Interim Results
18 December 2007
MKM.L
MKM GROUP PLC
("the Group" or "the Company")
Interim Results for the six months to 30 September 2007
Highlights
* Group substantially enlarged through the acquisitions of Leapfrog
and Promodus
* Management team strengthened as vendors of Leapfrog join the
Board and acquire significant shareholdings in the Group
* Good progress with integration - confirms validity of acquisition
strategy
* International expansion continues with winning of new business
and opening of Singapore office
* Pro-forma first half sales for the combined business were �5.58m
(2006: �5.12m). These were triple the sales of the continuing
business in the first half of 2006 of �1.76m
* Pro-forma first half profit before tax for the combined business
was �0.84m (2006: �1.38m). This was almost triple the profit of
the continuing business in the first half of 2006 of �0.29m
* Currently in negotiations for a number of major contracts - Board
views outlook positively
Commenting, Executive Chairman, Andrew Johnson said
"I am delighted to announce our first set of figures since the
acquisitions of the Leapfrog and Promodus businesses. These two
acquisitions have totally changed the shape of the Group and I am
pleased to say that the figures confirm the validity of the strategy
stated at the time. Today, the Group is three times the size it was
this time last year and we have a much stronger international
platform on which to build.
One of our key objectives is securing long-term loyalty accounts and
we are currently working on a number of major bids. As always, it is
difficult to predict with certainty the timing of the successful
closure of such bids but we remain optimistic that we will close a
number of these during the final quarter of our current financial
year.
The integration of the two businesses is proceeding according to plan
and the Board views prospects for the enlarged Group positively. I
look forward to updating shareholders at the full year."
Enquiries:
MKM Group plc Andrew Johnson, Executive T: 0161
Chairman 877 1112
(www.mkmgroupplc.com) Matthew Toynton, Finance
Director
WH Ireland Limited David Youngman T: 0161 832
2174
Biddicks Katie Tzouliadis T: 020 7448
1000
CHAIRMAN'S STATEMENT
Overview
I am pleased to announce interim results for the six months to 30
September 2007 and update you on the considerable progress we have
made.
Given the very considerable change in the shape of the Group
following our acquisitions we have published a set of pro-forma
results in addition to the statutory figures. It is important that
you read both sets of figures in order get a good understanding of
the Group as it is currently configured.
In August 2007, we completed the acquisition of The Leapfrog Group
("Leapfrog"), based in Australia and New Zealand, thereby creating a
substantial international loyalty and sales promotion company.
Leapfrog's founders joined the Board and now have substantial
shareholdings in the Group. The enlarged Board is working well on the
integration of the companies and the further development of the
strategy.
In October 2007, we made a second acquisition, Promodus, the London
based marketing and communications consultancy. The consideration for
the acquisition was again a combination of cash and shares with
Promodus' management electing to join the Group in order to take an
active part in developing the UK business. The addition of Promodus
also significantly broadens the range of services we can offer our
clients.
Results
This statement includes both statutory and pro-forma figures for the
first half of the year. The statutory figures include the figures for
Leapfrog from 29 August 2007, the date of acquisition. The pro-forma
figures include the results for the continuing business of MKM in the
UK, Leapfrog and Promodus as though all three businesses had been
owned by the Group throughout the period.
a) Statutory basis
On a statutory basis Group revenue for the first half was �2.54m
(2006: �1.76m). This included �0.71m of Leapfrog revenue and thus on
a like-for-like basis, the continuing Group business generated
increased revenues of �1.83m (2006: �1.76m).
On a statutory basis Group profit before tax was �318,000 (2006:
�293,000). This included �122,000 of Leapfrog profit and thus on a
like-for-like basis, the continuing Group business generated profit
before tax of �196,000 (2006: �293,000). This fall in the profit for
the continuing business mainly resulted from a reduction in the gross
margin to 59% (2006: 68%). The gross margin achieved in the first
half was in line with expectations and we believe will be sustained
going forwards.
On a statutory basis the diluted earnings per share were 0.4p (2006:
0.6p). This reduction was primarily due to a change in the Group's
tax position. The previous year benefited from utilising brought
forward losses.
