Final Results

Infoserve Group PLC 04 June 2007 Press Release 4 June 2007 Infoserve Group plc ('Infoserve' or 'the Company') Final Results Infoserve Group plc (AIM: INFS), a leading online local search marketing specialist, today announces its final results for the year ended 31 March 2007. Highlights • Turnover more than doubled to £4.01 million (2006: £1.71 million on a pro forma basis). • Performance reflects growth in market share and high levels of customer renewals. • Operating losses before amortisation were £2.68 million (2006: £2.14 million on a pro forma basis). The increased loss is due to significant investment in the sales teams and essential support functions as well as the relocation of the main call centre to Darlington. • Visitors to sites displaying Infoserve local search data increased from 24 to 32 million visitors per month and this growth is expected to continue. • Enhanced contract signed with the Football League, announced on 29 March 2007. • New contract signed with Yahoo! Local to become the official advertising sales partner for the UK. Early indicators show sales ahead of expectations. • Seeking to raise approximately £1.5 million, net of expenses, by way of a Placing, primarily to maximise the Yahoo! Local opportunity. Chairman James Newman said 'Substantial progress has been made during the year in building the Company's marketing, sales and technology infrastructure and establishing a customer base for the future. The new contracts provide the Company with significant opportunities to grow its activities and should allow substantial progress to be made in the year ahead towards its goal of being the leading provider of local search services and data in the UK.' Commenting on the fund raising, Steve Barnes, Chief Executive Officer, said: 'The Company has made substantial progress since listing on AIM in June 2006. Our growth has exceeded the industry average, demonstrating that we are capturing further market share of the local search market. All our product groups have performed well and the new contracts with the Football League and Yahoo! Local present us with significant opportunities for further rapid growth. As a result, we are looking to raise £1.5 million by way of a Placing in order to maximise the Yahoo! Local opportunity and provide some working capital. Meanwhile, we have been building the Company's marketing, sales and technology infrastructure and establishing a customer base for the future. We are in a strong position to achieve our goal of becoming the leading provider of local search services and data in the UK.' For further information please contact: Infoserve Group plc Steve Barnes, Chief Executive Officer Tel: +44 (0)113 238 6200 Steve.barnes@infoserve.com www.infoserve.com David Balbi, Finance Director Tel: +44 (0)113 238 6200 David.balbi@infoserve.com www.infoserve.com Nominated Adviser WH Ireland Richard Lindley Tel: +44 (0) 113 394 6628 richard.lindley@wh-ireland.co.uk Media enquiries: Abchurch Communications Ariane Comstive/ Helen Waggott/ Emma Johnson Tel: +44 (0) 20 7398 7784 emma.johnson@abchurch-group.com www.abchurch-group.com Chairman's Statement I am delighted to report a period of progress for the Company, in this, its first year as a public company and my first year as Chairman. AIM Flotation The Company floated on the AIM market on 23 June 2006, raising £2 million by placing 4,860,267 new shares at 41.15p. Due to the efforts of my colleagues on the Board, this was achieved without too much disruption to the day-to-day business operations. The primary reason for joining AIM was to give the Company a stronger financial base from which to significantly expand its sales activities and technology base and to raise its profile in the local search market. Results Turnover for the year reached £4.01 million, which compared to £1.71 million on a pro forma basis for the twelve months ended 31 March 2006. This growth in turnover was restricted by the cautious approach to sales staff recruitment as a result of the limited funds raised at flotation, due to the difficult stock market conditions at the time. However, it is pleasing to note that productivity per person increased substantially throughout the year, although second half gross margins were affected by the decision to write off certain direct costs relating to the collection of data, which had previously been capitalised. Overheads have been well managed but do include the costs of relocating the main call centre to a new building in Darlington. Operating losses before amortisation were £2.68 million, which increased to £3.11 million after charging amortisation of £277,000 and net interest of £155,000. The