RNS Number : 2578U
Freeplay Energy PLC
13 May 2008
13 May 2008
Strictly Embargoed Until 0700
Freeplay Energy plc
("Freeplay Energy", "the Group" or "the Company")
Preliminary Results for the year ending 31 December 2007
Freeplay Energy plc, the original and leading global brand of clean, dependable energy products, announces preliminary results for the
year ending 31 December 2007.
Highlights:
* Group revenue from continuing operations showed a strong increase to US$44.7 million (2006: US$26.1 million)
* Operational costs across the Group were significantly reduced as a result of the Group restructuring programme, which was completed at
the end of March 2008
* Dixie Sales was successful in attracting new customers including Bye Bye Standby Inc, American Lawnmower Products, C Crane and ATK, a
hunting accessories manufacturer
* Sales of Freeplay products increased by 9% to US$7.9 million where we have seen a good performance in Africa and ROW, up 18%., driven
by sales to Aid & Humanitarian organisations which increased by 38% and Europe, up 42%
* Focused management team, well positioned to take the Group forward
Commenting on the outlook, Rory Stear, Chairman, said:
"Freeplay Energy continues to develop its strategy of becoming a broad based supplier of dependable, clean energy products across both
the developed and developing world as it explores the many opportunities that exist across our markets.
"The restructuring measures implemented across the Group have allowed Dixie Sales to make strong progress since the year end and we
firmly believe that its solid business and customer base, together with the Freeplay division's strong product range, position the Group for
significant profitability in the years ahead.
"Overall, although 2007 was a year of significant restructuring for the Group, we are confident that we are moving forward as a more
streamlined and focused business to take advantage of the many opportunities that lie ahead. The Board is positive about the Group's
prospects for 2008 and looks forward to an exciting year of strong growth in both divisions."
- ends -
For further information, please contact:
Freeplay Energy plc 020 7935 5226
Rory Stear, Chairman
Weber Shandwick Financial 020 7067 0700
Louise Robson or James White
Charles Stanley (Nominated Adviser) 020 7149 6000
Mark Taylor
Notes to Editors
Freeplay Energy plc is the original and leading global brand of clean, dependable energy products. Freeplay Energy's clean, patented
technology harnesses human, solar and rechargeable energy and converts it into electricity to power unique portable, consumer products
replacing conventional disposable battery-powered systems that are environmentally toxic and expensive. The current product range includes
radios, torches, lanterns, mobile phone chargers and standalone foot powered generators. Freeplay Energy's "Lifeline" radio is distributed
throughout the developing world by The Freeplay Foundation (www.freeplayfoundation.org) and other AID and Humanitarian organisations such as
Unicef and other United Nations' agencies. Further information about Freeplay Energy plc and its products can be found at
www.freeplayenergy.com.
Freeplay Energy - Best in the World, Best for the World
13 May 2008
Strictly Embargoed Until 0700
Freeplay Energy plc
("Freeplay Energy", "the Group" or "the Company")
Preliminary Results for the year ending 31 December 2007
CHAIRMAN'S STATEMENT
I am pleased to announce the preliminary results for Freeplay Energy plc for the period ended 31 December 2007.
The Board is encouraged by the progress made in what was a pivotal year for the Company and is particularly satisfied by the
achievements made against a backdrop of significant Group restructuring and difficult consumer markets.
The restructuring was completed at the end of March 2008 and, as a result of the measures undertaken, overall operational costs across
the Group have been reduced significantly on an annualised basis. Since the start of the restructuring in September 2007, Freeplay Energy
has performed in line with the Board's expectations thanks largely to the increased visibility of earnings afforded to both the Dixie Sales
("Dixie") and Freeplay ("Freeplay") divisions.
This restructuring has resulted in a simplified, better focused Group that is more able to pursue the significant growth opportunities
identified and we continue to be encouraged by the opportunities available in both our core North American and European markets as well as
in the developing world, especially the Aid and Humanitarian markets and India. The progress already being made in the current financial
year allows the Board to feel confident that sales are ahead of our internal forecasts. We are encouraged that both Freeplay and Dixie are
performing in line with the Board's expectations and anticipate a continued strong performance in 2008.
In November 2007 the Group successfully raised an additional £2.35 million (US$4.6 million net of expenses) by way of a placing and
subscription of 47,062,691 new ordinary shares at a price of 5 pence per ordinary share. As stated at the time of the November fundraising,
additional funding will be needed during 2008 and the Board continue to pursue a number of solutions to resolve this funding gap.
