RNS Number:4254B
Handmade PLC
02 August 2007
For immediate release 2 August 2007
HandMade Plc
("HandMade" or "the Company")
Preliminary Results
2 AUGUST, 2007. LONDON, UK: HandMade plc (AIM: HMF), the international rights
and film company, is pleased to announce its Preliminary Results for the year
ended 31 December 2006 and that trading in its Ordinary Shares on the AIM Market
will recommence today at 12.30 p.m. The restoration of trading follows this
publication and announcement of HandMade's financial results for the year ended
31 December 2006. These results were delayed while a valuation of its
intellectual property rights was produced. The Directors are pleased to report
that this independent valuation values the rights at $131 million, equivalent to
54p per issued ordinary share (based on #1 = $2.024).
Highlights
* Eloise, one of the best known children's characters in the US, rapidly
developing with feature film, appointment of licensing agent, TV series and
Broadway production leading to merchandising exploitation
* Acquisition of Sequence Films proves great success
* HandMade's first Cannes Film Festival since joining AIM generates over $50
million (all dollar figures in this announcement refer to US dollars) in
film sales producing over $7 million of revenue for the Group
* Twelve films in development / production backed by $250 million external
funding
* Valuation of Intellectual Property Rights in excess of $130 million
* A loss after tax of #3.3m on turnover of #1.9m.
* Independent valuation values the Company's intellectual property rights at
$131 million, equivalent to 54p per issued ordinary share (based on #1 =
$2.024).
Chairman, Patrick Meehan, said:
"Just a year after joining AIM, HandMade is on fast forward. The twelve films in
development / production include Eloise in Paris and a remake of Long Good
Friday.
"Our Eloise franchise continues to grow and with the feature film Eloise in
Paris going into production in early 2008 we are well positioned to build this
property into a global success on the scale of Thomas the Tank Engine or Bob the
Builder. The coming year could not look more exciting."
Contacts:
HandMade plc
David Ravden, CEO 020 7518 8230
Buchanan Communications 020 7466 5000
Tim Anderson
Canaccord Adams Limited 0207 050 6500
Mark Williams/Chris Bowman
Chairman's Statement
HandMade plc was formed in June 2006 through the acquisition of Handmade
Holdings Limited by Equator Group plc, with the latter changing its name to
HandMade plc at this time.
Since its admission to AIM in June 2006, HandMade has made remarkable progress.
This includes an important strategic acquisition, the recruitment of a
formidable team, twelve films in development or production backed by $250
million of external funding, and incredible success at our first Cannes Film
Festival.
The acquisition of Sequence Film Limited, a film sales, marketing and financial
packaging company headed by Guy Collins and Michael Ryan, now renamed Handmade
Films International, was always in our business plan. We were aware of the
quality of the business and have been delighted by its profitability and
business acumen of its management.
We are expanding our management team. Andrew Fearn joined us in April 2007 as
Financial Controller from Tottenham Hotspur plc, where he spent three years
working in a similar position, and Ron Rotholz, an experienced film producer
with 25 films under his belt, has recently arrived, to strengthen our production
side which is growing at a rapid rate.
HandMade owns the exclusive exploitation rights to Eloise - one of the best
known children's characters in the United States. The feature film, "Eloise in
Paris", begins shooting in early 2008 as we start to realise the potential of
this huge asset.
The Cannes Film Festival in May 2007 was a resounding success for the film
division. Over $50 million worth of sales were concluded, which over the next
two years will generate in excess of $7 million of revenue for the group in
commissions and fees. This makes us one of the leading independent players in
the market.
Asset valuation
The Group's Intellectual Property Rights ("IP") have recently been independently
valued in excess of $130 million by The Salter Group, the leading Intellectual
Property and film valuation company in the US.
Financial results
The financial results for the year ended 31 December 2006 are in line with the
expectations of the Board following the acquisitions made last year. The Group
made a loss after tax of #3.3m, turnover for the year was #1.9m and the net cash
position at the balance sheet date was #30,000. The Group's financial
performance during 2006 is explored in greater detail in the Business review
section of the Directors' Report on page 5 and 6. A copy of the financial
results will be posted to shareholders today with a copy available on the
Company's website at www.handmadeplc.com in due course.
Eloise
In May 2007, DIC Entertainment was appointed to act as licensing agent for the
merchandising of Eloise products. They have great expertise in this field, and
handle such characters as Strawberry Shortcake, Inspector Gadget and Madeline.
In the autumn of 2006, the animated Eloise TV series of 13 half hour episodes
was shown on Starz Television in the US, with the first two DVDs from the series
also being released.
The feature film, "Eloise in Paris" is being directed and written by Charles
Shyer, one of the most highly regarded family film writer / directors in
Hollywood with films such as Private Benjamin, the Father of the Bride series
and The Parent Trap to his credit. With such a well respected and renowned
writer / director on board, we are very excited about the prospects of this
film. It is planned that a second feature film, "Eloise goes to Hollywood" will
commence production within twelve months of "Paris" being finished with further
films in the pipeline as the Eloise franchise grows.
We hope the Eloise films will become an international family franchise and will
be an enormous driver for the Eloise merchandising programme. Once the latter
has been established it will be a major revenue stream for the Company.
A Broadway show of Eloise is contemplated for the autumn of 2008. A second
series of the animated Eloise TV show is also in negotiation, with the
subsequent release of the series on DVD. With all this planned activity, we are
hopeful that the Eloise franchise will show significant profitability in the
coming years and we envisage that Eloise will become a global brand in the
Thomas the Tank Engine / Bob the Builder mould, making it an extremely valuable
asset to the company.
Films
The film division is expanding at a rate that exceeds our most ambitious
expectations. The acquisition of Sequence has been a great success and the
addition of Guy Collins and Michael Ryan to the team has helped the expansion
enormously.
Twelve films are in various stages of development / production, including:
"Eloise in Paris" - Director Charles Shyer. Shooting February 2008. Feature film
based on the classic American series of children's books.
"Long Good Friday" - Director Paul W. Anderson. Shooting June 2008. A US remake
of the classic British film.
