Half-yearly report
Immediate Release 15 September 2008
Essentially Group Limited
("Essentially", "The Group" or "the Company")
Interim Results
Financial Highlights
* Earnings before Interest, Tax, Depreciation and Amortisation up
265% to �1,030,000 (�282,000 in the period to 30 June 2007)
* Turnover up 240% to �5,901,000 (�1,737,000 in the period to 30
June 2007)
* Profit before tax* up 224% to �749,000 (�231,000 in the period to
30 June 2007)
* Profit after tax* up 167% to �406,000 (�152,000 in the period to
30 June 2007)
* Earnings per share* up 36% to 0.30 pence (0.22 pence in the
period to 30 June 2007)
* �6.0m of new equity raised in May 2008
* Cash on the balance sheet �7.92m and a debt position of �8.86m,
with a net debt position of �4.46m taking account of funds
collected on behalf of clients
*excluding amortisation, loss on disposal and notional interest on
deferred consideration
Operational Highlights
* Acquisition of Sportseen Limited in April 2008 for a price
(including costs and net of cash acquired) of up to �9.0m for an
EBIT contribution of �1.6m in 2009
* The cricket revolution through Indian Premier League T20
continues to create revenue growth opportunities in one of our
key sports
* Acquisition of Arundel announced on 2 September 2008 for a
maximum consideration of �325,000
* Contracts in place with regards to key sporting events in 2009
including Ashes, IPL T20, Lions Tour, and IRB Rugby World Cup 7's
* Opening of an office in Japan developing both sports marketing
and athlete management presence in relation to rugby related
opportunities
* Successful integration of acquisitions bringing cross selling
benefits across the Group
* Launch of a memorabilia business, leveraging relationships in
Rugby, Cricket & F1
* Two key hires in hospitality sales to support event creation and
ownership strategy
* Plans finalised to open an office in Dubai in early 2009,
co-ordinating with the Rugby World Cup 7's
Outlook
* Attractive growth rates in the sports industry in general and in
the underlying sports in which Essentially is focused - cricket,
rugby union, and F1
* 2009 is a very exciting year for our chosen sports:
* The ashes will be played in the UK
* IRB 7's World Cup in Dubai
* Lions' tour to South Africa
* ICC Twenty 20 World Cup in England
* Continued expansion of the F1 season
* Strong finish to 2008 with Autumn rugby internationals and
resulting revenues, IRB and PCA events, and IPL related activity
* Board confident in Essentially's delivery of market expectations
and strength of its strategy for 2008, 2009 and beyond
Commenting on the interim results Bart Campbell, CEO of Essentially,
stated:
"Following a transformational year last year, trading of the enlarged
group is very satisfactory. We have continued to broaden our
services to our clients in our core growth sports, whilst maintaining
strong organic growth across the Group"
For further information please visit www.essentiallygroup.com or
contact:
Essentially Group Ltd. Tel: +44 (0)20 7820 7000
John Byfield / Bart Campbell
Cenkos Securities Ltd Tel +44 (0) 207 397 8900
Ivonne Cantu/Beth McKiernen
Buchanan Communications Tel +44 (0) 207 466 5000
Bobby Morse / Susanna Gale /
Christian Goodbody
Attached: Chairman's Statement
Chief Executive's Review
Consolidated Interim Income Statement
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the consolidated interim financial statements
Chairman's Statement
I am pleased to present these interim results which show the
continuing growth of Essentially Group Limited ("Essentially" or "the
Group"). Part of this growth has come from the acquisitions made in
July 2007; however, the underlying businesses have also demonstrated
good revenue and profit growth. In addition we currently have strong
revenue visibility for future years with significant contracted
revenue for the next three years. These revenues are spread across
the increasingly commercialised sports of cricket, rugby union, and
Formula 1, and across all the countries in which we operate: UK &
Ireland, New Zealand, Australia, India, South Africa and Japan.
In April we acquired Sportseen Limited ("Sportseen"), the leading UK
rugby perimeter sales business which continued our strategy of both
widening and deepening our representation in our core sports of rugby
union, cricket and F1 as well as smoothing our profit cycle.
Sportseen offer both static and LED boards to its clients for all
international rugby in the UK and we expect the business to
contribute fully in the second half of the year.
As noted in our annual statement, we continue to benefit from the
emergence of the Indian Premier League ("IPL") through our Athlete
Management Division which placed just over 40% of the overseas
players for the competition on three year contracts. We are working
further with the IPL to grow the revenues generated by our business
as we look at a broader range of commercial relationships, such as
sponsorships, perimeter boards, and the ACS blimp broadcast tool.
The interim results are in line with our forecasts and the board
remains confident that the full year will be in line with market
expectations.
Acquisitions
Sportseen became part of the Essentially group in April 2008 and it
has begun to work closely with other members of the Sports Marketing
Division on both rights that we currently have and in acquiring new
rights. As expected, Sportseen's contribution to our interims was
small, as its major revenue period was prior to acquisition. It has
now started to contract perimeter boards for the autumn and 6 nations
rugby internationals and premiership football season. We hold these
rights to offer perimeter boards under long term contracts which
range from 2011 to 2014. Sportseen's addition to our Sports
Marketing Division gives us the flexibility to market these rights
both strategically and tactically, which will increase revenues for
the rights holders and ourselves. It also gives us access to
Premier League Football perimeter boards which we previously had to
acquire for our clients through third parties, thus enhancing our
margins across the group on this activity.
Progress
In May 2008 we successfully raised just over �6 million by way of a
placing of ordinary shares. This allowed us to make the acquisition
of Sportseen without significant recourse to our debt facility. The
fundraising was an endorsement from our shareholders, existing and
new, of our growth to date and our prospects for the future. At the
time of our final results the board welcomed the addition of Matt
Vandrau, as New Business Director, and Tim Berg, as the new Chief
Financial Officer. Dwight Mighty moved simultaneously from Chief
Financial Officer to Chief Operating Officer. Matt and Tim add
excellent market knowledge and experience to the Board, and the new
structure will serve us well as we continue to grow.
