Media Square plc

Preliminary results for the 12 months ended 28 February 2010

 

Media Square plc (AIM:  MSQ), the international marketing communications group, today reports its preliminary unaudited results for the 12 month period ended 28 February 2010.

 

Key financial

·      Revenue of £47.3 million (2009 restated: £61.2 million) representing a 23% reduction on a like for like basis.

·      Headline EBITDA of £0.1 million (2009 restated: £3.7 million).

·      Headline operating loss of £0.9 million (2009 restated: profit of £2.3 million).

·      Reported operating loss after exceptional items of £19.1 million (2009 restated: profit of £4.5 million) which includes a £15.9 million non-cash write-down of goodwill.

·      Underlying net debt of £19.9 million (2009: £13.4 million).

·      H2 profitable with a headline operating profit of £0.4 million.

 

Key operational

·      Structural turnaround complete

·      Stable operating platform

·      Lloyd Northover Marlow sold

·      CST acquired

·      New CEO appointed

·      2 new Directors

·      Central costs cut

·      Agency overheads cut

 

Roger Parry, Chairman of Media Square plc comments:

"The structural turnaround of Media Square has now been completed.  The company is now smaller, simpler and stable.  The results reflect the challenges of restructuring an already weak business against the backdrop of the credit crunch.  Although it is early days, the months of March and April have produced extremely encouraging trading results."

 

- ends -

 

Enquiries to:

 

Media Square plc	www.mediasquare.co.uk
Roger Parry/Bruce Winfield	020 3026 6600
Collins Stewart Europe Ltd
Adrian Hadden/Stewart Wallace	020 7523 8350

 

CHAIRMAN'S STATEMENT

 

Dear Fellow Shareholder,

 

It gives me great pleasure and, indeed, a considerable sense of relief to report to you that the structural turnaround of Media Square has now been completed.  Your company is now smaller, simpler and stable; it operates eleven agencies, each of which has a clear professional service proposition.  The Group is now trading profitably.  Back in 2007, following numerous acquisitions, the Group had more than forty individual operating units, many of which were loss making and others which were too small and fragile to be long term, viable operations. The high level of debt, poor operating margins, high central costs and management complexity at the time necessitated radical action and we started the three year turnaround plan. 

 

Results

 

The twelve month period reported on (March 2009 to February 2010) reflects the challenges of completing the final stage of the turnaround of an already weak business against the backdrop of the credit crunch.  Revenues dropped by 23% which is mostly a reflection of the general reduction in marketing budgets brought about by the recession, partly underperformance by a number of our agencies which resigned unprofitable accounts and partly the disposal of non-core agencies.  Operating expenses were reduced by more than £10 million in the year and further cost reductions will be coming into effect in the coming months.  Overall the headline operating loss for the twelve months was £0.9 million.  It should be noted that for the first six months of the year we reported a loss of £1.3 million and that the second half showed a significantly improved performance with profit in the six month period of £0.4 million.  This positive trend reflects the early benefits of the turnaround and it has continued in the current trading period.  The significant exceptional item of £17.7 million reflects the write-down of goodwill of £15.9 million as well as redundancy and restructuring costs.

 

Dividend

 

Given the current high level of debt and low Group operating margin, the Board do not recommend the payment of a dividend at this time.  However, this policy will be kept under review.  The Board has no current plans to make any significant acquisitions, nor to operate a share buy-back programme.  Cash flow will be used to reduce debt or to finance small, "tuck-in" purchases which strengthen existing agencies.

 

Structural turnaround is complete

 

The key objective of the turnaround, which started in September 2007, was to reduce the complexity of the Media Square Group and eliminate loss-making agencies to prepare the ground to improve operating margins and reduce debt.  The strategy was to focus in on a small number of agencies which had strong creative credentials and good prospects.  The turnaround was originally planned as a three year project and in practice it has been completed in 32 months.  It proved to be particularly challenging as it was done against the background of the collapse of Northern Rock in September 2007 and then, far more significantly, the collapse of Lehman Brothers in September 2008 which had a very negative effect on marketing spending for the whole of 2009.  For a Group like Media Square which was particularly exposed to the financial services, automotive and retail sectors, the 2009 recession has proved to be very problematic.  An emergency restructuring had to occur on top of the already planned turnaround.

