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Entertainment One (ETO)

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Tuesday 19 May, 2015

Entertainment One

Full Year Results

RNS Number : 5783N
Entertainment One Ltd
19 May 2015
 



Entertainment One Ltd.

Full Year Results

for the year ended 31 March 2015

 

On track to double the size of the business

 

 

 

Strong financial performance

·     Group underlying EBITDA up 16% to £107.3 million (up 11% to £117.2 million on a pro forma basis)

·     Group profit before tax doubles to £44.0 million (up 13% to £88.8 million on an adjusted basis)

·     Diluted earnings per share up 99% to 14.1p per share (up 12% to 23.5p per share on an adjusted basis)

·     Group revenues down 5% (down 4% on a pro forma basis), strong Television performance offset by Film

·     Significantly improved cash conversion from the business, with adjusted free cash flow increasing to £41.0 million (2014: £18.8 million)

 

Strategy on track to double the size of the business over the next five years

·     Acquired 51% stake in The Mark Gordon Company, with two US network series already in production

·     Reality business strengthened with the acquisition of Force Four Entertainment and Paperny Entertainment

·     Secret Location joint venture positions the Group for digital opportunities

 

Making Peppa Pig the world's most loved pre-school property

·     US$1 billion of retail sales delivered this financial year

·     Over 600 licensing deals globally

·     US retail roll-out underway and broadcast launch in China planned this year

 

Creating a global television business

·     572 half hours of new programming delivered with over 850 half hours expected for next year

·     44% increase in acquisition of programming driving growth in international sales business

·     Significant new deals with digital platforms, including Amazon Prime and Foxtel

 

Positioning Film for the future

·     Launch of Entertainment One Features, focused on production and international sales, delivering growing slate of eOne productions for the new financial year

·     227 theatrical releases, with underlying EBITDA stable despite revenue decline

·     New multi-territory partnerships with film producers, moving Film closer to creative talent

 

Progressive dividend policy

·     10% increase in dividend to 1.1p per share (2014: 1.0p per share)

 

Positive Outlook

·     Scale driving unparalleled opportunities

 


Darren Throop, Chief Executive, commented:

 

The Group's model to source, select and sell has once again underpinned both a strong set of results and significant operational progress including new deals with digital platforms, the acquisition of the stake in The Mark Gordon Company and further progress internationally for Peppa Pig. During the year we set out our updated growth strategy and since its launch have made solid progress against this across each pillar.

Scale is key, fundamental to attract and partner with more of the world's best creative talent to produce the best content for distribution across our global network, which drives an improved financial return for the Group. This, alongside our portfolio approach which mitigates against concentration risk, ensures that eOne is well positioned for the coming year and beyond.

Great content is at the heart of Entertainment One. Consumer demand for high quality content continues to grow, with a variety of digital media platforms emerging to service this demand. As these platforms enhance their offering and reach a wider global audience, we anticipate that audiences will increasingly focus on the quality of the content that they consume, gravitating towards premium television series, film and speciality genres. This market dynamic plays to Entertainment One's strengths and supports our strategy to double the size of the Group within five years.

 

 
Enquiries:                    
 
Redleaf PR
Emma Kane/
Rebecca Sanders-Hewett
 
+44(0)20 7382 4730  

 



FINANCIAL SUMMARY


Reported (audited)

Pro forma1 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

785.8

823.0

-5%

793.5

829.6

-4%








Underlying EBITDA2 (£m)

107.3

92.8

 +16%

117.2

105.3

+11%








Investment in acquired content and productions (£m)

280.8

276.8

+1%

285.5

276.0

+3%









Reported (audited)

Adjusted (unaudited)


2015

20144

Change

2015

20144

Change








Profit before tax3 (£m)

44.0

21.5

+105%

88.8

78.4

+13%








Free cash flow5 (£m)

(13.7)

(16.4)

+16%

41.0

18.8

+118%








Diluted earnings per share (p)3

14.1

7.1

+99%

23.5

21.0

+12%








Dividend (pence per share)

1.1

1.0

+10%

1.1

1.0

+10%

 



1

Pro forma financial results include the results of Phase 4 Films, Paperny Entertainment, Force Four Entertainment and The Mark Gordon Company (which were acquired on 3 June 2014, 31 July 2014, 28 August 2014 and 7 January 2015, respectively) as if those businesses had been acquired on the first day of the comparative year, with comparative figures translated at 2015 actual foreign exchange rates.

2

Underlying EBITDA is operating profit before one-off items, amortisation of acquired intangible assets, depreciation, amortisation of software, share-based payment charge, and 'tax, finance costs and depreciation' related to joint ventures.  Underlying EBITDA is reconciled to operating profit in the 'Other Financial Information' section of this Results Announcement.

3

Adjusted profit before tax is the reported measure before amortisation of acquired intangible assets, share-based payment charge, 'tax, finance costs and depreciation' related to joint ventures, operating one-off items and one-off items relating to the Group's financing arrangements; adjusted diluted earnings is adjusted for the tax effect of these items.

4

Comparative numbers for 2014 have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements. See Note 2 to the consolidated financial statements for further details.

5

Adjusted free cash flow is underlying EBITDA adjusted for content and production investment/amortisation gap, acquisition adjustments, working capital, and net drawdown of interim production financing and production cash.

 

Group pro forma revenues of £793.5 million were 4% lower than the previous year (2014: £829.6 million), driven by lower revenues in the Film Division, partly offset by strong revenue growth, up 32%, in the Television Division. Group reported revenues were 5% lower at £785.8 million (2014: £823.0 million).

 

Group pro forma underlying EBITDA increased by 11% to £117.2 million (2014: £105.3 million), reflecting revenue increases and improved margins in Television, and lower costs in Film as the business proactively managed box office performance. Group reported underlying EBITDA was 16% higher at £107.3 million (2014: £92.8 million). Adjusted profit before tax increased by 13% to £88.8 million (2014: £78.4 million), in line with increases in underlying EBITDA.

 

Group pro forma investment in acquired content and productions increased 3% to £285.5 million (2014: £276.0 million). On a reported basis investment in acquired content and productions was broadly in line with the prior year at £280.8 million (2014: £276.8 million). The annual independent valuation of the Group's film, television and music library dated as at 31 March 2014 had increased to US$801 million (2013: US$655 million).  It is anticipated that this valuation will increase again as a result of the investment activity in the current financial year, including the acquisitions completed and the investment in The Mark Gordon Company.

 

The Group reported a 105% higher profit before tax of £44.0 million (2014: £21.5 million), reflecting higher underlying EBITDA, partly offset by higher financing costs.

 

Adjusted free cash flow is significantly improved at £41.0 million (2014: £18.8 million), reflecting strong growth in Television driven by Family performance.

 

On an adjusted basis, diluted earnings per share increased 12% to 23.5 pence (2014: 21.0 pence) and reflected a higher adjusted profit after tax in the current year. Reported diluted earnings per share were up 99% to 14.1 pence (2014: 7.1 pence). In line with the Group's progressive dividend policy, the directors have declared a final dividend up 10% to 1.1p per share (2014: 1.0p per share).

 

OUTLOOK

 

The Television Production & Sales operation will be further enhanced by the first full-year contributions from Paperny Entertainment and Force Four Entertainment and anticipates producing over 850 half hours of content for distribution through the Group's global sales network in the new financial year. This will be supported by the AMC output deal and other third party television content deals.

Family continues to focus on building Peppa Pig into the most loved pre-school property in the world while continuing to develop and build new brands across the Family portfolio, including Ben and Holly's Little Kingdom.

As the film market continues to recover in 2015, driven by a strong slate from the major studios, a pick-up is expected in the Group's box office performance. The Film Division plans to release around 250 films in the next financial year, in line with its profile of annual investment of over £200 million in new film content over the next three to five years. This consistent profile of investment is anticipated to drive significant cash generation in the coming years.

The growth in the market for content rights is underpinned by changes in the way content is being consumed. Entertainment One's strategy to focus on growth through content ownership puts it at the centre of this positive structural change and the directors look forward to the new financial year with confidence.

STRATEGY

 

Updated growth strategy

Entertainment One has come a long way in the last five years and is proud to have delivered significant growth and substantial shareholder value to investors over this period. Since 2010, Group revenues have doubled, underlying EBITDA has more than trebled and adjusted diluted earnings per share have doubled.

 

 

Business model

The Group's business model remains unchanged going forward. We continue to build the scale of the business by focusing on the Group's three key capabilities:

Source:  Developing relationships with the best creative talent in the film and television industries by being their partner of choice

Select:  Leveraging local market insight from our independent distribution network to invest in the right content for consumers across all eOne territories, and producing content with global appeal to service the Group's international sales operations

Sell:  Using the Group's distribution network, sales operations and global scale to maximise investment returns ensuring the business is well-positioned to benefit from new and emerging broadcast and digital distribution platforms  

Looking ahead, the Board continues to see significant opportunity for further growth and in November 2014 set new targets to double the size of the Group within the next five years through its updated growth strategy which aims to 'bring the best content to the world' by:

·    partnering with the best creative talent

·    being the world's leading independent distributor through a locally-deep, globally connected network

The strategy focuses on building a more balanced content and brand business which will see significant revenue growth in the Television Division in both Production & Sales and Family, while Film continues to focus on improving its operating margins.

This strategy is underpinned by detailed organic growth plans and will be supported by targeted acquisitions.

Scale creates competitive advantage

Scale remains a critical differentiator in the content markets and, as one of the largest independent content companies, Entertainment One can take advantage of the benefits this critical mass brings, to drive the Group's financial performance. As our profile continues to strengthen, the Group is better able to attract and partner with more of the world's best creative talent to produce the best content for distribution across our global network, which drives an improved financial return for the Group.

Portfolio approach mitigates investment risk

To mitigate against concentration risk and changing audience tastes, the Group diversifies its content investment over a large number of films and television shows, across different geographies, different genres and across different media platforms. This approach means that there is no significant individual investment risk in its content acquisitions. The Group's content portfolio comprises over 40,000 film and television titles, 4,500 hours of television programming and 45,000 music tracks.

Strategic progress

Since launching the strategy, the Group has delivered solid progress towards its goals.

Television

During the 2015 financial year, the Group strengthened its reality television business with the acquisitions of television production companies Paperny Entertainment and Force Four Entertainment, which have extended the Group's capabilities in non-scripted entertainment programming and diversified the base of the production business. Together, these companies produce over 200 half hours of content a year in genres such as documentaries, comedies and reality television.

The Group's acquisition of a 51% stake in The Mark Gordon Company in January 2015, which significantly increased the profile of eOne in the global television production market, brought one of the world's most prolific and successful producers of television and film content to the Group.

In addition, the deal provides eOne with exclusive rights to distribute all new content from The Mark Gordon Company on a worldwide basis. Through the acquisition, the Group also benefits in the cash generation of the company's existing content library, which includes titles such as Grey's Anatomy, Criminal Minds and Ray Donovan.

Since the acquisition, two new series have been green-lit by major US networks for first seasons: Quantico on ABC and Criminal Minds: Beyond Borders on CBS. These represent the first two shows from a significant slate of programmes currently under development.

Further, on 19 May 2015, the Group is pleased to announce that to enhance the operation of The Mark Gordon Company ("MGC"), in partnership with Mark Gordon, modifications  in the shareholder agreement have been agreed that result in a change in the accounting treatment for the venture. As a result, from 19 May 2015, MGC will be fully consolidated in eOne's consolidated financial statements as a subsidiary, rather than being treated as a joint venture. The change in accounting treatment delivers a pro forma increase of £8.9 million to the Group's underlying EBITDA, with the overall pro forma contribution of MGC amounting to £18.2 million, representing 100% of the underlying EBITDA of MGC in the current financial year. The effect of this change is to increase, for comparative purposes, the Group's pro forma underlying EBITDA to £126.1 million in the current financial year.

Family

Family & Licensing continues to perform very strongly with continued success for Peppa Pig, where the franchise generated over US$1 billion of retail sales in the current financial year. Entertainment One owns half of the property's underlying rights, but controls the worldwide exploitation of the brand. Traditional European markets have continued to perform well and the roll-out of the brand internationally has expanded into new markets in Latin America and the Far East. Peppa Pig ended the year with over 600 licensing deals globally.

Film

In Film, there has been significant success in developing closer relationships with creative talent and in the last twelve months the Group has entered into new partnerships with film makers including Open Road, Endurance Media, Rumble Films, Hammer Films and The Ink Factory, with additional producer partnerships currently being negotiated. Further, the partnership with The Mark Gordon Company brings new film projects including All the Old Knives and the studio has a number of film productions underway including the biopic Steve Jobs at Universal and Arms and the Dudes at Warner Bros.

eOne Features is the umbrella for eOne's production and international sales business and has been successful in developing a new production slate which will deliver exciting new film projects to the Group in the new financial year.

