Annual Results for the year ended 31 March 2013

RNS Number : 0991K

Spark Ventures PLC

25 July 2013

 

SPARK Ventures plc

Preliminary Announcement of Unaudited Annual Results for the year ended 31 March 2013

SPARK Ventures plc ('SPARK' or the 'Company' or the 'Group'), the investor in early stage digital information and technology companies, is pleased to announce its unaudited preliminary results for the year ended 31 March 2013.

Highlights

•           Net asset value ("NAV") per share increased by 12% to 15.1p when published 31 March 2012 NAV adjusted for 2.5p shareholder return.

•           Partial disposal of Kobalt to prestigious private investors after the balance sheet date will bring in £10.0m of cash proceeds. Kobalt valuation increases by 75% in last 6 months.

•           £10.3m returned to shareholders in year, taking total amount returned to £26.7m (6.5p per share) over 4 years with NAV remaining of 15.1p. Minimum of a further 2p per share to be approved for return at September AGM.

•           £6.6m profit for the year, making 4^th consecutive profitable year. Profit due to unrealised investment gains (£9.0m) being greater than operating losses.

•           Unrealised Investment gains due primarily to Kobalt, OpenX, IMI and Aspex.

•           IMI's valuation increase due to 14% EBITDA growth but using a slightly lower multiple.

•           Continued strong revenue growth in major portfolio companies (IMI, Kobalt, Notonthehighstreet, OpenX and Mind Candy).

•           Processes under way to sell most of remaining portfolio.

•           Assets and trade of Aspex successfully sold in year for total expected proceeds of approximately £9m. Of this £4.2m was received in the year with the remaining balance sheet value of £3.6m due to be received in the year to 31 March 2014.

For further information, please contact:

Andrew Betton / David Potter

SPARK Ventures plc

Tel: [phone]

Matt Goode / Christopher Raggett

finnCap

Tel: [phone]

Chairman's statement

Dear Shareholder,

I am pleased to report continued progress on our triple objective of harvesting the portfolio of investments, continuing to help the remaining companies grow in value and returning cash to our shareholders.

The Investment Manager is working closely with our key investee companies and is aware that there is a benefit of higher realisation values as companies mature. However, there is also a risk that as we approach the end of the realisation period, trade sales may be at risk of not materialising, and we may be obliged to make some secondary market sales which may not realise as much value as trade sales or flotation.

We continued to make progress on portfolio exits. During the year ended March 2013 the assets and trade of Aspex Semiconductor Ltd were sold to Ericsson and the Company sold parts of our stakes in Notonthehighstreet.com and Kobalt Music Group and returned £10.3m to shareholders, representing approximately  25% of our current market capitalisation. Since the year end, the company has sold 65% of its remaining stake in Kobalt for £10m. The Board expects to return a minimum of a further 2.0p per share to shareholders following the next Annual General Meeting which will take place in September.

We have appointed a small corporate finance house to sell our smaller investments (singularly or in a block) and have active exit discussions in train with the larger investments.  It would be commercially damaging to give more detail on these at this stage.

The Board has been active in trying to maximise other possible values in the business and has reduced corporate complexity, so as to enhance SPARK's eventual cash value. We sold our 30% stake in the Investment Manager, SVMH, for £0.25m. Various pieces of old litigation were concluded and overseas subsidiaries that were no longer needed have been liquidated.

All of this is against the background of improving values in some of our major investments.

The profit for the year was £6.6m, after incurring operating losses (including legal costs relating to the corporate streamlining process) of £2.4m.

I would like to thank our Manager for their continued diligence in this carefully balanced strategy to harvest value, and I am grateful to all our other stakeholders for their support.

