Chorion PLC 16 March 2005 16 March 2005 CHORION plc Preliminary results for the Year ended 31 December 2004 RECORD PROFITS FOLLOWING YEAR OF STRONG GROWTH - Pre tax profit up 35% to £4.3 million from £3.2 million in 2003. - Operating profit up 38% to £4.8 million from £3.5 million in 2003, reflecting a stunning performance by our Children's business. - Basic earnings per share of 7.1 pence against 6.8 pence for 2003. - Adjusted earnings per share increased to 12.4 pence from 11.9 pence in 2003 - 2004 notable for the acquisition in May of the Mr Men property. - All operational targets affecting 2004 financial performance achieved with turnover before acquisitions up by 21%. - Further Agatha Christie films commissioned by ITV announced today. Waheed Alli, Chairman of Chorion, said: "2004 was another year of radical development for Chorion. Our children's business has grown phenomenally and we have secured important international distribution deals. "Our crime brands business has also performed very well with further commissions and acquisitions. We look forward to additional growth across the business driven by the development of our existing portfolio, and the acquisition of classic entertainment brands and content". Analysts meeting There will be a meeting for analysts at 11.30 am today at Room 3, 24th Floor, Tower 42, 25 Old Broad Street, London EC2N 1HQ Analysts and Investor Enquiries: Press Enquiries: Sue Murphy, Finance Director Tim Allan Chorion plc Portland Tel: 020 7061 3800 Tel: 020 7404 5344 High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk For further investor information visit: www.chorion.co.uk Chairman's Statement RESULTS I am very pleased to report that 2004 has been another strong year for Chorion PLC. Profits before tax were 35% higher at £4.3 million; adjusted profits before tax, excluding amortisation of intangible assets, increased 34.5% to £5.4 million, and earnings per share increased 4.4% to 7.1 pence. Turnover on existing operations before acquisitions was up 21% to £22.4 million while total turnover increased 28.5% to £23.9 million. Chorion's children's business had an exceptionally strong year showing a 51% increase in gross profit to £5.1 million. Our crime brands businesses continued to perform well in 2004 showing a 13% increase in gross profit to £7.6 million. These achievements highlight the fast growing impetus of our children's business and the solid stability of our crime brands business. COMPANY OBJECTIVES We have set two overriding long-term goals for the business: • To achieve organic growth with the branded entertainment content that we own; and • To add further entertainment content and brands to which we can apply our expertise. We have achieved this dual goal in 2004 and laid the foundations for further growth in 2005 and beyond. In the 24 months since your new management team carried out its strategic review, we have grown from a company with a market capitalisation of £18 million to one of more than £70 million. We have re-energised the business through growing the entertainment brands we have and by acquiring new content. Content is, and will remain, the centre of all entertainment platforms. Entertainment brands and content are our core business. We will continue our focus on acquiring classic and proven, if under-performing, entertainment brands and content. Looking to the future, we will now also seek to apply our skills to more contemporary content. MANAGEMENT OF THE COMPANY In the middle of last year, following the purchase of Mr Men and the successful equity placing that raised £16.5 million to further accelerate our development, we added a further executive director to the management team to enable us to achieve our planned expansion of activities including the acceleration of acquisitions and the speed by which we can bring new properties and brands to market. In the last quarter of 2004 Sue Murphy joined as Group Finance Director. Previously with Virgin Trains, Sue brings a considerable range of financial skills and experience to Chorion. Sue's appointment in turn freed up her predecessor, Jeremy Banks, to take on the newly-created post of Commercial Director, where his key tasks include driving acquisitions and identifying properties to add to our brand portfolio. To better manage our expanded portfolio and our growth plans, we have also reshaped the company into three distinct operating divisions commencing 1st January 2005. These are: • Children's • Literary Estates • Television and Film The remit of the Children's Division is to deliver significant growth to our children's business through the children's brands and properties we already own, in particular the further growth of Noddy and the re-launch of Mr Men, and through the acquisition of further children's content. The Literary Estates Division will focus on growing the publishing and ancillary revenue opportunities of both our existing crime brands and newly acquired literary estates. The Television and Film Division will oversee production of Chorion's television co-productions, such as the successful Agatha Christie dramas; will encourage other television and film producers internationally to license our copyrights for new film and television programmes; and will seek new television opportunities. THE FUTURE Over the