Entertainment One Regulatory News (ETO)

Entertainment One Ltd.

FULL YEAR results

for the YEAR ended 31 MARCH 2016

Strong growth in TELEVISION AND FAMILY

Solid financial performance with strong growth in Television and Family, despite challenges in Film

- Group reported revenues up 2% to £803 million, driven by strong Television and Family performance, offset by weaker Film

- Group reported underlying EBITDA up 20% to £129 million, driven by organic Television and Family growth, and acquisitions completed during the year

- Group reported profit before tax up 9% at £48 million

- Diluted earnings per share was 9.6 pence per share (19.4 pence per share on an adjusted basis)

- Net debt leverage remains low at 1.4x Group underlying EBITDA

- 9% increase in dividend to 1.2 pence per share (2015: 1.1 pence per share)

Creating a global television business

- eOne Television saw strong organic growth of 27% in the financial year with revenues increasing to £188 million and underlying EBITDA up 44% to £23 million

- 998 half hours of new programming acquired/produced in the year (2015: 752 half hours) with a strong pipeline of programming already greenlit for the next financial year

- Continued success from third party content and a significant number of new development and production deals announced

The Mark Gordon Company delivering strong performance

- Financial performance in line with expectations with strong cash generation from existing library participations, with five series currently airing on US network and premium cable

- Very positive television production slate, with two new series in production for major US networks for first seasons, and almost sixty projects in development

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

- The Family Division saw strong growth in the financial year with revenues up 10% to £67 million and underlying EBITDA up 82% to £43 million, supported by the acquisition of Astley Baker Davies Limited in October 2015

- The delivery of a new series of Peppa Pig commences in July 2016

- Over 500 new and renewed broadcast, licensing and merchandising contracts signed during the financial year, with almost 850 deals in total now live

- PJ Masks took an average audience share of 29% of 2-5 year olds on Disney Channel and Disney Junior in the US - the merchandising programme launches in the US in autumn 2016 and the broadcast roll-out to 30 Disney channels internationally continues over the course of 2016

Positioning Film for the future

- The Film Division saw continued weakness with revenues 7% lower at £553 million and underlying EBITDA 28% lower at £53 million, but with stronger adjusted cash conversion at 87% of underlying EBITDA (2015: 25%)

- 210 theatrical releases in the year compared to 227 in the prior year

- A very strong upcoming slate of films in the new financial year is expected to deliver around 220 theatrical releases, led by The BFG, the first film from eOne's new partnership with Steven Spielberg's Amblin Partners, and David Brent: Life on the Road starring Ricky Gervais, from the team behind the hit series The Office

- Restructuring programme launched which will yield annual cost savings of £10 million from FY18, including the previously announced partnerships with 20th Century Fox Home Entertainment and Sony Pictures Home Entertainment designed to maximise eOne's opportunities within the evolving home entertainment marketplace

On track to double the size of the business over the five years to 2020

- Successfully built content pipeline supported by strategic investments and acquisitions, including Amblin Partners, Sierra Pictures and Renegade 83

- Foundations for growth are now in place, allowing the focus to move to delivery of organic growth across the business

- The £201 million rights issue completed in October 2015 and the issuance of £285 million senior secured notes in December 2015 have put the appropriate long-term financing structure in place to support the Group's organic growth strategy

Positive outlook

- eOne remains well-positioned to benefit from long-term structural industry drivers

- Content markets remain dynamic and the Group continues to review potential investment and corporate acquisition opportunities

Darren Throop, Chief Executive, commented:

eOne has delivered solid financial results at the Group level, driven by strong organic growth in Television and Family, and the impact of acquisitions completed during the year, despite weakness in the Film Division continuing into the second half. The benefit of the Group's diversified model is apparent with growth in Television and Family providing a greater balance to the Group's portfolio, enhancing the mix of eOne's revenues towards higher margin activities and protecting the bottom line against the cyclical film market.

The Group's model to source, select and sell high quality content continues to be at the centre of our strategy and is at the foundation of the Group's achievements in the year. We have continued to build relationships with world-class content producers through our investment in Amblin Partners with Steven Spielberg and our acquisition of Renegade 83. We continue to select the best content to exploit across our global network and expect our film and television slate for the next financial year to be particularly strong. At the same time, we continue to deliver sales across the world through long-standing local relationships in our own territories and through our global international sales network, which has been enhanced through the investment in Sierra Pictures.

As has always been the case, great content is at the heart of Entertainment One - The Mark Gordon Company has five US network and cable series currently airing and two new series in production for major US networks for first seasons, eOne Television has delivered strong content and the Film slate looks to be the strongest for many years. In Family, new production PJ Masks has surpassed our expectations on the Disney channels, and we start to deliver the new series of Peppa Pig from July.

Whilst there are positive expectations for the new financial year in Film, we have taken specific steps in the Division to address its long term profitability - a wide-reaching restructuring programme has been launched which will see annual cost savings of £10 million per annum from FY18, including long-term partnerships with Fox and Sony to help maximise eOne's home entertainment profitability.

The foundations for growth are in place, with eOne's key capability for high quality content generation allowing the focus to move to delivery of organic growth across the business. With consumer demand continuing to grow, we anticipate that audiences will increasingly focus on the quality of the content that they consume, gravitating towards premium television series, film and speciality genres. This market dynamic plays to Entertainment One's strengths and supports our strategic goal to double the size of the business over the five years to 2020.

FINANCIAL SUMMARY

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

2 Adjusted profit before tax is the reported measure before amortisation of acquired intangibles, share-based payment charge, tax, finance costs and depreciation related to joint ventures, operating one-off items and one-off items relating to the Group's financing arrangements. Adjusted diluted earnings is adjusted for the tax effect of these items and other one-off tax items. The denominator for the purposes of calculating both basic and diluted earnings per share has been adjusted to reflect the rights issue in October 2015.

Group reported revenues were 2% higher at £802.7 million (2015: £785.8 million), driven by strong growth in Television (up 31%) and Family (up 10%), partly offset by lower revenues in the Film Division, 7% lower. Acquisitions completed during the financial year contributed £21.6 million to Group reported revenues. On a constant currency basis, Group revenue growth was 6%, reflecting the impact of stronger pounds sterling against the Canadian dollar, Australian dollar and euro during the year, and underlying Group revenue growth (excluding acquisitions) was 3%.

Group reported underlying EBITDA was 20% higher at £129.1 million (2015: £107.3 million), driven by strong growth in Television (up 120%) and Family (up 82%), partly offset by lower underlying EBITDA in the Film Division, 28% lower, driven primarily by fewer film releases, weaker title performance and the impact of the weaker slate in FY15. On a constant currency basis, Group underlying EBITDA growth was 24%, reflecting the impact of stronger pounds sterling during the year. Acquisitions completed during the financial year contributed £14.8 million to Group underlying EBITDA, resulting in underlying growth of 10% on a constant currency basis.

Group investment in acquired content and productions in the year amounted to £218.5 million, 22% lower than the prior year (2015: £280.8 million), driven primarily by lower investment in the Film Division.

Reported profit before tax was 9% higher in the year, at £47.9 million (2015: £44.0 million). Adjusted profit before tax for the year increased by 17% to £104.1 million (2015: £88.8 million) in line with the increase in underlying EBITDA, partly offset by higher underlying finance charges primarily reflecting higher average debt levels year-on-year, following the acquisition of The Mark Gordon Company in January 2015, and the impact of higher interest rates following the re-financing in December 2015.

Diluted adjusted earnings per share were 1.4 pence lower at 19.4 pence (2015: 20.8 pence). On a reported basis, diluted earnings per share were 2.9 pence lower at 9.6 pence (2015: 12.5 pence) and reflected higher one-off finance costs in relation to the re-financing and higher amortisation of acquired intangibles driven by acquisitions in the year.

In line with the Group's progressive dividend policy, the directors have declared a final dividend up 9% to 1.2p per share (2015: 1.1p per share).

