News > Press Release:Freeplay Energy plc ( AIM:FRE ), INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005

2005-09-26
Press Release - 2005-09-26

Interim Results for the six months ended 30 June 2005
Freeplay Energy plc ("Freeplay", "the Group" or "the Company"), the sustainable energy company that captures, stores and delivers electric power to self-powered devices such as radios, torches and mobile phone chargers, announces interim results for the six months ended 30 June 2005.
  • Turnover at US $1.1 million (2004 : US $2.6 million)
  • Operating loss of US $2.1 million (2004: US $0.5 million)
  • Lower revenues in first half largely due to change in accounting treatment of revenue recognition from Dixie Sales Company, the Groupís new US distribution partner
  • Second half trading has started well
  • IPO funds being invested in developing the business for sales growth
  • Sales-led distribution channels established in North America, Africa & Europe
  • Better than expected retail sales in Africa
  • Orders for 10,000 DAB radios received in the UK
  • New foot powered generator successfully launched
  • Improving market conditions for sustainable energy products
Rory Stear, Chairman and Chief Executive Officer commented:
"During the first half we have focused on building first rate distribution channels, as evidenced by North America and Africa. Our enlarged distribution network is already showing considerable progress and the appointments we have made will directly affect the second half of the current year, providing a strong foundation for significant growth in 2006 and giving us a base to fulfil the Board's vision of building a large sustainable energy company."

"The second half has started well and we are beginning to see sales from our recent product launches and broadened distribution network."

For further information, please contact:
Freeplay Energy plc                                                      020 7851 2630
Rory Stear, Chairman and Chief Executive Officer

Weber Shandwick Square Mile                                     020 7067 0700
Louise Robson

Charles Stanley & Co                                                    020 7739 8200
Mark Taylor, Freddy Crossley

Notes to Editors: Freeplay Energy's core technology revolves around the efficient conversion and storage of applied human energy, and the delivery of this energy on demand as electricity to create self-powered electronic devices. Initial applications include radios (both consumer and humanitarian), torches, mobile phone chargers and standalone foot chargers and the Company has a new product development plan which anticipates broadening the application of its technology into new product categories. Freeplay believes it was first to market and commercialise self-powered technology and that it is recognised as a leading brand in this market for such products.

Established in 1994, the Company today has offices in both London and Cape Town and floated on AIM, a market operated by the London Stock Exchange plc in March 2005. Further information about Freeplay Energy and its products can be found at www.freeplayenergy.com.

The Board of Freeplay announces interim results for the period ended 30 June 2005. Since the beginning of the year the Group has focused its efforts on developing the business to drive sales growth and this has involved new product launches and development, the establishment of sales led distribution channels and investment in operational management. The Directors believe that there is a growing demand for sustainable self-powered energy products which underlines its confidence in the Group's prospects in the next 18 months.

Financial Results
For the period ended 30 June 2005, turnover was US $1.1 million (2004: US $2.6 million). Like for like turnover in the UK and Continental Europe was strong and increased by 16%, but decreased by 120% in North America as a result of the change in our US distribution partner and by 33% throughout the rest of the territories in which we operate. As reported at Freeplay's pre-close statement in July, a change in accounting treatment, following the appointment of Dixie Sales Company ("Dixie"), the Group's US distribution partner, had a negative impact of approximately US $1.1 million on revenue in the first half. This is because revenue is now recognised when product is shipped from Dixie rather than previously where revenue was recognised when product was shipped from Freeplay.

Gross margins improved to 35.9% (2004: 28.7%). Operating costs in the first half were US $2.5 million, which were in line with the Company's expectations. Freeplay reported an operating loss of US $2.1 million (2004: US $0.5 million) and a loss before taxation of US $2.1 million (2004: US $0.6 million). The basic and diluted loss per share for the period was US $0.12 (2004: US $0.04).

