Press Release

05 April 2011

 

Asia Digital Holdings Plc

("ADH" or the "Company")

 

Preliminary Results

For the year ended 31 December 2010

 

Asia Digital Holdings plc (AIM: ADH.L), an independent online marketing group, today announces its preliminary results for the year ended 31 December 2010.

 

Financial Highlights:

 

·	Sale of the DGM operation in Australia, historically a substantial part of the Group
·	Start of operations in China, a major growth market
·	Continuing operations sales remained steady at £6.10 million (2009: £6.16 million)
·	Operational loss reduced to £2.69 million (2009: £2.85 million)
·	Restructured central cost base post disposal projected to deliver annualised savings of over £0.80 million

 

 

Commenting on the results, Adrian Moss, Chief Executive, said: "2010 was a period of major transition for the Company, as we put in place the foundations for future growth.  We have sold the DGM operation in Australia, commenced operations in China, and made a number of operational changes to the business, including rationalisation of the central cost base. Subject to careful management of working capital, the Board feels the Group is better positioned to deliver shareholder value than previously, and looks forward to updating shareholders on our progress over the coming year." 

 

- Ends -

  

 

For further information, please contact:

Asia Digital Holdings plc
Adrian Moss, Chief Executive	www.adhplc.asia

 

Northland Capital Partners Limited
Gavin Burnell / Rod Venables	Tel:  +44 (0) 20 7492 4750
Katie Shelton (Corporate Broking)	www.northlandcp.co.uk

 

Abchurch Communications
Julian Bosdet / Joanne Shears/ Claire Dickinson	Tel: +44 (0) 20 7398 7718
claire.dickinson@abchurch-group.com	www.abchurch-group.com

 

  

 

Chairman's Statement

 

As a result of the sale of the DGM operation in Australia, the Group has reported a profitable year in 2010.  The remaining businesses in India and South East Asia continue to contribute, but it is the start of our operations in China that the Board sees as the driver for future growth.  Whilst continuing to carefully monitor the Group's working capital requirements, the Board anticipates that the opportunity for growth in China, as well as our rationalised cost base, can return the Group to profitability. 

 

Operational Review

The Group operated two main business units during 2010; DGM and AKTIV, both intermediary operations in the digital advertising space.

 

DGM delivers customers for global brands on a success-based payment model, Typically delivery is  through websites (or networks of sites) that are willing to promote an advertiser's product on a success fee basis, or through search engines such as Baidu, Google, Bing, Yahoo.

 

Over 2010 DGM operated in Australia, India and South East Asia, soft-launching in China towards the end of the first half of the year.  During the period DGM worked with advertisers such as Dell, Apple, Citibank, Vodafone, CNN, HSBC and American Express.

 

DGM is the largest part of Group sales representing 80% of continuing revenues in 2010 (2009: 76%) and retained 40 people or 80% of operational staff through 2010 (2009: 30 people and 77% of operational staff).

 

AKTIV is a digital advertising sales house that represents media owners, selling their advertising space to global agencies, and offering its customers administrative and commercial economies of scale.    

 

Over 2010 AKTIV operated predominantly in South East Asia, with some resources also in Hong Kong.  During the period we ran campaigns for advertisers such as Emirates, Millennium & Copthorne, Malaysian Airlines, Nike and Nokia.

 

AKTIV represented 20% of continuing revenues in 2010 (2009: 24%) and retained 10 people or 20% of operational staff through 2010 (2009: 9 people and 23% of operational staff).

 

In addition to the above businesses we started the year with a third business unit, Deploy.  This was never a material part of our sales mix and was discontinued in the year due to inconsistent delivery.

 

Review of Trading

Our performance has been materially and positively impacted by the sale of our DGM business in Australia in October 2010. This produced a one-off profit on the sale of £3.40 million, and Group profit before tax of £1.40 million (2009: £2.55 million loss) for the year including discontinued operations.

