Highlights
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Strong underlying EBITDA performance: continued momentum in Family and Television, with an improved second half performance in Film and realised cost savings |
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Integration of the Film and Television Divisions progressing well, with the appointment of Mark Gordon as Chief Content Officer following the acquisition of the remaining stake in The Mark Gordon Company |
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Year-end adjusted net debt is anticipated to be under 2.0x underlying EBITDA, following the acquisition of the remaining stake in The Mark Gordon Company |
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Performance for the year has been in line with management expectations, consistent with trends highlighted in the Interim Results |
Operating Performance
Family momentum remains strong across key brands
The strong performance over the first six months of the financial year has continued into the second half. Reported revenues for the full year are anticipated to be around 50% higher than the prior year, with a similar trend in underlying EBITDA. Across Family & Brands there are now over 1,500 live licensing and merchandising contracts globally (2017: almost 1,100).
Peppa Pig continues to perform well in mature markets such as the UK and Australia, with significant demand for licensed products in China driving further growth in the period. This has been supported by nationwide broadcast on the CCTV network and through more than 45 billion views on Chinese video on demand (VOD) platforms and over 50 licensing partners now supporting the growth. In the US, expansion of the team and a continued investment in marketing continues to build the brand. In Japan, Peppa Pig debuted on TV Tokyo in October 2017, with a consumer product rollout to follow during 2018.
PJ Masks awareness and performance remain very strong on television and streaming services. Season two started airing on Disney Junior US in January 2018 to strong ratings and season three has been greenlit in the period, supporting further growth for FY19. The global consumer products rollout for the brand has continued successfully during the year, and is tracking ahead of expectations, driven by a strong toy line offering. Products were first launched in September 2016 in the US and continue to generate strong retail sales in the territory. In China, PJ Masks launched on three major VOD platforms (Tencent, iQiyi and Youku Tudou) in the period and a consumer product rollout is planned for FY19.
The Group has seen continued demand for its Family content from VOD platforms, with several premium deals being closed in the year covering key territories including the US, the UK and China.
Two new shows, Cupcake and Dino: General Services and Ricky Zoom, will make their broadcast debuts in FY19 and a new comedy series was greenlit in the period.
The second half saw the retail landscape affected by Toys R Us store closures in the US and UK. The Group expects there to be some impact for its brands in the short term and is monitoring the situation closely with its partners; this impact is not anticipated to be significant. Overall, eOne's brands performed well in Q4 2017 with strong sell-through outside of Toys R Us stores.
Another good year in Television
Television has had another good year with revenue growth across the business. Underlying EBITDA also grew, driven by a strong delivery pipeline of eOne original television series. It is currently anticipated that eOne's Television Division will deliver around 850 half hours of produced/acquired content for the full year.
eOne's scripted business delivered first seasons of new legal drama series Burden of Truth, police show The Detail and comedy Let's Get Physical. Returning shows delivered in the second half included second seasons of Ice, Ransom and Mary Kills People, second and third seasons of detective show Cardinal and the third season of comedy You Me Her.
The US unscripted business performed extremely well with delivery of Ex On The Beach to MTV, additional episodes of new hit show Siesta Keys and new seasons of franchises Naked and Afraid and Growing Up Hip Hop. Renegade 83 also produced and delivered the two-part docu-series Aaron Hernandez Uncovered on the former NFL New England Patriots star to the Oxygen Network.
The Mark Gordon Company ('MGC') generated continued revenue growth during the financial year and the studio continues to benefit from its library of television and film titles, with their relatively high margins, favourably contributing to both underlying EBITDA and cash flow generation.
In MGC's television business, revenue was primarily driven by Designated Survivor (currently in season two with an order of 22 episodes). During the period, MGC had five series airing on both US network and premium cable, all with continued strong viewership, including season twelve of Criminal Minds (renewed for season thirteen), season two of Criminal Minds: Beyond Borders, season five of Ray Donovan (renewed for season six), season two of Quantico (renewed for season three) and season thirteen of Grey's Anatomy (renewed for season fourteen) becoming the longest running scripted prime-time show currently airing on the ABC network. Also, the period saw a straight-to-series order by ABC of the Grey's Anatomy spinoff, Station 19, which premiered on 22 March 2018.
