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3/31/2010 - Interim Results
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Interim Results for the Six Months Ended 31 December 2009
DCD Media, the independent TV production and distribution group, is pleased to report results for the six months ended 31 December 2009.
FINANCIAL HIGHLIGHTS
· Revenues of £15.6m (H12008: £22.3m) - reduced as a result of not renewing low-margin, labour-intensive production. A focus on higher margin activity expected to limit impact of lower revenues on profitability this year
· Gross profit margin up to 27% from 21% in H1 2008
· Adjusted profit before tax £0.95m* (H12008: £1.2m) - note H1 2008 profit was boosted by a significant non-recurring item
· Profit after tax, £4.1m (H12008: £0.3m) reflects a gain of £3.7m arising due to a debt cancellation announced in November 2009 following a refinancing of the Group
· Total debt at 31 December 2009 was down to £5.9m (H12008: £9.9m), further reduction expected throughout calendar 2010
· Proposed move to align financial reporting with calendar year - 31 December
*adjusted for non-cash amortisation of trade names (£0.5m) amortization of intangible programme assets (£0.1m) and excluding extraordinary gain (£3.7m)
OPERATIONAL HIGHLIGHTS
· Successful international diversification - particularly USA - in the face of continued difficult trading conditions in domestic UK market
· Growth in non-broadcaster funded production
· Distribution benefitting from wider exploitation of own and third-party rights, beyond selling of programmes and formats, and now encompassing licensing of ancillary rights, DVD, digital download and music rights
· Operating margins improving relative to total revenue
David Elstein, Chairman of DCD Media, commented,
"Whilst we expect domestic trading conditions to remain difficult, DCD is becoming a leaner, higher margin business that is reducing the impact of the UK market through international diversification, particularly to the USA, vertical integration and increasing non broadcaster-funded production. Looking further ahead, as an international media business, DCD is extremely well placed to deliver value."
CHAIRMAN'S STATEMENT
DCD's domestic market in the UK remains challenging; the major broadcasters have reduced their programme spend by hundreds of millions of pounds, with unavoidable impact on the production sector. However, I am pleased to report that the Group is striving to, and succeeding in, reducing its relative dependence on the UK TV market and building an international media business that is capable of delivering significant value in the future. This is being achieved through margin growth and continuing diversification outside of the UK, particularly to the USA, which is not suffering the same pressure. It is also becoming increasingly apparent that DCD's strategy of vertical integration, designed to maximise the value of our intellectual property through areas such as licensing of ancillary rights, is paying off.
Financial Review
Performance in the period 1 July to 31 December 2009 has been driven primarily by production entities September Films and Done and Dusted, as a result of their continuing push into the USA. It is also reassuring that much of this success is coming by way of recurring formats that afford those businesses a stable platform to grow in the US market. Non-production activity has also accounted for a growing proportion of revenues in the first half, with DCD Publishing particularly, demonstrating a pleasing contribution from the exploitation of music rights.
Revenues for the six months to 31 December 2009 were £15.6m (H12008: £22.3m). The biggest element of the reduction on the equivalent period in 2008 was our non-renewal of a low-margin, labour-intensive contract, which is consistent with the Group's policy to focus on higher margin activity. Profit after tax £4.1m (H1 2008: £0.3m) was boosted by a gain arising upon cancellation of part of the Group's convertible debt during the period. Operating profit in the equivalent period in 2008 had also been boosted by a significant non-recurring item. Excluding the extraordinary gain Profit after tax was £0.4m (H1 2008: £0.3m).
The extraordinary gain of £3.7m arose following the refinancing of the Group's convertible debt. The Group's convertible debt liability was substantially reduced on 30 November 2009 to £2.9m following the agreement of our primary holder of convertible loan notes to cancel approximately £6.9m of convertible loan notes in exchange for approximately £2.5m of cash and 7,631,048 new ordinary shares. The cash consideration was met from a senior bank loan from Coutts & Co. of £3.0m, repayable over three years, The remaining £2.9m of convertible debt is redeemable in November 2012 if not previously converted at the fixed price of 18p. Group debt at 31 December 2009 stood at £5.9m (H12008: £9.9m). The Group is targeting further debt reduction throughout calendar 2010.
DCD is continuing to drive cost savings across the Group in areas that are not currently experiencing growth, such as UK drama, whilst refocusing investment in the areas that are, such as factual entertainment, formats and reality programming.
Cash on hand and cash equivalents at 31 December 2009 stood at £3.4m (H12008:£3.9m).
There is no UK tax charge as a result of losses available for offset. No deferred tax asset has been recognised in relation to these losses.
No dividend is proposed for the period. Earnings per share are disclosed in the notes below.
