Final Results
Zest Group PLC
30 March 2007
30 March 2007
Zest Group plc
Preliminary Results
for the year ended 30 September 2006
Zest Group plc ('Zest' or 'the Group', AIM: ZEST), the independent music
publisher, record label and production company announces its preliminary results
for the year ended 30 September 2006.
Summary of the year
• Turnover for the year ended 30 September 2006 £1.4m (2005: £nil) and a
loss before taxation of £0.7m (2005: £0.4m). These financials include only a
six month contribution from Greensleeves and during this period the company
only released a nominal number of records.
• Acquisition of international reggae publisher and record label
Greensleeves Records Limited ('Greensleeves') for a consideration of £3.25m
in cash and shares, completed in March 2006.
• Fundraising of £2.5 million (gross) through a placing of 83,333,334
Ordinary Shares in March 2006.
• Nasio Fontaine's first album was released in the US in July where he
toured East and West Coasts in support of the release. The album has
subsequently been released in Europe and Japan in August and September.
Commenting, Steve Weltman, Chief Executive of Zest Group plc, said:
'Since the acquisition of Greensleeves the Group have successfully completed a
number of commercial initiatives to leverage the revenue stream from the
existing catalogue. We also have a steady stream of new releases which should
feed through to benefit the business in the current year and into 2008. In line
with our strategy the Group continues to seek potential acquisition
opportunities.'
Chairman's Statement
I am pleased to present the results of the Group for the year ended 30 September
2006.
During the year the Group had turnover of £1.4m (2005: £nil) and a loss before
taxation of £0.7m (2005: (£0.4m). These financials include a six month
contribution from Greensleeves Records Limited ('Greensleeves') and during this
period the company only released a nominal number of records. Furthermore,
during the year the physical goods market experienced difficult conditions,
particularly in the US. For the financial year ending September 2007 the Group
is scheduled to release 50 albums, compared to 22 albums for the year ending
September 2006.
Zest completed its first acquisition on 31 March 2006, for a consideration of
£3.25 million in cash and shares, for Greensleeves, the leading international
reggae record label and music publisher. The Group also raised £2.5 million in
new equity towards the financing of the acquisition.
The acquisition of Greensleeves brought into the Group an established record
label and a comprehensive back catalogue of approximately 400 albums and 900
singles and owns in whole or part 4,500 copyrights and administers a further
13,500 copyrights, making Zest one of the largest independent reggae publishers
and record labels in Europe. Greensleeves, which is based in the UK with
offices in New York, has an established commercial presence in a number of the
specialist reggae markets throughout the world including the USA, Japan, France,
Germany, Benelux, Canada and Scandinavia.
Since the acquisition was completed the management team has been working on a
number of initiatives to leverage the opportunities of the Greensleeves business
including exploiting the existing catalogue and expanding the distribution
network in both non-digital and digital formats.
The first of these initiatives was to expand Greensleeves' commercial reach
around the world and the management team commenced discussions for distribution
and licensing agreements across a number of new territories to which I refer
later.
Despite generally difficult market conditions for recorded music, the
compilation albums performed well . However, sales in the US market were
affected by the closure of two of the major national music retailers, namely
Tower Records and Musicland.
During the year we concluded the recording of the new Nasio Fontaine album '
Universal Cry' and the album was successfully released on the Greensleeves label
in July 2006. The album has since been released in the following countries,
USA, Japan, UK, France, Germany, Austria, Switzerland, Scandinavia, Benelux,
Italy, Spain, Portugal, New Caledonia, South Africa and is currently amongst the
Group's best selling albums. Universal Cry was joined by the successful releases
of the 'Waterhouse Redemption' album from Sizzla in the summer of 2006 and the
compilation album Ragga, Ragga, Ragga, which was released in March 2006. Nasio
Fontaine is scheduled to perform for two days at the Glastonbury Festival in
June 2007 and a number of other festivals in Europe with additional shows in
USA, Africa and the Caribbean.
In our publishing business there were notable successes in 2006 with songwriter
Donovan Bennett, who had hit songs with Sean Paul on the multi-platinum album '
The Trinity' and Rihanna's platinum album 'Girl Like Me', amongst others .
