19 May 2008 07:00
| Embargoed until 7am | 19 May 2008 |
2ergo Group plc
("2ergo" or "the Group")
Interim Results for the six months ending 29 February 2008
2ergo is a leading provider of convergent mobile solutions in three key areas: business, entertainment and marketing. The Group's technological expertise and innovative approach has led it to partner with some of the world's most respected brands, across a broad range of sectors.
Through industry-leading products and solutions, 2ergo enables organisations to leverage the power of the mobile channel, imparting knowledge and insight to deliver results that directly enhance the bottom line.
The Group is pleased to announce interim results for the six months ended 29 February 2008.
| Six months to | Six months to | ||
| February 2008 | February 2007 | % change | |
| £'000 | £'000 | ||
| Turnover | 17,829 | 15,711 | +13% |
| Gross Profit | 4,580 | 4,059 | +13% |
| Operating profit | 1,266 | 1,124 | +13% |
| Adjusted pre-tax profit (1) | 1,906 | 1,587 | +20% |
| Pre-tax profit | 1,490 | 1,213 | +23% |
| Basic earnings per share (2) | 3.80p | 3.84p | -1% |
| Adjusted earnings per share (1) (2) | 5.22p | 5.21p | +0% |
(1) figures stated pre amortisation
(2) EPS reduction due to 14% tax rate in 2007 - 25% in 2008
Turnover up 13% to £17.8 million (2007: £15.7 million)
Increase in gross profit of 13% to £4.6 million (2007: £4.1 million), with gross margins maintained at 26%
Adjusted pre-tax profit up 20% to £1.9 million (2007: £1.6 million)
Strengthening of Operational Board
Five year deal with O2 secured in period
Investment in formal Business Partner Programme
Barry Sharples, Joint Chief Executive of 2ergo, commented: "We are pleased to announce another strong period of growth, which is demonstrated by solid financial results, the launch of further new services for clients, and significant progress in strengthening the operational board and management team in readiness for the next phase of expansion.
"Launched during the period, 2ergo's MultiSend product suite has already attracted considerable attention from major brands seeking the very latest interactive mobile technology to power their marketing and customer relationship management programmes. Most notably, the Board was particularly pleased to report a five year contract with O2, who now use MultiSend to engage with over 17 million customers.
"With more and more organisations now recognising the potential of the mobile channel the decision to launch 2ergo's Business Partner Programme is proving to be the right one. This strategic initiative is helping to broaden and evolve the Group's routes to market, providing greater access to potential customers via an indirect sales force.
"The mobile industry continues to be one of the fastest developing sectors in the world, with industry analysts forecasting significant growth across all the markets in which we operate. The Board is confident that the Group is well placed to maintain its leading position as a provider of convergent mobile communications and looks forward to capitalising on the broader opportunities these conditions will bring."
For further information, please contact:
| 2ergo Group plc Neale Graham, Joint CEO Barry Sharples, Joint CEO Jill Collighan, Finance Director | +44 (0)1706 221 777 |
| Tavistock Communications Lulu Bridges / Andrew Dunn | +44 (0)20 7920 3150 |
| Numis Securities Limited David Poutney / Stuart Skinner | +44 (0)20 7260 1000 |
| Embargoed until 7am | 19 May 2008 |
2ergo Group plc
("2ergo" or "the Group")
Interim Results for the six months ending 29 February 2008
Since the beginning of this year the Board has made considerable progress in executing its strategy for shaping the future of the Group.
The appointment of Chris Brassington as Managing Director of 2ergo Limited is enabling co-founders Neale Graham and Barry Sharples to focus on high level acquisition and global expansion strategies. Chris has played a central role during the period, focusing primarily on driving continued organic growth, and strengthening both the operational board and senior management team in readiness for further expansion and growth opportunities.
Industry commentators continue to predict significant worldwide growth for the mobile technology sector, a view that the Board shares and which is upheld by the Group's strong performance during the period. However, the Board is mindful that, in common with most others, this sector is not necessarily immune to downturns in the current unsettled global economy. With this in mind, 2ergo has successfully launched a number of new products and services which allow clients to quickly create efficiency savings and switch on new revenue streams. The Board believes that this has helped, and will continue to help, to reduce the overall impact a slowdown in consumer spending could have on the general industry over the coming months.
Benefits of the current economic climate are also being seen in the Group's acquisition pipeline. The Board is seeing excellent opportunities to consolidate its market position, with many potential acquisition targets coming to the Board's attention. The Group's strong balance sheet and cash reserves will prove invaluable.
