1st May 2009 12:00
THE WORKS MEDIA GROUP PLC
PRELIMINARY RESULTS
FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2008
The Works Media Group plc ("The Works" or the "Group") a leading independent UK film distributor and international film sales agent, today announces its preliminary results for the twelve months ended 31 December 2008.
Corporate Highlights
Board Changes
Experienced executive appointed MD at The Works International and main board executive director.
Film Distribution - The Works UK Distribution
Best performing title to date, Oscar nominated Mongol: The Rise to Power of Genghis Khan.
Multi-media rights to 33 titles acquired to date on long licences.
Release frequency halved to preserve cash.
Film Sales - The Works International
Services agreement with Quickfire will enhance product supply.
Several new films in the pipeline for sale in 2009.
Our title Man on Wire won an Oscar for the best documentary.
Financial Highlights
Business adversely affected by market conditions and the credit crunch.
Overheads reduced by £0.3 million.
Group retained loss rises to £0.62 million from £0.14 million in 2007.
Group turnover falls to £2.6 million from £3.3 million in 2007.
Cash reserves of £0.4 million (2007: £0.8 million).
Fundraising
£0.75 million revolving facility secured from the largest shareholder, Milcoz Films.
Costa Theo, non-executive Chairman of The Works Media Group said:
"2008 was a difficult year for The Works Media Group. Market and economic conditions have slowed the pace of distribution and restricted our access to credit. However, underlying structural improvements at The Works International should speed our recovery and the Group is very well positioned for expansion once circumstances improve."
For further information, please contact:
The Works Media Group plc 020 7612 0030
Norman Humphrey, CEO
Dowgate Capital Advisers Limited 020 7492 4777James Caithie
CHAIRMAN'S STATEMENT
OVERVIEW
The expectation at the start of 2008 was that the positive growth achieved by the Group in 2007 would be continued throughout the year. However, an increase in competition in the UK combined with the downturn in the world economy, in particular the weakness of Sterling, has interrupted our forward momentum, and The Works Media Group has recorded a loss of £625,000 for the year.
The UK film distribution market, one of the largest in the world, was particularly competitive in 2008. Capital injections by multi-national media groups into UK distribution subsidiaries ahead of the recession propelled the cost of rights acquisition in this territory. Marketing costs also rose making it more costly to achieve visibility in a crowded market and against many films' vast advertising budgets. Our response has been to reduce the number of films released and preserve cash whilst the storm blows over. In the second half of 2008, our release rate dropped from a film a month to one every two months. As our UK division is currently responsible for approximately 85% of Group turnover, the reduction in its activity had a material impact on Group turnover, which dropped from £3,312,000 in 2007 to £2,605,000 in 2008. There are strong indications that the battle between our larger competitors has been painful and we expect the cost of rights acquisition to fall materially in 2009.
The global economic downturn has not affected demand for films, because to some extent the film business is counter-cyclical. However the weakening of sterling against the US dollar in the latter half of the year has increased cost of rights acquisition by approximately 25%. It is to be hoped that Sterling will strengthen as the economy improves and that acquisition costs will accordingly revert to more realistic levels.
On a positive note, I am pleased to report that The Works UK Distribution had its most successful film to date in 2008. The film Mongol: The Rise To Power of Genghis Khan achieved box office receipts of £850,000 and had sold 119,000 DVD units by the year end. I am also pleased to report that we have begun a transformation of the Works International which should drastically improve that division's performance moving forward. The first step was to develop a trading relationship with Quickfire Films, a fund which should provide The Works International with a steady stream of highly marketable films moving forward. The second step was to coax Carl Clifton, who until the end of 2008 was the COO at one of our competitors, Handmade Films Plc, to become managing director of The Works International. I expect Carl to reinvigorate our brand and scale our trade in the foreign sales market.
FUND RAISING
The Group concluded a £750,000, two year, revolving credit facility with Milcoz Films Limited, of which I am a director. The purpose of the loan was to provide The Works UK Distribution with some modest funds for the acquisition and marketing of new titles.
The board recognises that if the Group is to take advantage of the considerable opportunity presented by its vertical integration and market positioning, it will require further funding going forward. To this end we have begun a series of preliminary discussion with potential funding sources, which will be advanced and hopefully reach a positive conclusion in 2009. Whilst acknowledging that the middle of a global "credit crunch" is not the most opportune time to be fund raising, the board is cautiously optimistic that funding sources will be attracted to the unique proposition offered by The Works Media Group.
