TIDMALN
RNS Number : 0151T
Alterian PLC
30 November 2011
30 November 2011
ALTERIAN PLC
Half year results and growth strategy
Alterian plc, (LSE: ALN, "Alterian" or the "Group"), a leader in
customer engagement technology and solutions, is publishing its
growth strategy and half year results for the six months ended 30
September 2011.
Highlights
-- 100-day transformation programme nears completion
o Established three product and two territory business lines
o GBP10.6m of annualised cost savings (costing GBP3.5m), global
offices consolidated into six main centres
o Comprehensive financial overhaul completed, including
implementation of new revenue recognition policy
-- Half year results: revenue GBP17.2m (2010: GBP18.3m) and
underlying operating loss* of GBP0.9m (2010: profit GBP2.9m).
Reported operating loss of GBP18.6m (2010: profit GBP0.6m)
-- Strategy: focus on cash generation and profits by aligning software with key vertical markets
-- GBP23.3m of deferred and recurring revenues from 2012 onwards
-- Cash of GBP1.9m at 30 September 2011 and renewed banking facility of GBP2.0m
-- The business continues to trade in line with the Board's expectations
Heath Davies, Alterian Chief Executive, commented:
"As our 100-day transformation programme nears completion, we
are now in good shape to focus on generating cash and growing
profits and providing the platform for future organic growth.
"We are clearly focused on providing must-have software
solutions to a range of international marketing partners and
customers in specific vertical markets, including retail,
financial, leisure & travel and TMT.
"We are now gaining real momentum. With some GBP23.3m of forward
visibility, 800 active customers, a global footprint and market
leading IP, the Board is increasingly confident about the Group's
prospects."
Phil Cartmell, Alterian Chairman, said:
"The hard work by the new management team over the last few
months has stabilised and revitalised the business. Although we are
now in an offer period which may or may not result in a firm offer
for the Group, we have now established an excellent platform from
which Alterian can build and prosper."
* Underlying operating loss is operating loss before
amortisation of intangibles and exceptional items.
Enquiries :
Alterian plc +44 (0)117 970 3200
Phil Cartmell, Chairman
Heath Davies, Chief Executive
Officer
Guy Millward, Finance Director
Canaccord Genuity +44 (0)20 7050 6500
Simon Bridges/Cameron Duncan
College Hill +44 (0)20 7457 2020
Adrian Duffield/Kay Larsen/Rozi
Morris
Operational review
Overview and transformation plan
On 5 September 2011, the newly appointed Chief Executive, Heath
Davies, working with the new Chairman, Phil Cartmell and Finance
Director, Guy Millward, accelerated the existing review of the
business and initiated a 100-day transformation programme.
The review of the individual businesses has now been completed.
This review included a comprehensive and detailed analysis of the
business operating model, product status, customer sentiment, staff
skills and internal processes.
Now at day 87, the transformation programme is scheduled to
complete on 13 December 2011.
The Group has already implemented a number of substantial
changes, including:
-- Establishing three product and two territory business lines,
each managed by an Executive Vice President ("EVP") with full
P&L responsibility
-- Consolidating the global office environment to six main sales
and marketing centres in Bristol, Hilversum, Denver, Seattle,
Sydney and Singapore; and centred core development in Bristol,
Valencia (California) and Seattle, with additional support from
Bangalore
-- Closing five non-core offices
-- Completing a detailed data centre audit -- the result of
which is implementation of a three centre capability within the
revised office environment
-- Reducing the Group headcount to 275 staff
-- Completing the re-statement of its revenue recognition policy
to ensure compliance with best practice going forward
-- Changing its year-end from 31 March to 31 December to remove
the make or break March year end, where historically over 40% of
new business was signed
-- Impairing the goodwill by GBP12.7m
Growth strategy
In the short term, the Group's focus is to return Alterian to
profitable, cash generative growth. In the medium term the Board
aims to show organic revenue CAGR of 15%.
A key part of Alterian's new strategy is to align the Group's
software solutions against the specific vertical markets served by
its existing global customer base, to provide them with the
compelling software capabilities required to create relevant,
effective and engaging experiences with their audiences on a
personal level.
The Group's primary vertical markets are retail, financial,
leisure & travel for Campaign Management and Analytics (CMA)
and technology, media and telecoms (TMT) and fast moving consumer
goods (FMCG) for the Social Media and Insight (SMI) products. Going
forward Alterian's emphasis will be on its geographic centres in
the US, Asia and Europe. The US is currently the largest market;
Asia is the fastest growing and Europe provides a solid and stable
base.
The Group has now established four main revenue streams with
several tier one partners generating in excess of GBP2m, several
tier two partners generating between GBP1m-GBP2m, and tier three
partners at lower revenue levels, plus substantial revenues from
direct sales.
Products
The EVP responsible for R&D and Support has aligned the
Group's resources around three key product offerings:
-- Campaign Management and Analytics (CMA): embracing email
marketing and analytics through Alterian Alchemy(TM) technology and
representing approximately 55% of sales. These products enable
marketing services providers (MSP's) and their customers to
analyse, create, test, refine and execute the most appropriate
campaigns for their customers.
The sales and marketing engine for this business unit will now
be based in Denver, Colorado, alongside the newly appointed EVP for
this product line. The core development of this platform will
continue out of Bristol and Valencia (California) with offshore
support in Bangalore for testing.
-- Social Media and Insight (SMI): representing approximately
18% of sales. The SM2 products enable organisations to monitor
conversations around their brand, clients and competitors alike.
The recently launched Product Commitment Score (PCS) further
enhances an organisation's ability to successfully launch new
products through the use of near-time social data analytics.
The core development of this platform will now be based in
Seattle close to the sales and marketing leadership team. Vietnam
will continue to operate as an "insight centre" processing all of
the Group's social media data and classifying the content for end
user consumption.
-- Web Content Management (WCM): representing approximately 27%
of sales. The Alterian Content Management 7 (ACM7) product allows
organisations to exploit the potential for their websites to engage
with their audiences by transforming the complex task of building
and maintaining websites into an easy day-to-day business user
task.
The sales and marketing effort will henceforth be based out of
Bristol. The core development of this platform will move to Bristol
and will continue to be supported out of Bangalore for testing and
support.
Each of these product suites will be supported from the Group's
three co-located data centres located in Bristol, Denver and
Sydney.
Sales and marketing
Sales and marketing within the three product suites will now be
focused on building specific vertical industry solution frameworks
that will allow both the Group and its partners to differentiate
themselves from the competition.
Each product line has a specific market focus based on its
experience and existing customer base.
-- The CMA team will be focusing on retail, finance and travel
& tourism. These three sectors today represent over 66% of the
business won by this product line. The focus on marketing services
providers which represent over 90% of the sales channel will
continue and will be reinforced with a deeper relationship
structure around partnership tiers.
-- The SMI team will be focusing on TMT and FMCG using their
existing references to further enhance the new win ratio, providing
framework solutions that meet over 80% of the client need.
-- The WCM team will continue to focus on its solid installed
base and seek new opportunities around public sector, financial
services and pharmaceutical companies.
