1Spatial Holdings Regulatory News (SPA)

21 Nov 2006 07:01

Z Group PLC21 November 2006 21 November 2006 Z GROUP plc Interim Results for the six months ended 31 August 2006 Proposed acquisition of the minority interest in a key subsidiary, OnShare Ltd Z GROUP plc (Z GROUP or the Group), the AIM listed developer and provider ofleading consumer internet technologies, today announces its unaudited interimresults for the six months ended 31 August 2006. Summary of Interim Results • Interim revenues were £1.54m (2005: £2.57m) in line with anticipated market changes • As a result, the Group reported a small six month loss before tax £0.5m (2005: profit £0.2m), after a non cash expense of £0.3m • Gross margins remained stable at 76.5% (2005: 78.6%) • Cash at bank £3.6m (2005: £4.7m) • Loss per share 1.71p (2005: profit of 1.1p) • Strong pipeline of negotiations for our products, principally with mobile network operators • Since the period end Z GROUP has also announced the appointment of its new Finance Director Z GROUP also announces today that it is to make a 3,942,134 share offer* for theremaining 49% minority interest in OnShare Ltd Summary of the proposed acquisition of the minority interest of OnShare • The deal - which is subject to shareholder approval - is expected to be value enhancing to the Group • A Circular is to be posted to shareholders with details of the proposed acquisition, which is subject to shareholder approval, of the minority interest in the key subsidiary OnShare Ltd for 3,942,134 new ordinary shares (the "Consideration Shares") • The Consideration Shares will represent 16.67% of the enlarged share capital of Z GROUP • The vendors will be subject to a 12 month absolute restriction on trading which will then be followed by a further 12 month period of trading subject to specified restrictions. At all times, the vendors will also be subject to orderly market restrictions * This equates to £3.8 million based on the closing mid-market price on 20November 2006 of 96.5 pence per ordinary share. Commenting on today's announcement, Jamie True, joint Chief Executive, said: "We are delighted to announce that, subject to shareholder approval, we will beacquiring the minority interest in our key subsidiary, OnShare Ltd. We firmly believe that the file sharing market is poised to grow at a verysignificant rate and that our award-winning new OnShare product will enable usto capitalise upon this trend. Securing 100% ownership of this subsidiary -which we believe will be value enhancing for the Group - allows us to benefitfully from this exciting trend. Our interim results confirm our expectation that the market for ONSPEED wouldchange during the period. Sales of our ONSPEED product have held up well inspite of continuing growth in the market for fast broadband connectivity. ONPEED Mobile was launched in the period, and there is a strong pipeline ofpotential ONSPEED Mobile business, mainly with mobile network operators. Thesevolume deals tend to be significantly more profitable, but take longer tonegotiate. Finally, we have also made significant breakthroughs in the development andcommercialisation of OnShare, and we have commenced marketing this product. Weare encouraged by the results and media reaction to date." For further information: Z GROUP plc Jack Bekhor / Jamie True Tel: +44 (0) 8700 111 173(Joint Chief Executive Officers) Duncan Neale Tel: +44 (0) 8700 111 173(Finance Director) Teather & Greenwood Ltd Adam Pollock Tel: +44 (0)20 7426 9000 Media enquiries: Catullus Consulting Alex MacKey Tel: + 44 (0) 20 7736 2938 Tel: + 44 (0) 7773 787 458 Report from the Joint Chief Executive Officers INTERIM RESULTS Trading for ONSPEED has been lower than in the previous period in line withManagement expectations as the business has matured. We have added two newproducts to the portfolio, ONSPEED Mobile and OnShare and our cash balanceremains strong. ONSPEED The Group had anticipated that the market for ONSPEED would change during theperiod. In fact, sales of its ONSPEED product held up well in the period inspite of continuing growth in the market for fast broadband connectivity - withturnover of £1.4m (2005: £2.4m) derived from three sources: from the web (89%),from retail outlets (8%) and from our wholesale contract with BT (3%). Web sales were supported by a web retention rate of 43%. Gross margins werealso stable at 79% (2005: 79%). Income benefited from the extension