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Dori Media Group (DMG)

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Thursday 20 August, 2009

Dori Media Group

Half-yearly Report

Half-yearly Report

DORI MEDIA GROUP

INTERIM RESULTS
FOR THE 6 MONTHS ENDED 30 JUNE 2009

Dori Media Group (“Dori Media” or “DMG”), the international media company active in the field of television, with a focus on production, distribution, broadcasting and merchandising of Telenovela, today announces its interim results in accordance with International Financial Reporting Standards (IFRS) for the first six months of 2009.

Financial Highlights – First half 2009 results ahead of expectations

  • Group Revenue down 8.6% to US$25.4 million (US$27.8 million)
  • Gross Profit of US$8.2 million (US$13.1 million)
  • EBITDA of US$6.4 million (US$8.4 million)
  • Operating Profit of US$1.8 million (US$4.6 million)
  • Profit before tax of US$1.4 million (US$4.3 million)
  • Profit after tax of US$0.4 million (US$3.5 million)
  • Operating Cash flow of US$1.1 million (US$2.2 million)
  • Total Equity stands at US$44.2 million (US$42.8 million)
  • Second half prospects looking stronger

Operating Highlights

  • 34% increase in revenues from TV channels to US$18.8 million (US$14 million) due to the success of operations in Indonesia, The Viva and Viva Platina TV channels in Israel and the impact of Dori Media Spike’s (DMS) deal with Israeli cable platform ‘HOT’ to run the movie and series channels on ‘HOT’;
  • Lower revenues from Telenovela broadcasting and format rights, US$5.9 million (US$11.9 million), and from Video, music CD and ancillary merchandizing business, US$0.6 million (US$1.4 million), due to increased caution in program procurement and consumer demand in line with expectations;
  • Other revenues of US$0.2 million (US$0.5 million);
  • Strong sales of new Telenovela content including the sale of cross platform Telenovela ‘Amanda O’ to 23 countries in just 6 months;
  • Sony Pictures Television International (“SPTI”) to produce and broadcast Dori Media’s hit telenovela ‘Lalola’ for the Indian subcontinent;
  • Successful screening of new DMG Telenovela programmes including ‘Split’ and ‘Champs 12’ at MIPTV in Cannes and LA Screenings in Los Angeles;
  • DMG extended the carriage of its two dedicated Telenovela TV channels VIVA and VIVA Platina on Israel’s leading DBS television provider ‘YES’ until the end of 2013. DMG also has an agreement in place with the leading Israeli cable network ‘HOT’ to carry both VIVA channels until the end of 2011;
  • Novebox.com (www.novebox.com), the world’s first commercial community website dedicated to Telenovela reached over 3.2 million unique visitors since its debut in November 2008 out of total visits of 4.6 million that contributed to 10.6 million page views. Dori Media’s YouTube Channel views have now reached over 88 million since their launch in August, 2007.

Recent Developments

  • On June 4, 2009, Dori Media announced a share issue to raise gross proceeds of £1.58 million (approximately US$2.57 million) by way of a Placing with Catalyst Private Equity Partners (Israel) II, L.P. ('Catalyst') 670,323 Ordinary Shares at 100 pence per share (admitted to trading on 9 June 2009) and issuance of 479,763 Warrants for a term of 5 years, exercisable at a price of 7 NIS and through an Open Offer of 1,757,840 ordinary shares (“Open Offer Shares”) at 52 pence per share;
  • On July 10, 2009, Dori Media announced that it had received valid acceptances under the Open Offer in respect of 1,557,358 Open Offer Shares from qualifying shareholders, representing a take-up of approximately 88.6% of the 1,757,840 Open Offer Shares offered. The remaining 200,482 Open Offer Shares were allocated to Catalyst under the terms of the Underwriting Agreement. All Open Offer Shares commenced trading on 10 July 2009.
  • On June 30th, 2009, Dori Media announced that it had conditionally agreed to raise gross proceeds of approximately £1.82 million (approximately US$3 million) (net proceeds £1.80 million) by way of Placing 1,818,182 Ordinary Shares at 100 pence per share with The Zabludowicz Trust, an affiliate of The Tamares Group. The Placing price of 100 pence represented a 77 per cent premium to the Closing Price of 56.5 pence per share on 29 June 2009. Dori Media also issued Tamares with 479,763 Warrants for a term of 5 years, exercisable at a price of 7 NIS as part of the Placing. Shareholders approved the dissapplication of pre-emption rights and the issuing of Placing Shares in Dori Media to the Zabludowicz Trust at an Extraordinary General Meeting of its Shareholders ('EGM'), on July 27th.
  • On July 26, 2009, Dori New Media, a subsidiary of Dori Media and Dori Media Darset Ltd., successfully launched a new cross platform 24/7 reality show in Israel called “uMan”. The show was launched on internet and mobile platforms operated by Cellcom, the biggest cellular operator in Israel. “uMan”, locally know as “Megudalim”, is based on an idea developed by Dori New Media and produced with Cellcom in Israel as a unique and innovative reality game exclusively for cellular and internet. Eight contestants, controlled by the viewers enter a Lab for 21 days during which their every move will be filmed, 24 hours a day and they will not be able to make even the slightest decision about their situation. All decisions regarding the contestants will be determined by viewers who will have complete control over the lives of the contestants. “uMan' became an instant success in Israel, as it received more than 7 million votes in 21 days. In this time period it had 700,000 unique users (Israel's population total 7 million people and 600,000 of them are teenagers, ages 12-18).

