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Chrysalis chief executive Jeremy Lascelles says it has been an 'extremely challenging' first year for his company. He's not kidding, as the focused music and distribution outfit has faced the challenge of difficult macro economic conditions, a rejected takeover offer, the US screen writers' strike and continued changes in the dynamics of the industry.
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Following the sale of Chrysalis Radio in July 2007, a capital restructuring and return of capital to shareholders, Chrysalis has been operating as an independent music company. Chrysalis Music Publishing saw its net publishers share (NPS) - royalties received after payments to writers and performers - slip 10 per cent from £12.2m to £11m on the back of a quieter release schedule. The group has taken a number of hits to the profit and loss, including £8.2m for its pension buyout, £4.5m for restructuring and rationalisation, and impairment charges of £6.1m.
The streamlining of the business has reduced global headcount by 10 per cent and more than halved overheads to £2.2m from £4.8m in 2007. A freehold property in Branley Road is also up for sale and chairman Chris Wright has opted to become part-time executive chairman, which will further reduce both salary and office costs in 2009.
Meanwhile, sales at Lasgo Chrysalis - which markets CDs and DVDs to retailers - have held firm, slipping just 2 per cent to £20.9m. The distribution arm has focused on increasing book sales to mitigate against further declines in CD and DVD sales. Book sales now account for 20 per cent of the division revenue from 10 per cent a year earlier.
Mr Lascelles says Lasgo is trading ahead of expectations, but the 'quiet start' to the year in Chrysalis Music - the publishing business - led the board to expect flat NPS growth in 2009.
Analysts at Numis Securities are expecting 2009 adjusted pre-tax profits of £0.5m and EPS of 0.6p (loss of £1m and loss per share of 0.7p in 2008).
CHRYSALIS (CHS) |
||||
|---|---|---|---|---|
| ORD PRICE: | 45.5p | MARKET VALUE: | £30.6m | |
| TOUCH: | 45-45.7p | 12-MONTH HIGH: | 147p | LOW: 38.5p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 2p* | NET DEBT: | 572% | |
| Year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 164 | 5.48 | 3.11 | 1.00 |
| 2005 | 134 | 0.95 | 0.25 | 1.25 |
| 2006** | 68.0 | -2.33 | -0.21 | 1.25 |
| 2007** | 56.4 | -5.97 | -2.50 | 1.38 |
| 2008*** | 54.1 | -18.85 | -21.20 | nil |
| % change | -11^ | - | +748 | -100 |
* Includes intangible assets of £5.2m, or 7.8p a share **Adjusted for sale for Chrysalis Radio ***13 months to 30 Sep 2008 ^ Annualised |
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More analysis of company results
This could be the make or break year for Chrysalis, which has a lot to prove after rejecting a 155p a share cash offer earlier in the year. Takeover interest aside, there is further downside potential in the share price given the not unrealistic chance of a shortfall in NPS this year. High enough.
Last IC view: High enough, 117p, 23 May 2008
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