PWS.L Regulatory News (PWS)

27 Mar 2007 07:04

Pinewood Shepperton plc27 March 2007 Pinewood Shepperton plc Preliminary Results for the Twelve Months Ended 31st December 2006 Pinewood Shepperton announces 2006 full year results showing the benefit of asignificant increase in turnover as major film makers return to the studios andtelevision revenues grow strongly. Highlights • Turnover up 22% at £40.7m (2005: £33.4m) • Operating profit before exceptional items up 70% at £9.1m (2005: £5.3m) • Reported operating profit of £10.1m (2005: £3.7m) • EBITDA up 37% at £12.3m (2005: £8.9m) before exceptional items • Adjusted earnings per share of 9.3p (2005: 3.4p) • Reported earnings per share of 13.3p (2005: 0.9p) • Recommended final dividend of 2.1p (2005: nil) resulting in a total dividend relating to 2006 of 3.0p (2005: nil) • Year end net debt decreased by £24.3m to £17.8m (2005: £42.1m) • Television revenues up 32% at £11.8m (2005: £8.9m) • Entered into a joint venture in September 2006 for Shepperton Studios with Morley Fund Management to accelerate master planning development • 007 Stage now fully operational following its destruction in July 2006 Commenting on today's results, Ivan Dunleavy, Chief Executive of PinewoodShepperton plc, said: "As we anticipated, a number of significant film customers returned to PinewoodShepperton during 2006. Our strategy to diversify further into television hasresulted in significant revenue growth from this activity which increasinglywill help to mitigate the effects of more volatile film revenues. "2007 will be a busy year as our joint venture with Morley Fund Management willnow allow us to commence development of the Shepperton site, which, over time,will bring yet further growth and stability to our revenue streams." Enquiries Pinewood Shepperton plcIvan Dunleavy - Chief Executive 01753 656 183 Brunswick Group LLPJames Olley / Dominic McMullan 020 7404 5959 A presentation of the results of the Company will be available on PinewoodShepperton's website: www.pinewoodgroup.com from 12pm today. Chairman's Statement The improved trading performance of Pinewood Shepperton during 2006 was mainlyattributable to the ongoing recovery in film production in the UK following theanticipated resolution of UK film fiscal policy. Nearly all of the increase wasaccounted for by the rise in inward investment from international filmmakers,particularly the major Hollywood Studios. In television, the major broadcasters and independent producers are increasingtheir investment in television programme production. This focus augers well forPinewood Shepperton's growing television business, which recorded increasedrevenues during 2006. As UK consumers enjoy more available channels, we expectto continue to build our television studio market share as well as hosting anumber of channels, particularly at our Teddington Studios. In September 2006 we entered into a 50:50 joint venture with Morley FundManagement (part of Aviva plc) which acquired an interest in our SheppertonStudios site, in order to accelerate the pace of redevelopment of this asset inaccordance with the outline planning consents recently achieved by the Group. I am pleased to report that the Board is recommending a final dividend of 2.1p,taking the total dividend relating to 2006 to 3.0p. Pinewood Shepperton competes in a global market for its film business. Thisinternational market is driven by a variety of fiscal incentives used bynational and federal governments around the world to attract international filmbusiness. Pinewood Shepperton believes that the competitive tax environment forUK film created by recent government legislation, together with the creativeexcellence on offer to film makers from our domestic industry, make the UK anattractive, secure and long-term destination for making films. The recently introduced film tax credit underpins the Government's policy ofconsistent support designed to create a sustainable UK film industry. In recentweeks the Government reduced the limits for Enterprise Investment Schemes andhas also, as previously announced, taken action to close tax avoidance measures,which may have an impact on the financing arrangements for some films. Taxavoidance abuse runs the real risk that the merits of any designated schememight be called into question by Government. During the year we were delighted to welcome James Donald as an additionalNon-Executive Director. James brings a wealth of property experience to theBoard. Pinewood Shepperton's results for 2006 were achieved following majorcontributions by my fellow directors and staff, and I thank them for theircontinued support. Looking ahead, Pinewood Shepperton is in good shape, both strategically andoperationally and well placed to take advantage of all the opportunitiesavailable across our chosen markets. Operating review Film and Television Markets Overview Film production spending in the UK rose 48% to £840m in 2006, up from £569m in2005, making it the second highest spend on record. This production spending reflects: • Fifty UK financed films shot locally costing £148m (thirty-seven costing £166m in 2005) • Fifty-seven UK co-productions shot in the UK costing £122m (sixty-two costing £91m in 2005) • Twenty-seven inward investment productions (mainly Hollywood films made with US studio funding but filmed in the UK) costing £570m (twenty-five costing £312m in 2005) The increase in film production spend in 2006 is directly linked to improvedconfidence in the UK resulting from the new film tax credit announced in the2006 Budget and the related qualifying procedures, 'the Cultural Test', whichreceived European Union approval in December 2006. The new film tax credit isavailable from 1 January 2007 with transitional rules being made available forcertain films. Consequent evidence suggests that, as a result, film productionin the UK is returning to more "normal" levels. In film, competition from international studios and locations remains fiercewith increasingly attractive overseas tax incentives available, including fromsome US states. In Hungary and the Czech Republic additional studio capacity wascreated during 2006 and a new studio has opened in Alicante, Spain. Thisadditional capacity, in some cases supported by direct government subsidy, hasincreased competition for the future. Nevertheless, despite weak current USdollar exchange rates, we believe that international filmmakers retain anappetite to access the premium quality of UK facilities and film making talent(such as British directors, scriptwriters and technicians). Pinewood