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FFI Holdings Plc (ISE:FFI)

FFI Holdings Plc (ISE:FFI)


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FFI Holdings Plc RNS Release

Final Results for Film Finances, Inc.


RNS Number : 3928R
FFI Holdings PLC
21 September 2017
 

 

 

Press Release

                                                                                                                             

FFI Holdings PLC

 

("FFI Holdings" or "the Company")

 

Final Results for Film Finances, Inc. for the year ended 31 March 2017

 

 

FFI Holdings PLC (AIM: FFI), the world leader in the provision of completion contracts to the entertainment industry for films, television, mini-series and streaming product, is pleased to present audited non-statutory financial statements of Film Finances, Inc. (the "Group"), the predecessor company to FFI Holdings, for the year ended 31 March 2017.

 

Financial Highlights:

 

·      Group revenue up 9.1% to $38.8m (2016: $35.6m*).

·      Underlying EBIT of $12.7m, with Reported EBIT of $10.5m (2016: $3.0m).

·      Adjusted net income of $5.5m (2016: $1.9m).

·      First-time revenue contributions from editing and equipment rental following the acquisition of Pivotal Post late in the financial year (February 2017).

·      Successful IPO on AIM market raised net proceeds of approximately £26.5m on 30 June 2017.

 

FFI Holdings Trading Update:

 

·      Core Completion Contract business trading well, with continued growth in the first half of FY 2018.

·      Pivotal Post delivering significant growth through successful cross-selling from FFI's core business.

·      Binding LOI signed with a company engaged in duplication, authoring and production consulting for film and TV productions, with completion expected before calendar year end.

·      A number of other acquisition opportunities in advanced stages of negotiation, with several completions anticipated before calendar year end.

·      Successful creation of FFI Insurance, a Captive Insurer, offering the Company significant cost savings going forward.

·      New agreement with MS Amlin Underwriting Limited ("Amlin"), a long-term insurance partner and shareholder of FFI, which is working with FFI Insurance on operational implementation.

·      First Chinese completion contract quarterly payment received in June.

·      Photography of IMAX panda movie is complete and now in editing.

·      PICC agreement signed in June and the Company is working with its Chinese counterparts towards writing its first insurance business in China. 

 

 

Steve Ransohoff, CEO of FFI Holdings, commented: "The financial year to end-March 2017 saw continued growth across FFI's business. The Group has continued to trade well during the first six months of the current financial year and we remain on target to achieve the objectives we set out at the time of our IPO. Our first goal of creating an in-house, captive insurance platform has already been achieved and we are making good progress in diversifying our business beyond completion contracts through the development of complementary industry services and content acquisition strategies."

 

*Note: One of the Group's subsidiaries, Cashet Card, was disposed of in November 2016.  For comparative purposes, and in accordance with IFRS accounting principles, the Group's financial results for the fiscal year ended 31 March 2016 have been adjusted to present Cashet Card's contributions as if the operations had been discontinued for both financial years 2016 and 2017.

 

 

About FFI Holdings PLC

 

FFI Holdings PLC (AIM: FFI) is the holding company of Film Finances Inc. ("FFI"), the world's leading provider of completion contracts to the entertainment industry, which offer assurance to the financiers of film, TV, mini-series and online media content that productions will be completed on time and on budget. These contracts serve to offload risks to production budgets and timelines for financiers, as well as for FFI through long-standing insurance relationships.

 

Since its founding in the 1950s, FFI has issued contracts on approximately 1,700 productions with gross budgets in excess of US$17 billion. These include many of the film industry's best known-titles, ranging from the first Bond movie (Dr. No, 1962) to The Hunger Games (2012) and Oscar winning films such as 12 Years a Slave (2013) and La-La Land (2016).

 

Over successive decades FFI has grown globally to become a trusted, iconic brand at the centre of the film industry. Headquartered in Los Angeles, USA, it has 11 offices globally, including in London, Stockholm, Toronto, New York, Cape Town, Cologne and Shanghai.

 

 

ENQUIRIES:                                                                             

Hawthorn Advisors (Public Relations)                            FFI Holdings PLC

Andrew Orchard                                                             David Sasso, Head of Investor Relations

                       

+44 (0) 20 3745 4960                                                      +1 310 275 7323

 

Victoria Ainsworth

 

+44 (0) 20 3745 3815

 

 

Liberum (Nominated Adviser and Corporate Broker)  

 

Steve Pearce

Joshua Hughes

 

+44 (0) 3100 2000

 

 

 

 

 

Chief Executive's Statement

As Chief Executive Officer, I am pleased to be delivering the non-statutory annual report for Film Finances, Inc. ("FFI") in respect of the year ended 31 March 2017. In May 2017 FFI Holdings PLC ("FFI Holdings") was incorporated as a holding company of Film Finances Inc. ahead of FFI Holdings' initial public offering and listing on the AIM market of the London Stock Exchange in June of this year. 

FFI Holdings' IPO marked an important milestone for the Group. Founded in the UK over six decades ago in the formative years of the British film industry, listing in London saw FFI return to its UK roots and equip the Group for the considerable growth opportunities we see ahead of us.

Our public offering also served to draw attention to the important role the Group plays in the global entertainment production industry - a role hitherto not widely recognised. As the world-leader in the provision of completion contracts to the producers and financiers of films, television, mini-series and streaming product, FFI has played a pivotal role in unlocking finance for some of the best-known titles across film, TV and online media for over half a century. Having originally conceived the completion contract as a method of facilitating financing for the entertainment industry in the middle of the last century, FFI has gone on to grow this business globally and establish a dominant share of around 80% of the marketplace. This growth story was rooted in the UK before being commercialised in the US and is now taking its first steps into China, a market where we see tremendous growth opportunities over the longer-term.

Thanks to the efforts of its management team and its advisors, FFI's equity offering was highly successful, raising net proceeds for the company of £26.5m and providing capital for the next phase of our growth strategy. We have already delivered on one of our pledges to our new shareholders, successfully creating FFI Insurance Company; a captive insurance platform in Bermuda that will significantly reduce the costs of our core completion contracts business. In the meantime, we are continuing to pursue acquisition opportunities in ancillary services - a market which we view as ripe for consolidation and one where we have a natural advantage given the central role we play in the production cycle.

 

Financial Results of Film Finances, Inc.

Today Film Finances Inc., FFI Holdings' operating subsidiary, published its report and audited non-statutory financial statements for the year ended 31 March 2017. The principal tables and notes are set out at the end of this announcement and below is an extract from the director's report:

 

"The financial year to end-March 2017 saw continued growth across our business and a significant rise in year-on-year profits, helped by lower costs and other expenses.  Revenues grew by 9.1% during the financial year to $38.8m (2016: $35.6m). Significantly lower costs resulted in Underlying EBIT of $12.7m, Reported EBIT of $10.5m and reported pre-tax profits of $10.3m, a more than three-fold increase on 2016 ($3.1m). Excluding a one-time profit on discontinued operations of $2.8m, net income after tax for the period of $5.5m was up 183.1% versus 2016 ($1.9m.) 

 

One of the Group's subsidiaries, Cashet Card, was disposed of in November 2016.  For comparative purposes, and in accordance with IFRS accounting principles, the Group's financial results for the financial year ended 31 March 2016 have been adjusted to present Cashet Card's contributions as if the operations had been discontinued for both financial years 2016 and 2017.

 

 

 

Continuing operations (USD)

31 March 2017

YoY change (%)

Margin (%)

Revenue

38,812,125

9.1

 

Gross profit

30,321,575

15.6

78.1

Underlying EBIT *

12,744,599

119.7

32.8

Reported EBIT **

10,455,834

244.5

26.9

Pre-tax profit

10,295,939

232.4

26.5

After tax profit from continuing operations ***

5,777,498

204.1

14.9

Adjusted Net income***

5,450,365

183.1

14.0

 

 

 

 

 

* Reported EBIT adjusted for certain exceptional and lifestyle expenses

** Presented as "Operating profit" in the income statement

*** Adjusted to exclude one-time profit from discontinued operations of $2.8m

 

The majority of our revenues continued to be generated by FFI's completion contract business, where revenues grew 6.2% year-on-year. Pivotal Post contributed approximately one month's revenues from its acquisition date in February 2017). North America continued to dominate the geographical revenue mix of the business. No single customer contributed more than 10% of total revenues for the financial year."

 

 

 

 

For the year ended 31 March 2017

Completion Contracts

 

USD

Tax Credit Financing

 

USD

Editing Equipment Rental

USD

Group

 

 

USD

Total revenue

 37,564,994

 315,734

 931,397

 38,812,125

Gross profit

 29,493,805

 267,518

 560,252

 30,321,575

Operating Profit/(loss)

 9,968,935

 214,351

 272,548

 10,455,834

Finance income

 42,310

 -  

 

 42,310

Finance costs

 -  

 (202,205)

 

 (202,205)

Profit before taxation

 10,011,245

 12,146

 272,548

 10,295,939

 

 

2017

USD

2016

USD

Asia

 6,293

 44,212

Australia

 2,156,006

 1,772,009

Europe

 5,499,305

 4,504,001

Middle East & Africa

 130,771

 1,051,381

North America

 31,019,750

 28,198,387

 

 38,812,125

 35,569,990

 

FFI Holdings Trading Update

  • FFI's core Completion Contract business is trading well, with continued growth in the first half of FY2018.

 

  • The Group's editing equipment business Pivotal Post is delivering significant growth through the success of cross-selling and introductions from FFI's core Completion Contract business.

 

  • The Company has signed a binding LOI with a company engaged in duplication, authoring and production consulting for film and TV productions. The company is a Netflix preferred provider which greatly enhances FFI's growing business related to streaming productions. The Company expects to complete this transaction before calendar year end.  In addition, the Company is pursuing a number of other significant acquisition opportunities, several of which are also anticipated to complete before calendar year-end.

 

  • The Company successfully completed the creation of FFI Insurance, a Captive Insurer, offering the Company significant cost savings going forward. Additionally, FFI entered into a new agreement with MS Amlin Underwriting Limited ("Amlin"), a long-term insurance partner and shareholder of FFI, which has co-funded FFI Insurance and is working with the company on operational implementation.

 

  • Principal photography of the IMAX panda movie is now complete and in editing.

 

  • The Company received its first Chinese Completion Contract quarterly payment of $1.25m in June with the next quarterly payment expected to be received by the end of September per the contract terms. The PICC agreement was signed in June and the Company is working with its Chinese counterparts towards writing its first insurance business in China. 

 

Outlook

As we approach the half-way point of our current financial year, we have continued to trade well and anticipate the balance of the year delivering results in line with the Board's expectations. We have recently completed the formation of our captive insurance entity and continue to pursue acquisitions in ancillary services in support of the growth ambitions we set out in the IPO process. We remain positive on the opportunities afforded by China over the long term, where our company is in the formative stage of what we are confident will be a successful growth story. We also continue to pursue opportunistically the acquisition of content, both in China and elsewhere, where this complements our commercial objectives and the interests of our shareholders.

In closing, I would like to thank the management and staff of FFI for their tireless efforts and achievements this year. The execution of our initial public offering was the most visible of these but it is the everyday dedication of our people that forms the bedrock of our business and our ability to deliver these results. As a Board, and alongside our new shareholders, we look forward to supporting their continued success in the coming year and beyond.

