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FFI Holdings Plc (ISE:FFI)

FFI Holdings Plc (ISE:FFI)


Share Price
39.800 p
Change
0.8 (2.05 %)
Market Cap
£62.81 m
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FFI Holdings Plc RNS Release

Preliminary announcement of annual results


RNS Number : 3321Z
FFI Holdings PLC
31 August 2018
 

31 August 2018

 

Press Release

FFI Holdings PLC

("FFI" or "the Company")

 

Preliminary announcement of annual results for the year ended 31 March 2018

 

FFI Holdings PLC (AIM: FFI), a world-leading provider in the provision of diversified services across the entertainment industry, is pleased to present its full year results for the year ended 31 March 2018.

 

 

Financial highlights:

·      Group revenue of $58.9m; an increase of 51.7% (FY 2017: $38.8m)

·      Underlying EBIT* of $16.6m; an increase of 30.3% (FY 2017: $12.7m)

·      Fully diluted underlying net income** per share of 8.32 (cents)

·      Pre-tax profit of $5.3m; a decrease of 48.8% (FY 2017: $10.3m)

·      Adjusted net income*** of $1.7m; a decrease of 67.9% (FY 2017: $5.5m)

·      Net cash position of $19.4m at 31 March 2018

* Underlying EBIT: Represents operating income, adjusted for exceptional costs of $10.7m (FY 2017: $1.9m), acquisition-related amortization of $0.6m (FY 2017: $0), and lifestyle-related expenses of $nil (FY 2017: $0.4m).

** Based on fully diluted weighted average shares of 153,710,123.

*** Adjusted net income: Total comprehensive income, excluding net profit from discontinued operations. Adjusted net income impacted by material IPO-related expenditures that are non-deductible for U.S. income tax purposes..

 

Strategic highlights:

·     AIM admission in June of 2017 marked an important milestone for the business, providing the capital foundation for several strategic transactions which have provided diversification to the business model beyond the historic focus on completion contracts.

·     The Group is now fully established with a model that provides services across the broader entertainment industry landscape; including pre and post-production services, content investment, insurance services and content distribution.

·     FFI Insurance: Formed and capitalized FFI Insurance in Bermuda as a captive insurer for the Group significantly reducing our insurance costs.

·     Enhancement of post-production services offering via acquisition of EPS-Cineworks (upfront consideration of $8.3m; Nov 2017) and Buff Dubs (upfront consideration of $1.1m; Dec 2017).

With a strong management team and a significant presence in North America, EPS-Cineworks is at the forefront of post-production services and technology. The Company holds particularly strong relationships in television and independent projects, which are seeing growth due to the increased content being produced by streaming companies that do not have traditional post-production capabilities.

Headquartered in New South Wales, Australia, Buff Dubs was founded in 2005 and has grown quickly through its ability to process media content of any description and transform, reproduce and aggregate it in the various formats demanded by its clients. This has helped Buff Dubs to secure vendor status with some of the world's leading media platforms, including Netflix, Apple and Google, as well as gaming platforms including PlayStation and Xbox.

·     Expansion into entertainment insurance services through acquisition of Reel Media (upfront consideration of $7.4m; Dec 2017) and subsequent facilitation of strategic relationship with Allianz to offer underwriting services across North America (January 2018).

Reel Media's best-in-class products, experienced underwriting team and worldwide claims handling capabilities have established the Group as an industry benchmark for entertainment insurance services that include various pre- to post-production risks across the entertainment spectrum.

Motorsports: Reel Media also bought the book of business for motorsports specialty insurance and has assumed a number of entertainment related insurance producer activities for Allianz in North America. This complementary acquisition has expanded Reel Media's presence in North America and diversity of product offerings.

Reel Media has invested to accommodate the significant growth it expects as the accounts previously serviced "in-house" by Allianz are transitioned over to Reel Media.

 

Post Year-End Trading and Outlook:

·            Successful launch of the movie Pandas. Distributed and partly financed by IMAX and Warner Brothers, the film was released in April 2018 and received extremely favourable critical reviews. While the Group expects long term and continuing international Box Office sales, the ultimate timing of cash flows will be dependent on theatre availability and is subject to IMAX's release schedule. The Group now expects wider distribution in late 2018 and beyond.

·              Entry into the distribution market via the acquisition of Signature Entertainment (upfront consideration of $5m; April 2018).

Signature is the largest distributor of films in the UK by volume. It has distributed over 600 titles since its inception in 2011. Signature also acts as an aggregator for Netflix, Amazon and others for smaller to mid-sized budget productions.

·            Reel Media recently hired a team of specialists to complement its existing Motorsports business. The Group expects an additional $3m of salary and operational overhead expenses in FY 2019. On an annualized basis the Group expect revenues for Reel Media to outpace the additional overhead cost and add to EBIT during FY 2020.

