Results to 31/03/2000
NewMedia SPARK PLC
26 May 2000
NEWMEDIA SPARK PLC ('SPARK')
Preliminary Results
For the period to 31 March 2000
£33.5m Acquisition of Softtechnet.com plc
NewMedia SPARK plc ('SPARK') is pleased to announce its
Preliminary Results for the period to 31 March 2000 and the
acquisition of Softtechnet.com plc.
HIGHLIGHTS:
Results
- Maiden results show profit before taxation of £2.85m
- Aggregate valuation uplift of 400% from £4.29m to
£22.35m in first six investments to achieve external
valuation events
- Invested approximately £130m in 39 investee companies
- 27% core technology, 12% wireless companies, 23%
interactive digital TV, 20% in B2B, 7% content companies
and 11% in B2C companies
- Asset value currently 66p per share, cash balance in
excess of £20m
- Proposed bonus issue of new Spark warrants to all existing
shareholders
- Cell ICD Swedish acquisition smoothly integrated
£4m Acquisition of Softtechnet.com plc
- Indian technology and internet specialist investment
company
- Assets include over £23 million in cash and several
investments
- X new SPARK shares and 1 new SPARK warrant for every 10
Softtechnet.com shares
- Values Softtechnet.com at 24p per share
- Combined funds invested total over £145m and cash
resources of over £45m
Commenting on these events Michael Whitaker, CEO of SPARK,
said:
'SPARK is now the largest quoted Internet and early stage
technology investment company in Europe and we are extremely
pleased with our progress to date. We have put in place
significant infrastructure to enable us to manage our
extensive and expanding portfolio.
'The acquisition of Softtechnet.com gives us an additional
edge in a competitive market place, not only by
strengthening our balance sheet but also by giving us access
to investment and business co-operation opportunities in the
strategically important Indian market.
'We will continue to make investments where we perceive the
potential returns to be exceptionally high while devoting a
great deal of resource to managing and in due course
releasing, value from our now substantial portfolio. In a
consolidating market we intend to maintain our leading
position and look forward to the future with every
confidence'.
For further information, please contact:
NewMedia SPARK 020 7851 7777
Michael Whitaker, Chief Executive
Buchanan Communications
Tim Anderson / Isabel Petre 020 7466 5000
SPARK is pleased to announce unaudited pre-tax profits of
£2.85m for the period to 31st March 2000, together with a
substantial increase in asset value. Pre-tax profits arose
from realised profits and interest received during the
period, and in addition unrealised gains totaling
approximately £18m have been transferred to reserves. The
latter constitutes the re-valuation of less than 5% of our
portfolio. We have also today announced an agreed all-share
offer to acquire Softtechnet.com plc, and are also proposing
a free bonus issue to our shareholders of new quoted
warrants.
Our accounting policies are prudent. We carry investments at
cost unless an increase in the value of any particular
investment has been evidenced by flotation or external
funding, in which case the investment is carried at that
value. Conversely, our investments are written down below
cost when the directors consider there to be evidence of
impairment in value. On this conservative valuation basis,
SPARK's asset value is currently 66p per share and was 60p
per share at the end of March. SPARK currently holds cash
balances in excess of £20m.
The result of our conservative valuation policy is that our
accounts reflect gains in only the small minority of our
investments where there have been external valuation events
or sales. The aggregate valuation uplift on the £4.29m of
assets (representing six investments) which were revalued
in accordance with this policy as at 31st March was
approximately 400%, to £22.35m. The Board regards this as an
encouraging indication of our ability to achieve significant
increases in value within our portfolio.
Overall, SPARK has made substantial progress since being
launched on the AIM market in October 1999. We have invested
approximately £130m in a carefully diversified portfolio of
39 investee companies (of which six are held indirectly
through our holding in Olympic Services). These investments
include the acquisition of Cell ICD and its portfolio in
March of this year. We believe that our investment portfolio
is now the largest and highest quality of any direct
competitor, with substantial potential for further
appreciation. SPARK is now the largest quoted Internet and
early stage technology Investment Company in Europe, with
offices in London and Stockholm, and a team of over 40
people working on our investments.
