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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Entertainment One Ltd. | LSE:ETO | London | Ordinary Share | CA29382B1022 | COMM SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 557.00 | 557.00 | 557.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMETO
RNS Number : 0400X
Entertainment One Ltd
21 November 2017
ENTERTAINMENT ONE LTD.
HALF YEAR RESULTS (UNAUDITED)
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
ROBUST FIRST HALF PERFORMANCE, FULL YEAR ON TRACK
FINANCIAL HIGHLIGHTS
Hot Features
Premium
-- Group reported revenue stable at GBP396 million
(2016: GBP401 million), with strong growth in
Family and Television offsetting lower performance
in Film
-- Group reported underlying EBITDA up 36% at GBP51
million (2016: GBP38 million), driven by revenue
growth in Family and Television and lower costs
in Film
-- Group adjusted profit before tax up 53% at GBP36
million (2016: GBP24 million), Group reported
profit before tax GBP0.8 million (2016: GBP2.5
million loss)
-- Adjusted diluted earnings per share of 4.8 pence
per share (2016: 2.6 pence per share)
OPERATIONAL HIGHLIGHTS
-- Television revenue 17% higher driven by new
productions in The Mark Gordon Company and continued
growth in eOne Television
-- Family generated US$1.2 billion of retail sales
in the period, an increase of 71%, driven by
the hugely successful retail rollout of PJ Masks
and continued growth of Peppa Pig
o PJ Masks revenue growth over 600% period-on-period
o Continued revenue growth for Peppa Pig of
18% due to expanding footprint including China
-- Strong Film pipeline including Steven Spielberg's
The Post starring Tom Hanks and Meryl Streep,
A Bad Moms Christmas and Molly's Game
-- Independent library valuation increased to US$1.7
billion at 31 March 2017 (2016: US$1.5 billion)
-- Reshaping of Film distribution business from
physical to digital, which began in FY16 and
was substantially completed in FY17, results
in lower operating costs
-- Integration of Film and Television Divisions
into a single studio operation proceeding as
planned and expected to generate annual cost
savings of approximately GBP8 million by FY20
-- The Group anticipates full year financial performance
to be in line with management expectations
CORPORATE
-- Robert McFarlane, former CFO of TELUS Corporation,
and Michael Friisdahl, CEO of Maple Leaf Sports
& Entertainment appointed as non-executive directors
-- Joe Sparacio, Chief Financial Officer, appointed
as an executive director, with Margaret O'Brien
stepping down as an executive director to increase
the proportion of independent non-executive
directors on the Board
ALLAN LEIGHTON, ChAIRMAN, commented:
"Entertainment One has delivered a strong set of Group results for the first half of the financial year and has made significant progress in reshaping the Film/Television business to reflect the evolving entertainment market. I thank Margaret O'Brien for her contribution to the Board, as she moves into an expanded operational role, and welcome Robert McFarlane and Michael Friisdahl as new independent non-executive directors with the significant experience that they bring to eOne."
Darren Throop, Chief Executive OFFICER, commented:
"We are pleased to be able to report very robust first half performance which includes strong growth in the Family Division, strong performance in the wider Television Division, including The Mark Gordon Company, and lower operating costs and improved gross margins in Film which have driven strong growth in Group underlying EBITDA.
The Group's strategy to invest in content continues to bear fruit and the entertainment market's focus on quality content plays to Entertainment One's strengths ensuring that the Group is ideally positioned for the future, as illustrated by the increase in the underlying library valuation from US$1.5 billion to US$1.7 billion at 31 March 2017.
The period ahead is an exciting one. The Television business has 82% of the full year's expected margin already committed or greenlit; the Family business is underpinned by exceptional performance from Peppa Pig and PJ Masks; and the Film Division continues to focus investment on new partnerships to reshape the business. As such, the Group remains on track to deliver full year financial performance in line with management expectations."
FINANCIAL SUMMARY
Reported
(unaudited)
=========================
GBPm 2017 2016 Change
Revenue 395.7 401.0 (1%)
Underlying EBITDA
(1) 51.4 37.7 36%
Net cash used in operating
activities (74.5) (65.5) (14%)
Investment in acquired
content and productions
(2) 229.8 198.4 16%
============================ ======= ======= =======
Reported Adjusted
(unaudited) (unaudited)
======================= =====================
GBPm 2017 2016 Change 2017 2016 Change
=======
Profit before tax
(3) 0.8 (2.5) 132% 36.4 23.8 53%
Diluted earnings per
share (pence) (3) (0.5) (1.4) 0.9 4.8 2.6 2.2
====================== ====== ====== ======= ===== ===== =======
1. Underlying EBITDA is operating profit or loss excluding amortisation of acquired intangibles; depreciation; amortisation of software; share-based payment charge; tax, finance costs and depreciation related to joint ventures; and operating one-off items. Underlying EBITDA is reconciled to operating profit in the Other Financial Information section of this Interim Announcement.
2. Investment in acquired content and productions is the sum of "investment in productions, net of grants received" and "investment in acquired content rights", as shown in the condensed consolidated cash flow statement.
3. Adjusted profit before tax and adjusted diluted earnings per share are the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted diluted earnings per share, one-off tax items. Refer to the Other Financial Information section of this Interim Announcement for a reconciliation of adjusted profit before tax and Note 6 of the condensed consolidated financial statements for the adjusted diluted earnings per share reconciliation.
4. Reported 2016 amounts have been restated, refer to Note 2 of the condensed consolidated financial statements for further details.
Group reported revenue was broadly in line with prior period at GBP395.7 million (2016: GBP401.0 million), driven by strong growth in Family (64% higher) and Television (17% higher), offsetting a decline in Film (29% lower). On a constant currency basis (re-translating prior period reported financials at current period foreign exchange rates), Group revenue decline was 5.0% reflecting the impact of the weaker pound sterling against the US dollar, Canadian dollar, Australian dollar and euro during the period.
Group reported underlying EBITDA was 36% higher at GBP51.4 million (2016: GBP37.7 million), driven by strong growth in Family (54% higher), Television (11% higher) and stable period-on-period results in Film. The Family Division delivered financial performance ahead of expectations driven by significant growth in PJ Masks and the continuing strong performance of Peppa Pig. Television Division underlying EBITDA was higher across eOne Television (+10%), The Mark Gordon Company (+10%) and Music (+16%). Underlying EBITDA in Film was stable despite lower revenue in theatrical, home entertainment and broadcast and digital, offset by substantial cost savings. On a constant currency basis, Group underlying EBITDA would have increased by 33.5%, reflecting the impact of the weaker pound sterling against the US dollar, Canadian dollar, Australian dollar and euro during the period.
Net cash used in operating activities amounted to GBP74.5 million in comparison to GBP65.5 million in the prior period, driven by higher investment in productions and timing of tax payments, partly offset by inflow in working capital. Investment in productions was higher across all three segments which not only supports our current operations but also drives the value of our content library.
Adjusted profit before tax for the period was GBP36.4 million (2016: GBP23.8 million), due to the increase in underlying EBITDA, partly offset by higher interest costs. Reported profit before tax for the period was GBP0.8 million (2016: GBP2.5 million loss), impacted by one-off charges mainly from set-up costs associated with MAKEREADY and contingent consideration for Renegade 83, as well as the previously announced reshaping of Film and Television Division into a single studio operation, share-based payments from additional options granted and one-off finance costs primarily relating to losses on currency contracts, as further explained in the Other Financial Information section.
Adjusted diluted earnings per share were 4.8 pence (2016: 2.6 pence). On a reported basis, diluted losses per share were 0.5 pence (2016: 1.4 pence) driven by higher underlying EBITDA partly offset by higher one-off charges, share-based payments and one-off finance costs.
OUTLOOK
The Group anticipates that full year financial performance will be in line with management expectations.
eOne Television expects to deliver around 900 half hours of produced/acquired content for the full year, with 82% of the year's expected margins already committed or greenlit. Investment in acquired content is expected to be over GBP40 million and production spend is expected to grow to GBP160 million. The second half of the year will see deliveries of new scripted shows The Detail, Burden of Truth and Let's Get Physical, second seasons of Ice, Mary Kills People and Ransom, seasons two and three of Cardinal and season three of You Me Her, with Sharp Objects (originally planned for delivery in FY18) now anticipated to be delivered in early FY19. The unscripted US business is expected to deliver a strong second half and Renegade 83 will continue to deliver new seasons of Naked and Afraid as well as new show Scared Famous. International sales for Fear the Walking Dead and The Walking Dead are expected to continue at their existing robust levels.
In addition to its existing TV programmes, The Mark Gordon Company has several television projects in production including a premium cable series and new teen dramedy Youth & Consequences partnering with YouTube Red, YouTube's video subscription service, and 50 projects in active development. Film titles in various stages of development and pre-production include Chronicles of Narnia: The Silver Chair, The Killer and All the Old Knives. The second half of the year will include continued delivery of episodes of Designated Survivor season 2, delivery of Youth & Consequences and the film Molly's Game.
Peppa Pig and PJ Masks will continue to be the drivers of growth for the Family business in the second half. For Peppa Pig, China is expected to grow from 20 licensing agreements in FY17 to 60 by the end of FY18, thanks to the strong foundation built by exposure on broadcast and on-demand platforms. PJ Masks will build upon the success of the US licensing programme and continue to roll-out across Europe and Asia, combined with a stage show which opened in the US in October 2017. The brand is generating significant interest in China and a full launch is planned for next financial year.
The Group will continue to reshape its Film operations as it adapts to the changing market place, with a strong commitment to focus on continued access to high quality premium content and on building deep partnerships with high quality film producers where eOne has more ownership and control over the content. As a result of the transition from physical to digital we expect to achieve approximately GBP10 million of savings in this financial year. For the full year, we anticipate 180 film releases in total across all territories, of which 100 are expected to be unique titles. Investment in acquired content is expected to be lower than previous expectations at GBP130 million with the reduction driven by the lower number of releases. Investment in productions is expected to be higher than the prior year at around GBP50 million.
The integration of Film and Television Divisions into a single studio operation is proceeding as planned to fully leverage eOne's scale in the market and to meet the needs of its partners and customers. This provides the business with opportunities for business efficiencies and the centralisation of a number of internal support functions that are expected to generate annual cost savings of GBP8 million by FY20.
STRATEGY
The growth in the market for content rights is underpinned by changes in the way content is being consumed. Entertainment One's strategy to focus on growth through content ownership puts it at the centre of this positive structural change.
Business model
The Group's business model remains unchanged. We continue to build the scale of the business by focusing on the Group's three key capabilities:
Source: Developing relationships with the best creative talent in the film and television industries by being their partner of choice, reflecting the quality of our people and our global distribution capabilities
Select: Leveraging local market insight from our independent sales network to invest in the right content for consumers across all eOne territories, and producing content with global appeal to service the Group's global sales operations
Sell: Using the Group's infrastructure, sales operations and global scale to maximise investment returns, ensuring the business is well-positioned to benefit from new and emerging broadcast and digital distribution platforms
The Board continues to see significant opportunity for further growth and to target doubling the size of the business over the five years to FY20 through its strategy of:
-- Developing more relationships and partnerships
with top producers and talent to increase the
volume and quality of production and content
ownership
-- Building the world's leading independent content
rights sales business to maximise the return
on investment
The strategy focuses on building a more balanced content and brand business which will see strong revenue and EBITDA growth in Television and Family, while Film continues to focus on delivering an improving investment return through a consistently high-quality release slate and further efficiency savings.
Operationally, as well as developing a digital future across the Group, the strategy targets our Divisions to deliver specific drivers of growth:
Television/Film/Music Building a global production and content business and a world-class sales network, developing partnerships with premium content creators and maximising scale and efficiency in distribution (including the recent transition from physical to distribution)
Family Creating everlasting childhood memories for our audience by carefully selecting, crafting and nurturing the very best content into global brands
STRATEGIC PROGRESS
In addition to strong operational and financial results, the Group continues to deliver strong progress against the strategy, including:
-- Ongoing integration of the Film and Television
Divisions into a combined studio, providing
opportunities for business efficiencies and
the centralisation of a number of internal support
functions that will drive further cost savings
-- Implementation of a new global Film and Television
sales team to position the business for sales
growth with television networks and global digital
platforms
-- The reshaping of the Film Division through our
physical distribution partnerships with Fox
and Sony delivering cost savings as anticipated
-- A strong development pipeline for newly created
MAKEREADY with Brad Weston
-- Continuing realignment of our film slate towards
own-produced and multi-territory releases
-- Delivering a significant increase in the independent
valuation of the Group's content library to
US$1.7 billion (2016: US$1.5 billion), demonstrating
the enduring value of premium content in a constantly-evolving
entertainment market
-- Completing another successful year under The
Mark Gordon Company's independent studio model
with significant revenue growth and multiple
projects in development
-- Reporting strong results from Peppa Pig in strategically
important markets (maturing into an evergreen
property), with further growth opportunities
in the US, China and South East Asia
-- Very strong potential for PJ Masks after the
success of the US licensing programme, with
roll-out across Europe and Asia driven by significant
interest in China
CORPORATE
DIRECTOR appointments
Margaret O'Brien is stepping down as an executive director to increase the proportion of independent non-executive directors on the Board. Margaret will move into an expanded operational role. Joseph Sparacio, Chief Financial Officer, is being appointed as an executive director.
