Entertainment One Regulatory News (ETO)

5 Dec 2007 07:01

Entertainment One Ltd05 December 2007 Entertainment One Ltd. Interim Results for the period ended 30 September 2007 Entertainment One Ltd. ('Entertainment One' or 'the Group'), a leadinginternational film and entertainment content owner and distributor todayannounces its maiden interim results following its listing on the AlternativeInvestment Market ('AIM') on 29 March 2007. Strategic Highlights • Successfully executing strategy to build a leading international filmed entertainment content owner and distributor following the acquisition of Entertainment One Income Fund• Completed three further strategic acquisitions expanding the business operations in the US, the UK and Canada - Navarre Entertainment Inc. ('Navarre') was acquired by the Group in May 2007 for £3.3 million as an addition to the Distribution division's operations in the US - Contender Entertainment Group ('Contender') was acquired by the Group in July 2007 for £49.1 million expanding its operations into the UK - Seville Entertainment Inc. ('Seville') was acquired for £2.5 million strengthening the Entertainment division's position in the Canadian film distribution market• Significantly enhanced film supply through long term multi-territory deal with Hollywood studio Summit Entertainment Inc. Financial Highlights Pro-forma (1) • Revenue up 0.9% on last year at £116.0 million• Operating EBITDA (2) of £7.3 million up 25.9% on last year Reported • Revenue of £106.7 million• Underlying EBITDA (3) of £5.6 million• Loss before tax of £5.4 million Darren Throop, Chief Executive of Entertainment One, commented "Since ourlisting in March, we have made significant progress towards our objective ofbecoming the leading international film and entertainment content owner anddistributor. Our acquisitions of Contender in the UK and Seville in Canada havelaid the foundation for our multi-territory offering and our film supply dealwith the Hollywood studio Summit Entertainment has established Entertainment Oneas a major independent film distributor. "Looking forward, we will seek to further develop our business in existingterritories and expand geographically to enhance our offering and leverage thebenefits of scale." For further information, please contact FinsburyFaeth Birch/Don HunterTel: +44 (0)20 7251 3801faeth.birch@finsbury.com/don.hunter@finsbury.com Entertainment OneDarren Throop (CEO) Giles Willits (CFO)Tel: +1 (905) 282 7878 Tel: +44 (0)20 7004 2700dthroop@entertainmentone.ca gileswillits@entertainmentonegroup.com Kaupthing Singer & Friedlander Capital Markets LimitedMarc Young/James MaxwellTel: +44 (0)20 3205 7624 1 - Pro-forma results based on trading from 1 April to 30 September for all businesses owned by the Group during that period with comparatives based on constant foreign exchange rates 2 - Operating EBITDA is the earnings before group costs, share-based payment charges, interest, tax, depreciation and amortisation 3 - Underlying EBITDA is the earnings before share-based payment charges, interest, tax, depreciation and amortisation Business Review Overview This maiden set of interim results covers the period from the incorporation ofthe Group on 11 January 2007 to 30 September 2007. The Group commenced tradingfollowing the acquisition of Entertainment One Income Fund which coincided withthe listing of the Group on the AIM on 29 March 2007. Financial Performance Reported results for the period are set out in the Consolidated IncomeStatement. Revenues were £106.7 million, underlying EBITDA was £5.6 million andthe loss before tax for the period was £5.4 million. The Group delivered strong year on year growth during the period. For thepurpose of providing a like for like comparison of performance in the Group'soperations the financial results have been provided on a pro-forma basis.Overall the Group has increased pro-forma operating EBITDA by 25.9% to £7.3million driven by strong performance across both the Entertainment andDistribution divisions. Sector Summary The global filmed entertainment industry generated gross receipts totallingUS$103bn in 2006 and 2007 has proven to be a strong year with year on yeargrowth in global box office receipts. There are three main components of the filmed entertainment industry valuechain: production studios, film distributors and consumer channels which includecinemas, DVD rental and retail stores and TV broadcasters. Major blockbuster films are generally distributed by the in-house distributionfunctions of the major Hollywood studios producing these films. However,independently produced films are generally distributed by independentdistributors. Independently distributed films account for about 25% of globalfilmed entertainment market. Growth in global independent co-productions andlocal market film investment outside of the major studio system has helpedsecure a position for independent film and independent distributors. The Group believes that a significant independent film distributor operatingacross multiple territories, such as Entertainment One, is attractive toproducers and studios seeking a partner to acquire and distribute their films.It is also able to drive cost synergies and take advantage of enhanced revenueopportunities not normally available to smaller local distributors operatingwithin only single territories. Group Strategy Entertainment One's strategy focuses on becoming the leading multi-territoryfilm distributor acquiring, owning and exploiting filmed entertainment rightsacross the spectrum of distribution channels including theatres, home video,television and digital delivery platforms. This will be achieved through organicgrowth and the acquisition of established film distribution businesses in coreterritories. The filmed entertainment market outlook remains positive with growth expected inall of the major exploitation windows. In addition the change in formats isexpected to provide additional opportunities for growth in both the digital andinternet markets, although at present these markets represent a small percentageof the total. As the Group expands its ownership of filmed entertainment rightsit will be able to take advantage of these market opportunities. Group Operating Divisions Entertainment One consists of two operating divisions: Entertainment Division: comprised of leading UK and Canadian film distributors,Contender Entertainment and Seville Pictures, which own and distribute film andTV rights. The division also includes Koch the leading independent record labelin the US, which owns and distributes music and film rights. Entertainmentcurrently enjoys a large catalogue of entertainment rights and anticipatesexpanding this through individual film and library acquisitions. This library isavailable for exploitation in all media formats including home entertainment, TVand digital platforms. By releasing a large number of motion pictures throughmultiple distribution platforms, Entertainment One creates a diversifiedportfolio of releases which will provide a foundation of stable cash flows intothe future. Distribution Division: comprised of Entertainment One Canada which is theleading wholesale distributor of DVD's in Canada, and Koch EntertainmentDistribution in the US which is the largest independent distributor of exclusivevideo and music content. Group Results Since listing on the AIM, trading across the Group has been strong, deliveringyear on year growth. In total, on a constant foreign exchange rate basis, theGroup pro-forma revenues are up 0.9% year on year delivering an increasedpro-forma operating EBITDA of £7.3 million, up 25.9%. This is driven by strongperformance across the Group. ----------------------------------------------------------------------------------------------------------------- Reported Pro-forma(1)Summary Income Statement Actual Foreign Constant Foreign For the period to 30 September 2007 Exchange Rates Exchange Rates(2) Current Current Prior Prior year year year year £000 £000 £000 % £000 %------------------------------------------------------------------------------------------------------------------- Revenue 106,663 115,955 121,616 (4.7) 114,933 0.9 Operating EBITDA 10,582 12,497 9,878 26.5 9,516 31.3(pre content amortisation) Operating EBITDA 6,994 7,348 6,034 21.8 5,838 25.9 ----------------------------------------------------------------------------------------------------------------- Group Costs(3) (1,350)------------------------------------------------------------------------------------------------------------------ EBITDA 5,644---------------------------------------------- 