11th Aug 2006 07:01
NewMedia SPARK PLC11 August 2006 For Immediate Release 11 August 2006 NewMedia SPARK plc Preliminary Announcement of Annual Results for the year ended 31 March 2006 NewMedia SPARK plc ('SPARK'), the investor in early stage digital informationand technology companies, is pleased to announce preliminary results for theyear ended 31 March 2006. Key Highlights • Mergermarket sold for cash to the Financial Times Group (part of Pearson plc) valuing Spark's holding at £27.8m, o A return of almost 24 times the original £1.2m invested in 1999/2000 o 113.8% increase over the book value reported in our interim results of £13m (March 2005: £8m) • IMImobile raised US$10m from Pequot ventures providing a third party valuation event, increasing SPARK's investment value in the company by £9.6m to £12.3m • Net Assets per share increase by 38.2% to 17.7p since March 2005 (26.4% since September 2005) • Buy-backs of 26.3m shares during the year at an average price of 12.1p represent a 31.6% discount to year end net assets per share • Cash balances of £17.8m in March 2006 (which includes £2.9m of restricted cash) will be substantially enlarged by £25.8m of initial mergermarket sale proceeds, enabling a substantial investment programme alongside further share buy-backs Andrew Carruthers, Chief Executive of NewMedia SPARK, commented: "These results are a critical validation of the credentials of the SPARK teamand of early stage investing in our sector. The last year marks a turning pointfor SPARK and its investee companies as the digital media sector witnessed rapidchanges in revenue models, in the competitive landscape and in patterns ofconsumption, allowing opportunities for new players and new technologies toemerge. We have not only experienced an impressive uplift in exit valuations and seenstrong growth from within our existing portfolio, but in acquiring a stake inSkinkers, have also made our first major new investment for some time. We lookforward to making equally exciting further additions to the portfolio tocontinue the momentum in the growth of net assets." Enquiries: Andrew Carruthers, Chief Executive Officer 020 7851 7777Isabel Podda, Buchanan Communications 020 7466 5000 Chief Executive Officer's report Investment Values and Exits The sale of mergermarket represents the largest exit to date from SPARK'sportfolio. SPARK were investors when mergermarket was little more than a teamwith a business plan. It is a huge credit to Caspar Hobbs, Charlie Walsh, GawnHamilton, Richard Hall and their team, that a business started in 1999 at theheight of the dotcom boom survived the subsequent bust, confounded the scepticsand has gone on to become such a major player in the business informationsector. It also validates the early stage investment credentials at SPARK tohave found an investment of the 1999 vintage that has returned 23.7 times themoney invested - in cash. Under the terms of the agreement, £2m will be heldback as a retention against any possible warranty claims for the next two years. We are also delighted to be able to demonstrate the value that Vishwanath Reddyand his team at IMImobile have created over recent years with the investment byPequot ventures into the business. Until this event, the value of IMImobile haslargely been hidden as our valuation policy does not allow us to write up thevalue of an investment unless there is a valuation placed on the business by anindependent third party, or where comparative earnings multiples can be applied.Since the business has been reinvesting all profits, it has not been until thisUS$10m investment that we have been able to redress the situation and add £9.6mof value uplift to the further £0.8m invested in the year, increasing the valueof our holding by £10.5m since March 2005. We believe that with a provenbusiness model and sufficient funds now available, IMImobile promises goodprospects for substantial further value growth. Its managed service businessmodel and its Indian cost base equips it particularly well to benefit from theexplosive growth of the mobile sector in emerging markets with its newoperations in Latin America as well as its existing offices in India, theCarribean, the Middle East, Africa and Asia. These events, taken together with the successful exits from FootFall and Elata,mean that the current financial year has demonstrated an impressive uplift inexit values over the valuations previously held in our accounts. In part this isdue to a prudent valuation policy, but also in part is typical of early stageinvesting where new businesses in developing market sectors take time to getestablished, but have the ability to generate impressive value growththereafter. The result is a 38.2% uplift in net asset value per share from March2005, after having provided £6.4m for the incentive scheme payments, most ofwhich will be due at the end of the next financial year. By virtue of the saleof mergermarket taking place