Additionally, The Company has received an unsolicited offer to purchase certain of the Group's Freeplay operations. The Board of Directors
is currently in discussions with the potential acquirer, which may or may not lead to the disposal of certain of the Group's operations.
Financial Review
For the period ended 31 December 2007, Group revenue was US$44.7 million (2006: US$26.1 million). The 2006 results include a five month
contribution of US$18.8 million from Dixie Sales Company, following the acquisition of Barrett Marketing Group Inc in July 2006.
Sales of Freeplay products increased by 9% to US$7.9 million. Sales were strong in both Africa and ROW, which increased by 18% and
Europe, where they increased by 42%. In North America, sales declined by 32% to US$1.9 million primarily as a result of the loss of Target,
a major customer, withdrawing from the sustainable energy market.
Revenue at Dixie declined by 3% to US$37.2 million on like for like basis as a result of poor weather conditions in the second half of
2007 and the conscious strategy to exit certain low margin business.
Gross profit increased to US$11.5 million (2006: US$7.2 million). Gross profit as a percentage of sales was consistent with 2006 but
suffered a 2% reduction compared to 2006 due to inventory write downs of Weza, Freeplay's Portable energy source, and World Phone chargers
as a result of excess inventory.
Administrative and distribution expenses increased by US$7.1 million to US$18.8 million (2006: US$11.7 million). The impact of full year
Dixie expenses was US$6.2 million.
Interest costs rose to US$1.1 million (2006: US$0.5 million) as a result of the inclusion of a full year of Dixie funding and net debt
increasing by US$2.1million to US$13.3 million.
The Group reported an increase in operating loss to US$10.0 million (2006: US$4.8 million). The loss before taxation increased to
US$11.1 million (2006: US$5.3 million).
The combination of restructuring charges and one-off items negatively impacted 2007 losses from operations by US$3.5 million, which
included reserves for discontinuation of the Weza product of US$0.5 million, restructuring costs of US$1.2 million and the impairment of
goodwill of US$1.8 million. Excluding the one-off items above, losses from operations amounted to US$6.5 million.
Review of Operations
Dixie Sales ("Dixie")
2007, the first full year as part of Freeplay Energy, was challenging for Dixie with drought conditions in the south eastern United
States having a negative impact on Dixie's core outdoor product offering and difficult economic conditions. However, following a strong
first half, the business still enjoyed a good year in light of the prevailing environmental conditions. According to Dixie's manufacturing
partners its performance was better than average as compared to other central distributors.
During the year, the division completed its strategic review as part of the overall Group restructuring and made significant progress in
reducing its cost structure, exiting certain low margin businesses and reducing operating costs by US$3.0 million and a refocusing of the
division away from non performing, low margin categories.
We believe Dixie now has a compelling and competitive business proposition, which is to concentrate on expanding its key distribution
channels including; independent dealers, mass merchant and retail direct. In addition, Dixie continues to expand its geographic reach
through an aggressive growth strategy in Canada by leveraging its key US-based manufacturing and mass merchant relationships. This approach
is proving to be successful in attracting new customers, evidenced by notable key new business wins including Canadian Tire Corporation,
American Lawnmower Products, and ATK, a hunting accessories manufacturer.
As of the end of April 2008, Dixie was performing in line with the Board's expectations and its results have significantly improved as
compared to the same period in 2007. Dixie remains on course to return to profitability in 2008. A number of new business wins have been
secured over the past 12 months and this momentum has been maintained in the start of 2008 with new contracts secured with Canadian Tire
Corporation and Husqvarna. The agreement with Canadian Tire Corporation is a "fee for service" arrangement to provide after sales support
for foreign manufacturers which do not have this service capability in Canada while the contract with Husqvarna is a special order parts
programme for Lowes stores nationally. Dixie is also generating a very positive response from manufacturers in providing e-commerce and
tele-sales solutions using Dixie's web and contact centre resources. Dixie expects to announce a number of new relationships during the
next few months. Furthermore, we plan to expand our existing relationships with current customers and, as an example of this, were recently awarded a line of optical products by ATK.
Under Harold Reiter's leadership, this move into higher margin businesses, combined with a renewed focus on the "fee for service"
model, thereby securing dual payment from both retailers and customers, gives us every confidence in the future prospects of the business.
Freeplay division ("Freeplay")
We have continued to make progress In the Freeplay division, where sales to Aid and Humanitarian organisations have remained strong. In
Europe the United Kingdom continues to perform well. We were pleased to see an increase in total Freeplay revenue to US$7.9 million (2006:
US$7.1 million).
