29th Jan 2008 07:00
Tinopolis PLC29 January 2008 TINOPOLIS PLC ("TINOPOLIS" or THE "COMPANY") RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2007 Financial Highlights: • Turnover £66.0m, up 40% on prior year (2006: £47.3m)• Profit from Operating Activities £2.18m, up 151% (2006: £0.87m)• Profit before tax of £2.56m, up 142% (2006: £1.06m)• Basic Earnings Per Share 1.8p, up 50% (2006: 1.2p)• Net cash inflow from operating activities £5.67m (2006: £1.75m)• Cash and cash equivalents at end of period is £11.09m• Share buy-back of £1.86m (4,650,000 shares repurchased for treasury at an average price of 39.9p). Operational Highlights: • Question Time commission for the BBC renewed for a further 3 years• Sunset +Vine renews contract for Gillette for the World Sport for a further 2 years• Sunset + Vine awarded contract for coverage of the Grand National for the BBC. Sunset + Vine now cover all the BBC's racing output• Mentorn wins its first US Network commission for four years with America's Worst Driver• Acquisition of Video Arts for £2.25m• Acquisition of APP Broadcasting for an initial consideration of £1.25m• London operations relocated to one new premises• BBC Jam termination issues resolved Outlook • The progress in integrating the acquired businesses, new commissions and the re-commissioning of our key programmes gives the Board confidence in the outlook for the current year.• Strong order book going into 2008 Commenting on the results, Ron Jones, Executive Chairman said: "During a period of turmoil in the stock market and major falls in prices,particularly in media stocks, we are pleased to report that the business remainsin good shape and is progressing in line with the plans and targets we have beenoutlining over the last two years. The year has seen significant progressacross all parts of our business. The BBC's decision unilaterally to terminateits Jam service damaged our results and our Interactive business, but momentumhas now been recovered. Elsewhere in the company we went in to the newfinancial year with a strong order book across all genres and confidence in thefuture of the Company" Results for the year ended 30 September 2007 Review of operations Turnover increased in the year by 40% to £66.0 million reflecting a full year'scontribution from the businesses acquired in 2006 and from businesses acquiredpart way through 2007. On a like for like basis, adjusting for businessesacquired and disposed of part-way through 2006 and 2007, organic growth was 9%.Consequently Profit from Operating Activities improved from £0.87m to £2.2m.Profit before tax of £2.56m, after allowing for £0.15m of exceptional costsregarding the closure of our BBC Jam contracts (see below), was 142% up on prioryear. Earnings per share increased from 1.2p to 1.8p, an increase of 50%. Thesecond half of the year performed strongly and Profit before Tax was £1.6mcompared to £0.96m in the first half mainly due to a strong six monthcontribution from Sunset + Vine, falling losses at Mentorn and the impact ofactions taken earlier in the year to reduce property costs. The priority for 2007 was to deliver on the plans we outlined following ouracquisition of TV Corp in 2006. That acquisition gave us the scale and thepotential to become a major player in this dynamic market. However, themanagement and operational problems that had been evident at TV Corp for someyears had to be put right if the underlying value of those businesses was to berealised. The integration has gone well. The excessive cost base has beenreduced. In particular, the problems caused by occupying two unsuitable and veryexpensive buildings have been removed. Sunset + Vine and Mentorn now occupymodern purpose-built premises in Hammersmith where they are able to share thenew technical and post-production facilities they have needed . Sunset + Vineis now growing healthily and profitably. Mentorn's results reflect a fundamentalimprovement in its underlying financial performance. It is recovering in linewith our plans and market expectations. We continue to emphasise the need for strong revenue visibility with long-termcontracts or strong returning series - key components of sustainableprofitability in this industry. Across the Company we are performing well withsignificant visibility into 2008 in drama, factual programmes and sport. Mentornhas historically been short of returning series and we are seeing major progresswith long-term projects such as Question Time and The Big Question for the BBCbeing won this year. Sunset+Vine has been successful in winning new contractsincluding the coverage of the Grand National for the BBC. Our Welsh televisionproduction business continues to perform outstandingly well. Profitability isup and our programmes have performed extremely well. Our new media business was hit badly by the BBC's unilateral cancellation of itsJam service to schools. It resulted in a £0.5m shortfall in our plannedoperating profit for the year including £0.15m of exceptional costs, an impactwe announced in our interim results in June 2007. Our contracts with the BBCwere terminated at short notice and after prolonged negotiations all terminationissues were resolved in the financial year. Despite this Interactive wasprofitable during 2007, an outstanding achievement in this fast moving market. The diversity of our customer list and our lack of dependence on any onecustomer, contract or show continues. This year we have won new broadcastercustomers in the US and taken on the large numbers of corporate customers of ournewest acquisition, Video Arts. Our business has never been dependent onrevenue streams arising from secondary rights and building a portfolio ofprogrammes with secondary rights value will therefore be beneficial to the groupgoing forward. In this, Mentorn has been leading our efforts and has alreadybeen successful in re-establishing some of its brands in the US market. Acquisitions There has been considerable corporate activity in the television productionsector during the year and we have been offered or approached a number ofcompanies that could have been useful