RNS Number:1924J
Entertainment One Ltd
05 December 2007
Entertainment One Ltd.
Interim Results for the period ended 30 September 2007
Entertainment One Ltd. ('Entertainment One' or 'the Group'), a leading
international film and entertainment content owner and distributor today
announces its maiden interim results following its listing on the Alternative
Investment Market ('AIM') on 29 March 2007.
Strategic Highlights
• Successfully executing strategy to build a leading international
filmed entertainment content owner and distributor following the acquisition of
Entertainment One Income Fund
• Completed three further strategic acquisitions expanding the business
operations in the US, the UK and Canada
- Navarre Entertainment Inc. ('Navarre') was acquired by the Group in May
2007 for £3.3 million as an addition to the Distribution division's
operations in the US
- Contender Entertainment Group ('Contender') was acquired by the Group
in July 2007 for £49.1 million expanding its operations into the UK
- Seville Entertainment Inc. ('Seville') was acquired for £2.5 million
strengthening the Entertainment division's position in the Canadian film
distribution market
• Significantly enhanced film supply through long term multi-territory
deal with Hollywood studio Summit Entertainment Inc.
Financial Highlights
Pro-forma (1)
• Revenue up 0.9% on last year at £116.0 million
• Operating EBITDA (2) of £7.3 million up 25.9% on last year
Reported
• Revenue of £106.7 million
• Underlying EBITDA (3) of £5.6 million
• Loss before tax of £5.4 million
Darren Throop, Chief Executive of Entertainment One, commented "Since our
listing in March, we have made significant progress towards our objective of
becoming the leading international film and entertainment content owner and
distributor. Our acquisitions of Contender in the UK and Seville in Canada have
laid the foundation for our multi-territory offering and our film supply deal
with the Hollywood studio Summit Entertainment has established Entertainment One
as a major independent film distributor.
"Looking forward, we will seek to further develop our business in existing
territories and expand geographically to enhance our offering and leverage the
benefits of scale."
For further information, please contact
Finsbury
Faeth Birch/Don Hunter
Tel: +44 (0)20 7251 3801
faeth.birch@finsbury.com/don.hunter@finsbury.com
Entertainment One
Darren Throop (CEO) Giles Willits (CFO)
Tel: +1 (905) 282 7878 Tel: +44 (0)20 7004 2700
dthroop@entertainmentone.ca gileswillits@entertainmentonegroup.com
Kaupthing Singer & Friedlander Capital Markets Limited
Marc Young/James Maxwell
Tel: +44 (0)20 3205 7624
1 - Pro-forma results based on trading from 1 April to 30 September for all
businesses owned by the Group during that period with comparatives based on
constant foreign exchange rates
2 - Operating EBITDA is the earnings before group costs, share-based payment
charges, interest, tax, depreciation and amortisation
3 - Underlying EBITDA is the earnings before share-based payment charges,
interest, tax, depreciation and amortisation
Business Review
Overview
This maiden set of interim results covers the period from the incorporation of
the Group on 11 January 2007 to 30 September 2007. The Group commenced trading
following the acquisition of Entertainment One Income Fund which coincided with
the listing of the Group on the AIM on 29 March 2007.
Financial Performance
Reported results for the period are set out in the Consolidated Income
Statement. Revenues were £106.7 million, underlying EBITDA was £5.6 million and
the loss before tax for the period was £5.4 million.
The Group delivered strong year on year growth during the period. For the
purpose of providing a like for like comparison of performance in the Group's
operations the financial results have been provided on a pro-forma basis.
Overall the Group has increased pro-forma operating EBITDA by 25.9% to £7.3
million driven by strong performance across both the Entertainment and
Distribution divisions.
Sector Summary
The global filmed entertainment industry generated gross receipts totalling
US$103bn in 2006 and 2007 has proven to be a strong year with year on year
growth in global box office receipts.
There are three main components of the filmed entertainment industry value
chain: production studios, film distributors and consumer channels which include
cinemas, DVD rental and retail stores and TV broadcasters.
Major blockbuster films are generally distributed by the in-house distribution
functions of the major Hollywood studios producing these films. However,
independently produced films are generally distributed by independent
distributors. Independently distributed films account for about 25% of global
filmed entertainment market. Growth in global independent co-productions and
local market film investment outside of the major studio system has helped
secure a position for independent film and independent distributors.
The Group believes that a significant independent film distributor operating
across multiple territories, such as Entertainment One, is attractive to
producers and studios seeking a partner to acquire and distribute their films.
It is also able to drive cost synergies and take advantage of enhanced revenue
opportunities not normally available to smaller local distributors operating
within only single territories.
Group Strategy
Entertainment One's strategy focuses on becoming the leading multi-territory
film distributor acquiring, owning and exploiting filmed entertainment rights
across the spectrum of distribution channels including theatres, home video,
television and digital delivery platforms. This will be achieved through organic
growth and the acquisition of established film distribution businesses in core
territories.
The filmed entertainment market outlook remains positive with growth expected in
all of the major exploitation windows. In addition the change in formats is
expected to provide additional opportunities for growth in both the digital and
internet markets, although at present these markets represent a small percentage
of the total. As the Group expands its ownership of filmed entertainment rights
it will be able to take advantage of these market opportunities.
Group Operating Divisions
Entertainment One consists of two operating divisions:
Entertainment Division: comprised of leading UK and Canadian film distributors,
Contender Entertainment and Seville Pictures, which own and distribute film and
TV rights. The division also includes Koch the leading independent record label
in the US, which owns and distributes music and film rights. Entertainment
currently enjoys a large catalogue of entertainment rights and anticipates
expanding this through individual film and library acquisitions. This library is
available for exploitation in all media formats including home entertainment, TV
and digital platforms. By releasing a large number of motion pictures through
multiple distribution platforms, Entertainment One creates a diversified
portfolio of releases which will provide a foundation of stable cash flows into
the future.
Distribution Division: comprised of Entertainment One Canada which is the
leading wholesale distributor of DVD's in Canada, and Koch Entertainment
Distribution in the US which is the largest independent distributor of exclusive
video and music content.
Group Results
Since listing on the AIM, trading across the Group has been strong, delivering
year on year growth. In total, on a constant foreign exchange rate basis, the
Group pro-forma revenues are up 0.9% year on year delivering an increased
pro-forma operating EBITDA of £7.3 million, up 25.9%. This is driven by strong
performance across the Group.