OUTLOOK

The Television Division will see continued organic growth from eOne Television as well as the benefits of full year contributions from Renegade 83, Dualtone Music Group and Last Gang Entertainment. eOne Television recently received a straight-to-series order for Sharp Objects, the high-end drama commissioned by HBO, starring Amy Adams and based on the book by Gone Girl author Gillian Flynn. It is anticipated that around 1,100 half hours of content will be available for distribution through the Group's global sales network in the new financial year. FY17 is expected to see a significant increase in production at The Mark Gordon Company (MGC), with the ramp-up of activity on greenlit series and the continued conversion of some of the many projects in development. MGC has seen two new primetime commissions, Conviction and Designated Survivor, ordered to series in recent months, adding to the company's roster of long-running franchises on major US networks that include Grey's Anatomy, Quantico, Ray Donovan, and Criminal Minds and Criminal Minds: Beyond Borders, all of which have renewed in the year.

Family continues to focus on building Peppa Pig into the most loved pre-school brand in the world while continuing to develop and build new brands across the Family portfolio, including Ben & Holly's Little Kingdom and PJ Masks. The delivery of a new series of Peppa Pig commences in July 2016 and the continued roll-out of PJ Masks on Disney during the year will support the almost 850 licensing and merchandising deals that are now live across the portfolio.

As the independent film market continues to recover in 2016, the Group's exciting film slate is expected to deliver a significant pick-up in the Group's box office performance, which will drive revenues in ancillary content release windows in future years. The Film Division plans to release around 220 films in the new financial year, in line with its profile of annual investment of around £160 million in acquired content and £70 million in productions over the next three to five years. This consistent profile of investment, as well as the restructuring of the Film Division's operations, is anticipated to drive good long-term cash conversion in the Division.

The drivers are clear across all of the Divisions, giving a positive outlook which is underpinned by market dynamics that play to the strengths of the Group. The appetite for quality content continues to be driven by numerous factors, including the growth of digital platforms and 'TV anywhere'. Having created the foundations for high quality content generation and with the appropriate long-term financing structure in place to support the delivery of the organic growth strategy, the directors look forward to the new financial year with confidence.

STRATEGY

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

Business model

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

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

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

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

The Board continues to see significant opportunity for further growth and to target doubling the size of the business by 2020 through its strategy of:

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

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

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

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

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

Family: Making Peppa Pig the world's most loved pre-school brand and building a global portfolio of brands

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

Strategic progress

FY16 has been a strong year of progress on delivering the Group's strategy.

Organic growth in the Television business, the recent acquisition of Renegade 83, the ramping-up of production at The Mark Gordon Company and continued success in fostering development deals in the US and internationally is transforming eOne Television into a diversified global content business. The increased output seen from these businesses is further fuelling eOne's well-established global television sales network.

The acquisition of a controlling stake in Astley Baker Davies Limited gives eOne greater control of and a higher share in the financial success of Peppa Pig, which is a key strategic driver for Family and a proven, successful pre-school brand where the Group believes the opportunity exists to increase global retail sales to US$2 billion in the medium term. The early success of PJ Masks in the US and the strong prospects for a licensing programme as it rolls out across Disney channels internationally are indicative of an exceptional property that will further build out eOne's Family portfolio in a substantive way.

The Film Division has an expanded relationship with Steven Spielberg through the strategic investment in Amblin Partners and a strong addition to the Group's global sales capability through the investment in Sierra Pictures. In parallel, the Group continues to focus on driving margins in the Film Division, through a wide-reaching restructuring of how the Division operates, which is expected to deliver annual cost savings of £10 million from FY18.

eOne's capital structure is aligned with delivering the Group's strategy following the re-financing of the business in December 2015, with long-term, non-amortising, fixed-rate debt provided via senior secured notes and short-term working capital needs being funded via a new, more flexible revolving credit facility.

DIVISIONAL OPERATIONAL & FINANCIAL REVIEW

Television

Overview

The Television Division comprises eOne Television, MGC, the Group's Music label and also incorporates the results of eOne's investment in digital media company, Secret Location. The Division's focus is on the development and production of television programming and the acquisition of third party television content rights, for sale to broadcasters and digital platforms globally. Previously, the Family operation was reported within the Television segment and is now reported as a separate Division.

STRATEGY

Entertainment One's growth strategy is based on partnering with the best creative talent to produce and own the best quality content and ensuring that the Group's global sales presence maximises the international sales opportunities for the content rights it controls.

Over the last two years, Entertainment One has created a portfolio of leading content producers through a mix of organic and acquisitive growth. In its core production business, eOne Television, the Group continues to work closely with producers through first-look, co-production, overhead and output deals to bring the best content into its production pipeline.

Following its acquisition in January 2015, The Mark Gordon Company has migrated its operating model from servicing a limited number of US networks through exclusive overhead deals into a much broader television studio creating, financing and selling to broadcast and over-the-top (OTT) platforms. The company has been engaged in packaging new projects and has recently won two primetime commissions from US broadcasters, which Entertainment One will sell around the world. MGC has expanded its customer base to include the digital platforms and is currently working on a number of projects for this increasingly important segment of the television content market.

In 2014, the Group acquired Paperny Entertainment and Force Four Entertainment to bring critical mass to its non-scripted capability. In March 2016, the Group consolidated its position in this genre by acquiring a 65% stake in the non-scripted producer Renegade 83 with its innovative slate of current hit shows including Naked and Afraid and You the Jury.

Looking ahead, the strategy remains unchanged for Television - a mix of organic growth supplemented with strategic bolt-on acquisitions that help 'lock-in' production talent across the world in both the high-end scripted drama and non-scripted genres. The Television Division continues to be a major contributor to the Group achieving its overall growth target by the year 2020, with further English-language production investments and acquisitions being considered, where in line with the Group's strategic goals.

In addition to controlling the best content, the Group focuses on maintaining a leading global sales capability, a key competitive advantage for eOne, selling content to over 500 broadcasters in more than 150 territories around the world. As well as selling eOne original productions, the Group has also been active in selling high quality content from partners such as AMC and SundanceTV and other third party acquisitions across this infrastructure, with strong demand for leading shows such as Fear the Walking Dead, the companion series to the highly successful The Walking Dead franchise.

With its growing portfolio of independent television producers, including The Mark Gordon Company, Paperny Entertainment, Force Four Entertainment, Renegade 83, and eOne's own original Television business, all powered by eOne's global sales network, eOne is building a significant global independent television business.

Financial Review

Revenues for the year were 31% higher at £244.7 million (2015: £186.5 million) driven by continued growth in eOne Television and the impact of The Mark Gordon Company being consolidated as a subsidiary. Underlying EBITDA increased by 120% to £39.2 million (2015: £17.8 million) driven by higher revenues and improved margins. Underlying EBITDA margin improved by 6pts to 16.0% (2015: 9.5%) driven by the full year impact of The Mark Gordon Company on the Divisional mix.

eOne Television

eOne Television includes the production and global sales business, Paperny Entertainment, Force Four Entertainment and Renegade 83, which was acquired in March 2016.

Revenues for the year were up 27% to £187.9 million (2015: £148.4 million) driven by increased levels of production and higher global sales of both owned and acquired content. Underlying EBITDA increased by 44% to £22.8 million (2015: £15.8 million), supported by revenue growth across the business.

Investment in acquired content and productions was lower than prior year at £91.8 million (2015: £100.7 million), driven by lower investment in productions offset by higher acquisitions in the international sales business. The level of investment in productions in the year was lower partly as a result of the increase in tax credits received which related to prior year investments.

998 half hours of new programming were produced/acquired in the year compared to 752 half hours in the prior year. The business has successfully maintained a steady pipeline of productions as new show commissions replace long-running series that have come to an end.