additions to the group. However, we arecommitted to building shareholder value and will not damage this fundamentalprinciple by buying at values we regard as inflated. Our strategy of acquiringcompanies that complement our own businesses continues and during the year weacquired Video Arts Group Limited ("Video Arts") and APP Broadcasting Limited ("APP"). In May we bought Video Arts for consideration of £2.25 million on a debt freebasis, payable in cash. In the year ended 31 December 2006 it generated turnoverof £4.9 million and EBIT adjusted for non-recurring management charges of £0.5million. Video Arts was established in 1972 and has over 200 current titles that havebeen used to provide training to over 10,000 organisations world-wide, winningover 200 major training awards. Recently, recognising that customersincreasingly need digital delivery of its products, it has launched its DigitalContent Library. This currently includes over 100 of its most popular titles,divided into hundreds of learning chapters. Tinopolis Interactive has the skillsand scale to accelerate the creation of this library and add to itsfunctionality. The first products of this collaboration are being released tothe market this month. The Company believes this will prove a compelling offerfor Video Arts' existing clients, and an important feature in attracting newcustomers and increasing the scope and value of existing accounts. Video Arts' traditional business has been product-based, whilst the group'sexisting business majors on bespoke new media training materials and products.Both had identified the need to have some of the other's skills and marketpresence. Both businesses have specialised in producing and delivering videobased learning, and we believe this focus will be a significant competitiveadvantage in this sector as clients and consumers demand increasingly richcontent 'on demand'. The acquisition gives us a combined business bringing amuch wider range of skills to this market and better able to serve our existingand new customers. It consolidates our position as a leading player in theindustry. APP is a production company specialising in the coverage of yachting events, anarea already covered by Sunset +Vine with its Volvo Ocean Racing. The initialconsideration is £1.25m with a further deferred consideration of £0.3m dependingon their results for the year ended 31 December 2007. This is expected to bepaid in February 2008. In the year ended 31 December 2006 it generated turnoverof £1.53m, an EBIT of £0.29m and had net cash balances of £0.59m when acquired.This acquisition naturally strengthens our position in yachting, but equallyimportantly it brings new strengths in advertiser-funded programming, anexisting area of expertise we have identified as a priority for development.Some 90% of APP's revenues are derived from non-broadcaster sources. Drama The first two productions made by our new drama brand, Daybreak Pictures, wereaired earlier this year, winning high ratings and receiving strong presscoverage. The Trial of Tony Blair for Channel 4 and Confessions of a DiarySecretary for ITV1 have reinforced our reputation for factually-based dramas andled to further paid development for two other series. The second half of theyear saw our two-part fictional drama aired for Channel 4, Britz. The drama waschosen as part of the celebration of the channel's 25th anniversary and wasdirected and produced by Peter Kosminsky - with whom we won three BAFTAs for TheGovernment Inspector. The Company has now signed a "first look" deal with Peterfor his future drama ideas. Fiction Factory, our Welsh drama company, completed its third series of its S4Chit series Caerdydd and the fourth series is in production at the moment. Theirnew crime drama, Y Pris, was broadcast in the autumn and a second series is nowin production. The Company has been commissioned to develop a landmark dramaseries for 2009 that will tell the story of modern Wales through the lifeexperiences of a man that lived it. Factual programming The Group produced over 500 hours of factual programming in the year forbroadcasters including the BBC, ITV, S4C, Channel 4, Five, Sky, Discovery andBravo. In Wales, Wedi 3 and Wedi 7, S4C's live daily programmes continued and deliveredhigh audiences. Our success in live programming is unique in Welsh broadcastingand has now been one of the foundations of S4C's output for 17 years. Theprogrammes led S4C's on-screen re-branding this year and Wedi 3 was available onanalogue for the first time and proved a great success. S4C commissioned afactual series for children based on a vet's practice and a second series isalready in production. A major landmark modern history series has beencommissioned for 2009. For ITV Wales we produced a number of new series. Mentorn continued its recovery, winning commissions for all five terrestrial UKchannels. In March, Mentorn beat 14 other independent producers to win a newthree year contract to provide the BBC with its flagship political programmeQuestion Time, a deal worth in the region of £5.5 million over three years. Thefollowing month, the company beat 36 others to win the contract to provide theBBC's new Sunday Morning religious programme called The Big Question, a contractworth £1.2m in the first year. Both tenders included significant new mediaelements provided by the teams at Mentorn and Tinopolis Interactive,demonstrating the synergies available within the group. Elsewhere, Mentorn also won from Channel 4 another 10 programmes of its currentaffairs strand, The Insider, and continued to provide various editions ofChannel 4's Dispatches. Mentorn Scotland became one of only seven suppliers tothe BBC's The One Show. In the USA, the second series of Oil, Sweat and Rigs performed well forDiscovery and led to a new six part series, Wildcatters. Discovery USAcommissioned a total of 14 hours from us in 2007. Folio won an order from theBBC for ten editions of its long-running Traffic Cops brand. Traffic Cops wasthe BBC's highest rated documentary series in 2007 and Folio's otherpolice-based series, Car Wars, won good ratings