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2006-06-23
2006-06-23Press Release - Weber Shandwick, Financial Communications:
Preliminary Results for the year ended 30 December 2005
CHAIRMANS STATEMENT
I am pleased to present the full year results for Freeplay Energy plc for the year ended 30 December 2005, its first year as a public company.
2005 has proved to be both a challenging and exciting year for Freeplay. The Company was successfully admitted to AIM on 2 March 2005 raising US $4.4million net of expenses, by way of a placing of new shares. The funds received from the flotation have been used to repay existing debt, market the Groupís products, upgrade existing tooling and acquire tooling for new products. Net debt at 30 December 2005 was US $1.2 million (2004: US $1.8 million).
The focus of 2005 was largely one of laying the foundations for the Group: increasing our manufacturing capability; bringing to market the portfolio of new products as outlined at the time of the IPO and strengthening our business development function. In addition, we have spent time reviewing, and implementing a change in our US strategy, which in May 2005 consolidated North American distribution into Dixie Sales providing a necessary link in our supply chain process and improved flexibility as well as providing new channels to market. Although our financial results for this year are disappointing they reflect the investments made in the year and the Boardís guidance given to the market in December 2005.
I have been particularly pleased with the number of new products we have launched since the IPO, which increased the product range from nine at the end of 2004 to sixteen by the end of 2005. New applications for the core technology continue in development, with the product pipeline expected to provide new product launches during 2006.
Progress was also made during 2005 in business development with the recruitment of senior managers for Africa and Europe. This has resulted in several new relationships, partnerships and distribution agreements that are expected to bear fruit through 2006.
2005 reflected the investment in the brand, building the management team and in new products that build the foundation for future growth in the sustainable energy arena. Our business model has been enhanced with the addition of inventory in North America through Dixie Sales, providing a necessary link in the supply chain process and improved flexibility.
Financial Results
For the year ended 30 December 2005, turnover was US $3.1 million (2004: US $6.3 million) with sales of US $2.6 million in the second half contributing to overall turnover for the period. This reduction in turnover was impacted by like for like turnover in the UK and Continental Europe decreasing by 37%, due to a recall of Devo, the Companyís new portable DAB and FM radio, and Weza, Freeplayís FreeCharge portable energy source, towards the year end. Both these one-off issues have now been resolved and the product reshipped to distributors in the first quarter of 2006. Turnover was also affected by the change in accounting treatment of revenue recognition from Dixie Sales Company, the Groupís North American distribution partner.
Gross profit fell to US $1.1 million (2004: US $2.1 million) as a result of the reduction in revenue. In line with expectations, administrative expenses increased by 97% to US $5.5 million (2004: US $2.8 million) as a result of the Groupís investment in new staff, business development costs incurred in the US to set up the new distribution relationship and unrealised foreign exchange losses. Freeplay reported a substantial increase in operating loss to US $4.4 million (2004: US $0.7 million) and the loss before taxation increased to US $4.5 million (2004: US $2.0 million). The Group utilised research and development tax credit claims of US $0.2 million bringing the loss for the financial year to US $4.3 million (2004: US $2.0 million).
During the period, net debt was reduced by US $6.2 million to US $2.3 million (2004: US $8.5 million). The Company issued £1.5 million (US $2.8 million) of convertible loan stock in January 2005, which converted into 3,605,769 ordinary shares on flotation.
At flotation in March 2005, Freeplay raised US $6.6 million, of which US $2.3 million has been used to reduce debt.
Product Development
The Group continued to make good progress with its product development plan over the period and increased its product range to sixteen as at 30 December 2005.
Freeplay's range of illumination and radio products continued to enjoy success with consumers and over the course of the year Freeplay launched several new products to complement the existing range. During Q2 the LED based Jonta was successfully launched, as well as a light centre to house the Sherpa LED products as a domestic charging centre. In the final quarter of this year the Kito lantern was launched.
In terms of audio products, the Eyemax radio was launched in weatherband and light versions during Q1 and during Q3, Freeplay launched the worldís first sustainably powered portable DAB and FM radio, Devo.