Key scripted deliveries included third seasons of Rogue and Bitten, season four of Saving Hope, the fifth and final season of Hell on Wheels, new series Private Eyes starring Jason Priestley and the first season of polyamorous comedy You Me Her for AT&T's Audience Network. eOne's non-scripted business has grown significantly year-on-year with deliveries including seasons one and two of Fameless (David Spade) for TruTV, About the Business and Nellyville (hip-hop star Nelly) for BET and season five of Mary Mary for WeTV. Programming delivered by Paperny Entertainment and Force Four Entertainment included season three of Coldwater Cowboys, Chopped Canada, Timber Kings and Yukon Gold, as well as new commissions Klondike Trappers, Keeping Canada Alive and First Dates.

eOne continues to invest in first-look agreements, scripts, book options and development deals with industry talent to grow the development slate. Recent successes include straight-to-series orders by HBO of suspense drama Sharp Objects, starring multi-award winning actress Amy Adams, and series Ransom inspired by the life experiences of a renowned hostage-negotiator, from executive producer Frank Spotnitz. Crime drama Havana, starring Antonio Banderas, is also in development with Starz. New scripted shows in 2016 also include Cardinal for CTV and Mary Kills People for Global. Renewals include season four of Rogue, season five of Saving Hope and a new season of You Me Her. eOne is also continuing its relationship with award-winning producer Ilana Frank, responsible for the success of Rookie Blue and Saving Hope, and her production company ICF FILMS, with a new three-year deal. In addition, ongoing relationships with Eleven Film, responsible for The Enfield Haunting, through new series Foreign Bodies for E4 and TNT, and the creation of a television venture with Creative England enable eOne to continue to produce high quality scripted shows from around the world.

The non-scripted business continues to grow, with a significant number of renewals expected for existing series as well as new commissions. Renegade 83 will deliver the next seasons of Naked and Afraid and Naked and Afraid XL which is Discovery's number one Sunday night show. eOne also has a large number of non-scripted projects in development, supported by investments in first-look deals with high profile non-scripted talent. These include the company behind The Real Housewives franchise, Purveyors of Pop, Creature Films (VH1's Behind the Music and MTV's Laguna Beach) and veteran reality producer Chris Deaux. A deal has also recently been signed with Chopped creator Keller and Noll.

Key content acquisitions for the year included the first season of Fear the Walking Dead, season six of The Walking Dead, season two of Halt and Catch Fire and Turn, and the first season of Into the Badlands from AMC. Other acquisitions included The Enfield Haunting, one of the highest-rated shows on Sky Living and nominated for three Baftas, David Attenborough's Great Barrier Reef, and seasons eight and nine of the popular Canadian series Heartland.

The Group's exclusive distribution agreement with AMC Networks continues to support revenues and the key shows Turn and Halt and Catch Fire have continued to drive strong ratings and international sales, and both shows have been renewed for third seasons. New series Into the Badlands, with an average 5.6 million viewers per episode, delivered the third highest-rated first season in US cable TV history and has been renewed for a second season, with an increase from six to ten episodes. The six episode series Hap and Leonard which aired on SundanceTV in March 2016 has received positive reviews.

The Walking Dead series continues to enjoy very strong ratings having the highest total viewership of any series in cable television history with the average number of viewers for season six still at over 13 million. Driven by this continued success, filming has started on the seventh season which is expected to air in October 2016. Fear the Walking Dead (the companion series to The Walking Dead) continues to be very well received by audiences, with the average number of viewers being over 7 million for the first season, a higher level than seen for the first two seasons of The Walking Dead. The second season of Fear the Walking Dead premiered in the US in April 2016. AMC have announced a third 16-episode season of Fear the Walking Dead expected to air in 2017.

The number of half hours of programming expected to be acquired/produced next year is expected to be around 1,100, with over 60% of budgeted revenues for the new financial year already committed or greenlit. Investment in acquired content is expected to increase to £30 million and production spend is expected to grow to around £110 million.

The MArK Gordon company

Effective 19 May 2015, following a change in the MGC shareholder agreement that governs the basis for determining 'control' for the purpose of accounting for the venture, MGC has been fully consolidated as a subsidiary of the Group. Previously it was accounted for as a joint venture which only incorporated the Group's share of joint venture results and did not include revenues associated with the venture. In line with this change, MGC fully adopted the Group's accounting policies which included moving to an accruals basis for the accounting of participation revenues, which were previously accounted for based on cash received. This change in accounting resulted in an improvement in EBITDA of £3.5 million in relation to the participation revenues in respect of FY15.

Revenues for the year were £14.6 million (2015: £nil) driven by strong participation revenues and producer fees from existing series. Underlying EBITDA increased to £14.4 million (2015: £0.6 million).

MGC currently has five series airing on both US network and premium cable, all with continued strong viewership. Criminal Minds, now in season 11, continues to be a top-10 drama series in the US with average viewership over 9 million, and spin-off Criminal Minds: Beyond Borders aired in March 2016 on CBS to average viewership of over 7 million. Grey's Anatomy season 12 continues to have a strong audience with average viewership of over 8 million, higher than the viewership for the previous season, and has been renewed by ABC for season 13, as have Criminal Minds season 12 and Criminal Minds: Beyond Borders season two. In addition, Ray Donovan on Showtime and Quantico on ABC have also been renewed for seasons four and two, respectively.

Production has started on the first season of Conviction starring Hayley Atwell and straight-to-series political thriller Designated Survivor, starring Kiefer Sutherland. eOne will distribute both series internationally. MGC's development pipeline is very strong with almost sixty projects in active development. Projects under development include The Ambassador's Wife, based on Jennifer Steil's novel starring Anne Hathaway, Fina Ludlow, based on the novels by Ingrid Thoft, the TV adaptation of the original web-series Whatever, Linda produced by Secret Location, which has played at over 20 festivals and won over 20 awards worldwide, including Best Drama Series at the International Academy of Web Television Awards (aka Web Emmys), and The Barbary Coast directed by Academy Award® winner Mel Gibson, starring Kurt Russell and Golden Globe winner Kate Hudson.

The studio has a number of film productions underway including war comedy War Dogs starring Jonah Hill, war drama Sand Castle, spy thriller All the Old Knives, Agatha Christie's Murder on the Orient Express, starring and directed by Kenneth Branagh, and the fairy tale The Nutcracker and the Four Realms for Disney. Tapping into the ever-growing Chinese cinema market and potential for future US-China co-production projects, MGC has recently partnered with Pegasus Media Group and China Film Group to produce epic love story Edge of the World from Oscar®-winning screenwriter David Seidler. Following on from the success of Grey's Anatomy, MGC has re-teamed with Grey's showrunner Shonda Rhimes to produce My Husband's Ex-wife.

Investment in productions in FY17 is expected to amount to £100 million with half hours delivered anticipated to be around 75. Consistent with all eOne Group productions, the amount of investment in production does not represent the Group's investment capital at risk, as the significant majority of production investment risk is mitigated through commitments received prior to greenlighting from commissioning broadcasters and government subsidies to reduce the Group's exposure to around 15%-20% of the investment in production budget.

Music

Revenues for the year were up 11% at £42.2 million (2015: £38.1 million) driven by a strong release schedule. Underlying EBITDA increased 43% to £2.0 million (2015: £1.4 million), supported by an increasing mix of digital revenues.

[1]. In the current year third party music label sales made by the Film Distribution business on behalf of the Music business are recognised in Music revenue. Consequently, the prior year Music revenue (and inter-segment eliminations) previously reported has been restated to reflect this change. The impact of the change for the year ended 31 March 2015 was an increase in Music (and inter-segment eliminations) by £19.7m. There is no impact on total Group revenues.

The Group's independent label has had a strong year from its Urban releases of The Game's Documentary 2 which debuted at number two on the US Billboard 200 along with its sequel The Game's Documentary 2.5 shortly afterwards.

Following the acquisition of Dualtone Music Group in January 2016, the business released Cleopatra in April 2016, the highly anticipated second album from The Lumineers. The album hit number one on the US Billboard 200 within a week of its release and its lead single, Ophelia, has spent six weeks at number one on the US Adult Alternative Songs chart. The album was also a major hit in Canada debuting at number one in the album charts.