FINANCIAL REVIEW
The Works Media Group held an Extraordinary General Meeting of its shareholders on November 28, 2008 for the following reasons:
DIVIDEND
The Directors do not recommend the payment of a dividend in respect of 2008 (2007 £nil).
BOARD CHANGES
I am pleased to welcome Carl Clifton to the Group's board of directors and as managing director of our subsidiary, The Works International. I believe Carl to be the ideal candidate to reinvigorate the sales agency and expect him to focus on the acquisition of more mainstream, films with known cast, marketable elements and larger budgets. Our intention is to move the division's core business away from "art-house" films for which there is a limited niche demand amongst distributors world-wide. Carl's background as Chief Operating Officer at Handmade Films and before that as Senior Vice President and Head of International Sales at Universal Pictures, Polygram Filmed Entertainment, and Head of International at Film Four International, provides the necessary experience to achieve this goal.
CURRENT OUTLOOK AND FUTURE PROSPECTS
It has been a demanding year for the Works Media Group Plc. We expected at the beginning of the year to grow the business, but found instead we were forced, mainly due to the global financial crisis, to fight to preserve our position. As previously noted, this was achieved by cutting the Group overhead, and through conserving cash by reducing the number of films released by The Works UK
The Works UK may find itself in a challenging position in 2009 without further capital to drive its expansion. If this turns out to be the case, the division will adapt its business model and expand its operations in other areas. For example, the division's management is working towards releasing third party films on a fee basis as opposed to acquiring the distribution rights. Additionally it is positioning itself to screen non-traditional content, such as music concerts, in cinemas.
The Works International expects to see growth in its activity and revenue in 2009 as the reinvigorated business model becomes effective and I believe The Works will come out of this recession in somewhat better condition than it went into it.
Costa Theo
1 May 2009
CHIEF EXECUTIVE'S REPORT
OVERVIEW
In many respects, 2008 was a difficult year for The Works Media Group. We are not the first company to release poor trading results during a recession but it is frustrating having made such progress restructuring the business in prior years to have that development impeded by matters largely beyond our control. Fortunately, certain aspects of this business are more resilient to economic downturn than others. Cinema attendances and DVD sales are often regarded as counter-cyclical as customers look for escapism and cheap home entertainment. Our UK business has nevertheless been affected by the recession in three ways: -
Our better capitalised competitors are investing heavily in rights acquisition to take advantage of markets which have shown resilience in the recession. This has reduced the availability of rights for smaller distributors such as ourselves and driven up the cost of films.
Most films are priced in US dollars and the collapse of sterling has increased acquisition costs by approximately 25%.
The downturn in domestic television advertising has reduced the budgets of UK broadcasters who currently have less money to spend buying television rights.
Unfortunately, at a time when our costs are rising, there is no real opportunity to raise working capital on the stock market as investors divert their attention away from AIM. In order to preserve cash, we currently have little alternative but to reduce the number of films released by our capital intensive UK distribution business. The combination of increasing rights acquisition costs and falling turnover explain the Group's poor performance in 2008.
PERFORMANCE
Unfortunately, the business has not performed in line with expectations. Turnover has fallen at all business units, in aggregate from £3,312,000 in 2007 to £2,606,000 in 2008. At The Works UK Distribution ("UK Distribution"), the decrease arises substantially from a deliberate reduction in the number of films released in order to preserve cash. At fellow subsidiary The Works International ("International"), fewer rights were sold than had been anticipated, not only because of changing global economic conditions but because structural changes at the Company took longer than anticipated to implement.
The Group recognised the impact difficulties in the UK domestic television market and a softening of DVD sales had on its catalogue value, and made a cautionary provision of £100,000 against the ongoing carrying value. The provision, which I hope will be reversed in subsequent periods as the economy improves, is one reason for the fall in the gross margin percentage from 55% to 44%. Another is the decrease in turnover at The Works International, where the cost of sales is negligible and the margin correspondingly high.
