Media Corporation plc (formerly Gaming Corporation plc)
28 November 2006
MEDIA CORPORATION PLC
("Media Corp" or "the Group")
Preliminary audited results for the year ended 30 September 2006
Financial Highlights
-- Profit after tax increased 662% to £2.5m (2005: £0.3m*)
-- Gross profit increased 88% to £4.8m (2005: £2.5m*)
-- Cash balances at the year end over £5.3m (2005: £2.8m)
-- Consolidated net assets of £17.1m (2005: £14.6m*)
-- Earnings per share of 0.9p (2005: 0.1p*)
* Financial results for 2005 have been restated as described in note 1 to the
financial statements.
Other Highlights
-- Repositioning of Group to focus on three key media businesses, being
search marketing, media network and specialist publishing
-- Launch of interactive mobile cash gaming service with Vodafone UK
-- Appointment of Paul Tuson as Group Finance Director, bringing
significant industry and finance experience and Michael Hawkes as Non
Executive director, bringing industry and corporate governance
experience.
Justin Drummond, Chief Executive of Media Corp, said:
"I am pleased to announce Media Corp's preliminary results showing record levels
of profit for the Group.
Profit after tax has increased by over 650% in one year and the Group now has in
excess of £5 million of cash for further expansion and acquisitions. Our media
and search advertising businesses have performed very strongly during 2006 and
we are now well placed to deliver our strategy focusing on profitable media
businesses."
Enquiries:
Media Corporation plc Justin Drummond, Chief Executive Officer
+44 (0)20 7618 9000 Paul Tuson, Group Finance Director
Holborn PR Trevor Phillips
+44 (0)20 7929 5599
Canaccord Adams Limited Mark Ashurst
+44 (0)20 7050 6500
Chairman's Statement
I am pleased to report significant progress for Media Corporation during 2006,
in a year where we delivered impressive profit growth and further improved our
cash position.
The Board is implementing a strategy focusing on its profitable media
businesses, as highlighted in the Business Review. In October 2006, as part of
this strategy, the Group changed its name from Gaming Corporation plc to Media
Corporation plc.
During 2006 the Group's search business Search Focus Limited has benefited from
our advertisers paying more to acquire new customers for their internet gaming
sites; this resulted in a significant improvement in revenues generated from
this business. On 30 September 2006, the United States Congress passed The Safe
Port Act, which also contained certain provisions known as the 'Unlawful
Internet Gambling Enforcement Act of 2006' affecting the processing of payments
between US customers and online gaming companies. The potential financial impact
to the Group of this regulatory development was not immediately clear.
Search Focus Limited has implemented a new geographic targeting tool within the
search engine back end system which allows advertisers to reorganise their
search listings into three separate territories: USA, UK and the Rest of the
World. As a result of this geographic targeting technology, advertisers may now
prevent US residents from viewing their search listings. In addition to these
technical changes to the online search engine, the Gambling.com magazine is no
longer distributed in the US; it is now distributed to 18,000 platinum members
from around the world, including UK, Europe, Canada and Asia.
It is estimated that despite these changes, the US legislation will result in a
20% to 30% reduction in gaming related search marketing revenues, representing
an annual reduction to group operating profits of between £0.5 million to £0.9
million. However the Group expects to launch a search network for the personal
finance and travel markets early in 2007 and the Board believes that there is
still potential for the search business to grow substantially into other
vertical markets.
As previously stated the Group has continued to see an increase in advertising
revenues derived from the Group's non-US facing gaming portals and search engine
traffic.
It is anticipated that the Board's focus to diversify into other vertical
markets for "search" and to develop other online media businesses will partially
mitigate any shortfall in profits during the 2007 financial year.
The Group has in excess of £5m cash, which may be materially supplemented by the
sale of its internet and mobile casino business (incorporating casino.co.uk).
The Board is proactively seeking strategic, value-enhancing acquisitions to
further enhance its media businesses.
The Group is well positioned to expand its online media businesses, and the
Board is optimistic of generating further profitable growth in the coming
financial year. Consequently we continue to view the future with confidence.