after the period, its sale will not appear in theprofit and loss account, but instead appears in the consolidated statement ofrecognised gains and losses and on the balance sheet. The 'Gains frominvestments' that do appear on the face of the profit and loss are largelyattributable to the sale of FootFall, Elata, and a small investment in Tradera,a Swedish auction site sold to eBay. Other portfolio developments The worldwide acceleration of broadband services and improvements in handsetsand platforms for mobile networks have come together to create a tipping pointin the adoption of digital, or 'new', media. This is generating rapid changes inrevenue models, the competitive landscape, and in consumption patterns thatallow opportunities for new players and new technologies - and in many ways isthe moment for which SPARK has been preparing its investment portfolio since1999. As a result, many of our investee companies are well positioned to takeadvantage of this changing tide. Mergermarket represented an investment in one of the first sectors to fullyadopt the new distribution technologies for 'digital' information. The financialsector is perhaps one of the most advanced for digital publishing and ittherefore comes as no great surprise that this is the sector which has driventhe growth of our largest exit to date. However, there are other sectors thatare maturing fast into the digital world, and entertainment is set for rapidchange as network operators and content owners finally adapt to the new revenuemodels and as the incumbent TV broadcasters gear up for 'triple play' and thearrival of internet protocol TV (or IPTV). The effects for IMImobile have beendescribed above, but the effects are also being felt elsewhere in the portfolioas follows: Aspex Semiconductor Aspex Semiconductor developed a high-performance, software programmable'extreme' processor for the image processing market in 2005 and has achieveddesign wins in film processing, medical imaging, machine vision and printingmarkets. However, the entertainment and broadcasting markets have begun a rapidshift to digital for image capture, pre-production and post productionprocessing, encoding and distribution. In response to this, Aspex produced a'plug and play' encoder board using their processors that can encode digitalvideo into any codec (such as MPEG2, H264, etc.) which are used to compressvideo signals into sufficiently small sizes to send broadcast quality TV,including High Definition TV, over broadband networks. This form of digitalsignal processing is particularly well suited to the architecture of the Aspexchip and the company is not currently aware of any other product in the marketthat is capable of encoding digital images at up to real time speeds intomultiple codec standards. The launch of this product in April has coincided withthe beginning of investment by Telco's into the infrastructure required for IPTVand Aspex are optimistic about the sales opportunities for them in this sector.Indeed, product revenues in their first quarter were close to those for thewhole of the previous financial year as sales of the encoder boards have ashorter sales cycle. During the year, SPARK invested £2.3m into the company but,as mentioned in our interim announcement, wrote down some of its earlierinvestment to be consistent with the valuations at which the company hadobtained expressions of interest for funding from third parties. The comparablevaluations of the company's peers on the public markets are substantially abovethis level. Kobalt Music Kobalt is a music publisher that uses its proprietary technology to deliver afast, transparent and accurate royalty revenue collection platform for musicowners and songwriters. The process of developing the confidence of the industrysufficiently to win copyright administration contracts ahead of the large musicpublishers, who have held dominant positions in this market for decades, hasbeen a hard battle. However, Kobalt now appears regularly in the top tenpublishers in the country, despite having been created in-house by a formerSPARK employee only five years ago. The lead time between winning a contract andsecuring the revenue flows can be long, however, once won, contracts are longterm and predictable. In the year to June '06 Kobalt achieved a near trebling ofits revenues, and in the year to June '07 has already booked sufficient newcontract wins to be able to predict a near trebling of revenues again, addingwriters for acts such as Pink, Kelly Clarkson, Richard Ashcroft and Editors totheir roster. The opening of a permanently staffed office in Los Angeles, alongwith some significant senior hires there, has raised the company's profile inthe US market where they are gaining significant new contracts. Consistent with the industry trends identified above, Kobalt are in a very goodposition to win business on the strength of their leading technology platforms.Providing speed and