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Dori Media Group (DMG)

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Wednesday 25 August, 2010

Dori Media Group

Half-yearly Report

Half-yearly Report

DORI MEDIA GROUP

INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2010

Dori Media Group (“Dori Media”, “DMG”, the “Company” or the “Group”), the international media company active in the field of television and new media, with a focus on production, distribution, broadcasting and merchandising of Drama and Telenovela, today announces its interim results in accordance with International Financial Reporting Standards (IFRS) for the six months ending 30 June 2010.

Financial Highlights - First half 2010 results

  • Group Revenue up 4% to US$26.3 million (US$25.4 million)
  • Gross Profit up 2% to US$8.3 million (US$8.2 million)
  • EBITDA up 17% to US$7.5 million (US$6.4 million)
  • Operating Profit of US$1.71 million (US$1.78 million)
  • Profit before tax of US$1.0 million (US$1.5 million)
  • Operating Cash flow up 209% to US$3.5 million (US$1.1 million)
  • Total Equity of US$46.5 million (US$44.2 million)

Operating Highlights

  • 54% increase in Telenovela broadcasting and format rights to US$9.1 million (US$5.9 million) due to increased activity in the production and selling of the Israeli daily dramas;
  • 10% increase in revenues from TV channels (excluding revenue from Israeli cable network ‘HOT’) to US$3.8 million (US$3.4 million);
  • Sales of new Telenovela and Drama content including the sale of ‘Split’ to over 45 countries since its launch; sales of popular new cross platform 24/7 reality show ‘uMan’ to 15 countries including 11 territories in Western Europe following its instant success in Israel; sale of ‘Champs 12’, to 31 countries in total, including France, Spain, Portugal, Italy, Greece and Turkey and sale of cross platform Telenovela ‘Amanda O’ to 36 countries since its launch;
  • Novebox, an innovative platform for online video on demand (“VOD”) in Spanish reached 1.5 million unique users per month in July 2010 and recorded 4 million page views;
  • Novebox.com signed an agreement with MSN to create a subscription/pay-on-demand based service for Spanish language MSN portals in Latin America and the Hispanic market in the USA;
  • In July 2010, Dori Media Spike (DMS) extended its agreement with ‘HOT’ to operate the ‘HOT’ premium movie channels until 2014, generating revenues of between US$45 million and US$48 million over 3 years for DMG.

Chief Executive Officer’s comments

Nadav Palti, President and CEO of Dori Media Group, commented: “While we are seeing clear indications of an improvement in market activity, the operating climate remains challenging with many programme buyers continuing to exercise caution. Keeping this in mind, we are happy to be reporting a solid set of results.

Our diverse library continues to sell very well to markets all over the world. Our investments in Dori New Media through projects such as Novebox.com, which we plan to develop into the leading online VOD library for Latin content, and in successful cross platform series such as ‘Amanda O’, ‘Split’ and ‘uMan’, are all paying off. We believe that this segment has enormous potential and the strengthening of our New Media platforms, supported by Dori Media’s very large library, will enable us to capture this growth.

We are also delighted to have developed many long-term partnerships with leading global media companies providing excellent platforms for further growth. Novebox.com signed an agreement with MSN to create a service for Spanish language MSN portals in Latin America and the Hispanic market in the U.S.A. This is in addition to agreements we already have with Cellcom, the leading mobile operator in Israel, with ‘HOT’, the Israeli cable platform, with ‘YES, the leading Direct Broadcast Satellite (DBS) television provider in Israel and with Televisa, the largest media company in the Spanish world.

Our flexible, diverse and innovative business puts Dori Media in a strong position to capture growth both in the developed and developing markets. In spite of the many exciting developments we are working on, tight cost controls continue to help our bottom line, our balance sheet is in good shape and we remain focused on generating maximum returns to all our shareholders.”