Jason Drummond
Chairman
Business Review
Media Corporation plc has made excellent progress during 2006 whilst formulating
and consolidating its ongoing strategy. The change of name is symbolic of the
Group's re-positioning. With the historical acquisitions of Eyeconomy Limited
and Search Focus Limited (formerly Newbold Enterprises Limited), the Group has
undergone a transformation from a gaming business to a media business driven by
revenues from the fast growing online advertising market. The interim accounts
highlighted the operating profit being driven by the portals and advertising
division and this trend has continued.
In order to focus on its media business, the Board deems it inappropriate to
fully exploit the UK's leading online gaming brand, www.casino.co.uk, as there
is a potential for commercial conflict with its search business in the gaming
vertical. The changes in the UK gaming legislation, due to be effective in
September 2007, have enhanced the value of www.casino.co.uk and the Board is
currently seeking a buyer for its online and mobile gaming business, both
operating under the casino.co.uk brand.
The Group has three principal divisions, all in the media sector.
Search
Search Focus is a supplier in the Paid Search market. IAB figures show that Paid
Search accounted for 58% of all UK online advertising spend in the first six
months of 2006. Total online advertising spend was almost £1bn in the UK for the
first six months of 2006, representing 40% growth over the same period in 2005.
Search Focus is the market leader in the gaming vertical, led by gambling.com
and supplemented by syndication deals on other top-tier domain names including
Gambling.co.uk and Casinos.co.uk. During the first half of the 2007 financial
year, the Board intends to expand the business' reach into fast growing vertical
markets including personal finance and travel markets.
Search Focus' proprietary technology includes a live pay per click bid
management search engine. This allows advertisers to create and self manage
their search listing campaigns from online deposits through to bid management
and real time reporting. Search Focus uses advanced allocation algorithms and
strict editorial to maximise efficiency for advertisers and end users alike.
Publishing
Media Corp has a publishing division specialising in premium destinations and
portals. Our impressive stable of websites includes onthebox.com (the UK's
definitive TV listings guide) and freedeal.co.uk (a comprehensive consumer
portal). The Group has expertise in developing and monetising on-line brands.
Media
Eyeconomy was formed in 1996, and is a separate operating division of Media
Corporation. Eyeconomy specialises in online media planning as well as buying
and managing online media campaigns for clients including AOL, Dell and American
Express.
The business currently specialises in:
-- Producing dynamic and engaging on-line advertising solutions including
exit traffic (SubSites) and rich-media floating toolbar (SubLines).
-- Offering a total reach of 30 million unique users every month, from over
750 quality host sites in all major channels, including Finance, Travel,
Motors, Sport, Male/Female, Student/Youth, Property, Entertainment,
Film, Music and TV, Mobile/Gadget and Recruitment.
-- Producing in-house creative.
Financial overview
The audited results for the year ended 30 September 2006 show significant profit
growth despite consolidated turnover decreasing by 37% to £11.9 million (2005:
£18.8 million*). Gross profit increased by 88% to £4.8million (2005:
£2.5million*) giving rise to an increased profit after tax of 662% to £2.5
million (2004: £0.3million*). These results highlight the continued shift of the
group towards high margin online media businesses and away from its gaming
operations. At the end of the period, consolidated net assets were £17.1million
(2005: £14.6million*) and the net cash balance was £5.3million (2005:
£2.8million).
Trading remained strong throughout the year, although in the second half of
2006, profits were adversely impacted by a weakening in the US dollar and by
one-off costs. The combined affect was approximately £0.2 million.
* The audited results for the year ended 30 September 2005 have been restated as
explained in Note 1 to the financial statements. Turnover has been decreased by
£154,000 with an equivalent increase in accruals and deferred income. This has
resulted in a decrease in the profit after tax in 2005 and a decrease in net
assets as at 30 September 2005 of £154,000.
