Cellcast plc - Interactive TV formats and services

A proven innovator in Interactive Media

June 19 2019

Cellcast plc is a leading provider of participatory television programming and interactive telephony technology for the fast growing cross-platform digital entertainment sector.

Our services enable broadcasters, content developers and mobile network operators to profit from the accelerating growth and economic necessity of interactive and transactional television programming.
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Latest Results

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Final Results


The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

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Key points

  • Group operating revenues of £11.3 million (2017: £12.0 million), comprising:
    • core interactive broadcast revenue of £10.9 million (2017: £11.3 million); and
    • technical services and consulting to overseas gaming and lottery operators of £395,000 (2017: £660,000)
  • Cost of sales were £11.0 million (2017: £11.2 million)
  • Gross profit of £0.3 million (2017: £0.8 million)
  • Loss for the year was £250,000 (2017: loss of £645,000 which included, inter alia, the Lexinta impairment)
  • Net cash balance at 31 December 2018 of £0.7 million (31 December 2017: £1.1 million)
  • Loss per share of 0.3p (2017: loss per share of 0.8p)
  • Board is undertaking a review as to the prospects for the group going forward

Mike Neville, Chairman of Cellcast, commented:

"We continued to see the gradual decline in the core interactive broadcast business that we have witnessed for the past few years. This has continued in 2019 year to date. In addition, due to the adverse effect of a new taxation rate for the group's clients in Kenya, we also saw reduced fees for our technical and consultancy services to overseas gaming and lottery operators."

"There has therefore been increased focus by the Directors on the long-term viability of the economic model that the group utilises which has prompted the Directors to undertake a review as to the prospects for the group going forward. The Board is currently exploring all options available to the group.

 

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Chairman's statement

Cellcast plc (the "group") continued to experience difficult trading conditions in 2018. This is a pattern that has existed over the last several years, with revenues in the core interactive broadcast business continuing to decline and margins being eroded, resulting in continuing losses to the bottom line and a decline in the Company's cash position.

The sectors for the group's core services are being gradually discontinued and, despite a clear focus by the Board on cost savings and related diversification, these are yet to have a material impact on the group. The Board has looked for suitable partners in order to expand and diversify, however, despite numerous attempts, these have not been forthcoming.

As reported in our trading update in November 2018, the latter half of 2018 was particularly difficult, and this has continued into 2019. There has therefore been increased focus by the Directors on the long term viability of the economic model that the group utilises which has prompted the Directors to undertake a review as to the prospects for the group going forward. The Board is currently exploring all options available to the group.

As part of this review, the carrying value of the company's investment in its 100% owned subsidiary undertaking; Cellcast UK Limited, through which the trade of the group is carried out, was undertaken in the year. As a result, an impairment loss of £461,000 (2017: £nil) was recognised in the company to reduce the carrying value of the investment to its expected recoverable amount of £750,000 and an impairment loss of £2,949,000 was recognised against amounts due from Cellcast UK Limited- refer to notes 13 and 16 for further detail. The recoverable amounts were assessed based on the market capitalisation of the group at 31 December 2018.

Mike Neville
Non-Executive Chairman

 

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Chief Executive's statement

The second half of 2018 has proven more challenging than the second half of 2017 for both the core UK business and the East African consultancy service and this has continued into the first quarter of 2019. The consultancy services continue to be impacted by increased taxation and increased regulation of the gaming sector in East Africa.

The group has undertaken a full review of the UK business and the resources allocated to international businesses to see where savings can be made. In the UK, the first of these initiatives has been to make savings in operation and production costs.

2018 Results

Cellcast plc's (the "group's") total operating revenues amounted to £11.3 million in 2018, compared to £12.0 million in 2017, a decrease of 6%.

The group's interactive broadcasting activities in the UK generated £10.9 million of revenue (2017: £11.3 million), which represents a decrease of 4%.

The group's income from the provision of management services and consultancy to overseas gaming and lottery operators generated £395,000 of revenue (2017: £660,000), a decrease of 40%. This reduction is due to the adverse effect of a new taxation rate on the business of the group's clients in Kenya. This resulted in the bonus payments due to the group for 2018 of £265,000, forming part of the service remuneration, not being realised. The group is working to collect monies due to it from its clients in Kenya and expects to receive most of these monies in 2019, although the directors estimate that £293,000 will be recovered more than a year after 31 December 2018.

Cost of sales were down 2% on the previous year. In 2018, they amounted to £11.0 million, compared to £11.2 million in 2017. The group's gross profit amounted to £0.3 million in 2018 compared to £0.8 million in 2017. This decrease is mainly due to the loss of the bonus forming part of the overseas consultancy services.

General and administrative costs decreased by 13%, from £565,000 in 2017 to £489,000 in 2018. These costs exclude the foreign exchange loss of £26,000 in 2018 (2017: loss of £30,000). Approximately 53% of these costs were personnel costs (2017: 58%). Amortisation and depreciation expenses for 2018 were £80,000, a £13,000 decrease on those of 2017 (£93,000).

