printable version

Final Results - year end results for 2006

19 April 2007

Highlights

• Group losses were £2,050,317 (2005: £662,809) before tax and including write back of restructuring provision
• Group turnover was £17.7 million (2005: £21.5 million)
• Gearing down to 48% from 111% in August 2005
• Net borrowings decreased to £3.8 million from £5.8 million in 2005
• Prime Focus (India) buys controlling stake in VTR and invests in business
• VTR acquires Clear, award-winning digital visual effects studio

Namit Malholtra, Chairman, VTR plc comments, “This has been a year of transformation for VTR. The company faced continuing tough market conditions and was not structured to succeed in a fast-changing global post-production market. We have introduced new management and fresh investment to attract the very best creative talent and set the business on the right track.

There is no doubt that 2006 was a difficult year for VTR but a restructured business is emerging which is equipped to compete and win global contracts. I am excited to be leading this company and I am confident that 2007 will see VTR performing strongly.”

For further information please contact:
Neil Lane, Managing Director, VTR plc                           020 7565 1000
Philip Davies, Charles Stanley Securities                       020 7149 6000
Gavin Partington, Parys Communications                      020 7819 2462
Ryszard Bublik, Parys Communications                         020 7819 2466

Chairman’s Statement

In the year to 31 August 2006 group turnover was £17,692,273 compared to £21,505,511 for the previous year. The overall loss for the year was £2,050,317 (2005: £662,809). This included an exceptional charge of £297,735 for the cost of a fundamental group restructuring (2005: credit of £37,358).

Overview

This is my first statement as Chairman of VTR plc (VTR) and it comes at the end of a year in which we have taken decisive steps to put the Company in a position to exploit industry changes and new opportunities in the market.

Prime Focus (India) bought a controlling stake in VTR because we had faith in the business and believed it could flourish. It has been tough making the changes necessary to stabilise the business and prepare it for the future. However, we are confident that the new structure we have begun to put in place and the injection of fresh leadership and investment will deliver the success our shareholders deserve.

You will be well aware of the challenges that have faced us and other businesses in the media sector as a whole. The downturn in advertising continued to have a negative effect in the last financial year. More specifically, the film industry faced a continuing period of financial uncertainty over the issue of tax relief on productions.

Set against a backdrop of increasing global competition, with competitive tendering resulting in falling rates for post-production, it was clear that radical steps would be required to place the business on a firm footing.

It was also clear to this management that there had been a fundamental change in the post-production market. It has become a global market, both in terms of creative talent and in relation to costs, with outsourcing now delivering significant business advantages.

If VTR was to compete successfully it required a revised structure with the right investment and creative talent in place. The ongoing restructuring, which began in 2004, has been painful in personal and financial terms. But it has been critical to the long term future of the business.

It is clear that the changes we are making are putting the business in a position to compete globally for work that has hitherto been beyond our reach. This includes longer term film projects, enabling us to build a forward order book which in turn gives us a more stable cash flow.

As part of our strategy to invest in the business VTR acquired Clear (Post Production) Limited (Clear), the award-winning digital visual effects and CG animation studio, in July 2006. This acquisition is now helping us to compete better in the higher margin commercials sector of our market.

We look forward to updating you on the impact of our restructuring in due course.

Management Changes

In June 2006 VTR announced that Peter Samengo-Turner, Finance Director, would be leaving the Company to pursue another opportunity within the financial services sector.

In August 2006, following a successful management handover, Paul Tracey, Group Managing Director, announced his resignation from the board. Neil Lane, formerly Operations Director, was appointed Managing Director.

Dividend

No dividend has been declared this year or in the prior year. Your board will continue to keep the matter under review.

Cashflow and Gearing

There was a significant improvement in gearing for the financial year. It fell to 48% from 111% in the previous year. Indebtedness continued to fall, with net borrowings decreasing to £3.8m from £5.8m in 2005.

The detail of our business performance is set out below by our Managing Director, Neil Lane.

Outlook

The benefits of the restructuring are beginning to be felt and the Group’s performance since the start of the current financial year has been encouraging. The Board is confident of a much improved performance in the period to 31 March 2007.

Namit Malhotra

April 19, 2007

Managing Director’s Review

This has been a challenging year for the businesses within VTR. The impact of difficult market conditions has been felt throughout the group. With the investment of Prime Focus Limited, we have been able to push ahead with the restructuring of VTR that is addressing every element of the business – sales, costs, property, marketing and branding. On the property front we are looking at re-organising all the existing businesses, in a manner that at least 6,000 square feet of space can be surrendered back or sub-leased, hence reducing the overall cost of rent and incidental property costs. On the sales front, a dedicated sales team has been put into place, for each individual business. In addition we have been reviewing our cost base to ensure we have the right people and the right equipment to cement our position as a leading post production facility.