Segmental analyses
Profit before Profit (loss)
Turnover Turnover tax and before tax
2006 2005 interest and interest
£000 £000 2006 2005
Restated* £000 £000
Restated*
Search 3,213 705 2,020 668
Media 1,529 1,640 15 27
Publishing 975 674 253 (380)
Interactive Gaming 6,184 15,790 12 (116)
11,901 18,809 2,300 199
Key performance indicators
The Group's financial key performance indicators are gross profit, profits after
tax and cash generation (movement in net funds), which are closely monitored
during the year and measured against pre-set targets. On a business level, cost
per click rates and agency user "rates per thousand" are continuously
scrutinised. In addition, the Group's non-financial key performance indicators
are unique users delivered and registered users on its mobile casino.
Comparison of the financial key performance indicators highlights significant
growth.
2006 2005 Increase
£000 £000
Restated*
Gross profit 4,761 2,533 88%
Profit after tax 2,454 322 662%
Increase in net funds 2,444 1,843 33%
Gross profit
Gross profit is a more appropriate measure of operating success than revenue as
it negates the effect of increases in low margin gaming business generated by
ad-hoc promotions. The increase in gross profit is primarily driven by
recognition of a full year's trading within the Group for gambling.com (2005:
seven months) and an improvement in the average cost per click rate paid by
advertisers.
The weakness of the US dollar during the second half of the Group's financial
year caused a reduction in gross profit (and subsequently net profit) in excess
of £0.1 million. The search marketing business on gambling.com is US dollar
denominated.
Profit after tax
The Group's sales and distribution costs increased in line with expectations and
include revenue share payments, advertising and publication distribution costs.
Administrative expenses primarily reflect personnel related costs of £1.4
million (2005: £1.2 million) and facilities of £0.2m (2005: £0.1 million). A
director of Eyeconomy ceased being employed by the Group resulting in a one-off
charge of £0.05 million.
The Group does not expect a tax charge for the financial year.
Cash generation
The Board places considerable emphasis on cash generation, with the objective of
providing resources for the growth of the business both organically and by
acquisition.
Operating cash-flow is measured as a ratio to headline operating profit, with a
target of at least 95%.
The operating cash-flow was £2.4m, representing 105% of operating profit; (2005:
£0.4 million, representing 108%).
Users delivered
This represents the number of unique online advertisements delivered by
Eyeconomy Limited and the growth during the year is highlighted in the graph
below.
Growth was constrained by existing server capacity towards the end of the
financial year. Subsequently the Group has made further investment post year end
to its server infrastructure and delivery technology to ensure that Eyeconomy
has capacity to significantly increase volume.
Registered users on mobile casino
A measure of traction of the mobile gaming business is the number of new player
registrations. In 2006, 6,725 players registered compared to 3,392 in 2005,
almost a 100% increase. Conversion rates to real money players increased to 18%
in 2006 from 15% in 2005.
Key policies
Dividend policy
The Board does not recommend payment of a dividend. It is the opinion of the
Board that shareholders will be best served by utilising the Group's cash to
fund growth, both organic and by acquisition.
Goodwill and intangibles
Goodwill on all acquisitions since incorporation is capitalised and, under UK
GAAP, was amortised over a maximum 20-year period. From 2005 goodwill is no
longer amortised but instead is subject to annual reviews to test impairment.
On transition to the new accounting policy, the amortised balance was tested for
impairment, and subsequent tests have been performed in 2005 and 2006. No
impairment charges have been made in either year.
Treasury and foreign exchange
The aim of Treasury is to ensure a robust and prudent financial profile while
driving value throughout the Group to attain the business' full potential.
The Group partially hedges against foreign currency exposure by matching, where
possible, costs in the same currency as its foreign denominated revenues. In
addition, the Board considers the implications of foreign currency exchange
movements and determines the costs against the benefits of buying financial
hedging instruments.
Furthermore, the Board, as part of its hedging strategy, is pro-actively seeking
acquisition targets valued in the currency of its foreign income.
Taxation
The fundamental tenets of the Media Corp's approach to taxation are to enhance
the Group's competitive position, while engaging with tax authorities on a basis
of full disclosure, full co-operation and full legal compliance.