Administrative costs include £88,000 compensation for loss of office by the former Chairman, Crispin Barker. That aside, the Group reduced its overheads by more than £300,000 during the year, the impact of which has been borne largely by central administration in an attempt to keep the individual business units operating effectively. Further cuts may be necessary in 2009 if there is no sign of recovery.
DISTRIBUTION ACTIVITY
UK Distribution released nine films in cinemas, twelve on DVD and twelve on video on demand (VOD) during 2008. It had been releasing films at the rate of one a month until June 2008, when the rate of release was deliberately halved to conserve working capital. The lower frequency has continued into 2009 but is likely to be reversed once economic conditions allow.
The best performing title of the year was the Oscar nominated Mongol: The Rise To Power of Genghis Khan. Mongol is already our most successful DVD title to date achieving in three months what the second best performer in our catalogue Three achieved in three years. I expect Mongol to make a material contribution in 2009. Other titles released in the year include the epic River Queen staring Keifer Sutherland and the first new generation 3D horror movie, Scar 3D.
Our sub-licensing arrangements with Universal Pictures for DVD, Virgin Media and BT Vision for VOD continue to work well and we are well-positioned for evolution in the market and the inevitable upturn.
INTERNATIONAL SALES
I announced last year our intention to reinvigorate International and am happy with progress to date. Our objective is to broaden the range of films sold, to represent bigger budget films and to increase volume. As a first step towards these objectives, in 2008 we started providing sale and technical services to Quickfire Films, an independent fund which should deliver a steady flow of new films; the first three of which will be completed and ready for sale in 2009. Our second step was to appoint a managing director of The Works International and the arrival of Carl Clifton from Handmade Films in January 2009 should allow us to represent larger more overtly commercial material moving forwards.
The commercial highlights of 2008 were James Marsh's Man on Wire which won an Oscar for best documentary and Shane Meadows drama Somerstown. Turnover fell despite these successes, and I hope that 2008 will prove a low-point for International. Trading conditions proved difficult as British production volumes took a tumble battered by changes to the UK tax regime and a tightening of credit. I expect with new management a more international perspective and a steady supply of product from Quickfire that our market position will improve in 2009 whatever happens to the economy.
New films already in the pipeline for sale in 2009 include Rachel Ward's drama, Beautiful Kate, Sarah Watt's comedy My Year Without Sex, rock-documentary Anvil! The Story of Anvil, Italian thriller The Front Line, the dolphin conservation crowd-pleaser The Cove and Stephen Poliakoff's thriller Glorious 39.
CURRENT OUTLOOK & FUTURE PROSPECTS
The Works Media Group is in better shape than may appear from the 2008 results. The re-invigoration of International, itself part of a repositioning of the Group away from production and into distribution and sales, is at last well underway.
Economic conditions in the UK may remain challenging for a year or two but parts of our business are counter-cyclical and our relationship with core customers such as Universal Pictures, Virgin Media and BT remain strong. The market for TV rights will eventually improve and by slowing down the frequency of our cinematic releases we preserve cash at a time when credit is almost non-existent for small companies.
Norman Humphrey
1 May 2009
Consolidated Income Statement
For the year ended 31 December 2008
|
Notes |
2008 |
2007 |
|
|
£ 000's |
£ 000's |
||
|
Revenue |
1 |
2,605 |
3,312 |
|
Cost of sales |
(1,464) |
(1,476) |
|
|
Gross Profit |
1,141 |
1,836 |
|
|
Selling and distribution costs |
(44) |
(46) |
