Final Results for the year ended 31 December 2013

Motivcom plc

("Motivcom", "the Company" or "the Group")

Final Results for the year ended 31 December 2013

Motivcom plc (AIM:MCM), a leading business services group offering incentives & loyalty expertise and meetings & event management services to major blue-chip corporate clients, is pleased to announce its final results for the year ended 31 December 2013.

HIGHLIGHTS

· Headline operating profit* increased by 5% to £4,375,000 (2012: £4,147,000)

· Headline profit before tax† increased by 6% to £4,359,000 (2012: £4,121,000)

· Headline basic earnings per share‡ increased by 11% to 12.00 pence (2012: 10.79 pence)

· Operating profit increased by 7% to £2,900,000 (2012: £2,713,000)

· Profit before tax increased by 13% to £2,817,000 (2012: £2,502,000)

· Basic earnings per share increased by 5 % to 6.86 pence (2012: 6.52 pence)

· Proposed final dividend of 3.6 pence per share to be paid on 18 June 2014, making a total dividend of 5.4 pence per share (2012: 4.5 pence per share), an increase of 20%

· Net cash balances at 31 December 2013 of £6,388,000 (2012: £11,993,000) having accounted for, inter alia, April 2013 share tender offer cost of £3,364,000

*Operating profit of £2,900,000 (2012: £2,713,000) plus amortisation and impairment of intangible assets of £1,500,000 (2012: £2,075,000) and acquisition expenses of £nil (2012: £59,000) less contingent consideration adjustment credit of £25,000 (2012: £700,000).

† Profit before tax of £2,817,000 (2012: £2,502,000) plus amortisation and impairment of intangible assets of £1,500,000 (2012: £2,075,000), acquisition expenses of £nil (2012: £59,000) and unwinding of discount relating to contingent consideration liability of £67,000 (2012: £185,000), less contingent consideration adjustment credit of £25,000 (2012: £700,000).

‡ See reconciliation in Note 5

Commenting on the results, Colin Lloyd, Chairman of Motivcom plc, said: "The Board is pleased to announce an increase in headline operating profit during the period, although budgetary pressures have continued to impact the Meetings and Events business, resulting in the overall outcome for the year being slightly lower than the Board's expectations. The Group continues to make good progress on its stated five year strategy, with the Motivation division performing particularly well, increasing headline operating profit by 72%, and the Employee Benefits market also seeing uplift during the period, particularly in the SME sector.

Given the Group's strong cash balance and ongoing cash generation, the Board has proposed a final dividend of 3.6 pence, a 20% increase over 2012. The Group is cautiously optimistic about the Group's prospects, assuming no material change to the economic environment."

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CHAIRMAN'S STATEMENT

I am pleased to report that the results for the year to 31 December 2013 show an increase over the outcome for 2012, albeit slightly below the Board's expectations. As set out in the interim report for the period ended 30 June 2013, the event management and live production areas have continued to see budgetary pressures and reducing numbers of delegates impacting volume, average spend per head and profitability. Whilst a flat performance was expected for the events business area in 2013, the final outturn was impacted by lower than expected new business intake in this area towards the end of the year. The Board remains cautious about the levels of new events business in the Meetings & Events business.

The Group remains cash generative and maintains a strong balance sheet with average net cash of circa £3 million which enables the continuation of a progressive dividend policy. The April 2013 share tender offer successfully returned £3.3 million of cash to shareholders.

Financial update

Headline operating profit increased by 5% to £4,375,000 (2012: £4,147,000) on a gross profit that decreased by 2% to £28,717,000 (2012: £29,317,000). Headline profit before tax increased by 6% to £4,359,000 (2012: £4,121,000). Headline basic earnings per share increased by 11% to 12.00 pence (2012: 10.79 pence).

Net cash balances stood at £6,388,000 (2012: £11,933,000) after the Company's share tender offer in April 2013 which cost £3.4 million. The 2012 net cash balance contained an exceptional £3.5 million of cash relating to client pass through costs that were paid out in early January 2013.

Dividends

In view of the cash generative nature of the Group's business, the Company proposes a final dividend for 2013 of 3.6 pence per share. This makes a total dividend per share of 5.4 pence for 2013 (2012: total dividend of 4.5 pence), an increase of 20%. This final dividend will be paid on 18 June 2014 to shareholders on the register at close of business on 4 April 2014.

The Board intends to grow the dividend in real terms whilst aiming for earnings cover of two times over the medium term.

Strategy

As stated in my previous reports the Board has set a clear and achievable five year strategy for the Group covering people and client development, new products and services as well as executing appropriate acquisitions as they arise. This strategy is being met through the various developments set out in this report. The Board believes that the strategy will continue to build on the core strengths of the Group and places Motivcom in an excellent position to take advantage of the reported upturn in the economy.

