30 September 2008
AIM: MKM
MKM GROUP PLC
("the Group" or "the Company")
Final Results for the year ended 31 March 2008
Key Points
* Group considerably enlarged by two acquisitions, Leapfrog in August 2007 and Promodus in
October 2007:
- more than doubles the size of the Group
- broadens Group's geographic reach
- strengthens Group's market offering
* Integration of acquisitions substantially completed including:
- rebranding of existing loyalty and sales promotion business under 'Leapfrog' name
- integrated IT platforms now in place
- shared product development resources
* Strategic shift of business towards longer term, contracted marketing programmes
* Pro forma revenue of the combined business was �10.3m* (2007 statutory revenue of �3.9m)
* Pro forma operating profit of the combined business was �686,000*, after taking into account
pre-acquisition one-off charges not expected to re-occur
* The audited results show revenue of �6,970,000 (2007 �3,888,000) and a loss from operations of
�222,000 (2007 profit �404,000). These include 7 months contribution from the Leapfrog business and 6
months contribution from Promodus, being the results generated since acquisition
* Post year end, launch of flagship product, 'Airport Angel' - supports strategy to build long
term loyalty contracts
* Major new contracts signed post year end
* Board views prospects positively despite the difficult economic environment
*Assumes that the acquisition of both the Leapfrog and Promodus businesses had been completed on the
first day of the financial year, derived from management information.
Andrew Johnson, Executive Chairman, commented,
"The acquisitions of the Leapfrog business in Australia in August 2007, and the Promodus business in
London in October 2007, more than doubled the Group's size and have broadened our geographic reach and
strengthened our market offering.
We now have a larger and broader business base upon which we can build. Whilst it has taken longer to
achieve our targets than we had hoped at the time of the acquisitions, we now have a good platform
upon which to grow, with an emphasis on recurring revenues.
Traditionally, in a tough economic climate, the market focuses more on exploiting sales promotion and
direct marketing tools which have measurable results. Thus whilst the economic slow down has increased
the time taken to close large contracts, we believe that we will be able to build our business through
providing clients with innovative and cost effective campaigns with measurable results.
We view prospects for the Group positively despite the difficult economic environment."
Enquiries:
MKM Group Plc (www.mkmgroupplc.com) T: 0161 877 1112
Andrew Johnson, Executive Chairman
Matthew Toynton, Finance Director
WH Ireland T: 0161 832 2174
David Youngman
Biddicks T: 020 7448 1000
Katie Tzouliadis
Sophie Lane
CHAIRMAN'S STATEMENT
OVERVIEW
The financial year to 31 March 2008 was a transformational one for the MKM Group. The acquisitions of
the Leapfrog business in Australia in August 2007, and the Promodus business in London in October
2007, more than doubled the Group's size and have broadened our geographic reach and strengthened our
market offering. We now employ approximately 100 people in offices in the UK, Australia and New
Zealand.
The integration of both our acquisitions is now substantially complete. In the final quarter of the
financial year, we adopted the Leapfrog name across our existing loyalty and sales promotion business,
formerly MKM Concepts, and all our businesses now share common IT platforms and product development
resources. These developments allow us to focus our development resources on core products such as
StARS thus improving the competitiveness of our client offer.
Following the acquisition of Leapfrog, some 60% of annual Group revenues are now generated in the Asia
Pacific region, a growth region for our services. Additionally our management focus has shifted
substantially towards the delivery of longer term, multi-year loyalty and Customer Relationship
Management ("CRM") programmes as opposed to shorter, tactical marketing campaigns. These longer term
programmes allow us to build productive relationships with clients and provide greater visibility of
earnings.
Whilst this strategic shift has been very positive for the business the market environment
deteriorated, and in the second half of the financial year, sales across the business were below our
expectations.
Since the financial year end, we have continued to implement the strategy announced at the time of the
Leapfrog acquisition and have begun to see the sales position improve. An important development in the
first quarter of the new financial year was the launch of a new flagship product, 'Airport Angel',
which has strengthened our offering to customers. The launch was well received and I am pleased to
report that we have secured some major contracts with large financial institutions.
FINANCIAL REVIEW
The full year results of the combined business on a pro forma basis assuming that the acquisition of
both the Leapfrog and Promodus businesses had been completed on the first day of the financial year
show sales of �10.3m and an operating profit of �686,000. The pro forma operating profit is struck
after taking into account one-off charges in the businesses acquired that are not expected to re-
occur. The pro forma sales of �10.3m are approximately 260% of the prior year statutory sales of �3.9m
illustrating the impact of the acquisitions on the size of the Group.
