Interim Results
NewMedia SPARK PLC
20 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 risen
by £6.2m, compared to £6.6m for the whole of the year ending March 2005. Of
this gain, £5.3m has been shown as an unrecognised gain in the Consolidated
Statement of Total Recognised Gains and Losses, and £0.9m has been recognised on
the face of the Profit & Loss statement. The remaining £0.6m contained within
the 'Gains from investments' line on the Profit and Loss statement was from the
sale of a dormant subsidiary.
The sale of FootFall demonstrates the point that good companies with a leading
position in fast growing markets can attract prices that reflect their strategic
value 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 providing
count data and analysis of pedestrian traffic in retail environments, with a
high quality client base, was as important to the buyer as its current revenues.
Nonetheless, FootFall is profitable, is growing rapidly and would also have
made a good IPO candidate in the next year. Whilst the sale completed after the
period end, we have written up the carrying value of our investment in FootFall
by £1.3m to reflect the sale proceeds. We are pleased to have led the
investment in 2000, and assisted the development of this company throughout its
early stages. It is a good example of SPARK's role in early stage investing in
the UK.
The sale of Elata in August to Qualcomm Inc for $57m is another example of
assets within the portfolio that have obtained a strategic value in excess of
that derived from a simple multiple of earnings. The company had developed a
content delivery and device management software system for mobile phones and had
made sales to Orange, among others. In the light of the growth in the mobile
content sector, it was clearly the quality of this platform and its ability to
win substantial clients that was of value to Qualcomm. Of the £1.5m of proceeds
from the sale of this investment, £0.3m will be held in reserve for the warranty
period.
In addition, the final £1.1m of proceeds from the sale of Pricerunner held as a
warranty reserve was released in August without any claims being made against
it. Both Elata and Pricerunner were in an early stage of revenue growth and had
acquired significant customer traction, but were not sufficiently mature to
reflect their full value through net earnings - which is the main measure we are
obliged to rely on in order to value our portfolio in accordance with British
Venture Capital Association guidelines and prudent accounting policy.
Portfolio
Since April we have seen the value of the portfolio, excluding those companies
sold, 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 an
independent M&A (Mergers & Acquisitions) intelligence tool used by many of the
world's leading financial institutions to originate deals. It provides
proprietary intelligence on potential deal flow, potential mandates and
valuations through what is now believed to be the world's largest group of M&A
journalists and analysts (over 150), who have direct access to many senior
decision-makers and corporates. In our last report we mentioned that the
company 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 a
new and unique product, 'Wealth Monitor'. Wealth Monitor uses often proprietary
information derived from the transactions data generated by other products in
the company to anticipate those who are becoming newly wealthy from
transactions, public and private, in progress. It is expected that the product
will generate substantial interest from private bankers and other suppliers
providing services to this customer group.
The company continues to perform very strongly and for the first ten months of
its financial year is delivering revenues that are approximately 80% up on the
previous year. Subscription renewals are running over 95%. More importantly for
the valuation in these interim results, the operating profits are now becoming
substantial and are up by more than 240% on the prior year. The effect is that
we have now increased the earnings based valuation by £5m to £13m in our books
for the half year to 30 September. The company has cash reserves of £5m.
Aspex
Aspex is a fabless semiconductor company developing high-performance, software
programmable 'Extreme Processors' for the image processing market. After
spinning out from Brunel University in 1999, the company began making sales of
its 'Linedancer' chip in January 2005 and now has had 25 'design wins' for
products in the medical imaging, film processing, machine vision and printing
markets. Many of these design wins are followed by a lengthy period of
evaluation by a customer while they decide whether to design the Aspex chip into
one of their products. In order to shorten this sales cycle, the company
launched a 'plug and play' encoder board for high speed image encoding in
September. Initial signs are promising that sales of both these boards and the
embedded chip are gaining good momentum, with revenues achieved in the first
half of their year already exceeding prior year sales.