"Hadrian" - Director John Boorman. Shooting April 2008. An epic telling of the
story of legendary Roman Emperor Hadrian.
"Manolete" - Director Menno Meyjes. In post-production. A classic tale of the
Bullfighter and his love affair with Lupe Sino.
"Shame" - Director Larry Clark. Shooting in N.Y. Autumn 2007. A US remake of the
classic British film "Mona Lisa".
"Planet 9" - Director Jorge Blanco. Animated feature in production in Spain. An
American spaceman lands on Mars only to find 1950's American suburbia.
"Tales of the Riverbank" - Director John Henderson. In production. Animated film
based on the classic book.
"The Stone Angel" - Director Kari Skogland. 2007 Toronto Film Festival. Based on
Margaret Laurence's #1 Canadian best selling novel.
"The Heart of the Earth" - Director Antonio Cuadri. In post-production. A
gripping epic saga of courage and love, revenge and redemption in Spain.
"Highlander - The Source" - Director Brett Leonard completed the 5th instalment
of this highly successful franchise.
We anticipate that the production spend on films over the next two years will be
in the region of $250 million. This expenditure will be fully funded from
external finance sources with no recourse to HandMade. The film production
activity generates revenue with no production risk exposure to HandMade. Sales
are generated from the granting of licenses where HandMade already owns the
rights, together with production fees, overhead contribution and sales
commissions on worldwide sales, through our sales company Handmade Films
International.
Typically, on a film with a production budget of $40 million, license fees of up
to 5% can be earned plus producer fees of a further 5% plus a percentage of the
films profits. Sales fees on a film of this size will generate up to 20% in
commission on worldwide sales from cinema, DVD and TV usage. Thereafter it
becomes part of our existing library of some 120 films continuing to generate
revenue in perpetuity thereby increasing the capital value of the Group's
library and assets.
The sales generated in Cannes, together with the other projects in the pipeline,
mean that substantial future income has already been contracted, and we expect
that the film division will be a major profit contributor in the coming years.
Outlook
The Group has come a long way since it acquired Handmade Holdings Limited in
June 2006, taking time to build the foundations of a leading rights owning
Entertainment Company.
We are seeking to further expand the Eloise franchise by finding new initiatives
from which we can create additional Eloise income streams to enhance the brand.
The Board of Directors are optimistic that the Group is in a strong, stable,
position from which to exploit the strength of the HandMade brand, and its
intellectual property, to maximum effect. Having now assembled an impressive
team of experienced management we can look forward to an exciting and profitable
future. The real fruits of our labour will be truly reflected in the years 2008
and 2009.
P Meehan
Chairman 1 August 2007
Business review
Financial review of the year ended 31 December 2006
The key event of the year was the acquisition by Equator Group plc of Handmade
Holdings Limited in June 2006. The HandMade group was acquired for #14.75m, the
consideration being met via the immediate issue of 50,000,000 ordinary shares
with a deemed valuation of #5.0m and a convertible loan note of #2.0m, and
deferred consideration of #7.75m - the latter being paid 50% in cash and 50% via
cash or the issue of new shares (at the Company's discretion). The fair value
accounting of this acquisition is disclosed in detail in note 12 to the
financial statements. On acquisition the enlarged group changed its name to
HandMade plc with its shares being admitted to the AIM.
A placement of 31,250,000 ordinary shares which occurred at the same time as the
acquisition generated proceeds, net of placement and acquisition costs, of
#8.5m. As described in the prospectus issued prior to the placement and
acquisition, the net proceeds have largely been used to repay the short term
debt in existence at the time of the acquisition.
In November 2006 the Group expanded further via the acquisition of the Sequence
Film Limited - a film sales, marketing and financial packaging company. Sequence
(now Handmade Films International) was acquired for consideration of up to
#4.475m; being met via the immediate issue of 1,960,000 shares valued at
#0.588m, an initial cash payment of #0.2m, a guarantee of #0.462m, and deferred
consideration of #3.225m comprising #1.775m cash and #1.45m issue of new shares.
The deferred consideration is only payable if specific earn out clauses are
satisfied during the period from November 2006 to December 2008. Again, the fair
value accounting of this acquisition is disclosed in detail in note 12 to the
financial statements.
The results for the year therefore reflect a full year's trading of the original
Equator Group, six month's trading of the HandMade Group and two month's trading
of Handmade Films International. Comparative figures relate to the Equator Group
only.
Due to the transitional nature of 2006 (and to a lesser extent 2007), the
results outlined below are in line with expectations of the Board.
Profit and loss account
Turnover for the enlarged Group was #1.9m (2005 - #0.2m).
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)
showed a loss of #1.4m (2005 - #0.7m loss) - this figure has been adjusted for a
#0.4m charge to the profit and loss account relating to the granting of share
options during the year. This charge has arisen in 2006 as the Group has adopted
FRS 20 "Share based payments" which ascribes a value to the options granted
producing a non-cash expense within administrative expenses (see note 18 to the
financial statements for more detail).
ADJUSTED EBITDA 2006 2005
#m #m
Gross profit 0.4 0.1
Administrative expenses (2.2) (0.8)
Adjustment - share based payment 0.4 -
Adjusted (loss) BITDA (1.4) (0.7)
The amortisation charge increased from #0.3m in 2005 to #1.4m in 2006. This is
largely a result of the valuable film libraries and intellectual property rights
acquired with the HandMade Group which are being amortised over 20 years which
in the opinion of the Board, is the period which represents the assets' useful
economic lives.
Goodwill of #4.4m arose on the acquisition of Sequence Film Limited. This
represents the excess of the fair value of the consideration over the fair value
of the assets acquired, and is being amortised over five years - also
contributing to the higher amortisation charge in 2006.
The tax credit of #97,000 relates to a previous overprovision made against old
Equator Group liabilities which were successfully settled during the year. The
2006 tax losses will be carried forward to utilise against future profits,
however a potential deferred tax asset of #0.8m has not been recognised in the
balance sheet due to the uncertain timing of these profits.
