TIDMGON
RNS Number : 6769A
Galleon Holdings PLC
04 February 2011
Date: 4 February 2011
On behalf of: Galleon Holdings plc ('Galleon', 'the Company' or
the 'the Group')
Embargoed until: 0700hrs
Galleon Holdings plc
Preliminary results for the full year ended 30 September
2010
Galleon Holdings plc (AIM: GON), the AIM listed media company
that publishes digital online and mobile content in China and
develops and produces global multiplatform entertainment, is
pleased to announce its results for the full year end 30th
September 2010.
Highlights:
Loss Before Tax of GBP20.2m (2009: Profit before tax of
GBP1.1m)
Adjusted Operating Loss* of GBP2.1m (2009: GBP1.2m)
Cash at bank at 30 September 2010 of GBP2.85m (2009:
GBP4.5m)
Launch of Digital Publishing Business in China
Galleon China becomes approved supplier of international content
to China Mobile
Croco secures major new client in Ferrero
*Adjusted Operating Loss is before charges for the impairment of
assets of GBP15.8m, provision against loans and receivables of
GBP2.2m and share option expense of GBP0.2m
CHAIRMAN'S STATEMENT
During this financial year we encountered some significant and
rapid changes in the China mobile market which contributed to a
significant (46%) drop in revenue for the year. We have responded
during the year and have restructured operations, laying the
foundations for growth in China as a digital publisher. Our
entertainment revenues for 2010 were considerably down due to a
number of reasons. Slippage in timelines for Apollo's Pad and
Sokator-442 and lack of sponsorship funding for entertainment from
the larger global consumer brands limited our sales activities and
a number of sizable strategic deals were not concluded.
Strategic Focus
During the coming year we believe that the route to sustainable
profitability is to focus on the digital operations that we have in
China as a publisher of digital games and content across online and
mobile platforms.
In 2009, the online games market in China was worth US$3.7bn, a
39.5% increase over the previous year, with rapid growth predicted
for the next five years (source: China Daily, Ministry of Culture).
Social games alone, played by over 85m Chinese social network
users, will be worth US$400m by 2013 (Source: Analysys). This
market for casual and social games will be further enhanced with
the rapid growth of 'smartphones'; i.e. mobile phones with data
connectivity and rich media features. Currently there are 40
million smartphones in China but they still form less than ten per
cent of the total mobile market (Source: InStat, DCCI). The market
is constrained by the relatively high prices of handsets and a lack
of Chinese content coupled with limited payment mechanisms for this
content. However with the rapid adoption of Android enabled
smartphones, especially by low-cost local manufacturers, and an
increasingly open policy from Apple we believe that the next 12
months will see significant growth in this market, both in terms of
absolute handset numbers as well as value of content.
Galleon's digital operations in China expanded into online in
the second half of the year. This, coupled with our mobile
operation, plants us firmly in this very fertile marketplace and
will allow us to operate as a digital publisher across both online
and mobile channels.
This is an area that can give scalable and consistent growth to
the Company. With most of the business being based on
direct-to-consumer marketing and transactions, our modelling and
forecasting is de-risked from being dependent on one sizeable
partner like China Mobile. By driving the growth of this business
we should be able to provide a solid financial bedrock for the
business.
Initially our focus will be games content. This is the strongest
content sector at the moment and the one with the most short-term
potential for international content localisation.
A number of our other entertainment operations are still active
despite management taking the view to significantly impair
underperforming properties. With this in mind we have streamlined
this business to focus on those properties which we believe have
the potential to generate future revenues without significant
capital investment. For the forthcoming year we have a diverse
portfolio of MEP's which we will continue to exploit. The nature of
this business is such that it can be difficult to predict but the
potential returns remain significant if an MEP is a success.
Sokator-442, Apollo's Pad, Super Soccer Star and its related brand
extensions all have the potential to develop into meaningful
franchises in a number of markets in the next 12 months.
Outlook
We are positive about the outlook for the next year. Whilst this
last year saw a downturn in value for all areas of the business we
have taken bold and immediate steps to change direction where
necessary. Our key management team has remained in place and this
has allowed us to respond and stabilise the business. Strategically
we have invested in areas where there is tangible growth and made
savings in all areas where growth is uncertain. We are building
some direct to consumer critical mass in China with a new product
mix, and have expanded our operations beyond the mobile channel
into online. I am confident as this transition continues that the
quality of our earnings will improve and that we will return to
profitability this year.
David Wong
Executive Chairman
CHIEF EXECUTIVE'S STATEMENT
Financial summary
The Group experienced a difficult year in 2010 with revenues
falling 46% resulting in an operating loss before tax of GBP2.1m
prior to adjusting for impairment of assets, provision against
loans and receivables and share option charges totalling GBP18.2m.
Following the year end the Group has focused on reducing its
overhead in line with current trading levels. The fluctuation in
revenue last year demonstrated a need to focus on long term
sustainable revenue streams, hence the focus going forward on
higher margin growth areas in the China digital space.
The Board has reviewed the carrying value of intangible assets
and goodwill for impairment in accordance with the Group's
accounting policy. Following the significant decline in
profitability in the Phoenix Investments Global Limited business
and forecast continued lack of profitability going forward,
management consider that the goodwill of GBP2.25m attributed to
this cash generating unit is impaired to nil. In assessing the
recoverable amount of goodwill relating to Lushy Assets Limited the
management has produced a sensitised ten year cash flow forecast
based upon prudent assumptions for growth and the weighted average
costs of capital. This is a result of the uncertainty of the market
in which we operate and the subsequent uncertainty regarding cash
flows and as such an impairment charge of GBP6.1m has been
provided. Other intangible assets relate to those intangible assets
acquired with the Phoenix and Lushy acquisitions and include
customer lists, brand names and non compete agreements. Following
the impairment of the goodwill arising on Lushy Assets Limited and
Phoenix Investments Global Limited and the losses incurred by these
entities in the year ended 30 September 2010, the Board has
reviewed and impaired the majority of these intangible assets
(GBP0.75m) as they are no longer deemed to be used by the business
going forward to generate future revenues.
The Board has also tested the carrying value of intellectual
property for impairment following the losses incurred in the year
ended 30 September 2010, the change in focus of the business and
the fact that the Group has achieved only limited success in
exploiting these properties during the year. The Board has
considered each Intellectual Property individually and has reviewed
the opportunities for commercial exploitation, including the
position with current commercial relationships entered into for
each property. Where there are no significant relationships entered
into at the balance sheet date that indicate future cash flows and
the Board consider that no further development costs could usefully
be invested into those properties, they have been fully impaired
(Intangible Assets GBP5.8m). Where there are ongoing market
opportunities management have made their best estimate of the
expected cash flows from those opportunities for 12 months from the
balance sheet date and have impaired the properties to the value of
the net cash flows expected from these opportunities.
The Group has also made a provision against the loan to a key
supplier of the Croco business totalling GBP2.2m as the Board
consider that due to continuing cash flow difficulties of the
supplier this may no longer be recoverable. Croco will continue to
work with the supplier on various orders. The investment in
Dragonfruit Studios of GBP0.9m has also been impaired due to
uncertainty of future revenues.
Whilst the impairment adjustments are non cash, it is
illustrative of the difficult market the Group is operating in and
the resultant pressure on cash flows. In light of these events, the
directors have prepared cash flow forecasts for the period ending
31 January 2012, which are aligned to the Group's revised strategy.
The forecasts take account of the revenues from the launch of our
first exclusive online game in China in December 2010 which is
expected to generate significant revenues going forward in a
growing market. The forecasts also take account of cost reduction
measures that have been implemented in the business outside of
China. Management will take further steps to reduce the overhead
base should this be required to meet the working capital and cash
flow requirements of the Group. The forecasts, which have been
sensitised to reflect the market within which the Group operates,
demonstrate that the Group has adequate resources to continue to
fund the working capital and cash flow requirements of the Group
for the foreseeable future. The Board remains committed to
returning the Company to profitability
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