TIDMETO
RNS Number : 0400X
Entertainment One Ltd
21 November 2017
ENTERTAINMENT ONE LTD.
HALF YEAR RESULTS (UNAUDITED)
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
ROBUST FIRST HALF PERFORMANCE, FULL YEAR ON TRACK
FINANCIAL HIGHLIGHTS
-- Group reported revenue stable at GBP396 million
(2016: GBP401 million), with strong growth in
Family and Television offsetting lower performance
in Film
-- Group reported underlying EBITDA up 36% at GBP51
million (2016: GBP38 million), driven by revenue
growth in Family and Television and lower costs
in Film
-- Group adjusted profit before tax up 53% at GBP36
million (2016: GBP24 million), Group reported
profit before tax GBP0.8 million (2016: GBP2.5
million loss)
-- Adjusted diluted earnings per share of 4.8 pence
per share (2016: 2.6 pence per share)
OPERATIONAL HIGHLIGHTS
-- Television revenue 17% higher driven by new
productions in The Mark Gordon Company and continued
growth in eOne Television
-- Family generated US$1.2 billion of retail sales
in the period, an increase of 71%, driven by
the hugely successful retail rollout of PJ Masks
and continued growth of Peppa Pig
o PJ Masks revenue growth over 600% period-on-period
o Continued revenue growth for Peppa Pig of
18% due to expanding footprint including China
-- Strong Film pipeline including Steven Spielberg's
The Post starring Tom Hanks and Meryl Streep,
A Bad Moms Christmas and Molly's Game
-- Independent library valuation increased to US$1.7
billion at 31 March 2017 (2016: US$1.5 billion)
-- Reshaping of Film distribution business from
physical to digital, which began in FY16 and
was substantially completed in FY17, results
in lower operating costs
-- Integration of Film and Television Divisions
into a single studio operation proceeding as
planned and expected to generate annual cost
savings of approximately GBP8 million by FY20
-- The Group anticipates full year financial performance
to be in line with management expectations
CORPORATE
-- Robert McFarlane, former CFO of TELUS Corporation,
and Michael Friisdahl, CEO of Maple Leaf Sports
& Entertainment appointed as non-executive directors
-- Joe Sparacio, Chief Financial Officer, appointed
as an executive director, with Margaret O'Brien
stepping down as an executive director to increase
the proportion of independent non-executive
directors on the Board
ALLAN LEIGHTON, ChAIRMAN, commented:
"Entertainment One has delivered a strong set of Group results
for the first half of the financial year and has made significant
progress in reshaping the Film/Television business to reflect the
evolving entertainment market. I thank Margaret O'Brien for her
contribution to the Board, as she moves into an expanded
operational role, and welcome Robert McFarlane and Michael
Friisdahl as new independent non-executive directors with the
significant experience that they bring to eOne."
Darren Throop, Chief Executive OFFICER, commented:
"We are pleased to be able to report very robust first half
performance which includes strong growth in the Family Division,
strong performance in the wider Television Division, including The
Mark Gordon Company, and lower operating costs and improved gross
margins in Film which have driven strong growth in Group underlying
EBITDA.
The Group's strategy to invest in content continues to bear
fruit and the entertainment market's focus on quality content plays
to Entertainment One's strengths ensuring that the Group is ideally
positioned for the future, as illustrated by the increase in the
underlying library valuation from US$1.5 billion to US$1.7 billion
at 31 March 2017.
The period ahead is an exciting one. The Television business has
82% of the full year's expected margin already committed or
greenlit; the Family business is underpinned by exceptional
performance from Peppa Pig and PJ Masks; and the Film Division
continues to focus investment on new partnerships to reshape the
business. As such, the Group remains on track to deliver full year
financial performance in line with management expectations."
FINANCIAL SUMMARY
Reported
(unaudited)
=========================
GBPm 2017 2016 Change
Revenue 395.7 401.0 (1%)
Underlying EBITDA
(1) 51.4 37.7 36%
Net cash used in operating
activities (74.5) (65.5) (14%)
Investment in acquired
content and productions
(2) 229.8 198.4 16%
============================ ======= ======= =======
Reported Adjusted
(unaudited) (unaudited)
======================= =====================
GBPm 2017 2016 Change 2017 2016 Change
=======
Profit before tax
(3) 0.8 (2.5) 132% 36.4 23.8 53%
Diluted earnings per
share (pence) (3) (0.5) (1.4) 0.9 4.8 2.6 2.2
====================== ====== ====== ======= ===== ===== =======
1. Underlying EBITDA is operating profit or loss excluding
amortisation of acquired intangibles; depreciation; amortisation of
software; share-based payment charge; tax, finance costs and
depreciation related to joint ventures; and operating one-off
items. Underlying EBITDA is reconciled to operating profit in the
Other Financial Information section of this Interim
Announcement.
2. Investment in acquired content and productions is the sum of
"investment in productions, net of grants received" and "investment
in acquired content rights", as shown in the condensed consolidated
cash flow statement.
3. Adjusted profit before tax and adjusted diluted earnings per
share are the reported measures excluding amortisation of acquired
intangibles; share-based payment charge; tax, finance costs and
depreciation related to joint ventures; operating one-off items;
finance one-off items; and, in the case of adjusted diluted
earnings per share, one-off tax items. Refer to the Other Financial
Information section of this Interim Announcement for a
reconciliation of adjusted profit before tax and Note 6 of the
condensed consolidated financial statements for the adjusted
diluted earnings per share reconciliation.
4. Reported 2016 amounts have been restated, refer to Note 2 of
the condensed consolidated financial statements for further
details.
Group reported revenue was broadly in line with prior period at
GBP395.7 million (2016: GBP401.0 million), driven by strong growth
in Family (64% higher) and Television (17% higher), offsetting a
decline in Film (29% lower). On a constant currency basis
(re-translating prior period reported financials at current period
foreign exchange rates), Group revenue decline was 5.0% reflecting
the impact of the weaker pound sterling against the US dollar,
Canadian dollar, Australian dollar and euro during the period.
Group reported underlying EBITDA was 36% higher at GBP51.4
million (2016: GBP37.7 million), driven by strong growth in Family
(54% higher), Television (11% higher) and stable period-on-period
results in Film. The Family Division delivered financial
performance ahead of expectations driven by significant growth in
PJ Masks and the continuing strong performance of Peppa Pig.
Television Division underlying EBITDA was higher across eOne
Television (+10%), The Mark Gordon Company (+10%) and Music (+16%).
Underlying EBITDA in Film was stable despite lower revenue in
theatrical, home entertainment and broadcast and digital, offset by
substantial cost savings. On a constant currency basis, Group
underlying EBITDA would have increased by 33.5%, reflecting the
impact of the weaker pound sterling against the US dollar, Canadian
dollar, Australian dollar and euro during the period.
Net cash used in operating activities amounted to GBP74.5
million in comparison to GBP65.5 million in the prior period,
driven by higher investment in productions and timing of tax
payments, partly offset by inflow in working capital. Investment in
productions was higher across all three segments which not only
supports our current operations but also drives the value of our
content library.
Adjusted profit before tax for the period was GBP36.4 million
(2016: GBP23.8 million), due to the increase in underlying EBITDA,
partly offset by higher interest costs. Reported profit before tax
for the period was GBP0.8 million (2016: GBP2.5 million loss),
impacted by one-off charges mainly from set-up costs associated
with MAKEREADY and contingent consideration for Renegade 83, as
well as the previously announced reshaping of Film and Television
Division into a single studio operation, share-based payments from
additional options granted and one-off finance costs primarily
relating to losses on currency contracts, as further explained in
the Other Financial Information section.
Adjusted diluted earnings per share were 4.8 pence (2016: 2.6
pence). On a reported basis, diluted losses per share were 0.5
pence (2016: 1.4 pence) driven by higher underlying EBITDA partly
offset by higher one-off charges, share-based payments and one-off
finance costs.
OUTLOOK
The Group anticipates that full year financial performance will
be in line with management expectations.
eOne Television expects to deliver around 900 half hours of
produced/acquired content for the full year, with 82% of the year's
expected margins already committed or greenlit. Investment in
acquired content is expected to be over GBP40 million and
production spend is expected to grow to GBP160 million. The second
half of the year will see deliveries of new scripted shows The
Detail, Burden of Truth and Let's Get Physical, second seasons of
Ice, Mary Kills People and Ransom, seasons two and three of
Cardinal and season three of You Me Her, with Sharp Objects
(originally planned for delivery in FY18) now anticipated to be
delivered in early FY19. The unscripted US business is expected to
deliver a strong second half and Renegade 83 will continue to
deliver new seasons of Naked and Afraid as well as new show Scared
Famous. International sales for Fear the Walking Dead and The
Walking Dead are expected to continue at their existing robust
levels.
In addition to its existing TV programmes, The Mark Gordon
Company has several television projects in production including a
premium cable series and new teen dramedy Youth & Consequences
partnering with YouTube Red, YouTube's video subscription service,
and 50 projects in active development. Film titles in various
stages of development and pre-production include Chronicles of
Narnia: The Silver Chair, The Killer and All the Old Knives. The
second half of the year will include continued delivery of episodes
of Designated Survivor season 2, delivery of Youth &
Consequences and the film Molly's Game.
Peppa Pig and PJ Masks will continue to be the drivers of growth
for the Family business in the second half. For Peppa Pig, China is
expected to grow from 20 licensing agreements in FY17 to 60 by the
end of FY18, thanks to the strong foundation built by exposure on
broadcast and on-demand platforms. PJ Masks will build upon the
success of the US licensing programme and continue to roll-out
across Europe and Asia, combined with a stage show which opened in
the US in October 2017. The brand is generating significant
interest in China and a full launch is planned for next financial
year.
The Group will continue to reshape its Film operations as it
adapts to the changing market place, with a strong commitment to
focus on continued access to high quality premium content and on
building deep partnerships with high quality film producers where
eOne has more ownership and control over the content. As a result
of the transition from physical to digital we expect to achieve
approximately GBP10 million of savings in this financial year. For
the full year, we anticipate 180 film releases in total across all
territories, of which 100 are expected to be unique titles.
Investment in acquired content is expected to be lower than
previous expectations at GBP130 million with the reduction driven
by the lower number of releases. Investment in productions is
expected to be higher than the prior year at around GBP50
million.
The integration of Film and Television Divisions into a single
studio operation is proceeding as planned to fully leverage eOne's
scale in the market and to meet the needs of its partners and
customers. This provides the business with opportunities for
business efficiencies and the centralisation of a number of
internal support functions that are expected to generate annual
cost savings of GBP8 million by FY20.
STRATEGY
The growth in the market for content rights is underpinned by
changes in the way content is being consumed. Entertainment One's
strategy to focus on growth through content ownership puts it at
the centre of this positive structural change.
Business model
The Group's business model remains unchanged. We continue to
build the scale of the business by focusing on the Group's three
key capabilities:
Source: Developing relationships with the best creative talent
in the film and television industries by being their partner of
choice, reflecting the quality of our people and our global
distribution capabilities
Select: Leveraging local market insight from our independent
sales network to invest in the right content for consumers across
all eOne territories, and producing content with global appeal to
service the Group's global sales operations
Sell: Using the Group's infrastructure, sales operations and
global scale to maximise investment returns, ensuring the business
is well-positioned to benefit from new and emerging broadcast and
digital distribution platforms
The Board continues to see significant opportunity for further
growth and to target doubling the size of the business over the
five years to FY20 through its strategy of:
-- Developing more relationships and partnerships
with top producers and talent to increase the
volume and quality of production and content
ownership
-- Building the world's leading independent content
rights sales business to maximise the return
on investment
The strategy focuses on building a more balanced content and
brand business which will see strong revenue and EBITDA growth in
Television and Family, while Film continues to focus on delivering
an improving investment return through a consistently high-quality
release slate and further efficiency savings.
Operationally, as well as developing a digital future across the
Group, the strategy targets our Divisions to deliver specific
drivers of growth:
Television/Film/Music Building a global production and content
business and a world-class sales network, developing partnerships
with premium content creators and maximising scale and efficiency
in distribution (including the recent transition from physical to
distribution)
Family Creating everlasting childhood memories for our audience
by carefully selecting, crafting and nurturing the very best
content into global brands
STRATEGIC PROGRESS
In addition to strong operational and financial results, the
Group continues to deliver strong progress against the strategy,
including:
-- Ongoing integration of the Film and Television
Divisions into a combined studio, providing
opportunities for business efficiencies and
the centralisation of a number of internal support
functions that will drive further cost savings
-- Implementation of a new global Film and Television
sales team to position the business for sales
growth with television networks and global digital
platforms
-- The reshaping of the Film Division through our
physical distribution partnerships with Fox
and Sony delivering cost savings as anticipated
-- A strong development pipeline for newly created
MAKEREADY with Brad Weston
-- Continuing realignment of our film slate towards
own-produced and multi-territory releases
-- Delivering a significant increase in the independent
valuation of the Group's content library to
US$1.7 billion (2016: US$1.5 billion), demonstrating
the enduring value of premium content in a constantly-evolving
entertainment market
-- Completing another successful year under The
Mark Gordon Company's independent studio model
with significant revenue growth and multiple
projects in development
-- Reporting strong results from Peppa Pig in strategically
important markets (maturing into an evergreen
property), with further growth opportunities
in the US, China and South East Asia
-- Very strong potential for PJ Masks after the
success of the US licensing programme, with
roll-out across Europe and Asia driven by significant
interest in China
CORPORATE
DIRECTOR appointments
Margaret O'Brien is stepping down as an executive director to
increase the proportion of independent non-executive directors on
the Board. Margaret will move into an expanded operational role.