deficit for the year was £2.41 million after crediting deferred tax of £703,000. The basic loss per share was 19.27p. Dividend In line with the statement made at the time of the flotation, the Board is not recommending a dividend, as all funds are needed to be invested in the development of the business. Business Developments In March 2007, we announced the signing of two major contracts, one with Yahoo! and the other with Football League Interactive. These contracts represent a step change for the Company and are a clear endorsement by the industry of the business model, which the Board has developed over the last few years. Board I am pleased to welcome David Balbi to the Board as Group Finance Director, having joined us in January this year. David has considerable experience, both in the call centre environment and in the telecommunications industry, which he gained during seven years at Kingston Communications between 1999 and 2006. Share Placing At the beginning of May 2007, the Board announced that it was planning to raise approximately £1.5 million, net of expenses, by way of a placing of Ordinary Shares. The Placing was approved by shareholders at an Extraordinary General Meeting held on 1 June 2007. The Board is currently in the process of marketing to potential investors in order to raise funds to expand the Company's sales and marketing activities by recruiting and training additional sales executives in light of the recently announced contracts with Yahoo! and the Football League mentioned above. Outlook The market in which the Company operates is growing substantially every month as more businesses and consumers are increasingly using the internet and local search in particular, to buy, sell or search for products or services. The services that the Company provides are at the heart of this growth. Substantial progress has been made during the year in building the Company's marketing, sales and technology infrastructure and establishing a customer base for the future. The new contracts provide the Company with significant opportunities to grow its activities and should allow substantial progress to be made in the year ahead towards its goal of being the leading provider of local search services and data in the UK. James H Newman Chairman 4 June 2007 Chief Executive's Review Over the past twelve months our Company more than doubled sales revenue, from £1.7 million (pro forma) in the year ended March 2006 to over £4.0 million in the year ended March 2007. Against a market backdrop of overall local search market revenues growing at a compound rate of circa 22% per annum, our performance reflects growth in market share, growth in retained customer numbers, the near doubling of our customer base, and a further broadening of our appeal to local businesses through our expanding network of sites. Monthly visitors to sites displaying our local search data increased from 24 to 32 million visitors per month. As local search increases in significance, our profile as a supplier of accurate, comprehensive and relevant data to our online Partner network, allied to the consumer's growing desire to source this data online, has been raised. 68% of consumers who perform an online local search make a phone call to a local business, 47% of those people visit those local businesses soon after calling, and more than 90% of those who phone eventually convert into sales. Our Company mantra, 'bringing business to you', reflects the growing nature of the importance of online local search for businesses and consumers alike. Our database contains 3.4 million business records (2006: 2.4 million), of which over 2.7 million have the full address, phone number and comprehensive business category details. Through daily contact with approximately 10,000 SMEs , and the support of our data suppliers, we cleanse records constantly, with over 100,000 updates per month. Our keyword collection programme has enabled us to build into our database the additional keywords (goods, services, brands, models) of over 500,000 businesses, and this advanced keyword collection is being driven to reach 1 million businesses by the end of 2007. The use of keywords will allow even more specific search and thus increased sales opportunities for businesses, greater accuracy and relevancy in results for consumers, and therefore improved advertising sales opportunities for the Company. The business has five distinct product groups; each has grown and developed this year. Our Owned Business Directory group has driven much of the growth in our revenues. We have achieved customer renewal rates over 70%, putting us in the industry's top echelon. These sites, mainly