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Ovum plc (OVM)

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Tuesday 06 June, 2006

Ovum plc

Final Results

Ovum plc
06 June 2006



6 June 2006


                        Ovum announces Preliminary Results


Ovum plc (OVM.L) ("Ovum" or "the Company"), a leading provider of research,
advisory and consulting services on and to the global Information, Communication
and Technology (ICT) sectors, today announced a strong set of results for the
year ended 31 March 2006 with turnover increasing by 25% in the financial year.


Financial highlights:

                                     Year to 31         Year to 31       Change
                                     March 2006         March 2005
                                            (£m)               (£m)           %
Turnover                                  18.28              14.68         +25%
Adjusted operating profit*                 1.20               0.34        +253%
Margin % *                                  6.6%               2.3%       +4.3%
Operating profit                           0.56              (0.18)          -
Profit before tax                          0.37              (0.35)          -
Earnings per share (basic)             10 pence        (4.8) pence           -


* adjusted to exclude goodwill amortisation and exceptional items


Results highlights:


   • Turnover growth of 25% compared to the prior year.

   • Adjusted operating profits, before exceptional items and goodwill
     amortisation, of £1.20m (2005: £0.34m).

   • Strong organic growth driven by a range of new product launches
     and strong interest in Ovum's research focus on convergence within
     ICT markets.

   • Successful acquisition and integration of the research business
     of Ryan Hankin and Kent, Inc. (RHK), extending Ovum's profile in the
     US market.

   • Geographical expansion continued with a new office opened in
     Hong Kong and an agency established in Tokyo. This allows Ovum to
     further capitalise on its increasing client base in the Asia-Pacific
     region.

   • Successful flotation on the AIM market in March 2006 raising
     £6.10m net of expenses. Funds will be used for acquisition capital,
     investment in sales and marketing, developing new products and
     further geographical expansion.
       
   • Strengthened board with the appointment of Michael Read as a
     non-Executive Director. Michael is CEO of PIPEX Communications plc and has
     extensive expertise in growing businesses both organically and by
     acquisition.

    Commenting on the results, Chris Dines CEO of Ovum, said:

    "I am delighted to be reporting a strong set of results for our first period
    as a publicly quoted company. In addition to growing revenues from our
    organic business, we acquired and successfully integrated the research
    business of RHK. The successful flotation in March this year and progress in
    operating performance made during the year provides a sound platform on
    which to build future profitable growth."


Enquiries:


Ovum                                                 020 7551 9238
Chris Dines, Chief Executive


Hogarth Partnership                                  020 7357 9477
James Longfield / Barnaby Fry / Georgina Briscoe


About Ovum


Ovum's primary activity is providing value-added advisory services and
consulting to retained and project clients. The Company acts as a well respected
and trusted source of industry data, knowledge and expertise on the commercial
impact of technology, regulatory and market changes. Ovum engages in continuous
research and industry analysis to determine market dynamics in its specialist
sectors.


Ovum has developed long-standing relationships with many of its corporate
clients, which include major international blue-chip companies such as: Alcatel,
AT&T, BT, Cable & Wireless, Cisco Systems, Deutsche Telecom, Fujitsu,
Hewlett-Packard, IBM, Microsoft, Telstra and Vodafone.



6 June 2006


                                    Ovum plc

              Preliminary results for the year ended 31 March 2006


During the year ended 31 March 2006 the Company demonstrated an accelerating
improvement in financial performance, driven by organic sales growth, continued
tight control of costs and the acquisition and successful integration of the
research business of Ryan Hankin and Kent, Inc. ('RHK'). This success gives the
Board confidence in the strategy articulated at the IPO.


FULL YEAR RESULTS FOR THE YEAR ENDED 31 MARCH 2006

Turnover for the 12 months to 31 March 2006 was up 25% at £18.28m (2005:
£14.68m). Of this £11.93m (65%) was generated from contracted research services
and £6.35m from consulting projects, analyst engagements and research content.


EBITDA for the period was £1.27m (2005: £0.46m) and is stated after charging
£0.23m (2005: £0.31m) of exceptional costs incurred.


Profit before interest and tax for the period was £0.56m (2005 loss: £0.18m) and
is stated after charging goodwill amortisation of £0.42m (2005: £0.21M) and
depreciation of £0.30m (2005: £0.43m).


Profit before taxation was £0.37m (2005 loss: £0.35m).


Earnings per share were 10 pence and on a fully diluted basis 8.3 pence.


At 31 March 2006 net assets amounted to £9.63m including cash and cash deposits
of £5.72m.


Staff costs including exceptional items were £12.41m for the year and the
average headcount was 206 compared to 199 in the previous financial year. The
acquisition of RHK increased staff numbers by 19 and associated staff costs by
circa £1.00m. Depreciation, amortisation and 'other' operating charges remain
flat at £4.09m.


