Preliminary Results

RNS Number : 2872E

Asia Digital Holdings PLC

05 April 2011

 



Press Release

05 April 2011

Asia Digital Holdings Plc

("ADH" or the "Company")

Preliminary Results

For the year ended 31 December 2010

Asia Digital Holdings plc (AIM: ADH.L), an independent online marketing group, today announces its preliminary results for the year ended 31 December 2010.

Financial Highlights:

·	Sale of the DGM operation in Australia, historically a substantial part of the Group
·	Start of operations in China, a major growth market
·	Continuing operations sales remained steady at £6.10 million (2009: £6.16 million)
·	Operational loss reduced to £2.69 million (2009: £2.85 million)
·	Restructured central cost base post disposal projected to deliver annualised savings of over £0.80 million

Commenting on the results, Adrian Moss, Chief Executive, said: "2010 was a period of major transition for the Company, as we put in place the foundations for future growth.  We have sold the DGM operation in Australia, commenced operations in China, and made a number of operational changes to the business, including rationalisation of the central cost base. Subject to careful management of working capital, the Board feels the Group is better positioned to deliver shareholder value than previously, and looks forward to updating shareholders on our progress over the coming year." 

- Ends -

For further information, please contact:

Asia Digital Holdings plc
Adrian Moss, Chief Executive	www.adhplc.asia

 

Northland Capital Partners Limited
Gavin Burnell / Rod Venables	Tel:  [phone]
Katie Shelton (Corporate Broking)	www.northlandcp.co.uk

 

Abchurch Communications
Julian Bosdet / Joanne Shears/ Claire Dickinson	Tel: [phone]
[e-mail]	www.abchurch-group.com

 

Chairman's Statement

As a result of the sale of the DGM operation in Australia, the Group has reported a profitable year in 2010.  The remaining businesses in India and South East Asia continue to contribute, but it is the start of our operations in China that the Board sees as the driver for future growth.  Whilst continuing to carefully monitor the Group's working capital requirements, the Board anticipates that the opportunity for growth in China, as well as our rationalised cost base, can return the Group to profitability. 

Operational Review

The Group operated two main business units during 2010; DGM and AKTIV, both intermediary operations in the digital advertising space.

DGM delivers customers for global brands on a success-based payment model, Typically delivery is  through websites (or networks of sites) that are willing to promote an advertiser's product on a success fee basis, or through search engines such as Baidu, Google, Bing, Yahoo.

Over 2010 DGM operated in Australia, India and South East Asia, soft-launching in China towards the end of the first half of the year.  During the period DGM worked with advertisers such as Dell, Apple, Citibank, Vodafone, CNN, HSBC and American Express.

DGM is the largest part of Group sales representing 80% of continuing revenues in 2010 (2009: 76%) and retained 40 people or 80% of operational staff through 2010 (2009: 30 people and 77% of operational staff).

AKTIV is a digital advertising sales house that represents media owners, selling their advertising space to global agencies, and offering its customers administrative and commercial economies of scale.    

Over 2010 AKTIV operated predominantly in South East Asia, with some resources also in Hong Kong.  During the period we ran campaigns for advertisers such as Emirates, Millennium & Copthorne, Malaysian Airlines, Nike and Nokia.

AKTIV represented 20% of continuing revenues in 2010 (2009: 24%) and retained 10 people or 20% of operational staff through 2010 (2009: 9 people and 23% of operational staff).

In addition to the above businesses we started the year with a third business unit, Deploy.  This was never a material part of our sales mix and was discontinued in the year due to inconsistent delivery.

Review of Trading

Our performance has been materially and positively impacted by the sale of our DGM business in Australia in October 2010. This produced a one-off profit on the sale of £3.40 million, and Group profit before tax of £1.40 million (2009: £2.55 million loss) for the year including discontinued operations.

