SuperGroup Regulatory News (SGP)

15 Jun 2007 07:01

Sanctuary Group PLC15 June 2007 For immediate release THE SANCTUARY GROUP Interim results for the six months ended 31 March 2007 The Sanctuary Group, ('Sanctuary' or the 'Group'), the international musicgroup, today announces unaudited results for the six months to 31 March 2007. Financial Summary +------------------------------------------------------------------------------------------+ | 6 months to 6 months to Year ended | | 31/03/07 31/03/06 30/09/06 | | restated* restated* | | £m £m £m | | | | Revenue 63.7 65.9 133.2 | | Gross profit 22.1 19.8 36.0 | | Loss from operating activities (4.0) (17.6) (56.7) | | Loss after taxation (6.6) (26.7) (70.2) | | | | Basic and diluted EPS (Loss per share)(£0.03) (£1.76) (£0.59) | | | | Net debt (59.8) (38.3) (57.1) | +------------------------------------------------------------------------------------------+ Note: * restated for prior period adjustments Summary * The Merchandising division has reported a 19% growth in revenue to £35.3m (2006: £29.7m) and a 70% increase in operating profit to £1.6m (2006: £0.9m) during the six months to 31 March 2007. This result has been achieved despite the weak US Dollar. * Restructuring of Artist Services over the last twelve months has resulted in a turnaround to profitability at the divisional level. Revenue for the period increased by 49% to £10.2m (2006: £6.9m) leading to a profit from operating activities of £3.8m (2006: £8.2m loss). * The Recorded Product division suffered reduced revenue reflecting the adverse trading conditions, which are affecting the entire recorded music industry. The division has yet to reach an acceptable level of performance and remedial action is ongoing. In particular, the division's US operations will now concentrate on growing its higher margin digital and licensing businesses and exploiting its catalogue rights. * During the six months to 31 March 2007 £0.4 million of cash was generated by operations compared to a cash loss from operations of £48.1 million for the year ended 30 September 2006. * The Board believes that whilst much has been achieved in the past twelve months, growth and profitability will continue to be hampered by the Group's present capital structure and by industry factors. Frank Presland, Chief Executive, said: "After just over a year as CEO, I feelthat the management team has made substantial advances in resolving the legacyissues which we inherited. The Group has made real progress, both in terms ofits corporate governance and its operational performance. However, the outlookremains mixed for the different divisions of the Group and serious obstaclesremain on the road to acceptable overall financial performance. Enquiries: BrunswickJames Hogan / Craig Breheny / Ash Spiegelberg (020 7404 5959) Note to Editors:Sanctuary is an international music group that operates through three maindivisions:: Recorded Product, Merchandising and Artist Services (includingArtist Management and Live Agency). Chairman's Statement Introduction Despite the Group's ongoing difficulties, Sanctuary continues to make progress.Much work still needs to be completed, but the Group is now in considerablybetter shape than when the current management took over in 2006. Under the business strategy we adopted last year, the Group is now divided intothree autonomous divisions: Recorded Product, Merchandising and Artist Services.Each division is now accountable for its own performance and, supported by morecost-efficient Group services. These results indicate that we have been able to make progress within two of thecore operating divisions with growth in revenue and contribution from both theMerchandising and Artist Services divisions. The Recorded Product division suffered reduced revenue in the period reflectingthe adverse trading conditions which are affecting the entire recorded musicindustry. Progress has also been made in reducing costs across the Group, although morework is required in this area and it will take time to see the full benefitsfrom these cost reductions. The Board feels that whilst much has been achieved in the past twelve months,growth and profitability will continue to be hampered by the Group's presentcapital structure and by industry factors. The company, its