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.

24 May 2017

Cellcast Plc

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

Audited results for the year ended 31 December 2016

The Board of Cellcast Plc (AIM: CLTV) announces the Company's audited results for the year ended 31 December 2016. A full copy of the annual report and accounts, along with a notice of the Group's annual general meeting, to be held at L'Escargot, 48 Greek Street, London W1D 4EF on 21 June 2017 at 12.00 p.m., has been posted to shareholders today and will shortly be available from the Company's website, www.cellcast.tv.

Highlights

· Group operating revenues of £12.1 million (2015: £11.8 million), comprising:

o core interactive broadcast revenue of £11.5 million (2015: £11.8 million); and

o first revenues from the Group's new venture, providing technical services and consulting to overseas gaming and lottery operators, of £620,000

· Cost of sales were £11.0 million (2015: £10.6 million)

· Gross profit of £1.1 million (2015: £1.2 million)

· Profit for the year increased 21.7% to £645,000 (2015: £530,000)

· Net cash balance at 31 December 2016 of £1.1 million (31 December 2015: £839,000)

· Earnings per share of 0.8p (2015: 0.7p)

· Trading during the year to date has been challenging within the Group's core business and the Group is looking to restructure its cost base in line with these challenges.

The notes to the report and accounts for the year ended 31 December 2015 contained certain typographical errors which have been restated in the comparative numbers in the notes to the 2016 report & accounts. Details of these changes, none of which impact on the results for 2015, are set out in note 24 to the Group's 2016 report and accounts.

Andrew Wilson, Chief Executive of Cellcast, commented:

"We continued to see the anticipated and previously discussed decline in the core interactive broadcast business throughout 2016 and this has continued into 2017 as a result in the contraction in the market. The Board has been focusing on two key aspects, which are to manage the cost base of the Group and exploring revenue diversification opportunities.

"The first three months of the year are traditionally challenging as a result in seasonality in the Group's business. However, trading has continued to be depressed in the early part of the second quarter and the Board has therefore taken steps to mitigate this downturn with an increased focus on the cost base in all areas of the business.

"We are extremely pleased to report initial revenues during the year from our technical services and consulting operations in East Africa. The board will continue to look for opportunities to maintain the underlying financial stability of the Group."

For further information:

Chief Executive's statement

2016 Results

Cellcast plc's (the "group's") total operating revenues amounted to £12.1 million in 2016, compared to £11.8 million in 2015, an increase of 2.5%.

The group's interactive broadcasting activities in the UK generated £11.5 million of revenue (2015: £11.8 million) which reflects a decrease of 2.6%.

The group's income from the provision of management services and consultancy to overseas gaming and lottery operators, which launched during the year, generated an additional £620,000 of revenue (2015: nil).

Cost of sales amounted to £11.0 million, compared to £10.6 million in 2015.

The group's gross profit amounted to £1.1 million in 2016 compared to £1.2 million in 2015. The group benefitted from the additional revenue from its management services and consultancy activities, which compensated for the profit reduction in its core UK broadcast services.

General and administrative costs decreased by 12%, from £671,000 in 2015 to £593,000 in 2016. These costs exclude the foreign exchange gain of £140,000 in 2016 (2015: £11,000). Approximately half of these costs were personnel costs (2015: 52%). This reduction is as a result of the Board' ongoing focus to reduce the group's operating costs.

Amortisation and depreciation expenses for 2016 were £123,000, a £30,000 decrease on those of 2015 (£153,000). The decrease was due to some of the previously capitalised development costs being now fully amortized.

After taking into account the net interest, share of associate results and the taxation impact and fair value gains, the total profit for 2016 was £645,000 (2015: profit of £530,000), an increase of 21.7%. 2016 earnings per share was 0.8p (2015: earnings per share of 0.7p).

The Strategic report, set out on pages 5 and 6 of the Annual Report and Accounts, gives a more extensive description of the group's operations during the year and technological developments.

Funding

At 31 December 2016, the group had a net cash balance of £1.1 million (2015: £839,000). Current asset investments, which comprised the investment in the Lexinta fund and the new investment in the Ventury fund described in Note 15 amounted to £511,000 at 31 December 2016 (31 December 2015: £205,000). In 2016, the total gain generated by the current asset investments represented £137,000 (2015: £40,335).