-----------------------------------------------------------------------------------------------------------------
Reported Pro-forma(1)
Summary Income Statement Actual Foreign Constant Foreign
For the period to 30 September 2007 Exchange Rates Exchange Rates(2)
Current Current Prior Prior
year year year year
£000 £000 £000 % £000 %
-------------------------------------------------------------------------------------------------------------------
Revenue 106,663 115,955 121,616 (4.7) 114,933 0.9
Operating EBITDA 10,582 12,497 9,878 26.5 9,516 31.3
(pre content amortisation)
Operating EBITDA 6,994 7,348 6,034 21.8 5,838 25.9
-----------------------------------------------------------------------------------------------------------------
Group Costs(3) (1,350)
------------------------------------------------------------------------------------------------------------------
EBITDA 5,644
----------------------------------------------
1 - Pro-forma results based on trading from 1 April 2007 to 30 September 2007
for all businesses owned by the Group during that period (Entertainment One,
Koch, Contender and Seville). Prior year comparatives are based on the same
basis and trading period. Pro-forma numbers only include Navarre revenues for
the period since this transaction was completed on 14 May 2007
2 - Constant foreign exchange rates present the prior year comparatives at the
same rate as the current year
3 - Group Costs are costs (excluding share-based payment charges) that cannot be
allocated to a specific operating division
Entertainment Results
The Group's Entertainment division operates in Filmed Entertainment and Music.
Overall Entertainment pro-forma revenues have grown 22.8% to £39.3 million, with
the pro-forma operating EBITDA at £3.7 million up 32.5%. The reported results
for the Entertainment division are included in Note 3 of the interim financial
statements.
-----------------------------------------------------------------------------------------------------------------
Entertainment Actual Foreign Constant Foreign
Exchange Rates Exchange Rates
Pro-forma Financial Overview Current Prior Prior
For the six month period to year year year
30 September 2007 £000 £000 % £000 %
-----------------------------------------------------------------------------------------------------------------
Revenue
- Filmed Entertainment 27,153 24,644 10.2 22,268 21.9
- Music 12,114 10,358 17.0 9,712 24.7
-----------------------------------------------------------------------------------------------------------------
Total 39,267 35,002 12.2 31,980 22.8
-----------------------------------------------------------------------------------------------------------------
Operating EBITDA pre content amortisation
- Filmed Entertainment 5,239 4,787 9.4 4,743 10.5
- Music 3,569 1,839 94.1 1,689 111.3
-----------------------------------------------------------------------------------------------------------------
Total 8,808 6,626 32.9 6,432 36.9
-----------------------------------------------------------------------------------------------------------------
Operating EBITDA
- Filmed Entertainment 2,440 2,638 (7.5) 2,620 (6.8)
- Music 1,219 144 747.5 135 797.3
-----------------------------------------------------------------------------------------------------------------
Total 3,659 2,782 31.6 2,754 32.5
-----------------------------------------------------------------------------------------------------------------
Investment in Content
- Filmed Entertainment 4,011 2,918 37.5 2,881 39.3
- Music 2,280 1,878 21.4 1,722 32.4
-----------------------------------------------------------------------------------------------------------------
Total 6,291 4,796 31.2 4,603 36.7
-----------------------------------------------------------------------------------------------------------------
Filmed Entertainment
This has been a significant period of change for the Filmed Entertainment
division. The division has completed two significant transactions in the period
which together with the other Filmed Entertainment businesses of the Group,
Paradox and Koch Vision have the business operating in three territories,
Canada, UK and US under the management of Patrice Theroux, who joined the
Entertainment One Board in August as President of Filmed Entertainment.
The acquisition of Contender for £49.1 million established a UK base for the
Group. Contender is one of the leading independent filmed entertainment
distributors in the UK with established capabilities to exploit content across
all windows, a film library of 170 films and is the creator of the very
successful children's TV programmes Peppa Pig and Tractor Tom, for which it owns
worldwide rights in perpetuity. In August the Group acquired Seville Pictures
for £2.5 million, a leading film distribution company and entertainment rights
owner in Canada. Seville exploits filmed content across all windows and also has
a film library in excess of 500 films, including worldwide rights to over 100
films.
These two acquisitions established the Group's credentials as a multi-territory
filmed entertainment distributor and were instrumental in the successful
negotiation of the three year output deal for the UK and Canada with Summit
Entertainment, the successful Hollywood studio. This deal alone will deliver to
the Group approximately 25 movies over the next 3 years in both the UK and
Canada and will be a strong driver of growth.
During the period to 30 September 2007 Filmed Entertainment grew pro-forma sales
21.9% (on a constant foreign exchange rate basis) to £27.2 million. Pro-forma
operating EBITDA before content rights amortisation was up 10.5% to £5.2 million
reflecting strong performances across all the film businesses. Seville saw sales
from all media windows and in particular had theatrical releases including War,
Contre Toute, 2 Days in Paris and Bluff. In addition on 28 September it released
Shake Hands with the Devil. This release impacted results with Print and
Advertising ('P&A') spend of £0.5 million which was expensed in the period but
revenues that will be earned in the second half of the financial year.
In Contender sales grew following successful DVD releases including TV hits Life
on Mars and Spooks, 9th Company and Jekyll. In addition Peppa Pig contributed
significantly through both DVD and merchandise income with Peppa Pig rated No.1
pre school show on both Channel 5 and Nick Jr.
Paradox performed well with successes with Mr Bean and Inland Empire, and Koch
Vision grew with strong releases including films; A Few Days in September and
The Bridge, and TV programmes such as McLeod's Daughters.
The increase in amortisation, reflecting the additional investment in film
content rights, resulted in a pro-forma operating EBITDA of £2.4 million, 6.8%
down on the prior year. The pipeline of new titles is strong, particularly
following the announcement of the Summit deal in September 2007. In the second
half Seville will have theatrical releases including SAW IV, P2, Penelope and
Funny Game. Contender's line up includes Air Guitar Nation, Weirdsvile, A Very
British Gangster and Intimate Enemies on film and Spooks and Room with a View on
DVD. In the US titles for the second half include War & Peace, Dresden, Hitler:
The Rise of Evil, Barbarians, and the films Klimt and Blame it on Fidel.
Following the successes at the recent film markets multi-territory film
acquisitions include Tarantino's Sukiyaki Western Django and The Chosen One,
starring Rob Schneider. In Canada films acquired include; I Could Never Be Your
Woman, starring Michelle Pfeiffer, and The Flock, starring Richard Gere. In
addition to their film pipeline Contender has successfully acquired Ashes to
Ashes, (the sequel to Life on Mars), and worldwide DVD rights to The Queen, the
controversial documentary broadcast on the BBC. Furthermore, two new children's
TV programmes, Humf and Little Kingdom, have gone into production and will be
distributed by Contender on a worldwide basis, with Seville handling Canadian
rights as part of the Group's integrated distribution strategy.
Rights acquisitions will take place both through the purchase of libraries
(either on standalone basis or as part of the acquisition of regional film
distributors) or through the acquisition of new films. To the extent that the
Group acquires libraries, the acquisition price will be amortised over the
lifetime of the library. It should be noted that for new films the Group will
amortise the acquisition advance of the film (the "Minimum Guarantee") in line
with forecast revenues (which is normally on average 80% within 12 months of
theatrical release) but that P&A associated with the initial release of the film
will be expensed on the release of the film as incurred. As such an increase in
investment in film will in early years result in a direct impact on earnings.
