Final Results

25th Mar 2009 07:00



Press Release

25 March 2009

zamano PLC

("zamano" or "the Group")

Final Results 

zamano PLC (AIM:ZMNO, IEX:ZAZ), a leading provider of interactive applications and services to mobile devices, today announces its final audited results for the 12 months ended 31 December 2008.

Highlights:

	2008	2007	Growth
	€'000	€'000
Revenue	41,414	24,716	68%
EBITDA*	4,979	3,671	36%
Diluted Adjusted EPS**	4.6 cents	4.6 cents	-

* EBITDA is Earnings before interest, tax, depreciation, amortisation, goodwill impairment, IFRS 2 share based payments  

** Diluted Adjusted EPS calculations are in note 2 

●	EBITDA up 36% to €5.0 million, primarily driven by the acquisitions during 2007. On a constant currency basis EBITDA would have grown by 69% to €6.2 million
●	Adjusted EPS flat at 4.6 cents. On a constant currency basis it would have grown by 33% to 6.1 cents
●	Positive cash flow of €3.9 million generated from operating activities.  Net debt at year end of €7.2 million
●	Once off goodwill impairment charge of €5.0 million, to reflect changes since the 2007 acquisitions in sterling value and the regulatory and economic environment
●	Profitable growth achieved in the US market

Rod Matthews, Chairman of zamano, commented: "The Board worked throughout 2008 to ensure the Group took appropriate steps to address the difficult economic conditions, currency fluctuations and changing regulatory environment. As a result of these actions, the Board remains confident that the Group's strategy and management continue to position zamano to respond positively to the unpredictable changes in the environment. The Board is pleased that profitability year to date is in line with expectations."

John O'Shea, CEO of zamano, added: "The Group has made significant progress on the key actions identified in September 2008 as being critical to positioning zamano for the current challenging environment, and we will continue to focus on executing these actions through 2009."

For further information, please contact:

zamano plc
John O'Shea, Chief Executive Officer	Tel: +353 1 488 5830
Colm Saunders, Chief Financial Officer	Tel: +353 1 511 1224

Cenkos Securities
Jon Fitzpatrick	Tel: +44 (0) 131 220 9773
Ken Fleming	Tel: +44 (0) 131 220 9772
NCB Corporate Finance
Conor McCarthy	Tel: +353 1 611 5100

Media enquiries:

Abchurch Communications	Tel: +44 (0) 20 7398 7700
Heather Salmond / Joanne Shears / Mark Dixon
[email protected]	Tel: +44 (0) 20 7398 7709
[email protected]	Tel: +44 (0) 20 7398 7729
	www.abchurch-group.com
Irish Media enquiries: Edelman
Donnchadh O'Leary	Tel +353 1 678 9333
	www.edelman.com

  Chairman's statement

The Group provides mobile and interactive data services, operating two business units. The Business to Business (B2B) division sells to partners who deploy the suite of zamano applications and services to support their businesses. The Direct to Consumer (D2C) division promotes mobile services sales directly to consumers in five countries (UK, Ireland, Australia, USA and Spain), with multiple routes to market, including print, television and an increasing emphasis on mobile and web portals. Maintaining two divisions offers the Group advantages of scale, spreads investment costs and provides end to end control over customer interactivity. As a consequence, zamano strengthened its position as the largest supplier of messaging services in Ireland, as measured by operator outpayments, while maintaining a top five position in the UK. In 2008, revenues increased by 68% to €41.4M and EBITDA by 36% to €5.0M driven primarily by the acquisitions in 2007. The Group has maintained its focus on the three areas for strategic development highlighted during the listing in October 2006:

●	identification of suitable merger and acquisition targets in order to ensure that zamano is at the forefront of the continuing consolidation of the market
●	development of the zamano technology platform to support new technologies and services
●	identification of new key geographic markets and achieving controlled entry into those markets

During 2008, the Group made good progress against the above, with milestones including:

●	completion of the Red Circle and Eirborne integration with the existing D2C team into a single division
●	introduction of a Mobile Social Networking and Community offering for B2B customers in the latter half of 2008
●	Launch of PayforIT mobile payment solution across all UK Mobile Network Operators
●	entry into the Spanish D2C market in December 2008

These achievements have been enabled by advances in the Group's technology platform. The investment in a modular platform over the last five years continues to be beneficial to the Group, as new applications can be delivered to market quickly, robustly and efficiently. This provides the business with the flexibility to respond to new opportunities in a cost effective manner. 

2008 saw considerable change for the D2C division, in particular the evolution of its routes to market, targeting online and mobile portals and moving away from traditional print and television advertising. While still at an early stage, the Board has been pleased with the profitable growth achieved in the US market and the recent entry into the Spanish market. 