Joseph Sparacio, Chief Financial Officer, is being appointed as an
executive director.
Disclosure requirements under Rule 9.6.13 of the Financial
Conduct Authority's Listing Rules in respect of Joseph Sparacio are
as follows:
-- Joseph Sparacio was formerly the Executive Vice
President and Chief Financial Officer of IMAX
Corporation, retiring on 8 August 2016
Robert McFarlane, former CFO of TELUS Corporation, and Michael
Friisdahl, CEO of Maple Leaf Sports & Entertainment have been
appointed as non-executive directors. They both bring extensive
experience with accomplished board service in different
sectors.
Disclosure requirements under Rule 9.6.13 of the Financial
Conduct Authority's Listing Rules in respect of Robert Gordon
McFarlane are as follows:
-- Robert Gordon McFarlane was formerly the Executive
Vice-President and Chief Financial Officer of
TELUS Corporation, retiring on 31 December 2012
Disclosure requirements under Rule 9.6.13 of the Financial
Conduct Authority's Listing Rules in respect on Michael Jeppe
Friisdahl are as follows:
-- Michael Jeppe Friisdahl was a silent partner
in a Toronto restaurant operated as "Cucina"
- it became insolvent in 2001, was placed into
receivership on 19 January 2001 and was formally
adjudged insolvent in May 2001
There are no further disclosures required under Listing Rule
9.6.13 of the Financial Conduct Authority's Listing Rules.
ANNUAL GENERAL MEETING (AGM)
As noted in its AGM Results Announcement, the Company reflects,
in the normal course, on feedback provided by Shareholders by way
of their voting at the Company's Annual General Meetings.
The Company confirms that it intends to engage with its key
shareholders to understand feedback on those resolutions which did
not receive support in excess of 80% of votes cast and will provide
a summary of such discussions and any actions agreed in its 2018
Annual Report and Accounts.
As previously noted in the Company's AGM Circular and AGM
Results Announcement, the Board is pleased to announce that
PricewaterhouseCoopers LLP has been appointed as the Company's
external auditor following the conclusion of the formal tender
process noted in the 2017 Annual Report.
DIVISIONAL OPERATIONAL & FINANCIAL REVIEW
The Divisional tables below are presented gross of inter-segment
eliminations, for further information refer to Note 3 of the
condensed consolidated financial statements.
TELEVISION
The Television Division comprises eOne Television, The Mark
Gordon Company, the Group's Music operation and the operations of
Secret Location, the Group's digital content studio. The Division's
focus is on the development and production of high quality
television programming and the acquisition of the best third party
television content rights, for sale to broadcasters and digital
platforms globally.
GBPm 2017 2016 Change
Revenue 168.5 144.5 17%
Underlying EBITDA 20.6 18.5 11%
Investment in acquired
content 15.7 13.2 19%
Investment in productions 115.8 88.9 30%
=========================== ====== ====== =======
Revenue for the period was 17% higher at GBP168.5 million (2016:
GBP144.5 million), driven by new productions in The Mark Gordon
Company and continued growth in eOne Television. Television revenue
is calculated net of intra-segment eliminations of GBP25.4 million
between eOne Television, The Mark Gordon Company and Music. The
financial tables below are presented gross of intra-segment
eliminations.
Underlying EBITDA increased by 11% to GBP20.6 million (2016:
GBP18.5 million), driven by higher revenue. Investment in acquired
content and productions increased by 29% in line with the growth in
the Division.
eOne TELEVISION
GBPm 2017 2016 Change
Revenue 118.9 98.0 21%
Underlying EBITDA 7.8 7.1 10%
Investment in acquired
content 13.4 11.2 20%
Investment in productions 82.3 63.7 29%
=========================== ====== ===== =======
Revenue for the period increased 21% to GBP118.9 million (2016:
GBP98.0 million), driven by higher international distribution sales
for third party content and productions delivered by The Mark
Gordon Company. Underlying EBITDA was ahead at GBP7.8 million
(2016: GBP7.1 million), driven by revenue growth.
Investment in acquired content and productions was higher than
the prior period at GBP95.7 million (2016: GBP74.9 million), driven
by higher profile productions with bigger budgets and increased
investment in AMC/Sundance shows. 301 half hours of new programming
were produced/acquired in the period (2016: 360) with the decrease
largely attributable to the mix of fewer, but higher profile titles
and a lower performance in the Canadian unscripted business.
Key scripted deliveries included season two of Private Eyes,
which has been renewed for a third season and continues to be one
of the most watched shows on Global in Canada, Universal in the UK
and TF1 in France, and eOne Television's first Australian
production, The Other Guy, which was delivered and aired to strong
reviews.
Key content acquisitions for the period included season three of
Fear the Walking Dead, season two of Into the Badlands and the
fourth and final seasons of Halt & Catch Fire and Turn which
continued to support revenue. International sales for Designated
Survivor were very strong due to a worldwide streaming rights deal
with Netflix outside North America.
The unscripted US business delivered season three of Growing Up
Hip Hop, the sixth and final season of Mary Mary, and new
productions The Hollywood Puppet Sh!tshow and Siesta Key, which was
MTV's highest rated new series among female demographics. Renegade
83 also delivered new seasons of Naked and Afraid which is still
Discovery's most watched Sunday show among adults, and new show Who
Killed Tupac. The business also received eOne Television's first
Emmy nomination for LA Burning: The Riots 25 Years Later.
2018 OUTLOOK FOR eOne TELEVISION
The second half of the year will see deliveries of new scripted
shows The Detail, Burden of Truth and Let's Get Physical, second
seasons of Ice, Mary Kills People and Ransom, seasons two and three
of Cardinal and season three of You Me Her. It is important to note
that Sharp Objects, starring Amy Adams, and which is currently in
post-production, was originally anticipated to be delivered in FY18
and will now be delivered in FY19.
The unscripted US business is expected to deliver a strong
second half with deliveries of new series Ex on the Beach and Death
Row Chronicles, additional episodes of Siesta Key and season four
of Growing Up Hip Hop. Renegade 83 will continue to deliver new
seasons of Naked and Afraid as well as new show Scared Famous.
For third party global sales, AMC titles including Hap &
Leonard and Into the Badlands will continue into new seasons.
International sales for Fear the Walking Dead and The Walking Dead
are expected to continue at their existing robust levels.
As noted in the Group's September Trading Update, the number of
half hours of produced/acquired content is expected to be around
900 for the full year, with 82% of the year's expected margins
already committed or greenlit. Investment in acquired content is
expected to be over GBP40 million and production spend is expected
to be GBP160 million.
Secret Location, eOne's digital studio, currently has a number
of products and projects underway, focusing on the fast-growing
virtual reality industry. VUSR, a virtual reality content
distribution platform, its biggest project in development, has
already seen commitments from a number of large media companies
including Discovery, The New York Times, AMC and Frontline. In the
first half of the year Secret Location continued to strengthen its
reputation through a number of industry award nominations and wins
including Best Video at the PR News Platinum PR Awards for Under
The Net and Best Virtual Reality at the AToMiC Awards 2017 for
Halcyon.
To fully leverage eOne's scale in the market and to meet the
needs of its partners and customers, the TV sales force for eOne
Television and Film was combined into a global sales team from 1
April 2017. This has led to a more streamlined approach to the sale
of television and film content in windows outside of theatrical
release. We expect this change in structure to yield increased
revenue and profitability benefits from FY18 onwards.
THE MARK GORDON COMPANY (MGC)
GBPm 2017 2016 Change
Revenue 51.6 28.3 82%
Underlying EBITDA 9.9 9.0 10%
Investment in productions 33.5 25.2 33%
=========================== ===== ===== =======
Revenue for the period was up 82% to GBP51.6 million (2016:
GBP28.3 million), driven by the delivery of episodes of seasons one
and two of Designated Survivor. Underlying EBITDA increased 10% to
GBP9.9 million (2016: GBP9.0 million), driven by increased revenue.
The underlying EBITDA margin percentage was lower than prior period
reflecting change in revenue mix and higher operating expenses as
the business continues to grow and invests in more owned
productions.
Investment in productions increased 33% to GBP33.5 million
(2016: GBP25.2 million) driven by investment in Designated
Survivor, Molly's Game, new teen dramedy Youth & Consequences
and two pilots.
Continuing with its new production studio model MGC has seen
strong revenue growth period-on-period, and this success is
endorsed by the industry with Mark Gordon chosen as Hollywood
Reporter's Producer of the Year. In MGC's television division,
revenue growth was driven by delivery of nine episodes of
Designated Survivor and two new pilots.
The MGC film division also completed its first feature film
Molly's Game which will be distributed internationally by eOne and
in the US by STX Entertainment with a release date of 25 December
2017.
The studio continues to benefit from its library of television
and film titles, with relatively high margins favourably
contributing to the bottom line and cash generation. During the
period MGC had five series airing on both US network and premium
cable, all with continued strong viewership including season twelve
of Criminal Minds (renewed for season thirteen), season two of
Criminal Minds: Beyond Borders, season five of Ray Donovan (renewed
for season six), season two of Quantico (renewed for season three)
and season thirteen of Grey's Anatomy (renewed for season fourteen)
becoming the longest running scripted prime-time show currently
airing on the ABC network.
2018 OUTLOOK FOR MGC
In addition to its existing TV programmes, The Mark Gordon
Company has several television projects in production including a
premium cable series and new teen dramedy Youth & Consequences
partnering with YouTube Red, YouTube's video subscription service.
The Mark Gordon Company has 50 projects in active development.
Recently announced, with a straight-to-series order from ABC, MGC
will produce The Rookie starring and executive-produced by the
former Castle star Nathan Fillion. eOne will handle all
international distribution rights outside of the US further
expanding on MGC's independent studio model. The first episode is
in development with expected delivery in spring 2018. Film titles
in various stages of development and pre-production include
Chronicles of Narnia: The Silver Chair, The Killer and All the Old
Knives.
The second half of the year will include continued delivery of
episodes of Designated Survivor season two, delivery of Youth &
Consequences and the film Molly's Game.
91% of the year's expected margins are already committed or
greenlit. Investment in productions in FY18 is expected to decrease
to around GBP80 million in line with previous guidance. Half hours
delivered are anticipated to be around 60 based on the current
business plan for FY18.
MUSIC
GBPm 2017 2016 Change
Revenue 23.4 25.8 (9%)
Underlying EBITDA 2.9 2.5 16%
Investment in acquired
content 2.3 2.0 15%
======================== ===== ===== =======
Revenue for the period decreased by 9% to GBP23.4 million (2016:
GBP25.8 million), due to the strong performance of The Lumineers'
second album, Cleopatra, which was released in the prior period.
Underlying EBITDA increased 16% to GBP2.9 million (2016: GBP2.5
million) and underlying EBITDA margin increased by 3pts, due to the
continued shift in the business from physical to digital. ADA, a
member of Warner Music Group, now handles all physical sales and
distribution in the US and Canada allowing the business to focus on
higher margin digital distribution and artist management.
Music continues to have strong contributions from eOne labels
Dualtone and Last Gang. Dualtone includes the continued strong
performance of The Lumineers' highly successful second album,
Cleopatra, as well as the late Chuck Berry's new album Chuck which
debuted at #2 on the Independent Chart in the US. Last Gang's
international label footprint has been enhanced through a series of
key releases all of whom are benefitting from top-tier play
listings across Spotify and Apple Music.
The artist management division also experienced rapid growth and
success with Arkells' main single Knocking At The Door setting a
new record at Canadian radio by staying #1 on Rock Radio for 14
weeks, and Jax Jones has now sold over five million singles
globally with You Don't Know Me going platinum in 20 countries.
The number of albums released in the period was lower at 40,
versus 45 in the prior period, and digital singles released
increased to 110, compared to 98 in the prior period, in line with
the strategic direction of the business.
2018 OUTLOOK FOR MUSIC
Music will continue to build on its existing label business by
investing in profitable content and improving margins through cost
savings and a continued transition to higher margin digital
revenue. The Group will continue to develop the initiatives
launched in the prior year to reposition eOne Music as a worldwide
brand and to grow the music publishing business. eOne Music is also
working closely with other eOne business units, supervising music
across Film, Television and Family properties to create Group
synergies.
As a result, the Group expects to see continued improvement in
the profitability of the Music business from FY18 onwards.
FAMILY
The Family business develops, produces and distributes a
portfolio of children's properties on a worldwide basis, the
principal brand being Peppa Pig, with much of its revenue generated
through licensing and merchandising programmes across multiple
retail categories. In addition to managing the growth of Peppa Pig,
the Family business also manages and distributes a balanced
portfolio of complementary family brands including PJ Masks.
GBPm 2017 2016 Change
Revenue 62.1 37.9 64%
Underlying EBITDA 38.1 24.7 54%
Investment in acquired content 1.2 0.7 71%
Investment in productions 4.0 1.6 150%
================================ ===== ===== =======
Revenue for the period was up 64% to GBP62.1 million (2016:
GBP37.9 million), driven by the continued strong performance of
Peppa Pig and significant growth from PJ Masks.