Financial Summary (Unaudited)

  HY 2010   HY 2009  
US$ '000   US$ '000   Y-o-Y %
 
Revenues 26,303   25,352   4%
 
Gross profit 8,343   8,154   2%
 

Total operating expenses

6,634 6,376 4%
 
Operating profit 1,709   1,778   -4%
 
EBITDA 7,494   6,425   17%
 
Profit before tax (*) 1,015 1,475 -31%
 
Profit for the period 368   451   -18%
         
Operating Cash Flow 3,512   1,135   209%

(*) Note: after deduction of Novebox.com expenses of US$1.3 million in 2010 and US$1.1 million in 2009.

Chief Executive Officer’s Review

Operating Update

Excluding the impact of the ‘HOT' movie and general entertainment channels agreement on local revenues in Israel, international sales accounted for 58% of total sales during the first half of 2010, compared to a 47% contribution towards total revenues during the first half of 2009. TV channel revenues, excluding ‘HOT’ increased by 10% to US$3.8 million for the period, reflecting the strong performance of the Group’s operated TV channels in Indonesia and Turkey. The breakdown of international sales for the period is as follows:

  • 44% (27% in HY 2009) generated in Europe, representing 26% of global sales excluding 'HOT' movie and general entertainment channels;
  • 21% (23% in HY 2009) generated in the Americas, representing 13% of global sales excluding 'HOT' movie and general entertainment channels;
  • 35% generated in other territories mainly Asia (50% in HY 2009 – mainly from Asia) representing 19% of global sales excluding 'HOT' movie and general entertainment channels.

A growing library of quality programming

Dori Media continues to invest in new TV series and the Company now has a library of approximately 5,130 TV hours, more than 5,000 clips of 3 minutes on average, 120 - 9 minute webisodes and around 556 1-5 minute cellular episodes of Telenovelas and daily series.

Dori Media launched many new shows during the latter stages of 2009 and the beginning of 2010. One of the most successful of these new shows has been ‘Amanda O’, the first global cross platform Telenovela available for Internet, TV and mobile. This unique show 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. The show has been sold to 36 countries from Latin America to the Far East, receiving an Accolade award and being nominated for two awards at the 2009 Martin Fierro Awards in Argentina.

uMan’, a unique and innovative 24/7 cross-platform control game, developed by Dori New Media and Cellcom Israel, for mobile phones, internet and TV has now been sold to a total of 15 countries in 12 months. ‘uMan’ is a reality show where every move of 8 contestants is filmed 24 hours a day for 21 days and all decisions regarding the lives of the contestants are voted for by viewers. At its launch in July 2009, ‘uMan’ became an instant success in Israel, with more than 7 million viewer votes being registered in 21 days to determine the fate of its contestants. During this period, out of Israel’s total population of 7 million people (600,000 of whom are teenagers), the show had 700,000 unique users. ‘uMan’ was recently sold to ‘Mega’, the number one free-to-air TV channel in Greece and the channel even plans to extend the format’s length so that it follows the show’s participants for a longer period of time with viewers also able to catch up on the day’s action on a daily TV show dedicated to ‘uMan’ on the “Mega” channel.

Split’, a teenage show that revolves around the lives of humans and vampires, has been sold to over 45 countries in only 12 months. ‘Split’ was sold to the Philippines during the first half of 2010, the first country in Asia to acquire the daily drama. The move into Asia comes as ‘Split’ continues its success in Europe, having also been sold to Russia and Spain. The original TV series will be aired on free-to-air channels in all territories. The second season has been shot in Israel.

Split’ was originally produced for Israeli cable platform HOT’s VOD (Video on Demand) service. After only 3 months on-air, ‘Split’ episodes on HOT VOD generated a total of approximately 7,000,000 viewings. Approximately 90% of viewers watched all available episodes, reaching a record loyalty level. ‘Split’ was shown on www.ynet.co.il, Israel’s leading internet portal and achieved an unprecedented number of viewings in Israel. Following the show’s huge success on HOT VOD and on-line, both HOT and “The Children Channel” (Israel’s leading channel for children and teenagers) have invested in producing a second season of ‘Split’.

Champs 12’, which was sold to Caracol Television S.A. in Colombia even before its debut on Canal America in Argentina, has now been sold to 31 countries in total, including France, Spain, Portugal, Italy, Greece and Turkey. Exhibitions of ‘Champs 12’ in Italy already began to show new revenues from Ancillary business.