Yours faithfully

David Potter, Chairman

25 July 2013

Investment Manager's Report

Introduction

We are pleased to report that the Group has, for the fourth consecutive year running, made a profit for the year on continuing operations. This amounted to £6.6m in 2013 compared to £10.1m in the previous year. This profit is due to net realised and unrealised investment valuation gains of £9.1m being higher than the Group's operating loss, which has increased slightly to £2.4m. Net Asset Value ("NAV") per share would have risen in the period from 16.0p to 17.6p were it not for the shareholder return, but after adjusting for this 2.5p per share return, NAV stands at 15.1p.  Since the change in the Board's strategy announced in July 2009, 6.5p per share has been returned to shareholders and there remains 15.1p of NAV to be distributed (amongst ordinary and D shareholders) over the coming year if all the assets can be successfully sold at the level of their current valuations. Following the sale of 65% of the group's remaining stake in Kobalt after the balance sheet date for £10.0m, shareholders can expect to receive a further return of at least 2.0p per share following the forthcoming AGM. Compared with July 2009, when the NAV was at 14.6p (and a share price as low as 5p), the total value growth to 21.6p per share so far vindicates this exit strategy when compared to the other alternatives considered at that time.

Portfolio valuation performance

In the year to 31 March 2013 the Group has made net unrealised gains of £9.0m comprising a gain of £6.6m from an increase in the valuation of the Group's stake in Kobalt music, £0.3m from an increase in the valuation of the Group's stake in IMImobile ("IMI"), a gain of £2.5m from an increase in the valuation of the Group's stake in OpenX, a gain of £0.8m from an increase in the valuation of the Group's stake in Aspex Semiconductor partially offset by a reduction of £0.7m in the valuation of the Group's stake in Firebox and other net unrealised losses of £0.5m. Disposals in the year have been previously referred to in both last year's annual report and the interim report and included partial disposals of Kobalt Music and Notonthehighstreet.com raising £3.5m and £0.8m of proceeds respectively for SPARK, and a repayment of accrued interest and loans by Aspex Semiconductor of £4.3m. Since the balance sheet date a further partial disposal of the group's stake in Kobalt has taken place raising £10.0m and considerable preparations have been made to lead us to expect that several more exits will be achieved before the end of the calendar year. Of the 16 portfolio companies existing at 31 March 2012, four have been revalued upwards, four have been revalued downwards, one was sold (Spark Venture Management Holdings Ltd) with the remainder unchanged. The only funding provided in the year was a secured short term bridge loan of £0.1m to myDeco.

Progress made in the eight portfolio companies valued at £1m or more is as follows:

IMImobile

IMImobile ('IMI') provides the core technology infrastructure for value-added mobile data, voice and video services and customer life cycle management to over 100 mobile operators, media companies and enterprises in Europe, India, the Middle East, Africa and Latin America.  IMI's DaVinci Platform™ powers a wide range of services created, delivered and managed by the group which generate additional revenues for its clients and helps them engage with their customers using the latest mobile technologies. The IMI group has over 650 employees worldwide with major offices in Hyderabad, London, and Dubai.

SPARK was the first institutional investor in the company.

The valuation of IMI has increased in the year by £0.3m from £15.9m to £16.2m. For consistency we have again valued the business according to an EBITDA multiple based on comparable trade sales transactions but have used a multiple that is 13% lower than that used at the half year. We have applied the multiple to IMI's actual (unaudited at this stage) results for the year to March 2013. The improved performance is due to a very strong performance in the Middle East and Africa (MEA) more than offsetting a slightly disappointing performance in India in light of the fallout from certain regulatory requirements imposed there. These difficulties are not unique to IMI but have led to a reduction in sales. Fortunately the decision taken to diversify into new products and markets by organic growth and acquisition outside India in 2010 has meant that overall the business has continued to grow. As one of the leading companies in the Indian telecoms market, we expect IMI's Indian business to bounce back strongly as new products are introduced and local regulatory requirements ease.

IMI's revenues for the year to 31 March 2013 were up by 14% to INR 3.5bn but flat in US dollars ($64m). EBITDA reported was up by 12%. Three year compound average growth rates for revenue, gross margin and EBITDA are an impressive 42%, 34% and 30% respectively.

Kobalt Music

Kobalt Music ('Kobalt') is the world's leading independent music publisher offering full services to copyright owners (collection, Sync and creative). Recently it has moved into Label Services for artists and into Neighbouring Rights, again enhancing its position in the industry.

