Final Results

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

1 May 2018

Cellcast Plc

("Cellcast", the "group" or the "Company")

Audited results for the year ended 31 December 2017

The Board of Cellcast Plc (AIM: CLTV) announces the Company's audited results for the year ended 31 December 2017.

Highlights

· Group operating revenues of £12.0 million (2016: £12.1 million), comprising:

o core interactive broadcast revenue of £11.3 million (2016: £11.5 million); and

o technical services and consulting to overseas gaming and lottery operators of £660,000 (2006: £620,000)

· Cost of sales were £11.2 million (2016: £11.0 million)

· Gross profit of £0.8 million (2016: £1.1 million)

· Board decision to fully provide against all amounts held in relation to the Lexinta Fund, totalling £754,000

· Loss for the year after accounting for, inter alia, the Lexinta impairment, was £647,000 (2016: profit of £645,000)

· Net cash balance at 31 December 2017 of £1.1 million (31 December 2016: £1.1 million)

· Loss per share of 0.8p (2016: earnings per share of 0.8p)

· Renegotiation of supplier bandwidth agreements in July 2017 resulted in an improved performance in H2 2017.

Craig Gardiner, Chief Executive of Cellcast, commented:

"Whilst we continued to see a gradual decline in the core interactive broadcast business throughout 2017, the reduction in revenue from the production and distribution of participatory television formats has been partially offset by an increase in revenues from online and mobile interaction. In addition, revenue contribution from the group's overseas consultancy operations also improved.

"The core focus of the Board in 2017 has been to control the cost base in all areas of the business. The renegotiation of our supplier bandwidth agreements in July 2017 has led to the Company trading profitably at the operating profit level in the second half of the financial year.

"Whilst the Board has taken the prudent approach of making a 100% provision for the funds held by the group in relation to the Lexinta Fund, this has not had an impact on the day to day running of the business, which continues to have sufficient funds for its normal operations."

For further information:

Chief Executive's statement

I am pleased to present my first review as the Chief Executive.

The UK market has continued, as we forecast, to experience difficult economic conditions in our core markets. This has meant we have had to be extremely focused in our strategy, adaptable in our thinking, and cautious in how we invest in new areas.

2017 Results

Cellcast's total operating revenues amounted to £12.0 million in 2017, compared to £12.1 million in 2016, a decrease of 0.8%.

The group's interactive broadcasting activities in the UK generated £11.3 million of revenue (2016: £11.5 million) which reflects a decrease of 1.7%.

The group's income from the provision of management services and consultancy to overseas gaming and lottery operators, which launched during the prior year, generated £660,000 of revenue (2016: £620,000), an increase of 6.5%.

Cost of sales amounted to £11.2 million, compared to £11.0 million in 2016. This increase of 1.8% primarily comes from the growth in online revenues that carry more direct costs.

The group's gross profit amounted to £0.8 million in 2017 compared to £1.1 million in 2016. As was the case in 2016, the group benefitted from the additional revenue from its overseas consultancy activities, which compensated for the profit reduction in its core UK broadcast services.

Following the introduction of the new bandwidth supplier agreement during 2017 the group has been trading profitably at the operating profit level.

General and administrative costs decreased by 5%, from £593,000 in 2016 to £565,000 in 2017. These costs exclude the foreign exchange loss of £30,000 in 2017 (2016: gain of £61,000). Approximately 58% of these costs were personnel costs (2016: 61%).

Amortisation and depreciation expenses for 2017 were £93,000, a £30,000 decrease on those of 2016 (£123,000).

On 5 January 2018 the group announced its decision that the Board considered it was appropriate to make a provision for 100% of its interest in the Lexinta fund in its full year accounts for the year ended 31 December 2017. The total amount recognised and the circumstances surrounding the provision are detailed in note 6 to the consolidated financial statements.

The group's trade receivables were significantly higher at the reporting date due to early raising of invoices in 2017 as compared to 2016. This has also resulted in a fall in accrued income. In addition, as at the reporting date a significant amount of trade receivables was due from a few large customers. This was a one-off event and all amounts have been received since the reporting date. The fall in other receivables is due to the provision made in respect of amounts due from Global Gaming (as disclosed in note 6).