Outlined below are the key principles supporting the sales
strategy by line of business:
-- CMA is predominately a partner strategy model with over 90%
of the Group's business being signed through existing
relationships. The target for H1 2012 is to deepen the existing
partner relationships and to become more tightly integrated around
select vertical markets. Each existing partner relationship will be
classified with a tier ranking. The ranking level will be related
to the relationship potential. Partners that align globally around
key vertical markets will be classified as strategic tier one,
domestically focused partnerships working on key verticals tier two
and tactical partnerships will be tier three. Direct sales will be
used to support partners and further expand the Group's sales
effort in non-partner centric deals.
-- SMI will be a direct sales model. In certain non-core
verticals, partners will be signed on the basis of their market
knowledge and reach.
-- WCM will continue to be sold directly and through partners in
the UK and Europe. A new channel strategy is being developed to
target the US market, which represents the largest addressable
market for the WCM technology. This will be rolled out in H2
2012.
Geographies
The Group's product offering will now be aligned to the
following geographies:
-- UK (Bristol) and mainland Europe (Hilversum, Netherlands):
representing approximately 51% of today's deferred and renewal
revenue. This region will focus on its existing relationships with
all three product lines. The expectation from this market is to
continue to provide a stable platform with limited growth
opportunities as the Group enters 2012.
-- USA (Denver, Seattle): representing approximately 39% of the
Group's deferred and renewal revenue but importantly is the largest
market opportunity for the Group today. The realignment of the
management teams for SMI and CMA will ensure a renewed energy and
push to further the Group's market share. Analyst firms Forrester
and Gartner have predicted a five year global CAGR (ending 2014)
with a growth rate range of 17% and 34% for the CMA and SMI markets
respectively.
-- Asia Pacific (Singapore, Sydney): is the fastest growth
market for the Group's product portfolio. All three product lines
will be supported from the two main centres. Alterian already has a
substantial client footprint in Asia with 10% of the Group's
deferred and renewal revenue currently coming from the region.
2012 and beyond
Alterian is now poised to start 2012 from a solid foundation.
The Group is expected to enter 2012 with GBP23.3m of deferred and
renewal revenues, more than 800 active customers (including 200 new
customers secured this year), three new products and a geographic
footprint which encompasses the world's largest and highest growth
markets.
Whilst the focus for the next financial year will be on cash and
profitability, there is good opportunity for significant growth
from the Group's existing network of partnerships and clients. This
will be the essential baseline from which a stabilised business can
emerge, providing a sound platform for growth in subsequent
years.
Financial review
As part of the transformation programme, the Group has made
further substantial cuts to its operational cost base in addition
to those announced in May 2011 and completed reviews of revenue
recognition and goodwill, and other intangible assets.
The results for the six months to, and the financial position
at, 30 September 2011 reflect the results of the reviews and the
cost reductions made in May 2011. Further cost reductions have been
made after that period and the cost of this, of around GBP3.5m,
will be reflected in the financial statements for the period ending
31 December 2011.
As part of the review, the Group changed its year end from 31
March to 31 December to take into account changes in financial
measurement and customer contracts. The new business plans will be
measured from January 2012.
Revenue
A full review of the revenue recognition policy has been
completed following the review of customer contracts announced in
May 2011 and subsequent discussions with customers. The review has
included consultation with the Group's new independent auditors,
PricewaterhouseCoopers LLP.
The process involved the review of tens of thousands of historic
transactions over the last four and a half years and the
restatement of each applicable transaction in line with the new
policy.
Term licences, partner fees and minimum commitments are now
recognised over the period to which they relate, rather than
recognising a large proportion of the revenue upfront on contract
signature. The effect of this change has been to rebase the Group's
revenue figures completely by spreading revenue recognised in prior
years into future years, greatly increasing revenue deferred at 30
September 2011. Prior year errors found during the review have been
corrected. See note 2 for details.
Revenue for the six months to 30 September 2011, under the new
policy, was down 6% to GBP17.2 million (2010: GBP18.3 million).
Trading in the CMA products was affected by the latest suite of
products for campaign management and analytics called Alterian
Alchemy(TM), known as 'Alchemy', not being fully rolled out in the
time originally planned. This has held back revenue growth in all
territories. Alchemy is now live and being used in marketing
campaigns.
Trading in WCM products has been slower than expected following
the introduction of the new Content Manager product in March. The
WCM business has released ACM7, which won its first new client last
month with the internet aggregator GoCompare. The WCM business is
supported by a strong recurring and repeat revenue base of
approximately GBP7.0m per year.
Trading in SMI software has continued in line with last year's
levels. Trading in social media analytics services has reduced on
the second half of last year due to the transition of the services
from traditional market research activity to packaged solutions.
This business was acquired at the end of the first half last year.
The SMI business has now released its social suite of products,
Alterian PCS. The products are in production and a sales pipeline
is actively being built.
The level of seasonality in the Group's revenues is hard to
assess following the rebasing of the revenue over the past four and
a half years. It will only become apparent next year.
Cost reductions
As previously reported, the cost base of the Group substantially
increased in the year to March 2011. The cost increases included
sales and distribution costs, product development costs for the new
products and the significant expense of introducing managed service
activities in the USA. The increased costs were not matched by
growth in revenues.
In May 2011 the Group announced a reduction of these costs by
GBP6.2 million per annum which reduced the annual cost base of the
business to GBP38.5 million. This cost base has been further
reduced by cost savings recently announced of GBP10.6 million per
annum.
The Board has taken care not to lose or reduce the Group's
intellectual property or its ability to sell and deliver products
to customers profitably. The aim has been to establish a business
that can generate sustainable profits and cash while having a solid
base from which it can grow revenues.
The cost reductions in May cost GBP1.7 million. The further cost
reductions recently announced will be completed by 13 December 2011
and are expected to cost GBP3.5 million, around GBP1.2 million of
which will be paid in cash in 2011, with the rest paid over the
next year. The majority of the additional GBP10.6m of savings are
being implemented by reducing the staff numbers to approximately
275 people worldwide. Other savings are being achieved by office
consolidation and the reduction in operational spend, principally
travel and marketing.
Goodwill impairment and other balance sheet items
As part of the review, the Board has assessed the carrying
values of all assets on the balance sheet. This has resulted in a
non-cash GBP12.7m impairment charge in the goodwill recorded on the
acquisition of the web content management business in 2008 and a
GBP0.6m impairment against the value of the Group's remaining
investments.
These write-offs are not related to the value associated with
the current product portfolio which has been heavily invested in
during the past two years. The Group has increased the deferred tax
assets recognised on the balance sheet as a result of the revenue
recognition policy change. This reflects the fact that increased
losses have now been made in prior periods and there is sufficient
evidence to expect that they will be recouped in the current and
future periods when the restated deferred revenue is finally
recognised.
Profitability
The Group reported an operating loss, before amortisation of
intangibles and exceptional items, of GBP0.9m (2010: profit
GBP2.9m). The operating loss after amortisation of acquired
intangibles, R&D and exceptional items was GBP18.6m (2010:
profit GBP0.6m).
The exceptional item of GBP15.0m, consists of GBP12.7m of
goodwill impairment, GBP1.7m of restructuring costs and GBP0.6m of
impairment of investments.
