Potential US tax bill dents First Artist

22nd May 2009 15:32

Sport and entertainment management group First Artist said its purchase of SpotCo, the US-based live entertainment advertising agency, has transformed the business, but the acquisition has a potential sting in the tail in the form of an unexpected tax liability. The group said it has recently become aware of an unanticipated potential additional tax liability of about $0.8m, which arises from the change of SpotCo's tax status on its acquisition by First Artist. The news overshadowed an otherwise solid set of interim results. Revenue from continuing operations in the six months to 28 February 2009 rose to £37.7m from £27.4m, helped by the acquisition of SpotCo in October 2008.The company registered a loss before tax of £2.2m compared to a loss of £0.2m the year before, after finance costs soared to £2.35m from £0.78m the year before, reflecting the fact that the group's borrowings now include a US dollar-denominated loan of $5.5m.'We are required for reporting purposes to reflect foreign exchange gains or losses arising not only from the US dollar loan but also from deferred consideration liabilities to the vendor of SpotCo. At the six month period end this amounted to a non-cash charge of £950,349, calculated on the movement between the US dollar/sterling exchange rate on the acquisition of SpotCo in October 2008, and the rate prevailing at the period end on 28 February 2009,' the company said.The dollar loan is due to be repaid in 2013 while the deferred consideration relating to the SpotCo acquisition will be settled over the next three years. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to £1.1m from 1.0m the year before, excluding exceptional administrative expenses.'This has been a challenging start to the financial year, and with the country now firmly in recession we remain in uncertain times. We have focused closely on the integration of SpotCo, whose performance has exceeded expectations, and have continued our drive for greater efficiencies and cost controls, taking decisive action where necessary,' said Jon Smith, chief executive of First Artist.