Sheppertonremains well-positioned in the market-place as a result of its offering ofunique assets and the depth of its operational expertise. The UK post-production market splits into three operational segments; picture,sound, and visual effects. Pinewood Shepperton concentrates on the soundpost-production segment of the market. Our twin focus has been to use PinewoodShepperton's skills to attract television post-production to our facilities andto seek longer term outsourcing contracts from major producers. Digital technology continues to transform production and distribution ofaudiovisual content. The roll out of digital cinemas has commenced, notably inthe USA, UK and Europe. As these more efficient digital distribution networksextend we expect demand for film content to increase further. This demand issupported by the consistent level of overall worldwide cinema admissions.Worldwide box-office revenues were up year on year by 5.3% per cent to $21.2billion in 2006. The UK television market over the past twelve months has undergone and continuesto undergo considerable change. Advertising revenues have been under pressurefor the commercial broadcasters. Declining programme ratings, alternative formsof advertising and the advent of multi channel and internet based audiencefragmentation, present challenges and opportunities to broadcasters. The major TV networks, who are committed to improving programming can beexpected to direct more of their financial resources to original programmeproduction. Our decision to invest in this growing sector has proved timely. The television studio facilities market is likely to undergo a period of changeas TV companies review their outsourcing opportunities. In addition, we expectto benefit as television production switches increasingly to the new highdefinition format. Pinewood Shepperton is equipping itself for this change byinvesting the necessary funds in the new format and we are positioning ourselvesto become a preferred supplier of television studio facilities. The cost of thisupgrade will be managed within our normal capital expenditure budgets. The UK is seeing an increasing number of new channels launched. We expect tocontinue to build our television studio market share as well as hosting a numberof channels at our Teddington Studios. Recent Government initiatives have identified the importance of the 'creativeindustries sector' in the overall growth of the UK economy. This sector, worthan estimated £27 billion to the UK economy, is wide ranging covering film,television, theatre, music, the arts, design and many other forms. Film andtelevision production are key components of this sector. We remain committed todeveloping our studios as a hub for the creative industries and PinewoodShepperton is committed to supporting the industries in which it operates. Wenow contribute to Skillset, the film and television industries training body,and have recently begun initiatives to support UK Post and Services (theindustry trade association) training schemes. Trading Film Our film services activity (which include stages, production facilities and filmpost production income) are mature revenue streams which, as discussed above,showed the benefit of improved confidence, increasing by 26% to £22.6m (2005:£18.0m) for the twelve months to 31 December 2006. The second half of 2006 inparticular benefited from a number of new productions. Major films produced using our studios during the year were: Atonement (WorkingTitle), Bourne Ultimatum (Universal), Casino Royale (Sony MGM), Children of Men(Universal), Eragon (20th Century Fox), Fred Claus (Warner Bros), His DarkMaterials: The Golden Compass (New Line), Inkheart (New Line), Stardust(Paramount), and United 93 (Working Title). A number of the films in productionduring the second half of 2006, such as Bourne Ultimatum and Sweeney Todd havecontinued into the opening months of 2007. During 2006, our film facilities operated at a high level of utilisation.Nevertheless we managed to continue our programme of stage refurbishment (forexample, the recladding of C Stage at Shepperton), a new workshop at each ofPinewood and Shepperton adding a total of 11,365 sq ft and an ongoing programmeof refurbishment of production offices as the opportunity arose. In audio post-production (which lags principal photography by up to six months)trading conditions for 2006 proved challenging. We have a new sales team inplace for our audio post production activities and we are confident theserevenues should recover. Television We are making considerable progress implementing our strategy of growing ourtelevision revenues and thus increase the diversification of revenues across theGroup. Television revenues which include: Pinewood television studios, Teddingtontelevision studios, channel hosting, television post production and filmedtelevision drama on stages, for the 12 months to 31 December 2006 were £11.8m,an increase of 32% over 2005 (£8.9m). At Teddington, we enjoyed a full year's revenue compared to the previous ninemonths in 2005, when we purchased this business from administrators. Theincreased revenues in 2006 have resulted in a neutral contribution to GroupEBITDA from Teddington based activities. At Pinewood and Teddington our digital television studios hosted; The WeakestLink, My Family, Test the Nation, Bremner Bird and Fortune, Green Green Grass,Not Going Out among many other productions. During 2006 we extended the facilities available to our television studiocustomers. Significant refurbishment of Teddington Studios took place during theyear, including upgrading the IT and technical infrastructures and officeaccommodation. We are seeing the benefits of this investment with an increasingnumber of customers showing interest. In the year under review, we focussed on growing our revenues for filmedtelevision drama with valuable results. On our film stages we hosted titles suchas: The Amazing Mrs Pritchard, Miss Marple, The Vicar of Dibley, Last of theSummer Wine, Live Girls, Extras and Primeval among others. This remains anothertelevision growth area for us. Media Park Income The Media Park is a vibrant community of over 280 businesses on site, rangingfrom make up artists to film producers, occupying 29% of the estate. Demand for Pinewood Shepperton's unique and flexible accommodation continuedthroughout 2006, reflecting our increased focus on this revenue stream andimproved letting markets in the proximity of our studio locations. Our mediapark business enjoyed consistently high levels of occupancy throughout 2006. 