Amortisation of intangible assets was GBP2.7m (2010: GBP1.8m),
due to increased capitalisation of development expenditure in the
year to 31 March 2011 and the acquisition of Intrepid in September
2010. Since 31 March 2011, the Board has decided to cease
capitalisation of development expenditure until it is satisfied
that the time required to bring new products to market can be more
accurately forecasted than has been the case in the past in order
to meet the criteria required by accounting standards for the
capitalisation of development expenditure.
The Group has a reported loss before tax of GBP18.6m (2010:
profit GBP0.6m).
The Group had a GBP0.6m tax credit. Reported loss per share was 29.1p (2010: earnings 0.3p).
Cash
At 30 September 2011 the Group had cash balances of GBP1.9m
(2010: GBP8.1m) down from GBP7.0m at 31 March 2011. This cash
outflow is largely due to costs being in excess of cash-generating
revenues for the period.
The Board expects the business to be cash generative in 2012 and
to have sufficient resources to meet its liabilities as they fall
due on a continuing basis (see note 2). The Group will consider all
financing options to support its growth and currently has a GBP2.0m
overdraft facility with HSBC.
Indicative non-binding offer from SDL
On 24 October 2011, the board of Alterian (the "Board")
announced it had rejected a non-binding indicative offer from SDL
plc to acquire the entire issued share capital of Alterian
("Alterian Shares") by way of an all cash offer of 80 pence per
Alterian Share.
On 7 November 2011, the Board received a revised non-binding
indicative offer from SDL to acquire Alterian Shares by way of an
all cash offer of 110 pence per Alterian Share (the "Revised
Proposal")
The Board considered the Revised Proposal to be at a level which
it was prepared to engage with SDL. The discussions with SDL are
continuing but the making of any offer is subject to the
satisfaction (or waiver by SDL) of certain pre-conditions
including, inter alia, the completion of due diligence by SDL,
final approval from SDL's board of directors and the recommendation
of the Board.
As such, the Board would like to emphasise that there can be no
certainty that an offer for Alterian will be forthcoming.
Due to his involvement with SDL, Alastair Gordon, a
non-executive director of the Group, has not participated in the
Board's discussions or its decision relating to the Revised
Proposal.
In accordance with Rule 2.6(a) of the Code, SDL is required by
not later than 5.00 p.m. on 5 December 2011, either to announce a
firm intention to make an offer for the Company in accordance with
Rule 2.7 of the Code or to announce that it does not intend to make
an offer, in which case the announcement will be treated as a
statement to which Rule 2.8 of the Code applies.
RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have a material impact on Alterian's long-term
performance.
Commercial relationships: Alterian's future revenue streams
depend on its close long term relationships with its end customers
and partner group. Damage to, or loss of, these substantial
relationships could cause a detrimental effect on long-term revenue
prospects. To manage this risk, working reviews take place with key
customers and partners to ensure their needs are met. Economic and
market uncertainty adds a further element of risk to the long-term
viability of some customer and partner relationships. A continuous
review of these relationships is maintained to mitigate this
risk.
Restructuring risk: the current restructuring risks could cause
disruption to the business resulting in the loss of customers and
staff.
Liquidity risk: As discussed in more detail in note 2, the Group
does not have infinite cash resources and is exposed to the risk of
running out of cash should its new business revenues prove
insufficient to cover its cost base.
Other financial risks: Changes in assumptions underlying the
carrying value of certain Group assets is a risk that affects
financial performance. The assumptions are discussed in the notes
to these financial statements and include discount rates, long-term
growth rates and the level of future profitability. Due to the
Group's substantial carrying value of goodwill and other intangible
assets, the revision of any of these assumptions could lead to an
impairment in the carrying value of certain assets in the Group.
Also a takeover bid may expose the Group to the very significant
cost of either defending or accepting an offer, these costs can run
into millions of pounds payable mainly to advisors.
Economic uncertainty: The continuing global economic problems
cause uncertainty in forecasting and assessing future levels of
business as well as increased credit risks and risks of
misstatement when determining the carrying value of capitalised
research and development costs, investments, intangible assets and
deferred tax assets. Alterian continues to review costs and its
relationships to minimise the impact of this economic risk. In
addition the Company is focused on developing technology that leads
the market in fast growing sectors.
Competitor risks: Alterian's blend of the strength of its
technology, allied to the broadening platform of its applications,
is a strong offering to the market. Competition exists for elements
of its offering from internally generated solutions as well as
other software providers. If one or more of these competitors is
successful in developing solutions that are faster and more
economical than Alterian's, and can build the necessary
relationships with providers of services to marketers, then
Alterian's long-term revenue streams will be reduced. To minimise
this risk, Alterian continues to invest in market relevant
applications and the quality of its core products as well as its
relationships with its extensive business partner community.
Foreign exchange and treasury risks: The Group operates
predominantly within the UK and the US. Currency exposures are
regularly monitored and decisions taken on whether to hedge only
when specific cash exposures are contracted. Translational
accounting exposure is not hedged.
Integration risks: Alterian's strategy is to broaden its product
range to generate further revenue through continued investment in
Research and Development and to seek appropriate, selective
acquisitions of technology companies or intellectual property in
high growth areas. As Alterian expands, successful integration of
acquired companies is essential in ensuring that such acquisitions
do not undermine the core business. To manage this risk, Alterian
ensures adequate and appropriate resources are available to focus
on an effective and efficient integration of new companies into the
Group.
The risk of losing key staff: The management of the Group's
businesses relies heavily on staff and loss of key staff is a
significant risk to the business. Remuneration and people
management processes are in place to minimise attrition.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting':
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
By order of the Board
Heath Davies - Chief Executive
Guy Millward - Group Finance Director
Canaccord Genuity Limited ("Canaccord Genuity"), which is
authorised and regulated in the United Kingdom by the Financial
Services Authority, is acting exclusively for Alterian and no one
else in connection with the Possible Offer and will not be
responsible for anyone other than Alterian for providing the
protections afforded to clients of Canaccord Genuity or for
providing advice in relation to the Possible Offer, or any matter
referred to herein.
The directors of Alterian accept responsibility for the
information contained in this announcement. To the best of the
knowledge and belief of the directors of Alterian (who have taken
all reasonable care to ensure that such is the case) the
information contained in this announcement is in accordance with
the facts and does not omit anything likely to affect the import of
such information.
Disclosure requirements of the City Code on Takeovers and
Mergers (the "Code")
Under Rule 8.3(a) of the Code, any person who is interested in
1% or more of any class of relevant securities of an offeree
company or of any paper offeror (being any offeror other than an
offeror in respect of which it has been announced that its offer
is, or is likely to be, solely in cash) must make an Opening
Position Disclosure following the commencement of the offer period
and, if later, following the announcement in which any paper
offeror is first identified. An Opening Position Disclosure must
contain details of the person's interests and short positions in,
and rights to subscribe for, any relevant securities of each of (i)
the offeree company and (ii) any paper offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be
made by no later than 3.30 p.m. (London time) on the 10th business
day following the commencement of the offer period and, if
appropriate, by no later than 3.30 p.m. (London time) on the 10th
business day following the announcement in which any paper offeror
is first identified. Relevant persons who deal in the relevant
securities of the offeree company or of a paper offeror prior to
the deadline for making an Opening Position Disclosure must instead
make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes,
interested in 1% or more of any class of relevant securities of the
offeree company or of any paper offeror must make a Dealing
Disclosure if the person deals in any relevant securities of the
offeree company or of any paper offeror. A Dealing Disclosure must
contain details of the dealing concerned and of the person's
interests and short positions in, and rights to subscribe for, any
relevant securities of each of (i) the offeree company and (ii) any
paper offeror, save to the extent that these details have
previously been disclosed under Rule 8. A Dealing Disclosure by a
person to whom Rule 8.3(b) applies must be made by no later than
3.30 p.m. (London time) on the business day following the date of
the relevant dealing.
