RNS Number : 6067Y
Air Music & Media Group PLC
09 July 2008
9 July 2008
AIR MUSIC & MEDIA GROUP PLC
("AIR GROUP" or "THE GROUP")
RESULTS FOR THE YEAR
ENDED 31 MARCH 2008
The Board of Air Group, the UK distributor of home entertainment products, announces its final results for the year ended 31 March 2008.
The results continue to reflect significant underlying profitability and cash generation throughout the Group
HIGHLIGHTS:
* Turnover up 31.5% to �80.9 million (2007: �61.5 million);
* PBT before exceptional items increased to �5.7 million (2007: �5.4 million);
* �2.9 million of borrowings repaid and cash balances of �1.7 million at 31 March 2008;
* New customers at Music Box Leisure deliver �8.3 million sales; and
* EPS, before exceptional items of 24.9 pence per share.
Peter Cowgill, Non-Executive Chairman of Air Group, said: "When I took over as Chairman in 2006 I stated that I was confident that the
management team could deliver profitable growth of the Group. I am delighted to report a set of results that demonstrate the growth and
sustained underlying profitability of the Group.
"We began the year with clarity over the focus of the Group, having completed the divestment of unprofitable and underperforming
business units in 2007. The underperforming businesses were, for the most part, inherited by the current Board. Our distribution business
strengthened its market position in the UK commencing supply to several new customers this year and, against a challenging market backdrop,
I look forward to continuing with the progress achieved to date.
"We have changed our financial statements to reporting under International Financial Reporting Standards and, as part of our annual
review, have reduced the carrying value of goodwill. Due to the size and nature of the reduction, this amount has been reflected as an
exceptional item. The write down has no impact on the cash position of the Group."
Enquiries:
Air Music & Media Group plc Tel: 0161 767 1620
Peter Cowgill, Non-Executive Chairman
Bishopsgate Communications Ltd. Tel: 020 7562 3350
Maxine Barnes
Siobhra Murphy
Seymour Pierce Limited Tel: 020 7107 8000
Mark Percy CHAIRMAN'S STATEMENT
When I took over as Chairman in 2006 I stated that I was confident that the management team could deliver profitable growth of the
Group. I am delighted to report a set of results that demonstrate the growth and sustained underlying profitability of the Group.
We began the year with clarity over the focus of the Group, having completed the divestment of unprofitable and underperforming business
units in 2007. The underperforming businesses were, for the most part, inherited by the current Board. Our distribution business
strengthened its market position in the UK commencing supply to several new customers this year and, against a challenging market backdrop,
I look forward to continuing with the progress achieved to date.
We have changed our financial statements to reporting under International Financial Reporting Standards and, as part of our annual
impairment review, have reduced the carrying value of goodwill. Due to the size and nature of the reduction, this amount has been reflected
as an exceptional item. The write down has no impact on the cash position of the Group.
Summary of results
In order to present a balanced view of the current year results it is important to recognise the impact of exceptional and non-recurring
charges on the results. These consisted of goodwill impairment charges of �12.4 million (2007: �2.2 million) and accelerated amortisation of
other intangible assets of �nil (2007: �1.7 million). The table below illustrates the impact of the exceptional and non-recurring charges
31/03/2008 31/03/2007
� million � million
Continuing Continuing
activities activities
Turnover 80.9 61.5
Reported operating (loss)/profit (6.5) 1.9
Adjustments:
Goodwill impairment charge 12.4 2.2
Accelerated amortisation of other intangible assets - 1.7
Adjusted operating profit 5.9 5.8
Net interest (0.2) (0.4)
Reported (loss)/ profit before tax (6.7) 1.5
Adjusted profit before tax 5.7 5.4
Basic EPS (pence) (47.5)p (8.5)p
Exceptional and non-recurring charges (pence) 72.4p 31.0p
Adjusted basic EPS (pence) 24.9p 22.5p
Adjusted operating profit increased to �5.9 million (2007: �5.8 million). Operating profit decreased by �8.4 million due to the
impairment of goodwill.
