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Vebnet (Hldgs) PLC (VBT)

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Thursday 14 September, 2006

Vebnet (Hldgs) PLC

Final Results

Vebnet Holdings PLC
14 September 2006



                             VEBNET (HOLDINGS) PLC                              
                             
                            PRELIMINARY ANNOUNCEMENT                            
                                                                              

Vebnet, the Edinburgh-based, AIM-listed, leading provider of technology for
employee benefit solutions, confirms significant progress in its business in the
year ended 30 June 2006, with sizable increases in customer numbers, both
turnover and recurring revenues, EBITDA and pre-tax profit.

 
                                 Unaudited         Restated        Unaudited     
                                                    audited        Six months                
                                 Year ended       Year ended          ended       
                                30 June 2006     30 June 2005      31 December   
                                                                       2005       
                                       £'000            £'000            £'000  

Turnover                               3,910            3,329            2,077  
EBITDA                                   339              150              165  
Profit before tax                        180               13               68  
Earnings per share                         2p             0.2p             0.8p 
Net assets                             2,411            1,215            1,289  
Net cash                               2,672            1,326            1,351  
 

Highlights

• Top line increased by 17% to £3.9m (£3.3m).

• The number of employees using FIX&FLEX(R), the Group's core product, as at 
  30 June 2006 was 171,994, an increase of 85% from 30 June 2005. Customer 
  numbers increased from 50 to 86.

• Revenues from Vebnet's core business virtually doubled in this period to £2.9m 
  (£1.5m) and recurring annual licence and renewal revenue increased from £1.1m 
  to £1.8m, an increase of 64%.

• New direct clients included JP Morgan, Britannia Building Society, Tenon and 
  Informa.

• Net cash at 30 June 2006 was £2.672m, double that at 30 June 2005. This 
  includes £1.04m (gross) of new money raised in the successful placing
  announced on 22 December 2005.

• Founding shareholder, Cross Atlantic Capital Partners, placed 750,000 shares 
  (8.8% of the share capital), but still retains an 18.4% shareholding. New 
  institutional investors include JP Morgan with 8.1% of the enlarged share 
  capital. The placing was oversubscribed.

• The senior management team was strengthened with three key appointments.

• Trading since the year end has also been encouraging:

   o The number of implementations currently scheduled for the year ending
     June 2007 is 20, adding at least 46,000 new employees.

   o New customers include AON, Resolution Life, Royal London and ING Direct.

   o Vebnet is also engaged in preliminary discussions with two third parties in 
     relation to possible transactions, which may or may not result in the
     acquisition of all or a majority of the outstanding ordinary shares of 
     these companies.

• In the year ended 30 June 2006, the company adopted the requirements of Urgent 
  Issues Task pronouncement 40 ('UITF40') in respect of accounting for the 
  recognition of non-contingent income from the provision of professional 
  services. In accordance with Financial Reporting Standard 3, the prior year 
  figures have been adjusted to reflect this change in accounting policy.

Derek Scott, Chairman, stated: 'Vebnet maintains its year-on-year record of
growth in developing its core business, with sizeable increases in customer
numbers, both turnover and recurring revenues, EBITDA and pre-tax profit.'

Referring to current trading and prospects, Derek Scott added, 'Business in the
first two months of the new financial year has also been encouraging. Already
this year, we have gained a number of new and large customers using FIX&FLEX(R)
and we remain confident about the Company's ability to sustain this growth. We
continue to look for opportunities to add shareholder value through profitable
sales growth, acquisitions and at the same time working more closely with our
distribution partner network.'
 

Enquiries

Gerry O'Neill, CEO, Vebnet: 0131 270 5502; 07990 584096; [email protected]

Stephen Thurlow, Finance Director, Vebnet: 0131 270 5503; 07899 912522;
[email protected]

Jonathan Wright, Seymour Pierce: 0207 107 8000; [email protected]

Charles Ponsonby, Bankside: 0207 367 8851; [email protected]

 
Note to Editors

Vebnet's core business is to develop, distribute and implement valuable and cost
effective internet-based solutions and services to support the communication,
delivery and administration of fixed and flexible employee benefit schemes.