During the period the Company issued £1.5 million (US $2.8 million) of convertible loan stock, which converted into 3,605,769 ordinary shares on flotation. At flotation Freeplay raised an additional US $6.7 million of which US $2.5 million of directly attributable costs was debited to the share premium account. In addition, US $5.2 million of debt held at 30 December 2004 was converted into ordinary shares.

Proceeds were used to fund the first six months operations (US $2.1 million), a reduction in trade and other liabilities (US $1.5 million) and an increase in inventories (US $0.5 million). There was a reduction in debtors of US $1.0 million due to deferred listing costs capitalised at 30 December 2004. However, this was offset by an increase in trade receivables (US $0.4 million), other receivables (US $0.4 million) and prepayments for inventory (US $0.3 million) and tooling (US $0.1 million) to be brought into use in the latter half of 2005. At 30 June 2005, Freeplay had a net cash balance of US $0.7 million. Short term receivables and the overdraft facility will provide the Company with funding through 2005.

Operational Review

Product Development
The Group has made good progress with its product development plan and has now brought to market all the new products as outlined at the time of the IPO. As a result, the Freeplay product range has increased from four products at the beginning of the year to 15 as at September 2005.

These new products include the world's first sustainably powered Digital Audio Broadcasting (DAB) radio into the UK market. The response to this product has been extremely strong with current orders standing at 10,000 units.

The Group has also launched the first sustainable foot powered generator with enough power to start a car or a boat. The generator was launched this month into the US and African markets and orders have already been received which are expected to be delivered during the fourth quarter. These two products are testament to the Group's research and development capabilities and demonstrate the Group's capability in the self-powered energy market - primarily due to its ability to harness power sources at optimum efficiency.

The Group has increased its range of illumination products from one to four, with a fifth product, the Chimba Lantern, planned at the end of the year. Our illumination products continue to enjoy success with consumers. We are particularly pleased that the 20,000 unit Freecharge mobile phone charger sale concluded in the first half has been delivered into Africa and we anticipate further growth opportunities for such chargers in the African market.

Manufacturing
We have increased our manufacturing capability in China and now have relationships with four factories compared with the original one factory at the beginning of the year. This expansion in capacity has enabled Freeplay to take advantage of the specialist manufacturing and technologically advanced capabilities needed for its newer products and provides the Group with enough capacity for its current growth plans, thereby reducing reliance on a single provider.

Sales and Distribution
We have made strong progress in North America following the exclusive distribution agreement signed with Dixie Sales Company in May. This has been further cemented by appointing Dixie to be our distribution agent in Canada. As well as understanding the Freeplay range, there is an added advantage in that Dixie's existing relationships in Canada will be of particular benefit to our products. We are hopeful for the Canadian market to make a contribution to our fourth quarter results.

In Africa we have added two further distribution partners - Ubuntu in West Africa and a further one in South Africa, Cadac - to bring our total distributorships to four. The additional distributor in South Africa complements our established distributor by offering products to the outdoor leisure and camping markets. It is particularly pleasing that all four distributors have placed orders in the current quarter.

Our Aid market in Africa continues to be a consistent performer although the cycle of business does not follow any particular trading pattern. Whilst Aid sales in the first half of 2004 were extremely buoyant, due to the cyclical nature of this business trading in the first half of 2005 was quiet. However, we are already seeing substantial opportunities in the Aid market for the second half and are currently tendering for two significant contracts.

In Europe, the UK market has had a robust first half, with sales going well, and orders already shipped or placed which have enabled us to fulfil our 2005 expectations for the UK market ahead of schedule. We saw the launch of DAB radios in the second half and this is proving to be an extremely popular product with 10,000 units delivered to date. We are continuing to see good sell through of analogue radios, particularly through John Lewis and Argos, which we shipped in the first half of the year. These sales are enabling us to increase our market share in a declining market.

In Continental Europe, we have appointed two distributors to serve the Dutch and French markets - Catter B.V. in Holland and ACT in France. We expect to ship products to France in the third quarter and Holland in the fourth quarter of this year.