Digital

The Group derives a significant proportion of its revenue from the sale of its film and television content digitally. In the current financial year digital revenues represented 23% of pro forma Group revenues (2014: 21%).

During the year, the Group increased its traction in the digital space by entering into a joint venture with digital agency, Secret Location. The company creates interactive experiences to launch content digitally to enable consumers to interact with the Group's and third party programming in a more engaging way. Secret Location is also producing original scripted series for digital platforms, and it provides the Group with the optimum vehicle to explore opportunities in the digital space to take advantage of the structural changes in the industry.

DIVISIONAL OPERATIONAL & FINANCIAL REVIEW

 

FILM

 

Overview

The Group's Film Division is comprised of its multi-territory distribution business and Entertainment One Features, its production and international sales business.

Film Distribution has operations in the UK, Canada, the US, Spain, Benelux and Australia/New Zealand, and is one of the largest independent film distributors in the world. The business acquires exclusive film content rights and exploits these rights on a multi-territory basis across all media channels. Entertainment One acquires film rights both through output deals with independent production studios or through single picture acquisitions. The Group expects that the majority of film titles will continue to be acquired on a single-picture basis but will also seek output deals with other producers on commercial terms, where appropriate.

Entertainment One Features looks to access content earlier in the production process while benefitting from upside in a film's performance, and provides the Group with benefits from the exploitation of film content rights on a global basis, in addition to in its core territories.

Strategy

The Film Division's strategic initiatives build on the Group's goal to bring the best content to the world. At the core of these initiatives is the development of closer relationships with the best creative talent in the film industry, giving the Group access to the best new independent film projects. In this way, we are able to source film content sooner in the production process, securing the content earlier and at lower cost, so that the Group can benefit from the exploitation of film content rights on a territorial and/or global basis. Where eOne Features takes on a project, the Group benefits from being able to participate in the upside of the global success of a film in our role as equity owners and/or partners in the production, while the Group risk profile remains similar.

Our strategy also focuses on increasing the size and scale of the Group's global distribution network, which is an important competitive advantage in the film industry. As one of the largest independent distributors, the Group commands a strong position, enabling it to work with the world's largest independent studios and consumer platforms. The quality and size of our filmed content portfolio makes us an important partner to retailers, broadcasters and digital content service providers. The Group will continue to take advantage of ongoing economies of scale and ensure that the business is well-positioned for the markets of tomorrow. This will help support margin growth across our Film business.

In each of our operations we aim to account for significant independent market share, to cement the competitive advantage driven by the scale of our business and the deep relationships with the stakeholders across the various film release windows. The knowledge we gain from operating directly in local markets further supports our content selection processes, reinforcing the benefit of having a locally-deep and globally-connected distribution network.

As such, the Group will look for opportunities to grow its international distribution footprint into new territories. The Group is focused on seeking corporate partnerships or acquisitions in Latin America and South East Asia, as well as opportunities in parts of Western Europe to complement eOne's existing European presence.

The Group's acquisition of Phase 4 Films, a leading independent film and family content distribution business operating across Canada and the US, has allowed the Group to consolidate its US film operations. This acquisition refocused the Group's US business to capitalise on Phase 4 Films' direct relationships with key home entertainment customers by investing in titles primarily designed to drive ancillary, rather than theatrical revenue, thereby reducing print and advertising spend and increasing profitability. The acquisition supports our aim of building incremental scale and growth opportunities for the US Film business in the on-demand space, on home entertainment, cable, satellite and digital platforms.

 

Financial Review

Film pro forma revenues were down 13% to £595.9 million (2014: £683.8 million) driven primarily by Distribution. Film pro forma underlying EBITDA was down only 3% year-on-year driven by lower underlying EBITDA in eOne Features, partly offset by higher Distribution underlying EBITDA. Adjusted free cash flow at £20.5 million reflected an underlying EBITDA to adjusted free cash flow conversion of 28%, broadly consistent with the prior year.


Reported (audited)

Pro forma6 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

592.6

686.0

-14%

595.9

683.8

-13%

Underlying EBITDA (£m)

 

73.1

74.1

-1%

73.2

75.1

-3%

Investment in acquired content and productions (£m)

 

175.7

189.7

-7%

176.0

183.5

-4%

Adjusted free cash flow (£m)

20.5

22.8

-10%

n/a

n/a

n/a








 



 

6

Pro forma financial results include the results of Phase 4 Films, which was acquired on 3 June 2014, as if that business had been acquired on the first day of the comparative year, with comparative figures translated at 2015 actual foreign exchange rates.

 

 

 

Film Distribution

Film Distribution pro forma revenues decreased by 12% to £584.8 million (2014: £664.2 million). This was driven by the lower theatrical activity, down 34%, and the resulting impact on home entertainment (down 15%). Film Distribution underlying EBITDA was marginally higher year-on-year reflecting the reduction in print and advertising and other operational costs as a result of reduced theatrical activity, and increased contribution from the mix of higher margin ancillary windows. As a result, pro forma underlying EBITDA margins were 13% for the Film Distribution (2014: 11%). Pro forma investment in acquired content was 17% lower at £151.6 million (2014: £183.1 million).

 

Adjusted free cash flow was £15.3 million (2014: £25.3 million), representing an underlying EBITDA to adjusted free cash flow conversion of 21% (2014: 35%).

 


Reported (unaudited)

Pro forma6 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

581.4

665.6

-13%

584.8

664.2

-12%

- Theatrical

 

79.7

127.7

-38%

79.7

121.1

-34%

- Home entertainment

 

246.0

283.4

-13%

248.3

290.5

-15%

- Broadcast and Digital

 

214.6

220.4

-3%

215.7

220.2

-2%

- Other

 

41.1

34.1

+21%

41.1

32.4

+27%








Underlying EBITDA (£m)

 

73.7

71.9

+3%

73.8

72.9

+1%

Investment in acquired content (£m)

 

151.3

189.3

-20%

151.6

183.1

-17%

Adjusted free cash flow (£m)

15.3

25.3

-40%

n/a

n/a

n/a








 

Theatrical

Overall theatrical pro forma revenues decreased reflecting lower box office takings, which were down by 34% to US$308 million (2014: US$465 million). This was driven by a combination of factors including a reduced volume of releases year-on-year (227 compared to 275 in 2014), and title underperformance in a challenging year for the global box office. Key releases included The Divergent Series: Divergent, The Expendables 3, Foxcatcher, Paddington, Pompeii, Mr Turner, A Walk Among the Tombstones, The Hunger Games: Mockingjay - Part 1 and The Divergent Series: Insurgent.

 

The global movie market is anticipated to improve from 2015 and beyond, with a broad range of major movies set for release over the coming months. In tandem, the Group's box office performance is also expected to improve, with a stronger film slate and an increased number of releases to around 250 film releases planned in the next financial year. Investment in acquired content is set to grow to around £170 million.

 

Entertainment One's theatrical release slate for FY16 includes a number of strong titles, such as The Hunger Games: Mockingjay - Part 2, The Divergent Series: Allegiant - Part 1, The Hateful Eight (the eighth film from Quentin Tarantino), Gods of Egypt, Masterminds, The Last Witch Hunter and Insidious: Chapter 3.

 

Home entertainment

Home entertainment pro forma revenues decreased by 15%, reflecting the continuing migration from physical to digital formats and the impact of lower theatrical activity in the year. In total, 718 DVDs were released (2014: 738) including Lone Survivor, The Hunger Games: Mockingjay Part 1, The Divergent Series: Divergent, The Expendables 3, Pompeii, Philomena and Escape Plan. 12 Years a Slave, A Walk Among the Tombstones and Mr Turner DVD releases hit number one in the UK in their first week of release and The Walking Dead season four has performed strongly in all territories.

 

Over 600 titles are planned for release in the next financial year including The Theory of Everything, Paddington, The Divergent Series: Insurgent, The Water Diviner, No Escape and The Cobbler.

 

Broadcast and Digital

The Group's combined broadcast and digital revenues were broadly in line with the prior year, and now account for 37% of overall Film revenues (2014: 33%).

 

Key broadcast/digital releases in the year included The Twilight Saga: Breaking Dawn Part 2, Looper, 12 Years A Slave, American Hustle, Trailer Park Boys, Pompeii, Silver Linings Playbook and Chronicles of Riddick: Dead Man.

 

In addition, significant new deals were signed with Foxtel in Australia, and Shomi, a new video on demand service launched in Canada by Rogers and Shaw Media.

 

Entertainment One Features

eOne Features pro forma revenues decreased by 28% to £20.9 million (2014: £29.0 million) and underlying EBITDA was down year-on-year reflecting a reduced film production slate against a strong comparable period, which included the release of hit Insidious: Chapter 2. Adjusted free cash flow increased to £5.2 million (2014: outflow of £2.5 million).

 


Reported (unaudited)

Pro forma7 (unaudited)

 


2015

20144

Change

2015

20144

Change

 








 

Revenue (£m)

 

20.9

29.8

-30%

20.9

29.0

-28%

 

Underlying EBITDA (£m)

 

0.1

3.5

-97%

0.1

3.5

-97%

 

Investment in acquired content and productions (£m)

 

26.2

0.4


26.2

0.4


 

Adjusted free cash flow (£m)

5.2

(2.5)

+308%

n/a

n/a

n/a

 








 



7

Comparative figures translated at 2015 actual foreign exchange rates.

 

 

In the year, Suite Française and Woman in Black: Angel of Death were released generating global box office revenues of US$62 million to-date (2014: US$162 million, driven mainly by the success of Insidious: Chapter 2). The Group has four films currently in production or pre-release: Eye in the Sky, Message from the King, Sinister 2 and Insidious: Chapter 3. Leading up to the Cannes Film Festival, the Group announced that it was co-financing Life on the Road, a feature film starring Ricky Gervais as David Brent from BBC television series The Office, one of the most successful British comedies of all time.

 

In addition, eOne Features is representing the worldwide rights on projects including Trumbo, as well as the international distribution of eOne's own productions Eye in the Sky and Message from the King. In Cannes, the business has enjoyed significant success in selling Spotlight to international distributors, including to Sony Pictures Worldwide Acquisitions for a large number of key international territories around the world. Further, it has secured distribution rights on award-winning director Xavier Dolan's latest project It's Only the End of the World.

 

Investment in content in eOne Features is expected to grow to around £40 million in the next financial year.

 

TELEVISION

 

Overview

The Television Division comprises the Production & Sales business, the Family & Licensing operation and also incorporates the results of the Group's Music label. The Division's focus is on the production of television programming, the acquisition of television content rights, and the exploitation of branded properties through licensing and merchandising activities.

 

The strategy focuses on partnering with the best creative talent through building on the success of the business in Canada to expand its television production activities into the US, the UK and Australia. Strategic acquisitions will provide a platform for growth, both in own productions but also by acting as territorial hubs for partnerships with other creative producers. The first significant step in this strategy was the acquisition of a 51% stake in The Mark Gordon Company in January 2015. This high profile studio produces and finances premium television and film content for the major US networks and international distribution. eOne will exclusively distribute new content created by the studio on a worldwide basis.

The Group has also continued to expand the business's production capabilities in Canada and during the year, eOne successfully completed the acquisition of Paperny Entertainment and Force Four Entertainment. Both companies specialise in the development and production of non-scripted television programming, including a range of character-driven documentaries, comedies and reality series. Together these companies produced over 200 half hours of programming in the current financial year.

These acquisitions strengthen the Group's television production capabilities in North America, supplement its content library and enhance the Group's international sales offering.

The Group's international sales distribution capability is a key competitive advantage for eOne, with our current network reaching over 500 broadcasters in more than 150 territories. As well as distributing our own productions, we also sell content from output deal partners such as AMC and Sundance TV and other third party acquisitions across this infrastructure. In this market, digital platforms are becoming increasingly important and the Group recently signed a multi-year agreement with Amazon Prime to distribute a range of content across its platform in the UK and Germany.

Within Family, Peppa Pig continues to develop, in line with our strategy to make the property the world's most loved pre-school brand. The brand was rolled out into a range of new markets during the year, with broadcasting agreements supported by licensing and merchandising programmes. As traction for the brand grows among consumers we carefully manage the retail programmes to ensure we maximise the brand's longevity. The Group looks forward to a continuing international roll-out of Peppa Pig in the new financial year, targeting attractive markets in the Asia Pacific region such as China. Finally, the US consumer roll-out continues in spring 2015 in Walmart stores, which will be followed by a launch in Target during the summer.

In addition to managing the growth of Peppa Pig, the Family business is also developing a balanced portfolio of complementary family brands for other demographics. Ben & Holly's Little Kingdom has been launched into a number of new territories during the year and is showing positive signs of consumer traction. The Group is also in production with a number of new brands which will be launched in 2016, and beyond, with major broadcasting partners.

