28th Mar 2008 07:00
Works Media Group (The) PLC28 March 2008 THE WORKS MEDIA GROUP PLC PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2007 The Works Media Group plc ("The Works") a leading independent UK filmdistributor and international sales agent, announces today its preliminaryresults for the twelve months ended 31 December 2007. Financial Highlights o Group retained loss falls to £0.14 million from £0.59 million in 2006.o Group turnover rises 98% to £3.31 million from £1.68 million in 2006.o UK Distribution turnover rises 308% to £2.29 million.o Gross margin rises to £1.84 million from £1.14 million in 2006.o Cash reserves of £0.82 million (2006: £1.16 million).o Adoption of IFRS with effect from 1 January 2007. Corporate Highlights o Board Changes • New Chairman and Chief Executive. o Film Distribution - The Works UK Distribution • 11 films released in cinemas and 7 on DVD during the year. • 7 titles released on Video On Demand through Virgin Media. • Video On Demand output agreement signed with BT Vision. • Multi-media rights to 25 titles acquired to date on long licences. • UK Distribution profitable in 2007. o Film Sales - The Works International • The Works International turnover rises 21% to £0.59 million. • This is England wins BAFTA for Best British Film Fundraising o Fundraising to increase volume of rights under Group control.o £1.26 million raised through two placings of new shares at 3p.o Theta Group subsidiary Milcoz Films becomes largest shareholder at 29.9% Costa Theo, non-executive Chairman of The Works Media Group said: "This is our best set of results since 2004 and I am pleased to report that there-engineering of The Works Media Group is proceeding well. The new businessof film distribution already dominates the economic activity of the Group andalthough there is still work to be done at our sales agency, The WorksInternational, I am optimistic about the general outlook for this business.The future is positive." For further information, please contact: The Works Media Group plc 020 7612 0030Norman Humphrey, CEO City Financial Associates Limited 020 7492 4777James Caithie CHAIRMAN'S STATEMENT OVERVIEW The goal at the beginning of the year was to continue the steady growth of theCompany. This has been achieved and 2007 was the third consecutive year ofimproving performance. During the last six months the Company has been at abreak-even position after losses of £134,000 in the first half of the year,retained losses of £598,000 for 2006 and of £1,284,000 in 2005. Theimprovement has been due to the excellent performance of the Works UKDistribution, where the division released 11 films theatrically and had onebreak out hit with 'Two Days in Paris'. Another factor contributing to the Company's growth this past year is theincrease in revenue from Video on Demand (VOD). This is the fastest growingincome stream and the Company has had success with certain titles such asShortbus. It is expected The Works Media Group will benefit greatly fromgrowth in the sector over the next year. Our sales agency, The Works International, still finds itself in a challengingspace due to the general downturn in UK film production and more specificallybecause the Group has moved away from production. However, it is a brand whichcommands respect as a purveyor of art films and we intend to build upon thisreputation and expand the business by acquiring and selling more commercialtitles. FUND RAISING The continued migration from production to distribution and the consequentialobligation to invest in new content increased the Company's working capitalrequirement during the year. To this end in May the Group attracted an initial£500,000 investment from a subsidiary of Theta Group, Milcoz Films, through aplacing of 16,666,667 shares at 3p. Milcoz Films secured 13.6% of the Companyat the placing and expanded its holding to 15.3% by acquisition in the market.In October Milcoz Films acquired a further 25,436,562 shares through a secondplacing at 3p per share, raising further funds for the Company of £763,000.Milcoz Films and its associates currently own 29.9% of the issued share capital. FINANCIAL REVIEW During the 12 months to 31 December 2007, The Works Media Group made a retainedloss of £139,000. Because £100,000 of this loss related to reorganisationcosts, including significantly the severance package of the former CEO ChrisAuty, the Group's ordinary losses where only £39,000. This compares veryfavourably with the loss of £598,000 in 2006. The substantial reduction of theGroup's retained loss demonstrates the improved quality of earnings followingthe move into UK distribution. The available cash at bank fell from £1,164,000 at 31 December 2006 to £823,000at 31 December 2007. DIVIDEND The Directors do not recommend the payment of a dividend in respect of 2007(2006 £nil). BOARD CHANGES I joined the Board as a non-executive Director on 25 May 2007. Crispin Barker resigned as Chairman of the Board on 11 January 2008 in order tofocus more fully on his other business interests. The Company has benefitedgreatly under his chairmanship since 2003 He was supportive of the move by theGroup away from film production into distribution, to the Company's financialbenefit and I personally wish to thank him for his time and dedication. Heremains a non- executive