Final Results

RNS Number : 5623X

Infoserve Group PLC

26 June 2008

 



Infoserve Group plc

('Infoserve' or 'the Group')

Preliminary Results

Infoserve (AIM: INFS), a leading online local search marketing specialist, today announces its final results for the year ended 31 March 2008.

Highlights 

	Turnover increased by approximately 25% to £4.65 million for the period under review
	Exclusive contracts with Yahoo! Local and Football League successfully launched
	Recently signed contract with Google
	Strategic review of costs has substantially reduced monthly losses
	Successful share placing in June raised £1.88 million net of expenses
	Operating losses were £2.70 million (2007: losses of £3.07 million)

Chairman James Newman commented 'The new contract with Yahoo! gave the business a new impetus during the year and the recently signed contract with Google puts the Group in, what we believe to be, a unique position to exploit the ever growing local search market through its close ties with both companies, who represent over 90% over the world's search and online advertising market.  

The restructuring of the cost base and the telesales operations has given the Group an efficient platform from which it can continue to grow.

For further information, please contact:

Infoserve Group plc
Steve Barnes, Chief Executive	Tel [phone]
[e-mail]	www.infoservegroup.com
David Balbi, Finance Director	Tel [phone]
[e-mail]	www.infoservegroup.com
Nominated Adviser
WH Ireland
David Youngman	Tel [phone]
[e-mail]
Media Enquiries
Source Marketing Communications
Peter Downey	Tel [phone]
[e-mail]

Chairman's Statement

Infoserve Group plc is an e-marketing company, specialising in local search. The Company helps businesses, particularly Small and Medium Enterprises (SMEs), to maximise their performance through online marketing.

I can report that the Group has made some good progress towards achieving its strategic aims, albeit at a slower rate than had been anticipated at the time of flotation on AIM in 2006. 

Results

Turnover for the year increased by approximately 25% to £4.65 million from £3.76 million during the previous year. This growth in turnover was restricted by the ability to recruit and train enough suitable sales staff and the limited funds available to market the business.

However, it is pleasing to note that productivity per person increased substantially throughout the year from £32,000 per active sales person to £46,600, which meant that gross margins also improved. This demonstrates that the online market is growing and the new partnerships and products being developed are likely to sell well over time and with renewal levels being maintained at a steady level, the transparency of future revenue becomes clearer.  

Overheads have been well managed following the strategic cost review in October last year when a substantial amount of overhead expenditure was taken out of the business without affecting the day to day operations. Second half expenditure reflected a saving of around £700,000 on an annualised basis and has reduced monthly cash outflow significantly.

The lower than expected sales base led to an operating loss of £2.70 million compared to £3.07 million last year. After taking into account the net finance cost, there was a loss before taxation of £2.89 million (2007 - £3.23 million).

The loss per share was 16.22p compared to 18.65p in 2007. 

These financial results are reported under IFRS for the first time. The principal impacts relate to the treatment of goodwill amortisation on business combinations and lease costs. 

During the year, the Group reviewed its revenue recognition policy and this has resulted in taking a more prudent approach with revenue on renewal sales being spread more evenly over the life of the paid business listing for renewal business. 

Dividend

The Board is not recommending a dividend as all funds are required for the development of the business (2007: £nil).

Share placing

In June 2007, the Company raised £1.88 million net of expenses by way of a placing of 4,444,445 ordinary shares at a price of 45p per share. This was to enable the expansion of the Group's sales and marketing activities by recruiting and training additional sales staff required to manage the recent contract win from Yahoo!.

Business developments

The new contract with Yahoo! started early in the financial year and has added significantly to the range of products offered by the Group to its customer base. The sales experience and technical knowledge gained in operating this and other partnership contracts has made the Group one of the leading exponents of the local search market in the UK.

In addition to this, the Group was able to announce in January this year a major contract with Google, who appointed the Group as only its second Authorised Reseller of Google AdWords in Europe. This contract recognised the experience and expertise in providing online marketing solutions to SMEs that the Group has built up over the last few years.