·            FFI's corporate overhead expenses are expected to be ahead of the Board's previous expectations for FY 2019. These additional overhead expenses are related to an expansion of the Group's legal, accounting and IT infrastructure to support acquisitions and future growth as well public company and compliance expenses being ahead of budget for FY2019.

·            The Board expects to report Underlying EBIT in the range of $20-22 million for the Financial year ending 31 March 2019.

 

 

 

Steve Ransohoff, CEO of FFI Holdings, commented:

 

"Despite the headwinds in 2017, FFI achieved a number of its strategic goals and delivered on its plan to acquire complementary businesses which extend and diversify the Company's offering. Growth via acquisition has played a major part in our evolution and we believe that the six acquisitions completed since IPO position the Company well for future growth.

 

While costs have been higher than expected year to date, FFI is well-positioned for the future within an industry that is undergoing a period of profound change. With the rise of disruptors like Netflix and Amazon Prime and ongoing technological innovation driving a shift in the way that consumers view content, the needs of content producers and distributors have been fundamentally redefined. Benefiting from our unique knowledge, heritage and long-standing relationships across studios and content providers, FFI enjoys a privileged place at the heart of the entertainment industry which allows us to track and respond to the changing needs of our clients, ensuring that we remain relevant in an ever-changing entertainment landscape." 

 

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 ("MAR").

 

 

About FFI Holdings PLC

 

FFI Holdings PLC is the holding company of Film Finances Inc., a leading provider of diversified services across the entertainment industry. FFI was formerly focused on completion contracts to the entertainment industry, and over successive decades, has now grown globally to become a trusted, iconic brand at the centre of the film industry.

 

Founded in the 1950s, FFI soon established itself as the world leader in completion guarantees to the entertainment industry, offering assurance to financiers that productions will be completed on time and on budget. These guarantees serve to offload risks to production budgets and timelines for financiers, as well as for FFI through long-standing insurance relationships.

 

FFI listed on the AIM market in June 2017 and has diversified its business beyond completion contracts to provide services across the broader entertainment landscape. These include pre and post-production services, general risk insurance, content investment and content distribution. FFI is also present in China, where it provides a growing range of entertainment-related services including completion contracts to the domestic film making industry.

 

Headquartered in Los Angeles, USA, FFI has 11 offices globally, including in London, Stockholm, Toronto, New York, Cape Town, Cologne and Shanghai.

 

ENQUIRIES:                                                                                                       

 

FFI Holdings PLC

David Sasso, Head of Investor Relations

Tel: +1 1 310 275 7323

 

Hawthorn Advisors

Victoria Ainsworth

Tel: +44 (0)20 3745 3815

 

Liberum (Nominated Adviser and Corporate Broker) 

Steve Pearce / Joshua Hughes

Tel: +44 (0) 3100 2000

 

Chief Executive's Statement

 

The past twelve months have been transformative for the Group.  A year ago, FFI was a company with a leading global market share in the delivery of completion contracts to the entertainment industry. Today, we are operating in four business areas that provide a suite of diversified services and products across the entertainment industry, including completion contracts, pre and post-production services, entertainment insurance services, and content investment and distribution.

The Company's initial public offering and admission to the AIM market of the London Stock Exchange (the "IPO") last year was a critical milestone in this journey. The net proceeds of the offer ($38.8m) have provided the capital foundation upon which to embark on a series of strategic acquisitions that have enabled it to become one of the industry's most comprehensive providers of non-creative production services. 

Our diversification began shortly before the IPO with the acquisition of Pivotal Post, a leading provider of post-production equipment rental to filmmakers in North America and Europe.  It has continued with the acquisition of several other businesses that we believe can take advantage of the changing market place for creators of both film and television content.  

We began with the acquisition of two additional production service companies (EPS-Cineworks and Buff Dubs) which provide services for films in post-production.  Following which we then purchased Reel Media, an insurance agency that specialises in commercial and contingency insurance products in entertainment, film, television, motorsports and other areas, giving FFI capabilities in entertainment insurance services for the first time. As well as facilitating the acquisition of an attractive book of motorsports insurance business from All Risks Ltd, Reel Media provided the platform through which FFI has forged its current strategic relationship with one of the world's largest insurers, Allianz Global Corporate Speciality (AGCS). Through this partnership we offer underwriting services across North America through AGCS, a dominant player in entertainment risk underwriting for more than a century.

Since the financial year end, FFI has also continued this momentum with the acquisition of Signature Entertainment, the largest distributor of films in the UK by volume, which is a new market for FFI.

