RNS Number:0264Z
X-Phonics plc
27 June 2007
X-Phonics Plc (or "the Group")
Interim Results for the six months ending 31 March 2007
27 June 2007
* New bands and artists signed including the Attic Lights
* Profitable relationship secured with Universal/Island Records
* Fall in cost of sales 27% and overheads down 40% on same period last year
* Group loss before interest, exceptional items and tax #305,355 (2006:
#464,473)
* Cash balance at end of period #339,642 (#103,516)
Chairman Robin Davies said:
"This is the first full period since the appointment of John McLaughlin as our
Managing Director in August 2006 following he acquisition of White Noise Music
Limited., a business through which John had been developing musical talent.
During the latter part of 2006 the Group signed a number of bands including The
Attic Lights, The Poems and writers and performers Robert Hodgens and Maeve
O'Boyle. The bands and writers have continued to be developed and all have made
progress. We are confident that good choices have been made and are now seeing
levels of interest from both the market and the music industry confirming our
judgment."
Chairman's Statement
I am pleased to announce the results of our trading activities for the six month
ending 31st March 2007.
This is the first interim period report since the appointment of John McLaughlin
as our Managing Director in August 2006 following the acquisition of White Noise
Music Limited, a business through which John had been developing musical talent.
During the latter part of 2006, a number of bands were signed to the Group,
amongst them, Attic Lights, The Poems and writers and performers including
Robert Hodgens and Maeve O'Boyle.
The bands and writers have continued to be developed and all have made good
progress. We are confident that good choices have been made and are seeing
levels of interest from both the market and the music industry itself confirming
this.
Financial Report
The nature of the projects that have been contracted and that are being
developed will lead to rather uncertain and 'lumpy' revenues for the time being.
For example, although discussions were well progressed with regards to licensing
Attic Lights to a major label at the period end, the Directors were of the
opinion that revenue was not sufficiently certain to be included in these
results. However, since the period end, the Group has agreed terms with
Universal-Island whereby Attic Lights have been licensed to them in a five album
deal worth potentially #1,500,000 in advances over the contract period as well
as an ongoing royalty of up to 24% based upon net receipts from sales in
worldwide territories to be exploited by Universal-Island. The initial advance
and recording revenues received by the Group in respect of this contract total
#240,000 with approximately 34% being passed onto the band.
This is a very important first contract of this type for the Group which
demonstrates that we now have the ability to find and secure acts, that with the
appropriate amount of development and promotion, can be licensed to major record
labels providing the opportunity of an initial cash advance and a share in the
associated longer term revenues. Royalties from Attic Lights should be earned
over the next 6 to 8 years.
Cost of sales represent all costs associated with the signing and development of
the bands and writers and are accounted for as they are incurred. Costs are only
matched to revenues once the revenues are certain. Cost of sales in the period
are lower by 27% at #99,926 (2006: #136,323) and relate to the bands and writers
that are still in development and from which the Group expects to generate
revenues in the future. Comparative costs from the previous year include the
actual costs of work completed and sales invoiced, either in respect of the
original bands that have not subsequently had their contracts extended, or in
respect of video work which was not profitably managed.
Overheads in the period at #217,792 (2006: #363,605) are 40% lower following the
re-organisation described in the previous annual report and account for the 18
months ended 30 September 2006. These costs include some one-off costs
associated with the move of the Group's offices to Chiswick in West London where
it is now sharing facilities with other music related businesses and through
which new business opportunities have been, or are being, developed.
The Group has made a loss on ordinary activities before interest, exceptional
items and taxation of #305,355 (2006: #464,473).
At the end of the period the group held cash balances of #339,642 (2006:
#103,516).
Trading Update
Record Label Activities
Having developed the Attic Lights for a relatively short period, the Group is
delighted to have secured a significant license deal with Universal-Island,
which is currently the largest and most successful record label in the world.
Universal-Island bid against a number of other major record labels and signed
with the approval of Island Records President, the highly respected Nick
Gatfield.
