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RNS
Entertainment One Ltd   -  ETO   

Full Year Results

Released 07:00 21-May-2019

RNS Number : 6318Z
Entertainment One Ltd
21 May 2019
 

ENTERTAINMENT ONE LTD. (eOne)

FULL YEAR RESULTS

FOR THE YEAR ENDED 31 MARCH 2019

 

STRONG EARNINGS GROWTH DELIVERED, CONFIDENT OUTLOOK 

 

FINANCIAL HIGHLIGHTS

·     

Group reported underlying EBITDA up 21% at £198 million (2018: £164 million), driven by strong growth in Family & Brands and higher margins in Film, Television & Music - Group underlying EBITDA margin improvement by 510 basis points to 21.0%

·     

Group reported revenue of £941 million (2018: £1,029 million) reflecting continued growth in Family & Brands and lower revenue from Film, Television & Music largely attributable to the change in the film strategy

·     

Group adjusted profit before tax up 20% at £156 million (2018: £130 million), Group reported profit before tax of £37 million (2018: £65 million), including one-off charges

·     

Adjusted diluted earnings per share up 30% at 25.0 pence per share (2018: 19.3 pence per share)

·     

Full year dividend of 1.5 pence per share (2018: 1.4 pence per share)

·     

Year end net debt leverage at 1.7x, slightly better than guidance

OPERATIONAL HIGHLIGHTS

·     

Family & Brands continued to deliver strong revenue up 28% and underlying EBITDA growth up 37% from its key brands through a mix of high margin advertising video on demand (AVOD) and subscription video on demand (SVOD) platform revenues and licensing and merchandising (L&M) sales

·     

Retail sales grew by 6% in the year to US$2.5 billion with broader consumer roll out of our brands still to come

·     

Film, Television & Music underlying EBITDA grew 9% with margins improving by 300 basis points to 14.6%, due to the changing mix towards television and music and the positive impact of cost savings

·     

The integration of our Film and Television Divisions completed and on track to deliver £13-15 million in annualised cost savings by end of FY20

·     

Transition in film now largely complete, with a reduced slate of high quality titles delivering a 56% increase in average box office revenue per release

·     

Independent library valuation increased to US$2.0 billion as at 31 March 2018 (2017: US$1.7 billion)

CORPORATE POST YEAR END ACQUISITION

·     

Acquisition of Audio Network, one of the world's largest independent creators and publishers of original, high quality music for use in film, television, advertising and digital media. The business brings high growth, high margin, recurring revenues and significant cash generation to the Group as well as attractive revenue opportunities in combination with our existing music activities.

ALLAN LEIGHTON, CHAIRMAN, COMMENTED:

"FY19 has been another year of impressive earnings growth for Entertainment One, with the Group's streamlined structure and talent-driven approach positioning it well in vibrant and dynamic content markets. Our focus on developing relationships with the best creatives in the industry and our deep customer reach give me confidence for the year ahead and beyond. As such, the Board is pleased to increase the dividend by 7% to 1.5 pence per share, in line with its progressive dividend policy."

DARREN THROOP, CHIEF EXECUTIVE OFFICER, COMMENTED:

"The work and organisational shifts that we have accomplished over the last few years have positioned the business well in the marketplace, as we reinforced our content creation and ownership anchor and expanded our end-to-end capabilities to ensure we maximise our ability to unlock the power and value of creativity.

Our underlying EBITDA for FY19 is testament to our future-facing strategy, the breadth of our portfolio and platform-agnostic approach and reflects our stronger position in the market. We remain focused on building the leading talent-driven entertainment company in the world and are confident that in the period ahead we will continue to attract outstanding talent and deliver the highest quality content across all areas of our business."

 

 

GROUP FINANCIAL SUMMARY

 

 

Reported

 

 

Restated

 

£m

2019

2018⁴

Change

Revenue

941.2

1,029.0

(9%)

Underlying EBITDA1

197.6

163.6

21%

Underlying EBITDA %

21.0%

15.9%

510bps

Net cash generated from operating activities

30.0

14.9

101%

Investment in acquired content and productions2

380.2

440.8

(14%)

 

 

 

 

Reported

Adjusted

£m

2019

2018⁴

Change

2019

2018⁴

Change

Profit before tax3

36.8

64.9

(43%)

155.9

130.2

20%

Diluted earnings per share (pence)3

2.5

12.0

(9.5)

25.0

19.3

5.7

 

 

1. Underlying EBITDA is operating profit or loss excluding amortisation of acquired intangibles; depreciation; amortisation of software; share-based payment charge; tax, finance costs and depreciation related to joint ventures; and operating one-off items. Underlying EBITDA is reconciled to operating profit in the Other Financial Information section of this 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 and adjusted diluted earnings per share are the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted diluted earnings per share, one-off tax items. Refer to the Other Financial Information section of this Announcement for a reconciliation of adjusted profit before tax and Note 12 of the consolidated financial statements for the adjusted diluted earnings per share reconciliation.

4. Reported 2018 amounts have been restated for IFRS 15 Revenue from Contracts with Customers, refer to Note 1 of the consolidated financial statements for further details.

 

Group reported revenue of £941.2 million (2018: £1,029.0 million) was 9% lower year-on-year (also 9% lower on a constant currency basis retranslating prior year reported financials at current year foreign exchange rates) reflecting strong growth in Family & Brands (28% higher) and lower revenue in Film, Television & Music (13% lower) expected as part of the Group's transition to a production focus. The growth in Family & Brands was driven by continued strong performance of Peppa Pig, significant growth from PJ Masks and the delivery of new show, Cupcake & Dino: General Services. The decline in Film, Television & Music was predominantly the result of fewer film releases, home entertainment market decline and scripted television slate composition, partly offset by a 30% increase in music revenue.

Group reported underlying EBITDA was 21% higher at £197.6 million (2018: £163.6 million), driven by strong growth in Family & Brands (37% higher) and increase in Film, Television & Music (9% higher). Alongside the increase in revenue, the growth in Family & Brands was driven by improved underlying EBITDA margin as a larger portion of revenue was generated from AVOD and SVOD platforms which have higher margins. The Film, Television & Music increase was driven by the improved profitability on television shows, increased high margin royalty income from television library participations, increased music revenue and operating costs savings of around £5 million (approximately £6 million in aggregate through FY19). This was partly offset by the impact of the lower transactional revenue driven by fewer releases and market decline. The underlying EBITDA margin increased by 510 basis points driven by the increased margin in both Divisions and as the higher margin Family & Brands Division is a greater proportion of the Group's underlying EBITDA than the prior year. On a constant currency basis, Group underlying EBITDA increased by 19%.

Net cash generated from operating activities amounted to £30.0 million in comparison to £14.9 million in the prior year, reflecting lower investment in content and increase in operating performance.

Adjusted profit before tax for the year was up £25.7 million to £155.9 million (2018: £130.2 million), due to the increase in underlying EBITDA, partly offset by increased net finance costs reflecting the higher average debt levels year-on-year primarily arising from the March 2018 acquisition of the remaining 49% interest in The Mark Gordon Company. Reported profit before tax for the year was £36.8 million (2018: £64.9 million), impacted by higher one-off charges of £68.0 million (2018: £7.1 million) with the increase primarily relating to the impairment of certain assets within the film distribution businesses which is detailed in the Other Financial Information section of this Announcement, partly offset by the increased underlying EBITDA.

Adjusted diluted earnings per share were 25.0 pence (2018: 19.3 pence). On a reported basis, diluted earnings per share were 2.5 pence (2018: 12.0 pence) reflecting the higher one-off charges.

 

 

FY20 OUTLOOK SUMMARY

FAMILY & BRANDS

The Division is expected to continue to generate strong revenue and underlying EBITDA growth across the portfolio in FY20. It is also expected that underlying EBITDA margin will be slightly reduced due to revenue stream mix and investment in additional infrastructure necessary to facilitate continued growth and to support brand longevity.

Key operational drivers for Peppa Pig:

-    

Revenue mix: Peppa Pig SVOD and AVOD revenues are expected to remain at a robust level as season 7 launches

-    

Broader consumer roll outs: Peppa Pig L&M growth is expected from wider consumer product roll outs in China, rest of Asia and Germany. The US is expected to grow incrementally supported by retail promotions for the toy category and new clothing licensees. In the UK, the brand celebrates its 15th year anniversary in May 2019, which will create new licensing opportunities in clothing and publishing

Key operational drivers for PJ Masks:

-    

Content pipeline: PJ Masks season 3 started to air on Disney Channel in North America from April 2019 and throughout the year for other territories. Season 4 has been greenlit and is now in pre-production

-    

New PJ Masks ancillary toy lines will build upon its popularity as #2 ranked pre-school brand in the US toy market. Following its broadcasting debut in China in FY19, a wide consumer launch will take place in China in FY20

Ricky Zoom is scheduled for its broadcast debut in China on SVOD platform Youku in summer 2019, to be followed by a global broadcast launch in autumn/winter 2019 in all other territories simultaneously. The consumer products launch of the brand is anticipated to be spring/summer 2020 with global toy partner TOMY.

New comedy shows currently in production include Ninja Express, which already has major platforms attached in multiple territories around the world, and Alien TV for a global SVOD platform. Further properties are in development, across pre-school and older demographics.

FILM, TELEVISION & MUSIC

The integration of the Film & Television operations is on track to generate £13-15 million of annualised cost savings by the end of FY20, from business efficiencies and centralisation of support functions from the combined operations to form a single, streamlined operating structure. Broadcast and licensing revenue is expected to increase driven by the ramp up of the scripted and unscripted television businesses and music is also expected to continue to grow organically and through the recent acquisition of Audio Network.

Key operational drivers:

-    

Our slate of targeted higher quality releases including eOne productions Queen & Slim produced by Makeready; Poms starring Diane Keaton and Jacki Weaver; Scary Stories to Tell in the Dark produced by Guillermo del Toro; and Wild Rose starring Jessie Buckley

-    

Output partner titles will include Amblin's 1917 directed by Sam Mendes and starring Benedict Cumberbatch; and Annapurna Picture's Booksmart directed by Olivia Wilde

-    

Scripted television slate for FY20 will include Run (HBO), a new romantic comedic thriller; Nurses (Global in Canada and sold by eOne internationally); Albedo (Vudu, expected delivery in FY21) a mystery drama series; Deputy (Fox in the US and sold by eOne internationally), a new scripted drama primetime network series; and renewals of The Rookie (season 2), You Me Her (season 5) and Cardinal (season 4). International distribution of third party television titles will reduce as the AMC output deal has now ended for new productions. FY20 will include Fear the Walking Dead season 5 and The Walking Dead season 10

-    

Major unscripted title renewals include Growing Up Hip Hop, Siesta Key, Ex on the Beach, Naked and Afraid and Lady Gang

-    

In music, there are new album releases from The Lumineers, Wu-Tang and guitar legend Zakk Wylde in FY20

Following the end of the financial year, in April 2019, eOne acquired UK based Audio Network, one of the world's largest independent creators and publishers of original high quality music for use in film, television, advertising and digital media. Audio Network enhances eOne's presence in a rapidly growing sector within music, delivering attractive growth that is complementary to eOne's music, film, television and family brands businesses.

 

 

FINANCIAL METRICS

Key financial metrics are summarised as follows:

 

2020 Outlook

2019

Family & Brands

 

 

Investment in productions

£10 million

£6.4 million

Live licensing and merchandising contracts

Close to 1,800

Over 1,600

 

 

 

Film, Television & Music

 

 

Investment in productions, television

£350 million

 £213.3 million

Investment in acquired content, television

£30 million

£43.5 million

Investment in productions, film

£95 million

£35.0 million

Investment in acquired content, film

£55 million

£72.1 million

Investment in acquired content and production, other including music

£13 million

£10.3 million

Half hours produced/acquired, television

Over 1,200

1,142

No. of unique theatrical releases

50

57

 

 

 

Amortisation of acquired intangibles

£36.2 million¹

£39.0 million

One-off items

£10 million

£68.0 million

Adjusted effective tax rate

22%

20.0%

Weighted average number of shares in issue

516 million

473.6 million

 

 

 

Net debt to Group underlying EBITDA leverage

1.6x²

1.7x

 

1. Does not yet reflect amortisation for Audio Network. Purchase price allocation to be completed.

2. Including £52 million additional debt related to Audio Network acquisition.

 

 

STRATEGY

The market for content rights continues to be driven by rapid changes in consumer behaviour, as audiences today expect the best content to be delivered to them in a format and at a time they dictate. As industry participants adapt their businesses to service this demand, the ability to offer the very best content becomes a critical success factor and plays to the Group's strengths as a leading independent integrated platform-agnostic content creator.

Focused on building the leading talent-driven entertainment company in the world, Entertainment One's strategy to unlock the power and value of content is grounded by four key pillars:

-    

Home for Talent - we work in partnership with the world's best creative talent across the film, television, family content and music industries. We work closely with them to bring the best talent-rich content to audiences around the world and share the benefits of success

-    

High quality content creation - the combination of our relationships with talented creatives and our platform-agnostic approach propels us to develop and produce highly valued content across multiple media formats. This strategy enables us to work with all buyers of content from traditional cable television networks to digital subscription platforms

-    

End-to-end capabilities - we offer creative partners a full suite of capabilities to create opportunities to bring the best content and brands to market. Our extensive integrated infrastructure ensures projects are financed, supported and managed; and our deep broadcaster, network and platform relationships help optimise the monetisation of rights globally

-    

Global rights ownership - at the heart of everything we do is our growing library of high quality content rights that we monetise across the world. We make significant, risk-balanced investments in our content every year to drive earnings for today and to create a store of value for tomorrow

The successful implementation of this strategy has enabled us to build a balanced content and brand business with sustainable revenue and underlying EBITDA growth across both of our Divisions.

 

BUSINESS MODEL

The Group's business model remains unchanged as we continue to operate across attractive growth markets through two Divisions

Family & Brands

eOne creates and develops a growing number of children's brands, working with broadcast partners to launch these brands globally. The costs of production are typically covered by broadcast licence sales, but the bulk of the Division's revenue and profit is generated from licensing and merchandising royalties from the sale of branded consumer products. In addition, the brands also generate a range of ancillary revenues such as AVOD from platforms such as YouTube; SVOD revenues from the sale of multiple titles of content to video streaming platforms such as Netflix or Tencent; live show revenues from ticket sales; and experiential revenues from partners such as Merlin Entertainments and Paultons Park.

Film, Television & Music

eOne is a producer of film and television content, working with creative partners to develop the best films and television shows. Using a production finance model (where films and television shows are pre-sold to distributors and broadcasters, networks and platforms) we can offset significant proportions of our production risk and use third party capital and tax incentives to finance our production activities. We retain ownership of the content rights and sell them around the world through our extensive relationships with content buyers. The Group also acquires third party content. In television, we sell in-demand third party content internationally and in film we acquire territorial film rights from high quality independent producers to distribute in our territories and global rights which are sold internationally. In music, we operate across recorded music, publishing, artist management and live events, generating fees and royalty revenues. The recent Audio Network acquisition adds professional music services to our capabilities, bringing us annually-recurring subscription revenues.

 

STRATEGIC PROGRESS

In tandem with the financial performance during the period, the Group has made solid progress against its strategy:

Family & Brands

-    

As Peppa Pig celebrates its 15th birthday in 2019 the brand continues to deliver a steady consumer performance in key markets like the UK and the US, where it has become evergreen

-    

Chinese audiences continue to embrace the Peppa Pig brand and we generated strong SVOD revenues in the year

-    

We continue to fully roll out the Peppa Pig consumer products programme across our markets as well as developing new revenue opportunities in SVOD and experiential initiatives. These drive incremental brand engagement

-    

PJ Masks is consolidating its position as a global brand following its successful consumer roll out across the US, Europe and Asia. In China, in addition to SVOD exposure, the brand is now carried on the nationwide television broadcaster, CCTV and positions it well for the upcoming broad consumer products roll out in the territory

-    

New content is a key driver of engagement and we continue to produce and deliver episodes of both brands globally. There are 117 new episodes of Peppa Pig in production which will air up to 2023 and PJ Masks season 3 was delivered to Disney during FY19 and season 4 is in pre-production. This ensures a steady supply of fresh, high quality content over the medium term

-    

The Group's next global pre-school brand, Ricky Zoom, will be launched on SVOD in China in summer 2019, followed shortly thereafter by a single global launch before the end of the year. We plan to build brand traction for the consumer products launch starting in spring/summer 2020

Film, Television & Music

-    

Television markets worldwide remain buoyant and our strong relationships with both creative talent and content buyers have consolidated our position as a leading independent content producer in the industry delivering over 1,100 half hours of produced/acquired content in FY19

-    

Our focus on quality content has been unwavering during a period of rapid change across our industries. Despite the transition in film, we experienced critical acclaim with films such as Green Book, Vice and Stan & Ollie and looking ahead the slate has exciting films from creative and strategic partners including Guillermo Del Toro, Brad Weston, David Ayer and Chris Long, Annapurna and Amblin

-    

Our television operations continue to ramp up with fresh, new shows from established partners and up-and-coming talent ordered by networks during the year across both scripted and unscripted. The development pipeline is very active with over 60 projects set up for development across a broad range of traditional and digital networks

-    

Our music operations have been significantly enhanced following the acquisition of Audio Network, one of the world's largest independent creators and publishers of original high quality music for use in film, television, advertising and digital media

-    

Successful release slate of music during the year, with number one albums from artists across multiple genres. Nurturing new talent alongside our established acts is also progressing with latest breakthrough talent Blueface generating global success with the hit song Thotiana

Library

-    

The addition of quality content and the greater value being ascribed to rights drove a significant increase in the independent FY18 valuation of the Group's content library to US$2.0 billion (2017: US$1.7 billion)

CORPORATE

Acquisition of Audio Network - post year end

In April 2019 eOne acquired UK based Audio Network, one of the world's largest independent creators and publishers of original high quality music for use in film, television, advertising and digital media. The Group paid consideration of £179 million (which included £13 million of cash and cash equivalents on Audio Network's balance sheet), financed through a mix of new equity issuance and debt. Audio Network enhances eOne's presence in a rapidly growing sector within music, delivering attractive growth that is complementary to eOne's music, film, television and family brands businesses. Audio Network's business model is based on generating revenues through synchronisation ('sync') fees and music publishing royalties. This attractive mix of recurring, high margin revenues enables Audio Network to deliver underlying EBITDA margins of around 35% and achieved a conversion rate of underlying EBITDA to free cash flow of approximately 90% in FY18.

Audio Network brings longstanding partnerships with more than 1,000 artists and composers and a high quality library of over 150,000 instrumental and orchestral tracks to eOne's library of around 40,000 commercial songs. We are excited by the prospect of integrating these libraries together on Audio Network's proprietary music publishing platform to simplify music rights management and to generate incremental sync placement opportunities for eOne's commercial artists. We can also now utilise Audio Network's music content in eOne's own film, television and family productions, bringing this activity largely in-house.

 

 

DIVISIONAL OPERATIONAL & FINANCIAL REVIEW

The Divisional tables below are presented gross of inter-segment eliminations. For further information refer to Note 2 in the consolidated financial statements.

FAMILY & BRANDS

The Family & Brands Division develops, produces and distributes a portfolio of children's television properties on a worldwide basis, its principal brands being Peppa Pig and PJ Masks. A significant proportion of its revenue is generated through high margin licensing and merchandising programmes across multiple retail categories.

 

£m

2019

2018⁴

Change

Revenue

158.5

123.9

28%

Transactional

32.2

25.9

24%

Broadcast and Licensing

30.5

12.5

144%

Licensing and Merchandising

89.4

78.8

13%

Production and Other

6.4

6.7

(4%)

Underlying EBITDA

97.0

71.0

37%

Underlying EBITDA %

61.2%

57.3%

390bps

Investment in productions

6.4

9.6

(33%)

 

 

Revenue for the year was up 28% to £158.5 million (2018: £123.9 million), driven by the continued strong performance of Peppa Pig, significant growth from PJ Masks and the delivery of a new show, Cupcake & Dino: General Services.

Underlying EBITDA increased 37% to £97.0 million (2018: £71.0 million), driven by increased revenue. The underlying EBITDA margin was 390 basis points higher reflecting the larger portion of revenue generated from high margin AVOD and SVOD platforms (transactional and broadcast and licensing revenue grew 24% and 144%, respectively) which help to drive awareness of our brands.

Investment in productions of £6.4 million (2018: £9.6 million) was £3.2 million lower than the prior year due to higher spend on Cupcake & Dino: General Services and PJ Masks in the prior period. Investment spend in the current year included the new episodes of Peppa Pig, season 2 and 3 of PJ Masks, new property Ricky Zoom and new show Alien TV.

