Ekay PLC
Acquisition of WFCA
Placing of 41,666,667 Ordinary Shares at a price of 6p each
Application for admission of the Enlarged Share Capital to AIM
Interim Results for six months to 31 December 2007
Proposed reduction of capital
And
Notice of General Meeting
Creation of substantial advertising and marketing agency outside London
Ekay PLC ("Ekay" or the "Company"), an advertising and marketing agency
specialising in the use of television, national and local press, magazines, the
internet, direct mail and posters, is pleased to announce the conditional
acquisition of the whole of the issued share capital of WFCA Integrated Ltd
("WFCA"), following a placing to raise �2,500,000 before expenses. Ekay also
announces its Interim Results for the six month period ended 31 December 2007.
Highlights of the acquisition:
* Creation of substantial advertising and marketing services agency based
outside London with enhanced resources and established client list
featuring reputable household names
* Synergies from the merger will allow the enlarged company to increase its
competitive offerings and market position
* Strategy to provide a potent "brand leader" positioning as the "largest
London agency outside London"
* Ekay is now the largest agency outside of London by media billing
* Bob Morton, a substantial new investor, to become Chairman, Michael
Richards of WFCA to become Chief Executive and Eddie Powell becomes
managing Director
Highlights of the Interim Results:
* Revenue up 30.3% to �23.1m (2006: �17.8m)
* Gross profit increased by 80.3% to �1.898m (2006: �1.052m)
* Profit before tax of �253,934 after exceptional credit of �115,000 for
legal fees
* New client wins and focus on higher margin services
* Full integration of the two previous acquisitions, leading to expanded
service offerings and presence around the UK
Eddie Powell, Chief Executive, Ekay, Commented:
"Both companies are an obvious fit with each other providing complementary
services but to different customer groups. We view the integration process to
be rapid and look forward to sharing each others' talents to the greater
benefit of our customers, staff and stakeholders."
Michael Richards, Chief Executive WFCA, commented:
"Both Ekay and WFCA can boast of having skilled and loyal staff who have
already started working together on a range of projects which includes an
invigorated marketing campaign to present the augmented offering to new and
potential customers.
"Whilst building revenues from our existing core clients is central to our
strategy, we look forward to further opportunities to capture new business, to
build on our base of national and international clients."
14 March 2008
Enquiries:
Ekay PLC 0147 433 4343
Eddie Powell, Chief Executive
Daniel Stewart & Company Plc 020 7776 6550
Simon Leathers / Simon Starr
Nexus Financial Ltd 020 7451 7050
Nicholas Nelson/Kathy Boate
1. INTRODUCTION
It was announced today that the Company had entered into a conditional
agreement for the acquisition of the whole of the issued share capital of WFCA.
WFCA is a full service marketing communications agency serving national and
international clients from its location in Kent. WFCA provides high quality
services in a multi-disciplinary environment at competitive cost levels. It has
grown rapidly and is now the 30th largest creative advertising agency in the
UK, by advertising spend (Nielsen, February 2008). It has a successful record
of winning and retaining profitable business for household name clients from
major London agencies.
Pursuant to the terms of the Acquisition Agreement, the consideration for the
Acquisition is �8.5 million, to be satisfied by the issue to the Vendors of the
Consideration Shares at the Placing Price, credited as fully paid, and the
payment to them of �4 million in cash (subject to adjustment as provided in the
Acquisition Agreement) to be funded through the placing of 41,666,667 new
Ordinary Shares and a new debt facility in the principal amount of the Relevant
Amount which the Directors intend that the Company should enter into at or
prior to Completion. The availability and entering into of the Debt Facility
will be subject to the Shareholders approving an increase in the Company's
borrowing powers under its Articles at the GM.
Owing, inter alia, to the size of the Acquisition, which constitutes a reverse
takeover under the AIM Rules for Companies, the transaction is conditional on,
and requires the approval of, Shareholders, which is being sought at the GM to
be held on 2 April 2008, a notice of which is set out at the end of this
document.
The other resolutions on which the Shareholders will be asked to vote are:
* an ordinary resolution to increase the authorised share capital of the
Company from �1,000,000 to �2,000,000 by the creation of an additional
100,000,000 Ordinary Shares;
* an ordinary resolution to authorise the Directors under section 80 of the Act
to allot new Ordinary Shares (and rights to subscribe for or convert into new
Ordinary Shares) up to the whole of the authorised but unissued share capital
of the Company;
* an ordinary resolution to increase the Company's borrowing powers in
accordance with the provisions of its Articles;
* a special resolution to authorise the Directors under section 95 of the Act
to allot new Ordinary Shares (and rights to subscribe for or convert into new
Ordinary Shares) for certain specified purposes and otherwise up to a limit
representing approximately 15 per cent. of the Enlarged Share Capital, for cash
on a non pre-emptive basis; and
* a special resolution to authorise a reduction of share capital of the
Company.
Application will be made to the London Stock Exchange for the Enlarged Share
Capital to be admitted to trading on AIM. Trading in the VCT Placing Shares and
Existing Ordinary Shares is expected to commence, on 3 April 2008. Admission is
expected to become effective, and trading in the Non VCT Placing Shares and
Consideration Shares is expected to commence on 4 April 2008.
The purpose of this document is to set out the reasons for and details of the
Proposals and to explain why the Existing Directors consider the Proposals are
in the best interests of the Company and its Shareholders as a whole, and to
seek your approval to the Proposals. This document also contains the Existing
Directors' recommendation that you vote in favour of the Resolutions to be
proposed at the GM convened for 10:00 a.m. on 2 April 2008, as convened by the
GM Notice.
2. BACKGROUND INFORMATION ON EKAY
EKAY was originally established as a sole trading business in October 1994 by
its current Chief Executive, Edward Powell, with the intention of creating a
full-service advertising agency specialising in direct response advertising for
the financial sector. Prior to 1994, Edward Powell worked for Mirror Group
Newspapers selling advertising space to both financial and advertising
companies and it was this experience that led him to believe he could develop a
successful advertising agency. The business was incorporated as EKAY
Advertising and Marketing Limited in April 1999. In November 2005, EKAY
Advertising and Marketing Limited became a public limited company and changed
its name to EKAY PLC ahead of the IPO Admission.
EKAY is an advertising and marketing agency which specialises in advising
clients on the use of television, national and local press, magazines, the
internet, direct mail and posters, for business development purposes, with
particular expertise in direct marketing. Direct marketing involves the use of
select media to target a specific audience, with the aim of encouraging a
response from the consumer, typically an enquiry for a product or service. EKAY
offers a complete direct marketing solution to its clients, employing a range
of advertising methods and direct mail solutions. In addition to advising on
marketing strategy, the Group also offers a complete design and media buying
service.
EKAY has a history of stable long-term relationships with many clients within
its customer base, a number of whom have been clients since the Company's
incorporation in 1999. In the last 12 months, the Group has acted for
approximately 326 clients. Some of the Group's clients include Carey Olsen,
Ocean Finance, Deutsche Bank, Lakeside Shopping Centre and Dagenham Motors.
Specific advertising media services provided by the Group to its clients
include; media planning, media buying, media analysis, design & origination,
on-line, PR, event management, research, marketing, branding and direct
response.
The principal reason for IPO Admission was to enable it to supplement its
organic growth by making strategic acquisitions with the assistance of EKAY's
quoted status. In line with this strategy EKAY acquired Wallace Barnaby in
November 2006 and Campaign Management Associates Limited ("CMA") in June 2007.
