MXCP.L Regulatory News (MXCP)

8 May 2006 07:00

2 ergo Group plc08 May 2006 Embargoed until 7am 8 May 2006 2ergo Group plc ("2ergo" or "the Group") Interim Results for the six months ending 28 February 2006 2ergo Group plc is pleased to announce interim results for the six months ended28 February 2006. Interim 2006 Interim 2005 % change £'000 £'000Turnover 14,719 8,893 +66%Operating profit 993 518 +92%Pre-tax profit 1,029 540 +91%Adjusted pre-tax profit (1) 1,185 737 +61%Basic earnings per share 2.88p 1.53p +88%Adjusted earnings per share (1) 3.47p 2.24p +55%(1) - figures stated pre amortisation •Turnover up 66% to £14.72 million (2005: £8.89 million) •Profit Before Tax up 91% to £1 million (2005: £0.54 million) •Completion of multiple US deals, broadening service to parallel UK as planned €2safeguard - move into authentication and secure mobile data communications •Multiserve Platform 'Version 4' launched delivering greater performance, resilience and scalability •Participating with leading mobile telco operators in new m-Commerce initiative - "Pay4it" Barry Sharples, Joint Chief Executive of 2ergo, commented: "We are very pleasedto announce another strong period of growth, both financially and operationally.The evolution in the mobile market is offering the Group opportunities toroll-out innovative solutions from which we are already seeing significantrewards. Our new end-to-end 'total solution' applications have proven a greatsuccess and we have seen a number of significant new client wins in both the UKand the US. "The augmentation of 2safeguard within the Multiserve Platform is a key driverof future growth for the Group, and one that we believe presents an incredibleopportunity for us. As the mobile phone evolves into a "lifestyle" asset, withfeatures such as m-Commerce becoming a reality, our secure messaging protocolhas the potential to change the face of the mobile market. "Our close involvement with the mobile operators to create a lasting and viablesecure environment architecture has wide-reaching implications for the industryand 2ergo is ideally placed to benefit from these developments." -ends- For further information, please contact: 2ergo Group plc 01706 221 777Neale Graham, Joint CEOBarry Sharples, Joint CEOJill Collighan, Finance Director Tavistock Communications 020 7920 3150Christian Taylor-WilkinsonMatt Ridsdale Notes to Editors 2ergo Group Plc is a leading provider of interactive and multi-channelcommunications across mobile and fixed-line telecommunications and the Internet.Clients range from SMEs to multi-national enterprises and public sectororganisations. 2ergo's services and solutions enable organisations to exploit the benefits oftechnology, to switch on new revenue streams, optimise business processes andopen up new marketing channels. The Group listed on AIM in March 2004. Embargoed until 7am 8 May 2006 2ergo Group plc ("2ergo" or "the Group") Interim Results for the six months ending 28 February 2006 2ergo is pleased to report another period of strong operational and financialgrowth, both in Europe and the US. The Board notes that interest for complete mobile solutions has continued toevolve during the period. Organisations are now much more knowledgeable of thebusiness opportunities presented by convergent, and in particular mobile,communications and are demanding more innovative and end-to-end services. 2ergois uniquely positioned to meet these needs, with comprehensive offerings thatbridge the entire mobile industry value chain. During the period, the Board has given much attention to the Group's product mixover the short to medium term, as part of the continuing development of itsGlobal Strategic Plan. Capitalising on the developing market dynamics, the Grouphas delivered greater gross margins from lower-volume services compared to thesecond half of 2005. The Board intends to continue with this strategic focus anddeployment of resource to deliver more 'total solution services'. This type ofbusiness is expected to present improved profit margins for the Group goingforward. The Board has stated in the past, that the Multiserve Platform offers capacityto handle increased and significant volumes of low margin traffic, whilstincurring little additional cost. However, having now fully explored thisopportunity, the Board believes this area of the market to be a distraction atthis stage in the Group's development. Although it offers high revenues, in theBoard's opinion, the low margins available in the UK in this area areunattractive. The Board does, however, believe that pricing pressures in thisarea will be removed as new technology services are launched - the delivery ofTV and video services being a good example. The Group already provides suchservices commensurate with the current early adoption volumes seen to date. The Board believes the current financial results are beginning to reflect thehigher margins brought about by the change in the mix of services provided. In addition, the Group continues to augment the features of the MultiservePlatform to provide additional interactive services and security. The Boardbelieves the inclusion of 2safeguard, the Group's secure transaction protocolwithin its platform, will provide it with an additional distinct advantage asorganisations increasingly seek to conduct business using mobile communications.The 2safeguard protocol defines a unique, patented way to handle a transactionwhich is both user-friendly and extremely secure. Financial Review Revenues for the six months to 28 February 2006 increased by 66% compared to thesame period in 2005, increasing to £14.7 million from £8.9 million. As