DIGITAL marketing group Fuse 8 laid out plans to lead consolidation in the "highly-fragmented" marketing industry as it reported a "robust" first set of results on the Alternative Investment Market.
The Leeds-based company, founded 10 years ago in Leeds, plans to pick up bolt-on acquisitions in 2011 and said it may do a "transformational" larger deal.
Fuse 8 currently has more than 100 clients including Asda, Adidas, Persimmon, British Airways and Arla Foods. As well as digital marketing, its services include media planning, creative work, online public relations, search engine optimisation and online design and build.
"The state of the marketing communications sector is that it's highly fragmented – there are a lot of small companies," said non-executive director Graeme Burns.
"What you will see is there are probably bolt-on acquisitions that we could do, but probably more interesting is something more significant. There are larger-scale acquisitions where the revenue could add 50 or 100 per cent to the revenue of Fuse 8."
Currently about 85 per cent of the company's share capital is held between its founders Mark Walton and Andy Hutchinson and chief executive Nigel Hunter.
"We recognise that in order for the business to grow we will need to make some more of that available," said Mr Hunter. "There's a relatively small amount of interest at that level of free float.
"Through 2011 you will see that happen. We believe AIM will be a great platform for us to achieve the company's growth plans."
Mr Burns, who advises Fuse 8 on financial strategy, said one larger deal or a couple of smaller ones could require an equity fundraising. He estimated there are up to 200 marketing businesses for sale at any one time, but of every 10-15 businesses it assesses, it will probably only buy one.
"We want to be careful," he said. "We want to kiss a lot of frogs before we find our prince."
Fuse 8 took the first step of its acquisition strategy in November when it bought a London-based agency, Delete Digital Marketing, by issuing 1.25m new shares worth 400,000.
The agency, which has clients including Red Bull, Decca Records and Babyliss, gave Fuse 8 an important central London presence from where it plans to win more clients in the south.
The group's turnover, which includes all money charged to clients, lifted 17 per cent to 2.4m in the six months to the end of September. Its revenues – classed as all takings made by Fuse8 – grew six per cent to 1.63m.
But the 411,000 cost of its reverse takeover to join AIM in July drove it to 191,000 pre-tax losses. Headline operating profits were 229,000, down from 384,000 a year earlier, due to extra investment in staff and sales support.
The group had cash of 384,000, more than double a year ago.
"I am very pleased to be able to report such robust maiden result," said Mr Hunter.
"The first half of the year has seen steady progress and there is positive momentum driving the group forward with an encouraging new business pipeline."
It won new clients during the six months including Adidas, Asda and Soreen.
The group said it "is not immune to the economic difficulties affecting the UK and Europe", and has seen some clients, especially public sector ones, delay spending.
"However a diverse client base and a focus on new business has allowed the company growing revenue and to invest in its digital offering for clients," it said.
"By producing measurable results Fuse 8 has become a strong player in this value-conscious environment."
Fuse 8 now employs about 80 staff, and has about 35 of these in its Russian office.
There it has a technology and digital production hub, where it has operated for seven years.
Fuse 8 was founded in 2000 in Leeds and as one of the pioneers of online marketing, has spent 10 years refining its approach.
House brokers Finncap said: "The business looks well placed
to capitalise on the shift in marketing spend towards digital platforms.
"Inn the current year to March 2011 we expect revenue growth of nine per cent and an increase in profits before tax of 17 per cent."
On-line work dominating business
Fuse 8 continues to capitalise on the shift to on-line marketing. "More and more people are confident and comfortable with using technology such as mobile phones and trading online," said chief executive Nigel Hunter. "Everything is becoming mobile. "Use of the phone is now so diverse that making calls is one of the things you do last."
While the group still offers traditional marketing services, it now derives about two-thirds of its sales from on-line work.
One client, York-based Persimmon, is increasingly "switching an awful lot of their spend to online and email marketing," he added.
A recent project for lawnmower manufacturer Flymo used Google Earth to plot the size of gardens and what lawnmower householders required.