Final results for year ended 31 December 2011

1 June 2012

Cellcast plc.

("Cellcast" or the "Group")

Final results for year ended 31 December 2011

The Board of Cellcast (AIM: CLTV) is pleased to announce its financial results for the year ended 31 December 2011. A full copy of the annual report and accounts, along with a notice of the Group's annual general meeting, to be held at 150 Great Portland Street, London W1W 6QD on 29 June 2012 at 11.00 a.m, has been posted to shareholders and will shortly be available from the Group's website, www.cellcast.tv.

Highlights

·; Revenues grew 9% during the year, increasing to £20.9million (2010 - £19.2 million)

·; Gross profit up 25% to £1.7 million (2010 - £1.4 million)

·; Operating profit of £0.02 million (2010 - operating loss of £0.4 million),

·; Earnings per share of 0.4p (2010 - loss per share of 0.4p)

·; Return to profitability, but recession driven decline experienced in second half of the year

·; Part disposal on the Company's interest in Cellcast Asia Holdings and sale of IP generating gains of £0.1m and £0.4m respectively

·; Net cash balances of £0.6 million as at 31 December 2011 (2010: £0.1m)

·; Focus on cost cutting as well as the continued development of innovative products and services

·; Share of losses in Associate of £0.1m in the year (2010: profit of £0.3m) and £0.1m loss on exchange differences on translation of foreign operations (2010: profit of £0.1m).

Andrew Wilson, Chief executive Officer of Cellcast, commented:

"Last year was a year of two halves. After a strong first half our revenues and profits were adversely impacted by what we believe to be a recession driven reduction.

"We were delighted to realise part of our shareholding in Cellcast Asia Holding during the year, especially in light of that company's subsequent poor trading. This poor trading may impact on the recoverability of amounts due under the assignment of our intellectual property and we have prudently made a provision in the financial statements.

"Looking forward the group will continue to focus on the development of innovative products and services to meet the challenges and growth opportunities presented by the expansion of digital television and the convergence of the web, TV and telephony."

For further information:

Chief Executive's statement

2011 Results

Operating revenues, which continued to be earned almost entirely from interactive broadcasting activities in the UK, grew to £20.9 million, an increase of 9% on 2010. Gross profits increased to £1.7 million, an increase of 25% on 2010. The group posted an operating profit of £22,000, a significant improvement on the prior year's operating loss of £444,000.

The group had a very strong start to the year posting an increase in revenues of 12% over the last half of 2010. Unfortunately the second half of 2011 saw what we believe was a recession driven decline in demand that resulted in a 16% drop in revenue which led to a 97% drop in profitability. The first half operating profit of £732,000 turned into an operating loss of £710,000 in the second half.

To address this significant decline in profitability a program of cost cutting was implemented.

The group's cost of sales were reduced from 93% of the 2010 revenue to 92% of the 2011 revenue. The general and administrative costs remained the same at £1 million. Around 50% of these were personnel costs, and the group has been operating with a minimum level of permanent staff (21 at 31 December 2011) from its single office in Great Portland Street. Amortisation and depreciation expenses of £612,000 - a decrease of £189,000 on 2010 - predominantly reflects the amortisation of the group's capitalised internally generated development costs, which at 31 December 2011 had a net book value of £767,000 (2010 - £1.2m).

After taking into account net interest costs and the loss generated by the part-disposal of Cellcast Asia Holdings ("CAH") and the sale of intellectual property (see below), the total comprehensive income for 2011 was £200,000 (2010 - loss of £244,000). 2011 earnings per share was 0.4p (2010 - loss per share of 0.4p).

Cellcast Asia Holdings

Throughout the first 9 months of 2011 the group held a 37.5% stake in Cellcast Asia Holdings Limited, which in turn held a 100% stake in Cellcast Interactive India Private Limited ("Cellcast India"). In October 2011, Cellcast India and affiliates raised USD 9 million from both new and existing investors. As a result of the fundraising, which occurred through the sale of new shares in Cellcast India, CAH's stake in Cellcast India was reduced to approximately 70%.

