12th Apr 2007 07:01
Synchronica PLC12 April 2007 Synchronica plc ("Synchronica" or "the Company") Full year results to 31 December 2006 Synchronica, the mobile e-mail and wireless device management software group,announces its preliminary results for the year to 31 December 2006. Highlights • Synchronica's transformation from services provider to software product provider completed. • Successful completion of £3.5m fund-raising in March 2007, conditional upon EGM approval today. • Synchronica Mobile Gateway push e-mail product gaining traction with operators and device manufacturers; sales contracts signed with tier one customers and partners including Netcom, IXI Inc, T-Mobile Hungary. • Appointment of new CFO, Chief Sales Officer and Chief Technology Officer completes assembly of a senior management team with extensive industry experience, while David Wickham's appointment as Chairman maintained the Company's strong Board. • Software development consolidated around Java platform, bringing it in line with customer requirements and producing significant cost reductions for Synchronica. • Synchronica software won several industry awards, including "Best of Cebit 2006" for Mobile Gateway • Turnover £1.1m (2005; £3.1m), loss before tax £7.0m (2005: £2.8m) Commenting on progress in 2006, Carsten Brinkschulte, CEO of Synchronica, said:"Transitioning Synchronica from a professional services business to a softwareproduct provider was difficult but essential. In the past 18 months we have putin place the foundations upon which to build a strong, dynamic business which iswell-placed to capitalise on the growing demand for wireless e-mail and devicemanagement solutions. Our products are now gaining traction in the market andSynchronica can look to the future with confidence and optimism." Enquiries: Synchronica plcCarsten Brinkschulte, CEO +44 (0) 1892 552 799 +44 (0) 7977 256 406 Angus Dent, CFO +44 (0) 1892 552 760 +44 (0) 7977 256 347 Corfin CommunicationsBen Hunt, Harry Chathli +44 (0) 20 7929 8989 Seymour Pierce LimitedDavid Newton +44 (0) 20 7107 8000 Operational review Chairman's statement Over the past 15 months Synchronica has undergone a complete transformation ofits structures, operations and personnel. The DNA of the group has been changedfrom top to bottom as a company focused on the provision of professionalservices has been replaced by one that offers wireless software productsappropriate for a world increasingly geared to personal and professionalmobility. The transformation has been difficult for shareholders, employees and managementalike and has taken longer than was anticipated and the rate of adoption of oursoftware has been lower in 2006 than we expected. Throughout the board has beenfocused on building a business that offers the prospect of long-term shareholdervalue by reducing the cost base and maintaining focus on those products whichwe, and industry analysts, believe will be in most demand. The Board believes that a products-based company, focused on two core offerings,Synchronica Mobile Gateway, which offers push e-mail and synchronisation for themass market based on industry standards, and Synchronica Mobile Manager, adevice management suite featuring over-the-air configuration, update andsecurity, has the potential to provide a scalable business offering long-termrecurring revenues with good margins. The previous services model offered noneof these features. Following a review of our progress we have focused the company on onedevelopment platform, Java, and around two products Synchronica Mobile Gatewayand Synchronica Mobile Manager Suite. Both products have been well received inthe industry, winning several prestigious awards. Mobile Gateway, under itsprevious name SyncML Gateway was labelled "Best of Cebit 2006" by industrypublication TeleTalk, while also gaining silver and gold Mobile Village awards. Mobile Gateway has proved, so far, to be our best selling product and webelieve, supported by the opinion of independent analysts, that it hassignificant potential for the future. The refocusing of our business on one development platform has allowed us toreduce our operating costs for 2007 and beyond. Our head count has been almosthalved and the number of offices reduced from three to two. There have been a number of changes to the Board during 2006, Allan Jonnes ourformer Chief Finance Officer retired and was replaced by Angus Dent whilst TerryPage the former Chief Operating Officer left to pursue other business interests.I was elected Chairman on 1st June 2006 when John Gunn stepped down butcontinued as a non-executive director. John has now decided that his otherbusiness commitments no longer allow him to dedicate the time he would like toSynchronica and will therefore, regretfully, resign at the forthcoming AGM. I amgrateful to John for his work as a Board member and his continuing support. Synchronica has also strengthened its senior management during 2006. In August,Kim Hartlev joined as Chief Technology Officer from Mobilethink, bringing withhim a strong track record in the mobile device management industry, whileJoachim Gmeinwieser, who joined as managing director of Synchronica's Germanoperations in January became Chief Operating Officer. The arrival of SaschaBeyer as Chief Sales Officer from Pointsec completed a strong, experienced anddynamic senior management team with complementary skill-sets and experienceideally suited to our industry. I would like to take this