Preliminary Results

RNS Number : 6777S

Spark Ventures PLC

10 July 2015

 

SPARK Ventures plc

Preliminary Announcement of Annual Results for the year ended 31 March 2015

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 preliminary results for the year ended 31 March 2015.

Highlights

• IMImobile ("IMI") successfully listed on AIM in June 2014. SPARK sold 22% of its stake raising £3.5m proceeds, although £3.1m of this is held in escrow pending tax guidance, which is expected within near future.
• SPARK retains an 18% stake in IMI, which has traded well since its IPO and has just reported healthy full year results. Its share price is currently trading approximately 20% above the IPO price (120p) and the year-end share price used in these results (121.5p).
• Shareholders received a cash return of £19.0m (4.5p per share) in the year taking total returns since 2009 to £54m (13p per share).
• Agreement reached to sell the entire portfolio, excluding IMI, after the balance sheet date for a minimum of £3.7m. The Company has already received £2.8m through the completion of sales in 5 of the 9 investments.
• Dispute settled with former director.
• Net asset value ("NAV") per share decreased over the year by 12%, to 5.40p, after adjusting the published 31 March 2014 NAV for the 4.5p shareholder return. However, there has been substantial improvement in the NAV (up by approx. 0.6p) after the balance sheet date following the increase in IMI's share price.
• Operating losses  reduced by 49% due to absence of property losses and reduction in management fee costs.
• Total proceeds from realisations (excluding IMI) amount to £54m, when post balance sheet receipts are included, this compares to valuations for these investments of approx. £21m back in September 2009.
• The Directors are currently reviewing the strategy of the Company.

For further information, please contact:

SPARK Ventures plc	Andrew Betton / David Potter	07540 725 100
finnCap	Matt Goode / Emily Watts	020 7220 0500
Attila Consultants	Charles Cook / Nita Shah	020 7947 4489

 

Chairman's statement

Dear Shareholder,

It is my pleasure to present the 2015 results to shareholders as Chairman of your Company. This is a fairly brief factual report as I plan to be writing to all shareholders separately about future proposals for SPARK Ventures PLC.

During the year under review, and in the period shortly after the year end, we succeeded in realizing all of our remaining investments (with the exception of our investment in IMI, of which more later).

In April 2015, Hollyport Secondary Opportunities IV Unit Trust ("Hollyport") signed an agreement to purchase nine of our smaller investments for a minimum consideration of £3.7m and the completion of these transactions is underway, with sales in 5 of the 9 investments having completed for a value of £2.8m so far. Owing to the fact that some of the sales have "anti-embarrassment" clauses to protect our shareholders from any rapid appreciation in value after the completion of the sale, the final consideration will not be certain until 31st December 2015.

There remains some uncertainty about the timing of the receipt of cash held in escrow following the flotation and partial realisation of our IMI stake in the summer of 2014, although this uncertainty is expected to be removed in the next couple of weeks.

The Board is currently reviewing the on-going strategy of the Company and continues to seek ways of ensuring that shareholders benefit not only from realisations but also the value of the quotation, reputation and tax losses of the company.

During the last year realisations totalled £3.5m, losses were £2.3m and costs were £1.6m - of which a significant part related to settling a dispute with a former director. At 31 March 2015 we had free cash of £3.0m.

Yours faithfully

David Potter, Chairman

9 July 2015

 

Investment Manager's Report

Introduction

This preliminary results announcement records the completion of the managed realisation process which was started in 2009. On 1 April 2014, SPARK had one large private Indian headquartered investment (IMI mobile Pvt Ltd), nine other illiquid investments, and a small stake in a limited partnership. Since that date, the manager has helped float IMI mobile plc leaving SPARK with a significant stake in a UK listed and headquartered telecoms business, and sold the remaining nine other investments, subject to a combined sale and purchase agreement, to Hollyport. The stake in the limited partnership is now also on track to be realised as the partnership enters the last six months of operation. We are working with Hollyport, and other shareholders of the respective portfolio companies if pre-emption rights are exercised, to assist in the completion of the asset sales. We also retain our listed IMImobile shareholding and are currently assessing our options with respect to this investment.

Assets sold to Hollyport

The following assets were included in the Hollyport process: Compliance Online (formerly known as Gambling Compliance), DEM Solutions, Mind Candy, By Design (myDeco), Academia, Crocus, Market Clusters, mBlox and Firebox. These had a combined value of £4.6m at 31 March 14 and 30 September 2014 and have been agreed to be sold for an aggregate price of £3.7m. This number could be increased if any assets get pre-empted by other shareholders within those portfolio companies and could also be increased if any of Compliance Online, Mind Candy or By Design have liquidity events in the remainder of 2015. Overall this transaction was concluded at a maximum of a 20% discount to the book values of the portfolio companies. We see this as a far better result than selling each individual asset to secondary buyers - an area where 50% discounts are not uncommon. At the time of writing, completion has taken place of Compliance Online, By Design, DEM, Firebox and Academia with cash proceeds received of £2.8m.