|
|
Administrative costs |
4 |
(1,722) |
(1,946) |
|
Operating loss |
(625) |
(156) |
|
|
Investment income |
2 |
17 |
|
|
Finance costs |
(2) |
- |
|
|
Loss before taxation |
(625) |
(139) |
|
|
UK corporation tax |
- |
- |
|
|
Loss for the period attributable to equity shareholders |
(625) |
(139) |
|
|
Earnings per share |
|||
|
Basic (pence) |
3 |
(0.33) |
(0.09) |
|
Diluted |
3 |
(0.33) |
(0.09) |
|
Dividend |
- |
- |
Consolidated Balance Sheet
As at 31 December 2008
|
Notes |
As at 31 Dec 2008 |
As at 31 Dec 2007 |
|
|
£000 |
£000 |
||
|
Non Current Assets |
|||
|
Property, Plant and Equipment |
21 |
15 |
|
|
Investments |
11 |
100 |
|
|
32 |
115 |
||
|
Current assets |
|||
|
Inventory |
1,976 |
1,693 |
|
|
Receivables |
797 |
1,167 |
|
|
Cash and cash equivalents |
2 |
549 |
964 |
|
3,322 |
3,824 |
||
|
Total assets |
3,354 |
3,939 |
|
|
Current liabilities |
|||
|
Payables |
(819) |
(965) |
|
|
Accruals |
(104) |
(296) |
|
|
Deferred Revenue |
(194) |
(316) |
|
|
(1,117) |
(1,577) |
||
|
Non current liabilities |
|||
|
Revolving Loan |
5 |
(500) |
- |
|
Total liabilities |
(1,617) |
(1,577) |
|
|
Net assets |
1,737 |
2,362 |
|
|
Shareholders' equity |
|||
|
Called up share capital |
4,394 |
4,394 |
|
|
Share premium account |
8,688 |
8,688 |
|
|
Retained earnings |
(11,183) |
(10,558) |
|
|
Minority interest |
(162) |
(162) |
|
|
Equity Shareholders' funds |
1,737 |
2,362 |
|
Consolidated Cash Flow Statement
For the year ended 31 December 2008
|
Notes |
12 Months Ended 31 Dec 2008 |
12 Months Ended 31 Dec 2007 |
|
|
£000 |
£000 |
||
|
Cash flows from operating activities: |
|||
|
Operating loss |
(537) |
(156) |
|
|
Depreciation |
10 |
26 |
|
|
Profit on disposal of non current assets |
- |
(1) |
|
|
(Increase)/Decrease in inventory |
(283) |
(399) |
|
|
(Increase)/Decrease in debtors |
370 |
(278) |
|
|
Increase/(Decrease) in creditors |
(460) |
(834) |
|
|
Net cash generated by operating activities |
(900) |
(1,642) |
|
|
Cash flows from investing activities |
|||
|
Interest received |
2 |
17 |
|
|
Purchase of non current assets |
(15) |
(13) |
|
|
Sale proceeds on disposal of non current assets |
- |
1 |
|
|
Net cash generated by investing activities |
(13) |
5 |
|
|
Cash inflow/(outflow) before financing |
(913) |
(1,637) |
|
|
Cash flows from financing activities |
|||
|
Interest paid |
(2) |
- |
|
|
Loan finance |
500 |
- |
|
|
Issue of ordinary share capital |
- |
1,263 |
|
|
Share issue costs |
- |
(5) |
|
|
Net cash received from financing activities |
498 |
1,258 |
|
|
Net (decrease)/ increase in cash and cash equivalents |
(415) |
(379) |
|
|
Cash and cash equivalent at beginning of year |
964 |
1,343 |
|
|
Cash and cash equivalent at the end of year |
2 |
549 |
964 |
|
Less: Production and Development funds held on trust for third parties. |
(139) |
(141) |
|
|
Available cash at bank and in hand |
410 |
823 |
Statement of Changes in Equity
For the year ended 31 December 2008
|
Number of shares |
Share capital |
Share premium |
Minority interest |
Retained earnings |
Total |
|
|
£ 000 |
£ 000 |
£ 000 |
£ 000 |
£ 000 |
||
|
Group |
||||||
|
At 1 January 2008 |
147,502,437 |
4,394 |
8,688 |
(162) |
(10,558) |
2,362 |
|
Share capital issued |
- |
- |
- |
- |
- |
- |
|
Share issue costs |
- |
- |
- |
- |
- |
- |
|
Retained loss for the year |
- |
- |
- |
- |
(625) |
(625) |
|
Minority interest in loss for the year |
- |
- |
- |
- |
- |
- |
|
At 31 December 2008 |
147,502,437 |
4,394 |
8,688 |
(162) |
(11,183) |
1,737 |
NOTES
1. Basis of preparation
Accounting convention
These financial statements have been prepared in accordance with the historical cost convention, using accounting policies that have been consistently applied during the year.
The Group's policies on revenue recognition and inventory are set out below:
Revenue
Revenue of the Group for the period has been derived from its principal activities; the distribution of feature films in the United Kingdom, the international sale of film rights and the management of development, financing and production of feature films.