Disclosure requirements under Rule 9.6.13 of the Financial Conduct Authority's Listing Rules in respect of Joseph Sparacio are as follows:
-- Joseph Sparacio was formerly the Executive Vice
President and Chief Financial Officer of IMAX
Corporation, retiring on 8 August 2016
Robert McFarlane, former CFO of TELUS Corporation, and Michael Friisdahl, CEO of Maple Leaf Sports & Entertainment have been appointed as non-executive directors. They both bring extensive experience with accomplished board service in different sectors.
Disclosure requirements under Rule 9.6.13 of the Financial Conduct Authority's Listing Rules in respect of Robert Gordon McFarlane are as follows:
-- Robert Gordon McFarlane was formerly the Executive
Vice-President and Chief Financial Officer of
TELUS Corporation, retiring on 31 December 2012
Disclosure requirements under Rule 9.6.13 of the Financial Conduct Authority's Listing Rules in respect on Michael Jeppe Friisdahl are as follows:
-- Michael Jeppe Friisdahl was a silent partner
in a Toronto restaurant operated as "Cucina"
- it became insolvent in 2001, was placed into
receivership on 19 January 2001 and was formally
adjudged insolvent in May 2001
There are no further disclosures required under Listing Rule 9.6.13 of the Financial Conduct Authority's Listing Rules.
ANNUAL GENERAL MEETING (AGM)
As noted in its AGM Results Announcement, the Company reflects, in the normal course, on feedback provided by Shareholders by way of their voting at the Company's Annual General Meetings.
The Company confirms that it intends to engage with its key shareholders to understand feedback on those resolutions which did not receive support in excess of 80% of votes cast and will provide a summary of such discussions and any actions agreed in its 2018 Annual Report and Accounts.
As previously noted in the Company's AGM Circular and AGM Results Announcement, the Board is pleased to announce that PricewaterhouseCoopers LLP has been appointed as the Company's external auditor following the conclusion of the formal tender process noted in the 2017 Annual Report.
DIVISIONAL OPERATIONAL & FINANCIAL REVIEW
The Divisional tables below are presented gross of inter-segment eliminations, for further information refer to Note 3 of the condensed consolidated financial statements.
TELEVISION
The Television Division comprises eOne Television, The Mark Gordon Company, the Group's Music operation and the operations of Secret Location, the Group's digital content studio. The Division's focus is on the development and production of high quality television programming and the acquisition of the best third party television content rights, for sale to broadcasters and digital platforms globally.
GBPm 2017 2016 Change Revenue 168.5 144.5 17% Underlying EBITDA 20.6 18.5 11% Investment in acquired content 15.7 13.2 19% Investment in productions 115.8 88.9 30% =========================== ====== ====== =======
Revenue for the period was 17% higher at GBP168.5 million (2016: GBP144.5 million), driven by new productions in The Mark Gordon Company and continued growth in eOne Television. Television revenue is calculated net of intra-segment eliminations of GBP25.4 million between eOne Television, The Mark Gordon Company and Music. The financial tables below are presented gross of intra-segment eliminations.
Underlying EBITDA increased by 11% to GBP20.6 million (2016: GBP18.5 million), driven by higher revenue. Investment in acquired content and productions increased by 29% in line with the growth in the Division.
eOne TELEVISION
GBPm 2017 2016 Change Revenue 118.9 98.0 21% Underlying EBITDA 7.8 7.1 10% Investment in acquired content 13.4 11.2 20% Investment in productions 82.3 63.7 29% =========================== ====== ===== =======
Revenue for the period increased 21% to GBP118.9 million (2016: GBP98.0 million), driven by higher international distribution sales for third party content and productions delivered by The Mark Gordon Company. Underlying EBITDA was ahead at GBP7.8 million (2016: GBP7.1 million), driven by revenue growth.
Investment in acquired content and productions was higher than the prior period at GBP95.7 million (2016: GBP74.9 million), driven by higher profile productions with bigger budgets and increased investment in AMC/Sundance shows. 301 half hours of new programming were produced/acquired in the period (2016: 360) with the decrease largely attributable to the mix of fewer, but higher profile titles and a lower performance in the Canadian unscripted business.
Key scripted deliveries included season two of Private Eyes, which has been renewed for a third season and continues to be one of the most watched shows on Global in Canada, Universal in the UK and TF1 in France, and eOne Television's first Australian production, The Other Guy, which was delivered and aired to strong reviews.
Key content acquisitions for the period included season three of Fear the Walking Dead, season two of Into the Badlands and the fourth and final seasons of Halt & Catch Fire and Turn which continued to support revenue. International sales for Designated Survivor were very strong due to a worldwide streaming rights deal with Netflix outside North America.
The unscripted US business delivered season three of Growing Up Hip Hop, the sixth and final season of Mary Mary, and new productions The Hollywood Puppet Sh!tshow and Siesta Key, which was MTV's highest rated new series among female demographics. Renegade 83 also delivered new seasons of Naked and Afraid which is still Discovery's most watched Sunday show among adults, and new show Who Killed Tupac. The business also received eOne Television's first Emmy nomination for LA Burning: The Riots 25 Years Later.
2018 OUTLOOK FOR eOne TELEVISION
The second half of the year will see deliveries of new scripted shows The Detail, Burden of Truth and Let's Get Physical, second seasons of Ice, Mary Kills People and Ransom, seasons two and three of Cardinal and season three of You Me Her. It is important to note that Sharp Objects, starring Amy Adams, and which is currently in post-production, was originally anticipated to be delivered in FY18 and will now be delivered in FY19.
The unscripted US business is expected to deliver a strong second half with deliveries of new series Ex on the Beach and Death Row Chronicles, additional episodes of Siesta Key and season four of Growing Up Hip Hop. Renegade 83 will continue to deliver new seasons of Naked and Afraid as well as new show Scared Famous.
For third party global sales, AMC titles including Hap & Leonard and Into the Badlands will continue into new seasons. International sales for Fear the Walking Dead and The Walking Dead are expected to continue at their existing robust levels.
As noted in the Group's September Trading Update, the number of half hours of produced/acquired content is expected to be around 900 for the full year, with 82% of the year's expected margins already committed or greenlit. Investment in acquired content is expected to be over GBP40 million and production spend is expected to be GBP160 million.
Secret Location, eOne's digital studio, currently has a number of products and projects underway, focusing on the fast-growing virtual reality industry. VUSR, a virtual reality content distribution platform, its biggest project in development, has already seen commitments from a number of large media companies including Discovery, The New York Times, AMC and Frontline. In the first half of the year Secret Location continued to strengthen its reputation through a number of industry award nominations and wins including Best Video at the PR News Platinum PR Awards for Under The Net and Best Virtual Reality at the AToMiC Awards 2017 for Halcyon.
To fully leverage eOne's scale in the market and to meet the needs of its partners and customers, the TV sales force for eOne Television and Film was combined into a global sales team from 1 April 2017. This has led to a more streamlined approach to the sale of television and film content in windows outside of theatrical release. We expect this change in structure to yield increased revenue and profitability benefits from FY18 onwards.
THE MARK GORDON COMPANY (MGC)
GBPm 2017 2016 Change Revenue 51.6 28.3 82% Underlying EBITDA 9.9 9.0 10% Investment in productions 33.5 25.2 33% =========================== ===== ===== =======
Revenue for the period was up 82% to GBP51.6 million (2016: GBP28.3 million), driven by the delivery of episodes of seasons one and two of Designated Survivor. Underlying EBITDA increased 10% to GBP9.9 million (2016: GBP9.0 million), driven by increased revenue. The underlying EBITDA margin percentage was lower than prior period reflecting change in revenue mix and higher operating expenses as the business continues to grow and invests in more owned productions.
Investment in productions increased 33% to GBP33.5 million (2016: GBP25.2 million) driven by investment in Designated Survivor, Molly's Game, new teen dramedy Youth & Consequences and two pilots.
Continuing with its new production studio model MGC has seen strong revenue growth period-on-period, and this success is endorsed by the industry with Mark Gordon chosen as Hollywood Reporter's Producer of the Year. In MGC's television division, revenue growth was driven by delivery of nine episodes of Designated Survivor and two new pilots.
The MGC film division also completed its first feature film Molly's Game which will be distributed internationally by eOne and in the US by STX Entertainment with a release date of 25 December 2017.
The studio continues to benefit from its library of television and film titles, with relatively high margins favourably contributing to the bottom line and cash generation. During the period MGC had five series airing on both US network and premium cable, all with continued strong viewership including season twelve of Criminal Minds (renewed for season thirteen), season two of Criminal Minds: Beyond Borders, season five of Ray Donovan (renewed for season six), season two of Quantico (renewed for season three) and season thirteen of Grey's Anatomy (renewed for season fourteen) becoming the longest running scripted prime-time show currently airing on the ABC network.
2018 OUTLOOK FOR MGC
In addition to its existing TV programmes, The Mark Gordon Company has several television projects in production including a premium cable series and new teen dramedy Youth & Consequences partnering with YouTube Red, YouTube's video subscription service. The Mark Gordon Company has 50 projects in active development. Recently announced, with a straight-to-series order from ABC, MGC will produce The Rookie starring and executive-produced by the former Castle star Nathan Fillion. eOne will handle all international distribution rights outside of the US further expanding on MGC's independent studio model. The first episode is in development with expected delivery in spring 2018. Film titles in various stages of development and pre-production include Chronicles of Narnia: The Silver Chair, The Killer and All the Old Knives.
The second half of the year will include continued delivery of episodes of Designated Survivor season two, delivery of Youth & Consequences and the film Molly's Game.
91% of the year's expected margins are already committed or greenlit. Investment in productions in FY18 is expected to decrease to around GBP80 million in line with previous guidance. Half hours delivered are anticipated to be around 60 based on the current business plan for FY18.
MUSIC
GBPm 2017 2016 Change Revenue 23.4 25.8 (9%) Underlying EBITDA 2.9 2.5 16% Investment in acquired content 2.3 2.0 15% ======================== ===== ===== =======
Revenue for the period decreased by 9% to GBP23.4 million (2016: GBP25.8 million), due to the strong performance of The Lumineers' second album, Cleopatra, which was released in the prior period. Underlying EBITDA increased 16% to GBP2.9 million (2016: GBP2.5 million) and underlying EBITDA margin increased by 3pts, due to the continued shift in the business from physical to digital. ADA, a member of Warner Music Group, now handles all physical sales and distribution in the US and Canada allowing the business to focus on higher margin digital distribution and artist management.
Music continues to have strong contributions from eOne labels Dualtone and Last Gang. Dualtone includes the continued strong performance of The Lumineers' highly successful second album, Cleopatra, as well as the late Chuck Berry's new album Chuck which debuted at #2 on the Independent Chart in the US. Last Gang's international label footprint has been enhanced through a series of key releases all of whom are benefitting from top-tier play listings across Spotify and Apple Music.
The artist management division also experienced rapid growth and success with Arkells' main single Knocking At The Door setting a new record at Canadian radio by staying #1 on Rock Radio for 14 weeks, and Jax Jones has now sold over five million singles globally with You Don't Know Me going platinum in 20 countries.
The number of albums released in the period was lower at 40, versus 45 in the prior period, and digital singles released increased to 110, compared to 98 in the prior period, in line with the strategic direction of the business.
2018 OUTLOOK FOR MUSIC
Music will continue to build on its existing label business by investing in profitable content and improving margins through cost savings and a continued transition to higher margin digital revenue. The Group will continue to develop the initiatives launched in the prior year to reposition eOne Music as a worldwide brand and to grow the music publishing business. eOne Music is also working closely with other eOne business units, supervising music across Film, Television and Family properties to create Group synergies.
As a result, the Group expects to see continued improvement in the profitability of the Music business from FY18 onwards.
FAMILY
The Family business develops, produces and distributes a portfolio of children's properties on a worldwide basis, the principal brand being Peppa Pig, with much of its revenue generated through licensing and merchandising programmes across multiple retail categories. In addition to managing the growth of Peppa Pig, the Family business also manages and distributes a balanced portfolio of complementary family brands including PJ Masks.
GBPm 2017 2016 Change Revenue 62.1 37.9 64% Underlying EBITDA 38.1 24.7 54% Investment in acquired content 1.2 0.7 71% Investment in productions 4.0 1.6 150% ================================ ===== ===== =======
Revenue for the period was up 64% to GBP62.1 million (2016: GBP37.9 million), driven by the continued strong performance of Peppa Pig and significant growth from PJ Masks.
