DCD.L Regulatory News (DCD)

11 Oct 2005 06:00

Embargoed: 0700 hours 11 October 2005 Digital Classics Plc ("Digital Classics" or the "Group") Final Results for the Year Ended 30 June 2005 Highlights * Turnover up by approx. ‚£1 million on last year to ‚£3.1 million * Gross profit improved by approx. ‚£0.5 million to ‚£1.6 million * Launch of new DVD label * Record profits in television production division * Successful merging of two distribution libraries, with cost benefits Chairman's StatementIntroductionI am pleased to present the annual results for Digital Classics for a periodthat has seen some significant developments. Most notably, the Group hassuccessfully merged and streamlined its two distribution libraries into one toform the largest library of audio-visual classical music and arts programmesand DVDs in the world, whilst the television production division has producedrecord profits. Towards the end of the year a new initiative was created - theDigital Classics DVD label, for which the Directors have high hopes for thefuture.Financial ReviewThe Group's turnover during the period was ‚£3,134,000, an increase of ‚£980,000,or 45%, on 2004 (‚£2,154,000).Our Gross Profit was ‚£1,629,000, an increase of ‚£525,000 or 48%, on 2004 (‚£1,104,000).The pre-tax profit (before interest, goodwill and rights amortisation) was ‚£34,000, in the same order as 2004 (‚£33,000). After interest, goodwill andrights amortisation, the Group's losses were ‚£616,000 (2004 loss ‚£590,000).The balance sheet shows improved net assets of ‚£6,877,000, up ‚£106,000, from ‚£6,771,000 in 2004. As noted previously however, the Directors believe that thisgives little idea of the underlying state of the Group's assets as, forinstance, no valuation at all has been attributed to the valuable catalogue ofprogrammes acquired from the former RM Associates Distribution Limited.Net current assets stand at ‚£733,000, up from a net liability in 2004 of ‚£7,000.Our underlying trading position is broadly in line with expectations, though aspreviously announced, certain revenues have been delayed into 2006. We had forinstance expected to conclude the sale of the broadcast rights to Iambic's"Michael Jackson" documentary in the U.S. during the period; however, due tothe singer's trial ending very close to the Group's year end, this event islikely to materialise in the current financial year.Review of DivisionsDigital Classics Distribution Limited (DCD)DCD's year was one of consolidation, as the two libraries merged to form aformidable distribution business within the classical music and arts arena.By June, economies of scale had seen ongoing cost savings of an annualised rateof over ‚£450,000 per year, though with notice periods, redundancies and othersettlements, the main benefit is expected to come in the current financialyear. A temporary effect of this wholesale re-organisation was a slight drop inanticipated turnover, though a bigger factor was the holding back of DVD rightswhich would otherwise have been sold to third-party labels, in order to releasethe titles ourselves to the greater benefit of the Group.DCD has begun to leverage its position as the largest distributor in its field,aiming towards a situation where new linear and on-demand television channelswill carry nothing but its titles, and to this end has continued to acquirefurther new programming.New media such as IPTV, Video-on-Demand etc. is anticipated to be a significantarea of new growth, though revenues are unlikely to be material during the yearto June 2006.Digital Classics DVDAt the end of the period under review, the company created its own-brand DVDlabel, raising ‚£760,000 in a limited placing for this purpose. The label is dueto launch in time for the Christmas 2005 retail market, with a mixture ofworld-music, rock-based and classical titles. Further titles are intended to bereleased every month thereafter, contributing to a label that is expected togrow to be one of the largest of its kind within a relatively short time. Thecontinuing double-digit annual growth in the retail DVD market, combined withtumbling costs for the production of DVDs, have made the creation of anown-brand label far more potentially profitable than licensing to third-partylabels, as has been the practice hitherto.Digital Classics Education (DCE)This subsidiary had a quiet year largely due to the very slow uptake of theGovernment's Electronic Learning Credit Scheme, which provides funds forschools to buy digital products such as