21 May 2013

Results Announcement

Source: RNS
RNS Number : 1655F
Entertainment One Ltd
21 May 2013
 



 

 

Entertainment One Ltd.

 

Results Announcement for the Financial Year Ended 31 March 2013

 

Transformational Year Delivering Strong Growth 

 

Entertainment One Ltd. ("Entertainment One", "eOne", "the Group" or "the Company"), a leading international entertainment content owner and distributor, announces its results for the financial year ended 31 March 2013.

 

Financial Highlights


Adjusted results


Reported results


2013

2012

Change


2013

2012








Revenue1 (£m)

629.1

502.7

+25%


629.1

502.7

Underlying EBITDA2 (£m)

62.5

52.6

+19%


62.5

52.6

Profit before tax3 (£m)

53.8

43.0

+25%


5.5

23.1

Diluted earnings per share3 (pence)

15.9

15.4

+3%


(0.5)

7.8

Net debt4 (£m)

87.8

44.1

+43.7


144.5

90.2

 

Operational Highlights

 

-

Following the acquisition of Alliance Films Holdings Inc. ("Alliance") on 8 January 2013 the integration is now substantially complete with the full C$20 million of targeted synergy savings achieved on an annualised basis after just four months with further savings anticipated

-

Film division released over 200 titles theatrically with gross box office up 79% to US$376 million (2012: US$210 million), with a strong slate of films in place for the coming year

-

Television division delivered 295 half hours of television programming (2012: 237 half hours) with a strong pipeline of new network orders and renewals already commissioned

-

Peppa Pig remains the UK's number one pre-school property, enjoying a successful nationwide licensing and merchandising launch in the US and is continuing to expand internationally

 

Strategic Highlights

 

-

The Company is actively considering a transfer of the listing category of all of its common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority subject to satisfying the required eligibility criteria and has made application to the UK Listing Authority

-

The Board intends to adopt a progressive dividend policy, with an inaugural dividend payment expected to be made following the 2014 full year financial results

-

The Group completed a new five-year US$425 million syndicated debt facility in conjunction with the completion of the Alliance acquisition

 

 

Notes:

1. Alliance contributed £69.7 million to the Group's current year revenue from the date of acquisition.

2. Underlying EBITDA is stated before operating one-off items, share-based payment charges, net finance charges, tax, depreciation and amortisation of intangible assets.

3. Adjusted profit before tax is profit before tax before one-off items, share-based payment charges, one-off items within net finance charges and amortisation of acquired intangible assets; adjusted diluted earnings is adjusted for the tax effect of these items.

4. Adjusted net debt includes net borrowings under the Group's senior debt facility but excludes Production net debt.

 



Darren Throop, Chief Executive Officer, commented:

 

"It has been a very positive year for Entertainment One and I am delighted to report another strong set of results. This clearly demonstrates the strength of our strategy of investing in world-class content and exploiting our distribution rights on a multi-territory, multi-platform basis. The successful acquisition and integration of Alliance has been a particular highlight of the year. Our application to transfer to the premium listing segment and intention to adopt a progressive dividend policy will enable us to drive value for our shareholders."

 

 

 

For further information, please contact:

 

Redleaf Polhill

Emma Kane / Rebecca Sanders-Hewett

Tel: +44 (0)20 7382 4730


Email: eOne@redleafpolhill.com




Entertainment One

Darren Throop (CEO)                          

via Redleaf Polhill

 

Giles Willits (CFO)

via Redleaf Polhill

 

N + 1 Singer 

(Joint Broker)

James Maxwell / Nick Donovan                     

Tel: +44 (0)20 7496 3000

Cenkos Securities plc

(Joint Broker)

Stephen Keys / Adrian Hargrave

Tel: +44 (0)20 7397 8926

 

A presentation to analysts will take place on Tuesday 21 May at 9.30am BST at Melville Room, The Montcalm London City, 52 Chiswell Street, London EC1Y 4SA.

 

Cautionary statement

This Results 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.  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 Results Announcement should be construed as a profit forecast.

 

A copy of this Results Announcement for the year ended 31 March 2013 can be found on our website at www.entertainmentonegroup.com. Copies of the Annual Report for the year ended 31 March 2013 will be available to shareholders shortly.



BUSINESS PERFORMANCE AND FINANCIAL REVIEW

 

OVERVIEW

 

Delivering the strategy

This has been a transformational year for the Group. The business has delivered on its strategic priorities with increased investment in content driving growth in the underlying Film and Television businesses, Peppa Pig successfully delivering its first Christmas in the US and the acquisition of Alliance establishing the Group as an even stronger player in the industry. The Group's goal remains the same - to become the world's leading independent entertainment group through the production and acquisition of entertainment content rights for exploitation across all consumer media throughout the world - and the business continues to focus on its three strategic pillars: 

·     Growing the Group's content portfolio through the acquisition of high-quality film and television rights alongside the development and production of television and family programming.  Investment in content and programmes increased 29% to £175.0 million (2012: £135.8 million) driving a 25% increase in revenues

·     Improving investment returns by driving operational efficiencies in the Group's core territories through increased scale and growing revenues in new consumer media channels. Digital sales increased 36% year-on-year to £90.0 million and the Alliance synergies will deliver ahead of the C$20 million target and sooner than expected  

·     Expanding global reach by extending the geographic footprint of the Group through corporate acquisition and partnership and increasing access for content rights to new markets. The Group expanded its operational network into Spain as part of the Alliance deal and also increased its partnership network with the addition of South Korea

The success of the Group's strategy is reflected in another strong financial performance and the business enters the new financial year with a significantly enhanced reputation and a market position that is expected to enable further developments across the Group in the future.

 

Acquisition of Alliance

The Group completed the acquisition of Alliance on 8 January 2013 and is now the world's largest independent film distributor with market leading positions in its two main territories, Canada and the UK. Alliance has also provided the Group with a presence in Spain, in line with the Group's strategy of expanding its distribution network internationally. Alliance contributed £69.7 million to the Group's reported revenue in the period from the date of the acquisition to 31 March 2013. If the acquisition had been completed on 1 April 2012, Group revenue for the year would have been £832.3 million.

 

The integration of Alliance is now substantially complete, with the businesses operating under combined leadership teams in both the UK and Canada. Our target to deliver annual synergy savings of C$20 million over a three-year period has already been surpassed, on an annualised basis, after just four months with further savings anticipated.

 

Premium listing

The Company is actively considering a transfer of the listing category of all of its common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority (the "Transfer"), subject to satisfying the required eligibility criteria and has made application to the UK Listing Authority.

The FTSE Nationality Committee, which determines eligibility for the FTSE UK Index Series, is scheduled to next meet on 13 August 2013. It is anticipated that, subject to the Transfer to the premium listing segment of the Official List of the Financial Conduct Authority and other conditions being met, the Company will be considered for inclusion into the FTSE UK Index Series, which includes the FTSE 100, FTSE 250 and FTSE All-Share indices.

The Company has appointed J.P. Morgan Securities plc, which conducts its UK investment banking business as J.P. Morgan Cazenove, to act as its Sponsor in relation to the proposed Transfer and subject to the Transfer taking place, as joint corporate broker to Entertainment One.

The Board believes that a premium listing is the most appropriate listing category for the Group, providing it with exposure to a broader range of investors and enhancing the liquidity of its shares. The Board of the Company expects to make a further announcement containing full details of the Transfer in due course.

 

Dividend policy

The Board intends to adopt a progressive dividend policy, with an inaugural dividend payment expected to be made following the 2014 full year financial results.

 

The announcement of an intention to initiate dividend payments reflects the Board's confidence in Entertainment One's medium and long-term prospects and expands the universe of potential investors in the Group's common shares, further underscoring Entertainment One's position as a leading international media group.

 

Re-financing

In conjunction with the Alliance acquisition, the Group completed a re-financing that delivered a new five-year US$425 million syndicated debt facility. The facility ensures that the Group has access to increased funding over the next five years to support its growth plans.

 

Executive incentive plan

The Board has decided to put in place a new executive incentive plan for the benefit of Darren Throop, Patrice Theroux and Giles Willits (the "Incentive Plan"). The Incentive Plan, which is broadly similar to those of premium listed FTSE 250 companies, will include new proposals on salary, bonus and a long-term incentive plan ("LTIP"). It is expected that awards under the LTIP will initially be made for the benefit of Darren Throop, Patrice Theroux and Giles Willits, however awards may also be made to other employees of the Group under the LTIP. Performance will be measured against adjusted earnings per share, adjusted return on capital employed and total shareholder return. Shareholder approval will be sought in relation to the proposed adoption of the LTIP. The conditions relating to the exercise of options under the existing Management Participation Scheme (as described in more detail in Note 31 to the consolidated financial statements) have now been met, and the relevant directors have indicated an intention to exercise their put option in relation to this scheme upon Transfer subject to certain conditions. A further announcement will be made in due course.

 

It is the intention of management, at the time of the Company's announcement of its intention to transfer to a premium listing ("ITT Announcement"), to enter into a trading plan to sell part of their shareholding at minimum specified prices during specified periods of time, the terms of which will be agreed after the release of the ITT Announcement. Further details will be announced in due course.

 



Outlook

The Group started its new financial year in a very strong position. With the Alliance acquisition integrated the Group has a strong combined slate of over 250 films set for release in the coming year and a much larger library of titles.  The Television division continues to grow its roster of new programming and renewals as it strengthens its network relationships, while the Family business continues to expand in line with Peppa Pig's increased international exposure.

The Board believes that the proposed move to the premium listing segment would provide it with exposure to a wider potential investor base and that its new five-year financing agreement ensures that the business has access to increased funding to support its growth plans.

DIVISIONAL REVIEWS

 

Following the acquisition of Alliance and the resulting restructuring of the Group's operations, the Group has updated the reporting of its divisional segments. The two new reporting segments are Film and Television. 

The Film division focuses on the Group's acquisition and exploitation of film distribution rights, including physical distribution activities which were previously reported as a separate segment. The Television division focuses on the Group's Television and Family production activities and includes the results of the Group's music label.

Film Division

The completion of the Alliance acquisition in January 2013 has transformed the size and scale of the Film business which now comprises operations in the UK, Canada, the US, Spain, Benelux and Australia making it the largest independent film distributor in the world. The Group released over 200 titles (2012: 152) theatrically (including 25 Alliance titles) and grew box office takings by 79% to US$376 million (2012: US$210 million). The biggest release of the year was the fifth Twilight Saga instalment, The Twilight Saga: Breaking Dawn - Part 2, which in the UK was the highest grossing box office release of the series. Other significant releases in the year included The Impossible, Nativity 2, Quartet, The Sapphires, Silver Linings Playbook and Django Unchained

Reported revenue increased by 25% to £518.0 million and underlying EBITDA was also up by 25% to £49.3 million supported by increased investment in content, up 57% to £95.4 million (2012: £60.9 million). Proforma revenue increased by 4% in the year to £721.2 million (2012: £693.2 million) due primarily to continuing growth in the UK and a strong performance in Australia. This drove an increase in proforma underlying EBITDA of 7% to £64.5 million (2012: £60.4 million). Proforma investment in content was £139.0 million (2012: £136.6 million). 

The Group plans to release over 250 films theatrically during the next financial year, including The Hunger Games: Catching Fire, RED 2, Now You See Me, and Ender's Game. Investment in content is expected to increase to over £175 million in the new financial year.



 


 

Reported (audited)

Proforma,

Constant currency* (unaudited)


2013
£m

2012
£m


%

2013
£m

2012

£m


%








Revenue

518.0

414.0

+25%

721.2

693.2

+4%








Underlying EBITDA

49.3

39.5

+25%

64.5

60.4

+7%








Investment in content

95.4

60.9

+57%

139.0

136.6

+2%

* In order to provide like-for-like comparisons, the above table includes the results and prior year figures on a proforma and constant currency basis.  For the purposes of this analysis, 'proforma' includes the results of Alliance, which was acquired on 8 January 2013, and the results of Hopscotch, which was acquired on 13 May 2011, as if that business had been acquired on the first day of the comparative period.  Constant currencies have been calculated by retranslating the comparative figures using weighted average exchange rates for the period to 31 March 2013.  The impact of currency movements has had an immaterial impact on revenue and underlying EBITDA in the period.

Multi-territories

The Group has continued to build its slate of high profile multi-territory theatrical releases. Its multi-territory output deals now include Summit, Lionsgate, Relativity and Lakeshore. In September the Group was delighted to announce Dreamworks Films, the US production business headed up by Steven Spielberg and Stacey Snider, as its latest output partner. This increased access to high-quality content has grown the release slate significantly with multi-territory titles in the financial year including The Twilight Saga: Breaking Dawn - Part 2, Bullet to the Head, Parker, Seven Psychopaths, Warm Bodies, Safe Haven and Quartet.

 

Looking forward, the multi-territory slate looks strong and is expected to continue to grow in the new financial year with titles including the highly anticipated sequel, The Hunger Games: Catching Fire, science fiction action film Ender's Game (starring Harrison Ford, Abigail Breslin and Ben Kingsley), fantasy adventure The Mortal Instruments: City of Bones (Lily Collins and Jamie Cambell Bower), Princess Diana biopic Diana (starring Naomi Watts), action comedy sequel RED 2 (Bruce Willis and Helen Mirren), Anton Corbijn directed thriller A Most Wanted Man (starring Philip Seymour Hoffman), heist movie Now You See Me (Morgan Freeman, Mark Ruffalo, Jesse Eisenberg and Dave Franco) and action drama 2 Guns (Denzel Washington and Mark Wahlberg).

 

Film's international sales business continued to expand enhancing the Group's presence in the industry and providing additional access to content including Song For Marion and the award-winning Beasts of the Southern Wild. In the coming year the slate includes The F Word (Daniel Radcliffe) and Queen of the Night (Ryan Reynolds and Scott Speedman). The Alliance deal has also provided the Film business with increased access to quality content through its production financing activities which in the past have delivered titles such as Woman in Black and Insidious. The Group expects to facilitate the production of at least two films in the year including Suite Francaise and Insidious II.

 

UK

As a result of the Alliance acquisition, the business is now the largest independent film distributor in the UK. Revenue increased by 36% on a reported basis driven by strong organic growth and the post-acquisition Alliance revenues. Theatrical sales were higher, boosted by a strong box office performance which benefitted from multi-territory films and other releases which included The Impossible, Nativity 2, Song For Marion and Side Effects. In total the number of titles released increased to 29 (2012: 11).

Home video also performed strongly, releasing 85 titles driven by the larger number of theatrical releases and direct to DVD titles such as House at the End of the Street, The Courier, Crossfire, Hooligan and The Walking Dead season two. Broadcaster sales increased with Channel 4 and BBC package deals including titles such as The King's Speech and The Fighter. Digital continued to be significant with LOVEFiLM being the major contributor supported by sales to Netflix following the Alliance deal.

The new financial year is expected to see another increase in the number of theatrical releases. In addition to multi-territory titles, UK releases will include thriller Prisoners (starring Hugh Jackman, Jake Gyllenhaal and Melissa Leo), Steven Soderbergh's Liberace biopic Behind the Candelabra (Matt Damon and Michael Douglas), animated comedy Free Birds (Owen Wilson and Woody Harrelson) and Steve McQueen's latest drama Twelve Years a Slave (Michael Fassbender, Brad Pitt and Chiwetel Ejiofor). In addition to theatrically released titles, DVD releases will include the third season of hit TV series The Walking Dead, Sweet Vengeance, The Rise and Frankenstein's Army.

 

Canada

Following the Alliance acquisition, the eOne Film business is now Canada's largest film distributor. Overall reported revenue increased by 16% with 82 (2012: 54) theatrical releases.

In addition to the multi-territory titles, theatrical releases included Broken City, Mama, Moonrise Kingdom, Les Pee-Wee 3D, Escape From Planet Earth 3D, 21 and Over as well as Academy Award winning films Django Unchained, Zero Dark Thirty and Silver Linings Playbook.  There were 191 home video releases which included films released theatrically such as The Twilight Saga: Breaking Dawn - Part 2, The Grey, Django Unchained and Zero Dark Thirty along with titles released direct to home video including Downtown Abbey and Heartland season five.   