 

 

Steve Ransohoff,

Chief Executive Officer

21 September 2017 

 

 

 

 

 

Film Finances, Inc. and Subsidiaries

 

 

 

Consolidated statement of comprehensive income

 

 

 

for the year ended 31 March 2017

 

 

 

 

 

2017

2016

 

 

USD

USD

Continuing operations

 

 

 

Revenue

3

 38,812,125

 35,569,990

Costs related to revenue

4

 (8,490,550)

 (9,333,812)

Gross profit

 

 30,321,575

 26,236,178

 

 

 

 

Administrative and other expenses

5

 (18,853,329)

 (22,258,666)

Exceptional costs

5

 (1,894,445)

 (970,956)

Other income

 

 924,666

 305,677

Other expense

 

 (42,633)

 (277,103)

Operating profit

 

 10,455,834

 3,035,130

 

 

 

 

Finance income

6

 42,310

 9,844

Finance costs

6

 (202,205)

 (41,964)

 

 

 10,295,939

 3,003,010

 

 

 

 

Net profit from joint venture

11

 -  

 94,822

Profit before taxation

 

 10,295,939

 3,097,832

 

 

 

 

Taxation

7

 (4,518,441)

 (1,198,206)

Profit for the year from continuing operations

 

 5,777,498

 1,899,626

 

 

 

 

Discontinued operations

 

 

 

Profit for the year from discontinued operations

31

 2,844,697

 87,971

Profit for the year

 

 8,622,195

 1,987,597

 

 

 

 

Total profit for the year attributable to:

 

 

 

     Owners of the Company

 

 8,429,493

 2,031,085

     Non-controlling interest

15

 192,702

 (43,488)

 

 

 8,622,195

 1,987,597

Other comprehensive income, net of income tax

 

 

 

Exchange difference on translating foreign

   operations attributable to Owners of the Company

 (307,070)

 25,275

 (307,070)

 25,275

Exchange difference on translating foreign

   operations attributable to non-controlling interests

 (20,063)

 394

Total comprehensive income for the year

 

 8,295,062

 2,013,266

 

 

 

 

Total comprehensive income attributable to:

 

 

 

     Owners of the Company

 

 8,122,423

 2,056,360

     Non-controlling interest

15

 172,639

 (43,094)

 

 

 8,295,062

 2,013,266

 

 

 

 

The notes on pages 5 to 29 are an integral part of these consolidated financial statements. 

 

 

 

 

 

 

 

 

Film Finances, Inc. and Subsidiaries

 

 

 

Consolidated statement of financial position

 

 

 

as at 31 March 2017

 

 

 

 

 

31 March

31 March

 

 

2017

2016

 

 

USD

USD

Assets

 

 

 

Non-current

 

 

 

Goodwill

9

 9,871,423

 8,540,934

Intangible assets

10

 5,472,988

 816,666

Investment in a joint venture

11

 -  

 216,044

Investment

12

 283,113

 283,113

Other non current assets

13

 741,279

 579,371

Property, plant and equipment

14

 2,957,436

 572,858

Deferred tax assets

7

 646,079

 1,723,823

Non-current assets

 

 19,972,318

 12,732,809

 

 

 

 

Current

 

 

 

Trade and other receivables

17

 12,164,786

 7,341,877

Other current assets

18

 4,428,372

 2,826,691

Restricted cash

19

 40,397,215

 43,859,558

Cash and cash equivalents

20

 13,146,871

 14,928,784

 

 

 70,137,244

 68,956,910

Assets classified as held for sale

16

 216,044

 -  

Current assets

 

 70,353,288

 68,956,910

Total assets

 

 90,325,606

 81,689,719

 

 

 

 

Equity and liabilities

 

 

 

Equity

 

 

 

Share Capital

27

 -  

 -  

Share premium

27

 109,500

 109,500

Retained Earnings

 

 17,670,842

 12,358,988

Total equity attributable to owners of the Company

 

 17,780,342

 12,468,488

Non-controlling interests

 

 139,120

 (25,859)

Total Equity

 

 17,919,462

 12,442,629

 

 

 

 

 

 

Liabilities

 

 

 

Non-current

 

 

 

Borrowings

21

 590,163

 -  

Other payables

30

 1,709,000

 -  

Deferred tax liabilities

7

 4,667,661

 4,720,696

Non-current liabilities

 

 6,966,824

 4,720,696

 

 

 

 

Current

 

 

 

Trade and other payables

22

 21,737,427

 19,737,527

Income tax payable

 

 1,287,635

 140,055

Payables to production

19

 36,265,379

 39,785,808

Provision for losses

23

 777,246

 457,632

Borrowings

21

 5,371,633

 4,405,372

Current liabilities

 

 65,439,320

 64,526,394

Total liabilities

 

 72,406,144

 69,247,090

Total equity and liabilities

 

 90,325,606

 81,689,719

 

 

 

 

The notes on pages 5 to 29 are an integral part of these consolidated financial statements. 

 

 

 

 

The financial statements on pages 1 to 29 were approved by the Board of Directors on 20  September 2017 and signed on its behalf by:

 

 

 

 

Steven A. Ransohoff                Director

 

 

 

 

 

 

 

 

Film Finances, Inc. and Subsidiaries

 

 

 

Consolidated statements of cash flows

 

 

 

for the year ended 31 March 2017

 

 

 

 

 

2017

2016

 

 

USD

USD

Cash flows from operating activities

 

 

 

Profit before taxation including discontinued operations

 

 13,140,636

 3,185,803

Adjustments for:

 

 

 

Depreciation

14

 214,770

 153,923

Amortisation of intangible assets

10

 82,694

 66,667

Finance costs

 

 202,205

 41,964

Profit on disposal of subsidiary

31

 (2,810,569)

 -  

Net foreign exchange (gain)/loss

 

 (327,133)

 25,669

 

 

 10,502,603

 3,474,026

Increase in working capital:

 

 

 

(Increase)/decrease in restricted cash

19

 (58,086)

 1,076,570

Increase in accounts receivable

17

 (920,128)

 (1,437,902)

(Increase)/decrease in other assets

 

 (1,686,628)

 408,204

(Decrease)/increase in trade and other payables

22

 (717,149)

 32,718

Increase/(decrease) in provision for losses

23

 319,614

 (1,036,054)

Increase (decrease) in deferred revenue

22

 1,510,019

 (1,011,900)

Cash generated from operations

 

 8,950,245

 1,505,662

Interest paid

 

 (202,205)

 (41,964)

Income taxes paid

 

 (2,013,859)

 (4,213,743)

Net cash generated from/(used in) operating activities

 

 6,734,181

 (2,750,045)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of intangible assets

10

 (2,989,016)

 -  

Purchase of property, plant and equipment

14

 (260,167)

 (395,083)

Payment to invest in joint venture

11

 -  

 (129,614)

Dividends received from joint venture

11

 -  

 176,095

Loan amounts advanced to employees

17

 (4,862,113)

 (237,366)

Loan repayments by employees

17

 1,867,030

 190,325

Amounts advanced to non-controlling interests

 

 -  

 (125,983)

Repayments by non-controlling interests

 

 -  

 125,000

Net cash outflow on acquisition of subsidiary

30

 (3,016,503)

 -  

Net cash used in investing activities

 

 (9,260,769)

 (396,626)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from capital contributions from non-controlling interests

 -  

 21,930

Distribution of capital to non-controlling interests

 

 (7,660)

 (348,202)

Proceeds from borrowings

21

 5,157,707

 4,405,372

Repayment of borrowings

21

 (4,405,372)

 (300,000)

Decrease in restricted cash collateral for credit facility

 

 -  

 950,000

Dividends paid to owners of the Company

8

 -  

 (2,420,000)

Net cash generated by financing activities

 

 744,675

 2,309,100

 

 

 

 

Net decrease in cash and cash equivalents

 

 (1,781,913)

 (837,571)

Cash and cash equivalents at the beginning of the year

20

 14,928,784

 15,766,355

Cash and cash equivalents at the end of the year

20

 13,146,871

 14,928,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film Finances, Inc. and Subsidiaries

 

 

 

 

 

Consolidated statements of changes in equity

 

 

 

for the year ended 31 March 2017

 

 

 

 

 

Share

Treasury

Foreign

Retained

Non-

Total

 

capital and

shares

exchange

earnings

controlling

equity

 

share premium

 

attributable to

attributable to

interest

 

 

attributable to

 

owners of the

owners of the

 

 

 

owners of the

 

Company

Company

 

 

 

Company

 

 

 

 

 

 

USD

USD

USD

USD

USD

USD

Balance at 31 March

   2015

 109,500

 -  

 (42,572)

 12,765,200

 343,507

 13,175,635

Profit/(loss) for the period

 -  

 -  

 -  

 2,031,085

 (43,488)

 1,987,597

Other comprehensive

   income for the period

 -  

 -  

 25,275

 -  

 394

 25,669

Total comprehensive

   income for the period

 -  

 -  

 25,275

 2,031,085

 (43,094)

 2,013,266

Contribution of capital from

   non-controling interests

 -  

 -  

 -  

 -  

 21,930

 21,930

Dividends

 -  

 -  

 -  

 (2,420,000)

 -  

 (2,420,000)

Distribution of capital to

   non-controlling interests

 -  

 -  

 -  

 -  

 (348,202)

 (348,202)

Balance at 31 March

   2016

 109,500

 -  

 (17,297)

 12,376,285

 (25,859)

 12,442,629

Profit for the period

 -  

 -  

 -  

 8,429,493

 192,702

 8,622,195

Other comprehensive

   income for the period

 -  

 -  

 (307,070)

 -  

 (20,063)

 (327,133)

Total comprehensive

   income for the period

 -  

 -  

 (307,070)

 8,429,493

 172,639

 8,295,062

Distribution of capital to

   non-controlling interests

 -  

 -  

 -  

 -  

 (7,660)

 (7,660)

Acquisition of own shares

   into treasury

 -  

 2,810,569

 -  

 (2,810,569)

 -  

 -  

Cancellation of shares

 -  

 (2,810,569)

 -  

 -  

 -  

 (2,810,569)

Balance at 31 March

   2017

 109,500

 -  

 (324,367)

 17,995,209

 139,120

 17,919,462

 

 

Film Finances, Inc. and Subsidiaries

Notes to the non-statutory financial statements


1.  General Information

Film Finances, Inc. (the Company) was incorporated in California on 16 June 1982 and is domiciled in the USA.  The address of its registered office and principal place of business is 9000 Sunset Boulevard, Suite 1400, Los Angeles, CA 90069.  The principal activities of the Company and its subsidiaries (the Group) is to provide completion contracts to financial lenders and distributors in connection with the production of motion picture films and television content.  Completion contracts guarantee that a particular film will be completed within specific time and budget constraints.  In such circumstances, the Group's completion contract acts as a form of guarantee for film production.

 

2.  Significant Accounting Policies and Basis of Preparation

(a)    Basis of preparation

The Group non-statutory financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and International Reporting Interpretations Committee (IFRIC) interpretations (collectively IFRSs) as adopted for use in the European Union and as issued by the International Accounting Standards Board.

The non-statutory financial statements have been prepared under the historical cost convention, unless otherwise stated in the accounting policies.  The Group's principal accounting policies have been applied consistently throughout the year.

The following Standards and Interpretations, relevant to the Group's operations that have not been applied in the financial statements, were in issue but not yet effective or endorsed (unless otherwise stated):

IFRS 9 'Financial Instruments'

Another version of IFRS 9 'Financial Instruments' was issued in July 2014 and becomes effective from 1 January 2018 with early adoption permitted.  The key changes include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a 'fair value through other comprehensive income' (FVTOCI) measurement category for certain simple debt instruments. 

