Interim Results

RNS Number : 6292E

Mobile Tornado Group PLC

30 September 2008

 



Mobile Tornado Group plc

('Mobile Tornado' or 'the Company')

Interim Results

Chairman's report

Mobile Tornado Group plc, one of the leading providers of convergent, presence-based instant communications announces its results for the six month period to 30 June 2008. 

Highlights

• Managed service platform launched with partners in UK, Germany and Israel

• Costs reduced by annualised £1m - further reductions to deliver £2m costbase

• Group's first handset launched - 3G ruggedised handset to be targeted at blue collar enterprises

• Lone worker market to be targeted following introduction of new legislation

Financial Results

Turnover in the six month period to 30 June 2008 amounted to £300k (2007: £234k). Operating losses reduced to £1,285k (2007: £1,895k). After net interest payable of £54k (2007: net interest receivable - £38k) the loss on ordinary activities before taxation was £1,339k (2007: £1,857k). Net cash outflow from operating activities decreased slightly in the period to £1,453k (2007: £1,663k).

The Group consolidated balance sheet shows net liabilities at 30 June 2008 of £3,948k compared to a net deficit of £984k at 30 June 2007. Cash at bank was £446k at 30 June 2008 compared to £1,195k at 30 June 2007. The Directors believe that the group has sufficient working capital for the foreseeable future given its contracted revenue and anticipated contracts.

Review of operations

The highlight of the period under review was the launch of the managed service proposition for Push to Talk (PTT) in the UK. This service, which has been developed with Intechnology plc, our principal shareholder and exclusive UK partner, allows our mobile applications to be sold to enterprises directly at a fixed monthly charge. For every user deployed on the managed service platform, Mobile Tornado will receive a monthly royalty. The resulting business model contrasts dramatically with the previous strategy of selling direct to mobile operators, a model which suffered from long sales cycles and a one off in perpetuity license fee. 

I am pleased to report that the service is being trialled with a significant number of UK enterprises operating in sectors such as transport and logistics, security and construction. There is also a lot of interest being shown in the platform by the emergency services with trials currently being conducted in several police forces and fire services across the UK. The level of activity that we are experiencing in the UK is being repeated with our partners in Germany, Spain and Israel. 

To accelerate the global expansion of our managed service proposition I am delighted to announce the appointment of Marcus Warren as Sales Director (non-statutory Director). Marcus has been fulfilling a similar role at Intechnology where he has been responsible for the launch of PTT in the UK. He will now be charged with establishing a global partner network and to significantly increase the recurring royalty streams that we have started to generate from our enterprise customers. 

Along with the change in our business model, we have made some significant changes to the cost base to bring it in line with the new strategy. Net operating expenses before depreciation and amortisation have fallen from £1,766k in the 6 months to 30 June 2007 to £1,183k for the same period in 2008. This represents an annualised saving of more than £1m. Further savings will be delivered in the second half, which will bring the Group's annual operating expenses closer to £2m per annum.

During the period under review we launched a partnership with Intermec, a global handheld device manufacturer, to promote the deployment of our PTT application on their CN3 device. Following the initial success of this collaboration I am pleased to announce that a further contract has been signed to further develop the PTT opportunity with Intermec customers. Intechnology are already in discussions with many of Intermec's customers including the Royal Mail who have awarded Intermec a contract to deploy the CN3 device across their 30,000 parcel delivery workforce. 

For some time now we have been exploring the possibility of developing our own handset. Although our software can be installed on any handset and function across all operating platforms we have identified, through collaboration with our partners, a real need for a ruggedised mobile phone to serve the particular needs of the blue collar vertical markets that are being targeted. I am delighted to announce, that following extensive research and field trials, we are today launching our own branded phone. This phone is a 3G phone, with GPS and our PTT application pre loaded. The phone which is produced by ZTE, one of the leading mobile phone producers in China, has been modified to meet our requirements and has our PTT software embedded in it. We will sell the phone through our partners around the world, placing orders for phones once a committed and underwritten order has been received from a partner. I can confirm that we have already received our first order from Intechnology for 10,000 phones and that these will be delivered by the end of the year. 