007 Stage On 30 July, as previously announced, a production was removing its set on the007 Stage when it caught fire ultimately destroying the stage. Fortunately therewere no casualties. Pinewood Shepperton's comprehensive insurance cover formaterial damage and business interruption has meant no material adversefinancial impact from the replacement of the 007 stage and the related businessinterruption losses. The original 007 Stage was one of the largest dedicated stages in the world witha usable area of 45,000 sq. ft. Planning consent was immediately sought andobtained for the replacement of the 007 Stage and as a result of improvedstructural design, the same footprint offered an increase in the usable area toa total of 59,000 sq. ft. The replacement stage was completed at a cost of approximately £8 million andhanded over for operational use during March 2007, some 24 weeks fromcommencement of construction by the contractor. We have greatly improved the newstage by adding a number of operational enhancements, including a drive-in ramp,an improved gantry and lighting infrastructure and the increased capacitymentioned above. Shepperton Studios Joint Venture As announced on the 13 September 2006, Pinewood Shepperton plc entered into anagreement with Morley Fund Management at its Shepperton Studios freehold site toform a 50:50 joint venture, named Shepperton Studios Property Partnership. Thenew venture has acquired a 999 year leasehold interest of Shepperton Studioswith a view to developing the studios in line with the recently secured planningconsents enabling new and replacement build totalling 836,000 sq. ft over a tenyear period. The long leasehold interest was acquired by Shepperton Studios PropertyPartnership at a premium of £41m, which was financed with £10.5m of equity fromeach of Morley Fund Management and Pinewood Shepperton together with a £20m longterm non recourse loan from Aviva plc managed funds. The transaction generatedgross proceeds for Pinewood Shepperton of £30.5m, before transaction costs,which were used to reduce Group gearing. Morley Fund Management will commit funding totalling 75% of each agreed projectwith the remaining 25% being provided by Pinewood Shepperton. An underlease ofthe Shepperton Studios site has been retained for a period of 20 years at abasic rent of £1.3m per annum index linked, plus 10% of the EBITDA of SheppertonStudios' business, excluding its post production activities. The terms of the joint venture partnership also includes a right of firstrefusal in respect of the Pinewood Studios site. This new venture represents anopportunity for Pinewood Shepperton to expand its Shepperton Studios inpartnership with a major institutional investor. Media Park Development Strategy Part of our vision at IPO was a long-term strategy to establish state of the artmedia hubs at both the Pinewood and Shepperton sites for the creativeindustries. The anchor component for each of these hubs will be PinewoodShepperton's own thriving film and television facilities businesses. It is ourintention to attract a variety of media businesses to each of the studio sites,to take up occupancy and to contribute to the vibrant creative environment. Wehave also instituted a green transport policy and are working on improving theamenities at both sites. The first step in this vision for Pinewood Shepperton was entering into thejoint venture arrangement with Morley Fund Management in respect of theShepperton Studios site. Professional teams have now been appointed prior tocommencement of phased development of specific projects and new business systemsat Shepperton Studios being implemented. Our strategy to establish these 'creative industry' hubs is entirely compatiblewith Government policy to grow and expand the 'creative economy'. Importantlyour joint venture partner at Shepperton Studios, Morley Fund Management, sharesour objective. Current Trading and Outlook The current financial year has started in line with expectations. As the yearprogresses and producers become more comfortable with the new fiscal incentives,we expect to see growing use of our film services and an eventual return to thenormal, busy trading levels we enjoyed before the 'tax policy hiatus'. Our film services activities have benefited from contracts commenced in 2006which have run over into 2007. We expect Spring to follow a similar pattern oftrading to last year and we anticipate a larger number of film projects tocommit to production later in the year (notwithstanding the weakness of the USdollar). The new enhanced 007 Stage, handed over to Pinewood Studios bycontractors in March, is already occupied. Timing of film production is always a major variable in our film servicesactivities. Factors beyond the control of individual film producers such asnegotiations with the USA Writers and Screen Actors Guilds (these agreements aredue for renewal in 6 months and 15 months respectively) may influence the timingand levels of film activity. However, the UK film production market, in whichPinewood Shepperton operates, is expected to benefit from the recently enactedfilm tax credit. The Group's strategy is to accelerate growth in our television services and growour Media Park revenues, to supplement our film services revenues and counterthe volatile timing of demand from film productions. Television revenues in 2007have commenced well. Earlier this month we signed a long term arrangement withthe British Broadcasting Corporation ('BBC') as a preferred supplier. This newcontract will significantly underpin our television growth expectations. Media Park income continues to grow consistently and modestly, enjoyinghigh-levels of occupancy. Our facilities are however capacity constrained in theshort-term. At Shepperton Studios our joint venture with Morley Fund Management has nowformally committed additional funding for the new 60,000 sq. ft "I" Buildingproject. The demolition of "I" Stage and adjacent buildings has alreadycommenced with completion due by Spring 2008. At Pinewood Studios planning ismaking good progress with a view to launching our marketing efforts later thisyear to new Media Park customers. . These building developments will have an operational impact and management isworking to minimise any short-term disruption to our film customers. Thesedevelopments will ensure that Pinewood Shepperton is exceptionally well placedto benefit from its position as a unique media cluster. Our capital structure has strengthened significantly following the conclusion ofthe Shepperton Studios joint venture, which will allow Pinewood