MXCP.L Regulatory News (MXCP)

22 Nov 2006 07:00

2 ergo Group plc22 November 2006 Embargoed until 7.00 22 November 2006 2ergo Group plc ("2ergo" or "the Group") Preliminary Results for the Year Ended 31 August 2006 2006 2005 % change £'000 £'000 Turnover 29,515 23,139 +28Operating profit 2,400 1,200 +100Adjusted pre-tax profit (1) 2,914 1,617 +80Basic earnings per share 7.26p 3.37p +115Adjusted basic earnings per share (1) 8.82p 4.76p +85 (1) Stated before amortisation Financial Highlights • Sixth successive year of significant growth • Revenue up 28% to £29.5m (2005: £23.1m) • Gross Profit increased to 20% (2005: 18%) • Adjusted PBT up 80% to £2.9m (2005: £1.6m) • Adjusted basic EPS up 85% to 8.82p (2005: 4.76p) • Results ahead of market expectations Operational Highlights • Acquisition of video technology leads to launch of new services • Post year end US acquisition provides strong foundation for growth in North and South American markets • First accredited payment intermediary to launch new mobile payment scheme • Intention to demerge 2safeguard in early 2007 Neale Graham, Joint Managing Director of 2ergo commented, "I'm delighted toreport that we have delivered another year of sound financial performance,exceeding market expectations by some 10%. We continue to outperform ourcompetitors, which I believe is testimony to our early objective of developing2ergo's unique communications infrastructure, the "Multiserve Platform", whichis now affording us the flexibility required to win new business, in new areas,in a fast developing global market. "Over the past year advances in hardware technology have enhanced the mobileuser experience, helping to further stimulate market demand for mobile solutionsand services, generating further opportunities for growth. "During the year, mobile TV and video capabilities were introduced to theMultiserve Platform which has led to our clients launching some very excitingvideo, music and user generated content services. I look forward to these newservices contributing to our revenues over the coming months. "One of our key objectives moving forward is to scale the business globally. Therecent acquisition of Proteus Inc., a well established US based mobiletechnology business, takes us a step closer to achieving this goal. Proteus hasa long history in the mobile technology space spanning some 10 years and boastsmany "world firsts" in delivering new and innovative mobile services. It bringswith it a very strong management team and also provides the Group with afoothold into the South American market, with a local presence in Argentina. "I'm pleased to report that the 2safeguard development is progressing asplanned. Following a detailed investigation into the full extent of the marketopportunities, it has become clear to the Board that the protocol has farreaching possibilities outside of those that exist within 2ergo. Therefore,following a strategic review, the Board has consulted with advisors and nowintends to demerge 2safeguard from the Group. I believe this to be a greatopportunity to enhance the value for existing shareholders. "As you will see from our results the Group has made fantastic headway over theperiod, our sales pipeline has never been stronger and this has manifested in anexcellent start to the current financial year. "Our goals are ultimately designed to deliver shareholder value and it is withthis in mind that we look forward to another strong year". Embargoed until 7.00 22 November 2006 2ergo group plc ("2ergo" or "the Group") Preliminary Results for the Year Ended 31 August 2006 CHAIRMAN'S STATEMENT 2006 has been another outstanding year for 2ergo. Sales have topped £29 million,operating profit grew by 100% and adjusted profits exceeded market expectations by 10%. By all measures, the Group continues to deliver rapid growth, supported by a strong balance sheet with a sound cash position. Beyond this, during the period the Group successfully completed two technology acquisitions and, shortly after the year end, finalised the purchase of Proteus Inc., in the US. The Group acquired the intellectual property of Manchester based video technology company, VICS Limited, a spin-out from UMIST, in addition to the patent application rights to a secure messaging protocol, which is now branded 2safeguard. Together with Proteus Inc., I am pleased to report that these acquisitions are now fully integrated into the Group's operations, and we look forward to seeing their contribution in 2007. The Group has continued to innovate and launch new and exciting products, helping to further differentiate 2ergo and create additional barriers to would be competitors. The Board is committed to delivering only the highest levels of service to the Group's valued and expanding customer base. Testament to this, the Group has also continued to invest in high quality people, adding to headcount across all departments. Increasingly, there are strong signs that the global mobile communications market is truly starting to come of age, with many more organisations committing resource to the "Mobile Channel". This maturity is fuelling customer demand for the Group's unique and compelling products. Encouragingly this demand is coming from many sectors, including Media and Broadcasting, Retail, Entertainment, Telecoms, Travel, Leisure, Financial Services and the Public Sector. It is not enough, however, to look back on how successful our overall strategy to date has been without assuring you that we are mindful of the speed of change in our exciting and dynamic market. 