Board Changes
David Green was appointed Group Chief Executive Officer in December 2009, shortly before the period end.
Reporting Calendar
The Board proposes to change the Group's financial year end from 30 June to 31 December in order to more efficiently account for contracts, in both Production and Distribution that, for accounting purposes, fall between the months of June and July. A December 31 cut-off more appropriately reflects the Group's business cycle. This proposed change is subject to regulatory consultation and a further announcement will be made in due course.
Outlook
DCD is making all the right moves to mitigate the challenging domestic UK production environment: international expansion to more lucrative markets; vertical integration to exploit maximum value from intellectual property; reducing reliance on broadcaster funding; and focusing attention and investment on profitable genres whilst reducing cost in weaker areas. This strategy should enable the Group to reduce the impact of the UK TV market, despite lower revenues, in the shorter term.
The outlook in the longer term, we believe, paints an exciting picture. We are content-rich in distribution. The foundation that is being laid in the US sets a stage for significant production growth overseas; and DCD companies are producing multiple high rating series' for multiple major broadcasters who are returning to DCD with more business. Whilst we expect domestic trading to remain difficult, I believe we are poised to benefit from any recovery in activity levels when they arise. We will do this, however, from a stronger position because DCD has adjusted, diversified, been able to increase margins and learned how to generate income outside of traditional broadcast channels. These attributes leave DCD well positioned for growth.
David Elstein
Chairman
CHIEF EXECUTIVE'S REVIEW OF DIVISIONS
DCD is split into two divisions: Production and Distribution. The breadth of creative talent and diversity of programme genres within Production allows us to focus on the most profitable activities and reduce cost in areas that are suffering a hiatus in demand. The Production division has truly world class programme makers that are having increasing success in exporting their talents. The Distribution engine has expanded to encompass licensing and merchandising, book and music publishing, DVD label and digital download. This level of vertical integration sets DCD quite apart from other super-indies.
I am pleased to provide a review of activity within the Group during the first half of the financial year.
Production
Done and Dusted
Done and Dusted is one of the world's foremost independent producers of concert and staged events. During the first half Done and Dusted continued to benefit from its international push, producing Neil Diamond and The Victoria's Secret Fashion Show, both for America's number one network CBS. Other key productions, in the UK or internationally, during the first half included Coldplay at Wembley Stadium and Barcelona, the MOBOS Awards, for the first time, Christmas Carol for Sky Movies, T4 Stars of 2009, the winter version of T4 on the Beach, also staged and filmed by Done and Dusted, Miley Cyrus at The 02 and Green Day in Munich. Done and Dusted also continued to think outside of the box, winning ad-funded programming that may lead to repeat business. These included Arthur's Day (Guinness' 250th birthday celebrations), and F1 Rocks (Singapore).
Like other production entities within the DCD Group, Done and Dusted is underpinned by a back-bone of recurring business such as The Laureus World Sports Awards, The Victoria's Secret Fashion Show and the T4 concerts. This affords it good visibility going into the second half of the financial year with the added benefit of some major live music events expected to fall in this financial year.
DCD Drama
DCD Drama continues to suffer the hiatus in commissioning in this genre. As such it will be run on minimal costs until the demand for high budget drama returns.
Prospect Pictures (Prospect)
Prospect Pictures, DCD's factual and formats specialist, was commissioned for a fourth season of the recurring Daily Cooks Challenge in October 2009 (40 x 60') transmitting on ITV from the end of March 2010. Other series included My Brilliant Britain for Blighty and a 30 episode-strong series of short films for THE ONE SHOW (BBC1) with double the amount commissioned for delivery throughout 2010. Prospect continued to take advantage of the increase in demand for arts programming, producing feature length documentaries for BBC4, Chopin - The Women Behind the Music and The Man Behind The Mask about the life of Elgar.
Prospect has a good pipeline of projects moving into the second half with more episodes for BBC1's ONE SHOW and other projects, especially for BBC3 and BBC4.
September Films (September)
September Films is now a permanent fixture in Hollywood. Having completed production on Billy The Exterminator (20 x30', extended), the second season of the hit show began transmission on A&E this month smashing the previous season's ratings by 50%.
September is in production on Bridezillas 7 (25 x 60') for WE, the next installment of the network's most successful franchise ever, and Mall Cops of America (12x30') for TLC. September's preeminence in human interest documentaries lead to further business during the period with 650lb Virgin: The Weight is Over, Marlie's New Face: 4 years On and Child Frozen in Time, all for TLC.
Further US commissions have come by way of two new high profile specials - one for MTV and the other, a pilot, for A&E which may become a further recurring series for September Films USA. Both contribute to a positive outlook for September in the USA.
