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RNS
Entertainment One Ltd  -  ETO   

Full Year Results

Released 07:00 23-May-2017

RNS Number : 9064F
Entertainment One Ltd
23 May 2017
 



Entertainment One Ltd.

FULL YEAR results

for the YEAR ended 31 MARCH 2017

 

STRONG REVENUE AND PROFIT GROWTH DRIVEN BY TELEVISION AND FAMILY, WITH STABLE RESULTS FROM FILM

 

 

 

Financial Highlights

·        Group reported revenue growth +35%; full year total £1,083 million (2016: £803 million), driven by strong performance in both Television and Family and stable results in Film

·        Group reported underlying EBITDA growth +24%; full year total £160 million (2016: £129 million)

·        Group adjusted profit before tax growth +25%; full year total £130 million (2016: £104 million), Group reported profit before tax £37 million (2016: £48 million) after one-off items

·        Diluted earnings per share was 3.0 pence per share (20.0 pence per share on an adjusted basis)

·        Net debt leverage reduces from 1.4x for FY16 to 1.2x Group underlying EBITDA for FY17

·        Full year dividend of 1.3 pence (2016: 1.2 pence) declared

Operational Highlights

·        Significant progress on the reshaping of the Film business, including progress on Fox and Sony partnerships and the renegotiation of a distribution arrangement with one of our partners, with associated one-off charges during the year

·        Company structure evolving to underpin future growth with plans to combine Film and Television Divisions into a single studio operation, following establishment of a combined global sales team effective 1 April 2017

·        Independent library valuation increased to US$1.5 billion at 31 March 2016 (2015: >US$1 billion) - does not yet include benefit of FY17 performance

·        On track to double the size of the business over the five years to FY20

Post-period Highlights

·        Confirmation of a new series of Peppa Pig, with 117 episodes to air over four years from Spring 2019

·        Launch of MAKEREADY, a global content creation company with industry veteran Brad Weston

·        Appointment of Joe Sparacio as Chief Financial Officer

 

 

 

 

COMMENTING ON THE RESULTS, ALLAN LEIGHTON, CHAIRMAN, SAID:

"Entertainment One has delivered a strong trading performance for the year, with very pleasing revenue growth from Television and Family, and another year of growth in underlying EBITDA. It is particularly noteworthy that this performance includes significant organic growth and has been delivered against a backdrop of a recovering Film business after two years of market volatility. This robust set of results allows the Board to increase the dividend for the year to 1.3 pence, in line with its progressive policy."

 

Darren Throop, Chief Executive, commented:

"It has been another exciting year for the Group, and I am pleased to be reporting another strong set of financial results. The work undertaken during the year keeps us at the centre of the positive structural change ongoing in the industry, and is in line with the source, select, sell strategy which continues to serve eOne so well, underpinning our growth trajectory.

The Television and Family Divisions have performed extremely well this year, both with double-digit growth in sales and continuing to build momentum for the future. Particular highlights include The Mark Gordon Company illustrating its strength in creative content production with the success of internationally acclaimed Designated Survivor, as well as the very successful rollout of the licensing programme for newcomer PJ Masks, which supported another stellar year for Peppa Pig.

Film delivered a stable set of financial results with underlying EBITDA in line with the prior year. The continued reshaping of the Division, where initiatives undertaken included integrating our physical distribution partnerships with Fox and Sony, and the refocussing of our film distribution arrangements, has positioned us well to retain our strong position catering to a changing global film market.

The Company is in an excellent position to continue to thrive going forward. Joe Sparacio has been permanently appointed, we are focusing on ensuring the business is best placed to maximise return on investment, and our significantly increased library valuation clearly demonstrates the enduring value of premium content in a constantly-evolving entertainment market. We are on track to deliver our growth target of doubling the size of the business in the five years to FY20."



 

FINANCIAL SUMMARY


Reported


£m (unless specified)

2017

2016

Change


Revenues

1,082.7

802.7

35%


Underlying EBITDA 1

160.2

129.1

24%


Net cash from operating activities

34.0

69.3

(51%)


Investment in acquired content and productions2

407.9

218.5

87%


 


Reported

 

Adjusted

£m (unless specified)

2017

2016

Change


2017

2016

Change

Profit before tax 3

37.2

47.9

(22%)


129.9

104.1

25%

Diluted earnings per share (pence) 3

3.0

9.6

(69%)


20.0

19.4

3%

 

1  Underlying EBITDA is operating profit before one-off items, amortisation of acquired intangibles, depreciation and amortisation of software, share-based payment charge, 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.

2  Investment in acquired content and productions is the sum of "investment in productions, net of grants received" and "investment in acquired content rights", as shown in the consolidated cash flow statement.

3  Adjusted profit before tax is the reported measure before amortisation of acquired intangibles, share-based payment charge, tax, finance costs and depreciation related to joint ventures, operating one-off items and finance one-off items. Adjusted diluted earnings is adjusted for the tax effect of these items and other one-off tax items.

Group reported revenues were 35% higher at £1,082.7 million (2016: £802.7 million), driven by strong growth in Television (85% higher), Family (33% higher) and stable financial results in Film. Acquisitions completed during the year contributed £50.2 million to Group reported revenues. On a constant currency basis (re-translating prior year reported financials at current year foreign exchange rates), Group revenue growth was 20.5% higher, reflecting the impact of the weaker pound sterling against the US dollar, Canadian dollar, Australian dollar and euro during the year.

Group reported underlying EBITDA was 24% higher at £160.2 million (2016: £129.1 million), driven by strong growth in Television (60% higher), Family (28% higher) and stable financial results in Film. Television Division underlying EBITDA was higher across eOne Television (+36%), The Mark Gordon Company (+82%) and Music (+185%). The Family Division saw excellent growth driven by the continuing strong performance of Peppa Pig and a strong contribution from the initial rollout of the licensing programme for PJ Masks. Underlying EBITDA in Film was flat with a strong year for theatrical revenues offset by the expected continued decline in physical home entertainment.

On a constant currency basis, Group underlying EBITDA would have increased by 14.5%, reflecting the impact of the weaker pound sterling against the US dollar, Canadian dollar, Australian dollar and euro during the year. Acquisitions completed during the financial year contributed £1.0 million to Group underlying EBITDA.

Net cash from operating activities amounted to £34.0 million in comparison to £69.3 million, driven by higher investment in content and productions, which not only supports our current operations but also drives growth in the value of our content library. Net leverage remains low at 1.2x Group underlying EBITDA.

Adjusted profit before tax for the year was £129.9 million (2016: £104.1 million), due to the increase in underlying EBITDA, partly offset by higher interest costs. Reported profit before tax for the year was £37.2 million (2016: £47.9 million), impacted by previously announced one-off charges mainly in relation to the reshaping of the Film business and higher amortisation of acquired intangibles, partly offset by lower one-off finance costs.

Adjusted diluted earnings per share were 20.0 pence (2016: 19.4 pence). On a reported basis, diluted earnings per share were 3.0 pence (2016: 9.6 pence), impacted by higher one-off charges and amortisation of acquired intangibles from the full year impact of prior year acquisitions.

 



 

STRATEGY

The growth in the market for content rights is underpinned by changes in the way content is being consumed. Entertainment One's strategy to focus on growth through content ownership puts it at the centre of this positive structural change.

Business model

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

Source: Developing relationships with the best creative talent in the film and television industries by being their partner of choice, reflecting the quality of our people and our global distribution capabilities

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

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

The Board continues to see significant opportunity for further growth and to target doubling the size of the business over the five years to FY20 through its strategy of:

-       Developing more relationships and partnerships with top producers and talent to increase the volume and quality of production and content ownership

-       Building the world's leading independent content rights sales business to maximise the return on investment

The strategy focuses on building a more balanced content and brand business which will see strong revenue and EBITDA growth in Television and Family, while Film continues to focus on delivering an improving investment return through a consistently high-quality release slate and further efficiency savings.

Operationally, as well as developing a digital future across the Group, the strategy targets our Divisions to deliver specific drivers of growth:

Television: Building a global production and content business and a world-class television sales network

Family: Creating everlasting childhood memories for our audience by carefully selecting, crafting and nurturing the very best content into global brands

Film: Developing partnerships with premium film-makers and maximising scale and efficiency in independent film distribution

As well as having delivered strong operational and financial results, the Group continues to deliver strong progress against the strategy, including:

·      Positioning the organisation for growth with the creation of a new global Film and Television sales team and planned integration of the Film and Television Divisions into a combined studio - consistent with this, the Group is considering how best to report the combined operations on a go-forward basis

·      Delivering a significant increase in the independent FY16 valuation of the Group's content library to US$1.5 billion (2015: >US$1 billion), demonstrating the enduring value of premium content in a constantly-evolving entertainment market, not yet reflecting the contribution from a strong FY17

·      Completing another successful year under The Mark Gordon Company's independent studio model with underlying EBITDA higher by 82% and Designated Survivor recently announced for a second season and multiple projects in development

·      Ongoing delivery of season 4 of Peppa Pig and an additional 117 episodes of Peppa Pig going into production to ensure a continuous flow of new programming content to support the longevity of the brand from a licensing perspective

·      Reporting strong results from Peppa Pig in strategically important markets (maturing into an evergreen property), with further growth opportunities in the US, China, South East Asia, France and Canada

·      Following a successful broadcast launch for PJ Masks with a very well received licensing programme (initially in the US, with further international expansion in the coming year), with season two in production and season three already in development

·      Moving into production on two further Family properties (Ricky Zoom and Cupcake and Dino: General Services), with a development pipeline focusing on brands with truly global, long-lasting potential

·      Announcing new ventures with top creative talent, including the launch of MAKEREADY with Brad Weston

·      Continued reshaping of the Film Division through our physical distribution partnerships with Fox and Sony, allowing eOne to exit its own physical distribution activities, and focus on digital exploitation

·      Continuing realignment of our film slate, including the renegotiation of a larger distribution arrangement

·      Announcement of a new multi-year film and television partnership with Megan Ellison's Annapurna Pictures

·      Bringing Secret Location fully in-house to focus on innovation and content for emerging platforms

FY18 OUTLOOK

The Divisional Operational and Financial Reviews below include further details on the Company's strategy and progress made during the financial year.

In summary:

The Television Division is expected to see continued organic growth for FY18, with investment in acquired content for eOne Television expected to increase to over £40 million and production spend expected to grow to over £170 million. Investment in productions for The Mark Gordon Company is expected to decrease to around £80 million.

Peppa Pig and PJ Masks to continue to be the drivers of growth for the Family business in FY18. Revenue and EBITDA are expected to grow significantly, but underlying EBITDA margins for Family are anticipated to decline in percentage terms, a mix effect caused by the increased contribution from PJ Masks which accrues a higher level of third party participation royalties than Peppa Pig, as well as an increased investment in overhead of around £2 million necessary to grow the sales platform in our various territories.

The Group to continue to reshape the Film business over the coming years as it adapts to the changing global film market. eOne to focus on continued access to high quality premium content and on building deep partnerships with high quality film producers where eOne has more control over the content. Investment in acquired content is expected to increase to £150 million. Investment in productions is expected to be higher than the current year at over £50 million. As part of this programme, eOne to focus on producing and sourcing a reduced slate of premium films, with rights controlled on a global basis.

From an efficiency perspective, the Group to continue to review opportunities to streamline its operations. The combined global sales team is expected to lead to a more focused approach to the sale of television and film content in windows outside of theatrical release, while creation of a combined Film and Television studio operation will also provide opportunities to create more efficient functions across both front and back offices.

DIVISIONAL OPERATIONAL & FINANCIAL REVIEW

Television

The Television Division comprises eOne Television, The Mark Gordon Company and the Group's Music operation. It also incorporates the operations of Secret Location, the Group's digital content studio, which has been under full ownership since the Group acquired the remaining 50% stake in the business in August 2016. The Division's focus is on the development and production of high quality television programming and the acquisition of the best third party television content rights, for sale to broadcasters and digital platforms globally.

£m


2017

2016

Change

Revenue


452.7

244.7

85%

Underlying EBITDA


62.8

39.2

60%

Investment in acquired content


37.3

21.6

73%

Investment in productions


222.9

80.9

176%

 

Revenues for the year were 85% higher at £452.7 million (2016: £244.7 million), driven by new production revenue in The Mark Gordon Company, continued growth in eOne Television and the full year impact of the prior year acquisitions of Renegade 83, Dualtone Music Group and Last Gang Entertainment. Television revenue is calculated net of intra-segment eliminations of £49.5 million between eOne Television, The Mark Gordon Company and Music. The financial tables below are presented gross of eliminations, in line with eOne's management of the business.

Underlying EBITDA increased by 60% to £62.8 million (2016: £39.2 million), driven by higher revenues. Underlying EBITDA margin decreased by 2.1pts to 13.9% (2016: 16.0%), driven by changes in the mix of revenues.

 



 

eOne Television

£m


2017

2016

Change

Revenue


328.2

187.9

75%

Underlying EBITDA


30.9

22.8

36%

Investment in acquired content

34.1

18.5

84%

Investment in productions


121.4

73.3

66%

Revenues for the year increased 75% to £328.2 million (2016: £187.9 million), driven by higher global sales of content, international distribution sales for productions delivered by The Mark Gordon Company and the full year impact of the Renegade 83 acquisition. Underlying EBITDA increased by 36% to £30.9 million (2016: £22.8 million), driven by revenue growth. The underlying EBITDA margin percentage was lower than the prior year due to a stronger performance from lower risk/lower margin acquired content shows and higher budgets on own-produced shows.

Investment in acquired content and productions was higher than prior year at £155.5 million (2016: £91.8 million), driven by the impact of the Renegade 83 acquisition, increased budgets on own-produced shows and increased investment in AMC/Sundance shows. 1,023 half hours of new programming were produced/acquired in the year compared to 998 half hours in the prior year, with an increased mix of higher revenue shows. The business continues to maintain a steady pipeline of productions as new show commissions replace long-running series that have come to an end.

Key scripted deliveries included seasons one and two of Private Eyes, which was the number one drama in Canada for the first episode premiere night, season one of Ice and Cardinal, season four of Rogue, season five of Saving Hope, and season two of You Me Her. Other deliveries in the financial year included Ransom and Mary Kills People.

Key content acquisitions for the year included season two of Fear the Walking Dead with The Walking Dead maintaining its high viewership and ratings. AMC titles Halt and Catch Fire, Turn, Hap & Leonard and Into the Badlands continued to support revenues. International sales for Designated Survivor were very strong, including a worldwide streaming rights deal with Netflix outside North America, and are expected to continue to grow over time.

The unscripted business included the impact of the Renegade 83 acquisition with deliveries of Naked and Afraid and Naked and Afraid XL which is Discovery's number one Sunday night show. The US reality business delivered fewer shows after a very strong FY16; Growing Up Hip Hop continues to perform well and the new financial year has started strongly.

During the year, the Paperny Entertainment and Force Four Entertainment businesses in Vancouver were amalgamated and now operate as one Canadian unscripted business to take advantage of synergies whilst continuing to support eOne Television's goal of building a world-class portfolio of content across all genres for global exploitation. This amalgamation led to one-off charges of £2.6 million in the year, with annualised overhead savings of £1.1 million expected to be achieved going forward.

2018 Outlook for eOne Television

eOne Television is expected to see continued organic growth for FY18.

The new financial year will see a number of current scripted shows going into second seasons including Ice, Cardinal and Private Eyes, season three of You Me Her and a number of new series including The Detail, Burden of Proof and a number of other shows waiting to be greenlit. Production has commenced on Sharp Objects, starring Amy Adams, while the US unscripted pipeline is expected to grow significantly in the new financial year.

For third party global sales, AMC titles including Halt & Catch Fire, Turn, Hap & Leonard and Into the Badlands will continue into new seasons. International sales for Fear the Walking Dead and The Walking Dead are expected to continue at their existing robust levels, and sales on titles from The Mark Gordon Company are expected to increase year-on-year.

The number of half hours of programming expected to be acquired/produced next year is expected to be around 1,000, with over 60% of the new financial year's budget by value already committed or greenlit. Investment in acquired content is expected to increase to over £40 million and production spend is expected to grow to over £170 million.

Secret Location, eOne's digital studio, currently has a number of projects for different platforms underway, focusing on the fast-growing virtual reality industry. VUSR, a virtual reality content distribution platform, its biggest project in development, has already seen commitments from a number of large media companies including Amazon, The New York Times, CBC and Frontline. Although still in its early stages, the business has received a number of accolades for its innovation in the digital and virtual reality arena including a Peabody Award in conjunction with Frontline for Ebola Outbreak: A 360 Virtual Journey, two Webby awards for "Best Use of Interactive Video" and "VR: Cinematic or Pre-Rendered", and has been nominated for numerous other industry awards.

To fully leverage eOne's scale in the market and to meet the needs of its partners and customers, the TV sales force for eOne Television and Film has been combined into a global sales team from 1 April 2017. This is expected to lead to a more streamlined approach to the sale of television and film content in windows outside of theatrical release. We expect this change in structure to yield increased revenue and profitability benefits from FY18 onwards.



 

The MArK Gordon company (MGC)

£m


2017

2016

Change

Revenue


119.9

 14.6

721%

Underlying EBITDA


26.2

14.4

82%

Investment in productions


101.5

 7.6

1236%

Revenues for the year were up 721% to £119.9 million (2016: £14.6 million), driven by deliveries of the two productions under the new independent studio model, Designated Survivor, ordered for a second season, and Conviction. Underlying EBITDA increased 82% to £26.2 million (2016: £14.4 million). Underlying profitability in the prior year benefitted by £3.5 million relating to the 2015 financial year, following the full consolidation of MGC in May 2015 and its alignment with Group accounting policies. On a like-for-like basis, underlying EBITDA for MGC was £15.3 million or 140% higher.

Investment in productions increased to £101.5 million (2016: £7.6 million) driven by investment in Designated Survivor, Conviction and Molly's Game. Consistent with all eOne Group television productions, the amount of investment in production does not represent the Group's investment capital at risk, as the significant majority of production investment risk is mitigated through commitments received prior to greenlighting from commissioning broadcasters and government subsidies to reduce the Group's exposure to around 15%-20% of the investment in production budget.

MGC has seen an increase in revenue growth year-on-year, mainly driven by delivery of Designated Survivor and Conviction. 56 half hours of programming were delivered during the year, including 13 episodes of Conviction and 15 episodes of Designated Survivor (from a total of 21 episodes for season one). Designated Survivor premiered strongly on ABC and continues to be one of the broadcaster's most watched dramas amongst its target demographics, beating other fan-favourites like Grey's Anatomy and Once Upon a Time. So far, in its first season it has been recognised as TV Guide's "Most Exciting TV Series" and the Critics' Choice "Most Exciting New Series" and has been nominated for the People's Choice "Favourite New TV Drama" and "Favourite Actor in a TV Series".

The studio continues to benefit from its library of television and film titles, with relatively high margins favourably contributing to the bottom line and cash generation. In addition, MGC currently has five series airing on both US network and premium cable, all with continued strong viewership including Criminal Minds (now in season twelve and renewed for season thirteen), Criminal Minds: Beyond Borders (now in season two), Grey's Anatomy (now in season thirteen and renewed for season fourteen), Ray Donovan (now in season four and renewed for season five), and Quantico (now in season two renewed for season three), as well as three film projects where producer fees are earned.

2018 Outlook for MGC

The Mark Gordon Company independent studio model will continue to ramp-up and gain traction. The strong ratings for Designated Survivor have resulted in the recent announcement of a renewal for a second season of the show with ABC. In addition to existing TV programmes, The Mark Gordon Company has numerous television and film projects under development including a pilot already ordered by Amazon, with production set to start early in FY18. Film projects include Molly's Game, The Nutcracker and the Four Realms and Murder on the Orient Express which have all completed principal photography, and a number of other titles are in various stages of development and pre-production including Chronicles of Narnia: The Silver Chair, The Killer, All the Old Knives and Arc of Justice.

Over 80% of the new financial year's budget by value is already greenlit/contracted. Investment in productions in FY18 is expected to decrease to around £80 million. Half hours delivered are anticipated to increase to around 75 based on the current business plan for FY18.

Music

£m


2017

2016

Change

Revenue


54.1

42.2

28%

Underlying EBITDA


5.7

2.0

185%

Investment in acquired content

3.2

3.1

3%

Revenues for the year increased by 28% to £54.1 million (2016: £42.2 million), driven by a strong Urban release slate and the full year impact of the acquisitions of Dualtone Music Group and Last Gang Entertainment. Underlying EBITDA increased 185% to £5.7 million (2016: £2.0 million) and EBITDA margin increased by 6pts, driven by an increasing mix of higher margin digital revenues and cost savings in the business.

The physical distribution business has experienced an expected decline driven by the changing market, as consumer appetite shifts from physical to digital media. To address this dynamic, eOne has concluded a multi-year distribution partnership with ADA, a member of Warner Music Group, which will handle all physical sales and distribution in the US and Canada for Music. This has allowed the Music business to exit its own US distribution facility and focus on higher margin digital distribution. The Group's independent label experienced year-on-year growth from its Urban releases and library catalogue. Dualtone Music Group, acquired in FY16, released Cleopatra, the highly anticipated second album from The Lumineers, which reached number one on the US Billboard 200 within a week of its release and made a significant revenue contribution.

During the year, Music also entered into a venture with Nerve and Hardlivings, the artist management company behind British dance music successes Riton, TIEKS and Jax Jones. Since its release in December 2016, You Don't Know Me, by Jax Jones, has sold nearly two million copies worldwide, reached number three on the UK official charts and been streamed more than 150 million times on Spotify, demonstrating Music's developing international artist management capabilities.

The number of albums released in the year was higher at 79, versus 64 in the prior year, and digital singles released increased to 206, compared to 108 in the prior year, mainly driven by full year impact of the acquisitions of Dualtone Music Group and Last Gang Entertainment.

2018 Outlook for Music

Music will continue to build on its existing label business by investing in profitable content and improving margins through cost savings and a continued transition to higher margin digital revenues. The Group will continue to develop the initiatives launched in the current financial year to reposition eOne Music as a worldwide brand and to grow the music publishing business.

As a result, the Group expects to see continued improvement in the profitability of the Music business from FY18 onwards.

