26th May 2006 07:01
Works Media Group (The) PLC26 May 2006 THE WORKS MEDIA GROUP PLC PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2005 26 MAY 2006 The Works Media Group plc ("The Works") whose principal activities are thedistribution of feature films in the UK, the international sale of film rightsand the management of development, financing and production of feature films,announces today its preliminary results for the twelve months ended 31 December2005. Highlights: • Change of name and re-branding o Company name changed to The Works Media Group Plc o All Group businesses re-branded "The Works" • Financials o 2005 Group retained loss of £1.28 million (2004: profit of £0.77 million) o Cash reserves of £1.27 million (2004: £2.33 million) • Film Distribution - The Works UK Distribution o Cost of material move into UK Distribution expensed in 2005 o Expansion of activities into domestic theatrical, DVD and television sales o Experienced and highly commercial team appointed o DVD and internet output deal with Universal Pictures o 8 films scheduled for theatrical release in 2006 • Film Sales - The Works International o Creation of specialist in-house acquisition unit • Film Finance & Production - The Film Consortium (TFC) o UK tax environment remains undefined o Prudent decrease to production overhead pending anticipated sector recovery o Redundancy and other one-off costs have negative impact on 2005 result. Crispin Barker, non-executive Chairman of The Works Media Group said: 2005 was a transitional year for the company, as the Board began to implementits strategy to move The Works up the value chain into scaleable and morepredictable activities. We have successfully established a UK distributionlabel, whose output arrangements with Universal Pictures give it a competitiveedge in the independent sector. However, the growth of our distribution businessis in contrast to the Group's old core film production and finance activities,where the short-term outlook for the UK sector as a whole remains uncertain. For further information, please contact: The Works Media Group plc 020 7612 0030Chris Auty / Norman Humphrey CHAIRMAN'S STATEMENT OVERVIEW Since my last report in September 2005, the Group has consolidated its move intoUK distribution, released a number of titles theatrically, acquired a slate ofproduct for release in 2006/07 and secured output arrangements for DVD andinternet rights with Universal Pictures. As I noted in my interim statement,these are fundamental and positive steps along the road to a more diversifiedand scaleable media business. The Board is encouraged by the progress made todate and considers the losses incurred by the Group whilst creating The Works UKDistribution to be substantially lower than would have been incurred by theacquisition of a similar sized established business. The future performance ofthe new unit should more than justify its initial negative impact. During the 12 months ended 31 December 2005, The Works Media Group made aretained loss of £1,284,000, after allowing for amortisation of goodwill anddepreciation of £210,000. Whilst this is below the performance achieved in 2004,it is driven by two transitional factors; the industry-wide uncertainty whichcurrently surrounds the old core production activity, and the cost of our moveinto UK distribution. All fees relating to the creation of the distributionbusiness have been expensed during the year and all theatrical marketingexpenditure incurred on films released in 2005 have been prudently charged tocost of sales. The Group will enjoy revenue streams derived from the rightsassembled and expensed in 2005 for many years to come. The Group's production activity has been adversely impacted by domestic marketuncertainties which are largely due to delays in the implementation of theproposed new film tax relief. This has created a national slow-down in filmdevelopment and production volume. Eventually, the environment should improveand arguably a fall in domestic production volume may assist the performance ofthose films which do get made. As indicated by my interim statement, film rights sales during the second halfof the year, notably at the trade markets in Toronto and Los Angeles, werematerially below expectations. The US, theoretically the World's largest marketfor English language films, is still not buying rights in any meaningfulquantity and the glut of British films produced in the dying days of the old taxrelief are hard to place in a global