Dori Media’s hit comedy show ‘Lalola’, continues to perform well and has now been sold to more than 120 countries since its debut and is also locally produced in India, Turkey, Greece, Belgium, Spain, Portugal, Philippines, Chile, Vietnam, and Russia.

Strong long-term partnerships

Dori Media is very proud to have long-term partnerships with many leading global media companies. A summary of the main partnership agreements is provided below.

In June 2009, Dori Media Darset reached an agreement with Cellcom, the leading cellular operator in Israel, to produce ’uMan’ (named locally ‘Megudalim’ in Israel) a unique and innovative 24/7 cross-platform control game for mobile phones, internet and TV. ’uMan’ has become an instant success in Israel reflecting the potential of this innovative partnership.

Novebox signed an agreement with MSN to create a subscription/pay-on-demand based service for Spanish language MSN portals in Latin America and the Hispanic market in the U.S.A. The service is scheduled to be launched progressively over the next 6 months, and will feature rich content related to Latin series. The deal reflects the emphasis that Dori Media places on its New Media strategy having anticipated changes to content distribution with the rapid development of the internet.

In July 2010, Dori Media Spike (DMS) extended its agreement with Israeli cable platform ‘HOT’ to operate the ‘HOT’ premium movie channels for another 3 years from 1st January 2011 until 2014, generating revenues of between US$45 million and US$48 million over 3 years for DMG. DMS’s original agreement with ‘HOT’ was initiated in 2007. ‘HOT’ boasts subscriptions with the majority of Israeli households and under the agreement DMS retains the rights to produce and operate the existing ‘HOT’ premium movie channels and services.

Financial Performance

Revenue

Dori Media recorded sales of US$26.3 million for the six months ended 30 June 2010, up 4% from US$25.4 million for the same period last year.

Broadcasting and format rights sales for the first half of 2010 were up 54% to US$9.1 million, compared to US$5.9 million in the same period last year with revenues from broadcasting rights alone up 48% from US$5.1 million to US$7.5 million in the first half of 2010. This significant increase reflects renewed interest from buyers in the first half of 2010 encouraged by improving economic conditions. Broadcasting and format rights sales represented 34% of total revenues in the period, compared with 23% in the first half of 2009, demonstrating the global appeal of DMG’s series and formats.

DMG’s TV channel businesses generated revenues of US$16.7 million for the first half of 2010 compared to US$18.8 million in the same period last year. The fall in revenue was as a result of a one off venture with ‘HOT’ in 2009 which was not repeated this year. The TV channels in Indonesia (Vision 2, Baby TV Vision 3 and Ginx), in Turkey (Ginx) and in Israel (Viva and Viva Platina) performed very well and recorded a 10% growth in sales from US$3.4 million in the first half of last year to US$3.8 million in the first six months of 2010.

Other income (including TV and internet advertising) contributed 2% of total sales at US$0.4 million for the first six months of 2010, which is more than twice the other income sales generated in the first six months of 2009.

Revenues from the ancillary business (merchandising & publishing, music, DVDs, CDs, videos and Live shows) was down from US$0.6 million in the first half of 2009 to US$0.15 million in the first half of 2010. This decrease is in-line with expectations as some major localisations 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 and Licensing of shows including ‘Champs 12’ in Europe and Split in Europe and Latin America.

Gross Margin

The Company recorded a gross profit of US$8.3 million for the six months ended 30 June 2010, up from US$8.2 million in the same period last year, which was achieved despite an increase in amortization and continued investments relating to Novebox.com and the development of more content.

Gross margin for the current reporting period remains unchanged from the same period last year at 32%.

The cost of goods sold in the six months ended 30 June 2010 increased to US$18.0 million compared to US$17.2 million in the first half of 2009. This increase can be mainly attributed to higher amortization charges relating to DMG’s growing library.

Operating Expenses

Total operating expenses amounted to US$6.6 million for the first half of 2010, compared to US$6.4 million a year earlier. Total sales and marketing expenses were down 8% from US$1.7 million in the first half of 2009 to US$1.6 million for 2010 due to lower advertising & marketing expenses and lower merchandising commissions. While the overall cost of advertising and marketing decreased, Dori Media did not decrease its overall advertising and marketing activity during the period.

