SuperGroup Regulatory News (SGP)

28 Jun 2005 07:01

Sanctuary Group PLC28 June 2005 Tuesday, 28th June 2005 THE SANCTUARY GROUP PLC Interim Results for the Six Months to 31st March 2005 The Sanctuary Group plc ("Sanctuary", "the Group" or "the Company"), theinternational music company, today announces interim results for the six monthsto 31st March 2005. Trading for the Group has been profitable but adversely affected by some keyoperational issues that have arisen during the period under review and whichhave caused a substantial underperformance against expectations. Background onthese key issues as well as more information on the Group's consequent review ofits operations is given below. Financial Summary • Group turnover of £85.0m (2004: £89.0m). • Group EBITDA of £6.6m (2004: £10.6 m).* • Group normalised pre-tax profits of £1.3m (2004: £6.9m).** • Normalised diluted earnings per share of 0.05p (2004: 1.58p). • Net senior debt (excluding Convertible Loan Notes) as at 31st March 2005 was £87.7m (30th September 2004: £52.3m) whilst the average net debt for the half-year ended 31st March 2005 was £84.8m (Full year 2004 average: £65.6m). • Recorded Product turnover of £36.0m (2004: £41.0m) • Artists Services turnover of £47.0m (2004: £46.0m) • Gross profit of £36.0m (2004: £36.0m) • Group overheads of £30.0m (2004: £26.0m) Key Issues Slippage: The Group's growth strategy for its Recorded Product Division over the past twoyears has focused on acquisitions and signings of high profile establishedartists capable of generating significant sales. Against this background, the Group's Recorded Product Division has suffered froma greater degree of slippage of releases than previously experienced,particularly in Sanctuary Urban. Many of these releases have been rescheduledinto the second half and should therefore lead to a greater second halfperformance. However, some of these releases, together with releases originallyscheduled for the second half are now expected to be delayed until the Group'snext financial year. The total number of forecast unit sales that slipped out ofthe first half was almost 1.3m reducing turnover by £9.3m. In addition, costswere incurred in relation to releases that slipped particularly within SanctuaryUrban. Infrastructure costs: In line with its strategy, the Group has stepped up its infrastructure tosupport its longer-term expectations in growth of sales and profits. Regrettablythe slippage that has been experienced in record sales has impacted profits andwe have not met our original targets for the period. The Board believes thatthis will be redressed in the second half and thereafter as the pipeline ofexpected new releases is fulfilled. The Board intends to establish aninfrastructure more appropriate to its realised business going forward and assuch, the Board intends to cut costs, though not at the expense of damaging theGroup's prospects. Operational Review In the current situation, the Board has initiated a review of the Group'soperations globally. Although too early to report on all of the actions thatwill result from this, the Board has already identified significant costreduction targets and actions. These are expected to result in annualised costreductions of at least £7m to £8m. The Board plans to launch the cost cuttingprogramme immediately and will update shareholders on progress at thePreliminary results stage or earlier if it is appropriate to do so. Exceptionalcosts associated with these changes will be non-recurring and will total some£4m to £5m in total, all of which will be incurred in the current financialyear. Simultaneously, the Board has identified for possible sale a number of discretebusinesses and assets. The Board will update the shareholders as soon as furtherprogress is made. Debt Position At the end of the period the group's indebtedness was £87.7m plus a £21.5mConvertible Loan. This Convertible Loan is now at £30m as the final £8.5mtranche was drawn down in April 2005 to assist with the acquisition ofTwenty-First Artists. The operational and structural issues outlined in thisstatement have combined to increase the Group's indebtedness to a higher levelthan was forecast and a higher level than the Board is comfortable with goingforward. The c£20m increase in average net senior debt this first half over theprevious full year is primarily accounted for by some £26.5m in relation to cashconsideration for acquisitions over the last eighteen months which have had anaccumulating impact in the first half of this year. There is also theaccumulating impact of a net circa £8.6m increase in Recording and merchandisingadvances over the same eighteen-month period. In keeping with the normalseasonal trading patterns of our business, our indebtedness has risen