Print   



CAGNEY Plc ('Cagney' or the 'Company')

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

19 September 2008 

Cagney, an integrated group of marketing services firms, today reports interim results for the six months ended 30 June 2008.  

Financial highlights

• Gross profit increased by 18.8% to £4.4m (2007 - £3.7m).  

• Operating profit of £234,000 (2007 - operating loss of £180,000).  

• Profit before tax of £133,000 (2007 - loss before tax £436,000).  

• All operating segments profitable and growing

Operational highlights

• Steve Mattey appointed as CEO, replacing Paul Simons.  

• Kerry Simpson, joint founder of Cubo, joins board.  

• Tree and Cubo recruit business development directors with growing success.  

• More than 20 new clients added across the Group.  

• New business pipeline strong and growing.  

• AGL, our organically grown new business venture, wins its first clients.  

Commenting on the results, Chief Executive Steve Mattey said:

'I am very pleased with our performance in the first half of 2008. Firstly, our financial performance shows that we have put last year behind us and are moving firmly in the right direction with our management of the business. Secondly, in a difficult economic climate, we have a strong pipeline of new business. Thirdly, we have re-structured ourselves internally to ensure that we have a robust business model to face the future.

However, the first half of the year benefited from two significant items of revenue that are unlikely to be repeated in the second half, and parts of the Group are beginning to feel the effects of the difficult economic circumstances in which we are presently operating. Therefore, we must entertain the possibility that the second half will be less profitable than the first.  

Nevertheless, I am cautiously optimistic about the future. With the economy struggling there becomes an increased need for companies to communicate effectively to customers and potential customers. Cagney is in a very good place to respond to this need. We have also taken action to save costs amounting to several hundred thousand pounds, the benefit of which will be realised next year.  

We will continue to develop a consultancy-led approach to servicing our clients by exploiting the considerable expertise and talent across our group companies. We will also ensure that we are in a position to offer the full range of marketing services required to deliver brand and product messages to consumers in a fragmented and constantly evolving media market place.

We will also continue to build the business by acquiring carefully selected complementary businesses; by stimulating organic growth from within the Group; and by aggressively pursuing new clients.

Finally, a company is nothing without its people, and I would like to thank all of the staff within the Cagney Group for their continuing hard work and support.'

ENDS

Enquiries:

Cagney Plc                                                                                                        Tel: 020 7637 4198

Steve Mattey, Chief Executive Officer

Patrick Oram, Chief Financial Officer

Smith & Williamson                                                                                          Tel: 0117 376 2213

Nick Reeve

The Media Foundry                                                                                          Tel: 020 7612 1163

Anna Foster

About Cagney Plc

Cagney Plc is an integrated group of marketing services firms. It combines five businesses: Exedra (incorporating BrandAid as a division), Chick Smith Trott (advertising and design), Cubo (promotional marketing), The Media Foundry (public relations) and Tree (market research and data analysis). The Group floated on AIM in February 2006.  

www.cagneyplc.com 

CHIEF EXECUTIVE'S STATEMENT

For the six months ended 30 June 2008

Introduction

Cagney was formed in 2005 and floated on AIM in February 2006 with the strategy of building an integrated marketing services group, primarily to service domestic clients, as an alternative to the global multi-nationals.  

The Group presently comprises five businesses: Exedra (incorporating BrandAid as a division), Chick Smith Trott ('CST') (advertising and design), Cubo (promotional marketing), The Media Foundry ('TMF') (public relations) and Tree (market research and data analysis).  

Our strategy is to create a multi-disciplined marketing services group with a highly innovative and creative approach to servicing clients.

We will do this by attracting and retaining exceptional human talent, by fostering a collaborative and integrated approach to servicing our clients, and by having strong financial and strategic management.

Trading results

Although the Group made considerable operational progress in 2007, the year was disappointing financially. The Group reported an operating loss of £547,000 that year, primarily because its cost base was too high in relation to its revenue.  

For the first half of 2008 I am pleased to report an operating profit of £234,000, compared with an operating loss of £180,000 in the first half of 2007.  

I am also pleased to report that gross profit increased by 18.8% from £3.7 million in the first half of 2007 to £4.4 million in the first half of 2008.  All our trading segments contributed to that increase. Creative services increased its gross profit by 7.8%; public relations by 44.5%; and market research and data analysis by 34.8%.  

