Final Results

RNS Number : 9015H

Zamano PLC

02 March 2010

 

Press Release

2 March 2010

 

zamano PLC

 

('zamano', the 'Company' 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 2009.

 

Mike Watson, Chairman of zamano, commented: "The Board is pleased with the Group's progress during 2009. In a difficult environment we successfully managed cash reserves, and despite a decline in revenue the Group increased profits. The mobile market is going through a period of rapid transition, which offers the Group tremendous opportunities, as well as presenting challenges. In response, the Group has aligned its strategy to this transition and is investing in the areas which it believes will allow it to take advantage of the emerging opportunities. In December 2009 we raised €2.5 million to support this investment and strengthen the balance sheet."

 

John O'Shea, CEO of zamano, commented: "Revenue declined by 39% in 2009 primarily due to the transition to higher margin, lower volume revenue and the shift away from advertising services on print and TV to advertising on mobile devices. The Group delivered EBITDA of €4.3 million, supported by an improvement in gross margin and a reduction in operating costs. Furthermore, the Group had excellent cash generation, which combined with a successful fundraising, drove net debt down 69% to €2.2 million. The Group has entered 2010 with a stronger balance sheet and is responding to the dramatic transition in the mobile market by investing in its strategy focused on New Generation Mobile."

 

Financial Highlights:

 

●	Revenue of €25.1 million (2008: €41.4 million). The UK market drove 80% of the decline with the balance in Ireland and Australia. This was partly offset by organic revenue growth in the US, Spain and South Africa.
●	Gross margins improved to 34% (2008: 28%). This was a result of the focus on performance metrics and the increased effectiveness of advertising on mobile devices as a route to market.
●	EBITDA of €4.3 million (2008: €5.0 million), was in line with market expectations.
●	Adjusted diluted EPS 4.4 cents (2008: 4.6 cents).
●	Profit after tax improved to €1.1 million (2008: loss €3.8 million) due to lower interest costs and no impairment charge in 2009.
●	€4.6 million cash generated from operations.
●	Net debt reduced by 69% to €2.2 million (2008: €7.2 million).
●	Completed €2.5 million fundraising to allow Group to invest in growth initiatives and strengthen the balance sheet.

 

- Ends -

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

 

NCB Corporate Finance
Conor McCarthy / Shane Lawlor	Tel: +353 1 611 5100

 

Cenkos Securities
Jon Fitzpatrick / Ken Fleming	Tel: +44 (0) 20 7107 8000

 

Media enquiries:

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

 

Chairman's statement

 

Against a backdrop of substantial regulatory and economic challenges, it is pleasing to deliver a solid set of results, particularly in terms of profits, cash generation and net debt reduction.

 

On a bottom line basis the Group returned to profitability with a profit after tax of €1.1 million (2008: loss €3.8 million). This was achieved by improving gross margin, reducing operating costs and, in addition, there were no impairment costs (2008: €5.0 million).

 

In 2009 revenue declined by 39% to €25.1 million, due to the transition to higher margin, lower volume revenue and the shift away from advertising services on print and TV promotions to advertising on mobile devices. The UK market contributed to 80% of the decline with the balance in Ireland and Australia. The Group profitably grew revenue organically in the US, Spain and South Africa, which, together contributed 18% of total revenue (2008: 9%). The shift to higher margin revenue, increased effectiveness of mobile advertising and improved performance metrics drove gross margins to 34% (2008: 28%).

 

The market for the provision of interactive mobile content and applications is in a period of rapid change. These changes include:

(i)	New market entrants, who are now focused on the mobile as their primary engine for growth
(ii)	Decline in the relative importance of the Mobile Network Operators, as users can access services over WiFi and make payments through alternative billing models
(iii)	Market fragmentation - multiple new handsets, application stores and billing methodologies offering an ever-broadening range of products and services
(iv)	The rapid growth of highly effective mobile advertising and search services, offering real-time, targetable and personalised mobile marketing opportunities
(v)	New regulatory framework in all markets

 

These changes are disrupting the value chain, and are presenting significant challenges, but also opportunities, for all players in the mobile industry, including zamano. The Board is confident that the Group has the fundamental strengths and the flexibility to adapt and to take advantage of these opportunities and has adapted its strategy to maximise opportunities presented by these changes.

 

In the Group's Interim Results on 23 September 2009, I announced a process to identify investment opportunities to accelerate the Group's growth plans. As part of this process the Group subsequently completed a €2.5 million fundraising with the Ulster Bank Diageo Venture Fund, to provide capital to invest in the above growth initiatives and to strengthen the balance sheet.

 

The Group has aligned its strategy to maximise the opportunities presented by these changes and to this effect, the Board has increased investment in two key areas to drive growth.

 

Having taken over the position of Chairman in late 2009, I am working with the management team to successfully invest these funds to capitalise on the growth opportunities in our industry and to build upon the solid platform of our business across six territories.

 

Mike Watson

Chairman

 

CEO's statement

 

As zamano enters its tenth year of operations, the Group is undergoing significant changes in terms of business strategy and personnel in response to the fundamental changes underway in the mobile industry. The period from mid 2008 to now has presented the Company with new challenges, as the industry evolved at an unexpectedly rapid pace. Combined with the impact of the economic downturn and significant regulatory changes, this phase of the Company's evolution is seeing rapid technical and commercial shifts. It is my expectation that these very rapid adjustments will enable zamano to emerge with a stronger market position in the year ahead.

 

Market review

 

There has been a fundamental disruption in the mobile industry, brought about through the entry of Apple and Google and the widespread adoption of mobile broadband. The iPhone has demonstrated the full potential of mobile technology to deliver compelling interaction and experiences to consumers. This has provoked other handset manufacturers and new entrants such as Google to think "Mobile first" when planning new developments and to introduce enhanced smart-phones with a multitude of new services. Mobile search is now finally a viable technology, and is helping discoverability and navigation through the mobile internet. Use of WiFi has presented low-cost and free data download capabilities to consumers, and is of particular benefit for data intensive content and services.

 

The disruption is not without its downside for traditional players in the mobile industry. Mobile Network Operators are seeing little of the new revenues emanating from application sales and advertising, and are facing the challenge of delivering ever-increasing data volumes over their networks for little extra revenue.

 

The impact of these changes on zamano is mixed. On the positive side, mobile advertising and search technologies offer the Group the potential to improve discovery of its services by mobile consumers in multiple geographies. The potential negative impact is that many of the new services being made available via smart-phones are free, and compete with zamano's offerings.

 

zamano's strategy

 

While smart-phones at this point represent a small percentage of the global market, it is zamano's contention, backed by industry analysts, that they will constitute the majority of handsets in the Group's core markets by 2012.

 

This transition in the market is driving zamano's strategy, which broadly encompasses the following:

(i)

Improving our technology to accommodate better discovery of our services by taking advantage of the growth in mobile advertising and search. The Group is looking both to expand coverage of mobile advertising in existing markets and to enter new markets. In Spain and South Africa mobile advertising is the Group's sole route to market. To support this expansion the Group is investing in integration with more partners as well as improving reporting and analytical capabilities.

(ii)

Enhancing our technology platform to improve the mobile user's experience by delivering a suite of new offerings for consumers and brands, regardless of the type of handset being used. This will enable the Group, based upon its heritage of delivering compelling mobile interactive services, to target consumers directly or with partners on both smart phones and feature phones. The Group has branded this development New Generation Mobile. Pan-device functionality and user identification are the key drivers of this initiative. Mobile services must of necessity span all handset types and must enable direct one-to-one communications with users.

 

Executing on this strategy successfully is the key to the Group's future. To this effect, we can report on points of progress to date.

 

Improved Discovery - Geographic expansion / Mobile advertising

 

The Group has expanded the percentage of users targetable by mobile advertising over the last 12 months and this trend is expected to continue.

 

Chart 1: % of users targetable via mobile advertising
	June 2009	Dec 2009
Ireland	70%	100%
USA	0%	15%
UK*	0%	15%
Spain	40%	90%
South Africa	0%	80%
Australia	0%	15%

 

* In the UK mobile advertising requires Payforit billing which is currently ineffective on most networks

 

Secondly, the Group has accelerated the shift in the mix of advertising spend over the last 12 months to mobile advertising.

 

Chart 2: Mix of Advertising Spend
	Print / TV	Web	Mobile
Dec '08	69%	15%	16%
June '09	48%	32%	20%
Dec '09	38%	9%	53%

 

New Generation Mobile

 

Having explored many different approaches and ideas in the last six months, zamano's longer term strategy for New Generation Mobile is now clearer. Incorporating application development across multiple platforms, the core focus is on delivering compelling interactive mobile experiences to individual users, corporates, and between multiple users. Projects are currently under development and details will be announced closer to launch.

 

Financial Review

Revenues declined in 2009 to €25.1 million (2008: €41.4 million) primarily due to a 67% decline in UK revenue, as well as a smaller 17% decline in Ireland and 54% decline in Australia. The introduction of new regulations, combined with the relative inflexibility of the Payforit billing mechanism and a decline in the effectiveness of print and TV advertising relative to other markets, has reduced the revenue from mobile content in the UK and the Group therefore decided to scale back its UK activities and focus on other more attractive geographies.

 

The Group experienced organic revenue growth of 11% in the United States as well as considerable expansion in Spain and market entry in South Africa.

 

Revenues were carefully managed by focusing on higher margin revenue and the introduction of advertising controls and metrics which helped increase gross margins to 34% (2008: 28%).

 

As part of the transition, administrative expenses were reduced by 34% to €4.4 million; this was achieved through strong cost controls and with the benefit of research and development credits.

 

The Group's EBITDA declined by 14% to €4.3 million (2008: €5 million). EBITDA margin increased to 17% (2008:12%).

 

The Group's Profit after tax increased to €1.1 million (2008: loss €3.8 million). This improvement is due to reducing interest cost, lower tax and no impairment charge.

 

Gross debt at year end was €9.2 million (2008: €12.9 million) and net cash was €7.0 million (2008: €5.7 million). Net debt at year end was €2.2 million (2008: €7.2 million), and cash generated from operations was €4.6 million (2008: €4.9 million). This highlights the continued strong cash generative business model that underpins the Group's activities. The net debt is only .51 times 2009 EBITDA, which indicates a low balance sheet risk.

 

The Group has forward contracts in place for Sterling, US dollar and Australian dollar to hedge estimated cash balances through 2010.

 

Outlook

 

Having secured investment late in 2009, zamano is now investing to meet the challenges of the market, staking out a differentiated and sustainable presence, through the New Generation Mobile initiative.

 

The Board is confident that these investments will result in zamano being well positioned to take advantage of growth opportunities in the sector, and look forward to updating the market in the months ahead with details of progress achieved.

 

 

John O'Shea

CEO

 

Consolidated income statement

 

for the year ended 31 December 2009

 

 

	2009 €'000	2008 €'000
Revenue	25,077	41,414
Cost of sales	(16,629)	(29,936)
Gross profit	8,448	11,478
Other administrative expenses	(4,374)	(6,671)
Depreciation	(155)	(136)
Amortisation of intangible assets	(2,425)	(2,435)
Impairment of goodwill	-	(5,000)
Total administrative expenses	(6,954)	(14,242)
Operating profit/(loss)	1,494	(2,764)
Finance income	78	254
Finance expense	(699)	(1,112)
Profit/(loss) before tax	873	(3,622)
Income tax credit / (expense)	181	(182)
Profit/(loss) for the year attributable to equity holders of the parent	1,054	(3,804)
Earnings/(loss) per share
- basic	€0.013	(€0.047)
- diluted	€0.012	(€0.045)

 

Consolidated balance sheet

 

at 31 December 2009

 

 

	2009 €'000	2008 €'000
Assets
Non-current assets
Property, plant and equipment	206	262
Intangible assets	19,762	21,397
Deferred tax asset	69	45
	20,037	21,704
Current assets
Trade and other receivables	3,446	5,943
Income tax recoverable	270	15
Cash and cash equivalents	6,958	5,744
	10,674	11,702
Total assets	30,711	33,406
Equity
Equity share capital	95	81
Share premium	13,442	11,156
Capital conversion reserve	1	1
Foreign currency translation reserve	(64)	(80)
Share-based payment reserve	576	424
Retained earnings	2,085	1,031
Total equity	16,135	12,613
Liabilities
Non-current liabilities
Loans and borrowings	7,478	10,703
Deferred tax liability	-	268
	7,478	10,971
Current liabilities
Trade and other payables	4,041	6,232
Business combination accrual	1,328	1,373
Loans and borrowings	1,729	2,211
Income tax payable	-	6
	7,098	9,822
Total liabilities	14,576	20,793
Total equity and liabilities	30,711	33,406

 

Consolidated cash flow statement

for the year ended 31 December 2009

 

	2009 €'000	2008 €'000
Cash flows from operating activities
Profit/(loss) before tax	873	(3,622)
Adjustments to reconcile profit/(loss) for the year to net cash inflow from operating activities
Depreciation	155	136
Amortisation of intangible assets	2,425	2,435
Impairment of goodwill	-	5,000
Share-based payments expense	152	172
Foreign exchange	16	(61)
Loss on disposal of property, plant and equipment	-	5
Decrease in trade and other receivables	2,502	3,211
Decrease in trade and other payables	(2,192)	(3,270)
Finance income	(78)	(254)
Finance expense	699	1,112
Cash generated from operations	4,552	4,864
Interest paid	(20)	(12)
Income tax paid	(372)	(903)
Net cash inflow from operating activities	4,160	3,949
Cash flows from investing activities
Payment of deferred consideration on acquisition of subsidiaries	(45)	(7,296)
Purchase of property, plant and equipment	(102)	(229)
Purchase of intangible assets	(790)	(17)
Interest received	78	279
Net cash outflow from investing activities	(859)	(7,263)
Cash flows from financing activities
Proceeds from issue of share capital	2,300	1
Repayment of debt	(4,387)	(3,047)
Net cash outflow from financing activities	(2,087)	(3,046)
Net increase/(decrease) in cash and cash equivalents	1,214	(6,360)
Cash and cash equivalents at 1 January	5,744	12,104
Cash and cash equivalents at 31 December	6,958	5,744

 

 

1. The financial information set out in this announcement, which was approved by the Board of Directors on 1 March 2010, has been prepared based on the accounting policies set out in the financial statements for the year ended 31 December 2008, other than as set out below.

 

2. Reporting entity and other information

zamano plc is a limited company incorporated and domiciled in Ireland whose shares are publicly traded on the Alternative Investment Market (AIM) in London and the Irish Enterprise Exchange (IEX) in Dublin. The consolidated financial statements of zamano plc as at and for the year to 31 December 2009 consist of the results and financial position of the company and its subsidiaries together referred to as "the group", together with selected notes. The principal activities of the group are the provision of mobile data services and technology.

This announcement does not include all of the information required for full annual financial statements. The comparative figures included for the year ended 31 December 2008 do not constitute statutory financial statements of the group within the meaning of the European Communities (Companies: Group Accounts) Regulations 1992. The consolidated financial statements for the year ended 31 December 2008 are available at www.zamano.com. The auditor's report on those financial statements was unqualified.

3. Estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting polices and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as disclosed in note 4 to the 2008 annual consolidated financial statements.

4. Accounting policies

The accounting policies adopted by the group in this preliminary announcement are the same as those set out in the 2008 published annual report, except for the following:

IAS 1

The company applied revised IAS 1 Presentation of Financial Statements (2007) which became effective as of 1 January 2009. As a result, the group has presented a consolidated income statement and a statement of comprehensive income, and has also presented a statement of changes in equity, all as primary statements. Comparative information has been re-presented so that it also is in conformity with the revised standard. The adoption of this standard impacts presentation aspects only but there is no impact on earnings per share.

Operating segments

The group has also applied IFRS 8 Operating Segments which became effective as of 1 January 2009. This requires segmented information to be presented based on the data that the chief operating decision maker receives and uses to make key decisions. Our operations are organised into two business units:

4. Accounting policies (continued)

Operating segments (continued)

·; Facilitating communication and interaction between companies and customers on mobile phones through a range of value-added mobile phone applications (B2B); and

·; Developing, providing and distributing mobile phone content and interactive services directly to consumers (D2C);

There has consequently been no change to the operating segments as a result of the adoption of IFRS 8 and the reportable segments are consistent with those previously reported. Since the change impacts only on presentation and disclosure, there is no impact on earnings per share. Selected segment data presented on this basis is included within note 8 below, however full segment data will be included within our 2009 statutory financial statements when these are published.

 

5. Earnings/(loss) 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 weighed 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 earnings/(loss) per share computations:

 

	2009 €'000	2008 €'000
Net profit/ (loss) attributable to equity holders of the parent	1,054	(3,804)
	2009 thousands	2008 thousands
Basic weighted average number of shares	82,348*	81,778*
Dilutive potential ordinary shares:
Employee share options	2,629	3,300
Diluted weighted average number of shares	84,977	85,078

 

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

 

5. Earnings/(loss) per share (continued)

 

The following reflects earnings per share based adjusted net income:

 

	2009 €	2008 €
Adjusted basic EPS	€0.045	0.048
Adjusted diluted EPS	€0.044	0.046
Adjusted net income is calculated as:	2009 €'000	2008 €'000
Profit/(loss) after tax	1,054	(3,804)
Share-based payments expense	152	172
Interest on deferred consideration	-	145
Amortisation	2,425	2,435
Impairment of goodwill	-	5,000
Redundancy costs	86	-
	3,717	3,948

 

6. Trade and other receivables

	€'000	€'000
Trade receivables	2,829	5,285
Prepayments	438	472
VAT recoverable	179	186
	3,446	5,943

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.

 

 

7. Trade and other payables

 

	2009 €'000	2008 €'000
Trade payables and accruals	3,754	5,927
PAYE/PRSI	159	158
VAT	128	147
	4,041	6,232

8. Segment Information

 

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

 

Year ended 31 December 2009

 

	B2B €'000	D2C €'000	Total €'000
Revenue from external customers
Ireland	6,826	6,092	12,918
UK	1,657	4,983	6,640
USA	-	3,947	3,947
Australia	-	1,109	1,109
Spain	-	418	418
South Africa	-	45	45
Sales to external customers	8,483	16,594	25,077

 

*Unallocated costs relate to central overheads such as rent, administration, salaries and office overhead costs which are not allocated to individual reportable segments

 

 

Year ended 31 December 2008

 

	B2B €'000	D2C €'000	Total €'000
Revenue
Ireland	8,333	7,316	15,649
UK	3,600	16,198	19,798
USA	-	3,561	3,561
Australia	-	2,404	2,404
Spain	-	2	2
Sales to external customers	11,933	29,481	41,414

9. Income tax expense

 

	2009 €'000	2008 €'000
Analysis of charge for the year:
Current tax:
Irish corporation tax	323	480
Foreign tax	6	7
(Over)/under provision in prior year	(218)	14
	111	501
Deferred tax:
Movement in deferred tax amounts for the year (Note 10(c))	(292)	(319)
Income tax (credit)/expense (Note 10 (b))	(181)	182

 

 

 10. Impairment of goodwill

 

The directors do not believe any impairment charge is required (2008: €5m) in the year. Details regarding the underlying assumptions for the impairment review are laid out below.

 

D2C cash-generating unit

The recoverable amount of the D2C unit has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a two year period which have been rolled on for a further period. The pre tax discount rate applied to cash flow projections is 9.8%.

 

Key assumptions used in value-in-use calculations

The calculation of value-in-use for the D2C cash-generating unit is most sensitive to the

following assumptions:

·; discount rates;

·; projected gross profit for D2C during 2010 and 2011; and

·; the growth rate used to extrapolate cash flows for five years.

 

Discount rates

Discount rates reflect management's estimate of the risks specific to the D2C cash-generating unit. In determining the appropriate discount rate, management has considered the average cost of capital for the group.

 

Growth and EBITDA rate

Growth rate and EBITDA estimates are principally based on management's experience of the D2C business line, coupled with published economic research.

 

The principal assumption used within the cash flows is that D2C growth will be in line with budget to 2011 and then grow at 2.6% beyond that.

 

 

11. The report and accounts for the year ended 31 December 2009 will be posted to shareholders in due course and further copies will be available from the Company's website (www.zamano.com)

 

 

 

 

 

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