4 March 2010

 

Metrodome Group Plc

("Metrodome" or the "Company")

 

Preliminary Results for the year to 31 December 2009

 

Chairman's Statement

 

Highlights

 

Metrodome is pleased to announce its preliminary results for the year ended 31 December 2009.

 

·      Company returns to profit despite challenging trading conditions at the start of the year

·      Revenues of £9,091,000 (2008: £6,587,000), up 38% on the previous year

·      Organic growth across all revenue streams

·      Headline* operating profit of £245,000 (2008: loss of £99,000)

·      Profit before tax of £199,000 (2008: loss of £543,000)

·      £960,000 share capital raised during the year

 

*Headline operating profit / (loss) consists of revenues and other operating income after deducting operating costs incurred in the normal course of business excluding non-recurring items.

 

The start of the year was challenging as the collapse of Woolworths and its DVD distribution arm Entertainment UK ("EUK") at the end of 2008, together with the loss of Zavvi, left Metrodome in a difficult position, unsure of how the DVD retail market would shape up. As announced in our interim report, Metrodome was quick to take the initiative and develop direct relationships with new retail customers, including former EUK customers and successfully raised new finance to strengthen our financial position.

 

Metrodome has continued to outperform the market with a 19.2% increase in DVD sales. The performance in DVD sales underpinned strong growth across the Company, with overall revenues up 38% and the Company posting a full year profit for the first time since 2004. Our quick and decisive actions, together with a positive result for the year, have left the company in a strong position with a healthy cash balance, ready to expand the company as and when the opportunities arise.

 

Having achieved our stated objective of returning to profitability we now have two objectives, namely to maintain profitability and to expand the company, by focusing on our core business of film distribution, as well as investing in related activities such as co-production deals and seeking diversification in related markets via mergers and acquisitions.

 

 

Operating performance

 

At the start of the year Metrodome was committed to releasing a number of titles theatrically on a wider scale than achieved in recent years, having acquired most of the theatrical slate of product for 2009 in the latter half of 2008. In contrast, there had been a lack of investment in theatrical releases in 2008 due to the uncertainty surrounding the ownership of Metrodome which was resolved in May of that year. This is reflected in the increase in revenue from Cinema Sales from £152,000 in 2008 to £395,000 in 2009.

 

Metrodome released 15 theatrical titles in 2009, of which 3 were one-print releases to launch the DVD. The highlights in the first half included Fifty Dead Men Walking, starring Sir Ben Kingsley and Jim Sturgess, and Shifty, a low-budget British film for which the writer/director Eran Creevy was nominated for a BAFTA award in the Outstanding Debut category. Both films received substantial grants from the UK Film Council ("UKFC") which enabled Metrodome to release the films to a much wider audience.

 

In the second half of the year, Metrodome signed an exclusive deal with Palisades Tartan to represent the Palisades TV and VOD library in the UK. The deal also included theatrical distribution rights for the vampire feature film Thirst, joint winner of the 2009 Cannes Film Festival Jury Prize, which was released in October 2009. Other titles released in the second half of the year included Three Miles North of Molkom, The First Day of the Rest of Your Life and Seraphine. We promoted the release of Three Miles North of Molkom with a special satellite screening and night of stand-up comedy with comedian Russell Howard using new digital technology which allows us to try innovative ways of releasing our films.

 

Our theatrical releases, in aggregate, grossed over £1.4 million at the Box Office this year which was a fantastic result. However, it was not as high as we had anticipated given our investment in acquiring bigger and better films. We now recognise our success lies in releasing a small number of quality titles in selected cinemas. We are not a major studio that can afford massive Prints and Advertising ("P&A") spend on saturated releases across the country and the kind of art-house films we specialise in do not lend themselves to this kind of release. The lessons learned this year about the size of release and the resulting impact on cinema revenues will be applied to our theatrical releases in 2010 and beyond.

 

Despite the television channels having reduced budgets for our product during the economic recession, we are pleased to have achieved £517,000 in revenue, nearly twice the 2008 revenue, largely due to the number of quality titles added to our film catalogue during the year.