DC's "Music Suite". Nonetheless,renewal rates for Music Suite's annual licence are at over 90% and it remainshighly praised by reviewers and schools, while its cost base is very low.A new module has been added for the 2005/6 academic year and DCE is indiscussions with other parties with a view to maximising future sales.DCE also remains a member of a "preferred bidder" consortium for the BBCDigital Curriculum; this is a ‚£50million six-year project. Although the BBC hasnot yet tendered for projects within DCE's range of genres, it is expected todo so shortly.Iambic Productions Limited (Iambic)Iambic had its best-ever year in terms of pre-tax profit and margin, despiteturnover being lower than expected.Its Michael Jackson documentary, completed and paid for in the previous year bythose broadcasters which made early commitments to it, made no further salesduring the period because of Michael Jackson's trial, whose verdict came toonear the year-end to complete any licence agreements. 2006 is therefore set tobenefit from revenues previously expected in 2005.Iambic produced programmes about The King's Singers, piano virtuoso RichardMeyrick and Stuart Sutcliffe, John Lennon's closest friend and an originalmember of the Beatles. It also made its third "Abba" programme for ITV,generating gross profit of over ‚£450,000 for its three pre-sales during theyear. Further sales of this programme, as with the Michael Jackson film, fallinto 2006 and beyond.Iambic's planned televising of the World Poker Masters tournament was delayedby the Tsunami; originally planned for Langkawi in the Indian Ocean it hasfinally been re-located to Northern Spain. It is in the nature of televisionschedules that production dates are subject to events outside a producer'scontrol; one other project planned for 2005 has also moved across the year-endto 2006, though the effect of this on turnover was dampened by a smallerproject moving the other way.Iambic's major post-balance sheet event has been the setting up of a newdivision called IP Entertainment, headed by a producer with a successful trackrecord including "I'm A Celebrity, Get Me Out of Here", "Celebrity LoveIsland", "Poor Little Rich Girls" and other similar series. This is a low-costentry into the potentially lucrative areas of early-evening mainstreamentertainment and foremost entertainment formats, and IP Entertainment isalready in discussion with major broadcasters about new projects.Digital Classics.tvThis division has, in the period, begun to reposition itself in order to takeadvantage of the new broadband broadcasting opportunities as well as to enablethe Group to sell its own DVDs directly to the public and its television showsdirectly to broadcasters.OutlookThere are a number of opportunities to improve performance in the current year.These include, as noted above, economies of scale of over ‚£450,000 in DCD,first turnover from the new DVD label, and the benefits from the sales ofIambic's major completed programmes, including its Michael Jackson documentary.I congratulate Chris Hunt, our Chief Executive, on his skilful handling of thecomplex issues relating to the absorption of the RM distribution business,whilst driving a further improvement in Iambic's performance.The Group remains vigilant as to costs and will continue to pursue growthacross its divisions - the DVD label and IP Entertainment are examples of this.The Directors are also considering expansion through acquisition, though thiswill only be undertaken if demonstrable benefits to shareholders are expectedto ensue. I hope that my own years of experience in this area may be of help tothe Group.Digital Classics has taken further strides forward during the year to June2005, and every year its performance improves. The Directors are determinedhowever that its progress will not merely continue but accelerate. There willbe no easing up of efforts and we remain fully committed to maximise value forour shareholders.David ElsteinChairmanConsolidated Profit and Loss accountFor the year ended 30 June 2005 2005 2004 ‚£ ‚£ Group turnover 3,133,552 2,154,051 Cost of sales (1,504,113) (1,050,402) Gross profit/(loss) 1,629,439 1,103,649 Other operating income and charges (2,195,155) (1,644,929) Group operating loss (565,716) (541,280) Interest receivable and similar income 3,506 5,956 Interest payable and similar charges (2,071) (8,727) Loss on ordinary activities before (564,281) (544,051)taxation Tax on loss on ordinary activities (51,748) (45,555) Loss for the