28th Nov 2006 07:00
Media Corporation plc (formerly Gaming Corporation plc) 28 November 2006 MEDIA CORPORATION PLC ("Media Corp" or "the Group") Preliminary audited results for the year ended 30 September 2006 Financial Highlights -- Profit after tax increased 662% to £2.5m (2005: £0.3m*) -- Gross profit increased 88% to £4.8m (2005: £2.5m*) -- Cash balances at the year end over £5.3m (2005: £2.8m) -- Consolidated net assets of £17.1m (2005: £14.6m*) -- Earnings per share of 0.9p (2005: 0.1p*) * Financial results for 2005 have been restated as described in note 1 to thefinancial statements. Other Highlights -- Repositioning of Group to focus on three key media businesses, being search marketing, media network and specialist publishing -- Launch of interactive mobile cash gaming service with Vodafone UK -- Appointment of Paul Tuson as Group Finance Director, bringing significant industry and finance experience and Michael Hawkes as Non Executive director, bringing industry and corporate governance experience. Justin Drummond, Chief Executive of Media Corp, said: "I am pleased to announce Media Corp's preliminary results showing record levelsof profit for the Group. Profit after tax has increased by over 650% in one year and the Group now has inexcess of £5 million of cash for further expansion and acquisitions. Our mediaand search advertising businesses have performed very strongly during 2006 andwe are now well placed to deliver our strategy focusing on profitable mediabusinesses." \* TEnquiries: Media Corporation plc Justin Drummond, Chief Executive Officer+44 (0)20 7618 9000 Paul Tuson, Group Finance Director Holborn PR Trevor Phillips+44 (0)20 7929 5599 Canaccord Adams Limited Mark Ashurst+44 (0)20 7050 6500\* T Chairman's Statement I am pleased to report significant progress for Media Corporation during 2006,in a year where we delivered impressive profit growth and further improved ourcash position. The Board is implementing a strategy focusing on its profitable mediabusinesses, as highlighted in the Business Review. In October 2006, as part ofthis strategy, the Group changed its name from Gaming Corporation plc to MediaCorporation plc. During 2006 the Group's search business Search Focus Limited has benefited fromour advertisers paying more to acquire new customers for their internet gamingsites; this resulted in a significant improvement in revenues generated fromthis business. On 30 September 2006, the United States Congress passed The SafePort Act, which also contained certain provisions known as the 'UnlawfulInternet Gambling Enforcement Act of 2006' affecting the processing of paymentsbetween US customers and online gaming companies. The potential financial impactto the Group of this regulatory development was not immediately clear. Search Focus Limited has implemented a new geographic targeting tool within thesearch engine back end system which allows advertisers to reorganise theirsearch listings into three separate territories: USA, UK and the Rest of theWorld. As a result of this geographic targeting technology, advertisers may nowprevent US residents from viewing their search listings. In addition to thesetechnical changes to the online search engine, the Gambling.com magazine is nolonger distributed in the US; it is now distributed to 18,000 platinum membersfrom around the world, including UK, Europe, Canada and Asia. It is estimated that despite these changes, the US legislation will result in a20% to 30% reduction in gaming related search marketing revenues, representingan annual reduction to group operating profits of between £0.5 million to £0.9million. However the Group expects to launch a search network for the personalfinance and travel markets early in 2007 and the Board believes that there isstill potential for the search business to grow substantially into othervertical markets. As previously stated the Group has continued to see an increase in advertisingrevenues derived from the Group's non-US facing gaming portals and search enginetraffic. It is anticipated that the Board's focus to diversify into other verticalmarkets for "search" and to develop other online media businesses will partiallymitigate any shortfall in profits during the 2007 financial year. The Group has in excess of £5m cash, which may be materially supplemented by thesale of its internet and mobile casino business (incorporating casino.co.uk).The Board is proactively seeking strategic, value-enhancing acquisitions tofurther enhance its media businesses. The Group is well positioned