MXCP.L Regulatory News (MXCP)

21 Nov 2005 07:00

2 ergo Group plc21 November 2005 Embargoed until 7.00 21 November 2005 2ergo Group plc ("2ergo" or "the Group") Preliminary Results for the Year Ended 31 August 2005 2005 2004 % change £'000 £'000 Turnover 23,139 11,171 +107Operating profit 1,200 619 +94Adjusted pre-tax profit (1) 1,617 748 +116Basic earnings per share 3.37p 2.34p +44Adjusted basic earnings per share 4.76p 2.74p +74 (1)Adjusted pre-tax profit is stated before amortisation and other operatingincome Financial Highlights •Fifth successive year of triple digit revenue growth •Revenue up 107% to £23.1m (2004: £11.2m) •Adjusted PBT up 116% to £1.6m (2004: £0.75m) •Adjusted basic EPS up 74% to 4.76p (2004: 2.74p) •Forecasts revised up three times during the year •Results ahead of latest market expectations Operational Highlights •Traffic across the Multiserve Platform increased by 124% •US Division now operating in profit and new information services launched •Acquired IP rights to a new security protocol, now branded 2safeguard - under the Government's Security Classifications, this technology has the capacity to make a mobile phone more secure than a credit card chip and PIN system making mobile commerce a reality •Expansion of Business Solutions Division - focus on services to the corporate sector •Launch of Wholesale Content Division - focus on mobile entertainment industry •Acquisition of Natural Response to enhance Voice Services Neale Graham, Joint Managing Director of 2ergo commented, "Posting triple digitgrowth in both sales and adjusted profit is a remarkable achievement and I amdelighted to report this again. Behind the numbers great strides have also beenmade in further developing the extensive services offered through the MultiservePlatform. During the year we have successfully developed and integrated moreleading edge technologies and, of late, have completed the acquisition of the IPrights for a secure communication protocol which the Board believes will have asignificant impact on the development of mobile communications in general and inparticular m-commerce. "The Group has begun the new financial year well and developments alreadyunderway in the market place are presenting us with significant prospects. Themanagement are confident that our well proven business model, broad range ofproducts and our expertise places us in a strong position to capitalise on theopportunities of our growing market. We now look forward to another stimulatingyear coupled with tremendous progress, further underpinning the qualities of2ergo and its people." Embargoed until 7.00 21 November 2005 2ergo Group plc ("2ergo" or "the Group") Preliminary Results for the Year Ended 31 August 2005 CHAIRMAN'S STATEMENT-------------------- The Board is delighted to report triple digit growth in revenues for the fifthsuccessive year since incorporation. Forecasts in the market were upgraded threetimes during the year and I am pleased to report that the Group has achievedresults above the most recent revisions. Group revenue in the year increased by 107% to £23.1 million, whilst adjustedpre-tax profit rose 116% to £1.6 million, a result of both the increase intraffic across 2ergo's proprietary infrastructure, the Multiserve Platform, andthe increased focus by the Group towards the sale and provision of BusinessSolutions. Yet again 2ergo has achieved its rapid growth solely through organicmeans. In addition, the US has, in the latter part of the year, begun tocontribute to the profits generated by the Group. The Group has invested significant time and energy into selectively targetingpartnership and acquisition opportunities that will deliver profitable marketentry and growth. This strategy is set to continue over the coming year and theBoard is currently pursuing acquisition targets in the US, Europe, Australia andAsia. The Board is encouraged by the speed in which the American market has maturedover the past 12 months and at the level of acceptance the American public isshowing towards the mobile content and services sector. The volume of USenquiries from enterprise clients requesting the roll out of 2ergo's traditionalsuite of Business Solutions has been particularly pleasing. Recently the Group has established itself as a provider of mobile solutions tohelp tackle current social issues, particularly within the education sector. InAugust 2ergo rolled out its 2NC truancy and bullying text service. Through theGroup's appointed reseller the solution won the Princess of Wales anti-bullyingaward. In September it also launched a text alert service for a major US mediapartner, Media General Inc, which now provides weather updates, sports andvaried news, targeting the Southern