27 Jun 2008 16:43
Cellcast plc
(the "Company")
Final Results for the year ended 31 December 2007
Highlights:
Group revenues from continuing operations of £12m in a challenging consumer environment with new growth driven by expanded distribution on the internet and a 400% increase in interactive 3G mobile video traffic
Gross profit from continuing operations increased significantly from a loss of £249,000 in 2006 to a profit of £889,000 in 2007
Group operating costs and expenses in respect of continuing operations reduced by 18% following rigorous cost-reduction programme
Operations in India, Sri Lanka, Malaysia and South-East Asia acquired by new regional venture formed by Canaan Partners, with the group's 37.5% retained shareholding valued at £2.6 million against an investment cost of £700,000
SUMO.tv, the group's incubator of multi-platform technology solutions and user-generated services, now focused on B2B opportunities to enable broadcasters to rapidly integrate UGC content with existing programmes
Deployment of SUMO technology within existing operations already capturing significant new revenues opportunities arising from the growth of 3G, IPTV, enhanced broadband, video mobile and wireless broadband services
Group received £1.4 million cash payment from Discovery Networks in channel swap on the Sky Digital satellite television platform, resulting in a £1.1 m profit in H1 2008
Repaid all short-term debt under overdraft and factoring facilities and renegotiated terms of Headstart convertible term loan facilities during H1 2008
Positive outlook in uncertain economic conditions, with the group's 3G traffic and revenue doubling since October 2007 on the back of increased distribution across Cellcast's television output.
Julian Paul, Chairman of Cellcast plc, commented:
"After the massive disruption in 2006 from the Sky EPG reorganisation, the company believes that the UK operations will be profitable in 2008 (before group overheads) following the substantial cost-cutting exercise undertaken over the last year. UK revenues are currently running at over £1.1 million per month, and we anticipate that in 2008 Cellcast will revert to being the substantially UK based business that it was in 2005, with over 95% of its revenues arising in the UK.
"The company has performed surprisingly well and consistently against a backdrop where the participation TV revenues of the large TV broadcasters and the market on the whole had declined by more than 70%. We hope that 2008 will be a significantly better year than 2007."
For further information:
| Cellcast plc | |
| Andrew Wilson, CEO | Tel: +44 (0) 20 7190 0300 |
| andrew@cellcast.tv | www.cellcast.tv |
| HB Corporate | |
| Edward Hutton | Tel: +44 (0) 20 7510 8600 |
Media enquiries:
| Threadneedle Communications | |
| Graham Herring / Josh Royston | Tel: +44 (0) 20 7936 9605 |
| graham.herring@threadneedlepr.co.uk |
Chairman's statement
The financial statements for the year ended 31 December 2007 are the first full year statements that the company has prepared under International Financial Reporting Standards ("IFRS") as adopted within the EU. The move to IFRS has resulted in a considerable extension of the disclosure requirements and in reconciliation statements with the previously reported UK GAAP numbers, but the financial impact is limited and relates principally to the capitalisation of SUMO.tv development costs, which had previously been expensed under UK GAAP.
2007 results
Headline revenue from continuing operations for the year ended 31 December 2007 was £12 million, down from £12.5 million in 2006. As originally reported under UK GAAP, 2006 revenue was £21.9 million, but following the termination of the limited term arrangements in France, the transfer of the Indian and South East Asian entities to Cellcast Asia Holdings and the deconsolidation of the Brazilian subsidiary for the whole of 2007 due to the cessation of control during the year, these activities have all been treated as discontinued operations in 2007, and 2006 has thus been restated accordingly. As a result, the revenues of the UK continuing business of £11.9 million in 2007 (2006 - £12.3million) represented 99% of the total, and this trend will continue into 2008 and beyond. Gross margin in respect of continuing operations improved significantly, from a negative £249,000 in 2006 to a positive £889,000 in 2007. Operating costs and expenses of continuing operations of £2.7 million were down 18% on 2006 due to cost-cutting measures. Consequently, the group showed a reduced operating loss for the year in respect of continuing operations of £2.2 million (2006 - £3.5 million).