The Group also recorded a profit before tax for the first half of 2008 of £133,000, compared with a loss before tax of £436,000 in the first half of 2007.  All our trading segments contributed to that profit.  

One of the biggest contributors to last year's loss was the very high level of central overheads - as much as £1.3m at the operating level. In recent months we have taken action that will reduce central overheads by several hundred thousand pounds, though we will have to wait until 2009 to realise the benefits of that action.  However, 2008 will derive some benefit from cost reductions that took place at the end of 2007.  

In general we are determined to cut out all unnecessary expenditure, and ensure that the funds available to the Group are spent in building its long-term profitability.  

Deferred consideration

Under the terms of most of the Group's acquisitions, the vendors can earn additional consideration if certain profit targets are achieved. TMF and Tree are eligible for deferred payments based on their 2008 profitability, and both are expected to qualify for additional payments.  Part of the deferred consideration may be settled in shares at the Company's discretion.  

Financing

The Group's balance sheet combines liabilities payable in cash with deferred consideration capable of being settled in shares. On this combined basis, the Group had net current liabilities at 30 June 2008 of £1.95m, and total net debt of £2.57m. However, if we remove liabilities expected to be settled in the form of shares, the Group's net current liabilities would be £1.53m, and the Group's total net debt would be £2.15m.  

The total net debt of £2.15m comprises a bank overdraft with Coutts of £0.39m; the £0.91m balance of the Coutts term loan; loan notes of £0.42m; and £0.95m of deferred consideration, partially offset by £0.52m of net current trading assets. The term loan is payable in equal monthly instalments of £28,712, and is scheduled to be fully repaid by May 2011. Interest is charged at 1.75% above Coutts' base rate from time to time. The loan and overdraft are secured by fixed and floating charges over the assets of the Group, with cross guarantees.  

People

Paul Simons resigned as CEO and departed the Company on 12 May 2008, and I succeeded him in the role on 20 May.  

On 2 July I was delighted to welcome Kerry Simpson to the board of the Company. Kerry is one of the founders of Cubo, and brings tremendous business insight to the holding company team.  

Vicky Carrel departed the board on 30 June, and the Company on 11 July.  

The board of directors is now:

Alex Hambro (non-executive Chairman)

Steve Mattey (CEO)

Patrick Oram (CFO)

Kerry Simpson

Robin Williams (non-executive)

Mark Phillips joined Tree as commercial director in February 2008, and Cal Ledward joined Cubo as business development director in March 2008. Both have attracted new business to the Group, increasingly working in teams with other Group companies.  

New Business

New business is the life blood of our industry and we have made significant improvements to the energy and focus on new client acquisition. This is reflected in the addition of 22 new clients across the Group in the first half of the year. The scale and quality of opportunities continually improve, and currently all our businesses are particularly busy with potential new clients.  However, we are not complacent in this matter, as there is, without doubt, a shiver running through the economy.  This presents both threats and opportunities to marketing services companies.

The best defences against a challenging marketplace are to provide excellence to existing clients, and to aggressively pursue new business opportunities.  During these difficult times, brands need to communicate with their customers and potential customers with effectiveness and vigour.  Cagney is in a good place to respond to this need, and we will actively position ourselves as an innovative and creative communications partner for these companies.

Cross Referral

One of our core goals is the growth of cross referral and this is improving rapidly. We have established a team drawn from each division within the Group with two purposes - to co-operate on any new business opportunity by sourcing skills and case studies from across the Group, and to seek to maximise any potential opportunities within the existing client base at Cagney.

This approach has already resulted in one significant business win.

Dividend

No interim dividend is recommended. 

Outlook

The Group has enjoyed a profitable first half of the year, and we are hopeful of adding further profit in the second half.  

However, the first half benefited from two significant items of revenue that are unlikely to be repeated in the second half, and parts of the Group are beginning to feel the effects of the difficult economic circumstances in which we are presently operating. Therefore, we must entertain the possibility that the second half will be less profitable than the first.  

Nevertheless, I am cautiously optimistic about the future. With the economy struggling there becomes an increased need for companies to communicate even more effectively to customers and potential customers. Cagney is in a very good place to respond to this need.  Next year will also benefit from the considerable cost savings put in place this year.  