states which suffer the brunt of thehurricane season. The Board is delighted that its solutions continue to helppeople across the world and will continue to seek opportunities to utilise2ergo's technology. Looking ahead, the Board is extremely optimistic that the investment andexpansion into new business initiatives through this year will deliversignificant contribution to revenue and profit over the next 12 months. Theincreased capacity will facilitate further growth, and value to shareholdersshould continue to increase as the Group rolls-out additional services. Finally, once again, on behalf of the Board, I would like to thank all our stafffor their hard work and dedication to the Group over the past year, togetherwith our growing base of loyal clients, who we will continue to work with toprovide innovative communication services to improve their customer services,save costs and increase their revenues. KEITH SEELEYCHAIRMAN MANAGEMENT'S REVIEW------------------- Financial Performance During the past year, turnover has increased by 107% to £23.1 million (2004:£11.2 million). This substantial growth is partly a result of a 124% increase intransactions across the Multiserve Platform, which justifies the investment madeto increase the scalability and speed of the Platform in recent years. Inaddition, increased revenues have been generated through the Group's increasingfocus on Business Solutions. One benefit of the increase in capacity of the Multiserve Platform is thattraditionally lower-margin transactions can be processed at little or no cost tothe Group and without using capacity needed to deliver higher-margintransactions. The effect of this is that whilst margins are lowered, the revenuefrom these transactions flows directly to the bottom line. As a result, althoughmargin reduced from 24% to 18% the actual gross profit grew by 57% during theyear to £4.2 million (2004: £2.7 million). Operating profit has risen by 94% from £619,000 to £1.2 million. The benefits ofthe operational gearing predicted in last year's Annual Report are now beingseen by the Group. During 2004, the Group significantly increased its workforceto satisfy future expected demand, leading to operating expenses in that yearbeing 20.5% of turnover. This figure has now fallen to 13% in 2005 as theexpected increase in revenues flows though. This operating profit has been achieved despite a £186,000 loss incurred byM-Invent Inc, the Group's wholly-owned US subsidiary. The Board is pleased withthe measured approach taken towards its entry into the US which is now beginningto contribute profits to the Group. Pre-tax profit was £1.2 million, compared to £645,000 last year, an increase of92%. Adjusted (pre-amortisation) profit has risen by 116%, from £748,000 to £1.6million. Basic earnings per share rose to 3.37 pence (2004: 2.34 pence), withadjusted basic earnings per share increasing to 4.76 pence (2004: 2.74 pence). The Group continues to have a strong balance sheet - at 31 August 2005shareholders' funds stood at £4.0 million. This is after the purchase intoTreasury of 718,182 shares at a cost of £1.10 each, an aggregate of £790,000.Since the year end, a further 318,182 shares have been bought into Treasury,again at a cost to the Group of £1.10 per share. The Group holds an option overa further 1,463,636 shares at £1.10 each. Operational Performance The Group's core operations have continued to perform in line with managementexpectations, with many new client applications being launched during theperiod. Client loyalty has continued to be strong with over 96% of 2ergo'sclients renewing their contracts, and many also expanding their current usage.In addition, a significant number of new clients have taken up the Group'sservices. The Board was pleased to announce the successful acquisition and integration ofNatural Response, the highly advanced and award winning speech-based softwarebusiness. Whilst complimenting the Group's recognised Voice offerings, this nowenables 2ergo to deliver highly intuitive and conversational style businesssolutions and keeps the Group well positioned to capitalise on the growth indemand for more interactivity and improved customer experience. Adding this speech-based technology to the Multiserve Platform has helped tofurther differentiate 2ergo from the competition. This has led to theintroduction of several new products and the Board believe this will contributeto revenues in 2006. 