However, the Group anticipates that as it creates a diversified portfolio of
releases, the earnings profile will be increasingly predictable with a stable
stream of cash flows from the continued and recurring exploitation of the titles
in the library.
Music
The Music division encompasses the results of Koch Records in the US. Koch
Records successful model focuses on attracting and developing artist talent and
maximising revenues through its low cost infrastructure. The trading period has
been successful with revenue growth of 24.7% reflecting a strong release
schedule and artist line up including Unk, DJ Khaled and The Wiggles. Despite
the challenging physical market conditions digital download and mobile revenues
have grown 185% year on year and now accounts for 25% of recorded music sales.
There is a strong pipeline of releases going into the second half that promise
to maintain the momentum gained in the period to date including the Diplomats,
Jim Jones, Styles P, Foxy Brown, The Alchemist and the Death Row, Kinks and
Wiggles catalogues.
Distribution Results
The Distribution division continues to deliver strong results through its two
operating businesses - Entertainment One Canada and Koch Entertainment. Overall
pro-forma revenues were up 2.5% with pro-forma operating EBITDA at £4.2 million.
The reported results for the Distribution division are included in Note 3 of the
interim financial statements.
-----------------------------------------------------------------------------------------------
Distribution Actual Foreign Constant Foreign
Exchange Rates Exchange Rates
Pro-forma Financial Overview Current Prior Prior
For the six month period year year year
ended 30 September 2007 £000 £000 % £000 %
-----------------------------------------------------------------------------------------------
Revenue 83,517 85,138 (1.9) 81,523 2.5
-----------------------------------------------------------------------------------------------
Operating EBITDA 4,182 3,465 20.7 3,290 27.1
-----------------------------------------------------------------------------------------------
Entertainment One Canada
In Canada, Entertainment One continued to dominate the home video market. The
second half of the current financial year has an exciting line up of big DVD
releases which follow the success at the box office earlier in the year. Sales
were impacted by the Group's decision not to further expand the video games
business which currently carries too great an inventory risk for the financial
return achieved. This period has also seen an underlying trend towards reduced
average prices despite a significant increase in the numbers of units shipped by
Entertainment One. This trend is expected to continue.
This year has seen the successful expansion of the Vendor Managed Inventory
(VMI) programme which significantly improves the performance of the business by
allowing the retailer to benefit from the expertise of the Entertainment One
team and systems that drive improved replenishment and lower returns.
Other developments include Entertainment One's exclusive relationship with Fox
Studios and the expansion of scan based trading which delivers improved service
to both customers and suppliers.
Koch Entertainment
The US distribution business, Koch Entertainment, further strengthened its
position as the leading independent distributor in the US, despite the
challenging state of the overall market and the ongoing decline of physical
sales in the US. The digital and mobile markets have continued to progress with
revenue growth of 101% year on year.
During the period the Group acquired Navarre for £3.3 million which resulted in
the transfer of over 70 independent labels which have been integrated into the
Koch business with no disruption.
The business continues to sign new labels for distribution, including Hi Power
Entertainment, Drake Web Music, Colossal Entertainment, 1720 Entertainment, Fat
Beats Records, Retroactive Entertainment, Immergent Records, and Day One Music
Group. Releases from platinum-selling act Little Big Town, Clint Black, JR
Writer, Hi-Tek, Mark Chesnutt and Ani DiFranco are scheduled for the second
half.
Outlook
The Group remains positive going into the second half of the year. In
Entertainment, the Group will continue to pursue its strategy through both
organic growth and acquisition. In particular the release of the first films
from Summit will provide clear examples of the success of the Group's strategic
vision although the timing of these releases will impact the results in the
short term with the P&A expenses being recognised ahead of the corresponding
revenues. Overall market conditions remain challenging and the impact of the
weaker US dollar will be carefully monitored for its impact on Canadian prices
relative to the US. However, in the run up to Christmas there is a strong
release schedule to support the Distribution businesses in Canada and the US.
Financial Review
IFRS
The financial statements of the Group have been prepared in accordance with
applicable International Financial Reporting Standards as adopted by the EU and
IFRIC interpretations. As this is the Group's first reporting period the
disclosures required by IFRS 1 concerning transition from local GAAP to IFRS for
comparative periods are not required.
The financial statements, which have been approved by the directors, are
unaudited but have been reviewed by the Group's auditors. The detailed
accounting policies are disclosed in the notes to the financial statements.
Underlying Earnings
To provide an insight into the underlying financial performance of the Group
certain items that are one off in their nature have been excluded from
underlying earnings. These include:
•Share-based payment charges - there was a significant charge in the
period relating to the share awards granted to directors and senior
employees in the Group on the Group's AIM listing.
•Finance costs in relation to Exchangeable Debenture - on 29 March 2007
the Group issued a £10 million exchangeable debenture to a small number of
investors. This financial instrument was converted by the Group in July
2007. An early settlement charge arose on conversion and this has been taken
through finance costs but separately identified as one off and excluded from
underlying loss before tax.
•Mark to market charges - these charges to the income statement relate to
the interest rate swap entered into by the Group as part of the
establishment of the Group's UK banking facilities. This charge is excluded
from underlying loss before tax.
Tax
The income tax credit was £0.2 million, with an effective rate of 4%. This rate
primarily reflects the seasonal nature of earnings across the Group and the
impact of the non deductible share-based payment charges. In the full year it is
expected that the effective tax rate will be 20%.
Loss per Share
Reported basic and diluted loss per share for the period was 7.61 pence.
Underlying basic and diluted loss per share was 2.31 pence. This is impacted by
the calculation of the weighted average number of shares that is, under IFRS,
calculated from 11 January 2007, the date of incorporation. However, the Group
did not commence trading until 29 March 2007, on the acquisition of the
Entertainment One Income Fund. Although not in line with the guidance in IAS 33,
a trading period underlying basic and diluted loss per share of 1.63 pence has
been calculated based on the weighting of shares over the six month trading
period. This is helpful in the understanding of the loss per share as it matches
the trading period with the weighted average shares issued.
Cashflow
Group net debt as at 30 September 2007 was £34.9 million.
Summary Consolidated Cashflow Statement £000
--------------------------------------------------------------------------------
Underlying Cash from operating activities 518
One-Off Working Capital Adjustment (4,405)
Net Cash from operating activities (3,887)
Investing Activities (133,045)
Financing Activities 144,519
--------------------------------------------------------------------------------
Net Cash increase in cash and cash equivalents 7,587
--------------------------------------------------------------------------------
Net Debt
Cash at Bank and in hand 7,587
Debt (42,458)
--------------------------------------------------------------------------------
Net Debt (34,871)
--------------------------------------------------------------------------------
The underlying cash from trading activities was £0.5 million. The net cash
outflow from operating activities during the period reflects the £4.4 million
impact of the one off working capital requirement identified on the acquisition
of Entertainment One Income Fund in March.