Steve Mattey

Chief Executive Officer

19 September 2008

CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2008

				6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
	Note	Continuing Operations	Acqui-sitions	Total
		£000	£000	£000	£000	£000
Revenue	2	6,463	-	6,463	5,397	11,251
Direct costs		(2,084)	-	(2,084)	(1,712)	(3,724)
Gross profit	2	4,379	-	4,379	3,685	7,527
Administrative expenses		(4,145)	-	(4,145)	(3,865)	(8,074)
Operating profit/(loss)		234	-	234	(180)	(547)
Interest receivable				8	8	13
Interest payable and similar charges	3			(106)	(101)	(188)
Impairment of goodwill				-	-	(2,000)
Finance cost of deferred consideration	8			(3)	(163)	(368)
Profit/(loss) on ordinary activities before taxation	2			133	(436)	(3,090)
Tax (charge)/credit on profit/(loss) on ordinary activities	4			(39)	87	147
Profit/(loss) on ordinary activities after taxation				94	(349)	(2,943)

Earnings/(loss) per ordinary share:				6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
Basic	5			0.059p	(0.37p)	(2.6p)
Diluted	5			0.052p	(0.37p)	(2.6p)

CONSOLIDATED BALANCE SHEET

As at 30 June 2008

		30 June 2008 (unaudited)	30 June 2007 (unaudited)	31 December 2007 (audited)
	Note	£000	£000	£000
Non-current assets
Goodwill	6	9,546	10,764	10,509
Tangible assets		240	211	249
		9,786	10,975	10,758
Current assets
Trade and other receivables		2,859	2,864	2,972
Cash at bank and in hand		-	98	-
		2,859	2,962	2,972
Current liabilities
Trade and other payables		(2,301)	(2,055)	(2,181)
Current tax liabilities		(33)	(64)	(142)
Bank overdrafts, loans and loan notes	7	(1,103)	(738)	(1,120)
Short term provisions	8	(1,374)	(3,055)	(3,636)
		(4,811)	(5,912)	(7,079)
Net current liabilities	9	(1,952)	(2,950)	(4,107)
Total assets less current liabilities		7,834	8,025	6,651
Non-current liabilities
Deferred taxation		-	(2)	-
Bank loans and loan notes	7	(613)	(913)	(764)
Long term provisions		-	(423)	(1,773)
Total net assets	2	7,221	6,687	4,114
Capital and reserves
Called up share capital	10	2,183	1,341	1,344
Share premium		8,153	5,974	5,986
Share options reserve		13	-	6
Merger reserve		(150)	(150)	(150)
Profit and loss account		(2,978)	(478)	(3,072)
Equity shareholders' funds		7,221	6,687	4,114

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2008

		6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
	Note	£000	£000	£000
Net cash flow from operating activities	11	524	(166)	(472)
Investing activities
Interest received		8	8	13
Purchases of property, plant and equipment		(53)	(27)	(116)
Purchase of business and assets		-	(880)	(882)
Settlement of deferred consideration		(70)	(1,572)	-
Net cash used in investing activities		(115)	(2,471)	(2,618)
Taxation
UK corporation tax paid		(164)	-	-
Financing activities
Interest paid		(76)	(56)	(123)
Proceeds on issue of shares (net of expenses)		-	1,661	1,811
Proceeds from loan financing		-	1,200	1,200
Loan repayments		(139)	(461)	(606)
Net cash relating to financing activities		(215)	2,344	2,282
Net change in cash and cash equivalents		30	(293)	(808)
Net cash and cash equivalents at beginning of period		(417)	391	391
Cash and cash equivalents at end of period		(387)	98	(417)
Analysed as:
Cash at bank and in hand and short term deposits		-	113	-
Bank overdrafts	7	(387)	(72)	(417)
Cash and cash equivalents at end of period		(387)	41	(417)

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

For the six months ended 30 June 2008

	Called up share capital	Share premium account	Share options reserve	Other reserves	Profit and loss account	Total
	£000	£000	£000	£000	£000	£000
At beginning of period	1,344	5,986	6	(150)	(3,072)	4,114
Retained profit for the period	-	-	-	-	94	94
Provision for share based payment	-	-	7	-	-	7
Shares issued during the period	839	2,167	-	-	-	3,006
At end of period	2,183	8,153	13	(150)	(2,978)	7,221

Other reserves represents the merger reserve arising from the prior year merger of Cagney Plc with Paul Simons & Partners Limited. Merger relief under S131 of the Companies Act has been taken and the premium arising on the issue of these shares has been disregarded as permitted under S133 of the Companies Act.