The resulting retained loss for the year of #3.3m (2005 - #1.2m loss) will be
transferred to reserves.
The loss per share for the year is 4.2p (2005 - 3.8p loss). This small movement
reflects the large increase in the number of shares in issue - 32 million to 116
million - and is calculated using a weighted average number of shares in issue
during 2006 of 78 million.
David Ravden
Director
Consolidated Profit and Loss Account
Continuing operations
Note Acquisitions Total Total
2006 2006 2006 2005
#'000 #'000 #'000 #'000
TURNOVER 2 24 1,848 1,872 168
Cost of sales (2) (1,451) (1,453) (41)
GROSS PROFIT 22 397 419 127
Other administrative expenses (1,719) (451) (2,170) (815)
Depreciation and amortisation (453) (944) (1,397) (300)
TOTAL ADMINISTRATIVE EXPENSES (2,172) (1,395) (3,567) (1,115)
OPERATING LOSS 2,3 (2,150) (998) (3,148) (988)
Net interest payable 5 (167) (36) (203) (81)
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,317) (1,034) (3,351) (1,069)
Taxation 6 97 (150)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND
RETAINED LOSS FOR THE YEAR 19 (3,254) (1,219)
Loss per share - basic and diluted 8 (4.2)p (3.8)p
All amounts relate to continuing activities.
All recognised gains and losses during both years are included in the profit and
loss account.
Balance Sheets
Group Company
Note 2006 2005 2006 2005
#'000 #'000 #'000 #'000
FIXED ASSETS
Intangible Assets 9 38,856 3,901 97 -
Tangible assets 10 80 - 75 -
Investments 11 - - 18,063 3,875
38,936 3,901 18,235 3,875
CURRENT ASSETS
Debtors 13 2,754 653 7,563 1,526
Cash at bank * 2,937 2,950 - 9
5,691 3,603 7,563 1,535
CREDITORS: amounts falling due
within one year
Convertible loan note 14 (373) - (373) -
Other 14 (9,423) (2,683) (3,309) 3,512
14 (9,796) (2,683) (3,682) (3,512)
NET CURRENT (LIABILITIES) / ASSETS (4,105) 920 3,881 (1,977)
TOTAL ASSETS LESS CURRENT LIABILITIES 34,831 4,821 22,116 1,898
CREDITORS: amounts falling due after more than one
year
Convertible loan note 15 (1,417) - (1,417) -
Other 15 (8,417) (2,923) (8,417) -
15 (9,834) (2,923) (9,834) -
NET ASSETS 24,997 1,898 12,282 1,898
CAPITAL AND RESERVES
Called up share capital 18 5,793 1,589 5,793 1,589
Share premium account 19 8,786 1,184 8,786 1,184
Merger reserve 19 21,832 7,959 7,959 7,959
Shares to be issued 19 300 - 75 -
Profit and Loss Account 19 (11,714) (8,834) (10,331) (8,834)
SHAREHOLDERS' FUNDS 20 24,997 1,898 12,282 1,898
* Included within cash at bank is an amount of #2,907,000 (2005 - #2,923,000)
which is held in escrow (see note 14).
These financial statements were approved by the Board of Directors and
authorised for issue on 1 August 2007.
Signed on behalf of the Board of Directors
D Ravden
Director
Consolidated Cash Flow Statement
2006 2005
Note #'000 #'000 #'000 #'000
Net cash outflow from operating activities 21 (1,491) (404)
Returns on investments and servicing of finance
Interest received 12 6
Interest paid (105) (45)
Net cash outflow from returns on investments
and servicing of finance (93) (39)
Taxation
UK Corporation tax paid (53) -
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (100) -
Payments to acquire tangible fixed assets (88) -
Net cash outflow from capital expenditure and
financial investment (188) -
Acquisitions and disposals
Payments to acquire subsidiary undertakings 12 (915) -
Cash acquired with subsidiary undertakings 4 -
Net cash outflow from acquisitions and (911) -
disposals
Cash outflow before use of liquid resources and
financing (2,736) (443)
Financing
Issue of ordinary share capital net of issue 9,148 -
costs
Loans advanced in the year 700 642
Loans repaid in the year (7,125) (198)
Net cash inflow from financing 2,723 444
(Decrease) / increase in cash 23 (13) 1
Notes to the Accounts
1. Accounting policies
Basis of accounting
These statements have been prepared under the historical cost convention and are
in accordance with applicable Accounting Standards and the Companies Act 1985
(the "Act").
Basis of consolidation
The Group financial statements incorporate the financial statements of the
Company and all its subsidiaries made up to 31 December 2006, using the
acquisition method of accounting. A separate profit and loss account dealing
with the results of the Company only has not been presented as permitted by
Section 230 of the Companies Act 1985.
Acquisition accounting
Where the acquisition method is used, the results of the subsidiary are included
from the date of acquisition. The purchase consideration is allocated to assets
and liabilities on the basis of fair value at the date of acquisition. In the
company financial statements the group has applied the merger relief rules.
Shares issued as consideration for acquisitions are accounted for at nominal
value.
Going concern
During the year ended 31 December 2006, the Group recorded a loss after tax of
#3,254,000 and has made a loss in the period since the year end. At 31 December
2006 the Group had total net assets of #24,997,000 and net current liabilities
of #4,105,000.
In assessing the going concern of the Group, the directors have prepared
forecast information for the period ending twelve months from the date of their
approval of these financial statements. As part of producing these forecasts
the directors have considered the likely cash inflows to be derived from the
Groups trading activities which principally relate to licence, royalty and
production fees derived from the Group's intangible assets. Given the nature of
these activities, which are at various stages of development, there is a degree
of uncertainty surrounding the timing and amount of such cash inflows.
On the basis of these forecasts and the underlying assumptions, the directors
believe that the Group will have sufficient funding to continue in operational
existence for at least twelve months from the date of approval of these
financial statements. On this basis, they consider that it is appropriate to
prepare the financial statements on a going concern basis.