The total assets at 31 December 2016 amounted to £4.4 million, an increase of £562,000 on the previous year. The increase was mainly due to the improvement in the group's cash balance (£262,000) and an increase in the group's current asset investments (£306,000).

Outlook

In line with previous reports, the Directors expect the group's core voice and SMS revenues, which are driven by the UK interactive broadcast business, to continue to decline through 2017 as they have done through 2015 and 2016, as the entire industry sector continues to contract and experience difficult trading conditions.

The group has seen the impact of this in the first quarter performance of 2017 within the broadcast business, where revenues and margins were lower than expected and budgeted, resulting in a difficult first quarter and bottom line losses. Whilst the first 3 months of the year are traditionally challenging due to the seasonality in the group's business, the group is not currently seeing any significant signs of this reversing. In order to address this, the group has commenced a major review of costs with key suppliers who have a commonality of interest in the sustainability of the group's business. Initial progress has been positive in these negotiations, which are focused on realigning costs relative to the revenue and margin erosion expressed within the market itself.

In addition to this, the group faces a challenge ahead with the decision of DMOL (Digital Television Multiplex Operators Limited) to move the group's channels to less 'trafficked' positions on the Freeview electronic program guide. Previous experience of such moves over the last 5 years suggest that, whilst existing customers may seek out the group's channels in their new locations, there is no guarantee of this and there is likely the potential for a decline in new customer acquisitions, which of itself could lead to further revenue decline in the medium term.

To mitigate these uncertainties within the UK broadcast industry, the group has continued to focus on both geographical and service diversification, as previously announced, by leveraging its established skills in mobile, broadcasting and new media, to address new market sectors which can potentially provide alternate sources of revenue.

Included amongst these initiatives is the provision of consultancy and management services to companies in the gaming, lottery and entertainment sector in East Africa and Asia, where the group is leveraging the new opportunities being created by the growth in 'mobile money' in these geographies. The group's remuneration for this activity is currently received on the basis of fixed management fees, enhanced by various performance incentives. This structure insulates the group from investment risk and preserves the group's cash position, whilst providing a steady contracted stream of income and potential for upside. This new stream of income is expected to be maintained through 2017 and beyond, subject to customer and market continuity.

The group is also looking at further ways to diversify in order to create sustainable new business going forward.

Andrew Wilson

Chief Executive Officer

23 May 2017

Consolidated statement of comprehensive income

For the year ended 31 December 2016

Consolidated statement of financial position

As at 31 December 2016

Company statement of financial position Company number: 05342662

As at 31 December 2016

The company's profit and total comprehensive income for the year was £Nil (2015: £Nil)

Consolidated statement of changes in equity

For the year ended 31 December 2016

Company statement of changes in equity

For the year ended 31 December 2016

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 2016

No separate company statement of cash flows is presented as the company holds no cash at 31 December 2016 (2015: £Nil).

Notes to the consolidated financial statements

The figures for the year ended 31 December 2016 and 2015 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2016 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 2015 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 23 May 2017 and authorised for issue on 24 May 2017.

The consolidated financial statements 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 2016 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 2016, the group recorded a profit of £644,804. The group had net cash of £1,101,235 as at 31 December 2016 and it had net current assets of £2,329,588. 

The directors have carefully considered whether or not it is appropriate to adopt the going concern basis in preparing the 2016 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. 

After making enquiries, the directors have concluded that the group 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 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 is included in broadcast related income.

Broadcast related income also includes revenue from the novation of the group's rights to television channels, which is recognised on the date of novation as the group has no further obligations after this date.

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 estimates and judgements

The directors consider the critical accounting estimates and 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 11 for further details.

· 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 11 and 14.

These estimates 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.

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 67% of the group's television and broadcast revenue. The three telecom aggregators contribute £5,404,286, £1,331,522, and £979,335 of the group's total revenue (2015: 70% representing £5,947,946, £1,358,999, and £928,746).

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 £360,007 (2015: £343,334) are included in general and administrative expenses and £882,942 (2015: £853,334) are included in cost of sales. The parent company staff costs were nil (2015: Nil).

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

Key management personnel comprise the statutory directors, who are the only employees of the parent company.