Cellcast Asia Holdings
During the year, the company's controlling shareholdings in Cellcast India and Cellcast SE Asia were transferred to a new company, Cellcast Asia Holdings, and additional funding of $5.25 million was introduced by Canaan Partners, a global private equity firm. As a result, the company's interest in Cellcast Asia was diluted to 37.5% and the results of Cellcast Asia ceased to be consolidated from 31 August 2007 onwards. The terms of the Canaan deal valued the company's residual shareholding at $5.1 million (£2.6 million), compared to an investment cost of £700,000. Importantly the company has no further funding obligations in respect of Cellcast Asia, which is currently seeking further funding to expand its infrastructure.
SUMO.tv
As indicated above, the SUMO.tv costs both internal and external have been capitalised under IFRS whereas previously they had been expensed under UK GAAP. At 31 December 2007 these costs totalled £1.9 million, of which £300,000 represented the license costs of the Sky channels on which the SUMO product was carried and £1.6 million other capitalised costs. In June 2008, the company announced that it had agreed to an exchange of its two SUMO channels on Sky for another Sky channel and a cash payment of £1.4 million which will result in a £1.1 million profit in the first half of 2008. The company carried out an impairment review of the SUMO asset at 31 December 2007, as a result of which the board concluded that the current and future earnings potential of the SUMO technology and content aggregation platform sustains the carrying value (following the Sky channel rearrangement) of £1.6 million. This is based on current and future earnings opportunities from the use of SUMO technology for various internet, mobile and TV applications. Now that the Sumo platform is fully developed and deployed there are unlikely to be further capitalised SUMO development costs from now on.
Cost reductions
The group has continued to make substantial cost reductions in 2007 in response to the changing business environment. Staff costs are the largest component and it is in this area that the main impact has been. At the start of 2007, the group had 86 employees in 4 different locations, mostly in the UK. At 31 December 2007, there were 71 employees, and by the end of June 2008 this will have been further reduced to 26 employees in the UK only. This reflects development staffing reductions on completion of the SUMO technical platform, the deconsolidation of the Indian and South East Asian activities, as well as general staff reductions. Premises are another important cost, and following the reduction in the number of employees in the UK, we have sublet part of the Bolsover Street head office premises to a third party.
Funding
The £1.4 million received following the Sky channel rearrangement described above enabled the company to repay all its short-term debt under overdraft and factoring facilities and to renegotiate the terms of its Headstart convertible term loan facilities. The company has now agreed a repayment programme with Headstart, who have waived their conversion rights if the company meets the repayment schedule, thus removing the potential equity dilution.
Outlook
After the massive disruption in 2006 from the Sky EPG reorganisation, the company believes that the UK operations will be profitable in 2008 (before group overheads) following the substantial cost-cutting exercise undertaken over the last year. UK revenues are currently running at over £1.1 million per month, and we anticipate that in 2008 Cellcast will revert to being the substantially UK based business that it was in 2005, with over 95% of its revenues arising in the UK.
The whole of the UK participation TV business has suffered as a result of controversy arising from the related activities of large terrestrial broadcasters such as ITV, Channel 4 and the BBC who have been investigated by the regulator Ofcom and fined for misconduct involving interactive voting. These actions caused a crisis of consumer confidence in participation TV services and Ofcom is now undertaking a review of the whole sector. There have been no significant consumer complaints relating to Cellcast's services, but any new Ofcom regulations arising from the review could constrain some of the ways in which the group's products and services can be promoted.
The company has performed surprisingly well and consistently against a backdrop where both in the UK and other European markets, participation TV revenues of the large TV broadcasters and the market on the whole had declined by more than 70%. We hope that 2008 will be a significantly better year than 2007.
Julian Paul
Chairman
27 June 2008
Review of operations
Group overview
The group faced significant challenges in the United Kingdom and internationally in 2007. Regulatory concerns arising from the practices of a number of broadcasters and media companies had a substantial impact on the business environment for interactive digital entertainment and in particular participation TV.
UK operations
The major effort in 2007 was to restore margins and manage a return to profitability after the uncertainties of 2006. This was achieved through the implementation of a major cost reduction programme and renewed efforts to enhance the group's portfolio of products and services delivered across television, the internet and mobile phone platforms.
