Results for the year ended 31 December 2013

DCD Media Plc

("DCD Media" or the "Company")

Audited results for the year ended 31 December 2013

DCD Media and its subsidiaries, the independent TV production and distribution group (the "Group"), today report results for the year ended 31 December 2013.

Financial Summary

Continuing operations:

· Revenue £14.2m (2012: £16.1m)

· Gross profit £4.5m (2012: £4.8m)

· Operating loss £(3.0m) (2012: (£1.9m))

Group results:

· Unadjusted operating loss £(3.0m) (2012: (£1.2m))

· Adjusted EBITDA £(0.9m) (2012: £0.8m)

· Adjusted (loss)/profit before tax £(1.1m) (2012: £0.6m)

Please refer to the table within the Performance section below for an explanation of the profit adjustments.

Business highlights

· Growth in and focus on rights business yielding results and creating platform for further expansion

· Investments made in production development and new creative leaders

· Successful pilot in 2013 well-received, leading to a major primetime commission with ITV in 2014

· Further improved balance sheet with substantial reduction in Coutts & Co bank loan

· Largest shareholders agreed to lend further £1.0m in the form of new convertible loan notes in May 2013

· Cost reductions in both personnel and operational expenses likely to deliver benefits in 2014

David Craven, Executive Chairman and Chief Executive Officer, commented: "The Executive team and Board have been focused on further restructuring the business during the year. While it has been a difficult period, good progress has been made on building a sustainable business and we are encouraged by the performance of the rights business and recent improvement in output from the production divisions.

"The financial performance principally reflects poor output from the production entities in a tough trading environment. Actions taken by the new management team to stem losses and address the reduction in revenues within the production divisions should be reflected in the financial performance for 2014.

"The Board believes that in the medium and long-term, the Company will benefit from a strategy to significantly enhance the rights arm of the Group and tangible progress has been made in the last two years to grow revenue and profits in this division. Consequently, while TV production output and new commissions remain a priority, the major growth prospects for DCD Media lie in the development of the successful and highly-respected international rights business.

"We have started the new financial year in a significantly better position than the last, having reduced the cost base and improved the quality of earnings across the Group. While there are still challenges, we look forward to the Group returning to sustained profitable growth ahead of our original plans.

"As previously announced, DCD Media lost significant long-term opportunities in the US TV production market; however the Company intends to focus on the considerable potential of opportunities in the UK market while maintaining and developing a range of live opportunities in the US."

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Executive Chairman's review

The financial year to 31 December 2013 was a further year of transition and consolidation for the Group as the turnaround work continues. The most notable achievements of the year included the significant growth of the rights business and the continued paydown of bank debt. With a challenging year behind us, we believe we have placed the business on a strong footing for future growth with an expectation of higher quality earnings going forward.

Key to the improvement of the Group has been the investment in key creative business winners who will help to stabilise earnings from the production businesses. During the year, the Board ensured the creative teams had strong prospects and the resources to act on the many development opportunities being presented to the Group. However, we believe that the short-term opportunities lie in the successful activities of the London based production development teams.

The Group further streamlined costs in the year with a reduction in personnel at almost all management levels in response to weaker than expected performance in production. In general, operating expenses were further reduced to a manageable level reflecting the reality of the still challenging trading conditions.

In response to the strong performance of the rights division, the Executive team has been conducting ongoing detailed business and operations reviews of the Group, which have now resulted in an organisational restructure and a refocus on strategic objectives designed to grow market share in rights activities in the global markets and development of production activities in the UK.

We believe DCD Media businesses are well-placed to consolidate on this work, targeting additional development opportunities both in the UK and the US.

During 2012, DCD Rights secured a deal with shareholder Timeweave to create a new fund for the acquisition of third-party distribution rights, positioning this key part of the business to build up a significant library of content. This fund has enabled the rights business to grow and saw projects acquired under the deal in 2013 such as I Found the Gown and Mr & Mrs Murder.

Post-production house, Sequence, delivered the Group's strategic goal of creating production cost-efficiencies and synergies. Sequence continues to assert itself in the post-production marketplace, securing a number of key contracts with the UK's foremost programme makers.

Corporate highlights of the year

Restructuring investment funding from major shareholders

In May 2013, the Group's largest shareholders agreed to lend a further £1.0m in the form of new convertible loan notes, having an interest rate of 10% and a conversion price of 0.5p (£5 following the share consolidation). These notes are due for repayment on 30 May 2015 if not previously converted. At the AGM in June, shareholders granted approval for the sub-division of the Company's issued ordinary share capital into new ordinary shares of 0.5p each and new deferred shares of 0.5p each, followed immediately by the consolidation of the Company's issued ordinary share capital into new ordinary shares of £5 each.

DCD Rights Expansion

DCD Rights has now expanded its acquisition team following strong international factual sales and new acquisitions during the year. The Group's distribution arm had a strong performance fuelled by high-quality programme acquisitions made through its distribution fund in the three key genres: Drama, Factual, and Music.

In the Drama genre, the latest major Australian series acquisition Mr & Mrs Murder was an international sales success with an all rights sales to North America following its launch at the MIP TV market, whilst award winning dramas Rake, The Slap and The Straits continued to sell and break new markets.

Strategic report

Strategic outlook

The Executive team continues to focus on developing the rights business and rationalising the production entities to help create a stable platform for future profitable growth, whilst maintaining a measured commitment to encouraging new creative talent across the Group.