found on major search engines through natural positions and purchased sponsored links, cover both general directories (e.g. www.cityvistor.co.uk) and over 100 single industry vertical directories (e.g. www.accountantlocal.co.uk). In January 2007, we launched the new www.infoserve.com site, a hybrid of a search engine and a business directory. This site will grow in importance and prominence as our keyword database expands. The Online Income group performed well, with a 69% increase in revenues. This reflects growth in visitor numbers to our sites, and I am delighted that we continue to develop the quality and relevancy of our advertising proposition. Our Partner Network Product group continued to offer a broad spread of high profile, widely visited sites, including www.telegraph.co.uk and www.thisislondon.co.uk. Turnover in this product group grew by 26%. We also continued to offer local businesses opportunities to feature on Sky TV's interactive platform, with over 10 million monthly consumer users. Our Web Product group, which includes SMS products, website building and hosting, domain name purchase and registration, and peripheral products, has grown revenues by 21% this year. We have recently completely reviewed and revitalised our template driven website product, and in March 2007 re-launched our offering. 50% of businesses still do not have a website and many of those that do, have not updated or amended theirs for years. These statistics support our view of a strong commercial opportunity. Our fifth product group, Strategic Partnerships, centred this year on a third party arrangement to act on behalf of a number of Football League clubs. A new, more wide-ranging and extensive contract direct with the Football League, was announced on 29 March 2007, which will build upon the platform created this year. By linking their local business with a Football Club business finder service, SMEs align their brand with their local team and demonstrate their support in a simple, visible way. In return, they tap into football fans' loyalty and their highly specific market profile. Over 2.2 million visitors per month visit the sites of the original 40 clubs, and once the network is expanded with the addition of the majority of the remaining 38 clubs during 2007, we expect our potential audience to more than double. Sales on these town specific sites now account for some 6% of our business, and it is anticipated this will grow as we increasingly package these in media 'bundles' with relevant complementary products in our Owned Business Directory product group. In March 2007 we announced a new contract with Yahoo! that will substantially aid Company growth in revenues for the financial year beginning April 2007. The contract allows Infoserve to become the seller of local featured listings on Yahoo! Local's UK web pages. Under the agreement, Infoserve becomes the official Yahoo! Local advertising sales partner for the UK. The product offering, mirroring the product launched on Yahoo! Local in the USA, which has received much critical acclaim and early commercial success, has been available in the UK since 15 May 2007. Local businesses can easily see the appeal of purchasing a featured listing, which appears as a link on Yahoo! Local results pages that relate to the product or service and location of their business. The advertising gives a guaranteed position for a guaranteed period at a fixed price. Our link with Yahoo! provides a further step change opportunity for our business and gives our advertisers exposure to the 19.5 million UK web users that access Yahoo! sites each month. In order to aid the rapid expansion of the sales team to maximise the benefit from the new contract win with Yahoo! Local, the Company is undertaking a Placing to raise £1.5 million net of expenses. Recent market statistics show that 60% of online searches are now local in nature, compared to 41% a year ago, and that 76% of all local searches are online, reflecting not only the change in consumer behaviour towards increased internet usage, but the rapid move away from paper-based local searches to online. With spending on local online advertising expected to double to £7 billion in 2010, I expect continued rapid growth in our customer numbers. I am confident our strategy to develop both our branded business, as well as our long-term strategic relationships with global media companies, will drive future growth. We must continue to offer our customers great value advertising opportunities to enable them to present themselves to potential customers as they search online for local suppliers of goods and services. Steve Barnes Chief Executive 4 June 