8 Dec 2008 07:00
Date: 8 December 2008
On behalf of: First Artist Corporation plc ("First Artist" or "the Company" or "the Group")
Embargoed for: 0700hrs
First Artist Corporation plc
Preliminary Results for the year ended 31 August 2008
First Artist Corporation plc (AIM: FAN), the media, events and entertainment management group, today announces its final audited results for the year ended 31 August 2008.
Highlights from last 12 month period include:
Turnover up 11% to £54.1 million (2007: £48.6m)
EBITDA* of £3.8 million (2007: £3.9m)
Profit on ordinary activities before tax £607,000 (2007: £1.7m)
Basic EPS 1.09p (2007: 9.00p)
Consolidated net assets up 7% to £8.2 million (2007: £7.6m)
*(Earnings before interest, tax, depreciation and amortisation (EBITDA) is stated before exceptional administrative expenses)
**(EBITDA pre Group Central Costs)
Post year activity:
Completion of acquisition of Spot and Company of Manhattan ("SpotCo"), a leading US-based live entertainment advertising agency, on 31 October 2008.
Announcement that the acquisition of SpotCo was funded through a new committed banking facility totalling £16.428 million, provided by Allied Irish Bank.
Jon Smith, Chief Executive of First Artist Corporation commented:
"In August 2008 we announced that the Company had agreed the acquisition of SpotCo, underlining our commitment to placing the live event sector at the heart of our business. SpotCo is a leading US-based live entertainment advertising agency and is a natural strategic fit with Dewynters, the UK entertainment industry's leading full-service agency and the largest operation within the Group. The acquisition gives the Group a dominant position in live entertainment advertising in the world's two most important markets - London's West End and New York's Broadway.
"The Group now benefits from nine diverse income streams, spread across our three divisions: Media, Entertainment and Events.
"2008 was a challenging year for the Group and with the scale of the economic crisis we remain in uncertain times. Our response for many months has been ever closer scrutiny of our cost base and a drive for greater efficiencies, without undermining our operations. Over the last year we have improved our cash collection, and going forward will continue to ensure that cash is tightly managed. In addition, we expect all our businesses to be cash generative this year.
"We believe that in the current year, having laid these foundations and having secured new funding from Allied Irish Bank, we are well placed to weather the current conditions."
| First Artist Corporation plc Jon Smith, Chief Executive Julianne Coutts, Company Secretary | tel: 020 7993 0000 www.firstartist.com |
| Daniel Stewart & Company plc, Nominated Adviser and Broker Stewart Dick | tel: 020 7776 6550 www.danielstewart.co.uk |
| Redleaf Communications Emma Kane/Samantha Robbins/Michael Ward | Tel: 020 7822 0200 firstartist@redleafpr.com |
Chairman's Statement
It gives me great pleasure to report the results of the First Artist Group for the financial year ended 31 August 2008.
EBITDA, at £3.8 million, was ahead of the top end of the range given to the market in our trading update of 29 July 2008.
In August 2008 we announced that the Company had agreed the acquisition of Spot and Company of Manhattan, Inc. ("SpotCo"), underlining our commitment to placing the live event sector at the heart of our business. SpotCo is a leading US-based live entertainment advertising agency and is a natural strategic fit with Dewynters, the UK entertainment industry's leading full-service agency and the largest operation within the Group. The acquisition, which was completed at the end of October 2008, gives the Group a dominant position in live entertainment advertising in the world's two most important markets - London's West End and New York's Broadway - and the opportunity to extend our global reach as shows go on tour, together with an enlarged pool of creative talent and vision. The benefits and synergies of the enhanced collaboration between Dewynters and SpotCo are already coming through, for example in the combined campaign for Priscilla: Queen of the Desert. SpotCo's current campaigns include Avenue Q, Chicago, West Side Story, Shrek the Musical, Young Frankenstein and Billy Elliott, which opened on Broadway last month to huge acclaim.
It has also been a year of consolidation and focus across our three divisions.
The Media division, which accounted for 55% of the Group's EBITDA* for the year (2007: 52%) is made up of the Dewynters Group, ie. Dewynters (UK), Dewynters Advertising Inc., and Newman Displays, the specialist signage and display company, together with Sponsorship Consulting Limited and First Rights Limited. Following the acquisition the division also incorporates SpotCo.
Dewynters enjoyed another good year, supporting such productions as Mamma Mia!, Joseph And His Amazing Technicolor Dreamcoat, Wicked, The Sound of Music, The Lord of the Rings, Avenue Q and Equus. Newman Displays undertook many front of house displays, including signage for the West End musical Jersey Boys and numerous film events, in particular the BAFTA Film Awards at the Royal Opera House, The Other Boleyn Girl, and Sweeney Todd, together with Atonement for the London Film Festival and Indiana Jones and the Kingdom of the Crystal Skull at Cannes. Recent work has included the new James Bond film, Quantum of Solace.
Dewynters Advertising Inc. operates as a merchandising and souvenir programme business in the lucrative US theatre market from its offices in New York and Las Vegas.
The Entertainment and Sport Management division accounted for 30% of the year's EBITDA* (2007: 39%). First Artist Management, the celebrity and media personality agency, performed well in a competitive environment, including successfully promoting clients in programmes such as Natalie Pinkham in ITV's Dancing on Ice and Andrea McLean as the main anchor for ITV's Loose Women. The agency also completed a new two book deal on behalf of Gillian McKeith and has recently signed a number of new clients, including West End theatre star Ruthie Henshall and Michael Obiora of Hotel Babylon fame.
