TIDMETO
RNS Number : 8318H
Entertainment One Ltd
20 November 2018
ENTERTAINMENT ONE LTD. (eOne)
HALF YEAR RESULTS (UNAUDITED)
FOR THE SIX MONTHSED 30 SEPTEMBER 2018
ROBUST FAMILY & BRANDS PERFORMANCE HIGHLIGHT FIRST HALF,
CONSOLIDATED FULL YEAR ON TRACK
FINANCIAL HIGHLIGHTS
-- Group reported underlying EBITDA up 10% at GBP60 million (2017:
GBP55 million), driven by revenue growth in Family & Brands
partly offset by lower performance in Film & Television
-- Group reported revenue broadly stable at GBP405 million (2017:
GBP413 million), with strong growth in Family & Brands offset
by lower Film & Television
-- Group adjusted profit before tax up 7% at GBP42 million (2017:
GBP39 million), Group reported loss before tax of GBP40 million
(2017: GBP2 million profit)
-- Adjusted diluted earnings per share up 20% at 6.1 pence per
share (2017: 5.1 pence per share)
OPERATIONAL HIGHLIGHTS
-- Family & Brands continued to perform strongly driven by ongoing
consumer product rollouts across a growing number of licensing
contracts and the contribution from high margin subscription
video on demand (SVOD) deals
-- Film & Television delivered a number of new scripted and non-scripted
television series in the first half and film continues to transition
from distribution to production activities, reflecting ongoing
industry changes
-- Strong second half expected for Film & Television with film
pipeline including Green Book, Vice, On the Basis of Sex, If
Beale Street Could Talk and Stan & Ollie. Television scripted
deliveries include Designated Survivor season 3 and the first
season of The Rookie
-- Acquisition of outstanding stake in film production and international
sales company Sierra/Affinity, brings additional creative and
talent relationships into the Group, with Sierra's Nick Meyer
and Marc Schaberg further strengthening the existing Film &
Television management team
-- Acquisition of a 70.1% stake in Whizz Kid Entertainment, a successful
UK non-scripted production company and creator of Ex on the
Beach, currently being produced by eOne for MTV in the US
-- Integration of the Film and Television Divisions including Sierra/Affinity
and The Mark Gordon Company is on track to generate GBP13-15
million of annualised costs savings by the end of FY20
-- Independent library valuation, completed in September 2018,
increased to US$2.0 billion as at 31 March 2018 (2017: US$1.7
billion), including the impact of the GBP57 million one-off
charge (of which GBP53 million is non-cash) largely related
to the impairment of certain assets in the film distribution
business
-- The Group anticipates full year financial performance to be
in line with management expectations
ALLAN LEIGHTON, ChAIRMAN, commented:
"Entertainment One continues to execute its strategy well, with
the Group delivering solid financial results and successfully
bringing additional high-profile creative and management talent
into the business during the period. The content development
pipeline is exciting across our businesses and we are poised to
launch Ricky Zoom to the world in the spring/summer 2019. The Group
continues to be optimistic amidst ongoing evolution in the industry
and we look forward to the rest of the year with confidence."
Darren Throop, ChIef executive officer, commented:
"The first half performance saw strong growth in Family &
Brands, scripted drama, non-scripted and SVOD revenues in Film
& Television. This was achieved as we continued to transition
our film distribution activities towards production, EBITDA
increased as the margin mix improved.
Once again our library has increased in value, underlining our
commitment to invest in the best quality content and unlock the
value and power of creativity across our businesses. In an industry
where content is increasingly valuable, this positions us well for
the future.
Looking ahead, we anticipate further progress for the Family
& Brands properties in China and around the globe, a number of
initiatives for Peppa Pig will consolidate its position as one of
the leading pre-school brands in the world, as well as the wider
merchandising phase for PJ Masks in China. The Film &
Television Division has 74% of the full year's expected TV
programming margin already greenlit or committed. There is also a
full pipeline of development projects across Film & Television
which will help drive future growth. Prospects remain bright and
eOne is on track to deliver FY19 financial performance in line with
management expectations."
FINANCIAL SUMMARY
Reported
=========================
GBPm 2018 2017 Change
Revenue 404.9 412.7 (2%)
Underlying EBITDA (1) 60.1 54.5 10%
Net cash outflow from operating
activities (24.7) (74.5) 67%
Investment in acquired content
and productions (2) 160.1 229.9 (30%)
================================= ======= ======= =======
Reported Adjusted
========================== =====================
GBPm 2018 2017 Change 2018 2017 Change
=========
(Loss)/profit before tax (3) (40.1) 2.3 (1,843%) 42.0 39.2 7%
Diluted earnings per share (pence) (3) (9.9) (0.5) (9.4) 6.1 5.1 1.0
======================================== ======= ====== ========= ===== ===== =======
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 in the
condensed consolidated financial statements for the adjusted
diluted earnings per share reconciliation.
4. Reported 2017 amounts have been restated, refer to Note 2 in
the condensed consolidated financial statements for further
details.
Group reported revenue was broadly in line with the prior period
at GBP404.9 million (2017: GBP412.7 million), positively impacted
by robust growth in Family & Brands (29% higher), offset by
decline in Film & Television (7% lower) driven by fewer film
releases and deliveries and the accelerated decline of the home
entertainment market. On a constant currency basis (re-translating
prior period reported financials at current period foreign exchange
rates), Group revenue would have been flat, reflecting the net
strengthening of the pound sterling against the US dollar, Canadian
dollar and Australian dollar during the period.
Group reported underlying EBITDA was 10% higher at GBP60.1
million (2017: GBP54.5 million), driven by continued strong growth
in Family & Brands (29% higher) and a decrease in Film &
Television (25% lower). The Family & Brands Division financial
performance was driven by continued strong performance of Peppa
Pig, significant growth from PJ Masks and delivery of new show,
Cupcake & Dino: General Services. The Film & Television
Division underlying EBITDA is reflective of the lower revenue,
title mix and cost savings of approximately GBP2 million. The
underlying EBITDA margin % increased by 1.6pts to 14.8% (2017:
13.2%) as the higher margin Family & Brands Division is a
greater proportion of the Group's underlying EBITDA than prior
period. On a constant currency basis, Group underlying EBITDA would
also have increased by 10%.
Net cash used in operating activities amounted to GBP24.7
million in comparison to GBP74.5 million in the prior period,
reflecting lower investment in acquired content and productions
spend and timing of tax payments, partly offset by higher working
capital outflows in the period. Investment in acquired content was
lower versus the prior period reflecting the transition of film
from distribution to production activities. The investment in
productions was lower versus the prior period due to timing of
productions and higher tax credits received in the current
period.
Adjusted profit before tax for the period was up GBP2.8 million
to GBP42.0 million (2017: GBP39.2 million), due to the increase in
underlying EBITDA, partly offset by higher interest costs. Reported
loss before tax for the period was GBP40.1 million (2017: GBP2.3
million profit), impacted by one-off items of GBP59.4 million in
the current period (2017: GBP3.4 million) with the increase
primarily relating to the impairment of certain assets within the
film distribution businesses which is detailed in the Other
Financial Information section of this announcement.
Adjusted diluted earnings per share were 6.1 pence (2017: 5.1
pence). On a reported basis, diluted losses per share were 9.9
pence (2017: 0.5 pence) reflecting the higher one-off charges.
FY19 SUMMARY OUTLOOK
The Group anticipates that full year financial performance will
be in line with management expectations.
FAMILY & BRANDS
Peppa Pig and PJ Masks will continue to drive the growth of
eOne's Family & Brands Division in the second half of the
financial year. The business expects to have almost 1,900 live
licensing and merchandising contracts by the end of FY19.
Peppa Pig is expected to remain strong in its core markets, 117
episodes are currently in production with the original creators of
the show; these will air from spring 2019 through to 2023.
Asia will be the key region of growth for Peppa Pig in the
second half of the year. There is clear demand for the brand in
China with growth expected in licensing and merchandising revenue
aided by a new toy partnership with Alpha Toys and the ongoing
publishing relationship with Penguin. In anticipation of the 15(th)
anniversary of Peppa Pig and the Chinese New Year for the Year of
the Pig, the Family & Brands business has planned an exciting
calendar of events and has partnered with Alibaba for a Peppa Pig
Chinese feature film which will launch in cinemas in early
2019.
PJ Masks will continue to build on its growth following a wider
international licensing rollout. After a successful video on demand
(VOD) launch in China, a consumer products programme for the brand
launched in summer 2018, led by toy licensee Alpha Toys. This will
be supported by a limited range of publishing and apparel products
through the rest of the year. Season 3 is in production and season
4 is in development to boost and sustain brand growth
worldwide.
A further 13 episodes of Cupcake and Dino: General Services will
be delivered to Netflix in the second half and Ricky Zoom will make
its broadcast debut in spring/summer 2019. In addition to this new
content, Family & Brands currently has eight other projects in
development.
The Division is expected to generate strong revenue and
underlying EBITDA growth across the portfolio in FY19.
FILM & TELEVISION
The second half of the financial year is anticipated to be
strong for Film & Television, with underlying EBITDA more
skewed to the second half, as expected.
With the transition towards production underway, we anticipate
around 120 total film releases in the full year, lower than the 140
previously guided, of which around 60 are expected to be unique.
This transition is in line with the Group's strategy to move away
from distribution to own-produced and multi-territory releases.
Film investment in acquired content is expected to be approximately
GBP90 million. The theatrical release slate is expected to be much
stronger in the second half of the financial year including Green
Book, Vice, On the Basis of Sex, If Beale Street Could Talk and
Stan & Ollie.
Film investment in productions is expected to be GBP50 million
as the Group continues to transition from distribution to
production activities. The production slate includes Makeready's
Queen and Slim and post-production titles include Scary Stories to
Tell in the Dark, Official Secrets and Poms.
The television slate for the second half of the year is also
expected to be strong. Key scripted shows include Designated
Survivor season 3, The Rookie season 1, Burden of Truth season 2,
Ransom season 3 and the remaining episodes of season 3 of Private
Eyes. Non-scripted deliveries of Siesta Key, Ex on the Beach,
Ladygang, Naked and Afraid and America Says are in the second half.
For international television distribution, sales of third party
content are expected for Fear The Walking Dead season 5, The
Walking Dead season 9, and Into the Badlands season 3.
The number of half hours of acquired/produced TV programming is
still expected to be over 1,000 for the year with around 74% of the
year's expected margins already committed or greenlit. Overall,
there are 60 unique television shows set up for development with
various broadcast, network and digital platforms. Television
investment in acquired content is expected to be over GBP45 million
and television production spend is expected to be GBP275 million in
the full year.
Music revenue is expected to continue to grow in the second half
with releases expected from Arkells, Royce Da 5'9" and Wu-Tang. The
Group's live events business announced two new events during the
period: The Thank You Canada Tour (a national tour featuring the
Canadian Figure Skating team) and The Nelson Mandela Exhibit,
launching in London in February 2019.
The integration of the Film and Television Divisions is on track
to generate GBP13-15 million of annualised cost savings by the end
of FY20, as previously guided, from business efficiencies and
centralisation of support functions from the combined operations.
We still anticipate approximately half of these savings to be
realised through FY19.
STRATEGY
The growth in the market for content rights is being driven by
rapid changes in consumer behaviour, fuelling the demand for high
quality content. Entertainment One's strategy to focus on growth
through content ownership puts it at the centre of this positive
structural change. This strategy aims to build a balanced content
and brand business which will see strong revenue and underlying
EBITDA growth.
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 industry 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
Operationally, as well as developing a digital future across the
Group, the strategy targets our Divisions to deliver specific
drivers of growth:
Family & Brands Creating everlasting childhood memories for our audience
by carefully selecting, crafting and nurturing the
very best content into global brands
Film & Television 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
Diversifying the music portfolio to include music publishing,
artist management and a growing live events business
STRATEGIC PROGRESS
In tandem with the financial performance during the period, the
Group has made good strategic progress:
-- Family & Brands continues to generate high-margin revenues from
its current portfolio, including SVOD and advertising video
on demand (AVOD) income, live events and location-based entertainment
formats being developed and launched by partner Merlin Entertainments
-- As Peppa Pig matures into an evergreen property in some key
markets, careful management of the brand continues in attractive
growth markets in Asia. In particular, audience traction in
China has been very strong, underpinning positive prospects
for our continued consumer products programme in FY19
-- PJ Masks is also becoming a global brand following its successful
consumer rollout across the US, Europe and Asia. The brand was
recently launched into China and the Group is preparing a wider
consumer product launch in the territory in FY19
-- Ricky Zoom, the Group's latest pre-school brand, will be broadcast
to audiences around the world from spring/summer 2019
-- Mark Gordon has successfully transitioned to his role as the
Group's Chief Content Officer and is now overseeing the entire
eOne Film & Television development slate. At present there are
around 60 television projects set up in development with networks
and platforms
-- The transition in the film operations continues, as the Group
moves away from distribution towards own-produced and multi-territory
releases. Upcoming eOne productions include Stan & Ollie, Official
Secrets and Wild Rose
-- The acquisitions of Sierra/Affinity and Whizz Kid Entertainment
bring both creative and management talent into the Group in
line with eOne's strategy to own and monetise the best content
-- Music artist management, music publishing and live events businesses
continue to grow, with two new live events announced during
the period: Thank You Canada (a national tour featuring the
Canadian Figure Skating team) and The Nelson Mandela Exhibit
-- Delivering a significant increase in the independent valuation
of the Group's content library to US$2.0 billion as at 31 March
2018 (2017: US$1.7 billion) reflecting the continued growth
in the value of titles in the Film & Television Division, the
continued growth in the Family & Brands Division and improvement
in the value of music assets across the industry
CORPORATE
As part of our financing strategy, we continuously monitor the
international debt markets for financing opportunities that may be
suitable for our business. In anticipation of the first call date
on 15 December 2018 of our senior secured notes due 2022, the Group
is currently evaluating financing options which would enable a of
refinance the senior secured notes.