Financial Review
These interim results have been prepared under International Financial Reporting Standards (IFRS) for the first time. The effect on the comparative periods is set out in a separate IFRS restatement report made available today on 2ergo's website at www.2ergo.com/about/investor-relations/reports.
The first half of 2008 has seen turnover for the Group increase to almost £18 million, growth of over 13% compared to the £16 million achieved in the first half of 2007. Gross margins have remained strong at 26%, delivering an increase in gross profit of £521k to £4.6 million. This is particularly pleasing given the current challenging economic conditions both in the UK and the US, and is testament to the Board's clearly defined strategy of providing value-added solutions such as the innovative MultiSend product, for which 2ergo was awarded a 5 year contract by O2.
Revenues in the US have risen during the period to £598k, an increase of 12%. As predicted, this region continues to be loss making (2008: £242k loss, 2007: £199k loss), largely due to the continued investment in this territory by the Board. In North America, progress has been steady, and although sales cycles are lengthening, a strong pipeline of work for major brands is being developed. The Group has invested significant resources in Central and Southern America to ensure connectivity contracts have been established with all major networks. As a result, the Group now has access to over 170 million consumers and has direct connections to 14 mobile networks in Latin America. The pipeline in this region is also building and the Board is confident of accelerated traction as early as the first half of 2009.
Group operating profit for the period rose to £1.3 million (2007: £1.1 million), an increase of 13%. This has been achieved after accounting for £205k (2007: £181k) in respect of the IFRS 2 share option charge relating to performance based stock options. As planned, during the period the Board continued to invest in a number of key areas. These included strengthening the management team, further developing the Interactive Media division, formalising the Business Partner Programme and expanding the North and South American businesses. As anticipated in the Group's last preliminary announcement, the benefits of these investments should begin to be seen over the coming months.
Profit before tax was £1.5 million, compared to £1.2 million in 2007. Adjusted (pre-amortisation) profit for the period was £1.9 million (2007: £1.6 million).
Basic earnings per share (EPS) were 3.80p. The tax rate estimated in the 2007 Interim results was low, at 14%, due largely to the tax relief available on the exercise of staff share options prior to the demerger of Broca plc from the 2ergo group. This meant that the earnings per share figures for 2007 reflected this low tax charge. The tax rate for 2008 is estimated at 25%. Had the 2007 tax rate been at this level then 2007 basic EPS would have been 3.34p, increasing by 14% to the reported 3.80p in 2008.
The balance sheet at 29 February 2008 displays a strong net asset position of £14.7 million. The main impact of the adoption of IFRS on these interim accounts is the revaluation of the investment held in Broca to fair value. The shares acquired in Broca as a result of the demerger of that business from the Group were acquired at a value of 52p per share. At 29 February 2008, the Broca share price was 24.5p. IFRS dictates that 2ergo's shareholding in Broca is therefore revalued to 24.5p. This adjustment has reduced the balance sheet valuation of the Broca investment by £2.8 million. This adjustment is an adjustment to reserves and does not affect the income statement and hence the profits earned in the period.
Cash at bank at the end of the period was £9.1 million. Cash inflow from operating activities was £0.5 million, compared to £1.1 million in 2007. This reduction is due to the timing of receipts from the mobile networks around the period end. The Group remains highly cash generative and debt free.
Operational Review
In January the Board was pleased to announce a five year contract with O2 for the provision of mobile marketing services, utilising 2ergo's recently launched MultiSend interactive messaging suite. MultiSend now enables O2 to revolutionise the way it engages with over 17 million UK customers using a range of personalised and interactive SMS, MMS and email messaging features, via a single application.
Testament to the Group's ability to deliver large-scale, high profile solutions within short lead times, 2ergo was selected by O2 as its mobile marketing partner for the UK launch of the iPhone. Similarly, Proteus was selected by AT&T to support the launch of the iPhone to the North American market, demonstrating the credentials of both the UK and US arms of the Group.
During the period, 2ergo has continued to broaden and evolve the capabilities of MultiSend, a product suite that offers an unrivalled and unique level of personalised interactivity across many forms of communication. This product has formed the basis of the Group's recently launched Business Partner Programme, which has formalised the 'channel' sales strategy operated by 2ergo in recent years. Following significant investment, the Business Partner Programme provides 2ergo with greater access to potential customers via an indirect sales force for the Group's products and has generated significant interest from major telecoms resellers and marketing agencies. The Board is confident of increased profitability through additional reach and economies of scale in the latter part of 2008 as a result of this Programme.
