Dentsu, the leading Japanese listed marketing group, surprised the industry this morning by upgrading its profit forecast for the year to 31 March 2010 by 44% from ¥11.4 million (£76 million) to ¥16.4 million (£110 million).
The increased profit is expected despite a continuing decline in revenues. “The harsh environment is expected to continue”, the company said, but it expected profits to benefit from cost reduction efforts.
In the first half year to 30 September, cost reduction efforts were supplemented by a refund of tax paid in previous years. As a result profits are expected to have beaten the previous forecast by 123%.
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The former McKinsey management consultant brought in two years ago to rationalise AIM listed marketing group Media Square under its executive chairman Roger Parry will take over as group chief executive next January. Parry will then become a non-executive chairman and thereby appease those shareholders currently baying for his removal who might otherwise have criticised his dual role.
Peter Reid’s appointment as chief executive is a curious one that leaves a number of questions unanswered. There is no doubt that a lot of change has taken place at Media Square since Parry assumed the chairmanship in 2007, and hopefully time will prove that the group is in a much better condition as a result.
Reid’s role in cutting costs and rationalising business units is bread and butter to a management consultant who typically moves on to pastures new thereafter. But those that eventually assume senior management roles do not always bring glory to the post.
First, they have to reap the rewards (or lack of) from their rationalisation labours. Costs may be much reduced but business building and skills development may not have received the same degree of attention they deserved.
Secondly, the skill set required to motivate and manage an ongoing business is not always a natural part of a consultant’s armoury. For example, according to Companies House 35 year old Reid has never held a board directorship in the UK before. And he doesn’t seem to have had first hand experience of managing the day-to-day operations of a commercial business over a long period of time.
Of course, stars can appear from nowhere and hopefully Reid will prove to be just the person for the job. But in a group that arguably had accumulated too many second hand and second rate businesses, shareholders might feel more reassured to know that the new boss has actually run a marketing company successfully before.
For a company that claimed at the end of September that it had a very strong balance sheet, was "cash generative at an operational level” and had “considerable unused bank facilities”, it seems slightly surprising that the AIM listed specialist marketing company Adventis Group has chosen to raise an extra £825,000 in share capital this week.
Fund-raising is never cheap and the amount of cash raised on this occasion was relatively small.
The management continues to assert that it is looking for acquisition opportunities although the extra capital is hardly enough to fund anything other than a very modest transaction. It may be pertinent that the group had net debt of £1.8 million at 30 June – a new experience for a historically cash positive group – and has some relatively modest outstanding earnout commitments to settle this year. And there may be more earnouts to settle next year too.
Even so, the level of bank borrowings is very small by comparison with the £13 million that shareholders have invested in the company. But bankers also like to see healthy profits and, while chief executive Charles Phillpot points out that the group remains profitable (it made amost £0.5 million in the half year to 30 June), the current economic climate inevitably will be having a dampening effect.
The new capital has been subscribed by a Baronsmead venture capital trust with the backing of Arbuthnot Securities. So at least two experienced financial institutions seem happy to support the company’s strategy.
Contrary to first indications, it now appears that much of the 6.9% shareholding in Media Square built up by Bob Morton’s Hawk Investment Holdings in recent weeks was acquired from Yorkshire entrepreneur Anthony Gill and not from Hansa Trust (see Name from the past builds near 7% stake in Media Square). Gill notified Media Square yesterday that he had sold 1.3 million shares – the same number as were most recently acquired by Hawk.
Gill acquired a 16% shareholding last April (see Yorkshire entrepreneur buys 16% of Media Square) and the partial sale leaves him with a residual 12% stake. The shares were sold for about 14p, giving Gill an £80,000 profit over the six month period.
A sizeable parcel of shares was also sold on 22 October by Acuity VCT, a fund managed by a private equity house that was formerly part of Electra Partners Group. The purchaser has not been identified but could also have been Hawk.
Given the above disclosures it now seems likely that Hansa Trust has retained its 1.3 million shareholding – for the time being at least.
Following the acquisition of a 6.9% shareholding in Media Square reported here this morning, Bob Morton's Jersey-based company Hawk Investment Holdings has requisitioned a meeting of Media Square shareholders with the aim of ousting the company’s executive chairman Roger Parry and installing three new directors (see Name from the past builds near 7% stake in Media Square).
Morton has a previous connection with various Media Square's subsidiaries that were formerly owned by Incepta Group when he was chairman there.
Hawk is seeking to put a resolution to shareholders for the appointment of Morton, David Wright (another former Incepta director) and accountant Keith Springall to the board.
Media Square's current board said today that it will "duly consider its position" regarding the requisition of a meeting and write to shareholders "at the appropriate time".