shareholders, employees and business partners have shown greatforbearance during what remains a difficult period for Sanctuary and theindustry as a whole. I have been impressed with the continued hard work anddedication of staff of the Group and, on behalf of the Board, I would like tothank them sincerely for all their efforts. Financial Results In the six months to 31 March 2007, Group revenue was £63.7m (31 March 2006:£65.9m). The Group loss from operating activities was £4.0 million (31 March 2006: £17.6million). The net debt at 31 March 2007 was £59.8 million (30 September 2006: £57.1million). Divisional Review Recorded ProductThe Recorded Product division's revenues for the six months to 31 March 2007were £16.4 million (2006: £25.3 million) which contributed a loss on operatingactivities of £1.7 million (2006: £1.5 million). The Recorded Product division'smanagement had budgeted for a reduction in revenue in the period but thisoutcome was below expectations. MerchandisingThe Merchandising division's revenues for the six months ended 31 March 2007were £35.3 million (2006: £29.7 million) which contributed a profit on operatingactivities of £1.6 million (2006: £0.9 million). The improved sentiment ofartists and their advisers towards the Merchandising division has assisted themanagement of this division to deliver increased revenues. Artist ServicesThe Artist Services division's revenues for the six months ended 31 March 2007were £10.2 million (2006: £6.9 million) reflecting increased artist activity. Inaddition the extensive restructuring of this division which has been undertakenover the last twelve months has reduced costs enabling the division to deliver aprofit on operating activities of £3.8 million (2006: £ 8.2 million loss onoperating activities). DisposalOn 29 May 2007, the Group announced that it had disposed of its interests in AirEdel Associates Limited and Air Edel Recording Studios Limited (and certainassociated assets) to Cutting Edge Music (Holdings) Limited for a totalconsideration of £0.5 million, payable in cash over 18 months from completion ofthe transaction. OutlookThe Board remains of the view that, for the full year, each of the majordivisions of Sanctuary will demonstrate an improved performance compared withthe prior year and that the Merchandising and Artist Services divisions willeach make a positive net contribution to the Group. However the full yearoutlook for the Recorded Product division remains uncertain due, principally, tothe well-publicised external factors affecting the recorded music industrygenerally. Independent review report to The Sanctuary Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2007 which comprises the consolidated interimincome statement, statement of recognised income and expense, balance sheet,statement of cashflows and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the company forour review work, for this report, or for the conclusions we have reached. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of and has been approved by the Directors. The Directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual financial statements exceptwhere any changes, and the reasons for them, are disclosed. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data and, based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Whilst the company has previously produced an interim review report, that reporthas not previously been subject to an interim review. As a consequence, thereview procedures set out above have not been performed in respect of thecomparative period for the six months ended 31 March 2006. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2007. Emphasis of matter - Going concernIn arriving at our review conclusion, which is not qualified, we have consideredthe adequacy of the disclosure made in note 2 to the financial informationconcerning the group's and company's ability to continue as a going concern. Thegroup incurred a net loss after taxation of £6.6 million during the six monthperiod ended 31 March 2007 and, at that date, the group's current liabilitiesexceeded its current assets by £66.1 million. These conditions, along with theother matters explained in note 2 to the financial information, indicate theexistence of material uncertainty which may cast significant doubt