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Tornado Group PLC (WTV)

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Thursday 20 September, 2001

Tornado Group PLC

Interim Results

Tornado Group PLC
20 September 2001


For Immediate Release                                         20 September 2001

                              Tornado Group PLC
            Interim Results for the six months ended 30 June 2001

Tornado Group PLC, Europe's leading business-to-business Digital Service
Provider, announces its interim results for the six months ended 30 June 2001.

Highlights

  * Deals with music & games content owners continue apace: signed up in
    period under review were Empire Interactive, Novalogic, V2 Records, BMG     
    Entertainment, Virgin Interactive

  * First retail deal signed for music and games downloads with VShops

  * Management strengthened with appointment of Lord Waheed Alli to board in
    non-executive capacity

  * Initiation of revenues - anticipated to be modest for full year

  * Pre-tax loss reduced by 6% to £3.6 million compared to 2nd half of 2000
    (full year loss 2000: £5.8 million) - in line with expectations

  * Monthly cash burn reduced

  * Cash balance at 30 June 2001 : £4.4 million (£7.6 million at 31.12.00)

  * Since end of period under review:
      - Bol.com signed up to sell digital games - first such UK deal whereby
        online retailer to offer digital downloadable games direct to consumer
      - Cable & Wireless, the global telecommunications group, announced a
        three-year global managed hosting contract with Tornado
      - £1.0 million raised from sale of equipment under service deal with
        Cable & Wireless
      - Successful placing to raise £3.7 million completed September 2001

Commenting on the results, Peter Donnelly, Chairman of Tornado, said:

'The vision of the Company is to be the world's leading business-to-business
distributor of digital media and related services.  With the core distribution
system in place and now operating in a live environment the capability of
Tornado's offering is being tested and proven commercially and the Company is
one step closer to its intended goal.

In the entertainment sector the key tie-ups with retailers will now enable
Tornado's platform to be utilised in consumer driven businesses.  Whilst
initial volumes may be small the capability and versatility of the Tornado
System is a key factor in enabling the growth of new business opportunities
and helping to make the consumer experience as enjoyable as possible.  We are
continuing to explore opportunities in other product markets and indeed
outside the entertainment sector and hope that we will be able to make further
announcements in this regard in the near future.  The private placing puts
Tornado on a strong financial footing for the foreseeable future and with the
prospects of short and medium term revenue growth, I look forward to reporting
further progress at the year-end.'



For further information, please contact:
Tornado                                          On 20.09.01: +44 (0) 7466 5000
Ian Watson, Managing Director                 Thereafter:  +44 (0) 1628 498 600
Gareth Roblin, Finance Director

Buchanan Communications                              Tel:  +44 (0) 207 466 5000
Tim Anderson / Suzanne Dunne

Chairman's Statement

Overview

Tornado Group PLC was founded in 1999 and floated on AIM in March 2000.
Tornado's core services provide the owners of digital media with a secure
infrastructure, the Tornado Digital Media Distribution System ('DMDS'), within
which to securely store and distribute their digital assets on a global scale
and where appropriate to enable retailers to sell and deliver such products to
the end user.  In addition, Tornado's application services provide software
solutions, such as our Intellectual Property Management System ('IPMS'),
coupled to the DMDS to support and enable business customers to migrate their
existing physical distribution processes into a secure digital environment
where efficiencies as to time, effort and cost can be more easily achieved.

The first half of 2001 has been an important period for Tornado.  I believe we
have made considerable progress in the period under review as we continue to
build upon the foundation created in Tornado's first year of operation.  This
progress has taken the Company into revenue generation as the Company has
developed and commenced the sale of applications to customers.  These
applications offer a source of short, medium and long term revenue, whilst
enhancing customer relationships.  These revenues are at an early stage and in
most instances modest, however they give an indication of the potential of
Tornado's offerings and the developing market for our products.  The core
distribution model is more dependent upon wider consumer take up of digital
services and as such may have a revenue profile more skewed to the medium to
long term, although opportunities under review with subscription based models
may accelerate consumer adoption of these digital services.  With this product
portfolio now in place and with further products being developed we are in a
strong position to move ahead to grow the business and take Tornado into the
next phase of its development.

Trading Review

In our Annual Report we set certain targets which we hoped would be achieved
during 2001.  First, we recognised the importance of integration with retail
partners. Second, we anticipated that we would sign further deals with content
owners in music and interactive games.  Third, we anticipated that we would be
looking at options to enhance our scaleable storage capability and the
resilience of our system.  Fourth, we aimed to commence the generation of
income in the second quarter of 2001.

