REG - System1 Group PLC - Interim Results
Press Release
2 November 2018
System1 Group PLC (AIM: SYS1)
("System1" or "the Group" or "the Company")
Unaudited interim results for the six months ended 30 September 2018
System1, the marketing services group, today announces its results for the six month period ended 30 September 2018 ("H1").
As previously announced, the Company is making a significant investment in a new business line "Ad Ratings" and, for ease of prior period comparisons, is splitting its results into the existing business ("Consulting") and Ad Ratings.
6 months ended 30 September
2017/18
2018/19
£m
Consulting
Ad Ratings
Total
Revenue
13.82
13.18
-
13.18
Gross Profit
11.39
10.80
-
10.80
Underlying Overheads
(10.29)
(8.88)
(1.09)
(9.97)
Underlying Pre-Tax Profit/(Loss)
1.10
1.92
(1.09)
0.83
Share Based Payments
(0.25)
-
-
-
Exceptional Credit
-
0.25
-
0.25
Pre-Tax Profit/(Loss)
0.85
2.17
(1.09)
1.08
Highlights
o
5% decline in Revenue to £13.18m (2017/18: £13.82m), 3% in constant currency
o
5% decline in Gross Profit to £10.80m (2017/18: £11.39m), 3% in constant currency
o
74% growth in Underlying Pre-Tax Profit (excluding Ad Ratings) to £1.92m (2017/18: £1.10m)
o
28% growth in Pre-Tax Profit (including Ad Ratings) to £1.08m (2017/18: £0.85m)
o
26% growth in Post-Tax Profit (including Ad Ratings) to £0.68m (2017/18: £0.54m)
o
26% growth in diluted Earnings Per Share to 5.3p (2017/18: 4.2 pence)
o
£1.59m investment in Ad Ratings, of which £0.50m has been capitalised and £1.09m expensed
o
£3.55m Cash at 30 September 2018 and no debt (31 March 2018: £5.78m and no debt)
o
Maintaining interim dividend at 1.1 pence
o
Final dividend may be reduced, depending principally on the scale of further investment in Ad Ratings and on opportunities to repurchase shares at an attractive valuation
Commenting on the Company's results, John Kearon, CEO of System1, said:
"We are excited about our new Ad Ratings service based on our tried and tested core IP - for its future potential both to support the existing consulting business, as well as provide a new scalable revenue stream. Meanwhile we believe that as our new product configurations and more competitive pricing take hold, our existing business will continue to stabilise and in time return to growth."
The Company can be found at www.system1group.com.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
For further information, please contact:
System1 Group PLC
+44 20 7043 1000
John Kearon, Chief Executive Officer
James Geddes, Chief Financial Officer
Canaccord Genuity Limited
+44 20 7523 8000
Simon Bridges
Emma Gabriel
INTERIM STATEMENT
Gross Profit (our main top-line measure) is stabilising after the significant decline in the previous financial year. During the six months to 30 September 2018 ("H1"), Gross Profit declined 5% (3% in constant currency) compared to the same period in the prior year ("H1 2017/18"), and was flat compared to the six months to 31 March 2018.
£m
2016/17
2017/18
2018/19
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Gross Profit
5.61
6.93
8.02
6.43
5.51
5.89
4.99
5.84
5.22
5.58
Our business comprises, in the main, market research ("Research"), together with a small advertising agency ("Agency"). The Research business has three main product lines, "Communications" (testing adverts prior to broadcast), "Brand" (tracking brand health), and "Innovation" (testing new product and packaging concepts and ideas). We offer them from our offices in the UK, US, and seven other offices across Continental Europe and the rest of the world.
Our Innovation business is more ad hoc in nature than Communications and Brand, and Gross Profit is inherently more volatile. It declined significantly last year (12 months to 31 March 2018) following cuts in marketing spend by some of our largest clients. We reacted with a product re-design programme and a new pricing framework, and although not yet back to 2016/17 levels, Gross Profit increased by 13% in H1 (vs H1 2017/18).