Underlying EBITDA increased 54% to GBP38.1 million (2016:
GBP24.7 million), driven by increased revenue. The underlying
EBITDA margin was marginally lower reflecting the revenue mix from
different properties.
Investment in acquired content and productions of GBP5.2 million
(2016: GBP2.3 million) was GBP2.9 million higher than the prior
period. Investment spend in the period included season five of
Peppa Pig, season two of PJ Masks and new properties Cupcake &
Dino: General Services and Ricky Zoom.
The Family business continued to perform strongly with the
ongoing success of Peppa Pig and rapid growth of PJ Masks. The
business generated US$1.2 billion of retail sales in the period
(2016: US$0.7 billion) driven by the hugely successful retail
rollout of PJ Masks and continued growth of Peppa Pig. More than
550 new and renewed broadcast and licensing agreements were
concluded in the period which was an increase of more than 70%
period-on-period. At 30 September 2017, the business had over 1,300
live licensing and merchandising contracts across its portfolio of
brands (31 March 2017: almost 1,100).
Peppa Pig continued to grow period-on-period with revenue of
GBP37.4 million (2016: GBP31.7 million). The growth was driven by
China where licensing and merchandising revenue increased by over
700% period-on-period. This performance was ahead of expectations,
with licensing and merchandising activities in China expanding
across a number of categories including toys, clothing, FMCG,
home/furnishings and publishing with over 25 million publishing
titles sold since launch in April 2016. Continued nationwide TV
exposure from state owned CCTV and all major VOD platforms,
including iQiyi, Youku and Tencent, has increased interest in and
exposure to the Peppa Pig brand. The VOD platforms have registered
over 34 billion views since launch in October 2015. In addition,
Peppa Pig was recently launched on TV Tokyo in Japan. This
continued growth in China and across South East Asia remains a key
driver for the brand. Peppa Pig remains one of the leading
pre-school brands in key territories such as the US and the UK. In
the US the brand remained a top-rated show on Nick Jr. for children
between 2-5 years old and the licensing programme continues to
build, supported by the significant investment and recruitment in
Peppa Pig's brand management infrastructure.
In the UK, the brand benefitted from the release of Peppa Pig:
My First Cinema Experience, which generated box office revenue of
GBP3.6 million in the territory (as well as A$2.2 million in
Australia and New Zealand) and consolidated its position as an
'evergreen' brand in the market. For mature markets, like the UK,
the strategy is to maintain the market-leading position and
generate steady revenue.
PJ Masks has been a key driver of revenue growth for the
business in the period with revenue increasing over 600%
period-on-period from GBP3.0 million to GBP22.3 million. This
growth resulted mainly from licensing and merchandising revenue
driven by the global roll-out from the master toy partner Just Play
and new licensing deals. The licensing programme for the brand
started in September 2016 in the US and due to strong demand and
positive retail feedback PJ Masks was the ninth fastest growing
property across the total toy market and fifth-ranked pre-school
toy property for the nine months to September 2017. Following the
successful US rollout, the licensing programme continues to expand
to the UK to positive results where it has contributed to more than
15% of the total licensing revenue for the period, and building on
this momentum, agents are being signed across Europe, Australia and
Asia. PJ Masks is broadcasting in all key territories on the global
Disney Junior network and France TV with excellent ratings.
Following the success of the first season of PJ Masks, a second
season (52 episodes) is currently in production with new episodes
expected to launch early calendar year 2018, and season three is
expected to be greenlit in the second half of the financial
year.
A licensing programme for Ben & Holly's Little Kingdom was
launched in the US in August 2017 across toys, apparel and
publishing in Target stores nationwide. The brand's retail
performance in its other key markets was stable during the
period.
The business is in production on a number of other properties,
including: Ricky Zoom, a pre-school vehicle-based series of 52
episodes from the same creative team as hit series PJ Masks with
major broadcasters attached in France, Italy, and Latin America and
a master toy arrangement currently in the final stages of
negotiation; and Cupcake & Dino: General Services, a high
profile 52 episodes comedy series which is in full production with
broadcast commitments from Teletoon in Canada, Disney Channel in
Brazil and worldwide SVOD rights with Netflix.
The business is continuing to explore, and is seeing growth
potential in, other platforms including mobile applications, live
shows and experiential events to engage the consumer in new
ways.
2018 OUTLOOK FOR FAMILY
Peppa Pig and PJ Masks will continue to be the drivers of growth
for the Family business in the second half.
Family continues to focus on building Peppa Pig into the most
loved pre-school brand in the world with growth in the second half
underpinned by China. China is expected to grow from 20 licensing
agreements in FY17 to 60 by the end of FY18, thanks to the strong
foundation built by exposure on broadcast and on-demand platforms.
Peppa Pig's content pipeline looks strong with an additional 117
episodes in production with the original creators of the show. The
first batch of deliveries is expected in the first half of 2018
with the last delivery in December 2021. This continued flow of new
programming content will support the longevity of the brand from a
licensing perspective.
In October 2017 the business entered into a global partnership
with Merlin Entertainments, to develop and operate location-based
entertainment attractions based on Peppa Pig. The deal covers all
territories excluding the UK and Merlin will have exclusive rights
for all location-based entertainment formats with the exception of
China, which will be licensed to Merlin on a non-exclusive basis.
Merlin expects to open in-park areas in two Merlin Resort Theme
Parks in 2018 and it is expected the first standalone attraction
will open in 2019.
PJ Masks will build upon the success of the US licensing
programme and continue to roll-out across Europe and Asia, combined
with a stage show which opened in the US in October 2017. The brand
is generating significant interest in China and a full launch is
planned for next financial year.
Family currently has ten projects in development.
The business is expected to generate strong revenue and EBITDA
growth across the portfolio in FY18 ahead of management
expectations. It is also expected that underlying EBITDA margins
will be somewhat lower in percentage terms driven by the growth of
PJ Masks as a proportion of total sales and increased brand
management costs of around GBP2 million which are necessary to
facilitate growth.
FILM
eOne's Global Film Group is one of the world's largest
independent film businesses with operations in the US, the UK,
Canada, Spain, the Benelux, Australia and New Zealand, with recent
expansion into Germany, and, together with its global digital
rights business, focuses on production and sale of film content
worldwide.
GBPm 2017 2016 Change
Revenue 171.8 242.0 (29%)
Theatrical 23.5 42.5 (45%)
Home entertainment 36.0 58.6 (39%)
Broadcast and digital 54.4 75.4 (28%)
Production and international
sales 46.4 56.5 (18%)
Other 11.7 11.5 2%
Eliminations (0.2) (2.5) 92%
================================ ====== ====== =======
Underlying EBITDA (2.6) (2.3) (13%)
Investment in acquired content 71.2 97.7 (27%)
Investment in productions 22.2 (3.7) 700%
================================ ====== ====== =======
Revenue decreased by 29% to GBP171.8 million (2016: GBP242.0
million) driven by lower theatrical, home entertainment and
broadcast and digital activity compared to that generated by a
stronger slate in the prior period.
Underlying EBITDA was relatively stable period-on-period,
despite lower revenue. The impact of lower revenue was largely
offset by a gross margin improvement of 3.5pts due to lower P&A
spend and amortisation of acquired content as well as significant
cost savings from the reshaping commenced in FY16 and substantially
completed in FY17, largely centered around the transition from
physical to digital distribution.
Investment in acquired content was lower by GBP26.5 million at
GBP71.2 million (2016: GBP97.7 million) driven by limited higher
profile theatrical releases in the period. Investment in
productions was higher by GBP25.9 million at GBP22.2 million (2016:
(GBP3.7 million)), reflecting the Group's focus on increasing the
level of produced content over which it has a greater level of
control, including spend on the eOne Features production Stan &
Ollie and Sierra Production How It Ends.
THEATRICAL
Overall, theatrical revenue decreased by 45% reflecting the
reduced level of box office takings, which were also 45% lower at
US$83 million (2016: US$152 million). The decrease reflected the
scale of films released during the period and the reduced number of
releases (76 compared to 88) including the timing of releases
moving into the second half. The number of unique theatrical
releases was 48 in the first half compared to 49 in the prior
period. The prior period included higher profile releases of The
BFG, Now You See Me 2, Bad Moms and Eye in the Sky.
The period included the first release from eOne's new
relationship with Annapurna Pictures, Detroit, from Academy
Award-winning director Kathryn Bigelow and Valerian and the City of
a Thousand Planets, written and directed by Luc Besson. Other key
releases included A Dog's Purpose, Peppa Pig: My First Cinema
Experience, Bon Cop Bad Cop 2, De Pere en Flic 2, Hampstead and
Logan Lucky.
HOME ENTERTAINMENT
Revenue decreased by 39% on a reported basis and 32% on a
like-for-like basis. Like-for-like revenue excludes the prior
period home entertainment revenue generated in the Film Division
from the US Distribution business that related to music sales which
are no longer generated in the current period due to the
outsourcing of music physical sales and distribution to ADA. The
like-for-like decrease reflected the lower profile and number of
theatrical releases, the continued shift from physical to digital
formats and timing of releases.
In total, 122 DVDs and Blu-rays were released during the period
(2016: 215) including key titles such as A Monster Calls, season
seven of The Walking Dead, Ballerina, A Dog's Purpose and John
Wick: Chapter 2.
The transition to eOne's new partnerships with 20th Century Fox
Home Entertainment, on a multi-territory basis, and Sony Pictures
Home Entertainment, in the US, for physical home entertainment
distribution has largely been completed.
BROADCAST AND DIGITAL
The Group's combined broadcast and digital revenues were 28%
lower on a reported basis and 12% on a like-for-like basis, which
excludes the prior period digital revenues generated in the Film
Division from the US Distribution business that related to music
sales. The like-for-like revenues were lower reflecting the impact
of fewer and smaller-scale releases and the reduced volume of Free
TV licensing of film product by broadcasters in Canada.
The Group recently entered into a new multi-year exclusive SVOD
deal with Amazon, for the first Pay TV window in the UK. This new
deal will give Amazon Prime members exclusive access during the
first Pay TV window to all new releases in the territory. In
addition, the Group signed a SVOD catalogue and second Pay TV
window deal with Netflix in the UK. In Australia, the deal signed
with Netflix in the prior year continues to drive strong SVOD
revenue.
PRODUCTION AND INTERNATIONAL SALES
Revenue for production and international sales decreased by 18%
to GBP46.4 million (2016: GBP56.5 million) due to the timing of
film deliveries.
During the period eOne delivered The Ritual which premiered at
the Toronto International Film Festival. It has been released
theatrically in the UK with the bulk of remaining worldwide rights
sold to Netflix. eOne also delivered Just Getting Started (formerly
titled Villa Capri) with further revenue still to be recognised in
the second half. Atomic Blonde produced by Sierra Pictures was
released this summer and has significantly over-performed box
office expectations with world-wide box office approaching US$100
million and I, Tonya, a key sales title that is also being
distributed in several eOne territories, received positive reviews
at the Toronto International Film Festival, and is well positioned
for a theatrical release roll-out this winter.
2018 OUTLOOK FOR FILM
The Group will continue to reshape its Film operations as it
adapts to the changing market place, with a strong commitment to
focus on continued access to high quality premium content and on
building deep partnerships with high quality film producers where
eOne has more ownership and control over the content.
The transition from physical to digital distribution commenced
in FY16 and substantially completed in FY17. This has positioned
the Group to achieve annualised cost savings of approximately GBP10
million in this financial year. Additionally, the Group has gained
momentum in positioning the new combined Film and Television studio
operation for growth. This also provides opportunities for business
efficiencies and the centralisation of a number of internal support
functions that will drive further cost savings beginning towards
the end of this financial year and continuing into FY20.
The second half of the year will also benefit from the higher
performance of home entertainment and digital over the Christmas
period.
For the full year, we anticipate 180 film releases, marginally
lower than previous guidance of 200, in total across all
territories, of which 100 are expected to be unique titles.
Investment in acquired content is expected to be lower than
previous expectations at GBP130 million with the reduction driven
by the lower number of releases. The pipeline for the remainder of
the year contains stronger theatrical releases than the first half
including Steven Spielberg's The Post starring Tom Hanks and Meryl
Streep (from Amblin Partners) to be released in January, A Bad Moms
Christmas and Molly's Game, Aaron Sorkin's directorial debut
produced by The Mark Gordon Company. Investment in productions is
expected to be higher than the prior year at around GBP50
million.
OTHER FINANCIAL INFORMATION
Adjusted operating profit increased by 40% to GBP49.5 million
(2016: GBP35.3 million), reflecting the growth in the Group's
underlying EBITDA. Adjusted profit before tax increased by 53% to
GBP36.4 million (2016: GBP23.8 million), in line with increased
adjusted operating profit, partly offset by higher underlying
finance charges in the period. Reported operating profit increased
by 55% to GBP20.4 million, with the Group reporting a profit before
tax of GBP0.8 million (2016: loss of GBP2.5 million).
