RNS Number : 9199K
MKM Group PLC
30 December 2008
30 December 2008
MKM
MKM GROUP PLC
("the Group" or "the Company")
Interim Results
for the six months ended 30 September 2008
Key Points
* Revenue of �4.36m (2007: �2.54m; 2007 pro-forma: �5.58m)
* Loss before tax of �99,000 (2007: profit of �318,000; 2007 pro-forma profit of �839,000)
* Loss per share of 0.1p (2007: basic earnings of 0.5p)
* Severe downturn in short term tactical sales promotion activity particularly in Australia due to impact of economic recession
* Comprehensive review of Australian business strategy underway
* UK-based long term loyalty business continues to make good progress with successful launch of major new Airport Angel programmes
Enquiries:
MKM Group plc Brian Smillie, Chief Executive T: 0161 877 1112
(www.mkmgroupplc.com) Matthew Toynton, Finance Director
WH Ireland Limited David Youngman/Adrian Kirk T: 0161 832 2174
Biddicks Katie Tzouliadis T: 020 7448 1000
CHIEF EXECUTIVE'S REPORT
Overview
This is my first report to shareholders since my appointment as Group Chief Executive in November 2008 and it is disappointing to have
to announce a loss for the six months ended 30 September 2008.
During the six months' period, we continued to implement our strategy of building a robust loyalty and sales promotion business. In
particular, our focus has been on developing longer term loyalty and CRM contracts which provide greater visibility of future earnings. In
tough market conditions, this strategy has enjoyed success, based on our Airport Angel and StARS programmes which have been developed to
help our major clients in the financial services sector retain their premium customers. However, while we have seen encouraging progress in
this area, sales of our short term tactical campaign programmes, which are primarily aimed at helping our clients stimulate new sales, have
suffered in the economic downturn. As a consequence, results from our Australian business in particular, which has a greater dependency on
these programmes, have been adversely affected. Since the period end, trading conditions in the region have continued to deteriorate and, as
a result, we are undertaking a fundamental review of our strategy and operations in Australia.
Results
This report includes both statutory and pro-forma figures for the six months ended 30 September. These figures are the same for the
period ended 30 September 2008, but the statutory figures for the period ended 30 September 2007 include the figures for the Australian
Leapfrog business from 29 August 2007, the date of its acquisition. The pro-forma figures include the results of the continuing business of
Leapfrog in the UK and Australia and Promodus as though all three businesses had been owned by the Group throughout both periods.
On a statutory basis, Group revenue for the first half was �4.36m (2007: �2.54m; 2007 pro-forma: �5.58m) illustrating the increased
scale of the business as a result of the acquisitions in 2007. Within this overall result, revenue from the Leapfrog business in the UK was
lower than last year at �1.34m (2007: �1.83m) owing principally to a reduction in the volume of tactical sales promotions in the first half
year.
The Group's loss before tax was �99,000 (2007: profit of �318,000; 2007 pro-forma profit of �839,000). The reduction in profit mainly
reflected the slow-down in tactical sales promotions across the business.
The diluted loss per share was 0.1p (2007: earnings of 0.4p). This takes account of the loss for the period, and the increase in the
number of shares following the issue of shares associated with the consideration paid for the acquired businesses.
Dividend
No interim dividend is being proposed (2007: - �nil).
Review of Business
During the six months' period, we continued to implement our strategy of building a robust loyalty and sales promotion business with the
emphasis on securing multi-year loyalty and CRM contracts which provide greater visibility of future earnings. The primary focus of these
loyalty and CRM programmes is to support our clients in retaining existing customers and enhancing the client/customer relationship. Our
tactical sales promotion business is mainly focused on helping our clients acquire new customers through cost effective short term marketing
campaigns.
Whilst Leapfrog Australia produced a profit in the first half of the year, trading conditions subsequently deteriorated and, in the
weeks following the period end, the market for short term promotional campaigns declined markedly. In recent weeks, Leapfrog Australia has
experienced cancelled campaigns as the Australian subsidiaries of multinational corporations have received instructions to cut new
programmes and conserve cash. In addition, a client who had indicated it wished to launch a new loyalty programme was instructed to delay
its launch until the economic environment improved.
In Australia at present, such is the severity of the economic downturn that almost all of the major brands are abstaining from sales
promotion activity other than price discounting and "cash back" offers to win new consumers or clear stock. As a response, we have already
implemented cost cutting measures in Australia but it is clear that we will have to significantly change our approach in the region to match
market conditions and are therefore looking at more radical restructuring options.
In the UK, our Promodus business also experienced a downturn in activity as its clients cut budgets and we have therefore cut costs and
reallocated some of its resources to our Airport Angel business. However, more positively, Promodus' work resulted in a number of clients
winning awards for campaigns in the financial services sector, which will stand the business in good stead as it pitches for new work.
