12th Mar 2008 07:01
Huntsworth PLC12 March 2008 Huntsworth PLC Audited Preliminary Results for the year ended 31 December 2007 A very successful year for the Group with good prospects for 2008 Richard Sharp appointed as Chairman Huntsworth PLC, the international public relations and healthcare communicationsgroup, today announces its preliminary results for the year ended 31 December2007. Financial highlights1 • Revenue o Total revenue up 9.0% at £152.3m (2006: £139.7m2) o Like-for-like3 revenues up 6.0% o Net new business wins £50m o International network business up from 11% to 29% of revenues • Profit before tax o Up 23.4% to £21.9m (2006: £17.7m) o After highlighted items up 171% to £10.8m (2006: £4.0m) • Earnings per share o Up 8.2% to 7.9p (2006: 7.3p) o After highlighted items up 293% to 5.9p (2006: 1.5p) • Operating margin o Pre central costs up to 21.0% (2006: 19.5%) o Post central costs up to 15.9% (2006:14.5%) • Proposed final dividend o Up 42% to 1.85p (2006: 1.3p) o Total dividend up 32% to 2.5p (2006: 1.9p) • Cash flow from operating activities (before outflows on highlighted items) of £29.7m, representing a cash conversion of 122% • Richard Sharp appointed as Chairman Notes: 1. All results are stated before taking account of highlighted items unless otherwise stated. These comprise amortisation and impairment of goodwill and intangible assets, impairment of investment in associates, acquisition payments deemed as remuneration and merger, re-structuring and other non-recurring costs. 2. 2006 includes revenues of £15.6m for Sard Verbinnen, which is now shown as an associate following the disposal of a 51% interest in January 2007. 3. Like-for-like revenues include pre-acquisition revenues for all current businesses and are stated at constant currencies. Peter Chadlington, Chief Executive of Huntsworth, said: "2007 has been another very successful year for the Group. The business is nowwell balanced, tightly managed at every level and delivering solid organicgrowth and strong margins. A recent MORI poll suggests that 82% of companiesusing PR will maintain or increase their PR spend in 2008. Against thisbackground, with the progress that our brands have made across the world andwith the appointment of Richard Sharp as our Chairman, the Board hasconsiderable confidence for 2008 and beyond." Contacts: Huntsworth PLC +44 (0) 207 224 8778Peter Chadlington, Chief ExecutiveSally Withey, Chief Operating Officer Citigate Dewe Rogerson +44 (0)20 7638 9571Simon RigbyGeorge Cazenove A presentation to analysts will take place at 9.00am on 12 March 2008 at theoffices of Numis Securities Limited, 5th Floor, 10 Paternoster Square, London,EC4M 7LT. CHIEF EXECUTIVE'S STATEMENT Overview Huntsworth met or exceeded all Group targets in 2007: • Profit before tax up 23.4% to £21.9m (2006: £17.7m) • Full year like-for-like operating profit growth of 16.3% • Underlying operating company margins of 21.0% against a target of 20% • 15.9% underlying operating margins post central costs against a target of 15% • Full year like-for-like revenue growth of 6.0% against a target of 5%-6% • Full year cash conversion of 122% against a target of at least 100% • Debt of £54m against a target of under £57m • Group won £50m of net new business in the year - 40% from existing clients Growth in PR and Healthcare in 2008 Huntsworth now has two principle areas of activity - Public Relations (73% ofGroup revenue) and Healthcare Communications (27% of Group revenue). It is often argued that in a recessionary period, PR spend will fall butindependent MORI research predicts that more than half of UK businesses with aPR budget will maintain their PR spend and one-third will increase it in 2008.Only 15% of respondents believe that they will cut their PR spend in 2008.Furthermore, approximately half of the respondents believe PR to be a moreeffective tool than it was 3 years ago. Full details of the poll are availableon the Huntsworth website. Similarly, the survey of the Leaders' Panel of the Public Relations ConsultantsAssociation (PRCA) which was published last month reported that 83% of PR agencyMD's believe their businesses will have strong trading in 2008. Group revenue grew in all geographies and disciplines during 2007. On acontinuing basis, after allowing for acquisitions and the disposal ofCapitalBridge, our largest client now represents just over 2% of total revenues;the top ten 16% and the top 25 clients 26%. The Group completed its strategy todivest non-core businesses with the sale of Broadstreet in 2007 andCapitalBridge in February 2008. In healthcare communications, the other main platform for our Group, we areseeing a continuing shift from advertising, towards 'evidence based' campaigns.Huntsworth Health companies specialise in this field, employing a highproportion of scientifically and medically qualified personnel. Coupled withincreasing patient power and the explosion of digital media, we are confidentthat we are very well positioned for further success in healthcarecommunications in 2008 and beyond. Public Relations Reputation Management, Corporate and Social Responsibility (CSR) and theEnvironment all played an important part in our 2007 growth. Work in the public sector continued to expand with appointments such as theDepartment for Children, Families and Schools for The Red Consultancy. TheGroup's integrated PR and Public Affairs offer in Grayling organised programmeson obesity issues, the environment and organic foods which all drove revenuesforward. Our corporate, financial and investor relations teams enjoyed asuccessful year. Citigate Dewe Rogerson won new clients and projects includingLloyds Pharmacy, Abbey, Homeserve, LaSalle Investment Management and Quorn. Hudson Sandler and Quiller continued to make good progress since coming togetherin 2006 and were appointed by a number of major overseas groups to advise ontheir international communications including Russia's leading petrochemicalcompany SIBUR. Our European network primarily under the Trimedia and Mmd brands, provide themost comprehensive wholly-owned network in European public relations with over650 staff in 29 countries. Eastern Europe showed double digit revenue growthduring the year driven by high quality corporate and public affairs work with aparticular focus on the energy, heavy industry and technology sectors. Our PR offices in Asia also delivered double digit like-for-like revenue growthwhere all of our offices made strong progress and continued to win blue chipclients. Huntsworth Health For Huntsworth Health 2007 was a transformational year. Already operatingsuccessfully in Europe, the group established its North American platform withthe acquisitions of both Dorland in March and Axis in July. Huntsworth Health's global offering now constitutes some 450 healthcarespecialists operating across a breadth of communications disciplines, includinganalytics, marketing communications, medical communications, public relationsand sales training. It operates a high science, high creativity approach tosupport healthcare clients worldwide. On its client