12 November 2012

Entertainment One Ltd.

Interim results for the six months ended 30 September 2012

Increased investment drives revenue growth

Entertainment One Ltd. ("Entertainment One", "the Company" or "the Group"), the leading international entertainment content owner and distributor, announces its interim results for the six months ended 30 September 2012.

Financial highlights

Operating highlights

Darren Throop, Chief Executive Officer, commented:

"It has been a milestone period with the planned acquisition of Alliance Films.  The business is continuing to grow with Peppa Pig thriving in the US and internationally, the Film division performing well in the first half and securing a strong release slate across our territories and the Television team seeing success with a number of series renewals.  We are looking forward to a positive second half of the year in line with management's expectations."

For further information please contact:

A presentation to analysts will take place at 9.30am on Monday 12 November at CityPoint,   1 Ropemaker Street, The Argentina Room, Floor 9, London EC2Y 9AW.

Cautionary statement

This Interim Announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Entertainment One Ltd.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report.  There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Nothing in this Interim Announcement should be construed as a profit forecast.

A copy of this Interim Announcement for the six months ended 30 September 2012 can be found on our website at www.entertainmentonegroup.com.

INTERIM MANAGEMENT REPORT - SIX MONTHS TO 30 SEPTEMBER 2012

OVERVIEW

The Group has continued to deliver revenue growth, increasing sales in the period by 8% to £220.5 million.  In the Entertainment division revenue was up 16%, driven by a strong release schedule in the Film business and increased television programming deliveries.  Although underlying EBITDA of £13.4 million was behind the same period last year, this was primarily due to the timing of increased investment, which has driven printing and advertising ('P&A') costs up 30% in the first half, and the phasing of revenue from LOVEFiLM in the UK which was weighted more heavily to the first half in the prior year.  In the second half of the year the timing impact of both the increased investment and LOVEFiLM will normalise and full year earnings remain in line with management's expectations.   

The Film business released 89 movies theatrically compared with 74 releases in the prior period.  Successful new titles included Looper and The Sweeney, which both opened as number one at the UK box office, and The Sapphires in Australia which is already one of the top 15 highest grossing Australian films of all time at the local box office.  Nearly 100 film releases are planned in the second half including The Twilight Saga: Breaking Dawn - Part 2 (the final instalment in the hit Twilight Saga franchise), Nativity 2, Parker and Bullet to the Head.  Digital sales in the Film business were more than 40% up on the comparative period (excluding revenues from the Group's UK output deal with LOVEFiLM).  In September 2012, a four-year output deal was agreed with Steven Spielberg's DreamWorks Studios, giving the Group access to additional highly commercial film content in the UK and Benelux.

The Television business had a very strong first half, delivering 138 half hours of programming compared to 73 half hours in the prior period.  Broadcast successes included the latest season renewals of Call Me Fitz, Rookie Blue, Hell on Wheels and the new series Saving Hope (which has already been ordered for a second season).  The third season premiere of Haven became the number one primetime drama in the US for the target 25-54 age range and the first episodes of new reality show Sugar Stars premiered on the Food Network in the US.  The opening episode of season three of The Walking Dead became the biggest US telecast for any drama series in cable history.  There is a strong pipeline of deliveries for the remainder of the year, including the first episodes of new suspense drama Rogue as well as fourth seasons of Call Me Fitz and Rookie Blue.  The business continues to acquire excellent source material for development alongside third party content for international distribution.  

The Family business performed well in the first half, led by Peppa Pig's US licensing and merchandising launch.  This has begun strongly with the Fisher-Price toy line at Toys R Us performing ahead of expectations.  Peppa Pig continues to enjoy excellent broadcast ratings in the US, outperforming both its lead in and lead out shows, and in the UK it won the award for Best Preschool Licensed Property for an unprecedented third time at the Annual Licensing Awards.  Sales and development of other family properties are continuing to progress, particularly in Canada and Australia.

The Distribution division recorded lower revenues than the prior period, in line with management's expectations.  Despite falling sales the business again outperformed the market in Canada and continues to benefit from new business opportunities as the market consolidates. 

