Interim Results

Z Group PLC 21 November 2006 21 November 2006 Z GROUP plc Interim Results for the six months ended 31 August 2006 Proposed acquisition of the minority interest in a key subsidiary, OnShare Ltd Z GROUP plc (Z GROUP or the Group), the AIM listed developer and provider of leading consumer internet technologies, today announces its unaudited interim results for the six months ended 31 August 2006. Summary of Interim Results â€¢ Interim revenues were Â£1.54m (2005: Â£2.57m) in line with anticipated market changes â€¢ As a result, the Group reported a small six month loss before tax Â£0.5m (2005: profit Â£0.2m), after a non cash expense of Â£0.3m â€¢ Gross margins remained stable at 76.5% (2005: 78.6%) â€¢ Cash at bank Â£3.6m (2005: Â£4.7m) â€¢ Loss per share 1.71p (2005: profit of 1.1p) â€¢ Strong pipeline of negotiations for our products, principally with mobile network operators â€¢ Since the period end Z GROUP has also announced the appointment of its new Finance Director Z GROUP also announces today that it is to make a 3,942,134 share offer* for the remaining 49% minority interest in OnShare Ltd Summary of the proposed acquisition of the minority interest of OnShare â€¢ The deal - which is subject to shareholder approval - is expected to be value enhancing to the Group â€¢ A Circular is to be posted to shareholders with details of the proposed acquisition, which is subject to shareholder approval, of the minority interest in the key subsidiary OnShare Ltd for 3,942,134 new ordinary shares (the 'Consideration Shares') â€¢ The Consideration Shares will represent 16.67% of the enlarged share capital of Z GROUP â€¢ The vendors will be subject to a 12 month absolute restriction on trading which will then be followed by a further 12 month period of trading subject to specified restrictions. At all times, the vendors will also be subject to orderly market restrictions * This equates to Â£3.8 million based on the closing mid-market price on 20 November 2006 of 96.5 pence per ordinary share. Commenting on today's announcement, Jamie True, joint Chief Executive, said: 'We are delighted to announce that, subject to shareholder approval, we will be acquiring the minority interest in our key subsidiary, OnShare Ltd. We firmly believe that the file sharing market is poised to grow at a very significant rate and that our award-winning new OnShare product will enable us to capitalise upon this trend. Securing 100% ownership of this subsidiary - which we believe will be value enhancing for the Group - allows us to benefit fully from this exciting trend. Our interim results confirm our expectation that the market for ONSPEED would change during the period. Sales of our ONSPEED product have held up well in spite of continuing growth in the market for fast broadband connectivity. ONPEED Mobile was launched in the period, and there is a strong pipeline of potential ONSPEED Mobile business, mainly with mobile network operators. These volume deals tend to be significantly more profitable, but take longer to negotiate. Finally, we have also made significant breakthroughs in the development and commercialisation of OnShare, and we have commenced marketing this product. We are encouraged by the results and media reaction to date.' For further information: Z GROUP plc Jack Bekhor / Jamie True Tel: +44 (0) 8700 111 173 (Joint Chief Executive Officers) Duncan Neale Tel: +44 (0) 8700 111 173 (Finance Director) Teather & Greenwood Ltd Adam Pollock Tel: +44 (0)20 7426 9000 Media enquiries: Catullus Consulting Alex MacKey Tel: + 44 (0) 20 7736 2938 Tel: + 44 (0) 7773 787 458 Report from the Joint Chief Executive Officers INTERIM RESULTS Trading for ONSPEED has been lower than in the previous period in line with Management expectations as the business has matured. We have added two new products to the portfolio, ONSPEED Mobile and OnShare and our cash balance remains strong. ONSPEED The Group had anticipated that the market for ONSPEED would change during the period. In fact, sales of its ONSPEED product held up well in the period in spite of continuing growth in the market for fast broadband connectivity - with turnover of Â£1.4m (2005: Â£2.4m) derived from three sources: from the web (89%), from retail outlets (8%) and from our wholesale contract with BT (3%). Web sales were supported by a web retention rate of 43%. Gross margins were also stable at 79% (2005: 79%). Income benefited from the extension of our wholesale contract with BT in which