20th Dec 2005 09:20
NewMedia SPARK PLC20 December 2005 NewMedia SPARK plc ("SPARK") Interim Results for the six months to 30 September 2005 - Net Assets per share up by 9.4% to 14.0p (March 2005: 12.8p).- Cash sale of FootFall Ltd today to generate cash of £5m for SPARK's holding, a 100% uplift on cost from £2.5m invested in stages over 2000, 2001 and 2002. Book value in March 2005 was £3.8m.- Sale of SPARK's holding in Elata in August for £1.5m consideration represents a 130% uplift over cost and book value.- Strong valuation growth of 15.6% amongst companies within the portfolio will permit increased cash reserves to be used to effect more buy-backs and allow new investments.- Cash balances at 30 September are £19.9m, not including the cash proceeds from the sale of the FootFall holding. COMMENTARY Investment Values and Exits In the first half of this year, the value of our investment portfolio has risenby £6.2m, compared to £6.6m for the whole of the year ending March 2005. Ofthis gain, £5.3m has been shown as an unrecognised gain in the ConsolidatedStatement of Total Recognised Gains and Losses, and £0.9m has been recognised onthe face of the Profit & Loss statement. The remaining £0.6m contained withinthe 'Gains from investments' line on the Profit and Loss statement was from thesale of a dormant subsidiary. The sale of FootFall demonstrates the point that good companies with a leadingposition in fast growing markets can attract prices that reflect their strategicvalue as well as that derived from a multiple of their revenues and earnings.FootFall's position as the largest company in the world outside the US providingcount data and analysis of pedestrian traffic in retail environments, with ahigh quality client base, was as important to the buyer as its current revenues. Nonetheless, FootFall is profitable, is growing rapidly and would also havemade a good IPO candidate in the next year. Whilst the sale completed after theperiod end, we have written up the carrying value of our investment in FootFallby £1.3m to reflect the sale proceeds. We are pleased to have led theinvestment in 2000, and assisted the development of this company throughout itsearly stages. It is a good example of SPARK's role in early stage investing inthe UK. The sale of Elata in August to Qualcomm Inc for $57m is another example ofassets within the portfolio that have obtained a strategic value in excess ofthat derived from a simple multiple of earnings. The company had developed acontent delivery and device management software system for mobile phones and hadmade sales to Orange, among others. In the light of the growth in the mobilecontent sector, it was clearly the quality of this platform and its ability towin substantial clients that was of value to Qualcomm. Of the £1.5m of proceedsfrom the sale of this investment, £0.3m will be held in reserve for the warrantyperiod. In addition, the final £1.1m of proceeds from the sale of Pricerunner held as awarranty reserve was released in August without any claims being made againstit. Both Elata and Pricerunner were in an early stage of revenue growth and hadacquired significant customer traction, but were not sufficiently mature toreflect their full value through net earnings - which is the main measure we areobliged to rely on in order to value our portfolio in accordance with BritishVenture Capital Association guidelines and prudent accounting policy. Portfolio Since April we have seen the value of the portfolio, excluding those companiessold, rise by 15.6%. The major valuation changes were as follows: Mergermarket Mergermarket is now the largest company in the portfolio by value. It is anindependent M&A (Mergers & Acquisitions) intelligence tool used by many of theworld's leading financial institutions to originate deals. It providesproprietary intelligence on potential deal flow, potential mandates andvaluations through what is now believed to be the world's largest group of M&Ajournalists and analysts (over 150), who have direct access to many seniordecision-makers and corporates. In our last report we mentioned that thecompany had launched dedicated products for the US and Latin American markets.Since then, it has also launched in the Asia Pacific region and has launched anew and unique product, 'Wealth Monitor'. Wealth Monitor uses often proprietaryinformation derived from the transactions data generated by other products inthe company to anticipate those who are becoming newly wealthy fromtransactions, public and private, in progress. It is expected that the productwill generate substantial interest from private bankers and other suppliersproviding services to this customer group. The company continues to perform very strongly and for the first ten months ofits financial year is delivering revenues that are approximately 80% up on theprevious year. Subscription renewals are running over 95%. More importantly forthe valuation in these interim results, the operating profits are now becomingsubstantial