The longer term value in this contract lies in the fact that Island Records have
significant resource and influence through which it is able to break bands such
as Attic Lights into the mainstream. Island has recently had success with The
Fratellis, The Feeling and Amy Winehouse and it is this team that will now be
working on the Attic Lights. This collaboration with Universal-Island has also
paved the way for a continuing relationship and direct access for the Group and
our other artists.
The other significant signing in November 2006 was The Poems who recently
returned from supporting the Magic Numbers to great reviews. Their profile
continues to improve through touring and from additional success with their
music being used on US television programs such as Greys Anatomy and the Ghost
Whisperer. This improved US profile is important in helping to promote the band
in the UK where we are shortly to release a 4 track EP and are organising their
first headline tour of Scotland. With the increased awareness of major record
labels resulting from the Attic Lights contract we have confidence in the longer
term success of the Poems. It is worth noting that the Group owns a large
percentage of The Poems publishing having signed Robert Hodgens, the main writer
for the band, as a writer.
Our youngest artist, Maeve O'Boyle continues to attract critical acclaim as we
work in building her profile. She has just finished a tour of Scotland and
Ireland supporting one of Ireland's biggest folk stars, Eleanor McEvoy, and we
are very pleased with the prospect of a 23 date tour in conjunction with
Beanscene, the new and exciting coffee and music experience, where Maeve will be
selling an acoustic version of her album pre-empting the release of the full
album early next year. We plan to release 2 singles along with this acoustic
record in late summer and mid-winter, which we expect will create a real buzz
around this young and extremely talented artist.
The Group expects to sign a number of young artists working with them to produce
records that can then be sold through a partnership with Beanscene. This is an
interesting area of development for the Group made possible by our ability to
produce records at low cost and then distribute them using a distribution
channel that is fast becoming an alternative to the high street retail chains.
Despite the fact the Liz McClarnon was ultimately unsuccessful in mounting a
Eurovision challenge we continue to work with Liz and once her new album is
recorded we hope to be able to identify a joint venture partner through whom we
would promote the album.
The Group had hoped to compete successfully in bidding for the recording rights
to Echo & The Bunnymen which were ultimately won with a strong bid from Warner
Brother's Records. Despite this our Managing Director John McLaughlin was
appointed Executive Producer to their latest recording and, as a consequence, a
share of the production revenues will be transferred to the Group once the
record is on sale. Not only are there high hopes for the record sales, there is
an amount of kudos that results for X-Phonics association with Echo & The
Bunnymen.
Glasgow continues to be a hot bed of developing musical talent and a number of
projects have been identified which are expected to provide revenue
opportunities for the Group in future years. A good example of this is Urbnri, a
"street" based band whose publishing rights have been secured by the Group and
who are currently putting the finishing touches to their debut album. We expect
some exciting developments in the promotion of this band and are also working
with Chris Van der Kyle, the video gaming developer, with a view to the band's
music and songs being used on a new video game.
There is further evidence of the development in our marketing and promotional
capability with our work for the BBC TV project 'Power to the People'. The band
that was formed as part of the programme 'The Zimmers' was marketed and released
by our record label under the guidance of Neil Reed. The results of this project
have given us a worldwide platform. With some 3.2 million views of the X-Phonics
edited promotion 'My Generation' on 'YouTube' alone and an estimated 100 million
people worldwide seeing or hearing the band.
The single was released in early June and entered the UK Top 40 at number 26. As
a result of this chart success the Zimmers were then asked to appear on the Jay
Leno show in the United States where they appeared before a TV audience of 15
million. With internet releases worldwide and physical releases scheduled in USA
and Benelux to date the future looks bright for The Zimmers. A follow up to the
original documentary is scheduled for Sunday 8th July at 10:00 pm with the world
premier of 'The Zimmers - From Carehomes to Clooney' which will further help
promote the Group.
Music Publishing
In addition to owning the publishing for Roberts Hodgens and our earlier roster
of writers, the Group has worked on a number of projects where the intention is
to secure longer term revenues through the exploitation of music that has mass
appeal.
