Quarterly Report • Aug 18, 2017
Quarterly Report
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Interim report as per June 30, 2017
2
| Sales | Operating income | Financial income |
|---|---|---|
| (in kEUR) | (in kEUR) | (in kEUR) |
| 2013 | 2013 | 2013 |
| 16,933 | 1,326 | 801 |
| 2014 | 2014 | 2014 |
| 22,573 | 2,035 | 1,158 |
| 2015 | 2015 | 2015 |
| 27,633 | 2,546 | 1,080 |
| 2016 | 2016 | 2016 |
| 30,830 | 2,954 | 800 |
| 2017 | 2017 | 2017 |
| 30,280 | 2,106 | 908 |
| 30,280 | 2,106 | 908 |
| 6M 2017 | 6M 2017 | 6M 2017 |
| Income before taxes | Net income | Earnings per share |
| (in kEUR) | (in kEUR) | undiluted (in EUR) |
| 2013 | 2013 | 2013 |
| 2,127 | 1,546 | 0.12 |
| 2014 | 2014 | 2014 |
| 3,193 | 2,655 | 0.20 |
| 2015 | 2015 | 2015 |
| 3,626 | 2,709 | 0.20 |
| 2016 | 2016 | 2016 |
| 3,754 | 2,723 | 0.20 |
| 2017 | 2017 | 2017 |
| 3,014 | 2,168 | 0.20 |
| 3,014 | 2,168 | 0.20 |
| 6M 2017 | 6M 2017 | 6M 2017 |
| Operating cash fl ow (in kEUR) |
Sales by employee annualised (in kEUR) |
Balance sheet structure |
| 2013 -1,049 2014 3,795 2015 -3,062 2016 1,211 2017 -2,748 |
2013 108 2014 116 2015 116 2016 122 2017 104 |
Current assets 45 % Non current assets 55 % Equity 52 % Liabilities 48 % |
| -2,748 | 104 | 52% |
| 6M 2017 | 2017 | Equity |
3
| Sales by segments | Sales by clients' volume | Sales allocation by vertical markets |
|---|---|---|
| Germany 60 % United Kingdom 24 % USA 10 % Others 6 % |
Top 5 38 % Top 6-10 14 % Others 48% |
Automotive 29 % Consumer goods 27 % Financial services 11 % Telekommunikation/IT 11 % Others 22 % |
| 60% Germany |
38% Top 5 |
29% Automotive |
| Portfolio structure of cash and marketable securities |
Employees by function |
Shareholder structure |
| Corporate and government bonds 79 % Bank deposit 21 % |
Online media 24 % Design 19 % Technology 19 % Project management 16 % Administration 12 % Strategy/consulting 10 % |
WPP plc, St. Helier 51.78 % Treasury stocks 0.62 % Free float 47.60 % |
| 79% Corporate and government bonds |
24% Online media |
51.78% WPP plc |
| 2nd Quarter | January-June | |||||
|---|---|---|---|---|---|---|
| 2017 | 2016 | Change | 2017 | 2016 | Change | |
| kEUR | kEUR | kEUR | kEUR | |||
| Sales | 15,485 | 16,405 | -6% | 30,280 | 30,830 | -2% |
| EBITDA | 1,539 | 1,899 | -19% | 2,913 | 3,698 | -21% |
| EBITDA margin | 9.9% | 11.6% | -1.7pp | 9.6% | 12.0% | -2.4pp |
| EBIT | 1,102 | 1,479 | -25% | 2,106 | 2,954 | -29% |
| EBIT margin | 7.1% | 9.0% | -1.9pp | 7.0% | 9.6% | -1.4pp |
| Financial income | 405 | 404 | 0% | 908 | 800 | 14% |
| Net income | 1,097 | 1,376 | -20% | 2,168 | 2,723 | -20% |
| Earnings per share (EUR) | 0.11 | 0.10 | 10% | 0.20 | 0.20 | 0% |
| Employees incl. freelancers | 623 | 602 | 3% | 623 | 602 | 3% |
| Liquid assets | 14,301 | 21,772 | -34% | 14,301 | 21,772 | -34% |
| Operating cash flow | -642 | 1,070 | n.a. | -2,748 | 1,211 | n.a. |
The following Group Management Report provides information on the performance of the SYZYGY Group (hereinafter referred to as "SYZYGY", the "Group" or the "Company"). The consolidated financial statements on which the Group Management Report is based have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial year corresponds to the calendar year.
The SYZYGY Group is an international provider of creative, technological and media services for digital marketing. Overall, the Group had around 600 employees, including freelancers, at locations in Germany, the UK, Poland and the US as at the balance sheet date.
The Group consists of SYZYGY AG as the holding company and ten subsidiaries:
In June 2017, the SYZYGY Group acquired 51 per cent of the shares in Munich-based company Catbird Seat GmbH. The stake in Catbird Seat enables the Group to enhance its digital performance marketing services.
The SYZYGY Group's operating units cover the entire digital marketing value chain: from strategic consulting to project planning, concepts and design to technical realisation of brand platforms, business applications, websites, hosting, digital campaigns and mobile apps. Online marketing services such as media planning, search engine marketing/ optimisation and affiliate programmes are also a major business area. In addition, SYZYGY helps clients meet customer experience and usability requirements and assists them at every stage of the user-centred design process. Digital illustrations, animations and the development of games for smartphones and tablets round off the range of services.
The business focus is on the automotive, telecommunications/IT and consumer goods industries, as well as financial services.
The organisational structure of the SYZYGY Group is decentralised. As the management holding company, SYZYGY AG manages the subsidiaries on the basis of quantitative and qualitative targets (management by objectives). The management teams in the individual companies operate largely independently, within the constraints of their targets and budgets. A control and reporting system is in place for management and monitoring purposes within the Group. It compares the financial figures against the budget on a monthly basis, while also highlighting key opportunities and risks.
DRS 20 stipulates that financial and non-financial performance indicators must be included in reporting if they are also used for the Group's internal management.
The main financial performance indicators used for managing the SYZYGY Group are sales and earnings before interest and taxes (EBIT). They are presented and explained in detail in the following Management Report.