Donovan co-wrote the song 'Break It Off' performed by Sean Paul & Rihanna which
was number 10 in the US Billboard pop charts and number 10 in the digital chart
(week commencing 19 March 2007).
Outlook
The management team has continued to make progress across a number of
operational areas including commercial initiatives that commenced following the
acquisition of Greensleeves.
In October 2006, we successfully secured the first ever global agreement for the
digital distribution of the entire Greensleeves catalogue with The Orchard, the
world's leading digital distributor for independent labels.
Following the agreement with The Orchard we agreed new physical goods
distribution and licensing deals with a various distributors in a number of new
markets for the Greensleeves label, including Australia, Brazil, China, India,
Singapore, South Africa, Thailand and Vietnam.
The Group is well placed to increase the output of physical product from the
existing catalogue, which will include up to 30 albums taken from the published
catalogue, for release during the calendar year 2007. During 2007 we are
planning further mid-priced albums in the digital format for distribution
through The Orchard.
Greensleeves celebrates its 30th Anniversary this year and we are planning the
release of a 'Best of Greensleeves' two volume album in a number of major
territories including the UK, USA, Japan, France and Germany. This album is
scheduled for release later in 2007.
Emerging singer/songwriter, Tara Chinn has completed her maiden album,
co-written and produced by Tony Fennell who is also signed to Zest. The album
has been mixed by Grammy award winning producer/mixer, Hugh Padgham (Phil
Colllins, Sting, Genesis and McFly amongst others). Zest is on schedule to
launch the album to the international market in the summer of 2007 in Asia
before rolling-out the album's release across other major markets and then into
the UK and US throughout 2008.
Finally, the Group continues to look for potential acquisition opportunities and
we will report to shareholders on progress when it is appropriate to do so.
Richard Griffiths
Chairman
30 March 2007
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2006
Note Period ended
Continuing Acquisitions Year ended 30.9.2005
operations 30.9.2006
£'000 £'000 £'000 £'000
Turnover - 1,411 1,411 -
Cost of sales - (828) (828) -
Gross profit - 583 583 -
Amortisation of goodwill - (113) (113) -
Administrative expenses (468) (657) (1,125) (355)
(468) (770) (1,238) (355)
Operating loss (468) (187) (655) (355)
Net interest (76) 3
Loss on ordinary activities before taxation (731) (352)
Taxation 22 -
Loss on ordinary activities after taxation
and retained loss (709) (352)
Loss per ordinary share
- basic 2 (0.55)p (0.66)p
There were no recognised gains or losses other than the loss for the financial
year.
CONSOLIDATED BALANCE SHEET AT 30 SEPTEMBER 2006
Note 30.9.2006 30.9.2005
£'000 £'000
Fixed assets
Intangible assets 3,599 137
Tangible assets 694 3
4,293 140
Current assets
Stocks of finished goods 422 -
Debtors 2,097 351
Cash at bank and in hand 55 526
2,574 877
Creditors: amounts falling due within one year (2,294) (71)
Net current assets 280 806
Total assets less current liabilities 4,573 946
Creditors: amounts falling due after more than one year (1,602) -
Net assets 2,971 946
Capital and reserves
Called up share capital 434 205
Share premium account 3,598 1,093
Profit and loss account (1,061) (352)
Shareholders' funds 3 2,971 946
CONSOLIDATED CASH FLOW STATEMENT
For the year end 30 September 2006
Note
Year ended Period ended
30.9.2006 30.9.2005
£'000 £'000
Net cash outflow from operating activities 4 (834) (614)
Returns on investments and servicing of finance
Interest paid (83) -
Interest received 7 3
Net cash inflow from returns on investments and service (76) 3
of finance
Capital expenditure and financial investments
Payments to acquire tangible fixed assets (694) (4)
Payments to acquire intangible fixed assets - (157)
Net cash outflow from capital expenditure and financial (694) (161)
investment
Acquisitions and disposals
Purchase of subsidiary undertaking (3,478) -
Cash acquired with subsidiary undertaking 273 -
Net cash outflow from acquisitions and disposals (3,205) -
Net cash outflow before financing (4,809) (772)
Financing
Issue of shares 2,500 1,425
Share issue costs (16) (127)
Bank loan net of repayments 1,854 -
Net cash inflow from financing 4,338 1,298
(Decrease)/increase in cash 5 (471) 526
NOTES TO PRELIMINARY ANNOUNCEMENT
For the year ended 30 September 2006
1 BASIS OF PREPARATION
The financial statements have been prepared under the historical cost convention
and in accordance with applicable accounting standards.