as well. Folio continued to growits business for other networks - particularly ITV - where the Half Ton Hospitalseries achieved high ratings in both peak time and daytime slots. Sport Sunset + Vine won several significant contracts during the period. The BBC has confirmed that we will produce the Grand National from 2008. Wealready produce the remainder of its racing output. Channel 5 awarded us thecontract to produce its new Italian football coverage. Our decision to openSunset + Vine Cymru in October 2006 paid dividends as we won the contract toproduce more than 50 hours of coverage of the 2007 Rugby World Cup for S4C. Thecompany has also renewed its deal with BBC Scotland for a further two years toprovide all of its sports coverage, including Football, Bowls, Rugby and Shinty.We have been contracted for the Dubai World Cup horse racing for 2008. The BBCcoverage of the Ashes tour was also one of ours and a new three year DVD dealhas been agreed with the ECB and distributor 2Entertain which includes the nextAshes series in 2009. In October we tendered for and won a commission from theBBC to cover the 2008 African Nations Cup, which began in January in Ghana. Advertiser-funded programming (AFP) is an important revenue generator for Sunset+ Vine, and during the period, the company won contracts to produce its VolvoOcean Race programme through to 2009 and a new Formula One Business series,sponsored by Philips, for BBC World. A new two year deal has been signed withGillette for the successful World Sport series with the company beingresponsible for the production and distribution to over 180 broadcasters aroundthe world. Sunset + Vine remains the UK's biggest producer in the fast growing televisionprogramming area of gaming. We were commissioned to produce the Grosvenor PokerUK Tour shown on Channel 4 and sponsored by Blue Square. Tinopolis Interactiveand Sunset + Vine also produced an innovative live web cast to accompany thetelevision production of the final of the European Poker Tour in Monte Carlo,again demonstrating the cross-company skills we can use to provide amultiplatform offering to commissioners. We won a competitive tender for thePokerStars Caribbean Adventure poker tournament this month. While the appeal oftelevised celebrity poker is waning, the professional poker tours, where Sunset+ Vine is strong, have been going from strength to strength. Our Wales-based company, POP1, has won a commission to produce two further yearscoverage of the World Rally Championship for S4C as well as a documentary serieson Welsh rugby. Entertainment Sunset+Vine won its first major non-sports commission, a co-production withSplash Media, to produce a new prime time format - the Eurovision Dance Contestfor BBC1. The live broadcast involves contestants from 16 countries and wasbroadcast successfully in September. It has been re-commissioned for 2008. In the USA the success of Mentorn's reality format for the Bravo network, WorkOut, led to a commission for an extended second series of nine shows, and hasnow commissioned a third series. We also won a major commission from the FoxReality Channel and My Network to produce a new 16 part series of our hitreality format Paradise Hotel, to air in early 2008. The series value is $6mwith the potential for further series. The previous series of Paradise Hotel hasbeen sold, as a licensed or format deal, to around 30 countries worldwide and weare confident that the new series will also sell internationally. An Americanversion of Mentorn's successful Britain's Worst Driver has been sold to a majorUS network, our first new US network commission for four years. Broadening its customer base further, Mentorn has won its first entertainmentseries from both Sky One and Virgin Media which will be broadcast later thisyear. Interactive and Learning Our interactive skills are in use with a wide range of customers in thebroadcast and other commercial industries as well as in the public sector. Thisis an important area for synergy between all the Group companies and is a keypart of our future. Our breadth of new media and creative skills and experienceis unique in the industry. Our new media business was hit by the BBC's decision in late March, withoutconsultation, to terminate its entire Jam e-education project. Despite this,Tinopolis Interactive continues to grow its revenues, its profitability and itscustomer base. This includes a commission to produce Foundation Phaseinteractive learning materials for the Welsh Assembly Government, a commissionfrom Ufi to produce a series of short comedy based video sketches for SMEbusinesses, featuring the comedian Neil Mullarkey and further commissions underour Framework agreement with the Ministry of Defence. Tinopolis Interactive has also extended its range of strategic joint ventureswith training specialists, including Influence at Work, authors of severalbest-selling books centred on social influencing and persuasion techniques.Since the acquisition of Video Arts, the two businesses have been co-operatingin developing a number of new products and services and we expect to see thebenefits of this in 2008. Mentorn has been active in the learning area this year. Helped by ourexperience in Tinopolis Interactive it had led a consortium short-listed for thegovernment-funded Teachers Television. The consortium includes Channel 4, TheGuardian and the Institute of Education, a reflection of Mentorn's reputation asa producer of quality and reliability. Share buyback We concluded earlier in the financial year that the interests of shareholderswere best served by buying the Company's shares in the market. During theperiod 4,650,000 shares were bought for treasury at an average price of 39.9p.It may be appropriate to return to this approach and we will continue to monitorthe position. Cash Cash management across the group was tightly controlled with net cash inflowfrom operating activities in the period of £5.67m. Capital expenditure of £3.39min the period was higher than normal due to the relocation of the London basedbusiness to new locations. We used £1.86m to purchase our own