director of The Works Media Group. I have the privilege of succeeding Crispin to the Chairmanship. I hope toassist the Company's executives in making the Company profitable for the firsttime since 2004 by building on our successes in UK distribution andreinvigorating the International division to make it more competitive. I bringto the position a background in international film production and financing, andexperience in international corporate acquisition. ANNUAL GENERAL MEETING The AGM will be held at 10.00am on Friday 6th June at the offices of CityFinancial Associates Limited, 46 Worship Street, London EC2A 2EA. CURRENT OUTLOOK & FUTURE PROSPECTS At the Works UK distribution, the strategy going forward is to maintain arelease schedule of 12 films a year. As we will not be increasing volumesignificantly, extra value will be extracted from our yearly slate by increasingour acquisition and marketing budgets for the release of certain titles, such asthat currently planned for Mongol. This should increase box office grosses andhave the knock on effect of increasing revenue further 'downstream' in theancillary rights such as DVD and VOD. We also expect via this strategy tosignificantly increase sales to television. At the Works International, it is understood that this subsidiary requiresadditional finance in order to be able to compete in the purchasing of morecommercial product. This fund raising was begun in 2007 and there is cautiousoptimism that this should bear fruit in 2008. The outlook going forward is positive. Costa Theo28 March 2008 CHIEF EXECUTIVE'S REPORT OVERVIEW I am pleased to report that the first phase of the re-engineering of The WorksMedia Group has been successfully completed. It is a fundamentally differentbusiness today than it was just a couple of years ago. The old core filmproduction activity has been marginalised in favour of a move into distributionand the impact has been dramatic. In 2007, 70% of Group turnover wasattributable to The Works UK Distribution, despite the subsidiary having beencreated from a standing start in late 2005. The Board believes the losses sustained in recent years are justified by thecreation of a better positioned and scaleable distribution business. We arealso now steadily building a film catalogue. Twenty five films have so farbeen acquired by The Works UK Distribution, most with terms in excess of 20years, and new films are currently being added at the rate of approximately oneper month. PERFORMANCE I am pleased to report the business has performed well and in line with bothmarket and management expectations. Group turnover is up 98% to £3,312,000from £1,675,000 in 2006. Turnover at The Works UK Distribution rose 308%, to£2,293,000 from £744,000 and turnover at the Works International rose 21% to£591,000 from £489,000. Across the Group, the gross margin increased by 60% from £1,142,000 to£1,836,000, and the margin in 2007 was three times that achieved in 2005.Consolidated administration expenses rose from £1,710,000 in 2006 to £1,946,000,but the increase included £100,000 of redundancy and restructuring costs, asnoted in the chairman's statement. Despite the increase in turnover, overheadsare broadly the same as they were in 2005. As a consequence of the risinggross margin and steady costs, the retained loss fell to £139,000 in 2007 from£598,000 in 2006. DISTRIBUTION ACTIVITY The Works UK Distribution is beginning to mature and in 2007 eleven films werereleased in cinemas, seven on DVD and seven on video on demand (VOD). Thiscompares favourably with five, three and two respectively in 2006, which was thecompany's first full year of trading. We expect to achieve our target volumeof twelve films per year in cinemas, on DVD and on VOD during 2008. Throughout 2007, we had sub-licensing arrangements with Universal Pictures forDVD and Internet Download to Own and with Virgin Media for VOD. Since theyear-end we have contracted a similar arrangement with BT Vision, which willalso place our films on its own rapidly expanding VOD platform. Key releases for The Works in 2007 were Robert Altman's last film, A PrairieHome Companion, Richard Attenborough's wartime drama Closing The Ring, and JulieDelpy's romantic comedy Two Days in Paris, which was our most successful cinemarelease to date. Towards the end of the year we released the horror filmHatchet and a biopic of Mark Chapman entitled The Killing of John Lennon, bothof which we expect to work well on DVD in 2008 Eight films have already been secured for release in 2008, including theromantic comedy Cashback and the eponymous documentary Joy Division. However,the most eagerly anticipated title is the Oscar nominated historical epicMongol, which dramatises the rise to power of Ghengis Khan. The film opensnationwide on the 6th June. INTERNATIONAL SALES Since publishing last year's Financial Statements in March 2007 films sold byThe Works International have won 23 awards and been nominated for many more.The directors of Brick Lane and The Killing of John Lennon, Sarah Gavon andAndrew Piddington, were both nominated for BAFTA awards, and Shane Meadow's ThisIs England did indeed win the BAFTA for Best British Film. Sarah Gavon's Brick Lane, Vincent Ward's River Queen starring Kiefer Sutherland,and Roger Michell's Venus starring Peter O'Toole, were