Turnover
Turnover, which is stated net of value added tax, represents income generated by
the exploitation of film libraries and other intellectual property, and the sale
of distribution rights for feature films. Turnover is recognised when
contractually due, either on delivery of materials or when invoiced.
Foreign exchange
Transactions denominated in foreign currencies are translated into sterling and
recorded at the rates of exchange ruling at the date of the transactions.
Monetary assets and liabilities denominated in a foreign currency are translated
into sterling at the exchange rates ruling on the balance sheet dates.
Translation differences are dealt with in the profit and loss account.
Film libraries
Film libraries are amortised, subject to impairment, over their estimated useful
economic life of 20 years to a residual value of #nil.
Goodwill
Goodwill arising on an acquisition of a subsidiary undertaking is the difference
between the fair value of the consideration paid and the fair value of the
assets and liabilities acquired. In calculating goodwill, the total
consideration, both actual and deferred is taken into account. Where the
deferred consideration is contingent and dependent upon future trading
performance, an estimate of the value of likely consideration payable is made.
The contingent deferred consideration is re-assessed annually and a
corresponding adjustment is made to the goodwill arising on acquisition.
Goodwill is capitalised and amortised through the profit and loss account over
the directors' estimate of its useful economic life of 5 years. Impairment tests
on the carrying value of goodwill are undertaken at the end of the first full
financial year following acquisition and in other periods if events or changes
in circumstances indicate that the carrying value may not be recoverable.
Tangible fixed assets
Tangible fixed assets are depreciated on a straight line basis at annual rates
appropriate to their estimated useful lives as follows:
Computer & office equipment 33%
Furniture, fixtures & fittings 20%
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for
impairment
Impairment of fixed assets
The need for any fixed asset impairment write down is assessed by comparing the
carrying value of the asset against the higher of realisable value and value in
use.
Deferred taxation
Deferred tax balances are recognised in respect of all timing differences that
have originated but not reversed by the balance sheet date except that the
recognition of deferred tax assets is limited to the extent that the company
anticipates making sufficient taxable profits in the future to absorb the
reversal of the underlying timing differences. Deferred tax balances are not
discounted.
Financial instruments
In relation to financial instruments, short-term debtors and creditors are not
treated as financial assets or financial liabilities for financial reporting
purposes and the Group does not hold or issue derivative financial instruments
for trading purposes. The Group does not enter into any derivative contracts.
Share options
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the profit and loss account over the vesting
period. Non-market vesting conditions are taken into account by adjusting the
number of equity instruments expected to vest at each balance sheet date so
that, ultimately, the cumulative amount recognised over the vesting period is
based on the number of options that eventually vest.
Where the terms and conditions of the options are modified before they vest, the
increase in the fair value of the options, measured immediately before and after
the modification, is also charged to the profit and loss account over the
remaining vesting period.
Convertible debt
The proceeds received on issue of the group's convertible debt are allocated
into their liability and equity components and presented separately on the
balance sheet.
The amount initially attributed to the debt component equals the discounted
cashflows using a market rate of interest that would be payable on a similar
debt instrument that did not include an option to convert.
The difference between the net proceeds of the convertible debt and the amount
allocated to the debt component is credited direct to equity and is not
subsequently remeasured. On conversion, the debt and equity elements are
credited to share capital and share premium as appropriate.
Leases
Rental costs under operating leases are charged to the profit and loss account
in equal annual amounts over the periods of the leases.
Estimates and judgements
The preparation of the consolidated financial statements requires the Group to
make estimates and judgements that affect the application of policies and
reported amounts. Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including expectation of
future events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates.
Included in this note are accounting policies which cover areas that the
directors consider require estimates and assumptions which have a significant
risk of causing a material adjustment to the carrying value of assets and
liabilities within the next financial year. These policies together with
references to the related notes to the financial statements are stated below:
Taxation - note 6
Intangible assets - note 9
Acquisitions - note 12
Share based payment - note 18
2. Segmental analysis
Turnover is all derived from the Group's principal activities.
2006 2006 2006 2005 2005 2005
#'000 #'000 #'000 #'000 #'000 #'000
Turnover Operating Net assets Turnover Operating Net assets
loss loss
Exploitation of intellectual
property - UK 306 3,025 17,370 168 (988) 1,898
Exploitation of intellectual
property - US 33 227 7,538 - - -
Sale of distribution rights for
feature films - UK 1,533 (104) 89 - - -
1,872 3,148 24,997 168 (988) 1,898
3. Operating Loss
This is stated after charging the following:
2006 2005
#'000 #'000
Depreciation of tangible fixed assets:
- owned 11 -
Amortisation and diminution of intangible fixed assets 1,386 300
Share based remuneration expense 374 -
Auditors' remuneration and expenses:
- audit services 75 25
- other services relating to taxation 9 -
- services relating to corporate finance transactions 5 -
Operating lease rentals:
- land and buildings 179 47
Included within audit services is #20,000 (2005 - #10,000) in respect of the
Company.
In addition to the above, included within cost of investment (note 11) and the
share premium account (note 19) are #90,000 (2005 - #nil), and #90,000 (2005 -
#nil) respectively, in respect of auditors' remuneration for services relating
to corporate finance transactions.
4. Staff numbers and costs
Group Group Company Company
2006 2005 2006 2005
Number Number Number Number
The average number of employees of the Group during
the year, including Executive Directors, was 6 3 4 3
The aggregate payroll costs of these employees was #'000 #'000 #'000 #'000
as follows:
Salaries and bonuses 554 270 452 270
Social security costs 63 30 55 30
Other pension costs 1 5 1 5
618 305 508 305
Detailed information concerning directors' remuneration, shareholdings and share
options is shown in the Directors' Report on page 10
5. Net interest payable
2006 2005
#'000 #'000
Interest receivable (12) (6)
Interest payable on other loans 105 45
Interest payable on convertible loan note 68 -
Interest payable on preference shares 42 42
203 81
6. Tax (credit) / charge on loss from ordinary activities
2006 2005
#'000 #'000
Adjustment in respect of prior years (97) 150
Total tax (credit) / charge on ordinary activities (97) 150
Reconciliation of the current tax (credit) / charge
2006 2005
#'000 #'000
Loss on ordinary activities before taxation (3,351) (1,069)
Tax on loss on ordinary activities before taxation at the UK statutory rate
of 30% (2005 - 20%) (1,005) (214)
Expenses not deductible for tax purposes 551 60
Tax losses carried forward to future periods 454 154
Adjustment in respect of prior years (97) 150
Total current tax (credit) / charge (97) 150
A deferred tax asset of approximately #797,000 (2005 - #343,000) has not been
recognised on losses available for carry forward as the recoverability of any
asset is dependent upon sufficient profits being achieved in certain
subsidiaries. The timings of any such profits are uncertain.