The audited results show sales of �6,970,000 (2007 �3,888,000) and include 7 months contribution from
the Leapfrog business and 6 months contribution from Promodus, being the results generated since
acquisition. The loss from operations of �222,000 (2007 profit �404,000) was primarily associated with
poor performance from the Leapfrog Australia business during the second half of the financial year
resulting from the loss of a major client and a reduction in the volume of promotional sales.
We ended the year with a total cash deficit of �208,000 (2007 surplus of �1,906,000). The cash
reduction is primarily associated with the financing of the two acquisitions.
OPERATIONS
The focus during the year has been on the completion of the two acquisitions and their subsequent
integration into the Group. As part of this process, we have rebranded the UK business, previously MKM
Concepts, as Leapfrog and also sought to simplify the structure of our Asia-Pacific operations. We
continue to push ahead to fully integrate our businesses and exploit the benefits of their respective
relationships with blue chip multi-national clients. These initiatives allow us to significantly
improve the solutions we build for our clients and maximise the benefits we gain from our key staff.
StARS
Last year, the Group made a major investment in the development of StARS, its web-based database
programme. The StARS programme allows us to hold comprehensive details of promotional offers on one
database and readily supports the activity of multiple clients. StARS also enables our clients'
consumers to access promotional offers easily and provides clients with enhanced management
information on the results of marketing campaigns.
The launch of StARS represented a major step forward in the fulfilment of campaigns for clients and
helped Leapfrog UK to win a number of accounts during the year. StARS is now being utilised to support
all of our major clients in the UK and creates significant operational efficiencies.
Leapfrog Australia is now using StARS to support a number of significant new business pitches. We
have continued to enhance StARS to meet the demands of new clients and the programme provides us with
some significant advantages which allow us to differentiate ourselves from competitors.
Loyalty Schemes
The acquisition of Leapfrog strengthened our capability in the management of point collection loyalty
schemes. Following the year end we signed a major three year contract in New Zealand with Genesis, the
government owned utility, to run its consumer loyalty programme, servicing 550,000 households.
Airport Angel
After the year end, in May 2008 we launched Airport Angel. Airport Angel membership allows consumers
to access airport lounges across the world and to receive a number of other support services aimed at
enhancing their travel experience. The product includes an innovative text service which enables
consumers to receive information on their mobile phones about their plane arrival and departure times.
We have ambitious plans for the development of Airport Angel and over the next 12 months will be
developing the product and launching it to international markets. At present, sales of the product are
primarily focused on the retail banking and financial services sector. In these sectors, the product
becomes an integral part of our clients' offer to their consumer. This in turn helps to support our
strategy of increasing the proportion of our revenues derived from long term contracts.
Airport Angel has been well received by the market and, since the financial year end, we have signed
major contracts with UK based banks and are in discussions with a number of other major potential
clients.
Promodus
The Promodus business, which provides a full range of marketing services specialising in servicing
clients in the financial services, B2B and technology sectors, finished the year on a very positive
note hitting the targets agreed at the time of the acquisition. As a result of this we paid a deferred
consideration of �125,000.
Since the year end the Promodus business has been adversely affected by the economic slowdown. Their
major financial service clients have cut budgets and in general are being more cautious with their
expenditure.
BUSINESS DEVELOPMENT
In February we reported that short term sales were disappointing but that the longer term pipeline
remained strong. I am pleased to say that in the UK we have closed a number of the long term contracts
that we were negotiating at that time and, since the financial year end, Leapfrog Australia has won a
number of tactical marketing campaigns. Since the financial year end, the UK tactical business, which
was under-performing, has been brought under the control of Brian Smillie who is now managing the
sales force internationally.
THE BOARD
The composition of the Board has changed with our acquisitions. In August 2007, we were pleased to
welcome co-founders of the Leapfrog business, Brian Smillie and Richard Tenser, to the Board. Brian
assumed the role of International Managing Director. In January 2008, Victor Koch stepped down from
the Board and I would formally like to thank him on behalf of all the Directors for his contribution
to the Group over many years.
STRATEGY
In my statement last year I explained that the acquisition of Leapfrog Group gave us the opportunity
to build a first rate and robust loyalty and sales promotion business with substantial potential for
growth. We remain focused on this objective. Our recent contract wins and the successful launch of
Airport Angel have confirmed the validity of this strategy. We continue to focus on securing long term
loyalty and CRM contracts which provide greater visibility of future earnings and a more solid
platform upon which to build.
Last year I also stated that we would continue to search for an acquisition that would enable us to
build a second leg for the Group. However, given the current market and economic environment our
primary focus will be on organic growth. Whilst there are acquisition opportunities we will focus on
those that strengthen our existing offer.
