26 August 2010

Metrodome Group plc

("Metrodome" or "the Group")

 

Unaudited interim results for the six months ended 30 June 2010

 

Metrodome is pleased to announce its results for the six months ended 30 June 2010.

 

Highlights

·      Headline operating profit in line with last year

·      Significant cost savings made going forward

·      Group's gross margin percentage has held steady at 29%

·      Cash balances of £941,000 (£605,000 as at 30 June 2009)

 

Operational highlights

·      Success of I Am Love, starring Tilda Swinton, has achieved nearly £1m at the box office and The Secret in Their Eyes which won an Oscar for Best Foreign Language Film

·      UK Cinema admissions in the period to May 2010 were up 0.6%

·      Very difficult market conditions

·      DVD sell through market, in the UK, fell 4.9%

 

Post 30 June 2010

·      £800,000 acquisition of Target Entertainment

 

Mark Webster, CEO of Metrodome, commented:

 

"This has been a difficult half year for Metrodome in the current market where the DVD sell-through market was in decline. However, we have mitigated many difficulties we may have otherwise faced with important cost savings and have achieved a respectable half year position where we have maintained our market position and strengthened future growth prospects through the acquisition of Target in the close period, and we are well set for future growth in the year ahead."

 

 

 

For further information:

Mark Webster, Chairman & CEO, Metrodome Group plc	020 7766 8600
Dugald J. Carlean / Carl Holmes, Charles Stanley Securities	020 7149 6000
John West / Lydia Eades, Tavistock Communications	020 7920 3150

 

 

 

 

 

 

 

Chairman's statement

I am delighted to report a headline operating profit broadly in line with last year, despite experiencing a difficult six months of trading. The first half of 2010 has been a period of significant change for Metrodome in terms of staffing and strategic direction. A number of redundancies were made in the second quarter which will result in significant cost savings going forward. We announced a reduction in our theatrical distribution business with a move towards a more commercially focused slate of theatrical releases scaled in accordance with market conditions. We remain as an all rights distribution business and will consider each theatrical release on its own merit in order to maximise revenues for our licensors. Our expertise in this area is demonstrated by the remarkable success of I Am Love, starring Tilda Swinton, which has achieved nearly £1m at the box office and The Secret in Their Eyes which won an Oscar in the Best Foreign Language Film category in March 2010 and was released in August to a record-breaking screen average.

 

Business Environment

The severity of the recession seems to have negated the often suggested theory that the entertainment industry is recession proof as the markets in which we operate have had a difficult six months.

In the DVD sell through market, The British Video Association (BVA) report that retail volumes of Total DVDs (i.e. including Blu Ray) in the UK fell 4.9% in the six months to June 2010 which combined with a surprise, but welcomed, 0.3% increase in the average price of a DVD (excluding Blu Ray) to £8.30, possibly due to the ex EUK stock depressing selling prices last year resulted in the total market by value being down 2.9% year on year.

On the theatrical side, the Film Distributors Association (FDA) reports that the UK Cinema admissions in the period to May 2010 were up 0.6%, well off from the 14.5% increase experienced in the same period last year. Against this background, a year on year increase of 17.4% in our theatrical division is a great result.

Although we do not have reliable market data available for the Rental and Video on Demand (VOD) markets it is a reasonable assumption that the former has suffered as the latter starts to gain better distribution and better consumer acceptance, albeit still at a low base. The fact that our VOD revenues have more than doubled leaving the combined revenues for both channels up more than 50% year on year suggests that we have taken market share.

 

Financial results

Total revenues of £4,506,000 were 1% lower than the same period last year (H1 2009: £4,545,000) which is a pleasing result in the current marketplace. The Group's gross margin percentage has held steady at 29% (H1 2009: 29%) as we continue to control direct costs on a film by film basis, achieving results through clever innovative marketing solutions.

Overheads have also held steady as the benefits of the restructuring have not yet been realised. We recognise this cost base is too high for the current size of our business but the staff reorganisation will lead to significant cost savings going forward and the Directors will continue to review ways of growing the business more efficiently.

As revenues, gross margin and overheads have held steady, we can report a headline operating profit of £162,000, broadly in line with last year (H1 2009: £161,000).

Non-recurring costs of £411,000 were incurred in the first half: £303,000 on the staff reorganisation and legal and accountancy fees of £108,000 in respect of potential acquisitions, including aborted acquisitions.

Net cash at 30 June 2010 decreased to £941,000 (£1,578,000 as at 31 December 2009 and £605,000 as at 30 June 2009) reflecting increased investment in product of £2,949,000 during the first half, compared to £2,888,000 in the first half and £1,597,000 in the second half of last year. This also resulted in an increase in the value of the film distribution library to £3,516,000 (£2,771,000 as at 31 December 2009 and £3,329,000 as at 30 June 2009).

