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Vebnet (Hldgs) PLC (VBT)

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Wednesday 21 March, 2007

Vebnet (Hldgs) PLC

Interim Results

Vebnet Holdings PLC
21 March 2007




                              VEBNET (HOLDINGS) PLC

                                INTERIM RESULTS

Vebnet, the AIM-listed, leading provider of technology and other employee
benefit solutions, confirms further strong growth in its core FIX&FLEX(R)
business during the most recent six months ended 31 December 2006. This latest
half-year period saw continuing increases in customer/ employee enrolment
numbers and also steady progress in the first three months after the acquisition
of loss-making 4th Contact Limited. Vebnet has offices in Edinburgh and London.

                                    Unaudited        Unaudited          Audited
                                   Six months       Six months             Year
                                        ended            ended            ended
                                  31 December      31 December          30 June       
                                         2006             2005             2006
                                        £'000            £'000            £'000
Turnover                                2,102            2,077            3,910
EBITDA                                   (40)              165              339
(Loss)/Profit before tax                (100)               68              180
(Loss)/Earnings per share                (1p)               1p               2p
Net assets                              2,518            1,290            2,411
Net cash                                1,076            1,351            2,672

Highlights


• Strong growth in core FIX&FLEX(R) business in every respect:

- Revenues from core business increased in this period 42% to £1,703k
  (£1,200k).
- Direct channel now delivers 71% of core revenues, reflecting the
  investment made in sales and marketing resources in 2006.
- The number of employees using FIX&FLEX(R) as at 31 December 2006 was
  216,336, an increase of 25% from 30 June 2006.
- Customer numbers (excluding 4th Contact) increased from 86 to 105, an
  increase of 22%.
- As at 31 December 2006, the recurring revenue (for the six month
  period) was £906k, up from £626k for the equivalent period in 2005, an increase
  of 45%.
- Add-on sales to existing clients grew by £328k.

• Overall revenue increased slightly from £2,077k to £2,102k. Within this,
  the revenue contribution from Prudential UK development work reduced
  significantly from £878k to £118k (a reduction of £760k) in the six-month
  period. This reflected a decision by Prudential UK, following a restructure
  and strategic review, to focus on core business and therefore not to invest
  further in a worksite marketing solution.

• Costs increased from £1,912k to £2,142k, representing our investment to
  extend the management team, in the last quarter of 2006, to drive and
  support the growth in core business plus 4th Contact's post acquisition
  costs between 2 October 2006 and the half year-end. In addition, there was
  £170k of incremental technology staff costs incurred in the period to
  December 2006 (in anticipation that the Prudential UK worksite marketing
  development contract would be extended) which will not fully recur in the
  second half of the year.

• Vebnet acquired 4th Contact Limited ('4th Contact') from Star Technology
  Services Limited, part of Messagelabs Group, in October 2006 for a maximum
  consideration of £661k. This acquisition, which was previously loss-making,
  will be earnings neutral in our current financial year ending 30 June 2007
  and earnings enhancing in future financial years.

• Trading since the half-year-end has also been encouraging:

- The number of implementations currently targeted for the second half
of the financial year is 14, adding at least a further 26,000 new employee
enrolments.

- New customers include BUPA (4,500 employees) and Centrica (10,000
employees).

- Vebnet has added a contact centre capability to its range of services
providing telephone support in both the enrolment cycle and throughout the
benefit year for three of its clients.

- The technology cost base has been re-aligned to reflect Prudential
UK's decision to exit the worksite marketing business and headcount has been
reduced to a level reflecting a core business delivery model around FIX&FLEX(R)
and providing support for 4th Contact's client base.

- Vebnet has been engaged to work with Prudential Asia as they develop
their employee benefit proposition for this key regional market.

- Vebnet continues to look for and evaluate acquisition opportunities in
which there are strong synergies with its existing businesses and which will be
earnings and value enhancing.

Derek Scott, Chairman, stated: 'Vebnet continues to build up its core business.
All measures of progress exhibit solid growth characteristics.'

