Final Results

RNS Number : 4782H

WEARE 2020 PLC

12 July 2012

 



Date:               12July 2012

On behalf of:   Weare 2020 plc ( "the Company" or "the Group")

Weare 2020 plc

Preliminary Results 2012

Weare 2020 plc (AIM: DIGI), digital marketing specialists, today announced its preliminary results for the year ended 31 March 2012.

Performance Highlights

Revenues £37.3m (2011: £44.7m)

Gross profit £29.7m (2011: £36.0m)

Adjusted* EBITD £4.2m (2011: £5.8m)

Adjusted* profit before tax £3.3m (2011: £4.8m)

Adjusted* basic earnings per share 3.30p (2011: 5.52p)

Net cash flow generated from operations before changes in working capital £4.2m (2011: £5.3m)

Net debt £3.2m (2011: £4.2m)

Statutory profit before tax and after amortisation, share based payment charges and exceptional charges £1.3million (2011: loss £13.5m)

*Adjusted means before amortisation, share based charges, impairment and exceptional items including other income.

Commenting on the results, Andrew Wilson, Chairman of Weare 2020 plc, said: ''The start of the year has been in line with management expectations. This remains a difficult economic environment and our focus continues to be the retention and development of our client base and new business opportunities''

Enquiries:

Weare 2020 plc
Keith Sadler	Tel: [phone]
	Email: [e-mail]
Cenkos Securities plc
Ivonne Cantu (Nomad)	Tel: [phone]

Chairman's statement

As this is my first statement as Chairman, I would like to thank Stephen Davidson for his stewardship as Chairman of the Group since it was formed in 2006. Stephen has made a great contribution to the Group and had to steer it through some very challenging times. Stephen has agreed to remain on the Board of Directors as a Non-Executive Director.

For the year ended 31 March 2012 the Group reported an operating profit before interest, tax, depreciation, amortisation, share based payment charges and exceptional items of £4.2million (2011: £5.8 million). Revenue has fallen from £44.7 million to £37.3million and on the back of this reduction in revenue gross profit has fallen from £36.0 million to £29.7 million. This is as a result of the change in the mix of our revenue. We have had a challenging second six months in our Technology division which had a difficult implementation on behalf of a client. We were required to correct code for which we were not technically responsible and this delayed the implementation, which resulted in our inability to recover the full costs.

We have completed the consolidation of the business into a single brand, 20:20. Based on this consolidation we present our numbers in the three practice areas the businesses are reported internally, namely 20:20 Agency, 20:20 Technology and 20:20 Dialogue. Disclosed under other income are distributions received from the administrator of a previous client. These receipts have reduced to £0.6 million from £1.3 million received in the year to 31 March 2011. It is anticipated that further dividends will be made but the quantum will reduce. In May 2012 we received a further distribution of £0.6 million. 

Our net debt at the year-end was £3.2 million down from £4.2 million last year. We have made the final payments on the deferred consideration for the acquisition of our Technology business, which amounted to £2.4million. We have therefore been cash generative from operations through the year and continue to reduce the Group's indebtedness.    

As for the previous year, the year to 31 March 2012 has been tough but our management and employees have worked very hard to deliver these results. I would like to thank all staff and clients for their continuing commitment.  

Board Changes

We have made a number of changes to the Board with the appointment of Martin Boddy, as Chief Executive Officer, and Andy Gardner as Chief Operating Officer. Martin and Andy were founders of Jaywing, our analytics business, which we acquired in 2007. Joining on 1 June 2012 was Kate McIntyre who has been appointed as a replacement to Keith Sadler as Group Finance Director.

Charles Buddery, who has been interim Chief Executive Officer, joins the Board as a Non-Executive Director and continues to make a valuable contribution to the on going business.

Barry Jenner, who served on the Board from the beginning of the Group, stepped down from the Board on 31 May 2012. The Board would like to thank Barry for his contribution to the Group. We wish him well for the future.

Ian Robinson and Keith Sadler will step down from the Board on 31 July 2012. I would like to thank them for their contribution to the business since joining the Group.

Outlook

The start of the year has been in line with management expectations. This remains a difficult economic environment and our focus continues to be the retention and development of our client base and new business opportunities.

Andrew Wilson

Chairman

11 July 2012

Business Review

Weare 2020 plc reported a statutory profit before tax of £1.3 million (2011: loss £13.5 million). The adjusted operating performance line, before interest, tax, depreciation, amortisation, share based payment charges and exceptional items, shows profits of £4.2 million (2011: £5.8 million).