At the time of writing the company has received a draft term sheet for funding
from another Venture Capitalist which it is considering. Based on the
valuations offered in these discussions we have taken the view that the value of
our 68% holding should be written down by £2m to £10.1m, despite the fact that
its peers in the public markets achieve much higher valuations.
IMI
Based in Hyderabad, IMI provides design, services and products to the mobile
industry 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 year
ended March 2005 and the company has achieved a milestone in winning major
contracts with Trinidad & Tobago Telecomms and Yahoo for services delivered
outside India. Within India, the expansion of the mobile network continues to
grow extremely rapidly with over 2m new subscriptions taken out nationwide every
month (or one every 1.3 seconds). The combination of the domestic and
international growth provides IMI with substantial opportunities. The company
now has over 250 employees.
The valuation of our 47% holding in IMI at our year end in March 2005 was set by
reference to the last transaction in IMI shares. In the light of the continuing
development of the business we have taken the view that all previous write downs
can 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 an
earnings based valuation by next March which would have a positive effect on its
valuation again.
DX3
DX3 is a distribution platform for the secure delivery of digital media. With
the explosion of new methods for delivering content to consumers, media owners
are 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, digital
TV etc). They also remain extremely concerned about the security of their media
assets when many devices are now capable of 'super-distribution'.
Until May 2005, DX3's core business was the distribution of legal media assets
to PC's. During the period SPARK has invested £1.5m to develop the company's
capacity to deliver not only to wired devices such as PC's, but also to wireless
devices such as mobile phones. The DX3 difference is not so much in its
technology as in its ability to apply technology solutions to securely deliver
officially licensed digital entertainment content. In view of this, the company
has been able to obtain the only multi-platform licences to legally distribute,
as a reseller, digital entertainment content on behalf of all the major record
companies such as Universal and EMI, as well as independents. Since obtaining
these licenses, the company has become the real tone provider for Emap's Music
TV channels (such as The Hits, Kerrang, The Box etc.) Woolworths and Eckoh
amongst others. SPARK owns 54% of this business which is now carried on our
books at £2.3m following the latest investment.
Kobalt
The final notable movement in our investment valuations is our holding of
Kobalt. Kobalt is a music publisher that uses its proprietary technology to
deliver fast, transparent and accurate royalty revenue collection for music
owners and songwriters. The company has signed up leading songwriters for the
likes of Gwen Stefani, Eminem and Kelly Clarkson. It achieved a near trebling
of revenues in the year and now appears regularly in the top ten publishers in
the country having been created at SPARK only five years ago. On the strength
of these results, the company has raised a new round of funding which was
oversubscribed and at a higher valuation, thereby allowing us to write up the
value of our investment by £0.7m to £2.9m.
Cash
Cash balances are £19.9m at 30 September 2005 (£21.7m at March 2005) - after
administrative 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 capital
reconstruction completed in October 2004. Proceeds from the sale of the stake
in 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 first
instance of a payout (£0.6m and associated NI) under the rules of the carry
incentive scheme adopted by the company in 2003. This was triggered largely by
the successful cash exit from Pricerunner for £6.5m. In addition to this, an
accrual has been made for another payment under the scheme for the successful
sale of FootFall (£0.3m and associated NI). Away from these carry items,
administrative costs overall were £0.2m lower and rental income was £0.2m
higher, 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 is
convening an EGM to seek approval from shareholders to increase the authority
for directors to conduct buy-backs from the current limitation of 10% of our
issued shares to 20% of our issued shares, reserves permitting. To date the
company has purchased 14.5m of its own shares into treasury, representing 3% of
its share capital. The average price at which these shares have been bought
back is 10.7p, representing a 24% discount to the current net assets per share
of 14.0p, and has cost the company £1.5m in total. The original authority
granted 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 balances
and 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 all
shareholders to raise the authority so as to allow them to pursue a more
aggressive 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 of
value momentum in the portfolio as a whole has grown significantly over the last
six 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 are
confident that there will be more examples of exits above book value over the
coming twelve months that should continue to add value to net assets. In
addition, the quality of investment opportunities remains strong, with
substantially fewer long-term, early stage investors in the market seeking to
fund them.