Financial Review

Pro forma revenues for the year were 32% higher at £231.9 million (2014: £175.3 million) driven by continued growth in Family and Television Production & Sales revenues. Pro forma underlying EBITDA increased by 41% to £51.4 million (2014: £36.4 million), primarily driven by the performance of the Family business. Pro forma underlying EBITDA margin improved by 1.4pts to 22.2% for the Television Division (2014: 20.8%). Adjusted free cash flow increased to £31.5 million representing an underlying EBITDA to adjusted free cash flow conversion of 76% (2014: 12%), driven by Family.

 


Reported (audited)

Pro forma8 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

227.6

166.5

+37%

231.9

175.3

+32%

Underlying EBITDA (£m)

 

41.6

24.8

+68%

51.4

36.4

+41%

Investment in acquired content and productions (£m)

 

105.1

87.1

+21%

109.5

92.5

+18%

Adjusted free cash flow (£m)

31.5

3.0

+950%

n/a

n/a

n/a










 

8

Pro forma financial results include the results of Paperny Entertainment, Force Four Entertainment and The Mark Gordon Company, which were acquired on 31 July 2014, 28 August 2014 and 7 January 2015, respectively, as if those businesses had been acquired on the first day of the comparative year, with comparative figures translated at 2015 actual foreign exchange rates.

 

 

Pro forma investment in acquired content and productions was 18% higher at £109.5 million (2014: £92.5 million). At 31 March 2015, contracted sales not yet recognised as revenue, relating to productions in progress, were approximately £66 million on a pro forma basis (2015 reported: £60 million; 2014 reported: £15 million).

 

Production & Sales

Pro forma revenues for the year were up 27% to £152.7 million (2014: £120.2 million) driven by increased production and higher international sales. Pro forma underlying EBITDA increased to £26.2 million (2014: £24.0 million). Pro forma investment in acquired content and productions increased 18% to £105.1 million (2014: £89.4 million). Adjusted free cash flow increased to £3.0 million representing an underlying EBITDA to adjusted free cash flow conversion of 18% (2014: -86%).

 


Reported (unaudited)

Pro forma8 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

148.4

111.2

+33%

152.7

120.2

+27%

Underlying EBITDA (£m)

 

16.4

12.4

+32%

26.2

24.0

+9%

Investment in acquired content (£m)

 

9.2

6.4

+44%

9.2

5.6

+64%

Investment in productions (£m)

 

91.5

77.6

+18%

95.9

83.8

+14%

Adjusted free cash flow (£m)

3.0

(10.7)

+128%

n/a

n/a

n/a








 

On a pro forma basis, Production delivered 572 half hours of programming, compared to 507 half hours in the prior year. Key deliveries included deliveries of eOne's flagship shows including season five and six of Rookie Blue, season four of Hell on Wheels, season five and six of Haven, season two of Bitten, season three of Saving Hope, as well as mini-series The Book of Negroes. This also included 215 half hours of programming which was delivered by Paperny Entertainment and Force Four Entertainment which were acquired in the year. Programming delivered by these acquisitions included season two of Chopped and Timber Kings, and season three of Border Security: Canada's Frontline, and led to significant growth in the Group's North American reality television business. In total, pro forma investment in productions increased 14% to £95.9 million (2014: £83.8 million).

 

The year also benefitted from the delivery of three shows, Turn, The Red Road and Halt and Catch Fire, under the AMC Sundance output deal, all of which have been renewed for second seasons and have sold well internationally. In total, over 200 half hours of programming was acquired by the Division, which invested £9.2 million in acquired content (2014: £5.6 million).

 

The production slate is strong for the next year including season five of Hell on Wheels and season four of Rogue. Deliveries in the next financial year are expected to be over 850 half hours and investment in acquired content and productions is set to grow to around £140 million.

 

 

 

Family & Licensing

Pro forma revenues for the year were up 71% to £60.8 million (2014: £35.5 million) driven by significant growth in Peppa Pig. Underlying EBITDA increased to £23.8 million (2014: £10.3 million). Adjusted free cash flow increased to £26.3 million representing an underlying EBITDA to adjusted free cash flow conversion of 111% (2014: 106%).

 


Reported (unaudited)

Pro forma7 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

60.8

35.5

+71%

60.8

35.5

+71%

Underlying EBITDA (£m)

 

23.8

10.3

+131%

23.8

10.3

+131%

Investment in acquired content and productions (£m)

 

1.9

0.6

+217%

1.9

0.6

+217%

Adjusted free cash flow (£m)

26.3

10.9

+141%

n/a

n/a

n/a








 

Family & Licensing continues to perform very strongly with the continued success of Peppa Pig, where the franchise generated over US$1 billion of retail sales in the financial year. Peppa Pig ended the year with over 600 licensing deals globally.

 

Peppa Pig won Best Licensed Toy Range and Best Pre-School Licensed Property at the British Licensing Awards 2014, for the fifth year running, consolidating its position as the leading UK pre-school brand, and Best Pre-School and Consumer's Preferred Brand at the Brazil Licensing Expo.

 

In new territories consumers have responded positively to Peppa Pig licensed products to generate strong retail sell-through. This will continue into the new financial year as we look forward to brand launches in large markets such as China and France.

 

In the US, the outlook is very positive, with broadcaster Nick Jr continuing to support Peppa Pig by airing episodes seven days a week on prime slots. The brand recently launched with a small number of product lines in Walmart, which will grow steadily over time and is expected to mirror the growth profile achieved in the UK. There is also a product launch in Target planned for the summer of 2015.

 

Whilst existing international markets have continued to deliver strong results (with Italy, Spain and Australia all performing well), the focus for the year has been on the licensing roll-out of Peppa Pig in new territories including new European markets (France and Germany), Brazil and the Far East (China and South East Asia). In particular, in Brazil, the growth has been accelerated with a wide launch programme. An initial limited licensing and merchandising toy and clothing rollout has also occurred in France, and Germany, with mass rollouts to be launched in spring/summer 2016. Additionally, Peppa Pig is being aired on prime time slots in France.

 

In addition to Peppa Pig, Family is developing a portfolio of other children's brands aimed at different age groups across both girls and boys. Ben & Holly's Little Kingdom continues to have high ratings in its television slots and the UK toy re-launch in July 2014 has been well-received by retailers, with both Hamley's and Toys'R'Us investing in promotional displays. Ben & Holly is gaining traction internationally with toy launches in Australia, Spain and Italy and a roll-out of a wider product range expected.

 

Other eOne Family properties are progressing well. Two shows that were green-lit in previous years, Winston Steinburger and Sir Dudley Ding Dong and PJ Masks, are currently in production with broadcast launches planned later this year.

 

Music

Pro forma revenues for the year were broadly in line with the prior year at £18.4 million (2014: £19.6 million), with pro forma underlying EBITDA lower at £1.4 million (2014: £2.1 million). Adjusted free cash flow reduced to £2.2 million representing an underlying EBITDA to adjusted free cash flow conversion of 157% (2014: 133%).

 


Reported (unaudited)

Pro forma7 (unaudited)


2015

20144

Change

2015

20144

Change








Revenue (£m)

 

18.4

19.8

-7%

18.4

19.6

-6%

Underlying EBITDA (£m)

 

1.4

2.1

-33%

1.4

2.1

-33%

Investment in acquired content and productions (£m)

 

2.5

2.5

-

2.5

2.5

-

Adjusted free cash flow (£m)

2.2

2.8

-21%

n/a

n/a

n/a








 

The number of releases were marginally lower at 74 in 2015, versus 77 in 2014. The Group's current roster of artists continues to be strong and are expected to deliver a content release schedule that is consistent year-on-year.

 

 

OTHER FINANCIAL INFORMATION

 

Summary Income Statement

 

Group

Year to 31 March

Reported

 

Adjusted

 


2015

20144

2015

20144


£m

£m

£m

£m






Revenue

785.8

823.0

785.8

823.0






Underlying EBITDA

107.3

92.8

107.3

92.8






Amortisation of acquired intangibles

(22.2)

(36.0)

-

-

Depreciation and amortisation of software

(3.7)

(2.6)

(3.7)

(2.6)

Share-based payment charge

(3.4)

(2.7)

-

-

Tax, finance costs and depn on JVs

0.1

-

-

-

One-off items

(17.9)

(22.1)

-

-






Operating profit

60.2

29.4

103.6

90.2

Net finance charges

(16.2)

(7.9)

(14.8)

(11.8)

Profit before tax

44.0

21.5

88.8

78.4

Tax

(2.7)

(1.5)

(20.0)

(19.6)

Profit for the year

41.3

20.0

68.8

58.8

 

Adjusted operating profit (which excludes amortisation of acquired intangibles, share-based payment charge, 'tax, finance costs and depreciation' on joint ventures and one-off items) increased by 15% to £103.6 million (2014: £90.2 million) reflecting growth in underlying EBITDA. Adjusted profit before tax increased by 13% to £88.8 million, in line with increased adjusted operating profit. Reported operating profit increased by £30.8 million to £60.2 million with the Group reporting a profit before tax of £44.0 million (2014: £21.5 million).

 

Amortisation of acquired intangibles

Amortisation of acquired intangibles decreased by £13.8 million to £22.2 million. This is primarily due to certain Alliance-related intangibles that had been fully amortised by 31 March 2014, offset partly by increased amortisation due to intangibles acquired on the acquisition of Phase 4 Films, Paperny Entertainment and Force Four Entertainment.

 

Depreciation and capital expenditure

Depreciation, which includes the amortisation of software, has increased by £1.1 million to £3.7 million, reflecting the full year impact of higher capital expenditure in the prior year, which has generated a higher depreciation charge in the current year. Capital expenditure during the year decreased to £3.3 million (2014: £4.2 million). Expenditure was mainly driven by new investment in Film operating systems, including finance systems.

 

Share-based payment charge

The share-based payment charge has increased by £0.7 million to £3.4 million during the year, as a result of the ongoing effect of the broadening of the number of employees to whom grants were made under the Group's Long Term Incentive Plan.

 

 

One-off items

One-off items totalled £17.9 million and included £11.3 million of strategy-related restructuring costs. Following the announcement of the Group's updated growth strategy in November 2014, £11.3 million of costs were incurred in the development and implementation of this strategy, including following the acquisition of Phase 4 Films. The US Film strategy was refocused, to capitalise on Phase 4 Films' direct relationships with key home entertainment customers and included a £5.4 million impairment charge in respect of investment in acquired content rights previously made by Entertainment One, and £3.0 million of staff and other US film-related restructuring costs.

 

Alliance-related restructuring costs of £3.1 million were incurred in the year, covering staff redundancies, unused office space and IT systems integration. Going forward, Alliance-related costs are expected to be minimal and will be charged within underlying EBITDA.

 

In addition, acquisition costs of £1.8 million were incurred in the year, relating primarily to the acquisitions of Phase 4 Films, Paperny Entertainment and Force Four Entertainment, together with the joint venture investment in Secret Location. Finally, during the year the Group incurred costs of £1.7 million related to aborted deals. Further details of the one-off items are set out in Note 9 to the consolidated financial statements.

 

Net finance charges

Reported net finance charges increased by £8.3 million to £16.2 million. Excluding one-off net finance charges of £1.4 million in the current year (2014: £3.9m one-off net finance income), adjusted finance charges of £14.8 million were £3.0 million higher in the current year, reflecting higher senior debt levels and unfavourable foreign exchange movements during the year. The weighted average interest rate was 4.0% compared to 5.1% in the prior year, representing lower headline interest rates in the current year.

 

Tax

On a reported basis the Group's tax charge of £2.7 million, which includes the impact of one- off items, represents an effective rate of 6.2% compared to 7.0% in the prior year. On an adjusted basis, the effective rate is 22.6% compared to 24.5% in the prior year, driven by a different mix of profit by jurisdiction (with different statutory rates of tax) in the two years.

 

Cash flow

Cash generated from operations of £271.9 million was £7.3 million higher than the previous year, reflecting the growth in underlying operating profit, offset by the timing of working capital movements in the current year. Investment in acquired content and productions totalled £280.8 million, compared to £276.8 million in the prior year, reflecting higher investment in eOne Features and Television, partly offset by lower theatrical activity in Film. Free cash outflow was improved against the prior year at £13.7 million (2014: £16.4 million).

