8 Mar 2011 07:00
Pinewood Shepperton plc
Results for the Year Ended 31 December 2010
Pinewood Shepperton plc (the "Company"), a leading provider of services to the global film and television industries, today announces its 2010 resultsdemonstrating a strong performance ahead of market expectations.
Highlights
·; Revenue increased 8% to £43.4m (2009: £40.3m)
·; Operating profit increased 20% to £9.1m (2009: £7.6m)
·; Profit before tax increased 31% to £5.8m (2009: £4.5m)
·; Basic earnings per share 9.3p (2009: 9.1p)
·; EBITDA increased 13% to £12.8m (2009: £11.4m)
·; Increased total dividend of 3.60p (2009: 3.45p)
·; Further progress on international strategy
·; Additional stage capacity to be built at Pinewood Studios
·; Commitment to low risk investment in smaller UK films
Commenting on 2010's results, Ivan Dunleavy, Chief Executive, said:
"Pinewood has shown significant growth in all of the key metrics that measure the performance of the business. We have grown the top line by winning big budget international films which have been attracted to Pinewood by the superior quality of our assets and the range of services that we can offer. Our television business continued to perform well at the top end of a difficult broadcast market. These results demonstrate that our long-term strategy is continuing to deliver."
Enquiries:
Pinewood Shepperton plc | |
Ivan Dunleavy - Chief Executive | +44 (0)1753 656732 |
Brunswick Group LLP | |
Tom Buchanan / James Olley / Oliver Hughes | +44 (0)207 404 5959 |
A presentation of the results will be available at www.pinewoodshepperton.com from 10am today.
Notes to Editors:
·; Pinewood Shepperton plc is Europe's largest provider of stage and studio space
·; Pinewood, Shepperton and Teddington Studios together accommodate 34 stages, five dedicated digital television studios and five digital presentation studios
·; Pinewood Studios is home to Europe's leading studio-based underwater filming stage, as well as one of the largest exterior water tanks in Europe
·; Pinewood Studios has Europe's largest green screen
·; Pinewood and Shepperton Studios have been home to over 1,500 films in the last 75 years
·; Pinewood, Shepperton and Teddington Studios have hosted over 600 TV shows
·; Pinewood Studios will celebrate its 75th birthday in September 2011
Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website, nor any other website, is incorporated into, or forms part of this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
Chairman's Statement
Pinewood Shepperton plc's performance during 2010 has delivered tangible progress on the clear long term strategy that the Company is pursuing. The Company continues to focus on developing its core film, television and media park businesses and ensuring that the studios possess up to date infrastructure to service its diverse and growing client base. The Company is committed to building on its unique assets to develop a dedicated cluster for the creative industries in the UK whilst leveraging the Pinewood brand and expertise to create international revenues.
It is this strategy which provides a foundation for stability and growth. Against the backdrop of a poor economic climate, the Company has produced strong results as it has tackled head on increased international competition in film, pricing pressures in UK television and a challenging property rental market.
In line with its stated goals, the Company has targeted new markets and established a brand presence in Canada, Germany, Malaysia and recently the Dominican Republic, bringing marketing and revenue benefits to the Company with minimal investment. Likewise the Company continues to ensure that its Media Park builds upon its reputation as one of the foremost creative hubs in the UK and Europe. This would be further enhanced by the Company's proposed long-term scheme to create a living and working community for the creative industries - Project Pinewood.
The Board is pleased to be recommending an increased final dividend of 2.50p making a total dividend for the year of 3.60p (2009: 3.45p).
During the year the Board invited Steven Underwood, currently a full time executive of the Peel Group ("Peel"), to join the Board as a non-executive Director with effect from 29 June 2010. As a result the Nomination Committee is leading a process to recruit an additional independent non-executive Director.
It is worth recording that our shareholder register has consolidated materially over the last year. Two (mutually independent) shareholders now currently hold 54.61% between them.
On 30 September 2011, Pinewood Studios will celebrate its 75th anniversary. Its rich heritage of film and television production and state of the art facilities make it the UK's premier destination for film makers, television producers and increasingly for video game developers and the wider creative industries. Building on this rich film heritage, and our successful strategy to date gives us confidence to begin increasing our capacity and to make further commitment to the UK film industry.
One of the key factors that contributed to the Company's strong performance is the contribution and commitment of Pinewood Shepperton's staff. On behalf of my fellow Board colleagues, I would like to thank all of them for their efforts - it is they who drive our success.
Lord Grade of YarmouthChairman
07 March 2011
Operating Review
Company Overview
Pinewood Shepperton plc is a world class film studio that has an unrivalled heritage and access to an invaluable skill base for makers of film and television programmes. The Company owns substantial freehold land and has a media park with a diverse range of media related tenants.
The Company's unique assets in the UK, together with its international and strategic initiatives, mean that it is well placed to cater for the existing and planned global growth in creative content. Pinewood is now an expanding global brand, allowing access to premium services around the world.
The global entertainment and media market is expected to grow by 5.0% compounded annually between now and 2014 reaching US$1.7 trillion[1]. Global film box-office sales have reached an all time high at US$31.8 billion[2]. Meanwhile, global television is expected to increase from US$185.9 billion in 2009 to US$258.1 billion in 2014[3]. More than 245 European television channels were launched in 2009, bringing the total to 7,200[4].[5]UK television industry revenue in 2009 was £11.1bn5.
Pinewood Shepperton plc has three complementary revenue streams - film, television and media park.
In film, the Company aims to capitalise on the strength of its infrastructure, service offering and brand by maximising utilisation of its studio facilities in the UK. It is also taking opportunities to extend the brand to other global regions, through joint venture and operating agreements with minimal capital commitment. This has been evidenced so far by four long term agreements with strategic partners in Canada, Germany, Malaysia and most recently the Dominican Republic.
The Company has developed a leading television business which often utilises its film stages to host major television productions (and vice versa). This ability to interchange the Company's assets to meet market demand gives the business a competitive edge. During the course of the year, several television productions were recorded on film stages and, conversely, a major film used all the television facilities at Pinewood Studios during the second half of 2010.
The third revenue stream is Media Park. The Company has invested for the long term in its Media Park assets to ensure that its studios remain the preferred destination for leading companies in the screen based industries. The Company stands ready to take full advantage of its unique property assets and infrastructure which it has outline planning consents to expand and develop as soon as the economy and demand allow.
Film
Film revenues for 2010 were £29.1m (2009: £22.6m), an increase of 28%. In the second half of 2010 film generated revenues of £18.2m (2009: £10.8m). Despite the increasingly competitive international market, both Pinewood Studios and Shepperton Studios were near full capacity during the second half of 2010.
On 14 January 2011 the American Federation of Television and Radio Artists (AFTRA) and Screen Actors Guild (SAG) ratified a new three-year agreement with the Alliance of Motion Picture and Television Producers. This latest agreement will be effective from 1 July 2011, until 30 June 2014 and will provide certainty around US film production. This is a welcome development.
The Company's film facilities include 34 high quality stages which range from 2,000 sq ft to the 59,000 sq ft 007 stage - the largest stage in Europe. In addition, Pinewood Studios offers globally unique water filming facilities, which include one of the world's largest water tanks with an 800,000 gallon capacity and a specialist underwater stage. All of the Company's stages are fully equipped with power, lighting, heating, large loading doors and many have internal water tanks. There are 67 workshops totalling 218,646 sq ft, 286 production offices totalling 67,277 sq ft and three 'backlots' for outdoor filming.
The largest film production based at Pinewood Studios during the year was Pirates of the Caribbean: On Stranger Tides (Disney) and the largest production based at Shepperton Studios was Hugo Cabret (GK Films). Other productions that used Pinewood Shepperton facilities included Clash of the Titans (Warner Bros), Captain America: The First Avenger (Marvel), X-Men: First Class (Fox), Dark Tide(Magnet Media), Johnny English Reborn (Working Title), Jane Eyre (Ruby Films), My Week with Marilyn (Trademark Films), The Woman in Black (Hammer Films) and Harry Potter and the Deathly Hallows (Warner Bros).
The Company's state of the art facilities offer attractive options for clients, enabling it to win significant business from international productions. The film stages and television studios were deployed interchangeably to ensure maximum utilisation of both the facilities and services. The flexibility of the film stages also allow them to be used for tour rehearsals and promotional videos. During the course of the year the stages were used by artists such as Kylie Minogue, Shakira, Chris Rea, Stevie Wonder, Rod Stewart, Eric Clapton, Tom Jones, Status Quo and Kasabian.
The Company provided digital content services generating revenues of £5.8m (2009: £6.4m), now reflecting the transition to a fully digital and more efficient process. These services were provided to a number of high profile film and television productions, including Harry Potter and the Deathly Hallows (Warner Bros), 127 Hours (Cloud 8/Film 4), Hanna (Focus Features) and the fourth television series of Would I Lie to You. Digital content services were also provided to a number of computer games, including Driver: San Francisco (Ubisoft) and Enslaved (Ninja Theory). These digital services provide game developers with premium facilities and reaffirm the Company's strategy of a flexible offering.
Following an agreement with StudioCanal in late 2009 to digitise and preserve its extensive library of film and television, audio and picture assets, the Company has completed work on a number of films and television series including Murder on the Orient Express, Whiskey Galore, Cross of Iron, Peeping Tom, Brighton Rock, Poirot, and the digital cinema re-release of The Railway Children. During 2010, the Company entered into a new agreement with Associated Press to house the GMTV programme library. The development of a digital restoration, preservation and archive facility allowed the Company to invest in expanding its digital infrastructure providing film and television productions and tenants such as ITV and Associated Press with technology which meets their increasing needs.
The long term agreement with Disney Character Voices International is performing well. The Company also provided international language versions to a wide range of other productions, including Iron Man 2 (Marvel), How to Train Your Dragon (Dreamworks) and Karate Kid (Sony).
The Company opened its on-site data centre in April 2010 which is also performing well. Combined with the Sohonet media network, the data centre provides co-location and hosting services tailored to the requirements of the media and entertainment industries and adds to the wide range of innovative facilities at the Studios. These improvements form part of the Company's ongoing commitment to add value through investment in its technical infrastructure.
The Company won Best Film Mix Facility of the Year in October 2010 at the UK Screen Sound Awards ('The Conch').
During the year the demand for use of the Company's stage and studio assets continued to grow. Accordingly the Board has approved, subject to detailed planning consent, the building of a unique 30,000 sq ft stage suitable for both film and television. This significant addition to stage capacity for the Company of 7% is at an anticipated cost of £5.1m. Completion of this new stage is anticipated by the second half of 2012.
The Company has continued to monitor the market demand for film production in the UK. 2010 has once again demonstrated strong growth in inward investment film production. Despite the overall growth in production, smaller budget, UK productions, have struggled to maintain a sustainable level of output as financial markets have constricted access to film finance.
These smaller budget films are a valuable part of the Company's mix of revenues. The Government offers attractive fiscal incentives for such productions. The Company's unique offering and market standing provides the Company with the ability to support productions from this segment of the market. Without unduly risking capital, the Company will target a limited number, up to four per annum, of films, with total production budgets of circa £2m each. To that end, the Company intends to provide facilities and co-investment of up to 20% in the equity of such small budget films.
International
The Pinewood brand is well recognised and highly regarded internationally. The Company's international offering seeks to build on that reputation and selectively leverage its brand strength and expertise.
The Company's first sales and marketing agreement was in Canada. Pinewood Toronto Studios is proving popular with a wide range of US production companies and US television network. Film and television productions that have used the facilities include Scott Pilgrim vs. the World (Universal), Dreamhouse (Morgan Creek), The Thing (Universal), Breakout Kings (Fox) and Battle of the Blades (CBC).
Phase one construction of Pinewood Iskandar Malaysia Studios, the Company's second international agreement, will comprise 100,000 sq ft of film stages (ranging from 15,000 sq ft to 30,000 sq ft) and 24,000 sq ft of TV studios (2 x 12,000 sq ft) plus a number of offices, workshops and post production facilities is on schedule. The detailed design work is now significantly completed and the construction phase commenced in February 2011 with a view to opening in early 2013.
In February 2010, Pinewood Studios and Studio Hamburg entered into a joint venture that allows European and international filmmakers to take advantage of our joint infrastructure and skills when producing feature films in Germany. The newly created entity, "Pinewood Studios Berlin Film Services", offers international filmmakers a full range of production service opportunities, targeting European producers. The venture is on track to host its first production later this year.
The Company entered into a long term agreement with the Indomina Group, an investment managed by VICINI, a leading asset management company with investments in food and beverages, retail, energy, finance, tourism and real estate in the Caribbean and Central America. This agreement is for the operation of new film and television studios to be built in the Dominican Republic. Pinewood will receive annual fees for its sales and management services and an equity participation which accrues over time from 2013. The construction will be funded by the Indomina Group. This new venture, 'Pinewood Indomina Studios' is expected to commence initial operations in 2012, targeting the growing Latino film and television market.
International revenues in 2010 of £0.6m (2009: £0.5m) are in line with the Company's expectations. Once all four international studios are fully operational they will make incremental contributions to revenue and provide access to key expanding markets such as in the Asia Pacific and South American regions.
Television
The Company's television revenues were, as expected, reduced for the year at £8.2m (2009: £11.3m). Revenues were impacted by ITV and BBC deciding to direct their productions to their own in-house studio facilities. The competition for providers of smaller television studio space has increased significantly as a result. Demand for the Company's large scale flexible facilities is growing. This has given the Company a competitive advantage in hosting the big event television shows. The Company's full service television offering and range of facilities which produce high quality, cost effective solutions continues to prove attractive to broadcasters and programme makers.
Pinewood and Teddington television studios played host to new and repeat business from My Family (DLT), A League of Their Own (CPL), Britain's Best Dish (ITVS), Would I Lie to You (Zepperton), Perrin (Objective Productions), The Rob Brydon Show (Talkback Thames), Grounded for Life (Caryn Mandabach), Dick & Dom (BBC), Piers Morgan's Life Stories (ITV) and IT Crowd (talkbackTHAMES).
During the year, television productions such as Episodes (Hat Trick Productions), Dragons' Den (BBC), New Tricks (Wall to Wall) and Grandma's House (Tiger Aspect) used large film stages at Pinewood Studios. R and S stages at Pinewood Studios were used for two large ITV game shows Ant & Dec's Push The Button (Gallowgate) and The Whole 19 Yards (Endemol) both of which required the space to accommodate large sets and large audiences. The live ITV programme Dancing on Ice commenced pre-production late in 2010 and continues to use film stages at Shepperton Studios to host complex sets and large audiences.
The Company's television facilities and film stages were used during the course of the year for a variety of television advertising campaigns, including Virgin Atlantic's 'Your airline's either got it or it hasn't', Stella Artois' online TV show, 'CO2eux Soirée' and the Speedo 2010 campaign, 'MySpeedo'.
The transmission facilities at Teddington Studios provide additional services which are attractive to smaller channels. During the course of the year channel hosting facilities were provided to CBeebies, Racing UK, Turf TV, Chinese Channel and Ulster TV. The Company is bidding to renew its contract with Racing UK on enhanced channel hosting needs.
The Company notes the recent formal announcement by the BBC to redevelop for other uses the BBC's studio facilities at Television Centre, White City, London.
Media Park
The Company's Media Park is an integral part of the creative industries cluster that exists at the studios - the benefits of which are well known. Media Park is a unique asset offering a variety of complementary services for film and television productions utilising the studios. Media Park is an important component of the Company's strategy. Despite tough market conditions, Media Park comprises 297 (2009: 300) media related businesses ranging from small to large, offering services to the film, television and video game industries. The Company will continue to target prospective media tenants as it seeks to expand its unique network of related services and businesses on an occupier led basis.
Media Park revenues for 2010 were £6.2m (2009: £6.3m) including the Group's 50% interest in the Shepperton Studios Property Partnership (SSPP). Occupancy was 90% (2009: 88%) which was a resilient performance in a depressed commercial property market. A contributing factor to the reduced revenues was the diversion of 30,000 sq ft of tenant space to meet the requirement from film productions.
The Media Park facilities comprise 380,000 sq ft of tenanted areas used by technology, digital service companies, a film processing laboratory and numerous other support businesses related to the film, television, video game and wider creative industries.
The Company continues to look to exploit its master planning consents at each of the Pinewood and Shepperton Studio sites for market led demand for new Media Park facilties.
In 2010, the Company committed to capital expenditure of £3.3m over three years for a major electricity supply upgrade at Pinewood Studios, increasing power to the site from 4.5 MVA to 15 MVA. This significant infrastructure improvement will not only allow the Company to increase the permanent power provision available to productions at the Studio but also to meet future demand.
The Company continues to invest in its studios, ensuring it can meet the needs of businesses that want to relocate into one of Europe's foremost creative clusters. During the course of the year the Company invested £0.7m on a 10,000 sq ft facility for a new tenant on a 10 year lease, Take 2 Lighting, at Pinewood Studios. This new facility, the North Lamp Store, was opened on 12 November 2010.
Project Pinewood
Project Pinewood is a long-term scheme of national significance to create a living and working community for the creative industries. Project Pinewood is aimed at building upon the creative hub developing at Pinewood Studios. The Company believes that Project Pinewood will benefit individuals, the creative industries and more widely 'UK plc', through job creation, its emphasis on skills and training and access to affordable housing. Project Pinewood's green credentials will also enable film and television productions significantly to reduce their carbon emissionsand it is a project of national and regional significance which will be of long term benefit to all stakeholders.
The Coalition Government has recognised that the creative industries have a crucial role to play in driving economic recovery in the UK. Their significance to future economic prosperity has been recognised by the Prime Minister who highlighted the need to support the growth of the creative industries in his speech Transforming the British economy: Coalition strategy for economic growth on 28 May 2010. Private sector initiatives such as Project Pinewood are an important contribution to the process of economic recovery.
The Company's appeal by way of Public Inquiry against the initial refusal by South Bucks District Council of planning permission for Project Pinewood will commence on 5 April 2011. The decision will be made by the Secretary of State for Communities and Local Government. Separately an application by local residents in opposition to Project Pinewood to register part of the proposed site as a Town or Village Green was heard in September 2010. On 21 December 2010 the Buckinghamshire County Council Rights of Way Committee unanimously upheld the recommendation from the Independent Inspector appointed by Buckinghamshire County Council to reject this application. Total costs incurred since the project inception to 31 December 2010, including the Town or Village Green defence costs were £6.0m (2009: £4.8m).
Return on Capital Employed ("ROCE")
As we set out in the overview section of this report, since its IPO in May 2004 the Company has followed a clearly defined strategy for developing its business. This long term strategy and the Company's significant and integral property assets distinguish the Company from other businesses in the media sector.
The Company's long term property investments add to the capital employed by the Company and returns from these investments will impact the ROCE measure whilst the Company continues to build out its Studios in accordance with the consented Masterplan. It is therefore particularly pleasing to see that ROCE has grown to 7.7% for 2010 (2009: 6.6%). The Board is always mindful of the need to improve ROCE as one of a basket of measures of performance and senior management remains incentivised accordingly.
Dividend
The Board is recommending an increased final dividend of 2.50p (2009: 2.40p) making a total dividend for the year of 3.60p (2009: 3.45p).
Outlook
The year has begun positively. The Company is hosting a number of international big budget films and has also attracted large television shows such as Dancing on Ice (ITV) and Got to Dance (Sky). Media Park revenues continue to be consistent, reflecting the value of the Company's offering in the market place.
As a result of this performance to date, and the visibility of contracted revenues from major films for the rest of the year, the Company expects continuing growth in revenues in 2011.
Looking to the longer term, the Company intends to add to its film stage capacity to help meet an increasing demand for its services in the UK. The Company looks to the future with confidence.
Ivan DunleavyChief Executive
Financial Review
The Board use a number of key performance indicators ("KPIs") to monitor Company's performance, as well as to measure progress against the Company's objectives. The KPIs used are: revenue, profitability, return on capital employed, cash flow and net debt which are discussed as part of this Financial Review:
Revenue
Total revenues for the year were £43.4m (2009: £40.3m), the 8% increase in total revenues reflected strong growth in film revenues.
Film revenues of £29.1m (2009: £22.6m) increased 28%, benefitting from the Company's strong performance during the second half of 2010 where revenues were £18.3m, compared to £10.8m for the first half of the year. Film revenues were generated from the provision of services and facilities, including: stages, workshops, wardrobes, dressing rooms, production offices, outdoor filming facilities, ancillary services and digital content services.
International revenues of £0.6m (2009: £0.5m) were generated from providing sales and marketing services in Canada and Malaysia. These revenues provide a meaningful margin contribution with minimal capital employed.
Television revenues of £8.2m (2009: £11.3m) reflected the difficult commissioning environment and the diversion of the Company's television facilities at Pinewood for film production where there has been high demand. The Company provides dedicated digital television studios on a fully serviced basis which includes freelance contractors, lighting, cameras, technical equipment, dressing rooms and production offices, all of which are priced into the contract in accordance with the requirements of each television customer.
Within film and television are revenues generated from digital content services, which covers sound and picture post production, foreign language versioning and archive and restoration services. For the full year revenues were £5.8m (2009: £6.4m) now reflecting the transition to a fully digital and more efficient process.
Media Park revenues were £6.2m (2009: £6.3m) including the Company's 50% interest of £0.9m (2009: £0.9m) from the Shepperton Studios Property Partnership. The reduction in revenue reflected a loss of a number of tenants during the year, and the removal of 30,000 sq ft from the tenanted property estate for future redevelopment.
Tenants within the Media Park are contracted on a range of terms inclusive of service, utility and facility charges which vary from six months to 15 years, supporting the sustainability and resilience of the Company's overall revenues.
Profit performance and earnings per share
Gross profit was £17.4m (2009: £15.6m) with gross margins achieving 40% (2009: 39%).
Reported operating profit increased 20% to £9.1m (2009: £7.6m), resulting in an operating profit margin of 21% (2009: 19%). EBITDA, i.e. earnings before exceptional items, interest, tax, depreciation and amortisation, was £12.8m (2009: £11.4m). Profit before tax increased 31% to £5.8m (2009: £4.5m).
Basic earnings per share were 9.3p (2009: 9.1p). Basic earnings per share after adjusting for the effects of the release of the provision for the potential capital gains taxation on properties and for exceptional items were 8.0p (2009: 6.3p).
Diluted earnings per share were 8.9p (2009: 8.8p). Diluted earnings per share after adjusting for the effects of the release of the provision for potential capital gains taxation on properties and for exceptional items were 7.7p (2009: 6.2p).
The weighted average number of shares in issue was 46.2m (2009: 46.1m). Adjusting for shares potentially issuable as a result of employee share schemes, the average number would be 48.2m (2009: 47.3m).
Return on capital employed
The Company measures return on capital employed which for the 12 months ended 31 December 2010 increased to 7.7% (2009: 6.6%) by reference to annual operating profit, before exceptional items as a percentage of average capital employed, being total equity plus interest-bearing loans and borrowings.
Exceptional income
Exceptional income amounted to £0.6m. The Company negotiated a business rates rebate of £0.5m relating to prior periods. In addition, following a review of the Total Shareholder Return component of the Company's Long Term Incentive Plan awards, granted in 2008, £0.1m of the IFRS 2 charges to the Group's income statement in previous years were reversed as an exceptional credit in the year.
Exceptional costs
Exceptional costs for the year amounted to £0.6m. The Company incurred costs of £0.4m in restructuring certain administrative functions and wrote off £0.2m of the set up costs of establishing its international initiatives.
Dividend
The Board is recommending a final dividend of 2.50p (2009: 2.40p), taken together with the interim dividend of 1.10p (2009: 1.05p), the total dividend is 3.60p (2009: 3.45p). The dividend for 2010 is covered 2.6 times (2009: 2.5 times) by profit for the year after tax.
The dividends reflected in the statutory accounts for in the 12 months to December 2010 are the final dividend in respect of 2009 of 2.40p and the interim dividend in respect of 2010 of 1.10p. The final dividend for 2010 will be accounted for in 2011.
Subject to approval by the shareholders at the Annual General Meeting to be held on 31 May 2011, the final dividend will be paid on 10 June 2011 to shareholders on the register at 13 May 2011 (ex-dividend date of 11 May 2011).
It remains the Board's intention to continue its progressive dividend policy.
Cash flow and net debt
The Company generated operating cash flow of £13.0m (2009: £10.7m). After adjusting for movements in working capital, including a £4.4m increase in deferred income, cash generated from operations was £17.6m (2009: £8.5m) from which finance costs of £3.0m (2009: £2.8m) and corporation tax £1.9m (2009: £1.5m) were paid.
During the year cash outflow on capital expenditure was £6.7m (2009: £6.3m), including £1.9m of capital expenditure payable carried forward from 31 December 2009. The main items of capital expenditure during the year were: investment in the archiving and data centre projects amounting to £1.0m, life cycle expenditure of £3.0m, infrastructure power upgrade of £1.0m, the completed 10,000 sq ft pre-let of £0.5m and Project Pinewood costs of £1.2m.
Net debt at 31 December 2010 was £42.7m (31 December 2009: £46.1m) which included £12m (2009: £12m) relating to the Group's 50% interest in the non-recourse Aviva loan to the Shepperton Studios Property Partnership ("SSPP"). The reduction in debt reflects improved trading.
The Company has banking facilities of up to £70m which comprise a £35m revolving credit facility, a £30m facility for pre-let development and a £5m overdraft facility, all of which are secured by a floating charge over the Company's assets. The revolving and pre-let facilities contain no scheduled repayments and mature in August 2013. The £5m overdraft facility is available until August 2013 and is subject to annual reviews. At 31 December 2010, £22.5m (2009: £26m) of the revolving credit facility and £6m (2009: £6m) of the pre-let development facility were drawn. The overdraft facility was undrawn at 31 December 2010 (2009: £0.9m). During the year the Company also drew down a further £1.3m of asset financing which at 31 December 2010 totalled £1.8m (2009: £0.9m).
There are a range of covenants appropriate to the revolving credit facility, pre-let development facility and overdraft facility. The Company was covenant compliant with adequate headroom on all covenants at 31 December 2010.
In addition to the £70m banking facilities, there are non-recourse facilities provided to SSPP by our joint venture partner Aviva, which total £40m, of which £24m was drawn at the year end. This loan which is 50% consolidated at £12m (2009: £12m) is included in the Group's statement of financial position. These facilities are available until 2026 and are covenant free with no scheduled repayments.
Investment property
Investment property is recognised in accordance with IAS 40 as a category within assets in the Group statement of financial position. At 31 December 2010, investment property is recorded at a carrying cost of £6.4m (2009: £6.3m). This compares to the Director's assessment of the fair value of £7.1m (2009: £6.8m).
Capital commitments
The Company had capital commitments of £2.3m at 31 December 2010 (2009: nil) relating to its additional power upgrade.
Financial gearing
At 31 December 2010, net debt including the Company's share of the SSPP non-recourse drawn loan was £42.7m (2009: £46.1m). Financial gearing at the year end, excluding fair value and loan issue costs, was 55.8% (2009: 63.2%).
Finance costs and hedging
Net finance costs were £3.3m (2009: £3.2m) which are comparable to the previous year and include the relevant fees and margins incurred under the facilities. The Company has at its disposal undrawn facilities on which it pays non-utilisation fees which are a percentage of the margin. Interest capitalised during the period on Project Pinewood was £150,000 (2009: £0.1m). Net finance costs were covered 2.8 times (2009: 2.4 times) by operating profit.
The Company continued to use interest rate derivatives to manage interest rate exposure. The Company has a £7.5m hedge with an effective rate of 2.89% plus a variable margin of 2.5% that was entered into in April 2009 and expires in July 2013. The Company also has a £15m hedge with an effective rate of 5.15% plus a variable margin of 2.5% that was entered into in October 2008 and expires in July 2013. At 31 December 2010, £22.5m (2009: £22.5m) of the company's facilities were under interest rate swaps and £1.8m (2009: £0.9m) was under a fixed interest rate asset financing facility. At 31 December 2010, 57% (2009: 51%) of the Company's borrowings were at a fixed rate of interest. The Board regularly reviews the hedging arrangements to manage interest rate exposure.
Project Pinewood
Included within "Property, plant and equipment" on the statement of financial position, is £6.0m of costs incurred to 31 December 2010 (2009: £4.8m) in relation to Project Pinewood. Capitalisation of costs is based on the Board's judgement that the economic benefits expected from the asset will exceed the carrying costs of Project Pinewood. Costs are reviewed monthly by the Board. Taking into consideration all aspects of the project, the Board views the carrying cost of the capitalised expenditure incurred up to 31 December 2010 to be appropriate.
Taxation
The current corporation tax expense for the year ended 31 December 2010 based on profit before tax of £5.8m, was £2.0m, a current tax rate of 35% (2009: 21%). After adjusting £0.5m for the effect of the release of a provision for potential capital gains taxation on properties and other deferred tax adjustments, the tax charge is 26% (2009: 6%).
On 22 June 2010, the UK Government announced its intention to reduce the main rate of corporation tax from 28% to 24%. The fall will be phased in over a period of four years with a 1% reduction in the main corporation tax rate for each year starting on 1 April 2011. The Finance (No. 2) Act 2010 enacted on 27 July 2010, included legislation on the initial phase to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011. It is expected that the rate changes will have an effect of reducing the net UK deferred tax position recognised at 31 December 2010 by approximately £0.1m.
Going concern
In assessing the going concern basis, the Directors considered the Company's business activities, the financial position of the Company and the Company's financial risk management objectives and policies. The Directors considered that the Company has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing these financial statements.
Patrick Garner FCAFinance Director
Key Business Risks
The Board views effective risk management as a primary part of the Group's wider strategy and is fully committed to the identification, evaluation and management of significant risks facing the Group. The table below outlines the key risks and uncertainties identified by the Board together with an outline of mitigation activities.
1. General risks
Risk | Description | Mitigation |
Importance of key customers and big budget films | The Group's largest customers account for a high percentage of revenues. If 'big budget' filmmakers cease to choose the Group's facilities this would reduce revenues. | Maintaining strong, long-standing relationships through consistent levels of service and retaining employees to offer continuity. Diversification of revenues through the development of the Group's strategy.
|
Loss of reputation | Providing services to the worldwide film industry and representing studios internationally requires a robust reputation. Damage to the reputation could have an adverse impact on the Group.
| Maintaining strong relationships and an open line of communication with customers and international 'partners' through the Directors and executive management team. |
Guild/Union disruptions | Members of the various trade guilds/unions work on a high proportion of UK inward investment films.
| No direct mitigating actions can be taken. |
Delay in the recovery of the economy | A delay in the recovery of the economic environment may lead to a reduction in customers and revenue. | The Board monitors the external environment and its impact on the industry and has a number of strategic initiatives to respond to anticipated changes.
|
International agreements | Less direct and indirect control. | The Board regularly monitors the performance of the entities it has agreements with and the wider geopolitical context. |
2. Financial risks
Risk | Description | Mitigation |
Fiscal incentives | The UK's film tax incentives help ensure the UK is a competitive location for film production. | No direct mitigating actions can be taken.Reasoned evidence-based arguments are put forward to the Government highlighting the economic contribution that film makes to the economy.
|
Exchange rates | The majority of international film customers are in the US and an adverse movement in exchange rates may result in a reduction in the Group's competitive edge versus other European or international locations.
| No direct mitigating actions can be taken however, the reputation of the Group and the long-standing relationships assist in reducing this risk. |
Treasury | Risk is in a number of areas including credit risk, liquidity risk, interest rate risk and market risk.
| These are discussed in more detail in the Annual Report. |
Increases to business rates and valuation | Potential increase in business ratesand valuation would adversely impactthe business.
| No direct mitigating actions can be taken albeit representations would be made to Government. |
3. Operational risks
Risk | Description | Mitigation |
Health and safety, environmental and disaster recovery | A significant incident could put people and/or the environment at risk as well as damage the Group’s reputation. A major incident such as a fire or explosion may result in a number of issues including revenue loss and reputational damage. | A dedicated health, safety and fire team carries out regular risk evaluation. Further details can be found in the Corporate responsibility section of the Annual Report. A Business Continuity Team has been established and a policy is in place to ensure that operational business continues as far as possible in the event of a major incident. Adequate insurance cover is in place to mitigate the risk of the business suffering no permanent long-term detrimental effects from a significant negative event. |
Property Planning | The Group has exposure to risk if not able to commercially exploit existing and proposed planning consents to the fullest potential in accordance with long range plans. | The Group would assess alternative uses that are in line with the wider Group strategy should such a situation occur. |
Failure of key suppliers | The current economic climate could result in key suppliers to the Group being unable to maintain an effective supply chain. | The Group retains good supplier relationships and alternative suppliers for generic services could be sourced in the medium term. |
Health risk of pandemics, acts of terrorism and natural disasters | Diseases, terrorist threats and natural disasters may reduce the appeal to customers to travel and may impact local operational capability. | With UK-based studios and operational partners in a number of international locations the Group consider that the availability of location options would reduce the risk in this area. |
The Business review contains forward-looking statements that are made by the Directors in good faith. This information is based on the view of the Board of Directors at the date of approval of this Annual Report and based on knowledge and information at that time together with what are considered to be reasonable judgements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. There are a number of factors outside of the Group's control which could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors outside of the Group's control. Any forward-looking statements speak only as of the date that they are made, and the Group gives no undertaking to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes to events, conditions or circumstances on which any such statement is based.
Group income statement for the year ended 31 December
2010 | 2009 | ||||
Notes | £000 | £000 | |||
Revenue | |||||
Rendering of services | 2 | 43,409 | 40,321 | ||
Cost of sales | (26,007) | (24,742) | |||
Gross profit | 17,402 | 15,579 | |||
Selling and distribution expenses | (1,561) | (1,573) | |||
Administrative expenses | (6,766) | (6,337) | |||
Operating profit before exceptional items | 9,075 | 7,669 | |||
Exceptional income | 4 | 632 | 804 | ||
Exceptional costs | 4 | (579) | (851) | ||
Operating profit | 9,128 | 7,622 | |||
Finance costs | 5 | (3,309) | (3,171) | ||
Profit before tax | 5,819 | 4,451 | |||
Current tax expense | 6 | (2,016) | (955) | ||
Deferred tax expense | (97) | (406) | |||
Effect of release of deferred tax provision on property | 582 | 1,092 | |||
Total corporation tax expense | 6 | (1,531) | (269) | ||
Profit for the year | 4,288 | 4,182 | |||
Attributable to: | |||||
Equity holders of the parent company | 4,288 | 4,182 | |||
Earnings per share | |||||
- | basic for result for the year | 7 | 9.3p | 9.1p | |
- | diluted for result for the year | 7 | 8.9p | 8.8p | |
Group statement of other comprehensive income for the year ended 31 December
2010 | 2009 | ||||
£000 | £000 | ||||
Profit for the year | 4,288 | 4,182 | |||
Net movement on cash flow hedges | (1,185) | (672) | |||
Transfer of cash flow hedge reserve to income statement | 848 | 757 | |||
Deferred taxation credit/(charge) | 78 | (24) | |||
Other comprehensive (loss)/income for the year, net of tax | (259) | 61 | |||
Total comprehensive income for the year, net of tax | 4,029 | 4,243 | |||
Attributable to: | |||||
Equity holders of the parent company | 4,029 | 4,243 | |||
Group statement of financial position at 31 December
2010 | 2009 | |||
Notes | £000 | £000 | ||
Assets | ||||
Non-current assets | ||||
Property, plant and equipment | 8 | 115,385 | 112,570 | |
Investment property | 9 | 6,360 | 6,342 | |
Intangible assets | 10 | 5,604 | 5,604 | |
Long-term asset | 11 | 347 | - | |
127,696 | 124,516 | |||
Current assets | ||||
Inventories | 491 | 337 | ||
Trade and other receivables | 5,355 | 2,424 | ||
Prepayments | 1,980 | 2,771 | ||
Cash | 495 | - | ||
8,321 | 5,532 | |||
Total assets | 136,017 | 130,048 | ||
Equity and liabilities | ||||
Equity attributable to equity holders of parent | ||||
Share capital | 12 | 4,623 | 4,610 | |
Share premium | 12 | 43,692 | 43,692 | |
Capital redemption reserve | 12 | 135 | 135 | |
Merger reserve | 12 | 348 | 348 | |
Fair value of cash flow hedge | 12 | (1,186) | (927) | |
Retained earnings | 27,448 | 24,692 | ||
Total equity | 75,060 | 72,550 | ||
Non-current liabilities | ||||
Interest-bearing loans and borrowings | 13 | 43,190 | 45,149 | |
Deferred tax liabilities | 1,306 | 1,894 | ||
44,496 | 47,043 | |||
Current liabilities | ||||
Trade and other payables | 15,387 | 8,548 | ||
Interest-bearing loans and borrowings | 13 | - | 944 | |
Tax payable | 1,074 | 963 | ||
16,461 | 10,455 | |||
Total liabilities | 60,957 | 57,498 | ||
Total equity and liabilities | 136,017 | 130,048 | ||
The financial statements were approved by the Board of Directors on 7 March 2011 and are signed
on its behalf by:
Patrick Garner FCAFinance Director
Group statement of cash flows for the year ended 31 December
2010 | 2009 | |||
Notes | £000 | £000 | ||
Cash flow from operating activities | ||||
Profit before tax | 5,819 | 4,451 | ||
Adjustments to reconcile profit before tax to net cash flows | ||||
Exceptional items - non cash | 4 | (126) | (804) | |
Depreciation | 3,755 | 3,699 | ||
Share-based payment charges | 202 | 196 | ||
Finance costs | 3,309 | 3,171 | ||
Cash flow from operating activities before changes in working capital | 12,959 | 10,713 | ||
Increase/(decrease) in trade and other receivables | (2,140) | 252 | ||
Increase/(decrease) in inventories | (154) | 76 | ||
Increase/(decrease) in trade and other payables | 6,891 | (2,537) | ||
Cash generated from operations | 17,556 | 8,504 | ||
Finance costs paid | (2,990) | (2,831) | ||
Corporation tax paid | (1,906) | (1,499) | ||
Net cash flow from operating activities | 12,660 | 4,174 | ||
Cash flow from/(used in) investing activities | ||||
Proceeds from insurance for 007 Stage | - | 439 | ||
Purchase of property, plant and equipment | (6,673) | (5,652) | ||
Additions to investment property | - | (696) | ||
Additions to long-term assets | (347) | - | ||
Net cash flow used in investing activities | (7,020) | (5,909) | ||
Cash flow (used in)/from financing activities | ||||
Payment of asset financing liabilities | (379) | (77) | ||
Payment of loan issue fees | - | (24) | ||
Dividends paid | 7 | (1,619) | (1,541) | |
Proceeds from asset financing | 1,297 | 1,000 | ||
Proceeds from borrowings of joint venture | - | 631 | ||
Repayment of bank borrowings | (3,500) | - | ||
Proceeds from bank borrowings | - | 2,000 | ||
Net cash flow (used in)/from financing activities | (4,201) | 1,989 | ||
Net increase in cash | 1,439 | 254 | ||
Overdraft at the start of the year | (944) | (1,198) | ||
Cash/(overdraft) at the end of the year | 495 | (944) | ||
Group reconciliation of movement in net debt for the year ended 31 December
2010 | 2009 | |||
Notes | £000 | £000 | ||
Reconciliation of net cash flow to movement in net debt | ||||
Increase in cash | 1,439 | 254 | ||
Repayments of asset financing obligations | 379 | 77 | ||
Proceeds from asset financing | (1,297) | (1,000) | ||
Loan issue costs | - | 24 | ||
Amortisation of loan issue costs | (286) | (277) | ||
Proceeds from borrowings of joint venture | - | (631) | ||
Repayment of bank borrowings | 3,500 | - | ||
Proceeds from bank borrowings | - | (2,000) | ||
Movement in fair value of cash flow hedge | (337) | 85 | ||
Movement in net debt | 3,398 | (3,468) | ||
Net debt at start of year | (46,093) | (42,625) | ||
Net debt at end of year | (42,695) | (46,093) | ||
Attributable to: | ||||
Cash | 495 | - | ||
Current liabilities | ||||
Interest-bearing loans and borrowings | 13 | - | (944) | |
Non-current liabilities | ||||
Revolving credit facility loan | 13 | (22,500) | (26,000) | |
Pre-let development facility loan | 13 | (6,000) | (6,000) | |
Drawn facility loan | (28,500) | (32,000) | ||
Fair value of cash flow hedge | 13 | (1,624) | (1,287) | |
Unamortised loan issue costs | 13 | 777 | 1,063 | |
Asset financing | 13 | (1,841) | (923) | |
Share of joint venture loan | 13 | (12,002) | (12,002) | |
Interest bearing loans and borrowings | (43,190) | (46,093) | ||
Net debt at end of year | (42,695) | (46,093) | ||
Group statement of changes in equity
From 1 January 2010 to 31 December 2010
Share capital | Share premium | Capital redemption reserve | Merger reserve | Fair value of cash flow hedge reserve | Retained earnings | Total equity | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |
At 1 January 2010 | 4,610 | 43,692 | 135 | 348 | (927) | 24,692 | 72,550 |
Profit for the year | - | - | - | - | - | 4,288 | 4,288 |
Other comprehensive income net of tax | - | - | - | - | (259) | - | (259) |
Total net comprehensive income | - | - | - | - | (259) | 4,288 | 4,029 |
Equity dividends (Note 7) | - | - | - | - | - | (1,619) | (1,619) |
New shares issued (Note 12) | 13 | - | - | - | - | (13) | - |
Share-based payments | - | - | - | - | - | 100 | 100 |
At 31 December 2010 | 4,623 | 43,692 | 135 | 348 | (1,186) | 27,448 | 75,060 |
From 1 January 2009 to 31 December 2009
Share capital | Share premium | Capital redemption reserve | Merger reserve | Fair value of cash flow hedge reserve | Retained earnings | Total equity | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |
At 1 January 2009 | 4,594 | 43,692 | 135 | 348 | (988) | 22,220 | 70,001 |
Profit for the year | - | - | - | - | - | 4,182 | 4,182 |
Other comprehensive income net of tax | - | - | - | - | 61 | - | 61 |
Total net comprehensive income | - | - | - | - | 61 | 4,182 | 4,243 |
Equity dividends (Note 7) | - | - | - | - | - | (1,541) | (1,541) |
New shares issued (Note 12) | 16 | - | - | - | - | - | 16 |
Share-based payments | - | - | - | - | - | (169) | (169) |
At 31 December 2009 | 4,610 | 43,692 | 135 | 348 | (927) | 24,692 | 72,550 |
Publication of non-statutory accounts
The financial information contained herein does not constitute the Group's statutory accounts for the year ended 31 December 2010, as defined in Section 435 of the Companies Act 2006, but have been extracted from the statutory accounts, upon which the auditors issued an unqualified opinion. Statutory accounts for 2009 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2010 will be delivered following the Company's Annual General Meeting.
Forward-looking statements
The business review contains forward-looking statements that are made by the Directors in good faith. This information is based on the view of the Board of Directors at the date of approval of this Annual Report and based on knowledge and information at that time together with what are considered to be reasonable judgements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. There are a number of factors outside of the Group's control which could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors outside of the Group's control. Any forward-looking statements speak only as of the date that they are made, and the Group gives no undertaking to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes to events, conditions or circumstances on which any such statement is based.
Extracts of notes to the financial statements
1. Basis of preparation and changes in accounting policy and disclosures
The consolidated financial statements of Pinewood Shepperton plc and all of its subsidiaries and joint ventures have been prepared in accordance with IFRSs as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2010 and applied in accordance with the Companies Act 2006.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2010. The Group financial statements are presented in UK sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year except as follows:
The following new and amended IFRS and IFRIC interpretations are mandatory as of 1 January 2010 unless otherwise stated and the impact is described below.
IAS 27 (amended) Consolidated and Separate Financial Statements
The amended standard requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners and these transactions will no longer give rise to goodwill or gains and losses. The standard also specifies the accounting when control is lost and any retained interest is re-measured to fair value with gains or losses recognised in profit or loss. This amendment did not have any impact on the financial position or performance of the Group, as the Group does not have such arrangements.
Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible hedged items
The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the amendment did not have any impact on the financial position or performance of the Group, as the Group has not entered into any such hedges.
Improvements to IFRSs (issued 2009)
In May 2009 the Board issued its second omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each amendment. The adoption of the amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group.
Standards and interpretations issued but not yet applied*
The following standards and interpretations have an effective date after the date of these financial statements but the Group has not early adopted them.
IAS 24 Related Party Disclosures (Amendment) (effective 1 January 2011)
The amended standard clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities. The Group does not expect any impact on its financial position or performance.
IFRS 9 Financial Instruments: Classification and Measurement (effective 1 January 2013)
IFRS 9 as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. In subsequent phase, the IASB will address classification and measurement of financial liabilities, hedge accounting and de-recognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group's financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
IFRIC 19 Extinguishing financial Liabilities with Equity Instruments (effective 1 July 2010)
IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as a consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.
Improvement to IFRS (issued in May 2010)
The Group expects no impact from the adoption of the amendments on its financial position or performance.
\* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards.
2. Segment information and revenue analysis
The chief operating decision maker is the Board of Directors. The Group operates in one principal continuing area of activity, that of media services, primarily arising in the United Kingdom. It provides studio and related services to the film and television and wider creative industries.
Revenues from these activities can be further analysed by type of customer as follows:
Year ended 31 December 2010 | Year ended 31 December 2009 | |||
£000 | £000 | |||
Film | 29,051 | 22,635 | ||
Television | 8,206 | 11,339 | ||
Media Park | 6,152 | 6,347 | ||
43,409 | 40,321 |
Other information provided to the Board of Directors is in a format consistent with that in the financial statements.
Information about major customers
Revenue from two customers, operating through several separate subsidiaries, of £12.1m and £5.0m (2009: three customers of £4.0m, £3.9m and £3.9m) was recognised in the year.
3. Interests in joint ventures
(a) The Group has a 50% interest in Shepperton Studios Property Partnership, an entity controlled jointly with a third party, Aviva Group, which holds a 996 year lease on the Shepperton Studios property. The Group's consolidated share of the joint venture's assets, liabilities and results, which are proportionately consolidated in the consolidated financial statements, are as follows:
2010 | 2009 | ||||
£000 | £000 | ||||
Share of joint venture balance sheet | |||||
Property, plant and equipment | 20,168 | 20,623 | |||
Current assets | 733 | 73 | |||
20,901 | 20,696 | ||||
Interest-bearing loans and borrowings | (12,002) | (12,002) | |||
Current liabilities | (406) | (511) | |||
(12,408) | (12,513) | ||||
Share of joint venture income and expenses | |||||
Revenue | 790 | 852 | |||
Cost of sales | (1,013) | (507) | |||
Administrative expenses | (48) | (10) | |||
Finance costs | (780) | (739) | |||
Net loss | (1,051) | (404) | |||
The Group's share of the capital commitments in respect of property, plant and equipment was £nil (2009: nil).
(b) The Group also has a 50% interest in Pinewood Studio Berlin Film Services GmbH in Germany. The Group's consolidated share of this joint venture's assets, liabilities and results are proportionately consolidated in the consolidated financial statements as follows:
2010 | 2009 | |
£000 | £000 | |
Share of joint venture balance sheet | ||
Current assets | 23 | - |
Share of joint venture income and expenses | ||
Revenue | - | - |
Cost of sales | (10) | - |
Selling and distribution expenses | (97) | - |
Net loss | (107) | - |
The Group's share of the capital commitments in respect of property, plant and equipment was £nil (2009: nil).
(c) The Group also has a 50% interest in Shepperton Studios (General Partner) Limited. There are no material amounts consolidated for this joint venture.
4. Exceptional items
Exceptional income
Exceptional income for the year was £632,000 and consists of:
Rates rebate
The Group successfully negotiated an exceptional business rates rebate during the year, £506,000 of which relates to prior years.
Share-based payment
Following a review of the Total Shareholder Return component of the Group's Long-Term Incentive Plan awards, granted in 2008, £126,000 of the IFRS 2 charges to the Group income statement was reversed as an exceptional credit in the year ended 31 December 2010.
Exceptional costs
Exceptional costs for the period were £579,000 and consist of:
Group reorganisation
The Group incurred exceptional reorganisation costs of £386,000 in relation to the restructuring of certain business areas in the year ended 31 December 2010.
International ventures
The Group also incurred exceptional start up costs of £193,000 in relation to the commencement of the joint venture with Studio Hamburg GmbH and establishment of international offices in the USA and Canada in the year ended 31 December 2010.
5. Finance costs
| 2010 | 2009 | |||
£000 | £000 | ||||
Bank loans and overdrafts | 1,455 | 1,543 | |||
Interest rate hedging | 848 | 759 | |||
Share of joint venture loan | 780 | 739 | |||
Bank charges | 142 | 27 | |||
Finance charges payable under asset financing | 60 | 43 | |||
Other loans | 24 | 60 | |||
3,309 | 3,171 | ||||
Finance costs of £150,000 (2009: £120,000) directly attributable to the development of capital items have been capitalised based on LIBOR plus a variable margin consistent with the Group's secured bank loan. The capitalisation rate was 3.15% (2009: 6.0%).
6. Taxation
The major components of corporation tax expense are:
Year ended 31 December 2010 | Year ended 31 December 2009 | |
£000 | £000 | |
Consolidated income statement | ||
Current corporation tax | ||
UK corporation tax | 1,906 | 1,122 |
Amounts under/(over) provided in previous years | 110 | (167) |
Total current corporation tax | 2,016 | 955 |
Deferred tax | ||
Relating to origination and reversal of temporary differences | (483) | (558) |
Amounts (over)/under provided in previous years | (2) | (128) |
Tax charge in the income statement | 1,531 | 269 |
The tax charge in the income statement comprises: | ||
Tax on profit before exceptional items | 1,357 | 659 |
Tax under/(over) provided in previous years | 110 | (167) |
Tax provision adjustments relating to exceptional items | 19 | (223) |
Tax under provided in previous years on exceptional items | 45 | - |
Tax charge in the income statement | 1,531 | 269 |
Tax relating to items charged or credited to equity | ||
Deferred tax: | ||
Deferred tax (credit)/charge on movements in provisions for cash flow hedges | (78) | 24 |
Deferred tax reported in equity on share-based payments | (24) | - |
Tax (credit)/charge in the statement of changes in equity | (102) | 24 |
The group statement of changes in equity is set out in this document.
7. Earnings per ordinary share and dividend
Earnings per ordinary share
Basic earnings per ordinary share are calculated by dividing profit for the year attributable to the holders of ordinary equity of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per ordinary share are calculated by dividing profit for the year attributable to the holders of ordinary equity of the parent by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of the dilution of potential ordinary shares resulting from employee share schemes.
The Group presents as exceptional items on the face of the income statement those items where the cost or income is of such size or incidence that the additional disclosure is required for the reader to understand the financial statements. Basic and diluted earnings per share are also presented on this basis.
Basic and diluted earnings per share is also presented adjusting for the combined effect of the exceptional items and the effects of the release of deferred tax provision on property assets. In order to provide a meaningful comparison the prior year deferred tax number has been revised to include the effects of property depreciation (2010: £469,000, 2009: £521,000).
The following reflects the profit and number of shares used in the basic and diluted earnings per ordinary share computations:
2010 | 2009 | |
£000 | £000 | |
Profit attributable to equity holders of the parent | 4,288 | 4,182 |
Adjustments to profit for calculation of adjusted earnings per share | ||
Exceptional income | (632) | (804) |
Exceptional costs | 579 | 851 |
Taxation adjustments on exceptional items | 19 | (223) |
Tax adjustment on prior years exceptional items | 45 | - |
Effect of release of deferred tax provision on property assets | (582) | (1,092) |
Adjusted profit for adjusted earnings per share | 3,717 | 2,914 |
Thousands | Thousands | |
Basic weighted average number of ordinary shares | 46,201 | 45,985 |
Dilutive potential ordinary shares resulting from employee share schemes | 2,024 | 1,342 |
Diluted weighted average number of ordinary shares | 48,225 | 47,327 |
Earnings per share | 2010 | 2009 |
- basic for result for the year | 9.3p | 9.1p |
- diluted for result for the year | 8.9p | 8.8p |
- basic for result for the year adjusted for exceptional items and effect of release of provision for potential capital gains tax on properties | 8.0p | 6.3p |
- diluted for result for the year adjusted for exceptional items and effect of release of provision for potential capital gains tax on properties | 7.7p | 6.2p |
Dividend paid
2010 | 2009 | |
£000 | £000 | |
Final dividend for 2008 paid at 2.30p per share | - | 1,057 |
Interim dividend for 2009 paid at 1.05p per share | - | 484 |
Final dividend for 2009 paid at 2.40p per share | 1,110 | - |
Interim dividend for 2010 paid at 1.10p per share | 509 | - |
1,619 | 1,541 |
The Board is recommending a final dividend of 2.50p per ordinary share for approval at the Annual General Meeting and, based on the shares in issue at the date the Board approved the Group financial statements, this would amount to a total dividend payment of £1,155,800. The final dividend has not been recognised as a liability at 31 December 2010.
8. Property, plant and equipment
Freehold land | Freehold buildings and improvements | Leasehold improvements | Fixtures, fittings and equipment | Assets under construction | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | |
Cost: | ||||||
At 1 January 2009 | 50,968 | 56,454 | 1,110 | 25,183 | 2,598 | 136,313 |
Additions | 1,598 | 1,426 | 314 | 788 | 931 | 5,057 |
Disposals | - | - | - | (54) | - | (54) |
Transfers | 326 | 611 | 353 | 110 | (1,400) | - |
At 31 December 2009 | 52,892 | 58,491 | 1,777 | 26,027 | 2,129 | 141,316 |
Additions | 968 | 3,628 | 193 | 1,650 | 6,439 | |
Transfers | 291 | 21 | 63 | (375) | - | |
At 31 December 2010 | 54,151 | 62,140 | 1,970 | 27,740 | 1,754 | 147,755 |
Depreciation: | ||||||
At 1 January 2009 | - | 8,789 | 379 | 16,028 | - | 25,196 |
Provided during the year | - | 1,579 | 242 | 1,754 | 3,575 | |
Depreciation on disposals | - | - | - | (25) | (25) | |
At 31 December 2009 | - | 10,368 | 621 | 17,757 | - | 28,746 |
Provided during the year | 1,783 | 215 | 1,626 | 3,624 | ||
At 31 December 2010 | - | 12,151 | 836 | 19,383 | - | 32,370 |
Net book value: | ||||||
At 31 December 2010 | 54,151 | 49,989 | 1,134 | 8,357 | 1,754 | 115,385 |
At 31 December 2009 | 52,892 | 48,123 | 1,156 | 8,270 | 2,129 | 112,570 |
At 1 January 2009 | 50,968 | 47,665 | 731 | 9,155 | 2,598 | 111,117 |
Included within 'Freehold land' is £6.0m of capitalised costs in relation to Project Pinewood.
Assets under construction at 31 December 2010 primarily relates to building refurbishment and infrastructure costs, these are not depreciated in this period.
The Group's long-term loan is secured by a floating charge over the Group's assets.
Shepperton Studios Property Partnership's ("SSPP") long leasehold interest in the Shepperton Studios site was valued at £35,730,000 by an independent firm of Chartered Surveyors in December 2010 (2009: £32,830,000). The Group carries its' 50% interest in the long leasehold of SSPP at £20,168,000 (2009: £20,623,000) being depreciated cost.
9. Investment property
£000 | ||
Cost: | ||
At 31 December 2008 | 6,122 | |
Additions | 344 | |
At 31 December 2009 | 6,466 | |
Additions | 149 | |
At 31 December 2010 | 6,615 | |
Depreciation: | ||
At 31 December 2008 | - | |
Provided during the year 2009 | 124 | |
At 31 December 2009: | ||
Provided during the year 2010 | 131 | |
At 31 December 2010 | 255 | |
Net book value: | ||
At 31 December 2010 | 6,360 | |
At 31 December 2009 | 6,342 | |
At 31 December 2008 | 6,122 | |
No independent valuation has been undertaken. A Directors valuation was carried out to determine the fair value of the investment property. A yield based valuation has been used which provided a fair value of £7.1m at 31 December 2010 using a 7.25% yield and allowing for purchasers costs of 5.76%. The fair value at 31 December 2009, again using the yield based valuation method provided a fair value of £6.8m, assuming a 7.25% yield and allowing for purchaser's costs of 5.75%.
10. Intangible assets and impairment testing
Goodwill£000 | |
At 31 December 2010 and 2009 | 5,604 |
Goodwill has been acquired through business combinations and has been allocated to the Group's single cash-generating unit.
The recoverable amount of the cash-generating unit is based on a value in use calculation and is tested at least annually for impairment. Other than goodwill there are no intangible assets with indefinite lives.
Outcome of impairment review
The recoverable amount of the Group's cash-generating unit exceeds its carrying value and no impairment charge has been recognised (2009: no impairment charge recognised).
Key assumptions
The value in use calculations use five year cash flow projections derived from the Board approved budget for the next year and the Board approved long range plan and do not include non-cash generating assets, any activities that the Group is not yet committed to or significant future investments that will enhance the asset's performance of the cash generating unit. The key assumptions used in the value in use calculations are:
Discount rate
The discount rate reflects the current market assessment of the risks specific to the cash-generating unit. The discount rate was calculated using the Group's cost of debt together with an estimate based on the average cost of equity for the industry, adjusted to reflect the market assessment of any risk specific to the cash-generating unit for which future estimates of cash flows have not been adjusted. The pre-tax discount rate used for 2010 is 8.8% which is compared to 9.3% in the prior year.
Perpetuity growth rate
The cash flows subsequent to the Board approved period are based on the long term growth rate prospects of the industry in which the Group operates. The perpetuity growth rate used is 2.5% (2009: 2.5%).
Cash flow from operations
Cash flow projections have been estimated using a combination of assumptions including, but not limited to, facility utilisation, income growth and Media Park void ratios and rent increases. Considering previously achieved trading levels and the anticipated future operating environment for the business and taking into account any cost efficiencies which may be achieved, the Company has retained the assumptions used in its Board approved budget and its long range plan.
Sensitivities
The Group's impairment review is sensitive to a change in the key assumptions used, notably the discount rate. The discount rate would need to move to 14.2% to result in a breakeven position and, should the discount rate remain at 8.8%, the perpetuity growth rate would need to be a negative 5.3% to reach a breakeven point. Based on the Group's sensitivity analysis, a reasonable possible change in a single factor would not cause an impairment charge.
11. Long-term asset
2010 | 2009 | |
£000 | £000 | |
Toronto sales and marketing agreement transaction costs | 94 | - |
Malaysia long-term agreement | 188 | - |
Dominican Republic transaction costs | 65 | - |
347 | - |
The Group signed a 10 year sales and marketing agreement with Pinewood Toronto Studios on 26 May 2009. Transaction costs of £94,000 in relation to this agreement have been recognised as a long-term asset and are being amortised over the term of the agreement.
Pinewood Malaysia Limited signed a long term agreement on 16 December 2009 until the 10th anniversary of the opening of Pinewood Iskandar Malaysia Studios to provide marketing, operations and management support. Transaction costs of £188,000 in relation to this agreement have been recognised as a long-term asset.
Pinewood Dominican Republic Limited signed an agreement on 20 May 2010 with a term of 15 years to provide sales, marketing and operations support to Pinewood Dominican Republic Studios. Transaction costs of £65,000 in relation to this agreement have been recognised as a long-term asset.
12. Share capital and reserves
Authorised
2010 | 2009 | ||
£000 | £000 | ||
Ordinary shares of 10p each | 7,000 | 7,000 |
Issued, called up and fully paid
2010 | 2009 | |||
No. | £000 | No. | £000 | |
Ordinary shares of 10p each | 46,104,906 | 4,610 | 45,944,791 | 4,594 |
Shares issued under the Pinewood Shepperton plc Sharesave scheme: | ||||
10p ordinary shares issued on 14 September 2009 | 101,990 | 10 | ||
10p ordinary shares issued on 30 October 2009 | 58,125 | 6 | ||
10p ordinary shares issued on 31 March 2010 | 127,100 | 13 | - | - |
46,232,006 | 4,623 | 46,104,906 | 4,610 | |
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general meetings of the Company.
Share option schemes
The Group has one share-based payment plan under which options to subscribe for the Group's shares have been granted. At 31 December 2010, 352,898 shares were outstanding (2009: 356,679).
Long-term incentive plan
The Group has a long-term incentive plan under which awards for the Group's shares have been granted to certain executives and senior employees. At 31 December 2010, 1,882,448 share awards were outstanding (2009: 1,299,461).
Nature and purpose of reserve
Reserve for own shares
Included within the cash capital account are the costs of Pinewood Shepperton plc shares purchased in the market and held by the Pinewood Shepperton plc Employee Benefit Trust to satisfy future exercise of awards under the Company share option scheme. As at 31 December 2010 the Company held 127,100 (2009: nil) of its own shares at an average cost of 10p per share. The market value of these shares at 31 December 2010 was £187,473 (2009: nil).
Share premium reserve
The share premium increased by nil (2009: nil) in the year as a result of the issue of share issues noted in the table above.
Capital redemption reserve
The capital redemption reserve arose as a result of the repurchase of shares in 2001.
Merger reserve
On acquiring Shepperton Studios Limited the Group issued ordinary shares as part of the consideration. Merger relief was taken in accordance with Section 131 of the Companies Act 1985 (since succeeded by Section 612 of the Companies Act 2006), and hence £348,000 was credited to the merger reserve.
Fair value of cash flow hedge reserve
The cash flow hedge reserve is used to record the fair value gains or losses, and related deferred tax, on the hedging instruments used by the Group to manage interest rate risk. The cash flow hedges are determined to be effective hedges.
13. Interest-bearing loans and borrowings
Effective interest rate | 2010 | 2009 | ||
Current borrowings | % | Maturity | £000 | £000 |
Bank overdraft | Base rate + 2.25% margin | Annual renewal | - | 944 |
- | 944 | |||
Non-current borrowings | ||||
Revolving credit facility | LIBOR + variable margin | 15 August 2013 | 22,500 | 26,000 |
Pre-let development facility | LIBOR + variable margin | 15 August 2013 | 6,000 | 6,000 |
Total drawn facility loan | 28,500 | 32,000 | ||
Asset financing | Implicit rate of 7.3% | 30 May 2014 | 1,841 | 923 |
Share of joint venture loan | Base rate + 2% margin | 30 September 2026 | 12,002 | 12,002 |
Non-current drawn loan facilities | 42,343 | 44,925 | ||
Cash flow hedge (£7.5m) | 2.89% + variable margin | 1 July 2013 | 257 | 42 |
Cash flow hedge (£15m) | 5.195% + variable margin | 1 July 2013 | 1,367 | 1,245 |
Secured bank loan arrangement costs | (777) | (1,063) | ||
43,190 | 45,149 | |||
Total current and non-current interest-bearing loans and borrowings | 43,190 | 46,093 | ||
Banking facilities
The Group has agreements with a syndicate of banks, which provides facilities as follows:
Overdraft
A £5,000,000 (2009: £5,000,000) overdraft facility to support the future operating activities of the business, secured by a floating charge over the Group's assets. This facility is in place until August 2013 and is subject to annual review with interest charged at 225 basis points over bank base rate.
Revolving credit facility
A revolving credit facility of up to £35,000,000 exists to support the operating activities of the business, secured by a floating charge over the Group's assets. Interest is charged at LIBOR plus a variable margin of between 175 and 275 basis points based on specific covenant levels. This facility is in place until August 2013.
Pre-let development facility
There is a pre-let development facility of up to £30,000,000 to support the pre-let Media Park development strategy. Interest is charged at LIBOR plus a variable margin of between 175 and 225 basis points based on the status of the pre-let development. This facility is in place until August 2013.
The banking facilities become repayable on demand following a change of control in the Group if the Group and the syndicate of banks' agent are unable to agree alternative terms within thirty days of the Group's notification of a change of control.
The overdraft, revolving credit facility and pre-let development facility are secured by a floating charge over the principle assets of the Group, other than those secured by a fixed charge by Shepperton Studios Property Partnership.
Covenants
The banking agreements contain a range of covenants appropriate for the revolving credit facility, pre-let development facility and overdraft facility. The Group was covenant compliant at 31 December 2010.
Cash flow hedge
At 31 December 2010, the Group held interest rate swaps designated as hedges against drawn debt obligations amounting to £22,500,000 (2009: £22,500,000).
Asset financing facility
The asset financing facility is a sterling chattel mortgage facility over a fixed term with fixed monthly payments and is secured over identifiable assets of an equal value. These assets are classified as 'Fixtures, fittings and equipment' within 'Property, plant and equipment' in the statement of financial position.
Share of joint venture loan
This relates to the Group's 50% interest, £12,002,000 (2009: £12,002,000) of the joint venture's £24,004,000 investor and development loan (2009: £24,004,000). These loans which have no financial covenants attached to them are secured by a fixed charge on the assets of Shepperton Studios Property Partnership, are non-recourse to the Group and are repayable in full on 30 September 2026. Interest on the loans is at base rate plus 2% with an interest rate floor of 6.5%. The interest rate floor is an embedded derivative in the loan agreement; however the derivative has not been separated from the loan agreement as it satisfies the criteria for non-separation in IAS 39.
14. Commitments and contingencies
Capital commitments
At 31 December 2010 the Group had capital commitments contracted for but not provided in the accounts in relation to the completion of the power upgrade of £2.3m (31 December 2009: nil).
Guarantees
At 31 December 2010, the Group had guarantees in place, in the form of documentary credits, that were not provided for in the accounts totalling £155,000 (2009: £163,250) in relation to certain Section 278 highways related infrastructure.
15. Related party disclosures
The consolidated financial statements include the financial statements of Pinewood Shepperton plc, its subsidiaries and its 50% interest in the joint ventures listed in the following table.
% equity interest | |||
Country of incorporation | 2010 | 2009 | |
Pinewood Studios Limited | United Kingdom | 100 | 100 |
Shepperton Studios Limited | United Kingdom | 100 | 100 |
Pinewood-Shepperton Studios Limited | United Kingdom | 100 | 100 |
Studiolink Limited | United Kingdom | 100 | 100 |
Teddington Studios Limited | United Kingdom | 100 | 100 |
The Studio Broadcasting Company Limited | United Kingdom | 100 | 100 |
Baltray No.1 Limited | United Kingdom | 100 | 100 |
Baltray No.2 Limited | United Kingdom | 100 | 100 |
Shepperton Management Limited | United Kingdom | 100 | 100 |
Saul's Farm and Stables Limited | United Kingdom | 100 | 100 |
Saul's Farm Limited | United Kingdom | 100 | 100 |
Pinewood Malaysia Limited | United Kingdom | 100 | 100 |
Pinewood Germany Limited | United Kingdom | 100 | 100 |
Pinewood Dominican Republic Limited | United Kingdom | 100 | 100 |
Pinewood USA Inc | USA | 100 | - |
Pinewood Film Production Studios Canada Inc | Canada | 100 | - |
Pinewood Shepperton plc is the parent entity of the Group.
Joint ventures | % Joint venture interest | ||
Shepperton Studios (General Partner) Limited | United Kingdom | 50 | 50 |
Shepperton Studios Property Partnership | United Kingdom | 50 | 50 |
Pinewood Studios Berlin Film Services GmbH | Germany | 50 | 50 |
During the year the Group entered into transactions with the following related parties, involving the utilisation of media facilities at normal market rates and settlement terms. No impairment was recognised against the amounts owed at each year end.
Sales torelatedparty£000 | Amountsowed byrelated party£000 | ||
Entity with which Lord Grade of Yarmouth was associated during the year: |
|
|
|
ITV plc | 2010 | - | - |
ITV plc | 2009 | 425 | 33 |
Effective as of 31 December 2009, Lord Grade of Yarmouth resigned as Chairman and Director of ITV plc.
Joint ventures:
Shepperton Studios Limited has a commercial property lease on the Shepperton Studios property. The net cost to the Group of principal lease rentals during the year ended 31 December 2010 was £897,000 (2009: £892,000). In addition the Group pays a top up rent to the joint venture partnership based on certain of its trading activities at the Shepperton Studios site. During the year the net cost to the Group of the top up rent was £288,000 (2009: nil). The Group's share of amounts owed to the 50% joint venture partnership at 31 December 2010 was £406,000 (2009: £511,000).
Shepperton Management Limited manages the assets of the joint venture partnership and charges an asset manager fee based on independent valuations of the Shepperton Studios site. Asset manager fees charged during the year ended 31 December 2010 were £99,000 (2009: £95,000).
16. Date of approval of the preliminary announcement
The preliminary announcement was approved by the Board of Directors on 07 March 2011.
17. Responsibility statement
We confirm that to the best of our knowledge:
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the issue and the undertakings included in the consolidation taken as a whole; and
(b) the management report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board on 07 March 2011:
Ivan Dunleavy Patrick Garner FCA
Chief Executive Finance Director
| |||
Company Secretary | Auditors | ||
A M Smith | Ernst & Young LLP | ||
1 More London Place | |||
Head Office, Registered office and Director's address | London SE1 2AF | ||
Pinewood Shepperton plc | |||
Pinewood Road | Registrars and Receiving Agents | ||
Iver Heath | Equiniti Limited | ||
Buckinghamshire SL0 0NH | Aspect House | ||
Spencer Road | |||
Company registration number | Lancing | ||
3889552 | West Sussex BN99 6DA | ||
Investor relations website | Principal Bankers | ||
available at www.pinewoodshepperton.com | The Royal Bank of Scotland plc | ||
135 Bishopsgate | |||
Corporate Broker | London EC2M 3UR | ||
J.P. Morgan Securities Limited | |||
125 London Wall | Lloyds TSB Bank plc | ||
London | 25 Gresham Street | ||
London EC2V 7HN | |||
Legal Advisers to the Company | |||
Travers Smith LLP | Allied Irish Banks, p.l.c. | ||
10 Snow Hill | St Helen's | ||
London EC1A 2AL | 1 Undershaft | ||
London EC3A 8AB | |||
[1] Global entertainment and media outlook: 2010-2014,PricewaterhouseCoopers 15 June 2010
[2] Theatrical Market Statistics Report for 2010, Motion Picture Association of America, 23 Feb 2011
[3] Global entertainment and media outlook: 2010-2014,PricewaterhouseCoopers 15 June 2010
[4] European Audiovisual Observatory, 2009 Yearbook, 13 January 2010
5 The Communications Market 2010, Ofcom, 2010