2ergo has been a catalyst for change over the past six years and the Board relishes the prospect of being at the forefront of change in our market over the coming years. The Board is confident of continued success and looks forward to delivering what it considers to be a sound, long term strategy for growth. By continuing to innovate, the Board expects the future to yield even greater rewards than before. Finally, once again, on behalf of the Board, I would like to thank all our staff for their hard work and dedication to the Group over the past year. KEITH SEELEYCHAIRMAN MANAGEMENT REVIEW Financial Performance During the year the Group has built on its strategy and focus on the provisionof 'total solution services' which generate higher margins than the moretraditional high-volume, low-margin transactions associated with manycommunication providers. As a result, revenues have increased by 28% in the year to £29.5 million (2005:£23.1 million), whilst gross profit has grown by over 40% to £5.9 million from£4.2 million in 2005. The Board is particularly pleased with the underlying growth in gross profit,with the margin having risen from 15% in the second half of 2005 to 23% in thesame period in 2006. The Board is confident that, with the continuedcontribution from total solution services, together with the contributionexpected from Proteus Inc, the Group's newly acquired US subsidiary, marginswill continue to increase into 2007. Once again the Board is delighted with the growth in operating profit during theyear, with a 100% increase being achieved, from £1.2 million in 2005 to £2.4million this year. Operating expenses continue to be well controlled, being 12%of turnover for the year (2005: 13%). Pre-tax profit for the year was £2.49 million, compared to £1.24 million in2005, also increasing by 100%. Adjusted (pre-amortisation) profit has risen from£1.62 million to £2.91 million, again exceeding market expectations. As a result of continued investment in research and development, and also due totax relief available on the exercise of staff share options, the Group'seffective tax rate for the year is 21.4% (2005: 25.5%). Basic earnings per sharehave risen by 115% to 7.26p (2005: 3.37p), with adjusted basic earnings pershare increasing to 8.82p (2005: 4.76p). The balance sheet continues to be strong. At the year end shareholders' fundsamounted to £6.3 million. This is after the purchase of 2.04 million shares intotreasury, which the Group has purchased over the past two years at a price of£1.10 per share. The Group also continues to be cash generative, with cash at bank increasing by£3.7 million in the year. £1.6 million of this was the net result of financingactivities, including two share placings and the purchase of shares intotreasury. The balance of £2.1 million came from operating activities. Operational Performance The Group's core operations have continued to perform in line with managementexpectations. Throughout the period 2ergo has launched a number of new andexciting products allowing the Group to open up new markets and further createcross-selling opportunities. A significant number of new clients have taken upthese new services in addition to offerings from the Group's well-establishedportfolio. Video is now an essential tool needed to meet the demands of users in theburgeoning mobile content and entertainment arena. The purchase of intellectualproperty from VICS Limited has brought video technology expertise and productsin mobile video, significantly enhancing the capabilities of 2ergo's existingproduct range. Recently integrated with the widely respected MultiservePlatform, this technology is already creating exciting new possibilities forwidening the Group's portfolio of revenue generating and marketing solutions. During the period the Group also became the first Accredited PaymentIntermediary to establish billing connections with multiple mobile networks forthe provision of Payforit, thereby becoming the first to launch this new mobilepayment scheme to the market. The Payforit scheme was determined by a strategic UK cross-mobile networkoperator initiative to promote a safe and trustworthy environment under whichmobile phone users may purchase goods and services from the mobile internet andcharge to their mobile phone. 