Final Results

Z Group PLC 31 May 2006 31 May 2006 Z GROUP plc ('Z GROUP' or 'the Group') Preliminary results for the twelve months ended 28 February 2006 Z GROUP plc (AIM: ZGP), the marketing-led Internet technology services company admitted to AIM on 21 June 2005, today announces its preliminary results for the twelve months ended 28 February 2006. Highlights • Turnover up 63% to £5.0 million (2005: £3.1 million)* • Profit before tax up 78% to £1.1 million (2005: £0.6 million)* • Successful listing on AIM in June 2005, raising £2.4 million (after expenses) • Net cash as at 28 February 2006 of £4.1 million * The 2005 comparatives shown above relate to the 11 month period ended 28 February 2005 and have been annualised for comparison purposes. Commenting on the results, Jack Bekhor and Jamie True, Joint Chief Executive Officers of Z GROUP, said: 'We are delighted with the progress we have made in our first year as a publicly listed company, having achieved strong profits in our third consecutive year of growth. Our aim to increase turnover and profits whilst investing in the business to expand our product portfolio has been successfully achieved. The development of new routes to market through both retail and affiliate partnerships, the expansion of our customer base abroad and high customer retention levels has led to significant sales growth. In addition, our investment in research and development resulted in the launch of ONSPEED Mobile and OnShare (a beta release) in March 2006. With the introduction of new products and new routes to market, we anticipate that 2006 will be an exciting year in the Company's development.' Enquiries: Z GROUP plc Jack Bekhor/Jamie True, Joint Chief Executive Officers 08700 111 173 Saskia Hopmann, Public Relations 020 7952 4026 Holborn PR David Bick/ Mike Feltham 0207 929 5599 Teather & Greenwood James Maxwell/Adam Pollock 0207 426 9000 Chairman's Statement I am pleased to report our first full financial results since Z GROUP's successful admission to trading on the London Stock Exchange's Alternative Investment Market in June 2005. Results Our results demonstrate that our business model is delivering substantial growth. Turnover has increased by 63% to £5.0 million compared with £3.1 million for the 11 month period ended 28 February 2005, as annualised for comparison purposes. Gross margin was consistent with previous periods of trading at 78% and we made a record full year pre-tax profit of £1.1 million (2005: £0.6 million). After a substantial investment of £0.9 million in our new products and the related websites, we ended the year with cash resources of £4.1 million, compared to £4.6 million immediately following the Placing in June 2005. Corporate Strategy We develop and sell innovative web-enabled technologies, which meet an identified growing mass market need. In the last financial year our major priorities have been to invest in our ground-breaking new products OnShare and ONSPEED Mobile, while selling ONSPEED into an ever-widening marketplace. We ended the year with over half a million customers worldwide and a clear focus for the future - to continue to invest in new licensed technologies and to continue to create our own Intellectual Property. Board and People At the time of our Placing we stated that we would expand the Board by recruiting a Chair for our Audit Committee. We are pleased to announce that Polly Williams will be joining the Board from 6 July 2006. Polly Williams will bring considerable experience to this role and we look forward to welcoming her onto the Board. We are continuing the search for a Finance Director to join our Board. In the meantime, we have been fortunate to have excellent assistance in this regard and anticipate that by the end of the financial year we will have found a new Finance Director. We have seen a steady increase in the number of staff working at Z GROUP with over 35 people now working for the Group. Without these staff members and the unique skills each brings to the Group, it would not have been possible for us to achieve these record results. Their hard work, commitment and innovation have been the key to Z GROUP's success. Corporate Social Responsibility Part of Z GROUP's philosophy is to work to the highest ethical standards, wherever possible; this includes its relationships with staff and customers and all those who may have dealings with the Group. We actively support a small start-up charity and provide encouragement to those staff involved. Prospects Z GROUP continues to identify commercial opportunities for new technologies and to develop products that satisfy consumer needs. During the first month of the new financial year we have successfully released two new products: ONSPEED Mobile and OnShare (as a beta release) and their current performance is meeting our expectations. In ONSPEED Mobile and OnShare we have two new exciting products that we anticipate will address the growing consumer demand for mobile Internet and file sharing services, which are predicted to grow exponentially over the next few years. We are well positioned to satisfy this consumer demand and we are looking forward to another successful year. John Standen, Chairman 30 May 2006 Joint Chief Executive Officers' Statement Overview This is our first annual report since joining AIM and we are pleased to announce that we have achieved further improvement in our profits this year, our third consecutive year of growth, with a pre-tax profit of £1.1 million. This success has been the result of consolidating our core business, developing new delivery channels and expanding into European and other international markets. We have also made significant investment in our product portfolio, both by licensing new technologies to commercialise and by developing in-house proprietary technologies to address the needs of mass consumer markets. Aims and Achievements Our primary aim this year was to increase our turnover and profits whilst investing in the business to expand our product portfolio. We are pleased to report that we have achieved success in both endeavours. This growth is a result of continued sales from ONSPEED and a sustained revenue contribution from