RNS Number:9158W
Entertainment Rights PLC
25 March 2004
25th March 2004
Entertainment Rights Plc
Preliminary Results for the year ended
31 December 2003
and
Announcement of Major Acquisition
and Successful Completion of Fundraising
Highlights
* Turnover increased by 22% to a record #29.5m (2002: restated #24.1m).
* EBITDAE increased by 26% to #6.0m (2002: restated #4.8m)
* Underlying Profit before tax, goodwill amortisation and exceptionals
increased by 85% to #1.6m (2002: restated #0.8m); operating profit
increased to #0.6m from a restated loss of #0.1m in 2002 ; loss after
tax of #0.4m (2002: restated loss #1.1m)
* Major international expansion through #11m acquisition from Hallmark
of Filmation library of classic characters including He-Man and
Masters of the Universe, She-Ra, Ghostbusters, My Favourite Martian,
The Lone Ranger and many others announced today
* Placing and Open Offer raising #16*9 million, priced at 11.25 pence
per share, attracting significant new institutional shareholder base
Rod Bransgrove, non Executive Chairman, Entertainment Rights Plc, commented:
"I am delighted to be able to announce today the acquisition of the Filmation
library from Hallmark. This acquisition comes on the back of a fifth
consecutive year of record results for the Company, confirming the high quality
of the executive management team. The Filmation transaction combined with our
well balanced diversified portfolio of rights and our ability to forge strong
worldwide commercial relationships, positions Entertainment Rights to deliver
clear and substantial benefits to shareholders in 2004 and the years to come
consolidating our position as a leading global children's and family media
company."
- ends -
Enquiries:
Entertainment Rights Plc
Mike Heap, CEO 0208 762 6200
Elizabeth Gaines, Finance Director
Julie King, Group PR Manager
Bell Pottinger
David Rydell/Charles Reynolds 0207 861 3232
CHAIRMAN'S STATEMENT
The last financial year has been very successful for Entertainment Rights, with
the company delivering record trading results, developing a pipeline of highly
desirable intellectual property rights and delivering a fully integrated
approach to rights' exploitation.
Financial Highlights
We have achieved a fifth consecutive year of record trading results,
substantially increasing revenue, earnings before interest, tax, depreciation,
amortisation and exceptional items (EBITDAE) and underlying profit as follows:
* Turnover increased by 22% to #29.5m (2002 restated: #24.1m);
* EBITDAE increased by 26% to #6.0m (2002 restated: #4.8m);
* Operating profit increased to #0.6m (2002 restated: loss - #0.1m);
* Underlying profit before tax (excluding goodwill and exceptionals)
increased by 85% to #1.6m (2002 restated: #0.8m);
* Loss after tax of #0.4m (2002 restated: loss #1.1m)
* Underlying EPS increased to 0.59p (2002 restated: 0.33p)
* Net cash inflow from operating activities was #3.3m (2002 #4.3m)
The Directors do not recommend a dividend (2002: nil).
Group Development
A key strength of the business is its diversified portfolio of both owned brands
and third party properties. Third party properties offer low financial risk and
generate strong cashflow enabling the Group to support the roll-out of and
continued investment in its wholly-owned higher margin brands. During 2003, the
Group successfully continued the strategic exploitation of its wholly-owned
brands Basil Brush(R), Postman Pat(R) and Little Red Tractor.
During 2003, the Group acquired from Mattel the worldwide (excluding North
America) television and home entertainment rights to distribute the third Barbie
TM feature film, BarbieTM of Swan Lake. The acquisition of the third BarbieTM
animated feature film is testament to the success of the two previous releases
by Right Entertainment, our in-house home entertainment label.
The Group has continued to enjoy strong strategic relationships with blue chip
international media companies. This has been further enhanced during the year
by Hasbro awarding to the Group worldwide (excluding North America) television
and home entertainment distribution rights for Transformers Energon and Duel
Masters. This follows on from the successful distribution of the Hasbro
property Transformers Armada.
Board Changes
Claire Derry stepped down in September 2003 from her role as Executive Director.
Claire remains on the Board as a Non-Executive Director. David Glick retired
by rotation in May 2003. We thank David for all his endeavours and wish him
continued success.
Accounting Policies
In the year ended 31 December 2003, the Group adopted the changes to Financial
Reporting Standard 5 ("Revenue Recognition") in respect of the recognition of
television distribution revenue. The detailed application of this policy is
described below. The policy was adopted to reflect the definition of
performance within Financial ReportingStandard 5, compliance with best practice
in the entertainment industry and adoption of accounting policies most
appropriate to the business. The practical effect of the revised policy is that
television distribution revenue is now recognised when delivery of materials to
the broadcaster has occurred.
As a result, for the year ended 31 December 2002, turnover is #1,430,000 lower
and costs of sales is #1,211,000 lower and profit for the financial period is
#219,000 lower than previously reported.
Employees
I would like to take this opportunity to thank all our staff for their continued
hard work and endeavours during the year ensuring that we have delivered another
year of outstanding growth.