GOING CONCERN
The Directors have prepared cash flow forecasts for the period ending 31
December 2008 which make several assumptions concerning revenue generated.
The Group has secured an additional shareholder working capital facility of up
to £425,000 will be provided if required. On this basis and together with other
existing facilities available to the Group, the Group has sufficient finance
available to allow it to continue in business for a period of at least twelve
months.
On this basis the accounts have been prepared on a going concern basis. The
accounts do not include any adjustments that would result if the assumptions
detailed above are not met.
The principal accounting policies of the Group are set out below.
BASIS OF CONSOLIDATION
The consolidated profit and loss account and balance sheet include the financial
statements of the company and its subsidiary undertakings made up to 30
September 2006. The results of subsidiaries sold or acquired are included in the
profit and loss account up to, or from the date control passes. Intra-group
sales and profits are eliminated fully on consolidation.
TURNOVER
The total turnover of the Group for the period has been derived from its
principal activity.
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured. The
following specific recognition criteria must also be met before revenue is
recognised:
- sale of goods: revenue is recognised when the
significant risks and rewards of ownership of the goods have passed to the buyer
and can be reliably measured. Revenue is measured at fair value after making
provision in respect of expected future returns of goods and service supplied by
the Group prior to the balance sheet date
- royalty and other income: all royalty and other
income is recognised when it has been earned and can be reliably measured.
ADVANCES
In the ordinary course of business the Group pays advances and other expenses
recoupable from future royalties to performing artists, songwriters, producers
and third party repertoire owners. The amounts paid are carried at cost less
recoupment and less an allowance for any unrecoupable amounts. The allowance is
based on past revenue performance, current popularity and projected revenue.
Advances are recoupable during the business operating cycle. All advances are
therefore reported as current assets, including advances recoupable more than 12
months after the balance sheet date.
DEFERRED TAXATION
Deferred tax is recognised on all timing differences where the transactions or
events that give the Group an obligation to pay more tax in the future, or a
right to pay less tax in the future, have occurred by the balance sheet date.
Deferred tax assets are recognised when it is more likely than not that they
will be recovered. Deferred tax is measured using rates of tax that have been
enacted or substantially enacted by the balance sheet date.
GOODWILL
Goodwill arising on consolidation, representing the excess of the fair value of
the consideration given over the fair values of the identifiable net assets
acquired, is capitalised and is amortised over 20 years on a straight line
basis.
IMPAIRMENT
The Group's goodwill is subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and
some are tested at cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of the related
business combination and represent the lowest level within the Group at which
management controls the related cash flows.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell and value in use, based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
INTANGIBLE FIXED ASSETS
Recording and publishing agreements are included at cost and amortised on a
straight line basis over their expected useful economic life.
TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost, net of depreciation and any provision
for impairment. Depreciation is calculated to write down the cost less
estimated residual value of all tangible fixed assets by equal annual
instalments over their estimated useful economic lives. The periods generally
applicable are:
Freehold buildings 50 years
Computer equipment 4 years
Fixtures and fittings 3 to 10 years
STOCKS OF FINISHED GOOD
Stocks of finished goods are stated at the lower of cost and net realisable
value, after making allowance for obsolete and slow moving items.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the rate ruling at the date
of the transaction. Monetary assets and liabilities in foreign currencies are
translated at the rates of exchange ruling at the balance sheet date.
PENSIONS
The pension costs charged against profits represent the amount of the
contributions payable to defined contribution schemes in respect of the
accounting year.
FINANCIAL INSTRUMENTS
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the entity
after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those financial
instruments are classed as financial liabilities. Financial liabilities are
presented as such in the balance sheet. Finance costs and gains or losses
relating to financial liabilities are included in the profit and loss account.
