Interim Results

CSS Stellar PLC 18 September 2002 CSS Stellar plc ('CSS Stellar' or 'the Group') 2002 Interim Results & Investment in North American golf businesses and acquisition of JR Financial Services CSS Stellar, the AIM listed sports and entertainment management and marketing group, today announces interim results for the six months ended 30 June 2002, an investment in North American golf businesses and the acquisition of JR Financial Services Ltd. HIGHLIGHTS * Considerable further progress in establishing CSS Stellar as a global player in the sports and entertainment management and marketing business * Now representing over 1,000 talent clients including Ewan Macgregor, Anne Robinson and Juan Pablo Montoya, as well as providing marketing consultancy to over 40 blue-chip corporations including Vodafone, Starbucks and UPS * Turnover increased to £17.8m (2001: £6.7m), despite difficult trading environment * Growth in adjusted EBITDA to £2.37m (2001: £1.2m) * Pre-tax profit reduced to £143,000 due to non-recurring items and goodwill amortisation (2001: £700,000) * EPS, before non-recurring items and goodwill amortisation, increased to 5.50p (2001: 4.29p) * Successful Placing and Open Offer in April, raising £9.3m * During the first half CSS acquired Vertical Mix, Craigie Taylor and Backporch and after the period end acquired Echo Group - a leading Canadian entertainment marketing business with clients including Labatt Breweries, Microsoft, U2 and The Rolling Stones * Further strategic investments announced today Chairman, John Webber, today said: 'The first half of 2002 has undoubtedly been the most challenging market we have had to face in our relatively short life as a public company. Nonetheless, the majority of our businesses performed admirably in the circumstances. 'The decision to broaden the base of the Group has been vindicated. I feel confident that the Group has the quality of staff, mix of businesses and infrastructure to prosper.' - Ends - Enquiries: CSS Stellar plc 020 7078 1400 Julian Jakobi, Chief Executive Sean Kelly, Finance Director and Deputy Chief Executive Weber Shandwick Square Mile 020 7950 2800 Ben Padovan or Sally Lewis CSS Stellar plc ('CSS Stellar' or 'the Group') Interim Results for the six months ended 30 June 2002. CHAIRMAN'S STATEMENT Overview Since flotation the Company has made considerable progress in establishing itself as a global player in the sports and entertainment management and marketing business. In less than two years, the Group has grown from being primarily UK based, employing some 100 people, to a far broader based entity employing over 600 people, roughly split between the UK and North America. The Group now has a critical mass on both sides of the Atlantic, capable of managing top talent such as Formula 1 driver, Juan Pablo Montoya, actor Ewan McGregor and presenter Anne Robinson, as well as providing marketing consultancy for major consumer brands such as Vodafone, Starbucks and UPS. Placing and Open Offer In April 2002, we raised £9.3m net of expenses by way of an underwritten 2 for 9 Open Offer. The reasons for the fund raising included expanding GEM into Europe, growing our golf and TV operations and developing our entertainment marketing capabilities in North America. We are grateful to our shareholders for the flexibility the additional funds have provided. We have now achieved most of these objectives through the acquisitions as described below. The cash position net of bank loans and overdrafts at 30 June 2002 was £5.9m. Results As with last year, the first six months is the quieter half of our financial year. Over the period, we generated a turnover of £17.8m and achieved EBITDA of £2.37m prior to non-recurring items, which are disclosed below. Last year we made EBITDA of approximately £1.2m, on turnover of £6.7m. Operating profits prior to amortisation were £1.14m (2001: £969,000). The effect of these non-recurring items of £485,000 and amortisation of goodwill of £869,000 (£224,000 last year) produced pre-tax profit of £143,000 against £700,000 in the corresponding period last year. Basic and fully diluted earnings per share were 0.01p over the period, against 3.04p and 2.46p respectively in 2001. However, adjusted earnings per share, adding back amortisation costs and exceptional administrative expenses (net of taxation) were 5.50p (undiluted) and 4.62p (fully diluted) against comparatives of 4.29p and 3.47p on a similar basis last year. In the period to 30 June 2002, other administrative costs rose significantly