of our wholesale contract with BT in whichthe ONSPEED service has been offered to some of BT's broadband customers. Significant new distribution deals were also signed with Avanquest (coveringSpain) and with VoxNet (one of Poland's leading ISPs). Since the end of theperiod, the Company has also signed a deal with Interactive Ideas, one of theUK's leading software distributors. There is a strong pipeline of potential ONPEED PC business from affiliates,operators, resellers and retailers. ONSPEED Mobile ONSPEED Mobile, which accelerates web browsing on mobile phones, was launched inMarch 2006 and since then has become available in many of the UK's leading PCretailers. The bulk of the £0.1m turnover in the period resulted from a distributionagreement signed with VoxNet in July 2006. The Group has a strong potential pipeline with mobile network operators, both inthe UK and abroad, to offer the ONSPEED Mobile service to their customers.These volume deals tend to be significantly more profitable - but also takelonger to negotiate. We are confident that we will be in a position to makefurther announcements in the second half of our financial year. Net2Roam Net2Roam turnover of £0.1m (2005: £0.2m) derived from two sources: from the web(98%), and from retail outlets (2%). Gross margins have increased to 86% (2005: 73%). OnShare OnShare's unique friend-to-friend file sharing technology saw its first betarelease to the public in March 2006. Since then, improvements to the design andfunctionality of the product have been rewarded with some 5 star reviews in thetechnology press, with marketing of the consumer version commencing inSeptember. An investment of £0.7 million in the first half was mostly devoted to thedelivery of a consumer product. However work has been done in parallel to fasttrack the launch of a corporate product based on the underlying OnSharetechnology that will create Virtual Private Networks, without any set-up costs. Overheads and cash Administration expenses of £1.4m were £0.2m lower than in the prior year. Thisreflects a £0.3m reduced spend on sales and marketing and a £0.1m increase inother overheads. £36,000 of this increase was one-off, being the costsassociated with our office move from The Glassmill in Battersea to 31 VernonStreet, in Olympia. This is the first period in which we are required to comply with FRS20 - sharebased payments. Under this standard we are obliged to calculate the value ofshare options issued since June 2005. The application of this standard hasmeant that the loss in the first six months of FY07 has been increased by £0.3m(2005: profits reduced by £0.2m) and that the profit for FY06 has been reducedby £0.6m. Cash at 31 August 2006 was £3.6m (2005: £4.7m). Changes in Share Capital Shares in issue increased by 240,100 in June 2006, arising from an exercise ofshare options. ACQUISITION OF THE MINORITY INTEREST IN ONSHARE LTD We are delighted to announce that, subject to shareholder approval, the Group isto acquire the outstanding 49% minority interest in its OnShare Ltd subsidiaryfor 3,942,134 shares (representing 16.67% of the enlarged share capital of ZGROUP), which equates to approximately £3.8 million (calculated at the closingmid-market price on 20 November 2006 of 96.5 pence per ordinary share). AnExtraordinary General Meeting of shareholders will be held on 15 December toapprove the acquisition. The vendors will, in relation to the ConsiderationShares and any Z GROUP shares subsequently acquired by the vendors, be subjectto a 12 month absolute restriction on trading which is then followed by afurther 12 month period of trading subject to specified restrictions. At alltimes, the vendors will, in relation to the shares held by them in Z GROUP, alsobe subject to orderly market restrictions. The Board is recommending the acquisition and will be voting its shares(representing 48.5% of the Company's existing issued share capital) in favour ofthe resolutions. The Board believes that the deal will be value enhancing tothe Group and will significantly strengthen its position as a leader in thefast-growing file sharing market. BOARD CHANGES We have expanded the Board with three key appointments: • Polly Williams was appointed as a non-executive and Chair of our Audit Committee, on 5 July 2006 • Jonty Slater, the Group's Chief Technology Officer, was appointed as an executive director on 5 July 2006 • Duncan Neale was appointed as Finance Director