opportunity to thank the whole team at Synchronica,and I believe we now have a team that is functioning very well, for theirdedication and hard work during 2006. I am sure with this commitment we willcontinue to make progress in 2007. As we have already advised the Stock Market we confidently expect to be able toannounce soon an OEM licence for Mobile Gateway with a major hardwaremanufacturer. This deal will be an important factor in the development of ourbusiness in 2007 and this, together with a strong and growing pipeline of salesleads gives us confidence for the future. David Wickham, Non-Executive Chairman11 April 2007 Strategy During 2006, Synchronica completed the reorganisation of its business modelaround our two distinct but complementary product lines, Mobile Gateway andMobile Manager, both of which the company believes have unique features andcompetitive advantages in the rapidly-expanding but highly competitive wirelessmobility sectors. The Company's route to markets for these products is through devicemanufacturers and wireless network operators who are in turn selling services toenterprises and consumers and to each other. During 2006 Synchronica hasrecruited a sales team that will service those customers in Europe, theAmericas, the Middle East and Africa. In order to serve our target customers better in December 2006 the Companyconsolidated its technology around a single development platform based on theJava programming language, which will allow Synchronica to support the Unixoperating system preferred by network operators and address the entireSmartphone market as well as mass market feature phones. These moves have already begun to bear fruit for Synchronica. Mobile Gateway andMobile Manager have enjoyed a high level of visibility in the wireless industryand the Company is now covered by major research organisations in the sector,such as IDC, Gartner and Ovum. More significantly (as detailed below) both products are gaining traction in ourtarget markets as the Company has secured live installations with operators andhas a strong pipeline of deals with mobile network operators and OEM partners. Commercial progress Mobile Gateway Synchronica Mobile Gateway addresses the growing need in the wireless massmarket for an affordable and easy-to-use push e-mail system that will satisfydemand from the consumer and small business market. Although the high end enterprise user has been well catered for by proprietarypush e-mail solutions offered by a number of vendors and principally accessedusing Smartphones or dedicated e-mail handsets, such devices account for onlyabout 20 per cent of the mobile phones in circulation worldwide. In contrast Mobile Gateway addresses both the Smartphone market and the massmarket features phones that account for the other 80 per cent of devices incirculation. Based on industry standards, Mobile Gateway is accessible to small businessusers and consumers both because it does not involve the high licence feescharacterised by many proprietary solutions and does not require the user todownload client software onto either their phone or their PC, making set-up easyand quick. Synchronica expects Mobile Gateway to appeal particularly to consumers and smallbusinesses in emerging economies where under-developed wireline infrastructurehas left a gap in the market for the mobile phone to play the role of primarye-mail access point for users that in developed economies is more usuallyoccupied by the PC. The Company has deployed its sales resources accordingly tocapitalise on this opportunity. Synchronica's approach to a nascent push e-mail mass market that analysts atForrester expect to grow from 12.3m users in 2005 to 62.7m users in 2008 (whichcontrasts with 7m users of RIM's BlackBerry solution at the end of 2006) hasbeen validated by a number of encouraging commercial developments in the last 15months. In May the Company licensed its synchronisation software SyncML Gateway to IXIMobile Inc., the developer of the Ogo(TM) family of mobile messaging solutionsfor the mass market. The agreement enables IXI Mobile to offer mobile email andsynchronisation for its Ogo devices, brought to market by mobile operators andInternet Service Providers, and already launched in several countries worldwide.This agreement contributed to revenues in the second half of 2006 and isexpected to continue to do so in 2007 and 2008. The Company also has live deployments of Mobile Gateway with Netcom in Norway,MTN Nigeria and T-Mobile Hungary. As previously announced, the Company is in the process of securing an OEM agreement for Synchronica Mobile Gateway with a major international hardware manufacturer. These negotiations are expected to be concluded over the coming weeks. However, given the size and complexity of the customer, it is possible that, although a delay is not currently expected, negotiations could extend beyond that time-scale. Mobile Manager The increasing importance to enterprise customers of offering mobility to theirworkforces has resulted in the distribution of millions of wireless devices thatare carrying outside the office information which previously would have beentightly held within premises. This change in working practice presents technology managers and devicemanufacturers with time-consuming and expensive new challenges, includingmaintaining and updating software and services on devices and safe-guardinginformation and data that is often sensitive when a device is stolen or lost.The