If two or more persons act together pursuant to an agreement or
understanding, whether formal or informal, to acquire or control an
interest in relevant securities of an offeree company or a paper
offeror, they will be deemed to be a single person for the purpose
of Rule 8.3.
Opening Position Disclosures must also be made by the offeree
company and by any offeror and Dealing Disclosures must also be
made by the offeree company, by any offeror and by any persons
acting in concert with any of them (see Rules 8.1, 8.2 and
8.4).
Details of the offeree and offeror companies in respect of whose
relevant securities Opening Position Disclosures and Dealing
Disclosures must be made can be found in the Disclosure Table on
the Panel's website at www.thetakeoverpanel.org.uk, including
details of the number of relevant securities in issue, when the
offer period commenced and when any offeror was first identified.
If you are in any doubt as to whether you are required to make an
Opening Position Disclosure or a Dealing Disclosure, you should
contact the Panel's Market Surveillance Unit on +44 (0)20 7638
0129.
Cautionary note regarding forward looking statements
This announcement contains certain forward looking statements
with respect to the financial condition, results of operations and
business of Alterian or the Alterian Group and certain plans and
objectives of the Alterian Board. These forward looking statements
can be identified by the fact that they do not relate to historical
or current facts. Forward looking statements often use words such
as "anticipate", "target", "expect", "estimate", "intend", "plan",
"goal", "believe", "will", "may", "should", "would", "could" or
other words of similar meaning. These statements are based on
assumptions and assessments made by the Alterian Board in the light
of their experience and their perception of historical trends,
current conditions, expected future developments and other factors
they believe appropriate. By their nature, forward looking
statements involve risk and uncertainty and the factors described
in the context of such forward looking statements in this
announcement could cause actual results and developments to differ
materially from those expressed in or implied by such forward
looking statements.
Should one or more of these risks or uncertainties materialise,
or should underlying assumptions prove incorrect, actual results
may vary materially from those described in this announcement.
Except as required by the Financial Services Authority ("FSA"), the
London Stock Exchange plc, the Listing Rules of the FSA or any
other applicable law, Alterian assumes no obligation to update or
correct the information contained in this announcement.
No profit forecast
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of Alterian for the
current or future financial years would necessarily match or exceed
the historical published earnings per share of Alterian.
Publication on website
A copy of this announcement is available free of charge at
Alterian's website at www.alterian.com.
For the avoidance of doubt, the content of the website referred
to above is not incorporated into and does not form part of this
announcement.
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2011
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2011 2010 2011
Restated Restated
----------------------------------- ----- -------------- -------------- ----------
Note GBP000 GBP000 GBP000
Revenue 3 17,174 18,324 38,701
Operating costs (35,799) (17,753) (41,332)
Operating (loss)/profit (18,625) 571 (2,631)
Analysed as:
Operating (loss)/profit
before amortisation of acquired
intangibles, R&D and exceptional
items costs (949) 2,908 4,630
Amortisation of acquired
intangibles and R&D 4 (2,708) (1,771) (3,975)
Exceptional items 4 (14,968) (566) (3,286)
Operating (loss)/profit (18,625) 571 (2,631)
----------------------------------- ----- -------------- -------------- ----------
Investment revenues 6 31 45
Finance costs (2) (1) (22)
----------------------------------- ----- -------------- -------------- ----------
(Loss)/profit before taxation (18,621) 601 (2,608)
Tax 610 (373) 227
----------------------------------- ----- -------------- -------------- ----------
(Loss)/profit for the period (18,011) 228 (2,381)
----------------------------------- ----- -------------- -------------- ----------
Attributable to equity holders
of the parent (18,011) 228 (2,381)
=================================== ===== ============== ============== ==========
Basic (loss)/profit per
ordinary share 5 (29.1)p 0.3p (4.0)p
Diluted (loss)/profit per
ordinary share 5 (29.1)p 0.3p (4.0)p
=================================== ===== ============== ============== ==========
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2011
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
2011 2010 2011
Restated Restated
GBP000 GBP000 GBP000
--------------------------------------- -------------- -------------- ----------
(Loss)/profit for the period (18,011) 228 (2,381)
--------------------------------------- -------------- -------------- ----------
Exchange differences on translation
of foreign operations (1,207) 1,372 775
--------------------------------------- -------------- -------------- ----------
Other comprehensive income for
the period (1,207) 1,372 775
--------------------------------------- -------------- -------------- ----------
Total comprehensive income for
the period (19,218) 1,600 (1,606)
======================================= ============== ============== ==========
Total recognised income and expense
for the period attributable to
equity holders of the Parent Company (19,218) 1,600 (1,606)
======================================= ============== ============== ==========
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
30 SEPTEMBER 2011
At 30 September At 30 September
At 31 March At 31 March
2011 2010 2011 2010
Restated Restated Restated
Note GBP000 GBP000 GBP000 GBP000
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Non-current assets
Goodwill 6 18,592 31,281 31,281 24,847
Other intangible assets 6 10,189 12,053 12,956 10,233
Property, plant and
equipment 2,091 2,071 2,252 1,934
Available for sale
investments - 812 592 812
Deferred tax asset 4,500 4,882 4,671 5,427
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Total non-current
assets 35,372 51,099 51,752 43,253
Current assets
Trade and other receivables 13,728 22,062 22,629 23,001
Cash and cash equivalents 1,896 8,101 7,005 11,179
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Total current assets 15,624 30,163 29,634 34,180
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Total assets 50,996 81,262 81,386 77,433
Current liabilities
Trade and other payables (4,960) (6,528) (8,477) (7,467)
Obligations under
finance leases (341) (274) (333) (275)
Deferred revenue (16,671) (20,361) (21,868) (23,509)
Provisions (690) - (612) -
Contingent consideration (830) (1,241) (1,448) (2,160)
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Total current liabilities (23,492) (28,404) (32,738) (33,411)
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Net current assets/(liabilities) (7,868) 1,759 (3,104) 769
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Non-current liabilities
Deferred tax liabilities (1,306) (1,666) (1,455) (1,577)
Obligations under
finance leases (201) (369) (363) (468)
Deferred revenue (4,299) (7,334) (6,668) (7,131)
Contingent consideration (2,949) (4,033) (3,795) -
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Total non-current
liabilities (8,755) (13,402) (12,281) (9,176)
---------------------------------- ----- ---------------- ---------------- ------------- -------------
Net assets 18,749 39,456 36,367 34,846
================================== ===== ================ ================ ============= =============
Equity
Share capital 7 15,539 15,211 15,226 14,648
Capital reserves 47,326 46,195 46,224 43,834
Other reserves 2,301 3,848 3,361 2,362
Own shares (522) (523) (560) (495)
Retained earnings (45,895) (25,275) (27,884) (25,503)
Total equity 18,749 39,456 36,367 34,846
================================== ===== ================ ================ ============= =============
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2011
Share Capital Other Own shares Retained
capital Reserves reserves earnings Total equity
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 1 April
2011 (restated) 15,226 46,224 3,361 (560) (27,884) 36,367
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Loss for the period - - - - (18,011) (18,011)
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Exchange differences
on translation of foreign
operations - - (1,207) - - (1,207)
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Issue of share capital
for the Intrepid acquisition 313 1,102 - - - 1,415
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Own shares disposed
of in the period - - - 38 - 38