Family

The Family business develops, produces and distributes a portfolio of children's properties on a worldwide basis, the principal brand being Peppa Pig, with much of its revenue generated through licensing and merchandising programmes across multiple retail categories. In addition to managing the growth of Peppa Pig, the Family business also manages and distributes a balanced portfolio of complementary family brands including the new property PJ Masks.

£m


2017

2016

Change

Revenue


88.6

66.6

33%

Underlying EBITDA


55.6

43.3

28%

Investment in acquired content

0.9

1.6

(44%)

Investment in productions


4.2

4.2

0%

Revenues for the year were up 33% to £88.6 million (2016: £66.6 million), driven by the continuing strong performance of Peppa Pig, accelerated growth from new property PJ Masks and contributions from other properties including delivery of Winston Steinburger and Sir Dudley Ding Dong.

Underlying EBITDA increased 28% to £55.6 million (2016: £43.3 million), driven by increased revenues. The underlying EBITDA margin was marginally lower reflecting the revenue mix from different properties.

Investment in acquired content and productions of £5.1 million (2015: £5.8 million) was broadly in line with prior year. Investment spend in the year included season four of Peppa Pig, season two of PJ Masks and new productions Winston Steinburger and Sir Dudley Ding Dong and Cupcake & Dino: General Services.

The Family business continued to perform strongly with the ongoing success of Peppa Pig and growing portfolio of brands including  PJ Masks which has delivered a hugely successful first season. The business generated US$1.5 billion of retail sales in FY17 (over 25% higher than FY16) and almost 800 new and renewed broadcast and licensing agreements were concluded in the year. The business ended the year with almost 1,100 live licensing and merchandising contracts across its portfolio of brands, an increase of 28% from prior year.

Peppa Pig continued to grow with total retail sales of US$1.2 billion (2016: US$1.1 billion) and licensing and merchandising revenue of £45.7 million (2016: £39.4 million). It remains one of the leading pre-school brands in key territories such as the US and the UK. The financial performance in the year was driven by the growth in the US where licensing and merchandising revenue increased by over 170%, following the successful wide licensing programme launch before the Christmas period, which now makes the US the number one licensing territory for Peppa Pig. The brand remains a top brand in toddler apparel at Target and Kohls with strong sell-through across the toys and clothing ranges at Walmart. This success is backed up by strong broadcast support from Nick Jr, where it remains a top-rated show on the channel for children between 2-5 years old.

Since debuting in 2016 in China, the second largest licensing market globally after the US, Peppa Pig's licensing and merchandising revenue has increased significantly year-on-year. The brand has solidified its position and reputation in the region and was recently awarded "Best New Property" at the prestigious Asia Licensing Awards in January 2017. Peppa Pig resonates well on traditional broadcast television as well as local on-demand platforms; surpassing 24 billion views across a roster of on-demand platforms that includes iQiyi, Youku, Tencent and LeEco since launch. This continued growth in China and across South East Asia remains a key growth driver for the brand.

In the UK, the property is still considered to be an "evergreen" brand amongst retailers and ratings on Nick Jr and Five remain strong, with the territory remaining a key market for Peppa Pig. The UK is a mature market along with other territories such as Australia, Italy and Spain where the aim is to maintain a market-leading position and generate steady revenues. The continued roll-out of Peppa Pig into emerging territories such as France, Russia and Latin America are showing positive results with Peppa Pig maintaining its position as the top-rated programme on state broadcasters France 4 and France 5.

PJ Masks has been a key driver of revenue growth for the business in FY17 with revenue increasing over 500% year-on-year from £2.2 million to £13.5 million. After the US broadcast launch of PJ Masks in September 2015, season one (52 episodes) has now been broadcast in over 85 territories across the global Disney Junior network and France TV in France to excellent ratings. The programme was viewed by more than 32 million individuals on Disney Junior in the first calendar quarter of 2017 alone.

The licensing programme for the brand started in September 2016 in the US as a Toys R Us exclusive and widened to other retailers in late December 2016 due to strong demand and positive retail feedback. Following the successful US rollout, the licensing programme continued to expand to the UK, France and Spain in February 2017 and, building on this momentum, agents are being signed across Europe, China, Latin America and Russia. Driven by positive television ratings and a strong licensing programme, physical home entertainment and digital revenue has also grown year-on-year and this growth is expected to continue as new seasons of programming are broadcast.

Following the success of the first season of PJ Masks, a second season has been greenlit and is currently in production with delivery expected to commence in FY19, and season three is also in development.

The business continues to build on and expand its current portfolio of brands by forming relationships with creative partners and exploring different platforms through which it can monetise its brands. Production on Winston Steinburger and Sir Dudley Ding Dong was completed during the year and broadcast on Teletoon in Canada and ABC in Australia, with TV rights already sold in a number EMEA countries.

The Group is also in production on a number of other properties, including: Ricky Zoom, a preschool vehicle-based series of 52 episodes from the same creative team as hit series PJ Masks with major broadcasters attached in France, Italy, and Latin America and a master toy arrangement currently in the final stages of negotiation; and Cupcake & Dino: General Services, a high profile 52 episodes comedy series which is in full production with a global subscription video on demand platform and major Canadian and Latin American channels committed. Family's ground-breaking theatrical title Peppa Pig: My First Cinema Experience featuring new interstitial content and never-before-seen episodes from season four was released widely in the UK and Australia in April 2017, taking almost £3.5 million at the UK box office to-date.

The business is continuing to explore and is seeing growth potential in other platforms including mobile applications, live shows and experiential events to engage the consumer in new ways.

2018 Outlook for Family

Peppa Pig and PJ Masks will continue to be the drivers of growth for the Family business in FY18.

Family continues to focus on building Peppa Pig into the most loved pre-school brand in the world. The US, China, South East Asia, Canada and France are expected to be the main growth territories in FY18, with a stable level of revenue generated from more mature markets such as the UK and Australia. China is expected to grow from 20 licensing agreements in FY17 to 60 by the end of FY18, thanks to the strong foundation built by exposure on broadcast and on-demand platforms.

Production has continued on season four of Peppa Pig, with an additional 117 episodes now confirmed for production, to ensure a continuous flow of new programming content to support the longevity of the brand from a licensing perspective.

PJ Masks will build upon the success of the current year with sustained growth expected in the US and the full international roll-out of the brand expected to be completed by the end of FY18. The brand is generating significant interest in China and deals with prime partners for both broadcast and licensing are close to conclusion.

The business is expected to generate strong revenue and EBITDA growth across the portfolio in FY18. It is also expected that underlying EBITDA margins will decline somewhat in percentage terms driven by the growth of PJ Masks as a proportion of total sales and increased overhead costs of around £2 million necessary to facilitate growth.

Film

eOne's Global Film Group is one of the largest independent film businesses in the world with operations in the US, the UK, Canada, Spain, the Benelux, Australia and New Zealand, and, together with its global digital rights business, focuses on production and sales of film content worldwide.

£m

2017

2016

Change

Revenue

594.2

553.4

7%

Theatrical

97.2

64.9

50%

Home entertainment

149.3

192.4

(22%)

Broadcast and digital

189.4

189.1

0%

Production and international sales

108.0

60.4

79%

Other

54.5

48.5

12%

Eliminations

(4.2)

(1.9)

121%

Underlying EBITDA

52.7

52.8

(0%)

Investment in acquired content

143.2

98.3

46%

Investment in productions

(0.6)

11.9

(105%)

 

Revenues increased by 7% to £594.2 million (2016: £553.4 million), driven by higher production and international sales revenues, as well as double-digit growth in theatrical revenues. This was partly offset by lower home entertainment revenues which showed the same level of decline as the prior year, a reduction of some 22%.

Underlying EBITDA was stable year-on-year, with the underlying EBITDA margin decreasing by 0.6pts to 8.9% (2016: 9.5%) due to the higher contribution from the Sierra production and international sales business, which has lower margins.

Investment in acquired content and productions was higher by £32.4 million at £142.6 million (2016: £110.2 million), driven by the higher-profile theatrical releases in the current year.

Theatrical

Overall theatrical revenues grew by 50% versus prior year, reflecting a much stronger box office performance, where box office takings increased 30% to US$337 million (2016: US$259 million). This increase was driven by a strong content release slate with several high-profile releases, which more than offset the reduction in volume of releases year-on-year (172 compared to 210 in 2016). The number of unique theatrical releases was 102 compared to 125 in 2016.

The FY17 release slate included key releases in both the first and the second half of the year such as The BFG and The Girl on the Train, which grossed over £31 million and £24 million, respectively, at the UK box office. These highly successful titles come from the Company's relationship with Amblin Partners. Other key releases included La La Land which won six Oscars®, Arrival which also won an Oscar®, Eye in the Sky, Now You See Me 2, Bad Moms, Woody Allen's Café Society, Light Between the Oceans, Lion, Jackie, Denial and 20th Century Women.

Home entertainment

Revenues decreased by 22% driven by the continued shift from physical to digital formats, as well as the lower number of releases and reduced catalogue sales from weaker FY15 and FY16 slates.

The transition to eOne's new partnerships with 20th Century Fox Home Entertainment, on a multi-territory basis, and Sony Pictures Home Entertainment, in the US, for the physical home entertainment marketplace progressed during the year with associated cost savings starting to be recognised.

Overall, 366 DVDs and Blu-rays were released during the year (2016: 569), including key titles such as The BFG, The Girl on the Train, Spotlight, The Divergent Series: Allegiant Part 1, The Walking Dead Season 6, Arrival and Now You See Me 2.

Broadcast and digital

The Group's combined broadcast and digital revenues were in line with the prior year. Key broadcast/digital titles in the year included The BFG, The Walking Dead Season 6, The Girl on the Train, The Hateful Eight, The Last Witch Hunter and The Hunger Games: Mockingjay Part 2.

During the year, the Group renewed its deal with Amazon Instant Video in the UK, giving Amazon Prime members exclusive access to all eOne new releases from its future film slate. In addition, the Group negotiated a deal with Netflix for temporary download rights on existing contracts in the UK and a library deal was signed with AMC.

New deals in Canada included an exclusive deal with Netflix for the worldwide SVOD rights for Trailer Park Boys Season 2, whilst in Spain an SVOD deal has been agreed with HBO and an output deal agree with Movistar+. In Australia, a new SVOD deal was signed with Netflix.



 

Production and international sales

Revenues increased by 79% to £108.0 million (2016: £60.4 million). This increase is primarily due to the full year impact of the strategic investment in Sierra Pictures in FY16 and the buy-out of Sierra Affinity in the current year.

Sierra Pictures delivered Atomic Blonde and The Lost City of Z in the financial year and significant international sales included Gold, The Zookeeper's Wife and Manchester by the Sea (winner of the Best Original Screenplay Oscar® and the Best Performance by an Actor in a Leading Role Oscar®).

During the year, eOne delivered David Brent; Life on the Road, written by Ricky Gervais, which was released theatrically in the UK and Australia by eOne with the remaining worldwide rights sold to Netflix.

2018 Outlook for Film

The Group will continue to reshape Film activities over the coming years as it adapts to the changing global film market. eOne will focus on continued access to high quality premium content and on building deep partnerships with high quality film producers where eOne has more ownership and control over the content.

As part of this programme, eOne will focus on acquiring and producing a reduced slate with fewer and larger films, where the Company has a greater level of control with consistent financial risk, including the recent Annapurna Pictures and MAKEREADY deals. Following year end the business renegotiated a distribution arrangement with one of its partners, leading to a significant one-off charge accrued in the year, which it expects will improve profitability and cash flow going forward.

From an efficiency perspective, the Film business will continue to streamline its operations. This is already in progress for the home entertainment operation where the partnerships with 20th Century Fox Home Entertainment and Sony Pictures Home Entertainment ensure the Group remains best-positioned to compete in the physical home entertainment marketplace as it transitions from physical to digital.

Additionally, the Film business will benefit from the new combined global TV sales team that has been in place since 1 April 2017, while creation of a combined Film and Television studio operation will also provide opportunities for efficiencies.

In FY18 we anticipate 200 film releases in total across all territories, of which 100 are expected to be unique titles. Investment in acquired content is expected to be slightly higher around £150 million. The pipeline for the year includes Luc Besson's Valerian and the City of a Thousand Planets, Steven Spielberg's The Post starring Tom Hanks and Meryl Streep (from Amblin Partners), the Aaron Sorkin written and directed Molly's Game starring Jessica Chastain and Idris Elba and produced through The Mark Gordon Company, and George Clooney's Suburbicon. Investment in productions is expected to be higher than the current year at over £50 million.

 



 

OTHER FINANCIAL INFORMATION

Adjusted operating profit increased by 25% to £155.3 million (2016: £124.7 million), reflecting the growth in the Group's underlying EBITDA. Adjusted profit before tax increased by 25% to £129.9 million (2016: £104.1 million), in line with increased adjusted operating profit, partly offset by higher underlying finance charges reflecting higher interest rates following the re-financing in December 2015. Reported operating profit decreased by 18% to £61.3 million, with the Group reporting a profit before tax of £37.2 million (2016: £47.9 million), impacted by significant one-off charges and higher amortisation of acquired intangibles.


Reported

 

Adjusted

Group

2017

£m

2016

£m

 

2017

£m

2016

£m

Revenue

1,082.7

802.7


1,082.7

802.7

Underlying EBITDA

160.2

129.1


160.2

129.1

Amortisation of acquired intangibles

(41.9)

(27.4)


-

-

Depreciation and amortisation of software

(4.9)

(4.4)


(4.9)

(4.4)

Share-based payment charge

(5.0)

(4.1)


-

-

Tax, finance costs and depreciation related to joint ventures

-

(1.6)


-

-

One-off items

(47.1)

(16.6)


-

-

Operating profit¹

61.3

75.0


155.3

124.7

Net finance costs

(24.1)

(27.1)


(25.4)

(20.6)

Profit before tax

37.2

47.9


129.9

104.1

Tax2

(12.3)

(7.7)


(27.1)

(24.5)

Profit for the year

24.9

40.2


102.8

79.6

1. Adjusted operating profit excludes amortisation of acquired intangibles, share-based payment charge, tax, finance costs and depreciation related to joint ventures and operating one-off items and one-off items relating to the Group's financing arrangements.

2. The Group calculates the effective tax rate after adjusting for the share of results of joint ventures of £0.7 million loss (2016: £3.4 million profit). The Group calculates the adjusted effective tax rate after adjusting for the pre-tax share of results of joint ventures of £0.7 million loss (2016: £5.0 million gain) and the related underlying income tax charge of nil (2016: £2.1 million credit, excluding tax one-off credits of £0.5 million credit).

 

JOINT VENTURES

Underlying EBITDA includes a £0.7 million loss related to the Secret Location joint venture. On 15 August 2016 the Group purchased the remaining 50% share in Secret Location. Following completion, Secret Location has become a wholly-owned subsidiary of the Company and its financial statements have been fully consolidated into the Group's consolidated financial statements.

Amortisation of acquired intangibles

Amortisation of acquired intangibles increased by £14.5 million to £41.9 million reflecting the full year impact of the acquisitions completed during FY16, which included The Mark Gordon Company, Astley Baker Davies Limited, Sierra Pictures, Renegade 83, Dualtone Music Group, Last Gang Entertainment and Amblin Partners.

Depreciation & capital expenditure

Depreciation, which includes the amortisation of software, has increased by £0.5 million to £4.9 million, reflecting the higher level of capital expenditure in the prior year from the consolidation of the Group's Toronto offices.

Capital expenditure on property, plant and equipment and software decreased £4.5 million to £3.2 million (2016: £7.7 million) (excluding Production capital expenditure of £0.3 million (2016: £0.9 million)). The unusually high capital expenditure in the prior year primarily reflected the move to a new office location in Toronto in September 2015.

Share-based payment charge

The share-based payment charge of £5.0 million has increased by £0.9 million during the year, reflecting additional awards issued, including the first award under the Group's Sharesave Scheme, which is open to all employees and encourages employees share ownership.

One-off items

During the year ended 31 March 2017 the Group continued to restructure the physical distribution business through the closure of a number of distribution warehouses, primarily in Port Washington and Brampton, as well as terminating distribution agreements with partners in the UK and the Benelux. Costs incurred in implementing this change included £10.1 million relating to the ramp-down of these facilities and £3.5 million of costs for onerous rental leases on various properties. As a result, the Group reassessed the carrying value of certain balance sheet items, particularly physical inventory and tangible fixed assets. This review involved, amongst other items, reassessing the titles where the profile of the revenues was judged no longer appropriate given the strategic change. As a result of this review, £5.9 million of inventory and £0.9 million of property, plant and equipment was written off.  Other costs of £1.6 million include settlement costs with local physical distribution partners.

There were additional costs driven by the continuing industry shift from physical to digital content, which resulted in the closure of major customer HMV Canada in early 2017. Due to the resulting reduction in shelf-space the Group reduced its sales projections for the physical distribution unit and recorded a one-off charge of £1.2 million to write down certain physical inventory titles. In addition, a £1.0 million one-off bad debt expense was recorded.

In January 2017, the Group announced that it would be integrating the Paperny Entertainment and Force Four Entertainment businesses in Vancouver into one Canadian unscripted business and this amalgamation was completed 1 April 2017. Costs of £2.6 million were incurred to facilitate the amalgamation of these two businesses, including staff and other transition-related payments. Other restructuring costs during the year totalled £1.4 million.

The initiatives implemented during the year highlighted above, largely in relation to the restructuring of the Group's physical distribution business, resulted in one-off charges totalling £28.2 million and are expected to deliver annual cost savings of greater than £10 million from FY18.

As part of the previously announced wider reshaping of the Film Division, the Group has re-negotiated one of its larger film distribution arrangements. The previous arrangement has been terminated and replaced with a new distribution arrangement and, associated with the termination the Company has made a one-time payment of £20.1 million (US$25 million). Management expects underlying profitability and cash flow to improve for films delivered under the new distribution arrangement. Further, an impairment charge of £2.2 million was recognised relating to the write-off of unamortised signing-on fees relating to the existing agreements, previously capitalised within investment in content, and £0.5 million relating to the release of other related balance sheet items. In total, one-off charges of £22.8 million were incurred in relation to the re-negotiation of these arrangements and associated impacts.

Acquisition gains of £6.4 million include a £2.3 million credit related to the acquisition accounting for the purchase of the remaining 50% stake in Secret Location and a further credit of £4.0 million resulted from the re-assessment of contingent consideration in relation to prior year acquisitions.

Other corporate project costs of £1.7 million relate to a one-off foreign exchange charge relating to the alignment of the TV business with the Group hedging process.

£0.8 million other one-off costs relate to costs associated with aborted corporate projects during the year.

Net finance costs

Reported net finance costs decreased by £3.0 million to £24.1 million due to one-off net finance credits. The one-off net finance credits of £1.3 million comprise credits of £3.8 million credit relating to the release of interest previously charged on a tax provision which has been reversed during the year and a £1.2 million fair-value gain on hedge contracts which reverses in April 2017. The credits were partially offset by the charges of £2.9 million unwind of discounting on liabilities relating to put options issued by the Group over the non-controlling interest of subsidiary companies and £0.8 million of costs due to an increase on interest on tax provisions for the Group. Adjusted finance charges at £25.4 million were £4.8 million higher in the current year, reflecting higher average debt levels year-on-year and higher interest rates following the Group's re-financing in December 2015. The weighted average interest rate for the Group's financing was 6.9% compared to 5.6% in the prior year.

Tax

On a reported basis the Group's tax charge of £12.3 million (2016: £7.7 million), which includes the impact of one-off items, represents an effective rate of 32.5% compared to 17.3% in the prior year. On an adjusted basis, the effective rate is lower than prior year at 20.7% (2016: 22.6%), mainly due to a change in the mix of profits. The FY18 effective tax rate on an adjusted basis is expected to be approximately 22%.



 

CASH FLOW & NET DEBT

The table below reconciles cash flows associated with the adjusted net debt of the Group, which excludes cash flows associated with production activities which are reconciled in the Production Financing section below.


2017



2016

£m (unless specified)

Television

 Family

Film

Centre

Total


Television

Family

Film

Centre

Total

Underlying EBITDA

56.2

55.6

52.1

(10.9)

153.0


32.0

43.6

51.8

(6.2)

121.2

Amort'n of acquired content rights

36.4

0.5

131.4

-

168.3


27.0

0.1

119.9

-

147.0

Purchase of acquired content rights

(37.3)

(0.9)

(143.2)

-

(181.4)


(21.5)

(1.6)

(98.3)

-

(121.4)

Amort'n of investment in productions

30.9

1.3

0.6

-

32.8


-

1.1

(4.4)

-

(3.3)

Purchase of productions, net of grants

(31.2)

(2.8)

(0.2)

-

(34.2)


(7.7)

(2.7)

1.2

-

(9.2)

Working capital

(7.6)

(3.3)

(48.1)

-

(59.0)


(15.6)

(13.3)

(25.3)

-

(54.2)

Joint venture movements

0.6

-

-

-

0.6


(4.5)

-

-

-

(4.5)

Adjusted cash flow

48.0

50.4

(7.4)

(10.9)

80.1


9.7

27.2

44.9

(6.2)

75.6

Cash conversion (%)

85%

91%

(14%)

-

52%


30%

62%

87%

-

62%

Capital expenditure

Tax paid

(3.2)


(7.7)

(16.2)

(14.4)

Net interest paid

(24.2)


(10.2)

Free cash flow

36.5


43.3

One-off items (inc. financing)

(17.6)


(20.7)

Acquisitions, net of net debt acquired (inc. intangibles)

(9.6)


(177.0)

Net proceeds of share issue

-


194.5

Dividends paid

(8.3)


(4.0)

Foreign exchange

(7.6)


8.0

Movement

(6.6)


44.1

Net debt at the beginning of the year

(180.8)


(224.9)

Net debt at the end of the year

(187.4)


(180.8)

 

Adjusted cash flow

Adjusted cash flow at £80.1 million is higher than prior year by £4.5 million with improved cash flows in Television and Family partly offset by decline in Film and Centre. The underlying EBITDA to adjusted cash flow conversion was 52% (2016: 62%).