financial period (616,029) (589,606) Basic and diluted loss per share (0.08p) (0.15p)There were no recognised gains or losses other than those recognised in theprofit & loss account for the year. The accompanying notes and accountingpolicies form an integral part of these financial statements.Consolidated and Company Balance SheetsAs at 30 June 2005 Group Company Restated Restated 2005 2004 2005 2004 ‚£ ‚£ ‚£ ‚£ Fixed assets Intangible assets 6,007,583 6,622,708 376,587 505,235 Tangible assets 136,710 154,883 78,023 111,194 Investments in - - 4,983,730 4,983,730subsidiaries 6,144,293 6,777,591 5,438,340 5,600,159 Current assets Work in progress 169,093 169,093 - - Debtors 2,995,726 1,553,245 2,393,218 1,378,937 Cash at bank and in hand 24,214 335,055 76 264,946 3,189,033 2,057,393 2,393,294 1,643,883 Creditors: amounts (2,456,397) (2,064,026) (771,062) (516,082)falling due within one year Net current assets/ 732,636 (6,633) 1,622,232 1,127,801(liabilities) Total assets less current liabilities 6,876,929 6,770,958 7,060,572 6,727,960 Capital and reserves Called up share capital 1,297,752 1,201,502 1,297,752 1,201,502 Share premium account 19,441,349 18,815,599 19,441,349 18,815,599 Merger reserve 6,355,556 6,355,556 - - Profit and loss account (20,217,728) (19,601,699) (13,678,529) (13,289,141) Shareholders' funds 6,876,929 6,770,958 7,060,572 6,727,960 Equity shareholders' 6,418,525 6,312,554 6,602,168 6,269,556funds Non-equity shareholders' 458,404 458,404 458,404 458,404funds 6,876,929 6,770,958 7,060,572 6,727,960The financial statements were approved by the Board of Directors on 10thOctober 2005M BartonDirectorConsolidated cash flow statementfor the year ended 30 June 2005 2005 2004 ‚£ ‚£ Net cash outflow from operating activities (197,413) (2,461,612) Return on investments and servicing of finance Interest received 3,506 5,956 Interest paid (2,071) (8,727) Net cash inflow/(outflow) from returns on 1,435 (2,771)investments and servicing of finance Taxation (38,188) (43,451) Capital expenditure Purchase of tangible fixed assets (65,658) (205,107) Sale of tangible fixed assets 2,000 37,579 Deferred development expenditure - (42,810) Net cash outflow from capital expenditure (63,658) (210,338) Acquisitions and disposals Acquisition of subsidiary - (9,188) Expenses on acquisition of subsidiary - (61,730)undertakings Net cash outflow from acquisitions and - (70,918)disposals Financing Issue of shares - 2,959,544 Expenses paid in connection with share - (145,902)issues Repayment of loan (14,000) (200,000) New loan - 500,000 Net cash (outflow)/inflow from financing (14,000) 3,113,642 (Decrease)/increase in cash (311,824) 324,552Notes to accounts1. Basis of preparationThe financial information set out above does not constitute the group'sstatutory accounts for the years ended 30 June 2005 or 2004, but is derivedfrom those accounts. Statutory accounts for 2004 have been delivered to theRegistrar of Companies and those for 2005 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under theCompanies Act 1985, s 237(2) or (3).Programme rights have been reclassified from Tangible fixed assets toIntangible fixed assets. This has no impact on the net assets or profit andloss account for the periods.2. Loss per shareThe calculation of the basic loss per share is based on the loss attributableto ordinary shareholders divided by the average number of shares in issueduring 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 dividendsand interest, on the assumed conversion of all dilutive options and otherpotential ordinary shares. Loss 2005 Per share Loss 2004 Per share amount amount ‚£ Weighted ‚£ Weighted average pence average pence number of number of shares shares Basic loss per share Loss (616,029) 743,096,484 (0.08) (589,606) 384,512,000 (0.15) attributable to ordinary shareholders Due to the losses incurred in the year, share options outstanding at the yearend do not have a dilutive effect on the stated loss per share. As such, noseparate calculation is disclosed. The above calculations exclude the sharesallotted on 28 June 2005.3. Posting and availability of accountsThe Group's annual report and accounts will be posted to shareholders on 28thOctober 2005. Copies of the accounts will be available at 31 Eastcastle Street,London, W1W 8DL for a month after that date.Further information:Chris Hunt, Chief Executive: 0117 923 7222Nahid Burke, Manager of Corporate Affairs: 020 7636 1400Ben Simons, Hansard Communications: 020 7245 1100ENDDIGITAL CLASSICS PLC