 

To achieve the strategic objective of simplification some agencies were sold, others were closed and others were merged. The Divisional structure was abolished, financial control and reporting systems were improved and central costs have been cut from some £5 million a year in 2007 to £2 million a year now.  Group headcount has reduced from more than 1,500 to 730 over the three year period.

 

The Company's current bank facilities were put in place in October 2005 by Bank of Scotland which has now become part of Lloyds Banking Group.  These facilities, which were designed to fund a major acquisition, expire in April 2011. Discussions are now at an advanced stage with Lloyds Banking Group to put in place new facilities which will be more appropriate to the Group's current needs.

 

Board changes

 

To reflect the completion of the turnaround a number of changes have been made to the Board.   During the past year Graeme Burns stood down as Finance Director and was replaced by Bruce Winfield.  Nigel Bacon stood down as a Non Executive Director and was replaced by Neil Canetty-Clarke.  As planned I completed my term in an executive position and was replaced by Mr Peter Reid as Chief Executive.

 

On 19 May, we announced the appointment of Mr Tim Lindsay as a Non Executive Director.  Mr Lindsay was previously the President of TBWA UK & Ireland, the Chairman of Publicis UK and the CEO of Lowe Howard Spink.  He has a long and distinguished record in the marketing communications industry and will be a great asset to the Media Square Board. 

 

Prospects

 

Although it is early days, the months of March and April have produced encouraging trading results.  The focus on the eleven core agencies is proving to be successful and the significant reduction in the cost base is reflected in greatly improved profitability.  For the two months of March and April the management accounts (unaudited) show cumulative operating profits in excess of budget, compared to the same two months last year where the Group lost more than £600,000.  

 

During the turnaround and recession the Media Square agencies have had some success with new business wins but the Board believes that this is now our major opportunity going forward as, with robust operations and management clarity, we should be able to significantly improve our new business record. 

 

Shareholders in Media Square have had a lot to put up with in recent years but it is to be hoped that their patience will now be rewarded.  Margins are still too low and the debt burden remains too high, but we have every prospect of improving both of these over the next few years. 

 

Roger Parry

Chairman

27 May 2010

 

 

BUSINESS REVIEW

 

Chief Executive Officer's Review

 

In line with most other marketing communications businesses, 2009 was an exceptionally challenging year for Media Square, with widespread reductions in advertising and marketing budgets.  Moreover, the timing of the recession was particularly difficult given that the Group was midway through an extensive turnaround programme and thus began the period with a relatively low operating profit margin, weak systems and a number of small non-viable loss-making agencies.

 

Faced with these conditions, the key focus of the Group through the year was to implement a wide range of cost reduction programmes, both at Group level and in the majority of agencies, in order to match operating costs with reduced revenues.

 

The structural turnaround is now complete and the Group now has a much more focused portfolio with agencies across the five disciplines of Advertising, PR, Marketing, Research and Design.  With the lower overall cost base we are now well placed to benefit from an ongoing recovery in the marketing communications sector.

 

Going forward the long-term strategy of the Group remains unchanged, with a focus on building a small number of marketing communications agencies each of which will have scale, in terms of number of staff, and breadth, in terms of a range of clients.  This will be achieved by organic growth, carefully targeted tuck-in acquisitions and possibly further consolidation of business units.  This will position them to build stronger overall economics and return to growth, as well as making them more resilient in the face of client losses or any future economic downturns.

 

Segmental summary

 

Media Square consists of 11 agencies which have historically been reported in three segments.  The breakdown of the revenue and headline operating profit by segment is shown below: 

 

	Year ended 28 February 2010			Year ended 28 February 2009
	Revenue	Headline operating profit/(loss)		Revenue	Headline operating profit/(loss)
	£m	£m		£m	£m
Advertising*	25.8	0.9		31.7	2.9
Marketing	10.3	0.3		12.3	0.5
Design	11.3	0.5		17.8	2.2
Central	-	(2.6)		-	(3.3)
Other	(0.1)	-		(0.6)	-
Total	47.3	(0.9)		61.2	2.3

*Advertising includes Market Research and Public Relations.

 

The majority of the Group's agencies suffered significant revenue reductions over the course of the year.  Those with more exposure to the financial services, retail and automotive sectors, suffered the largest reductions; while agencies in the research, digital and direct marketing areas, generally performed more strongly.

 

The Design segment was particularly hard hit with the largest overall decline in revenue of 35% which reflects both the significant cuts in design work generally and also the completion of the major CBS London Underground contract at arken, our point-of-purchase agency, which had produced extremely high revenues in the 2008 and 2009 financial years.