Major contracts entered into during the year included a new deal with the newly merged Acorn and Image business. Key output deals in Canada in addition to multi-territory agreements include Focus Features, IM Global, Weinstein and Miramax. 

Major theatrical releases for the new financial year, in addition to multi-territory titles, will include major drama Place Beyond The Pines (starring Ryan Gosling, Bradley Cooper and Eva Mendes), Robert Redford thriller The Company You Keep (Robert Redford and Shia LaBeouf), comedy Gambit (Cameron Diaz and Colin Firth), Sofia Coppola's The Bling Ring (Leslie Mann and Emma Watson), comedy August: Osage County (Ewan McGregor, Benedict Cumberbatch, Meryl Streep and Julia Roberts), horror Jessabelle (formerly known as Ghosts), drama Only God Forgives (Ryan Gosling and Kristin Scott Thomas), Ron Howard directed action biopic Rush (Chris Hemsworth), Christmas action adventure Walking with Dinosaurs 3D, David O. Russell's thriller American Hustle (Christian Bale, Jennifer Lawrence, Bradley Cooper, Robert De Niro, Jeremy Renner and Amy Adams) and Edgar Wright directed comedy The World's End (Simon Pegg and Nick Frost). In addition straight to DVD releases will include The Protector 2, Downtown Abbey season four and Heartland season six.

The physical home entertainment wholesale business continued to experience tough trading conditions however it still grew market share year-on-year through the pick-up of new sales. The Group's new scale post the Alliance integration will put Entertainment One in an improved position to benefit from consolidation opportunities expected in the Canadian home entertainment market in the future.

 

Benelux

Revenue in the Benelux business increased by 9% with strong theatrical sales and the release of 58 films theatrically compared to 57 in the prior year.  Lower sales in home video were offset by increases in television and digital which nearly doubled in revenues following the entrance of new local digital providers and increased sales to iTunes. The Group continues to expect that it will benefit from the expansion of the digital market through the entry of international players such as Netflix, who do not yet have a presence in Benelux.

 

Major theatrica lreleases included local titles Mees Kees which was number one at the box office for three weeks, De Verbouwing, Zambesia, Hope Springs and multi-territory title Looper.  A reduced home video slate of 130 releases compared to 157 saw sales lower year-on-year but included successful theatrical hits Mees Kees and De Verbouwing, Ghostrider and seasons one and two of The Walking Dead.

In addition to multi-territory titles, the upcoming theatrical release slate includes comedy movie Last Vegas (starring Robert De Niro, Michael Douglas and Morgan Freeman), drama The Railway Man (Nicole Kidman and Colin Firth), Rob Reiner's new comedy And So It Goes (Michael Douglas and Diane Keaton) and the sequel to smash hit Mees Kees, Mees Kees Op Kamp. DVD releases will include Ender's Game, The Mortal Instruments, Now You See Me and RED 2.

 

Australia

In Australia, all revenue windows were ahead of the prior year with total revenue increasing by 80% driven by the Group's significant increase in investment following the acquisition of Hopscotch in 2011. The business released 31 films theatrically compared to 30 in the prior year.  Local smash hit The Sapphires led the way and has been the business' best performer to date, along with To Rome With Love, I Give it a Year and Bachelorette.  

 

Home video performed extremely well benefiting from the box office success of The Sapphires and from the Group's hit series The Walking Dead and Family property Peppa Pig. Over 80 titles were released, well ahead of the prior year, including notable releases Bachelorette and Seven Psychopaths. Digital revenues also increased significantly, led by The Sapphires and The Walking Dead titles.

In addition to the Group's multi-territory offerings, major theatrical releases for the new financial year will include crime drama Rush (starring Chris Hemsworth and directed by Ron Howard), Woody Allen's latest comedy Blue Jasmine (Alec Baldwin and Cate Blanchett), Grace of Monaco (Nicole Kidman) and the third film in the Before Sunrise series from Richard Linklater, Before Midnight (Ethan Hawke and Julie Delpy). DVD titles will benefit from the strong multi-territory theatrical slate along with season three of The Walking Dead and season one of Hannibal.  

 

US

The Group's expansion in the US which commenced in the prior year saw growth in investment in content which delivered a 48% increase in total revenue. The strategy of limited-release theatrical titles resulted in eight box office titles, including A Late Quartet, Cosmopolis and Starbuck. In addition the US signed VOD deals with DirecTV and InDemand.  

 

120 home video titles were released compared to 105 in the comparative period. Revenues also increased reflecting the higher quality of the titles and sales from theatrical releases. Major titles included Cosmopolis, Iron Sky, Katt William's comedy special Kattpacalypse and season one of eOne's television production Hell on Wheels. Digital sales also performed well and increased year-on-year, notable titles included Special Forces and Being Human: The Complete Second Season.

The Group's US strategy will continue in the new financial year with over 10 theatrical releases expected including We Are What We Are (starring Michael Parks and Kelly McGillis), comedy Cuban Fury (Chris O'Dowd, Nick Frost and Rashida Jones), drama Twice Born (Penelope Cruz and Emile Hirsch), Scatter My Ashes at Bergdorf's (Mary-Kate and Ashley Olsen and Joan Rivers) and Brian De Palma directed thriller Passion (Rachel McAdams and Noomi Rapace). DVD releases are expected to include new comedy specials from Katt Williams and Sommore, Wicked Blood and Blood of Redemption (both starring Sean Bean), limited release theatrical titles Passion and We Are What We Are, the first wide-release Peppa Pig title Princess Peppa, the second season of Hell on Wheels and the third season of Haven.

US Film includes the Group's in-house physical video and music distribution business which also represents other third-party producers and labels. Revenues increased reflecting the increased DVD release activity of the US Film business.

 

Spain

Spain is a new territory for the Group and was acquired as part of the Alliance transaction in January 2013.  It is one of the largest independent film distribution operations in Spain. In the period since acquisition there were six theatrical releases including Silver Linings Playbook, Gambit, Parker and Beautiful Creatures. There were also eight home video releases including the Group's hit The Twilight Saga: Breaking Dawn - Part 2, Judge Dredd and Looper.

 

In addition to a large number of multi-territory titles, the upcoming theatrical release slate includes the Steven Soderbergh directed crime thriller Side Effects (starring Jude Law, Rooney Mara and Catherine Zeta-Jones), action blockbuster Olympus Has Fallen (Gerard Butler, Aaron Eckhart and Morgan Freeman) and Lone Survivor (Mark Wahlberg and Eric Bana).

Television Division

Television comprises the North American-based Television Production business and the UK-based Family business.  It also incorporates the results of the US based music label.  Revenue increased by 14% driven by strong growth in Television and Family businesses with underlying EBITDA up 2% as a result of increases in Television offset by a decline in Music. Investment in content and programmes increased by 6% to £79.7 million with 295 half hours of production (excluding Family) delivered to broadcasters compared with 237 in the previous year.  


 

Reported (audited)

Constant currency (unaudited)

 


2013
£m

2012
£m


%

2012

£m


%







Revenue

133.4

116.2

+15%

117.1

+14%







Underlying EBITDA

18.0

17.4

+3%

17.6

+2%







Investment in content

79.7

74.9

+6%

75.2

+6%

 

Television Production

Television Production reported another excellent year of revenue and underlying EBITDA growth and continued to hold its position as Canada's leading independent producer. Revenues were 21% ahead of the prior year due to the increase in the number of half hours of production delivered and improved library sales.

Good progress was made in obtaining renewals for existing shows and commissioning new programmes. 51% of deliveries related to new commissions (2012: 47%) indicating a very positive inflow of new production to drive future renewals. Current year renewals accounted for 49% (2012: 53%) representing 146 half hours compared to 125 in the previous year. Furthermore, the pipeline remains robust with contracted sales not yet recognised at the year-end relating to work in progress of £35 million (2012: £47 million).

Highlights of new commissions included the delivery of suspense drama Rogue starring Thandie Newton for DirecTV and medical drama Saving Hope.  Other major primetime shows delivered during the year included seasons three and four of police drama Rookie Blue, season two of Hell on Wheels, season three of Haven and the fourth season of Call Me Fitz (starring Jason Priestly). Non-scripted deliveries included Sugar Stars for the Food Network, Dangerous Persuasions, Builder Boss, Perfect Storms, Mary Mary and The Sheards.

The new financial year's production slate already includes commissioned renewals for season two of Saving Hope, season three of Hell on Wheels and season four of Haven.  New shows in production include Klondike, the Discovery Channel's first scripted mini-series, Bitten based on the best-selling werewolf novels of the same name, The First Martian War and Korea Hill.  Television movies commissioned include Window Wonderland ordered by the Hallmark Channel and two movies based on the novels of best-selling author Mary Higgins Clark novels for GMC.

The International television sales business continued its expansion, selling the Group's own productions and third-party content. Major third-party sales during the year included all three seasons of the international hit The Walking Dead and Primeval: New World

 

Family

The Family business had another year of strong licensing and merchandising sales and Peppa Pig maintained its status as the UK's number one pre-school toy licensed property. Revenue overall was up 7% with licensing and merchandising revenues increasing driven by international deals for Peppa Pig in Spain, Italy and Australia, offset by slightly lower revenues in the UK due to the timing of licensee renewals. Home video and digital sales have performed well and increased year-on-year due to strong sales in Australia and Italy.  

 

Peppa Pig is still the Family business' key asset and saw continued progress in the financial year. In the US, prime time exposure on Nickelodeon helped underpin the retail launch of the US licencing programme with toys and DVDs available exclusively through Toys R Us. Downloads of the Peppa Pig app broke the one million mark and publishing revenues increased in the UK. Toy deals were also signed in Spain, Italy and Australia. Peppa Pig continued to expand into new broadcast territories such as Russia, Latin America and Asia.  These new important markets offer the potential for further growth in the future. During the year it was agreed with creators ABD to develop a further series totalling 70 new episodes over the coming years.

 

Ben & Holly's Little Kingdom progressed well in the UK despite strong competition. The delivery of season two and the continued strong support of free to air television are expected to stimulate licensee demand in the forthcoming year. Ben & Holly's Little Kingdom also secured strong broadcast platforms in Spain, Italy, Germany and Benelux with merchandising launches due in the coming year in these markets.

The business is looking to expand the number of brands it manages, building on its in-house licencing and merchandising expertise, and recently acquired the exclusive worldwide distribution rights to the YouTube brand Simon's Cat.


Music

Revenue in the music label was down 9% compared to the prior year driven by a lower volume of releases in the year. Major releases on the label included new albums from DJ Drama, Dricky Graham, SWV, Joe Budden and Dwele. The new financial year will see releases from Ashanti, Michelle Williams and Pop Evil. Digital revenue continues to grow and now accounts for 70% of total revenues (2012: 53%). During the year, Entertainment One purchased the rights to the Death Row Records catalogue, representing one of the most successful urban genre catalogues in the music industry.

 

FINANCIAL REVIEW

 

The continued development of the Group's activities has delivered another year of strong growth with reported revenue up 25% to £629.1 million (2012: £502.7 million) and underlying EBITDA (Earnings before interest, tax, depreciation, amortisation of intangible assets, share-based payment charges and one-off items) up 19% to £62.5 million (2012: £52.6 million). This performance confirms the success of the Group's strategy to grow through increased investment in both our Film and Television divisions. Investment in content and programmes increased by 29% to £175.0 million (2012: £135.8 million).

 

 


Adjusted (audited)

Reported (audited)


2013

2012

2013

2012


£m

£m

£m

£m






Revenue

629.1

502.7

629.1

502.7






Underlying EBITDA

62.5

52.6

62.5

52.6






One-off items

-

-

(26.8)

(3.8)

Amortisation of intangible assets

(1.1)

(1.0)

(19.3)

(16.4)

Depreciation

(1.5)

(1.5)

(1.5)

(1.5)

Share-based payment charge

-

-

(1.2)

(1.4)






Operating profit

59.9

50.1

13.7

29.5

Net finance charges

(6.1)

(7.1)

(8.2)

(6.4)

Profit before tax

53.8

43.0

5.5

23.1

Taxation

(15.0)

(11.2)

(6.6)

(6.9)

Profit for the year

38.8

31.8

(1.1)

16.2

 

 

On a proforma basis, which includes the full year financial results from the Alliance business which was acquired by the Group on 8 January 2013, revenue increased 6% to £832.3 million (2012: £782.0 million) and underlying EBITDA was up 6% to £77.7 million (2012: £73.5 million). Proforma investment in content and programming was up 3% to £218.6 million (2012 £211.8 million) on a proforma basis.

 

Adjusted operating profit (which excludes depreciation, amortisation of acquired intangibles, share-based payments and one-off items) increased 20% to £59.9 million (2012: £50.1m) reflecting the growth in underlying EBITDA. Adjusted profit before tax increased 25% to £53.8 million reflecting the increased operating profit and lower finance charges. The Group reported a loss before tax of £1.1 million compared to a profit of £16.2 million in the prior year, mainly as a result of one-off items of £26.8 million which primarily relate to the Alliance acquisition.

 

One-off items

One-off items totalled £26.8 million and included £19.7 million of Alliance-related restructuring and acquisition costs, £5.2 million to provide for the potential payment of the out-performance incentive plan in the future, a £1.7 million HMV and Blockbuster charge and £0.2 million of other corporate project costs.

 

Amortisation of intangible assets and depreciation

Amortisation of intangible assets increased £2.9 million to £19.3 million, mainly as a result of the increase in acquired intangible assets resulting from the Alliance acquisition. Depreciation was in line with the prior year at £1.5 million.

 

Share-based payment charge

The share-based payment charge of £1.2 million is in line with the prior year. There were no grants in the current year.

 

Net finance charges

Reported net finance charges increased £1.8 million to £8.2 million. Excluding the write-off of unamortised deferred finance charges on re-financing of £1.8 million and the decrease in fair value of derivative instruments of £0.3 million (2012: £0.7 million increase) finance charges were £1.0 million lower in the current year, reflecting lower average net debt levels and lower average interest rates.

 

The weighted average interest cost was 5.2% compared to 5.5% in the prior year, giving a cash interest cover of 9.9 times underlying EBITDA (2012: 9.2 times).

 

Tax

The tax charge for the year was £6.6 million (2012: £6.9 million) giving an effective tax rate of 120.0% (2012: 29.9%).  The effective rate in the financial year was higher than the weighted average of the statutory rates in the jurisdictions in which the Group operates mainly due to the impact of costs incurred as part of the Alliance acquisition that are not deductible for tax purposes such as transaction costs, provisions and share-based payment charges.

 

On an adjusted basis, excluding operating one-off items, amortisation of acquired intangible assets, share-based payment charges and one-off items in net finance costs and taxation, the effective tax rate was 27.9% (2012: 26.0%).  The year-on-year increase in the effective tax rate is due to increased non-deductible costs in the current year as well as well as recognition of deferred tax assets in the prior year.

 

Earnings per share

Reported basic loss per share was 0.5 pence (2012: earnings of 8.8 pence).  The decrease reflects the one-off charges in the year which primarily relate to the Alliance transaction.  On an adjusted basis profit after tax was £38.8 million, 22% ahead of the prior year with the adjusted diluted earnings per share at 15.9 pence (2012: 15.4 pence) ahead 3%. This reflects the impact of the increase in the number of dilutive shares following the equity raise in September 2012, the proceeds of which were used to fund the acquisition of Alliance in January 2013. Therefore the adjusted earnings per share calculation includes a period of dilution between October and December 2012 when there were no earnings from the Alliance business.

 



Cash flow

During the financial year there was an increase in net debt resulting from a net outflow of funds from the Group which primarily reflects the impact of the Alliance acquisition which was completed during the period.

 

Cash flows from operating activities at £178.0 million were 43% ahead of the previous year reflecting the improved underlying EBITDA and strong cash generation from the Group's investment and production activities.

 

The Group invested £175.0 million in content rights and television programmes in the year (2012: £135.8 million) and £4.2 million to purchase the iconic music library assets of Death Row Records.