roster, Huntsworth Health can already count products from 40 ofthe world's 50 largest pharmaceutical companies. During 2007, our aim in healthcare has been to improve margins, particularly inthe acquired companies. This has been achieved with a 67% growth in profits ona like-for-like basis. Network Business We continue to increase our multi-country revenues with 29% of our businesscoming from clients using the Huntsworth network, an increase of 18 percentagepoints from 11% last year. 51% of Huntsworth clients use more than one Groupoffice. In the years ahead we expect to increase both multi-country and networkaccounts. Digital and On-line Communications There was an increasing demand in 2007 for our on-line services. Digitalcommunications continue to underpin the effectiveness of our PR Programmes. Weestimate that more than half of our campaigns include a significant digitalelement. Creative Excellence Among numerous awards and accolades received across the Group, Citigate DeweRogerson won the PR Week Best Financial Services Campaign for the second yearrunning for its work for AXA. The Red Consultancy collected two Sabres for BestFinancial Services and Best Website PR, and won Best Consumer Campaign at theCIPR Awards and Best Public Sector campaign at the PR Week Awards. Trimediatriumphed in the first ever European Excellence Awards winning Best EuropeanCampaign as well as being placed for the second year running in the "SundayTimes 100 Best Companies To Work For". The Board and Management In a separate press statement today, Huntsworth has announced a number ofchanges to the Group Board. Richard Sharp has been appointed as Chairman of theBoard with effect from the AGM in May 2008 to succeed Jon Foulds. Richard hasan outstanding track record, most recently spearheading the PrincipalInvestments Group at Goldman Sachs. Additionally, Sally Withey, Group Finance Director, has been appointed GroupChief Operating Officer, and will be responsible for maximising operationalefficiencies, investor relations and corporate developments. Tymon Broadhead,Deputy Finance Director and Company Secretary, has been appointed Group FinanceDirector. Both these Board appointments have immediate effect. Outlook 2007 has been a very successful year for the Group. The business is now wellbalanced, tightly managed at every level and delivering solid organic growth andstrong margins. 65% of 2008 Group revenues were committed at the beginning of the year, giving ahigh level of visibility for the current year. We retain considerableflexibility to maintain margins through the proactive management of variablecosts. Staff bonuses account for circa 5% of revenues and other discretionarycosts are about 7% of revenues. With variable costs of 12% of revenues, our newmanagement team has flexibility to face any market downturn. Our policy on acquisitions to complete and improve our network capabilitiesremains unchanged. We will only acquire businesses where we see a long termstrategic fit and clear opportunities for integration and improvement as part ofour Group. We see no such opportunities in the market at this time. With the progress that our brands have made across the world and with theappointment of Richard Sharp as our new Chairman, the Board has confidence for2008 and beyond. Peter ChadlingtonChief Executive12 March 2008 REVIEW OF FINANCIAL RESULTS SUMMARY OF FINANCIAL RESULTS 2007 Like-for-like 2006 Like-for-like growth growth £'m £'mRevenuePublic Relations 122.1 6.8% 130.2Huntsworth Health 30.4 3.0% 9.7Eliminations (0.2) (0.1) _______ _______Total operations 152.3 6.0% 139.7 4.3% _______ _______ Operating Profit Margin MarginPublic Relations 25.8 21.1% 26.2 20.1%Huntsworth Health 6.3 20.6% 1.0 10.5% _______ _______Total operations 32.1 21.0% 27.2 19.5%Central costs (7.8) (7.0) _______ _______Underlying profit 24.2 15.9% 20.2 14.5%Highlighted items (8.3) (13.7) _______ _______Reported operating profit 15.9 6.5 _______ _______ Adjusted basic EPS 7.9p 7.3pReported basic EPS 5.9p 1.5p Introduction All results are stated before taking account of highlighted items unlessotherwise stated. These comprise amortisation and impairment of goodwill andintangible assets, impairment of investment in associates, acquisition paymentsdeemed as remuneration and merger, re-structuring and other non-recurring costs. Revenue and Profits Group revenue for the year ended 31 December 2007 increased by 9.0% to £152.3m(2006: £139.7m). This includes the net impact of the disposal of a 51% interestin Citigate Sard Verbinnen which is now shown as an associate and a number ofsmall disposals plus the acquisitions of Dorland and Axis. On a constantcurrency basis, revenue was up 11.8% compared with last year. On a like-for-like basis, revenue growth from our Public Relations businesseswas up 6.8% and Huntsworth Health was up 3.0% giving an overall like-for-likerevenue growth of 6.0%. Group operating profits before central costs were up 17.6% to £32.1m (2006:£27.2m). Group operating margin before central costs was 21.0% (2006: 19.5%) reflecting a21.1% margin for Public Relations businesses, and 20.6% for Huntsworth Health. Operating margin after central costs was 15.9% (2006: 14.5%). Operating profit after central costs for the period was up 19.8% to £24.2m(2006: £20.2m) - up 23.7% at constant currency. Like-for-like operating profitgrowth after central costs was 19.8%. Profit before tax was up 23.4% at £21.9m (2006: £17.7m). Highlighted Items Highlighted items of £11.1m include £6.0m for the amortisation of intangibleassets, £2.7m for the impairment of investment in associates, £0.5m for non-cashshare-based acquisition payments deemed as remuneration and £1.9m for the losson disposal of Broadstreet. Following the strategic review announced at ourinterims, the Group disposed of its non-core US events business, Broadstreet,which has underperformed in recent years. After these highlighted items, statutory reported profit after tax was up 319%to £12.6m (2006: £3.0m). Tax The tax credit of £1.8m comprises an underlying tax charge of £5.2m less £7.0mfor tax credits on highlighted items. This gives a full year underlying taxrate of 23.8%. The tax credit of £7.0m in highlighted items includes a £4.4m deferred taxcredit in respect of losses which can be utilised as a result of theCapitalBridge disposal in February 2008. Earnings Profits attributable to ordinary shareholders rose 13.6% to £15.8m (2006:£13.9m). Profits after highlighted items attributable to ordinary shareholdersamounted to £11.9m (2006: £2.8m). Basic earnings per share were up 8.2% to 7.9p (2006: 7.3p). Diluted earningsper share were 7.8p (2006: 7.1p). Basic earnings per share after highlighteditems were increased by 293% to 5.9p per share (2006: 1.5p). Dividends The Board will propose at the forthcoming AGM on 15 May 2008 a final dividend of1.85p per share, which will provide an increased total dividend of 2.5p, up 32%on 2006. The record date for this dividend will be 30 May 2008 and is payableon 4 July 2008. A scrip dividend alternative will be available. Balance Sheet and Cash flow Operating cash flow was £29.7m