Shepperton theopportunity to invest in growth using its own resources. The Board views the Company's prospects with confidence. Financial review Revenue Turnover for 2006 was 22% higher at £40.7m (2005: £33.4m) resulting fromimproved revenues from film services, up 26% to £22.6m (2005: £18.0m), andfurther growth in revenues from television services, up 32% to £11.8m (2005:£8.9m). Media Park revenues, net of the income no longer attributable to theGroup under our joint venture of £0.3m, were £6.3m (2005: £6.5m). Profit Performance Gross margin increased to 41% (2005: 35%) and operating margin to 22% (2005:16%) reflecting the benefit of operational gearing. Operating profit before exceptional items, is the underlying financial measurewe use to report our results. It includes the group's share of the results ofour joint venture but excludes one off gains and expenses. Operating profitbefore exceptional items for the year grew by 70% to £9.1m (2005: £5.3m). The Group considers earnings before interest, tax, depreciation and amortisation(EBITDA) as a valuable measure of its performance, reflecting the cashgenerative characteristics of the business. EBITDA excluding exceptional itemsfor the year ended 31 December 2006, was up 37% at £12.3m (2005: £8.9m). Operating profit, including exceptional items for the year, was £10.1m (2005:£3.7m). The make up of the exceptional items for the year is detailed below. Profit before tax, after exceptional items, was £7.2m (2005: £0.6m), whichrepresents the total pre-tax return for the year after accounting for financecosts of £2.9m (2005: £3.1m). Earnings per Share Adjusted earnings per share, excluding the impact of the exceptional profit ofthe 007 stage fire and the joint venture transaction at Shepperton Studios were9.3p (2005: 3.4p) reflecting increased turnover from film and televisionactivity in 2006. The diluted and weighted average number of shares in issue was 45.8m. Dividend The Board is recommending a final dividend of 2.1p per share (2005: nil). Takentogether with the interim dividend of 0.9p (2005: nil) the total dividend is3.0p. The dividend for 2006 is covered 3.1 times by adjusted earnings. Subjectto approval by shareholders at the annual general meeting to be held on 25 June2007, the final dividend will be paid on 29 June 2007 to shareholders on theregister on 8 June 2007 (ex-dividend date of 6 June 2007). It is the Board's objective to continue a progressive dividend policy. Cash Flow and Net Debt Pinewood Shepperton is a cash generative business that operates on negativeworking capital. In 2007 we also received £5.0m from the 007 Stage fireinsurance proceeds and £30.5m from the joint venture with Morley FundManagement. We reinvested £6.2m in capital expenditure (2005: £5.4m), of which £2.8m was inrespect of the new 007 Stage, which was still in construction at the year end,and £3.4m in other capital expenditure. In addition, we paid down debt of £34m. At 31 December 2006 the Group's net debtwas £17.8m, of which £10m was our 50% share of the Aviva loan to the jointventure which is non recourse to Pinewood Shepperton. This is a significantreduction in net debt of £24.3m. Financial Gearing Following the joint venture with Morley Fund Management, our gearing has beensubstantially reduced, however over time, gearing will increase throughinvestment in our development programme across our studios. Pinewood Sheppertonhas reduced its revolving credit facility to £35m (2005: £50m), with anunchanged overdraft facility of £3m. On the basis of our interest cover ratio of3.1 times and significant level of undrawn funds available we are comfortable tosee our financial gearing rise modestly from its current position as we investin the future development of the studios. Gearing at 31 December 2006 was 30.5% (2005: 81.0%). Hedging We used an interest rate derivative product to manage our interest rateexposure. The Board has a hedging policy which seeks to hedge up to 50% of drawndebt. At the year end we had hedged £7.5m. Interest Finance costs for the twelve months were £2.9m (2005: £3.1m). Our interest coverratio, based on operating profit before exceptional items, has improved from 1.7times in 2005 to 3.1 times in 2006. This improvement reflects higher earnings in2006, and a marginally lower interest charge due to the reduction in net debtduring the latter part of 2006. Taxation The tax charge for the year ended 31 December 2006 on profit before tax of £7.2mis £1.1m (2005: £0.2m), an effective tax rate of 15%. The underlying rate of tax on profit before exceptional items is 31%. This hasbeen reduced to an effective rate of 15% on profit after exceptional items,principally as a result of the release of certain deferred tax provisionsrelating to the differences between the tax base costs and the carrying valuesof the Group's properties in the accounts. Exceptional Profit Exceptional profit for the year was £1.0m (2005: exceptional loss of £1.6m).This profit has been derived from the surplus on the 007 Stage fire of £0.9m andthe implementation of the joint venture with Morley Fund Management generating aprofit of £0.1m. Both transactions are discussed in detail below. 007 Stage Fire The 007 Stage was destroyed by fire on 30 July 2006. Rebuilding of the new stagecommenced in September 2006 with practical completion during March 2007. International Accounting Standard ("IAS") 16 requires that the destruction ofthe 007 Stage and the material damage insurance proceeds for the replacement ofthe 007 Stage should be treated as separate events. Consequently we haveaccounted for the insurance compensation of £6.1m received to date in respect ofthe reinstatement of the 007 Stage as exceptional income, including £1.5mreceived since 31 December 2006. The impairment of the former 007 Stage andassociated costs incurred directly attributable to the fire, together totalling£5.2m, have been taken against exceptional income. Accounting for the net effect of the insurance compensation income less theimpairment and associated costs, has obliged Pinewood Shepperton to recognise anexceptional profit of £0.9m. At 31 December 2006 proceeds for the claim for loss of earnings amounting to£0.4m had been received and accounted for as income. Joint Venture with Morley Fund Management The joint venture transaction generated a profit of £0.1m, which is arrived atby deducting from Pinewood Shepperton's share of the gross proceeds of £20.5m,50% of the carrying value of assets transferred to the partnership being £18.0mand related costs and provisions for the transaction totalling £2.4m. Group