TIDMPHRM
RNS Number : 4387G
Phorm Inc
29 June 2012
29 June 2012
Phorm, Inc. ("Phorm" of the "Company")
Annual Report and Financial Statements - Year Ended 31 December
2011
Phorm (AIM: PHRM and PHRX), the personalisation technology
company, today announces its audited financial statements for the
year ended 31 December 2011.
Highlights:
Year to date 2012
-- Conditional agreements entered into with China City
Investments Limited for a GBP20m equity investment into Phorm China
valuing Phorm China alone at GBP100m (post money). Completion is
expected by 31 July 2012
-- Further funding options to meet near-term working capital
requirements for the Group are under active consideration
-- Operations went live in Romania last October and have
commenced this year in an important Southern European market
thereby broadening the Group's routes to significant revenue and
operating profit
-- Our new markets and our business development pipeline
comprise only full network deployments with ISP partners, unlike
Brazil where deployments are currently restricted to part of each
of the our ISP partners' networks
-- Commercial operations in Brazil continue to support the
business model assumptions of advertiser pricing, being
significantly higher than forecast, and publisher costs, being in
line or lower than forecast, albeit not yet at scale
-- Opt in rates from all 3 deployed markets have been in line or higher than forecast
-- Business development pipeline is growing and is now becoming
industrialized, rapidly shortening the time frames concerned
-- Intention to restructure the Company announced to enable the
Company's shares to be fully CREST eligible and provide an aid to
their liquidity
Year to 31 December 2011
-- Operating losses for the year were $30.5 million (2010: $27.9
million). Excluding non-cash items operating losses for the year
reduced to $24.2 million (2010: $26.0 million)
-- Deployment in Romania with Romania Telecom. Full network
invite process achieved in just 4 weeks
-- Opt-in rates achieved in Romania significantly ahead of
forecast, reinforcing those seen in Brazil
-- Much slower than anticipated ramping in Brazil, but expected
to improve in 2012 once user numbers grow
-- Equity placing in November 2011 for GBP33.6 million.
Convertible loan notes of GBP16.075 million retired in their
entirety. Group is now debt free.
Enquiries:
Phorm, Inc.
Mark Williams: +44 20 7297 2326 (analysts and investors)
Alex Laity +44 20 7297 2710 (media)
Liberum Capital +44 20 3100 2222
(Nominated Advisor and Joint Broker)
Chris Bowman
Richard Bootle
Mirabaud Securities LLP +44 20 7321 2508
(Joint Broker)
Jason Woollard
Peter Krens
Chairman and chief executive's statement
Operational performance
Although we were not able to achieve the substantial revenues
and profitability for which we and our investors have been waiting
too long, this year was a good year for Phorm.
Even though the speed of our rollout in Brazil has been an
undeniable disappointment, we saw our dependency on the slow pace
in that country decrease substantially as we have now gone
operationally live, serving invitations and offering our Phorm
Discover product in two new markets and are well positioned in
several additional markets where we expect to go live within the
next year. For both of the markets which have gone operationally
live after Brazil, namely Romania and an important Southern
European market, we expect to generate revenue in the second half
of 2012.
In addition to the three live markets, we are in active
preparation in several other markets, which we expect to go live
within the next year. Each of these additional markets is
positioned for roll out to the full network of the Internet Service
Provider ("ISP") partner and therefore to generate significant
revenue.
One of those markets is the People's Republic of China ("PRC").
After almost a year of due diligence by our highly influential
investors both in our overseas markets and within the PRC, we were
very pleased to announce that we have reached agreement for an
investment of GBP20 million for a 20% equity interest in Phorm
China. The investment is subject to satisfaction of closing
conditions. We have stipulated, in our investment agreement, an
intention to list our Chinese subsidiary in the public markets
within three years of achieving 20 million daily active users in
the PRC.
Together with a technology which our efforts to date have shown
to be wanted by a large cross section of Chinese ISPs and highly
valuable advice and assistance from our new partners in the
traditionally challenging Chinese market, on completion, this
investment will position us very well to achieve significant
penetration in the world's largest internet market. As a measure of
the size of this market, China has 180 million fixed line broadband
accounts and 750 million mobile accounts. This is compared with 20
million fixed line accounts in the UK.
Our intention is to develop similar strategic partnerships in a
limited number of key markets moving forward. This will help us
balance a simplified corporate structure with the ability to bring
in investment and partnerships which significantly accelerate the
path to revenue in these key markets.