Kobalt uses an advanced, internally developed  technology which significantly boosts royalty collection, timing and payout amounts received by rights owners. It has a substantial US presence and is now headquartered in New York with its operational and development base in London. It employs over 180 people worldwide and also has offices in Los Angeles and Nashville, Stockholm, Berlin and Sydney.

SPARK was an early-stage investor in Kobalt in 2001.

We have increased the valuation of the Group's stake in Kobalt by £6.6m to £15.5m following the sale in July 2013 of 65% of SPARK's remaining stake as at 31 March 2013 for £10m to a new group of well-funded private investors.

Kobalt has continued to grow revenues and NPS. Revenues grew 27% in the year to June 12 and are on track to grow at a similar rate in the year to June 2013.

In the last year Kobalt has fully integrated its leading global digital distribution and service provider acquisition - Artists without a Label (AWAL) - into Kobalt Label Services (KLS). Additionally KLS have signed up some big music industry names such as Prince, Pet Shop Boys and Nick Cave. Kobalt's music rights fund has performed ahead of expectations and Kobalt's share of the current singles and airplay charts has continued to impress on both sides of the Atlantic. In the most recently released music publishers market share statistics (Q1 2013) published by BillBoard, Kobalt had a 17.3% (Q1 2012: 14.1%) share of the US airplay chart and was second overall, ahead of both Universal and Warner and would have been first had it not been for Sony buying up EMI's publishing arm. In the UK for 2012, Kobalt achieved a 16.4% share of the singles publishing market, lifting it from fifth to second place in one year, by growing its share of the annual Top 100 sellers by 76%. Recent client wins have included Thom Yorke (Radiohead), Paul McCartney and Disney.

Notonthehighstreet.com

Notonthehighstreet.com ('NOTHS') is an internet marketplace for over 3,000 specialised UK based businesses selling a wide variety of unique personalised gift products. Unlike most online retailers, NOTHS holds no stock. NOTHS is based in London and employs nearly 150 people.

SPARK was the first outside investor in NOTHS.

The valuation of SPARK's stake in NOTHS has remained at £10.2m for the last six months, down from £11.0m to £10.2m in the year following the partial disposal of 7% of SPARK's stake in May 2012 as part of the funding round from a major institutional investor - Fidelity Investments Ltd.

NOTHS had an impressive 2012, growing revenues (TTV) by 66% to about £45 million and is significantly ahead of its annual budget to deliver 50% top line growth in 2013. Its success at marketing, PR, and product curating is reflected in some extraordinarily positive key performance indicators. The company's large contribution in assisting many small UK businesses has recently been recognised by the award of MBEs to the two founders of NOTHS - Sophie Cornish and Holly Tucker.

Aspex

As reported in the interim statement, on 1 August 2012, Aspex sold its intellectual property and trade to Ericsson. The nature of the sale (of assets rather than shares) means that Aspex remains an investment of SPARK, but it is an asset that is effectively a cash shell. It will take a little time to fully realise cash as the business is now in the hands of a liquidator.

Prior to the sale, Aspex had fully repaid its £2.5m loan from SPARK with interest, of which £1.75m had been repaid in the first half of the year. Since then, the liquidator has made an initial distribution of £2.58m, which was received in January 2013. Further distributions from the liquidator are expected in August '13 and January 14. We have increased our estimate of SPARK's share of these future distributions by £0.4m to £3.6m in the year, taking SPARK's total expected return from Aspex to approximately £9m.

Mind Candy

Mind Candy, through its Moshimonsters product range, has become one of the world's leading developers of social multi-player children's games, helping children around the world to play skill enhancing games and connect with each other safely via its unique children's social network. Mind Candy is headquartered in London and has around 150 staff including freelancers.

SPARK was a founder investor and led the founding round of investment.

We have recouped our original investment cost already.

We have again held the valuation of Mind Candy at the price received when we sold half of SPARK's stake in June 2011 to a third party. The remaining stake is valued at £3.2m.