First Artist Sport, one of the world's leading player representation agency groups, completed several notable transfers including Pedro Mendes from Portsmouth to Glasgow Rangers, Andrea Dossena from Udinese to Liverpool and Mikael Forssell from Birmingham to Hannover 96, and since the year end has raised its profile through the negotiation by Phil Smith of manager Harry Redknapp's move to Tottenham Hotspur.
Optimal Wealth Management, which was directly affected by the turmoil in world markets, nevertheless achieved a creditable performance.
The Finishing Touch, our events business, put in a strong performance with a 53% increase in operating profits, contributing 15% to Group EBITDA* (2007: 9%). During the year the public sector division delivered over 600 events under its contract with the Training and Development Agency for Schools. Despite a challenging market, the corporate division enjoyed the benefit of a number of long term relationships, and had a significant new business win to launch Debenhams' Spring/Summer 2008 collection preview to the fashion press (for which it achieved a silver medal for Best New Event in recent event industry awards), going on to win the Autumn/Winter 2008 and Spring/Summer 2009 fashion launches as well. In February 2008 The Finishing Touch also launched its new venue finding service, VenuesFirst, which was an immediate success.
As we reported in August, the acquisition of SpotCo was funded through a new committed banking facility totalling £16.428 million, provided by Allied Irish Bank, whose support the Company continues to enjoy.
During the past year we have established a Corporate Responsibility Committee whose remit it is to develop, recommend and implement a corporate responsibility strategy for the Group, which we have called "Planet First!". Initiatives have included improving recycling and energy saving practices, various activities for nominated charities, and a corporate responsibility ideas box to which all employees can contribute. We are delighted that our staff have embraced this initiative so enthusiastically, and we look forward to increasing our efforts over the coming year.
In the current economic climate we remain firmly focused on cost controls and have introduced additional systems across the Group to ensure that cost efficiency is maximised. Over the last year we have improved our cash collection, and going forward will continue to ensure that cash is tightly managed. In addition, we expect all our businesses to be cash generative this year.
This is my last year as Chairman, as I will be standing down from the Board at the next Annual General Meeting. The Group now looks very different from when I joined it three years ago, and I have every confidence that with its diverse income streams, talented and committed senior management team and strong internal controls, is well placed to deal with the challenges of the current market. I have greatly enjoyed my time as Chairman and would like to wish Jon and everyone at First Artist the very best for the future.
Jarvis Astaire
Chairman
(*EBITDA pre Group Central Costs)
Chief Executive's Statement
With the scale of the economic crisis we are in uncertain times. Our response for many months has been ever closer scrutiny of our cost base and a drive for greater efficiencies, without undermining our operations. We believe that in the current year, having laid these foundations, we are well placed to weather the current conditions.
I would like to say a few words in particular about our people.
Firstly, I would like to thank the corporate team for their all their hard work in bringing the SpotCo acquisition to fruition. Simon Bent, the Group Finance Director Designate, who played an integral role in this project, is leaving First Artist at the end of December as he is emigrating. Simon has been with the Group for over three years and will be greatly missed. However, we are pleased to welcome David Eglen, who joined us earlier this month, as our new Group FD Designate. David, a Chartered Accountant, was previously Chief Financial Officer, EMEA region, at FiveTen Recruitment Group. I am sure that you will join me in thanking Simon for his enormous contribution to First Artist. We wish him and his family all the very best for their new life in Australia.
I would also like to thank all our employees for their contribution over the last year. Their hard work, enthusiasm and commitment to making a difference is absolutely vital to our success and is greatly appreciated.
Finally, on behalf of all the Directors, I would like to extend our thanks to Jarvis Astaire for serving as our Chairman over the last three years. As a Board we have benefited from his experience and stewardship over a time of great change; as individuals we have appreciated and learned from his wise counsel. We wish Jarvis all the very best. We have identified a successor who will be proposed at the next Annual General Meeting.
Jon Smith
Chief Executive
OPERATING AND FINANCIAL REVIEW
Competitive Performance
| 31 August 2008 £'000s | 31 August 2007 £'000s | Variance £'000s | ||||
| Turnover | 54,102 | 48,607 | 5,495 | |||
| EBITDA | 3,824 | 3,949 | (125) | |||
| Exceptional items | (697) | (322) | (375) | |||
| Depreciation | (607) | (416) | (191) | |||
| Amortisation | (364) | (339) | (25) | |||
| Operating Profit | 2,156 | 2,872 | (716) | |||
| Net interest | (1,549) | (1,220) | (329) | |||
| Profit before tax | 607 | 1,652 | (1,045) | |||
| Taxation | (460) | (527) | 67 | |||
| Retained Profit | 147 | 1,125 | (978) | |||
| EPS (Basic earnings per share) | 1.09 | pence | 9.00 | pence | ||
| EPS (Basic earnings per share before exceptionals, depreciation, amortisation and deemed interest on deferred consideration) | 15.83 | pence | 19.93 | pence | ||
Outline
The media division provided the backbone to the Group's trading performance, with the entire division accounting for 55% (2007: 52%) of EBITDA*. The division is dominated by the Dewynters Group which contributed 96% of its EBITDA. Within the Dewynters Group the only disappointing performance came from Dewynters Inc., which saw a 27% fall in its EBITDA due to a major production ending early. By way of contrast Dewynters (UK) and Newman Displays both continued to prosper.
The events division, The Finishing Touch, continued to make good progress and experienced a 35% increase in EBITDA, which was largely attributable to revenue generated from both the corporate and public sectors. The events division contributed 15% of Group EBITDA*, up from 10% last year.