NOTES TO THE INTERIM ACCOUNTS

1.            Basis of preparation

The consolidated interim financial statements, which were approved by the board on 19 September 2008, have been prepared under the accounting policies set out in the Group's 2007 Annual Report, and in accordance with IAS34 'Interim Financial Reporting'.

The information relating to the six months ended 30 June 2008 is unaudited and does not constitute statutory accounts but has been reviewed by the Company's auditors in accordance with the Auditing Practices Board Bulletin 1999/4 'Review of Interim Financial Information'.  The accounts for the year ended 31 December 2007 have been reported on by the Company's auditors and delivered to the Registrar of Companies.  The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

 

2.            Segment reporting 

		6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
		£000	£000	£000
	Gross profit
	Creative services	2,431	2,256	4,280
	Public relations	643	445	1,046
	Market research and data analysis	1,305	968	2,201
	Head office	-	16	-
		4,379	3,685	7,527
	Profit/(loss) on ordinary activities before taxation
	Creative services	412	175	210
	Public relations	201	(26)	57
	Market research and data analysis	288	170	348
	Head office	(768)	(755)	(1,705)
	Impairment provision	-	-	(2,000)
		133	(436)	(3,090)
	Net assets
	Creative services	1,024	1,143	1,122
	Public relations	271	167	202
	Market research and data analysis	300	170	277
	Head office	5,626	5,207	2,513
		7,221	6,687	4,114

 The Group's revenue was earned from clients based in the following geographical markets:

		UK	Rest of World	Total
		£000	£000	£000
	Six months ended 30 June 2008
	Creative services	2,687	1,343	4,030
	Public relations	663	-	663
	Market research and data analysis	1,770	-	1,770
		5,120	1,343	6,463
	Six months ended 30 June 2007
	Creative services	2,167	1,564	3,731
	Public relations	458	-	458
	Market research and data analysis	1,192	-	1,192
	Head office	-	16	16
		3,817	1,580	5,397
	Year ended 31 December 2007
	Creative services	4,603	2,813	7,416
	Public relations	1,113	-	1,113
	Market research and data analysis	2,722	-	2,722
		8,438	2,813	11,251

 

3.          Interest payable and similar charges 

		6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
		£000	£000	£000
	Interest on bank overdrafts and loans	56	35	76
	Interest on loan notes	41	42	22
	Interest on other loans	9	24	90
		106	101	188

 

4.            Tax on profit on ordinary activities

The tax charge for the six months ended 30 June 2008 has been based on an estimated effective tax rate for the full year of approximately 29%, applied to the profit on ordinary activities before deduction of the finance charge, which does not attract corporation tax relief.

 

5.            Earnings per share 

The calculation of the basic and diluted earnings per share is based on the following data:

		6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
	Earnings/(loss)	£000	£000	£000
	Earnings/(loss) for the purposes of basic earnings per share, being net profit or loss attributable to equity holders	94	(349)	(2,943)
	Interest and redemption premium on convertible loan notes	n/a	29	34
	Adjusted earnings/(loss) for diluted earnings per share	94	(320)	(2,909)

		6 months ended 30 June 2008 (unaudited)		6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
	Number of shares	Number	Number		Number
	Weighted average number of ordinary shares for basic earnings per share	160,210,521	94,414,059		114,497,772
	Effect of dilutive potential ordinary shares:
	Shares anticipated to be issued in respect of deferred acquisition consideration	21,000,000	60,239,019		89,559,339
	Share options	531,768	-		-
	Convertible loan notes	n/a	2,500,000		2,500,000
	Weighted average number of ordinary shares for diluted earnings per share	181,742,289	157,153,078		206,557,111

The shares anticipated to be issued in respect of deferred consideration are assumed converted at a share price on 30 June 2008 of 2p per share.  

 

6.            Movement on goodwill

                The movement on goodwill during the period is set out below.