Divisional Reports

Motivation

The Motivation division increased gross profit by 18% to £6.9 million and divisional headline operating profit increased by 72% to £2.6 million. The increase in gross profit has dropped directly to the operating profit of the division reflecting the upside of growing scale in the operation combined with tight cost control. Whilst some modest investment in operating resources will be required in 2014 to meet the demands of a growing client base, the division maintains a positive outlook.

Motivation programme activity developed well in 2013; our clients continue to recognise the positive impact of employee engagement on productivity, customer satisfaction and employee attrition. In response to slow decision making in terms of new business, there was an increased focus on existing client development which proved fruitful. In addition our increasing expertise in digital marketing for new business lead generation is working well, and a number of new client wins in early 2014 is testament to that success.

Voucher and gift card volumes were down 3% on 2012 to £66 million. Whilst slightly disappointing this is more a reflection of certain one off voucher based promotions in early 2012 rather than a poor 2013. Operational efficiencies were delivered from a continued migration from paper vouchers to plastic gift cards with 49% of the volume on plastic at the end of 2013. A strong end to the year indicates a positive sentiment from our wide client base in this area.

Following a slightly hesitant start to the year, Spree, the Group's prepaid MasterCard® product, has continued to expand. In 2013, load values were up 10% to £184 million (2012: £170 million). This growth was primarily driven by the expansion of existing card programmes which also benefited from improved profitability as the investment in data analytics and marketing to our existing cardholder base showed good returns.

Promotions

In the Promotions division, gross profit increased by 9% to £9.3 million but divisional headline operating profits fell by 26% from £1 million to £0.8 million. The operating loss in Summersault Communications widened by £0.1 million in 2013 and final margins in fixed fee business were lower than expected.

Employee Benefits

All Employee Benefit markets continued to see healthy growth in 2013. The SME market remained strong, with employers looking to provide more to staff without significant cost. We also re-enforced our position in the Public sector, both winning a number of significant new contracts and also retaining existing ones. Innovation and market leading product led to a record year for new business intake and retention levels for our existing clients exceeded expectations. Testimony to this was our award for 'Best Voluntary Benefits provider of the Year' at the Workplace Savings and Benefits Awards in October 2013.

2013 was another good year for Allsave, the Group's flagship child care provider despite pressure on fee rates due to a highly competitive market place and a reduction in voucher value for higher rate taxpayers. Pleasingly the number of scheme members grew by 11% which we believe outperformed the market. Client retention remains a major strength in the business as client relationships are secured and enhanced through excellent customer service and client activity. As a result we continue to grow existing schemes year on year. With the announcement of the new Tax Free Childcare ("TFC") Scheme by the Government from autumn 2015, Allsave has been working closely with HMRC in the TFC consultation process, to input into the design of the new TFC scheme.

The outlook for 2014 looks particularly promising for this area of the business. Our Intermediary relationships are strengthening and marketing campaigns are resulting in a healthy pipeline of leads with good conversion expected. Quarter 2 will see the launch of a portfolio of salary sacrifice products and voluntary benefits which will secure our commitment to the B2B market to both existing clients and new prospects.

Sales Promotion

2013 was both a challenging and positive year for fixed fee sales promotions at P&MM. Sales were strong but margins were lower than anticipated. We nevertheless ended the year with good figures and a positive outlook.

The Board is confident about 2014 as we have recently recruited some particularly experienced business developers. We continue to look at business structures in order to improve both our profitability and client service and have exciting development opportunities with long term clients that should help us have a strong year.

Treatme, our in house experience and activity brand, has bedded into the Group, meeting the challenges of its relocation from Chester to Milton Keynes and the employment of a whole new customer service team. We began implementing a strategy of becoming a market leading player through a new website, improved customer journey and increased breadth and depth of product offering, whilst maintaining a firm control on marketing costs. Treatme is now in a very advantageous position to move forward and 2014 is already looking positive with all the key KPIs improving.

Our Entice customer loyalty proposition was significantly re-engineered during the course of the year which resulted in excellent new client confirmations in the latter part of 2013 for delivery in 2014. Further major investment is being made in the product and talent during 2014 from which we expect to deliver further continued growth during the year.

Overall, although the markets we operate in remain very competitive, we are confident we can continue to outperform the market.

Meetings & Event Management

Gross profit in the Events division fell by 18% to £12.2 million and divisional headline operating profits decreased by 50% to £0.9 million. Whilst venue find volumes were 24% above budget the event and live production areas continued to see budgetary pressures and reducing numbers of delegates impacting volume, average spend per head and profitability. Expected new business intake towards the end of the year in this area was also lower than expected.