The entertainment and sports management division showed a fall in profitability compared to the previous year with EBITDA down by 25%. In difficult trading conditions all three businesses in this division were down on the previous year. Our wealth management business, Optimal, produced a credible performance in a challenging market. Overall the division contributed 30% of total EBITDA*, which is down from 39% in 2007.
Group costs were flat as compared to 2007. This was achieved despite the Group taking on additional West End office space in September 2007. Group EBITDA as a percentage of gross profit fell from 20% to 18% but the management team are committed to improving margins above current levels and in particular to bringing administrative expenses in line with gross profit.
*EBITDA pre Group Central Costs
Turnover
Group turnover for the year has increased 11% compared to the prior year. This figure includes a full 12 months trading from all Companies around the Group.
EBITDA
The EBITDA for the Group, before depreciation, amortisation and exceptional costs, decreased 3% to £3.8 million.
Gross profit increased by 10% to £21.7 million as compared to the previous year; whilst administrative expenses, excluding amortisation, depreciation and exceptional charges, increased by 14% to £17.9 million.
Group earnings were weighted towards the second half of the year because of the summer transfer window in football.
Foreign Exchange
Foreign exchange gains amounted to £0.32 million (2007: losses of £0.08 million), mainly due to the devaluation of sterling against the US dollar and the Euro.
Key Performance Indicators (KPI's)
A number of percentage-based KPI's are used for internal reporting purposes, relating to gross profit, operating profit and personnel costs. KPI's are also calculated on staff numbers to give gross profit, operating profit and gross profit per head.
Amortisation and exceptionals
Other intangibles were amortised in accordance with International Financial Reporting Standards (IFRS). The charge increased by £0.02 million to £0.36 million for the year, the amortisation charge being in respect of customer relationships and also a non-cash adjustment.
Exceptional costs incurred during the year resulted largely from acquisition related payments plus one significant bad debt of £0.24 million.
Interest payable, funding and liquidity
Net interest payable was £1.61 million (2007: £1.28 million). A total of £0.32 million (2007: £0.29 million) relates directly to the unwinding of the discounted deferred consideration. This charge is a non-cash adjustment and relates to the provision of a net present valuation on deferred consideration required under this standard.
New banking facilities were agreed with Allied Irish Bank (GB) in the post balance sheet period, details of which can be found in note 29 to the Financial Statements.
Taxation
The tax charge of £0.46 million (2007: £0.52 million) fully utilises the Company's taxable losses for the year across the whole Group. The effective tax rate for the year of 76% (2007: 32%) is particularly high due to the unwinding of discounts on deferred consideration of £0.32 million.
Earnings per share
Basic earnings per share was 1.09p (2007: 9.00p); whilst earnings per share before exceptional administrative items, deemed interest on deferred consideration, depreciation and amortisation was 15.83p (2007: 19.93p).
Divisional Key Performance Indicators (KPI)
The media division showed favourable operating profit per head and gross profit per head, indicating the productivity of individuals has improved. The gross profit margin was in accordance with the KPI target. However, the operating profit to gross profit margin was short of target, arising due to recruitment of additional staff in the new media division at Dewynters Limited. The aforementioned costs were necessary to secure future business in this division with our current and new clients.
The events division showed operational efficiency, with the operating profit to gross profit margin exceeding the KPI target. Operating profit and gross profit per head were also ahead of target, highlighting the excellent results of the division.
The entertainment and sports management division reported a higher than target gross profit margin, due to reduced third party costs across the football business. However, the operating profit to gross profit margin was short of the targeted KPI, due to higher than anticipated costs in the football businesses. This has now been addressed. Operating profit and gross profit per head were below KPI expectations, emphasising the lower than expected results of this division.
Review of Operations
Balance Sheet
Shareholders' funds
Shareholders' funds increased by 8% £8.23 million.
Cash Flow
During the year the Group repaid £1.57m of the seven-year banking loan facility of £11.00 million via quarterly instalments. A payment of £1.50m in relation to the new five-year banking loan facility from Allied Irish Bank (GB) was advanced to the Group during the year. This was used to provide working capital and facilitate the acquisition costs for the Group. The table below indicates the split of net debt over three periods.
The Board believes that the level of gearing, at 159% (2007: 128%), which has resulted from the acquisition strategy adopted over the last few years is acceptable given the cash generative nature of the enlarged Group. Interest cover has fallen to 3.3 times (2007: 3.6 times), although this is expected to increase above the 2007 figure during the coming year.
| 31 August 2008 £m | 31 August 2007 £m | 31 August 2006 £m | ||||
| One year bank loan | - | - | (1.00) | |||
| Two year mezzanine bank loan | (2.79) | (2.79) | - | |||
| Five year bank loans | (1.50) | - | (2.78) | |||
| Seven year bank loan | (8.45) | (9.98) | - | |||
| Other group net debts | (0.72) | (0.48) | (0.90) | |||
| Cash in hand and bank overdrafts | 0.46 | 3.55 | 0.88 | |||
| (13.00) | (9.70) | (3.80) | ||||
International Financial Reporting Standards
These are the Group's first annual results to be reported under International Financial Reporting Standards ("IFRS") which became mandatory for all companies listed on the AIM market for accounting periods commencing on or after 1 January 2007. Comparative figures for the year ended 31 August 2007 have been restated in accordance with IFRS. The principal effects of adopting IFRS were published in the Company's "Restatement of Financial Information under International Financial Reporting Standards" release issued on 28 January 2008. The Group has adopted the material exemption, as permitted by IFRS, not to restate historical business combinations that took place before 1 September 2006, that being the date of IFRS transition.