The Group continues to assess and respond to the implications of
Brexit and expects there to be no significant exposures.
FAMILY & BRANDS
The Family & Brands Division develops, produces and
distributes a portfolio of children's television properties on a
worldwide basis, its principal brands being Peppa Pig and PJ Masks.
A significant proportion of its revenue is generated through high
margin licensing and merchandising programmes across multiple
retail categories.
GBPm 2018 2017 Change
Revenue 76.0 58.7 29%
Underlying EBITDA 47.2 36.6 29%
Investment in acquired content and
productions 3.4 5.2 (35%)
==================================== ===== ===== =======
Revenue for the year was up 29% to GBP76.0 million (2017:
GBP58.7 million), driven by the continued strong performance of
Peppa Pig, significant growth from PJ Masks and the delivery of a
new show, Cupcake & Dino: General Services.
Underlying EBITDA increased 29% to GBP47.2 million (2017:
GBP36.6 million), in line with increased revenues. The underlying
EBITDA margin was broadly in line with the prior period.
Investment in acquired content and productions of GBP3.4 million
(2017: GBP5.2 million) was GBP1.8 million lower than the prior
period due to higher spend on Cupcake & Dino: General Services
and spend on the PJ Masks stage show in the prior period.
Investment spend in the period included the new episodes of Peppa
Pig, season 2 of PJ Masks and new properties Cupcake & Dino:
General Services and Ricky Zoom.
Family & Brands continued to achieve strong growth with the
ongoing success of Peppa Pig and strong performance of PJ Masks.
The business generated retail sales of US$1.3 billion in the period
(2017: US$1.2 billion) and the outlook for the second half is very
encouraging due to expected growth in China driven by the extensive
rollout of the licensing programme in the autumn. More than 380 new
and renewed broadcast and licensing agreements were concluded in
the period and as at 30 September 2018 the business had over 1,600
live licensing and merchandising contracts across its portfolio of
brands (2017: over 1,300).
Peppa Pig has continued to grow in the period with revenue of
GBP41.7 million (2017: GBP35.4 million). This growth was driven by
SVOD and AVOD revenues. New and renewed SVOD deals were signed in
China with Mango TV, Youku, iQIYI and Tencent. Peppa Pig has now
surpassed 100 billion VOD views since launch in October 2015 in
China across all platforms. China continues to be a territory of
strong growth and a broader licensing programme was launched to
consumers in the territory, supported by licensees including Alpha
Toys, Penguin, Unilever and Kimberly-Clark; and with retail sales
generated from 74 licensing agreements continuing to ramp up.
The brand continues to be strong in key territories such as the
US and the UK, remaining one of the leading pre-school brands in
these markets. Peppa Pig recently won the Classic Licensed Property
Award at the UK 2018 Licensing Awards, further cementing its
evergreen status; and in the US the brand remains a top-rated show
for children between 2-5 years old where it currently airs multiple
times daily on Nick Jr. as well as weekdays on the Nickelodeon
channel. Peppa Pig relaunched in Germany following a change in
broadcaster to Super RTL. The brand also launched for the first
time in Japan on TV Tokyo.
PJ Masks has continued its strong growth trajectory and remains
a key driver for the business with revenue increasing to GBP29.9
million (2017: GBP20.8 million) in the period. Growth has mainly
arisen from licensing and merchandising revenue, with successful
licensing rollouts in all categories and territories. PJ Masks is
the fastest growing pre-school property in both the US and the UK.
There has been a strong broadcast start in China with PJ Masks
airing on the major VOD platforms and generating 1.4 billion views
in its first five months. Season 2 of PJ Masks is currently being
broadcast globally on the Disney Jr. network, achieving all time
high ratings in the US.
New show Cupcake & Dino: General Services successfully
launched worldwide on Netflix and Teletoon in Canada in the period.
Ricky Zoom, a pre-school vehicle-based series of 52 episodes will
make its broadcast debut in the spring/summer of 2019 with a soft
launch of toy lines in autumn 2019.
2019 OUTLOOK FOR FAMILY & BRANDS
Peppa Pig and PJ Masks will continue to drive the growth of
eOne's Family & Brands Division in the second half of the
financial year. The business expects to have almost 1,900 live
licensing and merchandising contracts by the end of the financial
year. The business continues to invest in the size of the team in
order to maximise the opportunities globally for existing and new
brands.
Peppa Pig is expected to remain strong in its core markets,
benefitting from the delivery of new episodes of the show to
broadcasters in the year. 117 episodes of Peppa Pig are currently
in production with the original creators of the show, which will
air from spring 2019 through to 2023. This new content (launching
to coincide with the brand's 15(th) anniversary) will introduce new
characters, storylines and themes to keep the series relevant to
each new generation of pre-school fans and support the longevity of
the brand from a licensing perspective.
Asia will be the key region of growth for Peppa Pig in the
second half. There is clear demand for the brand in China building
on the growing popularity of the brand thanks to strong broadcast
and VOD exposure in the region with growth expected in licensing
and merchandising revenue aided by a new toy partnership with Alpha
Toys and ongoing publishing relationship with Penguin. In
anticipation of the 15(th) anniversary of Peppa Pig and the Chinese
New Year for the Year of the Pig, the Family & Brands business
has planned an exciting calendar of events and has partnered with
Alibaba for a Peppa Pig Chinese feature film which will launch in
cinemas in early 2019.
Entertainment One's partnership with Merlin Entertainments
continues to develop with Peppa Pig themed areas and accommodation
already in place in Merlin Parks in Italy and Germany; both parks
have experienced increased attendance in Peppa Pig's target
demographic. The new ticketed interactive play format Peppa Pig
World of Play has launched in Shanghai, with Dallas opening later
this year and rollouts in Beijing, Detroit and New York anticipated
during 2019.
PJ Masks will continue to build on its growth on the back of a
wider international licensing rollout. Following on from a
successful VOD launch in China, a consumer products programme for
the brand launched in summer 2018, led by toy licensee Alpha Toys
and will be supported by a limited range of publishing and apparel
products through the rest of the year. New content is being
produced and developed to boost and sustain brand growth worldwide.
Season 3 is in production and season 4 is in development.
A further 13 episodes of Cupcake and Dino: General Services will
be delivered to Netflix in the second half. Cupcake and Dino:
General Services was conceived as a broadcast-centric brand, and
therefore is not expected to develop through licensing and
merchandising deals. Ricky Zoom will make its broadcast debut in
spring/summer 2019. In addition to this new content, Family &
Brands currently has eight other projects in development including
Ninja Express with major platforms attached in multiple territories
around the world.
The Division is expected to generate strong revenue and
underlying EBITDA growth across the portfolio in FY19.
FILM & TELEVISION
The newly combined Film & Television Division focuses on
controlling high quality, premium film, television and music
content rights around the world and selling this content
globally.
GBPm 2018 2017 Change
Revenue 331.5 356.5 (7%)
Theatrical 19.1 23.5 (19%)
Transactional 33.2 60.9 (45%)
Broadcast and licensing 174.9 145.2 20%
Production and other 76.5 103.9 (26%)
Music 27.8 23.4 19%
Eliminations - (0.4) 100%
-------------------------------- ------ ------ -------
Underlying EBITDA 17.1 22.7 (25%)
Investment in acquired content
- Film 31.0 63.6 (51%)
- Television 30.0 20.9 44%
- Music 3.5 2.4 46%
Investment in productions
- Film 12.5 29.2 (57%)
- Television 78.8 106.0 (26%)
- Other 1.2 2.8 (57%)
-------------------------------- ------ ------ -------
Revenue in the period decreased by 7% to GBP331.5 million (2017:
GBP356.5 million) due to lower theatrical, transactional and
production and other revenue driven by fewer releases and
deliveries in the current period and the acceleration of decline in
the home entertainment market, partly offset by strong film and
television SVOD revenue, higher television broadcast revenues and
music growth.
Underlying EBITDA decreased, reflecting the lower revenue partly
offset by cost savings of approximately GBP2 million. There was a
decline in underlying EBITDA margin of 1.2pts due to change in
title mix. The restructuring at the beginning of the financial year
focused on combining television creative teams across the Division
integrating The Mark Gordon Company and leveraging physical
production, finance and operations across all film and television
content. The Group acquired the outstanding stake in
Sierra/Affinity and appointed Nick Meyer as President of Film,
further centralising content creation under executives with strong
industry track records and excellent talent relationships.
Film investment in acquired content was lower by GBP32.6 million
at GBP31.0 million (2017: GBP63.6 million) due to a lower volume of
titles released in the current period, consistent with the Group's
strategy to continue to reshape the film business and reduce the
number of releases. Film investment in productions was lower by
GBP16.7 million at GBP12.5 million (2017: GBP29.2 million),
reflecting fewer production starts in the period, as the Group
aligns the creative teams across The Mark Gordon Company and
Sierra/Affinity.
Television investment in acquired content increased by GBP9.1
million to GBP30.0 million (2017: GBP20.9 million) due to timing of
spend on the AMC/Sundance shows. Television investment in
productions was lower by GBP27.2 million at GBP78.8 million (2017:
GBP106.0 million) due to timing of production spend and higher
level of tax credits received in the current period, partly offset
by increased investment in non-scripted shows. For the full
financial year, television investment in productions is expected to
be GBP275 million, an increase of 22% year-on-year. 462 half hours
of new programming were acquired/produced in the period compared to
304 in the previous period of which 335 half hours related to
non-scripted compared to 115 in the prior period which are produced
at a lower cost than scripted titles.
At the start of the financial year, the Division acquired a
majority stake in Whizz Kid Entertainment, a UK based non-scripted
television production company, with which it has partnered on the
US adaptation of Ex on the Beach for MTV.
THEATRICAL
Theatrical revenue decreased by 19%, reflecting the reduced
level of box office receipts, which were also 19% lower at US$67
million (2017: US$83 million) as a result of fewer releases (59
compared to 76) in the period. The number of unique theatrical
releases was 35 in the first half compared to 48 in the prior
period. The number of theatrical releases was consistent with the
ongoing strategic transition from lower margin film distribution
towards fewer and larger productions with potential for
distribution across multiple territories.
The average box office per title was marginally higher
period-on-period due to a focus on fewer, more impactful
properties. Releases in the period included The House with a Clock
in its Walls from Amblin, based on the best-selling children's
book, starring Jack Black and Cate Blanchett and I Feel Pretty,
starring Amy Schumer and Michelle Williams.
TRANSACTIONAL
Transactional revenue decreased by 45% to GBP33.2 million (2017:
GBP60.9 million), reflecting the acceleration of the decline of the
home entertainment markets in all of eOne's territories as well as
fewer DVD releases period-on-period due to fewer theatrical
releases at the end of last financial year.
As discussed in the Group's trading update, given the
accelerated home entertainment market decline the Group has
recorded a one-off charge of GBP57.0 million (of which GBP53.0
million is non-cash) primarily reflecting the impairment of certain
film distribution assets in the period. This has been charged as a
one-off item and therefore is not included in the table above.
Please refer to the one-off items within the Other Financial
Information section of this Interim Announcement for details.
In total, 80 DVDs and Blu-rays were released during the period
(2017: 122) including key titles such as I Feel Pretty, The Post,
Finding Your Feet, The Death of Stalin and Molly's Game. There is
an increasing portion of transactional revenue arising from digital
channels with 42% of transactional revenue from digital in the
current period compared to 40% in the prior period. This will lead
to improving margins as the proportion of digital revenue
increases.
BROADCAST AND LICENSING
Broadcast and licensing revenues increased by 20% to GBP174.9
million (2017: GBP145.2 million), due to higher film and television
SVOD revenues and strong television scripted broadcast sales.
The film production How It Ends, an action disaster thriller
directed by David M. Rosenthal starring Theo James, Kat Graham and
Nancy Sorel, was delivered to Netflix in the period. Netflix has
worldwide rights to the film.
Key scripted television deliveries in the period included the
last two episodes of Sharp Objects starring Amy Adams, which
premiered on HBO and ranked as the network's #2 drama of the
2017/18 season-to-date, the finale bringing in a series high of 2.6
million viewers in the US; the first episode of The Rookie,
starring Nathan Fillion which premiered on ABC on 16 October, and
has recently received a seven episode back order; two episodes of
Designated Survivor season 2; the remaining eight episodes of
Ransom season 2; and the first two episodes of Private Eyes season
3.