Outlook

  • Whilst the global economic outlook for 2009 remains uncertain, DMG’s second half of the year is generally stronger than the first half and the Board expects the Company to remain profitable and soundly funded. Dori Media generates sales from a number of operational streams and territories which position DMG well to pursue its strategy.
  • Demand for Telenovela programming remains substantial both in new and existing markets around the world, as it presents broadcasters and producers with cost effective yet highly popular content – an extremely valuable facet in the current environment. Demand for such content is expected to grow, particularly for new media platforms such as the internet and mobile phones. As a result of this, DMG, together with Dori Media Darset formed a new subsidiary called Dori New Media, which is successfully closing deals with global cellular and internet platforms for content from Dori Media’s existing library and new productions.
  • DMG expects shows including ‘Lalola’, and new shows, such as 'Date Blind', ‘Split’, ‘Champs 12’, ‘Amanda O’, ‘La Maga’, the new reality show “uMan” and ‘Cupido: El Negocio Del Amor’, to contribute more sales revenue in the second half of 2009.

Chief Executive Officer’s comments

Nadav Palti, President and CEO of Dori Media Group, commented: “As predicted, the first six months of 2009 have been difficult. DMG’s Telenovela sales for the period are down, however TV Channel revenues remain strong and continue to grow in spite of a difficult opening to 2009. We are well prepared to withstand the tough economic environment thanks to our diversified income streams, including multi year agreements for the carriage of TV channels in Israel and Indonesia, and our growing library of Telenovela programming, including ‘Lalola’ which has been sold to more than 69 countries and new award winning productions such as ‘Amanda O’, which has been sold to 23 countries within six months of its launch and 'Champs 12', which was sold to 19 countries in only 4 months.

“Our international sales account for 19 per cent. of total sales, with Asia showing very healthy levels of sales growth. We are currently exploring further production partnerships in the Far East, which has the potential to be a vast and growing market for Telenovela.

“Our cost base grew slightly in the first half of 2009 as we invested in developing and acquiring new content, including new media content for our website Novebox.com. Nonetheless, we have introduced several cost cutting measures in 2009 including at senior management level, to ensure we protect our bottom line. This will enable DMG to maintain high margin profitability.

”We ended the period with the successful completion of two rounds of financing through the equity capital markets in the form of two private placings and of an open offer of new shares. These placements and open offers demonstrate the healthy appetite the market continues to have for Dori Media’s shares. We are very happy to be welcoming on board strong partners as Catalyst and Tamares and we thank our shareholders for their renewed support. We remain committed to maximizing value for all our shareholders.”