 

Operating performance

Metrodome had eight theatrical releases in the first half, including a number of one-print releases to set up the DVD launch. The highlights were I Am Love which outperformed all expectations and Lebanon which won the Venice Film Festival's Golden Lion for Best Film in 2009. Favourable reviews, strong word of mouth and a highly visible and award-nominated marketing campaign resulted in I Am Love holding well among arthouse cinemas. Lebanon is a challenging, well-reviewed film set largely inside a tank. The success of these titles led to a 17% increase in cinema sales.

The terrestrial and satellite TV channels cut back both on the number of films and the price they will pay for a film as a result of the downturn in their advertising and other income, therefore our sales increase of 16% is pleasing.

The predicted switch from Rental to VOD is particularly noticeable this year as Rental revenues have fallen by 46% and VOD has increased by 157%. Our strategy of signing non-exclusive deals with existing and emerging VOD retailers, including Filmflex and iTunes, is starting to show strong results, although revenues are a long way short of those achieved on DVD. The predicted demise of the DVD market in favour of VOD has failed to emerge as yet and the emergence of Blu Ray and 3D may negate this prediction, at least in the short to medium term.

Although our DVD sales have fallen by 17% overall the 2009 result was distorted by the success of one title, The Warlords which contributed 21% of first half DVD revenues in 2009. Excluding the effect of The Warlords, DVD revenues showed an underlying increase of 13%.

Key titles released on DVD in the first half were:

·      Dragon Quest

·      Attack on Leningrad

·      Motherhood

·      The Bridge

·      Everyman's War

 

 

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

 

	Six months ended 30 June 2010	Six months ended 30 June 2009	Variance
	£'000	£'000	%
Cinema Sales	344	293	17%
Television Sales	265	228	16%
Video on Demand	665	259	157%
Other ancillary	14	33	(58)%
DVD Rental	148	273	(46)%
DVD Sell Through	3,070	3,459	(11)%
	4,506	4,545	(1)%

 

 

Review of Current Trading

We develop a release strategy on a film by film basis, to ensure revenues are maximised for all stakeholders. The marketing strategy for each individual release depends on a number of factors including genre, cast, quality, production budget, exhibitor reaction and retailer enthusiasm. Building on the recent success of our theatrical releases we are keen to acquire new titles at upcoming film festivals, for theatrical release in 2011 and beyond.

In addition to our traditional DVD releases, we consider key DVD titles for release on Blu Ray and combining with other successful titles in a boxset, in order to maximise revenues for each title.

The release schedules for the second half of 2010 reflect this strategy and are as follows:

 

Theatrical

·      Leaving (July) - starring Kristin Scott Thomas

·      The Secret In Their Eyes (August) - Oscar winner

·      Cherry Tree Lane (September)

 

DVD Retail Titles:-major releases

·      Donnie Darko (July) - Blu Ray boxset

·      Lebanon (August) - DVD and Blu Ray

·      The Last Seven (August) - DVD and Blu Ray

·      Caught in the Crossfire (September)

·      I Am Love (September)

·      Twelve (September)

·      Danny Dyer's Mixed Martial Arts Mayhem (November)

·      Aftershock (December)

We will also continue to expand the range of budget priced films available on our In2Film label.

 

Outlook

We had a productive Cannes film festival this year, acquiring more than 20 titles for release later this year and throughout 2011 and achieving strong international sales for our first forays into co-production, Age of the Dragon and Age of Heroes.

In line with our stated objective of diversifying into related activities, on 16^th August 2010 Metrodome announced the acquisition of Target Entertainment Ltd ("Target"), a TV distribution business with a broad international network and a substantial catalogue of rights across a broad range of genres, for a cash consideration of £800,000, of which £400,000 is provided from the Group's resources and £400,000 is provided by the issue of 4% convertible loan notes subscribed by Mark Webster. Target is a complementary business which will combine well with our film distribution operation to create a market leading independent rights management business and provide the Group with penetration into a well-established TV distribution library with circa 6,000 hours of content.

We continue to seek other suitable opportunities to strengthen our current operations and broaden our range of activities.

Our Finance Director, Steve Winetroube, is stepping down at the end of August and taking on a new role as non-executive director. I look forward to working with Steve and his replacement Deborah Brown, promoted from Financial Controller, in their new roles.

I would personally like to thank all the staff of Metrodome for their patience throughout a difficult period of change and look forward to growing the business together.

 

Mark Webster

Chairman

26 August 2010