International sales for seasons 1 and 2 of Designated Survivor
remained strong including US SVOD sales for season 2 in the period.
Designated Survivor season 3 received a 10 episode order from
Netflix during the period and is expected to release globally in
2019 as a Netflix Original.
Key acquired content driving performance in the first half
included season 3 of Into the Badlands, seasons 3 and 4 of Fear the
Walking Dead, season 8 of The Walking Dead and seasons 2 and 3 of
Hap & Leonard.
PRODUCTION AND OTHER
Revenue for production and other decreased by 26% to GBP76.5
million (2017: GBP103.9 million) as there were no new film
production titles delivered in the current period compared to
Atomic Blonde, Lost City of Z, and The Ritual in the prior period,
which has been partly offset by higher activity in the television
non-scripted business. For the full year film production deliveries
are expected to include Stan & Ollie and Poms.
The television non-scripted business had a very strong first
half of the year with the number of half hours delivered increasing
from 115 in the prior period to 335 in the current period. Key
franchise series include: Ex on the Beach, Siesta Key and Growing
Up Hip Hop. New series include: Ladygang, Hustle in Brooklyn,
Ladies Night and The Campbells. Renegade83 continued delivery on
its Naked and Afraid franchise, with three shows commissioned in
the half year: Buried in the Backyard season 2, Uncovered and
Forbidden Love.
MUSIC
Revenue for the period increased by 19% to GBP27.8 million
(2017: GBP23.4 million), due to higher digital revenue on recorded
music, higher artist management and music publishing, partly offset
by lower physical revenues.
In recorded music there were number one albums from artists
across a number of genres including world music, gospel, metal and
R&B. Key titles during the period included continued strong
performance of The Lumineers' highly successful first and second
albums, The Lumineers and Cleopatra, Bryant Myers La Oscuridad, DJ
Kass' Scooby Doo Papa, Tamia's Passion Like Fire, The Blue Stones
Black Holes, Todd Dulaney's Your Great Name, Snoop Dogg's
Doggystyle and Dr Dre's The Chronic demonstrating the strength of
both new and catalogue music within the Group's music
operations.
The number of albums released in the period decreased slightly
with 37 releases in the current period versus 40 in the prior
period. Single releases increased significantly at 164 compared to
110 in the prior period as we continue to release digital singles
due to the shift in the market from physical.
Artist management had a strong first half. Jax Jones sustained
his radio success with his fourth consecutive hit single Ring Ring
which has achieved over 50 million streams globally since
release.
FULL YEAR 2019 OUTLOOK FOR FILM & TELEVISION
The second half of the financial year is anticipated to be
strong for the Film & Television Division, with underlying
EBITDA more skewed to the second half, as expected.
With the transition to production underway, we anticipate around
120 film releases in the full year (lower than the 140 previously
guided) in total across all territories, of which around 60 are
expected to be unique. Film investment in acquired content is
expected to be approximately GBP90 million. The theatrical release
slate is expected to be much stronger in the second half of the
financial year including Green Book starring Viggo Mortensen and
Mahershala Ali, which premiered at the Toronto International Film
Festival and won the People's Choice Award; Vice, from Annapurna
Pictures starring Amy Adams, Christian Bale, Steve Carell and new
Oscar(c) winner Sam Rockwell; On the Basis of Sex, from Amblin
starring Felicity Jones as Ruth Bader Ginsberg and Armie Hammer as
her husband, Marty; If Beale Street Could Talk directed by Barry
Jenkins, which premiered at the Toronto International Film
Festival; and Stan & Ollie, an eOne production, starring Steve
Coogan and John C. Reilly, which had its world premiere at the BFI
London Film Festival and which will be released by Sony Pictures
Classics in the US and sold throughout the rest of the world by
Sierra/Affinity. Makeready has produced Class of Lies, a short form
series of 12 five
minute episodes on Snapchat Discovery which premiered on 10
October 2018.
Film investment in productions is expected to be GBP50 million
as the Group continues to transition from distribution to
production activities. The production slate includes Makeready's
Queen and Slim, written and produced by Emmy-award winner Lena
Waithe, and starring Daniel Kaluuya, which is due to start shooting
in January and will be released by eOne in its direct territories
and by Universal in the rest of the world, next financial year. The
Group just wrapped production on Scary Stories to Tell in the Dark
which is being produced by Academy award-winner Guillermo del Toro
and is co-financed by CBS, with eOne distributing in its direct
territories and Sierra/Affinity managing sales throughout the rest
of the world. Other post-production titles include Official
Secrets, starring Kiera Knightley and Matt Smith and Poms, starring
Diane Keaton.
The television slate for the second half of the year is also
expected to be strong. It will include new seasons of key scripted
shows including Designated Survivor season 3, The Rookie season 1,
season 2 of Burden of Truth, season 3 of Ransom and the remaining
episodes of season 3 of Private Eyes. The television non-scripted
business will continue to have deliveries of Siesta Key, Ex on the
Beach, Ladygang, Naked and Afraid and America Says in the second
half. For international television distribution, sales of third
party content are expected for Fear The Walking Dead season 5, The
Walking Dead season 9, and Into the Badlands season 3.
The number of half hours of TV programming acquired/produced is
still expected to be over 1,000 for the year with around 74% of the
year's expected TV programming margins already committed or
greenlit. Overall, there are approximately 60 unique television
shows set up for development with various broadcast, network and
digital platforms. Makeready is in development with Hulu on a
series, Old City Blues, starring and produced by Kerry Washington,
and directed by Gore Verbinski. A pilot, Run, is in production with
HBO, a dark romantic comedic thriller from Killing Eve creator
Phoebe Waller-Bridge and her frequent collaborator Vicky Jones.
eOne has also recently entered a multi-year deal with Netflix and
The C.S. Lewis Company to develop classic stories from across the
Narnia universe into series and films for its members worldwide.
Television investment in acquired content is expected to be over
GBP45 million and television production spend is expected to be
GBP275 million in the full year.
Music revenue is expected to continue to grow in the second half
with releases expected from Arkells, Royce Da 5'9" and Wu-Tang.
Music will continue its strategy of diversifying its portfolio
beyond recorded product to include music publishing and artist
management while laying the foundations for a growing live events
business. The Group's live events business announced two new events
during the period: The Thank You Canada Tour (a national tour
featuring the Canadian Figure Skating team) and The Nelson Mandela
Exhibit, launching in London in February 2019.
The integration of the Film and Television Divisions is on track
to generate GBP13-15 million of annualised cost savings by the end
of FY20, as previously guided, from business efficiencies and
centralisation of support functions from the combined operations to
form a single, streamlined operating structure. We anticipate
approximately half of these savings to be realised through
FY19.
OTHER FINANCIAL INFORMATION
Adjusted operating profit increased by 12% to GBP58.7 million
(2017: GBP52.6 million), reflecting the growth in the Group's
underlying EBITDA. Adjusted profit before tax increased by 7% to
GBP42.0 million (2017: GBP39.2 million), in line with increased
adjusted operating profit, partly offset by higher underlying
finance charges in the period. Reported operating loss of GBP28.3
million, (2017: profit GBP23.4 million) reflects the impact of an
operating one-off charge of GBP59.4 million primarily related to
the impairment of certain assets within its film distribution
businesses and related costs.
Reported Adjusted
================ ================
2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm
Revenue 404.9 412.7 404.9 412.7
Underlying EBITDA 60.1 54.5 60.1 54.5
============================================ ======= ======= ======= =======
Amortisation of acquired intangibles (20.1) (20.0) - -
Depreciation and amortisation of software (1.4) (1.9) (1.4) (1.9)
Share-based payment charge (7.5) (5.8) - -
One-off items (59.4) (3.4) - -
============================================ ======= ======= ======= =======
Operating (loss)/profit(5) (28.3) 23.4 58.7 52.6
Net finance costs (11.8) (21.1) (16.7) (13.4)
============================================ ======= ======= ======= =======
(Loss)/profit before tax (40.1) 2.3 42.0 39.2
Tax (charge)/credit (4.6) 0.2 (10.7) (9.5)
(Loss)/profit for the period (44.7) 2.5 31.3 29.7
============================================ ======= ======= ======= =======
5. Adjusted operating profit excludes amortisation of acquired
intangibles, share-based payment charge and operating one-off
items.
AMORTISATION OF ACQUIRED INTANGIBLES, DEPRECIATION AND
AMORTISATION OF SOFTWARE
Amortisation of acquired intangibles, depreciation and
amortisation of software has decreased by GBP0.4 million due to a
number of assets being fully amortised in the Film & Television
Division in the current period.
SHARE-BASED PAYMENT CHARGE
The share-based payment charge of GBP7.5 million has increased
by GBP1.7 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
Restructuring costs
Changes in consumer behaviour within the content industry are
accelerating at an unprecedented level and in the six months ended
30 September 2018, the home entertainment markets in all of the
Group's operating territories experienced significant challenges.
As a result the Group has recorded a one-off charge of GBP57.0
million in the period which includes the following:
-- Impairment of investment in acquired content rights of GBP16.8
million resulting from the lowering of previous expectations
regarding the home entertainment business driven by an acceleration
of market decline;
-- Write down of home entertainment related inventories of GBP22.9
million resulting from an assessment of the realisable value
of inventory below the previous assessment of net realisable
value;
-- One-off bad debt expense on trade and other receivables of GBP13.4
million; and
-- Related severance and staff costs of the home entertainment
businesses of GBP3.9 million.
Further one-off charges of GBP3.5 million are associated with
the integration of the Film and Television Divisions and include
GBP3.1 million related to severance and staff costs and GBP0.2
million related to consultancy fees.
Other items
Acquisition costs of GBP0.2 million relates to costs associated
with corporate projects during the year.
Other one-off credits of GBP1.3 million include a GBP1.6 million
settlement received on a tax warranty relating to a prior year
acquisition and is partially offset by GBP0.3 million of legal
costs for certain corporate projects.
Prior period
In the prior period, one-off items resulted in a net charge of
GBP3.4 million which consisted of GBP0.7 million of costs
associated with the integration of the Film and Television
Divisions, GBP0.2 million of foreign exchange movement on accrued
restructuring costs and the adoption of IFRS 15 Revenue from
contracts with customers, acquisition costs of GBP2.2 million and
other corporate project costs of GBP0.3 million.
NET FINANCE CHARGES
Reported net finance costs decreased by GBP9.3 million to
GBP11.8 million. Excluding one-off net finance credits of GBP4.9
million in the current period, adjusted finance charges at GBP16.7
million (2017: GBP13.4 million) were GBP3.3 million higher in the
current period, reflecting the higher average debt levels
period-on-period primarily due to the net debt arising from The
Mark Gordon Company transaction in March 2018. The weighted average
interest rate for the Group's financing was 6.5% which is in line
with the prior period.
The one-off net finance credit of GBP4.9 million (2017: charge
GBP7.7 million) comprises:
-- Credit of GBP5.7 million (2017: nil) arising on the reversal
of the Sierra/Affinity put option liability following the acquisition
of the remaining 49% shares on 27 June 2018;
-- Credit of GBP0.1 million (2017: charge of GBP1.8 million) in
respect of fair value gain on hedge contracts which reverses
in future periods;
-- Credits above are partially offset by charge of GBP0.8 million
(2017: charge of GBP2.7 million) due to the unwind of discounting
on liabilities relating to put options issued by the Group over
the non-controlling interest of subsidiary companies; and
-- Charge of GBP0.1 million (2017: credit of GBP3.0 million) relating
to interest on tax provisions incurred during the period. In
the prior period there was a release of interest previously
charged on tax provisions.
-- Charges incurred in the prior period included GBP5.2 million
in respect of losses on five forward currency contracts not
in compliance with the Group's hedging policy and GBP1.0 million
in respect of fair-value loss on hedge contracts cancelled as
a result of the re-negotiation of one of the Group's larger
film distribution agreements in the prior period.
TAX
On a reported basis, the Group's tax charge of GBP4.6 million
(2017: credit GBP0.2 million), which includes tax credits on
one-off items, represents an effective rate of (11.5%) compared to
8.7% in the prior period. On an adjusted basis, the effective rate
is 25.5% compared to 24.2% in the prior period. The adjusted
effective tax rate for the full year is expected to be
approximately 20%.
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 funded using production financing. Refer to
the Production Financing section below.
