THE ONLY 360°INTERNATIONAL

Transcription

SANCTUARY
THE ONLY 360°INTERNATIONAL
MUSIC GROUP.
WE ARE
UNIQUE.
The Sanctuary
Group plc
Annual Report
2003
01 Group Highlights 2003
02 Executive Chairman’s Review
12 An International Team
14 Financial Review
16 Board Members
17 Financial Statements
Business sectors:
The Sanctuary Group plc
Sanctuary is a diversified international
music group specialising in the ownership
and commercial exploitation of
Intellectual Property Rights (IPR’s).
Artist Services
Management, Agency and Merchandising
offer essential services to an artist at all
stages of a career. Music and Book
Publishing enhance this offering.
We are committed to continued growth
and to taking advantage of genuine
opportunities globally for enhancing
shareholder value and to developing
long-term careers for artists.
Group Services
Music and audio-visual facilities in the UK
are used by outside and in-house clients.
It is a place where employees have
a shared passion.
Recorded Product
Owner of the world’s largest independent
recorded music catalogue with over
150,000 tracks covering all major musical
genres as well as a growing catalogue of
music audio-visual product.
Investor Relations
For further up-to-date information
please refer to our website at
www.sanctuarygroup.com
Total
2003
£000
Turnover: including acquisitions
Group turnover – Continuing
– Discontinued
Cost of sales
Gross profit
Administrative expenses excluding
depreciation and amortisation
Depreciation
Amortisation
Total administrative expenses
Group operating profit – Continuing
– Discontinued
Total
2002
£000
151.7
149.1
2.6
151.7
(85.6)
66.1
118.1
114.4
3.7
118.1
(63.9)
54.2
(41.6)
(2.6)
(7.4)
(51.6)
14.0
0.5
14.5
(33.8)
(2.2)
(5.9)
(41.9)
12.6
(0.3)
12.3
Group Highlights 2003
1
Turnover
Turnover (£ million)
151.7m
118.1m
82.3m
28.5% increase in turnover.
Live performances and recorded products
generating strong sales worldwide.
44.1m
23.1m
1999
2000
£151.7m
2001
2002
2003
Group profit before tax (normalised)*
Group profit before tax (normalised)
17.0m
14.2m
11.3m
5.4m
19.7% increase in normalised pre-tax profits.
Sanctuary is leading the music industry with
ground-breaking deals for artists.
2.5m
1999
2000
£17.0m
2001
2002
2003
*Profit before tax is calculated by taking the profits before tax (FRS 3) and
adjusting for the effects of goodwill and intangible asset amortisation costs.
Group EBITDA**
Group EBITDA (£ million)
24.5m
20.4m
15.7m
8.3m
20.0% increase in EBITDA.
Acquisition of Music World Entertainment
giving access to the huge Urban music market.
3.8m
1999
2000
£24.5m
2001
2002
2003
**EBITDA – earnings before interest, taxation, depreciation
and amortisation.
Earnings per share – normalised
Earnings per share – normalised (pence)
3.85p
2.70p
3.10p
3.17p
1.72p
1999
3.85p
21.5% increase in normalised EPS.
Convertible fund raising to be used to support
our strategic growth.
2000
2001
2002
2003
Annual Report 2003
Executive Chairman’s Review
2
Andy Taylor
Executive Chairman
ANOTHER
SUCCESSFUL YEAR
with strong
INTERNATIONAL
EXPANSION
Annual Report 2003
Our artist-friendly approach is
combined with a commitment to
deliver quality product to music
fans worldwide.
3
I am delighted to announce another successful year for The
Sanctuary Group plc, with growth in all our continuing business
areas. We have also maintained strong international expansion
by pursuing the same principles we always have – attracting
successful artists and talent managers and applying sound
financial management.
As the music business matures, our 360º degree model is proving
its worth. By this, we mean working with artists through all the
different avenues available to them for exploiting their rights and
talents. Major growth in live performance revenues, audio-visual
product and distribution channels based on new technology have
brought continued strong growth in revenues, both for our artists
and our shareholders.
Financial Highlights
I am pleased to report a 19.7% increase in normalised pre-tax
profits to £17.0m (2002: £14.2m) for the year-ended 30 September
2003. Turnover rose by 28.5% to £151.7m (2002: £118.1m) and
normalised earnings per share for the year increased by 21.5%
to 3.85p (2002: 3.17p). The Board is recommending a full year
dividend of 0.4p per share, an increase of 14.3%.
Growth Strategy
In November 2003, we announced a fundraising of up to £30m
through the issue of convertible loan notes and warrants. The
rationale was clear and simple: the success and high profile of
Sanctuary means, as the industry evolves, we are introduced to many
competitively valued business opportunities. However, this represents
a short window of opportunity, as the major record companies
adjust their own business models to adapt to the new environment.
This fund raising will therefore help us acquire a number of
identified niche recorded and music publishing catalogues, as
well as add to our roster of high quality managers and their artists.
This means that our net gearing remains readily manageable.
More fundamentally, it lets us take advantage of highly economical
external funding. We fully expect these acquisitions to bring
significant enhanced earnings and cash returns to the Group.
Acquisitions
I am delighted that we have completed the acquisition of Music
World Entertainment (MWE), based in Houston, Texas. MWE
currently manages some of the world’s most successful acts,
including the Multi-Platinum selling Destiny’s Child, and its
hugely successful members, Beyoncé Knowles, Kelly Rowland
and Michelle Williams. Each of these individuals has had
Number One Records in the past year; Beyoncé has also recently
won five Grammy Awards, four Billboard Music Awards and is
nominated for a Brit Award. As part of this ground-breaking deal
for Sanctuary, we have appointed MWE founder, Mathew
Knowles, as President of our newly created Urban music division.
The deal takes us into the Urban, R&B and Hip Hop genres that
collectively account for 25% of US recorded music sales annually
and, in a few short months, we have already attracted new acts
to management, live agency and Merchandising. The MWE
deal dramatically broadens Sanctuary’s traditional music base,
while maintaining our non-speculative financial approach.
merchandising and audio-visual programming. BMG is also now
our main distributor worldwide. This follows a successful initial
partnership in the US, where Sanctuary Records Group is BMG's
biggest non-proprietary label. The partnership will increase our
presence in all territories, especially the Asia-Pacific markets.
Disposal of Cloud 9
Just before the year-end we announced the disposal of our
interest in the children’s live action TV production business,
Cloud 9 Screen Entertainment Group Ltd., and its subsidiaries,
to Raymond Thompson, our original partner in Cloud 9. This
agreement means our core business is now focussed totally on
music-related product.
Reorganisation
Following this disposal, we have streamlined our key areas of
operation into three divisions:
– Recorded Product covers all our recorded output, specifically
Sanctuary Records (music) and Sanctuary Visual Entertainment
(audio-visual);
– Artist Services covers Sanctuary Artist Management and
Sanctuary Producer Management, Helter Skelter and K2
(live agencies) and Bravado (Merchandising). Sanctuary
Music Publishing and Sanctuary Publishing (books) sit within
this division at present but we expect these to develop into a
separate division as they continue to grow;
– Group Services continues to run our Studios operation and
oversees the Human Resources, IT, Finance and
Communications functions.
The Board
In July, we announced the appointment of Sir Christopher
Meyer KCMG as a non-executive Director to the Board. Sir
Christopher has a distinguished diplomatic background, and
was the Ambassador to the United States from 1997 until
February 2003. He is currently Chairman of the Press Complaints
Commission. Given the growing importance of North America
and the Far East, we believe his extensive experience of the
British diplomatic service will assist us greatly in expanding
our sphere of influence worldwide.
At the same time we announced the resignation from the Board
of David Marshall, a non-executive Director since 1998. I would
like to thank David for all his help and support.
Recorded Product
I am pleased to announce another impressive increase in our
sales of recorded music showing that we are delivering strong,
quality product by talented career artists, as well as developing
long-term careers for new artists in virtually every genre of music.
These sales look even better when compared to global industry
figures, which show a fall in sales of recorded product in 2003.
Once again, these results are evidence of our ability to capitalise
on our business model, which has positioned us in the right areas
of the music business at the right time.
BMG Deal
In 2003 we also concluded a deal with BMG, part of the
Bertelsmann Group. This is already reaping rewards by
developing strategic alliances in recorded music catalogues,
Since the year-end, we have been extremely pleased to pass some
further significant milestones. We had our first UK Number One
single in December with Ozzy and Kelly Osbourne’s ‘Changes’,
only for it to be replaced at Christmas with ‘Mad World’ by
Michael Andrews and Gary Jules, another Sanctuary signing.
Although we are not driven by the singles market, both records
benefited from our cost-effective approach to signing and
Annual Report 2003
continued
4
Beyoncé Knowles
Leading our move
into Urban music
Annual Report 2003
“Sanctuary strikes the right note...
it specialises in acts that have a
solid fan base”
BBC NEWS ONLINE
20 January 2004
Beyoncé Knowles
Songwriter, producer,
performer and film star
REPRESENTED FOR:
> MANAGEMENT
> MERCHANDISING
> LIVE AGENCY
> PRODUCER MANAGEMENT
The acquisition of Music World
Entertainment (MWE) not only brought
with it a roster of hugely successful
artists including Beyoncé, but it is now
helping to spearhead the newly formed
Urban division.
Headed up by MWE founder Mathew
Knowles, this division encompasses
Recorded Product, Artist and Producer
Management, live agency and
Merchandising. The aim is to offer a full
service to artists in the Urban field using
a combination of MWE’s outstanding
reputation in this genre of music and
Sanctuary’s long-standing skills across
all areas of the music industry.
Mathew Knowles (left), President of Sanctuary’s new
Urban division pictured with Merck Mercuriadis,
CEO Sanctuary US.
Sanctuary Records successes continue:
Billboard US Album Chart Top 100
2002 > 2 albums, 2003 > 10 albums.
UK Official Top 40 Album Chart
2002 > 3 albums, 2003 > 8 albums.
5
The 360° Business Model
The maturing of Sanctuary’s 360° business model
has reaped rewards across all areas of the Group.
Artists have benefited from the unique way in
which it integrates their multiple income streams.
The deal with BMG, signed in May, further
benefited our artists with enhanced worldwide
marketing and distribution mechanisms, particularly
in the emerging Asia/Pacific markets.
marketing artists. In view of the significant revenue potential
of downloading individual tracks under licence on the internet
and telecoms, e.g. ringtones for mobile phones (global sales of
which were worth $3.5 billion in 2003), we believe the value
of individual tracks will increase in importance in the future.
Other key artist successes in 2003 include Kiss, whose album
‘Alive IV’, was a top 20 hit in the US, UK, Germany and Australia,
selling over 240,000 copies worldwide. The accompanying DVD
was Number One in the US and went double Platinum in December
2003 – a first for Sanctuary Records. We also had very healthy sales
in the US for new studio albums by Lynyrd Skynyrd (their most
successful since 1977), RZA, Widespread Panic, Ween, Spiritualized
and The Allman Brothers Band and strong UK sales and chart
success for new signings Fun Lovin' Criminals, Spiritualized,
Ocean Colour Scene and Darryl Hall & John Oates. All these
albums were promoted by concert touring and targeted marketing,
which we regard as essential parts of our artists’ careers.
Joint venture labels Fantastic Plastic and Rough Trade continue
to attract both critical acclaim and sales success for artists such
as The Strokes, The Libertines, Belle & Sebastian, Buffseeds,
The Beatings and British Sea Power. Rough Trade now also has
a presence in North America which is already reaping rewards.
The Libertines’ debut album ‘Up The Bracket’ and Brit winners
The Strokes second album ‘Room On Fire’ were particular successes.
Ozzy and Kelly Osbourne’s ‘Changes’ – Sanctuary
Records’ first ever Number One single in
December 2003.
The Trojan reggae label released over 70 albums this year and
is now showing its true value. Since the year-end, we have also
acquired the Creole catalogue of several thousand reggae tracks
including work by artists such as Boris Gardner, Sophia George,
Wayne Wonder and Shabba Ranks. In combination, the Trojan,
Creole and RAS Records labels now make Sanctuary by far the
world’s largest reggae label.
Artist Services
The past year was the busiest ever for our Management, live
agency and Merchandising operations, with involvement at the
established major music festivals in the UK and Europe and
many major artists touring the US and worldwide.
Spiritualized – a new signing and a success in the
US and the UK for Sanctuary Records.
Management
Sanctuary Artist Management has grown by bringing in
new managers and artists. They are attracted by our global
infrastructure, with in-house administrative back up readily
available, allowing creativity to flourish. Renowned managers
Carl Stubner, Martin Hall, John Boyle and Danny Heaps have
joined us. Carl brought his premier roster which includes comanagement of Fleetwood Mac (who had the US’s fourth highest
grossing tour of the year and have plans in place for well into
2005), as well as Tommy Lee, The Cult, Something Corporate
and The Von Bondies. Martin manages multi-million selling
Manic Street Preachers and Groove Armada. John manages
Alien Ant Farm and Danny manages The Mavericks.
New managed acts that have had success this year include Funeral
For A Friend whose debut album is already Silver in the UK, and
the aforementioned Something Corporate, whose album debuted at
Number 24 in the US, selling over 40,000 copies in its first week alone.
Iron Maiden spent most of the year touring and promoting their
latest album, 'Dance Of Death’, which was Number One in most
European territories as well as being their highest charting US
Annual Report 2003
continued
6
Jane’s Addiction
Lollapolooza Tour 2003
30 cities, 28 states across
North America
Annual Report 2003
“Sanctuary and BMG strengthen
strategic alliance in new deal”
MUSIC WEEK
20 May 2003
Jane’s Addiction
Successful comeback album
and sell-out European tour
REPRESENTED FOR:
> MANAGEMENT
> LIVE AGENCY
Our roster of managed acts had a very
successful year promoting new releases
and touring, with one of the most
successful acts being Jane’s Addiction.
Their album ‘Strays’ is their first new
studio album in 10 years and was released
to amazing reviews. The album was
produced by Sanctuary Producer
Management client Bob Ezrin, one
of the world’s top producers, who
has worked with acts including Pink
Floyd, Peter Gabriel and Aerosmith.
Furthermore, Jane’s Addiction headlined
the Lollapolooza tour which played in
30 cities across the US. The act then
played a series of sell-out dates in Europe,
booked through Sanctuary’s Live Agency.
7
Photo: Ross Halfin
Iron Maiden had their most successful touring year ever
as well as album and single chart successes worldwide.
album in 15 years. This led to the band’s most successful world
tour ever, playing to over one million fans in Europe alone.
Jane’s Addiction made a big comeback in 2003 with their album
‘Strays’ which charted in the Billboard Top 200 at Number Four,
selling over 100,000 copies in its first week. ‘Strays’ included the
US Modern Rock Number One single ‘Just Because’ – Number 11
in the UK – and was their biggest ever international success.
They headlined the return of the 30-date Lollapolooza tour in
the US, which was followed by a sell-out tour of Europe, their
biggest to date.
