CATALYST MEDIA GROUP PLC — Audit Report / Information 2018

Dec 12, 2018

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RNS Number : 1739K

Catalyst Media Group PLC

12 December 2018

Catalyst Media Group plc

("CMG" or the "Company")

Final Results for the year ended 30 June 2018

The Board of Catalyst Media Group plc is pleased to announce the final results for the Company for the year ended 30 June 2018. CMG is a 20.54% shareholder of Sports Information Services (Holdings) Ltd ("SIS") and the results for the year to 30 June 2018 incorporate its share of the profits of SIS for its year ended 31 March 2018.

Financial overview

·           CMG profit before taxation £0.95 million (2017: £3.40 million)

·           Profit per share 4.62p per share (2017: 15.43p)

·           Net Asset value per share 126.2p (2017: 120.9p)

·           SIS Revenues for year ended 31 March 2018 £191.5 million (2017: £218.3 million)

·           SIS total operating profit: group and share of joint venture and associates £8.4 million (2017: £21.0 million)

·           SIS profits after tax and exceptional items £5.1 million (2017: £17.0 million)

·           SIS net cash inflow from operating activities £31.0 million (2017: £43.4 million)

Post period end

·           Following sale of SIS LIVE, SIS approved and paid a dividend of £40 million on 26 October 2018 to its shareholders

·           On receipt of its share of the SIS dividend, being £8.2 million, the Board of CMG approved the distribution of £12.2 million to CMG's shareholders by way of a dividend of 58p per share

-         The dividend was paid on 23 November 2018 to CMG shareholders on the register of members as at 9 November 2018

-         Following payment of the dividend, the Company had a cash balance of approximately £0.47 million as at 30 November 2018

Enquiries:

Catalyst Media Group:
Michael Rosenberg Non-executive Chairman	+44 (0)7785 727 595
Strand Hanson Limited:	+44 (0)20 7409 3494
James Harris Richard Tulloch

Chairman's Statement

I am pleased to present the results for Catalyst Media Group plc ("CMG" or the "Company") for the year ended 30 June 2018, which incorporates our share of profits for Sports Information Services (Holdings) Ltd ("SIS") in which CMG has a 20.54% interest.

After taking account of CMG's share in the profits of SIS for its year ended 31 March 2018 of £1.0 million (2017: £3.5 million), CMG recorded a profit before taxation of £0.95 million, (2017: £3.40 million). No impairment has been charged against the carrying value of the Group's investment during the year ended 30 June 2018 (2017: £nil). Net assets at the year end were £26.5 million (126.2p per share) (2017: £25.4 million (120.9p per share)).

The main asset of CMG continues to be the 20.54% shareholding in SIS, which, as detailed below, sold SIS Live in October 2018. CMG equity accounts for its share in the profits of SIS.

As previously announced, SIS has been securing its position in the domestic betting market, through entering into new contracts. However, given the changing landscape, the new contracts are generally on lower margins which has and will impact on SIS's revenue generation and profitability going forward. As a result, SIS's revenues, profits and operating margin have been reduced for the year ended 31 March 2018 when compared to the prior year. One-off costs associated with non-trading activities, including costs associated with litigation and SIS's closed defined pension scheme, impacted profit before tax for the full year to 31 March 2018 by approximately £3.5 million.

For the year ended 31 March 2018, SIS had revenues of £191.5 million (2017: £218.3 million) of which £173.8 million was derived from Betting Services (2017: £202.5 million) and £17.7 million from SIS LIVE (2017: £15.8 million). The total operating profit for SIS was £8.4 million (2017: £21.0 million). Profits after exceptional items and taxation were £5.1 million (2017: £17.0 million). The share attributable to CMG after tax was £1.0 million (2017: £3.5 million). SIS's net cash inflow for the period was £31.0 million (2017: £43.4 million) from operating activities. At its year end, SIS had increased its cash position to £79.4 million (2017: £74.3 million). SIS's operating profit margin(1) decreased to 4.4% compared to 9.3% for the previous year.

Following the sale of SIS LIVE on 9 October 2018, SIS's average cash position increased to approximately £95 million and SIS subsequently approved and paid a dividend of £40 million on 26 October 2018 to its shareholders.