Based on the analysis of the Group's financial assets and liabilities as at 31 March 2017 on the basis of the facts and circumstances that exist at that date, the directors of the Company have assessed the impact of IFRS 9 to the Groups consolidated financial statements to be immaterial. 

IFRS 17 'Insurance Contracts'

IFRS 17 'Insurance Contracts' becomes effective from 1 January 2021.   IFRS 17 replaces IFSR 4 'Insurance Contracts'. 

The Group is currently in the process of assessing the impact of IFRS 17 on the financial statements. 

IFRS 15 'Revenue from contracts with customers'

IFRS 15 'Revenue Recognition' becomes effective from 1 January 2018.  Revenue arising from insurance contracts is outside the scope of IFRS 15.  The impact on the recognition of revenue from other services delivered to customers by the Group is expected to be insignificant. 

IFRS 16 'Leases'

In January 2016, the IASB issued IFRS 16 'Leases' to replace the existing standard IAS 17, which will be effective from 1 January 2019 but with earlier adoption permitted. 

The main change under IFRS 16 is that it requires the recognition of the lease obligations, together with an asset representing the right to the use of the leased asset during the term of the lease.  Under IAS 17, for leases qualifying as operating leases, the lease obligations are not recognised in the statement of financial position. 

The Group is currently in the process of assessing the impact of IFRS 16 on the financial statements.  The undiscounted value of the Group's operating lease obligations is disclosed in note 24. 

Other Pronouncements

There are a number of amendments to IFRS that have been issued by the IASB that became mandatory during 2018 or in a subsequent accounting period.  The Group has evaluated these changes and none are expected to have a significant impact on the consolidated financial statements. 

 

(b)     Going Concern

The Group has generated a profit before taxation on continuing activities as well as a profit after taxation for the comparative financial period.  After reviewing the Group's performance and forecasted future cash flows, the Directors consider the Group has adequate resources to continue in operational existence for the foreseeable future.   The Group therefore continues to adopt the going concern basis in preparing the Group's non-statutory financial statements. 

 

(c)    Basis of consolidation

These financial statements include the accounts of the Company and all of its subsidiary undertakings.  Subsidiaries are all entities over which the Company has control.  The Company controls an entity when the Company is exposed to, or has the right to, variable returns from its involvement with the entity, and has the ability to affect those returns through its power over the entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the Company and are de-consolidated from the date that control ceases. 

(c)    Basis of consolidation (continued)

The Group uses the acquisition method of accounting to account for business combinations.  The consideration transferred in a business combination is measured as the fair value of the assets given, equity instruments issued and liabilities incurred to former owners of the acquiree at the date of acquisition. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, irrespective of the extent of any non-controlling interest.  The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. 

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the considerations transferred in the business combination.  Changes in the fair value of the contingent considerations that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill.  Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. 

Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss. 

Acquisition related costs are generally recognised in profit or loss as incurred. 

Intercompany transactions, balances and unrealised gains are eliminated upon consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 

(d)     Foreign currencies

US Dollar (USD) is the functional currency of the Company and the presentational currency of the Group.  The functional currency of the subsidiaries is the local currency of the primary economic environment in which the entity operates. 

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction.  Foreign exchange gains or losses on monetary assets and liabilities denominated in foreign currencies resulting from the settlement of such transactions and from the translation to the rate prevailing at the year end are recognised in the income statement.   

The financial statements of subsidiaries whose functional currency is different to the presentational currency of the Group are translated into the presentational currency of the Group on consolidation. Assets and liabilities are translated at the exchange rate prevailing at the end of each reporting period.  Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the dates of the transactions are used.  Exchange differences arising on consolidation are recognised in other comprehensive income and accumulated in equity. 

The gain or loss on a subsequent disposal of any foreign operation shall exclude translation difference that arose before the date of transition to IFRSs and shall include later translation differences. 

(e)     Investment in joint venture

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement.  Joint control is the contractually agreed sharing of control of an arrangement, which exist only when decisions about the relevant activities require unanimous consent of the parties sharing control. 

The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting.  Under the equity method, an investment in a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the joint venture.  When the Group's share of losses of a joint venture exceeds the Group's interest in that joint venture, the Group discontinues recognising its share of further losses. 

An investment in a joint venture is accounted for using the equity method from the date on which the investee becomes a joint venture.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group's investment in a joint venture.  When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 Impairment of assets as a single asset by comparing its recoverable amount with its carrying amount.  Any impairment loss recognised forms part of the carrying amount of the investment.  Any reversal of that impairment loss recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be a joint venture, or when the investment is classified as held for sale. 

(f)     Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.  This condition is regarded as met only when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset and its sale is highly probable.  Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. 

(f)     Non-current assets held for sale (continued)

When the Group is committed to a sale plan involving disposal of an investment in a joint venture, the investment that will be disposed of is classified as held for sale when the criteria described above are met, and the Group discontinues the use of the equity method in relation to the portion that is classified as held for sale.

Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. 

(g)     Revenue recognition

Revenue comprises the fair value of the consideration received or receivable from services, provided by the Group in the ordinary course of the Group's activities:

Completion Contracts

Services include fees from completion bond contracts.  These bond contracts provide a completion guarantee to financiers for the completion and delivery of a film or other production.  The Group must monitor each production through each stage of completion and the Group has the ability to take over production if budgets and schedules are not properly adhered to.  As such, revenue is recognised rateably over the separate production stages of each project.

Editing Equipment Leasing

Revenue from film editing equipment and editing suite rentals are structured as weekly rentals and the related revenue is recognised on a weekly basis during the rental period, using the accrual method of accounting.  Rental revenue is derived from different clients each year, with the majority of revenue being earned from rentals for feature film clients and the minority coming from television clients.

Tax Credit Financing

Revenue from tax credit financing activities is recognised as the excess tax credits received after repayment of borrowings and company advances, if any. 

Credit Card Fees

Revenue from fees earned on credit card spending is recognised as it is earned.  The fee amounts are based on the amount of spending on each credit card. 

(h)     Goodwill

Goodwill represents the excess of consideration over the fair value of the Group's share of the identifiable net assets acquired at the date of acquisition.  Goodwill is carried at cost less accumulated impairment losses.  Impairment losses are recognised in the income statement and cannot subsequently be reversed. 

For the purpose of impairment testing, goodwill is allocated to cash-generating units ("CGUs").  The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.  

The carrying value of goodwill for each CGU is reviewed annually for impairment, or more frequently when there is an indication that the unit may be impaired.  An impairment loss is recognised for the amount by which the assets carrying amount exceeds it recoverable amount.  The recoverable amount is the higher of an assets fair value less costs to sell and its value-in-use. 



(i)     Intangible assets

Intangible assets acquired in a business combination are recognised at fair value at the acquisition date.  Identified intangible assets acquired as part of a business combination are customer relationships, trade names, and non-competition agreements.  These intangible assets have a finite useful economic life and are carried at cost less accumulated amortisation and accumulated impairment losses.  Amortisation is recognised on a straight-line basis over the expected life of the asset. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Customer Relationships                          12 - 15 years

Trade Names                                           5 years

Non-competition Agreements                  6 years

Intangible assets acquired as part of a business combination are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable.  An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset's fair value less costs to sell and its value-in-use.  Intangible assets acquired as part of a business combination that have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.  Impairment losses and reversal of impairment losses are recognised in the income statements. 

Intangible assets include acquired film distribution rights.  These intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses.  Amortisation is recorded in line with actual revenue recognized in the period over the total projected revenue.  Impairment losses are recorded in the event that the present value of future proceeds is less than the carrying cost.  As at 31 March 2017, the Group has one acquired film distribution rights deal with an expected life of 12 months beginning from September 2017. 

Intangible assets include capitalised film production costs.  The group is currently producing a documentary film slated for distribution in late 2017.  All film costs are capitalised and included within intangible assets.  The balance is amortised in line with actual revenue recognised in the period over total projected revenue.  The film is projected to have a life of approximately 10 years.  Impairment losses are recorded in the event that the present value of future proceeds is less than the carrying cost.  No revenues have been recognised in the current year. 

(j)     Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.  Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.  Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method.  Leasehold improvements are amortised over the lives of the respective leases or the service lives of the improvements, whichever is shorter.  The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. 

Editing Equipment                                    5 years

Fixtures and Fittings                                5 - 7 years

Leasehold Improvements                        5 - 15 years

Property, plant and equipment is reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Any property, plant and equipment that has suffered an impairment is reviewed for possible reversal of the impairment at each reporting date.

(k)     Leases

Leases in which a significant portion of risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases.  Payments, including prepayments, made under operating leases (net of any incentives from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

The Group as a lessor

Rental income from short-term operating leases relating to the rental of editing equipment is recognised on a straight-line basis over the term of the relevant lease.  Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. 

(l)     Current and deferred taxation

Tax on the profit or loss for the year comprises current and deferred tax.  Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. 

 

Current tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date.  Management periodically evaluates positions taken in tax returns with respect to situations in which the applicable tax regulation is subject to interpretation.  It established provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.  The Group recognises deferred tax liabilities and assets for expected future income tax consequences of events that have been recognised in the Group's financial statements, which will either be taxable or deductible when the assets and liabilities are recovered or settled and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised. 

(m)     Borrowing costs

Borrowing costs are expensed in the period in which they are incurred and reported in finance costs.  Arrangement and facility fees are capitalised with the borrowings and amortised over the life of the arrangement. 

(n)     Employee benefits

The Group sponsors a 401(k) plan for all eligible employees.  All US resident employees are eligible to participate in the plan after reaching the age of 21 and completing six months of service with the Group.  Employees may defer compensation up to the limits prescribed by the US Internal Revenue Code.  The plan provides for an employer matching contribution of 100 percent for the first 3 percent of the employee's salary. 

The Group also pays for certain health and pension benefits for its employees in the UK, China, Sweden and Canada. 

(o)     Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provisions of the instrument. 

Financial assets and financial liabilities are initially measures at fair value.  Transaction costs that are directly attributable to the acquisition or issue of financial asset and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.  Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 

(p)     Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.  This condition is regarded as met only when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset and its sale is highly probable. 

(p)     Non-current assets held for sale (continued)

Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. 

Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. 

(q)     Financial assets

Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held to maturity' investments, 'available for sale' (AFS) financial assets,  and 'loans and receivables.'  The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.  All regular purchases or sales of financial assets are recognised and derecognised on a trade date basis.  Regular purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. 

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums and discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  Loans and receivables (including accounts and other receivables, bank balances and cash are measured at amortised cost using the effective interest method, less any impairment.

 

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period.  Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. 

For available for sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. 

For certain categories of financial assets, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assets not to be impaired individually. 

(r)     Financial liabilities

Financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method.

(s)     Accounts and other receivables

Trade receivables

The Group records as accounts receivable amounts primarily related to the outstanding fees on the short-term leases of editing equipment.  The Group also records accounts receivable amounts related to completion contract fees not yet received as of the consolidated balance sheet date and receivables related to future tax credits on productions.  These tax credits are usually collateral on loans that are used to provide financing to productions. 

Advances

The Group records as advances amounts paid to productions to fund certain costs incurred to complete and deliver the particular film when the amounts paid are recoverable from existing sources of production funding. 

Insurance receivable

The Group records an insurance receivable related to losses incurred on completion contract in excess of $500,000, the Group's deductible amount.  The Group provides periodic updates on the latest claims positions to the insurers.  Any claims in excess of $500,000 are reimbursed by the insurer in accordance with the insurance policies. 

