Preliminary Results

15 January 2015

AVESCO GROUP plc

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2014

Avesco Group plc ("Avesco" or the "Group") (AIM: AVS), the international provider of services to the corporate presentation, entertainment and broadcast markets, announces its preliminary results for the year ended 30 September 2014.

KEY HIGHLIGHTS

· Revenue up 2% to £126.4m (2013: £124.0m)

· Operating profit of £0.9m (2013: loss of £8.4m)

· Trading profit up £5.8m to £6.3m (2013: £0.5m)*

· Trading EBITDA up by a third to £25.0m (2013: £18.9m)*

· Continuing operations loss per share of 12.8p (2013: 41.2p)

· Adjusted basic earnings per share of 23.4p (2013: loss of 1.8p)*

· Annual dividend (excluding Return of Cash to Shareholders) increased by 20% to 6.0p per share (2013: 5.0p)

· Profit from discontinued operations of £1.2m (2013: £45.7m)

* As described in note 8, the Group uses certain non-GAAP alternative measures to assess underlying operating performance.

Richard Murray, Chairman, commented:

"With the exception of 2012 (when we had the benefit of the London Olympics in our home territory), trading profits reached record levels in 2013/14. This achievement was due to an outstanding performance in CTUS, a dramatic turnaround in profitability in Presteigne, and a reduction in losses in our developing CT Asia Pacific unit.

During the year, each of the Group's three divisions was subject to a restructuring, the benefits of which are already starting to flow through to the results.

The first quarter of the current financial year has continued the positive momentum from last year. We expect to see further benefits flow from the cost savings generated by the Group's restructuring programme, so that any "odd year" dip in profitability is minimised. With the restructuring programme now completed and substantial forward momentum in the businesses, we are able to continue our focus on increasing profitability, generating cash and growing dividends." 

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Results

With the exception of 2012 (when we had the benefit of the London Olympics in our home territory), trading profits reached record levels in 2013/14. This achievement was due to an outstanding performance in CTUS, a dramatic turnaround in profitability in Presteigne, and a reduction in losses in our developing CT Asia Pacific unit.

The Key Performance Indicators used to manage the business comprise revenue, margin, trading EBITDA, trading profit and net debt. Margin is the percentage derived by dividing the gross profit by the revenue. Trading EBITDA and trading profit are Alternative Performance Measures that better reflect our underlying trading performance by removing various non trading items from earnings before interest, taxation, depreciation and amortisation and from operating profit, respectively.

Non trading items include substantial restructuring costs which were partially offset by a reduction in our estimate of tax payable on discontinued operations. The tax payable relates to the gain from the Group's share of the award in the litigation against the Walt Disney Company and others ("Disney")last year.

During the 12 months ended 30 September 2014, our total revenue grew by £2.4m to £126.4m (2013: £124.0m), whilst trading profits leapt by £5.8m to £6.3m (2013: £0.5m), reflecting a margin increase of 2% and a significant overhead reduction of £2.2m resulting from our restructuring efforts. Major overhead savings were derived from reductions in premises and staff numbers, although our worldwide coverage remains very much intact. Our average staff numbers during the year were reduced by 8% to 705 (2013: 765).

Our operating profit was £0.9m (2013: £8.4m loss) and, after taking account of net interest costs of £1.3m (2013: £1.5m), the result before income tax on continuing operations was a loss of £0.4m (2013: £9.9m loss). The tax charge for the year was £2.3m (2013: £0.7m) and the profit from discontinued operations, representing our revised estimate of the tax due in respect of the Disney litigation, was £1.2m (2013: £45.7m). The basic and diluted loss per share was 7.2p (2013: earnings of 136.2p).

The major non trading items, which were removed from the operating results this year in order to calculate the trading profit, comprise restructuring costs and compensation for loss of office of £5.7m (2013: £4.8m), the vast majority of which relates to CT Germany, and credits totalling £0.6m in respect of prior period provisions. The biggest component of the CT Germany restructuring costs is a provision in respect of an onerous lease, which runs until 2023, on our premises near Stuttgart. Last year there were also payments to LTIP holders and bonuses in connection with the Disney settlement of £3.3m and other non-recurring costs of £0.7m. The total of these restructuring and other non-recurring costs amounted to £5.4m (2013: £8.9m).

The trading profit, excluding these items, was £6.3m (2013: £0.5m). Trading EBITDA was £25.0m (2013: £18.9m). The trading profit less interest and current tax was £5.0m (2013: £0.5m loss) and on this basis the adjusted basic earnings per share was 23.4p (2013: loss per share of 1.8p).