CURRENT TRADING & PROSPECTS
The Company entered the current financial year with a larger and broader business base and greater
critical mass in key areas such as information technology and product development. Whilst it has taken
longer to achieve our targets than we had hoped at the time of the acquisitions, we now have a good
platform upon which to build.
Traditionally, in a tough economic climate, the market focuses more on exploiting sales promotion and
direct marketing tools which have measurable results. Thus whilst the economic slow down has increased
the time taken to close large contracts, we believe that we will be able to build our business through
providing clients with innovative and cost effective campaigns with measurable results.
We view prospects for the Group positively despite the difficult economic environment.
ANDREW JOHNSON
CHAIRMAN
29 September 2008
MKM Group Plc
Consolidated Income Statement for the year ended 31 March 2008
2008 2007
�'000 �'000
Revenue 6,970 3,888
Cost of sales (2,601) (1,411)
---------- --------
GROSS PROFIT 4,369 2,477
Administrative expenses (4,591) (2,073)
---------- --------
(LOSS)/PROFIT FROM OPERATIONS (222) 404
Finance expense (68) (1)
Finance income 41 53
---------- --------
(LOSS)/PROFIT BEFORE TAXATION (249) 456
Income tax credit 45 124
---------- --------
(LOSS)/PROFIT FOR THE YEAR (204) 580
---------- --------
---------- --------
---------- --------
Attributable to the equity holders of the parent (204) 580
---------- --------
---------- --------
Basic (loss)/earnings per share (pence) (0.3) 1.3
Diluted (loss)/earnings per share (pence) (0.3) 1.1
MKM Group Plc
Consolidated Statement of Changes in Equity for the year ended 31 March 2008
Share Deferred
Share Share Option Merger Translation share Retained
capital premium Reserve Reserve Reserve capital earnings Total
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 year
ended 31 March 2008
Net loss for the - - - - - - (204) (204)
period --------------------------------------------------------------------------------------
Total recognised income and
expense for the period - - - - - - (204) (204)
Equity credit in respect of
share based payments - - 25 - - - - 25
Deferred tax asset relating
to share options - - (51) - - - - (51)
Issue of Equity Shares 147 442 - 1,767 - 671 - 3,027
Exchange rate loss on
translation of overseas - - - - (84) - - (84)
operations --------------------------------------------------------------------------------------
Balance as at 31 March 2008 365 2,647 86 1,767 (84) 671 (311) 5,141
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Consolidated Statement of Changes in Equity for the year ended 31 March 2007
Share Deferred
Share Share Option Merger Translation share Retained
capital premium Reserve Reserve Reserve capital earnings Total
consideration
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Balance as at 1 April 2006 218 2,205 31 - - - (687) 1,767
-----------------------------------------------------------------------------------
Changes in equity for year
ended 31 March 2007
Net profit for the - - - - - - 580 580
period -----------------------------------------------------------------------------------
Total recognised income and
expense for the period - - - - - - 580 580
Equity credit in respect of
share based payments - - 30 - - - - 30
Deferred tax asset relating
to share options - - 51 - - - - 51
-----------------------------------------------------------------------------------
Balance as at 31 March 2007 218 2,205 112 - - - (107) 2,428
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
MKM Group Plc
Consolidated Balance Sheet as at 31 March 2008
31 March 2008 31 March 2007
�'000 �'000
NON-CURRENT ASSETS
Property, plant & equipment 691 277
Intangibles 6,597 703
Deferred tax asset 185 178
-------------- --------------
7,473 1,158
CURRENT ASSETS
Trade and other receivables 2,635 806
Cash and cash equivalents 134 1,906
------------- --------------
2,769 2,712
------------- --------------
TOTAL ASSETS 10,242 3,870
CURRENT LIABILITIES
Trade and other payables (4,068) (1,437)
Borrowings (342) -
Loan stock (450) -
Provisions (159) (5)
------------ -------------
(5,019) (1,442)
NON-CURRENT LIABILITIES
Borrowings (82) -
------------ -------------
TOTAL LIABILITIES (5,101) (1,442)
------------ -------------
NET ASSETS 5,141 2,428
------------ -------------
------------ -------------
CAPITAL AND RESERVES ATTRIBUTABLE TO THE EQUITY HOLDERS
OF THE COMPANY
Share capital 365 218
Share premium 2,647 2,205
Share option reserve 86 112
Deferred share capital consideration 671 -
Merger reserve 1,767 -
Translation reserve (84) -
Retained earnings (311) (107)
------------ -------------
TOTAL EQUITY 5,141 2,428
------------ -------------
------------ -------------
MKM Group Plc
Consolidated Cash Flow Statement for the year ended 31 March 2008
Year ended Year ended
31 March 2008 31 March 2007
�'000 �'000 �'000 �'000
CASHFLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation (249) 456
Adjustments for
Interest receivable (41) (53)
Depreciation 174 80
Gain on deferred consideration (97) -
