CLP.L Regulatory News (CLP)

30 Jun 2005 17:01

Brainspark PLC30 June 2005 FOR IMMEDIATE RELEASE 30 June 2005 BRAINSPARK Plc ("Brainspark" or the "Company") Preliminary results announcement for the year ended 31 December 2004 Chairman's statement I am pleased to present the Company report for the year ended 31 December 2004. The results show a loss of £1,071,000 in the year compared to a loss of £2.9million for the financial year to 31 December 2003. The improvement in resultsarises from a combination of a continued reduction in running costs of theCompany and the sale of two portfolio companies at higher price than our bookvalue. Of the £1,071,000 loss, £1,186,000 is due our share of operating loss ofassociated undertakings (goodwill amortisation, and impairment charges to theportfolio). For the first time ever the company has achieved a positive EBITDAof £151,000.We hope that the result represents a turnaround for the Group and confirms thatthe strategy implemented so far by the Brainspark Board is heading in the rightdirection. The cost cutting measures begun in 2002, having further reduced the netoperating expenses to £33,000 per month this year, net of recovery of rent andcharges made to the cubs. In order to preserve cash resources and demonstrate their own belief inBrainspark's future, the Board resolved on 3rd June 2004 to reduce directorsfees to £5,000 per annum for 2004, with the CEO, Mr. Agosta, being the onlydirector to receive a salary. Mr Agosta's salary was set by the RemunerationCommittee at £60,000 with a £20,000 bonus payable on successful sale of twoportfolio assets. I have agreed to forgo my salary for the year, whilst DonCaldwell has waived his £5,000 fee. During 2004 Brainspark sold two of its portfolio holdings: • Smile-On, a company providing e-learning services to UK dental professionals, for a consideration of £220,000; and • The Usability Company, a company providing usability testing and consultancy services, for a consideration of £360,000. In addition, the disposal gives the Company the opportunity to exercise 15,680 options (equal to a 7.8% of the company on a fully diluted base) with an exercise price of £1.36. The options are excercisable until 15 February 2006. Originally, the investment made in these two companies was £1.2 million and thetwo holdings had a total consolidated net book value at disposal of £22,000.Theprofit against their book value amounted to £558,000. The Group's cash situation is still tight, and a cash injection through a sharecapital issue was agreed by the Board during 2004, after the par values limitbelow which the trading of Brainspark shares took place during the last 6 monthsof 2004, technically prevented the possibility to inject money at a price closeto the market price. In order to resolve this issue and enable the Company toraise money at, or above par value the Company called a shareholders' meeting on3 March 2005 which approved a one to one hundred split of existing Brainsparkshares. As a result of this a capital increase can now take place. Summary Financial Results The Group's cash reserves at 31 December 2004 stood at £28,000 compared with£68,000 at December 2003. The Group's net asset value (NAV) was £2.8 million atDecember 2004, compared with £3.8 million at December 2003. Market Environment The market environment in the IT sector remains difficult and although ourexisting portfolio companies show signs of improvement and are entering intotheir profitability phase; the ability to maximise our return on sale from ourinvestments might require Brainspark to provide further support to certain ofthe current portfolio companies over the next two years, whilst we may achieve aprofitable exit earlier in the case of others. Operational Changes The Board during 2005 will continue to focus on reducing net operating expensesto below £30,000 per month. Board Changes No Board changes took place in the Company during 2004. Investment Committee Changes No changes have been made to the Investment Committee during the year. TheCommittee is currently represented by the by Prof. Francesco Gardin, Chairman ofthe Company, Mr. David Meacher, an Independent Director, and an external advisorProf. John A. Campbell. Business Process Brainspark continues to monitor and rationalize its operational infrastructureand leverage the knowledge and market potential of the whole investmentportfolio. This is a consequence of the difficult market conditions and is a modificationof the Company's original strategy. At the outset, Brainspark's strategy was to take a role in the initial stages offinancing new business ideas. It would find and, develop businesses and thenlook to exit relatively quickly through a trade sale or flotation. Investments Review Brainspark has holdings in 8 companies, 5 in the UK, two in Italy and one inIsrael. Its stake range from nearly 5% to nearly 52% of the relevant portfoliocompanies. The portfolio covers a wide range of business sectors, including WebServices, application service providers and advanced IT solutions. All portfolio companies, but one, have managed to reach near profitability orprofitability in 2004. Among the portfolio companies positive signs are emerging basically from all ofthem although with different levels of performance but all of them are already,or about to be operating, finally, at profit. - On 24 June 2004 Brainspark sold its stake of 38.3% per cent in Smile On for £220,000. - On 6 October 2004, Brainspark sold it stake 33% per cent in Usability for £360,000 and as referred to earlier was granted options. In addition, during the year, the Group increased/decreased its holding asfollows: - In September 2004 Brainspark agreed to a capital increase in Metapack (www.metapack.co.uk), a software and services company, which specialises in the retail supply chain, retaining its percentage holding unchanged (5.89%). - From June 2004 until June 2005, the company made further investments in Geosim Systems Limited which will ultimately increase our ownership to 51%. - Brainspark's interest in Ludonet has reduced from 14.875% per cent to nil, as a result of a second capital injection from the new shareholder who injected €230,000 (£162,000) last year. The Company did not participate in the latest funding round and as a result our percentage of ownership is now down to zero. Prospects The combination of cost reduction that will arise when the three year lease atour current premises expires in March 2006, and further cost