth of 9% and a significant net profit and margin increaseover the previous year. Growth in the year came from the consumer, media andentertainment and financial service business sector. Key wins included anall-employee meeting on behalf of Reebok Inc; events support for Diageo GlobalLeadership Forums and an Advertising Sales Event on behalf of ESPN, America'spremier sports news and programming provider. Broadstreet was the recipient ofthree Telly Awards - a prestigious US events industry awards programme honouringthe finest in video and film production - for work conducted on behalf of DiageoUSA and Time-Warner Inc. Margins for our non-PR businesses were 9.6%. However, we expect to achievedouble digit margins in 2007. New Media New media has been a major driver of our growth in all businesses in thehealthcare, financial, consumer and corporate sectors. Huntsworth companies arehelping organisations navigate through the challenges of the new media landscapeusing social networking channels such as blogging and podcasting together withthe next stage of innovative PR products and services. We have developed techniques to respond to the challenge of reaching targetedstakeholder groups. We also provide comprehensive monitoring and early warningprocesses for organisations within their reputation management programmes. In our full service agencies nearly 30% of output is focused on targeting newmedia. We are seeing a sharp acceleration in this trend as web 2.0 begins toshape the communications landscape. We are also seeing mobi work begin toincrease as the new generation of mobile phone applications gathers momentum. The Red Consultancy created a specialist new media division during 2006. NamedShiny Red, it is a joint operation with Shiny Media, the UK's leading commercialblogging company. Clients already engaged by this division include Nokia, MSNand Yell.com Mobile. Huntsworth Health is pioneering the use of new media in the healthcare sector.One specific area is the use of tablet PC technology to help support clientsales activities. During 2006 several clients utilised this technology,including Biogen, Boehringer Ingelheim and Baxter, the latter programme beinghighly commended for innovation at the Pharmaceutical Marketing Awards. Inaddition, Huntsworth Health's new media business has created several patient andhealthcare professional websites winning the prestigious "Chairman's Award" fromPfizer highlighting excellence in marketing practice. In the US, Citigate Cunningham launched its "Total Media Practice" which usesall the tools of social media to manage the interplay of stories between old andnew media. Driving Revenue Across Our Network As the Huntsworth network strengthens we continue to enjoy higher levels ofinternational business and 2006 saw increasing examples of Group companiescross-referring business within the network, with 11% of Group revenue earned bytwo or more Group companies working together. We have expanded our relationship with North American client E\* TRADE FINANCIALand now provide public relations support across Europe, the Middle East andAsia. We have also expanded our relationship with Symantec, a client in Germanyand Austria, into Italy; Gazeley, the UK headquartered logistics space company,has extended its remit with us from Germany to now include France and Spain andTrimedia's relationship with Extreme Networks has also grown from France intoBenelux and Spain. The Red Consultancy has partnered with the Harrison Cowleynetwork on McDonald's UK and Trimedia was awarded the 13 country PR programmefor COLT Telecom Group plc. The International Confederation of Societies ofAuthors and Composers (CISAC) has appointed Trimedia to develop and implementtheir international PR strategy. Co-ordinated by Trimedia France andimplemented locally by Trimedia's network, the programme aims to improve CISAC'svisibility and recognition in the industry. 266 clients representing 35% of our revenue were served by more than one type ofwork. Awards Best practice is a core principle driving every business within the HuntsworthGroup. Our companies were recognised and honoured in over 70 prestigiousindustry awards worldwide in 2006 demonstrating their leadership in thedisciplines and markets in which they operate. These high profile accolades include success in the PRWeek Awards with CDRwinning Best Financial Campaign for Axa Avenue - the UK's first financial socialexperiment and Best Consumer Campaign being awarded to The Red Consultancy forAA's Car Park Stars campaign. Harrison Cowley won Best Consumer PR campaign inGramia (Grocery Advertising and Marketing Industry