We have also invested in our financial infrastructure to ensure that
this growth is managed properly and we continue to provide good
financial and management reporting across the group.
Results
Our results for the six months ended 30 June 2008 are summarised
below:
Unaudited Unaudited Audited
6 months 6 months 12 months
June 2008 June 2007 Dec 2007
�000's �000's �000's
Revenues 5,901 1,737 9,209
Contribution before
central costs 1,312 647 2,869
Central costs (351) (399) (665)
Earnings before
interest, tax and
amortisation of
intangibles 961 248 2,204
Interest (212) (17) (153)
Profit before tax and
amortisation of
intangibles 749 231 2,051
Tax (343) (79) (475)
Profit after tax and
before amortisation and
notional interest and
discontinued
operations 406 152 1,576
Amortisation of
intangible assets (611) (299) (762)
Notional interest for
deferred consideration
under
IFRS (261) (494) (964)
Loss on disposal of
operation - - (2)
Loss on discontinued
operation - - (305)
Deferred tax on
amortisation of
intangible assets 183 89 229
(Loss) after tax (283) (552) (228)
Underlying earnings per
share * 0.30 0.22 1.74
Basic EPS (0.21) (0.82) (0.25)
Weighted average number
of shares 135,212,306 67,346,066 90,329,844
* Before amortisation of intangible assets and associated taxation,
loss on discontinued operations and notional interest on deferred
consideration
The financial information is presented in accordance with
International Financial Reporting Standards ("IFRS"). The interim
financial information for the period to 30 June 2007 has been
restated to reflect the notional interest on deferred consideration.
Our results for the six months ended 30 June 2008 show a growth in
turnover of 240% (from �1.74m in the six months to 30 June 2007 to
�5.90m in the six months to 30 June 2008) and a corresponding
increase in gross profit of 146% to �3.91m over the same period,
reflecting the impact of the acquisitions in July 2007. Profit before
tax, amortisation, and notional interest increased by 224% to
�749,000 and the impact of our acquisitions and organic growth are
reflected in the increase in our first half earnings per share to
0.30p from 0.22p - an increase of 36%.
In the second half of 2007 (as reported in our 2007 financial
statements) the Group delivered �1.8m of Profit before tax. The
combination of our results to 30 June 2008, the organic growth since
2007, and the impact of the acquisition of Sportseen, who will
contribute fully in the second half of the year, underpin our belief
that we will meet market expectations for the full financial year.
Dividend
We are not paying an interim dividend. It is the intention of the
Board to review this position at the year end.
Outlook
2008 has so far been another significant year for our Company in its
growth and we believe that there is more that can be done to build
and enhance the Group for the benefits of all stakeholders.
We remain confident of meeting market expectations despite the
economic environment. The quality of the properties and clients
represented by a business have become more important in this climate.
Our focus on sports with increasing commercial potential and our
exposure to higher growth emerging markets, coupled with our long
term contracts and high earnings visibility, means we are well placed
to continue to deliver. We continue to look forward to our year end
with confidence.
The outlook can best be summarised by Giles Morgan, Head of
Sponsorship for HSBC Holdings :
"Our brand is very important to us and when consumer confidence is
low, getting behind the brand is key..In the past, sponsorship has
taken a hit but we won't see that. In addition, HSBC is making money
and has a diversity of assets. The USA has been a tough place, ..If
this (slowdown) continues as it is predicted, such a major slowdown
will spread through marketing. But my sense both in-house and from
the client-side, is that sponsorship will be more robust than
advertising. Sponsorships is a long-term relationship and can't just
be withdrawn in a knee-jerk reaction. So you may not see mass
withdrawals: sponsorship engages customers, it's important for brand
loyalty and acquiring new customers. As a marketing tool sponsorship
is far more understood now and far more of an applied science."
(Sports Business International August 2008)
The 2009 calendar year covers the Lions tour to South Africa, the
International Rugby Board ('IRB') RWC 7's in Dubai, The Ashes, The
International Cricket Council ('ICC') Twenty 20 World Cup, an
expanded F1 calendar and preparations for the launch of the English
Premier League ("EPL") Twenty 20. As a group we have a role to play
in these global events which afford the board optimism on our
positioning and performance for this year and beyond.
John Byfield
Chairman
15 September 2008
Chief Executive's Review
Operational highlights and Outlook
* We continue our core focus of influencing all commercial areas of
the business of rugby union, cricket and F1;
* We have successfully integrated Motorsport, Accelerate (acquired
in September 2006) and Frontiers (acquired July 2007) into a
single division within Sports Marketing;
* Sportseen, acquired in April, with the perimeter boards to all
international rugby in the UK at Twickenham, Millennium Stadium
and Murrayfield has become part of our Sports Marketing Division
and its integration will be complete by the end of the year with
their move to our main London office;
* The group now has approximately 110 people internationally,
compared to 85 this time last year;
* The business is still second half weighted, but less so than last
year and we expected this to reduce further next year with a full
year contribution from Sportseen;
* We had a successful �6m placing, which was supported by our
shareholders as well as six new blue chip institutions;
* We continue to invest in the underlying business and have
established a memorabilia unit and supported our events business
by adding a hospitality sales unit, both of which provide us with
the opportunity to further deepen our relationships with our
client base;
* 40% of the Group's revenues are sourced and provided by
opportunities outside of the UK; and
* The strategic acquisition of Arundel, announced on 2 September,
ensures we remain well placed as a group to benefit from the
ongoing transformation of cricket, utilising the skills and
relationships of Alec Stewart OBE and Alan Smith across the
business.