Murderdolls had a Top 20 UK single with ‘White Wedding’ and
received superb reviews supporting Iron Maiden on the European
leg of their world tour. Murderdolls, Funeral For A Friend, From
Autumn To Ashes, The Blood Brothers and Arch Enemy also
joined headliners Iron Maiden as they returned to Donington to
headline the UK’s Download Festival in the Summer, attended
by over 150,000 fans.
Led Zeppelin showed their enduring popularity with the
album ‘How The West Was Won’, recorded at two legendary live
performances in 1972, and the accompanying DVD ‘Led Zeppelin’.
The CD topped the Billboard Top 200 Chart, selling 154,000
copies in its first week, and has now sold over 1.5 million copies
worldwide. The DVD topped the Billboard Top Music Videos
chart with the largest first week sales ever and has since also sold
over 1.5 million copies to become the best selling music DVD ever.
Murder Dolls supported Iron Maiden across Europe
and had a UK Top 20 single.
Recorded Music Catalogue
Our recorded music catalogue continues to
generate a good income with sales increasing
globally: albums such as ‘Reggae Love Songs’
sold over 260,000 copies worldwide while
‘The Dubliners – The Ultimate Collection’ and
‘Teenage Kicks – The Best Of The Undertones’
both enjoyed Silver sales success. Over the
past year, catalogue sales have risen by 10%
in the US and 27% in the UK, and show a 39%
increase in the UK during the last three years.
Throughout the year, Sanctuary has made its
presence felt across many genres of music. Our
fastest selling catalogue album ever – ‘Reggae Love
Songs’ – showed how Sanctuary Records’ Special
Markets team has revitalised the market for reggae.
Released for Valentine’s Day, the album went Gold
in the UK within the first two weeks. Sanctuary
now owns the world’s largest catalogue of reggae
music and is actively promoting over 100 releases
a year via the Trojan, RAS and Creole labels.
Live Agency
Also, in the best year ever for live music, Helter Skelter and
K2, our live agencies, were involved in putting on some 7,000
shows for their rosters of over 350 acts across Europe, Asia and
Australasia, playing to over 10 million people. Highlights were
major shows for Dido, Robbie Williams, The Darkness, Eminem,
Red Hot Chili Peppers, Metallica, Coldplay, Marilyn Manson,
Iron Maiden, 50 Cent and The Sugababes. Involvement with some
of the highest profile acts in 2003 helped generate good agency
revenues, and our agents continue to help develop the careers
of newer acts. Additionally, 2004 is shaping up to be another
strong touring year.
Producer Management
We now have a roster of over 40 producers working with some
of the highest profile artists in the world, including David Gray
(John Alagia), Kings Of Leon (Ethan Johns), Celine Dion (Chris
Neil) and Jane’s Addiction and The Darkness (Bob Ezrin). Producers
form a vital part of the musical creative process and we provide
international support for them in the same way as for artists.
Merchandising
Covering every possible aspect of their clients’ image and
merchandising opportunities, Bravado is proving increasingly
successful, both in attracting new high profile acts and in
identifying new revenue streams. This can include ringtones
for mobile phones, branded games and wallpapers for mobile
phones, as well as the traditional T-shirts and posters sold at
concerts, retail outlets and online.
In other genres, Sanctuary Records’ key catalogue
releases last year have included a Motörhead
box set and compilations from Small Faces,
The Kinks and Lonnie Donegan.
During the year we represented, among others, Beyoncé, Robbie
Williams, Hilary Duff, Christina Aguilera, Destiny’s Child, Iron
Maiden, Paul Weller and Liberty X. The increased live touring
activity worldwide brought an 80% increase in turnover at
Annual Report 2003
continued
8
Lynyrd Skynyrd
Most successful album
since 1977
Annual Report 2003
“Sanctuary is a success story...
the ‘third way’ between major
and independent labels”
THE GUARDIAN
30 October 2003
Lynyrd Skynyrd
Album and DVD successes
REPRESENTED FOR:
> RECORDS
> DVD
Lynyrd Skynyrd’s album ‘Vicious Cycle’
was another success for Sanctuary
Records and was their best selling album
since 1977. The band, who have sold
over 25 million albums in their career,
also toured extensively in the US. The
highlight of the tour was the band’s
triumphant show before 17,000 heartland
fans in July in Nashville which was
recorded and released on DVD as
‘Lynyrd Skynyrd: Lyve’ by Sanctuary.
The past year was the biggest ever
for Management, Live Agency and
Merchandising, with 2004 shaping
up very well.
9
Merchandising
Bravado’s clients are represented increasingly not
only for tour brochures, posters and T-shirts but
also for mobile phone covers and ringtones and
a wide range of branded products which are sold
through retail.
A key client signed in the year for branded license
deals is Hilary Duff. Ranked as one of the top
five performers of her generation, Hilary has also
been cited as one of the top three most influential
child actors in the industry, following her success
in the Disney Channel’s ‘Lizzie McGuire’ and
several hit movies, and she released her album,
‘Metamorphosis’, in 2003. This album went to
Number One on the US chart and has sold over
2.5 million copies to date. Bravado has worked
closely with Hilary to create a wide range of over
60 products under the name ‘Stuff by Hilary Duff’,
which launches in full in Spring 2004 and will be
a key product line in Target Stores, a major US
retail chain. There will be continued support from
the artist, with promotion also working alongside
three new movies in 2004, a new TV series being
developed for her in 2004-5 and continued live
performances.
Charting More Success
In July, Sanctuary acts accounted for a record
seven per cent of the Billboard Hot 100 album
chart. As a broad-based business, we are involved
with every facet of the global music industry
from Management and Live Agency to Records,
enhancing the success of established acts and
developing long-term careers for new acts.
Key to our strategy is the ability to work closely
with the artists. Combined with the experience
and diligence of our people worldwide, it means
we can offer a unique package.
Bravado, with record receipts per head being achieved for Robbie
Williams’s shows at Knebworth and several Iron Maiden shows.
Increasingly, however, we help many of these clients focus on
diversifying their image rights across a wide range of licensed
branded retail products. These include clothing ranges for
Liberty X and over 60 products for teen movie, recording and
TV sensation Hilary Duff, which launch in Spring 2004.
Music Publishing
Our previously stated aim of increasing our presence in this
lucrative area continues to be an important area of focus, and we
have used recent fund raising to start acquiring some good value
catalogues. Meanwhile, we are building a strong critical mass
by signing high quality songwriters, both new and established.
To help maximise our revenues and those of our songwriters,
we have signed a deal with Kobalt for a superior administration
and collection service for royalties.
Air-Edel’s roster of 40 composers continued to work on numerous
major movie, music and TV projects in 2003, including ‘Chasing
Liberty’ and Opera Band’s ‘Forever’ album. Air-Edel Copyright’s
‘Jeans On’ was re-recorded by country artist Keith Urban last year
for his million selling UK album.
We expect to see increased activity as well as acquisitions in
music publishing during 2004, especially from the US.
Book Publishing
This area is now starting to show good growth, with a substantial
uplift in sales and a strong worldwide distribution network. Best
sellers in 2003 included Sullivan’s Music Trivia (100,000 copies in
print) and The Beatles Box Set (70,000 copies in print). The Music
Technology list has been updated and continues to be a market
leader, with over 100 titles in print.
Group Services
Our recording, mobile, audio-visual, post production and
mastering studios continue to provide the highest quality service
to our own acts, as well as external clients.
Town House continues to be regarded as one of the world’s
leading recording studios and in the last year has welcomed artists
as diverse as Elton John, Blue, Ocean Colour Scene and Busted.
The mastering studios have worked with acts including Kylie,
Coldplay and Blur, including several UK Top Ten hit singles.
Bravado has worked closely with and developed a
wide range of successfully licensed branded retail
products for its artists.
Sanctuary Mobiles’ four units were kept very busy with recording
and mixing for clients as varied as David Bowie, Westlife, Blue,
Red Hot Chili Peppers and MTV Europe and recorded seven of
the Top Ten artists in the end of 2003 Official UK Music DVD and
Video chart.
Sanctuary Post, our DVD, TV and audio post-production facility,
is capable of working on a wide range of projects from DVD
design and authoring to TV commercials, voice-overs and digital
animation all on our site. Projects completed include those for
Liberty X, Siouxsie & the Banshees, Blue Velvet, Dune, Pink Floyd,
Kiss, Stereophonics, Black Sabbath, and Ministry Of Sound.
Human Resources
We continue our policy of ensuring we have highly motivated and
skilled teams of people in all areas of our business. In the US we
Annual Report 2003
continued
10
Kiss
Double Platinum DVD
and Gold double album
Annual Report 2003
“Sanctuary – that rare commodity
of a multi-discipline music
company which is thriving”
BILLBOARD
21 December 2002
KISS
Maximising the fan
base worldwide
REPRESENTED FOR:
> RECORDS
> DVD
One of the biggest successes for Sanctuary
Records in 2003 was the rock act Kiss,
who signed with us in the Spring. The
act is one of the world's best selling
recording and live acts. The live double
album (Kiss Alive IV) and DVD (Kiss
Symphony) of a show performed with
the Melbourne Symphony Orchestra were
released in the Summer.
The release of the double album
coincided with a major 60 date US tour
the band undertook with Aerosmith,
which continued until the end of the year
and provided an ideal tie-in for promotion
and marketing. The tour was the US’s
seventh highest grossing tour of 2003.
The album was released at the end of
July, having already shipped Gold in the
US (over 500,000 units), and debuted at
Number 18 in the US chart, as well as
chart debuts in Australia (Number 14),
Germany (Number 15) and Canada
(Number 10).
The DVD debuted at Number One in
the US Music Video chart before being
certified double Platinum and has sold
over 100,000 units worldwide to date.
11
New Product
We continue to attract high profile artists. New
recordings for release in 2004 so far include
albums from Morrissey, The Wu Tang Clan, Billy
Idol, Blondie, St Etienne, Tim Booth and a new
DVD from Neil Young. There are also follow
up albums from Alison Moyet, Megadeth, The
Libertines, Spiritualized, British Sea Power,
Lloyd Cole and Gary Moore.
Developing New Talent
In the area of new artists, we have had some
notable successes from the newer acts signed to
our Rough Trade label. In particular, there were
very encouraging debuts from The Libertines and
British Sea Power. The Libertines debut album ‘Up
The Bracket’ built on a fan base that had already
seen their powerful live shows in the UK and
Europe and the band were awarded Best UK Band
at the 2004 NME Awards. ‘Up The Bracket’ reached
Number 29 in the UK album chart and has sold
over 170,000 copies worldwide to date. British Sea
Power also received critical acclaim for their debut
album ‘The Decline Of British Sea Power’, which
has sold over 50,000 copies and was also supported
by a series of live dates. The Strokes success
continues with their second album ‘Room On Fire’
selling over 300,000 copies in the UK and debuting
in the UK album chart at Number Two. The
Strokes first album has now sold over 650,000
copies in the UK.
have appointed a dedicated Human Resources team to implement
our policies and develop our workforce globally.
We continue to make training and development a priority and
to focus on succession planning to ensure we have the right
people to drive Sanctuary forward. Our success in integrating
new businesses is evident from the high staff retention rate
following acquisitions.
We welcomed the second intake to our unique UK fast-track
management scheme in the autumn, with the first intake having all
been placed in permanent management roles across the business.
Communications
All our people receive regular email and printed newsletter
communications regarding our business developments and
successes. To enhance this further, we have started building
a global intranet.
The Future
We expect to see further strong growth, and for the Sanctuary
model to continue to flourish in 2004. Records, with its recent
successes and a global distribution capability fully structured
through traditional 'hard' product methods, is now poised to take
advantage of the new distribution channels available through
internet and telecoms downloads and audio-visual. Also, we are
now one of the first ports of call for both new and established
long-term career acts. We benefit too from the upsurge in
spending on music by the over 35 age group, where most of
our catalogue is naturally targeted, whether through traditional
outlets or ‘clicks and mortar’ operations.
Our major move into Urban music, with some of the biggest
artists in the business combining with the strength and breadth
of our roster of clients in Artist Services (which is second to
none), allows us to take full advantage of the rapidly growing
live performance and artist-associated merchandising, sponsorship
and endorsement opportunities. Our newer areas of Music and
Book Publishing are also now poised for strong growth.
Overall, therefore, I expect to see continued growth in both
profitability and turnover across all our business areas. In
combination, the maturing of our Records model, which is starting
to see strong cash flow from previous signings exceeding investment
in new acts, and the growth of our cash generative Artist Services
model should also result in significantly improved cash conversion.
Gary Jules, whose Sanctuary Records single ‘Mad
World’ with Michael Andrews was the UK Christmas
Number One and has sold over 650,000 copies to date.
We remain fundamentally committed to our strategy of growth,
taking advantage of some of the many opportunities which exist
in the market place, through both organic means and by selective
acquisitions.
None of this progress could be achieved without the tremendous
effort, initiative and commitment from our staff and I would like
to thank everyone in the Sanctuary family worldwide for all their
hard work.
Andy Taylor
Executive Chairman
19 January 2004
Annual Report 2003
An International Team
12
1
5
2
3
4
6
With offices in the UK, US, Canada and
Germany and international distribution
worldwide, our global reach allows us
access to all the world’s major music
markets as well as newer developing
territories.
1. Artist Management, US
L-R: Danny Heaps, Mathew
Knowles, Cory Brennan, Jenny
Lay, Brigit, Merck Mercuriadis,
John Boyle, Rick Sayles, Jim
Phelan, Alana Schwartz. Not
present in photo: Peter Asher
& Carl Stubner.
2-4. Bravado, UK & US
L-R: Hywel Davies, Colin Stone,
Steve Miles, Barry Drinkwater,
Mark Stracey, Maria Conroy,
Keith Drinkwater.
Annual Report 2003
13
7
8
9
10
11
12
13
14
5. Helter Skelter
L-R: Ian Huffam, Pete Nash,
Emma Banks.
6. Records, US
L-R: Kenny Ochoa, Jenny
Lay, Mike Jaison, Alana
Schwartz, Bob Cahill,
Merck Mercuriadis, Mike
Greenspan, John Kalodner,
Keith Woods, Tom Lipsky,
Drew Murray, Cory Brennan.
7-8. Records, UK
L-R: Joe Cokell, Martin Haxby,
Chris Craker, Roger Semon,
Paul Kernick, Ed Cook.
9. Records, UK
L-R: Julian Wall, John
Williams, Giles Green,
Henri Yori.
10-11. Artist Management,
UK and Publishing,
UK & US
L-R: Martin Hall, Aky Najeeb,
Deke Arlon, Rod Smallwood,
Bill Curbishley, Mike Cass.
OFFICES:
UK – London
US – New York, Los Angeles,
Houston, Raleigh, San Francisco,
Washington DC
Canada – Mississauga
Germany – Berlin
12. Records, Germany
Antje Lange.
