Half year results

31 May 2013

2ergo Group plc

Half year results

2ergo Group plc (AIM: RGO, "2ergo" or "the Group"), the international provider of innovative, proprietary contactless mobile technology solutions, has published its half year results for the six months ended 28 February 2013.

Key points

·; Podifi commercialisation making good progress

·; UK patent granted for podifi platform

·; Successful pilot with O2 in Dublin - providing O2's 'Dockland's Deals'

·; Strong pipeline of new business

- Recent contract wins include Jersey Telecom, University of Salford's Student's Union, Compass Group, Trinity College Dublin, University College Birmingham, Warwick University and a Premiership football club

·; Operating loss of £2.4m (H1 2012: loss(1) £3.6m)

·; Fundraising currently underway

(1) Figures stated after non-cash impairment of assets

Neale Graham, Chief Executive of 2ergo, commented:

"The progress we have made in commercialising podifi has been very encouraging so far, with a number of contract wins with high profile customers. We believe that our technology platform has great potential in the rapidly growing mobile couponing, loyalty and payments space and the results of recent pilots have reinforced this.

"We have experienced contract delays with some new customers, which have led us to explore fundraising options. Whilst these negotiations are ongoing, we hope to announce a positive outcome over the coming weeks.

"Meanwhile, podifi has started to generate revenue and we believe that the long-term opportunity remains very strong."

Enquiries:

About 2ergo Group plc

2ergo Group plc, the international provider of innovative, proprietary contactless mobile technology, podifi, delivers coupons and vouchers, loyalty, proximity and payment solutions to organisations of all sizes in order to assist them to develop and execute their mobile strategy.

Headquartered in the UK, 2ergo has been a pioneer of enabling innovative mobile business solutions since 1999, supplying clients such as Aviva, Ladbrokes, PizzaExpress, Rightmove, O2, Orange, Talk Mobile, Transport for London, Phones4U, Procter & Gamble and Visit England, who have all benefited from 2ergo's end-to-end mobile solutions to increase sales, mobilise business processes, reduce costs and enhance customer relationships.

For more information visit www.2ergo.com

Overview

2ergo's results for this half reflect the Group's strategic shift away from providing commoditised, difficult-to-scale solutions, instead focusing on its core podifi proposition.

Good progress has been made in commercialising podifi, the sales pipeline is growing, and podifi has started to generate revenue, which should build rapidly. Whilst agreements with some larger customers have taken longer than expected to finalise, these are still expected to contribute revenue in this financial year and beyond.

Operational review

The podifi platform helps retailers to generate footfall and build customer loyalty by enabling them to rapidly create, launch and manage mobile phone voucher-based offers, deals or loyalty programmes. The platform enables fast, accurate and contactless transactions, as well as the ability to measure the performance of a specific promotion or campaign accurately, and in real time.

During the period, 2ergo signed an agreement with the Jersey-based telecom network, JT Group Ltd ('Jersey Telecom'), to launch mobile contactless wallet services in Jersey. The service will enable customers of the Jersey Telecom network to redeem special discounts and promotional offers from participating retailers using their iPhone or Android smartphones. The partnership is making good progress with a number of merchants already signed up.

The Group has also signed a number of university deals for podifi, commencing with the University of Salford's Student's Union. The student mobile wallet apps and contactless redemption pods enable each university to provide on and off campus retail promotions and track exactly when and by whom its mobile coupons are redeemed.

In November 2012, the Group launched O2 'Docklands Deals' to pilot O2's mobile phone contactless couponing programme, representing the Group's first podifi mobile network deal. This enables customers on any mobile network to redeem local discounts and promotional offers in participating local retailers by downloading the 2ergo-created app to their smartphones.

Following a successful trial, 2ergo is working with O2 to scope the next phase of the programme. This would include a broader merchant and consumer roll-out of the podifi platform with increased functionality, including for example a collaborative loyalty programme where users would also collect loyalty points at participating merchants.

Since the period end, new client wins have included a Premiership football club, which has trialled the podifi platform ahead of the 2013/14 season, and Compass Group, which is installing podifi technology in several of its catering sites, whilst student retail schemes are being introduced for Trinity College Dublin, University College Birmingham, Leicester De Montfort University and Warwick University.

In addition, the Group continues to provide long-established solutions to existing customers, including Orange, PizzaExpress, Carphone Warehouse, Ladbrokes, Phones4U and Aviva.

2ergo's patents pending in relation to the podifi technology were also granted in the UK during the period, and applications have now been made in a number of other territories around the world.

Financial review

2ergo reported revenue for the period of £2.3 million (H1 2012: £4.8 million). The Group's model is to charge up-front, monthly and transactional fees for podifi which taken together are expected to contribute increased revenue in H2, given the Group's strong pipeline and increase in demand for its podifi technology.