7. Parent Company profit
The retained loss for the year, dealt with in the financial statements of the
parent company, was #1,871,000 (2005 - #1,073,000).
As permitted by section 230 of the Companies Act 1985, no separate profit and
loss account is presented in respect of the parent company.
8. Loss per share
Loss per share has been calculated using the weighted average number of
shares in issue in each year.
2006 2005
#'000 #'000
Retained loss (3,254) (1,219)
Number Number
Weighted average number of shares in issue 78,164,669 31,787,332
Effect of dilutive potential:
Ordinary share options - -
Deferred share consideration - -
78,164,669 31,787,332
Basic and diluted loss per share (4.2)p (3.8)p
As the Group has made a loss for the year the loss per share has not been
diluted.
The number of potentially dilutive shares and share options in issue at the
balance sheet date was 7,625,000 (2005 - 850,000).
9. Intangible fixed assets
Group Film libraries
*
Goodwill Total
#'000 #'000 #'000
Cost
At 1 January 2006 - 11,482 11,482
Additions - 100 100
Acquired with subsidiary undertaking - HandMade (see note - 31,936 31,936
12)
Acquired with subsidiary undertaking - Sequence (see note 4,426 72 4,498
12)
Reduction in deferred consideration ** (see note (193) - (193)
12)
At 31 December 2006 4,233 43,590 47,823
Amortisation and impairment
At 1 January 2006 - 7,581 7,581
Charged in year 148 1,238 1,386
At 31 December 2006 148 8,819 8,967
Net book value
At 31 December 2006 4,085 34,771 38,856
At 31 December 2005 - 3,901 3,901
* Following the acquisition of the HandMade film library, HandMade remake rights
and the Eloise intellectual property, via the acquisition of Handmade Holdings
Limited, an independent valuation of these assets was completed in order to
ascertain their fair value.
The independent valuation attributed to these assets totalled #66,245,000.
Financial Reporting Standard 10 - "Goodwill and Intangible Assets", states that
the fair value of an intangible asset acquired as part of an acquisition should
be limited to the amount that does not create or increase negative goodwill,
unless the asset has a readily ascertainable market value.
Consequently a value of #31,936,000, equating to the difference between the fair
value of the consideration paid for Handmade Holdings Limited and the fair value
of all assets and liabilities acquired from Handmade Holdings Limited except
intangible assets, has been recognised within intangible assets.
The independent valuation relied, in part, on estimates provided by the
Directors of the Company of future cashflows which will be generated by the
assets noted above. It is possible that the estimated cashflows may not be
achieved. This could materially affect the carrying value of the assets,
resulting in an impairment of the assets in future years.
** The reduction in the carrying value of goodwill is a consequence of the
change in fair value of the deferred consideration due in respect of the
acquisition of Sequence Film Limited, as calculated initially on the acquisition
date, and again at the Balance Sheet date.
Company Film
libraries
#'000
Cost
At 1 January 2006 -
Additions 100
At 31 December 2006 100
Amortisation
At 1 January 2006 -
Charged in year 3
At 31 December 2006 3
Net book value
At 31 December 2006 97
At 31 December 2005 -
10. Tangible fixed assets
Group Office equipment,
furniture &
fittings
#'000
Cost
At 1 January 2006 33
Additions 88
Acquired with subsidiary undertaking - Sequence (see note 12) 3
Eliminated on disposal (33)
At 31 December 2006 91
Depreciation
At 1 January 2006 33
Charged in the year 11
Eliminated on disposal (33)
At 31 December 2006 11
Net book value
At 31 December 2006 80
At 31 December 2005 -
Company Office equipment,
furniture &
fittings
#'000
Cost
At 1 January 2006 5
Additions 85
Eliminated on disposal (5)
At 31 December 2006 85
Depreciation
At 1 January 2006 5
Charged in the year 10
Eliminated on disposal (5)
At 31 December 2006 10
Net book value
At 31 December 2006 75
At 31 December 2005 -
11. Investments
Investments held as fixed assets by the Company represent the investments in
subsidiary undertakings which are analysed as follows:
Shares in
subsidiary
undertakings
#'000
Cost
At 1 January 2006 3,875
Additions at cost * 14,321
Reduction in deferred consideration ** (133)
At 31 December 2006 18,063
* The investments above are being carried at cost, rather than the fair value as
disclosed in note 12, as merger relief is being applied under s131 CA85.
** The reduction in the carrying value of the cost of investment is a
consequence of the change in fair value of the deferred consideration due in
respect of the acquisition of Sequence Film Limited, as calculated initially on
the acquisition date, and again at the balance sheet date.
At 31 December 2006, the Company had the following direct interests in the
active subsidiary undertakings:
Name of Company % held Country of incorporation Nature of business
Equator Films Limited 100 United Kingdom Film production and distribution
SF Productions Limited 100 United Kingdom Holding film rights for investment
Genie International 100 Bahamas Holding film rights for investment
Handmade Holdings Limited 100 Jersey Holding company
Handmade Films Limited 100 United Kingdom Developing and exploiting film rights
Basscharles Limited 100 Jersey Provision of loan finance
Flaming Films Inc 100 Bahamas Holding film rights for investment
HMF Inc 100 United States Developing and exploiting film rights
Eloise Productions Inc 100 United States Developing and exploiting film rights
Handmade Films Limited 100 British Virgin Islands Developing and exploiting film rights
HMF Music Inc 100 United States Music publishing
Handmade Films International
Limited
100 United Kingdom Sale of distribution rights for feature
films
12. Acquisitions
On 9 June 2006 Equator Group plc acquired 100% of the voting equity shares of
Handmade Holdings Limited. Following the acquisition Equator Group plc changed
its name to HandMade plc. Equator paid consideration fair valued at #24,759,000
via cash, the issue of new shares and a convertible loan note (see below).