The annual independent valuation of the Group's Film, Television and Music content library increased to in excess of $385 million, up 10% from $350 million in the prior period.

In September the Board announced its intention to acquire Alliance Films Holdings Inc.  The funding for the acquisition has already been secured with £110 million cash received in October following an oversubscribed equity placing and underwritten debt commitments from the Group's existing lead lenders.  The transaction remains subject to regulatory approval by the Canadian Competition Bureau and is expected to close in early 2013.

OUTLOOK

The outlook for the remainder of the financial year remains positive with the Film business set for another strong slate of releases and the television business on track to deliver a similar volume of programming to the first half.  The directors look forward to delivering year-on-year profit growth in line with management's expectations.

SUMMARY FINANCIAL PERFORMANCE

Reported revenue of £220.5 million (2011: £204.6 million) was 8% ahead of the prior period, driven primarily by strong performance from the Group's increased investment in the Entertainment businesses.  Underlying EBITDA of £13.4 million (2011: £23.6 million) was lower due to the timing of higher P&A costs associated with the increased number of theatrical releases in the period and a greater weighting of LOVEFiLM digital sales in the UK to the second half compared to the prior year, in line with management expectations.

On an adjusted basis, excluding amortisation of acquired intangible assets, share-based payment charges and one-off items, the Group reported profit before tax of £8.8 million (2011: £18.8 million). Reported profit before tax was £1.0 million (2011: £9.8 million) reflecting the lower underlying EBITDA and the one-off costs associated with the planned acquisition of Alliance Films Holdings Inc.

* In order to provide like-for-like comparisons, the above table includes prior period figures on a proforma and constant currency basis.  For the purposes of this analysis 'proforma' includes the results of Hopscotch, which was acquired on 13 May 2011, as if that business had been acquired on the first day of the comparative period.  Constant currencies have been calculated by retranslating the comparative figures using weighted average exchange rates for the period to 30 September 2012. The impact of currency movements has had an immaterial impact on revenue and underlying EBITDA in the period.

DIVISIONAL REVIEWS

The Group reports its results as two divisions, Entertainment and Distribution. Unless otherwise stated, comparative information in this section is stated on a proforma and constant currency basis.  The comparative period is the six months to 30 September 2011.

ENTERTAINMENT

The Entertainment division comprises the Film and Television businesses.  Revenue increased by 16% to £166.2 million and investment in content and programmes increased 13% to £75.3 million.

Film

The Film business comprises operations in the UK, Canada, the US, Benelux and Australia. 

Revenue of £109.8 million was driven by the release of 89 theatrical titles compared to 74 in the prior period, with a significant increase in titles in the UK, the largest of the Group's film markets. Underlying EBITDA of £5.1 million was behind the same period last year primarily due to the timing of the theatrical releases, which has driven a 30% increase in first half P&A costs to £31.5 million, and the phasing of LOVEFiLM revenue in the UK which was weighted more heavily to the first half in the prior year.

Investment in content was up 7% at £26.9 million (2011: £25.1 million) and is expected to be higher in the full year as the Group continues to increase investment in its film slate.

* The intercompany trading relationship between the US Film and US Distribution businesses was changed on 1 April 2012, resulting in an increase in sales attributable to the US Film unit.  There is no impact on a consolidated Group basis as the increased sales are eliminated on consolidation.  Prior period reported revenue has been increased by £3.1 million and underlying EBITDA has been decreased by £0.1 million, reflecting the position had the change in the trading relationship occurred on 1 April 2011. 

Multiple territories

The number of theatrical titles released across more than one territory continued to expand in line with the Group's operating strategy.  Major first half releases included Looper, The Angels' Share, Killer Joe and The Sapphires which was released in Australia in August and in the UK in November.  The second half multi-territory slate includes the eagerly anticipated final instalment of the blockbuster Twilight Saga franchise, The Twilight Saga: Breaking Dawn - Part 2, which is due for release in the UK and Canada in November.  Other titles include Bullet to the Head (starring Sylvester Stallone), Seven Psychopaths (Colin Farrell, Woody Harrelson and Christopher Walken) and Parker (Jason Statham and Jennifer Lopez).

