React Group Regulatory News (REAT)

27 Jun 2007 07:00

X-Phonics plc27 June 2007 X-Phonics Plc (or "the Group") Interim Results for the six months ending 31 March 2007 27 June 2007 • New bands and artists signed including the Attic Lights • Profitable relationship secured with Universal/Island Records • Fall in cost of sales 27% and overheads down 40% on same period last year • Group loss before interest, exceptional items and tax £305,355 (2006: £464,473) • Cash balance at end of period £339,642 (£103,516) Chairman Robin Davies said: "This is the first full period since the appointment of John McLaughlin as ourManaging Director in August 2006 following he acquisition of White Noise MusicLimited., a business through which John had been developing musical talent.During the latter part of 2006 the Group signed a number of bands including TheAttic Lights, The Poems and writers and performers Robert Hodgens and MaeveO'Boyle. The bands and writers have continued to be developed and all have madeprogress. We are confident that good choices have been made and are now seeinglevels of interest from both the market and the music industry confirming ourjudgment." Chairman's Statement I am pleased to announce the results of our trading activities for the six monthending 31st March 2007. This is the first interim period report since the appointment of John McLaughlinas our Managing Director in August 2006 following the acquisition of White NoiseMusic Limited, a business through which John had been developing musical talent. During the latter part of 2006, a number of bands were signed to the Group,amongst them, Attic Lights, The Poems and writers and performers includingRobert Hodgens and Maeve O'Boyle. The bands and writers have continued to be developed and all have made goodprogress. We are confident that good choices have been made and are seeinglevels of interest from both the market and the music industry itself confirmingthis. Financial Report The nature of the projects that have been contracted and that are beingdeveloped will lead to rather uncertain and 'lumpy' revenues for the time being.For example, although discussions were well progressed with regards to licensingAttic Lights to a major label at the period end, the Directors were of theopinion that revenue was not sufficiently certain to be included in theseresults. However, since the period end, the Group has agreed terms withUniversal-Island whereby Attic Lights have been licensed to them in a five albumdeal worth potentially £1,500,000 in advances over the contract period as wellas an ongoing royalty of up to 24% based upon net receipts from sales inworldwide territories to be exploited by Universal-Island. The initial advanceand recording revenues received by the Group in respect of this contract total£240,000 with approximately 34% being passed onto the band. This is a very important first contract of this type for the Group whichdemonstrates that we now have the ability to find and secure acts, that with theappropriate amount of development and promotion, can be licensed to major recordlabels providing the opportunity of an initial cash advance and a share in theassociated longer term revenues. Royalties from Attic Lights should be earnedover the next 6 to 8 years. Cost of sales represent all costs associated with the signing and development ofthe bands and writers and are accounted for as they are incurred. Costs are onlymatched to revenues once the revenues are certain. Cost of sales in the periodare lower by 27% at £99,926 (2006: £136,323) and relate to the bands and writersthat are still in development and from which the Group expects to generaterevenues in the future. Comparative costs from the previous year include theactual costs of work completed and sales invoiced, either in respect of theoriginal bands that have not subsequently had their contracts extended, or inrespect of video work which was not profitably managed. Overheads in the period at £217,792 (2006: £363,605) are 40% lower following there-organisation described in the previous annual report and account for the 18months ended 30 September 2006. These costs include some one-off costsassociated with the move of the Group's offices to Chiswick in West London whereit is now sharing facilities with other music related businesses and throughwhich new business opportunities have been, or are being, developed. The Group has made a loss on ordinary activities before interest, exceptionalitems and taxation of £305,355 (2006: £464,473). At the end of the period the group held cash balances of £339,642 (2006:£103,516). Trading Update Record Label Activities Having developed the Attic