RNS Number:8444B
Formjet PLC
24 April 2006
24 APRIL 2006
FORMJET PLC
("FORMJET" OR "THE COMPANY")
(AIM:FMJ)
FINAL RESULTS FOR THE FINANCIAL YEAR TO
31 DECEMBER 2005
AND
TRADING UPDATE
Formjet, the AIM listed alternative software vendor, announces today final
results for the twelve month period ended 31 December 2005.
HIGHLIGHTS
* End user clients increased from 250,000 to over 400,000 and corporate
clients from 5,000 to 17,000;
* Relocation of its four subsidiary offices - resulting in increased
efficiencies and lower ongoing establishment costs;
* Management team strengthened by the addition of a new Finance Director
and a new Sales Director;
* Group sales increased by over 47% to #3.83m during the period;
* The gross margin contribution of #2,117,665 was up from #1,718,574 in
2004; and
* Loss of #933,249 - including exceptionals of #345,869.
POST BALANCE SHEET HIGHLIGHTS
* Q1 sales grew year-on-year by 61% from #757,970 to #1,221,605 - including
the contribution from South Coast Distributions;
* The launch of a new 'Essentials' suite of software solutions, designed
specifically to address the needs of SMEs and home PC users, is expected to
provide further revenue streams for the Company; and
* Extension of its exclusive licence to distribute Panda software in the UK
until January 2008.
Commenting on today's results, Lyndon Chapman, Chief Executive of Formjet, said:
"Clearly, 2005 was a difficult year for the Company. However, now the
disappointment is in the past and we can look forward to building on an
encouraging start to this year. We hope to build on this momentum on the back of
further new product launches in the coming months."
Formjet Plc Tel: 01293 848 860
Lyndon Chapman, CEO
Tony Lee, Finance Director
www.formjetplc.com
Bishopsgate Communications Ltd Tel: 0207 430 1600
Maxine Barnes
Nick Rome
www.bishopsgatecommunications.com
Notes to Editors:
Formjet Plc is a UK-based company with a highly distinctive business model. It
acquires territorial rights to 'alternative' software products, and markets,
sells, distributes and supports these products in place of the vendor in
worldwide markets. The strategy has at its heart the proposition that we can
acquire product lines in territories of not less than a country without the
expense of either product development or the creation of IPR. The Formjet Group
currently has four product lines: Panda Software and Filestream are UK licences
and Ability and Software Dialog are worldwide.
Formjet reaches a customer base of more than 400,000 direct customers and in
excess of 17,000 corporate clients. This market penetration has been achieved
through careful research into relevant territories and then applying the most
suitable routes to market, whether through distribution and/or reseller
partners, or via direct sales. Formjet acquired South Coast Distributions, a
specialist OEM provider to system builders in July 2005.
Chairman's Statement
--------------------
Introduction
This is my first statement as Chairman of Formjet PLC following my appointment
in January 2006.
Although Formjet made significant advances towards achieving its stated
objectives during 2005, the financial result was extremely disappointing. This
outcome led to extensive personnel changes at all levels and a thorough overhaul
of the systems and controls. Lyndon Chapman, our CEO will describe the events of
2005 and the changes made in more detail in his statement below.
The basic strategic aim of Formjet is creating a range of alternative software
solutions taking the place of the vendor in exclusive territories of not less
than a country; this remains as valid as ever. Despite the setbacks in 2005
substantial sales growth was achieved with further encouraging increases in the
first quarter of 2006, compared with same period of 2005.
Overview
The milestones achieved in 2005 provide the basis for future growth.
In the twelve months of 2005 end user clients increased from 250,000 to over
400,000 and corporate clients from 5,000 to 17,000. This coupled with high
recurring revenue streams from annual licences is an encouraging growth trend.
The UK reseller structure which commenced in 2004 now exceeds 600 resellers
principally selling Ability and Panda. The Groups International Distribution
structure numbers 16 countries with further interest from partners particularly
in Asia and Australasia.
Own brand opportunities exist with leading IT resellers and supermarkets.
Formjet with its value for money alternative range of software titles is well
placed to enter into this sector.