Since the award of the contract a considerable amount of time has been spent with Google in creating the technical platform and market testing of the product was launched in late May 2008.

Board changes

During the year, some of the responsibilities of the executive directors changed, as the strategic and operational demands of the business continued to evolve. This has worked well with the telesales operations being restructured in light of the new Yahoo! contract and considerable success has been achieved in substantially increasing productivity as a result.

Now that this has been achieved and with the introduction of the new Google products, the Board has decided to appoint a dedicated Sales Director to manage and expand the telesales operations. We anticipate being able to make an announcment regarding an appointment in due course.

David Balbi will continue as Finance and Commercial Director but will now spend more time on commercial and finance issues as the Group moves forward with new products and relationships.'  

Outlook

The market for online local search continues to grow and the Group now has almost 3.5 million businesses listed on its own business directories across a network of over 120 single industry vertical websites. 

The new contract with Yahoo! gave the business a new impetus during the year and the recently signed contract with Google puts the Group in a unique position to exploit the ever growing local search market through its close ties with both companies, who represent over 90% of the UK's search and online advertising market.  

The restructuring of the cost base and the telesales operations has given the Group an efficient platform from which it can continue to grow. 

James H Newman

Chairman

25 June 2008

Chief Executive's Review

Market drivers

During the last financial year online local search has continued to grow.

The following facts speak for themselves. The latest published data highlights the extraordinary growth in local search internet activity: -

• Last year paid for search became a £1.4 billion medium in the UK, accounting for 57.1% of the total amount of money spent on online advertising.

• Last year 28 million people visited a search engine in the UK each month and 26.2 million of these clicked through onto a site. Google searches recently reached 1.7 billion per month in the UK, which equates to an average of 23 searches per month for every single person in the UK!

• 90% of the internet population visited a search engine in 2007 and 83% clicked through to another website.

• On average, during each search session, UK consumers click through to other sites 3.3 times.

• Internet advertising is anticipated to top £2.7 billion in 2007, and is forecast to continue to grow dramatically for at least the next 5 years.

With a 44% growth in the paid search sector, advertisers of all sizes have recognised the effectiveness of the medium. 

Since the launch of Infoserve Limited in 1999 online local search has grown year on year. Today 86% of all internet users search online for local goods and services and 90% of those searches result in some form of offline activity, usually a phone call or a visit to a business.  

Business developments

We have cemented our position as one of the UK's leading online local search specialists, and during the last financial year we signed significant contracts with the two dominant global search engines, Google and Yahoo!. These strategic partnerships position Infoserve uniquely in the UK, and will be the foundation of growth over the next few years.  

In May 2007 we became the official Yahoo! Local advertising sales partner for the UK, which gave us exclusive rights to sell up to four featured listings to SMEs on each page of Yahoo! Local. We have already signed more than 5,000 SMEs to feature on Yahoo!.

In early 2008 we announced a significant contract with Google resulting in us becoming one of only two companies in Europe to be appointed an Authorised Reseller of Google AdWords.

Under this new strategic agreement we will provide SMEs with full-service Google AdWords account management in order to maximise the return on investment for each customer. I am particularly proud that our integrity and transparency in our dealings with our customers enabled us to win this contract. 

The test phase of this service was launched in late May 2008, after 4 months collaborative work between the technical, development and product marketing teams of Infoserve and Google. The contract will have an increasing impact on earnings in 2008/9.

Existing contracts

In addition to the exciting developments with Google and Yahoo! we have continued to invest in, develop and grow sites displaying our local search data. Our relationship with the Football League has expanded to include 49 separate football club websites, which puts our data in front of over 6 million visitors to these sites each month. 

Our business database of almost 3.5 million business records continues to grow, and through our daily contact with approximately 10,000 SMEs we are able to cleanse and generate up to 100,000 updates each month. We continue to collect customers' keywords, and now have the ability to deliver comprehensive relevant local search results for over 500,000 businesses. As search becomes more granular and more detailed in nature, these keywords describing all the different products and services of a business will prove increasingly important in directing consumers to the most relevant provider. 