Current Trading, Outlook andFuture Prospects
Current trading is in line with market expectations, capitalising on the
increase in digital channels, increased penetration of DVD in home entertainment
and the extensive character licensing and merchandising market. The roll-out of
and investment in our higher margin wholly-owned brands continues in 2004. The
Group's performance is enhanced by our third party rights distribution
capabilities, which contribute to the Group's cashflow and its worldwide
strategic relationships.
The Group continues to analyse and assess corporate opportunities that we
believe will deliver enhanced and continuing value to our shareholders.
However, all such potential opportunities will be critically appraised to ensure
integrity and shareholder value.
Your Board announced today the acquisition of the Filmation library from
Hallmark for a total consideration of US$20million. The consideration of
US$20million for the Filmation library is to be satisfied in cash and will be
funded out of a new #11.8million loan facility which the Company has arranged
for the purposes of the Acquisition or out of the proceeds of the Firm Placing
and the Placing and Open Offer.
The Filmation library features an extensive catalogue of over 500 hours of high
quality animation programming including such well known properties as He-Man and
the Masters of the Universe, She-Ra, Ghost Busters, My Favourite Martian, The
Lone Ranger and many others. This acquisition comes on the back of a fifth
consecutive year of record results for the Company, confirming the high quality
of the executive management team. Filmation's content combined with our well
balanced diversified portfolio of rights and our ability to forge strong
worldwide commercial relationships, positions Entertainment Rights to deliver
clear and substantial benefits to shareholders in 2004 and the years to come and
consolidates our position as a leading global children's and family media
company.
Rod Bransgrove
Non Executive Chairman
25 March 2004
CHIEF EXECUTIVE'S REVIEW
2003 was an excellent year for the Group both financially and operationally.
Key performance measures of revenue, EBITDAE and underlying profit before tax
all recorded double-digit growth for the fifth consecutive year as we
successfully continue the roll-out of our higher margin wholly-owned properties,
which we believe will provide strong earnings growth in 2004 and many years to
follow.
Brand Highlights
Basil Brush(R)
2003 was another excellent year for Basil Brush(R) with revenue growing some
130% on 2002.
The BBC's confidence in Basil continues, demonstrated by the commissioning of a
further 26 episodes, increasing its programming commitment to 52 episodes.
Along with this, the BBC's use of Basil across Children's BBC (CBBC), including
Basil's regular guest presenter appearances on Blue Peter, has established him
as a core children's BBC character.
The first video and DVD, Basil Brush(R) - Unleashed! was released in Autumn 2003
and charted in Woolworths Top Twenty. Further releases are planned throughout
2004. These releases continue to raise the profile and awareness of Basil and
will benefit merchandising sales in the future.
2003 saw commencement of the roll-out of Basil in the international arena.
Basil has been sold to over 50 countries including Germany's premier
broadcaster, ZDF, along with its children's platform Kika. InAustralia, The
Basil Brush Show has aired on the ABC,Australia's premier broadcaster, where it
achieved a 75% audience share of kids age 6-10. On the back of this success
Basil is undertaking a retail tour of Australia to promote and support video and
toy releases. We are confident that we will continue to develop Basil's
international career in 2004, achieving our goal of establishing Basil Brush(R)
as a truly global children's character.
Postman Pat(R)
Postman Pat(R) revenues in2003 increased some 35% on 2002. Production of the
26 brand new episodes and four half-hour specials of Postman Pat(R) is near
completion and transmission commences on the BBC in autumn 2004. Postman Pat(R)
's Magic Christmas was released on videoand DVD in November 2003 and achieved
sales in excess of 70,000 units. We anticipate that forthcoming Postman Pat(R)
video and DVD releases will make a significant financial contribution to 2004
and 2005 Group revenue.
The television broadcastand video/DVD releases will enhance awareness of this
classic brand and drive merchandising and licensing sales. A new licensing and
merchandising campaign for 2004 has been developed, with over 50 new licensees
covering key categories such as toys, books, apparel and stationery.
Key retail listings have been secured including Woolworths, Toys R Us, Argos and
The Early Learning Centre. This retail support is positioning Postman Pat(R) as
a "must have" brand for Christmas 2004 and beyond.
Internationally, we have sold Postman Pat(R) to over 100 countries including
Scandinavia and Australia where the brand roll-out plan is now underway. We are
currently in negotiations with European broadcasters and expect further key
strategic deals to be completed in 2004. Developing Postman Pat(R) as an
educational tool will be a key focus in order for us to strengthen our Asian
presence.
Little Red Tractor
Revenues for Little Red Tractor grew by an impressive 166% on 2002. Little Red
Tractor debuted on the BBC in January 2004. Ratings to date have been very
impressive with an audience share of 32% and over 1.75 million viewers.
A strong licensing and merchandising programme, led by Corgi, is currently in
place covering toys, publishing and interactive games. Retailer support for the
brand is strong. We therefore anticipate revenues from these licenses will be
significant in 2004 and thereafter.
The early success of Little Red Tractor has enabled us to accelerate our
international roll-out. In 2003 we pre-sold the series to 120 countries
including Scandinavia, France and India and are currently in discussions with
further international broadcasters for placement in 2004.