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Credit to equity for
equity-settled share
based payments - - 147 - - 147
------------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 30 September
2011 15,539 47,326 2,301 (522) (45,895) 18,749
=============================== ========= =========== ========== =========== ========== ==============
Share Capital Other Own shares Retained
capital reserves reserves earnings Total equity
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 1 April
2010 (restated) 14,648 43,834 2,362 (495) (25,503) 34,846
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Profit for the period
(restated) - - - - 228 228
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Exchange differences
on translation of foreign
operations (restated) - - 1,372 - - 1,372
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Issue of share capital 563 2,361 - - - 2,924
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Own shares acquired
in the period - - - (28) - (28)
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Credit to equity for
equity-settled share
based payments - - 114 - - 114
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 30 September
2010 (restated) 15,211 46,195 3,848 (523) (25,275) 39,456
============================ ========= =========== ========== =========== ========== ==============
Share Capital Other Own shares Retained
capital reserves reserves earnings Total equity
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 1 April
2010 (restated) 14,648 43,834 2,362 (495) (25,503) 34,846
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Loss for the period
(restated) - - - - (2,381) (2,381)
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Exchange differences
on translation of foreign
operations (restated) - - 775 - - 775
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Issue of share capital 578 2,390 - - - 2,968
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Own shares acquired
of in the period - - - (65) - (65)
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Credit to equity for
equity-settled share
based payments - - 224 - - 224
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 31 March
2011 (restated) 15,226 46,224 3,361 (560) (27,884) 36,367
============================ ========= =========== ========== =========== ========== ==============
Share Capital Other Own shares Retained
capital reserves reserves earnings Total equity
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 1 April
2009 (restated) 14,321 43,079 2,583 (630) (28,767) 30,586
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Profit for the period
(restated) - - - - 3,264 3,264
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Exchange differences
on translation of foreign
operations (restated) - - (408) - - (408)
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Issue of share capital 327 755 - - - 1,082
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Own shares acquired
in the period - - - 135 - 135
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Credit to equity for
equity-settled share
based payments - - 187 - - 187
---------------------------- --------- ----------- ---------- ----------- ---------- --------------
Balance as at 31 March
2010 (restated) 14,648 43,834 2,362 (495) (25,503) 34,846
============================ ========= =========== ========== =========== ========== ==============
UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2011
6 months 6 months
ended ended Year
30 September 30 September ended
31 March
2011 2010 2011
Note GBP000 GBP000 GBP000
---------------------------------------- ----- -------------- -------------- ----------
Net cash (used in)/from operations (4,458) (196) 3,222
before acquisition costs
Acquisition related items 8 - (566) (612)
---------------------------------------- ----- -------------- -------------- ----------
Net cash (used in)/from operating
activities after acquisition costs (4,458) (762) 2,610
---------------------------------------- ----- -------------- -------------- ----------
Investing activities
Purchases of property, plant &
equipment (354) (535) (1,011)
Purchases of software licences (372) (86) (539)
Receipts from sale of property, - - -
plant and equipment
Expenditure on product development - (2,500) (5,210)
---------------------------------------- ----- -------------- -------------- ----------
Payments to acquire subsidiary,
before cash and cash equivalents
acquired - (832) (885)
Cash and cash equivalents acquired - 49 49
---------------------------------------- ----- -------------- -------------- ----------
Payments to acquire subsidiary,
after cash and cash equivalents
acquired - (783) (836)
Net cash used in investing activities (726) (3,904) (7,596)
Financing activities
Repayment of loan acquired - (58) (59)
Purchase of own shares (61) (28) (65)
Proceeds from issue of shares - 87 135
Repayment of Finance leases (166) (108) (272)
Net cash used in financing activities (227) (107) (261)
Net decrease in cash and cash
equivalents (5,411) (4,773) (5,247)
Cash and cash equivalents at beginning
of period 7,005 11,179 11,179
Effect of foreign exchange rate
changes 302 1,695 1,073
---------------------------------------- ----- -------------- -------------- ----------
Cash and cash equivalents at end
of period 1,896 8,101 7,005
======================================== ===== ============== ============== ==========
NOTES TO CONDENSED SET OF FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The information for the year ended 31 March 2011 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditors
reported on those accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under section 498(2) or (3) of the Companies
Act 2006.
2. ACCOUNTING POLICIES
This condensed set of financial statements has been prepared
using accounting policies consistent with International Financial
Reporting Standards (IFRS) and in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the European Union.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Operational Review on pages 2 to 9. The Group
has financial resources together with long-term contractual
relationships with a number of customers and suppliers across
different geographic areas. As a consequence, the Directors believe
that the Group is well placed to manage its business risks
successfully despite the uncertain economic outlook.
Future cash flows have been forecast using detailed expected
receipts and payments information for the next 3 month period and
then on a budgeted basis for a further 12 months. These cash flows
have been adjusted for the restructuring activity currently
underway and allow for the cost of this activity and the savings
from it. After carefully reviewing the anticipated future cash
flows of the Group and assessing the risks specific to the
business, the external facilities available to the Group and also
in the context of the global economic downturn and the Group
results for the period to September 2011, the Directors have at the
time of approving the financial statements, a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Thus they continue to adopt the going concern basis of accounting
in preparing the financial statements. Should resources prove
insufficient, there are several mitigating actions that the Group
could take including seeking further cost reductions, generating
cash through the disposal of assets and entering into negotiations
with debt providers.
The same accounting policies, presentation and methods of
computation are followed in this condensed set of financial
statements as were applied in the preparation of the Group's annual
audited financial statements for the year ended 31 March 2011
except for as described below:
Change in accounting policy for revenue recognition
The review of the Group's contracting procedures with customers,
announced in May 2011, has been completed. The review looked at
customer buying preferences as well as contract procedures and
terms and the resulting revenue recognition and included numerous
discussions with customers and the independent auditors. The review
included analysis of all revenue transactions from 1 April
2007.
The Group's revenue recognition policy for software licences
that were sold on a time-related basis (term licences - annually
renewable or otherwise related to a specific period of time) or for
a minimum commitment over a period of time, which conforms with
International Financial Reporting Standards ('IFRS'), has been to
recognise revenue at the point at which a licence is sold. This
policy has been changed to better reflect the commercial substance
of the transactions contracted and better reflects global industry
practice and customers' understanding of what they have purchased
and therefore provides more relevant and reliable financial
information. Perpetual licences are still recognised on delivery of
software provided there are no further on-going obligations.