the ONSPEED service has been offered to some of BT's broadband customers. Significant new distribution deals were also signed with Avanquest (covering Spain) and with VoxNet (one of Poland's leading ISPs). Since the end of the period, the Company has also signed a deal with Interactive Ideas, one of the UK's leading software distributors. There is a strong pipeline of potential ONPEED PC business from affiliates, operators, resellers and retailers. ONSPEED Mobile ONSPEED Mobile, which accelerates web browsing on mobile phones, was launched in March 2006 and since then has become available in many of the UK's leading PC retailers. The bulk of the Â£0.1m turnover in the period resulted from a distribution agreement signed with VoxNet in July 2006. The Group has a strong potential pipeline with mobile network operators, both in the UK and abroad, to offer the ONSPEED Mobile service to their customers. These volume deals tend to be significantly more profitable - but also take longer to negotiate. We are confident that we will be in a position to make further announcements in the second half of our financial year. Net2Roam Net2Roam turnover of Â£0.1m (2005: Â£0.2m) derived from two sources: from the web (98%), and from retail outlets (2%). Gross margins have increased to 86% (2005: 73%). OnShare OnShare's unique friend-to-friend file sharing technology saw its first beta release to the public in March 2006. Since then, improvements to the design and functionality of the product have been rewarded with some 5 star reviews in the technology press, with marketing of the consumer version commencing in September. An investment of Â£0.7 million in the first half was mostly devoted to the delivery of a consumer product. However work has been done in parallel to fast track the launch of a corporate product based on the underlying OnShare technology that will create Virtual Private Networks, without any set-up costs. Overheads and cash Administration expenses of Â£1.4m were Â£0.2m lower than in the prior year. This reflects a Â£0.3m reduced spend on sales and marketing and a Â£0.1m increase in other overheads. Â£36,000 of this increase was one-off, being the costs associated with our office move from The Glassmill in Battersea to 31 Vernon Street, in Olympia. This is the first period in which we are required to comply with FRS20 - share based payments. Under this standard we are obliged to calculate the value of share options issued since June 2005. The application of this standard has meant that the loss in the first six months of FY07 has been increased by Â£0.3m (2005: profits reduced by Â£0.2m) and that the profit for FY06 has been reduced by Â£0.6m. Cash at 31 August 2006 was Â£3.6m (2005: Â£4.7m). Changes in Share Capital Shares in issue increased by 240,100 in June 2006, arising from an exercise of share options. ACQUISITION OF THE MINORITY INTEREST IN ONSHARE LTD We are delighted to announce that, subject to shareholder approval, the Group is to acquire the outstanding 49% minority interest in its OnShare Ltd subsidiary for 3,942,134 shares (representing 16.67% of the enlarged share capital of Z GROUP), which equates to approximately Â£3.8 million (calculated at the closing mid-market price on 20 November 2006 of 96.5 pence per ordinary share). An Extraordinary General Meeting of shareholders will be held on 15 December to approve the acquisition. The vendors will, in relation to the Consideration Shares and any Z GROUP shares subsequently acquired by the vendors, be subject to a 12 month absolute restriction on trading which is then followed by a further 12 month period of trading subject to specified restrictions. At all times, the vendors will, in relation to the shares held by them in Z GROUP, also be subject to orderly market restrictions. The Board is recommending the acquisition and will be voting its shares (representing 48.5% of the Company's existing issued share capital) in favour of the resolutions. The Board believes that the deal will be value enhancing to the Group and will significantly strengthen its position as a leader in the fast-growing file sharing market. BOARD CHANGES We have expanded the Board with three key appointments: â€¢ Polly Williams was appointed as a non-executive and Chair of our Audit Committee, on 5 July 2006 â€¢ Jonty Slater, the Group's Chief Technology Officer, was appointed as an executive director on 5 July 2006 â€¢ Duncan Neale was appointed as Finance Director and Company Secretary on 4 