 


31 March 2013




Adjusted net debt

£m

Prod'n net debt

£m

 

Total

£m


31 March

2012

£m

Net debt at 1 April

(44.1)

(46.1)

(90.2)


(60.7)







Net cash from operating activities

107.0

71.0

178.0


124.1

Investment in content rights and programmes

(101.2)

(73.8)

 

(175.0)


(135.8)

Purchases of acquired intangible assets

(4.2)

-

(4.2)


-

Purchase of other non-current assets *

(2.9)

-

(2.9)


(2.0)

Free cash flow

(1.3)

(2.8)

(4.1)


(13.7)







Acquisition of subsidiaries

(141.2)

0.2

(141.0)


(6.3)

Net interest paid

(4.9)

(1.4)

(6.3)


(5.7)

Net proceeds from issue of ordinary shares

107.4

-

107.4


-

Debt acquired

2.3

(5.0)

(2.7)


(3.5)

Amortisation of deferred finance charges

(1.3)

-

(1.3)


(1.7)

Write-off of unamortised deferred finance charges

(1.8)

-

(1.8)


-

Foreign exchange

(2.9)

(1.6)

(4.5)


1.4

Net debt at 31 March

(87.8)

(56.7)

(144.5)


(90.2)

 

* Other non-current assets comprise property, plant and equipment and intangible software.

 

The net cash outflow from the acquisition of subsidiaries was £141.0 million. £140.7 million related to the January 2013 acquisition of Alliance and £0.3 million related to final amounts paid relating to the acquisition of Hopscotch in the prior period. As part of the acquisition of Alliance, £105.9 million of net proceeds were raised from issue of ordinary shares. The remaining £1.5 million from the issue of shares is in relation to share options exercised (£0.2 million) and the exercise of warrants by Lionsgate/Summit (£1.3 million).

 

 

 

Financing

The net debt balances at 31 March 2013 comprise the following:

 

 


£m

£m


2013

2012

Cash and other items (excl. TV Production)

(26.3)

(11.6)

JP Morgan - Senior Facility

114.1

55.7

Adjusted net debt

87.8

44.1

Production net debt

56.7

46.1

Net debt

144.5

90.2

 

 

The adjusted net debt balance was £87.8 million, up £43.7 million from the previous year end. The increase is driven primarily by the acquisition of Alliance (£140.7 million), partially offset by share placement of £107.4m, and a significant increase in investment in content rights and programmes.  Adjusted net debt leverage (defined as adjusted net debt divided by underlying EBITDA) increased year-on-year and was 1.4 times at 31 March 2013 (2012: 0.8 times).

 

On 8 January 2013, the Group re-financed its previous bank facility which was due to mature in October 2014. The new arrangement is a US$425.0 million multi-currency, five-year secured facility which expires in January 2018. The facility comprises a revolving credit facility ("RCF") which can be funded in US dollars, Canadian dollars, pounds sterling and euros, a Canadian dollar term loan and a pounds sterling term loan. These borrowings are secured by the assets of the Group. The facility is with a syndicate of banks managed by JP Morgan Chase N.A.  At 31 March 2013, the total available facility was equivalent to US$418.4 million based on closing exchange rates.

 

Production net debt increased by £10.6 million year-on-year to £56.7 million reflecting the large number of high value productions in progress at the year end. This financing is independent of the Group's senior credit facility.  It is excluded from the calculation of adjusted net debt as it is secured over the assets of individual production companies within the Production businesses and represents shorter-term working capital financing that is arranged and secured on a production-by-production basis.

 

Financial position and going concern basis

The Group's net assets increased £119.1 million to £330.8 million at 31 March 2013 (2012: £211.7 million). The increase primarily reflects the acquisition of Alliance in the year.

 

The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern. The directors consider it appropriate to prepare the accounts on a going concern basis, as set out in Note 3 to this Results Announcement.

 



Statement of Directors' Responsibility

 

The directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance with applicable law and regulations.

 

The directors are required to prepare the consolidated financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and Article 4 of the IAS Regulation. The directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these consolidated financial statements, International Accounting Standard 1 requires that directors:

 

· properly select and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· make an assessment of the Group's ability to continue as a going concern.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

 

Responsibility statement

We confirm that to the best of our knowledge:

 

· the consolidated financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as a whole; and

· the Business and Financial Review on pages 3 to 14 include a fair review of the development and performance of the business and the position of the Group.

 

By order of the Board

 

Giles Willits

Director

20 May 2013

 



Independent Auditor's Report to the Members of Entertainment One Ltd.

 

We have audited the consolidated financial statements of Entertainment One Ltd. for the year ended 31 March 2013 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and the related Notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

This report is made solely to the Company's members, as a body, in accordance with Disclosure and Transparency Rule 4.1. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the consolidated financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

 

Scope of the audit of the consolidated financial statements

An audit involves obtaining evidence about the amounts and disclosures in the consolidated financial statements sufficient to give reasonable assurance that the consolidated financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the consolidated financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited consolidated financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Opinion on consolidated financial statements

In our opinion the consolidated financial statements:

·     give a true and fair view of the state of the Group's affairs as at 31 March 2013 and of its loss for the year then ended; and

·     have been properly prepared in accordance with IFRSs as adopted by the European Union.

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

20 May 2013



Consolidated Income Statement

for the year ended 31 March 2013

 



  Year ended

   Year ended



      31 March

       31 March



              2013

              2012


Notes

                  £m

                  £m

Revenue

5

629.1

502.7

Cost of sales


(490.6)

(378.5)

Gross profit


138.5

124.2

Administrative expenses


(124.8)

(94.7)

Operating profit

6

13.7

29.5





Analysed as:




   Underlying EBITDA


62.5

52.6

   Amortisation of intangible assets

16,17

(19.3)

(16.4)

   Depreciation

18

(1.5)

(1.5)

   Share-based payment charge

31

(1.2)

(1.4)

   One-off items

9

(26.8)

(3.8)



13.7

29.5





Finance income

10

1.0

0.7

Finance costs

10

(9.2)

(7.1)

Profit before tax


5.5

23.1

Income tax charge

11

(6.6)

(6.9)

(Loss)/profit for the year


(1.1)

16.2





(Loss)/earnings per share (pence)




Basic

14

(0.5)

8.8

Diluted

14

(0.5)

7.8

Adjusted earnings per share (pence)




Basic

14

17.1

17.3

Diluted

14

15.9

15.4

 

All activities relate to continuing operations. All of the (loss)/profit for the year is attributable to the owners of the ultimate parent company.

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2013

 



  Year ended

  Year ended



      31 March

       31 March



              2013

              2012



                 £m

                  £m

(Loss)/profit for the year


(1.1)

16.2

Exchange differences on foreign operations


9.2

(3.7)

Fair value movements on cash flow hedges


1.5

0.5

Reclassification adjustments for movements on cash flow hedges


0.5

(0.3)

Tax related to components of other comprehensive income


(0.5)

-

Total comprehensive income for the year


9.6

12.7

 

All of the total comprehensive income for the year is attributable to the owners of the ultimate parent company.



Consolidated Balance Sheet

at 31 March 2013

 



      31 March

       31 March



              2013

              2012


Note

                 £m

                  £m

ASSETS




 

Non-current assets




Goodwill

15

218.5

108.9

Other intangible assets

16

130.6

56.6

Investment in programmes

17

56.9

45.6

Property, plant and equipment

18

5.3

3.5

Other receivables

21

8.7

2.5

Deferred tax assets

12

8.7

6.5

Total non-current assets


428.7

223.6

Current assets




Inventories

19

50.0

46.0

Investment in content rights

20

215.7

97.7

Trade and other receivables

21

252.1

148.1

Cash and cash equivalents

22

33.4

17.4

Current tax assets


2.5

1.8

Derivative financial instruments

28

1.7

-

Total current assets


555.4

311.0

 

Total assets


984.1

 

534.6





LIABILITIES




 

Non-current liabilities




Interest-bearing loans and borrowings

23

131.9

74.1

Other payables

25

18.3

0.4

Provisions

26

12.9

-

Deferred tax liabilities

12

7.4

8.1

Total non-current liabilities


170.5

82.6

Current liabilities




Interest-bearing loans and borrowings

23

46.0

33.5

Trade and other payables

25

399.4

198.2

Provisions

26

17.0

0.2

Current tax liabilities


19.1

7.5

Derivative financial instruments

28

1.3

0.9

Total current liabilities


482.8

240.3

 

Total liabilities


653.3

 

322.9

 

Net assets


330.8

211.7





EQUITY




 

Stated capital

 

30

282.4

 

173.9

Treasury shares

30

(7.2)

(7.7)

Other reserves

30

11.0

9.5

Currency translation reserve


42.3

33.1

Retained earnings


2.3

2.9

 

Total equity


330.8

 

211.7

 

These consolidated financial statements were approved by the Board of Directors on 20 May 2013.

 

Giles Willits

Director


Consolidated Statement of Changes in Equity

for the year ended 31 March 2013

 

 




Other reserves







Cash flow



Currency




Stated

Treasury

hedge

Warrants

Restructuring

translation

Retained

Total


capital

shares

reserve

reserve

reserve

reserve

earnings

equity


£m

£m

£m

£m

£m

£m

£m

£m










At 1 April 2011

167.2

(7.8)

          (0.6)

0.6

9.3

           36.8

(14.6)

190.9

 

Profit for the year

-

-

-

-

-

              -

 

16.2

 

16.2

Other comprehensive income/(loss)

-

-

0.2

-

-

(3.7)

-

(3.5)

Total comprehensive income/(loss) for the year

-

-

 

          0.2

-

-

 

(3.7)

 

16.2

 

12.7










Issue of common shares - as part-consideration for acquisition1

6.3

-

-

-

-

-

-

6.3

Issue of common shares - on exercise of share options1

0.4

-

-

-

-

-

-

0.4

Credits in respect of share-based payments

-

0.1

-

-

-

-

1.1

1.2

Deferred tax on credits in respect of share-payments

-

-

-

-

-

-

0.2

 

0.2

 

At 31 March 2012

 

173.9

 

(7.7)

 

(0.4)

0.6

9.3

 

33.1

 

2.9

 

211.7

 

Loss for the year

-

-

-

-

-

              -

 

(1.1)

 

(1.1)

Other comprehensive income

-

-

          1.5

-

-

9.2

-

10.7

Total comprehensive income/(loss) for the year

-

-

 

          1.5

-

-

 

9.2

 

(1.1)

 

9.6










Issue of common shares - for cash1

110.0

-

-

-

-

-

-

110.0

Transaction costs relating to issue of common shares for cash (net of tax)1

(3.0)

-

-

-

-

-

-

(3.0)

Issue of common shares - on exercise of share options1

0.2

-

-

-

-

-

-

0.2

Issue of common shares - on exercise of share warrants1

1.3

-

-

-

-

-

-

1.3

Credits in respect of share-based payments

-

0.5

-

-

-

-

0.5

1.0

 

At 31 March 2013

282.4

(7.2)

1.1

0.6

9.3

42.3

2.3

330.8

 

1 See Note 30 for further details.


Consolidated Cash Flow Statement

for the year ended 31 March 2013

 

 



  Year ended

   Year ended



      31 March

       31 March



              2013

               2012


Note

                 £m

                  £m

Operating activities

 




Operating profit


13.7

29.5

 

Adjustments for:




   Depreciation of property, plant and equipment

18

1.5

1.5

   Amortisation of other intangible assets

16

18.9

16.0

   Amortisation of investment in programmes

17

61.9

46.3

   Amortisation of investment in content rights

20

77.4

51.8

   Impairment of investment in content rights

20

4.1

-

   Foreign exchange movements


(0.6)

0.1

   Share-based payment charge

31

1.2

1.4

Operating cash flows before changes in working    

   capital and provisions


178.1
146.6

Decrease in inventories


2.4

9.7

Decrease/(increase) in trade and other receivables


11.2

(27.3)

(Decrease)/increase in trade and other payables


(11.1)

7.3

Increase(decrease) in provisions


6.4

(1.9)

Cash generated from operations


187.0

134.4

Income tax paid


(9.0)

(10.3)

Net cash from operating activities


178.0

124.1

 

Investing activities




Acquisition of subsidiaries, net of cash acquired

33

(141.0)

(6.3)

Purchase of investment in content rights


(101.6)

(64.4)

Purchase of investment in programmes, net of grants received


(73.4)

(71.4)

Purchase of acquired intangible assets


(4.2)

-

Purchase of property, plant and equipment

18

(1.5)

(0.8)

Purchase of intangible software assets

16

(1.4)

(1.2)

Net cash used in investing activities


(323.1)

(144.1)

 

Financing activities




Proceeds on issue of shares

30

111.5

-

Transaction costs related to issue of shares

30

(4.1)

-

Drawdown of interest-bearing loans and borrowings


322.2

53.5

Repayment of interest-bearing loans and borrowings


(261.7)

(62.3)

Net drawdown of interim production financing


5.9

24.8

Interest paid


(6.3)

(5.7)

Fees paid on re-financing of Group's bank facilities


(8.5)

(1.8)

Net cash from financing activities


159.0

8.5

 

Net increase/(decrease) in cash and cash equivalents


13.9

 

(11.5)

Cash and cash equivalents at beginning of the year

22

17.4

29.2

Effect of foreign exchange rate changes on cash held


0.5

(0.3)

Cash and cash equivalents at end of year

22

31.8

17.4

 

 

 

 

 

 



Notes to the Consolidated Financial Statements

for the year ended 31 March 2013

 

1. Nature of operations and general information

 

Entertainment One Ltd. and subsidiaries ("the Group") is a leading independent entertainment group focused on the acquisition, production and distribution of film and television 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 Company has a standard listing on the London Stock Exchange. Segmental information is disclosed in Note 5.

 

Entertainment One Ltd. presents its consolidated financial statements in pounds sterling, which is also the functional currency of the parent company. These consolidated financial statements were approved for issue by the Board of Directors on 20 May 2013.

 

2. New, amended, revised and improved Standards and Interpretations

 

Amendments to Standards adopted during the year

During the year, the following amendments were adopted by the Group:

 

Amendments to Standards

Effective date

Amendments to IFRS1 Severe Hyperinflation

1 July 2011

Amendments to IFRS1 Removal of Fixed Dates for First-Time Adopters

1 July 2011

Amendment to IFRS 7 Disclosures - Transfer of Financial Assets

1 July 2011

Amendment to IAS 12 Deferred Tax: Recovery of Underlying Assets

1 January 2012

 

The above amendments have had no material impact on the Group's financial position, performance or its disclosures.

 

New, amended, revised and improved Standards and Interpretations issued but not adopted during the year

At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations, which have not been applied in these consolidated financial statements are in issue but not yet effective for periods beginning 1 April 2012:

 

New, amended, revised and improved Standards

Effective date

Amendment to IAS 1 Presentation of Items of Other Comprehensive Income

1 July 2012

Amendment to IAS 1 Government Loans

1 January 2013

Amendment to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities

1 January 2013

IFRS13 Fair Value Measurement

1 January 2013

IAS 19 (as revised in 2011) Employee Benefits

1 January 2013

Annual improvements to IFRS (May 2012)

1 January 2013

IFRS10 Consolidated Financial Statements

1 January 2014

IFRS11 Joint Arrangements

1 January 2014

IFRS12 Disclosures of Interests in Other Entities

1 January 2014

Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance

1 January 2014

IAS 27 (as revised in 2011) Separate Financial Statements

1 January 2014

IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures

1 January 2014

Amendment to IAS 32 Offsetting Financial Assets and Financial Liabilities

1 January 2014

IFRS 9 (as revised in 2010) Financial Instruments

1 January 2015

Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosures

1 January 2015

 

The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

 



3. Significant accounting policies

 

Use of additional performance measures

The Group presents underlying EBITDA, one-off items, adjusted profit before tax and adjusted earnings per share information. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms underlying, one-off items, and adjusted may not be comparable with similarly titled measures reported by other companies. The term underlying EBITDA refers to operating profit or loss excluding operating one-off items, share-based payment charges, depreciation and amortisation of intangible assets. The terms adjusted profit before tax and adjusted earnings per share refer to the reported measures excluding operating one-off items, amortisation of intangible assets arising on acquisitions, one-off items relating to the Group's financing arrangements, share-based payment charges and, in the case of adjusted earnings per share, one-off tax items.

 

Basis of preparation: (i) Preparation of the consolidated financial statements on the going concern basis

The Group's activities, together with the factors likely to affect its future development are set out in the Business and Financial Review on pages 3 to 14.