This policy change requires a restatement of comparative figures
and has no cash impact. Term licences are now recognised over the
period to which they relate rather than recognising a large
proportion of the revenue upfront on contract signature. This
change has been reflected in the financial statements contained
within this document. The effect of the change has been to increase
revenue in the six months to 30 September 2010 by GBP2.0m, increase
revenue in the year to 31 March 2011 by GBP1.7m and decrease the
revenue in the year to 31 March 2010 by GBP4.7m.
The effect of this change has also been to increase deferred
revenue balances over the periods. In the six months to September
2011 deferred revenue increased by GBP14.5m. In the year to 31
March 2011 it increased by GBP22.9m. In the six months to September
2010 it increased by GBP21.9m and in the year to 31 March 2010 it
increased by GBP25.9m.
Revenue Profit Profit EPS Total
before after assets Total equity
tax tax
----------------------------- -------- --------- --------- -------- -------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- -------- --------- --------- -------- -------- --------------
Balance as at 30 September
2010
----------------------------- -------- --------- --------- -------- -------- --------------
As previously reported 16,298 (1,425) (1,332) (2.2)p 80,358 61,086
----------------------------- -------- --------- --------- -------- -------- --------------
Change in accounting
policy 2,470 2,470 2,004 3.4p 261 (21,186)
----------------------------- -------- --------- --------- -------- -------- --------------
Correction of errors (444) (444) (444) (0.9)p 643 (444)
----------------------------- -------- --------- --------- -------- -------- --------------
As restated 18,324 601 228 0.3p 81,262 39,456
============================= ======== ========= ========= ======== ======== ==============
Revenue Loss Loss EPS Total
before after assets Total equity
tax tax
------------------------- --------- --------- --------- -------- -------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- --------- --------- -------- -------- --------------
Balance as at 31 March
2011
------------------------- --------- --------- --------- -------- -------- --------------
As previously reported 36,959 (4,350) (4,290) (7.1)p 79,796 58,349
------------------------- --------- --------- --------- -------- -------- --------------
Change in accounting
policy 4,236 4,236 4,403 7.3p 894 (19,488)
------------------------- --------- --------- --------- -------- -------- --------------
Correction of errors (2,494) (2,494) (2,494) (4.2)p 696 (2,494)
------------------------- --------- --------- --------- -------- -------- --------------
As restated 38,701 (2,608) (2,381) (4.0)p 81,386 36,367
========================= ========= ========= ========= ======== ======== ==============
Revenue Profit Profit EPS Total
before after assets Total equity
tax tax
------------------------- --------- --------- --------- -------- -------- --------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- --------- --------- -------- -------- --------------
Balance as at 31 March
2010
------------------------- --------- --------- --------- -------- -------- --------------
As previously reported 38,004 6,661 7,269 12.5p 75,963 59,971
------------------------- --------- --------- --------- -------- -------- --------------
Change in accounting
policy (3,908) (3,908) (3,181) (5.5)p 727 (24,301)
------------------------- --------- --------- --------- -------- -------- --------------
Correction of errors (824) (824) (824) (1.4)p 743 (824)
------------------------- --------- --------- --------- -------- -------- --------------
As restated 33,272 1,929 3,264 5.6p 77,433 34,846
========================= ========= ========= ========= ======== ======== ==============
Correction of errors - revenue
The Board have identified one contract in the year to 31 March
2011 where software was licensed to a partner under a minimum
commitment agreement which provided the partner the right to a
refund in the event that the minimum commitment was not reached.
Accordingly, management have determined that revenue should only
have been recognised when the right to refund had expired. The
effect of the correction is to reduce revenue by GBP1.25m in the
year to 31 March 2011. A further error was identified in the
treatment of revenue for a software product which was sold
alongside a data service, the majority of the revenue was
recognised immediately on contract signature although the Group had
an on-going liability to provide the data service and the software
required the data service to function. This revenue has now been
spread over the term of the service contract and the effect of the
correction is to reduce revenue by GBP0.8m in the year to 31 March
2011.
Finally, management have identified two contracts where software
was licensed to partners under a minimum commitment agreement and
revenue was recognised on the basis that it was probable that the
benefits would flow to the Company. At 30 September 2011 the debts
remains unpaid and in determining whether the receivable should be
impaired management have re-considered whether at the date of
recognition there was sufficient evidence to conclude that it was
probable that economic benefits would result from the transactions.
Given the lack of such evidence and that at the time there were
other long overdue balances from the same partners, management have
determined that the initial revenue recognition was inappropriate.
The effect of the correction is to reduce revenue by GBP181,000 in
the year to 31 March 2009, GBP824,000 in the year to 31 March 2010
and GBP444,000 in the year to 31 March 2011.
Correction of error - financing leases
In preparing the interim financial statement, management have
analysed operating leases and identified that a number of leases
entered into in 2010 and 2011 have a bargain purchase option and
the present value of the minimum lease payments are in excess of
the 90% of the fair value of the assets. Accordingly these leases
which have historically been accounted for as operating leases
should have been accounted for as finance leases from their
inception. The effect of the correction of the error is to increase
gross assets and liabilities by the following amounts Sept 2011
GBP542,000, March 2011 GBP696,000, Sept 2010 GBP643,000 and March
2010 GBP743,000. The impact on the income statement is considered
immaterial, and so no adjustments have been made in this
respect.
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management has made the following judgments that have the most
significant effect on the amounts recognised in the financial
statements:
Revenue recognition
The Group's revenue recognition policy has been changed and is
discussed in detail above.
.
Capitalisation of development costs
In accordance with IAS 38, development project costs are
assessed against the key criteria laid down therein. When qualified
projects reach a sufficient state of maturity to justify inclusion
in the review of capitalisation, the detailed project costs are
collated and the projects tested against the probable economic
benefits. Only those projects satisfying all six of the IAS 38
criteria are capitalised. All projects are amortised within three
years of capitalisation. The Group has not capitalised any costs in
the 6 months to 30 September 2011 as the Board considers the
criteria have not been met.
Impairment of goodwill
In accordance with IAS 36, goodwill is tested annually in the
context of the relevant Cash Generating Unit (CGU) as discussed in
note 6 below.
Valuation of contingent consideration
In accordance with IAS 32, when valuing the contingent
consideration still payable on acquisitions the Group considers
various factors including the performance of the company since
acquisition together with its expected performance to the end of
the earn-out period.
Deferred tax
Deferred tax assets have been re-assessed following the change
in accounting policy for revenue recognition. This has resulted in
an increase in deferred tax assets at 31 March 2011 of GBP894,000,
at 30 September 2010 GBP261,000 and at 31 March 2010 GBP727,000. At
30 September 2011 a net deferred tax asset of GBP4,500,000 has been
recognised in respect of the value of unused tax losses which are
reasonably certain of being offset against future taxable profits.
In arriving at this judgment management has assumed a sufficient
level of taxable profits arising to utilise these losses.
3. SEGMENTAL INFORMATION
For management purposes, the Group is currently organised into
two operating divisions - UK and international (ROW) and USA. These
divisions are the basis on which the Group reports its segmental
information. The Group does not report on any other basis. As per
IFRS 8 paragraph 33 revenues have been disclosed for the UK and ROW
separately as the company's' country of domicile is the UK.