The new International Film initiative enjoyed a successful Toronto International Film Festival, selling the international rights to the F Word and Song for Marion whilstBeasts of the Southern Wild won an award at the London Film Festival.

UK

Revenue in the UK was broadly in line with the comparable period despite the heavier weighting of LOVEFiLM digital sales in the first half of last year.  Theatrical revenues were significantly ahead following a busy release slate which saw ten titles released compared to three in the prior period.  Notable successes included The Sweeney and Looper, which were both number one at the box office on their opening weekends, as well as The Pact and The Angels' Share.  Revenue from home video was also ahead, benefiting from previous theatrical releases such as Ghostrider: Spirit of Vengeance and Man on a Ledge, straight to DVD titles such as StreetDance 2, along with Television properties Peppa Pig and season two of The Walking Dead. 

Alongside multi-territory releases, including The Twilight Saga: Breaking Dawn - Part 2, upcoming local theatrical releases include Nativity 2: Danger in a Manger (the follow up to the 2011 Christmas box office hit, starring David Tennant and Joanna Page), Stephen Soderbergh's crime thriller Side Effects (Jude Law, Channing Tatum and Rooney Mara), comedy drama Song for Marion (Gemma Arterton and Christopher Eccleston) and romantic horror Warm Bodies (Dave Franco and John Malkovich).  More than 30 home video releases are planned for the second half, including theatrical releases and straight to DVD titles including primetime BBC action drama Hunted (starring Melissa George) and post apocalyptic horror The Day.

Canada

In Canada 39 titles were released theatrically in the first half (compared to 27 in the previous period) including The Master, Seeking a Friend for the End of the World and Wes Anderson's Moonrise Kingdom.  However, box office revenue was lower than the previous period due to the profile of the films released.  This was partly offset by double digit increases in digital and DVD sales.  More than 30 theatrical titles are forecast to be released in the second half including The Twilight Saga: Breaking Dawn - Part 2, crime thriller Broken City (starring Mark Wahlberg, Catherine Zeta-Jones and Russell Crowe), horror movie Mama (Jessica Chastain and Nikolaj Coster-Waldau) and Canadian content releases including Inch'Allah, Les Pee-Wee 3D and Le Magasin des Suicides. 

There were 101 home video releases in the period compared to 82 in the prior period driven by previously released theatrical titles and a strong contribution from the labels acquired as part of the Vivendi deal in 2011.  More than 85 DVD titles are planned for release in the second half including Universal Soldier 4: Day of Reckoning and The Thompsons.

Benelux

Benelux revenues were slightly lower in the first half, with 20 theatrical releases compared to 25 in the comparative period.  The lower box office revenue was partially offset by increased digital revenues.  Theatrical releases in the first half included Safe, Chernobyl Diaries, StreetDance 2 and local success de Verbouwing.  Home video releases included Ghostrider: Spirit of Vengeance, Tinker, Taylor, Soldier, Spy and season two of the Group's Television series The Walking Dead.

In addition to multi-territory titles, the second half slate includes thriller The Paperboy (starring Nicole Kidman and Matthew McConaughey), sci-fi action movie Dredd 3D, comedy romance Hope Springs (Meryl Streep and Tommy Lee Jones), local family film Mees Kees and horror Sinister (Ethan Hawk).  34 theatrical releases and more than 35 DVD releases are planned for the second half.  The Group is planning to expand its presence in Belgium in the second half of the year.

Australia

The first half saw over 70% revenue growth and continued progress in Australia with theatrical, home video and digital sales all significantly higher as a result of increased investment in the business since its acquisition by the Group in May 2011.  There were 15 theatrical releases compared to 17 in the prior period, led by the smash hit The Sapphires, which is now one of the top 15 biggest locally-produced titles ever released in Australia.  Other notable releases included Hysteria and Wish You Were Here.  Home video also performed strongly, benefiting from previous theatrical titles Midnight in Paris and Don't be Afraid of the Dark alongside the Group's Television properties including Peppa Pig and seasons one and two of The Walking Dead.