Andrew Carruthers
20 December 2005
INDEPENDENT REVIEW REPORT TO NEWMEDIA SPARK PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2005 which comprises the consolidated
statement of total recognised gains and losses, the consolidated profit and loss
account, 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 and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company, in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for ensuring that the accounting policies and presentation
applied to the interim figures are consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2005.
Deloitte & Touche LLP
Chartered Accountants
London
20 December 2005
Consolidated Profit and Loss Account Six months to Six months to Year to
Interim Report to 30 September 2005 30-Sep 30-Sep 31-Mar
2005 2004 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Administrative expenses
Salaries 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 1,258
Operating loss (2,043) (1,450) (2,196)
Gains from investments 1,546 2,104 321
Interest receivable and similar income 604 354 909
Profit / (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 to
Gains and Losses 30-Sep 30-Sep 31-Mar
Interim 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) 6,280
Foreign currency translation (16) 311 460
Prior 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 to
Shareholders' Funds 30-Sep 30-Sep 31-Mar
Interim 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) 6,740
Reversal of amortisation of own shares - 108 217
Reduction 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-Mar
Interim Report to 30 September 2005 2005 2004 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Fixed assets
Tangible assets 755 930 848
Investments 42,962 30,654 35,013
43,717 31,584 35,861
Current assets
Debtors 2,000 5,041 2,351
Restricted cash 2,869 413 2,869
Cash at bank and in hand 17,069 17,836 18,815
21,938 23,290 24,035
Creditors: 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 11,818
Own shares held by EBT (413) (522) (413)
Share premium account 39,693 183,371 39,693
Revaluation reserve (18,835) (33,113) (24,103)
Profit and loss account 30,588 (108,856) 31,001
Equity shareholders funds 62,851 52,679 57,996
Net Asset Value per share 14.0p 11.4p 12.8p
Number Number Number
'000 '000 '000
Ordinary shares in issue 472,736 471,986 472,736
Shares 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 to
Interim 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 finance
Interest received 604 354 909
Dividend received - 5,787 5,787
Net cash inflow from returns on investments and 604 6,141 6,696
servicing of finance
Taxation
UK Corporation tax paid - - -
Overseas tax paid - (2,228) (279)
Net cash outflow from taxation - (2,228) (279)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (2) - (16)
Proceeds from disposal of fixed assets 20 5 5
Payments to acquire investments (3,745) (753) (3,990)
Receipts from sales of investments 2,887 4,812 10,856
Net cash (outflow) / inflow from investing activities (840) 4,064 6,855
Net cash (outflow) / inflow before financing (1,242) 6,966 11,279
Financing
Issue of ordinary share capital - - 75
Purchase of own shares (504) - (1,043)
Transfer into restricted cash in accordance with court - - (2,437)
order
Net 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 September
2005 and 30 September 2004 is unaudited. The information relating to the period
ended 31 March 2005 is extracted from the audited accounts of the Company which
have been filed at Companies House and on which the auditors issued an
unqualified opinion.
2) The above financial information does not constitute statutory accounts
within the meaning of Section 240 Companies Act 1985.
3) Earnings / (loss) per share is based on the weighted average number of
shares in issue during the six months ended 30 September 2005 of 451,360,000 (31
March 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 7,874
Foreign 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 to
outflow 30-Sep 30-Sep 31-Mar
from operating activities 2005 2004 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Operating loss (2,043) (1,450) (2,196)
Depreciation 75 125 222
Decrease in debtors 41 4,868 4,766
Increase / (decrease) in creditors 921 (4,598) (4,873)
Non-cash remuneration - 44 88
Net 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) 31,001
Unrealised gain on investments - 5,268 -
Own shares purchased for treasury in the period - - (504)
Foreign currency translation - - (16)
Profit for the period - - 107
Reserves at 30 September 2005 39,693 (18,835) 30,588
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