and cash conversion was 122%. This is before a£4.4m cash impact relating to highlighted items. This figure has fallensignificantly from last year (2006: £8.2m) principally due to the successfulsub-letting of vacant properties across the Group. Other principal movements in net debt during the year were payments for netinterest, tax and tangible fixed assets of £11.2m, dividends received fromassociates of £1.7m, acquisitions, disposals and earn out payments of £26.1m,dividends of £3.2m and net purchase of shares for share incentive schemes of£1.4m. Overall, net debt increased as expected by £15.2m to £54.1m. The Group has refinanced its bank facilities ahead of expiry and secured arevolving credit facility and committed overdraft totalling £90.0 million inplace until July 2012. EBIT interest cover (excluding highlighted items) was 5.4times. Hedging has been used to limit upward movements on the interest rate on £40m ofdebt through a mixture of swaps and caps. Earn-out Payments Future earn-out payments as at 31 December 2007 are estimated at £15.4m,comprising £10.8m payable in cash, £4.5m payable in cash/shares at Huntsworth'soption and the remainder in shares. The timing of the aggregate of thesepayments is £4.8m in 2008, £0.5m in 2009, £2.4m in 2010 and £7.7m in 2011. On current Group projections and assuming no corporate activity, we expect bothearn-outs and debt to decline. If we satisfy all earn-outs in cash and continuea progressive dividend policy, we expect debt to be in the region of £33m at theend of 2008, below £20m by 2009, below £10m by 2010 and the Group would be debtfree and earn-out free by 2011. Post Balance Sheet Event The disposal of CapitalBridge, the Group's shareholder identification, analyticsand investor relations technology business, in February 2008 for $31.7mcompletes our strategy of divesting non-core subsidiaries to focus on ourinternational public relations and healthcare communications businesses. Theproceeds from this disposal have been used to reduce debt. Notes to Editors: 1. Huntsworth PLC is an international public relations group with 70principal offices in 31 countries. During 2007 the Group worked for over 3,100clients and provided services to 52 companies in the FTSE 100, 110 in theFortune 500, 131 in the Eurotop 300 and 40 of the world's 50 largest healthcarecompanies. 2. The Group comprises some of the world's leading public relationsagencies including Citigate Dewe Rogerson, Grayling, Hudson Sandler, Red,Trimedia and Mmd. At 31 December 2007 the Group employed c.1,900 staff with anaverage fee income per head of £86,000. 3. Group revenue comprises the following key areas of activity: CorporateCommunications and Public Affairs accounts for 30%; Consumer and B2B workaccounts for 24% of Group revenue; Financial Non deal led Public Relations workis 18%; Financial deal led Public Relations is 4%; Huntsworth Health is 20% andother activities are 4%. 4. By industry sector the revenue profile is broadly 20% Pharmaceuticals,12% Financial Services, 11% Information Technology, 8% Industrial, 7% Retail andLeisure and 7% Food and Drink. 5. Geographically, 47% of Group revenue was from the UK, 25% from the US,25% from European countries and 3% from the Rest of the World. Operatingmargins for the twelve months to 31 December 2007 were 21.8% in the UK, 21.1% inEurope, 18.6% in the US and 28.5% in the Rest of the World. 6. The Group now represents 255 clients in more than one country and 436are served by more than one company. The largest client represents 2.4% ofcontinuing revenue (after allowing for acquisitions and the disposal ofCapitalBridge) with the top 10 clients accounting for 16% and the top 25 clients26%. Average fee income per client on a continuing basis is £58,000 and 28.5%of revenues were networked through companies working together with other groupcompanies. 7. Shareholdings of Directors, employees and employee trusts representapproximately 14% of the Group's issued share capital. Institutionalshareholdings hold 75% with the top 10 holding some 60% as of 18th February2008. Consolidated income statement for the year ended 31 December 2007 2007 2006_________________________________________________________________________________________________________________ Before Highlighted Before Highlighted highlighted Items highlighted Items Items (Note 5) Total Items (Note 5) Total Notes £000 £000 £000 £000 £000 £000_________________________________________________________________________________________________________________Turnover 202,318 - 202,318 192,323 - 192,323_________________________________________________________________________________________________________________ Revenue 4 152,271 - 152,271 139,747 - 139,747Operating expenses (128,052) (8,345) (136,397) (119,526) (13,722) (133,248)_________________________________________________________________________________________________________________Operating profit 4 24,219 (8,345) 15,874 20,221 (13,722) 6,499Share of post-tax profit of 4 2,730 (2,716) 14 131 - 131associates_________________________________________________________________________________________________________________Profit before interest and 26,949 (11,061) 15,888 20,352 (13,722) 6,630taxationFinance income 6 585 - 585 298 - 298Finance costs 6 (5,673) - (5,673) (2,939) - (2,939)_________________________________________________________________________________________________________________Profit before tax 21,861 (11,061) 10,800 17,711 (13,722) 3,989Taxation (expense)/credit (5,196) 6,974 1,778 (3,571) 2,585 (986)_________________________________________________________________________________________________________________Profit for the year 16,665 (4,087) 12,578 14,140 (11,137) 3,003_________________________________________________________________________________________________________________ Attributable to:Parent company's equity 15,827 (3,938) 11,889 13,931 (11,137) 2,794shareholdersMinority interests 838 (149) 689 209 - 209_________________________________________________________________________________________________________________ 16,665 (4,087) 12,578 14,140 (11,137) 3,003_________________________________________________________________________________________________________________ Earnings per share: _________________________________________________________________________________________________________________ Basic - pence 8 5.9 1.5Diluted - pence 8 5.9 1.4Adjusted basic - pence* 8 7.9 7.3Adjusted diluted - pence* 8 7.8 7.1_________________________________________________________________________________________________________________ * Adjusted basic and diluted earnings per share from continuing operations arecalculated based on profit for the year adjusted for highlighted items and therelated tax effects (Note 8). Consolidated balance sheet as at 31 December 2007 2007 2006 Notes £000 £000__________________________________________________________________________________________________________________Non current assetsIntangible assets 9 225,283 212,796Property, plant and equipment 6,050 5,403Investment in associates 4,849 