since theend of 31st March 2005 but will decrease by the financial year-end and istargeted to be at a similar level as at 31st March 2005; as stated above thecompany is engaged on a number of initiatives to reduce indebtedness further.The Board has had discussions with its bank and its bondholder and is confidentof their continued support. Statement on potential Offer discussions On 3rd June we announced that we had held preliminary talks which may or may notlead to an offer for the company or a further business opportunity. These talksare continuing, although we can still not be sure of their outcome. Managementis aware that these talks can be unsettling for our staff and our artists and soof the need to bring them to a conclusion, particularly so that we can moreeffectively address the resolutions we are putting in place with respect to thedifficulties we have experienced in the first half. In addition, whilst in thesediscussions, we have suspended our programme of Catalogue Exploitation Contractswhich might decrease value for a potential acquirer. Acquisition On 1st April 2005, the Group announced the acquisition of Twenty-First Artistswhich brought with it the management of Sir Elton John. Sir Elton is currentlytouring and performing on a sell-out tour, before returning to his series ofshows in Las Vegas which continue with 50 shows per year until 2008. His musicfor 'Billy Elliot The Musical' has helped the show to receive unanimouslyexcellent reviews. Twenty-First also manages James Blunt whose debut album, 'Back To Bedlam', is now approaching double Platinum in the UK with the album atNumber Two and the single at Number Three. Business Progress • In Artist Management, the model is demonstrating the organic growthpreviously forecast with new artists taken on such as Joss Stone, one of theworld's highest profile artists. She has sold over five million albums and wasrecently named spokeswoman for the Gap clothing company. Mario has proved to beone of the year's most successful artists, US Number One album, 'Turning Point',selling over one million to date. • Morrissey, Slipknot and Manic Street Preachers all toured extensivelyduring the period, with worldwide sales of the new Slipknot album approachingthree million. Destiny's Child's latest album, 'Destiny Fulfilled', was releasedin November and has had strong sales worldwide, rapidly achieving triplePlatinum in the US. A major world tour commenced in May and continues into theautumn. At the conclusion of this campaign Beyonce, Kelly and Michelle all havemajor projects planned that will see them in the spotlight for the foreseeablefuture. • In Recorded Product, Billy Idol, a recent signing, released his album 'Devil's Playground' in March and this has now sold over 350,000 copiesworldwide. Morrissey's 'You are the Quarry' album, which achieved Platinumstatus in the UK, has now sold over 1 million copies worldwide. Our Rough Tradelabel produced some notable successes for Adam Green, British Sea Power, ArcadeFire, Hal and Babyshambles, whilst The Libertines' second album on Rough Tradegave Sanctuary Records its first Number One album, selling over 340,000 units. • New artists signed in the period to Sanctuary Records for release inthe current financial year and beyond included Robert Plant, Lou Reed, EarthWind & Fire, Simple Minds, William Orbit, The Charlatans, Bizarre and StatusQuo. • Our merchandising operation, Bravado, has enjoyed good sales in thefirst half of the year from its burgeoning retail sales business. Merchandisingsales are now much less tied to live touring, which is high volume and lowmargin, and increasingly geared to selling through both online and traditionalretail outlets such as Hot Topic, Kmart, Target, H&M and HMV for products thatrange from the traditional, such as T-shirts and posters, through to licensedproducts that become lifestyle accessories. • Our live agencies continue to perform steadily and make a solidcontribution to Group income, with acts such as Franz Ferdinand and McFly makinga breakthrough in 2005. The first half of the year had major tours from TheDarkness, Busted, Dido, Avril Lavigne and Faithless. The traditionally busiersummer touring season features key acts such as Destiny's Child, Iron Maiden,Franz Ferdinand, Jamie Cullum, Kraftwerk, McFly and Slipknot. Outlook The Board views the underperformance and reduced profitability as regrettableand unacceptable but also as the result of a set of issues that are beingurgently addressed. The Board is confident in the longer term strength ofSanctuary's integrated business model and that the Group can return toacceptable levels of profit and cash generation. Encouraging indications include, for example, that last week (19th June 2005)Sanctuary artists (managed or recorded) had 11 singles and six albums in the UKTop 75 Charts. This included three singles in the Top Ten and three albums inthe Top 20. In addition, it was announced (also in June) that Sir Elton John's "Red Piano" contract in Las Vegas had been extended by 50 shows per year for2006, 2007 and 2008. Furthermore, the Group's stronger trading period has always been in the secondhalf of the financial year when many tours, festivals and record releases occur.This remains true for this year, despite the knock-on effect of some of theslippage experienced in Recorded Product. However, with this degree of shortfallin the first half, the adverse impact of higher costs and some additionalslippage from the second half into the next financial year, the market shouldexpect that EBITDA for the full year is likely to be substantially less thanlast year's EBITDA. Commenting on the results, Andy Taylor, Executive Chairman of The SanctuaryGroup plc said: "I am clearly disappointed that set-backs within Recorded Product releases, andparticularly within Sanctuary Urban, have resulted in a lack of growth in thebusiness in an environment where we had increased overheads in anticipation ofcontinued growth. The measures we will take will have an immediate effect and,in adjusting our costs to a level more consistent with the level of business wehave been able to achieve, we will have started to establish a more stableoperating environment for our core business areas. I continue to be veryconfident in our model and in its ability to generate returns for shareholders.I am very focussed on actions which will strengthen the business." * EBITDA - Earnings before interest, taxation, depreciation and amortisation. ** Profit before tax is calculated by taking the profits before tax (FRS 3) andadjusting for the effects of goodwill and intangible asset amortisation costs. -Ends- For further information, please contact: The Sanctuary Group plc Andy Taylor, Executive Chairman 020 7300 6618Merck Mercuriadis, Group CEO +1 212 763 9102Mike Miller, Finance Director 020 7300 6618 Philip Ranger, Director, Corporate & Investor Relations 020 7300 1323 07768 534641 Eddy Leviten, Head of Communications 020 7300 6542 Merlin PR Paul Downes/Rebecca Penney 020 7653 6620 Attached: Consolidated profit and loss account Consolidated balance sheet Consolidated cash flow statement Notes THE SANCTUARY GROUP PLC Interim Statement 31 March 2005 Consolidated Profit and Loss Accountfor the half year ended 31 March 2005 Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 Notes (unaudited) (unaudited) (audited) £000 £000 £000 Turnover:Existing operations 78,035 88,994 207,935Acquisitions 6,993 - 13,030Total turnover - continuing operations 2 85,028 88,994 220,965Cost of sales (48,945) (52,428) (140,233)Gross profit 36,083 36,566 80,732 Total administrative expenses:Amortisation (3,506) (3,080) (6,476)Depreciation (1,367) (1,392) (3,154)Other administrative expenses (29,514) (25,929) (55,908)Total administrative expenses (34,387) (30,401) (65,538) Group operating profit:Existing operations 1,346 6,165 14,627Acquisitions 350 - 567Group operating profit 1,696 6,165 15,194Interest receivable and similar income 63 11 93Exceptional item - - (11,400)Interest payable and other charges (3,940) (2,358) (5,689)(Loss)/profit on ordinary activities before taxation (2,181) 3,818 (1,802)Taxation on (loss)/profit on ordinary activities (587) (1,649) (4,981)(Loss)/profit on ordinary activities after taxation (2,768) 2,169 (6,783)Minority interests (886) 56 (129)(Loss)/profit on ordinary activities for the financial period (3,654) 2,225 (6,912)Dividends proposed - - 1,528)Retained (loss)/profit for the financial period (3,654) 2,225 (8,440) Earnings per share:Basic 3 (1.07)p 0.67p (2.08)pDiluted 3 (1.07)p 0.66p (2.08)pNormalised - diluted* 3 0.05p 1.58p 3.18p *Earnings per share: Normalised - diluted is calculated using (loss)/profit onordinary activities after tax and minority interests for the financial period,having added back exceptional items and goodwill and intangible assetsamortisation costs charged after gross profit over the diluted weighted averageshares in issue during the period. Group Balance Sheetat 31 March 2005 Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 Notes (unaudited) (unaudited) (audited) £000 £000 £000 Fixed assets:Intangible assets 32,603 31,540 31,553Goodwill 95,639 83,758 84,185Tangible assets 13,734 12,834 13,652Investments 17,907 29,950 17,907Investments in joint ventureShare of gross assets 2,124 - 2,135Share of gross liabilities (2,124) - (2,135) 159,883 158,082 147,297 Current assets:Stocks 11,679 10,304 10,524Advance payments to artists to secure rights:Amounts falling due within one year 18,555 19,677 16,432Advance