Licensing and merchandising revenue grew by 13% to £89.4 million (2018: £78.8 million) reflecting the US$2.52 billion of retail sales in the year (2018: US$2.38 billion). Retail sales during the year were impacted by the slower, more measured roll out of merchandise in China and the closure of Toys R Us particularly in the US. More than 1,100 new and renewed broadcast and licensing agreements were concluded in the year, an increase of 5% year-on-year. At 31 March 2019, the business had over 1,600 live licensing and merchandising contracts across its portfolio of brands (2018: almost 1,500) driven by the managed roll out.

Peppa Pig has continued to grow in the year with revenue growth of 20% at £90.2 million (2018: £75.2 million). This growth was driven by SVOD and AVOD revenues as well as TV broadcast renewals in the year. New and renewed SVOD deals for seasons 1 to 6 were signed in China with Mango TV, Youku, iQIYI and Tencent. Retail sales were up 4% at US$1.35 billion (2018: US$1.30 billion) but were impacted by the slower than anticipated roll out in China and the closure of Toys R Us in the US. The theatrical release of Peppa Pig Celebrates Chinese New Year in January 2019 generated a high level of social media buzz globally and drove strong brand awareness across the territory. Peppa Pig won the Young Property of the Year at the China Licensing Awards in October 2018.

The brand continues to be strong in key territories such as the US and the UK, remaining one of the leading pre-school brands in these markets. In the US the brand remains a top-rated show for children between 2-5 years old where it currently airs multiple times daily on Nick Jr. as well as weekdays on the Nickelodeon channel. Peppa Pig relaunched in Germany following a change in broadcaster to Super RTL and has seen growth in licensing revenue in the year. A total of 264 episodes are currently airing daily across 180 territories. Global location-based entertainment partner Merlin Entertainments opened two Peppa Pig World of Play centres during the second half of the financial year, in Shanghai and Dallas; with Michigan opening in early April 2019 on the back of very strong sales in Dallas and further launches anticipated. These developments further energise the brand awareness and reinforce Peppa Pig's status as an evergreen property.

PJ Masks has gone from strength to strength across its markets with revenue increasing by 39% to £59.5 million (2018: £42.7 million) and retail sales increasing 10% to US$1.15 billion (2018: US$1.05 billion). Licensing and merchandising revenues continued to be a fundamental growth driver with an overall increase of 37% in the year driven by further successful roll outs in all categories across all territories. Growth has been particularly strong in North America, Australia and Germany. PJ Masks remains the second biggest pre-school toy property in the US and the third biggest in the UK. The roll out in China has begun with an expansion anticipated for FY20.

PJ Masks is now broadcasting in all key territories on Disney Junior with excellent ratings, particularly after the launch of season 2 earlier this year. The brand also has a strong digital presence with an ongoing worldwide SVOD deal with Netflix and Mango TV in China which has provided SVOD revenue and enhanced brand exposure in addition to presence on Youku, iQIYI and Tencent.

New show Cupcake & Dino debuted globally on Netflix, Teletoon in Canada and Disney XD in Brazil during the year. All 26 episodes have been fully delivered, the first 13 episodes were aired in July 2018 with the second 13 episodes airing from May 2019.

2020 OUTLOOK FOR FAMILY & BRANDS

There is expected to be continued growth for Peppa Pig and PJ Masks in FY20 with a contribution from new brand Ricky Zoom. The business is expecting to have close to 1,800 live licensing and merchandising contracts by the end of FY20. The Division will continue to invest in its team in order to maximise the opportunities globally for existing and new brands.

Peppa Pig licensing and merchandising growth is expected from wider consumer product roll outs in China, rest of Asia and Germany. The US is expected to grow incrementally supported by retail promotions for the toy category and new clothing licensees on board. The brand has entered its 15th year anniversary in the UK which will see opportunities for new clothing lines and new publishing titles being released in FY20. The 117 episodes of Peppa Pig currently in production with the original creators of the show, will air from spring 2019 through to 2023, bringing the total number of available episodes to 381, which will increase brand awareness and help maintain presence globally. Peppa Pig SVOD and AVOD revenues are expected to remain at a robust level as season 7 launches.

PJ Masks is also expected to grow licensing and merchandising revenue across most regions. Season 3 airs on Disney Channel in North America from April 2019 and throughout the year for other territories. Season 4 has been greenlit and is now in pre-production. We anticipate additional free to air exposure in FY20 opening a new audience segment of the market in our existing territories which will further help to drive brand penetration. Continued success is expected in the US where the brand will build upon its popularity as #2 ranked pre-school brand in the US toy market from new ancillary toy lines. In China, the property has been successfully rolled out across the major digital platforms and is now also being carried on the national free to air channel CCTV increasing brand exposure. A wider consumer launch will take place in China in FY20 following on from the free to air broadcast.

Ricky Zoom, a new pre-school vehicle-based series, is scheduled for its broadcast debut in China on SVOD platform Youku in summer 2019, to be followed by a global broadcast launch in autumn/winter 2019 in all other territories simultaneously. The consumer products launch of the brand is anticipated to be spring/summer 2020 with global toy partner TOMY.

Also in production are comedy shows Ninja Express which already has major platforms attached in multiple territories around the world and Alien TV for a global SVOD platform. Further properties are in development across pre-school and older demographics.

The Division is expected to continue to generate strong revenue and underlying EBITDA growth across the portfolio in FY20. It is also expected that underlying EBITDA margin will be slightly reduced due to revenue stream mix and investment in additional infrastructure which are necessary to facilitate growth and support brand longevity. 

 

FILM, TELEVISION & MUSIC

The Film, Television & Music Division focuses on controlling high quality, premium film, television and music content rights around the world and selling this content globally.

 

£m

2019

2018⁴

Change

Revenue

789.4

911.1

(13%)

Theatrical

60.9

57.1

7%

Transactional

67.6

133.8

(49%)

Broadcast and Licensing

380.9

448.3

(15%)

Production and Other

215.6

223.1

(3%)

Music

64.4

49.4

30%

Eliminations

-

(0.6)

100%

Underlying EBITDA

115.2

105.9

9%

Underlying EBITDA %

14.6%

11.6%

300bps

 

 

 

 

Investment in acquired content

 

 

 

- Film

72.1

104.5

(31%)

- Television

43.5

35.7

22%

- Music

6.3

4.3

47%

 

 

 

 

Investment in productions

 

 

 

- Film

35.0

58.8

(40%)

- Television

213.3

224.8

(5%)

- Other

4.0

4.2

(5%)

 

Revenue in the year decreased by 13% to £789.4 million (2018: £911.1 million) due to lower transactional, broadcast and licensing and production and other revenue driven by lower film release volume, home entertainment market decline and scripted television slate composition. This was partly offset by growth in theatrical and music.

Underlying EBITDA increased by 9% driven by improved profitability on television shows, increased high margin royalty income from television library participations, increased music revenue and additional operating cost savings of around £5 million (approximately £6 million in aggregate through FY19). These positive trends more than offset the impact of lower transactional revenue driven by fewer releases and significant market decline. There was an underlying EBITDA margin improvement of 300 basis points driven by the change in mix to higher margin television revenue and the impact of the operating cost savings generated from the restructuring and further integration of the Film and Television Divisions.

Film investment in acquired content reduced by £32.4 million to £72.1 million (2018: £104.5 million) due to the lower volume film slate as expected and in line with our strategy to shift investment from acquisitions to productions. Film investment in productions was lower by £23.8 million at £35.0 million (2018: £58.8 million) due to the timing of productions.

Television investment in acquired content increased by £7.8 million to £43.5 million (2018: £35.7 million) due to timing of spend on the AMC/Sundance shows. Television investment in productions was lower by £11.5 million at £213.3 million (2018: £224.8 million) due to the timing of production including a higher level of tax credits received. 1,142 half hours of new programming were acquired/produced in the year compared to 887 in the previous year of which 708 related to unscripted compared to 350 in the prior year.

Theatrical

Theatrical revenue increased by 7% to £60.9 million (2018: £57.1 million) as a result of strong box office receipts in the second half of the year driven by key titles Green book, Vice and Stan & Ollie. Box office receipts were up 5% from US$207.6 million in 2018 to US$217.5 million in 2019. Average revenue per release was up substantially more to 56%. The total number of unique releases was 57 in the year, down from 85 in the prior year, reflecting the strategic transition from lower margin film distribution towards fewer high quality film productions distributed across the direct distribution footprint.

Academy Award® winning Green Book, from our partners DreamWorks and Participant Media, was an incredible success for eOne. The film has a worldwide box office of over US$300 million, with eOne's territories delivering close to US$60 million of the gross box office combined. BAFTA-nominated Stan & Ollie, an eOne production, achieved UK box office revenue of over £10 million in its first eight weeks of release. Other key releases in the year included The House with a Clock in Its Walls from Amblin, Vice from Annapurna Pictures and I Feel Pretty.

Transactional

Transactional revenue decreased by 49% to £67.6 million (2018: £133.8 million) across both physical and digital driven by lower release volume reflecting the Group's strategy to focus on fewer high quality films that can be released across the entire theatrical distribution footprint and a secular decline in the industry.

As announced at the half year, given the accelerated home entertainment market decline the Group recorded a one-off charge primarily reflecting the impairment of certain film distribution assets. The one-off charge for the full year was £61.0 million (of which £56.1 million was non-cash). Please refer to the details on one-off items within the Other Financial Information section of this Announcement.

In total, 160 DVDs and Blu-ray titles were released during the year (2018: 255), a decrease of 37%. Key titles included The House with a Clock in Its Walls, The Post, Finding Your Feet, season 9 of The Walking Dead, I Feel Pretty, A Simple Favor, Molly's Game and The Spy Who Dumped Me.

Broadcast and licensing

Broadcast and licensing revenue decreased 15% to £380.9 million (2018: £448.3 million) due to scripted television slate composition including fewer episodes of the third season of Designated Survivor (10 episodes compared to 22) and change in timing of placement for new shows. Revenue from third party television titles also reduced due to lower revenue for the Fear the Walking Dead franchise.

Key scripted television deliveries in the year included the first season of The Rookie, which premiered in October 2018 across a number of territories and was CTV's #1 new drama and ABC's #3 drama for the 2018-19 season to date; Designated Survivor season 3 was sold to Netflix and will air in summer 2019; Ransom season 3; You Me Her season 4; Burden of Truth season 4; and Private Eyes season 3.

Key acquired television content included season 3 of Into the Badlands, season 4 of Fear the Walking Dead and The Walking Dead season 9.

Film broadcast and licensing revenues included the film production How It Ends sold to Netflix on a worldwide basis. Broadcast and licensing sales on theatrical titles included The BFG, The Girl on the Train, Finding Your Feet, The Death of Stalin, I Feel Pretty, A Simple Favor and Molly's Game.

Production and other

Production and other revenue decreased by 3% to £215.6 million (2018: £223.1 million) driven by lower number of film productions, with Stan & Ollie released in the year compared to four titles released in the prior year and lower revenue on third party international film sales. This was partly offset by growth in unscripted television and increased royalty income from television library participations.

Unscripted television performed very well during the year successfully led by Ex on the Beach, Siesta Key, America Says, Ladies Night and Naked and Afraid. The business acquired a majority stake in Whizz Kid Entertainment, a UK based unscripted television production company, at the start of the financial year.

The television library participations included Grey's Anatomy which is now the longest ever running US medical drama; and Criminal Minds which is currently airing season 14. This revenue is at high margins and favourably contributes to cash generation.

Music

Revenue for the year increased by 30% to £64.4 million (2018: £49.4 million), due to higher digital revenue on recorded music reflecting the industry-wide growth of streaming, higher live and exhibition revenues and higher artist management, partly offset by lower physical revenues. Underlying EBITDA grew by 46% to £8.9 million (2018: £6.1 million).

In the recorded music business there were number one albums from artists across a number of genres including world music, gospel, metal and R&B. Key titles during the year included a mix of new and catalogue titles including continued strong performance of The Lumineers' highly successful first and second albums, The Lumineers and Cleopatra, 2 Pac's All Eyez On Me, Blueface's Famous Cryp, Dr Dre's The Chronic and Snoop Dogg's Doggystyle. The number of albums released in the year decreased with 65 releases in the current year versus 84 in the prior year. Single releases increased significantly at 294 compared to 205 in the prior year as we continue to release digital singles due to the shift in the market from physical. Blueface's hit song Thotiana had over 400 million streams and featured on various music charts across the world and artist DJ Kass has been certified platinum twice for streams and sales for his viral hit Scooby Doo Pa Pa.

The live events business had successful tours with PJ Masks Live! Show and the Thank You Canada tour, while successfully launching the Mandela Exhibit in London. Artist management had a good year with Jax Jones releasing his fifth consecutive hit single Play which has achieved over 13 million streams on Spotify alone since release.

The music business won 3 Grammy awards for Best Performance (High On Fire), Best World Album (Soweto Gospel Choir) and Best Dance Recording (producer Riton).

2020 OUTLOOK FOR FILM, TELEVISION & MUSIC

The Film, Television & Music strategy continues to be focused on ensuring early access to high quality premium content of all types by working with the best talent in the business. Broadcast and licensing revenue is expected to increase driven by the ramp up of the scripted and unscripted television businesses and music is also expected to continue to grow organically and through the post year end acquisition of Audio Network.

Film operations continue to transition from distribution to owned and produced multi-territory releases. This transition will result in fewer, but larger theatrical releases with 50 unique titles expected. Unique titles are expected to decrease even further over the coming years as we aim towards a run-rate of 35-40 unique titles per annum. A greater proportion of theatrical revenue is expected to come from eOne production titles like Queen & Slim starring David Kaluuya, produced by Makeready and released by eOne in its direct territories and Universal in the US and rest of world; Poms starring Diane Keaton and Jacki Weaver sold to STX in the US, released by eOne in the UK and Canada and sold by Sierra internationally; Scary Stories to Tell in the Dark produced by Academy award winner Guillermo del Toro, co-produced with CBS and released by eOne in its direct territories; and Wild Rose starring Jessie Buckley sold to NEON in the US, released by eOne in its territories and sold by Sierra internationally. Output partner titles will include Amblin's 1917 starring Benedict Cumberbatch and directed by Sam Mendes and A Dog's Journey the sequel to A Dog's Purpose; and Annapurna Picture's Booksmart directed by Olivia Wilde. Key third party titles will include John Wick: Chapter 3, Blinded by the Light and Late Night.

Investment in film acquired content is expected to be lower at approximately £55 million with investment in film production expected to be higher than the current year at around £95 million reflecting the strategic shift towards content production. eOne films in production include Happiest Season a co-production with Sony starring Kristen Stewart; and Den of Thieves 2 a sequel to the hit film starring Gerard Butler and Curtis "50 Cent" Jackson. Key development titles include Sovereign starring Mahershala Ali, directed by Marc Mundenand produced with 21 Laps; Come From Away based on the Tony Award winning hit musical; and Awake.

FY20 will include the sub-distribution arrangements announced in the second half of FY19. Our Australian and Benelux territories have moved to sub-distribution arrangements with Universal Pictures International and WW Entertainment, respectively, as we continue to focus our direct distribution effort on fewer, more targeted theatrical releases. We will also transition to Universal Pictures Home Entertainment (UPHE) in the first half of FY20 which will bring all home entertainment activities under a single global partnership, with UPHE serving as the home entertainment distributor for film, television and select family content across transactional physical and digital formats. This will allow us to streamline our business in light of declines in the transactional business and benefit from Universal's broader portfolio of assets and related leverage at retail.

Television scripted and unscripted revenue is expected to grow in FY20, driven by both new shows and renewals. The scripted television slate for FY20 includes Run (HBO), a new romantic comedic thriller written by Vicky Jones, executive produced by Phoebe Waller-Bridge (Fleabag and Killing Eve), and stars Merritt Wever and Domhnall Gleeson; Nurses (Global in Canada and sold by eOne internationally), a new primetime medical drama executive produced by Ilana Frank (Rookie Blue) and Vanessa Piazza; Albedo (Vudu, expected delivery in FY21) a mystery drama series starring Evangeline Lilly and directed by Bill Peyton (Rampage and San Andreas); Deputy (Fox in the US and sold by eOne internationally), a new scripted drama primetime network series starring Stephen Dorff (True Detective); and renewals of The Rookie (season 2), You Me Her (season 5) and Cardinal (season 4).

The unscripted business is expected to continue to grow organically as well through Renegade 83 and Whizz Kid, and first-look deals with Tommy Mottola, MGMT.Entertainment and documentary makers Amy Ziering and Kirby Dick. Key titles include the Growing Up Hip Hop franchise, Siesta Key, Ex on the Beach, Naked and Afraid and Lady Gang. International distribution of third party television titles will reduce as the AMC output deal has now ended for new productions. FY20 will include Fear the Walking Dead season 5 and The Walking Dead season 10. The television library participations are expected to remain robust in FY20.

The number of half hours of TV programming to be acquired/produced next year is expected to be over 1,200, with around 35% of the new financial year's budgeted margins already committed or greenlit. The Division currently has more than 60 television projects in funded development with major broadcasters, cable networks and digital platforms. Investment in acquired television content is expected to be around £30 million and television production spend is expected to grow to £350 million.

The integration of the Film & Television operations (including The Mark Gordon Company and Sierra/Affinity) is on track to generate £13-15 million of annualised cost savings by the end of FY20, as previously guided, from business efficiencies and centralisation of support functions from the combined operations to form a single, streamlined operating structure.

The music business is expected to continue grow and develop new initiatives to provide its artists and partners with an unprecedented range of services and opportunities unequalled by any independent music company. Organic growth is expected in the recorded music business through higher digital streaming revenue. Key new releases include The Lumineers third album III, a new album by Wu-Tang and new music from guitar legend Zakk Wylde. Artist management expects to grow through the success of its artist portfolios within its management groups. The live events business will continue to benefit from shows launched in FY19 and will have many new shows announcing for FY20.

Following the end of the financial year, in April 2019, eOne acquired UK based Audio Network, one of the world's largest independent creators and publishers of original high quality music for use in film, television, advertising and digital media. Audio Network enhances eOne's presence in a rapidly growing sector within music, delivering attractive growth that is complementary to eOne's music, film, television and family brands businesses. Audio Network's business model is based on the monetisation of a library of owned global music rights. It generates revenues through synchronisation ('sync') fees paid by content creators for access to music for their shows (with 60% of these fees in the form of annual subscriptions) and music publishing royalties. This attractive mix of recurring, high margin revenues enables Audio Network to deliver underlying EBITDA margins of around 35% and achieved a conversion rate of underlying EBITDA to free cash flow of approximately 90% in FY18.

The combination of Audio Network with our existing music operations is expected to create scale, end-to-end synergies and revenue opportunities across eOne. Audio Network brings longstanding partnerships with more than 1,000 artists and composers and a high quality library of over 150,000 instrumental and orchestral tracks to eOne's library of around 40,000 commercial songs. We are excited by the prospect of integrating these libraries together on Audio Network's proprietary music publishing platform to simplify music rights management and to generate incremental sync placement opportunities for eOne's commercial artists. We can also now utilise Audio Network's music content in eOne's own film, television and family productions, bringing this activity largely in-house.

 

 

OTHER FINANCIAL INFORMATION

Adjusted operating profit increased by 21% to £193.9 million (2018: £160.0 million), reflecting the growth in the Group's underlying EBITDA. Adjusted profit before tax increased by 20% to £155.9 million (2018: £130.2 million), in line with increased adjusted operating profit, partly offset by higher underlying finance charges in the year. Reported operating profit of £70.7 million (2018: £100.7 million) reflects the impact of an operating one-off charge of £68.0 million primarily related to the impairment of certain assets within the film distribution businesses and related costs.

 

 

Reported

 

Adjusted

 

 

Restated²

 

 

Restated²

 

2019

2018

 

2019

2018

£m

£m

£m

 

£m

£m

Revenue

941.2

1,029.0

 

941.2

1,029.0

Underlying EBITDA

197.6

163.6

 

197.6

163.6

Amortisation of acquired intangibles

(39.0)

(39.6)

 

-

-

Depreciation and amortisation of software

(3.7)

(3.6)

 

(3.7)

(3.6)

Share-based payment charge

(16.2)

(12.6)

 

-

-

One-off items

(68.0)

(7.1)

 

-

-

Operating profit¹

70.7

100.7

 

193.9

160.0

Net finance costs

(33.9)

(35.8)

 

(38.0)

(29.8)

Profit before tax

36.8

64.9

 

155.9

130.2

Tax (charge)/credit

(21.5)

3.9

 

(31.1)

(24.3)

Profit for the year

15.3

68.8

 

124.8

105.9

 

1. Adjusted operating profit excludes amortisation of acquired intangibles, share-based payment charge and operating one-off items.

2. Reported 2018 amounts have been restated for IFRS 15 Revenue from Contracts with Customers, refer to Note 1 of the consolidated financial statements for further details.

