re: ++ half yearly report --operational + + Operational update...

re: ++ half yearly report --operational + + Operational update from the CEO:
http://stocknessmonster.com/news-item?S=LUM&E=ASX&N=256216

Extracts:
"Commercial development for each of these sites has a varying timeline, dependant on local regulations, however, the Company is dedicated to this process and is ensuring the current resources are both appropriate for this task and managed to ensure it is completed within the shortest possible time frame.

Now that the Company has been recognised as not only a supplier of unique display technology for outdoor applications but has also been accepted by the advertising market as a serious and committed provider of a new advertising medium in the world-market.

Notwithstanding any delays experienced in certain areas, this is a remarkable achievement for a company founded and launched in Perth, Western Australia. Having achieved this important milestone, Lumacom is dedicated to the commericalisation of the opportunities that have presented themselves over the past six months; converting the identified sites to revenue generating operating signs for its planned network of strategically placed and remotely controlled LumaSigns across the world.

Lumacom will continue to pursue the revenue earning model, as it remains convinced this business model is superior to outright sign sales in terms of long term earnings growth. These signs will be either Lumacom wholly owned screens or part owned (maximum 50% by partners) with the exception of direct sales where recurring revenue does not form part of the arrangement.

Commercial development for each of these sites has a varying timeline, dependant on local regulations, however, the Company is dedicated to this process and is ensuring the current resources are both appropriate for this task and managed to ensure it is completed within the shortest possible time frame.

This process will entail achievement of the following milestones:
• Landlord contracts,
• Municipality approvals,
• Manufacture,
• Installation,
• Securing advertisers, and
• Integration into the Lumacom network

Detailed financial information is contained in the attached half yearly report, however we are pleased to note that operating expenses in the business as usual mode currently total approximately $620,000 per quarter after taking into account planned resource changes, against a cash balance recorded at the half year of $4,397,964

Europe
The first half of this year has confirmed the acceptance and development of Lumacom’s LED screen products for use in outdoor advertising “bill-board type” applications in Europe. The Company’s first video screen was installed in Barcelona Spain in association with its European co-operative partner, Mega Profile in London and its Spanish based Mega constituent, Soportes/DDD in Barcelona.

It has provided the launch pad of Lumacom screens for the entire European region. Sale of advertising income on this screen has progressed and the European-wide advertising revenue earning model has been promoted with encouraging response.

Lumacom has also attracted new interest from non-Mega outdoor advertising and property related groups in expanding the Lumacom revenue sharing model in other countries. These include Greece, Turkey, Hong Kong and China.

An important part of Lumacom’s business plan is to create networks of Lumacom screens covering strategic regions, linking the screens to provide a geographic spread to providing mass impact for advertisers.

Much like conventional still image (vinyl) bill-boards, the earning value of signs relies on as much as their individual strategic location as the “spread” or collective reach of locations across regions, providing the visual “impact” for targeted audiences sought by main stream and international advertisers.

The placement of “first” screens in each country is critical in this effort and much time has been committed to achieve this, and to source and commit the type of advertisers that will take advantage of this network.

This strategy is aimed at maximising revenue in the medium to long term. An update of sourced sites and locations in Europe previously announced are as follows: Scandinavia The Nordic Region currently represents an number of excellent site opportunities, including sites in Sweden , Finland, Norway and Denmark.

Our Mega partner in the region, First Sight, advises it has received landlord approval for a site in Helsinki and is currently pursuing regulatory approvals for this site.

Stockholm has a number of very high profile site locations currently under review including one in the heart of the City Centre itself, in the Swedish equivalent of Piccadilly Circus (London).

Negotiations for both regulatory approvals and advertisers are well advanced for this site. First Sight has been very active sourcing new locations throughout the Region, and has also been responsible for the introduction of our new partner in Norway who has access to suitable sites for LumaSigns.

Spain Lumacom’s Maremagnum Mega TV screen commands attention from locals and passers by totaling in excess of 21 million people per annum, and has become a established landmark in this exciting European City.