We continue to enhance our own portfolio of directory sites spearheaded by www.cityvisitor.co.uk. Our single industry vertical directories now number more than 120. This portfolio enjoys more than 23 million first page results on the major search engines, covering a broad range of business categories and locations.

A recent survey by The Kelsey Group reveals that 90% of consumer purchases are made within 20 miles of where people live or work. Our network of sites now receives more than 32 million visitors per month. We are matching local search demand with relevant and appropriate solutions.

We continue to build websites, from simple template solutions through to bespoke comprehensive sites with full e-commerce facilities. Remarkably almost 50% of SMEs are still without a website and so the potential for website sales clearly remains substantial.

Summary

The challenge remains for all involved with local search to move to profitability. I remain convinced that local searching online will continue to grow and become integral to everyday lifestyles. We will constantly look to monetise business solutions in order to profitably benefit from the continued market growth.

The last year was an exciting period for Infoserve. Our revenues grew, as we continued to invest for the future. We were chosen by global brands, Google and Yahoo! to form strategic alliances. We grew our business database, and strengthened our position in the online local search market.

I look forward to an exciting future as the local search market grows in general, and the Group's market share of available revenues grows also.

Steve Barnes

Chief Executive

25 June 2008

  Financial Review

		2008	2007
		£000	£000
Revenue		4,651	3,763
Cost of sales		(4,122)	(3,610)
		_______	_______
Gross profit		529	153
Amortisation of intangible assets		(251)	(162)
Administrative expenses		(2,975)	(3,064)
		_______	_______
Operating loss		(2,697)	(3,073)
Financial income		34	47
Financial expenses		(227)	(202)
		_______	_______
Net financing costs		(193)	(155)
		_______	_______
Loss before tax		(2,890)	(3,228)
		_______	_______

Revenue

Revenue for the year has increased by approximately 25% year on year and the performance per sales executive increased from £32,000 to £46,600, a rise of 45% on last year and 191% on the same period two years ago. 

The revenue recognised in the prior financial year has been restated following a review by the Board. Previously a proportion of all revenue was recognised at the point of sale. The Board now believes that renewal revenue should be spread evenly over the term of the paid business listing as this more accurately reflects the substance of the transaction. The treatment of new business revenues remains unchanged. The specific impact of this change can be seen in more detail in note 26.

Margins

Gross margins have improved from 4% to over 11% during the financial year and in the second half to nearly 24%, reflecting the increased productivity and reduced recruitment costs partially as a result of improved retention. 

Results

Operating losses have reduced by £0.38 million as a result of the improved sales margins and the reduction in overhead costs following the strategic cost review undertaken in October 2007.

Cash flow

As the Group continues to make operating losses and invest in systems and technology, the cash outflow of the Group during the year was over £1.83 million. This was offset by the net proceeds from the share issue in June 2007 of £1.88 million. 

The Group has recently arranged a new bank overdraft facility of £0.25 million.

  IFRS

International Financial Reporting Standards (IFRSs) came into effect for AIM listed companies for accounting periods beginning on or after 1 January 2007. The accounts have been prepared under IFRS and a reconciliation of the adjustment between UK GAAP and IFRS is shown in notes 26 and 27.

Deferred tax asset

The Board has prepared forecasts and continues to believe that the Group will become profitable in the future and therefore utilise the considerable tax losses built up over the last few years. It has accordingly carried forward a proportion of this recovery as a deferred tax asset in the balance sheet.

Going concern

The directors note that the Group has net liabilities, net current liabilities and sustained trading losses in the year.

David Hood, the largest single shareholder, has provided the Board of Directors with a written undertaking to not seek repayment on any loans in accordance with the terms and conditions of his loan agreement, until such time as the Group is cash flow positive or there is a fundamental change in the share ownership of the Group.

On the basis of this undertaking, the directors have reviewed the cash projections, funding arrangements and the nature and extent of shareholder support for the next twelve months and the foreseeable future and believe that the Company and Group can operate within these arrangements and facilities. Accordingly they believe the going concern assumption to be an appropriate basis for the preparation of the financial statements.