224Derivative financial assets 107 -Deferred tax 8,532 2,654___________________________________________________________________________________________________________________ 244,821 221,077__________________________________________________________________________________________________________________Current assetsWork in progress 963 1,381Trade and other receivables 49,858 43,728Derivative financial assets 74 -Cash and short-term deposits 10(d) 6,939 10,439__________________________________________________________________________________________________________________ 57,834 55,548 Assets held for sale 12,825 9,598 Current liabilitiesBank loans and overdrafts 10(d) (77) (101)Loan notes payable 10(c) (1,137) -Obligations under finance leases 10(c) (212) (30)Trade and other payables (55,527) (48,502)Corporation tax payable (5,664) (7,632)Provisions (12,478) (17,148)__________________________________________________________________________________________________________________ (75,095) (73,413) Non current liabilitiesBank loans and overdrafts 10(c) (59,126) (49,070)Obligations under finance leases 10(c) (270) (116)Provisions (12,853) (12,700)Trade and other payables (256) (429)Derivative financial liabilities (361) -Deferred tax liabilities (6,163) (6,806)__________________________________________________________________________________________________________________ (79,029) (69,121)Liabilities held for sale (918) (1,688)__________________________________________________________________________________________________________________Net assets 160,438 142,001__________________________________________________________________________________________________________________ EquityCalled up share capital 105,000 101,775Share premium account 23,620 23,162Merger reserve 50,866 48,088Foreign currency translation reserve (641) (3,670)Hedging reserve (276) -Investment in own shares (5,427) (4,000)Retained earnings (14,664) (24,511)__________________________________________________________________________________________________________________Equity attributable to equity holders of the parent 158,478 140,844Minority interests 1,960 1,157__________________________________________________________________________________________________________________Total equity 160,438 142,001__________________________________________________________________________________________________________________ Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 Notes £000 £000_________________________________________________________________________________________________________________Cash inflow from operating activitiesCash inflow from operations 10(a) 25,230 18,167Interest paid (4,723) (2,437)Interest received 464 298Cash flows from hedging activities (411) -Corporation tax paid (4,524) (2,281)_________________________________________________________________________________________________________________Net cash inflow from operating activities 16,036 13,747_________________________________________________________________________________________________________________ Cash outflow from investing activitiesAcquisitions of subsidiaries (26,238) (18,197)Disposal of subsidiaries 3,077 (1,271)Acquisition of minority interest - (3,711)Disposal of minority interest - 78Purchases of property, plant and equipment (2,121) (2,713)Proceeds from sale of property, plant and equipment 84 694Proceeds from sale of associates 3 -Dividends received from associates 1,682 146Net cash acquired with subsidiaries (477) 2,516Net cash disposed of with subsidiaries (558) (83)_________________________________________________________________________________________________________________Net cash outflow from investing activities (24,548) (22,541)_________________________________________________________________________________________________________________ Cash inflow from financing activitiesProceeds from issue of ordinary shares 367 361Purchase of own shares (1,771) (3,626)Proceeds from sale of own shares to employees - 317Repayment of finance lease liabilities (165) (218)Repayment of loan notes - (2,760)Net drawdown of borrowings 9,967 19,774Dividends paid to minority interests (74) (326)Dividends paid to shareholder of acquired business (321) -Dividends paid to equity holders of the parent (3,209) (3,058)_________________________________________________________________________________________________________________Net cash inflow from financing activities 4,794 10,464_________________________________________________________________________________________________________________(Decrease)/increase in cash and cash equivalents (3,718) 1,670_________________________________________________________________________________________________________________ Movements in cash and cash equivalents(Decrease)/increase in cash and cash equivalents (3,718) 1,670Effects of exchange rate fluctuations on cash held 255 (496)Cash and cash equivalents at 1 January 10,325 9,151_________________________________________________________________________________________________________________Cash and cash equivalents at 31 December 10(c), (d) 6,862 10,325_________________________________________________________________________________________________________________ Consolidated statement of changes in equity for the year ended 31 December 2007 Called Foreign Potential up Share currency Investment acquisition Share premium Merger translation Hedging In own of minority Retained Minority Total Capital account reserve reserve Reserve Shares Interest earnings Total Interests Equity £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000________________________________________________________________________________________________________________________Balance at 1 96,070 22,921 73,729 2,710 - (691) (4,168) (54,545) 136,026 1,188 137,214January 2006Currency - - - (6,380) - - - - (6,380) - (6,380)translationdifferences________________________________________________________________________________________________________________________Total income and - - - (6,380) - - - - (6,380) - (6,380)expenserecognised inequity for theyearProfit for the - - - - - - - 2,794 2,794 209 3,003year________________________________________________________________________________________________________________________Total recognised - - - (6,380) - - - 2,794 (3,586) 209 (3,377)income andexpense for theyearTransfer from - - (29,901) - - - 29,901 - - -merger reserveShares issued for 299 62 - - - - - - 361 - 361cashAcquisitions of 5,167 - 4,260 - - - - - 9,427 - 9,427subsidiariesMovement in - - - - - - 4,168 (450) 3,718 44 3,762minorityinterestsPurchase of own - - - - - (3,677) - - (3,677) - (3,677)sharesDisposal of - - - - - 368 - - 368 - 368purchased ownsharesShare issue costs - (16) - - - - - - (16) - (16)Credit for - - - - - - - 1,277 1,277 42 1,319share-basedpaymentsScrip dividend 239 195 - - - - - - 434 - 434Equity dividends - - - - - - - (3,488) (3,488) - (3,488)Dividends to - - - - - - - - (326) (326)minorityinterests________________________________________________________________________________________________________________________Balance