Interim Results
CSS Stellar PLC
27 September 2004
Immediate Release 27 September 2004
CSS Stellar plc
('CSS' or 'the Group')
Interim Results for the six months ended 30 June 2004
CHAIRMAN'S STATEMENT
The first half of 2004 and the period from the half year to today's announcement
has seen the Group in the final stages of moving to a leaner, more focused
operating entity, having integrated acquisitions made in the period 2000 to
2002.
In the six months to 30 June 2004, turnover from continuing operations improved
to £37.2m (2003: £32.6m), with growth in all divisions. Operating profit from
continuing operations before goodwill amortisation was £214,000 (2003: £1.2m).
Loss per share increased to 7.96p (2003: loss per share of 3.45p).
In December 2003, the Group sold the loss-making ARB business from its Events
division. The Group is re-focusing its activities on its core divisions to
maximise shareholder value whilst reducing central operating costs.
Since the half-year, the Group has disposed of certain non-core businesses:
• The financial services division, which was primarily focused on tax
advisory work for film schemes and individuals, had become unviable as a
result of the changes in film tax relief legislation implemented by the UK
Government in February 2004 and hence was sold.
• The promotion of live events at UK stately homes was originally intended
as an extension of the Talent Management activity, with clients such as
Shirley Bassey and Michael Ball performing. The absence of suitable clients
and the low margin of the business has led to this being sold. The Group
will continue to sub-contract music event promotion, taking an appropriate
fee for management of the process.
• The Group had a sponsorship sales capability in Canada. However, the sale
of sponsorship properties to corporations did not fit in with the Group's
core client servicing operations. Consequently this business was sold in
July 2004.
• Finally, the Group is now focusing its Asian operations in China, with the
majority of its activities now run out of a small office in Beijing. The
Chinese operation will be seeking to capitalise on GEM's Olympic expertise
in the run up to Beijing 2008.
The combined operating losses for the six months to 30 June 2004 of these
businesses, sold since the end of the period, were £766,000, and their sale
resulted in an overall loss on disposal of £321,000.
I am pleased to report that we have been able to reduce central overhead costs
from £914,000 in the corresponding period in 2003 to £601,000 in 2004.
We are continually seeking to reduce these costs and the Executive Board of
Directors and many senior executives have taken cuts in remuneration as part of
the on-going process of cost reduction.
The Group is committed to expanding its core businesses either organically or
through acquisition. Investment has already been made in the Literary and Golf
sections of the business, and the Group is now seeking to expand its
capabilities in the other areas, building on the existing strengths of the
business, rather than developing new income streams. Trading since the period
end has been in line with our revised forecasts for 2004.
The Board is continuing to examine a number of methods of increasing shareholder
value but believes that the removal of non-core, loss-making businesses, the
reduction of central overheads and the identification of growth prospects in
core businesses is a source of financial comfort for the second half of the year
and into 2005.
John Webber
Chairman
27 September 2004
CHIEF EXECUTIVE'S OPERATIONAL AND DIVISIONAL REVIEW
The Group continued to make progress during the first half of 2004. Deferred
consideration of £982,000 in cash was paid to former shareholders of Echo and
The Sponsorship Consultancy. All deferred cash consideration that had been
provided for has now been paid. Bank borrowings of £1.1 million were also repaid
during the period including the remaining US Dollar loan of £220,000
(US$400,000) used to buy the GEM Group.
The Group's net bank debt has reduced by £2.3 million to £4.0 million at 30 June
2004 (30 June 2003: £6.3 million).
DIVISIONAL REVIEW OF CONTINUING OPERATIONS
TALENT MANAGEMENT
Operating profits prior to amortisation of goodwill were £473,000 (2003:
£901,000) on turnover of £5.0 million (2003: £4.9 million).
In Entertainment, Ricky Gervais won a BAFTA for The Office Christmas Special in
the category Best Comedy Performance. The Office was also victorious in the Best
Situation Comedy category. On the stage, Alan Bennett's 'The History Boys' sold
out at The National to critical acclaim. In television, we negotiated the highly
publicised deal to bring Michael Parkinson's renowned chat show to ITV from the
BBC.
After a fierce bidding war, our London and New York offices sold the rights to a
new three volume history of The Beatles to be written over the next 12 years by
Mark Lewishohn. Simon Cox has sold over 250,000 copies of his book 'Cracking the
Da Vinci Code', a book revealing the facts behind Dan Brown's novel 'The Da
Vinci Code'.
Sporting highlights include the signing of a new book deal by Sir Bobby Robson.
In addition, we negotiated a multi million dollar sports marketing deal for
Venezuelan driver Milka Duno with CITGO, and also completed a contract for her
to appear in Pontiac's largest Hispanic marketing campaign. We also signed
Sebastien Loeb, who is currently leading the World Rally Championship.
