Eurovestech plc : 29/03/12 Half-yearly report ›more

29/03/12

Half-yearly report

Eurovestech plc
("Eurovestech", "the Group" or "the Company")
Interim report for the six months ended 31 December 2011 ("the period" or "the six months")

Highlights

• Return of £13.3 million cash to shareholders
• Record revenues for KSS Fuels; successful integration of MPSI acquisition
• Carrying value of KSS Fuels increased by 37 per cent to £13 million
• Maxifier wins further contracts and recognition
• Company net assets of £55 million - 16.6 pence per share - following cash return of 4p per share
• Agreement with Cenkos to expand routes to public markets
• Since its foundation, Eurovestech has helped more than 100 charities through share gifts worth £2 million
• Portfolio well placed to deliver the next phase of growth

Richard Bernstein, Chief Executive, comments:
"I am delighted to report further advances for our portfolio and for our shareholders. We have now returned in excess of £23 million to shareholders in the last two years, more than the total funds raised from investors in the history of the Company. We are also pleased to have reached the milestone of having helped more than 100 charities via our share gifting scheme with a total value of £2 million. Our balance sheet remains strong and investee companies including KSS Fuels and Maxifier are poised to lead our next phase of growth".

Further Enquiries

Eurovestech plc
Richard Bernstein (Chief Executive Officer) 020 7478 9070

Merchant Securities Limited
David Worlidge / Simon Clements 020 7628 2200

Cenkos Securities
Ivonne Cantu 020 7397 8900

Chairman's Statement

I am pleased to report our results for the six months ended 31 December 2011. This has been a period of transition and renewal, as well as continued progress, for Eurovestech and its investee companies.

Our progress was exemplified by the return of £13.3 million cash to shareholders in October 2011, amounting to 4 pence per share. Following our initial return of £10 million in March 2010, Eurovestech has now returned cash equivalent to 6.18 pence per share to shareholders and made share buybacks amounting to £2.5 million. Thus the total returned to shareholders, including share buybacks, since inception is £23.3 million.

It is especially encouraging to report that even after these capital returns, our balance sheet remains strong.

Eurovestech incurred a loss after tax for the six months ended 31 December 2011 of £2.2 million, compared to a profit of £0.6 million in the six months ended 31 December 2010. The loss for the period reflected the absence of gains on disposal, exceptional charges at KSS Fuels for the integration of MPSI, and business combination amortisation. At earnings per share level, the loss for the six months ended 31 December 2011 was 0.65 pence per share, compared to earnings of 0.18 pence in the previous period.

Building value for shareholders remains our critical objective. We see the net asset value of our investments as the key benchmark of our progress. The company balance sheet of Eurovestech shows shareholders' funds of £55.0 million (16.6 pence per share) compared to £62.4 million (18.9 pence per share) at 31 December 2010 and to £65.6 million (19.8 pence per share) at 30 June 2011. Adjusted for the cash return of 4 pence per share (£13.3 million) in October 2011, Company net assets per share have increased by 4.0 per cent in the last six months. Our progress on this in the period gives us some measure of satisfaction.

Let us report in more detail on the progress of each investee company.

PORTFOLIO REVIEW
ITWP ACQUISITIONS LTD (HOLDING COMPANY OF TOLUNA)

ToLuna, which combines its online market research panel with industry-leading research technology, has four million members on its social voting site Toluna.com, and is at the forefront of the quick-feedback market.

ToLuna was acquired by ITWP Acquisitions in April 2011 and is now a privately owned business. We have been shareholders in ToLuna since we co-founded the business in 2000. The company has been and remains a remarkable success - we have already banked £40 million in cash on our total £2 million investment and still retain a 10 per cent holding, plus £12.2 million of loan notes.

In order to continue with its objective of best in class operations in North America and across all markets, last December, a new group chief operations officer with extensive industry experience was appointed. We believe this appointment should help to reverse the inevitable short-term disruption following the company being taken private, particularly in the United States. We remain confident about ToLuna's continuing growth prospects.

ToLuna's products reached several important milestones during the period. It signed more than 35 new clients for its proprietary product, Panel Portal TM, which provides customers with a branded panel community that encourages on-site interaction among members as well as offering quantitative research opportunities.

QuickSurveys, a new version of which ToLuna launched in mid-2011, achieved 10,000 users and won more than $1 million revenues in 2011. ToLuna believes that "DIY" survey solutions are causing a sea change in the industry, and will continue to develop QuickSurveys and to expand it into more countries.