As part of its reporting on sustainability, SYZYGY AG has issued a declaration of conformity that addresses the German Sustainability Code and its individual standards, while also assessing the relevance for the SYZYGY Group. The action areas with strategic importance for SYZYGY in this respect are
The SYZYGY Group pursues a style of corporate management based on sustainable growth. It derives measures from the above action areas that are crucial to the long-term positive development of the SYZYGY Group. Further information on sustainability is available in the SYZYGY AG declaration of conformity.
The ifo index for the world economic climate improved markedly in the first half of 2017, climbing from 2.6 to 13.0 points in the second quarter of 2017. This was the strongest rise since the start of 2013. The main drivers of this positive trend were the advanced economies, especially the European Union.
The stable trend seen in the Eurozone economy in the last quarter of 2016 persisted into the new year, with the Eurozone continuing to shrug off the economic and political uncertainty. In the first three months of the year, the Eurozone's gross domestic product (GDP) increased by 0.6 per cent. In the second quarter of 2017, the Eurozone posted its strongest economic growth for more than six years.
Job numbers rose at a pace rarely seen in the last ten years, thanks to robust order growth and the optimistic business outlook. As a consequence, the unemployment rate in the Eurozone declined, falling to 9.6 per cent in January 2017 – the lowest level since May 2009. With an average value of 56.6 points for the second quarter of 2017, the final IHS Markit Eurozone Composite Index (PMI) reached its highest level since the first quarter of 2011. The ifo Institute confirmed this trend by presenting similarly impressive figures: the ifo indicator for the economic climate in the Eurozone rose to 26.4 balance points in the second quarter, representing the highest figure since the beginning of the global economic crisis in the late summer of 2007. The chief economist at IHS Markit expects the upturn to be prolonged and robust, supported by multiple countries and a range of sectors. The favourable global economic climate, ongoing weakness of the euro and increasing signs that companies are becoming more willing to invest all suggest that industry will continue to benefit.
Economic and political uncertainty still poses a risk to the European economy. Key reasons include the lack of clarity around the future relationship between the UK and the EU, and the uncertain outcome and consequences of the upcoming elections in Germany. In addition, higher inflation could further curb disposable incomes and put a brake on growth. The future political direction of the US is another source of considerable uncertainty.
Based on the strong start to 2017, the economists at the European Central Bank (ECB) are optimistic about the future, upgrading their growth prediction for the current year from 1.7 to 1.9 per cent and for 2018 from 1.6 to 1.8 per cent.
The German economy also started the new year with a strong first quarter, growing by 0.6 per cent compared with the prior period, a trend that continued in the second quarter. Current economic indicators show that German business sentiment is excellent. Relevant indicators such as the ifo Business Survey for the commercial sector and the Markit Purchasing Managers' Index reached new highs in June. Manufacturing industry output rose for the fifth time in succession in May, and employment again grew strongly.
The ifo Business Climate Index also confirms and reflects this positive trend since the start of the year. In January, the index stood at 109.9 points, then rose each month to reach a record level of 115.1 points in June. This was 6.5 points above the figure for the same month of the previous year. Respondents assessed both the business situation and the outlook for the coming six months as better. As a result, many institutes raised their economic forecasts. The ifo researchers upgraded their growth estimate for 2017 from 1.5 to 1.8 per cent and for 2018 from 1.8 to 2.0 per cent. The German federal government is more cautious in its outlook: it expects a rise in economic output of 1.5 per cent for this year and 1.6 per cent for next year.
Experts from the ifo Institute expect that the number of people in work in Germany will rise to a new record high of 44.6 million, with the unemployment rate falling to 5.5 per cent. However, the economists also anticipate a rise in inflation, which was relatively low at 0.6 per cent and is set to climb to 1.7 per cent this year. Germany's current account surplus with regard to the export and import of goods and services will continue to rise in absolute terms, while the proportion relative to economic output will remain largely unchanged at around 8.3 per cent.
According to the Office for National Statistics (ONS), the UK economy started the new year with GDP growth of just 0.3 per cent compared with the final quarter of 2016. There has been uncertainty about the country's future economic development since the referendum decision on June 23, 2016 to leave the EU. Although the direct impact of the Brexit referendum has so far been less serious than expected, the current economic data is modest. Experts are correspondingly concerned about the future. They expect rising inflation of up to 3 per cent in the current year. This could result in a decline in purchasing power and demand, since wage increases will fail to keep up with inflation. Inflation was 0.7 per cent before the Brexit referendum; by April 2017 it had risen to 2.6 per cent. Capital expenditure fell by 0.9 per cent in the first three months of the year. In addition, productivity has been stagnating since 2009.
In the first three months of the year, the US economy grew by only 0.3 per cent compared with the prior quarter. For the second quarter, economists expect a significant acceleration of US GDP growth and are forecasting a 0.8 per cent rise compared with the previous period. For the full year, experts expect growth of 2.2 per cent in 2017.
Poland's economy has returned to dynamic growth compared with 2016, a year which saw growth of 2.8 per cent – a weak figure for the country. In the first quarter of 2017, the Polish economy grew by 4.1 per cent, thus exceeding expert forecasts, which averaged 3.8 per cent. Forecasts for the rest of the year remain optimistic, at 4 per cent.
Statistics for the performance of the advertising market in the second quarter of 2017 were largely unavailable when this report was being prepared. SYZYGY also accepts that the validity of advertising statistics is limited since different survey methods produce widely different results and forecasts. Given the generally robust economy in the first two quarters of 2017 and mostly positive forecasts for the year 2017 as a whole, it can nonetheless be assumed that companies have tended to increase their marketing budgets.
The Advertising Expenditure Forecast published by media holding company Zenith Optimedia suggests that worldwide advertising spend will rise by 4.2 per cent to USD 559 billion. This means that growth will be below the previous year's level, which was 4.8 per cent. The previous year was significantly boosted by additional advertising around major events such as the US elections, the Summer Olympics in Rio and the European Football Championship. This makes it difficult to draw a direct comparison with 2017.