The Board considers and approves the management of the Group's tax affairs in
the context of the Group's commercial objectives. The Board seeks to bring about
timely agreement of tax affairs and to remove uncertainty on business
transactions.
The Group's taxation strategy is to mitigate the burden of taxation in a
responsible manner for competitive advantage, and, in this way, to enhance
long-term shareholder value.
Financial controls
The Board understands the need for robust financial controls and a high quality,
but effective, internal control environment. In view of this, the Board is
currently implementing a new financial and operating system, which will
significantly enhance the Group's financial and non-financial reporting,
together with enhancing the control environment.
Current trading and prospects
The Board is currently attempting to ascertain the longer term implications of
the recent changes in the US regulatory environment for gaming. This may impact
the ongoing results of the search marketing business. As noted in the Chairman's
statement, results since the changes in legislation suggest a possible year on
year decrease in search marketing revenues in the gaming sector of 20% to 30%.
The Group continues to take mitigating actions to minimise any long term
decrease.
The search marketing business in the gaming vertical is predominantly US dollar
denominated, which implies results will be affected by material strengthening or
weakening of the US dollar.
During the first weeks of the current financial year, trading across all other
areas of the Group has remained strong.
Management incentive arrangements
Following consultation with certain major shareholders, the Board has approved
the issue a total of 21 million warrants at a price of 5.0 pence per share, with
exercise being subject to the share price reaching a mid-market price of 10
pence. The directors are to be issued warrants as follows:
Director Number of warrants granted
Jason Drummond 3,000,000
Justin Drummond 10,000,000
Paul Tuson 3,000,000
Michael Hawkes (on appointment) 500,000
Board changes
Paul Tuson was appointed as Group Finance Director during the year. Peter
Williams and William Grimes stepped down from the Board during the year and the
Directors would like to thank them for their significant contribution to the
Group.
In addition, The Board of Media Corporation is pleased to announce the
appointment of Michael Hawkes as a Non-executive Director of the Group with
immediate effect.
Michael Hawkes, aged 36, was the finance director of Northern Europe for the
internet marketing company Overture Services Limited, which is now part of
Yahoo! He joined Overture in time for its launch in the UK and during his
four and a half years of service he helped grow the company into a profitable
multi million pound European business. As well as overseeing the finance group,
his responsibilities included contract negotiations, commercial management and
enabling European expansion into a further 11 countries. He has had AIM director
experience with Z Group PLC (ZGP), an internet technology services company. He
is a chartered accountant, having qualified with KPMG in London where he
specialised in the Information, Communication and Entertainment sectors.
Current Directorships Previous Directorships within the last 5 years
The Regard Partnership Limited Overture Services Limited
Cerrig Camu Limited ZGroup plc
Adapt Care Group Limited
Venesta Agencies Limited
Adapt Care Homes Limited
Oscarvale Limited
Southfields Limited
The directors are evaluating the benefits of further strengthening the Board to
assist in delivering the Group's strategy and ensuring a good corporate
governance environment.