shares fortreasury and a further £2.90m was used to acquire Video Arts and APP (net ofcash acquired with those businesses). Net cash within the business was over £11 million at the end of the year. Conclusion and Outlook Creatively and operationally we are in good shape. Measured against our threelong term goals we are doing well. As before, these are to build value forshareholders by delivering organic revenue growth in excess of industry average,delivering revenue visibility in excess of the industry average and selectivelyadding further complementary businesses where we can apply our business approachand skills. Other than in Mentorn, where our commitment to profitability is the absolutepriority, we have shown organic growth at a time when others in the industry arestruggling. The latter part of 2007 has seen a fall-off in UK commissioning,partly a reaction to the well-publicised integrity problems that beset theindustry and partly due to major management changes at a number of broadcasters.Despite this our organic growth has been strong. Our revenue visibility remains strong with a very high percentage of our plannedsales already contracted. Combined with our wide range of customers and a lackof dependence on any one contract we are well placed for the year ahead. Acquisitions remain difficult because of the valuation differential betweenpublic and private companies. Nevertheless we believe there are some value andstrategic acquisitions that are possible and we have a number of potentialpurchases under consideration. At a difficult time for the industry and in a difficult market we can beoptimistic about the Company's prospects for next year and beyond. Ron Jones Arwel ReesExecutive Chairman Managing Director 29th January 2008Consolidated Income Statementfor the year ended 30 September 2007 Note 2007 2006 £000 £000 £000 £000Revenue 2 65,981 47,334Cost of sales (52,608) (37,230) Gross profit 13,373 10,104Administrative expenses (11,196) (9,232) Profit from operating activities 3 2,177 872Finance expenses 6 (14) (57)Finance income 6 399 245 Net finance income 385 188 Profit before income tax 2,562 1,060Income tax expense 7 (723) (89) Profit for the year 1,839 971 Attributable to:Equity holders of the parent company 1,728 934Minority interests 111 37 1,839 971 Earnings per shareBasic earnings per share 8 1.8p 1.2p Diluted earnings per share 8 1.7p 1.2p All the results arise from continuing operations. Consolidated Statement of Changes in Equityfor the year ended 30 September 2007 30 September 2007 Share Share Merger Reserve for Retained Total Minority Total equity capital premium reserve own shares earnings interests £000 £000 £000 £000 £000 £000 £000 £000 Balance at 1 1,989 24,147 607 - 3,195 29,938 60 29,998October 2006 Profit for the - - - - 1,728 1,728 111 1,839period Dividends paid - - - - - - (20) (20) Equity settled - - - - 13 13 - 13share basedpayments Shares issued - 10 - - - 10 - 10 Own shares - - - (1,862) - (1,862) - (1,862)acquired Own shares issuedon acquisition - - - 250 - 250 - 250Balance at 30September 2007 1,989 24,157 607 (1,612) 4,936 30,077 151 30,228 30 September Share Share Merger Reserve for Retained Total Minority Total equity2006 capital premium reserve own shares earnings interests £000 £000 £000 £000 £000 £000 £000 £000Balance at 1 October2005 497 - 657 - 1,967 3,121 33 3,154 Profit for the - - - - 934 934 37 971period Dividends paid - - - - - - (10) (10) Equity settled sharebased payments - - - - 294 294 - 294 Shares issued 1,442 24,147 - - - 25,589 - 25,589 Movement in the year 50 - (50) - - - - - Balance at 30September 2006 1,989 24,147 607 - 3,195 29,938 60 29,998 Reserve for own shares The reserve for the company's own shares comprises the cost of the company'sshares held by the group. At 30 September 2007 the group held 3,319,000 of thecompany's shares (2006: nil). Consolidated Balance Sheet at 30 September 2007 Note 2007 2006 £000 £000 £000 £000AssetsProperty, plant and equipment 9 6,487 4,316Intangible assets - goodwill 10 25,013 21,869Intangible assets - learning content 10 643 - Total non-current assets 32,143 26,185Inventories - learning materials 174 -Trade and other receivables 12 13,505 9,044Cash and cash equivalents 13 12,418 15,101 Total current assets 26,097 24,145 Total assets 58,240 50,330 EquityShare capital 19 1,989 1,989Share premium 24,157 24,147Reserves 607 607Reserve for own shares (1,612) -Retained earnings 4,936 3,195 Total equity attributable to equity holders of 30,077 29,938the parent companyMinority interests 151 60 Total equity 30,228 29,998 LiabilitiesLoans and borrowings 15 129 23Other payables 14 505 677Deferred tax liabilities 16 285 261 Total non-current liabilities 919 961 Bank overdrafts 13 1,329 1,556Loans and borrowings 15 75 635Current income tax payable 2,390 1,090Trade and other payables 14 23,299 16,090 Total current liabilities 27,093 19,371 Total liabilities 28,012 20,332 Total equity and liabilities 58,240 50,330 Consolidated Statement of Cash Flowsfor the year ended 30 September 2007 Note 2007 2006 £000 £000Profit for the year 1,839 971Adjustments for:Depreciation and amortisation 1,150 892Net finance income 6 (385) (188)Gain on sale of subsidiary - (866)Gain on sale of property, plant and equipment (2) (21)Equity settled share-based payments 5 63 26Taxation 7 723 89 Operating cash flow before changes in working 3,388 903capital and provisions Change in inventories 42 -Change in accounts receivable (2,575) 3,402Change in accounts payable 4,277 (1,703) 5,132 2,602 Interest paid (14) (51)Income taxes paid (331) (797)Income taxes received 884 - Net cash from operating activities 5,671 1,754 Net (cash paid) cash acquired with subsidiaries (2,897) 8,896Payments to acquire property, plant and equipment (3,390) (1,246)Receipts from sales of property, plant and 51 47equipmentReceipts from sale of subsidiary - 4,053Interest received 399 245 Net cash from investing activities (5,837) 11,995 Repayment of borrowings (568) (925)Payment of finance lease liabilities (67) (131)Finance lease additions 207 -Own shares acquired (1,862) - Net cash used in financing