On 7 October 2011 CAH bought back 3.2 million shares in CAH from Cellcast for a consideration of US$1.5m (£949,000), thereby reducing the Group's holding in Cellcast India to 12%. The consideration was received during 2011. A profit on disposal of £92,000 has been reflected in the financial statements.

On the same day, the Group also entered into an agreement to assign certain Intellectual Property to Cellcast India for total consideration of US$1.5m (£949,000) payable over 24 months. No material costs or opportunity costs were incurred from the provision of this licence agreement.

In addition, CAH's investors agreed to terminate their put right over the Series A Preferred Stock in CAH, details of which were originally announced by Cellcast on 21 August 2007.

The performance of Cellcast India deteriorated significantly in the last half of the 2011 and has been further impacted by new legislation introduced by the Indian telecoms regulator, TRAI, in April 2012.These new laws mandate that all Quiz applications promoted on TV must reduce their premium tariffs from Rupees 12 to Rupees 3 per minute. As Quiz related programming represents a very large part of Cellcast India's business we understand that the effect of the legislation has been to reduce Cellcast's India's revenues by over 60% which will result in the company making a significant loss, and therefore calls into question their ability to meet the outstanding scheduled payments. An impairment of £585,000 has therefore been recognised in the financial statements. The Board will be considering its options on how to recover the outstanding amounts under assignment of the Intellectual Property.

In addition, due to the above post balance sheet event, the value of the remaining investment was fair valued at £nil as at 31 December 2011 - see note 4 for details.

Funding

As a result of trading in the year and the proceeds from the Indian transaction the company was able to repay the outstanding Director's loan of £100,000. There has been a significant reduction in the interest payable in the year £19,000 (2010: £148,000) due to the overall reduction in borrowings.

At 31 December 2011, the Group had a cash balance of £663,000 (2010: £110,000) and an overdraft of £46,000 (2010: £nil).

Outlook

Following the strong first half in 2011, traffic and revenue dropped in consecutive months and is unlikely to regain the levels of early 2011 during 2012.

As the group's channel distribution network actually grew in the year under review we attribute the decline to a recession driven drop in consumer demand which is evidenced by a significant drop in average monthly spend per user. As the group has now reached saturation levels in terms of its multi channel multi platform distribution, the main focus for 2012 has been on cutting costs both possible on an operational level and also through renegotiation of certain key supplier agreements.

The group will continue to focus on the development of innovative products and services to meet the challenges and growth opportunities presented by the expansion of digital television and the convergence of the web, TV and telephony.

Andrew Wilson

Chief Executive Officer

1 June 2012

Review of Operations

Group overview

The group's core business continues to be the production and distribution of participatory television formats across multiple digital platforms in the United Kingdom. Our principal focus is a commitment to sustainable profitability driven by a combination of proven and innovative content, aggressive cost management and expanded distribution.

UK Operations

Central to management's strategy in 2011 was a focus on increasing the efficiencies of our distribution and associated bandwidth costs, which make up the single largest part of our cost of sales. We have been focused on achieving savings on staffing costs, efficiencies in production processes, and the deployment of new technologies across all channels.

The regulatory threats to the core business appear, at this time, to be manageable, which supports our view that the revenues are sustainable at the reduced levels achieved in the second half of 2011. As stated in our 2010 report, given that we have successfully secured distribution of our services across the key digital platforms in the UK, we see limited growth in TV-derived revenues in the domestic market and are continuing to focus on identifying and cautiously developing new international markets.

Technology Division

During 2011, we continued with the capital investment spending £105,000 (2010: £17,000) on upgrading both the broadcast and IT infrastructure focussed on broadcast playout and studio equipment .

We successfully migrated a number of formats to the new Apple-based playout system. During the course of the year, we froze the delivery as Apple cast doubt on their continuing support for two of their key products. We then began to investigate other solutions that would perform similar functionality, with some success. On the operational side, we have completed the overhaul of the main operational and monitoring centre as well as the rewiring of the broadcast and communications servers and systems. We are pleased to report that this was achieved without any downtime on the shows, formats or channels. 