The amounts of investing activities and financing activities reflect the four
acquisitions during the period since incorporation.
Intangibles and Goodwill
The four acquisitions during the period, as expected, have resulted in the need
to value intangible assets and goodwill. This has resulted in the creation of
intangible assets of £63.2 million and goodwill of £69.4 million. This is based
on the allocation of the purchase price across defined categories including
exclusive content agreements and libraries, exclusive distribution agreements
and customer relationships. The balance, which is goodwill, includes
characteristics of the acquired businesses that it has not been possible to
specifically value under the requirements of IFRS 3. These include assembled
workforce and IT infrastructure. In addition, goodwill includes amounts
recognised on the creation of deferred tax liabilities arising on the
acquisition of intangible assets.
Consolidated Income
Statement
For the period ended 30 September
2007
Notes Period ended
30 September
2007
£000
Revenue 106,662
Cost of sales (76,923)
-------------
Gross profit 29,739
Administrative expenses (32,111)
-------------
Operating loss (2,372)
---------------------------------------------------------------------------------
Analysed as:
Underlying EBITDA 5,644
Amortisation of intangible (4,568)
assets
Depreciation (534)
Share-based payment charge (2,914)
(2,372)
---------------------------------------------------------------------------------
Finance income 4 503
Finance costs 4 (3,556)
---------------
Loss before tax (5,425)
---------------------------------------------------------------------------------
Analysed as:
Underlying loss before tax (1,426)
Financing fair value (252)
movements
Share based payment charge (2,914)
Early settlement cost on
conversion of 4 (833)
debenture
----------------
(5,425)
--------------------------------------------------------------------------------
Income tax credit 5 195
-------------
Loss for the period (5,230)
--------------------------------------------------------------------------------
Attributable to:
Equity holders of the parent (5,230)
Loss per share
Basic and diluted - pence 7 7.61
Underlying basic and diluted 7 2.31
- pence
Consolidated Balance Sheet
As at 30 September 2007
Note 30 September
2007
£000
Assets
Non-current assets
Investments 321
Intangible assets 8 61,532
Goodwill 9 70,558
Property, plant and equipment 4,091
Other receivables 508
Deferred tax assets 4,089
------------
Total non-current assets 141,099
------------
Current assets
Inventories 41,929
Investment in content rights 13,148
Trade and other receivables 25,986
Cash and cash equivalents 7,587
------------
Total current assets 88,650
------------
Total assets 229,749
============
Liabilities and equity
Non-current liabilities
Interest bearing loans and borrowings 38,640
Other payables 557
Deferred tax liabilities 7,363
------------
46,560
------------
Current liabilities
Trade and other payables 58,943
Current tax liabilities 867
Interest bearing loans and borrowings 3,818
Provisions 262
Financial liabilities 252
------------
Total current liabilities 64,142
------------
Total liabilities 110,702
------------
Equity
Share capital 11 572
Share premium 123,546
Treasury shares (7,819)
Warrant reserve 639
Currency translation reserve 4,468
Retained earnings (2,359)
------------
Total equity 119,047
------------
Total liabilities and equity 229,749
============
Consolidated Cash flow statement
Period ended 30 September 2007
Notes Period ended
30 September
2007
£000
Operating activities
Operating loss (2,372)
Adjustments for:
Depreciation 534
Amortisation of acquired intangible assets 8 4,568
Amortisation of content rights 3,882
Foreign exchange movements (585)
Share option charge 2,914
Increase in inventories (656)
Increase in trade and other receivables (3,127)
Decrease in trade and other payables (7,112)
Decrease in provisions (12)
---------
Net cash flow from trading activities (1,966)
Interest paid (1,921)
---------
Net cash from operating activities (3,887)
---------
Investing activities
Interest received 453
Acquisition of subsidiaries 10 (132,266)
Net cash acquired with subsidiaries 3,951
Investment in content rights (4,784)
Purchases of property, plant and equipment (399)
----------
Net cash used in investing activities (133,045)
----------
Financing activities
Proceeds from share issue 11 97,181
Loan repaid on acquisition 10 (3,875)
New loan advances 51,213
---------
Net cash from financing activities 144,519
---------
Net increase in cash and cash equivalents 7,587
---------
Cash and cash equivalents at end of period 7,587
=========
Consolidated Statement of Changes in Equity
For the period ended 30 September 2007
Issued Currency
share Share Treasury Warrant translation Retained Total
capital premium shares reserve reserve earnings equity
£000 £000 £000 £000 £000 £000 £000
Loss for the
period - - - - - (5,230) (5,230)
Shares issued
during the
period 537 120,252 - - - - 120,789
Consideration
shares 35 7,833 - - - - 7,868
Share issue
costs - (4,539) - - - - (4,539)
Purchase of
own shares - - (7,819) - - - (7,819)
Foreign
currency
translation - - - - 4,468 - 4,468
Warrants
issued during
the period - - - 639 - - 639
Share option
charge - - - - - 2,871 2,871
------------------------------------------------------------------------------------------------------------------
At 30
September 572 123,546 (7,819) 639 4,468 (2,359) 119,047
2007
------------------------------------------------------------------------------------------------------------------
Notes to the Financial Statements
For the period ended 30 September 2007
1. Nature of operations and general information
Entertainment One Ltd. and subsidiaries' (the Group) principal activity is the
acquisition and exploitation of entertainment rights across all media. In
addition, the Group owns distribution channels to retailers in territories where
it can capture additional margin and improve delivery of products to consumers.
The Group is a leading international independent entertainment business
currently operating in Canada, the United Kingdom and the United States.
Segmental information is disclosed in note 3.
Entertainment One Ltd. is the Group's ultimate parent company and is
incorporated in the Cayman Islands and is domiciled in Jersey. Entertainment One
Ltd. shares are listed on the Alternative Investment Market of the London Stock
Exchange.
Entertainment One Ltd. has presented its consolidated interim financial
statements in Pounds Sterling (£), which is also the functional currency of the
parent company. These consolidated condensed interim financial statements were
approved for issue by the Board of Directors on 4 December 2007.
2. Accounting policies
Basis of Presentation
The interim financial statements have been prepared under the historical cost
convention under the going concern basis and in accordance with applicable
International Financial Reporting Standards as adopted by the EU and IFRIC
interpretations ("IFRS"). As this is the Group's first reporting period the
disclosures required by IFRS 1 concerning the transition from local GAAP to IFRS
for comparative periods are not required.
At the date of authorisation of this report the following Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective:
IFRS 8 Operating Segments
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
Amendment to IAS 1 Presentation of Financial Statements: a Revised Presentation
Amendment to IAS 23 Borrowing Costs
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group when the relevant standards come into effect for periods
commencing on or after 1 April 2008.
The interim financial statements, which have been approved by the directors, are
unaudited but have been reviewed by the Group's auditors in accordance with the
International Standard Review Engagements 2410 (UK and Ireland) Review of
Financial Information Performed by the Independent Auditor of the Entity issued
by the United Kingdom Auditing Practices Board.