                             VEBNET (HOLDINGS) PLC                              
 
CHAIRMAN'S STATEMENT

INTRODUCTION

Vebnet specialises in the development, deployment and support of internet-based
technology for flexible employee benefits and online Total Reward Statements
(TRS). Founded in 2000 and admitted to AIM in 2003, Vebnet has rapidly become
one of the leading providers of this technology. Through significant, specialist
experience of the employee benefits market, Vebnet is able, working alone and
with partners, to identify the real business case behind implementing flexible
benefits. This ensures that customers are able to achieve a rapid return on
investment. Vebnet launched its core FIX&FLEX(R) product in 2002. This is both
sold on a direct basis and distributed via leading benefit consultants and a
range of other strategic partners.
 

FINANCIAL HIGHLIGHTS

Vebnet maintains its year-on-year record of growth in developing its core
business with sizeable increases in customer numbers, both turnover and
recurring revenues, EBITDA and pre-tax profit. Total turnover increased by 17%
to £3.910m (2005 - £3.329m). Within this, revenues from Vebnet's core FIX&FLEX
(R) product virtually doubled to £2.9m (2005 - £1.5m). Recurring annual licence
and renewal revenue at the year-end also increased from £1.1m to £1.8m, an
increase of 64%.

Total operating costs, including cost of sales, increased to £3.794m (2005 -
£3.330m). This increase is largely driven from increased headcount in all areas
of the business to support existing clients and future growth.

The company delivered a pre- and post-tax profit of £180k (2005 - £13k) and
basic earnings per share increased from 0.2p to 2.0p.

Net cash at 30 June 2006 was £2.672m (2005 - £1.326m). This includes £1.04m
(gross) of new money raised in the successful placing announced on 22 December
2005.
 

SALES

As of 30 June 2006, 171,994 employees were accessing FIX&FLEX(R) compared with
93,213 on 30 June 2005, an increase of 85%, while the number of clients
increased by 36 to 86. Our client base covers most areas of the market but we
are strongly represented in the Telecommunications, Professional Services and
Financial Services sectors.

Through our direct channel Vebnet won 19 clients covering 42,000 employees,
generating £1.37m of revenue. New direct clients included JP Morgan, Britannia
Building Society, Tenon and Informa. 60% of our new clients had less than 1,000
employees initially accessing FIX&FLEX(R) but with many of these organisations
we believe there is potential to extend the offering to other areas of their
business.

We are seeing slower growth from our licence channel. During the year to 30 June
2006, our partners won 17 clients, covering 26,345 employees, generating £370k
of revenue to Vebnet.

Although the volume of client wins was similar through both channels, the
average size of client and revenue from the direct channel was 42% and 270%
respectively higher than the licence channel.

Last year we increased our direct sales team and allocated additional resources
to implement a series of marketing initiatives focussed on driving the number of
clients won through our direct channel.
 

CLIENT SERVICES

Last year 90% of new clients were implemented between 1 October 2005 and 31
March 2006 with a further 25 existing clients' benefit plans being updated
during the same period. This seasonality remains with the vast majority of new
benefit plans either commencing on 1 January or 1 April each year. Given these
volumes, a separate Implementation Team has been established to ensure a high
level of service to all our new clients.

This Implementation Team is responsible for working with both our direct clients
and clients of our licence partners, in implementing all new flex schemes and
TRS. With each implementation there are five key phases: design, brokering,
configuration of software, communication and testing prior to launch. Typically
an implementation will take a minimum of three months to complete, but can be
quicker if brokering is not required. A good example of this is JP Morgan. They
appointed Vebnet in December 2005 and their flex scheme went live, into
enrolment, for their 12,300 employees on 15 February 2006. This scheme was
previously with an alternative provider and clearly illustrates Vebnet's ability
to configure and rapidly deploy FIX&FLEX(R) for a major client, where robustness
of the application, proven scalability and security were of paramount
importance.