Underlying EBITDA increased 54% to GBP38.1 million (2016: GBP24.7 million), driven by increased revenue. The underlying EBITDA margin was marginally lower reflecting the revenue mix from different properties.
Investment in acquired content and productions of GBP5.2 million (2016: GBP2.3 million) was GBP2.9 million higher than the prior period. Investment spend in the period included season five of Peppa Pig, season two of PJ Masks and new properties Cupcake & Dino: General Services and Ricky Zoom.
The Family business continued to perform strongly with the ongoing success of Peppa Pig and rapid growth of PJ Masks. The business generated US$1.2 billion of retail sales in the period (2016: US$0.7 billion) driven by the hugely successful retail rollout of PJ Masks and continued growth of Peppa Pig. More than 550 new and renewed broadcast and licensing agreements were concluded in the period which was an increase of more than 70% period-on-period. At 30 September 2017, the business had over 1,300 live licensing and merchandising contracts across its portfolio of brands (31 March 2017: almost 1,100).
Peppa Pig continued to grow period-on-period with revenue of GBP37.4 million (2016: GBP31.7 million). The growth was driven by China where licensing and merchandising revenue increased by over 700% period-on-period. This performance was ahead of expectations, with licensing and merchandising activities in China expanding across a number of categories including toys, clothing, FMCG, home/furnishings and publishing with over 25 million publishing titles sold since launch in April 2016. Continued nationwide TV exposure from state owned CCTV and all major VOD platforms, including iQiyi, Youku and Tencent, has increased interest in and exposure to the Peppa Pig brand. The VOD platforms have registered over 34 billion views since launch in October 2015. In addition, Peppa Pig was recently launched on TV Tokyo in Japan. This continued growth in China and across South East Asia remains a key driver for the brand. Peppa Pig remains one of the leading pre-school brands in key territories such as the US and the UK. In the US the brand remained a top-rated show on Nick Jr. for children between 2-5 years old and the licensing programme continues to build, supported by the significant investment and recruitment in Peppa Pig's brand management infrastructure.
In the UK, the brand benefitted from the release of Peppa Pig: My First Cinema Experience, which generated box office revenue of GBP3.6 million in the territory (as well as A$2.2 million in Australia and New Zealand) and consolidated its position as an 'evergreen' brand in the market. For mature markets, like the UK, the strategy is to maintain the market-leading position and generate steady revenue.
PJ Masks has been a key driver of revenue growth for the business in the period with revenue increasing over 600% period-on-period from GBP3.0 million to GBP22.3 million. This growth resulted mainly from licensing and merchandising revenue driven by the global roll-out from the master toy partner Just Play and new licensing deals. The licensing programme for the brand started in September 2016 in the US and due to strong demand and positive retail feedback PJ Masks was the ninth fastest growing property across the total toy market and fifth-ranked pre-school toy property for the nine months to September 2017. Following the successful US rollout, the licensing programme continues to expand to the UK to positive results where it has contributed to more than 15% of the total licensing revenue for the period, and building on this momentum, agents are being signed across Europe, Australia and Asia. PJ Masks is broadcasting in all key territories on the global Disney Junior network and France TV with excellent ratings. Following the success of the first season of PJ Masks, a second season (52 episodes) is currently in production with new episodes expected to launch early calendar year 2018, and season three is expected to be greenlit in the second half of the financial year.
A licensing programme for Ben & Holly's Little Kingdom was launched in the US in August 2017 across toys, apparel and publishing in Target stores nationwide. The brand's retail performance in its other key markets was stable during the period.
The business is in production on a number of other properties, including: Ricky Zoom, a pre-school vehicle-based series of 52 episodes from the same creative team as hit series PJ Masks with major broadcasters attached in France, Italy, and Latin America and a master toy arrangement currently in the final stages of negotiation; and Cupcake & Dino: General Services, a high profile 52 episodes comedy series which is in full production with broadcast commitments from Teletoon in Canada, Disney Channel in Brazil and worldwide SVOD rights with Netflix.
The business is continuing to explore, and is seeing growth potential in, other platforms including mobile applications, live shows and experiential events to engage the consumer in new ways.
2018 OUTLOOK FOR FAMILY
Peppa Pig and PJ Masks will continue to be the drivers of growth for the Family business in the second half.
Family continues to focus on building Peppa Pig into the most loved pre-school brand in the world with growth in the second half underpinned by China. China is expected to grow from 20 licensing agreements in FY17 to 60 by the end of FY18, thanks to the strong foundation built by exposure on broadcast and on-demand platforms. Peppa Pig's content pipeline looks strong with an additional 117 episodes in production with the original creators of the show. The first batch of deliveries is expected in the first half of 2018 with the last delivery in December 2021. This continued flow of new programming content will support the longevity of the brand from a licensing perspective.
In October 2017 the business entered into a global partnership with Merlin Entertainments, to develop and operate location-based entertainment attractions based on Peppa Pig. The deal covers all territories excluding the UK and Merlin will have exclusive rights for all location-based entertainment formats with the exception of China, which will be licensed to Merlin on a non-exclusive basis. Merlin expects to open in-park areas in two Merlin Resort Theme Parks in 2018 and it is expected the first standalone attraction will open in 2019.
PJ Masks will build upon the success of the US licensing programme and continue to roll-out across Europe and Asia, combined with a stage show which opened in the US in October 2017. The brand is generating significant interest in China and a full launch is planned for next financial year.
Family currently has ten projects in development.
The business is expected to generate strong revenue and EBITDA growth across the portfolio in FY18 ahead of management expectations. It is also expected that underlying EBITDA margins will be somewhat lower in percentage terms driven by the growth of PJ Masks as a proportion of total sales and increased brand management costs of around GBP2 million which are necessary to facilitate growth.
FILM
eOne's Global Film Group is one of the world's largest independent film businesses with operations in the US, the UK, Canada, Spain, the Benelux, Australia and New Zealand, with recent expansion into Germany, and, together with its global digital rights business, focuses on production and sale of film content worldwide.
GBPm 2017 2016 Change Revenue 171.8 242.0 (29%) Theatrical 23.5 42.5 (45%) Home entertainment 36.0 58.6 (39%) Broadcast and digital 54.4 75.4 (28%) Production and international sales 46.4 56.5 (18%) Other 11.7 11.5 2% Eliminations (0.2) (2.5) 92% ================================ ====== ====== ======= Underlying EBITDA (2.6) (2.3) (13%) Investment in acquired content 71.2 97.7 (27%) Investment in productions 22.2 (3.7) 700% ================================ ====== ====== =======
Revenue decreased by 29% to GBP171.8 million (2016: GBP242.0 million) driven by lower theatrical, home entertainment and broadcast and digital activity compared to that generated by a stronger slate in the prior period.
Underlying EBITDA was relatively stable period-on-period, despite lower revenue. The impact of lower revenue was largely offset by a gross margin improvement of 3.5pts due to lower P&A spend and amortisation of acquired content as well as significant cost savings from the reshaping commenced in FY16 and substantially completed in FY17, largely centered around the transition from physical to digital distribution.
Investment in acquired content was lower by GBP26.5 million at GBP71.2 million (2016: GBP97.7 million) driven by limited higher profile theatrical releases in the period. Investment in productions was higher by GBP25.9 million at GBP22.2 million (2016: (GBP3.7 million)), reflecting the Group's focus on increasing the level of produced content over which it has a greater level of control, including spend on the eOne Features production Stan & Ollie and Sierra Production How It Ends.
THEATRICAL
Overall, theatrical revenue decreased by 45% reflecting the reduced level of box office takings, which were also 45% lower at US$83 million (2016: US$152 million). The decrease reflected the scale of films released during the period and the reduced number of releases (76 compared to 88) including the timing of releases moving into the second half. The number of unique theatrical releases was 48 in the first half compared to 49 in the prior period. The prior period included higher profile releases of The BFG, Now You See Me 2, Bad Moms and Eye in the Sky.
The period included the first release from eOne's new relationship with Annapurna Pictures, Detroit, from Academy Award-winning director Kathryn Bigelow and Valerian and the City of a Thousand Planets, written and directed by Luc Besson. Other key releases included A Dog's Purpose, Peppa Pig: My First Cinema Experience, Bon Cop Bad Cop 2, De Pere en Flic 2, Hampstead and Logan Lucky.
HOME ENTERTAINMENT
Revenue decreased by 39% on a reported basis and 32% on a like-for-like basis. Like-for-like revenue excludes the prior period home entertainment revenue generated in the Film Division from the US Distribution business that related to music sales which are no longer generated in the current period due to the outsourcing of music physical sales and distribution to ADA. The like-for-like decrease reflected the lower profile and number of theatrical releases, the continued shift from physical to digital formats and timing of releases.
In total, 122 DVDs and Blu-rays were released during the period (2016: 215) including key titles such as A Monster Calls, season seven of The Walking Dead, Ballerina, A Dog's Purpose and John Wick: Chapter 2.
The transition to eOne's new partnerships with 20th Century Fox Home Entertainment, on a multi-territory basis, and Sony Pictures Home Entertainment, in the US, for physical home entertainment distribution has largely been completed.
BROADCAST AND DIGITAL
The Group's combined broadcast and digital revenues were 28% lower on a reported basis and 12% on a like-for-like basis, which excludes the prior period digital revenues generated in the Film Division from the US Distribution business that related to music sales. The like-for-like revenues were lower reflecting the impact of fewer and smaller-scale releases and the reduced volume of Free TV licensing of film product by broadcasters in Canada.
The Group recently entered into a new multi-year exclusive SVOD deal with Amazon, for the first Pay TV window in the UK. This new deal will give Amazon Prime members exclusive access during the first Pay TV window to all new releases in the territory. In addition, the Group signed a SVOD catalogue and second Pay TV window deal with Netflix in the UK. In Australia, the deal signed with Netflix in the prior year continues to drive strong SVOD revenue.
PRODUCTION AND INTERNATIONAL SALES
Revenue for production and international sales decreased by 18% to GBP46.4 million (2016: GBP56.5 million) due to the timing of film deliveries.
During the period eOne delivered The Ritual which premiered at the Toronto International Film Festival. It has been released theatrically in the UK with the bulk of remaining worldwide rights sold to Netflix. eOne also delivered Just Getting Started (formerly titled Villa Capri) with further revenue still to be recognised in the second half. Atomic Blonde produced by Sierra Pictures was released this summer and has significantly over-performed box office expectations with world-wide box office approaching US$100 million and I, Tonya, a key sales title that is also being distributed in several eOne territories, received positive reviews at the Toronto International Film Festival, and is well positioned for a theatrical release roll-out this winter.
2018 OUTLOOK FOR FILM
The Group will continue to reshape its Film operations as it adapts to the changing market place, with a strong commitment to focus on continued access to high quality premium content and on building deep partnerships with high quality film producers where eOne has more ownership and control over the content.
The transition from physical to digital distribution commenced in FY16 and substantially completed in FY17. This has positioned the Group to achieve annualised cost savings of approximately GBP10 million in this financial year. Additionally, the Group has gained momentum in positioning the new combined Film and Television studio operation for growth. This also provides opportunities for business efficiencies and the centralisation of a number of internal support functions that will drive further cost savings beginning towards the end of this financial year and continuing into FY20.
The second half of the year will also benefit from the higher performance of home entertainment and digital over the Christmas period.
For the full year, we anticipate 180 film releases, marginally lower than previous guidance of 200, in total across all territories, of which 100 are expected to be unique titles. Investment in acquired content is expected to be lower than previous expectations at GBP130 million with the reduction driven by the lower number of releases. The pipeline for the remainder of the year contains stronger theatrical releases than the first half including Steven Spielberg's The Post starring Tom Hanks and Meryl Streep (from Amblin Partners) to be released in January, A Bad Moms Christmas and Molly's Game, Aaron Sorkin's directorial debut produced by The Mark Gordon Company. Investment in productions is expected to be higher than the prior year at around GBP50 million.
OTHER FINANCIAL INFORMATION
Adjusted operating profit increased by 40% to GBP49.5 million (2016: GBP35.3 million), reflecting the growth in the Group's underlying EBITDA. Adjusted profit before tax increased by 53% to GBP36.4 million (2016: GBP23.8 million), in line with increased adjusted operating profit, partly offset by higher underlying finance charges in the period. Reported operating profit increased by 55% to GBP20.4 million, with the Group reporting a profit before tax of GBP0.8 million (2016: loss of GBP2.5 million).