efficiencies thatthe Board is considering, together with a proposed capital injection and thesale of an important asset in our portfolio should finally put the Company, in asituation where it can attract new investors in the specific vertical marketsBrainspark has been analyzing carefully during the last year. While there is no guarantee about the successful outcome of all of the aboveactions, for the first time since the end of 2001 we can look to the future witha plan which is entering, finally, into its strategic phase, after what has beena sustained period of reorganisation. All portfolio companies plan to be profitable in 2005, whilst this representsonly a third party estimate with no guarantee of success nevertheless managementof the portfolio companies have never shown such confidence levels in the past.Again this is an indication of the quality of the portfolio and the potentialfor growth. At 31 December 2004, Brainspark's mid-market price per share of 0.47p valued theCompany at £0.9milion against a consolidated net asset value of £2.8 million.The Board believes that this is a conservative valuation of the company's futurepotential. Prof. Francesco GardinChairman Consolidated profit and loss accountFor the year ended 31 December 2004 Notes 2004 2003 £'000 £'000--------------------------- ------- ----------- ---------- Turnover - -Net operating expenses - recurring (395) (680)Net operating expenses - exceptional - (39) ------- ----------- ---------- Total net operating expenses/Group operating loss (395) (719) Share of operating loss of associated (1,186) (1,915)undertakings ------- ----------- ----------Total operating loss: Group and share ofassociated undertakings (1,581) (2,634)Profit on disposal of associated undertakings 558 - ------- ----------- ----------Loss on ordinary activities before interest (1,023) (2,634)Net interest (payable) receivable (11) 39Amounts written off investments (37) (311) ------- ----------- ----------Loss on ordinary activities before taxation (1,071) (2,906)Tax on loss on ordinary activities - - ------- ----------- ----------Loss on ordinary activities after taxation (1,071) (2,906)--------------------------- ------- ----------- ----------Retained loss for the financial year (1,071) (2,906) Loss per 1p ordinary share (0.56p) (1.55p)Basic and diluted earnings per share The loss for the year is derived wholly from continuing activities. Balance sheets at 31 December 2004 Notes Group Group Company Company 2004 2003 2004 2003 £'000 £'000 £'000 £'000-------------------------- ------- ------- ------- -------- -------- Fixed assetsTangible assets 44 80 - -Investments in subsidiaryundertakings - - 1,617 3,291Investments in associatedundertakings 1,451 2,639 - -Other investments 1,549 1,567 - - ------- ------- ------- -------- -------- 3,044 4,286 1,617 3,291 ------- ------- ------- -------- -------- Current assetsDebtors (amounts falling duewithin one year) 352 295 1,127 1,338Debtors (amounts falling dueafter more than one year) 110 - - -Cash at bank and in hand 28 68 - - ------- ------- ------- -------- -------- 490 363 1,127 1,338Creditors: amounts falling duewithin one year (includingconvertible debt) (645) (689) (364) (268) ------- ------- ------- -------- --------Net current(liabilities)/assets (155) (326) 763 1,070 ------- ------- ------- -------- --------Total assets less currentliabilities 2,889 3,960 2,380 4,361Provisions for liabilities andcharges (122) (122) - --------------------------- ------- ------- ------- -------- --------Net assets 2,767 3,838 2,380 4,361-------------------------- ------- ------- ------- -------- -------- Capital and reservesCalled up share capital 1,923 1,923 1,923 1,923Share premium account 28,562 28,562 28,562 28,562Other reserves 6,813 6,813 - -Profit and loss account(deficit) (34,531) (33,460) (28,105) (26,124)-------------------------- ------- ------- ------- -------- --------Total equity shareholders'funds 2,767 3,838 2,380 4,361-------------------------- ------- ------- ------- -------- -------- Consolidated cash flow statementFor the year ended 31 December 2004 Notes 2004 2003 £'000 £'000---------------------------- ------ ---------- ---------- Net cash outflow from operating activities (240) (967) Returns on investments and servicing of financeInterest received - 39Interest paid on 5% Convertible bond (2) ----------------------------- ------ ---------- ----------Net cash (outflow)/inflow from returns oninvestments and servicing of finance (2) 39---------------------------- ------ ---------- ---------- Capital expenditure and financial investmentPurchase of other investments - (15)Sale of other investments / own shares - 77---------------------------- ------ ---------- ----------Net cash inflow from capital expenditure andfinancial investment - 62---------------------------- ------ ---------- ---------- Acquisitions and disposalsSale of investments in associated undertakings 360 -Purchase of investments in associated undertaking (70) (165)Loans to associated undertakings (110) (15)---------------------------- ------ ---------- ----------Net cash inflow (outflow) from acquisitions and 180 (180)disposals---------------------------- ------ ---------- ----------Net cash outflow before financing (62) (1,046)---------------------------- ------ ---------- ---------- Financing5% Convertible bond issue - 50Repayment of 5% Convertible bond issue (50) -Loan from major shareholders and others 110 200Partial repayment of loan to major shareholders (38) (100)and others---------------------------- ------ ---------- ----------Net cash inflow from financing 22 150---------------------------- ------ ---------- ----------Decrease in net cash for the period (40) (896)---------------------------- ------ ---------- ---------- Reconciliation of cash flow to movement in netfundsNet cash at beginning of period 68 964Decrease in net cash in the period (40) (896)---------------------------- ------ ---------- ----------Net cash at end of period 28 68---------------------------- ------ ---------- ---------- The audited financial statements, from which the figures contained in thisstatement have been extracted, have been delivered to the Registrar of Companiesand sent to shareholders. They will be available from the Company's registeredoffice at The Lightwell, 12-16 Laystall Street, Clerkenwell, London EC1R 4PF fora period of 30 days from the date hereof. This information is provided by RNS The company news service from the London Stock Exchange