With the major shareholders having financially stabilised the business by relieving it of its largest debt burden, the Executive team has focused on diminishing its long-term bank debt, freeing the business from financial uncertainty.

As mentioned, DCD Rights is showing growth potential with a scalable model. The Board believes the team led by the highly-experienced Nicky Davies Williams has demonstrated its capability supported by the Timeweave rights acquisition fund.

In order to achieve growth in the rights business, the Board emphasises the need to increase funding into the rights model and a range of discussions are underway to this end.

In addition, DCD Media's core production element is also scalable and, with new investment, is well placed to grow in the UK market and potentially win new business in the US where a number of opportunities are being developed.

The Board recognises the strengths of DCD Media as a large independent vertically-integrated broadcast media business. The successful acquisition of third party rights and exploitation of the Group's existing intellectual property has delivered increased market share. Consequently, the Group has shifted the weight of business towards distribution and rights supported by quality content production as well as a continued focus on developing revenue streams across digital platforms.

Review of divisions for the year to 31 December 2013

Production

The DCD Media production division comprises the following UK and US-based brands:

Matchlight Glasgow, UK Rize USA London, UK

September Films USA LA, California September Films UK London, UK

Prospect Cymru London, UK Prospect London, UK

These well-established, independent production companies have a strong track record in producing high-quality viewing covering a broad spectrum of programming including Entertainment, Factual, Current Affairs, Reality and Daytime (Lifestyle and Cookery).

The output of each organisation is overseen by DCD Media and complimented by the Group's Post-Production, Rights and Distribution arms.

Matchlight

Since inception in 2009, Matchlight has positioned itself at the forefront of television excellence. The Glasgow-based company has produced documentary, history, arts, current affairs and popular factual programmes for all major UK channels including BBC One, Two, Three and Four, ITV1, Channel 4, Channel 5, and BBC Scotland.

In 2013, building on the previous year's Scottish BAFTA award-winning success, Matchlight produced a number of high quality commissions for a variety of audiences, including:

· a second series of Dangerous Drivers' School transmitted on Channel 5 in January and was sold internationally by DCD Rights;

· a one-off documentary Wicca: A Very British Witchcraft aired in August on Channel 4 who also commissioned two Dispatches films for Spring viewing: The Truth About Junior Doctors, presented by Dr Christian Jessen and Celebs, Brands & Fake Fans, which became the most-tweeted Dispatches programme ever recorded;

· in October 2013, Helen Castor returned to present a 3-part series Medieval Lives: Birth, Marriage, Death for BBC4; and

· in December a BBC1 special Panorama: All in a Good Cause aired to great acclaim.

During 2013 Matchlight also filmed a one off special for BBC Scotland's Burns' Night celebrations in January 2014 and commenced new commissions for both the BBC and Channel 4.

Rize USA

Rize USA, a co-venture between Founder and Creative Director Sheldon Lazarus and DCD Media, launched in 2011 as a factual and reality producer with offices in London and Los Angeles.

Rize is represented by CAA in the US and has a first-look deal with leading news and picture agency Caters News in the UK, which provides exclusive access to international news stories.

In its first year Rize secured business worth approximately £2.5 million from major broadcasters on both sides of the Atlantic, which generated valuable IP to be exploited worldwide by the Group's distributer, DCD Rights.

Its 2012 BBC2 four-part primetime wedding series A Very British Wedding aired in Spring 2013 and was followed by a Channel 4 current affairs special The Alps Murders in June, and the acclaimed 3-part series Liberty of London for the channel's Christmas audience.

In the US, Memory Games 2013 premiered in July on the Science Channel.

September Films USA

During the year, the Group invested resources into development activity resulting in broadcaster engagement across a range of funded projects. Disappointingly, the team were not able to capitalise on these opportunities and consequently the US operation has been downsized. However, DCD Media remains committed to the development of opportunities in the US and the team is pursuing two significant projects with a reasonable expectation that at least one will become a commercial success which will enable further growth into the US market where DCD Media has traditionally enjoyed a strong market presence.

September Films UK

Similarly, the UK arm of September Films was showing promise throughout 2013 with the team engaged in funded taster and pilot development work. Operating in one of the world's most competitive markets and despite various setbacks, we are delighted to report that the foundation work laid in 2013 with a successful primetime pilot for ITV has yielded a commission to develop the traditionally long-running Celebrity Squares hosted by Stars Wars actor and popular TV presenter, Warwick Davis. Besides applying themselves to delivering a world-class production for ITV, the team are focused on winning new commissions with an improved slate of activity now emerging from the London-based team.

Rights and Licensing

DCD Rights

DCD Rights saw the benefit of the Timeweave rights acquisition fund deal struck by the division last year and enjoyed a profitable year in 2013, with a significant increase in turnover against the previous year of 46.7%. This was driven by the acquisition of a further 200 hours of new programming for sale during the year, building the size of the catalogue to approximately 2,000 hours.

The successes included a $1.1m sale to a multi-national cable network as well as the launch of a third season of popular Australian drama series - Rake, which sold to over 35 territories. Additionally, DCD Rights secured two major network deals in the UK, with The Moody's comedy drama bought by BSkyB and crime series Mr and Mrs Murder going to Channel 5.