Reported Adjusted
========================== ================
2017 2016 restated(2) 2017 2016
GBPm GBPm GBPm GBPm GBPm
Revenue 395.7 401.0 395.7 401.0
Underlying EBITDA 51.4 37.7 51.4 37.7
============================ ======= ================= ======= =======
Amortisation of acquired
intangibles (20.0) (20.7) - -
Depreciation and
amortisation of software (1.9) (2.4) (1.9) (2.4)
Share-based payment
charge (5.8) (2.8) - -
One-off items (3.3) 1.4 - -
============================ ======= ================= ======= =======
Operating profit(1) 20.4 13.2 49.5 35.3
Net finance costs (19.6) (15.7) (13.1) (11.5)
============================ ======= ================= ======= =======
Profit/(loss) before
tax 0.8 (2.5) 36.4 23.8
Tax 0.5 1.3 (9.0) (5.2)
Profit/(loss) for
the period 1.3 (1.2) 27.4 18.6
============================ ======= ================= ======= =======
1. Adjusted operating profit excludes amortisation of acquired
intangibles, share-based payment charge and operating one-off
items.
2. Reported 2016 amounts have been restated, refer to Note 2 of
the condensed consolidated financial statements for further
details.
AMORTISATION OF ACQUIRED INTANGIBLES, DEPRECIATION AND
AMORTISATION OF SOFTWARE
Amortisation of acquired intangibles, depreciation and
amortisation of software has decreased by GBP1.2 million in the
period. The decrease is primarily on account of assets written off
as a result of the restructure of the Group's physical distribution
business in the year ended 31 March 2017.
SHARE-BASED PAYMENT CHARGE
The share-based payment charge of GBP5.8 million has increased
by GBP3.0 million during the period, reflecting additional awards
issued in the period and also due to the fair value of the awards
increasing as a result of the increase in the Entertainment One
Ltd. share price in the period.
ONE-OFF ITEMS
One-off items resulted in a net charge of GBP3.3 million,
compared to a credit of GBP1.4 million in the prior period.
Strategy related costs of GBP0.8 million consist of GBP0.7 million
of costs associated with the integration of the Film and Television
Divisions and GBP0.1 million of foreign exchange movement on
accrued redundancy costs. Acquisition costs of GBP2.2 million were
due to the re-assessment of contingent consideration in relation to
the Renegade 83 acquisition of GBP0.6 million, and banking and
legal costs of GBP1.6 million associated with the creation and
set-up of MAKEREADY in the period. Other corporate project costs of
GBP0.3 million related to costs associated with aborted corporate
projects during the period.
NET FINANCE COSTS
Reported net finance costs increased by GBP3.9 million to
GBP19.6 million in the period. Excluding one-off net finance costs
of GBP6.5 million, adjusted finance costs of GBP13.1 million (2016:
GBP11.5 million) were GBP1.6 million higher in the period,
reflecting the higher average debt levels period-on-period. The
weighted average interest rate for the Group's senior financing was
6.5% compared to 6.7% in the prior period.
The one-off net finance costs of GBP6.5 million (2016: GBP4.2
million) comprise:
-- GBP5.2 million (2016: charge of GBP6.2 million)
in respect of losses on five forward currency
contracts not in compliance with the Group's
hedging policy, see Note 2 of the condensed
consolidated financial statements for further
details
-- GBP1.8 million (2016: nil) in respect of fair-value
losses on hedge contracts which reverse in future
periods
-- GBP1.5 million (2016: charge of GBP1.4 million)
unwind of discounting on liabilities related
to put options issued by the Group over the
non-controlling interest of subsidiary companies
-- GBP1.0 million (2016: nil) in respect of fair-value
losses on hedge contracts cancelled as a result
of the re-negotiation of one of the Group's
larger film distribution agreements in 2017
-- Charges above are partly offset by credit of
GBP3.0 million (2016: credit of GBP3.4 million)
relating to the reversal of interest previously
charged on tax provisions which were released
during the period.
TAX
On a reported basis, the Group's tax credit of GBP0.5 million
(2016: GBP1.3 million), which includes the impact of the release of
tax provisions and one-off items, represents an effective rate of
(62.5%) compared to (52.0%) in the prior period and 20.7% for the
year ended 31 March 2017. On an adjusted basis, the effective rate
is 24.7% compared to 21.8% in the prior period, driven by a
different mix of profit by jurisdiction (with different statutory
rates of tax). The adjusted effective tax rate for the full year is
expected to be approximately 22%.
CASH FLOW & NET DEBT
The table below reconciles cash flows associated with the net
debt of the Group, which excludes cash flows associated with
production activities which are reconciled in the Production
Financing section below.
2017 2016
Centre Centre
& &
GBPm Television Family Film Elims Total Television Family Film Elims Total
=========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Underlying
EBITDA 18.5 38.4 (2.7) (4.7) 49.5 21.2 24.8 (3.2) (3.2) 39.6
Amortisation of
investment in
acquired
content rights 18.8 0.4 35.1 - 54.3 15.6 0.4 54.4 - 70.4
Investment in
acquired
content rights (15.7) (1.2) (71.2) - (88.1) (13.2) (0.7) (97.7) - (111.6)
Amortisation of
investment in
productions 19.3 1.2 2.3 - 22.8 20.1 (0.2) 0.8 - 20.7
Investment in
productions,
net of grants (31.6) (2.0) (1.3) 0.3 (34.6) (18.6) (1.1) 0.6 - (19.1)
Working capital - (10.4) (25.4) - (35.8) (13.8) (6.6) (24.4) - (44.8)
Joint venture
movements - - - - - 0.4 - - - 0.4
================
Adjusted cash
flow 9.3 26.4 (63.2) (4.4) (31.9) 11.7 16.6 (69.5) (3.2) (44.4)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Capital
expenditure (1.5) (0.9)
Tax paid (21.7) (7.1)
Net interest
paid (11.5) (12.9)
================
Free cash flow (66.6) (65.3)
Cash one-off
items (28.0) (7.0)
Cash one-off
finance
items (13.2) (0.7)
Acquisitions,
net
of net debt
acquired (3.2) (2.1)
Dividends paid (10.0) (6.8)
Foreign
exchange (4.4) (0.6)
Movement (125.4) (82.5)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Net debt at 1
April (187.4) (180.8)
================
Net debt at 30
September (312.8) (263.3)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
ADJUSTED CASH FLOW
Adjusted cash outflow at GBP31.9 million is lower than prior
period by GBP12.5 million with improved cash flows in Family and
Film partly offset by marginal reductions in Television and
Centre.
TELEVISION
Television adjusted cash inflow reduced in the period to GBP9.3
million (2016: GBP11.7 million) driven by higher investment in
productions and lower underlying EBITDA partly offset by
improvement in working capital movements. The higher investment in
productions for the period related to The Climb and Youth &
Consequences in MGC. Working capital was flat in the period as the
increase in the accrued income in MGC relating to the participation
revenue was offset by higher deferred income and accruals for Youth
& Consequences.
FAMILY
Family adjusted cash inflow increased 59% to GBP26.4 million
(2016: GBP16.6 million) supported by growth in underlying EBITDA
partly offset by higher working capital outflows. Working capital
outflows increased period-on-period driven by increase in
receivables as a result of higher revenue.
FILM
Film adjusted cash outflow of GBP63.2 million improved compared
to the prior period (2016: GBP69.5 million), driven by lower
investment in acquired content rights, partly offset by higher
working capital outflow and lower amortisation of investment in
acquired content rights.
The reduced investment in acquired content rights was driven by
the lower profile theatrical titles in the period. Working capital
outflow of GBP25.4 million was primarily due to a decrease in
payables driven by the seasonal timing of payments in the
distribution territories, partly offset by lower receivables driven
by timing of receipts from the previous year end.
FREE CASH FLOW
Free cash outflow for the Group of GBP66.6 million was GBP1.3
million higher than previous period primarily due to timing of tax
payments.
NET DEBT
At 30 September 2017, overall net debt at GBP312.8 million was
GBP49.5 million higher than the prior period largely due to higher
one-off items, including payment of prior years' restructuring
charges, and higher one-off finance items.
Refer to the Appendix to the Interim Announcement for the
definition of adjusted cash flow and free cash flow and for a
reconciliation to net cash from operating activities.
PRODUCTION FINANCING
Overall production financing increased by GBP3.1 million
period-on-period to GBP141.8 million reflecting the higher opening
production financing balance at March 2017 partly offset by the
positive adjusted cash inflow and movement in foreign exchange. The
adjusted cash inflows were driven by improvement in underlying
EBITDA and positive working capital inflows in Television and
Film.
2017 2016
GBPm Television Family Film Total Television Family Film Total
Underlying EBITDA 2.1 (0.3) 0.1 1.9 (2.7) (0.1) 0.9 (1.9)
Amortisation of
investment in productions 23.5 0.1 4.0 27.6 21.9 1.3 21.8 45.0
Investment in productions,
net of grants (84.2) (2.0) (20.9) (107.1) (70.3) (0.5) 3.1 (67.7)
Working capital 58.7 (0.1) 28.9 87.5 33.2 (0.5) (13.2) 19.5
Adjusted cash flow 0.1 (2.3) 12.1 9.9 (17.9) 0.2 12.6 (5.1)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Capital expenditure - (0.1)
Tax paid (1.0) (1.6)
Net interest paid (0.7) -
Free cash flow 8.2 (6.8)
Cash one-off items (1.8) (0.4)
Foreign exchange 4.1 (13.5)
Movement 10.5 (20.7)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Production financing
at 1 April (152.3) (118.0)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Production financing
at 30 September (141.8) (138.7)
============================ =========== ======= ======= ======== =========== ======= ======= ========
The production cash flows relate to non-recourse production
financing which is used to fund the Group's television, family and
film productions. The financing is arranged on an individual
production basis by special purpose production subsidiaries which
are excluded from the security of the Group's corporate facility.
It is short-term financing whilst the production is being made and
is paid back once the production is delivered and the sales
receipts and tax credits are received. The Company deems this type
of financing to be short-term in nature and is excluded from net
debt. The Company therefore shows the cash flows associated with
these activities separately. The Company also believes that higher
production financing demonstrates an increase in the success of the
Television, Family and Film production businesses, which helps
drive revenue for the Group and therefore increases the generation
of EBITDA and cash for the Group, which in turn reduces the Group's
net debt leverage.
FINANCIAL POSITION AND GOING CONCERN BASIS
The Group's net assets decreased by GBP22.0 million to GBP723.0
million at 30 September 2017 (31 March 2017: GBP745.0 million). The
principal risks impacting the Group have been discussed in Note 8
of the condensed consolidated financial statements.
The directors acknowledge guidance issued by the Financial
Reporting Council relating to going concern. The directors consider
it appropriate to prepare the consolidated financial statements on
a going concern basis, as set out in Note 2 of the condensed
consolidated financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
the condensed consolidated financial statements
have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting',
-- as adopted by the European Union;
the Interim Announcement includes a fair review
-- of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority, being
an indication of important events occurred during
the first six months of the financial year and
their impact on the condensed consolidated financial
statements; and a description of the principal
risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and
Transparency Rules, being related party transactions
that have taken place in the first six months
of the current financial year and that have
materially affected the financial position or
performance of the entity during that period;
and any changes in the related party transactions
described in the last annual report that could
do so.
By order of the Board
DARREN THROOP
Director
20 November 2017
A presentation to analysts will take place at 9.30am on Tuesday,
21 November 2017 at eOne's UK office (45 Warren Street, London, W1T
6AG). For more information, or to register to attend, contact Alma
PR +44 (0)20 8004 4217 or josh@almapr.co.uk).
For further information please contact:
Alma PR
Josh Royston
Tel: +44 (0)20 8004 4217
Email: josh@almapr.co.uk
Entertainment One
Darren Throop (CEO)
Joe Sparacio (CFO)
via Alma PR
Patrick Yau (Director of Investor Relations)
Tel: +44 20 3714 7931
Email: PYau@entonegroup.com
CAUTIONARY STATEMENT
This Interim Announcement contains certain forward-looking
statements with respect to the financial condition, results,
operations and businesses of Entertainment One Ltd. These
statements and forecasts involve risk and uncertainty because they
relate to events and depend upon circumstances that will occur in
the future. These statements are made by the directors in good
faith based on the information available to them up to the time of
their approval of this report. There are a number of factors that
could cause actual results or developments to differ materially
from those expressed or implied by these forward-looking statements
and forecasts. Nothing in this Interim Announcement should be
construed as a profit forecast.
A copy of this Interim Announcement for the six months ended 30
September 2017 can be found on the Group's website at
www.entertainmentone.com.