coming year we will see further significant growth in Noddy. We will also add to the future potential of our children's business with Mr Men going into full production and with the selection of a second children's property that will also go into production in 2005. In other areas of our business we will extend our profitable direct involvement in UK television and partwork activities. Our strategy is clear and we have a strengthened team and company structure to deliver it. We will continue to develop the entertainment brands that we already own and we will acquire further content with worldwide potential. Through this dual strategy I am confident that we will build further significant value for shareholders. Chorion has a strong and exciting future. DIVIDEND Earlier in the year we undertook to review our dividend policy. It is our belief that, at present, shareholders will be best served by continuing to focus resources on investment, both in the further development of Chorion's classic brands and in the acquisition of new branded content. Therefore we do not intend to propose a dividend for 2004. We will nevertheless keep this policy under regular review. STAFF On behalf of the Chorion Board I would to thank all members of the Chorion team for their invaluable contribution to the company's performance over the past year. Waheed Alli Chairman 16th March 2005 Chief Executive's Review I am very pleased that 2004 has proved to be another excellent year for the company. In our children's business, key achievements included the acquisition of the Mr Men estate and the accelerating growth of Noddy around the globe. In particular, Noddy's imminent launch into three of the world's largest markets, the United States, Japan and China, will help to generate continued growth for Chorion in the years ahead. The acquisition of the Mr Men - which already performs strongly at retail in the UK - provides us with an additional property that has the potential to be transformed into a major international brand with significant longevity. In our Crime Brands businesses, highlights were the acquisition of our first major American literary property, the works of crime author Raymond Chandler, and the new Miss Marple television dramas that were a major success on British television and have been sold to broadcasters internationally. OUR CHILDREN'S BUSINESS In 2004 we set - and achieved - four objectives. Children's Objective 1 - To raise revenues attributable to Noddy During the course of the year the prospects for Noddy becoming a major global brand have been transformed. In 2004 the value of Noddy products sold at retail worldwide increased to around £45 million from just under £30 million in 2003. Importantly, in the UK, the original heartland of the brand, Noddy continues to grow in popularity and value indicating the real long-term prospects for the brand worldwide. In this market alone, more than 40 licensees are in place and the Noddy television series, ' Make Way For Noddy', remains a top-rated show for children aged three to five for the second year running. Videos and DVDs continue to perform strongly. In particular the Noddy Christmas special sold more than 100,000 copies, taking total home entertainment sales to 250,000 units in the year. The largest growth in Noddy activity in 2004 was in France. Noddy has now climbed to second place in the league of licensed pre-school characters, outranked only by Disney's Winnie the Pooh. In 2004 Noddy achieved more than a 450% increase in market share of pre-school licensed products sold, with major licensees now including Mattel, Hasbro and Universal. Sales of home entertainment products exceeded 270,000 units - up 200% on 2003. This figure is in addition to sales of the monthly Noddy magazine in France, which includes a DVD, that has sold more than one and a half million copies since its launch in January 2004. 'Make Way For Noddy', the company's wholly owned animation series, now ranks among the top 10 most successful British television exports of the past five years (and in the top three of children's television exports) with the series now sold to more than 100 countries. We anticipate significant further growth in Noddy in 2005 with the launch of 'Make Way for Noddy' and associated licensing programmes in three of the world's biggest territories: the United States, China and Japan. The signing of a major distribution and agency agreement with Oriental Land Company Ltd, a major theme park, licensing and trading company in Japan, represents a significant development for the future worldwide potential of the Noddy brand. Noddy licensees remain enthusiastic about the longevity of the brand. In publishing, both Hachette and Harper Collins will be expanding their lines in 2005. In licensing, a number of new licences for products were signed in 2004 that will require considerable time and investment to develop, manufacture and bring to market; some will not launch until 2006. This indicates the faith that licensees have in the long-term value of the Noddy brand at retail. Key licensee activity committed for 2005 includes an extended range of plastic toys to cover all price points by Golden Bear and a new range of Easy-Play wooden toys and playsets. Significantly, Hasbro is broadening its toy distribution with new figurines and playsets and is gearing up to take advantage of the pan-European growth of Noddy through extensions to its distribution agreement whereby Hasbro distributes all plush and plastic products in these territories. Children's Objective 2 - To put in place an entry strategy for our brands in the United States I am pleased to report major progress with this objective. 