Vela Technologies Regulatory News (VELA)

Asia Digital Holdings Plc

("ADH" or the "Company")

Interim Results

For the six months to 30 June 2011

Asia Digital Holdings plc (AIM: ADH.L), an independent online marketing group, today announces its interim results for the six months to 30 June 2011.

Financial Highlights:

Commenting on the results, Adrian Moss, Chief Executive, said: "The first half of 2011 has seen ADH undertake a period of rationalisation. In addition to the sale of the stake in DC Storm, ADH has worked to control costs and reduce operating losses. The Company has made progress on all of these fronts and the discontinuation of the AKTIV business was an additional step in the streamlining process.

"Now into the second half of the year, ADH is able to focus solely on its DGM business in Asia. The Company has established a strong retained client base within India and Southeast Asia and is excited about the growth opportunities within China's e-commerce market. The Company will focus its efforts on capitalising on the opportunities in this region in particular, as far as the ongoing working capital constraints will allow. The Board looks forward to updating shareholders on our progress over the coming months."

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Chief Executive's Statement

Trading Results

We are pleased to report on trading for the first six months of 2011.

The Group's continuing operations showed material improvement for the first half of 2011 against the same period in 2010 with a 40% reduced loss to £421,000 (2010: £706,000).

The drop in sales and gross profit from the first half of 2010 to 2011 is more than offset by cost savings and is also misleading as an indicator of our progress. Quarterly analysis shows a positive trend over the last three quarters for our continuing business.

Against the last quarter of 2010 the Company delivered a 4% improvement in business unit contribution in the first quarter, and a 25% improvement in the second quarter of 2011.

Cost saving measures delivered a £273,000 cost saving in the first half of 2011 mitigating the lost contribution from the Australian business by 44%.

As announced previously, within the first half of 2011 we have discontinued the AKTIV business as it had not delivered the expected upturn in trading during the first quarter of 2011.

Trading Prospects

Whilst growth prospects exist in India and Southeast Asia, the Company continues to believe the largest growth opportunity to be in China, and this is the focus of ADH's efforts.

This is supported by headline user numbers, now over 500 million (Source: CINIC 7/11), and an e-commerce space that is expected to grow from $79 billion in 2010 (Source: Analysis International 4/11) to between $159 billion (Source: Forrester 1/11) and $311 billion by 2015 (Source: Credit Suisse 1/11). The potential and importance of this market is one that global retail brands will find difficult to ignore.

We expect to see continued positive trends in India and Southeast Asia through new client acquisition and the growth of our existing client portfolio.

ADH has over 100 clients, strong client retention and limited client concentration with 36 clients representing around 80% of the Group's gross profit.

From China we have started to engage with several major UK online retailers to offer services to support their entry into the China e-commerce space and engage in the sort of performance based digital advertising solutions that we have successfully delivered elsewhere.

We must invest in China and evolve ADH's technology platform to enable the Company to assume a strong market position and leverage that position to deliver shareholder value.

Working Capital

DGM has an evolving brand presence in the region, operates a scalable business model and has experience and skills that match the market opportunity. However, our current working capital represents a material constraint to our ability to grow.

The Company remains focused on working capital management and the Board is pleased to have seen an improvement in our sales ledger collection cycle, particularly in India, where we have collected certain receivables that had previously been provided for as bad debts.

As announced on 5 August 2011, the Company completed the sale of its 20.6% shareholding in DC Storm Ltd ("DCS"), a web and software development company in which it held a residual stake, to existing shareholders in DCS, pursuant to existing pre-emption rights. The net cash generated from the sale, after costs, was £194,500.

As at 31 August 2011, we held a cash balance of GBP £341,000. It should be noted that this includes GBP £146,000 held within our Indian operation and this is subject to local regulatory repatriation restrictions.

In addition, and having satisfied all contractual conditions, the Company is due to receive the final deferred consideration payment from the sale of the DGM Australia business in November 2011, amounting to AU$428,000 (approximately GBP £278,000).

Notwithstanding this, working capital in the business remains constrained and represents a severe restriction on the Company's evolution.

ADH's experience and market position will support its growth and help to deliver shareholder value, and the Board believes that the majority of future growth will be driven by activities in China. However, we also highlight the steep learning curve that the Company is progressing along, as well as the length of the investment period required and the scale of the investment required.

To deliver on our strategy in China, and therefore at Group level, we need sufficient funds to invest in a more substantial team on the ground.