 

In response to ongoing changes in regulation in the UK market, the Board undertook a comprehensive review of compliance throughout the operations, particularly in relation to the monitoring of B2B clients. The Board implemented a more rigorous and proscriptive internal code of practice ("the Code") which is applied, without exception, to all traffic handled by zamano's platform. This Code was launched in July 2008, and is in line with best practice as per the UK regulator PhonePayPlus. Since its launch and implementation, there have been no new investigations of zamano-supported mobile premium services. Furthermore, calls to our customer care centre fell by over 35% in the 6 months following the introduction of the Code. Although these actions did result in the disconnection of a number of clients who we did not believe to be compliant with these stringent standards, with a resulting impact on revenues, the Board believes that these actions are in the best interests of our shareholders, customers and partners. 

The current global recessionary climate, combined with fluctuating currencies and more onerous regulation have undoubtedly created an extremely challenging trading environment for the Group. The Board remains confident that the Group's strategy and management's actions continue to position zamano to respond positively to the current environment. 

Finally, I would like to congratulate and thank the management team and all staff for their continued commitment and flexibility in delivering another strong performance in a difficult year. 

Rod Matthews

Chairman   CEO's statement

Financial performance

Revenues grew by 68% in 2008 to €41.4m from €24.7m in 2007 primarily driven by the acquisitions. On a constant currency basis, revenue would have grown by 98% in 2008 to €48.8m, reflecting a €7.4m impact on revenue due to the decline in Sterling's value relative to the Euro in 2008.   

The Group's EBITDA increased by 36% in 2008 to €5.0m from €3.7m, primarily due to top line growth and significant cost reductions in the second half of the year. On a constant currency basis EBITDA would have grown by 69% in 2008 to €6.2m reflecting a €1.2m impact on EBITDA due to currency movements. EBITDA margin of 12% represented a 3 percentage point decrease on that achieved in 2007. This was primarily due to a decline in gross margin by 8 percentage points to 28% as a result of the substantial revenue growth, the revenue mix shifting to growth markets and lower margins in the UK and Irish markets.  

Strong cost control remains a feature of the business as evidenced by operating costs at 16% of revenue, a substantial decline from 22% of revenue in 2007. In real terms operating costs grew by only 25% despite revenue growth of 68%. Further evidence of this performance is that average revenue per employee, on a constant currency basis, is up 15% to €0.75m. Adjusted diluted EPS remained steady at the 2007 level of 4.6 cents. The EBITDA growth in 2008 was balanced by an increase in the number of fully diluted shares in issue due to the acquisitions in 2007.  

Net debt at year end was €7.2m and cash inflow from operating activities was €3.9m. This highlights the strong cash generative business model that underpins the activities of the Group. The net debt is 1.5 times 2008 EBITDA. 

The Group has forward contracts in place for Sterling, US dollar and Australian dollar to hedge estimated cash balances through 2009.  

As a result of the changes in currency, regulation and economic conditions, the Board has taken a more conservative view of the D2C division's growth prospects for 2009 and beyond. Consequently, the Board is taking the prudent step of taking an impairment charge of €5.0m against the goodwill balance representing a 21% decline. The Board continues to believe in the value of the acquisitions both from a revenue scale perspective and the strategic benefits, including the US market position and on-line presence. 

The Market

While 2008 was clearly a difficult year in the mobile content market and 2009 will remain challenging, analysts continue to point to medium term growth in the overall mobile content market as users continue to consume more content on their mobile devices.

The market's growth is being driven by new entrants such as Apple and Nokia as well as existing competitors, presenting both challenges and opportunities for zamano. In response, zamano has recently increased the technical team headcount and has a well-defined and resourced technology roadmap.

zamano has entered a number of partnerships with a view to examining new business models and accelerating growth opportunities when appropriate.  Further, the Group continues to test new geographical markets to identify further regional growth opportunities.  

Operational and Divisional Review

As highlighted at the time of the Interim Results in September 2008, and in response to the current environment, the management team has taken a number of actions to reposition the Group to safeguard profitable trading and to take advantage of the next stage of growth of the industry.

D2C Division

The D2C division's revenue grew by 141% to €29.5m, primarily driven by the two acquisitions in 2007.  

As mentioned earlier, a number of key steps were identified in the Interim Results to ensure profitable trading as follows:

●	adapting UK and Ireland print advertising to maximise effectiveness with appropriate value offerings
●	further investment in the Group's online and mobile portal presences
●	expanding the US team, where zamano is already experiencing profitable growth
●	entering new territories
●	strict cost controls and cost reduction

The Group has made good progress against these key steps. UK and Ireland print advertising has been optimised to maximise effectiveness, and the management team continues to monitor expenditure against key metrics to ensure continued returns. The Group has increased its investment in online and mobile portal presence over the last six months, including a recent, successful advertising campaign on the new Three Mobile portal in Ireland. 

