31st May 2006 07:03
Z Group PLC31 May 2006 31 May 2006 Z GROUP plc ("Z GROUP" or "the Group") Preliminary results for the twelve months ended 28 February 2006 Z GROUP plc (AIM: ZGP), the marketing-led Internet technology services companyadmitted to AIM on 21 June 2005, today announces its preliminary results for thetwelve months ended 28 February 2006. Highlights • Turnover up 63% to £5.0 million (2005: £3.1 million)* • Profit before tax up 78% to £1.1 million (2005: £0.6 million)* • Successful listing on AIM in June 2005, raising £2.4 million (after expenses) • Net cash as at 28 February 2006 of £4.1 million * The 2005 comparatives shown above relate to the 11 month period ended 28 February 2005 and have been annualised for comparison purposes. Commenting on the results, Jack Bekhor and Jamie True, Joint Chief ExecutiveOfficers of Z GROUP, said: "We are delighted with the progress we have made in our first year as a publiclylisted company, having achieved strong profits in our third consecutive year ofgrowth. Our aim to increase turnover and profits whilst investing in thebusiness to expand our product portfolio has been successfully achieved. Thedevelopment of new routes to market through both retail and affiliatepartnerships, the expansion of our customer base abroad and high customerretention levels has led to significant sales growth. In addition, ourinvestment in research and development resulted in the launch of ONSPEED Mobileand OnShare (a beta release) in March 2006. With the introduction of newproducts and new routes to market, we anticipate that 2006 will be an excitingyear in the Company's development." Enquiries: Z GROUP plcJack Bekhor/Jamie True, Joint Chief Executive Officers 08700 111 173Saskia Hopmann, Public Relations 020 7952 4026 Holborn PRDavid Bick/ Mike Feltham 0207 929 5599 Teather & GreenwoodJames Maxwell/Adam Pollock 0207 426 9000 Chairman's Statement I am pleased to report our first full financial results since Z GROUP'ssuccessful admission to trading on the London Stock Exchange's AlternativeInvestment Market in June 2005. Results Our results demonstrate that our business model is delivering substantialgrowth. Turnover has increased by 63% to £5.0 million compared with £3.1 millionfor the 11 month period ended 28 February 2005, as annualised for comparisonpurposes. Gross margin was consistent with previous periods of trading at 78%and we made a record full year pre-tax profit of £1.1 million (2005: £0.6million). After a substantial investment of £0.9 million in our new products and therelated websites, we ended the year with cash resources of £4.1 million,compared to £4.6 million immediately following the Placing in June 2005. Corporate Strategy We develop and sell innovative web-enabled technologies, which meet anidentified growing mass market need. In the last financial year our majorpriorities have been to invest in our ground-breaking new products OnShare andONSPEED Mobile, while selling ONSPEED into an ever-widening marketplace. Weended the year with over half a million customers worldwide and a clear focusfor the future - to continue to invest in new licensed technologies and tocontinue to create our own Intellectual Property. Board and People At the time of our Placing we stated that we would expand the Board byrecruiting a Chair for our Audit Committee. We are pleased to announce thatPolly Williams will be joining the Board from 6 July 2006. Polly Williams willbring considerable experience to this role and we look forward to welcoming heronto the Board. We are continuing the search for a Finance Director to join our Board. In themeantime, we have been fortunate to have excellent assistance in this regard andanticipate that by the end of the financial year we will have found a newFinance Director. We have seen a steady increase in the number of staff working at Z GROUP withover 35 people now working for the Group. Without these staff members and theunique skills each brings to the Group, it would not have been possible for usto achieve these record results. Their hard work, commitment and innovationhave been the key to Z GROUP's success. Corporate Social Responsibility Part of Z GROUP's philosophy is to work to the highest ethical standards,wherever possible; this includes its relationships with staff and customers andall those who may have dealings with the Group. We actively support a smallstart-up charity and provide encouragement to those staff involved. Prospects Z GROUP continues to identify commercial opportunities for new technologies andto develop products that satisfy consumer needs. During the first month of thenew financial year we have successfully released