Interest expense 68 1
Share option charge 25 30
-------- -------
Operating cashflow before movement in working
capital (120) 514
Increase in receivables (596) (546)
Increase in payables 212 278
Increase/(decrease) in provisions 154 (16)
Effect of foreign exchange rate changes (71) -
-------- -------
Movement in working capital (301) (284)
Interest paid (68) (1)
--------- -------
Net cash (used in)/generated from operations (489) 229
--------- -------
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (378) (72)
Purchase of intangible assets (247) -
---------
Acquisition of share capital in new companies (1,366) -
Costs associated with acquisition (422) -
Cash within acquired Company 272 -
---------
Acquisition of subsidiary (1,516) -
Interest received 41 53
------- ------
Net cash outflow from investing
activities (2,100) (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 equivalents (2,114) 210
Cash and cash equivalents at the beginning of the period 1,906 1,696
------- ------
Cash and cash equivalents at the end of the period (208) 1,906
------- ------
------- ------
MKM Group Plc
Notes forming part of the financial statements for the year ended 31 March 2008
-------------------------------------------------------------------------------
1. Preliminary announcement
The financial information set out in this document does not constitute the company's statutory
accounts for the year ended 31 March 2008, but is derived from those audited accounts to that date
which received an unqualified auditors' report and will be filed with the Registrar of Companies. The
information in this preliminary announcement has been computed in accordance with International
Financial Reporting Standards (IFRS), but does not contain sufficient information to comply with IFRS.
The company has today published full financial statements that comply with IFRS.
The preliminary announcement has been prepared on the basis of the accounting policies set out in the
statutory financial statements for the year ended 31 March 2008. The annual accounts for the year
ended 31 March 2008 have been posted to shareholders and will be available from the Company's website
on www.mkmgroupplc.com.
2. Earnings per share
2008 2007
�'000 �'000
Numerator
(Loss)/profit for the year (204) 580
----------- ------------
----------- ------------
(Loss)/earnings used in basic EPS (204) 580
----------- ------------
----------- ------------
(Loss)/earnings used in diluted EPS (204) 580
----------- ------------
----------- ------------
Denominator
Weighted average number of shares used in basic EPS 60,630,267 43,744,545
----------- ------------
----------- ------------
Effects of:
- employee share options 7,864,881
----------- ------------
Weighted average number of shares used in diluted EPS 51,609,426
------------
------------
Basic (loss)/earnings per share (pence) (0.3) 1.3
----------- ------------
----------- ------------
Diluted (loss)/earnings per share (pence) (0.3) 1.1
----------- ------------
----------- ------------
The basic earnings per share has been calculated using the profit after tax, divided by the weighted
average number of shares in issue of 60,630,267 (2007: 43,744,545).
As a result of the loss in the year to 31 March 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 deferred consideration
shares of 20,216,216 are antidilutive.
MKM Group Plc - Group Financial Statements
Notes forming part of the financial statements for the year ended 31 March 2008
-------------------------------------------------------------------------------
2. Earnings per share (continued)
In the year to 31 March 2007, diluted earnings per share is calculated by 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 at 31 March 2007 was 7,864,881.
3. Acquisition of subsidiary
Leisure World
On 29 August 2007, the group acquired 100% of the issued share capital of Leisure World Pty Ltd
(trading as the Leapfrog Group in Australia) for cash consideration of �1,250,000. Leisure World Pty
Ltd is the parent company of a group of companies involved in Loyalty and Sales promotion activity
across Asia Pacific. This transaction has been accounted for by the purchase method of accounting.
Book value and fair
value
�'000 �'000
Fair value of assets and liabilities acquired
Property, plant and equipment 163
Deferred tax asset 36
Intangible assets 141
Trade and other receivables 1,121
Cash and cash equivalents 191
Trade and other payables (1,881)
Current tax liabilities (226)
----------
Net liabilities on acquisition (455)
Consideration paid
Initial cash consideration 1,250
Initial 20 million ordinary shares 1,600
Loan stock 450
Deferred consideration 708
Costs of acquisition 481
----------
Total consideration 4,489
--------
Goodwill 4,944
--------
--------
The goodwill arising on the acquisition of Leisure World Pty Ltd is attributable to the anticipated
future profitability that will be achieved as a result of distributing the Group's products into new
markets and the anticipated future synergies that will be achieved throughout the Group as a result of
bringing the businesses together.
