1st Mar 2006 07:04
Avanti Capital PLC01 March 2006 Avanti Capital plc Avanti Capital plc, the private equity company, announces its interim results for the six months ended 31 December 2005. HIGHLIGHTS • Since June 2005, net assets (excluding the accounting effects of the consolidation of Barvest Limited) up 16.8% to £20.14 million or 216 pence per ordinary share. • Net asset values (excluding the accounting effects of the consolidation of Barvest Limited) per Avanti share by category: Investment Carrying value (pence per share) mBlox 61 Barvest 64 Espresso 3 Medcenter 3 Wordmap 3 Others 1 Cash (net of liabilities) 78 Property 3 Total 216 • mBlox closes US$25 million fund-raising in February 2006. mBlox carrying value rises from £1.83 million to £5.69 million, an increase of 310%, including the further investment. • Buy back of shares continued with purchases in July 2005 of 577,000 ordinary shares at 150 pence per ordinary share. 1 March 2006 ENQUIRIES:Avanti Capital Plc Tel: 020 7070 7070Julian Fellerman, Joint CEORichard Kleiner, Joint CEO Results of the Group In order to better reflect the underlying commercial value of the Group's netassets, we have provided pro forma accounts, which reflect the separateactivities of the Group. The net assets (excluding the accounting effects of the consolidation of BarvestLimited) are £20.14 million (2004: £18.72 million) or 216 pence per ordinaryshare (2004: 189 pence per share). As at 31 December 2005, the Group had net assets on a consolidated basis of£18.22 million (2004: £19.11 million) or 195 pence per share (2004: 193 penceper share). In the period to 31 December 2005, the profit before exceptional items,excluding the consolidation of Barvest, was £645,000 (2004: £475,000). Portfolio Investments Barvest Limited Following the announcement of its intention to sell its interest in Barvest,although the Company received a number of offers, none of these offersmaterialised into a proposal considered by the board to be likely to realise anacceptable value. As a consequence, in February 2006 Barvest entered into arrangements tostrengthen its management team through the appointment of Reuben Harley asmanaging and operations director, John Smith as finance director and Roger Dyeras commercial director. This move supplemented the management team, which wasled, as an interim measure, by Jeremy Sturgess, who has stepped down. AnnaGarrod continues in the key role of marketing director. Following these appointments, the Company owns 60% of the equity of Barvest,with management holding a 40% stake, following their subscription for new sharesin Barvest. During the period the turnover of Barvest was £9.51 million and the EBITDA was£133,000. Barvest continues to trade in a challenging environment with continueduncertainty surrounding the implementation of the new licensing regime and theintroduction of a smoking ban. Nevertheless, the Company remains determined tofurther enhance the value of this business over the medium term. As at 31 December 2005 the carrying value of the Company's investment in Barvestwas £5.98m or 64 pence per ordinary share. Espresso Broadband Limited Espresso is the UK's leading educational broadband content company. Itscustomers are principally local educational authorities and in turn primaryschools. In 2005 Espresso was recognised as the Supplier of the Year at theEducation Resources Awards. In February 2006, it announced a fund-raising of £2.4 million to finance astrategic acquisition. The Company participated in the fund-raising for its prorata share. The valuation of Espresso for the purposes of the fund-raisingresulted in an uplift in the carrying value of the Company's investment inEspresso to £315,000. As at 31 December 2005 the carrying value of the Company's investment inEspresso was 3 pence per ordinary share. mBlox Inc During the period mBlox captured the leadership position in the US and Europefor mobile transaction network services and extended its direct billing reach to15 countries, launching new services in Australia, Canada, France, Ireland andGermany and now reaches 1.5 billion mobile phone subscribers worldwide. In the year ended 31 December 2005, mBlox processed approximately 1 billiontransactions, with a total billing value of about $400 million. During February 2006, mBlox successfully closed a $25 million fund-raising,which was led by new investor Trident Capital, the $1.5 billion Silicon Valleyventure capital fund, which focuses on businesses providing informationconnectivity. The fund-raising was also strongly supported by existing mBloxinvestors, including Bank of America Venture Partners, Norwest Venture Partnersand Novus Ventures. The funds were raised by mBlox to support further product roll out andgeographical expansion. In the fund-raising, Avanti invested a further £1.73 million to bring its totalinvestment to £3.56 million. As a consequence of this investment, the carryingvalue of the Company's shareholding in mBlox has risen from £1.83 million (or19.6 pence per ordinary share) to £5.68 million (or 61 pence