Central to the improved control over the business was the closure in October
2005 of all of its four subsidiary offices and their relocation into a single,
modern office in Crawley, West Sussex. The relocation will not only improve the
ability to control the business but should also lower ongoing establishment
costs and improve staff management and motivation.
The relocation included South Coast Distributions Ltd, the software OEM business
acquired in July 2005. The first six months of South Coast's contribution to
Formjet was disappointing and someway off its targets. However in the first
quarter of 2006 it has demonstrated substantial sales growth.
I am pleased to report that in spite of losses exceeding #900,000, the gross
margin contribution of #2,117,665 was up from #1,718,574 in 2004. Like for like,
gross margin percentages actually improved, although over optimistic sales
targets and resultant cost structures impacted adversely on profitability.
Board Changes
Julie Crosby, the Group's Marketing Director was absent during the whole of 2005
due to illness and maternity leave and resigned in November 2005. Peter Wardle,
our Finance Director since listing resigned in September 2005.
I am pleased to report that Tony Lee was appointed as Finance Director in
December 2005. Tony has already established stringent and effective financial
management, cost and debtor control regimes. Whilst there will always be scope
for improving the relationship between costs and revenues, I feel that Tony has
already achieved a much more appropriate balance.
We also welcome Simon Hallworth who joined the Board in January 2006 as Sales
Director, Simon is also the Managing Director of South Coast Distributions Ltd.
It is my aim that we regain the confidence of shareholders through delivery of
performance and enhanced corporate governance. In addition to the skills of the
Executive team the Board now consists of myself, an experienced company director
and Chris Roberts, an experienced and qualified accountant. Philip Speer, our
Company Secretary is a corporate lawyer and partner in a legal practice.
Outlook
There are always many challenges to young businesses especially in the fast
changing IT industry. These challenges include the difficulty of accurately
forecasting first year sales of new products. Despite these challenges and the
setbacks suffered, Formjet's management has skillfully introduced alternative
software ranges.
The enlarged sales channel established in 2005 will continue to grow with
consequent increases in sales, and the new Crawley operating structures will
improve cost control and efficiencies.
I would like to thank the staff, advisors, and shareholders for their support
and encouragement and our customers for their loyalty to our alternative brands.
James Heyworth-Dunne
Chairman
April 2006
Chief Executive's Report
------------------------
The year under review has been disappointing; however the Board remains
confident of its ability to correct the cost structures and deliver growth.
The IT market place has been difficult in 2005, with many business failures
especially in distribution and reseller channels. The entry of Microsoft and
others into the security sector has not been without its challenges. In spite of
this, sales still increased by 47% although the impact was lower growth than we
expected, however gross margins were maintained.
Formjet has a unique business model; it stands in place of the vendor with
exclusive territorial sales rights. The strength of the business is its
recurring revenue stream from its licenced products, royalty based margins
resulting in high gross profits and quality alternative products. In July 2005
the business was further strengthened by the acquisition of South Coast
Distributions Ltd, a specialist OEM software provider to major system builders.
The combination of so many unplanned senior management changes and our
commitment to product launches, acquisitions and need to centralize our
activities resulted in insufficient sales progress and yet incurred the
associated costs of the planned expansion.
We have relocated all of our subsidiary operations into a single site and whilst
affecting a number of one off write-offs, this has reduced costs and provided
greater control and influence.
The first quarter's trading of 2006 reflects increased sales over the same
period last year and overhead costs in line with our internal budgets.
Our business model is acknowledged in the IT industry as an enterprising route
for new product launches and our level of end-user clients and channel
structures is growing at impressive rates.
We have also made inroads into improving our debt collection procedures and
believe that we have the resources to fund our intended 2006 programme, outside
of any funding for acquisition and new product development.
Panda Software UK
Panda continues to be the major contributor to the group's turnover and gross
margin, albeit this represented 59% of group sales in 2005 compared with 88% in
2004.
The product range improves each year and now covers a full spectrum of security
applications from home users to multinational corporates. The award winning
Truprevent technologies clearly distinguishes the range from its competitors.
The 2006 ranges are the best we have seen from Panda International and we expect
sales growth especially in the corporate and SME sectors.