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
Note GBPm GBPm
======================================= ===== ============= =============
Revenue 3 395.7 401.0
Cost of sales (281.7) (305.9)
======================================= ===== =============
Gross profit 114.0 95.1
Administrative expenses (93.6) (81.5)
Share of results of joint ventures - (0.4)
======================================= ===== ============= =============
Operating profit 20.4 13.2
Finance income 5 3.4 4.1
Finance costs 5 (23.0) (19.8)
======================================= ===== ============= =============
Profit/(loss) before tax 0.8 (2.5)
Income tax credit 0.5 1.3
======================================= ===== ============= =============
Profit/(loss) for the period 1.3 (1.2)
======================================= ===== ============= =============
Attributable to:
Owners of the Company (2.2) (5.9)
Non-controlling interests 3.5 4.7
======================================= ===== ============= =============
Operating profit analysed as:
Underlying EBITDA 3 51.4 37.7
Amortisation of acquired intangibles (20.0) (20.7)
Depreciation and amortisation
of software (1.9) (2.4)
Share-based payment charge (5.8) (2.8)
One-off items 4 (3.3) 1.4
======================================= ===== ============= =============
Operating profit 20.4 13.2
======================================= ===== ============= =============
Losses per share (pence)
Basic (0.5) (1.4)
Diluted 6 (0.5) (1.4)
Adjusted earnings per share (pence)
Basic 4.9 2.7
Diluted 6 4.8 2.6
===================================== ====== ======
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
GBPm GBPm
=================================== ============= =============
Profit/(loss) for the period 1.3 (1.2)
Items that may be reclassified
subsequently to profit or
loss:
Exchange differences on foreign
operations (19.7) 49.9
Fair value movements on cash
flow hedges (2.4) 5.8
Reclassification adjustments
for movements on cash flow
hedges (1.3) (4.7)
Tax related to components
of other comprehensive income 2.7 -
Total other comprehensive
(loss)/income for the period (20.7) 51.0
===================================== ============= =============
Total comprehensive (loss)/income
for the period (19.4) 49.8
===================================== ============= =============
Attributable to:
Owners of the Company (19.4) 39.5
Non-controlling interests - 10.3
===================================== ============= =============
CONDENSED CONSOLIDATED BALANCE SHEET
AT 30 SEPTEMBER 2017
Restated Restated
30 September 2017 31 March 2017 30 September 2016
Note GBPm GBPm GBPm
============================================== ===== ================== ============== ==================
ASSETS
Non-current assets
Goodwill 394.0 406.9 391.2
Other intangible assets 274.4 302.9 315.1
Interests in joint ventures 1.0 1.1 1.1
Investment in productions 241.6 160.8 169.7
Property, plant and equipment 11.5 11.9 12.6
Trade and other receivables 88.8 60.9 49.1
Deferred tax assets 31.7 28.2 26.0
==============================================
Total non-current assets 1,043.0 972.7 964.8
============================================== ===== ================== ============== ==================
Current assets
Inventories 46.7 48.6 49.5
Investment in acquired content rights 290.6 269.8 278.4
Trade and other receivables 456.9 464.4 422.3
Cash and cash equivalents 104.2 133.4 73.1
Current tax assets 4.0 1.5 2.2
Financial instruments 10 2.1 10.6 10.1
============================================== ===== ================== ============== ==================
Total current assets 904.5 928.3 835.6
============================================== ===== ================== ============== ==================
Total assets 3 1,947.5 1,901.0 1,800.4
============================================== ===== ================== ============== ==================
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 371.7 276.6 308.4
Production financing 121.6 91.2 72.3
Other payables 39.7 41.7 50.3
Provisions 1.3 1.5 0.3
Deferred tax liabilities 47.7 53.1 53.7
============================================== ===== ================== ============== ==================
Total non-current liabilities 582.0 464.1 485.0
============================================== ===== ================== ============== ==================
Current liabilities
Interest-bearing loans and borrowings 0.5 0.5 0.9
Production financing 65.1 104.8 93.5
Trade and other payables 549.0 507.8 476.1
Provisions 5.0 30.6 3.0
Current tax liabilities 16.9 32.8 24.3
Financial instruments 10 6.0 15.4 13.9
============================================== ===== ================== ============== ==================
Total current liabilities 642.5 691.9 611.7
============================================== ===== ================== ============== ==================
Total liabilities 1,224.5 1,156.0 1,096.7
============================================== ===== ================== ============== ==================
Net assets 723.0 745.0 703.7
============================================== ===== ================== ============== ==================
EQUITY
Stated capital 507.5 505.3 504.1
Own shares (0.9) (1.5) (3.6)
Other reserves (23.7) (22.7) (19.1)
Currency translation reserve 63.6 79.8 56.1
Retained earnings 94.7 97.9 87.4
============================================== ===== ================== ============== ==================
Equity attributable to owners of the Company 641.2 658.8 624.9
Non-controlling interests 81.8 86.2 78.8
============================================== ===== ================== ============== ==================
Total equity 723.0 745.0 703.7
============================================== ===== ================== ============== ==================
Total liabilities and equity 1,947.5 1,901.0 1,800.4
============================================== ===== ================== ============== ==================
These condensed consolidated financial statements were approved
by the Board of Directors on 20 November 2017.
DARREN THROOP
Director
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Other Reserves
==================================
Stated Own Cash Put Restructuring Currency Retained Equity Non-controlling Total
capital shares flow options reserve translation earnings attributable interests equity
hedge over reserve to the
reserve NCI owners of
the Company
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2016 500.0 (3.6) 1.4 - 9.3 11.8 100.3 619.2 39.3 658.5
Restatement - - - (30.9) - - (4.4) (35.3) 30.9 (4.4)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2016
restated 500.0 (3.6) 1.4 (30.9) 9.3 11.8 95.9 583.9 70.2 654.1
(Loss)/profit
for the period
restated - - - - - - (5.9) (5.9) 4.7 (1.2)
Other
comprehensive
income - - 1.1 - - 44.3 - 45.4 5.6 51.0
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Total
comprehensive
income/(loss)
for the period - - 1.1 - - 44.3 (5.9) 39.5 10.3 49.8
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Credits in
respect of
share-based
payments - - - - - - 2.5 2.5 - 2.5
Acquisition of
subsidiaries 4.1 - - - - - - 4.1 - 4.1
Dividends paid - - - - - - (5.1) (5.1) (1.7) (6.8)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 30 September
2016 504.1 (3.6) 2.5 (30.9) 9.3 56.1 87.4 624.9 78.8 703.7
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2017 505.3 (1.5) (1.1) (30.9) 9.3 79.8 109.9 670.8 86.2 757.0
Restatement - - - - - - (12.0) (12.0) - (12.0)
============= ================ =======
At 1 April 2017
restated 505.3 (1.5) (1.1) (30.9) 9.3 79.8 97.9 658.8 86.2 745.0
(Loss)/profit
for the period - - - - - - (2.2) (2.2) 3.5 1.3
Other
comprehensive
loss - - (1.0) - - (16.2) - (17.2) (3.5) (20.7)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Total
comprehensive
loss for the
period - - (1.0) - - (16.2) (2.2) (19.4) - (19.4)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Credits in
respect of
share-based
payments - - - - - - 5.6 5.6 - 5.6
Exercise of
share options 0.4 - - - - - (0.4) - - -
Distribution of
shares to
beneficiaries
of the Employee
Benefit Trust - 0.6 - - - - (0.6) - - -
Acquisition of
subsidiaries(1) 1.8 - - - - - - 1.8 - 1.8
Dividends
paid(2) - - - - - - (5.6) (5.6) (4.4) (10.0)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 30 September
2017 507.5 (0.9) (2.1) (30.9) 9.3 63.6 94.7 641.2 81.8 723.0
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
1. Refer to Note 7 for further details.
2. Refer to Note 11 for further details.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
Note GBPm GBPm
========================================= ===== ============= =============
Operating activities
Operating profit 20.4 13.2
Adjustment for:
Depreciation of property, plant
and equipment 1.0 1.1
Amortisation of software 0.9 1.3
Amortisation of acquired intangibles 20.0 20.7
Amortisation of investment in
productions 50.4 65.7
Investment in productions, net
of grants received (141.7) (86.8)
Amortisation of investment in
acquired content rights 54.3 70.4
Investment in acquired content
rights (88.1) (111.6)
Fair value gain on acquisition 4,
of subsidiary 7 - (2.1)
Share of results of joint ventures - 0.4
Share-based payment charge 5.8 2.8
========================================= ===== ============= =============
Operating cash flows before changes
in working capital and provisions (77.0) (24.9)
Decrease in inventories 1.2 5.7
Increase in trade and other receivables (22.7) (43.3)
Increase in trade and other payables 71.8 6.7
Decrease in provisions (25.1) (1.0)
========================================= ===== ============= =============
Cash used in operations (51.8) (56.8)
Income tax paid (22.7) (8.7)
========================================= ===== ============= =============
Net cash used in operating activities (74.5) (65.5)
========================================= ===== ============= =============
Investing activities
Acquisition of subsidiaries and
joint ventures, net of cash acquired 7 (3.2) 0.3
Dividends received from interests
in joint ventures - 0.1
Purchase of property, plant and
equipment (0.8) (0.5)
Purchase of software (0.7) (0.5)
========================================= ===== ============= =============
Net cash used in investing activities (4.7) (0.6)
========================================= ===== ============= =============
Financing activities
Drawdown of interest-bearing loans
and borrowings 191.9 99.7
Repayment of interest-bearing
loans and borrowings (93.4) (72.0)
Drawdown of production financing 120.6 76.0
Repayment of production financing (122.5) (54.6)
Interest paid (12.2) (12.9)
Dividends paid to shareholders
and to non-controlling interests
of subsidiaries 11 (10.0) (6.8)
Fees paid in relation to the Group's
senior bank facility and one-off
finance costs 2,5 (12.5) (0.6)
========================================= ===== ============= =============
Net cash from financing activities 61.9 28.8
========================================= ===== ============= =============
Net decrease in cash and cash
equivalents (17.3) (37.3)
Cash and cash equivalents at beginning
of the period 133.4 108.3
Effect of foreign exchange rate
changes on cash held (11.9) 1.2
============= =============
Cash and cash equivalents at end
of the period (net of bank overdrafts) 104.2 72.2
========================================= ===== ============= =============
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
1. NATURE OF OPERATIONS AND GENERAL INFORMATION
Entertainment One (the Group) is a leading independent
entertainment group focused on the acquisition, production and
distribution of television, family, film and music content rights
across all media throughout the world. Entertainment One Ltd. (the
Company) is the Group's ultimate parent company and is incorporated
and domiciled in Canada. The registered office of the Company is
134 Peter Street, Suite 700, Toronto, Ontario, M5V 2H2, Canada.
The Company's common shares are listed on the premium listing
segment of the Official List of the Financial Conduct Authority.
Segmental information is disclosed in Note 3.
2. BASIS OF PREPARATION
SIGNIFICANT ACCOUNTING POLICIES
These condensed consolidated financial statements, included
within the Interim Announcement, have been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union. These condensed
consolidated financial statements do not include all the
information and disclosures required in the annual financial
statements and should be read in conjunction with the Group's
consolidated financial statements for the year ended 31 March 2017
which were prepared in accordance with International Financial
Reporting Standards and International Financial Reporting Standards
Interpretations Committee interpretations, as adopted by the
European Union.
Other than income taxes which are accrued using the tax rate
that is expected to be applicable for the full financial year, the
policies are consistent with the principal accounting policies
which were set out in the Group's consolidated financial statements
for the year ended 31 March 2017.
These condensed consolidated financial statements are unaudited
but have been reviewed by the Group's auditor and their review
opinion is included at the end of these statements.
These condensed consolidated financial statements are presented
in pounds sterling, which is also the functional currency of the
parent company. All values are shown in millions, rounded to the
nearest one hundred thousand pounds, except when otherwise
stated.
These condensed consolidated financial statements were approved
for issue by the directors on 20 November 2017.
PREPARATION OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ON THE GOING CONCERN BASIS
In addition to its senior secured notes (due 2022) the Group
meets its day-to-day working capital requirements and funds its
investment in content through its cash in hand and through a
revolving credit facility which matures in December 2020 and is
secured on certain assets held by the Group. Under the terms of
this facility the Group is able to draw down in the local
currencies of its operating businesses. The facility and senior
secured notes are subject to a series of covenants including
interest cover charge, gross debt against underlying EBITDA and
capital expenditure.
The Group is exposed to uncertainties arising from the economic
climate and uncertainties in the markets in which it operates.
Market conditions could lead to lower than anticipated demand for
the Group's products and services and exchange rate volatility
could also impact reported performance. The directors have
considered the impact of these and other uncertainties and factored
them into their financial forecasts and assessment of covenant
headroom. The Group's forecasts and projections, taking account of
reasonable possible changes in trading performance (and available
mitigating actions), show that the Group will be able to operate
within the expected limits of its existing financing and provide
headroom against the covenants for the foreseeable future. For
these reasons the directors continue to adopt the going concern
basis of accounting in preparing these condensed consolidated
financial statements.
USE OF ADDITIONAL PERFORMANCE MEASURES
The Group uses a number of non-IFRS financial measures that are
not specifically defined under IFRS or any other generally accepted
accounting principles, including underlying EBITDA, one-off items,
adjusted profit before tax, adjusted earnings per share, adjusted
cash flow, free cash flow, net debt and production financing. These
non-IFRS financial measures are presented because they are among
the measures used by management to measure operating performance
and as a basis for strategic planning and forecasting, and the
Group believes that these measures are frequently used by investors
in analysing business performance. Refer to the Appendix to the
Interim Announcement for definitions of these terms.
PRIOR PERIOD RESTATEMENTS
Non-compliant forward currency contracts
During the period, the Group identified three forward currency
contracts, entered into between December 2015 and September 2016,
that were not in compliance with the Group's hedging policy. The
losses in respect of these forward currency contracts were not
reflected in the consolidated audited financial statements for the
years ended 31 March 2016 and 2017 or in the condensed consolidated
financial statements for the six months ended 30 September
2016.