However, the performance in 2007 was significantly affected by the decision to terminate the five-year agreement with World Phones to
distribute the FreeCharge Mobile Phone Charger in Africa and the Caribbean region due to World Phones not fulfilling its contractual
obligations to the Group.
Europe
We were encouraged by revenue growth of 42% in Europe during the year to US$2.3 million (2006: US$1.6 million) as a result of our
securing agreements with Marks and Spencer, ASDA, Dixons/Currys and Comet to sell Freeplay products in 2007. We have also signed a
distribution agreement with Dalesman, a UK based distributor focused on the UK Outdoor market, which has achieved notable success by
bringing a range of Freeplay products to outdoor retailers such as Field & Trek and we look forward to progressing this relationship.
Following negotiations regarding their Spring/Summer ranges, both Currys/Dixons and Marks and Spencer will continue to stock Freeplay
products throughout 2008 and have placed orders for 3,500 units to be delivered by the end of May.
Comet have also confirmed that they will maintain the Eyemax product as an ongoing line and have continued to order steadily.
North America
North America remains a key focus for the Group where our main objective is to build sales and secure margin. However, revenue declined
by 32% to US$1.9 million (2006: US$2.5 million) primarily due to the withdrawal of Target from the sustainable energy market. We are
committing management resource to rebuilding this important geographic market and have appointed Rahul Sharma to lead the sales function.
Although we are encouraged by the progress made in the second half of 2007 in this region, we remain disappointed by our mixed performance
over the whole of 2007.
Freeplay secured important new accounts with Eddie Bauer and LL Bean, both of which are expected to produce good growth in 2008. During
the year we strengthened our relationship with REI, the leading North American retailer and the Freeplay Indigo lantern was REI's best
selling product in the lantern category in 2007.
Our performance in the Canadian market was strong and in line with market expectations. We were pleased to secure new accounts with
Canadian Tire and Mountain Equipment Co-Op, two of Canada's leading national retailers. We remain very encouraged by our performance in the
Outdoor market and see this as offering significant potential.
As evidence by consumer sales information supplied to us by REI, Eddie Bauer and LL Bean, Freeplay's product offering in North America
has received significant interest from consumers and underlines the appropriateness of our offering as we actively seek to secure further
distribution agreements to aid market penetration in both the US and Canadian markets. As a result we remain optimistic about the prospects
for our US business and, long term, believe this region will prove to be very significant for the Group.
AID & Humanitarian
The Aid & Humanitarian division enjoyed a strong year and contributed sales of US$3.2 million to total Group revenue, an increase of 38%
on the US$2.3 million achieved in 2006. This was largely due to the contract awarded to the Freeplay Foundation in October 2007 for the
supply of in excess of 180,000 units of Scout and Lifeline radios to South Sudan, the last units of which were shipped at the end of March
2008.
Our long term supply agreement for Lifeline radios with UNICEF, which was renewed in June 2007, continues to provide the Group with a
good visibility of earnings. The original contract was negotiated in 2006 for two years and has now been extended for an additional year to
May 2009.
This division continues to be a very important part of the Group and delivers robust overall growth. Furthermore, our relationship with
UNICEF remains extremely strong and provides the Group with access to other United Nations agencies. Freeplay Energy's reputation in this
key market is excellent and the relationships that we have built over the last decade help to lift barriers to entry. The contribution from
the Freeplay Foundation was outstanding and they continue to do important work in many parts of Africa in providing access to information to
people who need it the most but can afford it the least. Their contribution emphasises Freeplay Energy's core vision of providing access to
energy to everyone, everywhere.
Product Development
Following the successful launches of new products during 2006, such as the Indigo and Kito Lanterns, Freeplay Energy continues to
explore ways to expand and upgrade its current product platforms. Our aim is increasingly towards developing regionally focused product
offerings to match the specific needs of individual markets, as evidence by our work with our Indian partners to develop the Indian specific
LED hurricane lantern, and different sized versions of our traditional products for the camping and hiking markets in North America.
Highlights of our additional product development efforts in 2007 include:
* The new solar and wind-up Companion radio, flashlight and mobile phone charger, launched at the Consumer Electronic Show in Las Vegas
in January 2008;
* Ongoing research into the possible applications in the medical products industry including significant progress in the development of
the Texas Instruments MSP430-based self-powered pulse oximeter and foetal heart rate monitor. These products are now in formal trials to
prove their efficacy compared with standard products; and
* Our ongoing relationship with MIT*s One Laptop Per Child US$ 100 laptop programme throughout 2007, first orders for which were shipped
in December 2007.
Throughout 2008, a further focus in product development will be to improve and upgrade our current mobile product lines, particularly
our FreeCharge mobile phone charger where we are looking at different products for the developing and developed world.