income statementFor the year ended 31 December 2006 Year Year ended ended 31 December 31 December 2006 2005 Notes £000 £000RevenueRendering of services 2 40,704 33,387 Cost of sales (24,064) (21,806) ---------- ---------- Gross profit 16,640 11,581 ---------- ---------- Selling and distribution expenses (2,089) (2,260) Other administrative expenses (5,493) (3,995)Exceptional administrative costs - (1,607) ---------- ----------Administrative expenses (5,493) (5,602) Exceptional income 3 1,013 - --------------------------------------------------------------------------------Operating profit before exceptionalitems 9,058 5,326-------------------------------------------------------------------------------- Operating profit 10,071 3,719 Finance costs 4 (2,909) (3,148) ---------- ----------Profit before tax 7,162 571Corporation tax expense 5 (1,070) (180) ---------- ---------- Profit for the year 6,092 391 ========== ==========Attributable to: 6,092 391Equity holders of the parent ========== ==========Earnings per share - basic for result for the year 6 13.3p 0.9p - diluted for result for the year 6 13.3p 0.9p - basic for result for the year adjusted for exceptional items 6 9.3p 3.4p - diluted for result for the year adjusted for exceptional items 6 9.3p 3.4p Group balance sheetAt 31 December 2006 Notes As at As at 31 December 31 December 2006 2005 £000 As restated £000ASSETSNon-current assetsProperty, plant and equipment 7 89,096 104,835Intangible assets 9,656 9,656 --------- --------- 98,752 114,491 --------- ---------Current assetsInventories 319 303Trade and other receivables 4,792 3,174Prepayments 2,171 1,314Cash 1,064 1,276 --------- --------- 8,346 6,067 --------- ---------TOTAL ASSETS 107,098 120,558 ========= =========EQUITY AND LIABILITIESEquity attributable to equity holders of parentShare capital 8 4,582 4,581Share premium 43,478 43,469Capital redemption reserve 8 135 135Merger reserve 8 348 348Fair value of cash flow hedge reserve (3) (400)Retained earnings 9,745 3,880 --------- ---------Total equity 58,285 52,013 --------- ---------Non-current liabilitiesInterest-bearing loans and borrowings 9 18,806 43,100Deferred tax liabilities 13,882 13,843 --------- --------- 32,688 56,943 --------- ---------Current liabilitiesTrade and other payables 15,114 10,849Provisions 11 812 -Interest-bearing loans and borrowings 9 18 300Tax payable 181 453 --------- --------- 16,125 11,602 --------- --------- --------- ---------TOTAL LIABILITIES 48,813 68,545 --------- --------- --------- ---------TOTAL EQUITY AND LIABILITIES 107,098 120,558 ========= ========= The financial statements were approved by the Board of Directors on 26 March2007 and are signed on its behalf by: P.F. GarnerDirector Group cash flow statementFor the year ended 31 December 2006 Year ended Year ended 31 December 31 December 2006 2005 £000 £000 Cash flow from operating activitiesProfit before tax 7,162 571Adjustments to reconcile profit before tax to net cashflowsExceptional income (1,013) -Depreciation 3,220 3,609Finance costs 2,909 3,148 --------- ---------Cash flow from operating activitiesbefore changes in working capital 12,278 7,328(Increase)/decrease in trade and otherreceivables (958) 80(Increase)/decrease in inventories (16) 93(Decrease)/increase in trade and otherpayables (642) 3,040 --------- ---------Cash generated from operations 10,662 10,541Finance costs paid (2,845) (2,583)Corporation tax paid (1,430) (630) --------- ---------Net cash flow from operating activities 6,387 7,328 --------- --------- Cash flow from/(used in) investing activitiesProceeds from Shepperton Studios jointventure transaction 20,500 -Costs of the Shepperton Studios jointventure transaction (1,162) -Proceeds from insurance for 007 stage 4,980 -Purchase of property, plant andequipment (6,215) (5,364)Acquisition of subsidiary undertaking - (956) --------- ---------Net cash flow from/(used in) investingactivities 18,103 (6,320) --------- --------- Cash flow (used in)/from financing activitiesProceeds from issue of shares 10 -Payment of finance lease liabilities (300) (891)Dividends (412) (1,237)Proceeds from borrowings of jointventure 10,000 -Proceeds from bank borrowings - 4,000Repayment of bank borrowings (34,000) - --------- ---------Net cash flow (used in)/from financingactivities (24,702) 1,872 --------- ---------Net (decrease)/increase in cash (212) 2,880 --------- --------- Group reconciliation of movement in net debtFor the year ended 31 December 2006 Year ended Year ended 31 December 31 December 2006 2005 £000 £000Reconciliation of net cash flow to movement in net debt(Decrease)/increase in cash (212) 2,880Repayment of bank loans 34,000 -Amortisation of loan issue costs (291) (148)Acquisition of finance lease obligations - (1,208)Repayments of capital elements offinance leases 299 891Proceeds from borrowings of jointventure (10,000) -Proceeds from bank borrowings - (4,000)Movement in fair value of cash flowhedge 568 (27) --------- ---------Movement in net debt 24,364 (1,612)Net debt at 1 January (42,124) (40,512) --------- ---------Net debt at 31 December (17,760) (42,124) --------- --------- Group statement of changes in equity from 1 January 2006 to 31 December 2006 Share Share Retained Merger Fair value of Capital Total capital premium earnings reserve cash flow hedge redemption equity reserve reserve £000 £000 £000 £000 £000 £000 £000At 1 January2006 4,581 43,469 3,880 348 (400) 135 52,013 Profit for the year - - 6,092 - - - 6,092 Transfers tothe incomestatementOn cash flow hedges - - - - 232 - 232 Income and expenserecognised directly inequity Profit on cash flowhedges taken toequity - - - - 335 - 335 Tax on itemstakendirectly to ortransferred fromequity - - 43 - (170) - (127) ---------------------------------------------------------------------------------------------------------------Total recognisedincome and expense forthe year - - 6,135 - 397 - 6,532--------------------------------------------------------------------------------------------------------------- Equity dividends(note 6) - - (412) - - - (412)New shares issued 1 9 - - - - 10Share basedpayment - - 142 - - - 142 ------ ------- ------- ------- ------ ------- ------At 31 December2006 4,582 43,478 9,745 348 (3) 135 58,285 ====== ======= ======= ======= ====== ======= ====== Group statement of changes in equityfrom 1 January 2005 to 31 December 2005 Share Share Retained Merger Fair value of Capital Total capital premium earnings reserve cash flow hedge redemption equity reserve reserve £000 £000 £000 £000 £000 £000 £000 At 1 January2005 4,581 43,269 4,666 348 (381) 