On receipt of its share of the SIS dividend, being £8.2 million, the Company had a cash balance of approximately £12.6 million and as announced on 26 October 2018, the Board of CMG approved the distribution of £12.2 million to CMG's shareholders by way of a dividend of 58p per share. The dividend was paid on 23 November 2018 to CMG shareholders on the register of members as at 9 November 2018.

(1) SIS's operating profit margin is the ratio of SIS's operating profit (total operating profit before exceptional items and share of associate and joint venture) to revenues expressed as a percentage.

SIS Betting - UK and Ireland Retail

As previously reported, the new racing media rights SIS agreed with from Racecourse Media Group for the UK and Ireland Retail market commenced on 1 April 2018. These racing media rights combine with the SIS British Greyhound Service, Irish Horseracing, Chelmsford City Horseracing, International Horseracing and 49's virtuals and live draws to form its core service through to 2023.

SIS continues to provide this core service on mid and long term agreements to over 98% of the UK and Irish Retail market including all the major UK bookmaking groups and the majority of the independent market.

Additionally, SIS supplies additional content and services to its UK and Irish retail customers to cover early morning and evening products and has recently extended these services adding early morning coverage of greyhounds in the UK and Ireland, Korean horseracing, Melbourne Racecourse Group, and various South American horseracing.

As previously announced, the Department for Digital, Culture, Media and Sport concluded the Triennial Review earlier this year announcing a reduction in Fixed Odds Betting Terminals (FOBT) stakes from £100 to £2 with the implementation of this legislation coming into effect from 1 April 2019. It is unlikely that the legislation will have an impact on SIS's results for the year to 31 March 2019. However, future years could be significantly impacted depending on the impact on the trading and the number of closures of UK Licenced Betting Offices (LBOs).

As previously announced, SIS is experiencing increased litigation costs and, although legal advice continues to indicate a successful outcome, the litigation remains ongoing and is subject to final resolution. As such, no contingent liabilities have been recognised. The defence of the continuing litigation is having an impact on profits for the year ending 31 March 2019.

SIS Betting - International & Online

SIS currently supplies several international and online operators and has continued to progress a strategy to increase its distribution in these markets using proprietary streaming and production technology as well as data pricing services.

As announced in January 2018, SIS has secured international digital and retail rights for the Racecourse Media Group horseracing content from September 2018 and January 2019 respectively. This content forms a key part of the SIS range of international services which are the SIS successor to the GBI Fixed Odds and Tote Service which end in December 2018.

The majority of SIS's existing GBI international customers have already signed up mid to long term agreements for the new international service to commence in January 2019. Additionally, SIS is talking to a number of new operators regarding full international racing channels.

From January 2019, SIS is launching 24/7 channels covering horseracing, greyhound racing, virtual racing and mixed channels having secured content covering the whole 24 hour period - content includes Melbourne Raceclub, Palmero, LARC, South Korean racing as well the existing UK and Irish horseracing and greyhound racing coverage.

SIS LIVE

The sale of SIS LIVE, the connectivity business of SIS, was completed on 9 October 2018 to NEP Group a worldwide outsourced technical production partner supporting premier content producers of live sports and entertainment. SIS LIVE will be rebranded NEP connect in due course.

SIS was and has remained a customer of SIS LIVE following the sale.

SIS Results

The results of SIS for the year ended 31 March 2018 are as follows:

	31 March 2018	31 March 2018	31 March 2018	31 March 2017	31 March 2017	31 March 2017
	£000 Before individually significant items *	£000 Individually significant Items *	£000 Total	£000 Before individually significant items *	£000 Individually significant items *	£000 Total
Turnover	191,490	-	191,490	218,337	-	218,337
Operating expenses	(183,137)	(1,774)	(184,911)	(198,046)	923	(197,123)
Group operating profit	8,353	(1,774)	6,579	20,291	923	21,214
Profit on disposal of tangible fixed assets	51	-	51	25	-	25
Profit on disposal of operations	-	-	-	-	701	701
Other interest receivable and similar income	297	-	297	669	-	669
Interest payable and similar expenses	(16)	-	(16)	(135)	-	(135)
Profit before taxation	8,685	(1,774)	6,911	20,850	1,624	22,474
Tax on profit	(2,150)	337	(1,813)	(5,140)	(300)	(5,440)
Profit after taxation	6,535	(1,437)	5,098	15,710	1,324	17,034

*Individually significant items in 2018 relate to the Pension ETV exercise and in 2017 they relate to the sale of the SIS Live Hardware division.

