20th Dec 2007 07:01
Spark Ventures PLC20 December 2007 For Immediate Release 20 December 2007 SPARK Ventures plc Interim Announcement for the six months ended 30 September 2007 Key Highlights •Integration of the Quester team with SPARK increases numbers of full time staff to 21 (from 6) and brings total funds managed by the Group up to £225m including three VCT's, a Limited Partnership and three University seed funds (including Oxford Colleges). •Revenues from management of third party funds of £1.7m in the period, when combined with other income, cover costs of investing activities for the first time. •Portfolio companies consolidated in SPARK accounts return unaudited pre-tax losses for the six months to September 2007 of £1.6m. •Decline in Net Asset Value of 13.0% to 15.5p reflects the write down of goodwill of two recently consolidated portfolio companies (Aspex and DX3) by £9.2m, due to delays in gaining commercial traction. •Other substantial portfolio companies developing well but without specific valuation events taking place in the period. •New investments (£7.3m), the net initial purchase price of Quester (£3m) and the cost of operations for consolidated portfolio companies take cash balances (excluding restricted cash of £2.9m) to £18m (March '07; £32m). Andrew Carruthers, Chief Executive of SPARK Ventures, commented: "The enlarged SPARK team and portfolio now gives the Group excellent visibilityon deal flow, trends and transactions in the UK venture community and we believethat this will provide much improved investment prospects going forward. Thesebenefits of wider experience and deal flow will be applied across both theassets on the SPARK balance sheet as well as those belonging to managed funds." Enquiries: SPARK Ventures plc Andrew Carruthers 020 7851 7777 Buchanan Communications Isabel Podda / Ben Romney 020 7466 5000 About SPARK Ventures SPARK Ventures is the leading quoted early-stage venture capital company inEurope managing £225 million on behalf of major institutional investors, leadingUK universities, and three quoted venture capital trusts. SPARK invests in entrepreneurs to create dynamic businesses in the technology,media, telecoms and healthcare & life sciences sectors. As well as capital, itbrings a wealth of experience of developing high growth companies from earlystage through to IPO or trade sale, adding value to its investments throughactive support and strategic direction. SPARK's focus is on building great companies from small beginnings: itsexperience blends ambition with the strategic, financial and commercial skillsthat enable it to maximise returns, both for investors and for portfoliocompanies. Some of our exits include Mergermarket, Lastminute.com, Footfall, Pricerunner,Elata, Glycart, OHM and Avidex. www.SPARKventures.com Overview The six month period to September 2007 has been characterised in operationalterms by the acquisition of Quester and the integration of new investments madein the first half of the year. In valuation terms, the period has suffered froma substantial unrealised impairment of goodwill, associated principally withAspex Semiconductors. The write downs taken in the period have beendisappointing, even if, in part, they are a consequence of our policy to take anearly view of bad news (despite being unrealised). We only reflect positivedevelopments when actually realised, therefore progress elsewhere within theportfolio has not generated third party valuation uplifts to offset theimpairment in the current period. Integration of the fund management activities of Quester Following the acquisition of Quester in May, for the first time, the Groupreceived fund management revenues amounting to £1.7m over four and half months.The fund management revenues relate to the management of three Venture CapitalTrusts, a Limited Partnership fund and three University funds. Together with theSPARK portfolio, this increases the total funds managed to over £225m, with thenumber of investments up from 25 to 82, of which 16 are in life sciences and thebalance in technology, digital media and telecoms. The total team has increasedfrom six full time employees to 21, excluding three non-executive directors.Given the magnitude of this change, the integration has gone smoothly. However,a substantial review of the Quester portfolios to identify and concentrateresources, when combined with a weakening market for the financing of smallcompanies generally, has led to a decline in the asset value of those funds, by15%. Despite this, during the period, our new Life Science team were able toclose one of the largest capital raisings ($40m) in the world this year in theirsector for Oxford Immunotec. Deal Flow The enlarged SPARK team and portfolio now gives the Group excellent visibilityon deal flow, trends and transactions in the UK venture community and we believethat this will provide much improved investment prospects going forward. Thesebenefits of wider experience and deal flow will be applied across both theassets on the SPARK balance sheet as well as those belonging to managed funds. Analysis of financial performance In the six months to September 2007 the Group made a profit from its investingactivities of £0.8m including a £0.4m profit arising from the