Each of these transactions have shared a common objective: to ensure that FFI has importance to producers of entertainment and content irrespective of their need for completion contracts. FY 2018 saw us make significant progress towards achieving this goal. 

Today, FFI is a diversified global business, with a presence in 11 countries and the ability to offer existing and new customers a growing range of essential services across the production value chain. We continue to see opportunities in China, where we enjoy a first mover position as a foreign provider of completion contracts to one of the world's fastest-growing entertainment markets.

Furthermore, we have significantly reduced the cost of our completion contract business through the creation of an in-house captive insurance platform. We have also made significant progress in owned content, seeing the successful launching of the documentary film Pandas in April 2018, a new IMAX title that has received extremely favourable critical reviews and is being distributed to international markets this year. 

As with any business, we are subject to market conditions which are at times out of our control and FFI was impacted by volatility in its own markets in 2017.  The US movie industry, particularly the independent film business, suffered a setback with allegations of impropriety surfacing at the Weinstein Company, one of the largest independent production companies in the world prior to the end of 2017. This resulted in a vital reappraisal of the ethics and values of some of the entertainment industry's most influential companies. From a financial perspective, FFI was not immune to the fall-out from this episode and it was necessary to revise downwards our full-year guidance when several large productions planned for the third quarter of FY 2018 were either postponed, outright cancelled or produced by parties that did not require a completion contract. Our Board firmly believes that our business has now fundamentally improved and evolved, with a higher degree of diversification than ever before; we are unrecognisable from the Group we were at the end of the financial year ended 31 March 2017 ("FY 2017" or "financial year 2017").

Business Review

 

FFI is the market leader in completion contracts, providing us with a privileged vantage point at the heart of the global entertainment industry.

This affords FFI the ability to identify the changing needs of our customers and then acquire and/or develop services to match.  Responding to these needs, FFI has embarked on a diversification strategy beyond completion contracts to provide services across a broader industry landscape, which today includes pre and post-production services, content investment, entertainment related entertainment insurance services and content distribution.

Completion contracts

Since its founding almost seven decades ago, FFI's primary focus had been the provision of completion contracts, which guarantee the financiers of films, television productions and, more recently, streamed content that the productions will be completed on time, on budget and to a basic pre-agreed specification.

Over successive decades, as FFI's global market share in completion contracts has grown, it has become a trusted, iconic brand positioned at the centre of the independent film and television industry. This has enabled us to build an extensive network of relationships with the studios, mini studios, streaming companies, producers, distributors and financiers involved in the production of films, television and other content. This network, together with FFI's deep knowledge and expertise of the film and television production process, has enabled us to secure a leading market share in the global marketplace for completion contracts of over 80% and a high level of repeat business from existing clients.

Since 2008, FFI has issued completion contracts to all the leading financiers involved in the entertainment industry, unlocking funding for over 1,800 productions with gross production budgets estimated to be more than USD$19bn.

Pre and post-production services

 

Not all film, TV and streamed content productions need completion contracts, however all content needs editing equipment and a range of other services that facilitate the creation of the finished product. Drawing on our unique position at the heart of the entertainment industry, we have identified and subsequently acquired three companies that offer complementary capabilities in this area:

Pivotal Post

Pivotal Post ("Pivotal") was the first business acquired by FFI outside of the traditional completion contract business. Pivotal (the trading name of Rainbow Production Services, LLC and its subsidiaries) is a leading provider of post-production editing equipment rental services for film makers around the world.  At acquisition, Pivotal had 89 rental suites for content editing, and at year end we now have more than 150 editing suites, the majority of which are currently under lease by third parties.  This illustrates both the growth in industry demand and the ability of the FFI platform to benefit from the referral concept which lies at the heart of our diversification strategy.

 

EPS-Cineworks

Acquired in November 2017, EPS-Cineworks is a full-service digital post-editing equipment rental business with a significant market presence in North America. EPS-Cineworks provides a strong complement to Pivotal: both provide access to editing equipment, but each has a distinct market focus. Whereas Pivotal has strong customer relationships across the film industry, EPS-Cineworks enjoys a market leading franchise for producers of television content.  Given that FFI's completion contract relationships cover the full gamut of production types - film, television, streamed media - we see a strong opportunity to cross-sell EPS-Cineworks' services alongside Pivotal's into our existing customer base, reinforcing our credentials as a diversified services provider to the industry. 

