Channel & online operations saw a 3% increase in revenues to $109.4 million as increases in subscription and advertising revenues were mostly offset by a shorter fiscal period. The underlying increase was 31%. Subscription revenues were unchanged at $75.2 million despite the shorter fiscal period. The underlying increase in subscription revenues was 28%. Advertising revenues increased 13% to $30.3 million despite the shorter fiscal period. The underlying increase in advertising revenues was 36%. Other channel revenues rose from $3.5 million to $3.9 million.
Programme distribution revenues fell by 27% to $31.4 million. The primary reasons for the fall were lower volumes of new programming available to FKE (including family movies), a reduction in the level of sales outside of Europe and the Middle East, a shorter fiscal period and a continuation of challenging market conditions. The underlying decrease was 22%. However, the reduction was less than the guidance given previously of up to 35% lower due to some episodes being delivered ahead of schedule. We anticipate that programme distribution revenues will continue to decline next year before we see growth resumed in this business.
Our consumer products revenues grew by 5% to $11.3 million primarily due to a strong performance by our classic property Power Rangers as well as an increased contribution from home entertainment (i.e. video and DVD), with the Marvel titles selling particularly strongly, offset by a shorter fiscal period.
Costs and Expenses
Costs and expenses fell by 6% to $90.8 million. The primary reason for the decrease was a shorter fiscal period. The underlying increase in costs and expenses was 19%. The main reasons for the underlying increase were the strengthening of sterling and the euro versus the dollar, higher participation expenses, restructuring costs incurred in respect of our German consumer products operations and additional personnel hired for our pan-European team in the areas of programming and advertising sales.
EBITDA2
EBITDA fell by 5% to $56.0 million. The fall in EBITDA was due to the shorter fiscal period. Channel & online achieved an increase of 16% in EBITDA to $41.2 million primarily due to increased advertising revenues. EBITDA from programme distribution fell by 29% to $20.4 million due to lower revenues, partially offset by lower costs and expenses within this division. The underlying improvement in EBITDA was an increase of 5%.
FKE’s consumer products operation saw a decrease in EBITDA to $4.0 million primarily due to a shorter fiscal period and an increase in participation costs. Costs also increased due to the strengthening of the euro versus the dollar and costs incurred in restructuring our German operations.
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Consistent with prior years, EBITDA is stated before depreciation, programme amortisation and impairment. EBITDA less depreciation, programme amortisation and impairment is equal to Operating Income. |
Depreciation, Amortisation and Impairment
Depreciation fell from $3.0 million to $2.5 million. Programme amortisation reduced to $49.4 million from $90.5 million due to an impairment charge of $26.1 million incurred in the previous year as well as lower programme distribution revenues in the current year.
Equity Affiliates and Minority Interest
Equity in the income of affiliates increased by 39% to $1.7 million due to the increased profitability of our Spanish channel, driven by higher subscription and advertising revenues following carriage on Via Digital in December 2001, partially offset by a shorter fiscal period.
As a direct consequence of the change in control of our majority shareholder, an option held by Middle East Communication Holdings B.V. (MECH BV) to sell to FKE its 49.5% stake in Fox Kids Israel Enterprises B.V. (FKI) became exercisable. Previously FKE owned 50.5% of FKI which, through a wholly owned local subsidiary, owned and operated the local Fox Kids pay TV channel, game channel and website, excluding any rights to the Saban library, in the Israeli market. During the period, outside of the option agreement, FKE acquired MECH BV’s stake in FKI, as well as the Israeli rights to the Saban library and certain other Israeli rights, for cash consideration of $20.5 million3.
The reduction in participation of the minority interest is due to the acquisition of our partner’s share in FKI as well as a reduction in the profitability of our Polish channel following the expiration of a minimum guarantee in April 2003.
Income Before Tax and Other Items
Income before tax and other items increased substantially from a loss of $33.0 million to income of $5.6 million. This was a result of strong performances by our channel & online operations, which increased operating income by 72% to $11.9 million despite a shorter fiscal period, and of an impairment charge of $26.1 million to our programme library in the prior year. The underlying increase was from a loss of $32.7 million to a profit of $5.6 million.
Earnings per Share
Basic and diluted earnings per share (before cumulative effect of change in accounting principle) improved significantly from a loss of 36.2 cents per share to income of 4.6 cents per share due to the improvements in operating performance noted above and to an impairment charge to our programme library of $26.1 million in the prior fiscal period.
Taxation
The tax charge for the year of $1.2 million comprises a tax charge of $1.8 million partially offset by a deferred tax credit of $0.6 million. The tax charge comprises primarily withholding, income and asset taxes. $0.6 million has been recognised as a deferred tax asset in the year bringing the deferred tax asset as at September 30, 2003 to $10.8 million.
Cash Flow
Operating cash flow fell to $10.4 million as a result of a shorter fiscal period and favourable working capital movements in the prior fiscal period. In the prior fiscal period, receivables reduced by $15.8 million primarily as a result of the phasing of the distribution revenues towards the end of the fiscal period. Overall cash balances fell during the period due to the acquisition of MECH BV’s 49.5% stake in FKI.
During the period, the Company settled both its loan payable to a subsidiary of ABCW and its loan receivable from International Family Entertainment Inc.
As at September 30, 2003, the Company had net cash balances of $51.5 million.
