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Vyke Communications (VYKE)

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Monday 07 June, 2010

Vyke Communications

Final Results

RNS Number : 1367N
Vyke Communications PLC
07 June 2010
 



7 June 2010

 

Vyke Communications plc

("Vyke" or "the Company")

 

Preliminary Results for the year ended 31 December 2009

Summary

 

Ø Gross billing on continuing operations £16.5 million (2008: £30.0 million)

 

Ø Loss before interest, taxation, depreciation and amortisation (EBITDA) on continuing operations before exchange gains and losses: £4.0 million (2008: loss £5.1 million).

 

Ø Vyke Mobile for personal users launched June 2009; Vyke Mobile for corporate users launched December 2009.

 

Ø Three major distribution deals signed to benefit the Group in the future

 

Ø £4.26 million gross (£3.64 million net) raised  in new equity issue, post year end

 

 

 

Tommy Jensen, Chief Executive of Vyke, commented:

 

"2009 was a difficult year for Vyke.  During it we achieved three notable distributions deals and, since the year end, the Group has recently concluded £4.26 million placing, raising net cash of £3.64 million to provide additional working capital.  We are continuing development of the existing and new products and intend to launch versions of Vyke for both the i-Phone and for phones using the Android operating system to complement the existing offering for Symbian, Java and Blackberry phones. Importantly, we have the distribution channels and strategic alliances, including those referred to in my opening remarks and the soon-to-be relaunched Nokia OVI application store, which will open up the Vyke product line to a huge range of new consumers worldwide."

 

 

For further information contact:

Vyke Communications plc


Tommy Jensen, CEO

+44 (0)20 7732 3666


Allenby Capital Limited

Nominated Adviser
Brian Stockbridge/Alex Price

+44 (0)20 3328 5656



 

Threadneedle Communications

+44 (0)20 7653 9850

Graham Herring/Josh Royston

 

 

A copy of the annual report and accounts has been posted on 5 June 2010 to those shareholders who have requested a copy and will be available on the Company's website (www.vykecorporate.com) during the morning of 7 June 2010.

 



 

Results for the year ended 31 December 2009

 

2009 was a difficult year for Vyke. During it we achieved three notable distributions deals and, since the year end, the Group has recently concluded an equity placing raising net cash of £3.64 million to provide additional working capital.

 

The first of the agreements, signed in March 2009, is with Netherlands-based Nimbuzz, to provide Vyke.com white label services for its mobile social networking and interactivity services. This provides its users with the benefit of Vyke's VoIP low cost telephony services. The service, which was delayed by technical issues, went live in November 2009 and, after extensive testing, will be expanded over the next few months.

 

The second is with Steen Group LLP, based in Miami, Florida, in October 2009 for distribution of Vyke products into Latin and South America through its regional sales and distribution channels. The Vyke Americas website has been recently launched and we expect to see the effects of this co-operative venture during the second half of 2010. 

 

The third, in December 2009, is an exclusive agreement with O-Zone Networks to provide Vyke.com international calling services to its customers. O-Zone provides WiFi services in India and aims to roll these out across major retail, commercial, leisure and residential locations across the country. Initial test services in the second quarter of 2010 have proved the viability of the service and we are working with O-Zone for an expected launch around 1 July 2010. India's current base of mobile subscribers is approaching 350 million and expected to grow to over 1 billion by 2014. India therefore provides a particularly exciting and extensive market for the Group's products.

 

After an optimistic start the Group suffered a number of problems which we reported in the interim results for the six months ended 30 June 2009. The integration of Callserve - now Vyke Communications (UK) - was more complicated than expected and involved us in considerably more cost than we expected. A significant amount of management time and technical resources were required to resolve these issues.

 

We released the first full version of Vyke Mobile in June 2009, but it soon became apparent that there were a number of minor technical hurdles to be overcome with regard to the product and its associated mobile clients which were more complex than anticipated. None of these was individually significant or fundamental to the operation of the product. However they needed to be addressed before the products could be fully launched with the levels of reliability that we and the market require. With both management and technical teams occupied in resolving the migration issues, the resolution of these problems and the marketing campaign to launch the final products were both delayed. The Enterprise solution for the corporate market, which depends on the same hardware and much of the same software, was also delayed as a result and neither product was fully launched until the very end of the financial year.

