Entertainment One Regulatory News (ETO)

ENTERTAINMENT ONE LTD. (eOne)

FULL YEAR RESULTS

FOR THE YEAR ENDED 31 MARCH 2018

STRONG UNDERLYING EBITDA PERFORMANCE

FINANCIAL HIGHLIGHTS

·	Group reported revenue at £1,045 million (2017: £1,083 million), with strong growth in Family & Brands and Television offset by lower performance in Film
·	Group reported underlying EBITDA up 11% at £177 million (2017: £160 million), driven by revenue growth in Family & Brands and Television and lower costs in Film
·	Group reported profit before tax up 116% at £78 million (2017: £36 million), Group adjusted profit before tax up 11% at £144 million (2017: £130 million)
·	Adjusted diluted earnings per share up 10% at 21.9 pence per share (2017: 20.0 pence per share)
·	Net debt leverage at 1.8x which is less than 2.0x as previously guided
·	Full year dividend of 1.4 pence per share (2017: 1.3 pence)

OPERATIONAL HIGHLIGHTS

·	Family & Brands generated US$2.4 billion in retail sales in the year, an increase of 60%, driven by rapid success of PJ Masks and the ongoing success of Peppa Pig
·	Television revenue 19% higher driven by the strong production slate
·	Reshaping of the Film distribution business from physical to digital, which began in FY16, has delivered the expected annualised cost savings of £10 million
·	Mark Gordon appointed as Chief Content Officer, Film, Television and Digital Division, bringing him and his team in-house to help drive both Film and Television content strategy and enhancing eOne's ability to attract creative talent and partners
·	On-going integration of Film, Television and Digital, including integration of The Mark Gordon Company (MGC), which is expected to generate £13-15 million of annualised cost savings by FY20
·	Independent library valuation of US$1.7 billion at 31 March 2017 (31 March 2016: US$1.5 billion) which does not include the value of any content produced or acquired since 1 April 2017
·	On-track to double the size of the business over the five years to FY20, including the impact of IFRS 15

ALLAN LEIGHTON, ChAIRMAN, commented:

"Entertainment One has delivered another year of double-digit growth in profits and earnings. This has been accomplished against the backdrop of continued change across the content industries and the evolution of the Group to fully align itself with its creative partners and customers. As we look forward to another year of continued performance, the Board is pleased to increase the dividend for the year to 1.4 pence per share, in line with the Group's progressive dividend policy."

DARREN THROOP, CHIEF EXECUTIVE OFFICER, COMMENTED:

"It has been a strong year for the Group, as we combined our Film and Television operations into the Film, Television and Digital Division for FY19, completed the acquisition of the remaining stake in The Mark Gordon Company and continued the reshaping of our Film business. All of these initiatives sharpen our operational focus and facilitate success in today's evolving entertainment market.

The Family & Brands business goes from strength to strength, ahead of our expectations. Peppa Pig continues to engage and delight children in important markets such as the UK, the US and China, where we have just started to implement our licensing programme. We also started the global roll out of PJ Masks to consumer markets, where traction has been both immediate and strong.

In Television, our active pipeline delivered a number of new and recommissioned series across our scripted drama and unscripted reality slates. The completion of the MGC acquisition and the appointment of Mark Gordon as Chief Content Officer is an exciting milestone as he brings his proven skills, experience and talent relationships to bear on our current development pipeline to drive our creative direction.

The reshaping of the Film businesses is progressing well as we focus increasingly on our production activities with important partners such as Steven Spielberg and Brad Weston. This transition will enable us to improve the return on investment in film content and at the same time reduce risks across the business.

As ever, content is at the heart of everything we do. The value of our content library has grown once again as we add new, high quality shows and brands to our portfolio and our view remains that the best quality content will endure, even in a constantly-evolving entertainment market. Entertainment One is at the heart of this market and I remain confident that we will achieve our target of doubling the size of the business in the five years to FY20 and continue to deliver value to our shareholders." 

FINANCIAL SUMMARY 

 

 

	Reported
£m	2018	2017	Change
Revenue	1,044.5	1,082.7	(4%)
Underlying EBITDA ¹	177.3	160.2	11%
Net cash from operating activities	14.9	34.0	(56%)
Investment in acquired content and productions ²	440.8	407.9	8%

 

 

	Reported				Adjusted
£m	2018	2017⁴	Change		2018	2017	Change
Profit before tax ³	77.6	35.9	116%		144.4	129.9	11%
Diluted earnings per share (pence) ³	14.4	2.7	11.7		21.9	20.0	1.9

 

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 Results Announcement.

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

3. Adjusted profit before tax 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 Results Announcement for a reconciliation of adjusted profit before tax and Note 11 of the consolidated financial statements for the adjusted diluted earnings per share reconciliation.

4. Reported 2017 amounts have been restated, refer to Note 1 of the consolidated financial statements for further details.

 

Group reported revenue of £1,044.5 million (2017: £1,082.7 million) was 4% lower year-on-year and was positively impacted by strong growth in Family & Brands (56% higher) and Television (19% higher) offset by decline in Film due to the lower volume of releases in comparison to the prior year and the strength of the slate in FY17. On a constant currency basis (re-translating prior year reported financials at current year foreign exchange rates), Group revenue declined by 2% reflecting the net strengthening of the pound sterling against the Group's other operating currencies.

Group reported underlying EBITDA was 11% higher at £177.3 million (2017: £160.2 million), driven by strong growth in the high margin Family & Brands Division (48% higher) and Television (15% higher) offsetting a decline in Film (33% lower). The Family & Brands Division delivered financial performance ahead of expectations driven by significant growth in PJ Masks and the continued strong performance of Peppa Pig. Television Division underlying EBITDA was higher across eOne Television (18% higher), The Mark Gordon Company (12% higher) and Music (9% higher). Underlying EBITDA in Film declined by 33% reflecting the impact of lower revenue. The Film underlying EBITDA benefitted from gross margin improvement of 3.1pts due to lower amortisation and sales mix and cost savings arising from the divisional reshaping. On a constant currency basis, Group underlying EBITDA would have increased by 13%, reflecting the net strengthening of the pound sterling against the Group's other operating currencies.

Net cash from operating activities amounted to £14.9 million in comparison to £34.0 million in the prior year, driven by higher investment in acquired content and productions and timing of tax payments. This was partially offset by lower working capital outflows in comparison to prior year. Investment in productions was higher across all three segments which not only supports our current operations but also contributes to the value of our content library.

Adjusted profit before tax for the year was £144.4 million (2017: £129.9 million), due to the increase in underlying EBITDA, partly offset by increased interest costs. Reported profit before tax for the year was £77.6 million (2017: £35.9 million), impacted by lower one-off charges reflecting lower restructuring costs, partly offset by higher share-based compensation costs.

Adjusted diluted earnings per share were 21.9 pence (2017: 20.0 pence). On a reported basis, diluted earnings per share were 14.4 pence (2017: 2.7 pence) reflecting the higher reported profit before tax.

The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 April 2018 on a fully retrospective basis and will present, within the 2019 financial statements, a restatement of the comparative periods. The most significant impact is to the Family Division where the recognition of minimum guarantees will now be spread over the consumption of the intellectual property as compared to recognition up front which is the current practice. The proforma impact of IFRS 15 to the current year is a reduction in Group revenue and Group underlying EBITDA of £15.5 million and £13.6 million, respectively. The expected impact to Group underlying EBITDA in FY19 is less than £2 million and the Company is still expected to double the size of the business over the five years to FY20 including the impact of IFRS 15. 

 

 

STRATEGY 

The content market today is characterised by consumers who are increasingly demanding freedom of choice. They want to watch what they like, when they like and where they like. With the exception of live sports, consumers now have less affinity to specific channels or networks and are increasingly focused on availability. The platforms that service this marketplace (which form eOne's core customer set) are focusing on creators who can provide them with the best content. This content is then used both to attract incremental audiences and to retain existing subscribers.

At eOne, we understand that in order to grow and prosper, the business needs to centre itself on building and growing a content portfolio of the very highest quality. We do this over a broad spread of entertainment formats, ranging from family brands, television shows, feature films and music.

Our strategy to achieve this is underpinned by three principles and successful execution enables us to forge long term partnerships with the very best content creators, monetise their content and share in the benefits:

Connect	We develop deep and lasting partnerships with the very best creative minds in our industries. We connect with this talent through our scale, track record and relationships with key customers in markets around the world
Create	Our partnerships with leading talent enable us to capture the content they create at an early stage. The creation process is enhanced as we bring our commercial experience to the development and production processes, with our ability to finance a key attraction for the creative community
Deliver	eOne uses its global footprint and extensive network of customer contacts across multiple platforms and formats to ensure that content is delivered and monetised as widely as possible. Our contacts touch all parts of the content value chain, from traditional formats like cinemas to the latest digital video platforms in developing markets like China

The execution of this strategy focuses on continuing to drive growth in revenue and underlying EBITDA within the Family & Brands and Television activities of the Group. In Film, we are continuing to transition the business away from content acquisition and more towards production activities, which over time will improve the returns on this business and reduce our risks further.

STRATEGIC PROGRESS

Over the last year, the Group has achieved strong progress against its strategic objectives:

·	Continued increase in the independent library valuation (as at 31 March 2017) from US$1.5 billion to US$1.7 billion, supported by the value of PJ Masks, which is starting to build as the brand rolls out internationally
·	The ongoing integration of the Film and Television Divisions to form a single, streamlined operating structure - Film, Television and Digital. Overall targeted annual savings from the integration of MGC and the creation of the Film, Television and Digital Division are estimated at £13-15 million by FY20
·	The acquisition of the remaining stake in The Mark Gordon Company. The transaction is earnings enhancing in the first full year of ownership and importantly brings Mark Gordon fully into the Group's management structure. He has been appointed Chief Content Officer and can now bring his proven skills, experience and talent relationships into the wider eOne Group
·	Ongoing transition of the Film business towards a production model gives the Group greater control of risk, improved access and control over global intellectual property rights and enhanced financial returns
·	Brad Weston is currently in production on the film A Million Little Pieces through Makeready, with a development pipeline covering both film and television content. This reflects an ongoing trend in the industry as talented content creators now work across both film and television, eroding the distinction between the two formats
·	Strong progress across our key brands such as Peppa Pig continues to delight and entertain children across all of our markets, including the UK and the US, and newly entered markets such as Japan and China, where we have started the licensing programme for the brand. PJ Masks continues to roll out globally across consumer markets, creating high levels of demand for consumer products
·	Family & Brands continues to develop new properties in its pipeline. It is currently working on eight projects at varying stages of market readiness, aimed at different segments of the pre-school demographic. This ensures a steady flow of internally-created properties with global appeal

 

FY19 OUTLOOK

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

In summary:

Family & Brands is expected to generate strong revenue and EBITDA growth across the portfolio in FY19. Peppa Pig and PJ Masks will continue to be the main drivers, with close to 2,000 live licensing and merchandising contracts anticipated by the end of the financial year. An additional 117 episodes of Peppa Pig are currently in production with the original creators of the show, with delivery beginning in FY19 through to spring 2021.

In October 2017 the business entered into a global partnership with Merlin Entertainments, which has now opened in-park areas in its resort theme parks in Italy and Germany. Merlin expects its first standalone Peppa Pig attraction to open in China in 2018, with a second anticipated in 2019.

Underlying EBITDA margins will be somewhat lower in percentage terms as a result of the growth of PJ Masks as a proportion of total sales and continued increase in brand management costs which are necessary to facilitate growth and support brand longevity.

From 1 April 2018 the Company is combining the Film and Television Divisions into one reporting segment: Film, Television and Digital. This follows on from the combination of the operations. Therefore the 2019 outlook is provided for the new Division.

Film, Television and Digital is well positioned for growth in FY19 in a landscape where premium original content is in demand more than ever before. The Division will continue to focus on early access to high quality premium content of all types by continuing to build deep partnerships with high quality creators.

In FY19, we anticipate 140 film releases, in total across all territories, of which 80 are expected to be unique titles. Investment in acquired content is expected to be lower at approximately £100 million. Investment in film production is expected to be higher than the current year at around £70 million reflecting the strategic shift towards content production.

The number of half hours of TV programming expected to be acquired/produced next year is expected to be over 1,000, with around 40% of the new financial year's budgeted margins already committed or greenlit. The Company currently has more than 30 scripted series set up with global platforms and broadcasters in the US, Canada and the UK, in various stages of development and a further 10 series expected to go to market in the next few months. Investment in acquired content is expected to be over £45 million and production spend is anticipated to be £309 million.

The integration of the Film, Television and Digital operations is ongoing with a number of opportunities identified to drive business efficiencies and centralisation of internal support functions from the combined operations. In addition, as part of the acquisition of the balance of The Mark Gordon Company completed in March 2018, MGC will be fully integrated into eOne. Overall annual cost savings are expected of approximately £13-15 million by FY20. Approximately half of these savings are expected to be realised in FY19.

 

 

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 business develops, produces and distributes a portfolio of children's television properties on a worldwide basis, its principal brands being Peppa Pig and PJ Masks, with much of its revenue generated through licensing and merchandising programmes across multiple retail categories.

 

£m	2018	2017	Change
Revenue	138.6	88.6	56%
Underlying EBITDA	82.3	55.6	48%
Investment in acquired content and productions	9.6	5.1	88%

 

Revenue for the year was up 56% to £138.6 million (2017: £88.6 million), driven by the continued strong performance of Peppa Pig and significant growth from PJ Masks which was ahead of management expectations.

Underlying EBITDA increased 48% to £82.3 million (2017: £55.6 million), driven by increased revenue. The underlying EBITDA margin was 3.4pts lower reflecting the changing revenue mix from different properties and increased infrastructure and brand management costs which were necessary to facilitate further growth.

Investment in acquired content and productions of £9.6 million (2017: £5.1 million) was £4.5 million higher than the prior year. Investment spend in the year included season five of Peppa Pig, season two of PJ Masks and new properties Cupcake & Dino: General Services and Ricky Zoom.

The Family & Brands business continued to perform strongly with the ongoing success of Peppa Pig and rapid growth of PJ Masks. The business generated US$2.4 billion of retail sales in the year (2017: US$1.5 billion) largely driven by the successful retail rollout of PJ Masks and continued growth of Peppa Pig. More than 1,000 new and renewed broadcast and licensing agreements were concluded in the year, an increase of 25% year-on-year. At 31 March 2018, the business had almost 1,500 live licensing and merchandising contracts across its portfolio of brands (2017: almost 1,100).

Peppa Pig has continued to grow with retail sales of US$1.3 billion (2017: US$1.2 billion) and revenue of £84.7 million (2017: £70.0 million), an increase of 21% or £14.7 million. Year-on-year growth was driven by continued strong performance across all revenue streams, including continued growth in mature markets and emerging markets such as the UK and China, respectively. Over 40 million books have been sold in China since Peppa Pig's launch in April 2016 demonstrating the strength of the brand in this territory. There are now 43 live licensing agreements in China (2017: 22) across all key licensing categories. Performance has been bolstered by significant broadcast exposure from state owned CCTV and all major VOD platforms in the region, including Tencent, iQiYi and Youku, with over 60 billion VOD views since launch in October 2015 in China, across all platforms. In addition, Peppa Pig was launched on TV Tokyo in Japan in October 2017 and Disney Junior in January 2018. Master licensing partner for the country, Sega Toys, recently hosted an exclusive retail event in spring 2018 which will be followed by a nationwide retail rollout in June 2018. The US continues to be a key market for Peppa Pig. New episodes premiered in FY18 and the show transferred to the main Nickelodeon channel where it has been a ratings success, driving strong licensing and merchandising revenues.

PJ Masks has been a key driver of revenue growth for the business in the year with total retail sales of US$1.0 billion (2017: US$0.3 billion) and revenue increasing 261% from £13.5 million to £48.8 million. Similar to Peppa Pig, licensing and merchandising sales continue to be a fundamental growth driver with an overall increase of 285% in the year driven by the successful global rollout of the licensing programme. The US continues to be an important market in this respect, contributing the largest proportion of total licensing and merchandising sales. Building on this momentum, almost 500 new licences and broadcast deals have been signed globally in the year, which is indicative of the rising popularity of the brand across all territories.

PJ Masks is broadcasting in all key territories on the global Disney Junior network, and on key terrestrial broadcasters like France Televisions, RAI in Italy and ABC in Australia. Recently premiering on Tencent, iQiYi and Youku VOD in China, it attracted over 70 million views in the first three days and over 395 million by April 2018. Following the success of the first season of PJ Masks, season two commenced airing on Disney Junior US in January 2018 to strong ratings, season three has been greenlit and season four is in development, further supporting growth expectations for FY19 and beyond.

The business is in production on a number of other properties, including: Ricky Zoom, a pre-school vehicle-based series of 52 episodes from the same creative team as hit series PJ Masks with major broadcasters attached in France, Italy, and Latin America and a master toy arrangement currently in the final stages of negotiation; and Cupcake & Dino: General Services, a high profile 52 episode comedy series which is in full production with broadcast commitments from Teletoon in Canada, Disney Channel in Brazil and worldwide SVOD rights with Netflix. These properties are expected to make their broadcast debuts in FY19.

The second half of the year saw the retail landscape affected by Toys R Us store closures in the US and UK. The Group expects there to be some impact for its brands in the short term and is monitoring the situation closely with its partners; this impact is not anticipated to be significant. Overall, eOne's brands performed well across the key holiday season with strong sell-through outside of Toys R Us stores.

2019 OUTLOOK FOR FAMILY & BRANDS

Peppa Pig and PJ Masks will continue to drive the growth of eOne's Family & Brands Division in FY19. The business is on target to having close to 2,000 live licensing and merchandising contracts by the end of FY19.

Family & Brands continues to focus on building Peppa Pig into the most loved pre-school brand in the world. Asia, North America and Germany will be the key territories of growth for the brand. China will drive the growth in Asia building on the growing popularity of the brand thanks to strong VOD exposure in the region with expected growth in licensing and merchandising revenue aided by new toy partnership with Alpha and increased publishing formats. There is a growing franchise in Germany where broadcast started on Super RTL in March 2018. Leading toy firm, Jazwares is developing an extensive line of figures, playsets and plush toys that will launch from September 2018 ahead of the back to school and Christmas season.

The strong pipeline of content is a fundamental element of securing the evergreen status of the brand. The brand celebrates its 15th anniversary in the UK and Australia in 2019 with an exciting calendar of events anchored by a fresh pipeline of content. An additional 117 episodes of Peppa Pig are currently in production with the original creators of the show, with delivery beginning in FY19 through to spring 2021. This new content will introduce new characters, storylines and themes to keep the series relevant to each new generation of pre-school fans.

In October 2017, the business entered into a global partnership with Merlin Entertainments, to develop and operate location-based entertainment attractions based on Peppa Pig. Merlin have opened in-park areas in its resort theme parks in Italy and Germany, and expects its first standalone attraction to open in China in 2018, with a second anticipated in 2019.

PJ Masks will see a wider international licensing roll-out with the UK and China expected to be the key territories of growth. China will be a new licensing market in FY19 and a full product launch will commence in June 2018 with toy partner Alpha following a successful VOD launch. The UK will build upon the very successful toy roll-out in FY18. In the US it is expected that licensing revenue will continue to grow following the successful release of season two in January 2018. The second season is set to air in other territories from spring 2018 driving further licensing momentum.

Both Cupcake and Dino: General Services and Ricky Zoom will make their broadcast debut in FY19. In addition to this new content, Family & Brands currently has eight other projects in development.

The Division is expected to generate strong revenue and EBITDA growth across the portfolio in FY19. It is also expected that underlying EBITDA margins will be somewhat lower in percentage terms driven by the growth of PJ Masks as a proportion of total sales and continued increase in brand management costs which are necessary to facilitate growth and support brand longevity.