Along with major multi-territory theatrical titles other releases in Australia in the second half include Woody Allen's new comedy To Rome With Love (starring Alec Baldwin and Penelope Cruz), comedy Bachelorette (Kirsten Dunst and Isla Fisher) and award winning documentary Samsara.  Home video releases will include theatrical titles such as The Sapphires along with series three of The Walking Dead.

US

Revenue in the US Film business increased reflecting the Group's investment in content in the region and the first limited-release theatrical titles including Cosmopolis and Iron Sky.  There were 61 home video releases compared to 55 in the comparative period including Kattpacalypse, Titanic, and the Group's television shows such as season one of Hell on Wheels and the second seasons of Rookie Blue and Haven.

A strong second half is expected with theatrical releases including the British hit action film The Sweeney (starring Ray Winstone) and A Late Quartet (Philip Seymour Hoffman, Christopher Walken and Catherine Keener). In addition 50 home video titles are planned for release including previously released theatrical titles, straight to DVD title Freaky Deaky (Christian Slater and Billy Burke) and the second season of TV show Being Human.

The Film business also incorporates the results of the US music label business which represents less than 4% of the Group's revenues and underlying EBITDA.

Television

Television comprises the North American-based television production and international sales business and the UK-based Family business.  Significant successes in new and repeat series commissions saw first half revenues 70% higher than the previous period, with growth in underlying EBITDA of 39%. At 30 September contracted sales not yet recognised as revenue, relating to programmes in production, were £35 million (2011: £37 million).

Television - North American and International

Television in Canada had a strong first half with 138 half hours of television programming delivered compared with 73 half hours in the prior period. These deliveries underpinned the increase in revenue which was also supported by £48 million of investment in new programming compared to £42 million in the first half last year. The television programming pipeline remains strong and the first half deliveries are expected to more than double to over 270 half hours for the full year.

Deliveries in the first half included the final episodes of crime drama The Firm, season three of police drama Rookie Blue and season two of Hell on Wheels, which opened with excellent viewing figures in both the US and Canada.  The first season of medical drama Saving Hope was delivered along with non-scripted series Sugar Stars which had good ratings on Food Network.  Mystery drama Haven continued its strong run with the season three premiere on Syfy in the US becoming the number one primetime drama among adults aged 25 to 54 and drawing more viewers than the season two premiere in the prior year.  A fourth season has recently been ordered.

The remainder of the current financial year is expected to be equally strong and will see the first deliveries of season four of Rookie Blue and season four of Call Me Fitz.  The eagerly anticipated suspense drama Rogue, starring award winning actress Thandie Newton has commenced production and will start delivery as will several television 'Movies of the Week'.

The Group's pipeline of new programmes also remains strong. Recent development acquisitions include Black Jack from the legendary creator Osamu Tezuka (Astro Boy, Kimba the White Lion) and two further projects, Downslope and God Fearing Man, written by the late iconic filmmaker Stanley Kubrick. 

The International Television business continued to grow with strong sales of the Group's production slate into all key territories, particularly from the recent MIPCOM television market in Cannes.  The third season of the major international hit zombie show The Walking Dead premiered in October 2012 to over 10 million viewers in the US making it the most watched cable drama telecast ever and the new acquisition Primeval: New World also premiered in October 2012.

Television - Family

The Family business had a good first half with licensing renewals driving an increase in revenue of 7%.  In the US, Peppa Pig enjoyed a successful licensing and merchandising launch. The Fisher-Price toy line is currently available exclusively at Toys R Us, is selling ahead of expectations and creating a strong lead-in to the holiday season, allowing for the planned launch of the apparel category earlier than originally planned.  Also in the US, Peppa Pig continued to see its television ratings outperforming both its lead in and lead out shows.  In the UK Peppa Pig won the award for Best Preschool Licensed Property for an unprecedented third time at the Annual Licensing Awards.

