Last checked at 30 Nov 2006 15:00
For immediate release: 30 November 2006
X-Phonics plc (formerly Diablo Group plc) (the "Company") Preliminary Results for the 18 Months Ended 30 Sept 2006
Chairman's statement
Financial Results
I present below the Group's results for the period 1st April 2005 to 30th September 2006.
During this period the Group made a pre-tax loss of ‚£936,163. The operating loss for the Group was ‚£932,627.
Although the Group has contracted sales of music as previously reported, the Group's accounting policy for revenue recognition is to recognise only those revenues that are certain, and as a consequence, no estimates for future royalties' receivable from the Groups song writing and music publishing activities are included in these results.
Cost of sales includes all direct costs incurred in respect of sales recognised, or to be recognised in the future, and includes recoupable costs from writers and artists. Recoupable costs include any advances and expenses incurred in supporting the acts and are assessed as recoupable by reference to the prospect of future recovery based upon sales performance, current popularity and projected sales. In this period no carry forward of expenditure was considered appropriate.
Administrative expenses of ‚£604,125 reflect the increase in salaried employees and the running costs of the Group as a public company.
Review of Business
X-Phonics remains focussed as a music and media business with the key business activities: music publishing, video and audio production and record label (artist identification and development) and will continue to be developed as an independent music and media group addressing opportunities across all aspects of the industry in ways that create and maximise returns from the relationships that exist between its artists and writers and by exploiting the other synergies that arise.
The business model allows control of the creative process throughout the lifecycle of a project as well as providing the opportunity, at each step, for each of the business areas to generate projects and revenues in their own right. As an example, an artist can be working with the Group's writers, allowing the Group to share in the publishing revenues as well as in the record label revenues that accrue from the promotion and marketing of the artist's album. Recording of the album would be completed using in-house recording facilities and, if appropriate, a promotional video can be produced using the Group's video capabilities.
Through this approach, the Company can maximise its opportunity of revenues or a revenue share at each stage of the artistic process.
During this reporting period, the Directors have restructured the Group with respect to artists, writers and most significantly, strengthening the management team. On 29th August 2006, the Group acquired White Noise Music Limited from John McLaughlin who was appointed to the Board as Managing Director on the same date; the former Managing Director, Mike Unwin, resigned in March 2006.
John McLaughlin, with 20 years experience in the business, is a successful songwriter and producer, having amassed over 120 songs and over 30 top ten singles around the world, including number one records for Busted, Westlife and 5ive. He has most recently worked in a writing partnership with Steve Robson (Blue, Westlife, Busted, Ronan Keating) and Jonathan Shortland (Joss Stone and Gabrielle). John had been developing a small rosta of unsigned writers which he had brought together under White Noise Music Limited.
Record Label
The Group has been actively identifying and contracting a number of artists to the Company. We target artists because of their potential to be developed by X-Phonics for the longer term, or because they are perceived to have appeal beyond the `indie' market, which can be better exploited in the market in partnership with larger record labels.
Two new bands have now been identified as being attractive to the record label, both of whom have already had a measurable level of success.
The Poems have been signed giving the Group rights to their first and second albums in markets outside North America, where the band have already had commercial success albeit with another record label. The Poems are a Glasgow band in the vanguard of UK indie-pop and have recently had tracks played on ABC's "Greys Anatomy".
Terms have very recently been agreed with the Attic Lights who are also a Glasgow based band with a sound reminiscent of the Beach Boys. They show a great deal of promise and are already being played on Radio 2.
There are a number of other artists identified by the Group as showing potential for commercial success and these are being developed with a view to signing.
Following the appointment of John McLaughlin the Group undertook a review of its existing artists and determined that neither band was likely to achieve the level of commercial success necessary to justify continued investment. Consequently the Group declined to renew the band's contracts.
Music Publishing
Working with the Group's artists are a number of song writers who collaborate on X-Phonics projects, or who work for us on projects for external artists. The Group works with a number of well known writers some of whom bring with them both catalogues of previous work which can be further exploited, and, through their reputation and contacts, introductions to other commissions and artists with whom to work. It is the Company's intention to build a roster of writers and to own and build a catalogue of songs that will generate recurring revenues over the longer term.
Robert Hodgens has been signed having started his career as a songwriter/ guitarist for the Scottish act The Bluebells (most famous for their international hit "Young at Heart"). Robert, or `Bobby Bluebells' as he is known to his fans, is now a heavily requested songwriter having co-written with artists such as Dave Stewert (The Eurythmics), Siobahn Fahey (Shakespeare's Sister), Brian Wilson (The Beach Boys), Sharleen Spiteri (Texas) as well as Marti Pellow and Sophie Ellis Bextor. Of particular note is the fact that Robert has written a number of tracks on The Poems album, demonstrating the Group's ability to extract value from its song writing and record label activity.