Rebate receivable

Potential rebates consist of profit commissions in the form of cash due from underwriters as well as the release of insurance premiums held in escrow. Rebates are accrued throughout the year based on the difference between the provisional insurance premium and the final premium plus any claims incurred in excess of $500,000.  The insurance company calculates rebates annually, no later than 15 months following the expiration of the policy period.  Rebates are recorded as a reduction to the insurance expense. 

(t)     Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into know amounts of cash and which are subject to an insignificant risk of changes in value.

(u)     Restricted cash

The Group, acting in a fiduciary capacity on behalf of certain financiers of films, receives cash that is restricted in use for the production of films.  The Group is required to fund the production of the related films according to the production funding agreement.  The Group records this cash received as restricted cash, with a corresponding payable to productions. 

Restricted cash also includes insurance premiums held in escrow in connection with rebate conditions of the Group's insurance policy and amounts used to collateralise one of the Group's credit facilities.  The escrow funds will be released with the annual insurance rebate in the event that actual claims experience is less than certain stipulated levels. 

(v)     Accounts and other payables

Accounts payable and accruals

The Group's liabilities include trade and other payables.  Liabilities are measured at amortised cost using the effective interest method. 

No claim bonuses payable

Certain completion contracts written by the Group provide for the return of a portion of the bond fee in the event that no claims are made against the contract.  A liability is accrued for a no-claim bonus when the completion contract is consummated and paid upon the determination that no claims will be made on a specific contract.  If a claim is made, any no-claim bonus liability is recognised as income. 

 

Insurance payable

Completion contracts written by the Group are insured through a syndicate led by Lloyds, a UK based specialist insurance market.  Film projects are insured on a title-by-title basis, for which the Group is assessed premiums based upon a sliding scale subject to certain deductibles and stop-loss provisions.  Insurance premiums are due 45 days following the end of a month in which a completion contract is executed.  The Group's facultative insurance policy has been historically renewed on an annual basis.  Neither the Group nor the insurers are under obligation to renew the policies at their annual policy renewal date.  If such policies were not renewed and a new insurance company was not secured, the impact might be significant to the operation of the Group. 

The Group has used the same insurance provider for many years and has not had an issue renewing the policy.  The Group has renewed the policy through 30 September 2017 and has recently effected revised insurance arrangements. 

(w)  Prepaid expenses

Included in prepaid expenses are prepaid Insurance costs.  Insurance costs related to each project are deferred and recognised over the period of the contract. These costs are released in line with the recognition of revenue. 

(x)   Provision for losses

In accordance with any completion contract entered into, the Group may incur costs to complete and deliver a particular film in the event a counter party to the completion agreement fails to do so.  All completion contracts are insured with a maximum deductible of $500,000 for each claim incurred on insured completion contracts, however the insurance policies also allow the insurer to claw back a portion of claims paid in excess of $500,000 against certain layers of insurance rebates due to the Group. The Group may receive recoveries of losses from the exploitation of the film subject to the completion bond contract.  Such recoveries are recognised as a reduction of costs related to revenue when received.

In connection with this reserve, management performs an evaluation of periodic production accounting reports, visitation during various stages of production, and communication with various personnel associated with the production of the film.

(y)     Areas of significant management judgment

The following are significant management judgments made in applying the accounting policies of the Group that have the most significant effect on the historical financial information. 

Recognition of revenues from completion contracts

The Group takes on risk as soon as the contract is executed, and the incurred risk follows production spending throughout the stages of the project.  Determining when to recognise revenues from these completion contracts in line with the risk incurred requires an understanding of the budget, contracts, historical experience, and knowledge of the industry. 

Recognition of deferred tax assets

The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group's future taxable income against which the deferred tax assets can be utilised.  In addition, significant judgment is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. 

Classification of EP Financial Solutions as a joint venture

EP Financial Solutions is a limited liability company whose legal form confers separation between the parties to the joint arrangement and the company itself.  Furthermore, there is no contractual arrangement or any other facts and circumstances that indicate that the parties to the joint arrangement have rights to the assets and obligations for the liabilities of the joint arrangement.  Accordingly, EP Financial Solutions was classified as a joint venture of the Group.  In the current year the investment is classified as held for sale.  See note 16 for details.

Insurance Rebates

The Group is entitled to insurance rebates if the actual claims are less than certain stipulated levels within the insurance policy.  The insurance company calculates rebates 15 months following the expiration of the policy period.  The Group must then calculate the insurance rebate to be received each period based on the actual claims for each contract and the stipulated levels within the insurance contract. 

Provision for losses

The Group will calculate a provision for losses as soon as the loss is probable and estimable.

Control over Panda Productions, LLC

Note 15 describes that Panda Productions, LLC is a subsidiary of the Group even though the Group has nil ownership interest in Panda Productions, LLC.  Panda Productions, LLC is an investment that was entered into by key management personnel.  The key management personnel own 50% of the investment and has direct control over its dealings.  The key management personnel have assigned all Panda Productions, LLC proceeds to the Group. 

The Directors of the Group assessed whether or not the Group has control over Panda Productions, LLC based on whether the Group has the practical ability to direct the relevant activities of Panda Productions, LLC unilaterally.  In making their judgement, the directors considered the Group's absolute holdings in Panda Productions, LLC and the relative size of the dispersion of the shareholdings owned by the other investor.  After assessment, the directors concluded that the Group has sufficiently dominant voting interest to direct the relevant activities of Panda Productions, LLC and therefore the Group has control over Panda Productions, LLC.  If the directors had concluded that the Group did not have control, Panda Productions, LLC would instead have been classified as an associate and the Group would have accounted for it using the equity method of accounting. 

Control over DSK Ventures Limited

Note 15 describes that DSK Ventures Limited is a subsidiary of the Group even though the Group has nil ownership interest in DKS Ventures Limited.  DSK Ventures Limited provides tax credit financing deals.  There is an agreement in place between DSK Ventures Limited and KSD Holdings LLC that assigns all profits from DSK Ventures Limited to KSD Holdings LLC.  The tax credit financing deals are actively managed by DSK Ventures Limited and the Group. 

The Directors of the Group assessed whether or not the Group has control over DSK Ventures Limited based on whether the Group has the practical ability to direct the relevant activities of DSK Ventures Limited unilaterally.  In making their judgement, the directors considered the Group's absolute holdings in DSK Ventures Limited and the overall dispersion of the profits.  After assessment, the directors concluded that the Group has sufficiently dominant voting interest to direct the relevant activities of DSK Ventures Limited and therefore the Group has control over DSK Ventures Limited.  If the directors had concluded that the Group did not have control, DSK Ventures Limited would instead have been classified as an associate and the Group would have accounted for it using the equity method of accounting.

Fair value of shares received on Realta Production Group, Inc. disposal

In consideration for its disposal of Realta Production Group, Inc. the Group received 542 shares in the Company.  The fair value of these shares of $2,810,564 was determined with reference to a comparable market transaction which occurred at the same time and the directors consider this an appropriate basis. 

(z)     Key sources of estimation uncertainty

Revenue recognition

In order to recognise revenue within the time period of each stage of the contract, the Group utilises a ratio equal to the actual days incurred over the budgeted number of days within each stage multiplied by the percentage of the bonded budget allocated to the stage.  Determining what percentage of revenue should be recognised at the different stages of each contract requires an estimation of the breakdown of the bonded budget expenditures over the contractually covered stages of each contract.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated.  The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.  Where the actual cash flows are less than expected, a material impairment loss may arise.  No impairment losses have been recognised to date. 

Valuation of intangible assets

To determine the fair value of acquisition related intangible assets valuation techniques were adopted.  These techniques use a variety of estimates, including expected future results and projected future cash flows, which are discounted using appropriate discount rates. 

Useful lives of assets

The expected lives of intangible assets are estimated based on operational experience and the expectations that the customer relationships, trade names, and non-competition agreements will continue to provide additional synergies to the Group.  Should any circumstances arise that would shorten the overall life, the carrying value of the asset may require adjustment. 

Provision for losses

Reserves for losses represent management's estimate of the amount of expected costs associated with the completion of films, which includes the estimated deductible for claims on insured contracts.  The resulting reserve for losses liability is periodically reviewed, and any adjustments are reflected in earnings at that time.

Rebate receivable

The expected rebate receivable is estimated based on management experience and historical evidence.

Deferred tax

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.  This assessment relies on estimates and assumptions and may involve a series of judgment about future events.  New information may become available that caused the Group to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact tax expense in the period that such determination is made. 

Carrying amount of assets and liabilities

The Group believes the overall carrying amounts of those assets and liabilities where there is estimation or uncertainty are properly stated.  In particular, the provision for losses and the contingent consideration recognised as part of the business combination.  See note 23 for more information on provision for losses.  See note 30 for more information on the contingent consideration. 

3.  Segmental Information

For management purposes, the Group is organised into four operation segments; FFI, Cashet Card (now discontinued), KSD Holdings, and Rainbow Production Services.  These segments are the basis on which the Group reports internally to the Directors, who have been identified as the chief operating decision makers. 

Revenue and costs not included in one of these operating segments, for example central overheads, have not been allocated to an operating segment in line with the way they are reported to the chief operating decision makers. 

The principal activities of the operating segments are as follows:

FFI: Completion Contracts

The main segment of the Group is to provide completion contracts to financial lenders and distributors in connection with the production of motion pictures films and television content.

Cashet Card: Credit Card Fees

Cashet Card facilitates the issuance of credit cards sponsored by MasterCard.  Cashet Card is able to offer bulk purchasing discounts and earns fees on the transactions.  Cashet Card was owned by Realta Production Group, Inc. which was disposed of on 11 November 2016.  The operating profits for the year have been included as discontinued operations.  See note 31. 

KSD Holdings: Tax Credit Financing

KSD Holdings provides tax credit financing in the entertainment industry.


Rainbow Production Services: Editing Equipment Leasing

Rainbow Production Services provides film editing equipment and editing suite rentals.  The Rainbow Production Services, LLC group was acquired on 28 February 2017.  See note 30.

 

 

 

 

For the year ended 31 March 2017

Completion Contracts

 

USD

Tax Credit Financing

 

USD

Editing Equipment Rental

USD

Group

 

 

USD

Total revenue

 37,564,994

 315,734

 931,397

 38,812,125

Gross profit

 29,493,805

 267,518

 560,252

 30,321,575

Operating Profit/(loss)

 9,968,935

 214,351

 272,548

 10,455,834

Finance income

 42,310

 -  

 

 42,310

Finance costs

 -  

 (202,205)

 

 (202,205)

Profit before taxation

 10,011,245

 12,146

 272,548

 10,295,939

 

 

 

 

 

 

 

 

3.  Segmental Information (continued)

 

 

 

 

 

 

 

 

For the year ended 31 March 2016

Completion Contracts

 

USD

Tax Credit Financing

 

USD

Editing Equipment Rental

USD

Group

 

 

USD

Total revenue

 35,387,253

 182,737

 -  

 35,569,990

Gross profit

 26,062,685

 173,493

 -  

 26,236,178

Operating Profit/(loss)

 3,032,242

 2,888

 -  

 3,035,130

Finance income

 9,844

 -  

 -  

 9,844

Finance costs

 (3,446)

 (38,518)

 -  

 (41,964)

Profit before taxation

 3,038,640

 (35,630)

 -  

 3,003,010

 

 

The Group's revenue from continuing operations from external customers by location of operations are detailed below:

 

2017

USD

2016

USD

Asia

 6,293

 44,212

Australia

 2,156,006

 1,772,009

Europe

 5,499,305

 4,504,001

Middle East & Africa

 130,771

 1,051,381

North America

 31,019,750

 28,198,387

 

 38,812,125

 35,569,990

 

There were no single customers that contributed 10% or more of the Group's revenue for 2017.  Included in total revenue are revenues of $5,744,173, for the year ending 31 March 2016, which arose from sales to the Group's largest customer.