Principal Accounting Policies of the Group
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that are either
endorsed by the EU and effective at 30 September 2007 or are expected to be
endorsed and effective at 31 March 2008, the Group's first annual reporting
under IFRS. Based on these adopted and unadopted IFRS, the directors have made
assumptions about the accounting policies expected to be applied, which are as
set out below, when the first annual IFRS financial statements are prepared for
the period ending 31 March 2008.
The adopted IFRS that will be effective in the annual financial statements for
the period ending 31 March 2008 are still subject to change and to additional
interpretations and therefore cannot be determined with certainty. Accordingly,
the accounting policies for the annual period will be determined finally only
when the annual financial statements are prepared for the period ending 31 March
2008.
All intra-group balances, transactions, income and expenses and profits and
losses resulting from intra-group transactions that are recognised in assets,
are eliminated in full.
2. Accounting policies (continued)
Basis of consolidation
The consolidated financial statements comprise the financial statements of
Entertainment One Ltd. and its subsidiaries. The financial statements of the
subsidiaries are prepared for the same reporting periods as the parent company,
using consistent accounting policies.
Subsidiaries are consolidated in accordance with the requirements of IAS 27 and
are fully consolidated from the date of acquisition and continue to be
consolidated until the date of disposal.
Minority interests represent the portion of profit or loss and net assets not
held by the Group and are presented, where applicable, separately in the income
statement and within equity in the consolidated balance sheet, separately from
parent shareholders' equity.
Jointly controlled entities are those entities over whose activities the Group
has joint control, established by contractual agreement and are accounted for
using proportional consolidation from the date that joint control commences.
The accounting policies followed by the Group are shown below:
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of
the Group's share of the net identifiable assets of the acquired subsidiary at
the date of acquisition.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is not amortised but is tested annually
for impairment. Gains or losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Investment in programmes
Investment in programmes that are in development and for which the realisation
of expenditure can be reasonably determined, are classified and capitalised in
accordance with IAS 38, as programme development costs under non-current assets.
On first exploitation of the property the cost of investment is reclassified as
investment in programmes. Also included within investment in programmes are
properties acquired on acquisition.
A charge is made to write down the cost of completed programmes over their
useful lives. The maximum useful life is considered to be 10 years.
Other intangible assets
Other intangible assets acquired by the Group are stated at cost less
accumulated amortisation. Amortisation is charged to the income statement on a
straight-line basis over the estimated useful life of intangible fixed assets
unless such lives are indefinite.
Other intangible assets comprise exclusive content agreements and libraries,
customer relationships, exclusive distribution rights, brands and trade names
and non-compete agreements.
Exclusive content agreements and libraries 5 to 10 years depending on nature and
life of the rights acquired
Customer relationships 10 years
Exclusive distribution rights 5 years
Brands and trade names 10 years
Non-compete agreements 3 years
Investments
Investments are valued at cost less amounts written off.
Property, plant and equipment
Property, plant and equipment are stated at original cost less accumulated
depreciation. Depreciation is charged to write off cost less estimated residual
value of each asset over their estimated useful lives using the following
methods and rates:
Leasehold improvements over the term of the lease
Fixtures, fittings and equipment 20% - 30% reducing balance
The assets residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. The gain or loss arising on the
disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognised in income.
Impairment of assets
The Group reviews the carrying amounts of its property, plant and equipment and
intangible assets annually to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Investment in content rights
Investment in content rights, currently available for exploitation, are
capitalised in the consolidated balance sheet if at the date of the advance such
amounts are considered recoverable. These costs are amortised to cost of sales
on a revenue forecast basis over a period not exceeding 10 years from the date
of initial release.
Amounts capitalised are reviewed at least quarterly and any portion of advances
that appear not to be recoverable from future revenues are written off to cost
of sales during the period the loss becomes evident.
Balances are included within current if they are expected to be realised within
the normal operating cycle of the business. The normal operating cycle of the
business can be greater than 12 months.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
calculated using the weighted average method. Net realisable value represents
the estimated selling price less all estimated costs of completion and costs to
be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument.
Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Trade and other payables
Trade payables are not interest bearing and are stated at their nominal value.
Derivative financial instruments
The Group's activities expose it primarily to the financial risks of changes in
foreign currency exchange rates and interest rates. The Group uses derivative
financial instruments to reduce its exposure to foreign exchange and interest
rate movements. The Group does not hold or issue derivative financial
instruments for financial trading purposes but derivatives that do not qualify
for hedge accounting are accounted for at fair value through the income
statement.
Derivative financial instruments are initially recognised at fair value at the
contract date. The gain or loss on re-measurement to fair value is recognised
immediately in the income statement.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Treasury shares
The Entertainment One Ltd. shares held in the Employee Benefit Trust are
classified in shareholders' equity as 'treasury shares' and are recognised at
cost. Consideration received for the sale of such shares is also recognised in
equity, with any difference between the proceeds from sale and the original cost
being taken to revenue reserves. No gain or loss is recognised in the
performance statements on the purchase, sale, issue or cancellation of equity
shares.
Interest bearing loans and borrowings
All interest bearing loans and borrowings are initially recognised at the fair
value of the consideration received less directly attributable transaction
costs.
After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the income statement when the liabilities are
derecognised as well as through the amortisation process.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short term highly liquid investments with original maturities of
three months or less, and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities on the balance sheet.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event and, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of this obligation. The
expense relating to any provision is presented in the income statement.
If the effect of the time value of money is material, provisions are discounted
using a current pre tax rate that reflects, where appropriate, the risks
specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
Operating leases
Rentals payable under operating leases are charged to income on a straight line
basis over the term of the relevant lease.
Share based payments
The Group issues equity-settled and cash-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair value at the
date of grant. The fair value determined at the grant date of equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of shares that will eventually vest.
Fair value is measured by means of a binomial valuation model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effect of non-transferability, exercise restrictions, and behavioural
considerations.
A liability equal to the portion of the goods or services received is recognised
at the current fair value determined at each balance sheet date for cash-settled
share-based payments.
Segmental reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. The Group has 3 business segments:
entertainment, distribution and other.
A geographical segment is a component of the Group that operates within a
particular economic environment and is subject to risks and returns that are
different from those of components operating in other economic environments. The
Group currently operates in 3 geographical segments, Canada, the United States
and the United Kingdom.
Revenue recognition
Revenue represents the amounts receivable for goods and services provided in the
normal course of business, net of discounts and excluding value added tax (or
equivalent). Revenue is derived from the licensing, marketing and distribution
of feature films, television, video programming and music rights. Revenue is
also derived from retail and merchandising sales.
- Revenue from the exploitation of film and music rights is recognised
based upon the contractual terms of each agreement. Income is recognised on a
receivable basis where there is reasonable contractual certainty that the
revenue is receivable and will be received.