 

Structural changes within the market also severely affected the Group during the year. As explained in our interim results, there was a much faster shift of business from our high revenue callback products into the VoIP mobile solutions. Demand for international calling also fell sharply during the middle of the year especially in the Middle East, one of our core markets, and we suffered in the second half year from a number of resellers either going out of business or failing to pay outstanding debts.

 

The pressure from all these areas resulted in a significant depletion of the Group's cash reserves and downwards pressure on the Company's share price made it difficult to find additional financing.

 

The migration of the US operations to the UK, and the centralisation of other functions within our London headquarters, enabled us to reduce overhead costs but not enough to match income levels without prejudicing both existing services and ongoing development work for the Vyke Mobile launches.

 

These cash constraints, coupled with the delayed launches of our new products, also meant that we were unable to promote our products into lucrative markets such as Asia and Latin America, which originally looked to replace some of the lost revenue.

 

Current trading and outlook

 

The first quarter of 2010 continued to be affected by our lack of cash resources and it has proved impossible to build the sales volume we require to become profitable without additional funding. In the current economic climate and without a solid track record for sales of our new services, loan finance has been very difficult to obtain. The share price and trading volumes also made it prohibitively difficult to conclude and drawdown on the previously arranged equity line of credit offered by GEM Global Yield Fund Limited. The Board therefore decided that, despite the depressed share price, it had no alternative other than to go to the capital markets for investment.

 

Accordingly, on 22 April 2010, the Group announced proposals for a placing of £4.26 million. This resulted, after allocating shares to the Group's nominated adviser and brokers in respect of outstanding fees and fees and commissions relating to the placing, in net cash proceeds of £3.64 million to be used for working capital purposes. The proposals were approved by shareholders on 10 May 2010 at a General Meeting.

 

The Board is fully aware that last year's problems have left the Group with a challenge. The building blocks are however in place to deal with this.

 

We have resolved the major technological problems that have affected us. We are continuing development of the existing and new products and intend to launch versions of Vyke for both the i-Phone and for phones using the Android operating system to complement the existing offering for Symbian, Java and Blackberry phones. Importantly, we have the distribution channels and strategic alliances, including those referred to in my opening remarks and the soon-to-be relaunched Nokia OVI applications store, which will open up the Vyke product line to a huge range of new consumers worldwide.

 

Annual General Meeting

 

The Annual General Meeting of the Company will be held on 30 June 2010 in Central London. All shareholders are cordially invited to attend, to appoint proxies to attend on their behalf or to vote online or by post using the proxy form included with the notice of meeting.

 

Jørgen Rasmussen

Non-executive Chairman



 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

 

 

 

Year ended
31 December
2009

Year ended
31 December
2008

 

Notes

£'000

£'000

Continuing operations

 

 

 

Gross billing

1

16,513 

29,981 

 

 

 

 

Revenue

 

11,171 

20,925 

Cost of operations

 

(9,746)

(18,742)

Gross profit

 

1,425 

2,183 

Administrative expenses excluding exchange gains and losses, amortisation and depreciation

 

(5,434)

(7,285)

Operating loss before exchange gains and losses, amortisation and depreciation

4

(4,009)

(5,102)

Exchange gains and losses

 

(110)

1,758 

Amortisation and depreciation

 

(1,549)

(1,274)

Total administrative expenses including exchange gains and losses, amortisation and depreciation

 

(7,093)

(6,801)

 

 

 

 

Operating loss

 

(5,668)

(4,618)

Finance income

 

46 

387 

Finance costs

 

(199)

(165)

Loss before tax

 

(5,821)

(4,396)

Taxation

5

Loss from continuing operations

 

(5,821)

(4,396)

Loss from discontinued operations

 

(369)

(2,207)

Loss for the year,
all attributable to equity holders of the Company

 