The group remains a leading provider of participation television programming in the United Kingdom, with a strong audience base. It produces over 600 hours of live interactive television per week, which is distributed across seven channels on the Sky Digital platform and is syndicated to a further three digital channels. Revenues are derived from audience participation in the television programmes, and increasingly via the web and mobile services, providing users with access 24-hours a day.
Increasingly, the group is deploying innovations developed by its User Generated Content (UGC) incubator, SUMO.tv. Proprietary technology and user-generated applications developed by SUMO are being applied to capture new opportunities arising from the growth of 3G, IPTV, enhanced broadband, video mobile and wireless broadband services in the UK.
International operations
The acquisition in August 2007 of the group's operations in India, Sri Lanka, Malaysia and South-East Asia by a new regional venture formed by Canaan Partners, with the group retaining a significant but minority interest, was an endorsement of the international business model and secured independent future funding for these operations. The group no longer consolidates revenues from these markets, nor funds the operations in the region.
Network problems and termination issues in Brazil were not resolved in 2007, ceasing the group's operations and revenues in this market. While South America as a whole continues to offer potential opportunities, the group's overall strategy for 2008 means it is taking a risk-averse approach to relationships in this and other developing markets.
As a consequence of the divestment of the India and South-East Asia operations, and the difficulties encountered in Brazil, the group's international revenues as a percentage of total revenues were sharply reduced from the 2006 figure.
In the Middle East, the group continues to offer premium billing services to regional broadcasters, and currently has fourteen direct agreements with GSM operators. With competition increasing - there are over 370 free-to-air TV channels available in the region - Cellcast ME is expanding its relationships with broadcasters and diversifying its revenue stream through offering mobile marketing and bulk SMS, SMS news alert services (primarily in Lebanon), and a new interactive TV production service drawing on the expertise and capacity of the UK operations. Cellcast ME incurred a loss in 2007, but following the diversification of its revenue sources, is expected to return to profitability in 2008.
SUMO.tv
SUMO.tv, the group's incubator of multi-platform technology solutions and new UGC services, built substantial audiences for its UK showcase channel on the Sky Digital platform and associated website in 2007, validating both the key technologies and short-form video content model.
Video services are becoming one of the key drivers of mobile entertainment. During 2007, new content distribution agreements were entered into with iVibe, which services O2 and the 3 Network in the UK and Vodafone in Spain, and with Mobibase in France and Tapuz Mobile in Israel on the Orange networks. Having identified those areas offering the best return on the investment made through the year, it was decided in late 2007 to focus on B2B opportunities in 2008. The group has been very successful in developing turnkey technology solutions to enable broadcasters to rapidly integrate user-generated content with existing programmes, and these are to be licensed to broadcasters worldwide, the majority of whose business models remain under attack from new media.
Proprietary technology
The group continues to build on its reputation as a pioneer of innovative new multi-platform formats and user-generated content applications. These are supported by a proprietary interactive broadcast services architecture which includes the Cellcast Interactive Platform (CIP), Network Attached Storage System (NAS), Transcoding Subsystem, Content Management System (CMS), Digital Asset Management System (DAMS), Rendering Engine, Website Kernel and 3G Subsystem.
In 2007, the technology division delivered the first full product line to use the content management and media delivery systems. Each aspect of user-generated content delivery, from mobile and web to television broadcast, was deployed using the CMS and MDP frameworks. In the first quarter of 2008, all of the group's content and applications began migration to the new architecture, and in the second quarter of the year it is intended to license the frameworks to third parties as a B2B solution.
The group introduced a number of new and innovative features to its interactive platform in 2007. These included a suite of "Teller" applications which allow the TV system to inform web and mobile users of broadcast related information in real time - for example, informing a user and their friends via SMS when their uploaded video has been selected for broadcast; a suite of Personal Broadcasting applications that give users the ability to create their own personal channels by giving them access to Cellcast's library of rights cleared and complied content; and "Telly Conferencing", a new version of Cellcast's webcam/3G-to-screen technology which utilises flash video to enable participants to interact live with a TV programme presenter or other members of the audience.