13. Studios, UK
Back L-R: Steve Butt, Julie
Bateman, Maryan Kennedy,
Ian Dychoff. Seated: Chris
Jerome.
14. Records, UK
L-R: Roger Semon, Michelle
Callaghan, Lee Simmonds,
Mike Mastrangelo, John
Reed, Lorraine Jones, Lynn
McPhilemy.
Annual Report 2003
Financial Review
14
acquisitions. Whilst we have so far incurred cumulative losses of
c.£2m in building Music Publishing, we expect to generate this year
a NPS (Net Publishers Share) of £500,000 p.a. which should increase
year-on-year. As both the Music and Book Publishing areas grow, we
expect them to be disclosed within their own separate operating
division in the medium-term.
Mike Miller
Finance Director
All the businesses once again performed well during the year, with
most of the growth being organically generated. Turnover from
acquisitions in the period accounted for 2.6% of total Group turnover,
contributing 4.6% to Group Operating Profit. The key highlights of the
year have been covered elsewhere in this document and the table
opposite shows the results at a glance.
Normalised pre-tax profits, a key indicator used by most media
analysts, once again showed good growth of 19.7% to £17.0m
(2002: £14.2m), see table on next page. Net assets grew by £6.8m
to £129.8m. Once again, we have seen progress in our business
model’s ability to generate cash. Cash generated from operations as
a percentage of EBITDA (Earnings Before Interest Tax, Depreciation
and Amortisation) before new artist advances increased to 75% from
72% last year. The beneficial impact of our investment in Artist
Services, together with the increasing rate at which we recoup our
artist advances within Records, will show continued improvement in
cash conversion in 2004 and beyond.
Disposal of Cloud 9
The disposal of Cloud 9, announced just prior to the year-end,
has now been completed, and this has allowed us to focus our business
on our core music activities. Following completion of this transaction
our net debt position remains unchanged, however, as Cloud 9
establishes itself as an autonomous business, relocated from New
Zealand to Australia, we expect to see our loan to it reducing and,
over a period of time, fully repaid.
Restructure of Operating Divisions
Following this disposal we were also able to restructure our
businesses into three main operating divisions to better reflect the
nature of our operations, namely Recorded Product, Artist Services
and Group Services.
Our music DVD and music programming operation, Sanctuary Visual
Entertainment, which was previously in our Screen division, has been
combined with Sanctuary Records to create the Recorded Product
division. This allows sales, marketing and accounting functions to
operate together, as audio and audio-visual have become increasingly
linked in recent years.
Music Publishing and Book Publishing, both of which were also within
the Screen division, have been moved into the Artist Services division
and are administered by the same teams as the other companies in
this division. We have built Music Publishing almost from a zero base
because as we have previously stated, we are not prepared to pay high
multiples for publishing catalogues, which will not give us a decent
return on our capital. However, we now believe that these multiples are
becoming more realistic and we are actively looking at a number of
Revenue Mix
When comparing the performance of each of the divisions it is
important to understand what constitutes turnover. Within Artist
Services, for example, turnover within Artist and Producer Management
and Live Agency represents the commission due to the Group being a
percentage of the artist's gross income. On the other hand a significant
proportion of Merchandising turnover is the gross sales of goods to
concert goers, against which the costs of manufacture, distribution,
and royalties due to the artists and the commission due to the venues
are then deducted through cost of sales.
Similarly within Publishing, Book Publishing turnover represents the
sales price of product to retailers against which cost of sales, royalties,
and distribution costs are charged through cost of sales, while for
Music Publishing the Group's income is largely from royalties and
licence income received from the manufacturers and users of
copyrighted material against which cost of sales may only include
administration fees and royalties payable to writers.
Origination Costs and Artist Joint Venture Deals
As our Records business has developed so have our accounting
treatments. We incur substantial costs annually in the creation
of the final master recordings and the original artwork that
accompanies these releases. This is particularly true with our
catalogues which are constantly being re-mastered, updated and
refreshed. It is our practice to match the costs incurred with the
revenue generated which, on occasions, can be across more than
one accounting period. However, no origination cost is carried for
more than 36 months regardless of its ongoing revenue potential.
Increasingly we are seeing opportunities to undertake joint venture
projects with established recording artists. The advantage of this type
of deal is that there is usually no, or a low, advance and all profits
and losses are shared equally with the artist. The accounting basis
is to effectively match the costs and revenues of the project and then
provide for 50% of the net profits for the artist. As the costs are incurred
some time before release, and therefore generation of revenues, these
costs are held on the balance sheet effectively as an investment in the
project and then matched with the revenue when that is generated.
Provision is then made for the artist’s share.
Convertible
We have identified certain key acquisition opportunities in Music
Publishing and Recorded Music catalogues that we believe will only be
available in the short-term. We examined various funding options and
took advice from our brokers. The most cost effective way of raising
the necessary funds was through convertible loan notes and warrants
and we received approval from our shareholders via an Extraordinary
General Meeting in November 2003 to do this. The notes have a four
and a half per cent interest yield, fixed for the next five years, with a
strike price just above 63p. The bond owners committed to an initial
£21.5m with an additional £8.5m to be optioned anytime up to May 2005.
Taxation
Approximately 50% of the Group's consolidated tax figure for the 2003
period represents actual tax payable, in respect of taxable profits in the
Annual Report 2003
15
period. The balance of this total figure is deferred tax, which
is primarily the recognition of future tax liabilities in other tax
jurisdictions. After several years of profitable trading and growth,
the historical tax losses have now, in the main, been fully utilised
and we would expect to see an increase in the percentage level
of total tax attributable to current liabilities. Conversely, the
percentage level of total tax attributable to deferred taxation will
fall, as historically deferred overseas liabilities are crystallised.
outside the US are currently experiencing gains. Overall, our exposure
to the weakness in the dollar is relatively small and manageable.
Interest Rates
We constantly monitor interest rates but having now completed
the convertible, referred to earlier, we will benefit from some very
advantageous rates over the medium-term.
Exchange Rates
As with all companies operating in the US, we have an exposure to
the translation risk of US generated profits. However, most advances to
artists are denominated and recouped in US Dollars and therefore sales
Mike Miller
Finance Director
Turnover geographical analysis
2003
2002
44%
18%
16%
4%
ROW
43%
39%
34%
2%
Europe
US
ROW
UK
2001
Europe
US
UK
2000
55%
48%
33%
28%
15%
14%
4%
ROW
3%
Europe
US
UK
ROW
Europe
US
UK
Normalised Profit before Tax
Normalised Profit before Tax
Goodwill amortisation
Intangible assets amortisation
Normalised profit
Normalised diluted earnings per share
Year to
30 Sept 2000
£’000
Year to
30 Sept 2001
£’000
Year to
30 Sept 2002
£’000
Year to
30 Sept 2003
£’000
4,106
800
490
5,396
2.78p
7,723
2,334
1,226
11,283
3.10p
10,263
3,600
351
14,214
3.17p
10,791
4,030
2,180
17,001
3.85p
Turnover
2003
£m
2002
£m
EBITDA
2003
£m
2002
£m
78.0
63.8
7.3
2.6
151.7
71.7
36.8
5.9
3.7
118.1
16.6
4.5
1.7
1.7
24.5
14.5
2.9
1.3
1.7
20.4
Divisional Results at a glance
year-ended 30 September
Recorded Product inc DVD
Artist Services
Group Services
Screen – discontinued activities
Total
Annual Report 2003
Board Members
1
2
3
4
5
6
7
8
9
10
11
12
16
1. ANDY TAYLOR
Executive Chairman, 53
Andy Taylor co-founded Sanctuary with Rod Smallwood in
1976, having met at Cambridge University. Andy is a qualified
Chartered Accountant and has responsibility for the overall
development of Group strategy.
2. ROD SMALLWOOD
President, Sanctuary Artist Services, 53
Rod Smallwood co-founded Sanctuary in 1976. After Cambridge
he was a booking agent at MAM Ltd until he left in 1974 to
co-manage Steve Harley and Cockney Rebel. In 1979 he discovered
Iron Maiden, who he still personally manages, and also continues
to develop a roster of successful managed acts. He oversees Artist
Services.
3. MIKE MILLER
Finance Director, 43
Mike Miller joined Sanctuary in 1986, having qualified as a
Chartered Accountant the previous year. Mike has been the Finance
Director since 1991 and now heads a team of 68 accountants across
the Group’s worldwide operations. He also has overall responsibility
for the Group’s Communications and IT functions.
4. AKY NAJEEB
CEO, Sanctuary Artist Services, 44
Aky Najeeb joined Sanctuary in 1984 and has experience
within both music and TV areas of the business. He now has
overall responsibility for commercial and corporate affairs within
Artist Services including Publishing.
5. JOE COKELL
CEO, Sanctuary Records Group UK, 46
9. DOUGLAS McARTHUR OBE
Non-Executive, 52
Joe Cokell was previously MD of Castle Music, a company
acquired by Sanctuary in 2000. Joe has over 20 years’ experience
in the record industry and has held Director positions for
Marketing and Sales for BMG, Universal and Warner Bros.
Douglas McArthur joined Sanctuary in 2000. After graduating with
a degree in Maths & Physics, he commenced his marketing career
with Proctor & Gamble. In 1992 he founded the Radio Advertising
Bureau and remains its Chief Executive. He is a member of the
Audit Committee.
6. MERCK MERCURIADIS
CEO, Sanctuary US, 40
10. JOHNNY GREENALL
Non-Executive, 64
Merck Mercuriadis has been with Sanctuary for the past
16 years, splitting his time between the commercial and the
creative. He is involved in the management of artists including
Guns N' Roses and Jane’s Addiction. Having relocated from
London to New York in 2000, Merck oversees all North American
operations of the Group.
Johnny Greenall joined the Board in 2002. He has worked
for 42 years in the City, latterly as the Director of Corporate
Banking at Investec Securities. He is a member of the
Remuneration Committee.
7. JIM DRISCOLL MBE
Non-Executive, 57
Jim Driscoll has worked in the media industry for many years,
with extensive interests in smaller company development and
animation. He joined Sanctuary as a Non-Executive Director in
September 1998 and is a member of both the Audit and the
Remuneration Committees.
Sir Christopher joined the Board in July 2003. He has a
distinguished diplomatic background, having latterly held
the post of Ambassador to the United States from 1997 until
February 2003. He has also served in Russia, Spain and Germany,
and from 1994 to 1996 he was Chief Press Secretary to the Prime
Minister. Sir Christopher is currently Chairman of the Press
Complaints Commission.
8. TINA SHARP
Non-Executive, 42
12. SARAH STANDING
Company Secretary, 39
Tina Sharp joined the Board in 2000. Formerly a Director of
ABN AMRO Mezzanine (UK) Ltd. A graduate of Oxford University,
she has followed a career in the banking and private equity
industries and now specialises in fund raising. She is a member
of the Audit Committee.
Sarah Standing has been with Sanctuary since 1994 when she
joined as Group Financial Controller. Previously with PKF, Sarah
is a qualified Chartered Accountant. She currently works closely
with Mike Miller within the Finance department and is also
Company Secretary to all Group Companies.
Annual Report 2003
11. SIR CHRISTOPHER MEYER
Non-Executive, 59
Financial Statements
17
18 Directors’ Report
19 Corporate Governance
21 Directors’ Responsibilities in the
Preparation of Financial Statements
22 Independent Auditors’ Report to the Members
of The Sanctuary Group plc
23 Directors’ Remuneration Report
26 Consolidated Profit and Loss Account
for the year ended 30 September 2003
27 Consolidated Balance Sheet
at 30 September 2003
28 Company Balance Sheet
29 Consolidated Cash Flow Statement
30 Reconciliation of Movements in Shareholders’ Funds
30 Statement of Accounting Policies
32 Notes to the Financial Statements
Annual Report 2003
Directors’ Report
18
The Directors have pleasure in presenting their report and
the financial statements of the Company and the Group for the
year ended 30 September 2003.
Substantial Interests
According to the register kept for the purpose of recording
interests of 3% and over in the Company’s share capital,
the following interests as at 16 January 2004, are recorded:
Principal Activities
The Executive Chairman’s Review and the Operating and
Financial Review in this Annual Report together contain details
of the principal operations of the Group and their results during
the year as well as likely future developments.
Results and Dividends
The Group trading profit for the year before taxation and minority
interests was £10,791,000 (2002: £10,263,000).
The Board is recommending a final dividend of 0.4p per
Ordinary Share (2002: 0.35p). The final dividend will be paid on
7 April 2004 to Shareholders whose names are on the Register
of Members at close of business on Friday 5 March 2004,
with shares going ex-dividend on Wednesday 3 March 2004.
Chase Nominees Limited
State Street Nominees Limited
Lehman Brothers International (Europe) Limited
Morstan Nominees Limited
R C Smallwood
A J Taylor
Stanlife Nominees Limited
Ordinary Shares
of 12.5p each
% of total issued
share capital
27,267,202
21,100,100
18,787,252
17,599,000
16,401,996
16,247,796
14,259,781
8.24
6.38
5.68
5.32
4.96
4.91
4.31
The Euro
All relevant parts of the Group are able to handle Euro
transactions.
Environmental and Employment Policies
Environmental Policy
Directors
The Directors who have held office during the year, together with
their beneficial interests in the share capital of the Company,
were as follows:
30.9.03
Share Warrants
30.9.03
Ordinary Shares
of 12.5p each
30.9.02
Share Warrants
30.9.02
Ordinary Shares
of 12.5p each
–
–
–
–
–
–
–
–
–
–
–
16,247,796
2,383,714
16,401,996
2,401,866
459,697
404,298
15,738
25,000
–
25,000
–
–
–
–
–
–
9,375
–
–
–
–
–
15,297,796
2,383,714
15,270,287
2,401,866
916,318
394,923
15,738
–
200,000
25,000
–
A J Taylor
M D Miller
R C Smallwood
A Najeeb
J Cokell
M Mercuriadis
T M Sharp
D B McArthur
J C Driscoll
J D T Greenall
Sir C J R Meyer†
†On 31 July 2003 Sir C J R Meyer was appointed as an additional
Non-Executive Director. On 20 January 2003 Mr M J Haxby
resigned as an Executive Director of the Company and on 31 July
2003 Mr D C Marshall resigned as a Non-Executive Director of the
Company.
Mr M D Miller, Mr A Najeeb and Ms T M Sharp submit
themselves for re-election at the forthcoming Annual General
Meeting. Biographies of the present Directors of the Company
are set out on page 16.
Apart from the interests above and the options to subscribe for
Ordinary Shares set out on page 25, no Director held any other
interests in the share capital of the Company during the year. No
changes to the interests disclosed above have taken place since
the year end.
The Company has purchased Directors’ liability insurance as
permitted by Section 310(3) of the Companies Act 1985.
CREST
The Company’s shares are eligible for settlement in CREST,
the paperless Stock Exchange system for settlement of share
transactions.