explained above, the mix of services contributing to the revenue hascontinued to evolve during the period. This has resulted in an increase in grossmargin compared to the latter half of the 2005 financial year, up to 17.3% from15.3%. The Board expects margins to increase even further in the second half ofthe current financial year as the results of the increased focus in theprovision of 'total solutions' continue to flow through. Gross profit in theperiod has grown to over £2.6 million, an increase of 25% over the £2.0 milliongenerated in the same period in 2005. Operating expenses continue to be tightly controlled, with a small increase from£1.52 million to £1.55 million in the period. As a percentage of turnover,operating expenses are now less than 11% compared to 17% in the first half of2005. Pre-tax profit for the six months was £1.0 million, an increase of 91% over the£0.54 million achieved in 2005. Adjusted (pre-amortisation) pre-tax profit hasgrown to £1.19 million from £0.7 million. Basic earnings per share increased by88% to 2.88p (2005: 1.53 p). The Board continues to be pleased with operations in the US and is happy toreport a small profit in that territory for the six months. With a growingclient base and strong pipeline of services, the Group is confident that its USoperations will deliver increased revenues and profit for the second half of theyear. The Group continues to be cash generative, having a strong balance sheet, withshareholders' funds at 28 February 2006 standing at £5.2 million. This is afterthe purchase into treasury of a total of 1,672,728 shares at a cost of £1.10 pershare. The Group holds an option to purchase a further 872,272 shares intoTreasury, again at £1.10 each. Operational Review The Group continues to be at the forefront of mobile communication convergence.The unique and flexible nature of the Multiserve Platform means the Group isable to rapidly deploy new and innovative services to ensure its customers canenhance their performance through the use of interactive and multi-channelcommunications. One of the Group's key strengths is identifying the next industry trend andbeing in a position to lead the way in offering the appropriate product. It hashad repeated success with this strategy since the business was formed in 1999and continues to do so. During the reporting period the Group has concentratedon the development of its 'total solution' offerings. This is in addition to itscontinued focus on business solutions, in line with the increasing acceptance ofconverging communications across multiple business sectors. As a result the Group has remained extremely profitable during the period andthese interim results demonstrate the success enjoyed in this area, validatingthe Group's decision to increase its focus on end-to-end solutions. 2ergo's Multiserve Platform strategy continues evolving, to meet client andmarket demands. Migration to 'Version 4' successfully took place during theperiod, allowing clients to take advantage of the latest, and industry-leading,Oracle based technology, and which further enhances the Platform's widelyrespected performance, resilience and scalability. The Group remains confident that no further work is needed to satisfy futurecapacity requirements. In addition, it believes the enhanced features offered byVersion 4, together with the productivity tools enabled by the Oracle technologywill help to accelerate future application and database developments. Factorsthat will, in a short period, translate to reducing development costs, improvemargins and shorten the time needed to bring new or enhanced services to market. During the period the Group participated with the UK mobile network operators todefine guidelines for a Trusted Mobile Payment Framework for mobile phonebilling. Called Pay4it, this cross-operator initiative has been constructedunder the auspices of the Cross-Mobile Network Operator forum of the Mobile DataAssociation and aims to deliver a standard trusted payment mechanism to improveconsumer purchases from the mobile Internet. 2ergo is very well positioned to benefit. As one of a select number ofaccredited payment partners, work has commenced to integrate this new paymentmethod into its Multiserve Platform. As many features are already available, theGroup will be one of the first organisations to offer this new payment method tothe market. 2safeguard The Board is delighted with the rapid progress made to date in the developmentof 2safeguard, the Group's unique security protocol. The Group has recently created a dedicated division to fully exploit thepotential of 2safeguard and has appointed the inventor of the technology to headits technical development. The Board believes 2safeguard will provide a leading long-term security solutionfor the mobile industry to support both person-to-person andapplication-to-person communications. It also believes that the introduction of2safeguard will provide the mobile network operators with a secure m-Commerceenvironment within its already established core infrastructure. With the marketfor m-Commerce alone estimated to reach $88 billion by 2009 (source:TelecomTrends), the Board is confident that 2safeguard represents an excitingopportunity for 2ergo to become a significant player in the globalauthentication and secure mobile data communications market. In addition, theBoard is optimistic about the opportunity presented within the global creditcard payments market with the potential for 2safeguard to combat increasingoccurrences of cardholder-not-present fraud. The Group believes 2safeguard is unique, offering a new secure protocol standardfor the