and Company Secretary on 4 September 2006 OUTLOOK With a strong pipeline of potential ONSPEED and ONSPEED Mobile sales, along withthe proposed acquisition of the minority interest in OnShare and OnShare'scontinually improving take-up as the benefits of the viral marketing campaignbegin to bear fruit, the Board remains confident in the future prospects for ZGROUP. Jack BekhorJames TrueJoint Chief Executive Officers 20 November 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT 6 months ended 6 months ended 12 months ended 31 August 2006 31 August 2005 28 February 2006 Restated Restated £000's £000's £000's Turnover 1,536 2,572 4,972Cost of sales (361) (550) (1,077) -------------- ------------- -------------Gross profit 1,175 2,022 3,895Share option expense (268) (165) (589)Administration expenses (1,449) (1,655) (2,870) -------------- ------------- -------------Operating (loss) / profit (542) 202 436Interest receivable and similar income 64 38 114 -------------- ------------- -------------(Loss) / profit on ordinary activities (478) 240 550before taxationTaxation 143 (60) (164) -------------- ------------- -------------(Loss) / profit on ordinary activities after (335) 180 386taxationMinority interests - 15 30 -------------- ------------- -------------(Loss) / profit for the financial period (335) 195 416 Basic (loss) / earnings per share (1.71p) 1.10p 2.23pDiluted (loss) / earnings per share (1.71p) 1.09p 2.14pSTATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESRetained (loss) / profit for the period (335) 195 416 -------------- ------------- ------------- Total recognised gains and losses relating to the period (335) 195 416 Prior year adjustment (413)(see Note 1.b) -------------- ------------- ------------- Total recognised gains and losses since the last annual report (748) 195 416 CONSOLIDATED BALANCE SHEET 31 August 2006 31 August 2005 28 February 2006 Restated Restated £000's £000's £000'sFixed AssetsIntangible assets 1,815 542 1,151Tangible assets 437 166 319 -------------- ------------- ------------- 2,252 708 1,470Current AssetsStock 83 - 64Debtors 1,119 921 1,546Cash at bank 3,598 4,676 4,135 -------------- ------------- ------------- 4,800 5,597 5,745Creditors: Amounts falling due within one year (1,434) (1,252) (1,553) -------------- ------------- -------------Net current assets 3,366 4,345 4,192 -------------- ------------- -------------Total assets less current liabilities 5,618 5,053 5,662Creditors: Amounts falling due after one year (21) (30) (26)Provisions for liabilities and charges (57) - (61) -------------- ------------- -------------Net assets 5,540 5,023 5,575 Capital and ReservesCalled up share capital 986 974 974Share premium account 2,342 2,399 2,322Merger reserve 1,066 1,066 1,066Share option reserve 857 165 589Profit and loss account 289 403 624 -------------- ------------- -------------Equity shareholders' funds 5,540 5,007 5,575Minority interests - 16 - 5,540 5,023 5,575 CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to 12 months to 31 August 31st August 28th February 2006 2005 2006 Restated Restated £000's £000's £000's Net Cash inflow / (outflow) from operating activities 234 (169) 235 Returns on investments and servicing of financeInterest received 64 38 114 Taxation - - (127) Capital expenditure and financial investmentPurchase of tangible fixed assets (172) (22) (224)Purchase of intangible fixed assets (686) (254) (866) -------- --------- ---------Net cash outflow for capital expenditure and financial (858) (276) (1,090)investment -------- --------- --------- Cash (outflow) / inflow before financing (560) (407) (868) FinancingCapital element of finance lease payments (9) (4) (9)Issue of share capital 31 2,538 2,461 -------- --------- ---------Net cash inflow from use of liquid resources and financing 23 2,534 2,452 -------- --------- ---------(Decrease) / Increase in cash in period (537) 2,127 1,584 -------- --------- --------- (Decrease) / Increase in cash in period (537) 2,127 1,584Cash outflow from lease financing 9 4 9 ---------- ---------- ---------Movement in funds in period (528) 2,131 1,593Opening Net funds 4,099 2,506 2,506 ---------- ---------- ---------Closing net funds 3,571 4,637 4,099 ---------- ---------- --------- APPENDICES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating (loss) / profit to net cash flow from operatingactivities 6 months to 31 6 months to 31 12 months to 28 August 2006 August 