Current trading and future prospects

The business has been dramatically repositioned over the last 12 months with significant changes to the structure of the business and in the strategy that is being pursued. We are now focussed on developing mobile applications for the enterprise market. These applications will be delivered through a managed service hosted by our in-country partners. Establishing this network of partners, utilising the experience we have built up with Intechnology, is now the priority.

At the same time we must ensure that our technical platform continues to develop with more and better applications being deployed on it. Our PTT application is already beginning to penetrate the blue collar enterprise markets where its flexibility, value and performance are providing a compelling proposition when compared to existing communication platforms. I am pleased to report that the next application we will be commercially launching will be a GPS based location service which will facilitate the tracking and effective management of remote workers. Combining this service with PTT represents a unique proposition and one that has already generated significant levels of interest amongst prospective customers. The service will be commercially launched during the final quarter of this year.

Having launched our first branded handset targeted at the blue collar market we will be looking to follow this up with the introduction of a lower priced 2G phone. We are also actively researching the lone worker market which has come to prominence in recent months with the introduction of the Corporate Manslaughter and Corporate Homicide Act in April 2008. This new Act means that senior management within an organisation, whose gross corporate failures in health and safety lead to the death of individuals can be prosecuted and face an unlimited fine or remedial order. It is the employer's duty to assess risks to lone workers and take steps to avoid or control risk where necessary. Appropriate communications should be maintained with the lone worker especially when continuing supervision is required. The lone worker should be equipped with a means of two-way communication, a pager or a personal alarm. The system should enable the worker to raise an instant alarm and be located accurately if assistance is required. Since the Government estimates the lone worker market in the UK to amount to some 5m workers there is clearly a major opportunity. Our efforts are focused on deploying our PTT technology in some of the handsets that are being developed specifically for this lone worker market. I expect to bring news on developments on this front in due course. 

It has been an important 12 months, with major restructuring and cost reductions and a material shift in the strategic focus. I am more convinced than ever that we have a technical platform capable of delivering unique and valuable applications into the enterprise market. As our partners begin to close out deals over the coming months we will begin the steady path to profitability.

Peter Wilkinson

Chairman

30th September 2008

For further details please contact:

Mobile Tornado Group plc Jeremy Fenn, Managing Director	Tel: [phone]
Blue Oar Securities Plc Romil Patel / Shane Gallwey	Tel: [phone]

Consolidated income statement

For the 6 months ended 30 June 2008

		6 mths to		6 mths to		18 mths to
		30 June		30 June		31 December
		2008		2007		2007
		(Unaudited)		(Unaudited)		(Unaudited)
	Note	£'000		£'000		£'000
Continuing operations
Revenue		300		234		825
		300		234		825
Cost of sales		(46)		(61)		(143)
Gross profit		254		173		682
Net operating expenses before depreciation
and amortisation		(1,183)		(1,766)		(4,512)
Depreciation of tangible assets		(18)		(7)		(51)
Amortisation of intangible assets		(338)		(295)		(892)
Net operating expenses		(1,539)		(2,068)		(5,455)
Group operating loss		(1,285)		(1,895)		(4,773)
Finance costs		(75)		(9)		(25)
Finance income		21		47		100
Loss on continuing operations before tax		(1,339)		(1,857)		(4,698)
Taxation	4	(4)		-		(18)
Loss sustained for the period		(1,343)		(1,857)		(4,716)
Loss per share (pence)
Basic and diluted	5	(0.73)		(1.08)		(3.00)

Consolidated balance sheet        

As at 30 June 2008

		30 June		30 June		31 December
		2008		2007		2007
		(Unaudited)		(Unaudited)		(Unaudited)
		£'000		£'000		£'000
Assets
Non-current assets
Intangible assets		433		958		722
Property, plant & equipment		94		33		94
Investments		101		-		-
		628		991		816
Current assets
Trade and other receivables		459		403		844
Cash and cash equivalents		446		1,195		1,884
		905		1,598		2,728
Liabilities
Current liabilities
Trade and other payables		(1,575)		(1,256)		(1,740)
Net current (liabilities)/assets		(670)		342		988
Non-current liabilities
Trade and other payables		(2,406)		(2,317)		(2,375)
Borrowings		(1,500)		-		(1,500)
Net assets		(3,948)		(984)		(2,071)
Shareholders' equity
Ordinary shares		3,692		3,444		3,689
Share premium		4,449		3,845		4,449
Reverse acquisition reserve		(7,620)		(7,620)		(7,620)
Merger reserve		10,938		10,938		10,938
Share option reserve		33		50		63
Foreign currency translation reserve		(941)		17		(434)
Retained earnings		(14,499)		(11,658)		(13,156)
Total shareholders' equity		(3,948)		(984)		(2,071)