 

Geographical summary

 

Approximately 75% of the Group's revenue was derived from its UK businesses. 

 

Now the structural turnaround has been completed, the majority of the Group's activity is focused in the UK.  The bulk of our revenues in Asia and the USA are represented by the activities of our advertising agency The Gate and our research business Illuminas.  Lloyd Northover operates relatively small businesses in Hong Kong and Singapore.

 

During the past year most of the non-UK revenues have been represented by local clients in Asia and America but going forward there will be greater emphasis on serving clients on a multinational basis.

 

As can be seen from the figures in the chart, non-UK revenues held up much better than those in the UK market.  This is partly a reflection of the mix of clients and partly a benefit of currency movements.

 

Year ended February	2010	2009
	Revenue	Revenue
	£m	£m
United Kingdom	35.2	49.2
Rest of Europe & World	12.2	12.4
Eliminations	(0.1)	(0.4)
Total	47.3	61.2

 

Period Summary: "A game of two halves"

 

The main focus of the past year has been to reduce costs urgently during a time when revenues were falling fast.  The benefits of the cost reduction only started to be felt in the second half of the year.  As can be seen from the table below, operating performance in the second six months was significantly better than in the first half of the year. 

 

FY 2010	Revenue £m	Overheads £m	Headline Operating Profit/ (Loss) £m
First Half	23.4	(24.7)	(1.3)
Second Half	23.9	(23.5)	0.4
Variance	+0.5	+1.2	+1.7

 

The trend seen in the second half has continued into the current trading period.

 

Cost Reduction

 

Faced with the broad-based reduction in client spending, the Group's wide ranging cost reduction programme has had three major elements:

 

·     Rationalisation of the Group's property portfolio with a reduction of total space occupied by approximately 42,000sq ft resulting in annual property cost savings of approximately £1.2m.

 

·     Significant streamlining of Corporate and Head Office functions including abolition of divisional structure and closure of the head office function based in Bollington.  Resulting savings for FY 2010 exceeded expectations outlined in last years Annual Report.  FY 2011 central costs are now budgeted at £2.1m and at £1.9m for FY 2012 (original forecasts £2.5m and £2.1m). 

 

·     Further headcount and overhead reductions in individual agencies during the year.  In total this resulted in annualised savings of approximately £8m in the eleven agencies.

 

Many of these cost savings were implemented in the first half of the financial year, with the full benefit of the programme only beginning to be realised over the second half.  Moving into the current financial year, the Group now has a radically lower overall cost base and stands to benefit disproportionately from a continuing recovery in marketing budgets.

 

Remuneration

 

Further progress was made over the course of the year in reforming remuneration structures across the Group.  Steps were made to harmonise cash incentive structures and a significant grant of restricted share units has been made to senior agency managers.  In total 3 million 10p ordinary shares were issued and placed into the Employee Benefit Trust to cover potential awards, all of which have challenging performance conditions attached to them.

 

We face an increasingly competitive market for talent and rewarding people through performance linked share schemes helps with recruitment, retention and motivation.  This award of restricted share units reflects the Board's broader belief that it is critical to the future success of the Group that senior managers have a meaningful stake in the Group and share in the value that they help create. 

 

Strategy

 

Now that the structural turnaround is complete, the key focus of the Group is on delivering operational improvements in order to return individual agencies and the Group to operating margins in line with long-term industry average levels.

 

Achieving this goal requires that agencies in the Group focus on both winning additional clients and increasing spend from existing clients, as well as ensuring that they are delivering their services as efficiently as possible.  A number of the Group's agencies remain sub-scale, especially following headcount reductions forced by the recession.  This issue needs to be addressed by new business success, growing existing clients and carefully targeted tuck-in acquisitions. 

 

The acquisition of Chick Smith Trott (CST) in January 2010 is one such investment.  The addition of the agency significantly strengthens the Group's overall advertising proposition and helps the economics of The Gate with whom CST share property and other facilities.  It also provides a platform to grow in the consumer advertising arena.

 

A second element of the Group's strategy is a further reduction in the overall debt burden over the medium term.  With the improving outlook for the Group, it is envisaged that this will be achieved primarily from the generation of cash flow from operations, but we may explore issuing new equity.