Third Party Brands
Barbie (TV and Home Entertainment)
The Group acquired from Mattel during 2003 a worldwide license (excluding North
America) for the television and home entertainment rights to distribute the
third BarbieTM feature film, BarbieTM of Swan Lake. The film was released in
October 2003 and debuted at Number 1 in the UK charts, selling in the UK some
479,000 units before the year-end. Across all three features, BarbieTM in the
Nutcracker, BarbieTM as Rapunzel, BarbieTM of Swan Lake we have to date
collectively sold some 7 million units internationally (excluding North
America).
Our success in consistently placing the Barbie(R) films with broadcasters of
choice internationally continues to enhance our reputation for possessing one of
the strongest independent TV sales teams in the business.
Transformers & Duel Masters (TV & Home Entertainment)
Following on from the success of Transformers Armada, Hasbro granted ER the
Worldwide distribution rights (excluding North America) to 52 episodes of
Transformers Energon and 26 episodes of Duel Masters, the Japanese animated
series based around the trading card phenomenon. Our television sales team has
already been successful in placing these properties in a number of key
international territories. Based on these successes, ER are confident in
securing additional long-term distribution rights in 2004, which will continue
to underpin our relationships with key international broadcasters.
In 2003 ER secured an exclusive distribution arrangement with Rhino Home Video,
a division of Warner Strategic Marketing for the North American home video and
DVD distribution rights to Transformers Armada
CliffordTM
Entertainment Rights continues to work in partnership with the major US
publisher Scholastic representing home entertainment and consumer products for
CliffordTM in the UK.
Through Right Entertainment, our home entertainment label, over 155,000 videos
and DVDs have been sold to date. Further videoand DVD releases based on the 80
episodes of BBC aired programming are scheduled for 2004. There are over 30
licenses in place for CliffordTM including a master toy license with Character
Options and licenses covering magazines, clothing, stationery and toiletries.
Operational Review
Television and Production Sales
Revenues in television and production increased by 55% on 2003, an excellent
performance particularly when considering the challenging economic environment.
Our sales team sold our catalogue of over 1,200 hours of quality programming in
over 120 countries.
Our strategy of placing our wholly owned properties with international
broadcasters of choice, thus maximising their exposure and awareness to drive
entertainment and retail sales, is achieved through the strong relationships we
have forged with these international partners.
Siriol, our animation studio, continues to perform well producing Fireman Sam
for S4C and HIT Entertainment, receiving a CITVcommission for our in-house
developed live action children's comedy Help! I'm an Outlaw as well as a number
of other third party projects. Additionally, in 2003 Siriol was awarded a
prestigious Children's BAFTA for best pre-school animation for Hilltop Hospital.
Licensing and Merchandising
Revenues in licensing and merchandising increased by 27% on 2002 with revenues
from our higher margin wholly-owned brands increasing some 46%. This
demonstrates the success we are having in securing key strategic licensees for
Basil Brush(R), Postman Pat(R) and Little Red Tractor.
We are continuing to source new growth areas for our brands and are scheduling a
number of lucrative live and touring events for key wholly-owned brands in 2004
and beyond.
The continued broadcast of Basil Brush(R), Postman Pat(R) and Little Red Tractor
on the BBC during 2004 will drive awareness of these global brands. We
anticipate that Christmas 2004 will see our strongest ever release schedule of
higher margin wholly-owned brands.
As previously announced, the Barbie(R) (non doll) licensing contract, covering
merchandise and publications in the UK, ended in December 2003. As a
consequence we will receive a significant compensation paymentfrom Mattel in
2004, which has been accrued in 2003 as exceptional other operating income. For
consistency all other income and costs relating to the contract have been
recognised in the 2003 results including the licensing and merchandising income
for the final quarter of 2003, which would in the normal course of business have
been recognised in 2004.
Home Entertainment
Revenues in Home Entertainment (excluding the Barbie(R) Films) increased by 190%
in 2003 demonstrating the successin the release of videos and DVDs for Basil
Brush(R) and Postman Pat(R). Including the Barbie(R) Films, Right Entertainment
successfully sold some 4 million units in the UK and internationally in 2003.
In 2003 the UK Home Entertainment market grew in volume by 23% to 208 million
units and now represents a #2billion a year industry. The DVD format represented
70% of the entire market in 2003 but was less than 30% of the children's genre.
With DVD being able to command a higher price point and the inherent lower cost
of duplication and shipping, we expect this gap to narrow in 2004 and therefore
anticipate substantial upside in revenues in 2004 and beyond from an increase in
the DVD to VHS sales ratio.
With the strongest ever schedule of higher margin wholly-owned releases in 2004,
we expect Right Entertainment to be a key revenue and contribution driver for
the Group.
Summary
Following another year of record growth I believe that our strategy of a
balanced portfolioof owned and third party rights positions us as a market
leader in providing high quality children's and family programming with global
appeal.