The fair value of the assets and liabilities acquired from Handmade Holdings
Limited, and adjustments from book value which were necessary are set out in the
following table:
Fair value of assets and liabilities acquired Fair value
Book value adjustment * Fair value
#'000 #'000 #'000
Intangible assets - (see note 9) 7,727 24,209 31,936
Debtors 773 - 773
Cash 1 - 1
Loan (6,483) - (6,483)
Creditors (1,468) - (1,468)
Net assets 550 24,209 24,759
Fair value of consideration paid #'000
Shares issued on acquisition 16,000
Convertible loan note 1,790
Deferred consideration 6,405
Costs of acquisition 564
Total consideration 24,759
* As explained in note 9, FRS 10 prohibits the creation of negative goodwill as
a result of applying a fair value to intangible assets acquired as part of an
acquisition. Therefore the value attributed to the intangible assets acquired
from Handmade Holdings Limited, has been limited to an amount which generates
zero goodwill. The third party valuation of the intangible assets acquired
produced a fair value significantly in excess of the adjustment above.
The fair value of the share consideration was determined by reference to their
quoted market price at the date of acquisition.
The #2,000,000 convertible loan note carries interest at the rate of 6% per
annum and the principal thereon is repayable by the Company from the first
business day falling 18 months after the date of Admission (8 December 2007) and
thereafter at six monthly intervals until fully redeemed with a minimum payment
of #250,000 on each such payment date.
Repayments are split as to:
(a) 50 per cent. in cash; and
(b) 50 per cent. in cash or new ordinary shares at the Company's option.
New ordinary shares issued in repayment of the convertible loan note shall be
issued at a price of 25 pence per share. The maximum number of new Ordinary
Shares which can be issued by the Company on conversion of the convertible loan
note is 4,000,000.
The loan note has been discounted for fair value purposes (see also note 16).
The deferred consideration is #7,750,000 (discounted for fair value purposes)
and is payable in two tranches. The first tranche of #5,000,000 is payable on a
date to be selected by the Company falling between the first and second
anniversary of completion as to #2,000,000 million in cash and #3,000,000 in
cash or new ordinary shares at the Company's option. The second tranche of
#2,750,000 is payable on the second anniversary of completion as to #1,000,000
in cash and #1,750,000 in cash or new ordinary shares at the Company's option.
New ordinary shares issued to satisfy the deferred consideration shall be issued
by reference to the average mid-market closing price of an ordinary share for
the five dealing days prior to the relevant payment date provided that if such
price is less than 5 pence the issue price shall be deemed to be 5 pence, and if
such price is greater than 50 pence, the issue price shall be deemed to be 50
pence. The maximum number of new ordinary shares which can be issued by the
Company under the first and second tranches is 60,000,000 and 35,000,000
respectively.
The results of Handmade Holdings Limited prior to its acquisition were as
follows:
Year ended 31
December 2005
Profit and loss account 1 January 2006
to 8 June 2006
#'000 #'000
Turnover 42 646
Operating loss (297) (829)
Net interest payable (423) (819)
Loss before taxation (720) (1,648)
Taxation - -
Loss after tax (720) (1,648)
On 2 November 2006 HandMade plc acquired 100% of the voting equity shares of
Sequence Film Limited. Following the acquisition Sequence Film Limited changed
its name to Handmade Films International Limited. HandMade plc paid
consideration fair valued at #3,719,000 via cash and the issue of new shares
(see below).
The fair value of the assets and liabilities acquired from Sequence Film Limited
are equal to their book value, as set out in the following table:
Book &
Fair value
#'000
Intangible assets - (see note 9) 72
Tangible assets - (see note 10) 3
Debtors 2,909
Cash 3
Creditors (3,694)
Net liabilities (707)
Consideration paid:
Fair value
#'000
Initial cash consideration 200
Guarantee given against Sequence Limited's liabilities 462
Initial share consideration 471
Deferred contingent cash consideration 1,345
Deferred contingent share consideration 1,160
Costs of acquisition 81
Total consideration 3,719
The above fair values generate goodwill on acquisition of #4,426,000 (see note
9).
The fair value of the initial and deferred share consideration was determined by
reference to their quoted market price at the date of acquisition.
The deferred cash consideration has been discounted for fair value purposes.
Both elements of deferred consideration are dependent on earn-out targets being
met during the period 1 November 2006 to 31 December 2008, which, as at the
balance sheet date, the directors assume will be met.
13. Debtors
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Trade debtors 1,311 554 3 -
Prepayments 682 - 44 -
Other debtors 761 99 434 44
Amounts owed by Group undertakings - - 7,082 1,482
2,754 653 7,563 1,526
All amounts fall due for payment within one year.
14. Creditors - amounts falling due within one year
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Bank overdraft - - 2 -
Other loan (see below) 700 642 700 642
Cumulative redeemable preference shares 908 866 908 866
Convertible loan note 373 - 373 -
Amounts payable under distribution agreements 2,907 - - -
Trade creditors 331 257 192 175
Corporation tax - 150 - -
Other tax and social security 195 64 200 52
Other creditors 1,220 99 552 -
Accruals and deferred income 3,162 605 295 495
Amounts due to Group undertakings - - 460 1,282
9,796 2,683 3,682 3,512
Interest is charged, on the other loan above, quarterly in arrears at 10% per
annum. The loan, together with any interest due, is due for repayment on 31
December 2007.
The terms attaching to the convertible loan note are set out in note 12.
Amounts payable under distribution agreements fall due in a single instalment
within one year. They are secured by way of a guarantee given by ABN Amro Bank
NV which also holds the Group's cash held in escrow by way of security for these
amounts.