Revenues are generated in each geographic segment by a sales force
dedicated to that region and these primary costs follow the region
in which they arise. Research and Development costs are borne
principally in the UK. Product transfers between the segments are
accounted for at competitive market prices which take into account
the allocation of other technical and central costs. These
transfers are eliminated on consolidation.
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
restated restated
---------------------------------- -------------- -------------- ------------
Geographical analysis of revenue GBP000 GBP000 GBP000
by origin
---------------------------------- -------------- -------------- ------------
USA 7,668 8,713 18,444
---------------------------------- -------------- -------------- ------------
UK 6,415 7,160 15,046
---------------------------------- -------------- -------------- ------------
ROW 3,091 2,451 5,211
---------------------------------- -------------- -------------- ------------
17,174 18,324 38,701
---------------------------------- ============== ============== ============
6 months ended 30 September 2011 ROW USA Group
---------------------------------- --------- -------- ---------
GBP000 GBP000 GBP000
---------------------------------- --------- -------- ---------
Revenue 9,506 7,668 17,174
---------------------------------- --------- -------- ---------
Operating (loss)/profit (19,069) 444 (18,625)
---------------------------------- --------- -------- ---------
Investment revenues 6
---------------------------------- --------- -------- ---------
Finance costs (2)
---------------------------------- --------- -------- ---------
Loss before tax (18,621)
---------------------------------- --------- -------- ---------
Tax 610
---------------------------------- --------- -------- ---------
Loss after tax (18,011)
---------------------------------- --------- -------- ---------
6 months ended 30 September 2010 ROW USA Group
(restated)
---------------------------------- --------- -------- ---------
GBP000 GBP000 GBP000
---------------------------------- --------- -------- ---------
Revenue 9,611 8,713 18,324
---------------------------------- --------- -------- ---------
Operating profit/(loss) before
acquisition costs 2,041 (904) 1,137
---------------------------------- --------- -------- ---------
Acquisition costs (347) (219) (566)
---------------------------------- --------- -------- ---------
Operating profit/(loss) after
acquisition costs 1,694 (1,123) 571
---------------------------------- --------- -------- ---------
Investment revenues 31
---------------------------------- --------- -------- ---------
Finance costs (1)
---------------------------------- --------- -------- ---------
Profit before tax 601
---------------------------------- --------- -------- ---------
Tax (373)
---------------------------------- --------- -------- ---------
Profit after tax 228
---------------------------------- --------- -------- =========
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
restated Restated
--------------------------- -------------- -------------- ------------
Segment assets GBP000 GBP000 GBP000
--------------------------- -------------- -------------- ------------
USA 15,453 30,265 29,749
--------------------------- -------------- -------------- ------------
ROW 59,938 97,000 100,708
--------------------------- -------------- -------------- ------------
Total segment assets 75,391 127,265 130,457
--------------------------- -------------- -------------- ------------
Eliminated (24,395) (46,003) (49,798)
--------------------------- -------------- -------------- ------------
Consolidated total assets 50,996 81,262 81,386
--------------------------- ============== ============== ============
From January 2012 the Group will be organised into three
operating divisions, WCM, CMA and SMI. The business has not been
measured in this way before and so no profit or asset information
is available for these segments. Revenue for these segments is as
follows:
6 months 6 months
-------------------------------- ------------- ------------- -----------
ended ended Year ended
-------------------------------- ------------- ------------- -----------
30 September 30 September 31 March
------------- ------------- -----------
2011 2010 2011
------------- ------------- -----------
restated Restated
-------------------------------- ------------- ------------- -----------
Product analysis of revenue by GBP000 GBP000 GBP000
origin
-------------------------------- ------------- ------------- -----------
CMA 9,372 11,120 22,502
-------------------------------- ------------- ------------- -----------
SMI 3,102 1,925 5,448
-------------------------------- ------------- ------------- -----------
WCM 4,700 5,279 10,751
-------------------------------- ------------- ------------- -----------
17,174 18,324 38,701
-------------------------------- ============= ============= ===========
4. AMORTISATION AND EXCEPTIONAL ITEMS
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
----------------------------- -------------- -------------- ------------
GBP000 GBP000 GBP000
----------------------------- -------------- -------------- ------------
Integration costs - 566 612
----------------------------- -------------- -------------- ------------
Bad Debt charge - - 1,652
----------------------------- -------------- -------------- ------------
Impairment of investment 592 - 220
----------------------------- -------------- -------------- ------------
Provision of onerous leases 111 - 612
----------------------------- -------------- -------------- ------------
Other one off charges - - 190
----------------------------- -------------- -------------- ------------
Impairment of goodwill 12,689 - -
----------------------------- -------------- -------------- ------------
Restructuring costs 1,576 - -
----------------------------- -------------- -------------- ------------
Total 14,968 566 3,286
----------------------------- ============== ============== ============
All the items above are recognised within operating
expenses.
The investment impairment charge in the period ended 30
September 2011 and year ended 31 March 2011 relates to the
impairment of overseas investments. The carrying value of all
investments is GBPnil as at 30 September 2011.
The goodwill impairment charge in the period to 30 September
2011 is due to the recoverable amount for the WCM CGU being lower
than the carrying value of its intangible assets and so an
impairment charge of GBP12.7m has been recorded.
The restructuring costs relate to costs of the restructure of
the business that has taken place in the first six months of this
year and primarily relate to redundancy costs.
Amortisation costs are as follows:
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
-------------------------------------- -------------- -------------- ------------
GBP000 GBP000 GBP000
-------------------------------------- -------------- -------------- ------------
Amortisation of development costs 2,087 1,223 2,806
-------------------------------------- -------------- -------------- ------------
Amortisation of acquired Intangibles 621 548 1,169
-------------------------------------- -------------- -------------- ------------
Total 2,708 1,771 3,975
-------------------------------------- ============== ============== ============
5. LOSS PER SHARE
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders for the six months ended 30
September 2011 of GBP(18,011,000) (2010 restated: profit of
GBP228,000) by the weighted average number of ordinary shares in
issue during the period of 61,807,221 (2010: 59,054,459).
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
restated Restated
------------------------------------- -------------- -------------- ------------
GBP000 GBP000 GBP000
------------------------------------- -------------- -------------- ------------
(Loss)/profit attributable to
equity holders of the parent (18,011) 228 (2,381)
------------------------------------- ============== ============== ============
No. No. No.
------------------------------------- -------------- -------------- ------------
Weighted average number of ordinary
shares for the purpose of basic
and diluted earnings per share 61,807 59,054 59,971
------------------------------------- -------------- -------------- ------------
Basic and diluted (loss)/profit
per share (29.1)p 0.3p (4.0)p
------------------------------------- ============== ============== ============
6. GOODWILL AND OTHER intangible assets
Goodwill Total
GBP000
------------------------------------------- ---------
At 1 April 2010 24,847
------------------------------------------- ---------
Recognised on acquisition of subsidiaries 6,434
------------------------------------------- ---------
At 31 March 2011 31,281
------------------------------------------- ---------
Impairment of Goodwill (12,689)
------------------------------------------- ---------
At 30 September 2011 18,592
------------------------------------------- ---------
The Group has carried out impairment tests on all the Group's
intangible assets following the losses made in the period to 30
September 2011. The Group has restructured its operations in the
period and now operates 3 distinct lines of business based on its
products. This has resulted in a re-definition of the Group's cash
generating units ('CGU' or 'CGUs') from the whole business to the
three lines of business: Campaign Management and Analytics ('CMA'),
Social Media and Insights, ('SMI') and Web Content Management
('WCM'). The recoverable amount of each CGU has been determined
based on estimates of its fair value less costs to sell which takes
into consideration the substantial cost savings that are currently
being executed (headcount reductions and office closures). The fair
value of each CGU has been estimated using recent revenue multiples
for purchases of similar businesses in the relevant markets. Profit
multiples have not been used because of the lack of transactions
involving businesses in the relevant markets that were
profitable.