market unable to differentiate one suchfilm from another. During the year, the Group took an important minority position in the quotedtelevision production holding company, Motive TV plc. FINANCIAL REVIEW During the 12 months to 31 December 2005, The Works Media Group made a retainedloss of £1,284,000 on turnover of £3,959,000. This compares unfavourably withthe profit of £771,000 achieved during 2004. Administration expenses have risenfrom £1,733,000 to £1,919,000 reflecting the move into UK distribution duringthe second half of the year. The available cash at bank has fallen from £2,330,000 at 31 December 2004 to£1,278,000 at 31 December 2005, significantly as a consequence of investment inUK Distribution. FUTURE PLANS The creation of The Works UK Distribution has moved the Group further up thevalue chain, and the Board intends to expand this function over the next fewyears. We also continue to evaluate opportunities in cinema exhibition and haveretained a former director of UGC Cinemas to advise the Group on potentialacquisitions and business set-up. We are attempting to secure funds forproduction management and continue to explore other opportunities for growth anddiversification of the business. DIVIDEND The Directors do not recommend the payment of a dividend in respect of 2005(2004:£nil) BOARD CHANGES There were no Board changes during 2005. ANNUAL GENERAL MEETING The Annual General Meeting will be held at 10 a.m. on Tuesday 25 July 2006 atthe offices of KBC Peel Hunt Limited, 111 Old Broad Street, London EC2 1PH Crispin Barker26 May 2006 MANAGING DIRECTOR'S REPORT OVERVIEW The highlight of the year has been a significant and well timed move into UKdistribution. This new company headed by Mick Southworth (ex- Channel 4,Winchester Entertainment) was launched in July 2005 and is branded "The Works UKDistribution". Unfortunately, conditions in the international film sales market remain tough,particularly for vendors of UK films, where the glut of newly-delivered filmscapitalising on tax financing under the expiring "Section 48" regime has floodedand confused the market. By the same token, production activity (which runs 9-12 months ahead of thesales cycle) turned down very sharply in the year as the transitional period ofexpiring tax motivated financing took hold. However, a significant slate of newfilm scripts was commissioned in the period and funded off balance sheet, layingdown stock for future production. DISTRIBUTION ACTIVITY The new division has hit the ground running, releasing its first two titles('Heidi' and Berlin audience winner 'Live and Become') into cinemas during theperiod. The company has negotiated a valuable distribution deal for video, DVDand internet rights with Universal Pictures, the UK market leader. The deal hasbeen rapidly validated by the successful Christmas and New Year sale of Heidi tothe home entertainment market. An outstanding 60,000 units have been sold, andthere is the expectation of strong ongoing Christmas sales of the title in yearsahead. The Works UK Distribution are releasing a slate of eight films in the UKduring 2006, including Kevin Costner-starrer 'The Upside of Anger' (already asuccess at the US box office), urban thriller 'Havoc' (one of the mostsuccessful titles in the US DVD charts during 2005, and in-house Groupproduction 'River Queen' starring Keifer Sutherland (star of global hit TVseries '24'). We are pleased to have created this new cornerstone activitywithout the acquisition of a pre-existing business and therefore at nosignificant capital cost. The launch of the new division has also been warmlygreeted by the film trade, and over time will give the Group an important buyingadvantage when securing international rights. Shareholders may appreciate thattwo independent UK distribution companies have recently been sold for materialvalue to major international entertainment groups and there is an encouraginggrowth in corporate interest in the sector. INTERNATIONAL SALES The first half of 2005 saw the successful launch of several titles, including:The Sun, Tickets, and Love & Hate at the Berlin Film Festival and six new filmsscreened as market premieres during the Cannes Film Festival, including: TheBest Man, The Proposition, Tara Road, and Wah Wah. Also completed during theperiod, both 'River Queen, starring Kiefer Sutherland, and Cock & Bull Story,starring Steve Coogan, were premiered at the Toronto Film Festival in September.'Cock and Bull', like 'The Proposition', went on to