30th Mar 2007 07:01
Works Media Group (The) PLC30 March 2007 THE WORKS MEDIA GROUP PLC PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2006 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 2006. Financial Highlights o Group retained loss falls to £0.59 million from £1.28 million in 2005. o Gross margin rises to £1.14 million from £0.64 million in 2005. o Cash reserves of £1.16 million (2005: £1.28 million) Corporate Highlights o Film Distribution - The Works UK Distribution • 6 films released in cinemas and 4 on DVD during the year. • Universal Pictures released all titles on DVD under output agreement. • Distribution volumes are expected to double in 2007. • Multi-media rights to 17 titles acquired to date on 20 year licences. • Video on Demand arrangements with Virgin Media and British Sky Broadcasting commenced in December 2006 o Film Sales - The Works International • Volumes adversely affected by downturn in British production. • Subsidiary offers minimum guarantees to acquire agency representation. • Critical acclaim for Road to Guantanamo and Venus. Fundraising o Company raised £1.25 million by placing of new shares in December 2006. o Fundraising will increase the volume of rights under group control. Crispin Barker, non-executive Chairman of The Works Media Group said: "2006 was a transitional year for the Company. The Works UK Distribution, hadits first full year of trade, and although the subsidiary is not expected to befully operational until 2008, it has already acquired a significant body ofcontent for distribution. The Works International has started offering minimumguarantees to acquire agency positions since the fund-raising in December, andwe are now able to exploit the synergies existing across the Group.Shareholders can look forward to more predictable, sustainable and scaleableearnings." For further information, please contact: The Works Media Group plc 020 7612 0030Norman Humphrey, CEO City Financial Associates Limited 020 7090 7800James Caithie ICIS 020 7651 8688Tom Moriarty, Caroline Evans-Jones CHAIRMAN'S STATEMENT OVERVIEW At the beginning of 2006 we set out to build a Company that was able to benefitfrom the business opportunities and returns achievable in the film industry, butwhose risk profile was mitigated by having a more diversified portfolio ofinterests and multiple revenues streams. This has been achieved. In its firstfull year of trade, the UK distribution business scored some significantsuccesses and the international sales business signed up its first fewrepresentations. As such, the Group's centre of gravity moved further up the value chain towardsthe consumer. For the first time, our marketing campaigns and the impressivepenetration achieved on our behalf by Universal Pictures under the outputarrangements for DVD put our brand in front of the British consumer. The moveinto UK Distribution has introduced synergy to our business and reduced furtherour vulnerability to the difficulties and uncertainty of British filmproduction. We now have an integrated and scaleable business, well placed forfurther expansion. FUND RAISING Key to the expansion of the business was the placing in December, which raised£1,250,000 gross (£1,076,000 net of costs) at 2p per share. I would like tothank key shareholders and the Board for their support of the placing. The funds raised are being used to expand the volume of rights under control ofThe Works Media Group, and we have recently announced a number of newacquisitions of film distribution rights. Our objective is to increase thenumber of films we release cinematically and on DVD in the UK to twelve a year.The funds raised will also enable The Works International to offer modestminimum guarantees to owners of the rights it represents, thereby attractingmore films for sale and higher rates of commission. CHANGE OF ADVISER We moved the brokerage from KBC Peel Hunt to Ellis Stockbrokers (formerlySeymour Pierce Ellis) and appointed City Financial Associates as our Nomad. FINANCIAL REVIEW During the 12 months to 31 December 2006, The Works Media Group made a retainedloss of £598,000, which compares favourably to the loss of £1,284,000 arisingduring 2005. Significantly, the gross margin rose from £654,000 in 2005 to £1,142,000 in2006, whilst at the same time administration and selling costs fell from£1,984,000 in 2005 to £1,755,000 in 2006. The approximate halving of the Group's retained loss demonstrates the improvedquality of earnings following the move into UK distribution. The available cash at bank fell from £1,278,000 at 31 December 2005 to£1,164,000 at 31 December 2006. DIVIDEND The Directors do not recommend the payment of a dividend in respect of 2006(2005:£nil) BOARD CHANGES Chris Auty resigned on 8th March 2007, in order to spend more time with hisyoung family. He has been a great servant to The Works Media Group since beingappointed its Managing Director in 2001. Under his leadership the Companyunderwent significant changes and I would like to take this opportunity to thankhim for his hard work and dedication. Norman Humphrey, formerly the Group Finance Director, has been appointedManaging Director and will lead the Group through the next phase of itsdevelopment. Norman has over 20 years experience in the film Industry and isan acknowledged authority on UK Distribution. Mick Southworth, MD of The Works UK Distribution was appointed to the Board on19th December 2006, reflecting the growing importance of distribution to theGroup. ANNUAL GENERAL MEETING The AGM will be held at 10.00am on Friday June 8th at the offices of EvershedsLLP, Senator House, 85 Queen Victoria