In the US, a further major network sale was concluded with the CW Network for the Penn & Teller Fool Us primetime magic series. NBC Network announced production of an American version of the multi award winning Australian drama The Slap delivering format production fees to the division derived from an earlier format deal struck with NBCU in the previous year.

DCD Publishing

DCD Publishing is an agency specialising in 360 degree brand development in all areas such as television, book publishing, consumer products, brand endorsements, public appearances and DVD.

The company's talent division represents a broad range of clients including Russell Grant, Flavia Cacace-Mistry, Vincent Simone, Kate Spicer, Simon Mann, Jack Monroe (A Girl Called Jack), Deborah Lickfett (Metropolitan Mum) The Duchess of Northumberlandand William Banks-Blaney (William Vintage).

Major music publishers EMI, Chrysalis, peermusic, Carlin and Sony/ATV are also represented by DCD Publishing for music merchandising providing access to over six million songs.

In 2013, DCD Publishing secured a number of exclusive, lucrative deals with QVC. The first project was a dance fitness DVD - Zalza starring Russell Grant and Flavia Cacace. This was an instant success, selling 15,000 DVDs in 24 hours. This was followed Flavia and Vincent's very own School of Dance boxset and Jodie Prenger's Fitness Blasts.

At the beginning of 2013, DCD Publishing signed a number one bestselling food writer and blogger Jack Monroe, quickly selling her book rights to Penguin and later on in the year brokering a deal with Sainsbury's for Jack to be a face of their Basics range. Other book deals signed in 2013 include William Vintage and Montezuma's chocolate.

On behalf of Deborah Lickfett (Metropolitan Mum) we negotiated a number of deals with top brands including, Persil and Nespresso.

DCD Publishing worked with look-alike photographer Alison Jackson on securing an advertising campaign with Schloer which appeared in the national newspapers.

Post-Production - Sequence Post

The London based post-production house was acquired by DCD Media in February 2012 in a strategic move to drive synergies from production-related activity provided by the Group.

The acquisition boosted Group profitability (working for high profile third-party clients across all television, film and commercial genres), and in-house capabilities as an effective high-end service provider to DCD's production arms.

Sequence Post has equally benefitted from this synergy, experiencing a sharp increase in business through an expanded client base.

A pioneer of Apple based work-flows, in 2013 Sequence Post launched as the first totally file based, video deck free, HD post house in the UK, allowing clients to switch easily between all mainstream non-linear editing platforms and video formats. Responding to client demand, Sequence extended their facilities, with the development of a new online and grading room and an equipment upgrade.

This year Sequence has produced work for companies such as: JJ Stereo, Newman Street (part of FremantleMedia UK), Shiver (part of ITV Studios), Mizone, IMG Sports, Lemonade Money, Matchlight, Rize USA and Waddell Media.

Projects included a variety of Channel 4 spring programmes (Dispatches: Celebs, Brands & Fake Fans, Young Father Return to Love Random Acts, Nick Hewer Countdown to Freetown and The Alps Murder) as well as Plan It Build It for BBC daytime, Ibiza Rocks (MTV), and IMG's Rolex Spirit Of Yachting Show.

Earlier in the year, Sequence provided grading and finishing for a Mizone sports drink commercial and conducted the entire finishing workflow for a 90 minute ground-breaking multi-camera live performance of Plan B on Tour directed by Paul Caslin in the autumn.

Performance

At a turnover level, the Group delivered £14.2m in revenue compared to a comparative of £16.1m in 2012, largely as a result of reduced production activity from the US production arm.

The Group made an operating loss for the year of £3.0m (2012: £1.9m), which is stated after impairment and amortisation of intangible assets, including goodwill and trade names.

Adjusted EBITDA and adjusted PBT are the key performance measures that are used by the Board, as they more fairly reflect the underlying business performance by excluding the significant non-cash impacts of goodwill, trade name and programme rights amortisation and impairments.

The headline adjusted EBITDA for the year ended 31 December 2013 was a loss of £0.9m (2012: profit of £0.8m which included an accounting profit on sale of Digital Classics Distribution Ltd and Digital Classics Distribution Rights Ltd). Adjusted EBITDA on continuing operations was a loss of £0.9m in 2013 compared to a profit of £0.1m in 2012.

Adjusted loss before tax for the Group was £1.1m in 2013 against an adjusted profit of £0.6m for the year to 31 December 2012. On a continuing basis, the Group made an adjusted PBT loss of £1.1m, against a loss of £0.1m in 2012.

Performance during the year was disappointing as a result of a number of elements including:

· Underperformance of the UK and US production business to deliver revenues

· Cost structure unsupported by reduced revenues

· Re-organisation and restructuring costs within the Group as part of the strategy to refocus on the rights business and development of UK television production activity

The following table represents the reconciliation between the operating loss per the consolidated income statement and adjusted profit before tax (PBT) and adjusted earnings before interest tax depreciation and amortisation (EBITDA):

Intangible assets

The Group's consolidated income statement and consolidated statement of financial position has again this year been impacted by the amortisation and impairment of intangible assets, see note 5.

The Group has seen amortisation and impairment of goodwill and trade names for the year of £1.7m (2012: £1.2m) and a net amortisation and impairment of programme rights of £4.4m (2012: £5.5m).

The accounting implications, in terms of the effect of reporting impaired intangible assets under International Financial Standards, are explained below.