at 1 101,775 23,162 48,088 (3,670) - (4,000) - (24,511) 140,844 1,157 142,001January 2007________________________________________________________________________________________________________________________Currency - - - 3,060 - - - - 3,060 - 3,060translationdifferencesDisposal of - - - (31) - - - - (31) - (31)subsidiaries________________________________________________________________________________________________________________________Total income and - - - 3,029 - - - - 3,029 - 3,029expenserecognised inequity for theyearProfit for the - - - - - - - 11,889 11,889 689 12,578year________________________________________________________________________________________________________________________Total recognised - - - 3,029 - - - 11,889 14,918 689 15,607income andexpense for theyearShares issued for 240 127 - - - - - - 367 - 367cashAcquisitions of 2,645 - 2,778 - - - - - 5,423 73 5,496subsidiariesPurchase of own - - - - - (1,771) - - (1,771) - (1,771)sharesDisposal of - - - - - 344 - (56) 288 - 288purchased ownsharesShare issue costs - (30) - - - - - - (30) - (30)Movement in - - - - (276) - - - (276) - (276)financialinstrumentsCredit for - - - - - - - 1,920 1,920 41 1,961share-basedpaymentsDeferred tax on - - - - - - - 78 78 - 78share-basedpaymentsScrip dividend 340 361 - - - - - - 701 - 701Equity dividends - - - - - - - (3,910) (3,910) - (3,910)Dividends to - - - - - - - (74) (74) - (74)minorityinterests________________________________________________________________________________________________________________________Balance at 31 105,000 23,620 50,866 (641) (276) (5,427) - (14,664) 158,478 1,960 160,438December 2007________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 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 11 March 2008 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 2006 have been filed with the Registrar of Companies. The auditors'reports on the financial statements for the years ended 31 December 2007 and2006 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 2007 is based on, and is consistent with, that in theGroup's audited financial statements for the year ended 31 December 2007. 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 pages38 to 42 of the 2006 Annual Report and Accounts with the exception of theadoption of IFRS 7 - 'Financial Instruments: Disclosures' and IAS 1 - Amendment- 'Presentation of Financial Statements'. Adoption of these standards did nothave any effect on the financial position of the Group. They do however giverise to additional disclosures in the 2007 Annual Report and Accounts. Changes in presentation of financial information Following the acquisition of Dorland in March 2007 and Axis in July 2007, theGroup now has a much more significant presence in the healthcare sector, whereintegrated communications incorporating both Public Relations and Non-PublicRelations activities (e.g. advertising and medical education) are provided toour clients. In addition, following the sale of Citigate Broad Street, one ofthe Group's two events management (i.e. Non-Public Relations) businesses, theremaining events business is not significant enough to merit a segment of itsown. Therefore, the directors have decided to change the Group's segmentaldisclosures from Public Relations and Non-Public Relations to Public Relationsand Huntsworth Health and have realigned the remaining events business with thepublic relations operations. The comparative figures for 31 December 2006 have been restated accordingly. Forthe year ended 31 December 2006, revenue of £4,093,000 and operating profit of£434,000 has been transferred from Public Relations to Huntsworth Health, andrevenue of £5,609,000 and operating profit of £776,000 has been transferred fromNon-Public Relations to Huntsworth Health. The balance remaining in Non-PublicRelations (revenue of £6,206,000 and operating profit of £357,000) related toEvents and has been transferred to Public Relations. In line with best practice following the transition to IFRS, the directors havealso decided to allocate share-based payment charges to the new reportingsegments. Previously, these charges were reported as unallocated expenses. Thecomparative figures for 31 December 2006 have been restated accordingly. Forthe year ended 31 December 2006, share-based payment charges of £531,000 and£192,000 have been transferred from unallocated expenses to Public Relations andHuntsworth Health respectively. For the geographical segments for the year ended 31 December 2006, share-basedpayment charges of £587,000, £49,000, £85,000, and £2,000 have been transferredfrom unallocated expenses to the United Kingdom, Other European, USA, and Restof World segments respectively. Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 3. Acquisitions and disposals i) Acquisitions Dorland Corporation On 9 March 2007 the Group's 90% owned subsidiary, Huntsworth Health Group Inc.,acquired the entire share capital of Dorland Corporation ('Dorland'), a leadinghealthcare communications agency operating in the USA. The initial consideration was US $20.7 million (£10.6 million), paid in cash.Deferred consideration may be payable, with an interim payment to be settled incash, based on the profits for the year to 31 December 2007. A final payment maybe due based on profits in the three years to 31 December 2010, payable in cash.The maximum total consideration payable is US $50.0 million (£25.3 million). Axis Healthcare Communications LLC On 13 July 2007 the Group's 90% owned subsidiary, HHCG Acquisition Corporation,acquired a 100% stake in Axis Healthcare Communications LLC and its subsidiaries(together 'Axis'), a leading healthcare communications company operating in theUSA. The initial consideration was US $18.4 million (£9.1 million) paid in cash.Deferred consideration may be payable, with an interim payment to be settled incash, based on the profits for the six months to 31 December 2007. A finalpayment may be due based on profits in the period from acquisition to 31December 2010, payable in cash. The maximum total consideration is US $55.0million (£27.2 million). Trimedia Public Affairs (Austria) On 31 October 2007, the Group increased its stake in Trimedia Public Affairs(Austria) from 26% to 56% for consideration of €56,000 (£40,000), and thereforefrom this date it has been accounted for as a subsidiary instead of anassociated undertaking. ii) Disposals Citigate Sard Verbinnen On 15 February 2006 the Company 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 US $2.5 million(£1.4 million) and a fixed net asset payment of US $2.7 million (£1.5 million)was made on 27 September 2007. The remaining 49% will be acquired no later than31 December 2009 for a total cash consideration of not less than US $17.5million (£10.2 million) (such amounts to have an aggregate present value of US$20.0 million (£11.6 million) as at 1 January 2006).This will be reduced by theamount of cash distributions from CSV from 1 January 2006. The assets and liabilities of CSV were classified as held for sale at 31December 2006 and the company has been accounted for as an associatedundertaking from 1 January 2007. Citigate Demuth On 16 March 2007, Citigate Demuth GmbH was sold to Media Square plc for cashconsideration of €670,000 (£456,000). Citigate Broad Street On 1 October 2007, the trade, assets and liabilities of the events managementbusiness of Citigate Broad Street Inc ('CBS') were sold to certain executives ofCBS for cash consideration of US $397,000 (£195,000) with deferred contingentconsideration to a maximum of US $900,000 (£452,000). Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 3. Acquisitions and disposals (continued) CapitalBridge Subsequent to the year end, on 20 February 2008, the Group sold the business andsubstantially all of the assets, properties and rights of CapitalBridge Inc. andCapitalBridge Limited, and the entire issued share capital of Citigate DataConsulting Limited and CapitalBridge (Pty) Limited (all together, 'CapitalBridge') to Ipreo for US $31.7 million (approximately £16.3 million).CapitalBridge was the Group's non-core shareholder identification, analytics andinvestor relations technology business. The assets and liabilities of CapitalBridge have been classified as held forsale at 31 December 2007. 4. Segmental analysis Busines segments The following table analyses the revenue and operating profit and certain assetand liability information regarding the Group's business segments for the yearended 31 December 2007: Public Huntsworth Relations Health Eliminations Total2007 £000 £000 £000 £000________________________________________________________________________________________________________________________RevenueExternal 121,843 30,428 - 152,271Intra-group 236 - (236) -________________________________________________________________________________________________________________________Segmental revenue 122,079 30,428 (236) 152,271________________________________________________________________________________________________________________________Operating profitSegment operating profit before highlighted items 25,770 6,281 - 32,051Unallocated expenses (7,832)________________________________________________________________________________________________________________________Operating profit before highlighted items 24,219Highlighted items - operating expenses (6,391) (1,954) - (8,345)________________________________________________________________________________________________________________________Operating profit 15,874Share of profit of associates 2,730 - - 2,730Highlighted items - impairment of investment in associates (2,716) - - (2,716)________________________________________________________________________________________________________________________Profit before interest and taxation 15,888Net finance costs (5,088)________________________________________________________________________________________________________________________Profit before tax 10,800Taxation 1,778________________________________________________________________________________________________________________________Profit for the year 12,578________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 4. Segmental analysis (continued) The following table analyses the revenue and operating profit and certain assetand liability information regarding the Group's business segments for the yearended 31 December 2006, restated for changes in presentation as described inNote 2: Public Huntsworth Relations Health Eliminations Total2006 £000 £000 £000 £000________________________________________________________________________________________________________________________RevenueExternal 130,045 9,702 - 139,747Intra-group 138 - (138) -________________________________________________________________________________________________________________________Segmental revenue 130,183 9,702 (138) 139,747________________________________________________________________________________________________________________________Operating profitSegment operating profit before highlighted items 26,228 1,018 - 27,246Unallocated expenses (7,025)________________________________________________________________________________________________________________________Operating profit before highlighted items 20,221Highlighted items - operating expenses (12,882) (840) - (13,722)________________________________________________________________________________________________________________________Operating profit 6,499Share of profit of associates 131 - - 131________________________________________________________________________________________________________________________Profit before interest and taxation 6,630Net finance costs (2,641)________________________________________________________________________________________________________________________Profit before tax 3,989Taxation (986)________________________________________________________________________________________________________________________Profit for the year 3,003________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 4. Segmental analysis (continued) Geographical segments The following tables analyse the Group's revenue and operating profit excludinghighlighted items together with certain asset information by geographicalsegments for the years ended 31 December 2007 and 31 December 2006. Theoperating profit by geographical segment for the year ended 31 December 2006 hasbeen restated for changes in presentation as described in Note 2: As restated 2007 2006 £000 £000________________________________________________________________________________________________________________________RevenueUnited Kingdom 71,750 66,952Other European 38,408 31,610USA 37,591 37,030Rest of World 4,758 4,293Eliminations (236) (138)________________________________________________________________________________________________________________________Total 152,271 139,747________________________________________________________________________________________________________________________Operating profit before highlighted itemsUnited Kingdom 15,610 13,656Other European 8,091 5,899USA 6,996 6,776Rest of World 1,354 915________________________________________________________________________________________________________________________Segment operating profit before highlighted items 32,051 27,246Unallocated expenses (7,832) (7,025)________________________________________________________________________________________________________________________Operating profit before highlighted items 24,219 20,221Highlighted items - operating expenses (8,345) (13,722)________________________________________________________________________________________________________________________Operating profit 15,874 6,499________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 5. Highlighted items The following highlighted items have been recognised in arriving at profitbefore tax: 2007 2006 £000 £000________________________________________________________________________________________________________________________Charged to operating profitAmortisation of