The Group also launched Weza, the first sustainable foot powered generator which incorporates the very best of Freeplayís technology in one appliance. In March 2006, a patent was granted by the UK Patent Office for the Weza which will help to ensure that Freeplay remains at the forefront of technical developments and innovation in this area.
The grant of the patent is an important step for Freeplay, as it helps to open up additional opportunities for the Company, particularly in the developing world. A key feature of the Weza is that it can be used to power electronic equipment via its 12V DC cigarette lighter output socket and so enables those with little means or infrastructure to charge, for example, multiple mobile phones simultaneously at any one time.
In recognition of the Groupís strong brand, Freeplay was a finalist for the 2005 Walpole Awards for British Excellence.
The Group continues to explore ways to expand the current product platforms and is investigating ways in which to extend its technology to a range of lighting systems, audio products and standalone power packs. Further progress has been made with the medical devices that Freeplay has adapted, including a foetal heart rate monitor and pulse oximeter, to be driven by human power. Targeted at the developing world, the products have also been simplified for ease of use by non-medical professionals and ruggedised to withstand harsh environments. These products remain in the pipeline as a result of the rigorous testing process required prior to use. In addition, Freeplay is working with Massachusettís Institute of Technology to develop the alternative energy solution for their ìOne Laptop per Childî project.
Manufacturing
Freeplay has delivered on its strategy to diversify its manufacturing capability and now outsources to five factories in China compared with one at the beginning of 2005. Furthermore, Freeplay achieved savings of US $265,000 against budget in acquiring the moulds and tooling at the new factories for the products launched during 2005.
Sales and Distribution
As anticipated in the Groupís trading statement in December 2005, sales were lower than originally anticipated in North America arising from the Boardís post-IPO change in US strategy which consolidated North American distribution into Dixie Sales, and the consequent rebuilding of North American distribution infrastructure has compounded the situation.
Although implementation and integration of the marketing plan has been slower than anticipated, the Board is encouraged by the progress made by Dixie Sales, since its appointment in May 2005. Recent developments include achieving listings with major sporting and outdoor retailers and the appointment of commissioned sales representatives, increasing the opportunity to secure significant retail coverage for Freeplayís product range.
New distribution agreements were also signed during 2005 in West Africa and Europe. These important distributors have placed initial orders and, in some cases, we have already seen repeat orders. Freeplay looks forward to developing further opportunities in conjunction with these distributors. A number of alternative partnerships are also being tested as Freeplay concentrates on expanding the routes to the consumer.
We continue to review our distribution arrangements, taking control into Freeplay whenever possible. Our strategy in North America and the United Kingdom is to target the major distributors and the Group is making good progress in securing new distribution partners, where we have already shipped product or are in final negotiations.
We continue to focus on becoming a major provider of sustainable energy in the developing world, a strategy which is based on statistics which suggest that developing nations account for approximately 85% of the world population, but only 46% of the worldís fossil fuel electricity consumption.
Our People
During the period we have continued to strengthen both our operational and senior management team.
As the Group becomes more focused on strengthening its sales and distribution efforts, during the year we have strengthened our business development capabilities, putting in place a team which is able to help Freeplay take advantage of the significant opportunities available to the Group in 2006.
In February 2005, Jenny Kotze joined as Business Development Manager ñ Africa. She is responsible for Freeplayís marketing strategy across the spectrum of African distribution, with a strong emphasis on market building for the FreeCharge mobile phone chargers. Sameer Hajee and David Floyd joined the Group as Business Development Managers on 1 December 2005 and 1 January 2006 respectively. Sameer heads up Freeplayís Aid business globally and David leads the Groupís sales drive in Europe.
In addition, Andy Polansky was appointed to the Board as a Non-executive Director on 13 December 2005.
The Board would like to take this opportunity to thank all members of staff for their contribution to the progress the Company has made during this period of significant change.