 

 

 

 

 

 

 

(audited)

2015


20144


Adjusted net debt

£m

Prod'n net debt

£m

 

Total

£m


Total

£m

Net debt at 1 April

(111.1)

(54.0)

(165.1)


(150.1)







Cash generated from operations

185.0

86.9

271.9


264.6

Investment in acquired content and productions

(166.4)

(114.4)

(280.8)


(276.8)

Purchase of other non-current assets9

(4.5)

(0.3)

(4.8)


(4.2)

Free cash flow

14.1

(27.8)

(13.7)


(16.4)







Purchase of interests in joint ventures

(86.5)

-

(86.5)


-

Acquisition of subsidiaries, net of debt acquired

(13.4)

4.3

(9.1)


(6.1)

Debt acquired

(3.6)

(5.1)

(8.7)


(2.5)

Net proceeds from issue of shares

-

-

-


4.1

Net interest paid

(10.9)

(2.5)

(13.4)


(11.0)

Tax paid

(5.5)

(5.3)

(10.8)


(5.9)

Dividends paid

(2.9)

-

(2.9)


-

Amendment fees on the banking facility

(0.7)

-

(0.7)


(0.6)

Amortisation of deferred finance charges

(1.9)

-

(1.9)


(1.7)

Exchange differences

(2.5)

1.1

(1.4)


25.1

Net debt at 31 March

(224.9)

(89.3)

(314.2)


(165.1)

 

 

9

 

Other non-current assets comprise purchases of property, plant and equipment, intangible software, acquired intangibles and dividends received from joint ventures.

 

The net cash outflow from the acquisition of joint ventures was £86.5 million. £84.0 million related to the acquisition of 51% of the Mark Gordon Company (7 January 2015) and £2.5 million related to the acquisition of 50% of Secret Location (28 May 2014).

 

The net cash outflow from the acquisition of subsidiaries was £9.1 million. £6.1 million related to the acquisition of Phase 4 Films (3 June 2014), £2.8 million related to Paperny Entertainment (31 July 2014) and £1.8 million to Force Four Entertainment (28 August 2014), offset by £1.6 million received from escrow in relation to the Alliance box office target.

 

The Group paid its inaugural final dividend of 1.0p per share in respect of the year ended 31 March 2014 on 10 September 2014, resulting in a total distribution to shareholders of £2.9 million. This dividend qualified as an eligible dividend for Canadian tax purposes. The dividend was paid net of withholding tax where appropriate, based on the residency of the individual shareholder.

 

Exchange differences of £1.4 million (2014: £25.1 million) occurred during the year. In the prior year, the movements primarily related to the translation impact of the weakening of pounds sterling against the Canadian dollar.

 

 

Adjusted free cash flow

Adjusted free cash flow increased by £22.2 million to £41.0 million in the year, reflecting strong growth in Television driven by Family performance, offset by working capital outflows in Film and Television, and an increased content and production investment/amortisation gap driven by higher production investment in Film.

 

The Film underlying EBITDA to adjusted free cash flow conversion ratio is broadly consistent with the comparative year at 28% (2014: 31%) which reflects a higher investment/amortisation gap from increased investment in productions in the current year and higher working capital outflows - due to an increase in non-recurring acquisition adjustments, offset by an increase in drawdowns of interim production financing.

 

Television underlying EBITDA to adjusted free cash flow conversion ratio has increased significantly from 12% in 2014 to 76% in 2015 driven by the strong performance in Family during the year.

 

The cash impact of one-off items was significant in the prior year at £38.0 million, following the acquisition of Alliance Films in January 2013. In 2015 the one-offs associated with restructuring and acquisitions have been lower, driven by the relative size of the acquisitions in the year.

 

(unaudited)

2015


20144


Film

£m

Television

£m

Elims & Centre

£m

 

Total

£m


Total

£m

Underlying EBITDA

73.1

41.6

(7.4)

107.3


92.8








Content and production investment/amortisation gap

(26.0)

(7.4)

-

(33.4)


(32.5)

Acquisition adjustments

(33.1)

-

-

(33.1)


(9.5)

Working capital

(16.7)

(14.8)

(3.6)

(35.1)


(25.0)

Net drawdown of interim production financing and production cash

23.2

 

12.1

-

35.3


(7.0)








Adjusted free cash flow

20.5

31.5

(11.0)

41.0



Prior year adjusted free cash flow

22.8

3.0

(7.0)



18.8








Reconciled to free cash flow as follows:



Remove interim production financing and production cash movement




(35.3)


7.0

Cash impact of one-off items




(14.6)


(38.0)

Purchase of other non-current assets and other9




(4.8)


(4.2)








Free cash outflow




(13.7)


(16.4)

 

Financing

Net debt balances at 31 March comprise the following:

 


£m

£m


2015

20144

Cash and other items (excluding production)

43.7

25.5

Senior credit facility

(268.6)

(136.6)

Adjusted net debt

(224.9)

(111.1)

Net interim production financing

(89.3)

(54.0)

Net debt

(314.2)

(165.1)

 

Adjusted net debt was £224.9 million, an increase of £113.8 million from the previous year. The increase is driven primarily by the acquisition of the three companies and two joint ventures that were completed in the current year.

 

Net interim production financing increased by £35.3 million year-on-year to £89.3 million, reflecting the acquisition of new TV Production businesses (Paperny Entertainment and Force Four Entertainment) and the higher number of film and television 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 by £56.7 million to £364.8 million at 31 March 2015 (2014: £308.1 million). The increase primarily reflects the £19.4 million of common shares issued as part-consideration for the three acquisitions made in the first half of the current financial year.

 

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



Statement of Directors' Responsibility

 

The directors are responsible for preparing the Annual Report and Accounts 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 of the Group as a whole;

·      the Business Performance and Financial Review includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face; and

·      the Annual Report and Accounts and the consolidated financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

 

By order of the Board

 

 

 

 

 

 

Giles Willits

Director

18 May 2015



INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ENTERTAINMENT ONE LTD.

 

Opinion on the consolidated financial statements of Entertainment One Ltd.

In our opinion:

Ø the consolidated financial statements give a true and fair view of the state of the Group's affairs as at 31 March 2015 and of the Group's profit for the year then ended; and

Ø the Group's consolidated financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The consolidated financial statements comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related Notes 1 to 36. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

 

Going concern

As required by the Listing Rules we have reviewed the directors' statement contained within the Directors' report that the Group is a going concern. We confirm that:

 

Ø we have concluded that the directors' use of the going concern basis of accounting in the preparation of the consolidated financial statements is appropriate; and

Ø we have not identified any material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.

 

Our assessment of risks of material misstatement

 

The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.

 

Risk 

How the scope of our audit responded to the risk

Accounting for investment in acquired content rights and investment in productions

As set out in Notes 17 and 20, the Group has £221.1m (2014: £230.1m) of investment in acquired content rights and £85.5m (2014: £58.5m) of investment in productions on the consolidated balance sheet at 31 March 2015. The accounting for the amortisation of these assets requires significant judgement and is directly affected by management's best estimate of future revenues, which are determined from opening box office performance or initial sales data; the pattern of historical revenue streams for similar genre productions and the remaining life of the Group's rights.

We have assessed management's process for estimating future revenues, specifically by:

Ø assessing the completeness and consistency of their process; and

Ø challenging the expectations of major titles and shows by scrutinising box office and home entertainment performance, current sales data and other title specific market information.

We have specifically assessed management's calculations in respect of the profitability of titles which have yet to be released. We challenged the judgements and assumptions for estimating future cash inflows and outflows by assessing minimum guarantee commitments, past performance on similar titles and expected print and advertising spend. We considered whether the asset carrying value was deemed recoverable and if any required provisions for onerous contracts were made appropriately.

 



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

Carrying value of goodwill and other intangible assets

As set out in Notes 15 and 16, the Group carries £209.8m (2014: £191.9m) of goodwill and a further £87.6m (2014: £91.5m) of other intangible assets on the consolidated balance sheet at 31 March 2015. Management is required to carry out an annual goodwill impairment test, which is judgemental and based on a number of assumptions including in respect of future profitability and discount rates.

We considered whether management's impairment review methodology is compliant with IAS 36 Impairment of Assets.

 

We challenged management's assumptions used in the impairment model for goodwill and other intangible assets, as described in Notes 15 and 16 to the consolidated financial statements. Our audit work on the assumptions used in the impairment model focussed on:

 

Ø using our valuation specialists to determine the appropriateness of the discount rates;

Ø comparison of growth rates against those achieved historically, together with external market data where available;

Ø agreeing the underlying cash flow projections for Film and Television to Board-approved forecasts; and

Ø assessing the accuracy of historical forecasting.

The presentation and consistency of the income and expenditure presented separately as one-off items

The Group has recorded exceptional income and expenditure in respect of one-off items and transactions that fall outside of the normal course of trading and which are described in Note 9.

We reviewed the nature of one-off items, challenged management's judgements in this area and agreed the quantification to supporting documentation.

 

We assessed whether the amounts are in line with both the Group's accounting policies and the guidance issued by the Financial Reporting Council in December 2013.

 

We considered whether management's application of their policies have been applied consistently with previous accounting periods, including whether the reversal of any items originally recognised as exceptional are appropriately classified as one-off items.

 

We also assessed whether the disclosures within the consolidated financial statements provide sufficient detail for the reader to understand the nature of these items.

 



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

Deferred tax assets (see Note 12)

In accordance with IAS 12 Income Taxes, deferred tax assets should only be recognised to the extent that it is probable that future taxable profit will be available against which they can be utilised.

 

There is a risk that inappropriate judgements are made by management, which could affect the quantum of the deferred tax assets that are recognised.

Our approach was to use our tax specialists to evaluate the recoverability of deferred tax assets, the adequacy of tax provisions and other potential exposures for the year ended 31 March 2015. This included challenging management's assumptions and judgements through our knowledge of the tax circumstances and a review of relevant correspondence.

 

In respect of deferred tax assets, we considered the appropriateness of management's assumptions and estimates. We have assessed management's view of the likelihood of generating suitable future taxable profits to support the recognition of deferred tax assets.  

 

We also considered the consistency of forecasts with those used by management for going concern and impairment testing.

 

Revenue recognition

The Group derives its revenues from the licensing, marketing and distribution of feature films, television, video programming and music rights.

 

Judgement is exercised by management in providing for returns of physical home entertainment products.

Our procedures included:

 

Ø assessing the Group's revenue recognition policy and confirming the consistent application of the policy across the Group;

Ø obtaining a detailed understanding of each revenue stream and the associated risks of material misstatement; and

Ø designing and carrying out appropriate substantive procedures to assess that revenue has been recognised in line with the accounting policy. Depending on the nature of the stream, the audit procedures involved corroborating revenue recognised to contracts, third party confirmations, royalty statements or Gross Box Office revenues.

We also performed detailed testing on the returns provision calculations, and assessed whether the methodology applied is appropriate for each business unit based on the historical level of returns.

 

 

The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee as discussed in their Report.

 

Our audit procedures relating to these matters were designed in the context of our audit of the consolidated financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the consolidated financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters.

 



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

 

Our application of materiality

We define materiality as the magnitude of misstatement in the consolidated financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

 

We determined materiality for the Group to be £3.2m (2014: £2.9m), which is approximately 5% (2014: 7.5%) of profit before tax after adding back operating and net financing one-off items. We use this as a base for materiality as it is a key measure of underlying business performance for the Group.

 

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £64,000 (2014: £58,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.  We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the consolidated financial statements.

 

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the group level. Based on that assessment, we focused our Group audit scope primarily on the UK and Canadian business units. Five of these were subject to a full audit, whilst the remaining twelve were subject to specified audit procedures where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group's operations at those locations. The five full scope divisions represent the principal business units and account for 69% (2014: 70%) of the Group's revenue and 90% (2014: 93%) of the Group's adjusted profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the different locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and ranged from 50% to 65% of Group materiality.

 

At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances.

 

The Group audit team continued to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor or a senior member of the Group audit team visits each of the locations where the Group audit scope was focused at least once every year.

 

Matters on which we are required to report by exception

Corporate Governance Statement

 

Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the company's compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.

 

Our duty to read other information in the Annual Report

 

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

Ø materially inconsistent with the information in the audited consolidated financial statements; or

Ø apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

Ø otherwise misleading.



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

 

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.

 

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement, 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. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.

 

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.

 

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 and the parent company'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 to identify material inconsistencies with the audited consolidated financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit.  If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

 

 

 

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

18 May 2015

Consolidated Income Statement

for the year ended 31 March 2015

 



                       

Year ended

      (restated)

   Year ended



      31 March

       31 March



              2015

              2014


Notes

                  £m

                  £m

Revenue

5

785.8

823.0

Cost of sales


(578.0)

(642.3)

Gross profit


207.8

180.7

Administrative expenses


(147.8)

(151.3)

Share of results of joint ventures

29

0.2

-

Operating profit

6

60.2

29.4

Finance income

10

-

4.5

Finance costs

10

(16.2)

(12.4)

Profit before tax


44.0

21.5

Income tax charge

11

(2.7)

(1.5)

Profit for the year


41.3

20.0





Attributable to:




Owners of the Company


41.8

19.7

Non-controlling interests


(0.5)

0.3





Operating profit analysed as:




   Underlying EBITDA

3, 5

107.3

92.8

   Amortisation of acquired intangibles

16

(22.2)

(36.0)

   Depreciation and amortisation of software

16,18

(3.7)

(2.6)

   Share-based payment charge

34

(3.4)

(2.7)

   Tax, finance costs and depreciation related to joint ventures

29

0.1

-

   One-off items

9

(17.9)

(22.1)

Operating profit


60.2

29.4

 

 

Earnings per share (pence)




Basic

14

14.3

7.2

Diluted

14

14.1

7.1

Adjusted earnings per share (pence)




Basic

14

23.8

21.2

Diluted

14

23.5

21.0

 

All activities relate to continuing operations.