Television

Television adjusted cash inflow improved in the year to £48.0 million (2016: £9.7 million), representing an underlying EBITDA to adjusted cash flow conversion of 85% (2016: 30%) driven by the increase in underlying EBITDA. Working capital movements were broadly flat, driven by significant outflow in movements in receivables from higher revenue mostly offset by intercompany trade payables relating to productions from The Mark Gordon Company (which are offset within the Television working capital movement under production financing) and inflows from payables from higher royalty accruals.

 

Family

Family adjusted cash inflow increased 85% to £50.4 million (2016: £27.2 million), representing an underlying EBITDA to adjusted cash flow conversion of 91% (2016: 62%). This was driven by growth in underlying EBITDA and lower working capital outflows. The lower cash conversion seen in FY16 reflected a working capital outflow relating to the lower royalty payable accrual as a result of the acquisition of Astley Baker Davies Limited, which was not typical of the ongoing cash conversion expectations.

 

Film

Film adjusted cash outflow of (£7.4 million) delivered an underlying EBITDA to adjusted cash conversion of (14%) (2016: 87%), significantly lower than prior year due to higher investment in content spend and a higher working capital outflow.

The increased investment in acquired content spend was driven by the strong content slate of titles released during FY17 which has resulted in higher theatrical revenues in the year and underpins the future value of the content library.

The working capital outflow in the year of £48.1 million was primarily due to a decrease in payables. This was driven by the timing of trade payments and higher royalty payments.



 

Free cash flow

Positive free cash flow for the Group of £36.5 million was £6.8 million lower than previous year due to higher interest payments on the Group's senior secured notes. 

Net debt

As at 31 March 2017 overall net debt at £187.4 million was £6.6 million higher than prior year as the positive free cash flow was more than offset by one-off items, acquisition spend, dividends paid and foreign exchange movements. The net leverage reduced from 1.4x Group underlying EBITDA in FY16 to 1.2x and is expected to maintain at a similar level for FY18, with a leverage target of below 1.0x by FY20.

PRODUCTION FINANCING

Overall production financing increased by £34.3 million year-on-year to £152.3 million reflecting the adjusted cash outflow and movement in foreign exchange. The adjusted cash flow outflow was driven by higher production spend particularly in MGC.

 

2017

2016

 

£m

Television

Family

Film

Total


Television

Family

Film

Total


Underlying EBITDA

           6.6

-

0.6

7.2


7.2

(0.3)

1.0

7.9


Amort'n of investment in productions

       138.6

0.9

41.1

180.6


79.1

0.4

34.4

113.9


Purchase of productions, net of grants

      (191.7)

(1.4)

0.8

(192.3)


(73.3)

(1.5)

(13.1)

(87.9)


Working capital

            4.4

0.5

(11.4)

(6.5)


(11.4)

0.5

3.5

(7.4)


Joint venture movements

            0.1

-

-

0.1


      -

      -

(0.5)

(0.5)


Adjusted cash flow

       (42.0)

0.0

31.1

(10.9)

 

1.6

(0.9)

25.3

26.0


Capital expenditure

Tax paid

       (0.3)


(0.9)

 

      (2.2)

(3.3)

 

Net interest paid

     (0.1)


(0.1)

 

Free cash flow

(13.5)


     21.7

 

One-off items (inc. financing)

(0.9)


(0.6)

 

Acquisitions, net of production financing acquired

(0.7)


(49.0)

 

Foreign exchange

(19.2)


(0.8)

 

Movement

(34.3)


(28.7)

 

Net production financing at the beginning of the year

(118.0)


(89.3)

 

Net production financing at the end of the year

(152.3)


(118.0)

 

 

The production cash flows relate to production financing which is used to fund the Group's television, family and film productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. It is short-term financing whilst the production is being made and is paid back once the production is delivered and the sales receipts and tax credits are received. The Company deems this type of financing to be short term in nature and is excluded from adjusted net debt. The Company therefore shows the cash flows associated with these activities separately. The Company also believes that higher production net debt demonstrates an increase in the success of the Television, Family and Film production businesses, which helps drive revenues for the Group and therefore increases the generation of EBITDA and cash for the Group, which in turn reduces the Group's net debt leverage.

Financial position and going concern basis

The Group's net assets increased by £98.8 million to £757.0 million at 31 March 2017 (31 March 2016: £658.2 million).

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 1 to the consolidated financial statements.


Independent Auditor's Report continued

to the members of entertainment one ltd.

Opinion on the consolidated financial statements of Entertainment One Ltd.

In our opinion the consolidated financial statements:

-   give a true and fair view of the state of the Group's affairs as at 31 March 2017 and of its profit for the year then ended; and

-   have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The consolidated financial statements that we have audited 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 34.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

summary of audit approach

Key Risks

 

 

The key risks that we identified in the current year were:

-   Accounting for investment in acquired content rights and productions;

-   Carrying value of goodwill and other intangible assets; and

-   Revenue recognition.

Materiality

 

The materiality that we used in the current year was £3.9m which was determined on the basis of 5% of forecast profit before tax adding back non-recurring one-off items.

Scoping

 

 

We completed full scope audits of the significant UK, US and Canadian Business Units. In addition, we performed specified audit procedures over certain Business Units in other locations.

Together with Group functions these Business Units represent the principal operations and account for approximately 75% of the Group's revenue and 91% of the Group's Underlying EBITDA.

Significant changes in our approach

 

 

Last year our report included a risk which is not included in our report this year: acquisition accounting. During the FY16 audit, the accounting for acquisitions was a key area of focus due to the number of businesses acquired including The Mark Gordon Company, Astley Baker Davies Limited, Sierra Pictures and Renegade 83. There were no similar significant acquisitions in the current year.

As a result of the Group's acquisition activity in the prior period, our FY17 scope was revisited to include a full year of trading for The Mark Gordon Company and Sierra Pictures, both based in Los Angeles.

 

GOING CONCERN AND THE DIRECTORS' ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP

We have reviewed the directors' statement regarding the appropriateness of the going concern basis of accounting and the directors' statement on the longer-term viability of the Group.

We are required to state whether we have anything material to add or draw attention to in relation to:

-   the directors' have confirmed that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity;

-   the disclosures that describe those risks and explain how they are being managed or mitigated;

-   the directors' statement in Note 1 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and

-   the directors' explanation as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We confirm that we have nothing material to add or draw attention to in respect of these matters.

We agreed with the directors' adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company's ability to continue as a going concern.



 

Independence

We are required to comply with the Financial Reporting Council's Ethical Standards for Auditors and confirm that we are independent of the Company and we have fulfilled our other ethical responsibilities in accordance with those standards.

We confirm that we are independent of the Company and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.

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

 

Key observations

Accounting for investment in acquired content rights and investment in productions

As set out in Notes 14 and 17 and discussed in the Audit Committee report, the Group has £160.8m (2016: £127.2m) of investment in productions and £269.8m (2016: £241.3m) of investment in acquired content on the consolidated balance sheet at 31 March 2017.

Accounting for the amortisation of these assets requires significant judgement as it is directly affected by management's best estimate of future revenues, and consumption through different exploitation windows (e.g. theatrical release, home entertainment, TV and digital).

There is a risk that inappropriate assumptions are made in respect of the forecast future revenues which could result in the recognition of expenses not appropriately matching the flow of economic benefits from the underlying assets.

 

Our audit approach included an assessment of the design and implementation of key controls related to the process for estimating and maintaining future revenue forecasts and the mechanical calculation of the amortisation and royalty charges.

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

-   reviewing the expectations for a selection of titles (including titles yet to be released), and assessing management's forecasts by looking at performance in each of release windows; theatrical box office, home entertainment, SVOD and TV (based on current sales data, past performance of similar titles and other specific market information and contractual arrangements);

-   performing analytics over the acquired content and production models to identify titles and shows which show characteristics of higher risk; and

-   assessing whether the carrying value of the balances are considered recoverable by analysing the assets on a portfolio basis (Film - by release year, TV - by show type) and comparing the carrying value as at 31 March 2017 against current year revenue and an appropriately adjusted remaining forecast of future revenues to determine if any indicators of impairment exist.

 

We are satisfied with management's process and methodology for assessing the future forecast revenues underpinning the investments in acquired content and productions at the balance sheet date.

 

Revenue recognition

As described in Note 2 and discussed in the Audit Committee report, the Group derives its revenues from the licensing, marketing, distribution and trading of feature films, television, video programming and music rights, television and film production and family licensing and merchandising sales.

The risk of material misstatement due to cut-off errors will manifest itself in different ways in each Division, depending on the nature of trade and the respective revenue recognition policies (e.g. early recognition of licence fees for titles where the licence period has not commenced).

 

We assessed the design and implementation of controls over the key revenue streams in each financially significant business unit.

Our audit procedures included:

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

-   completing detailed substantive procedures with regards to the significant revenue streams by agreeing to third party confirmation, royalty statements, gross box office revenues and other supporting information;

-   reviewing significant licensing and merchandising contracts to corroborate licence period commencement and delivery dates to ensure revenue was recognised in the correct period; and

-   performing detailed testing on the returns provision calculations, and assessing whether the methodology applied is appropriate for each Business Unit based on the historical level of returns

 

Based on our procedures performed, we are satisfied that revenue has been recognised appropriately.

 

Risk

 

How the scope of our audit responded to the risk

 

Key observations

Carrying value of goodwill and other intangible assets

As set out in Notes 12 and 13 and discussed in the Audit Committee report, the Group carries £406.9m (2016: £360.3m) of goodwill and a further £302.9m (2016: £314.8m) of other intangible assets on the consolidated balance sheet at 31 March 2017.

Management prepare a detailed assessment of the carrying value of goodwill and other intangible assets by cash generating unit ("CGU") using a number of judgemental assumptions (as described in Note 12 to the financial statements) including in the 2018 Board-approved budget and plans adopted for 2019/20, discount rates and long-term growth rates. There is a risk that the application of inappropriate assumptions supports assets that should otherwise be impaired.

 

We assessed the design and implementation of controls over goodwill and other intangible assets recognition and impairment.

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

We critically challenged management's assumptions used in the impairment model for goodwill and other intangible assets. Our audit work on the assumptions used in the impairment model focussed on:

-   considering the appropriateness of the CGUs identified by management and the allocation of assets to these;

-   testing the integrity of management's model;

-   engaging our valuation specialists to independently establish an appropriate discount rate;

-   agreeing the underlying cash flow projections for each CGU to the Board-approved/adopted budget and plans;

-   comparing short-term cash flow projections against recent performance and historical forecasting accuracy;

-   considering post year end trading performance;

-   assessing the long term growth rates used against independent market data; and

-   performing sensitivity analysis to assess breakeven points and impact of reduced short term cash flow forecasts.

 

We are satisfied that the carrying value of goodwill and acquired intangible assets is supportable and no impairment at the year-end is required.

 

 

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We define materiality as the magnitude of misstatement in the 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.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality

 

£3.9m (2016: £3.6m)

Basis for determining materiality

 

We determined materiality based on 5% of forecast profit before tax (2016: 5%) after adding back one-off items as disclosed in Notes 6 and 7.

Rationale for the benchmark applied

 

Profit before tax adding back operating and net financing one-off items has been used as it is a primary measure of performance used by the Group.

We have used this adjusted profit measure as it excludes volatility of one-off items in our determination, to aid consistency and comparability of our materiality base each year.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £192,500 (2016: £72,000), 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 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.

As a result of the Group's acquisition activity in the prior period, we revised our scope in the current year. We focused our Group audit scope primarily on the UK, US and Canadian Business Units. Six (2016: six) Business Units were subject to a full scope audit in 2017, consistent with 2016, with two (2016: nil) Business Units being subject to further specific procedures on material balances. The remaining Business Units were subject to analytical review procedures performed by the Group audit team.

The six full scope divisions represent the principal Business Units and account for 62% (2016: 70%) of the Group's revenue and 82% (2016: 87%) of the Group's Underlying EBITDA. After including those Business Units subject to specific procedures our audit scope increased to 75% of the Group's revenue. 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 £1.9m to £2.1m (2016: £1.8m to £2.2m).

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. During the year we visited locations in Toronto, London and Los Angeles (2016: Toronto and London). In addition, for each component in scope, we reviewed and challenged the key issues and audit findings, attended the component close meetings and reviewed formal reporting and selected work papers from the component auditors.

Matters on which we are required to report by exception

Corporate Governance Statement

Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the Company's compliance with certain 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:

-   materially inconsistent with the information in the audited financial statements; or

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

-   otherwise misleading.

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 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 financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). 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. 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 financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the 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 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 financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited 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
22 May 2017




 

Consolidated income statement

for the year ended 31 March 2017

 

 

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Revenue

2

1,082.7

802.7

Cost of sales

 

(795.4)

(569.6)

Gross profit

 

287.3

233.1

Administrative expenses

 

(225.3)

(161.5)

Share of results of joint ventures

28

(0.7)

3.4

Operating profit

3

61.3

75.0

Finance income

7

5.0

0.4

Finance costs

7

(29.1)

(27.5)

Profit before tax

 

37.2

47.9

Income tax charge

8

(12.3)

(7.7)

Profit for the year

 

24.9

40.2

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

13.0

36.5

Non-controlling interests

 

11.9

3.7

 

 

 

 

Operating profit analysed as:

 

 

 

Underlying EBITDA

2

160.2

129.1

Amortisation of acquired intangibles

13

(41.9)

(27.4)

Depreciation and amortisation of software

13,15

(4.9)

(4.4)

Share-based payment charge

31

(5.0)

(4.1)

Tax, finance costs and depreciation related to joint ventures

28

-

(1.6)

One-off items

6

(47.1)

(16.6)

Operating profit

 

61.3

75.0

 

 

 

 

Earnings per share (pence)

 

 

 

Basic

11

3.1

9.8

Diluted

11

3.0

9.6

Adjusted earnings per share (pence)

 

 

 

Basic

11

20.3

19.7

Diluted

11

20.0

19.4

All activities relate to continuing operations.

 

Consolidated Statement of comprehensive Income

for the year ended 31 March 2017

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Profit for the year

 

24.9

40.2

Items that may be reclassified subsequently to profit or loss:

 

 

 

Exchange differences on foreign operations

 

75.6

25.8

Fair value movements on cash flow hedges

 

8.5

2.4

Reclassification adjustments for movements on cash flow hedges

 

(9.3)

(6.0)

Tax related to components of other comprehensive income

 

(1.7)

0.6

Total other comprehensive income for the year

 

73.1

22.8

 

 

 

 

Total comprehensive income for the year

 

98.0

63.0

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

78.5

59.3

Non-controlling interests

 

19.5

3.7


Consolidated Balance Sheet

At 31 march 2017

 

 

 

Note

Year ended
31 March 2017
£m

Restated

Year ended
31 March 2016
£m

ASSETS

 

 


Non-current assets

 

 


Goodwill

12

406.9

360.3

Other intangible assets

13

302.9

314.8

Interests in joint ventures

28

1.1

3.2

Investment in productions

14

160.8

127.2

Property, plant and equipment

15

11.9

12.0

Trade and other receivables

18

60.9

48.1

Deferred tax assets

9

28.2

19.2

Total non-current assets

 

972.7

884.8

Current assets

 

 

 

Inventories

16

48.6

51.1

Investment in acquired content rights

17

269.8

241.3

Trade and other receivables

18

464.4

341.2

Cash and cash equivalents

19

133.4

108.3

Current tax assets

 

1.5

1.6

Financial instruments

24

10.6

8.6

Total current assets

 

928.3

752.1

Total assets

 

1,901.0

1,636.9

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

22

276.6

275.5

Production financing

23

91.2

33.6

Other payables

20

41.7

51.1

Provisions

21

1.5

0.3

Deferred tax liabilities

9

53.1

53.1

Total non-current liabilities

 

464.1

413.6

Current liabilities

 

 

 

Interest-bearing loans and borrowings

22

0.5

-

Production financing

23

104.8

98.0

Trade and other payables

20

507.8

435.5

Provisions

21

30.6

3.7

Current tax liabilities

 

32.8

24.8

Financial instruments

24

3.4

3.1

Total current liabilities

 

679.9

565.1

Total liabilities

 

1,144.0

978.7

Net assets

 

757.0

658.2

 

 

 

 

EQUITY

 

 

 

Stated capital

30

505.3

500.0

Own shares

30

(1.5)

(3.6)

Other reserves

30

(22.7)

(20.2)

Currency translation reserve

 

79.8

11.8

Retained earnings

 

109.9

100.3

Equity attributable to owners of the Company

 

670.8

588.3

Non-controlling interests

 

86.2

69.9

Total equity

 

757.0

658.2

Total liabilities and equity

 

1,901.0

1,636.9

These consolidated financial statements were approved by the Board of Directors on 22 May 2017.

DARREN THROOP

DIRECTOR

 

 

Consolidated statement of changes in equity

for the year ended 31 March 2017

 

 

 

 

 

Other reserves

 

 

 

 

 

 

Stated capital
£m

Own shares
£m

Cash flow hedge reserve
£m

Put options over non-controlling interests of subsidiaries
£m

Restructuring reserve
£m

Currency translation reserve
£m

Retained earnings
£m

Equity
attributable to the owners of the Company
£m

Non-controlling interests
£m

Total equity
£m

At 1 April 2015

305.5

(3.6)

4.4

-

9.3

(14.0)

63.0

364.6

0.2

364.8

Profit for the year

-

-

-

-

-

-

36.5

36.5

3.7

40.2

Other comprehensive (loss)/income

-

-

(3.0)

-

-

25.8

-

22.8

-

22.8

Total comprehensive (loss)/ income for the year

-

-

(3.0)

-

-

25.8

36.5

59.3

3.7

63.0

 

 

 

 

 

 

 

 

 

 

 

Issue of common shares net of transaction costs

194.5

-

-

-

-

-

-

194.5

-

194.5

Credits in respect of share-based payments

-

-

-

-

-

-

4.0

4.0

-

4.0

Acquisition of subsidiaries (restated)

-

-

-

(30.9)

-

-

-

(30.9)

66.8

35.9

Dividends paid

-

-

-

-

-

-

(3.2)

(3.2)

(0.8)

(4.0)

At 31 March 2016 (restated)

500.0

(3.6)

1.4

(30.9)

9.3

11.8

100.3

588.3

69.9

658.2

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

13.0

13.0

11.9

24.9

Other comprehensive (loss)/income

-

-

(2.5)

-

-

68.0

-

65.5

7.6

73.1

Total comprehensive (loss)/ income for the year

-

-

(2.5)

-

-

68.0

13.0

78.5

19.5

98.0

 

 

 

 

 

 

 

 

 

 

 

Credits in respect of share-based payments

-

-

-

-

-

-

4.9

4.9

-

4.9

Deferred tax movement
arising on share options

-

-

-

-

-

-

0.1

0.1

-

0.1

Exercise of share options

1.2

-

-

-

-

-

(1.2)

-

-

-

Distribution of shares to beneficiaries of the Employee Benefit Trust

-

2.1

-

-

-

-

(2.1)

-

-

-

Acquisition of subsidiaries

4.1

-

-

-

-

-

-

4.1

-

4.1

Dividends paid

-

-

-

-

-

-

(5.1)

(5.1)

(3.2)

(8.3)

At 31 March 2017

505.3

(1.5)

(1.1)

(30.9)

9.3

79.8

109.9

670.8

86.2

757.0

 

 

Consolidated Cash Flow Statement

for the year ended 31 March 2017

 

Note

Year ended
31 March 2017
£m

Restated

Year ended
31 March 2016
£m

Operating activities

 

 

 

Operating profit

 

61.3

75.0

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

15

2.4

2.1

Disposal of property, plant and equipment

 

0.8

-

Amortisation of software

13

2.5

2.3

Amortisation of acquired intangibles

13

41.9

27.4

Amortisation of investment in productions

14

213.4

110.6

Investment in productions, net of grants received

 

(226.5)

(97.1)

Amortisation of investment in acquired content rights

17

168.3

147.0

Investment in acquired content rights

 

(181.4)

(121.4)

Impairment of investment in acquired content rights

17

2.2

3.4

Foreign exchange movements

 

-

(4.0)

Fair value gain on acquisition of subsidiary

 

(2.3)

-

Share of results of joint ventures

28

0.7

(3.4)

Share-based payment charge

31

5.0

4.1

Operating cash flows before changes in working capital and provisions

 

88.3

146.0

Decrease in inventories

16

8.4

1.5

Increase in trade and other receivables

18

(102.1)

(33.2)

Increase/(decrease) in trade and other payables

20

30.5

(27.5)

Increase in provisions

21

27.3

0.2

Cash generated from operations

 

52.4

87.0

Income tax paid

 

(18.4)

(17.7)

Net cash from operating activities

 

34.0

69.3

Investing activities

 

 

 

Acquisition of subsidiaries and joint ventures, net of cash acquired

25, 28

(6.8)

(155.3)

Purchase of financial instruments

24

(0.7)

-

Purchase of acquired intangibles

 

(0.3)

(17.9)

Purchase of property, plant and equipment

15

(1.5)

(7.5)

Dividends received from interests in joint ventures

28

-

0.2

Purchase of software

13

(2.0)

(1.3)

Net cash used in investing activities

 

(11.3)

(181.8)

Financing activities

 

 

 

Net proceeds on issue of shares

30

-

194.5

Dividends paid to shareholders and to non-controlling interests of subsidiaries

10, 29

(8.3)

(4.0)

Drawdown of interest-bearing loans and borrowings

22

209.8

361.9

Repayment of interest-bearing loans and borrowings

22

(211.7)

(344.5)

Drawdown of production financing

23

224.9

101.4

Repayment of production financing

23

(179.2)

(140.4)

Interest paid

 

(24.3)

(10.3)

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

22

(0.6)

(9.9)

Other financing costs

 

(0.1)

(0.2)

Net cash from financing activities

 

10.5

148.5

Net increase in cash and cash equivalents

 

33.2

36.0

Cash and cash equivalents at beginning of the year

19

108.3

71.3

Effect of foreign exchange rate changes on cash held

 

(8.1)

1.0

Cash and cash equivalents at end of the year

19

133.4

108.3



 

Notes to the Consolidated Financial Statements

for the year ended 31 March 2017

 

1. Nature of operations and basis of preparation

Entertainment One is a leading independent entertainment group focused on the acquisition, production and distribution of television, family, film and music content rights across all media throughout the world. Entertainment One Ltd. (the Company) is the Group's ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 134 Peter Street, Suite 700, Toronto, Ontario, Canada, M5V 2H2.