UK distribution revenue is recognised on individual licensed rights as follows:
Theatrically as films are exhibited in cinemas.
DVD, Pay Television and Free to Air Television upon contract and satisfaction of conditions precedent.
Video On Demand and Pay Per View upon receipt of licensees periodic report of unit retail sales.
Commission derived from the international sale of film rights is recognised when payable by licensees; on signature of contract and on delivery of materials.
Film development and executive production fees arising from production management are recognised when contractually payable, in stages during the production process.
Development
Development costs are written off in the period of expenditure except when recoverability can be assessed with reasonable certainty and there is a clearly defined 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, and film development and production costs.
Film acquisition costs and royalty advances are expensed to cost of sales in line with income recognition throughout the licence period, at rates determined by individual distribution agreements. Film acquisition costs, royalty advances and print and advertising expenditure are carried forward only to the extent that predicted future revenue streams anticipate recoupment.
Film development, and production expenditure is carried forward as inventory only when, in the opinion of the directors, there is a clearly defined project, and the recovery of these costs can reasonably be expected. Where production expenditure has been financed by non-recourse loans, the company makes provision in full against such 'ring fenced' expenditure as it is incurred. The non-recourse loans are only repayable to the extent revenues are generated 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 Income Statement. Any revenues subsequently received are recognised on receipt, and a corresponding release of both the rights and loan provisions made to the Income Statement.
2. Cash and cash equivalents
|
2008 |
2007 |
|
|
£ 000's |
£ 000's |
|
|
Cash and bank balances |
549 |
964 |
|
Bank overdraft |
- |
- |
|
Cash and cash equivalents in a disposal group held for sale |
- |
- |
|
Cash and cash equivalent at the end of year |
549 |
964 |
|
Less: Production and Development funds held on trust for third parties |
(139) |
(141) |
|
Available cash at bank and in hand |
410 |
823 |
3. Earnings per share
The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends and interest on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.
Reconciliation of the earnings and weighted average number of shares used in the calculations is set out below:
|
2008 |
2007 |
|||||
|
Earnings |
Weighted average number of shares |
Earnings per share |
Earnings |
Weighted average number of shares |
Earnings per share |
|
|
£'000's |
Thousands |
Pence |
£'000's |
Thousands |
Pence |
|
|
Basic earnings per share - Earnings attributable to ordinary shareholders |
(625) |
190,402 |
(0.33) |
(139) |
157,947 |
(0.09) |
|
Dilutive effect of options |
- |
- |
- |
- |
- |
- |
|
Diluted Earnings Per Share |
(625) |
190,402 |
(0.33) |
(139) |
157,947 |
(0.09) |
4. Administrative Costs
Administrative costs include a £88,000 non-recurring charge for compensation to our former Chairman Crispin Barker for loss of office.
5. Long Term Liabilities
The Long Term Liability is a revolving loan facility with Milcoz Films up to £750,000. The loan is repayable 3 years from the date of draw down and accrues interest compounded quarterly at the Bank of England Base Rate plus 3%. To 31 December 2008, £500,000 of the loan facility was drawn down.
6. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The summarised balance sheet at 31 December 2008 and the summarised Income statement, summarised cash flow statement, statement of changes in equity and associated notes for the year then ended have been extracted from the Group's draft financial statements. Those financial statements have not yet been delivered to the Registrar, nor have the auditors reported on them. There is the distinct possibility of that report referring to an "Emphasis of Matter", reflecting current uncertainties in the market place consistent with the reports of both the Chairman and Chief Executive above. The ability of the Group to exploit its catalogue of film titles depends on its ability to receive, in full, and on a timely basis the payments included in its cash flow projections or to obtain alternative financial arrangements. The financial statements do not include any adjustments that would result from a failure of the Group to achieve its projections or obtain alternative financing.
The financial information for the year ended 31 December 2007 is an extract of the statutory accounts to that date as delivered to the Registrar of Companies restated under IFRS. Those accounts included an audit report which was unqualified and that did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
7. Availability of Accounts
Copies of the Report and Accounts for the year ended 31 December 2008 are being sent to shareholders in due course. Further copies will be available from the Company's registered office, 4th Floor, Portland House, 4 Great Portland Street, London, W1W 8QJ.
Related Shares:
Winking Studios