  Consolidated statement of changes in equity

For the 6 months ended 30 June 2008

	Share	Share	Reverse acquisition	Merger	Share option	Foreign currency translation	Retained
	capital	premium	reserve	reserve	reserve	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 31 December 2006	3,444	3,845	(7,620)	10,938	37	-	(9,801)	843
Issue of shares	-	-	-	-	-	-	-	-
Employee share options:								-
- value of employee services	-	-	-	-	13	-	-	13
- proceeds from shares issued	-	-	-	-	-	-	-	-
Exchange gain/(loss) on translation								-
of overseas subsidiaries	-	-	-	-	-	17	-	17
Net loss for the period	-	-	-	-	-	-	(1,857)	(1,857)
As at 30 June 2007	3,444	3,845	(7,620)	10,938	50	17	(11,658)	(984)
Issue of shares	245	604	-	-	-	-	-	849
Employee share options:
- value of employee services	-	-	-	-	13	-	-	13
- proceeds from shares issued	-	-	-	-	-	-	-	-
Exchange gain/(loss) on translation
of overseas subsidiaries	-	-	-	-	-	(451)	-	(451)
Net loss for the period	-	-	-	-	-	-	(1,498)	(1,498)
As at 31 December 2007	3,689	4,449	(7,620)	10,938	63	(434)	(13,156)	(2,071)
Issue of shares			-	-	-	-	-	-
Employee share options:
- value of employee services	-	-	-	-	(30)	-	-	(30)
- proceeds from shares issued	3	-	-	-	-	-	-	3
Exchange gain/(loss) on translation
of overseas subsidiaries	-	-	-	-	-	(507)	-	(507)
Net loss for the period	-	-	-	-	-	-	(1,343)	(1,343)
As at 30 June 2008	3,692	4,449	(7,620)	10,938	33	(941)	(14,499)	(3,948)

Consolidated cash flow statement

For the 6 months ended 30 June 2008

		6 mths to	6 mths to	18 mths to
		30 June	30 June	31 December
		2008	2007	2007
		(Unaudited)	(Unaudited)	(Unaudited)
	Note	£'000	£'000	£'000
Operating activities
Cash used in operations	6	(1,453)	(1,663)	(4,498)
Interest received		21	47	100
Interest paid		-	(9)	-
Net cash used in operating activities		(1,432)	(1,625)	(4,398)
Investing activities
Purchase of property, plant & equipment		(16)	(4)	(79)
Net cash used in investing activities		(16)	(4)	(79)
Financing
Net proceeds from issue of ordinary share capital		3	-	4,670
Issue of preference shares		-	-	1,500
Net cash inflow from financing		3	-	6,170
Effects of exchange rates on cash
and cash equivalents		7	(2)	(1)
Net (decrease)/increase in cash and
cash equivalents in the period		(1,438)	(1,631)	1,692
Cash and cash equivalents at beginning of period		1,884	2,826	192
Cash and cash equivalents at end of period		446	1,195	1,884

Notes to the interim financial Information

For the 6 months ended 30 June 2008

Introduction

For all periods up to and including 31 December 2007, the Group has prepared its financial statements in accordance with UK GAAP. However, for accounting periods commencing after 1 January 2007, AIM listed companies are required by EU directive to prepare consolidated accounted accounts in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations. Therefore the Group's first published Interim Financial Information under IFRS are in respect of the six months ended 30 June 2008 and the first Annual Report and Accounts prepared on this basis will be for the year ending 31 December 2008.

1 Basis of preparation

These interim financial statements are for the six months ended 30 June 2008. They have been prepared in accordance with the requirements of IFRS 1 'First-time Adoption of International Financial Reporting Standards' relevant to interim reports because they are part of the period covered by the Group's first IFRS financial statements for the year ending 31 December 2008. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the eighteen month period ended 31 December 2007.