Reported Adjusted
========================== ================
2017 2016 restated(2) 2017 2016
GBPm GBPm GBPm GBPm GBPm
Revenue 395.7 401.0 395.7 401.0
Underlying EBITDA 51.4 37.7 51.4 37.7
============================ ======= ================= ======= =======
Amortisation of acquired
intangibles (20.0) (20.7) - -
Depreciation and
amortisation of software (1.9) (2.4) (1.9) (2.4)
Share-based payment
charge (5.8) (2.8) - -
One-off items (3.3) 1.4 - -
============================ ======= ================= ======= =======
Operating profit(1) 20.4 13.2 49.5 35.3
Net finance costs (19.6) (15.7) (13.1) (11.5)
============================ ======= ================= ======= =======
Profit/(loss) before
tax 0.8 (2.5) 36.4 23.8
Tax 0.5 1.3 (9.0) (5.2)
Profit/(loss) for
the period 1.3 (1.2) 27.4 18.6
============================ ======= ================= ======= =======
1. Adjusted operating profit excludes amortisation of acquired intangibles, share-based payment charge and operating one-off items.
2. Reported 2016 amounts have been restated, refer to Note 2 of the condensed consolidated financial statements for further details.
AMORTISATION OF ACQUIRED INTANGIBLES, DEPRECIATION AND AMORTISATION OF SOFTWARE
Amortisation of acquired intangibles, depreciation and amortisation of software has decreased by GBP1.2 million in the period. The decrease is primarily on account of assets written off as a result of the restructure of the Group's physical distribution business in the year ended 31 March 2017.
SHARE-BASED PAYMENT CHARGE
The share-based payment charge of GBP5.8 million has increased by GBP3.0 million during the period, reflecting additional awards issued in the period and also due to the fair value of the awards increasing as a result of the increase in the Entertainment One Ltd. share price in the period.
ONE-OFF ITEMS
One-off items resulted in a net charge of GBP3.3 million, compared to a credit of GBP1.4 million in the prior period. Strategy related costs of GBP0.8 million consist of GBP0.7 million of costs associated with the integration of the Film and Television Divisions and GBP0.1 million of foreign exchange movement on accrued redundancy costs. Acquisition costs of GBP2.2 million were due to the re-assessment of contingent consideration in relation to the Renegade 83 acquisition of GBP0.6 million, and banking and legal costs of GBP1.6 million associated with the creation and set-up of MAKEREADY in the period. Other corporate project costs of GBP0.3 million related to costs associated with aborted corporate projects during the period.
NET FINANCE COSTS
Reported net finance costs increased by GBP3.9 million to GBP19.6 million in the period. Excluding one-off net finance costs of GBP6.5 million, adjusted finance costs of GBP13.1 million (2016: GBP11.5 million) were GBP1.6 million higher in the period, reflecting the higher average debt levels period-on-period. The weighted average interest rate for the Group's senior financing was 6.5% compared to 6.7% in the prior period.
The one-off net finance costs of GBP6.5 million (2016: GBP4.2 million) comprise:
-- GBP5.2 million (2016: charge of GBP6.2 million)
in respect of losses on five forward currency
contracts not in compliance with the Group's
hedging policy, see Note 2 of the condensed
consolidated financial statements for further
details
-- GBP1.8 million (2016: nil) in respect of fair-value
losses on hedge contracts which reverse in future
periods
-- GBP1.5 million (2016: charge of GBP1.4 million)
unwind of discounting on liabilities related
to put options issued by the Group over the
non-controlling interest of subsidiary companies
-- GBP1.0 million (2016: nil) in respect of fair-value
losses on hedge contracts cancelled as a result
of the re-negotiation of one of the Group's
larger film distribution agreements in 2017
-- Charges above are partly offset by credit of
GBP3.0 million (2016: credit of GBP3.4 million)
relating to the reversal of interest previously
charged on tax provisions which were released
during the period.
TAX
On a reported basis, the Group's tax credit of GBP0.5 million (2016: GBP1.3 million), which includes the impact of the release of tax provisions and one-off items, represents an effective rate of (62.5%) compared to (52.0%) in the prior period and 20.7% for the year ended 31 March 2017. On an adjusted basis, the effective rate is 24.7% compared to 21.8% in the prior period, driven by a different mix of profit by jurisdiction (with different statutory rates of tax). The adjusted effective tax rate for the full year is expected to be approximately 22%.
CASH FLOW & NET DEBT
The table below reconciles cash flows associated with the net debt of the Group, which excludes cash flows associated with production activities which are reconciled in the Production Financing section below.
2017 2016
Centre Centre
& &
GBPm Television Family Film Elims Total Television Family Film Elims Total
=========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Underlying
EBITDA 18.5 38.4 (2.7) (4.7) 49.5 21.2 24.8 (3.2) (3.2) 39.6
Amortisation of
investment in
acquired
content rights 18.8 0.4 35.1 - 54.3 15.6 0.4 54.4 - 70.4
Investment in
acquired
content rights (15.7) (1.2) (71.2) - (88.1) (13.2) (0.7) (97.7) - (111.6)
Amortisation of
investment in
productions 19.3 1.2 2.3 - 22.8 20.1 (0.2) 0.8 - 20.7
Investment in
productions,
net of grants (31.6) (2.0) (1.3) 0.3 (34.6) (18.6) (1.1) 0.6 - (19.1)
Working capital - (10.4) (25.4) - (35.8) (13.8) (6.6) (24.4) - (44.8)
Joint venture
movements - - - - - 0.4 - - - 0.4
================
Adjusted cash
flow 9.3 26.4 (63.2) (4.4) (31.9) 11.7 16.6 (69.5) (3.2) (44.4)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Capital
expenditure (1.5) (0.9)
Tax paid (21.7) (7.1)
Net interest
paid (11.5) (12.9)
================
Free cash flow (66.6) (65.3)
Cash one-off
items (28.0) (7.0)
Cash one-off
finance
items (13.2) (0.7)
Acquisitions,
net
of net debt
acquired (3.2) (2.1)
Dividends paid (10.0) (6.8)
Foreign
exchange (4.4) (0.6)
Movement (125.4) (82.5)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
Net debt at 1
April (187.4) (180.8)
================
Net debt at 30
September (312.8) (263.3)
================ =========== ======= ======= ======= ======== =========== ======= ======= ======= ========
ADJUSTED CASH FLOW
Adjusted cash outflow at GBP31.9 million is lower than prior period by GBP12.5 million with improved cash flows in Family and Film partly offset by marginal reductions in Television and Centre.
TELEVISION
Television adjusted cash inflow reduced in the period to GBP9.3 million (2016: GBP11.7 million) driven by higher investment in productions and lower underlying EBITDA partly offset by improvement in working capital movements. The higher investment in productions for the period related to The Climb and Youth & Consequences in MGC. Working capital was flat in the period as the increase in the accrued income in MGC relating to the participation revenue was offset by higher deferred income and accruals for Youth & Consequences.
FAMILY
Family adjusted cash inflow increased 59% to GBP26.4 million (2016: GBP16.6 million) supported by growth in underlying EBITDA partly offset by higher working capital outflows. Working capital outflows increased period-on-period driven by increase in receivables as a result of higher revenue.
FILM
Film adjusted cash outflow of GBP63.2 million improved compared to the prior period (2016: GBP69.5 million), driven by lower investment in acquired content rights, partly offset by higher working capital outflow and lower amortisation of investment in acquired content rights.
The reduced investment in acquired content rights was driven by the lower profile theatrical titles in the period. Working capital outflow of GBP25.4 million was primarily due to a decrease in payables driven by the seasonal timing of payments in the distribution territories, partly offset by lower receivables driven by timing of receipts from the previous year end.
FREE CASH FLOW
Free cash outflow for the Group of GBP66.6 million was GBP1.3 million higher than previous period primarily due to timing of tax payments.
NET DEBT
At 30 September 2017, overall net debt at GBP312.8 million was GBP49.5 million higher than the prior period largely due to higher one-off items, including payment of prior years' restructuring charges, and higher one-off finance items.
Refer to the Appendix to the Interim Announcement for the definition of adjusted cash flow and free cash flow and for a reconciliation to net cash from operating activities.
PRODUCTION FINANCING
Overall production financing increased by GBP3.1 million period-on-period to GBP141.8 million reflecting the higher opening production financing balance at March 2017 partly offset by the positive adjusted cash inflow and movement in foreign exchange. The adjusted cash inflows were driven by improvement in underlying EBITDA and positive working capital inflows in Television and Film.
2017 2016
GBPm Television Family Film Total Television Family Film Total
Underlying EBITDA 2.1 (0.3) 0.1 1.9 (2.7) (0.1) 0.9 (1.9)
Amortisation of
investment in productions 23.5 0.1 4.0 27.6 21.9 1.3 21.8 45.0
Investment in productions,
net of grants (84.2) (2.0) (20.9) (107.1) (70.3) (0.5) 3.1 (67.7)
Working capital 58.7 (0.1) 28.9 87.5 33.2 (0.5) (13.2) 19.5
Adjusted cash flow 0.1 (2.3) 12.1 9.9 (17.9) 0.2 12.6 (5.1)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Capital expenditure - (0.1)
Tax paid (1.0) (1.6)
Net interest paid (0.7) -
Free cash flow 8.2 (6.8)
Cash one-off items (1.8) (0.4)
Foreign exchange 4.1 (13.5)
Movement 10.5 (20.7)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Production financing
at 1 April (152.3) (118.0)
============================ =========== ======= ======= ======== =========== ======= ======= ========
Production financing
at 30 September (141.8) (138.7)
============================ =========== ======= ======= ======== =========== ======= ======= ========
The production cash flows relate to non-recourse production financing which is used to fund the Group's television, family and film productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. It is short-term financing whilst the production is being made and is paid back once the production is delivered and the sales receipts and tax credits are received. The Company deems this type of financing to be short-term in nature and is excluded from net debt. The Company therefore shows the cash flows associated with these activities separately. The Company also believes that higher production financing demonstrates an increase in the success of the Television, Family and Film production businesses, which helps drive revenue for the Group and therefore increases the generation of EBITDA and cash for the Group, which in turn reduces the Group's net debt leverage.
FINANCIAL POSITION AND GOING CONCERN BASIS
The Group's net assets decreased by GBP22.0 million to GBP723.0 million at 30 September 2017 (31 March 2017: GBP745.0 million). The principal risks impacting the Group have been discussed in Note 8 of the condensed consolidated financial statements.
The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern. The directors consider it appropriate to prepare the consolidated financial statements on a going concern basis, as set out in Note 2 of the condensed consolidated financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
the condensed consolidated financial statements
have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting',
-- as adopted by the European Union;
the Interim Announcement includes a fair review
-- of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority, being
an indication of important events occurred during
the first six months of the financial year and
their impact on the condensed consolidated financial
statements; and a description of the principal
risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and
Transparency Rules, being related party transactions
that have taken place in the first six months
of the current financial year and that have
materially affected the financial position or
performance of the entity during that period;
and any changes in the related party transactions
described in the last annual report that could
do so.
By order of the Board
DARREN THROOP
Director
20 November 2017
A presentation to analysts will take place at 9.30am on Tuesday, 21 November 2017 at eOne's UK office (45 Warren Street, London, W1T 6AG). For more information, or to register to attend, contact Alma PR +44 (0)20 8004 4217 or josh@almapr.co.uk).
For further information please contact:
Alma PR
Josh Royston
Tel: +44 (0)20 8004 4217
Email: josh@almapr.co.uk
Entertainment One
Darren Throop (CEO)
Joe Sparacio (CFO)
via Alma PR
Patrick Yau (Director of Investor Relations)
Tel: +44 20 3714 7931
Email: PYau@entonegroup.com
CAUTIONARY STATEMENT
This Interim Announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Entertainment One Ltd. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Interim Announcement should be construed as a profit forecast.
A copy of this Interim Announcement for the six months ended 30 September 2017 can be found on the Group's website at www.entertainmentone.com.