The majority of our businesses have little impact on the
environment but, where they do, we ensure a responsible
approach is taken at all times and we are nonetheless
committed to continually improving our policies and those
of our suppliers towards the environment. We aim to comply
with existing UK and European legislation and monitor the
progress of such policies annually.
Board responsibility for our environmental policy rests
with Executive Chairman Andy Taylor. Management of
environmental issues is the responsibility of each division.
Whilst we are not a manufacturing company, we do recognise
that there are areas in which we can make a difference to a
cleaner and better environment. This also involves the
education and training of employees in environmental issues
and the environmental effects of their activities.
We have recently introduced some new initiatives:
• All waste from our Head Office, which houses one third
of our worldwide employees, is taken away and sorted
for recycling. This minimises the frequency of waste
collections and allows for proper sorting off the premises.
• We encourage the use of public transport by employees,
with season ticket loans available to staff and cycle parking
facilities provided. We also continue to reduce our fleet of
company cars.
We continue to:
• aim to minimise waste wherever possible through better
use of resources.
• aim to recycle as much paper and packaging material as
possible.
• monitor our water and energy efficiency.
• minimise the use of solvents and lead-based paints.
• aim to use timber only from sustainable (managed) forests.
• seek to minimise noise disturbance to neighbours.
• phase out CFCs and ozone-depleting substances.
Employment Policy
We are committed to our employees’ welfare and personal
and career development. To ensure a flexible and responsive
workforce, we have invested significantly in training for all
levels of our business and in the implementation of a
progressive Management Trainee scheme.
Annual Report 2003
Directors’ Report
continued
Corporate Governance
19
Employees at Sanctuary have constant access to communication
concerning significant matters affecting the operational and
financial performance of the Group through information
bulletins, intranet systems and meetings and they are actively
encouraged to contribute to, and involve themselves in, the
decision-making of all operating sectors.
We have two share option schemes and an Employee Benefit
Trust. Also, in the UK, we operate a Save as you Earn (SAYE)
share option scheme for all eligible employees.
Corporate Governance and Internal Control
The Board is responsible to Shareholders for the effective
direction and control of the Group and this report describes
the framework of corporate governance and internal control that
the Directors have established to enable them to carry out this
responsibility. It also explains how the Company has applied the
Principles of Good Governance and Code of Best Practice (the
“Combined Code”) which is attached to the Listing Rules of
Financial Services Authority.
Directors
Sanctuary is fully compliant with all new EU workplace and
employment legislation and a programme of ongoing education
is in place to ensure that line managers are fully up to date with
any changes. It is the Group’s policy to give every consideration
to applications from disabled persons and to afford them full
opportunity for appointment to, and training for, positions
within their capabilities. Should an employee become disabled
during employment with the Group, every effort is made to
continue employment within his or her capacity where
practicable or, failing that, in some suitable alternative capacity.
Payment of Suppliers
The Company does not follow a standard code for dealing
specifically with the payment of creditors. The Company
negotiates payment terms with its suppliers on an individual
basis and generally settles its accounts in accordance with those
terms. Trade creditor days of the Company as at 30 September
2003 were 33 days (2002: 46 days), based on the ratio of Company
trade creditors at the end of the year to the amounts invoiced
during the period by trade creditors.
Post Balance Sheet Event
On 28 November 2003 at an Extraordinary General Meeting of
the Company, the issue of up to £30,000,000 4.5% Convertible
Loan Notes and Warrants was agreed. The rationale for this was
to allow the Group to take up business opportunities which were
being offered due to the current state of the music industry.
Further details of the post balance sheet event are given in Note
29 to the financial statements.
The business of the Group is managed by the Board. The Board
has eleven members; an Executive Chairman, five Executive
Directors and five Non-Executive Directors.
The Chairman has responsibility for the overall development of
Group strategy and management of the Group via the divisional
CEO’s who have day-to-day executive responsibility for the
running of the Company’s businesses.
In recent years, the Board has concluded that the Group has been
best served by the CEO’s of the operating areas reporting to an
Executive Chairman who complements their music industry
skills. The Board has further concluded that the interposition of
another senior executive over the business CEO’s would lead to
unnecessary duplication and diffusion of responsibility.
The Board considers that, for the present, the structure outlined
above is the most effective for the Group and is in the best
interests of both the Company and its Shareholders.
The Board considers each of the Non-Executive Directors to
be independent of management and free from any business
relationships which could materially interfere with the exercise
of their independent judgment. Short biographies of each of the
Directors appear on page 16.
Under the Company’s articles of association one-third, or the
number nearest to, but not greater than one-third, of all Directors
must seek re-election by Shareholders each year.
Sarah Standing
Company Secretary
19 January 2004
The Board generally meets at least ten times a year, and Board
members receive a steady flow of information and explanations
which they believe are sufficient to enable them to discharge their
duties. Members of the Board receive appropriate training when
necessary in respect of their obligations, have access to the advice
and services of the Company Secretary and are able to obtain
independent professional advice, at the Company’s expense, if
required. There is a formal written schedule of matters reserved
for the Board’s decision. This schedule, which is subject to regular
review by the Board, includes the approval of annual and interim
results, acquisitions and disposals, material agreements, capital
expenditures, budgets and strategic plans. Other matters are
delegated to Board committees, including the three principal
committees: the Audit Committee, the Remuneration Committee
and the Nominations Committee, each of which are described in
more detail on page 20.
Annual Report 2003
Donations
The Company made charitable donations totalling £37,000 in
the year (2002: £34,000). These were principally to music
related- charities both in the UK and US. No political donations
were made (2002: £nil).
Auditors
A resolution to re-appoint Baker Tilly, Chartered Accountants,
as auditors will be put to the members at the Annual General
Meeting.
Approved by the Board and signed on its behalf by
continued
20
The following table sets out the number of meetings of the Board,
and of the principal committees of the Board, during the year
together with details of attendance. In addition to the formal
meetings of the Board, the Chairman and the Finance Director
maintain regular contact with all divisional CEOs and hold
informal meetings with Non-Executive Directors to discuss issues
affecting the Group.
Board
Audit
Remuneration
Nomination
10
4
1
1
10
10
8
9
9
8
9
9
7
9
1 (of 1)
n/a
n/a
n/a
n/a
n/a
n/a
4
4
3
n/a
n/a
1
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1
1
n/a
1
n/a
n/a
n/a
n/a
n/a
1
n/a
n/a
1
n/a
Audit
Remuneration
Nomination
JC Driscoll
TM Sharp
DB McArthur
JDT Greenall
JC Driscoll
Sir CJR Meyer
(from 3/10/03)
DC Marshall
(to 31/7/03)
JDT Greenall
TM Sharp
AJ Taylor
No. of meetings
Attendance:
AJ Taylor
MD Miller
RC Smallwood
A Najeeb
J Cokell
M Mercuriadis
TM Sharp
DB McArthur
JC Driscoll
JDT Greenall
Sir CJR Meyer
Principal committees of the Board
Chairman
Other Members
The members of three principal committees of the Board,
the Audit Committee, the Remuneration Committee and the
Nominations Committee, during the period under review are
set out in the table above. Each of the committees has operated
throughout the year and has written terms of reference setting
out its authority and duties.
Audit Committee
The Audit Committee meets at least twice a year. The committee
examines the process of financial reporting within the Group,
reviews the Group’s accounting policies and monitors the
integrity of the financial statements. It also reviews the Group’s
system of internal control and processes for monitoring and
evaluating the risks facing the Group. The committee is
responsible for the appointment of the external auditors, for
monitoring the auditors’ independence and cost-effectiveness
and for reviewing the scope and results of the audit with them.
Remuneration Committee
The Remuneration Committee meets at least once a year.
It is responsible for determining the Company’s policy on
Executive Directors’ remuneration, for agreeing the overall
framework of remuneration policy for the Company and
overseeing the operation of the Company’s share-based incentive
schemes. It takes advice from the Executive Chairman, who is
invited to attend meetings of the committee except when his
own performance and remuneration are under review.
A more detailed review of the remuneration policy and the
operation of the committee is set out in the Directors’
Remuneration Report on pages 23 to 25.
Nominations Committee
The Nominations Committee meets as required. Its primary
responsibility is to make recommendations on appointments
to the Board and to consider the structure and composition of
the Board. When required to make a recommendation on an
appointment, the committee prepares a specification for the role
and, in the case of an executive position, considers whether an
internal appointment would be appropriate before engaging
independent executive search consultants to assist it in finding
suitable candidates. In making its selection, the committee has
regard for particular requirements of the role, the general and
specific business experience of the individual and, in the case of
non-executive appointments, a candidate’s other commitments.
Relations with Shareholders
The formal channels of communication by which the Board
accounts to Shareholders for the overall performance of the
Company are the annual report and accounts, the interim report
and the preliminary annual and interim announcements made
through the RNS Service of the London Stock Exchange. Members
of the Board meet frequently with representatives of institutional
investors, fund managers and financial analysts throughout the
year. These meetings discuss information made public by the
Company and help to ensure that the strategies and objectives
of the Company, and the views and concerns of investors, are
well understood. Presentations are made to representatives of
the investment community following the publication of the
Company’s annual and interim results.
The committee’s policy is to undertake a formal assessment
of the auditors’ independence each year which includes:
Company information and announcements may be viewed on
our corporate website www.sanctuarygroup.com and Shareholders
who have any queries relating to their shareholding or to the
affairs of the Company generally are welcome to contact the
Company Secretary.
•
Internal Controls
a review of non-audit services provided to the Group and
related fees;
• discussion with the auditors of a written report detailing all
relationships with the Company and any other parties that
could affect independence or the perception of independence;
• a review of the auditors’ own procedures for ensuring the
independence of the audit firm and partners and staff involved
in the audit, including the regular rotation of the audit
partner; and
• obtaining written confirmation from the auditors that, in their
professional judgement, they are independent.
The Board is responsible for establishing and maintaining the
Group’s system of internal controls and for reviewing its
effectiveness. Although no system of internal controls can
provide absolute assurance against material misstatement or
loss, the Group’s systems are designed to provide the Board with
reasonable assurance that all business and financial risks are
identified on a timely basis and appropriate action taken. The
Board has conducted a review of the effectiveness of the system
of internal controls throughout the period from 1 October 2002
to the date of approval of the financial statements and confirms
that it accords with the Turnbull guidance.
An analysis of the fees payable to the external audit firm in
respect of both audit and non-audit services during the year is
set out in Note 3 to the financial statements.
Divisional Board meetings, chaired by the CEO of each operating
division and consisting of the relevant Executive Directors and
Annual Report 2003
continued
21
other senior executives with responsibility for all aspects of that
operating divisions activities, form the basis of the control system.
These meetings take place monthly to allow discussion of all
major business issues and the prompt resolution of any matters
that arise. They address operational issues, monitor financial
performance against budget and have responsibility, up to defined
levels, for development, production and capital expenditure. The
Divisional Boards control an integrated process for identifying,
evaluating and monitoring significant business risks through
which the members are accountable for the managing of risk
within their business areas. The results of this process are also
made available to the Audit Committee and the main Board.
Amongst the other key elements of the Group’s system of internal
controls are:
•
•
•
•
•
•
A comprehensive budgeting system including reviews at all
levels of the business and approval of the annual budget and
long-term plans by the Board;
Frequent reporting of results to each level of management
as appropriate, including monthly reporting to the Board of
actual results against budget and revised forecasts with
corrective action being taken as necessary;
Detailed financial analysis and evaluation undertaken for all
business opportunities;
A clearly defined organisational structure with written job
descriptions, clear responsibilities and delegated authority
levels;
Procedures for the approval and monitoring of capital
expenditure; and
Written authority limits for the ordering of goods and services
and for payments by the Group.
The Board continues to be of the opinion that, in view of the size
of the Group and existing framework of internal controls, it would
not be appropriate to appoint an internal audit function.
Statement of Compliance with the Combined Code
The Company has complied with the code provisions set out
in section 1 of the Combined Code, throughout the period
from, 1 October 2002 to the date of approval of the Financial
Statements in all respects other than as indicated below:
•
Code provision A2.1. No senior independent Director has
been identified by the Board as the Board do not believe this
to appropriate for a company of this size.
In July 2003, the Financial Reporting Council issued a revised
Combined Code (“the New Code”). Although compliance with the
New Code will only be mandatory for companies for reporting
years beginning on or after 1 November 2003, the Board has
reviewed the New Code and is taking such action as it considers
necessary to comply with it as soon as possible.
Going Concern
After reviewing the Group’s budget for the financial year ending
30 September 2004 and its medium-term plans, the Directors
are confident that the Company and the Group have adequate
financial resources to continue in operational existence for the
foreseeable future. They have therefore continued to adopt the
going concern basis in preparing the financial statements.
Directors’ Responsibilities in the
Preparation of Financial Statements
Company law requires the Directors to prepare financial
statements for each financial period which give a true and fair
view of the state of affairs of the Company and the Group as at
the end of the financial period and of the profit or loss of the
Group for that period. In preparing those financial statements,
the Directors are required to:
(a) select suitable accounting policies and then apply them
consistently;
(b) make judgements and estimates that are reasonable and
prudent;
(c) state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
(d) prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time
the financial position of the Company and the Group and to
enable them to ensure that the financial statements comply
with the requirements of the Companies Act 1985. They are also
responsible for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Annual Report 2003
Independent Auditors’ Report to the Members of
22
We have audited the financial statements on pages 26 to 48. We
have also audited the disclosures required by Part 3 of schedule
7a to the Companies Act 1985 contained in the Directors’
Remuneration Report under the heading Analysis of Directors’
Remuneration and Directors’ share options (“the auditable part”).
This report is made solely to the Company’s members, as a body,
in accordance with section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report,
the Directors’ Remuneration Report and the Financial Statements
in accordance with applicable law and United Kingdom
Accounting Standards are set out in the Statement of Directors’
Responsibilities. Our responsibility is to audit the Financial
Statements and the auditable part of the Directors’ Remuneration
Report in accordance with relevant legal and regulatory
requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the Financial
Statements give a true and fair view and whether the
Financial Statements and the auditable part of the Directors’
Remuneration Report have been properly prepared in accordance
with the Companies Act 1985. We also report to you if, in our
opinion, the Directors’ Report is not consistent with the Financial
Statements, if the Company has not kept proper accounting
records, if we have not received all the information and
explanations we require for our audit, or if information specified
by law regarding Directors’ remuneration and transactions with
the Company and other members of the Group is not disclosed.
We review whether the Corporate Governance Statement reflects
the Company’s compliance with the seven provisions of the
Combined Code specified for our review by the Listing Rules of
the Financial Services Authority, and we report if it does not. We
are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion
on the effectiveness of the Group’s Corporate Governance
procedures or its risk and control procedures.
