Interim Results

28 September 2012

Phorm Corporation Limited ('Phorm' or 'the Company')

Interim results for the six month period ended 30 June 2012

Phorm (AIM: PHRM), the internet personalisation technology company, today announces its unaudited financial statements for the six months ended 30 June 2012.

Financial Overview

·; Operating losses $30.7m (2011: $13.0m)

·; Losses after taxation were $30.9m (2011: $19.6m)

·; Loss per share was $0.41 (2011: $1.06)

·; During the first six months of the year, average monthly cash burn was $2.2m (2011 $2.1m)

·; Cash balance at 30 June 2012 was $3.5m (31 December 2011: $16.1m)

Post-period end Overview

·; Commenced commercial activities with TTNET, Turkey's largest internet service provider. 4.2 million Turkish users have now opted into the service

·; As per our announcement on 20 September, publishers using Phorm's platform in Turkey have enabled the Company to reach more than 70% of opted in users on a monthly basis, with advertising requests from Turkish publishers being received at a rate of more than 130 million per month

·; Initial performance of advertisers using the platform in Turkey is extremely encouraging enabling on average 3x performance compared to current advertising

·; Successfully placed 5,600,000 shares with institutional and other investors to raise £7m before expenses

·; £20 million fund raise into Phorm China delayed, as previously announced; closing continues to be pursued

·; Company re-domiciled to Singapore enabling all shares to be traded via CREST and improving liquidity

Kent Ertugrul, CEO of Phorm commented:

 "We are gratified that, after many years, our deployment in Turkey has finally given us the opportunity to demonstrate, at national scale, the value of our model to all participants in the ecosystem: Consumers, content publishers and advertisers. Our commercial model is a three step process: 1) acquire a large scale participant group on an opt in basis 2) secure the participation of large scale inventory on which to show advertising and finally 3) show advertising campaigns on a targeted basis. We are currently substantially through stages 1 and 2 and are in the process of implementing stage 3.

There is much work to do as we move into the fully operational stage of our company's existence, but we are particularly pleased with early successes so far: A high opt in rate has been achieved so far consistent with other markets. Website participation has been very strong, providing us with hundreds of millions of ad impressions to use and more than doubling every month. Finally, the performance of our system on untargeted ad campaigns, with minimal optimisation, has made us very confident of a near term substantial supply of advertising revenue."

For Enquiries

Phorm, Inc.

Mark Williams (analysts & investors) +44 20 7297 2326

Alex Laity (media) +44 20 7297 2710

Liberum Capital +44 20 3100 2222

(Nominated Advisor and Joint Broker)

Chris Bowman

Richard Bootle

Mirabaud Securities LLP +44 20 7321 2508

(Joint Broker)

Jason Woollard

Peter Krens

Hudson Sandler +44 20 7796 4133

Charlie Jack

Charlie Barker 

Chairman and CEO's statement

Strategy and business update:

Turkish Commercial Deployment

The period to date in 2012 has been one of the most significant periods in the group's history with the launch of our services in Turkey. The deployment in Turkey represents the latest culmination of our concerted work over the past several years and our steadfast commitment to our proposition of ISP level behavioural targeting. During this time we have faced significant challenges, but more importantly our experiences have enabled us to gather a wealth of important reference points and knowledge that continues to aid the development of our operations and business development globally. In particular, these experiences have significantly contributed to our ability to launch successfully in Turkey, within a good timeframe, at scale to the whole network of the dominant fixed line broadband provider, TTNET. 

Within the reporting period, operational activity within the Company was dominated by preparation work ahead of the commercial launch in Turkey, which we announced in early July 2012. Commercial success in Turkey is dependent on engaging in 3 key areas - Users, Publishers and Advertisers. 

Turkish Users

At 25 September 2012 monthly unique users stood at 4.2m, which is over 10 times the number at the interim period end, and which continues to increase, with continued high and consistent opt in rates being achieved.

Turkish Publishers and Advertisers

Our engagement with the publisher community in Turkey has been particularly successful. We are working with most of the major ad networks and are experiencing increasing access to more of their inventory. This enables us to have an ever-greater number of opportunities to show advertising to users through the platform. On 20th September we reported the monthly run rate of advertising requests from our publisher partners in line with our expectations at more than 130m, with the publisher partner network having a total monthly ad inventory of 4.7bn. This demonstrates that there is massive leverage within this pool as deeper relationships are developed.