consolidation ofQuester's fund management revenue and costs. Combining this £0.8m profit with a£1.6m loss from the consolidated trading subsidiaries (Aspex and DX3) and a£9.4m loss arising from the impairment of goodwill (£9.2m) and amortisation ofintangible assets (£0.2m) explains the loss before taxation in the period of£10.2m. Of the goodwill impairment of £9.2m in the Group Income Statement during theperiod, £8.2m is attributable to Aspex Semiconductors (Aspex) and £1m to DX3. Asmentioned in previous statements, Aspex has been seeking to sell chips anddesigns for high speed image encoding and transcoding, initially to theprofessional broadcasting market and latterly, to the manufacturers of consumerdevices. At our last reporting date, Aspex was in very advanced contractnegotiations with a major semiconductor company for a consumer application basedon their designs that would have provided a significant validation of theirtechnology as well as substantial revenues. They were also in early discussionswith two other major semiconductor companies for different consumer applicationsof their designs and chips. Since the summer, the first major contract wasdelayed at final signing stage, with no fixed date given for restarting theproject. Both of the other two potential contracts have developed positively.Whilst these latter contracts are potentially more valuable than the first,SPARK has taken the view that a worsening economic climate since the summer,combined with the experience of the late deferral of what was considered a 'donedeal' by all parties at the time, is reflective of a substantially moreuncertain situation for Aspex. Progress in other principal investments Spark Ventures' other major investments continue to develop positively. IMImobile has seen growth throughout the year winning contracts from Europeancustomers and mobile operators in Africa. The company has strengthened itsoperational model by developing a technology support management systemand achieving certification for ISO 27001, a global information securitymanagement standard. Both of these developments have strengthened IMI's managedservice proposition. It was also recently recognised as one of the Top 50fastest growing technology companies in India by Deloitte. Kobalt Music's revenues have grown over the last three years by an average of100% a year. According to published Charts data it became the top independentpublisher in the UK in the second quarter of 2007, and in the US in the thirdquarter of 2007. In the current quarter it has also experienced significantgrowth in UK market share. The company has signed several major clients such asMoby and Eminem's writers and is experiencing renewals close to 100% fromexisting clients such as Gwen Stefani, Nine Inch Nails and The Hives, amongstothers, reflecting the business' added value in a fast changing music market. Skinkers continues to establish itself as the leader in Information Broadcasttechnology winning new clients such as UPS, American Airlines and JC Penney. Thecompany closed a $16m Series B round of financing with participation fromSpark, Quester managed funds and Acacia Capital Partners. The funds will be usedto grow the enterprise division as well as launch Livestation, a globalbroadcast platform for the Internet. Livestation will deliver a range of liveradio and television channels to a computer over a broadband network and hassigned up a number of broadcasters for its trial service. Unanimis is growing strongly in line with the growth of the internet advertisingmarket and it has maintained its position as one of the UK's leading internet adnetworks. MyDeco, the revolutionary new online home design and furniture shopping businesscreated by the founders of lastminute.com, for which SPARK led a £5.5m fundinground earlier in the year is expecting to launch early in 2008. Complinet is now used by over 100,000 compliance professionals and continues tobenefit from the additional compliance and regulatory pressures facing thefinancial services industry. DEM Solutions, the developer of Computer Aided Engineering tools for themodelling of industrial processes has completed its first half year followingSPARK 's investment. In that time it has grown its customer base from 48 to 81,adding names such as Procter & Gamble, PepsiCo, Siemens and Pfizer, as well aswinning substantial repeat business from NASA. MarketClusters launched the StrategyEye intelligence platform which is now usedby a number of media, internet and advisory companies to track changes in thedigital media sector. The company has developed an ingestion, filtering andcontextualisation platform that will now be applied to other sectors. GamblingCompliance launched its service in March and now has over 100 clientsfor its subscription service and has within a year of formation establisheditself as an authoritative source in the industry. The rapid growth in ecommerce in the UK is driving good performances for ourinvestments in online retailers. Not on the high street (www.notonthehighstreet.com), in which we made an investment earlier this year,has benefitted from good press exposure and has seen dramatic growth in saleswith a sevenfold increase over the prior year. Similarly, Firebox (www.firebox.com) is