After taking into account the net interest, share of associate results, impairment losses and the taxation impact and fair value movements, the total loss for 2017 was £647,000 (2016: profit of £645,000). 2017 earnings per share was negative 0.8p (2016: positive earnings per share of 0.8p).

The Strategic report gives a more extensive description of the group's operations during the year and technological developments.

Funding

At 31 December 2017, the group had a net cash balance of £1.1 million (2016: £1.1 million).

The total assets at 31 December 2017 amounted to £3.3 million, a decrease of £1.1m on the previous year. The decrease was mainly due to the 100% provision on the Lexinta investment (inclusive of gains on the investment generated in the previous two years).

Outlook

As previously announced, following the renegotiation of our supplier bandwidth agreements in August, the second half of 2017 performed better than the first half. However, the first few months of 2018 have proved challenging following a similar seasonal pattern as the previous year. In addition, the group's core revenues have been negatively impacted by the increasing penetration of next generation satellite boxes that make it harder for viewers to access the group's content. This has resulted in declining revenues from the Sky platform which we are addressing through the reorganisation of our bandwidth requirements.

As announced on 5 January 2018, the Company has made a 100% provision for the funds invested in Lexinta. The company continues to work with its Lawyers and other parties affected by the same problems, but the failure to recover these monies has had no impact on the day to day business of the group which has sufficient funds for its normal and continuing operations.

During 2017 the group began to see the impact of the diversification of its revenues and realise meaningful contribution from its consultancy activity. The technical consultancy business in East Africa has been performing well and newly developed services are increasing its scope.

Within interactive broadcasting the continuing decline in revenue in participatory television formats was significantly offset by the increase in web derived income over the course of 2017. The first quarter of this year has seen continued focus on developing and marketing our portfolio of online services to maintain growth levels through 2018.

Craig Gardiner

Chief Executive Officer

1 May 2018

Strategic report

Review of business

The group's main core activity from which it derives the majority of its revenue continues in the production and distribution of participatory television formats across multiple digital platforms in the United Kingdom. However, revenues from online and mobile interaction have increased and now provide a significant income stream. These income streams combined are referred to as 'interactive broadcasting'. Additionally, the group has continued to derive significant income from its overseas consultancy services.

Further details on the financial performance of the group during the year is given in the Chief Executive's statement.

Update on technology

The Technology Division focused on three key areas in 2017, Business intelligence, Capacity and bandwidth efficiency and Technical services provision. On Business intelligence (BI), the group has worked with partners to deploy a Broadcast BI system based on Microsoft Azure Cloud with a front end based built internally. These systems provide the group with fine grained analysis of user behaviour leading to an increase in average revenue per user ("ARPU") across the business units. Utilizing the BI systems, the group has been able to do capacity and bandwidth analysis across all channels in the business. By reviewing the performance of each hour of capacity, it targeted the hours of broadcast that were non- performing which led to a review with suppliers to reduce the overall hours of capacity required. This led to a reduction in Freeview capacity in 2017 and a further reduction in Satellite bandwidth in 2018. The group has also continued to build the Technical services department, it is now able to provide the services developed by the Technology team to third parties. The goal of 2018 is to grow out the Services team and include the other development such as the BI as part of the product offering.

Key performance indicators

The directors continue to monitor the performance of the business through various key performance indicators ("KPIs"), of which the principal ones are broadcast revenue, broadcast gross profit margins, and overall group profitability. These KPIs continue to be monitored along with the compliance record with broadcasting regulations, where there have been no material breaches in the year.

* Excludes Lexinta provision (see note 6 of the consolidated financial statements)

The KPIs show a 1.2% decline in broadcast revenue and a 68% drop in operating profit, both of which are consistent with previous comments relating to the difficulties experienced within this sector. The shift in the broadcasting revenue to products generating less profit margin also explains the drop in the group profitability.

The comparative between the first half of 2017 and the second shows the recovery experienced by the group following the renegotiation of its supplier agreement.