 

As was announced earlier in the year, the Group had been in discussions to sell two business units.  The Group currently remains in discussions to complete the sale of twentysix New York and will provide a further update once the outcome of these discussions is known.  However, given the weak economic environment, the Board has decided that it was not in shareholder's best interests to proceed with the second disposal at this time. 

 

New Business / Client Spending

 

The key issue faced by the Group during the year was not the loss of individual clients, but significant reductions in many client budgets.

 

Indeed, new business performance remained reasonably strong, with annualised revenue from new business projects and assignments totalling £19m.  Major new client assignments awarded during the year included: Avon, Citroën, EDF Energy, Gatwick Airport, General Mills, Henderson Global Investors, House of Fraser, Kellogg's, Lego and Nestlé.

 

However, this solid new business performance was more than offset by cuts in client spending, especially in the financial services and automotive sectors, and this is reflected in the overall reduction in revenue.

 

Looking forward the opportunity for the Group is to continue to improve its new business record whilst benefiting from a recovery in client marketing budgets over the current financial year and beyond.

 

Current Trading and Outlook

 

Following the cost reduction programme put in place in the first half of the year to February 2010 the Group benefited from a stronger performance in the second half of the year.  This momentum has been built on in the early part of the new financial year with both March and April delivering operating profit materially ahead of budget.

 

This improvement has been shared across the Group's agencies with all of them being profitable in these months.  As a result the Group remains, in line with many other companies in the sector, cautiously optimistic about the prospects for the year ahead, albeit that visibility remains relatively limited.

 

If the current momentum is maintained the Group would expect to see a return to revenue growth, although margins will likely remain below their full potential and below average industry levels until all agencies have achieved the right scale.

 

 

Peter Reid

Chief Executive Officer

 

27 May 2010

 

Chief Financial Officer's Statement

 

Financial Review

 

For the twelve month period under review, revenue totalled £47.3 million (2009 restated: £61.2 million).   Headline earnings before interest, taxation, amortisation and depreciation (EBITDA) were £0.1 million (2009 restated: £3.7 million).  The headline operating loss was £0.9 million (2009 restated: profit of £2.3million). 

 

Basis of headline and restatement of 2009 results

 

The 2010 Income Statement excludes the results of the Group's design and branding operations in Marlow and in Dubai which became discontinued operations over the course of the year.

 

Additionally, in establishing the basis for headline EBITDA and headline operating profit, the following items have been excluded: exceptional costs of £17.7 million (2009 restated: £2.8 million of exceptional income) and costs of share-based remuneration of £0.5 million (2009: £0.6 million).  Included within the exceptional costs was a non-cash item of £15.9 million related to impairment of goodwill carrying values. 

 

Net Debt and Debt Facilities

 

Underlying net debt was £19.9 million (2009: £13.4 million) as at the period end, excluding £6 million (2009: £4.3 million) of restricted cash which is included in the reported net debt of £13.9 million (2009: £9.1 million).  This cash represents advance receipts from clients that may have only short term benefit and in the Board's opinion underlying net debt is a more representative figure of the position at the year end. 

 

This figure represents an increase in underlying net debt of £6.5m over the course of the year.  This increase reflects not only the operating loss for the year and the Group's financing costs, but also the significant exceptional restructuring costs that were required in the face of the recession.

 

The Group's net debt balance represents gross debt of £22.5m (2009: £20.1m) less cash of £8.6m (2009: £11m) held by the Group, £6m (2009: £4.3m) of this cash represents advanced receipts from clients.  In addition, the Group has a freehold property asset which was valued at £3.25 million in early 2010.

 

The Company's current bank facilities were put in place in October 2005 by Bank of Scotland which has now become part of Lloyds Banking Group.  These facilities, which were designed to fund a major acquisition, expire in May 2011. Discussions are now at an advanced stage with Lloyds Banking Group to put in place new facilities which will be more appropriate to the Group's current needs.  As part of these discussions the interest rate swaps that were put in place in 2005 are also being reviewed.

 

Balance sheet and cash flow

 

Balance sheet movements during the periods reflect the trading in the Group together with the disposal of certain assets and the effect of the significant goodwill impairment during the year.

 

On an annual basis the Board reviews the carrying value of the Group's goodwill.  Following the impact of the recession on the Group's trading the Board felt that certain businesses within the Group could no longer justify their goodwill carrying value resulting in £15.9m of goodwill being written off.

