Interim results for 3 and 6 months to 31 Mar 2013

EMBARGOED UNTIL 7.00am, 13 June 2013

AVESCO GROUP plc

RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED 31 MARCH 2013

Avesco Group plc (AIM: AVS), a leading international provider of services to the corporate presentation, entertainment and broadcast markets, announces its results for the three months and six months ended 31 March 2013.

KEY HIGHLIGHTS

Six months to 31 March 2013

·; Revenue down 2% to £65.9m (six months ended 31 March 2012: £67.5m)

·; Operating profit increased to £2.7m (six months ended 31 March 2012: £1.7m)

·; Trading profit increased to £2.8m (six months ended 31 March 2012: £2.1m)*

·; Trading EBITDA up 1% to £11.8m (six months ended 31 March 2012: £11.6m)*

·; Basic earnings per share of 4.8p (six months ended 31 March 2012: 3.7p)

·; Adjusted basic earnings per share of 7.5p (six months ended 31 March 2012: 5.1p)*

Three months to 31 March 2013

·; Revenue up 5% to £35.7m (three months ended 31 March 2012: £33.9m)

·; Operating profit increased to £2.9m (three months ended 31 March 2012: £2.0m)

·; Trading profit increased to £2.9m (three months ended 31 March 2012: £2.0m)*

·; Trading EBITDA up 8% to £7.5m (three months ended 31 March 2012: £6.9m)*

·; Basic earnings per share of 7.0p (three months ended 31 March 2012: 6.3p)

·; Adjusted basic earnings per share of 9.6p (three months ended 31 March 2012: 6.3p)*

* As described in note 3, the Group uses certain non-GAAP alternative measures to assess underlying operating performance.

Court Case Settlement

·; Final settlement and receipt of Disney litigation considerably in excess of previous estimates

·; A distribution will be made to shareholders and LTIP holders (equivalent to £1.10 per share/LTIP) subject to shareholder approval

Richard Murray, Chairman, commented:

"In my statement in March 2013, I reported that the Group's underlying trading was showing encouraging signs after a slow first quarter. Whilst the results for the quarter ended 31 March 2013 showed an improvement on the previous quarter, our markets remain difficult with competitive pricing pressures and limited visibility. The post-Olympic pick-up in demand in the UK has been much slower than anticipated and our businesses in Germany have also suffered from difficult market conditions and the departure of some key staff. Therefore, as announced on 4 June 2013, we now believe that it is likely that our results for the full year to 30 September 2013 will be below previous market expectations. 2014 sees a return to a run of major sporting events around the world, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil, all of which offer significant potential over the coming 18 months.

The Group received its share of the Disney litigation award on 4 June 2013. The cash received, after deductions for estimated tax liabilities and indemnities was £45.6m, and after related bonuses was £44.6m or $68.1m ("Net Receipt"), which was considerably in excess of our previous estimates of $60m principally due to the effects of post judgement interest and lower corporation tax charges.

I am pleased to announce that the Board is proposing, subject to shareholder approval, to return 69% (£30.6m) of this Net Receipt to shareholders by way of a B & C Share Scheme ("The Scheme") and to LTIP holders by way of a cash bonus. Under The Scheme, a payment, equivalent to £1.10 per share, is planned to be paid to shareholders while LTIP holders will receive a cash bonus of the same amount in respect of the shares subject to LTIP awards. The balance of the Net Receipt will be used to reduce Group debt. 

The Scheme will be structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds as income or capital. A detailed circular setting out the full terms of The Scheme and detailed timings will be sent to shareholders in the autumn."

For further information please contact:

Chairman's Statement

In my statement in March 2013, I reported that the Group's underlying trading was showing encouraging signs after a slow first quarter. I am pleased to report on an improved performance in the second quarter, although the outlook for the year as a whole has become more challenging.

 Results

Revenue in the three months ended 31 March 2013 rose 5% to £35.7m (three months ended 31 March 2012: £33.9m) but this increase was insufficient to fully offset the first quarter's 10% revenue fall, leaving the total revenue for the six months to 31 March 2013 down 2% at £65.9m (six months ended 31 March 2012: £67.5m). If the effect of major events in each of those periods is excluded, the prior period comparisons show that the underlying business on a like for like basis continued to make some progress, with 10% growth in the quarter and 3% growth over the 6 month period.

The US operations of our Creative Technology division were once again the main driver behind the improved performance although our Creative Technology business in China and our UK Full Service business both contributed with pleasing revenue growth.

Operating profit for the three months ended 31 March 2013 grew strongly to £2.9m (three months ended 31 March 2012: £2.0m) and to £2.7m for the six months to the same date (six months ended 31 March 2012: £1.7m).

Trading profits (which exclude restructuring costs, compensation for loss of office and other non-recurring costs) for the three months ended 31 March 2013 and 2012 were in line with the operating profits. The adjusted basic earnings per share showed similar improvement and were 9.6p (three months ended 31 March 2012: 6.3p).

