7DIG.L Regulatory News (7DIG)

6 June 2011

UBC Media Group plc

Final Results for the year ended 31 March 2011

UBC Media Group (AIM: UBC), the multimedia content and services company, has today published Full Year Results for the year ended 31 March 2011.

Operational highlights

§ Content businesses continue expansion into video and multimedia

o Revenue from video increases by 61% to £0.49m (2010: £0.31m)

o Digital video content now 11% of group turnover (2010: 6%)

o Across its content businesses UBC supplies over 12% of BBC Radio outsourced production as well as supplying 250 commercial stations

o Over 70 Online video content productions for commercial clients

§ Software and Interactive businesses expand successfully into Mobile applications

o Software revenues climb 22%

o Contract with Astral Media, Canada's largest radio group, to supply apps for their 83 radio stations in the next 6 months

o 38 radio apps 'live' in North America and the UK this month

o Mobile application revenues £0.14m (2010: £0.01m)

§ Legacy digital radio liabilities removed in deals with Bauer and MXR

o £2.2m settlement with Bauer to clear £3.1m long term liability

o Release from MXR spectrum payment obligations

Financial highlights

§ Strong Balance Sheet with no debt or long term liabilities

§ Cash at year end £4.3m (2010: £8.4m)

§ Net profit after tax £0.06m (2010: £0.21m)

§ Cash generated from operating activities £0.04m (2010: £0.06m outflow)

§ Continuing revenue down 10% to £4.5m (2010: £4.9m)

o Content Division down 13%

o Software and Interactive up 22%

§ Gross profit £1.1m (2010: £1.4m)

§ Underlying* administrative expenses reduced by 16% in the second half of the year

§ Underlying* operating loss for the year £0.5m (2010: £0.3m)

§ Final Dividend declared of 0.158 pence per share, total dividend for the year of 0.263 pence per share (2010: 0.256 pence).

* Underlying administrative expenses/operating loss is stated after excluding return on investments, restructuring costs, amortisation of intangible assets and exceptional deal related costs.

Simon Cole, Chief Executive, said:

"In a tough year in the traditional media sector, we have successfully pushed ahead with our strategic objectives: developing our content businesses into digital video, moving our interactive business into mobile apps and removing our legacy digital radio liabilities.

We end the year a company with a reduced overhead base, rising revenues in the new areas of our business, a healthy cash balance and no debt or long-term liabilities.

Our challenge now is to continue that growth and to use our strong balance sheet wisely".

Enquiries:

Chief Executive's review

Overview

For UBC, in common with much of our industry, the year ended 31 March 2011 was a challenging one in which we had to adapt quickly to changing circumstances around us whilst keeping our focus on our strategic objectives; building our video content and interactive businesses whilst releasing the company from the liabilities of our legacy digital radio business. Our core customers - notably the commercial and BBC radio stations - were affected by the global economic slowdown and by reductions in public service expenditure. This led us to take action in the first half of the year to reduce costs and adapt to the changed landscape. 

I'm pleased to report that, despite a lack of growth overall for the full year, in the second half of the year we made considerable progress. Our business is normally seasonal in this way, however this year we have achieved a permanent reduction in our overhead costs by 16% whilst improving our second half turnover by 17% and our gross profit by 45% leading to a break-even second half, in line with the prior year. Despite operating losses for the year, a disciplined focus on cost control and working capital management has meant no cash was used in operating activities during the year and following the successful settlement of our digital radio spectrum contracts we have a healthy cash balance at year-end with no debt or long-term liabilities.

In terms of our key objectives: we have further reduced the reliance of our content businesses on the BBC, seen a growth in the percentage of our business coming from video production and seen real year-on-year growth in both turnover and margin in our Interactive division, where the mobile apps business which we launched last year has begun to deliver revenues.

We have emerged from a period of restructuring with a strong and clean Balance Sheet. In July 2010, we removed the last remaining hangover from our legacy digital radio business, with a cash payment to Bauer of £2.2m in order to settle a long-term liability of £3.1m and a release from our spectrum obligations on the MXR multiplexes. This leaves us with cash, no debt and an ability to concentrate on growing our business.

