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Half Yearly Report and Accounts February 2013

28.2.2013

Investor Announcement: Stay up to Date
Read the appendix and original 28 February Announcement.

Review of operations

The first half of the financial year has seen significant change at Adcorp necessitated by wide scale reductions in advertising spend across most sectors including our Government contracts. Billings have reduced 34% to $52.1m for the six months to December 2012. The declining trend was even more pronounced in December, with an unprecedented decrease in billings in a number of markets when compared to December 2011.

The reductions in client spend are most pronounced in our traditional print media category, compounded by the Australian Government’s policy to restrict recruitment advertising spend in major metropolitan print publications.

Our revenue in the first half has accordingly reduced by 27% to $10.6m (H1 2012: $14.6m). As overall advertising volumes decline in traditional print media, we have seen an improvement in operating revenue margin to 20% (prior comparative period 18%) due to a greater proportion of project, creative, digital and consulting work. Our in-house video production facilities have now also been rolled out across the entire agency and are contributing new revenue streams.

During the first quarter we moved to restructure many areas of our business to appropriately align our product and service offering and our underlying cost base to the changing market trends. Accordingly, we have incurred $455k of restructuring costs in the first half.  In addition we have fully impaired goodwill of $2.9m and associated plant and equipment of $195k at the 31st December, resulting in a $3.1m charge against the first half result.

In November we announced an expected first half loss in the vicinity of $1.5m. With a very weak December and these additional restructuring costs, the operating loss before impairment and taxation is $2.1m. Including the impairment of $3.1m, we have posted a first half loss of $5.2m before tax.

We have reduced expenditure across all categories in the first half.  Total expenditure excluding $455k in restructuring costs is down by $1.1m (9%) on prior comparative period.  Total reported labour costs are $688k below the prior comparative period with headcount reductions in response to reduced advertising volumes and the commencement of restructuring programs. There are annualised labour savings in the region of $2.1m from these initiatives.

Administrative and Marketing expenses have been cut back by a combined total of $106k on the prior comparative period, largely through reduced doubtful debts and more efficient pricing of bank facilities, insurances and other services. 

In November 2012 we acquired 40% of Limelight Group, a specialist Digital agency, to complement our existing Digital and Social Media capabilities. We have long considered this an area of significant growth and together with our highly specialised Adcorp Digital team, we are now in a position to offer clients a leading range of online marketing solutions.

The investment in Limelight Group was acquired for a cash sum of $175k in early November. During November and December, we concluded the transaction, undertook a transition of the finance and administrative functions of Limelight Group, and established new targets for growth in the second half. As December is traditionally a short month for billings, Limelight Group reported a loss for the 2 months with Adcorp’s attributive share being $49k.  With a renewed focus and pickup of new business, we expect positive returns in H2.

Our subsidiary Andrews Advertising, continues to prosecute the case against several parties, having reached settlement with one of the defendants, as reported in the June 2012 results.  As part of that settlement, Adcorp has increased its stake to 100% of Andrews Advertising and is resolute in continuing with this case. We have expensed all legal fees as incurred and are prosecuting the remaining defendants for costs as part of our overall claim.

Adcorp’s cash balances at the 31st December were $4.2m. Receivables are closely managed and we have benefited from the reductions in overdue accounts, which we will continue to improve into the second half.

As a result of the losses incurred, no dividend is payable for the first half.

We acknowledge the challenges inherent in turning the business around and are mindful of the impact on clients, staff and stakeholders.  While difficult to predict the rapidly changing market place, our dedicated staff and our management team are resolute in making the changes needed in order to provide our clients with high quality, innovative marketing solutions.

The Directors believe that the restructuring of the business will result in a more favourable trading performance going forward.
 

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