street, London, EC4V 4JL. OUTLOOK The Works Media Group has repositioned itself over the last eighteen months.It remains the only vertically integrated film business on the London StockExchange, and is now poised to increase both the depth and breath of itsactivity. The Works UK Distribution is on track to double its trade over thenext twelve months, and The Works International is likely to represent morenon-British films and to acquire rights jointly with The Works UK distribution. The recently acquired thriller, The Killing of John Lennon, is the first filmto which UK rights and sales representation have been acquired by both The WorksUK Distribution and The Works International. Crispin Barker30 March 2007 CHIEF EXECUTIVE'S REPORT OVERVIEW This is an exciting time for The Works Media Group. The business has beenre-engineered in order that the operating units now have a focused, synergisticand scaleable business model. As anticipated, the embryonic UK distribution activity, born at the end of 2005,found its feet in 2006, and The Works UK Distribution is already established asone of the country's leading independent distributors. For the first time, andin line with management expectations, turnover at The Works UK Distributionexceeded that of the film sales subsidiary, The Works International. Although films sold during 2006 by The Works International were criticallyacclaimed and the trade value of the brand remains strong, the subsidiary hasbeen adversely affected by a downturn in British production following changes tothe domestic tax regime. In order to secure agency representation in thecurrent environment, it is necessary for The Works International to guaranteefilm makers a minimum level of rights sales. The division was able to startmaking such a commitment once funds were raised for the purpose by the shareplacing at the end of the year. DISTRIBUTION ACTIVITY The Works Media Group created The Works UK Distribution from scratch because itwas considerably cheaper than buying an established distribution business.That decision initially imposed limitations on the expansion of trade, becauserights may only be exploited within clearly defined and sequentially openingmedia windows. Multi-media distribution commences with a cinematic release andmoves in series over a two year period through DVD, Video on Demand, Pay perView, Pay TV and finally terrestrial Free TV windows. In 2005, The Works UKDistribution released just one film in cinemas and exploited no other rights.In 2006, six films were released in cinemas, four on DVD and three on Video onDemand. New media windows open in 2007 for Pay per View, Pay TV and Free TV,so that in the second half of the year, the subsidiary will finally beextracting value across the full range of acquired rights. The division has a broad taste. Cinematic releases in 2006 comprised two arthouse films, Live and Become and Innocent Voices, one family film, Grey FriarsBobby, two genre pieces showcasing the charms of Kelly Brook and Anne Hathaway,respectively Three and Havoc, and, at the year-end, the sexually explicitcomedy, Shortbus. The Works UK Distribution has already acquired multi-media rights to seventeenfilms on terms of approximately 20 years, and within a few years will haveassembled a substantial catalogue. Its contractual output arrangements withUniversal Pictures, under which the US studio releases our films in the UK onDVD and Internet Download to Own, are unique in this territory, and therelationship is already proving extremely successful. For example, in thefirst six months of release, Universal Pictures has sold on DVD approximately100,000 units of the film Three. The Works anticipates the cinematic release of twelve films in 2007, the rightsto eleven of which have already been acquired. Highlights are likely toinclude Robert Altman's last film, A Prairie Home Companion (staring MerylStreep, Lindsay Lohan, Woody Harelson and Tommy Lee Jones) the drama The Upsideof Anger (Kevin Costner and Joan Allen), July Delpy's comedy Two days in Paris,and Andrew Piddington's thriller, The Man Who Shot John Lennon. INTERNATIONAL SALES The films to which The Works International has been appointed sales agentachieved critical acclaim during 2006. The highlight of the first half was thepresentation of Michael Winterbottom's The Road to Guantanamo, in Competition atthe Berlin Film Festival. The film won the prestigious Silver Bear and wassubsequently sold to almost 50 territories worldwide. It also went on to win aBritish Independent Film Award and the Independent Spirit Award in the USA.At the Cannes Film Festival, the Company premiered Congorama in Director'sFortnight and the film went on to win seven major awards in Canada. Scenes OfA Sexual Nature, a romantic comedy starring Ewan McGregor, was the prestigiousclosing film at the Raindance Film Festival. In the second half, Shane Meadow's highly acclaimed This is England won theSpecial Jury Prize at the Rome Film Festival, and Venus, directed by RogerMichell and starring Peter O'Toole and Leslie Phillips, was released by Miramaxin the US and Buena Vista in the UK. Peter O'Toole went on to win an OscarNomination for Best Actor and Leslie Phillips won Best Supporting Actor at theBritish Independent Film Awards. CURRENT OUTLOOK & FUTURE PROSPECTS After a difficult couple of years, The Works Media Group is in pretty goodshape. In the UK, it has enviable output arrangements with Universal Pictures,a fast evolving catalogue of long-term rights, and the prospect by the end of2007 of finally deriving revenues across the full spectrum of multi-mediarights. The Works International