During the year the Group benefited from the receipt of £0.6 million (2011: £1.3 million) from the administrator of a client where a contractual obligation existed. Removing the benefit of these receipts from the above adjusted numbers results in an operating performance for the year of £3.6 million compared to £4.5 million for the year ended 31 March 2011. A further distribution has been received by the Group in May 2012 in the sum of £0.6 million. Based on communication from the administrator, the Board believes there will be further distributions but the quantum will reduce.

The decline in revenues was mainly driven by Agency which showed a reduction in revenue of some £5.5 million. The majority of this revenue loss is within our media buying business where the market place is commoditised and pricing has become depressed. Revenue fell from £7.0 million to £1.8 million. This resulted in gross profit falling from £1.6 million to £0.4 million.

The Technology part of the business had a small reduction in gross profit from £10.4 million to £9.8 million. However, the performance in the second half of the year suffered from a problem in implementing an ecommerce platform on behalf of a client, the resolution of which required a number of consultant hours being non-chargeable to the client. As this was a time critical issue it meant resource was not allocated to chargeable clients through the final quarter of the financial year. As we move into the new financial year these issues should be resolved and the business will get back to its normal charging cycle.

The table below shows the adjusted operating profit after interest analysed between the two half years and adjustments made against the reported numbers:

		Six months to 30 September 2011	Six months to 31 March 2012	Full year to 31 March 2012
		£'000	£'000	£'000
Reported profit before tax		1,007	259	1,266
Amortisation		900	901	1,801
Depreciation		179	181	360
Exceptional charges		-	248	248
Share based payment charge		207	(196)	11
Adjusted operating profit after interest		2,293	1,393	3,686
Other income		(285)	(282)	(567)
Adjusted operating profit after interest but before other income		2,008	1,111	3,119

Including other income the Group produced £1.4 million adjusted operating profit after interest in the six months to 31 March 2012 against £2.3 million in the first half.

The segmental performance of our business in the three practice areas of Agency, Technology and Dialogue, is shown below together with the comparative performance from the previous year.

Segmental performance

For the year ended 31 March 2012

	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Revenue from external customers	14,975	12,975	10,017	(702)	37,265
Direct costs	(5,772)	(2,222)	(228)	702	(7,520)
Gross profit	9,203	10,753	9,789	-	29,745
Other operating income	-	567	-	-	567
Operating expenses excluding depreciation, amortisation and charges for share based payments	(7,857)	(8,567)	(8,927)	(798)	(26,149)
Operating profit before depreciation, amortisation and charges for share based payments	1,346	2,753	862	(798)	4,163
Depreciation	(162)	(140)	(57)	(1)	(360)
Amortisation	(679)	(756)	(366)	-	(1,801)
Impairment and exceptional charges	(323)	75	-	-	(248)
(Charge)/credit for share based payments	-	(16)	-	5	(11)
Operating profit/(loss)	182	1,916	439	(794)	1,743

For the year ended 31 March 2011
	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Revenue from external customers	20,499	14,276	11,005	(1,075)	44,705
Direct costs	(7,936)	(1,190)	(602)	994	(8,734)
Gross profit	12,563	13,086	10,403	(81)	35,971
Other operating income	8	1,305	-	-	1,313
Operating expenses excluding depreciation, amortisation and charges for share based payments	(10,467)	(11,853)	(8,405)	(809)	(31,534)
Operating profit before depreciation, amortisation and charges for share based payments	2,104	2,538	1,998	(890)	5,750
Depreciation	(230)	(205)	(50)	(2)	(487)
Amortisation	(885)	(684)	(365)	-	(1,934)
Impairment	(13,305)	(2,170)	-	(294)	(15,769)
Charges for share based payments	(131)	(61)	-	(395)	(587)
Operating profit/(loss)	(12,447)	(582)	1,583	(1,581)	(13,027)

Liquidity review

The Group's facilities comprise an amortising revolving credit facility for an initial £6.3 million and a bank overdraft of £1.0 million. The revolving credit facility amortises over its duration to £2.45 million in October 2013.

The consolidated cash flow statement shows the Group to have generated cash from operating activities of £4.2 million (2011: £5.3 million) before changes in working capital.

We paid £0.4 million in tax (2011: £0.6 million). In addition, we repaid £1.1million of term loans (2011: £1.8 million) and reduced the revolving credit facility by £1.2 million (2011: increased £1.2 million).

As at 31 March 2012 the Group had net debt of £3.2 million (2011: £4.2 million).