This is important because by our previous standards Panda sales were
disappointing with static sales compared with 2004, although gross margins
increased from 63.73% to 65.87%.
In line with our other subsidiaries considerable expansion commitment was made
in 2005 without the resultant sales increase. The incurred costs were
principally increased sales salaries and recruitment costs, bad debts and an
increase in group management charges to cover PLC costs.
We expect in 2006 for Panda to return to its expanding ways and profitability
and we have set a challenging budget for a smaller new team based in Crawley.
The first quarter's performance is encouraging with retail performing extremely
well and corporate showing steady progress especially in the area of its
developing Business Partner programme.
I am also pleased to report that our renewal rates are amongst the best in the
industry and provide a very valuable springboard to the new financial year's
growth. Corporate renewals in particular are performing ahead of our
expectations in the first quarter of 2006.
The management of Panda recognises the challenges of Microsoft's entry into the
market, its OneCare and Vista rollouts clearly provide competition to Panda but
we feel confident that we have the products that will continue to attract a
loyal and committed client base.
Software Dialog Direct
Software Dialog Direct is a wholly owned subsidiary that specialises in a wide
range of IT security products and services, specifically those targeted at SMEs.
Software Dialog Direct sales continue to grow significantly each year (31% in
2005) but remains essentially a regional business and may form the basis of
national rollout at a later date.
Ability and Filestream
The Group commenced 2005 with extremely high expectations from Ability Software,
with hindsight these targets were set far too high. The commitment to sales and
marketing in advance of achieving brand awareness must be deemed a mistake, and
the resultant losses contributed significantly to the Groups problems, with
recorded losses of #442,000.
However there are positives to build on, from a cold start and launch in January
2006 the product now has 90,000 end users. The product is available from a
number of leading retail groups and over 300 independent retailers. Through a
structure of international country partners Ability is now available in 16
countries.
In April 2006 we launch ASI Essentials, an extension but wholly owned range of
additional products principally targeted at small businesses and home users. An
initial launch of three products will be followed by further launches at
quarterly intervals during 2006.
The Ability cost base has been significantly trimmed and realistic targets set
for the year ahead.
The Filestream brand will be incorporated into the ASI Essentials range for ease
of branding and to maximise all of the established Ability's sales channels.
South Coast Distributions Ltd
The Group acquired South Coast Distributions Ltd in July 2005.
South Coast's core activity is the design of software bundles for supply with
new computer systems either as a disc or pre-installed. South Coast supplies a
number of leading system builders including Dell, Toshiba and Dixon's.
Importantly South Coast have introduced Panda and Ability OEM products to the
market and this is particularly cost effective brand building, and potential
future Group revenue.
OEM software is considered an important part of new product launches.
Online
The growth in the Group's online revenue continues with close to #1 million of
sales a year transacted in this way.
We expect this trend to continue, fuelled not only by renewal income but also
through a wider range of product and service offerings.
In May 2006, we will launch new sites onto the market targeted specifically at
the Home-user through our Ideal Innovation site, Business and Corporate users
through Ideal B2B and our most recent development aimed at offering our entire
product range to all of our trade Reseller and Retailer partners called
"Partnershare".
Property
During 2005 the Board decided to purchase Innovation House in Crawley. Acquired
in September, the building was fully occupied by the end of the year with all of
the Group's subsidiaries. We have only one lease left over from a previous
location to dispose of and the cost of this is provided for in the 2005
accounts.
We believe improvements in all disciplines of the business will be achieved by
operating from a single base, as well as creating cost savings.
Conclusion
With 2005 and its problems behind us I look forward positively to 2006.
In spite of the market and competition challenges ahead, our programme of new
product launches and sales routes to market will, I believe, deliver a very
satisfactory performance. The building blocks for growth were laid in 2005, the
benefits of which should result in an improved performance in 2006.