Post year-end developments
Since the year-end, we have had a number of significant and positive developments within our business. As indicated in the trading update issued in December initial shipments of our FreeCharge portable energy source, Weza, and the portable DAB and FM radio were recalled due to technical problems. These one-off problems have now been fully resolved and both products were re-shipped during the first quarter of 2006.
In terms of products, production continues to progress in line with our development plans. The Group has commenced tooling a table lantern and 12V FreeCharge mobile phone charger. A prototype self powered laptop is being developed in conjunction with a partner that has confirmed the provision of funding for the project.
While the first quarter is a traditionally quiet period due to the closure of manufacturing for Chinese New Year, we are pleased that the Group is achieving promising early sales figures in both Africa and North America.
The distribution relationship with Dixie Sales, begun in mid 2005, has achieved notable recent success in signing retail groups in the North American market, including Target, Macys Mid West, Sharper Image and REI. This, in conjunction with the Dixie sales team, infrastructure and reduced lead times in North America, underpins Freeplayís optimism for achieving significant revenue growth.
The Aid sector continues to be important for Freeplay and during the period the Company has established preferred supplier status with a number of aid organisations. In the year to date, the Freeplay AID and Humanitarian division has received placed orders in excess of US $1.4 million, including substantial orders from the Freeplay Foundation and UNICEF.
The Freeplay Foundation is an important outlet for the Lifeline radio, and Freeplay is pleased to be able to continue to work with them. In December 2005, the Freeplay Foundation was one of two chosen charities supported by The Times Christmas Appeal.
On 18 April 2006, Freeplay announced that the Freeplay Foundation, in partnership with a US-based not for profit organisation, had placed orders for 13,000 Lifeline radios.
On 24 May 2006, Freeplay signed a Long Term Arrangement (ìLTAî) with UNICEF to be the sole supplier of wind-up radios, the Freeplay Lifeline radio, to UNICEF. Following independent testing, UNICEF chose the Freeplay product for an opening order of 20,000 radios for Madagascar and, in addition, the contract will make the Lifeline radio available to the entire United Nations through UNICEF. Under the terms of the contract, the United Nations will no longer need to tender for the supply of wind-up radios to its sister organisations.
On 15 May 2006, we announced that Freeplay Market Development Limited, a wholly owned subsidiary company, had signed a five year agreement with WP Phones Internationalís Hong Kong subsidiary, WP Phones International Hong Kong Limited (ìWP Phonesî) for a distribution order of its FreeCharge Mobile Phone Charger (ìFreeChargeî) in Africa. The agreement will provide Freeplay with guaranteed sales through WP Phones of one million units of the FreeCharge per year, over a five year period. WP Phones will have exclusive distribution rights in both Nigeria and Tanzania over the period of this contract and if it achieves sales of more than two million units a year, then it will retain exclusive distribution rights of the FreeCharge across the whole of Sub-Saharan Africa. The contract with WP Phones has been broadened to include the Caribbean, where Freeplay will provide an additional minimum 100,000 units per annum.
Furthermore, to add to its recent success in winning new business, on 8 June 2006, Freeplay received an order, through Tango Group, from the UK Ministry of Defence for the supply of 12,000 Freeplay Ranger radios and 12,000 Freeplay Kito lanterns, and on 16 June Catter, Freeplayís European distributor, placed an order for 7,000 Freeplay products, including the Eyemax radio, the Jonta flashlight, the Summit radio, the Sherpa LED flashlight and the Indigo lantern.
On 18 May 2006, it was announced that Freeplay had agreed, subject inter alia to shareholder approval to acquire the entire issued share capital of Barrett Marketing Group Inc. (ìBMGIî) and its wholly owned subsidiary Dixie Sales Company Inc. (ìDixieî). Freeplay also announced today that it has raised US $4.7 million (net of expenses) through a placing with institutional and other investors, which is also subject to shareholder approval. The acquisition of BMGI and the placing are inter alia, subject to shareholder approval and an extraordinary general meeting has been convened for 10.00 am on 17 July 2006 at which shareholders will be asked to consider resolutions necessary to approve and implement the acquisition of BMGI and the placing.