Peppa Pig's international expansion programme has continued to gain momentum with new broadcast and licensing and merchandising deals signed in Latin America and Mexico along with multiple broadcast deals throughout Asia including Hong Kong, Singapore, Taiwan and Thailand.  New licensees were also signed in Spain and Australia where there are now cumulatively more than 35 and 15 licensees, respectively.  

Sales of other family properties are trending well, with increased international sales of Ben & Holly's Little Kingdom, Tractor Tom and Humf during the period.

The development slate continues to advance with a number of offers in place in Canada and Australia on properties that are planned to go into production in mid-2013.

DISTRIBUTION

The Distribution division combines the Group's physical home entertainment wholesale business in Canada and the music and DVD distribution business in the US. 

The Canadian market continues to experience a decline in physical sales of DVD and, even though the business is increasing its market share, revenues in Canada were 10% lower than in the six months to September 2011.  Entertainment One remains the major DVD fulfillment business in the Canadian market and as such the Group believes that it will benefit from consolidation opportunities in the future. The US business delivered higher DVD sales over the prior period but lower music sales.  Overall US revenues were 4% behind the prior period.  The full year outlook remains broadly in line with management's expectations.

GROUP COSTS

Group costs at £1.8 million (2011: £1.9 million) before one-off items were in line with the prior period.

OTHER FINANCIAL INFORMATION

A summary of adjusted financial information is presented at reported exchange rates in order to provide more useful information to investors and excludes the following: one-off items, amortisation of acquired intangible assets, share-based payment charges and non-recurring items within net finance charges and tax.

Adjusted operating profit decreased by 46% to £12.2 million (2011: £22.5 million) reflecting the decrease in underlying EBITDA.  Adjusted profit before tax decreased 53% to £8.8 million (2011: £18.8 million).

One-off items

One-off items in the current period comprise costs relating to the acquisition of Alliance Films Holdings Inc.  Further costs are expected in the second half and once the acquisition closes.  Prior period one-off items related mainly to the strategic review of the business.

Amortisation of intangible assets and depreciation

Amortisation of intangible assets decreased from £8.0 million to £5.8 million due to certain intangible assets arising on business acquisitions in 2007 now being fully amortised.  Depreciation was in line with the prior period at £0.7 million (2011: £0.7 million).

Share-based payment charge

There were no new grants in the period and the share-based payment charge decreased from £0.8 million to £0.3 million. 

Net finance charges

Reported net finance charges decreased from £3.4 million to £3.1 million and on an adjusted basis from £3.7 million to £3.4 million mainly reflecting lower amortisation of deferred finance charges year-on-year.  The underlying net interest charge was broadly similar to the prior period due to similar average net debt levels in the period.

Tax

On a reported basis the Group's tax charge of £0.7 million represents an effective rate of 70% compared to 26% in the comparative period and 30% for the year to 31 March 2012. On an adjusted basis the effective rate is 27% compared to 25% in the comparative period and 26% in the year to 31 March 2012.  The adjusted effective rate for the full year is anticipated to be around 27%, broadly in line with management's expectations. 

Earnings per share

The reported diluted earnings per share was 0.1 pence (2011: 3.5 pence) reflecting a lower reported profit after tax of £0.3 million (2011: £7.3 million).  On an adjusted basis the diluted earnings per share was 3.1 pence (2011: 6.9 pence).

Financing and cash flow

Net debt balances at 30 September 2012 comprise the following:

Net debt was £12.3 million higher than at 30 September 2011 driven by a £11.1 million increase in Television production net debt due to the investment in programming in the last twelve months.

* Other non-current assets comprise property, plant and equipment and intangible software.

Cash flow from operating activities of £60.8 million was up 59% compared to £38.2 million in the prior period reflecting strong trading in the first half.  The Group invested £75.3 million in content rights and television programmes in the period, up 13% (2011: £66.6 million).  

Acquisition of subsidiaries of £0.3 million (2011: £6.3 million, net of cash acquired) represents final amounts payable relating to the acquisition of Hopscotch in the prior period.