Mind Candy had a hugely successful 2012 with sales of £49m and was substantially profitable, generating substantial cash deposits in the process. This was largely due to some very successful licensing deals including Nintendo 3DS games and a very successful children's magazine. Increased competition for children's attention from tablet based games, however, has resulted in new challenges for the business, although the overall business continues to grow and remains significantly profitable.

OpenX

OpenX is a business based on an open source ad-serving platform. It is headquartered in California and employs over 250 staff. The investment in OpenX was originally acquired when the business was spun out of Unanimis in late 2007.

We increased the valuation of SPARK's stake in OpenX from £2.5m to £5.0m at the half year based on a recently concluded funding round from Samsung and from Dentsu (a major Japanese advertising and media company).

The company has continued its impressive growth performance. Revenues for the calendar year 2013 were 133% up on the previous year and now run at an annual rate considerably in excess of $100m. The company was recently ranked number 7 on Forbes list of America's most promising companies.

DEM Solutions

DEM Solutions ('DEM') is a leading provider of particle simulation software (using discrete element modelling) for simulating and analysing industrial processes. DEM is based in Scotland and employs 25 staff.

The valuation continues to be held at cost of £1.7m but this level is supported by a relatively low business valuation given SPARK's preferred position in the capital structure, meaning there is little downside risk. DEM has been profitable in its previous 2 financial years but the downturn in its core mining market has depressed current year revenues and generated a loss, meaning that we are not yet able to value the company on an earnings basis.

DEM's software continues to win industry awards and the company itself recently featured in Red Herring's Top 100 of European growth companies.

Gambling Compliance

Gambling Compliance provides critical regulatory, legal and market analysis to the gaming industry. It has a worldwide client base of more than 800 top gaming executives and regulatory bodies and is a subscription based information service. It is based in London and employs 30 staff.

We have reduced the valuation of SPARK's share in the business from £1.8m at 31 March 2012 to £1.6m at 31 March 2013 following the raising of a small funding round after the balance sheet date at a lower valuation than the Enterprise Value implied by SPARK's previous valuation. Previously the business was valued on a sales multiple and it's worth noting that sales growth has continued. The company's revenues have renewal levels in excess of 90%.

Future capital returns and cash balances

At the balance sheet date, SPARK held cash balances of £3.5m of which £1.6m was restricted cash.  All of this £1.6m is expected to become unrestricted cash within the next twelve months and it is anticipated that operating costs of approximately £2.0m will be incurred for the year ahead, excluding the costs of a future capital return. Additionally the residual investment value of Aspex of £3.6m should turn into cash prior to the end of January 2014. With the further partial sale  after the balance sheet date from selling 65% of the group's stake in Kobalt for £10.0m, the Board intends to seek shareholder approval to return a minimum of 2.0p per share at the forthcoming Annual General Meeting in September.

Additional capital returns are dependent upon further sales of assets. A number of processes are under way for completing trade sales of entire companies or of SPARK's stake in businesses where trade sales or IPO's of the whole are not possible. However, it would be premature, and perhaps commercially counter-productive to comment on any of these processes at this stage.

Operations

Operating losses of £2.4m (2012: £2.0m) have increased slightly. The largest element of this loss is the management fee paid to SVML, which was £177k higher than in the previous year, as a result of increases in the value of the SPARK portfolio. Property income and costs have remained fairly stable but the absence of defending legacy legal cases in 2013 and the revaluing downwards of a provision made to provide for an old (2003) incentive scheme have both helped to offset the management fee rises. The Company has made a provision of £340k in these results to reflect the fact that SPARK's leases could be viewed as onerous and could face greater losses in the year ahead than in previous years due to possible end of lease negotiations that may be needed with  the landlord and possible under occupancy of Glasshouse Street as the lease end dates approach.

