Velocity Comp Regulatory News (VEL)

14 Sep 2009 07:00



Velti plc

2009 interim results show continued strong, profitable growth

Velti plc ("Velti", the "Company" or the "Group"), the global technology leader in the provision of mobile marketing and advertising solutions for advertising agencies, brands, mobile operators and media, today announces its results for the six months ended 30 June 2009. 

Financial Highlights

Profit after tax and adjusted profit after tax are attributable to the equity shareholders of the Company (after minority rights). Adjusted figures are stated before cost of share based payments and the non-cash effect of foreign exchange rate movements

Highlights:

Major product development effort completed and launch planned for October. 

David Mann, Non-Executive Chairman, commented:

"Velti's investment in global expansion has provided the Company with access to many previously untapped markets through an operating presence which now extends across the US, Asia, Europe and the Middle East. Velti is well positioned to benefit from the next phase of market growth and development as the economy improves."

Alex Moukas, Chief Executive Officer, said:

"In the past six months we have seen an increase in repeat business from our key markets as well as a broadening of our existing client base, with Velti now operating in 35 countries. Our recent acquisition, Ad Infuse, has strengthened our proposition for operators, agencies and brands, which will be critical to the future success of the mobile marketing industry. During the remainder of 2009 we will continue to build up momentum and grow the Company in a sustainable way with a strong focus on cash flow."

  Statement of the Chairman and Chief Executive Officer

Introduction

During the first half of 2009, Velti made excellent progress, both strategically and financially, building on our position as the largest and most profitable mobile marketing technology player in the global mobile marketing and advertising market. 

We continue to see brands and advertising agencies re-focusing marketing and advertising spend on targeted and measurable media such as mobile, which give them much greater ability to gauge their returns on their spending. As a result, our market is continuing to grow despite a challenging global economic environment.

Velti is taking advantage of this trend by offering solutions to brands, agencies, and carriers around the world. Last year we completed a major investment in establishing a global footprint; this enables us to execute global and local mobile campaigns and provide SaaS solutions using our proprietary Mobile Marketing Platform (MMP). The Company is beginning to earn significant returns on this major investment.

Financial Results

Velti achieved strong, profitable growth for the six months ended 30 June 2009. Revenue for the period increased by 36 per cent to €21.7 million (6 months to 30 June 2008: €15.9 million). Adjusted EBITDA was up 62 per cent to €7.2 million (6 months to 30 June 2008: €4.5 million), while adjusted EBITDA margin increased to 33.3% (6 months to 30 June 2008: 28.6%)

After investing in global technology infrastructure in 2008, capital expenditure for 2009 will be significantly lower. Net capital expenditure (capex minus depreciation and amortisation) will be reduced even more, improving the cash flow profile. This yielded much lower net capex of 8% of revenue vs 23% of revenue in 2008 H1.

During the first half we secured two new medium term debt facilities, totaling approximately €10 million, from a special purpose vehicle backed by a group of institutional investors. The facilities were raised to provide funding for Ad Infuse and general financing for organic growth.

Strong Organic Growth

The momentum in revenue growth reflects increasing business and renewals from existing clients, as well as significant new client wins across our geographic footprint in Europe, Asia and the Americas. Overall, in the first half of 2009 Velti ran 1,037 mobile marketing campaigns globally.

Velti is experiencing strong demand from Mobile Network Operators seeking to strengthen customer relationships and loyalty. New contracts were won during the period including Vodafone, Orange, Batelco, Cosmote, AVEA, Orascom-WIND, PT Smart Telecom (Indonesia), Vivatel, Cellular South (North America), Zain (Middle East and Africa) and Telefonica's Movistar.

Movistar is a new customer and one of the largest mobile operators in Mexico with over 16.3 million subscribers, where Velti deployed its platform following a six month pilot phase. The first mobile campaign, for a Fortune 10 corporation, will be completed during the second half of the year. 

Agencies and brands continue to increase the allocation of marketing and advertising budgets to the mobile channel and this was reflected during the period with the acquisition of new customers such as Honda, Coca Cola, Nutella and Colgate. In the UK, we extended our mobile marketing service for Argos to activating the 2.5 million pre-paid phones it sells every year and we expect this to make a positive contribution to revenues for the second half.

