More musings:
From the Placing document:
STRATEGY OF THE GROUP
Historically the Group has focused on revenue generation through both organic growth and acquisitions. This strategy has enabled the Group to become a leading global provider of integrated below-the-line marketing. The Directors believe that the Group is now in a position where it is necessary to consolidate the growth achieved to date, focus on generating a return from the substantial capital invested in the business and ensure that any further expansion is driven by higher margin contracts. The Directors intend to achieve this through the following strategies:
• focusing business development on the provision of multiple services within single clients, with the aim of generating high single or double digit net margins. Historically the Group has achieved average net profit before tax margin of approximately 6.25 per cent.. The Directors believe that there is significant scope within the Group to focus capacity away from existing low margin revenue to higher margin output, and achieve a higher average net margin;
• ensuring that all the businesses within the Group support the Group’s core offering of integrated marketing services. The Directors have undertaken an initial review of all of the existing operations and have identified certain businesses which are a distraction from the Group’s strategy;
• seeking to dispose of and/or consolidate certain businesses in the coming financial year. The timetable and financial effect of this strategy is dependent on a number of factors including the requirements of existing clients, the interest from potential acquirers and the overall economic climate;
• continuing to build broad-based international relationships with key clients. This will be achieved through leveraging off the Group’s existing client base, the Group’s international presence and ability to provide a fully integrated marketing approach;
• seeking to grow the number of single source client accounts with the aim of generating higher margin revenue;
• ensuring that all business divisions are focused on delivering cash-generating revenues. In particular, the UK Division will focus on ensuring that its turnover generates a satisfactory return and is not unduly working capital intensive; and
• maximising the return on investment from the North American Division. This division has experienced significant growth in its three years which has absorbed high levels of working capital. Whilst the North American Division will necessitate ongoing investment it should be modest in comparison to historic levels with significant capacity available to increase turnover without substantially increasing overheads. The Directors are intent
on ensuring that Shareholders receive a satisfactory return on the capital invested to date.
CUSTOMERS
MICE Group has a worldwide customer base including Microsoft, British Airways, Ford, Motorola, Sony, Hewlett Packard, Lucent Technologies and Sun MicroSystems.
MICE Group targets clients with a large and potentially recurring need for business communication services.
A key strategy of MICE Group has been to secure, enhance and establish client relationships with large or potentially large clients, which present a significant opportunity to cross-sell MICE Group’s services to other divisions or departments within those clients.
KEY STRENGTHS
The Directors believe that MICE Group has a number of key strengths, including the following:
• an established reputation as a leading provider of business communication services;
• an enviable position in the direct communication service market which should benefit from an increasing outsourcing trend;
• an established operating platform which has benefited from substantial investment and capital expenditure;
• a high number of existing blue chip clients to whom it may cross-sell the Group’s services in order to seek higher net margins;
• potential access to multiple points of entry within existing and new clients;
• an international presence with expertise covering a range of media and industries; and
• a high level of creative and production talent within the Group.
“Strategy of the Group”, the Group is looking to utilise, increasingly, the Group’s core offering of integrated marketing services to secure major single source client accounts.
CURRENT TRADING and PROSPECTS
As announced at the time of publication of the Group’s interim results in November 2004, the Company delivered strong growth and record first half results. Group turnover for the six months ended 31 August 2004 rose by 39 per cent. to £92.4 million and operating profit increased by 15 per cent. to £4.8 million.
Trading since the interim period has continued to demonstrate promising growth. The Directors are confident of the outlook for the full year. The Directors expect that the results will show continued strong turnover growth but also an associated increase in working capital.
The Directors, following an initial review of all of the existing operations, have already identified certain businesses within the Group which are likely to be disposed of or reorganised as part of this consolidation. It is likely that this will result in a significant impairment charge when the Group conducts its annual impairment review of fixed assets for the purpose of preparing the financial statements for the year ended 28 February 2005.
In the interim results the Group announced a slight reduction in gross margin due to continuing client pressures. Whilst the Group has not yet seen any reversal of this trend, the opportunity to develop key clients and improve overall margin is substantial. With a strong client base, international capabilities and strengthened balance sheet following the Issue, the Directors
believe that the scope for delivering attractive shareholder returns is significant and they remain positive on the prospects and outlook for the Group during 2005.
DIVIDEND
The Company paid to Shareholders on 3 December 2004 an interim dividend of 0.5 pence per Ordinary Share. As historically has been the case, the Directors intend to pay a dividend in respect of the full year ending 28 February 2005. The amount of such dividend will depend on the full year out come and Shareholders should be aware that as mentioned in the section titled “Current Trading and Prospects”, the Group may incur for the full year ended 28 February 2005 an impairment charge, this may lead to a reduction in distributable reserves.
However provided that the Company has adequate reserves, it would be the intention that the split of dividend between the interim and final dividend will be similar to that in 2004.
The Directors intend however to pursue a progressive dividend policy going forward as part of its strategy to deliver maximum shareholder returns and if necessary, the Company will seek the permission of the courts to ensure the Group has sufficient distributable reserves.
The New Ordinary Shares to be issued pursuant to the Issue will, on Admission rank pari passu in all respects with the Existing Ordinary Shares, and will rank in full for all dividends and other distributions declared, made or paid on Ordinary Shares after Admission save for any final dividend declared in respect of the year ending 28 February 2005.
Comparing MICE with INCEPTA prior to it's merger with HUNTSWORTH:
FORECAST 28/02/06
INCEPTA
T/O - 157m
PBT - 14.8m
EPS - 5.55
DPS - 1.16
Net Debt - 60m
Net Assets - 10m
Share Price - 62p
P/E - 11.17
Market Cap. - 125m
MICE
T/O - 213m
PBT - 10.5m
EPS - 4.4
DPS - 1.9
Net Debt - 29m
Net Assets - 20m
Share Price -33p
P/E - 7.5
Market Cap. - 57.7m
If MICE can get up to the INCEPTA margins in the medium term.
In the short term a P/E of 11 will equate to a share price of 48p on EPS of 4.4.
In the Annual Report it states there are 3,738 Private Shareholders who hold 32.07% of the equity.
The recent selling looks like Private Shareholders and not many institutions have sold out.
In fact Hermes have greatly increased their shareholding.
Hermes bought 8.2m shares in December 2004.
