RNS Number:5854E
Entertainment Rights PLC
27 September 2007
Entertainment Rights Plc
("ER", "the Company", "the Group" and "the Enlarged Group")
Results for the six months ended 30 June 2007
A transformational first half
Entertainment Rights (LSE:ERT), the UK's leading media group specialising in the
ownership of children's and family programming, characters and brands, announces
its results for the six months ended 30 June 2007.
Highlights:
* Turnover up 196% to #17.3m (2006: #5.9m)
* EBITDAE* up 5,764% to #4.9m (2006: #0.1m)
* Gross profit margin increased to 40% (2006: 18%)
* Underlying operating** profit #0.3m (2006: loss #2.3m)
* Operating loss #3.2m (2006: loss #2.5m)
* Underlying loss after tax** #3.2m (2006: loss #2.2m)
* Underlying loss per share** 0.44p (2006: loss 0.54p)
* The Company is on track to deliver on the successful integration of
Classic Media Holdings, Inc, acquired on 11 January 2007 for #156m
* Strong cross-selling of globally recognised brands
* Postman Pat(R) will make its US network television debut as part
of the qubo(R) programming block in October 2007
* George of the JungleTM debuted on Nickelodeon UK in September 2007
and the programme will launch on Cartoon Network in the US in
spring 2008
* AOL's US pre-schooler site KOL Jr will launch Jim Jam & SunnyTM in
the US in late 2007 featuring episodes and original content
* Strong growth in the digital media sector with key agreements secured for
digital gaming across a number of properties including Postman Pat (R),
Casper the Friendly Ghost(R), George of the JungleTM and Rupert Bear (R)
* Launch of a dedicated multi-brand e-commerce store in the UK this autumn
* EBITDA excluding share option charge (IFRS2) and exceptional costs
relating to integration and restructuring on acquisition of Classic Media
** Excluding share option charge, impact of interest rate derivatives (IAS 32/
39) and exceptional costs relating to integration and restructuring on
acquisition of Classic Media
Rod Bransgrove, Chairman, Entertainment Rights Plc, commented:
"ER is pleased to report a strong set of results for the six months ended 30
June 2007 with an increase in turnover of 196% to #17.3m and a significant
increase in EBITDAE to a record half-year level of #4.9m. Following the
acquisition of Classic Media Holdings, Inc. in January 2007, ER has successfully
integrated the Enlarged Group's US operations. As a result of the acquisition,
ER increased its portfolio of high quality programming to 3,500 hours and offers
a digitised library of globally recognised brands with significant
revenue-generating opportunities.
"Major broadcasters in the UK and US have commissioned ER's leading wholly-owned
brands and we remain well positioned to enhance and strengthen our presence in
the USA. ER has also commenced the licensing of Classic Media's high quality
content into non-US markets.
"Traditionally the Company's financial performance has been weighted to the
second half of the year and this is further emphasised with the acquisition of
Classic Media. Like many other UK companies trading in the US, the strength of
sterling against the US dollar has impacted the first half despite the
operational strength of the Company. The Board remains confident that ER is on
course to deliver on its expectations for the full year."
Enquiries:
Entertainment Rights Plc
Michael V. Heap, Chief Executive Officer
Elizabeth Gaines, Chief Finance and Operations Director
Simon Avis, Head of Public Relations 020 8762 6268
Bell Pottinger Corporate and Financial
David Rydell/Amy Rajendran/Helen Tarbet 020 7861 3232
CHIEF EXECUTIVE'S REVIEW
Entertainment Rights is a leading force in the global children's and family
entertainment market with a combined portfolio of contemporary classic
children's and family brands now standing at over 3,500 hours of content. This
extensive library is one of the largest in the UK (Broadcast Distributors Survey
2007) and ER remains focused on strategically developing its internationally
renowned brands across both traditional and digital media platforms.
Classic Media Holdings, Inc. ("Classic Media")
The acquisition of Classic Media was completed in January 2007 and integration
is in line with targets for the year. Big Idea, Inc. ("Big Idea") is a
subsidiary of Classic Media and both businesses operate within the Enlarged
Group.
Financial Performance for the six months ended 30 June 2007
Income Statement
We are pleased to report that the Group's financial performance for the period
reflects growth in revenue from the UK operations of 35%. This increase, coupled
with the impact of the acquisition of Classic Media has resulted in an increase
in revenue of 196% to #17.3m.
The percentage of revenue from owned programming increased from 48% to 88%
compared with the first half of 2006. This increased the Group's gross profit
margin to 40% compared with 18% for the same period in 2006.
Administrative costs are in line with expectations reflecting the Enlarged Group
following the acquisition of Classic Media.
The depreciation and amortisation charge for the six months to June 2007
increased to #4.6m (2006: #2.4m). This reflects the increased value of the
intangible assets following the acquisition of Classic Media as well as the
impact of the ongoing investment in new programming across the Group's key owned
brands.