 

This goodwill write-off was the primary reason for the reduction in assets in the period to £60.4 million (2009: £81.8 million).  Liabilities increased slightly to £56.4 million (2009: £53.5 million), primarily reflecting the increased net debt, leaving positive net assets of £4.0 million.

 

Capital expenditure was again minimised and kept to approximately 70% of depreciation.  Looking forward, capital expenditure is expected to remain below the annual depreciation charge for the foreseeable future. 

 

Working capital management remains strong with no material movement in the Group's debtor or creditor days.

 

Disposals / Discontinued Operations

 

Over the course of the year the Group conducted a significant restructure of its design and branding business, Lloyd Northover, which resulted in both the Marlow and Dubai offices of the business becoming discontinued businesses.  The Marlow office was subsequently sold to existing management.  The loss from discontinued operations for the year of £3.1 million (2009: £2.2 million) reflects a goodwill write-off of £0.9 million as well as the loss on disposal from the sale of the Marlow office and trading losses relating to these discontinued businesses.

 

Financial Risk Management

 

The Group continues to hold two interest rate hedges that were put in place in 2005 by way of interest rate swaps and which have a termination date of April 2011.  Although for the majority of their lives the swaps helped keep Group interest costs well below those payable if interest had not been hedged, for the past two years it has resulted in materially higher interest costs than would otherwise have been the case.  These swaps are being reviewed as part of the discussions on the new bank facilities with Lloyds Bank Group.

 

The Group has some currency risk with 25% of its revenues being generated outside of the UK.  The Group does not currently enter any currency hedging arrangements.

 

Key Performance Indicators (KPIs)

 

The Group monitors individual business unit's performance using a number of key performance indicators the most significant of which are:

 

·     Revenue per Head which is a function of the value created by our staff and the fees charged for work.  Our target range is from £80,000 to £100,000 per head per annum depending on the type of services provided and the location of the agency. 

 

·     Operating Profit Margin which measures overall business efficiency where the agency target is 15% of gross revenue.  

 

In the year under review, given the impact of cuts in marketing spending, the majority of agencies in the Group did not meet these target KPIs.  As a result of the cost cutting efforts, the Group was able to maintain revenue per head at £67,000, but a number of agencies suffered reductions in their operating margins, which translated into a corresponding reduction in the Group's overall operating margin.

 

Taxation

 

The total tax charge for the year was £0.6 million (2009: credit of £0.3 million).  Ordinarily a tax credit would be expected but due to the non-cash goodwill impairment (which is a non-tax deductible expense) and the Group's prudent approach to deferred tax recognition a small tax charge resulted.

 

During the year the Group paid taxes of £43,000 (2009: £10,000).

 

In future years, the Group expects to have limited tax liabilities since it holds significant deferred tax assets.  At the end of the financial year, it held on its books a deferred tax asset of £1.5m (2009: £2.0m).  However, in addition to this figure, it has unrecognised deferred tax assets of £3.3m.

 

Employee Benefit Trust

 

On 18 November 2009, the Group created an Employee Benefit Trust to act as a vehicle for managing employee incentive schemes. On 20 November 2009 the Group placed 3 million ordinary shares into the trust to meet its liabilities with regard to a new set of restricted share awards to senior executives.  In addition, the Group transferred 931,900 shares previously held in Treasury into the Trust.  At the same time, Directors and senior managers in the Group agreed to cancel 2.9 million existing warrants and share options.

 

Bruce Winfield

Chief Financial Officer

27 May 2010

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 28 February 2010

		Total	Total
		2010	2009
		£'000	£'000
	Note		Restated
Revenue	3	47,298	61,244
Administrative expenses		(48,183)	(58,977)
Headline operating (loss)/ profit		(885)	2,267
Exceptional items	4	(17,740)	2,825
Share-based payments		(465)	(586)
Operating (loss)/ profit		(19,090)	4,506
Loss on disposal of subsidiary undertakings		-	(368)
Finance costs		(1,845)	(1,983)
Finance costs relating to derivative		-	(1,263)
Loss on sale of an investment		(118)	-
Finance income		25	186
Finance income relating to derivative		165	-
Net finance cost		(1,773)	(3,060)
(Loss)/ profit from continuing operations before taxation		(20,863)	1,078
Tax on (loss)/ profit		(626)	341
(Loss)/ profit from continuing operations		(21,489)	1,419
Loss from discontinued operations		(3,079)	(2,166)
Loss for the year		(24,568)	(747)
Attributable to:
Parent company's shareholders		(24,568)	(700)
Minority interests		-	(47)
Loss transferred to reserves		(24,568)	(747)
Basic loss per share from total operations	5	(76.21p)	(2.17p)
Diluted loss per share from total operations	5	(76.21p)	(2.17p)
Basic (loss)/earning per share from continuing operations	5	(66.66p)	4.55p
Diluted (loss)/ earning per share from continuing operations	5	(66.66p)	3.81p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 28 February 2010