We have also re-packaged our Communications offering, and at the same time introduced a more competitive pricing structure. However, this was introduced more recently than the Innovation re-design, and it will take time for the benefits to be seen in Gross Profit terms. Much of our Communications business comes from ongoing relationships with large customers and there is often a lag before new business is secured. Meanwhile the more competitive pricing has resulted in a H1 Gross Profit decline of 15% (vs H1 2017/18).
Brand Gross Profit also declined in H1 (by 18%, vs H1 2017/18), as a result of some isolated client churn in the UK and US and slower than anticipated new wins. However, our Brand business tends to come from ongoing, and relatively stable, brand tracking projects, and we anticipate it returning to growth.
£m
2016/17
2017/18
2018/19
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Innovation
2.62
3.36
3.51
2.30
2.16
2.23
1.94
2.08
2.43
2.50
Comms
1.50
1.56
2.80
2.30
1.76
1.83
1.59
1.82
1.55
1.51
Brand
0.57
0.81
0.94
1.03
0.93
1.16
1.14
1.29
0.81
0.92
Other
0.92
1.20
0.77
0.80
0.66
0.67
0.32
0.65
0.43
0.65
5.61
6.93
8.02
6.43
5.51
5.89
4.99
5.84
5.22
5.58
In terms of our main geographic regions, we had mixed fortunes in H1. Gross Profit grew in Continental Europe (up 30%, vs H1 2017/18), declined in our Americas region (down 16%), and was relatively stable in the UK (down 5%). APAC, our smallest region, was also down (by 22%) due to the loss of a large client.
£m
2016/17
2017/18
2018/19
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Americas
2.96
3.55
3.53
2.88
2.62
2.87
2.28
2.42
2.33
2.31
UK
1.52
1.42
1.94
1.51
1.27
1.14
1.15
1.49
1.18
1.10
Cont Eur
0.95
1.35
1.68
1.28
1.01
1.23
1.01
1.34
1.24
1.67
APAC
0.19
0.56
0.77
0.64
0.54
0.56
0.50
0.44
0.39
0.47
Agency
(0.01)
0.05
0.10
0.12
0.07
0.09
0.05
0.15
0.08
0.03
5.61
6.93
8.02
6.43
5.51
5.89
4.99
5.84
5.22
5.58
Our Agency business generated £0.11m of Gross Profit in H1 (£0.16m in H1 2017/18), and so remains a small Gross Profit contributor to the business. However, it continues to cover most of its costs and provides a valuable showcase on how to create, what we call, 5 Star marketing (a good example being the "don't text and drive" public service advert we created in the US, which you can view at: https://www.youtube.com/watch?v=zANGRj0O5Jk).
We have continued to control costs tightly. Average headcount in H1 was 19% lower than the corresponding period last year and Underlying Overheads (excluding Ad Ratings - see below) were down 14%. We have excluded two items from Underlying Overheads: share based payments and a business rates rebate. Share based payments are a non-cash expense that varies with our share price, and so we separately disclose them. The business rates rebate was a material one-off item (£0.25m) arising from the move to our current head office in London in 2015, and was received in error. We referred the error to the local council, but they failed to correct it and are now time-barred from doing-so. We normally also comment on employee bonuses, as these are a discretionary item, can be material, and can vary widely. However, they were immaterial in both H1 and H1 2017/18.
Total overheads (excluding Ad Ratings) declined by 18%, and including Ad Ratings by 8%.
Costs excluding Ad Ratings:
£000 (unless otherwise specified)
H1
H1 2017/18
Growth
Average headcount
140
172
-19%
Underlying Overheads
8,883
10,297
-14%
Share Based Payments
(1)
257
Not meaningful
Exceptional Credit (Rates Rebate given in error)
(251)
-
NA
Total Overheads
8,631
10,554
-18%
Underling Pre-Tax Profit (i.e. excluding Ad Ratings, share based payments and the rates rebate) grew by 74% and Underlying Pre-Tax Profit margin was 15%. This is short of our long-term average (19% on average over the 4 years from 2013-2016), but well ahead of last financial year's 8%. Pre-Tax Profit (i.e. including Ad Ratings, share based payments and the rates rebate) grew by 28%.