 

Buff Dubs

As the importance of online content delivery has increased, so has the need for best-in-class technologies that enable media to be delivered to an ever-widening array of platforms.  That was the premise behind our purchase in December 2017 of Buff Dubs, one of Australia's most innovative post-production technical services companies and a technology leader in encoding, transcoding, media duplication and mastering. Founded in 2005, Buff Dubs has grown quickly through its ability to process media content of any type and to transform, reproduce and aggregate it into varied formats. This has helped Buff Dubs to provide services to some of the world's leading media platforms, including Netflix, Apple and Google, as well as gaming platforms including PlayStation and Xbox.  We hope that we can extend Buff Dubs technology and skills to countries outside of Australia. 

 

More generally, every film needs some form of formatting and digitisation for various devices, from smartphones to airline entertainment systems. With these capabilities, Buff Dubs is positioned strongly for the ongoing revolution in streaming services.

 

Taken together, our three newly-acquired production services companies bookend the production cycle.  Whereas Pivotal and EPS-Cineworks sit at the front end of the process, Buff Dubs is a back-end provider dealing with finished films, converting the digital assets into formats that can be accessed by digital users.

 

Content Distribution

 

As technology redefines the channels through which entertainment content is delivered to audiences, we at FFI have been examining ways in which the Group can take an economic share of the market opportunity created by the advent of streaming services. 

 

This was the motivation behind our acquisition of Signature Entertainment in April 2018, just following the close of our 2018 financial year.  Signature is the largest distributor of films in the UK by volume of films. Signature has a wealth of industry experience and acts as an aggregator for Netflix, Amazon Prime and Sky amongst other streaming services. Since it was founded in 2011, Signature has released over 600 titles, establishing itself as a leading distributor of diverse entertainment titles to a broad UK audience in both traditional cinemas and at home viewing in the process. 

 

Signature's focus is streaming media content via Video On Demand and acts as an aggregator of smaller budget films. These films, which typically have a budget of USD $5-20m, are a size for which most major distributors like Netflix and Amazon will only deal with aggregator companies in conducting distribution agreements.  In this role, Signature is the largest digital aggregator in the UK and fits well with FFI's high growth umbrella of digital media services. 

 

As with our other acquisitions, Signature offers FFI strong referral opportunities, not least in completion contracts given that within Signature's book of titles only around 3% are currently bonded by FFI. Signature also provides us with significant non-bonding referral opportunities given that all films require editing, general insurance and a range of other ancillary services which FFI can now offer. Referral opportunities are two-way, with Signature itself offering distribution options for some of our smaller-budget completion contract clients.

 

Entertainment insurance services

 

We have seen a growing demand for general risk cover amongst our customer base, as well as an ability to make selective acquisitions and forge strategic partnerships to meet these needs.  To date, we have entered into three transactions in the insurance area:

 

Reel Media

Acquired in December 2017, Reel Media is a leading US-based entertainment insurance agency and specialty brokerage that offers numerous insurance products to the entertainment industry. Reel Media delivers creative and tailored solutions for entertainment, live, touring, sports & leisure and contingency insurance needs worldwide. Its products serve the entire production and live event cycle, from pre to post-production risk mitigation. 

 

The acquisition of Reel Media extended the reach of our business into various forms of entertainment risk cover for the first time, immediately establishing FFI as a major player in this marketplace.  Reel Media now acts as the strategic platform from which FFI will continue to expand its market reach in this area.

 

Motorsports

 

Shortly after our acquisition of Reel Media, it acquired the motorsports insurance book of business from All Risks Ltd, a large independent wholesale brokerage in the U.S.  The motorsports business provides specialty and commercial insurance coverage to race teams, racetracks, sanctioning bodies, associations, road courses, and motorsports special events and activities. The book of business has been consolidated by Reel Media and its management team on-boarded as part of the its newly-created International and Motorsports division.

 

Allianz Global Corporate & Specialty (AGCS)

 

The acquisition of Reel Media was a strategic transaction that enabled FFI to secure what has been its most transformative insurance relationship to date.  In January 2018, Reel Media concluded a strategic underwriting relationship with Allianz to become their largest entertainment Managing General Agency of its North American Global Corporate & Specialty (AGCS) business. This agreement gives Reel Media delegated underwriting authority for the US-based AGCS studio, independent film and television business, as well as its US loan-out corporation and touring business. The relationship also extends into Canada, where Reel Media will have similar privileges for AGCS' studio, independent film and television franchise, as well as its Documentary, Industrial, Commercial & Educational (DICE) business.

 

In each instance, Reel Media will act as an insurance agency, and viewed in the context of our broader Group structure, represents a new services division that sits alongside our Completion Contracts and Production Services platforms. Our ability to cross sell entertainment insurance services into our existing client base is significant.  As one of Hollywood's oldest companies, our industry relationships are extremely strong and are set to deepen further as we forge new business channels between ourselves and our customers.