2ergo has continued to develop and expand its Business Solutions product range,through 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. Thisportfolio makes it possible for organisations to exploit new revenues, optimisebusiness processes and open up new marketing channels. The Board predicts thisarea of the business will continue to deliver increasing higher margin revenuesover the coming year. In line with the Group's 'total solution services' strategy, 2ergo increased itsfocus on establishing partnerships with Media and Broadcasting sectors, offeringa range of branded revenue generating solutions that are delivered as a fullymanaged service. These offerings enable clients to quickly launch new andexciting consumer services, to capitalise on the rapidly growing mobileentertainment market. These include a mix of information services, gaming, usergenerated content and community-based interactive services. US Operations The US is strategically important for the Group as it makes available anaudience of over 250 million mobile users. The Board believes that, compared toEurope, the US mobile market is still in its infancy for mobile businesssolutions, and is well placed to aggressively seek a share of this major marketas it unfolds. During the period, the Group reacted quickly to signs of agrowing consumer acceptance of mobile services. This resulted in the launch ofnew services, through media partners, to provide information & alert SMSservices for weather, news, sport and entertainment. In September the Board was pleased to announce the acquisition of Proteus Inc, aUS based provider of mobile services to the North and South American markets.The Board believes this acquisition will mark another significant milestone forthe Group, providing a solid foundation to launch its entire portfolio ofsolutions and services to the American markets. Proteus brings to the Group anestablished and respected route into the US mobile market through direct UScarrier connectivity. This is a natural expansion to the Group's currentprofitable US operations, and comes with established relationships with major USmedia companies including Disney, Fox and NBC-Universal. More importantly, theBoard believes it has secured a competent and experienced management team toexecute the Group's US strategy. In South America, Proteus has established a presence through its office inBuenos Aires, Argentina, as well as carrier connectivity in Mexico. The Groupexpects to bring additional Latin American countries on line in due course. New clients and services Important client wins during the period include an agreement with Multimap, oneof the world's leading providers of mapping and location-based services, toenhance its range of mobile business-to-business solutions. This partnershipwill enable Multimap's clients across many sectors of industry, includingRetail, Travel, Property and Automotive sectors, to offer their customers mapsto their nearest outlets through mobile phones. The Group has launched other new services, including a new product suiteenabling marketeers to fully exploit the immediacy, personalisation and highlyresponsive characteristics of mobile communications. Branded DirectResponse,when used as part of an integrated marketing campaign, such as TV, Billboards oroff-the-page advertising, the new product suite will enable organisations tocapture the interest of customers at a time when they are most responsive. Overthe coming months, DirectResponse will also be available as an interactivespeech based product, to offer equivalent functionality over mobile andfixed-line telecommunications. Another significant product launch has been MultimediaSuite, which provides afull range of modules to enable clients to simplify the entire digital mediacontent management process. This enables content owners and producers toautomate the mass production of digital media assets, to create high qualitymultimedia content, uniformly, for any conceivable device, whilst enforcingdigital rights management protection. Demerger of 2safeguard The Board is pleased to report that the development of the Group's patentedsecure protocol 2safeguard is progressing in line with plan. When fullydeveloped 2safeguard will provide the Mobile Industry with a new protocol todeliver secure payments and communications. Under the UK Government's SecurityClassifications, 2safeguard has the capacity to make sure that purchases via amobile phone are more secure than a credit card chip and PIN system. Otherapplications include age verification, to protect minors from accessing mobileor online adult content, and gambling services. Similarly, it will also allowbanks to communicate securely with their account holders via the mobile phone. During the development of 2safeguard it became clear to the Board that theprotocol has far reaching possibilities outside of those