Tangent is involved in online printing and digital marketing and is a part of the AIM exchange. Printed.com is an online printing business who provides business cards, leaflets, wedding stationary and greetings cards whose customers tend to be small businesses. It is the fastest growing division at Tangent. Goodprint offers no-frills quality at cheap rates, providing business cards, labels, postcards, calendars and invitations. Ravensworth offers printing services to the estate agent industry and has a customer base of over 4,500 agents. Tangent Snowball is a digital marketing agency whose clients include the Labour Party, Carlsberg and Citroen. Finally, Tangent on Demand is a creative printing business providing business cards, window displays and advert bill boards to fashion brands, creative agencies and corporations including Benetton, Tommy Hilfiger and Chanel. Tangent Communications has now released their final results for the year ending 2014.
When compared to last year revenues increased, driven by a £4.5M growth in online revenue, somewhat offset by a £1.8M fall in agency revenue. Cost of sales increased slightly to give a gross profit some £2.3M higher. Depreciation remained flat but there was a much larger amortisation charge this year which, alongside other higher operating expenses due to a growth in staff costs, and flattered somewhat by a £603K reduction in non-recurring expenses, this year relating to the costs of disposing of the majority share in the Australian operation (£120K is expected to be charged next year), meant that operating profit was £1.5M higher. After tax, this fell to £1.1M higher at £1.7M, still a pretty decent result.
When compared to the end point of last year total assets increased by £694K driven by a £425K increase in cash, a £361K growth in software assets and a £325K increase in prepayments, somewhat offset by a £206K fall in the value of plant & equipment and a £127K decline in other receivables. Conversely, total assets fell during the year due to a £427K decline in accruals, a £186K fall in borrowings and a £131K reduction in trade payables, partially mitigated by a £134K increase in other taxes and social security. The result is a near one million pound increase in net tangible assets to £6.2M. It is worth noting that the group also has just under £2M of non-cancellable leases off the balance sheet.
Before movements in working capital, cash profits were some £1.7M higher at £3.5M. A decrease in payables due to the payment of closure costs at Thetford was responsible to a decline to £2.9M after working capital considerations and after tax the net cash from operations was £2.3M, a £1.4M increase when compared to 2013. Last year the group spent £6.9M on an acquisition but this year, the only capital expenditure was a £563K software development costs and a net £498K spent on the purchase of property, plant and equipment relating to new print and finishing equipment and this level of investment is expected to continue into next year. This gave a free cash flow of £1.2M which was ample cash with which to pay out £558K in dividends and pay back £186K of loans so that the cash flow for the year was a decent £494K.
Underlying operating profits at the Agency business were £1.2M, flat when compared to last year. The division benefited from a new chief executive from Omnicom and business focussed on a smaller number of high value contracts with new client wins including Papa Johns and Evoshave. A number of new opportunities to sell services to existing customers were identified but there may be a deferral in profits in the short term while the new products are marketed. Sales at Tangent on Demand grew by £140K to £2.4M as the division concentrated on selling displays to retailers such as Laura Ashley, Ugg and Chanel. The gross margin in this division is currently at an impressive 70% and investment was made for new hires to support product development and sales growth
Underlying operating profits at the Online business were £1.8M, an increase of £1M when compared to 2013. Printed.com saw sales grow by £2.1M to £6.1M both through attracting a number of new customers and encouraging existing customers to spend with greater regularity. The repeat order trend was strong and ahead of management expectations with the reward programme proving popular. Goodprint sales fell by £810K to £3.2M as the conversion from site visitors to buyers slowed and the group have begun to recruit a new e-commerce team to improve their proposition with the latest initiative being the design and delivery of business cards within four hours. Ravensworth sales increased to £6.6M as the property market experienced an upturn and a new transactional website with an online photo editing service is expected to add new revenue streams.
Although Tangent has no customer that accounts for more than 10% of revenues, the Agency business has one that represents 15% and one that represents 11% of revenues in that sector. If one of these customers were to be lost, earnings could be adversely effected. Another risk for the group would be the deterioration of the general economic environment , reducing client’s spending power. After the year end the group disposed of 81% of its holding in its Australian subsidiary, Tangent Snowball. There was a loss of £120K on this disposal so I suppose they are pretty keen to get rid of it.
At the current share price the P/E ratio is standing at a value 9.9, rising to a still pretty cheap 10.7 on next year’s forecasts. The current dividend yield is 4.1% which is expected to remain unchanged next year, although this year it did increase by 20%. Net cash at the year-end stood at £2.81M, an increase of £640K on last year
Overall this seems like a decent, small company. Profits made progress, as did net assets whilst there was sufficient free cash flow to cover all the expenses. Clearly the services the group offers are susceptible to a potential economic decline but this seems an interesting company that I may choose to buy given a decent opportunity.