Operating Review
We have assembled a strategic portfolio of companies, with distinct
areas of market leadership, strong areas of synergy and, as stated
earlier, a good degree of visibility of earnings. We have
reorganised these businesses into three operating divisions:
* Sports Marketing;
* Athlete Management; and
* Professional Services.
Sports Marketing
Our Sports Marketing Division contributes just under 70% of Group
contribution. The business operates on a global basis with offices in
the UK, Jersey, South Africa, New Zealand, Australia, Japan and
India.
The global sports market, in which we participate, is now worth $103
billion. This market is forecast to grow to $141 billion by 2012.
Our key markets of Europe, Africa and Asia Pacific are forecast to
grow strongly over this period with the global market growing at 6.5%
compound per annum. The UK Sports industry grew 23% between 2006-2007
and is expected to grow from $10.2 billion in 2007 to $15.8 billion
in 2012, representing annual growth of 9.1% per annum. (source: TV
Sports Markets, June 20 2008 p.19 - quoting Price Waterhouse Coopers
report)
Cricket
* We have exclusive rights to perimeter marketing at the test match
grounds in the UK. 2009 is an Ashes year and in 2011 India will
play in the UK. These provide good indicators of future growth
for us. In addition, a significant proportion of 2009 perimeter
sales are already contracted; and
* The first IPL competition was a success and during the
competition its official website had some 50 million hits. This
has had a knock on effect on several levels, including the rights
holders and franchisees seeking to maximise the revenue generated
by the competition and ripple effect into English cricket,
including the EPL Twenty 20 from 2010 and the Stanford 20/20
later this year.
Rugby
* We are the exclusive commercial agents for the Lions Tour to
South Africa in 2009 and are retained to secure sponsor partners
for the tour, so far we have delivered HSBC, Cape Wines and
Guinness with more deals to be announced shortly. In addition,
we will be looking to provide a "rolling" fan village for the
tour; and
* We are the commercial agent for the IRB 7's Rugby World Cup in
Dubai for 2009 and again we are responsible for securing
sponsorship partners. Emirates, Mitsubishi, Heineken and
Gullivers have all been secured.
F1
* We currently have an event and marketing partnership with Renault
F1, who completed a street race in late July this year in
Sandton, Johannesburg. This was a deal that Essentially Group
brokered with the Gauteng Provincial Government with potential
for extension; and
* Our F1 team are currently widening its F1 relationships in order
that we represent other teams and events, including Red Bull
Racing and the Red Bull air race.
Other
* Our business continues to grow in the non-sporting arena and we
continue to work closely with key clients such as National Trust,
Cirque du Soleil, SAB Miller and The Laureus Foundation across a
range of activities.
Athlete Management
Athlete Management provides just under 25% of annual contribution.
It is a global business with offices in the UK, South Africa, New
Zealand, Australia, Japan and India and currently represents over 10%
more players more than this time last year. The global sports market
is growing, including television rights which underpin our athletes'
salaries. The explosion of media outlets has provided strong growth
to media rights values. These increased revenues all have a knock on
effect on player salaries as they cascade down to clubs, with huge
wage inflation driving growth in our athlete management business.
Rugby
We represent over 300 clients who play in the UK, New Zealand, Japan,
South Africa, France and Italy. In May we opened a full time office
in Japan, which has been a strong market as it has over 20 teams who
are all affiliated to major blue chip Japanese corporates. We have
to date represented overseas players entering this market, but have
seen a growing opportunity to represent local players. We typically
contract our clients on a three year term which gives us good forward
revenue visibility. Player salaries continue to rise, for example the
Guinness Premiership salary cap has increased to �4.1m for 2008/9
compared to �2.3m last season.
Cricket
We represent over 200 cricketers globally and we were successful in
placing just over 40% of the IPL overseas players on three year
contracts, again providing good revenue visibility. In 2010 two
additional teams are expected to be added to the competition. The
success of the IPL has meant a review of the English game and the
outline of a new EPL for 2010 and the creation of the Stanford
20/20. All of these additional revenues will flow into players'
earnings in addition to providing growth opportunities in other areas
of the business.
Professional Services
Professional Services represents just over 5% of contribution. The
division has continued its investment in people in the first half,
increasing its headcount by 40%, which will drive profit growth in
the second half and beyond. On a like for like basis for the first
six months of 2008 revenues have increased by 28% on the same period
for 2007.
Group Costs
Group costs were �351,000, and represent a continued investment in
central support functions as well as the enlarged board, offset by
the benefits of relocating to a single building. These costs are in
line with expectation. As the group grows we will continue to invest
in the group's infrastructure to ensure continued timely and
effective reporting across the business and efficient cost
management.
Key Financial indicators
In our Annual Report for 2007 we set out some Financial Key
Performance Indicators which we use to assess the performance of the
Group. In relation to the current period these can be summarised as
follows:
* Earnings per share has increased 36% to 0.30 pence per share;
* Our Gross Profit has increased by 146% over the same period last
year - reflecting the impact of the acquisitions in July 2007;
* The ratio of Earnings before interest, tax and amortisation as a
percentage of Gross Profit has increased from 15.6% to 24.6% -
reflecting the increased proportion of our profit available after
the indirect costs of the business;
* Net cash inflow from operating activities is �455,000 (adjusted
for the element of cash collected by the Sports Marketing
business which is then distributed to clients in the second half
of the year) as against a cash outflow of �511,000 for the same
period last year.
Each of these provides an indication of the growing strength of the
business.
Outlook
The underlying sports market in which we operate continues to grow,
especially those in which we are most closely involved - cricket,
rugby union, and F1. We shall benefit in this growth as well as the
operational upside we are realising as a larger integrated business.