People
During the period we have continued to strengthen the operational management team, building on the appointments we made prior to the IPO. For example, the growth we are seeing in Africa has been made as a result of the specific sales hires in that business area, in particular, Jenny Kotze who joined Freeplay as Business Development Manager Africa. We will continue to seek suitable new candidates who will be able to work with us to grow the business.

Current Trading and Outlook
We are seeing a growing market for sustainable and self-powered energy products as highlighted by the recent high energy prices and climate changes which have created an increased awareness of Freeplay's products. Further, recent global events have highlighted the need for emergency preparedness which we believe will be a driver for sales of self-powered sustainable energy products.

During the first half we have focused on building first rate distribution channels, as evidenced by North America and Africa. Our enlarged distribution network is already showing considerable progress and the appointments we have made will directly affect the second half of the current year, providing a strong foundation for significant growth in 2006 and giving us a base to fulfil the Board's vision of building a large sustainable energy company.

The second half has started well and we are beginning to see sales from our recent product launches and broadened distribution network. The Board anticipates that trading in the second half of the current financial year will produce a small profit and that the loss before taxation for the Group will be similar to that reported in the financial period ended 30 December 2004.

For further information, please contact:
Freeplay Energy plc                                                      020 7851 2630
Rory Stear, Chairman and Chief Executive Officer

Weber Shandwick Square Mile                                     020 7067 0700
Louise Robson

Charles Stanley & Co                                                    020 7739 8200

A CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 June 2005
  Notes For the Six
months ended
30 June 2005
(Unaudited)
US $'000		 For the Six
months ended
30 June 2004
(Unaudited)
US $'000		 For the
period ended
30 Dec 2004
(Audited)
US $'000
Turnover - continuing operations
Cost of sales - continuing operations		   1.129
(728)		 2.607
(1.859)		 6.302
(4.188)
Gross profit   401 748 2.114
Administrative expenses continuing operations   (2.471) (1.268) (2.806)
Operating loss - continuing operations
Interest receivable
Interest payable and similar charges		   (2.070)
11
(66)		 (520)
38
(144)		 (692)
39
(1.313)
Loss on ordinary activities before taxation
Tax on loss on ordinary activities		   (2.125)
-		 (626)
-		 (1.966)
-
Loss for the financial period   (2.125) (626) (1.966)
Basic and diluted loss per 5p ordinary share (in US $) 1 (0.12) (0.04) (0.14)

CONSOLIDATED BALANCE SHEET
At 30 June 2005
  Notes 30 June 2005
US $'000
(Unaudited)		 30 June 2004
US $'000
(Unaudited)		 30 Dec 2004
US $'000
(Audited)
Fixed assets
Tangible assets
Investments		  
455
-
485
-
519
-
Current assets
Stocks
Debtors
Cash at bank and in hand		   455
504
2.640
702		 485
41
1.204
29		 519
140
2.447
118
Creditors amounts falling due within one year
(including convertible loan stock)		   3.846
(2.827)		 1.274
(8.737)		 2.705
(12.246)
Net current liabilities   1.019 (7.463) (9.541)
Total assets less current liabilities
Provisions for liabilities and charges		   (1.474)
-		 (6.978)
(250)		 (9.022)
(55)
Net liabilities   (1.474) (7.228) (9.077)
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Other reserve
Profit and loss account		  
3.936
16.956
1.947
60
(21.425)
1.342
7.232
1.947
60
(17.809)
1.342
7.232
1.947
60
(19.658)
Total shareholders' deficit   1.474 (7.228) (9.077)
Represented by:
Equity shareholders' deficit
Non-equity shareholders' funds		  
1.474
-
(15.559)
8.331
(17.408)
8.331
Total shareholders' deficit   1.474 (7.228) (9.077)

CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months 30 June 2005
  Notes For the
six months
ended
30 June 2005
(Unaudited)
US $'000		 For the
six months
ended
30 June 2004
(Unaudited)
US $'000		 For the
period ended
30 Dec 2004
(Audited)
US $'000
Net cash outflow from operating activities
Returns on investments and servicing of finance
Interest paid
Interest received		   (4.066)