2ergo has continued to develop and expand its Business Solutions Divisionthrough which it offers a comprehensive range of solutions and services.Collectively they enable clients to drive performance improvements through theuse of mobile, fixed-line telecommunications and Internet technologies. Thesesolutions make it possible for organisations to switch on new revenues, optimisebusiness processes and open up new marketing channels. The Board predicts thisarea of the business will continue to deliver increasingly high margin revenuesover the coming year. 2ergo's clients consist of companies from many sectors of industry. They rangefrom SMEs to multi-national enterprises, to public sector organisations. Key tothe Group's success has been its ability to recognise and prioritise sales,marketing and product development activities in line with market opportunities. Building on this, during the early part of 2005 the Board commissioned a projectto undertake a strategic and structured review of the business to support andfacilitate continued rapid growth. This work has demonstrated to the Group thesheer scale of the market opportunities ahead. Key deliverables include highlyfocused sales objectives and priorities across industry sectors and businesssolutions. It has also contributed to the Group's strategic partnering andacquisition programme. The review has helped crystallise focus on growthobjectives and how the Group intends to tackle the broader market place. The Group has now established a 'Wholesale Content Division'. Targeting to sellto mobile content retailers and brand owners, this new business initiative addsvalue to the existing wholesale offerings. 2ergo has been offering its delivery and billing services to mobile contentsales organisations for many years now. As the market matures, gaps haveappeared for a professional wholesale content provider with extensive cataloguesof mobile phone compatible content to support these organisations. In response and in anticipation of this growing opportunity 2ergo has beenaggressively developing such a comprehensive service by selective acquisitionand content licensing. The results of this have lead to the recent launch of2ergo's Mobile Content Catalogue, coupled with an end-to-end serviceencompassing the provision of mobile content, its world wide delivery andimportantly, a secure billing platform. US Operations Since the start of the year 2ergo has established its US division which is nowpoised to expand into other fields where the UK business has traditionally beenstrong. As predicted, from Q4 of this year the US business has started tocontribute profit to the Group which is expected to increase throughout 2006. Over this period, the Group has attracted an increasing number of unsolicitedrequests to roll out its traditional suite of Business Solutions (such as mobileapplications) from US enterprise clients. The Group is currently in advancednegotiations with several US corporate organisations to offer the provision ofthese solutions and associated innovative communication services. The US is strategically important for 2ergo as it makes available an audience ofover 250 million mobile users. The Group believes that, compared to Europe, theUS mobile market is still in its infancy for mobile business solutions, and iswell placed to aggressively seek a share of this major market as it unfolds. Forexample, following the US interoperability agreements, 2ergo was quick to reactby launching new services to provide information & alert SMS services forweather, news, sport and entertainment. Outlook The Group believes its products and services will play a major part in shapingthe future of the communications market. The Group remains confident that itspositioning is correct as it takes advantage of a converging market, and inparticular, the mobile communication industry's continuing evolution. It looksforward to benefiting from the increasing rewards that are expected, and havebeen predicted. The Board feels this view is supported by the current dynamiclevels of growth enjoyed by the Group. 2ergo's core portfolio of products and services is constantly being reviewed tosatisfy the rapidly expanding opportunities of a growing global market. Thescalability and increased functionality of the Multiserve Platform providesdifferentiation and ample capacity for further growth. The recent relaxation in European legislation regarding m-commerce also presentsnew market opportunities for 2ergo. The consumer is no longer restricted to onlypurchasing content and services to reside on the mobile device. The mobiledevice can be used by businesses and consumers to purchase many products andservices. In anticipation of this and security concerns surrounding the acceptance ofm-commerce, the Group has recently purchased the IP rights of the uniqueResponse and Authentication Messaging Protocol, now branded 2safeguard. Thiswill provide the Mobile Industry with a new protocol to deliver secure paymentsand communications. Under