our other products. By developing a number of new routes to market, through retail and affiliate partnerships, as well as expanding our customer base abroad, we have achieved significant sales growth. In addition we continue to maintain high customer retention levels through the provision of unique and affordable software services and excellent customer support. We have laid the foundations for the future this year through sizeable investment in research and development. This has resulted in the recent launch of ONSPEED Mobile and the release of our revolutionary file sharing software OnShare. Our first products Net2Roam and NetAway have provided a consistent revenue stream, with very little requirement for additional resources or marketing budget. It has been through the success of these products that we have also established strong relationships with distributors and retailers that have been beneficial in the development of new routes to market for ONSPEED both in the UK and abroad. Onbidder was also launched this year, and although it only accounts for a small percentage of our revenue, it also sells both online and through retail outlets, further strengthening the Group's brand position with major retailers and consumers alike. ONSPEED has continued to perform very well throughout the year and we now have over half a million customers. Online sales have grown, continuing to account for the majority of sales both in the UK and abroad. Offline sales increased with the publication of a retail version of ONSPEED, which is now sold in most major retailers in the UK and Europe. The Group further developed its Internet acceleration software for Dial-up and Broadband, with the release in January 2006 of ONSPEED Version 5, which delivers 40% faster Internet connection speeds. The addition of ONSPEED Version 5 has allowed us to market the product more effectively to Broadband customers in addition to the existing Dial-up customer base. New Routes to Market Following the success of ONSPEED sales via the web and the release of the retail version, we have signed a number of distribution deals for ONSPEED this year. These include Koch Media, one of Europe's largest software distributors, with which we have signed deals in the UK, Germany, Switzerland, Austria and Italy. In the UK, our retail products are available in the key software retailers such as PC World, WH Smith, Game, HMV and Virgin. The product was successfully chart-tracked in the retail market, a key driver for establishing good credentials and positioning with retailers. Significant sales were achieved through this channel, which opened up the market for ONSPEED to a wider audience. It has also served well in promoting the ONSPEED brand to the consumer marketplace. In addition we have distribution deals in place with companies in the USA, Russia, the rest of Europe, Africa and Asia. We recognise the need for local support within international markets and have established relationships with key local partners, which we have found to be highly beneficial in supporting sales growth. The demand for products such as ONSPEED is very high in these countries, with the majority of Internet users still on Dial-up connections. During the year the Group has established itself well within the international retail sector and retail sales now account for 18% of turnover. Our strong relationships with the major retailers will stand us in good stead for future product releases, including ONSPEED Mobile and OnShare. Distribution deals are already lined up for the retail version of ONSPEED Mobile as well as a number of consumer-focused gaming software products. Online and Affiliate Partnerships This year we formed a number of new affiliate partnerships and consolidated existing ones. Our deal with BT has continued to drive sales and we have signed new ISP agreements with among others, Wanadoo and Pipex. We have also signed affiliate deals in a number of other countries in Africa and Asia, as well as Russia. Aside from the commercial value of these deals, Z GROUP has strengthened its brand through these high profile relationships and further improved its awareness and credibility to a wider international audience. Award-winning Software Not only has it been an encouraging year for the Group in terms of sales growth but we have also received a number of awards from the technical press that have helped establish ONSPEED as the recognised market leader. This has raised our profile within the software industry, distinguishing the Group as a highly innovative provider of consumer-focused software services. Outlook We are delighted by the Group's progress since admission to AIM and this is, in large part, due to the skill and hard work of our employees. By building on the success of our existing products, we expect to see sustained levels of sales growth in the period ahead. We also anticipate additional growth will be achieved from our expanded product portfolio and further development of our own Intellectual Property and we will continue to explore new opportunities for the Group throughout the year. Jack Bekhor and Jamie True Joint Chief Executive Officers 30 May 2006 Z GROUP plc Consolidated profit and loss account For the year ended 28 February 2006 Notes Year ended 11 months ended 28 February 2006 28 February 2005 £ £ Turnover 4,971,722 2,799,897 Cost of sales (1,077,224) (517,711) Gross profit 3,894,498 2,282,186 Operating expenses (2,869,577) (1,700,780) Operating profit 1,024,921 581,406 Interest receivable 113,591 3,408 Profit on ordinary activities before taxation 1,138,512 584,814 Taxation (341,016) (114,227) Profit on ordinary activities after taxation 797,496 470,587 Minority interests 30,850 18,150 Profit for the financial period 828,346 488,737 Earnings per share Basic 2 5.2p 2.9p Diluted 2 4.9p 2.9p No separate statement of Total Recognised Gains and Losses has been presented as all such gains and losses have been dealt with in the profit and loss account. As explained in the accounting policies (basis of consolidation) the profit and loss account has been prepared using merger accounting principles and is presented as if the Group had been in existence throughout the