2009 is a very exciting year for the sports that we operate in:
* The ashes will be played in the UK - we hold the rights to all
the perimeter boards at the cricket test match grounds;
* The IRB 7's World competition in Dubai - we are commercial agents
for this competition;
* The Lions' Tour to South Africa - we are commercial agents;
* ICC Twenty 20 World Cup is being played in the UK; and
* The continued expansion of the F1 season, now worth $4.7 billion
(source: Formula Money report, August 2008)
That Essentially Group is participating in these global events gives
us the confidence not only in our financial performance but our
strategy for 2008, 2009 and beyond.
Bart Campbell
Chief Executive
15 September 2008
Consolidated Interim Income Statement
Unaudited Unaudited Audited
6 months 6 months Year to
to 30 June to 30 June 31 December
2008 2007 2007
�'000 �'000 �'000
Note
Revenue 3 5,901 1,737 9,209
Cost of sales (1,993) (148) (3,629)
-------------- -------------- --------------
Gross profit 3,908 1,589 5,580
Administrative (1,640)
costs (3,558) (4,139)
-------------- -------------- --------------
Operating Profit 350 (51) 1,441
Earnings from
continuing
operations before
interest, tax,
amortisation and
loss on
discontinued
operations 961 248 2,204
Interest charged (537) (511) (1,186)
Interest Received 64 - 69
-------------- -------------- -------------
Profit (Loss) (562)
before tax from
continuing
operations (123) 324
Income tax expense (160) 10 (246)
Loss on -
discontinued
operation - (2)
Loss on disposal of -
discontinued
operation - (305)
-------------- -------------- -------------
Loss for the period (283) (552) (229)
======== ========= ========
Earnings / (Loss)
per share :
Basic and fully
diluted earnings
per share from
continuing
operations 4 (0.21) (0.82) 0.09
======== ======== ========
Basic and fully
diluted earnings
per share 4 (0.21) (0.82) (0.25)
======== ======== ========
The results for the six months ended 30 June 2007 have been restated
as set out in Note 9.
Consolidated Balance Sheet
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
Note �'000 �'000 �'000
ASSETS
Non-current assets
Property, plant and 126 422
equipment 459
Goodwill 6 25,908 7,687 20,063
Other intangible 1,810 2,225
assets 7,169
-------------- -------------- --------------
33,536 9,623 22,710
-------------- -------------- --------------
Current assets
Inventories 120 79 137
Trade and other 2,753 5,937
receivables 7,992
Cash and cash 211 2,002
equivalents 7,919
-------------- -------------- --------------
16,031 3,043 8,076
-------------- -------------- --------------
Total assets 49,567 12,666 30,786
-------------- -------------- --------------
LIABILITIES
Current liabilities
Trade and other 1,205 3,830
payables 8,945
Short-term 337 1,256
borrowings 977
Current portion of 2,100 1,406
long-term earnout
creditor 8 3,960
Current tax payable 1,303 475 1,195
-------------- -------------- --------------
15,185 4,117 7,687
-------------- -------------- --------------
Non-current
liabilities
Long-term earn out 4,189 6,076
creditor 8 4,487
Long term 22 4,945
borrowings 7,880
Other long term - 2
creditor -
Deferred tax 520 616
liabilities 2,176
-------------- -------------- --------------
Total non-current 11,639
liabilities 14,543 4,731
-------------- -------------- --------------
Total liabilities 29,728 8,848 19,326
-------------- -------------- --------------
Net assets 19,839 3,818 11,460
========= ========= =========
Equity attributable
to equity holders
of the parent
Share capital 5 196 67 120
Share premium 3,300 10,612
account 17,300
Merger reserve 3,230 1,143 1,743
Shares held (433) - (433)
Profit and loss (692) (582)
account (454)
-------------- -------------- --------------
Total equity 19,839 3,818 11,460
========= ========= =========
The balance sheets at 30 June 2007 and 31 December 2007 have been
restated as set out in Note 9.
Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months Year to
to 30 June 2008 to 30 June 2007 31 December 2007
�'000 �'000 �'000
Cash flows from
operating
activities
Loss after (552)
taxation (283) (229)
Adjustments for:
Depreciation 69 34 57
Amortisation of 299
intangibles 611 762
Loss on disposal -
of property, plant
and equipment - 59
Loss on disposal -
of subsidiary
company - 305
Foreign exchange -
gain (33) -
Investment -
income (64) (69)
Interest expense 537 511 1,186
Taxation expense (10)
recognised in
profit and loss 160 247
Decrease (17)
(Increase) in
inventories 17 (74)
Increase in (970)
trade and other
receivables (902) (1,499)
Increase 195
(Decrease) in
trade payables 3,863 (2,471)
-------------- -------------- --------------
Cash generated
from (absorbed by)
operations 3,975 (510) (1,726)
Interest paid (242) (17) (221)
Income taxes paid (500) 5 (187)
-------------- -------------- --------------
Net cash generated
from (absorbed by)
operating
activities 3,233 (522) (2,134)
-------------- -------------- --------------
Cash flows from
investing
activities
Acquisition of -
subsidiaries net
of cash acquired (3,158) (3,820)
Transaction costs -
in relation to
acquisition of
subsidiaries (384) (1,289)
Payment of long -
term earn-out
creditor (2,086) (2,277)
Net (Purchase) / (39)
sale of equipment (64) (343)
Interest received 64 - 68
Purchase of -
intangible assets - (178)
-------------- -------------- --------------
Net cash generated
by investing
activities (5,628) (39) (7,839)
-------------- -------------- --------------
Cash flows from
financing
activities
Proceeds from 333
issue of share
capital 5,656 5,733
Proceeds from
long-term
borrowings 3,084 6,314
Payment of finance (6)
lease liabilities - (15)
Repayment of
long-term
borrowings (428) (214)
-------------- -------------- --------------
Net cash generated
by financing
activities 8,312 327 11,818
-------------- -------------- --------------
Net increase
(decrease) in cash
and cash
equivalents 5,917 (234) 1,845
Cash and cash
equivalents at
beginning of
period 2,002 108 157
-------------- -------------- --------------
Cash and cash