Awards) for the BritishCheese Board Cheese and Dreams Programme and a Gold Marketing Society Awards forExcellence in the Cause Related Marketing category for BT's partnership with theDisasters Emergency Committee for the Tsunami Appeal. In Asia, Grayling won Best Mid Sized Network of the Year in the PRWeek Awards,while The Red Consultancy secured Best European Public Sector campaign for TheHome Office in the International SABRE Awards. SCPR has won a prestigious Artsand Business Award for their client Max Mara for the Max Mara Arts Prize forWomen, which the agency devised and launched in 2006. Huntsworth Health landed four awards for Excellence in the Rx Club Awards andfour in the Pharmaceutical Marketing Effectiveness Awards. In addition, theytopped the healthcare category at Europe's premier international creative awardsfor work on behalf of Boehringer Ingelheim. Recognition has gone beyond campaigns on behalf of clients. Trimedia wasrecognised in the "Sunday Times 100 Best Companies to Work For" and by TheHolmes Report as the Best Full Service Agency in Europe. Notes to Editors: 1. Huntsworth PLC is an international Public Relations group which isrooted in local excellence. The Group has 60 principal offices in 30 countries,over 2,700 clients and provides services to 39 companies in the FTSE 100, 142 inthe Fortune 500, and 111 in the Eurotop 300. 2. The Group comprises some of the world's leading Public Relationsagencies including Citigate Dewe Rogerson, Grayling, Hudson Sandler, Red andTrimedia in three core sectors: Full Service Public Relations; Financial andCorporate Communications and Public Affairs; and Healthcare Communications. TheGroup employs over 1,650 staff with an average fee income per head of £96,000. 3. Group revenue comprises the following key areas of activity: CorporateCommunications and Public Affairs accounts for 28%; Full service PublicRelations work accounts for 25% of Group revenue; Financial Non deal lead PublicRelations work is 24%; 10% is in Financial deal lead Public Relations; 10% isHealthcare and 3% is in non-Public Relations activities. 4. The major industry sectors served by Huntsworth include FinancialServices, representing 14% of revenues; Pharmaceutical and Health, representing15%; Information Technology 13%; Retail and Leisure 8% and Food and Drink 8%. 5. Geographically, 48% of Group revenue in 2006 was from the UK, 26% fromthe US, 23% from other European countries and 3% from the Rest of the World.Operating margins for the year ended 31 December 2006 were 21.3% in the UK,18.8% in Europe, 18.5% in the US and 21.4% in the Rest of the World. 6. The Group now represents 226 clients in more than one country (2005:188) and 202 clients are serviced by more than one of our brands (2005:118). Thelargest client represents 1.3% of continuing revenue with the top 10 clientsaccounting for 7.8% and the top 25 clients 15.0%. Average fee income per clientis £51,000. 11% of revenues were earned through companies working together withother group companies. 7. Shareholdings of Directors, employees and employee trusts representapproximately 12% of the Group's issued share capital while institutionalshareholdings comprise 73%. In February 2007, the top 10 institutionalshareholders of Huntsworth held in aggregate approximately 58% of Huntsworth'sissued share capital. Consolidated income statementfor the year ended 31 December 2006 2006 As restated* 2005 Before Highlighted Total Before Highlighted Total highlighted items highlighted items items (Note 5) items (Note 5)Continuing operations Notes £000 £000 £000 £000 £000 £000Turnover 192,323 - 192,323 154,872 - 154,872 Revenue 4 139,747 - 139,747 108,347 - 108,347Operating expenses (119,526) (13,722) (133,248) (95,995) (42,382) (138,377)Operating profit/(loss) 4 20,221 (13,722) 6,499 12,352 (42,382) (30,030)Share of post tax profit of 4 131 - 131 142 - 142associates Profit/(loss) before interest 20,352 (13,722) 6,630 12,494 (42,382) (29,888)and taxationFinance income 6 298 - 298 260 450 710Finance costs 6 (2,939) - (2,939) (3,753) - (3,753)Profit/(loss) from continuing operations before tax 17,711 (13,722) 3,989 9,001 (41,932) (32,931) Taxation (charge)/credit (3,571) 2,585 (986) (543) 3,490 2,947Profit/(loss) for the year 14,140 (11,137) 3,003 8,458 (38,442) (29,984)from continuing operationsLoss from discontinued operations - - - (5,451) - (5,451)Profit/(loss) for the year 14,140 (11,137) 3,003 3,007 (38,442) (35,435) Attributable to:Parent company's equity shareholders 13,931 (11,137) 2,794 2,408 (38,442) (36,034)Minority interests 209 - 209 599 - 599 14,140 (11,137) 3,003 3,007 (38,442) (35,435) Earnings/(loss) per share fromcontinuing operations:Basic - pence 8 1.5 (20.9)Diluted - pence 8 1.4 (20.9)Adjusted basic - pence** 8 7.3 5.4Adjusted diluted - pence** 8 7.1 5.2 Earnings/(loss) per share fromcontinuing and discontinuedoperations:Basic - pence 8 1.5 (24.6)Diluted - pence 8 1.4 (24.6) * Restated for the changes of presentation detailed in Note 2. ** Adjusted basic and diluted earnings per share from continuing operations arecalculated based on profit/(loss) for the year from continuing operations,adjusted for highlighted items charged to continuing operations and the relatedtax effects (Note 8). Consolidated balance sheet as at 31 December 2006 Notes 2006 2005 £000 £000Non-current assetsIntangible assets 9 212,796 194,641Property, plant and equipment 5,403 7,148Investment in associates 224 238Deferred tax 2,654 3,316 221,077 205,343Current assetsWork in progress 1,381 1,277Trade and other receivables 43,728 45,326Cash and short term deposits 10(d) 10,439 9,277 55,548 55,880Assets held for sale 9,598 -Current liabilitiesBank loans and overdrafts 10(d) (101) (126)Loan notes payable 10(c) - (2,790)Obligations under finance leases 10(c) (30) (142)Trade and other payables (48,502) (46,419)Corporation tax payable (7,632) (7,074)Provisions (17,148) (13,470) (73,413) (70,021)Non-current liabilitiesBank loans and overdrafts 10(c) (49,070) (29,373)Obligations under finance leases 10(c) (116) (224)Provisions (12,700) (11,753)Trade and other payables (429) (6,399)Deferred tax liabilities (6,806) (6,239) (69,121) (53,988)Liabilities held for sale (1,688) -Net assets 142,001 137,214EquityCalled up share capital 101,775 96,070Share premium account 23,162 22,921Merger reserve 48,088 73,729Foreign currency translation reserve (3,670) 2,710Investment in own shares (4,000) (691)Potential acquisition of minority interests - (4,168)Retained earnings (24,511) (54,545)Equity attributable to equity holders of the parent 140,844 136,026Minority interests 1,157 1,188Total equity 142,001 137,214 Consolidated cash flow statement for the year ended 31 December 2006 Notes 2006 2005 £000 £000 Cash inflow from operating activitiesCash inflow from operations 10(a) 18,167 11,604Interest paid (2,437) (3,750)Interest received 298 248Corporation tax paid (2,281) (1,877)Net cash inflow from operating activities 13,747 6,225 Cash (outflow)/inflow from investing activitiesAcquisitions of subsidiaries (18,197) (7,956)Special dividend paid to Incepta shareholders - (2,100)Disposal of subsidiaries (1,271) 53,817Acquisition of minority interest (3,711) -Disposal of minority interest 78 -Purchases of property, plant and equipment (2,713) (3,649)Proceeds from sale of property, plant and equipment 694 186Proceeds from sale of fixed asset investments - 55Dividends received from associates 146 -Net cash acquired with subsidiaries 2,516 25,920Net cash disposed of with subsidiaries (83) (512)Net cash (outflow)/inflow from investing activities (22,541) 65,761 Cash inflow/(outflow) from financing activitiesProceeds from issue of ordinary shares 361 62Purchase of own shares (3,626) -Proceeds from sale of own shares to employees 317 -Repayment of finance lease liabilities (218) (199)Repayment of loan notes (2,760) (5,636)Net drawdown/(repayment) of borrowings 19,774 (58,048)Dividends paid to minority interests (326) (163)Dividends paid to equity holders of the parent (3,058) (1,231)Net cash inflow/(outflow) from financing activities 10,464 (65,215)Increase in cash and cash equivalents 1,670 6,771 Movements in cash and cash equivalentsIncrease in cash and cash equivalents 1,670 6,771Effects of exchange rate fluctuations on cash held (496) (252)Cash and cash equivalents at 1 January 9,151 2,632Cash and cash equivalents at 31 December 10(c),(d) 10,325 9,151 Consolidated statement of changes in equityfor the year ended 31 December 2006 Called Share Merger Foreign Investment Potential Retained Total Minority Total up premium reserve currency in own acquisition earnings interests equity share account £000 translation shares of minority £000 £000 £000 £000 capital £000 reserve £000 £000 interest £000 £000 At 1 January 2005 30,444 23,615 7,902 (183) (8) - (18,388) 43,382 699 44,081Impact of adoption of IAS 32 and IAS39 on 1 January2005 - - - - - (4,168) - (4,168) - (4,168)Currency translationdifferences - - - 2,893 - - - 2,893 (4) 2,889Total income and expense recognisedin equity for theyear - - - 2,893 - - - 2,893 (4) 2,889Profit for the year - - - - - - (36,034) (36,034) 599 (35,435)Total recognised income and expensefor the year - - - 2,893 - - (36,034) (33,141) 595 (32,546)Shares issued for cash 50 12 - - - - - 62 - 62Acquisitions of subsidiaries 65,556 - 65,827 - - - - 131,383 240 131,623Disposal of minority interests - - - - - - - - (183) (183)Purchase of own shares - - - - (683) - - (683) - (683)Share issue costs - (721) - - - - - (721) - (721)Credit for share-basedpayments - - - - - - 1,164 1,164 - 1,164Deferred tax on share-basedpayments - - - - - - (21) (21) - (21)Scrip dividend 20 15 - - - - (35) - - -Equity dividends - - - - - - (1,231) (1,231) - (1,231)Dividends to minority interests - - - - - - - - (163) (163)Balance at 1 January 2006 96,070 22,921 73,729 2,710 (691) (4,168) (54,545) 136,026 1,188 137,214Currency translationdifferences - - - (6,380) - - - (6,380) - (6,380)Total income and expense recognisedin equity for theyear - - - (6,380) - - - (6,380) - (6,380)Profit for the year - - - - - - 2,794 2,794 209 3,003Total recognised income and expensefor the year - - - (6,380) - - 2,794 (3,586) 209 (3,377)Transfer from merger reserve - - (29,901) - - - 29,901 - - -Shares issued for cash 299 62 - - - - - 361 - 361Acquisitions of subsidiaries 5,167 - 4,260 - - - - 9,427 - 9,427Movement in minority interests - - - - - 4,168 (450) 3,718 44 3,762Purchase of own shares - - - - (3,677) - - (3,677) - (3,677)Disposal of purchased ownshares - - - - 368 - - 368 - 368Share issue costs - (16) - - - - - (16) - (16)Credit for share-basedpayments - - - - - - 1,277 1,277 42 1,319Scrip dividend 239 195 - - - - - 434 - 434Equity dividends - - - - - - (3,488) (3,488) - (3,488)Dividends to minority interests - - - - - - - - (326) (326)Balance at 31 December 2006 101,775 23,162 48,088 (3,670) (4,000) - (24,511) 140,844 1,157 142,001 Notes to the preliminary consolidated financial statementsfor the year ended 31 December 2006 1. Basis of preparation The consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards ('IFRS'), as adoptedin the European Union and as applied in accordance with the provisions of theCompanies Act 1985. On 20 March 2007 the consolidated financial statements ofthe Group were authorised for issue in accordance with a resolution of thedirectors, and will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. Statutory accounts for the year ended 31December 2005 have been filed with the Registrar of Companies. The auditors'reports on the financial statements for the years ended 31 December 2006 and2005 are unqualified and do not contain any statement under Section 237 (2) or(3) of the Companies Act 1985. The annual financial information presented in this preliminary announcement forthe year ended 31 December 2006 is based on, and is consistent with, that in theGroup's audited financial statements for the year ended 31 December 2006. Thispreliminary announcement does not constitute statutory accounts of the Groupwithin the meaning of Section 240 of the Companies Act 1985. The Group financial statements are presented in Sterling and all values arerounded to the nearest thousand pounds (£'000) except where otherwise indicated. 2. Accounting policies The preliminary consolidated financial statements have been prepared inaccordance with the accounting policies of the Group which are set out on pages32 to 35 of the 2005 Annual Report and Accounts. No changes have been made tothe Group's accounting policies in 2006. Changes in presentation of financial information In 2005, holiday pay, share-based payment charges and imputed interest ondeferred consideration were presented as 'Highlighted items'. In 2006 thedirectors have decided to treat the holiday pay and share-based payment chargesas normal operating expenses rather than highlighted items, and these chargeshave been reclassified accordingly. Imputed interest on deferred considerationhas also been treated as a normal finance cost rather than a highlighted item,and has been reclassified accordingly. The directors consider that these newclassifications are in line with best practice which has been establishedfollowing the transition to IFRS. To allow comparability against the 2006disclosures, the comparatives for the year ended 31 December 2005 have beenrestated. In the prior year, the Group's share of profit of associates was presented afterfinance income and finance costs in the income statement. In 2006, the Group'sshare of profit of associates has been reclassified to be included within 'Profit before Interest and Taxation' in order to show the total operatingresults of the Group. The 2005 comparatives have been restated accordingly. 