Impairment

As required by IAS 38 we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculate our weighted average cost of capital with reference to long term market costs of debt and equity and the Company's own cost of debt and equity, adjusted for the size of the business and risk premiums. Based on this calculation a rate of 11% (2011:12.7%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2018/19. As a result of these calculations the Board have concluded that the carrying value of intangible assets and goodwill on the Group's balance sheet do not need to be impaired and therefore no charge has been made (2011: £15.3 million).

Contingent payments

The estimate of payments to be made for past acquisitions is £0.1 million (2011: £2.6 million).  £125,000 is due for the purchase of 20:20 London and is subject to performance criteria being met. This amount is provided in deferred consideration.

Consolidated statement of comprehensive income

For the year ended 31 March		2012	2012	2012	2011	2011	2011
Continuing operations	Note	£'000	£'000	£'000	£'000	£'000	£'000
		Before impairment of non- current assets and exceptional costs	Impairment of non- current assets and exceptional costs	Total	Before impairment of non-current assets and exceptional costs	Impairment of non-current assets and exceptional costs	Total
Revenue		37,265	-	37,265	44,705	-	44,705
Direct costs		(7,520)	-	(7,520)	(8,734)	-	(8,734)
Gross profit		29,745	-	29,745	35,971	-	35,971
Other operating income	2	567	-	567	1,313	-	1,313
Amortisation		(1,801)	-	(1,801)	(1,934)	-	(1,934)
Operating expenses	3	(26,520)	(248)	(26,768)	(32,608)	(15,769)	(48,377)
Operating profit/(loss)		1,991	(248)	1,743	2,742	(15,769)	(13,027)
Finance income		2	-	2	1	-	1
Finance costs		(479)	-	(479)	(498)	-	(498)
Net financing costs		(477)	-	(477)	(497)	-	(497)
Profit/(loss) before tax		1,514	(248)	1,266	2,245	(15,769)	(13,524)
Tax (expense)/credit	4	(208)	64	(144)	396	-	396
Profit/(loss) for the year attributable to equity holders of the parent		1,306	(184)	1,122	2,641	(15,769)	(13,128)
Other comprehensive income:
Cash flow hedging		197	-	197	172	-	172
Total comprehensive income for the period attributable to equity holders of the parent		1,503	(184)	1,319	2,813	(15,769)	(12,956)
Earnings/(loss) per share	5
From continuing operations
- basic				1.50p			(17.64)p
- diluted				1.43p			(17.64)p

Consolidated balance sheet
As at 31 March			2012	2011	2010
	Note		£'000	£'000	£'000
Non-current assets
Property, plant and equipment	6		1,172	1,586	1,752
Goodwill	7		29,753	29,777	45,653
Other intangible assets	8		9,473	11,273	14,272
			40,398	42,636	61,677
Current assets
Inventories			81	143	212
Trade and other receivables			9,505	10,425	11,832
Cash at bank and in hand	9		61	9,307	7,399
			9,647	19,875	19,443
Total assets			50,045	62,511	81,120
Current liabilities
Bank overdraft	9		233	8,159	6,443
Other interest-bearing loans and borrowings	9		3,000	5,311	1,691
Financial derivatives			52	244	416
Trade and other payables			5,845	9,148	12,741
Current tax liabilities			729	286	254
Provisions			116	123	187
			9,975	23,271	21,732
Non-current liabilities
Other interest-bearing loans and borrowings	9		-	-	6,522
Deferred tax liabilities			2,326	3,119	4,133
			2,326	3,119	10,655
Total liabilities			12,301	26,390	32,387
Net assets			37,744	36,121	48,733
Equity attributable to owners of the parent
Share capital	10		34,051	34,051	34,026
Share premium			6,608	6,608	6,608
Hedging reserve			(52)	(244)	(416)
Capital redemption reserve			125	125	125
Shares purchased for treasury			(25)	(42)	-
Share option reserve			207	329	419
Retained earnings			(3,170)	(4,706)	7,971
Total equity			37,744	36,121	48,733