135 52,618 Profit for theyear - - 391 - - - 391 Transfers to theincome statement On cash flow hedges - - - - 143 - 143Income and expenserecognised directly inequity Loss on cash flow hedgestaken to equity - - - - (170) - (170) Tax on items takendirectly to ortransferred from equity - - - - 8 - 8 ---------------------------------------------------------------------------------------------------------------Total recognisedincome and expense forthe year - - 391 - (19) - 372--------------------------------------------------------------------------------------------------------------- Equity dividends(note 6) - - (1,237) - - - (1,237)Share issue costs - 200 - - - - 200Share basedpayment - - 60 - - - 60 ------ ------- ------- ------- ------ ------- ------At 31 December 2005 4,582 43,469 3,880 348 (400) 135 52,013 ====== ======= ======= ======= ====== ======= ====== Notes For the year ended 31 December 2006 1. Interest in a joint venture The Group has a 50% interest in Shepperton Studios Property Partnership, anentity controlled jointly with a third party which holds a 999 year lease on theShepperton Studios property. The share of assets, liabilities, income and expenses of the jointly controlledentity at 31 December and for the period then ended, which are included in theconsolidated financial statements, are as follows : 2006 £000 Property, plant and equipment 18,022Current assets 429 -------- 18,451 --------Interest bearing loans and borrowings (10,000)Current liabilities (260) -------- (10,260) --------Revenue 496Cost of sales (74)Administrative expenses (58)Finance costs (207) --------Net profit 157 -------- 2. Revenue analysis The Group operates in one principal area of activity, that of media services,arising in the United Kingdom. Revenues from these activities can be further analysed by type of customer asfollows: 2006 2005 £000 £000 Film 22,549 17,960Television 11,837 8,946Media Park 6,318 6,481 -------- -------- 40,704 33,387 -------- -------- 3. Exceptional income 2006 2005 £000 £000 007 stage fire 940 -Shepperton Studios joint venture 73 - -------- -------- 1,013 - -------- --------007 stage fire On 30 July 2006 the 007 stage at Pinewood Studios was completely destroyed byfire. The building was insured for its current value which was in excess of itsbook carrying cost. Accounting standards require that the proceeds frominsurance applied to the rebuild of an asset in such circumstances are treatedas income, and that the impairment of the asset destroyed is charged againstthose insurance proceeds thus giving rise to a net profit or loss. Thoseaccounting standards then require that the cost of any replacement building istreated as expenditure on a new fixed asset. Accordingly, the difference between the insurance proceeds received to date of£6,144,000 and the net carrying cost of the 007 stage which was £4,076,000 havebeen treated as a profit of £2,068,000. Against this amount additional costsattributable directly to the fire of £1,128,000 have been charged thus reducingthe net exceptional income to £940,000. The costs of building the replacementstage are being capitalised and at 31 December 2006 an amount of £5,303,000 wasincluded in Property, Plant and Equipment under the heading Assets in the courseof construction. Shepperton Studios joint venture On 12 September 2006 the Group disposed of a 50% interest in Shepperton StudiosProperty Partnership which held a 999 year leasehold interest in SheppertonStudios, to Morley Fund Management. The Group's share of proceeds from thedisposal of its 50% interest in the property, plant and equipment at SheppertonStudios was £20,500,000, and its share of assets disposed of was £18,022,000.Transaction costs of £1,593,000 were incurred. Additionally, the Group hasestablished a provision of £812,000 for the maintenance of the SheppertonStudios property. 4. Finance costs 2006 2005 £000 £000 Bank loans and overdrafts 2,508 2,846Interest rate hedging 112 143Share of joint venture loan 207 -Bank charges 15 15Finance charges payable under finance leases 44 112Other loans 23 32 -------- ------- 2,909 3,148 -------- ------- Finance costs directly attributable to the construction of certain capitalexpenditure of £17,000 have been capitalised (2005: £nil) based on LIBOR plus avariable margin consistent with the Group's secured bank loan. Thecapitalisation rate was 0.68% 5. Taxation The major components of corporation tax expense for the years ended 31 December2006 and 2005 are: 2006 2005 £000 £000Consolidated income statementCurrent corporation taxUK corporation tax 1,186 78Amounts over provided in previous years - (97) ------- -------Total current corporation tax 1,186 (19) Deferred tax Relating to origination and reversal of temporarydifferences (116) 199 ------- -------Tax charge in the income statement 1,070 180 ======= ======= The tax charge in the income statement comprises:Tax on profit before exceptional items 1,898 625Tax provision adjustments relating to exceptional items (828) (445) -------- --------Tax charge in the income statement 1,070 180 -------- -------- Tax relating to items charged or credited to equity Deferred tax:Deferred tax reported in equity on cash flow hedges 170 (8)Deferred tax reported in equity on share based payments (43) - -------- --------Tax charge in the statement of changes in equity 127 (8) ======== ======== 6. Earnings per ordinary share and dividend Earnings per ordinary share Basic earnings per ordinary share are calculated by dividing net profit for theyear attributable to the holders of ordinary equity of the parent by theweighted average number of ordinary shares outstanding during the year. Diluted earnings per ordinary share are calculated by dividing net profit forthe year attributable to the holders of ordinary equity of the parent by theweighted average number of ordinary shares outstanding during the year adjustedfor the effects of dilutive potential ordinary shares resulting from employeeshare schemes. The group presents as exceptional items on the face of the income statementthose items where the cost or income is of such size or incidence thatadditional disclosure is required for the reader to understand the financialstatements. Basic and diluted earnings per share are also presented on thisbasis. The following reflects the profit and number of shares generating the basic anddiluted earnings per ordinary share computations: 2006 2005 £000 £000Profit attributable to equity holders of the parentfor basic earnings per share 6,092 391 Adjustments to profit for calculation of adjustedearnings per shareExceptional