As progress continues, our ability to underpin the business case
with actual statistics such as ad performance and opt-in rates
grows, which in turn increases the traction which we are getting
from ISPs around the world. We currently have a strong pipeline of
business development opportunities with ISPs and expect many of
those to move rapidly towards deployment during the course of next
year. We expect a substantial increase in the pace and number of
deployments when we become able to demonstrate substantial revenue
in our current live markets.
With that in mind, we have given considerable thought to the
issue of scaling our sales and execution capacity. We have made a
number of senior level hires across the technology, legal and
business development areas in anticipation of having to grow the
company in a rapid yet organized fashion. We have also focused on
compressing the time to market and standardizing the delivery
process. We believe that it is essential to take these steps now in
anticipation of the timeline for large-scale revenue and the size
of our current pipeline.
On the funding side, apart from the recent agreements for
investment into Phorm China, we were very pleased, during 2011, to
have been able to retire all of the Group's debt and deliver a very
good return to the investors who participated in our secured
convertible loan note issue. Although the issuance of debt was
useful and timely, we are pleased to be able to clear the Group of
any dilution overhang and debt burden.
Importantly, we also recently announced that we would be
restructuring the Company to ensure that the listed entity did not
fall under the US Securities Act, which requires physical
certificated settlement of our shares making trading in the shares
more cumbersome than that of other shares. We believe that
re-domiciling from a Delaware corporation to Singapore will make
the shares significantly more liquid by enabling trading on CREST.
The process of re-domiciling has begun and should be complete
within a few months.
In conclusion, we expect significant additional news flow during
the second half of this year and believe that it will become
increasingly clear to investors that the long wait for revenues
will have been worthwhile.
Funding and going concern
In November 2011, the Company announced a GBP33.6 million equity
placing. This placing allowed the Company to retire its GBP16.075
million secured convertible loan notes in their entirety while
providing working capital for the core business during 2012 to
date. In addition, as mentioned above, agreement has been reached
for investment of GBP20 million for 20% of Phorm China, subject to
satisfaction of closing conditions. The sale of the 20% stake in
Phorm China is the realisation of the investment strategy that the
Company has been pursuing for some years. When received, the
proceeds from the Phorm China investment can be used for business
expansion and general working capital in Phorm China and its
subsidiaries, but based on the current investment agreements, will
not be available for wider group purposes. The current uncertainty
with respect to the scale and speed of the revenues arising from
the current deployment means that further funding for Phorm, Inc.
is a necessity early in the second half of 2012 for wider group
purposes and the Company is actively engaged in further funding
discussions.
Further information in respect of the directors' assessment of
going concern, including the material uncertainties identified, is
set out in the attached notes to the preliminary announcement.
Financial report
Results for the year
The Company is pleased to be able to report that it did start
generating revenue in 2011. However, the revenues generated are
significantly lower than original expectations due to the speed of
ramp up largely as a result of the changes to and challenges within
the ISP networks in Brazil. Nevertheless despite the slower speed
the commercial results in terms of advertising pricing and
performance have been excellent, albeit at limited scale, but we
believe the results to date support our views with respect to the
future potential of the Company.
Total revenue of $50,419 was generated for the year ended 31
December 2011 (2010: $nil). The Group expects revenues to grow
non-linearly as user numbers increase.
Operating losses for the year (before non-cash share-based
payment charges) were $24.2 million (2010: $26.0 million). The
non-cash share-based payment charges for the year were $6.3 million
(2010: $1.9 million), principally as a result of the new grants to
the Chief Executive Officer and another director announced at the
time of the Group's equity raise in the fourth quarter.
For the six months ended 30 June 2011, we reported an operating
loss (before non-cash share-based payment charges) of $13.0
million; this compares to $11.2 million in the second half of the
year. The reduction in operating losses has been achieved despite a
significant increase in capability supporting live operations in
three markets. The Company will continue to focus on identifying
cost savings and efficiencies as it continues to scale its
operations and revenues.
In addition, the terms of the secured convertible loan notes
resulted in a significant financing charge of $32.0 million of
which $29.4 million was settled by issue of new shares. The
proceeds from the Company's equity fundraising in the fourth
quarter of 2011 permitted repayment of all loan notes in full, such
that the Group is now debt-free.
Losses after taxation were $62.5 million (2010: $28.7 million).
Loss per share was $2.36 (2010: $1.61).
Financial position
Our balance sheet at 31 December 2011 showed net assets of $18.2
million (2010: net liabilities of $4.3 million) with cash and cash
equivalents of $16.1 million (2010: $5.7 million). The year on year
improvement in the net asset position of $22.5 million is
principally attributable to the increase in the Group's share
capital and additional paid-in capital of $78.8 million, offset by
the loss for the year of $62.5 million, foreign exchange losses on
translation of overseas subsidiaries of $0.2 million, net of a
share-based payment credit of $6.3 million.