visibility on the collection of royalties for their clientsalso means that Kobalt are well suited to the opportunities presentingthemselves from the digital sales of music (such as downloads, ringtones andfull tracks to mobile). For example, they licensed, exploited and collectedroyalties on a global basis for the ringtones and downloads associated with theFIFA World Cup 2006. The opportunities for exploiting these advantages aregreatest in the US where the market has been historically less regulated thanthose of Europe. In addition, new markets are appearing in Asia where theprotection of intellectual property has become a more important focus forregulators. DX3 DX3 is a distribution platform for the secure distribution of digital media(including music, games and images) to wired and wireless devices (PC's, PDA's,mobile phones etc). As such, it stands right in the middle of the emergingdigital media market. Until recently, sales of digital media have been hamperedby unrealistic price expectations by all participants in the value chain (mediaowners, mobile networks, aggregators, billing platforms and retailers). Theseexpectations are changing rapidly, as are the participants in the industry. TheBritish Phonographic Industry (BPI) have just reported on music sales for thesecond quarter of 2006 and claim that the music single is having its bestquarter for six years on account of digital sales, which now account for 50% ofall singles sold. In addition, recent scandals about subscriptions charged to mobile phone usersfor music downloads are forcing out dubious practices and creating a moreorderly market. In this context, DX3's presence as a longstanding and robustplatform for the delivery of legal, rights cleared, content has provided it withthe credentials to license content from all the major content owners. On theback of their delivery platforms and licenses, DX3 have continued to addcustomers during this financial year who now include ITV, Metro Newspapers,EMAP, Woolworths, Infospace (service provider to Virgin Mobile) and Eckoh(service provider to Tesco's). We expect to see consolidation in DX3's sector, especially as some of thehardest hit businesses in the recent stock market correction were from thisindustry. Indeed, the recent purchase of Loudeye by Nokia is evidence of this.As the majority shareholder, and with the visibility that our other investmentsin related markets give us (such as Kobalt and IMImobile), we would hope to playan active part in this process with DX3. Skinkers Consistent with our view on the emergence of new digital formats anddistribution channels, in February we were delighted to be able to make ourfirst substantial new investment for some time into Skinkers. Skinkers' desktopalerts are a business controlled channel to the desktop of computer users thatguarantees important messages are seen when most needed. With emailcommunication starting to fail under the pressure of "spam" and viruses, it iscrucial for business to be able to guarantee the delivery of important messagesto both customers and employees. Skinkers' blue chip client list includes theBBC, BSkyB, the FT, CNN, the Wall Street Journal, HBOS, Cisco Systems, Nortel,Halifax and the London Stock Exchange. They use Skinkers technology to deliverimportant messages to customers, staff and partners. Skinkers have created a software technology that allows businesses of all sizesto quickly and cost-effectively deploy their own high-priority message deliverychannel to the desktop of their employees or their customers worldwide. Skinkers Alerts are very effective as they can deliver messages at a predefinedtime, support hundreds of thousands of users in a very cost effective way,track how many people receive and interact with the messages, control the lookand feel of messages for brand control, drive people to other information onthe internet/intranet/ television/etc. and optimize the delivery of largemultimedia files. Since our investment, the company has had an exclusive technology transfer fromMicrosoft in return for an equity participation. We believe that this additionsignificantly enhances the company's ability to capitalise on their platform,technology and customer base to exploit the exciting new opportunities for newmethods of broadcasting. We look forward to participating in the developmentof this business. Other portfolio companies Elsewhere in the portfolio we have seen positive performance from Firebox andSynaptics, both of which are now established and profitable businesses. Inaddition, a small investment made in 2004 into a business called Mind Candy hasdeveloped very strongly and attracted substantial investment from IndexVentures. The company was the inspiration of Michael Smith, one of thefounders of Firebox, and is the game master behind 'Perplex City', analternative reality game (ARG) that has achieved substantial profile in thisemerging sector. ARG's cross over between the physical