Our continuing operation, dominated by South East Asia and India showed no material change in sales or gross profitability for 2010, delivering sales of £6.10 million (2009: £6.16 million) and gross profit of £1.79 million (2009: £1.74 million).  The Group's margins increased slightly to 29%, up from 28% in 2009.

For the year as a whole, South East Asia produced a marginally positive result however the second half of the year saw a deterioration in delivery.

A number of operational changes were made in order to reverse this trend.  For the DGM business we appointed a new Managing Director in December and his appointment is already having a positive impact on results.

The AKTIV business, however, has not delivered the expected upturn in trade and the Board is currently considering the options for this business going forward.

Our Indian DGM operation delivered a consistent contribution throughout the period, showing a marginal improvement over the previous year. However, deterioration in debtor days has led to our policy of fully providing for all debts over 90 days being triggered. The Group has therefore made a further provision of £65,000 (2009: £27,000).

Our operation in China through 2010 was embryonic, in effect a soft launch, servicing Dell, our launch client with an average headcount of less than three people. The team was supported by back office functions in Singapore and our CEO who relocated to Shanghai in September 2010. We have spent time building relationships with performance based media partners and planning our launch strategy to accommodate the nuances of the local market.

Overheads in China have therefore been kept to a minimum and have all been expensed in the period, amounting to £0.11 million (2009: £Nil).  As a result reported administration expenses for the Group rose by 4% to £4.14 million (2009:  £3.98 million).

The net result is that our operational loss from continuing operations has been reduced to £2.69 million (2009: £2.85 million).  

The administration costs above include the costs of resource retained centrally to service the various business units that we operated in the period. This included the Australian business that we serviced for the majority of the year. After the sale of Australia we performed a cost review. The resultant initiatives, along with the announced reduction in salaries for directors, are expected to deliver annualised cost savings of over £0.8 million.

Working Capital

The disposal of our Australian business reversed net current liabilities of £1.9 million at 31 December 2009 to £0.03 million net current assets at 31 December 2010.  This is after repaying our convertible loan notes, with accumulated interest amounting to a cash payment of £617,534.  This repayment eliminated an annual interest charge of £75,000. 

We therefore ended the year debt free, with the exception of normal trading liabilities, with a cash balance of £538,225 as at 31 December 2010.

Since the disposal of the Australian operations the Group has been loss making. Such trading losses have been funded by the consideration from the disposal and leave the business with a cash balance of £165,000 as at 31 March 2011.  

We anticipate receipt of an additional gross cash amount of £657,188 (based on year end exchange rate) in deferred consideration on the disposal over two equal tranches, one in April 2011 and one in November 2011. The deferred payments are conditional on the execution of an insurance policy in favour of the acquirer to cover any Australian corporation tax exposure.

All support work has now been completed to facilitate this policy and we have been advised by our retained insurance broker to expect the policy to be in place in mid to late April, making the final payments unconditional. We therefore expect to receive £179,043 net from the first instalment by the end of April after the costs of the insurance policy, and other deferred transaction expenses are settled. Should there be any delays in this payment we would have a working capital deficit.

The net cash expected from the final deferred consideration payment due in November is £278,594.

We still retain a lease on a property in London that we have to service. We are pleased to report that within March 2011 we have sublet the largest of three units on a short-term basis and are confident that this will convert to a longer-term arrangement. We will continue to look to sublet the remaining space.  As at year end, the provision relating to outstanding commitments on these premises was £415,000 (2009: £517,000).

The Board believes that with the receipt of the deferred consideration, the expected growth in China and the material cost savings made, the Group has sufficient working capital to get back into profit. However, it acknowledges that should there be any delay in the receipt of the deferred consideration the Group may need to raise further capital. In addition, there are opportunities to expedite evolution in China for which the Company may, in any event, seek to raise additional funding.

Prospects and Strategy

The Board is of the opinion that China represents the largest opportunity for our Group to deliver material shareholder value. Though we expect our operations in South East Asia and India to deliver growth, and increasing profits, it is our expectation of a successful operation in China that will increasingly dominate our trading results as we progress through the current period and beyond.