Since the year-end there has been a material reduction in the
net asset position of the Group as a result of continuing operating
losses. As at 31 May 2012, the Group held cash and cash equivalents
of $5.7 million.
Cash flows and funding
The Group's net cash used in operating activities reduced from
$24.8 million in 2010 to $24.2 million in 2011, largely due to
lower operating costs. Cash used in investing activities increased
from $0.2 million to $1.1 million principally due to capital
expenditure as the Group invested in equipment for the roll out of
its technology in two new markets.
During the course of 2011, the Company has raised additional
funds through issuing new equity in November 2011, resulting in a
cash inflow of GBP33.6 million, net of expenses. The proceeds from
the Placing were used to redeem the convertible loan notes ("CLNs")
issued on 21 March 2011 (together with the Placing, the
"Transaction") and to provide working capital and develop the
opportunities previously described. The Company subsequently issued
call notices to all holders of the GBP16,075,000 secured CLNs and
redeemed the notes using a combination of cash and shares. The
total cash repayable was GBP17.6 million, being the GBP16.1 million
principal together with GBP1.5 million of interest (accrued at a
rate of 15% per annum since the issue date of the CLNs). In
addition, under the terms of the secured CLNs, the minimum
threshold return was 1.1 times the principal and accrued coupon
(GBP17.7 million) (the "Redemption Premium") as the CLNs were
redeemed in the first year of issue. The Company opted to satisfy
the balance of the Redemption Premium in shares. The Redemption
Premium shares were issued at a price of 98.30p per Share, being
the average of the lowest five daily closing prices over the 20 day
trading period immediately prior to the redemption notice being
given. The total number of Redemption Premium shares issued was
17,988,302.
The total number of shares issued pursuant to the Placing was
39,023,306 at a Placing price per share of 86.10p. Accordingly, the
total number of shares issued by the Company pursuant to the
Transaction was 57,011,608. Following the Transaction, the total
issued share capital of the Company comprised of 75,491,515 shares
with a nominal value of $0.001 each.
This was considerably more dilution than the Company had
originally anticipated and reflected the poor performance of the
share price, notwithstanding the commercial progress that had been
achieved. As a result the Company continued to pursue its strategy
of funding the Company by selling minority stakes in its
subsidiaries. This strategy was first outlined in its annual report
for the year ended 31 December 2009 and reiterated in the annual
report for the year ended 31 December 2010. The Company was very
pleased to be able to announce on 1 June 2012 that it had entered
into agreements to raise GBP20 million, which is subject to closing
conditions, via a subscription for a 20% equity stake in an
operating subsidiary for Hong Kong and the People's Republic of
China ("Phorm China").
The equity subscription gives Phorm China a post-money valuation
of GBP100 million. The equity subscription is subject to the
customary closing conditions and a requirement on Phorm to enter
into a licensing agreement for its know-how and technology to Phorm
China that will be operated by the Phorm team within Hong Kong and
the People's Republic of China on an exclusive, perpetual,
royalty-free basis. Closing is expected to occur on or before 31
July 2012.
Kent Ertugrul
Chairman and Chief Executive
28 June 2012
Consolidated income statement
Year ended 31 December 2011
Year ended 31 December Year ended 31 December
2011 2010
Before Before
share based Share based After share share based Share based After share
payment payment based payment payment payment based payment
expense expense expense expense expense expense
$ $ $ $ $ $
Continuing operations
Revenue 50,419 - 50,419 - - -
Cost of sales (456,317) - (456,317) (484,086) - (484,086)
Gross loss (405,898) - (405,898) (484,086) - (484,086)
Research and
development (6,603,799) (119,333) (6,723,132) (6,203,263) (506,018) (6,709,281)
Sales and administrative
expenses (17,186,816) (6,221,582) (23,408,398) (19,355,320) (1,356,810) (20,712,130)
Operating loss (24,196,513) (6,340,915) (30,537,428) (26,042,669) (1,862,828) (27,905,497)
Investment income 7,252 18,198
Financing expense (32,006,091) (786,039)
Loss before tax (62,536,267) (28,673,338)
Tax on loss on
ordinary activities - -
Net loss for
the year (62,536,267) (28,673,338)