Content

When we acquired branded content company Lynx in August 2009, we said that our objective was to use this company - which was seeing growing revenues from video content - as a catalyst to move us from an audio-centric production business to be able to take advantage of what we believe is a shift in the economics of video and TV production.

The arrival of the Internet as a means of distributing video has led to a shift in the way such content is produced. Digital technology has meant that small teams of multi-skilled individuals and computer-based editing systems are challenging the traditional models of television production. This world is familiar to us - it is the way radio has been produced for many years; we have therefore seen it as an opportunity to broaden our customer base at a time when margins are challenged across the entire production industry. We believe that the correct model is no longer to see each production as an individual project but rather to look for as many revenue opportunities as possible from a single 'content event'. 

A good example of this approach would be our work at the Cambridge Folk Festival this year, where we produced a series of radio programmes for BBC Radio 2, three television programmes for Sky Arts and also used the material to release directly to consumers in downloadable form online as well as via a CD and DVD. This was one of two live music events produced by our Smooth Operations division this year for Sky Arts, which have already been re-commissioned for the forthcoming year (2011/12).

Revenue from video has grown by 61% in the last 12 months and now represents 11% of Group revenues - up from 6% in 2010. Elsewhere, the same approach has led to our Entertainment News division to develop a twice-daily video bulletin for websites as a compliment to the six bulletins a day we produce for 125 commercial radio stations. The video service, which commenced on April 1 2011, is underwritten in a deal with GTN, who syndicate our radio bulletins and is already being used by several radio station websites.

The Lynx acquisition has not only provided a catalyst for other divisions within the group, it has continued to grow its own video business, making branded online content for clients such as Land Rover / Jaguar, Tesco and Red Bull and contributing 23% of the Group's Gross Margin. Whilst the traditional sponsorship and promotions business at Lynx has been challenged by the economic climate, we believe that growing our branded video content revenues will provide a more secure long-term model.

The BBC has always provided a strong foundation to our radio content business with long-term commissions giving good forward visibility. Along with others in the industry, we have been lobbying for the last 18 months for the BBC to outsource a greater proportion of its radio production - as it does in TV. We have been successful in this respect, with the BBC Trust asking the BBC's management for a plan, which sees the potential for a doubling in outsourced production. However, this progress has come at a time when the BBC is looking to cut its overall budgets by some 20% to match its 5 year licence-fee agreement reached this year with the Government. This year, we have seen the effects of the cutbacks whilst still waiting for the increased outsourcing to take effect. We strongly believe that one of the ways that the BBC can make cuts in the cost of production, whilst still maintaining the quality of its output, is to take advantage of the market forces and commission a greater number of hours of programmes from external suppliers.

I'm happy to say that we have seen this process beginning with a commitment from BBC Radio 2 and 6 music, together our largest customers, to increase dramatically their outsourcing. In a deal which commenced on 1 April 2011, we have doubled the number of hours we are producing for them from our base in Manchester with the start of the new Mark Radcliffe and Stuart Maconie programme on BBC 6 Music. As the BBC continues to pressure margins, increasing our output for them in this way is the way we will protect profitability and we are confident of further opportunities.

Whilst we wish to grow our business with the BBC in absolute terms, a strategic aim, outlined at the time of our results in June 2010, is to see a steady lowering of our reliance on them as a customer. The BBC now represents 47% of our turnover, down from 49% last year. We are targeting a figure below 40%, through diversification.

A major drain on our profitability in the first half of the year was the integration of Above The Title ("ATT"), acquired in February 2010. As noted in our Interim statement, this integration proved more difficult than we would have wished and required withdrawal from unprofitable areas of business and reduction in staff numbers. However, I can report that this work, which has absorbed a great deal of management time, is now complete. As part of this process, we have integrated back-office functions of all of our content businesses more efficiently, which has helped reduce our overhead and we are increasingly seeing our content companies work together on bids for contracts.

Software and Interactive

This year, our Interactive division, Unique Interactive, has been able, as expected, to capitalise on the rapidly developing demand from broadcasters for interactive tools to take advantage of new devices - especially in the mobile arena - which are becoming the media players of the future. 

Our experience in providing data services to broadcasters over the last ten years and our investment in the development of mobile 'Apps' has borne fruit in this period, with turnover in Interactive up 22% and margins up 36%. This has been driven by a more than tenfold increase in revenue from mobile apps - to £142,000 in the year. Most of our radio station Apps have only been released in the last six months and we therefore expect continuing growth.