Referring to current trading and prospects, Derek Scott added, 'Business in the
first ten weeks of the new calendar year has been encouraging. Already we have
gained new and relatively large customers for FIX&FLEX(R) and remain very
confident about the Company's ability to sustain this growth in the UK in future
years. We continue to look for opportunities to add shareholder value through
profitable sales growth in the UK and in certain overseas markets, and by
synergistic acquisitions, while at the same time working closely with clients of
our European distribution partner network.'

The Chairman also stated that 'The financial impact of the Prudential's
decision, to exit the worksite marketing business in the UK, will be restricted
to the current financial year. In spite of a significant loss in associated
revenue, the Board is confident, due to strong growth in Vebnet's core business
and underlying seasonality, of meeting market expectations of profit before tax
for the full year to 30 June 2007.'


Enquiries

+---------------------------------------+--------------------------------------
|Vebnet                                 |                                       
|                                       |                                       
+---------------------------------------+--------------------------------------
|Gerry O'Neill (CEO)                    |          0131 270 5502; 07990 584096
|                                       |                    [email protected]
+---------------------------------------+--------------------------------------
|Stephen Thurlow (CFO)                  |          0131 270 5503; 07899 912522
|                                       |                  [email protected]
+---------------------------------------+--------------------------------------
|Seymour Pierce (NOMAD and broker)      |                                     
+---------------------------------------+--------------------------------------
|Jonathan Wright                        |                        0207 107 8000
|                                       |      [email protected]
+---------------------------------------+--------------------------------------



Note to Editors

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


Interim announcement

The first half to 31 December 2006 was a further period of significant growth in
Vebnet's core business. All measures of progress exhibit solid growth
characteristics.



Financial Review

Revenues from Vebnet's core FIX&FLEX(R) business increased in this period 42% to
£1,703k (£1,200k). As at 31 December 2006, the recurring revenue component of
this (for the six month period) was £906k, up from £626k for the equivalent
period in 2005, an increase of 45%.

In the half-year, total revenue increased slightly from £2,077k to £2,102k.
Within this, the revenue contribution from Prudential UK development work
reduced significantly from £878k to £118k (a reduction of £760k). This reflected
a decision by Prudential UK, following a restructure and strategic review, to
focus on core business and therefore not to invest further in a worksite
marketing solution.

Costs increased from £1,912k to £2,142k, representing our investment to extend
the management team, in the last quarter of 2006, to drive and support the
growth in core business plus 4th Contact's post acquisition costs between 2
October 2006 and the half year-end. In addition, there was £170k of incremental
technology staff costs incurred in the period to December 2006 (in anticipation
that the Prudential UK worksite marketing development contract would be
extended) which will not fully recur in the second half of the year.

As a result, pre-tax profit for the six months reduced from £68k for the
equivalent period in 2005 to a loss of £100k. Basic earnings per share reduced
from 1p to a loss of 1p.

Net cash at 31 December 2006 was £1,076k against a 30 June 2006 cash balance of
£2,672k. Trade debtors at 31 December 2006 were £1,782k reflecting the large
number of renewal clients as of 1 January each year. We believe that there is
minimal bad debt exposure in this number.

Finally, Vebnet (Trustee) Limited was established as a wholly owned subsidiary 
of Vebnet (Holdings) plc. In the six-month period, Vebnet (Trustee) Limited 
purchased 40,000 shares on behalf of the Employee Share Option Scheme (ESOP).



Commercial and Market Review

The number of employees using FIX&FLEX(R) as at 31 December 2006 was 216,336, an
increase of 25% from 30 June 2006. Customer numbers (excluding 4th Contact)
increased from 86 to 105, an increase of 22%.

Throughout this six-month period, we started to introduce new services to
existing clients, which resulted in additional revenue of £328k. Much of this is
development revenue and is therefore non-recurring, but illustrates demand from
within our client base for new functionality and services.