Ad Ratings
During H1 we invested £1.59m in our new Ad Ratings service, which is due to be launched later this year. Of this, £0.50m has been capitalised and £1.09m has been expensed as an operating cost. Ad Ratings is a subscription service which will enable clients to assess the effectiveness of their historic adverts, compare their scores with those of competitors and category averages, and correlate their advertising effectiveness with media spend.
It utilises the Company's core intellectual property: the methodology the Company uses to predict the long-term brand impact of advertising. Scores are presented on a 1 to 5 Star scale, and correlate with predicted long-term market share increase.
So far, we have tested a very significant number of adverts (approximately 5,000 in the UK and 18,000 in the US), and on an on-going basis we continue to test all adverts broadcast in the UK and the US in the main categories in which our clients operate, as they are broadcast. The insights generated from such a large and comprehensive data set will increase our understanding of what makes effective advertising, and so enhance our existing business, as well as opening up the potential for a new and scalable revenue stream.
Tax
Excluding Ad Ratings, the Company's effective tax rate has reduced to 28% from 36% in H1 2017/18 as a result of the reduction in the US Federal corporation tax rate. Including Ad Ratings, the Company's effective tax rate has increased to 37% from 36% in H1 2017/18 as the investment in Ad Ratings, and the associated tax credits, have all occurred in the UK where our tax rates are lowest.
Cash
We generated operational cash flow pre-financing (and pre Ad Ratings) of £0.31m. This represented 20% of Post-Tax Profit (pre Ad Ratings), which is lower than we would expect, due principally to debtor days increasing from 57 days at 31 March 2018 to 77 days at 30 September 2018. After the investment of £1.59m in Ad Ratings, and payment of £0.80m in dividends, our cash balance reduced from £5.78m on 31 March 2018 to £3.55m on 30 September 2018.
An interim dividend of 1.1 pence per share, the same as last year, will be paid to shareholders. We may consider reducing the level of our final dividend from the 6.4 pence paid last year. This will depend primarily on two factors. Firstly, the initial client response to Ad Ratings, and the level of further investment which we consider justified in the short term, and, secondly, whether the share price gives us the opportunity to buy back shares at a price considerably below the value we place on them.
Outlook
Whilst market conditions remain challenging, we believe that as our new product configurations and more competitive pricing take hold, the business will continue to stabilise and in time return to growth. Meanwhile we will continue to keep costs under control. We are looking forward to the launch of Ad Ratings and will continue to invest as appropriate in this new business.