Justin Drummond Paul Tuson
Chief Executive Group Finance Director
Consolidated profit and loss account
for the year ended 30 September 2006
Notes 2006 2005
£000 £000
Restated*
Turnover 11,901 18,809
Cost of sales (7,140) (16,276)
Gross profit 4,761 2,533
Selling and distribution costs (467) (785)
Administrative expenses:
Exceptional one-off acquisition costs - (238)
Other administration expenses (1,994) (1,311)
Group operating profit 2,300 199
Interest receivable and similar income 154 112
Interest payable and similar charges - (20)
Profit on ordinary activities before taxation 2,454 291
Taxation 3 - 31
Profit on ordinary activities for the period 2,454 322
Minority interest (3) -
Profit for the period attributable to members
of the parent company 2,451 322
Earnings per share - basic 4 0.88p 0.14p
Earnings per share - diluted 4 0.87p 0.13p
* See note 1 to the financial statements
Statement of total recognised gains and losses
for the year ended 30 September 2006
2006 2005
£000 £000
Restated*
Profit for financial year 2,451 322
Prior year adjustment (154) -
Currency translation differences (311) -
Total recognised gains and losses 1,986 322
Consolidated balance sheet
as at 30 September 2006
2006 2005
Notes £000 £000
Restated*
Fixed assets
Intangible assets 11,422 11,557
Tangible assets 381 253
Investments - -
11,803 11,810
Current assets
Debtors 808 1,001
Cash at bank and in hand 5,253 2,809
6,061 3,810
Creditors: amounts falling due within one
year (752) (979)
Net current assets 5,309 2,831
Net assets 17,112 14,641
Capital and reserves
Called up share capital 5 4,765 4,604
Share premium account 5 12,916 12,749
Other reserve 5 1,422 1,422
Profit and loss account 5 (1,992) (4,132)
Shareholders' funds 17,111 14,643
Minority interests 1 (2)
17,112 14,641
* See note 1 to the financial statements
Consolidated statement of cash flows
for the year ended 30 September 2006
Notes 2006 2005
£000 £000
Net cash inflow from operating activities 7 2,234 381
Returns on investments and servicing of
finance
Interest received 154 112
Interest paid - (20)
154 92
Capital expenditure
Payments to acquire tangible fixed assets (266) (152)
Payments to acquire intangible fixed assets - (2,640)
(266) (2,792)
Acquisitions and disposals
Acquisition of subsidiary undertakings (6) (5,752)
Net cash balance acquired with subsidiary
undertaking - 442
(6) (5,310)
Net cash inflow (outflow) before management of
liquid resources and financing 2,116 (7,629)
Financing
Issue of ordinary share capital 328 9,472
328 9,472
Increase in cash 2,444 1,843
Notes to the accounts
As at 30 September 2006
1 Basis of preparation
The accounts have been prepared on the assumption that the group is a going
concern. The accounts of the Group for the year ended 30 September 2006 show a
profit for the period of £2.5 million. At the date of these financial
statements, the Group's ability to continue as a going concern reflects the net
funds available to the Group at the year-end and the forecasts for the Group for
the current financial period. On this basis, in the opinion of the Directors,
the accounts have been properly prepared on the assumption that the group is a
going concern.
The financial information contained in the preliminary announcement does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. The financial information for the year ended 30 September 2005 has
been extracted from the statutory accounts for that year which has been filed
with the Registrar of Companies and which contain an unqualified audit report.
The financial information for the year ended 30 September 2006 has been
extracted from the statutory accounts for that year which contain an unqualified
audit report. These accounts will be filed with the Registrar of Companies after
the Annual General Meeting.
The preliminary financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost accounting rules
and consistent with the accounting policies as set out in the Group's most
recent financial statements, except as noted in Note 1.
The directors have undertaken an impairment review of goodwill at 30 September
2006 in accordance with the provisions of Financial Reporting Standard ('FRS')
10, which shows that the capitalised value of the cash flows derived from future
income streams is greater than the carrying value shown in the Group's
consolidated balance sheet at 30 September 2006. Impairment reviews will
continue to be carried out at the end of each reporting period.
The Group has updated its methodology for revenue recognition. In prior years,
Search Focus Limited, the Group's subsidiary acquired in 2005, had recognised
revenue on receipt of cash for its Paid Search. The majority of advertisers paid
in advance. The Group has adjusted its policy in 2006 and now recognises revenue
when the advertisements have been delivered. This resulted in a reduction in
turnover and profit before tax for the year ended 30 September 2005 of £154,000.
Net assets as at 30 September 2005 reduced by £154,000, reflecting an increase
in deferred revenue.
2 Segmental analyses
Turnover represents the amounts derived from the provision of goods and services
which fall within the group's ordinary continuing activities, stated net of
value added tax. The turnover and profit before tax are attributable to four
business segments, search, media, publishing and interactive gaming. The Group
operates within the United Kingdom, where its income is derived, save for its
interactive gaming, where the activity is undertaken in Curacao and for search,
where the activity is undertaken in Jersey.