By the end of June, we expect to have 37 radio stations in the UK in our App portfolio and a further 20 Astral Radio stations in Canada; these stations, together, cover nearly 11 million radio listeners. This figure will rise to around 22 million when all of the 83 Astral stations launch their apps later in 2011. As smart phone adoption continues to grow, we expect an increasing level of radio listening via mobile apps. Enders Analysis have estimated that by 2015, internet-centric smart phone penetration in the UK will be 75% and mobile internet usage will reach 28% of all time spent online. 

Our revenue models are a mixture of cash, revenue guarantees and advertising revenue. At the moment, the bulk of our revenues are coming from cash sales to clients and radio stations, for whom we are building apps. However, we anticipate that as interest from media buyers at advertising agencies in this platform increases from the current small base, we will see revenues from the advertising inventory that we retain as part of our contracts with stations.

As the global radio industry goes online, the tools, which our Interactive division have developed for managing metadata, have become increasingly in demand. These allow, for example, the song currently playing to be displayed on the displays of analogue and digital radios automatically. Customers like Sirius XM in the US and Bauer Radio in the UK have been using our software for many years. However, with stations increasingly moving online to connect with their listeners, new opportunities are emerging.

One of the most significant this year was the launch of the 'UK Radioplayer', an Internet based 'software radio' which was released in April 2011 and is the product of a unique agreement between all the UK's main commercial broadcasters and the BBC. Unique Interactive was chosen in a competitive tender to provide both development of the station information systems and ongoing support. Last month, the Radioplayer had 5.7 million users and 22.5 million listening sessions, underlining the way radio listening is changing in the UK and placing our software division at the heart of that change.

As we have previously identified, the drivers for growth in our business are mobile app technology and digital video content. In both these areas we have made good progress this year. Organic growth to the level we require will be measured and, with our strong balance sheet, acquisitions are a tempting route to faster headline growth. However, as our Chairman makes plain in his statement, having identified and passed on multiple opportunities in the last year, we do not intend to be rushed into doing rash deals whilst we continue to have a solid business with the safety of a cash reserve.

Chairman's Statement

After another year of global economic and political uncertainty the core business continues to be relatively resilient. Turnover from continuing operations fell 10% to £4.5m (2010: £4.9m) with net profit after tax of £0.06m (2010 £0.21m). The Group has a strong cash position, no debt or significant long term liabilities and a heritage of making quality content and software for many of the most respected broadcasters in the world. Those are solid foundations on which to grow an international content and software business.

Despite significant effort we have so far not managed to achieve our desired rate of progress towards this strategic goal, either through organic growth or acquisition. Our focus in organic growth is through investment in areas such as mobile applications and video content where results are modest but encouraging. As regards acquisitions we have explored many meaningful opportunities over the year yet have not been sufficiently confident of acceptable returns on investment to proceed. We continue to hold the view that we should not be rushed or overpay for acquisitions particularly in a climate that remains very fragile and in a sector where our skills and balance sheet have considerable value. We continue to explore opportunities although are mindful of the cost and distraction of the process.

Whilst investing in areas which we perceive can promote organic growth we have also cut general overheads as we strive for operating profitability in a business that is currently sub scale, having reduced our underlying administrative expenses, as defined in the Financial Review, by 16% in the second half of the year.

Cash flow from operating activities has been neutral during the year although overall cash has reduced by £4.1m to £4.3m. This is predominantly as a result of the one-off settlement payment to Bauer of £2.2m, £0.45m used to purchase our own shares, deferred cash consideration of £0.5m paid for Lynx, investments and advances totalling £0.6m and an interim dividend of £0.2m. During the year we acquired 16,524,040 of our own shares at a total cost of £0.45m which are held in treasury. We have paid an interim dividend of 0.105 pence per ordinary share on 17 December 2010. The Board has recommended a final dividend of 0.158p per share, which if approved by shareholders at the AGM would result in a total dividend for the year of 0.263 pence per ordinary share (2010: 0.256 pence).