At the time of the Leapfrog acquisition in August, the Group
undertook a placing to raise �0.5m before expenses. These proceeds
were used to contribute towards the funding of the cash element of
the consideration payable and to provide additional working capital
for the enlarged Group. At the period end, net cash stood at �0.8m
(2006: �1.8m).
b) Pro-forma basis
On a pro-forma basis Group revenue for the first half was �5.58m
(2006: �5.12m). This increase of 9% was mainly driven by growth in
the Leapfrog business. The pro-forma revenue of �5.58m was more than
three times the revenue of �1.76m achieved by the continuing Group
businesses last year.
On a pro-forma basis profit before tax for the first half of the year
was �840,000 (2006: �1.37m). This reduced profit mainly resulted from
a fall in the gross margin from 71% last year to 57%. In addition to
the fall in the UK mentioned above, the Australian gross margin was
also down compared with the previous year when the business benefited
from a substantial, one-off, high margin campaign. The pro-forma
gross margin of 57% was in line with our expectations at the time of
the acquisition and at a level that we believe is sustainable going
forwards.
The pro-forma profit of �840,000 was almost three times the profit of
�293,000 achieved by the continuing Group business last year.
Dividend
No interim dividend is being proposed (2006: - �nil).
Review of Business
Leapfrog operates in the same sector as our existing business, MKM
Concepts, providing long-term reward and loyalty programmes as well
as tactical sales promotion campaigns to major branded companies in
Australasia and the Asia Pacific region. We identified synergies
prior to acquiring the business and I am pleased to report that , we
are now seeing the anticipated benefits beginning to come through.
The sales teams in Australia and the UK are working well together and
are building a centralised database in order to maximise
cross-selling opportunities.
During the period, both management teams have placed considerable
emphasis on the development of longer term client relationships with
the objective of creating improved revenue visibility for the Group.
One of the main benefits of the Leapfrog acquisition was the
opportunity it created to expand into new international markets.
Leapfrog had a proven track record of international expansion, having
established a sales operation in New Zealand in 2005. International
expansion is progressing well. The Group won new business with
Lufthansa, the second largest airline in Europe and Lenovo, the
international technology company, in Singapore and following these
wins, we opened a new office in Singapore in November.
Board and Management Changes
Following the acquisition of Leapfrog and Promodus, the Board and
senior management team have been substantially strengthened with a
number of new appointments. At the end of August, Brian Smillie and
Richard Tenser, the co-founders of Leapfrog, joined the Board as
International Managing Director and International Development
Director respectively.
In early October 2007, Mark Koch, the founder of MKM, assumed the
position of Deputy Chairman, taking responsibility for global
business development, major client relationships and product
innovation within the Group. At the same time, Simon Ward, the
founder of Promodus, joined the Group's executive committee and
assumed responsibility for the UK business, becoming Managing
Director of MKM Concepts Limited.
Outlook
We are very pleased with the progress we have made during the period
and since completing both our acquisitions. We have established a
stronger base and are working hard to integrate our acquisitions and
maximise the benefits for the enlarged Group.
We are focused on securing long-term loyalty accounts and are
currently working on a number of major bids. As always, it is
difficult to predict with certainty the timing of the successful
closure of such bids but we remain optimistic that we will close a
number of these during the final quarter of our current financial
year.
We continue to seek further acquisitions which will assist in
achieving our ambition to become a substantial and broadly based
marketing services group. The Board views prospects for the enlarged
Group positively and I look forward to updating shareholders at the
full year.