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
Note GBPm GBPm
======================================= ===== ============= =============
Revenue 3 395.7 401.0
Cost of sales (281.7) (305.9)
======================================= ===== =============
Gross profit 114.0 95.1
Administrative expenses (93.6) (81.5)
Share of results of joint ventures - (0.4)
======================================= ===== ============= =============
Operating profit 20.4 13.2
Finance income 5 3.4 4.1
Finance costs 5 (23.0) (19.8)
======================================= ===== ============= =============
Profit/(loss) before tax 0.8 (2.5)
Income tax credit 0.5 1.3
======================================= ===== ============= =============
Profit/(loss) for the period 1.3 (1.2)
======================================= ===== ============= =============
Attributable to:
Owners of the Company (2.2) (5.9)
Non-controlling interests 3.5 4.7
======================================= ===== ============= =============
Operating profit analysed as:
Underlying EBITDA 3 51.4 37.7
Amortisation of acquired intangibles (20.0) (20.7)
Depreciation and amortisation
of software (1.9) (2.4)
Share-based payment charge (5.8) (2.8)
One-off items 4 (3.3) 1.4
======================================= ===== ============= =============
Operating profit 20.4 13.2
======================================= ===== ============= =============
Losses per share (pence)
Basic (0.5) (1.4)
Diluted 6 (0.5) (1.4)
Adjusted earnings per share (pence)
Basic 4.9 2.7
Diluted 6 4.8 2.6
===================================== ====== ======
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
GBPm GBPm
=================================== ============= =============
Profit/(loss) for the period 1.3 (1.2)
Items that may be reclassified
subsequently to profit or
loss:
Exchange differences on foreign
operations (19.7) 49.9
Fair value movements on cash
flow hedges (2.4) 5.8
Reclassification adjustments
for movements on cash flow
hedges (1.3) (4.7)
Tax related to components
of other comprehensive income 2.7 -
Total other comprehensive
(loss)/income for the period (20.7) 51.0
===================================== ============= =============
Total comprehensive (loss)/income
for the period (19.4) 49.8
===================================== ============= =============
Attributable to:
Owners of the Company (19.4) 39.5
Non-controlling interests - 10.3
===================================== ============= =============
CONDENSED CONSOLIDATED BALANCE SHEET
AT 30 SEPTEMBER 2017
Restated Restated
30 September 2017 31 March 2017 30 September 2016
Note GBPm GBPm GBPm
============================================== ===== ================== ============== ==================
ASSETS
Non-current assets
Goodwill 394.0 406.9 391.2
Other intangible assets 274.4 302.9 315.1
Interests in joint ventures 1.0 1.1 1.1
Investment in productions 241.6 160.8 169.7
Property, plant and equipment 11.5 11.9 12.6
Trade and other receivables 88.8 60.9 49.1
Deferred tax assets 31.7 28.2 26.0
==============================================
Total non-current assets 1,043.0 972.7 964.8
============================================== ===== ================== ============== ==================
Current assets
Inventories 46.7 48.6 49.5
Investment in acquired content rights 290.6 269.8 278.4
Trade and other receivables 456.9 464.4 422.3
Cash and cash equivalents 104.2 133.4 73.1
Current tax assets 4.0 1.5 2.2
Financial instruments 10 2.1 10.6 10.1
============================================== ===== ================== ============== ==================
Total current assets 904.5 928.3 835.6
============================================== ===== ================== ============== ==================
Total assets 3 1,947.5 1,901.0 1,800.4
============================================== ===== ================== ============== ==================
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 371.7 276.6 308.4
Production financing 121.6 91.2 72.3
Other payables 39.7 41.7 50.3
Provisions 1.3 1.5 0.3
Deferred tax liabilities 47.7 53.1 53.7
============================================== ===== ================== ============== ==================
Total non-current liabilities 582.0 464.1 485.0
============================================== ===== ================== ============== ==================
Current liabilities
Interest-bearing loans and borrowings 0.5 0.5 0.9
Production financing 65.1 104.8 93.5
Trade and other payables 549.0 507.8 476.1
Provisions 5.0 30.6 3.0
Current tax liabilities 16.9 32.8 24.3
Financial instruments 10 6.0 15.4 13.9
============================================== ===== ================== ============== ==================
Total current liabilities 642.5 691.9 611.7
============================================== ===== ================== ============== ==================
Total liabilities 1,224.5 1,156.0 1,096.7
============================================== ===== ================== ============== ==================
Net assets 723.0 745.0 703.7
============================================== ===== ================== ============== ==================
EQUITY
Stated capital 507.5 505.3 504.1
Own shares (0.9) (1.5) (3.6)
Other reserves (23.7) (22.7) (19.1)
Currency translation reserve 63.6 79.8 56.1 Retained earnings 94.7 97.9 87.4 ============================================== ===== ================== ============== ================== Equity attributable to owners of the Company 641.2 658.8 624.9 Non-controlling interests 81.8 86.2 78.8 ============================================== ===== ================== ============== ================== Total equity 723.0 745.0 703.7 ============================================== ===== ================== ============== ================== Total liabilities and equity 1,947.5 1,901.0 1,800.4 ============================================== ===== ================== ============== ==================
These condensed consolidated financial statements were approved by the Board of Directors on 20 November 2017.
DARREN THROOP
Director
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Other Reserves
==================================
Stated Own Cash Put Restructuring Currency Retained Equity Non-controlling Total
capital shares flow options reserve translation earnings attributable interests equity
hedge over reserve to the
reserve NCI owners of
the Company
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2016 500.0 (3.6) 1.4 - 9.3 11.8 100.3 619.2 39.3 658.5
Restatement - - - (30.9) - - (4.4) (35.3) 30.9 (4.4)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2016
restated 500.0 (3.6) 1.4 (30.9) 9.3 11.8 95.9 583.9 70.2 654.1
(Loss)/profit
for the period
restated - - - - - - (5.9) (5.9) 4.7 (1.2)
Other
comprehensive
income - - 1.1 - - 44.3 - 45.4 5.6 51.0
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Total
comprehensive
income/(loss)
for the period - - 1.1 - - 44.3 (5.9) 39.5 10.3 49.8
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Credits in
respect of
share-based
payments - - - - - - 2.5 2.5 - 2.5
Acquisition of
subsidiaries 4.1 - - - - - - 4.1 - 4.1
Dividends paid - - - - - - (5.1) (5.1) (1.7) (6.8)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 30 September
2016 504.1 (3.6) 2.5 (30.9) 9.3 56.1 87.4 624.9 78.8 703.7
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 1 April 2017 505.3 (1.5) (1.1) (30.9) 9.3 79.8 109.9 670.8 86.2 757.0
Restatement - - - - - - (12.0) (12.0) - (12.0)
============= ================ =======
At 1 April 2017
restated 505.3 (1.5) (1.1) (30.9) 9.3 79.8 97.9 658.8 86.2 745.0
(Loss)/profit
for the period - - - - - - (2.2) (2.2) 3.5 1.3
Other
comprehensive
loss - - (1.0) - - (16.2) - (17.2) (3.5) (20.7)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Total
comprehensive
loss for the
period - - (1.0) - - (16.2) (2.2) (19.4) - (19.4)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
Credits in
respect of
share-based
payments - - - - - - 5.6 5.6 - 5.6
Exercise of
share options 0.4 - - - - - (0.4) - - -
Distribution of
shares to
beneficiaries
of the Employee
Benefit Trust - 0.6 - - - - (0.6) - - -
Acquisition of
subsidiaries(1) 1.8 - - - - - - 1.8 - 1.8
Dividends
paid(2) - - - - - - (5.6) (5.6) (4.4) (10.0)
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
At 30 September
2017 507.5 (0.9) (2.1) (30.9) 9.3 63.6 94.7 641.2 81.8 723.0
================= ======== ======= ======== ======== ============== ============ ========= ============= ================ =======
1. Refer to Note 7 for further details.
2. Refer to Note 11 for further details.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
Restated
30 September 30 September
2017 2016
Note GBPm GBPm
========================================= ===== ============= =============
Operating activities
Operating profit 20.4 13.2
Adjustment for:
Depreciation of property, plant
and equipment 1.0 1.1
Amortisation of software 0.9 1.3
Amortisation of acquired intangibles 20.0 20.7
Amortisation of investment in
productions 50.4 65.7
Investment in productions, net
of grants received (141.7) (86.8)
Amortisation of investment in
acquired content rights 54.3 70.4
Investment in acquired content
rights (88.1) (111.6)
Fair value gain on acquisition 4,
of subsidiary 7 - (2.1)
Share of results of joint ventures - 0.4
Share-based payment charge 5.8 2.8
========================================= ===== ============= =============
Operating cash flows before changes
in working capital and provisions (77.0) (24.9)
Decrease in inventories 1.2 5.7
Increase in trade and other receivables (22.7) (43.3)
Increase in trade and other payables 71.8 6.7
Decrease in provisions (25.1) (1.0)
========================================= ===== ============= =============
Cash used in operations (51.8) (56.8)
Income tax paid (22.7) (8.7)
========================================= ===== ============= =============
Net cash used in operating activities (74.5) (65.5)
========================================= ===== ============= =============
Investing activities
Acquisition of subsidiaries and
joint ventures, net of cash acquired 7 (3.2) 0.3
Dividends received from interests
in joint ventures - 0.1
Purchase of property, plant and
equipment (0.8) (0.5)
Purchase of software (0.7) (0.5)
========================================= ===== ============= =============
Net cash used in investing activities (4.7) (0.6)
========================================= ===== ============= =============
Financing activities
Drawdown of interest-bearing loans
and borrowings 191.9 99.7
Repayment of interest-bearing
loans and borrowings (93.4) (72.0)
Drawdown of production financing 120.6 76.0
Repayment of production financing (122.5) (54.6)
Interest paid (12.2) (12.9)
Dividends paid to shareholders
and to non-controlling interests
of subsidiaries 11 (10.0) (6.8)
Fees paid in relation to the Group's
senior bank facility and one-off
finance costs 2,5 (12.5) (0.6)
========================================= ===== ============= =============
Net cash from financing activities 61.9 28.8
========================================= ===== ============= =============
Net decrease in cash and cash
equivalents (17.3) (37.3)
Cash and cash equivalents at beginning
of the period 133.4 108.3
Effect of foreign exchange rate
changes on cash held (11.9) 1.2
============= =============
Cash and cash equivalents at end
of the period (net of bank overdrafts) 104.2 72.2
========================================= ===== ============= =============
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
1. NATURE OF OPERATIONS AND GENERAL INFORMATION
Entertainment One (the Group) is a leading independent entertainment group focused on the acquisition, production and distribution of television, family, film and music content rights across all media throughout the world. Entertainment One Ltd. (the Company) is the Group's ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 134 Peter Street, Suite 700, Toronto, Ontario, M5V 2H2, Canada.
The Company's common shares are listed on the premium listing segment of the Official List of the Financial Conduct Authority. Segmental information is disclosed in Note 3.
2. BASIS OF PREPARATION
SIGNIFICANT ACCOUNTING POLICIES
These condensed consolidated financial statements, included within the Interim Announcement, have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union. These condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 March 2017 which were prepared in accordance with International Financial Reporting Standards and International Financial Reporting Standards Interpretations Committee interpretations, as adopted by the European Union.
Other than income taxes which are accrued using the tax rate that is expected to be applicable for the full financial year, the policies are consistent with the principal accounting policies which were set out in the Group's consolidated financial statements for the year ended 31 March 2017.
These condensed consolidated financial statements are unaudited but have been reviewed by the Group's auditor and their review opinion is included at the end of these statements.
These condensed consolidated financial statements are presented in pounds sterling, which is also the functional currency of the parent company. All values are shown in millions, rounded to the nearest one hundred thousand pounds, except when otherwise stated.
These condensed consolidated financial statements were approved for issue by the directors on 20 November 2017.
PREPARATION OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ON THE GOING CONCERN BASIS
In addition to its senior secured notes (due 2022) the Group meets its day-to-day working capital requirements and funds its investment in content through its cash in hand and through a revolving credit facility which matures in December 2020 and is secured on certain assets held by the Group. Under the terms of this facility the Group is able to draw down in the local currencies of its operating businesses. The facility and senior secured notes are subject to a series of covenants including interest cover charge, gross debt against underlying EBITDA and capital expenditure.
The Group is exposed to uncertainties arising from the economic climate and uncertainties in the markets in which it operates. Market conditions could lead to lower than anticipated demand for the Group's products and services and exchange rate volatility could also impact reported performance. The directors have considered the impact of these and other uncertainties and factored them into their financial forecasts and assessment of covenant headroom. The Group's forecasts and projections, taking account of reasonable possible changes in trading performance (and available mitigating actions), show that the Group will be able to operate within the expected limits of its existing financing and provide headroom against the covenants for the foreseeable future. For these reasons the directors continue to adopt the going concern basis of accounting in preparing these condensed consolidated financial statements.
USE OF ADDITIONAL PERFORMANCE MEASURES
The Group uses a number of non-IFRS financial measures that are not specifically defined under IFRS or any other generally accepted accounting principles, including underlying EBITDA, one-off items, adjusted profit before tax, adjusted earnings per share, adjusted cash flow, free cash flow, net debt and production financing. These non-IFRS financial measures are presented because they are among the measures used by management to measure operating performance and as a basis for strategic planning and forecasting, and the Group believes that these measures are frequently used by investors in analysing business performance. Refer to the Appendix to the Interim Announcement for definitions of these terms.
PRIOR PERIOD RESTATEMENTS
Non-compliant forward currency contracts
During the period, the Group identified three forward currency contracts, entered into between December 2015 and September 2016, that were not in compliance with the Group's hedging policy. The losses in respect of these forward currency contracts were not reflected in the consolidated audited financial statements for the years ended 31 March 2016 and 2017 or in the condensed consolidated financial statements for the six months ended 30 September 2016.