Chief Executive Officer’s Review

Operating Update

DMG continues to capitalize on the growing popularity of the Telenovela genre worldwide. Excluding the impact of the ‘HOT’ movie and general entertainment channels agreement on local revenues in Israel, international revenues account for 47% of total revenues in H1 2009 (US$4.7 million), compared to the 68% (US$11.3 million), contribution towards total revenues recorded during the first half of 2008. There has been a marked increase in revenues in Asia and the breakdown of international sales for the period is as follows:

- 27%, US$1.3 million, (41%, US$4.6 million, in H1 2008) generated in Europe, representing 13% of global sales;
- 23%, US$1.1 million, (34%, US$3.9 million, in H1 2008) generated in Central and South America, representing 11% of global sales;- 23%, US$1.1 million, (34%, US$3.9 million, in H1 2008) generated in Central and South America, representing 11% of global sales;
- 50%, US$2.3 million, generated in other territories mainly in Asia (25%, US$2.8 million, in H1 2008 – mainly from Asia) representing 23% of global sales; - 50%, US$2.3 million, generated in other territories mainly in Asia (25%, US$2.8 million, in H1 2008 – mainly from Asia) representing 23% of global sales;

A growing library of quality programming

In the first half of 2009, Dori Media continued to invest in new TV series and the Company now has a library of over 4,450 TV hours, 120 - 9 minute webisodes and around 230 1-5 minute cellular episodes of Telenovelas and daily series.

Dori Media’s new show ‘Amanda O’, the first global cross platform Telenovela available for Internet, TV and mobile, has proven very successful. The show is unique because it allows fans to view the series simultaneously across three different platforms. Figures released by Novebox.com, the world’s first social community website dedicated to Telenovelas, indicate that the internet version of ‘Amanda O’ has been viewed over 800,000 times by users from Argentina, Uruguay and Paraguay alone since its launch.

Since its launch at the end of 2008, ‘Amanda O’ received an Accolade award and is nominated for two awards at the 2009 Martin Fierro Awards in Argentina. Within months, the comedy show was sold to 23 countries from Latin America to the Far East.

The quality of Dori Media’s programs was recognized at several events including the MipTV 2009 market convention in Cannes and the LA Screenings in May. DMG’s major new hits featured at the industry conventions included teen-vampire daily drama ‘Split’, ‘Champs 12’, ‘La Maga’ and ‘Cupid: The Business of Love’ and among others.

‘La Maga’, a colorful adaptation of ‘The Wizard of Oz’, was sold to Uruguay and Colombia in March 2009 while ‘Champs 12’ was sold to Caracol Television S.A. in Colombia even before its debut on Canal America in Argentina. ‘Champs 12’ has been sold to 19 countries in total, including Spain, Portugal, Italy, Greece and Turkey.

Dori Media’s hit comedy show ‘Lalola’, which has been sold to 69 countries since its debut, continues to be very popular and entered new markets in 2009. In January 2009, Sony Pictures Television International declared its intention to exercise an option to produce and broadcast a Hindi and Hindish language version of ‘Lalola’ for the Indian subcontinent, adding to the universal success and appeal of the show. ‘Lalola’ was also nominated for the first telenovela award at the prestigious 30th annual Banff World Television Awards in June.

Strong long-term partnerships

Since last year, Dori Media has entered into several strong long-term partnerships with leading global media companies, which will continue to contribute to DMG’s revenue in the future. A summary of the main partnership agreements is provided below.

In 2007, Israeli cable platform ‘HOT’, boasting subscriptions with the majority of Israeli households, granted Dori Media Spike (DMS) rights to produce and operate the existing ‘HOT’ premium movie and series channels and services for 3 years as of January 1st 2008. In January 2009, DMS gained responsibility for two extra channels and handed a channel back to HOT.

In parallel, DMG signed an extension agreement with ‘HOT’ to continue to carry its two dedicated Telenovela TV channels VIVA and VIVA Platina until the end of 2011. DMG also announced in July 2009 that it has extended its agreement with ‘YES, the leading Direct Broadcast Satellite (DBS) television provider in Israel, to carry the two TV channels until the end of 2013. VIVA is DMG’s main channel in Israel and VIVA Platina is DMG’s premium pay channel broadcasting exclusively on weekends.

In May 2008, DMG struck a deal with Televisa for a 5-year output deal to sell various titles to Televisa. Televisa is the largest media company in the Spanish world and a major player in the international entertainment business. The deal was signed for a consideration of approximately US$7.2 million with contractual options of US$2.3 million expected to increase the value of the deal to approximately US$9.5 million. The deal included immediate licensing of broadcasting and format rights in Latin America and Europe for various Telenovelas worth US$3.45 million with contractual options expected to increase the value of the deal to US$5.75 million. In addition to this, both parties have committed to an output deal for 5 years worth US$3.75 million. As part of the 5-year output deal, Televisa will purchase five Dori Media titles, with a title being delivered to Televisa each year between 2009 and 2013.