The research and analysis subsidiary of IPG Mediabrands Magna expects a rise of 3.7 per cent to USD 505 billion in its latest outlook on the global advertising industry. According to this report, the previous year saw growth of 5.9 per cent. Here again, the lower figure for the current year is due to a lack of political and sporting events.
With regard to the allocation of budgets, Magna sees TV falling to second place, since expenditure is set to decline globally by 1 per cent. At the same time, spending on digital advertising will rise by 14 per cent. Online advertising sales will thus reach USD 204 billion. As in preceding periods, the mobile segment will account for the highest proportion, at 54 per cent or USD 110 billion, marking a new record high.
Zenith Germany believes that the German advertising market will continue to perform well. In March, the agency raised its growth forecast for 2017 from 2.3 per cent to 2.5 per cent, citing higher advertising spend on the Internet. Magna expects expenditure on digital media in Germany to rise by 8.5 per cent to EUR 7.6 billion. Within this category, spending on social media is expected to go up by 40 per cent, online video by 22 and search by 9 per cent. In Germany too, though, the greatest growth will be seen in the mobile segment, at 43 per cent, albeit from a relatively low base. Global performance management firm Nielsen reported growth in the overall German market of 2.1 per cent and gross advertising spend of EUR 7.2 billion for the first quarter of 2017.
Zenith's outlook for the advertising industry in the UK is cautious for the current year. Growth in advertising spend has slumped due to the gloomier economy, rising inflation and the political uncertainty resulting from the snap election and the upcoming Brexit negotiations. Following strong growth of 9.6 per cent in 2016, market experts expect only a small rise in expenditure of 0.9 per cent in the current year. Although Magna forecasts growth of 1.9 per cent for the UK, it also highlights the drop compared with previous years, when growth averaged 6 per cent.
The headcount at the SYZYGY Group increased further in the period covered by the report. The SYZYGY Group had a total of 602 permanent employees as at June 30, 2017. This increase of 37 people compared with March 31, 2017, or 56 compared with the end of the same period of the previous year, was primarily due to the integration of 43 employees from Catbird Seat into the Group.
The number of freelancers was around 21 (based on FTEs) as at the reporting date, 34 fewer than in the first half of 2016.
The following table shows the distribution of permanent employees by country:
| Total | 602 | 546 |
|---|---|---|
| USA | 14 | 19 |
| Poland | 78 | 75 |
| United Kingdom | 127 | 111 |
| Germany | 383 | 341 |
| Employees | 06/30/2017 | 06/30/2016 |
On average over the period, 582 people – including around 20 freelancers – worked for the SYZYGY Group. Annualised sales per head were therefore EUR 104,000 (previous year: EUR 110,000, with an average headcount of 593).
The proportion of employees in each functional/ work area has not changed significantly and breaks down as follows:
| 06/30/2017 | 06/30/2016 |
|---|---|
| 142 | 107 |
| 115 | 107 |
| 114 | 116 |
| 97 | 94 |
| 74 | 62 |
| 60 | 60 |
| 602 | 546 |
SYZYGY invested around EUR 1.5 million in intangible assets and fixed assets in the first half of 2017. This consisted of investment in equipment for employees at the SYZYGY Group's various locations.
The SYZYGY Group reports billings and sales. The sales figures are arrived at by deducting media costs from billings. Media costs are incurred in the online marketing subsidiaries as transitory items on the revenue and expenses side.
In the period under review, the SYZYGY Group saw declines with regard to both figures. Billings were down 11 per cent to EUR 66.0 million compared to the same period of the previous year, while sales softened by 2 per cent to EUR 30.3 million.
A major factor in this trend was the loss of a substantial account by Hi-ReS! Berlin, with growth of the other companies unable to compensate.
Sales to automotive clients fell significantly by 5 percentage points year-on-year, while other sectors have become more prominent. 52 per cent of SYZYGY's total sales were generated from its ten largest clients, a slight drop of 4 percentage points compared with the same period of the prior year.
The cost of sales rose by 3 per cent to EUR 22.4 million, thus increasing at a slightly faster rate than sales. Gross margin decreased accordingly by 3 percentage points to 26 per cent.
At EUR 3.2 million, general administrative costs remained unchanged compared with the previous year's figure (EUR 3.2 million).
Sales and marketing costs totalled EUR 2.7 million in the first half of 2017, representing a fall of 11 per cent.
Depreciation of fixed assets amounted to EUR 0.8 million, which was slightly up on the corresponding period of the prior year (EUR 0.7 million).
The SYZYGY Group's operating profit fell by 29 per cent, declining from EUR 3.0 million to EUR 2.1 million compared with the same period of the previous year. As a consequence, the EBIT margin fell to 7.0 per cent (previous year: 9.6 per cent).
Through active management of liquid funds, SYZYGY generated financial income of EUR 0.9 million in the first half of 2017. This figure is 14 per cent above the previous year's level and corresponds to an annualised return of 8.1 per cent on average available liquidity reserves. Financial income primarily comprises interest income from corporate bonds and gains realised on securities. Around half of the securities held are now US dollar bonds, as the interest rate is higher in US dollars than for euro-denominated bonds with a comparable credit rating.
Business performance at the SYZYGY Group is reflected in pre-tax income of EUR 3.0 million. In the same period of the previous year, the figure was EUR 3.8 million, meaning that pre-tax income decreased by 20 per cent. After income taxes of EUR 0.8 million, net income was EUR 2.2 million.
Undiluted earnings per share were EUR 0.20 for the first half of 2017, based on the average available 12,754 thousand shares qualifying for participation in the profits and after deducting minority shares of EUR 0.4 million. This corresponds to the level of the same period in the prior year.
In accordance with IFRS 8, which is based on the management approach, SYZYGY uses geographical criteria to report segments and thus distinguishes between Germany, the UK, the United States and other segments. The latter category includes Ars Thanea. Under IFRS 8.13, this company is not big enough to be reported as a geographically independent segment.
