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---