The current and potential future growth in the number of internet users and digital advertising spend in China is exciting; however for the Group to deliver growth and profitability we must operate in a space that is relevant to our core skills, provide a service that is in demand and where the state of the supply chain presents us with an opportunity.

We believe that in China we have all three.

In their July 2010 report "China's Digital Generation 2.0" the Boston Consulting Group suggested that "To many multinationals, digital China is the mother of all untapped markets" citing the rise of e-commerce as the biggest trend shift in China. 3% of Chinese population shopped online in 2006, up to 8% in 2010 and expected to rise to 19% by 2012. The conclusion of the BCG research was that China is destined to be the world's most strategic e-commerce market.

This market is already material with reported levels of e-commerce of $39.3 billion in 2009 that rose 97% to $78 billion in 2010 (China E-Commerce Market Statistical Report January 2011).

Our core offering since launch in 1999 has been the DGM business, focused on delivering online sales for global brands. Whether it has been via affiliate marketing, search engine marketing or soaking up remnant inventory, our clients' objectives have been dominated by the generation of e-commerce.

The Chinese market is at a similar early stage in terms of supplier chain evolution to when we launched in the UK, Australia and in India yet the digital advertising spend and e-commerce levels are already much higher. The complexities of operating in China are undeniable; however if one can overcome these barriers of entry they provide a degree of protection against further competition.

Our cautious approach in China through 2010 has allowed us to better study the market and prepare for a superior launch. In 2011 we have increased our headcount, launched a second client and are ready to more fully engage with the market moving forward. We have a pipeline of global brands from which we hope to launch more clients over the coming months.

We believe that we have a major opportunity to apply our skills and experience to the Chinese market to deliver a positive contribution which, along with growing contributions from our existing operations and a materially reduced central cost base, we expect to take the Group back into profit.

Furthermore we believe that China can spearhead a successful regional customer acquisition offering and that this could drive more revenues through our more established operations in South East Asia and India.

As stated above we are considering the options for the AKTIV business. The Board notes that any decision to terminate would have a positive impact on our immediate results and support a return to profitable trading. This is based on AKTIV's delivery in 2010 and the first quarter of 2011.

Generally the Board believes that our delivery in the current financial year will be a better indication of the Group's potential than 2010 results. 

The Board would like to express its gratitude to the shareholders and staff who have supported us through the period, and we would like to emphasise our commitment to delivering shareholder value over the coming period.

David Lees

Chairman

4 April 2011

Consolidated income statement

For the year ended 31 December 2010

			Restated
		2010	2009
	Notes	£'000	£'000
Continuing operations
Revenue	2	6,104	6,164
Cost of sales		(4,310)	(4,424)
Gross profit		1,794	1,740
Administrative expenses
- amortisation		-	(404)
- depreciation		(76)	(51)
- share-based payments		(269)	(150)
- other administrative expenses		(4,135)	(3,984)
		(4,480)	(4,589)
Loss from operations	3	(2,686)	(2,849)
Interest received		-	-
Interest payable		(73)	(53)
Share of profit / (loss) of associates		-	(135)
Loss before tax		(2,759)	(3,037)
Income tax		42	(27)
Total loss after taxation from continuing operations		(2,717)	(3,064)
Discontinued operations
Profit before tax from discontinued operations		766	490
Profit on disposal of subsidiary		3,397	-
Income tax		27	-
Profit after tax from discontinued operations		4,190	490
Total profit / (loss)		1,473	(2,574)
Attributable to:
Equity holders of the parent		1,473	(2,574)
Earnings per share
Basic and diluted earnings / (loss) per share		0.19p	(0.36p)
Basic and diluted loss per share from continuing operations		(0.35p)	(0.43p)
Basic and diluted earnings per share from discontinued operations		0.55p	0.07p

