Final Results

NewMedia SPARK PLC 11 August 2006 For Immediate Release 11 August 2006 NewMedia SPARK plc Preliminary Announcement of Annual Results for the year ended 31 March 2006 NewMedia SPARK plc ('SPARK'), the investor in early stage digital information and technology companies, is pleased to announce preliminary results for the year ended 31 March 2006. Key Highlights • Mergermarket sold for cash to the Financial Times Group (part of Pearson plc) valuing Spark's holding at £27.8m, o A return of almost 24 times the original £1.2m invested in 1999/2000 o 113.8% increase over the book value reported in our interim results of £13m (March 2005: £8m) • IMImobile raised US$10m from Pequot ventures providing a third party valuation event, increasing SPARK's investment value in the company by £9.6m to £12.3m • Net Assets per share increase by 38.2% to 17.7p since March 2005 (26.4% since September 2005) • Buy-backs of 26.3m shares during the year at an average price of 12.1p represent a 31.6% discount to year end net assets per share • Cash balances of £17.8m in March 2006 (which includes £2.9m of restricted cash) will be substantially enlarged by £25.8m of initial mergermarket sale proceeds, enabling a substantial investment programme alongside further share buy-backs Andrew Carruthers, Chief Executive of NewMedia SPARK, commented: 'These results are a critical validation of the credentials of the SPARK team and of early stage investing in our sector. The last year marks a turning point for SPARK and its investee companies as the digital media sector witnessed rapid changes in revenue models, in the competitive landscape and in patterns of consumption, allowing opportunities for new players and new technologies to emerge. We have not only experienced an impressive uplift in exit valuations and seen strong growth from within our existing portfolio, but in acquiring a stake in Skinkers, have also made our first major new investment for some time. We look forward to making equally exciting further additions to the portfolio to continue the momentum in the growth of net assets.' Enquiries: Andrew Carruthers, Chief Executive Officer 020 7851 7777 Isabel Podda, Buchanan Communications 020 7466 5000 Chief Executive Officer's report Investment Values and Exits The sale of mergermarket represents the largest exit to date from SPARK's portfolio. SPARK were investors when mergermarket was little more than a team with a business plan. It is a huge credit to Caspar Hobbs, Charlie Walsh, Gawn Hamilton, Richard Hall and their team, that a business started in 1999 at the height of the dotcom boom survived the subsequent bust, confounded the sceptics and has gone on to become such a major player in the business information sector. It also validates the early stage investment credentials at SPARK to have found an investment of the 1999 vintage that has returned 23.7 times the money invested - in cash. Under the terms of the agreement, £2m will be held back as a retention against any possible warranty claims for the next two years. We are also delighted to be able to demonstrate the value that Vishwanath Reddy and his team at IMImobile have created over recent years with the investment by Pequot ventures into the business. Until this event, the value of IMImobile has largely been hidden as our valuation policy does not allow us to write up the value of an investment unless there is a valuation placed on the business by an independent third party, or where comparative earnings multiples can be applied. Since the business has been reinvesting all profits, it has not been until this US$10m investment that we have been able to redress the situation and add £9.6m of value uplift to the further £0.8m invested in the year, increasing the value of our holding by £10.5m since March 2005. We believe that with a proven business model and sufficient funds now available, IMImobile promises good prospects for substantial further value growth. Its managed service business model and its Indian cost base equips it particularly well to benefit from the explosive growth of the mobile sector in emerging markets with its new operations in Latin America as well as its existing offices in India, the Carribean, the Middle East, Africa and Asia. These events, taken together with the successful exits from FootFall and Elata, mean that the current financial year has demonstrated an impressive uplift in exit values over the valuations previously held in our accounts. In part this is due to a prudent valuation policy, but also in part is typical of early stage investing where new businesses in developing market sectors take time to get established, but have the ability to generate impressive value growth thereafter. The result is a 38.2% uplift in net asset value per share from March 2005, after having provided £6.4m for the incentive scheme payments, most of which will be due at the end of the next financial