 

The Group meets its day-to-day working capital requirements and funds its investment in content through a revolving credit facility which matures in January 2018 and is secured on assets held in the Group. Under the terms of the facility the Group is able to draw down in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2013 are shown in Note 23.

 

The facility is subject to a series of covenants including fixed charge cover, gross debt against EBITDA and capital expenditure. The Group has a track record of cash generation and is in full compliance with its existing bank facility covenant arrangements. At 31 March 2013 the Group had £33.4 million of cash, £144.5 million of net debt and undrawn amounts under the facility of £153.2 million.

 

The Group is exposed to uncertainties arising from the economic climate and also 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 the facility and provide headroom against the covenants for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements.

 

Basis of presentation: (ii) Other

These consolidated financial statements have been prepared under the historical cost convention (except for derivative financial instruments and share-based payments that have been measured at fair value) and in accordance with applicable International Financial Reporting Standards as adopted by the EU and IFRIC interpretations (IFRS). The Group financial statements comply with Article 4 of the EU IAS Regulation.

 

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company (Entertainment One Ltd.) and its subsidiaries (the Group). The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company, using consistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date of disposal. All intra-group balances, transactions, income and expenses and unrealised profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.

 

Business combinations

Business combinations are accounted for using the acquisition method. The cost of a business combination is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets.

 

3. Significant accounting policies (continued)

 

The cost of a business combination is measured as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the consolidated income statement as incurred.

 

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, is recognised either in the consolidated income statement or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured until it is finally settled within equity.

 

Goodwill arising on a business combination is recognised as an asset and initially measured at cost, being the excess of aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets (including other intangible assets) acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary or business acquired, any negative goodwill is recognised immediately in the consolidated income statement.

 

Revenue recognition

Revenue represents the amounts receivable for goods and services provided in the normal course of business, net of discounts and excluding value added tax (or equivalent). Revenue is derived from the licensing, marketing and distribution of feature films, television, video programming and music rights. Revenue is also derived from television production and licensing and merchandising sales. The following summarises the Group's main revenue recognition policies:

 

·  Revenue from the exploitation of film and music rights is recognised based upon the contractual terms of each agreement.

·  Revenue is recognised where there is reasonable contractual certainty that the revenue is receivable and will be received.

·  Revenue from television licensing represents the contracted value of licence fees which is recognised when the licence term has commenced, the production is available for delivery, substantially all technical requirements have been met and collection of the fee is reasonably assured.

·  Revenue from the sale of own or co-produced television productions is recognised when the production is available for delivery and there is reasonable contractual certainty that the revenue is receivable and will be received.

·  Revenue from the sale of DVD, video and audio inventory is recognised at the point at which goods are despatched. A provision is made for returns based on historical trends.

·  Revenue from licensing and merchandising sales represents the contracted value of licence fees which is recognised when the licence terms have commenced and collection of the fee is reasonably assured.

 

Pension costs

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

 

Operating leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the lease term.

 

Borrowing costs

Borrowing costs, including finance expense, are recognised in the consolidated income statement in the period in which they are incurred. Borrowing costs are accounted for using the effective interest rate method.

 

Borrowing costs directly attributable to the acquisition or production of a qualifying asset (such as investment in programmes) form part of the cost of that asset and are capitalised.

 

3. Significant accounting policies (continued)

 

Foreign currencies

(a) Within individual companies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

 

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign exchange differences arising on the settlement of such transactions and from translating monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognised in the income statement.

 

(b) Retranslation within the consolidated financial statements

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at average exchange rates for the period. Foreign exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or expenses in the period in which the operation is disposed of.

 

One-off items

One-off items are items of income and expenditure that are non-recurring and, in the judgement of management, 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 financial performance and enable comparison of financial performance between periods.

 

Taxation

(a) Income tax

The income tax expense/credit represents the sum of the income tax currently payable and deferred tax.

 

The income tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's asset or liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

(b) Deferred tax assets and liabilities

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.


3. Significant accounting policies (continued)

 

Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt within equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities. This applies when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 

Goodwill

Goodwill arising on a business combination is recognised as an asset and initially measured at cost, being the excess of aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets (including other intangible assets) acquired and liabilities assumed. Transaction costs directly attributable to the acquisition form part of the acquisition cost for business combinations prior to 1 January 2010 but from that date such costs are written off to the consolidated income statement and do not form part of goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

 

Goodwill is allocated to cash generating units (CGUs) which are tested for impairment annually or more frequently if there are indications that goodwill might be impaired. The CGUs identified are the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other groups of assets. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

 

Other intangible assets

Other intangible assets acquired by the Group are stated at cost less accumulated amortisation. Amortisation is charged to administrative expenses in the consolidated income statement on a straight-line basis over the estimated useful life of intangible fixed assets unless such lives are indefinite.

 

Other intangible assets mainly comprise amounts arising on consolidation of acquired subsidiaries such as exclusive content agreements and libraries, customer relationships, exclusive distribution rights, brands and trade names and non-compete agreements. They also include amounts arising in relation to costs of software.

 

Other intangible assets are generally amortised over the following periods:

 

Exclusive content agreements and libraries

3-14 years

Customer relationships

9-10 years

Exclusive distribution rights

9 years

Brands and trade names

1-10 years

Non-compete agreements

2-5 years

Software

3 years

 

Investment in programmes

Investment in programmes that are in development and for which the realisation of expenditure can be reasonably determined, are classified and capitalised in accordance with IAS 38 Intangible assets as productions in progress within investment in programmes. On completion of production the cost of investment is reclassified as investment in programmes. Also included within investment in programmes are programmes acquired on acquisition of subsidiaries.

 

Amortisation of investment in programmes, including government grants credited, is charged to cost of sales unless it arises from revaluation on acquisition of subsidiaries in which case it is charged to administrative expenses. The maximum useful life is considered to be 10 years.

 

3. Significant accounting policies (continued)

 

Government grants

A government grant is recognised and credited as part of investment in programmes when there is reasonable assurance that any conditions attached to the grant will be satisfied and the grants will be received and programme has been delivered. Government grants are recognised at fair value.

 

Property, plant and equipment

Property, plant and equipment are stated at original cost less accumulated depreciation. Depreciation is charged to write off cost less estimated residual value of each asset over their estimated useful lives using the following methods and rates:

 

Leasehold improvements

Over the term of the lease

Fixtures, fittings and equipment

20%-30% reducing balance

 

The carrying amounts of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Group reviews residual values and useful lives on an annual basis and any adjustments are made prospectively.

 

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset (determined as the difference between the sales proceeds and the carrying amount of the asset) is recorded in the consolidated income statement in the period of derecognition.

 

Interests in joint ventures

The Group has interests in joint ventures which are jointly controlled entities. The Group recognises its interest in joint ventures using proportionate consolidation, under which the Group combines its share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line-by-line, in its consolidated financial statements. The financial statements of the Group's joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

 

Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets are tested annually for impairment (as required by IFRS in the case of goodwill) or when circumstances indicate that the carrying amounts may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. The recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs to sell and its value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.

 

Inventories

Inventories are stated at the lower of cost, including direct expenditure and other appropriate attributable costs incurred in bringing inventories to their present location and condition, and net realisable value. The cost of inventories is calculated using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.


3. Significant accounting policies (continued)

 

Investment in content rights

In the ordinary course of business the Group contracts with film producers to acquire rights to exploit films. Certain of these agreements require the Group to pay minimum guaranteed advances (MGs), the largest portion of which often becomes due when the film is received by the Group, usually some months subsequent to signing the contract. MGs are recognised in the consolidated balance sheet when a liability arises, usually on delivery of the film to the Group.

 

Investments in content rights are recorded in the consolidated balance sheet if such amounts are considered recoverable against future revenues. These costs are amortised to cost of sales on a revenue forecast basis over a period not exceeding 10 years from the date of initial release. Acquired libraries are amortised over a period not exceeding 20 years. Amounts capitalised are reviewed at least quarterly and any portion of the unamortised amount that appears not to be recoverable from future revenues is written off to cost of sales during the period the loss becomes evident. Balances are included within current assets if they are expected to be realised within the normal operating cycle of the business. The normal operating cycle of the business can be greater than 12 months. In general 75% of film content is amortised within 12 months of theatrical release.

 

Trade and other receivables

Trade receivables are generally not interest bearing and are stated at their fair value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

Cash and cash equivalents

Cash and cash equivalents in the consolidated balance sheet comprise cash at bank and in-hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated balance sheet.

 

Interest-bearing loans and borrowings

All interest-bearing loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process.

 

Interim production financing relates to short-term financing for the Group's television productions. Interest payable on interim production financing loans is capitalised and forms part of the cost of production of investment in programmes.

 

Deferred finance charges

All costs incurred by the Group that are directly attributable to the issue of debt are initially capitalised and deducted from the amount of gross borrowings. Such costs are then amortised through the consolidated income statement over the term of the instrument using the effective interest rate method.

 

Should there be a material change to the terms of the underlying instrument, any remaining unamortised deferred finance charges are immediately written-off to the consolidated income statement as a one-off finance item. Any new costs incurred as a result of the change to the terms of the underlying instrument are capitalised and then amortised over the term of the new instrument, again using the effective interest rate method.

 

Trade and other payables

Trade payables are generally not interest-bearing and are stated at their nominal value.


3. Significant accounting policies (continued)

 

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, where the obligation can be estimated reliably, and where it is probable that an outflow of economic benefits will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance expense.

 

Derivative financial instruments and hedging

Derivative financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

 

The Group uses derivative financial instruments to reduce its exposure to foreign exchange and interest rate 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 consolidated balance sheet at fair value. Derivatives designated as hedging instruments are classified on inception as cash flow hedges, net investment hedges or fair value hedges.

 

Changes in the fair value of derivatives designated as cash flow hedges are recognised in equity to the extent that they are deemed effective. Ineffective portions are immediately recognised in the consolidated income statement. When the hedged item affects profit or loss then the amounts deferred in equity are recycled to the consolidated income statement.

 

For net investment hedges, to the extent that movements in the fair values of these instruments effectively offset the underlying risk being hedged, they are recognised in the translation reserve until the period during which a foreign operation is disposed of or partially disposed of, at which point the cumulative gain or loss is recognised in the income statement, offsetting the cumulative difference recognised on the translation of the net investment.

 

Fair value hedges record the change in the fair value in the consolidated income statement, along with the changes in the fair value of the hedged asset or liability.

 

Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are immediately recognised in the consolidated income statement.

 

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

Treasury shares

The Entertainment One Ltd. shares held in the Employee Benefit Trust are classified in shareholders' equity as treasury shares and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to revenue reserves. No gain or loss is recognised on the purchase, sale, issue or cancellation of equity shares.

 

Share-based payments

The Group issues equity-settled and cash-settled share-based payments to certain employees.

 

Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by means of a binomial valuation model. The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations.

 

3. Significant accounting policies (continued)

 

For cash-settled share-based payments a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date.

 

Segmental reporting

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 Group has two reportable segments: Film and Television, based on the types of products and services from which each segment derives its revenues.

 

The Film segment includes revenues from all of the Group's activities in relation to the acquisition and exploitation of film distribution rights (including those revenues earned through physical home entertainment sales, previously reported under a separate Distribution segment).

 

The Television segment includes revenues from all of the Group's content production activities, including the production of television and music content.

 

The Group has changed its reporting segments in the current year as it believes that measuring its activities in relation to film distribution rights across all media separately from its activities in relation to production of content will allow the chief operating decision maker to most effectively allocate resources to the individual segments, in order to maximise the Group's overall revenues.

 

4. Significant accounting judgements and key sources of estimation uncertainty

 

The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the amounts reported for assets and liabilities at the balance sheet date and amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates.

 

Estimates and judgements are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects that period only, or in the period of the revision and future periods if the revision affects both current and future periods.

 

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below.

 

Impairment of goodwill

The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. At 31 March 2013, the carrying amount of goodwill was £218.5 million (2012: £108.9 million). Further details of goodwill are contained in Note 15.

 

Acquired intangible assets

The Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition. The determination of these fair values is based upon management's judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Furthermore, management must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. At 31 March 2013, the total carrying amount of the Group's acquired intangibles was £126.5 million (2012: £53.4 million). Further details of acquired intangibles are contained in Note 16.

 



4. Significant accounting judgements and key sources of estimation uncertainty (continued)

 

Investment in programmes and investment in content rights

The Group capitalises investment in programmes and investment in content rights and amortises to cost of sales on a revenue forecast basis. Amounts capitalised are reviewed at least quarterly and any that appear to be irrecoverable from future revenues are written-off to cost of sales during the period the loss becomes evident. The estimate of future revenues depends on management judgement and assumptions based on the pattern of historical revenue streams and the remaining life of each contract. At 31 March 2013, the carrying amount of investment in programmes was £56.9 million (2012: £45.6 million) and the carrying amount of investment in content rights was £215.7 million (2012: £97.7 million). Further details of investment in programmes and investment in content rights are contained in Notes 17 and 20, respectively.

 

Provisions for onerous film contracts

The Group recognises a provision for an onerous film title when the unavoidable costs of meeting the obligations under the contract exceed the expected benefits to be received under it. The estimate of the amount of the provision requires management to make judgements and assumptions of future cash inflows and outflows and also an assessment of the least cost of exiting the contract. To the extent that events, revenues or costs differ in the future, the carrying amount of provisions may change. At 31 March 2013, the carrying amount of onerous film contracts was £20.8 million (2012: £nil). Further details of onerous film contracts are contained in Note 26.

 

Share-based payments

The charge for share-based payments is determined based on the fair value of awards at the date of grant by use of the binomial model which require judgements to be made regarding expected volatility, dividend yield, risk free rates of return and expected option lives. The list of inputs used in the binomial model to calculate the fair values is provided in Note 31.

 

Deferred tax

Deferred tax assets and liabilities require management's judgement in determining the amounts to be recognised. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration to the timing and level of future taxable income. At 31 March 2013, the Group had a net deferred tax asset of £1.3 million (2012: liability of £1.6 million). Further details of deferred tax are contained in Note 12.

 

Income tax

The actual tax on the result for the year is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is unclear, estimates are used in determining the liability for tax to be paid on past profits which are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the consolidated financial statements.

 

5. Segmental analysis

 

Operating segments

For internal reporting and management purposes, the Group is organised into two main reportable segments based on the types of products and services from which each segment derives its revenue - Film and Television. These divisions are the basis on which the Group reports its operating segment information.

 


5. Segmental analysis (continued)

 

The types of products and services from which each reportable segment derives its revenues are as follows:

 

·      Film - the acquisition and exploitation of film distribution rights across all media, including theatrical revenue, revenue from physical home entertainment sales, revenue from sales over digital platforms and revenue from sales to operators of traditional television networks.

 

·      Television - the production of television and music content and the exploitation of such content.

 

At 31 March 2012, prior to the acquisition of Alliance and subsequent Group restructuring, the Group's operating segments were Entertainment and Distribution. As a consequence of changes in reporting segments, prior year segment information has been restated to match the current year's presentation.

 

Inter-segment sales are charged at prevailing market prices.

 

Segment information for the year ended 31 March 2013 is presented below.

 


Film

Television

Eliminations

Consolidated


Notes

£m

Segment revenues





External sales

512.6

116.5

-

629.1

Inter-segment sales

5.4

16.9

(22.3)

Total segment revenues

518.0

133.4

(22.3)

629.1






Segment results





Segment underlying EBITDA

49.3

18.0

0.1

67.4

Group costs


Underlying EBITDA




62.5

Depreciation and amortisation




(20.8)

Share-based payment charge

31




(1.2)

One-off items

9


Operating profit




13.7

Finance income

10




1.0

Finance costs

10


Profit before tax




5.5

Tax

11


Loss for the year




(1.1)

 

Segment assets





Total segment assets

777.3

201.8

-

979.1

Unallocated corporate assets


Total assets




984.1

 

Other segment information





Depreciation and amortisation of software

2.4

0.2

-

2.6

Amortisation of acquired intangibles

15.1

3.1

-

18.2

One-off items





- Impairment of investment in content rights

6,20

4.1

-

-

4.1

- Other one-off items

22.7

-

-

22.7

 



5. Segmental analysis (continued) 

 

Segment information for the year ended 31 March 2012 is presented below.