The revenue growth from Ansible, the mobile agency joint venture with IPG, has continued compared to the first half of 2008, building momentum with existing clients as well as with significant new business wins. Whilst Ansible continues to be loss-making, it is moving towards profitability which we expect will be achieved by the end of 2010. 

We have also made significant progress in establishing relationships with advertising agencies such as Ogilvy, BBDO, Adel Saatchi & Saatchi, McCann Erickson, Momentum, Draftfcb and Lowe Worldwide. 

Global Expansion

The investment we have made to establish a global footprint, which includes offices and partnerships in diverse geographies including Brazil, China, Cyprus, India, the Middle East, Russia, UK, Mexico and across the USA, places Velti in a unique position to execute mobile marketing and advertising campaigns on behalf of global brands. 

The strategic investments in India and China, made last year, have resulted in significant progress in those countries where we have seen revenue increase during the first half of 2009. We expect this trend to continue into the second half and beyond.

Since Velti invested in April 2008, CASEE has increased the number of ads served from approximately 400 million per month to more than one billion per month, demonstrating the size and growth potential of the Chinese market. CASEE has also recently signed a potentially significant deal to become Google China's mobile marketing partner in the region, supporting its mobile search and mobile map offerings. 

HT Mobile Solutions, our joint venture with HT Media, owner of the Hindustan Times, is making excellent progress, having established connectivity with the major 10 mobile operators. Since our operational date in mid 2009, we have helped over 22 clients with their mobile marketing needs. As a result, we can now offer brands and advertising agencies access to approximately 400 million consumers in India where, according to Informa Telecoms & Media, the market is expected to grow to more than 500 million in 2010. 

Since the start of 2009, Velti has signed further reseller contracts supporting sales across the Asia-pacific region including Australia, China, Taiwan and Indonesia. 

Ad Infuse Acquisition 

In May 2009 Velti acquired Ad Infuse, the leading provider of personalised mobile advertising solutions based in San Francisco. The integration of Ad Infuse, including its personalisation and ad routing and ad serving technology into Velti's MMP, is proceeding according to plan. The first stage of integration was finished in July and the final stage will be completed around the end of September. As a result, Velti will offer the industry's only end-to-end, self-service solution for media planning, execution, campaign management, optimisation and analytics for mobile marketing and advertising campaigns. The impact of this will be to increase our share of business and average spend per advertising agency while scaling-up through technology, not people.

Velti continues to pursue a strategy of consolidation, seeking non dilutive transactions that are additive to Velti's technology offering and customer base.

Product Development

The integration of the Velti and Ad Infuse product lines is underway and will be fully completed by the end of September. Velti is retaining all of the Ad Infuse technology as well as technology teams and has also moved the senior product management position to San Francisco. The combination of strong Mobile Marketing technology from Velti with AdInfuse's strong ad-serving technology provides a unique breadth of capabilities in the mobile industry.

Consolidation of the data centre needs of Velti and Ad Infuse is also underway and will be completed by year end, bringing more savings in future capex investments for serving operators and publishers, as well as brands and agencies needs. Consolidation in terms of product lines, support and outsourcing activities is also going to result in savings in 2010.

In the Product Development area the Company has focused its efforts on the integrated Campaign and Media Planning Offering. The latest release of the Velti platform will enhance our capabilities in terms of incorporating and measuring different mobile or traditional media inventories into integrated campaigns that include mobile interaction activities. In addition, Velti has expanded its ad server product to incorporate an Apple iPhone SDK including banner, text and interstitial ads as well as access to iPhone operating system controls for ad serving purposes.

Group Corporate Structure

Given the Group's ever-increasing geographical diversity, the Board is reconsidering the appropriateness of continuing with a group holding company structure domiciled in the UK. It is currently actively exploring the merits of re-organising the Group structure and re-domicile the Company in the Republic of Ireland, with the Group's subsidiaries realigned under a Jersey company. Should the Board decide to proceed with such a move, shareholders will be sent further explanatory documentation at that time. Any such change will in no way affect the service we offer our UK clients, for whom, as before, the full world-wide resources of the Group will continue to be applied.