equivalents at end
of period 7,919 (126) 2,002
========= ========= =========
Consolidated Statement of Changes in Equity
Share Profit Total
Share premium Merger Shares and loss Parent Minority Total
capital account reserve Held account Equity interest equity
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Restated 64 2,744 1,143 - (138) 3,813 5 3,818
Balance at
1 January
2007 (See
note 9)
Changes in
equity for
2007
Exchange
difference
on
translation
of foreign
operation - - - - (207) (207) - (207)
-------- -------- -------- -------- -------- -------- -------- --------
Net income - - - - (207) (207) - (207)
recognised
directly in
equity
(Loss) for - - - - (229) (229) - (229)
the period
-------- -------- -------- -------- -------- -------- -------- --------
Total - - - - (229) (229) - (229)
recognised
income and
expense for
the period
Issue of 56 7,868 600 - - 8,524 - 8,524
share
capital
Transfer - - - - (8) (8) (5) (13)
from other
reserves
Purchase of - - - (433) - (433) - (433)
shares held
-------- -------- -------- -------- -------- -------- -------- --------
Balance at 120 10,612 1,743 (433) (582) 11,460 - 11,460
31 December
2007
Changes in
equity for
first half
of 2008
Exchange - - - - 411 411 - 411
difference
on
translation
of foreign
operations
-------- -------- -------- -------- -------- -------- -------- --------
Net income - - - - 411 411 - 411
recognised
directly in
equity
(Loss) for - - (283) (283) - (283)
the period - -
-------- -------- -------- -------- -------- -------- -------- --------
Total - - - - (283) (283) - (283)
recognised
income and
expense for
the period
Issue of 1,487 - - 8,251 - 8,251
share
capital 76 6,688
-------- -------- -------- -------- -------- -------- -------- --------
Balance at 196 17,300 3,230 (433) (454) 19,839 - 19,839
30 June
2008
===== ===== ===== ===== ===== ===== ===== =====
Restated 64 2,744 1,143 - (138) 3,813 5 3,818
Balance at
1 January
2007 (See
above)
-------- -------- -------- -------- -------- -------- -------- --------
Changes in
equity for
first half
of 2007
Exchange
difference
on
translation
of foreign
operations - - - - (2) (2) - (2)
-------- -------- -------- -------- -------- -------- -------- --------
Net income - - - - (2) (2) - (2)
recognised
directly in
equity
(Loss) for - - (552) (552) - (552)
the period - -
-------- -------- -------- -------- -------- -------- -------- --------
Total - - - - (552) (552) - (552)
recognised
income and
expense for
the period
Transfer - - - - (5) (5)
from other
reserves - -
Issue of - - - 559 - 559
share
capital 3 556
-------- -------- -------- -------- -------- -------- -------- --------
Balance at 67 3,300 1,143 - (692) 3,818 - 3,818
30 June
2007
===== ===== ===== ===== ===== ===== ===== =====
Notes to the condensed consolidated interim financial statements
1 Nature of operations and general information
Essentially Group Limited is the Group's ultimate parent company. It
is incorporated and domiciled in Jersey. Essentially Group Limited's
shares are listed on the Alternative Investment Market of the London
Stock Exchange.
Essentially Group's consolidated financial statements are presented
in Pounds Sterling (�), which is also the functional currency of the
parent company.
2 Summary of significant accounting policies
The significant accounting policies shown below are extracted from
the full policies as detailed in the annual report and financial
statements for the year ended 31 December 2007.
Basis of consolidation
The group financial statements consolidate those of the company and
all of its subsidiary undertakings drawn up to 30 June 2008.
Subsidiaries are entities over which the group has the power to
control the financial and operating policies so as to obtain benefits
from its activities. The group obtains and exercises control through
voting rights.
Unrealised gains on transactions between the group and its
subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the
asset transferred. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure consistency
with the accounting policies adopted by the group.
Acquisitions of subsidiaries are dealt with by the purchase method.
The purchase method involves the recognition at fair value of all
identifiable assets and liabilities, including contingent liabilities
of the subsidiary, at the acquisition date, regardless of whether or
not they were recorded in the financial statements of the subsidiary
prior to acquisition. On initial recognition, the assets and
liabilities of the subsidiary are included in the consolidated
balance sheet at their fair values, which are also used as the bases
for subsequent measurement in accordance with the group accounting
policies. Goodwill is stated after separating out identifiable
intangible assets. Goodwill represents the excess of acquisition
cost over the fair value of the group's share of the identifiable net
assets of the acquired subsidiary at the date of acquisition.
Business combinations completed prior to date of transition to IFRS
The group has elected not to apply IFRS 3 Business Combinations
retrospectively to business combinations prior to 1 January 2006.
Accordingly the classification of the combination (acquisition,
reverse acquisition or merger) remains unchanged from that used under
UK GAAP. Assets and liabilities are recognised at date of transition
if they would be recognised under IFRS, and are measured using their
UK GAAP carrying amount immediately post-acquisition as deemed cost
under IFRS, unless IFRS requires fair value measurement. Deferred
tax and minority interest are adjusted for the impact of any
consequential adjustments after taking advantage of the transitional
provisions.
The transitional provisions used for past business combinations apply
equally to past acquisitions of interests in associates and joint
ventures.
Goodwill
Goodwill representing the excess of the cost of acquisition over the
fair value of the group's share of the identifiable net assets
acquired, is capitalised and reviewed annually for impairment.