two new products: ONSPEEDMobile and OnShare (as a beta release) and their current performance is meetingour expectations. In ONSPEED Mobile and OnShare we have two new exciting products that weanticipate will address the growing consumer demand for mobile Internet and filesharing services, which are predicted to grow exponentially over the next fewyears. We are well positioned to satisfy this consumer demand and we arelooking forward to another successful year. John Standen, Chairman 30 May 2006Joint Chief Executive Officers' Statement Overview This is our first annual report since joining AIM and we are pleased to announcethat we have achieved further improvement in our profits this year, our thirdconsecutive year of growth, with a pre-tax profit of £1.1 million. This successhas been the result of consolidating our core business, developing new deliverychannels and expanding into European and other international markets. We havealso made significant investment in our product portfolio, both by licensing newtechnologies to commercialise and by developing in-house proprietarytechnologies to address the needs of mass consumer markets. Aims and Achievements Our primary aim this year was to increase our turnover and profits whilstinvesting in the business to expand our product portfolio. We are pleased toreport that we have achieved success in both endeavours. This growth is a resultof continued sales from ONSPEED and a sustained revenue contribution from ourother products. By developing a number of new routes to market, through retail and affiliatepartnerships, as well as expanding our customer base abroad, we have achievedsignificant sales growth. In addition we continue to maintain high customerretention levels through the provision of unique and affordable softwareservices and excellent customer support. We have laid the foundations for the future this year through sizeableinvestment in research and development. This has resulted in the recent launchof ONSPEED Mobile and the release of our revolutionary file sharing softwareOnShare. Our first products Net2Roam and NetAway have provided a consistent revenuestream, with very little requirement for additional resources or marketingbudget. It has been through the success of these products that we have alsoestablished strong relationships with distributors and retailers that have beenbeneficial in the development of new routes to market for ONSPEED both in the UKand abroad. Onbidder was also launched this year, and although it only accounts for a smallpercentage of our revenue, it also sells both online and through retail outlets,further strengthening the Group's brand position with major retailers andconsumers alike. ONSPEED has continued to perform very well throughout the year and we now haveover half a million customers. Online sales have grown, continuing to accountfor the majority of sales both in the UK and abroad. Offline sales increasedwith the publication of a retail version of ONSPEED, which is now sold in mostmajor retailers in the UK and Europe. The Group further developed its Internetacceleration software for Dial-up and Broadband, with the release in January2006 of ONSPEED Version 5, which delivers 40% faster Internet connection speeds.The addition of ONSPEED Version 5 has allowed us to market the product moreeffectively to Broadband customers in addition to the existing Dial-up customerbase. New Routes to Market Following the success of ONSPEED sales via the web and the release of the retailversion, we have signed a number of distribution deals for ONSPEED this year.These include Koch Media, one of Europe's largest software distributors, withwhich we have signed deals in the UK, Germany, Switzerland, Austria and Italy.In the UK, our retail products are available in the key software retailers suchas PC World, WH Smith, Game, HMV and Virgin. The product was successfullychart-tracked in the retail market, a key driver for establishing goodcredentials and positioning with retailers. Significant sales were achievedthrough this channel, which opened up the market for ONSPEED to a wideraudience. It has also served well in promoting the ONSPEED brand to the consumermarketplace. In addition we have distribution deals in place with companies in the USA,Russia, the rest of Europe, Africa and Asia. We recognise the need for localsupport within international markets and have established relationships with keylocal partners, which we have found to be highly beneficial in supporting salesgrowth. The demand for products such as ONSPEED is very high in these countries,with the majority of Internet users still on Dial-up connections. During the year the Group