After taking into account the net interest and tax the total loss for 2018 was £250,000 (2017: loss of £647,000). 2018 earnings per share was negative 0.3p (2017: negative earnings per share of 0.8p). The Strategic report, set out on pages 4 and 5 of this Annual Report and Accounts, gives a more extensive description of the group's operations during the year and technological developments.

The group's total assets have reduced from £3,317,000 at 31 December 2017 to £2,517,000 at 31 December 2018.

The company only result for the year is affected by an impairment loss of £461,000 (2017: £nil) recognised against the carrying value of the company's investment in its 100% subsidiary undertaking; Cellcast UK Limited - refer to note 13 for further detail. A further impairment loss of £2,949,000 has been recognised against amounts due from Cellcast UK Limited - refer to note 16 for further detail. These impairment losses have led to a reduction in the total assets of the company from £4,160,000 at 31 December 2017 to £750,000 at 31 December 2018.

Funding

At 31 December 2018, the group had a net cash balance of £0.7 million (2017: £1.1 million). The decrease was mainly due to the losses incurred during the year. The total assets at 31 December 2018 amounted to £2.5 million, a decrease of £0.8m on the previous year.

Outlook

Unfortunately trading in the first quarter of 2019 has continued the pattern of the second half of 2018 and the group hasn't yet seen an upturn since the trading update announced on 27 November 2018.

With respect to the East African consultancy services, the group is looking to diversify away from gaming activities to support other transactional applications that are not subject to the tax and other regulatory restrictions that have damaged the sector over the last 18 months.

In the core UK business the group has undertaken a further review of the staffing costs and made some adjustments in light of the reduced trading. The decline in revenue is driven by the decline in mobile traffic generated by the core TV business which is impacted by global changes in viewing habits. However, the decline in TV driven revenues has been partially offset by continued growth in our online business. Online revenues grew by 15% in 2018 to £4.5m from £3.9m in 2017. The group is in the process of further optimising its online properties to improve its performance further. This potential is impacted by uncertainty regarding the implementation of the Government's online content verification programmes.

As noted in greater detail in the Chairman's statement on page 1, in light of the decline in the business and its prospects for the future, the Board is currently exploring all options available to the Company and its subsidiary, Cellcast UK Ltd.

Craig Gardiner
Chief Executive Officer

 

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Strategic report

Review of business

The group's main core activity from which it derives the majority of its revenue continues in the production and distribution of participatory television formats across multiple digital platforms in the United Kingdom. However, revenues from online and mobile interaction have increased and now provide a significant income stream. These income streams combined are referred to as 'interactive broadcasting'. Additionally, the group has used its expertise in developing mobile applications and services to provide consultancy services specifically in relation to the use of mobile money. This consultancy income is mainly derived from East Africa which leads the world in the penetration of mobile money.

Further details on the financial performance of the company and group during the year, and of the financial position of the company and group at the reporting date, is given in the Chairman's statement on page 1 and the Chief Executive's statement on pages 2 and 3.

Update on technology

2018 saw an increase in Web revenues as the trend of customers moving away from TV and onto Online platforms continued. The Technology Division focused on improving Web related revenues by developing a number of new products to complement and expand upon the Broadcast offerings. The team continued to develop and utilise our Business Intelligence (BI) and Reporting systems to analyse costs, revenue and profit on all products and make improvements across the board. The Technology Division also continued to build the Technical Services platforms and focused on some key areas: Direct Mobile Operator Integrations, Mobile Payment Solutions across multiple markets and App Development. The team now have a strong platform to allow the group, and partners, to launch products and services in multiple markets quickly and cost efficiently which the group hopes to utilise beyond its existing business partnerships going into 2019 and beyond.

Key Performance Indicators

The directors continue to monitor the performance of the business through various key performance indicators ("KPIs"), of which the principal ones are broadcast revenue, consultancy services revenue, and overall group profitability. These KPIs continue to be monitored along with the compliance record with broadcasting regulations, where there have been no material breaches in the year.

  H1 2018 H2 2018 2018 2017
  £ £ Full year
£
Full year
£
Broadcast revenue 5,442,995 5,432,082 10,875,077 11,309,626
Consultancy services 330,000 65,000 395,000 660,000
Operating result 7,813 (308,662) (300,849) 130,557

 

The KPIs show a 4% decline in broadcast revenue and a 40% decrease in revenues generated by its consultancy services, both of which are consistent with previous comments relating to the difficulties experienced by the group in the course of the year.

This decline in revenues has had a direct impact at the operating level, incurring losses of £301,000 in 2018 compared to a profit of £131,000 in 2017.

The group has been working on reducing its costs to compensate for the decline in revenue.