Lights for a relatively short period, the Group isdelighted to have secured a significant license deal with Universal-Island,which is currently the largest and most successful record label in the world.Universal-Island bid against a number of other major record labels and signedwith the approval of Island Records President, the highly respected NickGatfield. The longer term value in this contract lies in the fact that Island Records havesignificant resource and influence through which it is able to break bands suchas Attic Lights into the mainstream. Island has recently had success with TheFratellis, The Feeling and Amy Winehouse and it is this team that will now beworking on the Attic Lights. This collaboration with Universal-Island has alsopaved the way for a continuing relationship and direct access for the Group andour other artists. The other significant signing in November 2006 was The Poems who recentlyreturned from supporting the Magic Numbers to great reviews. Their profilecontinues to improve through touring and from additional success with theirmusic being used on US television programs such as Greys Anatomy and the GhostWhisperer. This improved US profile is important in helping to promote the bandin the UK where we are shortly to release a 4 track EP and are organising theirfirst headline tour of Scotland. With the increased awareness of major recordlabels resulting from the Attic Lights contract we have confidence in the longerterm success of the Poems. It is worth noting that the Group owns a largepercentage of The Poems publishing having signed Robert Hodgens, the main writerfor the band, as a writer. Our youngest artist, Maeve O'Boyle continues to attract critical acclaim as wework in building her profile. She has just finished a tour of Scotland andIreland supporting one of Ireland's biggest folk stars, Eleanor McEvoy, and weare very pleased with the prospect of a 23 date tour in conjunction withBeanscene, the new and exciting coffee and music experience, where Maeve will beselling an acoustic version of her album pre-empting the release of the fullalbum early next year. We plan to release 2 singles along with this acousticrecord in late summer and mid-winter, which we expect will create a real buzzaround this young and extremely talented artist. The Group expects to sign a number of young artists working with them to producerecords that can then be sold through a partnership with Beanscene. This is aninteresting area of development for the Group made possible by our ability toproduce records at low cost and then distribute them using a distributionchannel that is fast becoming an alternative to the high street retail chains. Despite the fact the Liz McClarnon was ultimately unsuccessful in mounting aEurovision challenge we continue to work with Liz and once her new album isrecorded we hope to be able to identify a joint venture partner through whom wewould promote the album. The Group had hoped to compete successfully in bidding for the recording rightsto Echo & The Bunnymen which were ultimately won with a strong bid from WarnerBrother's Records. Despite this our Managing Director John McLaughlin wasappointed Executive Producer to their latest recording and, as a consequence, ashare of the production revenues will be transferred to the Group once therecord is on sale. Not only are there high hopes for the record sales, there isan amount of kudos that results for X-Phonics association with Echo & TheBunnymen. Glasgow continues to be a hot bed of developing musical talent and a number ofprojects have been identified which are expected to provide revenueopportunities for the Group in future years. A good example of this is Urbnri, a"street" based band whose publishing rights have been secured by the Group andwho are currently putting the finishing touches to their debut album. We expectsome exciting developments in the promotion of this band and are also workingwith Chris Van der Kyle, the video gaming developer, with a view to the band'smusic and songs being used on a new video game. There is further evidence of the development in our marketing and promotionalcapability with our work for the BBC TV project 'Power to the People'. The bandthat was formed as part of the programme 'The Zimmers' was marketed and releasedby our record label under the guidance of Neil Reed. The results of this projecthave given us a worldwide platform. With some 3.2 million views of the X-Phonicsedited promotion 'My Generation' on 'YouTube' alone and an estimated 100 millionpeople worldwide seeing or hearing the band. The single was released in early June and entered the UK Top 40 at number 26. Asa result