Outlook for 2008
With global economic uncertainties having a significant impact on consumer spending in 2008, the group intends to follow a conservative growth strategy by leveraging its interactive content and multi-platform technology assets rather than making any new major investments. At the same time the group will renew its focus on providing innovative products and services to capture the opportunities arising from the growing uptake of 3G services, IPTV, and video mobile services in the UK market, all of which require compelling content to drive subscriptions.
The public consultation process on proposals by the UK regulator Ofcom to tighten the regulation of television and radio programmes which rely on premium rate telephone services is due to be completed in the summer of 2008. The group welcomes regulation intended to offer further protection to consumers, which is good for the interactive entertainment industry, its sustainability and growth. However, the technology driving convergence, together with the new tools facilitating audience participation, are blurring the lines between editorial and advertising, and this remains a significant challenge for regulators addressing new media services.
The international business model has been adapted to the extent that the group will in future partner with third-parties willing to underwrite the costs of distribution in consideration of a higher revenue share, rather than directly investing in media or airtime purchases itself. This will enable the group to minimise risk and better manage its resources in support of its content and application development and related B2B solutions.
Significant benefits are flowing back from the investment in content and technology for SUMO, particularly in regard to Cellcast's core participation TV applications and formats, enabling the company to develop new revenue streams from the internet and from 3G mobile services.
Interactive 3G mobile video products operated by Cellcast saw a 400% increase over the last twelve months. This is attributed to growing 3G handset penetration and increased familiarity with video calling in general and the ease of use of 3G video calling services. 2008 has also seen the integration of 3G video calling products with Cellcast's portfolio of TV channels and websites, offering yet another level of interaction to existing formats. A fully integrated interactive online and mobile chat and messaging platform, incorporating video calling between online webcam users with 3G video callers, is the most recent addition to a growing suite of products. The company's 3G traffic and revenue has more than doubled since October 2007 and is continuing to grow as these applications are distributed across more of Cellcast TV output.
Andrew Wilson Bertrand Folliet
Chief Executive Officer Chief Operating Officer
27 June 2008 27 June 2008
Consolidated income statement
| Year ended 31 December | ||||
| Note | 2007 | 2006 | ||
| £ | £ | |||
| Continuing operations | ||||
| Revenue | 12,008,998 | 12,477,818 | ||
| Cost of sales | (11,119,565) | (12,727,205) | ||
| Gross profit | 889,433 | (249,387) | ||
| Operating costs and expenses: | ||||
| General and administrative | (2,061,806) | (2,467,988) | ||
| Share option expense | (150,665) | (298,895) | ||
| Amortisation & depreciation | (489,200) | (528,175) | ||
| Total operating costs and expenses | (2,701,671) | (3,295,058) | ||
| Operating loss | (1,812,238) | (3,544,445) | ||
| Interest receivable & similar income | 6 | 4,898 | 31,968 | |
| Interest payable and similar charges | 7 | (168,586) | (6,872) | |
| Share of loss in associates | (180,567) | - | ||
| Loss before tax | 5 | (2,156,493) | (3,519,349) | |
| Current taxation | - | 19,900 | ||
| Deferred taxation | 84,698 | (84,698) | ||
| Total taxation | 84,698 | (64,798) | ||
| Loss after tax for continuing operations | (2,241,191) | (3,454,551) | ||
| Discontinued operations | ||||
| Profit /(loss) for the period from discontinued operations | 18,591 | 93,728 | ||
| Total loss for the year | (2,222,600) | (3,360,823) | ||
| Gain / (loss) attributable to minority interests | 30,684 | (30,684) | ||
| Loss for the year attributable to equity holders of the parent | (2,253,284) | (3,330,139) | ||
| Total loss for the year | (2,222,600) | (3,360,823) | ||
| Loss per share | 8 | |||
| Basic & diluted - continuing | (3.8p) | (10.6p) | ||
| Basic & diluted - continuing and discontinued | (3.7p) | (10.3p) | ||
Consolidated balance sheet As at 31 December
| Assets | 2007 £ | 2006 £ | ||
| Non-current assets | ||||
| Intangible assets | 2,212,605 | 1,099,404 | ||
