[Revenues]
[Channels]
Fox Kids Europe generates revenues from multiple sources including programme distribution fees, subscription fees, advertising and consumer product royalties.
Total revenues, including our share of the revenues of our joint ventures, were $100.4 million, representing a 27% increase compared to the previous fiscal year. The major contributors to this growth were the channel and programme distribution divisions, where revenues grew by 66% and 15% respectively. Programme distribution revenues were $54.1 million, representing 54% of total revenues, while the channel revenues accounted for $39.8 million, representing 40% of total revenues. Total revenues increased in most major geographical markets.
Within the channel operations, subscription revenues increased 56% to $30.0 million from $19.2 million, while advertising revenues sold on our channels more than doubled, increasing by 109% to $9.8 million from $4.7 million in the previous year. Subscriptions represented 75% of channel revenues and 30% of total revenues. Advertising represented 25% of channel revenues and 10% of total revenues, up from 20% and 6% respectively in the previous year.
Our consumer products operations generated revenues of $6.5 million, representing 6% of total revenues. Revenues were down from $8.1 million in the previous year.
EBITDA before non-recurring charges of $1.8 million increased by 41% to $36.7 million, primarily through the increases in revenues from programme distribution and the channel operations, partially offset by an increase in overhead and investment in the online business. EBITDA from programme distribution grew 19% to $40.8 million as a result of an increase in revenues, against a relatively fixed cost sales infrastructure. While the channel business is still at a development stage, it achieved positive EBITDA of $3.3 million before non-recurring charges. EBITDA from our consumer products operations was $2.2 million, down from $4.3 million in the previous year.
Operating expenses before non-recurring charges of $1.8 million increased by 12% on the back of new channel launches in Italy and Turkey, a full year of technical costs for our Central & Eastern European service which launched in April 1999 and through investment in our new online & interactive division. Selling, general and administrative expenses increased by 16%, primarily due to new channel launches, establishment of consumer products offices in Spain, The Netherlands and the Nordic region, increased staff levels in our online & interactive division and additional infrastructure spending required to support our administration as a public company.
"Within the channel operations, subscription revenues increased 56% to $30.0 million while advertising revenues more than doubled"
A non-recurring charge of approximately $3 million was incurred in relation to the expected early termination of the analogue transponder sublease used for the Fox Kids UK channel. This charge has been spread over the remaining part of the lease and reduced our EBITDA by $1.8 million in the current fiscal year and will reduce EBITDA by approximately $1.2 million in the coming fiscal year. The final migration of the Fox Kids UK channel from analogue to digital services will have a beneficial impact on technical costs in future years.
Depreciation increased to $1.3 million from $1.2 million in the previous year. Programme amortisation decreased to $28.5 million from $39.5 million. This was primarily due to a revision of the estimated ultimate revenues that are expected to be generated from our library in future years, particularly from usage on our channels. In accordance with US GAAP, the amortisation charge for the year based on the change in estimate was recalculated from the beginning of the fiscal year, resulting in a low amortisation charge for the second half-year.
Net financial income increased to $1.2 million from $0.2 million through interest earned on the group's cash balances, which were higher on average than in the previous year.
Between the date of the initial public offering in November 1999 and the company's year-end, the exchange rate changed from a rate of US$1.0386/Euro to US$0.930/Euro. This created a loss of $2.9 million on Euro-denominated deposits held as a hedge to finance the roll-out of our online and consumer products operations in Europe and the launch of Fox Kids channels in Italy and Germany.Our share of the loss of our affiliates was $2.3 million, an improvement from a loss of $5.9 million in the prior year, due to stronger operating performances of our channel joint ventures in The Netherlands and Spain.
The increase in the participation of the minority interest is due to the substantial operating improvement of our Polish channel, where we have a 20% equity partner.
Earnings per share (basic and diluted) improved to an income of 0.4 cents per share from a loss of 54.9 cents per share in the previous year. This was driven by the improvements in operating performance and the lower amortisation charge on the programme library.