The Group's net financing charge in the six months to June 2007 increased to
#4.1m (2006: #0.9m). This increase was primarily due to increased borrowing
levels with net debt increasing from #33.8m at December 2006 to #111.2m at June
2007 as a result of funding the acquisition of Classic Media. The net financing
charge also reflects a gain on interest rate derivatives as well as foreign
exchange losses. Whilst the Company is performing in line with expectations on a
constant currency basis, the strength of sterling against the US dollar has
impacted the financial results for this period with a net foreign exchange loss
of #0.8m (2006: #0.1m). With the weighting of the results to the second half,
the Group remains exposed to foreign currency fluctuations. Financial
instruments have been utilised to limit the effect of any interest rate changes
over the period of the loans.
Balance Sheet
On 11 January 2007, Entertainment Rights Plc acquired the entire issued share
capital of Classic Media Holdings, Inc. for total consideration of US$302.2m
(#155.8m) plus directly attributable expenses of US$7.4m (#3.8m).
The net assets on acquisition were #82.7m, representing the intangible assets
valued at #88.4m, working capital of #14.5m and a deferred tax liability of
#20.2m. The intangible assets have been adjusted to reflect their fair value
following a detailed valuation report from a US-based independent valuation
firm. Goodwill arising on acquisition of #76.8m represents the wider strategic
benefits of the acquisition to the Enlarged Group. The payment for the
acquisition was through the issue of #19.2m of Entertainment Rights Plc shares
to the former shareholders of Classic Media plus #136.6m of cash.
Cash Flow / Net Debt
Net cash inflow generated from operating activities in the six months to June
2007 was #0.3m (2006: outflow of #0.3m).
Payments to acquire intangible fixed assets were #9.6m (2006 #5.1m),
representing continued investment in programming across the Enlarged Group.
Payments in the six months to June 2007 included programming investment in the
Group's owned, high margin brands, namely Rupert Bear(R), Jim Jam & SunnyTM,
Turok(R), George of the JungleTM, 3-2-1 Penguins!(R) and VeggieTales(R).
The acquisition of Classic Media was primarily financed by a rights issue
(#68.7m) and new loan facilities with Bank of Scotland.
The Group's net borrowings at 30 June 2007 were #111.2m (December 2006: #33.8m).
OPERATIONS REVIEW
Global Content and Production
The Company has a very strong position in the global arena of children's and
family programming. ER's production process allows for the creation of both long
form and short form content, creating numerous opportunities for traditional
broadcasters and a multitude of digital platforms including online, VOD, IPTV
and mobile. Entertainment Rights' portfolio continues to expand across a range
of demographics from pre-school, children's and family programming to pre-teen
and teenagers. Current productions include the CGI animated series Casper's
Scare SchoolTM for TF1 in France, George of the JungleTM for Cartoon Network
(US), 3-2-1 Penguins!(R) for qubo and Rupert Bear(R) Follow the Magic for Five's
Milkshake!
ER's global in-house TV distribution team sells programmes to broadcasters
around the world. ER's programming is currently licensed to more than 170
territories including the USA, Japan, France, Germany and Italy as well as
emerging markets including China, India and Russia. Following the acquisition of
Classic Media and Big Idea, the Enlarged Group has a strong presence in the
world's largest media market, the USA.
ER's commitment to third party programming remains strong, as demonstrated by ER
securing the worldwide TV distribution rights (excluding North America) to the
new series of TransformersTM from Hasbro in a continuation of Hasbro's huge
global franchise, with the TransformersTM theatrical feature film having grossed
over US$700m at the worldwide box office since its release this summer.
In a recent development, ER has secured the worldwide (excluding USA) television
distribution rights to the animated movie Dinotopia(R) Quest for the Ruby
Sunstone:
The Movie. This 75 minute feature length movie produced by Hallmark
Entertainment (2005) complements the huge publishing success of over 20 books.
Dinotopia(R) also enjoyed a hit TV series and a number of computer games have
been developed for PC, Gameboy Advanced and Xbox. Dinotopia(R) will be unveiled
to international broadcasters for the first time at the forthcoming media market
MIPCOM this October.
UK Operations
The UK operations have had a successful first half and ER has fully co-ordinated
its marketing and strategic sales efforts across all platforms to exploit,
strengthen and grow its market presence.
Shelf space for pre-school products remains highly competitive, but ER's strong
relationships with key retailers including Asda, Early Learning Centre, Marks &
Spencer, Mothercare, Tesco, Toys R Us and Woolworths ensure the Company's brands
continue to be widely represented on the UK high street.
Key highlights in the UK include:
Following a brand refresh, the BBC commissioned a new series of Postman Pat(R)
Special Delivery Service (SDS). This new series sees Postman Pat(R) promoted to
the role of Head of the SDS. The show has an expanded diverse cast, a fleet of
new vehicles, a new town and fast-paced storylines. Further enhancing Pat's
position at retail, ER has signed a new agreement with Character Options Limited
for the master toy licence for Postman Pat(R). Character Options is a leading UK
toy company with a strong pedigree in launching UK properties including the new
Doctor WhoTM franchise. In further recognition of the brand's success Postman
Pat(R) was recently nominated in two categories for the Licensing Awards 2007 -
Best Licensed Pre-School Property and Best Licensed Written, Listening or
Learning Range.