Consolidated statement of comprehensive Income

For the year ended 31 December 2010

		2010	2009
		£'000	£'000
Profit / (loss) for the year		1,473	(2,574)
Other comprehensive income
Exchange differences on translation of foreign operations:
Gains/(losses) recognised during the year		102	(145)
Reclassification adjustment on disposal		378	-
Total comprehensive income for the year		1,953	(2,719)
Attributable to:
Equity holders of the parent		1,953	(2,719)

Consolidated balance sheet

As at 31 December 2010

		2010	2009
	Notes	£'000	£'000
Assets
Non-current assets
Intangible assets		-	-
Investment in associates		-	-
Property, plant and equipment		34	126
		34	126
Current assets
Trade and other receivables		3,112	5,572
Cash and cash equivalents		538	1,617
		3,650	7,189
Total assets	2	3,684	7,315
Equity and liabilities
Equity
Called up share capital		4,852	4,792
Capital redemption reserve		13,188	13,188
Share-based payment reserve		1,155	1,033
Share premium account		23,792	23,703
Translation reserve		(135)	(615)
Retained earnings		(42,761)	(44,234)
Total equity		91	(2,133)
Current liabilities
Trade and other payables		3,138	8,317
Borrowings		-	546
Onerous lease provisions		215	183
Corporation tax		16	68
		3,369	9,114
Non-current liabilities
Onerous lease provisions		224	334
Total liabilities	2	3,593	9,448
Total equity and liabilities		3,684	7,315

Company registration number 03904195

These financial statements were approved by the Board, authorised for issue and signed on their behalf on 4 April 2011 by:

Adrian Moss

Chief Executive Officer

Consolidated cash flow statement

For the year ended 31 December 2010

		2010	2009
		£'000	£'000
Operating activities
Loss after tax		(2,717)	(3,064)
Depreciation		76	52
Amortisation		-	404
Share-based payment		269	150
Decrease / (increase) in receivables		(114)	(666)
(Decrease) / increase in payables		(181)	915
Foreign exchange differences		114	(137)
Finance expense		73	52
Share of profit / loss from associated undertakings		-	135
Loss on disposal of property, plant and equipment		-	2
Tax (credit) / charge		(42)	27
Cash flow from operating activities in continuing operations		(2,522)	(2,130)
Cash flow from operating activities in discontinued operations		921	1,578
Total cash flow from operating activities		(1,601)	(552)
Investing activities
Purchase of property, plant and equipment		(35)	(29)
Consideration for disposal of subsidiary (net of cash disposed)		1,395	-
Interest received		-	4
Cash flow from investing activities in continuing operations		1,360	(25)
Cash flow from investing activities in discontinued operations		(18)	-
Total cash flow from investing activities		1,342	(25)
Financing activities
Issue of ordinary share capital		-	255
Share premium on the issue of ordinary share		-	1,020
Issue of convertible loan notes		-	500
Repayment of convertible loan notes		(500)	-
Interest paid		(118)	(109)
Cash flow from financing activities in continuing operations		(618)	1,666
Cash flow from financing activities in discontinued operations		(272)	-
Total cash flow from financing activities		(890)	1,666
Net increase/(decrease) in cash and cash equivalents		(1,149)	1,089
Cash and cash equivalents at start of period		1,617	528
Exchange differences on cash and cash equivalent		70	-
Cash and cash equivalents at end of period		538	1,617
Cash and cash equivalents comprise:
Cash and cash in bank		517	1572
Time deposits		21	45
Cash and cash equivalents at end of period		538	1,617