on thegroup's ability to continue as a going concern. The financial information doesnot include the adjustments that would result if the group was unable tocontinue as a going concern. KPMG Audit PlcChartered Accountants8 Salisbury SquareLondon EC4Y 8BB14 June 2007 Unaudited condensed consolidated interim income statementFor the six months ended 31 March 2007 Six months Six months Year ended ended ended 31 March 31 March 30 September 2007 2006 2006 Restated (i) Note (unaudited) (unaudited)Revenue 3 63,714 65,928 133,180Cost of sales (41,628) (46,141) (97,070) -------- -------- ---------Gross profit 22,086 19,787 36,110 Administrative expenses (24,777) (37,614) (91,177)Share of results fromassociates (1,285) 237 (1,588) -------- -------- ---------Loss from operatingactivities 3 (3,976) (17,590) (56,655) Profit on disposal ofsubsidiary 135 - 1,728 Financial income 685 410 996Financial costs (3,577) (9,888) (15,685) -------- -------- ---------Net financing costs (2,892) (9,478) (14,689) -------- -------- ---------Loss before taxation 3 (6,733) (27,068) (69,616) -------- -------- --------- Income taxcredit/(expense) 4 145 328 (532) -------- -------- ---------Loss for the period aftertaxation (6,588) (26,740) (70,148) ======== ======== ========= Attributable to: Equity shareholders of the company (6,412) (26,641) (70,328)Minority interest (176) (99) 180 --------- -------- ---------Loss for the period after taxation (6,588) (26,740) (70,148) ========= ======== ========= Basic earnings per share (£) 6 (0.03) (1.76) (0.59)Diluted earnings per share (£) 6 (0.03) (1.76) (0.59) (i) The 31 March 2006 figures have been restated - see note 7. Unaudited condensed consolidated interim statement of recognised income andexpense For the six months ended 31 March 2007 Six months Six months Year ended ended ended 31 March 31 March 30 September 2007 2006 2006 Restated (i) (unaudited) (unaudited) £'000 £'000 £'000Foreign exchange translation differencesrecognised directly in equity (320) (1,298) 4,210 Loss for the period (6,588) (26,740) (70,148) --------- --------- ---------Total recognised income andexpense for the period (6,908) (28,038) (65,938) ========= ========= ========= Attributable to: Equity shareholders of the Company (6,732) (27,939) (66,118) Minority interest (176) (99) 180 --------- --------- ---------Total recognised income and expense for the period (6,908) (28,038) (65,938) ========= ========= ========= (i) The 31 March 2006 figures have been restated - see note 7. Unaudited condensed consolidated interim balance sheetAs at 31 March 2007 31 March 31 March 30 September 2007 2006 2006 Note Restated (i) (unaudited) (unaudited) £'000 £'000 £'000Non-current assetsGoodwill 61,451 69,583 62,449Intangible assets 18,304 22,530 20,114Property, plant and equipment 3,904 7,472 4,700Interest in associates - 3,079 -Other investments 70 72 70Loan notes - 2,500 -Other receivables 308 - 944Deferred tax asset - 44 - --------- --------- ---------Total non-current assets 84,037 105,280 88,277 --------- --------- --------- Current assetsInventories 4,849 5,974 4,986Trade and other receivables 32,613 50,997 43,767Cash and cash equivalents 11,315 7,186 23,692 --------- --------- ---------Total current assets 48,777 64,157 72,445 --------- --------- --------- --------- --------- ---------Total assets 132,814 169,437 160,722 --------- --------- --------- Current liabilitiesTrade and other payables (47,008) (62,250) (55,681)Current tax liabilities (2,413) (2,523) (2,330)Obligations under financeleases (216) (564) (293)Bank overdraft and loans (62,325) (15,640) (14,479)Provisions (2,896) (7,005) (4,306) --------- --------- ---------Total current liabilities (114,858) (87,982) (77,089) ========= ========= ========= Non-current liabilitiesBank loans (1,619) (22,077) (58,977)Convertible loan notes (6,960) (6,960) (6,960)Trade and other payables (657) - (879)Obligations under financeleases - (269) (105)Deferred tax liabilities (615) - (963)Provisions (3,244) (2,288) (3,980) --------- --------- ---------Total non-current liabilities (13,095) (31,594) (71,864) --------- --------- --------- --------- --------- ---------Total liabilities (127,953) (119,576) (148,953) --------- --------- ---------Net assets 4,861 49,861 11,769 ========= ========= ========= EquityShare capital 50,794 