Consolidated statement of comprehensive income

For the year ended 31 December 2017

Consolidated statement of financial position

As at 31 December 2017

Company statement of financial position

As at 31 December 2017

The company's profit and total comprehensive income for the year was £Nil (2016: £Nil).

Consolidated statement of changes in equity

For the year ended 31 December 2017

Company statement of changes in equity

For the year ended 31 December 2017

Cellcast plc has not presented its own income statement as permitted by Section 408 of the Companies Act 2006.

Consolidated statement of cash flows

For the year ended 31 December 2017

No separate company statement of cash flows is presented as the company holds no cash at 31 December 2017 (2016: £Nil).

Notes to the consolidated financial statements

The figures for the years ended 31 December 2017 and 2016 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2017 have been extracted from the statutory accounts for that year, on which the auditor has issued an unqualified audit report, which have yet to be delivered to the Registrar of Companies. The figures for the year ended 31 December 2016 have been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies and on which the auditor has issued an unqualified audit report. No statement has been made by the auditor under Section 498(2) or (3) of the Companies Act 2006 in respect of either of these sets of accounts. This announcement was approved by the board of directors on 1 May 2018 and authorised for issue on 1 May 2018.

The consolidated and company financial statements for the years ended 31 December 2017 and 2016 have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as endorsed by the European Union. The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 December 2017 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').

Going concern

During the year ended 31 December 2017, the group recorded a loss of £646,643. The group had net cash of £1,057,301 as at 31 December 2017 and it had net current assets of £1,441,037.

The directors have carefully considered whether or not it is appropriate to adopt the going concern basis in preparing the 2017 financial statements. The directors have reviewed the group's detailed cash forecast to ensure that the group's current working capital and credit facilities in place are sufficient for the foreseeable future. This assessment is based upon forecasts following the reduction in the revenue of the UK television business together with the continued reduction in operational costs implemented over the year; it also assumes the maintenance of existing relationships with key suppliers. During the year the group made a 100% provision for the funds invested in Lexinta. The failure to recover these has no impact on the day to day business of the group and company which has sufficient funds for its normal operations.

After making enquiries, the directors have concluded that the group and company has adequate resources to continue trading for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the group and company financial statements.

Revenue recognition

Revenue represents the amounts receivable in relation to broadcast related income and the provision of management and consultancy services.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Revenue from customers interacting with the group's television shows is recognised immediately as the service is rendered at the time of the call or SMS/ online interaction.

Revenue generated from the provision of management and consultancy services is recognised in line with the provision of such services. Revenue from performance incentives is recognised when the performance criterion has been met.

Accounting judgements

The directors consider the critical accounting judgments used in the financial statements and concluded that the main areas of judgments are:

· Realisable amounts of investments. Management have considered the recoverable amount of all investments based on expected future cash flows and consider the assets to be held at realisable amounts (refer to note 6 for further detail).

· Classification of investments. Management have considered whether the group has significant influence or control in classifying its investments. Details of these judgements are provided in notes 12 and 14.

These judgements are based on historical experience and various other assumptions that management and the board of directors believe are reasonable under the circumstances and are discussed in more detail in the relevant notes. The group also makes estimates and judgments concerning the future and the resulting estimate may, by definition, vary from the related actual results.

The group's interactive broadcasting revenues are almost entirely from broadcasting related activities on Sky, Freeview and Freesat channels as well as on webcams and mobile.

The financial information is presented to the executive management team who are responsible for making financial decisions, as one operating unit which operates in one geographical unit. The executive management team make their decisions based upon this information. The executive management team comprises the chief executive officer and the chief financial officer.

The group has three significant telecom aggregators, generating 66% of the group's broadcasting related revenue. The three telecom aggregators contribute £4,239,574, £1,655,082, and £1,577,385 of the group's total revenue (2016: 67% representing £5,404,286, £1,331,522, and £979,335).

Revenue is further split below between revenue generated by:

An analysis of the geographical location of the group's revenue is as follows:

2. Staff costs

Staff costs of £328,996 (2016: £360,007) are included in general and administrative expenses and £778,792 (2016: £882,942) are included in cost of sales. The parent company staff costs were nil (2016: Nil).