income (1,013) -Exceptional administrative expenses - 1,607Taxation adjustments on exceptional items (828) (445) ---------- -----------Adjusted profit for adjusted earnings per share 4,251 1,553 ========== =========== Thousands ThousandsBasic weighted average number of ordinary shares 45,817 45,813Dilutive potential ordinary shares resulting fromemployee share schemes 57 - ---------- -----------Diluted weighted average number of shares 45,874 45,813 ========== =========== Dividend paid 2006 2005 £000 £000 Interim dividend for 2006 paid at 0.9p per ordinaryshare 412 -Final dividend for 2004 paid at 2.7p per ordinaryshare - 1,237 ---------- ----------- 412 1,237 ========== =========== 7. Property, plant and equipment Freehold Freehold Leasehold Fixtures, Assets in the Total Land buildings imp-rovements fittings and course of and £000 equipment construction £000 improvements £000 £000 £000 £000Cost:At 1 January2005 - aspreviouslyreported 51,351 45,018 - 15,259 1,747 113,375Adjustment toreflect thefair value ofthe 007 stage - 3,973 - - - 3,973 -------- -------- -------- -------- --------- --------At 1 January2005 as restated 51,351 48,991 - 15,259 1,747 117,348Additions - 1,647 287 1,619 606 4,159Disposals - - - (84) - (84)Acquisitionof subsidiary - - - 1,214 - 1,214 Transfers - 1,265 - - (1,265) - -------- -------- -------- -------- --------- --------At 31 December 2005 51,351 51,903 287 18,008 1,088 122,637Additions - 1,577 218 1,688 6,132 9,615Disposals (8,062) (15,185) - (1,111) (229) (24,587) -------- -------- -------- -------- --------- --------At 31 December 2006 43,289 38,295 505 18,585 6,991 107,665 -------- -------- -------- -------- --------- -------- Depreciation:At 1 January 2005 - 5,501 - 8,761 - 14,262Provided during theyear - 1,456 13 2,140 - 3,609Depreciation on disposals - - - (69) - (69) -------- -------- -------- -------- --------- --------At 31 December 2005 - 6,957 13 10,832 - 17,802Provided during theyear - 1,384 68 1,768 - 3,220Depreciation on thedisposals - (2,213) - (240) - (2,453) -------- -------- -------- -------- --------- --------At 31 December - 6,128 81 12,360 - 18,5692006 -------- -------- -------- -------- --------- --------Net book value: At 31December 2006 43,289 32,167 424 6,225 6,991 89,096 ======== ======== ======== ======== ========= ======== --------- --------- --------- --------- --------- ---------At 31 December 2005 51,351 44,946 274 7,176 1,088 104,835 ========= ========= ========= ========= ========= ========= Included in the net book value of fixtures, fittings and equipment is £158,000(2005: £352,000) of assets held under finance leases. Leased assets are pledgedas security for the related finance lease liability. Included in disposals is £18,022,000 at net book value in relation to theGroup's disposal of 50% of its interest in Shepperton Studios PropertyPartnership and £4,076,000 at net book value in relation to the write off of the007 stage following its destruction by fire. Assets in the course of construction include costs incurred in securing planningconsents and 007 stage construction costs. Assets in the course of constructionare not depreciated. The Group's long-term loan is secured by floating charge over the Group'sdirectly owned assets. Shepperton Studios Property Partnership's long leasehold interest in theShepperton Studios site was valued at £42,900,000 by an independent firm ofChartered Surveyors in December 2006. The Group's 50% share of the revaluationhas not been incorporated into the financial statements. 8. Share capital and reserves Authorised 2006 2005 £000 £000Ordinary shares of 10p each 7,000 7,000 ======== ======== 7,000 7,000 ======== ======== Allotted, called up and fully paid 2006 2005 No. £000 No. £000 Ordinary shares of 10p each 45,813,118 4,581 45,813,118 4,581Shares issued under the PinewoodShepperton plc Sharesave scheme:10p ordinary shares issued on 30January 2006 2,783 - - -10p ordinary shares issued on 24April 2006 2,786 1 - - --------- -------- --------- ------- 45,818,687 4,582 45,813,118 4,581 ========= ======== ========= ======= A block listing of 230,000 10p ordinary shares, under the Pinewood Sheppertonplc Sharesave scheme, has been admitted to the Official List. Share option schemes The Group has two share based payment plans under which options to subscribe forthe Group's shares have been granted to certain executives and senior employees. Long-Term Incentive plan The Group has a long-term incentive plan under which awards for the Group'sshares have been granted to certain executives and senior employees. Nature and purpose of reserve Capital redemption reserve The capital redemption reserve arose as a result of the repurchase of shares in2001. Merger reserve On acquiring Shepperton Studios Limited the Group issued ordinary shares as partof the consideration. Merger relief was taken in accordance with s131 of theCompanies Act 1985, and hence £348,000 was credited to the merger reserve. Fair value of cash flow hedge reserve The cash flow hedge reserve is used to record the fair value gains or losses,and related deferred tax, on the hedging instrument used by the Group to manageinterest rate risk. The cash flow hedge is determined to be an effective hedge. 9. Interest-bearing loans and borrowings Effective 2006 2005 Interest rate % Maturity £000 £000CurrentObligations underfinance leases 16.1% 2007 18 300 ------- ------- 18 300 ======= =======Non-currentSecured bank loan LIBOR + 12 May 2009 9,000 43,000 variable marginSecured bank loanarrangement costs (198) (489) ------- ------- 8,802 42,511 Share of jointventure loan Base rate + 2% 30 September 10,000 - 2026Cash flow hedge 5.525% 31 March 2009 4 572Obligations underfinance leases 16.1% 2007 - 17 ------- ------- 18,806 43,100 ======= ======= At 31 December 2006, the Group had £29,000,000 (2005: £10,000,000) of availableundrawn committed borrowing facilities. Bank overdraft The Group has an overdraft facility of £3,000,000 to support the futureoperating activities of the business. This overdraft is secured by a floatingcharge over the Group's directly owned assets. Secured bank loan at LIBOR + variable margin. The Group has entered into a revolving credit facility with a syndicate ofbanks, which provides facilities of £35,000,000 (2005: £50,000,000). The bankloan is secured by floating charge over the Group's directly owned assets. Long-term loan facilities become repayable on demand following a change incontrol of the Group. Interest on the loan is based on LIBOR plus a variable margin derived from theratio of net debt, which includes interest bearing loans and borrowings andcash, to EBITDA, which is operating profit before exceptional items plusdepreciation. At 31 December 2006 the margin was 0.95% (2005: 1.50%). The Grouphas entered into an interest rate hedging agreement to manage the impact ofinterest rate fluctuations. Share of joint venture loan This relates to the Group's 50% share of the joint venture's £20,000,000investor loan (2005: £nil). The loan is secured by a fixed charge on the assetsof Shepperton Studios Property Partnership, is non-recourse on the Group and isrepayable in full on 30 September 2026. Interest on the loan is base rate plus 2% margin with an interest rate floor of6.5%. The interest rate floor is an embedded derivative in the loan agreement,however the derivative has not been separated from the loan agreement as itsatisfies the criteria for non separation in IAS 39. 