The Group has dividend income from its investment in a joint venture.  There was no dividend income earned for the year ending 31 March 2017.  The total dividend income earned for the year ending 31 March 2016 totalled $176,095.  See Note 11 for more information on the investment in the joint venture. 

4.  Cost of sales

The cost of sales is made up of the following charges:

 

 

2017

USD

2016

USD

Staff costs

 193,776

 -  

Insurance cost

 15,977,127

 15,458,722

Insurance rebate

 (7,688,559)

 (9,045,004)

Net claims/(recoveries)

 (295,662)

 2,705,151

Monitoring

 19,645

 84,416

Legal

 44,188

 118,623

Depreciation

 81,923

 -  

Other

 158,112

 11,904

 

 8,490,550

 9,333,812

 

5.  Expenses

The profit before taxation is stated after charging/(crediting):

 

 

2017

USD

2016

USD

Staff costs

 10,915,773

 13,805,620

Operating lease rentals

 1,591,143

 1,561,069

Depreciation of property, plant and equipment

 132,847

 153,923

Amortisation of intangible assets

 82,694

 66,667

Exchange rate transactional differences

 (263,911)

 (242,263)

Bad debt expense

 334,071

 60,000

Other administrative costs

 6,060,712

 6,853,650

 

 18,853,329

 22,258,666

 

 

2017

USD

2016

USD

Exceptional Costs

 1,894,445

 970,956

 

Costs of $1,579,306 have been recognised during the year in respect of the disposal of Realta Production Group, Inc. (see note 31) and to other legal matters connected with pre-IPO shareholder transactions. These costs have been included as exceptional costs on the statement of comprehensive income (2016: $nil).  Costs of $315,139 have been recognised during the year in respect to failed share purchase transactions (2016: $970,956). 

 

 

2017

USD

2016

USD

Employment costs for the Group

 

 

(including Executive Directors)

 

 

Wages, salaries and commissions

 9,479,595

 12,230,730

Social security costs

 763,013

 724,184

Benefits

 668,852

 683,770

Pensions-defined contribution plan

 198,089

 166,936

 

 11,109,549

 13,805,620

Included in the wages, salaries and commissions are the

  following amounts paid to the Directors:

Director's emoluments

 2,809,650

 3,957,770

Pension- defined contribution plan

 21,200

 23,850

 

 2,830,850

 3,981,620

 

Wage and salary costs were inclusive of bonus payments totalling $1,540,885 (2016: $3,342,520). 

 

6.  Finance costs and finance Income

Finance costs and finance income for the reporting periods consist of the following:

 

2017

USD

2016

USD

Finance income

 

 

Bank interest

 42,310

 9,844

Total interest income

 42,310

 9,844

Finance costs

 

 

Bank interest

 202,205

 41,964

Total finance expense

 202,205

 41,964

 

7.  Taxation

The charge to taxation consists of income taxes currently due or refundable plus deferred taxes arising from the timing differences between financial and income tax reporting. 

 

The income tax provision consists of the following:

 

2017

USD

2016

USD

Current

 3,312,528

 3,615,022

Deferred

 1,205,913

 (2,416,816)

 

 4,518,441

 1,198,206

 

The income tax expense for the year can be reconciled to the accounting profit as follows:

 

 

2017

USD

2016

USD

Profit before tax from continuing operations

 10,295,939

 3,003,010

 

 

 

Tax on book income at Federal statutory rate

  (effective rate of 34%)

 3,500,619

 1,021,023

State income tax (5.19%), net of federal benefit

 348,913

 196,304

Non-deductible expenses

 11,975

 5,728

Effect of different tax rates of subsidiaries in foreign jurisdiction

 68,656

 12,183

Effect of tax credits of subsidiaries in foreign jurisdiction

 103,152

 63,173

Other return to provision adjustments

 278,079

 (27,953)

Adjustment to deferred income tax

 207,047

 (72,252)

 

 4,518,441

 1,198,206

 

The provision for deferred income taxes results from temporary differences in the recognition of transactions for financial statement and tax purposes.  The nature of the tax effects of those differences in each year were as follows:

 

2017

USD

2016

USD

Deferred tax assets

 

 

Net operating loss

 49,542

 166,448

Accrued bonus

 -  

 1,098,852

State taxes and other

 596,537

 458,523

Total assets

 646,079

 1,723,823

 

 

 

Deferred tax liabilities

 

 

Deferred revenue

 2,386,420

 3,212,424

Capitalised expenses

 1,035,330

 881,828

Customer relationships

 311,921

 326,666

Rebate receivable

 863,577

 229,365

Depreciation

 70,413

 70,413

Total liabilities

 4,667,661

 4,720,696

 

 

 

Net deferred tax assets and liabilities

 

 

Deferred tax assets

 646,079

 1,723,823

Deferred tax liabilities

 (4,667,661)

 (4,720,696)

Net deferred tax liability

 (4,021,582)

 (2,996,873)

 

The Group files state income tax returns in various states, which may have different statutes of limitations.  Generally, state income tax returns for the years ended 31 March 2014 through present are subject to examination.  The Group also files tax returns in foreign jurisdictions, including the United Kingdom and Canada.  The periods open to general examination for the United Kingdom are the years ended 31 March 2016 through present.  The federal tax return for the year ended 31 March 2016 is currently under examination by the U.S. Internal Revenue Service (IRS).  As of the date of this report, the IRS has not proposed any adjustment.

U.S. and foreign withholding taxes have not yet been recognised on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration.  Determination of the amount of any unrecognised deferred income tax liability on the excess of the financial reporting basis over the tax basis of investments in foreign subsidiaries, if any, has not been made.  In the even that foreign earnings are to be remitted, the additional U.S. income tax expense would be immaterial. 

Factors that may affect the Group's future tax charge include the impact of corporate restructuring, the resolution of open tax issues, future planning opportunities, corporate acquisitions and disposals, the use of roll forward tax losses and changes in tax legislation and tax rates.

7.  Taxation (continued)

At 31 March 2017, the Group has a state net operating loss carry forward of $1,000. 

In June 2015 the Group reached a settlement with the US Internal Revenue Service (IRS) resolving all issues that arose in the 2012 routine audit.  This settlement had no significant impact on the financial statements of the Group. 


8.  Dividends

 

Date paid

2017

USD

2016

USD

Final dividend 2016 - 242 per share

2 June 2015

 -  

 2,420,000

Total dividends

 

 -  

 2,420,000

 

There were no dividends declared or paid in 2017. 
 

9.  Goodwill

 

2017

USD

2016

USD

Cost

 8,540,934

 8,540,934

Additional amount recognised from business combinations

   occurring during the year (Note 30)

 1,330,489

 -  

Balance at end of year

 9,871,423

 8,540,934

 

Goodwill represents the excess consideration over the fair value of the Group's share of the net identifiable assets and liabilities of the acquired subsidiary at the date of acquisition. 

Goodwill acquired through business combinations is allocated to CGU's for impairment testing.  The goodwill balance was allocated to the following CGU's:

 

2017

USD

2016

USD

Film Finances, Inc. 

 8,540,934

 8,540,934

Rainbow Productions Services, LLC

 1,330,489

 -  

Total

 9,871,423

 8,540,934

 

The recoverable amount for each CGU is determined using a value in use calculation.  This calculation uses pre-tax cash flow projections derived from 2018 budgets, as approved by the Directors, with an underlying growth rate of 2% per annum in years 2 to 5.  After year 5 a terminal value has been applied using an underlying long-term growth rate of 2%.  No additional specific growth has been assumed beyond year 1.  The pre-tax cash flows are discounted to present value using the Group's pre-tax weighted average cost of capital ("WACC"), which was 14%.  This rate was calculated using the Capital Asset Pricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.

The value-in-use exceeds the total goodwill value across the Group.  The impairment review of the Group is sensitive to changes in the key assumptions, most notably the pre-tax discount rate, the terminal growth rate and the projected operating cash flows.  Reasonable changes to these assumptions are considered to be:

·      1.0% increase in the pre-tax discount rate. 

·      1.0% decrease in the terminal growth rate. 

·      10.0% decrease in projected operating cash flows. 

 

Reasonable changes to the assumptions used, considered in isolation, would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

 

10.  Intangible Assets

 

 

Film Distribution Rights

USD

Capitalised Film Costs

 

USD

Trade Name

 

 

USD

Non-Competition Agreement

USD

Customer Relationships

 

USD

Total

 

 

USD

Cost

 

 

 

 

 

 

At 1 April 2016

 -  

 -  

 -  

 -  

 1,000,000

 1,000,000

Additions

 1,000,000

 1,989,016

 220,000

 250,000

 1,280,000

 4,739,016

At 31 March 2017

 1,000,000

 1,989,016

 220,000

 250,000

 2,280,000

 5,739,016

Amortisation

 

 

 

 

 

 

At 1 April 2016

 -  

 -  

 -  

 -  

 (183,334)

 (183,334)

Charge for period

 -  

 -  

 (3,667)

 (3,472)

 (75,555)

 (82,694)

At 31 March 2017

 -  

 -  

 (3,667)

 (3,472)

 (258,889)

 (266,028)

Net carrying amount at

   31 March 2017

 1,000,000

 1,989,016

 216,333

 246,528

 2,021,111

 5,472,988

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 April 2015

 -  

 -  

 -  

 -  

 1,000,000

 1,000,000

Additions

 -  

 -  

 -  

 -  

 -  

 -  

At 31 March 2016

 -  

 -  

 -  

 -  

 1,000,000

 1,000,000

Amortisation

 

 

 

 

 

 

At 1 April 2015

 -  

 -  

 -  

 -  

 (116,667)

 (116,667)

Charge for period

 -  

 -  

 -  

 -  

 (66,667)

 (66,667)

At 31 March 2016

 -  

 -  

 -  

 -  

 (183,334)

 (183,334)

Net carrying amount at

   31 March 2016

 -  

 -  

 -  

 -  

 816,666

 816,666

 

Amortisation costs are charged through administrative and other expenses. 

No amortisation costs were recognised on the Film Distribution Rights or Capitalised Film Costs during the year.  As at 31 March 2017 the one film that comprises the Group's Film Distribution Rights has not been released, therefore no revenues have been recognised in relation to this film.  Further, the documentary film that comprised the Group's Capitalised Film Costs is currently in production, therefore no revenue has been recognised in relation to this film. 

11.  Financial assets

 

2017

USD

2016

USD

Joint ventures at equity method accounting

 

 

Opening cost of joint venture at equity method accounting

 140,905

 187,386

Capital contributions

 -  

 129,614

Dividends

 -  

 (176,095)

Closing cost of joint venture at equity method accounting

 140,905

 140,905

Earnings for the year

 -  

 94,822

Cumulative share in earnings (losses) of associate from prior periods

 75,139

 (19,683)

Closing value of joint venture at equity method accounting

 216,044

 216,044

Transfer of interest to an asset held for sale

 (216,044)

 -  

Investment in joint venture

 -  

 216,044

 

The Group owns a 40% interest in EP Financial Solutions. Entertainment Partners owns the other 60% interest in EP Financial Solutions and is responsible for the financial reporting.  EP Financial Solutions provides tax credit financing.  The purpose for the investment in EP Financial Solutions was to participate in the domestic tax credit financing.