50,794 50,794Share premium 224,665 224,757 224,665Translation reserve 1,558 (3,630) 1,878Equity reserve 340 340 340Retained earnings (272,808) (222,611) (266,396) --------- --------- ---------Equity attributable to equityholders of the parent company 5 4,549 49.650 11,281 --------- --------- --------- Minority interest 312 211 488 --------- --------- ---------Total equity 4,861 49,861 11,769 ========= ========= ========= (i) The 31 March 2006 figures have been restated - see note 7. Unaudited condensed consolidated interim statement of cashflowsFor the six months ended 31 March 2007 Six months Six months Year ended ended ended 31 March 31 March 30 September 2007 2006 2006 Restated (i) (unaudited) (unaudited) £'000 £'000 £'000Cash flows from operating activitiesLoss for the year (6,588) (26,740) (70,148)Adjusted for:Depreciation of tangible fixedassets 835 1,513 3,605Amortisation of intangible assets 1,810 1,817 4,048Impairment of goodwill 998 4,574 10,658Impairment of loan notes - - 2,500Financial income (685) (410) (996)Financial costs 3,577 9,888 15,685Equity settled share basedpayment expenses - (10) 35Profit on disposal of subsidiary (135) - (1,728)(Profit)/ loss on disposal offixed assets 3 (226) (300)Taxation (145) (328) 532 --------- --------- ---------- Operating cash flows beforemovements in working capital (330) (9,922) (36,109)(Increase)/decrease ininventories 137 (869) 119(Increase)/decrease in trade andother receivables 8,628 (1,457) 9,782(Decrease)/increase in trade andother payables (8,046) (21,598) (21,914) --------- --------- ----------Cash generated by operations 389 (33,846) (48,122)Income taxes paid - (523) (915)Interest paid (2,956) (10,639) (15,427) --------- --------- ----------Net cash flow from operatingactivities (2,567) (45,008) (64,464) --------- --------- ---------- Cash flows from investing activities--------------------------------------Interest received 685 410 996Proceeds from sale of fixedassets 50 340 1,216Proceeds from disposal ofsubsidiary - - 1,852Acquisition of property, plantand equipment (125) (173) (301)Acquisition of intangibles - (33) -Acquisition of subsidiary, net ofcash acquired - (34) (2,984) --------- --------- ----------Net cash from investingactivities 610 510 779 --------- --------- ----------Cash flows from financing activities-------------------------------------- Equity dividends paid - - -Repayment of borrowings (365) (43,219) (65,295)Repayment of obligations underfinance leases (182) (325) (799)(Repayment)/proceeds on issue ofconvertible loan notes - (22,700) (4,700)Proceeds from issue of sharecapital - 138,084 102,992Proceeds from new bank loan 4,000 - 57,000 --------- --------- ----------Net cash from financing activities 3,453 71,840 89,198 --------- --------- ----------Net increase/(decrease) in cashand cash equivalents 1,496 27,342 25,513Cash and cash equivalents atbeginning of year 9,523 (15,215) (15,215)Effect of foreign exchange ratechanges (726) (1,274) (775) --------- --------- ----------Cash and cash equivalents at endof year 10,293 10,853 9,523 --------- --------- ---------- (i) The 31 March 2006 figures have been restated - see note 7. Notes to the unaudited condensed consolidated interim financial statements 1. General information The condensed consolidated interim financial information for the six monthsended 31 March 2007 does not constitute statutory financial statements and hasnot been audited. No statutory financial statements have been delivered to theRegistrar of Companies. Comparative interim financial information for the sixmonths ended 31 March 2006 has not been audited. The comparative figures for the financial year ended 30 September 2006 are notthe company's statutory accounts for the financial year. Those accounts havebeen reported on by the company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) qualified, (ii) did not include areference to any matters to which the auditors drew attention by way of emphasiswithout qualifying their report and (iii) did contain statements under section237(2) and 237(3) of the Companies Act 1985. These interim financial statements have been approved for issue by the Board ofDirectors on 14 June 2007. 