Attributable
to equity holders
of the parent (62,536,267) (28,673,338)
Basic and diluted
loss per share
($) (2.36) (1.61)
Consolidated statement of comprehensive income
Year ended 31 December 2011
Year ended Year ended
31 December 31 December
2011 2010
$ $
Loss for the year attributable to equity
shareholders (62,536,267) (28,673,338)
Exchange loss on translation of foreign
operations (236,052) (704,866)
Total comprehensive loss for the year (62,773,319) (29,378,204)
Attributable to equity holders of the
parent (62,773,319) (29,378,204)
Consolidated statement of changes in equity
Year ended 31 December 2011
Additional
Share paid in Own Translation Accumulated
capital capital Warrants shares reserve deficit Total
$ $ $ $ $ $ $
At 1 January
2011 18,480 141,984,668 49,840 (341,837) (13,587,905) (132,435,425) (4,312,179)
Total comprehensive
loss for the
year - - - - (236,052) (62,536,267) (62,772,319)
Share-based
payment charge - - - - - 6,340,915 6,340,915
Issue of new
stock 57,012 78,774,508 130,446 - - - 78,961,966
At 31 December
2011 75,492 220,759,176 180,286 (341,837) (13,823,957) (188,630,777) 18,218,383
Consolidated statement of changes in equity Year ended 31
December 2010
Additional
Share paid in Own Translation Accumulated
capital capital Warrants shares reserve deficit Total
$ $ $ $ $ $ $
At 1 January
2010 17,294 139,091,603 - (341,837) (12,883,039) (105,624,915) 20,259,106
Total comprehensive
loss for the
year - - - - (704,866) (28,673,338) (29,378,204)
Share-based
payment charge - - - - - 1,862,828 1,862,828
Issue of new
stock 1,186 2,893,065 49,840 - - - 2,944,091
At 31 December
2010 18,480 141,984,668 49,840 (341,837) (13,587,905) (132,435,425) (4,312,179)
Consolidated balance sheet
31 December 2011
2011 2010
$ $
Assets
Non-current assets
Property, plant and equipment 1,063,978 332,835
Total non-current assets 1,063,978 332,835
Current assets
Trade and other receivables 2,726,128 1,428,474
Cash and cash equivalents 16,149,780 5,691,895
18,875,908 7,120,369
Total assets 19,939,886 7,453,204
Current liabilities
Trade payables (499,893) (1,076,264)
Other payables (1,221,610) (1,147,856)
Obligations under finance leases - (4,004)
Provisions - (1,218)
Total current liabilities (1,721,503) (2,229,342)
Non-current liabilities
Secured convertible loan notes - (9,536,041)
Total non-current liabilities - (9,536,041)
Total liabilities (1,721,503) (11,765,383)
Net assets/(liabilities) 18,218,383 (4,312,179)
Equity
Common shares 75,492 18,480
Additional paid in capital 220,759,176 141,984,668
Own shares (341,837) (341,837)
Warrants 180,286 49,840
Translation reserve (13,823,957) (13,587,905)
Accumulated deficit (188,630,777) (132,435,425)
Stockholders' equity/(deficit) 18,218,383 (4,312,179)
Consolidated cash flow statement
Year ended 31 December 2011
Year ended Year ended
31 December 31 December
2011 2010
$ $
Net cash used in operating activities
Net cash used in operating activities (24,286,713) (24,815,332)
Income tax paid - -
Net cash used in operating activities (24,286,713) (24,815,332)
Cash flows used in investing activities
Interest received 7,252 18,198
Proceeds on disposal of property,
plant and equipment 67,632 -
Purchase of property, plant and
equipment (1,218,700) (219,740)
Net cash used in investing activities (1,143,816) (201,542)
Cash flows from financing activities
Finance lease interest paid (49) (923)
Repayment of obligations under
finance leases (4,004) (11,234)
Purchase of own shares - -
Proceeds from issue of common
shares 49,389,004 2,894,251
Proceeds from issue of secured
convertible loan notes 15,835,634 9,060,635
Secured convertible loan note
interest paid (3,103,504) -
Repayment of secured convertible
loan note (25,601,210) -
Net cash inflows from financing
activities 36,515,871 11,942,729
Net increase/(decrease) in cash
and cash equivalents 11,085,342 (13,074,145)
Cash and cash equivalents brought
forward 5,691,895 19,713,788
Effect of foreign exchange changes (627,457) (947,748)
Cash and cash equivalents carried
forward 16,149,780 5,691,895
Notes to the consolidated financial statements
Year ended 31 December 2011
1. Basis of preparation
The preliminary announcement for the year ended 31 December 2011
is an abridged statement of the full annual report which was
approved by the Board of Directors on 28 June 2012. While the
financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards (IFRSs),
this announcement does not itself contain sufficient information to
comply with IFRSs. The Company will publish full financial
statements that comply with IFRSs on 29 June 2012.