has established itself well within the internationalretail sector and retail sales now account for 18% of turnover. Our strongrelationships with the major retailers will stand us in good stead for futureproduct releases, including ONSPEED Mobile and OnShare. Distribution deals arealready lined up for the retail version of ONSPEED Mobile as well as a number ofconsumer-focused gaming software products. Online and Affiliate Partnerships This year we formed a number of new affiliate partnerships and consolidatedexisting ones. Our deal with BT has continued to drive sales and we have signednew ISP agreements with among others, Wanadoo and Pipex. We have also signedaffiliate deals in a number of other countries in Africa and Asia, as well asRussia. Aside from the commercial value of these deals, Z GROUP hasstrengthened its brand through these high profile relationships and furtherimproved its awareness and credibility to a wider international audience. Award-winning Software Not only has it been an encouraging year for the Group in terms of sales growthbut we have also received a number of awards from the technical press that havehelped establish ONSPEED as the recognised market leader. This has raised ourprofile within the software industry, distinguishing the Group as a highlyinnovative provider of consumer-focused software services. Outlook We are delighted by the Group's progress since admission to AIM and this is, inlarge part, due to the skill and hard work of our employees. By building on the success of our existing products, we expect to see sustainedlevels of sales growth in the period ahead. We also anticipate additional growthwill be achieved from our expanded product portfolio and further development ofour own Intellectual Property and we will continue to explore new opportunitiesfor the Group throughout the year. Jack Bekhor and Jamie True Joint Chief Executive Officers 30 May 2006Z GROUP plcConsolidated profit and loss accountFor the year ended 28 February 2006 Notes Year ended 11 months ended 28 February 2006 28 February 2005 £ £Turnover 4,971,722 2,799,897 Cost of sales (1,077,224) (517,711) Gross profit 3,894,498 2,282,186 Operating expenses (2,869,577) (1,700,780) Operating profit 1,024,921 581,406 Interest receivable 113,591 3,408 Profit on ordinary activities before taxation 1,138,512 584,814 Taxation (341,016) (114,227) Profit on ordinary activities after taxation 797,496 470,587 Minority interests 30,850 18,150 Profit for the financial period 828,346 488,737 Earnings per share Basic 2 5.2p 2.9pDiluted 2 4.9p 2.9p No separate statement of Total Recognised Gains and Losses has been presented asall such gains and losses have been dealt with in the profit and loss account. As explained in the accounting policies (basis of consolidation) the profit andloss account has been prepared using merger accounting principles and ispresented as if the Group had been in existence throughout the current and priorperiods. All Group activities relate to continuing operations. Z GROUP plc Consolidated balance sheet As at 28 February 2006 Notes At 28 February At 28 February 2006 2005Fixed assetsIntangible assets 1,151,167 290,921Tangible assets 318,690 173,816 1,469,857 464,737Current assetsStocks 64,222 -Debtors 1,369,293 121,113Cash at bank and in hand 4,134,589 2,549,002 5,568,104 2,670,115Creditors: Amounts falling due within one year (1,553,141) (961,487) Net current assets 4,014,963 1,708,628 Total assets less current liabilities 5,484,820 2,173,365Creditors: Amounts falling due after more than one year (25,650) (34,411)Provisions for liabilities and charges (61,371) - Net assets 5,397,799 2,138,954 Capital and reservesCalled up share capital 973,529 834,639Share premium account 2,322,461 -Merger reserve 1,065,741 1,065,741Profit and loss account 1,036,068 207,724Equity shareholders' funds 4 5,397,799 2,108,104Minority interests - 30,850 5,397,799 2,138,954 Consolidated cash flow statement For the year ended 28 February 2006 Notes Year ended 11 months ended 28 February 28 February 2006 2005 £ £Cash flow from operating activities 5 235,508 998,261 Returns on investments and servicing of finance 113,591 3,408 Taxation (126,855) - Capital expenditure and financial investment (1,090,389) (355,771) Cash (outflow)/inflow before financing (868,145) 645,898 Financing 2,452,588 1,283,018 Increase in cash and overdraft in the period 3 1,584,443 1,928,916 Notes 1. Accounting policies Basis of accounting The financial information contained in this report has been prepared under thehistorical cost convention and in accordance with applicable accountingstandards in the United Kingdom. The financial information on the