Our Client Services Team is responsible for servicing all existing clients. The
services they provide include managing flexible benefit scheme renewals,
refreshing Total Reward Statements and outsourced administration.

Last year the team managed 32 flexible benefit scheme renewals, and provided
outsourced administration for ten clients covering over 20,000 employees. Based
on clients implemented as at 30 June 2006, flexible benefit renewals will
increase to 56 for the current financial year, and our outsourced administration
clients will increase to 12. To support this growth we have trebled the size of
the team. In addition to our core services we also provide Helpdesk support for
clients in both enrolment and throughout the benefit year.

The Client Services Team has also been expanded to provide a dedicated account
management function to proactively work with our clients and manage the
provision of services to them in a way that is efficient for the client but at
the same time profitable to Vebnet.
 

PRODUCT DEVELOPMENT

In the first half of the year the enlarged development team, including
contractors, was primarily focussed on the delivery of Phase B of the Prudential
Flexible Benefits Solution in December 2005. Development revenue from Prudential
halved compared to the previous year. During the course of the year the senior
management team within Prudential (UK) changed and the new team is undertaking
an evaluation and prioritisation of its key strategic initiatives going forward.
Discussions are ongoing between Vebnet and Prudential on the next phase of
development on the latter's worksite-marketing platform, which may result in
additional revenue to Vebnet in the next calendar year.

Throughout the year Vebnet has deployed a team of business analysts, developers
and testers to enhance the functionality within the many modules of FIX&FLEX(R)
to support an array of client specific requirements. Key enhancements include:

•    A leaver process to support multiple end dates for benefits. Previously all 
     benefits taken up by an employee had to stop on the same date.
     
•    Childcare pricing to support recent changes in the legislation, as several 
     clients priced vouchers differently above the tax-free limit.

•    Functionality to support multiple pension scheme membership in line with 
     new legislation.

•    Added functionality allowing for carry forward of holidays from one year to 
     the next.

In the final quarter of the year we implemented a new release process and moved
to a quarterly software release cycle to deliver regular major enhancements to
clients. We have seen a marked improvement in the quality of FIX&FLEX(R)
releases and improved delivery of complex projects to our larger clients. We
will continue to invest in FIX&FLEX(R), and future enhancements will include the
simplification of some key administration processes.
 

MARKET

The market for flexible benefit technology solutions continues to grow, although
at the last Budget the Chancellor eliminated any NIC and tax benefit for
employees to purchase computer equipment through the Home Computer Initiative.
This fundamental change in legislation caused a number of organisations, which
were considering introducing flexible benefits on a salary sacrifice basis, to
re-consider their position. As a consequence of this, Vebnet lost two new client
opportunities and stopped promoting its entry level SmartFlex(TM) product.

Other key trends noticeable in the market place this year include:

•    Lengthening sales cycles with larger clients, as many prefer to go
     out to tender.

•    Delays in the target implementation date due to a lack of resources at the 
     client end.

•    An increase in the number of technology providers offering different
     solutions which creates confusion amongst some buyers.

•    Cross subsidy of technology fees from benefit/pension commission in the SME 
     market.

•    Changing roles at some of the firms of benefit consultants.

Our view is that superior technology for flexible benefits will not in itself be
a differentiator in the market, but differentiation will come from the services
that are wrapped around the provision of technology. We still, however, envisage
that FIX&FLEX(R) will be a key component in the standardisation of flexible
benefits administration. The market is fragmented and we believe there will be
some consolidation in the coming years. We will continue to look at profitable
opportunities for either acquiring technology companies or service companies
which will enhance/widen our offering.

The shape of the market is also changing as organisations move through the flex
cycle onto looking at integrated reward, compensation planning and incentive
management. We believe this trend will create new opportunities for Vebnet.

Vebnet are proud of the partners accumulated to date and continually strive to
add value to their benefits proposition. During the next financial year we will
seek to develop an enhanced model of providing value and sales support to this
distribution partner network.
 