Our direct channel now delivers 71% of core revenues, reflecting the investment
made in sales and marketing resources in 2006. This channel also produces higher
margins for Vebnet in software licence fees.

Our licence channel delivered lower volume of new business but of all of which
is of consistently high quality.

We implemented a Holiday Pay Fund Scheme for one client in September 2006 that
generated £52k in revenue over the period. To support this activity, we created
a separate subsidiary called Vebnet (Services) Limited which acts as the Holiday
Pay Fund Manager. This is not a service offering that we will actively promote
in the future, but rather one that we have delivered in response to a particular
customer request.

In terms of competition, we continue to be well positioned. We have visibility
of most tenders that come to market and win a large proportion of these either
directly or with/through one of our distribution partners. Our sales pipeline is
developed through a variety of marketing activities including PR, prospect
seminars, outbound calling and joint events with partners all of which are
proving effective.

4th Contact

Vebnet acquired 4th Contact Limited ('4th Contact') from Star Technology
Services Limited, part of Messagelabs Group, in October 2006 for a maximum
consideration of £661k. 4th Contact is a provider of online Total Reward
Statement and flexible benefits technology to 67 clients with over 20,000
enrolled employees.

All 4th Contact members of staff have relocated to Vebnet's London office and
all client retention and recurring revenue targets, post acquisition, are being
met.

For the six-month period, 4th Contact contributed £229k to revenues and was
breakeven.
This acquisition, which was previously loss-making, will be earnings neutral in
our current financial year ending 30 June 2007 and earnings enhancing in future
financial years.



Prudential Update

The decision by Prudential UK to exit the worksite marketing space impacted both
top line revenue and ongoing costs. We recruited additional technology resource
in May/June 2006 in anticipation that the next phase of development would
commence. An investment decision from Prudential UK was repeatedly delayed,
which impacted our six-month numbers. The impact of this will also be felt in
the second half of the year, as revenues from Prudential UK for the entire year
are currently estimated at £235k against a plan of £1,135k. Vebnet has, however,
been engaged to work with Prudential Asia as they develop their employee benefit
proposition for this key regional market.



Current Trading and Prospects

Business in the first ten weeks of the new calendar year has been encouraging.
Already we have gained new and relatively large customers for FIX&FLEX(R). The
number of implementations currently targeted for the second half of the
financial year is 14, adding at least a further 26,000 new employees. New
customers include BUPA (4,500 employees) and Centrica (10,000 employees).

Vebnet has added a contact centre capability to its range of services providing
telephone support in both the enrolment cycle and throughout the benefit year
for three of its clients.

The technology cost base has been re-aligned to reflect Prudential UK's decision
to exit the worksite marketing business and headcount reduced to a level
reflecting a core business delivery model around FIX&FLEX(R) and providing
support for 4th Contact's client base.


We continue to look for opportunities to add shareholder value through
profitable sales growth in the UK and in certain overseas markets, and evaluate
acquisition opportunities in which there are strong synergies with our existing
business and which will be earnings and value enhancing.

The Board are very confident about the Company's ability to sustain this growth
in the UK in future years. We continue to look for opportunities to add
shareholder value through profitable sales growth in the UK and in certain
overseas markets, while at the same time working closely with clients of our
European distribution partner network.

The financial impact of Prudential's decision, to exit the worksite marketing
business in the UK, will be restricted to the current financial year. In spite
of a significant loss in associated revenue, the Board is confident, due to
strong growth in Vebnet's core business and underlying seasonality, of meeting
market expectations of profit before tax for the full year to 30 June 2007.