The number of albums released in the year was lower at 64 versus 74 in the prior year. This decline is offset by the increase in the number of digital singles released doubling to 108 compared to 54 in the prior year. The Group's current roster of artists continues to be strong with the acquisitions of Dualtone Music Group and Last Gang Entertainment adding to the content slate and strengthening eOne's position in the North American music market.

SECRET LOCATION

Secret Location, eOne's digital investment, currently has a number of projects for different platforms underway focussing on the fast growing virtual reality industry. eOne's joint venture with this innovative interactive content studio for emerging platforms positions eOne at the forefront of developing technologies as the media landscape evolves. For the gaming industry it is working on Blasters of the Universe designed to be accessible through Oculus VR, HTV Vive and the Steam network, as well as Sony PlaystationVR, and aims to gain market exposure from early adopters.

Work is underway on a number of projects including digital extensions for CBC's landmark project The Story of Us and Wild Canadian Year, also with CBC, as well as a significant VR documentary for General Electric, all representing ground-breaking virtual reality projects.

Secret Location won a Prime Time Emmy® Award for The Sleepy Hollow: VR Experience created last year to promote the second season of the hit Fox TV series. The historic win marks the first time a virtual reality project has ever been awarded an Emmy® Award or any major entertainment award. Secret Location also won three Webby Awards, including two for its innovative OrchestraVR project with the prestigious LA Philharmonic and a Peabody-Facebook Future of Media Awards for Ebola OutbreakVR with PBS.

Secret Location continues to develop innovative original products in the digital space including a large, original serialised virtual reality project, Insomnia, with Stephen King, as well as their original VR and linear episodic format Halcyon, for IPF and SyFy.

Secret Location will also launch hybrid television/digital project, Sweat the City, featuring a well-known Instagram personality. In October 2015 Secret Location announced the launch of DitchTV, a new way of consuming YouTube content by combining channel surfing with interactive controls and an intuitive interface.

Family

Overview

The Family business develops, produces and distributes a portfolio of children's properties on a worldwide basis, the principal brand being Peppa Pig, with much of its profitability generated through licensing and merchandising programmes across multiple retail categories. In addition to managing the growth of Peppa Pig, the Family business is also developing a balanced portfolio of complementary family brands. Ben & Holly's Little Kingdom continues to develop in a number of new territories, PJ Masks saw a very strong debut in the US on Disney Channels and the Group is in development on a number of new brands with major broadcasting partners.

During the year, eOne acquired a 70% stake in Astley Baker Davies Limited (ABD), the creator of Peppa Pig, giving the Group economic benefit of 85% ownership of the underlying IP in Peppa Pig from 1 August 2015, in addition to the continuation of fees historically earned by eOne for managing the licensing and merchandising activities of the brand. This gives the Group the ability to control the property's strategic development as eOne aims to double the size of the brand. The brand continues to be rolled out into a range of new markets with broadcasting agreements supported by licensing and merchandising programmes, as well as a significant online presence. As traction for the brand grows amongst consumers, eOne carefully manages the pace of its retail programmes to ensure the brand's longevity is maximised.

The early success of PJ Masks in the US and the strong prospects for a licensing programme as it rolls out across Disney channels internationally are indicative of an exceptional property that will start to build out eOne's Family portfolio in a more substantive way.

STRATEGY

One of the key strategies for growth in Family is to establish Peppa Pig as the most loved pre-school brand in the world. The first stage of this process is to build audiences through both traditional broadcast networks and, increasingly, digital platforms. The Group works with leading children's channels to drive this awareness; often this phase of the brand's development can take several years.

Once traction with audiences has been achieved, merchandising programmes can be launched with licensee partners to meet consumer demand for toys, apparel, stationery and other products. The Group takes a long-term approach with these programmes to gradually build retail presence and create longevity for the brand.

By adopting this measured approach, eOne has been growing Peppa Pig into a major pre-school brand. Peppa Pig was launched twelve years ago in the UK and has since grown to become the leading pre-school children's property in this market, supported by broadcast roll-outs into the US, Canada, Europe, Australia, Latin America and the Far East. Market data indicates that, with the current exception of Japan, Peppa Pig is on air in the most important licensed merchandise territories globally. This wide exposure of the brand to global pre-school audiences (and its widespread acceptance) are expected to help drive future consumer demand over the long-term as Peppa Pig continues to grow into these substantial markets.

The most significant development for Peppa Pig over the last year has been the consumer launch of the brand in the US, the world's largest licensing and merchandising market. In the summer of 2015 the territory's two largest retailers, Walmart and Target, launched a limited range of Peppa Pig products, predominantly toys and apparel, two of the largest licensing categories. Sales have been strong and the Group will gradually expand the product offering during the new financial year to carefully manage the supply of products in relation to demand.

As well as rolling out into new broadcast and consumer territories, the Group has also started production of the fourth series of Peppa Pig. These new shows not only refresh existing content for broadcasters and digital platforms but also include new characters to help drive future licensed product development and sales.

The Family strategy also includes the development of a global portfolio of other brands and there have been exciting developments during the year. Ben & Holly's Little Kingdom was launched on Nick Jr in the US during the year and although it is early in the brand's broadcast development in this territory, the early signs are very encouraging. Further, Ben & Holly will be launched to broadcasters in other territories around the world in the current year, with licensing programmes to follow as consumer demand builds.

New properties which have been developed and produced by the Group include PJ Masks which had a very successful US broadcast debut in September 2015 on Disney. The series has been developed in partnership with Disney and France 5 and is based on the popular French picture books Les Pyjamasques. It is being launched on the Disney and Disney Junior channels worldwide over the coming months, and it is already a top-rated series for Disney Jr in the UK, Spain, Italy and Germany. The show's characters and scenarios have been developed with the licensing markets in mind and more specifically targeting boys to complement the more girl-skewed licensing programme on Peppa Pig. A range of products such as action figures, playsets, vehicles, clothing and plush items will be launched this autumn in the US. With strong audience ratings on one of the world's leading children's television networks, prospects for PJ Masks look very attractive.

Financial Review

Revenues for the year were up 10% to £66.6 million (2015: £60.8 million) driven by the continuing strong performance of Peppa Pig, growth from Ben & Holly's Little Kingdom and a positive start from the new property PJ Masks. Underlying EBITDA increased 82% to £43.3 million (2015: £23.8 million), reflecting the impact of the ABD acquisition and organic growth from increased revenues, sales mix and improved margins from digital exploitation.

Investment in acquired content and productions tripled to £5.8 million (2015: £1.9 million), driven by investments in new series of Peppa Pig, PJ Masks and Winston Steinburger and Sir Dudley Ding Dong.

The Family business continues to perform strongly with the continued success of Peppa Pig. The franchise generated over US$1.1 billion of retail sales in the 2016 financial year and almost 500 new and renewed broadcast and licensing agreements have been concluded in the year. The business ended the year with almost 850 live licensing and merchandising contracts across its portfolio of brands.

Peppa Pig remains the leading pre-school brand in the UK, Spain, Australia and Latin America. Peppa Pig's core UK market continues to perform well, winning the Best Pre-School Licensed Property at the British Licensing Awards for the sixth year running. Australia continues to be a key established market. The US is gaining strong momentum with over 400% growth in royalty revenues year-on-year. US retailers are increasing their buying levels, and with particularly strong sales in Toys R Us. The number of licensing partners in the US have doubled and retail sales have increased by over 275% - toys have seen a 230% increase and apparel has seen a 300% increase during calendar year 2015. This strong growth is expected to continue in 2017.

In Canada, Peppa Pig is already the top-selling pre-school toy brand at Toys R Us and a full mass merchandising launch is planned for autumn 2016. Peppa Pig continues to perform well in France backed by excellent television exposure and a full retail roll-out is scheduled for this year.

Exposure in China and South East Asia has continued to grow with Peppa Pig's debut on CCTV, the Chinese state broadcaster. The new digital deals with Youku and iQIYI currently have over 250 million views monthly, increasing Peppa Pig's exposure beyond traditional television. Performance in other South East Asian markets, including Hong Kong, Singapore, Taiwan and the Philippines has been strong. The key retailer in the Philippines, SM, has committed to Peppa Pig over many other major properties. Strong growth in these markets is expected in the next financial year.

France is the latest market which has seen exceptional growth over the past year and is now poised to become one of the stronger territories for the Peppa Pig brand, joining the long list of top-performing territories. During the year, production on two 15-minute specials was delivered and production on series four of Peppa Pig is underway with the delivery of 52 new episodes commencing in July 2016, which will continue to provide new licensing opportunities for the property in the long term, and takes the total number of Peppa Pig episodes to over 260.

Ben & Holly's Little Kingdom continues to generate high ratings in its television slots and digital revenue is growing year-on-year from deals with Amazon and Netflix. Ben & Holly's Little Kingdom is gaining momentum in Latin America whilst consolidating its presence in Australia, Spain and Italy, and the broadcast agreement with Nick Jr in the US will support a future US licensing programme.

PJ Masks, the latest animated series produced by the Family business, premiered on Disney Channels in the US in September 2015 to very strong ratings - the show attracted 1.6 million unique viewers across its Disney Channel and Disney Junior premieres and won an average audience share of 29% among 2-5 year olds. The series has, since then, consistently been in the top three shows on the channel, ahead of many of Disney's fully-owned properties. The series will be rolled out to approximately 30 international Disney channels throughout 2016, as well as selected terrestrial networks such as France 5. Driven by strong demand, a deal with master toy licensee Just Play was signed during the year and toys and books are scheduled to be on US shelves by September 2016, with numerous other licensing agreements in negotiation. As a result of its early broadcast success, discussions are already underway for the commissioning of a second season.

Production continues on 52 episodes of Winston Steinburger and Sir Dudley Ding Dong and is expected to complete by June 2016 and set to air on ABC in Australia and Teletoon in Canada this autumn, with numerous other territory deals in negotiation. The Group is also developing other properties, including Bobby and the Bike Buddies and Cupcake and Dinosaur with major broadcasters attached, such as Gulli in France and Rai in Italy for Bobby and the Bike Buddies and Teletoon in Canada for Cupcake and Dinosaur.

Film

Overview

The Group's Film Division is comprised of its Distribution and Production businesses.

The Group's Film Distribution business has a local presence in the UK, Canada, Spain, the Benelux, Australia and New Zealand, as well as in the US and a global digital rights business. On a combined basis, eOne is one of the largest independent film distributors in the world.

The Film Distribution business acquires exclusive film content rights and exploits these rights, alongside original productions, on a single and multi-territory basis across all media channels. These rights are acquired both through output deals and single picture acquisitions with independent production studios. The majority of film titles are acquired on a single-picture basis but the Group continues to seek output deals with producers on attractive commercial terms, where appropriate. During the year, Film expanded its relationship with Steven Spielberg through the strategic investment in Amblin Partners in December 2015.

Through its film production activities, eOne aims to maximise its access to the best portfolio of content by entering earlier in the production process and exploiting that content globally, including its core distribution territories. To achieve this global distribution ability, the Film Division manages international sales activities for its own productions and for films it represents. The production and sales activities have been expanded during the year through the Group's strategic investment in Sierra Pictures in December 2015.

STRATEGY

In spite of the short term challenges across the independent film market, Entertainment One has continued to execute its strategy of partnering with the best content producers to deliver the best content to the world. Over the short term, the Group's strategy to exploit its diversified library of film content rights to maximise returns, and the multi-year phasing of its revenues have helped to mitigate film market volatility to deliver a portfolio return for the Division over the medium term.

During the year the Group continued to invest in film content to build future value, at the same time developing closer relationships with key content producers. One of the most important new relationships is the formation of Amblin Partners, with Entertainment One becoming a partner alongside Steven Spielberg, Participant Media and Reliance Entertainment. The partnership aligns the Group with one of the most renowned and successful film producers of all time, allowing it to become the film distributor of choice for future Amblin Partners productions in its territories, and to share in the global success of these titles through the partnership.

Entertainment One has also expanded its presence in production and international film sales through its investment in Sierra Pictures. The new partnership brings together the Group's financial strength in film production with the broad producer relationships held by Sierra Pictures, while enhancing the Group's global distribution capability through Sierra's international sales operation.

The Group also continues to build its own film production pipeline. By engaging in production activities the Group can secure attractive content earlier on in its lifecycle for distribution across its core territories as well as participate in the upside from the global success of a release. In 2015, production on Eye in The Sky (a thriller starring Helen Mirren, Alan Rickman and Aaron Paul) was completed and the movie premiered at the Toronto International Film Festival to critical acclaim. It has generated over US$30 million in global box office receipts to-date and will continue its international roll-out through the summer. Also during the year, the Group has been in production on the Ricky Gervais project David Brent: Life on the Road, with excitement already building around its UK release in August 2016.

From a content standpoint, the Group believes that it is well-positioned with an exciting slate of releases in the new financial year and beyond. Its distribution and production strategy of developing partnerships with film-makers and building scale in film distribution remains unchanged, with knowledge gained from operating directly in local markets a key competitive differentiator to the Group's content selection process.

Operating with the most efficient infrastructure is a key discipline across the Group as it maximises its global distribution network. Its position as one of the largest independent content distributors in the world gives it not only presence with key retailers, broadcasters and digital content service providers but also brings scale advantages relative to its smaller peers. As the markets continue to change, Entertainment One has evolved its structure to ensure that it operates at optimal efficiency, particularly as consumers continue their evolution from physical products to digital.

During the year, the Group has taken significant steps in addressing the cost structure of its Film Division to ensure that the business is positioned to maximise profitability in the future. The Group continues to focus on driving margin improvements in the Film Division, through a wide-reaching restructuring of how the Division operates, which is expected to deliver annual cost savings of £10 million from FY18.

As part of this restructuring programme, new partnerships have been created with 20th Century Fox Home Entertainment, on a multi-territory basis, and Sony Pictures Home Entertainment, in the US, to ensure that the Group remains best-positioned to compete in the evolving home entertainment marketplace. These partnerships give eOne the benefit of scale at retail and increased cost efficiencies and placement opportunities across its territories.

After the short term slate challenges experienced by the Group recently, Entertainment One remains well-positioned in distribution with a strong slate for the rest of 2016 and beyond. New long-term content partnerships will bring high quality releases into the pipeline, driving further revenue opportunities across an efficient sales infrastructure. As the film market continues to evolve, eOne remains focused on maximising the value that can be delivered from its extensive film content library by exploiting the Group's content assets across the broadest range of commercial opportunities. eOne continues to explore options for increasing the coverage of its international network, either through potential corporate opportunities or partnerships.

Financial Review

Revenues decreased by 7% to £553.4 million (2015: £592.6 million), driven by Film Distribution, partly offset by Film Production. Underlying EBITDA was 28% lower year-on-year driven by Film Distribution.

film distribution

Revenues decreased by 15% to £494.9 million (2015: £581.4 million). This was mainly driven by lower theatrical activity and title-specific under-performance, driving theatrical revenues down 19%. Home entertainment revenues were down 22% reflecting theatrical performance and general market decline.

Theatrical

Overall theatrical revenues decreased reflecting lower box office takings, which were down by 16% to US$259 million (2015: US$308 million). This reduction was driven by challenging market conditions, in which the Group had a reduced volume of releases year-on-year (210 compared to 227 in 2015) and under-performance of a number of specific titles.

Despite the overall weaker box office performance, the Group had a number of notable releases in the year which included Spotlight, winner of Best Picture at the Oscars®, being the Group's second Best Picture winner in the last three years. Other key releases included The Divergent Series: Allegiant Part 1, Insidious: Chapter 3, The Hunger Games: Mockingjay Part 2, Quentin Tarantino's The Hateful Eight, Sicario and Southpaw.

The slate for the new financial year is expected to feature a number of high profile releases and the Group's investment in acquired content is expected to increase to around £160 million. The 2017 release slate includes highly anticipated titles such as The BFG, directed by Steven Spielberg, The Girl on the Train, based on the best-selling book, both sourced from the Group's new partnership with Amblin Partners, and David Brent: Life on the Road, starring Ricky Gervais reprising his character from the original UK version of The Office.

Home entertainment

Revenues decreased by 22% reflecting the continuing migration from physical to digital formats as well as the flow-through impact of fewer theatrical releases and the weaker 2015 and 2016 theatrical slate on the home entertainment window. In total, 569 DVDs and Blu-rays were released (2015: 690) including strong performing titles such as The Divergent Series: Insurgent, The Hunger Games: Mockingjay Part 2, Paddington and Mr. Holmes.

eOne's new partnerships with 20th Century Fox Home Entertainment, on a multi-territory basis, and Sony Pictures Home Entertainment, in the US, ensure that the Group remains best-positioned to compete in the physical home entertainment marketplace as it transitions to a digital future.

Over 400 releases are planned for release in the new financial year including The Divergent Series: Allegiant Part 1, The BFG, The Girl on the Train and David Brent: Life on the Road. The planned reduction in the number of releases is driven by fewer non-theatrical releases, partly offset by an increase in the number of theatrical DVD releases.

Broadcast and digital

The Group's combined broadcast and digital revenues were 12% lower reflecting the impact of lower box office revenues in 2015 on the television and digital exploitation windows.

Key broadcast/digital titles in the year included The Divergent Series: Insurgent, Nativity 3, Insidious: Chapter 3, The Hunger Games: Mockingjay Part 1, Nightcrawler, Sicario and Mr Turner.

During 2016 the Group renewed its deal with Amazon Instant Video in the UK, giving Amazon Prime members exclusive access to all eOne new releases from its future film slate. In addition, the Benelux has new agreed deals with Proximus and BETV and Spain has signed a new output deal with Movistar+ and Netflix.

Canada has agreed a number of significant deals during the year, including an agreement with Netflix to distribute The Hunger Games franchise as well as catalogue titles. In addition, Canada signed a five-year output deal with TVA, the number one French Canadian broadcaster and signed a new deal with Shomi in May which will add more than 175 films to Shomi's viewing catalogue and a landmark joint deal with Shomi and Corus for the entire Divergent franchise.

FILM PRODUCTION

Revenues increased by 189% to £60.4 million (2015: £20.9 million). In the year, eOne delivered titles including Sinister 2, Insidious: Chapter 3 and Eye in the Sky generating global box office revenues of US$221 million to May 2016 (2015 titles: US$62 million, driven by Suite Française and Woman in Black: Angel of Death). Eye in the Sky received strong reviews from its worldwide premiere at the Toronto International Film Festival and has sold to all territories worldwide.

The pipeline for the new financial year includes a number of exciting projects. David Brent: Life on the Road, written by and starring Ricky Gervais, is expected to be delivered in summer 2016, and will be released in eOne's territories as well as the remaining rights being sold internationally, with a deal already secured with a global OTT platform. eOne also has distribution rights for its production Message from the King in its distribution territories and all other territories on a global basis. Additionally, eOne has the international rights, excluding Canada and France, for Cannes Jury Prize winner Xavier Dolan's first English language film, The Death and Life of John F Donovan, starring Jessica Chastain, Kit Harrington, Kathy Bates, Michael Gambon and Natalie Portman - it is expected to be delivered at the end of the next financial year.

Entertainment One is positioning a trio of films to begin principal photography before the end of the year. Molly's Game, produced as part of the partnership with Mark Gordon Productions, tells the story of Molly Bloom, who ran the world's most exclusive high stakes poker game before being arrested by the FBI, and is written by Aaron Sorkin and marks his directorial debut. The film stars Jessica Chastain and Idris Elba. Stan and Ollie, about the beloved comedy duo Stan Laurel and Oliver Hardy, stars Steve Coogan and John C. Reilly. Villa Capri is a comedy starring Morgan Freeman and Tommy Lee Jones. All three films have significantly outperformed sales expectations at the recent Cannes Film Festival. Production's global sales business has also seen a strong performance in the year with significant sales of the international rights of Trumbo, Captain Fantastic and the Oscar®-winning Spotlight.

During the year eOne strengthened its production and global sales businesses through a strategic investment in Sierra Pictures. Going forward, the international sales and distribution of films produced and acquired by eOne, as well as eOne-distributed films from The Mark Gordon Company, will be handled by Sierra outside of Canada, the UK, Australia/New Zealand, Benelux and Spain, where eOne directly distributes titles.

Investment in productions is expected to grow to around £70 million (2016: £11.9 million) in the new financial year.

OTHER FINANCIAL INFORMATION

Adjusted operating profit increased by 20% to £124.7 million (2015: £103.6 million) reflecting the growth in the Group's underlying EBITDA. Adjusted profit before tax increased by 17% to £104.1 million (2015: £88.8 million), in line with increased adjusted operating profit, partly offset by higher underlying finance charges reflecting higher average debt levels year-on-year, following the acquisition of The Mark Gordon Company in January 2015, and higher interest rates following the re-financing in December 2015. Reported operating profit increased by 25% to £75.0 million, with the Group reporting a profit before tax of £47.9 million (2015: £44.0 million).

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

2. The Group calculates the effective tax rate after adjusting for the share of results of joint ventures of £3.4 million (2015: £0.2 million). The Group calculates the adjusted effective tax rate after adjusting for profit before tax relating to joint ventures of £5.0 million (2015: £0.1 million) and the related underlying income tax charge of £2.1 million (2015: £nil) (excluding tax one-off credits of £0.5 million recognised during the year (2015: £0.1 million credit)).

JOINT VENTURES

Underlying EBITDA includes £5.0 million of EBITDA related to joint ventures, of which £4.7 million relates to MGC. Following the change in the MGC shareholder agreement in May 2015 the financial results of MGC are now fully consolidated.

Amortisation of acquired intangibles

Amortisation of acquired intangibles increased by £5.2 million to £27.4 million reflecting the increased acquisition and investment activity throughout the year, which included The Mark Gordon Company (fully consolidated from May 2015), Astley Baker Davies Limited, Sierra Pictures, Dualtone Music Group and Last Gang Entertainment. The FY17 charge is expected to increase to around £33 million, reflecting the full year impact of the acquisitions completed during FY16.

Depreciation & capital expenditure

Depreciation, which includes the amortisation of software, has increased by £0.7 million to £4.4 million, reflecting the higher level of investment in software and property, plant and equipment as the Group grows.

Capital expenditure on property, plant and equipment and software increased £5.0 million to £7.7 million (2015: £2.7 million) (excluding Production capital expenditure of £0.9 million (2015: £0.3 million)), primarily reflecting the move to a new office location in Toronto in September 2015.

Share-based payment charge

The share-based payment charge of £4.1 million has increased by £0.7 million during the year, as a result of the ongoing effect of the broadening of the number of employees to whom grants were made under the Group's Long Term Incentive Plan.

One-off items

During the year ended 31 March 2016 the Group continued to develop and progress its growth strategy, including the reorganisation of the physical distribution business. One-off restructuring costs of £12.4 million were incurred during the year and included closure of facilities in North America and costs of moving physical stock from those facilities, staff redundancies and a reassessment of the carrying value of investment in acquired content rights and other assets throughout the Group's Home Entertainment business, specifically relating to the closure of the Group's UK-based international home video business.

In addition, in line with the increased acquisition and investment activity during the year, costs of £7.0 million were incurred relating to The Mark Gordon Company (fully consolidated from 19 May 2015), Astley Baker Davies Limited (22 October 2015), Sierra Pictures (22 December 2015), Dualtone Music Group (11 January 2016), Last Gang Entertainment (7 March 2016) and Renegade 83 (24 March 2016). A credit of £2.8 million related to the release of excess accruals in relation to the Alliance transaction.

Net finance costs

Reported net finance costs increased by £10.9 million to £27.1 million. These included one-off net finance costs of £6.5 million in the current year mainly relating to the write-off of unamortised deferred finance charges expensed to the income statement following the Group's re-financing in December 2015. Adjusted finance charges (which exclude one-off items) of £20.6 million were £5.8 million higher in the current year, reflecting higher average debt levels year-on-year driven by The Mark Gordon Company acquisition in January 2015, which was financed with debt, and higher interest rates following the Group's re-financing in December 2015. The weighted average interest rate for the Group's corporate facility was 5.6%, compared to 4.5% in the prior year. The FY17 weighted average interest rate is expected to be 6.5%, which is higher than FY16 driven by the full year impact of the re-financing completed in December 2015.

Tax

On a reported basis the Group's tax charge of £7.7 million (2015: £2.7 million), which includes the impact of one-off items, represents an effective rate of 17.3% compared to 6.2% in the prior year. On an adjusted basis, the effective rate is in line with the prior year at 22.6% (2015: 22.6%). The FY17 effective tax rate on an adjusted basis is expected to be approximately 23%.

cash flow & NET DEBT

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

Adjusted cash flow

Adjusted cash flow at £75.6 million is higher than prior year by £43.9 million, with improved cash flow in all Divisions, representing an underlying EBITDA to adjusted cash flow conversion of 62% (2015: 33%).

Television

The Television adjusted cash inflow improved in the year to £9.7 million (2015: (£4.8m) outflow), representing an underlying EBITDA to adjusted free cash flow conversion of 30% (2015: -64%), driven by the increase in underlying EBITDA, partly offset by the investment in productions gap in MGC relating to Conviction and Designated Survivor both of which were financed from MGC cash reserves without the use of production financing. The working capital outflow in the current financial year of £15.6 million mainly relates to the increase in receivables reflecting the increase in SVOD revenues, where the payment terms spread receipts over the term of the licence.

Family

The Family adjusted cash inflow increased to £27.2 million (2015: £25.9m), representing an underlying EBITDA to adjusted cash flow conversion of 62% (2015: 107%). The cash flow conversion reduction primarily reflects one-time working capital outflows related to the lower royalty payable accrual as a result of the ABD acquisition.

Film

The Film adjusted cash inflow of £44.9 million delivers an underlying EBITDA to adjusted cash flow conversion of 87% (2015: 25%). This has significantly improved compared to the prior year, despite the reduced underlying EBITDA, driven by lower year-on-year working capital outflows as the prior year included a number of non-recurring acquisition related outflows. In addition, Film's investment in acquired content gap in the year is positive as a result of lower investment spend, as fewer titles have been acquired than during the prior year, and the timing of minimum guarantee payments. The working capital outflow in the current financial year of £25.3 million is primarily due to an increase in receivables driven by the profile of year-on-year Q4 revenue phasing and a decrease in creditors mainly due to the lower royalties reflecting film slate performance in the year.

Free cash flow

Positive free cash flow for the Group of £43.3 million was £30.7 million higher than the previous year driven by increased adjusted cash flow offset by increased capital expenditure and tax payments in the year. Capital expenditure increased to £7.7 million mainly driven by costs associated with the consolidation of the Group's Toronto offices. Tax paid increased by £8.9 million to £14.4 million due to the impact of consolidating MGC as a subsidiary and the acquisition of ABD. Net cash interest paid is broadly in line with prior year, even though the overall cost of debt has increased, as the interest on the Group's senior secured notes is paid on a bi-annual basis with the first payment due in July 2016.

Net debt

In December 2015, the Group re-financed its existing credit facility through the issuance of £285 million senior secured notes (due 2022) and the closing of a new £100 million revolving credit facility maturing in 2020. At 31 March 2016, overall net debt at £180.8 million was £44.1 million better than the prior year primarily reflecting the positive free cash flow of the Group. Net debt leverage improved to 1.4x Group EBITDA (2015: 2.1x). Other major cash flow movements in the year included one-off items, proceeds from the equity raise to fund acquisitions and dividend payments.

The net proceeds of the share issue of £194.5m related to the Group's rights issue in October 2015. These proceeds have been used to acquire the following businesses net of acquired net debt: 70% of Astley Baker Davies Limited in October 2015 for £140.5 million, 100% of Dualtone Music Group in January 2016 for £2.9 million, 100% of Last Gang Entertainment in March 2016 for £0.9 million, 65% of Renegade 83 in March 2016 for £14.0 million, as well as the investment in Sierra Pictures in December 2015 for £8.8 million and the purchase of acquired intangibles of £17.9 million primarily relating to the Amblin Partners investment. The acquisition spend also includes an inflow of £7.7 million resulting from the consolidation of MGC from May 2015 and £0.3 million due to finalisation of the Paperny Entertainment working capital position.

The dividends paid of £4.0 million includes £3.2 million relating to the final dividend of 1.1 pence per share in respect of the year ended 31 March 2015 paid on 10 September 2015 and £0.8 million paid to the non-controlling shareholders of Astley Baker Davies Limited.

Foreign exchange gains of £8.0 million (2015: £1.0 million loss) occurred during the year. In the current year, the movements are primarily related to the translation impact of the strengthening of pounds sterling against the Canadian dollar to December 2015, when the Group re-financed the senior debt facility (c.50% denominated in Canadian dollar) to the pounds sterling denominated senior secured notes.

Production Financing

Overall production financing increased £28.7 million year-on-year to £118.0 million primarily reflecting the positive investment in productions gap where amortisation of film productions exceeded investment spend, driven by the timing of film deliveries year-on-year. This was offset by the production financing acquired as part of the Sierra deal.

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

Financial position and going concern basis

The Group's net assets increased by £295.6 million to £660.4 million at 31 March 2016 (31 March 2015: £364.8 million). The increase primarily reflects the acquired assets from the acquisitions and investments made during the year.

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

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

Independent Auditor's Report

to the Members of Entertainment One Ltd.

Opinion on the consolidated financial statements of Entertainment One Ltd.

In our opinion:

- the consolidated financial statements give a true and fair view of the state of the Group's affairs as at 31 March 2016 and of the Group's profit for the year then ended; and

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

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

Going concern and the directors' assessment of the principal risks that would threaten the solvency or liquidity of the group

As required by the Listing Rules we have reviewed the directors' statement regarding the appropriateness of the going concern basis of accounting and the directors' statement on the longer-term viability of the Group contained within the Directors' Report.

We have nothing material to add or draw attention to in relation to:

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

- the directors' statement in note 3 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

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

Independence

We are required to comply with the Financial Reporting Council's Ethical Standards for Auditors and we confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.

Our assessment of risks of material misstatement

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

Last year our report included two risks which are not included in our report this year: the presentation and consistency of the income and expenditure presented separately as one-off items and deferred tax assets. They are no longer considered to be risks that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. The acquisition accounting risk is newly disclosed in the current year as it is a key area of focus due to the number of businesses acquired including The Mark Gordon Company, Astley Baker Davies Limited, Sierra Pictures and Renegade 83.

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

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

Our application of materiality

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

We determined materiality for the Group to be £3.6m (2015: £3.2m), which is approximately 5% (2015: 5%) of profit before tax after adding back operating and net financing one-off items. We use this as a base for materiality as it is a key measure of underlying business performance for the Group.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £72,000 (2015: £64,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the consolidated financial statements.

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily on the UK and Canadian business units and The Mark Gordon Company. Six (2015: five) business units were subject to a full audit, whilst the remaining business units were subject to analytical review procedures performed by the Group audit team. The six full scope divisions represent the principal business units and account for 70% (2015: 69%) of the Group's revenue and 87% (2015: 85%) of the Group's underlying EBITDA. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the different locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and ranged from £1.8m to £2.2m (2015: £1.8m to £2.1m).

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

The Group audit team continued to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor or a senior member of the Group audit team visits each of the locations where the Group audit scope was focused at least once every year. In addition, for each component in scope, we reviewed and challenged the key issues and audit findings, attended the component close meetings and reviewed formal reporting and selected work papers from the component auditors.

Matters on which we are required to report by exception

Corporate Governance Statement

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

Our duty to read other information in the Annual Report

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

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

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

- otherwise misleading

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

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.

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

Scope of the audit of the financial statements

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

Deloitte LLPChartered Accountants and Statutory Auditor

London23 May 2016

1. The 2015 earnings per share and adjusted earnings per share have been adjusted to reflect the bonus element of the rights issue completed on 20 October 2015.

All activities relate to continuing operations.

Consolidated Statement of comprehensive Income

Consolidated balance sheet

At 31 March 2016

These consolidated financial statements were approved by the Board of Directors on 23 May 2016.

GILES WILLITS (DIRECTOR)

Consolidated Statement of Changes in Equity

for the year ended 31 March 2016

1. See Note 33 for further details.

Consolidated Cash Flow Statement

for the year ended 31 March 2016

1. Nature of operations and general information

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

Entertainment One Ltd. presents its consolidated financial statements in pounds sterling. These consolidated financial statements were approved for issue by the directors on 23 May 2016.

2. New, amended, revised and improved Standards

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

During the year ended 31 March 2016, the following were adopted by the Group:

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

At the date of authorisation of these consolidated financial statements, the following Standards, which have not been applied in these consolidated financial statements, are in issue but not yet effective for periods beginning 1 April 2015:

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

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

3. Significant accounting policies

Use of additional performance measures

The Group presents underlying EBITDA, one-off items, adjusted profit before tax and adjusted earnings per share information. These measures are used by the directors for internal performance analysis and incentive compensation arrangements for employees. The terms "underlying", "one-off items" and "adjusted" may not be comparable with similarly titled measures reported by other companies.

The term "underlying EBITDA" refers to operating profit or loss excluding amortisation of acquired intangibles; depreciation; amortisation of software; share-based payment charge; tax, finance costs and depreciation related to joint ventures; and operating one-off items.

The terms "adjusted profit before tax" and "adjusted earnings per share" refer to the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted earnings per share, one-off tax items. Refer to Note 14.

Basis of preparation

i. Preparation of the consolidated financial statements on the going concern basis

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

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 2016 are shown in Note 23. 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 2016, the Group had £94.7m of cash and cash equivalents not held repayable only to production financing (refer to Note 22), £180.8m of net debt and undrawn down amounts under the revolving credit facility of £106.1m (refer to Note 23).

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

ii. Statement of compliance

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

Basis of consolidation

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

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

Business combinations

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

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

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, are recognised either in the consolidated income statement or as a change to other comprehensive income.

3. Significant accounting policies continUed

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

Revenue recognition

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

- Revenue from the exploitation of television, film and music rights is recognised based upon the completion of contractual obligations relevant to each agreement

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

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

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

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

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

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

Pension costs

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

Operating leases

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

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.

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

Foreign currencies

i. Within individual companies

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

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

ii. Retranslation within the consolidated financial statements

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

3. Significant accounting policies continued

One-off items

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

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

Tax

i. Income tax

The income tax charge/credit represents the sum of the 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.

ii. Deferred tax assets and liabilities

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

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

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

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

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

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

Goodwill

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

Goodwill is allocated to cash generating units (CGUs) which are tested for impairment annually or more frequently if there are indications that goodwill might be impaired. The CGUs identified are the smallest identifiable group of assets that generate cash 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.

3. Significant accounting policies continued

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:

Interests in joint arrangements

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

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

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

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

Investment in productions

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

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

Government grants

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

Property, plant and equipment

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

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

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

3. Significant accounting policies continued

Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets are tested annually for impairment (as required by IFRS, in the case of goodwill) or when circumstances indicate that the carrying amounts may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. The recoverable amount is the higher of an asset's or CGU's fair value less costs to sell and its value-in-use and is determined for an individual asset, unless the asset does not generate cash 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.

Inventories

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

Investment in acquired content rights

In the ordinary course of business the Group contracts with film and television programme producers to acquire content rights for exploitation. Certain of these agreements require the Group to pay minimum guaranteed advances (MGs). MGs are recognised in the consolidated balance sheet when a liability arises, usually on delivery of the film or television programme to the Group.

Investments in acquired content rights are recorded in the consolidated balance sheet if such amounts are considered recoverable against future revenues. These costs are amortised to cost of sales on a revenue forecast basis over a period not exceeding 10 years from the date of initial release. Acquired libraries are amortised over a period not exceeding 20 years. Amounts capitalised are reviewed at least quarterly and any portion of the unamortised amount that appears not to be recoverable from future net revenues is written off to cost of sales during the period the loss becomes evident. Balances are included within current assets if they are expected to be realised within the normal operating cycle of the Television, Family and Film businesses. The normal operating cycle of these businesses can be greater than 12 months. In general 65%-75% of film and television programme content is amortised within 12 months of theatrical release/delivery.

Trade and other receivables

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

Cash and cash equivalents

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

Interest-bearing loans and borrowings

All interest-bearing loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised, as well as through the amortisation process.

production financing

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

Deferred finance charges

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

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

Trade and other payables

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

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

3. Significant accounting policies continued

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.

Provisions

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

Derivative financial instruments and hedging

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

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

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

Dividends

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

Equity instruments

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

Own shares

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

Share-based payments

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

Segmental reporting

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

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

The Family segment includes revenues from all of the Group's activities in relation to the production, acquisition and exploitation, including licensing and merchandising, of family content.

The Film segment includes revenues from all of the Group's activities in relation to the production, acquisition and exploitation of film content rights.

4. Significant accounting judgements and key sources of estimation Uncertainty

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

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

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

Impairment of goodwill

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

Acquired intangibles

The Group recognises intangible assets acquired as part of a business combination at fair value at the date of acquisition. The determination of these fair values is based upon the directors' judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Furthermore, the directors must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. Further details of acquired intangibles are contained in Note 16.

Investment in productions and investment in acquired content rights

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

Provisions for onerous film and Television contracts

The Group recognises a provision for an onerous film and television contract when the unavoidable costs of meeting the obligations under the contract exceed the expected benefits to be received under it. The estimate of the amount of the provision requires management to make judgements and assumptions on future cash inflows and outflows and also an assessment of the least cost of exiting the contract. To the extent that events, revenues or costs differ in the future, the carrying amount of provisions may change. Further details of onerous film contracts are contained in Note 26.

Share-based payments

The charge for share-based payments is determined based on the fair value of awards at the date of grant by use of the binomial model which requires judgements to be made regarding expected volatility, dividend yield, risk free rates of return and expected option lives. The list of inputs used in the binomial model to calculate the fair values is provided in Note 34.

Deferred tax

Deferred tax assets and liabilities require the directors' judgement in determining the amounts to be recognised. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration to the timing and level of future taxable income. Further details of deferred tax are contained in Note 12.

Income tax

The actual tax on the result for the year is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is unclear, estimates are used in determining the liability for tax to be paid on past profits which are recognised in the consolidated financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the consolidated financial statements. Further details relating to tax are contained in Note 11.

Fair value measurement of financial instruments

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

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

Contingent consideration

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

5. Segmental analysis

Operating segments

For internal reporting and management purposes, the Group is organised into three main reportable segments based on the types of products and services from which each segment derives its revenue -Television, Family and Film. These Divisions are the basis on which the Group reports its operating segment information. As a result of the acquisition of Astley Baker Davies Limited during the year, the Group took the decision to report its Family business as a separate segment.

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

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

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

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

Inter-segment sales are charged at prevailing market prices.

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

5. Segmental analysis continued

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