Net Profit from this screen in the reporting period was less than expected as a result of slower than anticipated sales ramp up, and additional sales operation costs as part of the ramp up phase. Sales programs have now been structured to provide a sound base for future sales.

It is anticipated this will result in an increase in net profit to Lumacom which will be reflected in subsequent reporting periods. Our partner in Spain continues to pursue landlord agreements and regulatory approvals for site locations in Barcelona and other major Spanish cities.

Turkey
We have been advised by our partner in Turkey, Kiska Corporation, that regulatory approval has now been received for signs atop the Maremar Hotel in Istanbul. Kiska is extremely confident of its future success in achieving advertising contracts, and is moving towards commencement of manufacture and the next purchase order payment for the acquisition and installation of the screens under the Lumacom 50/50 ownership and net profit share deal.

No comment can be made at this time in relation to the level of advertising achievable from this site. Greece Our newly appointed partner in Greece, Astra International Limited, has informed Lumacom that it has secured initial expressions of interest from landlords on several prime sites in Athens with rental arrangements within the parameters set by Lumacom to ensure economically viable projects.

The municipal council of Athens has released new regulations governing outdoor advertising, which it has introduced to improve the advertising landscape in preparation for the 2004 Olympic Games.

These regulations require the removal of a significant proportion of all outdoor advertising in and around Athens, and the council has advised that new applications for outdoor advertising will be critically scrutinised in the lead up to the Olympic Games.

Following the release of the new regulations in December 2003 and a period of assessment to determine the likelihood of success of an application for a permit in this environment, Lumacom’s entry into the Athens market in time for the Olympic Games cannot be confirmed. However, following the Games, the landscape for outdoor advertising in Athens will be substantially bare; therefore significant opportunities will exist for the sites secured and approved within the city and competition for the available advertising space is expected to be high.

In favour of our ability to achieve regulatory approval prior to the Games is the ability to take the Olympic vision to the streets of Athens and this approach is being aggressively pursued. The subsequent imbalance in supply and demand is also expected to work in Lumacom’s favour in the long term and produce premium pricing for high profile sites with the latest media available.

These are the type of sites secured by our partner for LumaPanel and LumaVideo. Astra’s confidence in the Greek market is evidenced by the placing of an order for a LumaPanel sign with a holding deposit paid at the time of preparing this report.

Germany Our German agent has identified seven indoor sites in a single landlord holding which we are currently pursuing. These public places are extremely high traffic areas and our products meet the goals of the landlord in modernising their facilities.

Lumacom, jointly with its partner, is presenting a proposal to the landlord for a transaction in which a share of generated revenue will constitute the rental payment, significantly reducing the operating cost risk of the sites. These signs will most likely be 100% owned by Lumacom, and therefore the profits from the signs will flow to Lumacom.

The opportunity previously announced for Lumacom in Berlin is to take advantage of an existing conventional LED sign that has effectively been abandoned by its owner after having failed to achieve a profitable level of revenue given the high capital cost of the existing non-Lumacom screen (Lumacom’s competitive advantage in capital cost makes it possible to achieve profitability from this site).

Lumacom is able to employ its available technology to substantially improve this sign at a low cost, and therefore to create a marketable advertising medium. Currently, there is a high-grade advertiser on the site with a contract having approximately 2 years to run.

We have previously advised this site should go live in January; however, Lumacom is prepared to take on this sign and incur the costs of refurbishment only when the landlord of the site is able to provide Lumacom with clear title to the sign and thus secure its investment.

Financial difficulties of the previous owner have to date prevented the landlord from providing such title, and thus the project has been delayed. The landlord, our German agent and Lumacom continue to assess solutions to this impasse which are unfortunately time consuming, although we remain confident that a solution will be reached.

At this stage, we are unable to provide guidance as to when this site may become operational in Lumacom’s hands.

Russia
Lumacom has completed the manufacture of the sign for Pepsi in Russia and has shipped the sign ready for installation. We are awaiting completion of structural works and installation prior to sending our engineers for final commissioning; however, Lumacom has received full payment for the sign.

This sign is an outright sale rather than remaining wholly or partly in the ownership. of Lumacom, where Lumacom would receive a share of the profit from the sign. This approach was adopted as the opportunity was only ever one of a “direct sale”. The association and acceptance by Pepsi as the end-user is an excellent accreditation to the product.

This not only provides attestation to Lumacom in its international marketing campaign but also provides the opportunity for further direct sales to the group, which has always been a part of Lumacom’s business plan.

The “Pepsi” sign will also incorporate an “interactive SMS message” function that will attract additional international interest in Lumacom products and potentially provide a further source of revenue.

The company is also pursuing the use of LumaSigns for several sites in Russia for which general electronic sign approvals are held, and is discussing possible locations and sign configurations with its partner and the approval holder.

Asia
Draft landlord agreements have been received from one landlord in Hong Kong, and the company and the landlord have reached agreement on the quantum of the rental. As entering into the commitments for leasing will require monthly payments, the Company has moved to secure sponsors in advance of finalising the lease in relation to that site.

In one other case, a share of revenue has been agreed for the lease of the site and therefore the company will finalise this negotiation and move to secure site approvals.

Negotiations continue with respect to the third site. Draft agreements have been prepared for the POAD relationship where POAD will become the exclusive marketing agent for Lumacom’s products in Hong Kong,
Guangdong and Singapore, once they have secured a core site portfolio.

POAD is one of Asia’s foremost outdoor advertising companies. Formed in 1988, this company has experienced year on year growth, even during the difficult Asian downturn, and now claims 30% of the outdoor advertising market.

USA
Considerable emphasis and priority has been placed on what is considered Lumacom’s “flagship” site; #4 Times Square, New York where it is anticipated four LumaPanel signs of some 300 sqm each (totalling 1,200 sqm) will be installed on the roof of this Times Square landmark building.

Approval for electronic signage has been granted and Lumacom has recently concluded all necessary NYC engineering surveys and building code approval tests in readiness for installation.

Commissioning will occur once a suitable advertising contract is reached. Under the same strategy outlined for the European market (and highlighted by Mr David Lerner, Chief Executive Officer of Totius Media, at Lumacom’s AGM in November 2003) Lumacom and Totius seek a high profile advertiser that will form part of the strategy of implementing networks of signs, not only across the US region, but in this case, internationally.

The gross advertising value of the Times Square four-side deal is in aggregate a significant amount and even for the largest of international advertisers, the level of commitment is not one that can be made without qualified and quantified substantiation. All proposals to potential advertisers have been encouragingly received and are currently being considered positively.

The internal approval process for a final commitment, however, is simply taking longer than expected. Given this frustrating delay, Lumacom has moved to accelerate the decision making process and offers are being considered for an initial “1 side” deal with conditional options for an all 4 side deal.

This will have the effect of lowering the up-front financial commitment for the advertiser for the deal and therefore we anticipate a quicker resolution. Lumacom management anticipated an earlier decision, but assures that the project is progressing positively and the potential for long-term rewards will certainly be worth any short-term delay.

Meetings continue with the Managing Director in New York at the time of release of this report, along with the Company’s senior founder and technical officer attending to matters relating to engineering, construction and installation.

We ask all shareholders to remain patient whilst transactions are progressed. Announcements will be made immediately upon a successful conclusion to negotiations.

As a matter of course, other sites throughout the North American region are being sourced and progressed. No details of these have been released at this time and announcements relating to these will occur when both landlord and advertising commitments are secured.

FOR FURTHER INFORMATION ON LUMACOM, refer to www.lumacom.com.au Authorised by: Rodd Sala Managing Director - Lumacom Ltd Ph: 61 8 9228 8577 Fax: 61 8 9228 8677
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Cash on 31 Dec: $4.4 mill.