to expand its online media businesses, and theBoard is optimistic of generating further profitable growth in the comingfinancial year. Consequently we continue to view the future with confidence. \* TJason DrummondChairman\* T Business Review Media Corporation plc has made excellent progress during 2006 whilst formulatingand consolidating its ongoing strategy. The change of name is symbolic of theGroup's re-positioning. With the historical acquisitions of Eyeconomy Limitedand Search Focus Limited (formerly Newbold Enterprises Limited), the Group hasundergone a transformation from a gaming business to a media business driven byrevenues from the fast growing online advertising market. The interim accountshighlighted the operating profit being driven by the portals and advertisingdivision and this trend has continued. In order to focus on its media business, the Board deems it inappropriate tofully exploit the UK's leading online gaming brand, www.casino.co.uk, as thereis a potential for commercial conflict with its search business in the gamingvertical. The changes in the UK gaming legislation, due to be effective inSeptember 2007, have enhanced the value of www.casino.co.uk and the Board iscurrently seeking a buyer for its online and mobile gaming business, bothoperating under the casino.co.uk brand. The Group has three principal divisions, all in the media sector. Search Search Focus is a supplier in the Paid Search market. IAB figures show that PaidSearch accounted for 58% of all UK online advertising spend in the first sixmonths of 2006. Total online advertising spend was almost £1bn in the UK for thefirst six months of 2006, representing 40% growth over the same period in 2005. Search Focus is the market leader in the gaming vertical, led by gambling.comand supplemented by syndication deals on other top-tier domain names includingGambling.co.uk and Casinos.co.uk. During the first half of the 2007 financialyear, the Board intends to expand the business' reach into fast growing verticalmarkets including personal finance and travel markets. Search Focus' proprietary technology includes a live pay per click bidmanagement search engine. This allows advertisers to create and self managetheir search listing campaigns from online deposits through to bid managementand real time reporting. Search Focus uses advanced allocation algorithms andstrict editorial to maximise efficiency for advertisers and end users alike. Publishing Media Corp has a publishing division specialising in premium destinations andportals. Our impressive stable of websites includes onthebox.com (the UK'sdefinitive TV listings guide) and freedeal.co.uk (a comprehensive consumerportal). The Group has expertise in developing and monetising on-line brands. Media Eyeconomy was formed in 1996, and is a separate operating division of MediaCorporation. Eyeconomy specialises in online media planning as well as buyingand managing online media campaigns for clients including AOL, Dell and AmericanExpress. The business currently specialises in: -- Producing dynamic and engaging on-line advertising solutions including exit traffic (SubSites) and rich-media floating toolbar (SubLines). -- Offering a total reach of 30 million unique users every month, from over 750 quality host sites in all major channels, including Finance, Travel, Motors, Sport, Male/Female, Student/Youth, Property, Entertainment, Film, Music and TV, Mobile/Gadget and Recruitment. -- Producing in-house creative. Financial overview The audited results for the year ended 30 September 2006 show significant profitgrowth despite consolidated turnover decreasing by 37% to £11.9 million (2005:£18.8 million*). Gross profit increased by 88% to £4.8million (2005:£2.5million*) giving rise to an increased profit after tax of 662% to £2.5million (2004: £0.3million*). These results highlight the continued shift of thegroup towards high margin online media businesses and away from its gamingoperations. At the end of the period, consolidated net assets were £17.1million(2005: £14.6million*) and the net cash balance was £5.3million (2005:£2.8million). Trading remained strong throughout the year, although in the second half of2006, profits were adversely impacted by a weakening in the US dollar and byone-off costs. The combined affect was approximately £0.2 million. * The audited results for the year ended 30 September 2005 have been restated asexplained in Note 1 to the financial statements. Turnover has been decreased by£154,000 with an equivalent increase in accruals