Risks associated with the Group
The Group is subject to a number of macro economic factors, as with other businesses, such as interest rate and foreign exchange rate fluctuations, which are outside the Group's control.
On a more specific basis the Group's bank borrowings are subject to various financial covenants based upon EBITDA-based interest cover, the ratio between total borrowings and EBITDA and the ratio between cash flow and total borrowings. These covenants are typical of those applied to businesses within the Group's sector and they are not expected to have a material impact on our ability to finance our business. In the year ended 31 August 2008, the net finance costs were covered 3.28 times by EBITDA and the ratio of total borrowings to EBITDA was 2.65, both comfortably satisfying the covenants. The proposed covenants under the terms of the new £16.428 million banking facility (see note 9) are expected to be satisfied in the year ended 31 August 2009.
The Group is not currently subject to any material legal or economic restrictions on the ability of its subsidiaries to transfer funds to the Company in the form of dividends, loans or other advances.
On a regulatory basis, the environments in football and wealth management continue to change, impacting on risk. However, certainly in football, the Group is well positioned for any changes due to its involvement with the Agents Association.
The loss of key personnel can also be considered a risk, although the retention post earn-out of the key figures in Optimal and The Finishing Touch suggests that this risk is being managed effectively.
On a competitive basis, although Dewynters dominates its market it could be argued that the business is reliant on the success of the West End Productions and the general economic climate. In fact, Dewynters benefits two-fold in the majority of cases as new productions have higher spends and hence profits, whilst lower seat numbers often lead to higher marketing spends by the production house.
Finally, the football market is saturated and dependent upon the agents securing transfer contracts during the trading windows, often involving large sums of money. Hence period to period comparisons can be difficult. However, the pipeline income generated in this area has grown considerably year on year, which helps to remove the uncertainty over income generation.
Jon Smith
Chief Executive
8 December 2008
Consolidated Income Statement for the year ended 31 August 2008
| Continuing operations | ||||
| Notes | 31 August 2008 £000 | 31 August 2007 £000 | ||
| REVENUE | 2 | 54,102 | 48,607 | |
| Cost of sales | (32,411) | (28,913) | ||
| GROSS PROFIT | 21,691 | 19,694 | ||
| Administrative expenses | (19,535) | (16,822) | ||
| EBITDA | 3,824 | 3,949 | ||
| Exceptional administrative expenses | 3 | (697) | (322) | |
| Depreciation | (607) | (416) | ||
| Amortisation of intangibles | (364) | (339) | ||
| OPERATING PROFIT | 2,156 | 2,872 | ||
| Finance income | 59 | 61 | ||
| Finance costs | (1,608) | (1,281) | ||
| PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION | 607 | 1,652 | ||
| Taxation | 5 | (460) | (527) | |
| PROFIT FOR THE YEAR | 147 | 1,125 | ||
| EARNINGS PER SHARE Basic | 6 | 1.09p | 9.00p | |
| Diluted | 6 | 1.07p | 8.26p | |
Consolidated Balance Sheet as at 31 August 2008
| Notes | 31 August 2008 £000 | 31 August 2007 £000 | |
| NON-CURRENT ASSETS | |||
| Goodwill and intangible assets | 23,294 | 23,224 | |
| Property, plant and equipment | 1,961 | 2,157 | |
| Available-for-sale investments | 142 | 118 | |
| Trade and other receivables | 602 | 632 | |
| 25,999 | 26,131 | ||
| CURRENT ASSETS | |||
| Inventories | 534 | 570 | |
| Trade and other receivables | 11,639 | 11,704 | |
| Cash and cash equivalents | 1,212 | 3,914 | |
| 13,385 | 16,188 | ||
| CURRENT LIABILITIES | |||
| Trade and other payables | (9,854) | (11,307) | |
| Current taxation liabilities | (1,242) | (970) | |
| Obligations under finance leases | (7) | (39) | |
| Borrowings | 7 | (5,787) | (2,331) |
| Provisions | (2,205) | (3,397) | |
| (19,095) | (18,044) | ||
| NET CURRENT LIABILITIES | (5,710) | (1,856) | |
| NON-CURRENT LIABILITIES | |||
| Trade and other payables | (81) | (245) | |
| Deferred taxation liabilities | (974) | (1,000) | |
| Obligations under finance leases | - | (11) | |
| Borrowings | 7 | (8,417) | (11,238) |
| Provisions | (2,646) | (4,175) | |
| (12,118) | (16,669) | ||
| TOTAL LIABILITIES | (31,213) | (34,713) | |
| NET ASSETS | 8,171 | 7,606 | |
| EQUITY | |||
| Called up share capital | 347 | 328 | |
| Share premium | 6,598 | 10,011 | |
| Capital redemption reserve | 15 | 15 | |
| Share option reserve | 285 | 210 | |
| Retained earnings | 1,086 | (3,048) | |
| Interest in own shares | (259) | - | |
| Foreign exchange reserve | 99 | 90 | |
|
| |||
| TOTAL EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT | 8,171 | 7,606 |
Consolidated Cash Flow Statement for the year ended 31 August 2008
| Notes | Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |
| Net cash inflow from operating activities | 8 | 1,535 | 2,859 |
| Investing activities | |||
| Finance income | 59 | 61 | |
| Purchases of property, plant and equipment | (461) | (823) | |
| Acquisition of subsidiaries | (2,030) | (7,566) | |
| Additions to available-for-sale investments | (24) | - | |
| Net cash used in investing activities | (2,456) | (8,328) | |
| Financing activities | |||
| Repayments of borrowings | (1,571) | (786) | |
