Firm Returns Weekly - AV, WBD, TMI, TBLD


Aviva is acquiring AIG's UK protection business for total consideration of £460m, in line with their strategy of pursuing capital light growth.

AIG's UK protection business had 1.3m individual protection customers and 1.4m group protection customers as of 31 December 2022.

Aviva to acquire AIG’s UK protection business
Aviva to acquire AIG’s UK protection business for consideration of £460m

Warner Bros. Discovery

Mortal Kombat 1

WBD managed a 1-2 in the UK Boxed Charts, with MK1 taking the top spot and Hogwarts Legacy coming in as number two.

Mortal Kombat 1 debuts at No.1 | UK Boxed Charts
This week saw several new entries in the UK boxed charts, with Mortal Kombat 1 taking the top spot. GfK’s report showed…

End of writer's strike

The end seems to be in sight for the writer's strikes as a tentative deal has been struck with the WGA. This is an important step, but the SAG-AFTRA strike must end before production can resume. I've also heard that all the support workers (cameramen/women, prop team, sound, lighting, etc) are due to have their contract renewed next summer, so the strike risk doesn't end with the actors.

Screenwriters reach tentative deal with Hollywood studios to end strike
However, most of Hollywood will remain shut down as actors continue to strike

Taylor Maritime Investments

Acquisition of commercial and technical managers

TMI has announced that Grindrod (GRIN) will be acquiring the commercial and technical managers of the TMI fleet (which are separate companies owned by company insiders), for a total consideration of approximately $11.75m (max $13.5m), subject to certain performance conditions. This consists of $2m in cash upfront, with the rest being paid in shares over 2 years.

Being a related party transaction I was initially wary, but after conversing with IR it does seem like a logical move commercially. It's also worth noting that such a transaction has to occur at the GRIN level because the investment trust structure of TMI prevents the company from directly carrying out ship management functions. GRIN also has some existing (though sub-scale) commercial and technical management operations with which the acquired operations will be combined.

London Stock Exchange | London Stock Exchange

Refinancing and further debt repayment

We also heard this week that TMI has replaced their existing Revolving Credit and Acquisition Facilities with a new RCF bearing a lower interest margin and maturing in March 2027. As part of this refinancing they will make a net loan repayment of c.$27m, bringing the debt outstanding down to $167.6m, and the debt to gross asset ratio to c.25% using the fleet valuation as of 30 June.

Included in the same note is a market update highlighting the c.74% increase in average time charter rates since their low in August, and now sitting at $10,204 per day. This is still well below the levels seen in 2021 and 2022, but positive compared to historical averages.

London Stock Exchange | London Stock Exchange


Interim results

As guided in the company's trading update earlier this year, the results for H1 were significantly down on the prior year. Let's take a look at some highlights:

  • Revenue fell 19% to $23.3m (22H1: $28.8m), primarily due to a $5.9m drop in development services revenues. Revenue from game and merchandise royalties remained pretty well flat year-over-year at $17.455m (22H1: $17.466m)
  • A revaluation of the company's intangible assets was conducted, resulting in the impairment of $18.3m of capitalised software development expenses, $6.1m of goodwill, and $2.8m of other intangibles. This led to a net loss for the period of $25.283m.
  • Adjusted EBITDA, which excludes impairments but includes amortisation of capitalised development costs, was $(1.249m). This reflected the impact of lower revenue, a less favourable revenue mix (more coming from 3rd party titles), and higher amortisation of capitalised development costs ($5.0m vs $3.8m).
  • Cash flows from operations held up pretty well despite the drop in revenues, coming in at $6.289m (22H1: $8.811m), with $4.175m attributable to movements in working capital as receivables built up from sales in December were paid in January.
  • Cash and cash equivalents at 30 June 2023 were $14.338m and management has maintained its guidance for cash to be within the range of $10-20m at year end. This net cash position is then expected to be maintained in 2024 as the company is determined to entirely self-finance itself, reducing development expenditure if necessary. On this basis we can expect them to aim for FCF to break-even next year.
  • Expenditure on software development was up on H1 2022 at $16.925m (22H1: $14.245m), but down on H2 2022 (22H2: $21.544m). Total software development costs for the full year are expected to be similar to those in 2022, implying expenditure in H2 to be around $17-18m. For cash to remain in the $10-20m range, this would require OCF for H2 to be at least $13-14m (22H2: $10.377m).
  • After the asset impairments, total equity attributable to shareholders on 30 June 2023 was $86.572m (22YE: $111.634m). Of this total, $42.604m comes from capitalised software development expenses and $21.079m from purchased IP. Goodwill is now pretty well nil.
  • Finally, a couple of legal claims have been made against the company in relation to Versus Evil and Red Cerberus. Management has made no provision as it considers the probability of payment to be remote.

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Jamie Larson