per ordinary share)based on the current subscription price. In 2006, mBlox aims to expand into new markets and introduce new products forits clients based on its understanding of its customers' needs. The Company's holding in mBlox has increased to 7.9% and as at 31 December 2005the carrying value of its investment was 61 pence per ordinary share. Medcenter Inc During the period, Medcenter continued with its geographical expansionsuccessfully establishing operations in Australia and Spain. Medcenter continues to win new contracts from large pharmaceutical companies whosee the company as a facilitator in linking the pharmaceutical companies withthe medical profession in the field through data links and other e-marketingchannels. As at 31 December 2005 the carrying value of the Company's investment inMedcenter was 3 pence per ordinary share. Wordmap Limited On 14 October 2005, the Company invested £285,000 in Wordmap for a shareholdingof 20%. Since making the investment, Wordmap has broken into profit and successfullystrengthened its UK sales team, whilst at the same time establishing a salespresence in the US. Wordmap is confident that such a presence will result inincreased sales from the US where the market is relatively much larger than theUK particularly within the private sector. As at 31 December 2005 the carrying value of the Company's investment in Wordmapwas 3 pence per ordinary share. Other Investments In relation to the remainder of the legacy investments in the Group's portfolio,as previously indicated we are continuing to seek ways of maximising the valueto the Group. The aggregate carrying value of the investment in these companiesis £192,000. Purchase of own shares As reported in our 2005 annual report, in July 2005 the Company bought back,through the market, 577,000 shares at 150 pence per share. At the 2005 AnnualGeneral Meeting, the Company renewed its authority to continue to make purchasesof its own shares. The maximum aggregate number of shares under the renewedauthority is 1,400,563 (representing 15% of the ordinary shares in issue). J M FellermanR H KleinerJoint Chief Executives Group Profit and Loss Accountfor the six months ended 31 December 2005 6 months 6 months 12 months ended ended ended 31 Dec 31 Dec 30 June 2005 2004 2005 £000 £000 £000Turnover- continuing operations 9,552 10,360 20,485Cost of sales (1,758) (1,897) (3,782) Gross profit 7,794 8,463 16,703 Operating expenses:Administrative expenses - exceptional -warrant cancellation payment - (87) (87)Administrative expenses - other exceptional (119) (96) (410)Administrative expenses - others (8,347) (8,578) (17,061) (8,466) (8,761) (17,558)Operating loss- continuing operations (672) (298) (855) Profit on disposal of investments - 124 197Interest receivable 234 314 607Interest payable (199) (215) (429) Loss on ordinary activities before taxation (637) (75) (480)Taxation - 84 134Minority interest 222 113 197 Retained (loss)/profit for the period (415) 122 (149) Loss per share - basic and diluted (4.40)p 1.18p (1.46)p Statement of total recognised gains and losses 6 months 6 months 12 months ended ended ended 31 Dec 31 Dec 30 June 2005 2004 2005 £000 £000 £000(Loss)/profit for the period (415) 122 (149)Surplus on share re-organisation - - - (Loss)/profit for the period attributable to (415) 122 (149)members of the parent company Group Balance sheetAt 31 December 2005 6 months 6 months 12 months ended ended ended 31 Dec 31 Dec 30 June 2005 2004 2005 £000 £000 £000Fixed AssetsGoodwill - positive goodwill 4,566 4,926 4,915Goodwill - negative goodwill - (437) (218)Tangible assets 1,927 1,928 1,974Fixed asset investments 6,407 2,243 2,547 12,900 8,660 9,218 Current AssetsStock 345 403 321Debtors 1,807 2,303 1,572Cash at bank and in hand 8,884 13,400 11,447 11,036 16,106 13,340Creditors: amounts falling duewithin one year (3,931) (2,938) (2,697) Net current assets 7,105 13,168 10,643Total assets less current liabilities 20,005 21,828 19,861Creditors: amounts falling due aftermore than one year (1,677) (2,467) (2,154)Minority interest loan account (107) (205) (107)Provision - (50) - Net Assets 18,221 19,106 17,600 Capital and ReservesCalled up share capital 5,602 6,224 5,948Revaluation reserve 2,125 - -Capital redemption reserve 622 - 276Other reserves 2,045 2,045 2,045Minority interests (189) 394 33Profit and loss account 8,016 10,443 9,298 Shareholders' funds 18,221 19,106 17,600 Approved by the board on 1 March 2006 Richard KleinerJulian Fellerman Group Statement of Cash flowsFor the period ended 31 December 2005 6 months 6 months 12 months ended ended ended 31 Dec 31 Dec 30 June 2005 2004 2005 £000 £000 £000 Net Cash inflow/(outflow) from operating activities 1,509 (1,800) (1,488) Returns on investments and servicing of financeInterest received 234 314 607Interest paid (199) (215) (429) TaxationCorporation tax paid - - - Capital expenditure and financial investmentsPurchase of tangible fixed assets (302) (342) (559)Purchase of intangible assets - - (233)Purchase of investments (1,760) - (275)Proceeds from sale of tangible