Included within other creditors is #394,000 (2005 - #nil) in respect of
consideration due on the acquisition of Sequence Film Limited.
15. Creditors - amounts falling due after more than one year
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Convertible loan note 1,417 - 1,417 -
Other creditors 8,417 - 8,417 -
Amounts payable under distribution agreements - 2,923 - -
9,834 2,923 9,834 -
The convertible loan note and other creditors above are all in respect of
deferred consideration due on the acquisitions of Handmade Holdings Limited and
of Sequence Film Limited (see note 12).
16. Financial instruments
The maturity profile of the Group's financial liabilities at the Balance Sheet
date was as follows:
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Other loans:
In one year or less 700 642 700 642
Convertible loan note:
In one year or less 373 - 373 -
In more than one year but not more than two years 482 - 482 -
In more than two years but not more than five years 935 - 935 -
1,790 - 1,790 -
Amounts payable under distribution agreements:
In one year or less 2,907 2,923 - -
Total financial liabilities:
In one year or less 3,980 642 1,073 642
In more than one year but not more than two years 482 - 482 -
In more than two years but not more than five years 935 - 935 -
In more than five years - 2,923 - -
5,397 3,565 2,490 642
Interest rate profile
The Group has no financial assets excluding short term debtors, other than the
sterling cash deposits of #2,937,000 (2005 - #2,950,000) which earn interest
based on London Inter Bank Offer Rates (LIBOR). The cash held in escrow of
#2,907,000 is recoverable at the same date as the corresponding liability is
settled. The interest payable on the liability is equal to the interest earned
on the cash held in escrow.
Fixed rate borrowings
Weighted Weighted
average average
Floating rate Fixed rate interest time for
financial financial rate at which rate
liabilities liabilities year end is fixed
Total
Interest rate profile of financial liabilities #'000 #'000 #'000 % Years
(all sterling)
2006 5,397 2,907 2,490 7 4
2005 3,565 2,923 642 10 1
The floating rate borrowings are all denominated in sterling and are referenced
to (LIBOR) as described above.
Borrowing facilities
As at the balance sheet date the Group had no undrawn committed bank borrowing
facilities.
Fair values
Except for the cumulative redeemable preference shares which have a fair value
of #nil, there is no material difference between the fair value and the carrying
amount of the Group's financial assets or liabilities.
Treasury policy
The Group's operations are currently funded through operating cash flow, loans,
and an overdraft. Capital expenditure is funded by a mixture of secured long
term borrowings and the issue of equity. The Group hedges its interest rate
exposure by using fixed interest rate facilities where deemed appropriate. The
Group is not exposed to significant foreign exchange risk. The Group does not
enter into instruments for speculative purposes. All treasury transactions are
reported to and approved by the Board.
The Group mitigates credit risk by assessing the credit worthiness of third
parties, from whom it is due receive revenue from in the future, before it
enters into a contract with them.
Short term debtors and creditors have not been treated as financial assets or
liabilities respectively for the purposes of Financial Reporting Standard 13
disclosures.
17. Preference shares
2006 2005 2006 2005
Number Number #'000 #'000
7% redeemable preference shares of #1 each 600,000 600,000 600 600
Full details of the rights attaching to the Preference Shares are set out in the
Articles of Association of the Company. A summary of the principal rights of
the preference shares is set out below.
i) Dividends
Each preference share carries the right to a fixed preferential dividend,
payable half-yearly in arrears on 28 February and 31 August each year, at the
rate of 7p per annum.
ii) Conversion
Preference shares are not convertible into
ordinary shares.
iii) Redemption
Subject to the provisions of the Companies Act 1985 the Company has the right to
redeem the whole or any part of the outstanding preference shares after 31
December 1997. Preference shares will be redeemed at #1 per share, together
with any dividends due to the date of redemption. No redemption has taken place
during the year as the Company does not have sufficient distributable reserves.
In accordance with the Articles of Association redemption will commence when the
Company has sufficient reserves.
iv) Capital
The preference shares rank ahead of the ordinary shares on a winding up in
respect of an amount equal to the amount paid up or credited as paid up on each
share, and any arrears and accruals of dividend.
v) Voting
The preference shares carry no rights to attend and vote at general meetings of
the Company.
In accordance with FRS 25 the preference shares, together with accumulated
interest thereon, have been disclosed as current liabilities.
18. Called up share capital
Number #'000
Authorised:
At 31 December 2006 - ordinary shares of 5p each 400,000,000 20,000
At 31 December 2005 - ordinary shares of 5p each 50,000,000 2,500
Allotted, called up and fully paid:
At 31 December 2006 - ordinary shares of 5p each 115,869,207 5,793
At 31 December 2005 - ordinary shares of 5p each 31,787,332 1,589
The following 5p ordinary shares were issued during the year:
Number of Consideration
shares
issued #'000
Placing of shares on AIM 31,250,000 10,000
New shares issued as consideration for acquisition of Handmade Holdings Ltd 50,000,000 16,000
New shares issued as consideration for acquisition of Sequence Limited 1,960,000 471
Subscription to new shares 234,375 75
Subscription to new shares 187,500 15
Subscription to new shares 450,000 45
84,081,875 26,606
Since the Balance Sheet date, 3,000,000 5p ordinary shares have been issued for
consideration of #540,000.
Share based payment
HandMade plc operates an unapproved share option scheme for directors and senior
management. When options are granted, they are governed by agreements entered
into between the Company and each individual employee. The agreements may vary,
in terms of exercise price, vesting period and option period, from employee to
employee.
2006 2005
Weighted Weighted
average average
exercise price exercise price
(p) (p)
Number Number
Outstanding at beginning of year 40.00 850,000 40.00 850,000
Granted during the year 31.81 5,275,000 - -
Outstanding at the end of the year 32.95 6,125,000 40.00 850,000
No options were exercised, lapsed, or forfeited during the year, and no options
were granted, exercised, lapsed, or forfeited during 2005.
