Entertainment One Regulatory News (ETO)

19 November 2013

Entertainment One Ltd.

Interim results for the six months ended 30 September 2013

Strong financial results underpin entry into FTSE 250

Entertainment One Ltd. ("Entertainment One", "eOne", "the Company" or "the Group") announces its interim results for the six months ended 30 September 2013.

Financial highlights

Operating highlights

- Significant growth in the Film Division driven by the acquisition of Alliance Films Holdings Inc. ("Alliance") and increased investment in acquired content, delivering improved margins, supported by Alliance integration synergies which are substantially complete

- Television Division delivered 130 half hours of television programming with new seasons ordered of Rookie Blue, Hell on Wheels, Rogue and Saving Hope, and signed a new exclusive three-year output deal with US-based AMC Networks

- The Family business continues to perform strongly with the Peppa Pig overseas licensing programme showing strong growth in the period

- Strong operating cash flow of £114.3 million, up 88% (2012: £60.8 million)

- Full year outlook in line with management expectations

Strategic highlights

- Independent annual valuation of the Group's film, television and music library has increased by almost 70% to over $650 million (2012: $385 million)

- Acquisition of Art Impressions, a Los Angeles based brand and licensing agency, significantly strengthens the Group's brand licensing business

- Inclusion in the FTSE 250 UK Index Series effective from 23 September 2013, following admission to the premium listing segment of the Official List of the Financial Conduct Authority on 1 July 2013

- Intention of the Board remains to announce an inaugural dividend, with payment to be made following the 2014 full year financial results

Darren Throop, Chief Executive Officer, commented:

"It has been a milestone period for Entertainment One with our entry into the FTSE 250. We are demonstrating the strength of our strategy of investing in world-class content and exploiting our distribution rights on a multi-territory, multi-platform basis and I am delighted to report another strong set of half year results across the Group. The Film Division, enlarged by the successful integration of Alliance, has performed well in the first half, and has a strong release slate across our territories for the second half. The Television Division has secured an impressive string of season renewals and signed a significant output deal with the leading cable company AMC Networks, which is testament to our expertise in international distribution. We are looking forward to a positive second half of the year in line with management expectations."

For further information please contact:

A presentation to analysts will take place at 9.00am on Tuesday, 19 November at The Andaz, 40 Liverpool St, EC2M 7QN in the Andaz Studio. To attend, please contact Redleaf Polhill using the details above.

Cautionary statement

This Interim Announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Entertainment One Ltd. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Interim Announcement should be construed as a profit forecast. A copy of this Interim Announcement for the six months ended 30 September 2013 can be found on our website at www.entertainmentone.com.

INTERIM MANAGEMENT REPORT - SIX MONTHS ENDED 30 SEPTEMBER 2013

OVERVIEW

Delivering the strategy

The business has continued to deliver its strategy with significant progress on all of its three strategic priorities:

· Growing the Group's content portfolio

Investment in productions and acquired content rightsincreased by 118% to £163.8 million (2012: £75.3 million) which, combined with the Alliance acquisition, helped drive a 65% increase in revenues. In addition, the annual independent valuation of the Group's film, television and music content library increased to over $650 million, up by almost 70% from $385 million in the prior period, primarily driven by the acquisition of Alliance and the increased investment in acquired content in the previous financial year. Full year investment in content is expected to exceed £250 million, in line with management expectations.

· Improving investment returns

Underlying EBITDA margins increased, driven by the increased scale of the business and the successful delivery of operating synergies following the acquisition of Alliance. The integration phase is now substantially complete with the Film teams in the UK and Canada fully rationalised and the consolidation of systems and suppliers for key services both well progressed. The Group expects to see further savings and efficiencies in the second half of the financial year. Overall, synergies arising from the combination of the two businesses are expected to deliver benefits ahead of management expectations.

Growth in digital sales for the Group continues to more than offset the anticipated decline in home entertainment revenues and increased by 148% to £77.0 million (2012: £31.1 million), and now comprise over 20% of total Group revenues. LOVEFiLM, Netflix and iTunes continue to make up the majority of this revenue stream and the Group has benefited from their expanded footprint into additional Entertainment One territories during the period.