The effect of the prior period errors on the consolidated income
statement amounted to a GBP4.4m reduction in profit for the year
ended 31 March 2016, GBP6.2m reduction in profit for the period
ended 30 September 2016 and GBP7.6m reduction in profit for the
year ended 31 March 2017. The impact of the prior period errors on
the consolidated statement of financial position amounted to a
GBP4.4m reduction in total equity at 31 March 2016, GBP10.6m
reduction in total equity at 30 September 2016 and GBP12.0m
reduction in total equity at 31 March 2017. These forward currency
contracts were settled through a payment of GBP9.8m in the period
and application of payments on account made in FY17 in the amount
of GBP4.9m. The cash payment has been classified as 'Fees paid in
relation to the Group's senior bank facility and one-off finance
costs' in the condensed consolidated cash flow statement for the
six months ended 30 September 2017. Upon settlement, an additional
loss of GBP2.7m (30 September 2016: loss of GBP6.2m) was recorded
which has been reflected as a one-off finance cost, refer Note 5.
The restatement and current period impact does not impact the
financial covenants on the Group's revolving credit facility or
senior secured notes.
The Group concluded that the prior period errors were not
fundamental to any of the Group's previously issued financial
statements. Therefore, the Group has corrected the prior period
errors retrospectively by restating the comparative amounts for the
prior period presented in which the error occurred and restating
the opening balances for the earliest prior period presented in
this Interim Announcement, as required under International
Accounting Standard 8.
During the period, a further two forward currency contracts
entered into in June 2017 and July 2017 were also identified as not
being in compliance with the Group's hedging policy. These forward
currency contracts were settled during the period, resulting in a
one-off finance cost of GBP2.5m, refer Note 5.
In response to the above, the Group conducted a broad and
continuing review of the Treasury processes, systems and controls
across the Group. Steps have been taken to improve controls within
Treasury including changes in personnel and enhancement of the
control environment. In addition, a detailed review of all,
externally confirmed, open forward currency contracts at 30
September 2017 was completed to ensure that they were in compliance
with the Group's hedging policies.
Accounting for put options
The potential cash payments related to put options issued by the
Group over the non-controlling interest in subsidiary companies are
accounted for as financial liabilities. The amount that may become
payable under the option on exercise is initially recognised on
acquisition at present value within other payables with a
corresponding charge directly to equity. The Group restated the
condensed consolidated financial statements for the six months
ended 30 September 2016, to reflect the corresponding charge in
equity attributable to owners of the Company to better reflect the
risk of ownership of the non-controlling interests, consistent with
the treatment in the 2017 Annual Report.
Classification of investment spend
International Accounting Standard 7 Statement of Cash Flows
requires that cash flows from operating activities are primarily
derived from the principal revenue-producing activities of the
business. The Group's revenue is derived from the licensing,
marketing and distribution and trading of feature films,
television, video programming and music rights. The Group has
reclassified the discretionary spend incurred in the acquisition
and creation of underlying intellectual property rights, being the
investment in productions and investment in acquired content
rights, as operating cash flow in the condensed consolidated
financial statements for the six months ended 30 September 2016,
consistent with the treatment in the 2017 Annual Report.
Other
A reclassification of finance income in the prior period was
made to better reflect the split of income and costs.
A summary of the impact of the above restatements on the
condensed consolidated financial statements at 30 September 2016
and statement of financial position at 31 March 2017 is shown
below:
Non compliant
forward currency Accounting for put Classification of
Previously reported contracts options investment spend Other Restated
Group's condensed consolidated income statement for the six months ended 30 September 2016
Finance income 2.2 1.9 4.1
Finance costs (11.7) (6.2) (1.9) (19.8)
Profit/(loss)
before tax 3.7 (6.2) (2.5)
Income tax credit 1.3 1.3
Profit/(loss) for
the period 5.0 (6.2) (1.2)
Attributable to:
Owners of the
Company 0.3 (6.2) (5.9)
Earnings/(losses)
per share (pence)
Basic 0.1 (1.5) (1.4)
Diluted 0.1 (1.5) (1.4)
Group's condensed consolidated balance sheet
At 30 September
2016
Financial
instruments 3.3 10.6 13.9
Total current
liabilities 601.1 10.6 611.7
Total liabilities 1,086.1 10.6 1,096.7
Net assets at 30
September 2016 714.3 (10.6) 703.7
Other reserves 11.8 (30.9) (19.1)
Retained earnings 98.0 (10.6) 87.4
Equity attributable
to owners of the
Company 666.4 (10.6) (30.9) 624.9
Non-controlling
interests 47.9 30.9 78.8
Total equity at 30
September 2016 714.3 (10.6) 703.7
At 31 March 2017
Financial
instruments 3.4 12.0 15.4
Total current
liabilities 679.9 12.0 691.9
Total liabilities 1,144.0 12.0 1,156.0
Net assets at 31
March 2017 757.0 (12.0) 745.0
Retained earnings 109.9 (12.0) 97.9
Equity attributable
to owners of the
Company 670.8 (12.0) 658.8
Total equity at 31
March 2017 757.0 (12.0) 745.0
Group's condensed consolidated cash flow statement for the six months ended 30 September 2016
Net cash from
operating
activities 132.9 (198.4) (65.5)
Net cash used in
investing
activities (199.0) 198.4 (0.6)
NEW STANDARDS AND AMMENTS, REVISIONS AND IMPROVEMENTS TO
STANDARDS ADOPTED DURING THE PERIOD
Details of new or revised accounting standards, interpretations
or amendments which are effective for periods beginning on or after
1 April 2017 and which are considered to have an impact on the
Group can be found in the annual financial statements for the year
ended 31 March 2017.
IFRS 15 Revenue from Contracts with Customers is effective 1
January 2018. The standard requires the identification of
performance obligations in contracts with customers and allocation
of the total contractual value to each of the performance
obligations identified. The standard also requires the Group to
assess whether its licences to intellectual property are either a
promise to provide a right to the intellectual property at a point
in time, or a promise to provide access to the intellectual
property as it exists at any point during the licence. Revenue is
recognised as each performance obligation is satisfied either at a
point in time or over time.
An initial impact assessment has been undertaken which involved
the review of all contract types across the Group. The Group
expects an impact on the results of the Family Division where the
Group currently recognises contractual minimum guarantees from
licensing arrangements when the licence terms have commenced and
collection of the fee is reasonably assured. The Group expects the
recognition of the minimum guarantees to change and be spread over
the consumption of the intellectual property. In addition, there
may be timing differences arising from the way the Group recognises
revenue for content licensing in the Film and Television
Divisions.
The impact of the transitional arrangements is under review.
There is no impact on the timing of cash receipts, which are
determined by the terms and conditions of contracts with
customers.
IFRS 9, Financial Instruments, is effective from 1 January 2018.
The standard covers recognition, classification, measurement and
impairment of financial assets and financial liabilities, together
with a new hedge accounting model. The Group is still assessing the
impact of the adoption of this standard to the Group.
The Group expects an impact from IFRS 16 Leases on the results
of the Group. The Group currently recognises an operating lease
when substantially all the risks and rewards incident to ownership
remain with the lessor. The lease payments are recognised as an
expense in the income statement over the lease term on a
straight-line basis. IFRS 16 establishes principles for the
recognition, measurement, presentation and disclosure of leases.
Upon lease commencement a lessee recognises a right-of-use asset
and a lease liability. The right-of-use asset is initially measured
at the amount of the lease liability plus any initial direct costs
incurred by the lessee, with adjustments for lease incentives,
payments at or prior to commencement and restoration obligations.
The Group is still assessing the extent and quantum of the impact
of the adoption of this standard to the Group.
ESTIMATES
The preparation of condensed consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amount of assets and liabilities, income and expenses. Actual
results may differ from these estimates. In preparing these
condensed consolidated financial statements, the significant
judgements made by management in applying the Group accounting
policies and the key sources of estimation uncertainty were the
same as those applied to the consolidated financial statements at
and for the year ended 31 March 2017.
FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments to reduce its
exposure to foreign exchange movements. The Group does not hold or
issue derivative financial instruments for financial trading
purposes. Derivative financial instruments are classified as
held-for-trading and recognised in the condensed consolidated
balance sheet at fair value.
The Group uses forward currency contracts to hedge transactional
exposures. The majority of these contracts are denominated in the
subsidiaries' functional currencies and primarily cover minimum
guaranteed advances payments in Canada, the UK, Australia, the
Benelux and Spain and hedging of other significant financial assets
and liabilities. Interest rate swaps may be put in place by the
Group in order to limit interest rate risk.
At 30 September 2017, there were no significant differences
between the book value and fair value (as determined by market
value) of the Group's financial assets or liabilities other than
the Group's GBP285m senior secured notes, which have a fair value
of GBP310.9m. There were no transfers between levels in the period
and there have been no changes to the basis of determining the fair
value measurements and valuation inputs disclosed within the
Group's consolidated financial statements for the year ended 31
March 2017.
3. SEGMENTAL ANALYSIS
SEASONALITY OF OPERATIONS
The Group's business is normally subject to seasonal variations
based on the timing of film cinema releases, physical home
entertainment and television and digital content releases. Release
dates are determined by several factors, including timing of
holiday periods, the US release date of the film and competition in
the market. In addition, revenue for the Group's licensed consumer
products are influenced by seasonal consumer purchasing behaviour.
Accordingly, if a short-term negative impact on the Group's
business occurs during a time of high seasonal demand, the effect
could have a disproportionate effect on the Group's results for the
period.
The Group's exposure to seasonality varies by Division. Within
the Television Division, revenue from television productions are
driven by contracted delivery dates with primary broadcasters and
can fluctuate significantly from period-to-period. The results of
the Family Division are affected by the timing of royalties earned
on properties driven by timing of holiday periods. The results of
the Film Division are affected by the number and timing of film
releases. The release dates are not entirely in the control of the
Group and are determined largely by the production and release
schedules of each film's producer and the timing of holiday
periods.
OPERATING SEGMENTS
For internal reporting and management purposes, the Group is
organised into three reportable segments based on the types of
products and services from which each segment derives its revenue -
Television, Family and Film. The Group's operating segments are
identified on the basis of internal reports that are regularly
reviewed by the chief operating decision maker in order to allocate
resources to the segment and to assess its performance. The Chief
Executive Officer has been identified as the chief operating
decision maker.
The types of products and services from which each reportable
segment derives its revenue are as follows:
Television - the production, acquisition and
exploitation of television and music content
- rights across all media
Family - the production, acquisition and exploitation,
including licensing and merchandising, of family
- content rights across all media
Film - the production, acquisition, exploitation
and trading of film content rights across all
- media
Inter-segment sales are charged at prevailing market prices.
Segment information for the six months ended 30 September 2017
is presented below:
Television Family Film Eliminations Consolidated
GBPm GBPm GBPm GBPm GBPm
=============================== =========== ======= ====== ============= =============
Segment revenue
External revenue 167.3 59.9 168.5 - 395.7
Inter-segment revenue 1.2 2.2 3.3 (6.7) -
Total segment revenue 168.5 62.1 171.8 (6.7) 395.7
=============================== =========== ======= ====== ============= =============
Segment results
Segment underlying
EBITDA 20.6 38.1 (2.6) (0.1) 56.0
Group costs (4.6)
=============================== =========== ======= ====== ============= =============
Underlying EBITDA 51.4
Amortisation of acquired
intangibles (20.0)
Depreciation and amortisation
of software (1.9)
Share-based payment
charge (5.8)
One-off items (3.3)
=============================== =========== ======= ====== ============= =============
Operating profit 20.4
Finance income 3.4
Finance costs (23.0)
=============================== =========== ======= ====== ============= =============
Profit before tax 0.8
Income tax credit 0.5
=============================== =========== ======= ====== ============= =============
Profit for the period 1.3
=============================== =========== ======= ====== ============= =============
Segment assets
Total segment assets 832.8 274.0 831.9 - 1,938.7
Unallocated corporate
assets 8.8
Total assets 1,947.5
=============================== =========== ======= ====== ============= =============
Segment information for the six months ended 30 September 2016
is presented below:
Restated
Television Family Film Eliminations Consolidated
GBPm GBPm GBPm GBPm GBPm
=========== ======= ====== ============= =============
Segment revenue
External revenue 124.2 36.7 240.1 - 401.0
Inter-segment revenue 20.3 1.2 1.9 (23.4) -
Total segment revenue 144.5 37.9 242.0 (23.4) 401.0
=============================== =========== ======= ====== ============= =============
Segment results
Segment underlying
EBITDA 18.5 24.7 (2.3) - 40.9
Group costs (3.2)
=============================== =========== ======= ====== ============= =============
Underlying EBITDA 37.7
Amortisation of acquired
intangibles (20.7)
Depreciation and amortisation
of software (2.4)
Share-based payment
charge (2.8)
One-off items 1.4
=============================== =========== ======= ====== ============= =============
Operating profit 13.2
Finance income 4.1
Finance costs (19.8)
=============================== =========== ======= ====== ============= =============
Loss before tax (2.5)
Income tax credit 1.3
=============================== =========== ======= ====== ============= =============
Loss for the period (1.2)
=============================== =========== ======= ====== ============= =============
Segment assets
Total segment assets 672.9 248.3 873.6 - 1,794.8
Unallocated corporate
assets 5.6
Total assets 1,800.4
=============================== =========== ======= ====== ============= =============
4. ONE-OFF ITEMS
Items of income or expense that are considered by management for
designation as one-off are as follows:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
============================= ============= =============
Restructuring costs
Strategy-related 0.8 5.7
Total restructuring costs 0.8 5.7
============================= ============= =============
Other items
Acquisition costs/(gains) 2.2 (9.0)
Other items 0.3 1.9
============= =============
Total other items 2.5 (7.1)
============================= ============= =============
Total one-off costs/(gains) 3.3 (1.4)
============================= ============= =============
The strategy related costs of GBP0.8m consists of GBP0.7m of
costs associated with the integration of the Film and Television
Divisions and GBP0.1m of foreign exchange movement on accrued
redundancy costs.
