Castle reduces gearing ratio

CASTLE Communications has added fuel to the accounting debate on the worth of intangible assets, by revaluing its audio copyrights upwards by nearly pounds 9m.

The accounting change, one of four announced yesterday, along with a rise in annual pre-tax profits from pounds 782,000 to pounds 1.36m, has considerably softened the company's gearing ratio.

Borrowings as a percentage of shareholders' funds have, in effect, been cut from a restated 99 to 48 per cent. Revised shareholders' funds - pounds 8.5m at the end of 1990/91 - were boosted by the revaluation to pounds 17.1m at the conclusion of the year to 30 June. Net debt was static at pounds 8.3m for 1991/92, against pounds 8.4m previously.

Castle's copyrights, which include the Pye record label, cover music and film videos and feature films. Music rights include Gerry and the Pacemakers, David Essex and Black Sabbath.

Julian Paul, deputy chairman, said the revaluation was based upon an independent report by Coopers & Lybrand, the chartered accountants. The revaluation was conservative, pitched at the 'lower end of the range'. He declined to define the range.

Castle's three other accounting changes have adversely affected the balance sheet. One covers origination costs before the first release of a title. They will be written off immediately instead of on a unit basis in line with anticipated sales during the royalty period.

Another covers raw materials, mainly consumables like labels and sleeves. Their value will be written off on first release, instead of being carried in the balance sheet at the lower of cost and net realisable value.

Finally, rights commitments - licence agreements inclusive of obligations to pay further advance royalties - will be included as creditors. They were previously brought on balance sheet when they were paid.

The accounting changes, results, and an unchanged total dividend of 8.5p were met with a 9p rise to 129p in the share price.

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