(6,190)

(6,603)

Other Comprehensive Income:

 

 

 

Exchange differences on translation of foreign operations

 

(7)

(2,124)

Total comprehensive income for the year,
all attributable to equity holders of the Company

 

(6,197)

(8,727)

 

Loss per share

6

 

 

Basic

 

(10.7p)

(13.2p)

Diluted

 

(10.7p)

(13.2p)

Loss per share from continuing operations

 

 

 

Basic

 

(10.1p)

(8.8p)

Diluted

 

(10.1p)

(8.8p)

 

Balance Sheet

At 31 December 2009

 

 

31 December

2009

31 December

2008


£'000

£'000

Non-current assets

 

 

Goodwill

11,903 

11,906 

Other intangible assets

5,755 

5,317 

Property, plant and equipment

658 

966 

 

18,316 

18,189 

Current assets

 

 

Inventory

15 

132 

Trade and other receivables

742 

2,323 

Cash and cash equivalents

368 

2,408 

Assets classified as held for sale

115 

224 

 

1,240 

5,087 

Total assets

19,556 

23,276 

 

 

 

Current liabilities

 

 

Trade and other payables

3,351 

4,584 

Borrowings, including lease finance

2,388 

2,299 

Liabilities classified as held for sale

55 

 

5,739 

6,938 

Non-current liabilities

 

 

Borrowings, including lease finance

737 

284 

 

737 

284 

Total liabilities

6,476 

7,222 

Equity

 

 

Share capital

7,516 

7,388 

Share premium

28,239 

25,217 

Translation reserve

(1,775)

(1,768)

Retained earnings

(20,900)

(14,783)

Total equity

13,080 

16,054 

Total equity and liabilities

19,556 

23,276 

 



 

Statement of Changes in Shareholder Equity

For the year ended 31 December 2009

 

 

Share capital

Share premium

Translation reserve

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

At 1 January 2008

7,347 

22,313 

356 

(8,336)

21,680 

Shares issued in the year

41 

2,904 

-

-

2,945 

Share-based payments

-

156 

156 

Translation losses in the year on foreign operations

(2,124)

-

(2,124)

Loss for the year

-

(6,603)

(6,603)

At 31 December 2008

7,388 

25,217 

(1,768)

(14,783)

16,054 

Equity element of convertible loan

23 

23 

Shares issued in the year

128 

3,022 

3,150 

Share-based payments

50 

50 

Translation losses in the year on foreign operations

(7)

(7)

Loss for the year

(6,190)

(6,190)

At 31 December 2009

7,516 

28,239 

(1,775)

(20,900)

13,080 

 



 

Cash Flow Statement

For the year ended 31 December 2009

 

 

Year ended
31 December
2009

Year ended
31 December
2008

 

£'000

£'000

Cash flows from operating activities

 

 

Loss for the year

(6,190)

(6,603)

Adjusted for:

 

 

Investment income recognised in loss for the year

(46)

(387)

Finance costs recognised in loss for the year

199 

165 

Loss on sale of property, plant and equipment

- 

Depreciation and amortisation

1,549 

1,373 

Loss on disposal of businesses

43 

184 

Share-based payments

50 

156 

 

(4,388)

(5,112)

Movements in working capital:

 

 

Decrease/(increase) in inventory

105 

(59)

Decrease/(increase) in trade and other receivables

1,378 

696 

(Decrease)/increase in trade and other payables

(1,003)

(3,825)

Net cash used in operating activities

(3,908)

(8,300)

Cash flows from investing activities

 

 

Purchase of business

(420)

Cash acquired with business

276 

Purchase of intangible assets

(1,373)

(2,070)

Purchases of property, plant and equipment

(44)

(258)

Disposal of fixed assets

Disposal of businesses

37 

73 

Net cash used in investing activities

(1,374)

(2,399)

Cash flows from financing activities



Interest received

46

387 

Interest paid

(59)

(36)

Capital element of finance lease repayments

(194)

(92)

New loans

500 

Issue costs of long term loans

(13)