payments to artists to secure rights:Amounts falling due after one year 20,146 13,735 17,352Debtors: Amounts falling due within one year 91,677 72,528 66,490Debtors: Amounts falling due after one year 24,047 7,049 24,233Cash at bank and in hand 6,457 10,451 20,046 172,561 133,744 155,077 Creditors: Amounts falling due within one year (112,788) (82,337) (93,639)Net current assets 59,773 51,407 61,438 Total assets less current liabilities 219,656 209,489 208,735 Creditors: Amounts falling due after one year (78,995) (71,360) (78,876)Provisions for liabilities and charges (7,365) (5,317) (7,011)Net assets 133,296 132,812 122,848 Capital and reserves:Called up share capital 46,387 41,831 41,997Shares to be issued 250 250 250Share premium account 91,271 81,085 81,493Profit and loss account (5,841) 9,464 (1,235)Equity Shareholders' funds 132,067 132,630 122,505Minority interests 1,229 182 343Total capital employed 133,296 132,812 122,848 Consolidated Cash Flow Statementfor the half year ended 31 March 2005 Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 Notes (unaudited) (unaudited) (audited) £000 £000 £000 Net cash flow from operating activities 8 (20,604) 1,324 7,197Returns on investment and servicing of finance 9 (3,877) (2,347) (5,596)Taxation (1,377) (49) (168)Capital expenditure and financial investment 9 (4,417) (7,880) (13,126)Acquisitions and disposals 9 (4,595) (8,961) (9,288)Equity dividends paid - - (1,328)Cash outflow before financing (34,870) (17,913) (22,309)Financing 9 27,603 18,662 21,482(Decrease)/increase in cash in the period (7,267) 749 (827) Reconciliation of Net Cash Flow to Movement in Net Debt Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 (unaudited) (unaudited) (audited) £000 £000 £000 (Decrease)/increase in cash in the period (7,267) 749 (827)Cash flow from movement in debt and lease financing 27,525 3,408 (20,882)Change in net debt resulting from cash flows (34,792) 4,157 (21,709)New Convertible Loan Notes - (21,500) -New finance leases (617) - (500)Movement in net debt in period (35,409) (17,343) (22,209)Net debt at 1 October 2004 (73,852) (51,643) (51,643)Net debt at 31 March 2005 (109,261) (68,986) (73,852) Analysis of Net Debt Other At non-cash At 30 Sept 2004 Cash flow changes 31 March 2005 £000 £000 £000 £000 Cash in hand, at bank 20,046 (13,589) - 6,457Overdrafts (16,054) 6,322 - (9,732) 3,992 (7,267) - (3,275)Debt due within one year (3,000) (28,000) - (31,000)Debt due after one year (52,000) - - (52,000)Finance leases (1,344) 475 (617) (1,486) (52,352) (34,792) (617) (87,761) Convertible Loan Notes (21,500) - - (21,500) (73,852) (34,792) (617) (109,261) Notes to the Financial Statements 1. Basis of Preparation of Financial Statements The interim financial statements for the half year ended 31 March 2005 have beenprepared in accordance with accounting policies consistent with those applied inthe accounts for the year ended 30 September 2004, which were approved by theDirectors on 11 February 2005. The interim financial statements do notconstitute statutory accounts and are unaudited. The financial information for the full year ended 30 September 2004 is extractedfrom the financial statements for that year, which have been filed with theRegistrar of Companies and on which the auditors gave an unqualified report. 2. Segmental Analysis - Turnover Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Recorded Product 36,264 40,727 127,341Artist Services 46,740 45,620 87,678Group Services 2,024 2,647 5,946 85,028 88,994 220,965 3. Earnings per Share Basic and diluted earnings per share have been calculated in accordance with FRS14 - 'Earnings per Share'. Basic earnings per share have been calculated usinglosses of £3,654,000 (2004 earnings: £2,225,000) and a weighted average ofshares in issue during the period of 340,308,973 (2004: 330,812,201). Diluted earnings per share is equivalent to basic earnings per share as theeffect of dilutive potential ordinary shares would decrease the net loss pershare so the potential ordinary shares cannot be treated as dilutive inaccordance with FRS 14. In order to show results from operating activities on a comparable basis, anormalised diluted earnings per share has been presented which excludesamortisation costs from the adjusted earnings calculated followingimplementation of FRS 10 - 'Goodwill and Intangible Assets' in 1998. Normalised diluted earnings per share have been calculated using earnings of£200,000 (2004: £5,546,000) and a weighted average of 382,331,312 shares (2004:356,094,546). 