AMORTISATION OF ACQUIRED INTANGIBLES, DEPRECIATION AND AMORTISATION OF SOFTWARE

Amortisation of acquired intangibles, depreciation and amortisation of software is £42.7 million and is consistent with the prior year.

SHARE-BASED PAYMENT CHARGE

The share-based payment charge of £16.2 million has increased by £3.6 million during the year, reflecting additional awards issued in the year and also due to the fair value of the current year awards increasing as a result of the increase in the Company's share price in the year.

ONE-OFF ITEMS

Home entertainment

As previously announced, changes in consumer behaviour within the content industry are accelerating at an unprecedented level and in the year ending 31 March 2019, the home entertainment markets in all of the Group's operating territories experienced significant challenges. As a result the Group has recorded a one-off charge of £61.0 million in the year which included the following:

-    

Impairment of investment in acquired content rights of £15.6 million resulting from the lowering of previous expectations regarding the home entertainment business driven by an acceleration of market decline;

-    

Write down of home entertainment related inventories of £26.1 million resulting from an assessment of the realisable value of inventory below the previous assessment of net realisable value;

-    

One-off bad debt expense on trade and other receivables of £14.4 million; and

-    

Related severance and staff costs of the home entertainment businesses of £4.9 million.

Strategy related

During the year ending 31 March 2019 the Group combined its Film Division and Television Division (which included Music) into one reporting segment, Film, Television & Music, which is in line with broader developments within the media and entertainment industry. This integration is largely complete and the costs arising from the integration have been included as a one-off charge of £8.4 million, they include the following:

-    

Related severance and staff costs of Film, Television & Music of £7.9 million; and

-    

Consultancy fees for the pre-system development of the finance transformation of £0.5 million;

Other items

Acquisition gains of £0.5 million include a cost of £0.6 million for completed deals during the year and a £1.1 million credit due to the release of Last Gang Entertainment contingent consideration which is no longer payable.

Other one-off credits of £0.9 million include a £1.7 million settlement received on a tax warranty relating to a prior year acquisition and is partially offset by £0.8 million of legal costs for certain corporate projects and aborted corporate transactions during the year.

Prior year costs

In 2018, restructuring costs were as follows:

The restructuring costs of £8.0 million comprises:

-    

£4.4 million of costs associated with the integration of the Television and Film Divisions and includes £3.6 million related to severance and staff costs and £0.8 million related to consultancy fees;

-    

£2.0 million related to the integration of the unscripted television companies within the wider Canadian television production business. The costs primarily include severance and staff costs and onerous leases; and

-    

£1.6 million of costs associated with completion of the 2017 strategy related restructuring programs. The costs include additional severance, onerous leases and write-off of inventory.

Acquisition gains of £1.9 million included:

-    

Credit of £3.9 million on re-assessment of the liability on put options in relation to the non-controlling interests over Renegade 83 and Sierra Pictures put options;

-    

These gains are partially offset by banking and legal costs of £1.6 million associated with the creation and set-up of Makeready in the prior year; and

-    

Charge of £0.6 million on settlement of contingent consideration in relation to Renegade 83 settled in the year, partially offset by escrow of £0.2 million received in relation to the 2018 acquisition of Last Gang Entertainment.

Other costs of £1.0 million in 2018 primarily related to costs associated with aborted corporate projects during the prior year.

NET FINANCE COSTS

Reported net finance costs decreased by £1.9 million to £33.9 million in the year. Excluding one-off net finance income of £4.1 million, adjusted finance costs of £38.0 million (2018: £29.8 million) were £8.2 million higher in the year, reflecting the higher average debt levels year-on-year primarily arising from the March 2018 acquisition of the remaining 49% interest in The Mark Gordon Company (refer to Note 27 for details). The weighted average interest rate for the Group's financing was 6.5% which is consistent with the prior year.

The one-off net finance income of £4.1 million (2018: charge £6.0 million) comprises:

Put Options

-     Credit of £5.7 million (2018: £nil) relating to the reversal of the Sierra/Affinity put option liability following the acquisition of the remaining 49% shares on 27 June 2018;

-     Credit of £1.1 million (2018: £nil) relating to the revaluation of put options issued over the non-controlling interest of subsidiary companies;

-     Credits above are partly offset by a charge £1.4 million (2018: £3.0 million) due to the unwind of discounting on liabilities relating to put options issued by the Group over the non-controlling interest of subsidiary companies.

Foreign Exchange Gains & Losses

-     Credit of £0.2 million (2018: charge of £1.6 million) in respect of fair value gains on hedge contracts;

-     Charges in the prior year included £5.2 million in respect of losses on five forward currency contracts not in compliance with the Group's hedging policy and £1.1 million in respect of fair-value loss on hedge contracts cancelled as a result of the re-negotiation of one of the Group's larger film distribution agreements. The charges in the prior year are partly offset by credit of £1.5 million due to the adoption of IFRS 15.

Tax Provisions

-     Charge of £0.1 million (2018: credit of £3.4 million) relating to interest on tax provisions incurred during the year. In the prior year there was a release of interest previously charged on tax provisions.

Deferred Finance Charges

-     Charge of £1.4 million (2018: £nil) due to the write-off of the deferred finance charges in relation to the RCF which was refinanced in December 2018.

TAX

On a reported basis, the Group's tax charge of £21.5 million (2018: credit of £3.9 million), represents an effective rate of 58.4% and primarily reflects the impact of the operating one-off items. On an adjusted basis, the effective rate is 20.0% compared to 18.7% in the prior year, driven by a different mix of profit by jurisdiction (with different statutory rates of tax) and by increase in the US tax rates in the year. The FY20 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 Net Debt entities of the Group, which excludes cash flows associated with production activities which are reconciled in the Production Financing section. The Production Financing section also includes the impact of eliminations between the entities forming part of the Net Debt group and the Production Financing group.

 

 

2019

 

2018

£m

Family  & Brands

Film, Television & Music

Centre & Elims

Total

 

Family  & Brands

Film, Television & Music

Centre & Elims

Total

Underlying EBITDA

96.4

99.8

(14.6)

181.6

 

71.8

78.9

(13.3)

137.4

Amortisation of investment in acquired content rights

-

84.0

-

84.0

 

-

113.4

-

113.4

Investment in acquired content rights

-

(121.9)

-

(121.9)

 

-

(144.5)

-

(144.5)

Amortisation of investment in productions

7.4

104.7

(0.4)

111.7

 

3.5

86.6

(0.1)

90.0

Investment in productions, net of grants

(9.5)

(122.6)

0.4

(131.7)

 

(7.3)

(118.6)

1.0

(124.9)

Working capital

(9.7)

(37.6)

(2.3)

(49.6)

 

13.3

(28.0)

2.8

(11.9)

Adjusted cash flow

84.6

6.4

(16.9)

74.1

 

81.3

(12.2)

(9.6)

59.5

Cash conversion (%)

88%

6%

 

41%

 

113%

(15%)

 

43%

Capital expenditure

 

 

 

(6.9)

 

 

 

 

(3.2)

Tax paid

 

 

 

(23.6)

 

 

 

 

(31.8)

Funds transferred between Net Debt and Production Financing

 

 

 

2.2

 

 

 

 

0.6

Net interest paid

 

 

 

(33.4)

 

 

 

 

(25.5)

Free cash flow

 

 

 

12.4

 

 

 

 

(0.4)

One-off items

 

 

 

(11.1)

 

 

 

 

(33.4)

One-off finance items

 

 

 

(1.9)

 

 

 

 

(14.1)

Acquisitions, net of net debt acquired and transactions with shareholders

 

 

 

(14.0)

 

 

 

 

(118.5)

Net proceeds of share issue

 

 

 

0.1

 

 

 

 

52.0

Dividends paid

 

 

 

(13.4)

 

 

 

 

(13.0)

Foreign exchange

 

 

 

0.9

 

 

 

 

0.3

Movement

 

 

 

(27.0)

 

 

 

 

(127.1)

Net debt at the beginning of the year

 

 

 

(314.5)

 

 

 

 

(187.4)

Net debt at the end of the period

 

 

 

(341.5)

 

 

 

 

(314.5)

 

 

ADJUSTED CASH FLOW

Adjusted cash inflow at £74.1 million was higher than prior year by £14.6 million primarily reflecting the increase in underlying EBITDA of the entities forming part of the Net Debt Group by £44.2 million during the year and reduction in investment in acquired content rights of £22.6 million. This is partially offset by an increased working capital outflow of £37.7 million in the year and increased investment in production spend of £6.8 million. The underlying EBITDA to cash flow conversion was 41% (2018: 43%).

Family & Brands

Family & Brands adjusted cash inflow increased to £84.6 million (2018: £81.3 million) representing an underlying EBITDA to adjusted cash flow conversion of 88% (2018: 113%), driven by the increase in underlying EBITDA and offset to a large extent by an increase working capital outflow during the year. Working capital outflows increased year-on-year principally driven by the increase in receivables as a result of higher broadcast and licensing revenue associated with Peppa Pig and PJ Masks in the year. The investment in productions spend related to the new episodes of Peppa Pig, season 2 and 3 of PJ Masks, new property Ricky Zoom and new show Alien TV.

Film, Television & Music

Film, Television & Music adjusted cash inflow of £6.4 million was higher than prior year (2018: outflow £12.2 million) primarily driven by a reduction in investment in acquired content by £22.6 million. Film, Television & Music's adjusted cash inflow represents an underlying EBITDA to adjusted cash flow conversion of 6% (2018: (15%)).

The reduced investment in acquired content rights reflects the ongoing shift towards production activities and the lower volume of theatrical releases.

FREE CASH FLOW

Free cash inflow for the Group of £12.4 million was £12.8 million higher than the previous year due to higher adjusted cash inflow as detailed above and a reduction in cash tax payments primarily on account of timing tax payments in the US and Canada. This is partially offset by an increase in net interest cost reflecting the higher average debt levels year-on-year primarily arising from the March 2018 acquisition of the remaining 49% interest in the Mark Gordon Company.

NET DEBT

At 31 March 2019, overall net debt of £341.5 million was £27.0 million higher than the prior year closing balance due to dividend payments of £13.4 million, acquisition spending of £14.0 million (refer to Note 27 of the consolidated financial statements for details) and cash outflow on operating and finance one-off items of £13.0 million, partly offset by the higher free cash flow.

Refer to the Appendix to the consolidated financial statements for the definition of "adjusted cash flow", "free cash flow", and "net debt" and for a reconciliation to net cash from operating activities.

PRODUCTION FINANCING & OTHER

The Production Financing cash flows relate to non-recourse production financing which is used to fund the Group's productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility. It is short-term financing while the production is being made and is generally paid back once the production is delivered and the sales receipts and tax credits are received. The Company deems this type of financing to be short term in nature and it is therefore excluded from Net Debt.

 

 

2019

 

2018

£m

Family & Brands

Film, Television & Music

Elims

Total

 

Family & Brands

Film, Television & Music

Elims

Total

Underlying EBITDA

0.6

15.4

-

16.0

 

(0.8)

27.0

-

26.2

Amortisation of investment in productions

0.4

128.4

-

128.8

 

-

157.4

-

157.4

Investment in productions, net of grants

3.1

(129.7)

-

(126.6)

 

(2.2)

(169.2)

-

(171.4)

Working capital

(1.2)

(24.1)

-

(25.3)

 

1.1

11.5

-

12.6

Adjusted cash flow

2.9

(10.0)

-

(7.1)

 

(1.9)

26.7

-

24.8

Capital expenditure

 

 

 

(0.2)

 

 

 

 

-

Tax paid

 

 

 

(1.3)

 

 

 

 

(0.7)

Funds transferred between Net Debt and Production Financing

 

 

 

(2.2)

 

 

 

 

(0.6)

Net interest paid

 

 

 

(3.9)

 

 

 

 

(0.7)

Free cash flow

 

 

 

(14.7)

 

 

 

 

22.8

One-off items

 

 

 

(1.3)

 

 

 

 

(3.5)

Acquisitions, net of net debt acquired

 

 

 

-

 

 

 

 

-

Foreign exchange

 

 

 

(5.4)

 

 

 

 

14.3

Movement

 

 

 

(21.4)

 

 

 

 

33.6

Net production financing at the beginning of the year

 

 

 

(118.7)

 

 

 

 

(152.3)

Net production financing at the end of the period

 

 

 

(140.1)

 

 

 

 

(118.7)

 

 

Overall production financing increased by £21.4 million year-on-year to £140.1 million. The movements primarily reflect the timing of programming activities. The movement is primarily driven by working capital outflow of £24.1 million in the Film, Television & Music Division which is largely driven by the timing of deliveries of Designated Survivor season 3.

FINANCIAL POSITION AND GOING CONCERN BASIS

The Group's net assets increased by £48.6 million to £714.7 million at 31 March 2019 (31 March 2018: £666.1 million).

The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern and 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.

 

A presentation to analysts will take place at 9.00am on Tuesday, 21 May 2019 at eOne's UK office (45 Warren Street, London, W1T 6AG). For more information, or to register to attend, contact Alma PR (eone@almapr.co.uk).

A video overview of the results from CEO Darren Throop is available to watch here: http://bit.ly/ETO_FY19

For further information please contact:

 

Alma PR

Rebecca Sanders-Hewett

Tel: +44 7961 075 844

Email: rsh@almapr.co.uk

 

Entertainment One

Darren Throop (CEO)
Joe Sparacio (CFO)

via Alma PR


Patrick Yau (Director of Investor Relations)

Tel: +44 20 3714 7931

Email: PYau@entonegroup.com

 

 

 

Independent auditor's report to the members of Entertainment One Ltd.

 

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

OPINION

In our opinion, Entertainment One Ltd.'s Group financial statements (the "financial statements"):

·      give a true and fair view of the state of the Group's affairs as at 31 March 2019 and of its profit and cash flows for the year then ended; and

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

We have audited the financial statements, included within the Annual Report and Accounts (the "Annual Report"), which comprise: the Consolidated Balance Sheet as at 31 March 2019; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, and the Consolidated Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

OUR AUDIT APPROACH

Overview

Materiality

 

·      Overall Group materiality: £5.0 million (2018: £4.2 million), based on 5% of profit before tax adjusted for one off items.

Audit scope

 

·      We identified six reporting units across two countries which, in our view, required an audit of their complete financial information due to their size: Canada (three), the UK (two) and the US (one).

·      The reporting units where we performed a full scope audit, specific financial statement line items audits and the consolidation adjustment entities accounted for 76% of Group revenue and 56% of Group PBT.

·      We identified six reporting units in two countries which, in our view, were not significant enough contributors to Group PBT to have a full scope audit, but for which certain specific financial statement line items were audited. The reporting units for which we performed specific financial statement line item audits were located in: the US (one) and the UK (one). We also identified certain Head Office reporting units (four) where an audit of specific financial statement line items was required.

·      Further specific audit procedures over central functions and areas of significant judgement, including goodwill and other intangible assets and treasury, were performed at the Group level.

Key audit matters

 

·      Valuation of investment in acquired content rights and investment in productions (Film & Television)

·      Carrying values of goodwill and other intangible assets (Film, Television & Music)

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, 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. This is not a complete list of all risks identified by our audit.

 

 

 

  Key audit matter

 How our audit addressed the key audit matter

Valuation of investment in acquired content rights and investment in productions (Film & Television)

Refer to Notes 15 and 18. At 31 March 2019, the Group has recognised £259.8 million (2018: £206.1 million) of investment in productions and £254.0 million (2018: £248.0 million) of investment in acquired content rights on the consolidated balance sheet. 

Ultimate revenues (ultimates) are estimated based on assumptions related to expected future revenues generated from the ongoing exploitation of the content through the various exploitation windows (i.e. through theatrical release, transactional, broadcast and licensing). Forecasting these ultimates that support the valuation of the investment in acquired content rights and investment in productions is judgemental and is dependent upon management estimates.

There is a risk in respect of the accuracy of the ultimate forecasts and that inappropriate assumptions are made in respect of the forecast future revenues that would mean that the valuation of the related investment in productions and investment in acquired content rights balances is incorrect.

Our audit procedures included understanding and evaluating the controls and systems related to the ultimates and investment in acquired content rights/investment in productions models, together with performing substantive audit procedures.

We performed substantive testing, using sampling techniques that were specific to each component based upon the nature of the content or title.

The procedures performed included the following:

- Discussing the expectations of the selected films and shows with key personnel, including those outside of finance, to ensure consistency of expected performance with key assumptions;

- Where comparable titles existed, we assessed the key assumptions for consistency;

- Evaluating key assumptions in the analysis through historic sales data, contracts or available market data;

- Assessing management's historical forecasting accuracy by comparing past assumptions to actual outcomes;

- Performing downward sensitivity analysis to identify if there were any ultimate revenues forecasts and associated investment in acquired content rights/investment in productions balances that were sensitive to change; and

- Testing the mathematical accuracy of the investment in acquired content rights and investment in productions models and associated amortisation charge and tested a sample of additions to third party supporting documents.

As the Group engagement team, we were specifically involved in assessing the appropriateness of the audit approach for each component in this area. This satisfied us that the area was well understood and that sufficient focus was placed on the risk area with no significant errors identified.

Carrying values of goodwill and other intangible assets (Film, Television & Music)

Refer to Notes 13 and 14. At 31 March 2019, the Group's carrying value of goodwill is £397.2 million (2018: £375.2 million) and other intangibles is £219.9 million (2018: £248.9 million) respectively across two cash generating units (CGUs).

The recoverable amounts of these CGUs are dependent on certain key assumptions, including the weighted average cost of capital (WACC) rate and future cash flows which are dependent upon management judgements and estimates. There is a risk that significant changes to assumptions or underperformance could give rise to an impairment.

We have identified a risk in respect of the valuation for the Film, Television & Music CGU, which has the largest carrying value, has been undergoing a transition, has lower revenues year-on-year, and is most sensitive to changes in assumptions.

The audit procedures, performed by the Group engagement team, focused towards the Film, Television & Music CGU, included the following:

- Testing the mathematical integrity of management's impairment model;

- Evaluating the process by which management prepared their cash flow forecasts and comparing them against the latest Board approved plans;

- Assessing the historical accuracy of management's forecasting;

- Evaluating and challenging the reasonableness of management's key assumptions including the long and short-term growth rates and the WACC rate. We benchmarked against the industry/peers, external sources and country inflation rates; and

- Performing our own sensitivity analysis to understand the impact of reasonable changes in the key assumptions. Consequently, no impairment charge was considered necessary, although the estimate of recoverable amount remains sensitive to changes in these assumptions.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates.

The Group has two reporting segments being Family & Brands and Film, Television & Music. Within these reporting segments are a number of different Business Units that are primarily split across the geographic locations of Canada, the US and the UK. The Group consolidated financial statements are a consolidation of approximately 90 reporting units, representing these operating business units and certain centralised functions and consolidation units.

The reporting units vary in size and we identified six reporting units which, in our view, required an audit of their complete financial information due to their individual size. These reporting units where we performed a full audit of their financial information were in Canada (three reporting units), the UK (two reporting units) and the US (one reporting unit). These reporting units, together with the specific financial statement line items audits and Group consolidation adjustments accounted for 76% of revenue and 56% of Group profit before tax.

Audits of specific financial statement line items, including revenue, intangibles and the associated amortisation and external borrowings were performed on additional reporting units. These reporting units were in the US (one reporting unit), the UK (one reporting unit) and certain head office entities (four reporting units). We also performed specific audit procedures over central functions such as the consolidation, and certain key areas of focus, including goodwill, other intangible assets and treasury, at the Group level.

The Canadian and US reporting units were audited by our Canadian component audit team and the UK and head office reporting units were audited by the Group team. The Group engagement team attended the year end audit clearance meeting of the component team, maintained regular contact with the component team and were involved in the oversight of work in respect of significant/judgemental areas. Finally the Group audit team performed a detailed review of the working papers of the component team to ensure the work performed was appropriate.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

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

Overall group materiality

£5.0 million (2018: £4.2 million).

How we determined it

5% of profit before tax adjusted for operating one-off items.

Rationale for benchmark applied

Overall materiality has been set based on a Group profit before tax, adjusted for one-off items relating to restructuring costs, acquisition related costs and costs associated with aborted corporate projects and non-recurring finance costs. We believe that this is an appropriate benchmark as it removes volatility in order to present results on a more consistent basis and is a key performance measure for the Group.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was £2.5 million to £3.8 million.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million (2018: £0.2 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern

In accordance with ISAs (UK) we report as follows:

Reporting obligation

Outcome

We are required to report if we have anything material to add or draw attention to in respect of the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors' identification of any material uncertainties to the Group's ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements.

We have nothing material to add or to draw attention to.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group's trade, customers, suppliers and the wider economy. 

We are required to report if the directors' statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

We have nothing to report.

REPORTING ON OTHER INFORMATION

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).