'Make Way for Noddy' is scheduled to debut on the national public service network PBS, in July 2005. As a consequence of the character's imminent launch into the world's largest toy market, we have secured FUNimation as our licensing agent and video and DVD distributor. A key strength of FUNimation is its relationship with PBS and the 350 independent PBS television stations that make up the network. It is through close co-operation with this network that the impact and success of the series can be maximised. Our relationship with FUNimation and PBS will form the cornerstone of our entry strategy for the United States. Other Noddy Developments Following the growing success of Noddy, discussions with broadcasters in three of the top five world markets for children's brands, the USA, UK and France, identified a desire for additional broadcast programming that promotes the educational and language learning opportunities presented by the Noddy brand. As a result, Chorion has developed and co-produced with Five 100 x 2-minute simple language learning TV programmes. These have been designed in such a way that each television network can incorporate the foreign languages that they wish Noddy to teach on air. These short programmes can be shown alongside the existing 'Make Way for Noddy' broadcasts or aired separately. This new material will premiere in the USA in 2005 and in the UK during 2006. This has resulted in a renewed commitment from broadcasters to keep the existing series on air through until at least the end of 2007. We expect to achieve commitments from other broadcasters during the first half of 2005. Children's Objective 3 - Complete the acquisition of the Mr Men and Little Miss Estate This acquisition was completed on 28th May 2004. Led by a new animated television series and a major marketing programme, we are confident in our ability to grow the brand globally. We have completed our initial market research and this has confirmed the significant underlying knowledge and popularity of the books. Even without the benefit of television exposure or marketing support, the characters are still embraced by consumers around the world. In the United States, for instance, 300,000 Mr Men books are sold annually. During the second half of the year, utilising our market research, we were able to complete the first phase of our brand development programme identifying the ' DNA' of the brand for future exploitation and ranking the 80 Mr Men and Little Miss characters in order of their popularity with the consumer and their capacity to be exploited at retail. The UK is the only market in which there is any significant presence at retail beyond publishing. The current retail programme primarily targets teens and young adults and it continues to perform strongly. We believe we can additionally unlock the significant pre-school value of this brand in the UK following the launch of the new television series. With the purchase of the Mr Men estate we inherited the licensing agent Copyright Promotions Group Limited (CPGL). CPGL undertakes the licensing of Mr Men worldwide for a commission based on gross revenue. CPGL's current agency contract ends in September 2006. After careful consideration, we have decided it would be in the best interests of the brand for Chorion to manage the licensing of Mr Men directly in the same way that we currently manage Noddy. We are therefore in negotiation with CPGL for an early termination of this contract. Children's Objective 4 - To start TV production of our second pre-school brand - Mr Men We have made important progress with Mr Men, engaging two separate animation studios to undertake different creative approaches to first stage development of the programme, one using CGI animation, the other combining 2D animation and photographic techniques. The results of this first stage of development have been shared with target broadcasters in the USA, UK, France and Germany from whom we have received enthusiastic responses. It is from these key territories that it is likely that a final co-production partner or partners will emerge. As a result we have now commenced the pre-production stage that will allow us to choose which of the two creative approaches to progress. We would expect to agree terms with potential co-producers and broadcast partners and proceed to full production by the start of the second half of 2005. I expect delivery to broadcasters of the new Mr Men episodes to commence in last quarter 2006 and to be completed in March 2007. Other Children's Brands Activities The ongoing publishing programme of the Enid Blyton books continues successfully. A wide variety of titles from the Blyton catalogue are in print in the core territories of the UK, France and Germany, with significant sales coming from other markets, particularly those in the British Commonwealth. We continue to work closely with our publishers to maximise sales through