Consolidated statement of changes in equity

For the year ended 31 December 2010

			Capital	Share-based
	Share	Share	redemption	payment	Translation	Retained	Total
	capital	premium	reserve	reserve	reserve	earnings	equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2010	4,792	23,703	13,188	1,033	(615)	(44,234)	(2,133)
Share options issued in share-based payments	-	-	-	122	-	-	122
Issue of share capital	60	89	-	-	-	-	149
Transactions with owners	60	89	-	122	-	-	271
Profit for the year	-	-	-	-	-	1,473	1,473
Other comprehensive income:
Historical exchange differences on translation	-	-	-	-	378	-	378
Exchange difference on translation of foreign operations	-	-	-	-	102	-	102
Total comprehensive income for the year	-	-	-	-	480	1,473	1,953
Balance at 31 December 2010	4,852	23,792	13,188	1,155	(135)	(42,761)	91
Balance at 1 January 2009	4,537	22,683	13,188	883	(470)	(41,660)	(839)
Share options issued in share-based payments	-	-	-	150	-	-	150
Issue of share capital	255	1,020	-	-	-	-	1,275
Transactions with owners	255	1,020	-	150	-	-	1,425
Loss for the year	-	-	-	-	-	(2,574)	(2,574)
Other comprehensive income:
Historical exchange differences on translation	-	-	-	-	-	-	-
Exchange difference on translation of foreign operations	-	-	-	-	(145)	-	(145)
Total comprehensive income for the year	-	-	-	-	(145)	(2,574)	(2,719)
Balance at 31 December 2009	4,792	23,703	13,188	1,033	(615)	(44,234)	(2,133)

Notes to the financial information

For the year ended 31 December 2010

1          Publication of non-statutory accounts

The financial information set out in this announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 2006.

The financial information for the year ended 31 December 2010 has been extracted from the Group's financial statements to that date which have been prepared in accordance with IFRS as adopted in the EU and which have received an unmodified auditor's report but have not yet been delivered to the Registrar of Companies. 

2          Revenue and segmental information

The Group is principally engaged in the provision of online marketing services. Revenue is attributable to the principal activity, which is mainly carried out in China, India and South East Asia. In addition to these geographical segments, management also considers the business from an operating segment perspective.

The main operating segments are DGM and AKTIV. The other operating segments do not meet the quantitative thresholds required by IFRS 8 to be reported as separate segments.

The DGM segment is a specialist online marketing operation focusing on the delivery of customers to advertisers through search engine marketing, affiliate and display advertising, servicing both agencies and direct clients.

The AKTIV segment is an advertising sales network working with digital media owners to monetise their inventory of advertising slots

(banners, emails, SMS) through an in-house team selling to both agencies representing advertisers and direct advertisers.

An analysis of revenue and segment result by geography and operating segment is shown below:

	China		*India		SE Asia			**Other		***Operating central Costs	****Holding company costs	Total
Year ended 31 December 2010	£'000		£'000		£'000			£'000		£'000	£'000	£'000
External revenue
All operations (£'000)
DGM	456		1,816		2,632			14,433		-	-	19,337
AKTIV	-		-		1,200			-		-	-	1,200
Other	-		-		158			-		-	-	158
	456		1,816		3,990			14,433		-	-	20,695
Discontinued operations (£'000)
DGM	-		-		-			(14,433)		-	-	(14,433)
AKTIV	-		-		-			-		-	-	-
Other	-		-		(158)			-		-	-	(158)
	-		-		(158)			(14,433)		-	-	(14,591)
Continuing operations (£'000)
DGM	456		1,816		2,632			-		-	-	4,904
AKTIV	-		-		1,200			-		-	-	1,200
Other	-		-		-			-		-	-	-
Continuing operations (£'000)	456		1,816		3,832			-		-	-	6,104
Continuing operations (%)	7%		30%		63%			-		-	-	100%
Segment result
DGM	(73)		21		(74)			788		(621)	-	41
AKTIV	-		-		93			-		-	-	93
Other	-		-		23			(104)		-	(1,628)	(1,709)
	(73)		21		42			684		(621)	(1,628)	(1,575)
Amortisation												-
Depreciation												(76)
Share-based payment												(269)
Interest												(73)
Profit on disposal of subsidiary												3,397
Tax												69
Total profit for the year												1,473
Segmental assets (£'000)	498		916		1,129			-		-	1,141	3,684
Segmental liabilities (£'000)	439		728		887			-		-	1,539	3,593
Major customers+	1		1		5			1		-	-	-
Revenue from major customers (£'000)	456		258		1,386			6,968		-	-	-

+Number of customers generating more than 10% of segment revenue

*Included in India segment result is a £65,000 provision for bad debts.