to £13.5m (2001: £3.2m). The margin has fallen because of the increase in consultancy related income and the drop-off in the proportion of sponsorship revenue. There were some non-recurring dilapidation and moving costs associated with our move from Great Portland Street which have been separately itemised in our statement, however there have been considerable benefits in combining the two London offices of PFD and CSS Stellar Management. Operating Review The growth in the business has been primarily in the client side with the effect of the acquisitions in 2001 being included for the first time in the first six months earnings. Overall, the background economic conditions have proved challenging in varying degrees for our businesses. The half-year has been satisfactory for our talent management division and our marketing consultancy division (augmented by the addition of Craigie Taylor from the beginning of May) is making steady progress. Against this, as we told the market a couple of months ago, we have experienced difficulties in sponsorship sales, both in Europe and North America. Clients The PFD and GEM acquisitions have been largely responsible for the growth in client revenues to £13.2m from £2.8m in 2001 and the addition of clients like Montoya and Michael Ball have increased organic revenues. The client base has expanded with over 1,000 individual talent clients and 40 blue chip corporations now serviced by this division. On 29 April 2002, GEM's business expanded with the acquisition of Craigie Taylor International Limited (now renamed GEM Europe) which will contribute fully in the second half of the year. Profits prior to amortisation of goodwill rose to £1,020,000 (2001: £770,000), a growth of 32.5%. The client division has also absorbed one-off costs relating to the move from Great Portland Street to PFD's offices in Covent Garden and the closing of GEM's office in Chicago. Provision has been made for these costs and for losses in the sponsorship motor sport area totalling £485,000. If this cost is ignored, profits have grown 95%. Events Operating profits in the period from our two events businesses were £118,000 (2001: £199,000). Icon, which provides signage for sports and entertainment events, performed well over the period, benefiting from its major clients, including UEFA, The Royal and Ancient, BBC, The PGA European Tour and Wimbledon. ARB, was fully acquired in June 2001, having made a loss of £164,000 in the first five months of 2001 (the Group's share being £82,000) as an associate when it felt the full impact of foot and mouth. However, the company has continued to struggle, giving an overall result in the first half of 2002 which shows a flat trading performance. Steps have already been taken to re-structure ARB and early results in July and August are encouraging. Acquisitions Our recent acquisitions have been focused on the entertainment industry, beginning with the purchase of PFD last November, followed by Vertical Mix in January of this year and The Echo Group at the end of July. The reason for this has been primarily an unwillingness to expand the sports side of the business at values prevailing a year ago. This has already proved a sensible policy. I am pleased to say that the entertainment business now represents over 40% of the Group's revenues and that earnings in this area have so far been largely unaffected by the well publicised issues surrounding the media sector. In sport, we have continued to focus on motor sport, football and golf. Each of the sports has its own macro-economic influences and we continue to believe these sports still maintain their global appeal and that they offer the best prospects for profit growth in the client and event divisions. In the first six months of 2002, the Company has made the following acquisitions, spending a total of £3.84m, comprising £2.27m in shares at an average price of 252p and £1.57m in cash: * Vertical Mix Marketing Inc.