Derek SCOTT,
CHAIRMAN
21 MARCH 2007



Unaudited Consolidated Profit and Loss Account
for the six months to 31 December 2006


                                     Unaudited       Unaudited           Audited

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

                     TURNOVER            2,102           2,077             3,910
                Cost of sales          (1,102)           (907)           (1,595)

                 GROSS PROFIT            1,000           1,170             2,315
      Administrative expenses          (1,147)         (1,119)           (2,199)

      (LOSS)/OPERATING PROFIT            (147)              51               116

  Net interest receivable and
               similar income               47              17                64

    (LOSS)/PROFIT ON ORDINARY
   ACTIVITIES BEFORE TAXATION            (100)              68               180

     Tax (charge) on ordinary
                   activities               --              --                --

    (LOSS)/PROFIT ON ORDINARY
    ACTIVITIES AFTER TAXATION            (100)              68               180

    (LOSS)/EARNINGS PER SHARE
    Basic (loss)/earnings per             (1p)              1p                2p
                        share



Unaudited Consolidated Balance Sheet
at 31 December 2006


                                     Unaudited        Unaudited          Audited

                                            At               At               At
                                   31 December      31 December          30 June
                                          2006             2005             2006
                                         £'000            £'000            £'000

                 FIXED ASSETS
              Tangible assets              999              396              303

               CURRENT ASSETS
                      Debtors            2,087              858              888
     Cash at bank and in hand            1,076            1,351            2,672

                                         3,163            2,209            3,560

   CREDITORS: amounts falling
          due within one year          (1,644)          (1,315)          (1,452)

           NET CURRENT ASSETS            1,519              894             2108

    TOTAL ASSETS LESS CURRENT
                  LIABILITIES            2,518            1,290            2,411

   CREDITORS: amounts falling
 due after more than one year                -                -                -

                   NET ASSETS            2,518            1,290            2,411

         CAPITAL AND RESERVES
      Called up share capital            9,324            8,475            9,178
        Share premium account              640              273              579
               Other reserves          (2,950)          (2,950)          (2,950)
      Profit and loss account          (4,496)          (4,508)          (4,396)

   EQUITY SHAREHOLDERS' FUNDS            2,518            1,290            2,411



Unaudited Consolidated Cash Flow Statement
for the six months to 31 December 2006


                                       Unaudited        Unaudited        Audited

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

 Net cash inflow/(outflow) from
           operating activities          (1,093)              137            438

     Returns on investments and
           servicing of finance               61               18             53

        Capital expenditure and
           financial investment            (131)            (120)          (137)

                       Taxation               --               --             --

     Acquisitions and disposals            (671)               --             --

      Net cash inflow/(outflow)          (1,834)               35            354
               before financing

                      Financing              197              (9)            992

Increase/(decrease) in cash for
                     the period          (1,637)               26          1,346

Reconciliation of net cash flow
       to movement in net funds

 Increase/(decrease) in cash in          (1,637)               26          1,346
                     the period

      Cash outflow from capital
       element of finance lease                8               16             24
                       payments

    Change in net funds arising
                from cash flows          (1,629)               42          1,370

             New finance leases               --               --             --

   Movement in net funds in the          (1,629)               42          1,370
                         period

  Net funds at the beginning of            2,661            1,291          1,291
                     the period

    Net funds at the end of the            1,032            1,333          2,661
                         period

        Operating profit/(loss)            (147)               51            116

  Depreciation and amortisation              107              113            223

              Movement in stock             (57)               84             --

            Movement in debtors          (1,197)              108            174

          Movement in creditors              201            (219)           (75)

 Net cash inflow/(outflow) from
           operating activities          (1,093)              137            438

 
                    Notes to the Interim 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 2006 have been filed with the Registrar of Companies. The
Auditors' Report on these accounts was unqualified.

2.This Interim Statement for the six months ended 31 December 2006 is
unaudited and has been prepared on the basis of the accounting policies set out
in the audited report and accounts for the year ended 30 June 2006.

3.Copies of the Interim Report are being sent to shareholders and are also
available at the Company's head office, 5-9 Thistle Street, Edinburgh, EH2 1DF,
or from the Company's website at www.vebnet.com.

4.The earnings per share calculation is based on the loss on ordinary
activities after taxation of £100,000 (2005: profit of £68,000) and on the
weighted average number of shares in the period of 9,249,594 (2005: 8,470,917).

5.The Directors have not declared an interim dividend.





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