In August 2008, DMG signed ten-year agreements with Ginx Entertainment Limited (“Ginx”) and with PT MNC Sky Vision, Indonesia’s DBS provider, to broadcast Ginx TV, the first international video gaming TV Channel, on both its platforms, OKE Vision from September 2008 and Indovision from July 2009.

Financial Performance

Revenue

Against a backdrop of tough economic conditions, Dori Media recorded sales of US$25.4 million for the six months ended 30 June 2009, down 8.6% from US$27.8 million for the same period last year.

The group’s results were supported by the strong revenue coming from DMG’s TV channel businesses which generated US$18.8 million during the first six months of 2009, up 34% from US$14 million in the same period last year. This increase is attributable to the success of Indonesian channels run by Dori Media International (“DMI”) the fully owned Swiss subsidiary of DMG, Viva and Viva Platina TV channels in Israel as well as the movie and entertainment channels venture with ‘HOT’. In January 2009, DMS gained responsibility for two extra channels and handed a channel back to HOT.

As expected, Telenovela broadcasting and format rights sales were down significantly to US$5.9 million, compared to US$11.9 million in the same period last year with revenues from broadcasting rights alone down to US$5.1 million from US$9.5 million in the first half of 2008. This is mainly due to increased caution by buyers in view of general economic conditions. Broadcasting and format rights sales represented 24% of total revenues in the period, compared with 43% in the first half of 2008, due to the continuous diversification of DMG’s revenue streams and the impact of the TV channels revenue growth on total sales.

Revenues from the ancillary business (merchandising & publishing, music, DVDs, CDs, videos and Live shows) also decreased from US$1.4 million in the first half of 2008 to US$0.6 million in the first half of 2009. This decrease is in-line with expectations as some major localizations of Dori Media content no longer generate royalties after a decrease in the number of exhibition appearances for certain shows. Exhibitions of new formats have however begun and include exhibitions for shows including ‘La Maga’, the Portuguese version of ‘Rebelde Way’, and ‘Patito Feo’ in France. DMG’s ‘Champs 12’ is also expected to generate higher ancillary revenues in 2009 and further.

Other income contributed 1% of total sales at US$0.2 million in the first half of 2009, compared to 2% at US$0.5 million for the same period last year.

Gross Margin

The Company recorded a gross profit of US$8.2 million, down from US$13.1 in the first six months of 2008, after an increase in amortization and investments relating to the development and acquisition of more content.

Gross margin for the current reporting period was 32% decreasing from 47% in the first half of 2008 as anticipated as a result of lower revenues from broadcasting and format rights.

The cost of goods sold in the first six months of 2009 increased to US$17.2 million compared to US$14.6 million in the same period last year. This increase can be mainly attributed to charges relating to the setting up of the “HOT” TV channels and expenses relating to the acquisition of content for this purpose.

Operating Expenses

Total operating expenses amounted to US$6.4 million for the first six months of 2009, down from US$8.5 million a year earlier. Total sales and marketing expenses were lower than expected having decreased from US$2.7 million in the first half of 2008 to US$1.7 million in the first half of 2009 due to lower sales and merchandising commissions and decreased advertising and marketing expenses. While the overall cost of advertising and marketing decreased, Dori Media did not decrease its overall advertising and marketing activity during the period.

Sales commissions together with salaries of sales personnel were halved from US$0.8 million in the first half of 2008 to US$0.4 million in the first half of 2009. PR expenses remained stable year-on-year at around US$0.1 million to support further revenue generation.

Administration & General expenses and salaries were reduced by 18% from US$5.8 million to US$4.7 million as part of a general effort to closely control expenses. Salaries and management fees were down by 7% from US$3.1 million in the first half of 2008 to US$2.9 million in the first half of 2009 while office and other expenses were down by 33% from US$0.9 million in the first half of 2008 to less than US$0.6 million in the first half of 2009.

Professional expenses including lawyers, auditors and other consultants were reduced by 41% from US$1.0 million in the first half of 2008 to US$0.6 million in the first six months of 2009.