MKM Group Plc - Group Financial Statements
Notes forming part of the financial statements for the year ended 31 March 2008
-------------------------------------------------------------------------------
3. Acquisition of subsidiary (continued)
Leisure World (continued)
The fair value of the shares issued as initial consideration was determined by reference to their
published market price of 8p/share at the date of acquisition. The deferred consideration shares have
not yet been issued and the original settlement terms are being renegotiated. The value above is based
upon the number of shares that would have been issued under the original agreement terms but reflect a
decrease in the fair value of the shares. Management has estimated the fair value by reference to the
signed sale and purchase agreement between the parties, which in turn references the published price
for the 30 days up to 30 June 2008. The renegotiation is also expected to deliver a gain of �97,000
through the award of a reduced number of shares (20,216,216) to settle this same value and this gain
has been recognised within the income statement.
The net cash outflow on acquisition was �1,540,000 being the net of cash consideration and costs above
partially offset by �191,000 cash within the acquired company. At the balance sheet date �74,000 of
the costs of acquisition had not yet been settled.
Leisure World Pty Ltd contributed �3,162,000 revenue and a loss of �247,000 to the Group's profit
before tax for the period between the date of acquisition and the balance sheet date.
If the acquisition of Leisure World Pty Ltd had been completed on the first day of the financial year,
the revenue it would have contributed to group revenues for the period would have been �6,135,000 and
group profit attributable to equity holders of the parent would have been �645,000.
The interim results to 30 September 2007 included provisional accounting for the deferred
consideration of the acquisition. At this time a higher level of deferred consideration was expected
to be awarded and the share price on 30 September 2007 was used to value the deferred consideration
shares and as such the total goodwill was recorded as �6,506,000.
MKM Group Plc - Group Financial Statements
Notes forming part of the financial statements for the year ended 31 March 2008
-------------------------------------------------------------------------------
3. Acquisition of subsidiary (continued)
Promodus
On 9 October 2007, the group acquired 100% of the issued share capital of Promodus Ltd for cash
consideration of �116,000. Promodus Ltd is the parent company of a group of companies involved in
marketing consultancy. This transaction has been accounted for by the purchase method of accounting.
Book value and fair value
�'000 �'000
Fair value of assets and liabilities
acquired
Property, plant and equipment 12
Deferred tax asset -
Inventories 5
Trade and other receivables 121
Cash and cash equivalents 81
Trade and other payables (113)
--------
Net assets on acquisition 106
Consideration paid
Initial cash consideration 116
Initial 2.6 million ordinary shares 280
First deferred cash consideration 125
Second deferred share consideration 125
Costs of acquisition 15
--------
Total Consideration 661
-------
Goodwill 555
-------
-------
The goodwill arising on the acquisition of Promodus Ltd is attributable to the anticipated
profitability of the distribution of the Group's products in the new markets.
The fair value of the shares issued as Initial consideration was determined by reference to their
published market price of 10.53p/share at the date of acquisition. The deferred consideration is
defined as an amount to be paid in either cash or shares at the discretion of the company. The level
of consideration is dependent on profits generated by Promodus Ltd over the 1 year period up to 31
December 2008. The amount included above represents the directors' current best estimate of the amount
payable.
The net cash outflow on acquisition was �50,000 being the net of cash consideration and costs above
partially offset by �81,000 cash within the acquired company.
Promodus Ltd contributed �464,000 revenue and �48,000 to the Group's profit before tax for the period
between the date of acquisition and the balance sheet date.
If the acquisition of Promodus Ltd had been completed on the first day of the financial year, the
revenue it would have contributed to group revenues for the period would have been �882,000 and group
profit attributable to equity holders of the parent would have been �136,000.
MKM Group Plc - Group Financial Statements
Notes forming part of the financial statements for the year ended 31 March 2008
-------------------------------------------------------------------------------
4. Notes to the cash flow statement
Cash and cash equivalents comprise:
2008 2007
�'000 �'000
Cash available on demand 134 1,906
Short term borrowings (342) -
------- --------
Total Cash Position (208) 1,906
------- --------
------- --------
Net (decrease)/increase in cash and cash equivalents (2,114) 210
Cash and cash equivalents at beginning of year 1,906 1,696
------- --------
Cash and cash equivalents at end of year (208) 1,906
------- --------
------- --------
The cash and cash equivalents shown above include �45,000 that is classified as restricted cash as it
is held for travel bonding purposes.
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