Creative Technology (CT)

Creative Technology saw revenues climb £4.4m to £96.1m (2013: £91.7m) and trading profit to £4.4m (2013: £1.8m). CTUS was again the star performer, growing revenue by 18%, having been the main beneficiary of the Group's more targeted capital spend. Revenue also increased in all other parts of the division with the sole exception of Germany. The restructuring of CT Germany during the year was necessitated by the decision of our major German clients to move away from their previous practice of using German based staff and equipment to service their needs worldwide. As a result, we are now able to service these clients locally from our network of offices around the world. Other companies in the division benefited from this transfer of business as well as from normal even year events, such as the Winter Olympics in Sochi, the FIFA World Cup in Brazil and the Commonwealth Games and Ryder Cup in Scotland, which between them generated revenue of £4.1m.

Despite the drop in revenue in Germany, losses in CT Germany were reduced and, with a promising start there to the new financial year, we are optimistic of eliminating them entirely within the next 12 months.

Creative Technology Asia Pacific ("CTAP") had a significantly improved performance over last year but failed to reach its break even target. The reopening of our Singapore operation at the beginning of the period has proved successful and, with significant amounts of equipment moving into the region from the restructured German business, we are hopeful that CTAP will prove to be both profitable and a significant asset to our other larger CT operations seeking to service their clients in the region.

Full Service

mclcreate, previously known as MCL, is now our sole full service business. Revenue grew to £14.4m (2013: £13.4m) but trading profit dropped to £0.2m (2013: £0.7m). This reduction reflected slightly lower margins and increased overheads from the new management structure put in place as mclcreate positions itself for the next stage of its development and growth.

Broadcast Services

Our Broadcast Services division has been a major beneficiary of the Group restructuring programme, with revenue dropping to £15.8m (2013: £18.9m) but trading profits rising to £1.7m from a trading loss of £2.0m in 2012/13. The decrease in revenue is mainly driven by the closure of Presteigne's projects-based Singapore office, as well as the closure of its mainland European businesses. The disposal of significant amounts of projects equipment and the slimming down of the remaining UK back office functions ensured that the company, now rebranded as Presteigne Broadcast Hire, quickly returned to profitability. Fountain Studios, the other business in this division, was again home to some of the UK's major TV shows, but a quiet summer dominated by TV coverage of the FIFA World Cup meant that the company made only a small profit.

Taxation

Taxation was again at a relatively significant level as high taxable profits earned in the US cannot be offset against taxable losses elsewhere in the world.

The income tax expense for the year was £2.3m (2013: £0.7m), comprised of a minimal current tax credit (2013: £0.6m credit) due to the utilisation of allowances around the Group, and a deferred tax charge of £2.3m (2013: £1.3m). The deferred tax charge has arisen primarily due to the utilisation of losses across the Group and first year allowances in the US.

Our deferred tax asset at the year end stood at £3.9m (2013: £5.2m). Tax losses represent £1.0m (2013: £3.3m) of this asset, with the balance of £2.9m (2013: £1.9m) mostly resulting from the temporary difference between the tax base and the book value of property, plant and equipment.

Further deferred tax assets amounting to £4.5m at the year end (2013: £6.6m) remain

unrecognised on the balance sheet.

The majority of the deferred tax liability of £5.3m (2013: £4.2m) relates to temporary differences between the tax base and the book value of property, plant and equipment and has primarily arisen due to the availability of high levels of first year allowances on equipment purchases in CTUS.

Disney, Return of Cash to Shareholders and Buy-back of Shares from Taya

As previously announced, we completed two significant transactions during the year, both funded by our share of the proceeds of theDisney litigation.

The cash received in June 2013, after deductions for estimated tax liabilities, indemnities, and related bonuses, was £44.5m or $68.1m ("Net Receipt"). An amount of £1.10 per ordinary share, representing 68% (£30.4m) of the total Net Receipt, was returned to shareholders in cash by way of a B & C Share Scheme, and to LTIP holders by way of a cash bonus, on 31 January 2014. The return of cash was structured in such a way as to allow shareholders, subject to applicable legal and regulatory restrictions, to elect to receive their proceeds as either income or capital.

On 5 February 2014, we also completed the buy-back of 7,584,724 ordinary shares of the Company from Taya Communications Ltd ("Taya") for a total consideration of £9.4m plus associated fees. Upon completion of the share buy-back, the Taya representatives on the Board, Mr Amiram Giniger and Ms Carmit Hoomash, both resigned.

The balance of the Disney funds received was applied to the restructuring of the Group's businesses as outlined above and to reduce debt.

Cash Generation and Capital Expenditure

The Group's net debt, which stood at £24.8m at the beginning of 2012/13, was successfully reduced by £3.4m to £21.4m by the end of 2013/14. The Group's cash flow was impacted in the intervening period by the £44.5m Net Receipt from the Disney litigation in 2012/13, as well as by the £30.5m return of cash to shareholders, the £9.8m buy-back of shares from Taya and the Group restructuring programme in 2013/14.

When the cash effect of these transactions, shareholder dividends of £1.0m, and other non-recurring costs are removed, the net cash inflow for the Group in 2013/14 was £1.9m (2013: £0.3m). This was generated from a trading EBITDA of £25.0m (2013: £18.9m), net investments in new equipment of £19.0m (2013: £15.8m), 50% of which went to CT US, net outflows of working capital and other balance sheet items of £2.3m (2013: £1.1m), and interest and tax payments of £1.9m (2013: £1.7m).

The return of cash to shareholders and the Taya share buyback were mainly responsible for the net assets of the Group reducing over the year to £32.1m on 30 September 2014 (2013: £73.2m). This equates to a net asset value of £1.70 per share (2013: £2.82) or £1.67 per share (2013: £2.66) on a fully diluted basis (when the remaining 0.4m shares subject to LTIP awards are taken into account).

In addition to the Group's cash balances of £9.0m, the Group had unutilised banking and HP facilities of £18.2m at the year end and remains comfortably within its finance and banking facilities of some £48.6m. The main component of the Group's facilities is a £20m multi currency revolving loan from HSBC, which was renewed during the year on favourable terms and is now in place until June 2018, with the balance comprising a combination of overdraft and leasing lines.

Dividend

We increased our interim dividend at the half year to 1.5p per share (2013: 1.0p) and this payment was made in October 2014. The Board is now pleased to announce that it also proposes to increase the final dividend to 4.5p (2013: 4.0p) per share, making a total dividend for the year of 6.0p per share (2013: 5.0p), reflecting our confidence in the longer term prospects for the Group.

Subject to shareholder approval, the proposed dividend is expected to be paid on 8 April 2015 to shareholders on the register at the close of business on 13 March 2015.

People

Whilst there will always be tough competition for our services, we are operating in buoyant markets where the high quality and technical expertise of our staff give us a discernible edge. Working long and unsociable hours to deliver the highest levels of service that our customers expect are regular occurrences. I cannot thank them enough.

Current Trading and Outlook

The first quarter of the current financial year has continued the positive momentum from last year. We expect to see further benefits flow from the cost savings generated by the Group's restructuring programme, so that any "odd year" dip in profitability is minimised. With the restructuring programme now completed and substantial forward momentum in the businesses, we are able to continue our focus on increasing profitability, generating cash and growing dividends.

Richard Murray

15 January 2015

Consolidated Income Statement

For the year ended 30 September 2014

Avesco Group plc

For the year ended 30 September 2014

Refer to note 8 for a full description of the alternative performance measures adopted by the Group.

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2014

As at 30 September 2014

Refer to note 8 for a description of the change in accounting policy which has lead to the restatement of the prior year balances.

Consolidated Statement of Changes in Equity

For the year ended 30 September 2014

For the year ended 30 September 2014

Avesco Group plc

For the year ended 30 September 2014

1. Segmental information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions.

The Board of Directors categorises Group companies based on the services they provide and as a result the business is split into four segments. These correspond to three operating segments (Creative Technology, Full Service and Broadcast Services) which together provide the Group's principal activity of services to the corporate presentation, entertainment and broadcast markets. In addition, the Group recognises a further segment, Head Office, which provides administrative support to the rest of the Group.

Creative Technology provides specialist AV services and equipment to the live events, broadcast and entertainment markets. The Full Service segment provides full technical support for conferences, sports, music, corporate and television programmes. Finally, the Broadcast Services segment provides broadcast equipment, systems and services to the broadcast industry.

Following a review of the Group's continental European businesses, the allocation of the Group's subsidiaries to operating segments was changed to align them with the revised organisational reporting structure. Our Spanish and Dutch Full Service businesses have now been integrated in to the operations of Creative Technology. Results for prior periods have been restated to facilitate comparison.

The Board of Directors assesses performance of the operating segments based on trading profit (see note 8). As segmental performance does not therefore include finance costs and tax, such items are not allocated to segments.

The segmental results for the year ended 30 September 2014 are as follows:

\* Trading EBITDA includes profit on sale of property, plant and equipment of £36,000 for Creative Technology, £12,000 for Full Service and £1,298,000 for Broadcast Services.

The segmental results for the year ended 30 September 2013 are as follows:

* Trading EBITDA includes profit on sale of property, plant and equipment of £438,000 for Creative Technology, £18,000 for Full Service and £322,000 for Broadcast Services.

Inter-segment transactions are entered into under the normal commercial terms and conditions that would be available to unrelated third parties.

No single customer contributed revenues of greater than 10% of the Group's total revenue for 2014 or 2013.

The segmental assets and liabilities at 30 September 2014, external net debt at 30 September 2014 and capital expenditure cash flows for the year then ended are shown below.

Unallocated items relate to deferred tax and income tax. Non-current assets above does not agree to the balance sheet as it excludes non-current receivables.

The segmental assets and liabilities at 30 September 2013, external net debt at 30 September 2013 and capital expenditure cash flows for the year then ended are shown below.

The Group's main business segments operate in four main geographical areas. Details of the segmental allocation of revenue can be found below.

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

Trading EBITDA is defined in note 8.

3. Income tax expense

4. Earnings/(losses) 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.

Exceptional items consist of restructuring costs and compensation for loss of office, payments to LTIP holders and bonuses in connection with the Disney settlement, and other non-recurring costs.

Adjusted earnings per share have been calculated as per note 8.

5. Dividends

An interim dividend for the year ended 30 September 2014 of 1.5p per ordinary share amounting to a total of £283,000 was approved and was paid on 1 October 2014 to shareholders on the Register at 6.00pm on 5 September 2014.

A final dividend for the year ended 30 September 2014 of 4.5p per share has been proposed and, subject to shareholders' approval, will be paid on 8 April 2015 to shareholders on the register at the close of business on 13 March 2015.

A special dividend of £1.10 per C share was approved and was paid on 24 January 2014 under the Return of Cash.

A final dividend for the year ended 30 September 2013 of 4.0p per ordinary share amounting to a total of £754,000 was approved and was paid on 7 April 2014 to shareholders on the register at 6.00pm on 14 March 2014.

An interim dividend for the year ended 30 September 2013 of 1.0p per ordinary share amounting to a total of £259,000 was approved and was paid on 1 October 2013 to shareholders on the Register at 6.00pm on 4 September 2013.

6. Analysis of net debt

7. Status of preliminary announcement

The financial information set out in this announcement for the year ended 30 September 2014 does not constitute the Group's statutory accounts as defined by s435 of the Companies Act but has been extracted from the 2014 statutory accounts on which an unqualified audit report has been made by the auditors, and which did not contain an emphasis of matter paragraph nor a statement under section 498(2) or (3) of the Companies Act 2006.

Statutory Accounts for the year ended 30 September 2013 have been delivered to the Registrar of Companies and the auditors' report on these accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006.

8. Basis of preparation

With the exception of the change in accounting policy noted below, the preliminary results for the year ended 30 September 2014 have been prepared in accordance with the accounting policies set out in the annual report and accounts for the year ended 30 September 2013.

Change in accounting policy

In the current period the Group has adopted the amendment to IAS 16 Property, Plant and Equipment which forms part of the Improvements to International Financial Reporting Standards 2009 to 2011 Cycle. This amendment clarifies that major spare parts and servicing equipment that meet the definitions of property, plant and equipment should not be classified as inventory. As a result of this amendment the Group has revised its accounting policy for the classification of cable. The balance of £524,000 as at 30 September 2013 was previously classified as inventory, and in light of this amendment has been reclassified as property, plant and equipment.

There has been no impact on the equity or results of the Group as a result of this change in policy. The consolidated balance sheet and cash flow statement have been restated as a result of this change in policy. A balance sheet for the year ended 30 September 2012 has been presented in line with the requirements of IAS 1.

Non-GAAP financial measures

For the purposes of this preliminary announcement and the annual report and accounts, 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 the preliminary announcement:

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, payments to LTIP holders and bonuses in connection with the Disney settlement, 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 one off costs and charges 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, payments to LTIP holders and bonuses in connection with the Disney settlement, 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 ('Trading EBITDA') is separately disclosed in note 2, being defined as trading profit/loss adjusted to exclude depreciation and amortisation of software, as well as any impairment which has been included in trading profit/loss. Trading EBITDA includes profits on disposal of property, plant and equipment. The Directors believe that trading EBITDA is an important measure of the underlying performance of the Group.

d) Trading operating expenses

'Trading operating expenses' is separately disclosed, being defined as operating expenses adjusted to exclude restructuring costs and compensation for loss of office, payments to LTIP holders and bonuses in connection with the Disney settlement, and other non-recurring costs. The Directors believe that trading operating expenses are an important measure of the underlying performance of the Group.

9. Annual general meeting

The Annual General Meeting of the Company will be held at 10am on 5 March 2015 at Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.

10. Annual report and accounts

Copies of the full Statutory Accounts will be dispatched to shareholders in due course. Copies will also be available on the Company's website (www.avesco.com) and from the registered office of the Company: Unit E2, Sussex Manor Business Park, Gatwick Road, Crawley, West Sussex, RH10 9NH.