Photon Group Limited (ASX:PGA) today announced its results for the six months ended 31 December
2011.

 

Summary
  • Asset sale program completed; debt repaid: The company completed its program of asset sales during the half, generating total proceeds of $233 million representing 7.5 times EBITDA. The proceeds were used to repay debt and fund future cash deferred consideration payments. At 31 December 2011, Photon had a cash balance of $32 million and no debt outstanding.
  • Corporate overhead reductions: An annualised $4.0 million to $5.0 million reduction in the cash overhead costs will be realised from FY2013. This represents a 40% to 50% reduction from the FY2011 level of cash overheads. It is estimated that one-off restructure costs of approximately $4.5 million will be incurred during financial year 2012 to achieve the overhead reductions.
  • Net revenue, Operating EBITDA1 and NPAT lower: The financial performance of the Australian Agencies division continued to be significantly lower than the same period last year on a pro forma basis. However the Operating EBITDA of the International Agencies as a group was higher than the same period last year on a pro forma basis.
  • Future strategy to focus on key businesses in core markets: Photon is now a debt-free company with leading Australian and international agencies such as Naked, The Leading Edge, Frank PR, Hotwire, BMF and BWM. Photon’s future strategy is focused on building key brands in the core geographic markets, increasing their performance, maximising the opportunities for collaboration across business units and expanding organically.

 

 

Financial Performance

A$ million1H20121H2011
Net Revenue 139.4 188.1
Operating EBITDA1,2 14.0 32.9
Pro forma (continuing businesses)3    
Net Revenue 88.3 92.9
Operating EBITDA1 7.5 8.1

 

 

Notes:

  1. Operating EBITDA is earnings before interest, tax, depreciation, amortisation, impairment, loss on sale, fair value adjustments to deferred consideration, and restructuring costs.

  2. The non-cash impact of equity incentives was positive in 1H2011 due to the $3.3 million write-back and reduction of costs associated with unvested options that have expired. Net equity incentives in 1H2011 had approximately $2.0 million positive impact, versus a $1.1 million expense in 1H2012.

  3. Pro forma excludes the contribution of Field Marketing businesses sold in November 2011, Retail Insight’s point-of-sale business sold in September 2011, five digital businesses sold in December 2010, the material Telstra contract lost by BWM in May 2011, the closure of Counterpoint and Yield Media during 2H0211 and the write-back of equity incentive expense in 1H2011 (see note 2).

 

 

  • Net Revenue and Operating EBITDA in the Australian Agencies division fell 6% and 38%, respectively, compared with the prior corresponding period on a pro forma basis; and
  • Net Revenue in the International division decreased 4% and Operating EBITDA increased 18% compared with the prior corresponding period on a pro forma basis.


The asset sales which took place during the six months to 31 December 2011 resulted in a total non-cash loss on sale of $49 million (before non-cash deferred tax benefit of $4.6 million). In addition, a review of the carrying value of Photon’s intangibles led to a $128 million non-cash impairment charge. An adjustment to the discount rate to reflect the current view on the appropriate debt equity ratio and risks inherent in assessing future cash flows coupled with a weaker-than-expected performance during the half drove this result. Following the impairment, Photon’s total carrying value of its intangibles is $152 million.


Financial Position

At 31 December 2011, Photon had $32 million of cash and no debt. Photon will use its excess cash balance or undrawn debt facility to fund the remaining $16 million of capped cash deferred consideration payments due over the next 12 months, the costs of the corporate overhead restructure and a $4.0 million working capital and tax adjustment under the terms of the Field Marketing & Retail Agencies.


Future Strategy

Photon has been transformed over the past 18 months through a series of asset sales, a recapitalisation and a corporate restructure.


The company is now focused on a set of high quality and complementary businesses operating in some of the most attractive areas of marketing services across three core markets: Australia, the UK and North America.


The CEO of Photon Group, Matthew Melhuish, said: “Photon is in an excellent position to consolidate our operations in their core markets, while selectively exploring geographic expansion. Our business is centred on strategy, insights and ideas.


“We are debt-free and have some of the very best businesses and talent in the marketing and advertising industry. As we now turn Photon’s efforts squarely towards growing our businesses, I believe the company’s future is bright.


“Enhanced digital capabilities need to be at the core of everything we do and this is a core skill we will continue to develop at all of our businesses. A set of simple robust systems need to support all our businesses in finance, IT, human resources and legal. Some adjustment to the incentive plans will also be required to enhance motivation and unlock discretionary effort.”


During the next three months, Photon will provide shareholders with an update on its future strategy, management structure and incentives.


Senior Management Change

Following the Group’s recent successful restructuring and repayment of its debt, Chief Financial Officer, Ms Clare Battellino will leave the Group, with effect on 30 April 2012, to pursue other opportunities.


Matthew Melhuish, CEO of Photon Group said: “Clare has made a significant contribution to Photon and its restructure. Clare has played a key role in the dramatic turn-around of Photon’s operating structure and its balance sheet over the last 18 months. The Board and management thank her for her hard work during a complex period of restructuring and wish her all the best for the future.”

 

Clare will work closely with current Finance Director, Mr Brendan York to ensure a smooth transition of her responsibilities effective 30 April 2012. The impact on the Head Office costs of this change is included in the cost savings announced on 16 January 2012.



Media contact

Andrew Butcher

Butcher & Co +61 400 841 088

 

 

Click the link below to read the full report.

Download PDF