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CHAIRMANS STATEMENT
“Becoming part of The Walt Disney Company,
the world’s leader in family entertainment, will mean many
great opportunities to expand our business much further.”
It has been another eventful period for Fox Kids
Europe! First and foremost we now have a new majority shareholder,
following the acquisition of Fox Family Worldwide Inc. by The Walt
Disney Company. Parallel to that, and together with the rest of
the world, we were affected by challenging economic conditions and
by an unprecedented level of volatility in the world’s stock
markets in general and the media sector in particular.
This meant that last year has been about
transition and consolidation. While benefiting from a lean, autonomous
structure as a young, growing company, we have been preparing to
move to the next phase in the life of our company and draw significant
benefits from having a new shareholder that has so many assets and
resources that are directly relevant to what we do, to our target
audience and to our future growth potential. Becoming part of The
Walt Disney Company, the world’s leader in family entertainment,
will mean many great opportunities to expand our business much further.
Yet at the same time we had to work harder
and offer better product than ever in order to face the challenging
market conditions and the global economic downturn. We concentrated
our efforts to stand out in a very competitive crowd while aiming
to achieve our financial targets without compromising the quality
of our brand.
The result? Our core business, the channel
operation, continues to perform well and is in the strongest position
it has ever been. Our channels now reach more than 32 million households
as at September 30, 2002, with a local channel in every major European
market. The combination of increasing channel reach coupled with
strong ratings performances has enabled us to achieve a substantial
increase in advertising revenues, whilst most advertising markets
have been flat or declining. Being able to show such a strong performance
at these difficult times is a tribute to the strength of our flagship
operation.
Within our consumer products business,
Power Rangers and Digimon remained our strongest properties
with Power Rangers, now in its tenth season in Europe, demonstrating
once again the classic stature of this well-known property. Following
the success of the Fox Kids branded music compilation albums in
the Netherlands, the agreement with BMG has been extended to cover
nine European markets. We hope to see further success there.
With the growing convergence between our
online and channel operations, particularly following the successful
launches of our first Fox Kids Play interactive game channels in
the UK, France and Israel, we decided to integrate our online activities
with the channel division. Accordingly, the online operations will
be reported as part of the channel segment in future fiscal periods.
We also remain very focused on maintaining
our strong financial position and healthy balance sheet. The company
substantially improved its cash flow, generating operating cash
flow of over $20 million for the period. I am proud to say that,
as of September 30, 2002, we had $61.2 million of cash, which is
more than we retained from the proceeds of our initial public offering
some three years ago. This is even after significant investment
made across all our business lines, including launching local channel
services across Europe and the Middle East and substantially expanding
our programming library.
During the period we incurred a one-off
non-cash impairment charge that had a material adverse effect on
the reported income of the company. The impairment charge arises
primarily as a result of a revision of the projected revenues to
be earned by title, which saw increases on some titles and decreases
on others. However, under US GAAP, for impairment purposes, we are
unable to make a positive adjustment on titles that are projected
to generate more revenues than expected to offset charges for titles
that are expected to generate less revenues than expected. As at
September 30, 2002, the net book value of the library even prior
to the impairment charge was much lower than the remaining projected
revenues of the library.
Our major priority going forward remains
to address the performance of our programme distribution business
which has become our most challenging activity. This division has
suffered most from the tough economic conditions and a shortfall
in programming available from ABC Family Worldwide. We are taking
appropriate steps to make up the shortfall. In addition to expanding
our programme acquisition team, we have already acquired the European
and Middle Eastern rights to more than 100 episodes of quality children’s
programming from third parties with popular titles including RoboRoach,
Quintuplets and Pig City.
Finally, I would like to extend a very
warm welcome to the incoming CEO, Bruce Steinberg, a highly regarded
executive who has extensive experience in the European media sector.
Most recently Bruce was the co-founder and Managing Director of
i-spire, a technology/media venture capital company. Prior to that
he was General Manager, Broadcasting, at British Sky Broadcasting
Ltd (1997-1999), where he was in charge of overall management of
Sky Network’s entertainment channels and pay per view business.
Bruce was also Chief Executive of UK Gold and UK Living Broadcasting
(1992-1997) and Sales Director at MTV Europe (1989-1992).
Fox Kids Europe is now ready to benefit
from being more integrated with The Walt Disney Company and further
consolidate its position as the leading pan-European children’s
entertainment company. We have built in a short time a thriving
company on solid foundations and I am confident that its success
will continue in the future. I would like to thank everyone who
was part of our success so far and wish the company an equally bright
future.
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