FFI.L Regulatory News (FFI)

FFI Holdings PLC

("FFI" or "the Company")

Interim results for the six months ended 30 September 2018

London, 19 December 2018 - FFI Holdings PLC (AIM: FFI), a world-leading provider in the provision of diversified services across the entertainment industry, is pleased to present its unaudited financial results for the six months ended 30 September 2018 (H1 2019).

Financial Highlights:

- Revenue up 91% to $45.6m (H1 2018: $24.0m), comprised of:

o Completion Contract revenues of $16.8m (H1 2018: $18.9m)

o Editing Equipment Rental revenues of $9.9m (H1 2018: $5.0m)

o Insurance Agency revenues of $10.9m, following acquisition of Reel Media in Dec 2017

o Technical Services revenues of $2.8m, following acquisition of Buff Dubs in Dec 2017

o Content Distribution revenues of $5.2m, following acquisition of Signature in April 2018

- Gross profit of $28.3m, an increase of 53% (H1 2018: $18.5m)

- Underlying EBIT of $6.0m down 15% (H1 2018: $7.1m)*

- Reported EBIT of $4.6m (H1 2018: -$2.1m)

- Pre-tax profit of $4.7m (H1 2018: - $2.1m)

- After-tax profit from continuing operations of $3.4m (H1 2018: -$3.7m)

- Underlying FD EPS of 3.0c (H1 2018: 3.9c)

- Underlying operating cash flow of $4.9m (H1 2018: $7.5m)

- Cash at 30 September of $16.0m (H1 2018: $44.0m)

* Represents operating income, adjusted for exceptional costs of $1.0m, acquisition-related amortisation of $0.9m, less gain from sale of minority interest investment of $0.5m

Mid-Year Operational Highlights:

- Completion Contracts: Volume grew by 2% (77 titles in H1 2018 as compared to 74 titles in H1 2017). The Group maintained its average fee of production budgets. During H1 2019, fewer large budget productions resulted in the average budget per new order decreasing by 14% to $11.2 million in the period (H1 2018: $12.9m), which resulted in lower revenue despite providing more completion contracts in the period. The Group's pipeline shows more larger budget titles likely in H2 2019.

- Editing Equipment Rental: Pivotal Post and EPS-Cineworks continue to meet expectations, with growth in available editing suites and steady utilization rates.

- Insurance Agency: Reel Media continued to ramp up its business during H1 2019. The Group is experiencing more consistent cash flows with particularly strong growth expected in H2 2019. Reel Media is expected to exceed the Board's expectations through the end of the year.

- Technical Services: Buff Dubs is benefiting from strong demand from its streaming clients resulting from growth in Australia and Asia.

- Content Distribution: Signature Entertainment is experiencing an uptick in licensing deals, as it continues to meet demand for content from its distribution channels and streaming companies. IMAX Pandas documentary continues to receive rave reviews from viewers and critics. The roll out of the film has been slower than anticipated, with the Chinese release anticipated to occur in 2019. As previously disclosed, the ultimate timing of cash flows will be dependent on theatre availability and is subject to IMAX's release schedule, in particular the Group is awaiting schedule release dates for China. The Group now expects to start generating significant income from Panda in FY 2020 after recouping its initial distribution costs.

Commenting on the Group's results, Steven Ransohoff, CEO of FFI, said:

"We began the first half of fiscal 2019 with a diverse mix of revenues from across our platform. Our transformation reflects the successful acquisition strategy which began in 2017. This strategy, coupled with the rising demand for content, positions us well for future growth. FFI's deep industry knowledge, expertise and broad network of services provides us with a significant market advantage across our business verticals and uniquely positions us to capitalise on the opportunities available for servicing the diverse needs of content creators globally.

The businesses we acquired since the IPO have performed in accordance with and in some cases beyond our expectations. Equipment Rental, Insurance, Technical Services and Content have all performed very well and are expected to grow into the future. Whilst Completion Contracts continue to be an important part of our business, performance has been muted. Whilst we are involved with more productions in H1 2018, the films have lower budgets and we have experienced higher claims activity than in the last two years. Based on the pipeline of projects we expect the balance of the year should produce better performance in the Completion Contract business.

H1 numbers have begun to reflect the broadening of our sales mix, with material revenue contributions seen from our equipment rental, insurance agency and content distribution verticals, and we remain focused on continuing to grow these diversified business segments which have been performing at or above expectations. As has been historically the case, we expect a busy second half to our fiscal year, as we are seeing a strong completion contracts and entertainment insurance agency pipeline."