The Board would like to thank shareholders for their continued support and the staff for their tenacity, drive and commitment to the Company.

Adrian Moss

Chief Executive Officer

19 September 2011

Consolidated income statement

for the six months ended 30 June 2011

Consolidated statement of comprehensive income

for the six months ended 30 June 2011

Consolidated balance sheet

as at 30 June 2011

Company registration number 03904195

These financial statements were approved by the Board, authorised for issue and signed on their behalf on 16 September 2011.

Consolidated cash flow statement

for the six months ended 30 June 2011

Consolidated statement of changes in equity

for the six months ended 30 June 2011

Notes to the consolidated financial statements

for the six months ended 30 June 2011

1 General Information

The condensed interim financial statements for the six months ended 30 June 2011 were authorised for issue in accordance with a resolution of the Board of Directors on 16 September 2011.

The Company is a public limited company incorporated in the United Kingdom. The address of its registered office is 19 Cavendish Square, London, W1A 2AW.

The Company is listed on the London Stock Exchange's Alternative Investment Market.

The financial information for the year ended 31 December 2010 set out in this interim consolidated report is unaudited and does not constitute statutory accounts as defined in the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2010 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under section 498(2) or (3) (accounting records or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006.

2 Basis of Preparation

These condensed interim financial statements for the six months ended 30 June 2011 have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union. These condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Going Concern

The directors review the Group's objectives, policies and processes for managing its capital, including its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

The Group remains focused on working capital management with increased attention on credit control and where possible taking full advantage of suppliers' credit terms.

Trading in the half year of 2011 was in line with management's expectations. Furthermore, we are excited by the potential for the future, particularly in China where the Group has now had a presence for over a year. The Group has started to see the benefit from cost restructuring in 2010 and 2011. Further cost saving measures have been considered and are expected to be implemented in the second half of 2011.

Following a strategic review of the business undertaken by the Board, a decision was made in April 2011 to discontinue the AKTIV business which made a loss of over £91,000 in the first quarter of 2011. This decision has made a positive impact on the trading results and cash flows of the Group.

Management continues to maintain tight control over the Group's working capital situation, and is pleased to report that cash flows in the first two quarters of 2011 were better than anticipated, especially with accelerated receipts of certain receivables particularly in the India operation.

In May 2011, the Group satisfied all contractual requirements from its disposal of the Deal Group Media Pty Ltd ("DGM Australia") operation following which it received the third tranche of consideration amounting to AUD 500,000 (c £325,000). Certain transaction expenses were deducted at source, or will be settled imminently, leading to a net receipt of AUD 295,000 (approximately £192,000).

Furthermore, in satisfying the residual contractual requirements, the Group anticipates receiving the last deferred payment of an additional AUD 500,000 (approximately £325,000) from the disposal of DGM Australia, in November 2011. The net cash (after transaction expenses) expected from the final deferred consideration payment is AUD 428,000 (approximately £278,000).

The Group completed the sale of its 20.6% shareholding in DC Storm Ltd in August 2011. The total consideration received from the transaction was £200,000 in cash which will provide additional working capital for the Group. The net amount (after transaction costs) received by the Group was £194,500.

Finally, the Group is trading within all credit and funding facilities, and management is not aware of any reason to believe any facilities will be breached within 12 months from the date of the signing of the interim financial statements.

The Directors, therefore, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim statements.

3 Accounting Policies

The accounting policies applied in these condensed interim financial statements are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in the annual financial statements, except for the adoption of the following standards as of 1 January 2011:

·; IAS 24 (amended) Related Party Disclosures

·; IAS 32 (amended) Classification of Rights Issues

·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, and

·; IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement

Improvements to IFRS (May 2010)

The adoption of IFRS 9 which the Group plans to adopt for the year beginning 1 January 2013 will impact both the measurement and disclosures of financial instruments.

There is no significant effect on the current period or prior periods arising from the adoption of these new requirements.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed interim consolidated financial statements.

4 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 Southeast Asia.

The main operating segment is DGM. 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.

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

+Included in holding company costs are office lease accrual releases (£76,898)

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

+ 'Other' DGM segment result includes contribution from the Group's Australian operation which was disposed in October 2010.

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

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

** 'Other' DGM segment result includes contribution from the Group's Australian operation which was disposed in October 2010.

+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)

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

5 Seasonal Fluctuations

The business of Asia Digital Holdings Plc is subject to seasonal fluctuations, with stronger demand for services in the second half of the year.