Based on the above, the recoverable amounts for the CMA and SMI
CGUs have value in excess of the carrying value of the goodwill and
other intangible assets attributed to them, with significant
headroom, and there is no impairment at 30 September 2011. The
recoverable amount for the WCM CGU is lower than the carrying value
of its intangible assets and an impairment charge of GBP12.7m has
been recorded.
The base case impairment tests have also been subjected to a
sensitivity analysis varying revenue multiples used to establish
fair value. The CMA CGU was only impaired when the multiple was
reduced to 0.5 (from market multiples of 3 or more) or the revenue
estimate was reduced by 50%. The SMI CGU was only impaired when the
revenue multiple was reduced to 2 (from market multiples of 5 or
more) or the revenue estimate was reduced by 60%. To avoid
impairment, the WCM CGU required a multiple of 2.8 (against a
market multiple of 1).
Other Intangible Assets IPR and
Customer Development other software
Brand relationships costs licences Total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------- --------------- ------------- ---------------- --------
Cost
-------------------------- -------- --------------- ------------- ---------------- --------
At 1 April 2011 491 2,745 12,995 7,787 24,018
-------------------------- -------- --------------- ------------- ---------------- --------
Additions - - - 365 365
-------------------------- -------- --------------- ------------- ---------------- --------
Disposals - - - (297) (297)
-------------------------- -------- --------------- ------------- ---------------- --------
At 30 September 2011 491 2,745 12,995 7,855 24,086
-------------------------- ======== =============== ============= ================ ========
Accumulated amortisation
-------------------------- -------- --------------- ------------- ---------------- --------
At 1 April 2011 92 768 6,420 3,782 11,062
-------------------------- -------- --------------- ------------- ---------------- --------
Charge for the period 35 196 2,087 517 2,835
-------------------------- -------- --------------- ------------- ---------------- --------
At 30 September 2011 127 964 8,507 4,299 13,897
-------------------------- ======== =============== ============= ================ ========
Carrying amount
-------------------------- -------- --------------- ------------- ---------------- --------
At 30 September 2011 364 1,781 4,488 3,556 10,189
-------------------------- ======== =============== ============= ================ ========
At 31 March 2011 399 1,977 6,575 4,005 12,956
-------------------------- ======== =============== ============= ================ ========
7. SHARE CAPITAL
Share capital as at 30 September 2011 amounted to GBP15.539m
(March 2011 GBP15.226m) (March 2010 GBP14.648m). During the period
the Group issued 485,181 shares at 116p and 767,794 shares at 111p
as part consideration for the acquisition of Intrepid Consultants
Inc.
8. NOTES TO THE CASH FLOW STATEMENT
6 months 6 months
ended ended Year ended
------------------------------------------- ------------- ------------- ------------
30 September 30 September 31 March
------------------------------------------- ------------- ------------- ------------
2011 2010 2011
------------------------------------------- ------------- ------------- ------------
restated restated
------------------------------------------- ------------- ------------- ------------
GBP000 GBP000 GBP000
------------------------------------------- ------------- ------------- ------------
Operating (loss)/profit after exceptional
items (18,625) 571 (2,631)
------------------------------------------- ------------- ------------- ------------
Adjustments for:
------------------------------------------- ------------- ------------- ------------
Depreciation of property, plant and
equipment 519 392 900
------------------------------------------- ------------- ------------- ------------
Amortisation of intangible assets 748 579 1,257
------------------------------------------- ------------- ------------- ------------
Amortisation of development costs 2,087 1,223 2,806
------------------------------------------- ------------- ------------- ------------
Impairment of Goodwill 12,689 - -
------------------------------------------- ------------- ------------- ------------
Impairment of Investment 592 220
------------------------------------------- ------------- ------------- ------------
Loss on sale of property, plant and
equipment 116 - 15
------------------------------------------- ------------- ------------- ------------
Employee benefit charges 36 29 60
------------------------------------------- ------------- ------------- ------------
IFRS 2 share based payment charge 157 119 229
------------------------------------------- ------------- ------------- ------------
Operating cash flows before movements
in working capital (1,681) 2,913 2,856
------------------------------------------- ------------- ------------- ------------
Decrease in receivables 9,075 474 256
------------------------------------------- ------------- ------------- ------------
Decrease in payables (12,157) (4,177) (448)
------------------------------------------- ------------- ------------- ------------
Cash (used in) /from operations (4,763) (790) 2,704
------------------------------------------- ------------- ------------- ------------
Net interest received 4 30 22
------------------------------------------- ------------- ------------- ------------
Tax received/(paid) 301 (2) (116)
------------------------------------------- ------------- ------------- ------------
Net cash (used in) / from operating
activities before acquisition related
items (4,458) (762) 2,610
------------------------------------------- ------------- ------------- ------------
Acquisition items - 566 612
------------------------------------------- ------------- ------------- ------------
Net cash (used in) /from operating
activities (4,458) (196) 3,222
------------------------------------------- ============= ============= ============
Cash and cash equivalents (which are presented as a single class
of assets on the face of the balance sheet) comprise cash in hand,
deposits held at call with banks and other short--term highly
liquid investments with an original maturity of three months or
less.
The acquisition related items comprise the professional fees and
other costs that were incurred in the acquisition of Intrepid
Inc.
9. RELATED PARTY TRANSACTIONs
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 'Related Party Disclosures'.
6 months 6 months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
------------------------------ -------------- -------------- ------------
GBP000 GBP000 GBP000
------------------------------ -------------- -------------- ------------
Short-term employee benefits 254 522 1,321
------------------------------ -------------- -------------- ------------
Social security costs 35 67 169
------------------------------ -------------- -------------- ------------
Share-based payment 74 21 43
------------------------------ -------------- -------------- ------------
363 610 1,533
------------------------------ ============== ============== ============
10. POST BALANCE SHEET EVENTS
On October 24 2011 the Group announced a series of restructuring
activities aimed at reducing the Group's cost base and
re-organising the business along product lines so that each product
group is measured as a separate business. The cost of this
restructuring is expected to be around GBP3.5m and should save
around GBP10.6m per annum. The activities, which are mainly staff
reductions and office closures, are expected to be complete by 13
December 2011.
On October 21 2011 SDL plc submitted a non-binding indicative
offer to buy the Group for 80p per share in cash. The Board
rejected this offer as significantly undervaluing the Group. On
October 24 2011 SDL publicly announced the non-binding indicative
offer and the fact that it had been rejected. On 7 November 2011
SDL submitted a further revised non-binding indicative offer to buy
the Group for 110p per share in cash. The Board considered the
Revised Proposal to be at a level which it was prepared to engage
with SDL.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAFFNAADFFAF
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