David Balbi

Finance and Commercial Director 

25 June 2008

   Consolidated Income Statement

For the year ended 31 March 2008

	Year ended 31   March 2008	Period from 21 March 2006 to 31 March 2007
	£000	£000
Revenue - continuing operations	4,651	3,763
Cost of sales	(4,122)	(3,610)
	_______	_______
Gross profit	529	153
Amortisation of intangible assets	(251)	(162)
Administrative expenses	(2,975)	(3,064)
	_______	_______
Total administrative expenses	(3,226)	(3,226)
	_______	_______
Operating loss - continuing operations	(2,697)	(3,073)
Financial income	34	47
Financial expenses	(227)	(202)
	_______	_______
Net financing costs	(193)	(155)
	_______	_______
Loss before tax	(2,890)	(3,228)
Taxation	(55)	893
	_______	_______
Loss for the year	(2,945)	(2,335)
	_______	_______

Basic and diluted loss per share	(16.22p)	(18.65p)
	_______	_______

Consolidated Balance Sheet

At 31 March 2008

				2008	2007
				£000	£000
Non-current assets
Property, plant and equipment				397	480
Intangible assets				594	514
Deferred tax assets				838	893
				_______	_______
				1,829	1,887
				_______	_______
Current assets
Trade and other receivables				282	405
Cash and cash equivalents				329	330
				_______	_______
				611	735
				_______	_______
Total assets				2,440	2,622
				_______	_______
Current liabilities
Interest-bearing loans and borrowings				(2,123)	(727)
Trade and other payables				(2,825)	(2,301)
Provisions				(80)	-
				_______	_______
				(5,028)	(3,028)
				_______	_______
Non-current liabilities
Interest-bearing loans and borrowings				(1,023)	(2,254)
Trade and other payables				(21)	-
				_______	_______
				(1,044)	(2,254)
				_______	_______
Total liabilities				(6,072)	(5,282)
				_______	_______
Net (liabilities)/assets				(3,632)	(2,660)
				_______	_______
Equity attributable to equity holders of the parent
Share capital				954	731
Share premium				3,871	2,210
Retained earnings				(8,457)	(5,601)
				_______	_______
Total equity				(3,632)	(2,660)
				_______	_______

Consolidated Statement of Cash Flows

For the year ended 31 March 2008

	Year ended 31 March 2008	Period from 21 March 2006 to 31 March 2007
	£000	£000
Cash flows from operating activities
Loss for the year	(2,945)	(2,335)
Adjustments for:
Depreciation	166	126
Amortisation	251	162
Financial income	(34)	(47)
Financial expense	227	202
Loss on sale of property, plant and equipment	11	-
Equity settled share-based payment expenses	89	8
Taxation	55	(893)
	_______	_______
	(2,180)	(2,777)
Decrease/(increase) in trade and other receivables	123	(57)
Increase in trade and other payables	512	677
Increase in provisions	80	-
Change in deferred government grant	(2)	-
Purchase of subsidiary for share for share exchange	-	-
	_______	_______
	(1,467)	(2,157)
Interest paid	(1)	(1)
	_______	_______
Net cash from operating activities	(1,468)	(2,158)
	_______	_______
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	5	-
Interest received	34	47
Acquisition of subsidiary, net of cash acquired	-	211
Acquisition of property, plant and equipment	(100)	(393)
Acquisition of other intangible assets	(331)	(382)
	_______	_______
Net cash from investing activities	(392)	(517)
	_______	_______
Cash flows from financing activities
Proceeds from the issue of share capital (net of costs)	1,884	2,655
Repayment of borrowings	(50)	(50)
Proceeds from the receipt of government grants	25	-
Advance of loans	-	70
	_______	_______
Net cash from financing activities	1,859	2,675
	_______	_______
Net decrease in cash and cash equivalents	(1)	-
Cash and cash equivalents at 1 April	330	330
	_______	_______
Cash and cash equivalents at 31 March	329	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 2008. The financial information in this document does not constitute the company's statutory financial statements for the financial year but is derived from those financial statements.  Statutory financial statements for the period will be delivered following the company's Annual General Meeting. The auditors have reported on these financial statements; their reports were unqualified and did not contain statements under sections 237 (2) or (3) of the Companies Act 1985.