2018 2017
================================================ =================================================
Family & Film & Centre & Family & Film & Centre &
GBPm Brands Television Elims Total Brands Television Elims Total
=========== =========== ============ ======== ============ =========== ============ ========
Underlying
EBITDA 47.0 14.0 (4.2) 56.8 36.9 18.0 (4.8) 50.1
Amortisation
of investment
in acquired
content
rights - 35.7 - 35.7 - 50.8 - 50.8
Investment in
acquired
content
rights - (64.5) - (64.5) - (86.9) - (86.9)
Amortisation
of investment
in
productions 1.4 57.1 (0.3) 58.2 1.1 21.2 - 22.3
Investment in
productions,
net of grants (2.5) (50.6) 0.3 (52.8) (3.2) (32.9) 0.2 (35.9)
Working
capital (19.0) (67.4) (4.1) (90.5) (8.6) (23.7) - (32.3)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Adjusted cash
flow 26.9 (75.7) (8.3) (57.1) 26.2 (53.5) (4.6) (31.9)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Capital
expenditure (1.7) (1.5)
Tax paid (14.6) (21.7)
Net interest
paid (14.7) (11.5)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Free cash flow (88.1) (66.6)
Cash one-off
items (3.9) (28.0)
One-off
finance items (0.9) (13.2)
Acquisitions,
net of net
debt acquired
and
transactions
with
shareholders (12.0) (3.2)
Net proceeds
of share issue 0.1 -
Dividends paid (9.3) (10.0)
Foreign
exchange (4.4) (4.4)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Movement (118.5) (125.4)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Net debt at
the beginning
of the year (314.5) (187.4)
=============== =========== =========== ============ ======== ============ =========== ============ ========
Net debt at
the end of
the period (433.0) (312.8)
=============== =========== =========== ============ ======== ============ =========== ============ ========
ADJUSTED CASH FLOW
Adjusted cash outflow at GBP57.1 million is higher than prior
period by GBP25.2 million driven by greater outflows in the Film
& Television Division.
FAMILY & BRANDS
Family & Brands adjusted cash inflow was marginally higher
than the prior period at GBP26.9 million (2017: GBP26.2 million).
This was driven by the increase in underlying EBITDA but partly
offset by the higher working capital outflow. The working capital
outflow was higher than the prior period mainly as a result of
higher receivables due to timing of certain SVOD deals which were
executed in the latter part of the current period and higher
accrued income relating to increased royalty performance in the
last quarter.
FILM & TELEVISION
Film & Television adjusted cash outflow of GBP75.7 million
was higher compared to the prior period (2017: GBP53.5 million),
driven by the higher working capital outflow.
The working capital outflow of GBP67.4 million in the period was
largely driven by a decrease in payables driven by the timing of
payments in the film distribution territories, reduction of
deferred income in particular due to delivery of How It Ends and
outflows relating to intercompany trade with Film & Television
production financing.
Investment in acquired content rights was lower than the prior
period by GBP22.4 million driven by the lower volume of theatrical
releases in the period. This was partly offset by an increase in
investment in productions of GBP17.7 million compared to the prior
period driven by the higher activity of the television non-scripted
business in the current period.
FREE CASH FLOW
Free cash outflow for the Group of GBP88.1 million was GBP21.5
million higher due to the higher adjusted cash outflow and higher
net interest paid due to a higher level of debt partly offset by
lower tax payments due to timing.
NET DEBT
As at 30 September 2018 net debt of GBP433.0 million was
GBP120.2 million higher than the prior period. This was driven by
the higher net debt at the beginning of the period driven by net
cash outflows in the financial year ended 31 March 2018 which
included the impact of The Mark Gordon Company transaction of
GBP72.1 million. The net debt movement in the period was GBP6.9
million better than the prior period due to lower cash one-off
items, partly offset by the higher free cash outflow and
acquisition spend in the period for Sierra/Affinity and Whizz Kid
Entertainment.
Refer to the Appendix to this 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 decreased by GBP67.1 million
period-on-period to GBP74.7 million reflecting the lower opening
production financing balance at March 2018 and the higher adjusted
cash inflow in the period reflecting lower investment in
productions in the period. The investment in productions was lower
due to fewer film production starts in the period as the Group
aligns creative teams across The Mark Gordon Company and
Sierra/Affinity and lower television spend due to timing of
productions and higher level of tax credits received in the period.
Investment spend and production deliveries are expected to ramp up
in the second half of the financial year leading to an increase in
production financing.
2018 2017
==============================================
GBPm Family & Brands Film & Television Total Family & Brands Film & Television Total
================ ================== ================ ==================
Underlying EBITDA 0.2 3.1 3.3 (0.3) 4.7 4.4
Amortisation of
investment in
productions 2.4 52.9 55.3 0.1 57.3 57.4
Investment in
productions, net
of grants (0.9) (41.9) (42.8) (2.0) (105.1) (107.1)
Working capital (0.4) 35.6 35.2 (0.1) 55.3 55.2
Joint venture
movements - (0.1) (0.1) - - -
==================== ================ ================== ======== ================ ================== ========
Adjusted cash flow 1.3 49.6 50.9 (2.3) 12.2 9.9
==================== ================ ================== ======== ================ ================== ========
Capital expenditure - -
Tax paid 0.7 (1.0)
Net interest paid (0.1) (0.7)
Free cash flow 51.5 8.2
Cash one-off items (0.7) (1.8)
Foreign exchange (6.8) 4.1
Movement 44.0 10.5
==================== ================ ================== ======== ================ ================== ========
Net production
financing at the
beginning of the
year (118.7) (152.3)
==================== ================ ================== ======== ================ ================== ========
Net production
financing at the
end of the period (74.7) (141.8)
==================== ================ ================== ======== ================ ================== ========
The production financing cash flows relate to non-recourse
production financing which is used to fund the Group's productions.
The financing is arranged on an individual production basis through
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 generally 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 it is excluded from net debt.
FINANCIAL POSITION AND GOING CONCERN BASIS
The Group's net assets decreased by GBP5.0 million to GBP661.1
million at 30 September 2018 (31 March 2018: GBP666.1 million). The
principal risks impacting the Group have been discussed in Note 9
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 condensed consolidated financial
statements on a going concern basis, as set out in Note 2 to 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 EU;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
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
JOSEPH SPARACIO
Director
19 November 2018
A presentation to analysts will take place at 9.30am on Tuesday,
20 November 2018 at eOne's UK office (45 Warren Street, London, W1T
6AG). For more information, or to register to attend, contact Alma
PR (+44 7961 075 844 or rsh@almapr.co.uk).
A video overview of the results from CEO Darren Throop is
available to watch here: http://bit.ly/ETO_h118
For further information please contact:
Alma PR
Rebecca Sanders-Hewett
Tel: +44 7961 075 844
Email: rsh@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 2018 can be found on the Group's website at
www.entertainmentone.com.
Condensed Consolidated Income Statement
for the six months ended 30 September 2018
Restated(1)
Period ended Period ended
30 September 2018 30 September 2017
Note GBPm GBPm
=============================================== ===== ================== ==================
Revenue 4 404.9 412.7
Cost of sales (283.8) (295.6)
=============================================== ===== ================== ==================
Gross profit 121.1 117.1
Administrative expenses (149.5) (93.7)
Share of results of joint ventures 0.1 -
=============================================== ===== ================== ==================
Operating (loss)/profit (28.3) 23.4
Finance income 5.7 3.2
Finance costs (17.5) (24.3)
=============================================== ===== ================== ==================
(Loss)/profit before tax (40.1) 2.3
Income tax (charge)/credit (4.6) 0.2
=============================================== ===== ================== ==================
(Loss)/profit for the period (44.7) 2.5
=============================================== ===== ================== ==================
Attributable to:
=============================================== ===== ================== ==================
Owners of the Company (45.8) (2.2)
Non-controlling interests 1.1 4.7
=============================================== ===== ================== ==================
Operating (loss)/profit analysed as:
Underlying EBITDA 60.1 54.5
Amortisation of acquired intangibles (20.1) (20.0)
Depreciation and amortisation of software (1.4) (1.9)
Share-based payment charge (7.5) (5.8)
One-off items 5 (59.4) (3.4)
=============================================== ===== ================== ==================
Operating (loss)/profit (28.3) 23.4
=============================================== ===== ================== ==================
Loss per share (pence)
Basic (9.9) (0.5)
Diluted 6 (9.9) (0.5)
Adjusted earnings per share (pence)
Basic 6.2 5.2
Diluted 6 6.1 5.1
===================================== ====== ======
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 September 2018
Restated(1)
Period ended Period ended
30 September 30 September
2018 2017
GBPm GBPm
================================================ ============= =============
(Loss)/profit for the period (44.7) 2.5
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on foreign operations 39.5 (18.8)
Hedging reserve movements:
Fair value movements on cash flow hedges 4.5 (2.4)
Reclassification adjustments for movements
on cash flow hedges (1.2) (1.3)
Tax (charge)/credit related to components
of other comprehensive income/(loss) (0.7) 2.7
Total other comprehensive income/(loss)
for the period 42.1 (19.8)
================================================= ============= =============
Total comprehensive loss for the period (2.6) (17.3)
================================================= ============= =============
Attributable to:
Owners of the Company (4.5) (18.9)
Non-controlling interests 1.9 1.6
================================================= ============= =============
(1) Certain figures in comparative periods have been restated.
Refer to Note 2 for full details.
Condensed Consolidated Balance Sheet
at 30 September 2018
Restated(1) Restated(1)
30 September 2018 31 March 2018 30 September 2017
Note GBPm GBPm GBPm
============================================== ===== ================== ============== ==================
ASSETS
Non-current assets
Goodwill 7 400.3 375.2 394.0
Other intangible assets 237.0 248.9 274.4
Interests in joint ventures 1.2 1.0 1.0
Investment in productions 240.2 206.1 251.6
Property, plant and equipment 11.3 10.6 11.5
Trade and other receivables 64.6 77.0 74.4
Deferred tax assets 32.9 34.3 37.2
============================================== ===== ================== ============== ==================
Total non-current assets 987.5 953.1 1,044.1
============================================== ===== ================== ============== ==================
Current assets
Inventories 16.5 39.6 46.7
Investment in acquired content rights 246.0 248.0 293.1
Trade and other receivables 451.5 439.4 440.9
Cash and cash equivalents 109.7 119.2 104.2
Current tax assets 7.8 3.5 4.0
Financial instruments 11 3.5 1.9 2.1
Total current assets 835.0 851.6 891.0
Total assets 1,822.5 1,804.7 1,935.1
============================================== ===== ================== ============== ==================
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 12 476.0 375.2 371.7
Production financing 13 86.3 86.7 121.6
Other payables 15.7 28.0 34.7
Provisions 0.4 0.4 1.3
Deferred tax liabilities 32.9 33.0 45.6
Total non-current liabilities 611.3 523.3 574.9
============================================== ===== ================== ============== ==================
Current liabilities
Interest-bearing loans and borrowings 12 0.4 0.4 0.5
Production financing 13 54.7 90.1 65.1
Trade and other payables 478.0 501.4 567.2
Provisions 8.4 5.9 5.0
Current tax liabilities 7.1 14.8 16.9
Financial instruments 11 1.5 2.7 6.0
Total current liabilities 550.1 615.3 660.7
============================================== ===== ================== ============== ==================
Total liabilities 1,161.4 1,138.6 1,235.6
============================================== ===== ================== ============== ==================
Net assets 661.1 666.1 699.5
============================================== ===== ================== ============== ==================
EQUITY
Stated capital 606.1 594.8 507.5
Own shares (0.1) (0.2) (0.9)
Other reserves (11.9) (23.6) (23.7)
Currency translation reserve 69.7 29.8 64.3
Retained earnings (39.6) 19.0 72.5
============================================== ===== ================== ============== ==================
Equity attributable to owners of the Company 624.2 619.8 619.7
Non-controlling interests 36.9 46.3 79.8
============================================== ===== ================== ============== ==================
Total equity 661.1 666.1 699.5
Total liabilities and equity 1,822.5 1,804.7 1,935.1
============================================== ===== ================== ============== ==================
These condensed consolidated financial statements were approved
by the Board of Directors on 19 November 2018.