IPO

In March 2006 the Company successfully floated on AIM, raising £6.10m net of
expenses, with a further £3.20m realised by selling shareholders, giving Ovum a
market capitalisation of £24 million. Proceeds from the flotation will be used
to grow Ovum's business through the development of new products; geographic
expansion; strengthening of its global research capability; investment in sales
and marketing; and carefully targeted acquisitions.


The Company continues to pursue that part of its strategy stated at IPO of
identifying and acquiring businesses that enhance the quality and profitability
of Ovum. These businesses will be experts in their field with a high quality
brand, a repeatable business model and will strengthen the portfolio of services
Ovum provides to clients.


DIVIDEND

The board is not proposing any dividend in respect of the results to 31 March
2006 in accordance with the dividend policy stated at the time of the IPO. The
directors see considerable opportunities for building Ovum's business and have
therefore taken the decision to re-invest the profits in growing the business.
Longer term, the Directors expect to adopt a progressive dividend policy
reflecting the growth in earnings and cash flows generated by the Group.

BOARD CHANGES

During the year the Board was strengthened with the appointment of Michael Read
as a non-Executive Director. Michael is CEO of PIPEX Communications plc, one of
the UK's leading broadband, hosting and managed services providers and has
extensive experience of growing businesses, both organically and by acquisition,
and is a valuable addition to the Board.


The Board would also like to take this opportunity to thank David Lewin, who
resigned as a non-Executive Director from the Board at flotation in March 2006.
David was one of the Company's founders and a board member for many years and
made a very valuable contribution to the growth and development of the Company.


Ovum now has four Executive Directors and four non-Executive Directors.


CURRENT TRADING AND OUTLOOK

It is the Board's belief that the high quality of the services offered by the
Company, the convergence between the IT, telecoms and media industries and the
fragmented competitive landscape provide an excellent platform for growth.
Ovum's strong brand name and reputation, customer base and suite of high quality
products, combined with the opportunity to make strategic acquisitions presented
by the AIM IPO, mean that it is well placed to take advantage of these
opportunities.


The current financial year has started in line with expectations with high
renewal rates and strong demand for non-subscription based services. Activity
within the Asian and Middle Eastern markets looks particularly robust.


As a consequence of this, and of the extent to which Ovum's base of contracted
customers is already in place, the Board is confident of fulfilling its
expectations of continued growth during the current financial year.


CHIEF EXECUTIVE'S STATEMENT

I am pleased to be able to report results that show an increase in turnover and
margins, resulting in significant profit improvement against the prior year.


Turnover improvement

The 25% increase in turnover over the prior year was primarily driven by:


-        high renewal rates for existing advisory service client base;

-        geographical expansion of our operations;

-        launch of new services;

-        the acquisition of the research business RHK in June 2005.


Renewal rates

Renewal rates by value for the financial year were 88% (2005: 89%). In the key
3rd quarter, when the Company's largest client contracts are up for renewal,
rates were higher still at 93%. The annualised value of Ovum's retained contract
base, which drives recurring monthly turnover, increased to £13.30m at 31 March
2006, from £9.60m at the end of the previous period.


Geographical expansion:

The table below shows the strong growth in turnover achieved in the main
territories in which the Company operates. It shows that, while there has been
strong growth across each of the Group's geographies, the 51% increase in
Asia-Pacific has been particularly notable:




Turnover (£000's)                    FY2005              FY2006         Change
United Kingdom                        4,186               4,854             16%
Rest of Europe                        4,547               5,170             14%
                                      8,733              10,024             15%
                                      -----              ------            ---
North America                         2,954               3,540             20%
Asia-Pacific                          2,580               3,907             51%
Rest of World                           416                 813             95%
                                     14,683              18,284             25%
                                      -----              ------            ---

Turnover in Asia-Pacific was £3.91m. Sales in China were particularly
impressive, increasing by £0.98m to £1.52m. This growth was helped by the launch
of new offices in Hong Kong and an agency established in Tokyo. Ovum will
continue to expand sales and marketing operations in this region to capitalise
on the growth opportunities in China and across Asia- Pacific. Strong growth is
also being achieved in sales to Indian based companies.


New products:

A number of new products and services have been launched in the past two years
including Ovum EuroView, Wireless Intelligence, Public Sector, Wireless
Software, Broadband Content and Enterprise Mobility. Combined turnover for these
newly launched services exceeded £1.50m in the financial year.


During the year the Company continued to invest in its advisory service product
range:


   • Broadband Content was launched in September 2005 and provides strategic
     advice for players in the broadband content market, identifying key trends,
     scenarios and market opportunities and help service providers develop,
     market and support broadband content strategies.