year. By virtue of the sale of mergermarket taking place after the period, its sale will not appear in the profit and loss account, but instead appears in the consolidated statement of recognised gains and losses and on the balance sheet. The 'Gains from investments' that do appear on the face of the profit and loss are largely attributable to the sale of FootFall, Elata, and a small investment in Tradera, a Swedish auction site sold to eBay. Other portfolio developments The worldwide acceleration of broadband services and improvements in handsets and platforms for mobile networks have come together to create a tipping point in the adoption of digital, or 'new', media. This is generating rapid changes in revenue models, the competitive landscape, and in consumption patterns that allow opportunities for new players and new technologies - and in many ways is the moment for which SPARK has been preparing its investment portfolio since 1999. As a result, many of our investee companies are well positioned to take advantage of this changing tide. Mergermarket represented an investment in one of the first sectors to fully adopt the new distribution technologies for 'digital' information. The financial sector is perhaps one of the most advanced for digital publishing and it therefore comes as no great surprise that this is the sector which has driven the growth of our largest exit to date. However, there are other sectors that are maturing fast into the digital world, and entertainment is set for rapid change as network operators and content owners finally adapt to the new revenue models and as the incumbent TV broadcasters gear up for 'triple play' and the arrival of internet protocol TV (or IPTV). The effects for IMImobile have been described above, but the effects are also being felt elsewhere in the portfolio as follows: Aspex Semiconductor Aspex Semiconductor developed a high-performance, software programmable 'extreme' processor for the image processing market in 2005 and has achieved design wins in film processing, medical imaging, machine vision and printing markets. However, the entertainment and broadcasting markets have begun a rapid shift to digital for image capture, pre-production and post production processing, encoding and distribution. In response to this, Aspex produced a 'plug and play' encoder board using their processors that can encode digital video into any codec (such as MPEG2, H264, etc.) which are used to compress video signals into sufficiently small sizes to send broadcast quality TV, including High Definition TV, over broadband networks. This form of digital signal processing is particularly well suited to the architecture of the Aspex chip and the company is not currently aware of any other product in the market that is capable of encoding digital images at up to real time speeds into multiple codec standards. The launch of this product in April has coincided with the beginning of investment by Telco's into the infrastructure required for IPTV and Aspex are optimistic about the sales opportunities for them in this sector. Indeed, product revenues in their first quarter were close to those for the whole of the previous financial year as sales of the encoder boards have a shorter sales cycle. During the year, SPARK invested £2.3m into the company but, as mentioned in our interim announcement, wrote down some of its earlier investment to be consistent with the valuations at which the company had obtained expressions of interest for funding from third parties. The comparable valuations of the company's peers on the public markets are substantially above this level. Kobalt Music Kobalt is a music publisher that uses its proprietary technology to deliver a fast, transparent and accurate royalty revenue collection platform for music owners and songwriters. The process of developing the confidence of the industry sufficiently to win copyright administration contracts ahead of the large music publishers, who have held dominant positions in this market for decades, has been a hard battle. However, Kobalt now appears regularly in the top ten publishers in the country, despite having been created in-house by a former SPARK employee only five years ago. The lead time between winning a contract and securing the revenue flows can be long, however, once won, contracts are long term and predictable. In the year to June '06 Kobalt achieved a near trebling of its revenues, and in the year to June '07 has already booked sufficient new contract wins to be able to predict a near trebling of revenues again, adding writers for acts such as Pink, Kelly Clarkson, Richard Ashcroft and Editors to their roster. The opening of a permanently staffed office in Los Angeles, along with some significant senior hires there, has raised the company's profile in the US market where they are gaining significant new contracts. Consistent with the industry trends identified