JOSEPH SPARACIO
DIRECTOR
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 September 2018
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
2017 505.3 (1.5) (1.1) (30.9) 9.3 79.8 104.2 665.1 86.2 751.3
Adjustments on
initial
application
of IFRS 15
(net of tax) - - - - - 0.2 (28.5) (28.3) (3.6) (31.9)
=============== ======== ======= ======== ======== ============== ============ ========= ================
At 1 April
2017
restated(1) 505.3 (1.5) (1.1) (30.9) 9.3 80.0 75.7 636.8 82.6 719.4
(Loss)/income
for the
period
restated(1) - - - - - - (2.2) (2.2) 4.7 2.5
Other
comprehensive
(loss)/income
restated(1) - - (1.0) - - (15.7) - (16.7) (3.1) (19.8)
Total
comprehensive
(loss)/income
for the
period - - (1.0) - - (15.7) (2.2) (18.9) 1.6 (17.3)
=============== ======== ======= ======== ======== ============== ============ ========= ================
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 1.8 - - - - - - 1.8 - 1.8
Dividends paid - - - - - - (5.6) (5.6) (4.4) (10.0)
Total
transactions
with equity
holders 2.2 0.6 - - - - (1.0) 1.8 (4.4) (2.6)
=============== ======== ======= ======== ======== ============== ============ ========= ================
At 30
September
2017 507.5 (0.9) (2.1) (30.9) 9.3 64.3 72.5 619.7 79.8 699.5
=============== ======== ======= ======== ======== ============== ============ ========= ================
At 1 April
2018
restated(1) 594.8 (0.2) (2.0) (30.9) 9.3 29.8 19.0 619.8 46.3 666.1
Adjustments on
initial
application
of IFRS 9
(net of tax) - - - - - - (2.2) (2.2) - (2.2)
Adjusted
balance at 1
April 2018
for
adjustments
on initial
adoption 594.8 (0.2) (2.0) (30.9) 9.3 29.8 16.8 617.6 46.3 663.9
=============== ======== ======= ======== ======== ============== ============ ========= ================
(Loss)/profit
for the
period - - - - - - (45.8) (45.8) 1.1 (44.7)
Other
comprehensive
income - - 2.6 - - 38.7 - 41.3 0.8 42.1
Total
comprehensive
income/(loss)
for the
period - - 2.6 - - 38.7 (45.8) (4.5) 1.9 (2.6)
=============== ======== ======= ======== ======== ============== ============ ========= ================
Credits in
respect of
share-based
payments - - - - - - 7.3 7.3 - 7.3
Deferred tax
movement
arising on
share options - - - - - - 0.2 0.2 - 0.2
Exercise of
share options 4.9 - - - - - (5.8) (0.9) 0.9 -
Distribution
of shares to
beneficiaries
of the
Employee
Benefit Trust - 0.1 - - - - (0.1) - - -
Acquisition of
subsidiaries 1.9 - - (3.1) - - - (1.2) 0.4 (0.8)
Transactions
with equity
holders 4.5 - - 12.2 - 1.2 (6.9) 11.0 (8.6) 2.4
Dividends paid - - - - - - (5.3) (5.3) (4.0) (9.3)
=============== ======== ======= ======== ======== ============== ============ ========= ================
Total
transactions
with equity
holders 11.3 0.1 - 9.1 - 1.2 (10.6) 11.1 (11.3) (0.2)
=============== ======== ======= ======== ======== ============== ============ ========= ================
At 30
September
2018 606.1 (0.1) 0.6 (21.8) 9.3 69.7 (39.6) 624.2 36.9 661.1
=============== ======== ======= ======== ======== ============== ============ ========= ================
Condensed Consolidated Cash Flow Statement
for the six months ended 30 September 2018
Restated(1)
Period ended Period ended
30 September 30 September
2018 2017
Note GBPm GBPm
=============================================== ===== ============= =============
Operating activities
Operating (loss)/profit (28.3) 23.4
Adjustment for:
Depreciation of property, plant and equipment 0.9 1.0
Amortisation of software 0.5 0.9
Amortisation of acquired intangibles 20.1 20.0
Amortisation of investment in productions 113.5 79.7
Investment in productions, net of grants
received (95.6) (142.9)
Amortisation of investment in acquired
content rights 35.7 50.7
Investment in acquired content rights (64.5) (86.9)
Impairment of investment in acquired content
rights 16.8 -
Share of results of joint ventures (0.1) -
Share-based payment charge 7.5 5.8
=============================================== ===== ============= =============
Operating cash flows before changes in
working capital and provisions 6.5 (48.3)
Decrease in inventories 25.6 1.2
Increase in trade and other receivables (6.4) (31.9)
(Decrease)/increase in trade and other
payables (38.5) 52.3
Increase/(decrease) in provisions 2.0 (25.1)
=============================================== ===== ============= =============
Cash outflow from operations (10.8) (51.8)
Income tax paid (13.9) (22.7)
=============================================== ===== ============= =============
Net cash outflow from operating activities (24.7) (74.5)
=============================================== ===== ============= =============
Investing activities
Transactions with equity holders (9.7) -
Acquisition of subsidiaries and joint
ventures, net of cash acquired (1.4) (3.2)
Purchase of financial instruments 11 (0.9) -
Purchase of property, plant and equipment (1.0) (0.8)
Purchase of software (0.7) (0.7)
=============================================== ===== ============= =============
Net cash outflow from investing activities (13.7) (4.7)
=============================================== ===== ============= =============
Financing activities
Net proceeds on issue of shares 0.1 -
Drawdown of interest-bearing loans and
borrowings 12 141.2 191.9
Repayment of interest-bearing loans and
borrowings 12 (45.2) (93.4)
Drawdown of production financing 13 63.0 120.6
Repayment of production financing 13 (109.4) (122.5)
Interest paid (14.8) (12.2)
Dividends paid to shareholders and to
non-controlling interests of subsidiaries (9.3) (10.0)
Fees paid in relation to the Group's bank
facility, premium received on senior secured
notes and one-off finance costs (0.3) (12.5)
=============================================== ===== ============= =============
Net cash inflow from financing activities 25.3 61.9
=============================================== ===== ============= =============
Net decrease in cash and cash equivalents (13.1) (17.3)
Cash and cash equivalents at beginning
of the period 119.2 133.4
Effect of foreign exchange rate changes
on cash held 3.6 (11.9)
============= =============
Cash and cash equivalents at end of the
period 109.7 104.2
=============================================== ===== ============= =============
Notes to the Condensed Consolidated Financial Statements
for the six months ended 30 September 2018
1. NATURE OF OPERATIONS AND GENERAL INFORMATION
Entertainment One is a leading independent entertainment group
focused on the acquisition, production and distribution of family,
television, 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.
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 Standards (IAS) 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 2018
which were prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and
IFRS Interpretation Committee.
Other than new standards effective during the year as described
below and 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 2018.
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 Board of Directors on 19 November 2018.
GOING CONCERN
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 drawdown in the local currencies
of its significant 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 has a track record of cash generation and is in full
compliance with its bank facility and bond covenants
requirements.
At 30 September 2018, the Group had GBP43.4m of cash and cash
equivalents (excluding cash held by production subsidiaries). The
Group has GBP433.0m of net debt and undrawn amounts under the
revolving credit facility of GBP63.8m.
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 a period of at least twelve
months from the date of approval of these condensed consolidated
financial statements. 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 diluted 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
Put options over non-controlling interests
Put and call options were granted over the non-controlling
interests of prior year acquisitions with the options exercisable
in FY21 based on average EBITDA for FY19-FY21. During the
compilation of the consolidated financial statements for the year
ended 31 March 2018, the Group identified that the option liability
as at 31 March 2017 was overstated by GBP6.3m principally driven by
the use of an incorrect foreign exchange rate. A restatement was
made in the consolidated financial statements for the year ended 31
March 2018. This error was also included in the results for the
period to 30 September 2017 and has been corrected in comparative
figures in these condensed consolidated financial statements.
Consistent with the 31 March 2018 financial statements, the
Group has concluded the prior period error was not fundamental to
any of the Group's previously issued condensed consolidated
financial statements and therefore the interim statements for the
period ended 30 September 2017 have not been reissued. The Group
has corrected the prior period error retrospectively by restating
the comparative amounts for the prior period presented and restated
the balance sheet as at 30 September 2017, as required under IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
The correction has resulted in an increase in operating one-off
expenses by GBP1.3m for the period ended 30 September 2017 and a
GBP5.0m increase in the net assets as at 30 September 2017.
Reclassification of Investments in Productions and Investment in
Content
During the period, the Group concluded that the Investment in
acquired content rights of the Family & Brands Division was
more appropriate to be included within Investment in productions,
as the Group owns the underlying intellectual property and has
perpetual rights to the Family & Brands content. As such, the
comparative periods have been restated by GBP5.9m as at 31 March
2018 and GBP3.9m as at 30 September 2017.
IMPACT OF NEW ACCOUNTING STANDARDS
The Group has applied, for the first time, IFRS 15 Revenue from
Contracts with Customers and IFRS 9 Financial Instruments that
require restatement of previous financial statements. As required
by IAS 34, the nature and effect of these changes are disclosed
below.
IFRS 15 Revenue from Contracts with Customers was effective for
reporting periods commencing after 1 January 2018. The Group
adopted IFRS 15 on 1 April 2018 on a fully retrospective basis, and
comparative periods have been restated.
* The cumulative impact of applying IFRS 15 on the year
ended 31 March 2017 was a GBP31.9m reduction in
retained earnings. Family & Brands Division was
impacted by GBP12.0m and the remaining GBP19.9m fell
within the Film & Television Division.
* In the Family & Brands Division, the Group recognised
contractual minimum guarantees from licensing
arrangements when the licence terms had commenced and
collection of the fee was reasonably assured. Under
IFRS 15, minimum guarantees are recognised over the
consumption of the intellectual property. The impact
of applying IFRS 15 to the financial period ended 30
September 2017 is a reduction in licensing and
merchandising revenue of GBP3.4m and underlying
EBITDA of GBP1.5m.
* There are timing differences from the way the Group
recognises revenue for content licensing in the Film
& Television Division. IFRS 15 includes additional
requirements that revenue cannot be recognised before
the beginning of the period in which the customer can
begin to use and benefit from the licence; and
revenue dependent on customers' sales or usage cannot
be recognised until the sale or usage occurs. The
impact of applying IFRS 15 to the financial period
ended 30 September 2017 is an increase in production
and other revenue of GBP17.0m and broadcast and
licensing revenue of GBP3.4m. The corresponding
increase in underlying EBITDA is GBP4.6m.
IFRS 15 does not have any impact on the cash flows generated.
The Group has presented a restatement of the comparative periods
below.
IFRS 9 Financial Instruments is effective for reporting periods
commencing after 1 January 2018. The Group has applied IFRS 9
prospectively, with the initial application date of 1 April 2018.
The Group has applied the limited exemption in IFRS 9 and has
elected not to restate comparative information in the year of
initial adoption. As a result, the comparative information provided
will continue to be measured in accordance with the Group's
previous accounting policy. The impact focussed on the following
items:
* Classification and measurement of financial assets -
there was no material change in the classification of
financial assets and there were no changes to the
measurement of financial assets.
* Impairment of financial assets - for trade
receivables and accrued income, the Group has applied
the simplified approach permitted by IFRS 9, which
requires the use of the lifetime expected loss
provision for all receivables. Based on the
application of the Group's credit history as a
methodology, the impact of the change to the IFRS 9
basis of provision was an additional provision of
GBP2.2m at 1 April 2018.
* Hedge accounting - the Group has continued to apply
IAS 39 Financial Instruments: Recognition and
Measurement and will provide the additional
disclosures under IFRS 7 Financial Instruments:
Disclosures as required.