John Kearon James Geddes
Chief Executive Officer Chief Financial Officer
5 YEAR SUMMARY - HALF YEAR
(£000s unless specified otherwise)
6 months to 30 Sep
6 months to 30 Jun
2018/19
2017/18
2016
2015
2014
2013
Ex AR*
Inc AR*
Financial KPIs
Revenue
13,182
13,182
13,822
13,043
11,610
11,197
10,765
growth
-5%
-5%
-10%
12%
4%
4%
4%
Gross Profit
10,802
10,802
11,394
10,685
9,254
8,719
8,455
growth
-5%
-5%
-9%
15%
6%
3%
6%
Administrative Costs
8,631
9,722
10,554
9,018
8,080
7,183
7,157
growth
-18%
-8%
8%
12%
12%
-%
-2%
Bonus (included within Admin Costs)
39
39
-
796
-
184
559
Pre-Tax profit
2,172
1,082
846
1,650
1,139
1,520
1,298
growth
157%
28%
-70%
45%
-25%
17%
81%
Post-Tax Profit
682
542
1,054
763
1,018
870
growth
26%
-70%
38%
-25%
17%
81%
EPS - diluted
5.3p
4.2p
7.9p
5.6p
7.5p
6.7p
growth
26%
-69%
41%
-25%
12%
81%
Cash flow pre-financing
(1,356)
(604)
810
565
(147)
1,948
Cash balance
3,552
3,495
5,183
5,286
2,528
5,460
Dividend (interim)
1.1p
1.1p
1.1p
1.0p
1.0p
0.9p
growth
-
-
10%
-
11%
6%
Special dividend
-
26.1p
-
-
12.0p
-
Share buy-backs
-
-
1,768
-
1,531
29
Non-financial KPIs
Number of clients
230
229
232
244
225
212
growth
-
-1%
-5%
8%
6%
4%
Gross profit per project
17.1
18.2
18.3
20.7
18.3
20.9
growth
-6%
-15%
-12%
13%
-12%
2%
Average headcount
140
172
155
160
145
137
growth
-19%
12%
-3%
10%
6%
2%
Average gross profit per head
77
66
69
58
60
62
growth
17%
-1%
19%
-3%
-3%
3%
* "Ex AR" means: excluding Ad Ratings. "Inc AR" means: including Ad Ratings.
5 YEAR SUMMARY - ANNUAL
£000s unless specified otherwise
12 months to 31 Mar
12 months to 31 Dec
2017/18
2016/17
2016
2015
2014
2013
Audited
Unaudited
Unaudited
Audited
Audited
Audited
Financial KPIs
Revenue
26,939
32,801
31,236
25,184
24,645
24,457
growth
-18%
27%
24%
2%
1%
17%
Gross profit
22,231
26,984
25,643
20,250
19,410
19,087
growth
-18%
29%
27%
4%
2%
19%
Administrative costs
20,246
20,676
19,414
15,704
15,109
15,537
growth
-2%
30%
24%
4%
-3%
7%
Bonus (included within Admin Costs)
107
2,294
2,396
63
1,077
1,941
Pre-Tax profit
1,992
6,279
6,200
4,501
4,286
3,556
growth
-68%
25%
38%
5%
21%
135%
Post-Tax profit
1,213
4,029
3,968
3,032
2,897
2,435
growth
-70%
19%
31%
5%
19%
135%
EPS - diluted
9.5p
31.1p
30.3p
22.7p
21.3p
18.7p
growth
-69%
22%
33%
7%
14%
137%
Cash flow pre-financing
1,831
6,603
6,337
2,696
3,157
4,466
Cash balance
5,784
8,266
7,754
6,365
5,347
6,188
Dividend (interim & final)
7.5p
7.5p
7.5p
4.5p
4.3p
3.9p
growth
-%
67%
67%
5%
10%
26%
Special dividend
26.1p
12.0p
12.0p
-
12.0p
12.0p
Share buy-backs
1
3,141
3,195
948
1,938
71
Non-financial KPIs
Number of clients
204
224
223
243
235
224
growth
-9%
-4%
-8%
3%
5%
3%
Gross profit per project
20.0
23.0
22.6
19.6
20.0
20.0
growth
-13%
19%
15%
-2%
-%
-1%
Average headcount
165
161
157
158
152
138
growth
2%
3%
-1%
4%
10%
-7%
Average gross profit per head
135
168
163
128
128
138
growth
-20%
25%
27%
-%
-7%
27%
CONDENSED CONSOLIDATED INCOME STATEMENT
for the 6 months ended 30 September 2018
Note
6 months
to
12 months to
30 Sep
2018
Unaudited
30 Sep 2017
Unaudited
31 Mar 2018
Audited
Consultancy
Ad
Ratings
Total
Total
Total
£000
£000
£000
£000
£000
Revenue
4
13,182
-
13,182
13,822
26,939
Cost of sales
(2,380)
-
(2,380)
(2,428)
(4,708)
Gross profit
4
10,802
-
10,802
11,394
22,231
Administrative expenses
(8,631)
(1,090)
(9,721)
(10,554)
(20,246)
Operating profit/(loss)
2,171
(1,090)
1,081
840
1,985
Finance income
1
-
1
6
7
Profit/(loss) before taxation
4
2,172
(1,090)
1,082
846
1,992
Income tax (expense)/credit
(607)
207
(400)
(304)
(779)
Profit/(loss) for the financial period
1,565
(883)
682
542
1,213
Attributable to equity holders of the Company
1,565
(883)
682
542
1,213
Earnings per share attributable to equity