the company's bestperforming films of the year. However, despite the solid performance ofcertain individual titles and the 21% increase in turnover achieved year on yearThe Works International has been adversely affected by the Group's migrationfrom feature film production. The Works Media Group previously sold the filmsit produced and the change of business model has combined with a downturn inBritish production to decrease the volume of titles available to our salesagency. During 2007, the Group devoted resource to this issue, appointing aHead of Acquisition and spending time enhancing relationships with theindependent American production community. New films secured by The Works International for sale in 2008 include ShaneMeadow's Somers Town, romantic comedy French Film staring Hugh Bonneville andEric Cantona, and a documentary about the man who walked a high wire between theWorld Trade Towers, Man on Wire. CURRENT OUTLOOK & FUTURE PROSPECTS The Works Media Group is in better condition than it has been for many years.Given the prevailing difficulties in British film production, the Company's moveinto distribution was a sensible one. The Works UK Distribution has found itsfeet, is profitable and has the prospect of delivering sustainable growth movingforward. It is also building a catalogue, which should over time make businessperformance more predictable. Overcoming the current disparity in scale between The Works UK Distribution andThe Works International is important if the sales agency is not to bemarginalised and the Board is particularly focused on this issue. Hopefullysome headway in this regard may be achieved during 2008. We continue to seek opportunity in new media and to evaluate possiblesynergistic or complementary acquisitions. I believe we are makingsatisfactory progress and look forward to the future with confidence. Norman Humphrey28 March 2008 Consolidated Income StatementFor the year ended 31 December 2007 Notes 2007 2006 £ 000's £ 000's Revenue 1 3,312 1,675 Cost of sales (1,476) (533) Gross Profit 1,836 1,142 Selling and distribution costs (46) (45) Administrative costs (1,946) (1,710)Operating loss (156) (613) Investment income 17 30 Finance costs - (15)Loss before taxation (139) (598) UK corporation tax - - Loss for the period attributable to equity shareholders (139) (598) Earnings per share Basic (pence) 3 (0.09) (1.37)Diluted 3 (0.09) (1.37)Dividend - - Consolidated Balance SheetAs at 31 December 2007 Notes As at As at 31 Dec 2007 31 Dec 2006 £000 £000 Non Current AssetsGoodwill and intangible non current assets 1 0 2,262Property, Plant and Equipment 15 28Investments 100 100 115 2,390 Current assetsInventory 1,693 1,294Receivables 1,167 889Cash and cash equivalents 2 964 1,343 3,824 3,526 Total assets 3,939 5,916 Current liabilitiesPayables (965) (1,423)Accruals (296) (172)Deferred Revenue (316) (752) (1,577) (2,347)Non current liabilitiesProduction Loan - (64) Total liabilities (1,577) (2,411) Net assets 2,362 3,505 Shareholders' equityCalled up share capital 4,394 4,352Share premium account 8,688 7,472Retained earnings (10,558) (8,157)Minority interest (162) (162) Equity Shareholders' funds 2,362 3,505 Consolidated Cash Flow StatementFor the year ended 31 December 2007 Notes 12 Months 12 Months Ended Ended 31 Dec 2007 31 Dec 2006 £000 £000Cash flows from operating activities: Operating loss (156) (613)Depreciation 26 21Profit on disposal of non current assets (1) -(Increase)/Decrease in inventory (399) (1,263)(Increase)/Decrease in debtors (278) (192)Increase/(Decrease) in creditors (834) 765 Net cash generated by operating activities (1,642) (1,282) Cash flows from investing activities Interest received 17 30Purchase of non current assets (13) (8)Sale proceeds on disposal of non current assets 1 -Net cash generated by investing activities 5 22 Cash inflow/(outflow) before financing (1,637) (1,260) Cash flows from financing activities Interest paid - (15)Issue of ordinary share capital 1,263 1250Share issue costs (5) (174)Net cash received from financing activities 1,258 1,061 Net (decrease)/ increase in cash and cash (379) (199)equivalents Cash and cash equivalent at beginning of year 1,343 1,542 Cash and cash equivalent at the end of year 2 964 1,343 Less: Production and Development funds held on (141) (179)trust for third parties. Available cash at bank and in hand 823 1,164 Statement of Changes in EquityFor the year ended 31 December 2007 Number of Share Share Minority Retained Total shares capital premium interest earnings £ 000 £ 000 £ 000 £ 000 £ 000 GroupAt 1 January 2007 105,399,208 4,352 7,472 (162) (8,157) 3,505 Share capital issued 42,103,229 42 1,221 - - 1,263 Share issue costs - - (5) - - (5) Retained loss for the - - - - (139) (139)year Minority interest in - - - - - -loss for the year Adoption of IFRS - - - - - (2,262) (2,262)goodwill written toreserves At 31 December 2007 147,502,437 4,394 8,688 (162) (10,558) 2,362 NOTES 1. Basis of preparation Accounting convention These financial statements have been prepared in accordance with the historicalcost convention, using accounting policies that have been consistently appliedduring the year. The Group's policies on revenue recognition, Inventory and goodwill are set outbelow: Adoption of International Financial Reporting Standards In accordance