In response to these targets;

(i)               we have announced deals with retail partners such as World
OnLine, bol.com and Vshops for the distribution of digital entertainment media
including music and interactive games.  Looking forward, we hope to capitalise
on a number of negotiations we are currently involved in with major retail
players both in the UK and the rest of Europe and look to widen the range of
content to include other forms of entertainment media, such as audiobooks.
This will provide a significant foundation with major retailers both on and
off-line;

(ii)             we have entered into further relationships with content
owners in music and interactive games. The combined effect of these deals puts
Tornado in an extremely strong position to capitalise on growth in the market
for the digital distribution of entertainment products and further enhances
our position as an aggregator of entertainment content;

(iii)           our recently announced deal with Cable & Wireless will provide
Tornado with a robust, highly secure and fully managed platform for our system
architecture. This also gives the Tornado System tier one internet
connectivity ensuring fast, reliable transfer of data and providing the global
capability and additional resilience necessary for Tornado to meet the growing
business and consumer demand for digital downloading; and

(iv)            finally, I am pleased to announce that we have been able to
generate some revenue, albeit modest, within the timescales set and with the
new arrangements now in place with our partners and customers the
commercialisation of our products is now well under way.  The timing of
revenue generation has been an area of uncertainty for Tornado and in this
respect we have developed products and applications, such as IPMS, which can
provide a more immediate revenue stream.  IPMS allows the digital distribution
of an owner's intellectual property in a protected format to a pre-defined
closed user group, with an enhanced on-line management information system
reporting on feedback and usage.  Sales of IPMS commenced subsequent to the
period under review and in addition trials of IPMS are also under way with a
major record company with the aim of commercialising the product for use
across a number of environments within its global structure.  In addition to
the above a number of promotions have been run using the Tornado System, which
have generated modest revenues in August and September and which will be built
upon for the rest of this year and beyond.

Revenues from digital distribution into consumer environments from Tornado's
core distribution system are expected to commence in the fourth quarter of
2001 when integration with retail partners such as bol.com and Vshops is
complete.  Whilst revenues are not expected to be significant in 2001 the
potential for growth in 2002 and beyond is substantial.  We are also actively
pursuing opportunities to use our core distribution system to support
subscription models.  The successful launch of such models has the potential,
in our opinion, to lead to the generation of significant revenues in the short
to medium term.

In addition to the above achievements we are also continuing to make inroads
in the field of digital image distribution and are currently considering a
number of arrangements that we hope will provide positive opportunities for us
in the near future.  As part of the arrangements with Cable & Wireless, we are
pleased to report that Cable & Wireless have identified us as a key partner in
the entertainment sector.  This will enable Tornado's products to be
introduced to Cable & Wireless' customers as part of their commercial
offerings.

Financial Review

The 6 month period to 30 June 2001 shows a decrease in Tornado's cost base
compared to the previous 6 month period.  This reflects the shift in the
Company's emphasis from development of the core distribution system to
production.  Tornado's development efforts peaked at the end of 2000 with
corresponding costs peaking in November and December.  Since then costs have
been reduced, principally due to a reduction in the number of contractors
being employed in the business, with the monthly cash burn also being reduced
as a result.

At the end of June, Tornado had £4,054,400 in liquid funds available and no
borrowings.  Since that date Tornado has agreed the sale of certain fixed
assets for £1,050,000 as part of a deal for a fully managed service with Cable
& Wireless.  The proceeds from this transaction have not been included in the
accounts for the 6 months to June 2001.

Tornado has also announced plans to raise further capital by way of a private
placing with a limited number of institutional investors.  The capital raised
will be in the region of £3.7 million, after expenses.  The funds will be used
to consolidate Tornado's current market position and, where appropriate,
accelerate entry into new markets, extend the capability of the Tornado System
beyond current budgeted levels, target consolidation in the digital
marketplace and to offer a degree of protection against delays in the timing
of revenue generation.  The placing has been approved at the EGM held on 18
September 2001 and admission of the new ordinary shares to AIM is expected to
occur on 20 September 2001.

Management and Staff

I am pleased to confirm the appointment of Lord Alli to the Tornado Board as a
Non-Executive Director on 16 February 2001.  Lord Alli's considerable
experience and knowledge of the media industry worldwide is a valuable asset
to the Company and has further enhanced the strengths of the Board.

As previously reported John Kinnear effected his resignation as a
Non-Executive Director on 31 August 2001.

I would again like to take this opportunity of thanking all of Tornado's staff
for their continuing commitment and hard work in enabling Tornado to reach its
current strong position. It is intended that in order to continue to motivate
key staff members, options over shares comprising less than 0.75 per cent of
the share capital which have been granted to employees, excluding directors,
will be re-priced in the near future.