2013 has been a year of evolution for the Meetings and Events division. Following a fundamental strategic review, the business is being reorganised under one primary brand, Zibrant, and into three core operating areas. These will focus on meeting booking, meeting management and creative production and communications. These core functions will provide each market sector with more specialist skill sets and provide more clarity of message to prospective clients.

Gross profit in 2014 is expected to be maintained at the 2013 level. Our cost reduction programme continued in 2013 and will continue into 2014 as we re-engineer and right-size the business.

During this time we have also invested in the Events division, recruiting new creative talent into our live creative production area to strengthen our competitive offering and win new business. In the meetings booking area we are investing in new software to improve the product offering and reduce cost of delivery.

The anticipated upturn in the events business has, to date, not materialised and the Board remains cautious about the Meeting & Events area of the business. However, there has been a gradual recovery in the meeting booking environment which we expect to continue into 2014 and beyond. This recovery coupled with the continued restructure of our event management services provides a platform for medium term growth.

Outlook

The Group is cautiously optimistic about the Group's prospects, assuming no material change to the economic environment.

Colin Lloyd

Chairman

26 March 2014

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2013

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE FINANCIAL INFORMATION

1 Basis of information in this announcement

The financial information in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 31 December 2012 but is derived from those accounts.

Statutory Accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's annual general meeting. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

This announcement has been prepared on the basis of the Group's accounting policies. These are set out in its Annual Report and Accounts for the year ended 31 December 2012 which is available on the Group's website (www.motivcom.com).

The financial statements are prepared on a going concern basis. In considering going concern, the directors have reviewed the Group's future cash requirements and earnings projections. The directors believe these forecasts have been prepared on a prudent basis and have also considered the impact of a range of potential changes to trading performance. The directors have concluded that the Group should be able to operate within its current facilities and comply with its banking covenants for the foreseeable future and therefore believe it is appropriate to prepare the financial statements of the Group on a going concern basis. This is supported by the Group's liquidity position at the year end.

2 Segment information

At 31 December 2013 the Group is organised into three main business segments - (1) development and administration of third party motivation and incentive programmes ("Motivation") - (2) the provision of incentive travel, live events and venue find ("Events") - (3) trade and consumer sales promotions, employee benefit products and communications ("Promotions"). Unallocated costs represent corporate and share-based payment expenses.

The segment results for the year ended 31 December 2013 are as follows:

The segment results for the year ended 31 December 2012 are as follows:

The Group's business is divided into two main streams - Incentives and Loyalty ("Incentives") and Meetings and Event Management ("Meetings"). Incentives comprises the segment results of Motivation and Promotions but also includes the motivation business of AYMTM Limited included in Events. Meetings comprises the segment results of Events less the motivation business of AYMTM Limited. The Group recognises that this additional information enables its shareholders better appreciate the nature of its business.

The analysis for the year ended 31 December 2013 is as follows:

The analysis for the year ended 31 December 2012 is as follows:

The home country of the Company and its subsidiaries is England. The Group's sales are mainly in countries within the UK and the eurozone and, allocated on the basis of the country in which the customer is located, are as follows:

No client represented greater than 10% of Group revenue in either 2013 or 2012.

3 Interest expense

4 Income tax expense

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

The weighted average applicable tax rate was 31.8% (2012: 22.9%).

5 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all contracted dilutive potential ordinary shares. The Company has only one category of dilutive potential ordinary shares, share options.

The calculation is performed for the share options to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options and taking account of the yet unexpensed share based payment charge relating to those options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Tranches two to four of the options granted to C T Lloyd have been excluded from this calculation as all the conditions attaching to the proposed options had not been met at 31 December 2013.

Headline basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company plus (i) the amortisation of intangible assets, (ii) acquisition expenses and (iii) adjustments to contingent consideration by the weighted average number of ordinary shares in issue during the period.

6 Dividends

The proposed final dividend for the year ended 31 December 2013 of 3.6 pence per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The total amount proposed is £979,636.

7 Cash generated from operations

8 Acquisitions

No acquisitions were made in 2013. In 2012, £300,000 was expended on the acquisition of the entire issued share capital of TreatMe.Net Limited. £641,000 was in respect of goodwill. The net cash outflow on this acquisition was £244,000, being £300,000 consideration settled in cash less £56,000 cash acquired. In 2013 £309,000 (2012 - £308,000) was expended in cash in respect of contingent consideration relating to the 2011 acquisition of Allsave Limited and My Family Care Vouchers Limited.

9 Share Capital

On 15 April 2013 the Company purchased 3,010,181 of its own shares at a price per share of 110 pence for a total cost of £3,311,000 by means of a Tender Offer to all shareholders. Additionally, costs of £53,000 were incurred. The shares were immediately cancelled on 15 April 2013 and £15,051 transferred from share capital to capital redemption reserve.