Annual Report and Accounts 2007 - Chairman's Statement
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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