assets 16 - 8Receipts from sales of fixed asset investments - 249 252Net cash outflow from capital expenditure and financialinvestment (2,046) (93) (807) Acquisitions and disposalsPurchase of minority interest in subsidiary undertaking - - (339)Net cash outflow from acquisition and disposal - - (339) Net cash (outflow) before management ofliquid resources and financing (502) (1,794) (2,456) Management of liquid resourcesMovement of liquid resources 2,056 785 3,214 FinancingIssue of ordinary share capital - - 1Payments for share buy back (874) - (874)New long term borrowings (1,187) (412) -Repayment of other loans - - (830) (Decrease) in cash in the year (507) (1,421) (945) Note to the Group Statement of CashflowsReconciliation of operating loss to net cashinflow/outflow from operating activitiesOperating loss (672) (298) (855)Depreciation 203 187 382Goodwill amortisation 86 64 136Provision against diminution in investments 25 96 41Loss on sale of tangible assets 136 - 1Decrease/(Increase) in stock 22 (60) 22(Increase)/Decrease in debtors (235) (564) 184Increase/(Decrease) in creditors 1,944 (1,225) (1,399) 1,509 (1,800) (1,488) Notes to the Accounts 1. Basis of preparation of interim financial information Accounting convention The interim accounts are prepared under the historical cost convention, asmodified by the revaluation of certain fixed asset investments noted below, andin accordance with applicable accounting standards. Basis of consolidation The Group accounts consolidate the financial statements of the Company and itssubsidiary undertakings, including Barvest Limited, drawn up to 31 December2005. No profit and loss account is presented for the Company as permitted bysection 230 of the Companies Act 1985. Fixed asset investments Fixed asset investments, comprising equity shares and share options, are statedat the lower of cost and valuation and in accordance with the "Guidelines forthe valuation and disclosure of venture capital portfolios" published by theBritish Venture Capital Association on the following basis: (a) Early stage investments: these are investments in immature companies,including seed, start-up and early stage investments. Such investments arevalued at cost less any provision considered necessary, until no longer viewedas early stage or unless a significant transaction involving an independentthird party at arm's length, values the investment at a materially differentvalue; (b) Development stage investments: such investments are in establishedcompanies and from which an exit, by way of flotation or trade sale, can bereasonably foreseen. An investment of this stage is periodically revalued byreference to open market value. Valuation will usually be by one of fourmethods as indicated below: i) At cost for at least one period unless such a basis is unsustainable; ii) On a third party basis based on the price at which a subsequent issue ofcapital is made involving a significant investment by a new investor; iii) On an earnings basis, but not until at least a period since the investmentwas made, by applying a discounted price/earnings ratio to profit aftertaxation, either before or after interest; or iv) On a net asset basis, again applying a discount to reflect the illiquidityof the investment. (c) Quoted investments: such investments are valued using the quoted marketprice, discounted if the shares are subject to any particular restrictions orare significant in relation to the issued share capital of a small quotedcompany; (d) Share options are subject to vesting and other conditions set out in thevarious option agreements. The valuation is based on the intrinsic value of allshare options that have vested. This is the difference between the market valueof shares at the balance sheet date and the exercise price. A review of permanent diminution in value is undertaken by reference to funding,investment or offers in progress after the balance sheet date. No adjustment ismade for any uplift in value after the balance sheet date. 2. Exceptional items 6 months 6 months 12 months ended ended ended 31 Dec 31 Dec 30 June 2005 2004 2005 £000 £000 £000Provision for impairment of fixed asset investments 25 96 41Deal and merger costs: - Redundancy costs - - 342 - Cost on share buy back 7 - -Restructuring charges 46 - 27Abortive deal costs 41 - - 119 96 410 3. Year ended 30 June 2005 The figures for the full financial year ended 30 June 2005 are not the Group'sstatutory accounts for that financial year within the meaning of section 240 ofthe Companies Act 1985. Those accounts have been reported on by the Group'sauditors and delivered to the registrar of companies. The report of theauditors was unqualified and did not contain a statement under section 237(2) or(3) of the Companies Act 1985. 4. Commitments The Company has a cash commitment in respect of one of its investments, namelyXDL Intervest (USA) Limited Partnership. The Company was originally committed topay a total of CAN$1m to XDL Intervest (USA) Limited Partnership but thecommitment has now been capped at CAN$800,000. As at 31 December 2005,CAN$668,000 had been paid leaving an outstanding commitment of CAN$132,000. 