In the UK, September is building on the phenomenal success of its first foray into children's programming and is producing a new season of the BAFTA winning series, Richard Hammond's Blast Lab (26 x30') for summer transmission on BBC/CBBC as well as producing a new 8-part reality series for BBC1,Children's Emergency.
West Park Pictures (West Park)
The success of Last Chance To See for BBC2 led to the immediate commission of a single special with Stephen Fry and Mark Carwardine produced during the first half with further filming to take place in June. West Park produced Horses, its first production from West Park West, the Dublin office, which sold out in theatre and was the highest rated Storyville show ever on BBC4. The film has also transmitted on RTÉ.
West Park's second half pipeline includes two feature documentaries for Channel 4 and a live performance in partnership with the ENO for Sky Arts. In continuing the search for non-broadcaster funded projects, the final stages are being put in place for a major contract in Abu Dhabi.
Matchlight
This recently established Joint Venture in Scotland, with a group of six of Scotland's leading programme makers, was a strategic move to capture opportunities arising from the public service broadcasters' commitment to increase programme supply from the nations and regions of the UK. Matchlight specialises in documentary and specialist factual.
Matchlight is now in production on projects for BBC ONE, BBC TWO, BBC THREE, BBC FOUR and BBC Scotland, two of which are multi-part series. The JV is also in advanced funded-development for two further series ideas for the BBC and is in receipt of slate funding from both the BBC and Channel 4. We are confident that Matchlight will produce a growing contribution to DCD from our 50% stake in the business.
Distribution - comprising DCD Rights, DCD Publishing and Digital Classics
DCD Rights
DCD Rights performed well in the first half in a tough content distribution market and managed to sign up more major third party content including prestigious drama series'.
DCD Rights controls the valuable rights to popular series, many produced by DCD companies, such as Bridezillas, which have huge recurring international appeal. The division is content-rich, now controlling more than 2,500 hours of valuable programming assets, many of which are owned by DCD.
Moving into the second half and beyond, DCD Rights should experience the upside of rights acquired for distribution through its access to a private equity fund. Through the fund, it has secured worldwide distribution rights to two big budget dramas for ABC Australia: Rake (8 x 55') and Sisters of War (1x90'). In February DCD Rights licensed a number of programmes to the new Sundance channels in Asia, France and Benelux, along with an option for further territories. The division will be launching a range of new shows at the MIP TV market in Cannes in next month.
DCD Publishing
DCD Publishing was established in September 2008 as part of DCD's strategy to maximise ancillary rights to television programming through licensing, merchandising, book and music publishing. DCD Publishing is led by Adrian Sington, a TV tie-in publishing expert, formerly Managing Director of Boxtree, Chairman of Virgin Books and Vice-Chairman of Virgin Animation.
During the period the division secured its first toy deal in conjunction with Richard Hammond's Blast Lab and signed its first major deal in music merchandising, Puppy Love with Chrysalis Music and Universal Music. DCD Publishing has so far signed six third party producers whom they now represent for publishing, merchandising and DVD. DCD Publishing considers music publishing as an attractive growth area and, as such, since December has established a dedicated division: DCD Music.
Digital Classics (DVD Label and Digital Download)
Since creation in 2005 the DVD label has released 91 titles from both independent producers and DCD-generated programmes.
External DVD releases during the period included the Oscar-nominated German anti-war film, Die Brucke (The Bridge), Jean Renoir's The Golden Coach, Sergio Corbucci's classic Western, The Great Silence and a number of burlesque titles starring Bettie Page. Releases from within the DCD Media group included West Park Pictures' Theatreland, September Films' Alan Whicker's Journey of a Lifetime, West Park Pictures' Last Chance to See with Stephen Fry and Mark Carwardine, which was released on both DVD and Blu-ray in tandem with the Harper Collins book release.
Moving into the second half, sales of Stephen Fry in America increased 200% after the programme won Best Travel Documentary at the National TV Awards in January 2010. The label is now preparing to release titles from a number of third party production companies after securing access to their back catalogues and new programming.
Outlook
Relative to the current TV environment, I am pleased with the production pipeline and associated margins as we approach the fourth quarter of our current financial year to 30 June 2010. Longer term I am hugely excited by the opportunities in the USA, particularly through our Done and Dusted and September Films production entities as they continue to be involved with top-rating, primetime series' and shows for major and multiple broadcast clients.
We control a large and valuable library of owned programme assets and are undertaking more and more third party distribution which will become increasingly lucrative as the content purchasing markets improve.
I believe that the true value in DCD will shine through in the longer term. Our ability to improve the business and reduce the impact of the difficult UK TV market in the shorter term is a reflection of the hard working and talented individuals that make up this unique production and distribution group.
David Green
Chief Executive Officer
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