Conclusion

These results demonstrate further progress towards fulfilling shareholder ambitions of realising the SPARK portfolio for full value over a 5 year time period. In the last two years, none of SPARK's investments have required any material further investment from SPARK and so our role has been to guide portfolio management teams into helping to provide an exit for SPARK, which has in many cases been the longest holding institutional shareholder.  We have seen investment values grow in most of the major portfolio assets and the groundwork has been laid to enable the realisation of SPARK's other significant investments over the rest of the year.

Since August 2009, shareholders have received 6.5p per share in cash and continue to hold shares with a NAV of 15.1p per share, making a total notional shareholder return of 21.6p. At 31 March 2009, the NAV per share was 14.6p, meaning that growth in shareholder value has been 48% over the 4 year period, equating to annual growth of 10% in a recessionary and very challenging economic climate.

SPARK Venture Management Limited

25 July 2013

Group statement of comprehensive income

Year ended 31 March 2013

	Year ended 31 March 2013		Year ended 31 March 2012
	£'000		£'000
	Unaudited		Audited
Continuing operations
Gains on investments at fair value through profit and loss
- Realised gains / (losses)	98		(185)
- Net unrealised gains -  note 2	8,953		12,261
	9,051		12,076
Revenue
Bank interest receivable	72		46
Management fee income	605		1,092
Portfolio dividends and interest	167		565
Other income	1,560		1,458
	2,404		3,161
Administrative expenses
Salaries and other staff costs	(90)		(263)
Depreciation of property, plant and equipment	(78)		(86)
Amortisation and impairment of other intangible assets	-		(360)
Other costs -  note 3	(4,639)		(4,404)
Total administrative expenses	(4,807)		(5.113)
Profit before taxation	6,648		10,124
Taxation	-		-
Profit and total comprehensive income for the year	6,648		10,124
Attributable to:
- Equity shareholders of the parent	6,648		10,124

 

Group statement of financial position

As at 31 March 2013

	Year ended 31 March 2013		Year ended 31 March 2012
	£'000		£'000
	Unaudited		Audited
Non-current assets
Property, plant and equipment	99		177
Investments at fair value through profit and loss (note 2)	59,123		58,782
Restricted cash	-		2,035
	59,222		60,944
Current Assets
Trade and other receivables	526		491
Restricted cash	1,581		-
Cash and cash equivalents	1,900		4,992
	4,007		5,483
Total assets	63,229		66,477
Current liabilities
Trade and other payables	(1,386)		(1,113)
	(1,386)		(1,113)
Net current assets	2,621		4,370
Net assets	61,843		65,364
Equity
Issued capital	1,585		1,860
Share premium	9		9
Revenue reserve	50,006		53,702
Capital Redemption Reserve	10,243		9,968
Own shares	-		(175)
Total equity attributable to shareholders of the parent	61,843		65,364
	Number		Number
	'000		'000
Ordinary shares in issue	450,000		450,000
Shares held in Treasury	(39,245)		(39,245)
Shares held by Employee Benefit Trust	-		(918)
Shares in issue for net asset value per share calculation	410,755		409,837
NAV per share (pence)	15.06		15.95
Adjusted NAV per ordinary share (pence)  -see note 4	13.09		14.31

Statement of changes in equity

Year ended 31 March 2013

	D shares	C Shares / Deferred shares	B shares	Ordinary share capital	Share Premium	Revenue Reserve	Capital Redemption reserve	Own shares	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2011 (audited)	10	-	-	2,025	9	47,716	9,793	(175)	59,378
Profit and total comprehensive income for the financial period	-	-	-	-	-	10,124	-	-	10,124
New share split into 2011 B & C shares	-	50	175	(225)	-	-	-	-	-
Share buy-backs of 2011 B shares	-	-	(175)	-	-	(3,127)	175	-	(3,127)
Dividend on 2011 C shares	-	-	-	-	-	(1,011)	-	-	(1,011)
Cancellation of deferred C shares	-	(50)	-	-	-	-	50	-	-
Balance at 31 March 2012 (audited)	10	-	-	1,800	9	53,702	10,018	(175)	65,364
Profit and total comprehensive income for the financial period	-	-	-	-	-	6,648	-	-	6,648
Release of own share reserve following closure of EBT	-	-	-	-	-	-	-	175	175
New share split into 2013 B & C shares	-	75	150	(225)	-	-	-	-	-
Share buy-backs of 2013 (B shares)	-	-	(150)	-	-	(7,573)	150	-	(7,573)
Dividend on 2013 C Shares	-	-	-	-	-	(2,771)	-	-	(2,771)
Cancellation of deferred C shares	-	(75)	-	-	-	-	75	-	-
Balance at 31 March 2013 (unaudited)	10	-	-	1,575	9	50,006	10,243	-	61,843