2ergo's Interactive Media Solutions has continued to perform well. The division was established to provide end-to-end mobile marketing solutions enabling brands and marketing agencies to leverage the opportunities presented by mobile technologies. The Group's services include creative concepts, portal development, mobile marketing campaigns using SMS, MMS, WAP and video, and the ever evolving world of mobile search, through relationships with major online search providers. During the period this division has worked with, amongst others, a major football shirt manufacturer to develop innovative mobile marketing campaigns, including an interactive mobile internet site and the unique use of new QR code (2 dimensional barcode) technology, demonstrating again 2ergo's position at the forefront of leading-edge technology.
Continuing its aim to drive significant business growth in the medium term, 2ergo has invested heavily in certain areas. From a staff perspective, the management team has been strengthened, through the appointment of Chris Brassington as Managing Director of 2ergo Limited and the recruitment of experienced management in all functions, including sales, technical, finance and marketing. From a technical perspective, as well as continuing to develop the innovative MultiSend product, the speed and resilience of the Group's proprietary Multiserve Platform has been further enhanced. These investments are expected to significantly benefit the Group in the short to medium term.
US Review
The first half of the financial year has seen an increase in the number of new business opportunities for mobile marketing solutions across the US. Consistent with reported market trends, the Group is experiencing a significant upturn in the level of interest demonstrated by advertisers and marketing agencies, as brands allocate an increasing share of their marketing budget to mobile campaigns. The Board expects the continued migration of consumers to flat-rate data plans (i.e. all-inclusive contracts with networks to support text messaging, content, and mobile internet services), will contribute to further growth in mobile marketing revenues. The Mobile Marketing Association (MMA) reported that 31% of respondents in a recent survey reported data usage, an increase of nearly 50% over the previous year. In addition, nearly 25% of the sample had an unlimited data plan, as opposed to 13% only a year ago. Handsets and networks continue to improve in line with these trends and as such, research shows that the global demand for mobile marketing and advertising is set to increase from $3bn in 2007 to $19bn in 2011 (source: ABI Research).
During the period, Proteus increased its focus on the development and rationalisation of products for both the North and South American markets - increasing the scalability and performance of its core technology platforms and further developing new products to cater for this anticipated growth in demand. This activity has culminated in the launch of several new products, such as Swift, a mobile internet product suite that enables brands and consumers to build their own mobile internet and mobile marketing sites with ease.
The Swift product opens up new advertising revenue opportunities for the Group across all regions, through relationships with major mobile ad-serving networks. The product has received considerable interest from media businesses in both North and South America and also from young people keen to extend their online social networking capabilities to the mobile channel.
During the period the American business has performed in line with expectations, but the Board's hopes that the region may break into profitability earlier than originally forecast have not materialised. This is due in part to the lengthening of sales cycles in the current US economic climate, and also due to the continued investment in the region, particularly in Southern and Central America where the Group is now beginning to leverage its connectivity to over 170 million South American consumers through its offices in México City, México, Bogotá, Colombia and its regional headquarters in Buenos Aires, Argentina. Recent client wins in this region include Universal Channel, GLR networks - the largest media company in Spain and the number one Spanish language content producer and distributor worldwide - and El Universo, a leading regional newspaper launching a mobile version of its publication.
In North America, Proteus continued its 5-year key business partnership with the US's largest mobile network operator, AT&T, and, for the fourth time, partnered with FOX Television and AT&T to power the delivery and billing of mobile content for FOX's broadcast of American Idol - the number one television show in the US.
The US business is continuing to achieve great success in creating best of breed mobile marketing products that appeal to three core target audiences - mobile network operators, media companies and blue chip enterprises. This has positioned the company as a leader in the North and South American mobile markets and further positions the business to leverage the predicted increase in market demands to deliver significant organic growth for the Group.
Outlook
The outlook for the Group is very strong however the Board is conscious that the global economy has changed significantly over the past few months. Although the Board is not predicting a downturn in its business, it is very aware of the financial pressure being placed on some of 2ergo's current and future customers. The Board believes that its products and services are sufficiently differentiated from its competitors and that the value these products bring to its clients will help to ensure continued growth. Special emphasis is being placed on cost saving products and services offering clients a strong return on their investment, which will prove particularly appealing in the current global economy. In addition, the Group's customer base is diversified across many sectors thereby reducing vulnerability to a down-turn in any particular vertical.
The Board is also very mindful that 2ergo must continue to create the new products and value-added services that help to further differentiate the Group and enable it to retain the level of major new client wins and client retention rates it has enjoyed in the past. This awareness, combined with the Board's experience and proven ability of operating in changing markets leaves the Board extremely confident that 2ergo will continue to meet its targets going forward.