IMI mobile ("IMI")

IMI represented 78% of the portfolio by value at each of 31 March 2015 and 2014. It is therefore, by far, the single most important item on the SPARK balance sheet.

IMI is a leading global technology company providing software and services which help businesses capitalise on the growth in mobile communication. Its solutions help its clients engage and transact with their customers more efficiently through smarter mobile engagement. IMI has developed a suite of software applications and services targeted at both mobile operators and enterprises marketed principally under the DaVinci brand. IMI is headquartered in London, has a development centre in Hyderabad (India) and works with a large number of mobile operators and blue-chip enterprises worldwide.

SPARK first invested in 2000 and was the first institutional investor in the company.

SPARK's total valuation of its stake in IMI decreased in the year by £3.4m from £16.2m to £12.8m. This consisted of the share sale at the IPO (£3.5m), a transfer of shares to part settle a dispute with a former director (£0.3m) and an unrealised gain of £0.4m due to the share price at 31 March 2015 (121.5p) being higher than at the IPO (120p).

As has been reported previously, we supported IMI in achieving a stock market listing on the AIM market of the London Stock Exchange in June 2014.This listing raised £30m at a pre-money valuation of £64m, with £20m of the proceeds going towards selling shareholders. SPARK received proceeds, net of costs, of £3.5m from the listing but was required to put £3.1m of these funds into an Escrow account until it could satisfy IMI that withholding tax was not due on the transaction. We have been working with IMI to resolve this and expect the Escrow amount to be released in the near future.

Since the Balance Sheet date, the IMI share price has increased to 148p as of 30 June 2015, with much of this increase coming after IMI released positive annual results on 23 June 2015.

Highlights of these results are as follows (reproduced from IMI's 2015 results announcement):

Financial highlights:

• Revenue up 13% to £48.9m (2014: £43.4m)
• Gross profit up 8% to £30.0m (2014: £27.9m)
• EBITDA up 27% to £9.2m (2014: £7.2m)
• Adjusted profit after tax up 48% to £5.6m (2014: £3.8m)
• Loss after tax on a statutory basis of £3.4m (2014: £3.9m profit) reflecting share based payments and costs in relation to IPO and acquisition activities
• Good contribution from Europe with organic annual gross profit growth of 26%
• Managed solution growth in MEA of 16%
• Net cash generated from operating activities of £8.2m, representing operating cash conversion of 90% (2014: 121%)
• Free cash flow of £6.6m (2014: £6.9m)
• Cash and cash equivalents at 31 March 2015 of £14.6m (2014: £9.3m)

Operational highlights:

• New major client wins in all regions
• Key new contracts signed in India with revenue benefit expected in FY16
• Renewal of several major contracts including the BBC, a multi-national North African telecoms operator and a major motoring organisation
• Listed on AIM in June 2014 raising net proceeds of approximately £7m for the Company (after considering fees and the acquisition of the Group) to support significant growth opportunities
• Acquisition and successful integration of TxtLocal Limited (TextLocal), trading well since acquisition in October 2014

SPARK has not been able to release any liquidity on its holding of 10.5m shares prior to the expiry of the twelve month lock-up and orderly market deed and is not currently looking to sell its holding whilst its strategic options are being considered.

Cash balances and operations

Cash balances have significantly reduced in the year from £25.7m to £3.0m. £19.0m of this reduction is due to the shareholder return in April 2014, £2.2m was paid to the D shareholders and £0.7m was needed to settle a dispute with a former director.

Cash receipts in the year from selling investments were limited to the IMI proceeds released on the IPO, but as previously stated, £3.1m of this was retained in an Escrow account.

Operating losses of £1.5m are approximately half those of 2014 due to the absence of property losses in the current year and a substantial reduction in the management fee.

Managed realisation summary (updated to 30 June 15)

The table below sets out the book values of the material investments as at 30 September 2009 and the current value or sales proceeds achieved from these investments.