2007 Financial Review To demonstrate the Company's progress I have summarised the pro forma results for the 12 months ended 31 March 2006 and compared them to the audited results for the year ended 31 March 2007. Audited Pro Forma 31 March 31 March 2007 2006 £000 £000 Turnover 4,015 1,707 Cost of sales (3,607) (1,613) Gross profit 408 94 Administrative expenses (2,962) (2,071) EBITDA (2,554) (1,977) Depreciation (128) (165) Amortisation (277) - Operating loss (2,959) (2,142) Interest received 47 4 Interest payable (202) (42) Loss before tax (3,114) (2,180) Turnover has increased by 135% to £4.015 million. Average sales per head within telesales has risen 100% from £16,000 (pro forma) to £32,000 for year ended 31 March 2007. During the year ended 31 March 2007 the Company decided that the capitalisation of costs incurred in developing keywords was inappropriate. The impact of this change in accounting policy was to increase the loss reported in the interim accounts for the 6 months to September 2006 by £319,000 increasing the reported operating loss before amortisation to £1.461 million. EBITDA for the year showed a loss of £2.554 million, an increase of £0.577 million. This increase was as a direct result of the expansion in the product development, operational and head office functions capable of supporting an enlarged contact centre operation. The Company has recognised a deferred tax asset of £0.703 million based only on post acquisition tax losses, discounted to the expected point of realisation. The Company has recently secured a new bank facility of £500,000 as additional working capital funding. International Financial Reporting Standards (IFRS) came into effect for AIM listed companies on 1 January 2007. The Company is committed to achieving a smooth transition to IFRS and a review of the effect of the conversion from UK GAAP to IFRS is currently being planned and will be complete by September 2007. The Company's first set of audited financial statements under IFRS will be for the year ended 31 March 2008. The Company will prepare its interim statement as at 30 September 2007 under IFRS, which will include a reconciliation of the adjustments between UK GAAP and IFRS. David Balbi Finance Director 4 June 2007 Consolidated Profit and Loss Account Period ended 31 March 2007 £'000 £'000 Turnover Continuing operations - Acquisitions 4,015 _____ 4,015 Cost of sales (3,607) _____ Gross profit 408 Administrative expenses (3,090) _____ Operating loss before amortisation (2,682) Amortisation - Goodwill (156) - Other intangibles (121) _____ (277) _____ Operating loss Continuing operations (484) Acquisitions (2,475) _____ _____ (2,959) Interest receivable 47 Interest payable (202) _____ (155) _____ Loss on ordinary activities before taxation (3,114) Taxation 703 _____ Retained deficit for the year (2,411) _____ Loss per share Basic (19.27p) Diluted (19.21p) _____ Loss per share before amortisation (17.05p) _____ Consolidated Balance Sheet Group 2007 £'000 Fixed assets Intangible assets 3,480 Tangible assets 480 Investments - _____ 3,960 Current assets Debtors due within one year 405 Debtors due after more than one year 703 Cash at bank and in hand 330 _____ 1,438 Creditors: amounts falling due within one year (2,606) _____ Net current (liabilities)/assets (1,168) _____ Total assets less current liabilities 2,792 Creditors: amounts falling due after more than one year (2,254) _____ Net assets 538 _____ Capital reserves Called up share capital 731 Share premium account 2,210 Profit and loss account (2,403) _____ Equity shareholders' funds 538 _____ Consolidated Cashflow Statement Year to 31 March 2007 £'000 £'000 Net cash outflow from operating activities (1,867) Returns on investments and servicing of finance Interest paid (1) Interest received 47 _____ Net cash inflow from servicing of finance 46 Capital expenditure and financial investment Purchase of tangible fixed assets (394) Purchase of intangible fixed assets (341) _____ Net cash outflow from capital expenditure and financial (735) investment Acquisitions and disposals Net cash acquired with subsidiary undertaking 211 _____ Net cash inflow from acquisitions and disposals 211 _____ Net cash outflow before use of liquid resources and (2,345) financing Financing Issue of new shares 445 Share premium on issue of new shares 2,567 AIM flotation costs (357) Repayment of term loans (50) Advance of loans 70 _____ Net cash inflow from financing 2,675 _____ Increase in cash in the year 330 _____ Notes to the Final Financial Statements 1. Accounting Policy The financial information in this preliminary announcement has been prepared in accordance with the accounting policies set out in the financial statements of Infoserve Group plc for the financial year ended 31 March 2007. The financial information in this document does not constitute the company's statutory accounts for the financial year but is derived from those accounts. Statutory accounts for the period will be delivered following the company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under sections 237 (2) or (3) of the Companies Act 1985. 