that exist within2ergo. Yet the Board has noted that the market has not, at anytime, placed anysignificant value on 2safeguard's growth prospects. However, following astrategic review, the Board has consulted with advisors and now intends todemerge 2safeguard from the Group. Flotation on the AIM market is planned forearly 2007. The Board believes this is the optimum timing for such a demerger and hasalready established a separate management and technical team to drive the2safeguard operations. There will be ongoing commercial arrangements between2ergo and 2safeguard to develop complementary revenue streams and it is intendedthat the Group will retain a minority stake in the new company. Outlook The Group continues to believe that its products and services will play a majorpart in shaping the future of the communications market. The Group remainsconfident that its positioning is correct as it takes advantage of a convergingmarket, and in particular, the mobile communication industry's continuingevolution. It looks forward to benefiting from the increasing rewards that areexpected to flow as a result of this. The Board feels this view is supported bythe sustained levels of growth enjoyed by the Group. 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 has an ongoing acquisition strategy coupled with a healthy pipeline of targets. The Boardcontinues to drive innovation inline with an aggressive research and developmentplan, and a successful acquisition strategy. It is because of these key factorsthe Board remains very confident in the continued growth of the Group over thenext financial year and beyond. -ends- For further information, please contact: 2ergo Group plc 01706 221 777Neale Graham, Joint Managing DirectorBarry Sharples, Joint Managing Director Tavistock Communications 020 7920 3150Matt RidsdaleSimon Compton Numis Securities Limited 020 7776 1500David Poutney, Head of Corporate BrokingJag Mundi, Head of Corporate Finance Notes to Editors: About 2ergo Group plc 2ergo Group plc is a leading provider of interactive and multi-channelcommunications solutions across mobile, fixed-line telecommunications and theinternet. Clients range from SMEs to multi-national enterprises and publicsector organisations. The Group's expertise enables clients to advance their useof technology, to reach new levels of effective communication, increasedperformance, sustainability and growth. Headquartered in Lancashire, United Kingdom, the Group is listed on the LondonStock Exchange (AIM: RGO). Consolidated profit and loss accountfor the year ended 31 August 2006 2006 2005 £000 £000-------------------------------------------------------------------------------Turnover 29,515 23,139 Cost of sales (23,588) (18,921)------------------------------------------------------------------------------- Gross profit 5,927 4,218 Administrative expenses (3,527) (3,018)------------------------------------------------------------------------------- Operating profit 2,400 1,200 Other interest receivable and similar income 92 38------------------------------------------------------------------------------- Profit on ordinary activities before taxation 2,492 1,238 Tax on profit on ordinary activities (535) (316)------------------------------------------------------------------------------- Profit on ordinary activities after taxation 1,957 922------------------------------------------------------------------------------- Earnings per share Basic 7.26p 3.37pDiluted 7.05p 3.22pAdjusted basic 8.82p 4.76pAdjusted diluted 8.58p 4.55p Consolidated balance sheetat 31 August 2006 2006 2005 £000 £000------------------------------------------------------------------------------- Fixed assets Intangible assets 3,413 1,245Tangible assets 234 214------------------------------------------------------------------------------- 3,647 1,459------------------------------------------------------------------------------- Current assets Stock 51 54Debtors 4,923 6,112Cash at bank and in hand 4,857 1,170------------------------------------------------------------------------------- 9,831 7,336 Creditors: amounts falling duewithin one year (6,986) (4,748)------------------------------------------------------------------------------- Net current assets 2,845 2,588------------------------------------------------------------------------------- Total assets less current liabilities 6,492 4,047 Provisions for liabilities and charges (175) (23)------------------------------------------------------------------------------- Net assets 6,317 4,024------------------------------------------------------------------------------- Capital and reserves Called up share capital 299 290Share premium account 4,147 2,380Merger reserve 1,512 1,512Other reserve (536) (657)Profit and loss account 895 499-------------------------------------------------------------------------------Equity shareholders' funds 6,317 