COMPETITION

We believe the characteristics that differentiate Vebnet from other technology
competitors are:

•    The depth of functionality, and ease of configuration, of FIX&FLEX(R)

•    The quality of our client and partner base

•    The accumulated knowledge base and experience

•    The quality, energy and commitment of our people

Our main target market (>1,000 employees), unlike the low functionality,
commoditised SME segment, is one where our experience and technological edge
makes us an ideal partner for employee benefit consultants. We believe there
will be opportunities to extend our partner network as other Employee Benefit
Consultants re-evaluate their offer, establish partnership for the provision of
technology and focus on their key strength - consulting services. Partnership
opportunities will also exist within other sectors of the market including
product sourcing/brokering, investment houses, pension scheme administrators and
HR outsourcers.

Our ethos is all about creating innovative employee benefit solutions, delivered
on market leading technology and representing good value for money. Our
challenge is to articulate this to a market where there remains a degree of
confusion amongst some buyers. Our intention is to build on the Vebnet brand
this year and position our new Head of Flexible Benefits Consulting in a thought
leadership role within the industry. This will put us in a strong position
(through his experience) to influence the shape of the market in the future,
thus ensuring that the products and services we offer are aligned to the areas
of biggest opportunity.
 

SENIOR MANAGEMENT TEAM

During the year, Vebnet strengthened the Management Team with three senior
appointments: Marcus Underhill (Head of Flexible Benefits Consulting), Jacqui
Anderson (Client Services Director) and Andy Palmer (Head of Business
Solutions). Marcus was previously a European partner and European Head of
Flexible Benefits Consulting for Mercer HR Consulting. Jacqui was previously at
HBOS where she was responsible for the HBOS flex scheme whilst Andy was a senior
implementation manager at Towers Perrin. These executives bring both individual
skill sets and many years of experience in delivering flexible benefit solutions
to clients. They extend the senior management team providing breadth and depth
to support and drive sustainable growth in the business.
 

SHARE PLACING

On 22 December 2005, Vebnet raised £1.04m (gross) of new money by the successful
placing of 695,000 shares at 150p per share. In addition, 820,000 existing
shares were placed at the same price. 750,000 of these shares were sold by Cross
Atlantic Technology Fund LP, the venture capitalist that is Vebnet's principal
initial funder, and remains its principal shareholder, with 1,684,475 shares
(18.4% of the enlarged share capital).

The principal placees included one existing institutional holder, Liontrust, and
three new institutional holders, most notably JP Morgan, which acquired 745,334
shares (8.1%). Liontrust now own 11.4% of the issued share capital of Vebnet
(Holdings) plc. The placing was over-subscribed. The new ordinary shares were
admitted to trading on AIM and dealings commenced on 3 January 2006.
 

CURRENT TRADING

Business in the first two months of the new financial year has also been
encouraging:

•    The number of implementations currently scheduled for the year ending
     June 2007 is 20, adding at least 46,000 new employees.

•    New customers include AON, Resolution Life, Royal London and ING Direct.

•    Vebnet is also engaged in preliminary discussions with two third parties in 
     relation to possible transactions, which may or may not result in the
     acquisition of all or a majority of the outstanding ordinary shares of 
     these companies.
 

OUTLOOK

Our key areas of focus for this year are as follows:

•    Focussing on customer service delivery

•    Moving all clients to an adequate level of profitability

•    Providing more support to our licence partners

•    Ensuring that we target our marketing spend most effectively

We will continue to focus on growing revenue both directly and through our
licence channel.

FIX&FLEX(R) continues to be regarded as a market leading product. The quality of
existing clients and partners, we believe, remains a strong endorsement of both
our company and our technology. We believe strongly that, through the quality
and depth of our product and our existing and future licence agreements, we
shall achieve our objective of making FIX&FLEX(R) an industry standard platform
for flexible benefit scheme enrolment and administration.

Already this year, we have gained a number of new and large customers using FIX&
FLEX(R) and we remain confident about the Company's ability to sustain this
growth. We continue to look for opportunities to add shareholder value through
profitable sales growth, acquisitions and at the same time working more closely
with our distribution partner network.
      