10. Commitments and contingencies Capital commitments At 31 December 2006, the Group had capital commitments contracted for but notprovided in the accounts totalling £1,855,000 (2005: £26,000) in relation to thecompletion of certain capital expenditure projects. 11. Related party disclosures The consolidated financial statements include the financial statements ofPinewood Shepperton plc, its subsidiaries and 50% share of joint ventures listedin the following table. Country of incorporation % equity interest 2006 2005 Pinewood Studios Limited United Kingdom 100 100Shepperton Studios Limited United Kingdom 100 100Pinewood-Shepperton StudiosLimited United Kingdom 100 100Studiolink Limited United Kingdom 100 100Teddington Studios Limited United Kingdom 100 100The Studio Broadcasting CompanyLimited United Kingdom 100 100Baltray No.1 Limited United Kingdom 100 -Baltray No.2 Limited United Kingdom 100 -Shepperton Management Limited United Kingdom 100 - Pinewood Shepperton plc is the ultimate parent entity. Joint ventures % joint venture interestShepperton Studios (General Partner) United Kingdom 50 -LimitedShepperton Studios Property Partnership United Kingdom 50 - During the year the Group entered into transactions with the following relatedparties, involving the utilisation of media facilities at normal market ratesand settlement terms. Amounts Sales to owed by related related party party £000 £000Entity with which Michael Grade was associated duringthe year: BBC 2006 2,463 99 2005 1,805 38 Michael Grade is non-executive Chairman of Pinewood Shepperton plc and wasChairman of the Board of Governors of the BBC until 28 November 2006. Joint venture in which parent is a venturer: On 12 September 2006 the Group effectively disposed of 50% of its interest inShepperton Studios Property Partnership. The profit on sale of its interest issummarised as follows: 2006 £000Sale proceeds 20,500Share of assets disposed of (18,022) -------- Profit on disposal before expenses 2,478 Group's expenses:Transaction costs (1,593)Provision for maintenance costs (812) --------Exceptional other income 73 ======== The Group has entered into a commercial property lease on the Shepperton Studiosproperty. The net cost to the Group of principal lease rentals during the yearended 31 December 2006 was £196,000 (2005: £nil). In addition the Group pays atop up rent to the joint venture partnership based on certain of its tradingactivities at the Shepperton Studios site. During the year the net cost to theGroup of the top up rent was £47,000 (2005: £nil). The Group's share of amountsowed, to the 50% joint venture partnership at 31 December 2006 was £109,000(2005: £nil). The Group has agreed to manage the assets of the joint venture partnership andcharge an asset manager fee based on independent valuations of the SheppertonStudios site. Asset manager fees charged during the year ended 31 December 2006were £39,000 (2005: £nil). The Group's share of amounts owed, by the 50% jointventure partnership at 31 December 2006 was £8,000 (2005: £nil). 12. Basis of preparation The consolidated financial statements of Pinewood Shepperton plc and all itssubsidiaries and joint ventures have been prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union asthey apply to the financial statements of the group for the year ended 31December 2006 and applied in accordance with the Companies Act 1985. The Group financial statements are presented in UK sterling and all values arerounded to the nearest thousand pounds (£'000) except when otherwise indicated. Restatement of prior year comparatives During the year the Group has reviewed the fair value of assets acquired on theacquisition of Pinewood Studios Limited in 2000 and has determined that thereversionary interest in the 007 stage, valued at £4.0m at the date ofacquisition and previously included as part of intangible assets, should moreappropriately have been included in property, plant and equipment. The effect ofthis restatement is to decrease intangible assets by £4.0m and increaseproperty, plant and equipment by £4.0m for the year ended 31 December 2005.There is no effect on Shareholders' Equity or on Income for the year. In the financial statements for the year ended 31 December 2005 the grouppresented its cash flow statement using the direct method, as permitted in IAS 7Cash Flow Statements, under which the major classes of gross cash receipts andgross cash payments are disclosed. The board considers that presenting the CashFlow Statement using the indirect method, which arrives at the same value fornet cash flow from operating activities, but does so from working back fromreported profit and loss in the form of a reconciliation is more relevant to theusers of the financial statements. As a result the constituent elementsdisclosed in arriving at the group's net cash flow from operating activitieshave been altered from those disclosed at 31 December 2005, however the net cashinflow from operating activities has not changed. 13. Date of approval of the preliminary announcement The preliminary announcement was approved by the Board of Directors on 26 March2007. 14. Publication of non-statutory accounts The financial information contained herein does not constitute the Company'sstatutory accounts for the year ended 31 December 2006, as defined in section240 of the Companies Act 1985, but have been extracted from the statutoryaccounts, upon which the auditors issued an unqualified opinion. Statutory accounts for 2005 have been delivered to the Registrar of Companies. Statutoryaccounts for the year ended 31 December 2006 will be delivered following theCompany's Annual General Meeting. 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