Freeplay Energy India
We are seeing positive signs from the joint-venture with Narang Group, Freeplay Energy India, which has provided the Company with a
number of interesting opportunities. During 2007 the joint-venture focused on product research and development, adapting products
specifically for this important region, in particular the FreeCharge mobile phone charger and new torch and new lantern specifically aimed
at rural consumers.
At the end of January 2008 we received orders from Reliance, India's largest company and third largest mobile phone network, and Indian
Farmers Cooperative ("IFFCO"), the Indian farmers' cooperation. The first orders from IFFCO for 225,000 units of a new, Indian market
specific LED lantern along with another lighting product commenced shipping in February 2008 and are due to be completed by July 2008. Both
orders are expected to contribute significantly to sales in the 2008 financial year.
Given the significant opportunities for the Group within India, a new bespoke manufacturing facility began production of Freeplay
products in February 2008, enabling the Group to compete more effectively in the region. This, combined with the first orders from the IFFCO
and Reliance, gives the Company encouragement that 2008 will see Freeplay Energy recognise significant growth in the region.
Post Year-End Trading Update
Trading in the first quarter of the current financial year has been good with all divisions delivering sales performance in line with
the Board's expectations. The focus for 2008 continues to be to concentrate on delivering top line growth in the Freeplay division and to
drive margins in Dixie.
Freeplay is expected to exceed management's expectations in the first quarter and the Group remains encouraged by the significant
potential from the joint venture agreement with the Narang Group in India. The North American business has had a good first quarter and with
the increased management focus we expect this to continue during the year.
We continue to build retail channels in our key developed markets with retailers such as M&S, Dixons, Comet, REI, Canadian Tire all
continuing to support the brand and products into 2008 while the developing market continues to bring strong growth in 2008, supported by
the one year extension to the UNICEF agreement.
Following negotiations regarding their Spring/Summer ranges, both Currys/Dixons and Marks and Spencer will continue to stock Freeplay
products throughout 2008 and have placed orders for 3,500 units to be delivered by the end of May. We also anticipate good levels of growth
from our agreements with Eddie Bauer and LL Bean in 2008.
Furthermore, we aim to introduce three core new product platforms in 2008 which are expected to deliver positive results in the second
half of 2008. These include a new DAB product that will improve penetration in the European DAB market, a new product to build on our
success in the lantern category and a third product that will augment our existing FreeCharge portfolio.
First quarter trading at Dixie has been strong with additional new business wins and improved weather conditions in core markets helping
the division to continue the positive momentum built towards the end of 2007. In particular, we have seen good trading in April, with
revenue approximately 8% above internal forecasts and this trend has continued into May. Revenue for April was also marginally higher than
April 2007 indicating the growth in Dixie's core business as offset by the refocusing of the division away from non performing, low margin
categories.
Our People
On behalf of the Board, I would like to thank all management and staff and my fellow Board members for their commitment throughout what
has been a challenging year for the Group in light of the significant restructuring measures we have undertaken. They have responded
fantastically to the restructuring and are motivated to build a valuable company in 2008 and the years ahead.
During the period we welcomed Colin Batt, who joined the Company from Aircom International Limited, a telecommunications consultancy,
where he was Interim Finance Director Europe. Prior to that he was Operations Director, Europe, Middle East and Asia ('EMEA') at Motorola
Networks. Colin has held a number of senior positions at Motorola where his recent experience will be important to Freeplay Energy in his
capacity as Finance Director as the Company completes its restructuring and moves into the next phase of development.
Outlook
In the Freeplay division, we are continuing to benefit from a strong enquiry and order book. We continue to develop our strategy of
becoming a major provider of dependable, clean energy products in the developing world, where revenue increased by 18%, as we explore the
many opportunities that exist and select the most appropriate models specific to these regions.
The restructuring measures implemented by the Board mean that Dixie Sales has made strong progress since the year end and we firmly
believe that its solid business and customer base position the Group well for significant profitability in the years ahead.
As at the end of April, the Board is very positive for the Group's prospects during 2008 and beyond and looks forward to a promising and
exciting year.
- ends -
For further information, please contact:
Freeplay Energy plc 020 7935 5226
Rory Stear, Chairman
Weber Shandwick Financial 020 7067 0700
Louise Robson or James White
Charles Stanley (Nominated Adviser) 020 7149 6000
Mark Taylor
To view the full document, please click on the URL below:
http://www.rns-pdf.londonstockexchange.com/rns/2578U_1-2008-5-12.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
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