 

 

TELEVISION

The Television Division comprises eOne Television, The Mark Gordon Company, the Group's Music operation and Secret Location. The Division's primary focus is on the development, production and acquisition of high quality programming for sale to broadcasters and digital platforms around the world.

 

£m	2018	2017	Change
Revenue	539.0	452.7	19%
Underlying EBITDA	72.0	62.8	15%
Investment in acquired content	31.9	37.3	(14%)
Investment in productions	240.7	222.9	8%

Revenue for the year was 19% higher at £539.0 million (2017: £452.7 million), driven by larger productions and higher international distribution sales across key titles. Television revenue is calculated net of intra-segment eliminations of £66.7 million (2017: £49.5 million) between eOne Television, The Mark Gordon Company and Music. The financial tables below are presented gross of intra-segment eliminations.

Underlying EBITDA increased by 15% to £72.0 million (2017: £62.8 million), driven by higher revenue. Investment in acquired content reduced by 14% and investment in productions increased by 8% driven by higher production volume.

eONE TELEVISION

 

£m	2018	2017	Change
Revenue	382.1	328.2	16%
Underlying EBITDA	36.4	30.9	18%
Investment in acquired content	27.8	34.1	(18%)
Investment in productions	159.5	121.4	31%

Revenue for the year increased 16% to £382.1 million (2017: £328.2 million), driven by larger productions and higher international distribution sales across key titles. Underlying EBITDA was 18% ahead at £36.4 million (2017: £30.9 million), driven by revenue growth with underlying EBITDA margin percentage broadly in line.

Investment in productions grew by 31% in the year due to investment in premium series from eOne productions and was partly offset by lower investment in acquired content. 876 half hours of new programming were produced/acquired in the year compared to 1,023 in the prior year with the decrease due to fewer shows in the Canadian unscripted business and a lower volume of acquired content.

Key scripted deliveries in the year include the highly anticipated Sharp Objects, starring Amy Adams and airing on HBO in summer 2018, first season of legal drama Burden of Truth, which has been renewed for a second season, first season of The Detail, second season of Antoine Fuqua's Ice, second season of Private Eyes which has also been renewed for a third season, second and third seasons of detective show Cardinal and third season of comedy You Me Her.

The unscripted US business delivered season three of Growing Up Hip Hop, season two of spin-off Growing Up Hip Hop Atlanta, Ex on the Beach and new production Siesta Key where audiences continue to grow since the season premiere on MTV where the show ranks in the top 5 series of 2017/18 season across all demographics. Renegade 83 also delivered new seasons of Naked and Afraid, with four different seasons of the franchise providing revenue in the year. In addition, Aaron Hernandez was delivered and debuted on Oxygen as the highest-rated true crime programme in the network's history.

Key acquired content driving performance in the year included season three of Fear the Walking Dead, season eight of The Walking Dead, season two of Into the Badlands and the fourth and final seasons of both Halt & Catch Fire and Turn. International sales for Designated Survivor seasons one and two were strong due to a world-wide streaming deal with Netflix outside of North America.

THE MARK GORDON COMPANY (MGC)

 

£m	2018	2017	Change
Revenue	174.2	119.9	45%
Underlying EBITDA	29.4	26.2	12%
Investment in productions	81.2	101.5	(20%)

Revenue for the year was up 45% to £174.2 million (2017: £119.9 million), driven by an increase in the number of Designated Survivor episodes delivered, delivery of new series of Youth & Consequences for YouTube Red, and delivery of MGC's first feature film with eOne, Molly's Game. Underlying EBITDA increased 12% to £29.4 million (2017: £26.2 million), driven by higher revenue. Underlying EBITDA margin percentage was lower than prior year reflecting a change in revenue mix.

Investment in productions decreased 20% to £81.2 million (2017: £101.5 million) due to phasing of productions, including Molly's Game where the majority of spend was incurred in FY17.

The studio continues to benefit from a strong library of television and film titles which have demonstrated enduring popularity and commercial success. The relatively high margins attributable to the library favourably contributes to the bottom line and cash generation. During the year MGC had five series airing on US network and premium cable, all with continued strong viewership including season twelve of Criminal Minds (renewed for season thirteen), season two of Criminal Minds: Beyond Borders, season five of Ray Donovan (renewed for season six), season two of Quantico (renewed for season three) and season thirteen and fourteen of Grey's Anatomy (renewed for season fifteen) making it the longest running scripted prime-time show currently airing on the ABC network. The year also saw a straight-to-series order by ABC of the Grey's Anatomy spinoff, Station 19, which premiered in March 2018.

MUSIC

 

£m	2018	2017	Change
Revenue	49.4	54.1	(9%)
Underlying EBITDA	6.2	5.7	9%
Investment in acquired content	4.1	3.2	28%

Revenue for the year decreased by 9% to £49.4 million (2017: £54.1 million), primarily due to the full year impact of lower physical sales driven by the termination of a number of distributed labels when the business outsourced physical distribution in January 2017 and lower performance of The Lumineers' second album, Cleopatra, which was released in the prior year. Underlying EBITDA increased 9% to £6.2 million (2017: £5.7 million) and underlying EBITDA margin increased 2.0pts, due to the continued shift of the business from physical to digital. ADA, a member of Warner Music Group, now handles all physical sales and distribution in the US and Canada which has allowed the business to focus on higher margin digital distribution and artist management.

Key titles during the year included continued strong performance of The Lumineers' highly successful first and second albums, The Lumineers and Cleopatra, 2Pac's All Eyez on Me, Snoop Doggy Dogg's Doggystyle, Dr Dre's The Chronic and the late Chuck Berry's new album Chuck demonstrating the strength of both new and catalogue music within the Music Division. In addition, numerous high profile signings were completed in the year bringing on board new artists including Dionne Warwick, Lil' Kim and Timbaland.

Additional growth has come from the Artist Management and Publishing businesses. In Artist Management Jax Jones had a third number one song Breathe and Kah-Lo had a number one dance record in the UK.

In its Publishing and Music Supervision operations, the business continued to work in partnership with eOne television and film projects, including Makeready's A Million Little Pieces, Ice (season two), Let's Get Physical, as well as supervising the music on the recent PJ Masks Live! tour and providing the theme song for the upcoming Ricky Zoom series in Family & Brands.

The number of albums released in the year was marginally higher at 84, versus 79 in the prior year, and digital singles released remained steady at 205, compared to 206 in the prior year, demonstrating the robust pipeline of content driving the business forward.

 

 

FILM

eOne's Global Film Group is one of the world's largest independent film businesses with operations in the US, Canada, the UK, Australia, the Benelux, Germany and Spain. The Division's primary focus is on the development, production and acquisition of high quality film productions for direct distribution in its territories and sales around the world.

£m	2018	2017	Change
Revenue	402.2	594.2	(32%)
Theatrical	57.1	97.2	(41%)
Home entertainment	79.2	149.3	(47%)
Broadcast and digital	141.4	189.4	(25%)
Production and international sales	78.1	108.0	(28%)
Other	48.5	54.5	(11%)
Eliminations	(2.1)	(4.2)	50%
Underlying EBITDA	35.1	52.7	(33%)
Investment in acquired content	118.8	143.2	(17%)
Investment in productions	47.0	(0.6)	7,933%

As a result of lower volume in the year, revenue and underlying EBITDA decreased 32% and 33% to £402.2 million (2017: £594.2 million) and £35.1 million (2017: £52.7 million), respectively. Underlying EBITDA benefitted from gross margin improvement of 3.1pts driven by lower amortisation costs and sales mix and significant cost savings resulting from the reorganisation commenced in FY16 and substantially completed in FY17. The Group has achieved the targeted annualised cost savings of approximately £10 million related to the continued reduction of physical distribution infrastructure in this financial year. In addition, cost savings from the integration of the Film and Television Divisions of £1-2 million were realised in FY18 with a full run rate impact expected by FY20 of £13-15 million (including the integration of MGC).

Investment in acquired content reduced by £24.4 million to £118.8 million (2017: £143.2 million) driven by lower volume and mix of acquired titles. Investment in productions was higher by £47.6 million at £47.0 million (2017: (£0.6 million)), a significant increase over the prior year, reflecting the Group's strategic shift towards direct production of content over which it has ownership and control.

THEATRICAL

Overall, theatrical revenue decreased by 41% as a result of lower box office takings, (box office of US$207.6 million in FY18 versus US$337.4 million in FY17). The total number of film theatrical releases was 144 compared to 172 in the prior year and the number of individual film theatrical releases in the year was 85 compared to 102 in the prior year. The decrease in revenue is a result of volume and mix of titles compared to the higher profile releases in the prior year, which included The BFG, The Girl on the Train, and Arrival. The lower number of releases and spending on acquired content is consistent with the Group's strategy to shift investment towards content production.

The current year releases include Oscar nominated Molly's Game, a Mark Gordon Company production written and directed by Aaron Sorkin; Oscar nominated The Post from Amblin Partners, starring Meryl Streep and Tom Hanks and directed by Steven Spielberg; and Oscar nominated I, Tonya for which Allison Janney won Best Supporting Actress, which Sierra/Affinity sold internationally. eOne released the first film under its new partnership with Annapurna Pictures, Detroit directed by Academy Award winning director Kathryn Bigelow. Other key releases in the year included A Dog's Purpose, The Death of Stalin, Wonder and Finding Your Feet.

HOME ENTERTAINMENT

Revenue decreased by 47% as a result of the lower volume of releases, continued shift from physical to digital formats, and the discontinuation of certain labels in the US and Canada as planned.

In total, 255 DVDs and Blu-ray titles were released during the year (2017: 366), a decrease of 30%, including key titles such as John Wick: Chapter 2, La La Land, season seven of The Walking Dead, Mom and Dad, Ballerina, A Dog's Purpose, Power Rangers and Jungle.

BROADCAST AND DIGITAL

The Division's combined broadcast and digital revenues were 25% lower on a reported basis and 12% on a like-for-like basis, which excludes the prior year digital revenues generated in the Film Division from the US Distribution business that related to music sales. The like-for-like revenues were lower reflecting the impact of fewer releases and the reduced volume of larger titles to support incremental sales opportunities.

Key broadcast and digital titles included The Girl on the Train, A Dog's Purpose, Arrival, John Wick: Chapter 2 and Bon Cop Bad Cop 2.

The Group entered into a new multi-year exclusive SVOD deal with Amazon in the first half of the year, for the first Pay TV window in the UK. This new deal gives Amazon Prime members exclusive access to all new releases in the territory during the window. In addition the Group entered into a new output deal with Amazon in Spain, extended its Pay TV output deal with Bell Media in Canada and executed an SVOD catalogue and second Pay TV deal with Netflix in the UK.

PRODUCTION AND INTERNATIONAL SALES

Revenue for production and international sales decreased by 28% to £78.1 million (2017: £108.0 million) as a result of the timing of the Sierra production slate, which did not include any deliveries in FY18 compared to Lost City of Z and Atomic Blonde in FY17.

During the year eOne delivered The Ritual which was released theatrically in the UK with the balance of worldwide distribution rights sold to Netflix, and Just Getting Started.

Sierra's key sales titles included I, Tonya, 24 Hours to Live, Molly's Game, Mark Felt and Anon.

2019 OUTLOOK FOR FILM, TELEVISION AND DIGITAL

From 1 April 2018 the Company is combining the Film and Television Divisions into one reporting segment: Film, Television and Digital. This follows on from the combination of the operations. Therefore the following 2019 outlook is provided for the new Division.

Film, Television and Digital is well positioned for growth in FY19 in a landscape where premium original content is in demand more than ever before. The Division will continue to focus on early access to high quality premium content of all types by continuing to build deep partnerships with high quality creators.

In FY19, we anticipate 140 film releases, in total across all territories, of which 80 are expected to be unique titles. Investment in acquired content is expected to be lower at approximately £100 million. The pipeline for the year is driven by releases from the Division's strategic partners, including Amblin Partners' The House with a Clock in Its Walls starring Cate Blanchett and Jack Black; On the Basis of Sex, a biopic of US Supreme Court Justice Ruth Bader Ginsburg, starring Felicity Jones and Armie Hammer; Green Book, a period drama starring Viggo Mortensen and Mahershala Ali; Annapurna Pictures' If Beale Street Could Talk based on the James Baldwin novel and directed by Moonlight's Barry Jenkins; and Backseat, Adam McKay's project following his success on The Big Short about former US Vice President Dick Cheney starring Christian Bale, Amy Adams, Sam Rockwell and Steve Carrell.

Investment in film production is expected to be higher than the current year at around £70 million reflecting the strategic shift towards content development and production. Films in production currently include: A Million Little Pieces, the first feature from Brad Weston's Makeready starring Aaron Taylor-Johnson, Charlie Hunnam and Billy-Bob Thornton; Mary, a low budget supernatural thriller starring recent Academy Award winner Gary Oldman, where eOne has enjoyed previous success with the Sinister and Insidious franchises; Official Secrets, starring Ralph Fiennes and Keira Knightley and is directed by Gavin Hood, who also directed the eOne feature Eye in the Sky; Sierra/Affinity's Haunt and Australian co-production Nekromancer. Other Film titles in various stages of development and production include The Nutcracker and the Four Realms (Disney), The Killer (Universal), Scary Stories to Tell in the Dark (CBS), and Come From Away. In addition, the Group expects production to continue to ramp-up as internal as well as partner development projects enter the packaging stage.

The television slate for FY19 will deliver a straight to series order from ABC, The Rookie, starring and executive produced by the former Castle star Nathan Fillion. eOne will handle all international distribution rights outside of the US. The production was featured in The Hollywood Reporter's Hot List for MipTV demonstrating the expected strong interest from the market. Also delivering are the remaining eight episodes of Ransom season two and renewed seasons of Burden of Truth, Private Eyes and Mary Kills People. There are a number of projects currently in development which are expected to be greenlit in the year including productions for sale to over the top platforms.

The US unscripted business will continue to grow with expected deliveries from the Growing Up Hip Hop franchise, Siesta Key and The Hollywood Puppet Show season two. Renegade 83 has a strong pipeline and is expected to deliver season five of the hugely popular Naked and Afraid, Sugar for YouTube and Buried in the Backyard for Oxygen. A majority stake in Whizz Kid Entertainment, a UK reality business, was acquired in April 2018 to further expand eOne's unscripted development and production capabilities in new territories. The slate for FY19 also includes Ex on the Beach season ten and the British Academy Film Awards 2019.

For international distribution, sales of third party titles Fear the Walking Dead and The Walking Dead are expected to continue at their existing robust levels with new seasons confirmed and although the AMC/Sundance output deal has now ended for new productions, Into the Badlands is selling strongly and a fourth season has been confirmed.

The number of half hours of TV programming expected to be acquired/produced next year is expected to be over 1000, with around 40% of the new financial year's budgeted margins already committed or greenlit. The Division currently has more than 30 scripted series set up with global platforms and broadcasters in the US, Canada and the UK in various stages of development from packaging through pilot and a further ten series expected to go to the market in the next few months. Investment in acquired content is expected to be over £45 million and production spend is expected to be £309 million.

The integration of Film, Television and Digital operations is ongoing with a number of opportunities identified to drive business efficiencies and centralisation of internal support functions from the combined operations. In addition, as part of the acquisition of the balance of The Mark Gordon Company completed in March 2018, MGC will be fully integrated into eOne. Overall annual cost savings are expected of approximately £13-15 million by FY20. Approximately half of these savings are expected to be realised in FY19.

Secret Location, eOne's new and emerging platforms group, is primarily focused on the fast-growing virtual reality and augmented reality business. VUSR, Secret Location's patented virtual reality content distribution platform, partners with large media companies including Discovery, The New York Times, AMC and Frontline to deliver their VR/AR content to consumers.

The Music Division expects revenue growth in FY19. The transition to higher margin digital sales will continue to drive profit growth into FY19. Releases scheduled from high profile artists such as Brandy in FY19 will drive growth of both legacy and new content. The Division will continue to develop new initiatives to position eOne as a worldwide Music brand. The Music Supervision business will continue to work in close partnership with eOne television and film projects, maximising Group synergies in this area. In January 2018, the Music Division acquired Round Room Entertainment, a leading live entertainment company, which expands eOne's comprehensive offering to artists and brands. The business is focused on live entertainment for family content and special events, this will lead to incremental revenue and EBITDA within the Music Division.

 

 

OTHER FINANCIAL INFORMATION

Adjusted operating profit increased by 12% to £173.7 million (2017: £155.3 million), reflecting the growth in the Group's underlying EBITDA. Adjusted profit before tax increased by 11% to £144.4 million (2017: £129.9 million), in line with increased adjusted operating profit, partly offset by higher underlying finance costs in the year. Reported operating profit increased by 69% to £114.4 million (2017: £67.6 million), with the Group reporting a profit before tax of £77.6 million, an increase of 116% over the prior year (2017: £35.9 million).

 

	Reported			Adjusted
	2018	Restated 2017²		2018	2017
£m	£m	£m		£m	£m
Revenue	1,044.5	1,082.7		1,044.5	1,082.7
Underlying EBITDA	177.3	160.2		177.3	160.2
Amortisation of acquired intangibles	(39.6)	(41.9)		-	-
Depreciation and amortisation of software	(3.6)	(4.9)		(3.6)	(4.9)
Share-based payment charge	(12.6)	(5.0)		-	-
One-off items	(7.1)	(40.8)		-	-
Operating profit¹	114.4	67.6		173.7	155.3
Net finance costs	(36.8)	(31.7)		(29.3)	(25.4)
Profit before tax	77.6	35.9		144.4	129.9
Tax	0.6	(12.3)		(27.9)	(27.1)
Profit for the year	78.2	23.6		116.5	102.8

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

2. Reported 2017 amounts have been restated, 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 has decreased by £3.6 million in the year. The decrease is primarily attributable to assets having been fully amortised in the prior year, resulting in a lower charge in FY18.

SHARE-BASED PAYMENT CHARGE

The share-based payment charge of £12.6 million has increased by £7.6 million during the year, reflecting additional awards issued in the period and also due to the fair value of the FY18 awards increasing as a result of the increase in the Company's share price in the year.

ONE-OFF ITEMS

One-off items resulted in a net charge of £7.1 million, compared to a net charge of £40.8 million in the prior year. The costs include restructuring costs of £8.0 million (2017: £51.0 million) and other costs of £1.0 million (2017: £2.5 million). These are partially offset by net acquisition related gains of £1.9 million (2017: £12.7 million).

The restructuring costs of £8.0 million consist of:

·	£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 Division. The costs primarily include severance, 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 consist of:

·	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 current 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 FY16 acquisition of Last Gang Entertainment.

Other costs of £1.0 million in FY18 primarily related to costs associated with aborted corporate projects during the year.

NET FINANCE COSTS

Reported net finance costs increased by £5.1 million to £36.8 million in the year. Excluding one-off net finance costs of £7.5 million, adjusted finance costs of £29.3 million (2017: £25.4 million) were £3.9 million higher in the year, reflecting the higher average debt levels year-on-year. The weighted average interest rate for the Group's senior financing was 6.5% compared to 6.6% in the prior year.

The one-off net finance costs of £7.5 million (2017: £6.3 million) comprise:

·	£7.9 million (2017: £6.4 million) net losses on fair value of derivative instruments; which includes: - £5.2 million charge (2017: £7.6 million) in respect of losses on five forward currency contracts not in compliance with the Group's hedging policy. See Note 1 of the consolidated financial statements for further details; - £1.6 million charge (2017: gain of £1.2 million) in respect of fair-value losses (2017 were fair value gains) on hedge contracts which reverse in future periods; and - £1.1 million charge (2017: nil) in respect of fair-value losses on hedge contracts cancelled as a result of the re-negotiation of one of the Group's larger film distribution agreements in 2017;
·	£3.0 million charge (2017: £2.9 million) related to unwind of discounting on put options issued by the Group over the non-controlling interest of subsidiary companies; and
·	The costs above are partly offset by a credit of £3.4 million (2017: net credit of £3.0 million) relating to the reversal of interest previously charged on tax provisions, which were released during the year.