Lyndon Chapman
Chief Executive
Profit and Loss Account for the year ended
31 December 2005
2005 2005 2005 2004
---- ---- ---- ----
# # # #
Acquired Existing Continuing
operations operations
TURNOVER 1,076,907 2,755,037 3,831,944 2,599,239
COST OF SALES (880,727) (833,552) (1,714,279) (880,665)
__________ ___________ ___________ ___________
GROSS PROFIT 196,180 1,921,485 2,117,665 1,718,574
Administrative expenses (265,461) (2,450,004) (2,715,465) (1,512,492)
__________ ___________ ___________ ___________
OPERATING (LOSS) / PROFIT (69,281) (528,519) (597,800) 206,082
Exceptional items (345,869) -
Interest Receivable 19,011 13,585
Interest Payable (15,227) (7,053)
___________ ___________
(LOSS) / PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (939,885) 212,614
TAXATION 6,636 -
___________ ___________
(LOSS) / PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION (933,249) 212,614
Dividends - -
___________ ___________
RETAINED (LOSS) / PROFIT (933,249) 212,614
FOR THE YEAR
=========== ===========
There were no recognised gains or losses other than the loss for the year
above.
Earnings per share
Basic earnings per share (1.18p) 0.41p
====== ======
Diluted earnings per share (1.06p) 0.35p
====== ======
Balance Sheet As At
31 December 2005
2005 2004
---- ----
# #
FIXED ASSETS
Intangible fixed assets 864,182 507,378
Tangible fixed assets 1,035,798 59,954
_________ _________
1,899,980 567,332
CURRENT ASSETS
Stocks and work in progress 334,096 87,133
Debtors 1,189,984 836,302
Cash at bank and in hand 637,150 676,388
_________ _________
2,161,230 1,599,823
CREDITORS: Amounts falling due within one year (1,970,421) (861,328)
_________ _________
NET CURRENT ASSETS 190,809 738,495
_________ _________
TOTAL ASSETS LESS CURRENT LIABILITIES 2,090,789 1,305,827
CREDITORS: Amounts falling due after more
than one year (422,441) -
_________ _________
NET ASSETS 1,668,348 1,305,827
========= =========
CAPITAL & RESERVES
Called up share capital - equity 173,983 130,246
Share premium 2,215,000 962,967
Profit and loss account (720,635) 212,614
_________ _________
SHAREHOLDERS' FUNDS 1,668,348 1,305,827
========= =========
Cashflow statement for the year ended
31 December 2005
Notes 2005 2004
----- ---- ----
# #
NET CASH (OUTFLOW) FROM
OPERATING ACTIVITIES (658,169) (38,665)
RETURNS ON INVESTMENTS &
SERVICING OF FINANCE
Interest received 19,011 13,585
Interest paid (15,227) (7,053)
_________ _________
NET CASH INFLOW FROM RETURNS
ON INVESTMENTS & SERVICING OF
FINANCE 3,784 6,532
_________ _________
TAXATION
UK corporation tax paid - -
CAPITAL EXPENDITURE & FINANCIAL
INVESTMENT
Purchase of tangible fixed assets (998,038) (26,596)
Purchase of intangible fixed assets - (93,755)
_________ _________
NET CASH (OUTFLOW) FROM
INVESTING ACTIVITIES (998,038) (120,351)
_________ _________
ACQUISITIONS & DISPOSALS
Purchase of subsidiary undertaking (358,329) -
Cash acquired with subsidiary undertaking 202,037 -
_________ _________
NET CASH (OUTFLOW) FROM
ACQUISITIONS & DISPOSALS (156,292) -
_________ _________
EQUITY DIVIDENDS PAID - -
_________ _________
NET CASH (OUTFLOW) BEFORE FINANCING (1,808,715) (152,484)
FINANCING
Issue of shares 1,330,985 1,376,499
Cost of shares issued (35,215) (432,788)
Additions to borrowings 489,550 -
Repayment of borrowings (15,843) (169,500)
_________ _________
NET CASH INFLOW FROM FINANCING 1,769,477 774,211
_________ _________
(DECREASE) / INCREASE IN CASH (39,238) 621,727
========= =========
The financial information set out in this announcement does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for the period ended 31 December 2005, containing an
unqualified auditors' report will be filed with the Registrar of Companies. The
Directors do not propose a payment of a dividend.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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