Marketing services group Real Affinity has failed to win many fans since it floated on AIM two years ago. Until recently, its stock market record had been blighted by a combination of missed targets, depressing losses and falling sales.

That probably explains why its latest full-year figures (to end-March 2004) were largely ignored by the investment community. But these results, the most bullish ever produced by Real, suggest the company is finally turning the corner.

For a start, despite losing a major direct marketing client (Parcelforce), Real managed to reduce losses from £1.3 million to £38,000. Sales still fell 23 per cent – to £4.59 million – but that was in large measure the result of a shift away from high-volume, low-margin work.

Even more interestingly, the fall in sales was accompanied by a considerable drop in the cost of sales (down 38 per cent – or £1.34 million) and a £864,000 drop in operating expenses. Profit margins rose a quarter to 51 per cent.

Chief executive Mark Richardson says: 'We restructured the business to take account of the changes in our operation. More importantly though, our core direct marketing division, Ladders, is thriving once again as the advertising and media sector improve.'

Ladders lifted its profit contribution to £285,000 and, says Richardson, 'once again boasts a quality roster of clients and projects.' That roster features the likes of Imperial Tobacco, Proctor & Gamble and Green Flag.

The other main feature of the results was the contribution of Navigator, a sports marketing group that was bought in February for an initial £590,000 – though performance-related payments could add a further £4.9 million over the next two years. At the same time, Real raised £1.3 million to lift the profile of Navigator and integrate and improve the enlarged business.

Since the deal was signed, Navigator has achieved a net profit before tax of £178,000 and won a contract from the European Athletic Association to market their events, including the potential money-spinner that will be the 2006 European Championships in Sweden. More deals, in sports and other areas, could follow.

Richardson suggests Navigator has the potential to boost Real's earnings. He makes the same claim for Holly Benson Communications, a firm Real acquired a few weeks back for an initial £1.15 million (paid for in shares and £750,000 cash). In the year to end-March 2003, the last period for which figures were available, Holly Benson produced a net profit of £14,000 on sales of £5 million. Net assets amounted to £730,000.

Holly Benson provides an array of specialist communication and marketing advice to clients such as BP, EMAP, Npower and Unipart, working on projects such as conference and video production, exhibitions and point-of-sale campaigns. Richardson intends to integrate the business with the Ladders division.

With Real's smaller online venture, Onstate, making good progress from a low base, Navigator going great guns and the core Ladders outfit thriving as the marketing sector continues to burgeon, Real Affinity's market capitalisation – just £1.7 million – looks to be behind events.

There will obviously be a lot of integration issues to resolve in the short term, but Real is largely debt-free and could make well over £250,000 this year on sales of over £8 million. One to buy and tuck away.

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