Investment	Value at 30 Sep 2009	Proceeds (net of any additional investment)	Current value (Jun 15)	Total	Gain/ (loss)
	£m	£m	£m	£m	£m
IMImobile	13.0	3.8	15.4	19.2	6.2
Kobalt Music	6.8	18.4	0.0	18.4	11.6
Aspex	1.0	9.4	0.0	9.4	8.4
Skinkers	1.0	0.0	0.0	0.0	(1.0)
Notonthehighst	1.6	12.8	0.0	12.8	11.2
Complinet	1.5	3.2	0.0	3.2	1.7
OpenX	1.2	2.4	0.0	2.4	1.2
Assets subject to Hollyport process	7.7	3.9	3.7	7.6	(0.1)
Totals	33.8	53.9	19.1	73.0	39.2

*Note that "Value at 30 Sep 2009" is not necessarily the Company's original cost.

The value of the portfolio has more than doubled in this period and is equivalent to an IRR of approximately 14%. The process of giving the manager the time to maximise the values of the various investments has clearly been justified by the results achieved.

The total shareholder return made since August 2009 stands at 13.0p per share, or £53.4m and there remains net asset value of 5.4p per share, a figure that has increased by £0.6m after the year end following the 20% rise in IMI's share price.

Conclusion

In the period from August 2009 until now, SPARK shareholders have received 13p of cash per share and there is further value in the portfolio that has not yet been realised. 89% of the March 2009 NAV of 14.6p has now been returned to shareholders in cash, and the balance of the March 2009 NAV is now represented by liquid assets, or assets that will soon be realised in cash as contracts complete.  It is worth remembering that the early years of the realisation period were tough years to be growing early stage companies, and the outstanding successes of so many companies are demonstrative of the quality of the portfolio created by SVML and of the management teams and entrepreneurs that we backed. Of the 10 investments valued in September 2009 at £1m or greater, five resulted in cash proceeds at least double the September 2009 book value (and in some cases considerably more) one failed (Skinkers), IMI has recently listed and the other three were recently sold to a financial buyer (DEM, myDeco and Gambling Compliance).

SPARK Venture Management Limited

9 July 2015

Group statement of comprehensive income

Year ended 31 March 2015

	Year ended 31 March 2015		Year ended 31 March 2014
	£'000		£'000
Continuing operations
Losses on investments at fair value through profit and loss
- Realised losses	(407)		(1,163)
- Net unrealised losses -  note 2	(452)		(3,518)
	(859)		(4,681)
Revenue
Bank interest receivable	11		26
Management fee income	75		338
Portfolio dividends and interest	-		175
Other income	-		827
	86		1,366
Administrative expenses
Salaries and other staff costs	(216)		(206)
Depreciation of property, plant and equipment	-		(99)
Other costs -  note 3	(1,368)		(4,013)
Total administrative expenses	(1,584)		(4,318)
Loss before taxation	(2,357)		(7,633)
Taxation	-		-
Loss and total comprehensive income for the year	(2,357)		(7,633)
Attributable to:
- Equity shareholders of the parent	(2,357)		(7,633)

 

Group statement of financial position

As at 31 March 2015

	Year ended 31 March 2015		Year ended 31 March 2014
	£'000		£'000
Non-current assets
Investments at fair value through profit and loss (note 2)	16,503		20,876
	16,503		20,876
Current Assets
Other receivables	32		555
Restricted cash	3,123		-
Cash and cash equivalents	3,036		25,663
	6,191		26,218
Total assets	22,694		47,094
Current liabilities
Trade and other payables	(95)		(653)
Amount due to D shareholders	-		(2,200)
	(95)		(2,853)
Net current assets	6,096		23,365
Provision for liabilities - see note 3	-		(500)
Net assets	22,599		43,741
Equity
Issued capital	1,135		1,360
Share premium	9		9
Revenue reserve	10,762		31,904
Capital Redemption Reserve	10,693		10,468
Total equity attributable to ordinary shareholders of the parent	22,599		43,741
	Number		Number
	'000		'000
Ordinary shares in issue	450,000		450,000
Shares held in Treasury	(31,154)		(39,245)
Shares in issue for net asset value per share calculation	418,846		410,755
NAV per ordinary share (pence)	5.40		10.65
Adjusted NAV per ordinary share (Pence) - see note 4	4.97		N/A

Group statement of changes in equity

Year ended 31 March 2015

	D shares	Ordinary share capital	Share Premium	Revenue Reserve	Capital Redemption reserve	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2013	10	1,575	9	50,006	10,243	61,843
Loss and total comprehensive income for the financial period	-	-	-	(7,633)	-	(7,633)
Share split into 2013 B & C shares and redemption thereof	-	(225)	-	-	225	-
Share buy-backs of 2013 B shares	-	-	-	(5,448)	-	(5,448)
Dividend on 2013 C shares	-	-	-	(2,821)	-	(2,821)
Amount due to D share holders	-	-	-	(2,200)	-	(2,200)
Balance at 31 March 2014	10	1,350	9	31,904	10,468	43,741
Loss and total comprehensive income for the financial period	-	-	-	(2,357)	-	(2,357)
Share split into 2014 B & C shares and redemption thereof	-	(225)	-	-	225	-
Share buy-backs of 2014 (B shares)	-	-	-	(14,000)		(14,000)
Dividend on 2014 C Shares	-	-	-	(4,987)	-	(4,987)
Share options exercised				202		202
Balance at 31 March 2015	10	1,125	9	10,762	10,693	22,599