Consolidated cash flow statement

For the year ended 31 March		2012		2011
	Note	£'000		£'000
Cash flow from operating activities
Profit/(loss) after tax		1,122	(13,128)
Adjustments for:
Depreciation, amortisation and impairment		2,368	17,773
Loss on disposal of property, plant and equipment		-	7
Movement in provision		41	(64)
Financial income		(2)	(1)
Financial expenses		479	498
Share-based payment expense		11	587
Taxation		144	(396)
Operating cash flow before changes in working capital		4,163	5,276
Decrease in trade and other receivables		860	1,407
Decrease in inventories		62	69
Decrease in trade and other payables		(482)	(2,018)
Cash generated from operations		4,603	4,734
Interest received		2	1
Interest paid		(469)	(422)
Tax paid		(425)	(586)
Net cash flow from operating activities		3,711	3,727
Cash flow from investing activities
(Payment)/repayment of contingent consideration for prior year acquisitions		(2,375)	150
Acquisition of intangible assets		(1)	(89)
Acquisition of property, plant and equipment		(278)	(375)
Net cash outflow from investing activities		(2,654)	(314)
Cash flows from financing activities
Repayment of borrowings		(2,311)	(2,978)
Cash settlement of equity share options		(66)	(126)
Purchase of shares for treasury		-	(117)
Net cash outflow from financing activities		(2,377)	(3,221)
Net (decrease)/increase in cash and cash equivalents		(1,320)	192
Cash and cash equivalents at beginning of year		1,148	956
Cash and cash equivalents at end of year		(172)	1,148
Cash and cash equivalents comprise:
Cash at bank and in hand	9	61	9,307
Bank overdrafts	9	(233)	(8,159)
Cash and cash equivalents at end of year	9	(172)	1,148

Consolidated statement of changes in equity

	Share capital	Share premium	Hedging reserve	Capital redemption reserve	Treasury shares	Share option reserve	Retained earnings	Total attributed to the owners of the parent
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2010	34,026	6,608	(416)	125	-	419	7,971	48,733
Allotment of 5p Ordinary shares on the exercise of share options	25	-	-	-	-	(25)	-	-
Shares purchased for Treasury	-	-	-	-	(117)	-	-	(117)
Allotment of shares from Treasury on the exercise of options	-	-	-	-	75	-	(75)	-
Credit in respect of share-based payments	-	-	-	-	-	-	587	587
Transfer from share option reserve	-	-	-	-	-	(65)	65	-
Cash settled share options	-	-	-	-	-	-	(126)	(126)
Transactions with owners	25	-	-	-	(42)	(90)	451	344
Loss for the year	-	-	-	-	-	-	(13,128)	(13,128)
Other comprehensive income:
Cash flow hedges	-	-	172	-	-	-	-	172
Total comprehensive income for the year	-	-	172	-	-	-	(13,128)	(12,956)
At 31 March 2011	34,051	6,608	(244)	125	(42)	329	(4,706)	36,121
Allotment of shares from Treasury on the exercise of options	-	-	-	-	17	-	(17)	-
Credit in respect of share-based payments	-	-	-	-	-	-	370	370
Transfer from share option reserve	-	-	-	-	-	(122)	122	-
Cash settled share options	-	-	-	-	-	-	(66)	(66)
Transactions with owners	-	-	-	-	17	(122)	409	304
Profit for the year	-	-	-	-	-	-	1,122	1,122
Other comprehensive income:
Cash flow hedges	-	-	197	-	-	-	-	197
Transfer from Hedging reserve	-	-	(5)	-	-	-	5	-
Total comprehensive income for the year	-	-	192	-	-	-	1,127	1,319
At 31 March 2012	34,051	6,608	(52)	125	(25)	207	(3,170)	37,744

Notes to the Preliminary announcement of results

Principal accounting policies

Weare 2020 plc is a Company incorporated in the UK and is AIM listed.

The financial information set out in this preliminary announcement does not constitute statutory information as defined in section 434 of the Companies Act 2006.

The consolidated balance sheet at 31 March 2012 and the consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and associated notes for the year then ended have been extracted from the Group's 2012 statutory financial statements upon which the auditor's opinion is unmodified and does not include any statement under section 498 (2) or (3) of the Companies Act 2006.

Those financial statements have not yet been delivered to the registrar of companies.

The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').

The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRSs). The consolidated financial statements have been prepared under the historical cost convention, except for certain financial instruments that are held at fair value.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements.

Judgements made by the Directors in the application of these accounting policies that have a significant effect on the consolidated financial statements together with estimates with a significant risk of material adjustment in the next year are discussed in note 12.

Going concern

The Directors have reviewed the forecasts for 2012/13 and 2013/14 which have been adjusted to take account of the current trading environment. The Directors consider the forecasts to be prudent and have assessed the impact of them on the Group's cash flow, facilities and headroom within its banking covenants. Further, the Directors have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities. Based on this work, the Directors are satisfied that the Group has adequate resources to continue in operational existence for 12 months from the date of these accounts. For this reason they continue to adopt the going concern basis in preparing the financial statements.