and digital worldscreating an 'alternative reality' that utilises the community and chat featuresof the web to drive interest and participation in gaming and puzzle solvingthat are much more powerful than traditional methods. We believe this businessto be a promising example of a new content category that exploits thepossibilities of digital new media. Cash Cash balances stood at £17.8m at 31 March 2006 (£21.7m at 31 March 2005) - afternet cash operating costs of £2.7m, new investments of £7.3m and buy-backs of£3.2m. Of this balance, £2.9m is in a locked account following the capital reconstruction completed in October 2004. Proceeds from the sale of the stakein mergermarket will add another net £25.8m, after transaction expenses and a7.5% warranty retention, to our cash balances. Operations Administrative expenses of £5.7m are up by £2.2m on the year to March 2005. Ofthis difference, £1.7m is attributable to salaries and staff costs. Basicsalaries of full-time employees were £0.1m below the previous year, but as wehave seen a substantial value of exits in the current year, the incentivescheme, which is structured to pay to the managers 20% of all realised upliftsover the book value of investments as at March 2003 less an annual 5% hurdlerate, accrued £2.2m of value (£1.9m more than last year). Of this, £0.7m was acatch up for an under-accrual in 2005, £0.7m is the amount due for 2006 and£0.8m is an accrual for increases in the portfolio value that will triggerpayments under a compromise arrangement that was made to terminate the pre-2003incentive scheme. Away from the salaries, administrative and operating costswere £0.7m higher than last year. Of this, £0.6m is attributable to higherproperty costs which did not benefit from the rates rebate and release ofprovisions that occurred last year. The remaining £0.1m increase arose fromhigher professional costs consistent with more transactions in the year. Summary and Prospects We are delighted to have delivered such strong value growth in our portfoliothrough the very substantial cash exits from mergermarket, Footfall, and Elatathis year. The revaluation of IMImobile is also evidence that the portfolio hasmore of this value growth to come. We believe that these results are a criticalvalidation of the credentials of the SPARK team and of early stage investing inthis sector. We are also aware that we would not have been able to get to thispoint had it not been for the continued support of some of our long terminvestors. With the cash from these sales we are now able to build on the depth of ourknowledge in the technology sector to repopulate the portfolio, as we havealready begun with the investment in Skinkers. In addition, we will aim to usebuy-backs to make sure that our stock does not trade at a heavy discount to ournet assets, which recent evidence has suggested is a prudent measure of ourasset value. We also believe that the costs of operating a public company andsupporting a sufficiently stable management team become more efficient whenspread over a larger pool of assets. We will therefore be looking at variousopportunities to add critical mass to our operations over the next year. Andrew Carruthers, Chief Executive Officer11 August 2006 Consolidated Statement of Total Recognised Gains and LossesYear ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Loss for the year (119) (966)Unrealised gain on investments 21,273 6,280Foreign currency translation (16) 460------------------------------- ----------- -----------Total recognised gains and losses for the year 21,138 5,774------------------------------- ----------- ----------- Reconciliation of Movements in Consolidated Shareholders' FundsYear ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Loss for the year (119) (966)Other recognised gains and losses for the year 21,257 6,740Reversal of amortisation of own shares - 217Own shares purchased for Treasury (3,167) (1,043)Proceeds of issues of shares - 75------------------------------ ----------- -----------Net increase in shareholders' funds 17,971 5,023------------------------------ ----------- -----------Opening shareholders' funds 57,996 52,973------------------------------ ----------- -----------Closing shareholders' funds 75,967 57,996------------------------------ ----------- ----------- Consolidated Profit & Loss AccountYear ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Administrative expenses: - Salaries and other staff costs 3,052 1,373 - Administrative and operating costs 2,200 1,531 - Depreciation 143 222 - Other costs 302 328 ----------- -----------Total administrative expenses 5,697 3,454 Other operating income 1,280 1,258 ----------- -----------Operating loss (4,417) (2,196) Gain on investments 3,224 321Interest receivable and similar income 1,074 909 ----------- -----------Loss on ordinary activities before taxation (119) (966) Tax on loss on ordinary activities - - ----------- -----------Loss on ordinary