above, Kobalt are in a very good position to win business on the strength of their leading technology platforms. Providing speed and visibility on the collection of royalties for their clients also means that Kobalt are well suited to the opportunities presenting themselves from the digital sales of music (such as downloads, ringtones and full tracks to mobile). For example, they licensed, exploited and collected royalties on a global basis for the ringtones and downloads associated with the FIFA World Cup 2006. The opportunities for exploiting these advantages are greatest in the US where the market has been historically less regulated than those of Europe. In addition, new markets are appearing in Asia where the protection of intellectual property has become a more important focus for regulators. DX3 DX3 is a distribution platform for the secure distribution of digital media (including music, games and images) to wired and wireless devices (PC's, PDA's, mobile phones etc). As such, it stands right in the middle of the emerging digital media market. Until recently, sales of digital media have been hampered by unrealistic price expectations by all participants in the value chain (media owners, mobile networks, aggregators, billing platforms and retailers). These expectations are changing rapidly, as are the participants in the industry. The British Phonographic Industry (BPI) have just reported on music sales for the second quarter of 2006 and claim that the music single is having its best quarter for six years on account of digital sales, which now account for 50% of all singles sold. In addition, recent scandals about subscriptions charged to mobile phone users for music downloads are forcing out dubious practices and creating a more orderly market. In this context, DX3's presence as a longstanding and robust platform for the delivery of legal, rights cleared, content has provided it with the credentials to license content from all the major content owners. On the back of their delivery platforms and licenses, DX3 have continued to add customers during this financial year who now include ITV, Metro Newspapers, EMAP, Woolworths, Infospace (service provider to Virgin Mobile) and Eckoh (service provider to Tesco's). We expect to see consolidation in DX3's sector, especially as some of the hardest hit businesses in the recent stock market correction were from this industry. Indeed, the recent purchase of Loudeye by Nokia is evidence of this. As the majority shareholder, and with the visibility that our other investments in related markets give us (such as Kobalt and IMImobile), we would hope to play an active part in this process with DX3. Skinkers Consistent with our view on the emergence of new digital formats and distribution channels, in February we were delighted to be able to make our first substantial new investment for some time into Skinkers. Skinkers' desktop alerts are a business controlled channel to the desktop of computer users that guarantees important messages are seen when most needed. With email communication starting to fail under the pressure of 'spam' and viruses, it is crucial for business to be able to guarantee the delivery of important messages to both customers and employees. Skinkers' blue chip client list includes the BBC, BSkyB, the FT, CNN, the Wall Street Journal, HBOS, Cisco Systems, Nortel, Halifax and the London Stock Exchange. They use Skinkers technology to deliver important messages to customers, staff and partners. Skinkers have created a software technology that allows businesses of all sizes to quickly and cost-effectively deploy their own high-priority message delivery channel to the desktop of their employees or their customers worldwide. Skinkers Alerts are very effective as they can deliver messages at a predefined time, support hundreds of thousands of users in a very cost effective way, track how many people receive and interact with the messages, control the look and feel of messages for brand control, drive people to other information on the internet/intranet/ television/etc. and optimize the delivery of large multimedia files. Since our investment, the company has had an exclusive technology transfer from Microsoft in return for an equity participation. We believe that this addition significantly enhances the company's ability to capitalise on their platform, technology and customer base to exploit the exciting new opportunities for new methods of broadcasting. We look forward to participating in the development of this business. Other portfolio companies Elsewhere in the portfolio we have seen positive performance from Firebox and Synaptics, both of which are now established and profitable businesses. In addition, a small investment made in 2004 into a business called Mind Candy has developed very strongly and attracted substantial investment from Index Ventures. The company was the inspiration of Michael