Embargoed for release at 7.01am 1 September 2008
Independent International Investment Research PLC
("IIIR") or ("the Company")
Final results for the year ended 29 February 2008
Highlights
* Group turnover �1,885,000 up 77 per cent year on year (2007: �1,062,000)
* Operating profit of �224,000 (2007: �2,000)
* EBITDA of �273,000 (�2007: �37,000) (before non-cash provision for options)
* Memorandum of Understanding signed with London Stock Exchange for PSQ
Analytics
* GEO Monitor product launched October 2007
* Research Oracle platform launched March 2008
* Continued strong performance as ranked by Investars
* Operations in India expanded to ninety research professionals to
accommodate new business lines
* Four hundred international large-cap companies now under research coverage
* Group received �226,324 on settlement of Google dispute
* Proposed de-listing from AIM to release funds for further organic growth
and general business purposes
Chairman and Chief Executive's Review
Financial Results
Group turnover increased by 77 per cent. to �1,885,000 (2007: �1,062,000)
despite an adverse currency impact caused by the weakening US dollar. Gross
margin was marginally higher at 59.7 per cent. (2007: 59.5 per cent.) with a
gross profit of �1,126,000 (2007: �631,000). An increase in the size of the
research team in India plus the appreciation of the Indian Rupee resulted in
administrative expenses increasing by 40 per cent. to �882,000 (2007: �
629,000). The net result is an increase in operating profit to �244,000 and
EBITDA of �273,000 (2007: operating profit of �2,000 and EBITDA of �37,000).
Both of these figures are before a non-cash expense of �398,000 (2007: �
296,000) to reflect the fair value of awards made under the Group's Employee
Share Ownership Plan in accordance the accounting standard FRS20.
The Group continues to experience growing positive net cash flows from its
ongoing business and this, together with the recently signed Memorandum of
Understanding with the London Stock Exchange provides a good platform for
future business growth.
Operations
The majority of the Group's revenue growth during the year originated in its
core activity of the provision of fundamental research coverage on Global
Equities, together with an assessment of the impact of currency movements.
Continuing the investment in operations from 2007, the Group has now
established a better-resourced operating base and a suite of new products/
business lines that are expected to drive future growth. In particular, we have
doubled our headcount in India to about 90 research professionals. This
investment in staff and office costs has preceded the revenue benefits that are
expected to arise and the results for the year ended 29 February 2008 reflect
the unexpectedly long gestation period of one new business venture in
particular.
Independent evaluation of the Group's research performance
As in past years, I am pleased to present the Group's research performance
ranking by Investars as follows:
Long-only model portfolio: Long and short model portfolio
Over the last: Ranking: Ranking:
Four years 2nd of 33 firms 23rd of 32 firms
Three years 3rd of 38 firms 24th of 36 firms
Two years 2nd of 44 firms 25th of 42 firms
One year 5th of 46 firms 23rd of 43 firms
Data correct as at 22 June 2008 and reflect the Group's research performance
during the course of the year. Up-to-date data can be obtained at http://
www.investars.com/bvic_universe.asp and reflect a deterioration in recent weeks
in performance attributable substantially to significant rapid strengthening of
the US dollar.
Whilst the data show that the Group's research performance over the period has
declined compared to previous results, they still reflect exceptional returns
overall and are a credit to the team of research professionals that has been
built up around the Group's core executives in our Mumbai subsidiary.
Growth drivers
General outlook for the independent research sector
The Directors believe the Group benefits from a cost base that is amongst the
most streamlined in the independent research sector, itself significantly lower
than the cost base typical amongst its institutional clients. Cost pressures
generally, and specifically relating to research amongst institutional clients,
favour the Group's strong combination of high quality and competitive pricing.