· Expanding global reach

The Group expanded its operational network into Spain as part of the Alliance deal and continues to look for appropriate expansion opportunities in other territories. In addition, the Family business has launched a number of licensing programmes across multiple brands in new territories.

The success of the Group's strategy is reflected in its financial performance in the period and the business enters the second half of the financial year in a strong position.

Entry to FTSE 250 UK Index Series

In May 2013, the Board announced its intention to transfer the listing category of all of the Company's common shares from the standard listing segment to the premium listing ofthe Official List of the Financial Conduct Authority. The transfer to the premium listing took place on 1 July 2013 and the Company was included in the FTSE 250 UK Index Series with effect from 23 September 2013.

OUTLOOK

The outlook for the remainder of the financial year remains positive with the Film Division set for another strong slate of releases and the Television Division on track to deliver a year-on- year increase in the volume of programming. The directors look forward to delivering profit growth in line with management expectations.

DIVISIONAL REVIEWS

The Group reports its results as two divisions, Film and Television. Unless otherwise stated, comparative information in this section for the six months ended 30 September 2012 is stated on a proforma and constant currency basis.

FILM DIVISION

The Film Division comprises the Group's film distribution and production businesses and includes operations in the UK, Canada, the US, Benelux, Spain and Australia. Revenues increased by 9% to £306.9 million and investment in productions and acquired content rights increased 99% to £104.3 million (2012: £52.4 million). Underlying EBITDA of £20.9 million (2012: £11.9 million) was ahead of the same period as a result of higher revenues and improved margins reflecting operational efficiencies following the acquisition of Alliance.

Theatrical

Overall theatrical revenues increased by 11% supported by box office revenues up 11% to $241 million (2012: $217 million). 142 theatrical titles (2012: 153) were released including Riddick and Prisoners, which opened as number one at the box office in Canada and the UK, respectively, Now You See Me, Rush and Behind the Candelabra. Additionally, Insidious: Chapter 2, which was also produced by the Group, opened as number one at the box office in the US, Canada and the UK.

Theatrical revenues were up in all territories except Canada where the planned rationalisation of the combined film slate of the eOne and Alliance businesses resulted in fewer releases. The number of multi-territory theatrical titles released continued to expand in line with the Group's operating strategy. Major first half releases included Now You See Me, RED 2, Mortal Instruments, 2 Guns, Riddick and Rush.

Over 130 film releases are planned in the second half including The Hunger Games: Catching Fire, American Hustle, Delivery Man, Divergent, Last Vegas and 12 Years a Slave.

Home Entertainment

Home entertainment revenues reduced by 12%, in line with general market trends and management expectations. This decline was more than offset by the growth in digital and broadcast revenues, reflecting the anticipated growth in demand from new media channels for entertainment content. In total, 294 DVDs were released including Django Unchained, Silver Linings Playbook, The Impossible, Quartet and Parker. This compared to 407 releases in the prior period reflecting the planned integration of the DVD release schedule following the Alliance acquisition. More than 200 DVD titles are planned for release in the second half including The Hunger Games: Catching Fire, Ender's Game and Now You See Me.

Digital and Broadcast

Combined digital and broadcast revenues increased by 25%, with growth in all territories. In the UK, digital revenues more than doubled against the prior period, with the combined business having ongoing agreements in place with both LOVEFiLM and Netflix. The period also saw a new broadcast deal with the BBC. In the Benelux, digital revenues were a third higher than the previous period, partly driven by increased revenue from Netflix, which has recently launched in this territory. Australian television and digital sales continue to grow, up over 50% year-on-year, and the business has recently concluded a new subscription video-on-demand ("VOD") agreement with local broadcaster, Foxtel. Additionally, in Canada a new library deal was signed with Netflix.

Film Production

As part of the Alliance acquisition, eOne acquired the Film Production business, which has had a very strong period. Films are produced through a combination of owned and joint-venture vehicles with partners and are financed in a way that helps eOne retain upside in the performance of each title, whilst reducing its financial exposure to a level comparable to a typical third party produced content acquisition.

The Group's key production in the period, Insidious: Chapter 2, opened as number one at the box office in the US, UK and Canada and has delivered over $140 million of global box office revenues to date. Other productions delivering revenues for the business during the current period were Dark Skies and Woman in Black.

Suite Française is currently in post-production and due for release in 2014 and the business has other productions in the pipeline including Woman in Black: Angel of Death.

TELEVISION DIVISION

The Television Division comprises the Television Production business, the Family business and the Music business. Revenue at £70.0 million (2012: £66.8 million) was 5% higher than the previous period with underlying EBITDA up 3% to £9.9 million (2012: £9.6 million). Investment in productions and acquired content rights was up 20% to £59.5 million (2012: £49.5 million). At 30 September 2013, contracted sales not yet recognised as revenue, relating to productions in progress, were approximately £41 million (2012: £35 million).

Television Production

Television Production delivered 130 half hours of programming, which was marginally ahead of management expectations, compared to 138 half hours in the prior period. Key deliveries included season two of Saving Hope, season three of Hell on Wheels and season four of Haven and Rookie Blue. There is a strong pipeline for the remainder of the year, including season two of Rogue, starring Thandie Newton, new supernatural series Bitten and Discovery Channel's keenly-anticipated television series Klondike. Full year deliveries are expected to be over 300 half hours, up on the prior year's 295 half hours with investment in productions in line with management expectations.

The Group's production pipeline remains strong including Book of Negroes for BET Networks, non-scripted shows Mary Mary, The Sheards, Sisters with Voices, 28 Heroes, Compete to Eat, One Night Stand, Twin Life and Martian War. Pipeline renewals on scripted series include season three of Saving Hope, season four of Hell on Wheels and season five of Rookie Blue. The business is also acquiring excellent source material for development alongside third party content for international distribution.

The business continued to generate strong sales of the Group's productions and its third party acquired content into all key territories, particularly following the recent MIPCOM television market in Cannes. The business now has almost 3,000 hours of television programming available to exploit for international distribution deals.

During the first half, the business agreed an exclusive three-year output deal with US-based AMC Networks, under which it will handle international distribution (including digital and home entertainment rights) for all original scripted series from AMC's US-based networks which comprise AMC and the Sundance Channel - the first three series to be part of this deal are Halt and Catch Fire, Turn and The Red Road.

Family

The Family business had a good first half with strong licensing renewals and an expansion in its overseas licensing programme driving an increase in revenue of 30%.

The UK toy market continues to experience strong competition amongst its key brands. Peppa Pig has held its position as the leading pre-school property (winning the award for Best Pre-school Licensed Property for the fourth time at the Annual Licensing Awards), with underlying royalties increasing year-on-year. Ben & Holly's Little Kingdom has grown despite facing increased competition from Hello Kitty and Moshi Monsters, and continues to report strong broadcast ratings.

In the US, Peppa Pig continues to enjoy excellent broadcast ratings with its 6pm prime-time slot seven days a week on Nick Jr and has recently been given a new weekly slot on Nickelodeon, the bigger sister channel to Nick Jr. The exclusive deal with Toys R Us has been extended and the Peppa Pig overseas licensing programme has shown significant growth in the period within Australia, Spain and Italy. Licensing programmes in new territories have also been launched, including in Germany where a broadcast platform has been secured with KiKA.

The period has seen a significant step to broaden the Family business outside its pre-school core towards a wider audience, with the acquisition of Art Impressions, a Los Angeles based brand and licensing agency, and by securing the distribution rights for Simon's Cat covering television, home entertainment, and licensing and merchandising.

The acquisition of Art Impressions marks an expansion of eOne Family's licensing business into the 'lifestyle' segment. Key brands owned and managed by Art Impressions are So So Happy, Skelanimals and Milky Way and the Galaxy Girls, all of which are teen/tween brands driven by design concepts rather than television programming. So So Happy branded products are featured in specialty shops around the world, including trend-setting boutiques in Los Angeles, New York, Chicago, Paris and London and were also launched in Walmart Canada in autumn 2013.

Music

The Music business had a good first half with increased revenues driven by a higher number of albums released (44 in 2013, versus 38 in 2012) and the continued success of the Death Row Records library which was acquired in the previous financial year.

FINANCIAL REVIEW

The Group has delivered strong revenue growth increasing sales in the period by 65% to £364.5 million (2012: £220.5 million). This was driven by the acquisition of Alliance and increased investment in acquired content rights. On a proforma basis (including the results of Alliance, which was acquired on 8 January 2013, as if that business had been acquired on the first day of the comparative period) Group revenues increased by 8%.

Underlying EBITDA (operating profit before one-off items, share-based payment charges, depreciation and amortisation of acquired intangibles) was more than twice the level of the same period last year at £28.4 million (2012: £13.4 million). On a proforma basis, underlying EBITDA increased by 43%.

Investment in productions and acquired content rights was up 61% to £163.8 million (2012 £101.9 million) on a proforma basis, with full year investment expected to exceed £250 million, in line with management expectations.

Adjusted operating profit (which excludes amortisation of acquired intangibles, share-based payments and one-off items) increased by 124% to £27.3 million (2012: £12.2 million) reflecting the growth in underlying EBITDA. Operating profit reduced by £1.2 million to £2.9 million with adjusted profit before tax increasing by 141% to £21.2 million, in line with increased adjusted operating profit. The Group reported a profit before tax of £1.1 million (2012: £1.0 million).

Amortisation of acquired intangibles

Amortisation of acquired intangibles increased by £15.2 million to £20.5 million as a result of the increase in acquired intangibles arising on the Alliance acquisition.

Depreciation

Depreciation, which includes the amortisation of software, was in line with the prior period at £1.1 million.

Share-based payment charge

During the period a grant was made under the new Long-Term Incentive Plan which has resulted in the share-based payment charge increasing by £0.2 million to £0.5 million for the six months ended 30 September 2013.

One-off items

One-off items totalled £3.4 million and included £1.8 million of net Alliance-related costs and £1.1 million of charges relating to the transfer of the listing category of all of the Company's common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority.

The Alliance-related costs include £7.6 million of restructuring expenditure offset by a net credit of £5.8 million resulting from a re-assessment of the amount of contingent consideration payable in respect of box office targets related to the Alliance acquisition.

Net finance charges

Reported net finance charges decreased by £1.3 million to £1.8 million. Excluding one-off net finance income of £4.3 million, adjusted finance charges of £6.1 million were £2.7 million higher in the current period, reflecting higher average net debt levels since the Alliance acquisition.

One-off net finance income of £4.3 million (2012: £0.3 million) included a gain of £0.9 million (2012: £0.3 million) arising on the mark-to-market valuation of derivative financial instruments and a foreign exchange gain of £4.4 million, part in relation to certain monetary assets and liabilities acquired as part of the Alliance acquisition and part as a result of the implementation in the period of a new group finance structure.

The weighted average interest rate was 5.4% compared to 5.7% in the prior period, giving a cash interest cover of 5.6 times underlying EBITDA (2012: 4.5 times).

Tax

On a reported basis the Group's tax credit of £6.4 million, which includes the impact of one- off items, represents an effective rate of (581.8)% compared to 70.0% in the comparative period and 120% for the year to 31 March 2013. On an adjusted basis, the effective rate is 27.4% compared to 27.3% in the comparative period and 27.9% in the year to 31 March 2013. The adjusted effective rate for the full year is anticipated to be around 27%.

Earnings per share

The reported diluted earnings per share was 2.7 pence (2012: 0.1 pence). This reflects a higher reported profit after tax in the current period of £7.5 million (2012: £0.3 million) which is offset by the impact of the higher weighted average number of dilutive shares in the current period following the Alliance equity raise in September 2012. On an adjusted basis the diluted earnings per share was 5.5 pence (2012: 3.1 pence).

Cash flow

Net cash from operating activities of £114.3 million was 88% ahead of the previous period, reflecting the improved underlying EBITDA and strong cash generation from the Alliance acquisition and the Group's content acquisition and production activities.

Consistent with the Group's strategy to grow its content portfolio, investment in productions and acquired content rights totalled £163.8 million, compared to £75.3 million in the prior period.

The net cash outflow from the acquisition of subsidiaries was £4.9 million. £3.9 million related to the acquisition of Art Impressions Inc. (£6.3 million including acquired debt), £0.6 million was paid into an escrow account in relation to the Alliance box office target and £0.4 million was paid in respect of other smaller acquisitions.

Financing

The net debt balances at 30 September comprise the following:

Adjusted net debt was £142.8 million, an increase of £79.6 million from the previous year. The increase is driven primarily by normal seasonal cash flow movements, the acquisition of Alliance in January 2013 and the increase in investment in productions and acquired content rights throughout the twelve months ending 30 September 2013. Adjusted net debt at 31 March 2014 is expected to be in line with management expectations.

Production net debt increased by £8.7 million year-on-year to £55.6 million, reflecting the new Film Production business acquired as part of the Alliance acquisition. This financing is independent of the Group's senior credit facility. It is excluded from the calculation of adjusted net debt as it is secured over the assets of individual production companies within the Production businesses and represents shorter-term working capital financing that is arranged and secured on a production-by-production basis.

Financial position and going concern basis

The Group's net assets increased £103.4 million to £314.2 million at 30 September 2013 (2012: £210.8 million). The increase primarily reflects the acquisition of Alliance in the second half of the previous financial year.

The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern. The directors consider it appropriate to prepare the interim financial statements on a going concern basis, as set out in Note 2 to the condensed consolidated financial statements.

Statement of Directors' Responsibility

The directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and

b) the Interim Management Report includes a fair review of information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Conduct Authority.

By order of the Board

Giles Willits

Director

18 November 2013

Condensed Consolidated Income Statement

for the six months ended 30 September 2013

All activities relate to continuing operations. All of the profit for the period is attributable to the owners of the ultimate parent company. As set out in Note 7, adjusted basic earnings per share in the prior period has been restated.

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2013

All items of other comprehensive income for both periods may be reclassified to profit or loss in subsequent periods. All of the total comprehensive loss for the period is attributable to the owners of the ultimate parent company.

Condensed Consolidated Balance Sheet

at 30 September 2013

The restatement of the condensed consolidated balance sheet at 31 March 2013 relates to a reclassification between investment in productions and investment in acquired content rights and is further explained in Note 8. The restatement of the condensed consolidated balance sheet at 30 September 2012 is due to the bifurcation of intangible assets into goodwill and other intangible assets to match with the current period's presentation.

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 September 2013

Condensed Consolidated Cash Flow Statement

for the six months ended 30 September 2013

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 September 2013

1. General information

Entertainment One Ltd. and subsidiaries ("the Group") is a leading independent entertainment group focused on the acquisition, production and distribution of film and television content rights across all media throughout the world. Entertainment One Ltd. ("the Company") is the Group's ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 175 Bloor Street East, Suite 1400, North Tower, Toronto, Ontario, M4W 3R8. On 1 July 2013, the Company transferred the listing category of all of its common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority. Segmental information is disclosed in Note 3.

These condensed consolidated interim financial statements ("interim financial statements") were approved for issue by the directors on 18 November 2013.

2. Basis of preparation

Significant accounting policies

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union.

These interim financial statements have also been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2014 year end. Except for as set out below, these policies are consistent with the principal accounting policies which were set out in the Group's latest annual audited financial statements, which can be found on the Group's website, www.entertainmentone.com.

During the period, the Group adopted the amendments to IAS 1 Changes to Presentation of Items of Other Comprehensive Income, IAS 19 (revised 2011) Employee Benefits and IFRS 13 Fair Value Measurement with no material impact on the Group's results.

Use of additional performance measures

The Group presents one-off items, underlying EBITDA, adjusted profit before tax and adjusted earnings per share information. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms "one-off items", "underlying" 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 operating one-off items, share-based payment charges, depreciation and amortisation of intangible assets. The terms "adjusted profit before tax" and "adjusted earnings per share" refer to the reported measures excluding operating one-off items, amortisation of acquired intangibles, one-off items relating to the Group's financing arrangements, share-based payment charges and, in the case of adjusted earnings per share, one-off tax items.

Going concern

As part of their ongoing assessment of the Group and its future prospects the directors review regular updates to the forecasts and plans prepared by management. The most recent forecasts, which extend at least 12 months from the date of signing of this report and take account of reasonable possible changes in trading performance (and mitigating actions), show that the Group will be able to operate within the expected limits of its financing facilities and provide headroom against its banking covenants for the foreseeable future.

For the reasons set out above, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing these interim financial statements.

2. Basis of preparation (continued)

Other

These interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2013 which were prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee interpretations, as adopted by the European Union. 

These interim financial statements are unaudited but have been reviewed by the auditors and their review opinion is included at the end of these statements.

These interim financial statements are presented in pounds sterling, which is also the functional currency of the parent company. All values are shown in millions, rounded to the nearest one hundred thousand pounds, except when otherwise stated.

3. Operating segments

For internal reporting and management purposes, the Group is organised into two main reportable segments based on the types of products and services from which each segment derives its revenue - Film and Television. These divisions are the basis on which the Group reports its operating segment information.

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

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

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

At 30 September 2012, prior to the acquisition of Alliance and subsequent Group restructuring, the Group's operating segments were Entertainment and Distribution. As a consequence of changes in reporting segments, prior period segment information has been restated to match the current period's presentation.

Inter-segment sales are charged at prevailing market prices. Depreciation includes amortisation of software.

Unaudited segment information for the six months ended 30 September 2013 is as follows:

1 Includes £15.2m in respect of the intangibles acquired as part of the Alliance acquisition in January 2013.

Unaudited segment information for the six months ended 30 September 2012 is as follows:

4. One-off items

Alliance-related costs

Alliance-related restructuring costs

During the six months ended 30 September 2013, the Group incurred £7.6m of restructuring costs related to the Alliance acquisition, which was completed in January 2013. A charge of £4.8m was recorded for staff redundancy costs associated with the Group's synergy-realisation programme. A charge of £1.9m was incurred due to higher inventory returns arising from the inventory consolidation programme to integrate the acquired Alliance film catalogue. In addition, a charge of £0.9m has been recorded during the period in respect of unused office space as a result of the integration of the operations in Canada.

Alliance-related acquisition (credit)/costs

At 30 September 2013, the Group re-assessed the amount of contingent consideration payable in respect of box office targets related to the Alliance acquisition, resulting in a credit to the condensed consolidated income statement of £5.8m. This credit is net of a charge relating to certain box office target film titles which significantly under-performed in the current period, resulting in the release of the payable amount. In the six months ended 30 September 2012, the Group incurred £2.5m of costs relating to the acquisition of Alliance.

Other corporate projects and acquisition costs

Charges related to other corporate projects during the six months ended 30 September 2013 of £1.4m primarily relate to transfer of the listing category of all of the Company's common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority. Acquisition costs of £0.2m incurred during the six months ended 30 September 2013 relate to the Group's acquisition of Art Impressions Inc. ("Art Impressions"), a US brand and licensing agency, on 16 July 2013 (see Note 12 for further details).

5. Finance income and finance costs

Finance income and finance costs comprise:

One-off net finance income of £4.3m (2012: £0.3m) comprises foreign exchange gains of £4.4m, a gain of £0.9m (2012: £0.3m) arising on the mark-to-market valuation of derivative financial instruments, a charge of £0.6m in respect of fees incurred on an amendment made to the Group's senior bank facility during the period and £0.4m of non-cash interest charges on certain provisions.

As set out above, of the net foreign exchange gains of £4.1m recognised during the six months ended 30 September 2013, a credit of £4.4m has been treated as a one-off item (with a charge of £0.3m being included within adjusted net finance costs). Part of the one-off amount has arisen on the revaluation of certain monetary assets and liabilities acquired as part of the Alliance acquisition. The remaining one-off foreign exchange gain is as a result of the implementation in the period of a finance structure to manage the portfolio of multi-currency intercompany loans that form the basis of the long-term financing of the Group's international operations. The Group expect that both of these one-off foreign exchange exposures will be substantially mitigated during the second half of the current financial year.

6. Tax

The reported effective income tax rate for the six months ended 30 September 2013 is (581.8)% (2012: 70.0%). The rate is calculated by applying the estimated annual effective income tax rate by tax jurisdiction to the pre-tax profits and losses of each jurisdiction for the six month period.

On an adjusted basis, the effective income tax rate for the six months ended 30 September 2013 is 27.4% (2012: 27.3%).

Included with the one-off net tax credit of £12.2m in the six months ended 30 September 2013 is £3.5m relating to the recognition of a deferred tax asset in respect of US losses which matches the deferred tax liability recognised on the acquisition of Art Impressions (see Note 12).

7. Earnings per share

Basic earnings per share is calculated by dividing earnings for the period attributable to shareholders by the weighted average number of shares in issue during the period, excluding treasury shares held by the Employee Benefit Trust ("EBT") which are treated as cancelled.

Adjusted basic earnings per share is calculated by dividing adjusted earnings for the period attributable to shareholders by the weighted average number of shares in issue during the period, excluding treasury shares held by the EBT which are treated as cancelled. Adjusted earnings are the profit for the period attributable to shareholders adjusted to exclude one-off operating and finance items, share-based payment charges and amortisation of acquired intangible assets (net of any related tax).

Diluted earnings per share and adjusted diluted earnings per share are calculated after adjusting the weighted average number of shares in issue during the period to assume the conversion of all potentially dilutive shares.

7. Earnings per share (continued)

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

As noted above, treasury shares held by the EBT are excluded from basic earnings per share and adjusted basic earnings per share. In 2012, 4.0m shares were excluded from the earnings per share calculation on this basis, despite these shares being allocated to specific beneficiaries' sub-trusts and having voting rights attached to them. In the current period, the directors no longer consider that shares in such sub-trusts qualify as treasury shares and therefore these have not been excluded from the earnings per share calculations. Accordingly, the weighted average number of shares for both basic earnings per share and adjusted earnings per share for the six months ended 30 September 2012 have been restated to match the current period's presentation. Consequently, adjusted basic earnings per share for the six months ended 30 September 2012 has been restated.

Adjusted earnings per share

The directors believe that the presentation of adjusted earnings per share, being the diluted earnings per share adjusted for one-off operating and finance items, share-based payments and amortisation of acquired intangibles (net of any related tax effects), helps to explain the underlying performance of the Group. A reconciliation of the earnings used in the diluted earnings per share calculation to earnings used in the adjusted earnings per share calculation are set out below:

1 As explained in Note 8, amortisation of acquired intangibles in 2012 includes £0.2m in respect of acquired investment in productions.

8. Investment in productions

Included in the amortisation charge for the six months ended 30 September 2012 was £0.2m attributable to productions valued on acquisition of subsidiaries (which had been fully amortised by 31 March 2013) and which was charged to administrative expenses. As set out in Note 7, this amount is added back to the profit for the period in order to calculate adjusted earnings per share.

During the six months ended 30 September 2013, the Group re-assessed the presentation of its investment in film productions as a result of the directors making a strategic decision to make further investment in this business. These assets were acquired as part of the Alliance acquisition in January 2013 and had been provisionally classified within investment in acquired content rights at 31 March 2013. The directors now consider it is more appropriate to classify these assets within investment in productions. Consequently, the Group has retrospectively reclassified £13.3m from investment in acquired content rights to investment in productions as if the adjustment had been made at the acquisition date as under IFRS 3 (Revised) Business Combinations the adjustment is within the 'measurement period'.

9. Investment in acquired content rights

As explained in Note 8, at 31 March 2013 an amount of £13.3m has been reclassified from investment in acquired content rights to investment in productions.

10. Interest-bearing loans and borrowings

The Group's net debt is as follows:

11. Stated capital

Stated capital at 30 September 2013 totalled £282.4m (31 March 2013: £282.4m; 30 September 2012: £174.1m).

During the six months ended 30 September 2013, 9,677,992 common shares (2012: 4,724,615) were issued to employees (or former employees) exercising share options granted under various schemes. The total consideration received by the Company on the exercise of these options was £nil (2012: £0.2m). Consequently, the total number of common shares in issue increased from 273,619,314 at 31 March 2013 to 283,297,306 at 30 September 2013 (30 September 2012: 196,704,481). At 30 September 2013, the Company had 3,463,706 treasury shares (30 September 2012 (restated): 3,463,706).

In October and November 2013, the Company issued 137,451 common shares to employees and former employees exercising share options granted under various schemes. The total consideration received by the Company on the exercise of these options was £nil.

Subsequent to these transactions and at the date of authorisation of these interim financial statements, the total number of common shares in the Company totalled 283,434,757.

12. Business combinations

As set out in Note 4, during the six months ended 30 September 2013, the Group acquired Art Impressions for total consideration of £5.0m. The Group recognised £9.9m of other intangible assets and a related deferred tax liability of £3.5m as part of this business combination. The net cash outflow arising from this acquisition was £3.9m, comprising cash consideration of £5.0m less cash and cash equivalents acquired of £1.1m.

During the period the Group made other minor acquisitions for total cash consideration of £0.4m and also paid £0.6m into an escrow account in relation to the box office target as part of the Alliance acquisition. Consequently, the total net cash outflow from acquisitions during the period was £4.9m (2012: £0.3m).

13. Seasonality

The Group's exposure to seasonality varies by division. The results of the Film Division are impacted by the number and timing of film releases. Release dates are not entirely within the control of the Group and are determined largely by the production and release schedules of the film's producers.

Revenues from television productions are driven mainly by contracted delivery dates with primary broadcasters and can fluctuate significantly from period to period.

14. Risks and uncertainties 

The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Group's strategic objectives. The Corporate Governance Statement on pages 30 and 31 of the Annual Report and Accounts for the year ended 31 March 2013 describes the systems and processes through which the directors manage and mitigate risks. The Board considers that the principal risks to achieving its objectives are set out below. The Board recognises that the nature and scope of the risks can change and so reviews the risks faced by the Group as well as the systems and processes to mitigate them. The Board considers the principal risks to achieving its objectives to be:

· attracting and retaining the best people;

· strategy execution;

· regulatory/market environment;

· acquisition effectiveness;

· content investment opportunities;

· content distribution agreements; and

· financial risk management (including risks relating to interest rates, foreign exchange, credit exposure, liquidity and financial covenants associated with the bank facility).

As part of financial risk management the Group monitors foreign currency movements. The movement in foreign currency exchange rates during the period has an impact on the reporting of the financial performance of the Group. In particular, the different functional currencies of the Group (USD, CAD, EUR, GBP and AUD) result in consolidation translation gains and losses as the Group reports its financial results in GBP. During the six months ended 30 September 2013 a loss of £22.4m (six months ended 2012: £0.9m) has been charged to the currency translation reserve, reflecting the impact of the stronger GBP on translation of the Group's non-sterling net assets. The Group looks to balance local currency borrowings with the net assets of individual operating units to help mitigate the impact of currency movements in relation to the Group's consolidated net assets.

The financial results of individual businesses within the Group are not significantly impacted by foreign currency movements other than in relation to the investment in acquired content rights which is generally transacted in USD. The Group reduces its exposure to risk in relation to foreign currency movements in these circumstances through hedging instruments and internal currency offsets where available.