In terms of our individual businesses, VTR, which specialises in the post-production of high end commercials, pop promos and feature films, felt the impact of the downturn in advertising and poor market rates for post-production.

Hive, which offers high-end CGI animation, graphic design and visual effects to the broadcast and commercial markets, post year end has post year end merged with Clear following VTR’s acquisition of Clear in July. Clear is an award-winning digital visual effects studio which brings fresh creative talent to VTR in a high margin area.

Blue is VTR’s broadcast on-air promo and long-form programming specialist. It made steady progress during the year, consolidating its strong position in the market, with a particular emphasis on drama projects.

TMR (The Machine Room) provides specialist physical and digital restoration, DVD authoring and telecine to the film, television, corporate and entertainment markets. Its activities were scaled down during the year with a view to re-deploying various elements of its work throughout the Group.

KPost is VTR’s facility based in the Knightsbridge offices of J Walter Thomson, one of the UK’s top advertising agencies. It specialises in TV commercials, vox pops and pitches for new business and has become an integral part of the agency’s workflow. This venture continued to perform in line with expectations.

The changes taking place across our business are designed to make us leaner, more flexible and better-equipped to compete for global contracts. Inevitably this process has resulted in some job losses (net job losses of 31). It is always difficult to say goodbye to longstanding colleagues but I am confident we now have the best team of creative talent in the business. Fresh investment in the Group by Prime Focus (India) has made this possible and its involvement is delivering significant advantages in terms of costs and quality.

In summary, 2006 has been extremely tough but developments during the year have sown the seeds of what we confidently predict will be a strong business performance in 2007. We have a strong new management in place and an injection of investment in VTR which is being used to ensure we have the best creative talent, facilities and equipment in the industry.

The relationship with Prime Focus Limited, has been extremely beneficial, as it has enabled us to take advantage of the stronger negotiating positions enjoyed by Prime Focus Limited vis-à-vis industry suppliers. Prime Focus Limited has also provided VTR with access to a low cost base for service offered by VTR enabling VTR to be able to be more cost competitive in the Industry and still be able to make a better margin than made previously by executing the entire job in London.

These are the right ingredients for success and we look forward to updating you on our performance later in the year.

Neil Lane

April 19, 2007

Consolidated Profit and Loss Account

FOR THE YEAR ENDED 31 AUGUST 2006

	2006		2005
	£		£
Turnover	17,692,273		21,505,511
Cost of sales	(1,805,211)		(1,523,023)
Gross profit	15,887,062		19,982,488
Administrative expenses	(17,419,373)		(20,261,844)
Operating loss	(1,532,311)		(279,356)
Exceptional item – fundamental Group restructuring	(297,735)		37,358
Interest receivable	32,799		166
Interest payable and similar charges	(444,559)		(538,107)
Loss on ordinary activities before taxation	(2,241,806)		(779,939)
Tax credit / (charge) on loss on ordinary activities	191,489		117,130
Loss for the year	(2,050,317)		(662,809)
Basic and diluted loss per share	(12.8p)		(6.0p)

Turnover and operating results are derived from the Group’s continuing operations.

Consolidated Balance Sheet

AT 31 AUGUST 2006

		2006		2005
	£	£	£	£
Fixed assets
Intangible assets		1,437,861		-
Tangible assets		9,154,690		10,319,974
Investments		58,980		83,283
		10,651,531		10,403,257
Current assets
Stock	31,436		23,970
Debtors	5,641,700		4,394,220
Cash at bank and in hand	588,488		11,611
	6,261,624		4,429,801
Creditors: amounts falling due within one year
Bank loans and overdrafts	2,777,037		1,785,033
Hire purchase creditors	1,194,445		1,566,622
Trade and other creditors	3,353,443		3,518,664
Corporation tax	47,489		120,867
	7,372,414		6,991,186
Net current liabilities		(1,110,790)		(2,561,385)
Total assets less current liabilities		9,540,741		7,841,872
Creditors: amounts falling due after more than one year		(450,657)		(2,433,171)
Provisions for liabilities		(637,545)		(227,114)
		8,452,539		5,181,587
Capital and reserves
Share capital		1,387,814		551,928
Share premium account		8,556,624		4,071,241
Capital redemption reserve		270,000		270,000
Profit and loss account		(1,761,899)		288,418
Funds attributable to equity shareholders		8,452,539		5,181,587

Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 AUGUST 2006

	2006		2005
	£		£
Net cash flow from operating activities	(433,874)		3,195,340
Returns on investments and servicing of finance	(411,760)		(537,941)
Taxation	(25,807)		(51,326)
Capital expenditure and financial investment	(327,592)		(118,995)
Acquisitions (note 9(c))