Share of net assets and liabilities of associate
Net assets	142,440	161,735
Net liabilities	(61,340)	(71,449)
Net equity	81,100	90,286

• Profit/(Loss) on the managed wind down of business relates to the closure of SIS's Outside Broadcast Division in 2014.

India

As previously reported the claim in respect of the Indian project continues to be pursued but the outcome remains uncertain. The legal and associated costs relating to this claim have been significantly reduced but are still impacting profits. Further detail is provided in note 2 of the financial statements.

Financial prospects for SIS

SIS is expanding its international and digital focus and, as part of this, the business is moving to a new target operating model including 24/7 operations and is seeking to achieve annual cost savings of £4.5 million by 2021.

Profitability for the year to March 2019 is expected to be in line with the SIS management's expectations and including results for SIS LIVE prior to its disposal but excluding the profit on disposal, SIS's profit before tax for the year to March 2019 is expected to be in the range of £3.5 million to £4.5 million.

In terms of future years, the organic profitability of the SIS business is highly dependent on the FOBT legislation and the related UK shop closure quantum and timing, together with the success of the 24/7 digital and international strategy. There are a wide range of outcomes for subsequent profitability the levels of which are too variable to forecast today.

SIS declared and paid a £40 million dividend in October 2018, following the completion of the sale of SIS LIVE.

Outlook and distribution policy

On receipt of its shares of the SIS dividend, being £8.2 million, CMG approved the distribution of the majority of its cash, being £12.2 million, via a dividend of 58p per share to the shareholders. Following payment of the dividend, the Company's current cash position is £400,000 which is sufficient for its present requirements.

It is too early to predict the timing or quantum of any further dividends from SIS although, as stated, SIS still has considerable cash reserves. For the year to 31 March 2019, the profitability of SIS is anticipated to be in line with its management expectations. However, it is clear that future profits will be impacted by the FOBT legislation and consequent shop closures. Overheads of CMG continue to be minimal.

AGM

The next Annual General Meeting of the Company will be held on 16 January 2019 at 3.30 p.m. Formal Notice of the meeting is set out at the end of the report and accounts together with the form of proxy.

Michael Rosenberg OBE

Chairman

11 December 2018

Strategic Report

The Directors present their strategic report for the year ended 30 June 2018.

Principal activities and review of the business

The principal activities of the business are outlined and reviewed in the Chairman's Statement. A review of the business is included within the Chairman's Statement.

Principal risks and uncertainties

Investment in SIS

The principal strategic investment of the Group is its 20.54% holding in SIS. The Group is entitled to appoint one director to the board of SIS which currently comprises eight directors, of which five are appointed by shareholders, two are independent and one is the Chairman. Although it can influence the board on strategic decisions, the Group is not in a position to control the day-to-day business and affairs of SIS other than with the support of other directors and a majority of shareholders of SIS.

There are a number of risks and uncertainties associated with the business of SIS which could potentially have an adverse impact on the value of the Group's investment including the fact that the customers of SIS rely upon real time data and uninterrupted content delivery. Loss of content would result in reduced quality of services and potentially reduced income. Therefore SIS has adopted advanced disaster recovery solutions and has built back up facilities which are located around the country.

Financial risk

The Group is subject to financial risk through its exposure to financial assets and liabilities. The Group's main financial risk is its exposure to its investment in SIS.

Credit risk

The Group is not exposed to any credit risk.

Liquidity risk

There is a very low risk that the Group will encounter difficulty in meeting its financial obligations as they fall due, on the basis that the Group operates with minimal overheads and cash flow is well managed.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The principal liabilities of the Group and Company arise in respect of administrative expenditure and trade and other payables. Trade and other payables are all payable within three months.

The Board receives cash flow projections on a regular basis as well as information on cash balances.

Key Performance Indicators (KPIs)

The Company's key performance indicators used by the Board in monitoring the general performance of the Group and its investments are:

Net asset value per share

The net asset value per share of the Group was 126.2 pence as at 30 June 2018 (2017: 120.9 pence). The net asset value per share increased during the year to 30 June 2018 following an increase in retained profits with share capital remaining constant. The net asset value of the Group as at 30 June 2018 and 30 June 2017 is shown in the Group's consolidated statement of financial position.