Entertainment One Ltd. presents its consolidated financial statements in pounds sterling. These consolidated financial statements were approved for issue by the directors on 22 May 2017.

Statement of compliance

These consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments that have been measured at fair value at the end of the reporting period as explained in the accounting policies, and in accordance with applicable International Financial Reporting Standards as adopted by the EU and IFRIC interpretations (IFRS). The Group's consolidated financial statements comply with Article 4 of the EU IAS Regulation.

going concern

In addition to its senior secured notes (due 2022) the Group meets its day-to-day working capital requirements and funds its investment in content through its cash in hand and through a revolving credit facility which matures in December 2020 and is secured on certain assets held by the Group. Under the terms of this facility the Group is able to draw down in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2017 are shown in Note 22. The facility is subject to a series of covenants including interest cover charge, gross debt against underlying EBITDA and capital expenditure.

The Group has a track record of cash generation and is in full compliance with its bank facility and bond covenant requirements. At 31 March 2017, the Group had £89.7m of cash and cash equivalents not held repayable only to production financing (refer to Note 19), £187.4m of net debt and undrawn down amounts under the revolving credit facility of £116.6m (refer to Note 22).

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 of accounting in preparing the consolidated financial statements.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (the Group). Subsidiaries are entities that are directly or indirectly controlled by 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 or at the point in the future when the Group ceases to have control of the entity. 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.

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 accounts for its interests in joint ventures using the equity method. Under the equity method the investment in the entity is stated as one line item at cost plus the investor's share of retained post-acquisition profits and other changes in net assets.

An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in, but not control or jointly control, the financial and operating decisions of an entity. These investments are accounted for using the equity method.

Investments where the Group does not have significant influence are deemed 'available for sale' and held on the balance sheet as an available-for-sale financial asset and are held at fair value.


Foreign currencies

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 consolidated income statement.

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 recognised in other comprehensive income as a separate component of equity and transferred to the Group's translation reserve. Such translation differences are subsequently recognised as income or expenses in the period in which the operation is disposed of.

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

During the year ended 31 March 2017, the following were adopted by the Group:

New, amended, revised and improved Standards

Effective date

Amendments to IFRS 11 Joint arrangements - accounting for acquisitions of interests in joint operations

1 January 2016

Amendments to IAS 16 Property, plant and equipment and IAS 38 Intangible assets - clarification of acceptable methods of depreciation and amortisation

1 January 2016

Amendments to IAS 27 Separate financial statements - equity method in separate financial statements

1 January 2016

Amendments to IAS 1 Presentation of financial statements - disclosure initiatives

1 January 2016

Annual improvements 2012-2014 cycle:

 

Amendments to IFRS 5 Non-current assets held for sale and discontinued operations - changes in method of disposals

1 January 2016

Amendments to IFRS 7 Financial instruments - servicing contracts

1 January 2016

Amendments to IFRS 7 Financial instruments - applicability of the offsetting disclosures to condensed interim financial statements

1 January 2016

Amendments to IAS 19 Employee benefits - discount rate: regional market issue

1 January 2016

Amendments to IAS 34 Interim financial reporting - disclosure of information 'elsewhere in the interim financial statements'

1 January 2016

The adoption of these new, amended and revised Standards had no material impact on the Group's financial position, performance or its disclosures.

Among the new Standards and IFRIC interpretations issued by the IASB and the IFRS Interpretations Committee is an amendment to IAS 38, related to clarification of acceptable methods of depreciation and amortisation. The application had no significant impact for the Group. In respect of the Group's production and content rights activities, the directors consider that using the amortisation method based on revenues generated by these activities, according to the estimated revenue method described in Note 14 and 17, is appropriate because revenue and the consumption of the economic benefits embodied in the intangible assets are highly correlated and the directors do not consider there to be any methodology that is more appropriate.

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 2016:

New, amended and revised Standards

Effective date

Periods beginning on or after

Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses

1 January 2017 *

Amendments to IAS 7 Disclosure initiative

1 January 2017 *

IFRS 9 Financial instruments

1 January 2018 *

IFRS 15 Revenue from contracts with customers

1 January 2018

IFRS 16 Leases

1 January 2019 *

* These pronouncements have been implemented by the International Accounting Standards Board (IASB) effective from the dates noted, but have not yet been endorsed for use in the European Union (EU).

The Group is currently assessing the new, amended and revised standards and currently plans to adopt the new standards on the required effective dates as prescribed by the EU.

The Group expects an impact from IFRS 15 Revenue from contracts with customers on the results of the Family division. The Group currently recognises contractual minimum guarantees from licensing arrangements when the licence terms have commenced and collection of the fee is reasonably assured. IFRS 15 requires the Group to assess whether the licences are either a promise to provide a right to the entity's intellectual property at a point in time, or a promise to provide access to the intellectual property as it exists at any point during the licence. The Group expects the recognition of the minimum guarantees to change and be spread over the consumption of the intellectual property. The Group is still assessing the extent and quantum of the impact of the adoption of this standard to the Group.

The Group is in the process of assessing the impact of IFRS 15 on the production and exploitation of film and television rights.

The Group expects an impact from IFRS 16 Leases on the results of the Group. The Group currently recognises an operating lease when substantially all the risks and rewards incident to ownership remain with the lessor. The lease payments are recognised as an expense in the income statement over the lease term on a straight-line basis. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases. Upon lease commencement a lessee recognises a right-of-use asset and a lease liability. The right-of-use asset is initially measured at the amount of the lease liability plus any initial direct costs incurred by the lessee, with adjustments for lease incentives, payments at or prior to commencement and restoration obligations. The Group is still assessing the extent and quantum of the impact of the adoption of this standard to the Group.

restatement of comparatives

Accounting for put options

The potential cash payments related to put options issued by the Group over the non-controlling interest of subsidiary companies are accounted for as financial liabilities. The amount that may become payable under the option on exercise is initially recognised on acquisition at present value within other payables with a corresponding charge directly to equity.  The Group restated the consolidated financial statements for the year ended 31 March 2016, to reflect the corresponding charge in equity attributable to owners of the Company to better reflect the risk of ownership of the non-controlling interests.

Accounting for acquisitions

The opening balance sheets included within the consolidated financial statements as at 31 March 2016 for the acquisitions of Sierra Pictures LLC and Renegade Entertainment, LLC were based upon provisional information and management's best estimate based upon facts and circumstances then available. The balance sheet as at 31 March 2016 has been restated to reflect adjustments to provisional amounts to reflect new information obtained about facts and circumstances that were in existence at the acquisition date. Refer to Note 25 for further information.

Presentation of cash flow statement

IAS 7 Statement of Cash Flows requires that cash flows from operating activities are primarily derived from the principal revenue-producing activities of the business. The Group's revenue is derived from the licensing, marketing and distribution and trading of feature films, television, video programming and music rights. The Group have reclassified the discretionary spend incurred in the acquisition and creation of underlying intellectual property rights, being the investment in productions and investment in acquired content rights as operating cash flow.

The impact on the consolidated financial statements as at 31 March 2016 is shown below:

£m

Previously reported

Restatement to put options accounting

Acquisition accounting restatement

Classification of investment spend

Restated

Group's consolidated balance sheet

 

 

 

 

 

Net Assets

660.4

-

(2.2)

-

658.2

 

 

 

 

 

 

Other reserves

10.7

(30.9)

-

-

(20.2)

Equity attributable to owners of the Company

619.2

(30.9)

-

-

588.3

Non-controlling interests

41.2

30.9

(2.2)

-

69.9

Total equity

660.4

-

(2.2)

-

658.2

 

 

 

 

 

 

Group's consolidated cash flow statement

 

 

 

 

 

Net cash from operating activities

287.8

-

-

(218.5)

69.3

Net cash used in investing activities

(400.3)

-

-

218.5

(181.8)

Net cash from financing activities

148.5

-

-

-

148.5

Net increase in cash and cash equivalents

36.0

-

-

-

36.0

 



 

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 set out below.

Key sources of estimation uncertainty

-      Taxation - further details are contained in Note 8 and 9.

-      Impairment of goodwill - further details are contained in Note 12.

-      Acquired intangibles - further details are contained in Note 13.

-      Investment in productions and investment in acquired content rights - further details of investment in productions and investment in acquired content rights are contained in Notes 14 and 17, respectively.

-      Share-based payments - further details are contained in Note 31.

Significant accounting judgements

-      Control of joint ventures and subsidiaries - further details are contained in Note 29.

 

2. Operating analysis

Accounting policies

Revenue represents the fair value of consideration 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 and trading of feature films, television, video programming and music rights. Revenue is also derived from television and film production and family licensing and merchandising sales. The following summarises the Group's main revenue recognition policies:

Revenue from the exploitation of television, 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.

Theatrical

- Revenue from the theatrical release of films is recognised when the production is exhibited.

Production

- 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.

Home entertainment

- 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.

Licensing and merchandising

- 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.

Broadcast and digital

- Revenue from digital sales is recognised on transmission or during the period of transmission of the sponsored programme or digital channel.

- Revenue from television or digital 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.



 

Operating segments

For internal reporting and management purposes, the Group is organised into three main reportable segments based on the types of products and services from which each segment derives its revenue -Television, Family and Film. The Group's operating segments are identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Chief Executive Officer has been identified as the chief operating decision maker.

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

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

-      Family - the production, acquisition and exploitation, including licensing and merchandising, of family content rights across all media.

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

Inter-segment sales are charged at prevailing market prices.

Segment information for the year ended 31 March 2017 is presented below:

 

Note

Television

£m

Family

£m

Film

£m

Eliminations

£m

Consolidated

£m

Segment revenues

 

 

 

 

 

 

External sales

 

411.3

86.3

585.1

-

1,082.7

Inter-segment sales

 

41.4

2.3

9.1

(52.8)

-

Total segment revenues

 

452.7

88.6

594.2

(52.8)

1,082.7

Segment results

 

 

 

 

 

 

Segment underlying EBITDA

 

62.8

55.6

52.7

-

171.1

Group costs

 

 

 

 

 

(10.9)

Underlying EBITDA

 

 

 

 

 

160.2

Amortisation of acquired intangibles

13

 

 

 

 

(41.9)

Depreciation and amortisation of software

13,15

 

 

 

 

(4.9)

Share-based payment charge

31

 

 

 

 

(5.0)

Tax, finance costs and depreciation related to joint ventures

28

 

 

 

 

 -

One-off items

6

 

 

 

 

(47.1)

Operating profit

 

 

 

 

 

61.3

Finance income

7

 

 

 

 

5.0

Finance costs

7

 

 

 

 

(29.1)

Profit before tax

 

 

 

 

 

37.2

Income tax charge

8

 

 

 

 

(12.3)

Profit for the year

 

 

 

 

 

24.9

Segment assets

 

 

 

 

 

 

Total segment assets

 

788.7

260.3

835.2

 -

1,884.2

Unallocated corporate assets

 

 

 

 

 

16.8

Total assets

 

 

 

 

 

1,901.0

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

Amortisation of acquired intangibles

13

(14.5)

(12.0)

(15.4)

 -

(41.9)

Depreciation and amortisation of software

13,15

(0.6)

(0.1)

(4.2)

 -

(4.9)

Tax, finance costs and depreciation related to joint ventures

28

 -

 -

 -

 -

 -

One-off items

6

(0.9)

(0.4)

(45.8)

 -

(47.1)

 



 

Segment information for the year ended 31 March 2016 is presented below:

 

Note

Television

£m

Family

£m

Film

£m

Eliminations

£m

Consolidated

£m

Segment revenues

 






External sales

 

201.3

61.4

540.0

 -

802.7

Inter-segment sales

 

43.4

5.2

13.4

(62.0)

 -

Total segment revenues

 

244.7

66.6

553.4

(62.0)

802.7

Segment results

 

 

 

 

 

 

Segment underlying EBITDA

 

39.2

43.3

52.8

 -

135.3

Group costs

 

 

 

 

 

(6.2)

Underlying EBITDA

 

 

 

 

 

129.1

Amortisation of acquired intangibles

13

 

 

 

 

(27.4)

Depreciation and amortisation of software

13,15

 

 

 

 

(4.4)

Share-based payment charge

31

 

 

 

 

(4.1)

Tax, finance costs and depreciation related to joint ventures

28

 

 

 

 

(1.6)

One-off items

6

 

 

 

 

(16.6)

Operating profit

Finance income

7

 

 

 

 

75.0

0.4

Finance costs

7

 

 

 

 

(27.5)

Profit before tax

 

 

 

 

 

47.9

Income tax charge

8

 

 

 

 

(7.7)

Profit for the year

 

 

 

 

 

40.2

 

 

 

 

 

 

 

Segment assets

 

 

 

 

 

 

Total segment assets (restated)

 

503.7

256.6

866.8

 -

1,627.1

Unallocated corporate assets

 

 

 

 

 

9.8

Total assets (restated)

 

 

 

 

 

1,636.9

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

Amortisation of acquired intangibles

13

(7.7)

(5.7)

(14.0)

 -

(27.4)

Depreciation and amortisation of software

13,15

(0.5)

(0.1)

(3.8)

 -

(4.4)

Tax, finance costs and depreciation related to joint ventures

28

(1.5)

 -

(0.1)

 -

(1.6)

One-off items

6

(3.2)

(1.4)

(12.0)

 -

(16.6)

 

Geographical information

The Group's operations are located in Canada, the UK, the US, Australia, the Benelux and Spain. Television Division operations are located in Canada, the US and the UK. Family Division operations are located in the UK. Film Division operations are located in Canada, the UK, the US, Australia, the Benelux and Spain.

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 2017 and 2016.

 

External
revenues
2017
£m

Non-current 
assets
2017 
£m 

External
revenues
2016
£m

 Restated

Non-current
assets
2016 
£m 

Canada

197.9

292.8

191.4

253.4

UK

153.0

289.8

167.8

286.1

US

387.0

319.3

235.0

283.9

Rest of Europe

193.4

31.3

125.5

29.5

Rest of the World

151.4

10.2

83.0

9.5

Total

1,082.7

943.4

802.7

862.4

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

 



 

3. Operating profit

Operating profit for the year is stated after charging:

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Amortisation of investment in productions

14

213.4

110.6

Amortisation of investment in acquired content rights

17

168.3

147.0

Amortisation of acquired intangibles

13

41.9

27.4

Amortisation of software

13

2.5

2.3

Depreciation of property, plant and equipment

15

2.4

2.1

Impairment of investment in acquired content rights

17

2.2

3.4

Staff costs

5

96.2

86.5

Net foreign exchange losses

 

0.4

2.8

Operating lease rentals

 

10.8

9.7

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

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Audit fees

 

 

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

0.4

0.4

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

0.4

0.3

Other services

 

 

-      Services relating to corporate finance transactions

 -

0.5

Total

0.8

1.2

 

4. 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 2017 and 2016 comprised the two 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
31 March 2017
£m

Year ended
31 March 2016
£m

Short-term employee benefits

1.6

1.5

Share-based payment benefits

0.5

0.7

Total

2.1

2.2

Short-term employee benefits comprise salary, taxable benefits, annual bonus and pensions and include employer social security contributions of £0.1m (2016: £0.1m).

On 21 November 2016 one former executive director resigned from office. Payments made to this executive director after the 21 November 2016 total £0.2m. The above table includes all payments made to this Director during the year. The share-based payment options in respect to this Director which were outstanding at 21 November 2016 were forfeited and as a result the share-based payment charge previously recognised of £0.3m was reversed during the year and not included within the above table.

 



 

5. Staff costs

Accounting policy

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Any contributions unpaid at the reporting date are included as a liability within the consolidated balance sheet.

Refer to Note 31 for the accounting policy for share-based payments.

Analysis of results for the year

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

 

Year ended
31 March 2017
Number

Year ended
31 March 2016
Number

Average number of employees

 

 

Canada

778

920

US

304

269

UK

220

205

Australia

46

46

Rest of World

76

89

Total

1,424

1,529

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

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Wages and salaries

83.6

74.9

Share-based payment charge

5.0

4.1

Social security costs

5.9

5.9

Pension costs

1.7

1.6

Total staff costs

96.2

86.5

Included within total staff costs is £7.5m (2016: £7.0m) of staff-related payments in respect to the restructuring costs as described in further detail in Note 6.

6. One-off items

accounting policy

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 in entering into business combinations, and the impact of the sale, disposal or impairment of an investment in a business or an asset.

Analysis of results for the year

Items of income or expense that are considered by management for designation as one-off are as follows:

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Restructuring costs

 


Strategy-related

28.2

12.4

Other

22.8

-

Total restructuring costs

51.0

12.4

 

 

 

Other items

 

 

Acquisition (gains)/costs

(6.4)

4.2

Other items

2.5

 -

Total other items

(3.9)

4.2

 

 

 

Total one-off costs

47.1

16.6

 



 

Strategy-related restructuring costs

During the year ended 31 March 2017 the Group continued to restructure the physical distribution business through the closure of a number of distribution warehouses, primarily in Port Washington and Brampton, as well as terminating distribution agreements with partners in the UK and the Benelux. Costs incurred in implementing this change included £10.1m relating to the ramp-down of these facilities and £3.5m of costs for onerous rental leases on various properties. As a result, the Group reassessed the carrying value of certain balance sheet items, particularly physical inventory and tangible fixed assets. This review involved, amongst other items, reassessing the titles where the profile of the revenues was judged no longer appropriate given the strategic change. As a result of this review, £5.9m of inventory and £0.9m of property, plant and equipment was written off.  Other costs of £1.6m include settlement costs with local physical distribution partners.

There were additional costs driven by the continuing industry shift from physical to digital content, which resulted in the closure of a major customer HMV Canada in early 2017. Due to the resulting reduction in shelf-space the Group reduced its sales projections for the physical distribution unit and recorded a one-off charge of £1.2m to write down certain physical inventory titles. In addition, a £1.0m one-off bad debt expense was recorded.

In January 2017, the Group announced that it would be integrating the Paperny Entertainment and Force Four Entertainment businesses in Vancouver into one Canadian unscripted business and this amalgamation was completed 1 April 2017. Costs of £2.6m were incurred to facilitate the amalgamation of these two businesses, including staff and other transition-related payments. Other restructuring costs during the year totalled £1.4m.

The initiatives implemented during the year highlighted above, largely in relation to the restructuring of the Group's physical distribution business, resulted in one-off charges totalling £28.2m and are expected to deliver annual cost savings of greater than £10m from FY18.

Other restructuring costs

As part of the previously announced wider reshaping of the Film Division, the Group has re-negotiated one of its larger film distribution arrangements. The previous arrangement has been terminated and replaced with a new distribution arrangement and, associated with the termination the Company has made a one-time payment of £20.1m (US$25m). Management expects underlying profitability and cash flow to improve for films delivered under the new distribution arrangement. Further, an impairment charge of £2.2m was recognised relating to the write-off of unamortised signing-on fees relating to the existing agreements, previously capitalised within investment in content, and £0.5m relating to the release of other related balance sheet items. In total, one-off charges of £22.8m were incurred in relation to the re-negotiation of these arrangements and associated impacts.

Acquisition gains

Acquisition gains of £6.4m include a £2.3m credit related to the acquisition accounting for the purchase of the remaining 50% stake in Secret Location and a further credit of £4.0m resulted from the re-assessment of contingent consideration in relation to prior year acquisitions.

Other items

Other corporate project costs of £1.7m relate to a one-off foreign exchange charge relating to the alignment of the TV business with the Group hedging process.

£0.8m other one-off costs relate to costs associated with aborted corporate projects during the year.

Prior year one-off costs

During the year ended 31 March 2016 the Group continued to develop and progress its growth strategy, which was refreshed in November 2014. The one-off costs incurred in the year included costs associated with reorganising the physical distribution business by partnering with Fox and Sony in our territories to optimise our scale/profitability. Costs incurred in implementing this change in approach included the closure of facilities in North America and costs of moving physical stock from those facilities of £2.1m, staff redundancies of £7.0m and a write-off of the carrying value of investment in acquired content rights and other assets of £2.9m throughout the Group's Home Entertainment business, specifically relating to the closure of the Group's UK-based international home video business, and other costs of £0.4m.

Acquisition costs of £7.0m were incurred during the year ended 31 March 2016 relating to the Group's acquisition and investment activities, relating to The Mark Gordon Company (fully consolidated from 19 May 2015), Astley Baker Davies Limited (22 October 2015), Dualtone Music Group (11 January 2016), Last Gang Entertainment (7 March 2016) and Renegade 83 (24 March 2016) as well as the investment in Sierra Pictures (22 December 2015).

A credit of £2.8m related to the release of excess accruals in relation to the Alliance transaction was recognised during the year ended 31 March 2016.

 



 

7. Finance income and finance costs

Accounting policies

Interest 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.

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.

One-off finance items

One-off financing items are items of income and expenditure that do not relate to underlying activities of the Group, that in the judgement of the directors should be disclosed separately on the basis that they are material, either by their nature or their size, in order to provide a better understanding of the Group's underlying financing costs and enable comparison of underlying financial performance between years. The items include interest on one-off tax items, the unwind of discounting on financial assets and liabilities, and charges in relation to refinancing activities.

Analysis of results for the year

Finance income and finance costs comprise:

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Finance income

 

 

 

Other finance income

 

3.8

0.4

Gains on fair value of derivative instruments

 

1.2

-

Total finance income

 

5.0

0.4

 

 

 

 

Finance costs

 

 

 

Interest costs

 

(22.8)

(16.4)

Amortisation of deferred finance charges

22

(1.7)

(2.2)

Other accrued interest charges

 

(0.8)

(1.1)

Write-off of deferred finance charges

 

-

(5.3)

Losses on fair value of derivative instruments

 

-

(0.5)

Unwind of discounting of financial instruments

 

(2.9)

-

Net foreign exchange losses on financing activities

 

(0.9)

(2.0)

Total finance costs

 

(29.1)

(27.5)

Net finance costs

 

(24.1)

(27.1)

Comprised of:

 

 

 

Adjusted net finance costs

 

(25.4)

(20.6)

One-off net finance gains/(costs)

11

1.3

(6.5)

The one-off net finance credits of £1.3m comprise credits of £3.8m relating to the release of interest previously charged on a tax provision which has been reversed during the year and a £1.2m fair-value gain on hedge contracts which reverses in April 2017. The credits were partially offset by charges of £2.9m unwind of discounting on liabilities relating to put options issued by the Group over the non-controlling interest of subsidiary companies and £0.8m of costs due to an increase on interest on tax provisions for the Group.