- Revenue from television licensing represents the invoiced value of
licence fees which is recognised when the licence term has commenced, delivery
to licensee has occurred and substantially all technical requirements have been
met and collection of the fee is reasonably assured.
- Revenues from the sale of DVD, video and audio stocks are recognised
at the point at which goods are despatched. A provision is made for returns
based on historical trends.
- Revenue from retail sales is recognised at the point of sale to
customers.
- Revenue on licensing and merchandising sales represents the invoiced
value of licence fees which is recognised when the licence terms have commenced
and collection of the fee is reasonably assured.
Pension costs
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due.
2. Accounting policies
Foreign currencies
The individual financial statements of each group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each group company are expressed in pounds
sterling, which is the functional currency of the Company, and the presentation
currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the dates of the
transactions. Foreign exchange differences arising on the settlement of such
transactions and from translating at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the income
statement.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated at
the average exchange rates for the period. Foreign exchange differences arising,
if any, are classified as equity and transferred to the Group's translation
reserve. Such translation differences are recognised as income or expenses in
the period in which the operation is disposed of.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt within equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities.
This applies when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Significant judgements and estimates
The preparation of consolidated financial statements under IFRS requires the
Group to make estimates and assumptions that affect the application of policies
and reported amounts. Estimates and judgements are continually evaluated and are
based on historical experience and other factors including expectations of
future events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates. The estimates and assumptions which
have a significant risk of causing a material adjustment to the carrying amount
of assets and liabilities are discussed below.
Significant judgements and estimates
Intangible assets
The Group recognises intangible assets acquired as part of business combinations
at fair value at the date of acquisition. The determination of these fair values
is based upon management's judgement and includes assumptions on the timing and
amount of future incremental cash flows generated by the assets and selection of
an appropriate cost of capital. Furthermore, management must estimate the
expected useful lives of intangible assets and charge amortisation on these
assets accordingly.
Impairment of goodwill
The Group is required to test, at least annually, whether goodwill has suffered
any impairment. The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future cash
flows and the choice of a suitable discount rate in order to calculate the
present value of these cash flows. Actual outcomes could vary.
Investment in content rights
The Group capitalises investment in content rights and releases to cost of sales
on a revenue forecast basis. Amounts capitalised are reviewed at least quarterly
and any that appear to be irrecoverable from future revenues are written off to
cost of sales during the period the loss becomes evident.
The estimate of future revenues depends on management judgement and assumptions
based on the pattern of historical revenue streams and the remaining life of
each contract.
Deferred tax
Deferred tax assets and liabilities require management judgement in determining
the amounts to be recognised. In particular, judgement is used when assessing
the extent to which deferred tax assets should be recognised with consideration
to the timing and level of future taxable income.
Income tax
The actual tax on the result for the year is determined according to complex tax
laws and regulations. Where the effect of these laws and regulations is unclear,
estimates are used in determining the liability for tax to be paid on past
profits which are recognised in the financial statements. The Group considers
the estimates, assumptions and judgements to be reasonable but this can involve
complex issues which may take a number of years to resolve. The final
determination of prior year tax liabilities could be different from the
estimates reflected in the financial statements.
3. Business and geographical segments
Business segments
For management purposes, the Group is currently organised into two main
operating divisions - entertainment and distribution. These divisions are the
basis on which the Group reports its primary segment information.
Principal activities are as follows:
Entertainment - acquires and exploits filmed entertainment and music rights
across all media.
Distribution - owns distribution channels to retailers in territories and media
where it can capture additional margin and improve delivery of products to
consumers.
Included within other is a non-core retail operation in Canada.
3. Business and geographical segments
Business segments (continued)
Segment information for the period ended 30 September 2007 is presented below.
Entertainment Distribution Other Eliminations Consolidated
£000 £000 £000 £000 £000
Revenue
--------------------------------------------------------------------------------
External sales 16,804 77,436 12,422 - 106,662
Inter-segment
sales 13,171 6,080 - (19,251) -
--------------------------------------------------------------------------------
Total revenue 29,975 83,516 12,422 (19,251) 106,662
--------------------------------------------------------------------------------
Inter-segment sales are charged at prevailing market prices.
Result
Segment result 3,305 4,182 (32) (461) 6,994
--------------------------------------------------------------------------------
Unallocated corporate expenses
Group costs (1,350)
Share-based payments (2,914)
Depreciation and amortisation (5,102)
--------------------------------------------------------------------------------
Operating loss (2,372)
Finance income 503
Finance costs (3,556)
--------------------------------------------------------------------------------
Loss before tax (5,425)
Tax 195
--------------------------------------------------------------------------------
Loss after tax (5,230)
--------------------------------------------------------------------------------
Geographical segments
The Group's operations are located in Canada, the United States and the United
Kingdom. The entertainment division is located in Canada, the United States and
the United Kingdom. The Group's distribution divisions are located in Canada and
the United States.
The following table provides an analysis of the Group's revenue by geographical
market, irrespective of the origin of the goods/services:
Revenue by
geographical
market
£000
Canada 69,147
United States 32,050
United Kingdom 5,465
--------------------------------------------------------------------------------
106,662
--------------------------------------------------------------------------------
4. Finance income and costs
The finance income and costs comprise:
Period ended
30 September
2007
£000
Interest receivable 503
--------------------------------------------------------------------------------
Interest payable on bank loans and overdrafts (1,490)
Other interest payable (26)
Amortisation of deferred finance charges (141)
Interest payable on exchangeable debenture (443)
Early settlement cost on conversion of debenture (833)
Decrease in fair value of interest rate swap (252)
Net foreign exchange losses (371)
--------------------------------------------------------------------------------
(3,556)
--------------------------------------------------------------------------------
On 31 July 2007, one of the Group's subsidiaries, 4384768 Canada Inc. converted
a £10 million exchangeable debenture into shares of the Company (see note 11).
There was an early settlement cost incurred on conversion of £0.8 million.
5. Tax
Period ended
30 September
2007
£000
Current tax expense (714)
Deferred tax credit 909
--------------------------------------------------------------------------------
Income tax credit in income statement 195
--------------------------------------------------------------------------------
Income tax has been calculated using the best estimate of the average annual
effective income tax rate expected for the full year (by jurisdiction) and then
applying to the pre-tax income for the six month period. The effective tax rate
is 3.6%.
6. Dividends
The directors are not recommending payment of an interim dividend.
7. Loss per share
The calculation of the basic and dilutive loss per share is based on the loss
attributable to equity holders of the parent of £5.2 million divided by the
weighted average number of shares in issue during the period which is
68,768,992. The share options and warrants granted during the period are not
dilutive for the purposes of the loss per share calculation as defined by IAS
33.
The basic and diluted underlying loss per share have been calculated to allow
shareholders to gain a better understanding of the trading performance of the
Group. It is based on the basic and diluted loss per share calculations above
except that the results of the Group are adjusted for financing fair value
movements, share-based payments and the early settlement cost on conversion of
the exchangeable debenture.