('VMM') was acquired in January 2002 for an initial consideration of £278,550 ($400,000), half satisfied in cash and half by an issue of 46,894 CSS Stellar shares. VMM's business is sales promotion for cable TV networks and their programmes. The company's major clients are NBC, AOL, Oxygen and The Weather Channel. Deferred share consideration of up to US $5.6m may become payable, based on a multiple of 6 times profits before tax for 2002. The minimum price at which shares may be issued is 297p per share. VMM is now part of the GEM Group and operates out of New York. * Craigie Taylor International Limited (now GEM Europe) was acquired in April 2002. This is a UK based sports and leisure marketing consultancy whose major clients include Vodafone, TXU and UGC Cinemas. GEM Europe was bought for an initial consideration of £3.45m, consisting of 840,000 shares at 250p per share (£2.1m) and £1.35m in cash. Deferred consideration payable of up to £6.55m, is subject to the company achieving profits before interest and taxation ('PBIT') of at least £1.065m and gross profits of £4.95m over the two years ending 31 December 2003. Any consideration due will be paid in CSS Stellar shares on a multiple of between seven and ten times PBIT and is subject to a cap and collar arrangement of 320p and 180p respectively. * Backporch Limited, a small UK based event services business renting audio-visual materials purchased in May for £0.1m, was immediately integrated into Icon/ARB. Major clients include The Royal and Ancient and Twickenham. * The Group committed £50,000 in June to acquire 20% of Sportsunite (Asia) Limited. This sports management business operates in Monaco and Beijing, China and the Group has an option to purchase the remainder of the business at the end of 2005. Since 30 June 2002, the Company has made the following acquisitions: * The Echo Group was acquired in July. Toronto based Echo gives the Group a substantial, credible independent, full-service provider of marketing and advertising services. Echo's entertainment marketing business in North America, as one of Canada's largest, initially served the film, theatre and music industries but now provides a far broader-based range of businesses to clients in many sectors. Echo's blue chip client base includes Labatt Breweries, film distributor Alliance Atlantis, Starbucks, Microsoft and the Toronto International Film Festival. Echo also arranges the promotional advertising for the tours of rock bands such as U2 and The Rolling Stones. Echo has retained many of its entertainment industry links: for Alliance Atlantis, a client of over 15 years, Echo is currently working on the Canadian promotion of the movie, 'Austin Powers in Goldmember' and part two of the 'Lord of the Rings' trilogy. In addition, the Toronto International Film Festival has grown to be the largest consumer film festival in the world. The Company paid an initial consideration of Cdn $10.125m (£4.13m) comprising Cdn $6m in cash (£2.45m) with Cdn $4.125m (£1.68m) payable by a future issue of 701,526 ordinary shares at 240p per share. Further cash consideration of Cdn $0.625m (£0.25m) becomes payable in February 2004. The aggregate maximum consideration which may become payable for the acquisition is Cdn $25m (£10m), dependent on performance at multiples of between 5 and 7 times EBITDA. * We have today announced the purchase of a strategic holding in Dallas-based Rocky Hambric's golf management business, Hambric Sports Management Inc. This will provide the Group an important US base for golf client management and a group of clients, which include Justin Leonard, Steve Flesch and Bob Tway. Further details of this are set out in a separate announcement accompanying these results. * We are also today announcing the expansion of our financial services division, with the acquisition of JR Financial Services Limited (to be renamed Stellar Financial Services). This follows the successful acquisition of PFMA last year. Further details on this acquisition are also set out in a separate announcement. The Group is continuing to review a number of other potential acquisitions although the pace of these is expected to be somewhat slower going forward. Implementation of Strategy The Group has made considerable steps to pursue the strategy outlined at flotation, which was to become a significant company in the sports and entertainment management and marketing sector, through both acquisition and organic growth. Since flotation, we have raised £15.7m in cash (net of expenses) and, excluding today's announcements, made acquisitions totalling £27.9m, comprising £16m in shares and £11.9m in cash. Any future payments of deferred consideration are largely in shares and are not only based on performance, but are subject to cap and collar arrangements, limiting dilution. The minimum price at which shares will be issued ranges from 180p to 297p. The acquisitions made since the fund raising in April mean we have now achieved most of our goals stated at that time and as originally stated at flotation. The focus of senior management will now be on achieving better