		£000
	Estimated deferred consideration in respect of Tree	(216)
	Estimated deferred consideration in respect of The Media Foundry	(747)
		(963)

 

7.            Bank overdrafts, loans and loan notes

               Bank overdrafts, loans and loan notes comprised the following:

	As at:	30 June 2008 (unaudited)	30 June 2007 (unaudited)	31 December 2007 (audited)
		£000	£000	£000
	Bank overdraft	387	-	417
	Bank loan	906	1,189	1,044
	Convertible loan notes	187	200	200
	Loan notes issued in settlement of deferred consideration	236	262	223
		1,716	1,651	1,884
	Analysed as:
	Current liabilities	1,103	738	1,120
	Non-current liabilities	613	913	764
		1,716	1,651	1,884

The bank loan is repayable in monthly instalments of £28,712, and interest is charged at 1.75% above Coutts' base rate from time to time. 

 

8.            Provisions

The Directors' best estimate of the fair value of future deferred consideration is set out below:

		Shares	Cash	Total
		£000	£000	£000
	At beginning of period	3,937	1,472	5,409
	Adjustments to existing provisions	(511)	(448)	(959)
	Deferred consideration settled during the period	(3,006)	(70)	(3,076)
	At end of period	420	954	1,374

The future obligations have been discounted using a rate of 4.65%, and the total obligation expected to be paid before discounting is £1.389 million, of which £773,000 is dependent on future profitability.  The discounting charge taken to the profit and loss account for the period was £3,000.  All the above provisions fall due for settlement within the next twelve months.  

 

9.            Net current liabilities

A significant portion of the Group's net current liabilities are capable of settlement by the issue of shares. Those liabilities expected to be settled in the form of shares are indicated below.  

	As at:	30 June 2008 (unaudited)	30 June 2007 (unaudited)	31 December 2007 (audited)
		£000	£000	£000
	Expected to be settled in the form of:
	Shares	420	2,689	2,960
	Cash	1,532	261	1,147
	Net current liabilities	1,952	2,950	4,107

 

10.          Share capital

The Company's authorised share capital is £4 million, comprising 400 million ordinary shares of 1p each.

	Called-up, allotted and fully-paid	Number of 1p  ordinary  shares	Nominal  value £000
	At beginning of period	134,394,338	1,344
	Issued in part settlement of the consideration for the business and assets of Tree	27,914,110	279
	Issued in part settlement of the deferred consideration for Cubo	55,988,484	560
	At end of period	218,296,932	2,183

 

11.          Net cash flow from operating activities

		6 months ended 30 June 2008 (unaudited)	6 months ended 30 June 2007 (unaudited)	Year ended 31 December 2007 (audited)
		£000	£000	£000
	Operating profit/(loss)	234	(180)	(547)
	Charge in respect of share option scheme	7	-	6
	Depreciation	62	44	103
	Decrease/(increase) in debtors	131	(588)	(710)
	Increase in creditors	90	558	676
	Net cash flow from operating activities	524	(166)	(472)

 

12.          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.  Other transactions with related parties are described below. 

Steve Mattey became a director of the Company on 20 May 2008. On that date he was owed £313,000 in respect of deferred consideration for Tree. Interest is accruing on the outstanding balance at a rate of two percent above the base rate of the Bank of England. Mr. Mattey is expected to become entitled to additional consideration, payable in cash and shares, in respect of Tree's financial performance during 2008.  

Kerry Simpson became a director of the Company on 2 July 2008. On 30 June 2008 and on the date of his appointment he was owed £118,000 in the form of a loan note and accrued premium in respect of deferred consideration for Cubo. Interest is accruing on the outstanding balance at a rate of two percent above the base rate of the Bank of England.  

During the period £13,334 of convertible loan notes were repaid to Alex Hambro, non-executive Chairman of the Company.  At 30 June 2008 £86,666 of the convertible loan notes remained outstanding.  Interest is accruing on the outstanding balance at a rate of two percent above the base rate of the Bank of England.  

 

13.          Availability to public

Copies of these interim results will be available at the Company's offices at Holden House, 57 Rathbone Place, London W1T 1JU, and at the Company's website at www.cagneyplc.com.  

ENDIR QVLFFVKBBBBZ