Wallace Barnaby is an advertising and marketing agency with offices in Guernsey
and Jersey and is the largest marketing agency in Guernsey by billings
(Nielsen, February 2005). It (together with its subsidiaries) provides a range
of media related services including strategic planning, international media
buying, creative advertising solutions, design and print service, PR and online
marketing solutions. Wallace Barnaby accounted for approximately 60 per cent.
of gross profit in the EKAY unaudited consolidated accounts for the 6 months
ended 31 December 2007.
CMA provides event management services to the public and private sectors in the
Channel Islands and the UK. CMA organises many of the major events held in
Guernsey and Jersey. Both Wallace Barnaby and CMA have been successfully
integrated into the Group.
EKAY's head office is located in Gravesend, Kent, where it owns the freehold of
a 1,600 sq.ft. property and rents a further 2,000 sq. ft. As at 30 January 2008
the Company employed 20 staff in Gravesend, with a further 39 based in Guernsey
and 4 in Jersey. This headcount is equivalent to approximately 49 full-time
employees. The split between employee functions is set out below:
Function Number of Employees
Directors* 12
Account Handlers 26
Creative Studio 11
Administrationand Accounts 14
Total 63
* excludes non-executives and consultants.
Historic Trading
The following summary financial information on EKAY has been extracted without
material adjustment from the consolidated financial information on EKAY set out
in Part III A and B of this document. Potential investors should read the whole
of this document and not rely solely on the following summary information.
6 Months
Year Ended Year Ended Year Ended Ended
30 June 30 June 30 June 31 December
2005 2006 2007 2007
�'000 �'000 �'000 �'000
Revenue 20,107 36,389 49,315 23,132
Gross Profit 1,827 2,279 2,203 1,898
Profit/(loss) before 1,002 966 (2,533) 254
tax
In the year ended 30 June 2007 EKAY suffered its first ever loss predominantly
as a result of certain large bad debt write-offs and other exceptional items.
The Group appointed a new Finance Director, Michael Lording, in April 2007 and
returned to profitability in the first half of the year ending 30 June 2008.
The Existing Directors are confident of the Group's prospects for the full
year.
3. BACKGROUND INFORMATION ON WFCA
WFCA was founded in 1996 to acquire the business of WFCA Limited out of
administrative receivership. It is a full service marketing communications
agency based outside London, as its management believed that there was an
opportunity to provide a fully-integrated service at competitive rates, by
being based in a lower cost location. Thus WFCA has positioned itself as a
"London agency not based in London" and has recruited experienced staff from
London agencies.
In 2000, Michael Richards joined WFCA from Grey Worldwide, with the aim of
building the business and accelerating growth. Since then growth has been
strong with the agency achieving 30th place within the agency rankings
published by Neilson in February 2008. The Company also featured in The Sunday
Times Fast Track 100 in December 2006 and December 2007 as a result of being
the second fastest growing marketing agency in the UK in both years.
As a full service marketing communications agency the specific products and
services which WFCA offers include brand strategy, research, design, other
creative services, production of brochures and other physical product,
advertising, media planning and buying, online media, direct marketing,
internal marketing, point of sale, conferences and PR. Depending on client
needs, some of these services may be outsourced.
Owing to the nature of WFCA's clients and the services it provides to them, the
majority of WFCA's clients pay retainers or commission based fees. In the last
12 months WFCA has acted for approximately 30 clients. Wfca's clients include
AXA, Bathstore, Budgens, BUPA International, Campina, Carpetright, Fexco,
MultiYork, Perfume Shop, Pilgrims Choice, Western Union and BMI Healthcare.
WFCA rents three offices in Tunbridge Wells, Kent, with an aggregate of
approximately 5,300 sq.ft. As at 31 January 2008 WFCA employed 59 staff and the
split between employee functions is as follows:
Function Number of Employees
Directors 1
Account Handlers 21
Media 8
Creative 11
Studio and Creative Services 11
Administration and Accounts 7
Total 59
Historic Trading
The following summary financial information on WFCA has been extracted without
material adjustment from the consolidated financial information on WFCA set out
in Part III C of this document. Potential investors should read the whole of
this document and not solely rely on the following summary information.
17 Months 11 Months
Ended Year Ended Ended
31 December 31 December 30 November
2005 2006 2007
�'000 �'000 �'000
Revenue 17,489 16,645 24,571
Gross Profit 4,261 3,725 4,479
Profit before tax 1,068 1,111 1,289
WFCA has increased its revenues significantly in the last three years whilst
maintaining a competitive cost base. During this period WFCA has been
successful in winning and retaining new clients, and the Vendors remain
confident of WFCA's prospects moving forward.
The operating margins of WFCA, defined as being operating profit divided by
gross profit, were 25 per cent. and 29 per cent. in 2005 and 2006 respectively.
This placed WFCA in 2nd position in a survey conducted by Willott Kingston
Smith published in 2007 and in 1st position in 2006. Using the same definition,
the operating margin for WFCA was 27 per cent. for 2007.
4. REASONS FOR AND DETAILS OF THE ACQUISITION
Reasons for the Acquisition
A merger of the businesses of EKAY and WFCA will create a substantial
advertising and marketing services agency based outside London, with a broad
client list featuring reputable household names and able to provide a full
service offering at competitive cost levels.
The Enlarged Group's objective is to rapidly become one of the largest regional
agency in the UK, improving on WFCA's current position as third largest
regional agency by media billing (Nielson 2008).
The Directors believe that the merger which is to be effected by means of the
Proposals will be a step change for both businesses, with the aim of providing
a potent `brand leader' positioning for the Enlarged Group as the "largest
London agency outside London". Such a position, together with the credibility
of the merged business being quoted on AIM and the transparency which goes with
that, will, the Directors believe, be a compelling offer for any potential
client.
The Directors intend that the Enlarged Group will, following Admission,
immediately start to capture a range of synergies across both internal and
external operations and these are expected to include:
* consolidation of head offices;
* reduction in administration costs;
* single accounts system;
* migration to single IT system;
* increased media and print buying power; and
* marketing and research cost savings.
The Enlarged Group will initially consist of two separately branded businesses,
one based in Kent and the other based in the Channel Islands, all operating
under the Group brand umbrella of EKAY plc.
Day to day management will be handled by the two agencies' experienced
management teams, working together with Michael Richards as CEO and overseen by
the Board. Edward Powell, as Managing Director, will be responsible for
maintaining existing client relationships and heading the working party which
will focus on realising synergies between the two businesses.
The Existing Board is confident about the future prospects of the Enlarged
Group and believes that it will have the following key strengths:
* enhanced market positioning;
* combined good quality client base which features household names and creates
access to significant cross selling opportunities;
* as a larger advertising agency, the Enlarged Group will have the ability to
pitch for larger clients;
* a wider service offering creating further cross selling;
* enhanced margins;
* enhanced blend of specialisms across the marketing mix;
* a broader investor base which will assist in facilitating future fundraisings
for further acquisitions; and
* the Existing Board will be strengthened with the appointment of Michael
Richards as CEO, Bob Morton as Non-Executive Chairman and Rodger Braidwood as a
Non-Executive Director, with effect from Admission.
Details of the Acquisition
On 14 March 2008, the Company entered into the Acquisition Agreement with the
Vendors to acquire the entire issued share capital of WFCA for a total
consideration of �8.5 million, subject to adjustment as provided in the
Acquisition Agreement. The consideration will at Completion be satisfied by the
issue to the Vendors of 75,000,000 new Ordinary Shares at the Placing Price,
credited as fully paid, and the payment to the Vendors of �4,000,000 in cash,
to be funded through the placing of the Placing Shares and a new debt facility
in the principal amount of the Relevant Amount which the Directors intend that
the Company should enter into at or prior to Completion. Completion of the
Acquisition is conditional, inter alia, on the Company receiving the required
funds by means of the Placing becoming unconditional, the Debt Facility being
completed, and the required funding being drawn down, the Resolutions being
passed at the GM and Admission becoming effective by the latest time permitted
in the Placing Agreement.