and are up by more than 240% on the prior year. The effect is thatwe have now increased the earnings based valuation by £5m to £13m in our booksfor the half year to 30 September. The company has cash reserves of £5m. Aspex Aspex is a fabless semiconductor company developing high-performance, softwareprogrammable "Extreme Processors" for the image processing market. Afterspinning out from Brunel University in 1999, the company began making sales ofits 'Linedancer' chip in January 2005 and now has had 25 'design wins' forproducts in the medical imaging, film processing, machine vision and printingmarkets. Many of these design wins are followed by a lengthy period ofevaluation by a customer while they decide whether to design the Aspex chip intoone of their products. In order to shorten this sales cycle, the companylaunched a 'plug and play' encoder board for high speed image encoding inSeptember. Initial signs are promising that sales of both these boards and theembedded chip are gaining good momentum, with revenues achieved in the firsthalf of their year already exceeding prior year sales. At the time of writing the company has received a draft term sheet for fundingfrom another Venture Capitalist which it is considering. Based on thevaluations offered in these discussions we have taken the view that the value ofour 68% holding should be written down by £2m to £10.1m, despite the fact thatits peers in the public markets achieve much higher valuations. IMI Based in Hyderabad, IMI provides design, services and products to the mobileindustry in India. Its principal business is the provision of content,management systems and data services to India's largest Mobile Operators.Revenues for this business are currently running at twice those for their yearended March 2005 and the company has achieved a milestone in winning majorcontracts with Trinidad & Tobago Telecomms and Yahoo for services deliveredoutside India. Within India, the expansion of the mobile network continues togrow extremely rapidly with over 2m new subscriptions taken out nationwide everymonth (or one every 1.3 seconds). The combination of the domestic andinternational growth provides IMI with substantial opportunities. The companynow has over 250 employees. The valuation of our 47% holding in IMI at our year end in March 2005 was set byreference to the last transaction in IMI shares. In the light of the continuingdevelopment of the business we have taken the view that all previous write downscan be reversed, with the consequence that we can write the value back up by£1m, to cost of £3.1m. We would expect to be able to replace this with anearnings based valuation by next March which would have a positive effect on itsvaluation again. DX3 DX3 is a distribution platform for the secure delivery of digital media. Withthe explosion of new methods for delivering content to consumers, media ownersare struggling to keep up with the preparation, collation, authorisation,delivery and reporting of media delivered in all the various formats (downloads,real tones, polyphonic ring tones, wall papers, games, video, podcasts, digitalTV etc). They also remain extremely concerned about the security of their mediaassets when many devices are now capable of 'super-distribution'. Until May 2005, DX3's core business was the distribution of legal media assetsto PC's. During the period SPARK has invested £1.5m to develop the company'scapacity to deliver not only to wired devices such as PC's, but also to wirelessdevices such as mobile phones. The DX3 difference is not so much in itstechnology as in its ability to apply technology solutions to securely deliverofficially licensed digital entertainment content. In view of this, the companyhas been able to obtain the only multi-platform licences to legally distribute,as a reseller, digital entertainment content on behalf of all the major recordcompanies such as Universal and EMI, as well as independents. Since obtainingthese licenses, the company has become the real tone provider for Emap's MusicTV channels (such as The Hits, Kerrang, The Box etc.) Woolworths and Eckohamongst others. SPARK owns 54% of this business which is now carried on ourbooks at £2.3m following the latest investment. Kobalt The final notable movement in our investment valuations is our holding ofKobalt. Kobalt is a music publisher that uses its proprietary technology todeliver fast, transparent and accurate royalty revenue collection for musicowners and songwriters. The company has signed up leading songwriters for thelikes of Gwen Stefani, Eminem and Kelly Clarkson. It achieved a near treblingof revenues in the year and now appears regularly in the top ten publishers inthe country having been created at SPARK only five years ago. On the strengthof these results, the company has raised a new round of funding which wasoversubscribed and at a higher valuation, thereby allowing us to write up thevalue of our investment by £0.7m to £2.9m. Cash Cash balances are £19.9m at 30 September 