Goodwill

September Holdings, an operating unit within the production cash generating unit (CGU), had its performance impaired in the year due to non-conversion of paid development into commissions that were required to replace revenue generated by Bridezillas. More recently, September Films UK has successfully commissioned a series of Celebrity Squares and has several developments in the pipeline and management now consider the forecast cash flows and profitability of the business support the revised carrying value of the goodwill. An impairment of £0.9m was therefore applied to the goodwill, leaving a carrying value of £2.2m (2012: £3.1m). Despite the quality programming produced by Matchlight in the year and its relatively strong pipeline, management have reassessed its carrying value and have booked an impairment of £0.1m to write off all remaining goodwill associated with this investment.

Trade names

Trade names are amortised over ten years on a straight line basis and a non-cash expense of £0.5m was expensed in the year relating to trade names. In addition, the remaining value attributable to Prospect Pictures Ltd was fully written down as there is currently no development in the pipeline for this company. The carrying value of trade names after the amortisation and impairment was £1.5m (2012: £2.1m).

Restructuring costs

Restructuring costs of £0.1m have been disclosed in the consolidated statement of comprehensive income and relate to redundancy payments.

Earnings per share

Basic loss per share in the year was 656p (year ended 31 December 2012: 509p loss per share) and was calculated on the loss after taxation of £2.7m (year ended 31 December 2012: loss £1.3m) divided by the weighted average number of shares in issue during the year being 414,281 (2012: 25,743). The number of shares has increased due to conversions of debt to equity in the prior year, detailed in note 21 to the consolidated financial statements.

Balance sheet

The Group's net cash balances have substantially reduced to £0.5m at 31 December 2013 from £3.1m at 31 December 2012 as a result of repaying bank loans, settling historic Group liabilities and investing in production development throughout the year.

A substantial part of the Group cash balances represent working capital commitment in relation to its rights business and is not considered free cash.

During the year repayments of £0.5m against bank debt were made.

In May 2013, the Group's largest shareholders agreed to lend a further £1.0m in the form of new convertible loan notes, having an interest rate of 10% and a conversion price of 0.5p. These notes are due for repayment on 30 May 2015 if not previously converted. At the AGM on the 28 June 2013, following the approval of the capital re-organisation, the conversion price became £5.

The Group has an available gross overdraft facility of £0.8m and a net facility of £0.55m.

Shareholders' equity

Retained earnings as at 31 December 2013 were £(57.7m) (2012: £(55.0m)) and total shareholders' equity at that date was £3.3m (2012: £6.0m).

Amounts attributable to non-controlling interests

At the year end, the Group held an 80% stake in Rize Television Ltd and had attained the remaining equity in Matchlight Ltd that it did not own at the prior year end. The Group has recognised a loss of £0.1m (2012: loss of £0.006m) attributable to non-controlling interests in the statement of comprehensive reserves and an amount of (£0.1m) (2012: (£0.005m)) as equity representing the non-controlling interest of the Group as at the year end.

Current trading

DCD Rights has had a good start to 2014 winning distribution deals for several high quality programmes as well as the Open University catalogue and is expected to show continued growth in 2014. However, while the production businesses have shown some good wins, these will not generate revenue until later in the year.

Notwithstanding the increased activity in DCD Rights and a positive pipeline in productions, cash reserves remain low. The Directors have reviewed future cash requirements and, allowing for a lower level of production income and the continued settlement of historic and current creditors, believe the Group needs additional funding of approximately £0.8m. Having considered the available options, it was determined that the Company issue a further £0.8m of principal convertible loan notes to the major shareholders. The new loan note instrument was signed on 30 May 2014 and has a maturity date of 31 May 2016. The convertible element of the loan notes is subject to shareholder approval of, inter alia, the authorisation to issue sufficient shares to satisfy the conversion rights, which will be put to shareholders in the upcoming AGM. The notes accrue interest at 10% per annum from the date of issue unless the authorities are not approved in which case interest increases to 20% per annum, back dated to date of issue. The new notes will be convertible at £1.00 per share. The conversion price of the convertible loan notes that were signed in May 2013 will be changed to match that of the new 2014 convertible loan notes.

As part of the issue of new loan notes, the Directors intend to undertake a restructure of the share capital of the Company. The Companies Act 2006 prevents any company from issuing any share at a price which is less than its nominal value. Accordingly, in order to enable the Company to proceed with any conversion of the new convertible loan notes at £1.00 when the current nominal value of its ordinary shares is £5.00, the Company proposes to divide each existing ordinary share into one new ordinary share of £1.00 each and four new deferred shares.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out above. The financial position of the Group, its cash position and borrowings are set out in the Performance section of the statement. In addition note 20 to the consolidated financial statements sets out the Group's objectives, policies and processes for managing its financial instruments and risk.

The Group's day-to-day operations are funded from cash generated from trading and the use of an overdraft facility of £0.55m, with other activities funded from a combination of equity and short and medium term debt instruments. The overdraft facility is scheduled for review by the Group's principal bankers, Coutts & Co ("Coutts"), on 30 June 2014.

In August 2012, DCD Media entered into a new loan facility with Coutts. The facility was for £1.2m, incurs interest at LIBOR plus 3.5% and is scheduled to be repaid in quarterly instalments to 30 November 2014, but is repayable on demand. In the year to 31 December 2013 the Group repaid £0.48m of this loan, leaving a balance of £0.48m at 31 December 2013. The Group continues to make its quarterly payments, having paid a further £0.24m of this term loan since year end.