 

Our continuing operation, dominated by South East Asia and India showed no material change in sales or gross profitability for 2010, delivering sales of £6.10 million (2009: £6.16 million) and gross profit of £1.79 million (2009: £1.74 million).  The Group's margins increased slightly to 29%, up from 28% in 2009.

 

For the year as a whole, South East Asia produced a marginally positive result however the second half of the year saw a deterioration in delivery.

 

A number of operational changes were made in order to reverse this trend.  For the DGM business we appointed a new Managing Director in December and his appointment is already having a positive impact on results.

 

The AKTIV business, however, has not delivered the expected upturn in trade and the Board is currently considering the options for this business going forward.

 

Our Indian DGM operation delivered a consistent contribution throughout the period, showing a marginal improvement over the previous year. However, deterioration in debtor days has led to our policy of fully providing for all debts over 90 days being triggered. The Group has therefore made a further provision of £65,000 (2009: £27,000).

 

Our operation in China through 2010 was embryonic, in effect a soft launch, servicing Dell, our launch client with an average headcount of less than three people. The team was supported by back office functions in Singapore and our CEO who relocated to Shanghai in September 2010. We have spent time building relationships with performance based media partners and planning our launch strategy to accommodate the nuances of the local market.

 

Overheads in China have therefore been kept to a minimum and have all been expensed in the period, amounting to £0.11 million (2009: £Nil).  As a result reported administration expenses for the Group rose by 4% to £4.14 million (2009:  £3.98 million).

 

The net result is that our operational loss from continuing operations has been reduced to £2.69 million (2009: £2.85 million).  

 

The administration costs above include the costs of resource retained centrally to service the various business units that we operated in the period. This included the Australian business that we serviced for the majority of the year. After the sale of Australia we performed a cost review. The resultant initiatives, along with the announced reduction in salaries for directors, are expected to deliver annualised cost savings of over £0.8 million.

 

Working Capital

 

The disposal of our Australian business reversed net current liabilities of £1.9 million at 31 December 2009 to £0.03 million net current assets at 31 December 2010.  This is after repaying our convertible loan notes, with accumulated interest amounting to a cash payment of £617,534.  This repayment eliminated an annual interest charge of £75,000. 

 

We therefore ended the year debt free, with the exception of normal trading liabilities, with a cash balance of £538,225 as at 31 December 2010.

 

Since the disposal of the Australian operations the Group has been loss making. Such trading losses have been funded by the consideration from the disposal and leave the business with a cash balance of £165,000 as at 31 March 2011.  

 

We anticipate receipt of an additional gross cash amount of £657,188 (based on year end exchange rate) in deferred consideration on the disposal over two equal tranches, one in April 2011 and one in November 2011. The deferred payments are conditional on the execution of an insurance policy in favour of the acquirer to cover any Australian corporation tax exposure.

 

All support work has now been completed to facilitate this policy and we have been advised by our retained insurance broker to expect the policy to be in place in mid to late April, making the final payments unconditional. We therefore expect to receive £179,043 net from the first instalment by the end of April after the costs of the insurance policy, and other deferred transaction expenses are settled. Should there be any delays in this payment we would have a working capital deficit.

 

The net cash expected from the final deferred consideration payment due in November is £278,594.

 

We still retain a lease on a property in London that we have to service. We are pleased to report that within March 2011 we have sublet the largest of three units on a short-term basis and are confident that this will convert to a longer-term arrangement. We will continue to look to sublet the remaining space.  As at year end, the provision relating to outstanding commitments on these premises was £415,000 (2009: £517,000).

 

The Board believes that with the receipt of the deferred consideration, the expected growth in China and the material cost savings made, the Group has sufficient working capital to get back into profit. However, it acknowledges that should there be any delay in the receipt of the deferred consideration the Group may need to raise further capital. In addition, there are opportunities to expedite evolution in China for which the Company may, in any event, seek to raise additional funding.

 

Prospects and Strategy

 

The Board is of the opinion that China represents the largest opportunity for our Group to deliver material shareholder value. Though we expect our operations in South East Asia and India to deliver growth, and increasing profits, it is our expectation of a successful operation in China that will increasingly dominate our trading results as we progress through the current period and beyond.