 

As explained in further detail in Note 2, the restatement of the 2014 comparatives relates to the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements.

 



Consolidated Statement of Comprehensive Income

for the year ended 31 March 2015

 



                      

Year ended

      (restated)

   Year ended



      31 March

       31 March



              2015

              2014



                 £m

                  £m

Profit for the year


41.3

20.0





Items that may be reclassified subsequently to profit or loss:




Exchange differences on foreign operations


(9.8)

(46.5)

Fair value movements on cash flow hedges


5.0

(2.4)

Reclassification adjustments for movements on cash flow hedges


2.1

(0.6)

Tax related to components of other comprehensive income


(1.6)

0.8

Total comprehensive income/(loss) for the year


37.0

(28.7)





Attributable to:




Owners of the Company


37.5

(29.0)

Non-controlling interests


(0.5)

0.3

 

As explained in further detail in Note 2, the restatement of the 2014 comparatives relates to the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements.

 



Consolidated Balance Sheet

at 31 March 2015




(restated)



      31 March

       31 March



              2015

              2014


Note

                 £m

                  £m

ASSETS




 

Non-current assets




Goodwill

15

209.8

191.9

Other intangible assets

16

87.6

91.5

Interests in joint ventures

29

91.0

1.2

Investment in productions

17

85.5

58.5

Property, plant and equipment

18

6.1

5.5

Trade and other receivables

21

45.8

12.1

Deferred tax assets

12

12.6

5.3

Total non-current assets


538.4

366.0

Current assets




Inventories

19

52.0

47.2

Investment in acquired content rights

20

221.1

230.1

Trade and other receivables

21

279.6

241.4

Cash and cash equivalents

22

71.3

38.9

Current tax assets


0.6

0.2

Derivative financial instruments

31

9.7

2.1

Total current assets


634.3

559.9

 

Total assets


1,172.7

925.9





 

LIABILITIES




 

Non-current liabilities




Interest-bearing loans and borrowings

23

295.9

155.9

Other payables

25

16.5

6.7

Provisions

26

0.3

2.8

Deferred tax liabilities

12

6.9

3.2

Total non-current liabilities


319.6

168.6

Current liabilities




Interest-bearing loans and borrowings

23

89.6

48.1

Trade and other payables

25

372.1

368.7

Provisions

26

2.8

13.2

Current tax liabilities


19.8

15.9

Derivative financial instruments

31

4.0

3.3

Total current liabilities


488.3

449.2

 

Total liabilities


807.9

617.8

 

Net assets


364.8

308.1





 

EQUITY




 

Stated capital

 

33

305.5

286.0

Own shares

33

(3.6)

(3.6)

Other reserves

33

13.7

8.2

Currency translation reserve


(14.0)

(4.2)

Retained earnings


63.0

21.0

Equity attributable to owners of the Company


364.6

307.4

Non-controlling interests


0.2

0.7

 

Total equity


364.8

308.1

 

Total liabilities and equity


1,172.7

925.9

 

As explained in further detail in Note 2, the restatement of the 2014 comparatives relates to the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements.

 

These consolidated financial statements were approved by the Board of Directors on 18 May 2015.

 

Giles Willits

Director


Consolidated Statement of Changes in Equity

for the year ended 31 March 2015




Other reserves



Equity






Cash flow


Restructur-

Currency


attributable

Non-



Stated

Own

hedge

Warrants

ing

translation

Retained

to the

controlling

Total


capital

shares

reserve

reserve

reserve

reserve

earnings

owners of the company

interests

equity


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

At 1 April 2013

282.4

(7.2)

          1.1

0.6

9.3

          42.3

2.3

330.8

0.4

331.2

Profit for the year (restated)

-

-

-

-

-

              -

19.7

19.7

0.3

20.0

Other comprehensive loss

-

-

(2.2)

-

-

(46.5)

-

(48.7)

-

(48.7)

Total comprehensive (loss)/ income for the year (restated)

-

-

         (2.2)

-

-

(46.5)

19.7

(29.0)

0.3

(28.7)












Issue of common shares - on exercise of share options1

0.1

-

-

-

-

-

-

0.1

-

0.1

Issue of common shares - on exercise of share warrants1

4.0

-

-

-

-

-

-

4.0

-

4.0

Reclassification of warrants reserve on exercise of share warrants1

0.6

-

-

(0.6)

-

-

-

-

-

-

Distribution of shares to beneficiaries of the Employee Benefit Trust

-

3.6

-

-

-

-

(3.6)

-

-

-

Credits in respect of share-based payments

-

-

-

-

-

-

2.8

2.8

-

2.8

Reversal of deferred tax asset previously recognised on transaction costs relating to issue of common shares

(1.1)

-

-

-

-

-

-

(1.1)

-

(1.1)

Deferred tax movement arising on share options

-

-

-

-

-

-

(0.2)

(0.2)

-

(0.2)

At 31 March 2014 (restated)

286.0

(3.6)

(1.1)

-

9.3

(4.2)

21.0

307.4

0.7

308.1












Profit for the year

-

-

-

-

-

-

41.8

41.8

(0.5)

41.3

Other comprehensive income/(loss)

-

-

5.5

-

-

(9.8)

-

(4.3)

-

(4.3)

Total comprehensive income/(loss) for the year

-

-

5.5

-

-

(9.8)

41.8

37.5

(0.5)

37.0












Issue of common shares - on exercise of share options1

0.1

-

-

-

-

-

-

0.1

-

0.1

Issue of common shares - on acquisitions1

19.4

-

-

-

-

-

-

19.4

-

19.4

Credits in respect of share-based payments

-

-

-

-

-

-

3.0

3.0

-

3.0

Deferred tax movement arising on share options

-

-

-

-

-

-

0.1

0.1

-

0.1

Dividends paid

-

-

-

-

-

-

(2.9)

(2.9)

-

(2.9)

At 31 March 2015

305.5

(3.6)

4.4

-

9.3

(14.0)

63.0

364.6

0.2

364.8

1 See Note 33 for further details.

As explained in further detail in Note 2, the restatement of amounts as at 1 April 2013 and 31 March 2014 relate to the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements.


Consolidated Cash Flow Statement

for the year ended 31 March 2015

 




(restated)



Year ended

Year ended



  31 March

31 March



          2015

          2014


Note

              £m

              £m

Operating activities

 




Operating profit


60.2

29.4

 

Adjustments for:




 Depreciation of property, plant and equipment

18

1.5

1.4

 Amortisation of software

16

2.2

1.2

 Amortisation of acquired intangibles

16

22.2

36.0

 Amortisation of investment in productions

17

82.1

75.4

 Amortisation of investment in acquired content rights

20

165.3

168.9

 Impairment of investment in acquired content rights

20

5.4

-

 Foreign exchange movements


1.9

(0.9)

 Share of results of joint ventures

29

(0.2)

-

 Share-based payment charge

34

3.4

2.7

Operating cash flows before changes in working capital and provisions


344.0

314.1

Increase in inventories

19

(2.0)

(5.7)

Increase in trade and other receivables

21

(41.0)

(11.9)

Decrease in trade and other payables

25

(16.5)

(19.2)

Decrease in provisions

26

(12.6)

(12.7)

Cash generated from operations


271.9

264.6

Income tax paid


(10.8)

(5.9)

Net cash from operating activities


261.1

258.7

 

Investing activities




Acquisition of subsidiaries and joint ventures, net of cash acquired

27, 29

(95.6)

(6.1)

Purchase of investment in acquired content rights

20

(166.3)

(199.4)

Purchase of investment in productions, net of grants received

17

(114.5)

(77.4)

Purchase of acquired intangibles

16

(1.8)

-

Purchase of property, plant and equipment

18

(1.3)

(2.4)

Dividends received from interests in joint ventures

29

0.3

-

Purchase of software

16

(2.0)

(1.8)

Net cash used in investing activities


(381.2)

(287.1)

 

Financing activities




Proceeds on issue of shares

33

-

4.1

Dividends paid to shareholders


(2.9)

-

Drawdown of interest-bearing loans and borrowings

23

273.3

182.6

Repayment of interest-bearing loans and borrowings

23

(151.4)

(147.8)

Net drawdown of interim production financing

23

54.8

5.1

Interest paid


(13.4)

(11.0)

Fees paid in relation to the Group's senior bank facility

23

(3.5)

(1.0)

Net cash from financing activities


156.9

32.0

 

Net increase in cash and cash equivalents


36.8

 

3.6

Cash and cash equivalents at beginning of the year

22

35.5

35.0

Effect of foreign exchange rate changes on cash held


(1.0)

(3.1)

Cash and cash equivalents at end of the year

22

71.3

35.5

 

As explained in further detail in Note 2, the restatement of the 2014 comparatives relates to the adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements.

 



Notes to the Consolidated Financial Statements

for the year ended 31 March 2015

 

1.  Nature of operations and general information

 

Entertainment One is a leading independent entertainment group focused on the acquisition, production and distribution of film, television, family and music content rights across all media throughout the world. Entertainment One Ltd. ("the Company") is the Group's ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 175 Bloor Street East, Suite 1400, North Tower, Toronto, Ontario, M4W 3R8. 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 directors on 18 May 2015.

 

2.  New, amended, revised and improved Standards

 

New Standards and amendments, revisions and improvements to Standards adopted during the year

 

During the year ended 31 March 2015, the following were adopted by the Group:

 

New, amended, revised and improved Standards

Effective date

IFRS 10 Consolidated Financial Statements

1 January 2014

IFRS 11 Joint Arrangements

1 January 2014

IFRS 12 Disclosures of Interests in Other Entities

1 January 2014

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment 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

Amendments to IAS 36 Recoverable Amount Disclosure for Non-Financial Assets

1 January 2014

Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

1 January 2014

 

The adoption of these new, amended and revised Standards had no material impact on the Group's financial position, performance or its disclosures. The adoption of IFRS 10 and IFRS 11 has, however, resulted in certain prior period amounts being restated, as described in further detail below.

 

Impact of adoption of IFRS 10 and IFRS 11

The adoption of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements has impacted these consolidated financial statements as follows:

 

Within the Film Division, certain joint arrangements relating to film production were previously proportionally consolidated. These have been classified as joint ventures under IFRS 11 and have consequently been retrospectively accounted for using the equity method. In the prior period consolidated income statement, previously reported amounts of the Group's share of revenue, cost of sales and administrative expenses have been aggregated in the single line item "share of results of joint ventures". Similarly, in the consolidated balance sheets of the prior periods presented, previously reported amounts of the Group's share of investment in productions, trade and other receivables, cash and cash equivalents, trade and other payables and interest-bearing loans and borrowings have been aggregated in the single line item "interests in joint ventures". The restatement of amounts in the prior periods in relation to the above has had no impact on underlying EBITDA, profit for the period or net assets.

 



2. New, amended, revised and improved Standards (continued)

 

Within the Television Division, certain production companies which were previously accounted for as proportionally consolidated joint ventures, have been classified as fully consolidated subsidiaries based on a reassessment under IFRS 10 of the Group's power and control over these entities. Consequently, in the prior period consolidated income statement, previously reported amounts of the Group's share of revenue, cost of sales and administrative expenses have been restated to reflect 100% of the respective balances. To the extent any profit for the period relates to non-controlling interests, this has been presented separately on the face of the consolidated income statement. The consolidated balance sheets of the prior periods presented have also been restated to reflect 100% of any previously proportionally consolidated balances, with amounts relating to non-controlling interests presented separately within equity.