re-jacketing and other brand management activities. The Future for our Children's Business The continuing success of Noddy and the exciting prospects for Mr Men provide a powerful engine of growth for our Children's business. Building the business is however about maintaining momentum. Given the long lead times involved in developing and rolling out quality children's branded entertainment content including the production of new television programming, we must both continue to build our existing children's brands and acquire and develop new properties for children of different ages. We need to identify in 2005 what property we will be launching in 2007/8. OUR CRIME BUSINESSES In 2004 we set - and achieved - three objectives. Crime Objective 1 - To return Miss Marple to UK television The major achievement of 2004 was the return to television of Agatha Christie's Miss Marple. All four of the new television films, starring Geraldine McEwan as the title character, were screened in the UK in December 2004 and were a critical and ratings success. The two-hour dramas averaged a 33% audience share; three of the four films were the most-watched programmes in their fiercely competitive Sunday evening slot on ITV. The series followed the new template we established for Agatha Christie television films in 2003, featuring A-list casts, story-writers and high-production values. Chorion co-produced the four Marple television films as part of the output deal with ITV, signed in 2003, that commits ITV to purchasing from us a minimum of four Agatha Christie films a year for a minimum of four years from 2003 to 2006 - a minimum total of 16 films in all. Eight have now been made (4 x Poirot in 2003 and 4 x Marple in 2004) and international demand for these films has proved very strong. Sales of the Poirot series have now been made to over 100 countries ranking it in the top ten of UK television exports. Crime Objective 2 - To return Poirot to US television The four Poirot films made in 2003 were all screened in the United States on the A&E cable network, where they played to a core crime and mystery audience. The network is committed to purchasing four further Poirot films, at least three of which will be delivered in 2005. The new Miss Marple television films have been sold in the United States to the national public broadcaster PBS. They will be screened as part of the popular Mystery! strand during 2005. Crime Objective 3 - To acquire an additional classic crime property During the second half of the year we completed negotiations to purchase the estate of Raymond Chandler, best known as the author of the Philip Marlowe series of detective novels, to add to our crime brands portfolio. The deal, completed on 10th February 2005, represents the first time Chorion has purchased an American literary property. As the actual body of work is relatively small (7 novels, 24 short stories), the true value of this estate lies in its exploitation via television and filmed entertainment. We have already commenced preliminary discussions with American producers about this opportunity. We will now commence our 'brand DNA' development programme that will identify the brand DNA of both Chandler and Philip Marlowe with the expectation that this will result in a re-launch of the publishing programme worldwide that will, on its own, justify the acquisition. ADDITIONAL CRIME BUSINESS ACTIVITIES Television and Film licensing Among the highlights of 2004 was the licensing of the first animated Agatha Christie television series. "Agatha Christie's Hercule Poirot and Miss Marple" was produced in anime style for the Japanese market and premiered in primetime on Japan's terrestrial general entertainment network, NHK1, in July 2004. As a result, we are now exploring with NHK the international potential for this 39 episode animated series linked with a Japanese manga or graphic novel-style publishing programme of the sort that is attracting growing international interest. In France, the long-running Maigret franchise, starring Bruno Cremer, continued with five new films screened in 2004. In Italy, film star Sergio Castellito produced and starred in two Maigret dramas made exclusively for Italian television. A number of licences for motion picture productions were granted in 2004, underlining the attraction of our library for the feature film market. A production licensed in 2003, Feux Rouges, made by a French production company and based on a Georges Simenon story, received international distribution in 2004 and immediately attracted critical and audience acclaim. The film was singled out by the bestselling author Stephen King as one of the top-10 best films of the year. Literary Estate management The publishing side of our crime portfolio continues to perform strongly with both Georges Simenon and Agatha Christie publishing continuing to find new audiences. A significant percentage of our publishing revenues are covered by minimum guarantees and we remain focused on working with our publishers worldwide to ensure they work to the brand plans and brand values that we set. We are also focused on exploring the brand extension opportunities for crime brands. During the course of the year we signed licences for PC-CD ROM and DVD boardgame adaptations of Agatha Christie's works. Both of