During 2012, ToLuna plans to launch a number of new initiatives to support its growth. In January 2012 it launched a new iPad and iPhone app enabling users to take Toluna QuickSurveys directly through their mobile devices.

KSS LTD ("KSS FUELS")
KSS Fuels is a global leader of fuels pricing and retail network planning solutions. It serves over 400 customers in 80 countries and is wholly owned by Eurovestech.

KSS Fuels delivered record revenues and earnings for the period. Revenues for the six months ended 31 December 2011 were $11.3 million (£7.1 million), compared to $5.8 million (£3.7 million) in the equivalent period a year earlier. Underlying EBITDA was $1.5 million (£0.9 million), an increase of 91 per cent from the equivalent period. These excellent results reflected strong sales performance in its core markets - North America, Europe, Japan, Australia and South Africa. Operating profit margins remain at a very healthy level.

KSS Fuels forecasts revenues for the year ending 30 June 2012 will be in excess of $20 million (£12.8 million). In the year ended 30 June 2011, revenues were £7.7 million.

The integration of Market Planning Solutions Inc. ("MPSI"), the network planning, data collection and analytics company acquired in May 2011, has been largely completed, and approximately $2 million in annual cost savings will have been achieved. Extended product offerings from MPSI enhanced the trading performance of KSS Fuels in the period. Net cash at 31 December 2011 was $2.5 million (£1.6 million).

Since the period end, KSS Fuels has continued to win new orders. In January 2012 it announced that 7-Eleven Australia will implement its PriceNet solution in its Australian retail network of over 400 fuel sites. Outside its core markets, KSS Fuels is pursuing growth opportunities in India, Southeast Asia, China and Brazil.

KSS Fuels has made a number of senior appointments to strengthen its management team and position itself for further growth.

The success of KSS Fuels has been achieved against a very challenging economic backdrop. Based on these results, the underlying trends, current trading, the successful integration of MPSI and the net cash position, the directors of Eurovestech have increased the carrying value of KSS Fuels from £9.5 million to £13 million to reflect their assessment of fair value. We look forward to continued progress.

AUDIONAMIX SA
Audionamix has developed sound separation technologies that allow dramatic enhancement of the audio content in music, film, and television. Its ADX Technology resolves technical challenges that paralyse content distribution, and generates incremental revenue for content owners. Music dissociation (the removal of music from a soundtrack while preserving the dialogue and effects) is the biggest contributor to revenue so far.

Its portfolio of services continues to attract interest at the highest levels of the film, television and music industries. The company's client roster currently includes five of the top eight studios worldwide.

In December 2011, Audionamix announced that its audio engineers had been asked to use its proprietary ADX technology for film music composer Hans Zimmer's soundscape for the film Sherlock Holmes; A Game of Shadows. Audionamix previously provided a similar service for Hans Zimmer in the 2010 box office hit Inception.

Additionally, using its proprietary Voice Isolation Technology, Audionamix assisted Warner Bros. Animation to create new 3D cartoons based on the mono recordings of Mel Blanc, who wrote songs for the Looney Tunes characters Sylvester and Tweety.

Following its success in removing the orchestral sounds from the original soundtrack of West Side Story, thus enabling spectacular live performances during 2011, Audionamix has compiled a five minute documentary film West Side Story; Reviving the Masterpiece, detailing how it achieved the removal.

Revenues grew rapidly in the 2011 calendar year. However, its advances are modest relative to its potential. Accordingly, Audionamix is targeting further substantial growth.

On 31 December 2011 Eurovestech owned 45.5 per cent of Audionamix.

MAXIFIER LIMITED
Maxifier's online advertising technology solution enables premium publishers and ad networks to increase their advertising effectiveness, maximise campaign performance and drive greater inventory value, giving them a competitive advantage.

The adoption of Maxifier's services is highly encouraging. It won a number of new contracts during the period from both media and telecoms companies, enabling it to achieve a substantial increase in the "run rate" of its revenues.

In September 2011 it secured a long term contract from Forbes.com, one of the world's most recognised and influential business media brands. Forbes.com is adopting Maxifier's platform to optimise the effectiveness of its advertisers' campaigns, manage its global advertising inventories and improve operational efficiencies.