| Repayments of obligations under finance leases | (45) | - | |
| New bank loans raised | 1,500 | 13,785 | |
| Directors' loans | - | (33) | |
| Other loans and loan notes | (445) | (4,441) | |
| Purchase of own shares | (259) | - | |
| Net cash proceeds from issue of shares | - | 812 | |
| Interest paid | (1,355) | (1,228) | |
| Net cash (used) / generated by financing activities | (2,175) | 8,109 | |
| Net (decrease) / increase in cash and cash equivalents | (3,096) | 2,640 | |
| Cash and cash equivalents at the beginning of the year | 3,551 | 877 | |
| Effect of foreign exchange rate changes | 9 | 34 | |
| Cash and cash equivalents at the end of the year | 464 | 3,551 | |
Statement of Changes in Equity
| Share Capital £000 | Share to be Issued £000 | Capital Redemption Reserve £000 | Share Premium £000 | Share Option Reserve £000 | |
| ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | |||||
| At 1 September 2006 | 270 | 5 | 15 | 8,849 | 133 |
| Deferred taxation on share options | - | - | - | - | - |
| Currency translation differences | - | - | - | - | - |
| Income recognised directly in equity | - | - | - | - | - |
| Retained profit for the year | - | - | - | - | - |
| Total recognised income for the year | - | - | - | - | - |
| Shares issued | 58 | (5) | - | 1,429 | - |
| Issue costs | - | - | - | (267) | - |
| Share-based payment charge | - | - | - | - | 77 |
| Total change in equity | 58 | (5) | - | 1,162 | 77 |
| At 1 September 2007 | 328 | - | 15 | 10,011 | 210 |
| Deferred taxation on share options | - | - | - | - | - |
| Currency translation differences | - | - | - | - | - |
| Income recognised directly in equity | - | - | - | - | - |
| Retained profit for the year | - | - | - | - | - |
| Total recognised income for the year | - | - | - | - | - |
| Transfer from share premium to retained earnings | - | - | - | (4,047) | - |
| Payment to acquire own shares | - | - | - | - | - |
| Shares issued to vendors as deferred consideration | 19 | - | - | 634 | - |
| Share-based payment charge | - | - | - | - | 75 |
| Total change in equity | 19 | - | - | (3,413) | 75 |
| At 31 August 2008 | 347 | - | 15 | 6,598 | 285 |
Statement of Changes in Equity (continued)
| Retained Earnings £000 | Foreign Exchange Reserve £000 | Interest in Own Shares £000 | Total Equity £000 | |
| ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | ||||
| At 1 September 2006 | (4,233) | 56 | - | 5,095 |
| Deferred taxation on share options | 60 | - | - | 60 |
| Currency translation differences | - | 34 | - | 34 |
| Income recognised directly in equity | 60 | 34 | - | 94 |
| Retained profit for the year | 1,125 | - | - | 1,125 |
| Total recognised income for the year | 1,185 | 34 | - | 1,219 |
| Shares issued | - | - | - | 1,482 |
| Issue costs | - | - | - | (267) |
| Share-based payment charge | - | - | - | 77 |
| Total change in equity | - | - | - | 1,292 |
| At 1 September 2007 | (3,048) | 90 | - | 7,606 |
| Deferred taxation on share options | (60) | - | - | (60) |
| Currency translation differences | - | 9 | - | 9 |
| Income recognised directly in equity | (60) | 9 | - | (51) |
| Retained profit for the year | 147 | - | - | 147 |
| Total recognised income for the year | 87 | 9 | - | 96 |
| Transfer from share premium to retained earnings | 4,047 | - | - | - |
| Payment to acquire own shares | - | - | (259) | (259) |
| Shares issued to vendors as deferred consideration | - | - | - | 653 |
| Share-based payment charge | - | - | - | 75 |
| Total change in equity | 4,047 | - | (259) | 469 |
| At 31 August 2008 | 1,086 | 99 | (259) | 8,171 |
Notes to the Accounts
1. BASIS OF PREPARATION
The financial information set out above has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and those parts of the Companies Act 1985 that remain applicable to companies reporting under IFRS and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. For details of the impact of the transition to IFRS see the IFRS Re-statement, released to the AIM Market on 28 January 2008.
Statutory accounts for the year ended 31 August 2008 will be delivered to the Registrar of Companies and sent to Shareholders shortly. The Company's auditors have indicated that they intend to issue an unqualified auditor's report, which will contain any statement under Section 237(2) or (3) of the Companies Act 1985, on the statutory financial statements for the year ended 31 August 2008. Statutory accounts for the year ended 31 August 2007, which were prepared under UK Generally Accepted Accounting Principles, have been filed with the Registrar of Companies. The auditors report on those accounts was unqualified and did not contain a statement under section 237A of the Companies Act 1985.
BASIS OF ACCOUNTING
The financial statements have been prepared under the historic cost convention on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and IFRC Interpretations for the first time. In 2007 the financial statements were prepared in accordance with UK GAAP. The comparatives have been restated under IFRS.
Conversion to IFRS affects the Group's reporting particularly in the areas of accounting for goodwill, other intangible assets, deferred consideration, foreign exchange reserves and deferred taxation. This said, the adoption of IFRS represents an accounting change only and does not change the cash flows of the group or its operations. There is also no impact on the Group's reportable segments from those reported under UK GAAP.