Further details of the Acquisition Agreement are set out in paragraph 12 of
Part V of this document.
Borrowing Powers
The Articles provide that without the previous sanction of the Company in a
general meeting the maximum amount which the Company (and its subsidiaries) can
borrow shall not exceed an amount equal to two times the Adjusted Capital and
Reserves (as defined in the Articles). Given that the Company wishes to enter
into the Debt Facility in the principal amount of the Relevant Amount, the
Company is proposing a resolution at the GM to sanction a change in the
Company's borrowing powers so that the Group can enter into and utilise the
Debt Facility.
Financial effects of the Acquisition
An unaudited pro forma statement of net assets of the Enlarged Group is set out
in Part IV of this document to illustrate the effects of the Acquisition and
Placing on the net assets of the Enlarged Group, as if it had taken place on 31
December 2007.
It has been prepared for illustrative purposes only and, because of its nature,
cannot give a complete picture of the financial position of the Enlarged Group.
On the basis of the assumptions set out in Part IV of this document the
Enlarged Group as at 31 December 2007 would have had net assets of
approximately �8.9 million.
Assuming the Acquisition had taken place on 1 January 2007, the Directors
believe that the pro forma consolidated turnover and earnings before interest
and tax for the Enlarged Group for the year ended 31 December 2007 would have
been �81.2 million and �1.3 million respectively. These figures are based on
unaudited financial statements, assume no synergies or consolidation
adjustments, and have been prepared for illustrative purposes only and, because
of their nature, cannot give a complete picture of the financial position of
the Enlarged Group.
5. COMPETITION
The UK marketing services market has traditionally been dominated by agencies
located in London. EKAY and WFCA provide the same range of services as a full
service London based agency, but at more competitive cost levels, and as a
result compete directly with the London based agencies for new business.
The Directors believe the Enlarged Group can provide the same level of service
as a London based agency, and can continue to compete effectively, and with the
advantage of a lower cost offering, with the London based agencies in the
future.
6. CURRENT TRADING AND FUTURE PROSPECTS
Current trading of the businesses which comprise the Group was in line with
expectations until the end of 2007 and although trading has been more difficult
in the first quarter of 2008, the pipeline of work suggests that the second
quarter will show an improvement.
Current trading for WFCA has started strongly in 2008 with profits in line with
management expectations.
The Directors believe that there is scope for the Enlarged Group to make
further acquisitions in the future and to consolidate its position as a major
competitor to London based marketing and advertising agencies.
7. EXISTING DIRECTORS AND PROPOSED DIRECTORS
Brief biographical details of the Existing Directors and the Proposed Directors
are set out below.
Existing Directors
Anthony David Sullivan, aged 57, Non-Executive Chairman
Tony has over 30 years of advertising agency experience. He has spent the
majority of his career with Media Campaign Ltd, a pioneering media independent,
where through acquisition, joint venture and commercial partnership he
established a network of related marketing services companies covering most
aspects of the communications business. This network was recently consolidated
via a structured management buy in. The new holding company has been re branded
as The Media Circus Group Ltd in respect of which Tony has now taken the role
of non-executive Chairman.
On Admission, Anthony Sullivan will resign from the Board.
Edward Kenneth Powell, aged 49, Chief Executive Officer, Managing Director
designate
Edward worked in advertising sales at Mirror Group Newspapers for 15 years,
specialising in the financial services sector and the agencies which catered
for companies in that sector. He founded EKAY in 1994 based on the experience
he gained whilst working for the national press. In 1999 he formed EKAY
Advertising & Marketing Limited (now EKAY plc) and has led development of its
business to date. He is currently Chief Executive Officer of EKAY and will
become the Enlarged Group's Managing Director as from Admission.
Michael Phillip David Lording FCCA, aged 49, Finance Director
Mike joined EKAY in April 2007 as Finance Director becoming Company Secretary
in June 2007 and was appointed to the Board on 26 November 2007. Mike has
worked in industry since 1980 and became finance director of Telia
International Carrier Ltd in 1999, the UK subsidiary of the Swedish national
telecoms carrier. In 2003, he co-founded and successfully built up a
communications carrier business, T-Liaison Limited before spending sixteen
months as a financial consultant to Frans Maas (UK) Ltd and AXA UK.
Julian Braithwaite Paul FCA, aged 62, Non-Executive Director
Julian was appointed to the Board in February 2006. He is a chartered
accountant who spent twenty years as a commercial and merchant banker. Since
1991, he has held several senior board positions with public companies in the
media and entertainment sectors. He is currently deputy chairman of Eagle Rock
Entertainment Limited, of which he was a founder shareholder, and non-executive
chairman of Cellcast plc, the global interactive digital broadcaster. He is
also a non-executive director of Entertainment Rights plc, Inspired Gaming
Group plc, Pilat Media Global plc, Stagecoach Theatre Arts plc, Edge
Performance VCT plc and The Regent Organisation Limited.
Julian Paul has agreed to subscribe for 416,667 Placing Shares in the Placing.
Terence Michael Rose, aged 46, Managing Director
Terry has experience in selling advertising airtime for broadcast televison,
having worked in senior sales positions for a range of companies selling
advertising airtime on the ITV network (from 1983 to 1995) and Sky Television
(from 1995 to 2001). He was appointed to the Board in December 2001. Terry is
resposible for pitching for new business and managing the media and graphics
teams.
On Admission Terry Rose will resign as a Director but will continue his
employment with and executive duties for the Enlarged Group.
Bruce William Wallace, aged 61, Executive Director
Bruce is the founder and chief executive of the Wallace Barnaby group. He has
strong business relationships throughout the Channel Islands sitting on a
number of boards and working parties, representing the interests of advertising
and marketing in the area. Bruce runs the operations of Wallace Barnaby from
the Channel Islands.
On Admission Bruce Wallace will resign as a Director but will continue his
employment with and executive duties for the Enlarged Group.
Proposed Directors
Arthur Leonard Robert Morton (known as Bob Morton) FCA aged 66, Proposed
Non-executive Chairman
Bob is a chartered accountant, successful entrepreneur and has substantial
public company experience. He served as chairman to Vislink plc from 2000 until
May 2007 and is currently also chairman of a number of other public and listed
companies including Armour Group plc, Conchango plc, Tenon Group plc and St
Peter Port Capital Limited. In addition he holds directorships in a wide range
of private companies.
On Admission Bob Morton will be appointed as Non-Executive Chairman of the
Enlarged Group.
Michael John Richards, aged 43, Proposed Chief Executive Officer
Michael has over twenty years' experience within the marketing services
industry as an account director, new business director and as a chief
executive. In 2000, he joined WFCA as chief executive. Previously Michael was a
board and worldwide account director with Grey Worldwide, where he also became
head of new business. During his five years with Grey Worldwide, he ran the ITV
Network, Mirror Group Newspapers, Glaxo Smithkline, Mars Confectionery, Allied
Dunbar/Zurich, Proctor & Gamble, Canon (UK) and the Granada Group accounts.