Average monthly number of employees by activity (including directors):

All employees are employed by the subsidiary.

Key management personnel comprise the statutory directors.

3. Directors' emoluments

See Note 21 for details of share options granted to the directors.

4. (Loss)/profit before tax

In the comparative year foreign exchange gains and losses on current asset investments were included within administrative expenses. The directors have concluded that it is more appropriate to include such amounts below operating profit because they relate to the group's investment activities. The comparative figures have been restated to re-classify the equivalent amount. The effect of this reclassification in the prior year is to increase general and administrative expenses by £79,038 and to show a foreign currency gain of the same amount below operating profit. The reported Statement of Financial Position in the prior year is not affected.

5. Fair value gains and losses

The impairment loss shown separately on the face of the statement of comprehensive arises from a 100% provision against the following assets:

In its interim results, announced on 25 September 2017, the group stated it had elected to redeem its investments in the Lexinta Fund. This followed the decision of the fund manager of the Lexinta Fund to liquidate the fund's entire portfolio.

Since the interim results have been published the group has not received the balances due and, in light of the ongoing investigation by the Swiss authorities into Lexinta AG (the manager of the Lexinta fund) and Mr Bismark Badilla (the individual fund manager), the Board of Cellcast has now concluded that it is appropriate to make a provision for 100% of the Company's interest in the Lexinta fund in these accounts.

These investments comprised a current asset investment held directly and the group's interest in Global Gaming Limited, a company whose sole activity was to invest in the Lexinta fund. Therefore, an impairment charge has been recognised of £309,973 in respect of Other Receivables, being the cash due from the redemption of the investment held directly, £369,427 in respect of amounts due from Global Gaming Limited and £74,958 in respect of the carrying value of the group's investment interest in Global Gaming Limited.

7. Finance costs

8. Taxation

8. Taxation (continued)

At 31 December 2017, the group had estimated tax trading losses of £1.6 million which subject to the agreement of the HM Revenue & Customs and overseas tax authorities, are available to carry forward against future profits of the same trade. No deferred tax asset has been recognised on these losses as timings of future profits are uncertain.

9. Earnings per share

The calculations of basic and diluted earnings per ordinary share are based on the following results:

There was no dilutive effect from the issued share options because the exercise prices are above market price. The number of share options outstanding at the year-end was 2,650,000 (2016: 3,684,510).

Included within Licences is an individual channel licence with a carrying value of £91,000 (2016: £104,000). The asset will be fully amortised in 7 years (2016: 8 years).

11. Property, plant and equipment

12. Non-current investments - Group

At 31 December 2017, the group had a 35% holding in 2Giraffes LLP. 2Giraffes LLP is a global provider of mobile internet content. This holding is treated as an investment as the group does not have any significant influence on the operations of 2Giraffes LLP.

The market value of this investment is not readily available because the investment is not in publicly traded equities with a quoted market price and the directors do not consider that a reliable estimate of fair value can be made using the level 2 or 3 hierarchy within IFRS 13. Therefore, the investment is accounted for at cost less impairment.

The directors do not consider that 'significant influence' is exercised by the company over the LLP and therefore, despite the holding of 35%, the investment is not accounted for as an associate undertaking. This is on the basis that a sole shareholder has the remaining 65% holding and the company does not have voting rights.

13. Non-current investments - Company

At 31 December 2017 Cellcast plc directly owned 100% of the issued ordinary share capital in Cellcast UK Limited, a company incorporated in the UK whose principal business was television and broadcasting. The registered office of Cellcast UK Limited is 184 The Terrace, The Dell, Southampton, England, SO15 2BU and the principal place of business is Unit 22, Cochran Close, Crownhill Industrial Estate, Milton Keynes, MK8 0AJ.

14. Associate

On 26 November 2015 the group acquired 49% of the issued share capital of Global Gaming Limited for a total cost of £4. The directors have assessed that the group has significant influence, but not control over Global Gaming Limited and have accounted for the investment as an associate. Details of the associate undertaking and the movements in the investment in the year are as follows:

At the reporting date the directors considered the group's interest in the associate to be irrecoverable. Therefore, an impairment of £74,958 was recognised (see note 6).