1.     Segmental analysis

The Group reports its business activities in three areas: Agency, Dialogue and Technology, its three primary business activities. Unallocated represents the Group's head office function, along with intragroup transactions.

The Group derives its revenue from the provision of digital marketing services in the UK to customers all of which are based in the UK. During the year one customer included within the Dialogue segment accounted for greater than 10% of the Group's revenue. This customer accounted for 11.3% (2011: 4.7%) of Group revenue.

For the year ended 31 March 2012

	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Revenue	14,975	12,975	10,017	(702)	37,265
Direct costs	(5,772)	(2,222)	(228)	702	(7,520)
Gross profit	9,203	10,753	9,789	-	29,745
Other operating income	-	567	-	-	567
Operating expenses excluding depreciation, amortisation and charges for share based payments	(7,857)	(8,567)	(8,927)	(798)	(26,149)
Operating profit before depreciation, amortisation and charges for share based payments	1,346	2,753	862	(798)	4,163
Depreciation	(162)	(140)	(57)	(1)	(360)
Amortisation	(679)	(756)	(366)	-	(1,801)
Impairment and exceptional charges	(323)	75	-	-	(248)
(Charge)/credit for share based payments	-	(16)	-	5	(11)
Operating profit/(loss)	182	1,916	439	(794)	1,743
Finance income					2
Finance costs					(479)
Profit before tax					1,266
Taxation					(144)
Profit for the period from continuing operations					1,122

For the year ended 31 March 2011
	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Revenue	20,499	14,276	11,005	(1,075)	44,705
Direct costs	(7,936)	(1,190)	(602)	994	(8,734)
Gross profit	12,563	13,086	10,403	(81)	35,971
Other operating income	8	1,305	-	-	1,313
Operating expenses excluding depreciation, amortisation and charges for share based payments	(10,467)	(11,853)	(8,405)	(809)	(31,534)
Operating profit before depreciation, amortisation and charges for share based payments	2,104	2,538	1,998	(890)	5,750
Depreciation	(230)	(205)	(50)	(2)	(487)
Amortisation	(885)	(684)	(365)	-	(1,934)
Impairment	(13,305)	(2,170)	-	(294)	(15,769)
Charges for share based payments	(131)	(61)	-	(395)	(587)
Operating profit/(loss)	(12,447)	(582)	1,583	(1,581)	(13,027)
Finance income					1
Finance costs					(498)
Loss before tax					(13,524)
Taxation					396
Loss for the period from continuing operations					(13,128)

Year ended 31 March 2012
	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Assets	18,332	17,729	11,910	2,074	50,045
Liabilities	(2,248)	(1,631)	(1,752)	(6,670)	(12,301)
Capital employed	16,084	16,098	10,158	(4,596)	37,744

Year ended 31 March 2011
	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Assets	3,561	16,679	9,066	33,445	62,751
Liabilities	(5,047)	(4,146)	(3,900)	(13,537)	(26,630)
Capital employed	(1,486)	12,533	5,166	19,908	36,121

Unallocated assets and liabilities consist predominantly of cash, external borrowings and deferred tax liabilities on intangible assets which have not been allocated to the business segments. All of the Group's assets are based in the UK.

Capital additions; Property, plant and equipment

	Agency	Dialogue	Technology	Unallocated	Total
	£'000	£'000	£'000	£'000	£'000
Year ended 31 March 2012	114	117	34	13	278
Year ended 31 March 2011	143	163	68	1	375

2.     Other operating income

	2012	2011
	£'000	£'000
Other operating income	567	1,313

During the years to 31 March 2011 and 2012 the Group received part settlement from the administrator of a client for a contractual obligation to perform services on their behalf. In May 2012 we received a further distribution of £0.6 million. It is anticipated there may be further distributions in the future but the Board is unaware of the quantum or timing of these potential receipts.

3.     Other operating expenses

	2012	2011
	£'000	£'000
Wages and salaries	17,721	22,228
Share based payments	11	587
Administration	8,788	9,793
	26,520	32,608
Impairment of the carrying value of tangible assets	332	-
Adjustment to deferred consideration	(125)	-
Impairment of the carrying value of goodwill and other intangible assets	-	15,305
Exceptional costs	41	464
	248	15,769
	26,768	48,377

Exceptional costs of £41,000 represent the costs of closure of an operating site (2011: £464,000 represents compensation for loss of office in respect of a director and the costs of closure of an operating site).