However, the challenging conditions facing the Group's clients can also impact
the Group negatively. The Group recently lost Bear Stearns as a client, though
the impact on current year results will be modest as this firm was amongst the
smaller clients of the Group. Meanwhile, since revenues from the Global
Research Analyst Settlement in the US are expected to decline between October
2009 and June 2010 as the participating broker-dealers reach the end of their
respective obligations, the Group is both in discussions to negotiate terms of
business under potential successor arrangements; as well as maintaining a sharp
focus on diversification of its product and service offerings.
The rise of Intermediated Research: PSQ Analytics
In 2006, the Chairman's Statement outlined the Group's ambitions to introduce
an "intermediated" research product, working with a stock exchange, to provide
objective and independent research on smaller quoted companies at a price point
to encourage the widest adoption by companies. The Group was pleased to
announce in May 2008 that under a Memorandum of Understanding entered into with
the London Stock Exchange, the Group had been selected to be one of three
providers of independent research on AIM and smaller companies on the Main
Market under the LSE's new research brand: PSQ Analytics. This collaboration
with LSE is expected to be a central feature of the Group's growth in the
coming year and interest in similar initiatives from other stock exchanges is
expected to drive further growth in the intermediated research space in future
years.
Key features of PSQ Analytics are:
* Investors are reassured by the endorsement of the London Stock Exchange
("LSE").
* Equity research provided through PSQ Analytics is expected to cost a
company in the region of �10,000 per annum, opening up research to
companies for whom current market offerings are not economic.
* Companies will be allocated one of the three research providers on a
pre-determined blind pool allocation basis to ensure the impartiality of
the research.
* The research will consist of comprehensive factual information and
analysis. It will not make recommendations.
* The three research providers have agreed to share common methodologies and
produce reports that follow a uniform presentation format, in order to
facilitate cross-company and cross-sector comparisons by investors.
* The full PSQ Analytics service is scheduled to launch fully in Autumn 2008.
* The service will be entirely optional for smaller quoted companies on both
AIM and the Main Market although the LSE expects take up of the service to
be good. The LSE estimates that the target audience comprises more than
1,000 companies.
* The LSE is setting up the scheme for the benefit of the market and will not
be taking any revenue from this service. The LSE's role will be to provide
marketing support and facilitate the widest distribution of the research.
* The LSE shall own the intellectual property rights in the PSQ Analytics
brand for the PSQ Analytics service. LSE has granted to each of the three
research providers, for the duration of their involvement in the MOU, a
non-exclusive, royalty-free, non-transferable licence to use the PSQ
Analytics brand solely for the promotion and provision of the services
under the MOU.
* Research is expected to reach a wide audience with distribution provided
initially via Bloomberg, Thomson Reuters and a dedicated web portal.
Unbundling of research services, and an advertising-supported revenue model:
The Research Oracle(TM)
In March 2008, the Group announced the Research Oracle(TM), a free-to-view
platform to provide access to all the Group's research inventory. The Directors
believe this is the first time that high quality institutional grade research
has been provided within an advertising supported commercial model. Some 8,000
pages of current research have been made available, providing a vast inventory
for hosting of advertising and reaching an audience which is of high value to
advertisers. Research Oracle content is now being syndicated through a number
of well-known finance portals and site traffic is building steadily. In
addition to advertising revenues the site provides a showcase for the Group's
unbundled services, available on a paid/subscription basis, including:
* Access to the research analysts
* Bespoke research
* Short term actionable trading strategies
* Financial models
* Redistribution/white label licences
* Under development: live interactive video platform to provide asset
managers with access to company management
Given the costs pressures impacting upon our target client base, the Directors
believe the timing for launch of a free-to-view service is good.
Crisis in the global credit markets and the expected resurgence of equity
funding: GEO Monitor(TM)
In September 2007, the Group launched its Global Equity Offerings Monitor (GEO
Monitor(TM)). GEO is the only service to our knowledge that provides research
on all non-US initial public offerings that are large enough to be of interest
to institutions. Unfortunately, launch of this service coincided with the onset
of the credit crunch and downturn in sentiment in the markets generally and the
pipeline of IPOs has declined significantly in line with the appetite of
investors to participate. However, the product has been widely marketed and has
been well received by its target audience. Therefore, whilst sales success to
date has been modest, the Directors believe that sales will respond strongly
when market conditions and the IPO pipeline improve. GEO Monitor is expected to
migrate from email delivery to web portal based delivery at
www.geomonitor.co.uk following the imminent completion of final stages of
pre-release testing.