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

 

Group statement of cash flows

Year ended 31 March 2015

	Year ended 31 March 2015		Year ended 31 March 2014
	£'000		£'000
Cash flows from operating activities
Cash flow from operations	(5,157)		(1,534)
Net cash outflow from operating activities	(5,157)		(1,534)
Cash flows from investing activities
Purchase of financial investments	-		(70)
Sale of financial investments	3,515		33,639
Net cash inflow from investing activities	3,515		33,569
Cash flows from financing activities
Share options exercised	202		-
Dividend paid (D shares)	(2,200)		-
Dividend paid (C shares)	(4,987)		(2,821)
Share buy-backs (B shares)	(14,000)		(5,448)
Net cash outflow from financing activities	(20,985)		(8,269)
Change in cash and cash equivalents	(22,627)		23,763
Opening cash and cash equivalents	25,663		1,900
Closing cash and cash equivalents	3,036		25,663

Reconciliation of operating loss to net cash outflow from operating activities

	Year ended 31 March 2015		Year ended 31 March 2014
	£'000		£'000
Bank interest receivable	11		26
Portfolio dividends and interest	-		175
Other revenue	75		1,165
Total revenue	86		1,366
Administrative expenses	(1,584)		(4,318)
Operating loss	(1,498)		(2,952)
Decrease in trade and other receivables	522		440
(Increase)/decrease in restricted cash	(3,122)		1,581
Decrease in trade and other trade payables	(559)		(862)
(Decrease)/increase in provisions	(500)		160
Depreciation of property, plant and equipment	-		99
Net cash outflow from operations	(5,157)		(1,534)

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 2015 and 31 March 2014 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 2014, 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 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 2015 was finalised on 9 July 2015 and the Annual Report will be placed on the Company's website and delivered to shareholders in the week commencing 13 July 2015. The accounts have been 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 preliminary announcement was approved by the Board on 9 July 2015 for release. This preliminary announcement has been prepared in accordance with the accounting policies set out in the 2014 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 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 recently amended strategy of realising its remaining portfolio over the period to 31 March 2015.  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 31/03/14	Disposals at valuation	Revaluations	Value at 31/03/15
	£'000	£'000	£'000	£'000
IMImobile	16,200	(3,857)	465	12,808
Investments subject to Hollyport sale agreement	4,576		(917)	3,659
Other investments	100	(64)	-	36
	20,876	(3,921)	(452)	16,503

3. Other expenses

	Year ended 31 March 2015	Year ended 31 March 2014
	£'000	£'000
Property costs	-	1,703
Provisions - see note below	491	500
Professional fees	432	478
Management fee of Quester Venture Partnership	75	338
Management and secretarial fees of SPARK Ventures plc	313	897
Other general overheads	57	97
	1,368	4,013

Provisions

The Company was in dispute with Michael Whitaker, a previous Director of the Company and Chairman of the Audit Committee, over the incentive scheme established in 2003 created to incentivise the executive directors and senior investment personnel. Whilst the Board believed it had a strong case, there was a significant risk of incurring substantial legal costs should it have been necessary to defend this dispute in the High Court. Furthermore, the ultimate outcome was uncertain. Therefore, following a mediation session in September 2014, the Board agreed settlement terms with Mr Whitaker. The settlement provided for a total payment of £1.0m to Mr Whitaker and was settled in a combination of cash and by the transfer of some IMI shares to him. Of this £1.0m, £0.5m was accrued for in the prior year.

4. Contingent liability and Adjusted NAV per share

Following the entry into a new contract with SPARK Venture Management Ltd in April 2014, new incentive arrangements were also entered into which encouraged the Manager to achieve exits or listings. If the entire holding of restricted cash and IMImobile shares was turned into free cash at the 31 March 2015 valuations, the Manager would be due an incentive fee of approximately £1.8m. This additional fee has been reflected in the calculation of "adjusted NAV per share" which is shown on the Statement of Financial Position. At the share price prevailing at the time of writing (149p), the incentive fee that would be due upon sale at this price is approximately £2.4m.

 

END

 

 

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