EBITDA

The Company recorded EBITDA of US$6.4 million, down from US$8.4 million in the first six months of 2008, representing EBITDA margin of 24%, which is in line with expectations.

Income Tax

Total tax expenses of close to US$1.0 million in the reporting period represent a tax rate of 71% from DMG’s Profit Before Tax (20% in H1 2008). This significant increase in tax rate is due to a unique situation that has caused DMG’s tax expenses to be disproportionately high compared to the profit generated by the Group. This is because consolidated Group profit cannot be used as a base for calculating tax liabilities as tax charges for each of DMG’s subsidiaries are calculated individually. Consequently, a loss result by one subsidiary cannot be offset by a profit from another for tax purposes. During the first half of 2009, as a result of decrease in sales of Telenovela broadcasting rights and formats, a large proportion of Dori Media’s profits derived from Israel, where the profitable companies accrued tax expenses at the rate of 26%. At the same time, DMG’s worldwide sales operations suffered a loss for the period with a tax credit of only 10%.

Cash Flow

In spite of the predicted slowdown in activity during the first half of 2009, Dori Media’s cash flow remained positive, facilitating strong cash generation and the financing of new productions and ventures. Operating cash inflow was US$1.1 million in the reporting period compared to US$2.2 million in the first half of last year. The operating cash flow is a result of DMG’s healthy growth and is also due to cash profits earned on historical investments. This cash flow combined with bank facilities available to it enables the Group to continue to invest in new productions often with other partners and thus to grow its inventory of new content.

***

For further information on Dori Media Group, please visit our website on www.dorimedia.com or contact:

Dori Media Group Ltd.       Shared Value Limited
Nadav Palti, CEO & President Nicolas Duperrier/Mark Walter
Tel: +972 3 7684000 Investor & Media relations

[email protected]

Tel. +44 (0) 20 7321 5010

[email protected]

 
Daniel Stewart & Company
Lindsay Mair/Oliver Rigby
Tel. +44 (0) 20 7776 6550

Dori Media Group is an international media group that produces, distributes and broadcasts telenovelas. The group owns approximately 4,450 television hours that it sells to a wide variety of audiences in more than 70 countries. In Israel, Dori Media is the owner of Dori Media Paran and Dori Media Darset, which produce daily series and telenovelas for the Israeli market. It also owns and operates two telenovela channels, Viva and Viva Platinum. In the Israeli market, Dori Media also packages, produces and operates all of the movie channels on HOT cable television and the series channel on HOT Extra. In Indonesia, the company operates the Televiva Vision 2 channel that is devoted to telenovelas and Baby TV Vision 3 for toddlers. The Dori Media Group in controlled by Mapal Communications Ltd. one of the largest media companies in the Israel. The group is traded on the London Stock Exchange where its symbol is DMG. For more information on Dori Media, visit our corporate website at http://www.dorimedia.com/.

***

CONSOLIDATED BALANCE SHEETS

  As of 30 June   As of

31 December

2009   2008 2008
US$ '000 US$ '000 US$ '000
Unaudited Audited
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents 1,453 1,918 2,382
Trade receivables 17,236 22,134 15,919
Other accounts receivable 4,433 3,452 3,203
Broadcasting rights 8,740 4,225 4,413
 
31,862 31,729 25,917
 
NON-CURRENT ASSETS:
Investments in rights of TV series 31,361 25,099 28,877
Intangible assets, net 9,168 10,844 9,718
Property and equipment, net 5,417 6,306 5,793
Long-term loan to others 126 1,046 1,081
Deferred tax assets 1,545 1,597 1,994
 
47,617 44,892 47,463
 
Total assets 79,479 76,621 73,380

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

  As of 30 June   As of

31 December

2009   2008 2008
US$ '000 US$ '000 US$ '000
Unaudited Audited
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
Credit from banks and current maturities of

long-term loans

16,785 12,642 14,789
Trade payables 8,561 9,940 5,540
Current tax liability 422 879 628
Other current liabilities 4,362 5,873 5,636
 
30,130 29,334 26,593
 
LONG-TERM LIABILITIES:
Bank loans 117 244 99
Other long-term liabilities 1,628 2,673 1,773
Deferred tax liabilities 3,379 1,555 2,203
 