3. Acquisitions and disposals i) Acquisitions The following acquisitions were made during the year: Mmd Group On 31 October 2006 the Group acquired 100% of the issued share capital andcertain businesses and assets of Mmd Central & Eastern Europe Limited and itssubsidiaries and Raxton Communications Limited (together "the Mmd Group"), agroup of public relations businesses operating in 18 countries in Central andEastern Europe. The initial consideration was £12.0 million, of which £7.2 million was paid incash and £4.8 million was satisfied by the issue of new ordinary shares.Deferred consideration may be payable, with interim payments to be settled 60%in cash and 40% in new ordinary shares in Huntsworth, based on the profits forthe years to 30 June 2007 and 30 June 2008. A final payment may be due based onthe 3 years to 30 June 2009, payable in cash or shares at Huntsworth's option.The maximum total consideration is £35.0 million. Eurotandem SAS On 16 February 2006 the Group acquired 100% of the share capital in EurotandemSAS for total initial consideration of €6.1 million (£4.2 million), of which€4.1 million (£2.8 million) was paid in cash and €2.0 million (£1.4 million) wassatisfied by the issue of new ordinary shares. Deferred consideration may bepayable dependent on the future financial performance of Eurotandem and will bepayable in cash or shares, at Huntsworth's sole discretion. The maximum totalconsideration payable is €8.65 million (£6.0 million). Quiller Associates Limited On 19 October 2006 the Group acquired 100% of the issued share capital ofQuiller Associates Limited and its subsidiary The Quiller Consultancy Limited. The initial consideration was £5.9 million, of which £4.2 million was paid incash and £1.7 million was satisfied by the issue of new ordinary shares.Deferred consideration may be payable, with an interim payment to be settled twothirds in cash and one third in new ordinary shares in Huntsworth, based on theprofits for the year to 31 December 2006. A final payment may be due based onthe 3 years to 31 December 2009, payable in cash or shares at Huntsworth'soption. The maximum total consideration is £10.7 million. Sanchis Y Associados On 8 November 2006 the Group acquired 100% of the share capital of Sanchis YAssociados, a company incorporated in Spain, for a total cash consideration,including costs, of £0.2 million. Hudson Sandler On 26 April 2006, the Group acquired the 40% minority interest in Hudson SandlerLimited held by the Hudson Sandler management team for cash consideration of£3.7 million. Huntsworth subsequently transferred the 100% shareholding inHudson Sandler into a new company in which a broader Hudson Sandler managementteam have a 20% interest. ii) Disposals Citigate Dewe Rogerson India On 8 February 2006 the Group disposed of its 80% shareholding in Citigate DeweRogerson India for cash consideration of £100,000. Included in the consolidatedincome statement is operating revenue of £23,000 and profit before tax of £1,000for this business. 3. Acquisitions and disposals (continued) nxtMOVE LLC On 6 March 2006 the Group disposed of the business and assets of nxtMOVE LLC for$1.55 million (£0.84 million). Included in the consolidated income statement isoperating revenue of $435,000 (£237,000) and a loss before tax of $240,000(£131,000) for this business. Citigate Sard Verbinnen On 15 February 2006, the Group announced that it had reached an agreement tosell Citigate Sard Verbinnen ('CSV') by the end of 31 December 2009.Shareholders approved the sale on 6 March 2006. Under the sale agreements, 51%was acquired by certain executives of CSV on 5 January 2007 for $2.5 million(£1.4 million) and a fixed net asset payment of $2.7 million (£1.5 million) isto be made by 30 September 2007. The remaining 49% will be acquired no laterthan 31 December 2009 for a total cash consideration of not less than $17.5million (£10.2 million) (such amounts to have an aggregate present value of $20million (£11.6 million) as at 1 January 2006). This will be reduced by theamount of cash distributions from CSV from 1 January 2006. 4. Segmental analysis The Group offers its clients a range of public relations services. The directorshave considered the services provided under a number of criteria (nature ofservices, type or category of clients, methods of distribution and supply ofservices, nature of regulatory environment), and have concluded that the Group'spublic relations businesses generally have similar risks and returns andtherefore represent a business segment. The Group also has a small number ofother non public relations businesses which operate in areas such as events andadvertising and have different risks and returns from public relations and theseare treated separately, as set out below. Business segments The following