The initial campaigns have been very successful. Campaign performance has been very good with targeted campaigns delivering on average more than 3 times the click through rates of current advertising performance. The number of advertisers utilizing the platform is increasing with all networks using the platform on a continuing basis. The number of advertisers utilizing the system is driven by performance results with campaign size increasing as advertisers move from testing the platform to integrating the platform with their media plans. This participation by advertisers and websites is driven by an ever greater understanding of the benefits that our system delivers.

Turkish Contribution

We expect the developments in Turkey to contribute to a substantial uplift in our financial performance. In the coming months we expect continued positive developments in our user base, website partnerships, number and granularity of campaigns to combine to generate sufficient revenue to make our Turkish operation profitable. In addition, our experience in the market so far continues to confirm our expectation that the Turkish market alone will be able to make the group profitable during the next financial year.

Brazil

We are also pleased to report substantial progress has been made in Brazil, the other market where we are commercially operational. Although the commercial relevance of Brazil will be overshadowed by Turkey in the short term, since we are currently only deployed in part of our partner ISP networks, it is pleasing to report user numbers more than doubled across the reporting period and currently represent more than 4 times the number at the start of the year. In addition the Key Performance Indicators in Brazil continue to support the business model assumptions, with advertiser pricing being significantly higher than forecast, and publisher costs being in line or lower than forecast. The increase in user base has resulted in a stable, meaningful user base in Brazil that will enable us to make commercial progress there in the second half of the financial year.

Romania

In Romania we have integrated our solution into the entire network of our partner Romania Telecom and have completed the invite process to their entire user base. Opt in rates achieved were high and consistent with other invite processes undertaken and we wait patiently to launch commercially.

China

In October 2011 we reported that we had signed our first agreement in China. Since then our engagement in that region has increased considerably. One result of this was the announcement of the now delayed equity financing directly into a Phorm China subsidiary. This increased activity is leading to a tactical shift in our roll out plans for the region so that deployments can be bigger and more impactful in this very large, but potentially fragmented market. As part of this we are engaged in a lab testing exercise with a major ISP in Beijing to demonstrate the ability to integrate the Phorm platform into the ISP's network. This exercise is likely to become the test bed for our deployments across China. 

Business Development

On the business development front, we continue to make substantial progress. In January we hired Paul Sarkrzewski from SAP as Head of Business Development and Asia Pacific. This has led to an industrialized approach to structure and focus in our business development efforts. In doing so it has became ever more apparent that our pipeline is both long and rich. Although the lead-time for contract and operational implementation continues to remain lengthy, we are confident that through efficiently structuring the business development activity and ISPs globally seeing the benefits that our technology offers, we can shorten decision and implementation times. The significant data that our Turkish operations are now starting to deliver should also assist in accelerating this process.

Outlook

The operations of the business have never been better positioned. The Turkish deployment represents the rewards of many patient years of work. The business has now moved fully into operational mode and as we see ever more evidence of how the major constituents of the Turkish internet market embrace the opportunity it is becoming clear that this will truly represent the Company's defining moment. We appreciate how keen our investors are to see tangible and frequent updates on our progress towards local, then group profitability. We look forward to beginning to provide them with such updates moving forward. It is with ever increased confidence and clarity that we look forward to providing these regular updates on our Turkish business which the Board believes will lead to the broader global roll out of our vision of ISP level behavioural targeting that our business development activities are aimed at preparing.

Kent Ertugrul

Chairman and Chief Executive Officer

* Research and development includes a charge for share-based payment expense of $1.6m (6 months ended 30 June 2011: $0.3m, year ended 31 December 2011: $0.1m)

** Sales and administrative expenses includes a charge for share-based payment expense of $14.3m (6 months ended 30 June 2011: $0.8m, year ended 31 December 2011: $6.2m)

Six months ended 30 June 2012 (Unaudited)

Six months ended 30 June 2011 (Unaudited)

Year ended 31 December 2011 (Audited)

1. Basis of preparation

The annual consolidated financial statements of the Company are prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") as adopted by the European Union.

These interim financial statements include the income statement, statement of comprehensive income, the balance sheet, the cash flow statement and the statement of changes in equity of Phorm, Inc. (the "Company") and its subsidiaries (together, "the Group") as at and for the six months ended 30 June 2012. The same accounting policies, presentation and methods of computation are followed in the interim financial statements as applied in the Group's latest annual audited financial statements.