Following the enormous success of the new Rupert Bear(R) Follow the Magic TV
series on Channel Five's pre-school block Milkshake!, a comprehensive licensing,
merchandising and publishing programme is in place with leading UK toy licensee
Martin Yaffe and Egmont books (the No.1 publisher of children's character
books). A full range of Rupert Bear(R) story books was launched at retail in
July this year. A comprehensive range of soft toys and children's play sets was
launched in September 2007 with strong retail distribution from over 20
licensees.
ER has recently agreed a three year partnership with leading live events
company, Duo Entertainment Ltd for Basil Brush(R) to appear in a brand new
nationwide theatre tour of Basil of the Caribbean. Basil Brush(R) will also be
making an appearance in pantomime from late 2007 and will be in summer residence
in leisure attractions throughout the UK from May 2008 onwards. All of this
activity is supported by the on-going programme commitment by the BBC with
series 6 of The Basil Brush ShowTM airing this autumn.
A recent addition to ER's content portfolio is the CGI animated series, Finley
the Fire EngineTM. ER represents all rights (excluding USA) to this pre-school
brand and successfully negotiated an agreement with the BBC for the series to
air on CBeebies where it is already a top 10 programme.
Both George Of The JungleTM and Casper the Friendly Ghost(R) provide excellent
licensing and merchandising opportunities for the UK and international
marketplace and both properties will be unveiled at the Brand Licensing Show
this coming October.
ER's in-house home entertainment label, Right Entertainment, actively exploits
video and DVD rights to ER's owned and controlled programming in the UK. ER
continues to work closely with Mattel on the successful long-term distribution
of the BarbieTM film franchise. BarbieTM Magic of the Rainbow was released in
spring 2007 and BarbieTM as the Island Princess launches in autumn 2007. Other
core brand releases include titles from Postman Pat(R) and Rupert Bear(R).
US Operations
Deborah Dugan was appointed Chief Executive Officer & President of Entertainment
Rights North America in May 2007. Deborah was formerly President of Worldwide
Publishing for Disney and brings to the Company over 16 years of diverse media
experience. Deborah was instrumental in the acquisition of Baby Einstein by the
Walt Disney Company in 2001.
The USA remains the largest entertainment and media market in the world,
estimated to reach US$660 billion by 2008. American children aged between three
and eleven had a combined purchasing power of US$18 billion in 2005 and this is
projected to rise to US$21.4 billion by 2010. ER's enhanced presence in the
lucrative US market following the acquisition of Classic Media and Big Idea
underpins the Company's strategy to become the leading independent children's
and family global brand and content owner.
Key highlights include:
Timed to the August 2007 release of the Underdog(R) feature film from Walt
Disney Company and Spyglass Entertainment and to the July launch of The Ultimate
Underdog(R) DVD Collection, Volumes 1-3, Classic Media has introduced a
comprehensive merchandising programme around the Underdog(R) franchise, with
over 30 US licensing partners. This brand roll-out demonstrates the significant
value of Classic Media properties in the lucrative North American market.
Licensing and merchandising deals include a wide-ranging publishing deal for the
Lone Ranger(R) brand which covers an array of products celebrating the 75th
anniversary of the Lone Ranger(R). Other deals include a range of novelty plush
for Casper the Friendly Ghost(R) and agreements for Little Golden Books(R)
across puzzles and stationery.
Universal Pictures' upcoming feature film of Big Idea's The Pirates Who Don't Do
AnythingTM: A VeggieTales(R) Movie is due to be released in early 2008. A
multi-million dollar marketing, advertising, promotional and publicity campaign
in conjunction with Universal Pictures is in place leading up to the movie's
release. Beginning autumn 2007, Big Idea will be rolling out an extensive
licensing programme featuring new movie-themed products including toys, apparel
and books inspired by the movie.
Rudolph The Red-Nosed Reindeer(R), Frosty the SnowmanTM, Santa Claus is Comin'
to Town(R) along with the rest of The Original Christmas ClassicsTM, continue to
deliver on DVD. In 2007, Classic Media will launch its first-ever national
advertising campaign including television, print, radio and online exposure for
The Original Christmas ClassicsTM DVD box set. Significant promotions have also
been secured with Quaker and Hostess.
International Operations
The first half of 2007 saw the integration of content and brands from the
Classic Media portfolio into ER's international sales operations. With this
enhanced offering, ER continues to strategically pursue opportunities across
international markets increasing both brand exposure and revenue through new
distribution streams.
Internationally, licensing opportunities for ER's brands continue to increase
with licensed product available in 39 territories around the world including the
USA, UK, Germany, France, Scandinavia, Australia and India.
Key highlights include:
Postman Pat(R) is appearing on China's leading broadcaster, CCTV, which has
licensed all 80 x 15 minute episodes for its children's block CCTV- Kids.
Discussions are now underway to build a strong licensing, merchandise and
publishing programme to support the brand in China in these territories.
Following the launch of Rupert Bear(R) Follow the Magic at MIPTV earlier this
year, the series has now been sold to over 100 markets and will commence
broadcasting in late 2007/early 2008. Home entertainment and consumer products
roll-out plans are in place.