and deferred income. This hasresulted in a decrease in the profit after tax in 2005 and a decrease in netassets as at 30 September 2005 of £154,000. Segmental analyses \* T Profit before Profit (loss) Turnover Turnover tax and before tax 2006 2005 interest and interest £000 £000 2006 2005 Restated* £000 £000 Restated* Search 3,213 705 2,020 668Media 1,529 1,640 15 27Publishing 975 674 253 (380)Interactive Gaming 6,184 15,790 12 (116) 11,901 18,809 2,300 199\* T Key performance indicators The Group's financial key performance indicators are gross profit, profits aftertax and cash generation (movement in net funds), which are closely monitoredduring the year and measured against pre-set targets. On a business level, costper click rates and agency user "rates per thousand" are continuouslyscrutinised. In addition, the Group's non-financial key performance indicatorsare unique users delivered and registered users on its mobile casino. Comparison of the financial key performance indicators highlights significantgrowth. \* T 2006 2005 Increase £000 £000 Restated* Gross profit 4,761 2,533 88%Profit after tax 2,454 322 662%Increase in net funds 2,444 1,843 33%\* T Gross profit Gross profit is a more appropriate measure of operating success than revenue asit negates the effect of increases in low margin gaming business generated byad-hoc promotions. The increase in gross profit is primarily driven byrecognition of a full year's trading within the Group for gambling.com (2005:seven months) and an improvement in the average cost per click rate paid byadvertisers. The weakness of the US dollar during the second half of the Group's financialyear caused a reduction in gross profit (and subsequently net profit) in excessof £0.1 million. The search marketing business on gambling.com is US dollardenominated. Profit after tax The Group's sales and distribution costs increased in line with expectations andinclude revenue share payments, advertising and publication distribution costs. Administrative expenses primarily reflect personnel related costs of £1.4million (2005: £1.2 million) and facilities of £0.2m (2005: £0.1 million). Adirector of Eyeconomy ceased being employed by the Group resulting in a one-offcharge of £0.05 million. The Group does not expect a tax charge for the financial year. Cash generation The Board places considerable emphasis on cash generation, with the objective ofproviding resources for the growth of the business both organically and byacquisition. Operating cash-flow is measured as a ratio to headline operating profit, with atarget of at least 95%. The operating cash-flow was £2.4m, representing 105% of operating profit; (2005:£0.4 million, representing 108%). Users delivered This represents the number of unique online advertisements delivered byEyeconomy Limited and the growth during the year is highlighted in the graphbelow. Growth was constrained by existing server capacity towards the end of thefinancial year. Subsequently the Group has made further investment post year endto its server infrastructure and delivery technology to ensure that Eyeconomyhas capacity to significantly increase volume. Registered users on mobile casino A measure of traction of the mobile gaming business is the number of new playerregistrations. In 2006, 6,725 players registered compared to 3,392 in 2005,almost a 100% increase. Conversion rates to real money players increased to 18%in 2006 from 15% in 2005. Key policies Dividend policy The Board does not recommend payment of a dividend. It is the opinion of theBoard that shareholders will be best served by utilising the Group's cash tofund growth, both organic and by acquisition. Goodwill and intangibles Goodwill on all acquisitions since incorporation is capitalised and, under UKGAAP, was amortised over a maximum 20-year period. From 2005 goodwill is nolonger amortised but instead is subject to annual reviews to test impairment. On transition to the new accounting policy, the amortised balance was tested forimpairment, and subsequent tests have been performed in 2005 and 2006. Noimpairment charges have been made in either year. Treasury and foreign exchange The aim of Treasury is to ensure a robust and prudent financial profile whiledriving value throughout the Group to attain the business' full potential. The Group partially hedges against foreign currency exposure by matching, wherepossible, costs in the same currency as its foreign denominated revenues. Inaddition, the Board considers the implications of foreign currency exchangemovements