   • Enterprise Mobility was launched in October 2005 and helps telecoms
     operators, service providers, equipment vendors and system integrators
     to identify emerging opportunities for enterprise voice and data
     services, focusing on propositions aimed at adding mobility to corporate
     connectivity and communication services.

   • Service Platforms was launched in May 2006 and combines RHK's
     expertise in network infrastructure and Ovum's strengths in
     understanding the service provider's offerings, and taps into the
     unknown territory of vendor markets in the application domain.

Wireless Intelligence: Ovum's venture with the GSMA, launched in 2004,
now has over 450 customers and global sales in excess of £0.58m. The
Company is continuing to invest in the expansion of this service both in
terms of the scope of the product offering and target client base.


Acquisition activity:

On 18 June 2005 Ovum acquired the research business of Ryan Hankin and
Kent, Inc. ('RHK') for consideration of fair value of £1.3m. RHK
provides clients with a unique end-to-end view of the telecoms market.
Ovum's focus on telecoms services markets and the service providers is
complemented by RHK's expertise about telecoms equipment and components
markets and the telecoms vendors. RHK has been successfully integrated,
and profit expectations were exceeded for the financial year. There has
been good retention of the analyst team that joined with RHK.

In December 2005 Ovum announced a joint venture with Enterprise VPN
Users Association (EVUA), which completed on 1 April 2006. As part of
this transaction, Ovum will execute and enhance bi-annual benchmarking
studies, strengthening the Member's annual survey on ICT activities and
help shape the three annual conferences on outsourcing, IP and mobile.
Ovum will assume responsibility for all ad hoc consulting for EVUA
members covering the full sourcing procurement cycle.

The Board continues to pursue acquisition opportunities and has set the
following criteria, which must be satisfied by any acquisition:

          • expert businesses with a strong brand;
          • repeatable business models;
          • margin and earnings enhancement;
          • complement Ovum's existing offering and/or customer base.



Consolidated profit and loss account for the year ended 31 March 2006

                            Pre   Exceptionals        Total          Total
                   exceptionals            and 
                   and goodwill       goodwill
                   amortisation   amortisation
                  31 March 2006  31 March 2006  31 March 2006  31 March 2005
                          £'000          £'000          £'000          £'000
-----------------     ----------      ---------       --------      ---------
Turnover
   - continuing          16,427              -         16,427         14,683
   - acquired             1,857              -          1,857              -
-----------------     ----------      ---------       --------      ---------
                         18,284              -         18,284         14,683
Other income                233              -            233            231
Other external
charges                  (1,465)             -         (1,465)          (936)
-----------------     ----------      ---------       --------      ---------
Staff costs -
before
exceptional
items                   (12,177)             -        (12,177)        (9,971)
Exceptional
items                         -           (230)          (230)          (208)
-----------------     ----------      ---------       --------      ---------
Staff costs             (12,177)          (230)       (12,407)       (10,179)
-----------------     ----------      ---------       --------      ---------
Depreciation               (301)             -           (301)          (425)
Amortisation
of acquired
goodwill                      -           (416)          (416)          (213)
-----------------     ----------      ---------       --------      ---------
Depreciation
and
amortisation               (301)          (416)          (717)          (638)
-----------------     ----------      ---------       --------      ---------
Other
operating
charges -
before
exceptional
items                    (3,372)             -         (3,372)        (3,243)
Exceptional
items                         -              -              -            (98)
-----------------     ----------      ---------       --------      ---------
Other
operating
charges                  (3,372)             -         (3,372)        (3,341)
Operating                 
profit/(loss)             1,202           (646)           556           (180)
Interest                     
receivable and
similar income               61              -             61             42
Interest                  
payable and
similar
charges                    (245)             -           (245)          (209)
Profit/(loss)            
on ordinary
activities
before
taxation                  1,018           (646)           372           (347) 
Taxation                    460              -            460              5
Profit/(loss)             
for the
financial year
and
transferred to
reserves                  1,478           (646)           832           (342)
                      =========       =========       ========      =========
Profit/(loss)                                           
per ordinary
share - normal                                          £0.10          (£0.05)
                      =========       =========       ========      =========
Profit/(loss)                                           
per ordinary
share -
diluted                                                 £0.08          (£0.04)
                      =========       =========       ========      =========

There is no difference between the profit/(loss) on ordinary activities after
taxation and the retained profit/(loss) for the year stated above and the
historical cost equivalents. Due to the RHK business acquired during the year
being fully integrated post acquisition, it is not possible to fully report the
operating profit relating to the acquired business.