In addition to its existing TV programmes, MGC has numerous new television projects in production, including a new teen dramedy Youth & Consequences partnering with YouTube Red (premiered 7 March 2018). And MGC is currently in production, with a straight-to-series order from ABC, on The Rookie starring and executive-produced by Nathan Fillion, who formerly starred in Castle, which aired eight seasons on ABC – this project will be similar to Designated Survivor where eOne will handle all international distribution rights outside the US.
MGC also completed its first feature film Molly's Game which was distributed internationally by eOne across its territories and sold around the world by Sierra Pictures. Film titles in various stages of development and production include The Nutcracker and the Four Realms, Official Secrets and The Killer.
Music continued to grow its underlying EBITDA performance as a result of improved margins following the transition from physical to digital. In its Publishing and Music Supervision operations, the business continued to work in partnership with eOne television and film projects, including MAKEREADY's A Million Little Pieces, Ice(season two), Let's Get Physical, as well as supervising the music on the recent PJ Masks Live! tour and providing the theme song for the upcoming Ricky Zoom series in Family.
Strategic shift in Film continues
For the financial year just completed, the Group will have released 145 titles (2017: 172), with box office revenues down around 37% during the year as a result of lower volume and profile titles compared to the strong slate from the previous period. For the year as a whole, the Group is expecting overall revenue from its Film business to decrease as a result of both the declining volume of films released in the period, as well as the reduced contribution from related ancillary windows.
Against the current film market backdrop, where value is increasingly concentrated around blockbuster content from the major studios, the Group's Film businesses performed well during the second half. Key titles during the period included Molly's Game, Steven Spielberg's The Post from Amblin Partners and I, Tonya from Sierra Pictures (all of which received Oscar nominations). Other notable territorial box office successes included Wonder in Canada and Spain, Finding Your Feet in the UK and Australia and BAFTA nominated The Death of Stalin in the UK.
Looking ahead to the new financial year, the distribution pipeline is expected to be strong. Current planned releases from Amblin Partners include family adventure comedy The House With A Clock In Its Walls, starring Cate Blanchett and Jack Black, On The Basis Of Sex, a biopic of US Supreme Court Justice Ruth Bader Ginsburg, starring Felicity Jones and Army Hammer, and Green Book, a period drama starring Viggo Mortensen and Mahershala Ali. The Group will also distribute two films from distribution partner Annapurna Pictures: comedy-drama Where'd You Go Bernadette? (based on the best-selling novel and starring Cate Blanchett and Kristen Wiig) and Backseat, a comedy starring Christian Bale, Amy Adams and Steve Carrell, directed by The Big Short's Adam McKay.
As highlighted in the Interim Results, the Group has continued to reshape the Film business with realised cost savings and an increased focus on deep creative partnerships with the industry's highest quality film-makers, where it has more ownership and greater control over the content. Reflecting this strategic shift towards content production, five titles have commenced principal photography during the period. A Million Little Pieces, starring Aaron Taylor-Johnson, Charlie Hunnam and Billy-Bob Thornton is the first film from the Group's MAKEREADY venture with Brad Weston. Mary, starring recent Academy Award winner Gary Oldman, is a low-budget supernatural thriller genre, where eOne has enjoyed previous success with the Sinister and Insidious franchises. Official Secrets, starring Ralph Fiennes and Keira Knightley is directed by Gavin Hood, who also directed the eOne feature production Eye in the Sky. New films also include Sierra/Affinity's Haunt and Australian co-production Nekromancer. In addition to these recent starts, the Group expects production to continue to ramp-up as internal as well as partner development projects enter the packaging stage.
Darren Throop, Chief Executive, commented:
“Once again, Entertainment One has delivered a robust performance for the year with great momentum in both Television and Family. The repositioning of the Film business is progressing on track and we are well-placed to put a greater emphasis on a production model supported by strong content relationships.
The recent acquisition of the remaining stake in The Mark Gordon Company represents a major milestone for the Group, creating financial and strategic opportunities as we bring the Film and Television Divisions together into a single operating division. With top-tier new talent relationship opportunities coming to eOne, Mark Gordon's creative leadership further strengthens the Group's position in the creative industry.
Management anticipates that the full year performance for the Group to 31 March 2018 will be in line with its expectations.”
The Group expects to announce its results for the year ended 31 March 2018 on 22 May 2018. The Group will be adopting IFRS 15 – Revenue Recognition from 1 April 2018 and will provide further information on the impact of this adoption when it reports its Full Year Results.