current and prior periods. All Group activities relate to continuing operations. Z GROUP plc Consolidated balance sheet As at 28 February 2006 Notes At 28 February At 28 February 2006 2005 Fixed assets Intangible assets 1,151,167 290,921 Tangible assets 318,690 173,816 1,469,857 464,737 Current assets Stocks 64,222 - Debtors 1,369,293 121,113 Cash at bank and in hand 4,134,589 2,549,002 5,568,104 2,670,115 Creditors: Amounts falling due within one year (1,553,141) (961,487) Net current assets 4,014,963 1,708,628 Total assets less current liabilities 5,484,820 2,173,365 Creditors: Amounts falling due after more than one year (25,650) (34,411) Provisions for liabilities and charges (61,371) - Net assets 5,397,799 2,138,954 Capital and reserves Called up share capital 973,529 834,639 Share premium account 2,322,461 - Merger reserve 1,065,741 1,065,741 Profit and loss account 1,036,068 207,724 Equity shareholders' funds 4 5,397,799 2,108,104 Minority interests - 30,850 5,397,799 2,138,954 Consolidated cash flow statement For the year ended 28 February 2006 Notes Year ended 11 months ended 28 February 28 February 2006 2005 £ £ Cash flow from operating activities 5 235,508 998,261 Returns on investments and servicing of finance 113,591 3,408 Taxation (126,855) - Capital expenditure and financial investment (1,090,389) (355,771) Cash (outflow)/inflow before financing (868,145) 645,898 Financing 2,452,588 1,283,018 Increase in cash and overdraft in the period 3 1,584,443 1,928,916 Notes 1. Accounting policies Basis of accounting The financial information contained in this report has been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom. The financial information on the Group set out above does not constitute 'statutory accounts' within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 28 February 2006 has been extracted from the Group's unaudited consolidated statutory accounts. The 2006 Annual Report and Accounts will be delivered to the Registrar of Companies for England and Wales following the Group's Annual General Meeting on 5 July 2006. The financial information for the period ended 28 February 2005 is derived from the statutory accounts for that period for Net2Roam Limited, which have been delivered to the Registrar of Companies. The auditors reported on those accounts and their report was unqualified Basis of consolidation The Group's financial statements consolidate the financial statements of Z GROUP and all its subsidiaries made up to 28 February. 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 on 15 June 2005. On 15 June 2005, Z GROUP entered into a share for share exchange agreement with the shareholders of Net2Roam Limited, whereby Z GROUP acquired the entire issued share capital of Net2Roam Limited and its subsidiaries, the consideration being satisfied by the allotment of ordinary shares in Z GROUP to the shareholders of Net2Roam Limited. 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 these preliminary results. As such, the results for the year ended 28 February 2006 have been presented as though Net2Roam Limited and its subsidiaries had always been part of Z GROUP, even though Z GROUP itself was only incorporated on 20 April 2005. Basis of comparative information The comparative consolidated profit and loss account has been presented as if the merger took place on the first day of each financial period and as though the Group had been in existence throughout these periods. The figures for the 11 month period to 28 February 2005 have been extracted from the audited Net2Roam Limited accounts adjusted for the shares issued by the Company as consideration as if they had always been in issue. Significant accounting policies The significant accounting policies applied in these preliminary results are consistent with those that will be applied in the financial statements for the year ended 28 February 2006 and, aside from the presentation of the comparative information as set out above, are consistent with those adopted in the financial statements for the period ended 28 February 2005. 2. Basic and diluted earnings per share Year ended 11 months ended 28 February 2006 28 February 2005 £ £ Retained profit for the financial period 828,346 488,737 Weighted average number of shares 15,956,228 16,692,795 No. of shares No. of shares For basic earnings per share 15,956,228 16,692,795 Dilutive effect of share options 955,384 18,259 For diluted earnings per share 16,911,612 16,711,054 The comparative figures are proforma based on the number of shares that would have been in issue had the capital structure of the new parent company always been in place. 3 Reconciliation of net cash flow to movement in net funds Year ended 11 months ended 28 February 28 February 2006 2005 £ £ Increase in cash in the period 1,585,587 1,928,916 Increase in overdraft in the period (1,144) - 1,584,443 1,928,916 Cash outflow from decrease in debt and lease financing 8,762 3,982 New finance leases - (47,155) Movement in net funds in the period 1,593,205 1,885,743 Net funds at beginning of the period 2,505,829 620,086 Net funds at the end of the period 4,099,034 2,505,829 4 Reconciliation of movement in shareholders' funds Year ended 11 months ended 28 February 28 February 2006 2005 £ £ Group Profit for the period 828,346 488,737 Proceeds from issue of shares 3,000,000 184,259 Share issue expenses (538,651) (12,000) Merger reserve arising - 1,065,741 3,289,695 1,726,737 Opening shareholders' funds 2,108,104 381,367 Closing shareholders' funds 5,397,799 2,108,104 5 Reconciliation of operating profit to net cash inflow from operating activities Year ended 11 month ended 28 February 2006 28 February 2005 £ £ Operating profit 1,024,921 581,406 Depreciation 79,271 42,115 Amortisation 5,998 3,180 Increase in stocks (64,222) - Increase in debtors (1,236,538) (56,034) Increase in creditors 426,078 427,594 Net cash flow from operating activities 235,508 998,261 6 Notice of AGM The Annual General Meeting will be held on 5 July 2006, 11:30am at Home House, 20 Portman Square, London, W1H 6LW. This information is provided by RNS The company news service from the London Stock Exchange

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