The Directors have a reasonable expectation that the overdraft facility will continue to be available to the Group for a period in excess of 12 months from the date of approval of these financial statements and the term loan will be available until fully repaid in November 2014.

In considering the going concern basis of preparation of the Group's financial statements, the Board have prepared profit and cash flow projections which incorporate reasonably foreseeable impacts of the ongoing challenging trading environment. These projections reflect the management of the day to day cash flows of the Group which includes assumptions on the profile of payment of certain existing liabilities of the Group. They show that the day to day operations will continue to be cash generative. The forecasts show that the Group will continue to utilise its term loan and overdraft facility provided by its principal bankers for the foreseeable future.

As noted above, the forecasts also show a potential funding requirement of approximately £0.8m, which has been satisfied by the issue of additional convertible loan notes to the major shareholders (subject to shareholder approval of certain matters at the AGM).

The Directors' forecasts and projections, which make allowance for potential changes in its trading performance, show that, with the ongoing support of its shareholders, lenders and its bank, the Group can continue to generate cash to meet its obligations as they fall due.

Through the recent negotiations with its shareholders and its principal bankers, the Directors have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Key Performance Indicators (KPIs)

Principal risks and uncertainties

General commercial risks

The Group's management aims to minimise risk of over-reliance on individual business segments, members of staff, productions or customers by developing a broad, balanced stable of production and distribution activities and intellectual property. Clear risk assessment and strong financial and operational management is essential to control and manage the Group's existing business, retain key staff and balance current development with future growth plans. As the Group operates in overseas markets it is also subject to exposures on transactions undertaken in foreign currencies.

Production and distribution revenue

Revenue is subject to fluctuations throughout the year. As the business grows, a broader range of activities is expected to smooth out these fluctuations.

Funding and Liquidity

Costs incurred during production are not always funded by the commissioning broadcaster. The Group policy is to maintain its production cash balances to ensure there is no financial shortfall in the ability to produce a programme. It is inherent in the production process that the short-term cash flows on productions can sometimes be negative initially. This is due to costs incurred before contracted payments have been received, in order to meet delivery and transmission dates. The Group funds these initial outflows, when they occur, in two ways: internally, ensuring that overall exposure is minimised; or, through a short term advance from a bank or other finance house, which will be underwritten by the contracted sale. The Group regularly reviews the cost/benefit of such decisions in order to obtain the optimum use from its working capital.

The Group's cash and cash equivalents net of overdraft at the end of the period was £0.5m (31 December 2012: £3.1m) including certain production related cash held to maintain the Group policy. The Group debt consists primarily of an overdraft and conventional bank debt. Details of interest payable, funding and risk mitigation are disclosed in notes 9, 18 and 20 to the consolidated financial statements.

It is Group policy to continue to seek the most optimum structure for its borrowings and this policy will be pursued over the coming year.

Exchange rate risk

The Group's exposure to exchange rate fluctuations has historically been small based on its revenue and cost base. Dependent on the extent to which the Group's international revenue grows an appropriate hedging strategy will be introduced.

D Craven

Executive Chairman and Chief Executive Officer

30 May 2014

Consolidated income statement for the year ended 31 December 2013

2012 earnings per share comparatives have been restated for the effect of the share consolidation mentioned in note 21 to the financial statements.

Consolidated statement of comprehensive income for the year ended 31 December 2013

Consolidated statement of financial position as at 31 December 2013

Company number 03393610

The financial statements were approved and authorised for issue by the Board of Directors on 30 May 2014.

DCM Craven

Director

Consolidated statement of cash flows for the year ended 31 December 2013

Consolidated statement of changes in equity for the year ended 31 December 2013

Notes to the consolidated financial statements for the year ended 31 December 2013

The principal activity of DCD Media Plc and subsidiaries (the Group) is the production of television programmes in the United Kingdom and United States, and the worldwide distribution of those programmes for television and other media; the Group also distributes programmes on behalf of other independent producers.

DCD Media Plc is the Group's ultimate parent company, and it is incorporated and domiciled in Great Britain. The address of DCD Media Plc's registered office is Glen House, 22 Glenthorne Road, London, W6 0NG, and its principal place of business is London. DCD Media Plc's shares are listed on the Alternative Investment Market of the London Stock Exchange.

DCD Media Plc's consolidated financial statements are presented in Pounds Sterling (£), which is also the functional currency of the parent company. The accounts have been drawn up to the date of 31 December 2013.

1 Principal accounting policies

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by European Union ("Adopted IFRSs"), and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under Adopted IFRSs.

Basis of preparation - going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Executive Chairman's Review and the Strategic Report. The financial position of the Group, its cash position and borrowings are set out in the financial review section of the Strategic Report. In addition, note 20 to the financial statements sets out the Group's objectives, policies and processes for managing its financial instruments and risk.

The Group's day-to-day operations are funded from cash generated from trading and the use of an overdraft facility of £0.55m, with other activities funded from a combination of equity and short and medium term debt instruments.

