DCD.L Regulatory News (DCD)

24 Mar 2005 07:00

Embargoed: 0700hrs, 24 March 2005 Digital Classics Plc ("Digital Classics" or the "Company") Interim Results for the six months to 31 December 2004 & Signing of Major Entertainment TV Deal Highlights * 75% increase in turnover against same period last year * 110% increase in gross profit against same period last year * Gross profit of ‚£678,000, pre-tax loss of ‚£499,000 after depreciation and amortization (same period last year ‚£323,000 and ‚£386,000 respectively) * After (uncapitalised) library consolidation database and digitization costs of approximately ‚£260,000 and depreciation of ‚£285,000, the underlying EBITDA profit for the period is approximately ‚£45,000 (same period last year EBITDA loss of ‚£112,000) * Seasonality plus catalogue investments and consolidation activity lead to positive outlook for second half of financial year with full year expectations unchanged * Iambic's four contracted productions all generate their main turnover in 2005 * Iambic expands into entertainment TV, signing a deal to televise a twice-yearly poker tournament, each one generating over ‚£400,000 turnover * Main benefit of economies of scale and cost-cuttings of over ‚£400,000 from RM Associates Distribution Ltd acquisition flows through in 2005 CHAIRMAN'S STATEMENTI am delighted to present the Company's first interim results since I becameChairman in February 2005. While I have known certain of the Directors andmanagement of Digital Classics for some time and am of course aware of itsprogress over the previous period, it is nonetheless the case that the eventscovered in this report occurred prior to my arrival. It has therefore seemedappropriate in this instance to present a Chief Executive's Report to describethe Company's activities and position during the period July to December 2004,and this follows below.David Elstein23 March 2005CHIEF EXECUTIVE'S REPORTThe main activity of the Company in the period from July to December 2004 wasthe growth and consolidation of the Digital Classics Distribution catalogue.The traditionally quiet summer period was used to begin the considerable workof merging, digitising and re-organising the library, including creating apowerful database and rights management system. Non-capitalised costs ofapproximately ‚£260,000 were linked to this activity, and our recentannouncement of ongoing annual cost-savings of over ‚£400,000 is connected tothe completion of this work.Despite the effects of this upheaval, turnover was 75% higher at ‚£1,268,666 andgross profit 110% higher at ‚£678,099 than the same period the previous year.Although there was a pre-tax loss of ‚£535,461 the subtraction of the cataloguecosts, tax and depreciation produce a positive underlying EBITDA for the periodof approximately ‚£45,000, against an EBITDA loss of ‚£112,000 in the same periodlast year.As was noted in the results for the full year to June 2004, this is a seasonalbusiness and the Directors continue to expect the majority of our turnover tobe recognised in the second half of the financial year. Iambic Productions hasfour projects in production, all of which produce their main revenues in 2005.One of these is a recurring format capable of bringing turnover ofapproximately ‚£900,000 per year. Other major productions are in advanced stagesof negotiation. The benefits of its documentary on Michael Jackson are alsoanticipated later in the year. The turnover of Digital Classics DistributionLimited is also expected to rise significantly following the libraryconsolidation work and indeed the division produced a post-tax profit of c‚£32,000 in December 2004. Consequently the Directors are not revising theirexpectations for the full financial year, and remain confident as to thestability and growth prospects of the Company.Iambic Productions LtdAfter a summer of programme developments, Iambic unveiled a slate of newprogrammes of which four are already signed and in production, with othersexpected to follow. Three are in line with Iambic's usual output - a concertand documentary with The King's Singers, the worlds top a cappella group; aconcert documentary with piano virtuoso Richard Meyrick; and a major newprogramme about the "Lost Beatle", Stuart Sutcliffe, John Lennon's closestfriend and original Beatles member, who died in suspicious circumstances in1962.The fourth project is however no fewer than 27 hours of television - the WorldPoker Masters tournament. This is a diversification for Iambic into the work offormats and sports rights, and is possibly the most significant addition toIambic's portfolio for many years. It is planned to become a twice-yearly eventwith pre-sale turnover of over ‚£400,000 each time.Add to this the anticipated revenues of Iambic's Michael Jackson documentaryand other projects close to commencement and the next six months looks set