expecting good growth from revenues of £9.8 million for2006, particularly as it builds on its entry into the US market. Conclusion The six month period to September 2007 has marked a substantial shift in thescale and characteristics of the company. The management of substantial thirdparty funds and trebling in size of the team and portfolio through theacquisition of Quester was the first step toward addressing the volatility ofSPARK's previous focus on a small number of high risk venture capitalinvestments. We remain convinced that there is scope for substantial uplift in values fromthe current portfolio, as we have demonstrated repeatedly since 2004.Nevertheless, the combination of direct investment alongside the management ofthird party funds, with their associated revenue streams and co-investmentpossibilities, is designed to deliver more steady growth of net assets. Independent Review Report to Spark Ventures Plc We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2007 which comprises the income statement, the balance sheet, thestatement of changes in equity, the cash flow statement and related notes 1 to4. We have read the other information contained in the half-yearly financialreport and considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the AIM Rules of the London Stock Exchange. As disclosed in note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport have been prepared in accordance with the accounting policies the Groupintends to use in preparing its next annual financial statements. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 30 September 2007 is not prepared, in allmaterial respects, in accordance with the AIM Rules of the London StockExchange. Deloitte & Touche LLP Chartered Accountants 19 December 2007 London, UK Group income statement (condensed) Six months to 30 September 2007 Six months Six months Year ended ended ended 30 Sep 2007 30 Sep 2006 31 March 2007 £'000 £'000 £'000 Unaudited Unaudited Audited Gains on investments at fair valuethrough profit and loss - Realised gains and losses 66 (16) 2,047 - Realised carried interest valuation - 2,668 4,800 - Unrealised gains and losses 855 963 2,537 ---------- ---------- ----------- 921 3,615 9,384 RevenueBank interest receivable 709 412 1,331Fund management revenue 1,702 - -Portfolio dividends andinterest 40 145 292Sales of goods and relatedservices 479 458 881Other income 771 773 1,426 ---------- ---------- ----------- 3,701 1,788 3,930 Administrative expensesSalaries and other staffcosts (2,802) (2,214) (3,990)Carried interest expense - (2,376) (4,800)Depreciation andamortisation (434) (100) (196)Goodwill impairment (9,178) - -Other costs (2,456) (2,569) (5,257) ---------- ---------- ----------- (14,870) (7,259) (14,243) ---------- ---------- -----------Loss before taxation (10,248) (1,856) (929) Taxation 668 295 714 ---------- ---------- -----------Loss for the financialperiod (9,580) (1,561) (215) ---------- ---------- ----------- Group balance sheet (condensed) At 30 September 2007 30 Sep 30 Sep 31 March 2007 2007 2006 £'000 £'000 £'000 Unaudited Unaudited Audited Non-current assets Property, plant and equipment 653 725 647Investments at fair value through profitand 33,791 19,464 25,453lossDeferred consideration 250 1,499 1,498Intangible assets: Fund management 4,965 - -contractsGoodwill 4,000 13,178 13,178 ---------- ---------- ---------- 43,659 34,866 40,776Current AssetsDeferred consideration 2,390 2,367 2,147Inventory 88 104 89Trade and other receivables 2,279 1,134 1,358Taxation - - 422Restricted cash 2,869 2,869 2,869Cash and cash equivalents 18,121 36,659 31,846 ---------- ---------- ---------- 25,747 43,133 38,731 ---------- ---------- ----------Total assets 69,406 77,999 79,507 Current liabilities Trade and other payables (5,302) (2,860) (2,137) Deferred consideration (500) - - Carried interest payable - (2,369) (4,800) Provisions (133) (133) (133) ---------- ---------- ---------- (5,935) (5,362) (7,070) ---------- ---------- ----------Net current assets 19,812 37,771 31,661 Non-current liabilities: (500) - - deferred consideration Total liabilities 6,435 5,362 7,070 ---------- ---------- ---------- ---------- ---------- ----------Net assets 62,971 72,637 72,437 ---------- ---------- ---------- Equity Issued capital 11,818 11,818 11,818 Share premium 39,693 39,693 39,693 Revenue reserve 11,635 21,301 21,101 Own shares (175) (175) (175) ---------- ---------- ----------Total equity 62,971 72,637 72,437 ---------- ---------- ---------- Total Equity Ordinary shares in issue 472,736 472,736 472,736 Shares held in Treasury (58,391) (46,741) (58,391) Shares held by Employee Benefit Trust (7,023) (7,023) (7,023) ---------- ---------- ----------Shares in issue for net asset value pershare 407,322 418,972 407,322calculation ---------- ---------- ---------- NAV per share 15.46 17.34 17.78 ---------- ---------- ---------- Reconciliation of movements in equity (condensed) Six months Six months Year ended ended ended 30 Sep 2007 30 Sep 2006 31 March 2007 £'000 £'000 £'000 Unaudited Unaudited Audited Opening total equity 72,437 75,680 75,680 Loss for the financialperiod (9,580) (1,561) (215)Share based payments 114 230 428Share buy-backs - (1,712) (3,456) ---------- ---------- ----------Closing total equity 