these are worldwide licences, the first of which will come to the market in 2005 and the second of which will be launched in 2006. I am optimistic that these will be the first of many such developments. THE YEAR AHEAD We are looking forward to further growth in 2005. We have started the year with a new and more dynamic operating structure involving the three operating divisions of: • Children's • Literary Estates • Television and Film At the start of the year we set the following objectives for 2005: Children's • to secure co-production partners for the new Mr Men television series and to put the series into physical production for 2006/07 launch • to raise the global retail value of Noddy from £45 million to £65 million • to successfully launch Noddy in the United States • to put a new Children's TV series into production for 2006/7 launch • to identify additional children's properties for launch in 2007/08 Literary Estates • to acquire more literary estates with growth potential • to establish an in-house partwork resource to launch or develop a minimum of one new partwork each year. Television and Film • to increase, above four, the number of television films commissioned for 2005 • to develop new television films outside the Poirot and Marple franchises for 2006/07 I am very pleased to be able to report that, in March 2005, ITV confirmed that their 2005 film order is for eight Agatha Christie television films - double the minimum number required under our ITV output deal contract. Production plans are well advanced and I expect us to deliver a minimum of six of these films in 2005 with the remainder being delivered in early 2006. The precise split between Marple and Poirot films has yet to be decided by the broadcaster. CONCLUSION 2004 has been a very successful year for Chorion. We have an exciting portfolio of branded entertainment content and a management structure more able than ever before to realise the commercial potential of both existing and new entertainment brands and properties. I am confident that 2005 will be another year when we will further build the value of your company and am excited about the prospects for doing so. Nicholas James Chief Executive 16th March 2005 FINANCE DIRECTOR'S REVIEW OVERVIEW 2004 was a good year of achievement for Chorion. This was reflected in the financial results. • Turnover increased 28% • Gross profit up 26% • Operating profits 38% higher • Profits before tax up 35% • Shareholders' funds increased to £62 million The 2003 results are described in the Profit and Loss Account as being restated. This is purely because of a change in presentation of amortisation of film and TV investments. For 2004 this amortisation has been shown within cost of sales, rather than as administrative expenses, as in previous years. This change has been made as it is felt this is a more appropriate classification of these costs. The 2003 comparatives have consequently been reclassified to reflect this change, although this has no impact on the 2003 profits or net assets. RESULTS In 2004, a 21% increase in turnover on existing business, together with the revenue from the Mr Men acquisition for the second half of the year, created growth of some 26% in gross profits to £12.7 million. Gross profit is stated after charging amortisation of film and TV investments as described above. Our children's business generated £5.1 million gross profit, 51% higher than the previous year, or 23% excluding acquisitions, while gross profits from the crime business were 13% higher at £7.6 million. As a result, operating profits increased to £4.8 million from £3.5 million and profits before tax increased to £4.3 million from £3.2 million, an increase of nearly 35%. Administrative expenses, excluding amortisation of intangible assets, increased from £5.7 million to £6.7 million. This includes a part-year increase in staff costs as a result of additions to the management of the business, together with the estimated costs of the Long Term Incentive Plan. Amortisation of copyrights and goodwill amounted to £1.2 million. This is expected to increase to around £1.5 million in 2005.The net interest charge was £0.7 million, increased from £0.3 million in 2003, reflecting the cost of the higher debt following the Mr Men acquisition. The full year effect of these items will be seen in 2005, together with a planned increase in sales and marketing expenditure to support the launch of Noddy in the US. The first half of 2005 will therefore show higher amortisation, administrative costs and interest than the first half of 2004. As a result, the expected phasing of profits in 2005 is likely to be different from 2004, with a bigger proportion of profits being earned in the second half. Earnings per share increased to 7.1 pence from 6.8 pence in 2003. The average number of shares in issue during the year increased from 17.3 million to 21.9 million. ACQUISITIONS AND INVESTMENTS In May, Chorion acquired The Hargreaves Organisation and Mister Films Limited, increasing the book value of copyrights owned by the Group by £28 million to £59 million at the year-end. During the year, £11 million was spent on Film, TV and related assets. As part of the four-year ITV output deal, four Miss Marple films were produced during 2004. These were all broadcast on ITV