4.     Tax expense

	2012	2011
	£'000	£'000
Recognised in the consolidated statement of comprehensive income:
Current year tax	868	645
Origination and reversal of temporary differences	(724)	(1,041)
Total tax charge/(credit)	144	(396)
Reconciliation of total tax  charge/(credit):
Profit/(loss) before tax	1,266	(13,524)
Taxation using the UK Corporation Tax rate of 26% (2011: 28%)	329	(3,787)
Effects of:
Non deductible expenses	10	(943)
Impairment of goodwill	-	4,285
Share based payment charges	96	164
Capital allowances in excess of depreciation	33	42
Schedule 23 deductions	(3)	(96)
Other	(16)	(5)
Prior year adjustment	(305)	(56)
Total tax charge/(credit)	144	(396)

5.     Earnings/(loss) per share

	2012	2011
	Pence per Share	Pence per Share
Basic	1.50p	(17.64)p
Diluted	1.43p	(17.64)p

Earnings/(loss) per share has been calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. In the prior year the basic earnings per share is a loss so a dilution does not take place.

The calculations of basic and diluted earnings per share are:

	2012	2011
	£'000	£'000
Profit/(loss) for the year attributable to shareholders	1,122	(13,128)

Weighted average number of ordinary shares in issue:

	2012	2011
	Number	Number
Basic	74,505,377	74,421,106
Adjustment for share options	4,136,609	3,280,491
Diluted	78,641,986	77,701,597

 

Adjusted earnings per share

	2012	2011
	Pence per Share	Pence per Share
From continuing and discontinued operations:
Basic adjusted earnings per share	3.30p	5.52p
Diluted adjusted earnings per share	3.12p	5.29p

Adjusted earnings per share have been calculated by dividing the profit attributable to shareholders before amortisation and charges for share options by the weighted average number of ordinary shares in issue during the year. The numbers used in calculating the basic and diluted adjusted earnings per share are reconciled below:

	2012	2011
	£'000	£'000
Profit/(loss) before tax	1,266	(13,524)
Amortisation	1,801	1,934
Impairment of carrying value of goodwill, other intangible assets, tangible assets and exceptional charges	248	15,769
Charges for share options	11	587
Adjusted profit attributable to shareholders	3,326	4,766
Current year tax charge	(868)	(654)
	2,458	4,112

6.     Property, plant and equipment

	Freehold land and buildings	Leasehold improvements	Motor vehicles	Office equipment	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2010	1,150	228	12	1,948	3,338
Additions	-	10	-	365	375
Disposals	-	(22)	-	(67)	(89)
At 31 March 2011	1,150	216	12	2,246	3,624
Additions	-	6	-	272	278
Disposals	-	(32)	-	(270)	(302)
At 31 March 2012	1,150	190	12	2,248	3,600
Depreciation
At 1 April 2010	80	123	-	1,383	1,586
Depreciation charge for the year	28	47	3	409	487
Impairment charge	-	-	-	47	47
Depreciation on disposals	-	(19)	-	(63)	(82)
At 31 March 2011	108	151	3	1,776	2,038
Depreciation charge for the year	29	29	2	300	360
Impairment charge	332	-	-	-	332
Depreciation on disposals	-	(32)	-	(270)	(302)
At 31 March 2012	469	148	5	1,806	2,428
Net book value
At 31 March 2012	681	42	7	442	1,172
At 31 March 2011	1,042	65	9	470	1,586
At 1 April 2010	1,070	105	12	565	1,752

The assets are covered by a fixed charge in favour of the Group's lenders.

The freehold building has been sold post year end and has therefore been written down to its fair value less cost to sell, this has resulted in a write down of £332,000. This asset was used in the Agency segment.

7.     Goodwill

			Goodwill
			£'000
Cost and net book value
At 1 April 2010			45,653
Reduction in deferred contingent consideration			(1,575)
Refund of consideration paid			(150)
Impairment			(14,151)
At 31 March 2011			29,777
Reduction in goodwill in 20:20 Technology			(24)
At 31 March 2012			29,753
At 31 March 2011			29,777
1 April 2010			45,653

Goodwill is attributed to the following cash generating units:
	2012	2011	2010
	£'000	£'000	£'000
20:20 Technology	5,132	5,156	5,156
20:20 Agency:
20:20 Media and Analytics	438	438	7,763
DigforFire	5,550	5,550	5,550
20:20 Agency	5,817	5,817	5,817
Hyperlaunch	-	-	1,432
Inbox	-	-	1,711
20:20 London	-	-	2,083
20:20 Dialogue:
HSM	3,201	3,201	4,209
Gasbox	273	273	1,598
Jaywing	9,342	9,342	10,334
	29,753	29,777	45,653

Goodwill and other intangible assets have been tested for impairment by assessing the value in use of the relevant cash generating  units.  The value in use calculations were based on projected cash flows in perpetuity.  Budgeted cash flows for 2012/13 were used.  Subsequent years were based on reducing rates of growth declining to a 2% growth rate by 2018/19.