 

As predicted in recent years, we have seen a shift towards Video on Demand ("VOD") as a significant distribution channel. We competed strongly with the studios for market share on Virgin Media's Filmflex, which is a significant achievement for an independent film distributor. We have continued our strategy of signing non-exclusive licensing deals with existing and emerging VOD retailers, for example by signing an agreement with Apple to make our titles available on iTunes from 2010 for internet users to buy or rent.

 

During 2009 we decided to bring our rental activity in-house in order to maximise revenue and gross margin, by using our in-house sales and marketing teams who have already proved their expertise within the theatrical, new media and home entertainment retail sectors. Working directly with key rental retailers such as Blockbuster has led to revenue growth of more than 300% from £193,000 to £790,000. Although this is a terrific result for the year we recognise the DVD rental market is probably in decline and the profits available from this revenue stream are expected to fall in the future.

 

In contrast to the overall DVD market which has declined in terms of both volume and price, Metrodome continues to report an annual increase in DVD Sell Through revenue, due to our strategy of investing heavily in the home entertainment market, with a focus on commercially valuable titles. This is a fantastic result in a challenging market where there is significant price pressure and strong competition for retailer shelf space.

 

The Group released 63 titles during the year, including:

 

·      Dragon Hunter

·      Fifty Dead Men Walking

·      Goal III

·      Mega Shark vs Giant Octopus

·      North Face

·      Shifty

·      Warlords

 

We released nine more titles on Blu Ray: American Virgin, Fifty Dead Men Walking, Flame & Citron, Goal III, Management, North Face, Shifty, Them and Warlords. As Blu Ray production costs are still higher than conventional DVD and the format has not yet fully emerged in the marketplace, we carefully select titles for release on Blu Ray at a premium price. We are aware of a competitor who has offered price parity on Blu Ray and DVD new releases in an attempt to improve the uptake of Blu Ray and we will continue to monitor the situation as we consider each title for release on Blu Ray.

 

A full breakdown of the Group's Distribution revenue is as follows:

 

	Year ended 31 Dec 09	% of Revenue	Year ended 31 Dec 08	% of Revenue	Growth Year on Year
Revenue	£'000	%	£'000	%	%
Cinema Sales	395	4.3%	152	2.3%	159.9%
Television Sales	517	5.7%	267	4.1%	93.6%
Video on Demand	695	7.6%	364	5.5%	90.9%
Other ancillary income	68	0.8%	52	0.8%	30.8%
DVD Rental	790	8.7%	193	2.9%	309.3%
DVD Sell Through	6,626	72.9%	5,559	84.4%	19.2%
	9,091	100.0%	6,587	100.0%	38.0%

 

 

Cost base

 

The Group is constantly reviewing its operating structure and cost base in an attempt to improve operational effectiveness and achieve efficiencies. We are regularly reviewing key contracts with suppliers, with a view to maintaining high standards and further cost reductions.

 

We eliminated third party rental costs when we brought the rental activity in-house during the year. Rental activity was the last operation that was being handled externally by third parties.

 

Overheads have increased by 18% from £2,038,000 in 2008 to £2,412,000 in 2009. The largest increase was employment costs which have risen by 18% due to the investment in additional staff in preparation for future growth. In common with other companies in the media and entertainment industry we controlled our payroll costs in the current economic climate by imposing a freeze on the annual pay rise during the year. The other significant increase in overheads was due to the cost of the office relocation from premises shared with our former parent company in Dean Street, Soho to our new office in Leicester Square at a lower rent.

 

 

Non recurring items

 

During 2009 Metrodome incurred £45,000 of legal and professional fees in respect of a potential acquisition which was aborted in early 2010. Additional expenses were incurred after the year end, totalling £20,000, which will be expensed in 2010 financial year.

 

 

Funding

 

In March 2009 we raised £960,000 of funding through the issue of new shares, which comprised £610,000 of new capital through the issue of 40,666,667 new ordinary shares at 1.5 pence each, representing 33.7% of the existing share capital, and the conversion of a £350,000 loan from MediaPro through the issue of a further 23,333,333 new ordinary shares, representing 19.3% of the existing share capital. The net cash proceeds, after costs of £11,000, were £599,000. Following the issue of equity, the Company's total issued share capital consists of 184,717,915 ordinary shares of 1 pence each.