Finance costs are calculated so as to produce a constant rate of return on the
outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the
definition of a financial liability then this is classed as an equity
instrument. Dividends and distributions relating to equity instruments are
debited direct to equity.
2 LOSS PER SHARE
The calculation of the basic loss per share is based on the loss on ordinary
activities after tax of £709,000 (period ended 30.9.2005 £352,000) divided by
the weighted average number of ordinary shares in issue during the year of
127,911,287 (period ended 30.9.2005 53,279,921). The impact of the share
options on the loss per share is anti-dilutive.
3 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Period ended
30.9.2006 30.9.2005
£'000 £'000
Loss for financial year (709) (352)
Issue of ordinary share capital (net of issue costs) 2,734 1,298
Net increase in shareholders' funds 2,025 946
Shareholders' funds brought forward 946 -
Shareholders' funds carried forward 2,971 946
4 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Year ended Period ended
30.92006 30.9.2005
£'000 £'000
Operating loss (655) (355)
Depreciation 12 1
Amortisation 113 20
Increase in stocks (64) -
Increase in debtors (562) (351)
Increase in creditors 322 71
Net cash outflow from operating activities (834) (614)
5 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT)
Year ended Period ended
30.9.2006 30.9.2005
£'000 £'000
(Decrease)/increase in cash for the year and change in net funds
resulting from cashflows
(471) 526
Bank loans advanced 1,854 -
Net funds brought forward 526 -
Net (debt)/funds carried forward 1,909 526
6 ANALYSIS OF CHANGES IN NET debt
At 1.10.2005 Cash flow 30.9.2006
£'000 £'000 £'000
Cash at bank and in hand 526 (471) 55
Bank loans - 1,854 1,854
526 1,383 1,909
7 ACQUISITIONS
On 31 March 2006 the Company acquired the entire issued share capital of
Greensleeves Records Limited for a consideration of £3.25 million settled
through the payment of £3 million in cash together with the issue of 8,333,334
Ordinary Shares at 3.0p each. Professional fees amounted to £478,000.
.
The assets and liabilities of Greensleeves Records Limited acquired were as
follows:
Fair value Fair value
Book value adjustment
£'000 £'000 £'000
Tangible fixed assets 9 - 9
Stocks 358 - 358
Debtors 1,221 (37) 1,184
Cash at bank 273 - 273
Trade creditors (1,582) 50 (1,532)
Other creditors (90) (9) (99)
Taxation - (40) (40)
189 (36) 153
Satisfied by:
Cash consideration payable to vendors 3,000
Share consideration payable to vendors 250
Costs of transaction 478
3,728
Goodwill 3,575
Goodwill arising on the acquisition of Greensleeves Records Limited has been
capitalised.
The directors have not completed all of their acquisition enquiries in relation
to the valuation of provisions, accrued costs and taxation and consequently the
book values of the assets and liabilities acquired are considered to be their
provisional values. These fair values will be finalised in the 2007 Financial
Statements.
The subsidiary undertaking acquired during the year made the following
contribution to, and utilisation of, Group cash flow:
£'000
Net cash inflow from operating activities 45
Capital expenditure and financial investment (710)
Net new loans 449
Decrease in cash (216)
The summarised results of Greensleeves Records Limited for the period ended 31
March 2006, the date of acquisition, are as follows:
£'000
Turnover 1,798
Operating profit 144
Profit before and after taxation 146
In the year ended 31 September 2006, Greensleeves Records Limited made a loss
after taxation of £73,000 (2005: £119,442).
8 PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The balance sheet at 30 September 2006 and the profit and loss account, cash
flow statement and associated notes for the year then ended have been extracted
from the Group's financial statements. Those financial statements have not yet
been delivered to the Registrar.
9 REPORT AND ACCOUNTS
The Group's annual report and financial statements will be posted to
shareholders shortly. Further copies will be available on request from the
Company's Registered Office: Kitwell House, The Warren, Redlett, Hertfordshire,
WD7 7DU.
Enquiries:
Steve Weltman, Chief Executive +44 (0) 207 451 9800
Zest Group plc
John Bick +44 (0) 7917 649362
Tim Cofman/Nicola Rayner +44 (0) 121 616 2101
W.H. Ireland
www.zestmusic.com
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