Half-year Report

RNS Number : 6566A

Malvern International PLC

13 September 2018

 

Malvern International PLC

 ("Malvern", the "Company" or the "Group")

Interim results for the six months ended 30 June 2018

Malvern International plc (AIM: MLVN), the global learning and skills development partner, is pleased to announce its interim results for the six months ended 30 June 2018.

Key Points include:

·     Revenues of £2.61m (2017: £1.65m) with strong second half expected due to natural seasonality of the business

·     Considerable progress across the Group in ensuring quality standards and improving operational efficiencies

·     Operating loss of £0.22m (2017: operating loss of £0.36m)

·     Loss before tax of £0.371m including an impairment charge of £75,000 (2017: loss of £0.395m with a net nil impairment charge)

·     Loss per share on continuing activities of 0.29p (2017: 0.39p) - weighted average number of shares in issue during the period 125,763,888 (2017: 102,233,393)

·     Conversion of £540,000 of loan notes

·     Current assets of £5.148 million (2017: £1.779 million)

·     Net cash at 30 June 2018 saw a significant increase to £3.11m (2017: £0.47m)

·   London has continued to show an improved performance delivering revenues of £1m (2017: £770,000) and a small operating profit of £93,000 compared to an operating loss last year of £15,000

·     The trading performance in Singapore has seen positive improvement for the first half of 2018 with revenues of close to £1m (2017: £109,000) driven by the recently acquired SAA Global Education Centre Pte Ltd   

·    Revenue in Malaysia, while approximately 30% lower than the first half of last year, is showing signs of stabilisation following the implementation of improvement plans and further development of new programmes and enrolment. The Company expects Malaysia to be consistent half on half until the year end

·   In June 2018, the Company completed an oversubscribed placing of 100,000,000 new ordinary shares at a price of 4 pence per share raising £4 million before expenses

·  The purchase of Communicate English School Limited was completed on 2 July 2018 for a consideration of £2,340,000 and satisfied by cash consideration of £1,650,000 and a share consideration of £690,000, through the issue of 13,800,000 ordinary shares at 5 pence each

The total number of Ordinary Shares of the Company in issue as at 4 July 2018 was 238,788,333 (31 December 2017: 114,188,333).

Commenting on the results and prospects, Gopinath Pillai, Chairman, said:

"The first half of 2018 has been notable in the history of our Group given the discernible operational improvements in Group performance, the oversubscribed fundraising and the successful acquisition of Communicate English School in Manchester which is a good fit to our UK operations.  These events and the existing bookings for our traditionally stronger second half, due to the seasonal nature of our business, leave Malvern in a strong position entering the second half of the year.

"Private education is a volatile and competitive business. However, we have several positive factors which enable us to meet the challenges. Firstly, we operate in multiple geographies which provide opportunities to leverage on each other. Being in London and Singapore we are, from the branding point of view, in two prime locations.  Secondly, we have a proactive management which we are strengthening further.  Thirdly, our strategy for growth is both organic and through acquisitions and companies we acquire, we insist, must have managements that share our vision and want to stay with us.

"Malvern is totally focused on consistently delivering high quality training in ways that work best for today's students.  We are confident in our growth strategy and already seeing the benefits of our belief in the importance of the combination of quality products and accessibility for students."

This announcement contains information which, prior to its disclosure by this announcement, was inside information for the purposes of the Market Abuse Regulation

Enquiries:

Malvern International PLC		www.malverninternational.com
Dr. Sam Malafeh - CEO Navin Khattar - Non-Executive Director		Via Walbrook PR
WH Ireland Limited (NOMAD)		Nominated Adviser & Broker
Mike Coe		[phone]
Walbrook PR
Tom Cooper / Paul McManus		[phone]
		[phone]     [e-mail]

Notes to Editors:

Malvern International is a global learning and skills development partner preparing students and learners to meet the demands of a professional life.  Courses are delivered on sites in London, Manchester, Singapore, and Malaysia; with the option of studying across multiple campus' over the duration of the same course; and online through the Malvern Online Academy.

Courses include:

·     Certificate, Diploma and pre-University programs;

·     University degree and post-graduate programs;

·     Courses for professional examinations e.g. ACCA;

·     Tuition services for secondary school students and English language teaching.