From 1990 to 1996, Michael was an account director with KHBB/Saatchi and was
responsible for accounts with Saab, Federal Express, Carlsberg and Uniroyal,
amongst others. Michael's career in the marketing services industry started in
1986 when he joined Ogilvy and, as an account manager and latterly as an
account supervisor, he worked on the accounts of Guinness, Reebok, Ford,
Nutrasweet and Lever. Michael Richards is also one of the Vendors.
On Admission, Michael Richards will be appointed as Chief Executive Officer of
the Enlarged Group.
Rodger Gordon Braidwood, aged 61, Proposed Non-Executive Director
Rodger is the non-executive finance director of WFCA. Rodger qualified as a
chartered accountant in 1970. He joined European Ferries Plc in 1977, becoming
its finance director in 1983, and then, from 1987, spent six years as the
finance director of Tiphook plc. Prior to his career in public companies and
subsequently, Rodger's business interests have included investing in private
companies, where he has taken a keen interest in business development. In 1996,
he became a founding director and shareholder of WFCA and accordingly is also
one of the Vendors.
On Admission Rodger Braidwood will be appointed as a Non-Executive Director of
the Enlarged Group.
8. DETAILS OF THE PLACING AND ADMISSION
The Placing Shares (which comprise the VCT Placing Shares and the Non VCT
Placing Shares) will in total represent 26.7 per cent. of the Enlarged Share
Capital and are being placed to raise �2.5 million before expenses. The net
proceeds of the Placing, which are expected to amount to approximately �1.975
million, will be used together with funds from the Debt Facility to satisfy the
cash portion of the consideration payable for the Acquisition.
Daniel Stewart has agreed, pursuant to the Placing Agreement and conditional,
inter alia, on Admission, to use its reasonable endeavours to place the Placing
Shares with institutional and other investors. The placing of the VCT Placing
Shares under the terms of the Placing Agreement is conditional, inter alia,
upon the passing of the Resolutions at the GM and the Placing Agreement not
having been terminated in accordance with its terms prior to admission to
trading on AIM of the VCT Placing Shares. The allotment and issue of the VCT
Placing Shares is not conditional on completion of the Acquisition Agreement,
and the admission of the VCT Placing Shares to trading on AIM is expected to be
on 3 April 2008.
The placing of the Non VCT Placing Shares under the terms of the Placing
Agreement is conditional, inter alia, upon the Placing Agreement becoming
unconditional and not having been terminated in accordance with its terms prior
to Admission, the Acquisition Agreement having become unconditional (save for
any condition relating to the Placing Agreement becoming unconditional) and
Admission occurring not later than 4 April 2008, or such later date as Daniel
Stewart and the Company may agree, being not later than 14 April 2008.
Application will be made to the London Stock Exchange for the Enlarged Share
Capital to be admitted to trading on AIM. Trading in the VCT Placing Shares and
Existing Ordinary Shares is expected to commence on 3 April 2008. Admission is
expected to become effective, and trading in the Non VCT Placing Shares and
Consideration Shares is expected to commence, on 4 April 2008. HMRC has given
advance assurance to the Company that certain of the Placing Shares are capable
of forming a qualifying holding for a Venture Capital Trust. Accordingly
certain of the Placing Shares, which the Directors believe will be capable of
forming a qualifying holding for a Venture Capital Trust, will be
unconditionally issued and allotted on the day following the General Meeting
but prior to Admission and will not therefore be conditional upon completion of
the Proposals (including the Acquisition). The Placing Shares will rank pari
passu in all respects with the Ordinary Shares including the right to receive
all dividends and other distributions declared paid or made after the date of
issue.
Further details of the Placing Agreement are set out in paragraph 12 of Part V
of this document.
Julian Paul, one of the Existing Directors, has agreed to subscribe for 416,667
Placing Shares in the Placing.
Southwind Limited has agreed to subscribe for 16,666,667 Placing Shares in the
Placing. Southwind Limited's sole shareholder is a trust, the main beneficiary
of which is an adult child of Bob Morton.
9. LOCK-INS AND ORDERLY MARKET RESTRICTIONS
Immediately following Admission, the Vendors will be interested in, in
aggregate, 75,000,000 Ordinary Shares, representing approximately 48.15 per
cent. of the Enlarged Share Capital.
Michael Richards has undertaken to the Company and Daniel Stewart, subject to
certain exceptions (including the ability to accept a take-over offer for the
Company and to give an irrevocable undertaking to accept a take-over offer for
the Company), not to dispose of or transfer any Ordinary Shares in which he is
interested at Admission for a period of 24 months from Admission.
Southwind Limited, Edward Powell, Rodger Braidwood and Andrew Peake have
undertaken, subject to the same exceptions noted above, not to dispose of or
transfer any Ordinary Shares in which they are interested at Admission for a
period of 12 months from Admission. They have also undertaken to the Company
and to Daniel Stewart only to dispose of any such Ordinary Shares through the
Company's broker (following the 12 month lock-in period) for a period of 12
months so as to maintain an orderly market in the Ordinary Shares.
Further details of such lock-in arrangements are contained in paragraphs 12.1.3
to 12.1.7 of Part V of this document.
10. DIVIDEND POLICY AND REDUCTION OF CAPITAL
The Board, intends, subject to the results of the Enlarged Group's operations,
its financial condition, cash requirements, future prospects, and profits
available for distribution, to recommend the payment of dividends to
Shareholders. The first such dividend is anticipated to be an interim dividend
payable in respect of the period ending 31 December 2008. The Board intends to
maintain the Company's year end as 30 June for the foreseeable future.
The Company's audited balance sheet as at 30 June 2007 showed an accumulated
deficit of �1,021,400 on its profit and loss account. The Company will be
unable, under the Act, to pay dividends or make any other distributions until
any deficit is eliminated and distributable profits are credited to the profit
and loss account.
The Existing Board therefore considers it appropriate to take this opportunity
to undertake the Capital Reduction with the aim of enabling the Enlarged Group
to go forward on a basis unhindered by past losses. At present the share
premium account of the Company amounts to �718,579 and if only this amount were
to be cancelled as part of a capital reduction, there would be insufficient
credit arising from that reduction to eliminate the accumulated deficit of �
1,021,400 on the Company's profit and loss account. Accordingly, the intention
of the Capital Reduction is to cancel the share premium account of the Company
as it will exist immediately following the allotment and issue of the
Consideration Shares and allotment and issue of the Placing Shares, once the
Company has received payment of the subscription monies for the Placing Shares.
It is anticipated that at that time the share premium account will amount to �
6,551,912.
Pursuant to the Act, the Company is unable to cancel any part of its share
premium account without first obtaining the approval of shareholders by passing
a special resolution, and subsequently obtaining confirmation of the Capital
Reduction by the High Court, to whom the Company makes an application for
confirmation. The Capital Reduction takes effect upon the order of the Court
confirming it being registered by the Company with the Registrar of Companies.
Accordingly, if resolution 6 in the notice of GM is passed as a special
resolution, it is the Company's intention to make the requisite application to
the Court for confirmation.
In order to obtain the Court's confirmation, the Company will need to
demonstrate that no creditor of the Company who has not consented to the
Capital Reduction will be prejudiced by the Capital Reduction. If the result of
relevant enquiries is that the Company has creditors, then the Court is likely
to confirm the Capital Reduction, but only upon certain terms which will be
contained in an undertaking that the Company will be required to give to the
Court. That undertaking will enable the Company to utilise as much of the
amount of the Capital Reduction as will eliminate the deficit on the profit and
loss account, but the balance will remain undistributable until the relevant
creditors have been discharged or they have consented to the Capital Reduction.
It will then be available for transfer to the profit and loss account.
The Board reserves the right to abandon or discontinue any application to the
Court if the Board believes that the terms required to obtain confirmation are
unsatisfactory to the Company.