| Property, plant and equipment | 511,096 | 1,108,507 | ||
| Investments in associates | 561,217 | 4,933 | ||
| Deferred tax | - | 84,698 | ||
| 3,284,918 | 2,297,542 | |||
| Current assets | ||||
| Inventories and work in progress | - | 38,984 | ||
| Trade and other receivables | 2,270,027 | 6,997,017 | ||
| Cash and cash equivalents | 7,533 | 135,677 | ||
| 2,277,560 | 7,171,678 | |||
| Total assets | 5,562,478 | 9,469,220 | ||
| Capital and reserves | ||||
| Called up share capital | 2,265,398 | 1,331,619 | ||
| Share premium account | 5,498,626 | 4,775,743 | ||
| Merger reserve | 1,300,395 | 1,300,395 | ||
| Cumulative translation reserve | (5,159) | 24,995 | ||
| Retained earnings | (7,197,933) | (5,245,614) | ||
| Equity attributable to equity holders of the parent | 1,861,327 | 2,187,138 | ||
| Minority interest | - | (30,684) | ||
| Total equity | 1,861,327 | 2,156,454 | ||
| Liabilities | ||||
| Non-current liabilities | ||||
| Finance leases | - | 70,202 | ||
| Current liabilities | ||||
| Trade and other payables | 3,219,042 | 7,053,411 | ||
| Borrowings | 482,109 | 189,153 | ||
| Total liabilities | 3,701,151 | 7,312,766 | ||
| Total equity and liabilities | 5,562,478 | 9,469,220 |
Consolidated statement of changes in equity for the year ended 31 December 2007
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Consolidated statement of changes in equity for the year ended 31 December 2006
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Consolidated cash flow statement Year ended 31 December
| Net increase in cash and cash equivalents | 2007 | 2006 | ||
| Note | £ | £ | ||
| Net cash outflow from operations | 9a | (432,743) | (2,899,128) | |
| Income taxes | - | 70,097 | ||
| Interest received | 4,898 | 31,968 | ||
| Net cash outflow from operating activities | (427,845) | (2,797,063) | ||
| Net cash outflow from investing activities | 9b | (1,207,154) | (1,145,198) | |
| Net cash generated from financing activities | 9c | 1,705,029 | 1,167,610 | |
| Net (decrease) / increase in cash and cash equivalents | 70,030 | (2,774,651) | ||
| Cash and cash equivalents at beginning of period | (53,476) | 2,696,180 | ||
| Exchange gains and losses | (9,021) | 24,995 | ||
| Cash and cash equivalents at end of period | 7,533 | (53,476) |
Notes to the consolidated financial statements
1. Accounting policies
From January 1 2007, the group has adopted International Financial Reporting Standards ("IFRS") and the IFRIC interpretations as adopted by the EU in the preparation of its consolidated financial statements. The financial statements have been prepared under the historical cost basis. Prior to 2007, the group prepared its audited financial statements under UK GAAP. Information on the impact on accounting policies and financial results resulting from the conversion from UK Generally Accepted Accounting Principles ("UK GAAP") to IFRS is provided later in note 25.
2. Transitional arrangements
The group has taken the following optional exemptions contained in IFRS 1 'First-time Adoption of International Financial Reporting Standards' in preparing the group's balance sheet on transition to IFRS at 1 January 2006:
Cumulative translation differences
The cumulative translation differences for all foreign subsidiaries have been set to zero at 1 January 2006 and exchange differences arising prior to this date will not be recycled to the income statement on disposal of the subsidiaries.
Business combinations
The group has elected not to apply IFRS-3 Business Combinations retrospectively to past business combinations (business combinations that occurred before the date of transition to IFRS).
Based on the above exemptions there are no transitional adjustments to the 1 January 2006 opening balance sheet. A UK GAAP to IFRS reconciliation for the comparative periods is included in this interim statement in Note 25.
3. Adoption of new and revised standards
In the current year, the group has adopted IFRS 7 - 'Financial instruments: Disclosures', which is effective for annual reporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 ' Presentation of Financial Statements'. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the group's financial instruments and management of capital. Four interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are IFRIC 7 'Applying the Restatement Approach under IAS 29'; Financial Reporting in Hyperinflationary Economies'; IFRIC 8 'Scope of IFRS2'; IFRIC 9 'Reassessment of Embedded derivatives'; and IFRIC 10 'Interim Financial Reporting and Impairment'. The adoption of these interpretations has not led to any changes in the group's accounting policies.