table analyses the revenue and operating profit regarding theGroup's business segments for the year ended 31 December 2006: Public Non public Eliminations Total relations relations £000 continuing £000 £000 operations £0002006RevenueExternal 127,932 11,815 - 139,747Intra-group 138 - (138) -Segmental revenue 128,070 11,815 (138) 139,747 Operating profitSegment operating profit from continuing operations before highlighted items 26,836 1,133 - 27,969Unallocated expenses (7,748)Operating profit before highlighted items 20,221Highlighted items - operating expenses (12,638) (1,084) - (13,722)Operating profit 6,499Share of profit of associates 131 - - 131Profit before interest and taxation 6,630Net finance costs (2,641)Profit before tax 3,989Taxation (986)Profit for the year from continuing operations 3,003 4. Segmental analysis (continued) The following table analyses the revenue and operating profit/(loss) regardingthe Group's business segments for the year ended 31 December 2005, restated forchanges in presentation as described in Note 2:2005 Public Non public Eliminations Total relations relations £000 continuing £000 £000 operations £000RevenueExternal 94,972 13,375 - 108,347Intra-group (4) 97 (93) -Segmental revenue 94,968 13,472 (93) 108,347 Operating profitSegment operating profit from continuing operations before highlighted items 18,164 1,939 - 20,103Unallocated expenses (7,751)Operating profit before highlighted items 12,352Highlighted items - operating expenses (34,233) (8,149) (42,382)Operating loss (30,030)Share of profit of associates 142 - 142Loss before interest and taxation (29,888)Net finance costs (3,043)Loss before tax (32,931)Taxation 2,947Loss for the year from continuing operations (29,984) Inter-segment sales are arm's length transactions at prevailing market rates. The loss from discontinued activities of £5,451,000 in 2005 relates tobusinesses in the non public relations segment. 4. Segmental analysis (continued) Geographical segments The following tables analyse the Group's revenue and operating profit excludinghighlighted items by geographical segments for the years ended 31 December 2006and 31 December 2005. The operating profit by geographical segment for the yearended 31 December 2005 has been restated for changes in presentation asdescribed in Note 2: 2006 As restated £000 2005 £000RevenueUnited Kingdom 66,952 58,293Other European 31,610 22,857USA 37,030 24,035Rest of World 4,293 3,162Eliminations (138) -Total 139,747 108,347 Operating profit before highlighted itemsUnited Kingdom 14,243 11,504Other European 5,948 4,000USA 6,861 3,945Rest of World 917 654Segment operating profit from continuing operations before highlighted items 27,969 20,103Unallocated expenses (7,748) (7,751)Operating profit before highlighted items 20,221 12,352Highlighted items - operating expenses (13,722) (42,382)Operating profit/(loss) 6,499 (30,030) 5. Highlighted items charged to operating profit The following highlighted items have been recognised in arriving at operatingprofit from continuing operations: 2006 As restated 2005 £000 £000Amortisation of intangible assets 4,051 3,402Impairment of goodwill and intangible assets 7,926 29,571Merger, restructuring and other non-recurring costs 1,745 9,409 13,722 42,382 Highlighted items charged to operating profit comprise significant non-cashcharges and non-recurring items which are highlighted in the income statementbecause separate disclosure is considered helpful in understanding theunderlying performance of the business. Amortisation of intangible assets Intangible assets are amortised systematically over their estimated usefullives, which vary from 3 to 20 years depending on the nature of the asset.These are significant non-cash charges which arise as a result of acquisitions. Impairment of goodwill and intangible assets Of the impairment charge for goodwill and intangible assets, £3.7 millionrelates to the write-down of Citigate Sard Verbinnen to the recoverable amountfollowing the signing of an agreement to sell the business as announced on 15February 2006. A further £4.2 million relates to writing down goodwill andintangible assets of other businesses (principally Citigate Demuth) following areview of their future prospects. Merger, restructuring and other non-recurring costs Merger, restructuring and other non-recurring costs comprise expenses relatingto the integration and restructuring of businesses within the Group togetherwith certain other non-recurring costs. In 2006, these costs related to therestructuring of the UK healthcare business and the launch of Huntsworth Health(£0.9 million), aborted acquisition costs (£0.6 million), and othernon-recurring costs (£0.2 million). In 2005, these costs related to employeeseverance costs (£4.5 million), property charges (£2.7 million), integrationcosts (£1.2 million), closures (£0.2 million), and other non-recurring costs(£0.8 million). 