Derek Scott             Gerry O'Neill             Stephen Thurlow
Chairman                CEO                       CFO

 

                 UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
                        for the year ended 30 June 2006                         

 
                                 Unaudited        Unaudited         Restated     
                                 Year ended       Six months       unaudited     
                                                     ended         Year ended                    
                                30 June 2006      31 December     30 June 2005    
                                                      2005                         
                                       £'000           £'000             £'000  
                                                                                
TURNOVER                               3,910           2,077             3,329  
                                                                               
Cost of sales                         (1,595)           (907)           (1,726) 
                                  ------------    ------------      ------------
                                                                                
GROSS PROFIT                           2,315           1,170             1,603  
                                                                                
Administrative expenses               (2,199)         (1,119)           (1,604) 
                                  ------------    ------------      ------------
                                                                                
OPERATING PROFIT/(LOSS)                  116              51                (1) 
                                                                                
Net interest receivable and                                                     
similar income                            64              17                14  
                                  ------------    ------------      ------------
                                                                                
PROFIT ON ORDINARY ACTIVITIES                                                   
BEFORE TAXATION                          180              68                13  
                                                                                
Tax (charge) on ordinary                  --              --                --               
activities
                                   ------------     ------------    ------------     
                                                                                
PROFIT ON ORDINARY ACTIVITIES                                                   
AFTER TAXATION                           180              68                13  
                                  ============    ============      ============
                                                                                
EARNINGS PER SHARE                                                              
                                                                                
Basic earnings per share                 2.0p            0.8p              0.2p 
Diluted earnings per share               2.0p            0.8p              0.2p 

 


                      UNAUDITED CONSOLIDATED BALANCE SHEET
                                 at 30 June 2006

 
                                 Unaudited       Unaudited          Restated    
                                                                    unaudited     
                                     At              At                 At        
                                30 June 2006  31 December 2005    30 June 2005   
                                       £'000            £'000            £'000  
                                                                                
FIXED ASSETS                                                                    
                                                                                
Tangible assets                          303              396              389  
                                                                                
CURRENT ASSETS                                                                  
                                                                                
Debtors                                  888              858            1,051  
Cash at bank and in hand               2,672            1,351            1,326  
                                  ------------     ------------     ------------
                                                                                
                                       3,560            2,209            2,377  
                                                                                
CREDITORS: amounts falling                                                      
due within one year                   (1,452)          (1,316)          (1,539) 
                                  ------------     ------------     ------------
                                                                                
NET CURRENT ASSETS                     2,108              893              838  
                                  ------------     ------------     ------------
                                                                                
TOTAL ASSETS LESS CURRENT                                                       
LIABILITIES                            2,411            1,289            1,227  
                                                                                
CREDITORS: amounts falling                                                      
due after more than one year               -                -              (12) 
                                  ------------     ------------     ------------
                                                                                
NET ASSETS                             2,411            1,289            1,215  
                                  ============     ============     ============
                                                                                
CAPITAL AND RESERVES                                                            
                                                                                
Called up share capital                9,178            8,475            8,469  
Share premium account                    580              273              273  
Other reserves                        (2,951)          (2,951)          (2,951) 
Profit and loss account               (4,396)          (4,508)          (4,576) 
                                  ------------     ------------     ------------
                                                                                
EQUITY SHAREHOLDERS' FUNDS             2,411            1,289            1,215  
                                  ============     ============     ============
                                                                                


                   UNAUDITED CONSOLIDATED CASH FLOW STATEMENT         
                         for the year ended 30 June 2006

 
                                   Unaudited         Unaudited      Restated
                                   Year ended        Six months     audited     
                                                       ended       Year ended               
                                  30 June 2006      31 December   30 June 2005  
                                                        2005                      
                                         £'000            £'000          £'000  
                                                                                
Net cash inflow from                                                            
operating activities                       438              136            271  
                                                                                
Returns on investments and                                                      
servicing of finance                        53               18             14  
                                                                                