4. Standards issued but not yet effective
At the date of authorisation of these financial statements the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
IFRS 1 Amendments relating to cost of an investment on first time adoption
IFRS 2 Share Based Payment - Amendment relating to vesting conditions and cancellations
IFRS 3 Business Combinations- Comprehensive revision on applying the acquisition method
IFRS 8 Operating Segments
IFRIC 11 IFRS 2: Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer loyalty programmes
IFRIC 14 IAS 19 - The limit on a Defined Benefit Asset Minimum Funding Requirements and their interaction
IAS 1 Presentation of Financial Statements - Comprehensive revision including requiring a statement of
comprehensive equipment and amendments relating to puttable instruments and obligations
arising on liquidation.
IAS 23 Borrowing costs - Comprehensive revision to prohibit immediate expensing
IAS 27 Consolidated and Separate Financial Statements - Consequential amendments arising from
Amendments to IFRS3 and amendments relating to cost of an investment on first time adoption
IAS 28 Investments in Associates - Consequential amendments arising from amendments to IFRS 3
IAS 31 Investments in Joint Ventures - Consequential amendments arising from amendments to IFRS 3
IAS 32 Financial Instruments Presentation - Amendments relating to puttable instruments and obligations
arising on liquidation
Annual Improvement Project
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the group when the relevant Standards and Interpretation come into effect.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
5. Loss before tax
| The loss before tax is stated after charging: | 2007 | 2006 |
| | £ | £ |
| Depreciation – owned assets | 388,564 | 434,798 |
| Depreciation – assets on hire purchase contracts | 18,918 | 44,508 |
| Licences amortisation | 81,718 | 95,853 |
| Auditor’s remuneration – statutory audit of parent and consolidated accounts | 33,000 | 30,000 |
| Audit services provided to subsidiaries were £25,000 (2006: £22,000) | ||
| Other services supplied pursuant to such legislation: Interim results | 5,000 | - |
| Foreign exchange loss | 5,410 | 5,828 |
In the year ended 31 December 2006 audit, tax and other services were provided by Baker Tilly.In the year ended 31 December 2007 audit services were provided by Baker Tilly UK Audit LLP and other services provided by Baker Tilly Tax and Advisory Services LLP.
6. Interest receivable and similar income
| 2007 | 2006 | |
| £ | £ | |
| Bank interest received | 4,898 | 31,968 |
7. Interest payable and similar charges
| | 2007 | 2006 |
| | £ | £ |
| Interest on convertible loan | 124,168 | - |
| Bank charges & interest paid | 24,244 | 2 |
| Finance leases | 20,174 | 6,870 |
| | 168,586 | 6,872 |
8. Loss per share
Adjusted loss per share
The calculations of adjusted basic and diluted loss per ordinary share are based on the following adjustments to results:
| | Continuing operations | Continuing and discontinued operations | ||
| | 2007 | 2006 | 2007 | 2006 |
| | | | | |
| Reported loss for the financial period | (2,241,191) | (3,454,551) | (2,222,600) | (3,360,823) |
| | | | | |
| Weighted average number of ordinary shares | 59,390,157 | 32,609,687 | 59,390,157 | 32,609,687 |
| | | | | |
| Basic and diluted loss per share | (3.8p) | (10.6p) | (3.7p) | (10.3p) |
| | | | | |
Due to the loss incurred in the year, there is no dilution effect from the issued share options.