Current Trading and Outlook

Our pipeline remains robust and, with good visibility into the second half, we continue to forecast strong revenue growth and margin expansion.

The Board is pleased with Velti's performance in the first half. The Company has achieved considerable growth and the Directors believe this will be maintained during the traditionally stronger second half enabling the Company to achieve its financial goals for the year. 

Financial Review

For the six months ended 30 June 2009 Velti delivered a solid financial performance that is reflected in strong revenue growth, improved gross profit margins and positive operating cash flows. Both gross and net capital expenditure were significantly reduced compared to last year. The Company achieved strong growth, despite an overall declining economic activity and integration costs relating to the acquisition of Ad Infuse.

Revenue for the period increased by 36 per cent to €21.7 million (6 months to 30 June 2008: €15.9 million). Gross profit increased by 63 per cent to €11.8 million (€7.2 million during the first half of 2008) delivering a margin of 54 per cent (45 per cent in the first half of 2008). The improvement in margins reflects operating efficiencies and a lower level of pass-through revenues in mobile marketing campaigns for mobile network operators compared to the first half of 2008. In the second half of 2009, we expect to complete a number of these campaigns which, will significantly boost profits and cash flow with gross margin for the year as a whole expected to slightly increased compared to 2008. 

Operating expenses as a percentage of revenue increased from 33 per cent in the first half of 2008 to 38 per cent in 2009. The increase is related mainly to corporate development activities and to integration costs of approximately €0.20 million related to the acquisition of Ad Infuse. 

Adjusted EBITDA was up 62 per cent to €7.2 million (6 months to 30 June 2008: €4.5 million) and adjusted operating profit rose by 54 per cent to €4.0 million (6 months to 30 June 2008: €2.6 million) after recognition of share based payments of €0.4 million. Stated operating profit increased by 77 per cent to €3.6 million (€2.0 million during the first half of 2008), delivering an improved operating margin of 16 per cent (13 per cent in the first half of 2008). Adjusted profit after tax rose by 48 per cent to €2.7 million (6 months to 30 June 2008: €1.8 million).

Following the high level of capital expenditure in 2008 depreciation and amortisation charges increased by 68 per cent to €3.2 million in 2009 (€1.9 million for the first half of 2008). In 2009 investing activities in infrastructure have slowed down as planned reflecting a broader offering suite and more diverse geographic footprint and total capital expenditure was €5.0 million in the first half of 2009 compared to €7.0 million in the same period of 2008. Net capital expenditure as a percentage of revenue fell from 36 per cent in the first half of 2008 to approximately 8 per cent in the first half of 2009. Adjusted basic earnings per share grew by 45 per cent to 8.0 Eurocents (5.5 Eurocents in 2008). The taxation charge for the period was calculated at a tax rate of 17.5 per cent, which represents the estimated group tax rate for 2009 as a whole.

Cash generated from operations amounted to €0.7 million in 2009 compared to €3.4 million in 2008 with the decrease stemming from increased working capital requirements. It should be noted that operating cash flow in the first half of 2008 was helped by a cash collection from a major campaign in South East Europe of €3.0 million that was delayed from December 2007 to early 2008. During the period under review, the increase in receivables reflects the growth in the business; expressed as a percentage of the rolling 12-month revenue, receivables were on a par with 30 June. 

Velti's balance sheet as at 30 June 2009 reflects a strong net asset position of €42.0 million and a net debt position of €7.6 million, following the acquisition of Ad Infuse announced on 12 May 2009. The Company continues to fund capital expenditure from bank debt whilst retaining cash balances, which were €11.5 million at 30 June 2009 (30 June 2008: €10.0 million), to fund working capital needs.

On 1 July 2009, we announced that we had secured two new medium term debt facilities, of which approximately €7 million had been drawn down at the end of the period, from a special purpose vehicle backed by a group of institutional investors. The drawn down amount of these new facilities is included in non-current borrowings as at 30 June 2009. The associated equity arrangement fee will be amortised over the period of the loans. 