Leapfrog in the UK benefited from the fact that a greater proportion of its business is focused on CRM programmes. Our investment in
StARS and Airport Angel has given us a significant competitive advantage. In September, we announced that we had signed major contracts with
UK based banks for the provision of Airport Angel to their customers. Three of these programmes have now been launched and have been well
received by the consumer with volumes running in line or ahead of plan. Airport Angel cards are now carried by packaged account holders of
Barclays, Abbey and The Cooperative Bank. Since its launch, Airport Angel continues to gain momentum and we are discussing new contracts
both in the consumer and business banking sectors.
Outlook
The impact of the recession on our Australian operations during the last three months has been significant and, as a consequence, it is
clear that we must adopt a different approach in the region in the coming months. However the success of our Airport Angel business and the
nature of StARS related retention programmes are very positive developments for us to build upon.
The next few months are going to continue to be tough as we work in a very difficult environment and we must ensure we focus our efforts
appropriately.
Brian Smillie
Chief Executive
MKM GROUP PLC
Consolidated income statement for the six months ended 30 September 2008
Unaudited Unaudited Audited
six mths ended six mths ended year ended
30 Sept 2008 30 Sept 2007 31 March 2008
�'000 �'000 �'000
Revenue 4,361 2,540 6,970
Cost of sales (1,386) (1,056) (2,601)
GROSS PROFIT 2,975 1,484 4,369
Administrative expenses (3,061) (1,199) (4,591)
(LOSS)/PROFIT FROM OPERATIONS (86) 285 (222)
Finance expense (15) (1) (68)
Finance income 2 34 41
(LOSS)/PROFIT BEFORE TAXATION (99) 318 (249)
Income tax (charge)/credit 18 (95) 45
PROFIT FOR THE PERIOD (81) 223 (204)
Attributable to the equity holders of the parent (81) 223 (204)
Basic (loss)/earnings per share (pence) (0.1) 0.5 (0.3)
Diluted (loss)/earnings per share (pence) (0.1) 0.4 (0.3)
MKM GROUP PLC
Consolidated statement of changes in equity for the six months ended 30 September 2008
Share capital Share premium Share option reserve Merger reserve
Translation reserve Deferred share Retained earnings Total
capital
consideration
�'000 �'000 �'000 �'000
�'000 �'000 �'000 �'000
Balance as at 1 April 2008 365 2,647 86 1,767
(84) 671 (311) 5,141
Changes in equity for six months ended 30 Sept 2008
Net loss for the - - - -
- - (81) (81)
period
Total recognised income and expense for the period - - - -
- - (81) (81)
Exchange rate loss on translation of overseas - - - -
(2) - - (2)
operations
Balance as at 30 September 2008 365 2,647 86 1,767
(86) 671 (392) 5,058
MKM GROUP PLC
Consolidated statement of changes in equity for the six months ended 30 September 2007
Share capital Share premium Share option reserve Merger reserve Translation
reserve Deferred share Retained earnings Total
capital
consideration
�'000 �'000 �'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 profit for the - - - -
- - 223 223
period
Total recognised income and expense for the - - - -
- - 223 223
period
Equity credit in respect of share based - - 10 -
- - - 10
payments
Issue of equity shares 133 1,942 - -
- 840 - 2,915
Balance as at 30 September 2007 351 4,147 122 -
- 840 116 5,576
MKM GROUP PLC
Consolidated balance sheet at 30 September 2008
Unaudited Unaudited Audited
30 Sept 2008 30 Sept 2007 31 Mar 2008
�'000 �'000 �'000
NON-CURRENT ASSETS
Property, plant & equipment 663 540 691
Intangibles 6,630 7,209 6,597
Deferred tax assets 185 339 185
7,479 8,088 7,473
CURRENT ASSETS
Trade and other receivables 2,340 2,374 2,635
Cash and cash equivalents 367 792 134
2,706 3,166 2,769
TOTAL ASSETS 10,185 11,254 10,242
CURRENT LIABILITIES
Trade and other payables (4,060) (3,778) (4,068)
Borrowings (345) - (342)
Loan Stock (450) (700) (450)
Provisions (202) - (159)
Deferred Consideration (1,200) -
(5,057) (5,678) (5,019)
NON-CURRENT LIABILITIES
Borrowings (71) - (82)
(71) - (82)
NET ASSETS 5,058 5,576 5,141
CAPITAL AND RESERVES ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY
Share capital 365 351 365
Share premium 2,647 2,647 2,647
Share option reserve 86 122 86
Deferred share capital consideration 671 840 671
Merger Reserve 1,767 1,500 1,767
Translation reserve (86) - (84)
Retained earnings (392) 116 (311)
TOTAL EQUITY 5,058 5,576 5,141
MKM GROUP PLC
Consolidated cash flow statement for the six months ended 30 September 2008
Unaudited Unaudited Unaudited