the UK Government's Security Classifications,2safeguard has the capacity to make sure that purchases via a mobile phone aremore secure than a credit card chip and PIN system. The Group believes this will provide the mobile network operators with a securem-commerce environment within its already established core infrastructure. Thiswould significantly reduce the need for new development, ease capacityconstraints and also resolve certain concerns surrounding the European e-MoneyDirective. The Board expects 2safeguard to open up a wealth of additional new opportunitiesfor 2ergo and its business partners, ranging from credit cardholder 'notpresent' transactions, to secure person-to-person communications. Specificapplications include age verification, to protect minors from accessing mobileor online adult content; or gambling services. In the longer term, the potentialfor further services are huge - for instance it could also be used to guaranteesecure electoral voting via the mobile handset and to allow banks to communicatesecurely to their account holder's mobile phone. The US continues to provide an increasing number of opportunities for the Groupand the Board predicts that the US is poised for an aggressive period of growth,which 2ergo expects to be part of. The Group's new business pipeline remains healthy, both in Europe and the US,and 2ergo fosters and benefits from strong customer loyalty. The Board istherefore confident of future successes and expects to see excellent continuedgrowth throughout 2006 and beyond. -ends- For further information, please contact: 2ergo 01706 221 777Neale Graham, Joint Managing DirectorBarry Sharples, Joint Managing Director Tavistock Communications 020 7920 3150Christian Taylor-WilkinsonMatt Ridsdale Numis Corp 020 7776 1500Jag Mundi or David Poutney Notes to Editors: About 2ergo group plc2ergo group plc facilitates communication and interaction between companies andtheir staff or customers using Mobile Internet, SMS, MMS, Web and VoiceApplications. Headquartered in Lancashire, with a sales office in New York, theCompany listed on AIM on 11 March 2004. Consolidated profit and loss accountfor the year ended 31 August 2005 2005 2004 £000 £000 --------------------------- Turnover 23,139 11,171 Cost of sales (18,921) (8,489) --------------------------- Gross profit 4,218 2,682 Administrative expenses (3,018) (2,285) Other operating income - profit on sale of database - 222 --------------------------- Operating profit 1,200 619 Other interest receivable and similar income 38 33 Interest payable and similar charges - (7) --------------------------- Profit on ordinary activities before taxation 1,238 645 Tax on profit on ordinary activities (316) (40) --------------------------- Profit on ordinary activities after taxation 922 605 --------------------------- Earnings per share Restated Basic 3.37p 2.34pDiluted 3.22p 2.30pAdjusted basic 4.76p 2.74pAdjusted diluted 4.55p 2.69p Consolidated balance sheetat 31 August 2005 2005 2004 £000 £000 --------------------------- Fixed assets Intangible assets 1,245 1,208Tangible assets 214 129 --------------------------- 1,459 1,337 --------------------------- Current assets Stock 54 298Debtors 6,112 2,399Cash at bank and in hand 1,170 1,992 --------------------------- 7,336 4,689 Creditors: amounts falling duewithin one year (4,748) (2,111) --------------------------- Net current assets 2,588 2,578 --------------------------- Total assets less current liabilities 4,047 3,915 Provisions for liabilities and charges (23) (18) --------------------------- Net assets 4,024 3,897 --------------------------- Capital and reserves Called up share capital 290 290Share premium account 2,380 2,380Merger reserve 1,512 1,512Other reserve (657) (657)Profit and loss account 499 372 ---------------------------Equity shareholders' funds 4,024 3,897 --------------------------- Consolidated cash flow statementfor the year ended 31 August 2005 2005 2004 £000 £000 ---------------------------Net cash inflow/(outflow) from operating activities 34 (26) --------------------------- Return on investments and servicing of finance Interest received 38 33 Interest paid - (11) 38 22 --------------------------- Taxation (37) 166 --------------------------- Capital expenditure Payments to acquire tangible fixed assets (126) (49) Payments to acquire intangible fixed assets (416) (965) --------------------------- (542) (1,014) ---------------------------Net cash (outflow) before financing (507) (852) --------------------------- Financing Repayment of loans - (250)Proceeds from share issue - 3,000Exercise of share options - 375Expenses of share issue - (595)Capital element of finance lease payments (10) (21)Purchase of own shares held