Gross profit was £0.6 million (H1 2012: £1.8 million), representing a gross margin of 26%. Margins are likewise anticipated to increase as the roll-out of the podifi network accelerates.

As a result of the Group's shift in focus away from commoditised solutions, overheads fell by £0.3 million to £2.3 million (H1 2012: £2.6 million). The loss before interest, depreciation, amortisation and impairment charges was £1.7 million (H1 2012: loss £0.9 million).

The pre-tax loss was £2.4 million (H1 2012: loss £1.7 million before impairment charge). The Group has over £10 million of unused tax losses carried forward, in respect of which no deferred tax asset has been recognised as the timing of the utilisation of these losses is uncertain, whilst the effective tax credit rate of 6% (H1 2012: 3%) reflects the anticipated utilisation of research and development tax credits.

The net assets of the Group at 28 February 2013 were £3.6 million (31 August 2012: £3.1 million), with cash balances of £0.5 million (31 August 2012: £0.5 million).

On 1 October 2012, the Group completed a placing of 28.5 million new ordinary shares with both new and existing shareholders, raising gross proceeds of £2.7 million (net of issue costs), to provide additional working capital and the capital resources required to undertake the necessary investment in the roll-out of the podifi contactless mobile technology platforms.

The Board continues to closely monitor the Group's cost base and cash balances. Whilst the Board believes the podifi pipeline is stronger than ever, uncertainty surrounding the timing of the uptake of the technology renders any forecasting of sales performance in the short and medium term very difficult.

Current trading and outlook

Commercialising the Group's podifi technology platform has been challenging, but the strength of the current pipeline and contract wins with a number of high profile customers are both encouraging. Podifi has great potential in the rapidly growing mobile couponing, loyalty and payments space.

The results of recent podifi pilots, targeting diverse demographic consumer groups, have demonstrated the benefits which the technology can bring to retailers. Podifi's instantly available data has confirmed the percentage take-up of users within each pilot and demonstrated that a significantly high percentage of offers were redeemed across all target demographic groups. The data also showed that over 50% of mobile users throughout the various pilots took up the merchant's offer within one hour of receiving the offer to their mobile phone.

The ability to provide this type of valuable real-time data will serve to strengthen the Group's sales offering going forwards.

Up to this point however, 2ergo has experienced contract delays with some new customers, which has resulted in longer lead times. As a result of these delays, the Group has had to explore various fundraising options. These negotiations are ongoing, but the Group hopes to be able to announce a positive outcome over the coming weeks. As previously announced on 22 May 2013, it is reiterated that no further assurance can be given on the future of the Group until it is able to finalise these fundraising negotiations. However, podifi has now started to generate revenue, and the Board believes that, provided funding is finalised, the long-term opportunity remains very strong and the Group should return to profitability by the end of 2014.

Consolidated unaudited interim income statement

for the six months ended 28 February 2013

Consolidated unaudited interim statement of comprehensive income

for the six months ended 28 February 2013

Consolidated unaudited interim statement of financial position

as at 28 February 2013

Consolidated unaudited interim statement of changes in equity

for the six months ended 28 February 2013

Consolidated unaudited interim statement of cash flows

for the six months ended 28 February 2013

Notes to the consolidated unaudited interim financial statements

1. Basis of preparation

The interim financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) as described in the accounting policies set out in the financial statements for the year ended 31 August 2012 and AIM rules.

The comparative financial information for the period ended 29 February 2012 and the year ended 31 August 2012 has been extracted from the interim and annual financial statements of 2ergo Group plc. These interim results for the period ended 28 February 2013, which are not audited, do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

Full audited accounts of the Group in respect of the year ended 31 August 2012, which received an unqualified audit opinion and did not contain a statement under section 498(2) of the Companies Act 2006, have been delivered to the Registrar of Companies.

2. Segmental analysis

The Group is organised into one principal operating division for management purposes, focused on the monetisation of the Group's technology, and is based in the UK. Therefore the Group has only one operating segment and segmental information is not required to be disclosed.

3. Taxation

The tax credit accrued in these interim financial statements reflects an estimated tax rate of 6% on the loss before tax, impairment of assets and notional interest for the period (2012: 4%), which is the anticipated effective composite rate for the current financial year, reflecting research and development tax credits earned.

4. Loss per share

The calculation of basic and diluted loss per share from continuing operations is based on the result attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period. 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.

Basic and diluted loss per share from continuing and discontinued operations is calculated as follows:

5. Placing and subscription

On 1 October 2012, the Company issued 28,453,540 1p ordinary shares through a placing and subscription with new and existing shareholders at a price of 10p per ordinary share. The purpose of the placing and subscription was to provide additional working capital and the capital resources necessary to invest in the roll-out of the podifi contactless mobile technology.