RNS Number : 7105U
2 ergo Group plc
19 May 2008
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 +44 (0)1706 221 777
Neale Graham, Joint CEO
Barry Sharples, Joint
CEO
Jill Collighan, Finance
Director
Tavistock Communications +44 (0)20 7920 3150
Lulu Bridges / Andrew
Dunn
Numis Securities Limited +44 (0)20 7260 1000
David Poutney / Stuart
Skinner
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 Mico City, Mico, Bogot
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 6 months to Year to
29 February 28 February 31
2008 2007 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 (6,529) (7,053) (7,239)
Trade and other payables
(79) - (234)
Non-current liabilities
Deferred tax liability
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 Share Merger Other Share Retained
capita premiu reserve reserv Option earnings
l m e Reserve
accoun
t
£000 £000 £000 £000 £000
£000
299 4,147 1,512 (536) 278 708
Balance at 1 September 2006
Profit for the period - - - - - 1,048
Total recognised income & - - - - - 1,048
expense for the period
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 - - - - (11) 11
exercised in the period
Exercise of options over - - - 123 - -
shares in EBT
Balance at 28 February 2007 301 7,141 1,512 (413) 448 3,693
Share Share Merger Other Share Retained
capita Premiu reserve Reserv Option earnings
l m e reserve
accoun
t
£000 £000 £000 £000 £000
£000
301 7,141 1,512 (413) 605 6,170
Balance at 1 September 2007
Valuation loss on available - - - - - (2,771)
for sale investments taken to
equity
Tax on items taken directly to - - - - - 165
or transferred from equity
Net loss recognised directly - - - - - (2,606)
in equity
Profit for the period - - - - - 1,118
Total recognised income & - - - - - (1,488)
expense for the period
Issue of share capital 5 583 - - - -
IFRS 2 share based expense - - - - 205 -
Fair value of options - - - - (57) 57
exercised in the period
Exercise of options over - - - 70 - -
shares in EBT
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 6 months to Year to
29 February 28 February 31
2008 2007 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 (298) (55) 693
payables
Income tax paid (120) (140) (293)
468 1,113 3,180
Net cash from operating activities
Cash flows from investing activities
Payments to acquire property, plant and (78) (54) (129)
equipment
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
(647) (1,417) (3,831)
Net cash from investing activities
Cash flows from financing activities
Net proceeds from share issue - 347 347
Proceeds from sale of shares from - 4,575 4,575
treasury
Proceeds from exercise of options over - 123 123
shares held in EBT
- 5,045 5,045
Net cash from financing activities
Net increase in cash and cash (179) 4,741 4,394
equivalents in the period
Cash and cash equivalents at beginning 9,251 4,857 4,857
of period
9,072 9,598 9,251
Cash and cash equivalents at end of
period
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 Earnings 2008 Earnings Earnings
2007
per £000 Weighted per £000
Weighted
share Average share
Average
pence number of pence number
of
ordinary
ordinary
shares
shares
Basic earnings per share 3.80 1,118 29,414,620 3.84 1,048
27,276,394
Dilutive effect of share 1,102,216
1,997,655
options
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 Earnings 2008 Earnings Earnings
2007
per £000 Weighted per £000
Weighted
share Average share
Average
pence number of pence number
of
ordinary
ordinary
shares
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 5.22 1,534 29,414,620 5.21 1,422
27,276,394
share
Dilutive effect of share 1,102,216
1,997,655
options
Adjusted diluted earnings per 5.03 1,534 30,516,836 4.86 1,422
29,274,049
share
news service from the London Stock Exchange
END
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