6. Finance costs and income Continuing operations 2006 2005 £000 £000Bank interest payable 2,414 3,207Loan note interest 1 66Finance lease interest 12 30Other net interest payable 23 -Provision discount adjustment 283 240Imputed interest on deferred consideration 206 210Finance costs 2,939 3,753Bank interest receivable (298) (227)Revaluation of put option over minority interest - (450)Other net interest receivable - (33)Finance income (298) (710) 2,641 3,043 The revaluation of the put option over minority interest was treated as ahighlighted item in the income statement in 2005 as it was a significantnon-recurring item. 7. Dividends 2006 2005 £000 £000Equity dividends on ordinary shares:Special second interim dividend for year ended 2004 - 0.5p* - 306Interim dividend for year ended 2005 - 0.5p - 960Final dividend for the year ended 2005 - 1.2p 2,328 -Interim dividend for year ended 2006 - 0.6p 1,160 - 3,488 1,266 * Adjusted for share consolidation on 14 July 2005 A final dividend of 1.3 pence per share has been proposed for approval at theAnnual General Meeting in 2007 and has not been recognised as a liability at 31December 2006. 8. Earnings/(loss) per share The data used in the calculations of the earnings/(loss) per share numbers issummarised in the table below: 2006 2005 Earnings Weighted average (Loss)/ Weighted average £000 number of shares earnings number of shares 000's £000 000'sContinuing operations:Basic 2,794 191,458 (30,583) 146,579Diluted 2,794 195,413 (30,583) 146,579*Adjusted basic 13,931 191,458 7,859 146,579Adjusted diluted 13,931 195,413 7,859 149,970 Continuing and discontinuedoperations:Basic 2,794 191,458 (36,034) 146,579Diluted 2,794 195,413 (36,034) 146,579* * Because basic EPS results in a loss per share the diluted EPS is calculatedusing the undiluted weighted average number of shares. The basic earnings per share calculation is based on the profit/(loss) for theyear attributable to parent company shareholders divided by the weighted averagenumber of ordinary shares outstanding during the year. Diluted earnings per share is calculated based on the profit/(loss) for the yearattributable to parent company shareholders divided by the weighted averagenumber of ordinary shares outstanding during the year adjusted for thepotentially dilutive impact of employee share option schemes and shares to beissued as part of contingent consideration on acquisitions of subsidiaries. Adjusted earnings per share is calculated in order to provide information toshareholders about continuing trading performance and is based on the profitattributable to parent company shareholders excluding discontinued operationsand highlighted items together with related tax effects as set out below: 8. Earnings/(loss) per share (continued) (a) From continuing operations The calculation of basic and diluted earnings/(loss) per share attributable toparent company shareholders is based on the following: 2006 As restated 2005 £000 £000Earnings:Profit/(loss) for the year attributable to parent company's shareholders 2,794 (36,034)Add: Loss from discontinued operations - 5,451Earnings/(loss) for basic and diluted earnings per share from continuing operations 2,794 (30,583)Highlighted items 13,722 41,932Tax on highlighted items (2,585) (3,490)Adjusted earnings 13,931 7,859 2006 2005 000's 000'sNumber of shares:Weighted average number of ordinary shares - basic and adjusted 191,458 146,579Effect of share options in issue 786 1,743Effect of deferred contingent consideration 3,169 1,648Weighted average number of ordinary shares - diluted 195,413 149,970 (b) From continuing and discontinued operations Earnings for basic and diluted earnings/(loss) per share from continuing anddiscontinued operations is the profit/(loss) for the year attributable to parentcompany shareholders. The number of shares is the same as those detailed forcontinuing operations. (c) From discontinued operations In 2005 basic loss per share from discontinued operations was 3.7 pence, anddiluted loss per share was 3.7 pence, based on the loss for the year from thediscontinued operations of £5,451,000, and the denominators above for both basicand diluted loss per share. 