Earlier this year an attempt was made by the Irish financier Peter Lynch to obtain a place on the Media Square board. It remains to be seen whether his company Prime Active Capital and other large shareholders will support Morton's boardroom assault.
Entrepreneurial financier and company director Bob Morton emerged last week as a significant shareholder in AIM listed Media Square.
Morton, a 67-year-old veteran accountant, has a personal investment vehicle based in Jersey called Hawk Investment Holdings. Last week Hawk disclosed that it had built up a 6.9% shareholding in Media Square. Indications are that Hawk increased an existing smaller stake by acquiring 1.3 million shares previously held by Hansa Trust.
Hawk’s investment renews Morton’s association with a number of Media Square subsidiaries that were formerly part of Incepta Group. Morton was chairman of Incepta until 2001, long before it was acquired by Huntsworth and many of the businesses were sold on to Media Square.
According to Media Square records and other public announcements, its biggest shareholders remain the agitating Irish financier Peter Lynch’s Prime Active Capital with 21.5%, Yorkshire entrepreneur Anthony Gill with 16.1% and Promethean Investments Fund with 10.9%.
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The AIM-listed Progressive Digital Media Group (formerly TMN Group) that was subjected to a reverse takeover last June (see TMN’s re-emergence on AIM as Progressive Digital Media Group lacks clarity), has taken the opportunity to write down a number of assets ahead of the deal date and will thereby provide the enlarged group with a better starting position for future financial reporting. In a preliminary announcement of the former TMN Group’s results for the year to 30 April 2009 the company disclosed that it had made provisions and other exceptional charges totalling £13 million. The company has also accelerated the timing of charges for database acquisition costs. These various charges contributed to a loss of £16.4 million for the year.
The components of the £13 million charge included impairment provisions of £9.5 million in respect of intangible assets and investments. In addition an extra £2 million provision was made for bad debts. Provisions were also made for reorganisation costs of £0.7 million and onerous lease-related items of £0.8 million.
As to how the component members of the merged group are performing, investors will have to await the publication of the half-year results in January next year. Even then it may be difficult to discern which elements of the group are making a healthy profit and which are not.
The group is now under the dominant control of executive chairman Mike Danson who owns 85.5% of the shares.
For five years the accounts of Leagas Delaney London have shown that it has issued share capital of just over £1,250,000. Such capital is regarded as the bedrock of most businesses and gives suppliers comfort that a company is well funded for the longer term.
It sometimes happens that shares are issued on either a partly paid or unpaid basis, in which case this is made clear in the accounts. No such concerns would have been aroused at Leagas Delaney London because its accounts stated quite explicitly that preference shares with a face value of £1.25 million had been “fully paid”.
So it may come as a surprise to learn that those preference shares have never been paid for. The holder of the shares – parent company Leagas Delaney – simply left the unpaid amount as an outstanding debt.
Now the group has faced up to reality. It has acknowledged that the preference shares had not been paid for. It has explained that the shares were originally issued to provide some security for an amount borrowed by the parent from Lloyds TSB Bank to purchase the Leagas Delaney agencies back from the administrators when they became insolvent at the end of 2003. And as that banking arrangement was extinguished in August 2006, the company has decided to unwind the preference share issue that had never been paid for and to cancel the shares.
So everything’s sorted out – except for the reason why Leagas Delaney London published accounts for several years showing £1.25 million of share capital had been paid for when that was never the case.
Fortunately things have been looking up at Leagas Delaney recently. With partially owned subsidiaries operating in Italy, Czechoslovakia and Germany, its revenues and profits benefitted from favourable foreign currency movements of about £150,000 last year.
Group profits before tax – including those attributable to minority shareholders in each subsidiary – totalled a healthy £775,680. After deducting those minority interests and tax, a little over £260,000 of the group’s profit was left for parent company shareholders Tim Delaney and Margaret Johnson to enjoy.
Ostensibly Lloyds TSB Bank also has an interest in any profits accruing to the parent company’s shareholders as it is entitled to receive £150,000 out of any distributable profits earned after September 2006. Alas it's not too clear whether sufficient of the group’s profits have flowed up to the parent company to enable such a dividend to be paid.
The takeover battle for control of the Canadian listed marketing group Cossette came alive yesterday when Cosmos Capital - lead by Cossette’s co-founder and former vice chairman François Duffar - made a formal unconditional cash offer of Canadian$5.25 for each of the company’s shares that are currently listed on the Toronto stock market.
That would value the company at nearly $88 million now that the special shares previously held by chief executive Claude Lessard and fellow director Pierre Delegrave have also been converted into listed shares.
The first closing date for acceptance of the Cosmos offer is 7 December. Holders of about 37% of Cossette’s listed shares are reported to be committed to the Cosmos offer (and any further increase in the offer) unless it is eventually outbid by another company.