Acquisition costs of GBP2.2m were due to the re-assessment of
contingent consideration in relation to the Renegade 83 acquisition
of GBP0.6m, and banking and legal costs of GBP1.6m associated with
the creation and set-up of MAKEREADY in the period.
Other costs of GBP0.3m related to costs associated with aborted
corporate projects during the period.
One-off gains incurred during the six months ended 30 September
2016 of GBP1.4m included GBP5.7m of costs related to the
restructuring of the physical distribution business, acquisition
gains of GBP9.0m including a GBP2.1m credit on the acquisition
accounting for Secret Location, a GBP7.1m credit from the
re-assessment of contingent consideration of prior year
acquisitions and GBP0.2m of costs related to acquisitions made
during the period, and other items of GBP1.9m in respect of one-off
foreign exchange charge relating to the alignment of the TV
business with the Group hedging process.
5. FINANCE INCOME AND FINANCE COSTS
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
========================================== ============= =============
Finance income
Other finance income 3.4 3.8
Net foreign exchange gains on financing
activities - 0.3
Total finance income 3.4 4.1
========================================== ============= =============
Finance costs
Interest cost (12.0) (10.9)
Amortisation of deferred finance
charges (0.9) (0.9)
Other accrued interest charges (0.2) (0.4)
Losses on fair value of derivative
instruments (8.0) (6.2)
Unwind of discounting on financial
instruments (1.5) (1.4)
Net foreign exchange losses on financing
activities (0.4) -
Total finance costs (23.0) (19.8)
========================================== ============= =============
Net finance costs (19.6) (15.7)
========================================== ============= =============
Comprised of:
Adjusted net finance costs (13.1) (11.5)
One-off net finance costs (6.5) (4.2)
========================================== ============= =============
One-off finance items are items of income and expenditure that
do not relate to the underlying activities of the Group, that in
the judgement of the directors should be disclosed separately on
the basis that they are material, either by their nature or their
size, in order to provide a better understanding of the Group's
underlying finance costs and enable comparison of underlying
financial performance between periods.
The one-off net finance costs of GBP6.5m (2016: GBP4.2m)
comprise:
GBP5.2 million (2016: charge of GBP6.2 million)
in respect of losses on five forward currency
contracts not in compliance with the Group's
hedging policy, see Note 2 of the condensed
consolidated financial statements for further
-- details
GBP1.8 million (2016: nil) in respect of fair-value
losses on hedge contracts which reverse in future
-- periods
GBP1.5 million (2016: charge of GBP1.4 million)
unwind of discounting on liabilities related
to put options issued by the Group over the
-- non-controlling interest of subsidiary companies
GBP1.0 million (2016: nil) in respect of fair-value
losses on hedge contracts cancelled as a result
of the re-negotiation of one of the Group's
larger film distribution agreements in 2017.
In the year ended 31 March 2017, operating one-off
charges of GBP22.8m were provided for in relation
to re-negotiation of the agreement and associated
impacts. See Note 6 of the March 2017 consolidated
financial statements for further details. This
has been fully utilised in the six months ended
30 September 2017 and is reflected in the movement
-- in provisions to 30 September 2017
Costs above are partly offset by credit of GBP3.0
million (2016: credit of GBP3.4 million) relating
to the reversal of interest previously charged
on tax provisions, which were released during
-- the period
6. EARNINGS PER SHARE
The weighted average number of shares used in the earnings per
share calculations are set out below:
Six months Six months
ended ended
30 September 30 September
2017 2016
Million Million
======================================= ============= =============
Weighted average number of shares
for basic earnings per share and
adjusted basic earnings per share(1) 429.7 425.6
Effect of dilution for adjusted:
Employee share awards 12.9 4.6
Contingent consideration with
option in cash or shares(2) 0.5 0.7
======================================== =============
Weighted average number of shares
for adjusted diluted earnings
per share 443.1 430.9
======================================== ============= =============
1. Shares held by the EBT, classified as own shares, are
excluded from basic earnings per share and adjusted basic earnings
per share.
2. The Group has the option to settle the contingent
consideration payable in relation to the acquisitions of Last Gang
Entertainment in shares or in cash.
ADJUSTED DILUTED EARNINGS PER SHARE
The directors believe that the presentation of adjusted earnings
per share helps to explain the underlying performance of the Group.
A reconciliation of the earnings used in the diluted earnings per
share calculation to earnings used in the adjusted diluted earnings
per share calculation is set out below:
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
Pence Pence
per per
Note GBPm share GBPm share
================================== ===== ====== ======= ------ -------
Loss for the period attributable
to the owners of the Company
(used for diluted earnings
per share) (2.2) (0.5) (5.9) (1.4)
Add back amortisation of
acquired intangibles 20.0 4.5 20.7 4.8
Add back share-based payment
charge 5.8 1.3 2.8 0.6
Add back one-off items 4 3.3 0.7 (1.4) (0.3)
Add back one-off net finance
costs 5 6.5 1.5 4.2 1.0
Deduct tax effect of above
items and discrete tax
items(1) (9.5) (2.1) (6.5) (1.5)
Deduct non-controlling
interests share of above
items (2.8) (0.6) (2.5) (0.6)
Adjusted earnings attributable
to the owners of the Company 21.1 4.8 11.4 2.6
================================== ===== ====== ======= ------ -------
Adjusted earnings attributable
to non-controlling interests 6.3 7.2
================================== ===== ====== ------
Adjusted profit for the
period 27.4 18.6
================================== ===== ====== ------
1. Included within discrete tax items is a release of tax
provisions of GBP7.8m to 30 September 2017 (2016: GBP1.0m).
7. BUSINESS COMBINATIONS
During the period, contingent consideration payable relating to
the prior year acquisition of Renegade Entertainment, LLC was
settled by issuing 778,516 shares in Entertainment One Ltd.
amounting to GBP1.8m and a cash payment of GBP2.7m. A payment of
GBP0.5m was also made in part settlement of contingent
consideration payable relating to the prior year acquisition of
Dualtone Music Group. See Note 10 for details on movements in
contingent consideration payable in the six months ended 30
September 2017.
PRIOR PERIOD ACQUISITIONS
The following table summarises the fair values, as at the
acquisition date, of the assets acquired, the liabilities assumed
and the total consideration transferred as part of the acquisitions
made during the six months ended 30 September 2016, at their
finalised values.
Sierra Secret
Affinity Location Total
GBPm GBPm GBPm
================================== ========== ========== =======
Acquired intangibles 7.7 3.6 11.3
Investment in productions - 0.6 0.6
Property, plant and equipment - 0.2 0.2
Cash and cash equivalents 0.3 - 0.3
Trade and other receivables
(1) 16.2 3.2 19.4
Trade and other payables (18.5) (2.0) (20.5)
Interest-bearing loans and
borrowings - (2.5) (2.5)
Deferred tax liabilities - (0.7) (0.7)
Total net assets acquired 5.7 2.4 8.1
================================== ========== ========== =======
Satisfied by:
Cash 2.8 - 2.8
Shares in Entertainment One
Ltd. - 4.1 4.1
Contingent consideration 0.5 - 0.5
Assets forgiven 0.1 - 0.1
Total consideration transferred 3.4 4.1 7.5
================================== ========== ========== =======
Add: Fair value of previously
held equity interest 2.3 4.1 6.4
Less: Fair value of identifiable
net assets of the acquiree (5.7) (2.4) (8.1)
Goodwill - 5.8 5.8
================================== ========== ========== =======
1. The trade and other receivables shown are considered to be
their fair value. No amounts recorded are expected to be
uncollectable.
Secret Location
The Group purchased the remaining 50% share in Secret Location
for consideration of C$6.9m (equivalent to GBP4.1m), funded through
the issue of 1,728,794 common shares in Entertainment One Ltd.
settled as at 15 August 2016.
eOne held an equity interest previously in Secret Location which
qualified as a joint venture under IFRS 11. As part of accounting
for the business combination the equity interest is treated as if
it were disposed of and re-acquired at fair value on the
acquisition date. Accordingly, the 50% equity interest held in
Secret Location at book value of GBP1.8m was re-measured to its
acquisition-date fair value of GBP4.1m, resulting in a GBP2.3m gain
recognised in the year ended 31 March 2017.
Acquired intangibles of GBP3.6m were identified which represent
the value of technologies in development. The resulting goodwill of
GBP5.8m represents the value placed on the opportunity to grow the
content and formats produced by the company. None of the goodwill
is expected to be deductible for income tax purposes. The acquired
Secret Location business was integrated into the Television
CGU.
Sierra Affinity
On 30 September 2016, Sierra Pictures purchased the remaining
67% equity interest in Sierra Affinity for total consideration of
GBP3.4m consisting of cash consideration of US$3.6m (equivalent of
GBP2.8m), which was settled in full during October/November 2016,
contingent consideration of GBP0.5m representing amounts payable
dependent on future sales fees generated by the company on specific
titles and GBP0.1m of assets forgiven relating to trade receivables
due to Sierra Pictures from Sierra Affinity which were forgiven as
part of the transaction.
Prior to control being obtained, the investment in the equity
interest of Sierra Affinity was accounted for as a joint operation
under IFRS 11. As part of accounting for the business combination
the equity interest is treated as if it were disposed of and
re-acquired at fair value on the acquisition date. Accordingly, it
is re-measured to its acquisition-date fair value, with no
resulting gain or loss compared to its carrying amount.
Acquired intangibles of GBP7.7m were identified which represent
the value of the acquired exclusive content agreements. The
acquired Sierra Affinity business was integrated into the Film
CGU.
8. RISKS AND UNCERTAINTIES
The Board considers risk assessment, identification of
mitigating actions and internal control to be fundamental to
achieving the Group's strategic objectives. The Corporate
Governance section on pages 46 to 50 of the Annual Report and
Accounts for the year ended 31 March 2017 describes the systems and
processes through which the directors manage and mitigate risks.
The Board recognises that the nature and scope of the risks can
change and so reviews the risks faced by the Group, as well as the
systems and processes to mitigate them on an ongoing basis.
The Board considers the principal risks to achieving its
objectives to be:
- Strategy formulation and execution - Creating
and executing the best strategy for the Group;
- Recruitment and retention of employees - Finding
the best people for the business to deliver
its strategy;
- Source and select the right content at the right
price - Building a valuable content portfolio;
- Protection of intellectual property rights -
Protecting content and brands;
- Regulatory compliance - Operating within the
law and seeking to optimise efficiency;
- Information security/data protection - Protecting
eOne and stakeholders' data;
- Business continuity planning - Maintaining operations
in the event of an incident or crisis; and
- Financial risk - Seeking and maintaining financing
to support the delivery of the Group's strategic
objectives.
As part of its financial risk management, the Group monitors
foreign currency movements. The movement in foreign currency
exchange rates during the period has an impact on the reporting of
the financial performance of the Group. In particular, the
different functional currencies of the Group (US dollars, Canadian
dollars, euros, pounds sterling and Australian dollars) result in
consolidation translation gains and losses as the Group reports its
financial results in pounds sterling. During the six months ended
30 September 2017 a loss of GBP19.7m (2016: gain of GBP49.9m) has
been charged to the currency translation reserve, reflecting the
impact of the movement of the pound sterling on translation of the
Group's non-sterling net assets since 31 March 2017. The Group
looks to balance local currency borrowings with the net assets of
individual operating units to help mitigate the impact of currency
movements in relation to the Group's consolidated net assets.
The financial results of individual businesses within the Group
are not significantly impacted by foreign currency movements other
than in relation to the investment in acquired content rights which
is generally transacted in US dollars and in relation to the
merchandising and licensing contracts of the Family Division. The
Group reduces its exposure to risk in relation to foreign currency
movements in these circumstances through hedging instruments and
internal currency offsets where available.
In the view of the Board there is no material change in risk
factors since 31 March 2017. Further details of these risks are
provided on pages 33 to 35 of the Annual Report and Accounts for
the year ended 31 March 2017, a copy of which is available on the
Company's website at www.entertainmentone.com.
9. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this Note.
Canada Pension Plan Investment Board (CPPIB) held 84,597,069
common shares in the Company at 30 September 2017 (31 March 2017:
84,597,069 common shares and 30 September 2016: 84,597,069),
amounting to 19.65% of the issued capital of the Company. CPPIB is
deemed to be a related party of Entertainment One Ltd. by virtue of
this significant shareholding. The Group pays CPPIB an annual fee
equivalent to the annual fee paid by the Group to its other
non-executive directors in consideration for CPPIB allowing Scott
Lawrence to allocate time to his role as a non-executive director
of the Company. The fee payable to CPPIB in respect of Scott
Lawrence's services for the period ended 30 September 2017 was
C$51,800 (30 September 2016: C$45,000). At 30 September 2017 the
amount outstanding payable to CPPIB was C$53,500 (30 September
2016: C$7,500).