activities (2,290) (1,056) Net (decrease)/increase in cash and cash (2,456) 12,693equivalents Cash and cash equivalents at start of period 13 13,545 852 Cash and cash equivalents at end of period 13 11,089 13,545 The financial information set out above does not constitute the company'sstatutory accounts for the years ended 30 September 2007 or 2006 but is derivedfrom the 2007 accounts. Statutory accounts for 2006, which were prepared underInternational Financial Reporting Standards as adopted by the EU, have beendelivered to the registrar of companies, and those for 2007, also prepared underInternational Financial Reporting Standards as adopted by the EU, will bedelivered in due course. The auditors have reported on those accounts; theirreports were (i) unqualified, (ii) did not include references to any matters towhich the auditors drew attention by way of emphasis without qualifying theirreports and (iii) did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 1 Accounting policies Basis of preparation Tinopolis Plc (the 'Company') is a company incorporated in the UK. The Group financial statements consolidate those of the Company and itssubsidiaries (together referred to as the "Group"). The parent company financialstatements present information about the Company as a separate entity. The Group financial statements have been prepared and approved by the Directorsin accordance with International Financial Reporting Standards as adopted by theEU ("Adopted IFRS"). The Company has elected to prepare its parent companyfinancial statements in accordance with UK GAAP. The accounting policies set out below have, unless otherwise stated, beenapplied consistently to all periods presented in these Group financialstatements. Basis of consolidation The Group financial statements consolidate the financial statements of theCompany and its subsidiaries made up to 30 September each year. The financial statements of subsidiaries are included in the consolidatedfinancial statements from the date that control commences until the date thatcontrol ceases. Intra-group balances and any unrealised gains and losses onincome or expenses arising from intra-group transactions, are eliminated inpreparing the consolidated financial statements. Sources of estimation/uncertainty The preparation of the financial statements requires the group to makeestimates, judgements and assumptions that affect the reported amounts ofassets, liabilities, revenues and expenses and related disclosure of contingentassets and liabilities. The Directors base their estimates on historicexperience and various other assumptions that they believe are reasonable underthe circumstances, the results of which form the basis of making judgementsabout the carrying value of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. The Group believes that the most significant critical judgement area in theapplication of its accounting policies is revenue recognition. Revenue and revenue recognition Revenue (which excludes VAT) represents amounts receivable for work carried outin producing television programmes, films and other audio-visual mediaproductions and is recognised over the period of the production in line with theterms of the underlying contract. Overspends are recognised as soon as theyarise and underspends are recognised on completion of the production. Whereproductions are in progress and where the sales invoiced exceed the cost of thework done, the excess is shown as deferred income. Where the value of the workdone to date exceeds the invoiced amount, the amounts are classified as accruedincome. Development costs Internally generated costs relating to programmes, to the extent they are notfunded by a customer, are written off to the income statement. Translation of foreign currencies Transactions in foreign currencies are recorded at the date of exchange rulingat the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translatedto sterling at the rate of exchange ruling at the balance sheet date, and anyexchange differences taken to the income statement. Non-monetary assets aretranslated to sterling at the rates of exchange ruling at the date of purchase. Taxation Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: goodwill not deductiblefor taxation purposes, the initial recognition of assets or liabilities thataffect neither accounting nor taxable profit, and differences relating toinvestments in subsidiaries to the extent that they will probably not reverse inthe foreseeable future. The amount of deferred tax provided is based on theexpected manner of realisation or settlement of the carrying amount of assetsand liabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Leasing and hire purchase commitments Where the Group enters into a lease which entails taking substantially all therisks and rewards of ownership of an asset, the lease is treated as a "financelease". The asset is recorded in the balance sheet as Property, Plant andEquipment and is depreciated over its estimated useful life or the term of thelease, whichever is shorter. Future instalments under such leases, net offinance charges, are included within creditors. Rentals payable are apportionedbetween the finance element, which is charged to the income statement so as toproduce a constant periodic rate of interest on the remaining balance of theliability, and the capital element which reduces the outstanding obligation forfuture instalments. All other leases are accounted for as "operating leases" and the rentals payableare charged to the income statement on a straight line basis over the life ofthe lease. Goodwill Goodwill represents the difference between the cost of the acquisition and thefair value of the net identifiable assets and contingent liabilities acquired.Identifiable assets are those which can be sold separately or which arise fromlegal rights regardless of whether those rights are separable. Goodwill is stated at cost or deemed cost less any accumulated impairmentlosses. Goodwill is allocated to cash-generating units. Other intangible assets Other intangible assets acquired by the group are stated at cost lessaccumulated amortisation except those acquired as part of a business combinationwhich are shown at fair value at the date of acquisition less accumulatedamortisation. 