3. Directors' emoluments

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

4. Profit before tax

5. Fair value gains and losses

6. Finance costs

7. Taxation

At 31 December 2016, the group had estimated tax trading losses of £1.2 million (2015: £2 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.

8. Earnings per share

The calculations of adjusted 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 at the year end was 3,684,510 (2015: 4,099,510).

Included within Licences is an individual channel licence with a carrying value of £104,000 (2015: £117,000). The asset will be fully amortised in 8 years (2015: 9 years).

10. Property, plant and equipment

11. Non-current investments - Group

At 31 December 2016, 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 group received £25,000 in February 2015 from 2Giraffes LLP but nevertheless deemed it prudent to reduce the net book value of this investment by impairing 50% of the remaining carrying value due to the uncertainty surrounding the timing of future recovery of the cost of investment, based on estimated fair value less costs of disposal.

The market value of this investment is not readily available because the investment is not in publically 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.

12. Non-current investments - Company

At 31 December 2016 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 Wye Lodge, 66 High Street, Old Stevenage, Hertfordshire, SG1 3EA.

Cellcast UK Limited has taken the exemption under section 479 of the Companies Act 2006 not to produce audited accounts. The parent company is guaranteeing the year end debts of the subsidiary company.

13. Investment in joint venture

On 30 May 2014, the group entered into a joint venture to invest in Euro TV SA, a company incorporated in the British Virgin Islands. Under the joint venture, the group invested £1 million for a 49% equity interest in Euro TV SA which was a joint venture between Cellcast UK Limited and the owners of the remaining 51%, being the principals of the Atlas Group of Companies, to focus on the development of a multi-platform gaming business using certain intellectual property and other proprietary rights and technologies. Following a review of strategy it was subsequently decided that resources would be better employed in alternative investment ventures and therefore the joint venture did not commence trading and was wound up on 6 March 2015 with the investment sum of £1million being recovered in full by the company.

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:

As at 31 December 2016, the amount due from associate stood at £549,428 (2015: £594,900), this is shown in note 16. The group has full confidence regarding the full recovery of this amount.

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.

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.

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.

17. Non-current liabilities

Non-current trade payables fall due in instalments over 4 years to October 2020 (2015: 5 years to October 2020).

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 2016 and 2015 mainly comprise cash and current asset investments, and various items arising directly from its operations, such as trade and other receivables, trade and other payables 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.

19. Financial risk management (continued)

(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.

(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 wrote off £37,000 of accrued income during 2016 (2015: £100,000). There are no provisions for trade receivables at 31 December 2016 or 2015.

There was no amount within other receivables written off in the year (2015: £21,000).

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

The total of the trade receivables which were past due at 31 December 2016 but not impaired was £nil (2015: £147,740). The total trade receivables and accrued income balance of £1,178,942 was collected by 30 April 2017. 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 2016. 

(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 (2015: £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 (2015: £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 relates to the cash balances it holds 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:

(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.

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 2016 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 option vest.

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 £0.053, with a weighted average remaining contractual life of 2.25 years (2015: 1.53 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 2015 management charges totalled £168,000 (2015: £166,752). At the year-end £14,000 (2015: £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 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 2016 the company advanced £nil (2015: £594,900) to Global Gaming Limited, an associate of the company. At 31 December 2016 £549,428 (2015: £594,900) remained outstanding.

Company

Cellcast UK Limited

At the reporting date £2,949,078 (2015: £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

24. Re-statement of comparative information

The notes to the 2015 financial statements of Cellcast plc contained the following inaccuracies:

Note 8 of the Cellcast plc 2015 accounts contained a typographical error and repeated the amount of dilutive ordinary shares of the previous year. The potential number of dilutive shares at 31 December 2015 was 4,099,510. This typographical error had no impact on the loss per share calculation which was correct.

The table in Note 18(b) of the Cellcast plc 2015 accounts should have included the financial assets in Note 11 (investment in 2Giraffes LLP) and Note 13 (Lexinta fund). These corrections have been made in the comparative table in the 2016 Cellcast plc accounts in Note 19.

The warrants mentioned in Note 20 of the Cellcast plc 2015 accounts were no longer exercisable, therefore this table should have been removed. This has been corrected in the current report along with other presentational corrections noted in respect of the remaining share options in issue as noted in Note 21 of the 2016 accounts.