SPARK Ventures plc holds 39,245,220 shares in treasury. The cost of purchasing these shares (£5.076m) has been offset against the revenue reserve. No shares have been purchased for Treasury in either the current or prior years.

There are no other items of comprehensive income other than profit for the year as recorded in the Group Statement of Comprehensive Income.

 

Group statement of cash flows

Year ended 31 March 2013

	Year ended 31 March 2013		Year ended 31 March 2012
	£'000		£'000
	Unaudited		Audited
Cash flows from operating activities
Cash flow from operations	(1,912)		(1,131)
Net cash outflow from operating activities	(1,912)		(1,131)
Cash flows from investing activities
Purchase of financial investments	(100)		(20)
Sale of financial investments	8,773		5,206
Receipt of deferred consideration	37		333
Net cash inflow from investing activities	8,710		5,519
Cash flows from financing activities
Dividend paid (C shares)	(2,771)		(1,011)
Share buy-backs (B shares)	(7,573)		(3,127)
Net cash outflow from financing activities	(10,344)		(4,138)
Management of liquid resources
Decrease in restricted cash	454		-
Change in cash and cash equivalents	(3,092)		250
Opening cash and cash equivalents	4,992		4,742
Closing cash and cash equivalents	1,900		4,992

Reconciliation of operating loss to net cash outflow from operating activities

	Year ended 31 March 2013		Year ended 31 March 2012
	£'000		£'000
	Unaudited		Audited
Bank interest receivable	72		46
Portfolio dividends and interest	167		565
Other revenue	2,165		2,550
Total revenue	2,404		3,161
Administrative expenses	(4,807)		(5,113)
Operating loss	(2,403)		(1,952)
Decrease in trade and other receivables	(35)		282
Increase in trade and other trade payables	273		93
Non-cash expense relating to own share reserve write off	175
Depreciation of property, plant and equipment	78		86
Amortisation/impairment of other intangible assets	-		360
Net cash outflow from operations	(1,912)		(1,131)

Notes

1.   Basis of preparation

SPARK Ventures plc is a company incorporated in the UK under the Companies Act 1985. The information for the year ended 31 March 2013 and 31 March 2012 does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006, but is derived from and has been prepared on the same basis as those financial statements.

Statutory accounts for the year ended 31 March 2012, which were prepared under International Financial Reporting Standards, have been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

Whilst the financial information included in this unaudited preliminary announcement has been computed in accordance with IFRS, this preliminary announcement does not itself contain sufficient information to comply with IFRS. The audit of the statutory accounts for the year ended 31 March 2013 is not yet complete. The accounts 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 unaudited preliminary announcement was approved by the Board on 25 July 2013 for release. This unaudited preliminary announcement has been prepared in accordance with the accounting policies set out in the 2012 Annual Report and Accounts.

The group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Investment Manager's Report. In assessing the group as a going concern, the directors' have considered the forecasts which reflect the directors proposed strategy for portfolio investments and the current uncertain economic outlook. The group's forecasts and projections, taking into account reasonably possible changes in performance, show that the group is able to operate within its available working capital.

The directors have considered the use of the going concern basis for the preparation of these financial statements within the context of the company's stated strategy of realising its remaining portfolio over the period to 31 March 2014, now less than 12 months away.  Although one possible scenario is the piecemeal disposal of the portfolio and the company then ceasing to trade, essentially becoming a cash shell, other alternative ways forward are under consideration which do not involve the cessation of trade.  The Board has made no decision in this regard but will seek the most beneficial route to enhance shareholder value.  Accordingly the directors remain of the view that the going concern basis of preparation is appropriate.