We are delighted to have been able to announce today the transforming
acquisition of the Filmation library which, greatly enhances our content
offering of wholly owned characters and brands and gives us a particular focus
on the US market place, enhancing your Company's global reputation and further
establishing Entertainment Rights in the major USmarket place. The acquisition
coincides with the announcement of our fifth successive year of record results.
The strength of our higher margin wholly-owned brands and the ongoing release
schedule of our broad portfolio across all media in 2004 means we can look
forward to the future with confidence.
Mike Heap
Chief Executive Officer
25 March 2004
Consolidated profit and loss account - for the year ended 31 December
2003 2002
Notes Exceptionals Total Restated
#'000 #'000 #'000 #'000
Turnover 1,2 29,453 - 29,453 24,130
Cost of sales (20,626) - (20,626) (16,055)
Gross profit 8,827 - 8,827 8,075
Administrative expenses (8,203) (2,358) (10,561) (8,194)
Other operating income - 2,360 2,360 -
EBITDA 6,021 1,876 7,897 4,790
Depreciation and amortisation (excluding goodwill) (3,421) - (3,421) (2,925)
Goodwill amortisation (1,976) (1,874) (3,850) (1,984)
Operating Profit/(loss) 624 2 626 (119)
Interest receivable & similar income 24 49
Interest payable & similar charges 4 (1,067) (1,070)
Loss on ordinary activities before taxation 3 (417) (1,140)
Taxation on ordinary activities 5 - 31
Loss on ordinary activities after taxation (417) (1,109)
Retained loss (417) (1,109)
Earnings/(loss) per ordinary share (pence)
Basic and diluted loss per ordinary share 14 (0.16)p (0.42)p
Underlying earnings per ordinary share 14 0.59p 0.33p
*Underlying earnings per share is calculated on earnings excluding goodwill and
exceptionals.
Consolidated statement of total recognised gains and losses
Notes Restated
2003 2002
#'000 #'000
Loss for the financial year (417) (1,109)
Total recognised gains and losses relating to the financial period (417) (1,109)
Prior periods adjustment 1 (2,430) -
Total gains and losses recognised since last annual report (2,847) (1,109)
Consolidated balance sheet - as at 31 December
Note 2003 2002
Restated
#'000 #'000
Fixed assets
Goodwill 7 19,900 23,750
Investment in programmes 7 19,788 13,831
Trademarks and copyrights 7 9,760 10,299
Intangibles 49,448 47,880
Tangible assets 999 1,977
50,447 49,857
Current assets
Programme development costs 719 2,166
Debtors 8 17,561 11,155
Cash at bank and in hand 1,453 861
19,733 14,182
Creditors: amounts falling due within one year 9 (19,073) (17,842)
Net current assets/(liabilities) 660 (3,660)
Total assets less current liabilities 51,107 46,197
Creditors: amounts falling dueafter more than one year 10 (14,312) (9,055)
Provision for liabilities and charges 11 (1,399) (1,329)
Net assets 35,396 35,813
Capital and reserves
Share capital 13,117 13,117
Share premium 13 24,355 24,355
Merger reserve 13 16,470 16,470
Profit and loss account 13 (18,546) (18,129)
Equity shareholders' funds 35,396 35,813
Consolidated cash flow statement - for the year ended 31 December
Restated
2003 2002
Notes #'000 #'000
Net cash inflow from operating activities 15 3,303 4,294
Returns on investments and servicing of finance
Interest received 24 49
Interest paid (890) (736)
Net cash outflow from investments and servicing of finance (866) (687)
Taxation
UK corporation tax (paid)/received (182) 31
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (6,708) (4,732)
Payments to acquire tangible fixed assets (136) (223)
Receipts from sale of tangible fixed assets 781 18
Net cash outflow from investing activities (6,063) (4,937)
Net cash outflow before management of liquid
resources and financing (3,808) (1,299)
Financing
Term Loan draw down falling due within the year 450 -
Term Loan draw down falling due after more than one year 4,050 142
Capital element of finance lease rental payments (133) (103)
Repayment of borrowings (1,168) (43)
Net cash inflow/(outflow) from financing 3,199 (4)
Decrease in cash in the year 16 (609) (1,303)
Notes to the financial statements
1. Accounting policies
Basis of accounting
These financial statements have been prepared under the historical cost
convention and in accordance with applicable United Kingdom accounting
standards. A summary of significant accounting policies applied is set out
below, together with an explanation of where changes to previous policies have
been made in the year.
Going Concern
The Group and the Company believe there are adequate financial resources to
continue normal operations for the foreseeable future. Accordingly, a going
concern basis for the preparation of the financial statements has been adopted.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary undertakings, from the date of acquisition, all of which are
prepared to 31 December 2003. No profit and loss account is presented for the
Company as permitted by Section 230 of the Companies Act.
Change in accounting policy
In the year ended 31 December 2003, the Group adopted the changes to Financial
Reporting Standard 5 ("Revenue Recognition") in respect of the recognition of
television distribution revenue. The detailed application of this policy is
described below. The policy was adopted to reflect the definition of
performance within Financial Reporting Standard 5, compliance with best practice
in the entertainment industry and adoption of accounting policies most
appropriate to the business. The practical effect of the revised policy is that
television distribution revenue is now recognised when delivery of materials to
the broadcaster has occurred.