in treasury (305) - --------------------------- (315) 2,509 --------------------------- (Decrease)/increase in cash in the year (822) 1,657 --------------------------- 2ergo Group plc Notes to the Financial Information for the year ending 31 August 2005 1. Basis of Preparation The financial information set out herein does not constitute statutory accountsas defined in Section 240 of the Companies Act 1985. The financial informationfor the year ended 31 August 2005 has been extracted from the statutory accountsof 2ergo Group plc for that year which, if adopted by the members at the AnnualGeneral Meeting, will be filed with the Registrar of Companies. The results forthe year ended 31 August 2004 are derived from the statutory accounts for thatyear which received an unqualified audit report and have been filed with theRegistrar of Companies. 2. Earnings per share The calculation of basic earnings per share is based on profit attributable toordinary shareholders divided by the weighted average number of ordinary sharesin issue during the year. The calculation of diluted earnings per share is basedon the basic earnings per share to allow for the assumed conversion of alldilutive options. The prior year earnings per share has been restated to exclude the company'sinvestment in its own shares from the weighted average number shares. These hadpreviously been included in the weighted average number of shares. Restated 2005 average Earnings average Earnings weighted per Earnings number of per Earnings number of share £000 shares share £000 shares Basic earnings per share 3.37p 922 27,354,147 2.34p 605 25,849,926 Dilutive effective ofshare options 1,231,232 440,231 ---------- ---------- Diluted earnings per share 3.22p 922 28,585,379 2.30p 605 26,290,157 ========== ========== An adjusted earnings per share (before the amortisation of intangible fixedassets in 2005 and before the amortisation of intangible fixed assets andinclusion of other operating income in 2004) has been presented in addition tothe earnings per share as defined in FRS 14, since, in the opinion of thedirectors, this provides a more meaningful presentation of the earnings derivedfrom the Group's business. It can be reconciled from the basic earnings pershare as follows : 2005 Weighted Earnings average per Earnings number of share £000 shares ------------------------------------------------ Basic earnings per share 3.37p 922 27,354,147Amortisation charge 379 -------- ----------- Adjusted basic earnings per share 4.76p 1,301 27,354,147Dilutive effective of share options 1,231,232 ----------- Adjusted diluted earnings per share 4.55p 1,301 28,585,379 =========== 2004 Weighted average Earnings Earnings number of per share £000 shares ------------------------------------------------ Basic earnings per share 2.34p 605 25,849,926Amortisation charge 325Other operating income - profiton sale of database (222) -------- Adjusted basic earnings per share 2.74p 708 25,849,926 Dilutive effective of share options 440,231 ----------- Adjusted diluted earnings per share 2.69p 708 26,290,157 =========== 3. Reconciliation of operating profit to net cash flow from operating activities 2005 2004 £000 £000 Operating profit 1,200 619Depreciation 59 28Amortisation of intangible assets 379 325Decrease in stock 244 -Increase in debtors (4,203) (1,758)Increase in creditors 2,355 982Profit on sale of database - (222) ------- -------Net cash flow from operating activities 34 (26) ======= ======= 4. Reconciliation of net cash flow to movement in net funds 2005 2004 £000 £000 (Decrease)/increase in cash in the year (822) 1,657Cash inflow from change in debt 10 270New hire purchase agreements (18) (30) ------- -------Movement in net funds in the year (830) 1,897Net funds at beginning of year 1,982 85 ------- -------Net funds at end of year 1,152 1,982 ======= ======= 5. Reconciliation of net funds to the amounts shown in the balance sheet At 1 Cash Non cash At 31 August September flow movement 2005 2004 £000 £000 £000 £000 Cash at bank and in hand 1,992 (822) - 1,170 Hire purchase: due within 1 year (10) 10 (18) (18) -------- -------- -------- -------- Total 1,982 (812) (18) 1,152 ======== ======== ======== ======== 6. Reconciliation of movements in shareholders' funds 2005 2004 £000 £000 Profit for the financial year 922 605Proceeds from issue of shares - 3,000Expenses of issue of shares - (595)Exercise of share options - 375Purchase of shares held in treasury (795) - -------- --------Net addition to shareholders' funds 127 3,385Opening shareholders' funds 3,897 512 -------- --------Closing shareholders' funds 4,024 3,897 ======== ======== This information is provided by RNS The company news service from the London Stock Exchange