4. Group profit before tax (normalised) Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 £000 £000 £000 (Loss)/profit on ordinary activities before taxation (2,181) 3,818 (1,802)Exceptional item* - - 11,400Goodwill amortisation 2,524 2,215 4,770Acquired intangible asset amortisation 982 865 1,706Normalised profit - continuing operations 1,325 6,898 16,074 * The exceptional item relates to a provision against the Loan Notes issued aspart of the disposal of the Cloud 9 Group of companies. 5. Borrowings Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 £000 £000 £000 Analysis of loan repaymentsBank loans and overdrafts:Within one year and on demand 40,732 7,883 19,054Between one and two years 3,000 3,000 3,000Between two and five years 49,000 46,000 49,000 92,732 56,883 71,054 Convertible Loan Notes:Between two and five years 21,500 21,500 21,500Total borrowings 114,232 78,383 92,554 Bank loans and overdrafts of £92,732,000 are secured by fixed and floatingcharges over the assets of The Sanctuary Group plc and certain of itssubsidiaries. Cash at bank and in hand includes £4,181,000 relating to monies collected onbehalf of client artists. The corresponding liabilities are included increditors falling due within one year. On 28 November 2003 the issue of up to £30,000,000 of 4.5% Convertible LoanNotes due 2008 and Warrants to subscribe for 8,919,722 Ordinary Shares wasagreed at an Extraordinary General Meeting of the company. £18,000,000 of theseLoan Notes were issued on 28 November 2003 with a further £3,500,000 beingissued on 27 February 2004. On 6 April 2005 a further £8,500,000 Loan Notes were issued. Whilst unconverted,these £8,500,000 Loan Notes will bear interest at a rate of 5.5% per annum,representing a discount on current rates being paid by the Group. 6. Called Up Share Capital Authorised Issued and fully paid Premium Share warrants No. of shares £000 No. of shares £000 £000 No. of warrants Ordinary Shares of12.5p eachAt 1 October 2004 450,000,000 56,250 335,972,377 41,997 9,648,121Issue of shares under share option scheme - - 358,361 44 38 -Issue of shares inrelation to acquisitions - - 34,768,128 4,346 9,743 -At 31 March 2005 450,000,000 56,250 371,098,866 46,387 9,648,121 7. Reserves Share Group profit premium and loss reserve £000 £000 At 1 October 2004 81,493 (1,235)Exchange movements - (952)Issue of shares 9,781 -Share issue costs (3) -Loss attributable to members of the holding company - (3,654)At 31 March 2005 91,271 (5,841) The cumulative goodwill written off against Group reserves up to 30 September1998 amounted to £16,117,000. 8. Reconciliation of operating profit to net cash (outflow)/inflowfrom operating activities Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Operating profit 1,696 6,165 15,194Depreciation of tangible assets 1,367 1,392 3,154Amortisation of goodwill and intangible assets(net of provision reversal) 3,506 3,080 6,476Amortisation of intangible assets in cost of sales 2,080 1,123 2,785Movement on Artist Royalty Balances 4,644 4,515 11,367Profit on disposal of tangible assets - - 411Loss on disposal of intangible assets - - 74Increase in stocks (1,155) (650) (869)Increase in advances to artists to secure rights (9,562) (6,836) (14,061)Increase in debtors (21,137) (11,110) (21,901)(Decrease)/increase in creditors (1,091) 5,128 6,084Effect of foreign exchange rate changes (952) (1,483) (1,517)Net cash (outflow)/inflow from operating activities (20,604) 1,324 7,197 9. Analysis of cash flows for headings netted in the cashflow Half year ended Half year ended Year ended 31 March 2005 31 March 2004 30 Sept 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Analysis of cash flows for headings netted in the cash flow:Returns on investments and servicing of finance:Interest received 63 11 93Interest paid (3,869) (2,282) (5,538)Interest element of finance lease rental payments (71) (76) (151)Net cash outflow for returns on investments andservicing of finance (3,877) (2,347) (5,596)Capital expenditure and financial investment:Purchase of tangible fixed assets (805) (1,232) (3,846)Purchase of intangible fixed assets net of specific funding (3,612) (6,648) (9,239)Sale of tangible fixed assets - - 124Purchase of investments - - (165)Net cash outflow for capital expenditureand financial investment (4,417) (7,880) (13,126)Acquisitions and disposals:Purchase of subsidiary undertakings (4,463) (6,333) (10,061)Net cash acquired with subsidiaries (132) (2,628) 773Net cash outflow for acquisitions and disposals (4,595) (8,961) (9,288)Financing:Issue of ordinary share capital (net of related expenses) 78 570 600Capital element of finance lease rental payments (475) (408) (618)New secured loans: repayable within one to two years 28,000 - -New Convertible Loan Notes: repayable within two to five years - 21,500 21,500Decrease in long-term borrowings - (3,000) - Net cash inflow from financing 27,603 18,662 21,482 This information is provided by RNS The company news service from the London Stock Exchange