 

		Total	Total
		2010	2009
		£'000	£'000
Loss for the year		(24,568)	(747)
Other comprehensive (expense)/ income:
Exchange differences on translating foreign operations		(16)	707
Other comprehensive (expense)/ income for the year		(16)	707
Total comprehensive expense for the year		(24,584)	(40)

 

 

CONSOLIDATED BALANCE SHEET

As at 28 February 2010

		2010	2009
	Note	£'000	£'000
Non-current assets
Intangible assets		100	-
Goodwill		23,670	40,289
Property, plant and equipment		5,625	6,018
Financial assets		415	533
Deferred tax		1,500	1,966
	3	31,310	48,806
Current assets
Inventories		1,022	1,033
Trade and other receivables		19,322	20,723
Corporation tax		127	280
Cash and cash equivalents		8,634	11,001
		29,105	33,037
Total assets	3	60,415	81,843
Current liabilities
Trade and other payables		(31,079)	(30,090)
Corporation tax		(35)	(19)
Borrowings		(3,367)	(167)
Financial liabilities		(4)	(5,482)
		(34,485)	(35,758)
Non-current liabilities
Borrowings		(19,172)	(14,414)
Financial liabilities		(1,040)	(1,205)
Provisions for liabilities		(1,749)	(2,125)
		(21,961)	(17,744)
Total liabilities		(56,446)	(53,502)
Net assets		3,969	28,341
Shareholders' funds
Share capital		3,617	3,317
Share premium account		37,866	37,686
Capital redemption reserve		13,268	13,268
Merger reserve		5,078	5,078
Share-based payment reserve		714	800
Investment in own shares		(1,385)	(905)
Translation reserve		211	227
Retained earnings		(55,400)	(31,130)
Total equity shareholders' funds		3,969	28,341

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 28 February 2010

 

	Issued capital	Share premium account	Capital redemption reserve	Merger reserve	Share-based payment reserve	Invest-ment in own shares	Transl-ation reserve	Retained earnings	Total	Minority interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 29 February 2008	16,585	37,686	-	5,078	394	(805)	(480)	(30,610)	27,848	(500)	27,348
Exchange gain arising on consolidation	-	-	-	-	-	-	707	-	707	-	707
Net profit recognised directly in other comprehensive income	-	-	-	-	-	-	707	-	707	-	707
Loss for the financial year	-	-	-	-	-	-	-	(700)	(700)	(47)	(747)
Total recognised expense for the year	-	-	-	-	-	-	707	(700)	7	(47)	(40)
Repurchase of deferred 4p shares following consolidation	(13,268)	-	13,268	-	-	-	-	-	-	-	-
Treasury share bought-back	-	-	-	-	-	(100)	-	-	(100)	-	(100)
Liquidation of minority interest	-	-	-	-	-	-	-	-	-	547	547
Employee share-based compensation	-	-	-	-	586	-	-	-	586	-	586
Share-based compensation vested in the year	-	-	-	-	(180)	-	-	180	-	-	-
Balance at 28 February 2009	3,317	37,686	13,268	5,078	800	(905)	227	(31,130)	28,341	-	28,341
Exchange loss arising on consolidation	-	-	-	-	-	-	(16)	-	(16)	-	(16)
Net expenses recognised directly in other comprehensive income	-	-	-	-	-	-	(16)	-	(16)	-	(16)
Loss for the financial year	-	-	-	-	-	-	-	(24,568)	(24,568)	-	(24,568)
Total recognised expense for the year	-	-	-	-	-	-	(16)	(24,568)	(24,584)	-	(24,584)
Shares issued to employee benefit trust	300	180	-	-	-	(480)	-	-	-	-	-
Purchase of minority interest	-	-	-	-	-	-	-	(255)	(255)	-	(255)
Employee share-based compensation	-	-	-	-	467	-	-	-	467	-	467
Share-based compensation vested in the year	-	-	-	-	(553)	-	-	553	-	-	-
Balance at 28 February 2010	3,617	37,866	13,268	5,078	714	(1,385)	211	(55,400)	3,969	-	3,969