We read the other information contained in the Annual Report
and consider whether it is consistent with the audited Financial
Statements. This other information comprises only the Directors’
Report, the unaudited part of the Directors’ Remuneration Report,
the Executive Chairman’s Review, the Operating and Financial
Review and the Corporate Governance Statement. We consider
the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. Our responsibilities do not extend to any
other information.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the Financial Statements and the auditable
part of the Directors’ Remuneration Report. It also includes an
assessment of the significant estimates and judgements made
by the Directors in the preparation of the Financial Statements,
and of whether the accounting policies are appropriate to
the Company’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the Financial Statements and the auditable part
of the Directors’ Remuneration Report are free from material
misstatement, whether caused by fraud or other irregularity
or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Financial
Statements and the auditable part of the Directors’ Remuneration
Report.
Opinion
In our opinion the Financial Statements give a true and fair
view of the state of affairs of the Company and the Group at
30 September 2003 and of the Group profit for the year then
ended and the Financial Statements and the auditable part of the
Directors’ Remuneration Report have been properly prepared in
accordance with the Companies Act 1985.
Baker Tilly
Registered Auditor
Chartered Accountants
2 Bloomsbury Street
London WC1B 3ST
19 January 2004
Annual Report 2003
Directors’ Remuneration Report
23
The Remuneration Committee
The Remuneration Committee is responsible for determining
the remuneration and other terms of service of the Executive
Directors. The Committee members are three Non-Executive
Directors: Mr D C Marshall, Mr J C Driscoll and Mr J D T
Greenall. The Committee consults with the Executive Chairman
on the remuneration of Executive Directors and has access to
external advice. The Committee was chaired during the period
by Mr J D T Greenall. Sir C J R Meyer was appointed to the
committee on 2 October 2003 following the resignation of
Mr D C Marshall as a Non-Executive Director of the Company.
The Committee has complied throughout the period with the
best practice provisions of the Financial Services Authority for
Executive Directors’ remuneration.
Policy
The remuneration policy is determined by the committee and is
designed to offer executive remuneration packages that attract,
retain and motivate directors of the high calibre required by the
business within a cost-effective framework that considers the
stage of growth of the business, individuals’ performance and
industry influences.
In determining the policy, the committee considers the following:
•
•
•
The remuneration structures, in particular performancerelated bonus structures and incentives for Executives are
aligned with Shareholder interest to motivate Executives to
perform at the highest level and achieve significant growth.
The criteria for determining individual Executive’s
remuneration should take into consideration not only
individual performance but also specific industry
comparators for the sector within which the Executive’s
Group Company operates.
The performance criteria for Executives should be challenging
yet realistic to ensure motivation and achievement of the
Company’s objectives.
Directors’ Remuneration
An analysis of Directors’ remuneration is set out on page 24.
Service Contracts
All Executive Directors have entered into Directors’ service
agreements with the Company, which may be terminated by
either party on 12 months’ written notice. Each agreement has
a restrictive covenant, which prevents soliciting any business
carried out by the Group during the 12 months prior to
termination. This restrictive period is 12 months following
termination (except for Mr M J Haxby, where it is
for six months).
Mr M J Haxby resigned from his position of Executive Director
on 20 January 2003, following his contractual 6 month notice
period. Mr Haxby remains within the Group in a subsidiary
Director position.
Mr D B McArthur, Ms T M Sharp, Mr J D T Greenall,
Mr J C Driscoll and Sir C J R Meyer each have entered into
a letter of appointment for Non-Executive Directors for a
rolling 12 month period, to be reviewed annually at the
Annual General Meeting.
The personal service companies of Mr A J Taylor (Sphere
Entertainment Limited) and Mr R C Smallwood (R&K Enterprises
Limited) have each entered into an agreement for services with
the Company, the material terms of which are outlined below:
Sphere Entertainment Limited and R&K Enterprises Limited
procure the full-time provision of services to support the
Executive Chairman and the President of Sanctuary Artist
Services respectively, namely: administration, travel coordination, event management, financial analysis and back-up
secretarial services;
– both agreements may be terminated by either party with
12 months’ notice; and
– both agreements include a provision entitling the Company
to make a payment or fee (excluding bonus) in respect
of he notice period required at the time of termination,
effectively in lieu of entitlement to notice, in the event
that the agreement is terminated.
Components of Executive Directors’ Remuneration
The main elements of Executive Directors’ remuneration are:
(a) Basic salary and benefits – The salaries of individual
Directors are reviewed annually with any increases
generally taking effect on 1 January. These reviews take
into account individual performance, any changes to
responsibilities and market rates for comparable positions
within the industry sector. The main elements of benefits
are private health care, life assurance, overseas
accommodation where appropriate and the provision of
company cars. The Committee seeks to ensure that
Directors’ salaries are kept at a moderate level to manage
fixed costs, thus reflecting the growth phase of the business.
(b) Annual Bonus – Annual bonuses are discretionary with
due consideration to individuals’ performance against
annual strategic objectives. Normally, stretching growth
objectives are set at the beginning of the financial year
aligned with targeted Group profit and individual personal
objectives. Executives’ performance is reviewed following
the end of the financial year with the bonus being paid in
the January following the end of the previous financial
year. The Committee is responsible for ensuring the
bonuses, if granted, are appropriate in all circumstances.
(c) Share Incentive Scheme – All Directors are eligible to
participate in the Company’s Unapproved Executive Share
Option Scheme and Approved Executive Share Option
Scheme.
(d) Pension arrangements – All Executive Directors’ salaries
are inclusive of any contributions towards any pension.
All UK Executive Directors are eligible to join the Group
Personal Pension Scheme, but will not receive any further
Company contributions.
Remuneration of Non-Executive Directors
The Non-Executive Directors receive fees which are determined
by the Board for their time in relation to Board and Committee
meetings and other requirements. They are not eligible to
participate in any of the Company’s pension or share option plans.
Annual Report 2003
24
Directors’ Interest in Share Options
Schemes. The schemes are for eligible employees (including
Executive Directors) of the Group under which option holders may
be granted rights to subscribe for or purchase Ordinary Shares.
Details of the Unapproved Executive Share Options and Approved
Executive Share Options held by Directors to subscribe for
Ordinary Shares of 12.5p in the Company are set out on page 25.
Details of the total number of Ordinary Shares under option as
at 30 September 2003 are given in Note 22.
All options have been issued without a discount to the then
current mid-market price. The mid-market price of the shares at
30 September 2003 was 48.25p and at the date of this report was
48p and the range of mid-market prices during the year was
between 55p and 27.5p.
The exercise of options is conditional on there having been an
increase in earnings per share over the increase in the rate of
inflation averaged over the previous three financial years prior
to exercise of not less than 3% over the period.
Employee Share Option Scheme
The Company has two share option schemes, The Sanctuary
Group plc Approved and Unapproved Executive Share Option
Analysis of Directors’ remuneration (Audited):
Salary and fees
£000
Bonuses
£000
Benefits
£000
Total
2003
£000
Total
2002
£000
338
338
175
179
60
264
214
25
25
50
–
–
70
261
–
–
–
–
–
–
203
363
363
225
179
60
334
678
298
298
171
187
179
243§
386§
12
58
50
10
18
4
1,720
–
–
10
–
–
–
441
–
–
–
–
–
–
203
12
58
60
10
18
4
2,364
15
10
50
10
10
–
1,857
Executive Directors:
A J Taylor
R C Smallwood
M D Miller
A Najeeb
M J Haxby†
J Cokell
M Mercuriadis (Based in US)
Non-Executive Directors:
D C Marshall*
T M Sharp
D B McArthur
J C Driscoll
J D T Greenall
Sir C J R Meyer*
†Mr M J Haxby resigned from the Board on 20 January 2003.
*Sir C J R Meyer was appointed to the Board on 31 July 2003 and Mr D C Marshall resigned from the Board on 31 July 2003.
§
Comparative figures are for a 9 month period only.
None of the Directors were involved in any long-term share incentive plans.
The benefits shown in the table above comprise accommodation costs in New York and health and dental insurance.
400
The graph opposite charts the Total Shareholder Return (TSR)
on a holding of shares in the Company for five years from
1 October 1998 to 30 September 2003 relative to a recognised
equity index. In the absence of a suitable index of true
comparators, the Committee has elected to show Sanctuary’s
performance related to the FTSE All Share Index and the FTSE
All Share Media and Entertainment Index. TSR is defined as
share price growth plus reinvested dividends.
Policy on Outside Appointments
The Executive Directors are permitted to take external
appointments as Non-Executive Directors, but none are with
another publicly quoted company. They may retain the
remuneration from such appointments. All appointments must
be approved by the Board to ensure that they do not give rise to
any scope for conflicts of interest.
Value of original £100 investment (£)
Total Shareholder Return Performance Graph
350
300
250
200
150
100
50
1 Oct 98
30 Sept 99
FTSE A/S Media and Ent
Annual Report 2003
30 Sept 00
30 Sept 01
FTSE All Share
30 Sept 02
30 Sept 03
Sanctuary (dividends reinvested)
continued
25
Directors’ Share Options
The following options over shares have been granted at nil to the Directors pursuant to The Sanctuary Group plc Unapproved Executive
Share Option Scheme (audited):
A J Taylor
R C Smallwood
M D Miller
A Najeeb
J Cokell
M Mercuriadis
D B McArthur
Number of
options at
30 Sep 2002
Number of
options granted
in year
895,023
167,817
100,000
75,000
100,000
–
335,633
531,420
195,787
100,000
75,000
100,000
–
447,512
83,908
80,000
50,000
100,000
–
335,633
83,908
80,000
50,000
100,000
–
50,000
150,000
–
200,000
250,000
–
100,000
30,000
–
–
–
–
–
100,000
–
–
–
–
–
–
100,000
–
–
–
–
–
100,000
–
–
–
–
–
100,000
–
–
100,000
–
–
100,000
–
–
Number of
options lapsed
in year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(100,000)
(30,000)
Number of
options at
30 Sep 2003
Exercise
price
895,023
167,817
100,000
75,000
100,000
100,000
335,633
531,420
195,787
100,000
75,000
100,000
100,000
447,512
83,908
80,000
50,000
100,000
100,000
335,633
83,908
80,000
50,000
100,000
100,000
50,000
150,000
100,000
200,000
250,000
100,000
–
–
20p
37p
73p
71p
45p
37.5p
20p
24.5p
37p
73p
71p
45p
37.5p
20p
37p
73p
71p
45p
37.5p
20p
37p
73p
71p
45p
37.5p
71p
45p
37.5p
71p
45p
37.5p
59p
74p
Exercise period
commences
29 Dec
29 Dec
23 Jan
29 Jan
15 July
13 Nov
29 Dec
9 Jul
29 Dec
23 Jan
29 Jan
15 July
13 Nov
29 Dec
29 Dec
23 Jan
29 Jan
15 July
13 Nov
29 Dec
29 Dec
23 Jan
29 Jan
15 July
13 Nov
29 Jan
15 July
13 Nov
29 Jan
15 July
13 Nov
4 May
2 Jul
2000
2002
2004
2005
2005
2005
2000
2002
2002
2004
2005
2005
2005
2000
2002
2004
2005
2005
2005
2000
2002
2004
2005
2005
2005
2005
2005
2005
2005
2005
2005
2003
2004
Exercise period
expires
28 Dec 2004
28 Dec 2006
22 Jan 2008
28 Jan 2009
14 July 2009
12 Nov 2009
28 Dec 2004
8 Jul 2006
28 Dec 2006
22 Jan 2008
28 Jan 2009
14 July 2009
12 Nov 2009
28 Dec 2004
28 Dec 2006
22 Jan 2008
28 Jan 2009
14 July 2009
12 Nov 2009
28 Dec 2004
28 Dec 2006
22 Jan 2008
28 Jan 2009
14 July 2009
12 Nov 2009
28 Jan 2009
14 July 2009
12 Nov 2009
28 Jan 2009
14 July 2009
12 Nov 2009
3 May 2007
3 Jul 2008
Mr M Mercuriadis has options over 122,448 Ordinary Shares of 12.5p each pursuant to the Approved Share Option Scheme which were
granted on 9 July 1999 at an exercise price of 24.5p. The exercise period commenced on 9 July 2002 and expires on 8 July 2009.
Mr J Cokell has options over 26,666 Ordinary Shares of 12.5p pursuant to the Approved Share Option Scheme which were granted on 22
January 2001 at an exercise price of 73p. The exercise period commences on 23 January 2004 and expires on 22 January 2011.
Details of Directors’ shareholdings and warrant holdings are given in the Directors’ Report on page 18.
Approved by the Board and signed on its behalf by
Sarah Standing
Company Secretary
19 January 2004
Annual Report 2003
Consolidated Profit and Loss Account
26
Note
Turnover:
Existing operations
Acquisitions
Turnover – continuing operations
Turnover – discontinued operations
Total turnover
Cost of sales
Gross profit
Total administrative expenses:
Amortisation
Depreciation
Other administrative expenses
Group operating profit:
Existing operations
Acquisitions
Group operating profit – continuing operations
Group operating profit – discontinued operations
Group operating profit
Interest receivable and similar income
Interest payable and other charges
Profit on ordinary activities before taxation
Taxation on profit on ordinary activities
Profit on ordinary activities after taxation
Minority interests
Profit on ordinary activities for the financial year
Dividends proposed
Retained profit for the financial year
2002
£000
2
1
1
145,149
3,951
149,100
2,579
151,679
(85,531)
66,148
114,455
–
114,455
3,650
118,105
(63,884)
54,221
1
(7,403)
(2,613)
(41,648)
(51,664)
(5,870)
(2,183)
(33,847)
(41,900)
13,371
660
14,031
453
14,484
175
(3,868)
10,791
(3,954)
6,837
(243)
6,594
(1,340)
5,254
12,670
–
12,670
(349)
12,321
135
(2,193)
10,263
(3,815)
6,448
(113)
6,335
(1,132)
5,203
2.03p
1.98p
3.85p
2.01p
1.96p
3.17p
6
3
7
8
Earnings per share:
Basic
Diluted
Normalised – diluted*
2003
£000
9
9
9
*Earnings per share: Normalised – diluted is calculated using profit on ordinary activities for the financial year, having added back the
goodwill and intangible assets amortisation costs over the diluted weighted average shares in issue during the year.
Earnings before interest, taxation, depreciation and amortisation (EBITDA) have been calculated as set out in Note 1b.
