Cadence Mineral Regulatory News (KDNC)

30 Jun 2008 07:00



30 June 2008

Zest Group plc 

("Zest" or "the Group")

Interim Results

for the year ended 31 March 2008

Zest Group plc (AIM:ZEST), announces its interim results for the six months ended 31 March 2008.

During the period the Group made a loss before taxation and the results of the discontinued Greensleeves Group ("Greensleeves") of £341,000 (2007: loss £271,000). There was a loss per share from continuing operations of 0.20p (2007: loss per share 0.16p). Prior to its disposal Greensleeves made a loss before taxation of £104,000 (2007: loss £129,000).

Sale of Greensleeves Group

On 25 January 2008 the Company entered into an agreement for the disposal of Greensleeves Group to VP Records (UK) Limited. The disposal was subsequently approved by shareholders at a General Meeting on 13 February 2008 and completed on 18 February 2008. The total consideration for the disposal was £3,100,000 in cash, of which £100,000 is deferred until 2009. 

The proceeds from the disposal were used by Zest to repay borrowings of approximately £1.8 million, settle outstanding creditors and provide additional working capital for the Company. 

Current trading

Following the sale of Greensleeves the management team has continued to focus on its retained roster of artists; Tara Chinn, Nasio Fontaine and Tony Fennell.

Tara Chinn's debut album "Night Racing" was launched in the Australian market at the end of March 2008 following the conclusion of a licensing deal with Amphead Music. The launch has been co-ordinated with a promotional tour to Australia, including live appearances in Melbourne and Sydney. Night Racing is currently being played on Australian radio and Tara continues to do press and radio interviews from the UK. The album was produced and co-written by Tony Fennell and mixed by Grammy award winning Hugh Padgham. Tony Fennell co-wrote 11 of the 13 songs with Tara. Amphead are continuing to promote the album and are seeking to secure a full tour for Tara later this year in their marketplace.

Nasio Fontaine's last studio album "Universal Cry" was released in June 2006 with a compilation album "Rise Up" released in June 2007. This release which incorporated tracks from Nasio's first three albums and "Universal Cry" continues to generate steady sales in the Reggae sector. Nasio is working on his next studio album which is expected to be recorded and released at the end of this year or early 2009. 

Tony Fennell is finalising an album for a new artist (who cannot currently be named due to legal restrictions). Tony is also producing the tracks and Zest will own and publish the majority of the copyrights. 

Board changes

Following the disposal of the Greensleeves Group, Marcus Lee and Grant Gazdig stepped down as Finance Director and Non-executive Director of the Company respectively and the Board would like to thank them both again for their contributions to the Company.

Outlook 

The Company is continuing to develop its current roster of artists and in line with its strategy will continue to look for potential acquisition opportunities.

Richard Griffiths

Chairman

30 June 2008

  ZEST GROUP PLC

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD ENDED 31 MARCH 2008

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 31 MARCH 2008

UNAUDITED CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH 2008

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD 31 MARCH 2008

NOTES TO THE INTERIM REPORT 

FOR THE PERIOD ENDED 31 MARCH 2008

1 GENERAL INFORMATION

The financial information for the period ended 31 March 2008 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The figures for the year ended 30 September 2007 have been extracted from the 2007 statutory financial statements prepared under UK GAAP and adjusted where necessary in order to comply with International Financial Reporting Standards as adopted by the European Union as shown in note 3. The auditors' report on those accounts was unqualified and did not contain a statement under section 237(2) of the Companies Act 1985.

2 ACCOUNTING POLICIES

BASIS OF PREPARATION

These interim financial statements have been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards ('IFRS') in issue that either are endorsed by the European Union ('EU') and effective (or available for early adoption), or are expected to be endorsed and effective (or available for early adoption) at 30 September 2008, the Group's first annual reporting date at which it is required to use adopted IFRS. Based on these adopted and unadopted IFRS, the directors have made assumptions about the accounting policies expected to be applied when the first annual IFRS financial statements are prepared for the year ending 30 September 2008. The disclosures required by IFRS1 'First time adoption of International Financial Reporting Standards', concerning the transition from UK GAAP to IFRS are given in note 3.