of this chart success the Zimmers were then asked to appear on the JayLeno show in the United States where they appeared before a TV audience of 15million. With internet releases worldwide and physical releases scheduled in USAand Benelux to date the future looks bright for The Zimmers. A follow up to theoriginal documentary is scheduled for Sunday 8th July at 10:00 pm with the worldpremier of 'The Zimmers - From Carehomes to Clooney' which will further helppromote the Group. Music Publishing In addition to owning the publishing for Roberts Hodgens and our earlier rosterof writers, the Group has worked on a number of projects where the intention isto secure longer term revenues through the exploitation of music that has massappeal. Our existing catalogue continues to gain modest revenues worldwide. EuropeanArtists such as Katerine (Universal) and Reborn (EMI) have provided X-PhonicsPublishing with some success during 2007 with revenues resulting from recordsales and performances. This year we have written and produced a new version of "Swing Low" for theEnglish Rugby Football Union to be used as part of their 2007 Rugby World Cupcampaign. We have also been commissioned to write an anthem to replace "Flowerof Scotland" for the Scottish Rugby Football Union, again with the 2007 RugbyWorld Cup in mind, although in this case, it is being written with a view tohaving much broader and national appeal. Both of these releases are expected tohave an enduring attraction and to be of interest to some of the larger brandcompanies who are involved in advertising around national sporting events. Music Publishing is an important area for the group to develop and we areconstantly looking for opportunities and ways in which we can extract maximumvalue from our initiatives. It is often the case that, having agreed apartnership with a larger record label to exploit some of our music, we areconstrained to working to their timescales. As an example, although recording of"Sleep Easy Baby" (an album of lullabies) was completed in late 2006 andlicensed in early 2007, this is now expected to be released by EMI for theChristmas market in late 2007. Production Activities We continue to take an interest in Terminal Music Limited, a production facilityin Glasgow in which we have an option to acquire 24.99%. Currently recording in the studio are a number of well known artists and bandsin addition to some new artists with whom we are working with the intention ofacting for them in some capacity. These include a band called Meladrone, an "indie" band with fantastic songs and a great look. The songs have beenco-written or produced by John McLaughlin, Simon Perry (Archangel Music), GordonGoudie and Ian McCulloch (Echo & The Bunnymen) and therefore come with a greatpedigree. We are also working with Valentina Mitzkat who has been writing withMaeve O'Boyle and Robert Hodgens and is a very talented 21 year old from Austin,Texas with an incredible voice as well as being a talented pianist. Together weare developing a very original crossover sound for her record. Being involved in the Terminal Music studios provides an early opportunity tospot and begin working with unknown talent. It is this that is of particularinterest to the major record labels, almost all of whom have had the chance tovisit Glasgow and the studios when considering a bid for Attic Lights. Our video facility was restructured in mid 2006 in order to better balance thecosts of production with the likely revenue opportunity. The facility is nowhoused in Chiswick where it can work much more efficiently and with theavailability of freelance producer and directors, it is now being managedprofitably. Recent projects, whilst modest in budget, represent a significantimprovement in performance. Projects worked on in the last six months include corporate programmes for theMultiple Sclerosis Society and for Herstmonceux Castle, a conference facilityfor overseas students. We have also been commissioned to produce videoprogrammes in support of the ITV Rugby World Cup theme, "World in Union"incorporating artists such as Katherine Jenkins and Andre Bochelli, and BBC2's 'Power to the People' documentary for the release of the Zimmers version of "MyGeneration". The level of activity has been increased significantly with the appointment ofour new Managing Director. We have also benefited from a considerably improvedprofile and are now much better connected with people in the music industry withinfluence. When linked to the improved control over costs directly attributed to projectsand the lower level of overhead we are confident of our future success andcontinue to seek opportunities