result is usually high customer care costs. Synchronica's Mobile Manager addresses these concerns with a cost-effectivesuite of functions that offer an over-the-air firmware update facility,automated hotline, and security features including wipe and lock. Analysts VDC forecast that the device management sector will grow to US $1.5bnin 2008. Synchronica achieved commercial success with Mobile Manager in 2006 with thelicensing of the software to a UK wireless network operator, and now has 180enterprises actively managing their Smartphones using our products, and severalmore in the pipeline. The Company is also pleased to announce that, in April 2007, it signed acontract with a top four accountancy firm in the UK for the deployment of MobileManager. Synchronica believes that this validation of Mobile Manager technology,from a customer for whom the security and integrity of information is critical,should increase the momentum behind the product, Financial review Synchronica's revenues fell from £3.1m in 2005 to £1.1m in 2006 reflecting theCompany's changing operational focus. Whilst the majority of revenues in 2005were generated by Synchronica's legacy professional services business, in 2006more than 62 per cent of the sales were generated by the Company's products,demonstrating the progress being made by the reformed business. Operating loss amounted to £7.1m (2005 £2.9m) reflecting a non-cash impairmentloss, £0.6m, site closure costs, £0.5m, recruitment fees, £0.3m mostly torecruit a new sales team giving a total restructuring cost of £1.5m (of which£1.1m is viewed as being exceptional) incurred in the transformation of thebusiness. The reorganisation of the business is expected to result in costsavings of £1.75m in 2007. Loss before tax was £7.0m compared to a loss of £2.8m in 2005. Basic and diluted losses per ordinary share were 18.3p (2005: 12.7p). The cash balance of the business at 31st March (and therefore before theproceeds of the placing announcement on March 29) was £444,000. Placing The Company announced on March 29 that it had raised £3.5 million before expenses via a placing of 43,750,000 new Ordinary Shares of 1p each (the 'Placing') at a price of 8p per share, conditional upon gaining shareholder approval at an Extraordinary General Meeting to be held today, these shares will be admitted to AIM on 16th April 2007. The funds raised will be used for working capital and to accelerate the growth of the Company's core business of developing and delivering mobile synchronisation and device management solutions. Outlook The steps taken to transform Synchronica from a legacy professional servicesbusiness based on project work into a product-based business have now beencompleted. While these changes have resulted in falling revenues in 2006 the Board isconfident that the strategy, structures, technology, personnel and businessmodel that have been put in place over the past 15 months will offers theCompany an opportunity to build a scalable, growing business with recurringrevenue streams. Initial commercial activity validates that confidence. Our products haveattracted considerable favourable attention in the wireless industry and theagreements and contracts we have already signed are an indication that ourtarget customers regard them as robust, commercially-attractive products thatthey can sell on to their customers. With the successful completion of the conditional placing, which will be putbefore an extraordinary general meeting, which has been convened for today,Synchronica will have the resources to handle our growing sales pipeline byexpanding and improving our sales team and its support and pre-sales activity aswell as continuing to invest in product development. Given the contracts already concluded, such as the software licence to IXIMobile, the promising and growing pipeline of sales leads and the expectedtranslation of the OEM negotiations with the hardware manufacturer noted aboveinto a substantive contract, the Board believes that Synchronica is wellpositioned to deliver a return to growth in 2007. Preliminary Results for the Year Ended 31 December 2006 Consolidated Profit and Loss Account Note 2006 2005 £'000 (Unaudited (Unaudited) & Restated) Turnover 1 1,068 3,078Cost of sales (735) (1,796) Gross profit 333 1,282Administrative expenses------------------------------ ----- -------- ----------- Other administrative expen (6,296) (4,222)- Exceptional items: restructuring andimpairment loss 2 (1,128) - (7,424) (4,222)------------------------------ ----- -------- ---------- Operating loss (7,091) (2,940)Interest receivable and similar inc 189 167Interest payable and similar charges (49) (1) Loss on ordinary activities before taxation (6,951) (2,774)Tax on loss on ordinary activities 3 296 4 Loss for the year (6,655) (2,770) Basic and diluted loss per ordinary share 4 (18.3)p (12.7)p There are no recognised gains or losses other than those passing through theprofit and loss account. Preliminary Results for the Year Ended 31 December 2006 Reconciliation of movements in shareholders' funds 2006 2005 (Unaudited) (Unaudited & Restated) £ '000 £ '000 Loss for the year (6,655) (2,770)New share issues 173 5,334Expenses of share issue offset against sharepremium - (288)Capital to be issued released (173) -Capital to be issued - 173Adjustment for share based payments 86 40 (6,569) 2,489 Opening shareholders' funds 7,582 5,093 Closing shareholders' funds 1,013 7,582 Preliminary Results for the