protection of everyone wishing to use the mobile phone channel, fromnetwork operators, financial institutions or other service enterprises, throughto the personal mobile phone user. It is an enabling technology, which the Boardbelieves will not only help to make m-Commerce a reality, but has the truepotential to secure a growing number of additional mobile applications. Theseinclude m-wallets, banking transaction, electoral voting and solutions to ensureage verification and the protection of minors. Under the UK Government's Security Classifications, 2safeguard has the capacityto make a mobile phone more secure than a credit card chip and PIN. Through this protocol, the Group believes it has the potential to change theface of the mobile market. The Board is confident that 2safeguard will become amajor revenue and profit contributor for the Group over the coming years. TheGroup is on target to see the first of its 2safeguard applications launched bythe end of 2006. USA The Group's entry into the US mobile content market in 2005 has been a greatsuccess launching its services through relationships with major distributionpartners. 2ergo is well positioned to become one of the leading providers ofmobile solutions in the US and has expanded its offering in recent months with anumber of new strategic deals. As envisaged in 2005, the Group is now aligning its US operations closely to itsUK business model. Through established partners it now offers US mobile users arange of SMS services, including information and alerts services and interactiveentertainment, such as text voting. The Board expects to see a significantincrease in revenues in 2006 due to an increasing focus on the delivery of theseservices. In October, the Group launched a news and hurricane alert service across thesouthern states of the US, partnering with major media companies, such as MediaGeneral Inc, one of the US's leading media networks. This service has since beenexpanded to offer subscribers sports results, news headlines and entertainmentupdates. More recently, an agreement was signed with Belo Corp, another of America'slarge diversified media companies, offering users innovative services, such asvote polling for TV shows, TV personality ringtones and themed ringtones frompopular TV shows, including The Simpsons, Friends and South Park. Market Overview In all parts of the world, the mobile phone is being adopted as a new andsustainable channel for the provision of services. Initially fuelled by anincreasing consumer desire to personalise the mobile handset, it has led to theemergence of a new industry that is changing the way people work, spend theirfree time, communicate and interact. Communication convergence across mobile, fixed-line telecommunications and theInternet is accelerating the pace of change. The mobile handset is no longerjust a phone; it has fast become a lifestyle asset, providing a host ofcommunication choices and additional features, including camera, Internetbrowser, PDA, TV and payment device. This change is convincing many organisations to define and deploy new ways toconduct business - to optimise business processes, improve customer or consumerexperience, leverage market differentiation and above all drive performanceimprovement. As a result, the communications convergence market, and in particular, themobile sector will continue to experience dramatic growth around the world, withindustry forecasts predicting healthy growth for years to come. Following the early success of mobile applications to support B2Ccommunications, organisations are increasingly adopting mobile solutions tosupport both internal and B2B processes. Increasingly, businesses are continuingto seek new ways to utilise fixed-line and mobile communications to deliver masscommunications and provide a simplified approach to data capture. The Group hasconfidence in both B2C and B2B markets, with B2B offering the superior marginopportunities. Outlook As the Group's market matures in all territories it is clear to the Board thatits products, services and positioning are correct. Looking back over the pastsix years the Group has historically experienced some difficulty in convincingclients about the benefits of using the mobile channel alone for both client andstaff communication in what is still a very immature market. Over and abovethis, when promoting the virtues of convergence, these difficulties have beenmagnified. Today, however, 2ergo deals with a far more discerning and receptive audienceand it is with this in mind the Group is further convinced that theopportunities are even greater than those referred to in the past and indeedthose referred to only six months ago in our Annual Report. In addition to the Group's traditional organic growth, a number of selectacquisitions have been identified both in Europe and the US, and the Groupexpects to make announcements over the coming months regarding theseopportunities. The Group's new business pipeline remains healthy, and the Group fosters andcontinues to benefit from strong client loyalty. Once again, 2ergo has enjoyed strong growth to date, and expects this trend tocontinue throughout the remainder of this year and for the foreseeable future -ends- 2ergo Group plc Consolidated Profit and Loss Account For the six months ended 28 February 2006 Notes Unaudited Unaudited Audited 6 months to 6 months to Year to 28 February 29 February 31 August 2006 2005 2005 £'000 £'000 £'000---------------------------------------------------------------------------- Turnover 14,719 8,893 23,139 Cost of sales (12,173) (6,859) (18,921)---------------------------------------------------------------------------- Gross