Six months ended Six months ended Year ended
30 Sept 2008 30 Sept 2007 31 March 2008
�'000 �'000 �'000 �'000 �'000 �'000
CASHFLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation (99) 318 (249)
Adjustments for
Interest receivable (2) (34) (41)
Depreciation 151 50 174
Gain on deferred - - (97)
consideration
Interest expense 15 1 68
Share option charge 10 10 25
Operating cashflow before movement in working capital 75 345 (120)
(Increase)/decrease in receivables 295 (246) (596)
Increase/(decrease) in payables (7) (510) 212
Increase/(decrease) in provisions 42 (5) 154
Effect of foreign exchange rate changes (2) - (71)
Movement in working capital 329 (761) (301)
Interest paid (15) (1) (68)
Net cash (used in)/generated from operations 389 (417) (489)
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (20) - (378)
Purchase of intangible assets (142) - (247)
Acquisition of share capital in new companies - (1,250) (1,366)
Costs associated with acquisition - (152) (422)
Cash within acquired Company - 196 272
Acquisition of subsidiary - - (1,516)
Interest received 2 34 41
Net cash outflow from investing activities (160) (1,172) (2,100)
CASHFLOWS FROM FINANCING ACTIVITIES
Issue of ordinary share capital - 475 475
Net cash generated from financing activities - 475 475
Net (decrease)/increase in cash and cash equivalents 228 (1,114) (2,114)
Cash and cash equivalents at the beginning of the period (208) 1,906 1,906
Cash and cash equivalents at the end of the period 21 792 (208)
MKM GROUP PLC
Notes forming Part of the Financial Statements for Six months ended 30 September 2008
1. Accounting Policies
The Interim results for the six months ended 30 September 2008, 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 2008 and will be used within the statutory financial statements for the year
ended 31 March 2009.
2. Basis of preparation
The comparatives for the full year ended 31 March 2008 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 2008 30 Sept 2007 31 March 2008
�'000 �'000 �'000
United Kingdom 1,677 1,834 3,808
Australia/New Zealand 2,684 706 3,162
Total 4,361 2,540 6,970
4. Taxation
The tax credit for the period is based on the actual 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 loss after tax, divided by the weighted average number of shares in issue of
73,071,544 (2007: 48,188,990).
As a result of the loss in the period to 30 September 2008, the diluted earnings per share is the same as the basic earnings per share
as the employee share options of 2,845,481 and the deferred consideration shares of 20,216,216 are antidilutive.
.
MKM GROUP PLC
Pro-forma consolidated income statement for the six months ended 30 September 2008
Unaudited Unaudited Audited
Pro-Forma Pro-Forma Pro-Forma
six mths ended six mths ended year ended
30 Sept 2008 30 Sept 2007 31 March 2008
�'000 �'000 �'000
Revenue 4,361 5,577 10,361
Cost of sales (1,386) (2,412) (4,036)
GROSS PROFIT 2,975 3,165 6,325
Margin - to be hidden 68% 57% 61%
Administrative expenses (3,061) (2,346) (5,602)
PROFIT/(LOSS) FROM OPERATIONS (86) 819 723
Finance expense (15) - (75)
Finance income 2 21 41
PROFIT/(LOSS) BEFORE EXCEPTIONAL CHARGES (99) 839 689
Exceptional costs (110)
PROFIT BEFORE TAXATION (99) 839 579
Income tax (charge)/credit 30 (252) (174)
PROFIT/(LOSS) FOR THE PERIOD (69) 587 405
Attributable to the equity holders of (69) 587 405
the parent
Notes to the Pro-Forma Income statement for the six months ended 30 September 2008
1. Basis of preparation
The Interim results for the years ended 30 September 2008 and 2007 and the Full year ended 31 March 2008 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.
MKM GROUP PLC
Notes to Pro-forma Consolidated income statement for the six months ended 30 September 2007
2. Segmental Reporting
Unaudited Unaudited Audited
Pro-Forma Pro-Forma Pro-Forma
six mths ended six mths ended year ended
30 Sept 2008 30 Sept 2007 31 March 2008
�'000 �'000 �'000
Revenue
UK Sales Promotions 1,342 1,834 3,344
Australia Sales Promotions 2,684 3,327 6,135
Promodus 335 416 882
Total 4,361 5,577 10,361
Gross Profit
UK Sales Promotions 712 1,090 2,042
Australia Sales Promotions 2,029 1,706 3,535
Promodus 234 369 748
Total 2,975 3,165 6,325
Profit before Tax and exceptionals
UK Sales Promotions (47) 368 320
Australia Sales Promotions 188 578 604
Promodus (60) 65 136
Head Office Costs (180) (172) (371)
Total (99) 839 689
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR URSNRWURUOAA
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