Year Ended 31 December 2006 Consolidated Balance Sheet 2006 2005 (Unaudited) (Unaudited) £ '000 £ '000 Fixed assetsIntangible assets 143 862Tangible assets 147 100 290 962 Current assetsStocks and work in progress 3 19Debtors 498 888Cash at bank and in hand 2,086 6,615 2,587 7,522 Creditors: Amounts falling due within one year (1,645) (902) Net current assets 942 6,620 Total assets less current liabilities 1,232 7,582 Provisions for liabilities and charges (219) - Net assets 1,013 7,582 Capital and reservesCalled up share capital 364 364Share premium account 10,066 9,893Capital to be issued - 173Profit and loss account (9,417) (2,848) Equity shareholders' funds 1,013 7,582 Preliminary Results for the Year Ended 31 December 2006 Consolidated Cash Flow Statement 2006 2005 (Unaudited) (Unaudited) £ '000 £ '000 Net cash outflow from operating activities 5 (4,779) (3,518) Returns on investments and servicing offinanceInterest received 195 156Interest paid - (1)Foreign exchange losses (49) -Interest element of finance lease rentals (2) (6) 144 149TaxationUK corporation tax received 300 -Foreign tax paid - (6) 300 (6) Capital expenditure and financial investmentPayments for intangible fixed assets - (89)Payments for tangible fixed assets (160) (90)Receipts from sale of tangible fixed assets 6 1 (154) (178) AcquisitionsConsideration for subsidiary undertaking (25) (349) Cash flow before financing (4,514) (3,902) FinancingIssue of ordinary share capital - 5,334Expenses of share issue of ordinary sharecapital - (288)Capital element of finance lease repayments (15) (41) (15) 5,005 (Decrease) / increase in cash (4,529) 1,103 Preliminary Results for the Year Ended 31 December 2006 1. Turnover By Geographical Market 2006 2005 (Unaudited) (Unaudited) £ '000 £ '000 United Kingdom 67 341European and other foreign markets 647 628North America 354 2,109 1,068 3,078 2. Operating exceptional items - restructuring and impairment loss The exceptional administrative expenses represent the costs of redundancy(£300,000, 2005: £nil) and onerous contracts (£229,000, 2005: £nil) resultingfrom the company restructuring in December 2006 and £599,000 (2005: £nil) ofimpairment losses deducted from intangible assets. 3. Taxation Taxation credit for the year The taxation credit for the year is analysed below: 2006 2005 £ '000 £ '000 (Unaudited) (Unaudited) Current taxationOverseas corporation tax (charge) / credit (4) 2Research and Development Tax Credit 300 - 296 2 Adjustment in respect of prior years:Overseas corporation tax credit - 2 Current taxation 296 4 4. Loss per ordinary share The loss per ordinary share has been calculated based on the weighted averagenumber of ordinary shares in issue during the year. 2006 2005 (Unaudited) (Unaudited & Restated) Loss for the financial period £(6,655,000) £(2,770,000) Weighted average number of ordinaryshares 36,383,766 21,777,390 Basic and diluted loss per ordinaryshare (18.3)p (12.7)p 5. Reconciliation of Operating Loss to Net Cash Outflow From Operating Activities 2006 2005 £ '000 £ '000 (Unaudited) (Unaudited) & Restated) Operating loss (7,091) (2,940)Amortisation and impairment of intangible assets 744 114Depreciation of tangible assets 106 98Loss on sale of tangible fixed assets 1 5Share options - value of employee services 86 40Change in stocks 16 10Change in debtors 390 (194)Change in creditors 969 (651) Net cash outflow from operating activities (4,779) (3,518) 6. Preliminary Statement This preliminary statement was approved by the Board on 11th April 2007; it hasbeen prepared using accounting policies that are consistent with those adoptedin the statutory accounts for the year ended 31 December 2005 with the exceptionthat the results reflect the initial adoption of FRS 20 "share-based payment".The cumulative cost of the benefits relating to the previous years has beenrecognised in the accounts. However, as the corresponding credit is taken to theprofit and loss reserve a prior year adjustment is not required. The comparativefigures for 2005 have been restated in this respect. The effect of implementingthe new accounting policy was to reduce trading profit for the year by £86,000(2005:£40,000). There is no effect on the reserves of the company. This is theonly restated comparative amount in the financial statements for the year ended31 December 2006. The financial information set out in this announcement does not constitute theCompany's statutory accounts for the year ended 31 December 2006. The statutoryaccounts for the period ended 31 December 2005 have been delivered to theRegistrar of Companies and Received an audit report which was unqualified anddid not contain statements under s237 (2) or (3) of the Companies Act 1985. The preliminary statement has been prepared on a going concern basis. Thedirectors have a reasonable expectation that the going concern basis isappropriate on the assumption that the resolutions permitting the completion ofthe fund raising will be passed at the EGM today 12th April 2007. A copy of this preliminary statement is available from the Company's registeredoffice; Synchronica plc, Mount Pleasant House, Lonsdale Gardens, TunbridgeWells, Kent , TN1 1NY. A copy of the 2006 Report and Accounts, containing notice of the forthcomingannual general meeting, will be posted to shareholders in May and will also beavailable from the Company's registered office. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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