Imagelinx plc : - Preliminary Results

Imagelinx Plc. (the "Company" or the "Group")

Unaudited preliminary results for the year ended 31 December 2011

Imagelinx, (AIM: ILI) the provider of graphic brand management services is pleased to announce the unaudited results for the year ended 31 December 2011. Key points

·    Revenue reduction of 14%onprior year following loss of a major customer in the USA.

·    Operating profit before intangible assets amortisation, exceptional costs, depreciation and share based payments (adjusted EBITDA) was £849,000 compared to £1,077,000 in 2010.

·    Continued high levels of cash generated from operating activities, £1,375,000 (2010 £1,013,000).

·    Exceptional restructuring costs of £432,000 reflect costs incurred in winding up operations in the USA and relocating IT systems development from Germany to the UK.

·    USA operations wound up fully with no outstanding liabilities.

·    Healthy revenue pipeline and launch of two new business activities.

Group results highlights £ millions	2011	2010
Revenue	10.35	12.06
Adjusted EBITDA *	0.85	1.07
Adjusted operating profit *	0.40	0.67
Exceptional costs	(0.43)	(0.20)
Intangible assets amortisation	(0.23)	(0.20)
Operating (loss) / profit	(0.29)	0.25
Net finance costs	(0.12)	(0.18)
(Loss) / profit before tax	(0.41)	0.07

*Adjusted is before exceptional costs, amortisation and share based payments and reflects the underlying performance of the Group

Enquiries:

Imagelinx Richard Clothier, Chairman Alistair Rae, Chief Executive	Tel: [phone] Tel: [phone]
finnCap Edward Frisby / Rose Herbert (corporate finance) Victoria Bates (corporate broking)	Tel: [phone]
Cadogan PR Alex Walters Emma Wigan	Tel: [phone]

Chairman's Statement

After a year of reshaping the cost structure of the company in 2010, the loss in 2011 of most of the business of the Group's largest client, P&G, reported in April 2011, has necessitated more restructuring to further reduce cost as revenues have declined during the second half.  This has involved the closure of operations in USA and at the same time the Group's important IT capability has been relocated.  Alistair Rae describes this work and also the activity he has led to develop the business in his Chief Executive's review.

Revenues for the year at £10.35 million were 14% below the previous year with all of the reduction of £1.71 million occurring in the second half.  A commensurate reduction in the cost structure has been achieved by the year end but it was not possible to avoid an operating loss during the second half while the necessary changes were carried out.  First half profit before tax of £0.60 million was eroded to a loss of £0.41 million for the full year (2010 £0.07 million profit) with the inclusion of £0.43 million of exceptional costs.  Adjusted EBITDA which excludes the effect of exceptional costs, intangible asset amortisation and share based payments was £0.85 million (2010 £1.07 million).

An improvement in working capital resulted in a positive cash flow for the year which reduced debt by £0.64 million and left a positive cash balance of £0.62 million at the year-end after funding £0.68 million of capital expenditure.

Marketing initiatives to replace some of the lost business were undertaken and towards the end of the year revenues have shown some improvement.  Whilst we recognise the possible adverse effects of uncertain consumer markets on our customers' business, the indications during the first few weeks of the year have been encouraging.  Management can take considerable credit for reacting quickly to the need to reduce the cost structure and secure new business. 

The Group has dealt well with the major change required to move to a simpler, more efficient, operating structure and is in better shape to build its earnings. On behalf of the Board, I thank all of our employees for their contribution during a difficult year.

Richard Clothier

Chairman

Chief Executive's review Business developments

The major event of 2011 was the loss of our major client in the USA. This was announced in April of 2011. Work for this client declined rapidly throughout the second half of the year while revenue from other clients remained broadly stable.

As a result of this loss and the need to reduce costs, the Group reported a loss before tax for the year of £413,000. This loss was caused by exceptional costs of £432,000 which mostly related to the exiting of our business with a major customer in the USA. This compares to a profit in 2010 of £73,000. Our adjusted operating profit before interest and exceptional costs, annual intangible assets amortisation charge and share based payments, however was £401,000 in 2011 (2010: £666,000). Clearly this was a disappointing performance against last year and against the more positive first half of 2011 when the business in the USA was improving in profitability, albeit with still more to do.  However, the company moved quickly to reduce its costs to match the reduction in revenue and this process is almost complete, with no remaining costs in the USA that relate to that activity.

In the second half of last year, we closed two offices in the USA. We also moved our IT development office from Germany to the UK in order to both reduce our costs and also improve the communication between our IT capability and the business and our clients. Total exceptional costs relating principally to those actions were £432,000 of which £334,000 were cash and the balance of £98,000 related to the write-off of fixed assets in the USA that we were not able to sell or redeploy elsewhere in the Group. Most of the exceptional cash payments were redundancy costs, as well as the payment of some loyalty bonuses for staff who stayed behind in the USA and in Germany as we transitioned business and workloads.

We continue to invest in the business, with total new capital expenditure of £680,000. This included not only updating our main data storage capability but also completing the investment into our latest management information system as well as into studio tools which will further enhance the capacity and efficiency of our studios. We are investing in the current year into new flexo plate-making equipment in support of our clients which will provide further improvements in quality and capability and keep us at the forefront of innovation in this industry.