intangible assets 5,962 4,051Impairment of goodwill and intangible assets - 7,926Loss on disposal of subsidiaries 1,877 -Acquisition payments to employees deemed as remuneration 468 -Net restructuring and other non recurring costs 38 1,745________________________________________________________________________________________________________________________ 8,345 13,722Charged to profit before taxImpairment of investment in associates 2,716 -________________________________________________________________________________________________________________________ 11,061 13,722________________________________________________________________________________________________________________________ Highlighted items charged to profit before tax comprise significant non cashcharges and non recurring items which are highlighted in the income statementbecause separate disclosure is helpful in understanding the underlyingperformance 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. Theseare significant non cash charges which arise as a result of acquisitions. Impairment of goodwill and intangible assets The impairment charge in 2006 principally related to the write down of goodwilland intangible assets of Citigate Sard Verbinnen (£3.7 million) and CitigateDemuth (£4.2 million). Loss on disposal of subsidiaries The loss on disposal of subsidiaries principally arises because of the write offof goodwill and intangible assets following the sale of the Citigate BroadStreet events business to management. Acquisition payments to employees deemed to be remuneration Certain payments of consideration to non-shareholding employees of acquiredbusinesses under arrangements set up prior to acquisition are deemed to beremuneration in the post acquisition period. These costs will cease once therelevant earn-outs have been settled. Net 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 2007, the balance principallyrepresents costs of restructuring the Group's healthcare businesses (£0.6million) and its operations in Italy and Spain (£0.5 million), together withother non recurring costs (£0.5 million), offset by the release of surplusprovisions (£1.6 million), principally relating to vacant property, which hasbeen successfully sublet. In 2006, these costs related to the restructuring ofthe UK healthcare business and the launch of Huntsworth Health (£0.9 million),aborted acquisition costs (£0.6 million), and other non recurring costs (£0.2million). Impairment of investment in associates As explained in Note 3, the recoverable amount of Sard Verbinnen is a fixedamount, determined by the sale agreement of 14 February 2006. Consequently allprofits recognised subsequently are matched by an equal and opposite impairmentof the Group's investment in the entity. Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 6. Finance costs and income 2007 2006 £000 £000________________________________________________________________________________________________________________________Bank interest payable 4,699 2,414Loan note interest 33 1Finance lease interest 27 12Financial instruments 314 -Other net interest payable - 23Imputed interest on property provisions 194 283Imputed interest on deferred consideration 406 206________________________________________________________________________________________________________________________Finance costs 5,673 2,939________________________________________________________________________________________________________________________Bank interest receivable (283) (298)Other interest receivable (302) -________________________________________________________________________________________________________________________Finance income (585) (298)________________________________________________________________________________________________________________________ 5,088 2,641________________________________________________________________________________________________________________________ 7. Dividends 2007 2006 £000 £000________________________________________________________________________________________________________________________Equity dividends on ordinary shares:Final dividend for the year ended 2005 - 1.2 pence - 2,328Interim dividend for the year ended 2006 - 0.6 pence - 1,160Final dividend for the year ended 2006 - 1.3 pence 2,649 -Interim dividend for the year ended 2007 - 0.65 pence 1,363 -________________________________________________________________________________________________________________________ 4,012 3,488________________________________________________________________________________________________________________________Shareholders with a total shareholding of 5,138,154 and 5,430,960 shares waivedtheir rights to the 2006 final and 2007 interim dividends respectively. A final dividend of 1.85 pence per share has been proposed for approval at theAnnual General Meeting in 2008 and has not been recognised as a liability at 31December 2007. Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 8. Earnings per share The data used in the calculations of the earnings per share numbers issummarised in the table below: 2007 2006________________________________________________________________________________________________________________________ Weighted Weighted average number average number Earnings of shares Earnings of shares £000 000's £000 000's________________________________________________________________________________________________________________________Basic 11,889 200,957 2,794 191,458Diluted 11,889 202,432 2,794 195,413Adjusted basic 15,827 200,957 13,931 191,458Adjusted diluted 15,827 202,432 13,931 195,413________________________________________________________________________________________________________________________ The basic earnings per share calculation is based on the profit for the yearattributable 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 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 highlighted items togetherwith related tax effects as set out below: 2007 2006 £000 £000________________________________________________________________________________________________________________________Earnings:Profit for the year attributable to parent company's shareholders 11,889 2,794Highlighted items (net of tax) attributable to the parent company's shareholders 3,938 11,137________________________________________________________________________________________________________________________Adjusted earnings 15,827 13,931________________________________________________________________________________________________________________________ 2007 2006 000's 000'sNumber of shares:Weighted average number of ordinary shares - basic and adjusted 200,957 191,458Effect of share options in issue 1,401 786Effect of deferred contingent consideration 74 3,169________________________________________________________________________________________________________________________Weighted average number of ordinary shares - diluted 202,432 195,413________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 9. Intangible assets Customer Brands