The average year on year growth in earnings before interest, tax, depreciation and amortisation (EBITDA) which has been used as the basis for forecasting cash flows for each of the cash generating units when testing for impairment were:

	Year on year growth
2013/14	5.0% - 10%
2014/15	5.0% - 10%
2015/16	5.0% - 10%
2016/17	2.5% - 10%
2017/18	2.5% - 10%
Perpetuity	2.0%

The growth rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated profits of the Group in the future.

The discount rate used to test the cash generating units was the Group's pre-tax Weighted Average Cost of Capital ("WACC") of 11% (2011:12.7%). The individual cash generating units were assessed for risk variances from the WACC, but in the absence of geographical risk, currency risk and any significant price risk variations, the WACC was used for all the cash generating units.

As a result of these tests no impairment was considered necessary (2011: £15.3 million).

The Directors have performed a sensitivity analysis in relation to the WACC used which showed that an impairment would be required for WACCs of 13% and above. At a discount rate of 13% a charge of £321,000 would be required.

The Directors have also performed a sensitivity analysis in relation to the year on year growth in EBITDA. If the growth rates were to be reduced by 1% in each CGU no impairment charge would be required.

8.     Other intangible assets

	Customer relationships, trademarks and development costs
		£'000
Cost
At 1 April 2010		20,401
Additions during the year		89
At 31 March 2011		20,490
Additions during the year		1
At 31 March 2012		20,491
Amortisation
At 1 April 2010		6,129
Impairment		1,154
Amortisation charge for the year		1,934
At 31 March 2011		9,217
Amortisation charge for the year		1,801
At 31 March 2012		11,018
Net book amount
At 31 March 2012		9,473
At 1 April 2011		11,273
At 1 April 2010		14,272

The cost of customer relationships was determined as at the date of acquisition of the subsidiaries by professional valuers. The valuations used the discounted cash flow method, assuming rates of customer attrition at 10% and sales growth at 2% each year. The discount rate applied at that time to the future cash flows were specific to each subsidiary and were all in the range 14.6% to 15.5%.

Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are detailed in note 7. On the basis of this review it has been concluded that there is no need to impair the carrying value of these intangible assets (2011: £1.2m).

9.     Bank and overdraft, loans and borrowings

		2012		2011		2010
		£'000		£'000		£'000
Summary
Bank overdraft		233		8,159		6,443
Borrowings		3,000		5,311		8,213
		3,233		13,470		14,656
Borrowings are repayable as follows:
Within one year
Bank overdraft		233		8,159		6,443
Borrowings		3,000		5,374		1,865
Total payments due within one year		3,233		13,533		8,308
Less future interest		-		(63)		(174)
Total due within one year		3,233		13,470		8,134
In more than one year but not more than two years		-		-		6,596
In more than two years but not more than three years		-		-		-
Total payments due in more than one year		-		-		6,596
Less future interest		-		-		(74)
Total due in more than one year		-		-		6,522
Average interest rates at the balance sheet date were:	£'000	%	%		%
Overdraft	233	3.35	2.75		2.75
Term loan	-	-	2.13		1.96
Term loan	-	-	2.63		2.46
Revolver loan	3,000	3.35	2.39		2.33

As the loans are at variable market rates their carrying amount is equivalent to their fair value.

In 2007 the Group purchased an interest rate swap of 6.19% for the period June 2007 to June 2012 for £4,000,000 of its borrowings.

The borrowing facilities available to the Group at 31 March 2012  was £7.1 million (2011: £8.5 million) and, taking into account cash balances within the Group companies, there was £3.8 million (2011: £4.3 million) of available borrowing facilities.

A Composite Accounting System is set up with the Group's bankers, which allows debit balances on overdraft to be offset across the Group with credit balances.