The music publishing activity will be further strengthened by the signing of Gordon Goudie, a song writer and producer with whom terms are agreed, credited with tracks for Simple Minds and producer credits for Echo and The Bunnymen, and by Maeve O'Boyle, a 19 year old singer/songwriter, again who has agreed terms with the Company and who has already won a "Danny Kyle" award at Celtic Connections 2006, and named winner in the Artists category of the Daily Record's national talent search.
These are in addition to a number of writers who work with the Group on a project by project basis including:Steve Robson (Writer / Producer) with credits for Ronan Keating, Le-Anne Rimes, Jamie Morrison, Busted, Rascal Flats (No.1 in America), Natalie Imbruglia and Westlife (No.1); Simon Perry (Writer / Producer) with credits for Westlife, Sandi Thom, Noise Next Door; Ian McCulloch (Echo & The Bunnymen) and Gary Kemp (Spandau Ballet); and Murlyn Music, whose writers and producers have a constant stream of hits with the World's biggest artists including, Madonna, Celine Dion, Janet Jackson, Jessica Simpson, Britney Spears and Christina Milano to name but a few.
Most recently, the Group has agreed to work with the Music and Media Group in supplying songs and other musical material, producers and production facilities. The Group's writers and producers are already collaborating on a number of projects that are expected to become public throughout 2007.
The Group intends signing additional writers with a proven track record and, where at all possible, with a catalogue of song material that can be exploited by the Group.
Video Production
Following a downturn in the pop video market, the Group took the decision to re-structure this part of its business by agreeing subcontracting arrangements with its video staff. As a consequence, the capability to produce videos was retained but the costs are only incurred for video work when it is commissioned. With a significantly reduced cost base, and with the identification of a number of video directors and producers with specific market skills willing to work with the Group, it is now well placed to build a business based around its own artists and the corporate video market where opportunities to generate revenues exist, without the risks that can be associated with the pop market.
The availability of our video production facilities enhances the proposition to clients and creates a complimentary product and facilities offering.
Studio and Production Facilities
Our audio recording facility which is made available to artists and writers to facilitate and support the development of in-house projects is also being made available to external chargeable clients and continues to contribute to Group revenues.
The Group also has an option to acquire a 25% share in Terminal Music Limited (Trading as `The Mixing Rooms'), and with this facility, the Group can demonstrate a capability that is attracting clients to use its writers, producers and production facilities in both Glasgow and in London.
Outlook
The appointment of John McLaughlin as Managing Director has created opportunities not previously available to the Group. Although the financial results to date have disappointed in some areas, despite this the Group has been able to create a solid platform as a result of the Admission to Aim on which new opportunities can be delivered thereby enhancing the revenues, reputation and the value of the Group to our shareholders.
Robin DaviesChairman30 November 2006
For further information please contact:
Mike Hosie, Finance DirectorX-Phonics plc07860 500 001Ben Simons/ Chris RobertsHansard Group020 7245 1100Profit & Loss AccountPeriod from 1st April 2005 to 30th September 2006 30 Sep 06 Year to 31 Mar 05 ‚£ ‚£ Group Turnover 124,539 10,790 Cost of sales 453,041 390,387 Gross loss (328,502) (379,597) Administrative expenses 604,125 217,273 Operating loss (932,627) (596,870) Interest receivable 1,459 - Interest payable and similar charges (4,995) (6,142)
Loss on ordinary activities before taxation (936,163) (603,012)
Tax on loss on ordinary activities - - Loss for the financial period (936,163) (603,012) Earnings per share (pence) Basic (2.92) (5.76) Diluted (3.48) (5.76)
All of the activities of the group are classed as continuing.
The group has no recognised gains or losses other than the results for the period as set out above.
The company has taken advantage of section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account.
Group Balance Sheet30th September 2006 30 Sep 06 31 Mar 05 ‚£ ‚£ Fixed assets Intangible assets 327,639 - Tangible assets 78,642 65,445 406,281 65,445 Current assets Debtors 36,978 47,712 Cash at bank and in hand 752,473 2 789,451 47,714 Creditors: Amounts falling due within 202,505 241,484one year Net current assets/(liabilities) 586,946 (193,770) Total assets less current liabilities 993,227 (128,325) Creditors: Amounts falling due after 2,440 9,370more than one year 990,787 (137,695) Capital and reserves Called-up equity share capital 2,798,320 1,500,000 Share premium account 724,277 - Other reserves (738,578) (780,626) Profit and loss account (1,793,232) (857,069) Shareholders' funds/(deficit) 990,787 (137,695) Balance Sheet30th September 2006 30 Sep 06 ‚£ Fixed assets Investments 1,829,380 Current Assets Debtors 938,941 Cash at bank 743,435 1,682,376 Creditors: Amounts falling due within one year 114,150 Net current assets/(liabilities) 1,568,226 Total assets less current liabilities 3,397,606 Capital and reserves Called-up equity share capital 2,798,320 Share premium account 724,277 Other reserves - Profit and loss account (124,991) Shareholders' funds/(deficit) 3,397,606Group Cash Flow StatementPeriod from 1st April 2005 to 30th September 2006 30 Sep 06 Year to 31 Mar 05 ‚£ ‚£ Net cash outflow from operating (886,732) (693,632)activities Returns on investments and (15,442) (6,142)servicing of finance Taxation 3,762 - Capital expenditure and financial (393,842) (12,636)investment Cash outflow before financing (1,292,254) (712,410) Financing 2,057,715 713,754 Increase in cash 765,461 1,344
Notes to the Financial Statements
Period from 1st April 2005 to 30th September 2006
1. Accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of financial instruments, and in accordance with applicable accounting standards.