1 Accounting policies (continued) Property, plant and equipment Property, plant and equipment are stated at cost less depreciation. The cost ofproperty, plant and equipment is their purchase cost, together with anyincidental costs of acquisition. Depreciation is calculated so as to write off the cost of an asset, less itsestimated residual value, over the useful economic life of that asset asfollows: Short life studio / post production equipment - 25% straight lineStudio equipment - 15% - 20% reducing balanceFixtures and fittings - 15% straight lineMotor vehicles - 25% straight lineComputer equipment - 25% straight lineLeasehold property improvements - 5% - 10% straight line Impairment The carrying amounts of the Group's assets are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Impairment losses recognised in respect ofcash-generating units are allocated first to reduce the carrying amount of anygoodwill allocated to cash-generating units and then, to reduce the carryingamount of the other assets in the unit on a pro rata basis. Learning content Learning content expenditure is capitalised only if the cost is commerciallyfeasible and future economic benefits are probable. The expenditure capitalisedincludes the cost of materials, direct labour and overhead costs that aredirectly attributable to preparing the asset for its intended use. Amortisation is calculated so as to write off the cost of the asset, less itsestimated residual value, over the useful economic life of that asset which isbetween 3 and 5 years. Inventories - Learning materials Inventories are measured at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. Cash and cash equivalents Cash and cash equivalents comprise cash balances and bank overdrafts. The bankoverdrafts are repayable on demand and form an integral part of the Group's cashmanagement. They are included as a component of cash and cash equivalents forthe purpose of the statement of cash flows. Repurchase of share capital (treasury shares) When share capital recognised as equity is repurchased, the amount of theconsideration paid which includes directly attributable costs, is net of any taxeffects, and is recognised as a deduction from equity. Repurchased shares areclassified as treasury shares and are presented as a deduction from totalequity. When treasury shares are sold or reissued subsequently, the amountreceived is recognised as an increase in equity, and the resulting surplus ordeficit on the transaction is transferred to / from retained earnings. 1 Accounting policies (continued) Employee benefits Equity-settled share Based Payments The share option programme allows Group employees to acquire shares of theCompany. The fair value of options granted is recognised as an employee expensewith a corresponding increase in equity. The fair value is measured at grantdate and spread over the period during which the employee becomesunconditionally entitled to the options. The fair value of the options grantedis measured using a Black Scholes model, taking into account the terms andconditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vestexcept where forfeiture is only due to share prices not achieving the thresholdfor vesting. Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement when they are due. Recently issued standards A number of new standards, amendments to standards and interpretations are notyet effective for the year ended 30 September 2007, and have not yet beenapplied in preparing these consolidated financial statements: IFRS 8 Operating Segments introduces the "management approach" to segmentreporting. IFRS 8 which becomes mandatory for the Group's 2009 financialstatements will require the disclosure of segment information based on theinternal reports regularly reviewed by the Group's Operating Decision Maker inorder to assess each segment's performance and to allocate resources to them. Itis not expected to have any impact on the consolidated financial statements. IFRIC 11 IFRS 2 - Group and Treasury Share Transactions requires a share-basedpayment arrangement in which an entity receives goods or services asconsideration for its own equity-settled share-based payment transaction,regardless of how the equity instruments are obtained. IFRIC 11 will becomemandatory for the Group's 2008 financial statements, with retrospectiveapplication required. It is not expected to have any impact on the consolidatedfinancial statements. Revised IAS 23 - Borrowing Costs, IFRIC 12 - Service Concession Arrangements,IFRIC 13 - Customer Loyalty Programmes, IFRIC 14 IAS 19 -The Limit on a DefinedBenefit Asset, Minimum Funding Requirements will have no impact on theconsolidated financial statements. 2 Segmental information a) Geographical analysis No significant level of turnover arose outside of the United Kingdom. b) Market sector analysis The Group's operations involve the making of television, film, and otheraudio-visual media productions and has only one business sector. 3 Operating activities and auditors' remuneration 2007 2006 £000 £000Included in results from operating activities are the following;Restructuring costs incurred (contractual and other termination costs - 1,154involved in the removal of The Television Corporation Plc board)Depreciation of property, plant and equipment 970 819Depreciation of assets held under hire purchase and finance lease 174 73agreementsAmortisation 6 -Profit on disposal of property, plant and equipment (2) (21)Profit on sale of Hawkeye - (866)Foreign exchange losses 128 -Operating lease charges - land and buildings 1,229 795 - other 29 - Auditors' remuneration: 2007 2006 £000 £000Audit of these financial statements 60 60 Amounts receivable by auditors and their associates in respect of: Audit of financial statements of subsidiaries pursuant to legislation 67 40 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the company or the group 50 176 4 Directors' emoluments