These financial statements have been prepared under the historical cost convention.

These interim financial statements have been prepared in accordance with the accounting policies set out below which are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 31 December 2008 or are expected to be adopted and effective at 31 December 2008, our first annual reporting date at which we are required to use IFRS accounting standards adopted by the EU.

Mobile Tornado Group plc's consolidated financial statements were prepared in accordance with United Kingdom Accounting standards (United Kingdom Generally Accepted Accounting Practice) until 31 December 2007. The date of transition to IFRS was 1 July 2006. 

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these interim financial statements.

This financial information does not comply with IAS 34 'Interim Financial Reporting' which is not currently required to be applied under the AIM rules. 

In accordance with IFRS 1 'First Time Adoption of International Financial Reporting Standards' there are a number of first time adoption exemptions available, some of which are mandatory and some optional. The group has only applied the following optional exemptions:

·          Business combinations – the Group has not restated any business combinations that occurred before 1 July 2006

The following mandatory exceptions to full retrospective application of IFRS were applicable to the Group:

·          Estimates under IFRS at 1 July 2006 are consistent with estimates made at the same date under UK GAAP

2 Changes made in transitioning from UK GAAP to IFRS

Apart from the changes to the presentational format, there are no other changes required to the financial statements arising from the adoption of IFRS.

3 Group accounting policies

Basis of consolidation

The Group financial statements consolidate those of the Company and its subsidiary undertakings at 30 June 2008. Acquisitions of subsidiaries are dealt with using the acquisition method of accounting except for the reverse takeover transaction detailed below.

On 7 March 2006 the Company, then named TMT Group plc, became the parent of Mobile Tornado International Limited, in a share for share transaction. Due to the relative value of the companies, the former Mobile Tornado International Limited shareholders became majority shareholders with 97% of the share capital. Following the transaction, the Company's continuing operations and executive management were that of Mobile Tornado International Limited. Accordingly the substance of the combination was that Mobile Tornado International Limited acquired TMT Group plc in a reverse acquisition. As part of the business combination TMT Group plc changed its name to Mobile Tornado Group Plc. 

Use of estimates and judgements

The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimation is contained in individual accounting policies.

Revenue recognition

Revenue comprises the fair value for the sale of licences, services and goods, excludes inter-company sales and value-added taxes and represents net invoice value less estimated rebates, returns and settlement discounts. Licence and service revenues are recognised over the period to which the licence and services relate. Unrecognised service revenue and associated costs of sale are included as deferred income and deferred cost respectively in the balance sheet.

The Group only recognises revenue on the sale of equipment once any obligation to install such equipment has been completed.

Royalties

Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement 

Interest

Interest is recognised on a time-proportion basis using the effective interest method.

Research and development

Research and development expenditure is written off to the income statement as incurred except where the recognition criteria of IAS 38 are met, when it is capitalised and amortised over its useful economic life.

Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to sterling at the exchange rates ruling at the balance sheet date.

The trading results of overseas subsidiary undertakings are translated at an average exchange rate for the period. This rate approximates to the actual rates at the date of the transactions. Assets and liabilities of overseas subsidiary undertakings are translated at the year end exchange rate. Any resulting exchange differences are taken to reserves and are reported in the statement of changes in equity.

All other exchange differences are taken to the income statement.

Share options

The Group grants share options to employees and directors on a discretionary basis. 

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes pricing model, which takes into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where variations are due only to share prices not achieving the threshold for vesting.

Pension costs

The Group does not operate a pension scheme but makes contributions to the personal schemes of some of its employees. These contributions are charged to the income statement.

Acquired intangible assets

Intangible assets acquired separately and as part of a business combination are capitalised at cost and fair value as at the date of acquisition, respectively. Intangible assets are subsequently amortised on a straight-line basis over the expected period that benefits will accrue to the Group.

Property, plant & equipment 

The cost of property, plant & equipment is their purchase cost. Depreciation is calculated so as to write-off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Office equipment	3 years
Computer equipment	3 years

The Directors review tangible fixed assets for impairment at least annually and if events or changes in circumstances indicate that the carrying value of may not be recoverable. Material residual value estimates are updated as required, but at least annually.

