26

Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Embed Size (px)

Citation preview

Page 1: Main Topics Financials Business strategy Valuation of units Koch Q & A Session
Page 2: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Main Topics

• Financials

• Business strategy

• Valuation of units

• Koch

• Q & A Session

Page 3: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Demonstrated Record of Growth

• E1 has a strong track record of financial performance and growth

• 2005 revenue and EBITDA of $519.8M and $26.0M, respectively

• Includes the acquisition of Video One from August 1, 2004 & Koch Entertainment from June 1, 2005

84.1 106.1155.0

186.3

332.8

519.8

2000 2001 2002 2003 2004 2005

Historical Revenues 1 (C$ millions) Historical EBITDA 1 (C$ millions)

Revenue Growth EBITDA Margin1 2000 to 2003 – Year ended March 31.

6.7

9.9

18.1

25.8

29.126.0

2000 2001 2002 2003 2004 2005

Page 4: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Summary 2005 Results

(C$ thousands except as noted)

2005 2004

Sales 519,797 332,827

Gross Margin

As %

109,512

21.1%

62,683

18.8%

Operating Expenses, excl amort. & interest

As %

86,210

16.6%

37,569

10.1%

EBITDA 25,981 29,114

Interest expense

Distributable cash adjustments & taxes

(3,103)

(2,095)

(1,103)

(1,452)

Distributable Cash 20,783 26,559

Per Unit $0.84 $1.30

Factors:Poor DVD Release ScheduleWeak fulfillment due to Cdn vs. US dollarOne time costs

Page 5: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Summary Q1 2006 Results

(C$ thousands except as noted)

2006 2005Sales 137,026 91,819Gross Margin

As %

28,573

20.9%

16,358

17.8%Operating Expenses, excl amort. & interest

As %

23,251

17.0%

12,095

13.2%EBITDA 5,064 4,263Interest expense

Bank Principal Repayment

(1,037)

(2,350)

(562)

0Distributable cash adjustments 1,077 (445)Distributable Cash 2,754 3,256

Distributable Cash Excluding Bank Repayment 5,104 3,256Per Unit 0.18 0.17

Page 6: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Distributions

• Reasons for reduction to $.90:

– Poor results in 2005

– Increase working capital

$0.00

$0.05

$0.10

$0.15

$0.20

Nov-2003

Dec-2003

Jan-Nov2004

Dec-2004

Jan-Oct2005

Nov-Dec2005

Jan-May2006

Distributions per unit

Special Distribution

Page 7: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Bank Debt

• Operating Loan - $27.75 mm

– Covers seasonal working capital needs

– Direct borrowings were fully repaid at Dec 31

• Term Loan - $52.9 mm

– Financed Video One & Koch acquisitions

– Minimum $4 mm repayment per year

• These loans are currently being restructured

Page 8: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Building the Business

• Enhance exclusivity – build sales and margins

• Expand exclusive music and video content

• Expand exclusive distribution arrangements

• Capitalize on growing video-game market

• Initiatives on Vendor Managed Inventory

Page 9: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

% of Exclusive Sales

0% 3%

24%

49%

0%

20%

40%

60%

80%

100%

2003 2004 2005 Q1-2006

Sales Through Exclusive Arrangements

Page 10: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Expand Exclusive Distribution Agreements

• Koch Entertainment

• Universal Home Video

• Sheridan Square Entertainment

• National Film Board Library

Page 11: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Expand LicensedMusic & Video Content

• Koch US adds 30 new music labels since acquisition

• Koch Canada continuing to look for opportunities in Canada

• Paradox, a division of Entertainment One, also continues licensing exclusive video content in North America

Page 12: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Capitalize on Growing Video-Game Market

• Game sales are increasing

• Boost to bottom line despite lower margins

• Leverage existing customer base

Page 13: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Vendor Managed Inventory

• Moving beyond normal buy-sell arrangements

• New arrangements with national drug & grocery store chains

• Monitor consumer buying through point-of-sale terminals

• Expansion of reach in retail

Page 14: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Valuation – Canadian Operations

*dollar amounts expressed in millions

April 2006 April 2005

Unit Price 3.50 11.00

# Units 32.7 23.2

Valuation $114 $255

Koch Value included (94) 0

Valuation of Canadian Operations $20 $255

Distributable Cash FromCanadian Operations - 2005

$12

Page 15: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

#1 in Canada

• We are Canada’s #1 Home Entertainment Products Wholesaler

• We set the standard for Wholesaling in Canada

Page 16: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Canada’s #1 DVD Wholesaler

• Annual volume approximately $350 million

• Exclusive distributor for Universal Home Video

• 30,000 titles

• 3,000 customers

Page 17: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Canada’s #1 CD Wholesaler

• Largest on-hand CD inventory

• Largest CD Catalogue – at 12,000 items

• 25+ year relationships with the industry’s largest music producers

Page 18: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

#1 Internet Fulfillment Wholesaler

• Serving consumers through our partnerships with the World’s largest On-Line retailers

Page 19: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Canada’s #1 Specialty Retailer

• 90+ CD Plus retail stores

• Specialize in CDs, DVDs, and Video Games

Page 20: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Management

Darren ThroopPresident & CEO

Michael KochCEO Koch US

Chris JamiesonCFO

Terry StevensSenior Vice President & General Manager

Page 21: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

• #1 Independent Record Label in U.S.

• 0.65% 2005 U.S. market share

• Largest number of Charted Titles among Independents for 5th consecutive year (25 titles in 2005)

• Consistent growth and accelerated profitability

Page 22: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

• Diversified and growing artist roster:

– Jim Jones, Diplomats, D-Block, Snoop Dogg, Robert Earl Keen, Charlie Daniels, Bob James, Earl Klugh, Marcus Miller,

– Children's properties: The Wiggles, Strawberry Shortcake, Barney, Atomic Betty

Page 23: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

DISTRIBUTION

• #1 Independent Distributor in the U.S. that is not owned by one of the majors, with 1.36% of the U.S. audio market in 2005

• In 2005, 49% of our distribution sales were from owned labels, up from 40% in 2004

• 30 music and video labels added for exclusive distribution since becoming a subsidiary of Entertainment One last June

Page 24: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

• KOCH’s video sales up 26% from 2004 to 2005.

• KOCH Vision and KOCH Lorber Films represent 33% of overall KOCH video distribution sales.

• Multiple content providers:

Page 25: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

DIGITAL

• 2005 revenues up 175% over 2004

• Content Aggregation: exclusively represents growing roster of third-party labels (35 presently)

• Close relationships with all major digital customers.

Page 26: Main Topics Financials Business strategy Valuation of units Koch Q & A Session

Sheridan Square Deal

• Major multi-year exclusive distribution deal for Koch

• Covers all Sheridan’s labels except one

• Anticipate additional $30 million (U.S.) in revenues annually

• Began May 22, 2006