Postman Pat's(R) international presence continues to grow with new licensing
agreements signed in Australia and New Zealand. The brand continues to develop
in Germany where it airs on the number one pre-school platform Super RTL with
toy products due to launch at retail later this year. Following a deal with RTP
in Portugal, licensees for publishing, apparel and back-to-school have been
signed in this territory. As a result of television placement in a number of key
emerging markets, including Russia, Latvia and Slovakia, Plus License has been
appointed as licensing agent for the Postman Pat(R) brand in these territories.
The Classic Media brand portfolio has benefited from the sales focus of ER's
international team and as a result of this a number of key deals have been
signed. These include a pan-European toy deal with Giochi Preziosi for Casper
the Friendly Ghost(R), deals for Hot Stuff in Germany, France and South Africa
and the appointment of a toy partner for Lassie(R) in Germany. George of the
JungleTM has seen strong television sales with deals secured in Germany, Latin
America (Disney Channel) and France.
Growing from its strong position in the US market, the roll-out of the
VeggieTales(R) faith-based brand from Big Idea has commenced with the focus
being to position VeggieTales(R) as the leading brand in the Christian Book
Association (CBA) market in key English speaking territories.
Global Digital Operations
Entertainment Rights' digital business has had a strong performance in the first
half of 2007 with particular growth in the computer gaming market. With growth
in the global games market estimated at 70% between 2006 and 2007 and the value
of the console and handheld market in the USA, Japan and Western Europe alone is
projected to be worth US$47 billion by 2011 this is a key category for
Entertainment Rights. The inclusion of the Classic Media brands has greatly
enhanced digital opportunities and revenues.
This autumn sees the launch of a dedicated multi-brand e-commerce store for ER's
key properties including Postman Pat(R), Rupert Bear(R), Basil Brush(R) and Jim
Jam & SunnyTM. The new online store further strengthens ER's multiplatform
strategy and enables ER to interact directly with consumers.
In line with ER's multiplatform strategy for programming, Jim Jam & SunnyTM will
launch in the US market in late 2007 on AOL's kids' platform KOL Jr., one of the
top pre-school broadband sites in the USA. With the population in the USA at
over 300 million and broadband penetration of 60% this agreement provides an
excellent platform in which to introduce Jim Jam & SunnyTM to the US market.
Entertainment Rights has secured a number of key agreements which have placed
its content on digital gaming platforms including key brands Postman Pat(R),
Casper The Friendly Ghost(R), George of the JungleTM, Underdog(R), Lassie(R),
Rupert Bear(R), Rocky & BullwinkleTM and the eagerly awaited Turok(R) game which
is set to be released by Touchstone in early 2008 on the Playstation(R) 3 and
Xbox 360TM.
Where's Wally?(R) offers significant opportunities in the gaming sector across a
number of formats including Wii, Nintendo DS, online and mobile. Brand plans to
maximise the intrinsic opportunity of Where's Wally?(R) for the multi-platform
arena are well developed and will be implemented throughout 2008.
The Video On Demand (VOD) TV market has also presented significant opportunities
for ER. The Company has secured a key content agreement with Tiscali TV
(formerly Homechoice), including Tiscali Italia where ER will supply over 100
hours of programming on Tiscali's new service to launch in late 2007. Agreements
are also in place with BT Vision and Virgin Media in the UK and Chellomedia in
the Netherlands.
Mobile TV is a strong growth market for ER and key agreements have been secured
with a number of content aggregators on a multi-territory basis for ER's brands
including She-Ra(R) and Bravestarr(R) on Player X, He-Man(R) on Arena and
Ghostbusters(R), The Adventures of Waldo & Kitty(R) and Fat Albert(R) on ROK in
China.
Outlook
Possessing one of the most extensive independent portfolios in the world, the
Enlarged Group encompassing Entertainment Rights, Classic Media and Big Idea is
firmly established as a major competitor in the global children's and family
media arena. The acquisition of Classic Media earlier this year has successfully
positioned Entertainment Rights in the key US market.
ER continues to enjoy the benefits of an excellent response from broadcasters,
retailers and new media partners to its global brand portfolio. ER's
relationships with these key partners continues to create opportunities for
generating increased revenue for the group.
A significant opportunity exists to grow Big Idea's VeggieTales(R) and 3-2-1
Penguins!(R) in both the domestic (USA) and international marketplace, with
interest from a number of broadcasters who are seeking programming which offers
educational and values-based content.
In this transformational first half of the year, the Company has increased its
programming offering to a library of over 8,700 episodes. ER continues to build
the global presence of its brands and maximise revenue opportunities across all
media. Delivering shareholder value remains the focus of the Company.
In delivering these results I would like to thank ER's staff in the UK and USA
for their continued commitment in building a premier global children's and
family media company and in particular for their efforts in delivering the
smooth integration of Classic Media and Big Idea into Entertainment Rights.