Reconciliations of the losses used in the calculations and the loss and
underlying loss per share calculations are set out below.
Period ended
30 September
2007
£000
For basic and dilutive loss per share
Loss for the financial period (5,230)
--------------------------------------------------------------------------------
For underlying basic and diluted loss per share
Loss for the financial period (5,230)
Add back:
Financing fair value movements 252
Share based payment (net of tax) 2,817
Early settlement cost on conversion of debenture (net of
tax) 576
--------------------------------------------------------------------------------
(1,585)
--------------------------------------------------------------------------------
Period ended
30 September 2007
Pence
Basic and diluted loss per share 7.61
Effect of financing fair value movements (0.37)
Effect of share-based payment (4.09)
Effect of early settlement cost on conversion of debenture (0.84)
--------------------------------------------------------------------------------
Underlying basic and diluted loss per share 2.31
--------------------------------------------------------------------------------
Trading period basic and diluted loss per share
The above calculations utilise the weighted average number of shares in issue
over the long period from 11 January 2007 to 30 September 2007. However the
Group only started trading on the acquisition of Entertainment One Income Fund
on 29 March 2007.
To help shareholders understand the trading performance of the Group over the
six month trading period, a trading period loss per share has also been
calculated for the period 29 March 2007 to 30 September 2007. Although this
calculation is not in line with IAS 33 it provides a helpful comparison as the
loss for the full period also represents the trading result for this same six
month period.
The weighted average number of shares weighted over the six month trading period
is 97,391,720. The losses used for the basic and diluted loss per share
calculations were applied to the loss per share calculation for trading period
basic and diluted loss per share.
The trading period loss and underlying loss per share calculations are set out
below.
Period ended
30 September
2007
Pence
Trading period basic and diluted loss per share 5.37
Effect of financing fair value movements (0.26)
Effect of share-based payment (2.89)
Effect of early settlement cost on conversion of debenture (0.59)
--------------------------------------------------------------------------------
Trading period basic and diluted underlying loss per share 1.63
--------------------------------------------------------------------------------
8. Intangible assets
Exclusive
content Trade
agreements names Exclusive Non- Investment
and and distribution Customer compete in
libraries brands agreements relationships agreements programmes Total
£000 £000 £000 £000 £000 £000 £000
Cost
Additions 17,001 6,065 17,120 15,419 4,515 3,067 63,187
Exchange
differences (49) 236 672 1,866 305 - 3,030
----------------------------------------------------------------------------------------------------------
At 30
September 16,952 6,301 17,792 17,285 4,820 3,067 66,217
2007
----------------------------------------------------------------------------------------------------------
Amortisation
Charge for
the (876) (268) (1,564) (816) (755) (289) (4,568)
period
Exchange
differences 4 (6) (39) (48) (28) - (117)
----------------------------------------------------------------------------------------------------------
At 30
September (872) (274) (1,603) (864) (783) (289) (4,685)
2007
----------------------------------------------------------------------------------------------------------
Carrying
amount
At 30
September 16,080 6,027 16,189 16,421 4,037 2,778 61,532
2007
----------------------------------------------------------------------------------------------------------
9. Goodwill
Total
£000
Cost and carrying amount
Additions 69,433
Exchange differences 1,125
At 30 September 2007 70,558
Goodwill includes amounts recognised on the creation of deferred tax liabilities
arising on the acquisition of intangibles assets in a business combination in
accordance with IFRS 3.
10. Acquisitions
Acquisitions are accounted for using the purchase method of accounting and are
incorporated into the Group's balance sheet at the fair value at the date of
acquisition. The fair values of all acquisitions made during the current period
are provisional awaiting final determination of the balances acquired.
The following acquisitions were made during the period:
Entertainment One Income Fund
On 29 March 2007, the Group acquired the entire operating business of
Entertainment One Income Fund for a total consideration of £83.4 million.
Proceeds from the initial share placing on 29 March 2007 were used to fund part
of the cash consideration of this acquisition.
The operating business of Entertainment One Income Fund was made up of 3
business units, Entertainment One Group, Koch Entertainment and CD Plus.
Entertainment One Group is the largest distributor of DVDs, CDs and video games
in Canada. Koch Entertainment exploits content rights, distributes home
entertainment product and is the largest independent record label in the US. CD
Plus owns a number of retail outlets across Canada.
The book value and provisional fair value of the net assets at the date of
acquisition were as follows:
Book value Fair value
£000 £000
Net assets acquired:
Intangible assets - 40,682
Investment 287 287
Property, plant and equipment 3,873 3,873
Deferred tax assets 1,542 1,542
Inventories 34,512 34,512
Trade and other receivables 24,123 24,123
Cash and cash equivalents 1,608 1,608
Trade and other payables (49,375) (49,375)
Provision (284) (284)
Deferred tax liabilities (2,689) (2,689)
13,597 54,279
Goodwill arising on acquisition 33,950
Total consideration 88,229
Satisfied by:
Cash consideration 83,391
Directly attributable costs 4,838
88,229
Net cash outflow arising on acquisition:
Cash consideration and costs associated with
acquisition (87,590)
Cash and cash equivalents acquired 1,608
(85,982)
On completion of the acquisition of Entertainment One Income Fund 4 million
share warrants were issued to one of our advisors. This has been accounted for
as a share-based payment under IFRS 2 with a fair value of £639,000. This cost
has been capitalised as a cost of the acquisition and has been included within
directly attributable costs.
This acquisition contributed £94.7 million to Group revenue for the period
between the date of acquisition and 30 September 2007. It is not practicable to
allocate any costs, interest or tax as the assets of Navarre Entertainment Media
Inc were incorporated into the existing operating business.
Contender Entertainment Group
On 5 July 2007, the Group acquired 100% of the issued share capital of Contender
Limited (and its subsidiaries), the leading independent distributor of filmed
entertainment on DVD in the UK, for a total consideration of £45.2 million.
Of the total consideration £37.3 million was paid in cash and £7.9 million was
satisfied by the issue of consideration shares to the management of Contender
Entertainment Group. In addition, the bank borrowings of Contender Entertainment
Group of £3.9 million were repaid following the acquisition.
The book value and provisional fair value of the net assets at the date of
acquisition were as follows:
Book value Fair value
£000 £000
Net assets acquired:
Intangible assets 1,899 16,522
Property, plant and equipment 147 147
Deferred tax assets 1,502 1,502
Inventories 1,144 1,144
Trade and other receivables 6,421 6,421
Cash and cash equivalents 2,201 2,201
Interest bearing loans and borrowings (3,875) (3,875)
Trade and other payables (6,759) (6,759)
Deferred tax liabilities (258) (4,352)
2,422 12,951
Goodwill arising on acquisition 33,692
Total consideration 46,643
Satisfied by:
Cash consideration 37,337
Fair value of consideration shares 7,868
Directly attributable costs 1,438
46,643
Net cash outflow arising on acquisition:
Cash consideration and costs associated with
acquisition (38,775)
Cash and cash equivalents acquired 2,201
(36,574)
Contender Entertainment Group contributed £5.5 million revenue and £1.2 million
to the Group's profit before tax for the period between the date of acquisition
and 30 September 2007.
