LONDON — Sales fell and losses deepened at Winchester Entertainment in the past financial year, but the sales company claims to be on the slow road to recovery.

Winchester reported a 47% worsening of its net loss to £11 million ($18.5 million) for the year ended March 31, with sales down 22% to $8.53 million.

But most of the damage was done in the first half of last year, with second-half losses accounting for only $3.68 million.

“There is reason to believe that our interim results announced in December 2002 marked the low point in the company’s fortunes,” said Winchester chairman Huw Davies. “The remedial action taken to address the losses of the last two years is beginning to show results.”

Winchester recently announced an agreement to buy Cobalt Pictures, the London- and L.A.-based sales and financing venture.

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It also struck two significant deals on U.S. projects from the slate it has been developing with Wind Dancer and the Donner Co. Paramount has optioned “The Daughter, Queen of Sheba” and Stratus Film Co. has optioned the romantic comedy “Forever and a Day.”

In the U.K., Winchester is setting up several productions including “Harv the Barbarian” and a movie version of the cult sci-fi sitcom “Red Dwarf.”

Winchester has cut back its children’s TV activities to focus largely on the feature business. International film sales generated $5.5 million in the past year, led by Gavin Grazer’s U.S. heist comedy “Scorched.”

Davies forecasts that Winchester will reduce its loss in the current year. The company has $8.4 million in cash and puts its own net asset value at $24.3 million.

Winchester’s stock price, which has been rallying strongly in the past couple of weeks, rose another 5% on the results, bringing the company’s market capitalization to $8 million.