holders of the Company
Basic earnings per share
5
5.4p
4.4p
9.9p
Diluted earnings per share
5
5.3p
4.2p
9.5p
All of the activities of the Group are classed as continuing.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 6 months ended 30 September 2018
6 months to
30 Sep 2018
Unaudited
6 months to
30 Sep 2017
Unaudited
12 months to
31 Mar 2018
Audited
£000
£000
£000
Profit for the financial period
682
542
1,213
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Exchange differences on translating foreign operations
49
(89)
(190)
Other comprehensive income for the period, net of tax
49
(89)
(190)
Total comprehensive income attributable to equity holders
731
453
1,023
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 September 2018
Note
30 Sep 2018
Unaudited
30 Sep 2017
UnauditedRestated for IFRS15
31 Mar 2018
UnauditedRestated for IFRS 15
£000
£000
£000
ASSETS
Non-current assets
Property, plant and equipment
217
327
269
Intangible assets
8
510
78
26
Deferred tax asset
282
546
372
1,009
951
667
Current assets
Inventories
148
147
131
Contract assets
28
42
30
Trade and other receivables
7,087
6,361
5,681
Income tax recoverable
335
420
423
Cash and cash equivalents
3,552
3,495
5,784
11,150
10,465
12,049
Total assets
12,159
11,416
12,716
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital
9
132
132
132
Share premium account
1,601
1,601
1,601
Merger reserve
477
477
477
Foreign currency translation reserve
270
322
221
Retained earnings
4,417
4,322
4,578
Total equity
6,897
6,854
7,009
LIABILITIES
Non-current liabilities
Provisions
456
544
420
Finance lease payable
46
-
70
502
544
490
Current liabilities
Provisions
407
308
368
Finance lease payable
47
-
46
Trade and other payables
3,950
3,381
4,223
Contract liabilities
356
329
580
4,760
4,018
5,217
Total liabilities
5,262
4,562
5,707
Total equity and liabilities
12,159
11,416
12,716
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2018
Note
6 months to
30 Sep 2018
Unaudited
6 months to
30 Sep 2017
Unaudited
12 months to
31 Mar 2018
Audited
£000
£000
£000
Net cash (used by)/generated from operations
7
(784)
365
3,424
Tax paid
(304)
(907)
(1,480)
Net cash (used by)/generated from operating activities
(1,088)
(542)
1,944
Cash flows from investing activities
Purchase of property, plant and equipment
(22)
(62)
(91)
Purchase of intangible assets
(246)
-
(22)
Net cash used by investing activities
(268)
(62)
(113)
Net cash flow before financing activities
(1,356)
(604)
1,831
Cash flows from financing activities
Interest
1
6
7
Proceeds from finance lease
-
-
140
Finance lease payments
(23)
-
(24)
Proceeds from sale of treasury shares
-
-
33
Purchase of own shares
-
-
(34)
Dividends paid to owners
(802)
(4,051)
(4,188)
Net cash used by financing activities
(824)
(4,045)
(4,066)
Net decrease in cash and cash equivalents
(2,180)
(4,649)
(2,235)
Cash and cash equivalents at beginning of period
5,784
8,266
8,266
Exchange losses on cash and cash equivalents
(52)
(122)
(247)
Cash and cash equivalents at end of period
3,552
3,495
5,784
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 30 September 2018
Share
capitalShare premium account
Merger
reserveForeign currency translation reserve
Retained earnings
Total
£000
£000
£000
£000
£000
£000
At 1 April 2018
132
1,601
477
221
4,578
7,009
Profit for the financial period
-
-
-
-
682
682
Other comprehensive income:
- currency translation differences
-
-
-
49
-
49
Total comprehensive income
-
-
-
49
682
731
Transactions with owners:
Employee share options scheme:
- value of employee services
-
-
-
-
41
41
- current tax credited to equity
-
-
-
-
18
18
- deferred tax debited to equity
-
-
-
-
(100)
(100)
Dividends paid to owners
-
-
-
-
(802)
(802)
-
-
-
-
(843)
(843)
At 30 September 2018
132
1,601
477
270
4,417
6,897
At 1 April 2017
132
1,601
477
411
7,728
10,349
Profit for the financial period
-
-
-
-
542
542
Other comprehensive income:
- currency translation differences
-
-
-
(89)
-
(89)
Total comprehensive income
-
-
-
(89)
542
453
Transactions with owners:
Employee share options scheme:
- value of employee services
-
-
-
-
229
229
- current tax credited to equity
-
-
-
-
309
309
- deferred tax debited to equity
-
-
-
-
(435)
(435)
Dividends paid to owners
-
-
-
-
(4,051)
(4,051)
-
-
-
-
(3,948)
(3,948)
At 30 September 2017
132
1,601
477
322
4,322
6,854
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the 6 months ended 30 September 2018
1. General information
System1 Group PLC ("the Company") is United Kingdom resident, and its subsidiaries (together "the Group") provide marketing and market research consultancy services. The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange ("AIM"). The address of the Company's registered office is Russell Square House, 10-12 Russell Square, London WC1B 5EH.
The Board of Directors approved this condensed consolidated interim financial information for issue on 2 November 2018.
The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and is unaudited. The Group's latest statutory financial statements were for the 12 month period ended 31 March 2018 and these have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.
2. Basis of preparation
This condensed consolidated interim financial information has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union and on the going concern basis. This financial information should be read in conjunction with the financial statements for the 12 month period ended 31 March 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.
3. Principal accounting policies
The principal accounting policies adopted are consistent with those of the financial statements for the 12 month period ended 31 March 2018, except for the first time adoption of IFRS 15, 'Revenue from contracts with customers' and IFRS 9, 'Financial Instruments' (both Standards effective for accounting periods beginning on or after 1 January 2018).
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related Interpretations. The adoption of IFRS 15 has had no material impact on these interim accounts other than with respect to the reclassification of balance sheet items, as set out in Note 12. As a result of the reclassification of balance sheet items on adoption of IFRS 15, the balance sheet presented in these interim accounts as at 31 March 2018 is not the same as that presented in the audited financial statements for the year ended 31 March 2018.
The Group's revenues are primarily from the delivery of research services.
Revenue is recognised at a point in time (rather than over time) as the key performance obligation is the delivery of the final written debrief to the client.
Revenue from all of the Group's Research product lines (Communications, Brand, Innovation, and other research products) and its advertising agency services are recognised on the same basis.
IFRS 9 introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new 'expected credit loss' model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. The adoption of IFRS 9 has had no material impact on these interim accounts. Comparative information has not been restated as the impact on prior periods is not material.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
4. Segment information
The financial performance of the Group's geographic operating units ("Reportable Segments") is set out below.
6 months to 30 Sep 2018
6 months to 30 Sep 2017
Revenue
Gross
profit
Operating profit/(loss)
Revenue
Gross
Profit
Operating Profit/(loss)
£000
£000
£000
£000
£000
£000
Research
Americas
5,562
4,637
2,127
6,192
5,491
2,462
United Kingdom
2,753
2,277
807
2,886
2,404
911
Continental Europe
3,653
2,916
1,684
2,789
2,235
1,106
APAC
1,015
862
524
1,297
1,103
543
12,983
10,692
5,142
13,164
11,233
5,022
Advertising Agency
United Kingdom
199
110
(302)
658
161
(213)
13,182
10,802
4,840
13,822
11,394
4,809
Segmental revenue is revenue generated from external customers and so excludes intercompany revenue and is attributable to geographical areas based upon the location in which the service is delivered. Segmental operating profit excludes allocation of central overheads relating to the Group's Operations, IT, Marketing, HR, Legal and Finance teams and Board of Directors.
All revenues are recognised at a point in time, being the point at which the research results are delivered to the client.
The split of business by research solution is set out below.
6 months to 30 Sep 2018
6 months to 30 Sep 2017
Revenue
Gross Profit
Revenue
Gross Profit
£000
£000
£000
£000
Research Business
Communications (Ad Testing)
3,606
3,059
3,960
3,582
Brand (Brand Tracking)
2,363
1,726
2,598
2,102
Innovation (Predictive Markets and Concept Testing)
5,659
4,929
5,071
4,381
11,628
9,714
11,629
10,065
Other services
1,355
978
1,535
1,168
12,983
10,692
13,164
11,233
Advertising Agency Business
199
110
658
161
13,182
10,802
13,822
11,394
A reconciliation of total operating profit for Reportable Segments to total profit before income tax is set out below.
6 months to
30 Sep 2018
6 months to
30 Sep 2017
£000
£000
Operating profit for Reportable Segments
4,840
4,809
Central overheads
(2,669)
(3,969)
Ad Ratings costs
(1,588)
-
Ad Ratings development costs capitalised
498
-
Operating profit
1,081
840
Finance income
1
6
Profit before income tax
1,082
846
5. Earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing profit attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period:
Six months ended 30 Sep
2018
2017
Profit attributable to equity holders of the Company (£000)
682
542
Weighted average number of Ordinary Shares in issue
12,520,592
12,414,650
Basic earnings per share
5.4p
4.4p
(b) Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding assuming conversion of all dilutive share options to Ordinary Shares:
Six months ended 30 Sep
2018
2017
Profit attributable to equity holders of the Company and profit used to determine diluted earnings per share (£000)
682
542
Weighted average number of Ordinary Shares in issue
12,520,502
12,414,650
Share options
335,227
465,980
Weighted average number of Ordinary Shares for diluted earnings per share
12,855,729
12,880,630
Diluted earnings per share
5.3p
4.2p
6. Dividends
On 26th July 2018 the Company paid a final dividend of 6.4 pence per share, amounting to £0.80m in respect of the 12 month period ended 31 March 2018. In December 2018, the Company will pay an interim dividend of 1.1 pence per share, amounting to £0.14m, in respect of the year ending 31 March 2019. This interim dividend is not recorded in these interim accounts.
7. Net cash (used by)/generated from operations
Six months ended 30 Sep
2018
2017
Restated
£000
£000
Profit before taxation
1,082
846
Depreciation
77
89
Amortisation
15
129
Interest received
(1)
(6)
Share-based payment expense
41
229
Increase in inventory
(17)
(52)
Decrease/(increase) in contract assets
2
(38)
Increase in receivables
(1,406)
(176)
Decrease in payables
(451)
(389)
Decrease in contract liabilities
(224)
(308)
Exchange differences on operating items
98
41
Net cash (used by)/generated from operations
(784)
365
8. Intangible assets
Intangible assets of £510,000 include £498,000 of costs capitalised during the period in respect of the development of the Company's new Ad Ratings product. Costs relating to the research phase of the product, amounting to £1,090,000, have been expensed during the period. The development costs have been included within assets under the course of construction and will be amortised once the product is operating as intended.
9. Share capital
During the reporting period the Company transferred 97,181 Ordinary Shares ("shares") out of treasury to satisfy the exercise of employee share options at a weighted average exercise price of Nil pence per share for cash consideration of £Nil. The weighted average share price at exercise date was 271 pence per share.
Following these transactions, at 30 September 2018, the Company had 13,226,773 shares in issue (31 March 2018: 13,226,773) of which 653,167 were held in treasury (31 March 2018: 750,348), and the Company had 1,097,748 stock options outstanding of which 358,834 are fully vested.
10. Related party transactions
During the period the Company paid the following dividends to directors:
Six months ended 30 Sep
2018
2017
£
£
John Kearon
212,493
1,079,068
James Geddes
15,929
62,506
Alex Batchelor (resigned 30 June 2017)
-
43,761
Ken Ford
1,280
6,500
Robert Brand
1,920
9,750
Graham Blashill
640
1,625
232,262
1,203,210
11. Rates rebate
It was disclosed in the Company's most recent financial statements that as a consequence of a prima facie error by either Camden Council, the Valuation Office, or a combination of the two, there was a possibility that the Company could be entitled to a refund of £251,000 in respect of Business Rates payable on its London office relating to the period 15 June 2015 to 31 March 2017. We brought the apparent error to the attention of Camden Council as soon as we received notification of the credits but no definitive conclusion as to whether the credit was payable had been provided by the time the Annual Report was signed. Given the manifest error and therefore uncertainty as to whether payment would be made, no asset or related income in respect of this item was recognised in those financial statements. During the period the Company received confirmation from the Valuation Office that as a result of an error made by Camden Council and the Valuation Office, it is due a refund for Business Rates of £251,000. The benefit of that refund has been recognised during the period.
12. Changes in accounting policies
The adoption of IFRS 15, 'Revenue from Contracts with Customers' has resulted in no change in the comparative income statement. Changes to the balance sheet are set out below.
Balance sheet (extract)
IAS 18 carrying amount at
31 Mar 2018
Audited
Reclassification
IFRS 15 carrying
amount at
31 Mar 2018
Unaudited
£000
£000
£000
ASSETS
Non-current assets
Property, plant and equipment
269
-
269
Intangible assets
26
-
26
Deferred tax asset
372
-
372
667
-
667
Current assets
Inventories
131
-
131
Contract assets
-
30
30
Trade and other receivables
6,139
(458)
5,681
Income tax recoverable
423
-
423
Cash and cash equivalents
5,784
-
5,784
12,477
(428)
12,049
Total assets
13,144
(428)
12,716
EQUITY
Capital and reserves attributable to equity
holders of the Company
Share capital
132
-
132
Share premium account
1,601
-
1,601
Merger reserve
477
-
477
Foreign currency translation reserve
221
-
221
Retained earnings
4,578
-
4,578
Total equity
7,009
-
7,009
LIABILITIES
Non-current liabilities
Provisions
420
-
420
Finance lease payable
70
-
70
490
-
490
Current liabilities
Provisions
368
-
368
Finance lease payable
46
-
46
Trade and other payables
5,231
(1,008)
4,223
Contract liabilities
-
580
580
5,645
(428)
5,217
Total liabilities
6,135
(428)
5,707
Total equity and liabilities
13,144
(428)
12,716
Contract liabilities in relation to advances received from customers (£580,000 as at 31 March 2018) were previously presented as deferred income within trade and other payables.
Contract assets in relation to revenue earned but not billed (£30,000 as at 31 March 2018) were previously included in trade and other receivables.
Amounts invoiced to customers where the right to consideration was not unconditional at the balance sheet date and those amounts remained unpaid (£428,000 as at 31 March 2018), were previously included within trade and other receivables with the matching liability recorded within deferred income. On adoption of IFRS 15 such amounts are neither included within trade receivables nor contract liabilities. At 30 September 2018 outstanding amounts invoiced to customers where the right to consideration was not unconditional at the balance sheet date amounted to £315,000.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR FKDDBABDDDDK
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