The Capital Reduction does not affect the voting or dividend rights of
shareholders.
11. THE TAKEOVER CODE
The Proposals give rise to certain considerations in relation to the Concert
Party under the Takeover Code.
The Takeover Code is designed principally to ensure that shareholders of a
company are treated fairly and are not denied an opportunity to decide on the
merits of a takeover and that shareholders of the same class are afforded
equivalent treatment by an offeror.
Under Rule 9 of the Takeover Code ("Rule 9"), where any person acquires,
whether by a series of transactions over a period of time or by one specific
transaction, an interest in shares which (taken together with shares in which
persons acting in concert with him as defined below are interested) carry 30
per cent. or more of the voting rights of a company that is subject to the
Takeover Code, that person is normally required by the Panel to make a general
offer in cash to the remaining shareholders to acquire their shares at the
highest price paid by him or any person acting in concert with him in the 12
months prior to the announcement of the offer.
Similarly, when any person, together with persons acting in concert with him,
is interested in shares which in aggregate carry not less than 30 per cent. but
not more than 50 per cent. of the voting rights of such a company, a general
offer, under the same terms as the paragraph set out above, will normally be
required if any further interests in shares are acquired by any such person. An
offer under Rule 9 must be in cash and at the highest price paid by the person
required to make the offer or any person acting in concert with him, for any
interest in shares of the company during the 12 months prior to the
announcement of the offer.
The Vendors are deemed to be acting in concert for the purposes of the Code and
the Vendors therefore constitute the Concert Party. Pursuant to the Acquisition
Agreement, the Concert Party will upon Completion be issued with the
Consideration Shares and will between them be interested in 75,000,000 Ordinary
Shares, representing approximately 48.15 per cent. of the Enlarged Share
Capital. Paragraph 7 of Part V sets out the current interest of each member of
the Concert Party in the Company's share capital as at the date of this
document and as it would be immediately after the issue of the Consideration
Shares under the terms of the Acquisition Agreement.
In addition, members of the Concert Party have been granted, conditionally on
Admission, options to subscribe for, in aggregate, 1,700,000 new Ordinary
Shares, pursuant to the terms of the Share Option Scheme. Assuming exercise in
full by the Concert Party of all such options granted to them and in addition
the issue of the Consideration Shares (and assuming that no other new Ordinary
Shares are issued by the Company), the Concert Party would hold in aggregate
76,700,000 Ordinary Shares, representing approximately 48.70 per cent. of the
Enlarged Share Capital. Set out in paragraph 7 of Part V is the current
interest of each member of the Concert Party in the Company's share capital as
at the date of this document and as it would be immediately after the issue of
the Consideration Shares under the terms of the Acquisition Agreement and
assuming full exercise of the Options held by the members of the Concert Party.
Shareholders should be aware that, following Completion, the Concert Party will
hold between 30 per cent. and 50 per cent. in aggregate in the Enlarged Share
Capital and the members of the Concert Party will therefore, with the exception
of the options noted in the paragraph above, (for so long as they are treated
as acting in concert) not be entitled to increase their aggregate interest in
the voting rights of the Company without incurring an obligation under Rule 9
of the Code to make a general offer.
The Panel will normally waive the requirement (which would otherwise arise on
completion of the Acquisition and Placing) for a general offer to be made in
accordance with Rule 9 if the shareholders of the Company, excluding any
persons connected in any way with the Concert Party ("the Independent
Shareholders"), pass an ordinary resolution on a poll ("a Whitewash
Resolution") approving such a waiver.
As at the date of this document Edward Powell holds 89.1 per cent. of the
Company's issued share capital. He has written to the Panel confirming that he
is an Independent Shareholder and that he would vote in favour of a Whitewash
Resolution in respect of the Proposals if one was to be put to the Independent
Shareholders of EKAY at a GM. As a result the Panel have agreed to waive the
requirement for a Whitewash Resolution and have granted the Waiver.
12. INTENTIONS OF THE CONCERT PARTY
Save for the appointment of Michael Richards, Rodger Braidwood and Bob Morton
to the Board, the members of the Concert Party have confirmed their intention
that, following any percentage increase in their holdings of Ordinary Shares as
a result of the issue to them of the Consideration Shares, the Enlarged Group
should be allowed to continue operating in substantially the same manner as it
is at present, with no major changes. The members of the Concert Party have
also confirmed that the existing employment rights, including pension rights
(where relevant), of all employees of the Enlarged Group would be maintained.
13. SHARE OPTION SCHEME
The Directors believe it is important that directors and employees of the
Enlarged Group are appropriately and properly motivated and rewarded. To assist
in the recruitment, retention and motivation of employees of high calibre, as
necessary, the Directors consider that the Enlarged Group must have an
effective remuneration strategy. To this end, the Board have established the
Share Option Scheme under which eligible persons will be invited to participate
at the discretion of the remuneration committee of the Board. Further details
of the Share Option Scheme are set out in paragraph 11 of Part V of this
document.
14. EIS and VCT
EIS relief
HMRC has given advance assurance that Ordinary Shares in the Company are
capable of forming a qualifying holding and that the Placing Shares are
eligible shares under the EIS legislation.
An investor must be a qualifying investor in order to be entitled to EIS relief
and it is recommended that investors seek their own professional advice in this
regard.
VCT relief
HMRC has given advance assurance that Ordinary Shares in the Company are
capable of forming a qualifying holding for a VCT.
Whilst the Company cannot guarantee to conduct its activities in a way to allow
it to maintain its status as a qualifying VCT investment, the Directors intend,
as far as possible, to do so.
Following completion of the acquisition of WFCA, the Company is unlikely to
satisfy the conditions with regards to future share issues.
Shareholders and new investors who are in any doubt as to their tax position or
who are subject to tax in jurisdictions other than the UK are strongly advised
to consult their own independent financial adviser immediately.
15. CORPORATE GOVERNANCE
The Board supports high standards of corporate governance and the Board
complies with the provisions of the QCA Guidelines so far as is reasonably
practicable and appropriate taking into account the Company's size.
Board committees
EKAY has an audit committee, currently comprising Julian Paul and Anthony
Sullivan. The audit committee determines the application of the financial
reporting and internal control principles, including reviewing the
effectiveness of the Company's financial reporting, internal control and risk
management procedures and the scope, quality and results of the external audit.
The audit committee meets at least twice a year. With effect from Admission
Anthony Sullivan will resign from this committee and Bob Morton and Rodger
Braidwood will join this committee. Rodger Braidwood will chair this committee.
EKAY also has a remuneration committee, currently comprising Anthony Sullivan
and Julian Paul. It reviews the performance of the executive directors and sets
their remuneration, determines the payment of bonuses to executive directors
and considers bonus and option grants. No member of the Board is permitted to
participate in discussions or decisions concerning his own remuneration. The
remuneration committee is chaired by Anthony Sullivan and meets as required.
With effect from Admission Anthony Sullivan will resign from this committee and
Bob Morton will join this committee in his stead, with Julian Paul chairing the
committee.
EKAY also has a nomination committee currently consisting of Anthony Sullivan
as its chairman and Julian Paul. It is responsible for reviewing the structure,
size and composition of the Board, preparing a description of the role and
capabilities required for a particular appointment and identifying and
nominating candidates to fill Board positions as and when they arise. With
effect from Admission Anthony Sullivan will resign from this committee and Bob
Morton will join this committee in his stead.