1 - Pro-forma results based on trading from 1 April 2007 to 30 September 2007 for all businesses owned by the Group during that period (Entertainment One, Koch, Contender and Seville). Prior year comparatives are based on the same basis and trading period. Pro-forma numbers only include Navarre revenues for the period since this transaction was completed on 14 May 20072 - Constant foreign exchange rates present the prior year comparatives at the same rate as the current year3 - Group Costs are costs (excluding share-based payment charges) that cannot be allocated to a specific operating division Entertainment Results The Group's Entertainment division operates in Filmed Entertainment and Music.Overall Entertainment pro-forma revenues have grown 22.8% to £39.3 million, withthe pro-forma operating EBITDA at £3.7 million up 32.5%. The reported resultsfor the Entertainment division are included in Note 3 of the interim financialstatements. -----------------------------------------------------------------------------------------------------------------Entertainment Actual Foreign Constant Foreign Exchange Rates Exchange RatesPro-forma Financial Overview Current Prior Prior For the six month period to year year year30 September 2007 £000 £000 % £000 % -----------------------------------------------------------------------------------------------------------------Revenue - Filmed Entertainment 27,153 24,644 10.2 22,268 21.9 - Music 12,114 10,358 17.0 9,712 24.7 ----------------------------------------------------------------------------------------------------------------- Total 39,267 35,002 12.2 31,980 22.8 ----------------------------------------------------------------------------------------------------------------- Operating EBITDA pre content amortisation - Filmed Entertainment 5,239 4,787 9.4 4,743 10.5 - Music 3,569 1,839 94.1 1,689 111.3 ----------------------------------------------------------------------------------------------------------------- Total 8,808 6,626 32.9 6,432 36.9 ----------------------------------------------------------------------------------------------------------------- Operating EBITDA - Filmed Entertainment 2,440 2,638 (7.5) 2,620 (6.8) - Music 1,219 144 747.5 135 797.3 ----------------------------------------------------------------------------------------------------------------- Total 3,659 2,782 31.6 2,754 32.5 ----------------------------------------------------------------------------------------------------------------- Investment in Content - Filmed Entertainment 4,011 2,918 37.5 2,881 39.3 - Music 2,280 1,878 21.4 1,722 32.4 ----------------------------------------------------------------------------------------------------------------- Total 6,291 4,796 31.2 4,603 36.7 ----------------------------------------------------------------------------------------------------------------- Filmed Entertainment This has been a significant period of change for the Filmed Entertainmentdivision. The division has completed two significant transactions in the periodwhich together with the other Filmed Entertainment businesses of the Group,Paradox and Koch Vision have the business operating in three territories,Canada, UK and US under the management of Patrice Theroux, who joined theEntertainment One Board in August as President of Filmed Entertainment. The acquisition of Contender for £49.1 million established a UK base for theGroup. Contender is one of the leading independent filmed entertainmentdistributors in the UK with established capabilities to exploit content acrossall windows, a film library of 170 films and is the creator of the verysuccessful children's TV programmes Peppa Pig and Tractor Tom, for which it ownsworldwide rights in perpetuity. In August the Group acquired Seville Picturesfor £2.5 million, a leading film distribution company and entertainment rightsowner in Canada. Seville exploits filmed content across all windows and also hasa film library in excess of 500 films, including worldwide rights to over 100films. These two acquisitions established the Group's credentials as a multi-territoryfilmed entertainment distributor and were instrumental in the successfulnegotiation of the three year output deal for the UK and Canada with SummitEntertainment, the successful Hollywood studio. This deal alone will deliver tothe Group approximately 25 movies over the next 3 years in both the UK andCanada and will be a strong driver of growth. During the period to 30 September 2007 Filmed Entertainment grew pro-forma sales21.9% (on a constant foreign exchange rate basis) to £27.2 million. Pro-formaoperating EBITDA before content rights amortisation was up 10.5% to £5.2 millionreflecting strong performances across all the film businesses. Seville saw salesfrom all media windows and in particular had theatrical releases including War,Contre Toute, 2 Days in Paris and Bluff. In addition on 28 September it releasedShake Hands with the Devil. This release impacted results with Print andAdvertising ('P&A') spend of £0.5 million which was expensed in the period butrevenues that will be earned in the second half of the financial year. In Contender sales grew following successful DVD releases including TV hits Lifeon Mars and Spooks, 9th Company and Jekyll. In addition Peppa Pig contributedsignificantly through both DVD and merchandise income with Peppa Pig rated No.1pre school show on both Channel 5 and Nick Jr. Paradox performed well with successes with Mr Bean and Inland Empire, and KochVision grew with strong releases including films; A Few Days in September andThe Bridge, and TV programmes such as McLeod's Daughters. The increase in amortisation, reflecting the additional investment in filmcontent rights, resulted in a pro-forma operating EBITDA of £2.4 million, 6.8%down on the prior year. The pipeline of new titles is strong, particularlyfollowing the announcement of the Summit deal in September 2007. In the secondhalf Seville will have theatrical releases including SAW IV, P2, Penelope andFunny Game. Contender's line up includes Air Guitar Nation, Weirdsvile, A VeryBritish Gangster and Intimate Enemies on film and Spooks and Room with a View onDVD. In the US titles for the second half include War & Peace, Dresden, Hitler:The Rise of Evil, Barbarians, and the films Klimt and Blame it on Fidel. Following the successes at the recent film markets multi-territory filmacquisitions include Tarantino's Sukiyaki Western Django and The Chosen One,starring Rob Schneider. In Canada films acquired include; I Could Never Be YourWoman, starring Michelle Pfeiffer, and The Flock, starring Richard Gere. Inaddition to their film pipeline Contender has successfully acquired Ashes toAshes, (the sequel to Life on Mars), and worldwide DVD rights to The Queen, thecontroversial documentary broadcast on the BBC. Furthermore, two new children'sTV programmes, Humf and Little Kingdom, have gone into production and will bedistributed by Contender on a worldwide basis, with Seville handling Canadianrights as part of the Group's integrated distribution strategy. Rights acquisitions will take place both through the purchase of libraries(either on standalone basis or as part of the acquisition of regional filmdistributors) or through the acquisition of new films. To the extent that theGroup acquires libraries, the acquisition price will be amortised over thelifetime of the library. It should be noted that for new films the Group willamortise the acquisition advance of the film (the "Minimum Guarantee") in linewith forecast revenues (which is normally on average 80% within 12 months oftheatrical release) but that P&A associated with the initial release of the filmwill be expensed on the release of the film as incurred. As such an increase ininvestment in film will in early years result in a direct impact on earnings.However, the Group anticipates that as it creates a diversified portfolio ofreleases, the earnings profile will be increasingly predictable with a stablestream of cash flows from the continued and recurring exploitation of the titlesin the library. Music The Music division encompasses the results of Koch Records in the US. KochRecords successful model focuses on attracting and developing artist talent andmaximising revenues through its low cost infrastructure. The trading period hasbeen successful with revenue growth of 24.7% reflecting a strong releaseschedule and artist line up including Unk, DJ Khaled and The Wiggles. Despitethe challenging physical market conditions digital download and mobile revenueshave grown 185% year on year and now accounts for 25% of recorded music sales. There is a strong pipeline of releases going into the second half that promiseto maintain the momentum gained in the period to date including the Diplomats,Jim Jones, Styles P, Foxy Brown, The Alchemist and the Death Row, Kinks andWiggles catalogues. Distribution Results The Distribution division continues to deliver strong results through its twooperating businesses - Entertainment One Canada and Koch Entertainment. Overallpro-forma revenues were up 2.5% with pro-forma operating EBITDA at £4.2 million.The reported results for the Distribution division are included in Note 3 of theinterim financial statements.-----------------------------------------------------------------------------------------------Distribution Actual Foreign Constant Foreign Exchange Rates Exchange RatesPro-forma Financial Overview Current Prior Prior For the six month period year year year ended 30 September 2007 £000 £000 % £000 %----------------------------------------------------------------------------------------------- Revenue 83,517 85,138 (1.9) 81,523 2.5----------------------------------------------------------------------------------------------- Operating EBITDA 4,182 3,465 20.7 3,290 27.1----------------------------------------------------------------------------------------------- Entertainment One Canada In Canada, Entertainment One continued to dominate the home video market. Thesecond half of the current financial year has an exciting line up of big DVDreleases which follow the success at the box office earlier in the year. Saleswere impacted by the Group's decision not to further expand the video gamesbusiness which currently carries too great an inventory risk for the financialreturn achieved. This period has also seen an underlying trend towards reducedaverage prices despite a significant increase in the numbers of units shipped byEntertainment One. This trend is expected to continue. This year has seen the successful expansion of the Vendor Managed Inventory(VMI) programme which significantly improves the performance of the business byallowing the retailer to benefit from the expertise of the Entertainment Oneteam and systems that drive improved replenishment and lower returns. Other developments include Entertainment One's exclusive relationship with FoxStudios and the expansion of scan based trading which delivers improved serviceto both customers and suppliers. Koch Entertainment The US distribution business, Koch Entertainment, further strengthened itsposition as the leading independent distributor in the US, despite thechallenging state of the overall market and the ongoing decline of physicalsales in the US. The digital and mobile markets have continued to progress withrevenue growth of 101% year on year. During the period the Group acquired Navarre for £3.3 million which resulted inthe transfer of over 70 independent labels which have been integrated into theKoch business with no disruption. The business continues to sign new labels for distribution, including Hi PowerEntertainment, Drake Web Music, Colossal Entertainment, 1720 Entertainment, FatBeats Records, Retroactive Entertainment, Immergent Records, and Day One MusicGroup. Releases from platinum-selling act Little Big Town, Clint Black, JRWriter, Hi-Tek, Mark Chesnutt and Ani DiFranco are scheduled for the secondhalf. Outlook The Group remains positive going into the second half of the year. InEntertainment, the Group will continue to pursue its strategy through bothorganic growth and acquisition. In particular the release of the first filmsfrom Summit will provide clear examples of the success of the Group's strategicvision although the timing of these releases will impact the results in theshort term with the P&A expenses being recognised ahead of the correspondingrevenues. Overall market conditions remain challenging and the impact of theweaker US dollar will be carefully monitored for its impact on Canadian pricesrelative to the US. However, in the run up to Christmas there is a strongrelease schedule to support the Distribution businesses in Canada and the US. Financial Review IFRS The financial statements of the Group have been prepared in accordance withapplicable International Financial Reporting Standards as adopted by the EU andIFRIC interpretations. As this is the Group's first reporting period thedisclosures required by IFRS 1 concerning transition from local GAAP to IFRS forcomparative periods are not required. The financial statements, which have been approved by the directors, areunaudited but have been reviewed by the Group's auditors. The detailedaccounting policies are disclosed in the notes to the financial statements. Underlying Earnings To provide an insight into the underlying financial performance of the Groupcertain items that are one off in their nature have been excluded fromunderlying earnings. These include: •Share-based payment charges - there was a significant charge in the period relating to the share awards granted to directors and senior employees in the Group on the Group's AIM listing. •Finance costs in relation to Exchangeable Debenture - on 29 March 2007 the Group issued a £10 million exchangeable debenture to a small number of investors. This financial instrument was converted by the Group in July 2007. An early settlement charge arose on conversion and this has been taken through finance costs but separately identified as one off and excluded from underlying loss before tax. •Mark to market charges - these charges to the income statement relate to the interest rate swap entered into by the Group as part of the establishment of the Group's UK banking facilities. This charge is excluded from underlying loss before tax. Tax The income tax credit was £0.2 million, with an effective rate of 4%. This rateprimarily reflects the seasonal nature of earnings across the Group and theimpact of the non deductible share-based payment charges. In the full year it isexpected that the effective tax rate will be 20%. Loss per Share Reported basic and diluted loss per share for the period was 7.61 pence.Underlying basic and diluted loss per share was 2.31 pence. This is impacted bythe calculation of the weighted average number of shares that is, under IFRS,calculated from 11 January 2007, the date of incorporation. However, the Groupdid not commence trading until 29 March 2007, on the acquisition of theEntertainment One Income Fund. Although not in line with the guidance in IAS 33,a trading period underlying basic and diluted loss per share of 1.63 pence hasbeen calculated based on the weighting of shares over the six month tradingperiod. This is helpful in the understanding of the loss per share as it matchesthe trading period with the weighted average shares issued. Cashflow Group net debt as at 30 September 2007 was £34.9 million. Summary Consolidated Cashflow Statement £000--------------------------------------------------------------------------------Underlying Cash from operating activities 518One-Off Working Capital Adjustment (4,405)Net Cash from operating activities (3,887) Investing Activities (133,045)Financing Activities 144,519--------------------------------------------------------------------------------Net Cash increase in cash and cash equivalents 7,587--------------------------------------------------------------------------------Net DebtCash at Bank and in hand 7,587Debt (42,458)--------------------------------------------------------------------------------Net Debt (34,871)--------------------------------------------------------------------------------The underlying cash from trading activities was £0.5 million. The net cashoutflow from operating activities during the period reflects the £4.4 millionimpact of the one off working capital requirement identified on the acquisitionof Entertainment One Income Fund in March. The amounts of investing activities and financing activities reflect the fouracquisitions during the period since incorporation. Intangibles and Goodwill The four acquisitions during the period, as expected, have resulted in the needto value intangible assets and goodwill. This has resulted in the creation ofintangible assets of £63.2 million and goodwill of £69.4 million. This is basedon the allocation of the purchase price across defined categories includingexclusive content agreements and libraries, exclusive distribution agreementsand customer relationships. The balance, which is goodwill, includescharacteristics of the acquired businesses that it has not been possible tospecifically value under the requirements of IFRS 3. These include assembledworkforce and IT infrastructure. In addition, goodwill includes amountsrecognised on the creation of deferred tax liabilities arising on theacquisition of intangible assets. Consolidated IncomeStatementFor the period ended 30 September2007 Notes Period ended 30 September 2007 £000 Revenue 106,662 Cost of sales (76,923) -------------Gross profit 29,739 Administrative expenses (32,111) -------------Operating loss (2,372)---------------------------------------------------------------------------------Analysed as:Underlying EBITDA 5,644Amortisation of intangible (4,568)assetsDepreciation (534)Share-based payment charge (2,914) (2,372)--------------------------------------------------------------------------------- Finance income 4 503Finance costs 4 (3,556) ---------------Loss before tax (5,425)---------------------------------------------------------------------------------Analysed as:Underlying loss before tax (1,426)Financing fair value (252)movementsShare based payment charge (2,914)Early settlement cost onconversion of 4 (833)debenture ---------------- (5,425)-------------------------------------------------------------------------------- Income tax credit 5 195 -------------Loss for the period (5,230)--------------------------------------------------------------------------------Attributable to:Equity holders of the parent (5,230) Loss per shareBasic and diluted - pence 7 7.61Underlying basic and diluted 7 2.31- pence Consolidated Balance SheetAs at 30 September 2007 Note 30 September 2007 £000AssetsNon-current assetsInvestments 321Intangible assets 8 61,532Goodwill 9 70,558Property, plant and equipment 4,091Other receivables 508Deferred tax assets 4,089 ------------Total non-current assets 141,099 ------------Current assetsInventories 41,929Investment in content rights 13,148Trade and other receivables 25,986Cash and cash equivalents 7,587 ------------Total current assets 88,650 ------------Total assets 229,749 ============Liabilities and equityNon-current liabilitiesInterest bearing loans and borrowings 38,640Other payables 557Deferred tax liabilities 7,363 ------------ 46,560 ------------Current liabilitiesTrade and other payables 58,943Current tax liabilities 867Interest bearing loans and borrowings 3,818Provisions 262Financial liabilities 252 ------------Total current liabilities 64,142 ------------Total liabilities 110,702 ------------EquityShare capital 11 572Share premium 123,546Treasury shares (7,819)Warrant reserve 639Currency translation reserve 4,468Retained earnings (2,359) ------------Total equity 119,047 ------------Total liabilities and equity 229,749 ============ Consolidated Cash flow statementPeriod ended 30 September 2007 Notes Period ended 30 September 2007 £000 Operating activitiesOperating loss (2,372)Adjustments for:Depreciation 534Amortisation of acquired intangible assets 8 4,568Amortisation of content rights 3,882Foreign exchange movements (585)Share option charge 2,914Increase in inventories (656)Increase in trade and other receivables (3,127)Decrease in trade and other payables (7,112)Decrease in provisions (12) ---------Net cash flow from trading activities (1,966)Interest paid (1,921) ---------Net cash from operating activities (3,887) ---------Investing activitiesInterest received 453Acquisition of subsidiaries 10 (132,266)Net cash acquired with subsidiaries 3,951Investment in content rights (4,784)Purchases of property, plant and equipment (399) ----------Net cash used in investing activities (133,045) ----------Financing activitiesProceeds from share issue 11 97,181Loan repaid on acquisition 10 (3,875)New loan advances 51,213 ---------Net cash from financing activities 144,519 ---------Net increase in cash and cash equivalents 7,587 ---------Cash and cash equivalents at end of period 7,587 ========= Consolidated Statement of Changes in EquityFor the period ended 30 September 2007 Issued Currency share Share Treasury Warrant translation Retained Total capital premium shares reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000 Loss for theperiod - - - - - (5,230) (5,230)Shares issuedduring theperiod 537 120,252 - - - - 120,789Considerationshares 35 7,833 - - - - 7,868Share issuecosts - (4,539) - - - - (4,539)Purchase ofown shares - - (7,819) - - - (7,819)Foreigncurrencytranslation - - - - 4,468 - 4,468Warrantsissued duringthe period - - - 639 - - 639Share optioncharge - - - - - 2,871 2,871------------------------------------------------------------------------------------------------------------------At 30September 572 123,546 (7,819) 639 4,468 (2,359) 119,0472007------------------------------------------------------------------------------------------------------------------ Notes to the Financial StatementsFor the period ended 30 September 2007 1. Nature of operations and general information Entertainment One Ltd. and subsidiaries' (the Group) principal activity is theacquisition and exploitation of entertainment rights across all media. Inaddition, the Group owns distribution channels to retailers in territories whereit can capture additional margin and improve delivery of products to consumers.The Group is a leading international independent entertainment businesscurrently operating in Canada, the United Kingdom and the United States.Segmental information is disclosed in note 3. Entertainment One Ltd. is the Group's ultimate parent company and isincorporated in the Cayman Islands and is domiciled in Jersey. Entertainment OneLtd. shares are listed on the Alternative Investment Market of the London StockExchange. Entertainment One Ltd. has presented its consolidated interim financialstatements in Pounds Sterling (£), which is also the functional currency of theparent company. These consolidated condensed interim financial statements wereapproved for issue by the Board of Directors on 4 December 2007. 2. Accounting policiesBasis of PresentationThe interim financial statements have been prepared under the historical costconvention under the going concern basis and in accordance with applicableInternational Financial Reporting Standards as adopted by the EU and IFRICinterpretations ("IFRS"). As this is the Group's first reporting period thedisclosures required by IFRS 1 concerning the transition from local GAAP to IFRSfor comparative periods are not required.At the date of authorisation of this report the following Standards andInterpretations which have not been applied in these financial statements werein issue but not yet effective:IFRS 8 Operating SegmentsIFRIC 12 Service Concession ArrangementsIFRIC 13 Customer Loyalty ProgrammesIFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their InteractionAmendment to IAS 1 Presentation of Financial Statements: a Revised PresentationAmendment to IAS 23 Borrowing CostsThe directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group when the relevant standards come into effect for periodscommencing on or after 1 April 2008.The interim financial statements, which have been approved by the directors, areunaudited but have been reviewed by the Group's auditors in accordance with theInternational Standard Review Engagements 2410 (UK and Ireland) Review ofFinancial Information Performed by the Independent Auditor of the Entity issuedby the United Kingdom Auditing Practices Board. Principal Accounting Policies of the GroupThis interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that are eitherendorsed by the EU and effective at 30 September 2007 or are expected to beendorsed and effective at 31 March 2008, the Group's first annual reportingunder IFRS. Based on these adopted and unadopted IFRS, the directors have madeassumptions about the accounting policies expected to be applied, which are asset out below, when the first annual IFRS financial statements are prepared forthe period ending 31 March 2008.The adopted IFRS that will be effective in the annual financial statements forthe period ending 31 March 2008 are still subject to change and to additionalinterpretations and therefore cannot be determined with certainty. Accordingly,the accounting policies for the annual period will be determined finally onlywhen the annual financial statements are prepared for the period ending 31 March2008.All intra-group balances, transactions, income and expenses and profits andlosses resulting from intra-group transactions that are recognised in assets,are eliminated in full. 2. Accounting policies (continued) Basis of consolidation The consolidated financial statements comprise the financial statements ofEntertainment One Ltd. and its subsidiaries. The financial statements of thesubsidiaries are prepared for the same reporting periods as the parent company,using consistent accounting policies. Subsidiaries are consolidated in accordance with the requirements of IAS 27 andare fully consolidated from the date of acquisition and continue to beconsolidated until the date of disposal. Minority interests represent the portion of profit or loss and net assets notheld by the Group and are presented, where applicable, separately in the incomestatement and within equity in the consolidated balance sheet, separately fromparent shareholders' equity. Jointly controlled entities are those entities over whose activities the Grouphas joint control, established by contractual agreement and are accounted forusing proportional consolidation from the date that joint control commences. The accounting policies followed by the Group are shown below: Goodwill Goodwill represents the excess of the cost of acquisition over the fair value ofthe Group's share of the net identifiable assets of the acquired subsidiary atthe date of acquisition. Goodwill is stated at cost less any accumulated impairment losses. Goodwill isallocated to cash-generating units and is not amortised but is tested annuallyfor impairment. Gains or losses on the disposal of an entity include thecarrying amount of goodwill relating to the entity sold. Investment in programmes Investment in programmes that are in development and for which the realisationof expenditure can be reasonably determined, are classified and capitalised inaccordance with IAS 38, as programme development costs under non-current assets.On first exploitation of the property the cost of investment is reclassified asinvestment in programmes. Also included within investment in programmes areproperties acquired on acquisition. A charge is made to write down the cost of completed programmes over theiruseful lives. The maximum useful life is considered to be 10 years. Other intangible assets Other intangible assets acquired by the Group are stated at cost lessaccumulated amortisation. Amortisation is charged to the income statement on astraight-line basis over the estimated useful life of intangible fixed assetsunless such lives are indefinite. Other intangible assets comprise exclusive content agreements and libraries,customer relationships, exclusive distribution rights, brands and trade namesand non-compete agreements. Exclusive content agreements and libraries 5 to 10 years depending on nature andlife of the rights acquired Customer relationships 10 years Exclusive distribution rights 5 years Brands and trade names 10 years Non-compete agreements 3 years Investments Investments are valued at cost less amounts written off. Property, plant and equipment Property, plant and equipment are stated at original cost less accumulateddepreciation. Depreciation is charged to write off cost less estimated residualvalue of each asset over their estimated useful lives using the followingmethods and rates: Leasehold improvements over the term of the lease Fixtures, fittings and equipment 20% - 30% reducing balance The assets residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. The gain or loss arising on thedisposal or retirement of an asset is determined as the difference between thesales proceeds and the carrying amount of the asset and is recognised in income. Impairment of assets The Group reviews the carrying amounts of its property, plant and equipment andintangible assets annually to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Investment in content rights Investment in content rights, currently available for exploitation, arecapitalised in the consolidated balance sheet if at the date of the advance suchamounts are considered recoverable. These costs are amortised to cost of saleson a revenue forecast basis over a period not exceeding 10 years from the dateof initial release. Amounts capitalised are reviewed at least quarterly and any portion of advancesthat appear not to be recoverable from future revenues are written off to costof sales during the period the loss becomes evident. Balances are included within current if they are expected to be realised withinthe normal operating cycle of the business. The normal operating cycle of thebusiness can be greater than 12 months. Inventories Inventories are stated at the lower of cost and net realisable value. Cost iscalculated using the weighted average method. Net realisable value representsthe estimated selling price less all estimated costs of completion and costs tobe incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade and other receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Trade and other payables Trade payables are not interest bearing and are stated at their nominal value. Derivative financial instruments The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates and interest rates. The Group uses derivativefinancial instruments to reduce its exposure to foreign exchange and interestrate movements. The Group does not hold or issue derivative financialinstruments for financial trading purposes but derivatives that do not qualifyfor hedge accounting are accounted for at fair value through the incomestatement. Derivative financial instruments are initially recognised at fair value at thecontract date. The gain or loss on re-measurement to fair value is recognisedimmediately in the income statement. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Treasury shares The Entertainment One Ltd. shares held in the Employee Benefit Trust areclassified in shareholders' equity as 'treasury shares' and are recognised atcost. Consideration received for the sale of such shares is also recognised inequity, with any difference between the proceeds from sale and the original costbeing taken to revenue reserves. No gain or loss is recognised in theperformance statements on the purchase, sale, issue or cancellation of equityshares. Interest bearing loans and borrowings All interest bearing loans and borrowings are initially recognised at the fairvalue of the consideration received less directly attributable transactioncosts. After initial recognition, interest bearing loans and borrowings aresubsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities arederecognised as well as through the amortisation process. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event and, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of this obligation. Theexpense relating to any provision is presented in the income statement. If the effect of the time value of money is material, provisions are discountedusing a current pre tax rate that reflects, where appropriate, the risksspecific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognised as a finance cost. Operating leases Rentals payable under operating leases are charged to income on a straight linebasis over the term of the relevant lease. Share based payments The Group issues equity-settled and cash-settled share-based payments to certainemployees. Equity-settled share-based payments are measured at fair value at thedate of grant. The fair value determined at the grant date of equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, 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 lifeused in the model has been adjusted, based on management's best estimate, forthe effect of non-transferability, exercise restrictions, and behaviouralconsiderations. A liability equal to the portion of the goods or services received is recognisedat the current fair value determined at each balance sheet date for cash-settledshare-based payments. Segmental reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. The Group has 3 business segments:entertainment, distribution and other. A geographical segment is a component of the Group that operates within aparticular economic environment and is subject to risks and returns that aredifferent from those of components operating in other economic environments. TheGroup currently operates in 3 geographical segments, Canada, the United Statesand the United Kingdom. Revenue recognition Revenue represents the amounts receivable for goods and services provided in thenormal course of business, net of discounts and excluding value added tax (orequivalent). Revenue is derived from the licensing, marketing and distributionof feature films, television, video programming and music rights. Revenue isalso derived from retail and merchandising sales. - Revenue from the exploitation of film and music rights is recognised based upon the contractual terms of each agreement. Income is recognised on a receivable basis where there is reasonable contractual certainty that the revenue is receivable and will be received. - Revenue from television licensing represents the invoiced value of licence fees which is recognised when the licence term has commenced, delivery to licensee has occurred and substantially all technical requirements have been met and collection of the fee is reasonably assured. - Revenues from the sale of DVD, video and audio stocks are recognised at the point at which goods are despatched. A provision is made for returns based on historical trends. - Revenue from retail sales is recognised at the point of sale to customers. - Revenue on licensing and merchandising sales represents the invoiced value of licence fees which is recognised when the licence terms have commenced and collection of the fee is reasonably assured. Pension costsPayments to defined contribution retirement benefit plans are charged as anexpense as they fall due. 2. Accounting policies Foreign currencies The individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed in poundssterling, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. Foreign exchange differences arising on the settlement of suchtransactions and from translating at year end exchange rates of monetary assetsand liabilities denominated in foreign currencies are recognised in the incomestatement. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period. Foreign exchange differences arising,if any, are classified as equity and transferred to the Group's translationreserve. Such translation differences are recognised as income or expenses inthe period in which the operation is disposed of. Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the Group is able tocontrol the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt within equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to offset current tax assets against current tax liabilities.This applies when they relate to income taxes levied by the same taxationauthority and the Group intends to settle its current tax assets and liabilitieson a net basis. Significant judgements and estimates The preparation of consolidated financial statements under IFRS requires theGroup to make estimates and assumptions that affect the application of policiesand reported amounts. Estimates and judgements are continually evaluated and arebased on historical experience and other factors including expectations offuture events that are believed to be reasonable under the circumstances. Actualresults may differ from these estimates. The estimates and assumptions whichhave a significant risk of causing a material adjustment to the carrying amountof assets and liabilities are discussed below. Significant judgements and estimates Intangible assetsThe Group recognises intangible assets acquired as part of business combinationsat fair value at the date of acquisition. The determination of these fair valuesis based upon management's judgement and includes assumptions on the timing andamount of future incremental cash flows generated by the assets and selection ofan appropriate cost of capital. Furthermore, management must estimate theexpected useful lives of intangible assets and charge amortisation on theseassets accordingly. Impairment of goodwill The Group is required to test, at least annually, whether goodwill has sufferedany impairment. The recoverable amount is determined based on value in usecalculations. The use of this method requires the estimation of future cashflows and the choice of a suitable discount rate in order to calculate thepresent value of these cash flows. Actual outcomes could vary. Investment in content rights The Group capitalises investment in content rights and releases to cost of saleson a revenue forecast basis. Amounts capitalised are reviewed at least quarterlyand any that appear to be irrecoverable from future revenues are written off tocost of sales during the period the loss becomes evident. The estimate of future revenues depends on management judgement and assumptionsbased on the pattern of historical revenue streams and the remaining life ofeach contract. Deferred tax Deferred tax assets and liabilities require management judgement in determiningthe amounts to be recognised. In particular, judgement is used when assessingthe extent to which deferred tax assets should be recognised with considerationto the timing and level of future taxable income. Income tax The actual tax on the result for the year is determined according to complex taxlaws 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 pastprofits which are recognised in the financial statements. The Group considersthe estimates, assumptions and judgements to be reasonable but this can involvecomplex issues which may take a number of years to resolve. The finaldetermination of prior year tax liabilities could be different from theestimates reflected in the financial statements. 3. Business and geographical segments Business segments For management purposes, the Group is currently organised into two mainoperating divisions - entertainment and distribution. These divisions are thebasis on which the Group reports its primary segment information. Principal activities are as follows: Entertainment - acquires and exploits filmed entertainment and music rightsacross all media. Distribution - owns distribution channels to retailers in territories and mediawhere it can capture additional margin and improve delivery of products toconsumers. Included within other is a non-core retail operation in Canada. 3. Business and geographical segments Business segments (continued) Segment information for the period ended 30 September 2007 is presented below. Entertainment Distribution Other Eliminations Consolidated £000 £000 £000 £000 £000Revenue--------------------------------------------------------------------------------External sales 16,804 77,436 12,422 - 106,662Inter-segmentsales 13,171 6,080 - (19,251) --------------------------------------------------------------------------------- Total revenue 29,975 83,516 12,422 (19,251) 106,662-------------------------------------------------------------------------------- Inter-segment sales are charged at prevailing market prices. ResultSegment result 3,305 4,182 (32) (461) 6,994--------------------------------------------------------------------------------Unallocated corporate expensesGroup costs (1,350)Share-based payments (2,914)Depreciation and amortisation (5,102)--------------------------------------------------------------------------------Operating loss (2,372)Finance income 503Finance costs (3,556)--------------------------------------------------------------------------------Loss before tax (5,425)Tax 195--------------------------------------------------------------------------------Loss after tax (5,230)-------------------------------------------------------------------------------- Geographical segments The Group's operations are located in Canada, the United States and the UnitedKingdom. The entertainment division is located in Canada, the United States andthe United Kingdom. The Group's distribution divisions are located in Canada andthe United States. The following table provides an analysis of the Group's revenue by geographicalmarket, irrespective of the origin of the goods/services: Revenue by geographical market £000 Canada 69,147United States 32,050United Kingdom 5,465-------------------------------------------------------------------------------- 106,662-------------------------------------------------------------------------------- 4. Finance income and costs The finance income and costs comprise: Period ended 30 September 2007 £000 Interest receivable 503-------------------------------------------------------------------------------- Interest payable on bank loans and overdrafts (1,490)Other interest payable (26)Amortisation of deferred finance charges (141)Interest payable on exchangeable debenture (443)Early settlement cost on conversion of debenture (833)Decrease in fair value of interest rate swap (252)Net foreign exchange losses (371)-------------------------------------------------------------------------------- (3,556)-------------------------------------------------------------------------------- On 31 July 2007, one of the Group's subsidiaries, 4384768 Canada Inc. converteda £10 million exchangeable debenture into shares of the Company (see note 11).There was an early settlement cost incurred on conversion of £0.8 million. 5. Tax Period ended 30 September 2007 £000 Current tax expense (714)Deferred tax credit 909--------------------------------------------------------------------------------Income tax credit in income statement 195-------------------------------------------------------------------------------- Income tax has been calculated using the best estimate of the average annualeffective income tax rate expected for the full year (by jurisdiction) and thenapplying to the pre-tax income for the six month period. The effective tax rateis 3.6%. 6. Dividends The directors are not recommending payment of an interim dividend. 7. Loss per share The calculation of the basic and dilutive loss per share is based on the lossattributable to equity holders of the parent of £5.2 million divided by theweighted average number of shares in issue during the period which is68,768,992. The share options and warrants granted during the period are notdilutive for the purposes of the loss per share calculation as defined by IAS33. The basic and diluted underlying loss per share have been calculated to allowshareholders to gain a better understanding of the trading performance of theGroup. It is based on the basic and diluted loss per share calculations aboveexcept that the results of the Group are adjusted for financing fair valuemovements, share-based payments and the early settlement cost on conversion ofthe exchangeable debenture. Reconciliations of the losses used in the calculations and the loss andunderlying loss per share calculations are set out below. Period ended 30 September 2007 £000For basic and dilutive loss per shareLoss for the financial period (5,230)--------------------------------------------------------------------------------For underlying basic and diluted loss per shareLoss for the financial period (5,230)Add back:Financing fair value movements 252Share based payment (net of tax) 2,817Early settlement cost on conversion of debenture (net oftax) 576-------------------------------------------------------------------------------- (1,585)-------------------------------------------------------------------------------- Period ended 30 September 2007 PenceBasic and diluted loss per share 7.61Effect of financing fair value movements (0.37)Effect of share-based payment (4.09)Effect of early settlement cost on conversion of debenture (0.84)--------------------------------------------------------------------------------Underlying basic and diluted loss per share 2.31-------------------------------------------------------------------------------- Trading period basic and diluted loss per share The above calculations utilise the weighted average number of shares in issueover the long period from 11 January 2007 to 30 September 2007. However theGroup only started trading on the acquisition of Entertainment One Income Fundon 29 March 2007. To help shareholders understand the trading performance of the Group over thesix month trading period, a trading period loss per share has also beencalculated for the period 29 March 2007 to 30 September 2007. Although thiscalculation is not in line with IAS 33 it provides a helpful comparison as theloss for the full period also represents the trading result for this same sixmonth period. The weighted average number of shares weighted over the six month trading periodis 97,391,720. The losses used for the basic and diluted loss per sharecalculations were applied to the loss per share calculation for trading periodbasic and diluted loss per share. The trading period loss and underlying loss per share calculations are set outbelow. Period ended 30 September 2007 PenceTrading period basic and diluted loss per share 5.37Effect of financing fair value movements (0.26)Effect of share-based payment (2.89)Effect of early settlement cost on conversion of debenture (0.59)--------------------------------------------------------------------------------Trading period basic and diluted underlying loss per share 1.63-------------------------------------------------------------------------------- 8. Intangible assets Exclusive content Trade agreements names Exclusive Non- Investment and and distribution Customer compete in libraries brands agreements relationships agreements programmes Total £000 £000 £000 £000 £000 £000 £000CostAdditions 17,001 6,065 17,120 15,419 4,515 3,067 63,187Exchangedifferences (49) 236 672 1,866 305 - 3,030----------------------------------------------------------------------------------------------------------At 30September 16,952 6,301 17,792 17,285 4,820 3,067 66,2172007----------------------------------------------------------------------------------------------------------AmortisationCharge forthe (876) (268) (1,564) (816) (755) (289) (4,568)periodExchangedifferences 4 (6) (39) (48) (28) - (117)----------------------------------------------------------------------------------------------------------At 30September (872) (274) (1,603) (864) (783) (289) (4,685)2007----------------------------------------------------------------------------------------------------------CarryingamountAt 30September 16,080 6,027 16,189 16,421 4,037 2,778 61,5322007---------------------------------------------------------------------------------------------------------- 9. Goodwill Total £000Cost and carrying amountAdditions 69,433Exchange differences 1,125 At 30 September 2007 70,558 Goodwill includes amounts recognised on the creation of deferred tax liabilitiesarising on the acquisition of intangibles assets in a business combination inaccordance with IFRS 3. 10. Acquisitions Acquisitions are accounted for using the purchase method of accounting and areincorporated into the Group's balance sheet at the fair value at the date ofacquisition. The fair values of all acquisitions made during the current periodare provisional awaiting final determination of the balances acquired. The following acquisitions were made during the period: Entertainment One Income Fund On 29 March 2007, the Group acquired the entire operating business ofEntertainment One Income Fund for a total consideration of £83.4 million.Proceeds from the initial share placing on 29 March 2007 were used to fund partof the cash consideration of this acquisition. The operating business of Entertainment One Income Fund was made up of 3business units, Entertainment One Group, Koch Entertainment and CD Plus.Entertainment One Group is the largest distributor of DVDs, CDs and video gamesin Canada. Koch Entertainment exploits content rights, distributes homeentertainment product and is the largest independent record label in the US. CDPlus owns a number of retail outlets across Canada. The book value and provisional fair value of the net assets at the date ofacquisition were as follows: Book value Fair value £000 £000Net assets acquired:Intangible assets - 40,682Investment 287 287Property, plant and equipment 3,873 3,873Deferred tax assets 1,542 1,542Inventories 34,512 34,512Trade and other receivables 24,123 24,123Cash and cash equivalents 1,608 1,608Trade and other payables (49,375) (49,375)Provision (284) (284)Deferred tax liabilities (2,689) (2,689) 13,597 54,279 Goodwill arising on acquisition 33,950 Total consideration 88,229 Satisfied by:Cash consideration 83,391Directly attributable costs 4,838 88,229 Net cash outflow arising on acquisition:Cash consideration and costs associated withacquisition (87,590)Cash and cash equivalents acquired 1,608 (85,982) On completion of the acquisition of Entertainment One Income Fund 4 millionshare warrants were issued to one of our advisors. This has been accounted foras a share-based payment under IFRS 2 with a fair value of £639,000. This costhas been capitalised as a cost of the acquisition and has been included withindirectly attributable costs. This acquisition contributed £94.7 million to Group revenue for the periodbetween the date of acquisition and 30 September 2007. It is not practicable toallocate any costs, interest or tax as the assets of Navarre Entertainment MediaInc were incorporated into the existing operating business. Contender Entertainment Group On 5 July 2007, the Group acquired 100% of the issued share capital of ContenderLimited (and its subsidiaries), the leading independent distributor of filmedentertainment on DVD in the UK, for a total consideration of £45.2 million. Of the total consideration £37.3 million was paid in cash and £7.9 million wassatisfied by the issue of consideration shares to the management of ContenderEntertainment Group. In addition, the bank borrowings of Contender EntertainmentGroup of £3.9 million were repaid following the acquisition. The book value and provisional fair value of the net assets at the date ofacquisition were as follows: Book value Fair value £000 £000Net assets acquired:Intangible assets 1,899 16,522Property, plant and equipment 147 147Deferred tax assets 1,502 1,502Inventories 1,144 1,144Trade and other receivables 6,421 6,421Cash and cash equivalents 2,201 2,201Interest bearing loans and borrowings (3,875) (3,875)Trade and other payables (6,759) (6,759)Deferred tax liabilities (258) (4,352) 2,422 12,951 Goodwill arising on acquisition 33,692 Total consideration 46,643 Satisfied by:Cash consideration 37,337Fair value of consideration shares 7,868Directly attributable costs 1,438 46,643 Net cash outflow arising on acquisition:Cash consideration and costs associated withacquisition (38,775)Cash and cash equivalents acquired 2,201 (36,574) Contender Entertainment Group contributed £5.5 million revenue and £1.2 millionto the Group's profit before tax for the period between the date of acquisitionand 30 September 2007. Navarre Entertainment Media Inc On 14 May 2007, the group acquired 100% of the issued share capital of NavarreEntertainment Media Inc, a distributor of independent music labels in the UnitedStates, for a total cash consideration of US$6.5 million (£3.3 million). The book value and provisional fair value of the net assets of NavarreEntertainment Media Inc at the date of acquisition were as follows: Book value Fair value £000 £000Net assets acquired:Intangible assets - 5,408Inventories 915 915Trade and other receivables 438 438Trade and other payables (4,110) (4,110) (2,757) 2,651 Goodwill arising on acquisition 663 Total consideration 3,314 Satisfied by:Cash 3,286Directly attributable costs 28 3,314 Net cash outflow arising on acquisition:Cash consideration and costs associated withacquisition (3,314) Navarre Entertainment Media Inc contributed £5.5 million of revenues to theGroup between the date of acquisition and 30 September 2007. It is notpracticable to allocate any costs, interest or tax as the assets acquired haveessentially been incorporated into the existing operating business. Seville Entertainment Inc On 20 August 2007, the Group acquired 100% of the issued share capital ofSeville Entertainment Inc (and its subsidiaries), a leading Canadian filmdistribution company and entertainment rights owner, for a total cashconsideration of C$5.2 million (£2.5 million). The book value and provisional fair value of the net assets of SevilleEntertainment Inc at the date of acquisition were as follows: Book value Fair value £000 £000Net assets acquired:Intangible assets - 574Property, plant and equipment 29 29Deferred tax assets 106 106Inventories 590 590Trade and other receivables 3,997 3,997Cash and cash equivalents 142 142Trade and other payables (3,795) (3,795)Deferred tax liabilities - (184) 1,069 1,459 Goodwill arising on acquisition 1,128 Total consideration 2,587 Satisfied by:Cash 2,468Directly attributable costs 119 2,587 Net cash outflow arising on acquisition:Cash consideration and costs associated withacquisition (2,587)Cash and cash equivalents acquired 142 (2,445) Seville Entertainment Inc contributed £1.0 million of revenues and an operatingloss of £0.6 million to the Group's result for the period between the date ofacquisition and 30 September 2007. Total contribution to group revenue and operating loss If all acquisitions had been completed on the first day of the current tradingperiod, 29 March 2007, Group revenues for the period would have been £116.0million and the Group's underlying EBITDA (before group costs) would haveincreased by £0.3 million to £7.3 million. The revenues and profits for Navarre Entertainment Media Inc are not included inthe above disclosure because this transaction was essentially an asset purchase,acquired through a special purpose vehicle. There is therefore no data availablefor a comparable entity for a period prior to the date of acquisition. 11. Share capital 30 September 30 September 2007 2007 C$ £ Authorised:200,000,000 million ordinary shares ofC$0.01 each 2,000,000 Issued and fully paid:127,097,597 million ordinary shares ofC$0.01 each 1,270,976 572,050 The Company has one class of ordinary shares which carry no right to fixedincome. The Company was incorporated on 11 January 2007 and on the same date issued asubscriber share for C$1. On 12 February 2007, the Company entered into a share split arrangement wherebyeach share of C$1 was subdivided into 100 shares of C$0.01 each. Following theshare split, the authorised share capital was increased by C$1,990,000 toC$2,000,000 comprising 200,000,000 shares of C$0.01 each. On 29 March 2007, the Company was listed for trading on the AIM and on the samedate issued 80,000,000 shares for £1 each. The proceeds from this share issuewere substantially used to fund the acquisition of Entertainment One Income Fundin Canada. In addition, 4,405,286 shares were issued on the same date for £1each to the Employee Benefit Trust. On 6 July 2007, the Company issued 27,587,011 shares at £1.07 each. The proceedsfrom this share issue were used to fund the acquisition of ContenderEntertainment Group. Of these shares 7,353,366 were consideration shares issuedto the management of Contender Entertainment Group. In addition, 3,190,000shares were issued on the same date for £1.07 each to the Employee BenefitTrust. On 31 July 2007, one of the Group's subsidiaries, 4384768 Canada Inc. converteda £10,000,000 exchangeable debenture into shares of the Company. The principaland the interest accrued on this debenture were converted into 11,848,000 sharesat £0.95 each. On 20 August 2007, the Company issued 67,200 shares at £1.07 each. 12. Publication of non-statutory accounts The financial information set out in these interim financial statements does notconstitute statutory accounts. INDEPENDENT REVIEW REPORT TO ENTERTAINMENT ONE LTD We have been engaged by the company to review the condensed set of financialstatements in the interim financial report for the period ended 30 September2007 which comprises the consolidated income statement, the consolidated balancesheet, the consolidated statement of changes in equity, the consolidated cashflow statement and related notes 1 to 12. We have read the other informationcontained in the half-yearly financial report and considered whether it containsany apparent misstatements or material inconsistencies with the information inthe condensed set of financial statements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the AIM Rules of the London Stock Exchange. As disclosed in note 2, the annual financial statements of the group will beprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport have been prepared in accordance with the accounting policies the groupintends to use in preparing its next annual financial statements. Our responsibility Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the accompanying interim financial information is not prepared, in allmaterial respects, in accordance with the AIM Rules of the London StockExchange. Deloitte & Touche LLPChartered Accountants and Registered Auditor4 December 2007London, United Kingdom Entertainment One Ltd. Memorandum information In order to comply with the AIM reporting requirements a pro-forma incomestatement for the six months ended 30 June 2007 has been presented above. Thispro-forma income statement has also been presented with comparatives for the sixmonths ended 30 June 2006 and these have been translated using the averageexchange rate for the 6 months ended 30 June 2006. The information presented below is unaudited and has not been reviewed by theGroup's auditors. Three months Three months Total Period ended ended 29 March ended 30 June 2007 2007 £000 £000 £000 30 June 2006 £000 Revenue 51,167 47,590 98,757 122,313 Cost of sales (38,781) (34,960) (73,741) (94,534) Gross profit 12,386 12,630 25,016 27,779 Administrativeexpenses (13,198) (10,493) (23,691) (22,876) UnderlyingEBITDA (812) 2,137 1,325 4,903 The income statement has been presented to underlying EBITDA because of thediffering structures of the Group pre and post acquisition. This information includes the results for Entertainment One Income Fund for thethree month period, directly before acquisition, ending 29 March 2007 andcomparative information for the six month period ended 30 June 2006. The datarelates to a pre-acquisition period and has not been formally approved by thecurrent board of directors. Included within the reported underlying EBITDA forthe period ended 29 March 2007 there were one-off items totalling £1.2 millionthat are not expected to recur. This information is provided by RNS The company news service from the London Stock Exchange