 


Film

Television

Eliminations

Consolidated

(restated)

Note

£m

Segment revenues





External sales

409.5

93.2

-

502.7

Inter-segment sales

4.5

Total segment revenues

414.0

116.1

(27.4)

502.7






Segment results





Segment underlying EBITDA

39.5

17.5

-

57.0

Group costs


Underlying EBITDA




52.6

Depreciation and amortisation




(17.9)

Share-based payment charge

31




(1.4)

One-off items

9


Operating profit




29.5

Finance income

10




0.7

Finance costs

10


Profit before tax




23.1

Tax

11


Profit for the year




16.2

 

Segment assets





Total segment assets

355.6

177.1

(0.1)

532.6

Unallocated corporate assets


Total assets




534.6

 

Other segment information





Depreciation and amortisation of software

2.3

0.2

-

2.5

Amortisation of acquired intangibles

12.6

2.8

-

15.4

One-off items

9

0.7

-

-

0.7

Group one-off items

9


 

Geographical information

The Group's operations are located in Canada, the UK, the US, Spain, Benelux and Australia. The Film division is located in all of these geographies. The Group's Television operations are located in Canada, the US and the UK. The following table provides an analysis of the Group's revenue based on the location of the customer and the carrying amount of segment non-current assets by the geographical area in which the assets are located for the year ended 31 March 2013 and 2012.

 

 

 

External

revenues

2013

£m

Canada

238.8

249.3

199.3

122.5

UK

159.2

95.0

126.0

42.2

US

119.3

19.4

103.1

14.8

Rest of Europe

68.2

41.4

46.7

22.8

Other

43.6

Total

629.1

420.0

502.7

217.1

1 Non-current assets by location exclude amounts relating to deferred tax assets.

 

 

 



6. Operating profit

 

Operating profit for the year is stated after charging/(crediting):

 

 

 


Notes

Amortisation of investment in programmes

17

61.9

46.3

Amortisation of investment in content rights

20

77.4

51.8

Amortisation of acquired intangible assets

16

17.8

15.0

Amortisation of software

16

1.1

1.0

Depreciation of property, plant and equipment

18

1.5

1.5

Impairment of investment in content rights

5,20

4.1

-

Staff costs

8

61.0

50.0

Net foreign exchange (gains)/losses


(0.6)

0.1

Cost of inventories recognised as expense


118.1

105.0

Operating lease rentals

 

The total remuneration during the year of the Group's auditor was as follows:

 

 

 



Audit fees




- Fees payable for the audit of the Group's annual accounts

0.4

0.4

- Fees payable for the audit of the Group's subsidiaries


0.2

0.1

Other services




- Services relating to corporate finance transactions


1.8

0.4

- Tax compliance services


-

0.1

- Tax advisory services


0.2

0.1

- Other services

Total


2.7

1.2

 

Fees for corporate finance services in the table above for the year ended 31 March 2013 of £1.8 million relate to fees paid to the Group's auditor in respect of the Alliance acquisition. The amount of £0.4 million in the prior year includes fees related to the Hopscotch acquisition. See Note 33 for further details of these acquisitions.

 

7. Key management compensation and directors' emoluments

 

Key management compensation

The directors are of the opinion that the key management of the Group in the years ended 31 March 2013 and 2012 comprised the executive directors. These persons have authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. At 31 March 2013, key management comprised three people (2012: three people).

 

The aggregate amounts of key management compensation are set out below:

 




  Year ended

   Year ended




      31 March

       31 March




              2013

              2012




                 £m

                  £m

Short-term employee benefits1



2.4

2.4

Share-based payment charge



0.4

0.4

Total



2.8

2.8

1 Short-term employee benefits includes social security contributions of £0.2 million (2012: £0.2 million).

 

8. Staff costs

 

The average number of employees, including directors, are presented below:

 




  Year ended

   Year ended




      31 March

       31 March




              2013

              2012




         Number

         Number

Average number of employees





Canada



721

720

US



241

222

UK



126

100

Australia



30

25

Rest of Europe



51

41

Total



1,169

1,108

 

The table below sets out the Group's staff costs (including directors' remuneration).

 




  Year ended

   Year ended




      31 March

       31 March




              2013

              2012




                 £m

                  £m

Wages and salaries



53.8

43.8

Share-based payment charge



1.2

1.4

Social security costs



5.0

4.1

Pension costs



1.0

0.7

Total



61.0

50.0

 

Included within total staff costs of £61.0 million for the year ended 31 March 2013 is £5.5 million of one-off staff costs, as described in further detail in Note 9.

 

9. One-off items

 

One-off items are items of income and expenditure that are non-recurring and, in the judgement of management, should be disclosed separately on the basis that they are material, either by their nature or their size, to provide a better understanding of the Group's financial performance and enable comparison of financial performance between years. Items of income or expense that are considered by management for designation as one-off are as follows:

 




  Year ended

   Year ended




      31 March

       31 March




              2013

              2012



Note

                 £m

                  £m

Alliance-related costs





Alliance-related restructuring costs



9.8

-

Alliance-related acquisition costs


33

9.9

-

Total Alliance-related costs



19.7

-






Other items





Out-performance incentive plan charge



5.2

-

HMV and Blockbuster charge

1.7

-

Strategic review costs



-

3.1

Other corporate projects and acquisitions costs

0.2

0.7

Total other items



7.1

3.8

Total one-off costs



26.8

3.8

 

 



9. One-off items (continued)

 

Alliance related costs

Alliance-related restructuring costs

Restructuring costs related to the Alliance acquisition (see Note 33 for further details) of £9.8 million include £5.5 million of staff redundancy costs associated with Group's synergy-realisation programme. Post-acquisition and in the light of the combining of two large film catalogues, the Group assessed the carrying value of certain balance sheet items, particularly investment in content and inventory. This review involved, amongst other items, re-assessing the Group's ultimate revenues from DVD and Blu-ray sales. As a result of this review, a one-off charge of £4.3 million was recorded in the consolidated income statement in the year ended 31 March 2013, including an impairment of investment in content rights of £2.5 million.

 

Alliance-related acquisition costs

During the year ended 31 March 2013, the Group incurred costs of £9.9 million relating to acquisition of Alliance. These costs include amounts in respect of due diligence fees, competition review fees, advisor fees and legal fees.

 

Out-performance incentive plan charge

Since March 2007, the Group has had in place an out-performance incentive plan for the benefit of the executive directors. Under this plan, a total amount of £5.0 million is payable to the executive directors, conditional on the Company's share price achieving a 180 day volume-weighted average price of £2.25 per share. In light of the expected enhanced earnings prospects of the Group due to the Alliance acquisition and the expected increase in the liquidity of the Company's shares which would result from the proposed Premium Listing, the directors have assessed that it is now more likely than not that this obligation will be settled. Accordingly, at 31 March 2013 the Group has made a provision for the full amount of £5.0 million (plus related social security of £0.2 million).

 

HMV and Blockbuster charge

In early 2013, the entire UK operations of HMV Group (HMV) and Blockbuster Entertainment Ltd and Blockbuster GB Ltd (together Blockbuster) went into administration. Although both were subsequently sold out of administration, the businesses have been restructured with a significant number of store closures. Due to this reduction in shelf-space, the Group has reduced its projected ultimate DVD and Blu-ray revenue across a number of titles, recording a one-off charge of £1.6 million to write down certain film titles to their recoverable amount. In addition, a one-off bad debt expense was recorded of £0.1 million.

 

Other corporate projects and acquisitions costs

Charges related to other corporate projects of £0.2 million recorded in the current year include costs relating to the proposed Premium Listing. Charges of £0.7 million recorded in the year ended 31 March 2012 include the costs of acquiring the Hopscotch group of companies, as described in further detail in Note 33.

 

Strategic review costs

During the year ended 31 March 2012, legal and advisory costs of £3.1 million were incurred in relation to a strategic review of the businesses operations.

 



10. Finance income and finance costs

 

Finance income and finance costs comprise:

 



  Year ended

   Year ended



      31 March

       31 March



              2013

               2012


      Notes

                  £m

                  £m

Finance income




Net foreign exchange gains


1.0

-

Gain on fair value of derivative financial instruments

                

-

0.7

Total finance income


1.0

0.7





Finance costs




Interest on bank loans and overdrafts


(5.8)

(5.2)

Amortisation of deferred finance charges

24

(1.3)

(1.7)

Write-off of unamortised deferred finance charges

23,24

(1.8)

-

Net foreign exchange losses


-

(0.2)

Loss on fair value of derivative financial instruments


(0.3)

-

Total finance costs


(9.2)

(7.1)

 

Net finance costs


(8.2)

(6.4)





Of which:




Adjusted net finance costs


(6.1)

(7.1)

One-off net finance (costs)/income

14

(2.1)

0.7

 

One-off net finance costs of £2.1 million (2012: income of £0.7 million) comprise £1.8 million related to the write-off of unamortised deferred finance charges (as described in further detail in Note 23) and £0.3 million (2012: income of £0.7 million) arising on the mark-to-market of derivative financial instruments.

 

11. Tax

 



  Year ended

   Year ended



      31 March

       31 March



              2013

               2012


Note

                  £m

                  £m

Current tax charge


(9.9)

(9.8)

Current tax adjustments in respect of prior years


0.2

(1.0)

Deferred tax origination and reversal of temporary differences


3.4

1.7

Deferred tax adjustments in respect of prior years


(0.1)

1.8

Deferred tax changes in tax rates or tax laws


(0.1)

(0.2)

Deferred tax asset write downs or reversals/(recognition)


(0.1)

0.6

Income tax charge


(6.6)

(6.9)





Of which:




Adjusted tax charge on adjusted profit before tax


(15.0)

(11.2)

One-off net tax credit

14

8.4

4.3

 

The one-off tax credit comprises tax credits of £4.7 million (2012: £0.8 million) on the one-off items described in Note 9, tax credits of £4.6 million (2012: £3.3 million) on amortisation of acquired intangibles, tax credits of £0.6 million (2012: £0.1 million tax charge) on one-off net finance costs as described in Note 10, offset by a tax charge of £1.5 million (2012: £0.1 million) on other non-recurring tax items and £nil (2012: £0.4 million tax credit) on share-based payment charges as described in Note 31.  

 



11. Tax (continued)

 

The charge for the year can be reconciled to the profit in the consolidated income statement as follows:

 


Year ended

31 March 2013


Year ended

31 March 2012


£m

%


£m

%

Profit before tax

5.5



23.1


 

Taxes at applicable domestic rates

(1.2)

(21.8)%


(6.2)

(26.8)%

Effect of expenses that are not deductible in determining taxable profit

(5.2)

(94.6)%


(1.9)

(8.2)%

Effect of deferred tax recognition

(0.1)

(1.8)%


0.6

2.6%

Effect of losses/temporary differences not recognised

(0.1)

(1.8)%


-

-

Effect of tax rate changes

(0.1)

(1.8)%


(0.2)

(0.9)%

Prior year items

0.1

 1.8%


0.8

3.5%

Income tax charge and effective tax rate for the year

(6.6)

(120.0)%


(6.9)

(29.8)%

 

Income tax is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 26.5% in Canada (2012: 27.8%), 38.5% in the US (2012: 35.5%), 24.0% in the UK (2012: 26.0%), 25.0% in the Netherlands (2012: 25.0%), 30.0% in Australia (2012: 30.0%) and 30.0% in Spain.

 

12. Deferred tax assets and liabilities

 

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the year.

 


Accelerated tax
depreciation

Other intangible
assets

Unused
tax losses

Financing

items

 

Other

Total


£m

£m

£m

           £m

£m

£m

At 1 April 2011

(0.4)

(7.5)

1.1

2.2

(0.7)

(5.3)

Acquisition of subsidiaries

-

(2.5)

-

-

1.9

(0.6)

Prior year items

(0.2)

-

0.1

0.7

1.2

1.8

Credit/(charge) to income

0.1

3.7

(0.9)

(0.8)

-

2.1

Credit to equity

-

-

-

-

0.2

0.2

Effect of change in tax rates

-

0.1

-

(0.1)

-

-

Exchange differences

-

0.2

-

-

-

0.2

At 31 March 2012

(0.5)

(6.0)

0.3

2.0

2.6

(1.6)

Acquisition of subsidiaries

-

(21.6)

21.4

-

(0.5)

(0.7)

Prior year items

(0.1)

0.1

0.2

-

(0.3)

(0.1)

(Charge)/credit to income

(0.1)

3.6

(0.7)

(0.7)

1.1

3.2

Credit to equity

-

-

-

0.6

-

0.6

Exchange differences

-

(0.6)

0.4

-

0.1

(0.1)

At 31 March 2013

(0.7)

(24.5)

21.6

1.9

3.0

1.3

 

Other includes temporary differences on accruals, deferred income and provisions.

 

The deferred tax balances have been reflected in the consolidated balance sheet as follows.

 



      31 March

       31 March



              2013

               2012



                  £m

                  £m

Deferred tax assets


8.7

6.5

Deferred tax liabilities


(7.4)

(8.1)

Total


1.3

(1.6)

 

 

 

12. Deferred tax assets and liabilities (continued)

 

Utilisation of deferred tax assets is dependent on the future profitability of the Group. The Group has recognised deferred tax assets including £4.1 million (2012: £3.8 million) relating to intangible assets and £21.6 million (2012: £0.3 million) in relation to tax losses carried forward, as the Group considers that, on the basis of forecasts, there will be sufficient taxable profits in the future against which these losses will be offset.

 

At the balance sheet date, the Group has unrecognised deferred tax assets of £45.4 million (2012: £8.8 million) relating to tax losses and other temporary differences available for offset against future profits. The assets have not been recognised due to the unpredictability of future profit streams. Included in unrecognised deferred tax assets are £21.6 million (2012: £5.7 million) relating to losses that will expire in the years ending 2023 to 2033.

 

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was £1.8 million (2012: £1.0 million).

 

In the 2013 UK budget (delivered on 20 March 2013) the UK Government indicated that it intends to introduce further reductions in the main corporate tax rate, with the rate falling to 20% by 1 April 2015 from 21% for 2014. These further reductions to the tax rates, whilst announced, have not been substantively enacted at the balance sheet date (31 March 2013) and are therefore not reflected in these consolidated financial statements.

 

There were no temporary differences arising in connection with interests in joint ventures.

 

13. Dividends

 

At 31 March 2013, the directors are not recommending payment of a dividend (2012: £nil).

 

14. Earnings per share

 



Year ended

31 March 2013

Year ended

31 March 2012



Pence

Pence

Basic (loss)/earnings per share


(0.5)

8.8

Diluted (loss)/earnings per share


(0.5)

7.8

Adjusted basic earnings per share


17.1

17.3

Adjusted diluted earnings per share


15.9

15.4

 

Basic earnings per share is calculated by dividing earnings for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding treasury shares held by the Employee Benefit Trust (EBT) which are treated as cancelled.

 

Adjusted basic earnings per share is calculated by dividing adjusted earnings for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding treasury shares held by the EBT which are treated as cancelled. Adjusted earnings are the profit for the year attributable to shareholders adjusted to exclude one-off operating and finance items, share-based payment charges and amortisation of acquired intangible assets (net of any related tax).

 

Diluted earnings per share and adjusted diluted earnings per share are calculated after adjusting the weighted average number of shares in issue during the year to assume conversion of all potentially dilutive shares.

 

There have been no transactions involving common shares or potential common shares between the reporting date and the date of authorisation of these consolidated financial statements.



14. Earnings per share (continued)

 

The weighted average number of shares used in the earnings per share calculations are set out below. 