Adjusted net debt

The adjusted net debt balance of £63.2 million is in line with the comparable period and up £19.1 million since the year end which represents funding of investment in content using the Group's rolling cash facility.   The amount available under the facility at 30 September 2012 was USD$199 million at prevailing exchange rates.

Television production net debt

Television production net debt was in line with 31 March 2012 levels. This financing is independent of the Group's senior credit facility and is not secured over all of the Group's assets.  It is attributable to the Television production companies within the Television business and represents shorter-term working capital financing that is arranged and secured on a production-by-production basis.

Financial position and going concern basis

The Group's net assets were £210.8 million at 30 September 2012 (31 March 2012: £211.7 million).  

The directors consider it appropriate to prepare the interim statements on the going concern basis, as set out in Note 2 to the condensed consolidated financial statements.

DIRECTORS' RESPONSIBILITY STATEMENT

The directors confirm to the best of their knowledge that:

(a)  the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and

(b)  the Interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Services Authority.

The directors of Entertainment One Ltd. are listed in the 2012 Annual Report.

By order of the Board,

Giles Willits

Chief Financial Officer and Company Secretary

12 November 2012

Condensed Consolidated Income Statement

for the six months ended 30 September 2012

All activities relate to continuing operations. All of the profit for the period is attributable to the owners of the ultimate parent company.

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2012

All of the total comprehensive (loss)/income for the period is attributable to the owners of the ultimate parent company.

Condensed Consolidated Balance Sheet

at 30 September 2012

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 September 2012

Condensed Consolidated Cash Flow Statement

for the six months ended 30 September 2012

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 September 2012

1.   General information

Entertainment One Ltd. and subsidiaries ("the Group") is a leading independent entertainment group focused on the acquisition, production and distribution of film and television content rights across all media throughout the world. Entertainment One Ltd. ("the Company") is the Group's ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 175 Bloor Street East, Suite 1400, North Tower, Toronto, Ontario, M4W 3R8. The Company has a standard listing on the London Stock Exchange.

These condensed consolidated interim financial statements ("interim financial statements") were approved for issue by the directors on 12 November 2012.

2.   Basis of preparation

Significant accounting policies

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union.

These interim financial statements have also been prepared in accordance with the accounting policies and methods of computation which the Group expects to adopt for the 2013 year end. These policies are consistent with the principal accounting policies which were set out in the Group's latest annual audited financial statements, which can be found on the Group's website, www.entertainmentonegroup.com.

There are no Standards, amendments to Standards or Interpretations that are both mandatory for the first time for the financial year ending 31 March 2013 and expected to have a material impact on the Group's results.

Use of additional performance measures

The Group presents one-off items, underlying EBITDA, adjusted profit before tax and adjusted earnings per share information. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms "one-off items", "underlying" and "adjusted" may not be comparable with similarly titled measures reported by other companies. The term "underlying EBITDA" refers to operating profit or loss excluding operating one-off items, share-based payment charges, depreciation and amortisation of intangible assets. The terms "adjusted profit before tax" and "adjusted earnings per share" refer to the reported measures excluding operating one-off items, amortisation of intangible assets arising on acquisition, one-off items relating to the Group's financing arrangements, share-based payment charges and, in the case of adjusted earnings per share, one-off tax items. 

Going concern

As part of their ongoing assessment of the Group and its future prospects the directors review regular updates to the forecasts and plans prepared by management. The most recent forecasts, which extend at least 12 months from the date of signing of this report and take account of reasonable possible changes in trading performance (and mitigating actions), show that the Group will be able to operate within the expected limits of its financing facilities and provide headroom against its banking covenants for the foreseeable future.

In addition, on 7 September 2012 the Group agreed to purchase the entire share capital of Alliance Films Holdings Inc. ("Alliance"). Completion of the acquisition is subject to certain conditions being met, including regulatory approval from the Canadian Competition Bureau. The directors expect completion within the timeframe required to be considered when assessing the going concern assumption. Should the acquisition successfully complete, the Group would need to pay consideration to the Alliance shareholders which will be financed by: (i) the proceeds from a share placing which successfully completed in October 2012 and (ii) a re-financing of its bank borrowings. At the date of authorisation of these interim financial statements, syndication of the re-financing, which is fully

2.   Basis of preparation (continued)

underwritten, had not been completed as this is scheduled to happen simultaneously with the completion of the acquisition. 

For the reasons set out above, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing these interim financial statements.

Other

These interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2012 which were prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee interpretations, as adopted by the European Union. 

These interim financial statements are unaudited but have been reviewed by the auditors and their review opinion is included at the end of these statements.

These interim financial statements are presented in pounds sterling, which is also the functional currency of the parent company. All values are shown in millions, rounded to the nearest one hundred thousand pounds, except when otherwise stated.

3.   Operating segments

For internal reporting and management purposes the Group is organised into two main reportable segments based on the types of products and services from which each segment derives its revenue - Entertainment and Distribution. These divisions are the basis on which the Group reports its operating segment information. The types of products and services from which each reportable segment derives its revenues are as follows:

·      Entertainment: the acquisition and exploitation of filmed entertainment and music rights across all media and the production of television content.

·      Distribution: the ownership of physical distribution channels to retailers in territories and media where the Group can capture additional margin and improve delivery of products to consumers.

Unaudited segment information for the six months to 30 September 2012 is as follows:

Unaudited segment information for the six months to 30 September 2011 is as follows:

1. Following a change in certain divisional management responsibilities, the intercompany trading relationship between the Entertainment and Distribution divisions in the US was changed on 1 April 2012, resulting in an increase in sales attributable to the Entertainment division. Accordingly, prior period segmental comparatives have been restated to match with the current period's presentation. Inter-segment sales within Entertainment have increased by £3.1 million which is offset by reductions of £0.3 million and £2.8 million being recorded within Distribution and Eliminations, respectively. Segment underlying EBITDA for Entertainment has decreased by £0.1 million which is offset by a corresponding increase in Distribution. There is no impact at the consolidated level.

4.   One-off items

(a)   Acquisition costs

In the six months ended 30 September 2012, the Group incurred £2.5 million of costs relating to the acquisition of Alliance. The remaining costs attributable to the acquisition are expected to be incurred in the second half of the current financial year.

Acquisition costs in the six months ended 30 September 2011 of £0.2 million related to the final costs of acquiring the Hopscotch group of companies.

(b)   Strategic review costs

In the year ended 31 March 2012 the Group undertook a strategic review, including consideration of a sale of the business. In the six months ended 30 September 2011, the Group incurred certain initial legal and corporate advisory charges as part of this review.

5.   Finance income and finance costs

6.   Tax

The reported effective income tax rate for the six months ended 30 September 2012 is 70.0% (30 September 2011: 25.5%). The rate is calculated by applying the estimated annual effective income tax rate by tax jurisdiction to the pre-tax profits and losses of each jurisdiction for the six month period. 

On an adjusted basis, the effective income tax rate for the six months ended 30 September 2012 is 27.3% (30 September 2011: 24.5%).

7.   Dividends

The directors are not recommending payment of an interim dividend (30 September 2011: £nil).

8.   Earnings per share

Basic earnings per share has been calculated by dividing the earnings attributable to shareholders by the weighted average number of shares in issue during the period after deducting treasury shares.

The adjusted basic earnings per share calculation is based on the basic earnings per share calculation after allowing for adjusted items. It is shown in order to highlight the underlying performance of the Group.

Diluted and adjusted diluted earnings per share have been calculated after adjusting the weighted average number of shares used in the basic and adjusted calculation to assume the conversion of all potentially dilutive shares.

Reconciliations of the profit and loss used in the basic and diluted earnings calculations to profit and loss used in the adjusted earnings per share calculations are set out below.

8.   Earnings per share (continued)

9.   Interest bearing loans and borrowings

The Group's net debt is as follows: