Final Results

2ergo Group plc

("2ergo" or "the Group")

Preliminary Results for the Year Ended 31 August 2010

2ergo is a leading multi-national provider of mobile business strategy and sector specific solutions for organisations of all sizes, and has been a pioneer of enabling innovative mobile business solutions across multiple sectors and geographies since 1999.

The Group's clients range from multinational media and entertainment businesses to international telcos; and from financial services companies to global FMCG brands through to SMEs.

2ergo is pleased to announce its preliminary results for the year ended 31 August 2010 reflecting the programme of substantial investment for the long-term development of the Group announced in November 2009.

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(1)figures stated before notional interest charge on deferred consideration in 2010 and before impairment of investment in Broca plc in 2009

Highlights

Neale Graham, Joint Chief Executive of 2ergo, commented:

"The underlying progress made by the Group during the reporting period has been excellent. The Board concluded 12 months ago that the growth of the mobile data channel was at a tipping point and resolved to capitalise on the opportunity by committing to a period of investment. We are pleased with the early signs of the returns on that investment and believe that it has paved the way for significant growth over the coming years."

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CHAIRMAN'S STATEMENT

2ergo entered the year committing to a period of significant investment to accelerate the growth of the business. The Board is pleased with the results of this investment, achieved at the same time as delivering performance in line with expectations. The Group is confident that this investment in our ability to deliver mobile services of the highest standard, together with continued innovation in product enhancement and proposition development, will deliver further success in the years ahead.

Testimony to this strategy has been the work carried out in the period with many leading international organisations, including ESPN, The Australian Broadcasting Corporation, Vodafone Hutchison Australia, Burberry, FOX Sports, Times of India, Aviva, Fidelity, Transport for London, Ladbrokes, Carphone Warehouse and Procter & Gamble to name a few.

The Board believes that winning this business is a validation of the Group's service offering and commitment to invest when and where required.

The Group has now launched its Mobile Data Network Analytics (mobileDNA) service to a wider audience following the full EPOS integration of its patented Vouchernet service which was obtained through its acquisition of Activemedia Technologies in 2009. Since 2004 Vouchernet has transacted over 30 million mobile coupons worldwide and is behind one of the most successful mobile marketing campaigns ever launched.

Having integrated Vouchernet with major UK EPOS terminal software, the Group can now utilise the intelligence of mobileDNA to match its clients with highly profiled consumers both in the 'virtual' and 'real world', thus creating a truly end-to-end service that drives customers to both the Web and the High Street.

With the investment period behind us, we look forward to securing and servicing a greater number of blue chip clients and the SME community on a global basis. We are now well positioned to see the Group prosper and enjoy strong growth over the coming years.

Once again I would like to thank all 2ergo staff on a fantastic effort in preparing the Group for the next stage in our development.

KEITH SEELEY

CHAIRMAN

MANAGEMENT REVIEW

Financial Performance

Results for the year were in line with expectations, following the significant investment programme announced by the Board in November 2009.

Revenue for the year was £21.4 million, compared to £22.7 million in 2009. As expected, gross profit remained steady at £10.6 million (2009: £10.9 million) with gross profit margins increasing from 48% to 50%. This is due to the continued focus by the Group on its high margin direct sales rather than the higher volume, but lower margin, wholesaler business, as can be seen below:

Overheads for the year increased by £3.9 million from £7.3 million (before impairment charges) to £11.2 million. The Board previously announced that, as a result of investment to capitalise on the significant opportunities for growth within the mobile market, overheads would increase by £7.1 million during the current financial year. In the Group's interim statement this increase was revised to £5.0 million as a result of efficiencies and synergies achieved following 2ergo's recent acquisitions, combined with a more practical and efficient sales model. Leveraging further efficiencies has meant that the final increase in overheads was £3.9 million for the year, with no significant further overhead increase planned for the new financial year. The increase in overheads is as follows:

The Board anticipates that significant returns will start to be generated in the 2011 financial year. There have been significant advances in developing customer focused propositions and solutions, training and developing the sales teams, and enhancing the Group's sales and marketing strategy. The investment is already beginning to bear fruit with gross profit for the first three months of the new financial year being 34% ahead of the same period in 2010.

During the year, the Group generated an operating loss of £0.5 million compared to a profit of £3.6 million in 2009. The 2009 figure is stated before an impairment charge of £3.2 million which arose in that period following the acquisition of Broca plc. EBITDA for 2010 was £1.4 million (2009: £5.0 million before impairment charges). Of the £1.5 million amortisation charge for the full year, £0.3 million was in respect of acquisitions made by the Group. Net interest charges for the period were £0.2 million, and relate to IAS 23 notional interest charges in respect of the deferred consideration arising on the acquisition in 2009 of Activemedia Technologies Limited.

Overall, the loss before tax for the year was £0.8 million, compared to a profit of £0.6 million after impairment charges in 2009 (£3.8 million profit before impairment charges). After a tax credit of £0.3 million (2009: charge of £0.8 million), the basic loss per share was 1.55p (2009: 0.60p loss per share).

Utilising the savings made due to the planned overhead investment being significantly less than that originally forecast, the Group has brought forward its programme of technical and infrastructure investment, and commenced development of the Group's next generation deployment platform which was designed in partnership with Capgemini. This is now ahead of schedule and the next stage is expected to be completed in the current year. As a result, during the year the Group invested £5.1 million (2009: £3.0 million) in its technology, including hardware, software licences and product and platform development. This will allow significant progress to be made in integrating the businesses which were acquired in the previous financial year and also supports the additional business 2ergo expects to generate as a result of the overhead investment.

Following the investment in the year, cash balances at 31 August were £1.5 million (2009: £6.4 million). Cash balances at the year end were suppressed by the timing of receipts; within three days of the period end £0.9 million had been received in respect of debtors outstanding at 31 August. Net assets at the year end stood at £23.0 million (2009: £23.5 million).

Having invested to achieve significant future growth, 2ergo is ideally positioned to enter its next growth phase with confidence.

Operational Review

The Group pursued a strategy of preparing for growth across its international operations during the year to exploit new emerging opportunities and to capitalise on the increasing demand from multinational companies.

Sales and marketing spend was increased across the Group's network of offices in Manchester, London, Washington, New York, New Delhi, Mumbai, Sydney and Buenos Aires. This has enabled 2ergo to become better placed to leverage its strengths in the specific sectors and markets that the Board believes present the biggest global growth opportunities over the coming years.

The Group is a leader in developing and powering mobile services for a broad number of clients across a variety of sectors. 2ergo has advised and delivered services to a number of companies for mobile digital provision, including Fox News and Disney, and the Group is now one of the biggest commercial providers of mobile news in North America. Other international broadcast clients include the Australian Broadcasting Corporation and National Geographic.

Significant inroads have also been made in sports broadcasting. The 2ergo team in Sydney is the mobile solution provider to Vodafone Hutchison Australia (VHA) in support of its sponsorship of Cricket Australia. Its application streams live video, scores, commentary, player statistics, news and highlights of major Australian cricket matches and tournaments to VHA subscribers. In the UK, 2ergo has delivered cross-platform smartphone applications for ESPN which enable the broadcaster's customers to subscribe to view ground breaking in-game video highlights of English Premier League goals and match roundups. 2ergo's US team also delivered the football World Cup application for FOX Sports.

Further examples of solutions delivered during the year included an industry first solution for Aviva in the UK which enables its motor insurance customers to instigate a claim at the scene of an accident by recording GPS location data, photographic evidence and notes. Also, an investment solutions application was developed for fund manager Fidelity, offering its clients the ability to track and manage their personal investments from their smartphones.

The UK team entered into a strategically important four-year contract with Transport for London to develop and manage a mobile services platform for its Journey Planner services portfolio ahead of the 2012 Olympic Games, covering London Underground, DLR, bus, cycle and taxi information.

In the retail sector, high street and internet gaming company Ladbrokes has rolled out 2ergo's mobile interactive messaging solution. The programme enables Ladbrokes to drive customers to their stores via a series of incentive based offers as well as driving retention through connection to their loyalty scheme. 2ergo customers can also benefit from the greatly enhanced analytical and client profiling module.

Other significant clients using 2ergo's interactive messaging propositions include Carphone Warehouse and Procter & Gamble, the latter of which relies on the service across 18 countries for customer engagement with its Gillette, Olay and Pampers brands. Procter & Gamble also uses 2ergo's loyalty and retention mobile solution for both sampling and loyalty based couponing campaigns, yielding significant results in new customer acquisition and lifetime value.

The Group is now starting to realise the benefits of the acquisition of Activemedia Technologies in July 2009 following a successful integration which has opened up new opportunities in the Indian market. From offices in New Delhi and Mumbai, 2ergo is now leveraging a competitive technology and operations cost base and has secured agreements with two of the biggest Indian mobile operators for its mobile couponing platform. The Group has also successfully integrated its mobile couponing platform, which was part of the Activemedia acquisition, with a number of leading EPOS terminal software suppliers which is accelerating 2ergo's presence in the retail arena.

Today 2ergo's clients can accurately engage and then manage their entire customer life cycle. 2ergo delivers them solutions to common business challenges, to increase sales, to mobilise business processes and to reduce costs. Clients can also track the return on investment, garner feedback, enhance customer experiences and loyalty and then incentivise their customers to come back again and again.

2ergo is addressing a number of vertical markets and for the year ahead has developed a series of mobile propositions and solutions tailored specifically to address key challenges in these markets. This is generating high levels of interest and engagement, as shown in a growing pipeline of opportunities. Our current qualified pipeline has grown substantially to more than 4.5 times cover against business plan in both value and deal opportunities. This represents an increase of almost 40% in pipeline value compared to this time last year.

Outlook

As we move into the new financial year, the Group is in a healthy position to capitalise on excellent market opportunities for the rapidly growing mobile channel. Following a year of investment, all regions are better prepared to leverage the Group's technology to deliver even more exciting and innovative business solutions.

The worldwide growth in mobile handset usage, particularly web-enabled smartphones, is well documented. There are more than 4.5 billion mobile phone subscribers globally, equivalent to 67% of the world's population [International Telecommunication Union] and by 2011 more than 85% of new handsets will be able to access the mobile web [Comscore]. By 2013, there will be more people accessing the Internet via mobile devices than desktop PCs [Reuters].

The Group has structured its marketing and sales operations to provide sector-focused solutions and services which address the needs of target customer types. This focus will deliver increased revenues as 2ergo maintains market leadership as the mobile solutions provider of choice in specific sectors including media, broadcast, retail and financial.

2ergo continues to challenge boundaries in technology development, marketing propositions and new market initiatives, driving a number of innovations to ensure that the overall proposition continues to evolve and develop ahead of the market.

In the first half of the new financial year, 2ergo will extend its brand reach and accessibility to a wider audience through the development and launch of an exciting new proposition, the Mobile ToolkitTM, which is a suite of services aimed at the small and medium enterprise (SME) market. The Board believes this new self-service solution will represent a significant incremental revenue channel for 2ergo in the medium term.

Having integrated Vouchernet with major UK EPOS terminal software, the Group also looks forward to harnessing the intelligence of its mobileDNA to roll out compelling services to match its clients with highly profiled consumers both in the 'virtual' and 'real world', thus creating a truly end to end service that drives customers to both the Web and the High Street.

2ergo also continues to invest in new product development and to protect its innovations by maintaining a number of valuable Patents.

In summary the year ahead is extremely exciting for the mobile industry and 2ergo aims to become the mobile partner of choice for businesses of all sizes. The Board is more confident than ever that the preparation work, aligned to the innovations in product enhancement and proposition development, will deliver unprecedented success in the coming years.

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Consolidated income statement

for the year ended 31 August 2010

All activities relate to continuing operations.

Consolidated statement of comprehensive income

for the year ended 31 August 2010

Consolidated statement of financial position

as at 31 August 2010

Consolidated statement of changes in equity

for the year ended 31 August 2010

Consolidated statement of cash flows

for the year ended 31 August 2010

Notes to the consolidated preliminary financial statements 

for the year ended 31 August 2010

1. Basis of Preparation

The financial information set out herein does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the year ended 31 August 2010 has been extracted from the statutory accounts of 2ergo Group plc for that year which, if adopted by the members at the Annual General Meeting, will be filed with the Registrar of Companies. The statement of financial position as at 31 August 2009 has been restated for the adjustments to the fair value of the net assets acquired and associated goodwill on the acquisitions of Broca plc and Activemedia Technologies Limited as described in note 5. Other than this, the results for the year ended 31 August 2009 are extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either section 498 (2) or section 498 (3) of the Companies Act 2006.

The preliminary financial information has been prepared in accordance with the accounting policies set out in the Group's statutory accounts for the year ended 31 August 2009 apart from the adoption of IAS 1 Presentation of financial statements (Revised 2007) and IFRS 8 Operating Segments. IAS 1 introduces the statement of comprehensive income and IFRS 8 specifies how information about operating segments should be reported. As the changes under both standards are presentational only, their adoption has no impact upon the results or net assets of the Group.

2. Segmental analysis

During the year the Group has adopted IFRS 8 Operating Segments, which is applied retrospectively. Operating segments are identified based on internal management reporting information that is regularly reviewed by the chief operating decision maker (CODM) and is used to make strategic decisions. Any transactions between operating segments are carried out at arm's length prices.

Segmental assets are not disclosed in accordance with IFRS 8 as they are not regularly reviewed by the CODM.

The Group is organised into four principal operating divisions for management purposes representing the geographies which the Group operates in. Each key territory has one manager responsible for reporting of results for that territory to the CODM. Each territory segment can access all of the Group's products, with clients benefiting from the opportunities created by combining those products in 2ergo's sector and client specific propositions.

The EMEA segment includes the Group's performance in Europe, the Middle East and Africa and incorporates, amongst others, the Group's Secure Connect and Ticketing & Couponing cash generating units. The Americas segment includes the Group's performance in the US, Central and Southern America. Other segments reported are for performance in India and Australia. The Other segment includes non-allocated income and expenditure from the Group's central services.

The CODM assesses the performance of each operating segment based on revenue, gross profit and earnings before interest, tax, depreciation and amortisation ('EBITDA') measures. The Group's revenues and gross profits may be further analysed between Direct and Wholesale services.

1 Earnings before interest, tax, depreciation, amortisation and impairment of available for sale investment.

3. Impairment of available for sale investment

The available for sale investment in 2009 was in the ordinary shares of Broca plc, which was a UK listed equity security denominated in Sterling. The impairment charge arose in the first half of 2009, when 2ergo held a 19.2% interest in Broca plc. In accordance with the principles of IAS 39, the carrying value of the asset was required to be written down to the quoted share price of Broca plc, giving rise to the impairment charge of £3,194,000 through the income statement for the 6 months to 28 February 2009.

Subsequent to the 2009 half year, the Group completed the acquisition of the remaining share capital of Broca plc. The goodwill arising on the acquisition of the entire 100% interest in Broca plc is £7,403,000 (including £3,228,000 in relation to the initial 19.2% holding). This is supported by its value in use and is not considered to be impaired.

In terms of overall net asset values, the impairment charge arising in the first half of 2009 was reversed in the second half of that year, but IAS 39 requires that the reversal of the original charge was not through the income statement. The overall impact was that while the income statement for 2009 included an impairment of £3,194,000 in respect of the previously held available for sale investment, the subsequent acquisition accounting was such that the impairment was reversed within the statement of financial position and reinstated within goodwill.

4. Loss per share

The calculation of basic and diluted loss per share is based on the result attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. The weighted average number of shares for the purpose of calculating the basic and diluted measures is the same. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive.

5. Goodwill on acquisitions

Intangible assets includes £12.8 million (2009 restated: £14.7 million) goodwill in respect of the acquisitions of Broca plc (£7.4 million), Wapfly Technologies Pty Limited (£0.2 million) and Activemedia Technologies Limited (£5.2 million) made during the year ended 31 August 2009. Adjustments to the provisional fair values and goodwill recognised at 31 August 2009 have been made in respect of the acquisitions of Broca and Activemedia Technologies, as set out below.

Broca acquisition

Until 7 April 2009 the Group held 19.2% of the ordinary share capital of Broca plc. On 8 April 2009, the Group acquired the balance of the entire issued share capital of Broca plc and its subsidiary undertakings, Broca Communications Limited and Sure on Sight Limited for consideration of the issue of 2,872,856 ordinary shares in 2ergo Group plc. The fair value of the shares issued was determined with reference to market price on the date of acquisition.

Subsequent to the acquisition the deferred tax position of Broca has been revised. This has resulted in a change to the fair values at acquisition and increases the goodwill arising on acquisition and as a result the statement of financial position at 31 August 2009 has been restated. The impact of the acquisition on the Group's assets and liabilities is set out below:

Activemedia Technologies acquisition

On 24 July 2009, the Group acquired the entire issued share capital of Activemedia Technologies Limited and its Indian subsidiary undertaking Active Media Technologies Private Limited (now renamed Two Ergo India Private Limited) for initial cash consideration of £179,000 with further estimated discounted consideration payable of £6.9 million, subsequently revised to £5.0 million. Following the acquisition of Activemedia Technologies the existing business was divided into two separate cash generating units (Ticketing & Couponing and India), consistent with the calculation for deferred contingent consideration. This division has resulted in adjustments being made during the year to the provisional fair value of certain assets and liabilities acquired. The impact of the acquisition of the Ticketing & Couponing cash generating unit on the Group's assets and liabilities is set out below:

* The deferred contingent consideration, which is payable in tranches, is discounted and calculated as 2.8 times forecast Ticketing & Couponing operating profit for the year to 31 August 2012 based on management projections. It is dependent on the financial performance of the acquired business and is subject to an overall cap (covering both the Ticketing & Couponing and India cash generating units) related to Group performance. Consideration is payable between November 2009 and November 2013 and will be settled, at the discretion of the Group, by the issue of new ordinary shares in the Company or loan notes.

The impact of the acquisition of the Indian cash generating unit on the Group's assets and liabilities is set out below:

* The deferred contingent consideration, which is payable in tranches, is discounted and calculated as 4 times forecast Indian profit after tax for the year to 31 August 2012 based on management projections. It is dependent on the financial performance of the acquired business and is subject to an overall cap (covering both the Ticketing & Couponing and India cash generating units) related to Group performance. Consideration is payable between November 2009 and November 2013 and will be settled, at the discretion of the Group, by the issue of new ordinary shares in the Company or loan notes.

The adjustments to the fair values at acquisition detailed above reduce goodwill and as a result the statement of financial position at 31 August 2009 has been restated.

6. Report and Accounts

A copy of the Annual Report and Accounts will be sent to all shareholders with notice of the Annual General Meeting.