 

In addition, the Company secured exclusive access to up to £1,000,000 via Acme International Investments Limited P&A Fund, a specialised vehicle dedicated to funding expenditure on Prints and Advertising. During the year, Metrodome used £689,000 of the P&A fund to release its theatrical titles and repaid the whole £689,000 out of film proceeds.

 

 

Board appointments

 

As previously reported, Leonard Fertig joined the board as non-executive director in April 2009 bringing a wealth of experience, specifically in both the Media/Entertainment and Internet Technology sector.

 

I was appointed as Executive Chairman in November 2009 (formerly non-executive Chairman), with specific responsibility for Mergers and Acquisitions ("M&A"). I look forward to being able to spend more time with the board of Metrodome and bringing all my experience of M&A activity with me to enable Metrodome to continue to grow.

 

 

Outlook

 

We are pleased with the company's progress this year, in both a difficult market place and a depressed economy, and delighted to report a full year profit for the first time in several years. The Company ended the year with a strengthened balance sheet, helped by the cash generated from operating activities during the year and the fund raising in the first half.  This has enabled Metrodome to increase its investment into new titles for 2010 and beyond. 

 

We have already acquired a substantial proportion of the slate for release in 2010 however, organic growth for the current year is unlikely to reach the high levels achieved in each of the last three years.   Metrodome now needs to achieve a step-change in future activity in order to continue to drive its growth prospects and we are actively taking steps to achieve this.

 

In line with the strategic objective of diversifying into related activities, Metrodome has announced its first co-production deal with a US Production and Sales company for a new action adventure film, Dragon Fire (working title) which began shooting in February 2010 with our CEO, Peter Urie, as the Executive Producer.

 

The Company has implemented an acquisition strategy designed to both strengthen our current operations and broaden our range of activities.  Regrettably, an opportunity we were pursuing in 2009 did not proceed to completion in 2010 but we continue to seek other suitable opportunities.

 

I would personally like to thank our shareholders and staff for their ongoing support and contribution to this year's success.

 

Mark Webster

Chairman

 

For further information please visit www.metrodomegroup.com, or contact:

 

Metrodome Group plc
Peter Urie / Steve Winetroube	Tel: 020 7766 8600
Astaire Securities plc
Antony Legge	Tel: 020 7448 4400
Tavistock Communications
Duncan McCormick	Tel: 020 7920 3150

 

Unaudited Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

 

		Year ended		Year ended
		31-Dec-2009		31-Dec-2008
	Notes	(Unaudited)		(Audited)
		£'000		£'000
Revenue		9,091		6,587
Cost of sales		(6,434)		(4,648)
Gross Profit		2,657		1,939
Operating expenses		(2,412)		(2,038)
Headline operating profit / (loss)	2	245		(99)
Non recurring items	6	(45)		(466)
Profit / (loss) on ordinary activities before interest and taxation		200		(565)
Investment income		2		38
Finance costs		(3)		(16)
Profit / (loss) before taxation		199		(543)
Income tax expense	7	-		-
Profit / (loss) for the year		199		(543)
Profit / (loss) per share
Basic	3	0.1p		(0.4p)
Diluted	3	0.1p		(0.4p)

 

 

Unaudited Consolidated Statement of Financial Position

As at 31 December 2009

 

		31-Dec-2009		31-Dec-2008
	Notes	(Unaudited)		(Audited)
		£'000		£'000
Non current assets
Property, plant and equipment		162		30
Intangibles		11		4
Film distribution library	5	2,771		2,730
Trade and other receivables		73		116
		3,017		2,880
Current assets
Inventories		90		53
Trade and other receivables		1,554		1,949
Cash and cash equivalents		1,578		1,091
		3,222		3,093
Total assets		6,239		5,973
Current liabilities
Trade and other payables		(3,526)		(3,895)
Bank loans and overdrafts		-		(84)
Other borrowings		-		(282)
		(3,526)		(4,261)
Non current liabilities
Bank loans		-		(200)
		-		(200)
Total liabilities		(3,526)		(4,461)
Net assets		2,713		1,512
Equity
Share capital		1,847		1,207
Share premium account		2,890		2,581
Share option reserve		181		128
Accumulated losses		(2,205)		(2,404)
Capital and reserves attributable to owners of the company		2,713		1,512