Administrative expenses

The Directors closely monitor the anticipated overheads for the Group and ensure that these are kept to a minimum.

Earnings per share (EPS)

EPS shows the relative performance year-on-year of the Group's profitability measured as an amount of profit or loss attributable to one ordinary share. The calculation of earnings per share is based on the weighted average number of issued ordinary shares in issue for the financial year and the profit/(loss) after taxation attributable to ordinary shareholders. EPS in respect of operations for the year and the previous year is shown in the Group consolidated statement of comprehensive income.

Key Performance Indicators of Associate

The Directors additionally monitor the performance of SIS in order to evaluate the general performance of the Group.

Michael Rosenberg OBE

Chairman

11 December 2018

Consolidated statement of comprehensive income

		Year ended	Year ended
		30 June	30 June
		2018	2017
	Notes	£	£
Revenue		25,000	25,000
Cost of sales		-	-
Gross profit		25,000	25,000
Administrative expenses		(122,608)	(128,916)
Operating loss		(97,608)	(103,916)
Financial income		4,382	3,056
Financial costs		-	(106)
Net financial income		4,382	2,950
Share of profit of equity-accounted associate, net of tax	2	1,047,129	3,498,784
Profit before taxation		953,903	3,397,818
Taxation		18,076	16,783
Profit for the year		971,979	3,414,601
Share of other comprehensive profit / (loss) of associate		147,272	(414,292)
Total comprehensive profit for the year		1,119,251	3,000,309
Attributable to equity holders of the Company		1,119,251	3,000,309
Earnings per share:
Basic		4.62p	15.43p
Diluted		4.62p	15.43p

Consolidated statement of financial position as at 30 June 2018

	Note	30 June 2018 £	30 June 2017 £
Assets
Non-current assets
Investment in associate	2	22,090,708	23,976,958
		22,090,708	23,976,958
Current assets
Trade and other receivables		30,946	15,080
Cash and cash equivalents		4,451,635	1,463,462
		4,482,581	1,478,542
Total assets		26,573,289	25,455,500
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital		2,103,202	2,103,202
Capital redemption reserve		711,117	711,117
Merger reserve		2,402,674	2,402,674
Retained profits		21,323,087	20,203,836
Total equity		26,540,080	25,420,829
Current liabilities
Trade and other payables		30,243	31,134
Corporation tax payable		2,966	3,537
		33,209	34,671
Total equity and liabilities		26,573,289	25,455,500

Consolidated statement of cash flows for the year ended 30 June 2018

		Year ended 30 June 2018 £	Year ended 30 June 2017 £
Cash flow from operating activities
Profit before taxation		953,903	3,397,818
Adjustments for:
Share of profit from associate		(1,047,129)	(3,498,784)
Finance income		(4,382)	(3,056)
Finance expense		-	106
Corporation taxes recovered		17,505	16,952
Net cash flow used in operating activities before changes in working capital		(80,103)	(86,964)
(Increase) / decrease in trade and other receivables		(15,866)	19,093
Decrease in trade and other payables		(891)	(65,289)
Net cash flow used in operating activities		(96,860)	(133,160)
Investing activities
Dividend received		3,080,651	4,107,534
Interest received		4,382	3,056
Net cash flow from investing activities		3,085,033	4,110,590
Financing activities
Shares purchased into Treasury		-	(2,514,495)
Interest paid		-	(106)
Net cash flow used in financing activities		-	(2,514,601)
Net decrease in cash and cash equivalents in the year		2,988,173	1,462,829
Cash and cash equivalents at the beginning of the year		1,463,462	633
Cash and cash equivalents at the end of the year		4,451,635	1,463,462

Notes

1.       Basis of preparation

The consolidated financial statements of Catalyst Media Group plc have been prepared in accordance with accepted International Financial Reporting Standards (IFRSs), International Accounting Standards (IAS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively "IFRSs") as adopted for use in the European Union and as issued by the International Accounting Standards Board and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Catalyst Media Group plc is a publicly limited company registered in England and Wales where it is domiciled for tax purposes.

The financial statements are prepared under the historical cost convention.

These results are audited, however the financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 30 June 2018, but is derived from the 2018 Report and financial statements. The auditors have issued an unqualified audit report in respect to these financial statements.