The cumulative impact of prior period restatements on previously
presented financial statements
GBPm Previously reported IFRS 15 adjustment Accounting for put Reclassify IIP/IIC Restated
options
Group's condensed
consolidated income
statement
for the six months
ended 30 September 2017
Revenue 395.7 17.0 412.7
Cost of sales (281.7) (13.9) (295.6)
=================== ================== ====================== ================== ========
Gross profit 114.0 3.1 117.1
Administrative expenses (93.6) (0.1) (93.7)
=================== ================== ====================== ================== ========
Operating profit 20.4 3.0 23.4
Finance income 3.4 (0.2) 3.2
Finance cost (23.0) (1.3) (24.3)
=================== ================== ====================== ================== ========
Profit before tax 0.8 2.8 (1.3) 2.3
Income tax
credit/(charge) 0.5 (0.3) 0.2
=================== ================== ====================== ================== ========
Profit for the period 1.3 2.5 (1.3) 2.5
=================== ================== ====================== ================== ========
Attributable to:
Owners of the Company (2.2) 1.3 (1.3) (2.2)
Non-controlling
interests 3.5 1.2 4.7
Operating profit
analysed as:
Underlying EBITDA 51.4 3.1 54.5
Amortisation of
acquired intangibles (20.0) (20.0)
Depreciation and
amortisation of
software (1.9) (1.9)
Share-based payment
charge (5.8) (5.8)
One-off items (3.3) (0.1) (3.4)
======================= =================== ================== ====================== ================== ========
Operating profit 20.4 3.0 23.4
======================= =================== ================== ====================== ================== ========
Loss per share (pence)
Basic (0.5) 0.3 (0.3) (0.5)
Diluted (0.5) 0.3 (0.3) (0.5)
=================== ================== ====================== ================== ========
Group's condensed
consolidated balance
sheet
at 30 September 2017
Investment in
productions 241.6 6.1 3.9 251.6
Trade and other
receivables 88.8 (14.4) 74.4
Deferred tax assets 31.7 5.5 37.2
=================== ================== ====================== ================== ========
Total non-current
assets 1,043.0 (2.8) 3.9 1,044.1
=================== ================== ====================== ================== ========
Investment in acquired
content rights 290.6 6.4 (3.9) 293.1
Trade and other
receivables 456.9 (16.0) 440.9
=================== ================== ====================== ================== ========
Total current assets 904.5 (9.6) (3.9) 891.0
=================== ================== ====================== ================== ========
Total assets 1,947.5 (12.4) - 1,935.1
=================== ================== ====================== ================== ========
Other payables 39.7 (5.0) 34.7
Deferred tax
liabilities 47.7 (2.1) 45.6
=================== ================== ====================== ================== ========
Total non-current
liabilities 582.0 (2.1) (5.0) 574.9
=================== ================== ====================== ================== ========
Trade and other
payables 549.0 18.2 567.2
=================== ================== ====================== ================== ========
Total current
liabilities 642.5 18.2 660.7
=================== ================== ====================== ================== ========
Total liabilities 1,224.5 16.1 (5.0) 1,235.6
=================== ================== ====================== ================== ========
Net assets at 30
September 2017 723.0 (28.5) 5.0 699.5
=================== ================== ====================== ================== ========
Currency translation
reserve 63.6 0.7 64.3
Retained earnings 94.7 (27.2) 5.0 72.5
=================== ================== ====================== ================== ========
Equity attributable to
owners of the Company 641.2 (26.5) 5.0 619.7
Non-controlling
interests 81.8 (2.0) 79.8
=================== ================== ====================== ================== ========
Total equity 723.0 (28.5) 5.0 699.5
=================== ================== ====================== ================== ========
Total liabilities and
equity 1,947.5 (12.4) - 1,935.1
=================== ================== ====================== ================== ========
Group's condensed
consolidated cash flow
statement for the six
months ended 30
September 2017
Operating (loss)/profit 20.4 3.0 23.4
Amortisation of
investment in
productions 50.4 29.1 0.2 79.7
Investment in
productions, net of
grants received (141.7) (1.2) (142.9)
Amortisation of
investment in acquired
content rights 54.3 (3.4) (0.2) 50.7
Investment in acquired
content rights (88.1) 1.2 (86.9)
=================== ================== ====================== ================== ========
Operating cash flows
before changes in
working capital and
provisions (77.0) 28.7 (48.3)
Increase in trade and
other receivables (22.7) (9.2) (31.9)
(Decrease)/increase in
trade and other
payables 71.8 (19.5) 52.3
=================== ================== ====================== ================== ========
Cash outflow from
operations (51.8) - - (51.8)
=================== ================== ====================== ================== ========
Group's consolidated
balance sheet
at 31 March 2018
Investment in
productions 181.5 18.7 5.9 206.1
Trade and other
receivables 93.7 (16.7) 77.0
Deferred tax assets 26.2 8.1 34.3
=================== ================== ====================== ================== ========
Total non-current
assets 937.1 10.1 5.9 953.1
=================== ================== ====================== ================== ========
Investment in acquired
content rights 253.4 0.5 (5.9) 248.0
Trade and other
receivables 481.5 (42.1) 439.4
=================== ================== ====================== ================== ========
Total current assets 899.1 (41.6) (5.9) 851.6
=================== ================== ====================== ================== ========
Total assets 1,836.2 (31.5) - 1,804.7
=================== ================== ====================== ================== ========
Deferred tax
liabilities 34.7 (1.7) 33.0
=================== ================== ====================== ================== ========
Total non-current
liabilities 525.0 (1.7) 523.3
=================== ================== ====================== ================== ========
Trade and other
payables 491.3 10.1 501.4
=================== ================== ====================== ================== ========
Total current
liabilities 605.2 10.1 615.3
=================== ================== ====================== ================== ========
Total liabilities 1,130.2 8.4 1,138.6
=================== ================== ====================== ================== ========
Net assets 706.0 (39.9) 666.1
=================== ================== ====================== ================== ========
Currency translation
reserve 28.5 1.3 29.8
Retained earnings 58.4 (39.4) 19.0
=================== ================== ====================== ================== ========
Equity attributable to
owners of the Company 657.9 (38.1) 619.8
Non-controlling
interests 48.1 (1.8) 46.3
=================== ================== ====================== ================== ========
Total equity 706.0 (39.9) 666.1
=================== ================== ====================== ================== ========
Total liabilities and
equity 1,836.2 (31.5) 1,804.7
=================== ================== ====================== ================== ========
Several other amendments and interpretations apply for the first
time in 2018, but do not have an impact on the interim condensed
consolidated financial statements of the Group.
NEW, AMED AND REVISED STANDARDS ISSUED BUT NOT ADOPTED DURING
THE YEAR
IFRS 16 Leases is effective for reporting periods commencing
after 1 January 2019. IFRS 16 requires lessees to recognise a lease
liability reflecting future lease payments and a right-of-use asset
for lease contracts, subject to limited exceptions for short-term
leases and leases of low value assets. The quantitative impact of
IFRS 16 on the Group's net assets and results is in the process of
being assessed with an initial data set to determine the impact on
the Group. IFRS 16 will have an impact on the balance sheet as both
assets and liabilities will increase, and also an impact on
components within the income statement, as operating lease rental
charges will be replaced by depreciation and finance costs. Please
refer to Note 32 to the Group's consolidated financial statements
for the year ended 31 March 2018 which gives an indication of the
Group's total operating lease commitments. IFRS 16 will not have
any impact on cash flows. The impact of the transitional
arrangements is under review.
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 interim 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 as at and for the year ended 31 March 2018.
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 films and television series
and competition in the market. In addition, revenues 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. The
results of the Family & Brands Division are affected by the
timing of royalties earned on properties driven by timing of
holiday periods. Within the Film & Television Division,
revenues from television series are driven by contracted
delivery/release dates with primary broadcasters and can fluctuate
significantly from period-to-period. Film 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
On 1 April 2018 the Group combined its Film Division and
Television Division into one reporting segment, Film &
Television, which is in line with broader developments within the
media and entertainment industry. The Group is now organised for
internal reporting and management purposes into:
* Family & Brands - the production, acquisition,
exploitation and trading of family brands across all
media including licensing and merchandising
- Film & Television - the production, acquisition, exploitation
and trading of television, film and music content rights across
all media
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.
Inter-segment sales are charged at prevailing market prices.
Segment information for the period ended 30 September 2018 is
presented below with the comparative restated for the
reorganisation of the Group:
Family & Brands Film & Television Eliminations Consolidated
GBPm GBPm GBPm GBPm
Segment revenue
External revenue 73.6 331.3 - 404.9
Inter-segment revenue 2.4 0.2 (2.6) -
Total segment revenue 76.0 331.5 (2.6) 404.9
=========================================== ================ ================== ============= =============
Segment results
Segment underlying EBITDA 47.2 17.1 0.3 64.6
Group costs (4.5)
=========================================== ================ ================== ============= =============
Underlying EBITDA 60.1
Amortisation of acquired intangibles (20.1)
Depreciation and amortisation of software (1.4)
Share-based payment charge (7.5)
One-off items (59.4)
=========================================== ================ ================== ============= =============
Operating loss (28.3)
Finance income 5.7
Finance costs (17.5)
=========================================== ================ ================== ============= =============
Loss before tax (40.1)
Income tax charge (4.6)
Loss for the period (44.7)
=========================================== ================ ================== ============= =============
Segment assets
Total segment assets 269.8 1,550.3 - 1,820.1
Unallocated corporate assets 2.4
Total assets 1,822.5
=========================================== ================ ================== ============= =============
Segment information for the period ended 30 September 2017 is
presented below restated for the reorganisation of the Group and
the impact of IFRS 15:
Restated
Family & Brands Film & Television Eliminations Consolidated
GBPm GBPm GBPm GBPm
=========================================== ================ ================== ============= =============
Segment revenue
External revenue 56.6 356.1 - 412.7
Inter-segment revenue 2.1 0.4 (2.5) -
Total segment revenue 58.7 356.5 (2.5) 412.7
=========================================== ================ ================== ============= =============
Segment results
Segment underlying EBITDA 36.6 22.7 (0.2) 59.1
Group costs (4.6)
=========================================== ================ ================== ============= =============
Underlying EBITDA 54.5
Amortisation of acquired intangibles (20.0)
Depreciation and amortisation of software (1.9)
Share-based payment charge (5.8)
One-off items (3.4)
=========================================== ================ ================== ============= =============
Operating profit 23.4
Finance income 3.2
Finance costs (24.3)
=========================================== ================ ================== ============= =============
Profit before tax 2.3
Income tax credit 0.2
Profit for the period 2.5
=========================================== ================ ================== ============= =============
Segment assets
Total segment assets 268.0 1,658.0 - 1,926.0
Unallocated corporate assets 9.1
Total assets 1,935.1
=========================================== ================ ================== ============= =============
4. REVENUE
The Group's revenue is predominantly derived from the licensing
of intellectual property. These licences transfer to a customer
either a right to use an entity's intellectual property as it
exists at the point in time at which the licence is granted (static
licence), or a right to access an entity's intellectual property as
it exists throughout the licence period (dynamic licence). Revenues
are accounted for when (static licence) or as (dynamic licence) the
performance obligation promised in the contract is satisfied, i.e.,
when the seller transfers the risks and rewards of the right to
use/access the intellectual property and the customer obtains
control of the use/access of that licence. Consequently, revenues
from static licences are recognised at the point in time when the
licence is transferred, and the customer can use and benefit from
the licence. Revenues from dynamic licences are accounted for over
time, over the licence period as from the date the customer can use
and benefit from the licence. The specific policies by key streams
of revenue are as follows:
Licensing and merchandising
The Group enters into licensing contracts which allows its
customers to produce merchandise and household goods portraying the
Group's intellectual property. These licences are dynamic as the
licensees are exposed to the Group's activities to maintain the
intellectual property and benefit is derived over the licence
period.
The consideration due from licensees is variable as the contract
price is a function of merchandise sales over and above the
contracts' minimum guarantee. The Group records revenue (including
minimum guarantee) as sales or usage occurs based on the amount to
which the Group reliably estimate to the extent the amounts are
recoverable.
Sales of exploitation rights of film and television content
(broadcast and licensing, theatrical, transactional video on demand
and international sales within production and other)
These sales are intellectual property licences granted by the
Group to licensees and which give them certain rights over its
audiovisual works. These licences are static licences because they
transfer a right to use the audiovisual content as they exist at
the point in time at which the licences are granted.
Revenues from the licensing of the exploitation rights are
accounted for, from the moment when the customer is able to use it
and obtain the remaining benefits. When the consideration paid by
the customer is a fixed price, revenues from the sales of
exploitation rights are accounted for at the later of the delivery
or the opening of the exploitation window. When the consideration
paid by the customer is variable in the form of a sales-based
royalty to the end customer, royalty revenues are recognised as the
subsequent sale occurs or is estimated to have occurred.
Transactional
Revenues from physical sales (i.e. DVDs and Blu-rays), net of a
provision for estimated returns and rebates if any, are accounted
for, either upon the point at which goods are despatched or upon
the sale to the ultimate customer for consignment sales.
Licence sales to customers via digital download are recognised
at the point of transmission.
Production royalties, participation fees and producer fees and
other
The Group can be contracted to create video content for a
commissioning broadcaster and earns revenue through either a fixed
fee or ongoing royalty payments attached to the broadcaster's
revenue. The customer simultaneously receives and consumes the
benefits of these services, as such the Group recognises revenue
over the period of production. Further royalty revenue is
recognised as statements are received or royalty amounts can be
reliably estimated and are recoverable.
License fee revenue from trading of film and television content
is recognised when notice of delivery is provided to customers and
collection of the fee is reasonably assured.
In the following table, revenue is disaggregated by major
service lines and primary geographical market. The table also
includes a reconciliation of the disaggregated revenue with the
Group's reportable segments. See Note 3.
DISAGGREGATION OF REVENUE
Family & Brands Film & Television Consolidated
================== ==================== =================
Restated Restated Restated
2018 2017 2018 2017 2018 2017
Primary geographical markets
US 21.5 21.0 167.1 131.3 188.6 152.3
Canada 2.3 1.7 42.6 61.7 44.9 63.4
UK 9.6 10.0 30.1 32.1 39.7 42.1
Rest of Europe 11.6 9.5 52.6 69.0 64.2 78.5
Rest of world 28.6 14.4 38.9 62.0 67.5 76.4
73.6 56.6 331.3 356.1 404.9 412.7
====== ========== ======== ========== ====== =========
Major revenue streams
Theatrical - - 19.1 23.5 19.1 23.5
Transactional 14.7 9.7 58.3 80.6 73.0 90.3
Broadcast and licensing 13.5 5.5 174.9 145.2 188.4 150.7
Licensing and merchandising 44.7 41.2 2.5 3.7 47.2 44.9
Production and other 0.7 0.2 76.5 103.1 77.2 103.3
73.6 56.6 331.3 356.1 404.9 412.7
====== ========== ======== ========== ====== =========
Timing of revenue recognition
Products transferred at a point in time 29.0 15.4 289.5 335.7 318.5 351.1
Products transferred over time 44.6 41.2 41.8 20.4 86.4 61.6
73.6 56.6 331.3 356.1 404.9 412.7
====== ========== ======== ========== ====== =========
5. ONE-OFF ITEMS
Items of income or expense that are considered by management for
designation as one-off are as follows:
Restated
Six months ended Six months ended
30 September 2018 30 September 2017
GBPm GBPm
=========================== ================== ==================
Restructuring costs
Strategy-related 60.5 0.8
Total restructuring costs 60.5 0.8
=========================== ================== ==================
Other items
Acquisition costs 0.2 2.2
Other items (1.3) 0.4
Total other items (1.1) 2.6
=========================== ================== ==================
Total one-off costs 59.4 3.4
=========================== ================== ==================
Restructuring costs
Changes in consumer behaviour within the content industry are
accelerating at an unprecedented level and in the six months ended
30 September 2018, the home entertainment markets in all of the
Group's operating territories experienced significant challenges.