2005 February 2006 £000's £000's £000's Operating (loss) / profit (542) 202 436Depreciation 51 30 79Amortisation 22 2 6Share option expense 268 165 589(Increase) / Decrease in stock (18) - (64)Decrease / (Increase) in debtors 507 (751) (1,237)(Decrease) / Increase in creditors and provision (54) 183 426 ------------ ---------- ----------Net cash flow from operating activities 234 (169) 235 ------------ ---------- ---------- Analysis of net funds At At 1 March 31 August 2006 Cash flow 2006 £'000's £000's £000's Cash at bank 4,135 (537) 3,598Overdraft (1) 1 - 4,134 (536) 3,598Finance leases (35) 8 (27) 4,099 (528) 3,571 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1.a Basis of preparation The interim financial statements have been prepared using accounting policiesand practices consistent with those applied in the 2006 Annual Reports andAccounts with the exception of the application of FRS20 (see below). Thestatements are unaudited. The financial information contained in this Report does not constitute statutoryaccounts as defined by Section 240 of the Companies Act 1985. The figures for the year ended 28 February 2006 have been extracted from thestatutory accounts which have been filed with the Registrar of Companies buthave been restated for the impact of FRS20. The auditors' report for the 2006accounts was unqualified and did not contain a statement under s237 (2) or (3)of the Companies Act 1985. 1.b Adoption of new accounting policies FRS 20 The adoption of FRS20 - share based payments requires a prior period adjustmentto be made, including the deferred tax implication of this adjustment. This hascreated a share option reserve at 28 February 2006 of £589,377 and acorresponding deferred tax asset of £176,813 and reduced retained profits by£412,564. FRS20 is effective for accounting periods beginning on or after 1 January 2006and must be applied retrospectively to equity settled awards that were grantedafter 7 November 2002 and had not vested by 1 January 2006. 2. Dividends The directors do not recommend the payment of a dividend. 3. Earnings per share The calculation of basic earnings per share is based upon the profit after taxdivided by the weighted average number of shares in issue during the period. The calculation of fully diluted earnings per share is based upon the profitafter tax divided by the weighted average number of shares in issue during theperiod after taking into account the dilutive effect of share options. (Loss) / profit Weighted averageBasic (loss) / earnings per share £'000s number of shares EPS (pence)6 months ended 31 August 2006 (335) 19,562,666 (1.71)6 months ended 31 August 2005 195 17,779,552 1.1012 months ended 28 February 2006 416 18,618,215 2.23 (Loss) / profit Weighted averageDiluted (loss) / earnings per share £'000s number of shares EPS (pence)6 months ended 31 August 2006 (335) 19,562,666 (1.71)*6 months ended 31 August 2005 195 17,922,659 1.0912 months ended 28 February 2006 416 19,442,725 2.14 * Due to the loss incurred in the 6 months ended 31 August 2006 there is nodilutive effect from the issue of share options. 4. Intangible Fixed Assets Development Intellectual Domain Total expenditure property names rights £'000s £'000s £'000s £'000s Group Cost 1 March 2006 1,093 59 9 1,161 Additions 680 5 - 685 31 August 2006 1,773 64 9 1,846 Amortisation 1 March 2005 - 9 1 10 Charged in the period 18 3 - 21 28 February 2006 18 12 1 30 Net book value 28 February 2006 1,755 52 8 1,815 28 February 2005 1,093 50 8 1,151 Additions to development expenditure relate to the development of the OnShareproduct (which launched as a beta version in March 2006) 5. Debtors 31 August 2006 31 August 2005 28 February 2006 Restated Restated £000's £000's £000's Amounts falling due within one year 862 872 1,369Amounts falling due after more than one year 257 49 177 -------------- ------------- ------------- 1,119 921 1,546 The amounts falling due after more than one year relate to the deferred taxasset arising from the implementation of FRS 20, as discussed in note 1b above. 6. Availability and Approval of Accounts The interim financial statements will be available on the Group's website 'www.zgroupplc.com' and upon application to Z GROUP plc, 31 Vernon Street, London W14 0RN. The interim financial statements were approved by the Board of Directors on20 November 2006. This information is provided by RNS The company news service from the London Stock Exchange