Operating cash flow improved by $53 million year-on-year to an outflow of $15.6 million from an outflow of $68.6 million. This was primarily attributable to a stronger operating performance, a reduction in the level of cash expended on programming during the year to $48.6 million from $80.5 million, and a repayment of VAT from UK Customs & Excise amounting to $7.0 million. The initial public offering raised $159.2 million net of expenses, of which $100 million was used as partial consideration for the acquisition of the programme library from our parent, Fox Family Worldwide Inc. As at the year-end, the company had cash balances of $51.5 million.
Capital expenditure totalled $1.7 million in the year. The main areas of expenditure were investment in our online & interactive division and equipment required for our new channel in Italy.
Our channel operations had another year of strong growth, driven primarily from organic expansion of our existing channels and new launches in Italy and Turkey, which also added to our subscriber base. Distribution increased in all existing markets as well as through new launches, with subscribers up 32% from 15.1 million to 19.9 million. As at August 31, 2000, the end of the first quarter of our 2001 fiscal year, our subscriber base had grown to more than 21 million households. The launch of our pay-TV channel in Germany in October 2000 will further enhance this expansion and will complete the Pan-European roll-out of our channel platform, covering all major markets.
Our channels also had a strong year of general increase in audience share. Highlights included the Spanish channel, which launched less than two years ago and is now the officially ranked number one kids channel in Spain. Our channel in The Netherlands, which has national distribution, continuously increased its lead during the year, reaching an impressive 32.7% average market share in May 2000 amongst kids aged 6-12. Our UK channel is also showing consistent ratings improvement on Sky Digital among kids aged 4-15.
Our Italian channel launched successfully in April 2000 on the Stream pay-TV platform and has been very well received. It broadcasts between 6am and 9pm every day. In line with our localisation strategy, the channel has been fully customised for the Italian market, appealing to girls and boys between the ages of 2-14.
Our Central & Eastern European channel service was extended successfully to Turkey in May 2000 on Digiturk, Turkey's first digital satellite platform, and shortly after on Turkish Telecom's cable system, in July 2000. This channel service has subsequently been extended to cover other Turkish speaking countries including Azerbaidjan and Kazakhstan. Also in May 2000, we completed the geographical coverage of our Nordic service and now cover Sweden, Norway, Denmark, Finland and Iceland.
As of the end of our fiscal year, we had more than 350 active distribution agreements with cable and satellite operators, carrying our channels in 37 countries across Europe and the Middle East.
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We have continued to strengthen our library, already one of the largest and most-recognised portfolios of children's programming in Europe and the Middle East. During the fiscal year we acquired or produced 263 new episodes. This included the UK and French rights to the worldwide ratings topper Digimon: Digital Monsters, which has achieved number one ratings in many countries around Europe. We have also acquired the television and home video rights for the UK and France to the highly anticipated feature movie spin-off from this hit series, which is being released in Spring 2001 by Twentieth Century Fox.
We also had 383 episodes in production at year end, compared to 240 episodes at the end of the previous fiscal year. This year's new series include more "animé" series, such as Mashrambo (31 episodes) and Flint the Time Detective (39 episodes), which are scheduled to debut later in the year following the success of Pokémon and Digimon. In addition, we have acquired the 3D animated series Action Man (26 episodes), based on the ever-popular toy-line made by Hasbro.
We continue to forge strong alliances with broadcast partners to develop and produce quality European animated properties. Examples include Jim Button (52 episodes) and WunschPunsch (52 episodes), both from the critically acclaimed German author Michel Ende. These series will air on ARD, the German public broadcaster, and TF1, the leading commercial channel in France. Forthcoming productions include Jason & the Heroes of Mount Olympus, to be broadcast on TF1, and Gadget and the Gadgetinis, to be broadcast on France's M6, a sequel to the worldwide classic Inspector Gadget for which Disney recently launched a major feature film.
Going forward, we intend to further generate revenues from the production of programmes, virtually all of which will have been pre-sold in a large number of territories around the world.
We have maintained our position as one of the largest distributors of children's programming in Europe and the Middle East, with programming supplied to more than 110 broadcasters in 36 countries. This was achieved as a result of continued strong demand for our quality content. On the back of our strong slate of children's programming, revenues were up 15% to $54.1 million and EBITDA up 19% to $40.8 million.
Several programme distribution agreements have been signed with leading broadcasters. Under the terms of a new three-year output deal with Mediatrade, the leading free-TV broadcaster of kids programming in Italy, 600 episodes will air beginning next year on Mediatrade's three national networks that reach 19 million households.
In addition, a number of "Fox Kids" branded blocks of live action and animated programming were launched as an integral part of national free-TV channels, including Turkey's Show TV, Magyar TV in Hungary and Balkan News Corp. in Bulgaria. These branded blocks, which are marketed and promoted by our broadcasting partners, complement our pay-TV channel strategy and increase market awareness of our brand and characters. We anticipate further branded blocks to be secured over the coming year.
Our consumer products operations generated revenues of $6.5 million, representing 6% of total revenues. Revenues were down from $8.1 million in the previous year. EBITDA was $2.2 million, down from $4.3 million in the previous year.
Our focus in the consumer products area has been on successfully integrating this business unit with our other business lines and we remain on track to achieve this within the coming year.
Our objective in the last fiscal year has been to complete our Pan-European infrastructure and expand our local presence. In addition to our existing offices in the UK, Germany, France and Italy, we have opened offices in Spain, Benelux and the Nordic region. As part of this process, we also hired five new country managers from Disney and Bulls Licensing. Our offices will now give us full coverage of all the major territories within Europe. This will allow us to maximise the revenues that we can generate from our library and will also make the company more attractive to other licensors, by offering a one-stop-shop licensing service across Europe and the Middle East.
The profitability of the consumer products business is driven by the quality of the properties represented. We have high expectations for Digimon: Digital Monsters, for which we have acquired rights for all media (except toys and games) in the UK and France. Demand for licences of this property remains strong and we look forward to the release of the feature movie spin-off in Spring 2001 alongside the home video releases.
"Our objective in the last fiscal year has been to complete our Pan-European infrastructure and expand our local presence"
Our online & interactive division was established this year in order to capitalise on the opportunities presented by the continuing rapid growth of the Internet and e-commerce. Our objective is to establish ourselves as the leading interactive proposition and online community for children across Europe.
We have built and launched localised websites in 10 languages in the UK, The Netherlands, France, Italy, Sweden, Denmark, Norway, Spain, Poland and Russia. The sites are already generating substantial traffic (approximately 5 million page views per month) and the next-generation version of our websites is expected to launch over the coming year. Our proposition is technology neutral and open to all platforms, whilst tailored for each market.
We have recruited a first class team of online professionals, who joined from organisations such as the BBC, Bertelsmann, Bonier, Canal Plus, Discovery, Disney, Dorling Kindersley, Dreamworks and Excite. We now have country managers in seven major markets.
In order to maximise future e-commerce revenues, an agreement with Mytaxi, part of Affinity Internet Holdings, was concluded in August 2000 to develop a "virtual wallet" and an online shopping mall. This will enable kids to shop online in selected kid-friendly stores, as well as purchase digital entertainment on the basis of pay-per-play or subscription on our websites. Kids and parents will be able to deposit money into the virtual wallet in several ways (e.g. credit cards, cheques, standing orders) and make purchases against their balances.
We have also been active in developing WAP (Wireless Application Protocol) applications and in July 2000 launched a service for kids on the MVIVA portal, which is jointly owned by Carphone Warehouse and AOL Europe. Kids can now play games, get their horoscope forecast, receive reviews and kid-friendly news whilst on the move via their mobile phones.
We have managed to build this division for a relatively low cumulative cash investment to date of $2.2 million for three principal reasons: we own a library of high quality content that includes online rights for most of our properties, so our external content acquisitions are low; we are able to promote our online activities with targeted television exposure at no cost through our local channels that reach more than 21 million households; and for no further cost we can use on our site applications and technologies that have been developed by the US and international divisions of our major shareholder, Fox Family Worldwide Inc., for use on its own US website. In the next few years, we expect our online investment to grow as our activities in this area are significantly increased.
MARTIN WEIGOLD
Chief Financial Officer