62,971 72,637 72,437 ---------- ---------- ---------- Group cash flow statement (condensed) Six months ended 30 September 2007 Six months Six months Year ended ended ended 30 Sep 2007 30 Sep 2006 31 March 2007 £'000 £'000 £'000 Unaudited Unaudited Audited Cash flows from operating activities Cash flow from operations (3,978) (3,418) (6,469)Tax received 423 570 570 ---------- ---------- ----------Net cash outflow fromoperating activities (3,555) (2,848) (5,899) Cash flows from investing activities Purchase of property, plantand equipment (102) (42) (61)Acquisition of subsidiary (2,994) - -Purchase of financialinvestments (7,343) (498) (4,143)Sale of financialinvestments 269 26,749 30,395 ---------- ---------- ----------Net cash (outflow) / inflowfrom investing activities (10,170) 26,209 26,191 Cash flows from financing activities Purchase of own shares - (1,712) (3,456) ---------- ---------- ---------- - (1,712) (3,456) ---------- ---------- ----------Change in cash and cashequivalents (13,725) 21,649 16,836 Opening cash and cashequivalents 31,846 15,010 15,010 ---------- ---------- ----------Closing cash and cashequivalents 18,121 36,659 31,846 ---------- ---------- ---------- Reconciliation of operating loss to net cash outflow from operations Six months Six months Year ended ended ended 30 Sep 2007 30 Sep 2006 31 March 2007 £'000 £'000 £'000 Unaudited Unaudited Audited Revenue 3,701 1,788 3,930 Administrative expenses (14,870) (7,259) (14,243) ---------- ---------- ----------Operating loss (11,169) (5,471) (10,313)Decrease / (increase) intrade and other receivables 1,039 (98) (276)(Decrease) / increase intrade and other payables (3,574) 1,862 3,522Increase in inventory - (41) (26)Depreciation andamortisation 434 100 196Goodwill impairment 9,178 - -Non-cash expenditure - 33 33Share based payment 114 197 395 ---------- ---------- ----------Net cash flow fromoperations (3,978) (3,418) (6,469) ---------- ---------- ---------- Note 1 - General information The information for the year ended 31st March 2007 does not constitute statutoryaccounts as defined in Section 240 of the United Kingdom Companies Act 1985.Comparative figures for 31st March, 2007 are taken from the full accounts, whichhave been delivered to the Registrar of Companies and contain an unqualifiedaudit report. The information provided for the six months ended 30 September2006 has been restated following the adoption of IFRS for the first time in theresults for the year to 31 March 2007. The most significant change has been theresulting requirement to consolidate two subsidiaries, Aspex and Dx3, which werepreviously treated as fixed asset investments in the interim report for the sixmonths ended 30 September 2006. The Group has not adopted IAS 34:"InterimFinancial Reporting" as the AIM rules do not require this. Note 2 - Basis of accounting The Group financial statements are prepared under International FinancialReporting Standards (IFRS) as adopted by the European Union. This statement hasbeen prepared using accounting policies and presentation consistent with thoseapplied in the preparation of the accounts for the Group for the year ended 31stMarch, 2007. Note 3 Intangible assets - management contracts The cost of the rights to manage assets is capitalised as an intangible asset.Where the management contracts do not have a defined life, an estimate of theuseful life is made and the costs are amortised on a straight line basis overtheir useful lives. The useful lives of the management contracts have beenestimated to be seven years. Where the management contracts have a defined useful life, the cost is amortisedover the period of the contract. The amortised cost of these managementcontracts is reviewed annually to ensure no impairment has occurred. Anyamortisation or impairment is charged in the income statement as an expense. Note 4 - Acquisition of Quester group On 11 May 2007, SPARK bought the entire issued share capital of Querist Ltd -the parent company of the Quester group of companies. Quester is a venturecapital fund manager managing approximately £160m of 3rd party funds consistingof three Venture Capital Trusts, three university funds and a LimitedPartnership. In accordance with our stated accounting policy, the consolidatedresults for Querist Ltd for the period from 11 May 2007 until 30 September 2007have been included within the consolidated results of the SPARK group using theacquisition method of accounting. Consequently the period from 11 May to 30September 2007 brings in fund management income into the Group Income Statementfor the first time of £1.7m and a contribution towards group overheads of £0.4m. The total purchase price paid by SPARK is expected to be £5.6m, including £1m ofdeferred consideration payable in two instalments of £0.5m on 11 May 2008 and 11May 2009 subject to earnings targets being met. The net assets of the businessat the point of acquisition were £0.3m. The difference between the price paidand the fair value of the net assets acquired of £5.3m is represented by thevalue of the fund management contracts which have been included on theconsolidated balance sheet as an intangible asset. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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