(35)
11		 (1.174)

(71)
38		 (2.377)

(124)
39
Net cash outflow from returns on investments and servicing of finance
Capital expenditure and financial investment
Purchase of tangible fixed assets		   (24)

(53)		 (33)

(97)		 (85)

(230)
Net cash outflow for capital expenditure and financial investment   (53) (97) (230)
Net cash outflow before financing   (4.143) (1.304) (2.692)
Financing
Issue of ordinary share capital
Issue of preference share capital
Issue of preference share warrants
(Decrease)/Increase in borrowings		  
12.318
-
-
(5.680)
-
40
60
1.323
-
40
60
1.331
Net cash inflow from financing   6.638 1.423 1.431
Decrease in cash   2.495 119 (1.261)

CASH FLOW FROM OPERATING ACTIVITIES
Reconciliation of operating loss to net cash outflow from operating activities
  For the
six months ended
30 June 2005
(Unaudited)
US $'000		 For the
six months ended
30 June 2004
(Unaudited)
US $'000		 For the period ended
30 December 2004
(Audited)
US $'000
Operating loss
Depreciation charge
(Increase)/Decrease in stocks
Increase in debtors
(Decrease)/Increase in creditors
Decrease in provisions		 (2.070)
100
(364)
(193)
(1.484)
(55)		 (520)
106
45
(108)
39
(736)		 (692)
230
(54)
(1.351)
421
(931)
Total net cash outflow from operating activities (4.066) (1.174) (2.377)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the period ended 30 June 2005
  Notes For the six
months ended
30 June 2005
(Unaudited)
US $'000		 For the six
months ended
30 June 2004
(Unaudited)
US $'000		 For the
period ended
30 Dec 2004
(Audited)
US $'000
Loss for the financial period
Currency translation differences on net investment in foreign subsidiries		   (2.125)
360		 (626)
(91)		 (1.966)
(600)
Total recognised losses for the period   (1.765) (717) (2.566)

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS'(DEFICIT)/FUNDS
For the six monthes ended 30 June 2005
  For the six
months ended
30 June 2005
(Unaudited)
US $'000		 For the six
months ended
30 June 2004
(Unaudited)
US $'000		 For the
period ended
30 Dec 2004
(Audited)
US $'000
Loss for the financial period
Currency translation differences on net investment in foreign subsidiaries
Net proceeds from equity shares issued
Conversion of loans to equity shares
Net proceeds from non-equity share warrants issued		 (2.125)
360
7.085
5.231
-		 (626)
(91)
-
-
60		 (1.966)
(600)
-
-
60
Net increase/(decrease) in shareholders' funds/(deficit)
Opening shareholders'deficit		 10.551
(9.077)		 (657)
6.571		 (2.506)
(6.571)
Closing shareholders' deficit 1.474 (7.228) (9.077)

NOTES INTERIM ANNOUNCEMENT
1. The calculation of earnings per share is based on the loss of US $2.125 million (for the six months ended 30 June 2004: US $0.626 million; for the period ended 30 December 2004: US $1.966 million) and on 18,477,610 Ordinary shares (for the six months ended 30 June 2004: 13,990,342; for the period ended 30 December 2004: 13,990,342) in issue.

2.The financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory accounts for 2004.

3.The financial information set out above does not constitute the company's statutory accounts within the meaning of section 240 of the Companies Act 1985.

4.The 2004 comparatives are derived from the statutory accounts for the period ended 30 December 2004 which have been delivered to the Registrar of Companies and received an unqualified audit report and did not contain a statement under the Companies Act 1985, s237(2) or (3).

5.This statement will be made available online at www.freeplayenergy.com and copies will be made available at the Company's registered office, 2 Stone Buildings, Lincolnís Inn,LONDON WC2A 3TH.

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