The effect of the prior period errors on the consolidated income statement amounted to a GBP4.4m reduction in profit for the year ended 31 March 2016, GBP6.2m reduction in profit for the period ended 30 September 2016 and GBP7.6m reduction in profit for the year ended 31 March 2017. The impact of the prior period errors on the consolidated statement of financial position amounted to a GBP4.4m reduction in total equity at 31 March 2016, GBP10.6m reduction in total equity at 30 September 2016 and GBP12.0m reduction in total equity at 31 March 2017. These forward currency contracts were settled through a payment of GBP9.8m in the period and application of payments on account made in FY17 in the amount of GBP4.9m. The cash payment has been classified as 'Fees paid in relation to the Group's senior bank facility and one-off finance costs' in the condensed consolidated cash flow statement for the six months ended 30 September 2017. Upon settlement, an additional loss of GBP2.7m (30 September 2016: loss of GBP6.2m) was recorded which has been reflected as a one-off finance cost, refer Note 5. The restatement and current period impact does not impact the financial covenants on the Group's revolving credit facility or senior secured notes.
The Group concluded that the prior period errors were not fundamental to any of the Group's previously issued financial statements. Therefore, the Group has corrected the prior period errors retrospectively by restating the comparative amounts for the prior period presented in which the error occurred and restating the opening balances for the earliest prior period presented in this Interim Announcement, as required under International Accounting Standard 8.
During the period, a further two forward currency contracts entered into in June 2017 and July 2017 were also identified as not being in compliance with the Group's hedging policy. These forward currency contracts were settled during the period, resulting in a one-off finance cost of GBP2.5m, refer Note 5.
In response to the above, the Group conducted a broad and continuing review of the Treasury processes, systems and controls across the Group. Steps have been taken to improve controls within Treasury including changes in personnel and enhancement of the control environment. In addition, a detailed review of all, externally confirmed, open forward currency contracts at 30 September 2017 was completed to ensure that they were in compliance with the Group's hedging policies.
Accounting for put options
The potential cash payments related to put options issued by the Group over the non-controlling interest in subsidiary companies are accounted for as financial liabilities. The amount that may become payable under the option on exercise is initially recognised on acquisition at present value within other payables with a corresponding charge directly to equity. The Group restated the condensed consolidated financial statements for the six months ended 30 September 2016, to reflect the corresponding charge in equity attributable to owners of the Company to better reflect the risk of ownership of the non-controlling interests, consistent with the treatment in the 2017 Annual Report.
Classification of investment spend
International Accounting Standard 7 Statement of Cash Flows requires that cash flows from operating activities are primarily derived from the principal revenue-producing activities of the business. The Group's revenue is derived from the licensing, marketing and distribution and trading of feature films, television, video programming and music rights. The Group has reclassified the discretionary spend incurred in the acquisition and creation of underlying intellectual property rights, being the investment in productions and investment in acquired content rights, as operating cash flow in the condensed consolidated financial statements for the six months ended 30 September 2016, consistent with the treatment in the 2017 Annual Report.
Other
A reclassification of finance income in the prior period was made to better reflect the split of income and costs.
A summary of the impact of the above restatements on the condensed consolidated financial statements at 30 September 2016 and statement of financial position at 31 March 2017 is shown below:
Non compliant
forward currency Accounting for put Classification of
Previously reported contracts options investment spend Other Restated
Group's condensed consolidated income statement for the six months ended 30 September 2016
Finance income 2.2 1.9 4.1
Finance costs (11.7) (6.2) (1.9) (19.8)
Profit/(loss)
before tax 3.7 (6.2) (2.5)
Income tax credit 1.3 1.3
Profit/(loss) for
the period 5.0 (6.2) (1.2)
Attributable to:
Owners of the
Company 0.3 (6.2) (5.9)
Earnings/(losses)
per share (pence)
Basic 0.1 (1.5) (1.4)
Diluted 0.1 (1.5) (1.4)
Group's condensed consolidated balance sheet
At 30 September
2016
Financial
instruments 3.3 10.6 13.9
Total current
liabilities 601.1 10.6 611.7
Total liabilities 1,086.1 10.6 1,096.7
Net assets at 30
September 2016 714.3 (10.6) 703.7
Other reserves 11.8 (30.9) (19.1)
Retained earnings 98.0 (10.6) 87.4
Equity attributable
to owners of the
Company 666.4 (10.6) (30.9) 624.9
Non-controlling
interests 47.9 30.9 78.8
Total equity at 30
September 2016 714.3 (10.6) 703.7
At 31 March 2017
Financial
instruments 3.4 12.0 15.4
Total current
liabilities 679.9 12.0 691.9
Total liabilities 1,144.0 12.0 1,156.0
Net assets at 31
March 2017 757.0 (12.0) 745.0
Retained earnings 109.9 (12.0) 97.9
Equity attributable
to owners of the
Company 670.8 (12.0) 658.8
Total equity at 31
March 2017 757.0 (12.0) 745.0
Group's condensed consolidated cash flow statement for the six months ended 30 September 2016
Net cash from
operating
activities 132.9 (198.4) (65.5)
Net cash used in
investing
activities (199.0) 198.4 (0.6)
NEW STANDARDS AND AMMENTS, REVISIONS AND IMPROVEMENTS TO STANDARDS ADOPTED DURING THE PERIOD
Details of new or revised accounting standards, interpretations or amendments which are effective for periods beginning on or after 1 April 2017 and which are considered to have an impact on the Group can be found in the annual financial statements for the year ended 31 March 2017.
IFRS 15 Revenue from Contracts with Customers is effective 1 January 2018. The standard requires the identification of performance obligations in contracts with customers and allocation of the total contractual value to each of the performance obligations identified. The standard also requires the Group to assess whether its licences to intellectual property are either a promise to provide a right to the intellectual property at a point in time, or a promise to provide access to the intellectual property as it exists at any point during the licence. Revenue is recognised as each performance obligation is satisfied either at a point in time or over time.
An initial impact assessment has been undertaken which involved the review of all contract types across the Group. The Group expects an impact on the results of the Family Division where the Group currently recognises contractual minimum guarantees from licensing arrangements when the licence terms have commenced and collection of the fee is reasonably assured. The Group expects the recognition of the minimum guarantees to change and be spread over the consumption of the intellectual property. In addition, there may be timing differences arising from the way the Group recognises revenue for content licensing in the Film and Television Divisions.
The impact of the transitional arrangements is under review. There is no impact on the timing of cash receipts, which are determined by the terms and conditions of contracts with customers.
IFRS 9, Financial Instruments, is effective from 1 January 2018. The standard covers recognition, classification, measurement and impairment of financial assets and financial liabilities, together with a new hedge accounting model. The Group is still assessing the impact of the adoption of this standard to the Group.
The Group expects an impact from IFRS 16 Leases on the results of the Group. The Group currently recognises an operating lease when substantially all the risks and rewards incident to ownership remain with the lessor. The lease payments are recognised as an expense in the income statement over the lease term on a straight-line basis. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases. Upon lease commencement a lessee recognises a right-of-use asset and a lease liability. The right-of-use asset is initially measured at the amount of the lease liability plus any initial direct costs incurred by the lessee, with adjustments for lease incentives, payments at or prior to commencement and restoration obligations. The Group is still assessing the extent and quantum of the impact of the adoption of this standard to the Group.
ESTIMATES
The preparation of condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the Group accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements at and for the year ended 31 March 2017.
FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments to reduce its exposure to foreign exchange movements. The Group does not hold or issue derivative financial instruments for financial trading purposes. Derivative financial instruments are classified as held-for-trading and recognised in the condensed consolidated balance sheet at fair value.
The Group uses forward currency contracts to hedge transactional exposures. The majority of these contracts are denominated in the subsidiaries' functional currencies and primarily cover minimum guaranteed advances payments in Canada, the UK, Australia, the Benelux and Spain and hedging of other significant financial assets and liabilities. Interest rate swaps may be put in place by the Group in order to limit interest rate risk.
At 30 September 2017, there were no significant differences between the book value and fair value (as determined by market value) of the Group's financial assets or liabilities other than the Group's GBP285m senior secured notes, which have a fair value of GBP310.9m. There were no transfers between levels in the period and there have been no changes to the basis of determining the fair value measurements and valuation inputs disclosed within the Group's consolidated financial statements for the year ended 31 March 2017.
3. SEGMENTAL ANALYSIS
SEASONALITY OF OPERATIONS
The Group's business is normally subject to seasonal variations based on the timing of film cinema releases, physical home entertainment and television and digital content releases. Release dates are determined by several factors, including timing of holiday periods, the US release date of the film and competition in the market. In addition, revenue for the Group's licensed consumer products are influenced by seasonal consumer purchasing behaviour. Accordingly, if a short-term negative impact on the Group's business occurs during a time of high seasonal demand, the effect could have a disproportionate effect on the Group's results for the period.
The Group's exposure to seasonality varies by Division. Within the Television Division, revenue from television productions are driven by contracted delivery dates with primary broadcasters and can fluctuate significantly from period-to-period. The results of the Family Division are affected by the timing of royalties earned on properties driven by timing of holiday periods. The results of the Film Division are affected by the number and timing of film releases. The release dates are not entirely in the control of the Group and are determined largely by the production and release schedules of each film's producer and the timing of holiday periods.
OPERATING SEGMENTS
For internal reporting and management purposes, the Group is organised into three reportable segments based on the types of products and services from which each segment derives its revenue - Television, Family and Film. The Group's operating segments are identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Chief Executive Officer has been identified as the chief operating decision maker.
The types of products and services from which each reportable segment derives its revenue are as follows:
Television - the production, acquisition and
exploitation of television and music content
- rights across all media
Family - the production, acquisition and exploitation,
including licensing and merchandising, of family
- content rights across all media
Film - the production, acquisition, exploitation
and trading of film content rights across all
- media
Inter-segment sales are charged at prevailing market prices.
Segment information for the six months ended 30 September 2017 is presented below:
Television Family Film Eliminations Consolidated
GBPm GBPm GBPm GBPm GBPm
=============================== =========== ======= ====== ============= =============
Segment revenue
External revenue 167.3 59.9 168.5 - 395.7
Inter-segment revenue 1.2 2.2 3.3 (6.7) -
Total segment revenue 168.5 62.1 171.8 (6.7) 395.7
=============================== =========== ======= ====== ============= =============
Segment results
Segment underlying
EBITDA 20.6 38.1 (2.6) (0.1) 56.0
Group costs (4.6)
=============================== =========== ======= ====== ============= =============
Underlying EBITDA 51.4
Amortisation of acquired
intangibles (20.0)
Depreciation and amortisation
of software (1.9)
Share-based payment
charge (5.8)
One-off items (3.3)
=============================== =========== ======= ====== ============= =============
Operating profit 20.4
Finance income 3.4
Finance costs (23.0)
=============================== =========== ======= ====== ============= =============
Profit before tax 0.8
Income tax credit 0.5
=============================== =========== ======= ====== ============= =============
Profit for the period 1.3
=============================== =========== ======= ====== ============= =============
Segment assets
Total segment assets 832.8 274.0 831.9 - 1,938.7
Unallocated corporate
assets 8.8
Total assets 1,947.5
=============================== =========== ======= ====== ============= =============
Segment information for the six months ended 30 September 2016 is presented below:
Restated
Television Family Film Eliminations Consolidated
GBPm GBPm GBPm GBPm GBPm
=========== ======= ====== ============= =============
Segment revenue
External revenue 124.2 36.7 240.1 - 401.0
Inter-segment revenue 20.3 1.2 1.9 (23.4) -
Total segment revenue 144.5 37.9 242.0 (23.4) 401.0
=============================== =========== ======= ====== ============= =============
Segment results
Segment underlying
EBITDA 18.5 24.7 (2.3) - 40.9
Group costs (3.2)
=============================== =========== ======= ====== ============= =============
Underlying EBITDA 37.7
Amortisation of acquired
intangibles (20.7)
Depreciation and amortisation
of software (2.4)
Share-based payment
charge (2.8)
One-off items 1.4
=============================== =========== ======= ====== ============= =============
Operating profit 13.2
Finance income 4.1
Finance costs (19.8)
=============================== =========== ======= ====== ============= =============
Loss before tax (2.5)
Income tax credit 1.3
=============================== =========== ======= ====== ============= =============
Loss for the period (1.2)
=============================== =========== ======= ====== ============= =============
Segment assets
Total segment assets 672.9 248.3 873.6 - 1,794.8
Unallocated corporate
assets 5.6
Total assets 1,800.4
=============================== =========== ======= ====== ============= =============
4. ONE-OFF ITEMS
Items of income or expense that are considered by management for designation as one-off are as follows:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
============================= ============= =============
Restructuring costs
Strategy-related 0.8 5.7
Total restructuring costs 0.8 5.7
============================= ============= =============
Other items
Acquisition costs/(gains) 2.2 (9.0)
Other items 0.3 1.9
============= =============
Total other items 2.5 (7.1)
============================= ============= =============
Total one-off costs/(gains) 3.3 (1.4)
============================= ============= =============
The strategy related costs of GBP0.8m consists of GBP0.7m of costs associated with the integration of the Film and Television Divisions and GBP0.1m of foreign exchange movement on accrued redundancy costs.
Acquisition costs of GBP2.2m were due to the re-assessment of contingent consideration in relation to the Renegade 83 acquisition of GBP0.6m, and banking and legal costs of GBP1.6m associated with the creation and set-up of MAKEREADY in the period.
Other costs of GBP0.3m related to costs associated with aborted corporate projects during the period.
One-off gains incurred during the six months ended 30 September 2016 of GBP1.4m included GBP5.7m of costs related to the restructuring of the physical distribution business, acquisition gains of GBP9.0m including a GBP2.1m credit on the acquisition accounting for Secret Location, a GBP7.1m credit from the re-assessment of contingent consideration of prior year acquisitions and GBP0.2m of costs related to acquisitions made during the period, and other items of GBP1.9m in respect of one-off foreign exchange charge relating to the alignment of the TV business with the Group hedging process.
5. FINANCE INCOME AND FINANCE COSTS
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
========================================== ============= =============
Finance income
Other finance income 3.4 3.8
Net foreign exchange gains on financing
activities - 0.3
Total finance income 3.4 4.1
========================================== ============= =============
Finance costs
Interest cost (12.0) (10.9)
Amortisation of deferred finance
charges (0.9) (0.9)
Other accrued interest charges (0.2) (0.4)
Losses on fair value of derivative
instruments (8.0) (6.2)
Unwind of discounting on financial
instruments (1.5) (1.4)
Net foreign exchange losses on financing
activities (0.4) -
Total finance costs (23.0) (19.8)
========================================== ============= =============
Net finance costs (19.6) (15.7)
========================================== ============= =============
Comprised of:
Adjusted net finance costs (13.1) (11.5)
One-off net finance costs (6.5) (4.2)
========================================== ============= =============
One-off finance items are items of income and expenditure that do not relate to the underlying activities of the Group, that in the judgement of the directors should be disclosed separately on the basis that they are material, either by their nature or their size, in order to provide a better understanding of the Group's underlying finance costs and enable comparison of underlying financial performance between periods.
The one-off net finance costs of GBP6.5m (2016: GBP4.2m) comprise:
GBP5.2 million (2016: charge of GBP6.2 million)
in respect of losses on five forward currency
contracts not in compliance with the Group's
hedging policy, see Note 2 of the condensed
consolidated financial statements for further
-- details
GBP1.8 million (2016: nil) in respect of fair-value
losses on hedge contracts which reverse in future
-- periods
GBP1.5 million (2016: charge of GBP1.4 million)
unwind of discounting on liabilities related
to put options issued by the Group over the
-- non-controlling interest of subsidiary companies
GBP1.0 million (2016: nil) in respect of fair-value
losses on hedge contracts cancelled as a result
of the re-negotiation of one of the Group's
larger film distribution agreements in 2017.
In the year ended 31 March 2017, operating one-off
charges of GBP22.8m were provided for in relation
to re-negotiation of the agreement and associated
impacts. See Note 6 of the March 2017 consolidated
financial statements for further details. This
has been fully utilised in the six months ended
30 September 2017 and is reflected in the movement
-- in provisions to 30 September 2017
Costs above are partly offset by credit of GBP3.0
million (2016: credit of GBP3.4 million) relating
to the reversal of interest previously charged
on tax provisions, which were released during
-- the period
6. EARNINGS PER SHARE
The weighted average number of shares used in the earnings per share calculations are set out below:
Six months Six months
ended ended
30 September 30 September
2017 2016
Million Million
======================================= ============= =============
Weighted average number of shares
for basic earnings per share and
adjusted basic earnings per share(1) 429.7 425.6
Effect of dilution for adjusted:
Employee share awards 12.9 4.6
Contingent consideration with
option in cash or shares(2) 0.5 0.7
======================================== =============
Weighted average number of shares
for adjusted diluted earnings
per share 443.1 430.9
======================================== ============= =============
1. Shares held by the EBT, classified as own shares, are excluded from basic earnings per share and adjusted basic earnings per share.
2. The Group has the option to settle the contingent consideration payable in relation to the acquisitions of Last Gang Entertainment in shares or in cash.
ADJUSTED DILUTED EARNINGS PER SHARE
The directors believe that the presentation of adjusted earnings per share helps to explain the underlying performance of the Group. A reconciliation of the earnings used in the diluted earnings per share calculation to earnings used in the adjusted diluted earnings per share calculation is set out below:
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
Pence Pence
per per
Note GBPm share GBPm share
================================== ===== ====== ======= ------ -------
Loss for the period attributable
to the owners of the Company
(used for diluted earnings
per share) (2.2) (0.5) (5.9) (1.4)
Add back amortisation of
acquired intangibles 20.0 4.5 20.7 4.8
Add back share-based payment
charge 5.8 1.3 2.8 0.6
Add back one-off items 4 3.3 0.7 (1.4) (0.3)
Add back one-off net finance
costs 5 6.5 1.5 4.2 1.0
Deduct tax effect of above
items and discrete tax
items(1) (9.5) (2.1) (6.5) (1.5)
Deduct non-controlling
interests share of above
items (2.8) (0.6) (2.5) (0.6)
Adjusted earnings attributable
to the owners of the Company 21.1 4.8 11.4 2.6
================================== ===== ====== ======= ------ -------
Adjusted earnings attributable
to non-controlling interests 6.3 7.2
================================== ===== ====== ------ Adjusted profit for the period 27.4 18.6 ================================== ===== ====== ------
1. Included within discrete tax items is a release of tax provisions of GBP7.8m to 30 September 2017 (2016: GBP1.0m).
7. BUSINESS COMBINATIONS
During the period, contingent consideration payable relating to the prior year acquisition of Renegade Entertainment, LLC was settled by issuing 778,516 shares in Entertainment One Ltd. amounting to GBP1.8m and a cash payment of GBP2.7m. A payment of GBP0.5m was also made in part settlement of contingent consideration payable relating to the prior year acquisition of Dualtone Music Group. See Note 10 for details on movements in contingent consideration payable in the six months ended 30 September 2017.
PRIOR PERIOD ACQUISITIONS
The following table summarises the fair values, as at the acquisition date, of the assets acquired, the liabilities assumed and the total consideration transferred as part of the acquisitions made during the six months ended 30 September 2016, at their finalised values.
Sierra Secret
Affinity Location Total
GBPm GBPm GBPm
================================== ========== ========== =======
Acquired intangibles 7.7 3.6 11.3
Investment in productions - 0.6 0.6
Property, plant and equipment - 0.2 0.2
Cash and cash equivalents 0.3 - 0.3
Trade and other receivables
(1) 16.2 3.2 19.4
Trade and other payables (18.5) (2.0) (20.5)
Interest-bearing loans and
borrowings - (2.5) (2.5)
Deferred tax liabilities - (0.7) (0.7)
Total net assets acquired 5.7 2.4 8.1
================================== ========== ========== =======
Satisfied by:
Cash 2.8 - 2.8
Shares in Entertainment One
Ltd. - 4.1 4.1
Contingent consideration 0.5 - 0.5
Assets forgiven 0.1 - 0.1
Total consideration transferred 3.4 4.1 7.5
================================== ========== ========== =======
Add: Fair value of previously
held equity interest 2.3 4.1 6.4
Less: Fair value of identifiable
net assets of the acquiree (5.7) (2.4) (8.1)
Goodwill - 5.8 5.8
================================== ========== ========== =======
1. The trade and other receivables shown are considered to be their fair value. No amounts recorded are expected to be uncollectable.
Secret Location
The Group purchased the remaining 50% share in Secret Location for consideration of C$6.9m (equivalent to GBP4.1m), funded through the issue of 1,728,794 common shares in Entertainment One Ltd. settled as at 15 August 2016.
eOne held an equity interest previously in Secret Location which qualified as a joint venture under IFRS 11. As part of accounting for the business combination the equity interest is treated as if it were disposed of and re-acquired at fair value on the acquisition date. Accordingly, the 50% equity interest held in Secret Location at book value of GBP1.8m was re-measured to its acquisition-date fair value of GBP4.1m, resulting in a GBP2.3m gain recognised in the year ended 31 March 2017.
Acquired intangibles of GBP3.6m were identified which represent the value of technologies in development. The resulting goodwill of GBP5.8m represents the value placed on the opportunity to grow the content and formats produced by the company. None of the goodwill is expected to be deductible for income tax purposes. The acquired Secret Location business was integrated into the Television CGU.
Sierra Affinity
On 30 September 2016, Sierra Pictures purchased the remaining 67% equity interest in Sierra Affinity for total consideration of GBP3.4m consisting of cash consideration of US$3.6m (equivalent of GBP2.8m), which was settled in full during October/November 2016, contingent consideration of GBP0.5m representing amounts payable dependent on future sales fees generated by the company on specific titles and GBP0.1m of assets forgiven relating to trade receivables due to Sierra Pictures from Sierra Affinity which were forgiven as part of the transaction.
Prior to control being obtained, the investment in the equity interest of Sierra Affinity was accounted for as a joint operation under IFRS 11. As part of accounting for the business combination the equity interest is treated as if it were disposed of and re-acquired at fair value on the acquisition date. Accordingly, it is re-measured to its acquisition-date fair value, with no resulting gain or loss compared to its carrying amount.
Acquired intangibles of GBP7.7m were identified which represent the value of the acquired exclusive content agreements. The acquired Sierra Affinity business was integrated into the Film CGU.
8. RISKS AND UNCERTAINTIES
The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Group's strategic objectives. The Corporate Governance section on pages 46 to 50 of the Annual Report and Accounts for the year ended 31 March 2017 describes the systems and processes through which the directors manage and mitigate risks. The Board recognises that the nature and scope of the risks can change and so reviews the risks faced by the Group, as well as the systems and processes to mitigate them on an ongoing basis.
The Board considers the principal risks to achieving its objectives to be:
- Strategy formulation and execution - Creating
and executing the best strategy for the Group;
- Recruitment and retention of employees - Finding
the best people for the business to deliver
its strategy;
- Source and select the right content at the right
price - Building a valuable content portfolio;
- Protection of intellectual property rights -
Protecting content and brands;
- Regulatory compliance - Operating within the
law and seeking to optimise efficiency;
- Information security/data protection - Protecting
eOne and stakeholders' data;
- Business continuity planning - Maintaining operations
in the event of an incident or crisis; and
- Financial risk - Seeking and maintaining financing
to support the delivery of the Group's strategic
objectives.
As part of its financial risk management, the Group monitors foreign currency movements. The movement in foreign currency exchange rates during the period has an impact on the reporting of the financial performance of the Group. In particular, the different functional currencies of the Group (US dollars, Canadian dollars, euros, pounds sterling and Australian dollars) result in consolidation translation gains and losses as the Group reports its financial results in pounds sterling. During the six months ended 30 September 2017 a loss of GBP19.7m (2016: gain of GBP49.9m) has been charged to the currency translation reserve, reflecting the impact of the movement of the pound sterling on translation of the Group's non-sterling net assets since 31 March 2017. The Group looks to balance local currency borrowings with the net assets of individual operating units to help mitigate the impact of currency movements in relation to the Group's consolidated net assets.
The financial results of individual businesses within the Group are not significantly impacted by foreign currency movements other than in relation to the investment in acquired content rights which is generally transacted in US dollars and in relation to the merchandising and licensing contracts of the Family Division. The Group reduces its exposure to risk in relation to foreign currency movements in these circumstances through hedging instruments and internal currency offsets where available.
In the view of the Board there is no material change in risk factors since 31 March 2017. Further details of these risks are provided on pages 33 to 35 of the Annual Report and Accounts for the year ended 31 March 2017, a copy of which is available on the Company's website at www.entertainmentone.com.
9. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.
Canada Pension Plan Investment Board (CPPIB) held 84,597,069 common shares in the Company at 30 September 2017 (31 March 2017: 84,597,069 common shares and 30 September 2016: 84,597,069), amounting to 19.65% of the issued capital of the Company. CPPIB is deemed to be a related party of Entertainment One Ltd. by virtue of this significant shareholding. The Group pays CPPIB an annual fee equivalent to the annual fee paid by the Group to its other non-executive directors in consideration for CPPIB allowing Scott Lawrence to allocate time to his role as a non-executive director of the Company. The fee payable to CPPIB in respect of Scott Lawrence's services for the period ended 30 September 2017 was C$51,800 (30 September 2016: C$45,000). At 30 September 2017 the amount outstanding payable to CPPIB was C$53,500 (30 September 2016: C$7,500).
The nature of related parties disclosed in the consolidated financial statements for the Group at and for the year ended 31 March 2017 has not changed other than in respect of key management personnel described below.
Key management consists of the two executive directors and the Group Chief Financial Officer (2016: two executive directors). The directors are of the opinion these persons had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly.
The aggregate amounts of key management compensation are set out below:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
============================== ============= =============
Short-term employee benefits 0.8 0.6
Share-based payment benefits 2.8 0.3
Total 3.6 0.9
============================== ============= =============
10. FINANCIAL INSTRUMENTS
At 30 September 2017, the Group had the following financial assets and liabilities grouped into Level 2:
Restated
30 September 31 March
2017 2017
GBPm GBPm
================================= ============= =========
Derivative financial instrument
assets 1.5 9.9
Derivative financial instrument
liabilities (6.0) (15.4)
Total (4.5) (5.5)
================================== ============= =========
At 30 September 2017, the Group had the following financial assets and liabilities grouped into Level 3:
30 September 31 March
2017 2017
GBPm GBPm
===================================== ============= =========
Contingent consideration payable
on acquisitions (1.5) (6.0)
Available-for-sale financial assets 0.6 0.7
====================================== =============
Total (0.9) (5.3)
====================================== ============= =========
The movements in contingent consideration payable and available-for-sale financial assets during the six months ended 30 September 2017 were as follows:
Contingent consideration payable Available-for-sale financial
Note on acquisitions assets Total
GBPm GBPm GBPm
Balance at 1 April 2017 (6.0) 0.7 (5.3)
Amounts settled 7 5.0 - 5.0
Change in fair value 4 (0.6) - (0.6)
Exchange differences 0.1 (0.1) -
Balance at 30 September 2017 (1.5) 0.6 (0.9)
============================== ======= ================================= ================================== ======
As noted in the accounting policy disclosed in the 2017 Annual Report, the key assumptions taken into consideration when measuring the value of contingent consideration payable are the performance expectations of the acquisition and a discount rate that reflects the size and nature of the new business. There is no reasonable change in discount rate or performance targets that would give rise to a material change in the liability in these condensed consolidated financial statements.
The key assumption in measuring the value of the available-for-sale financial assets is the long term performance of the available for sale investments. There is no reasonable change in the performance of the investments that would give rise to a material change in the assets in these condensed consolidated financial statements.
11. DIVIDS
On 22 May 2017 the directors declared a final dividend in respect of the financial year ended 31 March 2017 of 1.3 pence (2016: 1.2 pence) per share, GBP5.6m (2016: GBP5.1m) was paid in September 2017.
APPIX TO THE INTERIM ANNOUNCEMENT
FOR THE SIX MONTHSED 30 SEPTEMBER 2017
RECONCILIATION OF ADDITIONAL PERFORMANCE MEASURES
The Group uses a number of non-IFRS financial measures that are not specifically defined under IFRS or any other generally accepted accounting principles, including underlying EBITDA, one-off items, adjusted profit before tax, adjusted earnings per share, adjusted cash flow, free cash flow, net debt and production financing. These non-IFRS financial measures ('adjusted measures') are presented because they are among the measures used by management to measure operating performance and as a basis for strategic planning and forecasting, and the Group believes that these measures are frequently used by investors in analysing business performance. Adjusted measures in management's view, reflects the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis and form the basis of the performance measures for remuneration. Adjusted measures exclude certain items because if included, these items could distort the understanding of our performance for the period and the comparability between periods. The terms "underlying", "one-off items" and "adjusted" may not be comparable with similarly titled measures reported by other companies.
UNDERLYING EBITDA
The term underlying EBITDA refers to operating profit or loss excluding amortisation of acquired intangibles; depreciation; amortisation of software; share-based payment charge; tax, finance costs and depreciation related to joint ventures; and operating one-off items. A reconciliation is presented on the condensed consolidated income statement.
ADJUSTED PROFIT BEFORE TAX AND ADJUSTED DILUTED EARNINGS PER SHARE
The terms adjusted profit before tax and adjusted diluted earnings per share refer to the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted earnings per share, one-off tax items. Refer to the Other Financial Information section of this Interim Announcement for a reconciliation of adjusted profit before tax and Note 6 for adjusted earnings per share.
ADJUSTED CASH FLOW AND FREE CASH FLOW
Adjusted cash flow is underlying EBITDA, amortisation of investment in acquired content rights, investment in acquired content rights, amortisation of investment in productions, investment in productions, net of grants, working capital and joint venture movements.
Free cash flow is adjusted cash flow less capital expenditure, tax paid and net interest paid. It is measured excluding one-off items.
LIBRARY VALUATION
Underpinning eOne's focus on growth through content ownership, the Group commissions an annual independent library valuation calculated using a discounted cash flow model (discounted using the Group's published post-tax weighted average cost of capital) for all of eOne's television, family, film and music assets on a rateable basis with eOne's ownership of such assets. The cash flows represent a forecast of future amounts which will be received from the exploitation of the assets, net of payments made as royalties or non-controlling interests and an estimate of the overheads required to support such exploitation.
CURRENCY AND ACQUISITION RELATED ADJUSTMENTS
The Group presents revenue and underlying EBITDA on a constant currency basis, which is calculated by retranslating the comparative figures using weighted average exchange rates for the current period. The Group presents underlying Group revenue and EBITDA growth (excluding acquisitions) on a constant currency basis which is defined as the underlying revenue or EBITDA growth on a constant currency basis, excluding the revenue or EBITDA derived from the acquisitions from the date of acquisition to the period-end date.
A reconciliation of the revenue growth on a constant currency basis is shown below:
Six months Six months
ended ended
30 September 30 September Change
2017 2016
GBPm GBPm %
================================= ============= ============= =======
Revenue (per condensed
consolidated income statement) 395.7 401.0 (1.3%)
Currency adjustment - 15.7
Revenue (constant currency) 395.7 416.7 (5.0%)
================================== ============= ============= =======
A reconciliation of the underlying EBITDA growth on a constant currency basis is shown below:
Six months Six months Change
ended ended
30 September 30 September
2017 2016
GBPm GBPm %
============================= ============= ============= =======
Underlying EBITDA (per
condensed consolidated
income statement) 51.4 37.7 36.3%
Currency adjustment - 0.8
Underlying EBITDA (constant
currency) 51.4 38.5 33.5%
============================== ============= ============= =======
CASH FLOW AND NET DEBT
The Group defines net debt as interest-bearing loans and borrowings net of cash and cash equivalents. Interest-bearing loans and borrowings include senior secured notes and revolving credit facility net of deferred finance charges, bank overdrafts and other interest-bearing loans.
The table below reconciles free cash flow associated with the net debt of the Group, shown in the Other Financial Information section of this Interim Announcement, to the net cash from operating activities and net movement in cash and cash equivalents in the condensed consolidated cash flow statement. It excludes cash flows associated with production activities which are reconciled in the Cash Flow and Production Financing section below.
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Underlying EBITDA 49.5 39.6
Adjustment for:
One-off items (3.3) 1.7
Amortisation of investment in acquired
content rights 54.3 70.4
Investment in acquired content rights (88.1) (111.6)
Amortisation of investment in productions 22.8 20.7
Investment in productions, net of
grants received (34.6) (19.1)
Fair value gain on acquisition of
subsidiary - (2.1)
Share of results of joint ventures - 0.4
=========================================== ============= =============
Operating cash flows before changes
in working capital and provisions 0.6 -
Working capital (60.5) (51.4)
Income tax paid (21.7) (7.1)
=========================================== ============= =============
Net cash from operating activities (81.6) (58.5)
=========================================== ============= =============
Cash one-off items 28.0 7.0
Purchase of plant, property and
equipment and software (1.5) (0.9)
Interest paid (11.5) (12.9)
=========================================== ============= =============
Free cash flow (66.6) (65.3)
=========================================== ============= =============
Cash one-off items (28.0) (7.0)
Cash one-off finance items (13.2) (0.7)
Acquisitions, net of net debt acquired (3.2) (2.1)
Dividends paid (10.0) (6.8)
=========================================== ============= =============
Net increase in net debt (121.0) (81.9)
=========================================== ============= =============
Net debt at beginning of the period (187.4) (180.8)
Net increase in net debt (121.0) (81.9)
Effect of foreign exchange rate
changes on net debt held (4.4) (0.6)
=========================================== ============= =============
Net debt at end of the period (312.8) (263.3)
=========================================== ============= =============
The table below reconciles the movement in net
debt to movement in cash associated with net debt
of the Group:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Net increase in net debt (121.0) (81.9)
Net drawdown of interest-bearing
loans and borrowings 98.5 27.7
Fees paid in relation to the Group's
senior bank facility (0.2) (0.6)
Acquisitions, net debt acquired - 2.4
Amortisation of deferred finance
charges 0.9 0.9
=========================================== ============= =============
Net decrease in cash and cash equivalents
at end of the period (net of bank
overdrafts) (21.8) (51.5)
=========================================== ============= =============
CASH FLOW AND PRODUCTION FINANCING
The Group defines production financing as non-recourse production financing net of cash and cash equivalents which is used to fund the Group's television, family and film productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. It is short-term financing whilst the production is being made and is paid back once the production is delivered from the sales receipts and tax credits received. The Company deems this type of financing to be short-term in nature and is excluded from net debt. The Company therefore shows the cash flows associated with these activities separately. The Company also believes that higher production financing demonstrates an increase in the success of the Television, Family and Film production businesses, which helps drive revenue for the Group and therefore increases the generation of EBITDA and cash for the Group, which in turn reduces the Group's net debt leverage.
The table below reconciles free cash flow associated with the production financing of the Group, shown in the Other Financial Information section of this Interim Announcement, to the net cash from operating activities and net movement in cash and cash equivalents in the condensed consolidated cash flow statement. It excludes cash flows associated with net which are reconciled in the Cash Flow and Net Debt section above.
Restated
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Underlying EBITDA 1.9 (1.9)
Adjustment for:
One-off items - (0.3)
Amortisation of investment in productions 27.6 45.0
Investment in productions, net of
grants received (107.1) (67.7)
=========================================== ============= =============
Operating cash flows before changes
in working capital and provisions (77.6) (24.9)
Working capital 85.7 19.5
Income tax paid (1.0) (1.6)
=========================================== ============= =============
Net cash from operating activities 7.1 (7.0)
=========================================== ============= =============
Cash one-off items 1.8 0.3
Purchase of property, plant and
equipment and software - (0.1)
Interest paid (0.7) -
=========================================== ============= =============
Free cash flow 8.2 (6.8)
=========================================== ============= =============
Cash one-off items (1.8) (0.3)
Cash one-off finance items - (0.1)
=========================================== ============= =============
Net increase/(decrease) in production
financing 6.4 (7.2)
=========================================== ============= =============
Production financing at beginning
of the period (152.3) (118.0)
Net decrease/(increase) in production
financing 6.4 (7.2)
Effects of foreign exchange changes
on production financing held 4.1 (13.5)
=========================================== ============= =============
Production financing at end of the
period (141.8) (138.7)
=========================================== ============= =============
The table below reconciles the movement in production
financing to the movement in cash associated with
production financing of the Group:
Six months Six months
ended ended
30 September 30 September
2017 2016
GBPm GBPm
=========================================== ============= =============
Net increase/(decrease) in production
financing 6.4 (7.2)
Net (repayment)/drawdown of production
financing (1.9) 21.4
=========================================== ============= =============
Net increase in cash and cash equivalents
at end of the period 4.5 14.2
=========================================== ============= =============
INDEPENDENT REVIEW REPORT TO ENTERTAINMENT ONE LTD.
REPORT ON THE CONDENSED CONSOLIDATED HALF YEAR FINANCIAL STATEMENTS
Our conclusion
We have reviewed Entertainment One Ltd.'s condensed consolidated half year financial statements (the "interim financial statements") in the Interim Announcement of Entertainment One Ltd. for the six month period ended 30 September 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the condensed consolidated balance sheet at
-- 30 September 2017;
the condensed consolidated income statement
and condensed consolidated statement of comprehensive
-- income for the period then ended;
the condensed consolidated cash flow statement
-- for the period then ended;
the condensed consolidated statement of changes
-- in equity for the period then ended; and
the explanatory notes to the interim financial
-- statements.
The interim financial statements included in the Interim Announcement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Announcement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Announcement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Announcement based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Announcement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London, United Kingdom
20 November 2017
The maintenance and integrity of the Entertainment
One Ltd. website is the responsibility of the
directors; the work carried out by the auditors
does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the
interim financial statements since they were
a) initially presented on the website.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
statements may differ from legislation in other
b) jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFIVLRLIFID
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November 21, 2017 02:01 ET (07:01 GMT)
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