September 2006 OUTLOOK With a strong pipeline of potential ONSPEED and ONSPEED Mobile sales, along with the proposed acquisition of the minority interest in OnShare and OnShare's continually improving take-up as the benefits of the viral marketing campaign begin to bear fruit, the Board remains confident in the future prospects for Z GROUP. Jack Bekhor James True Joint Chief Executive Officers 20 November 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT 6 months ended 6 months ended 12 months ended 31 August 2006 31 August 2005 28 February 2006 Restated Restated Â£000's Â£000's Â£000's Turnover 1,536 2,572 4,972 Cost of sales (361) (550) (1,077) -------------- ------------- ------------- Gross profit 1,175 2,022 3,895 Share option expense (268) (165) (589) Administration expenses (1,449) (1,655) (2,870) -------------- ------------- ------------- Operating (loss) / profit (542) 202 436 Interest receivable and similar income 64 38 114 -------------- ------------- ------------- (Loss) / profit on ordinary activities (478) 240 550 before taxation Taxation 143 (60) (164) -------------- ------------- ------------- (Loss) / profit on ordinary activities after (335) 180 386 taxation Minority interests - 15 30 -------------- ------------- ------------- (Loss) / profit for the financial period (335) 195 416 Basic (loss) / earnings per share (1.71p) 1.10p 2.23p Diluted (loss) / earnings per share (1.71p) 1.09p 2.14p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Retained (loss) / profit for the period (335) 195 416 -------------- ------------- ------------- Total recognised gains and losses relating to the period (335) 195 416 Prior year adjustment (413) (see Note 1.b) -------------- ------------- ------------- Total recognised gains and losses since the last annual report (748) 195 416 CONSOLIDATED BALANCE SHEET 31 August 2006 31 August 2005 28 February 2006 Restated Restated Â£000's Â£000's Â£000's Fixed Assets Intangible assets 1,815 542 1,151 Tangible assets 437 166 319 -------------- ------------- ------------- 2,252 708 1,470 Current Assets Stock 83 - 64 Debtors 1,119 921 1,546 Cash at bank 3,598 4,676 4,135 -------------- ------------- ------------- 4,800 5,597 5,745 Creditors: Amounts falling due within one year (1,434) (1,252) (1,553) -------------- ------------- ------------- Net current assets 3,366 4,345 4,192 -------------- ------------- ------------- Total assets less current liabilities 5,618 5,053 5,662 Creditors: Amounts falling due after one year (21) (30) (26) Provisions for liabilities and charges (57) - (61) -------------- ------------- ------------- Net assets 5,540 5,023 5,575 Capital and Reserves Called up share capital 986 974 974 Share premium account 2,342 2,399 2,322 Merger reserve 1,066 1,066 1,066 Share option reserve 857 165 589 Profit and loss account 289 403 624 -------------- ------------- ------------- Equity shareholders' funds 5,540 5,007 5,575 Minority interests - 16 - 5,540 5,023 5,575 CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to 12 months to 31 August 31st August 28th February 2006 2005 2006 Restated Restated Â£000's Â£000's Â£000's Net Cash inflow / (outflow) from operating activities 234 (169) 235 Returns on investments and servicing of finance Interest received 64 38 114 Taxation - - (127) Capital expenditure and financial investment Purchase of tangible fixed assets (172) (22) (224) Purchase of intangible fixed assets (686) (254) (866) -------- --------- --------- Net cash outflow for capital expenditure and financial (858) (276) (1,090) investment -------- --------- --------- Cash (outflow) / inflow before financing (560) (407) (868) Financing Capital element of finance lease payments (9) (4) (9) Issue of share capital 31 2,538 2,461 -------- --------- --------- Net cash inflow from use of liquid resources and financing 23 2,534 2,452 -------- --------- --------- (Decrease) / Increase in cash in period (537) 2,127 1,584 -------- --------- --------- (Decrease) / Increase in cash in period (537) 2,127 1,584 Cash outflow from lease financing 9 4 9 ---------- ---------- --------- Movement in funds in period (528) 2,131 1,593 Opening Net funds 4,099 2,506 2,506 ---------- ---------- --------- Closing net funds 3,571 4,637 4,099 ---------- ---------- --------- APPENDICES TO THE CONSOLIDATED CASH FLOW STATEMENT Reconciliation of operating (loss) / profit to net cash flow from operating activities 6 months to 31 6 months to 31 12 months to 28 August 2006 August 2005 February 2006 Â£000's