The Group's overdraft facility has been extended by its principal bankers until 30 June 2014. In August 2012 DCD Media entered into a new loan facility with Coutts & Co bank. The facility was for £1.2m, incurs interest at LIBOR plus 3.5% and is repayable in quarterly instalments to 30 November 2014. In the period to 31 December 2013 the Group repaid £0.48m of this loan, leaving a balance of £0.48m at 31 December 2013. The Group continues to make its quarterly payments, having paid a further £0.24m of this term loan since year end. The Directors have a reasonable expectation that both the term loan and the overdraft facility will continue to be available to the Group for the foreseeable future.

During the year, the Group raised £1.0m through the issue of convertible loan notes to major shareholders. The loan note instrument was signed on 31 May 2013, has a maturity date of 30 May 2015 and accrues interest at 10% per annum.

In considering the going concern basis of preparation of the Group's financial statements, the Board have prepared profit and cash flow projections which incorporate reasonably foreseeable impacts of the ongoing challenging market environment. These projections reflect the ongoing management of the day to day cash flows of the Group and allow for slower production income and the continued settlement of historic creditors.

Based on these projections, the Directors believe the Group needs additional funding of approximately £0.8m. Having considered the available options, it was determined that the Company issue a further £0.8m of principal convertible loan notes to the major shareholders. The new loan note instrument was signed on 30 May 2014 and has a maturity date of 31 May 2016. The convertible element of the loan notes is subject to shareholder approval of, inter alia, the authorisation to issue sufficient shares to satisfy the conversion rights, which will be put to shareholders in the upcoming AGM. The notes accrue interest at 10% per annum from the date of issue unless the authorities are not approved in which case interest increases to 20% per annum, back dated to date of issue. The new notes will be convertible at £1.00 per share. It is also proposed that the conversion price of the convertible loan notes that were signed in May 2013 will be changed to match that of the new 2014 convertible loan notes.

The Directors' forecasts and projections, which make allowance for reasonably possible changes in its trading performance, show that, with the ongoing support of its lenders and its bank, the Group can continue to generate cash to meet its obligations as they fall due.

Through the recent negotiations with its shareholders, its loan note holders and its principal bankers, the Directors, after making enquiries, have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

The financial statements do not include the adjustments that would result if the Group or Company were unable to continue as a going concern.

Changes in accounting policies

A number of standards and interpretations have been issued by the IASB in relation to investment entities, consolidated financial statements and disclosures on the recoverable amount for non-financial assets. Those that were effective for the year end commencing 1 January 2013 have been reviewed and no adjustments deemed necessary. Those becoming effective from 1 January 2014 have not been adopted by the Group. Management have reviewed these standards and believe none of these standards, are expected to have a material effect on the Group's future financial statements.

Revenue and attributable profit

Production revenue represents amounts receivable from producing programme/production content, and is recognised over the period of the production in accordance with the milestones within the underlying signed contract. Profit attributable to the period is calculated by capitalising all appropriate costs up to the stage of production completion, and amortising production costs in the proportion that the revenue recognised in the year bears to estimated total revenue from the programme. The carrying value of programme costs in the statement of financial position is subject to an annual impairment review.

Where productions are in progress at the year end and where billing is in advance of the completed work per the contract, the excess is classified as deferred income and is shown within trade and other payables.

Distribution revenue arises from the licensing of programme rights which have been obtained under distribution agreements with either external parties or Group companies. Distribution revenue is recognised in the statement of comprehensive income on signature of the licence agreement, and represents amounts receivable from such contracts.

Revenue from sales of DVDs and other sales is the amounts receivable from invoiced sales during the year.

All revenue excludes value added tax.

Basis of consolidation

The Group financial statements consolidate those of the Company and of its subsidiary undertakings drawn up to 31 December 2013. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Non-controlling interests

For business combinations completed prior to 1 July 2009, the Group initially recognised any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the acquiree's net assets. For business combinations completed on or after 1 July 2009 the Group has the choice, on a transaction by transaction basis, to initially recognise any non-controlling interest in the acquiree which is a present ownership interest and entitles its holders to a proportionate share of the entity's net assets in the event of liquidation at either acquisition date fair value or, at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. Other components of non-controlling interest such as outstanding share options are generally measured at fair value. The Group has not elected to take the option to use fair value in acquisitions completed to date.

From 1 July 2009, the total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. Before this date, unfunded losses in such subsidiaries were attributed entirely to the Group. In accordance with the transitional requirements of IAS 27 (2008), the carrying value of non-controlling interests at the effective date of the amendment has not been restated.

Goodwill

Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 July 2009, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. For business combinations completed prior to 1 July 2009, cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date are treated as an adjustment to cost and, in consequence, result in a change in the carrying value of goodwill.

For business combinations completed on or after 1 July 2009, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, re-measured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Property, plant and equipment

Property, plant and equipment are stated at cost net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value by equal annual instalments over their expected useful lives. The rates generally applicable are:

Short leasehold property improvements Over the life of the lease

Motor vehicles 25% on cost

Office and technical equipment 25%-33% on cost

The assets' residual values and useful lives are reviewed at each statement of financial position date and adjusted if appropriate.

Other intangible assets

Trade names

Trade names acquired through business combinations are stated at their fair value at the date of acquisition. They are amortised through the statement of comprehensive income, following a periodic impairment review, on a straight line basis over their useful economic lives, such periods not to exceed 10 years.