Established in the 1980's and admitted to AIM in 2004, Malvern employs approximately 250 people and delivers a wide range of courses.  Malvern's growth strategy is driven by organic growth initiatives complemented by strategic acquisitions. For further investor information go to www.malverninternational.com  www.walbrookpr.com/malvern 

 

CHAIRMAN'S STATEMENT

Operational Review

During the first half of 2018, Malvern continued to deliver on its stated strategy to provide a unique service experience in quality education. This strategy started with rebuilding and strengthening the Group's administration while improving the systems linked to the quality of the product. These improvements have been recognised by the local authorities who have acknowledged significant progress in both existing and acquired businesses, notably in Singapore and Malaysia.

Malvern progressed its plans to diversify its offering through the development of new products, establishing new partnerships and acquiring an existing profitable business which completed after the period end. The addition of the Malvern Online Academy sets the platform to begin the virtual journey. The approval of University of East London's foundation offering came as a significant development to the Group, which established a new university foundation division.

SAA Global Education, acquired in November 2017, continued its progress under the new management. The business has shown a successful turnaround within a six month period, with a significant reduction in its losses to reach a level close to break even. The business also started contributing to the Group more broadly through its educational programmes and connections. The success of this acquisition is a strong sign of Malvern's ability to strategically add complementary businesses to its operation. The acquisition strategy has been further demonstrated in the second half of 2018 through the addition of Communicate School of English in Manchester ('Communicate') to broaden the UK footprint and expand the cross-selling opportunities for the Group.  Integration of Communicate has progressed well since its acquisition.

In marketing and sales, Malvern continued to develop both market penetration and development strategies. The bookings continued growing in the existing markets and the results are shown in the improved numbers from London and Singapore. Malvern also continued growing its reach to both local and new international markets and started receiving initial bookings from new markets including Middle East and some new Asian markets.  The current bookings indicate further growth in the second half of 2018.

A brief review of the operations of UK, Singapore and Malaysia is given below:

United Kingdom

·   London has continued to show an improved performance, delivering revenues of £1 million and a small profit. It is anticipated that revenue will strengthen in the coming years with the addition of foundation programmes for the University of East London. For the period to 30 June 2018, revenue was £1.08m (H1 2017: £770,000) with EBITDA profit of £93,000 (H1 2017: EBITDA loss of £15,000).

·    A new school, Communicate English School Limited based in Manchester, was acquired on 2 July 2018. This school has a history of being a profitable operation with a particular focus on the Middle East market. This has given the Group immediate access to the Middle East Market with the resulting opportunities to cross-sell other Group products.

South East Asia

·    Singapore's operational results for the first half of 2018 were positive with revenues of close to £1m (H1 2017: £74,000) driven by the recently acquired SAA Global Education which was acquired in 2017 and has integrated well into the Group.  Singapore reported an EBITDA loss of £122,000 (H1 2017: EBITDA loss of £4,000).

·     Malaysia continued with its rebuilding strategy and has substantially increased its international marketing efforts. Revenue reported in Malaysia dropped from £807,000 as reported for the period to 30 June 2017 to £561,000 for the period to 30 June 2018. The EBITDA loss was £147,000 (H1 2017: EBITDA loss of £113,000). Malaysia is expected to continue trading at the same level in the second half but the Company believes that it has taken steps to right-size the Malaysian operations and expects to see the benefits in 2019.

Financial Results 

Group performance, apart from in Malaysia, has been in line with management's expectations with revenues from continuing operations being 58% better than the equivalent period in 2017. The Group's revenue from continuing activities for the first six months of 2018 increased to £2.61m from the £1.65m reported from the first half of 2017 due to the acquisition of SAA Global Education and the expansion of courses offered and further marketing efforts.

The effort in improving the operations resulted in reduction of the EBITDA loss from £0.36 in the first half of 2017 to an EBITDA loss of £0.22m for the first half of 2018.