2. Accounting policies Basis of preparationThe Group interim financial statements have been prepared and approved by theDirectors in accordance with International Financial Reporting Standards asadopted by the European Union. The financial information has been preparedapplying the accounting policies and presentation that were applied in thepreparation of the company's published financial statements for the year ended30 September 2006. Going concernAfter making enquiries, the Directors believe that the Group has adequateresources to continue in operational existence for the foreseeable future. Forthis reason, the Directors consider it appropriate to adopt the going concernbasis in preparing these interim financial statements. The Directors' judgement is, in part, based on the availability of an additional£5 million banking facility, which has been granted as of the date of thisreport, and their belief that the Group will be able to renew the increasedbanking facilities of £70 million that are due for repayment on 31 March 2008.Inherently there can be no certainty in relation to the renewal of the bankingfacilities and this may cast significant doubt on the Group's ability tocontinue as a going concern. The interim financial statements do not include anyadjustments that would result from the basis of preparation being inappropriate. 3. Segment information Segment information is presented in the condensed consolidated interim financialstatements in respect of the Group's business segments, which are the primarybasis of segment reporting. The business segment reporting format reflects theGroup's management and internal reporting structure. Segment results include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Business segmentsAt 31 March 2007, the Group comprised of the following main business segments: • Recorded Product • Merchandising • Artist Services Business SegmentsFor the six months ended 31 March 2007 Segment Revenue | Segment Result ---------------------- | ---------------------- Six months Six months Year ended | Six months Six months Year ended ended 31 ended 31 30 September | ended 31 ended 31 30 September March 2007 March 2006 2006 | March 2007 March 2006 2006 (unaudited) (unaudited) | (unaudited) (unaudited) £'000 £'000 £'000 | £'000 £'000 £'000 --------- -------- --------- | --------- --------- ---------Business |segment |Recorded |Product 16,420 25,304 35,055 | (1,695) (1,515) (22,355)Merchandising 35,260 29,714 68,754 | 1,597 940 2,908Artist Services 10,217 6,866 22,525 | 3,811 (8,216) (16,382)Other 1,817 4,044 6,846 | (135) (1,475) (4,910) --------- -------- --------- | --------- --------- --------- 63,714 65,928 133,180 | 3,578 (10,266) (40,739) --------- -------- --------- | |Unallocated |expenses | (7,554) (7,323) (13,416) |Provision |against loan |notes | (2,500) | --------- --------- --------- |Loss from |operating |activities | (3,976) (17,589) (56,655) |Profit / |(loss) on |sale | of subsidiary | 135 - 1,728 |Net financing |costs | (2,892) (9,478) (14,689) | --------- --------- --------- Loss before | taxation | (6,733) (27,068) (69,616) | Income tax |credit/ |(expense) | 145 328 (532) | --------- --------- --------- | Loss for the |period after |taxation | (6,588) (26,740) (70,148) | --------- --------- --------- 4. Income taxes Current taxCurrent tax expense for the interim periods presented is the expected taxpayable on the taxable income for the period and any adjustments to tax payablein respect of previous years. Current tax for current and prior periods is classified as a current liabilityto the extent that it is unpaid. Amounts paid in excess of amounts owed areclassified as a current asset. Deferred taxThe amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities,using the estimated average annual effective income tax rate for the interimperiods presented. Deferred tax credit arises from the origination and reversal of temporarydifferences, the effects of changes in tax rates and the benefit of tax lossesrecognised. Six months Six months Year ended ended ended 31 March 31 March 30 September 2007 2006 2006 (unaudited) (unaudited) £'000 £'000 £'000 --------- --------- ---------Total current tax(credit)/expense 203 20 (127)Total deferred tax expense (348) - 659Reversal of temporarydifferences - (348) - --------- --------- ---------Income tax (credit)/expense (145) (328) 532 --------- --------- --------- 5. Capital and reserves