RNS Number:0603M
City Of London Group PLC
9 June 2003
CITY OF LONDON GROUP PLC
Triton Court, 14 Finsbury Square, London EC2R 1BY
9th June, 2003
Preliminary Results And Chairman's Report For The Year Ended March 31st, 2003
A GLIMPSE OF LIGHT AFTER A LONG
PERIOD OF DARKNESS
Group Clears The Decks As It Prepares To Move Forwards
The past financial year to put it mildly has been a shocker and upsetting for
all. At the investment portfolio level, almost weekly, and sometimes daily at
one stage, there was news on individual shares that had a harsh impact on
values. Remarkably despite the dramatic downturn in stockmarkets we have
survived in better shape than once feared. Net assets at year end stood at 58p
(98p) per share. The fallow year in operating profits predicted at the interim
stage has resulted in no dividend being recommended for the year in order to
preserve funds.
We continue to nurture our investment in compliance archiving through Archive-it
(renamed from Rchive-it and 72.5pc. held after full dilution) which is now
revenue producing. In order to greatly accelerate its progress, and only if
favourable terms can be agreed, a decision has been taken to dilute/dispose of
part or all of our shareholding during the course of the next year but retaining
an interest in its future. Discussions to this end are taking place with
interested parties and may continue throughout the summer. My view is it will
probably go to the foresighted Americans as do so many good British inventions.
Pre-tax profits for the year ended March 31, 2003 fell to #369,208 (#704,622)
before the previously announced write-off of #2.6m against our technology
investments. In addition we have provided #1.25m against the fall in value
of listed holdings.
At the operating level the PR division made a small pre-tax loss of #43,534
(profit #37,339) with little sign of improvement in the mining sector it serves.
Dividends and interest payments held up well and brought in #245,386
(#284,493) before payment of bank interest of #112,656 (#44,364). Gains from
sales of investments amounted to #285,173 (#387,890), the biggest contributor
being gold stock Oxiana Resources. Group losses for the year totalled 40.62p
(profit 6.66p) per share which reflects all the exceptional provisions made.
Our tax charge was #17,736 (#136,257).
The group's investment portfolio of quoted holdings at market value totalled
#5.57m before deducting bank borrowings of #2.96m. At year end the twelve
largest quoted holdings had a mid-market value of #2,978,000 against a book cost
of #2,594,000. The mid-market value last year was #3,926,000 and illustrates
the steepness of the fall which has taken place in share prices.
The portfolio net worth (including #244,000 of unlisted holdings) was equivalent
to 32.8p per share, with an additional 27.5p per share (#2.39m) invested in
Archive-it. This investment is through a mixture of equity and loans in
Archive-it which is now 91p.c. owned (72.5p.c. effectively after full dilution).
Archive-it made a pre-interest loss of #242,456 on sales of #65,435 in the
three months to end-March and in view of the decision taken to sell or refinance
the business during the course of the next year, our portion of the loss has not
been consolidated.
There is always the temptation to sell shares in a falling market and when
values are low. History shows it is better to sit tight through periods of
such great uncertainty. We are experiencing some small uplift currently ...
may it continue.
Our mixed adventures into the world of the internet are on record. Moving into
the 21st Century captured the imagination of the capitalist world thirsting for
braver types of investment with a potential for huge returns. The internet and
the multitude of opportunities it presented was irresistible for most investors
with red blood coursing in their veins. The internet, no one could deny, was
here to stay; the dotcoms were not.
We picked on three areas for our activity. One was a bulletin trade site,
ECeurope.com which was built up into a membership of 136,000 but failure to
convert to paying membership led to immediate closure of the site Our second
investment was Direct Broadcasting Corporation (effectively 40p.c. held),
designers of media management software, providing scheduling, production,
distribution and automated billing for digital networks; this has been
mothballed for the moment. The two above investments have been written off for
book purposes.