As a result, for the year ended 31 December 2002, turnover is #1,430,000 lower
and costs of sales is #1,211,000 lower and profit for the financial period is
#219,000 lower than previously reported. The resulting impact on debtors as at
31 December 2002 is #1,922,000 increase, creditors #4,573,000 increase,
investment in programmes #221,000 increase, and a reduction in brought forward
reserves of #2,211,000 as at 1 January 2002.
Turnover
Television Distribution & Production
The following policy was adopted by the Group in the year ended 31 December
2003. Comparative information for the year ended 31 December 2002 has been
restated in line with this policy.
Income recognised represents the value of licence fees including withholding tax
but excluding value added tax. The Group's policy is to recognise the income
and associated royalty payable when all of the following criteria are met:
* A licence agreement has been signed by both parties
* The arrangement is fixed and determinable;
* Collection of the arrangement fee is reasonably assured; and
* Delivery to the broadcaster has occurred
Any licence fees received in advance, which do not meet all of the above
criteria, are included in deferred income until the above criteria are met.
For a series in production at Siriol, revenue is recognised as the episodes are
produced and the company receives associated funding in line with its
performance.
Consumer products: licensing and video
Revenue from license and video sales, including advances, are recognised on the
date that the license revenue is contracted or declared, this excludes future
guarantees.
Tangible fixed assets
Tangible fixed assets are stated at cost less depreciation.
Depreciation is provided on all tangible fixed assets with the exception of
freehold land in order to write off their cost on a straight-line basis over
their expected useful lives. The rates adopted are as follows:
Freehold buildings 50 years
Short leasehold improvements Over period of lease
Office equipment 10% to 25%
Fixtures and fittings 25%
Motor vehicles 25%
Intangible fixed assets
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings represents the
difference between the fair value of the consideration given and the fair value
of the net assets acquired. Such goodwill is capitalised and amortised on a
straight-line basis over its estimated useful life, not exceeding 20 years.
Where circumstances indicate that the carrying value may not be recoverable,
provision is made for impairment and charged against profit in the period
concerned.
Trademarks and copyrights
Publishing rights, titles, trademarks and other intangible assets are stated at
fair value on acquisition. Any development costs, which are incurred by the
Company and are associated with an acquired right, title or trademark are
capitalised and amortised over their estimated useful lives, but no longer than
20 years. The estimated useful lives for determining the amortisation charge is
reviewed annually and any further provision for permanent impairment is charged
against profit in the year concerned. In respect of internally generated
publishing rights, titles and trademarks, only the external costs of securing
the rights are capitalised. All other internal costs are written off to the
profit and loss account when incurred.
Investment in programmes
Investment in programmes, including acquired programme rights and distribution
advances, is stated at amortised cost less provision for impairment.
Investments in programmes that are in development and for which the realisation
of expenditure can be reasonably determined, are classified as programme
development costs under current assets. On first exploitation of the property
the cost of investment is classified as intangible fixed assets.
A charge is made to write down the cost of completed programmes and acquired
programme rights over their useful lives. The amortisation is matched against
revenues recognised, on an income forecast method, giving an average of less
than 10 years.
An assessment is made at each balance sheet date by the Directors to determine
whether a provision is required to reduce the carrying value of investment in
programmes to net realisable value. Any charge for writing down to net
realisable value during the period is included in the profit and loss account as
part of cost of sales.
Financial instruments
The Group's financial instruments comprise debtors, creditors, finance lease
obligations and bank borrowings. Use of these financial assets to manage the
various currency, interest and liquidity risks faced by the Group is explained
in more detail in note 12.
Financing costs arising on obtaining debt instruments are deferred and amortised
over the life of the instrument.
Foreign currencies
Assets and liabilities denominated in foreign currencies are translated into
sterling at the rate of exchange ruling at the balance sheet date. Transactions
in foreign currencies are translated into sterling and recorded at the rate
ruling at the date of the transactions. All exchange differences arising from
the above are included in the profit and loss account.
Taxation
The charge for taxation is based on the lossfor the year and takes into account
taxation deferred because of timing differences between the treatment of certain
items for taxation and accounting purposes. Deferred taxation is provided on
all timing differences which have arisen but not reversed by the balance sheet
date, except as otherwise required by FRS19.
Finance and operating leases
Assets acquired under finance leases and hire purchase agreements, where
substantially all of the benefits and risks of ownership have been transferred
to the Group, are capitalised in the balance sheet and depreciated over their
expected useful lives. The cost of interest under the terms of the finance
leases is charged to the profit and loss account over the period of the leases
to produce a constant rate of charge on the balance of capital repayment
outstanding. Rentals paid under operating leases are charged to the profit and
loss on a straight-line basis over the period of the lease.
Pension costs
The Group operates a defined contribution personal pension scheme for all
employees. This covers all full-time employees that can elect to participate in
the plan, providing they have served with the Group for at least three months.
The assets of the scheme are held separately from those of the Group in an
independently administered fund. Contributions are charged to the profit and
loss account, on the basis of contributions incurred during the year.
Related Parties
The Company has taken advantage under Financial Reporting Standard 8 - Related
Party Disclosures, not to disclose related party transactions between Group
subsidiary undertakings.
2. Segmental information
Analysis of turnover by destination:
Total Total
2003 2002
Restated
#'000 #'000
UK 21,691 17,222
Rest of Europe 4,4602,876
North & South America 2,019 220
Rest of World 1,283 3,812
29,453 24,130
Turnover originates in the UK within the following classes of business:
Total Total
2003 2002
Restated
#'000 #'000
Television and production 8,910 5,754
Home entertainment 8,416 8,796
Consumer products (Merchandising and Licensing) 12,127 9,580
29,453 24,130
Further disclosures have not been provided in respect of profit before taxation
and net assets, as in the opinion of the Directors, such disclosure would be
seriously prejudicial to the interests of the Group.
3. Loss on ordinary activities before taxation
Loss on ordinary activities before taxation is stated after charging/
(crediting):
2003 2002
#'000 #'000
Depreciation of owned tangible assets 358 237
Depreciation of tangible assets held under finance leases 44 48
Amortisation of investment in programmes 2,445 2,081
Amortisation of other intangibles
- Goodwill 1,976 1,984
- Copyrights 574 559
Exceptional goodwill write-off 1,874 -
Auditors' remuneration
- audit services (parent company #5,000 (2002 - #3,000)) 80 65
- further assurance services 26 39
- tax services 46 36
- other services 186 14
Operating lease rentals - rent, office equipment and motor 383 380
vehicles
Loss/(profit) on disposal of tangible fixed (21) 3
assets
As announced in May 2003 the Barbie(R) Representation Agreement ended in
December 2003. As a consequence Entertainment Rights Plc will receive a
compensation payment from Mattel in 2004, which has been accrued in 2003 as
exceptional other operating income. For consistency all other income and costs
relating to the contract have been recognised in the 2003 results including the
licensing and merchandising income for the final quarter of 2003, of #2.2
million turnover and #0.1 million profit after tax.
Exceptional Items are those items that the Board considers are non recurring and
significant due to their size or nature
2003 2002
#'000 #'000
- aborted acquisition costs (430) -
- surrender of lease (54) -
- licensing compensation payment 2,360 -
- licensing goodwill write-off (1,874) -
2 -
4. Interest payable and similar charges
2003 2002
#'000 #'000
Bank loans and overdrafts 748 255
Net loss on foreign exchange 98 334
Other loans 200 481
Finance leases 21 -
1,067 1,070
5. Taxation
2003 2002
(a) Analysis of taxation charged in the period #'000 #'000
Current tax:
Foreign tax current year charge 152 -
UK tax prior year charge/(credit) 101 (31)
Foreign tax prior year charge 192 -
Total current tax (Note 5 (b)) 445 (31)
Deferred tax:
Origination and reversal of timing differences 168 -
Recognition of tax losses (613) -
Total deferred tax (445) -
- (31)
Tax (credit)/charge on loss on ordinary activities
(b) Factors affecting tax charge for the period
Loss on ordinary activities before tax (417) (1,140)
Profits chargeable to corporation tax multiplied by (126) (342)
standard rate of UK corporation tax of 30%
Effects of:
Expenses not deductible for tax purposes (primarily goodwill 1,235 610
amortisation)
Tax allowances for period in excess of depreciation (363) (318)
Movement on tax losses (595) 50
Adjustments to tax charge in respect of previous periods 294(31)
Current tax credit for the period (Note 5 (a)) 445 (31)
(c) Factors that may affect future tax charges
Based on current capital investment plans, the group expects to continue tobe
able to claim capital allowances in excess of depreciation in future years.
The Company has #5.1 million (2002 #7.7 million) of tax losses which may be
available for relief against future trading profits.
6. Provision for deferred taxation
2003 2002
#'000 #'000
Accelerated capital allowances
- Tangible (28) 45
- Intangible 1,479 1,171
Other timing differences (52) 15
Recognition of tax losses (613) -
786 1,231
Asset Liability Total
#'000 #'000 #'000
Provision at 1 January 2003 98 (1,329) (1,231)
Origination and reversal of timing differences (98) (70) (168)
Recognition of taxlosses 613 - 613
Provision at 31 December 2003 613 (1,399) (786)
7. Intangible fixed assets
Investment in Trademarks
Goodwill programmes and copyrights Total
#'000 #'000 #'000 #'000
Cost
At 1 January 2003 33,113 17,113 11,469 61,695
Additions - 8,402 35 8,437
Disposal (1) (4,000) - - (4,000)
At 31 December 2003 29,113 25,515 11,504 66,132
Amortisation
At 1 January 2003 (restated) 9,363 3,282 1,170 13,815
Charge for the year 1,976 2,445 574 4,995
Disposal (1) (2,126) - - (2,126)
At 31 December 2003 9,213 5,727 1,744 16,684
Net book value
At 31 December 2003 19,900 19,788 9,760 49,448
At 31 December 2002 (restated) 23,750 13,831 10,299 47,880
1) Disposal related to licensing write-off identified as an exceptional item
within note 3.