Basic earnings per share was (47.5) pence compared to (8.5) pence in 2007. Adjusted basic earnings per share before exceptional items
was 24.9 pence per share compared to 22.5 pence per share in 2007.
Revenue from continuing operations was �80.9 million compared to �61.5 million in 2007. This represents an increase of 31.5%. Sales in
our distribution business grew by 49.3% from �48.5 million to �72.4 million while sales in our wholesale business fell by 36.4% from �12.9
million to �8.2 million. The growth in our distribution business, which is heavily weighted towards the supermarket sector, reflected
strong performance in the sales of DVD's in addition to the achievement of several new customers. The contraction of our wholesale business
continued as the remaining retailers in the music and film specialist sector continued to experience sales and margin pressure arising from
the competitive efforts of supermarkets.
Gross margins for the Group fell to 18.1% compared to 18.7% in 2007 (21.5% after adjusting from the accelerated amortisation of other
intangible assets). Gross margins have been negatively impacted by the lowering of retail price points and a change in mix to higher value,
lower margin products.
Overheads continue to grow in line with the higher activity levels.
Shareholder value and dividends
As a result of its sustained underlying profitability, the Group has continued to generate significant cash. However, the cumulative
exceptional charges associated with goodwill balances leave the Group with a significant deficit in distributable reserves which, if left
unaddressed will inhibit the ability to pay dividends in the future. In order to rectify this anomaly, the Board is investigating ways in
which the Group may be able to distribute cash to its shareholders. The Group expects to announce a proposal to restructure its share
premium account and thereby position the Group with distributable reserves in due course. Should the measures the Directors are considering
be successful, the Board will seek to embark on a progressive dividend policy.
Directorate
After close to six years working with the Company, Alex Sorrell, Group Financial Director, has indicated his intention to take time out
of the business to travel and pursue non work related interests. We would like to thank Alex for his contribution to the development of the
business during his period of tenure and we also wish him well on his travels. Alex will leave the Board with immediate effect.
It is intended that Lisa Clarke, the present Group Financial Controller who has been with the Group since August 2006, will be appointed
to Group Finance Director shortly and is currently acting as Group Finance Director Designate.
Current trading and outlook
We have made a good start to the financial year and continue to strengthen our position in the markets in which we operate, despite
difficult trading conditions in the retail sector in general, while margins remain at a similar level to last year. The economic climate
continues to challenge us but we are optimistic that we will be in a position to report a good result for the interim period.
Post year end event
On 28 February 2008 the Company announced that it was in discussions which may or may not lead to an offer being made for the Company.
On 24 June 2008 the Company announced that talks regarding a possible offer for the Company have been discontinued.
Peter Cowgill
Non-Executive Chairman
9 July 2008 OPERATING REVIEW
Distribution
Music Box Leisure ("MBL")
MBL is central to the Group. MBL's customers are exclusively in what the industry terms the "non traditional" sector, for example
supermarkets, discount retailers, motorway service stations and garden centres, rather than conventional high street CD and DVD shops. The
emphasis with customers is about delivering strong sales and margins through targeted promotions. MBL has its own in-house merchandising
team which allows it to directly manage the quality of its customers' in-store operations. It combines its customers' sales data with strong
buying skills to deliver good retail margins. The key focus of the year was to successfully integrate new customers into our existing
business model and to strengthen our employee base in order to manage current growth. Sales at MBL grew by 49.3% from �48.5 million to �72.4
million. Of this growth, �8.3 million was attributed to new customers. The customer base in MBL remains heavily weighted towards the
supermarket sector, which the management team believes offers good short to medium term prospects. MBL continues to be affected by the credit insurance industry's lack of confidence in the sector. Credit
limits from some of our key suppliers have been significantly reduced and we have secured product supply through discretionary uninsured
trading limits supported by substantial advance payments on account.