activities after taxation (119) (966) ----------- -----------Retained loss for the year (119) (966) ----------- ----------- ----------- -----------Basic and diluted loss per ordinary share (0.03p) (0.21p) ----------- ----------- Consolidated Balance Sheet 31 March 31 March 2006 2005 £'000 £'000 Unaudited Audited Fixed Assets Tangible assets 690 848Investments 59,522 35,013 ----------- ----------- 60,212 35,861Current AssetsDebtors 1,123 2,351Restricted cash 2,869 2,869Cash at bank and in hand 14,903 18,815 ----------- ----------- 18,895 24,035 Creditors: amounts falling due within one year (3,007) (1,711) ----------- -----------Net current assets 15,888 22,324 Total assets less current liabilities 76,100 58,185 Provisions for liabilities (133) (189) ----------- -----------Net Assets 75,967 57,996 ----------- ----------- Capital and reserves Called up share capital 11,818 11,818Share premium account 39,693 39,693Own shares held by EBT (413) (413)Revaluation reserve (3,510) (24,103)Profit and loss account 28,379 31,001 ----------- -----------Equity shareholders' funds 75,967 57,996 ----------- ----------- Net Asset Value per share 17.7p 12.8p Number '000 Number '000 ----------- -----------Ordinary shares in issue 472,736 472,736Shares held in Treasury (36,016) (9,750)Shares held by employee benefit trust (8,338) (9,569) ----------- -----------Shares in issue for net asset per sharecalculation 428,382 453,417 ----------- ----------- Consolidated Cash Flow StatementYear ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Net cash outflow from operating activities (2,698) (1,993) Returns on investments and servicing of finance Interest received 1,073 909Dividend received - 5,787 ----------- -----------Net cash inflow from returns on investmentsand servicing of finance 1,073 6,696 Taxation UK Corporation Tax paid - -Overseas tax paid - (279) ----------- -----------Net cash outflow from taxation - (279) Capital expenditure and financial investment Payments to acquire tangible fixed assets (5) (16)Receipts from disposal of tangible fixedassets 20 5Payments to acquire investments (7,289) (3,990)Receipts from sales of investments 8,155 10,856 ----------- -----------Net cash inflow from investing activities 881 6,855 ----------- -----------Net cash (outflow) / inflow before financing (744) 11,279 Financing Issue of ordinary share capital - 75Own shares purchased for Treasury (3,167) (1,043)Transfer into restricted cash in accordancewith Court order - (2,437) ----------- -----------Net cash outflow from financing (3,167) (3,405)------------------------------- ----------- ----------- Net cash (outflow) / inflow in the year (3,911) 7,874------------------------------ ----------- ----------- Analysis of changes in net funds Net cash (outflow) / inflow in the year (3,911) 7,874Foreign exchange differences (1) 81------------------------------ ----------- ----------- (Decrease) / increase in cash in the year (3,912) 7,955------------------------------ ----------- ----------- Reconciliation of operating loss to net cash outflow from operating activities Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Operating loss (4,419) (2,196)Depreciation 143 222Decrease in debtors 365 4,766Increase / (decrease) in creditors 1,213 (4,873)Non-cash remuneration - 88------------------------------ ----------- ------------Net cash outflow from operating activities (2,698) (1,993)------------------------------ ----------- ------------ Reserves Share Premium Revaluation Profit and Loss Account reserve account £'000 £'000 £'000 Unaudited Unaudited Unaudited Reserves at 1 April 2005 39,693 (24,103) 31,001 Unrealised gain oninvestments - 21,273 - Previously unrealisedgains now deemedpermanent - (680) 680 Own shares purchased for treasury - - (3,167) Foreign currencytranslation - - (16) Loss for the year - - (119) -------- ---------- ----------Reserves at 31March 2006 39,693 (3,510) 28,379 -------- ---------- ---------- Note The financial information set out in the announcement does not constitute thecompany's statutory accounts for the years ended 31 March 2006 and 2005. Thefinancial information for the year ended 31 March 2005 is derived from thestatutory accounts for that year which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts; their report was unqualifiedand did not contain a statement under s237(2) or (3) Companies Act 1985. Thestatutory accounts for the year ended 31 March 2006, on which the auditors havenot yet reported, will be finalised on the basis of the financial informationpresented by the directors in this preliminary announcement and will bedelivered to the Registrar of Companies following the company's annual generalmeeting. This announcement is prepared on the basis of the accounting policies as statedin the statutory accounts for the year ended 31 March 2005, without exception. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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