In recent weeks, several significant contracts have been signed, including Martini Media in the US and WPP's 24/7 Real Media in the UK.

A contract was also signed with a global mobile telephone network provider. The original trial contract was extended after Maxifier exceeded all performance hurdles. This followed a contract win from a division of Telecom Italia.

The Asia Pacific region offers exciting potential for Maxifier. Its new managing director of the APAC region joined in January 2012 and Maxifier's first contract in the region has already been signed with Recruit, the major Japanese publisher. Discussions are under way with a number of other leading companies in APAC.

Further funding is required to develop Maxifier's success fully and we are pleased to report that the company is at an advanced stage of negotiations for additional funding. This would be supported both by its founding shareholders, including Eurovestech, and by outside investors, and would value Maxifier at substantially more than its current valuation in Eurovestech's accounts. The interest from outside investors is an encouraging sign that Maxifier's success and technological strength are becoming widely recognised.

At 31 December 2011, Eurovestech owned 49.9 per cent of Maxifier.

LOGNET INFORMATION SYSTEMS PLC
LogNet provides billing and e-billing solutions which help telecoms and utility companies worldwide to cut operating costs and achieve greater profitability.

LogNet has expanded its marketing efforts to Asia, which it sees as potentially its fastest growing market. Following a period in 2010 when trading was below expectations, LogNet recovered during the 2011 calendar year, achieving sales growth of more than 50 per cent, and returning to profit.

Progress has continued into 2012. In February 2012, LogNet was selected by Tango, a leading mobile and internet services operator in Luxembourg, to deploy a multiple play customer management and billing solution. Tango, which is part of the Belgacom group, has more than 260,000 clients.

In March 2012, LogNet was profiled in "Smart Grid Billing Outlook 2012-2016" a market report published by Innovation Observatory, which analyses the opportunities for utility providers and municipalities to create new services and revenues. The report described LogNet, with its telecoms background, as being positioned to win business with forward-looking utility providers and municipalities in deregulating economies and with new entrants in competitive markets.

At 31 December 2011, Eurovestech owned 26.5 per cent of LogNet

MAGENTA CORPORATION LTD ("MAGENTA")
Magenta is a leading provider of real-time dynamic software scheduling for flagship players in the transportation industry.

During the period, Magenta strengthened its management and took action to ensure that its cost base was aligned to revenues. It completed the development of a new generation of Software as a Service (SaaS) products for different industries, such as the transport of patients and of cash, and for in-field service engineers.

Encouragingly, it won a dynamic scheduling contract from Rosinkas, which is the leading cash transit group in Russia and number three worldwide. It also won government contracts, which highlights the reliability of Magenta's service organisation.

Following revenue growth in excess of 20 per cent in the 2011 calendar year, Magenta produced a profit after tax of £381,000 and is generating sufficient cash to fund its growth. This is testimony to the progress it has made, and though it needs to win further contracts to maintain its momentum in 2012, it has intensified its efforts to meet this challenge. The new generation of SaaS products will be a core of the sales strategy.

At 31 December 2011, Eurovestech owned 49.6 per cent of Magenta.

ARKeX LTD
ARKeX carries out geophysical surveys for oil, gas and mineral explorers using airborne and marine gravity gradiometry technology which delivers accurate images of sub-surface geology over inaccessible terrain such as mountains or jungle, without damaging the environment.

In September 2011, ARKeX completed an airborne survey in Tajikistan for Tethys Petroleum. The survey covered most of the 35,000 square kilometre Bokhtar area, which is considered to have very promising potential.

In October 2011, ARKeX completed one of the larger airborne surveys flown to date, covering the Turkana Rift Basin around Lake Turkana in North West Kenya, for Tullow Oil. Tullow is one of the leading independent oil and gas companies with interests in 22 countries.

The increasing importance of shale gas discoveries, particularly in North America, offers opportunities for ARKeX's technology, which can provide analysis of significant benefit in the early stages of shale gas exploration, where three-dimensional seismic access is restricted. ARKeX has been working with Global Geophysical Services to improve understanding of the Marcellus shale, one of the largest sources of domestic natural gas to be discovered in the US.

ARKeX achieved very positive results in the 2011 calendar year. Following a very significant increase in the volume of data collected, revenues rose by nearly half compared to 2010 and it generated a net operating profit for the first time.

At 31 December, 2011 Eurovestech owned 2.5 per cent of ARKeX.