Last year I reported our belief that over time potential regulatory changes in the UK media sector could create revenue opportunities for us. That change is under way as highlighted in your CEO's review. This should provide opportunities for additional business for UBC as a major supplier to BBC Radio. This progress is bitter sweet as it comes at a time when the BBC is looking to cut its overall budgets by some 20% to match its 5-year licence-fee agreement reached this year with the Government. Whilst we have already felt the pain of significant BBC cuts, we have yet to recognise any value from the additional expected business and so believe that this will lead to business growth - though also require substantially more effort.

In these challenging times our staff have once again demonstrated increasing ingenuity and tenacity in meeting the demands of both clients and the business for which the Board as always extends our sincere appreciation. John Falcon, the Company Financial Director, has resigned with effect from 24 June and we thank him for his unstinting efforts on behalf of the Group. As the execution of our strategic goal progresses we consider it wise to delay appointing a permanent Financial Director until we can more accurately determine the ideal candidate fit and so have determined to appoint an interim FD. We are delighted to welcome back Jenny Donald, who was Financial Director of UBC from November 2000 to December 2007, to fulfil that role.

Whilst we are disappointed not to have made greater progress in the period it is informative that my closing comments last year are as accurate today as they were then. Accordingly we continue to believe it is appropriate to progress cautiously, particularly regarding acquisitions.

Financial Review

In the year to 31 March 2011 Group revenues from continuing operations decreased by 10% to £4.46 million (2010: £4.94 million). The Content division reported revenues down by 13% to £3.85 million (2010: £4.44 million) and the Software and Interactive division revenues were increased by 22% to £0.61 million (2010: £0.50 million).

Gross profit decreased by 17% to £1.14m (2010: £1.38m) and administrative expenses increased to £2.0m (2010: £1.9m).

Underlying operating loss, which excludes return on investments, restructuring costs, amortisation of intangible assets and exceptional deal related professional and acquisition costs, was £495,000 loss (2010: loss: £277,000). Reported operating loss was £903,000 (2010: loss £536,000) - see following table for a reconciliation with underlying and reported operating figures. 

After interest and dividend income of £109,000 (2010: £91,000), the Group's underlying loss from continuing operations before tax was £386,000 (2010: loss £186,000). The Group loss from continuing operations before tax was £794,000 (2010: £445,000).

After the profit of £797,000 from discontinued activities (2010: £758,000) and a tax credit of £56,000 (2010: charge: £99,000), the Group's profit for the period was £59,000 (2010: £214,000).

Reported earnings per share, including the profit from discontinued operations, was 0.03 pence (2010: 0.11 pence).

Reconciliation with underlying and reported operating figures.

Cash and cash flow

In the year to 31 March 2011 UBC had a cash outflow of £4.14 million (2010: £2.06 million outflow) including a cash inflow of £0.04 million from operating activities (2010: £0.06 million outflow). Cash outflow from discontinued activities was £2.39 million (2010: £0.46 million inflow) which included a £2.20 million payment to Bauer for the settlement of the multiplex spectrum contracts which ran until 2013. £0.45 million was spent (2010: £nil) on the purchase of 16,524,040 of the companies own shares which are held in treasury. £0.2m was distributed as a dividend (2010: £0.5m) and £1.1m was spent on investing activities (2010: £2.0m).

At 31 March 2011, UBC had cash in the bank of £4.28 million (2010: £8.41 million).

Goodwill

In the year to 31 March 2011, following the integration of the acquisitions and restructuring of the content business, the Goodwill allocations have been re-presented as per Note 7, from the three individual entities into two distinct Cash Generating Units; Commissioned Content and Ad Funded Content. The decrease of the Goodwill carrying value is due to a reduction in costs based on the earnout adjustments for Lynx Content and Above The Title Limited and also in relation to the disposal of the Audiobook business of Above The Title Limited.

Discontinued Operations

On 21 June 2010 UBC announced the sale of its 7.5% stake in MXR for £136,000. As part of the agreement UBC was also released from its spectrum contracts that ran until 2015. This enabled UBC to release the provision held against these future commitments and resulted in a net profit to discontinued operations of £387,000.

On 7 July 2010 UBC settled an early release with Bauer for its multiplex spectrum contracts which ran until 2013. A one-off cash payment of £2.2m was paid to Bauer. After releasing the provisions held against these contractual liabilities the net result was a net profit to discontinued operations of £509,000.