At the date of authorisation of these financial statements, the following Standards and Interpretations relevant to the group operations that have been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated):
IFRS 2 Share based Payment - Amendments relating to vesting conditions and cancellations
IFRS 3 Business Combinations - Amendments
IFRS 7 Financial Instruments: Disclosures - Consequential amendments arising from amendments to IAS 32
IFRS 8 Operating Segments (endorsed)
IAS 1 Presentation of Financial Statements - Revised
IAS 1 Presentation of Financial Statements - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation
IAS 23 Borrowing Costs - Amendment
IAS 27 Consolidated and separate Financial Statements - Consequential amendments arising from Amendments from IFRS 3
IAS 28 Investments in Associate - Consequential amendments arising from amendments to IFRS 3
IAS 31 Interest in Joint Ventures - Consequential amendments arising from amendments to IFRS 3
IAS 32 Financial Instruments Presentation - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation
IAS 39 Financial Instruments: Recognition and Measurement - Consequential amendments arising from amendments to IAS 32
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (endorsed)
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction
Annual Improvements Project
The directors anticipate that the adoption of these Standards and Interpretations as appropriate in future periods will have no material impact on the financial statements of the Group, except for additional segment disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of First Artist Corporation Plc and its subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company, using consistent accounting policies.
The excess of cost of acquisition over the fair values of the Group's share of identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair value of identifiable net assets acquired (i.e. discount on acquisition) is recognised directly in the income statement.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The costs of an acquisition are measured as the fair value of the assets given equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at acquisition date irrespective of the extent of any minority interest.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group.
All intra-group transactions, balances, and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
2. BUSINESS AND GEOGRAPHICAL SEGMENTS
Business segments
For management purposes, the Group is currently organised into three operating divisions - Media, Events and Entertainment/Sport. These divisions are the basis on which the Group reports its primary segment information.
Principal activities are as follows:
Media - marketing, design, advertising, promotions, digital media services, publishing and merchandising, sponsorship and sponsorship rights consulting.
Events - full event planning and management services, venue finding.
Entertainment/Sport - entertainment, sport and wealth management services.
Segment information about these businesses is presented below.
| Segment information for the year ended 31 August 2008 is presented below: | ||||||
| Media £000 | Events £000 | Entertainment /Sport £000 | Group £000 | |||
| Revenue | ||||||
| External sales | 38,568 | 6,679 | 8,870 | 54,117 | ||
| Inter-segment sales | - | - | (15) | (15) | ||
| Total revenue | 38,568 | 6,679 | 8,855 | 54,102 | ||
| Result | ||||||
| Operating EBITDA | 2,875 | 775 | 1,550 | 5,200 | ||
| One-off costs | (19) | (164) | (291) | (474) | ||
| Depreciation | (412) | (6) | (72) | (490) | ||
| Amortisation | (364) | - | - | (364) | ||
| Segment result | 2,080 | 605 | 1,187 | 3,872 | ||
| Unallocated corporate expenses | ||||||
| Group costs | (1,376) | |||||
| Depreciation | (117) | |||||
| One off costs | (223) | |||||
| Operating profit | 2,156 | |||||
| Finance income | 59 | |||||
| Finance costs | (1,608) | |||||
| Profit before tax | 607 | |||||
| Tax | (460) | |||||
| Profit after tax | 147 | |||||
| Unallocated corporate expenses above include all Head Office costs (such as directors remuneration, wages and salaries, office rentals and other administrative overheads). | ||||||
| Media £000 | Events £000 | Entertainment /Sport £000 | Unallocated £000 | Group £000 | |
| Other information | |||||
| Capital additions | 201 | 1 | 77 | 182 | 461 |
| Assets | |||||
| Segment assets | 22,098 | 4,017 | 11,121 | 2,148 | 39,384 |
| Total assets | 22,098 | 4,017 | 11,121 | 2,148 | 39,384 |
| Liabilities | |||||
| Segment liabilities | 6,583 | 465 | 3,149 | 20,956 | 31,153 |
| Total liabilities | 6,583 | 465 | 3,149 | 20,956 | 31,153 |
Segment information for the year ended 31 August 2007 is presented below:
| Media £000 | Events £000 | Entertainment /Sport £000 | Group £000 | |||
| Revenue | ||||||
| External sales | 33,612 | 5,157 | 9,898 | 48,667 | ||
| Inter-segment sales | - | - | (60) | (60) | ||
| Total revenue | 33,612 | 5,157 | 9,838 | 48,607 | ||
| Result | ||||||
| Operating EBITDA | 2,748 | 505 | 2,052 | 5,305 | ||
| Depreciation | (320) | (8) | (70) | (398) | ||
| Amortisation | (339) | - | - | (339) | ||
| Segment result | 2,089 | 497 | 1,982 | 4,568 | ||
| Unallocated corporate expenses | ||||||
| Group income | (1,356) | |||||
| Depreciation | (18) | |||||
| One off costs | (322) | |||||
| Operating profit | 2,872 | |||||
| Finance income | 61 | |||||
| Finance costs | (1,281) | |||||
| Profit before tax | 1,652 | |||||
| Tax | (527) | |||||
| Profit after tax | 1,125 | |||||
| Unallocated corporate expenses above include all Head Office costs (such as directors remuneration, wages and salaries, office rentals and other administrative overheads). | ||||||
| BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) | ||||||
| Media £000 | Events £000 | Entertainment /Sport £000 | Unallocated £000 | Group £000 | ||
| Other information | ||||||
| Capital additions | 497 | 36 | 79 | 216 | 828 | |
| Balance sheet | ||||||
| Assets | ||||||
| Segment assets | 24,429 | 4,367 | 11,790 | 1,733 | 42,319 | |
| Total assets | 24,429 | 4,367 | 11,790 | 1,733 | 42,319 | |
| Liabilities | ||||||
| Segment liabilities | 6,690 | 1,118 | 3,927 | 22,978 | 34,713 | |
| Total liabilities | 6,690 | 1,118 | 3,927 | 22,978 | 34,713 | |
Geographical segments
The Group's operations are located in the UK, Europe and the USA.