 


Year ended

31 March 2013

Million

Year ended

31 March 2012

Million

Weighted average number of shares for basic earnings per share and adjusted basic earnings per share

226.9

183.8

Effect of dilution:



Employee share awards

15.3

19.1

Share warrants

1.8

3.5

Weighted average number of shares for diluted earnings per share and adjusted diluted earnings per share

244.0

206.4

 

Adjusted earnings per share

The directors believe that the presentation of adjusted earnings per share, being the diluted earnings per share adjusted for one-off operating and finance items, share-based payments and amortisation of acquired intangible assets (net of any related tax effects), 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 in the adjusted earnings per share calculation are set out below:

 



Year ended 31 March 2013


Year ended 31 March 2012


Note

£m

Pence per share


£m

Pence per share

(Loss)/profit for the year


(1.1)

(0.5)


16.2

7.8

Add back one-off items

9

26.8

11.0


3.8

1.8

Add back amortisation of acquired intangible assets1


18.2

7.4


15.4

7.5

Add back share-based payment charge

31

1.2

0.5


1.4

0.7

Add back/(deduct) one-off net finance costs/(income)

10

2.1

0.9


(0.7)

(0.3)

Deduct net tax effect of above and other one-off tax items

11

(8.4)

(3.4)


(4.3)

(2.1)

Adjusted earnings


38.8

15.9


31.8

15.4

 

1 As set out in Note 17, amortisation of acquired intangibles above includes £0.4 million (2012: £0.4 million) in respect of acquired investment in programmes.

 

15. Goodwill

 



Note

£m

Cost and carrying amount




At 1 April 2011



103.8

Acquisition of subsidiaries


33

7.0

Exchange differences



(1.9)

At 31 March 2012



108.9

Acquisition of subsidiaries


33

103.9

Exchange differences



5.7

At 31 March 2013



218.5

 

Goodwill arising on a business combination is allocated to the cash generating units (CGUs) that are expected to benefit from that business combination. As explained below, the Group's CGUs are Film and Television.

 

Amounts recorded within acquisition of subsidiaries in the current and prior years relate to the goodwill arising on the acquisitions of Alliance and Hopscotch, respectively. These are both explained in further detail in Note 33. Both the acquired Alliance and Hopscotch businesses have been integrated into Film CGU.

 

15. Goodwill (continued)

 

Impairment testing for goodwill

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. An impairment loss is recognised if the carrying value of a CGU exceeds its recoverable amount.

 

The recoverable amount of a CGU is determined from 'value-in-use' calculations based on the net present value of discounted cash flows. In assessing value-in-use, the estimated future cash flows are derived from the most recent financial budgets and plans and an assumed growth rate. A terminal value is calculated by discounting using an appropriate weighted discount rate. Any impairment losses are recognised in the consolidated income statement as an expense.

 

Key assumptions used in value in use calculation

Key assumptions used in the value in use calculations for each CGU are set out below:

 


31 March 2013


31 March 2012 (restated)

CGU

Discount

rate

Terminal

growth rate

Period of

specific cash

flows


Discount

rate

Terminal

growth rate

Period of

specific cash

flows

Film

11.1%

2.8%

5 years


12.1%

2.1%

5 years

Television

10.7%

2.9%

5 years


12.3%

2.6%

5 years

 

At 31 March 2012, the Group had four CGUs, these being Film Entertainment - Film, Film Entertainment - Television, Distribution - Canada and Distribution - US. The change during the current year to two CGUs (Film and Television) reflect the Group's operational structure following restructuring of functional activity and reporting lines. Prior year information in the tables above and below have been restated accordingly with discount rates and terminal growth rates being weighted averages.

 

The calculations of the value-in-use for all CGUs are most sensitive to the operating profit, discount rate and growth rate assumptions.

 

Operating profits - Operating profits are based on budgeted/planned growth in revenue resulting from new investment in content rights, investment in television programmes and growth in the relevant markets.

 

Discount rates - A pre-tax discount rate is applied to calculate the net present value of the CGU. The pre-tax discount rate is based on the Group WACC of 9.7% (2012: 10.8%). The discount rate is adjusted where specific country and operational risks are sufficiently significant to have a material impact on the outcome of the impairment test.

 

Terminal growth rate estimates - The terminal growth rates for Film and Television, 2.8% and 2.9% respectively (2012: Film 2.1%; Television 2.6%), are beyond the end of year five and do not exceed the long-term projected growth rates for the relevant market.

 

Period of specific cash flows - Specific cash flows reflect the period of detailed forecasts prepared as part of the Group's annual planning cycle.

 

The carrying value of goodwill, translated at year-end exchange rates is allocated as follows:

 




(restated)



31 March 2013

31 March 2012

CGU


£m

£m

Film


197.2

88.3

Television


21.3

20.6

Total


218.5

108.9

 



15. Goodwill (continued)

 

Sensitivity to change in assumptions

Film

The Film calculations show that there is in excess of £200 million of headroom when compared to carrying values at 31 March 2013. Consequently management believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to materially exceed their recoverable amount.

 

Television

The Television calculations show that there is in excess of £25 million of headroom when compared to carrying values at 31 March 2013. Consequently management believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to materially exceed their recoverable amount.

 

16. Other intangible assets

 


Note

Exclusive
content
agreements
and libraries
£m

Trade names
and brands
£m

Exclusive
distribution
agreements
£m

Customer
relation-ships
£m

Non-compete
agreements
£m

Software

£m

Total

£m

Cost









At 1 April 2011


41.8

9.2

25.9

35.7

7.5

4.2

124.3

Acquisition of subsidiaries

33

-

3.2

0.5

5.3

-

-

9.0

Additions


1.9

-

-

-

-

1.2

3.1

Exchange differences


(1.1)

(0.2)

(0.3)

(0.9)

(0.1)

(0.1)

(2.7)

At 31 March 2012


42.6

12.2

26.1

40.1

7.4

5.3

133.7

Acquisition of subsidiaries

33

56.1

20.5

-

-

6.8

0.5

83.9

Additions


2.2

1.2

-

-

0.8

1.4

5.6

Exchange differences


2.0

1.0

1.1

1.6

0.5

0.2

6.4

At 31 March 2013


102.9

34.9

27.2

41.7

15.5

7.4

229.6

 

Amortisation









At 1 April 2011


(17.7)

(6.8)

(18.7)

(11.3)

(6.8)

(1.1)

(62.4)

Amortisation charge for the year

6

(5.0)

(0.7)

(4.9)

(4.1)

(0.3)

(1.0)

(16.0)

Exchange differences


0.6

0.1

0.2

0.3

0.1

-

1.3

At 31 March 2012


(22.1)

(7.4)

(23.4)

(15.1)

(7.0)

(2.1)

(77.1)

Amortisation charge for the year

6

(6.2)

(5.5)

(0.7)

(4.2)

(1.2)

(1.1)

(18.9)

Exchange differences


(0.6)

(0.3)

(1.0)

(0.7)

(0.3)

(0.1)

(3.0)

At 31 March 2013


(28.9)

(13.2)

(25.1)

(20.0)

(8.5)

(3.3)

(99.0)

Carrying amount









At 31 March 2012


20.5

4.8

2.7

25.0

0.4

3.2

56.6

At 31 March 2013


74.0

21.7

2.1

21.7

7.0

4.1

130.6

 

Additions during the year of £4.2 million (excluding software) relate to the acquisition of certain assets of Death Row Records, a well-known label within the music industry. Additions in the prior year of £1.9 million (excluding software) related to the acquisition of certain home entertainment assets of Vivendi Entertainment.

 

 

 



17. Investment in programmes

 



Year ended 31 March 2013

Year ended 31 March 2012



Investment in programmes

Productions in progress

Total

Total


Note

£m

£m

£m

£m

Cost






Balance at 1 April


143.5

13.0

156.5

98.7

Acquisition of subsidiaries

33

0.1

-

0.1

3.7

Additions


2.5

67.6

70.1

56.7

Transfer between categories


71.1

(71.1)

-

-

Exchange differences


6.7

1.2

7.9

(2.6)

Balance at 31 March


223.9

10.7

234.6

156.5

Amortisation






Balance at 1 April


(110.9)

-

(110.9)

(66.3)

Amortisation charge for the year

6

(61.9)

-

(61.9)

(46.3)

Exchange differences


(4.9)

-

(4.9)

1.7

Balance at 31 March


(177.7)

-

(177.7)

(110.9)

Carrying amount


46.2

10.7

56.9

45.6

 

Included in the amortisation charge for the year of £61.9 million (2012: £46.3 million) is £0.4 million (2012: £0.4 million) attributable to programmes valued on acquisition of subsidiaries and which has been charged to administrative expenses. As set out in Note 14, this amount is added back to the profit for the year in order to calculate adjusted earnings per share. Borrowing costs of £2.2 million (2012: £1.3 million) related to Television's interim production financing were included in the additions to investment in programmes during the year.

 

18. Property, plant and equipment

 

 

 

 

 


Note

Leasehold
improvements
£m

Fixtures
fittings and
equipment
£m

Total

£m

Cost






At 1 April 2011



1.1

9.4

10.5

Acquisition of subsidiaries


33

0.2

-

0.2

Additions



0.1

0.7

0.8

Disposals



-

(0.1)

(0.1)

Exchange differences



-

(0.1)

(0.1)

At 31 March 2012



1.4

9.9

11.3

Acquisition of subsidiaries


33

1.0

0.5

1.5

Additions



0.7

0.8

1.5

Exchange differences



-

0.5

0.5

At 31 March 2013



3.1

11.7

14.8







Depreciation






At 1 April 2011



(0.5)

(6.0)

(6.5)

Depreciation charge for the year


6

(0.3)

(1.2)

(1.5)

Disposals



-

0.1

0.1

Exchange differences



-

0.1

0.1

At 31 March 2012



(0.8)

(7.0)

(7.8)

Depreciation charge for the year


6

(0.4)

(1.1)

(1.5)

Exchange differences



-

(0.2)

(0.2)

At 31 March 2013



(1.2)

(8.3)

(9.5)

 

Carrying amount






At 31 March 2012



0.6

2.9

3.5

At 31 March 2013



1.9

3.4

5.3

 

19. Inventories

 

Inventories at 31 March 2013 comprise finished goods of £50.0 million (2012: £46.0 million).

 

20. Investment in content rights

 



Year ended

31 March

Year ended

31 March



2013

2012


Note

£m

£m

Balance at 1 April


97.7

77.3

Acquisition of subsidiaries

33

90.7

4.1

Additions


103.3

69.9

Amortisation charge for the year 

6

(77.4)

(51.8)

Impairment charge for the year

9

(4.1)

-

Exchange differences


5.5

(1.8)

Balance at 31 March


215.7

97.7

 

21. Trade and other receivables

 



31 March

31 March



2013

2012

Current


£m

£m

Trade receivables


149.6

76.9

Less: provision for doubtful debts


(7.7)

(1.1)

Net trade receivables


141.9

75.8

Prepayments and accrued income


45.2

25.2

Other receivables


65.0

47.1

Total


252.1

148.1





Non-current




Other receivables


8.7

2.5

 

Trade receivables are generally non-interest bearing. The average credit period taken on sales is 77 days (2012: 68 days).

 

Provisions for doubtful debts are based on estimated irrecoverable amounts, determined by reference to past default experience and an assessment of the current economic environment.

 

Included in the Group's trade receivable balance are debtors with a carrying amount of £19.1 million (2012: £15.8 million) which are past due at the reporting date for which the Group has not recognised a provision as there has not been a significant change in credit quality and the amounts are still considered recoverable. These trade receivables are aged as follows:

 



31 March

31 March



2013

2012



£m

£m

Less than 60 days


9.2

10.9

Between 60 and 90 days


2.7

1.6

More than 90 days


7.2

3.3

Total


19.1

15.8

 

The Group does not hold any collateral over these balances.

 



21. Trade and other receivables (continued)

 

The movements in the provision for doubtful debts in year ended 31 March 2013 and 2012 were as follows:

 



Year ended

31 March

Year ended

31 March



2013

2012



£m

£m

Balance at 1 April


(1.1)

(1.5)

Acquisition of subsidiaries


(6.0)

-

Impairment losses recognised


(1.2)

(0.4)

Impairment losses reversed


0.3

-

Amounts written off as uncollectable


0.3

0.8

Balance at 31 March


(7.7)

(1.1)

 

In determining the recoverability of a trade receivable the Group considers any change to the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.

 

Management has credit policies in place and the exposure to credit risk is monitored by individual operating divisions on an ongoing basis. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

 

The table below sets out the ageing of the Group's impaired receivables:

 



31 March

31 March



2013

2012



£m

£m

Less than 60 days


(1.7)

(0.1)

Between 60 and 90 days


(0.8)

-

More than 90 days


(5.2)

(1.0)

Total


(7.7)

(1.1)

 

Trade and other receivables are held in the following currencies at 31 March 2013 and 2012. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rate ruling at the balance sheet date:

 




Pounds sterling

£m

Euros

£m

Canadian dollars

£m

US dollars

£m

Other

£m

Total

£m

Current



46.7

28.0

123.3

48.0

6.1

252.1

Non-current



1.3

-

1.7

5.7

-

8.7

At 31 March 2013



48.0

28.0

125.0

53.7

6.1

260.8

Current



32.1

11.9

66.4

34.9

2.8

148.1

Non-current



-

-

2.0

0.5

-

2.5

At 31 March 2012



32.1

11.9

68.4

35.4

2.8

150.6

 

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

 

Included within other receivables at 31 March 2013 is £37.5 million (2012: £34.1 million) of government assistance (in the form of Canadian tax credits) due to the Television division. During the year £11.0 million (2012: £10.1 million) in government assistance was received which has been netted against the cost of investment in programmes.

 



22. Cash and cash equivalents

 

Cash and cash equivalents are held in the following currencies at 31 March 2013 and 2012. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rate ruling at the balance sheet date.

 



31 March

31 March



2013

2012


Note

£m

£m

Pounds sterling


4.8

3.1

Euros


5.5

1.5

Canadian dollars


8.4

6.7

US dollars


10.2

5.1

Australian dollars


4.4

1.0

Other


0.1

-

Cash and cash equivalents per the consolidated balance sheet


33.4

17.4

Bank overdrafts

23

(1.6)

-

Cash and cash equivalents per the consolidated cash flow statement


31.8

17.4

 

Cash and cash equivalents comprise only of cash on hand and demand deposits. The Group had no cash equivalents at either 31 March 2013 or 2012.

 

The credit risk on cash and cash equivalents is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

 

23. Interest-bearing loans and borrowings

 



31 March

31 March



2013

2012


Note

£m

£m

Bank overdrafts

22

1.6

-

Bank borrowings (net of deferred finance charges)


115.9

57.7

Interim production financing


60.4

49.9

Total


177.9

107.6

 

Shown in the consolidated balance sheet as:




Interest-bearing loans and borrowings - non-current


131.9

74.1

Interest-bearing loans and borrowings - current


46.0

33.5

 

The carrying amounts of the Group's borrowings at 31 March 2013 and 2012 are denominated in the following currencies. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rate ruling at the balance sheet date.

 





Pounds sterling

£m

Euros

£m

Canadian dollars

£m

US dollars

£m

Total

£m

Bank overdrafts

-

-

1.6

-

1.6

Bank borrowings

35.6

8.4

64.4

7.5

115.9

Interim production financing

-

-

40.4

20.0

60.4

At 31 March 2013

35.6

8.4

106.4

27.5

177.9

Bank borrowings

1.9

9.3

31.8

14.7

57.7

Interim production financing

-

-

31.9

18.0

49.9

At 31 March 2012

1.9

9.3

63.7

32.7

107.6

 



23. Interest-bearing loans and borrowings (continued)

 

The weighted average interest rates on all bank borrowings are not materially different from their nominal interest rates. The weighted average interest rate on all interest bearing loans and borrowings is 5.2% (2012: 5.5%).

 

The directors consider that the carrying amount of interest-bearing loans and borrowings approximates to their fair value.

 

Bank borrowings

Terms of bank borrowings at 31 March 2013

On 8 January 2013, the Group re-financed its previous bank facility which had been due to mature in October 2014. The new arrangement is a US$425.0 million multi-currency, five-year secured facility which expires in January 2018. The facility comprises (i) a US$275.0 million revolving credit facility ("RCF") which can be funded in US dollars, Canadian dollars, pounds sterling and euros and (ii) two term loans totalling US$150.0 million (comprising a Canadian dollar term loan and a pounds sterling term loan). These borrowings are secured by the assets of the Group. The facility is with a syndicate of banks managed by JP Morgan Chase N.A. At 31 March 2013, the facility was equivalent to US$418.4 million based on closing exchange rates.

 

At 31 March 2013, the Group had available £153.2 million of undrawn committed bank borrowings under the RCF in respect of which all conditions precedent had been met.