 

Content Investment

 

Although FFI is first and foremost a services provider, the Company is also committed to investing in entertainment content where this can enhance shareholder returns.  Once again, our position at the heart of the movie industry provides an excellent vantage point from which to identify such opportunities.

 

Of the approximately 150-200 projects per annum FFI provides completion contracts for, we would expect to see five or six projects which may be appropriate for this type of strategic, low risk investment. Thus far, FFI has acted on two of these opportunities.  In 2016, FFI acquired certain South American territorial rights associated with a film for $1 million. At the same time, we were able to secure an onward distribution deal commencing in September 2017 with a major studio with a return of $2 million which has been realised and is accounted for in full in the 2018 financial results.

 

At a similar time, FFI co-financed the production of a 45-minute IMAX documentary called Pandas. From a cinematographic standpoint, this was a challenging project that involved filming pandas in the wild in the forests of Central China.  Distributed and partly financed by IMAX and Warner Brothers, the film was released in April 2018 to select theatres.  This followed a short production delay relating to an improvement in IMAX photographic technology that required part of the movie to be re-shot. The results, we believe, were worth waiting for - Pandas met with resounding critical acclaim and is expected to be a staple of IMAX theatres worldwide once global distribution is concluded, now expected to be late in 2018. From a financial perspective, FFI will be entitled to approximately 21% of the net revenues of this film after repayment of the production costs and deduction of distribution fees and marketing expenses. In light of the early success of this venture, FFI is also in discussions with IMAX regarding expanding our relationship to co-finance additional documentaries in the future.

 

China

 

As a country in which FFI operates, China deserves a special mention.  The country's sheer size, in both economic and demographic terms, are strong indicators of its potential to become the world's largest entertainment market.

 

FFI was an early mover in this high-growth market, which is seeing significant growth in the number of movie theatres and film production companies, as well as sustained demand for content given the prevalence of mobile devices as the platform of choice for Chinese viewers.  FFI China already provides completion contracts for local language and international co-productions and is broadening its business to provide consulting services for entertainment insurance and other services in China. In providing these services, FFI has a strategic relationship with the People's Insurance Company of China (PICC), the world's largest insurance company, which offers us considerable customer reach. At the same time, our collaboration with IMAX on the production of Pandas afforded us unique insight into the local film production industry and fostered relationships which we will build upon in the years ahead.

 

Financial Results

 

Group Overview

Revenues grew by 51.7% to $58.9m (FY 2017: $38.8m) as first-time contributions from our newly acquired businesses contributed to our top line. Adjusted for IPO-related expenses ($9.5m), acquisition-related expenses ($1.2m), and acquisition-related intangible asset amortization ($0.6m), underlying EBIT grew by 30.3% to $16.6m (FY 2017: $12.7m). On a reported basis, operating profits declined by 49.2% to $5.3m (FY 2017: $10.5m) once IPO-related and acquisition-related exceptional costs are accounted for. Adjusted net income for the period was $1.7m, down 67.9% versus FY 2017 ($5.5m), reflecting these exceptional costs and the absence of a one-time profit contribution in FY 2017 from discontinued operations of $2.8m. 

 

Continuing operations (USD)

      FY 2018

Margin (%)

Revenue

58,889,742

51.7%

 

Gross profit

44,852,963

47.9%

76.2%

Underlying EBIT *

16,609,296

30.3%

28.2%

Reported EBIT **

5,308,315

-49.2%

9.0%

Pre-tax profit

5,270,354

-48.8%

8.9%

After tax profit from continuing operations

1,502,581

-74.0%

2.6%

Adjusted net income***

1,748,471

-67.9%

3.0%

 

* Underlying EBIT: Represents operating income, adjusted for exceptional costs of $10.7m (FY 2017: $1.9m), acquisition-related amortization of $0.6m (FY 2017: $0), and lifestyle-related expenses of $0 (FY 2017: $0.4m)

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

*** Adjusted net income: Total comprehensive income, excluding net profit from discontinued operations. Adjusted net income impacted by material IPO-related expenditures non-deductible for U.S. income tax purposes.

 

A key feature of financial year 2018 was a significant broadening in FFI's sales mix, adding new revenue contributions from pre and post production services, content distribution, and insurance agency services for the first time. As a result, our completion contracts accounted for two-thirds (67.1%) of our revenues in financial year 2018, down from 96.8% in FY 2017.  The remaining revenue contribution came from pre and post production services (25.3%), which includes editing equipment rental and technical services, insurance agency services (3.7%) and content distribution (3.4%).