  CONDENSED CONSOLIDATED BALANCE SHEET

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

  Notes

1. Accounting policies and basis of preparation

The interim condensed consolidated financial information of Velti plc (the Company) has been prepared in accordance with International Accounting Standard 34 Interim financial reporting, under the historical cost convention and in accordance with the accounting policies set out in the financial statements for the year ended 31 December 2007. The interim condensed consolidated financial information does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The interim condensed consolidated financial information include the results of Velti plc and entities controlled by Velti plc (its subsidiaries) forming the Company (see note 6).

2. Segment information

The Company's operations are segmented into three major areas:

Mobile Marketing and Advertising: Development of mobile marketing and advertising solutions for mobile operators, advertising agencies, brands and media groups. This includes business solutions and software platforms that enable Velti's customers to run integrated mobile marketing campaigns, monetize content and inventory in a multichannel strategy and advertise through the mobile channel. In this area, the revenue model has a fixed, set up fee component and a variable, activity based component, including performance-based and revenue share agreements.

Platforms and Services, Operators: The provision of platforms, integration and managed services to mobile operators. This includes software platforms, integration and managed services that enable content management and delivery to different multimedia channels and triple-play value added services. The revenue model comprises of license fees, professional services, reselling components and support services.

Platforms and Services, Enterprises: The provision of platforms, integration and managed services to financial institutions and other private and public sector enterprises. This includes content management and delivery to different multimedia channels, and process automation and mobile banking activities. The revenue model comprises of license fees, professional services, reselling components and support services.

Revenue by business segment:

Operating profit by business segment:

3. Borrowings

To provide funding for Ad Infuse and general financing for the future, Velti has secured two new medium term facilities totaling approximately €10 million. The first facility is a bullet term facility denominated in US dollars, of an amount of approximately €7.25 million ($10 million) and a term of twenty seven months. The term facility was fully drawn down as at 30 June 2009. The second facility is a revolving facility denominated in Euro of an amount of €2.75 million and a tenor of twenty one months. Out of the revolving facility, no amount was drawn down as at 30 June 2009. The facilities are being provided by a special purpose vehicle backed by a group of institutional investors. As an arrangement fee, the Company has issued 875,000 new shares of 5p each to the group in lieu of cash. The cost price was set at 160.5p, the price at the date of the loan agreements and the total has been charged against the balance of the non-current borrowings and will be amortised through the income statement over the duration of the term facility (27 months).

  4. Deferred shares award plan

The Company adopted a share incentive plan on 26 April 2006. Under this Plan, any employed director or any employee of the Company is eligible to receive awards under the plan. The deferred shares award (DSA) entitles the participant to acquire shares when the DSA vests by paying an amount of no less than the nominal value per share. The vesting period is two years. Deferred shares are forfeited if the participant leaves the Company before the DSA vests.

Details of the awards outstanding at the end of the period are as follows:

In the period ended 30 June 2009, the Company recognized a total expense of €419,978. The expense for the period ended 30 June 2008 was €512,000.

5. Earnings per share

(1) Figures stated before cost of share based payments and the non cash effect of foreign exchange

  6. Subsidiaries and Associates

Subsidiaries are consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. Goodwill arising upon acquisition of subsidiaries and associates during the period amounted to €3.85 million. 

In May 2009, Velti Plc acquired 100% of share capital of Ad Infuse a company incorporated in USA 

  7. Cash Generated From (Used in)/ Operations

About Velti

Velti is the world's leading mobile marketing and advertising company. With operations in 35 countries, Velti can reach an estimated two billion consumers. Velti was founded in 2000 and it has been at the heart of the global mobile industry ever since, providing some of the world's biggest companies with the technology platform and support to deliver innovative mobile campaigns to their customers. Whatever the goal of a mobile campaign: to raise brand awareness; acquire new customers; inspire loyalty or directly drive revenues - Velti helps brands, advertisers, media agencies, publishers, and operators to meet their business objectives. For more information, visit www.velti.com.

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