5. Contingent liabilities The Company has entered into a guarantee of the obligations of Barvest Limitedin respect of its lease at its Edinburgh site. The annual rent of Barvest'sEdinburgh site is £57,000. The Company has agreed, in principle, to enter into a guarantee with thesupplier of Barvest Limited in respect of potential future shortfalls ofpurchases. The maximum amount of the Company's exposure to the guarantee is£367,000. 6. Pro-Forma information The Accounting Standards require the Group to consolidate Barvest Limited.Shareholders may find it useful to see the separate trading results and netassets of Avanti and Barvest as shown in this Pro-Forma. Profit & Loss Avanti Barvest Adjustments Group Total £000 £000 £000 £000 £000 £000 £000 TURNOVER - continuing operations 88 9,514 (50) 9,552 - acquisition 0 0 0 88 9,514 9,552Less : Cost of sales 0 (1,758) (1,758)Gross profit 88 7,756 7,794Operating expenses Administrative expenses (486) (7,623) 50 (8,059)EBITDA (398) 133 (265) Depreciation & goodwill 210 (498) (288)amortisationInterest payable 0 (798) 599 (199)Interest receivable 833 0 (599) 234 833 (798) 35(Loss)/profit on ordinary 645 (1,163) (518)activities before taxationand exceptional items Exceptional items (72) (47) (119)(Loss)/profit on ordinary 573 (1,210) (637)activities before taxation Taxation 0 0 0(Loss)/profit on ordinary 573 (1,210) (637)activities after taxation Minority interest 0 0 222 222(Loss)/profit for the period 573 (1,210) (415)after minority interest Net assets Avanti Barvest Adjustment Group Total £000 £000 £000 £000Fixed assets Goodwill 0 4,477 89 4,566 Tangible assets 345 1,582 1,927 Investments 10,579 0 (4,172) 6,407 10,924 6,059 12,900Current assets Stock 0 345 345 Debtors 1,882 1,732 (1,807) 1,807 Cash at bank and in-hand 8,907 (23) 8,884 10,789 2,054 11,036Creditors: amounts fallingdue within one year 1,571 2,301 59 3,931Net current assets 9,218 (247) 7,105 20,142 5,812 20,005Creditors: amounts fallingdue after one year Bank loans 0 (1,677) 0 (1,677) Shareholders' loans 0 (5,179) 5,179 0 Minority interest loan 0 0 (107) (107) 0 (6,856) (1,784)Net Assets 20,142 (1,044) (877) £ 18,221 Represented by: Share capital 5,602 1,000 (1,000) 5,602 Revaluation reserves 2,125 0 2,125 Capital redemption reserves 622 0 622 Other reserves 2,045 0 2,045 Minority interest 0 0 (189) (189) Profit & loss account 9,748 (2,044) 312 8,016Shareholders' funds 20,142 (1,044) (877) £ 18,221 Independent review report to Avanti Capital plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 31 December 2005, which comprises the Group Profit and LossAccount, Group Statement of Total Recognised Gains and Losses, Group BalanceSheet, Group Cash Flow Statement and the related notes 1 to 5. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent required by the law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report as required by the AIM Rulesissued by the London Stock Exchange. Review work performed We conducted our review having regard to the guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with UnitedKingdom Auditing Standards and therefore provides a lower level of assurancethan an audit. Accordingly we do not express an audit opinion on the financialinformation. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2005. Ernst & Young LLPLondon 1 March 2006 Note to Editors Avanti Capital is a private equity company. Unlike conventional close-endedprivate equity funds, Avanti has no set investment timetable and focuses on thequality of individual investments rather than a portfolio strategy-led highquantity investment ethic. Avanti has an executive team with extensive experience of investing in andrunning companies across a wide range of sectors. The professional backgroundsand business experience of the executive team enable Avanti to see value insituations may be unattractive to the other investors. The presence ofstructural issues within businesses is seen as an opportunity to create morevalue from any particular investment. Avanti's approach to investments is both rigorous and discerning and reflectsthe fact that it is seeking exceptional opportunities to invest in businesseswith high quality management teams and where Avanti's own management can feeltruly passionate about the business's prospects. Avanti's investment criteria are as follows: - • European businesses. • Strong management with a proven track record. • Wide ranging businesses, which show the potential for material growth in the short to medium term, including consumer brands, leisure, retail and specialist support services. • Undervalued businesses or assets in both the public and private arena. • Where appropriate, the company will seek to raise debt finance to part fund any investment. Avanti Capital is quoted on the Alternative Investment Market of the LondonStock Exchange and therefore offers shareholders participation in private equitydeals through a quoted vehicle. 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