2.       Investment in associate

Year Ended 30 June 2018
	Group
	£
Cost
At 1 July 2017	23,976,958
Share of profit - 2018	1,047,129
Share of other comprehensive profit - 2018	147,272
Dividend received - 2018	(3,080,651)
At 30 June 2018 - CMG share of SIS net assets	22,090,708
Year Ended 30 June 2017
	Group
	£
Cost
At 1 July 2016	25,000,000
Share of profit - 2017	3,498,784
Share of other comprehensive loss - 2017	(414,292)
Dividend received - 2017	(4,107,534)
At 30 June 2017 - CMG share of SIS net assets	23,976,958

The Group's interest in the associate, SIS, a company incorporated in England and Wales, is held by Alternateport Limited. Alternateport Limited holds an investment of 20.54% in the equity share capital of SIS and is entitled to appoint a director and alternate director to the SIS board. This right has been exercised since acquisition. Alternateport Limited is a wholly owned subsidiary of Catalyst Media Holdings Limited, a wholly owned subsidiary of Catalyst Media Group plc.

A copy of the strategic forecast prepared by SIS was made available to the Directors of CMG showing management forecasts through to 2022/2023 of the income statement, statement of financial position and statements of cash flow. The assumptions made by SIS's management were also provided.

After reviewing the forecasts and other factors, the Directors concluded that no impairment of the balance of £22.1m is required.

Share of profit of associate	2018 SIS Total £'000	2018 CMG share £'000	2017 CMG share £'000
Revenue:
SIS Betting Services	178,932	36,753	41,598
SIS LIVE Services	12,558	2,579	3,248
Total revenue	191,490	39,332	44,846
Operating profit	8,353	1,716	4,312
Net interest receivable	281	58	110
(Losses) / profit on business wind down	(1,774)	(364)	189
Profit on disposal of joint venture	-	-	-
Profit on disposal of fixed asset	51	10	5
Profit before tax	6,911	1,420	4,616
Taxation	(1,813)	(372)	(1,117)
Share of profit after taxation	5,098	1,048	3,499
Net income from associate	5,098	1,048	3,499
Other comprehensive income:
Actuarial loss	58	12	(308)
Deferred tax	165	34	103
Change in value of hedging instrument	494	101	(209)
	717	147	(414)
Share of net assets and liabilities of associate
Net assets	142,440	29,257	33,221
Net liabilities	(61,340)	(12,599)	(14,676)
Net equity	81,100	16,658	18,545

As at 30 June 2018, SIS was continuing to deal with tax and legal issues that arose from the 2010 Commonwealth Games (CWG) in Delhi, India. SIS, via a partnership of the name of SIS Live, delivered the host broadcast production and facilities contract for the 2010 CWG. Given continuing scrutiny of the entire CWG project immediately after the closure of the Games, approximately 40% of the contract has still not been paid. A provision of £5.9 million was made in respect of this non-payment in the SIS financial statements for the year ended 31 March 2011.

SIS Live received a draft assessment in March 2014 from Indian tax authorities in relation to the year ended March 2011. SIS has strongly rejected the draft assessment, and continues to appeal it through the Indian judiciary system. As appeal proceedings continue it is not possible to quantify the potential tax liability that may arise of the subsequent recoverability of that amount through the courts and therefore no further provision has been made in the accounts of SIS.

3.       Post balance sheet events

On 9 October 2018, SIS disposed of its connectivity services business SIS Live to NEP Group. Following receipt of the net disposal proceeds, SIS had surplus cash of £95 million after deducting SIS's working capital requirements. SIS declared a dividend of £40.0 million and CMG received a total of £8.2 million on 9 October 2018.

Following receipt of the dividend, the Company had a cash balance of £12.6 million as at 9 October 2018. The Board of CMG agreed to distribute a total of £12.2 million to CMG shareholders by way of a dividend of 58 pence per ordinary share of 10 pence each in CMG. This dividend was paid on 23 November 2018.

Although SIS continues to be cash positive, there can be no certainty as to the timing and quantum of further dividends.

4.       Annual Report

The Annual Report for the year ended 30 June 2018 will be available today from the Company's website www.cmg-plc.com.

The Annual General Meeting will be held at 6 Stratton Street, London W1J 8LD, at 3.30 p.m. on 16 January 2018.

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