through which we can increase shareholder value. Robin Davies Chairman27 June 2007 Group Profit and Loss Account Six months Six months Eighteen month ended 31 March ended 31 March period ended 30 2007 2006 September 2006 Note (unaudited) (unaudited) (audited) £ £ £ Turnover 12,362 35,455 124,539 Cost of sales (99,926) (136,323) (453,041) Gross loss (87,564) (100,868) (328,502) Administrative expenses (217,792) (363,605) (604,125) Operating loss (305,356) (464,473) (932,627) Exceptional items 2. - (121,581) - Interest receivable 5,022 1,229 1,459Interest payable (1,017) (1,492) (4,995) Loss on ordinary activities before (301,351) (586,317) (936,163)taxation Tax on loss on ordinary activities - - - Loss for the period (301,351) (586,317) (936,163) Basic earnings per ordinary share 3. (0.5 pence) (1.8 pence) (2.92 pence) Basic earnings per ordinary share 3. (0.6 pence) (2.1 pence) (3.48 pence) 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. Balance Sheet 31 March 2007 31 March 2006 30 September 2006 (unaudited) (unaudited) (audited) £ £ £Fixed Assets Intangible assets 319,414 - 327,639Tangible assets 82,002 94,647 78,642 401,416 94,647 406,281 Current assets Debtors 87,655 37,551 36,978Cash at bank and in hand 339,642 103,516 752,473 427,297 141,067 789,451 Creditors: Amounts falling due within one year (113,410) (159,739) (202,505) Net current liabilities 313,887 (18,672) 586,946 Total assets less current liabilities 715,303 75,975 993,227 Creditors: Amounts falling due after more than (1,872) (4,750) (2,440)one year 713,431 71,225 990,787 Capital and reserves Called-up equity share capital 2,803,119 2,470,350 2,798,320Share premium account 743,474 - 724,277Merger reserve (738,578) (738,578) (738,578)Profit and loss account (2,094,584) (1,660,547) (1,793,232) Shareholders' funds 713,431 71,225 990,787 Cash Flow Statement Six months Six months ended Eighteen month ended 31 March 31 March 2006 period ended 30 2007 September 2006 (unaudited) (unaudited) (audited) £ £ £ Net cash outflow from operating activities (417,692) (551,181) (886,732) Returns on investments and servicing of finance 4,005 (263) (15,442) Taxation (2,732) - 3,762 Capital expenditure (16,353) (60,255) (393,842) Cash (outflow)/inflow before financing (432,772) (611,699) (1,292,254) Financing:Issue of equity share capital 4,799 858,350 1,304,324 Share premium on issue of equity share capital 19,197 250,000 760,321 Share issue costs - (371,581) - Capital element of hire purchase (4,055) (1,657) (6,930) (Decrease)/increase in cash (412,831) 123,413 765,461 Reconciliation of operating loss to net cash Six months Six months ended Eighteen month(outflow)/inflow from operating activities ended 31 March 31 March 2006 period ended 30 2007 September2006 £ £ £ Operating loss (305,355) (464,473) (932,627)Other credit charges - - 11,906Amortisation 8,225 - 1,371Depreciation 23,186 34,358 51,635Decrease/(increase) in debtors (50,679) 35,421 10,734Increase/(decrease) in creditors (93,069) (156,487) (29,751) Net cash (outflow)/inflow from operating (417,692) (551,181) (886,732)activities Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in the (412,832) 123,412 765,461period Cash outflow in respect of hire purchase and 4,055 1,657 6,930finance lease Change in net debt (408,777) 125,069 772,391 New hire purchase agreement (10,193) - - Opening net (debt)/funds 745,413 (29,050) (26,978) Closing net (debt)/funds 326,443 96,019 745,413 Notes to the unaudited financial statements 1. The financial information included in this report does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. Thefinancial information for the period ended 30 September 2006 has been extractedfrom the statutory accounts for that period. The auditors' report on the fullstatutory accounts for the period ended 30 September 2006 was unqualified. Thefinancial information for the six months ended 31 March 2006 and 31 March 2007has not been audited. 2. Exceptional costs are made up of costs incurred in relation to the placingof 10,000,000 ordinary shares on AIM over and above the balance held in theshare premium account. 3. The earnings per ordinary share have been calculated on the ordinaryactivities after taxation of £301,350 (31 March 2006 - £586,318, 30 September2006 - £936,163) using the weighted average number of ordinary shares in issueduring the period being 66,003,966 (31 March 2006 - 31,859,462, 30 September2006 - 32,063,707). The weighted average number of diluted ordinary shares inissue during the period was 51,353,727 (31 March 2006 - 28,071,592, 30 September2006 - 26,864,208). This information is provided by RNS The company news service from the London Stock Exchange