tobe very positive for the production unit. As for its reputation, Iambic's seveninternational awards including Emmies helped it maintain its position as theblue riband producer in its field.Digital Classics Distribution LtdAs noted above, this was a period of consolidation and building for the future.Contracts were signed that extend the division's portfolio of rights withlibraries such as RM Arts, locking in over a thousand titles. In addition, thedistributor began to acquire and co-produce a number of new programmes - 21major new titles between November and January - and these are expected togenerate substantially higher turnover than older programmes.At the same time, as the library consolidation comes to fruition, the Companyannounced over ‚£400,000 of ongoing annual cost-savings, all of which occurswithin the distribution division. Most of these efficiencies stem from theincreased automation and digitisation of the library system, which now requiresfar fewer back-office staff.Digital Classics EducationDigital Classics Education continued to sell its Music-Suite product to schoolson annual licenses, and has reported that over 90% of schools who licensed it ayear ago have renewed for a second year. Additionally new clients emerge everymonth generating turnover growth against a very low cost base.The division also became part of the EdICT consortium which then won preferredsupplier status with the BBC for the Corporation's forthcoming DigitalCurriculum project. This gives it the right to tender to produce curriculummodules funded by the BBC licence fee, against a small number of othercompetitors. Though this process has yet to begin, it is estimated that the BBCplans to spend over ‚£50million in total on this project, which will be brokendown into dozens of different modules.Online Classics/Digitalclassics.tvThis was a quiet period for the internet streaming operation, which has begunto position itself to take advantage of forthcoming IPTV (TV via the internet),downloading and mobile applications as well as its on-demand website.OutlookThe Directors consider that the outlook for the second half of the financialyear is positive and have not changed their full year expectations, for thereasons noted above.The distribution division has solid prospects for growth with new programmes,more titles and a better organised catalogue. Together with its cost savingsalready announced these factors bode well for the short and medium term. Inunder two years some of the two hundred DVD titles licensed out for seven yearsin 1999 for ‚£6.5 million begin to revert to the division and, with the numerousnew formats emerging - such as video-on-demand, high definition TV, internetprotocol TV, etc - it is anticipated that control of content will become ofparamount importance.Iambic meanwhile goes from strength to strength and, having diversified, itsprospects are upbeat. Digital Classics Education's new preferred supplierstatus in relation to the BBC also strengthens the prospects of this division.The Company remains ever vigilant, looking to cut costs where possible and tocontinue to grow organically where possible. The Directors are aware that theCompany is small and will continue to look for advantageous and earningsaccretive opportunities to grow the business.Finally, the Directors are delighted that David Elstein has recently joined asChairman, upon the retirement from the post of Didier Stoessel. We are gratefulto Mr Stoessel for his valuable contribution and wish him well in the pursuitof his other interests. We are also very pleased to welcome his successor,whose experience at high levels in both television (including as ChiefExecutive of Channel 5 Broadcasting, Head of Programming at BSkyB and Directorof Programmes at Thames Television Plc) and corporate finance position himexcellently to help the company develop and grow in the future. We commend himto all our shareholders. There have been no other Board changes during theperiod.The Directors therefore look forward to the future with both vigilance andconfidence and will spare no effort to maximise value for our shareholders.Christopher HuntChief Executive23 March 2005Consolidated summarised profit and loss accountFor the period ended 31 December 2004 Unaudited 6 Unaudited Audited 12 months to 6 months months to 31 December to 31 30 June 2004 December 2004 2003 Note ‚£ ‚£ ‚£ Group turnover 1,268,666 722,806 2,154,051 Cost of sales (590,567) (399,363) (1,050,402) Gross profit 678,099 323,443 1,103,649 Other operating income and (1,180,005) (725,365) (1,644,929)charges Operating loss Continuing operations (501,906) (450,072) (541,280) Discontinued operations - 48,150 - (501,906) (401,922) (541,280) Exceptional items Profit on sale of fixed - 24,255 -assets (501,906) (377,667) (541,280) Net interest receivable/ 2,095 (7,979) (2,771)(payable) - group Loss on ordinary