The exercise price of options outstanding at the end of the year ranged between
30p and 40p (2005 - 40p) and their weighted average contractual life was 4.1
years (2005 - 3.5 years).
Of the total number of options outstanding at the end of the year, 1,350,000
(2005 - 850,000) had vested and were exercisable at the end of the year.
The weighted average fair value of each option granted during the year was
11.76p (2005 - n/a). Each option had a five year contractual life.
The following information is relevant in the determination of the fair value of
options granted during the year:
2006
Option pricing model used Binomial
Weighted average share price at grant date (pence) 31.24
Weighted average exercise price (pence) 31.81
Weighted average contractual life (days) 1,825
Expected volatility 60%
Expected dividend growth rate 0%
Weighted average risk-free interest rate 4.61%
The volatility assumption, measured at the annualised standard deviation of
expected share price returns, is based on a statistical analysis of daily share
prices over the last 7 years.
The share based remuneration expense disclosed in note 3 of #374,000, relates to
the proportion of the fair value of the options granted in the year attributable
to the year ended 31 December 2006.
All other options were granted prior to 7 November 2002 and therefore have not
been fair valued, as permitted by FRS 20 "share based payments".
19. Reserves
Group Share premium Merger Shares to be Profit and
account reserve issued loss account
#'000 #'000 #'000 #'000
At 1 January 2006 1,184 7,959 - (8,834)
Loss for the financial year - - - (3,254)
Share based remuneration expense - - - 374
Arising on acquisition of Sequence Limited - - 300 -
Shares issued during the year:
- placement of new shares on AIM 8,438 - - -
- consideration for acquisitions * - 13,873 - -
- new shares issued 91 - - -
Cost of share placement and fundraising (927) - - -
At 31 December 2006 8,786 21,832 300 (11,714)
Company Share premium Merger Shares to be Profit and
account reserve issued loss account
#'000 #'000 #'000 #'000
At 1 January 2006 1,184 7,959 - (8,834)
Loss for the financial year - - - (1,871)
Share based remuneration expense - - - 374
Arising on acquisition of Sequence Limited - - 75 -
Shares issued during the year 8,529 - - -
Cost of share placement and fundraising (927) - - -
At 31 December 2006 8,786 7,959 75 (10,331)
* The increase in the Group's merger reserve arises as a result of share for
share purchases of companies during the year, whereby the share premium arising
from fair valuing the consideration given in the acquisitions is taken to the
merger reserve as required under s131 of CA 85. Merger relief has been applied
in the books of the Company (as described in note 11) resulting in no increase
in its merger reserve.
20. Reconciliation of movements in Group shareholders' funds
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Loss for the year (3,254) (1,219) (1,871) (1,073)
Share based remuneration expense 374 - 374 -
Reserve arising on acquisition of Sequence Limited 300 - 75 -
Shares issued during the year 26,606 - 12,733 -
Cost of share placement and fundraising (927) - (927) -
Net addition / (reduction) to shareholders' funds 23,099 (1,219) 10,384 (1,073)
Opening shareholders' funds 1,898 3,117 1,898 2,971
Closing shareholders' funds 24,997 1,898 12,282 1,898
21. Reconciliation of operating loss to net cash outflow from operating
activities
2006 2005
#'000 #'000
Operating loss (3,148) (988)
Depreciation of tangible fixed assets 11 -
Amortisation of intangible fixed assets 1,386 300
Decrease in debtors 1,581 46
(Decrease) / increase in creditors (1,697) 238
Profit on exchange rate differences 2 -
Share based payment 374 -
Net cash outflow from operating activities (1,491) (404)
22. Reconciliation of net cash flow to movement in net debt
2006 2005
#'000 #'000
(Decrease) / increase in cash in the year (13) 1
Cash outflow / (inflow) from decrease / (increase) in net debt 6,425 (444)
Decrease in amounts due under distribution agreements 16 -
Cash related decrease / (increase) in net debt in the year 6,428 (443)
Increase in preference share dividends (42) (42)
Issue of convertible loan note (1,790) -
Debt acquired on acquisition of Handmade Holdings Ltd (6,483) -
Total increase in net debt (1,887) (485)
Opening net debt (1,481) (996)
Closing net debt (3,368) (1,481)
23. Analysis of movement in net debt
At 31
At 1 January Non cash December
2006 Cash flow movement 2006
#'000 #'000 #'000 #'000
Cash in hand and at bank 27 3 - 30
Cash held in escrow 2,923 (16) - 2,907
Cash as shown on Balance Sheet 2,950 (13) - 2,937
Amounts due under distribution agreements (2,923) 16 - (2,907)
27 3 - 30
Debt due within one year (642) 6,425 (6,856) (1,073)
Debt due after more than one year - - (1,417) (1,417)
Cumulative redeemable preference shares (866) - (42) (908)
Total net debt (1,481) 6,428 (8,315) (3,368)
The non cash movement above relates to the issue of a convertible loan note as
part of the consideration for the acquisition of Handmade Holdings Limited
(#1,790,000), a loan of #6,483,000 acquired with Handmade Holdings Limited, and
the accrual of a dividend on the cumulative redeemable preference shares
(#42,000).
24. Commitments
The annual commitments under non-cancellable operating leases are:
Group Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Land and buildings:
Leases expiring within one year 74 - - -
Leases expiring within two to five years 95 47 95 47
There were no contracted or authorised capital commitments in place
at the balance sheet date.
25. Related party transactions
During the year Cartier, a company which exercises significant
influence over the Group, loaned #700,000 to the Group. The loan plus accrued
interest of #11,507 was outstanding at the balance sheet date. Further details
of the loan are given in note 14 to the accounts.
During the year, Martin Greene Ravden (MGR), a company of which
David Ravden is a consultant, invoiced the Group #19,994 for professional
services it provided to the Group. At the balance sheet date #19,994 was due by
the Group to MGR.
Annual General Meeting
The tenth Annual General Meeting of HandMade PLC will be held at the offices of
Field Fisher Waterhouse, 35 Vine Street, London EC3N 2AA on 29 August 2007 at
10.00 a.m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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