Repayment of loans

(19)

Equity issued

3,060 

63 

Issue costs of equity

(90)

Net cash from financing activities

3,250 

303 

Decrease in cash and cash equivalents

(2,032)

(10,396)

Cash and cash equivalents at the beginning of the year

2,408 

12,722 

Effect of exchange rate changes on cash

(8)

82 

Cash and cash equivalents at the end of the year

368 

2,408 

 

 

Notes to the Preliminary Statement

For the year ended 31 December 2009

 

1.            Basis of preparation

 

Financial information in this preliminary statement does not comprise statutory accounts for the purpose of section 435 of the Companies Act 2006 and has been extracted from the audited consolidated accounts for the period to 31 December 2009.. The statutory accounts for the year to 31 December 2008 have been filed with the Registrar of Companies and those for the year to 31 December 2009 will be filed on or before 30 June 2010. The auditor's report on the 2009 statutory accounts is unqualified but includes a reference to matters on which the auditor drew attention by way of emphasis and which is further explained in note 2 below. This statement was approved by the Board of Directors on 4 June 2010.

 

Whilst the information in this preliminary statement has been prepared in accordance with recognition and measurement criteria of IFRSs, this statement in itself does not give sufficient information to comply with IFRSs.

 

In general, a company is required to define its IFRS policies and then apply them retrospectively. IFRS 1 does however allow a company to take advantage of a number of exemptions from restating historical data in certain instances. In preparing its financial statements under IFRS for the first time in 2007, the Company took advantage of the following exemptions:

(a)          IFRS 3 "Business Combinations" - IFRS 3 has not been retrospectively applied to acquisitions that took place prior to 1 January 2006.

(b)          IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" - Movements on currency translations prior to 1 January 2006 have not been separately identified within reserves.

 

The financial statements have been prepared on the historical cost basis and are stated in Pounds Sterling (£), the currency of the country in which the Company is incorporated. The principal accounting policies adopted are set out below.

 

2              Going concern

 

The financial statements have been prepared on a going concern basis which the directors believe to be appropriate.

 

The Group made a net loss of £6,190,000 during the year ended 31 December 2009 and had cash reserves of £368,000 at the year end. Whilst cost reductions were implemented during 2009, technical problems significantly delayed the release of new vyke.com products and associated mobile clients as well as the launch of the new Enterprise solution for the corporate market. These delays combined with the impact of the global recession resulted in the Group falling well short of 2009 forecasts for revenue and EBITDA and in the Group having an overall cash outflow from operating and investing activities of £5,282,000.

 

Cash constraints during the year, which have continued since the year end, have meant that the Group has been unable to invest in significant marketing or to commence other new initiatives which have been negotiated.

 

In May 2010, subsequent to the year end, the Group raised £3,639,000 by way of a placing to assist with the Group's working capital requirements and to alleviate the cash constraints on its operations.

 

In accordance with their responsibilities the Directors have prepared cashflow forecasts to determine whether the Group now has sufficient working capital to continue in business for a period of not less than 12 months from the date of signature of the accounts.

 

In preparing these forecasts the directors have made certain assumptions as to the growth of the Group's business including that from the previously announced agreements with Nimbuzz BV based in the Netherlands, Steen Group LLC in the USA for business in Latin and South America, Nokia in respect of distribution via the Nokia OVI store and with O-Zone Networks of India.  The directors have assumed that these deals will generate very significant increases in revenue for the Group and significant new inflows of cash for the business.

 

The Group has already signed up new customers as a result of its links with Nimbuzz although the numbers are relatively low at present. Sales in Latin America in conjunction with the Steen Group and the release of Vyke products on the new Nokia OVI store are anticipated to commence in June 2010, whilst operations with O-Zone Networks are planned to commence on or around 1 July 2010. While the Board is confident that the sales forecasts are achievable they are represent a very large increase in activity when compared to current business.