9. Intangible assets Customer Brands relationships Goodwill Total £000 £000 £000 £000CostAt 1 January 2006 19,697 10,959 197,994 228,650Arising on acquisitions in the year 1,863 4,564 32,422 38,849Adjustment to prior year acquisitions - - 1,809 1,809Arising on disposal of subsidiaries in the year - - (1,614) (1,614)Reclassified to assets held for sale (2,426) (2,064) (15,286) (19,776)Exchange differences (801) (496) (6,545) (7,842)At 31 December 2006 18,333 12,963 208,780 240,076Amortisation and impairment chargesAt 1 January 2006 5,717 4,802 23,490 34,009Charge for the period 776 3,275 - 4,051Arising on disposal of subsidiaries in the year - - (1,143) (1,143)Impairment 792 126 7,008 7,926Reclassified to assets held for sale (2,426) (2,064) (10,435) (14,925)Exchange differences (436) (385) (1,817) (2,638)At 31 December 2006 4,423 5,754 17,103 27,280Net book value at 31 December 2006 13,910 7,209 191,677 212,796Net book value at 31 December 2005 13,980 6,157 174,504 194,641 Brands and customer relationships are being amortised over their useful economiclives of between 3 and 20 years. The amounts recognised above for intangibleassets arising on acquisitions in the period are provisional awaiting finaldetermination in accordance with the time limit allowed in IFRS 3. Details ofacquisitions made during the period are set out in Note 3. 10. Cash flow analysis (a) Reconciliation of operating profit to net cash inflow from operations 2006 2005 £000 £000 Operating profit/(loss) from continuing operations 6,499 (30,030)Operating profit from discontinued operations - 283Depreciation 2,381 2,892Share option charge 1,839 712(Profit)/loss on disposal of property, plant and equipment (25) 744Amortisation of intangible assets 4,051 4,594Impairment of goodwill and intangible assets 7,926 30,187(Increase)/decrease in work in progress (186) 394Decrease in debtors 1,722 2,781(Decrease)/increase in creditors (1,300) 3,208Decrease in provisions (4,740) (4,161)Net cash inflow from operations 18,167 11,604 Net cash inflow/(outflow) from operations is analysed as follows: 2006 2005 £000 £000Before highlighted items and discontinued operations 26,371 17,960Highlighted items (8,204) (10,728)Discontinued operations - 4,372Net cash inflow from operations 18,167 11,604 10. Cash flow analysis (continued) (b) Reconciliation of net cash flow to movement in net debt 2006 2005 £000 £000Increase in cash and cash equivalents in the year 1,670 6,771Cash (inflow)/outflow from debt (drawdown)/repayment (19,774) 58,048Bank loans and overdrafts acquired - (78,536)Loan notes acquired - (6,325)Loan notes repaid 2,760 5,636Repayment of capital element of finance leases 218 199Change in net debt resulting from cash flows (15,126) (14,207)Finance leases acquired with subsidiaries - (159)New finance leases - (236)Disposal/cancellation of finance leases - 131Translation differences 10(c) (387) (2,435)Increase in net debt (15,513) (16,906)Net debt at beginning of year (23,378) (6,472)Net debt at end of year (38,891) (23,378) (c) Analysis of net debt 1 January Cash flow Foreign 31 December 2006 2006 £000 exchange £000 £000 £000Cash and short term deposits 9,277 1,644 (495) 10,426Bank loans and overdrafts (current) (126) 26 (1) (101)Net cash and cash equivalents 9,151 1,670 (496) 10,325Bank loans and overdrafts (non-current) (29,373) (19,774) 77 (49,070)Obligations under finance leases (366) 218 2 (146)Loan notes payable (2,790) 2,760 30 -Net debt (23,378) (15,126) (387) (38,891) (d) Cash and cash equivalents 2006 2005 £000 £000Cash and short term deposits 10,439 9,277Bank loans and overdrafts (current) (101) (126)Bank overdraft included in liabilities held for sale (13) -Cash and cash equivalents 10,325 9,151 11. Post balance sheet events On 5 January 2007 the Group completed the disposal of its 51% interest inCitigate Sard Verbinnen ('CSV'), as detailed in Note 3. On 5 March 2007, the Group's committed overdraft facility was increased from £15million to £35 million. On 9 March 2007 the Company announced the acquisition of the entire issued sharecapital of Dorland Global Corporation, a leading healthcare communicationscompany operating is the USA, for initial cash consideration of US$20.7 million(£10.6 million). Further consideration may be payable, with an interim paymentto be settled in cash based on profits for the year to 31 December 2007, and afinal payment to be settled in cash based on profits for the three years to 31December 2010. The maximum total consideration is US$50.0 million (£25.5million). On 16 March 2007, the Group completed the disposal of 100% of the share capitalof Citigate Demuth GmbH to Media Square plc for cash consideration equivalent tonet asset value. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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