Statement of Total Recognised Gains and Losses
2003
£000
Profit for the financial year
Foreign exchange translation differences on foreign currency net investment in subsidiaries
Total recognised gains and losses relating to the financial year
Annual Report 2003
6,594
(1,034)
5,560
2002
£000
6,335
(693)
5,642
Consolidated Balance Sheet
27
2003
£000
2002
£000
10
11
12
13
14
26,879
76,975
12,817
–
29,950
146,621
21,640
72,058
22,323
20,945
240
137,206
15
16
16
17
17
9,197
15,433
15,657
61,675
6,130
9,271
117,363
6,684
6,945
13,541
56,509
8,795
8,731
101,205
18
(76,993)
40,370
(72,117)
29,088
186,991
166,294
18
21
(52,739)
(4,480)
129,772
(40,499)
(2,805)
122,990
22
22
24
24
40,907
750
79,155
8,722
129,534
238
129,772
40,032
750
77,711
4,502
122,995
(5)
122,990
Note
Fixed assets:
Intangible assets
Goodwill
Tangible assets
Investment in programming
Investments
Current assets:
Stocks
Advance payments to artists to secure rights: Amounts falling due within one year
Advance payments to artists to secure rights: Amounts falling due after one year
Debtors: Amounts falling due within one year
Debtors: Amounts falling due after one year
Cash at bank and in hand
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after one year
Provisions for liabilities and charges
Net assets
Capital and reserves:
Called up share capital
Shares to be issued
Share premium account
Profit and loss account
Equity Shareholders’ funds
Minority interests
Total capital employed
Approved by the Board on 19 January 2004 and signed on its behalf by:
A J Taylor
Executive Chairman
M D Miller
Finance Director
The Notes on pages 32 to 48 form part of these financial statements.
Annual Report 2003
Company Balance Sheet
28
2003
£000
2002
£000
10
12
14
101
2,610
110,302
113,013
134
10,439
102,022
112,595
15
17
11
15,822
58,976
74,809
14
20,048
40,602
60,664
18
(14,452)
60,357
(16,413)
44,251
173,370
156,846
18
21
(52,112)
(157)
121,101
(37,375)
(183)
119,288
22
22
24
24
40,907
750
79,155
289
121,101
40,032
750
77,711
795
119,288
Note
Fixed assets:
Intangible assets
Tangible assets
Investments
Current assets:
Stocks
Debtors: Amounts falling due within one year
Cash at bank and in hand
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts due after more than one year
Provisions for liabilities and charges
Net assets
Capital and reserves:
Called up share capital
Shares to be issued
Share premium account
Profit and loss account
Equity Shareholders’ funds
Approved by the Board on 19 January 2004 and signed on its behalf by:
A J Taylor
Executive Chairman
M D Miller
Finance Director
The Notes on pages 32 to 48 form part of these financial statements.
Annual Report 2003
Consolidated Cash Flow Statement
29
Note
Net cash inflow from operating activities
Returns on investment and servicing of finance
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
Equity dividends paid
Cash outflow before financing
Financing
Increase/(decrease) in cash in the year
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year
Cash flow from movement in debt and lease financing
Change in net debt resulting from cash flows
New Loan Notes
New finance leases
Movement in net debt in year
Net debt at 1 October 2002
Net debt at 30 September 2003
26
26
26
26
26
26
26
26
Annual Report 2003
2003
£000
2002
£000
4,001
(2,795)
(3)
(3,287)
(10,253)
(1,140)
(13,477)
16,656
3,179
1,859
(2,058)
(40)
(14,144)
(8,710)
(881)
(23,974)
20,921
(3,053)
3,179
(14,034)
(10,855)
–
(803)
(11,658)
(39,985)
(51,643)
(3,053)
(8,812)
(11,865)
(5,050)
(2,269)
(19,184)
(20,801)
(39,985)
Reconciliation of Movements in Shareholders’ Funds
30
2003
£000
Opening Shareholders’ funds
Profit for the financial year
Proposed dividends
Scrip dividend
Other recognised losses
Issue of share capital
Net addition to Shareholders’ funds
Closing Shareholders’ funds
122,995
6,594
(1,340)
–
(1,034)
2,319
6,539
129,534
2002
£000
112,311
6,335
(1,132)
50
(693)
6,124
10,684
122,995
Statement of Accounting Policies
Principal Accounting Policies
Recording Income
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the accounts:
Income arising from licences and other contracts for the supply
of recorded product is accounted for when heads of agreement,
or similar documentation indicating agreement of terms, has
been obtained, the Group has substantially completed all of
its obligations under that agreement, and the timing of the
settlement of that income is relatively certain. Future amounts
receivable which are dependent on future performance by the
licencee are accounted for as those earnings are notified to
the Group.
Basis of Accounting
The financial statements have been prepared under the historical
cost convention and in accordance with applicable accounting
standards.
Basis of Consolidation
The Group financial statements include the assets and liabilities
and results of the Company and its subsidiary companies.
Transactions and balances between Group companies have
been eliminated.
Subsidiary companies have been identified as being those where
the Company exercises dominant influence, which may be
evidenced by the fact that the Company’s appointed Directors
dominate the Board, and the Company sets commercial policy.
Film and Television Production and Distribution Income
Creation and packaging fees are recognised when received.
Costs incurred in supervising the production and fees paid for
the role are taken to the profit and loss account as incurred.
Royalty income is recognised when cumulative sales of film and
television productions exceed the cost of each production and
interest accrued on related loans. Sales are recognised when the
distributor enters into a contract with an end user.
Scrip Dividend
Investments in associated undertakings which are material have
been accounted for on the basis of the equity accounting method
and the Group’s share of the associated undertakings’ losses and
profits included in the consolidated financial statements
accordingly.
The amount of dividends taken as shares instead of in cash
under the scrip dividend scheme is added back to reserves.
The nominal value of shares issued under the scheme is funded
out of the share premium account.
Goodwill
Under Section 230(4) of the Companies Act 1985 the Company
is exempt from the requirement to present its own profit and
loss account. The profit for the financial year dealt with in the
financial statements of the holding company was £834,000
(2002: £1,160,000).
Turnover
Turnover represents income, excluding VAT, derived from third
parties from the provision of goods and services.
Goodwill arising on acquisitions is capitalised and amortised
over the Directors’ estimate of its expected useful life, restricted
to 20 years, in accordance with FRS 10.
Goodwill is reviewed for impairment at the end of the first full
financial year following acquisition and in other periods if events
or changes in circumstances indicate that the carrying value may
not be recoverable.
Goodwill arising on acquisitions made before 30 September 1998
has previously been taken to reserves. On disposal of subsidiary
and associated undertakings and businesses, such goodwill is
charged to the profit and loss account balanced by an equal
credit to reserves.
Annual Report 2003
Statement of Accounting Policies
continued
31
Intangible Fixed Assets
Recorded product catalogues are capitalised as intangible fixed
assets in the consolidated balance sheet and are amortised by
equal annual amounts over between 5 and 20 years as
appropriate.
Copyright of animated programme and literary works are carried
at cost less amortisation. These works are amortised on a straight
line basis over the duration of the production. Trademarks are
carried at cost less amortisation. These are amortised on a
straight line basis over 8 years.
Recording joint venture costs are capitalised as intangible fixed
assets in the consolidated balance sheet and are amortised
through cost of sales over a period in line with actual revenues
earned from the sale of product which first utilises such rights.
This write off period will not exceed 5 years.
Origination costs are carried at cost less amortisation. These costs
are amortised on a straight line basis over 3 years through cost of
sales. Previously these costs were treated as prepaid expenses.
This is a change in presentation.
All intangible fixed assets are reviewed for impairment at the end
of the first full financial year following acquisition and in other
periods if events or changes in circumstances indicate that the
carrying value may not be recoverable.
Advance payments to artists who are not yet fully established and
therefore made in anticipation of future income are provided for
in the profit and loss account as incurred.
Deferred Taxation
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay
more ax in the future or a right to pay less tax in the future
have occurred at the balance sheet date. Timing differences are
differences between the Group’s taxable profits and its results
as stated in the financial statements.
Deferred tax is measured at the average tax rates that are
expected to apply in the periods in which timing differences
are expected to reverse, based on tax rates and laws that have
been enacted or substantially enacted by the balance sheet
date. Deferred tax is measured on a non-discounted basis.
Leased Assets
Assets acquired under finance leases and hire purchase contracts
are capitalised at their fair value on acquisition and depreciated
over their estimated useful lives. The finance charges are
allocated over the period of the lease in proportion to the capital
element outstanding.
Operating lease rentals are charged to income in equal annual
amounts as incurred over the lease term.
Tangible Fixed Assets
Depreciation is provided on cost in equal annual instalments in
order to write off each asset over its estimated useful life to its
residual value. The rates of depreciation are as follows:
Freehold buildings
Short leasehold property and leasehold improvements
Leasehold equipment
Furniture, fixtures, fittings and office equipment
Motor vehicles
Light and sound equipment
Computer equipment
Websites
The following rates have been used
2%
over term of lease
25%
10%
25% or over term of lease
between 10% and 33%
between 20% and 33%
10%
Investment in Programming
Investment in film and television programming is capitalised in
the consolidated balance sheet and is amortised by equal annual
amounts over between 5 and 10 years as appropriate.
Pension Costs
The Group operates a money purchase pension scheme and
contributions are charged to the profit and loss account as
incurred.
Translation of Foreign Currencies
Assets and liabilities expressed in foreign currencies are
translated into sterling at the rates of exchange ruling at the
balance sheet date. Any exchange differences arising are taken
to the profit and loss account. The results of overseas subsidiaries
are translated into sterling at the balance sheet date. Exchange
differences arising are taken directly to reserves.
Transactions denominated in foreign currencies are translated
into sterling at the rates ruling at the dates of the transactions.
Investments held as fixed assets, other than associates, are stated
at cost less provision for impairment in value.
Long-term financing of overseas subsidiaries intended to be, for
all practical purposes, as permanent as equity, is treated as part
of the investing company’s net investment and exchange
differences are dealt with through the reserves.
Stocks
Finance Costs
Investments
Stock is valued at the lower of cost and net realisable value.
Advance Payments to Artists to Secure Rights
Advance payments to artists to secure their recording and audio
visual rights are expensed to cost of sales over a period in line
with actual unit sales of the product which first utilises such
rights. This charge to cost of sales can exceed 12 months, but the
Group reviews any balances still outstanding after 24 months
with a view to making a provision to the extent that unit sales
are unlikely.
Finance costs of debt are recognised in the profit and loss
account over the term of such instruments at a constant rate
on the carrying amount.
Annual Report 2003
Notes to the Financial Statements
32
1. Analysis of continuing operations and EBITDA
(a) Analysis of continuing operations:
Cost of sales
Gross profit
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
85,531
66,148
51,664
63,884
54,221
41,900
The following amounts are included in the totals for the year ended 30 September 2003 in respect of acquisitions: Cost of sales £nil,
Gross profit £3.9m and Total administrative expenses £3.3m.
The following amounts are included in the totals for the year ended 30 September 2003 in respect of discontinued activities: Cost of sales
£0.1m, Gross profit £2.5m and Total administrative expenses £2.0m.
(b) Reconciliation of Group operating profit to earnings before interest, taxation, depreciation and amortisation (EBITDA):
Group operating profit
Add Amortisation net of provision reversal
Add Depreciation
EBITDA
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
14,484
7,403
2,613
24,500
12,321
5,870
2,183
20,374
2. Segmental analysis
Profit on ordinary
activities before taxation
Turnover
Analysis by class of business:
Recorded Product
Artist Services
Group Services
Screen – discontinued activities
2003
£000
2002
Restated
£000
78,029
63,808
7,263
2,579
151,679
71,694
36,831
5,930
3,650
118,105
11,332
2,464
235
453
14,484
(3,693)
11,017
1,495
158
(349)
12,321
(2,058)
151,679
118,105
10,791
10,263
Other income and interest costs
Net interest bearing liabilities
2003
£000
Net Assets
2002
Restated
£000
2003
£000
2002
Restated
£000
109,856
38,339
33,220
–
181,415
84,871
34,247
27,202
14,605
160,925
(51,643)
129,772
(37,935)
122,990
The Directors have redefined the business classes to reflect more appropriately the operating sectors of the Group.
The amounts attributable to acquisitions in the year as set out in the profit and loss account for turnover and Group operating profit are
not material for segmental analysis.
Analysis by geographical region:
UK
US
Rest of Europe
Rest of World
Turnover
2003
£000
Turnover
2002
£000
67,093
51,278
27,178
6,130
151,679
50,474
45,731
19,309
2,591
118,105
In the opinion of the Directors, a geographical analysis of profits and net assets would be seriously prejudicial to the commercial
interests of the Group and therefore is not presented.
Annual Report 2003
continued
33
3. Profit on ordinary activities before taxation
Year ended
30 September 2003
£000
Profit on ordinary activities before taxation is stated after charging/(crediting):
Depreciation of tangible fixed assets
owned assets
leased assets
Profit on sale of fixed assets
Property restructuring costs
Amortisation net of provision reversal
Operating lease payments – land and buildings
Operating lease payments – plant and equipment
Auditors’ remuneration as auditors to the Group (Company: £12,000 2002: £12,000)
Auditors’ remuneration for non audit services
Total non audit fees were as follows:
Due diligence and acquisition related fees capitalised
Sale and leaseback fees
Taxation services
Production audits
2,047
566
(1,021)
871
7,403
2,072
138
230
90
Year ended
30 September 2002
£000
1,855
328
(298)
–
5,870
948
139
177
24
32
75
3
12
127
–
–
24
Year ended
30 September 2003
No. of employees
Year ended
30 September 2002
No. of employees
202
174
26
154
556
172
123
21
127
443
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
19,044
1,783
398
21,225
16,386
1,421
337
18,144
4. Employees
The average monthly number of persons (including Directors) employed by the Group
during the year was:
Recorded Product
Artist Services
Screen
Group Services
Staff costs for the above persons:
Wages and salaries
Social security costs
Other pension costs
5. Directors’ remuneration
Details of each Director’s remuneration, pension entitlements and share options are included in the Directors’ Remuneration Report on
pages 24 and 25.
Directors’ aggregate emoluments
Company contributions to Money Purchase Pension Scheme
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
2,364
–
2,364
1,857
–
1,857
At 30 September 2003 there were no Directors for whom retirement benefits were accruing (2002: none) under the Company’s Money
Purchase Pension Scheme.
Aggregate emoluments of the highest paid Director for the year ended 30 September 2003 were £678,000 (2002: £386,000).
Annual Report 2003
continued
34
6. Interest payable and other charges
On bank loans and overdrafts
Other loans
Finance leases
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
3,652
–
216
3,868
1,750
324
119
2,193
Year ended
30 September 2003
£000
Year ended
30 September 2002
£000
7. Tax on Profit on ordinary activities
(a) Analysis of charge in year
Current tax:
UK corporation tax at 30% (2002: 30%)
Overseas taxation payable
Adjustment in respect of previous years
Total current tax (Note 7b)
Deferred tax:
Origination and reversal of timing difference
Tax on profit on ordinary activities
2,316
3
(150)
2,169
(b) Factors affecting the charge for the year
Tax assessed for the year is lower than the standard rate of corporation tax in the UK (30%).