Reconciliation of movements in equityFor the six months ended 31 March 2007 Equity attributable to equity Issued Share Translation Equity Retained holders of Minority capital premium reserve reserve earnings the parent interest Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------ ------- -------- ------- ------- -------- ------ -------Balance at 1October 2005 46,388 91,079 (2,332) 1,575 (196,103) (59,393) 308 (59,085)Sharesub-consolidation and shareissue net ofcosts 4,406 133,586 - - - 137,992 - 137,992Totalrecognisedincome andexpense - - 4,210 (70,328) (66,118) 180 (65,938)Equity sharebased paymenttransactions - - - 35 35 - 35Partsettlement ofconvertibleloan notes - - -- (1,235) - (1,235) - (1,235) ------ ------- -------- ------- ------- -------- ------ -------Balance at 1October 2006 50,794 224,665 1,878 340 (266,396) 11,281 488 11,769Totalrecognisedincome andexpense forthe period - - (320) - (6,412) (6,732) (176) (6,908) ------ ------- -------- ------- ------- -------- ------ -------Balance at 31March 2007 50,794 224,665 1,558 340 (272,808) 4,549 312 4,861 ====== ======= ======== ======= ======= ======== ====== ======= 6. Earnings per shareBasic earnings and diluted earnings per shareBasic earnings per share are calculated by dividing the loss for the periodattributable to ordinary shareholders by the weighted average number of ordinaryshares outstanding during the period. Six months Six months Year ended ended ended 31 March 2007 31 March 2006 30 September (unaudited) (unaudited) 2006 £'000 £'000 £'000 ---------- ---------- -----------Loss for the period attributableto ordinary shareholders (6,412) (26,641) (70,328) ---------- ---------- ----------- Six months Six months Year ended ended ended 31 March 31 March 30 September 2007 2006 2006 (unaudited) (unaudited) Shares Shares Shares ---------- ---------- ----------- Weighted average number of sharesin issue 222,186,643 15,172,212 118,963,009 £ £ £Basic earnings per share (0.03) (1.76) (0.59)Diluted earnings per share (0.03) (1.76) (0.59) Diluted earnings per share is equivalent to basic earnings per share as theeffect of dilutive potential ordinary shares would decrease the net loss pershare and so the potential ordinary shares cannot be treated as dilutive inaccordance with IAS 33 'Earnings per share'. 7. Prior period adjustments The Board have concluded that the following material errors should be correctedby way of prior period adjustments to the March 2006 interim report contained inthese consolidated interim financial statements. (i) The Directors have reconsidered the treatment with regard to the Group's 50%equity shareholding in Sanctuary Kobalt (UB40) Limited and Sanctuary Kobalt(WAR) Limited and have concluded that they represent investments in subsidiariesand should be consolidated and not accounted for as joint venture investments asthey were at 31 March 2006. (ii) Provisions against Recording Artists recoupable advances ('ARBs')identified in the 2006 fiscal year which should have been recorded in the 2005fiscal year, thus impacting the opening retained earnings at 1 September 2005. (iii) Deferred taxation assets of £2,828,000 have been offset against deferredtax liabilities. (iv) Amortisation of Recorded Product Catalogue at the correct rate sinceacquisition. (v) Finance costs of £1,118,000 have been reclassified from administrativeexpenses to net finances costs. None of the above adjustments impact the 30 September 2006 financial statements. Reconciliation of previously reported IFRS consolidated profit and loss accountFor the period ended 31 March 2006 As Kobalt Intangible Finance As originally companies asset costs restated reported amortisation £'000 £'000 £'000 £'000 £'000 ------- -------- -------- -------- -------- Total turnover 65,641 287 - - 65,928Cost of sales (45,854) (287) - - (46,141) ------- -------- -------- -------- --------Gross profit 19,787 - - - 19,787 Administrativeexpenses (38,682) 91 (141) 1,118 (37,613)Share ofresults fromassociates 237 - - - 237 ------- -------- -------- -------- --------Profit/ (loss)from operatingactivities (18,658) 91 (141) 1,118 (17,589) Financialincome 432 (22) - - 410Financial costs (8,701) (69) - (1,118) (9,888) ------- -------- -------- -------- --------Net financingcosts (8,269) (91) - (1,118) (9,478) Income taxcredit 