Compared to the prior-year period, the individual segments contributed to earnings in the first half of 2017 as follows:
| Germany | United Kingdom | USA | Others (Poland) | |||||
|---|---|---|---|---|---|---|---|---|
| Q2 in kEUR | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Sales (not consolidated) | 18,471 | 19,107 | 7,449 | 6,919 | 3,067 | 4,018 | 1,774 | 1,457 |
| Operating income (EBIT) | 1,423 | 3,022 | 398 | 783 | 694 | 591 | 141 | 249 |
| Operating income (EBIT) | 8% | 16% | 5% | 11% | 23% | 15% | 8% | 17% |
| Share of Group sales (consolidated) | 60% | 61% | 24% | 22% | 10% | 12% | 6% | 5% |
SYZYGY had liquidity reserves totalling EUR 14.3 million as at the balance sheet date, corresponding to a decrease of EUR 7.9 million or 35 per cent compared with December 31, 2016. Both components were down: liquid funds decreased by EUR 3.5 million to EUR 3.0 million, while securities holdings fell from EUR 15.6 million to EUR 11.3 million.
79 per cent of funds were invested in corporate bonds, while 21 per cent were accounted for by bank deposits. The average residual maturity of the bonds was 4.9 years.
Total cash flow of the SYZYGY Group was negative as at the reporting date, at EUR -3.4 million. The positive cash flow from investment operations of EUR 4.4 million was unable to offset the negative cash flow from business operations of EUR -2.7 million and negative cash flow from financing activities, which represents the payment of the dividend of EUR -4.8 million. The negative cash flow from business operations is due primarily to the rise in accounts receivable of EUR -4.2 million (previous year EUR -1.8 million).
Positive cash flow from investment operations is primarily attributable to the sale (EUR 10.8 million) of securities and a lower level of purchases (EUR -5.5 million).
The SYZYGY Group's total assets rose to EUR 90.4 million as at the reporting date. The increase of EUR 9.5 million compared with December 31, 2016 represents a growth of 12 per cent.
Non-current assets increased by around 30 per cent to EUR 49.5 million. This increase is attributable to the acquisition of a stake in Catbird Seat.
Current assets fell by EUR 1.7 million, or 4 per cent, to EUR 41.0 million. This was due to both a reduction in securities and in liquid funds of EUR 7.9 million (35 per cent) to EUR 14.3 million and a rise in trade receivables by 28 per cent to EUR 23.8 million.
At EUR 47.0 million, equity was EUR 2.8 million or 6 per cent below the figure as at December 31, 2016, corresponding to an equity ratio of 52 per cent.
Other net income amounted to EUR -1.5 million and thus remained at the same level as at December 31, 2016. This item mainly comprises unrealised exchange rate changes and unrealised price changes on securities similar to those seen in the prior-year period.
At EUR 26.7 million, current liabilities were 11 per cent above the level as at year-end 2016 (EUR 24.0 million). This mainly includes the reduction of EUR -1.2 million to EUR 6.2 million in accounts payable and a rise in other provisions from EUR 8.7 million to EUR 11.5 million.
As with any private-sector business, the SYZYGY Group is subject to factors over which it has no control. Changes in the general economic environment and sentiment, both actual and perceived, can have a positive or negative impact on the Group's growth.
All statements about the future of the Group are based on information and findings that were known and available at the time this report was prepared. Since this information is subject to constant change, forecasts invariably involve a number of uncertainties. As a result, actual results may differ in subsequent periods.
Business performance can also benefit from the acquisition of major new clients and from expanding existing client relationships by gaining additional budgets above and beyond scheduled projects.
SYZYGY currently expects the Group's core markets to experience growth. Overall, factors that are likely to promote economic growth predominate.
The International Monetary Fund (IMF) forecasts strong growth for the global economy and expects an increase of 3.5 per cent for the current year and 3.6 per cent in 2018.
The IMF's economists forecast somewhat weaker growth for Germany than for the Eurozone, although this is not due to any weakness on the part of Germany. In fact, the IMF experts have raised their outlook once again: the German economy is expected to expand by 1.8 per cent in 2017 and by a further 1.6 per cent in 2018. Other countries, such as Spain, the Netherlands, Belgium, Austria and Finland, will grow at an even faster pace this year though.
Economic experts from the Organisation for Economic Co-operation and Development (OECD) confirm that the German economy will see strong growth. Their forecast for this year is an increase of 1.7 per cent, followed by 2.0 per cent in 2018.
The UK is in a difficult situation. Economists expect turbulence to continue throughout the duration of the EU exit negotiations, i.e. for the next two years. Additional uncertainty is likely due to poor productivity, lower investment by the state and by companies, increased inflation and the budget deficit.
Market experts believe that the US economy remains on a growth trajectory, although there are some associated risks. They forecast a rise in economic output of 2.2 per cent in the current year and of 2.6 per cent for next year. The IMF has reduced its expectations with regard to growth in the US due to uncertainty in relation to government expenditure and tax revenue. It expects to see a gain in 2017 and 2018 of just 2.1 per cent in each year, instead of the original forecast of 2.3 and 2.5 per cent, respectively.
The general state of the economy is one of the main factors that determines companies' willingness to invest in marketing campaigns. In view of the mostly positive economic outlook at present, SYZYGY expects advertising budgets to rise in 2017. At the same time, the shift away from traditional offline media and towards digital channels is no longer a surprise to anyone. It is thus to be expected that online advertising will continue to grow as a proportion of total budgets.
Due to the lack of major sporting or political events, Magna forecasts a rather subdued growth rate for the global advertising market of 3.7 per cent. Market experts at Zenith are likewise cautious about the future. They forecast an increase of 4.2 per cent for 2017 and recently reduced their March forecast by 0.2 per cent (from 4.4). 2016 was a good year for the advertising industry due to a large number of events. As a result, growth in the following three years will remain below that of the previous year, staying between 4.1 and 4.2 per cent in the period to 2019.
With regard to the overall German market, Magna's forecasts for 2017 is for a largely unchanged 2.2 per cent. The market experts at Zenith have a more optimistic outlook for the German advertising market and now expect a rise of 2.5 per cent instead of the 2.3 per cent predicted in March. The reason cited for the upward correction is the continuing growth in investment in online advertising. The German Online Marketing Group (OVK), part of the German Association for the Digital Economy (BVDW), confirms this trend. It expects digital advertising to grow by 7.0 per cent to EUR 1.9 billion in 2017.