during December. In addition, work has started on the 2005 Poirot and Marple films. The net investment of £20.4 million in Film, TV and related assets at the end of the year is made up of £6.4 million Poirot / Marple co-production investments, £12.8 million Noddy film investment and £1.2 million of other related investments. Amortisation of the Poirot / Marple costs is made on a revenue matching basis over ten years, with the majority of this arising in year one of the investment. The amortisation of the 'Make Way for Noddy' television asset is over fourteen years to match future related toy and merchandising revenues. All new children's television assets will be amortised over ten years. FUNDING In May 2004 new bank facilities, were put in place to fund the Mr Men acquisition. At the year-end, bank borrowings were £21.3 million, which consisted of £12.1 million of term loan, £1.8 million of revolving credit and £7.4 million of Miss Marple film project financing. This project financing of £7.4 million is being repaid from the income generated from the Miss Marple films and will be fully repaid by May 2005. The bank facilities available at the year-end were £24.6 million of term loan and revolving credit facility and £7.4 million relating to the financing of the production of the Miss Marple films. The purchase consideration for the Mr Men acquisition was £23.0 million in cash, £4.5 million in preference shares, £0.5 million in deferred consideration, plus an amount equal to the cash left in The Hargreaves Organisation at completion, which was £2.5 million. In May, £15.7 million, net of expenses, was raised through an equity placing. Net assets have increased during the year from £49.3 million to nearly £71.0 million. Excluding minority interests, shareholders' funds have increased from £41.1 million to £62.5 million. INCENTIVE PLANS A Long Term Incentive Plan was established during 2004. The charge made to profits in the year was £420,000, which is the estimated maximum cost for the first two years of the initial award and which has been made in accordance with accounting standard UITF Abstract 17. This charge has been added back to shareholders' funds in accordance with UITF Abstract 38. In addition, a Share Incentive Plan for all employees was established during the year. In order to satisfy the requirements of the Long Term Incentive Plan, £708,000 of Chorion shares were acquired in trust and in accordance with UITF Abstract 38 have been shown as a reduction in shareholders' funds. INTERNATIONAL FINANCIAL REPORTING ACCOUNTING STANDARDS Chorion, being an AIM listed company, is not required to comply with International Financial Reporting Standards (IFRS) until 2007. The work to quantify the effect of these changes on the Group will continue during 2005. Sue Murphy Finance Director 16th March 2005 Chorion PLC Consolidated Profit and Loss Account for the year ended 31 December 2004 2004 2003 As restated (note 1) Notes £'000 £'000 Turnover Existing operations 22,426 18,572 Acquisitions 7 1,436 - Total turnover 23,862 18,572 Cost of Sales -11,205 -8,498 Gross profit 12,657 10,074 Administrative expenses before amortisation of Intangible assets -6,708 -5,723 Amortisation of intangible assets 6 -1,156 -871 Administrative expenses -7,864 -6,594 Group operating profit: Existing operations 4,494 3,480 Acquisitions 299 - Group operating profit 4,793 3,480 Income from other fixed asset investments 131 - Interest receivable and similar income 72 10 Interest payable and similar charges -750 -344 Profit on ordinary activities before taxation 3 4,246 3,146 Tax on profit on ordinary activities 4 -1,548 -1,169 Profit on ordinary activities after taxation 2,698 1,977 Equity minority interests -992 -802 Profit for the financial year 1,706 1,175 Preference dividend -161 - Retained profit for the financial year 1,545 1,175 Earnings per share 5 Basic 7.1p 6.8p Diluted 7.1p 6.8p Adjusted (before amortisation of intangible 12.4p 11.9p assets) There are no differences between the results shown in the consolidated profit and loss account and those on an historical cost basis. All activities of the Group are continuing. Chorion PLC Consolidated Balance Sheet at 31 December 2004 2004 2003 Notes £'000 £'000 Fixed assets Intangible fixed assets 6 58,914 30,792 Tangible fixed assets 1,755 1,608 Film & TV and other related investments 8 20,374 19,549 81,043 51,949 Current assets (amounts falling due within one year) Debtors 16,217 11,621 Cash at bank and in hand 2,367 2,374 18,584 13,995 Creditors: amounts falling due within one year -13,766 -10,583 Net current assets 4,818 3,412 Total assets less current liabilities 85,861 55,361 Creditors: amounts falling due after -13,586 -6,098 more than one year Provisions for liabilities and charges -1,312 - Total net assets 70,963 49,263 Capital and reserves: Called up share capital 12,122 5,175 Share premium account 13,269 - Merger reserve 31,795 31,795 Profit and loss account 5,310 4,088 Shareholders' funds - equity 57,996 41,058 - non-equity 4,500 - 62,496 41,058 Equity minority interests 8,467 8,205 70, 963 49,263 Statement of Total Recognised Gains and Losses for the year ended 31 December 2004 Group 2004 2003 £'000 £'000 Profit for the financial year 1,545 1,175 Currency translation differences on foreign currency net