Our existing catalogue continues to gain modest revenues worldwide. European
Artists such as Katerine (Universal) and Reborn (EMI) have provided X-Phonics
Publishing with some success during 2007 with revenues resulting from record
sales and performances.
This year we have written and produced a new version of "Swing Low" for the
English Rugby Football Union to be used as part of their 2007 Rugby World Cup
campaign. We have also been commissioned to write an anthem to replace "Flower
of Scotland" for the Scottish Rugby Football Union, again with the 2007 Rugby
World Cup in mind, although in this case, it is being written with a view to
having much broader and national appeal. Both of these releases are expected to
have an enduring attraction and to be of interest to some of the larger brand
companies who are involved in advertising around national sporting events.
Music Publishing is an important area for the group to develop and we are
constantly looking for opportunities and ways in which we can extract maximum
value from our initiatives. It is often the case that, having agreed a
partnership with a larger record label to exploit some of our music, we are
constrained to working to their timescales. As an example, although recording of
"Sleep Easy Baby" (an album of lullabies) was completed in late 2006 and
licensed in early 2007, this is now expected to be released by EMI for the
Christmas market in late 2007.
Production Activities
We continue to take an interest in Terminal Music Limited, a production facility
in Glasgow in which we have an option to acquire 24.99%.
Currently recording in the studio are a number of well known artists and bands
in addition to some new artists with whom we are working with the intention of
acting for them in some capacity. These include a band called Meladrone, an "
indie" band with fantastic songs and a great look. The songs have been
co-written or produced by John McLaughlin, Simon Perry (Archangel Music), Gordon
Goudie and Ian McCulloch (Echo & The Bunnymen) and therefore come with a great
pedigree. We are also working with Valentina Mitzkat who has been writing with
Maeve O'Boyle and Robert Hodgens and is a very talented 21 year old from Austin,
Texas with an incredible voice as well as being a talented pianist. Together we
are developing a very original crossover sound for her record.
Being involved in the Terminal Music studios provides an early opportunity to
spot and begin working with unknown talent. It is this that is of particular
interest to the major record labels, almost all of whom have had the chance to
visit Glasgow and the studios when considering a bid for Attic Lights.
Our video facility was restructured in mid 2006 in order to better balance the
costs of production with the likely revenue opportunity. The facility is now
housed in Chiswick where it can work much more efficiently and with the
availability of freelance producer and directors, it is now being managed
profitably. Recent projects, whilst modest in budget, represent a significant
improvement in performance.
Projects worked on in the last six months include corporate programmes for the
Multiple Sclerosis Society and for Herstmonceux Castle, a conference facility
for overseas students. We have also been commissioned to produce video
programmes in support of the ITV Rugby World Cup theme, "World in Union"
incorporating artists such as Katherine Jenkins and Andre Bochelli, and BBC2's '
Power to the People' documentary for the release of the Zimmers version of "My
Generation".
The level of activity has been increased significantly with the appointment of
our new Managing Director. We have also benefited from a considerably improved
profile and are now much better connected with people in the music industry with
influence.
When linked to the improved control over costs directly attributed to projects
and the lower level of overhead we are confident of our future success and
continue to seek opportunities through which we can increase shareholder value.
Robin Davies
Chairman
27 June 2007
Group Profit and Loss Account Six months Six months Eighteen month
ended 31 March ended 31 March period ended 30
2007 2006 September 2006
Note (unaudited) (unaudited) (audited)
# # #
Turnover 12,362 35,455 124,539
Cost of sales (99,926) (136,323) (453,041)
Gross loss (87,564) (100,868) (328,502)
Administrative expenses (217,792) (363,605) (604,125)
Operating loss (305,356) (464,473) (932,627)
Exceptional items 2. - (121,581) -
Interest receivable 5,022 1,229 1,459
Interest payable (1,017) (1,492) (4,995)
Loss on ordinary activities before (301,351) (586,317) (936,163)
taxation
Tax on loss on ordinary activities - - -
Loss for the period (301,351) (586,317) (936,163)
Basic earnings per ordinary share 3. (0.5 pence) (1.8 pence) (2.92 pence)
Basic earnings per ordinary share 3. (0.6 pence) (2.1 pence) (3.48 pence)
All of the activities of the group are classed as continuing
The group has no recognised gains or losses other than the results for the period as set out above.