Wholesale
ESD Wholesale ("ESD")
ESD is a wholesaler primarily to independent and internet retailers. The independent retail sector continues to experience a difficult
time. As a supplier, ESD has experienced the problems associated with the credit insurers' views on the market which have resulted in
reduced insurance cover available on customers. We operate on a low risk basis and seek to trade within insured limits. We had another year
of significant bad debts and associated insurance claims, which has had a negative impact on our credit cover and insurance premiums for the
coming year. Accordingly we continue to refuse certain sales opportunities due to lack of insurance cover. Early in the year we integrated
the remaining profitable elements of our own label budget CD operation into ESD, comprising largely an export customer base. Overall sales
in our wholesale business declined from �12.9 million to �8.2 million, the majority of the decline attributed to the fall in own label
budget CD's primarily aimed at export markets. The focus in ESD has been to maintain profitability in the face of a declining domestic market. We have a small but very experienced team running ESD
and it remains a low overhead operation that contributes incremental profit to the Group.
Strategy and Risks
The Group's customer base is heavily weighted in the UK supermarket sector, which accounts for approximately 80% of Group turnover. The
added value we provide to customers in the non traditional retail sector is our key point of difference compared to our competitors and
consequently we achieve our best results by targeting this sector. Our customers are retailers for whom profit margins, as a whole, are
continually under pressure and this pressure is in turn placed on the suppliers. We use our buying skills to seek out profitable
opportunities to mitigate the pressure on margins. Our buying strategy requires us to maintain a high stock level, although this is spread
across a broad range of titles which mitigates the financial risk of specific product obsolescence. We seek to maintain a ready access to
finance in order that we may take advantage of inventory buying opportunities when they present themselves.
The pervasive effects of the internet inevitably present risks and offer opportunities to the Group. Music represents less than 15% of
our sales and because we are focussed on mainstream product, not new chart releases, we do not feel the effects of music downloading as
acutely as other distributors. The market for on-demand movie downloading remains in its infancy and has yet to have any discernible impact
on our business. However, as a Board we are conscious that the market for distribution of media by physical product has a finite life and we
continue to explore opportunities to enhance the long term future of the Group. We remain focussed on providing our customers with exciting
impulse purchase opportunities for the end customer. We continue to build our experience of distributing products direct to customers
on-line, which have included selling via established third party websites. Although direct to customer sales currently represents a small
minority of total sales, we are pleased to note that we processed over 85,000 orders directly with customers last year and we would expect that to grow further this year.
Trevor Allan
Chief Executive
9 July 2008 FINANCIAL REVIEW
International Financial Reporting Standards (IFRS)
These are our first full year results following the adoption of International Financial Reporting Standards (IFRS) as adopted in the EU
and consequently includes reconciliations from UK GAAP to IFRS. As shown in the reconciliation, the primary impacts of the transition to
IFRS have been our treatment of goodwill, which is no longer subject to an annual amortisation and our disclosure of discontinued
operations, which are presented on a disaggregated basis. As a consequence of the annual review of impairment, an impairment charge of
�12.4 million has been charged and is classified as an exceptional write down of goodwill.
Turnover and profitability
Sales for the year were �80.9 million (2007: �61.5 million). Operating profit, before exceptional items, was �5,889,000 (2007:
�5,755,000, before exceptional and non recurring charges). Net financing costs were �166,000 (2007: �425,000). Profit before tax and
exceptional items was �5,723,000 (2007: �5,330,000, before exceptional and non recurring charges). Earnings per share from continuing
operations, before exceptional items, for the year was 24.9 pence per share (2007: 22.5 pence per share, before exceptional and non
recurring charges).
A summary of the sales and operating profit of the Group is shown in the table below. Adjusted operating profit excludes the exceptional
and non-recurring charges totalling �12.4 million in 2008 and �3.9 million in 2007:
31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Mar
2008 2007 2008 2008 2007 2007 2008 adjusted
Sales Sales Operating profit/ Operating profit Operating profit Operating profit versus
(loss)
reported adjusted reported adjusted 2007 adjusted
Activity � million � million Change � '000 � '000 �'000 �'000 %
Distribution 72.4 48.5 49.3% 5,976 5,976 6,430 6,430 (7.1)%
Wholesale 8.2 12.9 (36.4)% 459 459 (215) (215) (313.5)%
Other 0.3 0.1 200.0% 87 87 (1,730) (60) (245.0)%
Central costs (13,056) (633) (2,537) (400) (58.3)%
80.9 61.5 31.5% (6,534) (5,889) 1,948 5,755 2.3%
Sales in our distribution business grew by 49.3% to �72.4 million. The growth in our distribution business, which is heavily weighted
towards the supermarket sector, reflected strong performance in the sales of DVD's in addition to the introduction of several new customers.