Smith, one of the founders of Firebox, and is the game master behind 'Perplex City', an alternative reality game (ARG) that has achieved substantial profile in this emerging sector. ARG's cross over between the physical and digital worlds creating an 'alternative reality' that utilises the community and chat features of the web to drive interest and participation in gaming and puzzle solving that are much more powerful than traditional methods. We believe this business to be a promising example of a new content category that exploits the possibilities of digital new media. Cash Cash balances stood at £17.8m at 31 March 2006 (£21.7m at 31 March 2005) - after net cash operating costs of £2.7m, new investments of £7.3m and buy-backs of £3.2m. Of this balance, £2.9m is in a locked account following the capital reconstruction completed in October 2004. Proceeds from the sale of the stake in mergermarket will add another net £25.8m, after transaction expenses and a 7.5% warranty retention, to our cash balances. Operations Administrative expenses of £5.7m are up by £2.2m on the year to March 2005. Of this difference, £1.7m is attributable to salaries and staff costs. Basic salaries of full-time employees were £0.1m below the previous year, but as we have seen a substantial value of exits in the current year, the incentive scheme, which is structured to pay to the managers 20% of all realised uplifts over the book value of investments as at March 2003 less an annual 5% hurdle rate, accrued £2.2m of value (£1.9m more than last year). Of this, £0.7m was a catch up for an under-accrual in 2005, £0.7m is the amount due for 2006 and £0.8m is an accrual for increases in the portfolio value that will trigger payments under a compromise arrangement that was made to terminate the pre-2003 incentive scheme. Away from the salaries, administrative and operating costs were £0.7m higher than last year. Of this, £0.6m is attributable to higher property costs which did not benefit from the rates rebate and release of provisions that occurred last year. The remaining £0.1m increase arose from higher professional costs consistent with more transactions in the year. Summary and Prospects We are delighted to have delivered such strong value growth in our portfolio through the very substantial cash exits from mergermarket, Footfall, and Elata this year. The revaluation of IMImobile is also evidence that the portfolio has more of this value growth to come. We believe that these results are a critical validation of the credentials of the SPARK team and of early stage investing in this sector. We are also aware that we would not have been able to get to this point had it not been for the continued support of some of our long term investors. With the cash from these sales we are now able to build on the depth of our knowledge in the technology sector to repopulate the portfolio, as we have already begun with the investment in Skinkers. In addition, we will aim to use buy-backs to make sure that our stock does not trade at a heavy discount to our net assets, which recent evidence has suggested is a prudent measure of our asset value. We also believe that the costs of operating a public company and supporting a sufficiently stable management team become more efficient when spread over a larger pool of assets. We will therefore be looking at various opportunities to add critical mass to our operations over the next year. Andrew Carruthers, Chief Executive Officer 11 August 2006 Consolidated Statement of Total Recognised Gains and Losses Year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Loss for the year (119) (966) Unrealised gain on investments 21,273 6,280 Foreign currency translation (16) 460 ------------------------------- ----------- ----------- Total recognised gains and losses for the year 21,138 5,774 ------------------------------- ----------- ----------- Reconciliation of Movements in Consolidated Shareholders' Funds Year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Loss for the year (119) (966) Other recognised gains and losses for the year 21,257 6,740 Reversal of amortisation of own shares - 217 Own shares purchased for Treasury (3,167) (1,043) Proceeds of issues of shares - 75 ------------------------------ ----------- ----------- Net increase in shareholders' funds 17,971 5,023 ------------------------------ ----------- ----------- Opening shareholders' funds 57,996 52,973 ------------------------------ ----------- ----------- Closing shareholders' funds 75,967 57,996 ------------------------------ ----------- ----------- Consolidated Profit & Loss Account Year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Administrative expenses: - Salaries and other staff costs 3,052 1,373 - Administrative and operating costs 2,200 1,531 - Depreciation 143 222 - Other costs 302 328 ----------- ----------- Total administrative expenses 5,697 3,454 Other operating income 