The nature of related parties disclosed in the consolidated
financial statements for the Group at and for the year ended 31
March 2017 has not changed other than in respect of key management
personnel described below.
Key management consists of the two executive directors and the
Group Chief Financial Officer (2016: two executive directors). The
directors are of the opinion these persons had authority and
responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly.
The aggregate amounts of key management compensation are set out
below:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
============================== ============= =============
Short-term employee benefits 0.8 0.6
Share-based payment benefits 2.8 0.3
Total 3.6 0.9
============================== ============= =============
10. FINANCIAL INSTRUMENTS
At 30 September 2017, the Group had the following financial
assets and liabilities grouped into Level 2:
Restated
30 September 31 March
2017 2017
GBPm GBPm
================================= ============= =========
Derivative financial instrument
assets 1.5 9.9
Derivative financial instrument
liabilities (6.0) (15.4)
Total (4.5) (5.5)
================================== ============= =========
At 30 September 2017, the Group had the following financial
assets and liabilities grouped into Level 3:
30 September 31 March
2017 2017
GBPm GBPm
===================================== ============= =========
Contingent consideration payable
on acquisitions (1.5) (6.0)
Available-for-sale financial assets 0.6 0.7
====================================== =============
Total (0.9) (5.3)
====================================== ============= =========
The movements in contingent consideration payable and
available-for-sale financial assets during the six months ended 30
September 2017 were as follows:
Contingent consideration payable Available-for-sale financial
Note on acquisitions assets Total
GBPm GBPm GBPm
Balance at 1 April 2017 (6.0) 0.7 (5.3)
Amounts settled 7 5.0 - 5.0
Change in fair value 4 (0.6) - (0.6)
Exchange differences 0.1 (0.1) -
Balance at 30 September 2017 (1.5) 0.6 (0.9)
============================== ======= ================================= ================================== ======
As noted in the accounting policy disclosed in the 2017 Annual
Report, the key assumptions taken into consideration when measuring
the value of contingent consideration payable are the performance
expectations of the acquisition and a discount rate that reflects
the size and nature of the new business. There is no reasonable
change in discount rate or performance targets that would give rise
to a material change in the liability in these condensed
consolidated financial statements.
The key assumption in measuring the value of the
available-for-sale financial assets is the long term performance of
the available for sale investments. There is no reasonable change
in the performance of the investments that would give rise to a
material change in the assets in these condensed consolidated
financial statements.
11. DIVIDS
On 22 May 2017 the directors declared a final dividend in
respect of the financial year ended 31 March 2017 of 1.3 pence
(2016: 1.2 pence) per share, GBP5.6m (2016: GBP5.1m) was paid in
September 2017.
APPIX TO THE INTERIM ANNOUNCEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
RECONCILIATION OF ADDITIONAL PERFORMANCE MEASURES
The Group uses a number of non-IFRS financial measures that are
not specifically defined under IFRS or any other generally accepted
accounting principles, including underlying EBITDA, one-off items,
adjusted profit before tax, adjusted earnings per share, adjusted
cash flow, free cash flow, net debt and production financing. These
non-IFRS financial measures ('adjusted measures') are presented
because they are among the measures used by management to measure
operating performance and as a basis for strategic planning and
forecasting, and the Group believes that these measures are
frequently used by investors in analysing business performance.
Adjusted measures in management's view, reflects the underlying
performance of the business and provides a more meaningful
comparison of how the business is managed and measured on a
day-to-day basis and form the basis of the performance measures for
remuneration. Adjusted measures exclude certain items because if
included, these items could distort the understanding of our
performance for the period and the comparability between periods.
The terms "underlying", "one-off items" and "adjusted" may not be
comparable with similarly titled measures reported by other
companies.
UNDERLYING EBITDA
The term underlying EBITDA refers to operating profit or loss
excluding amortisation of acquired intangibles; depreciation;
amortisation of software; share-based payment charge; tax, finance
costs and depreciation related to joint ventures; and operating
one-off items. A reconciliation is presented on the condensed
consolidated income statement.
ADJUSTED PROFIT BEFORE TAX AND ADJUSTED DILUTED EARNINGS PER
SHARE
The terms adjusted profit before tax and adjusted diluted
earnings per share refer to the reported measures excluding
amortisation of acquired intangibles; share-based payment charge;
tax, finance costs and depreciation related to joint ventures;
operating one-off items; finance one-off items; and, in the case of
adjusted earnings per share, one-off tax items. Refer to the Other
Financial Information section of this Interim Announcement for a
reconciliation of adjusted profit before tax and Note 6 for
adjusted earnings per share.
ADJUSTED CASH FLOW AND FREE CASH FLOW
Adjusted cash flow is underlying EBITDA, amortisation of
investment in acquired content rights, investment in acquired
content rights, amortisation of investment in productions,
investment in productions, net of grants, working capital and joint
venture movements.
Free cash flow is adjusted cash flow less capital expenditure,
tax paid and net interest paid. It is measured excluding one-off
items.
LIBRARY VALUATION
Underpinning eOne's focus on growth through content ownership,
the Group commissions an annual independent library valuation
calculated using a discounted cash flow model (discounted using the
Group's published post-tax weighted average cost of capital) for
all of eOne's television, family, film and music assets on a
rateable basis with eOne's ownership of such assets. The cash flows
represent a forecast of future amounts which will be received from
the exploitation of the assets, net of payments made as royalties
or non-controlling interests and an estimate of the overheads
required to support such exploitation.
CURRENCY AND ACQUISITION RELATED ADJUSTMENTS
The Group presents revenue and underlying EBITDA on a constant
currency basis, which is calculated by retranslating the
comparative figures using weighted average exchange rates for the
current period. The Group presents underlying Group revenue and
EBITDA growth (excluding acquisitions) on a constant currency basis
which is defined as the underlying revenue or EBITDA growth on a
constant currency basis, excluding the revenue or EBITDA derived
from the acquisitions from the date of acquisition to the
period-end date.
A reconciliation of the revenue growth on a constant currency
basis is shown below:
Six months Six months
ended ended
30 September 30 September Change
2017 2016
GBPm GBPm %
================================= ============= ============= =======
Revenue (per condensed
consolidated income statement) 395.7 401.0 (1.3%)
Currency adjustment - 15.7
Revenue (constant currency) 395.7 416.7 (5.0%)
================================== ============= ============= =======
A reconciliation of the underlying EBITDA growth on a constant
currency basis is shown below:
Six months Six months Change
ended ended
30 September 30 September
2017 2016
GBPm GBPm %
============================= ============= ============= =======
Underlying EBITDA (per
condensed consolidated
income statement) 51.4 37.7 36.3%
Currency adjustment - 0.8
Underlying EBITDA (constant
currency) 51.4 38.5 33.5%
============================== ============= ============= =======
CASH FLOW AND NET DEBT
The Group defines net debt as interest-bearing loans and
borrowings net of cash and cash equivalents. Interest-bearing loans
and borrowings include senior secured notes and revolving credit
facility net of deferred finance charges, bank overdrafts and other
interest-bearing loans.
The table below reconciles free cash flow associated with the
net debt of the Group, shown in the Other Financial Information
section of this Interim Announcement, to the net cash from
operating activities and net movement in cash and cash equivalents
in the condensed consolidated cash flow statement. It excludes cash
flows associated with production activities which are reconciled in
the Cash Flow and Production Financing section below.
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Underlying EBITDA 49.5 39.6
Adjustment for:
One-off items (3.3) 1.7
Amortisation of investment in acquired
content rights 54.3 70.4
Investment in acquired content rights (88.1) (111.6)
Amortisation of investment in productions 22.8 20.7
Investment in productions, net of
grants received (34.6) (19.1)
Fair value gain on acquisition of
subsidiary - (2.1)
Share of results of joint ventures - 0.4
=========================================== ============= =============
Operating cash flows before changes
in working capital and provisions 0.6 -
Working capital (60.5) (51.4)
Income tax paid (21.7) (7.1)
=========================================== ============= =============
Net cash from operating activities (81.6) (58.5)
=========================================== ============= =============
Cash one-off items 28.0 7.0
Purchase of plant, property and
equipment and software (1.5) (0.9)
Interest paid (11.5) (12.9)
=========================================== ============= =============
Free cash flow (66.6) (65.3)
=========================================== ============= =============
Cash one-off items (28.0) (7.0)
Cash one-off finance items (13.2) (0.7)
Acquisitions, net of net debt acquired (3.2) (2.1)
Dividends paid (10.0) (6.8)
=========================================== ============= =============
Net increase in net debt (121.0) (81.9)
=========================================== ============= =============
Net debt at beginning of the period (187.4) (180.8)
Net increase in net debt (121.0) (81.9)
Effect of foreign exchange rate
changes on net debt held (4.4) (0.6)
=========================================== ============= =============
Net debt at end of the period (312.8) (263.3)
=========================================== ============= =============
The table below reconciles the movement in net
debt to movement in cash associated with net debt
of the Group:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Net increase in net debt (121.0) (81.9)
Net drawdown of interest-bearing
loans and borrowings 98.5 27.7
Fees paid in relation to the Group's
senior bank facility (0.2) (0.6)
Acquisitions, net debt acquired - 2.4
Amortisation of deferred finance
charges 0.9 0.9
=========================================== ============= =============
Net decrease in cash and cash equivalents
at end of the period (net of bank
overdrafts) (21.8) (51.5)
=========================================== ============= =============
CASH FLOW AND PRODUCTION FINANCING
The Group defines production financing as non-recourse
production financing net of cash and cash equivalents which is used
to fund the Group's television, family and film productions. The
financing is arranged on an individual production basis by special
purpose production subsidiaries which are excluded from the
security of the Group's corporate facility. It is short-term
financing whilst the production is being made and is paid back once
the production is delivered from the sales receipts and tax credits
received. The Company deems this type of financing to be short-term
in nature and is excluded from net debt. The Company therefore
shows the cash flows associated with these activities separately.
The Company also believes that higher production financing
demonstrates an increase in the success of the Television, Family
and Film production businesses, which helps drive revenue for the
Group and therefore increases the generation of EBITDA and cash for
the Group, which in turn reduces the Group's net debt leverage.
The table below reconciles free cash flow associated with the
production financing of the Group, shown in the Other Financial
Information section of this Interim Announcement, to the net cash
from operating activities and net movement in cash and cash
equivalents in the condensed consolidated cash flow statement. It
excludes cash flows associated with net which are reconciled in the
Cash Flow and Net Debt section above.
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Underlying EBITDA 1.9 (1.9)
Adjustment for:
One-off items - (0.3)
Amortisation of investment in productions 27.6 45.0
Investment in productions, net of
grants received (107.1) (67.7)
=========================================== ============= =============
Operating cash flows before changes
in working capital and provisions (77.6) (24.9)
Working capital 85.7 19.5
Income tax paid (1.0) (1.6)
=========================================== ============= =============
Net cash from operating activities 7.1 (7.0)
=========================================== ============= =============
Cash one-off items 1.8 0.3
Purchase of property, plant and
equipment and software - (0.1)
Interest paid (0.7) -
=========================================== ============= =============
Free cash flow 8.2 (6.8)
=========================================== ============= =============
Cash one-off items (1.8) (0.3)
Cash one-off finance items - (0.1)
=========================================== ============= =============
Net increase/(decrease) in production
financing 6.4 (7.2)
=========================================== ============= =============
Production financing at beginning
of the period (152.3) (118.0)
Net decrease/(increase) in production
financing 6.4 (7.2)
Effects of foreign exchange changes
on production financing held 4.1 (13.5)
=========================================== ============= =============
Production financing at end of the
period (141.8) (138.7)
=========================================== ============= =============
The table below reconciles the movement in production
financing to the movement in cash associated with
production financing of the Group:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Net increase/(decrease) in production
financing 6.4 (7.2)
Net (repayment)/drawdown of production
financing (1.9) 21.4
=========================================== ============= =============
Net increase in cash and cash equivalents
at end of the period 4.5 14.2
=========================================== ============= =============
INDEPENDENT REVIEW REPORT TO ENTERTAINMENT ONE LTD.
REPORT ON THE CONDENSED CONSOLIDATED HALF YEAR FINANCIAL
STATEMENTS
Our conclusion
We have reviewed Entertainment One Ltd.'s condensed consolidated
half year financial statements (the "interim financial statements")
in the Interim Announcement of Entertainment One Ltd. for the six
month period ended 30 September 2017. Based on our review, nothing
has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the condensed consolidated balance sheet at
-- 30 September 2017;
the condensed consolidated income statement
and condensed consolidated statement of comprehensive
-- income for the period then ended;
the condensed consolidated cash flow statement
-- for the period then ended;
the condensed consolidated statement of changes
-- in equity for the period then ended; and
the explanatory notes to the interim financial
-- statements.
The interim financial statements included in the Interim
Announcement have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in Note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Announcement, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim
Announcement in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Announcement based on our
review. This report, including the conclusion, has been prepared
for and only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Announcement and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London, United Kingdom
20 November 2017
The maintenance and integrity of the Entertainment
One Ltd. website is the responsibility of the
directors; the work carried out by the auditors
does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the
interim financial statements since they were
a) initially presented on the website.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
statements may differ from legislation in other
b) jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFIVLRLIFID
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