On 24 February 2011 UBC agreed to sell the AudioBooks business for £10,000. The margins in this business were not as strong as was hoped, therefore it was decided to dispose of the business. The result of this was a net loss to discontinued operations of £97,000.

Profit/(loss) attributable to discontinued operations

Share buyback

On 25 January 2011 UBC completed a share buy-back of 16,524,040 ordinary shares of 1p each in the Company at a price of 2.75p per share representing 8.5 per cent of the issued share captial of the Company. UBC hold the Ordinary Shares in Treasury.

Dividend

The Group paid a dividend during the year of £206,000 (2010: £499,000), 0.105 pence per share. The Board of Directors is proposing a final dividend of 0.158 pence per ordinary share, resulting in a total dividend for the year of 0.263 pence per ordinary share (2010: 0.256 pence). The ex-dividend date will be 29 June 2011 and, subject to shareholder approval at the Company's Annual General Meeting, the dividend will be paid on 29 July 2011 to shareholders of record on 1 July 2011.

Ex-dividend date 29 June 2011

Record date 1 July 2011

Pay date 29 July 2011

Consolidated statement of comprehensive income

Year ended 31 March 2011

Consolidated statement of financial position

Year ended 31 March 2011

Consolidated cash flow statement

Year ended 31 March 2011

Consolidated statement of changes in equity

Year ended 31 March 2011

Notes to the financial statements

Year ended 31 March 2011

1. Accounting policies

Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs in June 2011.

New Standards and Interpretations

In the current year, the following new and revised Standards and Interpretations have been adopted but with no material impact on the financial statements.

Standards affecting the reported results or financial position

IFRS 3(2008) Business Combinations

IAS 27(2008) Consolidated and Separate Financial Statements

IAS 28(2008) Investments and Associates

The following amendments were made as part of Improvements to IFRSs (2009).

IFRS 2 (amended) Share-based Paymnent

IAS 17 (amended) Leases

IAS 39 (amended) Financial Instruments: Recognition and Measurement

Standards not affecting the reported results or financial position

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfer of Assets from Customers

IFRS 2 (amended) Group Cash-settled Share-based Payment Transactions

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Ventures

IFRS 12 Disclosures of Involvement with other Entities

IFRS 13 Fair Value Measurement

IAS 24 (amended) Related Party Disclosures

IAS 32 (amended) Classification of Rights Issues

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 14 (amended) Prepayments of a Minimum Funding Requirement

Improvements to IFRSs (May 2010)

1. Accounting policies (continued)

The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 April 2013 will impact both the measurement and disclosures of Financial Instruments.

The directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods.

Principal risks and uncertainties

There is a risk that the Group will lose key programming contracts with the BBC, but this is mitigated by the fact that the majority of contracts by value are long-term and the BBC has committed to increase the percentage of its output that is commissioned from the independent radio production sector. The Group is also seeking to increase its revenues from programming commissions from parties other than the BBC. There are uncertainties surrounding the ultimate size of the markets for the Group's digital software products. However, the Group believes there is commercial potential for these products and continues to invest in both product and market development.

The other main risks to the Group are the retention of people, especially key executives. Retention of the key executives of the Group is recognised as a risk and is managed by the incentive and remuneration arrangements referred to in the report and accounts. Financing of the Group's activities is covered in the Financial Review in the report and accounts.

Going concern

The Board is satisfied that the Group balance sheet remains strong. We remain well-financed with considerable cash reserves and no foreseeable requirement for further finance. The Group balance sheet showed cash reserves at 31 March 2011 of £4,279,000 (2010: £8,414,000).

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient cash available to continue in operational existence throughout the forecast period and beyond. As a consequence, the Board believes that the group is well placed to manage its business risks successfully despite the current uncertain economic outlook. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Directors' Responsibility Statement

The responsibility statement below has been prepared in connection with the Annual Report and Financial Statements for the year ended 31 March 2011, which is not included within this announcement.

We confirm that to the best of their knowledge:

• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

This responsibility statement was approved by the board of directors on 3 June 2011 and is signed on its behalf by:

Simon Cole John Falcon

Chief Executive Officer Finance Director

2. Business and geographical segments

The Group has adopted IFRS 8 Operating segments with effect from 1 April 2009.