The difference is explained below:
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK
at 30% (2002: 30%)
Effects of:
(Income not taxable)/Expenses not deductible for tax purposes
Capital allowances lower than/(in excess of) depreciation
Utilisation of tax losses
Adjustments to tax charge in respect of previous periods
Current tax charge for year (Note 7a)
Annual Report 2003
418
41
(588)
(129)
1,785
3,954
3,944
3,815
10,791
10,263
3,237
3,079
(1,267)
616
(267)
(150)
2,169
(550)
(1,234)
(836)
(588)
(129)
continued
35
8. Dividends
Year ended
30 September 2003
£000
Dividends are recommended as follows:
Proposed dividend at 0.4p per share (2002: 0.35p per share)
Adjustment to 2002 final dividend
1,350
(10)
1,340
Year ended
30 September 2002
£000
1,150
(18)
1,132
9. Earnings per share
Basic and diluted earnings per share have been calculated in accordance with FRS 14 – ‘Earnings per Share’. Basic earnings per share
have been calculated using earnings of £6,594,000 (2002: £6,335,000) and a weighted average of shares in issue during the year of
325,149,057 shares (2002: 314,975,258 shares).
Diluted earnings per share have been calculated using earnings of £6,594,000 (2002: £6,335,000) on a weighted average of 332,296,161
shares (2002: 322,636,072 shares). This takes into account the exercise of outstanding warrants, employee share options and shares to
be issued where these are expected to dilute earnings.
In order to show results from operating activities on a comparable basis, a normalised diluted earnings per share has been presented
which excludes amortisation costs from the adjusted earnings calculation following implementation of FRS 10 – ‘Goodwill and Intangible
Assets’ in 1998.
Reconciliation of the earnings and weighted average number of shares used in the above calculations is set out below:
2003
Basic earnings per share
Diluted earnings per share:
Basic earnings per share
Dilutive effect of share options
Dilutive effect of warrants
Dilutive effect of shares to be issued
Normalised earnings per share:
Diluted earnings per share
Add amortisation
2002
Earnings
£000
Weighted average
No. of shares
Earnings per share
p
Earnings
£000
Weighted average
No. of shares
Earnings per share
p
6,594
325,149,057
2.03
6,335
314,975,258
2.01
6,594
–
–
–
6,594
325,149,057
4,644,593
600,888
1,901,623
332,296,161
2.03
(0.03)
(0.01)
(0.01)
1.98
6,335
–
–
–
6,335
314,975,258
3,599,489
2,739,739
1,321,586
322,636,072
2.01
(0.02)
(0.02)
(0.01)
1.96
6,594
6,210
12,804
332,296,161
–
332,296,161
1.98
1.87
3.85
6,335
3,951
10,286
322,636,072
–
322,636,072
1.96
1.21
3.17
Annual Report 2003
continued
36
10. Intangible fixed assets
Group
Cost:
1 October 2002
Additions
Disposals
At 30 September 2003
Amortisation:
1 October 2002
Charge for the year – amortisation
Charge for the year – cost of sales
Eliminated on disposal
Net book value:
Recorded
Product
catalogue
£000
Copyright of
animated
programme
and literary
works
£000
Trademarks
£000
Recording
joint ventures
£000
Origination
£000
–
2,500
–
2,500
–
4,788
–
4,788
25,254
9,448
(111)
34,591
3,614
2,180
1,946
(28)
7,712
24,805
2,160
–
26,965
164
–
(34)
130
285
–
(77)
208
3,504
2,121
–
–
5,625
44
20
–
(28)
36
66
39
–
–
105
–
–
652
–
652
–
–
1,294
–
1,294
21,340
21,301
94
120
103
219
1,848
–
3,494
–
Total
£000
26,879
21,640
Trademarks
£000
Company
Cost:
1 October 2002 and at 30 September 2003
Amortisation:
1 October 2002
Charge for the year
Net book value:
200
66
33
99
101
134
11. Goodwill
Goodwill
£000
Group
Cost:
1 October 2002
Additions
Amortisation:
1 October 2002
Charge for the year
Net book value:
78,792
8,947
87,739
6,734
4,030
10,764
76,975
72,058
Annual Report 2003
continued
37
12. Tangible fixed assets
Group
Cost:
1 October 2002
Acquisition of subsidiaries
Additions
Disposals
Depreciation:
1 October 2002
Acquisition of subsidiaries
Charge for the year
Net book value:
Freehold land
and buildings
£000
Short leasehold
property and
improvements
£000
Light and sound
equipment
£000
Furniture, fixtures,
fittings and office
equipment
£000
Motor vehicles
£000
Websites
£000
Total
£000
11,462
–
491
(10,795)
1,158
1,538
–
365
–
1,903
5,854
6
423
(397)
5,886
11,348
46
2,353
(790)
12,957
878
–
80
(445)
513
1,213
–
17
–
1,230
32,293
52
3,729
(12,427)
23,647
482
–
48
(488)
42
643
–
209
–
852
2,403
2
544
(362)
2,587
5,740
30
1,599
(700)
6,669
472
–
91
(235)
328
230
–
122
–
352
9,970
32
2,613
(1,785)
10,830
3,299
3,451
6,288
5,608
185
406
878
983
12,817
22,323
1,116
10,980
1,051
895
Included within the aggregate net book value above are tangible fixed assets held under finance leases with a net book value
as follows:
Company
Cost:
1 October 2002
Additions
Disposals
Depreciation:
1 October 2002
Charge for the year
Net book value:
–
197
–
–
945
652
1,583
1,176
23
199
–
–
2,551
2,224
Freehold land
and buildings
£000
Furniture, fixtures,
fittings and office
equipment
£000
Motor vehicles
£000
Websites
£000
Total
£000
8,494
373
(8,867)
–
2,935
900
(19)
3,816
83
65
(63)
85
106
–
–
106
11,618
1,338
(8,949)
4,007
386
28
(414)
–
775
598
(47)
1,326
18
26
(11)
33
–
38
–
38
1,179
690
(472)
1,397
2,490
2,160
52
65
68
106
–
8,108
2,610
10,439
Included within the aggregate net book value above are tangible fixed assets held under finance leases with a net book value
as follows:
–
197
1,580
1,176
Annual Report 2003
–
51
–
–
1,580
1,424
continued
38
13. Investment in programming
Investment in
programming
£000
Group
Cost:
1 October 2002
Additions
Disposals
Amortisation:
1 October 2002
Charge for the year
Net book value:
24,156
2,886
(27,042)
–
3,211
1,193
(4,404)
–
–
20,945
14. Investments
Group
1 October 2002
Additions
Loans
£000
Shares in
associated
companies
£000
Other
investments
£000
Total
£000
–
28,335
28,335
159
808
967
81
567
648
240
29,710
29,950
The loan was made as part of the disposal of the Cloud 9 Group of companies. Loan Notes were issued post year-end to replace this
loan. These Loan Notes are repayable over a 15 year period. Interest is payable at final maturity of the Loan Notes. The Loan Notes
are secured over the assets of the holding company of the Cloud 9 Group.
The Group has a 50% interest in the called up share capital of Breakthrough Media Group plc, which is incorporated in England and
Wales and is principally engaged in the ownership and exploitation of intellectual property rights.
The Group has a 50% interest in the called up share capital of K2 Agency Limited, which is incorporated in England and Wales and is
principally engaged as a tour booking agency.
Company
Cost:
1 October 2002
Additions
Shares in
associated
companies
£000
Shares in
subsidiary
companies
£000
Other
investments
£000
Total
£000
25
808
833
101,997
6,905
108,902
–
567
567
102,022
8,280
110,302
Annual Report 2003
continued
39
14. Investments – continued
The principal trading subsidiaries, wholly owned by the Company or wholly owned by subsidiaries of the Company where marked * and
incorporated in England and Wales except where indicated, and all included in the consolidation at 30 September 2003 were as follows:
Company
Principal activity
Sanctuary Artist Services Limited*
Group administrative services
Sanctuary Artist Management Limited*
Management of music groups
Focus Business Management Limited*
Management, accounting and consultancy
Helter Skelter Agency Limited*
Booking agency
Platinum Travel International Limited*
Travel agency
Sanctuary Publishing Limited*
Book publishing
Sanctuary Studios Limited*
Recording, rehearsal, video and photographic studio hire
Sanctuary Music Publishing Limited*
Music publisher
Sanctuary Visual Entertainment Limited*
Film and television production
Sanctuary Records Group Limited*
Record label
Sanctuary Copyrights Limited*
Rights owner
Sanctuary Records GmbH (incorporated in Germany)*
Record label
Glassbag Limited (50% owned)*
Record label
Trinifold Management Limited
Bravado International Group Limited
Merchandiser
Sanctuary Group Inc (incorporated in the US)
Group administration services
Sanctuary Artist Management Inc (incorporated in the US)*
Sanctuary Records Group Inc (incorporated in the US)*
Record label
Bravado International Group Inc (incorporated in the US)*
Merchandiser
MW Entertainment Productions and Management Inc (incorporated in the US)*
15. Stocks
Finished goods
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
9,197
11
6,684
14
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
15,433
15,657
31,090
–
–
–
6,945
13,541
20,486
–
–
–
16. Advance payments to artists to secure rights
Advance payments to artists to secure rights
– due within one year
– due after more than one year
Annual Report 2003
continued
40
17. Debtors
Debtors: Amounts falling due within one year:
Trade debtors
Taxation recoverable
Amounts owed by subsidiaries
Other debtors
Deferred tax (see Note 21)
Prepayments and accrued income
Debtors: Amounts falling due after more than one year:
Trade debtors
Other debtors
Prepayments and accrued income
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
26,678
–
–
8,370
1,401
25,226
61,675
103
–
13,644
1,184
–
891
15,822
24,642
–
–
6,578
–
25,289
56,509
57
84
17,774
1,577
–
556
20,048
1,978
466
3,686
6,130
–
–
–
–
3,634
466
4,695
8,795
–
–
–
–
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
18. Creditors
Creditors: Amounts falling due within one year:
Bank loans and overdrafts
Unamortised loan financing costs
Trade creditors
Amount owed to subsidiaries
Corporation tax
Obligations under finance leases
Other taxation and social security
Other creditors
Accruals and deferred income
Dividend proposed
Loan Notes
Creditors: Amounts falling due after more than one year:
Bank loans
Unamortised loan financing costs
Trade creditors
Obligations under finance leases
Accruals and deferred income
7,452
(69)
23,929
–
2,541
839
4,370
15,530
21,051
1,350
–
76,993
3,000
(69)
724
250
535
615
242
6,556
1,249
1,350
–
14,452
8,131
–
22,909
–
392
637
3,343
22,523
10,982
1,150
2,050
72,117
1,000
–
843
565
–
463
596
9,269
477
1,150
2,050
16,413
52,000
(303)
–
623
419
52,739
52,000
(303)
–
415
–
52,112
36,800
–
463
1,098
2,138
40,499
36,800
–
–
575
–
37,375
Annual Report 2003
continued
41
19. Derivatives and other financial instruments
Financial Instruments
The Group’s financial instruments comprise cash balances, current asset investments and items such as trade debtors and trade
creditors that arise directly from its operations. Financial instruments such as investments in and advances to subsidiary undertakings
and short-term debtors and creditors have been excluded from the disclosures below. The Group has little exposure to credit and cash
flow risk. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be
undertaken. The main risks arising from the Group’s financial instruments are interest rate/liquidity risk and foreign currency risk.
The policies for managing these risks are summarised below and have been applied throughout the year.
Foreign Currency Risk
The Group has one significant overseas operation, in the US, whose revenues and expenses are denominated primarily in US dollars.
In order to protect the Group’s sterling balance sheet from the movements in the US dollar/sterling exchange rate, the Group finances
its net investment in this subsidiary by means of US dollar borrowings. The Group also makes sales to customers outside the UK. These
sales are primarily in US dollars and Euros.
At 30 September 2003, the Group had net monetary assets of £5,206,000 (2002: £4,618,000) denominated in US dollars and £7,694,000
(2002: nil) denominated in Euros. The Group has no specific policy in managing the foreign currency exposure of these items as they
are not a material proportion of the Group’s assets.
Interest Rate/Liquidity Risk
Cash balances are placed so as to maximise interest earned while maintaining the liquidity requirements of the business. The Directors
regularly review the placing of cash balances. When seeking borrowings the Directors consider the commercial terms available and,
in consultation with their advisers, consider whether such terms should be fixed or variable and are appropriate to the business. Any
surplus cash balances during the year were placed on short-term deposit accounts at standard bank interest rates. The financial assets of
the Group at 30 September 2003 were designated in sterling, US dollars and Euros and were earning standard bank interest rates. These
are disclosed under cash at bank and in hand of £9,271,000 (2002: £8,731,000) and their fair value was the same as the carrying value.
Sterling
US dollars
Euros
2003
£000
2002
£000
3,033
4,540
1,698
9,271
5,982
2,749
–
8,731
The financial liabilities of the Group as at 30 September 2003 were designated in sterling and were all floating rate liabilities. These
comprise bank borrowings and loans bearing interest rates fixed in advance for periods ranging from overnight to six months, based on
appropriate LIBOR rates. The total financial liabilities at 30 September 2003 were £59,452,000 (2002: £46,981,000) and their fair value was
the same as the carrying value.
The Group also has financial assets in the form of listed investments and loans due from the Cloud 9 Group as part of the disposal
agreement.
The fair value of these financial assets, all designated in sterling, are set out below:
2003
Listed investments
Cloud 9 Group loans
1
2
2002
Book value
£000
Fair value
£000
Book value
£000
Fair value
£000
648
28,335
7391
28,3352
81
–
81
–
Market rates have been used to determine fair values.
Loans are repayable in 15 years and carry interest at 1.5% over UK bank base rate payable at maturity and are secured on the assets of
the Cloud 9 Group.
The Group has undrawn committed borrowing facilities available at 30 September 2003, in respect of which all conditions precedent had
been met, of £15,000,000 (2002: £20,000,000). These facilities expire in one year or less.
Annual Report 2003
continued
42
20. Borrowings
Bank loans and overdrafts
Analysis of loan repayments:
Bank loans and overdrafts:
Within one year or on demand
Between one and two years
Between two and five years
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
59,452
55,000
44,931
37,800
7,452
3,000
49,000
59,452
3,000
3,000
49,000
55,000
8,131
1,800
35,000
44,931
1,000
1,800
35,000
37,800
Bank and other loans of £59,452,000 are secured by fixed and floating charges over the assets of The Sanctuary Group plc and certain
of its subsidiaries.
Cash at bank and in hand includes £4,640,000 (2002: £3,288,000) relating to monies collected on behalf of client artists. The corresponding
liabilities are included in creditors falling due within one year.