Cossette has responded by saying it will consider the offer in accordance with its obligation to maximise value to shareholders (see also Cossette auction rumbles quietly on). Meanwhile the board recommended shareholders should defer making any decision until it has had an opportunity to fully review the Cosmos offer, compare it to the results of its strategic review process and make a formal recommendation as to the merits of the offer. Cossette added that all the written expressions of interest it had already received from potential acquirers were “financially superior” to the Cosmos bid. Doubtless this news encouraged the price of Cossette shares to rise to $5.90 by close of trading yesterday.
Cossette's UK operations include Miles Calcraft Briginshaw Duffy, Elvis Communications, Band and Brown, Dare Digital and Identica.
Asia Digital, the financially-stretched AIM-listed digital advertising sales company, has raised an additional £1.2 million in share capital by means of an institutional share placing.
The shares were priced at 0.5p each, compared with a market price of around 0.9p this morning. Some of the additional capital is required to pay outstanding bills from creditors.
The prospect of a share placing (and the potential dilution in value of existing shares) will have been a significant influence on the rapid fall in Asia Digital’s share price this month (see Asia Digital shares fall by another 42%). After the announcement the shares fell to 0.75p.
The company was previously known as Deal Group Media.
It’s hard to comprehend the language used by Canadian listed marketing group MDC Partners in announcing its results for the nine months to 30 September. Described as “strong results”, the company was in euphoric mood when it reported its figures this morning: "We are thrilled with our best in class financial performance in the third quarter”, the statement said.
So what were the results that gave such a thrill?
The only mildly positive picture was the improvement in operating profit margin for the nine months to 5.3% from 4.3%, but none of that improvement came in the latest quarter. And anyway the margin is roughly half what any self-respecting competitor would have hoped for.
All of this sheds a different and rather less dazzling light on the company’s preliminary announcement last week (see MDC presents partial results to 30 September). And, if the group has ambitions to use its massive increase in borrowing facilities to acquire another business (like Cossette perhaps?), shareholders should think carefully about whether MDC's management has yet proved itself capable of making good money from its existing business and whether it is comfortable with the 11% interest coupon attached to much of its new debt pile.
WPP Group revenues jumped by 24.5% in the nine months to 30 September as the company continued to benefit from the acquisition of Taylor Nelson Sofres last year. But among all WPP’s business categories, its research activities (which it now calls “consumer insight”) still showed the biggest decline in revenues on a like-for-like basis when compared with the same period last year, albeit the rate of decline has slowed.
Favourable currency movements made the biggest contribution to the 24.5% revenue growth. They contributed 16.5%.
Taking the business as a whole, like-for-like revenues for the nine months (ignoring acquisitions and currency movements) have fallen by 8.4% compared with the same period last year, and fell by 8.7% in the latest quarter. This bigger decline in the latest quarter is consistent with the trend already identified at Interpublic and Publicis (see Currency movements and digital business minimises Publicis revenue fall) and does not bode well for a swift economic recovery.
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Publicis Groupe was able to restrict its revenue decline to 2.3% in the first nine months of 2009 with the help of a €130 million windfall from favourable currency movements and a sizeable contribution from its digital activities.
But despite positive noises about future prospects, Publicis revenues in the latest quarter suffered a bigger fall than the average for the year to date. A similar trend emerged from Interpublic this morning when it reported a 16.2% fall in revenue for the year to date and a bigger fall in the latest quarter. So it may be premature to assume the worst of the recession has passed.
Notwithstanding Interpublic's further revenue fall, it was able to report a modest post-tax profit for ordinary shareholders of $17.2 million for the third quarter, reversing the loss-making trend experienced in the first six months. The turnround benefitted from shedding staff at a severance cost of $95 million over the nine month period. Whether profits also benefitted from the $82.8 million spent on professional fees in the period remains to be seen.
Shares in Asia Digital lost another 42% of their value in stock market today after some six million shares changed hands. This is the second large fall in share price in the last week (see Asia Digital shares slide by a further 30%).
The AIM-listed digital advertising sales company previously known as Deal Group Media has seen its share price fall 60% so far this month - from 2p on 1 October to 0.80p today - reducing the company's market value to £4 million.
Last month the company reported a further post-tax loss of £1 million for the half year to 30 June, increasing the deficiency of shareholders' funds to £1.9 million (see Asia Digital reliant on Eastern promise after reporting another loss).
MDC Partners, the Canadian listed marketing group that owns Crispin Porter & Bogusky, announced on Saturday (23 October) that it had successfully raised US$225 million in the form of senior unsecured notes repayable in 2016 and also entered into a new 5-year US$75 million revolving credit facility. The new funding arrangements replace previous borrowing facilities of US$185 million. See MDC Partners to pay high price for increased debt after refinancing.
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