VMG’s Annus Horribilis (2007)

Adrian J Cotterill, Editor-in-Chief

Mike Cotttman, Executive Chairman of Vision Media Group (Intl) PLC prepared a lengthy CHAIRMAN’S STATEMENT to go with their 2007 Preliminary Results.

It’s well worth a read and is reproduced below in its entirety. Pay special attention to the bit about ‘Minimum Rental Guarantees’

2007 can best be described as an annus horribilis for our Company. Having said this, it was the year that the Company changed shape and direction and the year that finally saw a new business emerging; a business with a profitable and sustainable strategy and a platform from which to successfully grow.

In view of the fact that our new Chief Executive Officer was not in place during 2007, I plan to cover the key elements of the Chief Executive’s Review within this statement.

Financial Results

Arriving in what was then ScreenFX at the beginning of 2007 was a daunting task. On the back of losing £7.5 million in 2006, the business had been incurring costs of over £550,000 per month and had virtually no solid revenue stream. This year’s results – a loss of £5.54 million in 2007 – reflect the time it has taken to restructure the business whilst suffering the ongoing monthly losses referred to and the costs associated with the restructure as the Company created the new profitable strategy for the future.

This is also the first year that the Company has been required to prepare its accounts in accordance with International Financial Reporting Standards (IFRS) the impact of which largely relates to goodwill.

We have concentrated our efforts this year on increasing revenues and I am pleased to report that revenue from our digital network, via local sales increased 92.7% to £1.36 million (2006: £0.70 million). At the same time we have exited from areas in which we were subscale and with little prospect of profitable returns, such as our healthcare activities.

Business Risks

  • Strategy: following the strategic review of the business, the Directors perceived that the existing company strategy could not be successfully executed and a process of change was instigated, the details of which are covered later.
  • Financial security: the business review process, combined with on going strategic advice provided by external experts, confirmed that the working capital within the business in 2007 would be insufficient to enable the Company to continue to operate in the medium term without additional funding. As such, a process of fund raising was instigated involving a series of equity and debt instruments from myself, family and friends and our current institutional shareholders. This has subsequently been supplemented by borrowings from Trafalgar Capital Advisers LLP as well as various rounds of fundraising which have been required as our liquidity was constantly under review by the Company’s management and professional advisors. I am pleased to report that, following a recent equity placement of a further 9,523,806 ordinary shares, we have concluded now in 2008 that we have sufficient funds to take the company into trading profitably.
  • Minimum Rental Guarantees: the existing business model was predicated on the Company paying minimum rental guarantees to its property partners irrespective of whether the Company enjoyed any revenue flow from advertising on the screens within the property owner’s estate. The Directors perceived this to be an extremely risky commercial relationship and instigated a process of re-negotiating all commercial contracts to attempt to remove the minimum rental guarantees and replace them with a much more risk averse revenue share model. At the time of writing this, I am pleased to confirm that the Company has been successful in this regard.

Key Performance Indicators (KPIs)

In view of the extreme circumstances that the Company found itself in during 2007 the Directors took the view that setting meaningful KPIs against the existing business model was an inappropriate action at a time when the Company’s very survival was its only true indication of performance. With the Company newly repositioned, the Directors will be setting KPIs for performance measurement during the second half of 2008.


At the beginning of the year, it became apparent that the then business model was flawed for a number of reasons. The original ScreenFX vision for the digital opportunity for out-of-home ‘TV style’ screen based advertising was proving to be much slower to arrive in the UK than had been historically forecast. Furthermore, the Company was setting out to approach the opportunity with a belief that it would be able take on the outdoor advertising giants, who effectively monopolise the outdoor advertising market in the UK, whilst addressing a variety of separate market sectors all at once. Essentially, the Company was over manned, over stretched and under performing; with virtually zero revenue and very little real prospect of gaining any meaningful revenues.