DIRECTORATE CHANGE
As announced on 13 March 2012, we are pleased to welcome David Ristow to Eurovestech's board as Director of Investments. David was Chief Financial Officer at KSS Retail, our former investee subsidiary, and we believe he is the ideal candidate to take our investment portfolio to the next stage of growth.

We thank Jean-Michel Petit, who resigns from the board with effect from 31 March 2012 to pursue his other business interests, for his excellent contribution over the last nine years. He has played a major role in managing the investments that have created substantial value for shareholders. We wish him every success with his future projects. He has agreed to continue to help our investee companies at least until the end of the year, so we will continue to benefit from his skills and experience.

CHARITABLE DONATIONS
From the beginning of its life as a quoted company, Eurovestech set out a commitment to support charities by issuing and gifting shares.

The Company has today issued 1,100,000 new ordinary shares of Eurovestech divided equally between St. Luke's Hospice, Yechi Am Yisrael, Missing People, The Trussell Trust, The Royal Opera House Foundation (Apprenticeship), Battersea Dogs and Cats Home, Tracks Autism, The Roy Castle Lung Cancer Foundation, Metropolitan Sports & Social Club for the Visually Impaired, Chris Westwood Charity for Children with Physical Disabilities and Marie Curie Cancer Care. Richard Bernstein, Chief Executive of Eurovestech, has paid £11,000 to facilitate their issue, representing the nominal value of these shares of one penny per share. Application has been made for the shares to be admitted to AIM and dealings are expected to commence on 5 April 2012.

Including these shares, since its flotation on AIM in 2000, Eurovestech has created and gifted 12 million shares to more than 100 charitable organisations. Including the cash returns to shareholders in 2010 and 2011, charities have now been gifted cash and shares currently valued at £2 million.

We are proud to have passed the milestone of helping 100 charities and hope other companies will follow our example by creating and gifting shares in this way.

AGREEMENT WITH CENKOS
As announced on 14 March 2012, Eurovestech has signed a co-operation agreement with Cenkos Securities plc in which both companies aim to benefit from each other's expertise and networks to help companies raise money. The agreement focuses on raising capital in the Middle East, where Cenkos will work with Eurovestech on any suitable opportunities for clients to raise funds on NASDAQ Dubai, and also covers Eurovestech's introduction of other investors to Cenkos. Cenkos is also discounting commission rates on any funds raised for Eurovestech and its investee and associated companies.

We see this agreement as offering broader funding routes for our companies and having the potential to generate significant income for Eurovestech via shared revenues or commissions. Cenkos and Eurovestech are already working on identified projects. There is no cap on the amount Eurovestech can earn under the co-operation agreement. In order to secure the above terms, Eurovestech paid a cash consideration of £0.9 million.

PROSPECTS
We have commented in the past on international economic conditions and their possible impact on our portfolio of companies. We have been pleased to report that our specific operations have been resilient, or unaffected by some of the most difficult conditions for many years. Signs of recovery in the US have raised hopes that the global economic difficulties of the last three years may ease somewhat during 2012.

However, in point of fact, while the overall environment for business, and interest rates and corporate valuations, may be driven by economic indicators, the fortunes of our individual companies are not. We develop and sell products and technologies that serve specific needs, and that are unaffected by gross economic measures. The markets our portfolio of companies serve are in rude health; these niche markets are growing.

The associated growth of our own companies has enabled us to demonstrate the success of our model in a most tangible form: by returning cash to shareholders. The return of £13.3 million completed in October 2011 takes the total returned in the last two years, including share buybacks, to £23.3 million. Moreover, even after very successful realisations, our portfolio continues to offer significant opportunities for growth. Our track record demonstrates that we are capable of taking advantage of these opportunities.

KSS Fuels is but one example. It is now a sizeable business in its own right. It is profitable. Its recent growth is highly encouraging. Maxifier, a much younger business, has excellent technology. Its product has proven its ability to deliver increased performance and is attracting increasing attention in its industry. Audionamix has undoubted potential and is also arousing interest in its sector.

Of course, all of these companies face challenges. However, we believe that they have the technological and management strength to overcome these and deliver further satisfactory results for our shareholders. At group level, as our agreement with Cenkos shows, we are exploring innovative ways of delivering further value. We view the future in a fashion that is tinged with reality, but in a manner that brims with confidence.

Richard Grogan
Chairman
29 March 2012