TAX

On a reported basis, the Group's tax credit of £0.6 million (2017: charge of £12.3 million), which includes the impact of the release of tax provisions and one-off items, represents an effective rate of 0.8% compared to 33.6% in the prior year (excluding impact of JV loss of £0.7 million in FY17). On an adjusted basis, the effective rate is 19.3% compared to 20.9% in the prior year, driven by a different mix of profit by jurisdiction (with different statutory rates of tax). The FY19 effective tax rate on an adjusted basis is expected to be approximately 20%.

 

 

CASH FLOW & NET DEBT

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

 

			2018						2017
£m	Family & Brands	Television	Film	Centre & Elims	Total		Family & Brands	Television	Film	Centre & Elims	Total
Underlying EBITDA	83.1	48.1	35.1	(12.1)	154.2		55.6	56.2	52.1	(10.9)	153.0
Amortisation of investment in acquired content rights	1.0	32.1	87.5	(6.7)	113.9		0.5	36.4	131.4	-	168.3
Investment in acquired content rights	(4.3)	(31.9)	(118.8)	6.8	(148.2)		(0.9)	(37.3)	(143.2)	-	(181.4)
Amortisation of investment in productions	2.4	71.3	7.2	(8.6)	72.3		1.3	30.9	0.6	-	32.8
Investment in productions, net of grants	(3.2)	(81.6)	(27.4)	0.4	(111.8)		(2.8)	(31.2)	(0.2)	-	(34.2)
Working capital	4.9	0.2	(33.8)	7.3	(21.4)		(3.3)	(7.6)	(48.1)	-	(59.0)
Joint venture movements	-	-	-	-	-		-	0.6	-	-	0.6
Adjusted cash flow	83.9	38.2	(50.2)	(12.9)	59.0		50.4	48.0	(7.4)	(10.9)	80.1
Cash conversion (%)	101%	79%	(143%)		38%		91%	85%	(14%)		52%
Capital expenditure					(3.2)						(3.2)
Tax paid					(31.8)						(16.2)
Net interest paid					(25.5)						(24.2)
Free cash flow					(1.5)						36.5
Cash one-off items					(33.4)						(15.9)
Cash one-off finance items					(14.1)						(1.7)
Transactions with equity holders and acquisitions, net of net debt acquired					(118.5)						(9.6)
Net proceeds of share issue					52.0						-
Dividends paid					(13.0)						(8.3)
Foreign exchange					1.4						(7.6)
Movement					(127.1)						(6.6)
Net debt at the beginning of the year					(187.4)						(180.8)
Net debt at the end of the year					(314.5)						(187.4)

 

ADJUSTED CASH FLOW

Adjusted cash inflow at £59.0 million was lower than prior year by £21.1 million primarily due to an increase in spend on acquired content and productions of £44.4 million partly offset by an increase in EBITDA and reduced working capital outflow. The underlying EBITDA to cash flow conversion was 38% (2017: 52%).

FAMILY & BRANDS

Family & Brands adjusted cash inflow increased 66% to £83.9 million (2017: £50.4 million) representing an underlying EBITDA to adjusted cash flow conversion of 101% (2017: 91%), driven by the increase in underlying EBITDA and working capital inflows, partly offset by increased investment in acquired content and productions. Working capital inflows grew year-on-year driven by the increase in creditors as a result of increased royalties and agency commission associated with Peppa Pig and PJ Masks due to higher revenue in the year partially offset by the increase in receivables. The investment in acquired content and productions spend related to season five of Peppa Pig, season two of PJ Masks and new properties Cupcake & Dino: General Services and Ricky Zoom.

TELEVISION

Television adjusted cash inflow for the year was £38.2 million (2017: £48.0 million), representing an underlying EBITDA to adjusted cash flow conversion of 79% (2017: 85%). The reduction of cash inflow is driven by significantly higher investments in production due to ramp up in productions, particularly in unscripted US and MGC, including productions in progress and development spend. The working capital was broadly flat in the year reflecting inflows from the increase in royalty accruals and increase in intercompany trade payables relating to productions from MGC (which are offset within the Television working capital movement under production financing), offset by an outflow in movements in receivables from higher revenue in the last quarter.

FILM

Film adjusted cash outflow of £50.2 million was higher than prior year (2017: outflow £7.4 million) driven by lower underlying EBITDA, lower amortisation of investment in acquired content rights, higher investment in productions, net of grants, partly offset by lower investment in acquired content and lower working capital outflow.

The reduced investment in acquired content rights was driven by the lower volume and profile of theatrical releases in the year which has led to lower amortisation. The increased investment in productions mainly relates to spend on the Sierra production, How It Ends, which will be delivered to Netflix in FY19. Working capital outflow of £33.8 million was primarily due to a decrease in payables driven by the timing of payments in the distribution territories partly offset by greater collection of receivables.

FREE CASH FLOW

Free cash outflow for the Group of (£1.5 million) was £38.0 million lower than the previous year primarily due to higher investment in acquired content and productions spend, timing of certain tax payments of approximately £10 million offset by lower working capital outflow and EBITDA growth.

NET DEBT

At 31 March 2018, overall net debt of £314.5 million was £127.1 million higher than the prior year due to the lower free cash flow, higher one-off items, including payment of prior years' restructuring charges, higher one-off finance items and the impact of the MGC transaction.

Refer to the Appendix to this Results Announcement for the definition of adjusted cash flow and free cash flow and for a reconciliation to net cash from operating activities.

PRODUCTION FINANCING

Overall production financing decreased by £33.6 million year-on-year to £118.7 million reflecting the timing of certain programming. For example, in MGC within Television there were cash outflows associated with Conviction in FY17 and then the loan was repaid in FY18. There was not an equivalent MGC network show in FY18.

 

	2018					2017
£m	Family & Brands	Television	Film	Total		Family & Brands	Television	Film	Total
Underlying EBITDA	(0.8)	23.9	-	23.1		-	6.6	0.6	7.2
Amortisation of investment in productions	0.2	153.7	4.2	158.1		0.9	138.6	41.1	180.6
Investment in productions, net of grants	(2.0)	(159.2)	(19.6)	(180.8)		(1.4)	(191.7)	0.8	(192.3)
Working capital	0.8	7.8	16.5	25.1		0.5	4.4	(11.4)	(6.5)
Joint venture movements	-	-	-	-		-	0.1	-	0.1
Adjusted cash flow	(1.8)	26.2	1.1	25.5		-	(42.0)	31.1	(10.9)
Capital expenditure				-					(0.3)
Tax paid				(0.7)					(2.2)
Net interest paid				(0.7)					(0.1)
Free cash flow				24.1					(13.5)
Cash one-off items				(3.5)					(0.9)
Acquisitions, net of net debt acquired				-					(0.7)
Foreign exchange				13.0					(19.2)
Movement				33.6					(34.3)
Net production financing at the beginning of the year				(152.3)					(118.0)
Net production financing at the end of the year				(118.7)					(152.3)

 

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

FINANCIAL POSITION AND GOING CONCERN BASIS

The Group's net assets decreased by £45.3 million to £706.0 million at 31 March 2018 (2017: £751.3 million).

The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern. The directors consider it appropriate to prepare the consolidated financial statements on a going concern basis, as set out in Note 1 to the consolidated financial statements.

A presentation to analysts will take place at 9.00am on Tuesday, 22 May 2018 at eOne's UK office (45 Warren Street, London, W1T 6AG). For more information, or to register to attend, contact Alma PR +44 7961 075 844 or rsh@almapr.co.uk).

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 (Head of Investor Relations)

Tel: +44 20 3714 7931

Email: PYau@entonegroup.com

 

CAUTIONARY STATEMENT

This Results Announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Entertainment One Ltd. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Results Announcement should be construed as a profit forecast.

A copy of this Results Announcement for the year ended 31 March 2018 can be found on the Group's website at www.entertainmentone.com.

 

 

Independent auditors' report to the members of Entertainment One Ltd.

Report on the audit of the financial statements

Opinion

In our opinion, the 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 2018 and of its profit and cash 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 2018 Annual Report and Accounts (the "Annual Report"), which comprise: the Consolidated Balance Sheet as at 31 March 2018; 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

Context

In this first year of our audit tenure our planning process involved meeting with Group and Divisional management and the board to understand the business, its challenges, opportunities and associated risks.

Overview

Materiality		Overall Group materiality: £4.2 million, based on 5% of profit before tax ('PBT') adjusted for one off operating items which principally relate to restructuring costs and acquisition related costs.
Audit scope		We identified six reporting units across three countries which, in our view, required an audit of their complete financial information due to their size: Canada (three), US (one) and UK (two). The reporting units where we performed a full scope audit and the consolidation adjustment entities accounted for 70% of revenue and 60% of PBT. We identified six reporting units across three 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: Canada (one), the US (one) and the UK (one). We also identified certain Head Office reporting units (three) 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 intangibles and treasury were performed at the Group level.
Key audit matters		Valuation of acquired content rights and investment in productions. Risk of fraud in revenue recognition Carrying values of goodwill and other intangible assets (Film). Valuation and completeness of hedging and derivatives.

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.

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.

As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matter		How our audit addressed the key audit matter
Valuation of acquired content rights and investment in productions At 31 March 2018, the Group has recognised £181.5 million of investment in productions and £253.4 million of investment in acquired content on the 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, home entertainment, digital and television). Forecasting these ultimates that support the valuation of the investment in acquired content and productions library 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 production and investment in content balances is incorrect.		Our audit procedures included understanding and evaluating the controls and systems related to the ultimates and investment in content / investment in production 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 sensitivity analysis to identify if there were any ultimate revenues forecasts and associated investment in content / investment in production balances that were sensitive to change; · Testing the mathematical accuracy of the investment in content and investment in productions models and associated amortisation charge and tested a sample of additions and disposals 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.
Risk of fraud in revenue recognition Recognition of revenue is a key driver of the presented results of the Group and executive bonus and therefore there is an incentive for management to manipulate revenue recognition to meet targets. We assessed each revenue stream and identified a significant risk that revenue is not recorded in the correct period associated with significant transactions entered into close to year and those revenue streams where there is more judgement associated with the timing of their revenue recognition. These identified higher risk revenue streams were Licensing & Merchandising, Production and Broadcast and Digital revenue streams.		Audit procedures have been performed by each of the in-scope components, the Group engagement team and by one specified financial statement line item component and included the following: · Understanding and evaluating the internal control environment around revenue recognition; · Examination of significant contracts entered into close to year end to ensure revenue recognition in the appropriate period; · Substantive testing, on a sample basis, to ensure revenue recognition in the appropriate period, by agreeing information back to contracts and proof of delivery or transmission as appropriate. · Testing post year end credit notes.

 

Carrying values of goodwill and other intangible assets At 31 March 2018, the group's carrying value of goodwill and other intangibles is £375.2 million and £248.9 million respectively across four 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 CGU, which has the largest carrying value of £499 million, has been undergoing a transition, has lower year-on-year results, and is most sensitive to changes in assumptions.		The audit procedures, performed by the Group engagement team, focused towards the Film 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; · Performing our own sensitivity analysis to understand the impact of reasonable changes in the key assumptions. No impairments were identified though our sensitivities; and · Validating and confirming the appropriateness of the related disclosures in note 12 of the financial statements.
Valuation and completeness of hedging and derivatives In the first half of the year management identified certain forward currency contracts that were not in compliance with the Group's hedging policy and had not been accounted for within the financial statements which resulted in a restatement to the prior year financial statements. As a result of the identification of this error we identified a risk of material misstatement associated with the valuation and completeness of hedging and derivatives.		The audit procedures to address the identified risk were performed by the Group team and included: · Obtaining a detailed understanding and evaluated the revised control environment through review of changes proposed by Internal Audit and performance of additional walkthroughs; · Requesting confirmation of all open trades, as at 31 March 2018, for Entertainment One Ltd. and all subsidiaries from all of the Group's brokers; · Reconciling 100% of the open trades independently confirmed to management's own records; and · Recalculating the value of all open trades using spot currency rates as at 31 March 2018. In addition to reviewing the completeness and valuation of the derivative position we have reviewed the cash flow hedging programme through reviewing the reconciliation of the cash flow hedge reserve and reviewing a sample of hedge documentation. Based on the procedures performed, we noted no material errors in respect of the completeness and valuation of hedging and derivatives as at 31 March 2018.

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 three reporting segments being Film, Television and Family. 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 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 US (one reporting unit) and the UK (two reporting units). These reporting units, together with the Group consolidation adjustments, accounted for 70% of revenue and 60% of profit before tax.

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

Certain reporting units were audited by local component audit teams. The Group engagement team attended the year end audit clearance meetings of each full scope component team, maintained regular contact with the component teams and were involved in the oversight of work in respect of significant/judgemental areas.

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	£4.2 million.
How we determined it	5% of profit before tax adjusted for operating one-off items.
Rationale for benchmark	Overall materiality has been set based on a 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 between £2.0 million and £3.5 million.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £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.
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.

Auditors' 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.

Use 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 their 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.

 

Philip Stokes

For and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants

London

21 May 2018

 

Consolidated Income Statement

for the year ended 31 March 2018

 

			Restated¹
		Year ended	Year ended
		31 March 2018	31 March 2017
	Note	£m	£m
Revenue	2	1,044.5	1,082.7
Cost of sales		(733.6)	(795.4)
Gross profit		310.9	287.3
Administrative expenses		(196.5)	(219.0)
Share of results of joint ventures	28	-	(0.7)
Operating profit	3	114.4	67.6
Finance income	7	3.9	5.0
Finance costs	7	(40.7)	(36.7)
Profit before tax		77.6	35.9
Income tax credit/(charge)	8	0.6	(12.3)
Profit for the year		78.2	23.6
Attributable to:
Owners of the Company		64.5	11.7
Non-controlling interests		13.7	11.9
Operating profit analysed as:
Underlying EBITDA	2	177.3	160.2
Amortisation of acquired intangibles	13	(39.6)	(41.9)
Depreciation and amortisation of software	13, 15	(3.6)	(4.9)
Share-based payment charge	31	(12.6)	(5.0)
One-off items	6	(7.1)	(40.8)
Operating profit		114.4	67.6

 

Earnings per share (pence)
Basic	11	14.8	2.7
Diluted	11	14.4	2.7
Adjusted earnings per share (pence)
Basic	11	22.5	20.3
Diluted	11	21.9	20.0

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

 

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2018

 

			Restated¹
		Year ended	Year ended
		31 March 2018	31 March 2017
		£m	£m
Profit for the year		78.2	23.6
Items that may be reclassified subsequently to profit or loss:
Exchange differences on foreign operations		(56.6)	75.6
Hedging reserve movements:
Fair value movements on cash flow hedges		(5.0)	8.5
Reclassification adjustments for movements on cash flow hedges		1.4	(9.3)
Tax credit/(charge) related to components of other comprehensive (loss)/income		2.7	(1.7)
Total other comprehensive (loss)/income for the year		(57.5)	73.1
Total comprehensive income for the year		20.7	96.7
Attributable to:
Owners of the Company		12.3	77.2
Non-controlling interests		8.4	19.5

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

 

 

 

Consolidated Balance Sheet

at 31 March 2018

 

			Restated¹
		31 March 2018	31 March 2017
	Note	£m	£m
ASSETS
Non-current assets
Goodwill	12	375.2	406.9
Other intangible assets	13	248.9	302.9
Interests in joint ventures	28	1.0	1.1
Investment in productions	14	181.5	160.8
Property, plant and equipment	15	10.6	11.9
Trade and other receivables	18	93.7	60.9
Deferred tax assets	9	26.2	28.2
Total non-current assets		937.1	972.7
Current assets
Inventories	16	39.6	48.6
Investment in acquired content rights	17	253.4	269.8
Trade and other receivables	18	481.5	464.4
Cash and cash equivalents	19	119.2	133.4
Current tax assets		3.5	1.5
Financial instruments	24	1.9	10.6
Total current assets		899.1	928.3
Total assets		1,836.2	1,901.0
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings	22	375.2	276.6
Production financing	23	86.7	91.2
Other payables	20	28.0	35.4
Provisions	21	0.4	1.5
Deferred tax liabilities	9	34.7	53.1
Total non-current liabilities		525.0	457.8
Current liabilities
Interest-bearing loans and borrowings	22	0.4	0.5
Production financing	23	90.1	104.8
Trade and other payables	20	491.3	507.8
Provisions	21	5.9	30.6
Current tax liabilities		14.8	32.8
Financial instruments	24	2.7	15.4
Total current liabilities		605.2	691.9
Total liabilities		1,130.2	1,149.7
Net assets		706.0	751.3
EQUITY
Stated capital	30	594.8	505.3
Own shares	30	(0.2)	(1.5)
Other reserves	30	(23.6)	(22.7)
Currency translation reserve		28.5	79.8
Retained earnings		58.4	104.2
Equity attributable to owners of the Company		657.9	665.1
Non-controlling interests		48.1	86.2
Total equity		706.0	751.3
Total liabilities and equity		1,836.2	1,901.0

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

These consolidated financial statements were approved by the Board of Directors on 21 May 2018.