9. Cash flows Year ended 31 December
| 2007 | 2006 | ||
| £ | £ | ||
| a | Reconciliation of net loss to net cash inflow from operating activities | ||
| Loss before tax on continuing operations | (2,156,493) | (3,519,349) | |
| Interest receivables and similar income | (4,898) | (31,968) | |
| Interest payables and similar charge | 168,586 | 6,872 | |
| Share of operating loss in associates | 180,567 | - | |
| Amortisation and depreciation | 489,200 | 528,175 | |
| Share option expenses | 150,665 | 298,895 | |
| General administration fees settled in shares | 221,024 | - | |
| Decrease /(increase) in work in progress | - | (38,984) | |
| Decrease in trade and other receivables | 182,233 | 4,303,448 | |
| Increase/ (decrease) in trade and other payables | 1,573,787 | (4,191,484) | |
| Net cash inflow / (outflow) from operating activities from continuing operations | 804,671 | (2,644,395) | |
| Net cash (outflow) from operating activities from discontinued operations | (1,237,414) | (254,733) | |
| (432,743) | (2,899,128) | ||
| b | Cash flow from investing activities | ||
| Purchase of property, plant and equipment | (12,235) | (563,451) | |
| Purchase of intangible assets | (1,194,919) | (581,747) | |
| Net cash outflow from investing activities | (1,207,154) | (1,145,198) | |
| c | Cash flow from financing activities | ||
| Capital element of finance leases | (62,463) | (43,798) | |
| Interest paid | (44,418) | (6,872) | |
| Proceeds from the issue of convertible loan note | 2,000,000 | - | |
| Proceeds from the issue of share capital | - | 1,283,220 | |
| Less issue costs | (188,090) | (64,940) | |
| Net cash generated from financing activities | 1,705,029 | 1,167,610 |
10. Reconciliation of UK GAAP to IFRS
Explanation of transition to IFRS
As required by IFRS 1, the impact of the transition from UK GAAP to IFRS is explained below.
The accounting policies set out above have been applied consistently to all periods presented in this interim financial information and in preparing an opening IFRS balance sheet at 1 January 2006 for the purposes of the transition to IFRS.
IAS 1 - Presentation of Financial Statements. The form and presentation of the UK GAAP financial statements has been changed to be in compliance with IAS 1.
IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS 7, presents cash flows in three categories; cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Other than the reclassification of cash flow into the new disclosure categories, there are no significant differences between the group's Cash Flow Statement under UK GAAP and IFRS. Consequently, no cash flow reconciliations are provided. Purchases of tangible fixed assets under UK GAAP have been reclassified to purchases of intangible assets and purchases of property, plant and equipment under IFRS.
No reconciliation between UK GAAP and IFRS has been made in respect of the 1 January 2006 balance sheet, as there was no difference between the two formats.
(a) Translation reserves
The translation reserve results from exchange gains and losses arising from the translation of the group's net investments in its overseas operating subsidiaries. The foreign exchange impact of translating foreign operations since 1 January 2006 is reflected in the restated income statements.
(b) Intangibles assets
Development costs which were previously expensed through the income statement under the accounting policy previously set out in accordance with UK GAAP has been reviewed if the cost meet the criteria set out in IAS 38 and in the group's policy on intangible assets they have been capitalized.
Reconciliation of UK GAAP to IFRS (continued)
Year ended 31 December 2006 Consolidated income statement
| UK | IFRS | Discontinued | Restated | ||
| GAAP | Adjustment | Activities | |||
| £ | £ | £ | £ | ||
| Revenue | 21,977,972 | - | (9,500,154) | 12,477,818 | |
| Cost of sales | (18,211,533) | 443,354 | 5,040,974 | (12,727,205) | |
| Gross profit | 3,766,439 | 443,354 | (4,459,180) | (249,387) | |
| Operating costs and expenses: | |||||
| General and administrative | (6,786,705) | - | 4,318,717 | (2,467,988) | |
| Amortisation & depreciation | (575,159) | - | 46,984 | (528,175) | |
| Share option expense | (298,895) | - | - | (298,895) | |
| Total operating costs and expenses | (7,660,759) | - | 4,365,701 | (3,295,058) | |
| Operating loss | (3,894,320) | 443,354 | (93,479) | (3,544,445) | |
| Interest receivable | 32,217 | - | (249) | 31,968 | |
| Interest payable and similar charges | (6,872) | - | - | (6,872) | |
| Loss on ordinary activities before taxation | (3,868,975) | 443,354 | (93,728) | (3,519,349) | |
| Taxation | 64,798 | 64,798 | |||
| Loss on ordinary activities before taxation | (3,804,177) | 443,354 | (93,728) | (3,454,551) | |
