Business Review

Financial Review 

As highlighted in the trading update released on 25 July 2011, the Group had a busier than anticipated second half of the year which, together with very strong trading in the first half, has led to strong growth in revenues and profits for the year under review.  This stronger organic trading, together with a full year contribution from Indus Films, acquired in October 2009, has enabled us to grow revenues in the year ended 31 May 2011 by 25.8% to £26.93 million (2010 - £21.41 million).

The Group's key performance indicators are gross profit, adjusted earnings before interest, tax, depreciation and amortisation ("adjusted EBITDA**") and adjusted operating profit. Adjusted profit figures add back charges for professional fees in respect of corporate transactions, provisions against investments, amortisation of intangible assets arising on business combinations and share-based payments.

Gross profit increased by 30.2% to £4.55m (2010 - £3.50m).  Tighter cost control, together with higher gross margin from Indus Films, lead to an increased gross profit margin for the year of 16.9% (2010 - 16.3%), despite continued downward pressure on programme budgets. 

Adjusted EBITDA** increased by 52.5% to £1.93 million (2010 - £1.27 million). Following the substantial investment in fixed assets in 2010 that continued in the current year, principally in respect of the Stwnsh and Cyw Children's contracts, and an increase in capacity of our post production resources,  depreciation increased in the year to £0.72 million (2010 - £0.45 million)

Other administrative expenses increased from £2.93 million to £3.43 million.  During the year the Group undertook a restructuring and relocation of its businesses, including moving Fflic and Apollo into the new administrative and production headquarters at The Media Centre, Culverhouse Cross, Cardiff, with associated non-recurring costs of £0.12 million.  2011 included the full year effect of the costs of the new headquarters which were required following the awarding of the Stwnsh and Cyw children's contracts for S4C and a full year contribution of Indus costs of £0.16m.

The above factors have contributed to an increase in adjusted operating profits* of 50.5% to £1.17 million (2010 - £0.78 million).

The Group had cash and cash equivalents of £2.59 million at 31 May 2011 (2010 - £3.07 million). This reduction of £0.48m has primarily been due to the Group's significant capital investment programme during the year.  The Group incurred capital expenditure of £1.42 million (2010 - £1.65 million) in the year to 31 May 2011, principally on post-production facilities in order to service the increased revenues from both the Group's productions and external clients. £0.64 million (2010 - £1.11 million) of this expenditure was funded by finance leases.  Additions to intangible fixed assets in the year were £0.05 million (2010 - £0.46 million) and acquisition and deferred consideration payments of £0.23 million (2010 - £1.30 million) and debt repayments of £0.66 million (2010 - £0.37 million) were also made during the year.

The tax rate of 46% is higher than the expected blended rate of 28% for the year principally due to the effect of adjustments to prior years. These primarily relate to the UK Film tax credit within Boom Films Limited, a subsidiary company, which was initially recognised in 2009 but is no longer considered recoverable.

At 31 May 2011 the Group had net assets of £9.53 million (2010 - £8.98 million). 

The Group has considerable headroom within its current bank facilities together with long-term relationships with its key customers.  Due to the nature of the Group's business, management has good visibility over its pipeline of productions over the foreseeable future, which is fully funded by its customers. 

The Group's forecasts and projections show that the Group should be able to operate within the level of its current facility

* adjusted for professional fees in relation to corporate transactions (2011 - £0.02m, 2010 - 0.07m), provision for impairment of investments (2011 - £nil, 2010 - £0.07m), amortisation of intangible assets arising on business acquisitions (2011 - £0.02m, 2010 - £0.02m), and share- based payments (2011 - £nil, 2010 - £0.01m).

**adjusted operating profit as defined above before depreciation (2011 - £0.72m, 2010 - £0.45m) and other amortisation (2011 - £0.04m, 2010 - £0.04m).

Operations

The Group continued to produce a strong, multi-genre portfolio of multi-platform content for our broadcast and corporate customers during the year with 659 hours of programming in the 2010 calendar year (2009 - 428).