8. Debtors
Restated
2003 2002
Amounts falling due within one year: #'000 #'000
Trade debtors
Deferred tax asset 5,504 3,519
Other debtors 613 98
Prepayments and accrued income 1,427 2,659
9,927 4,656
17,471 10,932
Amounts falling due after more than one year:
Trade debtors 90 223
Amounts owed by Group undertakings - -
90 223
Total debtors 17,561 11,155
9. Creditors: amounts falling due within one year
Restated
2003 2002
#'000 #'000
Loan notes payable (Note 12) - 2,894
Term loan (Note 12) 1,750 812
Bank overdraft 1,425 126
Mortgage payments due- 86
Obligations under finance leases 112 128
Trade creditors 1,736 1,797
Other taxation and social security 425 926
Accruals and deferred income 13,625 11,073
19,073 17,842
As at 31 December 2003 issue costs of #138,000 were set off against the term
loan payable of #16,168,000. As at 31 December 2002 issue costs of #112,000
were set off against the loan notes payable of #3,006,000.
The bank has a fixed and floating charge over all the group's assets.
10. Creditors: amounts falling due after more than one year
Restated
2003 2002
#'000 #'000
Term loan 14,300 8,652
Mortgage payments due - 274
Obligations under finance leases 12 129
14,312 9,055
11. Provisions for liabilities and charges
Restated
2003 2002
#'000 #'000
Deferred tax 1,399 1,329
12. Financial instruments
The Group's circumstances and operations do not require the use of complex
financial instruments. Nevertheless the Directors recognise that the Group
faces certain risks and these are discussed below.
The Group's financial assets and liabilities comprise short-term debtors and
creditors, short and long-term obligations to finance leases, loan notes and
bank borrowings. All of these financial instruments arise directly from the
Group's operations and the associated risks are discussed below. With the
exception of the currency analysis of net assets, all short term debtors and
creditors have been excluded from the following disclosures.
Currency risk
The Groups operations take place both within and outside the UK. Sales are
invoiced primarily in Sterling and US dollars, but contracts are also negotiated
in other currencies. The level of foreign currency sales outstanding at the
year-end does not warrant the use of any hedging instruments, although the
Directors continue to monitor the requirement to hedge.
There were no unrecognised gains or losses in relation to the Group's financial
assets and liabilities at the year-end.
The following table shows the extent to which the Group's net assets are
denominated in foreign currencies other than sterling. No foreign currency
assets or liabilities are subject to a fixed rate. The year-end exchange rate
used to translate US dollar denominated balances at 31 December 2003 was 1.7795
(2002 - 1.6039).
Functional currency of Group US Dollars Canadian Other
operation Dollars Euro Currencies Total
#'000 #'000 #'000 #'000 #'000
Financial assets 1,987 82 764 304 3,137
Financial liabilities (889) - (81) (2) (972)
Sterling at 31 December 2003 1,098 82 683 302 2,165
Financial assets 3,992 297 571 162 5,022
Financial liabilities (24) - (61) (17) (102)
Sterling at 31 December 2002 3,968 297 510 145 4,920
Fair value of financial instruments used for risk management and interest rate
swap
Financial instruments used for risk management include cash at bank and
financial liabilities as at 31 December 2003.
There is no material difference between the fair value of these assets and the
value at which they are recorded in the balance sheet at 31 December 2003,
except for the interest rate swap which has a fair value at year end 31 December
2003 of #243,705.
Interest rate profile of financial assets and liabilities
The interest rate risk profile of the Group's financial assets and liabilities is set out below:
2003 2002
Weighted Average Weighted Average
#'000 Interest Rate #'000 Interest Rate
Financial Assets
Cash at bank 1,453 5.50% Floating 861 1.75% Floating
Financial Liabilities
Bank Overdraft 1,425 5.50% Floating 126 5.75% Floating
Term Loan 9,000 5.74% Fixed - - -
Term Loan 7,050 5.66% Floating 9,464 5.50% Floating
Loan Notes - - Fixed 2,894 4.00% Fixed
Mortgages - - Fixed 360 5.36% Fixed
Finance Leases 124 14.70% Fixed 257 14.30% Fixed
During the year, theGroup entered into an interest rate swap to hedge its
interest rate exposure on its term loan facility. The notional principal amount
of the swap was #9,000,000. Interest payable on this swap is fixed at 3.99%.
Interest receivable is floating. Asat 31 December 2003, the floating rate
received was 3.75%.
Liquidity risk management
At the year-end the Group's net cash position before repayment of loan notes,
term loans and mortgages is #28,000 (2002-#735,000).
At 31 December 2003 the Group holds fixed rate finance leases.
Undrawn committed borrowing facilities
The Group has undrawn committed borrowing facilities, which were available at 31
December 2003 of #3.0 million (2002 - #5.5 million).