Outlook

The vision of the Company is to be the world's leading business-to-business
distributor of digital media and related services.  With the core distribution
system in place and now operating in a live environment the capability of
Tornado's offering is being tested and proven commercially and the Company is
one step closer to its intended goal.

In the entertainment sector the key tie-ups with retailers will now enable
Tornado's platform to be utilised in consumer driven businesses.  Whilst
initial volumes may be small, the capability and versatility of the Tornado
System is a key factor in enabling the growth of new business opportunities
and helping to make the consumer experience as enjoyable as possible.  We are
continuing to explore opportunities in other product markets and indeed
outside the entertainment sector and hope that we will be able to make further
announcements in this regard in the near future.  The private placing puts
Tornado on a strong financial footing for the foreseeable future and with the
prospects of short and medium term revenue growth, I look forward to reporting
further progress at the year-end.

Peter Donnelly
Chairman

19 September 2001

Group Profit and Loss Account

                                          Unaudited     Unaudited       Audited
                                            6 month       7 month      13 month
                                       period ended  period ended  period ended
                                       30 June 2001  30 June 2000   31 December
                                                                           2000

                                Notes         £'000         £'000         £'000

Turnover                          2            26.2             -             -

Operating costs                           (3,840.6)     (2,170.3)     (6,316.7)

Operating loss                    2       (3,814.4)     (2,170.3)     (6,316.7)

Interest receivable                           172.4         250.6         512.5

Loss on ordinary activities               (3,642.0)     (1,919.7)     (5,804.2)
before tax

Tax on result on ordinary                         -             -       (130.0)
activities

Loss on ordinary activities               (3,642.0)     (1,919.7)     (5,934.2)
after tax

Equity minority interest                       21.4             -          25.9

Loss for the financial period             (3,620.6)     (1,919.7)     (5,908.3)

Dividends                                         -             -             -

Retained loss for the financial           (3,620.6)     (1,919.7)     (5,908.3)
period


Loss per share

Basic                             3          (8.8p)        (7.1p)       (17.5p)

Diluted                           3          (8.8p)        (7.1p)       (17.5p)


There were no material recognised gains or losses, other than those shown in
the profit and loss account.

All amounts relate to continuing activities.


Group Balance Sheet


                                                Unaudited   Unaudited   Audited
                                                    as at       as at     as at
                                                  30 June     30 June        31
                                                     2001        2000  December
                                                                           2000

                                        Notes       £'000       £'000     £'000

Fixed Assets

Tangible assets                                   2,380.1     2,985.0   2,848.6

                                                  2,380.1     2,985.0   2,848.6

Current Assets

Debtors                                             458.7     1,451.3     370.7

Cash at bank and in hand                          4,363.4     9,858.1   7,660.6

                                                  4,822.1    11,309.4   8,031.3

Creditors: amounts falling due within
one year

Other creditors                                   (759.6)     (328.9)   (795.3)

Net current assets                                4,062.5    10,980.5   7,236.0

Net assets                                        6,442.6    13,965.5  10,084.6


Capital and Reserves

Called up share capital                          10,250.1    10,228.1  10,250.1

Share premium account                            12,203.4    12,093.4  12,203.4

Other reserves                                  (7,044.9)   (7,044.9) (7,044.9)


Profit and loss account                   5     (8,920.3)   (1,311.1) (5,299.7)


Equity shareholders' funds                4       6,488.3    13,965.5  10,108.9


Equity minority interests                          (47.1)           -    (25.7)

Non-equity minority interests                         1.4           -       1.4

Capital Employed                                  6,442.6    13,965.5  10,084.6



Group Cash Flow Statement

                                           Unaudited    Unaudited       Audited
                                             6 month      7 month      13 month
                                        Period ended Period ended  Period ended
                                        30 June 2001 30 June 2000   31 December
                                                                           2000

                                  Notes        £'000        £'000         £'000

Net cash outflow from operating            (3,345.6)    (2,444.0)     (4,727.5)
activities

Returns on investments and
servicing of finance

Interest received                              172.4        212.1         512.5

Capital expenditure and financial
investment

Purchase of tangible fixed assets            (124.0)     (3,186.6)     (3,533.0)
                                                       
Cash outflow before use of liquid          (3,297.2)    (5,418.5)     (7,748.0)
resources and financing

Management of liquid resources

Cash placed on deposit *                           -    (9,400.0)             -

Financing - issue of ordinary                      -     15,276.6      15,408.6
shares

Total cash (outflow)/inflow in             (3,297.2)        458.1       7,660.6
period


* Tornado Group PLC includes as liquid resources term deposits, all maturing
within one month.