The Board of SPARK believes that our underlying asset value
may now be significantly in excess of 66p per share. Under
our conservative accounting policies £129.4m of our
investments are held in our books at cost, even though
external funding discussions are currently taking place in
relation to a number of these investments which, if
successfully completed, will result in an increase in their
stated value in our accounts. Furthermore, good progress is
being made by a number of our other investee companies,
which will not be reflected in our accounts until external
valuation events occur. Partially offsetting this, it is
inevitable that over time we will have a number of declines
within our portfolio. It is also possible that if conditions
were to deteriorate further in public equity markets then
valuations in the private equity markets might be affected
more markedly than they have been to date. However, to date
the major valuation reductions in private equity markets
have been in the Internet B2C arena. In this respect we are
fortunate that the bulk of our investments are in core
technology, infrastructure, wireless, interactive
television, financial B2B and content businesses rather than
in Internet B2C businesses. This places us in a strong
position.
We are of course fully aware of present investor concerns
over the funding requirements of Internet businesses. A
number of our investee companies will indeed require further
funding during the next few months to expand their
operations. However, we are a professional early stage
venture capital organization, and arranging such further
funding rounds is a routine part of our business. Our large
investment team has considerable experience of syndicating
investments to the wider venture capital community, and we
are held in sufficient regard for them to take co-investment
proposals from us seriously. To date we have consistently
proved able to arrange further funding rounds for our
investee companies where appropriate, and we anticipate that
provided our investment proposals remain of sufficient
quality we will continue to be able to do so.
Fund raising for technology orientated venture capital funds
has in fact been at record levels throughout Europe during
the last six months, and a very substantial proportion of
these funds have yet to be invested. The majority of our
portfolio consists of early stage investments in core
technology, infrastructure, wireless, financial B2B and
content businesses. These are precisely the areas that are
now of particular investment interest to the wider venture
capital community. Thankfully, the investment environment is
much more rational than earlier in the year, and in order to
attract funding businesses must now demonstrate strong
management teams and realistic business models. We welcome
this, because these are precisely the sort of businesses we
have invested in. When choosing our investments, we have
tried to use common sense and have avoided far-fetched
business models that have little hope of making a profit on
any conventional criteria. Overall, we have invested in less
than 1% of the business proposals put to us.
We are not complacent, but our investors should be aware
that we monitor and control the cash 'burn' of our investee
companies closely. In point of fact, not all our investee
companies are burning cash - some are profitable. We do not
give bank guarantees to investee companies. We are prepared
to allow investee companies to fail if they do not meet
their objectives, rather than compound mistakes by investing
further funds. Indeed we regard some such failures as highly
likely in the normal course of our business - an inevitable
part of early stage, high-risk technology investment. The
fact that we have not yet experienced failures we ascribe
partly to luck, partly to good judgment, and partly because
it is still relatively early in our investment cycle for
failures to have become apparent.
Turning the detail of our investment strategy, we have
concentrated our investment policy to date on establishing a
diversified portfolio of substantial equity stakes in young
companies that we believe have the potential to emerge as
profitable leaders in a wide range of the Internet and
technology markets. Our current portfolio by value comprises
27% in core technology and infrastructure companies, 12% in
wireless companies, 23% in interactive digital TV, 20% in
B2B companies, 7% in content companies and 11% in B2C
companies.
In terms of specific sectors:
- We have made substantial investments in core technology
and infrastructure companies that we believe will benefit
from the growth in and technology change of the Web over the
next 2-3 years.
- We have also worked hard to establish a portfolio of
wireless investments that we believe to be of exceptionally
high quality. Such investments are hard to find due to the
shortage of real wireless expertise and the differing
characteristics of this market from the conventional
Internet.
- In the B2B arena, we have largely avoided investing in
so-called vertical business portals, as we believe that in
many areas of the B2B market the control by major
corporations of their supply chain will result in those
corporations themselves capturing the cost benefits of the
transfer of many purchasing functions to Internet platforms,
rather than allowing the growth of independent platforms.
Hence in B2B we have concentrated mainly on businesses
operating in the Finance industry, where we believe that due
to the intangible nature of financial products such as funds
and insurance, and the fragmented nature of purchasers, the
role of independent Internet platform providers is a real
and potentially highly profitable one.
- We have invested in several leading Internet content
companies because we believe that authoritative, cutting
edge, specialist content will become of increasing
importance as the Web develops across a range of different
delivery platforms.
- In the B2C area, we feel (along with many other
commentators) that business models are often deeply flawed,
because many consumer products cannot economically be sold
solely via the Web. The investments we have made in this
area have been in product areas that are particularly suited
to Web distribution. We have invested in this area only
where we have been able to invest on attractive valuations
in businesses with proven delivery, stocking and purchasing
infrastructures.