Administration & general expenses and salaries were up 8% from US$4.7 million for the six months ended 30 June 2009 to US$5.1 million for the six months ended 30 June 2010 due mainly to one-off options and equity provisions. Professional expenses including lawyers, auditors and other consultants were reduced by 7% to US$0.56 million in the first half of 2010.

EBITDA

In the first six months of 2010, the Company recorded EBITDA of US$7.5 million, up 17% from US$6.4 million in the first half of 2009, representing EBITDA margin of 28%, which is higher than the EBITDA margin of 25% in the first half of 2009.

This is in spite of expenses relating to the development and operating of Novebox.com, which amounted to approximately US$1.3 million and includes one-off provisions set aside for share options and equity for Executive involved in the project.

Income Tax

Total tax expenses of US$0.6 million is reported for the period. This represents a tax rate of 64% from DMG’s Profit Before Tax, down from 69% in the first half of 2009. This high 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. The Company is addressing this issue and does not expect the current tax rate level to continue to be charged. DMG will provide the market with an update on this issue at a later date.

Discontinued Operation

As a result of the sale of Dori Media Central Studios (DMCS), DMG’s TV production studios in Argentina, as announced in January 2010, the net result generated by the operation has been stated in the “discontinued operation” line in Dori Media’s first half 2009 financial statements.

Cash Flow

Dori Media’s cash flow remained positive during the first half of 2010, facilitating strong cash generation and the financing of new productions and ventures. Operating cash inflow was up 209% to US$3.5 million compared to US$1.1 million in the same period 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 and grow its inventory of new content.

Outlook

  • The Board expects DMG to remain profitable and soundly funded during 2010. Dori Media generates revenues from a number of operational streams and territories which position the Company well to pursue its strategy.
  • Demand for Telenovela and Drama programming remains high both in new and existing markets around the world, as it presents broadcasters and producers with cost effective yet highly popular content. 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 during 2009. Dori New Media is successfully closing deals with global mobile and internet platforms, such as Cellcom, the biggest mobile operator in Israel, for content from Dori Media’s existing library and new productions. Such productions are being aired on DMG’s growing on-line platforms Novebox, Youtube.com/telenovela.
  • DMG expects shows including ‘Lalola’, and new shows, such as ‘Amanda O’, ‘Champs 12’, ‘Ladronas’, Cupido: El Negocio Del Amor’, 'Date Blind', ‘La Maga’, ‘Split’ and the new reality show ‘uMan’ to contribute strong sales revenue during the remainder of 2010.

***

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
Paul Shackleton/Oliver Rigby
Tel. +44 (0) 20 7776 6550

Dori Media Group is an international group of media companies, located in Israel, Switzerland, Argentina and the US. The group produces and distributes TV and New Media content, broadcasts various TV channels and operates video-content internet sites. The group owns approximately 5,130 TV hours, more than 5,000 clips of 3 minutes on average, 120 - 9 minute webisodes and around 556 1-5 minute cellular episodes of Telenovelas and daily series that it sells to a wide variety of audiences in more than 80 countries. It owns and operates two telenovela channels, Viva and Viva Platinum broadcasted on all Israeli multi-channel platforms and via the co-branded internet site offering telenovelas to Israeli surfers through Walla.com. Dori Media Paran and Dori Media Darset produce top-end series as well as daily dramas for the Israeli and international markets. Dori New Media develops and produces formats specially tailored for the internet and cellular platforms, and realizes new opportunities enabled by the new technologies. Dori Media Spike packages, produces and operates the main movie channels on the Israeli cable TV platform and general entertainment channels on all Israeli TV multi-channel platforms. In Indonesia and Malaysia, the company operates the Televiva Vision 2 channel that is devoted to telenovelas and Baby TV Vision 3 for toddlers, in addition to the Ginx gamers’ channel. Ginx is localized and broadcasted to Turkey as well. Novebox operates an ad-based VOD and SVOD commercial internet site targeted at the Hispanic and Latin American audience offering a variety of shows and movies. 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 STATEMENTS OF COMPREHENSIVE INCOME