Investments

Trade investments are stated at cost.

Deferred taxation

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.

Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Financial risk management

The Group's financial instruments comprise, principally, cash and short term deposits, and various items, such as trade receivables and trade payables, arising directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations. The main risks arising from the Group's financial instruments are currency risk, interest risk and liquidity risk. The board's policies for managing these risks are summarised as follows:

Currency risk - the Group has no borrowings in foreign currency, and foreign currency liabilities are matched wherever possible by corresponding foreign currency assets. Foreign currency bank accounts are utilised where appropriate. No foreign currency transactions of a speculative nature are undertaken.

Interest risk - the Group is exposed to interest rate risk as it invests surplus cash in floating rate deposit accounts. These funds are invested with the objective of maintaining a balance between accessibility of funds and competitive rates of return.

Liquidity risk - the Group seeks to ensure sufficient liquidity is available to meet its foreseeable needs. The board reviews cash flow projections and the headroom position in respect of its cash balances and banking facilities to ensure the Group is adequately funded.

Equity

Equity comprises the following:

▪ 'Ordinary shares' represents the nominal value of equity shares.

▪ 'Share premium' represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

▪ 'Reverse acquisition reserve' represents the difference between the required total of the Group's equity instruments and the reported equity of the legal parent.

▪ 'Merger reserve' represents the difference between the nominal value of the share capital issued by the Company and their fair value at 7 March 2006, the date of the acquisition.

▪ 'Other reserve' represents equity-settled share-based employee remuneration until such share options are exercised.

▪ 'Foreign currency reserve' represents the differences arising from translation of investments in overseas subsidiaries.

▪ 'Retained earnings' represents retained profits.

4 Tax on loss on ordinary activities

The interim tax charge is based on an estimate of the likely effective tax rate for the full year expressed as a percentage of the expected result for the year and then applied to the interim profit before tax.

5 Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders of £1,343,000 (30 June 2007: £1,857,000, 31 December 2007: £4,716,000) by the weighted average number of ordinary shares in issue during the period of 184,503,773 (30 June 2007: 172,180,096, 31 December 2007: 157,181,628). 

The adjusted basic earnings per share has been calculated to provide a better understanding of the underlying performance of the Group as follows:

	6 mths to			6 mths to			18 mths to
	30 June 2008			30 June 2007			31 December 2007
	(Unaudited)			(Unaudited)			(Unaudited)
	Basic and diluted			Basic and diluted			Basic and diluted
	(Loss)/	(Loss)/		(Loss)/	(Loss)/		(Loss)/	(Loss)/
	earnings	earnings		earnings	earnings		earnings	earnings
		per share			per share			per share
	£'000	pence		£'000	pence		£'000	pence
Loss attributable to ordinary
shareholders	(1,343)	(0.73)		(1,857)	(1.08)		(4,716)	(3.00)
Amortisation of intangible assets	338	0.18		295	0.17		892	0.57
Adjusted basic loss per share	(1,005)	(0.55)		(1,562)	(0.91)		(3,824)	(2.43)

The loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical to those used for basic earnings per ordinary share. This is because the exercise of share options is not dilutive under the terms of IAS 33.

6 Reconciliation of operating loss to net cash outflow from operating activities

	6 mths to	6 mths to	18 mths to
	30 June	30 June	31 December
	2008	2007	2007
	(Unaudited)	(Unaudited)	(Unaudited)
	£'000	£'000	£'000
Loss before taxation	(1,339)	(1,857)	(4,698)
Adjustments for:
Depreciation	18	7	51
Amortisation of intangibles	338	295	892
Share option non cash (credit)/charge	(30)	13	31
Net finance costs	54	(38)	(75)
Changes in working capital
Decrease/(increase) in trade and other receivables	425	(301)	(528)
(Decrease)/increase in trade and other payables	(919)	218	(171)
Cash generated from operations	(1,453)	(1,663)	(4,498)

7 Shareholder information 

The interim announcement will be posted to shareholders on 30 September 2008. Further copies are available on request from the Company at Central House, Beckwith Knowle, Harrogate HG3 1UG. A copy is also available on the Company's website www.mobiletornado.com

 

END

 

 

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