 

 

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 28 February 2010

		2010	2009
	Note	£'000	£'000
Cash (outflow)/ inflow from operating activities
Cash (outflow)/ inflow from operating activities before taxation	6	(1,070)	3,691
Corporation tax paid		(43)	(10)
Net cash (outflow)/ inflow from operating activities after taxation		(1,113)	3,681
Cash inflow/(outflow) from investing activities
Finance income received		25	199
Acquisition of subsidiary undertakings		(577)	(97)
Purchase of property, plant and equipment		(738)	(980)
Disposal of subsidiary undertakings		(329)	5,409
Proceeds from disposals of property, plant and equipment		1	146
Net cash on discontinued operations		-	(363)
Net cash (outflow)/ inflow from investing activities		(1,618)	4,314
Cash inflow/ (outflow) from financing activities
Purchase of treasury shares		-	(100)
Finance cost paid		(1,611)	(1,540)
Repayment of borrowings		(929)	(6,380)
Drawdown of revolving credit facility		3,200	-
Capital element of hire purchase agreements		(3)	(158)
Net cash inflow/ (outflow) from financing activities		657	(8,178)
Net decrease in cash and cash equivalents		(2,074)	(183)
Cash and cash equivalents at beginning of year		11,001	9,632
Effect of exchange rate changes on the balance of cash held in foreign subsidiaries		(293)	1,552
Cash and cash equivalents at end of year		8,634	11,001

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 28 February 2010

 

1.   GENERAL INFORMATION

 

Media Square plc and its subsidiaries' principal activities are advertising, marketing and design services.

 

Media Square plc, a Public Limited Company, is incorporated and domiciled in the United Kingdom.

 

The financial statements for the year ended 28 February 2010 (including the comparative for the year ended 28 February 2009) have not been approved by the Board.  

 

The financial information in this statement is not audited and does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The financial statements for the year to 28 February 2010 have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. Full accounts for Media Square plc for the year ended 28 February 2009, prepared under IFRS, have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under Section or Section 237(3) of the Companies Act 1985. These unaudited preliminary results were approved by the Board on 26 May 2010.  

 

2.   ACCOUNTING POLICIES

 

These consolidated financial statements have been prepared using the required measurement bases specified under International Financial Reporting Standards (IFRS) and in accordance with applicable IFRS as adopted by the European Union and IFRS as issued by the International Accounting Standards Board. 

 

 

3.   SEGMENTAL ANALYSIS

 

Year ended 28 February 2010	Advertising	Marketing	Design	Unallocated	Eliminations	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
From external customers	25,720	10,331	11,247	-	-	47,298
From other segments	45	20	31	-	(96)	-
Segment revenues	25,765	10,351	11,278	-	(96)	47,298
Headline operating profit/ (loss)	935	318	463	(2,601)	-	(885)
Exceptional items	(9,719)	(682)	(6,630)	(709)	-	(17,740)
Share-based payments	-	-	-	(465)	-	(465)
Operating loss	(8,784)	(364)	(6,167)	(3,775)	-	(19,090)
Net finance costs						(1,773)
Loss before tax						(20,863)
Taxation						(626)
Loss after tax						(21,489)
Segmental assets	40,040	8,786	10,751	838	-	60,415
Other segment information:
Capital expenditure	207	115	354	62	-	738
Depreciation	492	202	224	101	-	1,019
Goodwill impairment	9,893	600	5,450	-	-	15,943

 

The unallocated operating loss, exceptional items, share-based payments and segmental assets relate to central costs.

 

The depreciation charge and goodwill impairment disclosed relates to continuing operations only and as such does not agree to the figures disclosed in note 6.