The group continues its investment in the main platforms used by the business. The Cellcast Interactive System was overhauled to cope with the changes required by significantly adapting it to work with the new playout and graphics systems, both the Apple based and it's possible replacement. The system was also upgraded to be completely cloud based to further insulate the business on an ongoing basis.

On the analytical system side, we released the Nucleus services, our customer relationship management and enterprise resource planning system designed to support the growth of individual business units and increase average revenue per user. 

In 2011, we embarked on the requirements gathering for the evolution of the main platforms to support more convergence between the mobile web, apps and TV systems. This project is intended to form the basis for all deployments going forward into 2012/2013.

Risk Factors

The following risk factors need to be taken into account when assessing the sustainability of the group's current financial performance.

Regulatory risks

The group's activities are governed by relevant Broadcasting and Telecom regulators in each of the segments and markets in which it operates. The group invests significantly in both compliance and maintenance of good relationships with regulators, and during the last couple of years its compliance record has been good. The sectors the group is involved in are constantly evolving so there remains risk that regulations may change and that any such changes could impact our current business model.

Commercial risks

-Broadcasting

The current margins enjoyed by the group are significantly dependant on the competitive advantage it has secured through the Electronic Programme Guide (EPG) positions it holds on the platforms on which it operates. In the event of EPG reorganisations this competitive advantage may be significantly eroded.

The group's margins are also dependant on the ongoing cost of bandwidth. If such were to increase the group's margins would diminish.

-Telecoms

The group's operations are significantly dependant on premium rate Interactive Voice Response and Short Message Service based income derived from revenue sharing agreements with fixed line and mobile operators and intermediary companies. These agreements are subject to change which, if averse, could erode group margins.

Technology risks

The group continues to invest in maintaining and enhancing its broadcast and telecom infrastructure in order to maintain its competitiveness in the market. That said, any catastrophic failure that took excessive time to remedy could impact ongoing revenues for a period of time.

Andrew Wilson

Chief Executive Officer

1 June 2012

Consolidated statement of comprehensive income

Consolidated statement of financial position

As at 31 December

Consolidated statement of changes in equity for the year ended 31 December 2011

Consolidated statement of changes in equity for the year ended 31 December 2010

Consolidated statement of cash flows Year ended 31 December

Notes to the consolidated financial statements

Basis of preparation

A. The figures for the year ended 31 December 2011 have been extracted from the audited statutory accounts for that year, which have yet to be delivered to the Registrar of Companies. The financial information set out above has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and those parts of the Companies Act 2006 that remain applicable to companies reporting under IFRS and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006, and does not contain all the information required to be disclosed in a full set of IFRS financial statements.

B. Statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies and sent to Shareholders shortly.

The audit report on these financial statements is unqualified and does not contain any statement under Section 498(2) or (3) of the Companies Act 2006, on the statutory financial statements for the year ended 31 December 2011. The audit report contains an Emphasis of Matter paragraph as follows :

"In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in the director's report and on page 21 of the financial statements concerning the group's ability to continue as a going concern. As at 31 December 2011 the group's current liabilities exceeded its current assets by £315,199 (2010: £2,079,285). These conditions indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern."

Statutory accounts for the year ended 31 December 2010 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, contained an emphasis of matter paragraph on going concern and did not contain a statement under section 498(2) and (3) of the Companies Act 2006.

Accounting policies

The consolidated financial statements have been prepared under the historical cost convention in accordance with applicable International Financial Reporting Standards as adopted by the European Union (IFRS). Cellcast plc is an England and Wales incorporated public limited company and is domiciled in the United Kingdom. Cellcast plc shares are publically traded on the AIM market of the London Stock Exchange under the ticker symbol CLTV.