relationships Goodwill Total £000 £000 £000 £000________________________________________________________________________________________________________________________CostAt 1 January 2007 18,333 12,963 208,780 240,076Arising on acquisitions in the year 3,670 4,849 25,026 33,545Adjustment to prior year acquisitions - - (4,062) (4,062)Arising on disposal of subsidiaries in the year (841) - (7,249) (8,090)Reclassified to assets held for sale - (604) (11,572) (12,176)Exchange differences 284 165 2,884 3,333________________________________________________________________________________________________________________________At 31 December 2007 21,446 17,373 213,807 252,626________________________________________________________________________________________________________________________Amortisation and impairment chargesAt 1 January 2007 4,423 5,754 17,103 27,280Charge for the year 960 5,002 - 5,962Arising on disposal of subsidiaries in the year (102) - (5,902) (6,004)Reclassified to assets held for sale - (521) - (521)Exchange differences 83 129 414 626________________________________________________________________________________________________________________________At 31 December 2007 5,364 10,364 11,615 27,343________________________________________________________________________________________________________________________Net book value at 31 December 2007 16,082 7,009 202,192 225,283________________________________________________________________________________________________________________________Net book value at 31 December 2006 13,910 7,209 191,677 212,796________________________________________________________________________________________________________________________ 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. Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 10. Cash flow analysis (a) Reconciliation of operating profit to net cash inflow from operations 2007 2006 £000 £000________________________________________________________________________________________________________________________Operating profit 15,874 6,499Depreciation 2,355 2,381Share option charge 2,628 1,839Loss/(profit) on disposal of property, plant and equipment 9 (25)Amortisation of intangible assets 5,962 4,051Impairment of goodwill and intangible assets - 7,926Loss on disposal of subsidiaries 1,877 -Decrease/(increase) in work in progress 1,922 (186)(Increase)/decrease in debtors (1,153) 1,722Decrease in creditors (1,019) (1,300)Decrease in provisions (3,225) (4,740)________________________________________________________________________________________________________________________Net cash inflow from operations 25,230 18,167________________________________________________________________________________________________________________________Net cash inflow from operations is analysed as follows: 2007 2006 £000 £000________________________________________________________________________________________________________________________Before highlighted items 29,657 26,371Highlighted items (4,427) (8,204)________________________________________________________________________________________________________________________Net cash inflow from operations 25,230 18,167________________________________________________________________________________________________________________________ (b) Reconciliation of net cash flow to movement in net debt 2007 2006 Note £000 £000________________________________________________________________________________________________________________________(Decrease)/increase in cash and cash equivalents in the year (3,718) 1,670Cash inflow from debt drawdown (9,967) (19,774)New derivative financial instruments 212 -Loan notes repaid - 2,760Repayment of capital element of finance leases 165 218________________________________________________________________________________________________________________________Change in net debt resulting from cash flows (13,308) (15,126)Finance leases acquired with subsidiaries (497) -Loan notes issued as acquisition consideration (1,137) -Amortisation of loan fees (89) -Movement in fair value of derivative financial instruments (466) -Translation differences 10(c) 251 (387)________________________________________________________________________________________________________________________Increase in net debt (15,246) (15,513)Net debt at beginning of year (38,891) (23,378)________________________________________________________________________________________________________________________Net debt at end of year (54,137) (38,891)________________________________________________________________________________________________________________________ Notes to the preliminary consolidated financial statements for the year ended 31 December 2007 10. Cash flow analysis (continued) (c) Analysis of net debt 1 January Non cash Foreign 31 December 2007 Cash flow movements exchange 20072007 £000 £000 £000 £000 £000________________________________________________________________________________________________________________________Cash and short-term deposits 10,426 (3,747) - 260 6,939Bank loans and overdrafts (current) (101) 29 - (5) (77)________________________________________________________________________________________________________________________Net cash and cash equivalents 10,325 (3,718) - 255 6,862Bank loans and overdrafts (non-current) (49,070) (9,967) (89) - (59,126)Derivative financial assets - 212 (105) - 107Derivative financial liabilities - - (361) - (361)Obligations under finance leases (146) 165 (497) (4) (482)Loan notes payable - - (1,137) - (1,137)________________________________________________________________________________________________________________________Net debt (38,891) (13,308) (2,189) 251 (54,137)________________________________________________________________________________________________________________________ (d) Cash and cash equivalents 2007 2006 £000 £000________________________________________________________________________________________________________________________Cash and short-term deposits 6,939 10,439Bank loans and overdrafts (current) (77) (101)Bank overdraft included in liabilities held for sale - (13)________________________________________________________________________________________________________________________Cash and cash equivalents 6,862 10,325________________________________________________________________________________________________________________________ 11. Post balance sheet events On 20 February 2008, the Group sold the business and substantially all of theassets, properties and rights of CapitalBridge Inc. and CapitalBridge Limited,and the entire issued share capital of Citigate Data Consulting Limited andCapitalBridge (Pty) Limited (all together, 'CapitalBridge') to Ipreo for US$31.7 million (approximately £16.3 million). CapitalBridge was the Group'snon-core shareholder identification, analytics and investor relations technologybusiness. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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