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May 19, 2005 12:19am
PRVT results Q1 '05
Source: Private Media Group, Inc.
by: Company Press Release

(BARCELONA, SPAIN) -- Private Media Group Inc. (NASDAQ: PRVT) a worldwide leader in premium-quality adult entertainment products, services and Internet content, today announced its results for the first quarter of 2005.

The company reported a decrease in sales of 2.6 million euro, to 7.4 million euro for the three months ended March 31, 2005. Net income was 0.7 million euro for the period, compared to 0.8 million euro for the same period last year, a decrease of 0.1 million euro.

DVD sales decreased 1.1 million euro, or 22%, to 4.1 million euro. The decrease in DVD sales was primarily due to one month's loss of sales of new releases equal to approximately 1.0 million euro. The loss of sales was the result of our DVD duplicator suffering a logistics and delivery breakdown in February 2005. In addition DVD sales were affected by our outsourcing in the Us where we now report sales net of agent's commission. Although the outsourcing in the Us has a negative effect on sales, we expect the restructuring to increase operating profit in 2005 when compared to 2004. The negative impact of reporting Us sales net of agent's commission was 0.5 million euro. Video sales decreased 0.7 million euro, or 86%, to 0.1 million euro when compared to the same period in 2004. This decrease in sales was the result of a general industry decrease in video sales due to the migration from video to DVD. Magazine sales decreased 0.2 million euro, or 14% to 1.3 as a result of fewer issues released during the three month period. Internet sales decreased 0.3 million euro, or 20%, to 1.0 million euro as a result of the closing down of our third party payment processor for Us transactions. Subsequently, we temporarily transferred our Us transactions to our payment processor for European transactions, however, this did not compensate sales. As of May 2005, we have a new payment processor for Us online transactions and we expect sales to return to regular trading levels seen prior to the closing down of this third party supplier. Broadcasting sales decreased 0.2 million euro, or 17%, to 1.0 million euro as a result of lower content licensing sales in the period.

Easter, which historically has a slow-down effect on retail sales, took place during the first quarter of the year compared to the second quarter of the year in 2004, and had an overall comparable negative impact on sales of magazines and DVDs.

In the period, we realized a gross profit of 3.0 million euro, or 40% of net sales compared to 5.3 million euro, or 53% of net sales for the same period last year. The decrease in gross profit as a percentage of sales was the result of sales mix and the effect of amortization of our library, which does not vary with sales.

Our selling, general and administrative expenses were 3.5 million euro for the period compared to 4.5 million euro for the same period last year, a decrease of 1.0 million euro, or 22%. The decrease is primarily the result of reductions in bad debt expense and depreciation, and the outsourcing of distribution in the United States, offset by non-recurring expenses of 0.5 million euro relating to a weekly publication which was launched and discontinued during the period. We expect selling, general and administrative expenses to continue to remain lower in each quarter in 2005 compared to 2004.

During the period we sold the remaining part of our real estate property in Barcelona, Spain at a profit of 1.3 million euro. The consideration under the agreement was 6.9 million euro, of which a 10% down payment was received upon signature. The 6.2 million euro balance of the consideration due will be received in two installments, which are expected to take place no later than June and November of 2005, with the first payment to be not less than 2.85 million euro. Part of the proceeds from the sale will be used to repay the 2.3 million outstanding balance on the loan related to the building. Repayments on the loan will be made in proportion to cash received from the sale.

Operating profit. We reported an operating profit of 0.7 million euro for the three months ended March 31, 2005 compared to 0.7 million euro for the same period last year. Although gross profit decreased 2.3 million euro, it was compensated by 1 million euro in savings from SG&A and 1.3 million euro from gain on sale of building, thereby keeping operating profit on the same level as in 2004.

Berth Milton, President and CEO of Private Media Group, said: "I am pleased with the overall restructuring of our business, particularly in the US where operations now are up and running and where, in the second quarter, we expect operating profits in this region to exceed those of the same quarter last year and to continue to grow steadily.

"Furthermore, we expect DVD sales, and related margins, to grow in the second quarter as a result of having doubled our releases of new content from three to six titles per month compared with last year. In addition to the increase in new content released in the second quarter, it will be the first full quarter where our reporting will include the distribution of Pure Play Media's titles in Europe and we expect this to have a positive impact on our operating profit as well.

"In terms of cash-flow, the real estate property sale is going to give us additional liquidity to pay off costly loans and to fuel the increased investment in our premium content library. A library that will continue to play a key role, enabling us to further capitalize on the new technology developments that are one of the cornerstones to our future growth and that are now erupting into the market with strength: A case in hand is multimedia mobile content, where the consumer roll-out of 3G in Europe is solidly underway, and where we, as both a white label and a branded content provider, should be able to grow and fortify our market share. In this respect, we have recruited sector expertise to build on our management skills in this arena. Another example with respect to new technologies, is video-on-demand, both online and via traditional broadcasting, where we expect to see business developments and growth this year and where brand and quality of content is key.

"All in all, I continue to remain confident that we can look forward to substantially improved results this year compared to 2004, thanks to increased revenues from DVDs, Internet and broadcasting, coupled with better margins and reductions in SG&A." Mr. Milton concluded.

First Quarter 2005 Financial Highlights [redacted due to formatting problems]

About Private Media Group with its 40 year track record, Private is a leading global adult entertainment company that distributes its content over a wide range of media platforms, including narrow and broadband Internet, DVD and video, magazines, broadcasting and wireless technologies. It owns the worldwide rights to the largest archive of high quality adult content in the world, which it physically distributes in over 40 countries.

Disclaimer This release contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current judgments of those issues. However, because those statements are forward-looking and apply to future events, they are subject to such risks and uncertainties, which could lead to results materially different than anticipated by the Company.

For further information please contact:
Alejandra Moore Mayorga
Tel +34 91 531 23 88

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