 

The impact of the above changes on the consolidated income statement for the year ended 31 March 2014 was an increase in underlying EBITDA of £0.5m and an increase in profit by £0.3m. The impact on the consolidated balance sheet as at 31 March 2014 was an increase of net assets by £0.7m. A summary of the changes is detailed below:

 


Previously reported

Adjustments

Restated

 


£m

£m

£m

 

Profit for the year

19.7

0.3

20.0

 

Interests in joint ventures

-

1.2

1.2

 

Investment in productions

61.2

(2.7)

58.5

 

Trade and other receivables

230.5

10.9

241.4

 

Cash and cash equivalents

37.1

1.8

38.9

 

Current tax assets

0.3

(0.1)

0.2

 

Interest bearing loans and borrowings

(192.0)

(12.0)

(204.0)

 

Trade and other payables

(370.3)

1.6

(368.7)

 





 

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

At the date of authorisation of these consolidated financial statements, the following Standards, which have not been applied in these consolidated financial statements, are in issue but not yet effective for periods beginning 1 April 2014:

 

New, amended and revised Standards

Effective date

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

1 July 2014

Annual improvements 2010-2012 Cycle


Amendment to IFRS 2 Share-based Payment

1 July 2014

Amendment to IFRS 3 Business Combinations

1 July 2014

Amendment to IFRS 8 Operating Segments

1 July 2014

Amendment to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

1 July 2014

Amendment to IAS 24 Related Party Disclosures

1 July 2014

Annual improvements 2011-2013 Cycle


Amendment to IFRS 3 Business Combinations

1 July 2014

Amendment to IFRS 13 Fair Value Measurement

1 July 2014

Amendment to IAS 40 Investment Property

1 July 2014

Amendments to IFRS 11 Joint arrangements: accounting for acquisitions of interests

1 January 2016

IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

1 January 2016

Amendments to IAS 27: Equity Method in Separate Financial Statements

1 January 2016

IFRS 14 Regulatory Deferral Accounts

1 January 2016

IFRS 15 Revenue from Contracts with Customers

1 January 2017

IFRS 9 Financial Instruments

1 January 2018

 

The directors do not anticipate that the adoption of these Standards will have a material impact on the Group's consolidated 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 directors 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 amortisation of acquired intangibles, depreciation, amortisation of software, share-based payment charge, 'tax, finance costs and depreciation' related to joint ventures and operating one-off items.

 

The terms 'adjusted profit before tax' and 'adjusted earnings per share' refer to the reported measures excluding amortisation of acquired intangible assets, share-based payment charge, 'tax, finance costs and depreciation' related to joint ventures, operating one-off items, one-off items relating to the Group's financing arrangements 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 Performance and Financial Review.

 

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 by the Group. Under the terms of the facility the Group is able to drawdown in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2015 are shown in Note 23.

 

The facility is subject to a series of covenants including fixed charge cover, gross debt against underlying 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 2015, the Group had £71.3m of cash and cash equivalents (refer to Note 22), £224.9m of adjusted net debt (refer to Note 24) and undrawn down amounts under the senior debt facility of £63.7m (refer to Note 23).

 

The Group is exposed to uncertainties arising from the economic climate and uncertainties in the markets in which it operates. Market conditions could lead to lower than anticipated demand for the Group's products and services and exchange rate volatility could also impact reported performance. The directors have considered the impact of these and other uncertainties and factored them into their financial forecasts and assessment of covenant headroom. The Group's forecasts and projections, taking account of reasonable possible changes in trading performance (and available mitigating actions), show that the Group will be able to operate within the expected limits of the facility and provide headroom against the covenants for the foreseeable future. For these reasons the directors continue to adopt the going concern basis in preparing the consolidated financial statements.

 

ii.   Statement of compliance

These consolidated financial statements have been prepared under the historical cost convention (except for derivative financial instruments and share-based payment charge that have been measured at fair value) and in accordance with applicable International Financial Reporting Standards as adopted by the European Union ("EU") and IFRIC interpretations ("IFRS"). The Group's 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"). Control of the Group's subsidiaries is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The financial statements of the subsidiaries are generally 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.



3.  Significant accounting policies (continued)

 

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.

 

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 the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets acquired (including other intangible assets) 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 film and television production and family 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 completion of contractual obligations relevant to 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 film or 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 home entertainment 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. Any contributions unpaid at the year-end reporting date are included as a liability within the consolidated balance sheet.

 

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.

 



3.  Significant accounting policies (continued)

 

Borrowing costs

Borrowing costs, including finance costs, 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 productions) form part of the cost of that asset and are capitalised.

 

Foreign currencies

i.    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 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.

 

ii.   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 the exchange rate ruling at the date of each transaction during 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 the directors, should be disclosed separately on the basis that they are material, either by their nature or their size, in order to provide a better understanding of the Group's underlying financial performance and enable comparison of underlying financial performance between years.

 

The one-off items recorded in the consolidated income statement include items such as significant restructuring, the costs incurred with entering into business combinations, and the impact of the sale, disposal or impairment of an investment in a business or an asset.

 

Tax

i.    Income tax

The income tax charge/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.

 

ii.   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 of other assets and liabilities in a transaction (other than in a business combination) that affects neither the tax profit nor the accounting profit.



3.  Significant accounting policies (continued)

 

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.

 

In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options or vesting of share awards under each jurisdiction's tax rules. A share-based payment charge is recorded in the consolidated income statement over the vesting period of the relevant options and awards. As there is a temporary difference between the accounting and tax bases, a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the balance sheet date) with the cumulative amount of the share-based payment charge recorded in the consolidated income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the compensation expense at the statutory rate, the excess is recorded directly in equity, against retained earnings.

 

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.

 

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 with in 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 tax 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 the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets acquired (including other intangible assets) 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, trade names and brands, exclusive distribution agreements, customer relationships and non-compete agreements. Other intangible assets also include amounts relating to costs of software.

 



3.  Significant accounting policies (continued)

 

Other intangible assets are generally amortised over the following periods:

 

Exclusive content agreements and libraries

3-14 years

Trade names and brands

1-10 years

Exclusive distribution agreements

9 years

Customer relationships

9-10 years

Non-compete agreements

2-5 years

Software

3 years

 

Interests in joint arrangements

An associate is an entity which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of the investee, but is not control or joint control over those policies.

 

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of the arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

 

The Group's interests in its associates and joint ventures are accounted for using the equity method. The investment is initially recognised at cost and is subsequently adjusted to recognise changes in the Group's share of net assets of the associate or joint venture since the acquisition date. The share of results of its associates and joint ventures are shown within single line items in the consolidated balance sheet and consolidated income statement respectively. 

 

The financial statements of the Group's associates and joint ventures are generally 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.

 

Investment in productions

Investment in productions 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 productions. On delivery of a production, the cost of investment is reclassified as productions delivered. Also included within investment in productions are programmes acquired on acquisition of subsidiaries.

 

Amortisation of investment in productions, 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 ten years.

 

Government grants

A government grant is recognised and credited as part of investment in productions when there is reasonable assurance that any conditions attached to the grant will be satisfied and the grants will be received and the 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 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.



3.  Significant accounting policies (continued)

 

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 CGU's 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.

 

Investment in acquired content rights

In the ordinary course of business the Group contracts with film and television programme producers to acquire content rights for exploitation. Certain of these agreements require the Group to pay minimum guaranteed advances ("MGs"), the largest portion of which often becomes due when the film or television programme is delivered to 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 or television programme to the Group.

 

Investments in acquired 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 net 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 Film and Television businesses. The normal operating cycle of these businesses can be greater than 12 months. In general 65%-75% of film and television programme content is amortised within 12 months of theatrical release/delivery.

 

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. 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 film and television productions. Interest payable on interim production financing loans is capitalised and forms part of the cost of investment in productions.



3.  Significant accounting policies (continued)

 

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.

 

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.

 

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.

 

Dividends

Distributions to equity holders are not recognised in the consolidated income statement under IFRS, but are disclosed as a component of the movement in total equity. A liability is recorded for a dividend when the dividend is declared by the Company's directors.

 

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.

 



3.  Significant accounting policies (continued)

 

Own shares

The Entertainment One Ltd. shares held by the Trustees of the Company's Employee Benefit Trust ("EBT") are classified in total equity as own 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 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 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.

 

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 production, acquisition and exploitation of film content rights.

 

The Television segment includes revenues from all of the Group's activities in relation to the production, acquisition and exploitation of television, family and music content.

 

 

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 determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value-in-use of the CGUs to which the goodwill is allocated. Estimating a value-in-use amount requires the directors to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of goodwill are contained in Note 15.

 



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

 

Acquired intangibles

The Group recognises intangible assets acquired as part of a business combination at fair value at the date of acquisition. The determination of these fair values is based upon the directors' 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, the directors must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. Further details of acquired intangibles are contained in Note 16.

 

Investment in productions and investment in acquired content rights

The Group capitalises investment in productions and investment in acquired content rights and then amortises these balances on a revenue forecast basis, recording the amortisation charge in cost of sales. Amounts capitalised are reviewed at least quarterly and any amounts that appear to be irrecoverable from future net revenues are written-off to cost of sales during the period the loss becomes evident. The estimate of future net revenues depends on the directors' judgement and assumptions based on the pattern of historical revenue streams and the remaining life of each contract. Further details of investment in productions and investment in acquired content rights are contained in Notes 17 and 20, respectively.

 

Provisions for onerous film contracts

The Group recognises a provision for an onerous film contract 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 on 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. 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 requires 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 34.

 

Deferred tax

Deferred tax assets and liabilities require the directors' 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. 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 consolidated 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.

 



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

 

Joint arrangements

The Group participates in a number of joint arrangements where control of the arrangement is shared with one or more other parties. A joint arrangement is classified as a joint operation or as a joint venture, depending on the Group's assessment of the legal form and substance of the arrangement. The classification can have a material impact on the consolidated financial statements.

 

Fair value measurement of financial instruments

When the fair values of financial assets and financial liabilities recorded in the consolidated balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Note 32 for further disclosures.

 

Contingent consideration

Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor.

 



 

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.

 

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

 

·      Film - the production, acquisition and exploitation of film content rights across all media.

 

·      Television - the production, acquisition and exploitation of television, family and music content across all media.

 

Inter-segment sales are charged at prevailing market prices.

 

Segment information for the year ended 31 March 2015 is presented below:

 


Film

Television

Eliminations

Consolidated


Notes

£m

£m

£m

                   £m

Segment revenues





External sales

583.1

202.7

-

785.8

Inter-segment sales

9.5

24.9

(34.4)

-

Total segment revenues

592.6

227.6

(34.4)

785.8






Segment results





Segment underlying EBITDA

73.1

41.6

-

114.7

Group costs




(7.4)

Underlying EBITDA




107.3

Amortisation of acquired intangibles

16




(22.2)

Depreciation and amortisation of software

16, 18




(3.7)

Share-based payment charge

34




(3.4)

Tax, finance costs and depreciation related to joint ventures

29




0.1

One-off items

9




(17.9)

Operating profit




60.2

Finance income

10




-

Finance costs

10




(16.2)

Profit before tax




44.0

Income tax charge

11




(2.7)

Profit for the year




41.3

 

Segment assets





Total segment assets

728.6

434.4

-

1,163.0

Unallocated corporate assets




9.7

Total assets




1,172.7

 

Other segment information





Amortisation of acquired intangibles

16

(17.9)

(4.3)


 (22.2)

Depreciation and amortisation of software

16,18

(3.4)

(0.3)


 (3.7)

Tax, finance costs and depreciation related to joint ventures

29

-

0.1


0.1

One-off items

9

(13.2)

(4.7)


(17.9)

 

 



5. Segmental analysis (continued)

 

Segment information for the year ended 31 March 2014 is presented below.

 


(restated)

Film

(restated)

Television

(restated)

Eliminations

(restated)

Consolidated


Notes

£m

£m

£m

                £m

Segment revenues





External sales

680.0

143.0

-

823.0

Inter-segment sales

6.0

23.5

(29.5)

-

Total segment revenues

686.0

166.5

(29.5)

823.0






Segment results





Segment underlying EBITDA

74.1

24.8

-

98.9

Group costs




(6.1)

Underlying EBITDA




92.8

Amortisation of acquired intangibles

16




(36.0)

Depreciation and amortisation of software

16, 18




(2.6)

Share-based payment charge

34




(2.7)

Tax, finance costs and depreciation related to joint ventures

29




-

One-off items

9




(22.1)

Operating profit




29.4

Finance income

10




4.5

Finance costs

10




(12.4)

Profit before tax




21.5

Income tax charge

11




(1.5)

Profit for the year




20.0

 

Segment assets





Total segment assets

687.7

232.3

-

920.0

Unallocated corporate assets




5.9

Total assets




925.9

 

Other segment information





Amortisation of acquired intangibles

16

(32.1)

(3.9)

-

(36.0)

Depreciation and amortisation of software

16,18

(2.5)

(0.1)

-

(2.6)

Tax, finance costs and depreciation related to joint ventures

29

-

-

-

-

One-off items

9

(21.9)

(0.2)

-

(22.1)

 

Geographical information

The Group's operations are located in Canada, the UK, the US, Australia, Benelux and Spain. The Film division is located in all of these geographies. The Group's Television operations are located in Canada, the US, the UK and Australia. 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 years ended 31 March 2015 and 2014.