 

 

Year ended 28 February 2009	Advertising	Marketing	Design	Unallocated	Eliminations	Total
	£'000	£'000	£'000	£'000	£'000	£'000
	Restated	Restated	Restated	Restated	Restated	Restated
Revenue
from external customers	31,484	12,339	17,421	-	-	61,244
from other segments	176	15	362	-	(553)	-
Segment revenues	31,660	12,354	17,783	-	(553)	61,244
Headline operating profit/ (loss)	2,899	508	2,180	(3,320)	-	2,267
Exceptional items	(20)	(345)	(951)	4,141	-	2,825
Share-based payments	-	-	-	(586)	-	(586)
Operating profit/ (loss)	2,879	163	1,229	235	-	4,506
Loss on disposal of subsidiary undertakings						(368)
Net finance costs						(3,060)
Profit before tax						1,078
Taxation						341
Profit after tax						1,419
Segmental assets	48,023	10,310	19,054	4,456	-	81,843
Other segment information:
Capital expenditure	377	239	268	22	-	906
Depreciation	591	295	421	113	-	1,420
Impairment of property, plant & equipment	-	30	223	-	-	253

 

The unallocated operating loss relates to central costs of £3.7m and foreign exchange gains of £0.4m.  The unallocated exceptional items, share-based payments and segmental assets relate to central costs.

 

The capital expenditure and depreciation charge disclosed relates to continuing operations only and as such does not agree to the figures disclosed in the consolidated cash flow statement and note 6 respectively.

 

The Group's revenue from external customers and its geographic allocation of total assets may be summarised as follows:

 

	Year ended 28 February 2010		Year end 28 February 2009
	Revenues	Non-current assets	Revenues	Non-current assets
	£'000	£'000	£'000	£'000
			Restated	Restated
United Kingdom	35,196	24,737	49,247	36,856
Rest of World	12,227	6,573	12,408	11,950
Eliminations	(125)	-	(411)	-
Total	47,298	31,310	61,244	48,806

 

 

4.   EXCEPTIONAL ITEMS

 

				2010	2009
				£'000	£'000
					Restated
Restructuring and reorganisation costs				(1,416)	(887)
Property related provisions, costs and impairments				(740)	(878)
Release of transaction cost accruals				-	1,138
Release of acquisition provisions				359	3,452
Goodwill impairment				(15,943)	-
				(17,740)	2,825

 

The provision released in the year was recorded as a fair value adjustment on the acquisition of a subsidiary.  It has been released in the period as the events for which it was made have not materialised.

 

5.   EARNINGS/ (LOSS) PER SHARE

 

The calculation of the basic (loss)/ earnings per share is based on the (loss)/ profit on ordinary activities after tax and on the weighted average number of Ordinary shares in issue during the year.

 

The calculation of the diluted earnings per share is based on the profit on ordinary activities after tax and on the weighted average number of Ordinary shares and share options in issue during the period.

 

In the current year, a loss was generated from total, continued and discontinued operations (2009: loss from discontinued and total operations).  As the effect of share options on the loss per share is anti dilutive no diluted earnings per share figure has been produced.

 

The (loss)/ profit and weighted average number of shares used in the calculations are set out below:

 

		2010			2009
Basic (loss)/ earnings per share	Loss	Weighted average number of shares	Loss per share	(Loss)/ profit	Weighted average number of shares	(Loss)/ earnings per share
	£'000		pence	£'000		pence
Basic loss per share from total operations
Loss attributable to ordinary shareholders	(24,568)	32,238,713	(76.21p)	(700)	32,244,916	(2.17p)
Basic (loss)/ earnings per share on continuing operations
(Loss)/ earnings attributable to ordinary shareholders	(21,489)	32,238,713	(66.66p)	1,466	32,244,916	4.55p
Basic loss per share on discontinued operations
Loss attributable to ordinary shareholders	(3,079)	32,238,713	(9.55p)	(2,166)	32,244,916	(6.72p)

 

 

		2009
Diluted earnings per share	Profit	Weighted average number of shares	Earnings  per share
	£'000		pence
Diluted earnings per share on continuing operations
Earnings attributable to ordinary shareholders	1,466	38,430,041	3.81p

 

 

6.   Net cash inflow from operating activities

 

	2010	2009
	£'000	£'000 Restated
Operating (loss)/ profit	(19,090)	4,506
Operating loss from discontinued operations	(1,623)	(1,480)
Depreciation	1,062	1,556
(Loss)/ profit on disposal of property, plant & equipment	18	(19)
Impairment of property, plant & equipment	-	253
Impairment of goodwill	16,169	-
Release of excess acquisition/disposal accruals	-	(628)
Share-based payment	465	586
(Increase)/ decrease in inventories	(90)	671
Decrease in receivables	957	8,055
Increase/ (decrease) in payables	1,062	(9,809)
Net cash (outflow)/ inflow from operating activities	(1,070)	3,691