Borrowing Commitments
Details of the committed borrowing facilities as at 31 December 2003 and the
repayment terms follow:
Term Loan Revolving Total Total
facility 2003 2002
#'000 #'000 #'000 #'000
Within 1 year 1,750 - 1,750 812
Greater than 1 but not more than 2 years 1,700 - 1,700 1,250
Between 2 and 5 years 7,310 - 7,310 4,375
Greater than 5 years 5,429 - 5,429 3,063
Borrowed 31 December 2003 16,189 - 16,189 9,500
Unutilised amount 500 2,500 3,000 5,500
16,689 2,500 19,189 15,000
The expiry date of the unused borrowing facilities is as follows:
Revolving Revolving Term Term
facility facility Loan Loan
2003 2002 2003 2002
#'000 #'000 #'000 #'000
Within 1 year 800 - - -
Greater than 1 but not more than 2 years 600 800 - -
Between 2 and 5 years 1,100 1,700 - -
Greater than 5 years - - 500 3,000
2,500 2,500 500 3,000
13. Reconciliation of movements in shareholders' funds and reserves
Share Share Merger Profit Total Total
capital premium reserve andloss 2003 2002
#'000 #'000 #'000 #'000 #'000 #'000
At 1 January 2003 13,117 24,355 16,470 (15,699) 38,243 39,133
Prior Year Adjustments - - - (2,430) (2,430) (2,430)
At 1 January 2003 restated 13,117 24,355 16,470 (18,129) 35,813 36,703
Loss for the year - - - (417) (417) (890)
At 31 December 2003 13,117 24,355 16,470 (18,546) 35,396 35,813
14. Earnings per ordinary share
The calculation of basic earnings per ordinary share is based on the
consolidated loss after tax for the period of #417,000 (2002 restated -
#1,109,000 loss) and on 262,345,389 shares (2002 - 262,345,389), being the
weighted average number of ordinary shares in issue during the period.
In view of the loss for the period, the share options are anti-dilutive, and
therefore a diluted per share figure is the same as the basic earnings per
share.
Reconciliation of the earningsand weighted average number of shares used in the
calculations are set out below:
Restated
2003 2002
#'000 #'000
Loss on ordinary activities after taxation (417) (1,109)
Amortisation of goodwill 1,976 1,984
Exceptional items (2) -
Underlying earnings 1,557 875
Weighted average number of shares in issue 262,345,389 262,345,389
Basic loss per share (pence) (0.16p) (0.42p)
Goodwill amortisation per share 0.75p 0.76p
Exceptional items per share - -
Underlying earnings per share (pence) 0.59p 0.33p
15. Reconciliation of operating profit/(loss) to net cash inflow from operating
activities
Restated
2003 2002
#'000 #'000
Operating profit/(loss) 626 (119)
Depreciation and amortisation:
- tangible fixed assets 402 285
- intangible fixed assets 4,995 4,624
Exceptional Goodwill Write-Off 1,874 -
Loss/(gain) on disposal of tangible fixed assets (21) 3
Increase in programme development costs (851) (1,843)
Increase in debtors and related items (6,088) (3,433)
Increase in creditors and related items 2,366 4,777
3,303 4,294
16. Reconciliation of net cash flow to movement in net (debt)/funds
2003 2002
#'000 #'000
(Decrease)/increase in cash in the period (609) (1,303)
Cash (inflow)/outflow from (increase)/decrease in debt and lease financing (3,199) 4
Change in net debt resulting from cash flows (3,808) (1,299)
Foreign currency loss (98) (67)
New finance lease - (269)
(3,906) (1,635)
Net (debt)/funds at the start of the period (12,240) (10,605)
Net (debt)/funds at the end of the period (16,146) (12,240)
17 Analysis of changes in net debt
At 1 January Non-Cash Foreign At 31 December
2003 Changes Exchange Cashflow 2003
#'000 #'000 #'000 #'000 #'000
Cash at bank and in hand 861 - (98) 690 1,453
Bank overdrafts (126) - - (1,299) (1,425)
735 - (98) (609) 28
Debt less than one year:
- Loan notes payable (2,894) 2,894 - - -
- Term loan (812) (1,296) - 358 (1,750)
- Mortgage payments due (86) (274) - 360 -
(3,792) 1,324 - 718 (1,750)
Debt greater than one year:
- Term loan (8,652) (1,598) - (4,050) (14,300)
- Mortgage payments due (274) 274 - - -
(8,926) (1,324) - (4,050) (14,300)
Finance leases (257) - - 133 (124)
(12,240) - (98) (3,808) (16,146)
18. Post Balance Sheet Events
The Group has amended its current banking facility on 24 March 2004 to allow a
#5.5 million overdraftfacility to replace the revolving credit facility.
On 24 March the Company entered into an agreement to purchase the Filmation
library for US$20million, subject to shareholder approval at an Extraordinary
General Meeting on 28 April. Details ofthe acquisition, are enclosed within a
prospectus, which will be circulated to shareholders.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EADDLAANLEAE
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