For management purposes, the Group is organised into two continuing operating divisions - Content and Software and Interactive. These divisions comprise the group's operating segments for the purposes of reporting to the group's chief operating decision maker, the Chief Executive Officer.

Principal activities are as follows:

Content - The principal activity of the division is the production of audio and video programming for broadcasters and advertising to domestic markets.

Software and Interactive - The principal activity of the division is the development and sale of software and data services to the radio industry both in the UK and overseas markets.

The Group was also previously involved in digital radio multiplex spectrum licences; any income or expenditure arising in respect of these is recognised in discontinued operations as described in note 6.

Segment information about these businesses is presented below:

2. Business and geographical segments (continued)

Geographical Information

The Group's operations and assets are located in the United Kingdom. The Group's sales outside the United Kingdom are predominantly made by the software and interactive division.

The group's revenue from external customers and information about its segments by geographical location is detailed below:

3. Operating loss for the year

Operating loss for the year has been arrived at after charging:

4. Tax

Corporation tax is calculated at 28% (2010: 28%) of the estimated assessable profit for the year. 

The Company has re-measured it deferred tax assets and liabilities following the reduction in future rates of corporation tax to 26%, for the year ended 31 March 2012, which has increased the deferred tax income of £4,000 by £33,000.

The charge for the year can be reconciled to the profit per statement of comprehensive income as follows;

5. Earnings per share

Basic earnings per share is calculated by dividing the profit/(loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share. For a loss-making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. 

Reconciliation of the profit and weighted average number of shares used in the calculation are set out below:

6. Discontinued operations

Shown below is a summary of discontinued operations:

Net cash outflow from discontinued operations was £2,388,000 (2010: cash inflow £459,000), included within this was cash received in investing activities of £nil (2010: £1,813,000), the other cash flows relate to cash used in operating activities.

(i) Commercial division

On 2 March 2009 the entire share capital of The Unique Broadcasting Company Limited was purchased by Global Traffic Network (UK) Limited, a subsidiary of Global Traffic Network Inc, a US registrant. The assets of Programme Production and Data and Interactive businesses were not included in the sale and were transferred out of the Company to The New Unique Broadcasting Company Limited a newly incorporated and wholly owned subsidiary of UBC Media Group plc. The sale was for an initial cash consideration of £9,000,000 and contingent consideration based on revenue achieved by the Commercial division in the years ending December 2009, 2010 and 2011.

On 24 July 2009, UBC announced the settlement of the earnout on the sale of the Commercial Division to Global Traffic Network for £1,950,000.

Included within current year discontinued operations are ongoing expenses related to the disposed business which amounted to a loss of £2,000 (2010: profit £14,000).

6. Discontinued operations (continued)

(ii) Cliq Music Downloading Service

On 21 June 2010 UBC announced the sale of its 7.5% stake in MXR for £136,000. As part of the agreement UBC was also released from it spectrum contracts that ran until 2015. This enabled UBC to release the provision held against these future commitments and resulted in a net profit to discontinued operations of £387,000.

(iii) Classic Gold Digital

On 7 July 2010 UBC settled an early release with Bauer for its mulitplex spectrum contracts which ran until 2013. A one off cash payment of £2.2m was paid to Bauer. After releasing the provisions held against these contractual liabilities the net result was a net profit to discontinued operations of £517,000.

(iv) Above the Title - Audiobooks

On 24 February 2011 UBC agreed to sell the Above The Title Audiobooks business for £10,000. The margins in this business were not as strong as was anticipated and it was decided to dispose of the business.

7. Goodwill

In the year to 31 March 2010 the Goodwill was allocated to the cash-generating units (CGU) that were expected to benefit from the business combinations. This was allocated as below:

In the year to 31 March 2011, following the integration of the acquisitions and restructuring of the content business, it is no longer appropriate to present the Goodwill allocations on the same basis. After reduction in costs, the carrying amount of goodwill has been allocated to the following CGUs:

The £576,000 reduction in costs in the year relates to the earnout adjustments for Lynx Content and Above the Title Limited and the £50,000 disposal relates to the sale of the Audiobook business.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

7. Goodwill (continued)

The recoverable amounts of the CGU 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 changes to selling prices and direct costs during the period. Management estimates discount rates using benchmark cost of capitals for the sector along with the cost of capital of the group. Management have discussed the appropriatness of the discount rate for the different CGU and determined it is appropriate to the nature of each business. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next year, applies industry growth rates and extrapolates cash flows into perpetuity. The Group then prepares sensitivity analysis on the variables to ensure robustness of the carrying value.