Going concern

During the year ended 31 December 2011, the group recorded a profit of £292,344 which, as explained more fully in the Chief Executives statement, included the gain on sale of intellectual property rights for £364,005 (net of impairment) and the profit on disposal of interest in associate for £91,603. While the group has cash of £617,446 as at 31 December 2011 it has net current liabilities of £315,199. The directors have carefully considered whether or not it is appropriate to adopt the going concern basis in preparing the 2011 financial statements. The directors have reviewed the group's detailed cash forecast to ensure that the group current working capital and credit facilities in place are sufficient for the foreseeable future. This assumption is based upon updated forecasts required as a result of the reduction in the performance of the UK television business together with the continued reduction in operational costs implemented over the year. Whilst the Directors believe that the going concern basis is appropriate, the net current liabilities as at 31 December 2011, represents a material uncertainty which may cast doubt upon the group's ability to continue as a going concern and that, therefore, the group may be unable to discharge its liabilities in the normal course of business.

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

1. Proceeds on sale of intellectual property rights

2. Taxation

Factors affecting the tax charge for the year

At 31 December 2011, the group had estimated tax trading losses of £4.1 million (2010: £5.0 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.

The withholding tax in the year relates to the sale of the intellectual property.

3. Earnings / (loss) per share

The calculations of adjusted basic and diluted earnings / (loss) per ordinary share are based on the following results:

Due to the losses incurred in 2010 there was no dilution effect from the issued share options and warrants in 2010.

The potential number of dilutive ordinary shares at 31 December 2011 was 12,783,699 (2010: 13,623,869), all of which have an exercise price equal to, or in excess of, the average share price for the year end as a result there is no difference between the basic and diluted earnings per share.

4. Investments

The group's interest in unlisted investments as at 31 December 2010 comprised a 37.5% stake holding of the share capital of Cellcast Asia Holdings Limited ("CAH"). CAH is incorporated in the Cayman Islands and its principal activity is of an investment holding company.

In October 2011, Cellcast India and affiliates raised USD 9 million from both new and existing investors. As a result of the fundraising, which occurred through the sale of new shares in Cellcast India, CAH's stake in Cellcast India was reduced to approximately 70%.

On 7 October 2011 CAH bought back 3.2 million shares in CAH from Cellcast for a consideration of US$1.5m (£949,000), thereby reducing the Group's holding in Cellcast India to 12%. The consideration was received during 2011. A profit on disposal of £92,000 has been reflected in the financial statements.

CAH owns 70% (2010: 100%) of the share capital of Cellcast Interactive India Private Limited a company incorporated in India and whose principal activity is television and broadcasting. CAH also own 50% of the share capital of Cellcast SEA Limited a dormant company incorporated in Hong Kong. CAH and its subsidiaries have a 31 March financial year end. The results and financial position for the year ended 31 December 2010 were included in these group accounts under the equity method of accounting.

As part of the buy-back CAH's investors agreed to terminate their put right over the Series A preferred stock in CAH. The value prescribed to this was £nil.

Following the share buyback the group no longer considers their interest meets the criteria for an associate as the group no longer exert significant influence. The remaining interest has therefore been accounted for as an unlisted investment, measured at fair value through profit and loss. The remaining investment has been valued by the directors based on their knowledge of CAH and its subsidiaries. Recent regulatory changes in India has had a detrimental impact on the value of the Indian business and as a result the directors belief it is appropriate to write down the value of the investment to £nil as at 31 December 2011.

Cellcast also sold intellectual property rights to Cellcast Interactive India Private Limited for a $1.5m (£949,493). The uncertainty in Indian regulation has also impacted on the directors' assessment of the recoverability of the unpaid remaining instalments of $937,500 (£585,488) and consequently an impairment has been made against this amount.

The profit on disposal was calculated as below:

The group's share of the results of CAH in 2011 and 2010 and its aggregate assets and liabilities at 31 December 2010 were as follows:

The group also holds an 18% holding in Cellcast Middle East Limited, a company incorporated in Lebanon. While its principal activities remains in television and broadcasting it continues to be loss making and the results have not been included as the group has no further funding commitment.

5. Borrowings

6. Cash flows Year ended 31 December