The UK is one of the top 5 advertising markets worldwide, alongside Germany. Magna's industry experts anticipate weak growth in the overall market of just 1.9 per cent. ZenithOptimedia expects the UK to fall to 9th place in the global growth ranking, behind Germany (7) and Russia (8).
The ZenithOptimedia study assesses the growth outlook for the US for the years 2017 to 2019 as averaging 3.3 per cent. Magna, meanwhile, sees growth in the advertising market of just 1.6 per cent in the current year. The online segment will also grow strongest in this market, at 14 per cent.
Although the macroeconomic outlook is marked by uncertainty, SYZYGY believes that conditions are very favourable for further growth. The continuing shift of marketing budgets to digital channels is an additional source of support and impetus. Having said that, purely online advertising, to which the above statistics refer, represents just one aspect of the complex digital marketing sector and only makes up part of the Group's portfolio of services.
The SYZYGY Group is maintaining the forecast given in the interim report of March 31, 2017, and expects to be able to increase its sales slightly in the current financial year. Operating income is expected to increase slightly ahead of sales.
The results of the SYZYGY Group will be determined by the performance of the operating units and the future interest income of SYZYGY AG.
"To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group."
Bad Homburg v. d. H., August 8, 2017 The Management Board
| Assets | 06/30/2017 | 06/30/2016 | 12/31/2016 |
|---|---|---|---|
| kEUR | kEUR | kEUR | |
| Non-current assets | |||
| Goodwill | 44,292 | 29,578 | 33,797 |
| Other Fixed assets, net | 3,972 | 3,680 | 3,231 |
| Other assets | 661 | 638 | 625 |
| Deferred tax assets | 531 | 1,259 | 469 |
| Total non-current assets | 49,456 | 35,155 | 38,122 |
| Current assets | |||
| Cash and cash equivalents | 3,020 | 6,721 | 6,571 |
| Marketable securities | 11,281 | 15,051 | 15,581 |
| Accounts receivable, net | 23,756 | 20,148 | 18,525 |
| Prepaid expenses and other current assets | 2,909 | 1,456 | 2,062 |
| Total current assets | 40,966 | 43,376 | 42,739 |
| Total assets | 90,422 | 78,531 | 80,861 |
| Equity and Liabilities | 06/30/2017 | 06/30/2016 | 12/31/2016 |
| kEUR | kEUR | kEUR | |
| Equity | |||
| Common stock* | 12,828 | 12,828 | 12,828 |
| Additional paid-in capital | 20,537 | 20,504 | 20,537 |
| Own shares | -407 | -435 | -407 |
| Accumulated other comprehensive income | -1,465 | -1,421 | -1,537 |
| Retained earnings | 15,815 | 20,287 | 18,071 |
| Equity attributable to shareholders of SYZYGY AG | 47,308 | 51,763 | 49,492 |
| Minorities | -299 | 458 | 293 |
| Total Equity | 47,009 | 52,221 | 49,785 |
| Non-current liabilities | |||
| Long term liability | 16,518 | 2,383 | 6,879 |
| Deferred tax liabilities | 195 | 194 | 238 |
| Total non-current liabilities | 16,713 | 2,577 | 7,117 |
| Current liabilities | |||
| Tax accruals | 1,263 | 753 | 203 |
| Accrued expenses | 11,466 | 10,151 | 8,668 |
| Customer advances | 4,723 | 4,969 | 4,632 |
| Accounts payable | 6,217 | 5,164 | 7,434 |
| Other current liabilities | 3,031 | 2,696 | 3,022 |
| Total current liabilities | 26,700 | 23,733 | 23,959 |
| Total liabilities and equity | 90,422 | 78,531 | 80,861 |
* Contingent Capital kEUR 1,200 (prior year: kEUR 1,200).
The accompanying notes are an integral part of the financial statements.
| January-June | ||||||
|---|---|---|---|---|---|---|
| 2017 | 2017 | |||||
| kEUR | kEUR | kEUR | kEUR | kEUR | ||
| 31,607 | 39,636 | -20% | 65,997 | -11% | ||
| -16,122 | -23,231 | -31% | -35,717 | -43,406 | -78,531 | -18% |
| 15,485 | 16,405 | -6% | 30,280 | 30,830 | 64,273 | -2% |
| -11,376 | -11,565 | -2% | -22,374 | -21,754 | -47,434 | 3% |
| -1,351 | -1,667 | -19% | -2,742 | -3,064 | -6,341 | -11% |
| -1,723 | -1,618 | 6% | -3,191 | -3,173 | -6,787 | 1% |
| 67 | -76 | n.a. | 133 | 115 | 1,885 | 16% |
| 1,102 | 1,479 | -25% | 2,106 | 2,954 | 5,596 | -29% |
| 405 | 404 | 0% | 908 | 800 | 1,336 | 14% |
| 1,507 | 1,883 | -20% | 3,014 | 3,754 | 6,932 | -20% |
| -410 | -507 | -19% | -846 | -1,031 | -1,835 | -18% |
| 1,097 | 1,376 | -20% | 2,168 | 2,723 | 5,097 | -20% |
| -346 | 154 | n.a. | -423 | 242 | 115 | n.a. |
| 1,443 | 1,222 | 18% | 2,591 | 2,481 | 4,982 | 4% |
| 0 | 0 | n.a. | 0 | 0 | 0 | n.a. |
| -411 | -999 | n.a. | -108 | -2,120 | -2,412 | n.a. |
| 180 | 200 | -10% | 180 | 4 | 207 4,400% | |
| -231 | -799 | -71% | 72 | -2,116 | -2,205 | n.a. |
| 866 | 577 | 50% | 2,240 | 607 | 2,892 | 269% |
| -346 | 132 | n.a. | -412 | 221 | 121 | n.a. |
| 1,212 | 445 | 172% | 2,652 | 386 | 2,771 | 587% |
| 0.11 | 0.10 | 0% | 0.20 | 0.20 | 0.39 | 0% |
| 2nd Quarter | 2016Change | 201612/31/2016 Change 74,236 142.804 |
The accompanying notes are an integral part of the financial statements.
| Accum. other compre hensive income |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares | Common stock | Additional paid-in capital |
Own shares | Retained earnings | Foreign exchange currency |
Unrealised gains and losses |
Equity attributable to shareholders of SYZYGY AG |
Minority interest | Total equity | |
| in 1,000 | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |
| January 1, 2016 | 12,828 12,828 20,306 | -739 17,806 | 591 | 83 50,875 | 312 | 51,187 | ||||
| Net income of the period |
4,982 | 4,982 | 115 | 5,097 | ||||||
| Other compre hensive income |
-2,418 | 207 | -2,211 | 6 | -2,205 | |||||
| Comprehensive income |
4,982 | -2,418 | 207 | 2,771 | 121 | 2,892 | ||||
| Dividend | -4,717 | -4,717 | 0 | -4,717 | ||||||
| Sale of own shares | 231 | 332 | 563 | 563 | ||||||
| Payment to minorities | 0 | -140 | -140 | |||||||
| December 31, 2016 | 12,828 12,828 20,537 | -407 18,071 | -1,827 | 290 49,492 | 293 | 49,785 | ||||
| January 1, 2017 | 12,828 12,828 20,537 | -407 18,071 | -1,827 | 290 49,492 | 293 | 49,785 | ||||
| Net income of the period |
2,591 | 2,591 | -423 | 2,168 | ||||||
| Other compre hensive income |
-108 | 180 | 72 | 11 | 83 | |||||
| Comprehensive income |
2,591 | -108 | 180 | 2,663 | -412 | 2,251 | ||||
| Dividend | -4,847 | -4,847 | 0 | -4,847 | ||||||
| Payment to minorities | 0 | -180 | -180 | |||||||
| March 31, 2017 | 12,828 12,828 20,537 | -407 15,815 | -1,935 | 470 47,308 | -299 | 47,009 | ||||
The accompanying notes are an integral part of the financial statements.
| January-June | |||
|---|---|---|---|
| 2017 | 2016 | 2016 | |
| kEUR | kEUR | kEUR | |
| Period net income | 2,168 | 2,723 | 5,097 |
| Adjustments to reconcile income from operations to net cash provided by operating activities |
|||
| – Depreciation on fixed assets | 807 | 739 | 1,778 |
| – Profit (-) and loss (+) on sale of securities | -589 | -471 | -504 |
| – Profit (-) / loss (+) on sale of fixed assets | 4 | 40 | 8 |
| – Changes in Earn-Out liablities | -994 | 0 | -1,011 |
| – Other non-cash income and expenses | -314 | 490 | 458 |
| Changes in operating assets and liabilities: | |||
| – Accounts receivable and other assets | -4,243 | -1,883 | -440 |
| – Customer advances | -96 | -419 | -792 |
| – Accounts payable and other liabilities | 362 | 475 | 1,892 |
| – Tax accruals and payables, deferred taxes | 147 | -483 | -556 |
| Cash flows provided by operating activities | -2,748 | 1,211 | 5,930 |
| Changes in other non-current assets | 0 | -295 | -16 |
| Investments in fixed assets | -1,464 | -798 | -1,167 |
| Purchases of marketable securities | -5,542 | -9,789 | -12,151 |
| Proceeds from sale of marketable securities | 10,816 | 17,595 | 20,110 |
| Acquisition of consolidated entities less liquid funds | 612 | -4,657 | -4,655 |
| Cash flows used in investing activities | 4,422 | 2,056 | 2,121 |
| dividend paid to minority shareholders | -180 | -140 | -140 |
| dividend paid to shareholders of SYZYGY AG | -4,847 | 0 | -4,717 |
| Cash flows from financing activities | -5,027 | -140 | -4,857 |
| Total | -3,353 | 3,127 | 3,194 |
| Cash and cash equivalents at the beginning of the period | 6,571 | 3,841 | 3,841 |
| Exchange rate differences | -198 | -247 | -464 |
| Cash and cash equivalents at the end of the period | 3,020 | 6,721 | 6,571 |
The accompanying notes are an integral part of the financial statements.
Operating cashflow includes paid interest in the amount of kEUR 9 (prior year: kEUR 8), received interest in the amount of kEUR 326 (prior year: kEUR 830) as well as paid taxes in the amount of kEUR 971 (prior year: kEUR 992).
Pursuant to the provisions of section 37 w WpHG (German Securities Trading Act) in conjunction with Article 37 y para. 2 WpHG, the financial report of SYZYGY AG for the first six months of 2017 comprises interim consolidated financial statements and an interim Group Management Report. The interim consolidated financial statements were prepared in accordance with the requirements of International Financial Reporting Standards (IFRS) for interim financial reporting as applicable within the European Union. The unaudited interim financial statements were prepared in compliance with IAS 34 and in accordance with DRS 16. Accordingly, the company elected to produce a short-form report, compared with the consolidated financial statements as at December 31, 2016. The Management Report was prepared in accordance with the applicable requirements of the WpHG.
The same accounting and consolidation principles were applied as described in the notes to the financial statements in the 2016 annual report. Individual items in the balance sheet and consolidated statement of comprehensive income are likewise presented using the same valuation principles as described and applied in the annual report for 2016. The financial figures and associated information must therefore be read in conjunction with the annual report on the consolidated financial statements for 2016.
According to Article 37 w para. 5 WpHG, the interim financial statement have not been audited.
The SYZYGY Group is an international provider of creative, technological and media services for digital marketing.
SYZYGY AG acts as a management holding company that provides its subsidiaries with central services relating to strategy, design, planning, technology development, accounting, IT infrastructure and finance. SYZYGY AG also supports the subsidiaries in new business activities and generates sales from projects with third parties.