 

The two term loans (which totalled £96.6 million at 31 March 2013) are subject to mandatory repayments as follows:

 

Period


£m

Year ended 31 March 2014 (£2.4 million repaid in June and September 2013; £3.6 million repaid in December 2013 and March 2014)


12.0

Years ended 31 March 2015, 2016 and 2017 (£3.6 million repaid quarterly)


43.2

June and September 2017 (£3.6 million repaid at the end of each month stated)      


7.2

January 2018


34.2

Total


96.6

 

The facility is subject to a number of financial covenants, including leverage ratio (calculated as gross debt divided by underlying EBITDA).

 

As a result of the Group materially altering its banking arrangements, the remaining unamortised deferred finance charges of £1.8 million that related to the previous facility were written-off to the consolidated income statement. As explained in Note 10, this amount has been recorded as a one-off finance cost. The Group incurred fees of £8.5 million due to the re-financing in January 2013 which were initially capitalised and deducted from the amount of gross borrowings. The fees are being amortised through the consolidated income statement over the term of the borrowings using the effective interest rate method.

 

Terms of bank borrowings at 31 March 2012

At 31 March 2012, the Group had a multi-currency secured revolving credit facility with a syndicate of banks managed by JP Morgan Chase Bank N.A. The facility could have been funded in US dollars, Canadian dollars, pounds sterling and euros. On 9 November 2011, the facility was increased from US$175.0 million to US$239.0 million and maturity date extended from 19 September 2012 to 1 October 2014. On 29 December 2011, the facility was reduced from US$239.0 million to US$222.0 million. These borrowings were secured by the assets of the Group. At 31 March 2012, the facility was equivalent to US$224.0 million based on the then closing exchange rates. As set out above, this arrangement was replaced with a new facility in January 2013.

 

Interim production financing

The Television and Film production businesses have Canadian dollar and US dollar interim production credit facilities with various banks.  Interest is charged at bank prime rate plus a margin. Amounts drawn down under these facilities at 31 March 2013 were £60.4 million (2012: £49.9 million). These facilities are secured by the future revenue of the individual Television and Film production businesses.



24. Net debt reconciliation

 



Year ended

31 March

Year ended

31 March



2013

2012


Note

£m

£m

Balance at 1 April


(90.2)

(60.7)

Net increase/(decrease) in cash and cash equivalents


13.9

(11.5)

Net movement in borrowings


(57.9)

(14.2)

Amortisation of deferred finance charges

10

(1.3)

(1.7)

Write-off of unamortised deferred finance charges

10

(1.8)

-

Debt acquired

33

(2.7)

(3.5)

Exchange differences


(4.5)

1.4

Balance at 31 March


(144.5)

(90.2)

 

25. Trade and other payables

 



31 March

31 March



2013

2012

Current


£m

£m

Trade payables


104.7

74.8

Accruals and deferred income


277.3

109.8

Other payables


17.4

13.6

Total


399.4

198.2





Non-current




Other payables


0.4

 

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. For most suppliers no interest is charged but for overdue balances interest is charged at various interest rates.

 

Non-current other payables of £18.3 million at 31 March 2013 principally relates to the contingent consideration in respect of the Alliance acquisition and which is explained further in Note 33.

 

Trade and other payables are held in the following currencies. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rate ruling at the balance sheet date.

 




Pounds sterling

£m

Euros

£m

Canadian dollars

£m

US dollars

£m

Other

£m

Total

£m

Current



99.0

29.9

207.8

54.9

7.8

399.4

Non-current



-

-

18.3

-

-

18.3

At 31 March 2013



99.0

29.9

226.1

54.9

7.8

417.7

Current



56.1

10.4

95.2

29.8

6.7

198.2

Non-current



-

-

0.4

-

-

0.4

At 31 March 2012



56.1

10.4

95.6

29.8

6.7

198.6

 

The directors consider that the carrying amount of trade and other payables approximates to their fair value.

 



26. Provisions

 





Note

Onerous
contracts
£m

Restructuring
and redundancy
£m

Out-performance
incentive plan
£m

Total

£m

At 31 March 2012


-

0.2

-

0.2

Acquisition of subsidiaries

33

22.7

-

-

22.7

Provisions recognised in year


0.7

5.5

5.2

11.4

Utilisation of provisions


(3.2)

(1.8)

-

(5.0)

Exchange differences


0.6

-

-

0.6

At 31 March 2013


20.8

3.9

5.2

29.9







Shown in the consolidated balance sheet as:






Non-current


7.7

-

5.2

12.9

Current


13.1

3.9

-

17.0

 

Onerous contracts

Onerous contract provisions represent future cash flows related to film titles which are currently forecast to make a loss over their lifetime. Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met. As required by IFRS, before a provision for an onerous film title is recognised the Group first fully writes-down any related assets (generally these are investment in content rights balances).

 

These provisions are expected to be utilised within two years from the balance sheet date.

 

Restructuring and redundancy

Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met.

 

These provisions are expected to be utilised within one year from the balance sheet date.

 

Out-performance incentive plan

As explained in further detail in Note 9, during the current year the Group recognised a provision of £5.2 million in respect of an out-performance incentive plan for the benefit of the executive directors.

 

27. Interests in joint ventures

 

Details of the Group's significant joint ventures at 31 March 2013 are as follows:

 

Name

Country of incorporation

Proportion held

Principal activity

HOW S2 Productions Inc.

Canada

49%

Production of television programmes

HOW S3 Productions Inc.

Canada

49%

Production of television programmes

7757310 Canada Inc.

Canada

49%

Production of television programmes

8175730 Canada Inc.

Canada

49%

Production of television programmes

Hope Zee One Inc.

Canada

49%

Production of television programmes

Hope Zee Two Inc.

Canada

51%

Production of television programmes

Klondike Alberta Productions Inc.

Canada

49%

Production of television programmes

Squid Distribution LLC

Canada

50%

Film production

 



27. Interests in joint ventures (continued)

 

Contractual arrangements establish joint control over each joint venture listed above. No single venturer is in a position to control the activity unilaterally.

 

The following presents, on a condensed basis, the effect of including joint ventures in the consolidated financial statements using the proportional consolidation method:

 



Year ended 31 March

Year ended

31 March



2013

2012

Impact on the consolidated income statement


£m

£m

Revenue


3.2

2.6

Cost of sales


(1.9)

(1.8)

Administrative expenses


-

(0.6)

Profit before tax


1.3

0.2

Income tax charge


(0.1)

(0.1)

Profit for the year


0.1

 



31 March

31 March



2013

2012

Impact on the consolidated balance sheet


£m

£m

Investment in programmes


5.0

2.2

Trade and other receivables


10.2

7.1

Cash and cash equivalents


3.3

1.2

Total assets


18.5

10.5

 

Trade and other payables


5.9

11.0

Interest-bearing loans and borrowings


10.4

-

Total liabilities


11.0





Net assets/(liabilities)


(0.5)

 

28. Derivative financial instruments

 



31 March

31 March



2013

2012



£m

£m

Derivative financial instruments - assets




Foreign exchange forward contracts


1.7

-

Total


1.7

-

 

Derivative financial instruments - liabilities




Foreign exchange forward contracts


(0.6)

(0.5)

Interest rate derivatives


(0.7)

(0.4)

Total


(1.3)

(0.9)





Net derivative financial instrument asset/(liability)


0.4

(0.9)

 

Foreign exchange forward contracts

The Group uses forward currency contracts to hedge transactional exposures. The majority of these contracts are denominated in US dollars and primarily cover minimum guarantee payments in Canada, the UK, Australia and Benelux. At 31 March 2013, the total notional principal amount of outstanding currency contracts was €7.3 million, C$78.1 million. A$17.6 million and £35.9 million (2012: €3.1 million, C$37.7 million, A$7.2 and £28.7 million).

 



28. Derivative financial instruments (continued)

 

Interest rate derivatives

Interest rate swaps

Included in interest rate derivatives above, are interest rate swaps (swaps) which the Group puts in place to limit interest rate risk.

 

The notional principal amounts of the outstanding swaps at 31 March 2013 and 2012 are shown below. These swaps are recognised at fair value which is determined using the discounted cash flow method based on market data.

 




31 March 2013

31 March 2012

Currency



Local

currency

m

Fixed

interest rate

%

Fair value

£m

Local

currency

m

Fixed

interest rate

%

Fair value

£m

US dollars



US$9.5

0.45

-

US$7.4

1.84

-

Euros



€7.1

0.37

-

€6.9

3.49

(0.1)

Pounds sterling



£12.6

0.74

-

£3.7

2.83

-

Pounds sterling



£20.8

1.00

(0.2)

-

-

-

Canadian dollars



C$30.0

1.49

(0.1)

C$12.2

1.70

-

Canadian dollars



C$79.7

1.84

(0.4)

-

-

-

 

Interest rate collar

At 31 March 2012, the Group had an interest rate collar, of which the notional principal amount was £10.0 million and had a fair value of £0.3 million (liability). This interest rate collar expired in September 2012.

 

29. Financial risk management

 

The Group's overall risk management programme seeks to minimise potential adverse effects on its financial performance and focuses on mitigation of the unpredictability of financial markets as they affect the Group.

 

The Group's activities expose it to certain financial risks including interest rate risk, foreign currency risk, credit risk and liquidity risk. These risks are managed by the Chief Financial Officer under policies approved by both the Board and the Audit Committee, which are summarised below.

 

Interest rate risk management

The Group is exposed to interest rate risk from its borrowings and cash deposits. The exposure to fluctuating interest rates is managed by fixing portions of debt using interest rate swaps, which aims to optimise net finance costs and reduce excessive volatility in reported earnings. Interest rate hedging activities are monitored on a regular basis. At 31 March 2013 the longest term of any debt held by the Group was until 2018.

 

Interest rate sensitivity

A simultaneous 1% increase in the Group's variable interest rates in each of pounds sterling, euros, US dollars and Canadian dollars at the end of 31 March 2013 would result in a £0.1 million (2012: £0.4 million) decrease to the Group's profit before tax and a decrease of 1% would result in a £0.3 million (2012: £0.4 million) increase to the Group's profit before tax.

 

Foreign currency risk management

The Group is exposed to exchange rate fluctuations because it undertakes transactions denominated in foreign currency and it is exposed to foreign currency translation risk through its investment in overseas subsidiaries.

 

The Group manages transaction foreign exchange exposures by undertaking foreign currency hedging using forward foreign exchange contracts for significant transactions (principally US dollar minimum guarantee payments). The implementation of these forwards is based on highly probable forecast transactions and qualifies for cash flow hedge accounting. Further detail is disclosed in Note 28.

 

29. Financial risk management (continued) 

 

The majority of the Group's operations are domestic within their country of operation. The Group seeks to create a natural hedge of this exposure through its policy of aligning approximately the currency composition of its net borrowings with its forecast operating cash flows. The Group undertakes net investment hedging where appropriate.

 

Foreign exchange rate sensitivity

The following table illustrates the Group's sensitivity to foreign exchange rates on its derivative financial instruments. Sensitivity is calculated on financial instruments at 31 March 2013 denominated in non-functional currencies for all operating units within the Group. The sensitivity analysis includes only outstanding foreign currency denominated monetary items including external loans.

 

The percentage movement applied to each currency is based on management's measurement of foreign exchange rate risk.

 



31 March 2013

31 March 2012



Consolidated

income

statement

Consolidated

income

statement

Percentage movement


+/- £m

+/- £m

10% appreciation of the US dollar


1.3

(0.8)

10% appreciation of the Canadian dollar


-

(0.2)

10% appreciation of the Australian dollar


0.3

0.1

10% appreciation of the euro


0.8

0.7

 

Credit risk management

Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Group manages credit risk on cash and deposits by entering into financial instruments only with highly credit-rated authorised counterparties which are reviewed and approved regularly by the Board. Counterparties' positions are monitored on a regular basis to ensure that they are within the approved limits and there are no significant concentrations of credit risk. Trade receivables consist of a large number of customers spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of counterparties.

 

The carrying amount of cash and cash equivalents recorded in the consolidated balance sheet represent the Group's maximum exposure to credit risk.

 

The Group considers its maximum exposure to credit risk as follows:

 



31 March

31 March



2013

2012


Note

£m

£m

Cash and cash equivalents

22

33.4

17.4

Trade receivables

21

141.9

75.8

Total


175.3

93.2

 

Liquidity risk management

The Group maintains an appropriate liquidity risk management position by having sufficient cash and availability of funding through an adequate amount of committed credit facilities. Management continuously monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flows in the short, medium and long-term. At 31 March 2013 the undrawn uncommitted facility amount was £153.2 million (2012: £82.2 million). As explained in Note 23, the facility was re-financed in January 2013 and matures in January 2018.

 



29. Financial risk management (continued) 

 

Analysis of the maturity profile of the Group's financial liabilities, which will be settled on a net basis at the balance sheet date, is shown below.

 

Amount due for settlement at 31 March 2013


Trade and other
payables
£m

Interest-bearing
loans and
borrowings
£m

Total

£m

Within one year


122.1

46.0

168.1

One to two years


0.1

17.7

17.8

Two to five years


-

114.2

114.2

Total


122.2

177.9

300.1






Amount due for settlement at 31 March 2012





Within one year


88.4

33.5

121.9

One to two years


0.2

18.4

18.6

Two to five years


-

55.7

55.7

Total


88.6

107.6

196.2

 

Capital risk management

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to grow the business, provide returns for shareholders, provide benefits for other stakeholders, optimise the weighted average cost of capital and achieve tax efficiencies. The objectives are subject to maintaining sufficient financial flexibility to undertake its investment plans. There are no externally imposed capital requirements. The management of the Group's capital is performed by the Board.

 

In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.

 

Financial instruments at fair value

Under IFRS, fair value measurements are grouped into the following levels:

 

Level 1 -

fair value measurements are derived from unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 -

fair value measurements are derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 -

fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

At 31 March 2013 the Group had derivative financial instrument assets and liabilities of £1.7 million and £1.3 million, respectively, grouped into Level 2. At 31 March 2012 the Group had derivative financial instrument liabilities of £0.9 million grouped into Level 2.

 

The carrying value of the Group's financial instruments approximate their fair value. See Note 28 for further details of the Group's derivative financial instruments.

 



30. Stated capital, treasury shares and other reserves

 

Stated capital

 


Year ended


Year ended


31 March 2013


31 March 2012


Number of shares

'000

Value

£m


Number of shares

'000

Value

£m

Balance at 1 April

191,980

173.9


187,458

167.2

Issue of common shares - for cash

73,333

110.0


-

-

Issue of common shares - as part-consideration for acquisition

-

-


4,127

6.3

Transaction costs relating to issue of common shares (net of tax)

-

(3.0)


-

-

Shares issued on exercise of share options

5,806

0.2


395

0.4

Shares issued on exercise of share warrants

2,500

1.3


-

-

Balance at 31 March

273,619

282.4


191,980

173.9

 

At 31 March 2013 and 2012, the Company had common shares and preferred variable voting shares which carry no right to income.

 

On 1 October 2012, the Company issued 73,333,333 common shares at £1.50 per common share, raising gross equity proceeds of £110.0 million.  These proceeds were used to part-finance the acquisition of Alliance. The Company incurred related transaction fees of £3.0 million (net of tax of £1.1 million) which were recorded against stated capital. 

 

During the year ended 31 March 2013, 5,806,115 common shares (2012: 395,717 common shares) were issued to employees exercising share options granted under various schemes.  The total consideration received by the Company on the exercise of these options was £0.2 million (2012: £0.4 million).

 

On 2 November 2012, the Company issued 2,500,000 common shares at £0.50 per common share to Lions Gate Entertainment Inc., the parent company of Summit Entertainment LLC ("Summit") relating to outstanding warrants previously granted to Summit.  The total consideration received by the Company on the exercise of these warrants was £1.3 million.

 

In total, the gross proceeds received by the Company during the year on the issue of new shares was £111.5 million (2012: £nil).

 

In May 2011, the Company issued 4,126,636 common shares at £1.53, raising net proceeds after transaction fees of £6.3 million, as part-consideration for the acquisition of Hopscotch as described in further detail in Note 33.

 

Subsequent to these transactions, and at the date of authorisation of these consolidated financial statements, the Company's stated capital comprised 273,619,314 common shares (although for earnings per share purposes the shares held by the EBT are treated as cancelled). See below for further details.

 

Treasury shares

At 31 March 2013, 7,005,286 common shares (2012: 7,510,286 common shares) were held as treasury shares by the Employee Benefit Trust (EBT) to satisfy the exercise of options under the Group's share option schemes (see Note 31 for further details). During the year, 505,000 common shares (2012: 85,000 common shares) previously issued to the EBT were used to satisfy certain employee share awards. The book value of treasury shares at 31 March 2013 was £7.2 million (2012: £7.7 million).

 



30. Stated capital, treasury shares and other reserves (continued)

 

Other reserves

Other reserves comprise the following:

- a permanent restructuring reserve of £9.3 million at 31 March 2013 and 2012 which arose on completion of the Scheme of Arrangement in 2010 and represents the difference between the net assets and share capital and share premium in the ultimate parent company immediately prior to the Scheme;

 

- a warrant reserve of £0.6 million at 31 March 2013 and 2012 which represents four million share warrants issued to Marwyn Value Investors L.P. on the completion of the acquisition of the Entertainment One Income Fund in 2007. This was accounted for as a share-based payment and is described in further details in Note 31; and

 

- a cash flow hedging reserve of £1.1 million at 31 March 2013 (2012: debit balance of £0.4 million).

 

31. Share-based payments

 

Equity-settled share schemes

The Group has a number of equity-settled share-based payment schemes for its employees and directors. These are the Executive Share Plan (ESP), the Employee Benefit Trust (EBT) and the Management Participation Scheme (MPS). The total charge in the year relating to the three schemes was £1.2 million (2012: £1.4 million).

 

ESP

2013

Number (Million)

2013

Weighted

average

exercise price

(Pence)

2012

Number

(Million)

2012

Weighted

Average

Exercise (Pence)

Outstanding at 1 April

5.6

11.6

9.1

10.2

Granted

-

-

0.3

1.0

Lapsed

(0.4)

74.3

(0.2)

5.8

Exercised

(2.6)

9.6

(3.6)

8.2

Outstanding at 31 March

2.6

3.6

5.6

11.6

Exercisable

1.4

5.8

4.1

8.9

 

EBT

2013

Number (Million)

2013

Weighted

average

exercise price

(Pence)

2012

Number

(Million)

2012

Weighted

Average

Exercise (Pence)

Weighted average exercise price pence





Outstanding at 1 April

4.0

-

4.1

-

Distributed

(0.5)

-

(0.1)

-

Outstanding at 31 March

3.5

-

4.0

-

Exercisable

3.5

-

4.0

-

 

The contractual life of an option under these schemes is between three and five years. The weighted average contractual life remaining of the ESP options in existence at the end of the year was 2.4 years (2012: 2.1 years) and their weighted average exercise price was 3.6 pence (2012: 11.6 pence). The weighted average share price at the date of exercise for share options exercised during the year was 168.0 pence (2012: 155.0 pence).

 

There are certain performance criteria to be met before share options are exercisable. The majority of share options granted are based on a performance condition of 50% vesting over a three year performance period and 50% vesting dependent on performance against annual underlying EBITDA targets.



31. Share-based payments (continued)

 

Fair value of share options

Equity-settled share based payments are measured at fair value at the date of grant. There were no grants in the current year. The fair value of ESP options granted in the prior year were calculated using a binomial model. The assumptions used in the model were:

 




ESP

Fair value at measurement date



155.0 pence

Weighted average share price



155.0 pence

Weighted average exercise price



1.0 pence

Expected volatility



30.0%

Expected life



3.0 years

Dividend yield



-

Risk free interest rate



1.93%

 

The expected volatility is based on the Company's share price from the period since trading first began adjusted where appropriate for unusual volatility. The expected life used in the model is based on management's best estimate of the average expected time period for the exercise of an option by its holder.

 

Management Participation Scheme

The Group operates an MPS for executive directors which was granted on 31 March 2010. The extent to which rights vest depends upon the Company's performance over a three year period from 31 March 2010. Participants are only rewarded if shareholder value is created, thereby aligning the interests of the participants directly with those of shareholders. The number of shares that would be issued under this scheme if the performance criteria is met is calculated based on the increase in market capitalisation of the Company since 31 March 2010. Any new equity issued is adjusted for so that the participants of the scheme do not benefit from the increased market capitalisation.

 

The executive directors have subscribed for shares in a subsidiary of the Company. Subject to growth, vesting and good Ieaver/bad Ieaver conditions, the shares can be converted to common shares of the Company for a value equivalent to the sum of 6.4% of the increase in shareholder value based on the shares in issue on 31 March 2010 and 10.0% of the increase in shareholder value on any additional common shares issued subsequent to 31 March 2010 reflecting an increase in the Group's market capitalisation following any adjustments deemed necessary by the Board.

 

The growth condition to be met is that the compound annual growth of the Company's share price from 31 March 2010 must be at least 12.5% per annum. The growth condition was measured on the 31 March 2013 and has been met. All vesting conditions have been met and the participants are able to convert their shares into common shares of the Company at any point up to and including 31 March 2015.

 

At the balance sheet date the number of vested awards outstanding but not yet exercised based on the 90 day volume-weighted average price as at 31 March 2013 is 9.3 million (2012: 7.7 million).

 

There have been no new grants under this scheme this year. The fair value of the award was measured by using a binomial model. Key assumptions used in the model were, share price on date of grant 67.5 pence, volatility of 30%, expected life of three years and the risk free interest rate of 1.83%.

 

Other share-based payment awards

On completion of the acquisition of Entertainment One Income Fund in 2007, four million share warrants were issued to Marwyn Value Investors L.P. The conditions for exercising these are 50% when the share price reaches £1.25 and the remaining 50% when the share price reaches £1.50.

 

On 24 May 2010, in association with the ongoing commercial relationship with Summit Entertainment LLC ("Summit"), 2,500,000 warrants were issued to Summit at an exercise price of £0.50 per common share. On 2 November 2012, the Company issued 2,500,000 common shares at £0.50 per common share to Lions Gate Entertainment Inc., the parent company of Summit Entertainment LLC ("Summit"), relating to the outstanding warrants previously granted to Summit. The total consideration received by the Company on the exercise of these warrants was £1.3 million.

 

31. Share-based payments (continued)

 

The fair value of the share warrants was determined using a binomial option pricing model. Awards were valued using an assumed exercise behaviour that recognises the exercise restrictions.

 

32. Commitments

 

Operating lease commitments

The Group operates from properties in respect of which commercial operating leases have been entered into.

 

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 



31 March

31 March



2013

2012



£m

£m

Within one year


7.4

5.2

In the second to fifth years inclusive


19.5

15.1

After five years


4.1

0.8

Total


31.0

21.1

 

Future capital expenditure

 



31 March

31 March



2013

2012



£m

£m

Investment in content rights contracted for but not provided


201.4

96.3

 

33. Business combinations

 

Year ended 31 March 2013 - Alliance

On 8 January 2013, the Group acquired 100% of the issued share capital of Alliance Films Holdings Inc. ("Alliance") for a total consideration of £167.4 million, comprising £149.7 million cash consideration and £17.7 million contingent consideration. This purchase has been accounted for as an acquisition.

 

Alliance, a Canadian group of companies, is a leading independent film distributor in Canada, the UK and Spain. The acquisition establishes the largest independent film distributor in each of the Canadian and UK markets and adds a new territory, Spain, to the Group's global footprint. In addition, the acquisition means the Group now has access to Alliance's library of more than 35,000 film and television titles, including some of the most commercially successful independently produced titles of recent times. Furthermore, the acquisition provides the Group with increased access to film content via output agreements with a number of successful independent film studios. In summary, the acquisition strengthens the Group's existing film distribution business, helps to drive growth and provides significant strategic and commercial benefits.

 

For the reasons outlined above, combined with the enhanced access to future operating synergies, the Group paid a premium on the acquisition, giving rise to goodwill. None of the goodwill recognised is expected to be deductible for income tax purposes. 

 



33. Business combinations (continued) 

 

The following table summarises the fair values of the assets acquired and liabilities assumed as part of this acquisition.

 





Fair value




Note

£m

Goodwill



15

103.9

Other intangible assets



16

83.9

Investment in programmes



17

0.1

Property, plant and equipment



18

1.5

Inventories




4.4

Investment in content rights



20

90.7

Trade and other receivables




107.0

Cash and cash equivalents




9.0

Interest-bearing loans and borrowings


24

(2.7)

Trade and other payables




(197.5)

Provisions



26

(22.7)

Tax:





Current tax assets




0.4

Current tax liabilities




(9.9)

Net deferred tax liabilities



12

(0.7)

Net assets acquired




167.4






Satisfied by:





Cash




149.7

Contingent consideration




17.7

Total consideration transferred




167.4

 

The contingent consideration of £17.7 million represents amounts payable to the former shareholders of Alliance subject to (i) Alliance meeting certain box office targets over a two year period and (ii) certain tax liabilities being settled for less than the amount provided in Alliance's financial statements within the first three years post-completion. The potential undiscounted amount of all future payments that the Group could be required to make in respect under the contingent consideration arrangement is approximately £30.0 million.    

 

Below is an analysis of the other intangible assets acquired as part of the acquisition of Alliance:

 



£m

Exclusive content agreements and libraries


56.1

Trade names and brands


20.5

Non-compete agreements


6.8

Software


0.5

Total


83.9

 

The net cash outflow arising in the current year arising from this acquisition was £140.7 million, made up of:

 



£m

Cash consideration


149.7

Less: cash and cash equivalents acquired


(9.0)

Total


140.7

 

 

33. Business combinations (continued) 

 

Acquisition-related costs amount to £9.9 million and have been charged to the consolidated income statement within one-off items (see Note 9 for further details). 

 

Alliance contributed £69.7 million to the Group's revenue and £5.3 million loss before tax to the Group's profit before tax for the period from the date of the acquisition to 31 March 2013. If the acquisition of Alliance had been completed on 1 April 2012, Group revenue for the year would have been £832.3 million, and Group profit before tax would have been £12.3 million.

 

Year ended 31 March 2012 - Hopscotch

On 13 May 2011, the Group acquired 100% of the issued share capital of the Hopscotch group of companies ("Hopscotch"). Hopscotch is an Australian film distribution group based in Sydney focused on independent international titles alongside Australian content. Hopscotch was acquired in line with the Group's strategy to expand internationally thereby enhancing its multi-territory offering.

 

Goodwill of £7.0 million recorded on this acquisition is attributable to anticipated profitability arising from the Group's enhanced access to the Australian market and future operating synergies from the combination. None of the goodwill recognised is expected to be deductible for income tax purposes.

 

The following table summarises the fair values of the assets acquired and liabilities assumed as part of this acquisition.

 





Fair value




Note

£m

Goodwill



15

7.0

Other intangible assets




8.5

Property, plant and equipment



18

0.2

Inventories




0.2

Investment in content rights



20

4.1

Trade and other receivables




1.1

Cash and cash equivalents




5.4

Trade and other payables




(7.6)

Net deferred tax liabilities



12

(0.6)

Net assets acquired




18.3






Satisfied by:





Cash




12.0

Ordinary shares of Entertainment One Ltd.




6.3

Total consideration transferred




18.3

 

At 31 March 2012, £0.3 million of cash consideration was payable to the vendors relating to finalisation of the completion accounts. This was paid during the year ended 31 March 2013.

 

The fair value of the 4,126,636 ordinary shares issued as part of the consideration paid for Hopscotch (£6.3 million) was determined based on the market price of 153 pence per share on the date of issue.

 

Below is an analysis of the other intangible assets acquired as part of the acquisition of Hopscotch:

 



£m

Trade names and brands


3.2

Customer relationships


5.3

Total


8.5

 

 

33. Business combinations (continued) 

 

The net cash outflow arising in the year ended 31 March 2012 arising from this acquisition was £6.3 million, made up of:

 



£m

Cash consideration


11.7

Less: cash and cash equivalents acquired


(5.4)

Total


6.3

 

Acquisition-related costs included in administration costs in the Group's consolidated income statement (as one-off items), for the year ended 31 March 2012 amounted to £0.3 million and principally comprise professional fees.

 

Hopscotch contributed £15.8 million to the Group's revenue and £1.8 million to the Group's profit before tax for the period between the date of acquisition and 31 March 2012. If the acquisition of Hopscotch had been completed on the first day of the financial year, 1 April 2011, Group revenue for the year would have been £503.8 million and Group profit before tax would have been £22.9 million.

 

34. 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.

 

Marwyn Value Investors L.P. held 75,424,894 common shares in the Company at 31 March 2013 (2012: 75,424,894), amounting to 27.6% (2012: 39.3%) of the issued capital of the Company. In addition, Marwyn Value Investors L.P. holds warrants of four million common shares (2012: four million). Marwyn Value Investors L.P. is deemed to be a related party of Entertainment One Ltd. by virtue of this significant shareholding.

 

James Corsellis and Mark Watts are partners of Marwyn Capital LLP, partners of Marwyn Investment Management LLP, directors of Marwyn Partners Limited and directors of Marwyn Investments Group Limited and are therefore deemed to be related parties of Entertainment One Ltd. by virtue of a common director or member.

 

During the year the Company paid fees of £0.3 million (2012: £0.4 million) to Marwyn Capital LLP for corporate finance advisory services under the terms of their advisory agreement pursuant to which Marwyn Capital agreed to provide general strategic and corporate financial services and increased corporate activities to the Company for a fixed monthly fee of £25,000 (2012: £15,000) plus expenses up to August 2012. From September 2012 the corporate activities decreased and the fee returned to £15,000 with additional fees for each corporate transaction to be agreed.

 

At 31 March 2013 the Group owed Marwyn Capital LLP less than £0.1 million (2012: £0.1 million). The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.

 

Robert Lantos, who resigned as a director of the Company on 1 February 2013, is the owner of Serendipity Point Films (Serendipity). The Group has an output agreement with Serendipity covering distribution of all Serendipity titles within the Canadian market. Serendipity also co-produces a number of television productions with the Group. The Group owed Serendipity £nil at 31 March 2013 (2012: less than £0.1 million).

 

During the year payments of £0.1 million (2012: £1.0 million) were made to One Voice Media Inc., a joint venture of the Group (see Note 27). The Group owed £nil (2012: £0.1 million) to One Voice Media Inc. at 31 March 2013.

 

The Group owed £1.5 million (2012: £1.4 million) to its joint venture television production companies and was owed £2.2 million (2012: £0.8 million) by its joint venture television production companies as at 31 March 2013.



35. Subsidiaries 

 

The Group's principal subsidiary undertakings are as follows:

 

Name

Country of incorporation

Principal activity

Entertainment One Films Canada Inc.

Canada

Content ownership

Alliance Films Inc.        

Canada

Content ownership

Seville Pictures Inc.

Canada

Content ownership

Alliance Viva Film Inc.

Canada

Content ownership

Entertainment One Limited Partnership

Canada

Content ownership and distribution

7508999 Canada Inc.

Canada

Holding company

4384768 Canada Inc.

Canada

Holding company

Entertainment One Television BAP Ltd.

Canada

Production of television programmes

Entertainment One Television International Ltd.

Canada

Sales and distribution of films and television programmes

Entertainment One Television Productions Ltd.

Canada

Production of television programmes

Videoglobe 1 Inc.

Canada

Distribution

Entertainment One UK Limited

England and Wales

Content ownership

Alliance Films (UK) Limited

England and Wales

Content ownership

Entertainment One UK Holdings Limited

England and Wales

Holding company

Entertainment One US LP

US

Content ownership and distribution

Earl Street Capital Inc.

US

Holding company

Aurum Producciones S.A.

Spain

Content ownership

Entertainment One Benelux BV

Holland

Content ownership

Entertainment One Holding Holland BV

Holland

Holding company

Entertainment One Hopscotch Pty Ltd.

Australia

Content ownership

Entertainment One Australia Holdings Pty Ltd.

Australia

Holding company

 

All of the above subsidiary undertakings are 100% owned and, other than 7508999 Canada Inc., are owned through intermediate holding companies.

 

The proportion held is equivalent to the percentage of voting rights held.

 

All of the above subsidiary undertakings have been consolidated in the consolidated financial statements under the acquisition method of accounting.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR FMGZKZGGGFZZ
Open
Share
Clip
Print