Profit before Profit (loss)
Turnover Turnover tax and before tax
2006 2005 interest and interest
£000 £000 2006 2005
Restated* £000 £000
Restated*
Search 3,213 705 2,020 668
Media 1,529 1,640 15 27
Publishing 975 674 253 (380)
Interactive Gaming 6,184 15,790 12 (116)
11,901 18,809 2,300 199
3 Taxation
The taxation credit for the year comprises:
2006 2005
£000 £000
Corporation tax - (4)
Deferred tax credit - (27)
Current tax credit - (31)
The tax assessed for the year is lower (2005: lower) than the standard rate of
corporation tax in the UK of 30% (2005:19%). The differences are explained
below:
Reconciliation of tax credit
2006 2005
£000 £000
Profit on ordinary activities before taxation 2,454 291
Tax charge on profit on ordinary activities before taxation at
standard rate of 30% (2005:19%) 736 55
Factors affecting tax charge:
Expenses not deductible for tax purposes 6 9
Depreciation of tangible assets 18 8
Exercise of warrants (406) -
Capital allowances (15) (9)
Tax losses carried forward 354 11
Utilisation of brought forward tax losses (51) -
Profits not taxable in period (642) (130)
Effect of prior year adjustment - 29
Tax credit per profit and loss account - (27)
Factors that may affect future tax charges
2006 2005
£000 £000
Deferred tax assets provided for:
Losses carried forward using taxation at standard rate of 30%
(2005:19%) 217 227
Excess capital allowances 10 -
227 227
Deferred tax assets not provided for:
Losses carried forward using taxation at standard rate of 30%
(2005:19%) 660 115
Excess capital allowances 4 (6)
664 109
Movement in deferred tax balances:
Brought forward 227 200
Credit to the profit and loss account - 27
Carried forward 227 227
4 Earnings per share
2006 2005
£000 £000
Restated*
Profit attributable to shareholders 2,451 322
Weighted average number of shares in issue 280,054,421 234,383,000
Dilution effects of share warrants 1,900,000 17,900,000
Diluted weighted average number of shares in issue 281,954,541 252,283,000
pence pence
Basic earnings per share 0.88 0.14
Diluted earnings per share 0.87 0.13
Basic earnings per share is calculated on the results attributable to ordinary
shares divided by the weighted average number of shares in issue during the
year.
Diluted earnings per share calculations adjusts the weighted average number of
ordinary shares in issue to include all dilutive potential ordinary shares.
These consist of warrants currently granted at an exercise price lower that the
average market price of Media Corp's shares during the year.
5 Consolidated reserves
Share Share Other Profit and
Capital premium Reserve loss
account account
£000 £000 £000 £000
At 1 October 2005 (as per audited accounts) 4,604 12,749 1,422 (3,978)
Prior year adjustment - - - (154)
At 1 October 2005 (restated) 4,604 12,749 1,422 (4,132)
Retained profit for the period - - - 2,451
Arising on issue of new shares 161 167 - -
Currency fluctuations - - - (311)
At 30 September 2006 4,765 12,916 1,422 (1,992)
6 Reconciliation of movements in shareholders' funds
£000
At 1 October 2005 (restated) 14,641
Total recognised gains and losses 2,451
New shares issued 328
Minority interest 3
Currency fluctuations (311)
At 30 September 2006 17,112
7 Notes to the statement of cash flows
Reconciliation of operating profit to net cash inflow from operating activities
2006 2005
£000 £000
Restated*
Operating profit 2,300 199
Depreciation 138 67
Decrease (increase) in debtors 193 (317)
(Decrease) increase in creditors (227) 432
Net exchange currency differences (170)
2,234 381
Analysis of changes in net funds
1 October 2005 Cash flow 30
September
£000 £000 2006
£000
Net cash - cash at bank and in hand 2,809 2,444 5,253
Copyright Business Wire 2006
Media Corporation plc (formerly Gaming Corporation plc)
28 November 2006
MEDIA CORPORATION PLC
("Media Corp" or "the Group")
Preliminary audited results for the year ended 30 September 2006
Financial Highlights
-- Profit after tax i...