2.  Transition to Adopted IFRSs

Both the Group and the Company are preparing their financial statements in accordance with Adopted IFRS for the first time and consequently both have applied IFRS 1. An explanation of how the transition to Adopted IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided in the Directors' report and financial statements.

IFRS 1 permits those companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. The Group has taken advantage of the following exemptions:

Share based payments - the Group has opted to apply IFRS 2 'Share Based Payments' only to equity settled share based awards granted on or after 7 November 2002, which have not yet been vested by the date of transition to IFRS on 1 April 2006.

The Company was incorporated on 21 March 2006 as Cobco 762 plc and changed its name to Infoserve Group plc on 11 April 2006. On 11 April 2006 the Company acquired the entire share capital of Infoserve Limited. On 23 June 2006, the Company was admitted to the Alternative Investment Market.

Under IFRS 3, 'Business Combinations', this has been accounted for as a reverse acquisition. Although the consolidated financial statements have been prepared in the name of the legal parent, the Company, they are in substance a continuation of the consolidated financial statements of the legal subsidiary, Infoserve Limited. The following accounting treatment has been applied in respect of the reverse acquisition:

(a)  The assets and liabilities of the legal subsidiary, Infoserve Limited, are recognised and measured in the consolidated financial statements at the pre combined carrying amounts, without restatement to fair value.

(b) The retained loss and other equity balances recognised in the consolidated financial statements reflect the retained earnings and other equity balances of Infoserve Limited immediately before the business combination.

The Company had no significant assets, liabilities or contingent liabilities of its own at the time that the acquisition took effect and no cash consideration was paid in respect of the business combination.

Transaction costs of equity transactions relating to the issue of the Company's shares are accounted for as a deduction from equity. 

  3.  Earnings per share

The calculation of earnings per share is based upon the loss after taxation of £2,945,465 (2007: £2,334,381) divided by 18,162,494 (2007: 12,516,101), being the weighted average number of ordinary shares in issue during the year. Share options in issue did not have a dilutive impact on the loss per share calculation.

4.  Consolidated reconciliation of movement in capital and reserves 

			Share capital	Share premium	Retained earnings	Total equity
			£000	£000	£000	£000
Balance at 1 April 2006			286	-	(3,274)	(2,988)
Total recognised income and expense			-	-	(2,335)	(2,335)
Equity-settled share based payment transactions			-	-	8	8
Equity shares issued in the year			445	-	-	445
Premium on shares issued in the year			-	2,567	-	2,567
Costs on issue of shares			-	(357)	-	(357)
			_______	_______	_______	_______
Balance at 31 March 2007			731	2,210	(5,601)	(2,660)
			_______	_______	_______	_______
Balance at 1 April 2007			731	2,210	(5,601)	(2,660)
Total recognised income and expense			-	-	(2,945)	(2,945)
Equity-settled share based payment transactions			-	-	89	89
Equity shares issued in the year			223	-	-	223
Premium on shares issued in the year			-	1,778	-	1,778
Costs on issue of shares			-	(117)	-	(117)
			_______	_______	_______	_______
Balance at 31 March 2008			954	3,871	(8,457)	(3,632)
			_______	_______	_______	_______

5.  Post balance sheet events

There are no significant post balance sheet events.

6.  Notice of the Annual General Meeting

A copy of the Directors' report and financial statements will be sent to shareholders and copies are available from the Company's Registered Office at Infoserve Group plc, South Side Aviation, Leeds Bradford Airport, Leeds, West Yorkshire, LS19 7UG and on it's web-site at www.infoservegroup.com.

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 19 September 2008 at 9.30 a.m.

 

END

 

 

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