Michael V. Heap
Chief Executive Officer
27 September 2007
Consolidated Unaudited Income Statement
Notes Unaudited 6 Unaudited 6 Audited Year to
months to June months to June December 2006
2007 2006
#'000 #'000 #'000
Revenue 17,346 5,867 29,747
Cost of sales (10,347) (4,797) (12,798)
-------- -------- ---------
Gross profit 6,999 1,070 16,949
Administrative
expenses (10,206) (3,607) (6,722)
-------- -------- ---------
EBITDA 4,618 (121) 14,806
Integration
and
restructuring
costs 2 (3,186) - -
Depreciation
and
amortisation (4,639) (2,416) (4,462)
Impairment of
goodwill and
intangibles - - (117)
-------- -------- ---------
-------- -------- ---------
Operating
(loss)/profit (3,207) (2,537) 10,227
Financial
income 3 1,818 64 127
Financial
expense 3 (5,434) (979) (2,525)
----------------------------------------------
Net financing
costs (3,616) (915) (2,398)
Share of the
loss of joint
ventures
accounted for
using the
equity method (435) - -
(Loss)/profit
-----------------------------------------------
before tax (7,258) (3,452) 7,829
Taxation for
the period 4 3,063 1,041 (1,626)
-------- -------- ---------
(Loss)/profit
for the period 7 (4,195) (2,411) 6,203
======== ======== =========
Basic earnings
per share 5 (0.59p) (0.58p) 1.50p
Diluted
earnings per
share 5 (0.59p) (0.58p) 1.41p
Consolidated Unaudited Statement of Recognised Income and Expense
Unaudited 6 Unaudited 6 Audited Year to
months to June months to June December 2006
2007 2006
#'000 #'000 #'000
Foreign
exchange
differences on
retranslation
of foreign
operations (5,174) - -
Foreign
exchange
movements on
net investment
hedges 1,049 - -
Net change in
fair value of
cash flow
hedges
recognised in
equity (251) - -
-------- -------- ---------
Income and
expense
recognised
directly in
equity (4,376) - -
(Loss)/profit
for the period (4,195) (2,411) 6,203
-------- -------- ---------
Total
recognised
income and
expense (8,571) (2,411) 6,203
======== ======== =========
Consolidated Unaudited Balance Sheet
Notes Unaudited 6 Unaudited 6 Audited
months to months to Year to
June June December
2007 2006 2006
#'000 #'000 #'000
Assets
Non-current assets
Goodwill 93,825 19,546 19,542
Investment in
programmes 95,120 30,457 37,256
Programme
development
costs 4,260 1,335 1,034
Trademarks and
copyrights 55,705 26,844 25,991
Property,
plant and
equipment 757 477 392
Deferred tax
assets 987 805 901
Investments
accounted for
using the
equity method 1,027 - -
--------- -------- ---------
Total
non-current
assets 251,681 79,464 85,116
Current assets
Inventory 4,672 - -
Other
financial
assets 1,326 79 80
Trade and
other
receivables 32,521 17,712 31,149
Cash and cash
equivalents 7,747 - -
--------- -------- ---------
Total current
assets 46,266 17,791 31,229
--------- -------- ---------
TOTAL ASSETS 297,947 97,255 116,345
--------- -------- ---------
Liabilities
Current liabilities
Interest
bearing loans
and borrowings 6 (1,240) (3,728) (6,369)
Trade and
other payables (3,583) (3,859) (3,923)
Accruals and
deferred
income (9,169) (7,799) (9,708)
Provisions (24) - (16)
Bank overdraft - (4,356) (7,827)
--------- -------- ---------
Total current
liabilities (14,016) (19,742) (27,843)
NET CURRENT
ASSETS /
(LIABILITIES) 32,250 (1,951) 3,386
Non-current liabilities
Interest
bearing loans
and borrowings 6 (115,551) (19,108) (19,462)
Deferred tax
liabilities (22,641) (1,674) (3,350)
Provisions (9) (57) (30)
Trade and
other payables (267) - -
--------- -------- ---------
Total
non-current
liabilities (138,468) (20,839) (22,842)
--------- -------- ---------
TOTAL
LIABILITIES (152,484) (40,581) (50,685)
--------- -------- ---------
NET ASSETS 145,463 56,674 65,660
========= ======== =========
Capital and reserves
Issued share
capital 7 36,620 20,742 20,752
Share premium 7 105,482 33,364 33,388
Merger reserve 7 16,470 16,470 16,470
Hedging reserve 7 (251) - -
Translation
reserve 7 (4,125) - -
Retained
earnings 7 (8,733) (13,902) (4,950)
--------- -------- ---------
Equity
attributable
to
shareholders
of the parent 7 145,463 56,674 65,660
--------- -------- ---------
Total equity
and
liabilities 297,947 97,255 116,345
========= ======== =========
Consolidated Unaudited Cash Flow Statement
Notes Unaudited 6 Unaudited 6 Audited
months to months to year to
June June December
2007 2006 2006
#'000 #'000 #'000
Cash flow from operating
activities
(Loss) / profit before tax (7,258) (3,452) 7,829
Adjustments for:
Financial income and expense 3,616 915 2,398
Depreciation of tangible
fixed assets 160 107 239
Amortisation of intangible
fixed assets 4,479 2,309 4,223
Impairment loss on goodwill
and other intangibles - - 117
Profit on disposal of
non-current assets (1) - -
Share of the loss of joint
ventures accounted for using
the equity method 435 - -
Share based payment charges 308 205 526
--------- -------- ---------
Operating cash
flows before
movements in
working
capital 1,739 84 15,332
(Increase) in inventory (837) - -
(Decrease) in trade and
other payables (9,773) (7,031) (5,337)
Decrease / (Increase) in
trade and other receivables 8,608 6,633 (8,344)
--------- -------- ---------
Cash generated
from /
(expended by)
operations (263) (314) 1,651
Income taxes received 592 - -
---------
---------
Net cash
inflow /
(outflow) from
operating
activities 329 (314) 1,651
Cash flows from investing
activities
Payments to acquire
intangible fixed assets (9,584) (5,138) (11,847)
Payments to acquire tangible
fixed assets (236) (64) (117)
Acquisition of subsidiary
undertakings including cash
acquired 8 (132,768) - (417)
--------- -------- ---------
Net cash used
in investing