The Group is at an early stage in the US market. However, significant progress has been made in building profitable market share, with customers in all 50 states. New partnerships have been established to leverage market position and to accelerate growth. zamano can now reach more than 90% of the US mobile phone market, which is forecast to grow to 250 million handsets in 2009.  The division's focus now is to ensure a profitable and sustainable business while continuing to identify new profitable routes to market.

In December 2008, zamano expanded into Spain, the Group's first non-English-speaking market. Initial results from marketing campaigns in the region have been encouraging.  

B2B Division

The B2B division's revenue declined by 5% to €11.9m due to the weakness of sterling.

As previously mentioned, key initiatives were identified in September 2008 for the B2B business as follows:

 

●	Grow business within the framework of the Code
●	Invest in a mobile social networking and community solution
●	Develop new billing mechanisms and applications to take advantage of the convergence of the mobile and fixed line internet

The Group has been pleased by the positive reaction to the Code of Conduct in 2008. In particular, our customers in the UK and Ireland have worked closely with the B2B team to grow their services within the new framework. In Ireland, the team continues to build on its market leading position to win new business both within the mobile entertainment arena and from corporate customers. In the UK, the team has retained a top five position and has introduced new services to differentiate its offer to existing and potential new customers. The Group continues to create Intellectual Property on the technology platform and develop long term sustainable customer relationships which are expected to drive value in the B2B division.

In the UK, zamano is now generating revenues from mobile community sites operated by our B2B customers. Having invested significantly over the past 18 months in developing a scalable solution, the Group is now well positioned to take advantage of consumers' increasing levels of interest in mobile interaction within communities.

In late summer 2008, zamano launched a PayforIT solution in the UK, offering an alternative payment mechanism for consumers wishing to purchase goods and services via their mobile phones.  The Group expects to be at the forefront of this technology's introduction into Ireland later in 2009.

The Group believes that its technology provides corporate clients with new revenue opportunities, service differentiation, improved customer communication and cost saving opportunities. Some recent examples include:

Permanent TSB, offering an award winning mobile banking solution with applications including text alerts to customers to notify them of account activity

Ryanair, offering a flight update for a small fee service to its customers that is improving customer services and generating revenue

Conclusion 

Operationally, the core markets of the UK and Ireland will witness further movement from print and TV advertising to mobile and online propositions.  zamano is continuing to invest in building the technical and commercial offerings to meet these changing and advancing technical needs.

There are good growth prospects in the USA. We have entered Spain and market entry in further new territories may provide additional opportunities through 2009. 

The Board and management are committed to remaining focused on the key drivers which deliver ongoing profitability in a difficult trading environment. Rigorous evaluation of all operations, strict cost control, cash management and measured growth initiatives will be the core activities for the year ahead

In conclusion, 2009 will be another challenging year, but we remain confident that the steps highlighted above will allow zamano to take advantage of opportunities in the mobile arena and to continue to perform well. 

 

John O'Shea 

CEO

  Consolidated income statement

for the year ended 31 December 2008

	2008 €'000	2007 €'000
Revenue	41,414	24,716
Cost of sales	(29,936)	(15,863)
Gross profit	11,478	8,853
Other administrative expenses	(6,671)	(5,335)
Depreciation	(136)	(94)
Amortisation of intangible assets	(2,435)	(394)
Impairment of goodwill	(5,000)	-
Total administrative expenses	(14,242)	(5,823)
Operating (loss)/profit	(2,764)	3,030
Finance income	254	366
Finance expense	(1,112)	(315)
(Loss)/profit before tax	(3,622)	3,081
Income tax expense	(182)	(468)
Loss)/profit for the year attributable to equity holders of the parent	(3,804)	2,613
(Loss)/earnings per share
- basic	(€0.047)	€0.038
- diluted	(€0.045)	€0.036

Consolidated balance sheet

at 31 December 2008

	2008 €'000	2007 €'000
Assets
Non-current assets
Property, plant and equipment	262	174
Intangible assets	21,397	28,608
Deferred tax asset	45	27
	21,704	28,809
Current assets
Trade and other receivables	5,943	9,180
Income tax recoverable	15	-
Cash and cash equivalents	5,744	12,104
	11,702	21,284
Total assets	33,406	50,093
Equity
Equity share capital	81	81
Share premium	11,156	11,155
Capital conversion reserve	1	1
Other reserves	344	233
Retained earnings	1,031	4,835
Total equity	12,613	16,305
Liabilities
Non-current liabilities
Loans and borrowings	10,703	12,416
Deferred tax liability	268	569
	10,971	12,985
Current liabilities
Trade and other payables	6,232	9,429
Business combination accrual	1,373	8,410
Loans and borrowings	2,211	2,534
Income tax payable	6	430
	9,822	20,803
Total liabilities	20,793	33,788
Total equity and liabilities	33,406	50,093