2. Comparatives Infoserve Group plc acquired Infoserve Limited on 11 April 2006 and therefore no comparative figures exist for the corresponding year in the preceding financial year. 3. Taxation There is no corporation tax charge as the group has made trading losses throughout the year. The group has estimated tax losses of £5,240,000 as at 31 March 2007, available to carry forward against future trading profits. The asset that would arise in respect of the post acquisition losses amounts to £703,000 (calculated at 30%, net of a discount of £191,000) has been recognised as the directors have assessed there will be sufficient taxable profit in the period after the balance sheet date. 4. Earnings per share The calculation of earnings per share is based upon the loss after taxation of £2,411,377 divided by 12,516,101, being the weighted average number of ordinary shares in issue during the period of 11 April 2006 to 31 March 2007. The diluted earnings per share takes the weighted average number of ordinary shares in issue during the year to 31 March 2007, and adjusts this for dilutive share options existing at the year end. This results in a diluted weighted average number of shares of 12,554,507. In accordance with FRS 22 'Earnings per share' the effects of anti-dilutive potential ordinary shares are ignored when calculating diluted earnings per share. 5. Investment On 11 April 2006 the group acquired the entire issued share capital of Infoserve Limited by way of a share for share exchange. The acquisition of Infoserve Limited can be summarised as follows: Fair Value £'000 Intangible assets 295 Tangible assets 214 Debtors 348 Bank balance 211 Creditors (3,802) _____ Net liabilities acquired (2,734) Goodwill 3,120 _____ Consideration 386 _____ Comprising: Share for share exchange 386 _____ The summarised profit and loss accounts of Infoserve Limited for the year ended 31 March 2006 and the year to 31 December 2005 are set out below: Year to Year to 31 March 31 December 2006 2005 £'000 £'000 Turnover 617 1,471 _____ _____ Operating loss (670) (1,378) _____ _____ Loss before interest and taxation (670) (1,378) Net interest receivable 1 4 Net interest payable (57) (38) _____ _____ Loss on ordinary activities before taxation (726) (1,412) Taxation - - _____ _____ Loss after taxation (726) (1,412) _____ _____ There were no material recognised gains and losses in the year to 31 March 2006 or the year to 31 December 2005 other than the loss on ordinary activities after taxation. 6. Reconciliation of Movement in Equity Shareholders Funds 2007 £'000 Loss for the financial year (2,411) Adjustment in respect of employee share scheme 8 Equity shares issued in the year 731 Share premium on equity shares issued 2,567 Costs (357) _____ 538 _____ 7. Reconciliation of Operating Loss to Net Cashflow From Operating Activities 2007 £'000 Operating loss (2,959) Depreciation 128 Amortisation 277 Adjustment in respect of employee share scheme 8 Increase in debtors (57) Increase in creditors 736 _____ Net cash outflow from operating activities (1,867) _____ 8. Analysis of Changes in Net Debt At 21 March Non - cash At 31 March 2006 Cashflows Movement 2007 £'000 £'000 £'000 £'000 Cash in hand and at bank - 330 - 330 _____ _____ _____ _____ Debt due within one year - 50 (608) (558) Debt due after one year - - (2,154) (2,154) _____ ____ _____ _____ - 50 (2,762) (2,712) _____ _____ _____ _____ Movement in net debt - 380 (2,762) (2,382) _____ _____ _____ _____ 9. Post Balance Sheet Events The Company has recently secured a new short-term bank facility of £500,000 as additional working capital funding. 10. Notice of the Annual General Meeting A copy of the Annual Report and Accounts will be sent to shareholders and copies will be available from the Company's Registered Office at Infoserve Group plc, South Side Aviation, Leeds Bradford Airport, Leeds, West Yorkshire, LS19 7UG. Notice is hereby given that the Annual General Meeting of the company will be held at South Side Aviation, Leeds Bradford International Airport, Leeds, LS19 7UG on 27 July 2007 at 11.00 a.m. - Ends - This information is provided by RNS The company news service from the London Stock Exchange

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