Goodwill is carried at cost less accumulated impairment losses.
Goodwill written off to reserves prior to date of transition to IFRS
remains in reserves. There is no re-instatement of goodwill that was
amortised prior to transition to IFRS. Goodwill previously written
off to reserves is not written back to profit or loss on subsequent
disposal.
Revenue
Revenue is measured as the fair value of the consideration received
or receivable and comprises the gross amounts billed to clients in
respect of fees earned, expenses recharged, and commission based
income and is stated exclusive of VAT and other sales taxes. Revenue
is recognised within each of the business segments as follows:
Sports Marketing revenue is recognised when the services are
performed in accordance with the contractual arrangements. Where
revenue is generated under retainer arrangements then revenue is
recognised in line with the invoicing of the periodic retainer.
Revenue from events is recognised on performance of services in
accordance with contractual arrangements. Commission for the sale of
media space is recognised when the media space is delivered to the
client.
Notes to the condensed consolidated interim financial statements
continued
2 Summary of significant accounting policies (continued)
Athletes Management represents commission and other income recognised
in line with the provision of relevant services under the terms of
the contract.
Professional Services revenue is earned on the basis of the amounts
charged to clients during the period for work undertaken. This
includes an estimate of the value of work completed prior to the
balance sheet date not yet invoiced.
Intangible Assets
Assets acquired as part of a business combination
In accordance with IFRS 3 Business Combinations, an intangible asset
acquired in a business combination is deemed to have a cost to the
group of its fair value at the acquisition date. The fair value of
the intangible asset reflects market expectations about the
probability that the future economic benefits embodied in the asset
will flow to the group. Where an intangible asset might be
separable, but only together with a related tangible or intangible
asset, the group of assets is recognised as a single asset separately
from goodwill where the individual fair values of the assets in the
group are not reliably measurable. Where the individual fair value
of the complementary assets are reliably measurable, the group
recognises them as a single asset provided they have similar useful
lives.
Customer Contracts
Customer contracts are valued by discounting the expected cash
generated (after deducting associated costs) over the life of the
contracts. The resultant value is then amortised over the life of
the contract, generally up to seven years.
Other intangible assets
Other intangible assets, which comprises intellectual property
created by the Group which is capable of exploitation over a series
of future events, is amortised over those anticipated events - such
period of amortisation not to exceed five years. The expenditure
included needs to be separately identifiable and the Directors
evaluate the anticipated value on the basis of event schedules,
expressions of interest, and current negotiations. As part of this
evaluation the Directors will take into account future revenues and
expenses in evaluating the likely long term economic benefits to
the Group.
Impairment testing of goodwill, other intangible assets and property,
plant and equipment
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash
flows (cash-generating units). As a result, some assets are tested
individually for impairment and some are tested at cash-generating
unit level. Goodwill is allocated to those cash-generating units
that are expected to benefit from synergies of the related business
combination and represent the lowest level within the group at which
management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that
include goodwill, other intangible assets with an indefinite useful
life, and those intangible assets not yet available for use are
tested for impairment at least annually. All other individual assets
or cash-generating units are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognised for the amount by which the asset's
or cash-generating unit's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of fair value,
reflecting market conditions less costs to sell, and value in use
based on an internal discounted cash flow evaluation. Impairment
losses recognised for cash-generating units, to which goodwill has
been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the
other assets in the cash generating unit. With the exception of
goodwill, all assets are subsequently reassessed for indications that
an impairment loss previously recognised may no longer exist.
Foreign currencies
Transactions in foreign currencies are translated at the exchange
rate ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated at the rates of
exchange ruling at the balance sheet date. Non-monetary items that
are measured at historical cost in a foreign currency are translated
at the exchange rate at the date of the transaction.
The results of overseas operations are translated at the average
rates of exchange during the year and their balance sheets at the
rates ruling at the balance sheet date.
The exchange differences arising form the retranslation of the
opening net investment in subsidiaries are taken directly to equity.
On disposal of a foreign operation the cumulative translation
differences (including, if applicable, gains and losses on related
hedges) are transferred to the income statement as part of the gain
or loss on disposal.
The Group has elected not to apply IAS 21: The Effects of Changes in
Foreign Exchange Rates on foreign operations acquired prior to the
date of transition to IFRS. The cumulative translation differences
for all foreign operations are deemed to be zero at the date of
transition to IFRS.
Notes to the condensed consolidated interim financial statements
continued
3 Segment analysis
The revenues and net result generated by each of Essentially Group
Limited's business segments are summarised as follows:
Sports Athlete Prof Media Group Total
Marketing Manage -essional (dis-continued)
-ment Services
�'000 �'000 �'000 �'000 �'000
6 months to
30 June
2008
Revenue 3,004 2,490 407 - - 5,901
Profit 648 1,268 67 - (2,106) (123)
(loss)
before tax
6 months to
30 June
2007
Revenue 160 1,243 317 17 - 1,737
Profit (154) 719 84 (2) (1,209) (562)
(loss)
before tax
Year ended
31 December
2007
Revenue 5,363 3,206 640 - - 9,209
Profit 1,388 1,163 318 (2) (2,543) 324
(loss)
before tax
The revenues and net result generated by each of Essentially Group
Limited's regional areas are summarised as follows:
UK/ Austral- Rest of Total
Europe asia the
World
�'000 �'000 �'000 �'000
6 months to 30 June 2008
Revenue 4,643 1,080 178 5,901
Profit (loss) before tax (722) 628 (29) (123)
6 months to 30 June 2007
Revenue 1,325 367 45 1,737
Profit (loss) before tax (729) 239 (72) (562)
Year ended 31 December 2007
Revenue 7,842 809 558 9,209
Profit (loss) before tax (105) 287 142 324
Amortisation relating to customer contracts acquired and to the
discount on deferred consideration are included above as a Group cost
and are included as relating to the UK and Europe activity.