investments -35 -22 Total recognised gains 1,510 1,153 Reconciliation of Movements in Shareholders' Funds for the year ended 31 December 2004 Group 2004 2003 £'000 £'000 Profit for the financial year 1,706 1,175 Preference dividends -161 - Retained profit for the financial year 1,545 1,175 Issue of shares 6,947 - Share premium arising on issue of shares 13,269 - Charge in relation to share award 420 - Shares acquired by ESOP Trust -708 - Redemption of preference shares - -50 Exchange differences -35 -22 Net addition to shareholders' funds 21,438 1,103 At 1 January 41,058 39,955 At 31 December 62,496 41,058 Chorion PLC Consolidated Group Cash Flow Statement for the year ended 31 December 2004 2004 2003 Notes £'000 £'000 Net cash inflow from operating activities 9 13,301 9,958 Returns on investments and servicing of finance Dividends paid to minority shareholders -656 -357 Bank charges and interest paid -575 -308 Finance lease interest paid -5 -2 Income from other fixed asset investments 131 - Interest received 73 10 -1,032 -657 Taxation -1,290 -628 Capital expenditure and financial investment Purchase of tangible fixed assets -335 -776 Purchase of intangible assets -95 -270 Investment in Film & TV -10,317 -10,993 Other Investments -120 -345 -10,867 -12,384 Acquisitions and disposals Acquisition of intangible assets - -1,399 Acquisition of subsidiary undertaking 7 -24,004 - -24,004 -1,399 Net cash outflow before financing -23,892 -5,110 Financing New bank loans 8,877 6,900 Issue of ordinary shares (net of costs) 15,716 - Purchase of shares by ESOP trust -708 - 23,885 6,900 (Decrease) / increase in cash in the year 10 -7 1,790 Notes to the Financial Statements for the year ended 31 December 2004 1. Basis of preparation These financial statements have been prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable United Kingdom accounting standards and on the basis of accounting policies set out in the group's 2004 Annual Report and Accounts. Change in presentation Following a review of accounting policies, the directors have concluded that it is more appropriate to present the amortisation of Film & TV and other related investments as a cost of sale rather than as an administrative expense. The effect of this has been to increase cost of sales in the year by £10,223,000 (2003: £7,881,000) and decrease administration expenses by £10,223,000 (2003: £7,881,000).There was no impact on group operating profit, retained profit or net assets in either the current or the prior year. 2. Segmental information (a) Turnover by class of business The Group only has one class of business, which is the exploitation of intellectual property rights. The Group's turnover has been analysed by revenue stream as follows: 2004 2003 £'000 £'000 Publishing/Audio/Magazine/Partworks (1) 5,721 5,268 Television/Video/Films (2) 14,253 11,193 Merchandising (3) 3,339 1,561 Other 549 550 23,862 18,572 (1) including turnover from acquisitions of £288,000 (2) including turnover from acquisitions of £28,000 (3) including turnover from acquisitions of £1,120,000 (b) Turnover by geographical segment The Group's operations are based in the United Kingdom but royalty income is derived from worldwide sales. Turnover by destination is analysed as follows: 2004 2003 £'000 £'000 United Kingdom (1) 14,757 11,133 Other European Community (2) 5,877 4,397 Americas (3) 2,095 2,102 Asia and Australia (4) 1,064 823 Other 69 117 23,862 18,572 (1) including turnover from acquisitions of £1,315,000 (2) including turnover from acquisitions of £69,000 (3) including turnover from acquisitions of £25,000 (4) including turnover from acquisitions of £27,000 3. Profit on ordinary activities before taxation 2004 2003 £'000 £'000 Profit on ordinary activities before taxation is stated after charging: Directors' remuneration 673 586 Auditor's remuneration for audit work - Group 80 83 Auditor's remuneration for audit work - Company 8 19 Other fees paid to the auditors and their associates 64 56 Operating lease rentals - property 276 266 Depreciation 320 228 Amortisation - Film & TV and other related investments 10,223 7,881 - Intangible assets 1,156 871 Exchange losses 44 30 4. Tax on profit on ordinary activities Analysis of charge in year 2004 2003 £'000 £'000 UK corporation tax Current tax on income for the year 711 1,149 Adjustments in respect of prior years -313 20 398 1,169 Double taxation relief -198 -89 Foreign Tax 198 89 Total current tax 398 1,169 Deferred tax Origination of timing differences 719 - Adjustment in respect of previous years 431 - Total deferred tax 1,150 - Tax on profit on ordinary activities 1,548 1,169 The Group's effective tax rate in 2004 was 36% (2003: 37%). The effective rate for 2004 was greater than the standard corporate rate due primarily to expenses not allowable for tax purposes and adjustments in respect of prior periods. 