Our resources have been concentrated on the third investment, Archive-it, where
we backed a software design team with a background in secure messaging to come
up with an email archiving solution for compliance and storage. This would be
easy to use, built on open architecture, and sort, store, index emails as they
became an increasing problem to organizations worldwide. So far only 2p.c.
of UK business has adopted an email archiving product according to a survey we
carried out. Our own Enterprise product, MailStore, is in the marketplace and
orders have been received, though on the slow side , from a variety of police
forces, legal and architectural firms, local authorities, and government bodies.
The sales cycle has been lengthened by lack of education amongst IT staff
about the real impact of regulation around email which the U.S. has just caught
on to. Cash flow from Archive-it is spluttering to life but a monthly
break-even position is not expected before the end of the year as the larger
sales from the channel-driven sources we have been developing start coming
through. The required funding to break-even in December this year is estimated
by management at around #300,000.
All these stakes were taken on reasonable investment grounds and the
anticipation that second-round funding would be later forthcoming with only a
slight change in market sentiment. But investor sentiment turned sour towards
all forms of development companies and products took longer to development
completion.
Archive-it was always a five year investment to yield major returns. We have
completed three years of this investment and appreciate the company is
undercapitalized for the role it is destined to play as "The Best of Breed" in
the compliance archiving market and the marketing spend this entails. After an
unsolicited approach by an American firm with a strong corporate customer base
who likes the product, and now by other parties, we are appraising the options
before reaching a decision.
Separately talks are being held with another U.S. company specializing in the
email area with a view of closer ties. Archive-it has also started meetings
with venture capitalists in the UK who have expressed interest in raising funds
to develop the sales and service infrastructure and look at voice mail
archiving.
The value of our investment in Archive-it, whose results are not included in the
figures, has not been written up or down since worth can be judged only on
product sales and future profitability and, quite rightly, the auditors have
again flagged uncertainty of this investment.
LOOKING TO THE FUTURE
These are times of significant change in business throughout the world. They
come at both organizational and personal level and City of London Group in the
year ahead will initiate change although keeping to a role within the media and
investment sectors.
Hefty provisions have been made this year as it is prudent to do so but we hold
steady to our purpose of increasing shareholder value again after the downturn.
The storm is abating and some sense of values beginning to return. It is to
be noted that we hold at zero book value the PR business, and intellectual
property rights over the ECeurope and DBC software.
The tone for business generally will be set in America over the next year as
Stock Markets warm towards the November 2004 presidential election. There
will be opportunity again for fledgling companies with ideas.
In the meantime, Archive-it's MailStore software is winning clients and more
recently has sold to a leading firm of City solicitors. Talks to integrate the
system into a major manufacturer's software are reaching an interesting stage.
The Archive-it software - it took longer to be better - is a 'Rolls Royce'
engine designed to power many different planes in the email world and provide
safe and secure flights to and from all storage destinations.
MailStore has been rebadged in the United States where marketing has just begun,
and a #100m enterprise solutions provider in London is carrying out a similar
exercise. Sales from these sources should start coming through shortly.
Leading software channel Computacenter has also adopted MailStore as a priority
product to sell through its government division.
The PR industry has seen some of the worst retrenchment in a very long time.
Our own business continues to find the going difficult although mostly able to
cope in slow but deteriorating circumstances. Taking advantage of a weak
market it will look for a suitable partner in the coming year with the emphasis
on the UK side.
Yes, despite the severity of the setbacks in the past year, there are grounds
for both hope and some optimism. We are in a settling down mode after a
particularly discouraging and gloomy period ... and ready to move forwards.
9th June, 2003 JOHN GREENHALGH
Chairman
020 7628 5518 (M: 070500 39678)
CITY OF LONDON GROUP PLC
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2003
2003 2002
# #
TURNOVER - CONTINUING OPERATIONS 371,789 496,414
Cost of sales 52,628 71,984
----------- ------------
GROSS PROFIT 319,161 424,430
Administrative expenses 375,397 399,480
----------- ----------
(56,236) 24,950
Other operating income 7,541 11,653
----------- ----------
OPERATING (LOSS)/PROFIT (48,695) 36,603
Interest payable (112,656) (44,364)
Interest receivable and other investment income 245,386 284,493
----------- -----------
84,035 276,732
Profit on sale of subsidiary - 190,000
Profit on disposal of investments 285,173 387,890
Provision for diminution in investments (3,859,800) (150,000)
------------- -----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION (3,490,592) 704,622
Tax on (loss)/profit on ordinary activities (18,042) (136,257)
------------- -----------
(Loss)/profit on ordinary activities
after taxation (3,508,634) 568,365
Dividends - 584,826
-------------- -----------
RETAINED LOSS FOR THE YEAR (3,508,634) (16,461)
============== ===========
Earnings per share - undiluted (40.62)p 6.66p
- diluted (40.62)p 6.65p
Notes:
1. The financial information contained in this preliminary
announcement does not constitute full accounts as defined in section 227 of the
Companies Act 1985 and has been extracted from the financial statements for the
years ended 31 March 2003 and 31 March 2002 upon which the auditors have neither
qualified their opinion nor included a statement under section 237 (2) or (3) of
the Companies Act 1985. The statutory accounts will be filed with the Registrar
of Companies in due course.
2. The calculation of earnings per share is based on the profit after
taxation, divided by the weighted average number of shares in the period of
8,636,797 (2002: 8,535,340). The calculation of diluted earnings per share
divided this profit by a revised average of 8,636,797 diluted shares (2002:
8,552,862).
CITY OF LONDON GROUP PLC
GROUP BALANCE SHEET AT 31 MARCH 2003
2003 2002
# # #
FIXED ASSETS
Tangible assets 7,600 12,199
Investments 5,842,654 10,609,935
------------- -----------
5,850,254 10,622,134
------------- ------------
CURRENT ASSETS
Current asset investments 2,392,142 -
Debtors 60,952 149,462
Cash at bank and in hand 209,525 93,882
------------- -------------
2,662,619 243,344
CREDITORS: amounts falling
due within one year (3,478,199) (2,474,168)
------------- -------------
NET CURRENT LIABILITIES (815,580) (2,230,824)
---------- -------------
TOTAL ASSETS LESS CURRENT LIABILITIES 5,034,674 8,391,310
========== =============
CAPITAL AND RESERVES
Called up share capital 868,973 853,760
Share premium account 4,200,838 4,064,053
Profit and loss account (35,137) 3,473,497
------------- -------------
EQUITY SHAREHOLDERS' FUNDS 5,034,674 8,391,310
============= =============
CITY OF LONDON GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2003
2003 2002
# # #
CASH FLOW FROM OPERATING
ACTIVITIES (957,772) 159,537
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 9,567 20,091
Interest paid (112,656) (44,364)
Dividends received 249,079 266,664
---------- ----------
NET CASH INFLOW FROM RETURNS
ON INVESTMENTS AND SERVICING
OF FINANCE 145,990 242,391
TAXATION (185,724) (67,919)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Purchase of tangible
fixed assets (2,536) (6,688)
Payments made under
loan guarantees (300,000) -
Purchase of investments (496,193) (1,937,678)
Sale of investments 590,691 666,686
---------- ------------
NET CASH FLOW FROM CAPITAL
EXPENDITURE AND FINANCIAL
INVESTMENT (208,038) (1,277,680)
ACQUISITIONS AND DISPOSALS
Sale of subsidiary - 190,000
---------- ------------
NET CASH FLOW FROM
ACQUISITIONS AND
DISPOSALS - 190,000
EQUITY DIVIDENDS PAID (400,954) (307,007)
----------- -----------
NET CASH OUTFLOW BEFORE FINANCING (1,606,498) (1,060,678)
FINANCING
Issue of ordinary share capital - 10,563
Increase in bank loans 1,722,141 1,018,123
---------- -----------
INCREASE/(DECREASE) IN CASH
IN THE PERIOD 115,643 (31,992)
========== ===========
This information is provided by RNS
The company news service from the London Stock Exchange
END
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