Joseph Sparacio

Director

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 March 2018

 

 

			Other Reserves
	Stated capital	Own shares	Cash flow hedge reserve	Put options over NCI	Restructuring reserve	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	£m	£m	£m
At 1 April 2016	500.0	(3.6)	1.4	(30.9)	9.3	11.8	100.3	588.3	69.9	658.2
Restatement¹	-	-	-	-	-	-	(4.4)	(4.4)	-	(4.4)
At 1 April 2016 restated	500.0	(3.6)	1.4	(30.9)	9.3	11.8	95.9	583.9	69.9	653.8
Profit for the year	-	-	-	-	-	-	11.7	11.7	11.9	23.6
Other comprehensive (loss)/income	-	-	(2.5)	-	-	68.0	-	65.5	7.6	73.1
Total comprehensive (loss)/income for the year	-	-	(2.5)	-	-	68.0	11.7	77.2	19.5	96.7
Credits in respect of share-based payments	-	-	-	-	-	-	4.9	4.9	-	4.9
Deferred tax movement arising on share options	-	-	-	-	-	-	0.1	0.1	-	0.1
Exercise of share options	1.2	-	-	-	-	-	(1.2)	-	-	-
Distribution of shares to beneficiaries of the Employee Benefit Trust	-	2.1	-	-	-	-	(2.1)	-	-	-
Acquisition of subsidiaries	4.1	-	-	-	-	-	-	4.1	-	4.1
Dividends paid	-	-	-	-	-	-	(5.1)	(5.1)	(3.2)	(8.3)
Total transactions with equity holders	5.3	2.1	-	-	-	-	(3.4)	4.0	(3.2)	0.8
At 31 March 2017	505.3	(1.5)	(1.1)	(30.9)	9.3	79.8	104.2	665.1	86.2	751.3
Profit for the year	-	-	-	-	-	-	64.5	64.5	13.7	78.2
Other comprehensive loss	-	-	(0.9)	-	-	(51.3)	-	(52.2)	(5.3)	(57.5)
Total comprehensive (loss)/profit for the year	-	-	(0.9)	-	-	(51.3)	64.5	12.3	8.4	20.7
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 subsidiaries²	1.8	-	-	-	-	-	-	1.8	-	1.8
Transactions with equity holders²	31.7	-	-	-	-	-	(111.4)	(79.7)	(39.1)	(118.8)
Dividends paid3	-	-	-	-	-	-	(5.6)	(5.6)	(7.4)	(13.0)
Total transactions with equity holders	89.5	1.3	-	-	-	-	(110.3)	(19.5)	(46.5)	(66.0)
At 31 March 2018	594.8	(0.2)	(2.0)	(30.9)	9.3	28.5	58.4	657.9	48.1	706.0

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

2. Refer to Note 25 for details on transactions with equity holders and acquisition related movements.

3. Refer to Note 10 for details on dividends paid during the year.

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 March 2018

 

			Restated¹
		Year ended	Year ended
		31 March 2018	31 March 2017
	Note	£m	£m
Operating activities
Operating profit		114.4	67.6
Adjustment for:
Depreciation of property, plant and equipment	15	2.0	2.4
Loss on disposal of property, plant and equipment	15	-	0.8
Amortisation of software	13	1.6	2.5
Amortisation of acquired intangibles	13	39.6	41.9
Amortisation of investment in productions	14	230.4	213.4
Investment in productions, net of grants received	14	(292.6)	(226.5)
Amortisation of investment in acquired content rights	17	113.9	168.3
Investment in acquired content rights	17	(148.2)	(181.4)
Impairment of investment in acquired content rights	17	-	2.2
Fair value gain on acquisition of subsidiary	25	-	(2.3)
Share of results of joint ventures	28	-	0.7
Put option movements	20	(3.9)	(6.3)
Share-based payment charge	31	12.6	5.0
Operating cash flows before changes in working capital and provisions		69.8	88.3
Decrease in inventories	16	5.0	8.4
Increase in trade and other receivables	18	(65.5)	(102.1)
Increase in trade and other payables	20	62.4	30.5
(Decrease)/increase in provisions	21	(24.3)	27.3
Cash from operations		47.4	52.4
Income tax paid		(32.5)	(18.4)
Net cash from operating activities		14.9	34.0
Investing activities
Transactions with equity holders	25	(114.8)	-
Acquisition of subsidiaries and joint ventures, net of cash acquired	25, 28	(3.7)	(6.8)
Purchase of financial instruments	24	-	(0.7)
Purchase of acquired intangibles		-	(0.3)
Purchase of property, plant and equipment	15	(1.7)	(1.5)
Purchase of software	13	(1.5)	(2.0)
Net cash used in investing activities		(121.7)	(11.3)
Financing activities
Net proceeds on issue of shares	30	52.0	-
Drawdown of interest-bearing loans and borrowings	22	374.7	209.8
Repayment of interest-bearing loans and borrowings	22	(269.7)	(211.7)
Drawdown of production financing	23	234.7	224.9
Repayment of production financing	23	(233.9)	(179.2)
Interest paid		(26.2)	(24.3)
Dividends paid to shareholders and to non-controlling interests of subsidiaries	10, 29	(13.0)	(8.3)
Fees paid in relation to the Group's bank facility, premium received on notes and one-off finance costs	7, 22	(11.5)	(5.6)
Net cash from financing activities		107.1	5.6
Net increase in cash and cash equivalents		0.3	28.3
Cash and cash equivalents at beginning of the year	19	133.4	108.3
Effect of foreign exchange rate changes on cash held		(14.5)	(3.2)
Cash and cash equivalents at end of the year	19	119.2	133.4

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

 

 

 

Notes to the Consolidated Financial Statements

for the year ended 31 March 2018

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 21 May 2018.

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 (IFRS IC) interpretations. The consolidated financial statements of the Company and its subsidiaries (the Group) comply with Article 4 of the EU IAS Regulation.

Going concern

In addition to its senior secured notes (due 2022) the Group meets its day-to-day working capital requirements and funds its investment in content through its cash in hand and through a revolving credit facility which matures in December 2020 and is secured on certain assets held by the Group. Under the terms of this facility the Group is able to draw down in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2018 are shown in Note 22. The facility is subject to a series of covenants including interest cover charge, gross debt against underlying EBITDA and capital expenditure.

The Group has a track record of cash generation and is in full compliance with its bank facility and bond covenant requirements.

At 31 March 2018, the Group had £61.1m of cash and cash equivalents (excluding cash held by production subsidiaries) (refer to Note 19), £314.5m of net debt and undrawn-down amounts under the revolving credit facility of £134.4m (refer to Note 22).

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

Basis of consolidation

The consolidated financial statements comprise the financial statements of the 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 subsidiaries are generally prepared for the same reporting periods as the parent company, using consistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date of disposal or at the point in the future when the Group ceases to have control of the entity. All intra-group balances, transactions, income and expenses, and unrealised profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of the arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group accounts for its interests in joint ventures using the equity method. Under the equity method the investment in the entity is stated as one line item at cost plus the investor's share of retained post-acquisition profits and other changes in net assets.

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

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

Foreign currencies

Within individual companies

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

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

Retranslation within the consolidated financial statements

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rate ruling at the date of each transaction during the period. Foreign exchange differences arising, if any, are recognised in other comprehensive income as a separate component of equity and transferred to the Group's translation reserve. Such translation differences are subsequently recognised as income or expenses in the period in which the operation is disposed of.

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.

Prior period restatements

Non-compliant forward currency contracts

As noted in the condensed consolidated financial statements for the six months ended 30 September 2017, the Group identified three forward currency contracts, entered into between December 2015 and September 2016, that were not in compliance with the Group's hedging policy. The losses in respect of these forward currency contracts were not reflected in the consolidated audited financial statements for the years ended 31 March 2016 and 2017 or in the condensed consolidated financial statements for the six months ended 30 September 2016.

The effect of the prior period errors on the consolidated income statement amounted to a £4.4m reduction in profit for the year ended 31 March 2016, £6.2m reduction in profit for the period ended 30 September 2016 and £7.6m reduction in profit for the year ended 31 March 2017. The impact of the prior period errors on the consolidated statement of financial position amounted to a £4.4m reduction in total equity at 31 March 2016, £10.6m reduction in total equity at 30 September 2016 and £12.0m reduction in total equity at 31 March 2017. These forward currency contracts were settled through a payment of £9.8m in the year and application of payments on account made in FY17 in the amount of £4.9m. The cash payment £9.8m (2017: £4.9m) has been classified as 'Fees paid in relation to the Group's senior bank facility, premium and one-off finance costs' in the consolidated cash flow statement for the year ended 31 March 2018. Upon settlement, an additional loss of £2.7m (31 March 2017: loss of £7.6m) was recorded which has been reflected as a one-off finance cost, refer to Note 7. The restatement and current year impact does not impact the financial covenants on the Group's revolving credit facility or senior secured notes.

The Group concluded that the prior period errors were not fundamental to any of the Group's previously issued financial statements and therefore the accounts were not reissued. The Group has corrected the prior period errors retrospectively by restating the comparative amounts for the prior year presented in which the error occurred and restating the opening balances for the earliest prior year presented in these financial statements, as required under International Accounting Standard 8.

During the six months ended 30 September 2017, a further two forward currency contracts entered into in June 2017 and July 2017 were also identified as not being in compliance with the Group's hedging policy. These forward currency contracts were settled during the year, resulting in a one-off finance cost of £2.5m, refer to Note 7.

In response to the above, the Group conducted a broad and continuing review of the Treasury processes, systems and controls across the Group. Steps have been taken to improve controls within Treasury including changes in personnel and enhancement of the control environment. In addition, a detailed review of all, externally confirmed, open forward currency contracts at 31 March 2018 was completed to ensure that they were in compliance with the Group's hedging policies.

Put options over non-controlling interests

Put and call options have been granted over the non-controlling interests of prior year acquisitions with the options exercisable in FY21 based on average EBITDA for FY19 - FY21. During the year, the Group identified that the put option liability as at 31 March 2017 was overstated by £6.3m principally driven by the use of an incorrect foreign exchange rate.

The Group concluded that the prior period error was not fundamental to any of the Group's previously issued financial statements and therefore the accounts were not reissued. The Group has corrected the prior period error retrospectively by restating the comparative amounts for the prior year presented in which the error occurred and restating the balances as at 31 March 2017, as required under International Accounting Standard 8. The correction has resulted in a reduction in operating one-off expenses by £6.3m for the year ended 31 March 2017.

The calculation of the put liability at 31 March 2018 has been revised based on the appropriate exchange rates using Board approved budgets for FY19 and plans for FY20 and FY21. This resulted in a further decline in the value of the liability by £3.9m as a result of changes in the expectation of future earnings. The resulting credit has been recorded as an operating one-off gain, refer to Note 6 for details. The restatement and current year impact does not impact the financial covenants on the Group's revolving credit facility or senior secured notes.

A summary of the impact of the above restatements is shown below:

	Previously reported	Non-compliant forward currency contracts	Put Options	Restated
For the year ended 31 March 2017
Consolidated Income Statement
Administrative expenses	(225.3)	-	6.3	(219.0)
Operating profit	61.3	-	6.3	67.6
Net finance costs	(29.1)	(7.6)	-	(36.7)
Profit before tax	37.2	(7.6)	6.3	35.9
Income tax charge	(12.3)	-	-	(12.3)
Profit for the year	24.9	(7.6)	6.3	23.6
Attributable to:
Owners of the Company	13.0	(7.6)	6.3	11.7
Earnings per share (pence)
Basic	3.1	(1.9)	1.5	2.7
Diluted	3.0	(1.8)	1.5	2.7
Consolidated Statement of Comprehensive Income
Attributable to:
Owners of the Company	78.5	(7.6)	6.3	77.2
At 31 March 2017
Consolidated Balance Sheet
Financial instruments	3.4	12.0	-	15.4
Total current liabilities	679.9	12.0	-	691.9
Other payables	41.7	-	(6.3)	35.4
Total non-current liabilities	464.1	-	(6.3)	457.8
Total liabilities	1,144.0	12.0	(6.3)	1,149.7
Net assets	757.0	(12.0)	6.3	751.3
Retained earnings	109.9	(12.0)	6.3	104.2
Equity attributable to owners of the Company	670.8	(12.0)	6.3	665.1
Total equity	757.0	(12.0)	6.3	751.3
For the year ended 31 March 2017
Consolidated Cash Flow Statement
Operating profit	61.3	-	6.3	67.6
Put option movements	-	-	(6.3)	(6.3)
Operating cash flows before changes in working capital and provisions	88.3	-	-	88.3
Fees paid in relation to the Group's bank facility, premium received on notes and one-off finance costs	(0.7)	(4.9)	-	(5.6)
Net cash from financing activities	10.5	(4.9)	-	5.6
Net increase in cash and cash equivalents	33.2	(4.9)	-	28.3
Effect of foreign exchange rate changes on cash held	(8.1)	4.9	-	(3.2)

The balance sheet for the year ended 31 March 2016 has not been represented as a comparative to the Group's consolidated balance sheet as at 31 March 2018 as the impact of restatement is not material. The impact to the balance sheet as at 31 March 2016 is as follows:

At 31 March 2016	Previously reported	Non-compliant forward currency contracts	Restated
Consolidated Balance Sheet
Financial instruments	3.1	4.4	7.5
Total current liabilities	565.1	4.4	569.5
Total liabilities	978.7	4.4	983.1
Net assets	658.2	(4.4)	653.8
Retained earnings	100.3	(4.4)	95.9
Equity attributable to owners of the Company	588.3	(4.4)	583.9
Total equity	658.2	(4.4)	653.8

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 12 for details.
·	Investment in productions and investment in acquired content rights. See Notes 14 and 17 for details.

Critical judgements in applying the Group's accounting policies:

·	Assumptions are made as to the recoverability of tax assets. See Note 9 for details.

 

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

the year

During the year ended 31 March 2018, the following were adopted by the Group:

New, amended, revised and improved Standards	Effective date
Amendments to IAS7 Statements of Cash Flows - additional disclosure in respect of financing activities	1 January 2017
Amendments to IAS 12 Income Taxes - recognition of deferred tax assets related to debt instruments measured at fair value	1 January 2017
Annual improvements 2014-2016 cycle:
Amendments to IFRS 12 Disclosure of interests in other entities - clarifying the scope of IFRS 12, specifically the disclosure requirements for interests in subsidiaries, associates or joint ventures that are classified as held for sale	1 January 2017

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

 

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

IFRS 15 Revenue from Contracts with Customers is effective 1 January 2018. An assessment of the impact on all of the Group's revenue streams has been completed. The Group adopted IFRS 15 on 1 April 2018 on a fully retrospective basis and will present, within the 2019 financial statements, a restatement of the comparative periods. 

·

In the Family & Brands Division the Group currently recognises contractual minimum guarantees from licensing arrangements when the licence terms have commenced and collection of the fee is reasonably assured. Under IFRS 15, the recognition of minimum guarantees will change and be spread over the consumption of the intellectual property. The impact of applying IFRS 15 to the financial year ended 31 March 2018 would have been a reduction in licensing and merchandising revenue of £14.7m and underlying EBITDA of £11.3m.

·

In addition, there are timing differences arising from the way the Group recognises revenue for content licensing in the Television and Film Divisions. The new standard adds 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 the customer's sales or usage cannot be recognised until the sale or usage occurs. The impact of applying IFRS 15 to the financial year ended 31 March 2018 would have been a reduction in revenue of £0.8m and underlying EBITDA of £2.3m.

IFRS 15 will not have any impact on the cash flows generated in the year.

IFRS 9 Financial Instruments is also effective from 1 January 2018. An assessment of the impact on all of the Group's financial instruments has been completed and adoption is not expected to have a material impact. The Group intends to apply the limited exemption in IFRS 9 and will elect not to restate comparative information in the year of initial adoption. As a result, the comparative information provided will continue to be accounted for in accordance with the Group's previous accounting policy. The analysis of the impact focussed on the following items:

·	Classification and measurement of financial assets - there is no material change in the classification of financial assets and there are no changes to the measurement of financial assets.
·	Impairment of financial assets - for trade receivables and accrued income, the Group is expecting to apply the simplified approach permitted by IFRS 9, which requires the use of the lifetime expected loss provision for all receivables. Based on the Group's credit history and market outlook, the impact of the change to the IFRS 9 basis of provision is not expected to be material.
·	Hedge accounting - the Group intends to continue to apply current IAS 39 accounting and will provide the additional IFRS 7 disclosures required for taking that option.

IFRS 16 Leases is effective from 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. The quantitative impact of IFRS 16 on the Group's net assets and results is in the process of being assessed with an initial data set to determine the impact on the Group. IFRS 16 will have an impact on the balance sheet as both assets and liabilities will increase, and also an impact on components within the income statement, as operating lease rental charges will be replaced by depreciation and finance costs. Please refer to Note 32 to the consolidated financial statements for details of the Group's total operating lease commitments. IFRS 16 will not have any impact on the cash flows generated in the year. The impact of the transitional arrangements is under review.

 

 

2. Operating analysis

Accounting policies

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

Revenue from the exploitation of television, music rights and film is recognised based upon the completion of contractual obligations relevant to each agreement. Revenue is recognised where there is reasonable contractual certainty that the revenue is receivable and will be received.

Licensing and merchandising

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

Broadcast and digital

·	Revenue from digital sales is recognised on transmission or during the period of transmission of the sponsored programme or digital channel.
·	Revenue from broadcast television or digital licensing represents the contracted value of licence fees which is recognised when the licence term has commenced, the production is available for delivery, substantially all technical requirements have been met and collection of the fee is reasonably assured.

Theatrical

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

Home entertainment

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

Production, international sales and other

·	Revenue from the sale of own or co-produced television or film productions is recognised when the production is available for delivery and there is reasonable contractual certainty that the revenue is receivable and will be received.
·	Revenue from international licensing and trading of film content represents the contracted value of license fees and is recognised when notice of delivery is provided to customers and collection of the fee is reasonably assured.

Operating segments

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

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

·	Family & Brands - the production, acquisition and exploitation, including licensing and merchandising, of content rights across all media.
·	Television - the production, acquisition and exploitation of television and music content rights across all media.
·	Film - the production, acquisition, exploitation and trading of film content rights across all media.

Inter-segment revenues are charged at prevailing market prices.

 

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

 

		Family & Brands	Television	Film	Eliminations	Consolidated
	Note	£m	£m	£m	£m	£m
Segment revenue
External revenue		133.2	521.6	389.7	-	1,044.5
Inter-segment revenue		5.4	17.4	12.5	(35.3)	-
Total segment revenue		138.6	539.0	402.2	(35.3)	1,044.5
Segment results
Segment underlying EBITDA		82.3	72.0	35.1	0.8	190.2
Group costs						(12.9)
Underlying EBITDA						177.3
Amortisation of acquired intangibles	13					(39.6)
Depreciation and amortisation of software	13, 15					(3.6)
Share-based payment charge	31					(12.6)
One-off items	6					(7.1)
Operating profit						114.4
Finance income	7					3.9
Finance costs	7					(40.7)
Profit before tax						77.6
Income tax credit	8					0.6
Profit for the year						78.2
Segment assets
Total segment assets		268.5	771.1	775.4	8.1	1,823.1
Unallocated corporate assets						13.1
Total assets						1,836.2

 

		Family & Brands	Television	Film	Eliminations	Consolidated
	Note	£m	£m	£m	£m	£m
Other segment information
Amortisation of acquired intangibles	13	(12.3)	(11.8)	(15.5)	-	(39.6)
Depreciation and amortisation of software	13, 15	(0.2)	(0.9)	(2.5)	-	(3.6)
One-off items	6	(0.2)	0.9	(7.8)	-	(7.1)

 

 

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

		Family & Brands	Television	Film	Eliminations	Restated¹ Consolidated
	Note	£m	£m	£m	£m	£m
Segment revenue
External revenue		86.3	411.3	585.1	-	1,082.7
Inter-segment revenue		2.3	41.4	9.1	(52.8)	-
Total segment revenue		88.6	452.7	594.2	(52.8)	1,082.7
Segment results
Segment underlying EBITDA		55.6	62.8	52.7	-	171.1
Group costs						(10.9)
Underlying EBITDA						160.2
Amortisation of acquired intangibles	13					(41.9)
Depreciation and amortisation of software	13, 15					(4.9)
Share-based payment charge	31					(5.0)
One-off items	6					(40.8)
Operating profit						67.6
Finance income	7					5.0
Finance costs	7					(36.7)
Profit before tax						35.9
Income tax charge	8					(12.3)
Profit for the year						23.6
Segment assets
Total segment assets		260.3	788.7	835.2	-	1,884.2
Unallocated corporate assets						16.8
Total assets						1,901.0

 

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

 

		Family & Brands	Television	Film	Eliminations	Consolidated
	Note	£m	£m	£m	£m	£m
Other segment information
Amortisation of acquired intangibles	13	(12.0)	(14.5)	(15.4)	-	(41.9)
Depreciation and amortisation of software	13, 15	(0.1)	(0.6)	(4.2)	-	(4.9)
One-off items	6	(0.4)	8.4	(48.8)	-	(40.8)

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. Television Division operations are located in the US, Canada, the UK, Australia and Germany. Film 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 revenue based on the location of the customer and the carrying amount of segment non-current assets by the geographical area in which the assets are located for the years ended 31 March 2018 and 2017.

 

		External revenue	Non-current assets	External revenue	Non-current assets
		2018	2018	2017	2017
		£m	£m	£m	£m
US		473.8	277.7	387.0	319.3
Canada		151.3	286.0	197.9	292.8
UK		101.1	308.9	153.0	289.8
Rest of Europe		190.0	28.6	193.4	31.3
Other		128.3	8.7	151.4	10.2
Total		1,044.5	909.9	1,082.7	943.4

 

 

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

 

 

3. Operating profit

Operating profit for the year is stated after charging:

 

		Year ended 31 March 2018	Year ended 31 March 2017
	Note	£m	£m
Amortisation of investment in productions	14	230.4	213.4
Amortisation of investment in acquired content rights	17	113.9	168.3
Amortisation of acquired intangibles	13	39.6	41.9
Amortisation of software	13	1.6	2.5
Depreciation of property, plant and equipment	15	2.0	2.4
Impairment of investment in acquired content rights	17	-	2.2
Staff costs	5	108.2	96.2
Inventory costs - costs of inventory disposed of	16	2.7	1.5
Inventory costs - costs of inventory recognised as expense	16	47.1	100.9
Net foreign exchange losses		2.7	0.4
Operating lease rentals	32	10.8	10.8

 

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

 

		Year ended 31 March 2018	Year ended 31 March 2017
		£m	£m
Audit fees
- Fees payable for the audit of the Group's annual accounts		0.6	0.4
- Fees payable for the audit of the Group's subsidiaries		0.2	0.4
- Fees payable for the review of the Group's interim accounts		0.1	-
Other services
- Services relating to corporate finance transactions		0.2	-
- Other		0.2	-
Total		1.3	0.8

 

The fee for the year ended 31 March 2018 was payable to PricewaterhouseCoopers LLP whereas the fee for the year ended 31 March 2017 was payable to Deloitte LLP.

4. Key management compensation and directors' emoluments

Key management compensation

The directors are of the opinion that the key management of the Group in the years ended 31 March 2018 and 2017 are as follows:

· Darren Throop, Group Chief Executive Officer and executive director in the years ended 31 March 2018 and 2017. All payments to Darren Throop during the financial years ended 31 March 2017 and 31 March 2018 have been included within the table below.

· Giles Willits, Group Chief Financial Officer and executive director of the Group until 21 November 2016. On 21 November 2016, Giles Willits resigned from office and payments after 21 November 2016 relating to service total £0.2m. The below table includes all payments made during the year ended 31 March 2017. The share-based payment options with respect to this director which were outstanding at 21 November 2016 were forfeited and as a result the share-based payment charge previously recognised of £0.3m was reversed during the year ended 31 March 2017 and not included within the below table.

· Joseph Sparacio joined eOne as Interim Chief Finance Officer on 21 November 2016. The payments to Joseph Sparacio in the year ended 31 March 2017 are not included in the table below as he was not considered to be a key management person for that year. Joseph Sparacio was appointed as Group Chief Finance Officer on 2 May 2017 and executive director from 20 November 2017. All payments to Joseph Sparacio during the financial year ended 31 March 2018 have been included within the table below.

· 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 O'Brien 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 2018	Year ended 31 March 2017
		£m	£m
Short-term employee benefits		2.7	1.6
Share-based payment benefits		5.7	0.5
Total		8.4	2.1

 

Short-term employee benefits comprise salary, taxable benefits, annual bonus and pensions and include employer social security contributions of £nil (2017: £0.1m).

Directors' emoluments

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

 

5. Staff costs

Accounting policy

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

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

Analysis of results for the year

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

 

	Year ended 31 March 2018	Year ended 31 March 2017
	£m	£m
Average number of employees
Canada	630	778
US	271	304
UK	232	220
Australia	46	46
Rest of World	80	76
Total	1,259	1,424

 

 

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

 

 

	Year ended 31 March 2018	Year ended 31 March 2017
	£m	£m
Wages and salaries	87.9	83.6
Share-based payment charge	12.6	5.0
Social security costs	6.0	5.9
Pension costs	1.7	1.7
Total staff costs	108.2	96.2

 

Included within total staff costs is £6.0m (2017: £7.5m) of staff-related payments in respect to the restructuring costs as described in further detail in Note 6.

 

6. One-off items

Accounting policy

One-off items are items of income and expenditure that are non-recurring and, in the judgement of the directors, should be disclosed separately on the basis that they are material, either by their nature or their size, in order to provide a better understanding of the Group's underlying financial performance and enable comparison of underlying financial performance between years.

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

Analysis of results for the year

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

 

		Restated¹
	Year ended	Year ended
	31 March 2018	31 March 2017
	£m	£m
Restructuring costs
Strategy-related	7.6	28.2
Other	0.4	22.8
Total restructuring costs	8.0	51.0
Other items
Acquisition gains	(1.9)	(12.7)
Other	1.0	2.5
Total other items	(0.9)	(10.2)
Total one-off costs	7.1	40.8

 

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

 

Restructuring costs

The restructuring costs of £8.0m consist of:

·	£4.4m of costs associated with the integration of the Television and Film Divisions and includes £3.6m related to severance and staff costs and £0.8m related to consultancy fees;
·	£2.0m related to the integration of the unscripted television companies within the wider Canadian television production division. The costs primarily include severance, staff costs and onerous leases; and
·	£1.6m of costs associated with completion of the 2017 strategy related restructuring programme. The costs include additional severance, onerous leases and write-off of inventory.

Acquisition gains

In 2018, acquisition gains of £1.9m consist of:

·	Credit of £3.9m on re-assessment of the liability on put options in relation to the non-controlling interests over Renegade 83 and Sierra Pictures put options;
·	Partially offset by banking and legal costs of £1.6m associated with the creation and set-up of Makeready in the current year; and
·	Charge of £0.6m on settlement of contingent consideration in relation to Renegade 83 settled in the year, partially offset by escrow of £0.2m received in relation to the 2016 acquisition of Last Gang Entertainment.

Other items

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

Prior year costs

In 2017, restructuring costs were as follows:

During the year ended 31 March 2017 the Group restructured the physical distribution business through the closure of a number of distribution warehouses, as well as terminating distribution agreements with partners in the UK and the Benelux. Restructuring costs incurred in implementing the change included £10.1m related to the ramp-down of facilities and £3.5m of costs for onerous rental leases on various properties. As a result, the Group reassessed the carrying value of certain balance sheet items, particularly physical inventory and tangible fixed assets, £5.9m of inventory and £0.9m of property, plant and equipment was written off. Other costs of £1.6m included settlement costs with local physical distribution partners.

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

In 2017, the Group integrated the Paperny Entertainment and Force Four Entertainment businesses in Vancouver into one Canadian unscripted business. Costs of £2.6m were incurred to facilitate the amalgamation of these two businesses, including staff and other transition-related payments. Other restructuring costs of £1.4m, were also incurred.

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

In 2017, acquisition gains of £12.7m included:

·	Credit of £6.3m on re-assessment of the liability on put options in relation to the non-controlling interests over Renegade 83 and Sierra Put Options. See Note 1 Prior period restatements for details;
·	Credit of £4.0m resulted from the re-assessment of contingent consideration in relation to previous acquisitions; and
·	Credit of £2.3m related to the acquisition accounting for the purchase of the remaining 50% stake in Secret Location.

In 2017, other costs included costs associated with aborted corporate projects of £1.7m and a one-off foreign exchange charge related to the alignment of the Television business with the Group hedging process of £0.8m.

 

7. Finance income and finance costs

Accounting policies

Interest costs

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

Deferred finance charges

All costs incurred by the Group that are directly attributable to the issue of debt are initially capitalised and deducted from the amount of gross borrowings. Such costs are then amortised through the consolidated income statement over the term of the instrument using the effective interest rate method. Should there be a material change to the terms of the underlying instrument, any remaining unamortised deferred finance charges are immediately written off to the consolidated income statement as a one-off finance item. Any new costs incurred as a result of the change to the terms of the underlying instrument are capitalised and then amortised over the term of the new instrument, again using the effective interest rate method. During the year, the Group issued an additional £70.0m of senior secured notes (Notes) and 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 Notes using the effective interest rate method.

Premium on senior secured notes

During the year, the Group issued an additional £70.0m of 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. The items include interest on one-off tax items being the interest on tax provisions, the unwind of discounting on financial assets and liabilities, and charges in relation to refinancing activities.

Analysis of results for the year

			Restated¹
		Year ended	Year ended
		31 March 2018	31 March 2017
	Note	£m	£m
Finance income
Other finance income		3.9	3.8
Gains on fair value of derivative instruments		-	1.2
Total finance income		3.9	5.0
Finance costs
Interest cost		(26.8)	(22.8)
Amortisation of deferred finance charges and premium on senior secured notes	22	(1.9)	(1.7)
Other accrued interest charges		-	(0.8)
Losses on fair value of derivative instruments		(7.9)	(7.6)
Unwind of discounting on financial instruments		(3.0)	(2.9)
Net foreign exchange losses on financing activities		(1.1)	(0.9)
Total finance costs		(40.7)	(36.7)
Net finance costs		(36.8)	(31.7)
Comprised of:
Adjusted net finance costs		(29.3)	(25.4)
One-off net finance costs	11	(7.5)	(6.3)

 

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

The one-off net finance costs of £7.5m (2017: £6.3m) comprise:

·	£7.9m (2017: £6.4m) net losses on fair value of derivative instruments, which includes: - £5.2m charge (2017: £7.6m) in respect of losses on five forward currency contracts not in compliance with the Group's hedging policy. See Note 1 of the consolidated financial statements for further details; - £1.6m charge (2017: gain of £1.2m) in respect of fair-value losses on hedge contracts which reverse in future periods; and - £1.1m charge (2017: nil) in respect of fair-value losses on hedge contracts cancelled as a result of the re-negotiation of one of the Group's larger film distribution agreements in 2017;
·	£3.0m charge (2017: £2.9m) related to unwind of discounting on put options issued by the Group over the non-controlling interest of subsidiary companies; and
·	The costs above are partly offset by a credit of £3.4m (2017: net credit of £3.0m) relating to the reversal of interest previously charged on tax provisions, which were released during the year.

 

8. Tax

Accounting policy

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

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

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

Provisions for open tax issues are based on management's interpretation of tax law as supported, where appropriate, by the Group's external 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 the 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 a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the consolidated financial statements.

Analysis of charge for the year

 

		Year ended 31 March 2018	Year ended 31 March 2017
		£m	£m
Current tax (charge)/credit
- in respect of current year		(15.4)	(26.1)
- in respect of the prior years		2.2	1.5
Total current tax charge		(13.2)	(24.6)
Deferred tax credit/(charge)
- in respect of current year		16.7	14.2
- in respect of the prior years		(2.9)	(1.9)
Total deferred tax credit		13.8	12.3

 

 

 

Income tax credit/(charge)		0.6	(12.3)
Of which:
Adjusted tax charge on adjusted profit before tax		(27.9)	(27.1)
One-off net tax credit		28.5	14.8

 

The one-off tax credit comprises tax credits of £1.9m (2017: £6.7m) in relation to the one-off items described in Note 6, £7.5m in relation to the reduction of the US Federal corporate income tax rate on deferred tax liabilities, £12.6m in relation to the release of the certain tax provision, £6.6m (2017: £7.1m) on amortisation of acquired intangibles described in Note 13, £0.4m (2017: £0.2m) on share-based payments as described in Note 31, and a tax credit of £0.2m (2017: £0.1m credit) on other non-recurring items and a tax charge of £0.7m (2017: £0.4m charge) relating to prior year current tax and deferred tax adjustments. 2017 also included a tax credit of £1.1m related to changes in corporation tax rates on calculation of deferred tax assets.

 

 

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

 

	Year ended 31 March 2018				Year ended 31 March 2017
	£m		%		£m	%
Profit before tax (including joint ventures)		77.6			35.9
Deduct share of results of joint ventures		-			0.7
Profit before tax (excluding joint ventures)		77.6			36.6
Taxes at applicable domestic rates		(18.1)	(23.3)		(11.1)	(30.3)
Effect of income that is exempt from tax		3.8	4.9		6.7	18.3
Effect of expenses that are not deductible in determining taxable profit		(3.3)	(4.3)		(1.7)	(4.6)
Effect of decrease in tax provisions		13.5	17.4		-	-
Effect of losses/temporary differences not recognised in deferred tax		(2.8)	(3.6)		(7.8)	(21.3)
Effect of non-controlling interests		0.9	1.2		0.9	2.5
Effect of tax rate changes		7.3	9.4		1.1	3.0
Prior year items		(0.7)	(0.9)		(0.4)	(1.1)
Income tax charge and effective tax rate for the year		0.6	0.8		(12.3)	(33.6)

 

Income tax is calculated at the rates prevailing in respective jurisdictions. The standard tax rates in each jurisdiction in which the Group has a taxable presence are 26.5% in Canada (2017: 26.5%), 30.64% - 32.75% in the US (2017: 36.0% - 40.8%), 19.0% in the UK (2017: 20.0%), 25.0% in the Netherlands (2017: 25.0%), 30.0% in Australia (2017: 30.0%) and 25.0% in Spain (2017: 25.0%).

Prior year items include £2.2m relating to current tax credits and £2.9m in relation to deferred tax charges based on the final tax returns for FY17.

Analysis of tax on items taken directly to other comprehensive income and equity

 

		Year ended 31 March 2018	Year ended 31 March 2017
	Note	£m	£m
Deferred tax credit/(charge) on cash flow hedges		2.7	(1.7)
Deferred tax credit on share options		0.3	0.1
Total credit/(charge) taken directly to equity	9	3.0	(1.6)

 

9. Deferred tax assets and liabilities

Accounting policy

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

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

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

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

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

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

Significant judgements

Deferred tax assets 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 2016		(62.8)	27.1	(0.5)	2.3	(33.9)
Acquisition of subsidiaries	25	(0.9)	0.3	(0.1)	-	(0.7)
Credit/(charge) to income		7.3	6.9	(0.1)	(1.8)	12.3
(Charge)/credit to equity	8	-	-	(1.7)	0.1	(1.6)
Exchange differences		(7.5)	3.7	3.2	(0.4)	(1.0)
At 31 March 2017		(63.9)	38.0	0.8	0.2	(24.9)
Credit/(charge) to income		17.6	(6.1)	(0.4)	2.7	13.8
Charge to equity	8	-	-	2.7	0.3	3.0
Exchange differences		3.3	(3.1)	(0.5)	(0.1)	(0.4)
At 31 March 2018		(43.0)	28.8	2.6	3.1	(8.5)

 

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

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

 

					31 March 2018	31 March 2017
					£m	£m
Deferred tax assets					26.2	28.2
Deferred tax liabilities					(34.7)	(53.1)
Total					(8.5)	(24.9)

 

At the balance sheet date, the Group had unrecognised unused tax losses of £156.3m (2017: £103.2m), the majority of which will expire in the years ending 2028 to 2036.

The Group also had unrecognised deferred tax assets of £4.8m (2017: £11.4m) in connection with the put options that were granted over the non-controlling interests of 35% in Renegade 83 and of 49% in Sierra Pictures, respectively.

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 £70.1m (2017: £19.0m).

It is estimated that the net deferred tax liabilities of approximately £0.2m 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 was reduced from 18% to 17% effective from 1 April 2020. These rates are reflected in the deferred tax calculations as appropriate.

 

10. Dividends

Accounting policy

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

Amounts recognised by the Group

On 21 May 2018 the directors declared a final dividend in respect of the financial year ended 31 March 2018 of 1.4 pence (2017: 1.3 pence) per share which will absorb an estimated £6.5m of total equity (2017: £5.6m). It will be paid on or around 7 September 2018 to shareholders who are on the register of members on 6 July 2018 (the record date).

This dividend is expected to qualify as an eligible dividend for Canadian tax purposes.

The dividend will be paid net of withholding tax based on the residency of the individual shareholder.

 

11. Earnings per share

Basic earnings per share is calculated by dividing earnings for the year attributable to the owners of the Company by the weighted average number of shares in issue during the year, 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. On 9 April 2018, the Group acquired 70% of the share capital of Whizz Kid Entertainment Limited, for a cash consideration of £5.0m and the issue of 637,952 shares of Entertainment One Ltd. Refer to Note 34 for 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.

 

		Year ended	Year ended
		31 March 2018	31 March 2017
		Pence	Pence
Basic earnings per share		14.8	2.7
Diluted earnings per share		14.4	2.7
Adjusted basic earnings per share		22.5	20.3
Adjusted diluted earnings per share		21.9	20.0

 

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

 

		Year ended	Year ended
		31 March 2018	31 March 2017
		Million	Million
Weighted average number of shares for basic earnings per share and adjusted basic earnings per share		436.3	425.7
Effect of dilution for basic and adjusted:
Employee share awards		10.9	5.9
Contingent consideration with option in cash or shares		0.4	1.1
Weighted average number of shares for diluted earnings per share and adjusted diluted earnings per share		447.6	432.7

 

The shares held by the EBT are classified as own shares and excluded from earnings per share and adjusted earnings per share. Refer to Note 31 for details on employee share awards.

The Group holds an option to settle the contingent consideration payable in relation to the acquisition of Last Gang Entertainment in shares or in cash. At 31 March 2017, the Group also held an option to settle the contingent consideration payable in relation to the acquisition of Renegade 83 which has been settled during the year ended 31 March 2018. Refer to Note 25 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:

 

					Restated1
		Year ended 31 March 2018			Year ended 31 March 2017
	Note	£m	Pence per share		£m	Pence per share
Profit for the year attributable to the owners of the Company		64.5	14.4		11.7	2.7
Add back amortisation of acquired intangibles	13	39.6	8.8		41.9	9.7
Add back share-based payment charge	31	12.6	2.8		5.0	1.1
Add back one-off items	6	7.1	1.6		40.8	9.4
Add back one-off net finance costs	7	7.5	1.7		6.3	1.5
Deduct tax effect of above items and discrete tax items	8	(28.5)	(6.4)		(14.8)	(3.4)
Deduct non-controlling interests share of above items		(4.6)	(1.0)		(4.4)	(1.0)
Adjusted earnings attributable to the owners of the Company		98.2	21.9		86.5	20.0
Adjusted earnings attributable to non-controlling interests		18.3			16.3
Adjusted profit for the year		116.5			102.8

 

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

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

 

	Note		Restated1
		Year ended	Year ended
		31 March 2018	31 March 2017
		£m	£m
Profit before tax		77.6	35.9
Add back one-off items	6	7.1	40.8
Add back amortisation of acquired intangibles	13	39.6	41.9
Add back share-based payment charge	31	12.6	5.0
Add back one-off net finance costs	7	7.5	6.3
Adjusted profit before tax		144.4	129.9
Adjusted tax charge	8	(27.9)	(27.1)
Deduct profit attributable to non-controlling interests		(13.7)	(11.9)
Deduct non-controlling interests' share of adjusting items above		(4.6)	(4.4)
Adjusted earnings attributable to the owners of the Company		98.2	86.5

 

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

 

 

 

12. Goodwill

Accounting policy

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

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

Key source of estimation uncertainty

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

Analysis of amounts recognised by the Group

 

		Total
	Note	£m
Cost and carrying amount
At 1 April 2016		360.3
Acquisition of subsidiaries	25	5.8
Exchange differences		40.8
At 31 March 2017		406.9
Acquisition of subsidiaries	25	0.8
Exchange differences		(32.5)
At 31 March 2018		375.2

 

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

Impairment of non-financial assets, including goodwill

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

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

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

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

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 2018				31 March 2017
		Pre-tax	Terminal	Period of		Pre-tax	Terminal	Period of
		discount rate	growth rate	specific cash		discount rate	growth rate	specific cash
CGU		%	%	flows		%	%	flows
Family & Brands		8.1	3.0	3 years		9.7	3.0	3 years
Television		8.2	3.0	3 years		8.9	3.0	3 years
The Mark Gordon Company		12.7	3.0	3 years		10.7	3.0	3 years
Film		7.2	2.3	3 years		8.1	2.1	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% (2017: 7.9%). The discount rate is adjusted where specific country and operational risks are sufficiently significant to have a material impact on the outcome of the impairment test. A pre-tax discount rate is applied to calculate the net present value of the CGUs as shown in the table above.

Terminal growth rate estimates - The terminal growth rates for Family & Brands, Television, MGC and Film of 3.0%, 3.0%, 3.0% and 2.3%, respectively (2017: Family & Brands ,Television, MGC and Film of 3.0%, 3.0%, 3.0% and 2.1%, respectively), are used beyond the end of year three and do not exceed the long-term projected growth rates for the relevant market.

Period of specific cash flows - Specific cash flows reflect the period of detailed forecasts prepared as part of the Group's annual planning cycle. The period of specific cash flows has been aligned with the Group's annual strategic planning process, which underpins the conclusions made within the viability statement.

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

 

	Year ended	Year ended
	31 March 2018	31 March 2017
CGU	£m	£m
Family & Brands	57.4	57.3
Television	58.6	64.3
The Mark Gordon Company	69.0	78.3
Film	190.2	207.0
Total	375.2	406.9

 

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 2018 and 31 March 2017. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 15% increase in investment in acquired content rights/productions, 1.0% increase in pre-tax discount rate and 0% terminal growth rate). A 475.4% (38.7 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.

Television - The Television calculations show that there is significant headroom when compared to carrying values of non-current assets at 31 March 2018 and 31 March 2017. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 15% increase in investment in acquired content rights/productions, 1.0% increase in pre-tax discount rate and 0% terminal growth rate). A 140.0% (11.4 percentage point) increase in the pre-tax discount rate would reduce the recoverable amount to the carrying amount. Consequently, the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to exceed its recoverable amount.

The Mark Gordon Company - The MGC calculations show that there is significant headroom when compared to carrying values of non-current assets at 31 March 2018 and 31 March 2017. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 15% increase in investment in acquired content rights/productions, 1.0% increase in pre-tax discount rate and 0% terminal growth rate). A 176.0% (22.3 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.

Film - The Film calculations show that there is significant headroom when compared to carrying values of non-current assets at 31 March 2018 and 31 March 2017. As part of the impairment review, sensitivity was applied to the main assumptions with no impairment identified (10% reduction in budgeted/planned operating profit, 15% increase in investment in acquired content rights/productions, 1.0% increase in pre-tax discount rate and 0% terminal growth rate). A 56.2% (4.0 percentage point) increase in the pre-tax discount rate would reduce the recoverable amount to the carrying amount. Consequently, the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to exceed its recoverable amount.

 

13. 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 2016		197.4	199.0	25.2	45.1	16.9	11.1	494.7
Acquisition of subsidiaries	25	11.3	-	-	-	-	-	11.3
Additions		-	-	-	-	-	2.0	2.0
Disposals		(2.9)	-	-	-	-	(0.2)	(3.1)
Exchange differences		25.2	3.8	3.8	5.9	1.6	1.4	41.7
At 31 March 2017		231.0	202.8	29.0	51.0	18.5	14.3	546.6
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		210.3	193.3	12.3	46.3	2.0	14.5	478.7
Amortisation
At 1 April 2016		(66.8)	(34.8)	(24.5)	(29.4)	(16.1)	(8.3)	(179.9)
Amortisation charge for the year	3	(23.1)	(12.4)	(0.3)	(5.3)	(0.8)	(2.5)	(44.4)
Disposals		0.6	-	-	-	-	0.2	0.8
Exchange differences		(6.9)	(2.9)	(3.8)	(4.0)	(1.6)	(1.0)	(20.2)
At 31 March 2017		(96.2)	(50.1)	(28.6)	(38.7)	(18.5)	(11.6)	(243.7)
Amortisation charge for the the year	3	(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		(111.5)	(53.2)	(12.1)	(38.9)	(2.0)	(12.1)	(229.8)
Carrying amount
At 31 March 2017		134.8	152.7	0.4	12.3	-	2.7	302.9
At 31 March 2018		98.8	140.1	0.2	7.4	-	2.4	248.9

 

The amortisation charge for the year ended 31 March 2018 comprises £39.6m (2017: £41.9m) in respect of acquired intangibles.

Included within exclusive content agreements and libraries is a carrying value of £38.1m relating to the value placed on the current libraries acquired as part of the acquisition of the stake in The Mark Gordon Company in May 2015, which is being amortised over a useful life of 10 years and £16.6m relating to libraries acquired as part of the acquisition of Sierra Pictures in December 2015 and Sierra Affinity in September 2016, which are being amortised over a useful life of 10 years.

Included within trade names and brands is a carrying value of £135.6m relating to the value placed on the 50% of the Peppa Pig brand acquired as part of the acquisition of Astley Baker Davies Limited in October 2015, which is being amortised on a straight-line basis over a useful life of 15 years.

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

Disposals represent intangible assets that have been derecognised as no future economic benefits are expected from its use or disposal. These assets were fully amortised at 31 March 2018.

 

14. Investment in productions

Accounting policy

Investment in productions that are in development and for which the realisation of expenditure can be reasonably determined are capitalised as productions in progress within investment in productions. On delivery of a production, the cost of investment is reclassified as productions delivered. Also included within investment in productions are television and films programmes acquired on acquisition of subsidiaries.

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

 

		Year ended 31 March 2018	Year ended 31 March 2017
	Note	£m	£m
Cost
Balance at 1 April		846.3	542.8
Acquisition of subsidiaries	25	-	0.6
Additions		274.5	230.0
Disposals		(0.5)	-
Exchange differences		(94.6)	72.9
Balance at 31 March		1,025.7	846.3
Amortisation
Balance at 1 April		(685.5)	(415.6)
Amortisation charge for the year	3	(230.4)	(213.4)
Exchange differences		71.7	(56.5)
Balance at 31 March		(844.2)	(685.5)
Carrying amount		181.5	160.8

 

Borrowing costs of £6.9m (2017: £6.6m) related to Television and Film production financing have been included in the additions during the year.

Included within the carrying amount as at 31 March 2018 is £71.5m (2017: £73.4m) of productions in progress, which includes additions from the acquisition of subsidiaries of £nil (2017: £0.6m).

 

 

15. Property, plant and equipment

Accounting policy

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

Leasehold improvements	Over the term of the lease
Fixtures, fittings and equipment	20%-30% reducing balance

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

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

Analysis of amounts recognised by the Group

 

		Leasehold improvements	Fixtures, fittings and equipment	Total
	Note	£m	£m	£m
Cost
At 1 April 2016		11.4	13.8	25.2
Acquisition of subsidiaries	25	-	0.2	0.2
Additions		0.7	0.9	1.6
Disposals		(1.2)	(7.1)	(8.3)
Exchange differences		1.3	2.0	3.3
At 31 March 2017		12.2	9.8	22.0
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
Depreciation
At 1 April 2016		(2.7)	(10.5)	(13.2)
Depreciation charge for the year	3	(1.3)	(1.1)	(2.4)
Disposals		1.2	6.4	7.6
Exchange differences		(0.4)	(1.7)	(2.1)
At 31 March 2017		(3.2)	(6.9)	(10.1)
Depreciation charge for the year	3	(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)
Carrying Amount
At 31 March 2017		9.0	2.9	11.9
At 31 March 2018		7.5	3.1	10.6

 

16. Inventories

Accounting policy

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

Analysis of amounts recognised by the Group

Inventories at 31 March 2018 comprise finished goods of £39.6m (2017: £48.6m). Refer to Note 3 for details on amounts recognised in the year.

 

 

17. 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, Television and Film 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 periodically 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 content is not considered to be meaningful.

Amounts recognised by the Group

 

		Year ended 31 March 2018	Year ended 31 March 2017
	Note	£m	£m
Balance at 1 April		269.8	241.3
Additions		108.3	177.2
Amortisation charge for the year	3	(113.9)	(168.3)
Impairment charge for the year	3	-	(2.2)
Exchange differences		(10.8)	21.8
Balance at 31 March		253.4	269.8

 

There was no impairment charge recognised during the year ended 31 March 2018.

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

 

 

18. Trade and other receivables

Accounting policy

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

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

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

Analysis of amounts recognised by the Group

 

		31 March 2018	31 March 2017
Current	Note	£m	£m
Trade receivables		119.0	146.4
Less: Provision for doubtful debts		(3.0)	(1.9)
Net trade receivables	26	116.0	144.5
Prepayments		20.4	16.6
Accrued income	26	220.2	198.5
Amounts owed from joint ventures		0.2	0.2
Tax credits receivable		77.1	67.9
Other receivables		47.6	36.7
Total		481.5	464.4
Non-current
Trade receivables		8.0	14.2
Less: Provision for doubtful debts		-	(0.4)
Net trade receivables	26	8.0	13.8
Prepayments		0.8	-
Accrued income	26	83.9	46.0
Other receivables		1.0	1.1
Total		93.7	60.9

 

As at 31 March 2018 and 2017 current trade receivables are aged as follows:

 

		31 March 2018	31 March 2017
		£m	£m
Neither impaired or past due		98.0	119.4
Less than 60 days		8.9	11.2
Between 60 and 90 days		2.5	6.2
More than 90 days		6.6	7.7
Total		116.0	144.5

 

 

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

The movements in the provision for doubtful debts in the years ended 31 March 2018 and 2017 were as follows:

 

		Year ended 31 March 2018	Year ended 31 March 2017
		£m	£m
Balance at 1 April		(2.3)	(2.3)
Provision recognised in the year		(1.7)	(1.7)
Provision reversed in the year		0.2	0.8
Utilisation of provision		0.6	1.2
Exchange differences		0.2	(0.3)
Balance at 31 March		(3.0)	(2.3)

 

 

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

 

Management has credit policies in place and the exposure to credit risk is monitored by individual operating units on an ongoing basis. Refer to Note 26 for further details on the Group's exposure to credit risk.

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

 

 

 

		31 March 2018	31 March 2017
		£m	£m
Less than 60 days		(0.1)	-
Between 60 and 90 days		(0.1)	(0.1)
More than 90 days		(2.8)	(2.2)
Total		(3.0)	(2.3)

 

 

Trade and other receivables are held in the following currencies at 31 March 2018 and 2017. 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	56.3	38.7	134.6	233.1	18.8	481.5
Non-current	6.7	4.5	13.8	67.7	1.0	93.7
At 31 March 2018	63.0	43.2	148.4	300.8	19.8	575.2
Current	59.0	38.0	137.9	214.2	15.3	464.4
Non-current	6.5	2.8	7.3	44.0	0.3	60.9
At 31 March 2017	65.5	40.8	145.2	258.2	15.6	525.3

 

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

 

19. Cash and cash equivalents

Accounting policy

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

Analysis of amounts recognised by the Group

Production financing facilities are secured by the assets and future revenue of the individual Family & Brands, Television and Film production subsidiaries and are non-recourse to other Group companies or assets. 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 2018 and 2017. 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 2018	31 March 2017
	Note	£m	£m
Cash and cash equivalents:
Pounds sterling		4.7	13.0
euros		3.4	9.8
Canadian dollars		14.4	20.0
US dollars		94.5	88.1
Australian dollars		2.0	2.4
Other		0.2	0.1
Cash and cash equivalents	26	119.2	133.4
Held by production subsidiaries		58.1	43.7
Other		61.1	89.7
Cash and cash equivalents		119.2	133.4

 

The Group had no cash equivalents at either 31 March 2018 or 2017.

 

 

20. Trade and other payables

Accounting policy

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

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

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

Analysis of amounts recognised by the Group

 

			Restated¹
		31 March 2018	31 March 2017
Current	Note	£m	£m
Trade payables	26	49.7	120.3
Accruals		388.6	325.8
Deferred income		38.6	43.7
Payable to joint ventures		0.2	-
Contingent consideration payable	26	2.5	4.0
Other payables	26	11.7	14.0
Total		491.3	507.8
Non-current
Accruals		0.5	-
Deferred income	26	0.4	0.7
Contingent consideration payable	26	-	2.0
Put liabilities on partly owned subsidiaries	26	27.1	32.7
Total		28.0	35.4

 

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

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

The movements in contingent consideration payable during the year ended 31 March 2018 were as follows:

 

	Renegade 83	Sierra Affinity	Dualtone	Last Gang	MGC	Total
	£m	£m	£m	£m	£m	£m
At 1 April 2017	4.0	0.2	0.7	1.1	-	6.0
Additions during the year	0.6	-	-	-	1.1	1.7
Utilised during the year	(4.5)	-	(0.5)	-	-	(5.0)
Exchange differences	(0.1)	(0.1)	-	-	-	(0.2)
At 31 March 2018	-	0.1	0.2	1.1	1.1	2.5
Expected payment period	2018	2018-19	2019	2019	Various (see Note 25)
Total maximum consideration £m	n/a	4.0	0.8	1.2	26.6
Shown in the consolidated balance sheet as:
Current	-	0.1	0.2	1.1	1.1	2.5

 

The maximum contractual consideration payable is calculated undiscounted and using the foreign exchange rates prevailing as at 31 March 2018.

 

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	105.0	15.8	91.0	273.9	5.6	491.3
Non-current	-	-	-	27.9	0.1	28.0
At 31 March 2018	105.0	15.8	91.0	301.8	5.7	519.3
Current	81.3	18.9	109.2	291.7	6.7	507.8
Non-current	-	-	1.6	33.7	0.1	35.4
At 31 March 2017	81.3	18.9	110.8	325.4	6.8	543.2

 

 

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

21. Provisions

Accounting policy

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

Amounts recognised by the Group

 

	Onerous	Restructuring
	contracts	and redundancy	Total
	£m	£m	£m
At 31 March 2016	1.5	2.5	4.0
Provisions recognised in the year	1.5	33.3	34.8
Provisions reversed in the year	(0.6)	-	(0.6)
Utilisation of provisions	(0.7)	(5.7)	(6.4)
Exchange differences	-	0.3	0.3
At 31 March 2017	1.7	30.4	32.1
Provisions recognised in the year	0.2	7.0	7.2
Provision 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	0.7	5.6	6.3
Shown in the consolidated balance sheet as:
Non-current	0.2	0.2	0.4
Current	0.5	5.4	5.9

 

 

Onerous contracts

Onerous contracts represent provisions in respect of:

·	Provisions for onerous leasehold property leases which comprise onerous commitments on leasehold properties that were expected to be utilised over the remaining contract period. These provisions are expected to be utilised within two (2017: three years) years from the balance sheet date.
·	Provisions for onerous contracts in respect of loss-making film titles are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37 Provisions, contingent liabilities and contingent assets are met.
·	Provisions for onerous contracts in respect of loss-making film titles represent future cash flows relating to film titles which are forecast to make a loss over their remaining lifetime at the balance sheet date. As required by IFRS, before a provision for an onerous film title is recognised, the Group first fully writes down any related assets (generally these are investment in acquired content rights balances). These provisions are expected to be utilised within one year (2017: 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 (2017: two years) from the balance sheet date. 

22. Interest-bearing loans and borrowings

Accounting policy

All interest-bearing loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs, 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.

Amounts recognised by the Group

The combination of the Group's non-amortising, fixed-rate debt financing and revolving credit facility provides the Group with a long-term capital structure appropriate for its strategic ambitions. In addition, the financing structure permits greater flexibility when undertaking acquisitions and other corporate activity, and allows the Group to react swiftly to commercial opportunities.

 

		31 March 2018	31 March 2017
	Note	£m	£m
Bank borrowings		23.8	-
Senior secured notes		355.0	285.0
Deferred finance charges net of premium on senior secured notes		(5.7)	(8.4)
Other		2.5	0.5
Interest-bearing loans and borrowings		375.6	277.1
Cash and cash equivalents (other than those held by production subsidiaries)	19	(61.1)	(89.7)
Net debt		314.5	187.4
Interest-bearing loans and borrowings in the consolidated balance sheet is presented as:
Non-current		375.2	276.6
Current		0.4	0.5

 

 

The weighted average interest rates on all bank borrowings are not materially different from their nominal interest rates. The weighted average interest rate on all interest-bearing loans and borrowings is 6.5% (2017: 6.6%).

Bank borrowings

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

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

At 31 March 2018, the Group had available £134.4m of undrawn committed bank borrowings under the RCF (2017: £116.6m), 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 2018 approximates its fair value.

Senior secured notes

The Group has issued £285.0m senior secured notes (Notes) bearing interest at a rate of 6.875% per annum which mature in December 2022. An additional £70.0m Notes were issued during the year.

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 2018 is £377.6m (2017: £312.4m).

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

Deferred finance charges

During the year ended 31 March 2018 the Group issued £70.0m of Notes and £3.3m of fees were capitalised relating to the Notes issued.

During the prior year ended 31 March 2017 the Group paid £0.6m relating to the December 2015 financing.

The fees were capitalised to the consolidated balance sheet and are amortised using the effective interest rate method.

Premium on senior secured notes

During the year ended 31 March 2018 the Group issued £70.0m of Notes for a premium of £4.0m. 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 31 March 2018 and 2017 are denominated in the currencies set out below. Amounts held in currencies other than pounds sterling are converted at their respective exchange rates as at the balance sheet date.

 

	Pounds sterling	Canadian dollars	US dollars	Total
	£m	£m	£m	£m
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
Senior secured notes	285.0	-	-	285.0
Other	-	0.5	-	0.5
At 31 March 2017	285.0	0.5	-	285.5

 

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

 

	Bank Borrowings	Senior secured notes	Other loans	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

 

23. Production financing

Accounting policy

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

Amounts recognised by the Group

Production financing is used to fund the Group's Family & Brands, Television and Film Productions. The financing is arranged on an individual production basis by special purpose production subsidiaries which are excluded from the security of the Group's corporate facility.

The production financing facilities are secured by the assets and future revenue of the individual Family & Brands, Television and Film production subsidiaries and are non-recourse to other Group companies or assets.

It is short-term financing, typically having a maturity of less than two years, whilst the production is being made and is paid back once the production is delivered and the government subsidies, tax credits, broadcaster pre-sales, international sales and/or home entertainment sales are received. The Company deems this type of financing to be short-term in nature and is excluded from net debt. The Company therefore shows the cash flows associated with these activities separately. In connection with the production of a 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.

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

 

		31 March 2018	31 March 2017
	Note	£m	£m
Production financing held by production subsidiaries		171.9	190.8
Other loans		4.9	5.2
Production financing		176.8	196.0
Cash and cash equivalents (held by production subsidiaries)	19	(58.1)	(43.7)
Production financing (net of cash)		118.7	152.3
Production financing in the consolidated balance sheet as:
Non-current		86.7	91.2
Current		90.1	104.8

 

The directors consider that the carrying amounts of the Group's production financing and other loans approximates to their fair values. Interest is charged at bank prime rate plus a margin. The weighted average interest rate on all production financing is 3.9% (2017: 3.0%).

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 2018		10.2	64.6	102.0	176.8
At 31 March 2017		-	66.9	129.1	196.0

 

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

 

24. Financial instruments

Accounting policy

The Group may use derivative financial instruments to reduce its exposure to foreign exchange and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes.

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

Derivative financial instruments are classified as held-for-trading and recognised in the consolidated balance sheet at fair value. Derivatives designated as hedging instruments are classified on inception as cash flow hedges, net investment hedges or fair value hedges. Changes in the fair value of derivatives designated as cash flow hedges are recognised in equity to the extent that they are deemed effective. Ineffective portions are immediately recognised in the consolidated income statement. When the hedged item affects profit or loss then the amounts deferred in equity are recycled to the consolidated income statement.

Fair value hedges record the change in the fair value in the consolidated income statement, along with the changes in the fair value of the hedged asset or liability. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are immediately recognised in the consolidated income statement.

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

Level 1	Fair value measurements are derived from unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	Fair value measurements are derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3	Fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

 

At 31 March 2018, the Group had the following financial assets and liabilities grouped into Level 2:

 

		31 March 2018	31 March 2017
		£m	£m
Derivative financial instrument assets		1.1	9.9
Derivative financial instrument liabilities		(2.7)	(15.4)

 

At 31 March 2018, the Group had the following financial assets and liabilities grouped into Level 3:

 

		31 March 2018	31 March 2017
	Note	£m	£m
Contingent consideration payable	20	(2.5)	(6.0)
Available-for-sale financial assets		0.8	0.7

The movements in contingent consideration payable and available-for-sale financial assets during the year ended 31 March 2018 were as follows:

 

 

		Contingent consideration payable on acquisitions	Available-for-sale financial assets	Total
	Note	£m	£m	£m
At 1 April 2017		(6.0)	0.7	(5.3)
Amounts settled	25	5.0	-	5.0
Additions	25	(1.1)	-	(1.1)
Change in fair value	6	(0.6)	-	(0.6)
Exchange differences		0.2	0.1	0.3
At 31 March 2018		(2.5)	0.8	(1.7)

 

 

 

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 financial statements.

The key assumption in measuring the value of the available-for-sale financial assets is the long term performance of the available for sale investments. There is no reasonable change in the performance of the investments that would give rise to a material change in the assets in these consolidated financial statements.

Foreign exchange forward contracts

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

At 31 March 2018, the total notional principal amount of outstanding currency contracts was US$230.6m, €55.9m, C$102.1m, A$63.4m, £5.0m, Hungarian Forint 1,458.9m, C¥5.0m and South African Rand 6.0m (2017: US$220.7m, €51.9m, C$49.2m, A$50.4m, £27.6m and Brazilian Real 1.8m). The forward currency contracts are all expected to be settled within two years.

The £0.9m loss (2017: £2.5m loss) recognised in other comprehensive income during the year relates to the effective portion of the revaluation gain or loss associated with these contracts. During the year ended 31 March 2018 there was a £0.3m gain (2017: £1.0m gain) recycled to the consolidated income statement and a £1.7m loss (2017: £10.3m gain) transferred to the carrying value of hedged assets held on the consolidated balance sheet.

Valuation techniques and inputs

	Valuation technique and key inputs	Significant unobservable input	Relationship of unobservable inputs to fair value
Level 2: Derivative financial instruments	Discounted cash flow - future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.	n/a	n/a

 

 

Level 3: Contingent consideration payable	Income approach - in this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The expected cash flow is based on the Group's Board-approved budget and plans adopted for the applicable period.	The value of the contingent consideration is dependent on future performance of the business. Underlying EBITDA for a period of up to two years is used taking into account management's experience and knowledge of market conditions of the specific industries.	The higher the underlying EBITDA growth rate, the higher the value of contingent consideration payable. See Note 20 for details on the expected payment period and maximum amount payable.
Level 3: Available for sale financial assets	Income approach - in this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees.	Long-term performance of the available for sale investments, taking into account management's experience and knowledge of market conditions of the specific industries.	The greater the cash generation of the investment over time, the higher the fair value.

 

 

25. 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 2018

Acquisitions

The Group acquired 60% of Round Room Live, LLC (Round Room) on 31 January 2018 for a consideration of £0.5m. No acquired intangibles were identified on the acquisition and the results of Round Room will be presented within the Music Division of the Television segment, and had an immaterial impact on the Group results for the year ended 31 March 2018.

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 £1.8m and a cash payment of £2.7m. A payment of £0.5m was also made in part settlement of contingent consideration payable relating to the prior year acquisition of Dualtone Music Group. See Note 24 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 £146.5m settled by a cash payment of £114.8m and by issuing 10,826,566 shares in Entertainment One Ltd amounting to £31.7m. In addition, the seller will be entitled to a maximum aggregate amount of £26.6m (US$37.5m) 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 £37.0m was de-recognised, contingent consideration of £1.1m was recognsied and transaction costs of £0.7m were recorded and the difference of £111.3m has been recognised as a charge to the Group's retained earnings.

Year ended 31 March 2017

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

 

		Sierra Affinity	Secret Location	Total
	Note	£m	£m	£m
Acquired intangibles	13	7.7	3.6	11.3
Investment in productions	14	-	0.6	0.6
Property, plant and equipment	15	-	0.2	0.2
Trade and other receivables ¹		16.2	3.2	19.4
Cash and cash equivalents		0.3	-	0.3
Interest-bearing loans and borrowings		-	(2.5)	(2.5)
Trade and other payables		(18.5)	(2.0)	(20.5)
Deferred tax liabilities	9	-	(0.7)	(0.7)
Total net assets acquired		5.7	2.4	8.1
Satisfied by:
Cash		2.8	-	2.8
Shares in Entertainment One Ltd.		-	4.1	4.1
Contingent consideration		0.5	-	0.5
Assets forgiven		0.1	-	0.1
Total consideration transferred		3.4	4.1	7.5
Add: Fair value of previously held equity interest		2.3	4.1	6.4
Less: Fair value of identifiable net assets of the acquiree		(5.7)	(2.4)	(8.1)
Goodwill	12	-	5.8	5.8

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

Secret Location

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

eOne held an equity interest previously in Secret Location which qualified as a joint venture under IFRS 11. As part of accounting for the business combination the equity interest is treated as if it were disposed of and re-acquired at fair value on the acquisition date. Accordingly, the 50% equity interest held in Secret Location at book value of £1.8m was re-measured to its acquisition-date fair value of £4.1m, resulting in a £2.3m gain recognised in the year ended 31 March 2017.

Acquired intangibles of £3.6m were identified which represent the value of technologies in development. The resulting goodwill of £5.8m represents the value placed on the opportunity to grow the content and formats produced by the company. None of the goodwill is expected to be deductible for income tax purposes. The acquired Secret Location business was integrated into the Television CGU.

Sierra Affinity

On 30 September 2016, Sierra Pictures purchased the remaining 67% equity interest in Sierra Affinity for total consideration of £3.4m consisting of cash consideration of US$3.6m (equivalent of £2.8m), which was settled in full during October/November 2016, contingent consideration of £0.5m representing amounts payable dependent on future sales fees generated by the company on specific titles and £0.1m of assets forgiven relating to trade receivables due to Sierra Pictures from Sierra Affinity which were forgiven as part of the transaction.

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

Acquired intangibles of £7.7m were identified which represent the value of the acquired exclusive content agreements. The acquired Sierra Affinity business was integrated into the Film CGU.

26. Financial risk management

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

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

Interest rate risk management

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

Interest rate sensitivity

The Group holds £355.0m in principal amount of 6.875% senior secured notes (Notes), due December 2022, and a super senior revolving credit facility (RCF), which matures in December 2020.

At 31 March 2018, the Group's fixed rate debt represented 93% of total gross debt (2017: 100%). Consequently, a 1% movement in interest rates on floating rate debt would impact the 2018 post-tax profit for the year by less than £0.3m (2017: nil).

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 exposure to fair value movements on foreign currency assets and liabilities through using forward foreign exchange contracts for significant exposures.

The Group seeks to create a natural hedge of this exposure through its policy of aligning approximately the currency composition of its net borrowings with its forecast operating cash flows.

Foreign exchange rate sensitivity

The following table illustrates the Group's sensitivity to foreign exchange rates. Sensitivity is calculated on financial instruments at 31 March 2018 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 2018	31 March 2017
		Impact on	Impact on
		consolidated	consolidated
		income	income
		statement	statement
Percentage movement		+/- £m	+/- £m
10% appreciation of the US dollar		9.4	8.8
10% appreciation of the Canadian dollar		(0.9)	(0.6)
10% appreciation of the euro		0.3	0.9
10% appreciation of the Australian dollar		0.2	0.3

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 2018 the Group had two (2017: two) customers that owed the Group more than 5% of the Group's total amounts receivable which accounted for approximately 32% (2017: 35%) of the total amounts receivable.

 

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

 

		31 March 2018	31 March 2017
	Note	£m	£m
Cash and cash equivalents	19	119.2	133.4
Net trade receivables	18	124.0	158.3
Accrued income	18	304.1	244.5
Other receivables	18	48.6	37.8
Total		595.9	574.0

 

Liquidity risk management

The Group maintains an appropriate liquidity risk management position by having sufficient cash and availability of funding through an adequate amount of committed credit facilities. Management continuously monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flows in the short, medium and long-term. At 31 March 2018, the undrawn committed borrowings under the RCF are equivalent to £134.4m (2017: £116.6m). The facility was entered into in December 2015 (see Note 22) and matures in 2020.

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

 

	Trade and other payables	Interest-bearing loans and borrowings¹	Production financing	Total
Amounts due for settlement at 31 March 2018	£m	£m	£m	£m
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
Total	91.0	503.1	176.8	770.9
Amounts due for settlement at 31 March 2017
Within one year	138.3	20.1	104.8	263.2
One to two years	-	19.6	91.2	110.8
Two to five years	34.7	58.8	-	93.5
After five years	-	304.6	-	304.6
Total	173.0	403.1	196.0	772.1

 

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

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from the year ended 31 March 2017.

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

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

 

 

27. 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 Limited Partnership	Canada	Content ownership and distribution
Entertainment One Television International Ltd.	Canada	Sales and distribution of films and television programmes
Entertainment One Television Productions Ltd.	Canada	Production of television programmes
Videoglobe 1 Inc.	Canada	Content distribution
Entertainment One UK Limited	England and Wales	Content ownership and distribution
Alliance Films (UK) Limited	England and Wales	Content ownership and distribution
Entertainment One UK Holdings Limited	England and Wales	Holding company
Entertainment One US LP	US	Content ownership and distribution
Entertainment One Television USA Inc.	US	Sales and distribution of films and television programmes
MR Productions Holdings, LLC (Makeready)	US	Production of film and television programmes
Deluxe Pictures d/b/a The Mark Gordon Company *	US	Production of film and television programmes

* As a result of the purchase of the remaining 49% of The Mark Gordon Company, it is a wholly owned subsidiary from 2 March 2018. Refer to Note 25 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.

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

28. Interests in joint ventures

Accounting policy

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

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

The financial statements of the Group's joint ventures are generally prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Year ended 31 March 2018

Details of the Group's joint ventures at 31 March 2018 are as follows:

Name	Country of incorporation	Proportion held	Principal activity
Suite Distribution Limited	England and Wales	50%	Production of films
Squid Distribution LLC	US	50%	Production of films
Automatik Entertainment LLC	US	40%	Film development
The Girlaxy LLC	US	50%	Content ownership and distribution
LVK Distribution Limited	England and Wales	50%	Dormant company
Creative England-Entertainment One Global Television Initiative Limited	England and Wales	50%	Development of television shows
eOne/Fox Home Ent Distribution Canada Ltd	Canada	50%	Home entertainment 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 years ended 31 March 2018 and 2017 were as follows:

 

		31 March 2018	31 March 2017
		£m	£m
Carrying amount of interests in joint ventures		1.1	3.2
Transfer from joint venture to fully consolidated subsidiary		-	(1.8)
Group's share of results of joint ventures for the year		-	(0.7)
Foreign exchange		(0.1)	0.4
Carrying amount of interests in joint ventures		1.0	1.1

 

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

The Group's share of results of joint ventures for the year of £nil (2017: £0.7m loss) includes a charge of £nil (2017: £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 2018	31 March 2017
		£m	£m
Revenue		2.4	3.2
Profit/(loss) for the year		0.1	(1.1)
Profit/(loss) attributable to the Group		-	(0.7)
Dividends received from interests in joint ventures		-	-

 

 

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

 

	31 March 2018	31 March 2017
	£m	£m
Non-current assets	2.0	2.4
Current assets (including £1.0m (2017: £0.3m) of cash and cash equivalents)	2.9	2.1
Non-current liabilities	(1.7)	(0.7)
Current liabilities	(1.3)	(1.8)
Net assets of joint ventures	1.9	2.0

 

29. Interests in partly-owned subsidiaries

Accounting policy

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (the Group). Control of the Group's subsidiaries is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The financial statements of the subsidiaries are generally prepared for the same reporting period 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 provided below:

Name	Country of incorporation	Proportion held	Principal activity
Astley Baker Davies Limited	England and Wales	70%	Ownership of IP
Round Room Live, LLC	US	60%	Production of live events
Sierra Pictures group companies
Sierra Pictures, LLC	US	51%	Production and international sales of films
999 Holdings, LLC	US	51%	Production of films
999 NY Productions, Corp	US	51%	Production of films
999 Productions, LLC	US	51%	Production of films
Blunderer Holdings, LLC	US	51%	Production of films
Blunderer NY Productions, Corp	US	51%	Production of films
Blunderer Productions, LLC	US	51%	Production of films
Coldest City Productions, LLC	US	51%	Production of films
Coldest City, LLC	US	51%	Production of films
Coldest City II, LLC	US	51%	Production of films
Danger House Holding Co, LLC	US	51%	Production of films
Danger House Productions, LLC	US	51%	Production of films
How it Ends LLC	US	51%	Production of films
LCOZ Holdings, LLC	US	51%	Production of films
LCOZ NY Productions, Corp	US	51%	Production of films
LCOZ Productions Limited	England and Wales	51%	Production of films
Osprey Distribution, LLC	US	51%	Production of films
Poms Holdings Co, LLC	US	51%	Production of films
Poms Pictures LLC	US	51%	Production of films
PPZ Holdings, LLC	US	51%	Production of films
PPZ NY Productions, Corp	US	51%	Production of films
Promise Acquisition, LLC	US	51%	Production of films
Sierra Pictures Development, LLC	US	51%	Production of films
Sierra Affinity, LLC	US	51%	International sales of films
Renegade Entertainment companies
4 x 4 Productions, LLC	US	65%	Production of television programmes
Battle Beat Productions, LLC	US	65%	Production of television programmes
Beaker Productions, LLC	US	65%	Production of television programmes
Brute Force Entertainment, LLC	US	65%	Production of television programmes
Burnt Biscuit Productions, LLC	US	65%	Production of television programmes
Citrus Amor, LLC	US	65%	Production of television programmes
Detail Productions, LLC	US	65%	Production of television programmes
Double Time Productions, LLC	US	65%	Production of television programmes
First Stand Entertainment, LLC	US	65%	Production of television programmes
Flip Tied Productions, LLC	US	65%	Production of television programmes
Gum Shoe Productions, LLC	US	65%	Production of television programmes
Inside Industry Depot, LLC	US	65%	Production of television programmes
King Crow Productions, LLC	US	65%	Production of television programmes
Lean 2 Productions, LLC	US	65%	Production of television programmes
Lucky Dozen Productions, LLC	US	65%	Production of television programmes
Math Quest Productions, LLC	US	65%	Production of television programmes
Miracle Mile Post, LLC	US	65%	Production of television programmes
Moon Breeze Productions, LLC	US	65%	Production of television programmes
OTF Productions, LLC	US	65%	Production of television programmes
R 83 Productions, LLC	US	65%	Production of television programmes
Renegade Entertainment, LLC	US	65%	Holding company
Renegade 83, LLC	US	65%	Production of television programmes
Ticking Time Productions, LLC	US	65%	Production of television programmes
Triple Ridge Entertainment, LLC	US	65%	Production of television programmes
Two Pack Productions, LLC	US	65%	Production of television programmes
Zip Line Entertainment, LLC	US	65%	Production of television programmes
Television production and other companies
Westventures IV Productions Ltd *	Canada	50%	Production of television programmes
She-Wolf Season 1 Productions Inc *	Canada	51%	Production of television programmes
She-Wolf Season 2 Productions Inc *	Canada	51%	Production of television programmes
She-Wolf Season 3 Productions Inc *	Canada	51%	Production of television programmes
JCardinal Productions Inc *	Canada	50%	Production of television programmes
Cardinal Blackfly Productions Inc *	Canada	51%	Production of television programmes
Oasis Shaftesbury Releasing Inc *	Canada	50%	Production of television programmes
Bon Productions (NS) Inc *	Canada	49%	Production of television programmes
Da Vinci Releasing Inc *	Canada	49%	Production of television programmes
Hope Zee One Inc *	Canada	49%	Production of television programmes
Hope Zee Two Inc *	Canada	49%	Production of television programmes
Hope Zee Three Inc *	Canada	51%	Production of television programmes
Hope Zee Four Inc *	Canada	51%	Production of television programmes
HOW S3 Productions Inc *	Canada	49%	Production of television programmes
HOW S4 Productions Inc *	Canada	49%	Production of television programmes
HOW S5 Productions Inc *	Canada	49%	Production of television programmes
Klondike Alberta Productions Inc *	Canada	49%	Production of television programmes
Amaze Film + Televisions Inc *	Canada	33%	Production of television programmes
iThentic Canada Inc *	Canada	33%	Production of television programmes
FD Media 2 Inc *	Canada	50%	Production of television programmes
Read This Productions Inc *	Canada	51%	Production of television programmes
Second Detail Productions Inc *	Canada	51%	Production of television programmes
Union Station Media LLC *	US	50%	Production of television programmes
Insomnia VR Productions Inc *	Canada	50%	Ownership of IP
Wacken VR Productions Inc *	Canada	50%	Ownership of IP
The Other Guy Productions Pty Ltd *	Australia	50%	Production of television programmes
TOG Series One SPV Pty Ltd *	Australia	50%	Production of television programmes

* These production companies within the Television Division have been classified as fully consolidated subsidiaries based on an assessment that, under IFRS 10, the Group has power and control over the activities of the companies. Through these companies, the Group produces or co-produces television programmes. These production companies are structured in such a way that the Group retains the risks and rewards of ownership and has the ability to vary the return it receives from the production company. At the end of the co-production, the production company has zero or minimal net income and zero or minimal tax and other obligations. As such the directors do not consider the production companies to have a material effect on the consolidated financial statements. The impact of the non-controlling interests on the consolidated income statement for the year ended 31 March 2018 for these entities is £nil (31 March 2017: £nil).

As a result of the purchase of the remaining 49% of The Mark Gordon Company, The Mark Gordon Company is a wholly owned subsidiary from 2 March 2018 and as a result The Mark Gordon entities are not included in the table above.

Television production and other companies are not classified as Group principal subsidiaries.

 

The following presents, on a condensed basis, the effects of including partly-owned subsidiaries in the consolidated financial statements for the years ended 31 March 2018 and 31 March 2017:

	Astley Baker Davies Limited	The Mark Gordon Company¹
			Sierra Pictures	Renegade 83	Round Room
Year ended 31 March 2018	£m	£m	£m	£m	£m
Revenue	20.5	126.3	68.8	41.8	-
Profit for the year	8.0	17.5	2.2	5.0	(0.2)
Profit attributable to the Group	5.6	8.9	1.1	3.3	(0.1)
Dividends paid to non-controlling interests	5.6	-	0.3	1.5	-
Non-current assets	135.5	-	34.0	2.1	-
Current assets	14.6	-	26.8	10.2	-
Non-current liabilities	(23.3)	-	(5.6)	-	-
Current liabilities	(3.4)	-	(37.6)	(4.6)	(0.6)
Net assets of partly owned subsidiaries	123.4	-	17.6	7.7	(0.6)

 

1. As a result of the purchase of the remaining 49% of The Mark Gordon Company on 2 March 2018, the above table relating to partly-owned subsidiaries is calculated for the year up to 2 March 2018.

 

 

 

	Astley Baker Davies Limited	The Mark Gordon Company
			Sierra Pictures	Renegade 83
Year ended 31 March 2017	£m	£m	£m	£m
Revenue	18.0	119.9	91.6	28.6
Profit for the year	6.9	14.2	2.8	3.2
Profit attributable to the Group	4.8	7.2	1.4	2.1
Dividends paid to non-controlling interests	2.7	-	0.5	-
Non-current assets	150.2	96.7	22.7	8.4
Current assets	12.3	106.4	34.3	6.2
Non-current liabilities	(25.5)	(84.4)	-	-
Current liabilities	(2.9)	(49.6)	(38.9)	(7.0)
Net assets of partly owned subsidiaries	134.1	69.1	18.1	7.6

 

30. Stated capital, own shares and other reserves

Accounting policy

Equity instruments

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

Own shares

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

Analysis of amounts recognised by the Group

Stated capital

 

	Year ended 31 March 2018			Year ended 31 March 2017
	Number of shares	Value		Number of shares	Value
	'000	£m		'000	£m
Balance at 1 April	429,647	505.3		427,343	500.0
Shares issued on exercise of share options	1,384	4.2		575	1.2
Shares issued as part-consideration for acquisitions	-	-		1,729	4.1
Shares issued as part-consideration for acquisitions of non-controlling interests	10,827	31.7		-	-
Shares issued on settlement of contingent consideration	779	1.8		-	-
Shares issued as part of equity raise	17,475	51.8		-	-
Balance at 31 March	460,112	594.8		429,647	505.3

 

 

 

During the years ended 31 March 2018 and 31 March 2017, the Group issued the following stated capital:

·	1,384,360 common shares (2017: 574,921) were issued to employees (or former employees) exercising share options granted under the Long Term Incentive Plan (see Note 31). The total consideration received by the Company on the exercise of these options was £nil (2017: £nil).
·	On 4 July 2017, 778,516 common shares (equivalent to £1.8m) were issued as part consideration for the settlement of contingent consideration relating to the 2016 acquisition of Renegade Entertainment, LLC (see Note 25).
·	On 1 February 2018, the Group completed a private placement of 17,475,000 new common shares at 305.0 pence per new common share. Net of expenses, the total amount raised was £51.8m. The fees of £1.6m in relation to the equity raise have been capitalised to equity.
·	On 2 March 2018, 10,826,566 new common shares (equivalent to £31.7m) were issued as part consideration for the purchase of the remaining 49% share in The Mark Gordon Company (see Note 25).
·	In 2017, 1,728,794 common shares (equivalent to £4.1m) were issued as at 15 August 2016 as consideration for the purchase of the remaining 50% share in Secret Location. See Note 25.

Subsequent to these transactions, and at the date of authorisation of these consolidated financial statements, the Company's stated capital comprised 460,749,271 common shares (2017: 429,646,877). Refer to Note 34 for details.

Own shares

At 31 March 2018, 194,663 common shares (2017: 1,599,674 common shares) were held as own shares by the Employee Benefit Trust (EBT) to satisfy the exercise of future options under the Group's share option schemes (see Note 31 for further details). The book value of own shares at 31 March 2018 was £0.2m (2017: £1.5m).

During the year ended 31 March 2018, 1,405,011 shares (2017: 2,310,654) were issued to employees (or former employees) exercising share options granted under the Long Term Incentive Plan and Employee Save-As-You-Earn scheme (see Note 31). The total consideration received by the Company on the exercise of these options was £nil (2017: £nil).

The Company has obtained authority to make market purchases of its own shares at the Annual General Meeting of shareholders held on 27 September 2017.

Other reserves

Other reserves comprise the following:

·	Cash flow hedging reserve at 31 March 2018 of debit balance £2.0m (2017: debit balance of £1.1m).
·	Permanent restructuring reserve of credit balance £9.3m at 31 March 2018 and 2017 which arose on completion of the Scheme of Arrangement in 2010 (the Scheme) and represents the difference between the net assets and share capital and share premium in the ultimate parent Company immediately prior to the Scheme.
·	Put option over non-controlling interests of subsidiaries reserve of debit balance £30.9m (2017: debit balance of £30.9m), which represents the potential cash payments related to put options issued by the Group over the non-controlling interest of subsidiary companies and are accounted for as financial liabilities. The amount that may become payable under the option on exercise is initially recognised on acquisition at present value within other payables with a corresponding charge directly to equity.

31. Share-based payments

Accounting policy

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

Equity-settled share schemes

At 31 March 2018, the Group had four equity-settled share-based payment schemes approved for its employees (including the executive directors). These are the Long Term Incentive Plan (LTIP), the Executive Share Plan (ESP), the Executive Incentive Scheme (EIS) and the Employee Save-As-You-Earn scheme (SAYE).

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

The total charge in the year relating to the Group's equity-settled schemes was £12.6m (2017: £5.0m), inclusive of a charge of £0.7m (2017: charge of £0.1m) relating to movements in associated social security liabilities.

 

Long Term Incentive Plan (LTIP)

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

Nature	Grant of nil cost options
Performance period	Up to five years
Performance conditions (examples of existing performance conditions)	(i) 50% vesting over the three-year performance period and 50% vesting dependent on performance against annual Group underlying EBITDA targets; (ii) Time only.
Maximum term	10 years

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

Grant date	Fair value at measurement date (pence)	Numberof options granted	Performance period (period ending)	Share price on date of grant (pence)	Exercise price	Expected volatility	Expected  life	Dividend yield	Risk free interest rate
24 May 2017	238.3	678,000	May 2020	242.2	Nil	n/a	10 years	0.5%	n/a
4 July 2017	218.1	2,194,930	May 2020	222.0	Nil	n/a	10 years	0.6%	n/a
8 August 2017	241.5	225,000	May 2018 - May 2020	244.1	Nil	n/a	10 years	0.5%	n/a
13 September 2017	250.2	200,000	May 2020	254.1	Nil	n/a	10 years	0.5%	n/a
19 September 2017	246.2	150,000	May 2020	250.1	Nil	n/a	10 years	0.5%	n/a
27 September 2017	251.1	661,412	May 2020	255.0	Nil	n/a	10 years	0.5%	n/a
29 September 20171	254.1	3,000,000	May 2019	258.0	Nil	n/a	10 years	0.5%	n/a
29 September 2017 1	254.1	402,353	May 2020	258.0	Nil	n/a	10 years	0.5%	n/a
28 February 20181	304.0	659,440	Feb 2018 - Nov 2020	304.0	Nil	n/a	10 years	0.5%	n/a
Other ad-hoc grants2	239.0	144,946	May 2020	242.8	Nil	n/a	10 years	0.5%	n/a

1. These are special grants which follow the LTIP rules except for certain specific conditions.

2. The options were granted on various days between 30 June 2017 and 28 September 2017. The information presented has been calculated using the weighted average for the individual grants.

Details of share option movements during the year are as follows:

 

		2018		2017
		Weighted		Weighted
	2018	average	2017	average
	Number	exercise price	Number	exercise price
	Million	Pence	Million	Pence
Outstanding at 1 April	8.4	-	11.4	-
Exercised	(2.8)	-	(2.9)	-
Granted	8.3	-	1.9	-
Granted (rights issue uplift)	-	-	-	-
Forfeited	(0.6)	-	(0.4)	-
Lapsed	-	-	(1.6)	-
Outstanding at 31 March	13.3	-	8.4	-
Exercisable	2.8	-	1.5	-

 

The weighted average contractual life remaining of the LTIP options in existence at the end of the year was 6.4 years (2017: 6.7 years).

 

 

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

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

Nature	Grant of options, with an exercise price of 241.0 pence (2017: 151.9 pence)
Performance period	Up to three years
Performance conditions	100% of the options vest on the completion of three years' service in every territory with the exception of the US which vest on the completion of two years' service.
Maximum term	Three years. The options expire six months after vesting.

During the year, 177,368 options were granted under the SAYE. The fair value of each grant was 84.4 pence per share and the assumptions are consistent with prior year. The resulting charge for the options granted in the year is not significant and the total charge in respect of all outstanding SAYE options is £0.4m (2017: £0.3). The movement in options in the year is presented below. 

 

		2018
		Weighted
	2018	average
	Number	exercise price
	Million	Pence
Outstanding at 1 April	2.2	151.9
Granted	0.2	24.1
Outstanding at 31 March	2.4	149.3
Exercisable	-	-

The weighted average contractual life remaining of the SAYE options in existence at the end of the year was 1.2 years (2017: 2.1 years).

Makeready

On 17 May 2017, the Group incorporated MR Productions Holdings, LLC (Makeready), a new global content creation company. On that date, Makeready issued to Brad Weston 500,000 B shares, at nil cost, which incrementally vest over a three year period. The fair value of the share awards granted has been determined as at the grant date as required by IFRS 2 and a charge of £0.4m has been recorded in the year ended 31 March 2018.

32. Commitments and contingencies

Accounting policy

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

Operating lease commitments

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

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

 

	31 March 2018	31 March 2017
	£m	£m
Within one year	10.7	9.6
Later than one year and less than five years	26.6	17.9
After five years	26.8	28.9
Total	64.1	56.4

 

Future commitments

 

	31 March 2018	31 March 2017
	£m	£m
Investment in acquired content rights contracted for but not provided	143.6	190.3

 

 

 

33. Related party transactions

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

Transactions with significant shareholders

Canadian Pension Plan Investment Board (CPPIB) held 85,597,069 common shares in the Company at 31 March 2018 (2017: 84,597,069), amounting to 18.60% (2017: 19.69%) of the issued capital of the Company. CPPIB is deemed to be a related party of Entertainment One Ltd. by virtue of this significant shareholding. The Group pays CPPIB an annual fee equivalent to the annual fee paid by the Group to its other non-executive directors in consideration for CPPIB allowing Scott Lawrence to allocate time to his role as a non-executive director of the Company. The fee payable to CPPIB in respect of Scott Lawrence's services for the year ended 31 March 2018 was C$98,500 (2017: C$91,700).

At 31 March 2018 the amounts outstanding payable to CPPIB are C$17,700 (2017: C$7,500).

Transactions with Joint Ventures

The Group owns 50% shares in the Joint Venture eOne Fox Distribution Canada. During the year the Group made purchases of £569,717 from eOne Fox Distribution Canada. At 31 March 2018 the amounts outstanding payable to eOne Fox Distribution Canada are £49,254.

The Group owns 50% shares in the Joint Venture Suite Distribution Limited. During the year the Group made no purchases from Suite Distribution Limited. At 31 March 2018 the amounts outstanding payable to Suite Distribution Limited are £157,000.

With the exception of the items noted above the nature of related parties disclosed in the consolidated financial statements for the Group as at and for the year ended 31 March 2017 has not changed.

34. Post balance sheet events

On 9 April 2018 the Group acquired a 70% controlling stake in Whizz Kid Entertainment Limited (Whizz Kid) for consideration of £6.9m, which was satisfied by payment of £5.0m in cash and the issuance of 637,952 Entertainment One Ltd. common shares. Whizz Kid is a UK-based non-scripted television production company. The acquisition further enhances eOne's non-scripted television production capabilities in the UK, in line with the Group's strategy.

 

Appendix to the consolidated financial statements (unaudited)

Reconciliation of additional performance measures

The Group uses a number of non-IFRS financial measures that are not specifically defined under IFRS or any other generally accepted accounting principles, including underlying EBITDA, one-off items, adjusted profit before tax, adjusted diluted earnings per share, adjusted cash flow, free cash flow, net debt and production financing. These non-IFRS financial measures (adjusted measures) are presented because they are among the measures used by management to measure operating performance and as a basis for strategic planning and forecasting, and the Group believes that these measures are frequently used by investors in analysing business performance. Adjusted measures in management's view, reflects the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis and form the basis of the performance measures for remuneration. Adjusted measures exclude certain items because if included, these items could distort the understanding of our performance for the year and the comparability between years. The terms "underlying", "one-off items" and "adjusted" may not be comparable with similarly titled measures reported by other companies.

Underlying EBITDA

The term underlying EBITDA refers to operating profit or loss excluding amortisation of acquired intangibles, depreciation, amortisation of software, share-based payment charge, tax, finance costs and depreciation related to joint ventures, and operating one-off items. A reconciliation is presented on the consolidated income statement.

Adjusted profit before tax and adjusted earnings

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

Adjusted cash flow and free cash flow

Adjusted cash flow is underlying EBITDA, amortisation of investment in acquired content rights, investment in acquired content rights, amortisation of investment in productions, investment in productions, net of grants, working capital and joint venture movements.

Free cash flow is adjusted cash flow less capital expenditure, tax paid and net interest paid. It is measured excluding one-off items.

Return on capital employed

The Group presents the term return on capital employed as the adjusted net operating profit as a percentage of average capital employed.

Adjusted net operating profit is defined as the adjusted profit for the year, adding back underlying income tax charge/(credit) related to joint ventures, interest cost related to the Group's bank facilities, net foreign exchange gains or losses on financing activities, amortisation of deferred finance charges and premium on senior secured notes and the tax effect of these net finance costs (at the Group's adjusted effective tax rate).

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

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

The Group's return on capital employed is calculated as follows:

 

				31 March 2018	31 March 2017
				£m	£m
Adjusted net operating profit				140.1	122.9
Average capital employed				1,056.2	983.9
Return on capital employed (ROCE)				13.3%	12.5%

 

 

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

 

				31 March 2018	31 March 2017
			Note	£m	£m
Profit before tax				77.6	35.9
Add back:
One-off net finance costs			7	7.5	6.3
Amortisation of acquired intangibles			13	39.6	41.9
Share-based payment charge			31	12.6	5.0
One-off items			6	7.1	40.8
Adjusted profit before tax				144.4	129.9
Adjusted tax			8	(27.9)	(27.1)
Interest cost on Group bank facilities			7	26.8	22.8
Net foreign exchange losses on financing activities			7	1.1	0.9
Amortisation of deferred finance charges and premium on senior secured notes and premium on senior secured notes			7	1.9	1.7
Other finance income			7	(0.5)	-
Add back net finance costs				29.3	25.4
Tax effect of net finance costs (at the Group's adjusted effective tax rate of 19.3% (2017: 20.9%))				(5.7)	(5.3)
Adjusted net operating profit				140.1	122.9

 

 

 

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

 

			Restated1	Restated1
		31 March 2018	31 March 2017	31 March 2016	Average 2017-18	Average2016-17
	Note	£m	£m	£m	£m	£m
Total assets		1,836.2	1,901.0	1,636.9
Less: Cash and cash equivalents	19	(119.2)	(133.4)	(108.3)
Add: Cash held only for production financing	19	58.1	43.7	13.6
Average total assets		1,775.2	1,811.3	1,542.2	1,793.3	1,676.8
Current liabilities		(605.2)	(691.9)	(569.5)
Less: current interest-bearing loans and borrowings	22	0.4	0.5	-
Add: non-current production financing	23	(86.7)	(91.2)	(33.6)
Average total liabilities		(691.5)	(782.6)	(603.1)	(737.1)	(692.9)
Average capital employed		1,083.7	1,028.7	939.1	1,056.2	983.9

 

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

 

 

Library valuation

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

Currency related adjustments

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

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

 

	Year ended	Year ended
	31 March 2018	31 March 2017	Change
	£m	£m	%
Revenue (per IFRS consolidated income statement)	1,044.5	1,082.7	(3.5)
Currency adjustment	-	(14.3)
Revenue (constant currency)	1,044.5	1,068.4	(2.2)

 

 

 

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

 

	Year ended	Year ended
	31 March 2018	31 March 2017	Change
	£m	£m	%
Underlying EBITDA (per IFRS consolidated income statement)	177.3	160.2	10.7
Currency adjustment	-	(3.7)
Underlying EBITDA (constant currency)	177.3	156.5	13.3

 

Cash flow and net debt

The Group defines net debt as interest-bearing loans and borrowings net of cash and cash equivalents. Interest-bearing loans and borrowings include senior secured notes and revolving credit facility net of deferred finance charges, bank overdrafts and other interest-bearing loans.

The table below reconciles free cash flow associated with the net debt of the Group, shown in the Financial Review section of this Announcement, to the net cash from operating activities and net movement in cash and cash equivalents in the consolidated cash flow statement. It excludes cash flows associated with production activities which are reconciled in the Cash flow and production financing section below.

 

 

		Restated¹
	Year ended	Year ended
	31 March 2018	31 March 2017
	£m	£m
Underlying EBITDA	154.2	153.0
Adjustment for:
One-off items	(3.0)	(38.1)
Loss on disposal of property, plant and equipment	-	0.8
Amortisation of investment in productions	72.3	32.8
Investment in productions, net of grants received	(111.8)	(34.2)
Amortisation of investment in acquired content rights	113.9	168.3
Investment in acquired content rights	(148.2)	(181.4)
Impairment of investment in acquired content rights	-	2.2
Fair value gain on acquisition of subsidiary	-	(2.3)
Put option movements	(3.9)	(6.3)
Share of results of joint ventures	-	0.6
Operating cash flows before changes in working capital and provisions	73.5	95.4
Working capital movements	(48.1)	(31.2)
Income tax paid	(31.8)	(16.2)
Net cash from operating activities	(6.4)	48.0
Cash one-off items	33.4	15.9
Purchase of plant, property and equipment and software	(3.2)	(3.2)
Interest paid	(25.5)	(24.2)
Free cash flow	(1.5)	36.5
Cash one-off items	(33.4)	(15.9)
Cash one-off finance items	(14.1)	(1.7)
Transactions with equity holders and acquisitions, net of debt acquired	(118.5)	(9.6)
Net proceeds on issue of shares	52.0	-
Dividends paid	(13.0)	(8.3)
Net (increase)/decrease in net debt	(128.5)	1.0
Net debt at beginning of the year	(187.4)	(180.8)
Net (increase)/decrease in net debt	(128.5)	1.0
Effect of foreign exchange rate changes on net debt held	1.4	(7.6)
Net debt at the end of the year	(314.5)	(187.4)
The table below reconciles the movement in net debt to movement in cash associated with net debt of the Group:
	Year ended	Year ended
	31 March 2018	31 March 2017
	£m	£m
Net (increase)/decrease in net debt	(128.5)	1.0
Net drawdown/(repayment) of interest-bearing loans and borrowings	105.0	(1.9)
Fees paid in relation to the Group's bank facility, premium received on notes and one-off finance costs	0.7	(5.5)
Acquisitions, net debt acquired	-	2.5
Amortisation of deferred finance charges and premium on senior secured notes	1.9	1.7
Write-off of deferred finance charges and other items	(0.2)	(0.1)
Net decrease in cash and cash equivalents at the end of the year	(21.1)	(2.3)

 

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

 

Cash flow and production financing

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

The table below reconciles free cash flow associated with the production financing of the Group, shown in the Finance Review of this Announcement, to the net cash from operating activities and net movement in cash and cash equivalents in the consolidated cash flow statement. It excludes cash flows associated with net debt which are reconciled in the Cash flow and net debt section above.

 

		Restated¹
	Year ended	Year ended
	31 March 2018	31 March 2017
	£m	£m
Underlying EBITDA	23.1	7.2
Adjustment for:
One-off items	(4.1)	(2.7)
Amortisation of investment in productions	158.1	180.6
Investment in productions, net of grants received	(180.8)	(192.3)
Share of results of joint ventures	-	0.1
Operating cash flows before changes in working capital and provisions	(3.7)	(7.1)
Working capital movements	25.7	(4.7)
Income tax paid	(0.7)	(2.2)
Net cash from operating activities	21.3	(14.0)
Cash one-off items	3.5	0.9
Purchase of plant, property and equipment and software	-	(0.3)
Interest paid	(0.7)	(0.1)
Free cash flow	24.1	(13.5)
Cash one-off items	(3.5)	(0.9)
Acquisitions, net of production financing acquired	-	(0.7)
Net decrease/(increase) in production financing	20.6	(15.1)
Production financing at the beginning of the year	(152.3)	(118.0)
Net decrease/(increase) in production financing	20.6	(15.1)
Effects of foreign exchange rate changes on production financing held	13.0	(19.2)
Production financing at the end of the year	(118.7)	(152.3)
The table below reconciles the movement in production financing to the movement in cash associated with production financing taken out by the Group:
	Year ended	Year ended
	31 March 2018	31 March 2017
	£m	£m
Net decrease/(increase) in production financing	20.6	(15.1)
Net drawdown of production financing	0.8	45.7
Net increase in cash and cash equivalents at the end of the year	21.4	30.6

 

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