For the six months ended 31 March 2013 the trading profit increased to £2.8m (six months ended 31 March 2012: £2.1m). The adjusted basic earnings per share were 7.5p (three months ended 31 March 2012: 5.1p).

Due to the availability of trading losses in certain territories, our current tax charge remains low. However our continued profitability means that these historic losses are being utilised and as a result there has been an increase in our total tax charge for the six months ended 31 March 2013 to £0.7m (six months ended 31 March 2012: £0.1m), although the increase relates almost entirely to deferred tax rather than current tax.

We continue to spend significantly less on new equipment than last year, with net investments in fixed assets during the first half year of £9.9m (6 months ended 31 March 2012: £18.6m). Although net debt increased by £2.3m during the quarter to £30.0m, we expect to see a reduction by the year end as a result of underlying trading.

On 31 March 2013, the net assets of the Group were £39.6m (31 March 2012: £38.0m) or £1.53 per share (31 March 2012: £1.46 per share).

We are maintaining the interim dividend at 1.0p per share in line with last year. This payment will be made on 1 October 2013 to shareholders on the register on 6 September 2013. The shares will be quoted ex dividend from 4 September 2013.

Disney

The Group has previously announced that the Ninth Circuit Court of Appeals had issued its order returning the Disney court case to the trial court, an act which had the legal effect of making the judgement collectible by Celador International Ltd ("Celador"), and that the Group received its share of the award on 4 June 2013.

The cash received, after deductions for estimated tax liabilities and indemnities was £45.6m, and after related bonuses was £44.6m or $68.1m ("Net Receipt"), which was considerably in excess of our previous estimates of $60m principally due to the effects of post judgement interest and lower corporation tax charges.

I am pleased to announce that the Board is proposing, subject to shareholder approval, to return 69% (£30.6m) of this Net Receipt to shareholders by way of a B & C Share Scheme ("The Scheme") and to LTIP holders by way of a cash bonus. The Scheme will provide for a payment, equivalent to £1.10 for each ordinary share, and will be structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds as income or capital. A detailed circular setting out the full terms of The Scheme and detailed timings will be sent to shareholders in the autumn.

Our business has been built on the quality and expertise of our people and the Board is keen to ensure that LTIP holders are not disadvantaged by The Scheme. Therefore, it is proposed that LTIP holders will receive a cash bonus of £1.10 for each ordinary share the subject of an LTIP award.

As a result, shareholders are expected to receive payments of £28.5m in total and LTIP holders cash bonuses of £2.1m in total. Payments to LTIP holders and bonuses will be excluded from Trading Profit, as defined in note 3. The balance of the Net Receipt will be used to reduce Group debt.

Outlook

Whilst the results for the quarter ended 31 March 2013 showed an improvement on the previous quarter, our markets remain difficult with competitive pricing pressures and limited visibility. The post-Olympic pick-up in demand in the UK has been much slower than anticipated, particularly at the large event end of the market. Our businesses in Germany have also suffered from difficult market conditions and the departure of some key staff, whilst the consequent management restructuring will necessitate some additional costs. Therefore, as announced on 4 June 2013, we now believe that it is likely that our results for the full year to 30 September 2013 will be below previous market expectations.

As an even year, 2014 sees a return to a run of major sporting events around the world, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil. The additional potential revenue that can be derived from these events is expected to have a beneficial effect on our results.

Whilst we remain committed to our strategy of developing our core business to provide cash generation and dividend growth, the post balance sheet receipt of the Disney funds has temporarily eliminated our net debt. Even after the return of the majority of this gain to shareholders, our gearing will be low, leaving the Group well placed for the future.

Unaudited condensed consolidated income statement

For the three months and six months ended 31 March 2013

Alternative performance measures (non-GAAP)

For the three months and six months ended 31 March 2013

Refer to note 3 for a full description of the alternative performance measures adopted by the Group.

Unaudited condensed consolidated statement of comprehensive income

For the three months and six months ended 31 March 2013

Unaudited condensed consolidated balance sheet

As at 31 March 2013

For the three months and six months ended 31 March 2013

For the three months and six months ended 31 March 2013

1. General information

Avesco Group plc ('the Company') and its subsidiaries (together 'the Group') is an international media services business. The Group has subsidiaries around the world and sells in the UK, USA, Europe, Asia Pacific and the Middle East.

The Company is a public limited company which is admitted to trading on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.

The registered number of the Company is 01788363.

2. Status of interim report and accounts

The interim report and accounts are unaudited but have been reviewed by the auditors, Ernst & Young LLP, and their independent review report is appended to this document. The interim report and accounts, which were approved by the Board of Directors on 13 June 2013, are not full accounts within the meaning of section 434 of the Companies Act 2006.

The figures for the year ended 30 September 2012 have been extracted from the audited annual report and accounts that have been delivered to the Registrar of Companies. The auditors, Ernst & Young LLP, reported on those accounts under section 495 of the Companies Act 2006. Their report was unqualified and did not contain a statement under section 498 of that Act.