The AIM rules do not require the interim financial statements to be prepared in compliance with IAS 34 "Interim Financial Reporting" and these interim financial statements have not been prepared under that standard.

These interim financial statements have not been audited or reviewed.

The information for the year ended 31 December 2011 does not constitute a complete set of financial statements. A copy of the financial statements for that year are available on the Phorm web-site, www.Phorm.com. The auditor's report on those statements was not qualified, but did include reference to uncertainties which may cast significant doubt about the Group's ability to continue as a going concern, to which the auditors drew attention by way of an emphasis of matter without qualifying their opinion.

The financial statements have been prepared in US dollars. 

Going concern

In accordance with their responsibilities, the directors have considered the appropriateness of the going concern basis, which has been used in the preparation of these financial statements. 

During 2012 and up to the date of approval of these financial statements, the Group has made significant progress in the development and deployment of its technology and services. In particular, the deployment of its technology and commercial launch of its business in Turkey. The Directors expect that cash flows from Turkey, if realised as forecast will enable the Group to grow in a controlled and sustainable manner.

For the six months ended 30 June 2012, the Group has reported operating cash outflows of $13.5million, with a closing cash position at 30 June 2012 of $3.5million. To date, the Group has incurred cumulative losses of ($203.6 million). The Group has funded these losses and its operations through equity provided by its shareholders and the issuance of secured convertible loan notes, now redeemed.

The Directors have approved a business plan which forecasts continuing cash outflows in the near term, and therefore there is a near-term requirement for additional funding. The Group, however, is forecasting significant revenues for FY13 and beyond sufficient to cover the operating costs in Turkey and Brazil and to provide significant cash flows for the Group to fund other costs incurred as it seeks to achieve further deployments internationally. These forecasts include a number of key assumptions that have been validated, albeit on a small scale through our commercial deployment in Brazil and at increasing scale in or commercial deployment Turkey.

The principal risk of the roll-out in Turkey are operational in nature having a established a sizable, and continuing to grow, user base in that country. Operational risk in that market has been significantly mitigated by successful engagement with publishers in that market and by the initial results achieved for advertisers.

In Brazil where we are also commercially live, the business continues to out-perform its original forecasts in respect of opt-in rates and pricing mitigating risk. In addition as user numbers have increased significantly since the beginning of the reporting period increased mitigation of execution risk has now occurred.

In the near term, the principal risk to the business is to ensure that the Group has sufficient funding to allow the business in Turkey and Brazil to reach full commercial scale. At scale, the Group's forecast shows that the business would be generating significant operating profits. However, the Group's revenue generating activities remain at an early stage and additional funding is required in the near-term.

At the date of approval of these financial statements, the Group has yet to secure the additional funding requirements set out in the business plan and is, therefore, not fully-funded at the current time. In preparing these financial statements, the Directors have assumed that sufficient further funding will be made available to the Group to enable it to execute its business plan and realise the forecast inflows.

The Directors consider the funding position of the group represent a material uncertainty that may cast significant doubt upon the Group's ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the Group will have access to adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the financial statements.

2. Loss per share

The calculation of the basic earnings per share and diluted earnings per share is based on the loss attributable to equity shareholders of $30,881,050 (31 December 2011: $ 62,536,267; 30 June 2011: $ 19,611,223) divided by the weighted average number of shares in issue during the period.

The weighted average number of shares used in the calculations is set out below:

3. Reconciliation of operating loss to net cash used in operating activities

4. Share-based payments

The Group issues equity-settled share-based payments to certain employees and consultants.

The cost of share-based compensation awards is recognised as an expense. Equity-settled share-based payments are measured at fair value, excluding the impact of non-market vesting conditions at the date of grant. The fair value determined at the date of grant is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

For equity-settled share-based payments with market-based vesting conditions, the fair value is determined at the date of grant, having regard to the expected achievement of such performance conditions. Once determined, the expected achievement is not adjusted, even where the market-based vesting conditions are not subsequently met.

The charges arising under IFRS 2 included in the income statement are:

5. Dividend

The Directors do not propose to pay an interim dividend.

6. Other information

Copies of this statement will be posted on the Phorm website www.phorm.com and will be available from the Company's UK principal office at 27 Mortimer Street, London, W1T 3BL.