5,124 4,472 4,075
 
EQUITY:
Equity attributable to equity holders of the parent:
Issued capital 556 539 539
Share premium 24,011 22,377 22,877
Other capital reserve 210 - -
Foreign currency translation reserve 48 1,227 273
Asset revaluation surplus 695 695 695
Retained earnings 17,418 17,724 17,612
 
42,938 42,562 41,996
Minority interest 1,287 253 716
 
Total equity 44,225 42,815 42,712
 
Total liabilities and equity 79,479 76,621 73,380

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

19 August, 2009

           
Date of approval of the Tamar Mozes-Borovitz Nadav Palti Moshe Pinto
financial statements Chairman of the Board

of Directors

Director and

Chief Executive Officer

Chief Financial Officer

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  Six months ended

30 June

  Year ended

31 December

2009   2008 2008
US$ '000 *) US$ '000 *) US$ '000 *)
Unaudited Audited
 
Revenues 25,397 27,773 51,026
Cost of revenues 17,198 14,634 27,996
 
Gross profit 8,199 13,139 23,030
 
Selling and marketing expenses 1,698 2,708 4,826
General and administrative expenses 4,748 5,791 11,374
 

Total operating expenses

6,446 8,499 16,200
 
Operating profit 1,753 4,640 6,830
Financial expenses, net 355 326 832
Other income, net - - (7)
 
Profit before tax 1,398 4,314 6,005
Taxes on income 997 847 2,166
 
Profit for the period 401 3,467 3,839
 
Other comprehensive income (loss):
 
Currency translation adjustments of foreign operations (276) 888 (87)
 
Total comprehensive income 125 4,355 3,752
 
 
profit (loss) attributable to:
Equity holders of the parent (194) 3,315 3,203
Minority interests 595 152 636
 
401 3,467 3,839
 
Total comprehensive income (loss) attributable to:
Equity holders of the parent (419) 4,182 3,116
Minority interests 544 173 636
 
125 4,355 3,752
 
Earnings (loss) per share attributable to equity holders of the parent (in $):
Basic and diluted (0.01) 0.14 0.14

*) Except per share amounts.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

  Attributable to equity holders of the parent    
      Foreign    
Other currency Asset
Issued Share capital translation revaluation Retained Minority Total
capital premium reserve reserve surplus earnings Total interest equity
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
 
Six months ended 30 June 2009 (Unaudited)
 
Balance at beginning of period 539 22,877 - 273 695 17,612 41,996 716 42,712
 
Total comprehensive income (loss) - - - (225) - (194) (419) 544 125
Dividend paid to minority shareholders - - - - - - - 27 27
Issue of equity instruments 17 873 210 - - - - 1,100 - 1,100
Cost of share-based payments - 261 - - - - 261 - 261
 
Balance at end of period 556 24,011 210 48 695 17,418 42,938 1,287 44,225
 
Six months ended 30 June 2008 (Unaudited)
 
Balance at beginning of period 535 21,927 - 360 695 14,409 37,926 80 38,006
 
Total comprehensive income - - - 867 - 3,315 4,182 173 4,355
Exercise of options 4 121 - - - - 125 - 125
Cost of share-based payments - 329 - - - - 329 - 329
 
Balance at end of period 539 22,377 - 1,227 695 17,724 42,562 253 42,815
 
Year ended 31 December 2008 (Audited)
 
Balance as of 1 January 2008 535 21,927 - 360 695 14,409 37,926 80 38,006
 
Total comprehensive income (loss) - - - (87) - 3,203 3,116 636 3,752
Exercise of options 4 126 - - - - 130 - 130
Cost of share-based payments - 796 - - - - 796 - 796
Tax effect of share-based payments - 28 - - - - 28 - 28
 
Balance as of 31 December 2008 539 22,877 - 273 695 17,612 41,996 716 42,712

*) Represents an amount lower than US$ 1 thousand.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Six months ended

30 June

  Year ended

31 December

2009   2008 2008
US$ '000 US$ '000 US$ '000
Unaudited Audited
Cash flows from operating activities:  
 
Profit for the period 401 3,467 3,839
Adjustments to reconcile profit to net cash provided by operating activities (a) 734 (1,259) 4,410
 
Net cash provided by operating activities 1,135 2,208 8,249
 
Cash flows from investing activities:
 