Group set out above does not constitute'statutory accounts' within the meaning of section 240 of the Companies Act1985. The financial information for the year ended 28 February 2006 has beenextracted from the Group's unaudited consolidated statutory accounts. The 2006Annual Report and Accounts will be delivered to the Registrar of Companies forEngland and Wales following the Group's Annual General Meeting on 5 July 2006. The financial information for the period ended 28 February 2005 is derived fromthe statutory accounts for that period for Net2Roam Limited, which have beendelivered to the Registrar of Companies. The auditors reported on those accountsand their report was unqualified Basis of consolidation The Group's financial statements consolidate the financial statements of Z GROUPand all its subsidiaries made up to 28 February. The Company was incorporated on 20 April 2005 as Z GROUP Investments plc andpassed a resolution to change its name to Z GROUP plc on 15 June 2005. On 15June 2005, Z GROUP entered into a share for share exchange agreement with theshareholders of Net2Roam Limited, whereby Z GROUP acquired the entire issuedshare capital of Net2Roam Limited and its subsidiaries, the consideration beingsatisfied by the allotment of ordinary shares in Z GROUP to the shareholders ofNet2Roam Limited. This acquisition has therefore been accounted for as a merger as permitted byFinancial Reporting Standard 6 as if the Group (as currently constituted) hadbeen in place throughout the whole of the period covered by these preliminaryresults. As such, the results for the year ended 28 February 2006 have beenpresented as though Net2Roam Limited and its subsidiaries had always been partof Z GROUP, even though Z GROUP itself was only incorporated on 20 April 2005. Basis of comparative information The comparative consolidated profit and loss account has been presented as ifthe merger took place on the first day of each financial period and as thoughthe Group had been in existence throughout these periods. The figures for the11 month period to 28 February 2005 have been extracted from the auditedNet2Roam Limited accounts adjusted for the shares issued by the Company asconsideration as if they had always been in issue. Significant accounting policies The significant accounting policies applied in these preliminary results areconsistent with those that will be applied in the financial statements for theyear ended 28 February 2006 and, aside from the presentation of the comparativeinformation as set out above, are consistent with those adopted in the financialstatements for the period ended 28 February 2005. 2. Basic and diluted earnings per share Year ended 11 months ended 28 February 2006 28 February 2005 £ £ Retained profit for the financial period 828,346 488,737 Weighted average number of shares 15,956,228 16,692,795 No. of shares No. of shares For basic earnings per share 15,956,228 16,692,795 Dilutive effect of share options 955,384 18,259 For diluted earnings per share 16,911,612 16,711,054 The comparative figures are proforma based on the number of shares that wouldhave been in issue had the capital structure of the new parent company alwaysbeen in place. 3 Reconciliation of net cash flow to movement in net funds Year ended 11 months ended 28 February 28 February 2006 2005 £ £Increase in cash in the period 1,585,587 1,928,916Increase in overdraft in the period (1,144) - 1,584,443 1,928,916Cash outflow from decrease in debt and lease financing 8,762 3,982New finance leases - (47,155) Movement in net funds in the period 1,593,205 1,885,743 Net funds at beginning of the period 2,505,829 620,086 Net funds at the end of the period 4,099,034 2,505,829 4 Reconciliation of movement in shareholders' funds Year ended 11 months ended 28 February 28 February 2006 2005 £ £ Group Profit for the period 828,346 488,737 Proceeds from issue of shares 3,000,000 184,259 Share issue expenses (538,651) (12,000) Merger reserve arising - 1,065,741 3,289,695 1,726,737 Opening shareholders' funds 2,108,104 381,367 Closing shareholders' funds 5,397,799 2,108,104 5 Reconciliation of operating profit to net cash inflow from operating activities Year ended 11 month ended 28 February 2006 28 February 2005 £ £ Operating profit 1,024,921 581,406 Depreciation 79,271 42,115 Amortisation 5,998 3,180 Increase in stocks (64,222) - Increase in debtors (1,236,538) (56,034) Increase in creditors 426,078 427,594 Net cash flow from operating activities 235,508 998,261 6 Notice of AGM The Annual General Meeting will be held on 5 July 2006, 11:30am at Home House,20 Portman Square, London, W1H 6LW. 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