1,280 1,258 ----------- ----------- Operating loss (4,417) (2,196) Gain on investments 3,224 321 Interest receivable and similar income 1,074 909 ----------- ----------- Loss on ordinary activities before taxation (119) (966) Tax on loss on ordinary activities - - ----------- ----------- Loss on ordinary activities after taxation (119) (966) ----------- ----------- Retained loss for the year (119) (966) ----------- ----------- ----------- ----------- Basic and diluted loss per ordinary share (0.03p) (0.21p) ----------- ----------- Consolidated Balance Sheet 31 March 31 March 2006 2005 £'000 £'000 Unaudited Audited Fixed Assets Tangible assets 690 848 Investments 59,522 35,013 ----------- ----------- 60,212 35,861 Current Assets Debtors 1,123 2,351 Restricted cash 2,869 2,869 Cash at bank and in hand 14,903 18,815 ----------- ----------- 18,895 24,035 Creditors: amounts falling due within one year (3,007) (1,711) ----------- ----------- Net current assets 15,888 22,324 Total assets less current liabilities 76,100 58,185 Provisions for liabilities (133) (189) ----------- ----------- Net Assets 75,967 57,996 ----------- ----------- Capital and reserves Called up share capital 11,818 11,818 Share premium account 39,693 39,693 Own shares held by EBT (413) (413) Revaluation reserve (3,510) (24,103) Profit and loss account 28,379 31,001 ----------- ----------- Equity shareholders' funds 75,967 57,996 ----------- ----------- Net Asset Value per share 17.7p 12.8p Number '000 Number '000 ----------- ----------- Ordinary shares in issue 472,736 472,736 Shares held in Treasury (36,016) (9,750) Shares held by employee benefit trust (8,338) (9,569) ----------- ----------- Shares in issue for net asset per share calculation 428,382 453,417 ----------- ----------- Consolidated Cash Flow Statement Year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Net cash outflow from operating activities (2,698) (1,993) Returns on investments and servicing of finance Interest received 1,073 909 Dividend received - 5,787 ----------- ----------- Net cash inflow from returns on investments and servicing of finance 1,073 6,696 Taxation UK Corporation Tax paid - - Overseas tax paid - (279) ----------- ----------- Net cash outflow from taxation - (279) Capital expenditure and financial investment Payments to acquire tangible fixed assets (5) (16) Receipts from disposal of tangible fixed assets 20 5 Payments to acquire investments (7,289) (3,990) Receipts from sales of investments 8,155 10,856 ----------- ----------- Net cash inflow from investing activities 881 6,855 ----------- ----------- Net cash (outflow) / inflow before financing (744) 11,279 Financing Issue of ordinary share capital - 75 Own shares purchased for Treasury (3,167) (1,043) Transfer into restricted cash in accordance with Court order - (2,437) ----------- ----------- Net cash outflow from financing (3,167) (3,405) ------------------------------- ----------- ----------- Net cash (outflow) / inflow in the year (3,911) 7,874 ------------------------------ ----------- ----------- Analysis of changes in net funds Net cash (outflow) / inflow in the year (3,911) 7,874 Foreign exchange differences (1) 81 ------------------------------ ----------- ----------- (Decrease) / increase in cash in the year (3,912) 7,955 ------------------------------ ----------- ----------- Reconciliation of operating loss to net cash outflow from operating activities Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Unaudited Audited Operating loss (4,419) (2,196) Depreciation 143 222 Decrease in debtors 365 4,766 Increase / (decrease) in creditors 1,213 (4,873) Non-cash remuneration - 88 ------------------------------ ----------- ------------ Net cash outflow from operating activities (2,698) (1,993) ------------------------------ ----------- ------------ Reserves Share Premium Revaluation Profit and Loss Account reserve account £'000 £'000 £'000 Unaudited Unaudited Unaudited Reserves at 1 April 2005 39,693 (24,103) 31,001 Unrealised gain on investments - 21,273 - Previously unrealised gains now deemed permanent - (680) 680 Own shares purchased for treasury - - (3,167) Foreign currency translation - - (16) Loss for the year - - (119) -------- ---------- ---------- Reserves at 31 March 2006 39,693 (3,510) 28,379 -------- ---------- ---------- Note The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 March 2006 and 2005. The financial information for the year ended 31 March 2005 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 March 2006, on which the auditors have not yet reported, will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. This announcement is prepared on the basis of the accounting policies as stated in the statutory accounts for the year ended 31 March 2005, without exception. This information is provided by RNS The company news service from the London Stock Exchange

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