Notes to the condensed consolidated interim financial statements
continued
4 Earnings per share
The calculation of the basic earnings per share is based on the
earnings attributable to ordinary shareholders divided by the
weighted average number of shares in issue during the period.
The calculation of diluted earnings per share is based on the basic
earnings per share, adjusted to allow for the issue of shares and the
post tax effect of dividends and/or interest, on the assumed
conversion of all dilutive options and other dilutive potential
ordinary shares.
Reconciliations of the earnings and weighted average number of shares
used in the calculations are set out below
6 months 6 months Year to
to 30 June to 30 June 31 December
2008 2007 2007
Earnings before interest, tax,
amortisation, and
discontinued operations 961 248 2,204
Interest (212) (17) (153)
Profit before Tax, amortisation
and notional interest 749 231 2,051
Tax (343) (79) (475)
Profit After Tax and before
amortisation, notional
interest and discontinued ops 406 152 1,576
Deferred Tax on intangible
amortisation 183 89 229
Notional interest for deferred
consideration under
IFRS (261) (494) (964)
Amortisation of Intangibles (611) (299) (763)
Profit After Tax on Continuing
Operations (283) (552) 78
Discounted operations - - (307)
(Loss)/ Profit After Tax (283) (552) (229)
Weighted Average no shares 135,212,306 67,346,066 90,329,844
Earnings per share on continuing
operations before 1.74
amortisation of Intangibles and
notional interest (pence) 0.30 0.22
Earning per share on continuing
operations (pence) (0.21) (0.82) 0.09
Basic and fully diluted earning
per share (pence) (0.21) (0.82) (0.25)
Share options currently in issue are anti-dilutive and therefore do
not impact EPS.
5 Share issue
During the period to 30 June 2008, 53,511,340 shares were issued by
way of placing, generating cash proceeds of �6,020,000 (before
expenses of �364,000). In addition 12,904,072 shares were issued in
connection with the acquisition of Sportseen Limited and a further
10,148,238 shares to satisfy contractual earn out liabilities.
Shares issued and authorised for the period to 30 June 2008 may be
summarised as follows:
Six months to 30 June 2008
Number �'000
At 1 January 2008 119,827,289 120
Issue of shares 76,563,650 76
---------- ----------
At 30 June 2008 196,390,939 196
========== ==========
Notes to the condensed consolidated interim financial statements
continued
5 Share issue (continued)
Six months to 30 June 2007
Number �'000
At 1 January 2007 63,902,000 64
Issue of shares 3,629,000 3
---------- ----------
At 30 June 2007 67,531,000 67
========== ==========
Year to 31 December 2007
Number �'000
At 1 January 2007 63,902,000 64
Issue of shares 55,925,289 56
---------- ----------
At 31 December 2007 119,827,289 120
========== ==========
6 Acquisitions and Goodwill
Acquisitions
The following table sets out the book values of the identifiable
assets and liabilities acquired and their fair value to the Group:
Sportseen
Limited
�'000
Purchase Consideration (including deferred
consideration)
Cash consideration including transaction costs 6,782
Share consideration 2,700
Transaction costs 285
----------
Total Consideration 9,767
Less: Fair value of net assets acquired (458)
Amounts Allocated to Intangibles re customer contracts (5,558)
----------
Residual Goodwill
3,751
==========
Net Assets acquired
Fixed assets
Tangible Assets 42
Current assets
Debtors 1,153
Cash at bank and in hand 824
Creditors due within one year (1,561)
----------
Total Net Assets 458
==========
Notes to the condensed consolidated interim financial statements
continued
6 Acquisitions and Goodwill (continued)
Sportseen Limited.
On 28 April 2008 the Board acquired Sportseen, a business selling
static and LED perimeter boards through exclusive contracts with the
Rugby Football Union, Welsh Rugby Football Union and Scottish Rugby
Football Union for Twickenham, the Millennium Stadium and Murrayfield
respectively. In addition, Sportseen has the rights to sell perimeter
board advertising for a number of Premier League football clubs and
also has the rights to sell perimeter advertising for several
individual European and international football games.
The aggregate consideration is up to approximately �9.482 million,
summarised as follows:
* The initial consideration as set out below;
* The first earn out payment of �2 million in June 2008 as set out
below;
* a further �0.7 million based on EBIT performance target for the
year ending 31 December 2008, comprising �0.5 million in cash and
�0.2m in new ordinary shares, issued at the price prevailing in
the market at the due date of payment; and
* a further �1.3 million based on EBIT performance target for the
year ending 31 December 2009, comprising �0.9 million in cash and
�0.4m in new ordinary shares, issued at the price prevailing in
the market at the due date of payment;
Financing of the Acquisition
The aggregate initial consideration for the acquisition, which was
approximately �5.482 million, was satisfied as follows:
* �1.5 million by the issue of 12,904,072 ordinary shares as
consideration for the acquisitions
* �3.982 million from debt facilities
A further payment was made in June 2008, in relation to the first
earn out payment, comprising �1.4 million of cash and the issue of
5,300,353 ordinary shares representing �600,000.
Goodwill
Goodwill at 30 June 2008 can be attributed to the respective business
units as follows:
30 June 2008 30 June 2007 31 December
2007
�'000 �'000 �'000
Sports Marketing 19,081 2,938 13,352
Athlete Management 6,029 3,393 5,993
Professional Services 798 711 718
Media services (discontinued) - 645 -
---------- ---------- ----------
25,908 7,687 20,063
========== ========== ==========
Goodwill in each of these business units comprises:
The Sports Marketing division, which principally comprises Accelerate
Sport and Music Limited (acquired in 2006), Frontiers Group (UK)
Limited (acquired in 2007) and Sportseen Limited (acquired April
2008) have a long established reputation for the provision of value
added services to brands seeking to enhance their profile in both a
sporting and non-sporting context. In addition it has established a
number of key relationships with governing bodies, professional
associations, and influencers in the sporting and non-sporting arena.