As at 31 March 2017, the Group has not recorded any profit share for the year due to the lack of financial reporting from Entertainment Partners.  The Group is actively negotiating with Entertainment Partners to sell its 40% interest in the joint venture.  The selling price is expected to equal the current closing value of the joint venture. 

 

12.  Investment

Investments related to the Group's 2.5% ownership in the Chinese Theatres Holdings LLC, which owns and operates the world famous Chinese Theatre in Hollywood. 

 

2017

USD

2016

USD

At 1 April 2016 and 31 March 2017

 283,113

 283,113

 

 

13.  Other non-current assets

Other long-term assets principally consist of prepaid expenses and deposits.  These items are considered long-term as they will not be settled within the 12 months following the end of the reporting period. 

 

2017

USD

2016

USD

Prepaid Expenses

 326,819

 562,371

Deposits

 414,460

 17,000

Total

 741,279

 579,371

 

14.  Property, plant, and equipment

 

Editing Equipment

Leasehold Improvements

Fixtures and Fittings

Total

Cost

 

 

 

 

At 1 April 2016

 -  

 160,750

 1,594,162

 1,754,912

Additions

 166,358

 28,678

 65,131

 260,167

Acquired through acquisition (see note 30)

 8,870,416

 125,721

 5,782

 9,001,919

Disposals

 -  

 (148,732)

 (33,292)

 (182,024)

At 31 March 2017

 9,036,774

 166,417

 1,631,783

 10,834,974

Depreciation

 

 

 

 

At 1 April 2016

 -  

 (154,843)

 (1,027,211)

 (1,182,054)

Charge for period

 (80,368)

 (3,515)

 (130,887)

 (214,770)

Acquired through acquisition (see note 30)

 (6,530,881)

 (19,901)

 (2,313)

 (6,553,095)

Disposals

 -  

 148,732

 33,292

 182,024

Adjustment

 -  

 -  

 (109,643)

 (109,643)

At 31 March 2017

 (6,611,249)

 (29,527)

 (1,236,762)

 (7,877,538)

Net book value at 31 March 2017

 2,425,525

 136,890

 395,021

 2,957,436

 

 

 

 

 

Cost

 

 

 

 

At 1 April 2015

 -  

 160,750

 1,199,079

 1,359,829

Additions

 -  

 -  

 395,083

 395,083

At 31 March 2016

 -  

 160,750

 1,594,162

 1,754,912

Depreciation

 

 

 

 

At 1 April 2015

 -  

 (137,550)

 (890,581)

 (1,028,131)

Charge for period

 -  

 (17,293)

 (136,630)

 (153,923)

At 31 March 2016

 -  

 (154,843)

 (1,027,211)

 (1,182,054)

Net book value at 31 March 2016

 -  

 5,907

 566,951

 572,858

Depreciation expense is charged to costs related to revenue and administrative and other expenses. 

15.  Group Undertakings

Details of the Group's subsidiaries at the end of the reporting period are as follows:

 

 

Proportion of ownership interest and voting power held by the Group

Name of subsidiary

Country of incorporation/ principal operation

2017

USD

2016

USD

Held directly:

 

 

 

Film Finances Canada Ltd.

Canada

100%

100%

Film Finances Scandinavia AB

Sweden

60%

60%

Film Finances Limited (formerly

Film Finances Services Limited)

United Kingdom

100%

100%

Film Finances GmbH-Munich (dormant)

Germany

100%

100%

Realta Production Group, Inc. (i)

USA

Nil

100%

DaDa Productions, Inc. (dormant) (vii)

USA

n/a (vii)

100%

Film Finances GmbH-Germany

Germany

100%

100%

KSD Holdings LLC

USA

70%

70%

Nordic Capital Media AB

Sweden

60%

60%

Film Finances Singapore PTE LTD

Singapore

100%

100%

Film Finances Hungary

Hungary

100%

100%

PBL Finance

USA

100%

100%

FF Network

USA

100%

100%

Great Outlook

Malaysia

100%

100%

FF Asia

USA

100%

100%

Film Finances China Cultural

Services Ltd.

China

100%

100%

Film Finances SA PTY LTD

South Africa

100%

100%

Film Finances S.R.O.

Czech Republic

100%

100%

DSK Productions Inc. (dormant) (vii)

USA

n/a (vii)

100%

FF Sales, Inc. (dormant) (vii)

USA

n/a (vii)

100%

Rainbow Productions Services, LLC

USA

100%

100%

Film Finances New Mexico, LLC

USA

100%

100%

Film Finance Louisiana, LLC

USA

100%

100%

FF of Carolina, LLC

USA

100%

100%

Film Finances Pennsylvania, LLC

USA

100%

100%

Film Finances Alabama, LLC

USA

100%

100%

Film Finances Scandinavia APS (dormant) (vii)

Denmark

n/a (vii)

100%

DSK Ventures Limited (ii)

USA

Nil

Nil

Cashet Card, LLC (iii)

USA

Nil

50%

Cashet Card Holdings, LLC (formerly

   Film Travel Holdings) (iii)

USA

Nil

50%

Rainbow Productions Services, LLC (iv)

USA

100%

Nil

Rainbow Digital Services LLC (iv)

USA

100%

Nil

Pivotal Post Limited (iv)

United Kingdom

100%

Nil

Post Production Pivotal (Quebec) Inc. (iv)

Canada

100%

Nil

Pivotal Post Corporation (iv)

Canada

100%

Nil

Film Finances, Inc. (Bahamas) (v)

Bahamas

100%

Nil

Panda Productions LLC (vi)

USA

Nil

Nil

 

(i)             Realta Production Group, Inc. was sold during the year.  See note 31.   

(ii)            DSK Ventures Limited is 70% owned by key management personnel of the Group. The service agreement between KSD and DSK as well as control by the key management personnel gives the Group indirect control.

(iii)           Cashet Card, LLC is 50% owned by Realta Production Group, Inc., a fully owned subsidiary.  Cashet Card Holdings, LLC is 100% owned by Cashet Card, LLC.  Realta Production Group, Inc. was sold during the year; therefore the Group no longer has control over Cashet Card Holdings LLC and Cashet Card, LLC as of 31 March 2017.  See note 31. 

(iv)           Rainbow Productions Services, LLC and subsidiaries (Rainbow Digital Services LLC, Pivotal Post Limited, Post Production Pivotal (Quebec) Inc. and Pivotal Post Corporation) were purchased during the year.  See note 30.

(v)           Film Finances, Inc. (Bahamas) was incorporated on 19 December 2016 and became a subsidiary at that date.  

(vi)           Panda Productions LLC is 50% owned by key management personnel of the Group. The service agreement between the key management personnel and Panda Productions LLC gives the Group rights to variable returns from the entity, which gives the Group indirect control.  

(vii)          The following entities, which were previously dormant, were dissolved during the year:

a.     Dada Productions, Inc.,  9 May 2016

b.     DSK Productions, Inc.,  7 November 2016

c.     FF Sales, Inc.,  7 November 2016

d.     FF Scandinavia APS, 28 February 2017

 

15.  Group Undertakings (continued)

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interest:

 

 

 

2017

2016

2017

USD

2016

USD

2017

USD

2016

USD

 

 

 

Name of

subsidiary

Place of incorporation and principal place of business

 

Proportion of ownership interest and voting rights held by non-controlling interests

 

 

 

Profit (loss) allocated to non-controlling interest

 

 

 

Accumulated non-controlling interests

KSD Holdings LLC

USA

30%

30%

 (1,484)

 (14,024)

 57,895

 59,369

Cashet Card, LLC (i)

USA

0%

50%

 255,379

 (88,326)

 -  

 (255,379)

Individually immaterial subsidiaries with

  non-controlling interests

 

 81,225

 170,151

Total

 

 

 

 

 

 139,120

 (25,859)

 

(i)             Prior to its disposal, Realta Production Group, Inc., was a fully owned subsidiary, and owned 50% of Cashet Card, LLC.  The Group maintained the bank accounts for Cashet Card, LLC, managed the financial reporting, and made the strategic decisions.  As such, the Group had control over the entity.  Realta Production Group, Inc. was sold during the year.  See note 31. 

 

Summarised financial information in respect of each of the Group's subsidiaries that has material non-controlling interest is set out below.  The summarised financial information below represents amounts before intragroup eliminations. 

 

KSD Holdings LLC

 

 

 

2017

USD

2016

USD

Current assets

 5,561,204

 2,112,228

Non-current assets

 -  

 -  

Current liabilities

 (4,182,578)

 (683,019)

Non-current liabilities

 -  

 -  

Equity attributable to owners of the Company

 (1,378,626)

 (1,429,209)

Non-controlling interests

 -  

 -  

 

 

 

 

2017

USD

2016

USD

Revenue

 315,734

 -  

Expenses

 (303,585)

 (1,637)

Profit/(loss) for the year

 12,149

 (1,637)

 

 

 

Profit/(loss) attributable to owners of the Company

 8,504

 (1,146)

Profit/(loss) attributable to the non-controlling interest

 3,645

 (491)

Profit/(loss) for the year

 12,149

 (1,637)

 

 

 

Other Comprehensive income attributable to owners of the Company

 (3,000)

 371

Other Comprehensive income attributable to the non-controlling interests

 (1,286)

 159

Other Comprehensive income for the year

 (4,286)

 530

 

 

 

Dividends paid to non-controlling interests

 7,660

 348,202

 

 

 

Net cash outflow from operating activities

 (1,900,754)

 (234,803)

 

 

 

Net cash outflow from financing activities

 (7,660)

 (348,202)

 

 

 

Net cash outflow

 (1,908,414)

 (583,005)

 

 

 

 

 

 

16.  Assets classified as held for sale

 

2017

USD

2016

USD

Investment in joint venture

 216,044

 -  

 

As described in note 11, the Group plans to dispose of the investment in the joint venture.  The Group is currently negotiating with Entertainment Partners to sell its 40% interest in the joint venture.  No impairment loss was recognised on the reclassification of the investment as the selling price is expected to equal the current closing value of the joint venture. 

 

17.  Trade and other receivables

Trade and other receivables consist of the following:

 

2017

USD

2016

USD

Advances receivable

 -  

 344,071

Trade receivable

 2,091,695

 1,244,859

Rebate receivable

 2,302,824

 585,236

Insurance receivable

 194,473

 411,274

Due from related parties

 3,423,999

 335,878

Total trade and other receivables

 8,012,991

 2,921,318

Loans receivable

 

 

Loans receivable (i)

 4,151,795

 4,420,559

Total

 12,164,786

 7,341,877

 

(i)             The collateral of the loan balance above is a tax credit receivable.

 

The aging of trade and other receivable balance is as follows:

 

2017

USD

2016

USD

Not past due

 11,856,229

 7,331,877

Past due 1 to 30 days

 148,447

 -  

Past due 31 to 90 days

 143,915

 -  

Past due 91 days

 16,195

 10,000

Total

 12,164,786

 7,341,877

 

The Directors consider that the carrying value of accounts and other receivables approximates to fair value. 

18.  Other current assets

Other current assets principally consist of prepaid expenses and prepaid taxes.  Prepaid expenses include expenses incurred related to the completion contracts.  Expenses that are incurred related to these contracts are deferred and recognised in line with the recognition of revenue. 