The key assumptions used in these calculations are:

- FY 2011-12 budgeted earnings before interest, tax, depreciation and amortisation ("EBITDA")

- Discount rate 8.80% (2010: 7.70%)

- Growth rate of 2.25% as per the long-term growth rate of the U.K.

- Sensitivity analysis applied of 10% reduction in budgeted EBITDA and 0% EBITDA growth

- The Group projects cash flow derived from the most recent financial information used by management for the next year based on growth as stated above.

An increase in the discount rate by the following percentage points would result in the carrying amount of goodwill being reduced to its recoverable amount:

8. Intangible assets

Customer relationships and other intangible assets are amortised over their estimated useful lives, which is on average five years.

9. Provisions

On 28 May 2010 the Group concluded an agreement with the seller of Radio Lynx Content, Music Marketing Services Limited, to advance £500,000 of the deferred cash consideration in exchange for the deferred consideration cap being reduced from £800,000 to £700,000. Subsequently management have calculated the final earnout balance as £527,000, leaving an outstanding provision of £27,000.

The Earnout provision for ATT relates to deferred consideration on the acquisition of Above The Title in the prior year. The earnout is contingent on the performance of the business and assets acquired. Under performance of the business has resulted in management revising the estimate of this deferred consideration to £nil.

Included within acquisition related provisions are potential disputed contractual obligations arising from acquisitions in the prior year.

The On 21 June 2010 the Group announced the sale of its 7.5% stake in MXR for £136,000. As part of the agreement UBC was also released from its spectrum contracts that ran until 2015. This enabled UBC to release the provision held against these future Digital license commitments and resulted in a net profit to discontinued operations of £387,000.

On 7 July 2010 the Group settled an early release with Bauer for its multiplex spectrum contracts which ran until 2013. A one-off cash payment of £2.2m was paid to Bauer. After releasing the provisions held against these Digital licence contractual liabilities the net result was a net profit to discontinued operations of £509,000.

10. Acquisitions

On 20 August 2009, UBC announced the acquisition of the trade and assets of "Radio Lynx", a key player in the growing business of marketing through content. The purchase was satisfied by an initial cash consideration of £1,600,000 and a deferred contingent cash earnout of up to £800,000 based on the operating profit generated by Radio Lynx in the 12 full months immediately following completion.

On 15 February 2010, UBC acquired the assets of Above the Title, a respected producer of content for a range of broadcasters including the BBC. The purchase was satisfied by an initial cash consideration of £85,000 and a deferred earnout to be paid in a mixture of cash and shares which, based on the current share price, would lead to a maximum earnout of £1,000,000, which will become payable if an annualised operating profit of £333,333 is achieved in the 24 months immediately following completion.

On 24 July 2009, UBC also announced the acquisition of the trade and assets of the part of the Commercial Division responsible for Sponsorship, Promotions and Interactive Marketing (trading as "IntaMedia") from Global Traffic Network Inc (GTN) for a cash consideration of £50,000. At 31 December 2009, it was decided to discontinue IntaMedia. The goodwill and trading losses in the period to 31 December 2009 were written off and included in discontinued operations (See Note 6).

These transactions have been accounted for by the purchase method of accounting. In the year to 31 March 2011 the deferred consideration due on the Radio Lynx and Above the Title acquisitions was amended in line with the contractual agreements reducing goodwill by £577,000.

10. Acquisitions (continued)

Radio Lynx contributed £1,421,000 to revenue and £357,000 to gross profit for the period between the period of acquisition and the end of the 2010 financial year.

Above the Title contributed £131,000 to revenue and £33,000 to gross profit for the period between the period of acquisition and the end of the 2010 financial year.

Had these business combinations been effected as at 1 April 2009, the revenue of the group from continuing operations would have been increased by £1,049,000 and profit before tax would have increased by £89,000 for the 2010 financial year.