 

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Consolidated statement of comprehensive income
For the year ended 31 December 2018

   Note  2018 2017
    £   £
Revenue:        
Interactive broadcasting   10,875,077   11,309,626
Management and consultancy services   395,000   660,000
Total revenue 1 11,270,077   11,969,626
         
Cost of sales   (10,976,656)   (11,151,615)
Gross profit   293,421   818,011
Operating costs and expenses:        
General and administrative   (514,649)   (594,636)
Amortisation and depreciation   (79,621)   (92,818)
Total operating costs and expenses   (594,270)   (687,454)
Operating (loss)/profit   (300,849)   130,557
         
Fair value gains and losses 5 1,787   12,719
Foreign exchange loss on current asset investments   -   (45,315)
Impairment losses 6 -   (754,358)
Finance costs 7 (2,460)   (7,953)
Share of results in associate 14 -   11,913
Loss before tax 4 (301,522)   (652,437)
         
Taxation 8 51,117   5,794
         
Loss for the year and total comprehensive income attributable to owners of the parent   (250,405)   (646,643)
Earnings per share attributable to owners of the parent        
Basic & diluted (pence) 9 (0.3p)   (0.8p)
               

 

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Consolidated statement of financial position
As at 31 December 2018

Assets Note 2018
£
  2017
£
Non-current assets:        
Intangible assets 10 78,768   94,149
Property, plant and equipment 11 146,971   122,741
Investments 12 62,421   88,813
Trade and other receivables 16 293,228   -
    581,388   305,703
Current assets:        
Trade and other receivables  16 1,237,915    1,954,053
Cash and cash equivalents   698,179   1,057,301
    1,936,094   3,011,354
Total assets   2,517,482   3,317,057
         
Capital and reserves        
Called up share capital 20 2,285,398   2,285,398
Share premium account 20 5,533,626   5,533,626
Merger reserve 20 1,300,395   1,300,395
Warrant reserve 20 13,702   13,702
Retained earnings 20 (7,702,078)   (7,423,494)
Equity attributable to owners of the parent   1,431,043   1,709,627
         
Liabilities        
Non-current liabilities 17 -   37,113
Current liabilities:        
Trade and other payables 18 1,086,439   1,570,317
Total liabilities   1,086,439   1,607,430
Total equity and liabilities   2,517,482   3,317,057
         

 

Company statement of financial position
As at 31 December 2018

    2018   2017
  Note £   £
Non-current assets        
Investments in subsidiary 13 750,000   1,211,281
Trade and other receivables 16 -   2,949,078
Total assets   750,000   4,160,359
Capital and reserves        
Called up share capital 20 2,285,398   2,285,398
Share premium account 20 5,533,626   5,533,626
Warrant reserve 20 13,702   13,702
Retained earnings 20 (7,082,726)   (3,672,367)
Equity attributable to the owners   750,000   4,160,359

 

The company's loss and total comprehensive income for the year was £3,410,359 (2017: £nil).

 

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Consolidated statement of changes in equity
For the year ended 31 December 2018

    Attributable to owners of the parent
   Note  Share Capital  Share Premium  Merger
Reserve
 Warrant Reserve  Retained Earnings  Total
    £ £ £ £ £ £
Balance at 1 January 2017 20 2,285,398 5,533,626 1,300,395 13,702 (6,776,851) 2,356,270
Loss and total comprehensive income for the year   - - - - (646,643) (646,643)
Balance at 31
December 2017
20 2,285,398 5,533,626 1,300,395 13,702 (7,423,494) 1,709,627
Aggregate adjustments on adoption of IFRS 9 12 - - - - (28,179) (28,179)
Balance as 1 January 2018 as restated   2,285,398 5,533,626 1,300,395 13,702 (7,451,673) 1,681,448
Loss and total comprehensive income for the year   - - - - (250,405) (250,405)
Balance at 31
December 2018
20 2,285,398 5,533,626 1,300,395 13,702 (7,702,078) 1,431,043

 

 

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Company statement of changes in equity
For the year ended 31 December 2018

   Note  Share Capital  Share Premium  Warrant Reserve  Retained Earnings  Total
    £ £ £ £ £
Balance at 1 January 2017 20 2,285,398 5,533,626 13,702 (3,672,367) 4,160,359
Profit and total comprehensive income for the year   - - - - -
Balance at 31 December 2017 20 2,285,398 5,533,626 13,702 (3,672,367) 4,160,359
Loss and total comprehensive income for the year 13,16 - - - (3,410,359) (3,410,359)
Balance at 31
December 2018
20 2,285,398 5,533,626 13,702 (7,082,726) 750,000

 

Cellcast plc has not presented its own income statement as permitted by Section 408 of the Companies Act 2006

 

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Consolidated statement of cash flows
For the year ended 31 December 2018

    2018   2017
    £   £
         
Net cash outflow from operations 23a (268,192)   (154,448)
         
Net cash (outflow)/inflow from investing activities 23b (88,470)   118,467
         
Net cash used in financing activities 23c (2,460)   (7,953)
         
Net decrease in cash and cash equivalents   (359,122)   (43,934)
         
Cash and cash equivalents at beginning of year   1,057,301   1,101,235
         
Cash and cash equivalents at end of year 23d 698,179   1,057,301

 

No separate company statement of cash flows is presented as the company holds no cash at 31 December 2018 (2017: £nil).

 

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Notes to the consolidated financial statements

The Notes to the Financial Statements are contained in the full results which is available to
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