Notes to the Group Cash Flow Statement


                                          Unaudited     Unaudited       Audited
                                            6 month       7 month      13 month
                                       Period ended  Period ended  Period ended
                                       30 June 2001  30 June 2000   31 December
                                                                           2000

Reconciliation of operating loss to
net cash outflow from
operating activities
                                              £'000         £'000         £'000

Operating loss                            (3,814.4)     (2,170.3)     (6,316.7)

Depreciation charges                          592.5         201.6         684.4

UITF 17 stock option charge                       -         608.6         608.6

(Decrease)/Increase in working              (123.7)      (1,083.9)        296.2
capital                                                 

Net cash outflow from operating           (3,345.6)      (2,444.0)     (4,727.5)
activities                                              





Reconciliation of net cash flow to movement
in net funds
                                                    £'000         £'000   £'000

(Decrease)/Increase in cash in the period       (3,297.2)         458.1 7,660.6


Cash flow from increase in liquid resources             -       9,400.0       -
                                                                

Movement in net funds in the period             (3,297.2)       9,858.1 7,660.6
                                                                

Net funds at beginning of the period              7,660.6             -       -


Net funds at end of the period                    4,363.4       9,858.1 7,660.6



Notes to the Interim Report

 1. Basis of preparation

The interim statement, which is unaudited, complies with relevant accounting
standards.  The accounting policies have been applied on a basis consistent
with those applied in the 2000 Annual Report and Financial Statements, which
were prepared in accordance with accounting principles generally accepted in
the United Kingdom.

The abridged information for the 13 months to 31 December 2000 has been
extracted from the Group's statutory accounts for that period which have been
filed with the Registrar of Companies.  The auditor's report on the statutory
accounts of the Group for that period was unqualified and did not contain a
statement under either Section 237 (2) or (3) of the Companies Act 1985.

Copies of the 2000 Annual Report and Financial Statements are available from
the Company Secretary, Tornado Group PLC, Carmelite, 50 Victoria Embankment,
EC4Y 0DX.

This interim statement was approved by the Board on 19 September 2001.

 2. Turnover and operating result

Turnover resulted from the Group's sole class of business, digital media
distribution, during the period under review.

 3. Loss per share

Basic loss per share is based on the loss on ordinary activities after
taxation and the weighted average number of 25p ordinary shares in issue
during the period under review of 41,000,480.

The options outstanding at the end of the period do not have a dilutive effect
on the loss per share.

 4. Reconciliation of movements in equity shareholders' funds

                                     Unaudited       Unaudited          Audited
                                6 month Period  7 month Period  13 month Period
                                         ended           ended            ended
                                  30 June 2001    30 June 2000      31 December
                                                                           2000

                                         £'000           £'000            £'000

Opening equity                        10,108.9               -                -
shareholders' funds

Retained loss for the                (3,620.6)       (1,919.7)        (5,908.3)
period

Credit in respect of UITF                    -           608.6            608.6
17 charge

Issue of ordinary shares                     -        22,321.5         22,453.5
net of costs

Merger reserve adjustment                    -       (7,044.9)        (7,044.9)



Closing equity                         6,488.3        13,965.5         10,108.9
shareholders' funds



 5. Profit and loss account

                                      Unaudited       Unaudited         Audited
                                 6 month Period  7 month Period 13 month Period
                                          ended           ended           ended
                                   30 June 2001    30 June 2000     31 December
                                                                           2000
                                          £'000           £'000           £'000

Opening profit and loss               (5,299.7)               -               -
account balance

Retained loss for the period          (3,620.6)       (1,919.7)       (5,908.3)

Credit in respect of UITF 17                  -           608.6           608.6
charge


Closing profit and loss               (8,920.3)       (1,311.1)       (5,299.7)
account balance


 6. Post balance sheet events

On 30 June 2001 a subsidiary of the Company entered into an agreement with
Cable & Wireless to outsource its internet connectivity solution.  The change
from a co-location solution to a managed hosting platform has allowed the sale
of production computer equipment with a net book value of £1,068,400 as at 30
June 2001 to for consideration of £1,050,000.  Under the terms of the sale
Tornado will retain use of these assets until 30 September 2001 and as such
the disposal will be accounted for on that date in accordance with FRS 5.

On 24 August 2001 the Company announced a proposal to raise further capital by
means of a private placing.  This was approved by shareholders at an EGM held
on 18 September 2001.  The placing will raise approximately £3.7 million net
of expenses.

7.      Copies of Interim Statement

Copies of the Interim Statement will be sent to shareholders shortly and
thereafter will be available from the Company Secretary, Tornado Group PLC,
Carmelite, 50 Victoria Embankment, London, EC4Y 0DX.  Copies of this
announcement will appear on the company's web site www.tornadogroup.com.