Additions to intangible assets (12) (1,028) (1,985)
Additional consideration for acquisition of subsidiaries and jointly controlled entity - - (1,350)
Investments in rights of TV series (5,292) (7,540) (13,269)
Proceeds from sale of property, equipment and investment properties - - 19
Purchase of property and equipment (149) (438) (923)
Collection of loan by jointly controlled entity 478 - -
 
Net cash used in investing activities (4,975) (9,006) (17,508)
 
Cash flows from financing activities:
 
Dividend paid to minority shareholders (27) - -
Proceeds from issuance of shares and warrants, net of issuance costs 1,100 125 130
Repayment of loans from banks and others (90) (306) (552)
Repayment of long-term production financing (98) (583) (1,075)
Short-term bank credit, net 2,038 7,025 10,809
 
Net cash provided by financing activities 2,923 6,261 9,312
 
Effect of exchange rate changes on cash and cash equivalents (12) 148 22
 
Increase (decrease) in cash and cash equivalents (929) (389) 75
Cash and cash equivalents at beginning of period 2,382 2,307 2,307
 
Cash and cash equivalents at end of period 1,453 1,918 2,382

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Six months ended

30 June

  Year ended

31 December

2009   2008 2008
US$ '000 US$ '000 US$ '000
Unaudited Audited
(a)   Adjustments to reconcile profit to net cash provided by (used in) operating activities:  
 
Income and expenses not involving cash flows:
 
Cost of share-based payments 261 329 796
Depreciation and amortization 11,899 3,436 22,693
Financial expenses due to production financing - - 411
Deferred income taxes 1,618 408 503
Gain on disposal of property and equipment - - (7)
Other (6) (167) (44)
Severance pay, net (18) - (136)
 
Changes in operating assets and liabilities:
 
Increase in trade receivables (1,327) (5,839) (374)
Decrease (increase) in other accounts receivable (746) 81 232
Increase in broadcasting rights (11,038) (3,039) (18,217)
Increase (decrease) in trade payables 1,380 4,621 (1,591)
Increase (decrease) in other current liabilities (1,289) (1,089) 144
 
734 (1,259) 4,410
 
(b) Supplemental disclosure of cash flows:
 
Cash net during the year for:
 
Interest 256 249 684
 
Income taxes 379 693 1,316
 
(c) Significant non-cash transactions:
 
Acquisition of rights in TV series on credit (54) (910) (219)
 
Acquisition of broadcasting rights 1,675 - 1,624

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

a. The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2009 were authorized for issue in accordance with a resolution of the directors on 19 August 2009.

b. The Company and its subsidiaries are engaged in the rights purchase, production, license and distribution of Telenovela TV series (Telenovelas),broadcasting of Telenovela dedicated TV channels, entertainment movie and series TV channels (TV channels),distribution of TV series sourced from third parties and operating Telenovela community website.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation of the interim consolidated financial statements:

The interim condensed consolidated financial statements for the six months ended 30 June 2009, have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These financial statements should be read in conjunction with the Company's audited annual financial statements and accompanying notes as of 31 December 2008 ('the annual financial statements').

b. Accounting policies:

The significant accounting policies and methods of computation adopted in the preparation of the interim consolidated financial statements are consistent with those applied in the annual financial statements as of 31 December 2008 except for the adoption of new policies in 2009 as noted below:

IAS 1(Revised )- Presentation of Financial Statements:

The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognized income and expense, either in one single statement, or in two linked statements. The Group has elected to present in a single statement.

IFRS 2 - Share-based Payment:

Pursuant to an amendment to IFRS 2, the definition of vesting terms will only include service conditions and performance conditions and the cancellation of a grant that includes non-vesting conditions by the Company or the counterparty, will be accounted for by way of acceleration of vesting and not by forfeiture.

Conditions that are other than service and performance conditions will be viewed as non-vesting conditions and must therefore be taken into account when estimating the fair value of the instrument granted.

IAS 23 (Revised) - Borrowing Costs:

In accordance with the revised IAS 23, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset must be capitalized. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale and includes fixed assets, investment property and inventories that take a substantial period of time to get ready for sale. The possibility of immediately carrying these costs as an expense has been removed.

IAS 38 - Intangible Assets:

Pursuant to an amendment to IAS 38, expenses incurred from advertising, marketing or promotional activities will be recognized as an expense when the company has the right to access to the advertising goods or when the company receives those services. For these purposes, the activities also include production of catalogs and promotional pamphlets. Also, IAS 38 is amended to allow the unit of production amortization method for all intangible assets even if it results in a lower amount of accumulated amortization than under the straight-line method.

The adoption of these amendments did not have any effect on the financial position, results of operation or cash flows of the group.

Revenue Recognition:

Revenues from certain contracts to provide TV series are recognized based on the percentage of completion method when the stage of completion and the costs incurred can be measured reliably. The stage of completion is based on the proportion of costs measured to date in relation to total estimated costs.

c. Standards issued but not yet effective:

IAS 36 - Impairment of Assets:

The amended IAS 36 ('the amendment') defines the required accounting unit to which goodwill will be allocated for impairment testing of goodwill. Pursuant to the amendment, the largest unit permitted for impairment testing of goodwill acquired in a business combination is an operating segment as defined in IFRS 8, 'Operating Segments' before the aggregation for reporting purposes. The amendment will be prospectively adopted starting from the financial statements for periods beginning on 1 January, 2010. Earlier application is permitted.

The Company believes that the effect of the amendment on its financial position, operating results and cash flows is not expected be material.

NOTE 3:- EQUITY

On 6 June, 2009, the Company issued to institutional investors 670,323 Ordinary shares and warrants to purchase up to 479,763 Ordinary shares at an exercise price of NIS 7 ($ 1.78) per share in consideration of £ 670 thousand (approximately US $ 1,100 thousand).The warrants are exercisable until June 2014.

NOTE 4:- BUSINESS SEGMENTS

a. General:

The Group companies operate in two principal business segments: production, sale and distribution of TV series and broadcasting of TV channels.

b. The following data is presented in accordance with IFRS 8:

  Six months ended 30 June 2009 (Unaudited)
Rights of TV series   Broadcasting of TV channels   Other   Adjustments   Total consolidated
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Revenues:
Sales to external customers 6,341 18,755 301 - 25,397
Intersegment sales 220 - 1,610 (1,830) -
 
Total revenues 6,561 18,755 1,911 (1,830) 25,397
 
Segment results 995 2,958 (624) (974) 2,355
 
Unallocated expenses (602)
 
Operating profit 1,753
  Six months ended 30 June 2008 (Unaudited)
Rights of TV series   Broadcasting of TV channels   Other   Adjustments   Total consolidated
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Revenues:
Sales to external customers 13,307 13,951 515 - 27,773
Intersegment sales 60 - 2,081 (2,141) -
 
Total revenues 13,367 13,951 2,596 (2,141) 27,773
 
Segment results 4,178 1,106 498 (239) 5,543
 
Unallocated expenses (903)
 
Operating profit 4,640
  Year ended 31 December 2008 (Audited)
Rights of TV series   Broadcasting of TV channels   Other   Adjustments   Total consolidated
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Revenues:
Sales to external customers 20,355 29,726 945 - 51,026
Inter-segment sales 513 - 3,168 (3,681) -
 
Total revenues 20,868 29,726 4,113 (3,681) 51,026
 
Segment results 5,354 4,583 198 (1,719) 8,416
 
Unallocated expenses (1,586)
 
Operating profit 6,830

NOTE 5:- SUBSEQUENT EVENTS

a. On 9 July, 2009, the Company issued 1,757,840 Ordinary shares at price of 0.52 pound per share through an open offer in consideration of £ 914 thousand (approximately US $ 1,350 thousand) (net of issuance expenses in the amount of US $ 150 thousand).

b. On 27 July, 2009, the Company issued to institutional investors 1,818,182 Ordinary shares and warrants to purchase up to 479,763 Ordinary shares at an exercise price of NIS 7 ($ 1.86) per share in consideration of £ 1,818 thousand (approximately US $ 3,000 thousand) (net of issuance expenses in the amount of US $ 33 thousand).The warrants are exercisable until June 2014.

c. Changes in the tax rates applicable to the Group:

In July 2009, the Israeli Parliament (the Knesset) passed the Economic Efficiency Law (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among other things, an additional gradual reduction in the Israeli corporate tax rate starting from 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%.

The Company is evaluating the possible effect of these changes on its deferred tax balances, which is to be recorded in the second half of 2009.

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