MARKETING
Operating profits prior to amortisation of goodwill were £576,000 (2003: £1.1
million) on turnover of £25.5 million (2003: £24.8 million). Whilst North
American currencies have devalued against sterling, we have still had growth in
turnover, particularly in our advertising company, Echo, which benefited from an
upturn in advertising spend in the first half of 2004. However, the margins have
been reduced as a result of competition to win and retain business.
In Europe performance has not been as good as last year. However, we continue to
win business and after successfully carrying out the marketing and PR work for
Vodafone's cricket sponsorship, we were also appointed to handle their
sponsorship of Manchester United. We have secured a major agreement with E.ON
and their UK subsidiary Powergen to handle their sponsorship programme as well
as being appointed to look after the PR and media relations for the Volvo Ocean
Race.
In Canada, we have delivered a successful promotional advertising campaign for
Michael Moore's film 'Fahrenheit 9/11'. This film achieved a 12% market share of
the US box office, which is higher than the usual 10% market share achieved by
Canadian productions.
In the US, highlights include organising a successful event to mark Sun Trust
becoming the Official Bank of Nascar. We also marketed a speaker series with A&E
Biography live featuring Bill Clinton among others in New York, San Francisco,
Toronto and Chicago.
New clients in the period include the major North American retailer Target and
the US Air Force.
During the period we sold Canadian Sponsorship Sales, which resulted in a loss
of £129,000 (2003: operating profit of £8,000). However, the Group has kept
ownership of the commission contracts that had been signed at the start of 2004.
TELEVISION
Operating loss prior to amortisation of goodwill was £581,000 (2003: profit of
£6,000) on turnover of £3.8 million (2003: £2.0 million). The prime reasons for
the division becoming loss-making are the start-up costs associated with the
move into TV production, where the phasing of productions means that income is
deferred to later periods.
The Board believes overall that television continues to be an important part of
the sports and entertainment industry, having the prospect of significant growth
in the near future. The Group has a 58.5% investment in Target, and since the
beginning of 2004 Target has been developing a production capability to add to
its distribution business. This has resulted in some start-up losses, which were
greater than expected. The Board believes that Target will benefit from further
direct third party investment and is in discussions with various external groups
who are currently interested in investing in Target.
Recent successes include signing a deal to broadcast hit US TV show Switched! on
Channel 4 and E4. Target was also appointed official distributor of I Dream,
Simon Fuller's new 'tween' drama series.
EVENTS
The sale of ARB has enabled Icon to focus on increasing its profitability to
£347,000 (2003: £118,000) on turnover of £2.8m (2003: £2.1m).
Events has seen strong growth in 2004 since the disposal of ARB at the end of
2003. Highlights in 2004 include supplying and installing the signage for all
venues at EURO 2004 in Portugal. Icon has also become the branding agency for
the London 2012 Olympic bid.
ASIA
Operating loss prior to amortisation of goodwill was £68,000 (2003: £nil) on
turnover of £12,000 (2003: £nil).
During the period we closed the Hong Kong operation with a loss of £125,000
(2003: loss of £35,000) and will concentrate efforts on building an Asian
marketing business based out of Beijing.
OVERALL STRATEGY
The Group is committed to creating shareholder value through the operation of a
growing client driven sports and entertainment business. I am currently
reviewing the overall strategy of CSS Stellar to ensure that this remains the
best method of improving the value of the shares and that each of the divisions
within the Group is performing at its best given the level of shareholding and
input from the Group. In all cases we need to be consistent in developing
divisions that create new opportunities for these clients and provide
outstanding levels of service to them. To implement this strategy, we will need
to maintain the very high standard of personnel that we currently have and
provide a working environment that will attract the most talented people to the
Group.
Sean Kelly
Chief Executive
27 September 2004
For further information please contact:
CSS Stellar
Sean Kelly, Chief Executive
Kevin Rose, Finance Director Tel: 020 7344 1927
Buchanan Communications
Bobby Morse/Catherine Miles Tel: 020 7466 5000
INDEPENDENT REVIEW REPORT TO CSS STELLAR PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprise the consolidated profit and
loss account, the consolidated balance sheet, the cash flow statement, the
Statement of total recognised gains and losses and the related notes. We have
read the other information contained in the interim report which comprises only
the Chairman's Statement and the Chief Executive's operational and divisional
review and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information. Our responsibilities do not
extend to any other information.