 

 

2017

USD

2016

USD

Prepaid expenses

 3,032,438

 2,501,832

Tax and other

 1,395,934

 324,859

Total

 4,428,372

 2,826,691

 

19.  Restricted cash

Restricted cash consist of the following:

 

2017
USD

2016
USD

Held in fiduciary capacity for production (i)

 36,265,379

 39,785,808

Insurance premiums held in escrow (ii)

 4,131,836

 4,073,750

Restricted cash

 40,397,215

 43,859,558

 

(i)     The Group acts in a fiduciary capacity on behalf of certain financiers of films.  The Group receives cash, which is restricted in use for the production of films.  The Group is required to fund the production of the related films according to the production funding agreement.  The amounts are recorded in restricted cash with the corresponding payable recorded as payable to productions. 

(ii)    The Group reserves for approximately 9 percent of net bond fees as insurance premiums to be held in escrow to satisfy insurance premiums in the event that actual claims expense exceed stipulated levels.  To the extent actual claims result in additional insurance premiums due, that incremental premium amount is carried forward to future insurance periods to offset rebates that would otherwise be payable to the Group and, in certain situations, the incremental premium amount is immediately due.

20.  Cash and cash equivalents

Cash and cash equivalents consist of the following:

 

2017

USD

2016

USD

Cash in hand

 2,443

 2,443

Cash at bank

 13,144,428

 14,926,341

Cash and cash equivalents

 13,146,871

 14,928,784

 

21.  Borrowings

The Group has several bank finance facilities. The first is a one-year term loan secured by a tax credit receivable.  The loan bears interest at 2% plus one month LIBOR.  The loan had an initial maturity date of 30 September 2016 and was renewed during the period and now matures on 30 September 2017. The average interest rate on the loan for the year ended 31 March 2017 was 2.23% (2016: 2.44%).  The outstanding balance of the loan as of 31 March 31 2017 was $4,173,954 (2016: $4,405,372).  The loan is due upon receipt of the tax credit. 

The second is a $1,000,000 promissory note in connection to the acquisition of film distribution rights (note 10), which bears interest at 12% per annum when called upon and is due on demand.  The outstanding balance at 31 March 2017 was $1,000,000 (2016: $nil). 

The third is a three-year promissory note due to an employee entered into on 28 February 2017 in the amount of $804,497.  The note is payable in $20,000 monthly instalments and bears interest at 6% per annum with the remaining balance outstanding and all accrued interest payable on 25 January 2020.  The term loan is payable to a related party, see note 28.  The outstanding balance at 31 March 2017 was $787,842 (2016: $nil).

 

2017

USD

2016

USD

Non-Current

 

 

Term Loan (related party) 2-5 years

 590,163

 -  

 

 590,163

 -  

Current

 

 

Term Loan (secured by a tax credit receivable)

 4,173,954

 4,405,372

Term Loan

 1,000,000

 -  

Term Loan (related party)

 197,679

 -  

 

 5,371,633

 4,405,372

Total Borrowings

 5,961,796

 4,405,372

 

 

 

 

 

 

 

 

 

 

 

22.  Trade and other payables

Trade and other payables principally comprise of amounts outstanding for goods or services that have been acquired in the ordinary course of business from suppliers.  Accounts payable are classified as current liabilities if payment is due within one year or less.  If not, they are presented as non-current liabilities.  Accounts payable are non-interest bearing and are initially measured at fair value and thereafter at amortised cost using the effective interest method. Deferred revenues arise when the Group enters into a completion contract.  Consideration received is initially deferred and recognised in line with the revenue recognition policy. 

 

 

2017

USD

2016

USD

Trade payables

 811,450

 490,191

Accruals

 2,230,703

 4,964,253

Deferred revenue

 6,484,318

 4,974,299

Due to affiliates

 -  

 125,000

No-claim bonus payable

 3,903,393

 4,030,511

Insurance payable

 7,289,844

 5,153,273

Other payables

 1,017,719

 -  

Total

 21,737,427

 19,737,527

 

Included in "other payables" balance is an amount of $500,000 relating to a tax liability accrual and $491,000 of contingent earn-out payments due to an employee generated as part of the acquisition of a subsidiary (See note 30). 

23.  Provision for losses

 

2017

USD

2016

USD

At beginning of year

 457,632

 1,493,686

Losses charged to income

 445,157

 1,401,185

Claims paid

 (634,686)

 (3,553,833)

Recoveries on claims paid

 509,143

 1,116,594

At end of year

 777,246

 457,632

 

The provision for losses is in relation to amounts payable for the completion of certain films, which includes the estimated deductible for claims on insured contracts.  Provisions for losses are provided for on a by project basis when losses are probable and quantifiable up to the deductible amount of $500,000.  Claim payments are typically made directly to production depending on their funding needs.  Any claims payments in excess of the deductible are reimbursed by the insurers.  Recoveries, if any, are recorded as a reduction to claim payments.

24.  Operating lease commitments

Operating leases relate to leases of land with lease terms of between 4 and 10 years.  The Group does not have an option to purchase the leased land at the expiry of the lease periods.  The Group had commitments under non-cancellable operating leases expiring as follows:

 

2017

USD

2016

USD

Not later than 1 year

 2,398,688

 942,142

Later than 1 year and not later than 5 years

 8,011,515

 3,901,861

Later than 5 years

 615,424

 1,210,496

 

 11,025,627

 6,054,499

 

 

 

25.  Capital commitments

The Group has no material capital commitments as at 31 March 2017 and 2016.

26.  Contingent liabilities

The Company issues Completion Bonds.  The Company mitigates the risk in relation to these agreements by making payments to certain third parties in the event a project is not delivered within a time frame and budget range set forth under the terms of the specific agreement.  The Company utilises one or more insurance companies to cover the majority (the Group is self insured for a portion) of its liability with respect to each such budget overruns.   No liability is recorded with respect to the Completion Bond obligation to the third parties until there is evidence that is it incurred and a loss will result.  The Company does record the costs associated with the insurance purchased to cover its risk and the budget overruns related to each such Completion Bond.

On 11 November 2016, the group was a party to a contract to facilitate a transaction between certain shareholders who wished to sell their shares and a buyer who wished to purchase them. Under this agreement between the group, the selling shareholders, the continuing shareholders and the buyer, contingent earn out consideration is payable by the buyer to selling shareholders.  The earn out payment is calculated based on projected bond fees in 2017 and 2018 meeting certain thresholds, less an allowance for claims.  While the earn out payment is payable by the buyer and not the group, the group has provided a guarantee to the selling shareholders on the full and punctual payment of the earn out payments by the buyer.  As at 31 March 2017, the group estimates the aggregate earn out payment, and consequently the total quantum of the sum guaranteed to total approximately $2,645,000.

27.  Share capital

 

Authorised number

of common shares

Allotted, issued

and fully paid

number of common shares

Share capital

USD

Share premium

USD

At 1 April 2015

 900,000

 10,000

 -  

 109,500

Movements in the year

 -  

 -  

 -  

 -  

At 31 March 2016

 900,000

 10,000

 -  

 109,500

Movements in the year

 -  

 (542)

 -  

 -  

At 31 March 2017

 900,000

 9,458

 -  

 109,500

 

The Group has 100,000, no par value, preferred shares authorised; however no shares are issued or outstanding. 

Fully paid ordinary shares, which have no par value, carry one vote per share and carry a right to dividends. 

During the year 542 shares were brought in to treasury by the Group as part of the disposal of Realta Production Group, Inc.  These shares were subsequently cancelled by the Group.  See note 31. 

28.  Related party transactions

The directors do not consider there to be an ultimate controlling party.  The Group has related party relationships with its subsidiaries and its Directors.  Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.  See note 30 for business acquisition and note 32 for post balance sheet events. 

The Group had a liability of approximately $nil due to minority owners as of 31 March 2017 (2016: $125,000). 

Advances to employees totalled approximately $145,000 at 31 March 2017 (2016: $223,000).  These amounts are noninterest bearing and are due on demand.  There was $63,000 written off during the year, which was recognised in the statement of comprehensive income within the administrative and other expenses. 

Advances to officers totalled approximately $3,257,000 at 31 March 2017 (2016: $113,000).  These balances bear interest at 3% and have maturity dates ranging from 2017 through 2025.  The interest recognised during the year related to these notes total $34,698 (2016: $nil).  This balance includes a $3,000,000 promissory note to an officer, which is secured against 3,216 shares in the Group as at 31 March 2017.  This promissory note has subsequently been repaid on 25 July 2017 with no call made on the security provided. 

A key member of management has a loan outstanding to Panda Productions LLC in the amount of $160,000 (2016: $nil).  The loan is payable on closing of the production bank loan.

A stockholder of the Group participates in the syndicate that insures the Group's completion contracts.  The stockholder's share of the gross premiums paid to the syndicate totals $1,148,911 for the year ended 31 March 2017 (2016: $452,000). 

The Group has a three-year term loan from an employee in the amount of $804,497 (2016: $nil).  The note was entered into on 28 February 2017 and is due in full on 25 January 2020.  The note bears interest at 6% per annum and has monthly payments on $20,000. The outstanding balance at 31 March 2017 was $787,842. 

The Group has a consulting agreement with a former director of the Group.  As of 11 November 2016 the directorship ended and the new agreement became effective.  The agreement requires the director to provide guidance and services to the Group on an exclusive basis effective 1 April 2016.  The director receives a consulting fee in the amount of $24,000 per month as well as an expense allowance of $3,000 per month.  In addition, there is a potential bonus equal to 10 percent of Lionsgate completion guarantee fees. Total bonus expense under this agreement totalled $178,946 for the year ended 31 March 2017 (2016: $781,931). 

 

2017

USD

2016

USD

Compensation of the five key management personnel

 

 

Short-term employee benefits

 1,421,759

 3,957,770

 

 1,421,759

 3,957,770

 

29.  Financial Instruments

The Group's principal financial instruments comprise bank loans, overdrafts, loan notes, deferred consideration for acquisitions under IFRS 3, trade receivables, investments, trade payables and cash.  The main purpose of these financial instruments is to provide finance for the Group operations.  The Group has other financial assets and liabilities, which arise directly from operations. 

The following table provides an analysis of the Group's non-derivative financial assets and liabilities at 31 March 2017 and 2016:

 

2017

USD

2016

USD

Financial assets:

 

 

Classified as loans and receivables:

 

 

Cash and cash equivalents

 13,146,871

 14,928,784

Accounts receivable

 12,164,786

 7,341,877

Total financial assets

 25,311,657

 22,270,661

Financial liabilities:

 

 

Classified as financial liabilities at amortised cost:

 

 

Accounts and other payables

 21,737,427

 19,737,527

Borrowings - Current

 5,371,633

 4,405,372

Borrowings - Non-current

 590,163

 -  

Total financial liabilities

 27,699,223

 24,142,899

 

All non-derivative financial assets are categorised as either available for sale financial assets or loans and receivables and all non-derivative financial liabilities are categorised as other financial liabilities at amortised cost. 

Risk Management objectives and policies

The main risk arising from the Group's financial instruments are insurance contract risk, interest rate risk, liquidity risk, credit risk and foreign exchange risk.

Insurance Contracts

The Group works primarily with clients that have a longstanding relationship with the Group.  These clients typically have vast experience in film production and work with producers, directors and line-producers who the Group's employees are familiar with.  With each project, both our legal and production staff will need to evaluate, among other things, the reasonableness of the budget, the key individuals and parties involved and other risks based on, but not limited to, the genre, location and the need for any special visual or audio effects. 