Balance Sheet 31 March 2007 31 March 2006 30 September 2006
(unaudited) (unaudited) (audited)
# # #
Fixed Assets
Intangible assets 319,414 - 327,639
Tangible assets 82,002 94,647 78,642
401,416 94,647 406,281
Current assets
Debtors 87,655 37,551 36,978
Cash at bank and in hand 339,642 103,516 752,473
427,297 141,067 789,451
Creditors: Amounts falling due within one year (113,410) (159,739) (202,505)
Net current liabilities 313,887 (18,672) 586,946
Total assets less current liabilities 715,303 75,975 993,227
Creditors: Amounts falling due after more than (1,872) (4,750) (2,440)
one year
713,431 71,225 990,787
Capital and reserves
Called-up equity share capital 2,803,119 2,470,350 2,798,320
Share premium account 743,474 - 724,277
Merger reserve (738,578) (738,578) (738,578)
Profit and loss account (2,094,584) (1,660,547) (1,793,232)
Shareholders' funds 713,431 71,225 990,787
Cash Flow Statement Six months Six months ended Eighteen month
ended 31 March 31 March 2006 period ended 30
2007 September 2006
(unaudited) (unaudited) (audited)
# # #
Net cash outflow from operating activities (417,692) (551,181) (886,732)
Returns on investments and servicing of finance 4,005 (263) (15,442)
Taxation (2,732) - 3,762
Capital expenditure (16,353) (60,255) (393,842)
Cash (outflow)/inflow before financing (432,772) (611,699) (1,292,254)
Financing:
Issue of equity share capital 4,799 858,350 1,304,324
Share premium on issue of equity share capital 19,197 250,000 760,321
Share issue costs - (371,581) -
Capital element of hire purchase (4,055) (1,657) (6,930)
(Decrease)/increase in cash (412,831) 123,413 765,461
Reconciliation of operating loss to net cash Six months Six months ended Eighteen month
(outflow)/inflow from operating activities ended 31 March 31 March 2006 period ended 30
2007 September2006
# # #
Operating loss (305,355) (464,473) (932,627)
Other credit charges - - 11,906
Amortisation 8,225 - 1,371
Depreciation 23,186 34,358 51,635
Decrease/(increase) in debtors (50,679) 35,421 10,734
Increase/(decrease) in creditors (93,069) (156,487) (29,751)
Net cash (outflow)/inflow from operating (417,692) (551,181) (886,732)
activities
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the (412,832) 123,412 765,461
period
Cash outflow in respect of hire purchase and 4,055 1,657 6,930
finance lease
Change in net debt (408,777) 125,069 772,391
New hire purchase agreement (10,193) - -
Opening net (debt)/funds 745,413 (29,050) (26,978)
Closing net (debt)/funds 326,443 96,019 745,413
Notes to the unaudited financial statements
1. The financial information included in this report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the period ended 30 September 2006 has been extracted
from the statutory accounts for that period. The auditors' report on the full
statutory accounts for the period ended 30 September 2006 was unqualified. The
financial information for the six months ended 31 March 2006 and 31 March 2007
has not been audited.
2. Exceptional costs are made up of costs incurred in relation to the placing
of 10,000,000 ordinary shares on AIM over and above the balance held in the
share premium account.
3. The earnings per ordinary share have been calculated on the ordinary
activities after taxation of #301,350 (31 March 2006 - #586,318, 30 September
2006 - #936,163) using the weighted average number of ordinary shares in issue
during the period being 66,003,966 (31 March 2006 - 31,859,462, 30 September
2006 - 32,063,707). The weighted average number of diluted ordinary shares in
issue during the period was 51,353,727 (31 March 2006 - 28,071,592, 30 September
2006 - 26,864,208).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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