As a result the Group has recorded a one-off charge of GBP57.0m in
the period which includes the following:
* Impairment of investment in acquired content rights
of GBP16.8m resulting from the lowering of previous
expectations regarding the home entertainment
business driven by an acceleration of market decline;
* Write down of home entertainment related inventories
of GBP22.9m resulting from an assessment of the
realisable value of inventory below the previous
assessment of net realisable value;
* One-off bad debt expense on trade and other
receivables of GBP13.4m; and
* Related severance and staff costs of the home
entertainment businesses of GBP3.9m.
Further one-off charges of GBP3.5m are associated with the
integration of the Film and Television Divisions and include
GBP3.1m related to severance and staff costs and GBP0.2m related to
consultancy fees.
Other items
Acquisition costs of GBP0.2m relates to costs associated with
corporate projects during the year.
Other one-off credits of GBP1.3m include a GBP1.6m settlement
received on a tax warranty relating to a prior year acquisition and
is partially offset by GBP0.3m of legal costs for certain corporate
projects.
Prior period
In the prior period, one-off items resulted in a net charge of
GBP3.4m which consisted of GBP0.7m of costs associated with the
integration of the Film and Television Divisions, GBP0.2m of
foreign exchange movement on accrued restructuring costs and the
adoption of IFRS 15, acquisition costs of GBP2.2m and other
corporate project costs of GBP0.3m.
6. EARNINGS PER SHARE
The weighted average number of shares used in the earnings per
share calculations are set out below:
Restated(2)
Six months ended Six months ended
30 September 2018 30 September 2017
Million Million
=========================================================================== ================== ==================
Weighted average number of shares for basic losses per share and adjusted
basic earnings per
share(1) 461.7 429.7
Effect of dilution for adjusted:
Employee share awards(2) 4.7 7.4
============================================================================ ================== ==================
Weighted average number of shares for adjusted diluted earnings per share 466.4 437.1
============================================================================ ================== ==================
1. Shares held by the EBT, classified as own shares, are excluded from earnings per share.
2. During the period the Group identified that the dilutive
element of the weighted average number of shares had previously
included a dilutive element for contingently issuable shares where
the vesting criteria had not been achieved at the completion of the
reporting period. This has been corrected in the comparative
information with an immaterial impact on adjusted dilutive earnings
per share.
ADJUSTED DILUTED EARNINGS PER SHARE
The directors believe that the presentation of adjusted diluted
earnings per share, being the fully diluted earnings per share
adjusted for 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
one-off tax items, helps to explain the underlying performance of
the Group. A reconciliation of the earnings used in the fully
diluted earnings per share calculation to reported losses per share
is set out below:
Restated
Period ended Period ended
30 September 2018 30 September 2017
Note GBPm Pence per share GBPm Pence per share
======================================================== ===== ======= ================ ====== ================
Loss for the year attributable to the owners of the
Company (45.8) (9.8) (2.2) (0.5)
Add back amortisation of acquired intangibles 20.1 4.3 20.0 4.6
Add back share-based payment charge 7.5 1.6 5.8 1.3
Add back one-off items 5 59.4 12.7 3.4 0.8
Add back one-off net finance income/costs (4.9) (1.1) 7.7 1.8
Deduct tax effect of above items and discrete tax items (6.1) (1.2) (9.7) (2.3)
Deduct non-controlling interests share of above items (1.7) (0.4) (2.8) (0.6)
Adjusted earnings attributable to the owners of the
Company 28.5 6.1 22.2 5.1
======================================================== ===== ======= ================ ====== ================
Adjusted earnings attributable to non-controlling
interests 2.8 7.5
Adjusted profit for the year 31.3 29.7
======================================================== ===== ======= ======
7. GOODWILL
ANALYSIS OF AMOUNTS RECOGNISED BY THE GROUP
Total
Note GBPm
============================= ===== ======
Cost and carrying amount
At 1 April 2018 375.2
Acquisition of subsidiaries 8 6.0
Exchange differences 19.1
At 30 September 2018 400.3
============================= ===== ======
CGU
Family & Brands 57.3
Film & Television 343.0
============================= ===== ======
Total 400.3
============================= ===== ======
Goodwill arising on a business combination is allocated to the
cash generating units (CGUs) that are expected to benefit from that
business combination. As reported in the 31 March 2018 consolidated
financial statements, the directors believe that no reasonable
change in the key assumptions would cause the carrying value of the
CGUs to exceed their recoverable amount for the CGUs at that
date.
REVISION OF CASH GENERATING UNITS
Consistent with the combination of the Group's previous Film and
Television Divisions during the period, the Group has reviewed its
assessment of cash generating units (CGUs) for the purpose of
measuring impairment of non-financial assets including goodwill.
The directors consider the CGUs of the Group to be Family &
Brands and Film & Television. Following the acquisition of the
remaining 49% of the shares in The Mark Gordon Company (MGC) on 2
March 2018, its operations have also been integrated into the newly
combined Film & Television Division.
The Group does not consider there to be a lower level than the
whole Film & Television Division which can generate largely
independent cash flows due to rationalisation of core operating
functions and market developments which mean that the distinction
between film and television content is disappearing as content
distribution is increasingly performed by digital platforms. There
has been no change in assessment for Family & Brands.
A triggers analysis has been performed at 30 September as
required by IAS 34 and IAS 36. Although no triggers were identified
at a CGU level, given the developments in the home entertainment
impacting the Group's film distribution businesses a limited
impairment review has been carried out at 30 September 2018.
The assumptions for the purpose of the limited impairment review
have been calculated based on a consistent methodology as reported
in the consolidated financial statements for the year ended 31
March 2018 and the calculations of the value-in-use for both CGUs
are most sensitive to the operating profit, discount rate, and
terminal growth rate assumptions. The key assumptions used in this
value-in-use calculation are pre-tax discount rate of 8.5% and a
terminal growth rate of 3.0%. The value-in-use calculation of both
CGUs shows there is significant headroom compared to the carrying
value of non-current assets at 30 September 2018 and the directors
believe that no reasonable change in the key assumptions would
cause the carrying value of the CGUs to exceed their recoverable
amount. A full impairment test will be carried out in March 2019
and disclosed in the full year financial statements.
8. BUSINESS COMBINATIONS AND TRANSACTIONS WITH EQUITY
HOLDERS
ACQUISITIONS
The Group acquired 70.1% stake in Whizz Kid Entertainment
Limited (Whizz Kid), a UK-based non-scripted television production
company, on 9 April 2018 for a total consideration of GBP6.9m
settled by a cash payment of GBP5.0m and by issuing 637,952 shares
in Entertainment One Ltd. amounting to GBP1.9m. Acquired
intangibles of GBP0.7m were identified which represent the value of
television show concepts and back end royalties following the end
of a series production. The resultant goodwill represents the value
placed on the opportunity to grow the content and formats produced
by Whizz Kid. None of the goodwill is expected to be tax deductible
for income tax purposes.
Provisional
GBPm
================================================================================= ============
Acquired intangibles 0.7
Trade and other receivables 1.3
Cash and cash equivalents 3.6
Trade and other payables (3.8)
Current tax liabilities (0.4)
Provisions (0.1)
Total net assets acquired 1.3
================================================================================== ============
Group's proportionate interest of fair value of net assets acquired 70.1%
Group's share of fair value of net assets acquired 0.9
Goodwill 6.0
Net assets acquired 6.9
================================================================================== ============
Satisfied by:
Cash 5.0
Shares in Entertainment One Ltd. 1.9
Total consideration transferred 6.9
================================================================================== ============
The net cash outflow arising in the period from the acquisition was made up of:
Cash consideration settled during the year 5.0
Less: Cash and cash equivalents acquired (3.6)
Total net cash outflow 1.4
================================================================================== ============
Non-controlling interests proportionate interest of fair value of net assets 0.4
Total non-controlling interests 0.4
================================================================================== ============
As part of the transaction, the Group entered into a put and
call option over the remaining shares of Whizz Kid it did not
acquire. This option can be exercised in 2023 with the price
determined as a multiple of the average performance of Whizz Kid in
the preceding 5 years. At inception the Group estimated the present
value of the options to be GBP3.1m which has been recorded as an
adjustment to the Put option reserve.
TRANSACTIONS WITH EQUITY HOLDERS
On 27 June 2018, the Group acquired the remaining 49% in Sierra
Pictures, LLC (Sierra/Affinity) for a total consideration of
GBP14.2m settled by a cash payment of GBP9.7m and by issuing
1,231,768 shares in Entertainment One Ltd. amounting to
GBP4.5m.
The carrying value of the non-controlling interest in
Sierra/Affinity on 27 June 2018 amounting to GBP8.6m was
de-recognised and transaction costs of GBP0.1m was recorded as a
charge to the Group's retained earnings. The Currency translation
reserve relating to the previous non-controlling interest of
GBP1.2m has been transferred to the Group. The difference of
GBP6.7m has been recognised as a charge to the Group's retained
earnings.
As a result of the acquisition, the put and call options granted
over the 49% shares have been cancelled. The carrying value of the
liability as at 27 June 2018 of GBP17.9m has been reversed with the
corresponding adjustment to the Put option reserve of GBP12.2m. The
difference has been credited to a one-off finance income of
GBP5.7m.
PRIOR PERIOD ACQUISITIONS
During the prior 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.
9. 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 39 to 43 of the Annual Report and
Accounts for the year ended 31 March 2018 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.
The Group continues to assess and respond to the implications of
Brexit and expects there to be no significant exposures. 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 2018 a gain of GBP39.5m (2017: loss of GBP18.8m) has been
recorded in the Currency translation reserve, reflecting the impact
of the stronger pound sterling on translation of the Group's
non-sterling net assets. 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 & Brands
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 has been no material change in
risk factors since 31 March 2018. Further details of these risks
are provided on pages 39 to 43 of the Annual Report and Accounts
for the year ended 31 March 2018, a copy of which is available on
the Company's website at www.entertainmentone.com.
10. 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. The nature of related parties disclosed in
the consolidated financial statements for the Group as at and for
the year ended 31 March 2018 has not changed.
TRANSACTIONS WITH SIGNIFICANT SHAREHOLDERS
Canadian Pension Plan Investment Board (CPPIB) held 85,597,069
common shares in the Company at 30 September 2018 (31 March 2018:
85,597,069), amounting to 18.47% (31 March 2018: 18.60%) 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 2018 was C$45,000 (30 September 2017:
C$51,800).
At 30 September 2018 the amounts outstanding payable to CPPIB
are C$62,700 (30 September 2017: C$53,500).
TRANSACTIONS WITH JOINT VENTURES
The Group owns 50% of the shares in the joint venture eOne/Fox
Home Ent Distribution Canada. During the six months ended 30
September 2018 the Group made purchases of GBP272,160 from eOne/Fox
Home Ent Distribution Canada. At 30 September 2018 the amounts
outstanding payable to eOne/Fox Home Ent Distribution Canada from
the Group are GBP68,148.
The Group owns 50% of the shares in the joint venture Suite
Distribution Limited. During the six months ended 30 September 2018
the Group received income of GBP126,929 from Suite Distribution
Limited. At 30 September 2018 the amounts receivable from Suite
Distribution Limited are GBP110,000.
The Group owns 50% of the shares in the joint venture Squid
Distribution LLC. During the six months ended 30 September 2018 the
Group made purchases of GBPnil from Squid Distribution LLC. At 30
September 2018 the amounts payable to Squid Distribution LLC are
GBP265,000.
The Group owns 40% of the shares in the joint venture Automatik
Entertainment LLC. During the six months ended 30 September 2018
the Group received income of GBPnil from Automatik Entertainment
LLC. At 30 September 2018 the amounts receivable from Automatik
Entertainment LLC are GBP1,625,000.
The Group owns 50% of the shares in the joint venture Creative
England-Entertainment One Global Television Initiative Limited.
During the six months ended 30 September 2018 the Group received
income of GBPnil from Creative England-Entertainment One Global
Television Initiative Limited. At 30 September 2018 the amounts
receivable from Creative England-Entertainment One Global
Television Initiative Limited are GBP213,323.
KEY MANAGEMENT PERSONNEL
Key management consists of the Group Chief Executive Officer and
the Group Chief Financial Officer both of whom are executive
directors (30 September 2017: two executive directors and the Group
Chief Financial Officer). 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:
Period ended Period ended
30 September 2018 30 September 2017
GBPm GBPm
============================== =================== ===================
Short-term employee benefits 0.7 0.8
Share-based payment benefits 1.9 2.8
=================== ===================
Total 2.6 3.6
=============================== =================== ===================
For additional information in respect of key management
compensation please refer to pages 71 to 79 of the 2018 Annual
Report and Accounts.
11. FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
As at 30 September 2018, 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 GBP355.0m senior secured notes, which have a fair value
of GBP370.2m. 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 2018.