We have had noted success in increasing our Network presence during the year.  For Channel 4, we have produced "The Secret Supper Club", a ten-part food and wine series with Olly Smith, and the second series of "That Paralympic Show", a multi-platform magazine series covering  Paralympic  sport, and we are currently in production of series 3.  We won our first two commissions from Disney, including  a Pan European reality show.

AFP commissions included two original 3D commissions, one to produce a Skateboard Documentary with American Skateboarder Tony Hawk and the second a Free-Skiing film for Nissan Europe.  Other AFP productions during the period included a third year producing Relentless Freeze, Europe's biggest Snow and Music Festival held annually in Battersean Power Station; major surfing events for Quiksilver including Pro Portugal and Roxy Pro Biarritz, the annual Women's World Longboard Championships; the third series of the multi platform Sony Ericsson World Breakdancing  Championships; and a third season of Nissan/Sony Playstation GT Academy, the virtual-to-reality motor racing competition, once again hosted by F1 luminaries Eddie Jordan and Johnny Herbert and filmed across Australia, New Zealand, Europe and the UK, including for the first time a series for the USA market

Complementing this organic success is the addition of Indus to the Group which has brought the world renowned and award winning expertise of the producers of  "Amazon" and "Arctic" (with Bruce Parry), "Living with Monkeys", "Coal House" and "Snowdonia 1890". The recent acquisition of factual producer, Oxford Scientific Films ("OSF"), introduces their talented, award winning creative team to the Group together with their extensive back catalogue and experience in exploiting programmes worldwide and strengthens the Group's position in the Factual genre. OSF current productions include Meerkats 3D for National Geographic and Sky3D, season 2 of Fatal Attractions for Animal Planet and broadcast pilots for BBC1 and Five.

We have again produced a range of multi-genre programming for S4C during the period. These include the "Stwnsh" and "Cyw" children's services; drama series "Teulu" and "Alys"; factual entertainment series "3 Lle", "Gwlad Beirdd", "Cartrefi Cefn Gwlad Cymru"  and "Cyfnewid"; music series "Bandit" and "Nodyn"; youth series "Gofod;"; the Royal Welsh show and sports series "Clwb Rygbi Shane" and "Ras i Lundain" amongst others.

Post-production and facilities

On 5 September 2011 the Group announced that its post-production subsidiary, Mwnci, had rebranded as Gorilla and expanded to incorporate all of the Group's in-house facilities. Gorilla will now be providing studios, dubbing, grading, graphics and outside broadcast facilities to programme makers and producers in addition to increasing its established range of editing services. Gorilla will be one of the biggest facilities companies outside London and the largest in Wales.

As the majority of the Group's facilities will no longer be fully integrated in the future, the Group anticipates making segmental disclosures in its account for the year ended 31 May 2012.

Talent management

Boom Talent, a management company representing singers, actors and presenters in film, television, theatre, radio, corporate and voice-over work, continues to establish itself. The post year-end acquisition of Harlequin Agency Limited, through a 50% joint venture with Bryn Terfel, will lead to a significant increase in scale of our talent business and it is intended to transfer the trade of Boom Talent to Harlequin in order to maximise cost synergies and growth opportunities.

Outlook

In June 2011 we acquired the trade and assets of a factual specialist, Oxford Scientific Films, and through a joint venture with Bryn Terfel acquired a talent management company, Harlequin Agency. 

Organic Network growth, the acquisitions of Oxford Scientific Films and Indus and growth in AFP have all contributed to diversifying the Group's customer base and widening its intellectual product base. This will continue to drive further growth in an increasingly global market and provide us with opportunities to increase our gross profit margins.

Following the Government's Comprehensive Spending Review in October 2010, S4C has had a reduced programming budget in 2011 and will experience significant further reductions in 2012 and this will inevitably impact production companies based in Wales, including Boomerang.  However, the Board believes that the impact of our diversification strategy, will allow it to mitigate the impact of S4C's changed circumstances and will bring considerable long-term benefits to the Group.

The Group has made a strong start to trading in the 2012 financial year and we will also continue to look for further acquisitions that can add value for shareholders in a fast-changing media marketplace.