2.   Investments at fair value through profit and loss

Portfolio company name	Value at 31/03/12	Additions	Disposals at valuation	Revaluations	Value at 31/03/13
	Audited	Unaudited	Unaudited	Unaudited	Unaudited
	£'000	£'000	£'000	£'000	£'000
IMIMobile	15,900	-	-	300	16,200
notonthehighstreet.com	11,000		(800)	-	10,200
Kobalt Music	12,336	-	(3,500)	6,627	15,463
OpenX	2,500	-		2,500	5,000
Aspex	7,000	-	(4,212)	812	3,600
Mind Candy	3,153	-	-	-	3,153
Gambling Compliance	1,776	-	-	(131)	1,645
DEM Solutions	1,722	-	-	-	1,722
Firebox	975			(725)	250
Academia	924	-	-	-	924
Other < £500k	1,496	100	(200)	(430)	966
	58,782	100	(8,712)	8,953	59,123

3. Other expenses

	Year ended 31 March 2013	Year ended 31 March 2012
	£'000	£'000
	Unaudited	Audited
Property costs	1,971	1,977
Onerous lease provision	340	-
Professional fees	329	238
Professional fees and settlement provision re defending US legal action	20	253
Management fee of Quester Venture Partnership	538	819
Management and secretarial fees of SPARK Ventures plc	1,089	905
Non-cash elimination of own share debit balance reserve	175	-
Other general overheads	177	212
	4,639	4,404

Note 4 - D Shares and Adjusted NAV per share

Following the passing of a special resolution at the General Meeting of the Company on 2 October 2009, a new class of shares were created, being D shares. The Company's D shares were created to incentivise the manager to maximise the value of the portfolio in cash and make this cash available to shareholders. D shares are entitled to receive the D share distribution, which is triggered once payments to ordinary shareholders from 7 August 2009 have exceeded £49.3m. This hurdle could also be reduced by £820k for each £4.1m returned to shareholders before 31 March 2012. We have estimated that this lower hurdle should be £45.1m. Above this revised hurdle, D share holders receive 15% of distributions to shareholders above £45.1m up to £57.5m and 20% above £57.5m.   In accordance with the terms of the Management Buy Out, 200,000 D shares were issued at a price of 5p per share on 2 December 2009 and 1,800,000 D shares were issued on 26 March 2010 at par. The par value of each D share is 0.5p

The holders of D shares are not entitled in their capacity as holders of such shares to attend, speak at or vote at a General Meeting of the Company. The D shares have no conversion rights into other classes of share. The D share holders have no rights to distributions other than D share distributions and only have rights to D share distributions once the initial target has been reached. The D shareholders only accrue value up to and including the year ending 31 March 2014 after which they accrue no further value except that this deadline is extended to 30 September 2014 if the entire company is sold by this latter date.

As at 31 March 2013 and 31 March 2012, the total amount already returned to shareholders stands at £26.6m and £16.4m respectively. To this number we have added the net assets of the company at each balance sheet date to calculate the maximum potential payment due to the D shareholders if all assets are realised at their current values and returned to shareholders. Using this method, the resulting potential payments have been estimated at £8.1m and £6.7m respectively. These potential payments have then been deducted from the net assets at each respective balance sheet date to arrive at adjusted net assets attributable to the ordinary shareholders of £53.8m and £58.6m. Dividing these latter numbers by the number of ordinary shares in issue gives the fully diluted NAV per share to ordinary shareholders.

As payments to D shareholders are conditional upon returns to ordinary shareholders they are accounted for as equity and not accrued for on the balance sheet as a liability. The ultimate payments to D shareholders could be anywhere from zero up to an amount greater than the potential payments referred to above if total realisation proceeds before 31 March 2014 exceed the net assets reported in these accounts.

 

END

 

 

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