Directors' Responsibilities
The interim report including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the interim report in accordance with the AIM Rules
which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where any changes, and the reasons for them,
are disclosed.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of Interim Financial Information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists primarily of making enquiries
of group management and applying analytical procedures to the financial
information and underlying financial data and based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom auditing standards and therefore provides a lower level of assurance
than an audit. Accordingly, we do not express an audit opinion on the financial
information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
GRANT THORNTON UK LLP
CHARTERED ACCOUNTANTS
London
27 September 2004
CSS STELLAR PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the period ended 30 JUNE 2004
Unaudited Unaudited Audited
6 months 6 months Year to 31
to 30 June to 30 June December
Note 2004 2003 2003
£'000 £'000 £'000
Turnover
- Continuing operations 37,198 32,605 68,078
- Discontinued operations 383 2,073 4,838
Total Turnover 37,581 34,678 72,916
Cost of Sales (22,050) (17,262) (37,628)
Gross Profit 15,531 17,416 35,288
Exceptional administrative expenses 3 - - (167)
Amortisation of goodwill (1,213) (1,128) (2,283)
Other administrative expenses (16,083) (16,760) (34,557)
Total administrative expenses (17,296) (17,888) (37,007)
Operating (loss)/profit
- Continuing operations (999) 98 (404)
- Discontinued operations (766) (570) (1,315)
Total operating loss (1,765) (472) (1,719)
Exceptional items 3 (321) (178) (2,326)
(2,086) (650) (4,045)
Interest receivable 47 77 176
Interest payable (175) (152) (343)
Loss on ordinary activities before
taxation (2,214) (725) (4,212)
Tax on loss on ordinary activities (143) (176) (252)
Loss on ordinary activities after
taxation (2,357) (901) (4,464)
Equity minority interest 241 11 (10)
Transferred from reserves (2,116) (890) (4,474)
Loss per ordinary share 4
Basic (7.96) (3.45) (17.15)
Diluted (7.96) (3.45) (17.15)
Adjusted (loss)/earnings per ordinary
share 4
Basic (0.53) 1.22 2.64
Diluted (0.53) 1.11 2.56
Statement of total recognised gains
and losses £'000 £'000 £'000
Loss for the financial year (2,116) (890) (4,474)
Currency translation differences in
foreign currency net investment (58) 49 18
Total gains and losses recognised
since last annual report (2,174) (841) (4,456)
CSS STELLAR PLC
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2004
Unaudited Unaudited Audited 31
30 June 30 June December
2004 2003 2003
£'000 £'000 £'000
Fixed assets
Intangible assets 38,970 38,502 39,775
Tangible assets 2,974 5,259 3,007
Investments - other 1,056 1,112 1,056
43,000 44,873 43,838
Current assets
Stocks and work in progress 405 514 252
Debtors 16,594 15,995 15,964
Cash at bank and in hand 4,554 2,559 4,803
21,553 19,068 21,019
Creditors: amounts falling due within one
year (26,668) (21,356) (23,646)
Net current liabilities (5,115) (2,288) (2,627)
Total assets less current liabilities 37,885 42,585 41,211
Creditors: amounts falling due after
more than one year (828) (2,330) (1,726)
Minority interests 417 180 163
37,474 40,435 39,648
Capital and reserves
Called up share capital 13,621 12,880 13,265
Share premium account 25,866 22,976 24,654
Shares to be issued 3,295 4,098 4,863
Revaluation reserve 171 171 171
Profit and loss account (5,479) 310 (3,305)
Equity shareholders' funds 37,474 40,435 39,648
CSS STELLAR PLC
CONSOLIDATED CASHFLOW STATEMENT
For the period ended 30 JUNE 2004
Unaudited Unaudited Audited
6 months 6 months year to 31
to 30 June to 30 June December
Note 2004 2003 2003
£'000 £'000 £'000
Net cash (outflow)/inflow from
operating activities 1 (233) 651 5,023
Returns on investments and servicing of
finance
Interest paid (162) (152) (261)
Interest received 47 77 176
Interest element of finance lease
payments (13) - (82)
Net cash outflow from returns on
investments and servicing of finance (128) (75) (167)
Taxation (208) (525) (848)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (495) (907) (1,028)
Purchase of intangible fixed assets (292) (230) (104)
Sale of tangible fixed assets 86 118 128
Net cash outflow from capital
expenditure and financial investment (701) (1,019) (1,004)
Acquisitions and disposals
Purchase of subsidiaries (982) (2,333) (1,064)
Sale of subsidiaries - (153) (551)
Purchase of investments - (19) -
Net cash outflow from acquisitions and
disposals (982) (2,505) (1,615)
Equity dividends paid - (258) (258)
Net cash (outflow)/inflow before
financing (2,252) (3,731) 1,131