 

 

 

 

External

revenues

2015

£m

 

Non-current

assets1

2015

£m

(restated)

External

revenues

2014

£m

(restated)

Non-current

assets1

2014

£m

Canada

259.6

267.3

288.2

208.7

UK

199.7

74.2

214.5

75.1

US

150.9

54.0

145.3

28.9

Rest of Europe

107.2

29.5

113.9

35.4

Other

68.4

9.8

61.1

11.4

Total

785.8

434.8

823.0

359.5

1 Non-current assets by location exclude amounts relating to interests in joint ventures and deferred tax assets.



 

6.  Operating profit

 

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

 

 

 


Note

 

Year ended

31 March

2015

£m

(restated)

Year ended

31 March

2014

£m

Amortisation of investment in productions

17

82.1

75.4

Amortisation of investment in acquired content rights

20

165.3

168.9

Amortisation of acquired intangibles

16

22.2

36.0

Amortisation of software

16

2.2

1.2

Depreciation of property, plant and equipment

18

1.5

1.4

Impairment of investment in acquired content rights

20

5.4

-

Staff costs

8

79.4

74.5

Net foreign exchange gains


(0.1)

(0.8)

Operating lease rentals

35

6.9

5.9

 

 

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

 

 

 



Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Audit fees




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

0.3

0.4

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


0.3

0.3

Other services




- Services relating to corporate finance transactions


0.4

0.4

- Tax compliance services


0.1

-

- Tax advisory services


-

0.5

- Other services


-

0.1

Total


1.1

1.7

 

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 2015 and 2014 comprised the two (2014: three) executive directors. These persons had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly.

 

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

 




   Year ended

   Year ended




       31 March

       31 March




               2015

             2014³




                   £m

                  £m

Short-term employee benefits1



1.9

3.1

Other long-term benefits2



-

5.2

Share-based payment benefits



0.5

0.6

Total



2.4

8.9

1 Short-term employee benefits comprise salary, taxable benefits, annual bonus and pensions and includes employer social security contributions of £0.1m (2014: £0.2m).

2 Other long-term benefits represents the out-performance incentive plan payment of £nil (2014: £5.0m) and the social security contributions thereon of £nil (2014: £0.2m).

3 The comparative period includes compensation for Patrice Theroux (who stood down from the Board, effective 31 March 2014).

 



 

8.  Staff costs

 

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

 




Year ended

Year ended




31 March

31 March




2015

2014




Number

Number

Average number of employees





Canada



975

816

US



254

253

UK



177

146

Australia



41

35

Rest of Europe



88

81

Total



1,535

1,331

 

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

 




Year ended

Year ended




31 March

31 March




2015

2014




                £m

£m

Wages and salaries



68.8

65.1

Share-based payment charge



3.4

2.7

Social security costs



5.6

5.6

Pension costs



1.6

1.1

Total



79.4

74.5

 

Included within total staff costs of £79.4m (2014: £74.5m) is £4.7m (2014: £7.0m) 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 the directors, 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 underlying financial performance and enable comparison of underlying 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



              2015

                 2014



                  £m

                    £m

Restructuring costs




Strategy-related restructuring costs


11.3

-

Alliance-related restructuring costs


3.1

14.2

Alliance-related acquisition costs


-

5.3

Total restructuring costs


14.4

19.5





Other items




Acquisition costs:




Completed deals


1.8

0.2

Aborted deals


1.7

-

Other corporate projects


-

2.4

Total other items


3.5

2.6

Total one-off costs


17.9

22.1

 



9.  One-off items (continued)

 

Strategy-related restructuring costs

During the year ended 31 March 2015 the Group refocused its growth strategy.

 

The first stage was the development and implementation of the refocused strategic plan. As such consultancy fees of £0.5m related to review of the strategy and £2.4m of staff redundancies were incurred in order to establish the new leadership team responsible for delivering the long-term growth plan in the year ended 31 March 2015.

 

The second stage of delivering the new strategy has been to ensure the correct positioning of the business across our territories. Restructuring following the acquisition of Phase 4 Films (see Note 27 for further details) was completed, to capitalise on Phase 4 Films' direct relationships with various home entertainment customers by investing in titles designed to drive ancillary, rather than theatrical, revenue, thereby reducing print and advertising spend and increasing profitability. As a result, the Group reassessed the carrying value of investment in acquired content rights (which had previously been based on theatrically-released titles supporting the former release strategy) in the legacy US film business. This review involved reassessing ultimate revenues in relation to the titles previously released under a theatrical release strategy where the profile of the ultimate revenues were judged to be no longer appropriate given the strategic change and, as a result of this review, an acquired contents rights impairment charge of £5.4m was recorded in the consolidated income statement as a one-off item in the current period. The Group incurred other US film-related restructuring costs of £3.0m, including £1.0m of staff redundancy costs.

 

Alliance-related restructuring costs

In the year ended 31 March 2015, the Group incurred £3.1m (2014: £14.2m) of restructuring costs relating to the Alliance acquisition, which was completed in January 2013. A charge of £1.3m (2014: £7.0m) was recorded for staff redundancy costs associated with the Group's synergy-realisation programme. A charge of £0.4m (2014: £2.4m) has been recorded in respect of unused office space as a result of the integration of the operations in Canada. Other restructuring costs of £1.4m (2014: £1.0m) have been incurred during the period, including costs associated with IT systems integration. In the prior period, a charge of £3.8m was incurred due to higher inventory returns arising from the inventory consolidation programme to integrate the Alliance Home Entertainment operations.

 

Prior year Alliance-related acquisition costs

During the year ended 31 March 2014, the Group reassessed the amount of contingent consideration payable in respect of box office targets related to the Alliance acquisition, resulting in a one-off credit to the consolidated income statement for the year ended 31 March 2014 of £9.8m, representing a full release of the provision which had been established in the prior year. A subset of the film titles (which were included in the box office targets), which had significantly under-performed in the prior year or which were expected to significantly under-perform in the year ended 31 March 2014, were identified by the directors as being the principal reason for the box office targets being missed and therefore charges relating to these film titles were recognised as one-offs costs, resulting in a net charge in the prior year of £5.3m.

 

Acquisition costs - completed deals

As set out in further detail in Note 27, during the year ended 31 March 2015, the Group completed three acquisitions. The aggregate acquisition costs of these transactions was £1.3m. These costs included fees in respect of due diligence work performed and other advisory and legal expenses. During the year the Group also incurred £0.5m of costs in respect of prior period acquisitions. Acquisition costs of £0.2m incurred during the year ended 31 March 2014 relate to the Group's acquisition of Art Impressions Inc. (now eOne Licensing US Inc.), a US brand and licensing agency, on 16 July 2013.

 

Acquisition costs - aborted deals

During the year ended 31 March 2015, the Group considered a number of potential acquisitions which did not ultimately complete. The Group incurred costs of £1.7m in respect of such items.

 

Prior year other corporate projects

During the year ended 31 March 2014 the Group incurred a charge of £2.4m mainly related to the transfer of the listing category of all of the Company's common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority.

 



 

10.  Finance income and finance costs

 

Finance income and finance costs comprise:

 



Year ended

Year ended



31 March

31 March



2015

2014


        Note

                £m

                £m

Finance income




Net foreign exchange gains


-

3.8

Gain on fair value of derivative financial instruments

                

-

0.7

Total finance income


-

4.5





Finance costs




Interest on bank loans and overdrafts


(10.5)

(9.3)

Amortisation of deferred finance charges

24

(1.9)

(1.7)

Other accrued interest charges


(0.7)

(0.8)

Fees payable on amendment to senior bank facility

23

(0.7)

(0.6)

Net foreign exchange losses


(2.4)

-

Total finance costs


(16.2)

(12.4)

 

Net finance costs


(16.2)

(7.9)





Of which:




Adjusted net finance costs


(14.8)

(11.8)

One-off net finance (costs)/income

14

(1.4)

3.9

 

Adjusted net finance costs are £11.5m (2014: £8.0m) after tax. This measure forms part of the calculation of average return on capital employed.

 

One-off net finance costs of £1.4m (2014: income of £3.9m) comprises a charge of £0.7m (2014: £0.6m) in respect of fees incurred on amendments made to the Group's senior bank facility during the year and £0.7m (2014: £0.7m) of non-cash accrued interest charges on certain liabilities.  The prior year one-off net finance income also included foreign exchange gains of £4.5m and a gain of £0.7m arising on the mark-to-market of derivative financial instruments.

  



 

11.  Tax

 

Analysis of charge in the year

 



                      

Year ended

    (restated)

Year ended



     31 March

     31 March



             2015

            2014


Note

                 £m

                £m

Current tax (charge)/credit:




-   in respect of current year


(11.3)

(6.3)

-   in respect of prior years


(1.2)

0.4

Total current tax charge


(12.5)

(5.9)





Deferred tax credit/(charge):




-   in respect of current year


10.9

2.4

-   in respect of prior years


(1.1)

2.0

Total deferred tax credit


9.8

4.4





Income tax charge


(2.7)

(1.5)





Of which:




Adjusted tax charge on adjusted profit before tax


(20.0)

(19.6)

One-off net tax credit

14

17.3

18.1

 

The one-off tax credit comprises tax credits of £1.3m (2014: £7.2m) on the one-off items described in Note 9, tax credits of £3.9m (2014: £8.5m) on amortisation of acquired intangibles (see Note 16), a tax credit of £0.1m  (2014: £0.5m) on one-off net finance items as described in Note 10, a tax credit of £0.2m (2014: £0.1m) on share-based payment charge as described in Note 34 and a tax credit of £11.8m (2014: £3.0m) on other non-recurring tax items.

 

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


Year ended

31 March 2015


(restated)

Year ended

31 March 2014


£m

%


£m

%

Profit before tax (including joint ventures)

44.0



21.5


Deduct share of results of joint ventures

(0.2)



-


Profit before tax (excluding joint ventures)

43.8



21.5


 

Taxes at applicable domestic rates

(8.3)

(19.0)%


(4.7)

(21.9)%

Effect of income that is exempt from tax

1.6

3.7%


1.8

8.4%

Effect of expenses that are not deductible in determining taxable profit

(1.5)

(3.4)%


(2.5)

(11.6)%

Effect of deferred tax recognition of losses/temporary differences

7.9

18.0%


-

-

Effect of losses/temporary differences not recognised in deferred tax

(4.5)

(10.3)%


1.6

7.4%

Effect of tax rate changes

(0.2)

(0.5)%


(0.1)

(0.5)%

Prior year items

2.3

5.3%


2.4

 11.2%

Income tax charge and effective tax rate for the year

(2.7)

(6.2)%


(1.5)

(7.0)%

 

Income tax is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 26.5% in Canada (2014: 26.5%), 36.0% in the US (2014: 38.5%), 21.0% in the UK (2014: 23.0%), 25.0% in the Netherlands (2014: 25.0%), 30.0% in Australia (2014: 30.0%) and 29.5% in Spain (2014: 30.0%).



11. Tax (continued)

 

Analysis of tax on items taken directly to equity



  Year ended

   Year ended



      31 March

       31 March



              2015

               2014


Note

                  £m

                  £m

Deferred tax (charge)/credit on cash flow hedges


(1.7)

0.8

Deferred tax credit/(charge) on share options


0.1

(0.2)

Deferred tax charge on transaction costs relating to issue of common shares

33

-

(1.1)

Total charge taken directly to equity

12

(1.6)

(0.5)





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


Note

£m

£m

£m

           £m

£m

£m

At 1 April 2013

(0.7)

(24.5)

21.6

1.9

3.0

1.3

Acquisition of subsidiaries

27

-

(3.5)

-

-

-

(3.5)

Credit/(charge) to income

0.5

10.7

(4.3)

(1.4)

(1.1)

4.4

Charge to equity

11

-

-

-

(0.3)

(0.2)

(0.5)

Exchange differences

0.2

2.4

(2.4)

0.1

0.1

0.4

At 31 March 2014

-

(14.9)

14.9

0.3

1.8

2.1

Acquisition of subsidiaries

27

-

(4.6)

-

-

-

(4.6)

Credit/(charge) to income

0.1

1.3

7.4

(0.2)

1.2

9.8

Charge to equity

11

-

-

-

(1.5)

(0.1)

(1.6)

Exchange differences

-

0.3

(0.3)

0.1

(0.1)

-

At 31 March 2015

0.1

(17.9)

22.0

(1.3)

2.8

5.7

 

The category 'Other' includes temporary differences on share options, accrued liabilities, certain asset valuation provisions, foreign exchange gains, investment in productions and investment in acquired content rights.

 

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

 



      31 March

       31 March



              2015

               2014



                  £m

                  £m

Deferred tax assets


12.6

5.3

Deferred tax liabilities


(6.9)

(3.2)

Total


5.7

2.1

 

Utilisation of deferred tax assets is dependent on the future profitability of the Group. The Group has recognised net deferred tax assets relating to tax losses and other short-term temporary differences carried forward as the Group considers that, on the basis of the most recent forecasts, there will be sufficient taxable profits in the future against which these items will be offset.

 

At the balance sheet date, the Group has unrecognised deferred tax assets of £47.7m (2014: £39.9m) 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 £13.5m (2014: £25.8m) relating to losses that will expire in the years ending 2023 to 2035.

 

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 £6.0m (2014: £3.4m). The amount of temporary differences arising in connection with interests in joint ventures was £0.5m (2014: £nil).