-Ends-
Condensed consolidated unaudited interim income statement
for the six months ended 29 February 2008
| 6 months to 29 February 2008 | 6 months to 28 February 2007 | Year to 31 August 2007 | ||
| Note | £000 | £000 | £000 | |
| Revenue | 17,829 | 15,711 | 33,309 | |
| Cost of sales | (13,249) | (11,652) | (24,695) | |
| Gross profit | 4,580 | 4,059 | 8,614 | |
| Administrative costs | (3,314) | (2,935) | (6,294) | |
| Operating profit | 1,266 | 1,124 | 2,320 | |
| Finance income | 224 | 89 | 272 | |
| Profit before tax | 1,490 | 1,213 | 2,592 | |
| Taxation | 2 | (372) | (165) | (164) |
| Profit for the period | 1,118 | 1,048 | 2,428 | |
| Earnings per share | ||||
| Basic | 3 | 3.80p | 3.84p | 8.58p |
| Diluted | 3 | 3.66p | 3.58p | 8.11p |
Condensed consolidated unaudited interim balance sheet
as at 29 February 2008
| 29 February 2008 | 28 February 2007 | 31 August 2007 | |
| £000 | £000 | £000 | |
| Non-current assets | |||
| Intangible assets | 3,020 | 4,546 | 2,723 |
| Property, plant and equipment | 264 | 239 | 255 |
| Available for sale investments | 1,834 | - | 4,605 |
| 5,118 | 4,785 | 7,583 | |
| Current assets | |||
| Trade and other receivables | 7,109 | 5,352 | 5,955 |
| Cash and cash equivalents | 9,072 | 9,598 | 9,251 |
| 16,181 | 14,950 | 15,206 | |
| Total assets | 21,299 | 19,735 | 22,789 |
| Current liabilities Trade and other payables | (6,529) | (7,053) | (7,239) |
| Non-current liabilities Deferred tax liability | (79) | - | (234) |
| Total liabilities | (6,608) | (7,053) | (7,473) |
| Net assets | 14,691 | 12,682 | 15,316 |
| Equity | |||
| Share capital | 306 | 301 | 301 |
| Share premium | 7,724 | 7,141 | 7,141 |
| Merger reserve | 1,512 | 1,512 | 1,512 |
| Other reserve | (343) | (413) | (413) |
| Share option reserve | 753 | 448 | 605 |
| Retained earnings | 4,739 | 3,693 | 6,170 |
| Total equity | 14,691 | 12,682 | 15,316 |
Condensed consolidated unaudited interim statement of changes in equity
for the six months ended 29 February 2008
|
| Share capital | Share premium account | Merger reserve | Other reserve | Share Option Reserve | Retained earnings |
|
| £000 | £000 | £000 | £000 | £000 | £000 |
| Balance at 1 September 2006 | 299 | 4,147 | 1,512 | (536) | 278 | 708 |
| Profit for the period | - | - | - | - | - | 1,048 |
| Total recognised income & expense for the period | - | - | - | - | - | 1,048 |
| Issue of share capital | 2 | 345 | - | - | - | - |
| Sale of shares from treasury | - | 2,649 | - | - | - | 1,926 |
| IFRS 2 share based expense | - | - | - | - | 181 | - |
| Fair value of options exercised in the period | - | - | - | - | (11) | 11 |
| Exercise of options over shares in EBT | - | - | - | 123 | - | - |
|
| ||||||
| Balance at 28 February 2007 | 301 | 7,141 | 1,512 | (413) | 448 | 3,693 |
|
| Share capital | Share Premium account | Merger reserve | Other Reserve | Share Option reserve | Retained earnings |
|
| £000 | £000 | £000 | £000 | £000 | £000 |
| Balance at 1 September 2007 | 301 | 7,141 | 1,512 | (413) | 605 | 6,170 |
| Valuation loss on available for sale investments taken to equity | - | - | - | - | - | (2,771) |
| Tax on items taken directly to or transferred from equity | - | - | - | - | - | 165 |
| Net loss recognised directly in equity | - | - | - | - | - | (2,606) |
| Profit for the period | - | - | - | - | - | 1,118 |
|
| ||||||
| Total recognised income & expense for the period | - | - | - | - | - | (1,488) |
| Issue of share capital | 5 | 583 | - | - | - | - |
| IFRS 2 share based expense | - | - | - | - | 205 | - |
| Fair value of options exercised in the period | - | - | - | - | (57) | 57 |
| Exercise of options over shares in EBT | - | - | - | 70 | - | - |
|
|
| |||||
| Balance at 29 February 2008 | 306 | 7,724 | 1,512 | (343) | 753 | 4,739 |
Condensed consolidated unaudited interim cash flow statement
for the six months ended 29 February 2008
|
| 6 months to 29 February 2008 | 6 months to 28 February 2007 | Year to 31 August 2007 |
|
| £000 | £000 | £000 |
| Cash flows from operating activities | |||
| Profit before tax | 1,490 | 1,213 | 2,592 |
| Adjustments for: |
|
| |
| Depreciation | 69 | 49 | 112 |
| Amortisation | 416 | 374 | 791 |
| Share based expense | 205 | 181 | 339 |
| Finance income | (224) | (89) | (272) |
| Increase in trade and other receivables | (1,070) | (420) | (782) |