The one-off net finance costs of £6.5m charged in the year ended 31 March 2016 comprises a charge of £5.3m in respect of deferred finance charges written off on the re-financing of the Group's bank facility during the year, a £0.5m fair value loss on derivative financial instruments broken on the refinancing, £1.1m of non-cash accrued interest charges on certain liabilities and £0.4m of interest receivable of certain tax refunds.



 

8. Tax

Accounting policy

The income tax charge/credit represents the sum of the current income tax payable and deferred tax.

The current income tax 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.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method.

Provisions for open tax issues are based on management's interpretation of tax law as supported, where appropriate, by the Group's external advisors, and reflect the single best estimate of likely outcome for each liability.

The level of current and deferred tax recognised in the consolidated financial statements is dependent on subjective judgements as to the interpretation of complex international tax regulations and, in some cases, the outcome of decisions by tax authorities in various jurisdictions around the world, together with the ability of the Group to utilise tax attributes within the limits imposed by the relevant tax legislation.

Key source of estimation uncertainty

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.

Analysis of charge for the year

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Current tax (charge)/credit:

 

 

 

-      in respect of current year

 

(26.1)

(21.9)

-      in respect of prior years

 

1.5

2.0

Total current tax charge

 

(24.6)

(19.9)

 

 

 

 

Deferred tax credit/(charge):

 

 

 

-      in respect of current year

 

14.2

9.3

-      in respect of prior years

 

(1.9)

2.9

Total deferred tax credit

9

12.3

12.2

 

 

 

 

Income tax charge

 

(12.3)

(7.7)

Of which:

 

 

 

Adjusted tax charge on adjusted profit before tax

 

(27.1)

(22.4)

One-off net tax credit

 

14.8

14.7

 

The one-off tax credit comprises tax credits of £6.7m (2016: £2.5m) in relation to the one-off items described in Note 6, £1.1m relating to changes in corporation tax rates on calculation of deferred tax assets, tax credits of £7.1m (2016: £5.0m) on amortisation of acquired intangibles described in Note 13, a tax credit of £0.2m (2016: £nil) on share-based payments as described in Note 31, a tax charge of £0.4m (2016: credit £4.9m) relating to prior year current tax and deferred tax adjustments, and a tax credit of £0.1m (2016: £1.7m) on other non-recurring tax items. The one-off tax credit in the year ended 31 March 2016 also includes a tax credit of £0.6m on one-off net finance items as described in Note 7.



 

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

 

Year ended 31 March 2017

 

Year ended 31 March 2016

 

£m

%

 

£m

%

Profit before tax (including joint ventures)

37.2

 

 

47.9

 

Deduct share of results of joint ventures

0.7

 

 

(3.4)

 

Profit before tax (excluding joint ventures)

37.9

 

 

44.5

 

 

 

 

 

 

 

Taxes at applicable domestic rates

(11.1)

(29.3)

 

(9.7)

(21.8)

Effect of income that is exempt from tax

6.7

17.7

 

3.1

7.0

Effect of expenses that are not deductible in determining taxable profit

(1.7)

(4.5)

 

(5.2)

(11.7)

Effect of deferred tax recognition of losses/temporary differences

-

-

 

3.3

7.4

Effect of losses/temporary differences not recognised in deferred tax

(7.8)

(20.6)

 

(4.3)

(9.7)

Effect of non-controlling interests

0.9

2.4

 

0.2

0.5

Effect of tax rate changes

1.1

2.9

 

 -

 -

Prior year items

(0.4)

(1.1)

 

4.9

11.0

Income tax charge and effective tax rate for the year

(12.3)

(32.5)

 

(7.7)

(17.3)

Income tax is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 26.5% in Canada (2016: 26.5%), 36.0% - 40.8% in the US (2016: 36.0% - 40.8%), 20.0% in the UK (2016: 20.0%), 25.0% in the Netherlands (2016: 25.0%), 30.0% in Australia (2016: 30.0%) and 25.0% in Spain (2016: 27.3%).

Prior year items include the correction of £1.5m relating to current tax credits and £1.9m in relation to deferred tax charges.

Analysis of tax on items taken directly to equity

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Deferred tax (charge)/credit on cash flow hedges

 

(1.7)

0.6

Deferred tax credit on share options

 

0.1

 -

Total (charge)/credit taken directly to equity

9

(1.6)

0.6

 

9. Deferred tax assets and liabilities

Accounting policy

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated 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.

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

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

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.

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. 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.



 

significant judgements

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.

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.

Analysis of amounts recognised by the Group

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

 

Note

Accelerated tax
depreciation
£m

Other intangible
assets
£m

Unused
tax losses
£m

Financing
items
£m

Other
£m

Total
£m

At 1 April 2015

 

0.1

(17.9)

22.0

(1.3)

2.8

5.7

Acquisition of subsidiaries

 

 -

(50.9)

 -

 -

 -

(50.9)

(Charge)/credit to income statement

 

(0.1)

7.9

4.4

0.2

(0.2)

12.2

Charge to equity

8

 -

 -

 -

0.6

 -

0.6

Exchange differences

 

 -

(1.9)

0.7

 -

(0.3)

(1.5)

At 31 March 2016

 

 -

(62.8)

27.1

(0.5)

2.3

(33.9)

Acquisition of subsidiaries

25

 -

(0.9)

0.3

(0.1)

 -

(0.7)

Credit/(charge) to income statement

 

 -

7.3

6.9

(0.1)

(1.8)

12.3

(Charge)/credit to equity

8

 -

 -

 -

(1.7)

0.1

(1.6)

Exchange differences

 

 -

(7.5)

3.7

3.2

(0.4)

(1.0)

At 31 March 2017

 

 -

(63.9)

38.0

0.8

0.2

(24.9)

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

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

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Deferred tax assets

28.2

19.2

Deferred tax liabilities

(53.1)

 (53.1)

Total

(24.9)

(33.9)

At the balance sheet date, the Group has unrecognised unused tax losses of £138.2m (2016: £88.7m), of which the majority are expected to expire in the years ending 2027 to 2035.

The Group has unrecognised deferred tax assets of £11.4m (2016: £7.7m) in connection with the put and call options that were granted over the remaining 35% non-controlling interests in Renegade 83 and of the remaining 49% non-controlling interests in Sierra Pictures (see Note 25 for further details). 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 £19.0m (2016: £11.6m).

During the year ended 31 March 2017, the corporate income tax rate in the UK reduced to 17% with effect from 1 April 2020. During the year ended 31 March 2016, corporate income tax rates in the UK were reduced from 20% to 19% with effect from 1 April 2017 and 18% with effect from 1 April 2020. These rates are reflected in the deferred tax calculations as appropriate.

10. Dividends

accounting policy

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.

amounts recognised by the Group

On 22 May 2017 the directors declared a final dividend in respect of the financial year ended 31 March 2017 of 1.3 pence (2016: 1.2 pence) per share which will absorb an estimated £5.6m of total equity (2016: £5.1m). It will be paid on or around 8 September 2017 to shareholders who are on the register of members on 7 July 2017 (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.



 

11. Earnings per share

Basic earnings per share is calculated by dividing earnings for the year attributable to the owners of the Company 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.

Adjusted basic earnings per share is calculated by dividing adjusted earnings for the year attributable to the owners of the Company 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 the owners of the Company adjusted to exclude 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).

Fully diluted earnings per share and adjusted fully 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.

 

Year ended
31 March 2017
Pence

Year ended
31 March 2016
Pence

Basic earnings per share

3.1

9.8

Diluted earnings per share

3.0

9.6

Adjusted basic earnings per share

20.3

19.7

Adjusted diluted earnings per share

20.0

19.4

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

 

 

Year ended
31 March 2017
Million

Year ended
31 March 2016
Million

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

 

425.7

373.5

Effect of dilution:

 

 

 

Employee share awards

 

5.9

4.1

Contingent consideration with option to settle in cash or shares

 

1.1

2.2

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

 

432.7

379.8

The Group holds an option to settle the contingent consideration payable in relation to the acquisitions of Renegade 83 and Last Gang Entertainment in shares or in cash. Refer to Note 25 for details.

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

Adjusted earnings per share

The directors believe that the presentation of adjusted earnings per share, being the fully 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 fully diluted earnings per share calculation to earnings used in the adjusted earnings per share calculation is set out below:

 

 

Year ended 31 March 2017

 

Year ended 31 March 2016

 

Note

£m

Pence per share

 

£m

Pence per share

Profit for the year attributable to the owners of the Company

 

13.0

3.0

 

36.5

9.6

Add back one-off items

6

47.1

10.9

 

16.6

4.4

Add back amortisation of acquired intangibles

13

41.9

9.7

 

27.4

7.2

Add back share-based payment charge

31

5.0

1.1

 

4.1

1.1

Add back one-off net finance (gains)/costs

7

(1.3)

(0.3)

 

6.5

1.7

Deduct one-off tax, finance costs and depreciation related to joint ventures

28

-

-

 

(0.5)

(0.1)

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

8

(14.8)

(3.4)

 

 (14.7)

(3.9)

Deduct non-controlling interests' share of above items

 

(4.4)

(1.0)

 

(2.4)

(0.6)

Adjusted earnings attributable to the owners of the Company

 

86.5

20.0

 

73.5

19.4

 



 

Profit before tax is reconciled to adjusted profit before tax and adjusted earnings as follows:

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Profit before tax

 

37.2

47.9

Add back one-off items

6

47.1

16.6

Add back amortisation of acquired intangibles

13

41.9

27.4

Add back share-based payment charge

31

5.0

4.1

Add back tax, finance costs and depreciation related to joint ventures

28

-

1.6

Add back one-off net finance (gains)/costs

7

(1.3)

6.5

Adjusted profit before tax

 

129.9

104.1

Adjusted tax charge

8

(27.1)

(22.4)

Adjusted tax charge relating to joint ventures

 

-

(2.1)

Deduct profit attributable to non-controlling interests

 

(11.9)

(3.7)

Deduct non-controlling interests' share of adjusting items above

 

(4.4)

(2.4)

Adjusted earnings attributable to the owners of the Company

 

86.5

73.5

 

12. Goodwill

accounting policy

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 flows that are largely independent of the cash flows 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.

significant judgements

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.

analysis of amounts recognised by the group

 

Note

Total
£m

Cost and carrying amount

 

 

At 1 April 2015

 

209.8

Acquisition of subsidiaries (restated)

 

144.2

Exchange differences

 

6.3

At 31 March 2016 (restated)

 

360.3

Acquisition of subsidiaries

25

5.8

Exchange differences

 

40.8

At 31 March 2017

 

406.9

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 Television, The Mark Gordon Company (MGC), Family and Film.

Impairment of non-financial assets, including goodwill

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 flows 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.

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

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

The Group has four CGUs being the smallest identifiable group of assets that generate cash flows that are largely independent of the cash flows from other groups of assets. The directors consider the CGUs to be Television, Family, Film and MGC.

Key assumptions used in value-in-use calculations

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

 

31 March 2017

 

31 March 2016

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

Television

8.9

3.0

3 years

 

10.0

3.0

3 years

The Mark Gordon Company

10.7

3.0

3 years

 

11.7

3.0

3 years

Family

9.7

3.0

3 years

 

9.5

3.0

3 years

Film

8.1

2.1

3 years

 

8.8

2.8

3 years

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

Operating profits - Operating profits are based on budgeted/planned growth in revenue resulting from new investment in 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 7.9% (2016: 8.2%). 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 CGUs as shown in the table above.

Terminal growth rate estimates - The terminal growth rates for Television, MGC, Family and Film of 3.0%, 3.0%, 3.0% and 2.1%, respectively (2016: Television, MGC, Family and Film of 3.0%, 3.0%, 3.0% and 2.8%, respectively), are used beyond the end of year three 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 period of specific cash flows has been aligned with the Group's annual strategic planning process, which underpins the conclusions made within the viability statement.

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

CGU

Year ended
31 March 2017
£m

Restated

Year ended
31 March 2016
£m

Television

64.3

50.7

The Mark Gordon Company

78.3

67.3

Family

57.3

57.3

Film

207.0

185.0

Total

406.9

360.3

Sensitivity to change in assumptions

Television - The Television calculations show that there is significant headroom when compared to carrying values at 31 March 2017 and 31 March 2016. An 853% (7.6 percentage point) increase in the pre-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.

The Mark Gordon Company - The MGC calculations show that there is significant headroom when compared to carrying values at 31 March 2017 and 31 March 2016. A 137% (14.8 percentage point) increase in the pre-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.

Family - The Family calculations show that there is significant headroom when compared to carrying values at 31 March 2017 and 31 March 2016. A 250% (24.0 percentage point) increase in the pre-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.



 

Film - The Film calculations show that there is significant headroom when compared to carrying values at 31 March 2017 and 31 March 2016. A 42% (3.4 percentage point) increase in the pre-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.

13. Other intangible assets

accounting policy

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.

Other intangible assets are generally amortised over the following periods:

Exclusive content agreements and libraries

3-14 years

Trade names and brands

1-15 years

Exclusive distribution agreements

9 years

Customer relationships

9-10 years

Non-compete agreements

2-5 years

Software

3 years

significant judgements

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.

analysis of amounts recognised by the group

 

 

Acquired intangibles

 

 

 

Note

Exclusive
content
agreements
and libraries
£m

Trade names
and brands
£m

Exclusive
distribution
agreements
£m

Customer
relationships
£m

Non-compete
agreements
£m

Software
£m

Total
£m

Cost

 

 

 

 

 

 

 

 

At 1 April 2015

 

102.3

36.5

24.8

44.7

16.7

9.6

234.6

Acquisition of subsidiaries (restated)

 

71.2

161.8

-

-

-

-

233.0

Additions

 

16.8

-

-

-

-

1.5

18.3

Disposals

 

-

-

-

-

-

(0.1)

(0.1)

Exchange differences

 

7.1

0.7

0.4

0.4

0.2

0.1

8.9

At 31 March 2016 (restated)

 

197.4

199.0

25.2

45.1

16.9

11.1

494.7

Acquisition of subsidiaries

25

11.3

-

-

 -

 -

 -

11.3

Additions

 

 -

 -

 -

 -

 -

2.0

2.0

Disposals

 

(2.9)

 -

 -

 -

 -

(0.2)

(3.1)

Exchange differences

 

25.2

3.8

3.8

5.9

1.6

1.4

41.7

At 31 March 2017

 

231.0

202.8

29.0

51.0

18.5

14.3

546.6

Amortisation

 

 

 

 

 

 

 

 

At 1 April 2015

 

(50.6)

(28.1)

(23.8)

(24.4)

(14.2)

(5.9)

(147.0)

Amortisation charge for the year

3

(14.7)

(6.1)

(0.3)

(4.6)

(1.7)

(2.3)

(29.7)

Disposals

 

 -

 -

 -

 -

 -

0.1

0.1

Exchange differences

 

(1.5)

(0.6)

(0.4)

(0.4)

(0.2)

(0.2)

(3.3)

At 31 March 2016

 

(66.8)

(34.8)

(24.5)

(29.4)

(16.1)

(8.3)

(179.9)

Amortisation charge for the year

3

(23.1)

(12.4)

(0.3)

(5.3)

(0.8)

(2.5)

(44.4)

Disposals

 

0.6

 -

 -

 -

 -

0.2

0.8

Exchange differences

 

(6.9)

(2.9)

(3.8)

(4.0)

(1.6)

(1.0)

(20.2)

At 31 March 2017

 

(96.2)

(50.1)

(28.6)

(38.7)

(18.5)

(11.6)

(243.7)

Carrying amount

 

 

 

 

 

 

 

 

At 31 March 2016 (restated)

 

130.6

164.2

0.7

15.7

0.8

2.8

314.8

At 31 March 2017

 

134.8

152.7

0.4

12.3

 -

2.7

302.9

The amortisation charge for the year ended 31 March 2017 comprises £41.9m (2016: £27.4m) in respect of acquired intangibles.

As part of the acquisition of Sierra Pictures on 22 December 2015 an intangible asset was acquired representing the share of jointly held assets in Sierra Affinity. As part of the acquisition of Sierra Affinity on 30 September 2016 this asset was treated as if it were disposed of and re-acquired as part of the net assets of Sierra Affinity. Refer to Note 25 for further details.

Included within trade names and brands is a carrying value of £146.3m relating to the value placed on the 50% of the Peppa Pig brand acquired as part of the acquisition of Astley Baker Davies Limited in October 2015, which is being amortised on a straight line basis over a useful life of 15 years.

Included within exclusive content agreements and libraries is a carrying value of £49.2m relating to the value placed on the current libraries acquired as part of the acquisition of the stake in The Mark Gordon Company in May 2015, which is being amortised over a useful life of 10 years.

14. Investment in productions

accounting policy

Investment in productions that are in development and for which the realisation of expenditure can be reasonably determined are capitalised 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 films and television programmes acquired on acquisition of subsidiaries.

Production financing interest directly attributable to the acquisition or production of a qualifying asset (such as investment in productions) forms part of the cost of that asset and are capitalised.

Amortisation of investment in productions, net of government grants, is charged to cost of sales using a model that reflects the consumption of the asset as it is released through different exploitation windows (e.g. Theatrical Release, Home Entertainment, and Broadcast licences) and the expected revenue earned in each of those stages of release over a period not exceeding 10 years form the date of its initial release, unless it arises from revaluation on acquisition of subsidiaries in which case it is charged to administrative expenses. 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.

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.

Key source of estimation uncertainty

The Group capitalises investment in productions 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 is determined based on the pattern of historical revenue streams and the remaining life of each contract.

amounts recognised by the group

 

Note

Year ended
31 March 2017
£m

Restated

Year ended
31 March 2016
£m

Cost

 

 

 

Balance at 1 April

 

542.8

386.1

Acquisition of subsidiaries (restated)

25

0.6

52.8

Additions

 

230.0

99.1

Exchange differences

 

72.9

4.8

Balance at 31 March (restated)

 

846.3

542.8

Amortisation

 

 


Balance at 1 April

 

(415.6)

(300.6)

Amortisation charge for the year

3

(213.4)

(110.6)

Exchange differences

 

(56.5)

(4.4)

Balance at 31 March

 

(685.5)

(415.6)

Carrying amount

 

160.8

127.2

Borrowing costs of £6.6m (2016: £4.1m) related to Television and Film production financing have been included in the additions during the year.

Included within the carrying amount as at 31 March 2017 is £73.4m (2016: £75.5m) of productions in progress, which includes additions from the acquisition of subsidiaries of £0.6m (2016: £57.7m).

15. Property, plant and equipment

accounting policy

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.

Analysis of amounts recognised by the group

 

Note

Leasehold
improvements
£m

Fixtures,
fittings and
equipment
£m

Total
£m

Cost

 

 

 

 

At 1 April 2015

 

4.6

12.4

17.0

Acquisition of subsidiaries

 

-

0.2

0.2

Additions

 

6.4

1.1

7.5

Disposals

 

 -

(0.1)

(0.1)

Exchange differences

 

0.4

0.2

0.6

At 31 March 2016

 

11.4

13.8

25.2

Acquisition of subsidiaries

25

 -

0.2

0.2

Additions

 

0.7

0.9

1.6

Disposals

 

(1.2)

(7.1)

(8.3)

Exchange differences

 

1.3

2.0

3.3

At 31 March 2017

 

12.2

9.8

22.0

Depreciation

 

 

 

 

At 1 April 2015

 

(1.7)

(9.2)

(10.9)

Depreciation charge for the year

3

(0.9)

(1.2)

(2.1)

Disposals

 

 -

0.1

0.1

Exchange differences

 

(0.1)

(0.2)

(0.3)

At 31 March 2016

 

(2.7)

(10.5)

(13.2)

Depreciation charge for the year

3

(1.3)

(1.1)

(2.4)

Disposals

 

1.2

6.4

7.6

Exchange differences

 

(0.4)

(1.7)

(2.1)

At 31 March 2017

 

(3.2)

(6.9)

(10.1)

Carrying amount

 

 

 

 

At 31 March 2016

 

8.7

3.3

12.0

At 31 March 2017

 

9.0

2.9

11.9

 

16. Inventories

accounting policy

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.

Analysis of amounts recognised by the group

Inventories at 31 March 2017 comprise finished goods of £48.6m (2016: £51.1m).



 

17. Investment in acquired content rights

accounting policy

In the ordinary course of business the Group contracts with film and television programme producers to acquire content rights for exploitation. Some of these agreements require the Group to pay minimum guaranteed advances (MGs). 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 amounts are amortised to cost of sales using a model that reflects the consumption of the asset as it is released through different exploitation windows (e.g. Theatrical Release, Home Entertainment, and Broadcast licences) and the expected revenue earned in each of those stages of release over a period not exceeding 10 years form the date of its initial release, unless it arises from revaluation on acquisition of subsidiaries in which case it is charged to administrative expenses. 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 as they are expected to be realised within the normal operating cycle of the Television, Family and Film 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.

Key source of estimation uncertainty

The Group capitalises 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 is determined based on the pattern of historical revenue streams and the remaining life of each contract.

amounts recognised by the group

 

Note

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Balance at 1 April

 

241.3

221.1

Acquisition of subsidiaries

 

-

0.1

Additions

 

177.2

164.2

Amortisation charge for the year     

3

(168.3)

(147.0)

Impairment charge for the year

3

(2.2)

(3.4)

Exchange differences

 

21.8

6.3

Balance at 31 March

 

269.8

241.3

The impairment charge recognised during the year ended 31 March 2017 of £2.2m relates to the write off of unamortised signing-on fees relating to certain distribution agreements which were renegotiated during the year, which had previously been capitalised within investment in content.

The impairment charge recognised during the prior year ended 31 March 2016 of £3.4m was in respect of a write-off of the carrying value of investment in acquired content rights on the closure of the Group's Home Entertainment business, specifically relating to the closure of the Group's UK-based international home video business.

18. Trade and other receivables

accounting policy

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

Amounts are recognised as non-current when the balance is recoverable in a period of greater than 12 months from the reporting date.

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.

Analysis of amounts recognised by the group

Current

Note

31 March 2017
£m

Restated

31 March 2016
£m

Trade receivables

 

146.4

136.8

Less: provision for doubtful debts

 

(1.9)

(2.3)

Net trade receivables

26

144.5

134.5

Prepayments

 

16.6

21.3

Accrued income

26

198.5

95.3

Amounts owed from joint ventures

 

0.2

0.7

Tax credits receivable

 

67.9

65.3

Other receivables

 

36.7

24.1

Total

 

464.4

341.2

 

 

 

 

Non-current

 

 

 

Trade receivables

 

14.2

10.9

Less: provision for doubtful debts

 

(0.4)

-

Net trade receivables

26

13.8

10.9

Accrued income

26

46.0

35.7

Other receivables

 

1.1

1.5

Total

 

60.9

48.1

Trade receivables are generally non-interest bearing. The average credit period taken on sales, excluding the effect of acquisitions, is 60 days (2016: 70 days).

Tax credits receivable relate to government assistance in the form of Canadian and US tax credits. During the year £49.7m (2016: £34.4m) in government assistance was received.

As at 31 March 2017 and 2016 current trade receivables are aged as follows:

 

31 March 2017
£m

Restated

31 March 2016
£m

Neither impaired nor past due

119.4

110.8

Less than 60 days

11.2

10.7

Between 60 and 90 days

6.2

3.9

More than 90 days

7.7

9.1

Total

144.5

134.5

Trade receivables that are past due and not impaired do not have a significant impact on 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 2017 and 2016 were as follows:

 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Balance at 1 April

(2.3)

(2.6)

Provision recognised in the year

(1.7)

(1.0)

Provision reversed in the year

0.8

0.7

Utilisation of provision

1.2

0.7

Exchange differences

(0.3)

(0.1)

Balance at 31 March

(2.3)

(2.3)

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

Management has credit policies in place and the exposure to credit risk is monitored by individual operating divisions on an ongoing basis. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Refer to Note 26 for further details.

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

 

31 March 2017
£m

31 March 2016
£m

Less than 60 days

 -

(0.3)

Between 60 and 90 days

(0.1)

-

More than 90 days

(2.2)

(2.0)

Total

(2.3)

(2.3)

Trade and other receivables are held in the following currencies at 31 March 2017 and 2016. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rates ruling at the balance sheet date.

 

Pounds
sterling
£m

Euros
£m

Canadian
dollars
£m

US
dollars
£m

Other
£m

Total
£m

Current

59.0

38.0

137.9

214.2

15.3

464.4

Non-current

6.5

2.8

7.3

44.0

0.3

60.9

At 31 March 2017

65.5

40.8

145.2

258.2

15.6

525.3

Current (restated)

54.2

35.9

122.1

115.5

13.5

341.2

Non-current

9.3

4.2

7.0

27.2

0.4

48.1

At 31 March 2016 (restated)

63.5

40.1

129.1

142.7

13.9

389.3

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

19. Cash and cash equivalents

Accounting policy

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.

Analysis of amounts recognised by the group

Production financing facilities are secured by the assets and future revenue of the individual television, family and film production subsidiaries and are non-recourse to other Group companies or assets. Cash held only for production financing relates to monies received for the secured revenues and can only be used for repayment of the specific production financing facility.

Cash and cash equivalents are held in the following currencies at 31 March 2017 and 2016. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rates ruling at the balance sheet date.

 

Note

31 March 2017
£m

31 March 2016
£m

Cash and cash equivalents:

 

 

 

Pounds sterling

 

13.0

42.8

Euros

 

9.8

2.7

Canadian dollars

 

20.0

34.4

US dollars

 

88.1

25.8

Australian dollars

 

2.4

2.5

Other

 

0.1

0.1

Cash and cash equivalents per the consolidated balance sheet

26

133.4

108.3

 

 

 

 

Held repayable only for production financing

 

43.7

13.6

Other

 

89.7

94.7

Cash and cash equivalents

 

133.4

108.3

The Group had no cash equivalents at either 31 March 2017 or 2016.

20. Trade and other payables

Accounting policy

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

The potential cash payments related to put options issued by the Group over the non-controlling interest of subsidiary companies are accounted for as financial liabilities. The amount that may become payable under the option on exercise is initially recognised on acquisition at present value with a corresponding charge directly to equity. Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the liability up to the amount payable under the option at the date at which it first becomes exercisable; the charge arising is recorded as a financing cost. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.

Amounts are recognised as non-current when the balance is payable in a period of greater than 12 months from the reporting date.

Analysis of amounts recognised by the group

Current

Note

31 March 2017
£m

Restated

31 March 2016
£m

Trade payables

26

120.3

117.6

Accruals

 

325.8

261.1

Deferred income

 

43.7

39.6

Payable to joint ventures

 

-

0.1

Contingent consideration payable

26

4.0

3.4

Other payables

26

14.0

13.7

Total

 

507.8

435.5

 

 

 

 

Non-current

 

 

 

Deferred income

 

0.7

0.7

Contingent consideration payable

26

2.0

9.9

Put liabilities on partly owned subsidiaries

26

39.0

30.9

Other payables

26

 -

9.6

Total

 

41.7

51.1

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

The movements in contingent consideration payable during the year ended 31 March 2017 were as follows:

 

Renegade
£m

Sierra Affinity
£m

Dualtone
£m

Last Gang
£m

Force Four
£m

Alliance
£m

Total
£m

At 1 April 2016

7.4

0.2

0.6

1.0

0.7

3.4

13.3

Utilised during the year

 -

 -

 -

 -

(0.6)

(3.4)

(4.0)

Reversed during the year

(4.5)

 -

 -

 -

 -

 -

(4.5)

Exchange differences

1.1

 -

0.1

0.1

(0.1)

 -

1.2

At 31 March 2017

4.0

0.2

0.7

1.1

 -

 -

6.0

 

 

 

 

 

 

 

 

Expected payment period

2018

2018-19

2019

2019

N/a

N/a

 

Total maximum consideration

N/a

4.0

0.8

1.2

N/a

N/a

 

 

 

 

 

 

 

 

 

Shown in the consolidated balance sheet as:


 

 

 

 

 

 

Current

4.0

 -

 -

 -

 -

 -

4.0

Non-current

 -

0.2

0.7

1.1

 -

 -

2.0

The maximum contractual consideration payable is calculated undiscounted and using the foreign exchange rates prevailing as at 31 March 2017. The consideration payable for Renegade is based upon adjusted EBITDA performance to 31 December 2016. Amounts in the range of £3.4m - £4.0m will be payable relating to the acquisition of Renegade 83 due, subject to audit, during the year ended 31 March 2018. The contingent consideration can be settled, at the option of the Group, in cash or in a combination of 60% of such amount in cash and 40% in shares of Entertainment One Ltd.



 

The movements in put liabilities on partly owned subsidiaries payable during the year ended 31 March 2017 were as follows:

:

Total
£m

Put liabilities on partly owned subsidiaries  at 1 April 2016

30.9

Unwind of discounting

2.9

Exchange differences

5.2

Put liabilities on partly owned subsidiaries  at 31 March 2017

39.0

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

 

Pounds
sterling
£m

Euros
£m

Canadian
dollars
£m

US
dollars
£m

Other
£m

Total
£m

Current

81.3

18.9

109.2

291.7

6.7

507.8

Non-current

 -

 -

1.6

40.0

0.1

41.7

At 31 March 2017

81.3

18.9

110.8

331.7

6.8

549.5

Current (restated)

72.0

24.5

165.2

165.2

8.6

435.5

Non-current

-

-

1.8

49.1

0.2

51.1

At 31 March 2016 (restated)

72.0

24.5

167.0

214.3

8.8

486.6

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

21. Provisions

Accounting policy

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.

Key source of estimate uncertainty

The Group recognises a provision for an onerous film and television 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.

amounts recognised by the group

 

Onerous
contracts
£m

Restructuring
and redundancy
£m

Total
£m

At 31 March 2015

2.7

0.4

3.1

Acquisitions of subsidiaries

 -

0.7

0.7

Provisions recognised in the year

2.3

3.3

5.6

Utilisation of provisions

(3.4)

(2.1)

(5.5)

Exchange differences

(0.1)

0.2

0.1

At 31 March 2016

1.5

2.5

4.0

Provisions recognised in the year

1.5

33.3

34.8

Provision reversed in the year

(0.6)

 -

(0.6)

Utilisation of provisions

(0.7)

(5.7)

(6.4)

Exchange differences

 -

0.3

0.3

At 31 March 2017

1.7

30.4

32.1

Shown in the consolidated balance sheet as:

 

 

 

Non-current

0.6

0.9

1.5

Current

1.1

29.5

30.6

 



 

Onerous contracts

Onerous contracts represent provisions in respect of:

- Provisions for onerous leasehold property leases which comprise onerous commitments on leasehold properties that were expected to be utilised over the remaining contract period. These provisions are expected to be utilised within 3 years from the balance sheet date.

- Provisions for onerous contracts in respect of loss-making film titles are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37 Provisions, contingent liabilities and contingent assets are met.

- Provisions for onerous contracts in respect of loss-making film titles represent future cash flows relating to film titles which are forecast to make a loss over their remaining lifetime at the balance sheet date. As required by IFRS, before a provision for an onerous film title is recognised, the Group first fully writes down any related assets (generally these are investment in acquired content rights balances). These provisions are expected to be utilised within one year (2016: three years) from the balance sheet date.

Restructuring and redundancy

Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, contingent liabilities and contingent assets are met. These provisions are expected to be utilised within two years (2016: one year) from the balance sheet date.

22. Interest-bearing loans and borrowings

Accounting policy

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.

amounts recognised by the group

The combination of the Group's non-amortising, fixed-rate debt financing and revolving credit facility provides the Group with a long-term capital structure appropriate for its strategic ambitions. In addition, the re-financing permits greater flexibility by relieving constraints and costs the Group historically incurred when undertaking acquisitions and other corporate activity, and allows the Group to react swiftly to commercial opportunities, whilst also removing other restrictions typical of bank loan-based financing structures.

 

 

31 March 2017
£m

31 March 2016
£m

Senior secured notes

 

285.0

285.0

Deferred finance charges

 

(8.4)

(9.5)

Other

 

0.5

-

Total

 

277.1

275.5

Shown in the consolidated balance sheet as:

 

 


Non-current

 

276.6

275.5

Current

 

0.5

-

The weighted average interest rates on all bank borrowings are not materially different from their nominal interest rates. The weighted average interest rate on all interest-bearing loans and borrowings is 6.6% (2016: 5.6%).

Bank borrowings

The Group holds a super senior revolving credit facility (RCF) which matures in December 2020. Any amounts still outstanding at such date must be repaid in full provided that some or all of the lenders under the RCF may elect to extend their commitments subject to terms and conditions to be agreed among the relevant parties.

The RCF is subject to a number of financial covenants including interest cover charge, gross debt against underlying EBITDA and capital expenditure.

At 31 March 2017, the Group had available £116.6m of undrawn committed bank borrowings under the RCF (2016: £106.1m), consisting of funds available in Canadian dollars, euros, pounds sterling and US dollars.



 

Senior secured notes

The Group have issued £285.0m senior secured notes (Notes) bearing interest at a rate of 6.875% per annum which mature in December 2022.

The Notes are subject to a number of financial covenants including interest cover charge and gross debt against underlying EBITDA.

The Notes are subject to mandatory repayments as follows:

Period

31 March 2017
£m

31 March 2016
£m

Greater than five years

285.0

285.0

Total

285.0

285.0

The fair value of the Senior Secured Notes as at 31 March 2017 is £312.4m (2016: £285.0m).

The Notes are secured against the assets of various Group subsidiaries which make up the 'Restricted Group'. Unaudited financial data of the Restricted Group as at 31 March 2017 can be found in the appendix to the consolidated financial statements.

Deferred finance charges

During the prior year ended 31 March 2016 the Group paid £9.9m in respect of fees incurred for the issuance of the Group's Notes and re-financing of the debt facility. The fees were capitalised to the consolidated balance sheet and are amortised on a straight line to the date of expiry. During the year ended 31 March 2017 a further £0.6m of fees were capitalised relating to the financing in the prior year.

foreign currencies

The carrying amounts of the Group's gross borrowings at 31 March 2017 and 2016 are denominated in the following currencies. Amounts held in currencies other than pounds sterling are converted at their respective exchange rates ruling at the balance sheet date.

 

Pounds
sterling
£m

Euros
£m

Canadian
dollars
£m

US
dollars
£m

Total
£m

Senior secured notes

285.0

 -

 -

 -

285.0

Other

 -

 -

0.5

 -

0.5

At 31 March 2017

285.0

 -

0.5

 -

285.5

Bank borrowings

285.0

-

-

-

285.0

At 31 March 2016

285.0

-

-

-

285.0

 

23. production financing

Accounting policy

Production financing relates to short-term financing for the Group's television, family and film productions. Production financing interest directly attributable to the acquisition or production of a qualifying asset forms part of the cost of that asset and is capitalised.

amounts recognised by the group

Production financing is used to fund the Group's television, family and film productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. The production financing facilities are secured by the assets and future revenue of the individual television, family and film production subsidiaries and are non-recourse to other Group companies or assets.

It is short-term financing, typically having a maturity of less than two years, whilst the production is being made and is paid back once the production is delivered and the government subsidies, tax credits, broadcaster pre-sales, international sales and/or home entertainment sales are received. The Company deems this type of financing to be working capital in nature, as it is timing-based and is excluded from net debt. The Company therefore shows the cash flows associated with these activities separately. In connection with the production of a film or television programme, the Group typically records initial cash outflows due to its investment in the production and concurrently record initial positive cash inflow from the production financing it normally obtains.

The Company also believes that higher production financing demonstrates an increase in the success of the Television, Family and Film production businesses, which helps drive revenues for the Group and therefore increases the generation of EBITDA and cash for the Group, which in turn reduces the Group's net debt leverage.



 

 

 

31 March 2017
£m

31 March 2016
£m

Production financing

 

190.8

130.6

Other loans

 

5.2

1.0

Total

 

196.0

131.6

Shown in the consolidated balance sheet as:

 

 


Non-current

 

91.2

33.6

Current

 

104.8

98.0

Interest is charged at bank prime rate plus a margin. The weighted average interest rate on all production financing is 3.0% (2016: 3.7%).

The Group has Canadian dollar and US dollar production credit facilities with various banks. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rates ruling at the balance sheet date. The carrying amounts of the Group's production financing are denominated in the following currencies.

 

Canadian
dollars
£m

US
dollars
£m

Total
£m

At 31 March 2017

66.9

129.1

196.0

At 31 March 2016

50.9

80.7

131.6

 

24. financial instruments

Accounting policy

The Group may use 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 assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

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.

Analysis of amounts recognised by the group

 

31 March 2017
£m

31 March 2016
£m

Financial assets

 

 

Derivative financial instruments - foreign exchange forward contracts

9.9

6.3

Available-for-sale financial assets

0.7

2.3

Total

10.6

8.6

 

 

 

Financial liabilities

 

 

Derivative financial instruments - foreign exchange forward contracts

(3.4)

(3.1)

Total

(3.4)

(3.1)

 

 

 

Net derivative financial instruments

7.2

5.5

Foreign exchange forward contracts

The Group uses forward currency contracts to hedge transactional exposures. The majority of these contracts are denominated in the subsidiaries' functional currency and primarily cover minimum guaranteed advances (MG) payments in the US, Canada, the UK, Australia, the Benelux and Spain and hedging of other significant financial assets and liabilities.

At 31 March 2017, the total notional principal amount of outstanding currency contracts was US$220.7m, €51.9m, C$49.2m, A$50.4m, £27.6m and R$1.8m (2016: US$306.9m, €53.1m, C$17.3m, A$32.5m, £1.8m and R$3.4m). The forward currency contracts are all expected to be settled within two years.



 

The £2.5m loss (2016: £3.0m loss) recognised in other comprehensive income during the period all relates to the effective portion of the revaluation gain or loss associated with these contracts. During the year ended 31 March 2017 there was a gain of £1.0m (2016: £0.6m gain) recycled to the consolidated income statement and a £10.3m loss (2015: £5.4m gain) transferred to the carrying value of hedged assets held on the consolidated balance sheet.

 

25. Business combinations

Accounting policy

Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are written off in the consolidated income statement as incurred.

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.

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 are recognised either in the consolidated income statement or as a change to the consolidated income statement.

Contingent payments made to selling shareholders, to the extent they are linked to continuing service conditions, are treated as remuneration and expenses within the consolidated income statement. The Group considers such payments to be capital in nature and are recognised as an adjustment to the Group's underlying EBITDA.

When a business combination is achieved in stages, the Group's previously-held interests in the acquired entity is remeasured to its acquisition date fair value and the resulting gain or loss, if any, is recognised in the consolidated income statement. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the consolidated income statement, where such treatment would be appropriate if that interest were disposed of.

Year ended 31 March 2017

The following table summarises the fair values, as at the acquisition date, of the assets acquired, the liabilities assumed and the total consideration transferred as part of the acquisitions made during the year ended 31 March 2017. Information provided below is calculated based on current information available.

 

 

Note

Sierra Affinity
£m

Secret Location £m

Total
£m

Acquired intangibles

 

13

7.7

3.6

11.3

Investment in productions

 

14

 -

0.6

0.6

Property, plant and equipment

 

15

 -

0.2

0.2

Trade and other receivables 1

 

 

16.2

3.2

19.4

Cash and cash equivalents

 

 

0.3

 -

0.3

Interest-bearing loans and borrowings

 

 

 -

(2.5)

(2.5)

Trade and other payables

 

 

(18.5)

(2.0)

(20.5)

Deferred tax liabilities

 

9

 -

(0.7)

(0.7)

Total net assets acquired

 

 

5.7

2.4

8.1

 

 

 

 

 

 

Satisfied by:

 

 

 

 

 

Cash

 

 

2.8

 -

2.8

Shares in Entertainment One Ltd.

 

 

 -

4.1

4.1

Contingent consideration

 

 

0.5

 -

0.5

Assets forgiven

 

 

0.1

 -

0.1

Total consideration transferred

 

 

3.4

4.1

7.5

Add: Fair value of previously held equity interest


 

2.3

4.1

6.4

Less: Fair value of identifiable net assets of the acquiree


 

(5.7)

(2.4)

(8.1)

Goodwill


12

 -

5.8

5.8

1.    The trade and other receivables shown are considered to be at their fair value. No amounts recorded are expected to be uncollectable.



 

Secret Location

On 28 May 2014, the Group acquired 50% of the share capital of Secret Location, a Canadian digital agency, for cash consideration of C$4.5m. As part of the purchase agreement, put and call options were agreed between the parties after a lock-up period to 2017. On 15 August 2016 the Group entered into an agreement with the other shareholders to waive the lock-up period to enable eOne to exercise its call option. The remaining 50% share capital was purchased for consideration of C$6.9m.

By virtue of the acquisition, the Group has increased its interest in the company from 50% to 100%. The Group previously accounted for the investment in Secret Location as a joint venture under IFRS 11. Following completion Secret Location has become a subsidiary of the Company and its financial statements have been fully consolidated into the Group's consolidated financial statements.

Secret Location contributed £2.3m to the Group's revenue and £0.5m loss to the Group's profit before tax for the period from the date of acquisition on 15 August 2016 to 31 March 2017.

Key terms

The Group purchased the remaining 50% share in Secret Location for consideration of C$6.9m (equivalent of £4.1m), funded through the issue of 1,728,794 common shares in Entertainment One Ltd. settled as at 15 August 2016.

Provisional acquisition accounting

Prior to control being obtained, the investment in the equity interest of Secret Location was accounted for in accordance with IAS 28 Investments in Associates and Joint Ventures. eOne held an equity interest previously in Secret Location which qualified as a joint venture under IFRS 11. As part of accounting for the business combination the equity interest is treated as if it were disposed of and re-acquired at fair value on the acquisition date. Accordingly, the 50% equity interest held in Secret Location at book value of £1.8m was re-measured to its acquisition-date fair value of £4.1m, resulting in a £2.3m gain recognised in the consolidated income statement (see Note 6).

Acquired intangibles of £3.6m have been identified which represent the value of technologies in development. The resulting goodwill of £5.8m represents the value placed on the opportunity to grow the content and formats produced by the company. None of the goodwill is expected to be deductible for income tax purposes.

The acquired Secret Location business has been integrated into the Television CGU.

Sierra Affinity

On 22 December 2015 the Group acquired 51% of the share capital of Sierra Pictures LLC (Sierra Pictures), a leading independent film production and international sales company which aims to consistently deliver high-quality, commercially viable feature films for a global audience. Sierra capitalises on the ever-evolving global film marketplace representing sales of third party films and commercial films designed to appeal to both the North American market as well as top markets internationally.

Sierra Pictures held a 33% interest in Sierra/Affinity LLC (Sierra Affinity), with the remaining 67% held between two other parties. Sierra Affinity is an LA sales company who acts as the exclusive provider of international sales and other services for motion pictures produced or financed by any of the members of the LLC.

On 30 September 2016, Sierra Pictures purchased the remaining 67% equity interest in Sierra Affinity for total consideration of £3.4m.

Sierra Affinity contributed £47.9m to the Group's revenue and £1.5m to the Group's profit before tax for the period from the date of acquisition on 30 September 2016 to 31 March 2017.

Key terms

Sierra Pictures purchased the remaining 67% share in Sierra Affinity for total consideration of £3.4m consisting of cash consideration of US$3.6m (equivalent of £2.8m), which was settled in full during October/November 2016, contingent consideration of £0.5m representing amounts payable dependent on future sales fees generated by the company on specific titles and £0.1m of assets forgiven relating to trade receivables due to Sierra Pictures from Sierra Affinity which were forgiven as part of the transaction.

Provisional acquisition accounting

Prior to control being obtained, the investment in the equity interest of Sierra Affinity was accounted for as a joint operation under IFRS 11. As part of accounting for the business combination the equity interest is treated as if it were disposed of and re-acquired at fair value on the acquisition date. Accordingly, it is re-measured to its acquisition-date fair value, which is considered to be equal to its carrying amount, and as such no gain or loss was recognised.

Acquired intangibles of £7.8m have been identified which represent the value of the acquired exclusive content agreements.

The acquired Sierra Affinity business has been integrated into the Film CGU.

Other disclosures in respect of business combinations

If the acquisitions of Secret Location and Sierra Affinity had all been completed on 1 April 2016, Group revenue for the year ended 31 March 2017 would have been £1,094.9m and Group adjusted EBITDA would have been £158.7m.



 

Year ended 31 March 2016

The opening balance sheets included within the consolidated financial statements as at 31 March 2016 for the acquisitions of Sierra Pictures, LLC and Renegade Entertainment, LLC were based upon provisional information and management's best estimate based upon facts and circumstances then available. The balance sheet as at 31 March 2016 has been restated to reflect adjustments to provisional amounts to reflect new information obtained about facts and circumstances that were in existence at the acquisition date.

The following table summarises the changes made to the fair values of acquired assets and liabilities. Information provided below is calculated based on current information available:

 

 

Previously reported as at

31 March 2016

£m

Restatement to put options accounting

£m

Sierra Pictures

£m

Renegade

£m

Last Gang Entertainment

£m

Restated as at 31 March 2016
£m

Goodwill

 

353.9

-

(2.5)

8.4

0.5

360.3

Acquired intangibles

 

320.5

 -

7.2

(12.9)

-

314.8

Investment in productions

 

133.8

-

(2.1)

(4.5)

-

127.2

Trade and other receivables

 

341.1

-

(0.5)

0.6

-

341.2

Trade and other payables

 

(439.1)

-

0.2

3.9

(0.5)

(435.5)

 

 

 

 

 

 

 

 

Net assets

 

660.4

-

2.3

(4.5)

-

658.2


 

 

 

 

 

 

 

Non-controlling interests

 

41.2

30.9

2.3

(4.5)

-

69.9

 

Sierra Pictures LLC

Update to provisional acquisition accounting

Sierra Pictures' opening balance sheet included within the consolidated financial statements as at 31 March 2016 was based upon provisional information and management's best estimate based upon facts and circumstances available at that date. The balance sheet as at 31 March 2016 has been restated to reflect adjustments to provisional amounts based on new information obtained about facts and circumstances that were in existence at the acquisition date.

Acquired intangibles have increased by £7.2m and goodwill has decreased by £2.5m from the provisional amounts disclosed within the consolidated financial statements as at 31 March 2016 (restated balances of £15.6m and £3.0m respectively) based upon the final purchase price allocation valuation exercise.

The final acquired intangibles of £15.3m represent two identified intangibles. £12.8m representing acquired content, and £2.5m representing Sierra Pictures' share of jointly held assets through its 33% interest in Sierra/Affinity LLC. The resultant goodwill represents the value placed on the opportunity to grow the content and formats produced by the company. All the goodwill is expected to be tax deductible for income tax purposes.

Investment in productions has decreased by £2.1m from the provisional amounts disclosed within the consolidated financial statements as at 31 March 2016 (restated balance of £42.8m) to reflect the fair value of capitalised film investment in productions.

Renegade Entertainment, LLC

On 24 March 2016 the Group acquired a 65% controlling stake in Renegade Entertainment, LLC (Renegade 83), a television production company. Based in Los Angeles, Renegade 83 is a fast-growing and successful non-scripted television production company delivering multiple hit shows including Naked and Afraid, Naked and Afraid XL, Fit to Fat, The 4400, The Kennedy Detail and Blind Date.

Update to provisional acquisition accounting

Renegade 83's opening balance sheet included within the consolidated financial statements as at 31 March 2016 was based upon provisional information and management's best estimate based upon facts and circumstances available at that date. The balance sheet as at 31 March 2016 has been restated to reflect adjustments to provisional amounts to reflect new information obtained about facts and circumstances that were in existence at the acquisition date.

Acquired intangibles have decreased by £12.9m and goodwill has increased by £8.4m from the provisional amounts disclosed within the consolidated financial statements as at 31 March 2016 (restated balances of £2.7m and £21.0m respectively) based upon the final purchase price allocation valuation exercise.

The final acquired intangibles of £2.7m represent the value of television show concepts and back end royalties following the end of a series production. The resultant goodwill represents the value placed on the opportunity to grow the content and formats produced by the company. All the goodwill is expected to be tax deductible for income tax purposes.



 

Investment in productions have decreased by £4.5m, trade and other receivables have increased by £0.6m and trade and other payables have decreased by £3.9m from the provisional amounts disclosed within the consolidated financial statements as at 31 March 2016 (restated balances of £9.8m, £1.4m and £12.4m, respectively). These balance sheet movements represent the alignment of Renegade 83's financial statements to the Group's accounting policies.

At 31 March 2016 a liability of £7.4m was recorded in the consolidated balance sheet representing the contingent consideration expected to be transferred in the future. At 31 March 2017 this liability, which had increased due to changes in foreign exchange rates, was re-assessed and reduced to £4.0m resulting in a £4.1m credit to the consolidated profit and loss account.

26. Financial risk management

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

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

Interest rate risk management

When the Group is exposed to fluctuating interest rates the Group considers whether to fix portions of debt using interest rate swaps, in order to optimise net finance costs and reduce excessive volatility in reported earnings. Requirements for interest rate hedging activities are monitored on a regular basis.

Interest rate sensitivity

The Group holds £285.0m in aggregate principal amount of 6.875% senior secured notes (Notes), due December 2022, and a £100m super senior revolving credit facility (RCF) which matures in December 2020. The net proceeds from the Notes have primarily been used to repay the Company's previous credit facilities in full, and pay fees and expenses related to the Notes and the RCF.

At year end the Group held no floating rate loans and borrowings.

Foreign currency risk management

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

The Group manages transactions with foreign exchange exposures by undertaking foreign currency hedging using forward foreign exchange contracts for significant transactions (principally MG payments). The implementation of these forward contracts is based on highly probable forecast transactions and qualifies for cash flow hedge accounting. The Group further manages its exposure to fair value movements on foreign currency assets and liabilities through using forward foreign exchange contracts for significant exposures.

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

Foreign exchange rate sensitivity

The following table illustrates the Group's sensitivity to foreign exchange rates on its derivative financial instruments. Sensitivity is calculated on financial instruments at 31 March 2017 denominated in non-functional currencies for all operating units within the Group. The sensitivity analysis includes only outstanding foreign currency denominated monetary items including external loans. The percentage movement applied to each currency is based on management's measurement of foreign exchange rate risk.

Percentage movement

31 March 2017
Impact on
consolidated
income
statement
+/- £m

31 March 2016
Impact on
consolidated
income
statement
+/- £m

10% appreciation of the US dollar

8.8

0.8

10% appreciation of the Canadian dollar

(0.6)

(0.9)

10% appreciation of the euro

0.9

1.2

10% appreciation of the Australian dollar

0.3

0.9

Credit risk management

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

As at 31 March 2017 the Group had two (2016: three) customers that owed the Group more than 5% of the Group's total amounts receivables which accounted for approximately 35% (2016: 30%) of the total amounts receivable.



 

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

 

Note

31 March 2017
£m

Restated

31 March 2016
£m

Cash and cash equivalents

19

133.4

108.3

Net trade receivables

18

158.3

145.4

Accrued income

18

244.5

131.0

Total

 

536.2

384.7

Liquidity risk management

The Group maintains an appropriate liquidity risk management position by having sufficient cash and availability of funding through an adequate amount of committed credit facilities. Management continuously monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flows in the short, medium and long-term. At 31 March 2017, the undrawn committed borrowings under the RCF is equivalent to £116.6m (2016: £106.1m). The facility was entered into in December 2015 (see Note 22) and matures in 2020.

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

Amount due for settlement at 31 March 2017

Trade and
other
payables
£m

Interest-
bearing
loans and
borrowings 1
£m 

Production
financing
£m 

Total
£m

Within one year

138.3

20.1

104.8

263.2

One to two years

 -

19.6

91.2

110.8

Two to five years

 2.0

58.8

 -

60.8

After five years

-

304.6

 -

304.6

Total

140.3

403.1

196.0

739.4

Amount due for settlement at 31 March 2016

 

 

 

 

Within one year (restated)

134.7

19.6

98.0

252.3

One to two years

19.5

19.6

33.6

72.7

Two to five years

-

58.8

-

58.8

After five years

-

324.2

-

324.2

Total (restated)

154.2

422.2

131.6

708.0

1. Amounts for interest-bearing loans and borrowings include interest payments.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from the year ended 31 March 2016.

The capital structure of the Group consists of net debt, being the interest bearing loans and borrowings disclosed in Note 22 after deducting cash and bank balances which are not held repayable only for production financing (disclosed in Note 19), and equity of the Group (comprising issued capital, reserves, retained earnings and non-controlling interests as disclosed in Note 30).

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to grow the business, provide returns for shareholders, provide benefits for other stakeholders and optimise the weighted average cost of capital and optimise efficiencies.

The objectives are subject to maintaining sufficient financial flexibility to undertake its investment plans. There are no externally imposed capital requirements. The management of the Group's capital is performed by the Board. In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.



 

Financial instruments at fair value

Under IFRS, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1

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

Level 2

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

Level 3

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

At 31 March 2017, the Group had the following derivative financial instrument assets and liabilities grouped into Level 2:

 

Note

31 March 2017
£m

31 March 2016
£m

Derivative financial instrument assets

24

9.9

6.3

Derivative financial instrument liabilities

24

(3.4)

(3.1)

Available-for-sale financial assets

24

 -

2.3

At 31 March 2017, the Group had the following derivative financial instrument assets and liabilities grouped into Level 3:

 

Note

31 March 2017
£m

31 March 2016
£m

Put liabilities on partly-owned subsidiaries

20

39.0

30.9

Contingent consideration payable

20

6.0

13.3

Available-for-sale financial assets

24

0.7

 -

Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined.

 

Valuation technique and key inputs

Significant unobservable input

Relationship of unobservable inputs to fair value

Level 2:

Derivative financial instruments

Discounted cash flow - Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

N/a

N/a

Level 3:

Put liabilities on partly owned subsidiaries

Income approach - in this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees.

The expected cash flow is based on the Group's board-approved budget and plans adopted for the three years to 31 March 2020 and a long-term growth rate for subsequent periods.

The value of the put and call options are dependent on future performance of the business.

Long-term EBTIDA growth rates, taking into account management's experience and knowledge of market conditions of the specific industries.

An EBITDA multiple is derived dependant on the compound annual growth rate during the option period. The higher the EBITDA growth rate, the higher the fair value.

If the EBITDA growth was 5% higher or lower while all other variables were held constant, the carrying amount would increase by £3.6m and decrease by £9.2m respectively.

 

Level 3:

Contingent consideration payable

Income approach - in this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees.

The expected cash flow is based on the Group's board-approved budget and plans adopted for the applicable period.

The value of the contingent consideration is dependent on future performance of the business.

EBTIDA for a period of up to two years is used taking into account management's experience and knowledge of market conditions of the specific industries.

The higher the EBITDA growth rate, the higher the value of contingent consideration payable.

The consideration payable for Renegade is based upon adjusted EBITDA performance to 31 December 2016. Amounts in the range of £3.4m - £4.0m will be payable, subject to audit.

The amounts payable under the other contingent consideration relationships is capped at £6.0m.

Level 3:

Available-for-sale financial assets

Income approach - in this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees.

Long-term performance of the available-for-sale investments, taking into account management's experience and knowledge of market conditions of the specific industries.

The greater the cash generation of the investment over time, the higher the fair value.

 

 

27. Subsidiaries

The Group's principal wholly-owned subsidiary undertakings are as follows:

Name

Country of incorporation

Principal activity

Entertainment One Films Canada Inc.

Content ownership and distribution

Entertainment One Limited Partnership

Canada

Content ownership and distribution

Entertainment One Television International Ltd.

Canada

Sales and distribution of films and television programmes

Entertainment One Television Productions Ltd.

Canada

Production of television programmes

Videoglobe 1 Inc.

Canada

Content distribution

Entertainment One UK Limited

England and Wales

Content ownership

Alliance Films (UK) Limited

England and Wales

Content ownership

Entertainment One UK Holdings Limited

England and Wales

Holding company

Entertainment One US LP

US

Content ownership and distribution

Entertainment One Television USA Inc.

US

Sales and distribution of films and television programmes

All of the above subsidiary undertakings are 100% owned and are owned through intermediate holding companies. The proportion held is equivalent to the percentage of voting rights held.

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

 

28. Interests in joint ventures

Accounting policy

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 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 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 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.

Year ended 31 March 2017

Details of the Group's joint ventures at 31 March 2017 are as follows:

Name

Country of incorporation

Proportion held

Principal activity

Suite Distribution Ltd

England and Wales

50%

Production of films

Squid Distribution LLC

US

50%

Production of films

Automatik Entertainment LLC

US

40%

Film development

The Girlaxy LLC

US

50%

Content ownership and distribution

LVK Distribution Limited

England and Wales

50%

Dormant company

Eat St. Digital Inc

Canada

50%

Production of television programmes

Creative England-Entertainment One Global Television Initiative Limited

England and Wales

50%

Development of television shows

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



 

The movements in the carrying amount of interests in joint ventures in the years ended 31 March 2017 and 2016 were as follows:

 

31 March 2017

31 March 2016

 

MGC

£m

Other
£m

MGC
£m

Other
£m

Carrying amount of interests in joint ventures

 -

3.2

87.8

3.2

Transfer from joint venture to fully consolidated subsidiary

 -

(1.8)

(89.9)

 -

Acquisition related costs

 -

 -

(1.0)

 -

Group's share of results of joint ventures for the year

 -

(0.7)

3.1

0.3

Dividends received from joint ventures

 -

 -

 -

(0.2)

Foreign exchange

 -

0.4

 -

(0.1)

Carrying amount of interests in joint ventures

 -

1.1

 -

3.2

 

The transfer from joint venture to fully consolidated subsidiary during the year ended 31 March 2017 relates to the carrying value of equity in Secret Location on acquisition of the remaining 50% of the share capital on 15 August 2016 to fully consolidate Secret Location into the Group's consolidated financial statements. See Note 25 for further details.

The transfer from joint venture to fully consolidated subsidiary during the year ended 31 March 2016 relate to the carrying value of equity in MGC on amendment of the accounting treatment on 19 May 2015 to fully consolidate MGC into the Group's consolidated financial statements.

The Group's share of results of joint ventures for the year of £0.7 loss (2016: £3.4m gain) includes a charge of £nil relating to the Group's share of tax, finance costs and depreciation (2016: £1.6m charge).

The following presents, on a condensed basis, the effects of including joint ventures in the consolidated financial statements using the equity method. Each joint venture in the other category is considered individually immaterial to the Group's consolidated financial statements.

 

Year ended
31 March 2017

Year ended

31 March 2016

 

Other
£m

MGC
£m

Other
£m

Total
£m

Revenue

3.2

9.3

5.0

14.3

(Loss)/profit for the year

(1.1)

6.2

0.6

6.8

(Loss)/profit attributable to the Group

(0.7)

3.1

0.3

3.4

 

 

 

 

 

Dividends received from interests in joint ventures

 -

 -

0.2

0.2

As a result of the purchase of the remaining 50% of Secret Location, Secret Location has been fully consolidated into the Group's consolidated financial statements as a subsidiary from 15 August 2016 going forward and as a result Secret Location is not presented in the table below.

 

31 March 2017
£m

31 March 2016
£m

Non-current assets

2.4

1.5

Current assets (including £0.3m (2016: £0.2m) of cash and cash equivalents)

2.1

6.9

Non-current liabilities

(0.7)

 -

Current liabilities

(1.8)

(5.8)

Net assets of other joint ventures

2.0

2.6

 



 

29. Interests in partly-owned subsidiaries

Accounting policy

The consolidated financial statements comprise the financial statements of the Company 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 or at the point in the future in which the Group ceases to have control of the entity. 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.

Significant judgements

In the process of applying the Group's accounting policies, the Group is required to make a judgement as to whether the Group controls each non-wholly owned company. The Group assessed whether or not the Group has control based on whether the Group has the practical ability to direct the relevant activities of the company. In making their judgement, the directors considered the substantive rights held over the direction of the relevant activities. To account for the company as a subsidiary the directors have concluded that the Group has sufficient substantive rights to direct the relevant activities of the company that most affect the company's returns.

Principal SUBSIDiARIES with non-controlling interests

The Group's principal subsidiaries that have non-controlling interests are provided below:

Name

Country of incorporation

Proportion held

Principal activity

Astley Baker Davies Limited

England and Wales

70%

Ownership of IP

Renegade Entertainment, LLC

US

65%

Production of television programmes

Insomnia VR Productions Inc

Canada

50%

Ownership of IP

 

 

 

 

The Mark Gordon Company group companies

 

 

 

Deluxe Pictures (dba The Mark Gordon Company)

US

51%

Production of films and television programmes

MG's Game, Inc

US

51%

Production of films

Molly's Movie, Inc

US

51%

Production of films

Warm Cases Financing, LLC

US

51%

Production of films

Designated 1 Financing, LLC

US

51%

Production of television programmes

 

 

 

 

Sierra Pictures group companies

 

 

 

Sierra Pictures, LLC

US

51%

Production and international sales of films

999 Holdings, LLC

US

51%

Production of films

999 NY Productions, Corp

US

51%

Production of films

999 Productions, LLC

US

51%

Production of films

Blunderer Holdings, LLC

US

51%

Production of films

Blunderer NY Productions, Corp

US

51%

Production of films

Blunderer Productions, LLC

US

51%

Production of films

Coldest City Productions, LLC

US

51%

Production of films

Coldest City, LLC

US

51%

Production of films

LCOZ Holdings, LLC

US

51%

Production of films

LCOZ NY Productions, Corp.

US

51%

Production of films

LCOZ Productions Limited

England and Wales

51%

Production of films

Osprey Distribution, LLC

US

51%

Production of films

PPZ Holdings, LLC

US

51%

Production of films

PPZ NY Productions, Corp

US

51%

Production of films

PPZ Productions Canada Ltd.

Canada

51%

Production of films

PPZ Productions Ltd

England and Wales

51%

Production of films

Sierra Pictures Development, LLC

US

51%

Production of films

Sierra/Engine Television, LLC

US

51%

Production of films

Sierra/Affinity, LLC

US

51%

International sales of films

 

 

 

 

Television production companies

 

 

 

Westventures IV Productions Ltd *

Canada

50%

Production of television programmes

She-Wolf Season 2 Productions Inc *

Canada

51%

Production of television programmes

She-Wolf Season 3 Productions Inc *

Canada

51%

Production of television programmes

JCardinal Productions Inc *

Canada

50%

Production of television programmes

Cardinal Blackfly Productions Inc *

Canada

51%

Production of television programmes

Oasis Shaftesbury Releasing Inc *

Canada

50%

Production of television programmes

Bon Productions (NS) Inc *

Canada

49%

Production of television programmes

Da Vinci Releasing Inc *

Canada

49%

Production of television programmes

Hope Zee One Inc *

Canada

49%

Production of television programmes

Hope Zee Two Inc *

Canada

49%

Production of television programmes

Hope Zee Three Inc *

Canada

51%

Production of television programmes

Hope Zee Four Inc *

Canada

51%

Production of television programmes

HOW S3 Productions Inc *

Canada

49%

Production of television programmes

HOW S4 Productions Inc *

Canada

49%

Production of television programmes

HOW S5 Productions Inc *

Canada

49%

Production of television programmes

Klondike Alberta Productions Inc *

Canada

49%

Production of television programmes

Amaze Film + Televisions Inc *

Canada

33%

Production of television programmes

iThentic Canada Inc *

Canada

33%

Production of television programmes

FD Media 2 Inc. *

Canada

50%

Production of television programmes

FD Media Inc. *

Canada

50%

Production of television programmes

The Shopping Bags Media Inc *

Canada

50%

Production of television programmes

Seedling Productions 2 Inc *

Canada

49%

Production of television programmes

Union Station Media LLC *

US

50%

Production of television programmes

 

 

 

 

* These production companies within the Television Division have been classified as fully consolidated subsidiaries based on an assessment that, under IFRS 10, the Group has power and control over the activities of the companies. Through these companies, the Group produces or co-produces television programmes. These production companies are structured in such a way that the Group retains the risks and rewards of ownership and has the ability to vary the return it receives from the production company. At the end of the co-production, the production company has zero or minimal net income and zero or minimal tax and other obligations. As such the directors do not consider the production companies to have a material effect on the consolidated financial statements. The impact of the non-controlling interests on the consolidated income statement for the year ended 31 March 2017 for these entities is £nil (31 March 2016: £0.2m loss).

The following presents, on a condensed basis, the effects of including other partly-owned subsidiaries in the consolidated financial statements for the years ended 31 March 2017 and 31 March 2016:

Year ended 31 March 2017

Astley Baker
Davies Limited
£m

The Mark
Gordon
Company
£m

Sierra Pictures
£m

Renegade 83
£m

Revenue

18.0

119.9

91.6

28.6

Profit for the year

6.9

14.2

2.8

3.2

Profit attributable to the Group

4.8

7.2

1.4

2.1

 

 

 

 

 

Dividends paid to non-controlling interests

2.7

 -

0.5

 -

 

 

 

 

 

Non-current assets

150.2

96.7

22.7

8.4

Current assets

12.3

106.4

34.3

6.2

Non-current liabilities

(25.5)

(84.4)

 -

 -

Current liabilities

(2.9)

(49.6)

(38.9)

(7.0)

Net assets of partly owned subsidiaries

134.1

69.1

18.1

7.6

 



 

Year ended 31 March 2016

Astley Baker
Davies Limited
£m

The Mark
Gordon
Company
£m

Restated

Sierra Pictures
£m

Restated

Renegade 83
£m

Revenue

12.8

14.6

20.2

 -

Profit for the period from acquisition to 31 March 2016

6.5

2.9

1.3

 -

Profit attributable to the Group

4.5

1.5

0.7

 -

 

 

 

 

 

Dividends paid to non-controlling interests

0.8

 -

 -

 -

 

 

 

 

 

Non-current assets

157.1

55.3

48.7

12.5

Current assets

10.2

15.7

16.3

3.2

Non-current liabilities

(28.8)

(19.3)

 -

 -

Current liabilities

(2.2)

(4.3)

(51.3)

(12.4)

Net assets of partly owned subsidiaries

136.3

47.4

13.7

3.3

 

30. Stated capital, own shares and other reserves

Accounting policy

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.

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.

Analysis of amounts recognised by the group

Stated capital

 

Year ended 31 March 2017

 

Year ended 31 March 2016

 

Number of
shares
'000

Value
£m

 

Number of
shares
'000

Value
£m

Balance at 1 April

427,343

500.0

 

295,682

305.5

Shares issued on exercise of share options

575

 1.2

 

185

 -

Shares issued as part-consideration for acquisitions

1,729

4.1

 

 -

 -

Shared issued as part of rights issue

 -

 -

 

131,476

194.5

Balance at 31 March

429,647

505.3

 

427,343

500.0

At 31 March 2017 and 31 March 2016 the Company had common shares only.

During the years ended 31 March 2017 and 31 March 2016, the Group issued the following stated capital:

-      574,921 common shares (2016: 185,044) were issued to employees (or former employees) exercising share options granted under the Long Term Incentive Plan (see Note 31). The total consideration received by the Company on the exercise of these options was £nil (2016: less than £0.1m).

-      1,728,794 common shares (equivalent to £4.1m) were issued as at 15 August 2016 as consideration for the purchase of the remaining 50% share in Secret Location. Further details of these acquisitions are set out in Note 25.

-      On 20 October 2015, to fund the acquisition (and associated acquisition costs) of Astley Baker Davies Limited, the Group completed a fully underwritten 4 for 9 rights issue of 131,476,173 new common shares at 153.0 pence per new common share. Net of expenses, the total amount raised was £194.5m. The fees in relation to the equity raise of £6.7m have been capitalised to Equity.

In total, the net proceeds received by the Company during the year on the issue of new common shares was £nil (2016: £194.5m).

Subsequent to these transactions, and at the date of authorisation of these consolidated financial statements, the Company's stated capital comprised 429,646,877 common shares (2016: 427,343,162).



 

Own shares

At 31 March 2017, 1,599,674 common shares (2016: 3,910,328 common shares) were held as own shares by the Employee Benefit Trust (EBT) to satisfy the exercise of future options under the Group's share option schemes (see Note 31 for further details). The book value of own shares at 31 March 2017 was £1.5m (2016: £3.6m).

During the year ended 31 March 2017, 2,310,654 shares (2016: nil) were issued to employees (or former employees) exercising share options granted under the Long Term Incentive Plan (see Note 31). The total consideration received by the Company on the exercise of these options was £nil.

Other reserves

Other reserves comprise the following:

-      a cash flow hedging reserve at 31 March 2017 of debit balance £1.1m (2016: credit balance of £1.4m).

-      a permanent restructuring reserve of £9.3m at 31 March 2017 and 2016 which arose on completion of the Scheme of Arrangement in 2010 and represents the difference between the net assets and share capital and share premium in the ultimate parent company immediately prior to the Scheme.

-      put options over non-controlling interests of subsidiaries reserve which represents the potential cash payments related to put options issued by the Group over the non-controlling interest of subsidiary companies and are accounted for as financial liabilities. The amount that may become payable under the option on exercise is initially recognised on acquisition at present value within other payables with a corresponding charge directly to equity.

31. Share-based payments

Accounting policy

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 of equity-settled share-based payments. The fair value 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 or monte carlo valuation model with the assistance of external advisors. 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.

Key area of estimation uncertainty

The charge for share-based payments is determined based on the fair value of awards at the date of grant by use of models 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 below.

Equity-settled share schemes

At 31 March 2017, the Group had four equity-settled share-based payment schemes approved for its employees (including the executive directors). These are the Long Term Incentive Plan (LTIP), the Executive Share Plan (ESP), the Executive Incentive Scheme (EIS) and the Employee Save-As-You-Earn scheme (SAYE).

The ESP is now closed and no further awards will be made from the scheme. The EIS was approved at the Group's AGM on 16 September 2015. No awards have been granted during the year under the EIS.

The total charge in the year relating to the Group's equity-settled schemes was £5.0m (2016: £4.1m), inclusive of a charge of £0.1m (2016: credit of £0.1m) relating to movements in associated social security liabilities.

Long Term Incentive Plan (LTIP)

On 28 June 2013, an LTIP for the benefit of employees (including executive directors) of the Group was approved by the Company's shareholders. A summary of the arrangements is set out below:

Nature

Grant of nil cost options

Performance period

Up to five years

Performance conditions

(examples of existing performance conditions shown)

(i) Annualised adjusted fully diluted earnings per share growth over the performance period, average return on capital employed over the performance period and total shareholder return over the performance period;

(ii) 50% vesting over the three-year performance period and 50% vesting dependent on performance against annual Group underlying EBITDA targets;

(iii) Pre-determined share price growth targets;

(iv) Time only.

Maximum term

10 years

During the year, grants were made under the LTIP. The fair value of each grant was measured at the date of grant using either a binomial model or a monte carlo model.



 

The assumptions used in the model were as follows:

Grant date

Fair value at measure-ment date (pence)

Number of options granted

Performance period (period ending)

Share price on date of grant (pence)

Exercise price

Expected volatility

Expected life

Dividend yield

Risk free interest rate

24 May 2016

174.6

745,000

May 2019

178.2

Nil

n/a

10 years

0.8%

0.9%

24 May 2016

66.5

750,000

Apr 2020

178.2

Nil

26%

5 years

0.8%

0.9%

15 August 2016

196.0

150,001

May 2019

255.0

Nil

n/a

10 years

0.8%

0.9%

15 August 2016

197.0

120,000

Aug 2021

255.0

Nil

n/a

10 years

0.8%

0.9%

Other ad-hoc grants 1

196.0

111,000

May 2019

199.9

Nil

n/a

10 years

0.8%

0.9%

1.    The options were granted on various days between 4 April 2016 and 14 November 2016. The information presented has been calculated using the weighted average for the individual grants.

 

The expected volatility is based on the Company's share price from the period since trading first began, adjusted where appropriate for unusual volatility. Actual future dividend yields may be different from the assumptions made in the above valuations. Details of share options granted and outstanding at the end of the year are as follows:

 

2017
Number
Million

2017
Weighted
average
exercise price
Pence

2016
Number
Million

2016
Weighted
average
exercise price
Pence

Outstanding at 1 April

11.4

 -

4.0

-

Exercised

(2.9)

 -

-

-

Granted

1.9

 -

6.8

-

Granted (rights issue uplift)

 -

 -

0.8

-

Forfeited

(0.4)

 -

(0.2)

-

Lapsed

(1.6)

 -

-

-

Outstanding at 31 March

8.4

 -

11.4

-

Exercisable

1.5

 -

-

-

The weighted average contractual life remaining of the LTIP options in existence at the end of the year was 6.7 years (2016: 7.4 years).

Employee Save-As-You-Earn Scheme (SAYE)

On 30 September 2016, an SAYE for the benefit of employees (including executive directors) of the Group was approved by the Company's shareholders. Employees make a monthly contribution, depending on jurisdiction, for up to 3 years. At the end of the savings period the employee has the opportunity to retain their savings, in cash, or to buy shares in eOne at a price fixed at the date of grant. A summary of the arrangement is set out below:

Nature

Grant of options, with an exercise price of 151.9 pence

Performance period

Up to three years

Performance conditions

100% of the options vest on the completion of 3 years' service in every territory with the exception of the US which vest on the completion of 2 years' service.

Maximum term

3 years. The options expire six months after vesting.

During the year, grants were made under the SAYE. The fair value of each grant was measured at the date of grant using either a binomial model or a monte carlo model. The assumptions used in the model were as follows:

Grant date

Fair value at measure-ment date (pence)

Number of options granted

Performance period (period ending)

Share price on date of grant (pence)

Exercise price

Expected volatility

Expected life

Dividend yield

Risk free interest rate

28 April 2016

54.8

2,068,452

April 2019

193.5

151.9

n/a

3 years

0.8%

0.97%

28 April 2016

50.7

127,562

April 2018

193.5

151.9

n/a

2 years

0.8%

0.97%

The expected volatility is based on the Company's share price from the period since trading first began, adjusted where appropriate for unusual volatility. Actual future dividend yields may be different from the assumptions made in the above valuations. Details of share options granted and outstanding at the end of the year are as follows:



 

Details of share options exercised, lapsed and outstanding at the end of the year are as follows:

 

2017
Number
Million

2017
Weighted
average
exercise price
Pence

Outstanding at 1 April

 -

 -

Granted

(2.2)

151.9

Exercised

 -

 -

Forfeited

 -

 -

Outstanding at 31 March

(2.2)

151.9

Exercisable

 -

 -

The weighted average contractual life remaining of the SAYE options in existence at the end of the year was 2.1 years.

32. Commitment and contingencies

Accounting policy

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.

Operating lease commitments

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

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

 

31 March 2017
£m

31 March 2016
£m

Within one year

9.6

10.2

Later than one year and less than five years

17.9

21.9

After five years

28.9

29.0

Total

56.4

61.1

Future COMMITMENTS

 

31 March 2017
£m

31 March 2016
£m

Investment in acquired content rights contracted for but not provided

190.3

254.2

contingent liabilities

The Group holds an option to purchase the remaining 49% stake in The Mark Gordon Company after an initial seven-year term. The value of which is to be based upon a commercially negotiated price at the time of purchase. No liability has been recorded within the consolidated financial statements of the Group, as the decision to exercise the option will be determined by the commercial viability at the time and therefore the probability of a payment being made is not known at the balance sheet date.

33. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

Canada Pension Plan Investment Board (CPPIB) held 84,597,069 common shares in the Company at 31 March 2017 (2016: 84,597,069), amounting to 19.69% (2016: 19.80%) of the issued capital of the Company. CPPIB is deemed to be a related party of Entertainment One Ltd. by virtue of this significant shareholding. The Group pays CPPIB an annual fee equivalent to the annual fee paid by the Group to its other non-executive directors in consideration for CPPIB allowing Scott Lawrence to allocate time to his role as a non-executive director of the Company. The fee payable to CPPIB in respect of Scott Lawrence's services for the year ended 31 March 2017 was C$91,700 (2016: C$22,500).

At 31 March 2017 the amounts outstanding payable to CPPIB was C$7,500 (2016: C$22,500).

With the exception of the items noted above, the nature of related parties disclosed in the consolidated financial statements for the Group as at and for the year ended 31 March 2016 has not changed.



 

34. post balance sheet events

On 17 May 2017 the Group entered into an agreement with industry veteran Brad Weston to launch MAKEREADY, a new global content creation company. MAKEREADY will develop and produce original feature films and high-end television programmes for premium cable, OTT and emerging platforms on a worldwide basis.

Under the terms of the agreement, the Group is funding MAKEREADY's launch, including new content that the partnership greenlights. The Group will have distribution of MAKEREADY films in its territories and MAKEREADY television worldwide, providing the Group with a pipeline of premium content created by and starring top tier talent. The agreements with Brad Weston contain certain customary puts and calls and other exit events, including an opportunity for the Group to acquire up to 100% of MAKEREADY, upon certain events, for consideration to be determined in the future.

As part of the previously announced wider reshaping of the Film Division, Entertainment One has re-negotiated one of its larger film distribution arrangements. The previous arrangement has been terminated and replaced with a new distribution arrangement and, associated with the termination, the Company will make a one-time payment of £20.1m (US$25m) which has been included in the Group's consolidated financial statements for the year ended 31 March 2017. Management expects underlying profitability and cash flow to improve for films delivered under the new distribution arrangement.


Appendix to the annual report (unaudited)

for the year ended 31 March 2017

Reconciliation of additional performance measures

Underlying EBITDA

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 Group presents revenue and underlying EBITDA on a constant currency basis, which is calculated by retranslating the comparative figures using weighted average exchange rates for the current year.

The Group presents underlying Group revenue and EBITDA growth (excluding acquisitions) on a constant currency basis which is defined as the underlying revenue or EBITDA growth on a constant currency, excluding the revenue or EBITDA derived from the acquisitions from the date of acquisition to the year-end date.

Adjusted Profit before Tax and Adjusted Earnings

The terms "adjusted profit before tax" and "adjusted earnings per share" refer to the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted earnings per share, one-off tax items. Refer to Note 11.

Return on Capital Employed

The Group presents the term "Return on capital employed" as the "Adjusted net operating profit" as a percentage of "Average capital employed".

Adjusted net operating profit is defined as the adjusted profit for the period adding back Underlying income tax charge relating to joint ventures, interest cost relating to the Group's bank facilities, net financing foreign exchange gain or loss, amortisation of deferred finance charges and the tax effect of the above finance charges (at the Group's adjusted effective tax rate).

Average capital employed is defined as the average of the current period and prior period adjusted total assets less adjusted current liabilities. Total assets are adjusted by deducting the cash and cash equivalents relating to the Group's net debt group. Current liabilities are adjusted by deducting interest bearing loans and borrowings and including non-current production financing.

This measure is used by the directors for internal performance analysis and incentive compensation arrangements for the executive directors.

The Groups' Return on capital employed is calculated as follows:


31 March 2017
£m

31 March 2016
£m

Adjusted net operating profit

122.9

95.5

Average capital employed

992.1

778.4

Return on capital employed (ROCE)

12.4%

12.3%

The reconciliation of adjusted net operating profit to profit for the year is as follows:

 

Note

31 March 2017
£m

31 March 2016
£m

Profit before tax

 

37.2

47.9

Add back:

 

 

 

One-off net finance costs

7

(1.3)

6.5

Amortisation of acquired intangibles

13

41.9

27.4

Share-based payment charge

31

5.0

4.1

Tax, finance costs and depreciation relating to joint ventures

28

 -

1.6

One-off items

6

47.1

16.6

Adjusted profit before tax for the year

 

129.9

104.1

Adjusted tax

8

(27.1)

(22.4)

Add back: Underlying income tax charge relating to joint ventures

 

 -

(2.1)

Interest cost on Group bank facilities

7

22.8

16.4

Net financing foreign exchange loss

7

0.9

2.0

Amortisation of deferred finance charges

7

1.7

2.2

Add back total finance charges

7

25.4

20.6

Tax effect of finance charges (at the Group's adjusted effective tax rate of 20.7% (2016: 22.6%))

 

(5.3)

(4.7)

Adjusted net operating profit

 

122.9

95.5



 

The reconciliation of average capital employed to the consolidated financial statements is as follows:


Note

31 March 2017
£m

Restated
31 March 2016
£m

31 March 2015
£m


Average 2016-17
£m

Average 2015-16
£m

Total assets

 

1,901.0

1,636.9

1,172.7

 

 

Less: Cash and cash equivalents

19

(133.4)

(108.3)

(71.3)

 

 

Add: Cash held only for production financing

19

43.7

13.6

27.6

 

 

Average total assets

 

1,811.3

1,542.2

1,129.0

1,676.8

1,335.6

 

 

 

 

 

 

 

Current liabilities

 

(679.9)

(565.1)

(488.3)

 

 

Less: Current interest bearing loans and borrowings

22

0.5

 -

19.9

 

 

Add: Non-current production financing

23

(91.2)

(33.6)

(47.2)

 

 

Average total liabilities

 

(770.6)

(598.7)

(515.6)

(684.7)

(557.2)

 

 

 


 

 

 

Average capital employed

 

1,040.7

943.5

613.4

992.1

778.4

 

Library valuation

Underpinning eOne's focus on growth through content ownership, the Group commissions an annual independent library valuation calculated using a discounted cash flow model (discounted using the Group's published post-tax weighted average cost of capital) for all of eOne's television, family, film and music assets on a rateable basis with eOne's ownership of such assets. The cash flows represent forecast of future amounts which will be received from the exploitation of the assets, net of payments made as royalties or non-controlling interests and an estimate of the overheads required to support such exploitation.

Currency and acquisition related adjustments

The Group presents revenue and underlying EBITDA on a constant currency basis, which is calculated by retranslating the comparative figures using weighted average exchange rates for the current year.

A reconciliation of the revenue growth on a constant currency basis is shown below:


31 March 2017
£m

31 March 2016
£m

Change
%

Revenue for year ended 31 March (per IFRS consolidated profit and loss account)

1,082.7

802.7

34.9%

Currency adjustment

 -

95.6

 

Revenue for year ended 31 March (constant currency)

1,082.7

898.3

20.5%

A reconciliation of the underlying EBITDA growth on a constant currency basis is shown below:


31 March 2017
£m

31 March 2016
£m

Change
%

Underlying EBITDA for year ended 31 March (per IFRS consolidated profit and loss account)

160.2

129.1

24.1%

Currency adjustment

 -

10.8

 

Revenue for year ended 31 March (constant currency)

160.2

139.9

14.5%

 

Restricted Group financial data

The Notes are secured against the assets of various Group subsidiaries which make up the 'Restricted Group'. The Restricted Group financial data as at 31 March 2017 is as follows:

 

 

As of and for the year ended
31 March 2017
£m

As of and for the year ended
31 March 2016
£m

Revenue

 

843.3

698.5

Underlying EBITDA

 

126.5

109.4

Cash and cash equivalents

 

89.7

94.7

Net debt

 

(187.4)

(180.8)

 



 

 

cash flow and net debt

The table below reconciles cash flows associated with the net debt of the Group. It excludes cash flows associated with production activities which are reconciled in the Cash Flow and Production Financing section below.


 

Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Underlying EBITDA

153.0

121.2

Adjustments for:

 

 

Tax, finance costs and depreciation related to joint ventures

-

(1.5)

One-off items

(44.4)

(16.0)

Disposal of property, plant and equipment

0.8

-

Amortisation of investment in productions

32.8

(3.3)

Investment in productions, net of grants received

(34.2)

(9.2)

Amortisation of investment in acquired content rights

168.3

147.0

Investment in acquired content rights

(181.4)

(121.4)

Impairment of investment in acquired content rights

2.2

3.4

Foreign exchange movements

-

(5.2)

Fair value gain on acquisition of subsidiary

(2.3)

-

Share of results of joint ventures

0.6

(3.0)

Operating cash flows before changes in working capital and provisions

95.4

112.0

Working capital movements

(31.2)

(50.5)

Income tax paid

(16.2)

(14.4)

Net cash from operating activities

48.0

47.1


 

 

Cash one-off items

15.9

14.1

Purchase of PP&E and software

(3.2)

(7.7)

Interest paid

(24.2)

(10.2)

Free cash flow

36.5

43.3

 

 

 

Cash one-off items

(15.9)

(14.1)

Financing items

(1.7)

(6.6)

Acquisitions, net of debt acquired (including purchase of intangibles)

(9.6)

(177.0)

Net proceeds from issue of ordinary shares

-

194.5

Dividends paid

(8.3)

(4.0)

Net increase in net debt

1.0

36.1


 

 

Net debt at the beginning of the period

(180.8)

(224.9)

Net increase in net debt

1.0

36.1

Effect of foreign exchange fluctuations on net debt held

(7.6)

8.0

Net debt at the end of the period

(187.4)

(180.8)

 

The table below reconciles the movement in net debt to movement in cash associated with net debt of the Group:


Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Net increase in net debt

1.0

36.1

Net drawdown of interest bearing loans and borrowings

(1.9)

17.4

Fees paid on refinancing of Group's bank facilities

(0.6)

(9.9)

Acquisitions, debt acquired

2.5

-

Amortisation of deferred finance charges

1.7

2.2

Write off of deferred finance charges and other items

(0.1)

4.2

Net decrease in cash

2.6

50.0

 



 

CAsh flow and Production financing

Production financing cash flows relate to financing which is used to fund the Group's television, family and film productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. It is short-term financing whilst the production is being made and is paid back once the production is delivered from the sales receipts and tax credits associated with that production. The Company deems this type of financing to be working capital in nature, as it is timing-based. The Company therefore shows the cash flows associated with these activities separately. The Company also believes that higher production financing demonstrates an increase in the success of the Television, Family and Film production businesses, which helps drive revenues for the Group and therefore increases the generation of EBITDA and cash for the Group, which in turn reduces the Group's net debt leverage.

The table below reconciles cash flows associated with the production financing taken out by the Group.


Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Underlying EBITDA

7.2

7.9

Adjustments for:

 

 

Tax, finance costs and depreciation related to joint ventures

-

(0.1)

One-off items

(2.7)

(0.6)

Amortisation of investment in productions

180.6

113.9

Investment in productions, net of grants received

(192.3)

(87.9)

Foreign exchange movements

-

1.2

Share of results of joint ventures

0.1

(0.4)

Operating cash flows before changes in working capital and provisions

(7.1)

34.0

Working capital movements

(4.7)

(8.5)

Income tax paid

(2.2)

(3.3)

Net cash from operating activities

(14.0)

22.2


 

 

Cash one-off items

0.9

0.5

Purchase of PP&E and software

(0.3)

(0.9)

Interest paid

(0.1)

(0.1)

Free cash flow

(13.5)

21.7


 

 

Cash one-off items

(0.9)

(0.5)

Financing items

-

 (0.1)

Acquisitions, net of production financing acquired (including purchase of intangibles)

(0.7)

(49.0)

Net (increase)/decrease in production financing

(15.1)

(27.9)

 

 

 

Production financing at the beginning of the period

(118.0)

(89.3)

Net (increase)/decrease in production financing

(15.1)

(27.9)

Effect of foreign exchange fluctuations on production financing

(19.2)

(0.8)

Production financing at the end of the period

(152.3)

(118.0)

                                 

The table below reconciles the movement in production financing to the movement in cash associated with production financing taken out by the Group:


Year ended
31 March 2017
£m

Year ended
31 March 2016
£m

Net (increase)/decrease in production financing

(15.1)

(27.9)

Acquisitions, debt acquired

-

52.7

Net drawdown/(repayment) of production financing

45.7

(39.0)

Other items

-

0.2

Net increase in cash

30.6

(14.0)

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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