has a solid trade reputation and is poised to broadenits palate by acquiring rights jointly with The Works UK Distribution. It isour intention to increase the volume of rights sold and to reduce the historicdependency on British film production. As the Group increases the volume of content under its long-term control, itwill be better placed to capitalise on the growth of new media and to exploitthe synergies of vertical integration. We look forward to the future withconfidence. Norman Humphrey30 March 2007 Consolidated Profit and Loss AccountFor the year ended 31 December 2006 2006 2005______________________________________________________________________________________________ £ 000's £ 000's Turnover 1,675 3,959 Cost of sales (533) (3,305)______________________________________________________________________________________________ Gross profit 1,142 654 Administrative expenses (1,710) (1,919)Selling and distribution expenses (45) (65) ______________________________________________________________________________________________ Operating loss (613) (1,330) Net interest 15 46 ______________________________________________________________________________________________ Loss on ordinary activities before taxation (598) (1,284) Tax on loss on ordinary activities - -______________________________________________________________________________________________ Loss on ordinary activities after taxation (598) (1,284) Equity minority interests - -______________________________________________________________________________________________ Loss for the financial year (598) (1,284) Dividends - -______________________________________________________________________________________________ Retained Loss for the year (598) (1,284)______________________________________________________________________________________________ Earnings per shareBasic (pence) (1.37) (3.00)Diluted (pence) (1.37) (3.00)______________________________________________________________________________________________ Consolidated Balance SheetAs at 31 December 2006 2006 2005 £ 000's £ 000's ______________________________________________________________________________________________ Fixed assetsIntangible assets 2,262 2,262Tangible assets 28 40Investments 100 100______________________________________________________________________________________________ 2,390 2,402 Current assetsStocks 1,294 31Debtors 889 697Cash at bank and in hand 1,343 1,542______________________________________________________________________________________________ 3,526 2,270 Creditors: amounts falling due within one year (2,347) (1,473)______________________________________________________________________________________________ Net current assets 1,179 797______________________________________________________________________________________________ Total assets less current liabilities 3,569 3,199 Creditors: amounts falling due after more than one year (64) (172) Provisions for liabilities and charges - -______________________________________________________________________________________________ Shareholders' funds 3,505 3,027______________________________________________________________________________________________ Capital and reservesShare capital 4,352 4,290Share premium account 7,472 6,458Profit and loss account (8,157) (7,559)______________________________________________________________________________________________ Equity shareholders' funds 3,667 3,189Minority interest (162) (162)______________________________________________________________________________________________ Shareholders' funds 3,505 3,027______________________________________________________________________________________________ Consolidated Cash Flow StatementFor the year ended 31 December 2006 2006 2005______________________________________________________________________________________________ £'000's £'000's Net cash outflow from operating activities (1,282) (967) Returns on investments and servicing of finance 15 46 Taxation - -______________________________________________________________________________________________ Operating cash flow after taxation and finance costs (1,267) (921)______________________________________________________________________________________________ Capital expenditurePurchase of tangible fixed assets (8) (29)Purchase of investments - (100) Acquisitions and disposals - - Equity dividends paid - - FinancingIssue of shares 1,250 68Share issue costs (174) -______________________________________________________________________________________________ Decrease in cash in the year (199) (982)______________________________________________________________________________________________ Reconciliation of Movements in Shareholders FundsFor the year ended 31 December 2006 Profit and Number of Share Share Minority loss shares capital premium interest account Total_________________________________________________________________________________________________________ £ 000's £ 000's £ 000's £ 000's £ 000's GroupAt 1 January 2006 42,899,208 4,290 6,458 (162) (7,559) 3,027 Share capital issued 62,500,000 62 1,188 - - 1,250 Share issue costs - - (174) - - (174) Retained loss for the - - - - (598) (598)year Minority interest in - - - - - -loss for the year_________________________________________________________________________________________________________ At 31 December 2006 105,399,208 4,352 7,472 (162) (8,157) 3,505_________________________________________________________________________________________________________ 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 income recognition, stock