Looking to the future, we will continue to make further
investments where we perceive the potential returns to be
exceptionally high, but we are also devoting a great deal of
resource to managing and in due course releasing value from
our now substantial investment portfolio. Our personnel are
closely involved on a day-to-day basis in helping investee
companies to continually strengthen their management teams,
control costs, move rapidly to revenues and profits and
leverage synergy across our other portfolio companies and
industry contacts. We believe that several of these
companies have the potential to achieve very significant
valuations.
We are also assisting in the development of EO, an on-line e-
distribution platform for both private equity and IPOs,
where we hold a direct 5% stake and an option over a further
10%. We believe that EO could sigificantly improve our
ability to syndicate and in due course realize investments.
In sum, we remain optimistic over the future potential for
our business, notwithstanding difficult public equity market
conditions at present. We regard volatile investor sentiment
as an inevitable part of the growing pains of an emerging
industry. Over time we believe that investors will
increasingly come to terms with the high failure rates but
high potential returns of the Internet and technology
industries, and that capital will increasingly gravitate
towards companies pursuing rational, consistent and sensible
business models. We believe that the profit opportunities
for an active, well-informed early stage technology
investment organisation such as ours remain substantial.
Simultaneous with this announcement we are today announcing
an agreed all-share offer for Softtechnet.com plc, another
AIM listed Internet Investment Company. The merger of
Softtechnet with SPARK will further strengthen the enlarged
Group's balance sheet, give us access to investment and
business co-operation opportunities in the strategically
important Indian market, and will also consolidate our
position as the leading quoted technology and Internet
investment Group in the UK. We feel that a number of
recently quoted Internet investment companies are seen by
investors as lacking the organizational resources, scale and
experience necessary for successful operation in this area.
We therefore foresee further consolidation in our industry,
and intend to maintain our leadership position.
Finally, we are proposing a free bonus issue to our
shareholders of warrants to subscribe for SPARK shares at an
exercise price of 75p per share, on the basis of one warrant
for every ten ordinary shares held. The warrants will have a
three-year life and we will seek an AIM quotation for them.
Michael Whitaker
Chief Executive
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
UNAUDITED
Period from 26 July 1999 to 31 March 2000
Period
from
26
July
1999
to
31
March
2000
£'000
Profit for the financial 1,971
period
Unrealised gain on 18,064
financial fixed assets
Total recognised gains and
losses relating to the 20,035
period
CONSOLIDATED PROFIT AND LOSS ACCOUNT
UNAUDITED
Period from 26 July 1999 to 31 March 2000
Period
from
26 July
1999 to
31
March
2000
£'000
Administrative expenses (1,072)
Other operating income 126
OPERATING LOSS (946)
Exceptional profit on the 3,173
disposal of financial
fixed assets
Interest receivable and 624
similar income
Interest payable and (3)
similar charges
PROFIT ON ORDINARY 2,848
ACTIVITIES BEFORE TAXATION
Tax on profit on ordinary (898)
activities
PROFIT ON ORDINARY 1,950
ACTIVITIES AFTER TAXATION
Equity minority interests 21
Retained profit for the 1,971
financial period
CONSOLIDATED BALANCE SHEET
UNAUDITED
31 March 2000
2000
£'000
FIXED ASSETS
Tangible assets 469
Investments 151,787
CURRENT ASSETS
Debtors 2,581
Cash at bank and in hand 33,531
CREDITORS: amounts falling
due
within one year
Deferred Shares re. Cell (38,592)
ICD:
Deferred Cash re. Cell ICD (2,000)
Other Amounts: (3,239)
NET CURRENT LIABILITIES (7,719)
TOTAL ASSETS LESS CURRENT
LIABILITIES 144,537
CREDITORS: amounts falling
due after more than one (24)
year
EQUITY MINORITY INTEREST (9,693)
NET ASSETS 134,820
CAPITAL AND RESERVES
Called up share capital 5,630
Share premium 109,155
Profit and loss account 1,971
Revaluation reserve 18,064
EQUITY SHAREHOLDERS' FUNDS 134,820
Latest directors dealings
- 1 day ago Savannah Energy
- 1 day ago Buccaneer Energy PLC
- 1 day ago Savannah Energy
- 1 day ago Carclo
- 1 day ago Schroder Japan Growth Fund