 

Consolidated cash flow statement

for the year ended 31 December 2008

	2008 €'000	2007 €'000
Cash flows from operating activities (Loss)/profit before tax	(3,622)	3,081
Adjustments to reconcile (loss)/profit for the year to net cash inflow from operating activities
Depreciation	136	94
Amortisation of intangible assets	2,435	394
Impairment of goodwill	5,000	-
Share-based payments expense	172	153
Foreign exchange	(61)	(19)
Loss on disposal of property, plant and equipment	5	-
Decrease/(increase) in trade and other receivables	3,211	(1,910)
(Decrease)/ increase in trade and other payables	(3,270)	2,917
Finance income	(254)	(366)
Finance expense	1,112	315
Cash generated from operations	4,864	4,659
Interest paid	(12)	(9)
Income tax paid	(903)	(535)
Net cash inflow from operating activities	3,949	4,115
Cash flows from investing activities
Payment of deferred consideration on  acquisition of subsidiaries	(7,296)	(14,532)
Purchase of property, plant and equipment	(229)	(81)
Purchase of intangible assets	(17)	(166)
Interest received	279	326
Net cash outflow from investing activities	(7,263)	(14,453)
Cash flows from financing activities
Proceeds from issue of share capital	1	1
Proceeds from draw down of debt	-	14,950
Repayment of debt	(3,047)	-
Net cash (outflow)/inflow from financing activities	(3,046)	14,951
Net (decrease)/increase in cash and cash equivalents	(6,360)	4,613
Cash and cash equivalents at 1 January	12,104	7,491
Cash and cash equivalents at 31 December	5,744	12,104

2 Adjusted (Loss)/earnings per share

 Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted (loss)/earnings per share computations:

	2008 €'000	2007 €'000
Net (loss)/profit attributable to equity holders of the parent	(3,804)	2,613
	2008 Thousands	2007  Thousands
Basic weighted average number of shares	81,778*	69,567
Dilutive potential ordinary shares:
Employee share options	3,300	3,868
Deferred consideration	-	45
Diluted weighted average number of shares	85,078	73,480

* includes shares to be issued associated with an historical business combination.

The following reflects earnings per share based adjusted net income:

	2008 €	2007 €
Adjusted basic EPS	0.048	0.049
Adjusted diluted EPS	0.046	0.046
Adjusted net income is calculated as:	2008 €'000	2007 €'000
(Loss)/profit after tax	(3,804)	2,613
Share-based payments expense	172	153
Interest on deferred consideration	145	249
Amortisation	2,435	394
Impairment of goodwill	5,000	-
	3,948	3,409

  3 Trade and other receivables

	2008 €'000	2007 €'000
Trade receivables	5,285	8,313
Prepayments	472	628
VAT recoverable	186	239
	5,943	9,180

Trade receivables are non-interest bearing and are generally on 30 days terms. The amounts above represent the maximum credit exposure of the group to customers. 

4 Trade and other payables

	2008 €'000	2007 €'000
Trade payables and accruals	5,927	8,720
PAYE/PRSI	158	307
VAT	147	346
Loan interest	-	56
	6,232	9,429

5 Segment information 

The following tables present revenue information regarding the group's business segments:

Year ended 31 December 2008

	B2B €'000	D2C €'000	Total €'000
Revenue
Sales to external customers	11,945	29,469	41,414

Year ended 31 December 2007

	B2B €'000	D2C €'000	Eliminations €'000	Total €'000
Revenue
Sales to external customers	12,513	12,203	-	24,716
Inter-segment sales	38	1,566	(1,604)	-
Total revenue	12,551	13,769	(1,604)	24,716

  6 Income tax expense

	2008 €'000	2007 €'000
Analysis of charge for the year:
Current tax:
Irish corporation tax	480	497
Foreign tax	7	46
Under provision in prior year	14	2
	501	545
Deferred tax:
Movement in deferred tax amounts for the year	(319)	(77)
Income tax expense	182	468

7 The report and accounts for the year ended 31 December 2008 will be posted to shareholders in due course and further copies will be available from the Company's website (www.zamano.com)

ENDFR SEWFWLSUSEDD

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