and goodwill are set outbelow: Turnover Turnover 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. Distribution income is recognised as the films are exhibited in cinemas, asDVD's are sold to wholesalers, or as films are contracted for transmission by abroadcaster and conditions precedent satisfied. Commission derived from theinternational sale of film rights is recognised when payable by licensees; onsignature of contract and on delivery of materials. Film development andexecutive production fees arising from production management are recognised whencontractually payable, in stages during the 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 stock and work inprogress. Stock and work in progress Stock and work in progress, which is stated at the lower of cost and netrealisable value, represents acquired rights, capitalised print and advertisingexpenditure, and film 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 stock andwork in progress only when, in the opinion of the directors, there is a clearlydefined project, and the recovery of these costs can reasonably be expected.Where production expenditure has been financed by non-recourse loans, thecompany makes provision in full against such 'ring fenced' expenditure as it isincurred. The non-recourse loans are only repayable to the extent revenues aregenerated from the exploitation of the asset to which they relate.Accordingly, full matching provision is made in respect of these liabilities,with no overall net effect on the profit and loss account. Any revenuessubsequently received are recognised on receipt, and a corresponding release ofboth the rights and loan provisions made to the profit and loss account. Goodwill The Company is part-way through a review of the intellectual property under itscontrol. Many of the film and television rights owned by the Group weresecured by the acquisition of production subsidiaries which are exploiting theserights. The cost of acquisition of these rights comprises much of the value ofconsolidated goodwill. The focus on rights management has thereforenecessitated an evaluation of the accounting policy relating to the amortisationof goodwill. It is apparent that historically the amortisation of intellectualproperty, much of which is owned in perpetuity, has been aggressive and mindfulof the requirement to adopt IFRS in respect of the year ended 31st December2007, it is considered inappropriate to further diminish the carrying value at31st December 2006. Accordingly, no provision for amortisation of consolidatedgoodwill has been made during the year 2. Reconciliation of operating profit to operating cash flows 2006 2005______________________________________________________________________________________________ £ 000's £ 000's Operating Loss (613) (1,330)Depreciation 21 22Amortisation of goodwill - 210Increase in stocks (1,263) -(Increase)/Decrease in debtors (192) 643(Decrease)/Increase in creditors 765 (512)_______________________________________________________________________________________________ Operating Cash Flow (1,282) (967)_______________________________________________________________________________________________ 3. Reconciliation of net cash flow to movement in net funds 2006 2005______________________________________________________________________________________________ £ 000's £ 000's Decrease in cash in the year and change in net funds resulting from cash flows: (199) (982)Net funds at 1 January 2006 1,542 2,524_______________________________________________________________________________________________ Net funds at 31 December 2006 1,343 1,542Less: Production and development funds held on trust for third parties (179) (264)_______________________________________________________________________________________________ Available cash at bank and in hand 1,164 1,278_______________________________________________________________________________________________ 4. 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: 2006 2005_____________________________________________________________________________________________ Weighted Weighted average Earnings average Earnings number of per number of per Earnings shares share Earnings shares share_____________________________________________________________________________________________ £'000's Thousands Pence £'000's Thousands Pence Basic earnings per share - Earningsattributable toordinary shareholders (598) 43,700 (1.37) (1,284) 42,758 (3.00) Dilutive effect ofoptions - - - - - -_____________________________________________________________________________________________ Diluted Earnings Per Share (598) 43,700 (1.37) (1,284) 42,758 (3.00)_____________________________________________________________________________________________ 5. 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 2006 and the summarised profit andloss account, summarised cash flow statement and associated notes for the yearthen ended have been extracted from the Group's draft financial statements.Those financial statements have not yet been delivered to the Registrar, norhave the auditors reported on them. The financial information for the year ended 31 December 2005 is an extract ofthe statutory accounts to that date as delivered to the Registrar of Companies.Those accounts included an audit report which was unqualified and that didnot contain a statement under Section 237 (2) or (3) of the Companies Act 1985. 6. Availability of accounts Copies of the Report and Accounts for the year ended 31 December 2006 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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