| Discontinued operations | - | - | 93,728 | 93,728 | |
| Loss for the period | (3,804,177) | 443,354 | - | (3,360,823) | |
| Attributable to: | |||||
| Equity holders of the company | (3,773,493) | 443,354 | - | (3,330,139) | |
| Minority interest | (30,684) | - | - | (30,684) | |
| Loss for the period | (3,804,177) | 443,354 | - | (3,360,823) | |
| Loss per share | |||||
| Basic and diluted | (11.6p) | (10.3p) | |||
Reconciliation of UK GAAP to IFRS (continued)
| Year ended 31 December 2006 Consolidated balance sheet | ||||
| UK | IFRS | Restated | ||
| GAAP | Adjustment | |||
| £ | £ | £ | ||
| Assets | ||||
| Non-current assets | ||||
| Intangible assets | 656,050 | 443,354 | 1,099,404 | |
| Property, plant and equipment | 1,108,507 | - | 1,108,507 | |
| Investments | 4,933 | - | 4,933 | |
| Deferred tax | 84,698 | - | 84,698 | |
| 1,854,188 | 443,354 | 2,297,542 | ||
| Current assets | ||||
| Work in progress | 38,984 | - | 38,984 | |
| Trade and other receivables | 6,997,017 | - | 6,997,017 | |
| Cash and cash equivalents | 135,677 | - | 135,677 | |
| 7,171,678 | - | 7,171,678 | ||
| Total assets | 9,025,866 | 443,354 | 9,469,220 | |
| Liabilities | ||||
| Non current | ||||
| Finance leases | 70,202 | - | 70,202 | |
| Current | ||||
| Trade and other payables | 7,267,559 | (24,995) | 7,242,564 | |
| Total liabilities | 7,337,761 | (24,995) | 7,312,766 | |
| Net assets | 1,688,105 | 468,349 | 2,156,454 | |
| Capital and reserves | ||||
| Called up share capital | 1,331,619 | - | 1,331,619 | |
| Share premium account | 4,775,743 | - | 4,775,743 | |
| Merger reserve | 1,300,395 | - | 1,300,395 | |
| Retained earnings | (5,688,968) | 443,354 | (5,245,614) | |
| Translation reserve | - | 24,995 | 24,995 | |
| Attributable to equity holders of the company | 1,718,789 | 468,349 | 2,187,138 | |
| Minority interest in equity | (30,684) | - | (30,684) | |
| Total equity | 1,688,105 | 468,349 | 2,156,454 | |
Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. Statutory accounts for 2007 will be delivered to the Registrar following the Company's Annual General Meeting.
The Independent Auditors have reported on these accounts. Their report was unqualified except for the limitation of scope mentioned below and did not contain statements under section 237(2) of the Companies Act 1985.
Basis of audit opinion
The following is extracted from the Independent Auditor's report to the members of the Company:-
"We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. However, in respect of the dilution of the interest in Cellcast Interactive India Pvt Limited and Cellcast SEA Limited, the profit on dilution of £1,166,088 included in discontinued operations and disclosed in note 11, the share of the loss of the associate of £180,567, and the share of the net assets of the associate of £561,217, we were unable to obtain sufficient appropriate audit evidence due to the absence of appropriate financial statements or management information. We are unable to quantify the extent of any under or overstatement as to the amount of these results and balance.
In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Qualified opinion arising from limitation in audit scope
Except for the financial effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the treatment of the investment in the associate, in our opinion:
the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2007 and of its loss for the year then ended;
the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 December 2007;
the financial statements have been properly prepared in accordance with the Companies Act 1985; and
the information given in the Directors' Report is consistent with the financial statements.
In respect solely of the limitation on our work relating to the associate:
We have not obtained all the information and explanations that we consider necessary for the purpose of our audit; and
We were unable to determine whether proper accounting records have been maintained.
Emphasis of matter
In forming our opinion on the financial statements, which is not qualified except for the limitation of scope above, we have considered the adequacy of the disclosures made in the accounting policies on page 22 of the financial statement concerning the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern."
Other information
The report and accounts for the year ended 31 December 2007 will be posted to shareholders shortly and will be laid before the Annual General Meeting to be held at the offices of Memery Crystal LLP, 44 Southampton Buildings, London WC2A 1AP on 24 July 2008 at 10.00 am.
Copies will also be available via the website (www.cellcast.tv) in accordance with AIM Rule 26 and at the Company's registered office, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.