DVD sales represent approximately 78% of distribution sales in 2008 (versus 67% sales in 2007). Sales to new customers totalled �8.3 million
in 2008. Sales in our wholesale business fell by 36.4% to �8.2 million. Export sales fell by approximately �2.1 million reflecting the
effects of a weak pound against the euro and an overall decline in the low priced music sector. The contraction of our domestic wholesale
business continued as the remaining retailers in the music and film specialist sector continued to experience sales and margin pressure
arising from the competitive efforts of supermarkets.
Gross margins for the Group fell to 18.1% compared to 18.7% in 2007 (21.5% after adjusting from the accelerated amortisation of other
intangible assets). Excluding intercompany trading, gross margins at our distribution business were 18.2% (2007: 23.4%). Gross margins in
our distribution business have been negatively impacted by the lowering of retail price points and a change in mix to higher value, lower
margin products. Gross margins at our wholesale business were 14.5% (2007: 13.4%), reflecting a change in product mix.
Operating profit from continuing operations, before exceptional items, was �5.9 million compared to �5.8 million before exceptional and
non-recurring charges in 2007.
Cash flow, working capital and borrowing facilities
The Group generated �6.0 million cash from operations before movements in working capital (2007: �5.6 million). Working capital
increased by �2.3 million, largely reflecting higher inventory balances and lower trade and related payables. Early in the second half of
the year the distribution business noted that supplier credit insurance limits were cut significantly, which had a significant impact on the
working capital position of the Group. The distribution business was forced to make advance payments in order to secure product supply;
wherever possible negotiating early payment discounts. This position has continued throughout the second half and into the current trading
period. Consequently our level of trade payables is not as high as our trading position and current stock position would indicate. The
distribution business works closely with the principal credit insurers however our suppliers remain largely unable to obtain adequate credit
insurance cover.
The Group repaid �2.9 million of borrowings in the year and ended the year with net cash of �1.7 million and no outstanding borrowings
(2007: cash of �2.9 million and borrowings of �2.9 million). Due to its positive cash position, the distribution business has delayed the
renewal of its sales finance facility. Although reinstatement of the facility will require credit approval from the Group's bankers, the
distribution business has received confirmation from the bank that they do not anticipate that the facility will not be credit approved.
Taxation
The exceptional write-off of goodwill is not deductible for tax. The group's effective tax rate before goodwill write-offs was 25.4%
compared to 26.4% in 2007. The 2008 tax charge benefitted from the adjustments in respect of prior years following the resolution of several
outstanding matters. The 2007 tax charge benefitted from tax relief on losses from discontinued operations. Under existing tax legislation
it is anticipated that the Group's effective tax rate will be marginally above the main UK Corporation Tax rate in future years.