At 30 September 2018, the Group had the following financial
assets and liabilities grouped into Level 2:
Period ended Year ended
30 September 2018 31 March 2018
GBPm GBPm
============================================= =================== ===============
Derivative financial instrument assets 1.7 1.1
Derivative financial instrument liabilities (1.5) (2.7)
============================================== =================== ===============
At 30 September 2018, the Group had the following financial
assets and liabilities grouped into Level 3:
Period ended Year ended
30 September 2018 31 March 2018
GBPm GBPm
================================== =================== ===============
Contingent consideration payable (2.6) (2.5)
Financial investments 1.8 0.8
=================================== =================== ===============
The movements in contingent consideration payable and financial
investment assets during the period ended 30 September 2018 were as
follows:
Contingent consideration payable on Financial investments Total
acquisitions
GBPm GBPm GBPm
========================================= ======================================== ====================== ======
Balance at 1 April 2017 (6.0) 0.7 (5.3)
Amounts settled 5.0 - 5.0
Additions (1.1) - (1.1)
Change in fair value recorded in other
comprehensive income (0.6) - (0.6)
Exchange differences recorded in profit
and loss 0.2 0.1 0.3
Balance at 31 March 2018 (2.5) 0.8 (1.7)
Additions - 0.9 0.9
Exchange differences recorded in profit
and loss (0.1) 0.1 -
Balance at 30 September 2018 (2.6) 1.8 (0.8)
========================================== ======================================== ====================== ======
As noted in the accounting policy disclosed in the 2018 Annual
Report and Accounts, 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 related 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 financial
investments is the long-term performance of the financial
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.
FOREIGN EXCHANGE FORWARD CONTRACTS
The Group uses forward currency contracts to reduce its exposure
to transactional foreign currency movements. The majority of these
contracts are denominated in the subsidiaries' functional currency
and primarily cover minimum guaranteed advances payments in the
USA, Canada, the UK, Australia, the Benelux, Germany and Spain and
hedging of other significant financial assets and liabilities.
VALUATION TECHNIQUES AND INPUTS
Valuation technique and key Significant unobservable Relationship of unobservable
inputs input inputs to fair value
============================ ============================ ============================ ============================
Level 2: Discounted cash flow - N/a N/a
Derivative financial future cash flows are
instruments estimated based on forward
exchange rates (from
observable forward exchange
rates at the end of the
reporting period) and
contract forward
rates, discounted at a rate
that reflects the credit
risk of various
counterparties.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Level 3: Income approach - in this The value of the contingent The higher the underlying
Contingent consideration approach, the discounted consideration is dependent EBITDA growth rate, the
payable cash flow method was used to on future performance of the higher the value of
capture the business. contingent consideration
present value of the Underlying EBITDA for a payable.
expected future economic period of up to two years is
benefits to be derived from used taking into account
the ownership of management's
these investees. experience and knowledge of
The expected cash flow is market conditions of the
based on the Group's specific industries.
Board-approved budget and
plans adopted for
the applicable period.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Level 3: Income approach - in this Long-term performance of the The greater the cash
Financial investments approach, the discounted financial investments, generation of the
cash flow method was used to taking into account investment over time, the
capture the management's experience higher the fair value.
present value of the and knowledge of market
expected future economic conditions of the specific
benefits to be derived from industries.
the ownership of
these investees.
============================ ============================ ============================ ============================
CONCENTRATION OF CREDIT RISK
As at 30 September 2018 the Group had two (30 September 2017:
two) customers that owed the group more than 5% of the Group's
total trade receivable amounts.
The assessment of credit risk and the estimation of the expected
credit losses were determined by evaluating at the reporting date
for each financial asset a range of possible outcomes using
reasonable and supportable information based on past events,
current conditions and forecasts of future events and economic
conditions. A loss allowance has been recorded for all financial
assets with the carrying amount a reasonable approximation of fair
value.
12. INTEREST-BEARING LOANS AND BORROWINGS
Period ended Year ended
30 September 2018 31 March 2018
GBPm GBPm
============================================================================= =================== ===============
Bank borrowings 124.9 23.8
Senior secured notes 355.0 355.0
Deferred finance charges net of premium on senior secured notes (5.1) (5.7)
Other 1.6 2.5
Interest bearing loans and borrowings 476.4 375.6
============================================================================== =================== ===============
Cash and cash equivalents (other than those held by production subsidiaries) (43.4) (61.1)
Net Debt 433.0 314.5
============================================================================== =================== ===============
Shown in the consolidated balance sheet as:
Non-current 476.0 375.2
Current 0.4 0.4
============================================================================== =================== ===============
The following are the movements in the Group's interest-bearing
loans and borrowings during the year.
Bank borrowings Senior secured notes Other loans Total
======================
GBPm GBPm GBPm GBPm
======================
At 1 April 2017 - 285.0 0.5 285.5
Drawdowns 302.6 70.0 2.1 374.7
Repayments (269.7) - - (269.7)
Exchange differences (9.1) - (0.1) (9.2)
At 31 March 2018 23.8 355.0 2.5 381.3
====================== ================ ===================== ============ ========
Drawdowns 141.2 - - 141.2
Repayments (44.1) - (1.1) (45.2)
Exchange differences 4.0 - 0.2 4.2
At 30 September 2018 124.9 355.0 1.6 481.5
====================== ================ ===================== ============ ========
13. PRODUCTION FINANCING
Period ended Year ended
30 September 2018 31 March 2018
GBPm GBPm
================================================================== =================== ===============
Production financing 136.3 171.9
Other loans 4.7 4.9
Production financing (excl cash and cash equivalents) 141.0 176.8
=================================================================== =================== ===============
Cash and cash equivalents (held by production subsidiaries) (66.3) (58.1)
Production financing 74.7 118.7
=================================================================== =================== ===============
Production financing shown in the consolidated balance sheet as:
Non-current 86.3 86.7
Current 54.7 90.1
=================================================================== =================== ===============
The following are the movements in the Group's production
financing and other loans during the year.
Production financing Other loans Total
======================
GBPm GBPm GBPm
======================
At 1 April 2017 190.8 5.2 196.0
Drawdowns 234.4 0.3 234.7
Repayments (233.9) - (233.9)
Exchange differences (19.4) (0.6) (20.0)
At 31 March 2018 171.9 4.9 176.8
====================== ===================== ============ ========
Drawdowns 63.0 - 63.0
Repayments (108.9) (0.5) (109.4)
Exchange differences 10.3 0.3 10.6
At 30 September 2018 136.3 4.7 141.0
====================== ===================== ============ ========
14. DIVIDS
On 21 May 2018 the directors declared a final dividend in
respect of the financial year ended 31 March 2018 of 1.4 pence
(2017: 1.3 pence) per share, which absorbed GBP5.3m of total equity
(2017: GBP5.6m). It was paid on 4 September 2018 to shareholders
who were on the register of members on 6 July 2018 (the record
date).
Appendix to the Interim Announcement
for the six months ended 30 September 2018
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 diluted 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 year and the comparability
between years. 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 consolidated
income statement.
ADJUSTED PROFIT BEFORE TAX AND ADJUSTED EARNINGS
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 diluted earnings per share, one-off tax items. Refer to
Note 6 Earnings per share for a reconciliation of profit before tax
and earnings per share to the adjusted measures.
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 post-tax weighted average cost of capital) for all of
eOne's family, television, music and film assets on a rateable
basis with eOne's ownership of such assets. The valuation is
completed for all committed assets at each year end and is
completed in the first half of the following fiscal year.
As such the valuation as at 31 March 2018 was completed in
September 2018 using the up to date cash flows that represent
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 year.
A reconciliation of the revenue growth on a constant currency
basis is shown below:
Restated
Six months ended Six months ended
30 September 2018 30 September 2017 Change
GBPm GBPm %
============================================================ ================== ================== =======
Revenue (per IFRS condensed consolidated income statement) 404.9 412.7 (1.9%)
Currency adjustment - (8.7)
Revenue (constant currency) 404.9 404.0 0.2%
============================================================ ================== ================== =======
A reconciliation of the underlying EBITDA growth on a constant
currency basis is shown below:
Restated
Six months ended Six months ended
30 September 2018 30 September 2017 Change
GBPm GBPm %
===================================================================== ================== ================== =======
Underlying EBITDA (per IFRS condensed consolidated income statement) 60.1 54.5 10.3%
Currency adjustment - 0.3
Underlying EBITDA (constant currency) 60.1 54.8 9.7%
===================================================================== ================== ================== =======
CASH FLOW AND NET DEBT
The Group defines net debt as interest-bearing loans and
borrowings net of cash and cash equivalents other than cash held by
production subsidiaries. Interest-bearing loans and borrowings
include senior secured notes and the 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 funded using production
financing. Refer to the Cash Flow and Production Financing section
below for a reconciliation.
Restated
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
=============================================== ============= =============
Underlying EBITDA 56.8 50.1
Adjustment for:
One-off items (58.8) (3.4)
Disposal of property, plant and equipment - -
Amortisation of investment in productions 58.2 22.3
Investment in productions, net of grants
received (52.8) (35.9)
Amortisation of investment in acquired
content rights 35.7 50.8
Investment in acquired content rights (64.5) (86.9)
Impairment of investment in acquired content
rights 16.8 -
Operating cash flows before changes in
working capital and provisions (8.6) (3.0)
Working capital movements (52.4) (56.9)
Income tax paid (14.6) (21.7)
Net cash from operating activities (75.6) (81.6)
=============================================== ============= =============
Cash one-off items 3.9 28.0
Purchase of plant, property and equipment
and software (1.7) (1.5)
Interest paid (14.7) (11.5)
Free cash flow (88.1) (66.6)
=============================================== ============= =============
Cash one-off items (3.9) (28.0)
One-off finance items (0.9) (13.2)
Acquisitions, net of net debt acquired
and transactions with shareholders (12.0) (3.2)
Net proceeds on issue of shares 0.1 -
Dividends paid (9.3) (10.0)
Net increase in net debt (114.1) (121.0)
=============================================== ============= =============
Net debt at beginning of the period (314.5) (187.4)
Net increase in net debt (114.1) (121.0)
Effect of foreign exchange rate changes
on net debt held (4.4) (4.4)
----------------------------------------------- ------------- -------------
Net debt at the end of the period (433.0) (312.8)
=============================================== ============= =============
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
2018 2017
GBPm GBPm
=============================================== ============= =============
Net increase in net debt (114.1) (121.0)
Net drawdown of interest bearing loans
and borrowings 96.0 98.5
Fees paid in relation to the Group's bank
facility, premium received on notes and
one-off finance costs (0.3) (0.2)
Acquisitions, net debt acquired - -
Amortisation of deferred finance charges
and premium on secured notes 0.9 0.9
Write-off of deferred finance charges
and other items - -
Net decrease in cash and cash equivalents
at the end of the period (net of bank
overdrafts) (17.5) (21.8)
=============================================== ============= =============
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 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
Group deems this type of financing to be short-term in nature and
is excluded from net debt. The Group therefore shows the cash flows
associated with these activities separately.
The table below reconciles free cash flow associated with the
production financing of the Group, shown in the Other Financial
Information of this Interim Announcement, to the net cash from
operating activities and net movement in cash and cash equivalents
in the consolidated cash flow statement. It excludes cash flows
associated with net debt which are reconciled in the Cash Flow and
Net Debt section above.
Restated
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
============================================ ============= =============
Underlying EBITDA 3.3 4.4
Adjustment for:
One-off items (0.6) -
Amortisation of investment in productions 55.3 57.4
Investment in productions, net of grants
received (42.8) (107.1)
Share of results of joint ventures (0.1) -
============================================ ============= =============
Operating cash flows before changes in
working capital and provisions 15.1 (45.3)
Working capital movements 35.1 53.4
Income tax paid 0.7 (1.0)
Net cash from operating activities 50.9 7.1
============================================ ============= =============
Cash one-off items 0.7 1.8
Purchase of plant, property and equipment
and software - -
Interest paid (0.1) (0.7)
Free cash flow 51.5 8.2
============================================ ============= =============
Cash one-off items (0.7) (1.8)
Cash one-off finance items - -
Acquisitions, net of production financing
acquired - -
============================================ ============= =============
Net decrease in production financing 50.8 6.4
============================================ ============= =============
Production financing at the beginning
of the period (118.7) (152.3)
Net decrease in production financing 50.8 6.4
Effects of foreign exchange changes on
production financing held (6.8) 4.1
Production financing at the end of the
period (74.7) (141.8)
============================================ ============= =============
The table below reconciles the movement in production financing
to the movement in cash associated with production financing taken
out by the Group:
Six months Six months
ended ended
30 September 30 September
2018 2017
GBPm GBPm
============================================ ============= =============
Net decrease in production financing 50.8 6.4
Net repayment of production financing (46.4) (1.9)
Net increase in cash and cash equivalents
at the end of the period 4.4 4.5
============================================ ============= =============
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 half-yearly report of Entertainment One Ltd. for the six
month period ended 30 September 2018. 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 as at 30 September 2018;
-- 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 half-yearly
report 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 half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
half-yearly report 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 half-yearly report 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 half-yearly
report 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
19 November 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LFFVILILALIT
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