Programme rights

Internally developed programme rights are stated at the lower of cost, less accumulated amortisation, or recoverable amount. Cost comprises the cost of all productions and all other directly attributable costs incurred up to completion of the programme and all programme development costs. Where programme development is not expected to proceed, the related costs are written off to the statement of comprehensive income. Amortisation of programme costs is charged in the ratio that actual revenue recognised in the current year bears to estimated ultimate revenue. At each statement of financial position date, the Directors review the carrying value of programme rights and consider whether a provision is required to reduce the carrying value of the investment in programmes to the recoverable amount. The expected life of these assets is not expected to exceed 7 years.

Purchased programme rights are stated at the lower of cost, less accumulated amortisation, or recoverable amount. Purchased programme rights are amortised over a period in-line with expected useful life, not exceeding 7 years.

Amortisation and any charge in respect of writing down to recoverable amount during the year are included in the statement of comprehensive income within cost of sales.

Leased assets

Property, plant and equipment acquired under finance leases or hire purchase contracts are capitalised and depreciated in the same manner as other property, plant and equipment, and the interest element of the lease is charged to the statement of comprehensive income over the period of the finance lease. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability by using an effective interest rate. The related obligations, net of future finance charges, are included in liabilities.

Rentals payable under operating leases are charged to the statement of comprehensive income on a straight line basis over the period of the lease.

Inventories

Inventories comprise pre-production costs incurred in respect of programmes deemed probable to be commissioned, and finished stock of DVDs available for resale. Where it is virtually certain production will occur, pre-production costs are capitalised in inventories and transferred to intangibles on commencement of production. Finished stock of DVDs available for re-sale is also included within inventories. Inventories are valued at the lower of cost or recoverable amount.

Programme distribution advances

Advances paid in order to secure distribution rights on third party catalogues or programmes are included within current assets. Distribution rights entitle the Company to license the programmes to broadcasters and DVD labels for a sales commission, whilst the underlying rights continue to be held by the programme owner. The advances are stated at the lower of the amounts advanced to the rights' owners less actual amounts due to rights owners based on sales to date.

Impairment of non-current assets

For the purposes of assessing impairment, assets are grouped into separately identifiable cash-generating units. Goodwill is allocated to those cash-generating units that have arisen from business combinations.

At each statement of financial position date, the Group reviews the carrying amounts of its non-current assets, to determine whether there is any indication those assets have suffered an impairment loss. If any such indication exists the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Goodwill is tested for impairment annually. Goodwill impairment charges are not reversed.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value and value in use based on an internal discounted cash flow evaluation.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents. Bank overdrafts are shown in current liabilities on the statement of financial position. Overdrafts are included in cash and cash equivalents for the purpose of the cash flow statement.

Assets held for sale

Non-current assets and disposal groups are classified as held for sale when:

· they are available for immediate sale;

· management is committed to a plan to sell;

· it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;

· an active programme to locate a buyer has been initiated;

· the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and

· a sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

· their carrying amount immediately prior to being classified as held for sale in accordance with the Group's accounting policy; and

· fair value less costs to sell.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

Discontinued operations

The results of operations disposed during the year are included in the consolidated statement of comprehensive income up to the date of disposal.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.

Discontinued operations are presented in the consolidated statement of comprehensive income as a single line which comprises the post-tax profit or loss of the discontinued operation along with the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations.

Equity

Equity comprises the following:

· Share capital represents the nominal value of issued Ordinary shares and Deferred shares;

· Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue;

· Equity element of convertible loanrepresents the part of the loan classified as equity rather than liability;

· Translation reserve represents the exchange rate differences on the translation of subsidiaries from a functional currency to Sterling at the year end;

· Own shares held represents shares in employee benefit trust;

· Retained earnings represents retained profits and losses; and

· Non-controlling interest represents net assets owed to non-controlling interests.

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on:

· the initial recognition of goodwill;

· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

· investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

· the same taxable Group company; or

· different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Foreign currency

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date. Exchange differences arising on the settlement and retranslation of monetary items are taken to the statement of comprehensive income.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at the exchange rate ruling at the statement of financial position date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising are classified as equity and transferred to the Group's retained earnings reserve.

Financial instruments

Financial assets and financial liabilities are initially recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument at their fair value and thereafter at amortised cost.

Trade receivables

Trade receivables are recorded at their amortised cost less any provision for doubtful debts. Trade receivables due in more than one year are discounted to their present value.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are reported in a separate allowance account with the loss being recognised within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Convertible loans

Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan note and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity.

Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense of the liability component is calculated by applying the effective interest rate to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note.

Bank borrowings

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the year to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. Finance charges are accounted for on an effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise.

Trade payables

Trade payables are stated at their amortised cost.

Equity instruments

Equity instruments issued by the Group are recorded as the proceeds received, net of direct costs.

Retirement benefits

The Group contributes to the personal pension plans for the benefit of a number of its employees. Contributions are charged against profits as they accrue.

2 Prior year adjustments

During 2013, it was noted that some accruals that had been adjusted in the prior year adjustments noted below were actually valid and these have been re-instated into the comparative figures by increasing accruals and reducing retained earnings by £257k.

In 2012 and in certain cases, the Directors reanalysed corresponding amounts to make their disclosure more meaningful.

