We are delighted to have achieved solid revenue‚ EBITDA and operating income growth for 2006 in line with‚ or exceeding‚ the targets disclosed last year. Operating cash flow was adversely affected by paying down net related party liabilities to our parent company.
This is the first full year in which the Company has prepared financial information under International Reporting Standards (IFRS). The transition to IFRS has changed the reported profitability of the Company‚ but has not impacted the underlying economics of the business or its ability to generate cash.
Revenues
Revenue increased by 12% to €162.8 million¹. Channels and online revenue increased by 6% to €120.3 million‚ with subscription revenue increasing by 5% to €77.6 million and advertising revenue increasing by 8% to €39.5 million. Other channels and online revenue‚ including live events‚ research and interactive‚ was up 19% at €3.2 million. The primary drivers of growth in channel and online revenue were an increase in the number of subscribers – partially offset by the impact of the Sky UK deal – and strong advertising growth‚ notably in Italy‚ following full year revenue related to GXT‚ and in Central and Eastern Europe.
Programme distribution revenue increased by 6% to €19.0 million. The increase was primarily driven by significant sales to Jetix US of flagship titles Ōban Star–Racers and A.T.O.M. Alpha Teens on Machines.
Our consumer products revenue increased by 63% to €23.6 million. This increase was driven by significant growth in sales related to Power Rangers‚ represented by DCP‚ and minimum guaranteed revenues related to the master toy licensing deal on A.T.O.M. Alpha Teens on Machines with Hasbro.
Marketing‚ selling and distribution costs
Marketing‚ selling and distribution costs increased by 13% to €54.1 million. This was principally due to an increase in sales commissions in line with higher channel advertising sales and higher Power Rangers revenues within consumer products. During the year there were also increases in channel–related costs including music licence fees‚ increases in Jetix brand pan–European promotional and marketing expenses‚ full year costs associated with GXT and higher technical costs. These increases were partially offset by lower participation fees for the programme library‚ which primarily affected the channels and online business.
General and administrative costs
General and administrative costs decreased by 3% to €48.1 million. This was principally due to the recognition of a provision in the prior year for indirect taxes and a decrease in bad debt expense as a result of improved collections of accounts receivable. These decreases were largely offset by additional lease exit costs and an increase in payroll–related expenses‚ including termination costs.
EBITDA
EBITDA increased by 27% to €62.4 million. Channels and online EBITDA increased by 6% to €48.2 million. This was driven primarily by subscription and advertising revenue growth being only partially offset by the channel cost increases described above. Programme distribution EBITDA decreased by 2% to €11.5 million driven primarily by increased mastering and selling costs due to the increased volume of new episodes delivered. Consumer products EBITDA increased by 145% to €12.2 million‚ with strong revenue growth partially offset by increased costs from sales commissions. Shared costs not allocated to segments decreased by 27%‚ primarily due to the recognition of a provision in the prior year for indirect taxes.
Amortisation and impairment of programme rights
Amortisation and impairment of programme rights (defined as cost of sales in the income statement) decreased by 6% to €42.3 million primarily due to the net impairment of programme rights in the prior year. The key accounting difference compared to the prior year is the change in estimate related to the amortisation of the programme library‚ referred to in Note 6. This revised method of estimation has not led to a significant impact on the programme rights amortisation charge for the full year results.
Financial income (net)
Financial income (net) increased by 88% to €3.6 million due to an increase in interest income earned from higher cash balances and higher interest rates.
Foreign exchange
The Group recognised a €5.9 million gain on foreign exchange during the year. This primarily related to gains on inter–company transactions with foreign group members where the Euro is not the functional currency.
Profit before tax
Profit before tax and minority interest increased by 310% to €30.2 million‚ resulting from increased operating profit‚ a gain on foreign exchange and increased financial income.
Tax expense
The effective tax rate was 22% compared with 13% in the prior period. The increase was primarily due to the recording in the prior period of a deferred tax asset resulting from an intragroup transfer of programming rights. This asset will be charged to the income statement over a period of six years beginning with the current fiscal year.
Minority interest²
Minority interest decreased by 35% to €0.19 million. Higher profits from the Polish channel were partially offset by a one–off adjustment to minority interest in the prior year.
Earnings per share
Basic and diluted earnings per share increased to 27.7 cents and 27.6 cents respectively‚ resulting from higher net profit attributable to shareholders.
Cash flow
Cash and cash equivalents increased by €24.0 million to €127.1 million from September 30‚ 2005. Net cash generated from operations during the period decreased by €5.9 million to €16.9 million as the increase in net income was more than offset‚ primarily by the paying down of net related party liabilities to our parent company‚ Disney‚ and significant non–cash charges in 2005.
Dene Stratton
Chief Financial Officer
December 2006
¹ All comparisons and percentage changes are stated versus the year ended September 30, 2005.
² Minority interest relates to a third party's 20% interest in Jetix Poland Limited.