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

We have nothing material to add or draw attention to regarding:

·    The directors' confirmation of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.

·    The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.

·    The directors' explanation of the Annual Report as to how they have assessed the prospects of the Group, 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 Group 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 have nothing to report having performed a review of the directors' statement that they have carried out a robust assessment of the principal risks facing the Group and director's voluntary statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the "Code"); and considering whether the statements are consistent with the knowledge and understanding of the Group and its environment obtained in the course of the audit. (Listing Rules)

OTHER CODE PROVISIONS

We have nothing to report in respect of our responsibility to report when:

·    The statement given by the directors, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group's position and performance, business model and strategy is materially inconsistent with our knowledge of the Group obtained in the course of performing our audit.

·    The section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

·    The directors' statement relating to the parent company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.

RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Uses of this report

This report, including the opinions, has been prepared for and only for the parent company's members as a body to enable the directors to meet obligations under the Disclosure Guidance and Transparency Rules sourcebook of the UK Financial Conduct Authority and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

OTHER VOLUNTARY REPORTING

Directors' remuneration report

The Company voluntarily prepares a Directors' Remuneration Report in accordance with the provisions of the Companies Act 2006. The directors requested that we audit the part of the Directors' Remuneration Report specified by the Companies Act 2006 to be audited as if the Company were a quoted company subject to the Companies Act 2006.

In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Philip Stokes

For and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants

London

20 May 2019

 

 

 

 

Consolidated Income Statement

for the year ended 31 March 2019

 

 

 

 

Restated¹

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

Note

£m

£m

Revenue

3

941.2

1,029.0

Cost of sales

 

(617.4)

(731.8)

Gross profit

 

323.8

297.2

Administrative expenses

 

(253.1)

(196.5)

Operating profit

4

70.7

100.7

Finance income

8

7.5

4.9

Finance costs

8

(41.4)

(40.7)

Profit before tax

 

36.8

64.9

Income tax (charge)/credit

9

(21.5)

3.9

Profit for the year

 

15.3

68.8

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

11.7

53.9

Non-controlling interests

 

3.6

14.9

 

 

 

 

Operating profit analysed as:

 

 

 

Underlying EBITDA

2

197.6

163.6

Amortisation of acquired intangibles

14

(39.0)

(39.6)

Depreciation and amortisation of software

14, 16

(3.7)

(3.6)

Share-based payment charge

33

(16.2)

(12.6)

One-off items (includes impairment losses on financial assets of £14.4m (2018: £nil))

7

(68.0)

(7.1)

Operating profit

 

70.7

100.7

 

 

 

 

Earnings per share (pence)

 

 

 

Basic

12

2.5

12.4

Diluted

12

2.5

12.0

 

 

1. See Note 1 'Prior period restatements' for details.

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2019

 

 

 

 

Restated¹

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Profit for the year

 

15.3

68.8

Items that may be reclassified subsequently to profit or loss:

 

 

 

Exchange differences on foreign operations

 

32.5

(55.0)

Hedging reserve movements:

 

 

 

Fair value movements on cash flow hedges

 

7.0

(5.0)

Reclassification adjustments for movements on cash flow hedges

 

(3.1)

1.4

Tax (charge)/credit related to components of other comprehensive income/(loss)

 

(0.8)

2.7

Total other comprehensive income/(loss) for the year

 

35.6

(55.9)

 

 

 

 

Total comprehensive income for the year

 

50.9

12.9

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

46.5

2.8

Non-controlling interests

 

4.4

10.1

 

 

1. See Note 1 'Prior period restatements' for details.

 

 

Consolidated Balance Sheet

at 31 March 2019

 

 

 

 

Restated¹

Restated¹

 

 

31 March 2019

31 March 2018

 31 March 2017

 

Note

£m

£m

£m

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

13

397.2

375.2

406.9

Other intangible assets

14

219.9

248.9

302.9

Interest in joint ventures

30

1.2

1.0

1.1

Investment in productions

15

259.8

206.1

200.1

Property, plant and equipment

16

12.9

10.6

11.9

Trade and other receivables

19

46.9

77.0

60.9

Deferred tax assets

10

37.5

34.3

35.2

Total non-current assets

 

975.4

953.1

1,019.0

Current assets

 

 

 

 

Inventories

17

11.7

39.6

48.6

Investment in acquired content rights

18

254.0

248.0

265.5

Trade and other receivables

19

548.4

439.4

424.5

Cash and cash equivalents

20

107.4

119.2

133.4

Current tax assets

 

0.8

3.5

1.5

Financial instruments

25, 26

4.1

1.9

10.6

Total current assets

 

926.4

851.6

884.1

Total assets

 

1,901.8

1,804.7

1,903.1

 

 

 

 

 

LIABILITIES

 

 

 

 

Non-current liabilities

 

 

 

 

Interest-bearing loans and borrowings

23

392.2

375.2

276.6

Production financing

24

110.2

86.7

91.2

Other payables

21

15.6

28.0

35.4

Provisions

22

0.4

0.4

1.5

Deferred tax liabilities

10

32.5

33.0

52.2

Total non-current liabilities

 

550.9

523.3

456.9

Current liabilities

 

 

 

 

Interest-bearing loans and borrowings

23

0.9

0.4

0.5

Production financing

24

85.7

90.1

104.8

Trade and other payables

21

529.3

501.4

542.7

Provisions

22

4.2

5.9

30.6

Current tax liabilities

 

12.6

14.8

32.8

Financial instruments

25, 26

3.5

2.7

15.4

Total current liabilities

 

636.2

615.3

726.8

Total liabilities

 

1,187.1

1,138.6

1,183.7

Net assets

 

714.7

666.1

719.4

 

 

 

 

 

EQUITY

 

 

 

 

Stated capital

32

610.6

594.6

503.8

Other reserves

32

(11.4)

(23.6)

(22.7)

Currency translation reserve

 

62.7

29.8

80.0

Retained earnings

 

15.3

19.0

75.7

Equity attributable to owners of the Company

 

677.2

619.8

636.8

Non-controlling interests

31

37.5

46.3

82.6

Total equity

 

714.7

666.1

719.4

Total liabilities and equity

 

1,901.8

1,804.7

1,903.1

 

 

1. See Note 1 'Prior period restatements' for details.

These consolidated financial statements were approved by the Board of Directors on 20 May 2019.

Joseph Sparacio

Director

Consolidated Statement of Changes in Equity

for the year ended 31 March 2019

 

 

Stated capital

(net of own shares)

Other reserves

Currency translation reserve

Retained earnings

Equity attributable to the owners of the Company

Non-controlling interests

Total equity

 

£m

£m

£m

£m

£m

£m

£m

At 1 April 2017 restated1

503.8

(22.7)

80.0

75.7

636.8

82.6

719.4

Income for the year restated1

-

-

-

53.9

53.9

14.9

68.8

Other comprehensive (loss)

-

(0.9)

(50.2)

-

(51.1)

(4.8)

(55.9)

Total comprehensive (loss)/income for the year

-

(0.9)

(50.2)

53.9

2.8

10.1

12.9

 

 

 

 

 

 

 

 

Issue of common shares net of transaction costs

51.8

-

-

-

51.8

-

51.8

Credits in respect of share-based payments

-

-

-

11.9

11.9

-

11.9

Deferred tax movement arising on share options

-

-

-

0.3

0.3

-

0.3

Exercise of share options

4.2

-

-

(4.2)

-

-

-

Distribution of shares to beneficiaries of the Employee Benefit Trust

1.3

-

-

(1.3)

-

-

-

Acquisition of subsidiaries (Note 27)

1.8

-

-

-

1.8

-

1.8

Transactions with equity holders (Note 27)

31.7

-

-

(111.7)

(80.0)

(39.0)

(119.0)

Dividends paid (Note 11, 31)

-

-

-

(5.6)

(5.6)

(7.4)

(13.0)

Total transactions with equity holders

90.8

-

-

(110.6)

(19.8)

(46.4)

(66.2)

At 31 March 2018 restated1

594.6

(23.6)

29.8

19.0

619.8

46.3

666.1

 

 

 

 

 

 

 

 

At 1 April 2018 restated1

594.6

(23.6)

29.8

19.0

619.8

46.3

666.1

Adjustments on initial application of IFRS 9 (net of tax)

-

-

-

(2.2)

(2.2)

-

(2.2)

Income for the year

-

-

-

11.7

11.7

3.6

15.3

Other comprehensive income

-

3.1

31.7

-

34.8

0.8

35.6

Total comprehensive income for the year

-

3.1

31.7

11.7

46.5

4.4

50.9

 

 

 

 

 

 

 

 

Issue of common shares net of transaction costs

0.1

-

-

-

0.1

-

0.1

Credits in respect of share-based payments

-

-

-

14.9

14.9

-

14.9

Deferred tax movement arising on share options

-

-

-

0.9

0.9

-

0.9

Exercise of share options

9.4

-

-

(9.4)

-

-

-

Distribution of shares to beneficiaries of the Employee Benefit Trust

0.1

-

-

(0.1)

-

-

-

Acquisition of subsidiaries (Note 27)

1.9

(3.1)

-

-

(1.2)

0.4

(0.8)

Transactions with equity holders (Note 27)

4.5

12.2

1.2

(12.9)

5.0

(6.8)

(1.8)

Dividends paid (Note 11, 31)

-

-

-

(6.6)

(6.6)

(6.8)

(13.4)

Total transactions with equity holders

16.0

9.1

1.2

(13.2)

13.1

(13.2)

(0.1)

At 31 March 2019

610.6

(11.4)

62.7

15.3

677.2

37.5

714.7

 


1. See Note 1 'Prior period restatements' for details.

Consolidated Cash Flow Statement

for the year ended 31 March 2019

 

 

 

 

Restated¹

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

Note

£m

£m

Operating activities

 

 

 

Operating profit

 

70.7

100.7

Adjustment for:

 

 

 

Depreciation of property, plant and equipment

16

2.4

2.0

Loss on disposal of property, plant and equipment

16

0.1

-

Amortisation of software

14

1.2

1.6

Amortisation of acquired intangibles

14

39.0

39.6

Amortisation of investment in productions

15

240.5

247.4

Investment in productions, net of grants received

15

(258.3)

(296.3)

Amortisation of investment in acquired content rights

18

84.0

113.4

Investment in acquired content rights

18

(121.9)

(144.5)

Impairment of investment in acquired content rights

18

15.6

-

Put option movements

21

-

(3.9)

Share-based payment charge

33

16.2

12.6

Operating cash flows before changes in working capital and provisions

 

89.5

72.6

Decrease in inventories

 

30.3

5.0

Increase in trade and other receivables

 

(79.9)

(43.7)

Increase in trade and other payables

 

17.0

37.8

Decrease in provisions

 

(2.0)

(24.3)

Cash generated from operations

 

54.9

47.4

Income tax paid

 

(24.9)

(32.5)

Net cash generated from operating activities

 

30.0

14.9

Investing activities

 

 

 

Transactions with equity holders

27

(9.7)

(114.8)

Acquisition of subsidiaries and joint ventures, net of cash acquired

27

(2.0)

(3.7)

Purchase of financial instruments

26

(2.3)

-

Purchase of property, plant and equipment

16

(4.4)

(1.7)

Purchase of software

14

(2.7)

(1.5)

Net cash used in investing activities

 

(21.1)

(121.7)

Financing activities

 

 

 

Net proceeds on issue of shares

32

0.1

52.0

Drawdown of interest-bearing loans and borrowings

23

372.8

374.7

Repayment of interest-bearing loans and borrowings

23

(357.2)

(269.7)

Drawdown of production financing

24

225.3

234.7

Repayment of production financing

24

(214.3)

(233.9)

Interest paid

 

(37.3)

(26.2)

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

11, 31

(13.4)

(13.0)

Fees paid in relation to the Group's bank facility, premium received on notes and one-off finance costs

8, 23

(2.0)

(11.5)

Net cash from financing activities

 

(26.0)

107.1

Net (decrease)/increase in cash and cash equivalents

 

(17.1)

0.3

Cash and cash equivalents at beginning of the year

20

119.2

133.4

Effect of foreign exchange rate changes on cash held

 

5.3

(14.5)

Cash and cash equivalents at end of the year

20

107.4

119.2

 

 

1. See Note 1 'Prior period restatements' for details.

 

 

Notes to the Consolidated Financial Statements

for the year ended 31 March 2019

1. NATURE OF OPERATIONS AND BASIS OF PREPARATION

Entertainment One is a leading independent entertainment group focused on the acquisition, production and distribution of family, television, music and film 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, and is limited by shares. 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 20 May 2019.

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 (IFRS) as adopted by the EU and IFRS Interpretations Committee (IFRIC) interpretations. The Group's consolidated financial statements comply with Article 4 of the EU IAS Regulation.

GOING CONCERN

The Group's activities, together with the factors likely to affect its future development, are set out in the Business and Finance Review of this Announcement.

In addition to its senior secured notes (due 2022) the Group meets its day-to-day working capital requirements and funds its investment in production and investment in acquired content rights through its cash in hand and through a revolving credit facility which matures in December 2023 and is secured on certain assets held by the Group. Under the terms of this facility the Group can draw down in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2019 are shown in Note 23. The facility is subject to a series of covenants including interest cover charge, and net debt against underlying EBITDA.

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 2019, the Group had £51.6 million of cash and cash equivalents (excluding cash held by production subsidiaries) (refer to Note 20), £393.1 million of gross debt and undrawn amounts under the revolving credit facility of £156.8 million (refer to Note 23).

The Group is exposed to uncertainties arising from the economic climate and uncertainties in the markets in which it operates. Market conditions could lead to lower than anticipated demand for the Group's products and services and exchange rate volatility could also impact reported performance. The directors have considered the impact of these and other uncertainties and factored them into their financial forecasts and assessment of covenant headroom.

The Group's forecasts and projections, taking account of reasonable possible changes in trading performance (and available mitigating actions), show that the Group will be able to operate within the expected limits of its bank facility and provide headroom against the covenants for the foreseeable future. The forecasts and projections include the impact of the Group's acquisition of Audio Network Limited which was completed on 18 April 2019. See Note 36 for details. 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 and held on the balance sheet as a financial asset and are recorded at fair value. See Note 26 for additional details.

FOREIGN CURRENCIES

Within individual companies

The individual financial statements of each Group company are recorded in the currency of the primary economic environment in which it operates (its functional currency). For 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

In the 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.

USE OF ADDITIONAL PERFORMANCE MEASURES

The Group uses a number of non-IFRS financial measures that are not specifically defined under IFRS or any other generally accepted accounting principles, including underlying EBITDA, one-off items, adjusted profit before tax, adjusted diluted earnings per share, adjusted cash flow, free cash flow, net debt, adjusted net debt and production financing. These non-IFRS financial measures are presented because they are among the measures used by management to measure operating performance and as a basis for strategic planning and forecasting, and the Group believes that these measures are frequently used by investors in analysing business performance. Refer to the Appendix to the consolidated financial statements for definitions of these terms.

ACCOUNTING JUDGEMENTS AND 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.

Key sources of estimation uncertainty:

-     The Group's annual impairment test. See Note 13 for details.

-     Investment in productions and investment in acquired content rights. See Notes 15 and 18 for details.

PRIOR PERIOD RECLASSIFICATIONS

Reclassification of investments in productions and investment in acquired content rights

During the year, the Group concluded that the investment in acquired content rights of the Family & Brands Division was appropriate to be included within investment in productions, as the Group owns the underlying intellectual property and has perpetual rights to the Family & Brands content. As such the comparative balance sheets have been restated by £5.9 million as at 31 March 2018 and £2.9 million at 31 March 2017.

NEW STANDARDS AND AMENDMENTS, REVISIONS AND IMPROVEMENTS TO STANDARDS ADOPTED DURING THE YEAR

The Group has adopted, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments that require restatement of previous financial statements. As required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the nature and effect of these changes are disclosed below.

IFRS 15 Revenue from Contracts with Customers was effective for reporting periods commencing after 1 January 2018. The Group adopted IFRS 15 on 1 April 2018 on a fully retrospective basis, and comparative periods have been restated.

-     The cumulative impact of applying IFRS 15 on the year ended 31 March 2017 was a £31.9 million reduction in equity. Family & Brands Division was impacted by £12.0 million and the remaining £19.9 million fell within the Film, Television & Music Division.

-     In the Family & Brands Division, the Group recognised contractual minimum guarantees from licensing arrangements when the licence terms had commenced and collection of the fee was reasonably assured. Under IFRS 15, minimum guarantees are recognised over the consumption of the intellectual property. The impact of applying IFRS 15 to the year ended 31 March 2018 is a reduction in licensing and merchandising revenue of £14.7 million and underlying EBITDA of £11.3 million.

-     There are timing differences from the way the Group recognises revenue for content licensing in the Film, Television & Music Division. IFRS 15 includes additional requirements that revenue cannot be recognised before the beginning of the period in which the customer can begin to use and benefit from the licence; and revenue dependent on customers' sales or usage cannot be recognised until the sale or usage occurs. The impact of applying IFRS 15 to the year ended 31 March 2018 is an increase in production and other revenue of £17.3 million and a decrease in broadcast and licensing revenue of £18.1 million. The corresponding decrease in underlying EBITDA is £2.4 million.

IFRS 15 does not have any impact on the cash flows generated. The Group has presented a restatement of the comparative periods below.

IFRS 9 Financial Instruments is effective for reporting periods commencing after 1 January 2018. The Group has applied IFRS 9 prospectively, with the initial application date of 1 April 2018. The Group has applied the limited exemption in IFRS 9 and has elected not to restate comparative information in the year of initial adoption. As a result, the comparative information provided will continue to be measured in accordance with the Group's previous accounting policy. The impact was focussed on the following items:

-     Classification and measurement of financial assets - there was no material change in the classification of financial assets and there were no changes to the measurement of financial assets.

-     Impairment of financial assets - for trade receivables and contract assets, the Group applied the simplified approach permitted by IFRS 9, which requires the use of the lifetime expected loss provision for all receivables. Based on the application of the Group's credit history as a methodology, the impact of the change to the IFRS 9 basis of provision was a £2.2 million charge at adoption which has been recorded to retained earnings. See Note 19 for details.

-     Hedge accounting - the Group has continued to apply IAS 39 Financial Instruments: Recognition and Measurement and additional disclosures under IFRS 7 Financial Instruments: Disclosures have been provided in Note 25.

Several other amendments and interpretations apply for the first time in FY19, but do not have an impact on the consolidated financial statements of the Group.

 

IMPACT OF PRIOR PERIOD RESTATEMENTS ON PREVIOUSLY PRESENTED FINANCIAL STATEMENTS

 

 

Reported

 

 

Restated

 

31 March 2018

IFRS 15

IIC/IIP reclassification

31 March 2018

 

£m

£m

£m

£m

Group's consolidated income statement for the year ended 31 March 2018

 

 

 

 

Revenue

1,044.5

(15.5)

-

1,029.0

Cost of sales

(733.6)

1.8

-

(731.8)

Gross profit

310.9

(13.7)

-

297.2

Administrative expenses

(196.5)

-

-

(196.5)

Operating profit

114.4

(13.7)

-

100.7

Finance income

3.9

1.0

-

4.9

Finance costs

(40.7)

 

-

(40.7)

Profit before tax

77.6

(12.7)

-

64.9

Income tax credit

0.6

3.3

-

3.9

Profit for the year

78.2

(9.4)

-

68.8

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the Company

64.5

(10.6)

-

53.9

Non-controlling interests

13.7

1.2

-

14.9

Operating profit analysed as:

 

 

 

 

Underlying EBITDA

177.3

(13.7)

-

163.6

Amortisation of acquired intangibles

(39.6)

-

-

(39.6)

Depreciation and amortisation of software

(3.6)

-

-

(3.6)

Share-based payment charge

(12.6)

-

-

(12.6)

One-off items

(7.1)

-

-

(7.1)

Operating profit

114.4

(13.7)

-

100.7

 

 

 

 

 

Earnings per share (pence)

 

 

 

 

Basic

14.8

(2.4)

-

12.4

Diluted

14.4

(2.4)

-

12.0

 

 

 

 

Reported

 

 

Restated

 

31 March 2018

IFRS 15

IIC/IIP reclassification

31 March 2018

 

£m

£m

£m

£m

Group's consolidated statement of comprehensive income for the year ended 31 March 2018 (extracts)

 

 

 

 

Profit for the year

78.2

(9.4)

-

68.8

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Exchange differences on foreign operations

(56.6)

1.6

-

(55.0)

Total other comprehensive loss for the year

(57.5)

1.6

-

(55.9)

 

 

 

 

 

Total comprehensive income for the year

20.7

(7.8)

-

12.9

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the Company

12.3

(9.5)

-

2.8

Non-controlling interests

8.4

1.7

-

10.1

 

 

 

 

 

 

Reported

 

 

Restated

 

31 March 2018

IFRS 15

IIC/IIP reclassification

31 March 2018

 

£m

£m

£m

£m

Group's consolidated balance sheet at  31 March 2018 (extracts)

 

 

 

 

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Investment in productions

181.5

18.7

5.9

206.1

Trade and other receivables

93.7

(16.7)

-

77.0

Deferred tax assets

26.2

8.1

-

34.3

Total non-current assets

937.1

10.1

5.9

953.1

Current assets

 

 

 

 

Investment in acquired content rights

253.4

0.5

(5.9)

248.0

Trade and other receivables

481.5

(42.1)

-

439.4

Total current assets

899.1

(41.6)

(5.9)

851.6

Total assets

1,836.2

(31.5)

-

1,804.7

 

 

 

 

 

LIABILITIES

 

 

 

 

Non-current liabilities

 

 

 

 

Deferred tax liabilities

34.7

(1.7)

-

33.0

Total non-current liabilities

525.0

(1.7)

-

523.3

Current liabilities

 

 

 

 

Trade and other payables

491.3

10.1

-

501.4

Total current liabilities

605.2

10.1

-

615.3

Total liabilities

1,130.2

8.4

-

1,138.6

Net assets

706.0

(39.9)

-

666.1

 

 

 

 

 

EQUITY

 

 

 

 

Currency translation reserve

28.5

1.3

-

29.8

Retained earnings

58.4

(39.4)

-

19.0

Equity attributable to owners of the Company

657.9

(38.1)

-

619.8

Non-controlling interests

48.1

(1.8)

-

46.3

Total equity

706.0

(39.9)

-

666.1

Total liabilities and equity

1,836.2

(31.5)

-

1,804.7

 

 

 

Reported

 

 

Restated

 

31 March 2018

IFRS 15

IIC/IIP reclassification

31 March 2018

 

£m

£m

£m

£m

Group's consolidated cash flow statement for the year ended 31 March 2018 (extracts)

 

 

 

 

Operating activities

 

 

 

 

Operating profit

114.4

(13.7)

-

100.7

Adjustment for:

 

 

 

 

Amortisation of investment in productions

230.4

16.0

1.0

247.4

Investment in productions, net of grants received

(292.6)

-

(3.7)

(296.3)

Amortisation of investment in acquired content rights

113.9

0.5

(1.0)

113.4

Investment in acquired content rights

(148.2)

-

3.7

(144.5)

Operating cash flows before changes in working capital and provisions

69.8

2.8

-

72.6

Increase in trade and other receivables

(65.5)

21.8

-

(43.7)

Increase in trade and other payables

62.4

(24.6)

-

37.8

Cash inflow from operations

47.4

-

-

47.4

Income tax paid

(32.5)

-

-

(32.5)

Net cash inflow from operating activities

14.9

-

-

14.9

 

 

 

Reported

 

 

Restated

 

31 March 2017

IFRS 15

IIC/IIP reclassification

31 March 2017

 

£m

£m

£m

£m

Group's consolidated balance sheet at  31 March 2017 (extracts)

 

 

 

 

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Investment in productions

160.8

 36.4

 2.9

200.1

Deferred tax assets

28.2

7.0

-

35.2

Total non-current assets

972.7

 43.4

 2.9

1,019.0

Current assets

 

 

 

 

Investment in acquired content rights

269.8

 (1.4)

 (2.9)

265.5

Trade and other receivables

464.4

 (39.9)

-

424.5

Total current assets

928.3

 (41.3)

 (2.9)

884.1

Total assets

1,901.0

 2.1

-

1,903.1

 

 

 

 

 

LIABILITIES

 

 

 

 

Non-current liabilities

 

 

 

 

Deferred tax liabilities

53.1

 (0.9)

-

52.2

Total non-current liabilities

457.8

 (0.9)

-

456.9

Current liabilities

 

 

 

 

Trade and other payables

507.8

 34.9

-

542.7

Total current liabilities

691.9

 34.9

-

726.8

Total liabilities

1,149.7

 34.0

-

1,183.7

Net assets

751.3

 (31.9)

-

719.4

 

 

 

 

 

EQUITY

 

 

 

 

Currency translation reserve

79.8

 0.2

-

80.0

Retained earnings

104.2

 (28.5)

-

75.7

Equity attributable to owners of the Company

665.1

 (28.3)

-

636.8

Non-controlling interests

86.2

 (3.6)

-

82.6

Total equity

751.3

 (31.9)

-

719.4

Total liabilities and equity

1,901.0

 2.1

-

1,903.1

 

NEW, AMENDED AND REVISED STANDARDS ISSUED BUT NOT ADOPTED DURING THE YEAR

IFRS 16 Leases is effective for reporting periods commencing after 1 January 2019. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a right of use asset for lease contracts, subject to limited exceptions for short-term leases and leases of low value assets. Lease costs (primarily for the Group's rental properties) will be recognised in the form of depreciation and interest rather than as an operating cost.

The Group adopted IFRS 16 on 1 April 2019 using the modified retrospective approach with the right of use asset equal to the lease liability at transition date, less any lease incentives received. The Group has elected not to recognise right of use assets and lease liabilities for short-term leases or low-value assets. The Group will continue to expense the lease payments associated with these leases on a straight-line basis over the lease term.

The impact of adopting IFRS 16 at 1 April 2019 has been the recognition of non-current assets relating to right of use asset and total lease liability of approximately £55.0 million.

The estimated impacts to the consolidated income statement for the year ending 31 March 2020 are that the lease payments currently recorded as operating expenses will be replaced by depreciation on the right of use asset and interest expense on the lease liability. This change is presently estimated to result in a reduction in rent expense of £8 million to £10 million which will lead to an increase in EBITDA. There will be a corresponding increase in depreciation of £8 million to £10 million resulting in no material change in operating profit. Furthermore, there will be an increase in interest expense of £2.5 million to £3 million resulting in a decrease in profit before tax of the same magnitude.

IFRS 16 will not have any impact on cash flows.

2. OPERATING SEGMENTS

ACCOUNTING POLICIES

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

On 1 April 2018 the Group combined its Film Division and Television Division (which included Music) into one reporting segment, Film, Television & Music which is in line with broader developments within the media and entertainment industry. The Group is now organised for internal reporting and management purposes into:

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

-      Film, Television & Music - the production, acquisition, exploitation and trading of television, film and music content rights across all media.

Inter-segment revenues are charged at prevailing market prices.

Segment information for the year ended 31 March 2019 is presented below:

 

 

Family & Brands

Film, Television & Music

Eliminations

Consolidated

 

£m

£m

£m

£m

Segment revenue

 

 

 

 

External revenue

152.8

788.4

-

941.2

Inter-segment revenue

5.7

1.0

(6.7)

-

Total segment revenue

158.5

789.4

(6.7)

941.2

Segment results

 

 

 

 

Segment underlying EBITDA

97.0

115.2

(0.5)

211.7

Group costs

 

 

 

(14.1)

Underlying EBITDA

 

 

 

197.6

Amortisation of acquired intangibles

 

 

 

(39.0)

Depreciation and amortisation of software

 

 

 

(3.7)

Share-based payment charge

 

 

 

(16.2)

One-off items

 

 

 

(68.0)

Operating profit

 

 

 

70.7

Finance income

 

 

 

7.5

Finance costs

 

 

 

(41.4)

Profit before tax

 

 

 

36.8

Income tax charge

 

 

 

(21.5)

Profit for the year

 

 

 

15.3

Segment assets

 

 

 

 

Total segment assets

257.5

1,643.6

-

1,901.1

Unallocated corporate assets

 

 

 

0.7

Total assets

 

 

 

1,901.8

 

 

 

 

 

Other segment information

 

 

 

 

Amortisation of acquired intangibles

(12.5)

(26.5)

-

(39.0)

Depreciation and amortisation of software

-

(3.7)

-

(3.7)

One-off items

-

(68.0)

-

(68.0)

 

Segment information for the year ended 31 March 2018 is presented below:

 

 

 

 

 

Restated

 

Family & Brands

Film, Television & Music

Eliminations

Consolidated

 

£m

£m

£m

£m

Segment revenue

 

 

 

 

External revenue

118.5

910.5

-

1,029.0

Inter-segment revenue

5.4

0.6

(6.0)

-

Total segment revenue

123.9

911.1

(6.0)

1,029.0

Segment results

 

 

 

 

Segment underlying EBITDA

71.0

105.9

(0.4)

176.5

Group costs

 

 

 

(12.9)

Underlying EBITDA

 

 

 

163.6

Amortisation of acquired intangibles

 

 

 

(39.6)

Depreciation and amortisation of software

 

 

 

(3.6)

Share-based payment charge

 

 

 

(12.6)

One-off items

 

 

 

(7.1)

Operating profit

 

 

 

100.7

Finance income

 

 

 

4.9

Finance costs

 

 

 

(40.7)

Profit before tax

 

 

 

64.9

Income tax credit

 

 

 

3.9

Profit for the year

 

 

 

68.8

 

 

 

 

 

Segment assets

 

 

 

 

Total segment assets

256.5

1,535.0

-

1,791.5

Unallocated corporate assets

 

 

 

13.2

Total assets

 

 

 

1,804.7

 

 

 

 

 

 

 

 

 

Restated

 

Family & Brands

Film, Television & Music

Eliminations

Consolidated

 

£m

£m

£m

£m

Other segment information

 

 

 

 

Amortisation of acquired intangibles

(12.3)

(27.3)

-

(39.6)

Depreciation and amortisation of software

(0.2)

(3.4)

-

(3.6)

One-off items

(0.2)

(6.9)

-

(7.1)

 

 

GEOGRAPHICAL INFORMATION

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

The following table provides an analysis of the Group's carrying amount of segment non-current assets by the geographical area in which the assets are located for the years ended 31 March 2019 and 2018.

 

 

 

Restated

 

Non-current assets

Non-current assets

 

2019

2018

 

£m

£m

US

318.2

284.6

Canada

303.1

290.1

UK

279.8

306.3

Rest of Europe

28.2

28.6

Other

7.4

8.2

Total

936.7

917.8

 

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

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Group's revenue is predominantly derived from the licensing of intellectual property.

These licences transfer to a customer either a right to use an entity's intellectual property as it exists at the point in time at which the licence is granted (static licence), or a right to access an entity's intellectual property as it exists throughout the licence period (dynamic licence). Revenues are accounted for when (static licence) or as (dynamic licence) the performance obligation promised in the contract is satisfied, i.e. when the seller transfers the risks and rewards of the right to use/access the intellectual property and the customer obtains control of the use/access of that licence. Consequently, revenues from static licences are recognised at the point in time when the licence is transferred, and the customer can use and benefit from the licence. Revenues from dynamic licences are accounted for over time, over the licence period as from the date the customer can use and benefit from the licence. The specific policies by key streams of revenue are as follows:

Licensing and merchandising

The Group enters into licensing contracts with customers which allows them to produce merchandise and household goods portraying the Group's intellectual property. These licences are dynamic as the licensees are exposed to the Group's activities to maintain the intellectual property and benefit is derived over the licence period.

The consideration due from licensees is variable as the contract price is a function of merchandise sales over and above the contracts' minimum guarantee. The Group records revenue (including minimum guarantee) as sales or usage occurs based on the amount to which the Group can reliably estimate the extent the amounts are recoverable.

Sales of exploitation rights of film and television content (broadcast and digital, theatrical, digital transactional and international sales within production and other).

These sales are intellectual property licences granted by the Group to licensees and which give them certain rights over its audio-visual works. These licences are static licences because they transfer a right to use the audio-visual content as they exist at the point in time at which the licences are granted.

Revenues from the licensing of the exploitation rights are accounted for, from the moment when the customer is able to use them and obtain the remaining benefits. When the consideration paid by the customer is a fixed price, revenues from the sales of exploitation rights are accounted for at the later of the delivery or the opening of the exploitation window. When the consideration paid by the customer is variable in the form of a sales-based royalty to the end customer, royalty revenues are recognised as the subsequent sale occurs or is estimated to have occurred.

The Group includes certain content on free to consumer, video on demand services for which it earns a portion of advertising revenue earned by the service provider. The performance obligation is met when the user accesses the Group's content on the service providers infrastructure. The transaction price is dependent on arrangements made with the service provider within a specific territory and are unique to each title and revenue is recognised as the content is consumed.

Transactional

Revenues from physical sales (i.e. DVDs and Blu-rays), net of a provision for estimated returns and rebates if any, are accounted for, either upon the point at which goods are despatched or upon the sale to the ultimate customer for consignment sales.

Licence sales to customers via digital download are recognised at the point of transmission.

Production royalties, participation fees and producer fees and other

The Group can be contracted to create video content for a commissioning broadcaster and earns revenue through either a fixed fee or ongoing royalty payments attached to the broadcaster's revenue. The customer simultaneously receives and consumes the benefits of these services, as such the Group recognises revenue over the period of production. Further royalty revenue is recognised as statements are received or royalty amounts can be reliably estimated and are recoverable.

Licence fee revenue from trading of film and television content is recognised when notice of delivery is provided to customers and collection of the fee is reasonably assured.

In the following table, revenue is disaggregated by major service lines and primary geographical markets. The table also includes a reconciliation of the disaggregated revenue with the Group's reportable segments. See Note 2.

DISAGGREGATION OF REVENUE

 

 

            Family & Brands

           Film, Television & Music

            Consolidated

 

2019

2018

2019

2018

2019

2018

 

£m

£m

£m

£m

£m

£m

Primary geographical markets

 

 

 

 

 

 

US

54.5

40.9

364.7

429.5

419.2

470.4

Canada

5.7

3.1

112.3

143.3

118.0

146.4

UK

19.0

18.9

78.2

78.7

97.2

97.6

China

20.6

13.1

4.0

1.9

24.6

15.0

Rest of Europe

27.7

22.4

138.2

164.3

165.9

186.7

Rest of world

25.3

20.1

91.0

92.8

116.3

112.9

 

152.8

118.5

788.4

910.5

941.2

1,029.0

 

 

 

 

 

 

 

Major revenue streams

 

 

 

 

 

 

Theatrical

-

-

60.9

57.1

60.9

57.1

Transactional1

32.2

25.9

125.8

183.3

158.0

209.2

Broadcast and licensing

30.6

12.6

381.0

448.1

411.6

460.7

Licensing and merchandising

89.4

78.8

-

-

89.4

78.8

Production and other1

0.6

1.2

220.7

222.0

221.3

223.2

 

152.8

118.5

788.4

910.5

941.2

1,029.0

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

Products transferred at a point in time

63.4

39.7

691.1

835.5

754.5

875.2

Products transferred over time

89.4

78.8

97.3

75.0

186.7

153.8

 

152.8

118.5

788.4

910.5

941.2

1,029.0

 


1. Transactional revenue of the Film, Television & Music Division includes £58.3 million (2018: £49.4 million) relating to Music, Production & other includes £6.0 million (2018: £nil) relating to Music.

CONTRACT BALANCES

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

 

£m

£m

Receivables (which are included in 'Trade and other receivables')

 

164.2

117.6

Contract assets previously accrued income (included within 'Trade and other receivables')

 

263.9

239.2

Contract liabilities previously deferred income (included within 'Trade and other payables')

 

(93.4)

(68.2)

 

Set out below is the amount of revenue recognised from:

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

 

£m

£m

Amount included in contract liabilities at the beginning of the year

 

68.0

86.4

Performance obligations satisfied in the previous years

 

6.7

9.2

 

Performance obligations satisfied in the previous years primarily represents the additional revenue received from the actualisation of prior year estimates and overages received on the Group's library titles recognised within production and other.

FORWARD BOOKINGS

The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at year end are, as follows:

 

 

 

Within one

year

More than one year

 

 

£m

£m

Broadcast and licensing

 

153.0

9.3

Production and other

 

10.6

-

 

 

163.6

9.3

 

The above table does not include revenues from theatrical or transactional, as by their nature these revenues are not committed or measurable in advance of their occurrence. Similarly, revenues from licensing and merchandising are committed at year end, but the timing of the consumption of benefit by customers cannot be reliably measured. Revenues from unscripted productions are also excluded from production and other as the expected duration is less than 12 months.

The Group also has contracted future performance obligations for the licensing of content in relation to agreements for films and television content which has not yet been produced. The transaction price allocated to these performance obligations will only be known once the content has been produced.

4. OPERATING PROFIT

Operating profit for the year is stated after charging:

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Amortisation of investment in productions

15

240.5

247.4

Amortisation of investment in acquired content rights

18

84.0

113.4

Amortisation of acquired intangibles

14

39.0

39.6

Amortisation of software

14

1.2

1.6

Depreciation of property, plant and equipment

16

2.4

2.0

Impairment of investment in acquired content rights

18

15.6

-

Staff costs

6

116.2

108.2

Inventory costs - costs of inventory disposed of

17

22.2

2.7

Inventory costs - costs of inventory recognised as expense

17

37.9

47.1

Net operating foreign exchange losses

 

0.1

2.7

Operating lease rentals

34

11.3

10.8

 

 

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

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

 

£m

£m

Audit fees

 

 

 

- Fees payable for the audit of the Group's annual financial statements

 

0.6

0.6

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

 

0.2

0.2

- Fees payable for the review of the Group's interim financial statements

 

0.1

0.1

Other services

 

 

 

- Services relating to corporate finance transactions

 

0.1

0.2

- Other

 

0.1

0.2

Total

 

1.1

1.3

 

 

5. KEY MANAGEMENT COMPENSATION AND DIRECTORS' EMOLUMENTS

KEY MANAGEMENT COMPENSATION

The directors consider the key management of the Group in the years ended 31 March 2019 and 2018 are as follows:

-      Darren Throop, Group Chief Executive Officer and executive director in the years ended 31 March 2019 and 2018.

-      Joseph Sparacio, Group Chief Finance Officer and executive director in the years ended 31 March 2019 and 2018.

-      Margaret O'Brien, executive director from 18 May 2017 to 20 November 2017. Margaret O'Brien stepped down as an executive director from 20 November 2017 but continues to be the Group's Chief Corporate Development and Administrative Officer. The below table includes all payments made to Margaret from 1 April 2017 to 20 November 2017. Payments after 20 November 2017 have not been included in the table as she is not considered to be a key management person from that date.

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 2019

Year ended

31 March 2018

 

 

£m

£m

Short-term employee benefits

 

2.5

2.7

Share-based payment benefits

 

3.8

5.7

Total

 

6.3

8.4

 

Short-term employee benefits comprise salary, taxable benefits, annual bonus and pensions and include employer social security contributions of £nil (2018: £nil).

DIRECTORS' EMOLUMENTS

Full details of directors' emoluments can be found in the Remuneration Report.

6. 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.

ANALYSIS OF RESULTS FOR THE YEAR

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

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

Average number of employees

 

 

 

Canada

 

488

630

US

 

287

271

UK

 

270

232

Australia

 

46

46

Rest of world

 

99

80

Total

 

1,190

1,259

 

 

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

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Wages and salaries

 

91.0

87.9

Share-based payment charge

33

16.2

12.6

Social security costs

 

6.3

6.0

Pension costs

 

2.7

1.7

Total staff costs

 

116.2

108.2

 

Included within total staff costs is £12.3 million (2018: £6.0 million) of staff-related payments in respect to the restructuring costs as described in further detail in Note 7.

7. 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, 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:

 

 

 

 

Restated

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Restructuring costs

 

 

 

Home entertainment

 

61.0

-

Strategy-related

 

8.4

8.0

Total restructuring costs

 

69.4

8.0

 

 

 

 

Other items

 

 

 

Acquisition gains

 

(0.5)

(1.9)

Other

 

(0.9)

1.0

Total other items

 

(1.4)

(0.9)

 

 

 

 

Total one-off costs

 

68.0

7.1

 

HOME ENTERTAINMENT

Changes in consumer behaviour within the content industry are accelerating at an unprecedented level and in the year ending 31 March 2019, the home entertainment markets in all of the Group's operating territories experienced significant challenges. As a result the Group has recorded a one-off charge of £61.0 million in the period which included the following:

-     Impairment of investment in acquired content rights of £15.6 million resulting from the lowering of previous expectations regarding the home entertainment business driven by an acceleration of market decline;

-     Write down of home entertainment related inventories of £26.1 million resulting from an assessment of the realisable value of inventory below the previous assessment of net realisable value;

-     One-off bad debt expense on trade and other receivables of £14.4 million; and

-     Related severance, staff costs and other costs of the home entertainment businesses of £4.9 million.

STRATEGY-RELATED

On 1 April 2018 the Group combined its Film Division and Television Division (which included Music) into one reporting segment, Film, Television & Music, which is in line with broader developments within the media and entertainment industry. The integration which commenced in September 2017 is largely complete and the costs arising from the integration have been included as a one-off charge of £8.4 million, they include the following:

-     Related severance and staff costs of Film, Television & Music of £7.9 million;

-     Consultancy fees for the pre-system development of the finance transformation of £0.5 million.

OTHER ITEMS

Acquisition gains of £0.5 million include a cost of £0.6 million for completed deals during the year and a £1.1 million credit due to the release of Last Gang Entertainment contingent consideration which is no longer payable.

Other one-off credits of £0.9 million include a £1.7 million settlement received on a tax warranty relating to a prior year acquisition and is partially offset by £0.8 million of legal costs for certain corporate projects and aborted corporate transactions during the year.

PRIOR YEAR COSTS

In 2018, restructuring costs were as follows:

The strategy related restructuring costs of £8.0 million comprised:

-     £4.4 million of costs associated with the integration of the Television and Film Divisions and includes £3.6 million related to severance and staff costs and £0.8 million related to consultancy fees;

-     £2.0 million related to the integration of the unscripted television companies within the wider Canadian television production business. The costs primarily include severance and staff costs and onerous leases; and

-     £1.6 million of costs associated with completion of the 2017 strategy related restructuring programmes. The costs include additional severance, onerous leases and write-off of inventory.

Acquisition gains of £1.9 million included:

-     Credit of £3.9 million on re-assessment of the liability on put options in relation to the non-controlling interests over Renegade 83 and Sierra Pictures;

-     These gains are partially offset by banking and legal costs of £1.6 million associated with the creation and set-up of Makeready in the prior year; and

-     Charge of £0.6 million on settlement of contingent consideration in relation to Renegade 83 settled in the year, partially offset by escrow of £0.2 million received in relation to the 2018 acquisition of Last Gang Entertainment.

Other costs of £1.0 million in 2018 primarily related to costs associated with aborted corporate projects.

8. 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.

During the year, the Group refinanced its Revolving Credit Facility ("RCF") with an available limit of US$260 million (equivalent to £199.5 million at 31 March 2019). All directly attributable costs have been capitalised within deferred finance charges and are being amortised through the consolidated income statement over the term of the facility using the effective interest rate method. Deferred finance charges associated with the previous credit facility were written-off.

Premium on senior secured notes

In 2018, the Group issued an additional £70.0 million of senior secured notes at a premium to face value. The premium has been netted off from the amount of deferred finance charges and is then amortised through the consolidated income statement over the term of the instrument using the effective interest rate method.

One-off finance items

One-off finance 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 finance costs and enable comparison of underlying financial performance between years.

ANALYSIS OF RESULTS FOR THE YEAR

 

 

 

 

Restated

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

Note

£m

£m

Finance income

 

 

 

Gain on cancellation of financial instruments

27

5.7

-

Other finance income

 

1.8

4.9

Total finance income

 

7.5

4.9

 

 

 

 

Finance costs

 

 

 

Interest cost

 

(33.6)

(26.8)

Amortisation of deferred finance charges and premium on senior secured notes

 

(1.6)

(1.9)

Other accrued interest charges

 

(2.0)

-

Write-off of deferred finance charges

 

(1.4)

-

Losses on fair value of derivative instruments

 

-

(7.9)

Unwind of discounting on financial instruments

 

(1.5)

(3.0)

Net foreign exchange losses on financing activities

 

(1.3)

(1.1)

Total finance costs

 

(41.4)

(40.7)

Net finance costs

 

(33.9)

(35.8)

Comprised of:

 

 

 

Adjusted net finance costs

 

(38.0)

(29.8)

One-off net finance income/(costs)

 

4.1

(6.0)

 

The one-off net finance income of £4.1 million (2018: charge £6.0 million) comprises:

Put Options

-     Credit of £5.7 million (2018: £nil) relating to the reversal of the Sierra/Affinity put option liability following the acquisition of the remaining 49% shares on 27 June 2018;

-     Credit of £1.1 million (2018: £nil) relating to the revaluation of put options issued over the non-controlling interest of other subsidiary companies;

-     Credits above are partly offset by a charge £1.4 million (2018: £3.0 million) due to the unwind of discounting on liabilities relating to put options issued by the Group over the non-controlling interest of subsidiary companies.

Foreign Exchange Gains & Losses

-     Credit of £0.2 million (2018: charge of £1.6 million) in respect of fair value gains on hedge contracts;

-     Charges incurred in the prior period included £5.2 million in respect of losses on five forward currency contracts not in compliance with the Group's hedging policy and £1.1 million in respect of fair-value loss on hedge contracts cancelled as a result of the re-negotiation of one of the Group's larger film distribution agreements. The charges in the prior year are partly offset by credit of £1.5 million due to the adoption of IFRS 15.

Tax Provisions

-     Charge of £0.1 million (2018: credit of £3.4 million) relating to interest on tax provisions incurred during the year. In the prior year there was a release of interest previously charged on tax provisions.

Deferred Finance Charges

-     Charge of £1.4 million (2018: £nil) due to the write-off of the deferred finance charges in relation to the RCF which was refinanced in December 2018.


9. 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 advisers, 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 relevant tax legislation.

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 several 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

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

 

£m

£m

Current tax charge

 

 

 

 - in respect of current year

 

(32.1)

(15.4)

 - in respect of the prior years

 

8.1

2.2

Total current tax charge

 

(24.0)

(13.2)

 

 

 

 

Deferred tax credit/(charge)

 

 

 

 - in respect of current year

 

12.0

20.0

 - in respect of the prior years

 

(9.5)

(2.9)

Total deferred tax credit

 

2.5

17.1

Income tax (charge)/credit

 

(21.5)

3.9

Of which:

 

 

 

Adjusted tax charge on adjusted profit before tax

 

(31.1)

(24.3)

One-off net tax credit

 

9.6

28.2

 

The one-off tax credit comprises tax credits of £3.2 million (2018: £1.8 million) in relation to the operating and financing one-off items described in Note 7 and 8, £0.7 million (2018: £12.6 million) in relation to the release of the certain tax provisions, £5.1 million (2018: £6.6 million) on amortisation of acquired intangibles described in Note 14, £0.5 million (2018: £0.4 million) on share-based payments as described in Note 33, £0.1 million on other discrete tax items. The prior year also included a credit of £7.5 million on impact of the US Federal rate reduction and a tax charge of £0.7 million relating to prior period current tax and deferred tax adjustments.

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

 

 

 

 

 

Restated

 

 

Year ended 31 March 2019

Year ended 31 March 2018

 

 

£m

%

£m

%

Profit before tax (including joint ventures)

 

36.8

 

64.9

 

Deduct share of results of joint ventures

 

-

 

-

 

Profit before tax (excluding joint ventures)

 

36.8

 

64.9

 

 

 

 

 

 

 

Taxes at applicable domestic rates

 

(7.2)

(19.6)

(18.1)

(27.9)

Effect of income that is exempt from tax

 

4.2

11.4

3.8

5.9

Effect of expenses that are not deductible in determining taxable profit

 

(11.1)

(30.2)

(3.3)

(5.1)

Effect of losses/temporary differences not recognised in deferred tax

 

(7.8)

(21.2)

(2.8)

(4.3)

Effect of decrease in tax provisions

 

0.7

1.9

13.5

20.8

Effect of non-controlling interests

 

1.4

3.8

0.9

1.4

Effect of tax rate changes

 

(0.3)

(0.8)

7.3

11.2

Effect of changes in accounting standard1

 

-

-

3.3

5.1

Prior year items

 

(1.4)

(3.8)

(0.7)

(1.1)

Income tax charge and effective tax rate for the year

 

(21.5)

(58.4)

3.9

6.0

 


1. IFRS 15 Revenue from Contracts with Customers was adopted by the Group on 1 April 2018 on a fully retrospective basis which requires the restatement of comparative periods. With the restatement of these balances affecting the Group's profit before tax, restatement was also required for the Group's current and deferred tax balances as at 31 March 2018. The change has been isolated in the above line.

Income tax is calculated at the rates prevailing in respective jurisdictions. The standard tax rates in each jurisdiction are 26.5% in Canada (2018: 26.5%), 26.0% in the US (2018: 30.6% - 32.8%), 19.0% in the UK (2018: 19.0%), 25.0% in the Netherlands (2018: 25.0%), 30.0% in Australia (2018: 30.0%) and 25.0% in Spain (2018: 25.0%).

ANALYSIS OF TAX ON ITEMS TAKEN DIRECTLY TO OTHER COMPREHENSIVE INCOME AND EQUITY

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Deferred tax (charge)/credit on cash flow hedges

 

(0.8)

2.7

Deferred tax credit on share options

 

0.9

0.3

Total credit taken directly to equity

10

0.1

3.0

 

10. 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 can 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 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.

Deferred tax assets 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. In certain jurisdictions, 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:

 

 

 

Other intangible assets

Unused tax

 losses

Financing

 items

Other

Total

 

Note

£m

£m

£m

£m

£m

At 1 April 2017

 

(63.9)

38.0

0.8

8.1

(17.0)

Credit/(charge) to income restated

 

17.6

(6.1)

(0.4)

6.0

17.1

Credit to equity

9

-

-

2.7

0.3

3.0

Exchange differences restated

 

3.3

(3.1)

(0.5)

(0.5)

(0.8)

Effect of change in accounting standard

 

-

-

-

(1.0)

(1.0)

At 31 March 2018 restated

 

(43.0)

28.8

2.6

12.9

1.3

Acquisition of subsidiaries

27

(2.0)

(1.2)

3.2

-

-

Credit/(charge) to income

 

5.3

7.3

0.3

(10.4)

2.5

(Charge)/credit to equity

9

-

-

(0.8)

0.9

0.1

Exchange differences

 

(1.0)

1.0

0.1

-

0.1

Effect of change in accounting standard

 

-

-

-

1.0

1.0

At 31 March 2019

 

(40.7)

35.9

5.4

4.4

5.0

 

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

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

 

 

 

 

 

 

 

Restated

 

 

 

 

 

31 March 2019

31 March 2018

 

 

 

 

 

£m

£m

Deferred tax assets

 

 

 

 

37.5

34.3

Deferred tax liabilities

 

 

 

 

(32.5)

(33.0)

Total

 

 

 

 

5.0

1.3

 

At the balance sheet date, the Group has unrecognised unused tax losses of £226.8 million (2018: £156.3 million), the majority of which will expire in the years ending 2028 to 2039.

The Group also has unrecognised deferred tax assets of £3.4 million (2018: £4.8 million) in connection with the put and call options that were granted over the remaining 35% in Renegade 83. During the year the put option in relation to the non-controlling interest of 49% in Sierra Pictures was cancelled as a result of the Group's acquisition of the remaining 49% upon which there was no longer a non-controlling interest (see Note 27).

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 £83.6 million (2018: £70.1 million).

It is estimated that deferred tax liabilities of approximately £1.9 million will reverse during the next financial year.

During the year ended 31 March 2018, the corporate income tax rate reduced from 35% to 21% in the US. During the year ended 31 March 2017, the corporate income tax rate in the UK reduced from 18% to 17% effective from 1 April 2020. These rates are reflected in the deferred tax calculations as appropriate.

11. 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 20 May 2019 the directors declared a final dividend in respect of the financial year ended 31 March 2019 of 1.5 pence (2018: 1.4 pence) per share which will absorb an estimated £7.4 million of total equity (2018: £6.6 million including withholding tax, 2017: £5.6 million including withholding tax). It will be paid on or around 6 September 2019 to shareholders who are on the register of members on 12 July 2019 (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.

12. 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, fully vested employee share awards exercisable for no further consideration and 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, fully vested employee share awards exercisable for no further consideration and 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 amortisation of acquired intangibles, share-based payment charge, tax, finance costs and depreciation related to joint ventures, operating one-off items, finance one-off items and one-off tax items.

Diluted earnings per share and adjusted diluted earnings per share are calculated after adjusting the weighted average number of shares in issue during the year to assume conversion of all potentially dilutive shares. In April 2019, the Group completed a private placement and acquired 100% of the share capital of Audio Network Limited (including the issue of consideration shares). These transactions led to the issue of 28,900,000 and 2,112,428 additional shares of Entertainment One Ltd., respectively. A further 198,000 shares were issued on exercise of share options and the total number of shares in issue at 1 May 2019 was 495,997,548. Refer to Note 36 for additional details. There have been no other transactions involving common shares or potential common shares between the reporting date and the date of authorisation of these consolidated financial statements.

EARNINGS PER SHARE

 

 

 

 

Restated

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

 

Pence

Pence

Basic earnings per share

 

2.5

12.4

Diluted earnings per share

 

2.5

12.0

Adjusted basic earnings per share

 

25.6

19.8

Adjusted diluted earnings per share

 

25.0

19.3

 

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

 

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

 

 

Million

Million

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

 

462.9

436.3

Effect of dilution for basic and adjusted:

 

 

 

Employee share awards

 

10.7

10.9

Contingent consideration with option in cash or shares

 

-

0.4

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

 

473.6

447.6

 

As noted above, shares held by the EBT, classified as own shares, are excluded from earnings per share and adjusted earnings per share. Refer to Note 33 for details on employee share awards.

At 31 March 2018, the Group held an option to settle the contingent consideration payable in relation to the acquisition of Last Gang Entertainment which has been reversed during the year ended 31 March 2019. See Note 21 for details.

ADJUSTED EARNINGS PER SHARE

The directors believe that the presentation of adjusted earnings per share, being the fully diluted earnings per share adjusted for amortisation of acquired intangibles, share-based payment charge, tax, finance costs and depreciation related to joint ventures, operating one-off items, finance one-off items and one-off tax items, helps to explain the underlying performance of the Group. A reconciliation of the earnings used in the fully diluted earnings per share calculation to earnings used in the adjusted earnings per share calculation is set out below:

 

 

 

 

 

Restated

 

 

Year ended 31 March 2019

 

Year ended 31 March 2018

 

Note

£m

Pence per share

 

£m

Pence per share

Profit for the year attributable to the owners of the Company

 

11.7

2.5

 

53.9

12.0

Add back amortisation of acquired intangibles

14

39.0

8.2

 

39.6

8.9

Add back share-based payment charge

33

16.2

3.4

 

12.6

2.8

Add back one-off items

7

68.0

14.4

 

7.1

1.6

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

8

(4.1)

(0.9)

 

6.0

1.3

Deduct tax effect of above items and discrete tax items

 

(9.6)

(2.0)

 

(28.2)

(6.3)

Deduct non-controlling interests share of above items

 

(2.9)

(0.6)

 

(4.6)

(1.0)

Adjusted earnings attributable to the owners of the Company

 

118.3

25.0

 

86.4

19.3

Adjusted earnings attributable to non-controlling interests

 

6.5

 

 

19.5

 

Adjusted profit for the year

 

124.8

 

 

105.9

 

 

 

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

 

 

Note

 

Restated

Year ended

Year ended

31 March 2019

31 March 2018

£m

£m

Profit before tax

 

36.8

64.9

Add back one-off items

7

68.0

7.1

Add back amortisation of acquired intangibles

14

39.0

39.6

Add back share-based payment charge

33

16.2

12.6

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

8

(4.1)

6.0

Adjusted profit before tax

 

155.9

130.2

Adjusted tax charge

9

(31.1)

(24.3)

Deduct profit attributable to non-controlling interests

 

(3.6)

(14.9)

Deduct non-controlling interests' share of adjusting items above

 

(2.9)

(4.6)

Adjusted earnings attributable to the owners of the Company

 

118.3

86.4

 

13. 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.

KEY SOURCE OF ESTIMATION UNCERTAINTY

The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the recoverable amount, which is the higher of the fair value less cost of disposal and 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 to choose a suitable discount rate to calculate the present value of those cash flows.

ANALYSIS OF AMOUNTS RECOGNSIED BY THE GROUP

 

 

 

 

Total

 

Note

 

£m

Cost and carrying amount

 

 

 

At 1 April 2017

 

 

406.9

Acquisition of subsidiaries

27

 

0.8

Impairment

 

 

-

Disposals

 

 

-

Exchange differences

 

 

(32.5)

At 1 April 2018

 

 

375.2

Acquisition of subsidiaries

27

 

6.0

Impairment

 

 

-

Disposals

 

 

-

Exchange differences

 

 

16.0

At 31 March 2019

 

 

397.2

CGU

 

 

 

Family & Brands

 

 

57.4

Film, Television & Music

 

 

339.8

Total

 

 

397.2

 

Goodwill arising on a business combination is allocated to the CGUs that are expected to benefit from that business combination. As explained below, the Group's CGUs are Family & Brands and Film, Television & Music.

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 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.

Value-in-use calculations are 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.

Consistent with the combination of the Group's previous Television and Film Divisions during the period, the Group has reviewed its assessment of CGUs for the purpose of measuring impairment of non-financial assets including goodwill. The directors consider the CGUs of the Group to be Family & Brands and Film, Television & Music. Following the acquisition of remaining 49% of shares in The Mark Gordon Company (MGC) on 2 March 2018, its operations have also been integrated into the newly combined Film, Television & Music Division.

The Group does not consider there to be a lower level than the whole Film, Television & Music Division which can generate largely independent cash flows due to rationalisation of core operating functions and market developments which mean that the distinction between film and television content is disappearing as content distribution is increasingly performed by digital platforms. There has been no change in the assessment for Family & Brands.

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 2019

 

 

Pre-tax

Terminal

Period of

 

 

discount rate

growth rate

specific cash

CGU

 

%

%

flows

Family & Brands

 

8.4

2.0

3 years

Film, Television & Music

 

8.6

2.0

3 years

 

 

 

 

 

 

The calculations of the value-in-use for all CGUs are most sensitive to the operating profit, discount rate and terminal 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 7.2% (2018: 7.2%). 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 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:

 

 

 

Year ended

Year ended

 

 

31 March 2019

31 March 2018

CGU

 

£m

£m

Family & Brands

 

57.4

57.4

Film, Television & Music

 

339.8

-

Television

 

-

58.6

The Mark Gordon Company

 

-

69.0

Film

 

-

190.2

Total

 

397.2

375.2

 

SENSITIVITY TO CHANGE IN ASSUMPTIONS

Family & Brands - The Family & Brands calculations show that there is significant headroom when compared to carrying values of non-current assets at 31 March 2019. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 1.5% increase in pre-tax discount rate and 0% terminal growth rate). A 652.4% (54.8 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.

Film, Television & Music - The Film, Television & Music calculations show that there is significant headroom when compared to carrying values of non-current assets at 31 March 2019. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 1.5% increase in pre-tax discount rate and 0% terminal growth rate). A 39.3% (3.3 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.

14. OTHER INTANGIBLE ASSETS

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

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

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

ANALYSIS OF AMOUNTS RECOGNISED BY THE GROUP

 

 

 

Acquired intangibles

 

 

 

Exclusive content agreements and libraries

Trade names and brands

Exclusive distribution agreements

Customer relationships

Non-compete agreements

Software

Total

 

Note

£m

£m

£m

£m

£m

£m

£m

Cost

 

 

 

 

 

 

 

 

At 1 April 2017

 

231.0

202.8

29.0

51.0

18.5

14.3

546.6

Additions

 

-

-

-

-

-

1.5

1.5

Disposals

 

(0.8)

(6.8)

(14.7)

-

(15.4)

(0.1)

(37.8)

Exchange differences

 

(19.9)

(2.7)

(2.0)

(4.7)

(1.1)

(1.2)

(31.6)

At 31 March 2018

 

193.3

12.3

46.3

2.0

14.5

478.7

Acquisition of subsidiaries

27

0.7

-

-

0.3

-

-

1.0

Additions

 

-

-

-

-

-

2.7

2.7

Disposals

 

(0.3)

(3.5)

(9.6)

(20.0)

-

(8.7)

(42.1)

Exchange differences

 

11.4

1.0

0.4

1.7

0.1

0.5

15.1

At 31 March 2019

 

190.8

3.1

28.3

2.1

9.0

455.4

Amortisation

 

 

 

 

 

 

 

 

At 1 April 2017

 

(96.2)

(50.1)

(28.6)

(38.7)

(18.5)

(11.6)

(243.7)

Amortisation charge for the year

4

(23.4)

(11.9)

(0.3)

(4.0)

-

(1.6)

(41.2)

Disposals

 

0.8

6.8

14.7

-

15.4

0.1

37.8

Exchange differences

 

7.3

2.0

2.1

3.8

1.1

1.0

17.3

At 31 March 2018

 

(53.2)

(12.1)

(38.9)

(2.0)

(12.1)

(229.8)

Amortisation charge for the year

4

(23.3)

(12.0)

(0.2)

(3.5)

-

(1.2)

(40.2)

Disposals

 

0.3

3.5

9.6

19.9

-

8.7

42.0

Exchange differences

 

(4.5)

(0.7)

(0.4)

(1.4)

(0.1)

(0.4)

(7.5)

At 31 March 2019

 

(62.4)

(3.1)

(23.9)

(2.1)

(5.0)

(235.5)

Carrying amount

 

 

 

 

 

 

 

 

At 31 March 2018

 

98.8

140.1

0.2

7.4

-

2.4

248.9

At 31 March 2019

 

128.4

-

4.4

-

4.0

219.9

 

The amortisation charge for the year ended 31 March 2019 comprises £39.0 million (2018: £39.6 million) in respect of acquired intangibles.

The Group acquired a 70.1% stake in Whizz Kid Entertainment Limited (Whizz Kid), a UK based unscripted television production company, on 9 April 2018. £0.7 million was recognised relating to the value placed on the television shows and back end royalties following the end of a series production, which has been included within exclusive content agreements and libraries.

The Group acquired 100% of Magnolia Record Club LLC on 26 July 2018 for a consideration of £0.3 million. Acquired intangibles of £0.3 million were identified on the acquisition relating to existing customer lists and brand names. Refer to Note 27 for further details.

The additions to software of £2.7 million relates to an ongoing finance system project. These assets are still in development and amortisation will commence once the project has been completed.

Disposals in the current and prior year represent intangible assets that have been derecognised as no future economic benefits are expected from their use or disposal. These assets were fully amortised at 31 March 2019.

 

 

15. 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 television and films programmes acquired on the 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 is 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 from the date of its initial release, unless it arises from revaluation on the 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 is required to exercise judgement in estimating future revenue forecasts for its underlying productions. These forecasts are based on the revenue generated from other similar productions, actual performance to-date of the production and the expectation of future revenue generated over the remaining useful life. The future revenue forecasts are reviewed at least quarterly and any changes to forecasts are treated prospectively as of the beginning of the financial year during which the forecasts are revised. Sensitivities are considered as part of the respective production level forecasts.

Due to the varied nature of the productions, a sensitivity analysis on the overall balance of investment in productions is not considered to be meaningful.

AMOUNTS RECOGNISED BY THE GROUP

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Cost

 

 

 

Balance at 1 April

 

1,033.1

850.2

Additions

 

285.0

278.0

Disposals

 

-

(0.5)

Exchange differences

 

57.8

(94.6)

Balance at 31 March

 

1,375.9

1,033.1

Amortisation

 

 

 

Balance at 1 April

 

(827.0)

(650.1)

Amortisation charge for the year

4

(240.5)

(247.4)

Exchange differences

 

(48.6)

70.5

Balance at 31 March

 

(1,116.1)

(827.0)

Carrying amount

 

259.8

206.1

 

Borrowing costs of £8.2 million (2018: £6.9 million) related to television, film and family production financing have been included in the additions during the year.

Included within the carrying amount as at 31 March 2019 is £89.7 million (2018: £71.5 million) of productions in progress.

 

16. 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

3-10 years

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

 

 

 

Leasehold improvements

Fixtures, fittings and equipment

Total

 

Note

£m

£m

£m

Cost

 

 

 

 

At 1 April 2017

 

12.2

9.8

22.0

Additions

 

0.3

1.4

1.7

Disposals

 

(0.2)

(0.6)

(0.8)

Exchange differences

 

(1.0)

(0.8)

(1.8)

At 31 March 2018

 

11.3

9.8

21.1

Additions

 

2.4

2.0

4.4

Disposals

 

(0.2)

(3.6)

(3.8)

Exchange differences

 

0.4

0.4

0.8

At 31 March 2019

 

13.9

8.6

22.5

Depreciation

 

 

 

 

At 1 April 2017

 

(3.2)

(6.9)

(10.1)

Depreciation charge for the year

4

(1.1)

(0.9)

(2.0)

Disposals

 

0.2

0.6

0.8

Exchange differences

 

0.3

0.5

0.8

At 31 March 2018

 

(3.8)

(6.7)

(10.5)

Depreciation charge for the year

4

(1.1)

(1.3)

(2.4)

Disposals

 

0.2

3.5

3.7

Exchange differences

 

(0.2)

(0.2)

(0.4)

At 31 March 2019

 

(4.9)

(4.7)

(9.6)

Carrying Amount

 

 

 

 

At 31 March 2018

 

7.5

3.1

10.6

At 31 March 2019

 

9.0

3.9

12.9

 

17. 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.

AMOUNTS RECOGNISED BY THE GROUP

 

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Finished good

 

 

 

At cost

 

7.5

34.6

At net realisable value

 

4.2

5.0

Total

 

11.7

39.6

 

During the period the Group recorded a £26.1 million write down of inventory associated with the home entertainment business. Refer to Note 7 for further details.

18. INVESTMENT IN ACQUIRED CONTENT RIGHTS

ACCOUNTING POLICY

In the ordinary course of business the Group contracts with television and film 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 television or film 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. broadcast licences, theatrical release and home entertainment) and the expected revenue earned in each of those stages of release over a period not exceeding 10 years from 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 Family & Brands and Film, Television & Music businesses. The normal operating cycle of these businesses can be greater than 12 months. In general 65%-75% of television and film programme content is amortised within 12 months of theatrical release/delivery.

KEY SOURCE OF ESTIMATION UNCERTAINTY

The Group is required to exercise judgement in estimating future revenue forecasts for its underlying programmes. These forecasts are based on the revenue generated from other similar programmes, actual performance to-date of the programmes and the expectation of future revenue generated over the remaining useful life. The future revenue forecasts are reviewed at least quarterly and any changes to forecasts are treated prospectively as of the beginning of the financial year during which the forecasts are revised. Sensitivities are considered as part of the respective programme level forecasts.

Due to the varied nature of the productions, a sensitivity analysis on the overall balance of investment in acquired content rights is not considered to be meaningful.

AMOUNTS RECOGNISED BY THE GROUP

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Balance at 1 April

 

248.0

265.4

Additions

 

99.5

107.0

Amortisation charge for the year

4

(84.0)

(113.4)

Impairment charge for the year

4

(15.6)

-

Exchange differences

 

6.1

(11.0)

Balance at 31 March

 

254.0

248.0

 

There was an impairment charge recognised during the year ended 31 March 2019 of £15.6 million (2018: £nil) in relation to our home entertainment business. Refer to Note 7 for details.

19. TRADE AND OTHER RECEIVABLES

ACCOUNTING POLICY

Trade receivables are generally not interest-bearing and are stated initially at their fair value as reduced by appropriate allowances for estimated irrecoverable amounts. Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.

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

Contract assets represent amounts for which the Group has a right to consideration in respect of unbilled amounts from contracts with customers where the performance obligations have been satisfied at the balance sheet date.

The Group measures the provision at an amount equal to lifetime expected credit losses, estimated by reference to past experiences and relevant forward looking factors.

ANALYSIS OF AMOUNTS RECOGNISED BY THE GROUP

 

 

 

 

Restated

 

 

31 March 2019

31 March 2018

 

Note

£m

£m

Non-current

 

 

 

Financial Assets

 

 

 

Trade receivables

3, 28

13.4

7.9

Contract assets

3, 28

31.4

67.2

Other receivables

28

1.1

1.1

Less: Provision for doubtful debts

28

(0.2)

-

Net receivables

28

45.7

76.2

Prepayments

 

1.2

0.8

Total

 

46.9

77.0

Current

 

 

 

Financial Assets

 

 

 

Trade receivables

3, 28

156.4

112.7

Contract assets

3, 28

232.5

172.0

Amounts owed from joint ventures

 

0.1

0.2

Other receivables

28

91.9

47.6

Less: Provision for doubtful debts

28

(5.4)

(3.0)

Net receivables

28

475.5

329.5

Prepayments

 

28.3

32.8

Tax credits receivable

 

44.6

77.1

Total

 

548.4

439.4

 

The loss allowance as at 31 March 2019 and 1 April 2018 (on adoption of IFRS 9) was determined as follows:

 

31 March 2019

 

 

 

 

 

 

Current

Less than 60 days

Between 60 and 90 days

More than 90 days

Total

 

£m

£m

£m

£m

£m

Gross carrying amount -

 

 

 

 

 

Trade receivables

82.6

43.7

5.8

37.7

169.8

Contract assets

263.9

-

-

-

263.9

Amounts owed from joint ventures

0.1

-

-

-

0.1

Other receivables

87.5

0.7

0.3

4.5

93.0

Loss allowance

(1.8)

(0.4)

(0.1)

(3.3)

(5.6)

 

 

 

 

 

 

1 April 2018

 

 

 

 

 

 

Current

Less than 60 days

Between 60 and 90 days

More than 90 days

Total

 

£m

£m

£m

£m

£m

Gross carrying amount -

 

 

 

 

 

Trade receivables

96.5

8.0

5.7

10.4

120.6

Contract assets

239.2

-

-

-

239.2

Amounts owed from joint ventures

0.2

-

-

-

0.2

Other receivables

46.7

-

-

2.0

48.7

Loss allowance

(2.5)

(0.2)

(0.3)

(2.2)

(5.2)

 

The closing loss allowances for trade receivables and contract assets as at year end reconcile to the opening loss allowances as follows:

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

 

£m

£m

Balance at 1 April

 

(3.0)

(2.3)

Amounts restated through opening retained earnings

 

(2.2)

-

Opening loss allowance calculated under IFRS 9

 

(5.2)

(2.3)

Provision recognised in the year

 

(1.9)

(1.7)

Provision reversed in the year

 

0.2

0.2

Utilisation of provision

 

1.4

0.6

Exchange differences

 

(0.1)

0.2

Balance at 31 March

 

(5.6)

(3.0)

 

 

There was an impairment charge recognised during the year ended 31 March 2019 of £14.4 million (2018: £nil) in relation to our home entertainment business. Refer to Note 7 for details. This has not been included in the table above.

Management has credit policies in place and the exposure to credit risk is monitored by individual operating businesses on an ongoing basis. Refer to Note 28 for further details on the Group's exposure to credit risk.

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

 

 

Pounds sterling

euros

Canadian dollars

US dollars

Other

Total

 

£m

£m

£m

£m

£m

£m

Current

55.4

61.2

79.2

329.9

22.7

548.4

Non-current

5.4

1.5

3.6

33.6

2.8

46.9

At 31 March 2019

60.8

62.7

82.8

363.5

25.5

595.3

Current

51.2

29.4

126.7

216.3

15.8

439.4

Non-current

4.6

4.3

7.8

60.3

-

77.0

At 31 March 2018 restated

55.8

33.7

134.5

276.6

15.8

516.4

 

20. CASH AND CASH EQUIVALENTS

ACCOUNTING POLICY

Cash and cash equivalents in the consolidated balance sheet comprise cash at bank and in hand. 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 production subsidiaries and are non-recourse to other Group companies or assets. Until the loans are repaid, cash held only for production financing relates to cash at bank and in hand held by production subsidiaries and can only be used for investment in the specified productions and repayment of the specific production financing facility.

Cash and cash equivalents are held in the following currencies at 31 March 2019 and 2018. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rates ruling at the balance sheet date. The directors consider the carrying amount of cash and cash equivalents is the same as their fair value.

 

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Cash:

 

 

 

  Pounds sterling

 

7.6

4.7

  euros

 

5.1

3.4

  Canadian dollars

 

14.0

14.4

  US dollars

 

78.8

94.5

  Australian dollars

 

1.7

2.0

  Other

 

0.2

0.2

Cash and cash equivalents per the consolidated balance sheet

28

107.4

119.2

 

 

 

 

Held repayable only for production financing

 

55.8

58.1

Other

 

51.6

61.1

Cash and cash equivalents

 

107.4

119.2

 

The Group had no cash equivalents at either 31 March 2019 or 2018. 

21. TRADE AND OTHER PAYABLES

ACCOUNTING POLICY

Trade payables are generally not interest-bearing and are stated at amortised cost.

Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or consideration is due from the customer.

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, 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. If the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.

Amounts are recognised as non-current when the Group has an unconditional right to defer settlement of the balance in a period of greater than 12 months from the reporting date.

ANALYSIS OF AMOUNTS RECOGNISED BY THE GROUP

 

 

 

 

Restated

 

 

31 March 2019

31 March 2018

Current

Note

£m

£m

Trade payables

28

74.9

49.7

Accruals

 

345.1

369.5

Contract liabilities

3

92.9

67.8

Payable to joint ventures

 

0.2

0.2

Contingent consideration payable

28

5.3

2.5

Other payables

28

10.9

11.7

Total

 

529.3

501.4

 

 

 

 

Non-current

 

 

 

Accruals

 

0.5

0.5

Contract liabilities

3

0.5

0.4

Put liabilities on partly owned subsidiaries

28

14.6

27.1

Total

 

15.6

28.0

 

 

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 were as follows:

 

 

Sierra Affinity

Dualtone

Last Gang

MGC

Total

 

£m

£m

£m

£m

£m

At 1 April 2018

0.1

0.2

1.1

1.1

2.5

Additions during the year

-

-

-

4.1

4.1

Utilised during the year

-

(0.3)

-

-

(0.3)

Reversed during the year

(0.1)

-

(1.1)

-

(1.2)

Exchange differences

-

0.1

-

0.1

0.2

At 31 March 2019

-

-

-

5.3

5.3

 

 

 

 

 

 

Expected payment period

N/A

N/A

N/A

2019/20

 

Total maximum consideration £m

N/A

N/A

N/A

28.4

 

 

 

 

 

 

 

Shown in the consolidated balance sheet as:

 

 

 

 

 

Current

-

-

-

5.3

 

Non-current

-

-

-

-

 

 

The maximum contractual consideration payable is calculated undiscounted and using the foreign exchange rates prevailing as at year end.

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

euros

Canadian dollars

US dollars

Other

Total

 

£m

£m

£m

£m

£m

£m

Current

104.8

29.8

71.7

315.2

7.8

529.3

Non-current

1.0

-

0.3

14.3

-

15.6

At 31 March 2019

105.8

29.8

72.0

329.5

7.8

544.9

Current

100.5

26.5

92.2

275.2

7.0

501.4

Non-current

-

-

-

27.9

0.1

28.0

At 31 March 2018 restated

100.5

26.5

92.2

303.1

7.1

529.4

 

 

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

 

22. 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.

AMOUNTS RECOGNISED BY THE GROUP

 

 

 

Onerous contracts

Restructuring and redundancy

Other

Total

 

 

£m

£m

£m

£m

At 1 April 2017

 

1.6

30.4

0.1

32.1

Provisions recognised in the year

 

0.2

7.0

-

7.2

Provisions reversed in the year

 

-

(0.3)

-

(0.3)

Utilisation of provisions

 

(1.0)

(30.1)

-

(31.1)

Exchange differences

 

(0.2)

(1.4)

-

(1.6)

At 31 March 2018

 

0.6

5.6

0.1

6.3

Acquisitions of subsidiaries

 

-

-

0.1

0.1

Provisions recognised in the year

 

-

6.1

0.6

6.7

Utilisation of provisions

 

(0.5)

(8.2)

(0.1)

(8.8)

Exchange differences

 

0.1

0.3

(0.1)

0.3

At 31 March 2019

 

0.2

3.8

0.6

4.6

Shown in the consolidated balance sheet as:

 

 

 

 

 

Non-current

 

-

0.4

-

0.4

Current

 

0.2

3.4

0.6

4.2

 

Onerous contracts

Onerous contracts represent provisions in respect of 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 one year (2018: two years) from the balance sheet date.

Restructuring and redundancy

Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met. These provisions are expected to be utilised within two years (2018: two years) from the balance sheet date.

Other

Other primarily includes provisions for inventory destruction arising from the impairments recorded in relation to our home entertainment business. These provisions are expected to be utilised within one year.

23. 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, with subsequent measurement at amortised cost using the effective interest rate method. Under the amortised cost method, the difference between the amount initially recognised and the redemption value is recorded in the income statement over the period of the borrowing on an effective interest rate basis.

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 financing structure permits flexibility when undertaking acquisitions and other corporate activity, and allows the Group to react swiftly to commercial opportunities.

AMOUNTS RECOGNISED BY THE GROUP

 

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Bank borrowings

 

42.7

23.8

Senior secured notes

 

355.0

355.0

Bank overdrafts

 

0.3

-

Deferred finance charges net of premium on senior secured notes

 

(5.9)

(5.7)

Other

 

1.0

2.5

Interest bearing loans and borrowings

 

393.1

375.6

Cash and cash equivalents (other than those held by production subsidiaries)

 

(51.6)

(61.1)

Net Debt

 

341.5

314.5

 

 

 

 

Shown in the consolidated balance sheet as:

 

 

 

  Non-current

 

392.2

375.2

  Current

 

0.9

0.4

 

 

Fair value considerations for the senior secured notes are disclosed in Note 26. 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 6.5% (2018: 6.5%).

BANK BORROWINGS

During the year the Group refinanced its super senior revolving credit facility ("RCF"). The new facility matures in December 2023. 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, and net debt against underlying EBITDA.

At 31 March 2019, the Group had available £156.8 million of undrawn committed bank borrowings under the RCF (2018: £134.4 million), consisting of funds available in Canadian dollars, euros, pounds sterling and US dollars. The directors consider that the carrying amount of the drawn bank borrowings at 31 March 2019 approximates its fair value.

The RCF is secured against the assets of various Group subsidiaries which make up the 'Restricted group'.

Subsequent to the financial year end the Group entered into a term loan maturing on 31 December 2020 to support the acquisition of Audio Network Limited. The term loan is subject to the same covenants as the Group's RCF. Refer to Note 36.

SENIOR SECURED NOTES

The Group has issued £355.0 million 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 fair value of the Notes as at 31 March 2019 is £366.3 million (2018: £377.6 million).

The Notes are secured against the assets of various Group subsidiaries which make up the 'Restricted group' and rank pari passu with the revolving credit facility.

DEFERRED FINANCE CHARGES

The Group capitalised fees of £2.3 million during the year associated with the refinancing of the RCF. The fees were capitalised to the consolidated balance sheet and are amortised using the effective interest rate method. The remaining value of deferred finance changes from the previous RCF of £1.4 million have been written-off and a charge has been recorded as a financing one-off costs, refer Note 8.

PREMIUM ON SENIOR SECURED NOTES

During the prior year ended 31 March 2018 the Group issued £70.0 million of Notes for a premium of £4.0 million. The premium has been netted off from deferred finance charges in the table above and will be amortised using the effective interest rate method.

FOREIGN CURRENCIES

The carrying amounts of the Group's gross borrowings at year end 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

Canadian dollars

US dollars

euros

Total

 

 

£m

£m

£m

£m

£m

Bank borrowings

 

-

6.5

24.1

12.1

42.7

Senior secured notes

 

355.0

-

-

-

355.0

Other

 

0.3

0.5

0.5

-

1.3

At 31 March 2019

 

355.3

7.0

24.6

12.1

399.0

Bank borrowings

 

-

7.6

16.2

-

23.8

Senior secured notes

 

355.0

-

-

-

355.0

Other

 

-

0.4

2.1

-

2.5

At 31 March 2018

 

355.0

8.0

18.3

-

381.3

 

The following are the movements in the Group's financing liabilities during the year.

 

 

 

Bank borrowings

Senior secured notes

Other loans including overdrafts

Total

 

 

£m

£m

£m

£m

At 1 April 2017

 

-

285.0

0.5

285.5

Drawdowns

 

302.6

70.0

2.1

374.7

Repayments

 

(269.7)

-

-

(269.7)

Exchange differences

 

(9.1)

-

(0.1)

(9.2)

At 31 March 2018

 

23.8

355.0

2.5

381.3

Drawdowns

 

372.0

-

0.8

372.8

Repayments

 

(355.1)

-

(2.1)

(357.2)

Exchange differences

 

2.0

-

0.1

2.1

At 31 March 2019

 

42.7

355.0

1.3

399.0

 

24. PRODUCTION FINANCING

ACCOUNTING POLICY

Production financing relates to short-term financing for the Group's productions. Interest on production finance which is 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 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.

Production financing facilities are secured by the assets and future revenue of the individual 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 title is in production and is repaid once delivered and the government subsidies, tax credits, broadcaster pre-sales and international sales have been received.

The Company considers this type of financing to be short-term in nature and it is excluded from net debt. The Company therefore shows the cash flows associated with these activities separately. In connection with the production of a television or film programme, the Group typically records initial cash outflows due to its investment in the production and concurrently records initial positive cash inflows from the production financing it normally obtains.

 

 

Note

31 March 2019

31 March 2018

 

 

£m

£m

Production financing held by production subsidiaries

 

192.4

171.9

Other loans

 

3.5

4.9

Production financing

 

195.9

176.8

Cash and cash equivalents (held by production subsidiaries)

20

(55.8)

(58.1)

Production financing (net of cash)

 

140.1

118.7

 

 

 

 

Production financing shown in the consolidated balance sheet as:

 

 

 

Non-current

 

110.2

86.7

Current

 

85.7

90.1

 

Fair value considerations are disclosed in Note 26. Interest is charged at bank prime rate plus a margin. The weighted average interest rate on all production financing is 5.0% (2018: 3.9%).

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 are denominated in the following currencies:

 

 

 

Pounds sterling

Canadian dollars

US dollars

Total

 

 

£m

£m

£m

£m

At 31 March 2019

 

-

85.6

110.3

195.9

At 31 March 2018

 

10.2

64.6

102.0

176.8

 

The following are the movements in the Group's production financing and other loans during the year.

 

 

 

 

 

Production financing

Other loans

Total

 

£m

£m

£m

At 1 April 2017

 

190.8

5.2

196.0

Drawdowns

 

234.4

0.3

234.7

Repayments

 

(233.9)

-

(233.9)

Exchange differences

 

(19.4)

(0.6)

(20.0)

At 31 March 2018

 

171.9

4.9

176.8

Drawdowns

 

224.5

0.8

225.3

Repayments

 

(211.8)

(2.5)

(214.3)

Exchange differences

 

7.8

0.3

8.1

At 31 March 2019

 

192.4

3.5

195.9

 

25. DERIVATIVE FINANCIAL INSTRUMENTS & HEDGING

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 fair value through profit and loss and recognised in the consolidated balance sheet at fair value. Derivatives designated as hedging instruments are classified within their intended hedging relationship as either a cash flow hedge, net investment hedge or fair value hedge. Changes in the fair value of derivatives designated as cash flow hedges are recognised in other comprehensive income 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 when the highly probable forecast transaction has occurred. Where the hedged item results in an asset, the fair value change in the hedge instrument is included in the cost of the asset.

Hedge instruments designated within a fair value hedge 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

 

Note

31 March 2019

31 March 2018

 

 

£m

£m

Derivative financial assets

26

0.9

1.1

Derivative financial liabilities

26

(3.5)

(2.7)

 

 

(2.6)

(1.6)

HEDGING ACTIVITIES AND DERIVATIVES

The Group is exposed to certain risks relating to its ongoing business operations. The primary risk managed using derivative instruments is foreign currency risk.

The Group's risk management strategy and how it is applied is explained in Note 28.

Cash flow hedges

Foreign exchange forward contracts are designated as hedging instruments in cash flow hedges of forecast purchases in the Group's operating currencies. Most 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, Germany and Spain. These forecast transactions are highly probable, and they comprise payments of minimum guarantees. The foreign exchange forward contract balances vary with the level of expected foreign currency purchases and changes in foreign exchange forward rates.

The hedge ineffectiveness can arise from:

-    Differences in the timing of the cash flows of the hedged items and the hedging instruments

-    Different indexes (and accordingly different curves) linked to the hedged risk of the hedged items and hedging instruments

-    The counterparties' credit risk differently impacting the fair value movements of the hedging instruments and hedged items

-    Changes to the forecasted amount of cash flows of hedged items and hedging instruments

There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange forward contracts match the terms of the expected highly probable forecast transactions (i.e. notional amount and expected payment date). The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange forward contracts are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the critical terms comparison method and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.

The impact of the hedging instruments on the statement of financial position is, as follows:

 

 

 

Weighted average hedged rate

Change in value of the hedging instruments since inception1

Change in value of the hedge items since inception1

Notional amount

 

 

£m

£m

CCY m

As at 31 March 2019

 

 

 

 

Buy/(Sell) foreign exchange contracts:

 

 

 

 

CAD:AUD

1.05

 -

 -

 (0.1)

CAD:HUF

210.33

 -

 -

 6.2

GBP:CAD

1.76

 -

 -

 3.4

GBP:USD

1.26

 (0.3)

 (0.3)

 17.7

EUR:CAD

1.51

 -

 -

 0.5

EUR:USD

1.16

 0.2

 0.2

 9.5

USD:AUD

1.40

 -

 -

 (0.8)

USD:CAD

1.32

 0.3

 0.4

 (1.4)

 

 

 

 

 

As at 31 March 2018

 

 

 

 

Buy/(Sell) foreign exchange contracts:

 

 

 

 

CAD:HUF

 196.04

-

-

0.2

GBP:CAD

 1.82

(0.2)

(0.2)

4.0

GBP:EUR

 1.14

-

-

14.0

GBP:USD

 1.37

(1.0)

(1.0)

52.9

EUR:CAD

 1.62

-

-

(0.8)

EUR:USD

 1.24

(0.1)

(0.1)

1.9

USD:AUD

 1.30

-

-

(3.6)

USD:CAD

 1.29

0.2

0.2

(13.9)

USD:ZAR

 12.50

(0.1)

(0.1)

(0.4)

1. The above table is rounded to the nearest £0.1 million, therefore where the aggregate of the fair value of the open derivative assets or liabilities is below £50,000 it has been present as £nil.

 

Other derivatives

The following table provides the fair values of derivatives, at 31 March 2019, where the Group's operating units have monetary assets and liabilities denominated in currencies other than their respective functional currency. To remove the profit and loss volatility from this mismatch the Group has a programme of entering into currency derivatives to limit the revaluation exposure in the profit and loss.

 

31 March 2019

 

31 March 2018

 

Notional

Fair value1

Average FX rate

 

Nominal

Fair value1

Average FX rate

 

CCY m

£m

 

 

CCY m

£m

 

Buy/(Sell) foreign exchange contracts:

 

 

 

 

 

 

 

CAD:AUD

-

-

-

 

(23.1)

-

1.01

GBP:AUD

9.0

(0.2)

1.87

 

(10.6)

(0.1)

1.84

GBP:CAD

53.5

(1.1)

1.78

 

(27.0)

(0.2)

1.82

GBP:CNY

4.2

(0.1)

8.93

 

(0.6)

-

8.91

GBP:EUR

(37.1)

(0.4)

1.18

 

(18.4)

(0.1)

1.08

GBP:USD

54.6

(1.0)

1.33

 

(27.4)

(0.1)

1.28

EUR:CAD

14.3

0.1

1.51

 

10.9

-

1.59

EUR:USD

13.2

-

1.13

 

0.6

-

1.23

USD:AUD

(2.6)

-

1.41

 

(0.8)

-

1.31

USD:CAD

34.7

(0.1)

1.33

 

0.1

0.1

1.29

1. The above table is rounded to the nearest £0.1 million, therefore where the aggregate of the fair value of the open derivative assets or liabilities is below £50,000 it has been present as £nil.

 

Impact of hedging on equity

Refer to Note 32 for the movements in the cash-flow hedge reserve.

26. FAIR VALUE MEASUREMENT

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.

The following table provides the fair value measurement hierarchy of the Group's assets and liabilities.

 

 

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

 

£m

£m

Assets measured at fair value

 

 

 

 

Derivative financial assets

25

Level 2

0.9

1.1

Non-listed equity instruments

25

Level 3

3.2

0.8

 

 

 

 

 

Liabilities measured at fair value

 

 

 

 

Derivative financial liabilities

25

Level 2

(3.5)

(2.7)

Contingent consideration payable

21

Level 3

-

(2.5)

 

 

 

 

 

Liabilities for which fair values are disclosed

 

 

 

 

Senior secured notes

23

Level 1

366.3

377.6

Total

 

 

366.9

374.3

 

The key assumptions taken into consideration when measuring the value of contingent consideration payable are the performance expectations of the acquisition and a discount rate that reflects the size and nature of the new business. There is no reasonable change in discount rate or performance targets that would give rise to a material change in the liability in these consolidated financial statements.

The key assumption in measuring the value of the non-listed equity instruments is the long-term performance of the investment. There is no reasonable change in the performance of the investments that would give rise to a material change in the assets in these consolidated financial statements.

During the year the Group subscribed to shares in WCI One, LLC (trading as NewTV) for a total of £2.1 million. Under the purchase agreement the Group is committed to contribute total equity of US$10 million (equivalent to £7.6 million at 31 March 2019). An additional £0.2 million was paid to acquire an equity interest of 6.9% in Creative Labs L.P. total commitment is for US$1 million (equivalent to £0.8 million at 31 March 2019).

VALUATION TECHNIQUES AND INPUTS

The following methods and assumptions were used to estimate the above fair values:

 

Valuation technique and key inputs

Level 1:

Senior secured note

There is an active market for the Group's quoted debt instruments.

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.

The significant unobservable inputs used in the fair value measurements categorised with Level 3, together with qualitative sensitivity analysis are shown below:

 

Valuation technique and key inputs

Significant unobservable input

Relationship of unobservable inputs to fair value

Level 3:

Non-listed equity instruments

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 non-listed equity instruments, 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. BUSINESS COMBINATIONS AND TRANSACTIONS WITH EQUITY HOLDERS

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 expensed within the consolidated income statement. The Group considers such payments to be capital in nature and they 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.

Transactions that result in changes in ownership interests while retaining control are accounted for as transactions with equity holders in their capacity as equity holders. As a result, no gain or loss on such changes is recognised in profit or loss; instead, it is recognised in equity. Also, no change in carrying amount of assets (including goodwill) or liabilities is recognised as a result of such transactions.

YEAR ENDED 31 MARCH 2019

Acquisitions

The Group acquired 70.1% stake in Whizz Kid Entertainment Limited ("Whizz Kid"), a UK based unscripted television production company, on 9 April 2018 for a total consideration of £6.9 million settled by a cash payment of £5.0 million and by issuing 637,952 shares in Entertainment One Ltd. amounting to £1.9 million. Acquired intangibles of £0.7 million were identified which represent the value of television show concepts and back-end royalties following the end of a series production. The resultant goodwill represents the value placed on the opportunity to grow the content and formats produced by the company. None of the goodwill is expected to be tax deductible for income tax purposes.

The Group acquired 100% of Magnolia Record Club LLC ("Magnolia") on 26 July 2018 for a consideration of £0.3 million. Acquired intangibles were identified on the acquisition relating to existing customer lists and brand names.

The results of both acquisitions have been presented within the Film, Television & Music segment, and contributed £6.8 million to segment revenue and £0.2 million to underlying EBITDA for the period since acquisition.

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.

 

 

 

Final

Final

 

 

 

Whizz Kid

Magnolia

Total

 

 

£m

£m

£m

Acquired intangibles

 

0.7

0.3

1.0

Trade and other receivables

 

1.3

-

1.3

Cash and cash equivalents

 

3.6

-

3.6

Trade and other payables

 

(3.8)

-

(3.8)

Current tax liabilities

 

(0.4)

-

(0.4)

Provisions

 

(0.1)

-

(0.1)

Total net assets acquired

 

1.3

0.3

1.6

 

 

 

 

 

Group's proportionate interest of fair value of net assets acquired

 

70.1%

100.0%

 

Group's share of fair value of net assets acquired

 

0.9

0.3

1.2

Goodwill

 

6.0

-

6.0

Net assets acquired

 

6.9

0.3

7.2

Satisfied by:

 

 

 

 

Cash

 

5.0

0.3

5.3

Shares in Entertainment One Ltd.

 

1.9

-

1.9

Total consideration transferred

 

6.9

0.3

7.2

 

 

 

 

 

The net cash outflow arising in the period from the acquisition was made up of:

 

 

 

 

Cash consideration settled during the year

 

5.0

0.3

5.3

Less: Cash and cash equivalents acquired

 

(3.6)

-

(3.6)

Total net cash outflow

 

1.4

0.3

1.7

 

 

 

 

 

Non-controlling interests proportionate interest of fair value of net assets

 

0.4

-

0.4

Total non-controlling interests

 

0.4

-

0.4

 

Settlement of contingent consideration

During the year, contingent consideration payable relating to the prior year acquisition of Dualtone Music group a payment of £0.3 million. See Note 21 for details on movements in contingent consideration payable.

Transactions with equity holders

Sierra Pictures

On 27 June 2018, the Group acquired the remaining 49% in Sierra Pictures, LLC ("Sierra/Affinity") for a total consideration of £14.2 million settled by a cash payment of £9.7 million and by issuing 1,231,768 shares in Entertainment One Ltd. amounting to £4.5 million.

The carrying value of the non-controlling interest in Sierra/Affinity on 27 June 2018 amounting to £8.6 million was de-recognised and transaction costs of £0.1 million was recorded as a charge to the Group's retained earnings. The Currency translation reserve relating to the previous non-controlling interest of £1.2 million has been transferred to the Group. The difference of £6.7 million has been recognised as a charge to the Group's retained earnings.

As a result of the acquisition, the put and call options granted over the 49% shares have been cancelled. The carrying value of the liability as at 27 June 2018 of £17.9 million has been reversed with the corresponding adjustment to the Put option reserve of £12.2 million. The difference has been credited to a one-off finance income of £5.7 million, see Note 8.

The Mark Gordon Company

As part of the Group's acquisition of the remaining 49% in The Mark Gordon Company on 2 March 2018 the vendors were entitled to receive a pro-rate share of certain pre-acquisition contingent receipts where these could be recovered. Due to this arrangement the Group recognised a further £4.1 million in consideration for the transaction during the year.

YEAR ENDED 31 MARCH 2018

Acquisitions

The Group acquired 60% of Round Room Entertainment, LLC on 31 January 2018 for a consideration of £0.5 million. No acquired intangibles were identified on the acquisition.

Settlement of contingent consideration

During the year, contingent consideration payable relating to the prior year acquisition of Renegade Entertainment, LLC was settled by issuing 778,516 shares in Entertainment One Ltd. amounting to £1.8 million and a cash payment of £2.7 million. A payment of £0.5 million was also made in part settlement of contingent consideration payable relating to the prior year acquisition of Dualtone Music group. See Note 21 for details on movements in contingent consideration payable in the year ended 31 March 2018.

Transactions with equity holders

On 2 March 2018, the Group acquired the remaining 49% in The Mark Gordon Company ("MGC") for a total consideration of £146.5 million settled by a cash payment of £114.8 million and by issuing 10,826,566 shares in Entertainment One Ltd. amounting to £31.7 million. In addition, the seller will be entitled to a maximum aggregate amount of £26.6 million (US$37.5 million) in respect of its pro-rata share of certain pre-acquisition contingent receipts, if actually received by MGC.

The carrying value of the non-controlling interest in MGC on 2 March 2018 £37.0 million was de-recognised, contingent consideration of £1.1 million was recognised and transaction costs of £0.7 million were recorded and the difference of £111.3 million has been recognised as a charge to the Group's retained earnings.

28. 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 £355.0 million in aggregate principal amount of 6.875% senior secured notes (Notes), due December 2022, and a super senior revolving credit facility (RCF), which matures in December 2023.

At 31 March 2019, the Group's fixed rate debt represented 89% of total gross debt (2018: 93%). Consequently, a 1% movement in interest rates on floating rate debt would impact the 2019 post-tax profit for the year by less than £0.4 million (2018: £0.3 million).

For financial assets and liabilities classified at fair value through profit or loss, the movements in the year relating to changes in fair value and interest are not separated.

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 minimum guaranteed advanced 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 transactional exposure to fair value movements on foreign currency denominated monetary assets and liabilities through using forward foreign exchange contracts.

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

The Group does not hedge net investment in operations with non-GBP functional currencies.

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 2019 denominated in non-functional currencies for all operating units within the Group. The sensitivity analysis includes only unhedged foreign currency denominated monetary items. The percentage movement applied to each currency is based on management's measurement of foreign exchange rate risk.

 

 

 

31 March 2019

31 March 2018

 

 

Impact on

Impact on

 

 

consolidated

consolidated

 

 

income statement

income statement

Percentage movement

 

+/- £m

+/- £m

10% appreciation of the US dollar

 

5.9

9.4

10% appreciation of the Canadian dollar

 

0.1

(0.9)

10% appreciation of the euro

 

0.4

0.3

10% appreciation of the Australian dollar

 

0.1

0.2

 

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 2019 the Group had three customers (2018: two) that owed the Group more than 5% of the Group's total amounts receivable. These three customers accounted for approximately 42% of the total amounts receivable (2018: 32%).

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

 

 

 

 

Restated

 

 

Year ended

31 March 2019

Year ended

31 March 2018

 

Note

£m

£m

Cash and cash equivalents

20

107.4

119.2

Net trade receivables

19

521.2

405.7

Total

 

628.6

524.9

 

 

LIQUIDITY RISK MANAGEMENT

The Group maintains an appropriate liquidity risk management position by having sufficient cash and availability of funding through an adequate level 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 2019, the undrawn committed borrowings under the RCF are equivalent to £156.8 million (2018: £134.4 million). The facility was entered into in December 2018 and matures in 2023 (see Note 23).

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:

 

 

 

Trade and other payables

Interest bearing loans and borrowings¹

Production financing

Total

 

 

£m

£m

£m

£m

Amounts due for settlement at 31 March 2019

 

 

 

 

 

Within one year

 

91.1

25.2

85.7

202.0

One to two years

 

-

24.3

110.2

134.5

Two to five years

 

14.6

446.8

-

461.4

After five years

 

-

0.7

-

0.7

Total

 

105.7

497.0

195.9

798.6

 

 

 

 

 

 

Amounts due for settlement at  31 March 2018

 

 

 

 

 

Within one year

 

63.9

24.7

90.1

178.7

One to two years

 

-

24.3

86.7

111.0

Two to five years

 

27.1

454.1

-

481.2

After five years

 

-

-

-

-

Total

 

91.0

503.1

176.8

770.9

 


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 to trade on a going concern basis while maximising the return to shareholders through the optimisation of its debt to equity ratio. The Group's overall strategy remains unchanged from previous periods.

The capital structure of the Group consists of net debt, being the interest bearing loans and borrowings disclosed in Note 23 after deducting cash and bank balances which are not held repayable only for production financing (disclosed in Note 20), and equity of the Group (comprising issued capital and reserves disclosed in Note 32 and retained earnings and non-controlling interests).

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 other capital 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.

29. SUBSIDIARIES

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

Name

Country of incorporation

Principal activity

Entertainment One Films Canada Inc.

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

Alliance Films (UK) Limited

England and Wales

Content ownership

Entertainment One UK Limited

England and Wales

Content ownership and distribution

Deluxe Pictures d/b/a The Mark Gordon Company

US

Production of film and television programmes

Entertainment One Television USA Inc.

US

Sales and distribution of films and television programmes

eOne Features LLC

US

Content ownership

Sierra Pictures, LLC *

US

Production and international sales of films


* As a result of the purchase of the remaining 49% of Sierra Pictures, LLC, it is a wholly owned subsidiary from 27 June 2018. Refer to Note 27 for details.

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. See Note 36 for details of post balance sheet reorganisation of operating subsidiaries incorporated in Canada.

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

Production special purpose entities are not classified as principal subsidiaries.

 

30. INTEREST 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 2019

Details of the Group's joint ventures at 31 March 2019 are as follows:

Name

Country of incorporation

Proportion held

Principal activity

eOne/ Fox Home Ent Distribution Canada Ltd.

Canada

50%

Home entertainment distribution

Creative England-Entertainment One Global Television Initiative Limited

England and Wales

50%

Development of television shows

Suite Distribution Limited

England and Wales

50%

Production of films

Automatik Entertainment LLC

US

40%

Film development

Squid Distribution LLC

US

50%

Production of films

The Girlaxy LLC

US

50%

Content ownership and distribution

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 year was as follows:

 

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Carrying amount of interests in joint ventures

 

1.0

1.1

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

 

-

-

Foreign exchange

 

0.2

(0.1)

Carrying amount of interests in joint ventures

 

1.2

1.0

 

The Group's share of results of joint ventures for the year of £nil charge (2018: £nil) includes a charge of £nil (2018: £nil charge) relating to the Group's share of tax, finance costs and depreciation.

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 is considered individually immaterial to the Group's consolidated financial statements.

 

 

 

31 March 2019

31 March 2018

 

 

£m

£m

Revenue

 

2.2

2.4

Profit for the year

 

0.2

0.1

Profit attributable to the Group

 

-

-

 

 

 

 

Dividends received from interests in joint ventures

 

-

-

 

 

 

31. INTEREST 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.

PRINCIPAL SUBSIDIARIES WITH NON-CONTROLLING INTERESTS

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

Name

Country of incorporation

Proportion held

Principal activity

Astley Baker Davies Limited

England and Wales

70%

Ownership of IP

Whizz Kid Entertainment Limited

England and Wales

70%

Production of television programmes

MR Productions Holdings, LLC (Makeready)

US

85%

Film development

Renegade Entertainment, LLC (Renegade 83)

US

65%

Production of television programmes

Round Room Live, LLC

US

60%

Production of live events

As a result of the purchase of the remaining 49% of Sierra Pictures, LLC, it became a wholly owned subsidiary from 27 June 2018 and as a result Sierra Pictures, LLC entities are not included in the table above.

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

 

 

Astley Baker Davies Limited

Sierra Pictures¹

Renegade 83

Round Room

Makeready2

Whizz Kid3

Total

Year ended 31 March 2019

£m

£m

£m

£m

£m

£m

£m

Revenue

22.1

15.6