Financing
Repayment of borrowings (1,057) (767) (2,004)
Capital element of finance lease
rentals (52) (454) (796)
Net cash outflow from financing (1,109) (1,221) (2,800)
Decrease in cash (3,361) (4,952) (1,669)
CSS STELLAR PLC
NOTES TO THE ACCOUNTS
For the period ended 30 JUNE 2004
1. RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
£'000 £'000 £'000
Operating loss (1,765) (472) (1,719)
Depreciation charge 476 696 1,442
Amortisation of intangibles - goodwill 1,213 1,173 2,485
Increase in stocks (153) (170) (113)
(Increase)/decrease in debtors (809) 867 616
Increase/(decrease) in creditors 805 (1,443) 2,312
Net cash (outflow)/inflow from operating
activities (233) 651 5,023
2. ANALYSIS OF TRADING BY CLASS OF BUSINESS
Divisions Turnover Profit/(loss) before taxation
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Talent
Management 5,024 4,904 10,101 473 901 1,031
Marketing 25,516 24,819 48,133 576 1,115 1,945
Television (1) 3,844 788 4,874 (581) 6 44
Events 2,814 2,094 4,970 347 118 435
Central costs (2) - - - (601) (914) (1,576)
37,198 32,605 68,078 214 1,226 1,879
Discontinued
operations
Talent
Management 304 646 1,752 (512) (159) (123)
Marketing 79 350 519 (254) (27) (173)
Television - - - - - -
Events - 1,077 2,567 - (384) (1,019)
383 2,073 4,838 (766) (570) (1,315)
Goodwill
amortisation (1,213) (1,128) (2,283)
Operating loss (1,765) (472) (1,719)
Net interest (128) (75) (167)
Exceptional
loss on
disposal of
subsidiary
undertakings (321) (178) (2,326)
Group loss
before
taxation (2,214) (725) (4,212)
Geographical analysis Turnover Profit/(loss) before taxation
6 months 6 months Year 6 months 6 months Year
to to to to to to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Europe 14,196 9,182 22,981 314 1,086 2,038
North America 22,990 23,423 45,044 569 1,054 1,455
Rest of the World 12 - 53 (68) - (38)
Central costs (2) - - - (601) (914) (1,576)
37,198 32,605 68,078 214 1,226 1,879
Discontinued operations
Europe 304 1,723 4,319 (512) (543) (1,142)
North America 48 249 356 (129) 8 (27)
Rest of the World 31 101 163 (125) (35) (146)
383 2,073 4,838 (766) (570) (1,315)
(1) Turnover for the Television division represents gross billings, except
for the 6 months to 30 June 2003, which reflects commissions received. Gross
billings for the 6 months to 30 June 2003 was £1,972,000.
(2) Central costs have been separately analysed to enable a direct
comparison of the operating performance of each division in accordance with
IFRS guidelines.
3. EXCEPTIONAL ITEMS
6 months to 6 months to Year to
30 June 30 June 31 December
2004 2003 2003
£'000 £'000 £'000
Exceptional administrative expenses
Provision for significant bad debts - - 50
Costs of restructuring - - 117
- - 167
Exceptional items
Loss on disposal of subsidiary undertakings (321) (178) (2,326)
4. (LOSS)/EARNINGS PER SHARE
Basic Adjusted
Weighted per share per share
average no amount amount
£'000 of shares pence pence
6 months ended 30 June 2004
Earnings (2,116)
Adjusted earnings (141)
Basic earnings per share
Earnings attributable to ordinary shareholders 26,574,359 (7.96) (0.53)
Dilutive effect of securities - options and warrants 2,305,256
Diluted earnings per share 28,879,615 (7.96) (0.53)
6 months ended 30 June 2003
Earnings (890)
315
Basic earnings per share
Earnings attributable to ordinary shareholders 25,761,545 (3.45) 1.22
Dilutive effect of securities - options and warrants 2,722,257
Diluted earnings per share 28,483,802 (3.45) 1.11
Year ended 31 December 2003
Earnings (4,474)
Adjusted earnings 688
Basic earnings per share
Earnings attributable to ordinary shareholders 26,088,513 (17.15) 2.64
Dilutive effect of securities - options and warrants 806,422
Diluted earnings per share 26,894,935 (17.15) 2.56
The Adjusted earnings per share is based on the retained profits adjusted by
the amortisation of goodwill and the exceptional administrative expenses and
exceptional items net of taxation at 30%.
5. PUBLICATIONS OF NON-STATUTORY ACCOUNTS
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
figures from the year ended 31 December 2003 have been extracted from the
statutory financial statements which have been filed with the Registrar of
Companies. The auditors' report was unqualified and did not contain a
statement under Section 237(2) of the Companies Act 1985.
6. BASIS OF PREPARATION
The interim financial statements have been prepared in accordance with
applicable accounting standards under the historical cost convention as modified
by the revaluation of land and buildings. The principal accounting policies of
the Group have remained unchanged from those set out in the Group's annual
report and accounts.
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