operating synergies and generating revenue from the significant database we have now built up. We will, of course, also seek to take advantage of opportunities arising from the current depressed market conditions. We now have a substantial North American presence employing approximately 300 people and our Deputy CEO, Sean Kelly, will be moving to New York with effect from 1 October, as President of our North American operations. Current Trading and Outlook The Board anticipates little macroeconomic change in the short term and consequently we will focus on increasing our market share as well as improving our operating efficiencies. In July 2002, the Board stated that there had been a deterioration in the motor sport sponsorship division, which, whilst being small, would have an adverse effect on profits. The outlook for 2002 remains uncertain and, accordingly, we reduced our expectations from this area for both 2002 and 2003, especially in so far as it relates to Formula One. The Board feels that the adjustment made to market expectations at the time was sufficient, provided there is no shortfall from business already contracted. As we now enter the final quarter of the year, the Board believes no further modification for 2002 is necessary. However, the decision to broaden the base of the Group has been vindicated as sponsorship sales is now a relatively small part of our overall business. This said, we believe we are well positioned to generate further sponsorship deals once there is a change in the economic environment. As your Chairman, I feel confident that the Group has the quality of staff, mix of businesses and infrastructure to prosper. The outlook for 2003 is being carefully assessed and growth is expected from all parts of the Group. John Webber Chairman 18 September 2002 - Ends - Enquiries: CSS Stellar plc 020 7078 1400 Julian Jakobi, Chief Executive Sean Kelly, Finance Director and Deputy Chief Executive Weber Shandwick Square Mile 020 7950 2800 Ben Padovan or Sally Lewis CSS Stellar plc Consolidated Profit and Loss Account For the six months ended 30 June 2002 6 Months 6 Months Year to to to 30.6.2002 30.6.2001 31.12.2001 Notes £000 £000 £000 Turnover - Continuing operations and share of joint venture 16,498 7,219 23,542 - Acquisitions 1,333 - - - Less : Share of joint venture - (540) (540) ------------- ------------- ------------- 17,831 6,679 23,002 Cost of sales 2 (2,660) (2,502) (6,841) ------------- ------------- ------------- Gross profit 15,171 4,177 16,161 Exceptional administrative expenses (485) - - Amortisation of goodwill (869) (224) (780) Other administrative expenses (13,548) (3,208) (12,947) Administrative expenses - Total (14,902) (3,432) (13,727) Operating profit 2 Continuing operations 219 745 2,434 Acquisitions 50 - - 269 745 2,434 Share of operating loss of joint venture - (82) (82) Exceptional items 3 - 42 42 ------------- ------------- ------------- 269 705 2,394 Interest receivable 93 91 170 Interest payable (219) (96) (234) ------------- ------------- ------------- Profit on ordinary activities before taxation 143 700 2,330 Tax on profit on ordinary activities (141) (253) (842) ------------- ------------- ------------- Profit on ordinary activities after taxation 2 447 1,488 Equity minority interest - 25 29 ------------- ------------- ------------- Profit retained 2 472 1,517 ============= ============= ============= Adjusted Earnings per Ordinary share (pence) 4 p. p. p. Basic 5.50 4.29 13.45 Diluted 4.62 3.47 10.75 ------------- ------------- ------------- Earnings per Ordinary share (pence) 4 p. p. p. Basic 0.01 3.04 9.00 Diluted 0.01 2.46 7.19 ------------- ------------- ------------- £000 £000 £000 Statement of total recognised gains and losses Profit for the financial year 2 472 1,517 Currency translation differences in foreign currency net (2) - investment ------------- ------------- ------------- Total gains and losses recognised since last annual report - 472 1,517 ============= ============= ============= CSS Stellar plc Consolidated Balance Sheet As at 30 June 2002 30.6.2002 30.6.2001 31.12.2001 £000 £000 £000 £000 £000 £000 FIXED ASSETS Intangible Assets 32,671 7,408 29,225 Tangible Assets 4,410 2,411 3,507 Investments - Other 66 115 66 ----------- ----------- ----------- 37,147 9,934 32,798 CURRENT ASSETS Stocks and work in progress 353 311 266 Debtors 11,132 6,806 10,580 Cash at bank and in hand 9,512 2,639 1,896 ----------- ----------- ----------- 20,997 9,756 12,742 ----------- ----------- ----------- CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (12,816) (5,322) (12,209) ----------- ----------- ----------- Net Current Assets 8,181 4,434 533 ----------- ----------- ----------- Total Assets less Current Liabilities 45,328 14,368 33,331 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (5,495) (1,125) (5,214) ----------- ----------- ----------- 39,833 13,243 28,117 =========== =========== =========== CAPITAL AND RESERVES Called up share capital 12,628 7,857 9,913 Share premium 22,374 4,335 13,176 Shares to be issued 2,735 - 2,932 Revaluation reserve 171 171 171 Profit and loss account 1,925 880 1,925 ----------- ----------- ----------- Equity shareholders' funds 39,833 13,243 28,117 =========== =========== =========== CSS Stellar plc Consolidated Cash Flow Statement For the six months ended 30 June 2002 6 Months 6 Months Year to to to 30.6.2002 30.6.2001 31.12.2001 £000 £000 £000 £000 £000 £000 Cash inflow / (outflow) from operating activities 1,724 (257) 2,564 Returns on investments and servicing of finance Interest paid (219) (66) (204) Interest received 93 91 170 ---------- ---------- ---------- Net cash (outflow) / inflow from returns on investments and servicing of finance (126) 25 (34) Taxation (467) (122) (534) Capital expenditure and financial investment Purchase of tangible fixed assets (449) (51) (482) Sale/ (purchase ) of intangible fixed assets - 24 - Sale of tangible fixed assets 42 - 64 ---------- ---------- ---------- Net cash outflow from capital expenditure and financial investment (407) (27) (418) Acquisitions and disposals Purchase of subsidiaries (1,958) (10) (6,471) Net overdraft from purchase of subsidiary - - (613) Sale of minority interest in subsidiary - 42 - Sale /(purchase) of investment - (19) 81 - other ---------- ---------- ---------- Net cash outflow from (1,958) 13 (7,003) acquisitions and disposals Management of Liquid Resources Sale of short-term bank - 3,500 3,500 deposits ---------- ---------- ---------- Net cash outflow before (1,234) 3,132 (1,925) financing Financing New shares issued for cash 9,937 30 2,028 Less associated costs (580) - (98) Receipt from borrowings - - 3,205 Repayment of borrowings (1,350) (382) (1,809) Capital element of finance (418) (102) (363) lease rentals ---------- ---------- ---------- Net cash inflow from financing 7,589 (454) 2,963 ---------- ---------- ---------- Increase in cash 6,355 2,678 1,038 ========== ========== ========== CSS Stellar plc Notes For the six months ended 30 June 2002 1. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 6 Months 6 Months Year to to to 30.6.2002 30.6.2001 31.12.2001 £000 £000 £000 Operating profit 269 745 2,434 Dividend paid to minority interest - (26) (22) Depreciation charge 806 237 796 Amortisation of intangibles 869 224 812 (Increase)/Decrease in stocks (87) (36) 9 Decrease/(Increase) in debtors 977 (1,578) (784) (Decrease)/Increase in creditors (1,110) 177 (681) ------------- ------------- ------------- Cash inflow from operating activities 1,724 (257) 2,564 ============= ============= ============= 2. Analysis of Trading by Class of Business Divisions Turnover Profit before Taxation 6 Months 6 Months Year 6 Months 6 Months Year to to to to to to 30.6.2002 30.6.2001 31.12.2001 30.6.2002 30.6.2001 31.12.2001 £000 £000 £000 £000 £000 £000 Client 13,170 2,790 12,407 1,020 770 2,619 Representation Events 4,661 3,889 10,595 118 199 595 -------------- -------------- -------------- --------------- --------------- --------------- - - - 17,831 6,679 23,002 1,138 969 3,214 ============== ========= ============== Goodwill amortisation (869) (224) (780) --------------- --------------- --------------- Operating profit 269 745 2,434 Share of operating profit of Joint Venture/Associates - (82) (82) --------------- --------------- --------------- Net interest 269 663 2,352 (126) (5) (64) Exceptional items - 42 42 --------------- --------------- --------------- Group profit before taxation 143 700 2,330 =============== =============== =============== Included in turnover is £6,252,000 relating to North American operations. Profit before taxation for these operations amounted to £16,000. CSS Stellar plc Notes For the six months ended 30th June 2002 3. Exceptional items 6 Months 6 Months Year to to to 30.6.2002 30.6.2001 31.12.2001 £000 £000 £000 Profit on sale of minority interest - 42 42 ------------- ------------- ------------- - 42 42 ============= ============= ============= 4. Earnings Per Share Weighted Per share Adjusted average no. amount per share £000 of shares (pence) amount (pence) 