As at 31 December 2017, the amount due from the associate stood at £nil (2016: £549,428), this is shown in note 16.

15. Current asset investments

In May 2015, the group invested US$ 260,000 (£165,000) in a treasury product managed by the Lexinta Fund. This investment was classified in current assets as the capital and interest generated can only be withdrawn on a yearly basis at the anniversary date of the investment. The group redeemed the investment in the year and re-classified the disposal proceeds due from the Lexinta fund to other receivables, subsequent to this the amount due has been provided for in full (refer to note 6 for further details).

In September 2016, the group invested US$ 250,000 (£168,350) in the 'Ventury Fund Inc'. This investment was classified in current assets as the capital and interest generated can only be withdrawn on a yearly basis at the anniversary date of the investment. The group redeemed the investment in the year for £197,103.

16. Trade and other receivables

Following a review of the amounts due by the group undertaking, the directors have considered the projected performance of Cellcast UK Limited and are confident that the amounts will be recovered. The directors deemed that it is appropriate to classify the amounts due after more than one year as this reflects the timescale on which recovery is expected to occur. No interest is charged on this balance.

17. Non-current liabilities

18. Trade and other payables

The credit payment profile in days calculation excludes the long-term trade payables days which is contractually due over one year as including this long term element would skew the trade payable days.

19. Financial risk management

The group's financial instruments as at 31 December 2017 and 2016 mainly comprise cash and various items arising directly from its operations, such as trade and other receivables, trade and other payables and as at 31 December 2016 also included current asset investments and amounts due from associate. The main purpose of these financial instruments is to provide working capital for the group. The group's policy is to obtain the highest rate of return on its cash balances and current asset investments, subject to having sufficient resources to manage the business on a day to day basis and not exposing the group to unnecessary risk of default.

(a) Risk management policies

The group's finance function is responsible for procuring the group's capital resources and maintaining an efficient capital structure, together with managing the group's market, liquidity, foreign exchange, interest and credit risk exposures.

All treasury operations are conducted within strict policies and guidelines that have been approved by the directors.

19. Financial risk management (continued)

(b) Financial assets and liabilities

Financial assets and liabilities analysed by the categories were as follows:

The carrying value of all financial instruments is not materially different from their fair value. It is, and has been throughout the year, the group's policy that no trading in financial instruments shall be undertaken. Cash and cash equivalents attract floating interest rates. Accordingly, their carrying amounts are considered to approximate to fair value.

19. Financial risk management (continued)

(c) Credit risk

Credit risk is the risk that the counterparty will default on its contractual obligations resulting in financial loss to the group. Maximum credit risk at 31 December was as follows:

Before accepting a new customer, the group assesses both the potential customer's credit quality and risk. Customer contracts are drafted to reduce any potential credit risk to the group. Where appropriate the customer's recent financial statements are reviewed.

Trade receivables are regularly reviewed for impairment loss. The group did not write off any accrued income during 2017 (2016: £37,000 written off). There are no provisions for trade receivables at 31 December 2017 or 2016.

During the year an impairment of £309,973 was recognised in respect of other receivables and an impairment of £369,427 was recognised in respect of amounts due from associate. For more details see note 6.

Ageing of the trade receivables and accrued income is as follows:

The total of the trade receivables which were past due at 31 December 2017 but not impaired was £nil (2016: £nil). The total trade receivables and accrued income balance of £1,541,000 was collected by 11 April 2018. The directors are confident as to the recoverability of the remaining balance and thus no impairment of the amount has been recognised in the financial statements at 31 December 2017. 

All cash balances are held in established UK financial institutions.

(d) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

Contractual cash flows relating to the group's financial liabilities are as follows:

(e) Interest rate risk

Interest rate risk is the risk that the future cash flows associated with a financial instrument will fluctuate because of changes in market interest rates. The interest rates on cash and cash equivalents are low, such that interest rate risk is minimal.