Interest rate risk

The Group's exposure to interest rate risk arises from the Group's long-term debt obligations with floating and fixed interest rates.  Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.  Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year.  Floating rate financial instruments comprise of the Group's cash and equivalents and borrowings.  Fixed rate financial instruments comprise of borrowings.  The other financial instruments of the Group are non-interest bearing and are therefore not subject to interest-rate risk. 

Based on current levels of net debt, interest rate risk is not considered to be material. 

Foreign exchange risk

The Group operates in a number of markets across the world and is exposed to foreign exchange risk arising from various currency exposures in respect of revenues, assets, liabilities, and cash flows. The Group minimises foreign currency risk by requiring overseas customer to adhere to strict payment terms.  The risk is also mitigated by paying insurance premiums in USD based on the transaction rate of foreign currencies.

The Group has foreign subsidiaries located in Europe, Asia, Australia, and Canada. Differences that arise from the translation of these assets from foreign currency to USD are recognised in other comprehensive income in the year and the cumulative effect as a separate component in equity.  The Group does not hedge this translation exposure to its equity.   

The Group took out a loan in September 2015 through its variable interest entity, DSK Ventures Limited, to fund against a future tax credit receivable for a UK production.  The loan was renewed in September 2016.  The production's expenditures are expected to quality for a tax credit that will be in excess of the loan.  The loan is denominated in GBP and has an offsetting tax credit receivable also denominated in GBP.  Both balances are translated at the spot rate at the balance sheet date.

29.  Financial Instruments (continued)

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:

 

 

Liabilities

 

Assets

 

2017

USD

2016

USD

2017

USD

2016

USD

Currency of United Kingdom

 280,216

 269,903

 2,649,918

 2,849,721

Currency of Canada

 4,102,732

 1,875,103

 4,098,523

 1,895,953

Currency of China

 309,919

 774,549

 447,650

 934,737

Others

 86,729

 175,375

 500,897

 396,307

 

The Group is mainly exposed to the currency of the United Kingdom (GBP), Malaysia (MYR), China (CNY) and Canada (CAD). 

The following table details the Group's sensitivity to a 10% increase and decrease in the USD to the relevant foreign currencies.  10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjust their translation at the period end for a 10% change in foreign currency rates.  The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender of the borrower.  A positive number below indicates an increase in profit or equity where the USD strengthens 10% against the relevant currency.  For a 10% weakening of the USD against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative.

 

2017

USD

Profit or loss

2017

USD

Equity

2016

USD

Profit or loss

2016

USD

Equity

Currency of United Kingdom

 20,880

 236,321

 64,987

 699,946

Currency of Canada

 (1,198)

 (420)

 279

 2,081

Currency of China

 (58,073)

 13,729

 (76,036)

 15,960

 

Liquidity Risk

The Group aims to mitigate its liquidity risk by managing its cash resources and continuously monitoring forecast and actual cash flows. The Group has a term loan agreement secured by a tax credit receivable, which expires 30 September 2017.  The outstanding balance at 31 March 2017 is $4,173,954 (2016: $4,405,371).  The Group has a $1,000,000 promissory note in connection to the acquisition of film distribution rights outstanding, which is due on demand.  The Group has an $804,497 promissory note due to an employee outstanding with a related party that matures on 25 January 2020.  Monthly payments of $20,000 began January 2017.  The note was entered into on 28 February 2017 and is due in full on 25 January 2020.  The note bears interest at 6% per annum and has monthly payments on $20,000. The outstanding balance at 31 March 2017 was $787,842. 

The table below summarises the maturity profile of the Group's non-derivative financial liabilities at 31 March 2017 and 2016 based on contractual undiscounted payments, including estimated interest payments where applicable.

As at 31 March 2017

Within 1 year

 USD

1-2 years

USD

2-3 years

USD

Total

USD

Obligation under loan facilities

 5,371,633

 209,975

 380,188

 5,961,796

Trade payables

 21,737,427

 -  

 -  

 21,737,427

Payable to production

 36,265,379

 -  

 -  

 36,265,379

Total

 63,374,439

 209,975

 380,188

 63,964,602

 

 

 

 

 

As at 31 March 2016

Within 1 year

 USD

1-2 years

USD

2-3 years

USD

Total

USD

Obligation under loan facilities

 4,405,372

 -  

 -  

 4,405,372

Trade payables

 19,737,527

 -  

 -  

 19,737,527

Payable to production

 39,785,808

 -  

 -  

 39,785,808

Total

 63,928,707

 -  

 -  

 63,928,707

 

Credit risk

The credit risk on liquid funds is limited because funds are deposited over a number of counterparties who are banks with a mix of high quality balance sheets, high credit ratings assigned by international credit rating agencies or strong governmental support. The Group maintains cash balances in financial institutions in excess of insured limits.  The Group has not experienced any losses on such accounts and does not believe it is exposed to significant credit risk. 

Fair values of financial assets and financial liabilities

The Group's financial instruments are principally compromised of cash, investments, and bank loans.  Fair value items, when calculated by discounting the expected future cash flows at prevailing interest rates, result in no differences between the carrying amount and fair value.  The carrying amounts of all other financial instruments of the Group, i.e. short-term trade receivables and payables are a reasonable approximation of fair value.  The carrying amount recorded in the balance sheet of each financial asset represents the Group's maximum exposure to credit risk. 

Capital management

The primary objective of the Group's capital management is to ensure that it maintains access to sufficient capital to continue to grow its business.  The Group's capital comprises share capital and retained earnings.  See note 32. 


 

 

 

30.  Business Combination

On 28 February 2017, the Group purchased the entire share capital of Rainbow Production Services, LLC and Subsidiaries (RPS), a limited liability company incorporate in the State of Delaware.  RPS provides film editing and production equipment on a rental basis.  RPS was acquired to expand the Group's activities within the film industry. 

Consideration

 

 Total

USD

Cash

 4,000,000

Contingent consideration arrangement

 2,200,000

Total consideration transferred

 6,200,000

 

Under the contingent consideration arrangement, the Group is required to pay the former owner of RPS an additional $400,000 plus 30% of the EBITDA in excess of the specified EBITDA target (which excess amount shall not exceed $2,000,000 per year) in each of the years 2017, 2018, 2019 and 2020, provided RPS reaches the fiscal year EBITDA target for the applicable year.   The target EBITDA for each of the following four years is as follows; 2017: $2,500,000, 2018: $2,600,000, 2019: $2,700,000, and 2020: $2,800,000.  RPS's EBIDTA for the past two years as been approximately $600,000 on average.  The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between $nil and $4,000,000. 

The fair value of the contingent consideration arrangement of $2,200,000 was estimated by applying the income approach.  The fair value estimates are based on an assumed discount rate range of 1.4 - 2.7 per cent and assumed probability-adjusted EBITDA in RPS of $2,500,000 - $3,300,000 for each of the next four years. 

Acquisition related costs amounting to $19,236 have been excluded from the consideration transferred and have been recognised as an expense in the statement of comprehensive income in the current year, within the administrative expense line item. 

Recognised amounts of identifiable assets acquired and liabilities assumed

 

Total

USD

Current assets

 

Cash and cash equivalents

 983,497

Accounts receivable

 907,698

 

 1,891,195

Non-current assets

 

Plant and equipment

 2,448,824

Deposits

 368,938

Identifiable intangible assets

 1,750,000

 

 4,567,762

Current liabilities

 

Accounts payable

 (262,843)

Accrued liabilities

 (522,514)

Notes payable

 (804,089)

 

 (1,589,446)

Net balance acquired

 4,869,511

 

The receivables acquired (which principally comprise trade receivables) in these transactions have a fair value equal to the contractual amount.  There are no contractual cash flows that are not expected to be collected as of the acquisition date.

The goodwill of $1,330,489 arising from the acquisition of RPS consists largely of the of expected synergies, revenue growth, future market development and the assembled workforce of RPS.  These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. 

30.  Business Combination (continued)

Included in the profit for the year is $272,548 attributable to the additional business generated by RPS and revenue for the year includes $931,397.  Had this business combination been effected as 1 April 2016, the revenue of the Group from continuing operations would have been $49,362,504, and the profit for the year from continuing operations would have been $7,273,634.  The directors consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. 

31.  Discontinued Operations

On 11 November 2016, the Group disposed of Realta Production Group, Inc., which owned 50% of Cashet Card, LLC. Cashet Card facilitates the issuance of credit cards sponsored by MasterCard and is able to offer bulk purchasing discounts and earns fees on the transactions. The transaction was carried out with one of the Directors of the Group.  The consideration was a transfer of the Director's shares, 542 shares of common stock, in the Group for the 1,500 shares, 100% of the then-issues and outstanding shares of common stock, of Realta Production Group, Inc.  The fair value of the 542 shares received was $2,810,569 which has been recognised in the statement of comprehensive income as part of the profit from discontinued operations.  These shares were subsequently cancelled.

Simultaneously with the agreement, the Director sold his remaining shares, 3,274 shares of common stock, to unrelated third parties.

Costs in relation to this transaction total $1,579,306 and have been disclosed in the statement of comprehensive income separately as exceptional costs. 

 

 

Total

USD

Consideration

 

 2,810,569

Net assets disposed of

 

 (105,373)

Total profit on disposal

 

 2,705,196

 

Analysis of profit for the year from discontinued operations

The combined results of the discontinued operations included in the profit for the year are set out below.  The comparative profit and cash flows from discontinued operations have been re-presented to include those operations classified as discontinued in the current year. 

 

2017

USD

2016

USD

Profit for the year from discontinued operations

 

 

Revenue

 2,627,622

 3,114,822

Expenses

 (2,467,733)

 (2,971,362)

Profit before tax

 159,889

 143,460

 

 

 

Attributable income tax expense

 (59,798)

 (55,489)

Profit after tax

 100,091

 87,971

 

 

 

Profit on disposal of operation

 2,705,196

 -  

Attributable income tax expense

 39,410

 -  

 

 2,744,606

 -  

 

 

 

Profit for the year from discontinued operations (attributable to

   owners of the Company)

 2,844,697

 87,971

 

 

 

 

 

2017

USD

2016

USD

Cash flows from discontinued operations

 

 

Net cash inflows from operating activities

 (127,372)

 214,093

 

Analysis of assets and liabilities over which control was lost:

 

Realta Production

Group, Inc.

USD

Cashet

Card, LLC

USD

Cashet Services

Holdings LLC

USD

 

Total

USD

Current assets

 

 

 

 

Cash and cash equivalents

 -  

 501,266

 57,369

 558,635

Accounts receivable

 -  

 -  

 76,185

 76,185

 

 -  

 501,266

 133,554

 634,820

Non-current assets

 

 

 

 

Other assets

 -  

 500,822

 -  

 500,822

 

 -  

 500,822

 -  

 500,822

Current liabilities

 

 

 

 

Accounts payable

 -  

 (1,139,482)

 109,213

 (1,030,269)

 

 -  

 (1,139,482)

 109,213

 (1,030,269)

Net balance

 -  

 (137,394)

 242,767

 105,373

 

 

32.   Post balance sheet events

FFI Holdings PLC was incorporated in London on 30 May 2017 as a holding company of Film Finances Inc., its principal operating subsidiary. Shares in FFI Holdings PLC were listed on London's AIM market on 30th June 2017 under the exchange identifier "FFI". The company issued 157,041,248 shares at 150 pence per share, valuing the company at approximately £236 million on issue.  As this occurred after year end, there are no earnings per share calculations. 

 

 

 


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