Alternative Performance Measure EBITDA	Six months to 30 June 2018	Six months to 30 June 2017	Twelve months to 31 December 2017
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
(Loss) / profit for the period / year	(371)	(395)	(701)
Finance costs	(18)	(1)	(15)
Depreciation & amortisation	(61)	(34)	(71)
Impairment of intangible assets	(75)	(75)	(150)
Impairment reversal	-	75	150
Income tax credit / (charge)	-	-	5
EBITDA	(217)	(360)	(620)

The period is notable for its successful fundraising and acquisition of Communicate English School Limited in Manchester, which will contribute to the second half and also provide operational synergies to the Group and enhance efficiency.  This strategic acquisition broadens Malvern's footprint in UK and is highly complementary to the Group's offering in London.

The basic and diluted loss per share on the continuing business was 0.29p. (2017:  0.39p) - Calculated at the weighted average number of shares in issue during the period at 125,763,888 (2017: 102,233,393).

Net cash at the end of the period saw a significant increase to £3.11m (2017: £0.47m).

During the period, the Company converted £540,000 of the convertible loan notes held by KSP Investment Pte Limited ("KSP") into 10,800,000 new ordinary shares. The convertible loan notes that remain outstanding amount to £231,898.

The level of prepayments as at 30 June 2018 have increased in comparison to both 31 December 2017 and 30 June 2017, in part due to a deposit £475k paid in respect of accommodation for a summer camp post period end and £27k in respect of the acquisition arising post period end (note 7).

Board and senior management changes

During the period Sabin Joshi stood down as a Non-Executive Director. I am pleased to announce that Mr Nirvana Chaudhary, who is Chief Executive Officer of the CG Corp Group, is joining the Board as a Non-Executive Director with immediate effect.

During the period Bharat Guha was appointed as Group Chief Financial Officer. Bharat, a New Zealand trained Chartered Accountant, brings with him substantial industry expertise having held senior positions with various tertiary educational institutions.

The Group continues to benefit from a proactive management team at Group and operating subsidiary level, with a prime example being the Chairman of our London operating company who provides much hands-on assistance and guidance.

Outlook

Going into the second half of the year, the existing bookings indicate a positive expected performance during the second half of 2018, which reflects the historical weighting due to the seasonality of the business.  Although the Malaysian business has underperformed in the first half relative to our expectation, we have taken some corrective cost actions that will help mitigate for the year as a whole. The prospects for Malaysia are still considered to be significant. In addition, given the strength of the balance sheet, our investment in sales and marketing is expected to increase moderately into the second half of the financial year, relative to the first, as we seek to capitalise on buoyant markets in our operating territories. Deferred income, which will be recognised as revenue during the second half as the service is delivered, is significantly higher at £1.187 million than the equivalent period in 2017 (H1 2017: £307,000). 

As Malvern continues to grow, we will ensure suitable attention is paid to continually improving operational efficiency and corporate governance across the Group.

The Board is encouraged by the progress in the first half of the year and is confident of making further significant progress in the remainder of the year. I would express my thanks to the management and staff of the Group for their hard work, and to my fellow directors for their unflinching support and guidance. I would also like to welcome our new shareholders and thank all shareholders for their support of Malvern.

Gopinath Pillai

Chairman

UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2018

	Six months to 30 June 2018	Six months to 30 June 2017	Twelve months to 31 December 2017
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Revenues
Sales of services and other revenue	2,607	1,652	4,079
Cost of services sold & operating expenses	(2,824)	(2,012)	(4,699)
Operating (loss) / profit	(217)	(360)	(620)
Finance costs	(18)	(1)	(15)
Depreciation & amortisation	(61)	(34)	(71)
Impairment of intangible assets	(75)	-	-
(Loss) / profit before taxation	(371)	(395)	(706)
Income tax credit / (charge)	-	-	5
(Loss) / profit for the period / year from continuing activities (All activities are continuing activities)	(371)	(395)	(701)
(Loss) / profit for the period / year	(371)	(395)	(701)
(Loss) / profit attributable to equity holders	(371)	(395)	(701)
(Loss) / earnings per share on total activities (All activities are continuing activities)
	Pence	Pence	Pence
Basic *	(0.29)	(0.39)	(0.66)
Diluted *	(0.29)	(0.39)	(0.66)
* Calculated at the weighted average number of shares in issue during the period at 125,763,888 (2017: 102,233,393).