Navarre Entertainment Media Inc
On 14 May 2007, the group acquired 100% of the issued share capital of Navarre
Entertainment Media Inc, a distributor of independent music labels in the United
States, for a total cash consideration of US$6.5 million (£3.3 million).
The book value and provisional fair value of the net assets of Navarre
Entertainment Media Inc at the date of acquisition were as follows:
Book value Fair value
£000 £000
Net assets acquired:
Intangible assets - 5,408
Inventories 915 915
Trade and other receivables 438 438
Trade and other payables (4,110) (4,110)
(2,757) 2,651
Goodwill arising on acquisition 663
Total consideration 3,314
Satisfied by:
Cash 3,286
Directly attributable costs 28
3,314
Net cash outflow arising on acquisition:
Cash consideration and costs associated with
acquisition (3,314)
Navarre Entertainment Media Inc contributed £5.5 million of revenues to the
Group between the date of acquisition and 30 September 2007. It is not
practicable to allocate any costs, interest or tax as the assets acquired have
essentially been incorporated into the existing operating business.
Seville Entertainment Inc
On 20 August 2007, the Group acquired 100% of the issued share capital of
Seville Entertainment Inc (and its subsidiaries), a leading Canadian film
distribution company and entertainment rights owner, for a total cash
consideration of C$5.2 million (£2.5 million).
The book value and provisional fair value of the net assets of Seville
Entertainment Inc at the date of acquisition were as follows:
Book value Fair value
£000 £000
Net assets acquired:
Intangible assets - 574
Property, plant and equipment 29 29
Deferred tax assets 106 106
Inventories 590 590
Trade and other receivables 3,997 3,997
Cash and cash equivalents 142 142
Trade and other payables (3,795) (3,795)
Deferred tax liabilities - (184)
1,069 1,459
Goodwill arising on acquisition 1,128
Total consideration 2,587
Satisfied by:
Cash 2,468
Directly attributable costs 119
2,587
Net cash outflow arising on acquisition:
Cash consideration and costs associated with
acquisition (2,587)
Cash and cash equivalents acquired 142
(2,445)
Seville Entertainment Inc contributed £1.0 million of revenues and an operating
loss of £0.6 million to the Group's result for the period between the date of
acquisition and 30 September 2007.
Total contribution to group revenue and operating loss
If all acquisitions had been completed on the first day of the current trading
period, 29 March 2007, Group revenues for the period would have been £116.0
million and the Group's underlying EBITDA (before group costs) would have
increased by £0.3 million to £7.3 million.
The revenues and profits for Navarre Entertainment Media Inc are not included in
the above disclosure because this transaction was essentially an asset purchase,
acquired through a special purpose vehicle. There is therefore no data available
for a comparable entity for a period prior to the date of acquisition.
11. Share capital
30 September 30 September
2007 2007
C$ £
Authorised:
200,000,000 million ordinary shares of
C$0.01 each 2,000,000
Issued and fully paid:
127,097,597 million ordinary shares of
C$0.01 each 1,270,976 572,050
The Company has one class of ordinary shares which carry no right to fixed
income.
The Company was incorporated on 11 January 2007 and on the same date issued a
subscriber share for C$1.
On 12 February 2007, the Company entered into a share split arrangement whereby
each share of C$1 was subdivided into 100 shares of C$0.01 each. Following the
share split, the authorised share capital was increased by C$1,990,000 to
C$2,000,000 comprising 200,000,000 shares of C$0.01 each.
On 29 March 2007, the Company was listed for trading on the AIM and on the same
date issued 80,000,000 shares for £1 each. The proceeds from this share issue
were substantially used to fund the acquisition of Entertainment One Income Fund
in Canada. In addition, 4,405,286 shares were issued on the same date for £1
each to the Employee Benefit Trust.
On 6 July 2007, the Company issued 27,587,011 shares at £1.07 each. The proceeds
from this share issue were used to fund the acquisition of Contender
Entertainment Group. Of these shares 7,353,366 were consideration shares issued
to the management of Contender Entertainment Group. In addition, 3,190,000
shares were issued on the same date for £1.07 each to the Employee Benefit
Trust.
On 31 July 2007, one of the Group's subsidiaries, 4384768 Canada Inc. converted
a £10,000,000 exchangeable debenture into shares of the Company. The principal
and the interest accrued on this debenture were converted into 11,848,000 shares
at £0.95 each.
On 20 August 2007, the Company issued 67,200 shares at £1.07 each.
12. Publication of non-statutory accounts
The financial information set out in these interim financial statements does not
constitute statutory accounts.
INDEPENDENT REVIEW REPORT TO ENTERTAINMENT ONE LTD
We have been engaged by the company to review the condensed set of financial
statements in the interim financial report for the period ended 30 September
2007 which comprises the consolidated income statement, the consolidated balance
sheet, the consolidated statement of changes in equity, the consolidated cash
flow statement and related notes 1 to 12. We have read the other information
contained in the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 2, the annual financial statements of the group will be
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report have been prepared in accordance with the accounting policies the group
intends to use in preparing its next annual financial statements.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying interim financial information is not prepared, in all
material respects, in accordance with the AIM Rules of the London Stock
Exchange.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
4 December 2007
London, United Kingdom
Entertainment One Ltd.
Memorandum information
In order to comply with the AIM reporting requirements a pro-forma income
statement for the six months ended 30 June 2007 has been presented above. This
pro-forma income statement has also been presented with comparatives for the six
months ended 30 June 2006 and these have been translated using the average
exchange rate for the 6 months ended 30 June 2006.
The information presented below is unaudited and has not been reviewed by the
Group's auditors.
Three months Three months Total Period ended
ended 29 March ended 30 June
2007 2007
£000 £000 £000 30 June
2006
£000
Revenue 51,167 47,590 98,757 122,313
Cost of sales (38,781) (34,960) (73,741) (94,534)
Gross profit 12,386 12,630 25,016 27,779
Administrative
expenses (13,198) (10,493) (23,691) (22,876)
Underlying
EBITDA (812) 2,137 1,325 4,903
The income statement has been presented to underlying EBITDA because of the
differing structures of the Group pre and post acquisition.
This information includes the results for Entertainment One Income Fund for the
three month period, directly before acquisition, ending 29 March 2007 and
comparative information for the six month period ended 30 June 2006. The data
relates to a pre-acquisition period and has not been formally approved by the
current board of directors. Included within the reported underlying EBITDA for
the period ended 29 March 2007 there were one-off items totalling £1.2 million
that are not expected to recur.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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