Private Media Group Comments on Full Year Results for 2004

Private Media Group Comments on Full Year Results for 2004

Net Income Up 0.8 Million euro in 2004, Hit by One-Off Restructuring Costs in Q4

BARCELONA, Spain, March 31 /PRNewswire-FirstCall/ -- Private Media Group Inc. (NASDAQ:PRVT) a worldwide leader in premium-quality adult entertainment products, services and Internet content, today announced its full year results for 2004.

The company reported a decrease in sales of 7% to 35.6 million euro for 2004. Net income was 0.2 million euro for 2004, compared to a net loss of 0.6 million euro for 2003, an increase of 0.8 million euro. Net income suffered from the effects of the reorganization of the Company's US distribution in the fourth quarter and a significant fall in video sales. In addition management took the decision to write down videocassette inventory by 1.5 million in the fourth quarter.

As part of the group-wide review initiated in 2003, the Company's US subsidiary outsourced its distribution of physical products, inclusive of Internet shop fulfillment, to a third party. The restructuring started September 30, 2004 and the impact has initially been a temporary loss of revenues from the US during the fourth quarter transition period. The loss of revenues had a significant impact on gross profit. However, during the first quarter of 2005 distribution reached normal levels and we expect the impact of the restructuring to increase contribution of gross profit from the US and reduce selling, general and administrative expenses by approx. 1.0 million euro in 2005 compared to 2004.

The decrease in Video sales by 70% to 2.1 million euro, was primarily the result of a combination of an industry-wide decrease in Video sales and 40% less titles being released by the Company as a result of fewer new movie productions available for sale on Video in 2004 compared to 2003.

DVD sales, which increased 6%, to 19.5 million euro, were also affected by the US reorganization and the reduction in new movie productions available for sale. However, the Company managed to offset the negative effect from fewer new titles by opening additional distribution channels, thereby increasing DVD sales on a per title basis. Magazine sales decreased 4% to 5.1 million euro, while Internet sales increased 1% to 4.9 million euro. Broadcasting sales increased 41% to 4.0 million euro spearheaded by the broadcasting launch of our own TV channel PRIVATE FANTASY in the United States in February 2004.

In 2003 and the first half of 2004, investment in new movie productions was cut back due to reduced cash-flow as a result of overspending in 2002 and 2003. Improvements in cash-flow during 2004 have allowed the Company to increase its investment activity in its movie library by more than 70% during the second half of the year compared to the first and the impact on sales is expected to show in the first half of 2005.

Gross profit as a percentage of sales was down 1% for 2004 compared to 2003. The decrease in gross profit as a percentage of sales was the result of a 1.5 million euro write-down of videocassette inventory made in the fourth quarter and detailed above to reflect the change in market conditions for videocassettes.

Selling, general and administrative expenses were 18.0 million euro for 2004 compared to 19.9 million euro for 2003. Despite increases in bad debt provision and depreciation of 0.9 million euro and 0.9 million euro, respectively, selling, general and administrative expenses decreased by 1.9 million euro, or 10%. The increased bad debt expense in 2004 related primarily to one specific receivable which was written off completely as collection attempts failed. The decrease in selling, general and administrative expenses reflects the effect of a program started in 2003 to review and reduce all controllable selling, general and administrative expenses in low or non-profitable areas. We expect lower bad debt expenses and reduced depreciation going forward. We also expect selling, general and administrative expenses in low or non-profitable areas to continue to decrease in 2005.

We reported an operating loss of 0.4 million euro for 2004 compared to an operating loss of 0.5 million euro for 2003. The operating loss was primarily the result of the write down of 1.5 million euro in videocassette inventory.

During 2004 the Company reduced its debt by 4.0 million euro, or 29%. Working capital as of December 31, 2004 increased by 4.9 million euro compared to December 31, 2003.

Berth Milton, President and CEO of Private Media Group, said: "We are pleased with the restructuring of our operations, particularly in the US, and we expect our increased investments in the library as from the second half of 2004 to begin paying off in the first half of 2005.

"In 2004 we also signed an exclusive Agreement with US-based Pure Play Media, Inc. for content distribution in Europe. Under the agreement, we will distribute between six to ten newly produced movie titles per month in Europe, our main market for DVDs. The arrangement is based on a split of gross profit and does not require any up-front or future investment in content by Private. We will start releasing titles on DVD under the agreement in the second quarter of 2005.

"Following the launch of the Private Fantasy Pay-Per-View Channel in the US, and as the US market for Video on Demand services evolves, we expect to further exploit our content in this market which should impact on broadcast revenue.

"Looking forward, this year saw the launch of our own TV channel, PRIVATETV, an internet based proprietary 24/7 adult TV offer, that thanks to the latest technological developments means that content providers such as ourselves are now able to close deals at fair margins with a much wider spectrum of delivery networks while providing a unique and totally 'Private' consumer experience.

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

Year-end 2004 Financial Highlights
(In thousands of euro,
except per share amounts) Year ended
December 31,
2004 2003
Revenue 35,612 38,491
Net Income (loss) 238 (570)
Weighted average common and common equivalent
shares outstanding:
Basic 50,136,203 43,493,163
Diluted 52,377,163 n/a
Net income per common and common equivalent
share:
Basic 0.00 (0.02)
Diluted 0.00 (0.02)

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
amoore@grupoalbion.net
www. private .com

Source: Private Media Group Inc.

CONTACT: Alejandra Moore Mayorga of Private Media Group Inc.,
+34 91 531 23 88, amoore@grupoalbion.net

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