UNAUDITED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018

	As at 30 June 2018	As at 30 June 2017	As at 31 December 2017
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Total Assets
Non-current assets
Property, plant & equipment	274	183	246
Intangible assets, development expenditure & goodwill	2,880	2,146	2,858
	3,154	2,329	3,104
Current assets
Inventory	-	3	6
Debtors	1,154	1,286	946
Prepayments	888	130	401
Cash at bank and in hand	3,106	360	480
	5,148	1,779	1,833
Total Assets	8,302	4,108	4,937
Equity & Liabilities
Non-current liabilities
Finance lease	23	23	21
Finance term loan	129	-	159
Finance convertible loan	496	-	995
	648	23	1,175
Current liabilities
Payables due within one year	1,431	2,396	1,892
Deferred Income	1,187	307	669
	2,618	2,703	2,561
Total Liabilities	3,266	2,726	3,736
Equity attributable to equity holders of the Company
Share capital	9,027	7,538	7,919
Share premium	4,012	896	896
Reserves	(8,003)	(7,052)	(7,614)
	5,036	1,382	1,201
Total Equity and Liabilities	8,302	4,108	4,937

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2018
 

	Share Capital	Share Premium	Retained Earnings	Translation Reserve	Capital Reserve	Convertible Loan Reserve	Total Other Reserves	Attributable to Equity Holders of the Company
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2018	7,919	896	(8,629)	739	171	104	(7,615)	1,200
(Loss) for the period	-	-	(371)	-	-	-	(371)	(371)
Total other comprehensive income	-	-	-	23	-	-	23	23
Total comprehensive income for the period	-	-	(371)	23	-	-	(348)	(348)
New Shares from Placement	1,000	3,000	-	-	-	-	-	4,000
Costs in relation to new shares from placement		(316)						(316)
New Shares from Convertible Loan Note	108	432	-	-	-	-	-	540
Convertible Loan Reserve	-	-	-	-	-	(40)	(40)	(40)
Total transaction with owners	1,108	3,116	-	-	-	(40)	(40)	4,184
Balance at 30 June 2018	9,027	4,012	(9,000)	762	171	64	(8,003)	5,036

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2018

	Six months to 30 June 2018	Six months to 30 June 2017	Twelve months to 31 December 2017
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Cash flows from operating activities
(Loss) / profit before income tax from continuing activities	(371)	(395)	(707)
Adjustments for:
Depreciation & amortisation	61	34	225
Impairment of intangible assets	75	-	(150)
Interest paid	18	(1)	15
	(217)	(362)	(617)
Changes in working capital
(Increase) / decrease in debtors & prepayments	(695)	(203)	(7)
Increase / (decrease) in creditors	213	359	(348)
(Increase) / decrease in inventories	6	-	(3)
Increase / (decrease) in related parties	(163)	124	1,174
Cash flows from operating activities	(856)	(82)	199
Taxation
Taxes recovered / (paid)	-	(39)	-
Net cash used in operating activities	(856)	(121)	199
Cash flows from investing activities
Purchase of property, plant and equipment	(76)	(29)	(29)
Purchase of intangible fixed assets & acquisition cost	(90)	-	(83)
Net cash used in investing activities	(166)	(29)	(112)
Cash flows from financing activities
(Decrease) / increase in finance lease liabilities	(2)	(2)	(4)
Interest Paid	(18)	1	(15)
New Share Issue	4,000	440	250
Costs in relation to new shares from placement	(316)	-	-
Repayment of term loan	(30)	-	186
Net cash used in financing activities	3,634	439	417
Effect of foreign exchange rate changes on consolidation	23	(46)	(150)
Net increase in cash and cash equivalents	2,635	243	354
Cash and cash equivalents at beginning of period / year	471	117	117
Cash and cash equivalents at end of period / year	3,106	360	471

NOTES TO THE UNAUDITED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2018

1.    General information

Malvern International plc (the "Company") is a public limited liability company incorporated in England and Wales on 8 July 2004. The Company was admitted to AIM on 10 December 2004. Its registered office is Witan Gate House, 500-600 Witan Gate West, Milton Keynes MK9 1SH and its principal place of business is in Singapore. The registration number of the Company is 05174452.