Steven Ransohoff, CEO

19 December 2018

About FFI Holdings PLC

FFI Holdings PLC is the holding company of Film Finances Inc., a leading provider of diversified services across the entertainment industry. FFI was formerly focused on completion contracts to the entertainment industry, and over successive decades, has grown globally to become a trusted, iconic brand at the centre of the film industry.

Founded in the 1950s, FFI soon established itself as the world leader in completion guarantees to the entertainment industry, offering assurance to financiers that productions will be completed on time and on budget. These guarantees serve to offload risks to production budgets and timelines for financiers, as well as for FFI through long-standing insurance relationships.

FFI listed on the AIM market in June 2017 and has diversified its business beyond completion contracts to provide services across the broader entertainment landscape. FFI is also present in China, where it provides a growing range of entertainment-related services including completion contracts to the domestic film making industry.

Headquartered in Los Angeles, USA, FFI has 11 offices globally, including in London, Stockholm, Toronto, New York, Cape Town, Cologne and Shanghai.

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This announcement contains inside information.

Review of Operations

Group Overview

Group revenue for the first six months of the financial year increased by 91% YOY to $45.6m (H1 2018: $24.0m), as contributions from acquisitions in FY18 were realised. Adjusting for exceptional costs of $1.0m, acquisition-related amortisation of $0.9m, less gain from sale of minority interest investment of $0.5m, underlying EBIT for the Group was $6.0m (H1 2018: $7.1m). Reported EBIT was up to $4.6m versus a loss of $2.1m last year. The Group recorded an after-tax profit of $3.4m, up from a loss of $3.7m in H1 2018.

The Group reported positive operating cash flow in the period of $4.2m (H1 2018: -$4.9m). Cash decreased to $16.0m (H1 2018: $44.0m) due primarily to costs associated with acquisitions.

Whilst Completion Contract revenues continued to deliver the largest segmental contribution to Group sales, making up 37% of total revenue, this is down from 79% of total revenue last year. This reflects a significant broadening of FFI's sales mix, with new revenue contributions from Editing Equipment Rental, Technical Services, Insurance Agency and Content Distribution business segments.

Despite an increase in the number of new orders, Completion Contracts revenues reduced by 11% to $16.8m (H1 2018: $18.9m) as a result of a decrease in average film budgets in the period. Editing Equipment Rental revenues increased 97% to $9.9m (H1 2018: $5.0m), contributing to 22% of Group total, largely as a result of the acquisition of EPS-Cineworks. The acquisition of Buff Dubs in December 2017 resulted in revenues of $2.8m related to Technical Services (6% of total revenue). Insurance Agency comprised 24% of total Group revenue, at $10.9m, following the acquisition of Reel Media in December 2017. The addition of Signature Entertainment in April 2018 resulted in a Content Distribution contribution of 11% of overall Group revenues, at $5.2m for the period.

By geography, North America continued to be FFI's biggest market in terms of revenue (65% of total) increasing 71% to $29.9m from the previous year (H1 2018: $17.5m). This was followed by Europe which delivered revenue of $7.8m (17% of total), up from $2.9m last year and Asia, with $3.1m in revenues representing 7% of total revenue (H1 2018: $2.5m).

Completion Contracts

Despite an increase in the number of new orders (77 in H1 2019 versus 74 in H1 2018), the Group's Completion Contract business delivered reduced revenues of $16.8m for the period (H1 2018: $18.9m), including China revenues. This was primarily due to a reduction in the average film budget size from $12.9m (H1 2018) to $11.2m (H1 2019), as some larger projects started later than expected. New order fees were $13.9m (H1 2018: $15.2m). With the new captive insurance arrangement, gross insurance costs fell to 24.0% of net completion guarantee fees, excluding China (H1: 2018: 40.0%). Claims expense of $1.6m (H1 2018: $0.2m) was higher due to claim reserves on two projects.

* Excludes revenue related to China licensing arrangement

Editing Equipment Rental

Revenues from Pivotal Post (acquired in February 2017) and EPS-Cineworks (acquired in November 2017) made a contribution of $9.9m to the Group's revenue performance over the six-month period, representing an almost twofold increase from the previous year (H1 2018: $5m Pivotal Post only), in line with estimates. This has been supported by an increase in the average number of available equipment and suite rental units, at 521 and 289, respectively (up from 275 and 112 in H1 2018 - related to Pivotal only).

Technical Services

Buff Dubs was acquired by FFI in December 2017 and is a post-production services company based in Australia, with capabilities in encoding, transcoding, media duplication, and mastering for film and television productions. This is still a new operating segment for the Group, contributing $2.8m of revenue (6% of Group revenue).

Insurance Agency

The Group made two acquisitions in the area of entertainment insurance risk in FY18, including that of Reel Media (December 2017) and the motorsports book of business from All Risks Ltd (January 2018). In addition, FFI also signed a strategic partnership with Allianz Global Corporate & Speciality (January 2018). FFI's Insurance Agency segment delivered revenues of $10.9m in H1 2019, representing 24% of Group revenue. The division delivered total net commissions of $6.4m, and, with a strong pipeline for the rest of the year, is tracking to the Board's full year estimates.

Content Distribution

FFI's Content Distribution segment delivered revenues of $5.2m in the six-month period, representing 11% of total revenue, primarily from the acquisition of Signature Entertainment in April 2018. Signature is a film distributor in the UK and acts as an aggregator for streaming companies.

Outlook

The Board is pleased with the progress and integration of acquired businesses and operations in our Editing & Equipment Rental, Technical Services, and Insurance Agency businesses. These businesses are all trading in line with or even ahead of our original expectations. In that light, it is disappointing to report that Underlying EBIT for the Group for the full year is expected to be below previous expectations because of the impact of delays in the timing of revenues from certain larger budget titles within the Completion Contracts business and of revenues associated with the Pandas Documentary within the Content Distribution business. The Board looks forward to providing updates in this regard in due course. Separately, the Board is clearly disappointed by the Company's poor share price performance since IPO and is committed exploring the options to address this issue.

Notes to the Consolidated Interim report

For the six months ended 30 September 2018

1. Nature of operations and general information

FFI Holdings Plc (the "Company") is the holding company of a group of companies (the "Group"), which collectively serves as a diversified service provider to the film and entertainment industry with activities across completion contracts, editing equipment and editing suite rentals, post production technical services, insurance services and content distribution.

The address of FFI Holdings Plc's registered office and principal place of business is 9000 Sunset Boulevard, Suite 1400, Los Angeles, CA 90069, United States.

FFI Holdings Plc's shares are listed on the London Stock Exchange's AIM market.

FFI Holdings Plc's consolidated financial statements are presented in US Dollars, which is the functional currency of the operating subsidiaries.

2. Accounting policies

2.1 Basis of preparation

The condensed consolidated interim financial information for the half year ended 30 September 2018 was approved by the Board of Directors and authorised for issue on 19 December 2018. The condensed consolidated interim financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2018 have been filed with the Registrar of Companies at Companies House. The auditor's report on the statutory accounts for the year ended 31 March 2018 was unqualified and did not contain any statements under Section 498 (2) or (3) of the Companies Act 2006. The comparative information for the year ended 31 March 2018 presented in these condensed consolidated interim financial statements has been extracted from those accounts.

The consolidated annual financial statements for the year ended 31 March 2018 were prepared in accordance with IFRS adopted for use in the European Union (IFRS). Accordingly, these condensed, consolidated interim financial statements have been prepared in accordance with the recognition and measurement principles of IFRS and using accounting policies consistent with those which were adopted by the Group in the financial statements for the year ended 31 March 2018 and which will be used in the preparation of the financial statements for the year ended 31 March 2019.

IFRS 9 'Financial Instruments' became effective for annual periods beginning on or after 1 January 2018. This new standard introduces a classification and measurement approach for a variety of financial assets of which, except for trade receivables and borrowings, the Group has no dealings. For receivables, IFRS 9 replaces the 'incurred loss' model in IAS 39 with a forward-looking 'expected credit loss' (ECL model), which is to be calculated based on actual historical credit losses, of which the Group has had a negligible amount. The Group continues to evaluate the impact of IFRS 9 across all segments and does not believe that the new classification requirements will have a material impact on its account for trade receivables or loans that are managed on a fair value basis.

IFRS 15 'Revenue Recognition' became effective for accounting periods beginning on or after 1 January 2018. The majority of the Group's contracts with customers are not complex, with revenue being fixed and earned over a certain period of time. The Group continues to evaluate the impact of IFRS 15 across all operating segments and believes that all policies are in accordance with IFRS 15 and that there is no impact on revenue from the adoption of this standard.

There were no other new relevant standards or interpretations to be adopted for the six months ended 30 September 2018.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing their half-yearly financial statements.

2.2 Capital reorganisation

On 30 June 2017 FFI Holdings Plc entered into a share for share agreement with the ultimate beneficiaries of Film Finances, Inc. and Subsidiaries, whereby 136,043,872 new ordinary shares of £0.01 each were issued to the ultimate beneficiaries of Film Finances, Inc. and Subsidiaries in exchange for their shares in Film Finances, Inc. and Subsidiaries in the same proportion as their shareholding in Film Finances, Inc. and Subsidiaries. The transaction has been treated as a capital reorganisation and merger accounting principles applied in consolidating the results of FFI Holdings Plc and Film Finances, Inc. and Subsidiaries.

The comparatives used within the consolidated interim financial statements reflect the financial performance and position of Film Finances, Inc. and Subsidiaries. The impact of merger accounting is to reflect the group as though it had always been in existence. Therefore the prior periods comparatives reflect those of Film Finances, Inc. and Subsidiaries. In the current period, the results reflect those of the whole group for the whole period. The only change to the reported balance sheet position is to reflect the share capital of FFI Holdings Plc rather than that of Film Finances, Inc. and Subsidiaries. The difference between the nominal value of the shares issued by FFI Holdings Plc in consideration for the share capital of Film Finances, Inc. and Subsidiaries and the share capital of Film Finances, Inc. and Subsidiaries is taken to the merger reserve.

At 15 June 2018, the Group settled share options on a net basis in accordance with the amendment to IFRS 2 'Share-based Payment.' The group issued shares equal to the fair market value of shares vested at date exercised less the employee's tax obligation due to this transaction, see note 10.

3. Segmental Information

For management purposes, the Group is organised into five operating segments; completion contracts, editing equipment rentals, technical services, insurance agency, and content distribution. The tax credit financing segment was discontinued during the period, see note 20. These segments are the basis on which the Group reports internally to the Directors, who have been identified as the chief operating decision makers.

Revenue and costs not included in one of these operating segments, for example corporate overhead, have not been allocated to an operating segment in line with the way they are reported to the chief operating decision makers.

The principal activities of the operating segments are as follows:

Completion Contracts

The main segment of the Group is to provide completion contracts to financers and distributors in connection with the production of film and television content.

Editing Equipment Rental

A segment of the Group provides film editing equipment and editing suite rentals. The Group acquired EPS-Cineworks, Inc. on 10 November 2017 to expand the editing equipment rentals segment. EPS-Cineworks, Inc. provides post-production equipment rental and software services with a focus on theatrical and television productions in North America.

Technical Services

Buff Dubs was acquired on 1 December 2017 and is a post-production services company in Australia with capabilities in encoding, transcoding, media duplication, and mastering for film and television productions. DAMSmart was acquired on 3 July 2018 to expand the technical services of the Group, see note 19.

Insurance Agency

Reel Media LLC was acquired on 20 December 2017 and is an insurance agency that helps provide insurance agency services for a variety of entertainment events including film, television, theatre, and concerts.

Content Distribution

A segment of the Group acquires and distributes film content. Signature Entertainment, a film distribution company based in the United Kingdom, was acquired on 24 April 2018 to expand the Group's content distribution segment, see note 19. Liquid Light was acquired during the period on 10 April 2018, see note 19.

3. Segmental Information (continued)

Geographical segments

The Group's revenue from continuing operations from external customers by location of operations are detailed below:

4. Expenses

5. Initial public offering

On 30 June 2017 the Group published its AIM Admission Document following its successful $38.8m fundraising. Its ordinary shares of £0.01 each were admitted to trading on the AIM market on 30 June 2017.

The Group issued 157,041,248 shares at a price of $1.94 per share, valuing the group at approximately $306m on issue and raising $40.8m before expenses. Total expenses of the Initial public offering ('IPO') and fundraising were $10,888,539, of which $2,013,564 were directly attributable to the issue of the new shares and have been charged to the Share Premium account. The balance of $8,874,957 has been charged to the Consolidated Income Statement and included within administrative expenses in the period ended 30 September 2017. .

To facilitate the IPO, FFI Holdings Plc was incorporated on 30 May 2017 and acquired the entire issued share capital of Film Finances, Inc. and Subsidiaries under a share for share exchange on 30 June 2017.

5. Initial public offering (continued)

A number of one-off and non-cash items are summarised in the following table.

6. Taxation

The underlying tax charge is based on the expected effective tax rate for the full year to 31 March 2019. It is estimated that the tax charge in the period will be $1,277,380.

7. Earnings per share

Basic earnings per share has been calculated on the earnings after tax for the period and the weighted average number of ordinary shares in issue during the period.

8. Dividends

No dividends have been paid by the Group in any of the periods presented.

9. Share capital

10. Share-based payments

On 30 June 2017, the date of admission, the Group granted to two directors and one employee executive options to subscribe for ordinary shares. All options are equity settled. The executive options have an exercise price $0.40 per share.

The table below shows the number of executive options granted to each recipient:

All executive options for Kevin Hyman and Timothy Trankina became fully vested and exercisable at the date of admission. In the case of Antony Mitchell, one-third of his executive options became fully vested and exercisable at the date of admission, and one-third will vest and become exercisable on each of the first two anniversaries of such date thereafter.

The executive options were exercised in full or in part by the recipient by following the procedures established by the Group. With respect to the executive options granted to Timothy Trankina, 765,247 of the executive options were exercised on 15 June 2018 and 255,082 of the executive options expire on the fifth anniversary of the date of grant. All executive options granted to Kevin Hyman were exercised on 15 June 2018. With respect to the executive options granted to Antony Mitchell, 340,110 of the executive options were exercised on 15 June 2018 and 680,219 expire no later than 15 June following the year in which such portion of his executive options vest. In each case, if the recipient's employment is terminated, all executive options must be exercised within 90 days after the date of termination, or the date on which such executive options otherwise expire.

At 30 June 2017, the date of admission, the Group had charged $3,174,652 as a share-based payment expense for all executive options fully vested and exercisable at the date of admission. At 31 March 2018, the Group charged an additional $632,859 as a share-based payment expense for the additional shares for Antony Mitchell that became fully vested and exercisable. At 31 March 2018 the Group had charged an aggregate amount of $3,807,511 as a share-based payment expense for all executive options fully vested and exercisable.

At 15 June 2018, the Group settled share options on a net basis by issuing shares equal to the fair market value of shares vested at date exercised less the employee's tax obligation due to this transaction. As a result, 1,663,137 in executive options were exercised in exchange for 778,995 ordinary shares. This reduced the share based payment reserve by $2,831,427. At 30 September 2018, the Group charged an additional $281,270 as a share-based payment expense for the additional shares for Antony Mitchell that became fully vested and exercisable. At 30 September the Group has charged an aggregate amount of $4,088,781 as a share-based payment expense for all executive options fully vested and exercisable.

Options were valued using a Black-Scholes model and will be charged through the profit and loss account over the vesting period. Volatility has been determined based on the historical common stock price volatility of selected guideline public companies over the last three years, as there is no historical stock price volatility for the Group. The risk-free rate represents the yield on US Treasury noted with a maturity that approximates the expected term of each series of options.

The assumptions used in valuing the executive options are a risk-free rate range of 1.23% - 1.45%, volatility range of 29% - 30.3%, and an expected life between 0.96 years and 2.5 years. The weighted average remaining contractual life of the options is 1 year. The fair value of the series of options has been calculated as $1.65 - $1.66.

11. Goodwill

12. Intangibles

13. Film rights, net

The Group acquired all the assets and liabilities of Signature Entertainment on 25 April 2018, see note 19. As part of the acquisition the Group acquired film content licenses, which are part of Signature Entertainment's core business. The film rights are prepaid content costs paid by Signature Entertainment for the distribution rights primarily in the United Kingdom territories. These costs are capitalised and amortised over the expected life of the film.

Amortisation is charged through cost related to revenues.

14. Trade and other receivables

Trade and other receivables consist of the following:

15. Restricted cash

Restricted cash consist of the following:

(i) The Group acts in a fiduciary capacity on behalf of certain financiers of films. The Group receives cash, which is restricted in use for the production of films. The Group is required to fund the production of the related films according to the production funding agreement. The amounts are recorded in restricted cash with the corresponding payable recorded as payable to productions.

(ii) For periods prior to 1 October 2017, the Group reserved for approximately 9 percent of net bond fees as insurance premiums to be held in escrow to satisfy insurance premiums in the event that actual claims expense exceed stipulated levels. To the extent actual claims result in additional insurance premiums due, that incremental premium amount is carried forward to future insurance periods to offset rebates that would otherwise be payable to the Group and, in certain situations, the incremental premium amount is immediately due.

(iii) The insurance agency restricted cash is related to monies collected by Reel Media, LLC, which are due to underwriters.

(iv) The captive restricted cash is the cash held by FFI Insurance Limited to cover any potential claims.

16. Trade and other payables

Trade and other payables consist of the following:

17. Borrowings

18. Other payables

Other payables consist of the following:

19. Business Combinations

Subsidiaries acquired

Signature Entertainment and Liquid Light were acquired to expand the Group's content distribution segment.

 DAMSmart was acquired to expand the Group's activities within technical services segment.

Consideration transferred

19. Business Combinations (continued)

Recognised amounts of identifiable assets acquired and liabilities assumed