   

Six months ended

30 June

Year ended

31 December

2010   2009 2009
US$ '000 *)   US$ '000 *) US$ '000 *)
Unaudited Audited
 
Revenues 26,303 25,352 48,716
Cost of revenues 17,960   17,198   33,348  
 
Gross profit 8,343   8,154   15,368  
 
Selling and marketing expenses 1,560 1,698 3,323
General and administrative expenses 5,074   4,678   10,401  
 

Total operating expenses

6,634   6,376   13,724  
 
Operating profit 1,709 1,778 1,644
Financial expenses, net 694   303   638  
 
Profit before tax 1,015 1,475 1,006
Taxes on income 647   1,024   1,669  
 
Profit (loss) for the period from continuing operations 368 451 (663 )
Loss for the period from discontinued operations -   (50 ) (784 )
 
Profit (loss) for the period 368 401 (1,447 )
 
Other comprehensive income (loss):
 
Currency translation adjustments of foreign operations (116 ) (222 ) (466 )
 
Total comprehensive income (loss) 252   179   (1,913 )
 
Profit (loss) attributable to:
Equity holders of the parent (27 ) (194 ) (2,593 )
Non-controlling interests 395   595   1,146  
 
368   401   (1,447 )
Total comprehensive income (loss) attributable to:
Equity holders of the parent (73 ) (419 ) (3,173 )
Non-controlling interests 325   598   1,260  
 
252   179   (1,913 )
Basic and Diluted profit (loss) per share from continuing operations attributable to equity holders of the parent **) - **) - (0.07 )
 
Basic and Diluted profit (loss) per share from discontinued operations attributable to equity holders of the parent **) - **) - (0.03 )

Basic and Diluted profit (loss) per share attributable to equity holders of the parent

**) - **) - (0.10 )

*) Except per share amounts.

**) Amount lower than 0.01

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

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

   
As of 30 June

As of

31 December

2010   2009 2009
US$ '000 US$ '000 US$ '000
Unaudited Audited
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents 910 1,453 635
Trade receivables 18,426 17,236 16,670
Other accounts receivable 3,430 4,433 2,826
Broadcasting rights 7,966 8,740 6,725
 
30,732 31,862 26,856
 
Assets classified as held for sale - - 2,630
 
30,732 31,862 29,486
 
NON-CURRENT ASSETS:
Investments in rights of TV series 35,744 31,361 35,079
Intangible assets, net 8,059 9,168 8,584
Property and equipment, net 2,720 5,417 2,857
Other long-term assets 128 126 128
Deferred tax assets 3,165 1,765 2,828
 
49,816 47,837 49,476
 

Total assets

80,548 79,699 78,962

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

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

   
As of 30 June As of

31 December

2010   2009 2009
US$ '000   US$ '000 US$ '000
Unaudited Audited
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
Credit from banks and current maturities of long-term loans 12,447 16,785 10,084
Trade payables 5,950 8,561 4,938
Current tax liability 250 422 305
Other current liabilities 4,283   4,582 3,758  
 
22,930 30,350 19,085
Liabilities associated with assets held for sale -   - 1,780  
 
22,930   30,350 20,865  
 
 
LONG-TERM LIABILITIES:
Bank loans 4,162 117 5,348
Other long-term liabilities 2,267 1,628 2,297
Deferred tax liabilities 4,699   3,379 4,053  
 
11,128   5,124 11,698  
 
EQUITY:
Equity attributable to equity holders of the parent:
Issued capital 648 556 648
Share premium 28,308 24,011 28,094
Other capital reserve 427 210 427
Foreign currency translation reserve (353 ) 48 (307 )
Asset revaluation surplus 695 695 695
Retained earnings 14,992   17,418 15,019  
 
44,717 42,938 44,576
Non-controlling interests 1,773   1,287 1,823  
 

Total equity

46,490   44,225 46,399  
 

Total liabilities and equity

80,548   79,699 78,962  

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

24 August, 2010            
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 CHANGES IN EQUITY

     
Attributable to equity holders of the parent
      Foreign    
Other currency Asset
Issued Share capital translation revaluation Retained Non controlling Total
capital premium reserve reserve surplus earnings Total interests equity
Six months ended 30 June 2010 (Unaudited) US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
 