and determines the costs against the benefits of buying financialhedging instruments. Furthermore, the Board, as part of its hedging strategy, is pro-actively seekingacquisition targets valued in the currency of its foreign income. Taxation The fundamental tenets of the Media Corp's approach to taxation are to enhancethe Group's competitive position, while engaging with tax authorities on a basisof full disclosure, full co-operation and full legal compliance. The Board considers and approves the management of the Group's tax affairs inthe context of the Group's commercial objectives. The Board seeks to bring abouttimely agreement of tax affairs and to remove uncertainty on businesstransactions. The Group's taxation strategy is to mitigate the burden of taxation in aresponsible manner for competitive advantage, and, in this way, to enhancelong-term shareholder value. Financial controls The Board understands the need for robust financial controls and a high quality,but effective, internal control environment. In view of this, the Board iscurrently implementing a new financial and operating system, which willsignificantly enhance the Group's financial and non-financial reporting,together with enhancing the control environment. Current trading and prospects The Board is currently attempting to ascertain the longer term implications ofthe recent changes in the US regulatory environment for gaming. This may impactthe ongoing results of the search marketing business. As noted in the Chairman'sstatement, results since the changes in legislation suggest a possible year onyear decrease in search marketing revenues in the gaming sector of 20% to 30%.The Group continues to take mitigating actions to minimise any long termdecrease. The search marketing business in the gaming vertical is predominantly US dollardenominated, which implies results will be affected by material strengthening orweakening of the US dollar. During the first weeks of the current financial year, trading across all otherareas of the Group has remained strong. Management incentive arrangements Following consultation with certain major shareholders, the Board has approvedthe issue a total of 21 million warrants at a price of 5.0 pence per share, withexercise being subject to the share price reaching a mid-market price of 10pence. The directors are to be issued warrants as follows: \* T Director Number of warrants granted Jason Drummond 3,000,000 Justin Drummond 10,000,000 Paul Tuson 3,000,000 Michael Hawkes (on appointment) 500,000\* T Board changes Paul Tuson was appointed as Group Finance Director during the year. PeterWilliams and William Grimes stepped down from the Board during the year and theDirectors would like to thank them for their significant contribution to theGroup. In addition, The Board of Media Corporation is pleased to announce theappointment of Michael Hawkes as a Non-executive Director of the Group withimmediate effect. Michael Hawkes, aged 36, was the finance director of Northern Europe for theinternet marketing company Overture Services Limited, which is now part ofYahoo! He joined Overture in time for its launch in the UK and during hisfour and a half years of service he helped grow the company into a profitablemulti million pound European business. As well as overseeing the finance group,his responsibilities included contract negotiations, commercial management andenabling European expansion into a further 11 countries. He has had AIM directorexperience with Z Group PLC (ZGP), an internet technology services company. Heis a chartered accountant, having qualified with KPMG in London where hespecialised in the Information, Communication and Entertainment sectors. \* TCurrent Directorships Previous Directorships within the last 5 years The Regard Partnership Limited Overture Services LimitedCerrig Camu Limited ZGroup plcAdapt Care Group LimitedVenesta Agencies LimitedAdapt Care Homes LimitedOscarvale LimitedSouthfields Limited\* T The directors are evaluating the benefits of further strengthening the Board toassist in delivering the Group's strategy and ensuring a good corporategovernance environment. \* TJustin Drummond Paul TusonChief Executive Group Finance Director\* T \* TConsolidated profit and loss accountfor the year ended 30 September 2006 Notes 2006 2005 £000 £000 Restated* Turnover 11,901 18,809Cost of sales (7,140) (16,276) Gross profit 4,761 2,533Selling and distribution costs (467) (785)Administrative expenses: Exceptional one-off acquisition costs - (238) Other administration