19. Financial risk management (continued)

The only interest-bearing loan is in other payables and amounts to £300,000 (2016: £300,000). The interest rate is 2% per annum. The impact of a 1% interest rate increase would represent an annual sum of £3,000 (2016: £3,000).

(f) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk arises on financial assets and liabilities and investments in associates that are denominated in a currency other than the functional currency of the entity by which they are held. In 2016, the currency risk of the group related to the cash balances it held in USD in the Lexinta treasury and Ventury funds. The table below illustrates the impact of a change in exchange rates on results and reserves:

In 2017 the risk relates to amounts held as cash balances in USD.

At the reporting date the group has no financial assets or liabilities (except bank balances) denominated in a currency other than the functional currency.

(g) Capital management

The group's main objective when managing capital is to protect returns to shareholders by ensuring the group will continue to trade for the foreseeable future.

The group considers its capital to include cash, share capital, share premium, retained earnings, and other equity reserves.

The group has an undrawn overdraft facility with Barclays of up to £150,000 (2016: £150,000).

20. Share capital and reserves

Ordinary shares, which carry no right to fixed income, each carry the right to one vote at general meetings of the company.

The deferred shares of 2p have no voting rights, no rights to dividends and negligible rights on return of capital. They are not listed on any stock exchange.

The share options granted over the shares of the company are set out in note 21.

20. Share capital and reserves (continued)

The nature and the purpose of each reserve in equity is described as follows:

Retained earnings

Cumulative profit and loss net of distribution to owners.

Share premium account

The share premium account represents the premium paid on issue of ordinary shares in excess of their nominal value.

Merger reserve

The merger reserve arises as a result of a group reorganisation where the company acquired Cellcast UK Limited which was accounted for in accordance with merger accounting principles.

Warrant reserve

Warrants represent subscription rights for ordinary shares in Cellcast plc and the warrant reserve represents the fair value of the warrants at the date of issue. All warrants are expired.

21. Share options

The group operates two different share option schemes, an Enterprise Management Incentive (EMI) share option plan and a General share option plan. Options are available to be granted to directors, staff, consultants and independent contractors as part of their remuneration package and they act as an incentive to assist with the future performance of the group.

During the year ended 31 December 2017 the company had share-based payment arrangements, all of which have vested, and expire 10 years after grant as follows:

EMI share option plan

Date of grant 08/11/07 25/07/08 27/10/10

Number granted 584,510 1,200,000 900,000

General share option plan

Date of grant 25/07/08 27/10/10

Number granted 400,000 600,000

Options are forfeited if the employee leaves the group before the options are exercised.

Further details of share options in issue during the year are as follows:

The share options outstanding at the end of the year have an exercise price of between £0.03 and £0.04, with a weighted average remaining contractual life of 1.40 years (2016: 2.25 years).

21. Share options (continued)

The following EMI options, save those granted to Mike Neville and Bertrand Folliet which are Unapproved Options, over the ordinary shares of 1 pence each have been granted to the directors and were in place at the reporting date:

22. Related party transactions

Group

SMS Media Limited

In 2017 management charges totalled £114,000 (2016: £168,000). At the year-end £nil (2016: £14,000) was owed to SMS Media Limited, which has common directors and beneficial shareholders in Bertrand Folliet and Andrew Wilson. The management charges levied by SMS Media relate to the running cost of the company's office in Hong Kong. It is made up of rent and the employment of local staff. Its purpose is undertaking business development in the Greater China, South East Asia and African regions. This resource has constituted a part of the company since November 2001.

Global Gaming Limited

During 2017 the company advanced £nil (2016: £nil) to Global Gaming Limited, an associate of the company. At 31 December 2017 £nil (2016: £549,428) remained outstanding. During the year the company recognised an impairment on this amount of £369,427 (see note 6).

Company

Cellcast UK Limited

At the reporting date £2,949,078 (2016: £2,949,078) was due from Cellcast UK Limited, a subsidiary of the company, this amount is net of accumulated impairment charges recognised prior to 31 December 2015 of £3,800,001.

23. Cash flows