Balance at beginning of period (Audited) 648 28,094 427 (307 ) 695 15,019 44,576 1,823 46,399
 
Total comprehensive income (loss) - - - (46)_ - (27 ) (73 ) 325 252
Dividend paid to non controlling shareholders - - - - - - - (375 ) (375 )
Cost of share-based payments - 214 - -   - -   214   -   214  
 
Balance at end of period 648 28,308 427 (353 ) 695 14,992   44,717   1,773   46,490  
 
Six months ended 30 June 2009 (Unaudited)
 
Balance at beginning of period (Audited) 539 22,877 - 273 695 17,612 41,996 716 42,712
 
Total comprehensive income (loss) - - - (225 ) - (194 ) (419 ) 598 179
Dividend paid to non controlling shareholders - - - - - - - (27 ) (27 )
Issuance 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  
 
Year ended 31 December 2009 (Audited)
 
Balance at the beginning of the year 539 22,877 - 273 695 17,612 41,996 716 42,712
 
Total comprehensive income (loss) - - - (580 ) - (2,593 ) (3,173 ) 1,260 (1,913 )
Dividend paid to non controlling shareholders - - - - - - - (153 ) (153 )
Issuance of shares and warrants 109 4,860 427 - - - 5,396 - 5,396
Cost of share-based payments - 357 - -   - -   357   -   357  
 
Balance at the end of the year 648 28,094 427 (307 ) 695 15,019   44,576   1,823   46,399  

*) 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

2010   2009 2009
US$ '000   US$ '000 US$ '000
Unaudited Audited

Cash flows from operating activities:

 
Profit (loss) for the period 368 401 (1,447 )
Adjustments to reconcile profit (loss) to net cash provided by operating activities (a) 3,144   734   7,026  
 
Net cash provided by operating activities 3,512   1,135   5,579  
 

Cash flows from investing activities:

 
Additions to intangible assets (21 ) (12 ) (28 )
Proceeds from sale of Jointly controlled entity (d) 559 - -
Investments in rights of TV series (4,849 ) (5,292 ) (13,468 )
Purchase of property and equipment (248 ) (149 ) (324 )
Collection of loan by jointly controlled entity -   478   956  
 
Net cash used in investing activities (4,559 ) (4,975 ) (12,864 )
 

Cash flows from financing activities:

 
Dividend paid to non controlling interests shareholders (250 ) (27 ) (153 )
Receipt of long-term loans - - 4,977
Proceeds from issuance of shares and warrants, net of issuance costs - 1,100 5,396
Repayment of loans from banks and others (43 ) - -
Repayment of long-term production financing (9 ) (98 ) (136 )
Short-term bank credit, net 1,617   1,948   (4,560 )
 
Net cash provided by financing activities 1,315   2,923   5,524  
 
Effect of exchange rate changes on cash and cash equivalents (1 ) (12 ) 22  
 
Increase (decrease) in cash and cash equivalents 267 (929 ) (1,739 )
Cash and cash equivalents at beginning of period 643   2,382   2,382  
 
Cash and cash equivalents at end of period 910   1,453   643  

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

2010   2009 2009
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 214 261 357
Depreciation and amortization 13,532 11,899 25,542
Financial expenses due to production financing - - 59
Deferred income taxes 132 1,618 1,126
Other 51 (6 ) -
Severance pay, net - (18 ) 97
 
Changes in operating assets and liabilities:
 
Increase in trade receivables (1,844 ) (1,327 ) (1,151 )
Decrease (increase) in other accounts receivable (376 ) (746 ) 393
Increase in broadcasting rights (10,193 ) (11,038 ) (18,805 )
Increase in trade payables 1,030 1,380 373
Increase (decrease) in other current liabilities 598   (1,289 ) (965 )
 
3,144   734   7,026  
 
(b)

Supplemental disclosure of cash flows:

 
Cash net during the year for:
 
Interest 389   256   548  
 
Income taxes 270   379   862  
 
(c)

Significant non-cash transactions:

 
Acquisition of rights in TV series on credit 328   (54 ) -  
 
Acquisition of broadcasting rights (251 ) 1,675    
Dividend payable 125   -   -  
 
(d)

Proceeds from sale of jointly controlled entity:

 
Working capital (excluding cash and cash equivalents) (1401 ) - -
Fixed assets 2,392 - -
Long-term liabilities (71 ) - -
Deferred taxes (361 ) -   -  
 
559   -   -  

The accompanying notes are an integral part of the 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 2010 were authorized for issue in accordance with a resolution of the directors on 24 August 2010.

b. Company description:

The Company was incorporated on 14 February 1996 under the laws of Israel. The Company and its subsidiaries are engaged in the rights for purchase, production, license and distribution of Drama and Telenovela TV series ("Telenovelas"), broadcasting of dedicated TV channels for Drama and Telenovela, entertainment movie and series TV channels ("TV channels"), distribution of TV series sourced from third parties and operating Drama and Telenovela add based and on demand 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 2010, 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 2009 ("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 2009 except for the adoption of new policies in 2009 as noted below:

IFRS 3 (Revised) - Business Combinations and IAS 27 (Amended) - Consolidated and Separate Financial Statements:

According to the new Standards:

- The definition of a business was broadened so that it contains also activities and assets that are not managed as a business as long as the seller is capable of operating them as a business.

- Non-controlling interests, including goodwill, can be measured either at fair value or at the proportionate share in the acquiree's fair value of net identifiable assets on the acquisition date, this separately in respect of each business combination transaction.

- Contingent consideration in a business combination is measured at fair value and changes in the fair value of the contingent consideration, which do not represent adjustments to the acquisition cost in the measurement period, are not recognized as goodwill adjustments. If the contingent consideration is classified as a financial derivative within the scope of IAS 39, it will be measured at fair value through profit or loss.

- Direct acquisition costs attributed to a business combination transaction are recognized in the statement of income as incurred.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

- Subsequent measurement of a deferred tax asset for acquired temporary differences which did not meet the recognition criteria at acquisition date will be against profit or loss and not as adjustment to goodwill.

- A subsidiary's losses, even if resulting in a capital deficiency in a subsidiary, will be allocated between the parent company and non-controlling interests, even if the minority has not guaranteed or has no contractual obligation for sustaining the subsidiary or of investing further amounts.

- A transaction, whether sale or purchase, with non-controlling interests that does not result in a loss of control, is accounted for as an equity transaction. Accordingly, the acquisition of non-controlling interests by the Group is recognized as an increase or decrease in equity and is calculated as the difference between the consideration paid by the Group and the proportionate amount of the non-controlling interests acquired on the acquisition date. Upon the disposal of an interest in a subsidiary that does not result in a loss of control, an increase or decrease is recognized in equity for the amount of the difference between the consideration received by the Group and the carrying amount of the non-controlling interests in the subsidiary which have been added to the Company's equity, also taking into account the reattribution of reserves originating from other comprehensive income (loss), such as translation differences, if any, based on the decrease in the interests in the subsidiary.

- Any classification or designation made when recognizing assets and liabilities are assessed in accordance with the contractual terms, economic circumstances and pertinent conditions that exist at the acquisition date, except for leases and insurance contracts.

- In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition date fair value and recognize the resulting gain or loss, if any, including reverse of deferred amounts, in other comprehensive income. On the loss of control over a subsidiary, the remaining interests, if any, will be revalued to fair value against gain or loss from the sale and this fair value will represent the cost basis for the purpose of subsequent treatment.

The Standards were adopted prospectively from January 1, 2010.

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. .

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.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

c. Standards issued but not yet effective:

IAS 1 - Presentation of Financial Statements:

According to the amendment to IAS 1, the changes between the opening and the closing balances of each component of other comprehensive income may be presented in the statement of changes in equity or in the notes accompanying the annual financial statements. Accordingly, the Company will present said disclosure in the statement of changes in equity.