Capital expenditure and                                                         
financial investment                      (137)            (120)          (248) 
                                    ------------     ------------    -----------
                                                                                
Net cash inflow before                                                          
financing                                  354               34             37  
                                                                                
Financing                                  992               (9)             5  
                                    ------------     ------------    -----------
                                                                                
Increase in cash for the                                                        
period                                   1,346               25             42  
                                    ============     ============    ===========
                                                                                
Reconciliation of net cash flow                                                 
to movement in net funds                                                        
                                                                                
Increase in cash in the                                                         
period                                   1,346               25             42  
                                                                                
Cash outflow from capital                                                       
element of finance lease                                                        
payments                                    24               17             29  
                                    ------------     ------------    -----------
                                                                                
Change in net funds arising                                                     
from cashflows                           1,370               42             71  
                                                                                
New finance leases                          --               --             (3) 
                                   ------------     ------------     -----------
                                                                                
Movement in net funds in the                                                    
period                                   1,370               42             68  
                                                                                
Net funds at the beginning of                                                   
the period                               1,291            1,291          1,223  
                                    ------------     ------------    -----------
                                                                                
Net funds at the end of the                                                     
period                                   2,661            1,333          1,291  
                                    ============     ============    ===========
                                                                                
                                                                                
Operating profit/(loss)                    116               51             (1) 
                                                                                
Depreciation and amortisation              223              113            151  
                                                                                
Movement in debtors                        174              192           (727) 
                                                                                
Movement in creditors                      (75)            (220)           848  
                                                                                
                                    ------------     ------------    -----------
Net cash inflow from                                                            
operating activities                       438              136            271  
                                    ============     ============    ===========

 


                         NOTES TO THE RESULTS STATEMENT                         
 
     
1.   The unaudited results above do not amount to statutory accounts within the 
     meaning of Section 240 of the Companies Act 1985. Statutory accounts for 
     the year ended 30 June 2005 have been filed with the Registrar of 
     Companies. The Auditors' Report on these accounts was unqualified.
     
2.   In the year ended 30 June 2006, the company adopted the requirements of
     Urgent Issues Task Force pronouncement 40 ('UITF40') in respect of 
     accounting for the recognition of non-contingent income from the provision 
     of professional services.

     In accordance with Financial Reporting Standard 3, the prior year figures 
     have been adjusted to reflect this change in accounting policy. The 
     adjustments made to the prior year figures are as follows:
          
     •    Turnover and cost of sales for the year ended 30 June 2005 are
          uplifted by £84,000.
          
     •    The amount of £84,000, previously recorded as work in progress within
          stocks has been restated as 'Amounts recoverable on contracts' within 
          debtors (note 10).

     As, in the opinion of the directors, the amounts previously carried as 
     stocks would not require to be materially marked up to be carried within 
     debtors at sales value as required by UITF 40, the prior year adjustment 
     has no effect on the previously reported figures for Operating Loss or 
     Equity Shareholders' Funds.
     
3.   The Preliminary Results for the year ended 30 June 2006 are unaudited and 
     have been prepared on the basis of the accounting policies set out in the
     audited report and accounts for the year ended 30 June 2005.
     
4.   Copies of the Annual Accounts will be sent to shareholders together with
     notice for the AGM to be held in Edinburgh on 30 November 2006 and will 
     also be available at the Company's office, 5-9 Thistle Street, Edinburgh, 
     EH2 1DF, or from the Company's website at www.vebnet.com.
     
5.   The basic earnings per share is based on the profit on ordinary activities 
     after taxation of £180k (2005: £13k) and on the weighted average number of 
     shares in issue during the year of 8,821,839 (2005: 8,436,211).

6.   The diluted earnings per share is calculated as above except for the
     inclusion within the weighted average number of shares in issue of 187,375
     (2005: 156,251) potential shares deriving from share options in issue 
     during the year, calculated in accordance with Financial Reporting Standard 
     14 'Earnings per Share'.
     
7.   The Directors do not propose the payment of a final dividend.
     


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            The company news service from the London Stock Exchange
                                                                          

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