with AIM rules the group adopted International Financial ReportingStandards as the basis for preparing the financial statements in 2007. The lastsets of financial statements produced under UK GAAP were those for the periodending 31 December 2006. Revenue Revenue of the Group for the period has been derived from its principalactivities; the distribution of feature films in the United Kingdom, theinternational sale of film rights and the management of development, financingand production of feature films. U K distribution revenue is recognised per licensed right as follows: • Theatrically as films are exhibited in cinemas. • DVD, Pay Television and Free to Air Television upon contract andsatisfaction of conditions precedent. • Video On Demand and Pay Per View upon receipt of licensees periodicreport of unit retail sales. Commission derived from the international sale of film rights is recognised whenpayable by licensees; on signature of contract and on delivery of materials. Film development and executive production fees arising from productionmanagement are recognised when contractually payable, in stages during theproduction process. Development Development costs are written off in the period of expenditure except whenrecoverability can be assessed with reasonable certainty and there is a clearlydefined project. Amounts carried forward are shown in Inventory. Inventory Inventory, which is stated at the lower of cost and net realisable value,represents acquired rights, capitalised print and advertising expenditure, andfilm development and production costs. Film acquisition costs and royalty advances are expensed to cost of sales inline with income recognition throughout the licence period, at rates determinedby individual distribution agreements. Film acquisition costs, royalty advancesand print and advertising expenditure is carried forward only to the extent thatpredicted future revenue streams anticipate recoupment. Film development, and production expenditure is carried forward as inventoryonly when, in the opinion of the directors, there is a clearly defined project,and the recovery of these costs can reasonably be expected. Where productionexpenditure has been financed by non-recourse loans, the company makes provisionin full against such 'ring fenced' expenditure as it is incurred. Thenon-recourse loans are only repayable to the extent revenues are generated fromthe exploitation of the asset to which they relate. Accordingly, full matchingprovision is made in respect of these liabilities, with no overall net effect onthe Income Statement. Any revenues subsequently received are recognised onreceipt, and a corresponding release of both the rights and loan provisions madeto the Income Statement. Goodwill Under UK GAAP, goodwill on consolidation, representing the excess of theconsideration paid over the fair value of the identifiable net assets ofsubsidiary undertakings at the date of acquisition, was capitalised andamortised over twenty years, as the directors believed this to be the economicuseful life. The Group adopted International Financial Reporting Standards (IFRS) with effectfrom 1st January 2007 as per IFRS 1, first time adoption. Following thisintroduction goodwill on consolidation has now been written to reserves asallowed by the standard. 2. Cash and cash equivalents 2007 2006 £ 000's £ 000's Cash and bank balances 964 1,343Bank overdraft - - Cash and cash equivalents in a disposal group held for sale - - 964 1,343 3. Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares and the post tax effect ofdividends and interest on the assumed conversion of all dilutive options andother dilutive potential ordinary shares. Reconciliation of the earnings and weighted average number of shares used in thecalculations is set out below: 2007 2006 Earnings Weighted Earnings Earnings Weighted Earnings per average per share average share number of number of shares shares £'000's Thousands Pence £'000's Thousands Pence Basic earnings per share -Earningsattributable toordinary shareholders (139) 157,947 (0.09) (598) 43,700 (1.37) Dilutive effectof options - - - - - - Diluted Earnings Per Share (139) 157,947 (0.09) (598) 43,700 (1.37) 4. Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised balance sheet at 31 December 2007 and the summarised Incomestatement, summarised cash flow statement, statement of changes in equity andassociated notes for the year then ended have been extracted from the Group'sdraft financial statements. Those financial statements have not yet beendelivered to the Registrar, nor have the auditors reported on them. The financial information for the year ended 31 December 2006 is an extract ofthe statutory accounts to that date as delivered to the Registrar of Companiesrestated under IFRS. Those accounts included an audit report which wasunqualified and that did not contain a statement under Section 237 (2) or (3) ofthe Companies Act 1985. 5. Availability of accounts Copies of the Report and Accounts for the year ended 31 December 2007 are beingsent to shareholders in due course. Further copies will be available from theCompany's registered office, 4th Floor, Portland House, 4 Great Portland Street,London, W1W 8QJ. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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