| (Decrease)/increase in trade and other payables | (298) | (55) | 693 |
| Income tax paid | (120) | (140) | (293) |
| Net cash from operating activities | 468 | 1,113 | 3,180 |
| Cash flows from investing activities | |||
| Payments to acquire property, plant and equipment | (78) | (54) | (129) |
| Payments to acquire intangible assets | (793) | (1,342) | (1,854) |
| Investment in ordinary shares of Broca | - | - | (2,004) |
| Purchase of subsidiary undertaking | - | (122) | (128) |
| Cash acquired with subsidiary | - | 12 | 12 |
| Interest received | 224 | 89 | 272 |
| Net cash from investing activities | (647) | (1,417) | (3,831) |
| Cash flows from financing activities | |||
| Net proceeds from share issue | - | 347 | 347 |
| Proceeds from sale of shares from treasury | - | 4,575 | 4,575 |
| Proceeds from exercise of options over shares held in EBT | - | 123 | 123 |
| Net cash from financing activities | - | 5,045 | 5,045 |
| Net increase in cash and cash equivalents in the period | (179) | 4,741 | 4,394 |
| Cash and cash equivalents at beginning of period | 9,251 | 4,857 | 4,857 |
| Cash and cash equivalents at end of period | 9,072 | 9,598 | 9,251 |
Notes to the condensed consolidated audited interim financial statements
1 Basis of preparation
The interim financial information has been prepared in accordance with the accounting policies set out in the 'IFRS Restatement Report' addressing the transition to IFRS (as adopted by the EU), dated 19 May 2008. The changes in accounting policies resulting from the IFRS restatement, together with the financial impacts of these changes and the full IFRS accounting policies of the Group are set out in the document entitled 'IFRS Restatement Report', which can be found on the Group's website,
www.2ergo.com/about/investor-relations/reports.
The comparative financial information for the period ended 28 February 2007 and the year ended 31 August 2007 has been extracted from the interim and annual financial statements of 2ergo Group plc and is restated in accordance with the adopted IFRS. These interim results for the period ended 29 February 2008, which are not audited, have been prepared for the first time in accordance with IFRS and do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985.
Full audited accounts of the Group in respect of the year ended 31 August 2007 in accordance with UK GAAP, which received an unqualified audit opinion and did not contain a statement under either section 237(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies.
2 Taxation
The tax charge accrued in these interim financial statements reflects an estimated tax rate of 25% for the period to 29 February 2008, which is the anticipated effective composite rate for the current financial year.
3 Earnings per share
The calculation of basic earnings per share is based on profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the assumed conversion of all dilutive options.
| Earnings per share pence | Earnings £000 | 2008 Weighted Average number of ordinary shares | Earnings per share pence | Earnings £000 | 2007 Weighted Average number of ordinary shares | |
| Basic earnings per share | 3.80 | 1,118 | 29,414,620 | 3.84 | 1,048 | 27,276,394 |
| Dilutive effect of share options | 1,102,216 | 1,997,655 | ||||
| Diluted earnings per share | 3.66 | 1,118 | 30,516,836 | 3.58 | 1,048 | 29,274,049 |
An adjusted earnings per share, before the amortisation of intangible fixed assets, has been presented in addition to the earnings per share as defined in IAS 33, since in the opinion of the directors, this provides a more meaningful indicator for investors. It can be reconciled from the basic earnings per share as follows:
| Earnings per share pence | Earnings £000 | 2008 Weighted Average number of ordinary shares | Earnings per share pence | Earnings £000 | 2007 Weighted Average number of ordinary shares | |
| Basic earnings per share | 3.80 | 1,118 | 29,414,620 | 3.84 | 1,048 | 27,276,394 |
| Amortisation charge | 416 | - | 374 | - | ||
| Adjusted basic earnings per share | 5.22 | 1,534 | 29,414,620 | 5.21 | 1,422 | 27,276,394 |
| Dilutive effect of share options | 1,102,216 | 1,997,655 | ||||
| Adjusted diluted earnings per share | 5.03 | 1,534 | 30,516,836 | 4.86 | 1,422 | 29,274,049 |