Andrew Johnson
Executive Chairman
MKM GROUP PLC
Consolidated income statement for the six months ended 30 September
2007
Unaudited Unaudited Audited
six mths ended six mths ended year ended
30 Sept 2007 30 Sept 2006 31 March
�'000 �'000 2007
�'000
Revenue 2,540 1,760 3,888
Cost of sales (1,056) (568) (1,411)
GROSS PROFIT 1,484 1,192 2,477
Administrative expenses (1,199) (912) (2,073)
PROFIT FROM OPERATIONS 285 280 404
Finance expense (1) - (1)
Finance income 34 13 53
PROFIT BEFORE TAXATION 318 293 456
Income tax (charge)/credit (95) - 124
PROFIT FOR THE PERIOD 223 293 580
Attributable to the equity 223 293 580
holders of the parent
Basic earnings per share 0.5 0.7 1.3
(pence)
Diluted earnings per share 0.4 0.6 1.1
(pence)
MKM GROUP PLC
Consolidated statement of changes in equity for the six months ended
30 September 2007
Share
Share Share Shares to Option Retained
capital Premium be issued Reserve earnings Total
�'000 �'000 �'000 �'000 �'000 �'000
Balance as at 1 April 2007 218 2,205 - 112 (107) 2,428
Changes in equity for six
months
ended 30 Sept 2007
Net income recognised 10 10
directly in equity
Net profit for the period 223 223
Total recognised income and - - - 10 223 233
expense for the period
Issue of equity shares 133 1,942 2,075
Shares to be issued as 840 840
deferred
consideration
Balance as at 30 September 351 4,147 840 122 116 5,576
2007
MKM GROUP PLC
Consolidated statement of changes in equity for the six months ended
30 September 2006
Shares Share
Share Share to be Option Retained
capital Premium issued Reserve earnings Total
�'000 �'000 �'000 �'000 �'000 �'000
Balance as at 1 April 218 2,205 0 31 (687) 1,767
2006
Changes in equity for six
months ended 30 Sept 2006
Net income recognised - - 15 - 15
directly in equity
Net loss for the - - - - 293 293
period
Total recognised income - - - 15 293 308
and expense for the
period
Balance as at 30 218 2,205 - 46 (394) 2,075
September 2006
MKM GROUP PLC
Consolidated balance sheet at 30 September 2007
Unaudited Unaudited Audited
30 Sept 2007 30 Sept 2006 31 March 2007
�'000 �'000 �'000
NON-CURRENT ASSETS
Property, plant & equipment 540 244 277
Intangibles 7,209 823 703
Deferred tax assets 339 178
8,088 1,067 1,158
CURRENT ASSETS
Inventories 20 1 10
Trade and other receivables 2,354 523 796
Cash and cash equivalents 792 1,751 1,906
3,166 2,275 2,712
CURRENT LIABILITIES
Trade and other payables (3,778) (1,235) (1,437)
Provisions - (32) (5)
Deferred Consideration (1,200) - -
Loan Stock (700) - -
(5,678) (1,267) (1,442)
NET ASSETS 5,576 2,075 2,428
CAPITAL AND RESERVES
ATTRIBUTABLE
TO THE EQUITY HOLDERS OF THE
COMPANY
Share Capital 351 218 218
Share Premium 2,647 2,205 2,205
Merger Reserve 1,500 - -
Shares to be issued 840 - -
Share Option Reserve 122 45 112
Retained earnings 116 (393) (107)
TOTAL EQUITY 5,576 2,075 2,428
MKM GROUP PLC
Consolidated cash flow statement for the six months ended 30
September 2007
Unaudited Unaudited Unaudited
Six Six Year
months months ended
ended ended 31 March
30 Sept 30 Sept 2007
2007 2006
�'000 �'000 �'000
CASHFLOWS FROM OPERATING
ACTIVITIES
Profit before taxation 318 293 456
Adjustments for
Interest receivable (34) (13) (53)
Depreciation 50 41 80
Interest expense 1 - 1
Share option charge 10 15 30
345 336 514
(Increase) in inventories - - (9)
(Increase)/decrease in trade receivables (246) (264) (537)
(Decrease)/increase in trade payables (510) (30) 278
(Decrease)/increase in provisions (5) 15 (16)
(761) (279) (284)
Interest paid (1) - (1)
Net cash generated (used in)/from operations (417) 57 229
CASHFLOWS FROM INVESTING
ACTIVITIES
Purchase of non-current assets (12) (72)
Acquisition of Share Capital in new companies (1,250)
Costs associated with acquisition (152)
Cash within acquired Company 196
Interest receivable 34 13 53
Net cash from investing activities (1,172) 1 (19)
CASHFLOWS FROM FINANCING
ACTIVITIES
Issue of ordinary share capital 475 - -
Net cash generated from financing activities 475 - -
Net (decrease)/increase in cash and cash (1,114) 58 210
equivalents
Cash and cash equivalents at the beginning of 1,906 1,693 1,696
the
period
Cash and cash equivalents at the end of the 792 1,751 1,906
period
MKM GROUP PLC
Notes forming Part of the Financial Statements for Six months ended
30 September 2007
1. Accounting Policies
The Interim results for the six months ended 30 September 2007, which
are neither audited nor reviewed pursuant to guidance issued by the
Auditing Practices Board, have been prepared on the basis of
accounting policies consistent with IFRS which has been adopted in
the statutory financial statements for the year ended 31 March 2007
and will be used within the statutory financial statements for the
year ended 31 March 2008.