Currency Research
In the face of the Group's dispute with Google impacting on its commercial
strategy for dissemination of its research, and with much of the hardware and
software platform that delivers the Group's Pronet Analytics currency research
service reaching end-of-life and the small and declining contribution of pure
currency research to Group revenues, the Group reversed a previous decision to
maintain an advertising-supported version of Pronet and decommissioned the
operating platform for web delivery of Pronet during the course of the year.
The Group's proprietary currency research is now exploited solely for internal
use within its equity research process. This decision is under review and if
the currently observed increase in market appetite for currency and commodity
research is maintained, the Group may decide to offer external access to the
service once again.
Google and the GMail trademark
The Group has energetically pursued a settlement with Google Inc. over a long
period. Recently, the Board came to the view that no further resources should
be devoted to this effort and instead the full benefit of the Group's financial
and executive resources should focus on the Group's business development
opportunities.
A settlement was finally reached by the Company and the Smith Trust (owner and
licensor of the intellectual property rights exploited by the Group under a
perpetual licence terminable under certain defined circumstances) with Google
Inc. The value of the settlement significantly exceeds the costs to the Company
of protecting and enforcing the intellectual property rights. As a result of
the settlement with Google Inc., the Smith Trust received �226,324. The Smith
Trust has subsequently unconditionally remitted the entire settlement proceeds
to the Company.
Consideration of a proposed de-listing of the Group's shares on AIM
It is appropriate for your Board to give periodic consideration to the benefits
of maintaining the Group's public listing. The key factors that we have
considered are:
* Direct costs of maintaining the Group's public listing have risen sharply
in 2008 and the Directors estimated that the Group could make cash savings
of in excess of �125,000 per year moving forward. This equates to more than
6.6 per cent. of 2008 turnover and represents 64 per cent. of 2008 pre-tax
losses. Furthermore, the Directors estimate that management time costs
relating to the Group's public listing of approximately �75,000 could be
deployed on other corporate activities to the benefit of the Company.
* Liquidity of the Group's shares is modest. Whilst AIM is widely regarded as
the most successful early-stage/smaller quoted company market in the world,
this is a problem that is particularly pronounced in situations of a small
free-float on all exchanges, and ironically the Group is probably the only
company on London Stock Exchange that cannot benefit from its recently
announced PSQ Analytics initiative, by virtue of the Group being a
participating Research Provider.
* Conditions for new fundraisings across global markets are not currently
hospitable. In the absence of further fundraising, the liquidity of Group
shares is unlikely to improve.
* Considering both a progressive weakening of the Board of directors over the
last eighteen months together with obstacles to raising new funding, the
Group now finds itself in a significantly weaker position as a potential
consolidator of smaller research businesses in the highly fragmented
research industry, which was a key component of the growth strategy laid
out in the Group's 2007 Report and Accounts. At the same time the
opportunities that present themselves for organic growth are now perceived
to be significantly greater and it is the view of the Board that these
opportunities should be the Group's first priority for the benefit of all
stakeholders.
* In the absence of a consolidation strategy, the attraction of quoted shares
as an acquisition currency is extinguished and whilst we expect strong
organic growth, the Group would remain small by quoted company standards
for some years to come.
* Matters relating to maintaining a public listing are consuming an
increasing amount of key executive time, at the direct expense of organic
growth through new business development.
* Combining the results of a focus on new business initiatives, together with
the elimination of costs and other overheads of the regulatory obligations
associated with a public listing, might enhance the appeal of the Group to
larger research operators as an acquisition target. Your Board would
entertain any such opportunities that might provide a faster growth and
development route.