As operating entities, the subsidiaries are responsible for providing consultancy and other services. With branches in Bad Homburg v. d. H., Berlin, Frankfurt/Main, Hamburg, London, Munich, New York and Warsaw, they offer large corporations an integrated portfolio of solutions, from strategic consulting to project planning, concepts and design to technical realisation of brand platforms, business applications, websites, hosting, online campaigns and mobile apps. Online media services such as media planning, search engine marketing/ optimisation and affiliate programmes are also a major business area. In addition, SYZYGY helps clients meet customer experience and usability requirements and assists them at every stage of the user-centred design process. Digital illustrations, animations and gaming round off the range of services.
The Group's business focus is on the automotive, telecommunications/IT and consumer goods industries, as well as financial services.
As at June 30, 2017, the following subsidiaries were included in the consolidated financial statements of SYZYGY AG and fully consolidated:
In order to extend the range of services and strengthen especially the services in customer experience, SYZYGY AG acquired 51 per cent stake in Catbird Seat on June 1. Control of financial and corporate policy was transferred on June 1, 2017. According to IFRS 3.62 the acquisition led to an increase in liquid assets of kEUR 612, the acquisition of current assets of kEUR 1,560 and of non-current assets of kEUR 77. Liabilities totalling kEUR 2,077 were also acquired which resulted in an equity of kEUR 172.
Moreover, SYZYGY has agreed to the acquisition of further 19 per cent of shares of Catbird Seat in the first quarter of 2020, so that present ownership is given for the additional shares as well. The purchase price for those additional shares is based on Catbird Seat's performance in the years 2017 to 2019.
Furthermore, a reciprocal put/call option was agreed for the sale or acquisition of the outstanding 30 per cent of the shares in Catbird Seat. This option can be exercised from 2023 to 2027. The price of these additional shares depends on the future business performance of Catbird Seat in the years 2017 to 2022. Because the instrument is structured as a reciprocal put/call option, SYZYGY expects that it is highly likely that it will be exercised by at least one party, based on current circumstances. As a result, this involves present ownership for SYZYGY with regard to these shares as well, with effect from the time of acquisition. Accordingly, first-time consolidation is being applied in the 2017 financial year, on the basis of a 100 per cent shareholding. The financial liabilities resulting from the anticipated exercise of the options have been recognised at fair value on the balance sheet date in the amount of kEUR 6,864 and reported in other non-current liabilities.
A difference of around kEUR 10,632 was allocated to the stated earnings before taxes for the order backlog (kEUR 70) and reverse deferred tax liabilities (kEUR 22). The residual difference is reported as goodwill of kEUR 10,584 in the Germany segment, denominated in EUR. This goodwill is not deductible for tax purposes. IFRS 3 stipulates that the final purchase price allocation must be concluded no later than one year after completion of the transaction. As such, at the end of May 2018 it constitutes preliminary accounting for the acquired assets and liabilities.
Information on general consolidation principles is provided in the 2016 annual report from page 62 onwards.
Application of IFRS 8 requires segment reporting in accordance with the Group's management approach. SYZYGY thus bases segment reporting on geographical lines.
As the holding company, SYZYGY AG mainly delivers services to the operating units and therefore needs to be considered separately as a provider of central functions. The UK segment consists of SYZYGY UK, Unique Digital UK and Hi-ReS! LON. The Germany segment comprises Catbird Seat, Hi-ReS! BER, SYZYGY Deutschland, SYZYGY Media DE and USEEDS. SYZYGY NY has formed a separate United States segment since 2015. Ars Thanea does not fulfil the size criteria to qualify as an independent geographical segment. For this reason it is presented under "Other segments".
All segments offer large corporations an integrated portfolio of corporate Internet solutions: from strategic consulting to project planning, concepts, design and technical realisation. SYZYGY's services are complemented by search engine marketing and online media planning.
The individual segments apply the same accounting principles as the consolidated entity. The criteria primarily used by SYZYGY AG to assess the performance of the segments include sales and EBIT. Sales to third parties are allocated on the basis of the registered office of the company unit that makes the sale. Information about the geographical areas in relation to segment sales and non-current assets is provided in the segment summary below. Sales included in segment reporting consist of sales to external clients and intersegment sales. Transactions within segments, which are charged at market prices, were eliminated.
Segment assets are equivalent to total assets plus the goodwill attributable to the respective segment, less receivables attributable to companies in the same segment.
Segment investments comprise investments in intangible assets and fixed assets.
Segment liabilities correspond to total liabilities excluding equity plus minority shares attributable to the respective segment, less liabilities attributable to companies in the same segment.