Consolidated balance sheet as at 31 March 2006

                           31 March 2006            31 March 2005
                                   £'000                    £'000

Fixed assets
Goodwill                           5,333                    3,343
Tangible assets                      825                      933
                                   -----                    -----
                                   6,158                    4,276
Current assets
Debtors - amounts                  
falling due                        
within one
year                               6,617                    5,173
Debtors - amounts                    
falling due after                    
one
year                                 585                        -
Cash at bank and                   
in hand                            6,474                      178
                                   -----                    -----
                                  13,676                    5,351

Deferred income    (6,808)                  (5,302)
Other short term   
creditors          (3,396)                  (2,547)
                   ------                   ------
Creditors:                       
amounts falling                  
due within
one year                         (10,204)                  (7,849)
                                   -----                    -----
Net current                        
assets/
(liabilities)                      3,472                   (2,498)
                                   -----                    -----
Total assets less                  
current
liabilities                        9,630                    1,778

Creditors:                             
amounts falling                        
due in more
than one year                          -                     (666)
                                   -----                    -----
Net assets                         9,630                    1,112
                                   =====                    =====
Capital and
reserves
Called up share                    
capital                            6,080                    3,627
Share premium                      
account                            8,483                    3,392
Merger reserve                     1,485                    1,485
Profit and loss                   
account                           (6,418)                  (7,392)
                                   -----                    -----
Equity                             
shareholders'
funds                              9,630                    1,112
                                   =====                    =====


Consolidated cash flow statement for the year ended 31 March 2006


                          31 March 2006  31 March 2005
                                  £'000          £'000
Operating activities
Operating profit/(loss)             556           (180)
Depreciation and                    
amortisation                        717            638
Discount on shares issued           118              -
Foreign exchange                     24              -
Profit on disposal of                
fixed assets                         (1)             -
Increase in debtors              (1,423)          (859)
Increase in creditors               722            655
                                  -----           ----
Net cash inflow from                
operations                          713            254

Returns on investment and
servicing of finance
Interest received                    61             38
Interest paid                      (256)          (179)
                                  -----           ----
                                   (195)          (141)

Capital expenditure
Purchase of fixed assets           (195)          (251)
Disposal of fixed assets              5              -
                                  -----           ----
                                   (190)          (251)

Acquisitions and disposals
Purchase of business               
assets                             (306)             -

Financing
Loan note redemption               (170)          (100)
Loan note receipts                    -            370
Repayment of borrowings            (964)             -
Proceeds of issue of              
ordinary shares                   7,228            150
Costs of issue of ordinary        
shares                             (576)             -
                                  -----           ----
                                  5,518            420
                                  -----           ----
Increase in cash                  5,540            282
                                  =====           ====


Reconciliation of net cash flow movement to net funds for the year ended 
31 March 2006

                          31 March 2006  31 March 2005
                                  £'000          £'000

Increase in cash in the           
year                              5,540            282
Cash flow from decrease /         
(increase) in debt                1,134           (268)
                               ----------     ----------
Change in net debt                6,674             14
Other non-cash items                100              -
Net debt at 1 April              (1,056)        (1,070)
                               ----------     ----------
Net funds/(debt) at 31            
March                             5,718         (1,056)
                               ==========     ==========

Reconciliation of movements in shareholders' funds for the year ended 
31 March 2006

                          31 March 2006  31 March 2005
                                  £'000          £'000

Profit/(loss) for the year          832           (342)
Discount on share issue             118              -
Exchange differences                 24             19
Issue of shares                   7,544            150
                              ----------     ----------
Net increase/(decrease) in        
shareholders' funds               8,518           (173)

Opening equity                    
shareholders' funds               1,112          1,285
                              ----------     ----------
Closing equity                    
shareholders' funds               9,630          1,112
                              ==========     ==========



Basis of preparation


The financial statements have been prepared on the going concern basis, under
the historical cost convention and in accordance with the Companies Act 1985 and
UK generally accepted accounting practices.



Earnings Per Ordinary Share

                           31 March 2006  31 March 2005

Profit/(loss) per ordinary
share
  Basic                           £0.10          (£0.05)
  Diluted                         £0.08          (£0.04)
In accordance with FRS22,
the calculation of the
earnings per share is
based upon:
Profit/(loss) on ordinary      
activities                     £832,475      £(342,077)
Weighted average number of    
shares
  Basic                       8,351,255      7,158,098
  Diluted                    10,045,517      8,604,023





Acquisitions


On 18 June 2005 Ovum plc acquired the research business of Ryan Hankin and Kent,
Inc (RHK). The assets and liabilities acquired at that date and the directors'
provisional assessment of fair value is as follows:

                                              Book and
                                            fair value
                                                 £'000
Debtors                                            146
Deferred Income                                 (1,136)
                                                ------
Net liabilities                                   (990)
                                                ======
Satisfied by:
Initial consideration                              944
Deferred consideration                             358
Expenses on acquisition                            116
                                                ------
                                                 1,418
                                                ======

                                                ------
Goodwill arising                                 2,408
                                                ======

The deferred consideration comprised two elements, the latter of which was
settled in January 2006.





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