2005 (£21.7m at March 2005) - afteradministrative costs of £2.8m, new investments of £3.8m and share buy-backs of£0.5m. Of this balance, £2.9m is in a locked account following the capitalreconstruction completed in October 2004. Proceeds from the sale of the stakein FootFall will add another £5m to our cash balances. Operations Administrative expenses of £2.8m, which include property costs of £0.8m, are£0.8m up on the half year to September 04. The change arises from the firstinstance of a payout (£0.6m and associated NI) under the rules of the carryincentive scheme adopted by the company in 2003. This was triggered largely bythe successful cash exit from Pricerunner for £6.5m. In addition to this, anaccrual has been made for another payment under the scheme for the successfulsale of FootFall (£0.3m and associated NI). Away from these carry items,administrative costs overall were £0.2m lower and rental income was £0.2mhigher, on a like for like basis, than the half year to September 2004. Buy-backs In conjunction with the circulation of these interim statements, the company isconvening an EGM to seek approval from shareholders to increase the authorityfor directors to conduct buy-backs from the current limitation of 10% of ourissued shares to 20% of our issued shares, reserves permitting. To date thecompany has purchased 14.5m of its own shares into treasury, representing 3% ofits share capital. The average price at which these shares have been boughtback is 10.7p, representing a 24% discount to the current net assets per shareof 14.0p, and has cost the company £1.5m in total. The original authoritygranted to the directors to conduct share buy-backs was set at the lower of 10%of the company's share capital or £5m. In view of the increasing cash balancesand the maturing of the portfolio reflected in the improving net asset value,the Directors have taken the view that it would be in the best interests of allshareholders to raise the authority so as to allow them to pursue a moreaggressive buy-back policy. CONCLUSION As anticipated in the preliminary announcement for the year ending March 2005,we have been able to deliver more evidence of the value in our portfolio.Whilst we still have investments in businesses requiring some further funding,namely Aspex and DX3, we have sufficient cash to support them, and the level ofvalue momentum in the portfolio as a whole has grown significantly over the lastsix months. Indeed, certain of those investments, most notably Mergermarket,are now delivering visibility of value - in the form of revenues and profits -that allow us to reflect their very rapid growth in our accounts. The Board areconfident that there will be more examples of exits above book value over thecoming twelve months that should continue to add value to net assets. Inaddition, the quality of investment opportunities remains strong, withsubstantially fewer long-term, early stage investors in the market seeking tofund them. Andrew Carruthers20 December 2005 INDEPENDENT REVIEW REPORT TO NEWMEDIA SPARK PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2005 which comprises the consolidatedstatement of total recognised gains and losses, the consolidated profit and lossaccount, the consolidated balance sheet, the consolidated cash flow statement,the consolidated reconciliation of shareholders' funds and related notes 1 to 6.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave 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 ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. 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 30 September 2005. Deloitte & Touche LLPChartered AccountantsLondon20 December 2005 Consolidated Profit and Loss Account Six months to Six months to Year toInterim Report to 30 September 2005 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited AuditedAdministrative expensesSalaries and other staff costs (1,512) (744) (1,373)Other administrative and operating costs (1,000) (958) (1,531)Depreciation (75) (125) (222)Other costs (181) (158) (328)Total administrative expenses (2,768) (1,985) (3,454) Other operating income 725 535 1,258Operating loss (2,043) (1,450) (2,196) Gains from investments 1,546 2,104 321Interest receivable and similar income 604 354 909Profit / (loss) on ordinary activities before taxation 107 1,008 (966) Tax (charge) / credit on loss on ordinary activities - - - Profit / (loss) on ordinary activities after taxation 107 1,008 (966) Equity minority interests - - - Retained profit / (loss) for the period 107 1,008 (966) Basic and diluted earnings / (loss) per ordinary share 0.02p 0.22p (0.21p) Consolidated Statement of Total Recognised Six months to Six months to Year toGains and Losses 30-Sep 30-Sep 31-MarInterim Report to 30 September 2005 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Profit / (loss) for the financial period 107 1,008 (966)Unrealised gain / (loss) on investments 5,268 (1,721) 6,280Foreign currency translation (16) 311 460Prior year adjustment - - (630)Total recognised gains and losses in the period 5,359 (402) 5,144 Reconciliation of Movements in Consolidated Six months to Six months to Year toShareholders' Funds 30-Sep 30-Sep 31-MarInterim Report to 30 September 2005 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Profit / (loss) for the financial period 107 1,008 (966)Other recognised gains and losses for the period 5,252 (1,410) 6,740Reversal of amortisation of own shares - 108 217Reduction in capital reserve on lapse of warrants (504) - (1,043)Proceeds of issues of shares - - 75 Net increase / (reduction) in shareholders' funds 4,855 (294) 5,023 Opening shareholders' funds 57,996 52,973 52,973 Closing shareholders' funds 62,851 52,679 57,996 Consolidated Balance Sheet 30-Sep 30-Sep 31-MarInterim Report to 30 September 2005 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited AuditedFixed assetsTangible assets 755 930 848Investments 42,962 30,654 35,013 43,717 31,584 35,861Current assetsDebtors 2,000 5,041 2,351Restricted cash 2,869 413 2,869Cash at bank and in hand 17,069 17,836 18,815 21,938 23,290 24,035Creditors: amounts falling due within one year (2,615) (1,452) (1,711) Net current assets 19,323 21,838 22,324 Total assets less current liabilities 63,040 53,422 58,185 Provision for liabilities and charges (189) (743) (189) Net assets 62,851 52,679 57,996 Capital and reserves Called up share capital 11,818 11,799 11,818Own shares held by EBT (413) (522) (413)Share premium account 39,693 183,371 39,693Revaluation reserve (18,835) (33,113) (24,103)Profit and loss account 30,588 (108,856) 31,001Equity shareholders funds 62,851 52,679 57,996 Net Asset Value per share 14.0p 11.4p 12.8p Number Number Number '000 '000 '000Ordinary shares in issue 472,736 471,986 472,736Shares held in treasury (14,500) - (9,750)Shares held by Employee Benefit Trust (9,269) (9,819) (9,569)Shares in issue for net asset per share calculation 448,967 462,167 453,417 Consolidated Cash Flow Statement Six months to Six months to Year toInterim Report to 30 September 2005 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Net cash outflow from operating activities (1,006) (1,011) (1,993) Return on investments and servicing of financeInterest received 604 354 909Dividend received - 5,787 5,787Net cash inflow from returns on investments and 604 6,141 6,696servicing of finance TaxationUK Corporation tax paid - - -Overseas tax paid - (2,228) (279)Net cash outflow from taxation - (2,228) (279) Capital expenditure and financial investmentPayments to acquire tangible fixed assets (2) - (16)Proceeds from disposal of fixed assets 20 5 5Payments to acquire investments (3,745) (753) (3,990)Receipts from sales of investments 2,887 4,812 10,856Net cash (outflow) / inflow from investing activities (840) 4,064 6,855 Net cash (outflow) / inflow before financing (1,242) 6,966 11,279 FinancingIssue of ordinary share capital - - 75Purchase of own shares (504) - (1,043)Transfer into restricted cash in accordance with court - - (2,437)orderNet cash outflow from financing (504) - (3,405) Net cash (outflow) / inflow in the period (1,746) 6,966 7,874 Notes to the Interim Report to 30 September 2005 1) The information relating to the six month periods ended 30 September2005 and 30 September 2004 is unaudited. The information relating to the periodended 31 March 2005 is extracted from the audited accounts of the Company whichhave been filed at Companies House and on which the auditors issued anunqualified opinion. 2) The above financial information does not constitute statutory accountswithin the meaning of Section 240 Companies Act 1985. 3) Earnings / (loss) per share is based on the weighted average number ofshares in issue during the six months ended 30 September 2005 of 451,360,000 (31March 2005: 460,178,000). 4) Analysis of changes in net funds Six months to Six months to Year to 30-Sep 30-Sep 31-Mar 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Net cash (outflow) / inflow in the period (1,746) 6,966 7,874Foreign exchange differences - 10 81(Decrease) / increase in cash in the period (1,746) 6,976 7,955 5) Reconciliation of operating loss to net cash Six months to Six months to Year tooutflow 30-Sep 30-Sep 31-Marfrom operating activities 2005 2004 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Operating loss (2,043) (1,450) (2,196)Depreciation 75 125 222Decrease in debtors 41 4,868 4,766Increase / (decrease) in creditors 921 (4,598) (4,873)Non-cash remuneration - 44 88Net cash outflow from operating activities (1,006) (1,011) (1,993) 6) Reserves Share Premium Revaluation Profit and account reserve loss account £'000 £'000 £'000 Reserves at 1 April 2005 39,693 (24,103) 31,001Unrealised gain on investments - 5,268 -Own shares purchased for treasury in the period - - (504)Foreign currency translation - - (16)Profit for the period - - 107Reserves at 30 September 2005 39,693 (18,835) 30,588 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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