Reconciliation of net debt

	1 April 2011	Cash flow	Non-cash items	31 March 2012
	£'000	£'000	£'000	£'000
Cash and cash equivalents	9,307	(9,246)	-	61
Overdraft	(8,159)	7,926	-	(233)
	1,148	(1,320)	-	(172)
Borrowings	(5,311)	2,311	-	(3,000)
Net debt	(4,163)	991	-	(3,172)

10.   Share capital

Authorised:

	45p deferred shares	5p ordinary shares
	£'000	£'000
Authorised share capital at 31 March 2011	45,000	10,000
At 31 March 2012	45,000	10,000

Allotted, issued and fully paid

	45p deferred shares	5p ordinary shares
	Number	Number	£'000
Issued share capital at 31 March 2010	67,378,520	74,121,505	34,026
Shares allotted on exercise of options	-	483,494	25
At 31 March 2011	67,378,520	74,604,999	34,051
Shares allotted on exercise of options	-	-	-
At 31 March 2012	67,378,520	74,604,999	34,051

Allotted, issued and fully paid

The 5 pence ordinary shares have the same rights (including voting and dividend rights and rights on a return of capital) as the previous 50 pence ordinary shares. Holders of the 45 pence deferred shares do not have any right to receive notice of any general meeting of the Company or any right to attend, speak or vote at any such meeting. The deferred share holders are not entitled to receive any dividend or other distribution and shall on a return of assets in a winding up of the Company entitle the holders only to the repayment of the amounts paid up on the shares after the amount paid to the holders of the new ordinary shares exceeds £1,000,000 per new ordinary share. The deferred shares will also be incapable of transfer and no share certificates will be issued in respect of them.

During the year the Company has reissued 70,175 5 pence ordinary shares which were previously held as treasury shares to settle share options exercised by employees. In addition holders of 412,011 share options received cash in lieu of the share options they were entitled to exercise.

Warrant over shares

The Company has granted warrants to Cenkos Securities PLC over 324,561 ordinary shares at £0.57 per share in lieu of services rendered prior to the formation of the Company and admission to the AIM. These warrants are exercisable at any time until 25 October 2012. The fair value of the warrants has been calculated at £50,000 which at the time of granting the warrants represented the value of the services provided.

11.   Contingent liabilities

Some acquisitions by the Group involve an earn-out agreement whereby the consideration payable includes a deferred element of cash or shares or both which is contingent on the future financial performance of the acquired entity. As such there is uncertainty about the amount (but not timing) of these future potential outflows.

The maximum liability is £125,000 (2011: £2,650,000) £2,376,000 of the possible £2,400,000 having been paid and £125,000 having lapsed due to conditions not being met. The Directors have assessed the likely future payments based on forecasts and have provided £125,000 (2011: £2,650,000), leaving £nil (2011: £nil) as an unprovided liability.

The amounts provided for are payable as follows:

	2012	2011
	£'000	£'000
In one year or less	125	2,400
In more than one year but less than five years	-	250
	125	2,650

The amounts provided have not been discounted.

12.   Accounting estimates and judgements

Accounting estimates

Impairment of goodwill

The carrying amount of goodwill is £29,753,000 (2011: £29,777,000). The Directors are confident that the carrying amount of goodwill is fairly stated, and have carried out an impairment review (see note 7).

Other intangible assets

The valuation of customer lists is based on key assumptions which the Directors have assessed, and are satisfied that the carrying value of these assets is fairly stated (see note 8).  An impairment review has been carried out.

Share-based payment

The share based payment charge consists of two elements, the charge for the fair value at the date of grant and a charge for the employers NI.

The charge for the fair value at the date of grant of the share based remuneration calculated using the Black-Scholes method, in previous years a trinomial pricing model was adopted. In considering an appropriate charge the Directors have used an internally generated calculation to derive an appropriate charge. Based on these calculations a charge of £370,000 (2011: £587,000) has been made. In the year to 31 March 2009 the Directors commissioned an independent valuation from American Appraisal UK Limited and adopted their findings.

Fair values on acquisition

The Directors have assessed the fair value of assets and liabilities on the acquisition of the subsidiary companies.

Deferred consideration

The Directors have provided an estimate of the amount payable in respect of deferred contingent consideration. See note 11.

Accounting judgements

Recognition of revenue as principal or agent

The Directors consider that they act as a principal in transactions where the Group assumes the credit risk. Where this is via an agency arrangement and the Group assumes the credit risk for all billings it therefore recognises gross billings as revenue.

13.   Annual report and accounts

Copies of the annual report and accounts for the year ended 31 March 2012 together with the notice of the Annual General Meeting will be issued to shareholders shortly and will be available to view and download from the Company's website: www.weare2020.com.

 

END

 

 

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