* An Employee Share Ownership Scheme in the UK, and a comparable scheme for
the Group's India-based staff to be awarded stock options, has proved less
effective than expected in moderating attrition levels and whilst the
scheme will not change, the cost of maintaining a quoted market for the
Group's shares for the purposes of the scheme is not justified.
Having carefully considered all the above factors, the Board has decided to
convene a meeting of shareholders in the near future to consider a resolution
to de-list the Group's shares from AIM. In the event that this resolution is
passed, the Board would propose to investigate participation in one or more of
the matched bargain facilities that exist to provide shareholders with a
trading platform for shares in unquoted companies.
Board of directors
Whilst supporting the Board decision to recommend the de-listing of the
Company's shares from AIM, Albert Maasland has advised the Board that he
intends to resign as a non-executive director following the general meeting to
be held to consider the de-listing.
David Ledsham resigned as Finance Director on 31 July 2008 to take up another
appointment. I am pleased to report the appointment of Bob Mennie to the role
of Chief Finance Officer and Company Secretary with effect from 11 August 2008.
Bob Mennie, 44, is a chartered accountant and joins the Group from the role of
finance director within a currency management firm. The Board expects that he
will be appointed Finance Director in due course.
Group shareholding in a new diversifying business
As reported last year, the Smith Trust is promoting and has provided seed
funding for a start-up in a high growth, high potential business space, in
which the Group has a 10 per cent. interest. Progress has been delayed but the
initiative is now firmly on track and testing of the delivery platform is
expected to begin later this year.
Overall
In my statement at the AGM in October last year, I concluded that:
"...Taken together with a number of additional "housekeeping" items, the
Group's revenue growth, strengthened management and sales teams, expanded
research inventory, continued strong research performance, and product and
service range enhancement, provide a strong platform from which to execute the
Group's acquisition strategy and other corporate plans".
The resources of senior executives were significantly diverted between October
2007 and January 2008 by the need to identify and appoint a Nomad to replace
the incumbent, which withdrew from providing nominated adviser services
generally. From January 2008 senior executives have again been significantly
diverted, as a result of the replacement Nomad reviewing and adopting a
different position in respect of certain strategies previously adopted by the
Group and agreed with its Nomad during 2007, most particularly a scheduled
acquisition by the Group of the intellectual property owned by the Smith Trust.
It is a particular disappointment that the strengthening of the board and
management team has not under all the circumstances permitted the Group to
deliver on its planned acquisition strategy. The Board now believes that under
current market conditions this strategy is no longer optimal. However, with the
other pillars of our growth platform remaining solid and all resources focused
upon the opportunities presented for organic growth, the Group can look forward
to a productive and successful year.
Shane Smith
Chairman and Chief Executive
1 September 2008
Further enquiries
Independent International Investment Research PLC Tel: 020 7232 3090
Shane Smith
John East & Partners Limited Tel: 020 7628 2200
David Worlidge
Simon Clements
Consolidated Profit and Loss Account
For the year ended 29 February 2008
Notes 2008 2007
� 000's � 000's
Revenue 1 1,885 1,062
Cost of sales (759) (431)
Gross profit 1,126 631
Administrative expenses (882) (629)
Share based payments 2 (398) (296)
Finance costs (42) (20)
Loss before taxation 3 (196) (314)
Income tax expense 4 (18) (9)
Loss on ordinary activities after taxation (214) (323)
Loss for the financial year (214) (323)
Loss per share - basic and diluted 5 (0.09)p (1.3)p
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
Statement of Changes in Equity
For the year ended 29 February 2008
Share Share Share Total Profit
Capital premium options reserves and loss
account reserve account
�000's �000's �000's �000's �000's
Group
Balance at 1 March 2007 254 4,682 1,381 6,063 (6,374)
Issues of shares 7 288 - 288 -
FRS 20 charge - - 398 398 -
Loss for the year - - - - (214)
Balance at 29 February 2008 261 4,970 1,779 6,749 (6,588)
Balance Sheet
As at 29 February 2008
Notes 2008 2007
ASSETS
Non-current assets
Tangible assets 6 80 48
Intangible assets 356 376
Financial assets - -
Total non-current assets 436 424
Current assets
Debtors 338 331
Cash at bank and in hand 13 71
Total current assets 351 402
TOTAL ASSETS 787 826
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital 261 254
Reserves 6,749 6,063
Profit and loss account (6,588) (6,374)
Total equity 422 (57)
Non-current liabilities
Borrowings 70 70
Total non-current liabilities 70 70
Current liabilities
Trade and other payables 79 525
Borrowings 196 240
Current tax liabilities 7 20 48
Total current liabilities 295 813
Total liabilities 365 883
TOTAL EQUITY AND LIABILITIES 787 826
Consolidated Cash Flow Statement
For the year ended 29 February 2008
2008 2007
�000's �000's
Cash flows from operating activities
Loss for the period (214) (323)
Finance costs recognised in the loss 42 20
Income taxes recognised in the loss 18 9
Depreciation and amortisation of non-current assets 35 35
Share based payments 398 296
279 37
Movements in working capital
Increase in trade and other receivables (7) (196)
(Decrease)/Increase in trade and other payables (472) 15
Cash used in operations (200) (144)
Interest paid (42) (20)
Income taxes paid (20) (36)
Net cash used in operating activities (262) (200)
Cash flows from investing activities
Payments to acquire tangible assets (47) (40)
Net cash used in investing activities (47) (40)
Cash flows from financing activities
Issue of shares 295 -
New term loan - 180
Other loans and overdrafts 14 -
Repayment of bank loans - (15)
Repayment of other loans (58) (24)
Net cash generated by financing activities 251 141
Net decrease in cash and cash equivalents (58) (99)
Cash and cash equivalents at the beginning of the year 71 170
Cash and cash equivalents at the end of the year 13 71
Principal Accounting Policies
For the year ended 29 February 2008
1. Basis of Preparation
The financial information set out in this announcement does not constitute the
Company's statutory financial statements within the meaning of section 240 of
the Companies Act 1985, for the years ended 28 February 2007 or 29
February 2009. The statutory financial statements for the year ended 29 February
2008 , on which the auditors have given unqualified report which does not
contain a statement under sections 237(2) or (3) of the Companies Act 1985,
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting. The results for the year ended 28 February 2007 have been
extracted from the full accounts for that year which have been delivered to the
Registrar of Companies and on which the auditors g ave an unqualified report
which d id not contain a statement under sections 237(2) or (3) of the
Companies Act 1985.
This announcement is prepared on the basis of the accounting policies as stated
in the previous year's financial statements.
The financial statements are prepared under the historical cost convention.
The Company was incorporated on 24 November 1999 and the Group was formed on 6
April 2000, when the Company acquired 100 per cent. of Pronet Analytics.com
Limited and 100 per cent. of Aston Guardian Ltd. These transactions qualified
as a 'group reconstruction' under FRS 6 and have been accounted for as a merger
as if the Group as currently constituted had been in existence throughout the
whole of the year covered by those accounts.
The accounts have been prepared under the assumption that the Company is a
going concern.
The Company is engaged in an industry where losses represent the Company's
investment in its development and it has remained the directors policy to
ensure that adequate finance is available to support this development.
At the date of approving these accounts there exists a fundamental uncertainty
concerning the Company's ability to continue as a going concern.
This fundamental uncertainty relates to the Company's ability to meet its
future working capital requirements and therefore continue as a going concern.
The application of the going concern concept in preparing the accounts assumes
the Company's ability to continue activities in the foreseeable future which in
turn depends on the ability to generate free cash flow. The directors believe
that sufficient revenue and free cash flow will be generated to meet the
Company's working capital requirements for at least the next twelve months.
On this basis, in the opinion of the directors, the accounts have been properly
prepared on the assumption that the Company is a going concern.
The accounts do not include any adjustments that would result from the
Company's ability to generate sufficient free cash flow. It is not practical to
quantify the adjustment that might be required but should any adjustment be
required it would be significant.
2. Share based payment
In accordance with the requirements of FRS 20 the fair value of employee share
options issued under the Company's Employee Share Ownership, Plan (ESOP) must
be recognised as an expense in the financial statements for accounting periods
commencing on or after 1 January 2006. A calculation has therefore been made
using the directors' estimate of the likely market price at vesting date and
the potential gain has been pro-rated over the vesting period. This gives an
exceptional charge of �398,000 (2007 - �296,000) which is treated as a
(non-cash) administrative expense in the profit and loss account.
3. Loss before taxation
2008 2007
�000's �000's
Loss before taxation is stated after charging:
Depreciation of tangible assets 15 15
Amortisation of goodwill 20 20
Operating lease rentals 1 1
Auditors' remuneration (Company �6,000 2007; �6,000 12 11
2008) )
4. Income tax expense
The tax charge in the accounts is wholly tax arising on the profits of the
Company's India based subsidiary.
Tax losses carried forward at 29 February 2008 for which no benefit has been
recognised are estimated at �4,474,728 (2007- �4,696,000). It is not certain
when these losses can be utilised.
5. Loss per share
The loss per share is based on the loss �214,000 (2007- �323,000) and on
24,573,742 Ordinary Shares (2007- 24,012,545) being the average number of
shares in issue during the year, excluding those owned by Roy Nominees Limited
on behalf of RBC Trustees (Guernsey) Limited. The basic loss per share and the
fully diluted loss per share are identical because the exercise of the share
options would reduce the loss per share and is therefore anti-dilutive.
6. Tangible fixed assets
Fixtures,
fittings
&
equipment
�000's
Cost
At 1 March 2007 740
Additions 47
Disposal (650)
At 29 February 2008 137
Depreciation
At 1 March 2007 692
Charge for the year 15
Disposal (650)
At 29 February 2008 57
Net book value
At 29 February 2008 80
At 28 February 2007 48
There are no assets held under finance leases or hire purchase contracts
7. Current tax liabilities
2008 2007
� 000's � 000's
Income tax 8 10
Payroll Taxes and social security contributions 12 38
20 48
8. Related party transactions
The Company has taken advantage of the exemption in Financial Reporting
Standard number 8 from the requirement to disclose transactions and has
therefore not disclosed transactions with entities which are part of the group
in these accounts.
9. Material subsequent event
On 19 May 2008 the Group announced a memorandum of understanding with the
London Stock Exchange to provide research on companies traded on the Main
Market, and AIM under the LSE's new research brand, PSQ Analytics.
On 21 July 2008, the repayment date of the �180,000 loan secured by way of a
charge over the book debts and cash balances of Pronet Analytics.com Limited
has been extended by 12 months from 28 July 2008 to 28 July 2009. All terms and
conditions of this loan remain the same other than the need for Pronet
Analytics.com Limited to retain a licence to exploit the intellectual property
rights from the Smith Trust on terms satisfactory to the Trust.
On 23 July 2008 the Company and certain of its subsidiaries, the Smith Trust
and its trustees came to an agreement with Google Inc for the disposal of the
GMail trademark. The cash consideration received by the Smith Trust on behalf
of the Group was �226,324 which the Smith Trust has remitted to the Company.
On 28 August 2008, whilst reserving its rights generally , the Smith Trust
withdrew the notice of termination of the intellectual property rights deed of
assignment , dated 26 June 2002, which it had served on the Group on 22 July
2008 .
10. The 2008 Report and accounts will be posted to shareholders shortly and
will be available from the Company's Registered Office at 30 City Business
Centre, St Olav's Court, London SE16 2XB and from the website www.iirgroup.com.
END
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