16. CREST
CREST is a paperless settlement procedure enabling securities to be evidenced
otherwise than by a certificate and transferred other than by written
instrument. The Articles contain certain provisions concerning the transfer of
shares which are consistent with the transfer of shares in dematerialised form
in CREST under the CREST Regulations. The Ordinary Shares will be enabled for
settlement through CREST. Accordingly, settlement of transactions in the
Ordinary Shares following Admission may take place within the CREST system if
relevant Shareholders so wish. CREST is a voluntary system and holders of
Ordinary Shares who wish to receive and retain share certificates will be able
to do so.
17. RISK FACTORS
Shareholders should consider carefully the risk factors set out in Part II of
this document in addition to the other information presented.
18. ADDITIONAL INFORMATION
Your attention is drawn to the further information set out in Parts II to V of
this document.
19. GENERAL MEETING
Set out at the end of this document is a notice convening the General Meeting
of the Company to be held at the offices of Halliwells LLP at 10:00 a.m. on 2
April 2008 at which the following resolutions will be proposed:
* Resolution 1 is an ordinary resolution to approve the Acquisition;
* Resolution 2 is an ordinary resolution to increase the authorised share
capital of the Company from �1,000,000 to �2,000,000;
* Resolution 3 is an ordinary resolution to authorise the Directors under
section 80 of the Act to allot new Ordinary Shares (and rights to subscribe for
or convert into new Ordinary Shares) up to the whole of the authorised but
unissued share capital of the Company;
* Resolution 4 is an ordinary resolution to increase the Company's borrowing
powers;
* Resolution 5 is a special resolution to authorise the Board under section 95
of the Act to allot new Ordinary Shares (and rights to subscribe for or convert
into new Ordinary Shares) for certain specified purposes and otherwise up to a
limit representing approximately 15 per cent. of the Enlarged Share Capital for
cash on a non pre-emptive basis; and
* Resolution 6 is a special resolution to authorise a reduction of share
capital of the Company.
The attention of Shareholders is also drawn to the voting intentions of the
Existing Directors set out in paragraph 21 below.
20. ACTION TO BE TAKEN
Shareholders will find enclosed with this document a Form of Proxy for use at
the GM. Whether or not you intend to be present at the GM, you are requested to
complete, sign and return your Form of Proxy to the Company's registrars,
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, BR3 4TU as soon
as possible but, in any event, so as to arrive no later than 10:00 a.m. on 31
March 2008 or 48 hours before any adjourned meeting. The completion and return
of a Form of Proxy will not preclude you from attending the meeting and voting
in person should you wish to do so.
21. RECOMMENDATION
The Existing Directors, who have been so advised by Daniel Stewart, consider
the Proposals to be fair and reasonable and in the best interests of the
Company and its Shareholders as a whole and therefore recommend the
Shareholders to vote in favour of the Resolutions to be proposed at the GM, as
they intend to do so in respect of their own shareholdings, amounting in
aggregate to 37,011,055 Ordinary Shares, representing 94.58 per cent. of the
Existing Ordinary Shares. In giving its advice, Daniel Stewart has taken into
account the Existing Directors' commercial assessments.
ACQUISITION AND PLACING STATISTICS
Placing Price 6p
Number of Existing Ordinary Shares in issue 39,130,908
Number of Placing Shares being issued pursuant to the Placing 41,666,667
Percentage of Enlarged Share Capital being issued pursuant to 26.7 per cent
the Placing
Estimated gross proceeds of the Placing �2,500,000
Estimated net proceeds of the Placing receivable by the Company �1,975,000
Consideration Shares to be issued pursuant to the Acquisition 75,000,000
Agreement
Percentage of Enlarged Share Capital represented by the 48.1 per cent.
Consideration Shares
Number of Ordinary Shares in issue on Admission 155,797,575
Market capitalisation of the Company on Admission at the Placing �9.4 million
Price
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication date of this document 14 March 2008
Latest time and date for receipt of completed Forms of 31 March 2008
Proxy for the General Meeting
General Meeting 2 April 2008
Admission of the VCT Placing Shares (and the delivery into 3 April 2008
CREST
of such of those shares as are to be held in
uncertificated form)
Completion of the Acquisition 4 April 2008
Admission of the Non VCT Placing Shares and the 4 April 2008
Consideration Shares to trading on AIM
Delivery into CREST of the Non VCT Placing Shares and 4 April 2008
Consideration Shares to be held in uncertificated form
Despatch of definitive share certificates in respect of 17 April 2008
the Placing Shares and
Consideration Shares to be held in certificated form
DEFINITIONS
The following definitions apply throughout this document, unless the context
otherwise requires:
"Acquisition" the proposed acquisition by the Company of the entire issued
share capital of WFCA from the Vendors pursuant to the Acquisition Agreement
"Acquisition Agreement" the conditional agreement dated 14 March 2008 between
the Company (1) and the Vendors (2) relating to the Acquisition, further
details of which are set out in paragraph 12 of Part V of this document
"Act" the Companies Act 1985 (as amended) and/or the Companies Act 2006 (to the
extent the same is in force)
"Admission" admission of the Enlarged Share Capital to trading on AIM becoming
effective in accordance with the AIM Rules for Companies
"AIM" the AIM market of the London Stock Exchange
"AIM Rules for Companies" the rules for AIM companies as issued by the London
Stock Exchange, from time to time
"AIM Rules for Nominated Advisers" the rules for nominated advisers as issued
by the London Stock Exchange, from time to time
"Articles" the Company's articles of association at the date of this document
"Board" the board of directors of the Company following Admission, being Arthur
Leonard Robert Morton, Michael Richards, Edward Powell, Michael Lording, Julian
Paul and Rodger Braidwood
"Capital Reduction" the proposed reduction of share capital of the Company as
described in paragraph 10 of Part I of this document
"Company" or "EKAY" EKAY Plc
"Completion" completion of the Acquisition Agreement in accordance with its
terms
"Concert Party" the Vendors, being Michael John Richards, Rodger Gordon
Braidwood and Andrew James Peake
"Consideration Shares" the 75,000,000 new Ordinary Shares to be allotted and
issued by the Company to the Vendors pursuant to the terms of the Acquisition
Agreement
"CREST" the relevant system (as defined in the CREST Regulations) in respect of
which Euroclear UK & Ireland Limited is the Operator (as defined in the CREST
Regulations) in accordance with which securities may be held and transferred in
uncertificated form
"CREST Regulations" the Uncertificated Securities Regulations 2001 as amended
"Daniel Stewart" Daniel Stewart & Company Plc
"Debt Facility" the proposed debt financing facility in the principal amount of
the Relevant Amount which is intended to be put in place by the Company prior
to Completion in order to partly fund the Acquisition
"Directors" the Existing Directors and the Proposed Directors
"EIS" the Enterprise Investment Scheme pursuant to the provisions of section
527 and schedule 5 ITEPA
"Enlarged Group" the Company and its subsidiaries following completion of, and
as enlarged by, the Acquisition
"Enlarged Share Capital" all of the issued Ordinary Shares following the issue
of the Placing Shares and the Consideration Shares