The directors' aggregate emoluments in respect of qualifying services were: 2007 2006 £000 £000Aggregate emoluments 961 716Highest paid director 278 224 Options to acquire 2p ordinary shares of the Company were held by the followingDirectors: At 1 October 2006 Granted At 30 September 2007A Rees 372,000 - 372,000A Mair 73,000 - 73,000J Willis - 450,000 450,000 5 Employee information 2007 2006 £000 £000 Wages and salaries 13,337 10,707Social security costs 1,481 1,165Equity-settled share based payments 63 26Pension and other employee costs 329 205 15,210 12,103 5 Employee information (continued) The average number of employees employed (including Directors) during the yearwas: Number NumberProduction 322 295Administration 82 61 404 356 6 Net finance income 2007 2006 £000 £000Interest expenseInterest on finance lease and hire purchase 5 11Other interest and similar charges 9 46 14 57 Interest income (399) (245) Net finance income (385) (188) 7 Income tax expense 2007 2006 £000 £000Current tax expenseUnited Kingdom corporation tax charge at rate of 30% (2006: 30%) 554 104(Under)/over provision in respect of the previous year (1) 83 Total current tax expense 553 187 Deferred tax expenseOrigination and reversal of temporary differences 170 (98) Total deferred tax expense/(income) (see note 16) 170 (98) Total income tax expense in income statement 723 89 7 Income tax expense (continued) The tax assessed for the year is lower (2006: lower) than the standard rate ofcorporation tax applying in the UK of 30%. The differences are explained below: 2007 2006 £000 £000Profit before taxation 2,562 1,060 Profit on ordinary activities at the UK tax rate of 30% (2006: 30%) 769 318 Effects ofSubstantial shareholding exemption on disposal of subsidiary - (260)Expenses not deductible for tax purposes 25 10Accelerated capital allowances and other timing differences (54) 16Adjustments to tax charge in respect of previous period (1) 83Utilisation of tax losses (2) (78)Withholding tax (14) - 723 89 8 Earnings per share 2007 2006 £000 £000Profit for the year 1,728 934 Weighted average number of shares 96,467,884 77,459,136 Dilutive potential of shares under option 3,840,570 3,585,170Effect of potential deferred consideration shares 312,500 -Dilutive potential of warrants issued 48,780 48,780Dilutive weighted average number of shares 100,669,734 81,093,086 Earnings per share - Basic 1.8p 1.2pEarnings per share - Diluted 1.7p 1.2p 9 Property, plant and equipment Leasehold Motor Fixtures and Studio / Total property vehicles fittings & post improvements computer production equipment equipment £000 £000 £000 £000 £000CostAt 1 October 2006 2,447 436 2,211 3,930 9,024Additions 1,410 31 1,041 642 3,124Acquisitions - - 240 - 240Disposals - (141) (355) (10) (506) At 30 September 2007 3,857 326 3,137 4,562 11,882 DepreciationAt 1 October 2006 902 252 1,252 2,302 4,708Charge for the year 173 62 527 382 1,144On disposals - (104) (353) - (457) At 30 September 2007 1,075 210 1,426 2,684 5,395 Net book valueAt 30 September 2007 2,782 116 1,711 1,878 6,487 At 30 September 2006 1,545 184 959 1,628 4,316 9 Property, plant and equipment (continued) Leasehold Motor Fixtures and Studio / Total property vehicles fittings & post improvements computer production equipment equipment £000 £000 £000 £000 £000CostAt 1 October 2005 2,362 459 1,191 3,427 7,439Additions 28 170 580 523 1,301Acquisitions 57 14 865 - 936Disposals - (207) (40) (20) (267)Disposal of subsidiary - - (385) - (385) At 30 September 2006 2,447 436 2,211 3,930 9,024 DepreciationAt 1 October 2005 748 394 1,034 2,004 4,180Charge for the year 154 61 365 312 892On disposals - (203) (24) (14) (241)Disposal of subsidiary - - (123) - (123) At 30 September 2006 902 252 1,252 2,302 4,708 Net book valueAt 30 September 2006 1,545 184 959 1,628 4,316 At 30 September 2005 1,614 65 157 1,423 3,259 Included within the net book value of £6,487,000 (2006: £4,316,000) is thefollowing relating to assets held under hire purchase and finance leaseagreements: Fixtures & Studio / post Motor Total fittings and production computer vehicles equipment equipment £000 £000 £000 £000 At 30 September 2007 35 161 21 217At 30 September 2006 3 136 45 184 The depreciation charged to the financial statements in the year in respect ofsuch assets was as follows: Fixtures & fittings Studio / post Motor Total and computer production vehicles equipment equipment £000 £000 £000 £000Year ended 30 September 2007 5 145 24 174Year ended 30 September 2006 3 55 15 73 10 Intangible fixed assets Goodwill 2007 2006Cost and net book value £000 £000At 1 October 21,869 -Additions 3,144 21,869Disposals - -Amortisation - - At 30 September 25,013 21,869 Learning Content 2007 2006Cost and net book value £000 £000At 1 October - -Additions 266 -Acquisitions 383 -Disposals - -Amortisation (6) - At 30 September 643 - There were £2.5million other intangible asset additions and £2.5millionintangible asset disposals in 2006. The Group conducts a formal annual review to determine whether the carryingvalue of the goodwill on the balance sheet can be supported. The impairmentreview comprises a comparison of the carrying amount of the goodwill with itsrecoverable amount (the higher of fair value less costs to sell and value inuse). Fair value less costs to sell has been determined for the acquired cashgenerating units by reference to the revenue multiples of appropriatetransactions in the industry in recent years applied to the business's owninternal estimates. 