Following a review of the application of the Group's income recognition policies, the Directors recognised the appropriate treatment of amounts recognised in turnover and cost of sales relating to production revenue and production costs during the previous years. The effect of this adjustment was, in years prior to 2012, to decrease the value of cumulative turnover by £2,263k, decrease the value of cumulative cost of sales by £2,516k, increase the value of accrued income brought forward by £134k, decrease the value of accrued costs brought forward by £119k and to increase profit and loss reserves brought forward by £253k.

The Directors also applied the Group's policy on programme rights to Matchlight in 2012, and restated the prior year comparatives. This resulted in £896k of production cost being capitalised in 2011, offset by an amortisation of £772k. The net result of £124k increased profit and loss reserves and intangible assets in 2011.

As reported last year, the Directors reviewed the timing of the recognition of tax credits recoverable in the US. This resulted in the tax credit for a year being booked as recoverable in that year. The credit had previously been recognised when received. This resulted in an increase to profit and loss reserves brought forward into 2012 of £121k and a similar increase to current assets.

A review of opening consolidation entries was also performed in 2012. As a result, retained earnings in 2011 were decreased by £717k. Intangible assets were reduced by £81k, other assets by £42k, prepayments by £23k and accruals and deferred income increased by £863k. A review of 2011 consolidation entries revealed that administration costs were overstated by £353k, increasing retained earnings brought forward into 2012.

In addition, a further £115k was added to the impairment of programme rights in 2011, decreasing retained earnings brought forward into 2012.

The impact of these adjustments in on the net assets allocable to the non-controlling interests in 2011 was a reduction of £60k.

In total, as a consequence of the adjustments noted above, 2011 retained earnings were reduced by £41k.

3 Segment information

Under IFRS 8 the accounting policy for identifying segments is based on the internal management reporting information that is regularly reviewed by the senior management team.

The Group has three main reportable segments:

· Production - This division is involved in the production of television content.

· Rights and Licensing - This division is involved with the sale of distribution rights, DVDs, music and publishing deals through the aggregate of the following reporting lines: DCD Rights, DC DVD, DCD Music and DCD Publishing.

· Post-Production - This division is involved in post-production and contains Sequence Post.

The Group's reportable segments are strategic business divisions that offer different products to different markets, while its Other division is its head office function which manages other business which cannot be reported within the other reportable segments. They are managed separately because each business required different management and marketing strategies.

Uniform accounting policies are applied across the entire Group. These are described in note 1 of the financial statements.

The Group evaluates performance of the basis of profit or loss from operations but excluding exceptional items such as goodwill impairments. The Board considers the most important KPIs within its business segments to be revenue and segmental EBITDA and profit.

Inter-segmental trading occurs between the Rights and Licensing division and the production divisions where sales are made of distribution rights. Royalties and commissions paid are governed by an umbrella agreement covering the Group that applies an appropriate rate that is acceptable to the local tax authorities.

Segment assets include all trading assets held and used by the segments for their day to day operations. Goodwill and trade-names are not included within segmental assets as management views these assets as owned by the Group. Segment liabilities include all trading liabilities incurred by the segments. Loans and borrowings and deferred tax liabilities incurred by the Group are not allocated to segments. Details of these balances are provided in the reconciliations below:

2013 Segmental Analysis - income statement

2013 Segmental Analysis - financial position

2012 Segmental Analysis - income statement

2012 Segmental Analysis - financial position

4 Earnings per share

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The calculation of diluted loss per share is based on the basic loss 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 other dilutive options and other potential ordinary shares.

If convertible loan balances held at the year-end were converted at their respective conversion prices the number of shares issued would be 629,129 (2012: 257,645 shares if all the convertible loan balances held at the prior year end had been converted at their respective conversion prices. 2012 comparatives have been restated for the share consolidation).

The consequence of this transaction has not been considered for either the 2013 or 2012 figures as the effect would be anti-dilutive.

5 Goodwill and intangible assets

Net book value

Goodwill and trade names

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that business combination.

Details of goodwill allocated to cash generating units for which the amount of goodwill so allocated is as follows:

Goodwill and trade names are allocated to CGUs for the purpose of the impairment review. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected profitability of the CGUs over the future seven years. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks inherent in the CGUs.

The Board performs an annual impairment review of all intangible assets, including goodwill and trade names. The recoverable amounts of all the above CGUs have been determined from value in use calculations. Detailed budgets and forecasts cover a two year period to December 2015. The forecasts are then extrapolated for a further three years using growth rates noted below and then a further two years to December 2020 with no growth. The Board uses this seven year period of projection as it believes it is reasonably aligned with the expected lifespan of a TV production. The impairments arising from this value in use calculation are recorded below.

Management has assessed the value of September Films Holdings, Prospect Pictures Limited and Matchlight Limited and has considered the risk associated with the refocusing of the business and re-assessed future cash flows and consequently has reduced the value of goodwill by £1.1m and trade names by £0.15m.

The key assumptions used for value in use calculations are the discount factor and growth rates applied to the forecasts.

The rate used to discount the forecast cash flows is 12.1% for all CGUs. If the discount rates used were increased by 3% to 15.14%, it is estimated that the recoverable amount of goodwill would have impaired further by approximately £0.33m. If the discount rates were decreased to 9.14%, it is estimated that the recoverable amount of goodwill would be increased by approximately £0.38m.

Varying growth rates are applied dependent upon the historical growth of the CGU. These growth rates are only applied for the five years subsequent to the initial period of formally approved budgets.