4,024------------------------------------------------------------------------------- Consolidated cash flow statementfor the year ended 31 August 2006 2006 2005 £000 £000------------------------------------------------------------------------------- Net cash inflow from operating activities 4,152 34 Return on investments and servicing of finance Interest received 92 38 Taxation (639) (37)------------------------------------------------------------------------------- Capital expenditure Payments to acquire tangible fixed assets (89) (126) Payments to acquire intangible fixed assets (1,407) (416)------------------------------------------------------------------------------- (1,496) (542)------------------------------------------------------------------------------- Net cash inflow/(outflow) before financing 2,109 (507)------------------------------------------------------------------------------- Financing Proceeds from share issue (net of issue costs) 1,429 -Proceeds from exercise of options over shares heldin EBT 121 -Net proceeds from sale of shares from treasury 756 -Purchase of own shares held in treasury (710) (305)Capital element of finance lease payments (18) (10)------------------------------------------------------------------------------- 1,578 (315)------------------------------------------------------------------------------- -------------------------------------------------------------------------------Increase/(decrease) in cash in the year 3,687 (822)------------------------------------------------------------------------------- 2ergo Group plc Notes to the Financial Information for the year ending 31 August 2006 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 2006 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 2005 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. 2006 2005 Earnings Earnings Weighted average Earnings Earnings Weighted average per share £000 number of shares per share £000 number of shares Basic earnings per share 7.26p 1,957 26,965,089 3.37p 922 27,354,147Dilutive effect of share options 775,959 1,231,232 --------- --------- Diluted earnings per share 7.05p 1,957 27,741,048 3.22p 922 28,585,379 ========== ========== An adjusted earnings per share (before the amortisation of intangible fixedassets) has been presented in addition to the earnings per share as defined inFRS 14, since, in the opinion of the directors, this provides a more meaningfulpresentation of the earnings derived from the Group's business. It can bereconciled from the basic earnings per share as follows: 2006 Earnings Earnings Weighted average per share £000 number of shares Basic earnings per share 7.26p 1,957 26,965,089Amortisation charge 422 --------- ---------- Adjusted basic earnings per share 8.82p 2,379 26,965,089Dilutive effect of share options 775,959 ----------Adjusted diluted earnings per share 8.58p 2,379 27,741,048 ========== 2005 Earnings Earnings Weighted average per share £000 number of shares Basic earnings per share 3.37p 922 27,354,147Amortisation charge 379 --------- ---------- Adjusted basic earnings per share 4.76p 1,301 27,354,147 Dilutive effect of share options 1,231,232 ----------Adjusted diluted earnings per share 4.55p 1,301 28,585,379 ========== 3. Reconciliation of operating profit to net cash flow from operating activities 2006 2005 £000 £000 Operating profit 2,400 1,200Depreciation 69 59Amortisation of intangible assets 422 379Decrease in stock 3 244Increase in debtors (71) (4,203)Increase in creditors 1,329 2,355 ----------------------Net cash flow from operating activities 4,152 34 ====================== 4. Reconciliation of net cash flow to movement in net funds 2006 2005 £000 £000 Increase/(decrease) in cash in the year 3,687 (822)Cash inflow from change in debt 18 10New hire purchase agreements - (18) ----------------------Movement in net funds in the year 3,705 (830)Net funds at beginning of year 1,152 1,982 ----------------------Net funds at end of year 4,857 1,152 ====================== 5. Reconciliation of net funds to the amounts shown in the balance sheet At 1 At 31 September Cash August 2005 flow 2006 £000 £000 £000 Cash at bank and in hand 1,170 3,687 4,857Hire purchase: due within 1 year (18) 18 - ---------------------------------Total 1,152 3,705 4,857 ================================= 6. Reconciliation of movements in shareholders' funds 2006 2005 £000 £000 Profit for the financial year 1,957 922Sale of shares from treasury (net of disposal costs) 756 -Issue of share capital (net of issue costs) 1,429 -Exercise of options over shares held in EBT 121 -Purchase of own shares held in treasury (1,970) (795) ----------------------Net addition to shareholders' funds 2,293 127Opening shareholders' funds 4,024 3,897 ----------------------Closing shareholders' funds 6,317 4,024 ====================== This information is provided by RNS The company news service from the London Stock Exchange