"Existing Directors" or "Existing Board" the existing directors of the Company,
whose names are set out on page 8 of this document
"Existing Ordinary Shares" the 39,130,908 Ordinary Shares in issue at the date
of this document
"Form of Proxy" the form of proxy enclosed with this document for use by the
Shareholders in connection with the GM
"FSA" the Financial Services Authority
"GM" or "General Meeting" the general meeting of the Company, notice of which
is set out at the end of this document
"Group" EKAY plc and its subsidiaries as at the date of this document
"IPO Admission" the initial admission of the Ordinary Shares to trading on AIM
on 5 January 2006
"IPO Placing Place" 21.5p per share, being the price at which each Ordinary
Share was issued under a placing of new Ordinary Shares undertaken at the time
of the IPO Admission
"Lock-ins" the lock-in agreements described in paragraph 12 of Part V of this
document
"London Stock Exchange" London Stock Exchange Plc, company number 2075721
"Non VCT Placing Shares" the 32,808,334 Placing Shares which will not form a
qualifying holding for VCTs investing funds raised after 6 April 2007
"Notice of GM" the notice of the GM set out at the end of this document
"Official List" the official list of the UKLA
"Option" or "Options" options to be granted pursuant to the Share Option Scheme
"Optionholders" holders of options to subscribe for Ordinary Shares
"Ordinary Shares" ordinary shares of 1p each in the share capital of the
Company
"Panel" the Panel on Takeovers and Mergers
"Placees" subscribers for the Placing Shares procured by Daniel Stewart (as
agent for the Company) pursuant to and on the terms of the Placing Agreement
"Placing" the conditional placing of the Placing Shares by Daniel Stewart as
agent for and on behalf of the Company pursuant to the terms of the Placing
Agreement
"Placing Agreement" the conditional agreement dated 14 March 2008 between the
Company, the Existing Directors, the Proposed Directors and Daniel Stewart
relating to the Placing, further details of which are set out in paragraph 12
of Part V of this document
"Placing Price" 6 pence, being the price at which each Placing Share is to be
issued under the Placing
"Placing Shares" the 41,666,667 new Ordinary Shares which are the subject of
the Placing, comprising the VCT Placing Shares and the Non VCT Placing Shares
"Proposals" together the Acquisition, the Placing, the Waiver, the Capital
Reduction and Admission
"Proposed Directors" Michael John Richards, Rodger Gordon Braidwood and Arthur
Leonard Robert Morton
"Prospectus Rules" the prospectus rules made by the FSA pursuant to section 73A
(1) and (3) of FSMA as defined in section 417(1) of the FSMA
"QCA Guidelines" the guidelines published on 13 July 2005 by the Quoted
Companies Alliance regarding corporate governance for AIM companies
"Record Date" 6 p.m. on the day prior to the GM
"Relevant Amount" an amount equal to the aggregate of (i) the cash
consideration required for the Acquisition less the net proceeds of the Placing
and (ii) the amount which the Directors determine to be the appropriate level
of bank facility for the purposes of the general working capital requirements
of the Enlarged Group
"Resolutions" the proposed resolutions of the Company contained in the Notice
of GM
"Shareholders" the persons who are registered as holders of Ordinary Shares at
the Record Date
"Share Option Scheme" the share option scheme of the Company described in
paragraph 11 of Part V of this document
"Takeover Code" or the "Code" the City Code on Takeovers and Mergers
"UKLA" or "UK Listing Authority" United Kingdom Listing Authority, being the
FSA acting in its capacity as the competent authority of the purposes of Part
VII of the FSMA
"VCT(s)" venture capital trust(s)
"VCT Placing Shares" the 8,858,333 Placing Shares which are intended to form a
qualifying holding for VCTs investing funds raised after 6 April 2007
"Vendors" the WFCA shareholders at the date of this document, being Michael
John Richards, Rodger Gordon Braidwood and Andrew James Peake
"Waiver" the waiver (further details of which are set out on pages 17 to 18 of
this document) of the obligations on the Concert Party to make a general offer
under Rule 9 of the Takeover Code to acquire the Ordinary Shares not already
owned by the Concert Party which would otherwise arise as a consequence of the
issue of the Consideration Shares and the grant to, and exercise by, members of
the Concert Party and exercise of certain options, such waiver having been
granted by the Panel
"Wallace Barnaby" Wallace Barnaby & Associates Limited
"WFCA" WFCA Integrated Limited
INTERESTS OF THE EXISTING DIRECTORS, THE PROPOSED DIRECTORS AND OTHERS
As at the date of this document and immediately following Admission, the
interests (all of which are beneficial unless otherwise stated) of the
Directors, the Proposed Directors and any senior managers who are relevant to
establishing that the Company has the appropriate expertise and experience for
the management of the Company's business and persons connected with them
(within the meaning of section 252 of the Act) in the issued share capital of
the Company which (i) are required to be entered in the register maintained
under section 808 of the Act, or (ii) so far as the Directors are aware having
made due and proper enquiry of such persons as are connected (within the
meaning of section 252 of the Act) with each Director or Proposed Director or
are interests of a connected person of a Director or Proposed Director which
would, if the connected person were a director of the Company, be required to
be disclosed under paragraph (i) above are as follows:
At the date of this document Following Admission
Number of Percentage Options Number of Percentage Options
Ordinary of issued to Ordinary of issued to
Shares ordinary subscribe Shares ordinary subscribe
share for share for
capital Ordinary capital Ordinary
Shares Shares
Existing
Directors
Anthony David Nil Nil Nil Nil Nil Nil
Sullivan
Edward Kenneth 34,933,594 89.27% Nil 34,933,594 22.21% Nil
Powell*
Michael Phillip 10,000 0.03% Nil 10,000 0.01% Nil
David Lording
Terence Michael 78,400 0.20% 777,700 78,400 0.05% 400,000
Rose
Julian Nil Nil Nil 416,667 0.26% 416,667
Braithwaite
Paul**
Bruce William 1,942,105 4.96% Nil 1,942,105 1.23% Nil
Wallace***
Proposed
Directors
Michael John Nil Nil Nil 69,387,991 44.06% Nil
Richards
Rodger Gordon Nil Nil Nil 5,057,737 3.21% 850,000
Braidwood
Bob Morton**** Nil Nil Nil Nil Nil Nil
Others
Southwind Nil Nil Nil 16,666,667 10.58% Nil
Limited****
* Edward Kenneth Powell holds 34,850,000 Ordinary Shares and members of his
immediate family hold an aggregate of 83,594 Ordinary Shares.
** Julian Braithwaite Paul has conditionally subscribed for 416,667 Ordinary
Shares pursuant to the Placing.
*** Bruce William Wallace's shares are held by Wallace Barnaby Holdings
Limited, a company in which he has an interest.
**** Southwind Limited's sole shareholder is a trust, the main beneficiary of
which is an adult child of Bob Morton. Bob Morton does not have a notifiable
interest in these Ordinary Shares.
INTERIM RESULTS
Interim Results for the 6 months ended 31 December 2007.
Independent review report to EKAY Plc
Introduction
We have been engaged by the company to review the financial information for the
six months ended 31 December 2007 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Changes in Equity and the related notes. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company in accordance with guidance contained
in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our work, for this
report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. This
interim report has been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 December 2007 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority.