3. Basis of preparation

The interim report and accounts have been prepared using the accounting policies to be applied in the annual report and accounts for the year ending 30 September 2013. These are consistent with those included in the previously published annual report and accounts for the year ended 30 September 2012, which have been prepared in accordance with IFRS as adopted by the European Union.

The directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future, and for this reason they have adopted the going concern basis of preparation in the consolidated quarterly financial statements.

Alternative performance measures

The Group uses alternative non-Generally Accepted Accounting Practice ("non-GAAP") financial measures which are not defined within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and as such, these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in these interim report and accounts.

a) Trading profit/loss

'Trading profit/loss' is separately disclosed, being defined as operating profit adjusted to exclude restructuring costs and compensation for loss of office and other non-recurring costs. Other non-recurring costs relate to items which management believe do not accurately reflect the underlying trading performance of the business in the period. Examples of other non-recurring costs are profit/loss on disposal of investments and one off consultancy and legal costs incurred which management believe do not accurately reflect the trading performance of the business. The Directors believe that trading profit/loss is an important measure of the underlying performance of the Group.

b) Adjusted earnings per share

'Adjusted earnings per share' is calculated by dividing the profit for the period excluding restructuring costs and compensation for loss of office, other non-recurring costs and the deferred tax charge/credit by the weighted average number of ordinary shares in issue during the period. The Directors believe that adjusted earnings per share provides an important measure of the underlying performance of the Group.

c) Trading EBITDA

Trading earnings before interest, taxation, depreciation and amortisation ('EBITDA') is separately disclosed, being defined as trading profit/loss adjusted to exclude depreciation and amortisation of software. The Directors believe that trading EBITDA is an important measure of the underlying performance of the Group.

4. Segmental information

5. Trading earnings before interest, taxation, depreciation and amortisation ('EBITDA')

Trading EBITDA is defined in note 3.

6. Taxation

7. Earnings per share

Basic earnings per share have been calculated by dividing profit/loss for the period by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share have been calculated by dividing profit/loss for the period by the weighted average number of ordinary shares in issue during the period, adjusted for any awards under the Company's Long Term Incentive Plan ("LTIP") where pre-specified performance conditions have been satisfied and any required conversion of dilutive potential options.

Adjusted earnings per share have been calculated as per note 3.

8. Analysis of net debt

9. Interim and final dividends

A final dividend for the year ended 30 September 2012 of 3.0p per share amounting to a total of £778,000 was approved and was paid on 8 April 2013 to shareholders on the register at 6.00pm on 15 March 2013.

An interim dividend for the year ended 30 September 2012 of 1.0p per share amounting to a total of £254,000 was approved and was paid on 1 October 2012 to shareholders on the Register at 6.00pm on 14 September 2012.

An interim dividend of 1.0p per share will be paid on 1 October 2013 to shareholders on the Register at 6.00pm on 6 September 2013. The shares will be quoted ex dividend from 4 September 2013.

10. Contingent liabilities and assets

Contingent liabilities

InvestinMedia Holdings Limited ("InvestinMedia"), a subsidiary of the Company, sold its investment in Complete Communications Corporation Limited ("Complete") on 20 December 2006. In connection with the sale, InvestinMedia and other vendors gave certain warranties and indemnities to the buyer, in respect of which the period for notification of claims runs for periods of up to seven years from the date of completion. So far as the Company is aware, no legal claims have been brought against any company in the Complete group that are outstanding and would give rise to liability on the part of InvestinMedia and other vendors under the warranties and indemnities.

Contingent assets

As announced on 4 June 2013 the Group has received its share of the Disney litigation award. Cash received was £50.6m although this is reduced by estimated tax liabilities of £4.1m and indemnities of £1.0m to £45.6m. Further provision will be also be made in the accounts for returns to LTIP holders of £2.1m and related bonuses of £1.0m. No credit has been taken in these accounts to reflect this verdict as the appeal process had not concluded prior to 31 March 2013. The Group has announced plans to distribute a further £28.5m (the equivalent of £1.10 per share) by way of a B & C Share Scheme subject to shareholder approval.

11. Distribution of interim report and accounts

Copies of this interim report and accounts are available from the Company's web site (www.avesco.com) or from the Company's registered office: Avesco Group plc, Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH. Telephone: +44 (0) 1293 583 400. Fax: +44 (0) 1293 583 410. E-mail: [email protected].

INDEPENDENT REVIEW REPORT TO AVESCO GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Interim Report and Accounts for the three and six months ended 31 March 2013, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement and the related explanatory notes that have been reviewed. We have read the other information contained in the Interim Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The Interim Report and Accounts is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report and Accounts in accordance with the AIM Rules issued by the London Stock Exchange which require that it is presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

 As disclosed in note 3, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Interim Report and Accounts has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report and Accounts based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report and Accounts for the three and six months ended 31 March 2013 is not prepared, in all material respects, in accordance with the accounting policies outlined in Note 3, which comply with IFRS's as adopted by the European Union and in accordance with the AIM Rules issued by the London Stock Exchange.

Ernst & Young LLP

Reading

13 June 2013