** 'Other' segment result relates to the Group's Australian operation which was disposed during the year.

***Included in 'Operating central costs' are provisions relating to the decommissioning of the Group's legacy affiliate tracking technology (£95,000) and staff reorganisation costs (£21,000) 

**** Included in 'Holding company costs' are non-recurring staff reorganisation costs (£48,000), leasehold provisions relating to the Group's premises in London (£81,000) and other non-recurring provisions (£167,000)

	China		India		SE Asia			*Other		Operating central Costs	**Holding company costs	Total
Year ended 31 December 2009	£'000		£'000		£'000			£'000		£'000	£'000	£'000
External revenue
All operations (£'000)
DGM	-		1,401		3,297			12,437		-	-	17,135
AKTIV	-		-		1,466			-		-	-	1,466
Other	-		-		272			64		-	-	336
	-		1,401		5,035			12,501		-	-	18,937
Discontinued operations (£'000)
DGM	-		-		-			(12,437)		-	-	(12,437)
AKTIV	-		-		-			-		-	-	-
Other	-		-		(272)			(64)		-	-	(336)
	-		-		(272)			(12,501)		-	-	(12,773)
Continuing operations (£'000)
DGM	-		1,401		3,297			-		-	-	4,698
AKTIV	-		-		1,466			-		-	-	1,466
Other	-		-		-			-		-	-	-
Continuing operations (£'000)	-		1,401		4,763			-		-	-	6,164
Continuing operations (%)	-		23%		77%			-		-	-	100%
Segment result
DGM	-		71		(16)			815		(697)	-	173
AKTIV	-		-		286			-		(203)	-	83
Other	-		-		(146)			(528)		(24)	(1,220)	(1,918)
	-		71		124			287		(924)	(1,220)	(1,662)
Amortisation												(404)
Depreciation												(91)
Share-based payment												(150)
Interest												(105)
Share of loss of associates												(135)
Profit on disposal of subsidiary												-
Tax												(27)
Total loss for the year												(2,574)
Segmental assets (£'000)	-		719		2,044			4,209		-	343	7,315
Segmental liabilities (£'000)	-		536		1,945			5,413		-	1,554	9,448
Major customers+	-		1		4			2		-	-	-
Revenue from major customers (£'000)	-		322		2,989			5,849		-	-	-

Segmental information for 2009 has been restated. 

+Number of customers generating more than 10% of segment revenue

*Included in 'Other' segment result is a positive contribution from the Group's former Australian operation (£815,000), and £382,000 in non-recurring senior management settlement cost.

**Included in 'Holding company costs' is £79,000 in placing costs.

3          Loss from operations

Loss from operations is stated after charging:

	2010	2009
	£'000	£'000
Amortisation of intangible assets	-	404
Depreciation of property, plant and equipment	76	91
Auditor's remuneration for auditing of accounts	65	76
Auditor's remuneration for non-audit services*	19	32
Operating lease rentals	276	244
Lease commitment provision	81	-
Share-based payment costs	269	150

*Auditor's remuneration for non-audit services comprised other services relating to taxation of £65,463 (2009: £32,389) and all other services £Nil (2009: £Nil).

Copies of the financial statements will be sent to shareholders in due course and will be available from the Company's registered office at 19 Cavendish Square, London, W1A 2AW. 

- End -

 

END

 

 

FR UGURACUPGGMC