We took the decisions early in 2011 that we would increase our marketing activity in Europe and that we would also establish two separate business activities in addition to our core brand management business. The first of these two business activities is our graphic design business which was established almost five years ago and which has now been given a separate brand identity, The Pack Republic. While our design capability was originally an extension of our pre-press activities, it has now worked for almost every single one of our clients providing them with an effective design function and has grown each year from inception. This is not only at a low cost but more importantly, designs are created with both a deep understanding of the brand and the knowledge that the design intent can be maintained in terms of print feasibility. Our second new business activity, The Pack Logic builds on our industry wide knowledge and is an advisory based activity, providing advice to clients on solutions across their packaging supply chain. This has led to one success already and we are currently in discussions with two other clients on the needs of their business to improve their packaging process. In addition, we have increased our sales team at the end of last year with two additional sales people as we still see good opportunities in Europe.  We are still awaiting and negotiating on the outcome for three tenders for new business and this year, we are seeing three existing clients re-tender their business.

Business awards

As announced in January, we saw towards the end of 2011 an improvement in revenue from some of the clients who had awarded us additional business a year earlier. In addition, we were awarded a major drinks brand from one of our existing clients and work commences for this client at the beginning of the second quarter of this year. We were also successful in being awarded the pre-press activity for the European division of another major US business for whom we had carried out some work earlier in the year. This work began at the end of 2011 and has made a useful contribution to the current year already. A third client awarded us some of their pre-press activity in Europe and this is expected to start also in the second quarter. Another of our clients has acquired a number of additional brands over the last year and we will commence work on these in the first quarter of this year. Finally, one of our existing clients had, as expected, a very subdued year in terms of marketing activity in 2010 but this is now expected to treble in the current year compared to last year.

Strategy

We have continued to make good progress on the implementation of key elements of our strategy.

Matching our services to the needs of our customers, adding long term value to customer relationships

The Group's customers continually create new products and designs and seek to extend and enhance their existing brands while maximising brand equity and consistency across the regions in which they sell their products, whether these regions are local or global in nature. Imagelinx continues to match its service offerings to meet its customers needs and, where necessary, adapt services as their needs change and grow. The Group's adaptability is exemplified by its ability to scale its service offerings, quickly and efficiently, to set up new locations to address structural changes in a customer's global branding strategy and to balance work load between locations in order to deal with surges in promotional activity.

Leadership through technology led innovation, research and development

The Group is dedicated to being at the forefront of and, in a number of cases, initiating technological process developments in its industry that have applications for a variety of purposes including, but not limited to, reliability and speed. To build upon its competitive position, Imagelinx is actively involved in system and software technical evaluations of various computer systems and software manufacturers and also independently pursues software development for implementation at its operating facilities. The Group continually invests in new technology designed to support its high quality graphic services. The Group concentrates its efforts in understanding systems and equipment available in the marketplace and creating solutions using off-the-shelf products customised to meet a variety of specific customer and internal requirements. ICON Core and ICON Tracker are examples of Imagelinx's commitment to its own research and development.

As an integral part of our commitment to research and development, the Group developed its own internal technical team, whose dedicated role is to research and evaluate new technologies in the graphic arts, workflow and data management and communications arenas. This team's role is to commercially appraise new equipment and software and then disseminate the information to the entire Group and to customers as appropriate.

Margin improvement through the use of technology

The leveraging of externally sourced and internally developed "best of breed" systems has improved underlying productivity and quality of service. The Group is now able to deal more effectively with peaks of customer demand, being able to support process change within our customers operations.

Strategic acquisitions to add capability and competence

The two acquisitions, since 2007, of Tecnolink and Brandmark International are fully integrated with the core business and are generating the predicted sales growth and operating margins. Imagelinx typically has sought to acquire businesses that represent niche market companies with target customer lists, excellent customer services or proprietary products, solid management and/or offer the opportunity to expand into new service or geographic markets. Following on from 2010's consolidation phase, we continue to be active in the search for strategic bolt on acquisitions and supported by a clean balance sheet expect that these will continue to form an important part of the development of the Group in the years ahead.

Employees

We recognise that it is difficult to recruit and retain high quality people. The Group has sought to balance resource and workload by the use of skilled temporary staff and planned overtime, in order to minimise the effects on individuals.

Markets

The Group's strategy is to target markets that have long-term growth characteristics driven, in particular, by a highly fragmented supplier base where brand owners are looking for supplier consolidation as a way of driving out supply chain costs and improving turnaround times.

There is also a whole layer of brand owners that operate in the layer below the global super-brands and these clients look to draw more on our technical and process consultancy services to bring them best practice in an accelerated manner. Our business is very customer centric and this further drives where we physically need a presence around the world.

Outlook

With the reduction in costs and the growth of new business, the Group has weathered the loss of business elsewhere and I am grateful to all of our colleagues throughout the business and who have helped with this difficult transition. I am pleased to be able to report that the Group was profitable in January 2012 and activity and revenue levels have been elevated in both January and February, which gives us confidence that we should see a good recovery from last year.

Alistair Rae

Chief Executive

Financial Review Basis of reporting

The preliminary results for the year ended 31 December  2011, which are an abridged statement of the full Annual Report, have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The following accounting standards, amendments and interpretations issued by IASB and IFRIC are effective for the Group's accounting period beginning on or after 1 November 2010 but had no material effect on the results or financial position of the Group disclosed in these financial statements:

·      Amendment to IFRS 1 -