Shipleys LLP
Chartered Accountants
10 Orange Street
London WC2H 7DQ
Consolidated income statement
for the 6 months ended 31 December 2007
6 months to 6 months to 6 months to 6 months to Year ended
31 December 31 December 31 December 31 December 30 June 2007
2007 2007 2007 2006
Unaudited Unaudited Unaudited Unaudited Audited
before
Exceptional Total Total Total
Exceptional items
items
� � � � �
Revenue 23,131,776 - 23,131,776 17,751,312 49,315,319
Direct costs (21,233,441) - (21,233,441) (16,698,431) (47,112,392)
Gross profit 1,898,335 - 1,898,335 1,052,881 2,202,927
Other operating 4,350 - 4,350 4,350 111,841
income
Operating costs (1,689,062) - (1,689,062) (1,022,189) (2,785,966)
before share
option charge
APS Mortgages - 115,000 115,000 - (1,884,796)
writeback
Share option (43,988) - (43,988) (74,000) (151,385)
charge
Total operating (1,733,050) 115,000 (1,618,050) (1,096,189) (4,822,147)
costs
Depreciation (57,202) - (57,202) (35,111) (93,497)
Total operating 112,433 115,000 227,433 (74,069) (2,600,876)
profit / (loss)
Interest income 26,500 - 26,500 173,292 67,699
Profit/(loss) 138,934 115,000 253,934 99,223 (2,533,177)
before taxation
Income tax (41,590) (34,500) (76,090) (29,457) 752,653
(expense) /
credit
Profit/(loss) for 97,344 80,500 177,844 69,766 (1,780,524)
the year
attributable to
equity holders of
the parent
Earnings per
share
Basic earnings/ 24p 0.45p 0.19p (4.64p)
(loss) per share
Diluted earnings/ 23p 0.44p 0.18p (4.64p)
(loss) per share
Consolidated balance sheet
As at 31 December 2007
As at As at As at
31 Dec 07 31 Dec 06 30 June 07
Unaudited Unaudited Audited
� � �
Assets
Non-current assets
Property, plant and 443,132 465,321 443,715
equipment
Goodwill 2,399,815 2,249,692 2,386,462
----------------- ----------------- -----------------
2,842,948 2,715,013 2,830,177
----------------- ----------------- -----------------
Current Assets
Trade and other receivables 3,329,345 4,311,429 3,378,921
Cash and short term 397,997 1,393,781 1,843,985
deposits
----------------- ----------------- -----------------
3,727,342 5,705,210 5,222,907
----------------- ----------------- -----------------
Total assets 6,570,290 8,420,223 8,053,084
----------------- ----------------- -----------------
Equity and liabilities
Equity attributable to
equity holders
of the parent
Share capital 391,309 391,309 391,309
Share premium 718,579 718,579 718,579
Retained earnings (719,975) 874,491 (941,807)
----------------- ----------------- -----------------
389,913 1,984,379 168,081
----------------- ----------------- -----------------
Current liabilities
Trade and other payables 6,153,610 6,047,437 7,862,990
Corporate income tax 20,875 388,407 22,013payable
----------------- ----------------- -----------------
Total liabilities 6,174,485 6,435,844 7,885,003
----------------- ----------------- -----------------
Total equity and 6,564,398 8,420,223 8,053,084
liabilities
----------------- ----------------- -----------------
Statement of changes in equity
for the 6 months ended 31 December 2007
Group Share Capital Share Premium Retained Earnings Total
� � � �
Balance as at 1st July 391,309 718,579 (941,807) 168,081
2007 as above
Credit on charge for - - 43,988 43,988
share options
Profit for the 6 - - 177,844 177,844
months to Dec 2007
----------------- --------------- ------------------ ---------------
Total recognised 391,309 718,579 (719,975) 389,913
income and expense for
the year
Dividend paid - - - -
Issue of share capital - - - -
for investment
Issue cost - - - -
----------------- ---------------- ----------------- ---------------
391,309 718,579 (719,975) 389,913
----------------- ---------------- ----------------- ---------------
Consolidated cash flow statements
for the 6 months ended 31 December 2007
6 months 6 months 12 months
ended ended ended
31 Dec 07 31 Dec 06 30 June 07
Unaudited Unaudited Audited
Cash inflow / (loss) from
operating activities
Profit / (loss) from operations 227,434 (74,069) (2,600,876)
Share option charge for the year 43,988 74,000 151,385
Depreciation of property, plant 57,202 42,056 93,497
and equipment
----------------- ----------------- -----------------
Operating cash flows before 328,623 41,987 (2,355,994)
movement in working capital
Decrease / (increase) in (432,223) 2,046,256 1,875,551
receivables
Increase / (decrease) in (1,696,320) (905,050) 2,079,898
payables
----------------- ----------------- -----------------
Cash generated from operations (1,799,919) 1,183,193 1,599,455
Income tax paid - - (200)
----------------- ----------------- -----------------
Net cash from / (used in) (1,799,919) 1,183,193 1,599,255
operating activities
----------------- ----------------- -----------------
Cash inflow / (outflow) from
investing activities
Interest received 26,500 73,857 65,036
Investments (13,353) (1,522,181) (1,510,860)
Disposal of fixed assets - - -
Acquisition of fixed assets (56,616) (192) (28,770)
----------------- ----------------- -----------------
Net cash used in investment (43,469) (1,448,516) (1,474,594)
activities
----------------- ----------------- -----------------
Cash inflow / (outflow) from
financing activities
Net increase / (decrease) in - - -
borrowings
Proceeds from issues of shares - 738,000 738,000
Cost of share issue - - -
Dividends paid - - (117,393)
----------------- ----------------- -----------------
Net cash from / (used in) - 738,000 620,607
financing activities
Net increase / (decrease) in (1,843,388) 472,677 745,268
cash and cash equivalents
Cash and cash equivalents at 1 1,666,372 921,104 921,104
July 2007
----------------- ----------------- -----------------
Cash and cash equivalents at 31 (177,016 1,393,781 1,666,372
December 2007
----------------- ----------------- -----------------
Notes to the consolidated financial statements
1. Basis of Preparation
This interim report is unaudited and does not constitute statutory financial
statements within the meaning of Section 240 of the Companies Act 1985. The
financial statements for the year to 30 June 2007, which were prepared in
accordance with International Financial Reporting Standards (`IFRS') and upon
which the auditors have issued an unqualified report, have been delivered to
the Registrar of Companies.
The financial statements for the half year to 31 December 2007 have been
prepared in accordance with IAS 34 `Interim Financial Reporting'. The
accounting policies applied in these interim financial statements are
consistent with those set out and applied in the Group's Annual Report for the
year to 30 June 2007.
2. Segmental reporting
Turnover and profit before tax are attributable to the one principal activity
of the Group, that of a full service advertising and marketing agency. Turnover
and gross profit from this business originated in the markets shown.
6 months ended 6 months ended 12 months ended
31 Dec 07 31 Dec 06 30 June 07
� � �
Turnover
United Kingdom 9,689,353 16,425,753 31,306,062
Channel Islands 13,442,423 1,325,559 18,009,257
----------------- ------------------ -----------------
23,131,776 17,751,312 49,315,319
----------------- ----------------- -----------------
Gross profit
United Kingdom 710,071 732,467 909,999
Channel Islands 1,188,264 320,414 1,292,928
----------------- ------------------ -----------------
1,898,335 1,052,881 49,315,319
----------------- ------------------ -----------------
3. Exceptional item
In the year to 30 June 2007, full provision was made for the outstanding debts
from APS Mortgages in Jersey and the UK, along with a provision for legal fees
to pursue the UK debts through the courts. Since APS UK went into
administration in October 2007, and the liquidators report has been received,
our lawyers have advised that there is little prospect of any recovery, and
hence litigation has ceased. Consequently, the remainder of the legal provision
of �115,000 has been written back to the income statement in the period to 31
December 2007.
4. Earnings per share
6 months to 6 months to 12 months to
31 Dec 07 31 Dec 06 30 June 07
Basic EPS
Reported earnings (�) 177,844 69,766 -1,780,524
Reported EPS 0.45 0.19 -4.64
Weighted average number of ordinary 38,348,746 37,385,674 38,348,746
shares
Diluted EPS
Diluted reported earnings (�) 177,844 69,766 -1,780,524
Reported diluted EPS 0.44 0.18 -4.64
Weighted average number of ordinary 40,362,170 39,629,088 40,631,646
shares
END
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