6 Months ended 30 June 2002 Earnings 2 ======= Adjusted Earnings 1,211 ======= Basic Earnings per share Earnings attributable to ordinary shareholders 21,997,860 0.01 5.51 ======= ======= Dilutive effect of securities - options and warrants 4,230,618 ------------- Diluted Earnings per share 26,228,478 0.01 4.62 ============= ======= ======= 6 Months ended 30 June 2001 Earnings 472 ======= Adjusted Earnings 667 ======= Basic Earnings per share Earnings attributable to ordinary shareholders 15,529,496 3.04 4.30 ======= ======= Dilutive effect of securities - options and warrants 3,666,404 ---------------- Diluted Earnings per share 19,195,900 2.46 3.47 ================ ======= ======= Year ended 31 December 2001 Earnings 1,517 ======= Adjusted Earnings 2,268 ======= Basic Earnings per share Earnings attributable to ordinary shareholders 16,858,049 9.00 13.45 ======= ======= Dilutive effect of securities 4,243,238 ---------------- Diluted Earnings per share 21,101,287 7.19 10.75 ================ ======= ======== The Adjusted earnings per share calculations is based on the retained profits adjusted by the amortisation of goodwill and the exceptional administrative expenses and exceptional items net of taxation at 30%. CSS Stellar plc Notes For the six months ended 30th June 2002 5. Placing and Open Offer On 19 April the company raised £9,937,000 from the issue of 4,416,316 ordinary shares of 50p at £2.25 per share. The open offer was made on the basis of two issue shares for every nine existing ordinary shares held. The cost of the placing amounted to £540,000 and the net proceeds are to be used for strategic acquisitions and the repayment of bank debt. 6. Acquisitions During the period Vertical Mix Marketing Inc.(VMM) was acquired in January for initial consideration of £278,550 satisfied equally by cash and by the issue of 46,894 ordinary shares. VMM's business is sales promotion for Cable TV networks and their programmes. Deferred share consideration of up to $5.6 million may become payable based on a multiple of 6 times profits for 2002. Craigie Taylor International Ltd.(CTI) was acquired in April for an initial consideration of £3.45 million consisting of 840,000 shares at £2.50 and £1.35 million cash. CTI is a UK based sports and leisure marketing consultancy and has been re-named The GEM Group (Europe) Ltd. Deferred consideration may be payable up to £6.55 million based on achievements of profits over the two years ending 31 December 2003. Backporch Ltd. was acquired in April at a cost of £100,000. Backporch Ltd. is a UK based events services business and has been integrated into our Events Services Division. The Group committed £50,000 in June to acquire 20% of Sportsunite (Asia) Ltd. After the period Echo Group was acquired in July for an initial consideration of £4.38 million comprising £2.70 million in cash and £1.68 million by the future issue of 701,526 ordinary shares at £2.40 per share. Echo is one of Canada's largest independent full-service providers of marketing and advertising services. Further consideration may become payable up to a maximum of Cdn $25 million based on achievement of EBITDA targets for the three years to 31st December 2004. 7. Publications of Non-Statutory Accounts The financial information set out in this interim report does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The figures from the year ended 31 December 2001 have been extracted from the statutory financial statements which have been filed with the Registrar of Companies. The auditors' report was unqualified and did not contain a statement under Section 237(2) of the Companies Act 1985. 8. Basis of Preparation The interim financial statements have been prepared in accordance with applicable accounting standards under the historical cost convention as modified by the revaluation of land and buildings. The principal accounting policies of the Group have remained unchanged from those set out in the Group's annual report and financial statements other than the policy relating to deferred tax. Deferred tax is recognised on all timing differences where the transactions or events that give the Group an obligation to pay more tax in the future, or right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates that have been enacted or substantively enacted by the balance sheet date. The effect on the financial statements is not significant. This information is provided by RNS The company news service from the London Stock Exchange
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