profit 2,546 2,034 4,218 Operating expenses (1,553) (1,516) (3,018)---------------------------------------------------------------------------- Operating profit 993 518 1,200 Finance charges (net) 36 22 38---------------------------------------------------------------------------- Profit on ordinary activities before taxation 1,029 540 1,238 Tax on profit on ordinary activities 2 (256) (119) (316)---------------------------------------------------------------------------- Retained profit for the period 773 421 922---------------------------------------------------------------------------- Earnings per ordinary share:Basic 3 2.88p 1.53p 3.37p Diluted 3 2.72p 1.44p 3.18p 2ergo Group plc Consolidated Balance SheetAs at 28 February 2006 Unaudited Unaudited Audited 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 Fixed assets Intangible assets 1,335 1,010 1,245Tangible assets 223 181 214---------------------------------------------------------------------------- 1,558 1,191 1,459---------------------------------------------------------------------------- Current assets Stock 52 54 54Debtors 6,320 3,380 6,112Cash at bank and in hand 3,254 2,249 1,170---------------------------------------------------------------------------- 9,626 5,683 7,336 Creditors: amounts falling due within one year (5,991) (2,540) (4,748)---------------------------------------------------------------------------- Net current assets 3,635 3,143 2,588---------------------------------------------------------------------------- Total assets less current liabilities 5,193 4,334 4,047 Provisions for liabilities and charges (22) (17) (23)---------------------------------------------------------------------------- Net assets 5,171 4,317 4,024---------------------------------------------------------------------------- Capital and reserves Called up share capital 299 290 290Share premium account 3,800 2,380 2,380Merger reserve 1,512 1,512 1,512Other reserve (657) (657) (657)Profit and loss account 217 792 499---------------------------------------------------------------------------- Equity shareholders' funds 5,171 4,317 4,024---------------------------------------------------------------------------- 2ergo Group plc Consolidated Cash Flow StatementFor the six months ended 28 February 2006 Unaudited Unaudited Audited 6 months to 6 months to Year to 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 Net cash inflow from operating activities 1,628 296 34----------------------------------------------------------------------------- Returns on investments andservicing of financeInterest received 36 22 38----------------------------------------------------------------------------- Taxation - - (37)----------------------------------------------------------------------------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (40) (20) (126) Payments to acquire intangible fixed assets (247) - (416)----------------------------------------------------------------------------- (287) (20) (542)----------------------------------------------------------------------------- Net cash inflow/(outflow) before financing 1,377 298 (507)----------------------------------------------------------------------------- Financing Proceeds from share issue 1,429 - -Purchase of own shares held in treasury (704) - (305) Capital element of finance lease payments (18) (41) (10)----------------------------------------------------------------------------- 707 (41) (315)----------------------------------------------------------------------------- -----------------------------------------------------------------------------Increase/(decrease) in cash 2,084 257 (822)----------------------------------------------------------------------------- 2ergo Group plc Notes to the Interim Statement 1. Basis of Preparation The interim financial statements have been prepared on the basis of theaccounting policies set out in the financial statements of 2ergo Group plc forthe year ended 31 August 2005. The financial information contained in these statements does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Theaccounts for the year ended 31 August 2005 received an unqualified audit reportand have been filed with the Registrar of Companies. 2. Taxation The tax charge accrued in these interim financial statements reflects anestimated tax rate of 25% for the period to 28 February 2006, which is theanticipated effective composite rate for the current financial year. 3. Earnings per share Basic earnings per share have been calculated by dividing the profit aftertaxation in the period by 26,795,603 shares (2005: 27,600,100), being theweighted average number of shares in issue. The diluted earnings per share havebeen calculated on a weighted average number of shares of 28,454,275 (2005:29,258,772). 4. Reconciliation of operating profit to net cash inflow from operatingactivities Unaudited Unaudited Audited 6 months to 6 months to Year to 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 Operating profit 993 518 1,200 Depreciation charge 32 28 59Amortisation charge 156 197 379Decrease in stock 2 243 244Increase in debtors (559) (981) (4,203)Increase in creditors 1,004 291 2,355 Net cash inflow from operating activities 1,628 296 34 5. Analysis and reconciliation of net funds 1 September Cash Other 28 February 2005 Flow movements 2006 £'000 £'000 £'000 £'000 Cash at bank and in hand 1,170 2,084 - 3,254 Hire purchase: due within 1 year (18) 18 - ------------------------------------------------------------------------------ 1,152 2,102 - 3,254----------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange