First Quarter Results

Released : 11/10/2019 07:00

RNS Number : 5508P

Entertainment One Ltd

11 October 2019

ENTERTAINMENT ONE LTD. ('eOne' or the 'Company' or the 'Group')

FIRST QUARTER RESULTS (UNAUDITED)

FOR THE THREE MONTHS ENDED 30 JUNE 2019

FIRST QUARTER RESULTS

PURPOSE FOR THE PREPARATION OF THIS INTERIM ANNOUNCEMENT

  • On 22 August 2019, the Group entered into an agreement with Hasbro Inc. under which Hasbro will acquire the Group in an all-cash transaction valued at £3.3 billion. Under the terms of the agreement, the Group's shareholders will receive £5.60 in cash for each common share of the Company. The completion of the transaction is subject to receipt of certain regulatory approvals, the approval by the Group's shareholders and other customary closing conditions. The Company's Annual General and Special Meeting of shareholders is to be held on Thursday, 17 October 2019.
  • This quarterly results report has been prepared in relation to the proposed acquisition of the Group by Hasbro Inc.
  • The results presented in this report represent the Group's trading for the first quarter of the financial year and are not indicative of the Group's results for the full financial year.

GROUP FINANCIAL SUMMARY

Reported

£ m

2 0 1 9

2 0 1 8

Change

Revenue

1 7 3

. 1

1 8 5

. 7

(7%)

Underlying EBITDA1

1 3

. 4

17

. 3

(23%)

Underlying EBITDA %

7.7%

9.3%

(160bps)

Net cash used in operating activities

(18.6)

(13.3)

(40%)

Investment in acquired content and productions2

9 3

. 3

67

. 2

39%

Reported

Adjusted

£ m

2 0 1 9

2 0 1 8

Change

2 0 1 9

2 0 1 8

Change

(Loss)/profit before tax3

(43.9)

(6.8)

(546%)

(0.1)

8 . 3

(101%)

Diluted (losses)/earnings per share (pence)3

(8.3)

(1.9)

(6.4)

(0.3)

0 . 8

(1.1)

  1. Underlying EBITDA is operating profit or loss excluding amortisation of acquired intangibles; depreciation; amortisation of software; depreciation of right of use assets (only applicable for 2019); share-based payment charge; tax, finance costs and depreciation related to joint ventures; and operating one-off items. Underlying EBITDA is reconciled to operating loss on the condensed consolidated income statement.
  2. Investment in acquired content and productions is the sum of "investment in productions, net of grants received" and "investment in acquired content rights", as shown in the condensed consolidated cash flow statement.
  3. Adjusted profit before tax and adjusted diluted earnings per share are the reported measures excluding amortisation of acquired intangibles; share-based payment charge; tax, finance costs and depreciation related to joint ventures; operating one-off items; finance one-off items; and, in the case of adjusted diluted earnings per share, one-off tax items. Refer to Note 7 in the condensed consolidated financial statements for the adjusted diluted (loss)/earnings per share reconciliation.
  4. The Group adopted IFRS 16 Leases from 1 April 2019 using the modified retrospective approach on transition. Accordingly, the comparative information for the period ended 30 June 2018 has not been restated. Refer to Note 2 in the condensed consolidated financial statements.

Reported

£ m

30 June 2019

31 March 2019

Change

Net debt

(510

.0)

(341.5)

(168.5)

Production financing

(77

.8)

(140.1)

62 . 3

Group reported revenue was 7% lower than the prior period at £173.1 million (2018: £185.7 million), impacted by lower Film, Television & Music driven by lower broadcast and licensing revenues due to fewer scripted deliveries in the period, partly offset by higher music revenue through the acquisition of Audio Network and continuing organic growth. Family & Brands revenue was broadly stable compared to the prior period.

Group underlying EBITDA was £13.4 million (2018: £17.3 million), driven by an increase in Group costs of £3.0 million due to increased corporate projects and legal fees and Family & Brands being marginally lower driven by increase in infrastructure to support brand longevity and ongoing growth. An increase in underlying EBITDA of Music was offset by lower EBITDA in Film and TV.

Net cash used in operating activities amounted to £18.6 million in comparison to £13.3 million in the prior period, reflecting the planned increase in investment in productions and increase in investment in acquired content due to timing. This was partially offset by working capital inflows in the current period compared to outflows in the prior period.

At 30 June 2019, overall net debt of £510.0 million was £168.5 million higher than the prior year due to operating cash outflow (including investment in productions and acquired content rights) for the entities forming part of the Net Debt group, acquisition of Audio Network £52.0 million, premium paid of £12.2 million and interest payment of £10.9 million paid on the redemption of the £355 million bonds during the period.

At 30 June 2019, overall production financing of £77.8 million was £62.3 million lower than the prior year. The movements primarily reflect the timing of programming activities and are driven by working capital inflows of £64.2 million of the entities forming part of the Production Financing group.

Adjusted loss before tax for the period was £0.1 million (2018: profit of £8.3 million), largely due to a decrease in underlying EBITDA and higher interest costs driven by higher

average debt levels in the period. Reported loss before tax for the period was £43.9 million (2018: £6.8 million), impacted by operating and financing one-off items of £28.1

million (2018: net one-off expense of £1.4 million) and higher amortisation of acquired intangibles following the acquisition of Audio Network during the period of £3.1 million. The increase in one-off items was driven by costs and fees associated with the Audio Network acquisition and the call premium and costs related to the issuance of £425 million Senior Secured Notes during the period.

Adjusted diluted losses per share were 0.3 pence (2018: earnings per share of 0.8 pence). On a reported basis, diluted losses per share were 8.3 pence (2018: 1.9 pence) reflecting the higher one-off charges.

Operating highlights:

Family & Brands

Revenue for the Division over the period is broadly stable compared to the prior period, despite a competitive preschool merchandise market. Across Family & Brands there are around 1,600 live licensing and merchandising contracts globally.

Peppa Pig maintained its momentum in core markets, with the brand's fifteenth anniversary providing the opportunity for a number of brand initiatives, including the Peppa Pig Festival of Fun film released in April/May (featuring 10 never-seen-before episodes); the 16-trackPeppa Pig: My First Album music release (which recently surpassed 5 million streams globally); the Peppa Pig's Adventure live show tour which started in September in the US; and celebratory partnerships with children's charities including Save the Children, Tommy's and the Muddy Puddle Walk. The brand subsequently won Best Pre-school Licensed Property at the September 2019 UK Licensing Awards, underlining its enduring nature as an evergreen brand in the territory.

In China, there are currently 62 live Peppa Pig licensing and merchandising contracts, as eOne prepares for the migration from agency agreements with licensees to direct relationships with dedicated Family & Brands managers in the territory. We continue to roll out additional consumer products with master toy partner Alpha planning to launch 20 mass market shop keeping units (SKUs - of which 16 have already been launched) across its retail partners in the smaller Chinese tier 3 and 4 cities during calendar 2019, compared to the 16 SKUs it launched during calendar 2018. This will be supported by product launches in categories such as food and beverages (over 50 SKUs in the lacto, soya milk and juice drinks segment), clothing (43 SKUs planned for the current year), publishing (25 new storybook titles) and home furniture and kitchenware product rollouts. In July 2019, Peppa Pig won the Film/Television/Media Property of the Year in the animated category at the China Licensing Awards 2019. The business remains on track to deliver the 117 new episodes of Peppa Pig to air by 2023.

Merlin Entertainments now has three Peppa Pig World of Play centres in operation, located in Shanghai, Dallas and Auburn Hills, Michigan. Attendance continues to build and eOne won the Babytree Brilliant Awards 2019 Indoor Attraction for the Shanghai location. In addition, the two Peppa Pig Land formats which opened in March 2018 at Heide Park in Germany and Gardaland in Italy also achieved robust attendance numbers during the period (4 million visitors to date), expanding the brand experience of Peppa Pig across its audiences.

PJ Masks has been fully rolled out across the major global markets and remains a leading property in Canada and the US, where the brand was the second largest pre-school toy property year to-date to June 2019 according to NPD Group data. Strong additional broadcast slots beginning this September in key markets like the US, France, Italy, Spain, the UK and Germany will help to maximise brand awareness. Coupled with reduced hold-back periods, this should allow for a more rapid roll out on terrestrial broadcasters and related exposure in preparation for the important lead-up to the Holiday retail period this year. The 2020 toy range for North America received a very positive reaction from retailers at the recent LA Toy Previews.

Ricky Zoom made a very strong global broadcast premiere in China on the Youku SVOD platform in August 2019, achieving 100 million views in the first 12 days and reaching the position of number three ranked pre-school property on the platform (behind Peppa Pig and local brand Boonie Bears). Confirmed broadcast partners for the September 2019 launch in the remaining territories around the world include Nickelodeon (US), Gulli (France), Super RTL (Germany), RAI (Italy), Discovery Kids (Latin America) and Clan (Spain). These launches will be accompanied by the availability of the Welcome to Wheelford companion App and the consumer products launch of the brand is anticipated to be spring/summer 2020 with eOne's global toy partner Tomy.

Film, Television & Music

Revenues across the Division for the period were lower period-on-period. Strong growth in Music, supported by the recent Audio Network acquisition, was offset by a lower performance in Film and Television which was largely due to variances in the timing and mix of deliveries compared to the prior period.

The scripted television market remains vibrant. Following the new series commissions highlighted at the year-end, production has now started on Deputy (for Fox), Nurses (which was commissioned for season 2 by Global TV in Canada before season 1 has been aired) and Run (HBO). New drama series recently announced include Philly Reign (produced in partnership with Mary J Blige for USA Network), original horror series Red Rose for BBC1 and a pilot for Anna K, a modern retelling of Tolstoy's Anna Karenina set in New York City.

As well as announcing new scripted series, eOne has produced a number of series recommissions. The Rookie was re-ordered by co-production partner ABC and season two is now in production, with eOne selling the show across 160 territories globally; two hours of the new series was delivered in the period. Other returning shows in production include: Mary Kills People (season 4), Cardinal (season 4) and You Me Her (season 5).

In unscripted television, eOne shows now air five times a week across different North American networks: Murder in the Thirst (Sundays on BET), Love and Listings (Mondays on VH1), Ex on the Beach (Tuesdays on MTV), Strong Man (Wednesdays on History) and Growing Up Hip Hop Atlanta (Thursdays on WeTV). A new four-part documentary series, Ready for War, was commissioned by Showtime to examine the cause and effect of deporting US military veterans. The series was produced in partnership with David Ayer and Chris Long's Cedar Park, and executive produced by multi-platinum music artist Drake. The business further expanded its production footprint with the acquisitions of Daisybeck Studios in the UK (producer of unscripted shows including The Yorkshire Vet, Springtime on the Farm, Big Week at the Zoo and Made in Britain) and the US-based BLACKFIN (producer of Finding Escobar's Millions, I Am Homicide, Primal Instinct and Bad Henry for a number of major networks and platforms).

The transition across the Film operations is on track to be completed this financial year as eOne continues to focus on production activities. John Wick: Chapter 3 - Parabellum performed well in eOne territories, generating box office revenues of C$15 million in Canada and €2.5M in Spain. Additionally, Scary Stories to Tell in the Dark was released in August in the US to a strong box office performance. eOne co-financed the film with CBS, has distribution in its territories and handled international sales through Sierra/Affinity.

Looking ahead, Queen and Slim, the first feature from Makeready, has completed production and is scheduled for release this November by eOne in its direct territories including the UK and Canada and by Universal in the US and internationally. eOne also announced that it will be co-financing two films with Paramount Pictures - the film of the classic US children's character Clifford The Big Red Dog and post-apocalyptic thriller Monster Problems. eOne will be distributing the releases in Canada and the UK and Paramount will be distributing in the US and the rest of world. eOne is also preparing for the release of 1917, a World War I epic from output partner Amblin.

Music has experienced significant growth from the acquisition of Audio Network in April this year and continuing organic growth. The business continued its strategy of diversifying its portfolio beyond recorded product to include music publishing and artist management, live touring/exhibition and, most recently, Audio Network creating music for film and television. The recorded catalogue from artists such as The Lumineers, Dr. Dre, DJ Khaled and Snoop Dogg continues to contribute significant margin as the streaming universe continues to grow. Other eOne artists include James Fortune, who had the Number One Billboard Gospel Album for Dream Again, and JJ Hairston and Jonathan McReynolds both of whom had top five Gospel albums. The Game, Brandy and The Lumineers will release new albums in the autumn of 2019.

Management client Jax Jones has sustained his radio success with his latest hit single You Don't Know Me, which has achieved over 500 million streams globally since release. The Group's live business, Round Room, announced new events during the period: the Baby Shark Live tour and the Rock the Rink Tour (a national tour featuring the Canadian Olympic Figure Skating team) and The Nelson Mandela Exhibit, set to launch in Berlin in October 2019 following a successful run in London. In addition, it continues to experience success with the PJ Masks: Time to be a Hero live show with sell-out dates across the US.

Corporate

The annual independent library valuation has been completed and the value of the Group's library assets has increased to US$2.1 billion as at 31 March 2019 (2018: US$2.0 billion). The value of the library has been impacted by more volatile foreign exchange movements than in previous years (predominantly the devaluation of pounds sterling), but at constant currencies the 2019 valuation of the library would have increased by an additional US$0.1 billion. The library valuation does not include library assets acquired as part of the Audio Network transaction.

On 18 April 2019 eOne acquired UK-based Audio Network, one of the world's largest independent creators and publishers of original high quality music for use in film, television, advertising and digital media. The Group paid consideration of £178.8 million (which included £14.7 million of cash and cash equivalents on Audio Network's balance sheet), financed through:

  • A private placement for 28,900,000 new common shares raising net proceeds of £127.5 million
  • £52.0 million through a term loan maturing on 31 December 2020
  • The issuance of 2,112,428 Entertainment One Ltd. common shares

On 26 June 2019, the Group completed the issuance of £425.0 million in aggregate principal amount of 4.625% Senior Secured Notes (the 'Notes') due 2026. The proceeds of the offering were used to redeem the Company's £355.0 million in aggregate principal amount of 6.875% Senior Secured Notes due 2022 (the 'Existing Notes'), repay its outstanding term loan (£52.0 million, in relation to the acquisition of Audio Network) and pay fees and costs in connection with the transaction.

This transaction will reduce the Group's interest costs going forward as well as extend the overall duration of its debt facilities:

  • Reduction from 6.875% to 4.625% in the coupon on the Notes, substantially reducing the Company's average cost of debt and saving approximately £8 million o f interest per annum on the Company's Existing Notes
  • Extension of the maturity of the Company's debt facilities to 2026

On 22 August 2019, the Group entered into an agreement with Hasbro Inc. under which Hasbro will acquire the Group in an all-cash transaction valued at £3.3 billion. Under the terms of the agreement, the Group's shareholders will receive £5.60 in cash for each common share of the Company. The completion of the transaction is subject to receipt of certain regulatory approvals, the approval by the Group's shareholders and other customary closing conditions. The Company's Annual General and Special Meeting of shareholders is to be held on Thursday, 17 October 2019.

Condensed Consolidated Income Statement

for the three months ended 30 June 2019

Period ended

Period ended

30 June 2019

30 June 2018

Note

£ m

£m

Revenue

4

1 7 3 . 1

1 8 5

. 7

Cost of sales

(128.2)

(138.4)

Gross profit

44 . 9

47

. 3

Administrative expenses

(62.6)

(46.3)

Share of results of joint ventures

-

0

. 1

Operating (loss)/profit

(17.7)

1

. 1

Finance income

-

0

. 4

Finance costs

(26.2)

(8.3)

Loss before tax

(43.9)

(6.8)

Income tax credit/(charge)

3 . 4

(1.6)

Loss for the period

(40.5)

(8.4)

Attributable to:

Owners of the Company

(40.8)

(8.7)

Non-controlling interests

0 . 3

0

. 3

Operating (loss)/profit analysed as:

Underlying EBITDA

13 . 4

17

. 3

Amortisation of acquired intangibles

(12.6)

(9.8)

Depreciation and amortisation of software

(1.0)

(0.7)

Depreciation of right of use assets

(2.2)

-

Share-based payment charge

(3.1)

(3.9)

One-off items

5

(12.2)

(1.8)

Operating (loss)/profit

(17.7)

1

. 1

Losses per share (pence)

Basic

7

(8.3)

(1.9)

Diluted

7

(8.3)

(1.9)

Condensed Consolidated Statement of Comprehensive Income

for the three months ended 30 June 2019

Period ended

Period ended

30 June 2019

30 June 2018

£ m

£m

Loss for the period

(40.5)

(8.4)

Items that may be reclassified subsequently to profit or loss:

Exchange differences on foreign operations

18

. 4

34

. 2

Hedging reserve movements

0

. 8

3

. 7

Tax related to components of other comprehensive income

(0.2)

(0.6)

Total other comprehensive income for the period

19

. 0

37

. 3

Total comprehensive (loss)/income for the period

(21.5)

28

. 9

Attributable to:

Owners of the Company

(21.9)

28

. 0

Non-controlling interests

0

. 4

0

. 9

Condensed Consolidated Balance Sheet

at 30 June 2019

30 June 2019

31 March 2019

Note

£ m

£m

ASSETS

Non - current assets

Goodwill

Other intangible assets Interest in joint ventures Investment in productions Property, plant and equipment Right of use assets

Trade and other receivables Deferred tax assets

Total non-current assets

Current assets

468

. 1

397

. 2

321

. 2

219

. 9

1

. 3

1

. 2

286

. 6

259

. 8

19

. 8

12

. 9

56

. 0

-

48

. 6

46

. 9

49

. 9

37

. 5

1,251

.5

975

. 4

Inventories

11.2

11.7

Investment in acquired content rights

288

. 9

254

. 0

Trade and other receivables

512

. 3

548

. 4

Cash and cash equivalents

127

. 1

107

. 4

Current tax assets

2

. 1

0

. 8

Financial instruments

11

6

. 2

4

. 1

Total current assets

947

. 8

926

. 4

Total assets

2,199

.3

1,901

.8

LIABILITIES

Non - current liabilities

Interest-bearing loans and borrowings

1 2

567

. 1

392

. 2

Production financing

1 3

73

. 3

110.2

Lease liabilities

46

. 8

-

Trade and other payables

17

. 0

15

. 6

Provisions

1

. 0

0

. 4

Deferred tax liabilities

52

. 7

32

. 5

Total non-current liabilities

757

. 9

550

. 9

C u r r e n t l i a b i l i t i e s

Interest-bearing loans and borrowings

1 2

0

. 5

0

. 9

Production financing

1 3

74

. 0

85

. 7

Lease liabilities

10

. 6

-

Trade and other payables

518

. 2

529

. 3

Provisions

3

. 2

4

. 2

Current tax liabilities

10

. 5

12

. 6

Financial instruments

11

0

. 2

3

. 5

Total current liabilities

617

. 2

636

. 2

Total liabilities

1,375

.1

1,187

.1

Net assets

824

. 2

714

. 7

EQUITY

Stated capital

1 4

752

. 4

610

. 6

Other reserves

(10.8)

(11.4)

Currency translation reserve

8 1

. 0

62

. 7

Retained earnings

(33.5)

15

. 3

Equity attributable to owners of the Company

789

. 1

677

. 2

Non-controlling interests

35

. 1

37

. 5

Total equity

824

. 2

714

. 7

Total liabilities and equity

2,199

.3

1,901

.8

These condensed consolidated financial statements were approved by the Board of Directors on 10 October 2019.

JOSEPH SPARACIO

DIRECTOR

Condensed Consolidated Cash Flow Statement

for the three months ended 30 June 2019

Period ended

Period ended

30 June 2019

30 June 2018

Note

£ m

£m

Operating activities

Operating (loss)/profit

(17.7)

1

. 1

Adjustment for:

Depreciation of property, plant and equipment

0

. 8

0

. 4

Depreciation of right of use assets

2

. 2

-

Amortisation of software

0

. 2

0

. 3

Amortisation of acquired intangibles

1 2

. 6

9

. 8

Amortisation of investment in productions

3 8

. 9

40

. 2

Investment in productions, net of grants received

(43.7)

(37.5)

Amortisation of investment in acquired content rights

11.3

19

. 0

Investment in acquired content rights

(49.6)

(29.7)

Share of results of joint ventures

-

(0.1)

Share-based payment charge

3

. 1

3

. 9

Operating cash flows before changes in working capital and provisions

(41.9)

7

. 4

Decrease in inventories

0

. 9

1

. 3

Decrease in trade and other receivables

51

. 7

20

. 6

Decrease in trade and other payables

(18.7)

(32.7)

Decrease in provisions

(0.8)

(0.7)

Cash used from operations

(8.8)

(4.1)

Income tax paid

(9.8)

(9.2)

Net cash used from operating activities

(18.6)

(13.3)

Investing activities

Acquisition of subsidiaries and joint ventures, net of cash acquired

8

(154.2)

(0.8)

Purchase of financial instruments

11

(2.0)

(0.2)

Purchase of property, plant and equipment

(6.3)

(0.3)

Purchase of software

(1.0)

(0.2)

Net cash used in investing activities

(163.5)

(1.5)

Financing activities

Net proceeds on issue of shares

127

. 5

-

Drawdown of interest-bearing loans and borrowings

1 2

613

. 1

73

. 6

Repayment of interest-bearing loans and borrowings

1 2

(438.7)

(15.9)

Drawdown of production financing

1 3

30

. 0

20

. 4

Repayment of production financing

1 3

(84.0)

(57.9)

Transactions with equity holders

8

(4.7)

(9.7)

Interest paid

(13.9)

(1.0)

Lease payments

(2.3)

-

Dividends paid to shareholders and to non-controlling interests of subsidiaries

(3.1)

(2.9)

Fees paid in relation to the Group's bonds and one-off finance costs

(15.8)

-

Net cash from financing activities

208

. 1

6

. 6

Net increase/(decrease) in cash and cash equivalents

26

. 0

(8.2)

Cash and cash equivalents at beginning of the period

107

. 4

119.1

Effect of foreign exchange rate changes on cash held

(6.3)

3

. 4

Cash and cash equivalents at end of the period

127

. 1

114.3

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Entertainment One Ltd. published this content on 11 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 October 2019 06:10:03 UTC