 

 

 

For the year

 ended 31

 March 2018

Completion contracts

 

USD

Editing equipment rental

USD

Technical

services

 

USD

Insurance

agency

 

USD

Tax credit financing

 

USD

Content

distribution

 

USD

Unallocated corporate expenses

USD

Group

 

 

USD

Total revenue

39,527,383

13,806,215

1,073,939

2,191,835

290,370

2,000,000

-

58,889,742

Gross profit

34,284,721

7,551,319

460,909

1,268,296

287,718

1,000,000

-

44,852,963

Operating   

 profit/(loss)

 

13,695,764

 

2,430,585

 

(203,971)

 

(1,196,557)

 

280,907

 

1,000,000

 

(10,698,413)

 

5,308,315

Finance income

31,784

-

-

4,175

-

-

-

35,959

Finance costs

(33,421)

(41,617)

(1,657)

-

(22,948)

-

-

(99,643)

Net profit from

  joint venture

 

-

 

-

 

-

 

25,723

 

-

 

-

 

-

 

25,723

Profit/(loss) 

 before taxation

 

13,694,127

 

2,388,968

 

(205,628)

 

(1,166,659)

 

257,959

 

1,000,000

 

(10,698,413)

 

5,270,354

 

 

By region, North America continued to be FFI's biggest market (71.5% of revenue), whilst Asia (specifically China) made a significant contribution to sales (9.0% of revenue) as first-time receipts from completion contracts were recognised. South America made an appearance as a geographic end-market for the first time (3.4% of revenue), which relates to the distribution rights FFI acquired for film distribution into this region.* 

 

*Refer to Section 3.3 for a summary of key performance indicators for FFI's major operating segments.

 

Completion Contracts

 

Our completion contract business continued to grow over the period, delivering revenues of $39.5m (FY 2017: $37.6m). This was helped by the contribution from Asia of $5.3m (13.4% of total).  North America remained the largest region by volume and sales for completion contracts:

 

Completion Contract Revenue by geographical segment:


 

FY 2018 ($)

FY 2017 ($)

YOY change (%)

Asia

 5,302,188

6,293

n/a

Australia

 1,890,871

 2,156,006

-12%

Europe

 5,539,750

 5,111,835

8%

Middle East & Africa

 146,179

 130,771

12%

North America

 26,648,395

 30,160,089

-12%

 

 $39,527,383

 $37,564,994

5%

 

North American completion contracts revenues declined year over year in FY 2018 to $26.6m (FY 2017: $30.1m).  This was in part, due to a slowdown in production in the six months following allegations of misconduct by executives and talent in the film industry, that emerged in the last calendar quarter of 2017.  A number of titles in the Group's pipeline for completion bonding and post production editing in the financial year were either cancelled or delayed as a result. In particular, the FFI pipeline reflected $3.5m in completion guarantee fees from the three large titles from one specific production company, which it is not now in a position to proceed with.

 

Following the creation of our in-house insurance captive, FFI Insurance, at the end of September 2017, gross insurance costs fell significantly during the financial year to 33.7% of net completion guarantee fees (FY 2017: 42.5%).  Net claims for financial year 2018 were $1.3m (FY 2017:  $0.3m net recoveries), representing 3.7% of completion guarantee fees. We expect our new captive insurance arrangement to continue to enable future reductions to our net insurance costs going forward.

 

FFI continues to issue completion contracts for between 150 - 200 productions per annum, a figure that has tended to remain relatively constant over time. This number is more than all the feature films produced by the major studios in the United States combined. For this service, FFI charges a fee based on the total production budget. In turn, FFI mitigates its risk by buying insurance, thereby earning a profitable spread on each production. Fees charged by FFI are paid and received up-front and in full at the time the completion contract is issued.

Whereas the total number of bonded productions has tended not to change dramatically year on year, the Group's completion contract business has seen a steady growth in movie budgets over time, which in turn has driven growth in FFI's total value of bonded budgets since 2000. As at the end of March 2018, the total annual budget of FFI's bonded projects had grown to $2.0 billion, over three times the level it was in 2000.  The growth in the average single production budget that FFI bonds mirrors this.  As at the end of March 2018, this had grown to $14.3 m, more than three times the budget during the year 2000.

 

In part due to the previously mentioned industry events, the number of new projects in our completion contracts business was lower in FY 2018 at 142 (FY 2017: 168). Average budget per project was marginally higher at $14.3m (FY 2017: $14.1m). Along with first-time contributions from China, this resulted in total completion contract revenues of $39.5m (FY 2017: $37.6m).

The exceptional events of 2017 aside, we expect that both the total and average budget of FFI's bonded projects will continue to grow over time, in line with historical precedent and the growing demand for high-quality content globally.  It is not possible to state with certainty that film budgets will always continue to increase, but the trend has been that the average budgets for films bonded by us increases over the long term.  Despite advancements in technology allowing some content to be produced more cheaply, this has not tended to apply to theatrical features and high budget episodic television, where delivering high production value and scale has remained vitally important.  FFI's entry into China also gives us added confidence in our ability to grow the total number of productions we provide completion contracts for each year, albeit at potentially lower average budget sizes given the generally smaller scale of Chinese productions. 

 

Pre and post-production services

 

Acquisitions of post-production services companies have been a key strategic focus of our business as we leverage FFI's core Completion Contracts franchise to deliver an ever-broader range of capabilities to our customers.

First-time contributions from our newly acquired businesses made a significant contribution to our financial performance in FY 2018, which saw the first full-year revenue contribution from Pivotal Post and part-year contributions following the acquisitions of EPS-Cineworks and Buff Dubs.  On an underlying EBIT basis, these combined businesses contributed $2.8m (17% of total), versus 2% in FY 2017 (Pivotal Post only).

Entertainment Insurance Agency Services

Our two acquisitions in the area of entertainment risk insurance (Reel Media and Motorsports) came late in our financial year, as did the strategic partnership we forged with Allianz Global Corporate & Specialty (AGCS). We also experienced some challenges in our integration of Reel Media where we saw delays in the launch of a number of insurance lines as well as delays in the timing of contract renewals.  However, these early stage issues have now been overcome; there is significant product development underway and we are on target to continue with further launches of new business lines in this sector.

 

China

China continues to be the newest and most exciting growth market for FFI.  As one of very few companies licensed to offer completion contracts to the domestic entertainment industry, we see significant opportunities to expand our commercial reach in what remains one of the world's fastest growing entertainment markets. Our relationship with PICC remains strong and rollout on entertainment risk insurance services has now begun with training of key FFI China personnel. With $5 million in first time proceeds realised, China contributed 13.4% to total completion contract revenues. We expect to write our first policies in this business during financial year 2019.

 Acquisitions Update

As described in the Operational Review section, acquisitions are core to FFI's growth strategy. The global entertainment production industry remains highly fragmented; outside of the large movie studios, it is dominated by a large number of private companies, many of which with discrete skills and specialty services.

 

We see a strong opportunity on behalf of our shareholders to play a consolidator role in this market where we can identify attractively-valued companies with services that complement FFI's existing businesses.  These must be businesses that can make an immediate financial contribution to our Group but which also offer us referral opportunities over time to cross-sell our services. 

Our track record to date (six acquisitions since February 2017) points to our success here, not only in terms of the range of capabilities we have been able to harness to the FFI platform but also the accretive valuations we have been able to secure these business for (typically between 3 and 5 times EBITDA multiples).  The financing of these acquisitions has also been conducted in a capital-efficient manner, with the majority agreed on a partial earnout basis, enabling us to fund these largely through operating cashflow.

 

Name

Date

Cash consideration

Deferred consideration

Historic sales

Historic EBIT

Activity

Pivotal Post

28 February 2017

 $4.0m

$0.4m annually for 4 years, plus 30% of excess annual EBITDA targets of $2.5m in 2017, $2.6m in 2018, $2.7m in 2019, and $2.8m in 2020

$9.9m

$1.5m

Provides post production equipment rental and software for filmmakers around the world

EPS-Cineworks

10 November 2017

$8.3m

2 x $0.6m

$9.4m

$2.7m

US post-production, including television

Buff Dubs

1 December 2017

$1.1m

5x 12.5% EBITDA at 4x

$3.3m

$0.7m

Australian post production, including gaming

Reel Media

20 December 2017

$7.4m

5x annual instalments of 6 x 8.6% x trailing EBITDA

$9.9m

$2.7m

Entertainment insurance provider, based in North America

Motorsports

10 January 2018

$1.825m

None

Unknown

Expected $0.6m

Motorsports insurance book 

Signature Entertainment

26 April 2018

$5m

4 x 13.75% prevailing EBIT at 5x

$12.1m

$2.0m

Film distribution in the UK

 

 

 

 

Outlook

 

On the business side, the industry we operate in is experiencing an era of profound transformation. Since the advent of "home video" in the 1980's, technology has continued to drive change across the entertainment landscape at a rate that has been consistently underestimated. There is not only an unprecedented demand for content, but with the rise of streaming services there has been a significant shift in the ways and means by which people are viewing it. This trend has escalated dramatically over the last five years leading to ongoing disruption and the emergence of a new group of financial players and production demands in the market. 

However, whilst things may change, many aspects of the independent content business remain constant and our level of expertise within this field remains unrivalled.  The viewer demand to be entertained is stronger than it has ever been, and FFI is uniquely positioned to capitalise on the opportunities presented for servicing the needs of content creators in this consistently changing landscape.  We are excited about the year ahead and look forward to continuing to grow our various lines of business, with recent developments including the hiring of a team of specialists at Reel Media to complement its existing Motorsports business. We anticipate an additional $3m of salary and operational overhead expenses in FY 2019 and on an annualized basis expect revenues for Reel Media to outpace the additional overhead cost and add to EBIT during FY 2020.

