Interim Results

Z Group PLC 21 November 2005 21 November 2005 Z GROUP PLC Interim Results for the Six Months to 31 August 2005 Continued Revenue and Profit Growth Z GROUP PLC ('Z GROUP' or the 'Group') the marketing-led technology services company founded in 2002, announces its first set of results since admission to AIM last June. The Group develops and markets software services, sold both over the Internet and through retail outlets, including: ONSPEED: which increases the speed of Internet connectivity for web and e-mail; Net2Roam: which allows individuals and SMEs to obtain local dial-up access numbers worldwide at rates below normal international rates; Onbidder: a software download that enhances users' prospects of success during eBay auctions. The Group confirms that the launch date for OnShare, a software service enabling secure networking between PCs, will be in the first quarter of 2006. Highlights • Group sales up 210% to £2.6 million (H1 2004: £0.8 million) • Gross margin up to 79% (H1 2004: 75%) • Pre-tax profit of £405,000 (H1 2004: £95,000) • Earnings per share 1.7p (H1 2004: 0.51p) • Cash at bank £4.7 million Jamie True, Joint CEO, commented: 'Over the past six months, Z GROUP has successfully increased sales volumes through both Internet and retail channels and has expanded its international sales network.' Jack Bekhor, Joint CEO, added: 'We continue to devote substantial resource to extending our portfolio of software services. We apply our proven sales strategy, namely the combination of ROI driven direct marketing with strong retail distribution, to the roll out of new services, including OnShare which we believe will add significant impetus to the business.' Enquiries: Z GROUP PLC 08700 111 173 Jack Bekhor/Jamie True, Joint Chief Executive Officers Holborn PR 020 7929 5599 David Bick/Mike Feltham Panmure Gordon & Co 020 7459 3600 Aubrey Powell/Jonathan Retter Z GROUP PLC Interim Results for the Six Months to 31 August 2005 Report from the Joint Chief Executives The six months under review was a period of major development, including the successful placing and admission to AIM on 21 June raising net proceeds of £2.55 million. During the period the Group experienced strong consumer demand for its services and developed both new services and the infrastructure necessary to expand sales into new geographical markets. Financial Summary During the six month period turnover increased to £2.6 million (H1 2004: £0.8 million). Costs have risen broadly in line with expectations; although the Group has experienced increased marketing spend, principally with the launch of ONSPEED into new markets (including emerging markets such as India). Pre-tax profit for the six month period was £405,000 (H1 2004: £0.8 million). Cash balances have increased to £4.7 million following the placing in June. Trade debtors were £575,000 at the end of the period compared to £43,000 at the start of the six month period. The increase was driven by sales of the retail version of ONSPEED via distributors in the UK and Germany which represent £315,000 of the trade debtors. The remainder is comprised of smaller distribution deals with no other individual debtor in excess of £40,000. Creditors have increased to £1,266,000 at the end of the period compared to £962,000 at the start of the six month period. The increase is primarily driven by an increase in deferred revenue from £144,000 to £238,000 - a result of increased sales and additionally the accrual for the £123,000 tax charge in the period. Operations The last six months have seen a continued focus on boosting sales of the Group's main software service, ONSPEED, and developing new products for launch in the near future. ONSPEED ONSPEED is a software service using a 9-patented proprietary compression technology that speeds up Internet connections by up to 5 times. The ONSPEED user base is primarily comprised of dial-up users who do not want to subscribe to a broadband service but still wish to enjoy broadband connectivity speeds for considerably less money. ONSPEED also targets broadband users who need a speed enhancement and pocket PC users who need fast, wireless connectivity. Z GROUP estimates that around 50% of UK online users remain with narrowband rather than broadband and taking Europe as a whole it is estimated that there are over 40 million potential ONSPEED customers. ONSPEED sales were boosted during the period through the launch of the service as a packaged CD product with distribution agreements in place covering high street stores in the UK and Ireland and certain European territories, notably Germany, Austria, Switzerland, and France. Net2Roam and NetAway Net2Roam and NetAway are prepaid services which provide users with affordable and easy Internet access when travelling abroad. The key advantage of the services is that they do not require the customer to dial back internationally to a home Internet Service Provider, thereby saving time and money. The Group's primary short term focus for Net2Roam and NetAway has been on customer retention whilst other services are developed, however the Group believes that there is potential to expand this revenue stream. Further Developments Onbidder The Group announced the launch of a new software service called Onbidder on 26 September 2005. The service is a software download that enhances users' prospects of being successful during eBay auctions. The service is currently being marketed to the Group's existing customer base with the longer term goal of converting a percentage of eBay's 157 million worldwide users. OnShare OnShare is a revolutionary mass market software service aimed at providing user groups with the ability to chat and share files (e.g. digital photos, media, and video) and folders from their computer with other OnShare users. The software uses a security level of 4,096 bit encryption which has been approved by the DTI. The OnShare technology is owned and developed by the Group with two patents applied for. The initial potential target market for OnShare is the 150 million instant messaging and file-share audience in the UK and the United States. An estimated 36 million Americans shared files online in 2004. OnShare will adopt similar viral marketing techniques as used by Skype and Hotmail. During the development of the OnShare product this year we have identified a number of significant enhancements which has resulted in its delayed launch. Consequently, we are even more excited about the commercial prospects of this product. The service is currently undergoing its last stage of development with commercial launch planned for early 2006. ONSPEED Mobile ONSPEED Mobile will deliver up to 8 times speed increase in mobile phone surfing and significantly reduce GPRS and 3G data charges. The current market size for Java enabled handsets is estimated at 500m and 60% of phone handsets sold in 2005 supported Java. We believe that ONSPEED Mobile will be the first accelerator product available to the mass market. The Group expects the ONSPEED Mobile service to address this market and is currently in the final stages of development with launch expected in early 2006. Board Changes Z GROUP announces that with effect from today, Michael Hawkes has, for personal reasons, resigned as a Director of the Group. The Directors wish him well for the future and thank him for his valuable contribution. A recruitment process is underway to find a replacement Finance Director and in the interim, the role will be covered by the Group's financial controller. The Directors remain committed to the recruitment of a Non-Executive Director who also will take responsibility for chairing the Audit Committee. The selection process is underway and an announcement will be made in due course. Outlook The Group has made some very good progress in the first half. Our extended development of the OnShare product has delayed its launch and will have an impact on our trading expectations for this year. Nevertheless, we expect to report strong growth for the year as a whole. We also look forward to the launch of OnShare and our ONSPEED Mobile service in early 2006 which will add further impetus to our growth. Jack Bekhor James True Joint Chief Executive Officers 21 November 2005 Consolidated Profit and Loss Account for the six months ended 31st August 2005 Unaudited six months Unaudited six Audited 11 months to 31st August 2005 months to 31st to 28th February August 2004 2005 £000's £000's £000's Turnover 2,572 834 2,800 Cost of sales (550) (212) (518) ------------------- ------------------ ------------------ Gross profit 2,022 622 2,282 Administration expenses (1,655) (528) (1,701) ------------------- ------------------ ------------------ Operating profit 367 94 581 Interest receivable and similar income 38 1 4 ------------------- ------------------ ------------------ Profit on ordinary activities before taxation 405 95 585 Taxation (109) (19) (114) ------------------- ------------------ ------------------ Profit on ordinary activities after taxation 296 76 471 Minority interests 15 9 18 ------------------- ------------------ ------------------ Profit for the financial period 311 85 489 Basic earnings per share 1.75p 0.51p 2.93p Diluted earnings per share 1.74p 0.51p 2.93p Consolidated Balance Sheet at 31st August 2005 Unaudited at 31st Unaudited at 31st Audited at 28th August 2005 August 2004 February 2005 £000's £000's £000's Fixed Assets Intangible assets 542 88 291 Tangible assets 166 119 174 ------------------- ------------------ ------------------ 708 207 465 Current Assets Debtors 872 112 121 Cash at bank 4,676 668 2,549 ------------------- ------------------ ------------------ 5,548 780 2,670 Creditors: Amounts falling due within one year (1,252) (528) (962) ------------------- ------------------ ------------------ Net current assets 4,296 252 1,708 ------------------- ------------------ ------------------ Total assets less current liabilities 5,004 459 2,173 Creditors: Amounts falling due after one year (30) - (34) ------------------- ------------------ ------------------ Net assets 4,974 459 2,139 Capital and Reserves Called up share capital 974 4 5 Share premium account 2,399 658 1,895 Merger reserve 1,066 - - Profit and loss account 519 (243) 208 ------------------- ------------------ ------------------ Equity shareholders' funds 4,958 419 2,108 Minority interests 16 40 31 4,974 459 2,139 Consolidated Cash Flow Statement for the six months ended 31st August 2005 Unaudited 6 Unaudited 6 Audited 11 months to months to months to 31st August 31st August 28th 2005 2004 February 2005 £000's £000's £000's Net Cash (outflow) / inflow from operating activities (169) 217 998 Returns on investments and servicing of finance Interest received 38 1 4 ------------ ------------ ---------- Net cash inflow for returns on investments and 38 1 4 servicing of finance ------------ ------------ ---------- Taxation - - - Capital expenditure and financial investment Purchase of tangible fixed assets (22) (123) (62) Purchase of intangible fixed assets (254) (89) (294) ------------ ------------ ---------- Net cash outflow for capital expenditure and financial (276) (212) (356) investment ------------ ------------ ---------- Cash (outflow) / inflow before use of liquid resources (407) 6 646 and financing Financing Capital element of finance lease payments (4) - (4) Issue of share capital 2,538 49 1,287 ------------ ------------ ---------- Net cash inflow from use of liquid resources and 2,534 49 1,283 financing ------------ ------------ ---------- Increase in cash in period 2,127 55 1,929 ------------ ------------ ---------- Reconciliation of net cash flow to movement in net funds Unaudited six Unaudited six Audited 11 months to months to months to 31st August 31st August 28th February 2005 2004 2005 £000's £000's £000's Increase in cash in period 2,127 55 1,929 Cash outflow from decrease in lease financing 4 - 4 New finance lease - - (47) ------------ ------------ ------------ Movement in funds in period 2,131 55 1,886 Opening Net funds 2,506 613 620 ------------ ------------ ------------ Closing net funds 4,637 668 2,506 ------------ ------------ ------------ Reconciliation of operating profit to operating cashflow Unaudited six Unaudited six Audited 11 months to 31st months to months to August 2005 31st August 28th 2004 February 2005 £000's £000's £000's Operating profit 367 94 581 Depreciation 30 26 42 Amortisation 2 1 3 (Increase)/decrease in debtors (751) (85) (56) (decrease)/increase in creditors 183 181 428 ------------ ------------ ----------- Net cashflow from operating activities (169) 217 998 ------------ ------------ ----------- Notes to the Accounts 1. Basis of preparation The financial information contained in this interim report has been prepared under the historical cost convention, in accordance with applicable accounting standards and on the basis of the accounting policies set out in the statutory financial statements of Net2Roam Limited ('Net2Roam') for the period ended 28 February 2005.The financial information set out in this report is unaudited and does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The Company was incorporated on 20 April 2005 as Z Group Investments plc and passed a resolution to change its name to Z GROUP PLC ('Z GROUP') on 15 June 2005. On 15 June 2005, Z GROUP entered into a share for share exchange agreement with the shareholders of Net2Roam whereby Z GROUP acquired the entire issued share capital of Net2Roam, the consideration being satisfied by the allotment of ordinary shares in Z GROUP to the shareholders of Net2Roam. This acquisition has therefore been accounted for as a merger as permitted by Financial Reporting Standard 6 as if the group (as currently constituted) had been in place throughout the whole of the period covered by this interim report. As such, the unaudited results for the period ended 31 August 2005 have been presented as though Net2Roam had always been part of Z GROUP even though Z GROUP itself was only incorporated on 20 April 2005. The unaudited results for the period ended 31 August 2004 and the audited results for the period ended 28 February 2005 represent the consolidated results of Net2Roam, an appropriate like-for-like comparison when judging the unaudited results of Z GROUP for the period ended 31 August 2005. 2. Earnings per share The calculation of basic earnings per share is based upon the profit after tax divided by the weighted average number of shares in issue during the period. The calculation of fully diluted earnings per share is based upon the profit after tax divided by the weighted average number of shares in issue during the period after taking into account the dilutive effect of share options. Profit Weighted average Basic earnings per share £'000s number of shares EPS (pence) Period ended 31 August 2005 311,000 17,779,752 1.75 Period ended 31 August 2004 85,000 16,692,795* 0.51 Period ended 28 February 2005 489,000 16,692,795* 2.93 Profit Weighted average Diluted earnings per share £'000s number of shares EPS (pence) Period ended 31 August 2005 311,000 17,922,659 1.74 Period ended 31 August 2004 85,000 16,692,795* 0.51 Period ended 28 February 2005 489,000 16,692,795* 2.93 * Representing the number of ordinary shares in issue at the time of the placing and admission to AIM. 3. The interim report will be available on the company website ' www.zgroupplc.com' and upon application to Z GROUP PLC, The Glassmill, 1 Battersea Bridge Road, Battersea, London SW11 3BZ. The interim results were approved by the Board of Directors on 18 November 2005 This information is provided by RNS The company news service from the London Stock Exchange

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