328 - - - 328 ------- -------- -------- -------- --------Profit/ (loss)for the periodafter taxation (26,599) - (141) - (26,740) ------- -------- -------- -------- -------- Equityshareholdersof the company (26,500) - (141) - (26,641)Minorityinterests (99) - - - (99) ------- -------- -------- -------- --------Retained lossfor the period (26,599) - (141) - (26,740) ------- -------- -------- -------- -------- Reconciliation of previously reported IFRS consolidated balance sheetAs at 31 March 2006 As originally Kobalt Records Deferred Intangible As reported companies ARB taxation asset restated amortisation £'000 £'000 £'000 £'000 £'000 £'000 ------- -------- ------- ------- -------- -------Non-currentassetsGoodwill 69,583 - - - - 69,583Intangibleassets 23,665 333 - - (1,468) 22,530Property,plant andequipment 7,472 - - - - 7,472Interest inassociates 3,079 - - - - 3,079Otherinvestments 72 - - - - 72Loan notes 2,500 - - - - 2,500Deferred taxasset 2,828 (2,784) 44 ------- -------- ------- ------- -------- -------Totalnon-currentassets 109,199 333 - (2,784) (1,468) 105,280 ======= ======== ======= ======= ======== ======= CurrentassetsInventories 5,974 - - - - 5,974Trade andotherreceivables 54,695 2,233 (5,931) - - 50,997Cash andcash 7,183 3 - - - 7,186equivalents ------- -------- ------- ------- -------- -------Totalcurrent 67,852 2,236 (5,931) - - 64,157assets ======= ======== ======= ======= ======== =======Total assets 177,051 2,569 (5,931) (2,784) (1,468) 169,437 ------- -------- ------- ------- -------- ------- CurrentliabilitiesTrade andother (60,723) (178) (1,349) - - (62,250)payablesCurrent taxliabilities (2,523) - - - - (2,523)Obligationsunderfinance (564) - - - - (564)leasesBankoverdraft (15,330) (310) - - - (15,640)and loansProvisions (7,005) - - - - (7,005) ------- -------- ------- ------- -------- -------Totalcurrent (86,145) (488) (1,349) - - (87,982)liabilities ======= ======== ======= ======= ======== ======= Non-currentliabilitiesBank loans (20,000) (2,077) - - - (22,077)Convertibleloan notes (6,960) - - - - (6,960)Obligationsunderfinance (269) - - - - (269)leasesDeferred taxliabilities (2,784) - - 2,784 - -Provisions (2,288) - - - - (2,288) ------- -------- ------- ------- -------- -------Totalnon-currentliabilities (32,301) (2,077) - 2,784 - (31,594) ------- -------- ------- ------- -------- ------- ------- -------- ------- ------- -------- -------Totalliabilities (118,446) (2,565) (1,349) 2,784 - (119,576) ------- -------- ------- ------- -------- -------Netassets/(liabilities) 58,605 4 (7,280) - (1,468) 49,861 ======= ======== ======= ======= ======== ======= EquityShare 50,794 - - - - 50,794capitalShare 224,757 - - - - 224,757premiumTranslationreserve (3,569) - (61) - - (3,630)Equity 340 - - - - 340reserveRetainedearnings (213,926) 2 (7,219) - (1,468) (222,611) ------- -------- ------- ------- -------- -------Equityattributableto equityholders ofthe 58,396 2 (7,280) - (1,468) 49,650parent ------- -------- ------- ------- -------- -------company Minorityinterest 209 2 - - - 211 ------- -------- ------- ------- -------- -------Total equity 58,605 4 (7,280) - (1,468) 49,861 ======= ======== ======= ======= ======== ======= 9. Contingent Liabilities The Group is involved in various legal proceedings, arising in the normal courseof business. The Directors believe they have legal and factual defences to theseclaims and do not believe the Group has any liability significantly in excess ofthe provisions made. Adverse verdicts in these matters, however, could result inmaterial losses to the Group. Save as set out below, there are no and there have not been any legal,governmental or arbitration proceedings (including any such proceedings whichare pending or threatened of which the Group is aware) which may have or havehad in the recent past a significant effect on the Company and/or the Group'sfinancial position or profitability. Sugar Hill RecordsSanctuary Records Group Limited and Sanctuary Copyrights Limited are engaged inan action brought by Sylvia Robinson, Sylvia Inc. and others in the courts ofNew York, alleging that these companies failed to account and pay royalties tothe plaintiffs pursuant to certain contracts entered into between the plaintiffsand Sugar Hill Records (which were acquired by Sanctuary Copyrights Limited in1995) and