The following table provides an analysis of the Group's sales by geographic market:
| Revenue by geographical market | ||||||
| Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |||||
| United Kingdom | 45,232 | 40,719 | ||||
| Rest of Europe | 3,677 | 3,490 | ||||
| USA | 5,193 | 4,398 | ||||
| 54,102 | 48,607 | |||||
The following is an analysis of the carrying amount of segment net assets, and additions to property, plant and equipment and intangible assets analysed by the geographical area in which the assets are located:
| Carrying amount of segment net assets | Capital additions | |||||
| Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |||
| United Kingdom | 7,697 | 6,956 | 366 | 799 | ||
| Rest of Europe | 439 | 664 | 55 | - | ||
| USA | 95 | (14) | 40 | 29 | ||
| 8,231 | 7,606 | 461 | 828 | |||
3. EXCEPTIONAL ADMINISTRATIVE EXPENSES
| Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |
| Acquisition related costs | 273 | 322 |
| Bad debt written off | 241 | - |
| Redundancy costs | 147 | - |
| Relocation costs | 36 | - |
| 697 | 322 | |
| Included within redundancy costs are £120,000 payable as compensation for loss of office. | ||
4. PROFIT ON ORDINARY ACTIVITIES
| Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |
| Operating profit is stated after charging/(crediting): | ||
| Depreciation of property, plant and equipment | 607 | 416 |
| Loss on disposal of property, plant and equipment | 21 | - |
| Amortisation of other intangibles | 364 | 339 |
| Operating lease rentals plant and machinery land and buildings | 55 839 | 159 621 |
| (Gain)/loss on foreign exchange | (318) | 80 |
| All of the above costs are recognised within 'Administrative expenses' in the income statement. In addition, administrative expenses consist primarily of salaries, premises, insurances, professional fees and travel costs. | ||
5. TAXATION
| Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 | |
| Current tax: | ||
| UK corporation tax on profits of year | 382 | 630 |
| Under/(over) provision in previous years | - | 7 |
| Overseas tax on profits of year | 164 | 46 |
| Total current tax | 546 | 683 |
| Deferred tax: | ||
| Deferred tax credit for year | (86) | (156) |
| Total deferred tax | (86) | (156) |
| Tax on profit of ordinary activities | 460 | 527 |
| Factors affecting the tax charge for the year: | Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 |
| The tax assessed for the year is higher than the standard average rate of corporation tax in the UK (29.17%). The differences are explained below: | ||
| Profit on ordinary activities before tax | 607 | 1,652 |
| Profit on ordinary activities multiplied by standard average rate of corporation tax in the UK 29.17% (2007: 30%) | 177 | 496 |
| Effects of: | ||
| Expenses not deductible for tax purposes | 81 | 59 |
| Depreciation on non-qualifying assets | 36 | 12 |
| Interest on deferred consideration | 92 | 87 |
| Losses utilised | (16) | - |
| Difference in tax rates in overseas earnings | 71 | 35 |
| Share-based payments | 20 | (15) |
| Prior year charges | - | 1 |
| Other movements | (1) | (148) |
| Total tax charge for the year | 460 | 527 |
Taxation is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 37.5% in the United States, 29.17% in the United Kingdom, 28% in Denmark and 35% in Italy.
6. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and number of shares:
| Earnings | Year ended 31 August 2008 £000 | Year ended 31 August 2007 £000 |
| For basic and diluted profit per share Profit for the financial year | 147 | 1,125 |
| Number of shares | Year ended 31 August 2008 Number | Year ended 31 August 2007 Number |
| Weighted average number of ordinary shares for the purposes of basic earnings per share | 13,454,959 | 12,506,588 |
| Dilutive effect of share options | 327,329 | 1,109,621 |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 13,782,288 | 13,616,209 |
| Year ended 31 August 2008 | Year ended 31 August 2007 | |
| Basic | 1.09p | 9.00p |
| Diluted | 1.07p | 8.26p |
7. BORROWINGS
| 31 August 2008 £000 | 31 August 2007 £000 | |||
| Current: | ||||
| Bank overdrafts | 748 | 363 | ||
| Term loans | 719 | 432 | ||
| Bank loans | 4,320 | 1,536 | ||
| 5,787 | 2,331 | |||
| Non-current: | ||||
| Bank loans | 8,417 | 11,238 | ||
| Analysis of due dates for borrowings: | ||||
| On demand or within one year | ||||
| Bank overdrafts | 748 | 363 | ||
| Term loans | 719 | 432 | ||
| Bank loan - senior variable rate loan | 1,535 | 1,536 | ||
| Mezzanine loan | 2,785 | - | ||
| 5,787 | 2,331 | |||
| In the second year | ||||
| Bank loan - senior variable rate loan | 215 | 1,536 | ||
| Bank loan - senior fixed rate loan | 1,321 | - | ||
| Mezzanine loan | - | 2,785 | ||
| 1,536 | 4,321 | |||
| In the third to fifth years inclusive | ||||
| Bank loan - senior variable rate loan | - | 215 | ||
| Bank loan - senior fixed rate loan | 4,607 | 4,392 | ||
| Bank loan - senior term loan B | 1,500 | - | ||
| 6,107 | 4,607 | |||
| After five years | ||||
| Bank loan - senior fixed rate loan | 774 | 2,310 | ||
| Amounts due for settlement | 14,204 | 13,569 | ||
| Less amounts due within one year | (5,787) | (2,331) | ||
| Amounts due for settlement after one year | 8,417 | 11,238 | ||
| Analysis of borrowings by currency | ||||
| Sterling £000 | Euros £000 | Total £000 | ||
| 2008 | ||||
| Bank overdrafts | 679 | 69 | 748 | |
| Term loans | 719 | - | 719 | |
| Bank loans | 12,737 | - | 12,737 | |
| 14,135 | 69 | 14,204 | ||
| 2007 | ||||
| Bank overdrafts | 250 | 113 | 363 | |
| Term loans | 432 | - | 432 | |
| Bank loans | 12,774 | - | 12,774 | |
| 13,456 | 113 | 13,569 | ||
The bank overdraft in sterling relates to the Company, with the Euro balance attributable to the Italian subsidiary, Promosport srl.