The financial information of the Group set out in this document does not constitute 'statutory accounts' within the meaning of section 240 of the Companies Act 1985. The financial information for the period ended 30 September 2006 has been extracted from the Group's audited consolidated statutory accounts, which will be delivered to the Registrar of Companies for England and Wales following the Company's Annual General Meeting in December 2006. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the company and all group undertakings. As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has not been included in these financial statements.
The consolidated accounts of the Group have been prepared using merger accounting. This represents a change in approach from that adopted in our interim statements for the period to 31 December 2005, which were prepared under acquisition accounting. Under the previous approach of acquisition accounting, goodwill arising on consolidation of ‚£1.74 million was shown on our balance sheet. Under merger accounting, no such goodwill arises and consequently it no longer features on the balance sheet.
Although it is the Group's preference to report the results on a consistent basis, we have adopted this approach to reflect current accounting treatment for group reorganisations and to reflect a true and fair view.
X-Phonics plc was incorporated on 17 May 2005 and on 1 July 2005 the company acquired the entire share capital of X-Phonics Music Limited (formerly Diablo Music Limited) by way of a share for share exchange. In accordance with the principles set out in Financial Reporting Standards ("FRS") 6 "Acquisitions and Mergers", 100% of the shares acquired have been accounted for under merger accounting. Consequently, although X-Phonics plc was not incorporated until 17 May 2005 and the combination did not take place until 1 July 2005, the financial information is presented as though the merged businesses had always been a single group.
Basis of comparative information
The comparative consolidated profit and loss account has been presented as if the merger took place on the first day of each financial period presented and as though the Group, as presently constituted, had been in existence throughout these periods. The figures for the year to 31 March 2005 have been extracted from the audited X-Phonics Music Limited accounts adjusted for the shares issued by the company as consideration as if they had always been in issue. Any difference between the nominal value of the shares acquired by the company and those issued by the company to acquire them is taken to reserves.
Turnover
The turnover shown in the profit and loss account represents amounts invoiced during the period, exclusive of Value Added Tax.
Goodwill
Positive purchased goodwill arising on acquisitions is capitalised, classified as an asset on the Balance Sheet and amortised over its estimated useful life of 20 years. This length of time is presumed to be the maximum useful life of purchased goodwill because it is difficult to make projections beyond this period.
Amortisation
Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:
Goodwill - 5%Fixed assets
All fixed assets are initially recorded at cost.
Depreciation
Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:
Leasehold Property -17%Fixtures & Fittings - 17%Motor Vehicles - 25%Equipment - 20%Hire purchase agreements
Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the profit and loss account on a straight line basis.
Operating lease agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions:
Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold.
Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Financial instruments
Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Investments
All investments are initially recorded at cost, being the fair value of the consideration given and including acquisition costs associated with the investment.
Trade and other debtors
Trade and other debtors are recognised and carried forward at invoices amounts less provisions for any doubtful debts. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents are included in the balance sheet at cost. Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months or less.
Advances to artistes
Advances to artists and expenses incurred supporting new acts are assessed and the value of the un-recouped portion to be included in debtors is determined by the prospects of future recoupement, based on past sales performance, current popularity and projected sales.
In the period ended 30th September 2006, no such carry forward of expenditure was considered appropriate.
Music publishing and record royalties and record producer services
Music publishing and record royalties are accounted for on a notified earnings basis, with any advances, if any, carried forward until the end of the relevant contract period. Royalties received for record producer services are accounted for on a cash basis. Royalties payable are expensed on an accruals basis except that music publishing advances are carried forward and recognised as an asset, where such advances relate to proven artistes or songwriters and where it is estimated that sufficient future royalties will be recouped against those advances.
2. Copies of the Report and Accounts will be posted to shareholders shortly and will be available for a short period free of charge from the Company's lawyers: 7 Savoy Court, Strand, London, WC2R 0ER
3. The Annual General Meeting of the Company will be held at: The Manor House, Park Road, Stoke Poges, Buckinghamshire, SL2 4PG on 29 December 2006 at 10.30.
X-PHONICS PLC