21. Provisions for liabilities and charges
Group
2003
£000
Provision for deferred tax is:
Accelerated capital allowances
Tax losses carried forward
Other timing differences
Company
2003
£000
Group
2002
£000
Company
2002
£000
(47)
(1,354)
4,480
3,079
157
–
–
157
4,813
(4,294)
2,286
2,805
183
–
–
183
At 1 October 2002
On acquisition of subsidiaries
On disposal of subsidiaries
Deferred tax charged to profit and loss account (see Note 7)
2,805
(100)
(1,411)
1,785
3,079
183
–
–
(26)
157
(203)
(936)
–
3,944
2,805
102
–
–
81
183
Deferred tax asset – debtors
Deferred tax liability
(1,401)
4,480
3,079
–
157
157
–
2,805
2,805
–
183
183
Annual Report 2003
continued
43
22. Called up share capital
Authorised
No. of shares
Ordinary Shares of 12.5p each
At 1 October 2002
392,000,000
Issue of shares under
share option schemes
Issue of shares on conversion of warrants
Warrants lapsed in period
Issue of new warrants to BMG
Issue of shares in relation to acquisitions:
Trinifold Management Ltd
K2 Agency Limited
Other share issues
392,000,000
Premium
Share warrants
£000
No. of shares
Issued and fully paid
£000
£000
No. of warrants
49,000
320,249,774
40,032
–
3,016,626
109,782
2,082,109
14
260
9
260
2,928,258
1,867,590
19,000
327,256,513
366
233
2
40,907
634
574
6
1,483
49,000
–
(2,082,109)
(934,517)
3,255,653
3,255,653
On 7 November 2003, 3,565,910 Ordinary Shares of 12.5p each were issued at a price of 50p per share in relation to the acquisition of
MW Entertainment Productions and Management Inc.
Shares to be issued of £750,000 relates to an amount due in December 2006 under the acquisition agreement of April Music Limited
and MM&M. The number of shares to be issued and their price will be determined on the average mid market price over the five days
preceding the issue.
The 3,255,653 new warrants were issued to BMG UK and Ireland Ltd and are exercisable between 1 April 2004 and 31 March 2008.
The exercise price is 35p. These warrants were granted as part of an arrangement to widen strategic alliances.
Details of Ordinary Shares, which are subject to options under the existing share option schemes outstanding at 30 September 2003,
are set out below:
Date
granted
Number of
shares
Original
subscription price
Exercise
period
Approved Executive Share Option Scheme:
9 July 1999
14 July 1999
2 Aug 1999
6 Sep 2000
23 Jan 2001
2 July 2001
6 Sep 2001
29 Jan 2002
15 July 2002
13 Nov 2002
9 June 2003
1,537,416
262,162
42,553
9,868
381,748
135,135
10,273
362,500
550,000
360,000
20,000
24.5p
18.5p
23.5p
76.5p
73p
74p
73p
71p
45p
37.5p
37.75p
9 July 2002 to 8 July 2009
14 July 2002 to 13 July 2009
2 Aug 2002 to 1 Aug 2009
6 Sep 2003 to 5 Sep 2010
23 Jan 2004 to 22 Jan 2011
2 July 2004 to 1 July 2011
6 Sep 2004 to 5 Sep 2011
29 Jan 2005 to 28 Jan 2012
15 July 2005 to 14 July 2012
13 Nov 2005 to 12 Nov 2012
9 June 2006 to 8 June 2013
Unapproved Executive Share Option Scheme:
29 Dec 1997
9 July 1999
29 Dec 1999
23 Jan 2001
2 July 2001
29 Jan 2002
15 July 2002
13 Nov 2002
9 June 2003
2,125,680
531,420
531,420
742,250
145,271
1,045,000
1,565,000
1,415,000
370,000
20p
24.5p
37p
73p
74p
71p
45p
37.5p
37.75p
29 Dec 2000 to 28 Dec 2004
9 July 2002 to 8 July 2006
29 Dec 2002 to 28 Dec 2006
23 Jan 2004 to 22 Jan 2008
2 July 2004 to 1 July 2008
29 Jan 2005 to 28 Jan 2009
15 July 2005 to 14 July 2009
13 Nov 2005 to 12 Nov 2009
9 June 2006 to 8 June 2010
1 Sept 2000
1 Sept 2001
1 Sept 2002
1 Sept 2003
108,344
52,987
527,200
423,416
54p
68p
43p
36p
1 Sept 2003 to 31 Mar 2004
1 Sept 2004 to 31 Mar 2005
1 Sept 2005 to 31 Mar 2006
1 Sept 2006 to 31 Mar 2007
SAYE Scheme:
The exercise of options under the Approved and Unapproved Executive Share Options Schemes is conditional on there having been an
increase in earnings per share over the increase in the rate of inflation averaged over the previous three financial years prior to exercise
of not less than 3% over the period.
Annual Report 2003
continued
44
23. Contingent liabilities
There are contingent Group liabilities of up to £3,113,000 and Company liabilities of up to £1,056,000 in respect of indemnities,
warranties and guarantees in relation to subsidiaries and various companies and partnerships where the beneficial owners are artists
with whom the Group has management, agency or other commercial relationships.
The Directors are not aware of any legal or arbitration proceedings pending or threatened against any member of the Group which may
have any liability significantly in excess of provision in the financial statements.
24. Reserves
Share
premium
£000
1 October 2002
Exchange movements
Issue of shares
Share issue costs
Profit attributable to members of the holding company
Equity dividend
30 September 2003
77,711
–
1,483
(39)
–
–
79,155
Group profit
and loss reserve
£000
4,502
(1,034)
–
–
6,594
(1,340)
8,722
Company profit
and loss reserve
£000
795
–
–
–
834
(1,340)
289
The cumulative goodwill written off against Group reserves amounted to £26,881,000 at 30 September 2003.
25. Related party transactions
During the year the Company and its subsidiaries carried out a number of transactions with related parties in the normal course of
business on an arm’s length basis. These transactions are disclosed below:
Mr A J Taylor, Mr R C Smallwood and Mr A Najeeb are from time to time appointed Directors of various companies where the beneficial
owners are artists with whom the Group has Management, agency or other commercial relationships. Those companies do not pay any
separate fees to these Directors in respect of their services. Mr A J Taylor is also a Director of The Inn on the Green Limited. The Inn on
the Green Limited has provided catering services for which The Sanctuary Group plc on an annual basis has paid less than £5,000.
Sphere Entertainment Limited and R&K Enterprises Limited are companies in which Mr A J Taylor and Mr R C Smallwood respectively
have interests. These companies have entered into agreements with the Group as set out on page 23. At 30 September 2003 there were
no outstanding balances between R&K Enterprises Limited and any Group companies. Sphere Entertainment Limited owed £13,000
(2002: £21,000) to The Sanctuary Group plc. The total amount of transactions in the year with these companies amounted respectively
to £196,000 (2002: £132,000) and £196,000 (2002: £132,000).
Annual Report 2003
continued
45
26. Reconciliation of operating profit to net cash inflow from operating activities
2003
£000
(a) Operating profit
Depreciation of tangible assets
Amortisation of goodwill, intangible assets and investment in programming (net of provision reversal)
Amortisation of intangible assets in cost of sales
Movement on artist royalty balances
Profit on disposal of tangible assets
Increase in stocks
Increase in advances to artists to secure rights
Increase in debtors
Increase/(decrease) in creditors
Effect of foreign exchange rate changes
Net cash inflow from operating activities
(b) Analysis of cash flows for headings netted in the cash flow
Returns on investments and servicing of finance:
Interest received
Interest paid
Interest element of finance lease rental payments
Net cash outflow for returns on investments and servicing of finance
Capital expenditure and financial investment:
Purchase of tangible fixed assets
Purchase of intangible fixed assets and investment in programming net of specific funding
Sale of tangible fixed assets
Purchase of investments
Net cash outflow for capital expenditure and financial investment
Acquisitions and disposals:
Purchase of subsidiary undertakings
Net cash acquired with subsidiaries
Net cash outflow for acquisitions and disposals
Financing:
Issue of Ordinary Share capital (net of related expenses)
Debt due within one year: Decrease in short-term borrowings
Repayment of secured loans
Capital element of finance lease rental payments
New secured loans: repayable within one to two years
repayable within two to five years
Decrease in long-term borrowings
Net cash inflow from financing
Annual Report 2003
2002
£000
14,484
2,613
7,403
1,946
3,939
(150)
(2,709)
(14,542)
(10,331)
2,382
(1,034)
4,001
12,321
2,183
5,870
–
1,837
(298)
(1,870)
(12,757)
(2,954)
(1,780)
(693)
1,859
175
(2,754)
(216)
(2,795)
135
(2,074)
(119)
(2,058)
(2,925)
(12,251)
12,456
(567)
(3,287)
(5,683)
(9,665)
1,254
(50)
(14,144)
(10,491)
238
(10,253)
(12,423)
3,713
(8,710)
572
(40)
–
(1,076)
2,000
15,200
–
16,656
859
(31)
(4,800)
(1,262)
1,027
31,800
(6,672)
20,921
continued
46
26. Reconciliation of operating profit to net cash outflow from operating activities – continued
At
30 September 2002
£000
(c) Analysis of net debt:
Cash in hand and at bank
Overdrafts
8,731
(7,091)
1,640
(3,090)
(36,800)
(1,735)
(39,985)
Debt due within one year
Debt due after one year
Finance leases
Total
Cash flow
£000
540
2,639
3,179
90
(15,200)
1,076
(10,855)
Other
non-cash changes
£000
–
–
–
–
(803)
(803)
At
30 September 2003
£000
9,271
(4,452)
4,819
(3,000)
(52,000)
(1,462)
(51,643)
(d) Major non-cash transactions:
During the year the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the
leases of £803,000.
(e) Purchases of subsidiary undertakings:
During the year various subsidiary undertakings were acquired (see Note 28).
Group
2003
£000
The net assets acquired were as follows:
Intangible fixed assets
Fixed assets
Stock
Debtors
Cash
Bank overdrafts
Creditors and provisions for liabilities and charges
Goodwill
The consideration was satisfied as follows:
Shares issued
Shares issued November 2003 (2002: October 2002)
Cash
Deferred cash
Loan Notes
Annual Report 2003
Group
2002
£000
–
20
–
612
375
(137)
(1,126)
(256)
8,947
8,691
214
3,001
460
9,790
3,813
(100)
(14,444)
2,734
16,754
19,488
8
1,783
2,372
4,528
–
8,691
5,265
1,000
4,173
7,000
2,050
19,488
continued
47
27. Commitments under finance and operating leases
(a) Finance leases
Commitments to future minimum lease payments under finance leases are as follows:
Group
2003
£000
Amounts falling due:
Within one year
Between two and five years
953
790
1,743
(281)
1,462
Less: Finance charges allocated to future periods
Company
2003
£000
Group
2002
£000
Company
2002
£000
691
468
1,159
(129)
1,030
748
1,323
2,071
(336)
1,735
532
648
1,180
(142)
1,038
615
415
1,030
637
1,098
1,735
463
575
1,038
The commitments, net of finance charges, are included in the balance sheets as follows:
Due within one year
Due after more than one year
839
623
1,462
The finance leases liabilities are secured on the relevant fixed assets (Note 12).
(b) Operating leases
At 30 September 2003, annual commitments under non-cancellable operating leases are as follows:
Expiring in the first year:
Land and buildings
Other
Expiring in the second to fifth year:
Land and buildings
Other
Expiring after five years:
Land and buildings
Group
2003
£000
Company
2003
£000
Group
2002
£000
Company
2002
£000
332
115
447
–
–
–
–
–
–
–
–
–
743
97
840
29
–
29
50
75
125
–
–
–
1,447
1,447
892
892
1,063
1,063
–
–
Annual Report 2003
continued
48
28. Acquisitions and disposals
(a) Acquisitions
During the year the Group made a number of acquisitions. These are summarised below. All acquisitions have been accounted for using
the acquisition method of accounting.
Fair value of purchase consideration
Date
acquired
Company
acquired
September
MW Entertainment
Productions and
Management Inc.
Other small
acquisitions
Total book value
of net assets
£000
Total
adjustments
£000
Total
fair value
£000
Shares and shares
to be issued
£000
Cash
£000
Total
£000
Goodwill
£000
(274)
51
(223)
1,783
4,590
6,373
6,596
(33)
(307)
–
51
(33)
(256)
8
1,791
2,310
6,900
2,318
8,691
2,351
8,947
All goodwill has been taken to intangible assets. The adjustment to book value is made up of £51,000 of fair value adjustments and is
detailed for material acquisitions by class of asset below:
Book value
of net assets
£000
MW Entertainment Productions and Management Inc:
Debtors
Cash at bank
153
169
(596)
(274)
Fair value
adjusted
£000
Fair value
to Group
£000
–
–
51
51
153
169
(545)
(223)
The profit after taxation of MW Entertainment Productions and Management Inc. for the nine month financial period to 31 August 2003
was £59,000 (Year to 31 December 2002: Loss £427,000). The company was acquired with effect from 1 September 2003.
(b) Disposals
Book value
of net assets
£000
Cloud 9 Screen Entertainment Group Ltd:
Intangible assets
Fixed assets
Stock
Debtors
22,639
190
196
7,643
(25,622)
5,046
During the year, the Group disposed of its entire interest in Cloud 9 Screen Entertainment Group Ltd for a consideration of £5,046,000 in
cash (financed by a loan from the Group, incorporated within the Loan Notes issued). The Group is to issue Loan Notes of £28,765,000 to
allow the Cloud 9 Group to repay its bank borrowings.
The details of these Loan Notes are explained in Note 14.
29. Post balance sheet events
On 28 November 2003 the issue of up to £30,000,000 of 4.5% Convertible Loan Notes due 2008 and Warrants to subscribe for 8,919,722
Ordinary shares of 12.5p each in the company was agreed at an extraordinary General Meeting of the Company. £18,000,000 of these
Loan Notes were issued on 28 November 2003.
Also on 28 November 2003 the authorised share capital of the Company was increased to £56,250,000 by the creation of 58,000,000
Ordinary Shares at 12.5p each.
Annual Report 2003
Head Office
Registrars
Sanctuary House
45-53 Sinclair Road
London W14 0NS
Tel: +44 (0)20 7602 6351
Fax:+44 (0)20 7603 5941
Computershare Investor
Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Solicitors
Registered in England
Number 284340
Rosenblatt
9-13 St Andrew Street
London EC4A 3AE
Registered Office
Sanctuary House
45-53 Sinclair Road
London W14 0NS
Auditors
Stockbroker
Numis Securities Limited
Cheapside House
138 Cheapside
London EC2V 6LH
Baker Tilly
Chartered Accountants
2 Bloomsbury Street
London WC1B 3ST
Financial PR
Merlin Financial
Old Change House
128 Queen Victoria Street
London EC4V 4BY
Tel: +44 (0)20 7653 6620
Fax:+44 (0)20 7653 6621
Principal Bankers
Bank of Scotland
West End Office
St James’s Gate
14-16 Cockspur Street
London SW1Y 5BL
Front cover pictures (clockwise):
Kiss, Beyoncé, Iron Maiden (Photo: Simon Fowler), Lynyrd Skynyrd,
Funeral For A Friend, Lee ‘Scratch’ Perry, The Libertines, Jane’s Addition.
Designed and produced by Carnegie Orr
Tel: +44 (0)20 7610 6140
www.carnegieorr.com
Sanctuary House
45-53 Sinclair Road
London W14 0NS
T: +44 (0)20 7602 6351
F: +44 (0)20 7603 5941

THE ONLY 360°INTERNATIONAL

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