The consolidated financial statements for the year ended 31
December 2011 have been prepared on a going concern basis. The
director's assessment of the appropriateness of the going concern
basis is set out in note 2 below.
The auditors' report on the consolidated financial statements
for the year ended 31 December 2011 is unmodified but includes
reference to matters to which the auditors draw attention by way of
emphasis, without modifying their report, in respect of a material
uncertainty with respect to going concern. Further information in
respect of the material uncertainty is set out in note 2 below.
2. Going concern
In accordance with their responsibilities, the directors have
considered the appropriateness of the going concern basis, which
has been used in the preparation of these financial statements.
During 2011 and up to the date of approval of these financial
statements, the Group has made significant progress in the
development and deployment of its technology and services. In
particular, the generation of revenues in Brazil, and the
operational launch in Romania and an important southern European
market represent important commercial developments for the Group.
The Directors recognise the fact that revenues have not grown as
rapidly as originally expected due to slower than expected user
growth in Brazil. However, the Directors are very encouraged by the
speed of the deployment in both Romania and the southern European
market which gives reasons for confidence with respect to future
cash flows.
The Directors are encouraged by the post year-end announcement
of an agreement of funding at a local level for Phorm China, which
is subject to certain closing conditions. The Directors have
increased confidence in the Company's ability to generate
substantial revenues given the fact that it has now entered three
markets rather than just one, with commercial deployment in two of
these markets expected in the second half of 2012.
To date, the Group has incurred cumulative losses of $188.6
million. The Group has funded these losses and its operations
through equity provided by its shareholders, including the equity
issuance of $50.7 million, net of expenses in November 2011, which
was used to repay the Group's secured convertible loan notes and
provide working capital for the Group.
The Directors have approved a business plan which forecasts
continuing cash outflows in the near term. The Group, however, has
forecast revenues for FY12 and FY13 sufficient to cover the
operating costs in Brazil, Romania and the southern European market
and to provide significant cash flows for the Group to fund other
costs incurred as it seeks to achieve further deployments
internationally. These forecasts include a number of key
assumptions which have been validated through our market trials but
have yet to be confirmed at scale.
The principal risk with respect to achieving the results
anticipated by the business model is the speed of roll-out of the
service in each of its operational markets.
In the near term, the principal risk to the business is to
ensure that the Group has sufficient working capital to allow the
operating businesses to reach full commercial scale. At this scale,
the Group's forecast shows that the business would be generating
significant operating profits. At the date of approval of the
Group's financial statements, the Group has yet to secure the
additional funding requirements set out in the business plan and
is, therefore, not fully-funded at the current time. The Group
requires additional funding early in the second half of 2012 to
continue to meet its liabilities as they fall due and is in
discussions with a number of parties regarding funding; its
strategy is to pursue a number of financing alternatives in
parallel to ensure that it has sufficient funds to sustain
operations. Discussions have been progressing on a number of
fronts, and the Group expects to be able to make an announcement
with respect to further funding shortly.
In preparing the Group's financial statements, the Directors
have assumed that sufficient further funding will be made available
to the Group to enable it to execute its business plan and realise
the forecast inflows following commercial launch and roll-out of
its technology in additional markets.
In making this going concern assessment, the Directors have had
regard to the following matters:
-- the Group's track record of successful fund raising from
shareholders and other investors, as evidenced in 2008, 2009, 2010,
and 2011;
-- the announcement of agreements with Chinese City Investments
Limited to invest GBP20 million for a 20% stake in Phorm China,
which is currently subject to closing conditions;
-- the potential to secure revenue commitments from new ISP partners;
-- the potential opportunity to raise further finance in local markets; and
-- the commercial progress being made internationally.
In common with similar businesses at this stage of their
development, and in light of the Group's dependence on further
financing being made available to it from its shareholders or other
providers of finance, the Directors consider the combination of
these circumstances represent a material uncertainty that may cast
significant doubt upon the Group's ability to continue as a going
concern and, therefore, that it may be unable to realize its assets
and discharge its liabilities in the normal course of business.
Nevertheless, after making enquiries, and considering the
uncertainties described above, the directors have a reasonable
expectation that the Group will have access to adequate resources
to continue in operational existence for the foreseeable future.
For these reasons, they continue to adopt the going concern basis
in preparing the Group's financial statements.
The Group's financial statements do not reflect any adjustments
that would be required if the Group were unable to secure such
financing to enable the Group to achieve profitability and positive
cash flow, such that the going concern basis of preparation ceased
to be appropriate.
The full audited financial statements for the year ended 31
December 2011 can be found on the Investor section of the Phorm
website.
end
This information is provided by RNS
The company news service from the London Stock Exchange
END
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