The first task was to identify the business model flaws, create a fresh strategy to overcome them and to develop the financial solutions that would allow us to survive whilst the new strategy was implemented. The Company refocused the business onto its core sector of shopping mall digital advertising and we disposed of or mothballed our non-core brands. A dramatic reduction in headcount was undertaken, from over 80 to nearer 30 personnel, and a process of re-structuring was put in place including office closures, new systems etc.

Interestingly, early in this period, we also engaged in a process of exploring the potential sale of our mall assets to one of the major outdoor advertising contractors. After several months, this process was eventually terminated without a deal being concluded; however, it did confirm to management that there was and, as we now know is, great inherent value in our mall portfolio and the associated advertising opportunity that this aspect of our business represents.

During the year the Company launched a new revenue stream centred on setting up a new regionally based sales force whose mission it was to sell advertising slots on our shopping mall digital TV screens to local businesses in the proximity of those shopping malls. After trialling a number of alternative routes to market, this initiative started to bear fruit in the second half of the year and is now contributing well to our income stream – it now represents the first stream of sustainable shopping mall revenue flow into the business.

However, the key to success for our Company was then and always will be the ability to generate large volumes of national advertising revenue onto our screens – something which has historically eluded us. The way to unlock this revenue was to completely change our shopping mall business model by outsourcing the national sales effort to one of the major outdoor advertising contractors. In order to encourage one of them to want to work with us in this way, we needed to change our original operational approach of providing landscape TV screens in malls to one of providing portrait digital panels; a format the outdoor advertising industry is familiar with and one which would allow us to be confident that national advertising revenue would then flow constantly. We approached this task in the second half of the year and eventually succeeded in our goal at the time of the merging of the company with Screen Media Networks Limited, at the turn of the year. This acquisition extended our real-estate portfolio into theme parks and convenience stores as well as bringing our new Chief Executive Officer and Sales and Marketing Director, Dominic Brookman and Tim Ritson respectively. It was this acquisition which was the key to gaining our recently announced ten year contract with Clear Channel Outdoor UK – the leading outdoor advertising contractor in the UK – the benefits of which will start to flow in the second half of 2008.

As part of the refocusing of our business, the Company agreed to accept an offer for its TrainFX business based on an overall value of £2 million. At the turn of the year, this transaction was still uncompleted. The Company agreed to replace the original potential purchaser of the trains business with a new acquirer for the same £2 million valuation using a mixture of primarily loan notes, preference shares and an equity stake in the acquiring company. Negotiations are underway to turn these instruments into cash.

All of the initiatives that I have described above will produce a profitable business model in the future. However, as the results show, 2007 still bears the financial brunt of the previous shortcomings. Re-structuring and re-financing our business has been costly and difficult; including a period where we requested the suspension of our shares whilst we went through emergency re-financing. However, I am pleased to report that the company succeeded in re-listing its shares in September last year and has now completed the final elements of our re-financing programme in June 2008.


Vision Media Group (International) Plc was born at the time of the acquisition of Screen Media Networks Limited. VMG is a company that is now well positioned to deliver shareholder value for its investors. We have a new strategy in place and a new executive management team to deliver it. We have a new strategic ten year national sales partnership with Clear Channel Outdoor UK and have renegotiated the majority of our shopping mall contracts and our new five year Merlin Entertainments Group theme park contract to exclude the onerous minimum rental guarantees of the past. All our new contracts are based on a revenue share arrangement with the estate owners; a much more attractive risk profile for our Company. Our Company is now on a sound financial footing and can look forward to profitability at last.

I would like to close this statement by thanking all those who have stuck with us through this extremely difficult period – our commercial partners and suppliers, our institutional investors and other shareholders and all of my colleagues in the business who have kept the faith. Without all of your patience, commitment and above all trust, none of this turnaround would have been possible. We can now look forward to the future with confidence. Thank you.

Mike Cottman
Executive Chairman
27 June 2008

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