The term loans are unsecured and relate to loan notes payable to the principals of The Finishing Touch (Corporate Events) Limited. Loan notes of £400,000 (2007: £432,000) bear interest at the rate of the UK bank base rate. Loan notes of £319,000 (2007: £Nil) bear no interest.
The bank loans are secured against the assets of the Group. The floating rate elements of the loan bear interest at the UK bank LIBOR rate plus a margin of either 2.25 per cent or 7.00 per cent. The fixed rate element of the loan bears interest at the rate of 8.07 per cent.
The senior term loan on the existing banking arrangements is split via a variable interest rate and fixed interest rate portion. The repayments of £393,000 (2007: £393,000) per quarter are netted off against the variable rate loan initially, and when this is paid off the repayments will net off against the fixed rate portion of the loan. The senior term loan is due to be repaid by 20 December 2014, subject to the post balance sheet event, whereby new loan facilities were introduced (see note 9).
The mezzanine loan facility on the existing banking arrangements is due for repayment, by way of a bullet payment, on 20 December 2008, subject to the post balance sheet event, whereby new loan facilities were introduced (see note 9).
An advance drawdown under Term Loan B on the new banking arrangements (see note 9 for full details) of £1,500,000 (£1,771,062 less £271,062 arrangement fee) was credited into the Company's banking facilities on 29 August 2008.
For further analysis of the new banking facilities provided by Allied Irish Bank (GB) refer to note 9.
8. CASHFLOWS
| Year ended 31 August | Year ended 31 August | |
| 2008 £000 | 2007 £000 | |
| Reconciliation of net cash flows from operating activities | ||
| Profit before taxation | 607 | 1,652 |
| Adjustments: | ||
| Finance costs | 1,608 | 1,281 |
| Finance income | (59) | (61) |
| Depreciation | 607 | 416 |
| Amortisation of intangibles | 364 | 339 |
| Loss on disposals of property, plant and equipment | 21 | - |
| Share options charge | 75 | 77 |
| Operating cash flows before movements in working capital | 3,223 | 3,704 |
| Decrease in inventories | 36 | 396 |
| (Decrease)/increase in trade and other receivables | 95 | (281) |
| Decrease in trade and other payables | (1,631) | (425) |
| Cash generated from operating activities | 1,723 | 3,394 |
| Income taxes paid | (188) | (535) |
| Net cash from operating activities | 1,535 | 2,859 |
9. POST BALANCE SHEET EVENTS
Acquisition of Spot and Company of Manhattan, Inc
The Group announced at the end of October that it has completed, through its wholly owned subsidiary First Artist Corporation, Inc. the transaction to acquire Spot and Company of Manhattan, Inc. ("SpotCo") for a maximum consideration of $18.86 million.
SpotCo is a leading US-based live entertainment advertising agency and is a natural strategic fit with Dewynters Limited, the Group's full-service media agency.
The fair value of the assets acquired will be determined as per the terms of the Sale and Purchase Agreement, and since this process is on-going it is not currently possible to derive an accurate assessment of the fair value of the net assets acquired.
New Banking Facilities
The following banking facility agreement dated 28 August 2008 between the Company (as borrower) and Allied Irish Bank ("AIB"), was made available to the Company following the successful completion of the SpotCo acquisition:
| Loan Type | Repayment details | Interest Margin | Loan Value £ | |
| Senior Term Loan A | In full within 5 years* | LIBOR + 2.25% | 7,200,000 | |
| Senior Term Loan B | Bullet payment after 5 years | LIBOR + 2.75% | 5,000,000 | |
| Mezzanine Facility | Bullet payment after 2 years | LIBOR + 10.00%** | 3,728,000 | |
| Short Term Mezzanine Loan | Bullet payment after 1 year | LIBOR + 10.00%** | 500,000 | |
| 16,428,000 | ||||
| \* The repayment profile for the Senior Term Loan A is to be as follows: | ||||
| Year | Amount (£) | |||
| 1 | - | |||
| 2 | 750,000 | |||
| 3 | 1,000,000 | |||
| 4 | 1,200,000 | |||
| 5 | 1,450,000 | |||
| 5 | 2,800,000 | |||
| 7,200,000 | ||||
| **A total of 4% per annum of the margin is payable quarterly and 6% per annum of the margin is capitalised at the end of each consecutive period of 3 months and added to the principal amount of the Loans. | ||||
| A working capital facility in the sum of £1,000,000 was made available as part of the new banking facility agreement, with an interest rate of 2.50% above AIB's base rate being applied. This facility is due for review each year. | ||||