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AVESCO GROUP PLC ANNUAL REPORT 2011
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Financial Review John Christmas
OVERVIEW The 12 months ended 30 September 2011 have seen a continuation of the positive underlying trends that we saw during the previous 12 months, resulting in a significant increase in profitability at the trading level, positive cash generation (after an £18.0m cash investment in new equipment) and the payment of our first dividend since the beginning of the recession. The outcome was particularly pleasing as we did not have the benefit of the revenue that we enjoyed in the prior year from the Winter Olympics in Vancouver and the FIFA World Cup in South Africa.
The overall result was achieved primarily through a combination of a 7% increase in revenue compared to the prior year (a 15% increase if those two sporting events are excluded) and improved margins (up from 33% to 34%). In addition there was a £1.1m increase in the profit from disposals of equipment, (reflecting the Group’s cautious depreciation policy) which related mainly to the disposal of radio microphones.
Net debt reduced further to £12.1m (2010: £13.7m), leaving gearing at the year end of 33% (2010: 37%).
We continue to hold our interest in a judgment issued by the US courts in favour of a subsidiary of Complete Communications Corporation Limited (“Complete”) in which the Group was formerly a shareholder. If paid in full, the Group’s share of the award, after costs but including pre-judgement interest, is estimated at approximately $60m. No credit has been taken in these accounts to reflect this award as the defendant is appealing the decision. Provision has already been made for the costs of this litigation and any additional costs are not expected to be material. We remain hopeful that the appeal will be decided in 2013.
RESULTS The Key Performance Indicators used to manage the business comprise revenue, margin, trading EBITDA, trading profit and net debt. Margin is the percentage derived by dividing the gross profit by the revenue. Trading EBITDA and trading profit are Alternative Performance Measures that better reflect our underlying trading performance by removing various non trading items from earnings before interest, taxation, depreciation and
amortisation and operating profit, respectively. The major items removed this year comprise restructuring costs of £0.7m (2010: £1.3m) and various costs related to non–recurring costs totalling £0.1m (2010: £0.5m). Last year we also excluded the amortisation of intangible assets that arose on past acquisitions (£0.2m).
Revenue for the year was £125.5m (2010: £117.2m), trading EBITDA was £20.3m (2010: £19.7m), the operating profit was £1.5m (2010: loss of £0.8m) and the trading profit was £2.3m (2010: £1.3m). After taking account of net interest costs of £1.4m (2010: £1.4m), the profit before income tax was £0.1m (2010: loss of £2.1m). The basic and diluted loss per share was 0.5p (2010: 4.2p). A final dividend of 3.0p per share (2010: 1.0p) is proposed for the year ended 30 September 2011, payable in May 2012.
The 2011 Group revenue of £125.5m (2010: £117.2m) represents an overall increase of some 7% over the previous year. However, excluding revenue in 2010 from the Vancouver Winter Olympics and the FIFA World Cup, the underlying growth rate was 15% and, if recent start-up operations are also excluded, was in fact over 18%, all building on the excellent underlying growth rate of 14% in 2010 (calculated on the latter basis).
After two years of exceptional revenue growth, the Group has considerable momentum as we go into 2012 which, of course, brings the added benefit of the London Olympics.
On the cost side, although pricing pressures continue, improved operational activities, better equipment flow and lower depreciation have contributed to a 1% margin increase, up to 34% from 33%. Despite the strong growth in revenue and the continued improvements in margin, operating expenses have only increased by 3% to £41.0m (2010: £39.8m).
Cash generation has remained a key focus, and a particularly strong working capital performance saw the Group generate £1.7m in cash after investing £18.0m (2010: £13.8m) of cash in new equipment.
As a result, year-end net debt was reduced to £12.1m (2010: £13.7m), leaving gearing at a modest 33% (2010: 37%).
DEVELOPMENT AND DIVISIONAL PERFORMANCE The 7% revenue growth for the Group was driven by Creative Technology (“CT”), which was up 17%. Revenues in Full Service and Broadcast Services were both down slightly, not least due to the absence of the “even year” events in our Broadcast Services business.
During the year we merged the operational activities of our CT businesses in the UK, Germany, Holland and the Middle East to form CT Europe. We also restructured our CT Asia Pacific operation to bring a greater focus on activities in mainland China while continuing to build on the solid foundations in CTUS. The benefits came through strongly as revenue grew to £80.5m (2010: £69.1), trading EBITDA rose to £12.2m (2010: £11.5m) and trading profits increased to £1.5m (2010: £0.8m), with margins steady at 29%.
Our Full Service Division operates in a market that is much more susceptible to short term external factors and, against a background of considerable economic uncertainty in Europe, revenue reduced slightly to £20.8m (2010: £21.9m). However, a greater focus on asset deployment and direct costs has seen margins increase to 43% (2010: 38%) and, when combined with steps taken in the previous year which significantly reduced the cost base, we have seen the division return to profitability, with a trading EBITDA of £1.7m (2010: £1.3m) and trading profits of £0.4m (2010: loss of £0.7m).
Presteigne Charter and Fountain Studios comprise our Broadcast Services Division. Last year Presteigne Charter benefited most within the Group from business related to the Vancouver Winter Olympics and the FIFA World Cup, with those two events together generating revenue of £7.4m. Despite the absence of any similar events in 2011, Presteigne’s underlying revenue grew strongly and compensated for over half of the revenue shortfall from those events. Fountain Studios had another record year leaving divisional revenues of £24.3m (2010: £26.3m). Margins were down slightly to 32% (2010: 34%) but costs were kept firmly under control, to leave trading EBITDA at £6.7m (2010: £7.9m) and trading profit at £0.8m (2010: £2.1m).
Going forward into 2012, we have every reason to feel confident about the growth momentum in the
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