seeking damages and rescission of those contracts or, in thealternative, an accounting of royalties. A default judgment was entered for the plaintiffs in May 2004 partiallyrescinding the contracts and awarding the plaintiffs the proceeds derived by thedefendant companies from 15 May 1995 from the exploitation of the recordingswhich were the subject of those contracts. An inquest was directed to determinethe amounts derived by the defendant companies to be awarded to the plaintiffs.In June 2004, the Group moved to vacate the default judgment but wasunsuccessful. In June 2005, the plaintiffs submitted a claim to the inquestreferred to above in the sum of $232,272,626 plus interest. In May 2007 thisclaim was reduced to $32,929,222 plus interest. The Group has, however, beenadvised by US legal counsel that, in its opinion, the default judgment is notconsistent with prevailing law. In November 2005, the magistrate conducting theinquest ruled that the plaintiff's had failed to show that any damages were dueas a matter of law. The plaintiffs have appealed against that decision and atrial has taken place in May 2007 and a judgement is pending on the matterswhich were the subject of the magistrate's determination. If the magistrate'sruling is overturned, the Group will continue to seek to have the defaultjudgment vacated as unauthorised and/or to appeal in the event damages areassessed. Should the default judgment not be vacated or overturned, the Group isuncertain as to what the outcome of the claim might be and can offer noassurances on its prospects for successfully defending the claim. However, theGroup, having taken US legal advice, believes that, based upon its estimates ofactual sales of the offending recordings, associated costs incurred inconnection with those recordings and the royalty rates payable to the plaintiffspursuant to the subject contracts, that damages are likely to be substantiallyless than the amounts claimed and a provision has been made accordingly. 5.1 Label GroupIn January 2002, Sanctuary Records Group Inc ("SRGI") entered into an agreementwith 5.1 Label Group LLC ("5.1") pursuant to which SRGI was to license certainrecordings to 5.1. In July 2005, 5.1 made a claim against SRGI (the Company hassince been joined to the action as a defendant) contending wrongful breach ofthat agreement as amended by a subsequent agreement dated 29 September 2003,breach of warranty, fraud and conspiracy in an amount in excess of $50 millionplus the possibility of punitive damages. The Group, having taken US legaladvice, believes the claim for damages for these amounts to be without merit andwill not be awarded. The Group is contesting the claim and has filed across-complaint against 5.1. In particular, the Group will vigorously defend theclaims of fraud made against it. ReggaeIn connection with its exploitation of certain reggae recordings, the Group isparty to a number of claims in French courts (or has indemnified other partieswho are the subject of such claims), and expects to become subject to otherclaims, alleging that certain artists whose performances are contained on thoserecordings did not give written consent for their performances to be exploitedon records. Judgment has now been given in two of the cases; there is onedormant case and one further active case before the French courts. In one of thedecided cases, the Group was ordered to pay damages of approximately €35,000 andto indemnify its distributor in France to an equivalent amount. In the othercase, the Group and its distributor in France were ordered to pay a total of€370,000. The Group has lodged an appeal against this latter award, having beenadvised by its French lawyer that the basis of assessing damages in this casewas incorrect as a matter of law. Provision has been made for the outstandingclaim in line with this advice. Caresse HenryIn April 2007 legal action was taken against Sanctuary Group plc and one of itsUS incorporated subsidiary companies by Caresse Henry a former US employee. Theclaim is for $5.3 million in specified damages for alleged breach of contract.Management have taken legal advice and believe that the claim is without meritand that no damages should be awarded. This information is provided by RNS The company news service from the London Stock Exchange