 

The success of these new ventures and the pace at which the Group will see benefits is extremely difficult to predict. The roll out of new technologies to new markets is an uncertain process. Whilst no further technical problems are expected by the Board, there can be no guarantee that delays similar to those in 2009 or other unforeseen circumstances will not affect the 2010 figures. The success of these initiatives is also partly dependent on the Group's partners who will be marketing the new services.

 

For these reasons, the Group's growth, and resultant cashflow, is difficult to predict and if the business grows faster or slower than anticipated or in the event of unforeseen circumstances arising further capital may be required. There can be no certainty as to the terms or availability of such funding.

 

In view of the significance of the factors outlined above, the auditors' report on the accounts for the year ended 31 December 2009 includes an emphasis of matter paragraph which refers to the existence of these uncertainties and their impact on the Group's ability to continuing in operational existence for the foreseeable future.

 

3              Gross billing

 

Gross billing represents sales before deducting commissions and bonuses payable to distributors. In respect of certain sales of pre-paid cards, the distributor is remunerated by way of commissions and bonuses, payable in terms of additional cards, and this commission or bonus is deducted from the amount invoiced. Accordingly, under International Accounting Standard 18 (IAS 18) which requires revenue to be measured at the fair value of consideration received or receivable, only the net sum after deducting these payments is regarded as revenue. The gross billing figure is shown by way of note to aid comparison with other entities which remunerate distributors in other ways and account gross for revenue.

 

4.            Earnings before interest, taxation, depreciation and amortisation (EBITDA)

 


Continuing operations

Discontinued operations

Combined


2009

2008

2009

2008

2009

2008


£'000

£'000

£'000

£'000

£'000

£'000

Operating loss before exchange gains and losses, amortisation and depreciation

(4,009)

(5,102)

(326)

(1,924)

(4,335)

(7,026)

Less: loss on disposal of fixed assets

EBITDA before exchange gains and losses

(4,002)

(5,102)

(326)

(1,924)

(4,328)

(7,026)

Exchange gains and losses

(110)

1,758 

(110)

1,758 

EBITDA

(4,112)

(3,344)

(326)

(1,924)

(4,438)

(5,268)

EBITDA is stated before depreciation, amortisation, loss on impairment of intangible fixed assets, loss on disposal of property, plant and equipment, profit on disposal of businesses, interest and taxation.

 

5.            Taxation

 

There was no charge to corporation tax in the year ended 31 December 2009 or the year ended 31 December 2008 on either continuing or discontinued operations; accordingly the effective tax rate, calculated on the basis of total tax expense as a proportion of profit before tax, is 0% (2008: 0%).

 

6.            Earnings per share

 

The calculation of diluted income per share takes into account the effect of obligations, such as share options, considered to be potentially dilutive. No share options and warrants outstanding at 31 December 2009 or 31 December 2008 were dilutive and all such potential ordinary shares are therefore excluded from the weighted average number of ordinary shares for the purposes of calculating diluted earnings per share. Basic and diluted earnings per share were calculated using the following:


2009

2008


£'000

£'000

Loss for the year, and loss used in the calculation of basic and diluted earnings per share

(6,190)

(6,603)

 


2009

2008


Number

Number

Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share

57,834,382

50,103,476

 

7.            Significant events since the year end

 

On 10 May 2010 a General Meeting of the Company approved a placing of 121,885,281 new ordinary shares in the Company at 3.5p per share raising £4.26 million before expenses. 17,911,837 of the placing shares have been allocated to the Company's Nominated Adviser and brokers in satisfaction of outstanding fees and fees and commissions relating to the placing, resulting in the cash proceeds of the placing being £3,639,071. In addition warrants for 5,552,058 ordinary shares in the Company have been granted to the Company's advisors in connection with the placing. The warrants are exercisable at any time to 21 April 2015 at 3.5p per share. The funds from the placing have been, and are to be, used to fund the general working capital requirements of the Group, and to fund business development costs, marketing, capital expenditure and continued product development.

 

 

Note:

 

The Annual Report and accounts for the year ended 31 December 2009 will be available to the shareholders and the public on the Company's web site (www.vykecorporate.com) during the morning  of 7 June 2010.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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