Dixie Sales is an established sales, marketing, distribution and customer service provider based in Greensboro, North Carolina, USA. Dixie provides a full range of services to its customers and suppliers, which includes customer and supplier account management, customer and supplier logistics, consumer call centre services and technical services such as training and education to customers. In addition, Dixie provides brand building, sales and marketing support, order management and distribution services for all of Freeplayís products in North America and Caribbean countries.
Outlook
The investment that Freeplay has made during 2005 and relationships established, seek to underpin Freeplayís sustainable energy vision.
We are focused on our business development initiatives, in order to deliver a significant improvement in contribution to operations during 2006 and beyond. 2006 has started well and we remain encouraged by the opportunities currently available to the Group and are confident of fulfilling the Boardís vision of building a significant sustainable energy company.
-Ends-
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 or Rachel Taylor
Consolidated profit and loss account for the year ended 30 December 2005
| Year ended 30 December 2005 US $'000 | Period ended 30 December 2004 US $'000 | |
| Turnover - continuing operations Cost of sales - continuing operations | 3,083 (1,977) | 6,302 (4,188) |
| Gross profit Net operating expenses - continuing operations | 1,106 (5,524) | 2,114 (2,806) |
| Operating loss - continuing operations Interest receivable and similar income Interest payable and similar charges | (4,418) 36 (129) | (692) 39 (1,313) |
| Loss on ordinary activities before taxation Tax credit on loss on ordinary activities | (4,511) 212 | (1,966) - |
| Loss for the financial year | (4,299) | (1,966) |
| Basic and diluted loss per 5p ordinary share (in US $) | (0.22) | (0.14) |
Consolidated balance sheet as at 30 December 2005
| 30 Dec 2005 US $í000 | 30 Dec 2004 US $í000 | |
| Fixed assets Intangible assets Tangible assets Investments | - - 651 - | - - 519 - |
| 651 | 519 | |
| Current assets Stocks Debtors Cash at bank and in hand | - 838 2,643 325 | - 140 2,447 118 |
| 3,806 | 2,705 | |
| Creditors: amounts falling due within one year (including convertible loan stock) | (4,661) | (12,246) |
| Net current liabilities | (855) | (9,541) |
| Total assets less current liabilities | (204) | (9,022) |
| Creditors: amounts falling due after more than one year | (45) | - |
| Provisions for liabilities and charges | - | (55) |
| Net liabilities | (249) | (9,077) |
| Capital and reserves Called up share capital Share premium account Merger reserve Other reserve Profit and loss account | - 3,936 17,052 1,947 60 (23,244) | - 1,342 7,232 1,947 60 (19,658) |
| Total shareholders' deficit | (249) | (9,077) |
| Represented by: Equity shareholders' deficit Non-equity shareholders' funds | - (249) - | - (17,408) 8,331 |
| Total shareholders' deficit | (249) | (9,077) |
Notes to the financial statements for the year ended 30 December 2005
1 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. The 2005 figures are based on audited accounts for the period ended 30 December 2005. The auditors do not expect to issue a qualified report on the statutory accounts which will be finalised on the basis of the financial information presented by the directors in the preliminary announcement and which will be delivered to the Registrar of Companies following the Company's annual general meeting.
2 The 2004 comparatives are derived from the statutory accounts for 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).
3 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, Lincoln's Inn, LONDON WC2A 3TH.
4 Loss per share
| Year ended 30 December 2005 US $í000 | Period ended 30 December 2004 US $í000 | |
| Loss for the financial year/period Average number of ordinary shares in issue (in thousands) Basic and diluted loss per 5p (2004: 5p) ordinary share (in US $) | (4,299) 19,599 (0.22) | (1,966) 13,990 (0.14) |
The calculation of the basic and diluted loss per ordinary share of 5p (2004: 5p) each has been based on the loss for the relevant financial year/period and on 19,599,426 shares (2004: 13,990,342). This represents the average number of ordinary shares in issue. None of the contingently issuable share options give rise to a dilution in the loss per share due to the losses made in the year.