Lisa Clarke
Group Financial Director Designate
9 July 2008 Consolidated Income Statement
for year ended 31 March 2008
2008 2008 2007 2007
�000 �000 �000 �000
Revenue 80,853 61,507
Cost of sales - normal (66,188) (48,303)
Cost of sales - exceptional: - (1,670)
accelerated amortisation of
intangibles
________ ________
Cost of sales (66,188) (49,973)
________ ________
Gross profit 14,665 11,534
Distribution expenses (1,371) (1,467)
Administrative expenses - (7,405) (5,982)
normal
Administrative expenses - (12,423) (2,137)
exceptional: goodwill
impairment
________ ________
Administrative expenses (19,828) (8,119)
________ ________
Operating (loss)/ profit (6,534) 1,948
Operating profit before 5,889 5,755
exceptional items
Exceptional items (12,423) (3,807)
(6,534) 1,948
Financial income 86 53
Financial expenses (252) (478)
________ ________
Net financing costs (166) (425)
________ ________
(Loss)/ profit before tax (6,700) 1,523
Profit before tax before 5,723 5,330
exceptional items
Exceptional items (12,423) (3,807)
(6,700) 1,523
Taxation (1,454) (967)
________ ________
(Loss)/ profit from continuing (8,154) 556
operations
Loss from discontinued - (2,010)
operations, net of tax
________ ________
Loss for the year attributable
to equity holders of the (8,154) (1,454)
parent
________ ________
Basic and diluted loss per (47.5)p (8.5)p
share
Consolidated Balance Sheet
at 31 March 2008
2008 2007
�000 �000
Non-current assets
Property, plant and equipment 502 326
Intangible assets 17,000 29,423
Deferred tax assets 435 212
_____ _____
17,937 29,961
_____ _____
Current assets
Stocks 9,319 6,650
Trade and other receivables 5,563 6,803
Cash and cash equivalents 1,731 2,269
Assets classified as held for sale - 1,168
_____ _____
16,613 16,890
_____ _____
Total assets 34,550 46,851
________ ________
Current liabilities
Bank overdraft 12 -
Interest-bearing loans and borrowings 1 2,717
Trade and other payables 9,227 10,300
Tax payable 1,392 1,101
Liabilities classified as held for sale - 521
_____ _____
10,632 14,639
_____ _____
Non-current liabilities
Interest-bearing loans and borrowings 3 147
_____ _____
Total liabilities 10,635 14,786
________ ________
Net assets 23,915 32,065
________ ________
Equity attributable to equity holders of the parent
Share capital 12,872 12,872
Share premium 21,454 21,454
Reserves (2,800) (2,800)
Retained earnings (7,611) 539
_____ _____
Total equity 23,915 32,065
________ ________
Consolidated Cash Flow Statements
for year ended 31 March 2008
2008 2007
�000 �000
Cash flows from operating
activities
(Loss)/ profit for the year - (8,154) 556
continuing operations
Loss for the year - - (2,010)
discontinued operations
_ _
(8,154) (1,454)
Adjustments for:
Depreciation 167 193
Impairment of goodwill - 12,423 2,137
continuing operations
Impairment of goodwill - - 660
discontinued operations
Amortisation of intangibles - 250
Accelerated amortisation of - 1,670
intangibles
Foreign exchange (gains)/ (29) 38
losses
Financial income (88) (69)
Financial expense 252 478
Loss on sale of property, - 248
plant and equipment
Taxation 1,454 1,486
_ _
6,025 5,637
Decrease in trade and other 1,399 3,765
receivables
(Increase)/ decrease in stock (2,668) 1,110
Decrease in trade and other (1,075) (1,825)
payables
Decrease in provisions - (226)
_ _
3,681 8,461
Tax paid (1,386) (1,349)
_ _
Net cash from operating 2,295 7,112
activities
_ _
Cash flows from investing
activities
Proceeds from sale of - 29
property, plant and equipment
Proceeds from sales of 72 -
subsidiary
Interest received 89 69
Cash and cash equivalents (146) (36)
disposed of with subsidiary
Acquisition of property, plant (340) (274)
and equipment
Acquisition of other - (1)
intangible assets
_ _
Net cash from investing (325) (213)
activities
_ _
Cash flows from financing
activities
Interest paid (252) (450)
Repayment of borrowings (2,860) (5,744)
Payment of finance lease (1) (11)
liabilities
_ _
Net cash from financing (3,113) (6,205)
activities
_ _
Net (decrease)/ increase in (1,143) 694
cash and cash equivalents
Cash and cash equivalents at 1 2,862 2,205
January
Effect of exchange rate - (37)
fluctuations on cash held
_ _
Cash and cash equivalents held
in continuing operations 1,719 2,862
Cash and cash equivalents held - (593)
in disposal group
_ _
Cash and cash equivalents at 1,719 2,269
31 March
_ _
Notes to the Financial Statements
For the year ended 31 March 2008
1. Source of Information
The preliminary financial statements for the financial year ended 31 March 2008 were approved by the Board of Directors on 9 July 2008.