activities (142,588) (5,202) (12,381)
Cash flows from financing
activities
Proceeds from share issues 68,739 - -
Proceeds from new borrowings 127,770 3,350 6,396
Repayment of borrowings (36,017) (1,510) (1,522)
Interest received 236 64 127
Interest paid (2,517) (734) (2,090)
--------- -------- ---------
Net cash
generated from
financing
activities 158,211 1,170 2,911
--------- -------- ---------
Net increase /
(decrease) in
cash and cash
equivalents 15,952 (4,346) (7,819)
Cash and cash equivalents at
start of period (7,827) 111 111
Net effect of foreign
exchange (378) (121) (119)
--------- -------- ---------
Cash and cash
equivalents at
end of period 7,747 (4,356) (7,827)
========= ======== =========
NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2007
1. Basis of Preparation
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 31 December 2006,
together with the new policies noted below.
The comparative information at 30 June 2006 and 31 December 2006 is abridged and
therefore not Entertainment Rights Plc's statutory accounts for those periods.
The accounts for the year ended 31 December 2006 have been reported on by
Entertainment Rights Plc's auditor. The report of the auditor was unqualified
and did not contain a statement under section 237 (2) or (3) of the Companies
Act, 1985. This is a statutory disclosure required by the Companies Act, 1985.
The Interim Report was approved by the Directors on 27 September 2007.
Hedge Accounting
On 13 June 2007 the Group adopted hedge accounting.
Interest rate collars with notional principal amounts of #104.0m, whose fair
values are included in other financial assets, have been designated as cash flow
hedges against #104.0m of the Group's term loans. Since the adoption of hedge
accounting, given that the hedges are deemed to be highly effective, changes in
the fair values of the collars have been taken to the hedging reserve in equity.
Prior to the adoption of hedge accounting changes in the fair values of the
collars were included in financial income and expense in the income statement.
Term loans with principal amounts of US$128.3m (#64.0m) have been designated as
a hedge against the Group's investment in US$128.3m of the net assets of Classic
Media Holdings, Inc. ("Classic Media"). Since the adoption of hedge accounting,
given that the hedge is deemed to be highly effective, foreign exchange
movements relating to the term loans have been taken to the translation reserve
in equity. Prior to the adoption of hedge accounting foreign exchange movements
relating to the terms loans were included in financial income and expense in the
income statement.
Foreign Currencies
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition, are translated to sterling at exchange
rates at the reporting date. The income and expenses of foreign operations are
translated to sterling at average rates of exchange for the period. Foreign
currency differences are recognised directly in the translation reserve within
equity.
Hedge of net investment in foreign operation
Foreign currency differences arising on the retranslation of a financial
liability designated as a hedge of a net investment in a foreign operation are
recognised directly in equity, in the translation reserve, to the extent that
the hedge is effective. To the extent that the hedge is ineffective, such
differences are recognised in profit or loss. When the hedged net investment is
disposed of the cumulative amount in equity is transferred to profit or loss as
an adjustment to the profit or loss on disposal.
Financial Instruments
Derivatives and other financial instruments
The Group uses a limited number of derivative financial instruments to hedge its
exposure to fluctuations in interest and other foreign exchange rates. The Group
does not hold or issue derivative instruments for speculative purposes.
Joint Ventures
Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement and requiring unanimous consent
for strategic financial and operating decisions. Joint ventures are accounted
for using the equity method (equity accounted investees). The consolidated
financial statements include the Group's share of the income and expenses of
equity accounted investees, after adjustments to align the accounting policies
with those of the Group, from the date that significant influence or joint
control commences until the date that significant influence or joint control
ceases.
2. Integration and Restructuring Costs
Prior to completion of the acquisition of Classic Media, the former shareholders
of Classic Media reached agreement with certain former executives on the
termination of their employment contracts with Classic Media. The amounts paid
in compensation to these executives were negotiated between the former
shareholders and executives with no involvement from Entertainment Rights Plc
("ER"). The costs of termination were not borne by ER, as an adjustment was made
to the purchase consideration paid for Classic Media to deduct the cost of these
payments. However, as the relevant termination agreements were conditional upon
completion of the acquisition of Classic Media by ER, IFRS 3 requires that these
costs are recognised by ER as a post-acquisition charge and not as a liability
of Classic Media at the time of acquisition by ER. Accordingly, compensation
payments totalling US$5.6m (#2.9m) are included within integration and
restructuring costs. Other costs relating to the integration and restructuring
of Classic Media include legal and professional fees of US$0.2m (#0.1m) and
staff related costs of US$0.4m (#0.2 m).