open across the US in early2006 to outstanding reviews. However, it is true that sales results across theslate were disappointing. The consolidation of TV broadcasters in certain keyterritories had a negative impact on rights sales values and the glut of UKproduct in 2005 had the effect of dissipating demand thinly over a larger volumeof UK films. Although the company's reputation for delivering a consistent flowof quality products remains strong, it is also too UK-reliant. Consequently, thedecision was taken in the fourth quarter to act on two fronts: at the same timeas curtailing production overhead (see below) the management has acted toaccelerate and improve the reach and volume of its acquisition of non-UK films.Early in 2006 the company put in place a small acquisitions team, led by anexperienced industry executive working on a consultancy basis, to acquire rightsacross both international and UK activities. At the same time it has enteredinto discussions with off-balance sheet financiers to provide working capitalfor that activity. PRODUCTION The uncertainties currently facing UK production have been extensively commentedin the national press. Suffice to say that several factors have led to a glut --followed by a drought -- in production activity. The termination of the previousand generous tax incentive regime for film finance in early 2005; theuncertainty and extensive consultation regarding its replacement (which is stillongoing); continuing high costs; a much stricter regulatory regime forco-production between the UK and other countries; and the strong pound/weakdollar which has significantly impacted the value of foreign investment into UKfilms. Against this unpredictable background, the management decided at the endof last year to make certain redundancies in the production department. Theredundancies and other exceptional one-off costs were expensed in 2005 and haveunfortunately negatively affected the results. Hopefully, the Group will be ableto rescale its production activity once the sector recovers from the impact ofchanges to tax regime CURRENT OUTLOOK & FUTURE PROSPECTS 2006 will see a significant shift in emphasis on two fronts. On the one hand ashift in focus from production to distribution; on the other, a determinedeffort to increase the volume of film product and diversify it away from itshistorical UK sourcing. The Board also intends to drive forth the growth of TheWorks UK Distribution, which has got off to a very promising start, and is wellpositioned to capitalise on the growth of new media such as internet streamingand downloading, video on demand and mobile phone telephony. We continue toactively seek new production and other business opportunities and maintain tightcontrols on costs and overheads. Chris Auty26 May 2006 Consolidated Profit and Loss AccountFor the year ended 31 December 2005 Note 2005 2004 ------ ------- ------- £ 000's £ 000'sTurnover 1Continuing operations 3,959 3,872Discontinued operations - - ------ ------- ------- 3,959 3,872Cost of salesContinuing operations (3,305) (1,342)Discontinued operations - - ------ ------- ------- (3,305) (1,342)Gross profitContinuing operations 654 2,530Discontinued operations - - ------ ------- ------- 654 2,530 Administrative expenses (1,919) (1,733)Selling and distribution expenses (65) (69) ------ ------- ------- Operating resultsContinuing operations (1,330) 728Discontinued operations - - ------ ------- -------Total operating result (1,330) 728 Exceptional items - discontinued operations 2 - - Net interest 46 43 ------ ------- -------(Loss)/Profit on ordinary activities before taxation (1,284) 771 Tax on (loss)/profit on ordinary activities - - ------ ------- -------(Loss)/Profit on ordinary activities after taxation (1,284) 771 Equity minority interests - - ------ ------- -------(Loss)/Profit for the financial year (1,284) 771 Dividends - - ------ ------- -------Retained (Loss)/Profit for the year (1,284) 771 ------ ------- ------- Earnings per share 5Basic (pence) (3.00) 1.86Diluted (pence) (3.00) 1.79 ------ ------- ------- Consolidated Balance SheetAs at 31 December 2005 Note 2005 2004 ------ ------- ------- £ 000's £ 000's Fixed assetsIntangible assets 2,262 2,439Tangible assets 40 33Investments 100 - ------ ------- ------- 2,402 2,472 Current assetsStocks 1 31 31Debtors 697 1,334Debtors: amounts falling due after one year - 5Cash at bank and in hand 4 1,542 2,524 ------ ------- ------- 2,270 3,894 Creditors: amounts falling due within one year (1,473) (1,881) ------ ------- -------Net current assets 797 2,013 ------ ------- ------- Total assets less current liabilities 3,199 4,485 Creditors: amounts falling due after more than one (172) (276)year Provisions for liabilities and charges - - ------ ------- -------Shareholders' funds 3,027 4,209 ------ ------- ------- Capital and reservesShare capital 4,290 4,188Share premium account 6,458 6,458Profit and loss account (7,559) (6,275) ------ ------- -------Equity shareholders' funds 3,189 4,371Minority interest (162) (162) ------ ------- -------Shareholders' funds 3,027 4,209 ------ ------- ------- Consolidated Cash Flow StatementFor the year ended 31 December 2005 Note 2005 2004 ------ ------- ------- £'000's £'000's Net cash (outflow)/inflow from operating activities 3 (967) 1,905 Returns on investments and servicing of finance 46 42 Taxation - - ------ ------- -------Operating cash flow after taxation and finance costs (921) 1,947 ------ ------- ------- Capital expenditurePurchase of tangible fixed assets (29) (31)Purchase of investments (100) - Acquisitions and disposals - - Equity dividends paid - - FinancingIssue of shares 68 - ------ ------- -------(Decrease)/Increase in cash in the year 4 (982) 1,916 ------ ------- ------- Reconciliation of Movements in Shareholders FundsFor the year ended 31 December 2005 Number of Share Share Minority Profit and Total shares capital premium interest loss account -------- ------- ------- ------- ------- ------- £ 000's £ 000's £ 000's £ 000's £ 000's GroupAt 1January 41,882,541 4,188 6,458 (162) (6,275) 4,2092005 Sharecapital 1,016,667 102 - - - 102issued Retainedloss - - - - (1,284) (1,284)for theyear Minority - - - - - -interestin lossfor theyear -------- ------- ------- ------- ------- -------At 31December 42,899,208 4,290 6,458 (162) (7,559) 3,0272005 -------- ------- ------- ------- ------- ------- 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 and stock are set out below: Turnover Turnover of the Group for the period has been derived from its principalactivities; the management of development, financing and production of featurefilms, the international sale of film rights and the distribution of featurefilms in the United Kingdom. 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 and film development costs. Thesecosts are carried forward only where, in the opinion of the directors, there isa clearly defined project and the recovery of these costs can reasonably beexpected. Net realisable value is based on estimated selling prices less anyselling costs expected to be incurred. 2. Exceptional Items There were no exceptional items during 2005. 3. Reconciliation of operating profit to operating cash flows 2005 2004 ------- ------- £ 000's £ 000's Operating (Loss)/Profit (1,330) 728Depreciation 22 39Amortisation of goodwill 210 181Increase in stocks - (13)Decrease in debtors 643 54(Decrease)/Increase in creditors (512) 916 ------- -------Operating Cash Flow (967) 1,905 ------- ------- 4. Reconciliation of net cash flow to movement in net funds 2005 2004 ------- ------- £ 000's £ 000's (Decrease)/Increase in cash in the year and change in netfunds resulting from cash flows: (982) 1,916Net funds at 1 January 2005 2,524 608 ------- -------Net funds at 31 December 2005 1,542 2,524Less: Production and development funds held on trust forthird parties (264) (194) ------- -------Available cash at bank and in hand 1,278 2,330 ------- ------- 5. Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders dividend 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: 2005 2004 ------------------------------------ ------------------------------------ Earnings Weighted Earnings per Earnings Weighted Earnings per average number share average number share of shares of shares -------- -------- --------- -------- £'000's Thousands Pence £'000's Thousands Pence Basicearningsper share -Earningsattributableto ordinary (1,284) 42,758 (3.00) 771 41,344 1.86shareholdersDilutiveeffect ofoptions - - - - 1,717 (0.07) -------- -------- -------- -------- --------- --------DilutedEarnings PerShare (1,284) 42,758 (3.00) 771 43,061 1.79 -------- -------- -------- -------- --------- -------- 6. 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 2005 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 2004 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 did notcontain a statement under Section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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