| June 30, 2017 | Germany | UK | US | Other segments | functions Central |
Consolidation | Total |
|---|---|---|---|---|---|---|---|
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |
| Billings | 32,739 | 21,577 | 10,388 | 1,774 | 1,954 | -2,435 | 65,997 |
| Media costs | -14,268 | -14,128 | -7,321 | 0 | 0 | 0 | -35,717 |
| Sales | 18,471 | 7,449 | 3,067 | 1,774 | 1,954 | -2,435 | 30,280 |
| of which internal sales | 1,460 | 44 | 0 | 931 | 0 | -2,435 | 0 |
| Operating income (EBIT) | 1,423 | 398 | 694 | 141 | -550 | 0 | 2,106 |
| Financial income | 20 | 0 | 0 | -2 | 1,310 | -420 | 908 |
| Earnings before tax (EBT) | 1,443 | 398 | 694 | 139 | 760 | -420 | 3,014 |
| Assets | 48,041 | 21,996 | 6,111 | 8,192 | 69,559 | -63,477 | 90,422 |
| of which non-current assets | 32,702 | 8,434 | 283 | 6,806 | 39 | 0 | 48,264 |
| of which goodwill | 29,564 | 8,095 | 0 | 6,633 | 0 | 0 | 44,292 |
| Investments | 1,390 | 50 | 1 | 48 | 9 | 0 | 1,498 |
| Depreciation and amortisation | 592 | 104 | 50 | 52 | 9 | 0 | 807 |
| Impairment on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Segment liabilities | 10,603 | 9,232 | 4,747 | 462 | 22,601 | -4,232 | 43,413 |
| Employees as per balance sheet date |
360 | 127 | 14 | 78 | 23 | 0 | 602 |
| June 30, 2016 | Germany | UK | US | Other segments | functions Central |
Consolidation | Total |
|---|---|---|---|---|---|---|---|
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |
| Billings | 35,243 | 16,979 | 21,228 | 1,457 | 1,215 | -1,886 | 74,236 |
| Media costs | -16,136 | -10,060 | -17,210 | 0 | 0 | 0 | -43,406 |
| Sales | 19,107 | 6,919 | 4,018 | 1,457 | 1,215 | -1,886 | 30,830 |
| of which internal sales | 587 | 364 | 0 | 538 | 397 | -1,886 | 0 |
| Operating income (EBIT) | 3,022 | 783 | 591 | 249 | -1,608 | -83 | 2,954 |
| Financial income | 51 | -2 | 0 | -6 | 968 | -211 | 800 |
| Earnings before tax (EBT) | 3,073 | 781 | 591 | 243 | -640 | -294 | 3,754 |
| Assets | 38,220 | 19,924 | 7,402 | 7,858 | 59,257 | -54,130 | 78,531 |
| of which non-current assets | 17,274 | 9,031 | 394 | 6,522 | 37 | 0 | 33,258 |
| of which goodwill | 14,666 | 8,592 | 0 | 6,320 | 0 | 0 | 29,578 |
| Investments | 582 | 157 | 49 | 47 | 11 | 0 | 846 |
| Depreciation and amortisation | 440 | 115 | 45 | 137 | 8 | 0 | 745 |
| Impairment on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Segment liabilities | 8,143 | 5,946 | 5,950 | 756 | 9,361 | -3,846 | 26,310 |
| Employees as per balance sheet date |
319 | 111 | 19 | 75 | 22 | 0 | 546 |
SYZYGY is authorised to resell or call in treasury shares or to offer treasury shares to third parties in the course of acquiring companies. Treasury shares do not entitle the Company to any dividend or voting rights. The extent of the share buyback is shown as a separate item to be deducted from equity.
On May 29, 2015, the Annual General Meeting authorised the Management Board to acquire a maximum of 10 per cent of the Company's outstanding shares until May 28, 2020. SYZYGY is authorised to resell or call in treasury shares, to offer them to employees of the Company as compensation, or to offer treasury shares to third parties in the course of acquiring companies. As at June 30, 2017, SYZYGY held 73,528 treasury shares at an average acquisition cost of EUR 5.54.
Current holdings of shares and transactions carried out in the period under review are disclosed in the following tables:
| [Number of shares] | Lars Lehne | Andrew P. Stevens | Erwin Greiner | Total |
|---|---|---|---|---|
| As at December 31, 2016 | 10,000 | 0 | 0 | 10,000 |
| Purchases | 0 | 0 | 0 | 0 |
| Sales | 0 | 0 | 0 | 0 |
| As at June 30, 2017 | 10,000 | 0 | 0 | 10,000 |
| Supervisory Board: Shares | ||||
| [Number of shares] | Ralf Hering | Wilfried Beeck | Rupert Day | Total |
| As at December 31, 2016 | 0 | 10,000 | 0 | 10,000 |
| Purchases | 0 | 0 | 0 | 0 |
| Sales | 0 | 0 | 0 | 0 |
| As at June 30, 2017 | 0 | 10,000 | 0 | 10,000 |
| Management Board: Options | ||||
| [Number of shares] | Lars Lehne | Andrew P. Stevens | Erwin Greiner | Total |
| As at December 31, 2016 | 0 | 0 | 10,000 | 10,000 |
| Additions | 0 | 0 | 0 | 0 |
| Disposals | 0 | 0 | -10,000 | -10,000 |
| As at June 30, 2017 | 0 | 0 | 0 | 0 |
SYZYGY AG pays the difference between the exercise price and share price at the exercise date in cash instead of issuing new shares. Accordingly, the liabilities are recorded as accruals on a pro rata basis.
The members of the Supervisory Board do not hold any options.
| As at June 30, 2017 | 240,000 | 120,000 | 75,000 | 435,000 |
|---|---|---|---|---|
| Disposals | 0 | 0 | 0 | 0 |
| Additions | 0 | 0 | 0 | 0 |
| As at December 31, 2016 | 240,000 | 120,000 | 75,000 | 435,000 |
| [Number of shares] | Lars Lehne | Andrew P. Stevens | Erwin Greiner | Total |
Management Board: Phantom stocks
The phantom stock programme was launched in 2015. Under this arrangement the eligible employee receives the difference between the share price on the date of granting and the share price on exercise of the phantom stocks as a special payment. 40 per cent of the phantom stocks granted (Tranche 1) are not exercisable until at least 2 years have elapsed and will lapse after 3 years at the latest, while 60 per cent of the phantom stocks granted (Tranche 2) are not exercisable until at least 3 years have elapsed and will lapse after 4 years at the latest. The maximum price increase is limited to 60 per cent for Tranche 1 and to 90 per cent in the case of Tranche 2.
The base price for the phantom stocks of Andrew P. Stevens and Erwin Greiner was set at EUR 9.00, for Lars Lehne at EUR 9.13.
Additional information is provided in the 2016 annual report from page 61 onwards.
As at June 30, 2017, the shareholders' structure has not changed compared to December 31, 2016. As at the reporting date, the total number of shares was 12,828,450.
The shareholders' structure of the Company at the reporting date was as follows:
| in Tsd. | Shares | per cent |
|---|---|---|
| WPP plc, St. Helier | 6,643 | 51.79 |
| Free Float | 6,111 | 47.63 |
| Treasury Stock | 74 | 0.58 |
| Total | 12,828 | 100.00 |
Bad Homburg v. d. H., August 8, 2017 SYZYGY AG
The Management Board
Financial calendar 2017
All dates are subjects to change.
CONTACT / IMPRESS
IM ATZELNEST 3 D-61352 BAD HOMBURG V.D.H. T +49 6172 9488–252 F +49 6172 9488–270 [email protected] WWW.SYZYGY.NET
CHAIRMAN OF THE SUPERVISORY BOARD: RALF HERING MANAGEMENT BOARD: LARS LEHNE, ERWIN GREINER, ANDREW P. STEVENS
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