expenses (1,994) (1,311) Group operating profit 2,300 199 Interest receivable and similar income 154 112Interest payable and similar charges - (20) Profit on ordinary activities before taxation 2,454 291 Taxation 3 - 31 Profit on ordinary activities for the period 2,454 322 Minority interest (3) - Profit for the period attributable to members of the parent company 2,451 322 Earnings per share - basic 4 0.88p 0.14pEarnings per share - diluted 4 0.87p 0.13p * See note 1 to the financial statements\* T \* TStatement of total recognised gains and lossesfor the year ended 30 September 2006 2006 2005 £000 £000 Restated* Profit for financial year 2,451 322Prior year adjustment (154) -Currency translation differences (311) -Total recognised gains and losses 1,986 322\* T \* TConsolidated balance sheetas at 30 September 2006 2006 2005 Notes £000 £000 Restated*Fixed assetsIntangible assets 11,422 11,557Tangible assets 381 253Investments - - 11,803 11,810Current assetsDebtors 808 1,001Cash at bank and in hand 5,253 2,809 6,061 3,810Creditors: amounts falling due within one year (752) (979)Net current assets 5,309 2,831 Net assets 17,112 14,641 Capital and reservesCalled up share capital 5 4,765 4,604Share premium account 5 12,916 12,749Other reserve 5 1,422 1,422Profit and loss account 5 (1,992) (4,132) Shareholders' funds 17,111 14,643 Minority interests 1 (2) 17,112 14,641 * See note 1 to the financial statements\* T \* TConsolidated statement of cash flowsfor the year ended 30 September 2006 Notes 2006 2005 £000 £000 Net cash inflow from operating activities 7 2,234 381Returns on investments and servicing of financeInterest received 154 112Interest paid - (20) 154 92Capital expenditurePayments to acquire tangible fixed assets (266) (152)Payments to acquire intangible fixed assets - (2,640) (266) (2,792)Acquisitions and disposalsAcquisition of subsidiary undertakings (6) (5,752)Net cash balance acquired with subsidiary undertaking - 442 (6) (5,310) Net cash inflow (outflow) before management of liquid resources and financing 2,116 (7,629) FinancingIssue of ordinary share capital 328 9,472 328 9,472 Increase in cash 2,444 1,843\* T \* T Notes to the accountsAs at 30 September 2006 1 Basis of preparation\* T The accounts have been prepared on the assumption that the group is a goingconcern. The accounts of the Group for the year ended 30 September 2006 show aprofit for the period of £2.5 million. At the date of these financialstatements, the Group's ability to continue as a going concern reflects the netfunds available to the Group at the year-end and the forecasts for the Group forthe current financial period. On this basis, in the opinion of the Directors,the accounts have been properly prepared on the assumption that the group is agoing concern. The financial information contained in the preliminary announcement does notconstitute statutory accounts within the meaning of section 240 of the CompaniesAct 1985. The financial information for the year ended 30 September 2005 hasbeen extracted from the statutory accounts for that year which has been filedwith the Registrar of Companies and which contain an unqualified audit report. The financial information for the year ended 30 September 2006 has beenextracted from the statutory accounts for that year which contain an unqualifiedaudit report. These accounts will be filed with the Registrar of Companies afterthe Annual General Meeting. The preliminary financial statements have been prepared in accordance withapplicable accounting standards and under the historical cost accounting rulesand consistent with the accounting policies as set out in the Group's mostrecent financial statements, except as noted in Note 1. The directors have undertaken an impairment review of goodwill at 30 September2006 in accordance with the provisions of Financial Reporting Standard ('FRS')10, which shows that the capitalised value of the cash flows derived from futureincome streams is greater than the carrying value shown in the Group'sconsolidated balance sheet at 30 September 2006. Impairment reviews willcontinue to be carried out at the end of each reporting period. The Group has updated its methodology for revenue recognition. In prior years,Search Focus Limited, the Group's subsidiary acquired in 2005, had recognisedrevenue on receipt of cash for its Paid Search. The majority of advertisers paidin advance. The Group has adjusted its policy in 2006 and now recognises revenuewhen the advertisements have been delivered. This resulted in a reduction inturnover