3. Finance Income and Expense
Unaudited Unaudited Audited
6 months to 30 6 months to 30 year to 31
June 2007 June 2006 December 2006
#'000 #'000 #'000
Finance income
Bank interest
receivable 217 64 127
Net gain on
re-measurement
of interest
rate collars
to fair value 1,577 - -
Other interest
income 24 - -
--------- --------- ---------
1,818 64 127
========= ========= =========
Unaudited Unaudited Audited
6 months to 30 6 months to 30 year to 31
June 2007 June 2006 December 2006
#'000 #'000 #'000
Finance expense
Bank loans and
overdrafts 4,567 858 2,039
Net foreign
exchange loss 787 121 265
Net loss on
re-measurement
of foreign
exchange
option to fair
value 19 - 216
Net loss on
re-measurement
of interest
rate swap to
fair value 61 - 5
--------- --------- ---------
5,434 979 2,525
========= ========= =========
4. Taxation
Unaudited Unaudited Audited
6 months to 6 months to year to
30 June 30 June 31 December
2007 2006 2006
#'000 #'000 #'000
Current tax expense:
UK corporation tax credit on
income for the period (1,718) (993) 79
Double tax relief (112) (42) (79)
Foreign tax current year charge 112 42 79
Foreign tax prior year charge 43 - -
Overseas tax credit on income
for the period (1,185) - -
--------- --------- ---------
Total current tax (2,860) (993) 79
--------- --------- ---------
Deferred tax expense:
Origination and reversal of
timing differences (33) (48) 1,547
Re-measurement of net deferred
tax liability
to 28% (170) - -
--------- --------- ---------
Total deferred tax (203) (48) 1,547
--------- --------- ---------
Income tax (credit)/expense in
income statement (3,063) (1,041) 1,626
--------- --------- ---------
Deferred tax assets and liabilities are measured at tax rates that are enacted
or substantively enacted at the balance sheet date. The Finance Act 2007, which
reduces the rate of UK corporation tax to 28%, was substantively enacted on 28
June 2007. Accordingly, deferred tax assets and liabilities have been measured
at a tax rate of 28%.
5. (Loss)/Earnings Per Ordinary Share
The calculation of basic loss per ordinary share is based on the consolidated
loss after tax for the period of #4,195,000 (June 2006 - #2,411,000 loss) and on
712,448,393 (June 2006 - 413,963,716), being the weighted average number of
ordinary shares in issue during the period.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
Unaudited Unaudited Audited
6 months to 6 months to year to
30 June 30 June 31 December
2007 2006 2006
#'000 #'000 #'000
(Loss) / profit on ordinary
activities after taxation (4,195) (2,411) 6,203
Basic (loss) / earnings per
ordinary share
Earnings available to ordinary
shareholders (4,195) (2,411) 6,203
Weighted average number of
shares in issue 712,448,393 413,963,716 414,541,333
---------- --------- ---------
Basic (loss) / earnings per
share (pence) (0.59p) (0.58p) 1.50p
========== ========= =========
Diluted (loss) / earnings per
ordinary share
Earnings available to ordinary
shareholders (4,195) (2,411) 6,203
Weighted average number of
shares in issue 712,448,393 413,963,716 414,541,333
Effect of diluted securities -
options - - 26,517,874
---------- --------- ---------
Diluted (loss) / earnings per
share (pence)* (0.59p) (0.58p) 1.41p
========== ========= =========
Underlying (loss) / earnings per share
Earnings available to ordinary
shareholders (4,195) (2,411) 6,203
Share options 308 205 526
Interest rate and currency
derivatives (1,497) (13) 223
Aborted acquisition costs (net of
tax) - - 119
Integration and restructuring costs
(net of tax) 2,230 - -
---------- --------- ---------
(3,154) (2,219) 7,071
Weighted average number of shares in
issue 712,448,393 413,963,716 414,541,333
---------- --------- ---------
Underlying (loss) / earnings per
share (pence) (0.44p) (0.54p) 1.70p
========== ========= =========
*Due to the loss for the periods 30 June 2007 and 30 June 2006 there is no
dilution effect.
6. Borrowing Commitments
Details of the committed borrowing facilities as at 30 June 2007 and the
repayment terms are as follows:
Term Loan Working Capital Total
#'000 #'000 #'000
Within 1 year 1,240 - 1,240
Between 1 and 2 years 5,209 - 5,209
Between 2 and 5 years 26,578 - 26,578
Greater than 5 years 75,944 10,000 85,944
--------- --------- ---------
Total as at 30 June 2007 108,971 10,000 118,971
Unutilised amount - 10,000 10,000
--------- --------- ---------
108,971 20,000 128,971
--------- --------- ---------
As at 30 June 2007 borrowing costs of #1,914k were set-off against the term
loans and #266k against the working capital facility.
7. Reconciliation of Movements in Capital and Reserves
Share Share Merger Hedging Translation Retained
Capital Premium Reserve Reserve Reserve Earnings Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000
At 1 January
2007 20,752 33,388 16,470 - - (4,950) 65,660
Issue of share
capital 12,453 58,522 - - - - 70,975
Issue of
shares on
acquisition 3,343 15,881 - - - - 19,224
Share issue
costs - (2,376) - - - - (2,376)
Share option
charge - - - - - 308 308
Exercise of
share options 72 67 - - - - 139
Deferred tax
on share
options - - - - - 122 122
Re-measurement
of deferred
tax on share
options to 28% - - - - - (18) (18)
Movement on
cash flow
hedges - - - (251) - - (251)
Foreign
exchange on
net investment
hedge - - - - 1,049 - 1,049
Foreign
exchange on
translation of
foreign
operation - - - - (5,174) - (5,174)
Income and
expense for
the period - - - - - (4,195) (4,195)
------- -------- ------- ------- --------- ------- -------
At 30 June 2007 36,620 105,482 16,470 (251) (4,125) (8,733) 145,463
======= ======== ======= ======= ========= ======= =======
8. Acquisition of Businesses
On 11 January 2007, ER acquired the entire share capital of Classic Media.
Classic Media is the US-based owner and distributor of children's and family
programming and related character-based intellectual properties. Classic Media
exploits its rights through a range of sales channels including home video
sales, TV licensing and merchandising. The Company has an extensive library of
approximately 3,500 episodes of programming and includes well- known brands such
as Casper the Friendly Ghost(R), Mr. Magoo(R), Richie Rich(R), Rudolph The
Red-Nosed Reindeer(R), Lone Ranger(R), Lassie(R), Underdog(R), Pat the BunnyTM,
Lamb Chop(R), Rocky & BullwinkleTM, Dick TracyTM, Gerald McBoing Boing(R), Roger
RamjetTM and George of the JungleTM.
ER acquired the entire share capital of Classic Media for a total consideration
of US$302.2m (#155.8m) plus directly attributable expenses of US$7.4m (#3.8m).
Payment of the purchase price comprised the issue of 66,867,268 Entertainment
Rights Plc shares valued at US$37.3m (#19.2m) based on the closing share price
on 10 January 2007 and US$264.9m (#136.6m) in cash. In addition to the placement
of 249,033,056 shares on the London Stock Exchange, the Company refinanced the
Enlarged Group's indebtedness with the Bank of Scotland.
In the period from acquisition to 30 June 2007, Classic Media contributed a loss
of #0.5m to the consolidated operating loss of the Group (before additional
amortisation of #2.1m). Had the acquisition occurred on 1 January 2007 the
estimated revenue for the Group would have been unchanged and operating profit
before amortisation #0.3m higher.
The acquired net assets of Classic Media are set out in the table below:
Book value Alignment of Fair value Fair value to
before accounting adjustments Entertainment
acquisition policies Rights Plc
#'000 #'000 #'000 #'000
Property,
plant and
equipment 373 (47) - 326
Intangible
assets 41,265 2,308 44,786 88,359
Inventories - 3,979 - 3,979
Trade and
other
receivables 12,937 (4,873) - 8,064
Cash and cash
equivalents 7,150 - - 7,150
Other assets 6,954 (5,139) - 1,815
Borrowings - - - -
Trade and
other payables (1,915) - - (1,915)
Accruals and
deferred
income (8,109) 5,174 - (2,935)
Other
liabilities (3,394) - - (3,394)
Current tax
asset 1,474 - - 1,474
Deferred tax
(liability) (2,369) (530) (17,287) (20,186)
---------- ---------- ---------- ----------
Net assets and
liabilities 54,366 872 27,499 82,737
========== ========== ==========
Goodwill on
acquisition 76,822
Directly
attributable
costs (3,760)
----------
Consideration
paid 155,799
==========
The figure in the cash flow statement relating to the acquisition of subsidiary
undertakings is made up as follows:
#'000
Total
consideration 155,799
Directly
attributable
costs paid in
the period 3,343
Non-cash
consideration (19,224)
Classic
Media's cash
at acquisition (7,150)
----------
Net outflow
per cash flow
statement 132,768
==========
Classic Media's carrying amounts prior to acquisition were recorded under US
GAAP. The alignment of accounting policy adjustments restate the opening book
values under IFRS. The values of assets and liabilities recognised on
acquisition are their estimated fair values.
The intangible assets recognised at fair value of #88.4 million include the
character rights portfolio, library exploitation rights, distribution agreements
with third parties and Classic Media's economic interest in the J. Ward Joint
Venture.
The goodwill recognised represents the wider strategic benefits of the
acquisition to ER. This includes the increased opportunities available to ER to
increase sales of the existing pre-transaction portfolio in the US through
Classic Media's contacts, networks, and relationships with broadcasters,
retailers and licensees. There is also the opportunity to increase international
sales of Classic Media properties which, prior to acquisition, have been largely
derived from the US. Other factors included within goodwill include cost savings
as a result of the combination of marketing and trade event activities as well
as the benefits of purchasing power across the Enlarged Group. These factors, in
combination with the existing ER assets, generate the goodwill on acquisition.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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