activities (499,811) (385,646) (544,051)before taxation Tax on loss on ordinary 2 (35,650) (3,687) (45,555)activities Loss for the financial period (535,461) (389,333) (589,606) Loss per share - basic 3 (0.07)p (0.16)p (0.15)pConsolidated summarised balance sheetAt 31 December 2004 Unaudited 31 Unaudited 31 Audited 30 December December June 2004 2004 2003 ‚£ ‚£ ‚£ Fixed assets Intangible 3,259,104 3,521,452 3,397,697 Tangible 3,171,759 624,952 3,379,894 6,430,863 4,146,404 6,777,591 Current assets Work in progress 203,032 195,271 169,093 Debtors 1,517,442 658,653 1,553,245 Cash at bank and in hand 74,241 65,199 335,055 1,794,715 919,123 2,057,393 Creditors: amounts falling due (1,990,078) (2,312,443) (2,064,026)within one year Net current liabilities (195,363) (1,393,320) (6,633) Total assets less current 6,235,500 2,753,084 6,770,958liabilities Creditors: amounts falling due - - -after more than one year 6,235,500 2,753,084 6,770,958 Capital and reserves Called up share capital 1,201,502 736,280 1,201,502 Share premium account 18,815,599 15,062,674 18,815,599 Merger reserve 6,355,556 6,355,556 6,355,556 Profit and loss account (20,137,157) (19,401,426) (19,601,699) 6,235,500 2,753,084 6,770,958Consolidated summarised cash flow statementFor the period ended 31 December 2004 Unaudited Unaudited Audited 12 6 months months to 6 months to to 31 30 June 31 December December 2004 2004 2003 Note ‚£ ‚£ ‚£ Net cash outflow from 4 (148,746) (377,271) (2,461,612)operating activities Return on investments and 2,095 (16,959) (2,771)servicing of finance Taxation (35,650) (3,687) (43,451) Capital expenditure and (63,588) 11,006 (210,338)financial investment Acquisitions and disposals - - (70,918) Financing 0 517,495 3,113,642 Increase/(decrease) in cash 5 (245,889) 130,584 324,552Notes to the interim reportFor the period ended 31 December 20041 Basis of preparationThe interim financial statements have been prepared in accordance withapplicable accounting standards and under the historical cost convention.The principal accounting policies of the group have remained unchanged fromthose set out in the group's 2004 annual report and financial statements.The interim financial information in this report has been neither audited norreviewed by the company's auditors.2 Tax loss on ordinary activity 6 months to 6 months to 12 months to 31 December 31 December 30 June 2004 2004 2003 ‚£ ‚£ ‚£ The tax charge represents: Overseas withholding tax not 35,650 3,687 45,555recoverable 3 Loss per shareThe calculation of the basic loss per share is based on the loss attributableto ordinary shareholders divided by the weighted average number of shares inissue during the period.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 interest,on the assumed conversion of all dilutive options and other dilutive potentialordinary shares. 6 months to 6 months to 12 months to 31 December 31 December 30 June 2004 2004 2003 ‚£ ‚£ ‚£ Basic loss per share Loss attributable to ordinary (535,461) (389,333) (589,606)shareholders Weighted average number of 743,096,484 245,044,671 384,512,000shares Per share amount (pence) (0.07)p (0.16)p (0.15)pDue to the losses incurred in the period, share options outstanding at theperiod end do not have a dilutive effect on the stated loss per share. As such,no separate calculation is disclosed.4 Net cash outflow from operating activities 6 months 6 months to 12 months to to 31 31 December 30 June 2004 December 2003 2004 ‚£ ‚£ ‚£ Operating loss (501,906) (401,922) (541,280) Depreciation 285,415 265,920 575,055 Profit on sale of fixed assets 220 - 24,255 (Increase)/decrease in work in (33,939) (189,800) (163,622)progress (Increase)/decrease in debtors 160,487 71,666 (617,549) (Decrease)/increase in creditors (59,023) (123,135) (1,738,471) Net cash outflow from operating (148,746) (377,271) (2,461,612)activities 5 Reconciliation of net cash flow to movement in net funds 6 months 6 months to 12 months to to 31 31 December 30 June 2004 December 2003 2004 ‚£ ‚£ ‚£ Increase/(decrease) in cash in (245,889) 130,584 24,552the period Other non cash changes - - 500,000 Movement in net funds (245,889) 130,584 524,552 Net funds at 30 June 2004 309,167 (215,385) (215,385) Net funds at 31 December 2004 63,278 (84,801) 309,1676 Publication of non-statutory accountsThe financial information set out in this interim report does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985.The figures for the year ended 30 June 2004 have been extracted from thestatutory financial statements which have been filed with the Registrar ofCompanies. The auditors' report on those financial statements was unqualifiedand did not contain a statement under section 237(2) of the Companies Act 1985.Contacts:Chris Hunt, Chief ExecutiveDigital Classics Plc, Tel. 020 7636 1400Ben SimonsHansard Communications, Tel. 020 7245 1100ENDDIGITAL CLASSICS PLC