Â£000's Â£000's Operating (loss) / profit (542) 202 436 Depreciation 51 30 79 Amortisation 22 2 6 Share option expense 268 165 589 (Increase) / Decrease in stock (18) - (64) Decrease / (Increase) in debtors 507 (751) (1,237) (Decrease) / Increase in creditors and provision (54) 183 426 ------------ ---------- ---------- Net cash flow from operating activities 234 (169) 235 ------------ ---------- ---------- Analysis of net funds At At 1 March 31 August 2006 Cash flow 2006 Â£'000's Â£000's Â£000's Cash at bank 4,135 (537) 3,598 Overdraft (1) 1 - 4,134 (536) 3,598 Finance leases (35) 8 (27) 4,099 (528) 3,571 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1.a Basis of preparation The interim financial statements have been prepared using accounting policies and practices consistent with those applied in the 2006 Annual Reports and Accounts with the exception of the application of FRS20 (see below). The statements are unaudited. The financial information contained in this Report does not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. The figures for the year ended 28 February 2006 have been extracted from the statutory accounts which have been filed with the Registrar of Companies but have been restated for the impact of FRS20. The auditors' report for the 2006 accounts was unqualified and did not contain a statement under s237 (2) or (3) of the Companies Act 1985. 1.b Adoption of new accounting policies FRS 20 The adoption of FRS20 - share based payments requires a prior period adjustment to be made, including the deferred tax implication of this adjustment. This has created a share option reserve at 28 February 2006 of Â£589,377 and a corresponding deferred tax asset of Â£176,813 and reduced retained profits by Â£412,564. FRS20 is effective for accounting periods beginning on or after 1 January 2006 and must be applied retrospectively to equity settled awards that were granted after 7 November 2002 and had not vested by 1 January 2006. 2. Dividends The directors do not recommend the payment of a dividend. 3. Earnings per share The calculation of basic earnings per share is based upon the profit after tax divided by the weighted average number of shares in issue during the period. The calculation of fully diluted earnings per share is based upon the profit after tax divided by the weighted average number of shares in issue during the period after taking into account the dilutive effect of share options. (Loss) / profit Weighted average Basic (loss) / earnings per share Â£'000s number of shares EPS (pence) 6 months ended 31 August 2006 (335) 19,562,666 (1.71) 6 months ended 31 August 2005 195 17,779,552 1.10 12 months ended 28 February 2006 416 18,618,215 2.23 (Loss) / profit Weighted average Diluted (loss) / earnings per share Â£'000s number of shares EPS (pence) 6 months ended 31 August 2006 (335) 19,562,666 (1.71)* 6 months ended 31 August 2005 195 17,922,659 1.09 12 months ended 28 February 2006 416 19,442,725 2.14 * Due to the loss incurred in the 6 months ended 31 August 2006 there is no dilutive effect from the issue of share options. 4. Intangible Fixed Assets Development Intellectual Domain Total expenditure property names rights Â£'000s Â£'000s Â£'000s Â£'000s Group Cost 1 March 2006 1,093 59 9 1,161 Additions 680 5 - 685 31 August 2006 1,773 64 9 1,846 Amortisation 1 March 2005 - 9 1 10 Charged in the period 18 3 - 21 28 February 2006 18 12 1 30 Net book value 28 February 2006 1,755 52 8 1,815 28 February 2005 1,093 50 8 1,151 Additions to development expenditure relate to the development of the OnShare product (which launched as a beta version in March 2006) 5. Debtors 31 August 2006 31 August 2005 28 February 2006 Restated Restated Â£000's Â£000's Â£000's Amounts falling due within one year 862 872 1,369 Amounts falling due after more than one year 257 49 177 -------------- ------------- ------------- 1,119 921 1,546 The amounts falling due after more than one year relate to the deferred tax asset arising from the implementation of FRS 20, as discussed in note 1b above. 6. Availability and Approval of Accounts The interim financial statements will be available on the Group's website 'www.zgroupplc.com' and upon application to Z GROUP plc, 31 Vernon Street, London W14 0RN. The interim financial statements were approved by the Board of Directors on 20 November 2006. This information is provided by RNS The company news service from the London Stock Exchange

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