6 Discontinued Operations

The Group discontinued its AKTIV operation during the period. Revenue, expenses, gains and losses relating to all discontinued operations are eliminated from the profit or loss from the Group's continuing operations and reported under profit or loss from discontinued operations in the income statement. As a result, the prior period income statements have been re-presented in accordance with IFRS 5.

7 Profit on Disposal of Subsidiary

On 22 October 2010, the Group disposed its entire shareholding in Deal Group Media Pty Limited to Sydney based Digital Performance Group Pty Limited (formerly Comtel Corporation Limited. In accordance with IAS 21, the cumulative amount of exchange differences on translation of £134,000 relating to the disposed subsidiary has been retrospectively recognised in the income statement for the year ended 31 December 2010. As a result, the profit on disposal of the subsidiary has been restated from £3,397,000 to £3,263,000.

8 Earnings / (Loss) Per Share

Earnings / (loss) per share has been calculated on a loss after tax of £572,000 (2010: 195,000) and the weighted average number of shares in issue during the period of 767,930,884 (2010: 708,768,684).

Reconciliation of the profit and weighted average number of shares used in the calculations are set out below:

Share options issued to management and staff had no dilutive effect. This is because at 30 June 2011, the weighted average exercise price of the share options was marginally equal to the market price of 0.53 pence.

9 Share Based Payments

No share options were issued during the period (June 2010: 17,080,000). Prior period share options were issued at an average fair value of 0.45 pence per share.

The fair values of the options granted during the period ended 30 June 2011 were determined using the binomial valuation model. The value of the options has been adjusted for future dividends, assuming that they will be paid from 2013 at a yield of 3%.

The model takes into account a volatility rate of 150% which has been derived from historical experience. A weighted average risk free interest rate of 3.07% has been applied. The share price at grant date was 0.50 pence and the weighted average exercise price was 0.50 pence per share.

The options were granted in accordance with the Group's Enterprise Management Incentive Scheme. The options have lives of 10 years and vest in three equal tranches over the first three years of their lives provided the employees continue to work for group. The expected lives of the options used in application of the binomial model were 5 years for managerial staff and 4 years for non-managerial staff.

The amount of employee remuneration expense for the 6 months ended 30 June 2011, in respect of unvested share options granted in this period and earlier periods, amounts to £14,219 (June 2010: £53,425).

10 Onerous Lease Provision

The Group has made the following operating and financial lease provisions:

Analysis of total provision is:

The operating lease provision was made for the office lease, service charges and business rates which were entered into in October 2003 for a ten year lease at the former office in London, UK.

The finance lease provision relates to computer equipment required to maintain the Group's affiliate tracking technology.

11 Related Party Transactions

During the period the Group entered into the following related party transactions. All transactions were made on an arm's length basis:

Howard Kennedy

Keith Lassman, Non-Executive Director and shareholder, is a partner of Howard Kennedy, Solicitors. During the period, the Group paid £900 (2010: £2,817) in respect of legal services provided to the Group. The balance due to Howard Kennedy, Solicitors, at the period end was £0 (2010: £3,252)

DC Storm Limited

DC Storm Limited was an associated undertaking company of the Group during the period. The Group was charged £33,488 (2010: £24,795) in respect of software licensing provided to the Group during the period. The balance due to DC Storm Limited at period end was £16,620 (2010: £8,628).

Deal Group Media Pty Ltd

This is the Group's former Australian based subsidiary. Following the disposal of this subsidiary in 2010, the Group provided accounting and technical services and a total of £42,262 (2010: £0) was received during the period. The balance owed to the Group at period end was £41,537 (2010: £0).

Share Options

20,400,000 share options held by the directors under an approved share option scheme were rebased with an exercise price of 0.5 pence per option during the period. The share options will be fully vested on the second anniversary of date of issue.

The number of share options, which are the subject of the re-pricing, held by members of the Board remains unchanged as follows:

Adrian Moss - 17,400,000 options

David Lees - 1,750,000 options

Keith Lassman - 1,250,000 options

The re-pricing of share options held by members of the Board, in accordance with IFRS 2, triggered an additional share based payments charge of £5,100 for the period.

12 Subsequent Events and Transactions

The Group completed the sale of its 20.6% shareholding in DC Storm Ltd in August 2011. The consideration received from the transaction was £200,000 in cash. The net amount (after transaction costs) received by the Group was £194,500.

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