IFRS 7 - Financial Instruments: Disclosure:

The amendment to IFRS 7 clarifies the disclosure requirements prescribed by the Standard. The Standard highlights the connection between the quantitative and qualitative disclosures and the nature and scope of the risks arising from financial instruments. The disclosure requirements regarding securities held by the company have been minimized and the disclosure requirements regarding credit risk have been revised. The amendment will be adopted retrospectively in the financial statements for periods starting from January 1, 2011. Early adoption is possible.

The Company estimates that the amendment is will not have a material effect on financial instruments presented in the financial statements.

IAS 34 - Interim Financial Reporting:

Pursuant to the amendment to IAS 34, new disclosure requirements were introduced to interim financial reporting regarding the circumstances that are likely to affect the fair value of financial instruments and their classification, the transfers of financial instruments between different fair value levels, changes in the classification of financial assets and changes in contingent liabilities and contingent assets. The amendment will be adopted retrospectively in the financial statements for periods starting from January 1, 2011. Early adoption is possible.

The required disclosures will be included in the Company's financial statements.

NOTE 3:- OPERATING SEGMENTS

a. General:

The Group companies operate in two principal operating 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 2010 (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 9,190 16,678 435 - 26,303
Intersegment sales 16 - 1,180   (1,196 ) -  
 

Total revenues

9,206 16,678 1,615   (1,196 ) 26,303  
 
Segment results 1,076 2,123 (1,079 ) (54 ) 2,066
 
Unallocated expenses (357 )
 
Operating profit 1,709  
 
Financial expenses, net (694 )
 
Profit before tax 1,015  
  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 18,755 256 - 25,352
Intersegment sales 220 - 1,610   (1,830 ) -  
 

Total revenues

6,561 18,755 1,866   (1,830 ) 25,352  
 
Segment results 995 2,958 (599 ) (974 ) 2,380
 
Unallocated expenses (602 )
 
Operating profit 1,778  
 
Financial expenses, net 303  
 
Profit before tax from continuing operations 1,475  

NOTE 3:- OPERATING SEGMENTS (Cont.)

  Year ended 31 December 2009
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 13,795 34,402 695 (176 ) 48,716
Inter-segment sales 94 - 3,036   (3,130 ) -  
 

Total revenues

13,889 34,402 3,731   (3,306 ) 48,716  
 
Segment results 145 4,343 (1,942 ) (58 ) 2,488
 
Unallocated expenses (844 )
 
Operating profit 1,644  
 
Financial expenses, net 638  
 
Profit before tax from continuing operations 1,006  

NOTE 4:- DISCONTINUED OPERATIONS

On December 29, 2009, the Company signed an agreement to sell its 50% interest in DMCS, which operate TV production studios in Argentina, for US$ 850 thousand to the other 50% shareholder of DMCS and to another party. The sale was subject to approval by the Labor Ministry of Argentina, which approval was received in January 2010.

In accordance with IFRS 5, the assets and liabilities of DMCS are presented as assets and liabilities held for sale in the consolidated balance sheet.

The operating results of DMCS are presented as discontinued operations in the consolidated statement of comprehensive income. Comparative figures have been reclassified accordingly.

NOTE 4:- DISCONTINUED OPERATIONS (Cont)

Composition of income and expenses related to discontinued operations:

  Six month ended

30 June

  Year ended 31 December
2010   2009 2009
US$'000 US$'000
Unaudited Audited
 
Revenues - 45 176
Cost of revenues - - (17 )
Operating expenses - (70 )

*) (123

)

Financial expenses, net - (52 ) -  
 
Profit (loss) before tax - (77 ) 36
Tax benefit (expense) - 27   -  
 
Profit (loss) from discontinued operations - (50 ) 36
 
Impairment of goodwill recognized on remeasurement to fair value - - (836 )
Selling expenses - - (22 )
Tax benefit     38  
 
Total loss from discontinued operations - (50 ) (784 )

*) includes depreciation in the amount of US $ 90 thousand.

Composition of the net cash flows related to discontinued operations:

  Six month ended

30 June

  Year ended 31 December
2010   2009 2009
US$'000 US$'000
Unaudited Audited
 
Net cash flows provided by operating activities - 482 923
 
Net cash flows used in financing activities - (510 ) (956 )
 
Net cash flows from discontinued operations - (28 ) (33 )

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