It is not possible to attribute value directly to each of these
relationships or the reputation, as it is, in the Directors' opinion,
these factors acting in concert that contribute to the overall value
of the Accelerate and Frontiers businesses.
The Athletes Management division, which principally comprises Global
Sports Management Limited (acquired in 2005) and Athletes 1 Sports
Limited (acquired in 2007) has a long standing reputation with the
clubs, playing staff, players and professional bodies within cricket
and rugby. Each of these relationships provide new opportunities for
revenue generation, however it is not possible to identify separately
which of these relationships contributes to the each piece of new
business and, in the Directors' opinion, it is not any one factor
that drives the growth of the business unit.
The Professional Services division, which principally comprises
Accounts 8 Limited (acquired in 2006), has an established network of
referrers of revenue generating opportunities which includes
professional advisers, bankers, entrepreneurs, and existing clients.
It is not possible to separately identify the value of each of these
sources to the business.
In each of these divisions (including companies acquired in the
current period) the Directors believe that Goodwill represents a
value to the Group over and above the separately identifiable
customer contracts.
Notes to the condensed consolidated interim financial statements
continued
6 Goodwill (continued)
The Directors review the goodwill allocated to each business unit on
a regular basis, taking into account a number of factors including:
* Current trading
* Financial forecasts
* Cash generation
* Market conditions that may impact directly or indirectly on a
business unit's activity
* Staff and customer retention
* Organic growth during the period under review
* New business development
On the basis of this review the Directors believe that no impairment
has been made in respect of goodwill in any of the business units.
7 Dividends
No dividends were paid during this or any other periods shown.
8 Earn out consideration
Deferred consideration, which is dependent upon the performance of
the companies acquired, has been provided for on the basis of the
maximum consideration payable. This is based on the current and
forecast trading of those businesses acquired.
30 June 30 June 31 December
2008 2007 2007
�'000 �'000 �'000
Payable in Equity (see note
below) 4,467 4,016 4,362
Payable in cash 5,283 3,634 4,569
---------- ---------- ----------
9,750 7,650 8,931
Notional discount on earn out (1,303) (1,361) (1,449)
consideration
---------- ---------- ----------
8,447 6,289 7,482
========== ========== ==========
Current Liabilities 3,960 2,100 1,406
Long Term Liabilities 4,487 4,189 6,076
---------- ---------- ----------
8,447 6,289 7,482
========== ========== ==========
The notional discount on earn out consideration assumes the latest
payment of the earn out consideration under the terms of the
underlying contract. In the event that earn outs are paid early (by
agreement or through the attainment of interim targets) then the
notional discount carried forward will be adjusted accordingly and
the difference taken to goodwill.
Under the terms of the relevant acquisition agreements Essentially
Group Limited have the option to pay part or all of the equity
consideration in cash.
Notes to the condensed consolidated interim financial statements
continued
9 Restatement of prior period financial information
The condensed consolidated interim financial statements for the six
months to 30 June 2007 have been restated due to two adjustments
arising out of the transition of the financial statements to
reporting under IFRS. The impact on the analysis of the capital and
reserves as at 1 January 2007 as reported at the time of the 2007
interim results is as follows:
Share Profit Total
Share premium Merger and loss Parent Minority Total
capital account reserve account Equity interest equity
�'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January
as
previously
reported 64 2,744 1,143 253 4,204 13 4,217
Transfer from (8) (8)
other
reserves
Exchange - - - (138) (138) - (138)
differences
on
translation
of overseas
operations
Notional - - - (253) (253) - (253)
interest
charge on
deferred
consideration
for
2006
--------- --------- --------- --------- --------- --------- --------
At 1 January 64 2,744 1,143 (138) 3,813 5 3,818
2007
(restated)
====== ====== ====== ====== ====== ====== =====
The loss for the six months ended 30 June 2007 and the profit and
loss account as at 30 June 2007 have been restated as follows:
Loss for the Profit and
year Loss account
�'000 �'000
Opening balance at 1 January 2007 as
restated from above (138)
Loss for the six months ended 30 June
2007 as previously reported (58)
Notional interest on deferred
consideration for the six months ended
30 June 2007 (494)
--------------
Restated profit for the six months
ended 30 June 2007 (552)
Exchange differences on translation of
overseas operations (2)
--------------
At 30 June 2007 (692)
(restated)
=========
Balance sheet at 30 June 2007
In addition to the above adjustments the balance sheet at 30 June
2007 has been adjusted as follows:
goodwill has been reduced by �1,593,000 and the earn out creditors by
�707,000 as a consequence of the reflection of the notional discount
on the earn out consideration and the adjustments arising from the
restatement of investment in overseas subsidiaries to reflect changes
in foreign exchange.
Balance Sheet at 31 December 2007
The balance sheet at 31 December 2007 has been restated to reflect
amendments to the discount calculated on the earn out consideration
outstanding at that date and to reflect early repayments that had
arisen. This has the effect of increasing Goodwill on acquisitions
and the long term earn out consideration by �1,656,000. No
adjustment has been made to the reported profit and loss account as
the amounts are not material and are reflected in the current period
results.
10 Interim statement
Copies of the interim statement are being sent to shareholders and
will be available from the company's registered office at PO Box 369,
Sir Walter Raleigh House, The Esplanade, St Helier, Jersey, JE1 4HH.
This statement does not constitute full statutory financial
statements within the meaning of Company Legislation.
- ---END OF MESSAGE---
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