The financial information set out above does not constitute the Company's statutory accounts for the financial years ended 31 March 2007 or
31 March 2008 but is derived from those accounts. From 1 April 2007, Air Group is required to prepare its consolidated financial statements
in accordance with adopted International Financial Reporting Standards (IFRS) as adopted by the European Union ('adopted IFRS').
The comparative figures for the financial year ended 31 March 2007 are not the Company's statutory accounts for that financial year.
Those accounts, which were prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the registrar of
companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the
Companies Act 1985. The statutory accounts for the financial year ended 31 March 2008 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. We anticipate that the auditor's report in relation to the 2008 statutory accounts will be
(i) unqualified and (ii) will not contain statements under section 237(2) or (3) of the Companies Act 1985.
2. Segmental analysis
Income Statement Continuing operations Total
Distribution Wholesale Other
2008 2007 2008 2007 2008 2007 2008 2007
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Revenue from external 72,364 48,491 8,201 12,879 288 137 80,853 61,507
customers
Inter-segment revenue 7,140 10,306 488 1,745 989 672 8,617 12,723
Total revenue 79,504 58,797 8,689 14,624 1,277 809 89,470 74,230
Segment result 5,976 6,430 459 (215) 87 (1,730) 6,522 4,485
Impairment of goodwill (12,423) (2,137) (12,423) (2,137)
Central costs (633) (400)
Operating (loss)/ profit (6,534) 1,948
Net financing costs (166) (425)
Taxation (1,454) (967)
Discontinued operations - (2,010)
Loss for the period (8,154) (1,454)
Segment assets 16,120 14,715 1,317 2,107 113 (562) 17,550 16,260
Assets held for disposal - 1,168
Goodwill 17,000 29,423 17,000 29,423
Total assets 33,120 44,138 34,550 46,851
Segment liabilities 9,285 9,669 961 572 389 3,522 10,635 13,763
Liabilities held for disposal - 521
Unallocated liabilities - 502
Total liabilities 10,635 14,786
3. Exceptional item
2008 2007
�000 �000
Impairment of goodwill 12,423 2,137
Accelerated amortisation of other intangible assets - 1,670
_______ _______
12,423 3,807
_______ _______
4. Goodwill
The carrying value of goodwill is allocated to the following cash generating units ("CGU"s):
2008 2007
�000 �000
Distribution 17,000 29,423
Wholesale - -
Other - -
________ ________
17,000 29,423
________ ________
5. Earnings Per Share
The calculation of basic earnings per share has been calculated on the loss after tax of �8,154,000 (2007: loss �1,454,000) and the
weighted average number of ordinary shares in issue during the year of 17,162,735 75p shares (2007: 17,162,735 75p shares).
The calculation for diluted earnings per share is identical to that used for the basic earnings per share.
The prior year adjusted earnings per share, as disclosed below, was calculated using the profits after tax for the financial year having
added back exceptional items (after adjusting for the effect of tax) and goodwill amortisation charge over the basic and diluted weighted
average share in issue during the year.
2008 2007
�000 �000
Loss after taxation (8,154) (1,454)
Accelerated intangible 12,423 1,670
amortisation
Goodwill amortisation - 2,137
Taxation on exceptionals - (501)
_
Profit for adjusted 4,269 1,852
calculation
Loss from discontinued - 2,010
operations
_
Profit attributable to 4,269 3,862
shareholders from continuing
operations
_ _
Basic and diluted loss per (47.5)p (8.5)p
share
Basic and diluted loss per - 11.7p
share from discontinued
operations
Basic and diluted loss per (47.5)p 3.2p
share from continuing
operations
Basic and diluted adjusted 24.9p 10.8p
earnings per share
Basic and diluted loss per - 11.7p
share from discontinued
operations
Basic and diluted adjusted 24.9p 22.5p
earnings per share from
continuing operations
_ _
6. Annual report
The Annual Report will be posted to shareholders in late August. Copies of the Annual Report will be available from the Air Music and
Media Group plc, Unit 9 Enterprise Court, Lancashire Enterprise Business Park, Centurion Way, Leyland, PR26 6TZ.
This information is provided by RNS
The company news service from the London Stock Exchange
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