and profit before tax for the year ended 30 September 2005 of £154,000.Net assets as at 30 September 2005 reduced by £154,000, reflecting an increasein deferred revenue. \* T2 Segmental analyses\* T Turnover represents the amounts derived from the provision of goods and serviceswhich fall within the group's ordinary continuing activities, stated net ofvalue added tax. The turnover and profit before tax are attributable to fourbusiness segments, search, media, publishing and interactive gaming. The Groupoperates within the United Kingdom, where its income is derived, save for itsinteractive gaming, where the activity is undertaken in Curacao and for search,where the activity is undertaken in Jersey. \* T Profit before Profit (loss) Turnover Turnover tax and before tax 2006 2005 interest and interest £000 £000 2006 2005 Restated* £000 £000 Restated* Search 3,213 705 2,020 668Media 1,529 1,640 15 27Publishing 975 674 253 (380)Interactive Gaming 6,184 15,790 12 (116) 11,901 18,809 2,300 199\* T \* T 3 Taxation\* T The taxation credit for the year comprises: \* T 2006 2005 £000 £000 Corporation tax - (4)Deferred tax credit - (27)Current tax credit - (31)\* T The tax assessed for the year is lower (2005: lower) than the standard rate ofcorporation tax in the UK of 30% (2005:19%). The differences are explainedbelow: \* TReconciliation of tax credit 2006 2005 £000 £000 Profit on ordinary activities before taxation 2,454 291Tax charge on profit on ordinary activities before taxation at standard rate of 30% (2005:19%) 736 55Factors affecting tax charge:Expenses not deductible for tax purposes 6 9Depreciation of tangible assets 18 8Exercise of warrants (406) -Capital allowances (15) (9)Tax losses carried forward 354 11Utilisation of brought forward tax losses (51) -Profits not taxable in period (642) (130)Effect of prior year adjustment - 29Tax credit per profit and loss account - (27)\* T \* TFactors that may affect future tax charges 2006 2005 £000 £000Deferred tax assets provided for:Losses carried forward using taxation at standard rate of 30% (2005:19%) 217 227Excess capital allowances 10 - 227 227Deferred tax assets not provided for:Losses carried forward using taxation at standard rate of 30% (2005:19%) 660 115Excess capital allowances 4 (6) 664 109Movement in deferred tax balances:Brought forward 227 200Credit to the profit and loss account - 27Carried forward 227 227\* T \* T 4 Earnings per share\* T \* T 2006 2005 £000 £000 Restated* Profit attributable to shareholders 2,451 322 Weighted average number of shares in issue 280,054,421 234,383,000 Dilution effects of share warrants 1,900,000 17,900,000Diluted weighted average number of shares in issue 281,954,541 252,283,000 pence penceBasic earnings per share 0.88 0.14Diluted earnings per share 0.87 0.13\* T Basic earnings per share is calculated on the results attributable to ordinaryshares divided by the weighted average number of shares in issue during theyear. Diluted earnings per share calculations adjusts the weighted average number ofordinary shares in issue to include all dilutive potential ordinary shares.These consist of warrants currently granted at an exercise price lower that theaverage market price of Media Corp's shares during the year. \* T5 Consolidated reserves\* T \* T Share Share Other Profit and Capital premium Reserve loss account account £000 £000 £000 £000 At 1 October 2005 (as per audited accounts) 4,604 12,749 1,422 (3,978)Prior year adjustment - - - (154)At 1 October 2005 (restated) 4,604 12,749 1,422 (4,132)Retained profit for the period - - - 2,451Arising on issue of new shares 161 167 - -Currency fluctuations - - - (311)At 30 September 2006 4,765 12,916 1,422 (1,992)\* T \* T 6 Reconciliation of movements in shareholders' funds\* T \* T £000 At 1 October 2005 (restated) 14,641Total recognised gains and losses 2,451New shares issued 328Minority interest 3Currency fluctuations (311)At 30 September 2006 17,112\* T \* T 7 Notes to the statement of cash flows\* T \* TReconciliation of operating profit to net cash inflow from operating activities 2006 2005 £000 £000 Restated* Operating profit 2,300 199Depreciation 138 67Decrease (increase) in debtors 193 (317)(Decrease) increase in creditors (227) 432Net exchange currency differences (170) 2,234 381\* T \* TAnalysis of changes in net funds 1 October 2005 Cash flow 30 September £000 £000 2006 £000 Net cash - cash at bank and in hand 2,809 2,444 5,253\* T Copyright Business Wire 2006Related Shares:
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