During the period to 30 September 2007, the company has completed the
acquisition of Leisure World Pty Ltd (The Leapfrog Group). At the
date of circulation of these interim results, a full evaluation of
the intangible assets purchased within the acquisition has not been
completed and as such no details of these assets are provided at this
time.
2. Basis of preparation
The comparatives for the full year ended 31 March 2007 are not the
Company's full statutory accounts for that year. A copy of the
statutory accounts for that year has been delivered to the Registrar
of Companies. The auditors' report on those accounts was unqualified,
did not included references to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and did
not contain a statement under section 237 (2)-(3) of the Companies
Act 1985.
3. Turnover
Turnover is wholly attributable to the principal activity of the
group and arises in the following geographical split:
Unaudited Unaudited Audited
six mths ended six mths ended year ended
30 Sept 2007 30 Sept 2006 31 March 2007
�'000 �'000 �'000
United Kingdom 1,834 1,760 3,888
Australia/New Zealand 706 - -
Total 2,540 1,760 3,888
4. Taxation
The tax charge for the period is based on the anticipated effective
rate of tax for the year ended 31 March 2008.
5. Earnings per share
The basic earnings per share has been calculated using the profit
after tax, divided by the weighted average number of shares in issue
of 48,188,990 (31 March 2007 and 30 Sept 2006: 43,744,545).
Diluted earnings per share is calculated by adjusting the earnings by
adding back the charge for FRS 20 Share based payments and adjusting
the weighted average number of shares in issue on the assumption of
conversion of all the potentially dilutive ordinary shares which are
share options granted where the exercise price is less than the
average price of the Company's ordinary shares during the period. The
weighted average number of potentially dilutive share options is
8,734,848 (31 March 2007 - 7,864,881; 30 September 2006 - 6,958,281)
A further adjustment has been made for the potentially dilutive
effect of the deferred consideration shares to be paid to the vendors
of The Leapfrog Group upon satisfaction of certain performance
criteria in the year ended 31 March 2008. The weighted average
number of deferred consideration shares is 1,333,333 (31 March 2007
and 30 Sept 2006: nil).
6. Acquisition Accounting
On 29 August 2007 the group acquired 100% of the voting equity
instruments of Leisure World Pty Ltd (The Leapfrog Group), a company
whose principal activity is Loyalty and Sales Promotions based in
Australia and New Zealand.
�'000 �'000
Fair value of assets and liabilities
acquired
Property, plant and equipment 313
Deferred tax asset 219
Inventories 10
Trade and other receivables 1,312
Cash and Cash equivalents 196
Trade and Other payables (2,518)
Net liabilities on acquisition (468)
Consideration paid
Initial cash Consideration 1,250
Initial Loan Stock 700
Initial 20 Million ordinary shares 1,600
Deferred Cash Consideration 1,200
Deferred 8 Million ordinary shares 840
Costs of acquisition 448
Total Consideration 6,038
Goodwill 6,506
The fair value of the shares issued as Initial consideration was
determined by reference to their quoted market price of 8p/share at
the date of acquisition.
The deferred consideration payable is dependent on profits generated
by Leisure World Pty Ltd over the 1 year period up to 31 March 2008.
The amount included above represents the directors' current best
estimate of the amount payable and the fair value of the deferred
consideration shares was determined by reference to the market price
of 10.5p/share as at the interim balance sheet date of 30 September
2007.