The principal activities of the Company are that of investment holding and provision of educational consultancy services.  The principal activity of the group is to provide an educational offering that is broad and geared principally towards preparing students to meet the demands of business and management.   There have been no significant changes in the nature of these activities during the period

2.    Significant accounting policies

Basis of preparation

The accounting policies adopted are consistent with those of the previous financial year.

This interim consolidated financial information for the six months ended 30 June 2018 has been prepared in accordance with IAS 34, 'Interim financial reporting'. This interim consolidated financial information is unaudited and is not the Group's statutory financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified, but did include, without qualifying their report, references to which the auditors drew attention by way of emphasis of matter in respect of the preparation of the financial statements on a going concern basis. 

The interim consolidated financial information for the six months ended 30 June 2018 is unaudited. In the opinion of the Directors, the interim consolidated financial information presents fairly the financial position, and results from operations and cash flows for the period. Comparative numbers for the six months ended 30 June 2017 are unaudited.

This interim consolidated financial information is presented in £ sterling, rounded to the nearest thousand.

Adoption of new and revised International Financial Reporting Standards

IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers) amendments/interpretations became effective in the six months to 30 June 2017. The amendments/interpretations of these two standards have no material effect on this interim consolidated financial information. The amendments to IFRS 16 (Leases) will come into effect on 1 January 2019. The Company has chosen not to implement an early adoption of IFRS 16.

3.    Impairment

Impairment of intangible assets have been undertaken for the first six months. The Company will undertake an extensive review of the impairment charge during the second half of the year. No impairment was made in 2017.

4.    Dividend

No interim dividend for this financial year is proposed.
 

5.    (Loss)/ earnings per share

The basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the relevant period. The weighted average number of shares in issue during the period was 125,763,888 (2017: 102,233,393).

The diluted (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the relevant period diluted for the effect of share options and warrants in existence at the relevant period. The weighted average number of shares in issue diluted for the effect of share options and warrants in existence during the period was 125,763,888 (2017: 102,233,393).
 

6.    Share capital

On 11 June 2018, the Company announced that it has duly passed resolutions approving the sub-division of existing share capital and the issue of 10,800,000 new ordinary shares pursuant to a placing.

Pursuant to the sub-division each then existing ordinary share of 5 pence was sub-divided into one new ordinary share of pence and 4 deferred shares of 1 pence each. The percentage and number of new ordinary shares held by each shareholder immediately following the sub-division was the same as the percentage and number of existing ordinary shares held by them immediately prior to the sub-division.

The Company also announced on 11 June 2018 that a placing of 100,000,000 new ordinary shares at a price of 4 pence per share to raise gross proceeds of £4 million had been approved.

On 13 June 2018, the Company agreed to a Loan Note Conversion of £540,000 to 10,800,000 new ordinary shares at 5 pence per share.

As at 30 June 2018, the total number of Ordinary Shares held in the Company was 224,988,333 (previously 30 June 2017: 102,233,393).

7.    Subsequent events

On 2 July 2018, the Company announced that its acquisition of Communicate English School Limited was completed in accordance with the terms of the Acquisition Agreement. The details of this acquisition were set out in a circular to shareholders dated 17 May 2018.

The acquisition was for a total consideration of £2,340,000. This was made up by a cash consideration of £1,650,000 and a share consideration of £690,000 being 13,800,000 ordinary shares at 5 pence each.

The fair value of assets and liabilities acquired together with the consideration provided can be summarised as follows:

Fair value of assets and liabilities acquired:
Property, plant & equipment	£125,924
Trade and other receivables	£101,986
Deferred income	(£307,944)
Trade and other payables	(£74,636)
Provisions	(£23,902)
Cash at bank	£262,757
Net assets acquired	£84,185
Consideration / purchase price	£2,340,000
Initial Estimated Goodwill arising on Acquisition*	£2,255,815

*The Company will be engaging an external consultant to determine the Purchase Price Allocation for the acquisition of Communicate English School Limited.

As at 30 June 2018 costs in relation to the acquisition totalling £343k had been incurred which are included within prepayments

Following the issue of consideration shares pursuant to the acquisition of Communicate English Schools Limited, the total number of Ordinary Shares held by the Company as at 4 July 2018 was 238,788,333 (31 December 2017: 114,188,333)

There are no further subsequent events to report.

 

END

 

 

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