Interim financial information in this report has been neither audited nor reviewed by the Group's auditors. 

The principal accounting policies of the Group are set out below.

BASIS OF CONSOLIDATION 

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

Unrealised gains on transactions between the Company and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition.

REVENUE

The Group follows the principles of IAS18, Revenue, in determining the appropriate revenue recognition policies. Revenue in recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be specifically measured. The following specific recognition criteria must also be met before revenue is recognised:

ADVANCES

In the ordinary course of business the Group pays advances and other expenses recoupable from future royalties to performing artists, songwriters, producers and third party repertoire owners. The amounts paid are carried at cost less recoupment and less an allowance for any unrecoupable amounts. The allowance is based on past revenue performance, current popularity and projected revenue. Advances are recoupable during the business operating cycle. All advances are therefore reported as current assets, including advances recoupable more than 12 months after the balance sheet date.

GOODWILL

Goodwill arising on acquisition prior to 31 March 2006

Goodwill arising on acquisition of a subsidiary for which the agreement date is before 31 March 2006 represents the excess of the cost of acquisition over the Group's interest in fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

Such goodwill is stated after any accumulated amortisation and impairment. Under the transitional provisions in IFRS 3 "Business Combinations", the goodwill can only be amortised up to 31 March 2006 and the accumulated amortisation and impairment as at 1 April 2006 has been eliminated with a corresponding decrease in the cost of respective goodwill and, since then, any carrying amount of the goodwill is tested at each balance sheet date for impairment as well as when there are indications of impairment.

Goodwill arising on acquisition on or after 31 March 2006

Goodwill arising on acquisition of a subsidiary for which the agreement date is on or after 31 March 2006 represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Such goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. 

On subsequent disposal of the subsidiary the attributable amount of goodwill capitalised is included in the determination of the amount of gain or loss on disposal.

  TAXATION

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable result for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity.

INTANGIBLE ASSETS

Assets acquired as part of a business combination

In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the group are not reliably measurable. Where the individual fair value of the complimentary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have a similar useful lives.

Recording and publishing agreements

Recording and publishing agreements are capitalised at their fair value and, subject to impairment reviews, amortised over the estimated economic life of the agreements concerned. Amortisation is calculated so as to write off the cost of an asset less its estimated residual value on a straight line basis over the useful economic life of the asset as follows:

Recording and publishing agreements  8 years

  IMPAIRMENT, TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.

Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist

PROPERTY, PLANT AND EQUIPMENT

Measurement bases

Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the period in which they are incurred. When assets are sold, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.

Depreciation

Depreciation is calculation to write down the cost, less estimated residual value, of all property, plant and equipment by equal annual instalments over their estimated useful economic lives. The periods generally applicable are:

Freehold property 50 years

Computer equipment 4 years

Fixtures and fittings 3 to 10 years

INVENTORIES

Inventories include stocks of finished goods which are stated at the lower of cost and net realisable value after making allowance for obsolete and slow moving items.

  FINANCIAL ASSETS

The Group's financial assets include trade and other receivables. 

All financial assets are initially recognised at fair value, plus transaction costs. Non-compounding interest and other cash flows resulting from holding financial assets are recognised in profit or loss when received, regardless of how the related carrying amount of financial assets is measured.

Trade and other receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash at bank and in hand, bank deposits repayable on demand and other short-term highly liquid investments with original maturities of three months or less.

SHARE BASED PAYMENTS

The Group issues equity-settled share-based payments to certain employees (including directors). Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based upon the Group's estimate of the shares that will eventually vest.

Fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Where the terms of an equity-settled transaction are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled transaction is cancelled, it is treated as if it had vested on the date of the cancellation, and any expense not yet recognised for the transaction is recognised immediately. However, if a new transaction is substituted for the cancelled transaction, and designated as a replacement transaction on the date that it is granted, the cancelled and new transactions are treated as if they were a modification of the original transaction, as described in the previous paragraph.

EQUITY

Share capital is determined using the nominal value of shares that have been issued.

The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

The share based payment reserve represents the cost of share based remuneration to the Group.

The retained earnings includes all current and prior period results as disclosed in the income statement.

  FINANCIAL LIABILITIES

The Group's financial liabilities include trade and other payables and bank and other loans.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in finance cost in the income statement using the effective interest rate method.

Trade and other payables and bank and other loans are recognised initially at their fair value, net of direct issue costs and subsequently measured at amortised cost less settlement payments.

Dividend distributions to shareholders are included in 'other short term financial liabilities' when the dividends are approved by the shareholders' meeting.

OTHER PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Other provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, legal disputes or onerous contracts. 

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognised, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the balance sheet.

Probable inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets. 

SEGMENTAL REPORTING

A segment is a distinguishable component of the Group that is engaged either in a particular business (business segment) or conducting business in a particular geographical area (geographical segment), which is subject to risks and rewards that are different from those of other segments.

  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting period are whether the advances made by the Group to its artists of £529,000 are recoverable.

Critical judgements in applying the Group's accounting policies

The directors in applying the accounting policies, which are described above, consider that they have not had to make any significant judgements.

3 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

The transition from UK GAAP to IFRS has been made in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards".

IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These interim financial statements have been prepared on the basis of taking the following exemption: business combinations prior to 31 March 2004 have not been restated to comply with IFRS 3 "Business Combinations". Goodwill arising from these business combinations has not been restated.

The following reconciliations and explanatory notes thereto describe the effects of the transition at the transitional date to IFRS, 1 October 2006, the six months ended 31 March 2007 and the year ended 30 September 2007.

  3 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

The re-measurement of balance sheet items as at 31 March 2007 and 30 September 2007 may be summarised as detailed below.  There was no change in the reported balance sheet at 1 October 2006 as a result of the transition to IFRS:

Explanatory notes to the UK GAAP to IFRS reconciliations for the Balance Sheet:

a. Reversal of amortisation of goodwill. Under IFRS 3 goodwill is not amortised but is instead subject to an annual impairment review.

  3 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

Profit and loss reported under UK GAAP for the periods ended 31 March 2007 and 30 September 2007 is reconciled to IFRS as follows:

Explanatory notes to the UK GAAP to IFRS reconciliations for the Income statement:

a. Reclassification of the results of Greensleeves Records Limited and Greensleeves USA to a single line in the income statement for loss on discontinued operations as the companies were disposed of in the period under review.

b. Reversal of amortisation of goodwill. Under IFRS 3 goodwill is not amortised but is instead subject to an annual impairment review.

  4 LOSS FROM DISCONTINUED OPERATIONS

During the period, the Group disposed of its interest in Greensleeves Records Limited, Greensleeves Publishing Limited and Greensleeves USA for a gross consideration of £3 million plus deferred consideration of £100,000. The results of the discontinued operations are analysed as follows:

The results for Greensleeves Records Limited, Greensleeves Publishing Limited and Greensleeves USA were as follows:

  4 LOSS FROM DISCONTINUED OPERATIONS (CONTINUED)

The loss on disposal of Greensleeves Records Limited, Greensleeves Publishing Limited and Greensleeves USA can be summarised as follows:

5 SEGMENTAL REPORTING

(a) By business segment (Primary segment)

As defined under International Accounting Standard 14 (IAS 14) the only material business segment the Group has is that of music  publishing and distribution.

(b) By Geographical Segment (Secondary segment)

Under the definitions contained in IAS 14 the only material geographic segment the Group operates in is the United Kingdom.

6 LOSS PER SHARE

The calculation of the loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.

The share options are anti-dilutive.

  7 SHARE CAPITAL

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