11 Acquisitions and disposals On 3 May 2007 the group acquired 100% of the issued share capital of Video ArtsGroup Ltd for a consideration of £2,250,000. On 22 June 2007 the group acquired 100% of the issued share capital of APPBroadcasting Ltd for an initial consideration of £1.05 million cash and 539,084Tinopolis shares. A further deferred consideration of up to £300,000 may bepayable in January 2008 depending on the profitability achieved by APP in theyear to December 2007. The Directors believe APP will achieve this profit targetand that the deferred consideration will be payable in full. The recognised value and fair value of assets purchased were as follows: Video Arts Ltd APP Broadcasting Ltd Provisional Provisional recognised value recognised value of acquired assets of acquired assets/ /(liabilities) (liabilities) £000 £000 Property, plant & equipment 68 173Intangibles - Learning content 383 -Inventories - Learning material 216 -Receivables 1,257 629Cash and cash equivalents - 594Liabilities (1,953) (509) Net (liabilities)/assets acquired (29) 887 Goodwill 2,391 696Transaction costs incurred (112) (33) Consideration, satisfied by cash 2,250 1,050 Consideration, satisfied by issue of shares - 200Deferred consideration - 300 Total consideration 2,250 1,550 The contribution to the operating profits for Video Arts Ltd since acquisitionand the historical results for the full year to 30 September 2007 are set outbelow: Post acquisition Full year unaudited 1 audited October 2006 to 30 3 May to 30 September 2007 September 2007 £000 £000 Revenue 1,482 4,253Operating profit 13 183 The contribution to the operating profits for APP Broadcasting Ltd sinceacquisition and the historical results for the full year to 30 September 2007are set out below: Post acquisition Full year unaudited 1 audited October 2006 to 30 22 June to 30 September 2007 September 2007 £000 £000 Revenue 709 2,182Operating profit 171 493 Goodwill has arisen on the acquisitions because of the creative talent andopportunities which do no meet the criteria for recognition as separateintangible assets at the date of acquisition. Daybreak Pictures Limited On 29 November 2006 the group acquired the entire share capital of a shellcompany, Daybreak Pictures Limited for a consideration of £11,000 satisfied bythe issue of 29,851 Tinopolis shares. Transaction costs of £46,000 wereincurred. 12 Receivables 2007 2006 £000 £000CurrentTrade receivables 10,106 7,084Other receivables 506 81Prepayments and accrued income 2,893 1,879 Current trade and other receivables 13,505 9,044 Trade receivables are shown net of provisions for impairment losses amounting to£100,000 (2006: £86,000). 13 Cash and cash equivalents/bank overdrafts 2007 2006 £000 £000Cash and cash equivalents 12,418 15,101Bank overdrafts (1,329) (1,556) Cash and cash equivalents in the consolidated cashflow statement 11,089 13,545 14 Trade and other payables 2007 2006 £000 £000Non current liabilitiesLease accrual 505 677 Current liabilitiesTrade accounts payable 3,283 1,577Other taxation and social security 2,205 1,845Accruals and deferred income 17,811 12,668 23,299 16,090 15 Loans and borrowings 2007 2006 £000 £000Non current liabilitiesHire purchase and finance lease agreements 129 23 Current liabilitiesSecured bank loan - 568Hire purchase and finance lease agreements 75 67 75 635 The hire purchase and finance lease obligations are payable as follows: 2007 2006 £000 £000In one year or less 75 67Between one and two years 78 12Between two and five years 51 11 204 90 16 Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 Property, plant and equipment (160) (4) 454 313 294 309Tax value of loss (9) (48) - - (9) (48)carry-forwardsNet tax (assets) / (169) (52) 454 313 285 261liabilities Movement in deferred tax during the year 1 October Recognised Acquired on 30 September 2006 in income acquisition 2007 £000 £000 £000 £000 Property, plant and equipment 309 131 (146) 294Tax value of loss carry-forwards utilised (48) 39 - (9) 261 170 (146) 285 Movement in deferred tax during the prior year 1 October Recognised 30 September 2005 in income 2006 £000 £000 £000Property, plant and equipment 454 (145) 309Tax value of loss carry-forwards utilised (95) 47 (48) 359 (98) 261 17 Financial instruments Exposure to credit and interest rate risks arises in the normal course of theGroup's business. Credit risk Management has a credit policy in place and the exposure to credit risk ismonitored on an ongoing basis. Credit evaluations are performed on all customersrequiring credit over a certain amount. At the balance sheet date there were nosignificant concentrations of credit risk. The maximum exposure to credit riskis represented by the carrying amount of each financial asset in the balancesheet. Interest rate risk Interest expense reflects the cost of the Group's borrowings. Interest incomearises from investment of cash and short term deposits held by the group.Interest rate risk is managed by monitoring market rates to ensure that optimalreturns are achieved. Liquidity risk The Group finances its operations through a mixture of cash from retainedprofits, new equity and bank borrowings. The Group has continued with its policyof ensuring that there are sufficient funds to meet the expected fundingrequirements of the Group's operations and investment opportunities. The Grouphas continued to monitor its liquidity position through budgetary procedures andcash flow analysis. Effective interest rates In respect of income-earning financial assets and interest-bearing financialliabilities, the following table indicates their effective interest rates at thebalance sheet. 2007 2006 Effective Interest 6 Months 6-12 1-2 2-5 6 months 6-12 1-2 2-5In thousands of Rate Total or less months years years Total or less months years yearsGBP £'000Secured bankloans:ITV production 2% above 421 421Loan bank base rateBank loan 3% above 147 147 - - - bank base rate Finance lease 10 % - 15% 204 44 31 78 51 90 39 28 12 11liabilities Bank overdrafts 1,329 1,329 1,556 1,556 The fair values of financial assets and liabilities shown above are notmaterially different from the value stated. 18 Commitments Financial commitments At 30 September 2007 the Company had commitments under non-cancellable operatingleases: 2007 2006 £000 £000 Within one year 1,634 894Within two to five years 4,638 2,175After five years 3,269 1,460 9,541 4,529 19 Called up share capital 2007 2006 £000 £000Authorised 130,714,290 ordinary shares of 2p each (2006: 130,714,290 ordinaryshares of 2p each) 2,614 2,614 Allotted, called up and fully paid99,450,222 ordinary shares of 2p each (2006: 99,437,793 ordinary sharesof 2p each) 1,989 1,989 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Cornish Metals