5. Earnings per share 2004 2003 £'000 £'000 Earnings Basic and diluted earnings 1,545 1,175 Add amortisation of intangible assets 1,156 871 Adjusted earnings before amortisation of intangible assets 2,701 2,046 Earnings per share Basic 7.1p 6.8p Diluted 7.1p 6.8p Adjusted (before amortisation of intangible assets) 12.4p 11.9p The calculation of basic earnings per share is based on profit after tax and minority interests. The calculation of adjusted earnings uses the basic earnings before amortisation of intangible assets and is presented to show more clearly the underlying performance of the group. The weighted average number of ordinary shares used in the calculation of the basic, diluted and adjusted earnings per share is as follows: 2004 2003 Weighted average number of shares in issue during the year used 21,845,545 17,250,764 in the calculation of basic and adjusted basic earnings per share Dilutive effect of options treated as exercisable at the year end 45,668 - 21,891,213 17,250,764 6. Intangible fixed assets Goodwill Copyrights Trademarks Total £'000 £'000 £'000 £'000 Group Cost: At 1 January 2004 713 32,334 988 34,035 Acquisitions - 29,172 106 29,278 At 31 December 2004 713 61,506 1,094 63,313 Amortisation: At 1 January 2004 241 2,700 302 3,243 Charged in year 95 955 106 1,156 At 31 December 2004 336 3,655 408 4,399 Net book value: At 31 December 2004 377 57,851 686 58,914 At 31 December 2003 472 29,634 686 30,792 The copyrights principally relate to Agatha Christie Ltd, Georges Simenon Ltd and Mister Men Ltd, which was acquired during the year. These estates are being written off in equal instalments over the remaining copyright period, which is due to expire in 2046, 2059 and 2058 for Agatha Christie, Georges Simenon and Mister Men respectively. 7. Acquisitions On 28 May 2004 the company acquired The Hargreaves Organisation and Mister Films Limited for a total consideration of £31,798,000. The resulting copyright value of £29,172,000 was capitalised and will be written off over 54 years, the remaining period of copyright. Total Book Fair value Total Value adjustments Fair of Net Assets - revaluation value £'000 £'000 £'000 Net assets acquired Debtors 460 3 463 Cash in bank 2,500 - 2,500 Creditors (407) 70 (337) Net assets 2,553 73 2,626 Copyright arising on consolidation 29,172 29,172 Purchase consideration and costs of acquisition 31,798 The purchase consideration was satisfied by £23,000,000 in cash, £4,500,000 in preference shares, £500,000 in deferred consideration, plus an amount of £2,500,000, being the cash left in The Hargreaves Organisation at completion. The total costs of acquisition were £1,298,000. The total figures for continuing operations in 2004 include the following amounts relating to acquisitions: cost of sales £513,000, gross profit £923,000, and total administrative expenses £624,000. The net cash outflow in relation to the acquisitions of subsidiary undertakings comprised: £'000 Consideration paid in year including expenses 26,504 Cash acquired (2,500) 24,004 8. Film & TV and other related investments Film & TV Other Total £'000 £'000 £'000 Group Cost: At 1 January 2004 30,621 1,309 31,930 Additions 10,928 120 11,048 At 31 December 2004 41,549 1,429 42,978 Amortisation: At 1 January 2004 12,252 129 12,381 Charged in year 10,112 111 10,223 At 31 December 2004 22,364 240 22,604 Net book value: At 31 December 2004 19,185 1,189 20,374 At 31 December 2003 18,369 1,180 19,549 9. Reconciliation of operating profit to net cash inflow from operating activities 2004 2003 £'000 £'000 Group operating profit 4,793 3,480 Amortisation of intangible fixed assets 1,156 871 Amortisation of Film & TV and other related investments 10,223 7,881 Depreciation of tangible fixed assets 320 228 Loss on disposal of tangible fixed assets - 30 Currency translation differences on net currency investments (35) - Charge in respect of shares to be issued under long term incentive plan 420 - (Increase) in debtors (3,554) (2,889) (Decrease) / increase in creditors (22) 357 Net cash inflow from operating activities 13,301 9,958 10. Reconciliation of net cash flow to movement in net debt 2004 2003 £'000 £'000 (Decrease) / increase in cash in year (7) 1,790 New bank loans (8,877) (6,900) New finance leases (31) (139) Movement in net debt in the year (8,915) (5,249) Net debt at start of year (10,165) (4,916) Net debt at end of year (19,080) (10,165) 11. Analysis of changes in net debt during the year As at Cash Non-cash As at 1 January Flow movements 31 December £'000 £'000 £'000 £'000 Cash at bank and in hand 2,374 (7) - 2,367 Bank loan (12,400) (8,877) - (21,277) Finance leases < 1 year (41) - (31) (72) Finance leases > 1 year (98) - - (98) (10,165) (8,884) (31) (19,080) 12. Post balance sheet events On 10 February 2005, Chorion PLC acquired all rights to the fictional works of Raymond Chandler. Chorion PLC has established a new entity, Raymond Chandler Ltd, of which Chorion PLC owns 75% and the vendor, the Raymond Chandler Estate, retains the remaining equity stake. 13. Statutory accounts The financial information contained in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2004 and 2003 but has been derived from them. Statutory accounts for 2004 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified and did not contain statements under s237(2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 31 December 2003, containing an unqualified auditor's report, have been filed with the Registrar of Companies. Copies of the 2004 Annual Report and Accounts will be sent to all shareholders and will be available from the Company's registered office at Aldwych House, 81 Aldwych, London, WC2B 4HN. This information is provided by RNS The company news service from the London Stock Exchange