Since the acquisition date, Leisure World Pty Ltd has contributed
�85,000 after tax to group profit. Pro-forma financials are included
that present Group profit and turnover as if the acquisition had
occurred on 1 April 2007.
Prior to completing a full valuation of the acquired Intangible
assets this Interim statement has been drawn up on the basis that we
will be recognising goodwill.
The fair values of derivatives, receivables, payables and bank loan
are the same as the IFRS carrying amounts immediately prior to the
acquisition. The IFRS carrying amount of identifiable intangibles
immediately prior to acquisition would have been zero. It is
impracticable to determine the IFRS carrying amounts of the other
assets and liabilities of Leisure World Pty Ltd immediately prior to
acquisition as the company did not prepare its accounts in accordance
with IFRS.
7. Events after the balance sheet date
On 10 October 2007 the Group acquired the entire share capital of
Promodus Limited, the London based marketing and communications
consultancy for a total consideration of up to �650,000 consisting of
a combination of cash and shares. Pro-forma financials are included
that present Group profit and turnover as if the acquisition had
occurred on 1 April 2007.
MKM GROUP PLC
Pro-forma Consolidated income statement for the six months ended 30
September 2007
Unaudited Unaudited Unaudited
Pro-forma Pro-forma Pro-forma
six mths ended six mths ended Year ended
30 Sept 2007 30 Sept 2006 31 March 2007
�'000 �'000 �'000
Revenue 5,577 5,118 10,393
Cost of sales (2,412) (1,495) (3,502)
GROSS PROFIT 3,165 3,623 6,891
Administrative expenses (2,346) (2,293) (5,127)
PROFIT FROM OPERATIONS 819 1,330 1,764
Finance expense - - (1)
Finance income 21 47 67
PROFIT BEFORE TAXATION 840 1,377 1,830
Income (charge) (252) (261) (288)
PROFIT FOR THE PERIOD 588 1,116 1,542
Attributable to the 588 1,116 1,542
equity holders of the
parent
Basic earnings per share 0.8 1.5 2.1
(pence)
Diluted earnings per 0.6 1.2 1.7
share (pence)
Notes to the Pro-Forma Income statement for the six months ended 30
September 2007
1. Basis of preparation
The Interim results for the years ended 30 September 2007 and 2006
and the Full year ended 31 March 2007 have been presented above on a
pro-forma basis that reflects the Group results as if the
acquisitions completed on 29 August 2007 (The Leapfrog group) and 10
October 2007 (Promodus Ltd) had been completed prior to the 31 March
2007. This information is presented to facilitate understanding and
it does not reflect the actual earnings position attributable to
shareholders for the period.
On 29 August 2007 the Group acquired the entire share capital of
Leisure World Pty Ltd (The Leapfrog Group) for an initial
consideration of �3.55m consisting of a combination of cash and
shares. A further deferred consideration of up to �5m in a
combination of cash or shares will be payable dependent on Leapfrog
achieving certain financial performance criteria.
On 10 October 2007 the Group acquired the entire share capital of
Promodus Limited for an initial consideration of �400,000 consisting
of a combination of cash and shares. A further deferred consideration
of up to �250,000 in either cash or shares will be payable dependent
on Promodus achieving certain financial performance criteria.
MKM GROUP PLC
Notes to Pro-forma Consolidated income statement for the six months
ended 30 September 2007
2. Segmental Reporting
Unaudited Unaudited Unaudited
Pro-forma Pro-forma Pro-forma
six mths ended six mths ended Year ended
30 Sept 2007 30 Sept 2006 31 March 2007
�'000 �'000 �'000
Revenue
UK Sales Promotions 1,834 1,760 3,888
Australia Sales 3,327 2,835 5,530
Promotions
Promodus 416 523 975
Total 5,577 5,118 10,393
Gross Profit
UK Sales Promotions 1,090 1,192 2,477
Australia Sales 1,706 2,069 3,702
Promotions
Promodus 369 362 713
Total 3,165 3,623 6,891
Profit before Tax
UK Sales Promotions 368 441 764
Australia Sales 578 1,048 1,340
Promotions
Promodus 65 35 35
Head Office Costs (172) (148) (308)
Total 840 1,377 1,830
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