 

12. Deferred tax assets and liabilities (continued)

 

Reductions in the corporate income tax rate in the UK were enacted during 2013, reducing the rate from 23 per cent to 21 per cent from April 1, 2014 and 20 per cent from April 1, 2015. The 20% rate has been used in the calculation of the UK's deferred tax assets and liabilities at 31 March 2015.

 

13.  Dividends

 

On 15 May 2015 the directors declared a final dividend in respect of the financial year ended 31 March 2015 of 1.1 pence (2014: 1.0 pence) per share which will absorb an estimated £3.2m of total equity (2014: £2.9m). It will be paid on or around 10 September 2015 to shareholders who are on the register of members on 10 July 2015 (the record date). This dividend is expected to qualify as an eligible dividend for Canadian tax purposes. The dividend will be paid net of withholding tax based on the residency of the individual shareholder.

 

14.  Earnings per share

 



 

Year ended

31 March 2015

(restated)

Year ended

31 March 2014



Pence

Pence

Basic earnings per share


14.3

            7.2

Diluted earnings per share


14.1

7.1

Adjusted basic earnings per share


23.8

21.2

Adjusted diluted earnings per share


23.5

21.0

 

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 own shares held by the Employee Benefit Trust ("EBT") which are treated as cancelled (see Note 33).

 

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 own 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 charge and amortisation of acquired intangibles (net of any related tax effects).

 

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.

 

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


Year ended

31 March 2015

Million

 

Year ended

31 March 2014

Million

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

289.5

277.7

Effect of dilution:



Employee share awards

2.8

2.1

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

292.3

279.8

 

As noted above, shares held by the EBT, classified as own shares, are excluded from basic earnings per share and adjusted basic earnings per share.

 



14. Earnings per share (continued)

 

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 payment charge, 'tax, finance costs and depreciation' related to joint ventures and amortisation of acquired intangibles (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 adjusted earnings per share calculation is set out below.

 



Year ended

31 March 2015


(restated)

Year ended

31 March 2014

Note

£m

Pence per share


£m

Pence per share

Profit for the year


41.3

14.1


20.0

7.1

Add back one-off items

9

17.9

6.1


22.1

7.9

Add back amortisation of acquired intangibles

16

22.2

7.6


36.0

12.9

Add back share-based payment charge

34

3.4

1.2


2.7

1.0

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

10

1.4

0.5


(3.9)

(1.4)

Deduct tax, finance costs and depreciation related to joint ventures

29

(0.1)

-


-

-

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

11

(17.3)

(6.0)


(18.1)

(6.5)

Adjusted earnings


68.8

23.5


58.8

21.0

 

Profit before tax (IFRS measure) of £44.0m (2014: £21.5m) is reconciled to adjusted profit before tax and adjusted earnings as follows:



 

Year ended

31 March

2015

(restated)

Year ended

31 March

2014


Note

£m

£m

Profit before tax (IFRS measure)


44.0

21.5

Add back one-off items

9

17.9

22.1

Add back amortisation of acquired intangibles1

16

22.2

36.0

Add back share-based payment charge1

34

3.4

2.7

Deduct tax, finance costs and depreciation related to joint ventures

29

(0.1)

-

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

10

1.4

(3.9)

Adjusted profit before tax


88.8

78.4

Adjusted tax charge

11

(20.0)

(19.6)

Adjusted earnings


68.8

58.8

 

 

15.  Goodwill



Note

Total

£m

Cost and carrying amount




At 1 April 2013



218.5

Exchange differences



(26.6)

At 31 March 2014



191.9

Acquisition of subsidiaries


27

21.7

Exchange differences



(3.8)

At 31 March 2015



209.8

 

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.

 

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.

15. Goodwill (continued)

 

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.

 

The Group has two CGU's, being the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other groups of assets. The directors' consider the CGU's to follow the Group's segments, Film and Television. The Group acquires exclusive film and television content rights across different genres and exploits these rights on a multi-territory basis across all media channels. As a result of this global context the cash inflows are largely interrelated within the Film and Television CGUs.

 

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 2015


31 March 2014

CGU

Pre-tax discount

rate

Terminal

growth rate

Period of

specific cash

flows


Pre-tax discount

Rate

Terminal

growth rate

Period of

specific cash

flows

Film

8.7%

2.8%

5 years


11.0%

2.8%

5 years

Television

10.6%

3.0%

5 years


10.5%

3.0%

5 years

 

The calculations of the value-in-use for both 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 acquired content rights, investment in productions and growth in the relevant markets.

 

Discount rates - The post-tax discount rate is based on the Group weighted average cost of capital of 8.3% (2014: 9.5%). 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. A pre-tax discount rate is applied to calculate the net present value of the CGU as shown in the table above.

 

Terminal growth rate estimates - The terminal growth rates for Film and Television, 2.8% and 3.0% respectively (2014: Film 2.8%; Television 3.0%), are used 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:

 



31 March 2015

31 March 2014

CGU


£m

£m

Film


179.7

173.6

Television


30.1

18.3

Total


209.8

191.9

 

Sensitivity to change in assumptions

Film - The Film calculations show that there is significant headroom when compared to carrying values at 31 March 2015 and 31 March 2014. A 14 percentage point increase in the post-tax discount rate would reduce the recoverable amount to the carrying amount. Consequently the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to exceed its recoverable amount.

 

Television - The Television calculations show that there is significant headroom when compared to carrying values at 31 March 2015 and 31 March 2014. A 9 percentage point increase in the post-tax discount rate would reduce the recoverable amount to the carrying amount. Consequently the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to exceed its recoverable amount.



 

16.  Other intangible assets

 



Acquired intangibles




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 2013


102.9

34.9

27.2

41.7

15.5

7.4

229.6

Acquisition of subsidiaries

27

9.9

-

-

-

-

-

9.9

Additions


-

-

-

-

-

1.8

1.8

Exchange differences


(9.4)

(3.5)

(3.5)

 (6.9)

(1.9)

(1.4)

(26.6)

At 31 March 2014


103.4

31.4

23.7

34.8

13.6

7.8

214.7

Acquisition of subsidiaries

27

-

5.5

-

11.2

-

0.1

16.8

Additions


-

-

-

-

3.1

2.0

5.1

Exchange differences


(1.1)

(0.4)

1.1

(1.3)

-

(0.3)

(2.0)

At 31 March 2015


102.3

36.5

24.8

44.7

16.7

9.6

234.6

 

Amortisation









At 1 April 2013


(28.9)

(13.2)

(25.1)

(20.0)

(8.5)

(3.3)

(99.0)

Amortisation charge for the year

6

(12.8)

(15.1)

(0.4)

(4.0)

(3.7)

(1.2)

(37.2)

Exchange differences


2.2

2.0

3.1

3.6

1.4

0.7

13.0

At 31 March 2014


(39.5)

(26.3)

(22.4)

(20.4)

(10.8)

(3.8)

(123.2)

Amortisation charge for the year

6

(11.6)

(2.3)

(0.3)

(4.6)

(3.4)

(2.2)

(24.4)

Exchange differences


0.5

0.5

(1.1)

0.6

-

0.1

0.6

At 31 March 2015


(50.6)

(28.1)

(23.8)

(24.4)

(14.2)

(5.9)

(147.0)

Carrying amount









At 31 March 2014


63.9

5.1

1.3

14.4

2.8

4.0

91.5

At 31 March 2015


51.7

8.4

1.0

20.3

2.5

3.7

87.6

 

The amortisation charge for the year ended 31 March 2015 comprises £22.2m (2014: £36.0m) in respect of acquired intangibles.

 

17.  Investment in productions



 

Year ended

31 March 2015

(restated)

Year ended

31 March 2014


Note

£m

£m

Cost




Balance at 1 April


282.3

252.3

Acquisition of subsidiaries

27

5.8

-

Additions


103.1

75.7

Exchange differences


(5.1)

(45.7)

Balance at 31 March


386.1

282.3

Amortisation




Balance at 1 April


(223.8)

(181.9)

Amortisation charge for the year

6

(82.1)

(75.4)

Exchange differences


5.3

33.5

Balance at 31 March


(300.6)

(223.8)

Carrying amount


85.5

58.5

 

 

Borrowing costs of £2.5m (2014: £2.4m) related to Television's interim production financing have been included in the additions during the year.

 

Included within the carrying amount as at 31 March 2015 is £47.5m (2014: £17.3m) of productions in progress, which includes additions on acquisition of subsidiaries of £3.8m (2014: £nil).

 



 

18.  Property, plant and equipment

 

 

 

 


Note

Leasehold
improvements
£m

Fixtures,
fittings and
equipment
£m

Total

£m

Cost






At 1 April 2013



3.1

11.7

14.8

Additions



1.4

1.0

2.4

Disposals



(0.2)

(0.4)

(0.6)

Exchange differences



(0.4)

(1.5)

(1.9)

At 31 March 2014



3.9

10.8

14.7

Acquisition of subsidiaries


27

0.2

0.7

0.9

Additions



0.5

0.8

1.3

Disposals



-

(0.2)

(0.2)

Exchange differences



-

0.3

0.3

At 31 March 2015



4.6

12.4

17.0







Depreciation






At 1 April 2013



(1.2)

(8.3)

(9.5)

Depreciation charge for the year


6

(0.4)

(1.0)

(1.4)

Disposals



0.2

0.4

0.6

Exchange differences



0.2

0.9

1.1

At 31 March 2014



(1.2)

(8.0)

(9.2)

Depreciation charge for the year


6

(0.5)

(1.0)

(1.5)

Disposals



-

0.2

0.2

Exchange differences



-

(0.4)

(0.4)

At 31 March 2015



(1.7)

(9.2)

(10.9)

 

Carrying amount






At 31 March 2014



2.7

2.8

5.5

At 31 March 2015



2.9

3.2

6.1

 

19.  Inventories

 

Inventories at 31 March 2015 comprise finished goods of £52.0m (2014: £47.2m).

 

20.  Investment in acquired content rights

 



Year ended

31 March

Year ended

31 March



2015

2014


Note

£m

£m

Balance at 1 April


230.1

202.4

Acquisition of subsidiaries

27

3.5

-

Additions


165.2

213.6

Amortisation charge for the year 

6

(165.3)

(168.9)

Impairment charge for the year

6

(5.4)

-

Exchange differences


(7.0)

(17.0)

Balance at 31 March


221.1

230.1

 

The impairment charge recognised during the year ended 31 March 2015 of £5.4m (2014: £nil) was in respect of investment in acquired content rights previously made by the Group, as a result of a refocused US Film strategy following the acquisition of Phase 4 Films (see Note 9 for further details).

 



 

21.  Trade and other receivables

 



31 March

(restated)

31 March



2015

2014

Current

Note

£m

£m

Trade receivables


129.1

132.9

Less: provision for doubtful debts


(2.6)

(3.8)

Net trade receivables

32

126.5

129.1

Prepayments and accrued income


71.5

47.9

Other receivables


81.6

64.4

Total


279.6

241.4





Non-current




Trade receivables


24.7

8.7

Prepayments and accrued income


20.2

2.6

Other receivables


0.9

0.8

Total


45.8

12.1

 

Trade receivables are generally non-interest bearing. The average credit period taken on sales is 72 days (2014: 72 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 within current other receivables at 31 March 2015 is £57.9m (2014: £40.8m) of government assistance (in the form of Canadian and US tax credits). During the year £11.3m (2014: £9.6m) in government assistance was received which has been netted against the cost of investment in productions.

 

As at 31 March 2015 and 2014 trade receivables are aged as follows:



31 March

(restated)

31 March



2015

2014



£m

£m

Neither impaired nor past due


109.5

99.8

Less than 60 days


11.8

19.4

Between 60 and 90 days


2.0

3.2

More than 90 days


3.2

6.7

Total


126.5

129.1

 

Trade receivables that are past due and not impaired do not have a significant change in the credit quality of the counterparty. All these amounts are still considered recoverable. The Group does not hold any collateral over these balances.

 

The movements in the provision for doubtful debts in years ended 31 March 2015 and 2014 were as follows:



Year ended

31 March

Year ended

31 March



2015

2014



£m

£m

Balance at 1 April


(3.8)

(7.7)

Provision recognised in the year


(1.4)

(1.5)

Provision reversed in the year


0.3

3.0

Utilisation of provision


2.1

1.9

Exchange differences


0.2

0.5

Balance at 31 March


(2.6)

(3.8)

 

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.



21. Trade and other receivables (continued)

 

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



2015

2014



£m

£m

Less than 60 days


(0.1)

(0.1)

Between 60 and 90 days


-

(0.1)

More than 90 days


(2.5)

(3.6)

Total


(2.6)

(3.8)

 

Trade and other receivables are held in the following currencies at 31 March 2015 and 2014. Amounts held in currencies other than pounds sterling have been converted at the 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


32.8

2