 

The current and potential future growth in the number of internet users and digital advertising spend in China is exciting; however for the Group to deliver growth and profitability we must operate in a space that is relevant to our core skills, provide a service that is in demand and where the state of the supply chain presents us with an opportunity.

 

We believe that in China we have all three.

 

In their July 2010 report "China's Digital Generation 2.0" the Boston Consulting Group suggested that "To many multinationals, digital China is the mother of all untapped markets" citing the rise of e-commerce as the biggest trend shift in China. 3% of Chinese population shopped online in 2006, up to 8% in 2010 and expected to rise to 19% by 2012. The conclusion of the BCG research was that China is destined to be the world's most strategic e-commerce market.

 

This market is already material with reported levels of e-commerce of $39.3 billion in 2009 that rose 97% to $78 billion in 2010 (China E-Commerce Market Statistical Report January 2011).

 

Our core offering since launch in 1999 has been the DGM business, focused on delivering online sales for global brands. Whether it has been via affiliate marketing, search engine marketing or soaking up remnant inventory, our clients' objectives have been dominated by the generation of e-commerce.

 

The Chinese market is at a similar early stage in terms of supplier chain evolution to when we launched in the UK, Australia and in India yet the digital advertising spend and e-commerce levels are already much higher. The complexities of operating in China are undeniable; however if one can overcome these barriers of entry they provide a degree of protection against further competition.

 

Our cautious approach in China through 2010 has allowed us to better study the market and prepare for a superior launch. In 2011 we have increased our headcount, launched a second client and are ready to more fully engage with the market moving forward. We have a pipeline of global brands from which we hope to launch more clients over the coming months.

 

We believe that we have a major opportunity to apply our skills and experience to the Chinese market to deliver a positive contribution which, along with growing contributions from our existing operations and a materially reduced central cost base, we expect to take the Group back into profit.

 

Furthermore we believe that China can spearhead a successful regional customer acquisition offering and that this could drive more revenues through our more established operations in South East Asia and India.

 

As stated above we are considering the options for the AKTIV business. The Board notes that any decision to terminate would have a positive impact on our immediate results and support a return to profitable trading. This is based on AKTIV's delivery in 2010 and the first quarter of 2011.

 

Generally the Board believes that our delivery in the current financial year will be a better indication of the Group's potential than 2010 results. 

 

 

The Board would like to express its gratitude to the shareholders and staff who have supported us through the period, and we would like to emphasise our commitment to delivering shareholder value over the coming period.

 

David Lees

Chairman

4 April 2011

  

 

 

Consolidated income statement

For the year ended 31 December 2010

 

			Restated
		2010	2009
	Notes	£'000	£'000
Continuing operations
Revenue	2	6,104	6,164
Cost of sales		(4,310)	(4,424)
Gross profit		1,794	1,740
Administrative expenses
- amortisation		-	(404)
- depreciation		(76)	(51)
- share-based payments		(269)	(150)
- other administrative expenses		(4,135)	(3,984)
		(4,480)	(4,589)
Loss from operations	3	(2,686)	(2,849)
Interest received		-	-
Interest payable		(73)	(53)
Share of profit / (loss) of associates		-	(135)
Loss before tax		(2,759)	(3,037)
Income tax		42	(27)
Total loss after taxation from continuing operations		(2,717)	(3,064)
Discontinued operations
Profit before tax from discontinued operations		766	490
Profit on disposal of subsidiary		3,397	-
Income tax		27	-
Profit after tax from discontinued operations		4,190	490
Total profit / (loss)		1,473	(2,574)
Attributable to:
Equity holders of the parent		1,473	(2,574)
Earnings per share
Basic and diluted earnings / (loss) per share		0.19p	(0.36p)
Basic and diluted loss per share from continuing operations		(0.35p)	(0.43p)
Basic and diluted earnings per share from discontinued operations		0.55p	0.07p