AVESCOGROUPPLC ANNUAL REPORT 2009 05
www.avesco.com
Within our Broadcast Services Division, revenue The extra focus on cash management has seen significant risk to the Group. The Group also
was £17.7m (2008: £20.2m, £20.7m in constant £2.8m released from working capital during the encourages client or supplier contacts to be
currency). A significant part of the Group’s capital year, contributing to the £11.2m of cash (2008: maintained by more than one individual. Key staff
expenditure programme last year related to £13.8m) generated from operations. With net are incentivised through a mixture of sales
Presteigne Charter’s work at the Beijing Olympics. capital expenditure down to £(11.5)m (2008: commission, profit related bonuses and
Whilst that project was very successful, we have £(23.8)m) and £3.7m of deferred consideration participation in the Group LTIP scheme. Main
suffered the effects of a full year’s depreciation both received from the 2006 disposal of Complete Board Directors are incentivised as detailed in the
on that equipment and on the additional Communications Corporation Limited (“Complete”) Directors’ Remuneration Report.
equipment acquired with the purchase of Charter the Group was able to produce a net positive cash
Broadcast in April 2008 – these are the main inflow of £1.6m (2008: £(10.4)m outflow) before
Equipmentfailureorloss: The Group’s hire stock
reasons behind the 11% margin drop in the division, currency translation effects.
comprises complex, high value equipment which is
down to 29%. Operating expenses have also
subject to the risks of electronic or mechanical
increased by £0.8m, mainly as a result of having
Going into the new financial year, our focus failure as well as physical loss, damage or theft.
the retained costs of the Charter Broadcast
remains very much on cash generation and net The Group endeavours to minimise these risks
business included for a full year, leaving the
capital expenditure is expected to be further through rigorous quality control measures, security
divisional trading losses at £(2.5)m for the period
reduced in 2010. precautions and insurance cover. The
(2008: £1.7m profit).
geographical spread of the Group’s businesses
FINANCINGANDNETASSETS further reduces the potential risk which might arise
Going forward into 2010, there are grounds for
The Group is in a healthy financial position going from any one loss or failure.
cautious optimism for the Group. As an “even” year,
into 2010. At the year end, the Group had net debt
we will have the benefits of both the Winter
of £21.1m with a further £5.1m available in Futurefunding: The Group’s capital requirements
Olympics in Vancouver in February and the FIFA
undrawn facilities leaving gearing at a will depend on numerous factors, including its
World Cup in South Africa in June and July. Our
manageable 55%. ability to operate successfully to its business model.
redundancy programme and reduced spend on
If funding requirements vary materially from its
equipment should produce significant savings on
The Group remains comfortably within its finance plans, we may require further financing in addition
personnel costs and depreciation. We are also
and banking facilities of some £26.2m. Our main to our existing bank facilities sooner than
hopeful that our earlier start up operations in Hong
facility is a £15m multi currency revolving loan with anticipated. However, in order to minimise this risk,
Kong, Shanghai and Barcelona will become more
HSBC Bank plc which is in place until October 2012. the Group endeavours to build in contingencies to
mature and have a positive impact.
During the year the Group renegotiated its its financial forecasting. In addition, the Group will
covenants with the bank, giving more headroom often have the ability to re-direct cash inflow
TAXATION
going forward. intended for capital expenditure to other uses, as
We continue to have the benefit of past trading demonstrated during 2009.
losses in some territories and our investment in
On 30 September 2009, the net assets of the Group
new equipment remains at a level such that capital
were £38.5m, equivalent to £1.48 per share. Exposure to counterparty credit risk: It is believed
allowances enable taxes on trading results to be
that no one client represents a material risk to the
kept low.
BUSINESSRISKS
Group. However, where there may be a credit
The Group’s business is subject to a number of
concern or where significant up front costs will be
Consequently we maintained a deferred tax asset
different risk factors, which will have varying
incurred in relation to a client’s event, the Group
at the year end of £3.6m (2008: £3.4m). There has
degrees of significance at any particular time.
will endeavour to obtain a deposit or other security
been only a modest increase in the asset this year,
Although not an exhaustive list, management
for payment.
notwithstanding the substantial operating losses,
consider the most important risks and uncertainties
as we try to take a cautious view as to when the
to the business to be as follows: Counterpartyriskwithfinancialinstitutions: The
losses may be utilised. Tax losses included in the
Group’s policy is to maintain a range of types of
asset represent £3.1m, with the balance of £0.5m
Economicandbusinesscycle: The Group’s
borrowing facilities from a number of major
being the temporary difference between the tax
customers are principally corporates whose
financial institutions. The Group is dependent upon
base and the book value of property, plant and
expenditure on services provided by the Group
contractual arrangements with these institutions to
equipment. Unrecognised deferred tax assets
may be discretionary in nature and may therefore
provide funding on agreed terms when requested
amounted to £9.7m at the year end.
be affected by changes in the economic and
to do so.
business cycle. Some of the possible actions that
We also carry a deferred tax liability of £1.6m
the Group may take to counteract a sudden Effectofforeigncurrency: The Group in general
(2008: £1.6m), the majority in respect of temporary
downturn may take time to have effect. However, does not hedge the foreign currency risk arising
differences between the tax base and the book
we have sought to minimise the impact of any from sales by an operation denominated in a
value of property, plant and equipment.
economic slowdown by seeking, wherever currency other than its functional currency. In most
practicable, to match major items of capital cases substantial deposits on such sales are
CASHGENERATIONANDCAPITALEXPENDITURE
expenditure to the requirements of our largest received at the time of the order and the remaining
The Board remains strongly focused on cash
clients, and by limiting infrastructure obligations balances are, to a large extent, matched by
generation in these difficult times and we have
and other capital commitments to a level overseas costs. The exceptions to this policy are
been successful in generating significant funds
appropriate to the foreseeable needs of the generally related to the purchase of tangible assets
from operations and reducing capital expenditure
business, after taking account of market trends and or other large one off transactions, where the
across all divisions, resulting in a net positive cash
developments. currency risk is usually hedged using forward
inflow for the Group. foreign exchange contracts. In respect of the
Dependenceonkeypersonnel:The Group’s
translation of foreign currency assets, the Group
future success will be dependent on key
endeavours to match a significant amount of
employees and their on-going relationships with
foreign currency assets by funding overseas
clients and suppliers. It is believed that the Group
operations through borrowings or loans
is of a size that no one individual represents a
denominated in the overseas currency.
JOHNCHRISTMAS
FINANCEDIRECTOR
14 January 2010
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