FFI's corporate overhead expenses are expected to be ahead of the board's previous expectations for FY 2019. These additional overhead expenses are related to an expansion of the Company's legal, accounting and IT infrastructure to support acquisitions and future growth as well public company and compliance expenses being ahead of budget. The Board expects to report Underlying EBIT in the range of $20-22 million for the fiscal year ending 31 March 2019, as more fully described below.

As with any corporate endeavour, our success is rooted in the skills and dedication of our employees, and the loyalty of our customers, without whom FFI would not have thrived for nearly seven decades at the heart of the entertainment industry.  I would like to take this opportunity to thank them for their commitment and support as we embark on the next phase of our journey in this ever-changing industry.   

 

FFI Holdings Plc

 

 

 

Consolidated statement of comprehensive income

 

 

 

for the year ended 31 March 2018

 

 

 

 

 

2018

2017

 

 

USD

USD

Continuing operations

 

 

 

Revenue

3

                     58,889,742

                     38,812,125

Costs related to revenue

4

                   (14,036,779)

                     (8,490,550)

Gross profit

 

                     44,852,963

                     30,321,575

Administrative and other expenses

5

                   (29,434,638)

                   (18,853,329)

Exceptional costs

5

                   (10,698,413)

                     (1,894,445)

Other income

 

                          588,403

                          924,666

Other expense

 

                                    -  

                          (42,633)

Operating profit

 

                       5,308,315

                     10,455,834

Financing income

7

                            35,959

                            42,310

Finance costs

7

                          (99,643)

                        (202,205)

 

 

                       5,244,631

                     10,295,939

Net profit from joint venture

20

                            25,723

                                    -  

Profit before taxation

 

                       5,270,354

                     10,295,939

Taxation

9

                     (3,767,773)

                     (4,518,441)

Profit for the year from continuing operations

 

                       1,502,581

                       5,777,498

Discontinued operations

 

 

 

(Loss)/profit for the year from discontinued operations

35

                          (10,872)

                       2,844,697

Profit for the year

 

                       1,491,709

                       8,622,195

 

 

 

 

Total profit for the year attributable to:

 

 

 

     Owners of the Company

 

                       1,428,769

                       8,429,493

     Non-controlling interest

19

                            62,940

                          192,702

 

 

                       1,491,709

                       8,622,195

Other comprehensive income, net of income tax

 

 

 

Exchange difference on translating foreign
   operations attributable to Owners of the Company

 

                          237,075

                        (307,070)

Total other comprehensive income attributable
   to Owners of the Company

 

                          237,075

                        (307,070)

Exchange difference on translating foreign
   operations attributable to non-controlling interests

 

                              8,815

                          (20,063)

Total comprehensive income for the year

 

                       1,737,599

                       8,295,062

 

 

 

 

Total comprehensive income attributable to:

 

 

 

     Owners of the Company

 

                       1,665,844

                       8,122,423

     Non-controlling interest

19

                            71,755

                          172,639

 

 

                       1,737,599

                       8,295,062

Earnings per share attributable to owners of the parent

 

 

 

Total

 

 

 

   Basic (cents)

10

                                0.94

                                6.20

   Diluted (cents)

10

                                0.93

                                6.20

Continuing operations

 

 

 

   Basic (cents)

10

                                0.99

                                4.25

   Diluted (cents)

10

                                0.98

                                4.25

 

 

FFI Holdings Plc

 

 

 

Consolidated statement of financial position

 

 

 

as at 31 March 2018

 

 

 

 

 

31 March

31 March

 

 

2018

2017

 

 

USD

USD

Assets

 

 

 

Non-current

 

 

 

Goodwill

14

                     31,215,954

                       9,871,423

Intangible assets

15

                     15,468,359

                       5,472,988

Investments

16

                          283,113

                          283,113

Investment in joint venture

20

                          410,723

                                   -  

Other non current assets

17

                       1,490,890

                          741,279

Property, plant and equipment

18

                       4,647,389

                       2,957,436

Deferred tax assets

9

                       1,626,893

                          646,079

Non-current assets

 

                     55,143,321

                     19,972,318

 

 

 

 

Current

 

 

 

Trade and other receivables

21

                     18,512,663

                     12,164,786

Other current assets

22

                       2,631,936

                       4,428,372

Restricted cash

23

                     68,382,153

                     40,397,215

Cash and cash equivalents

24

                     23,552,491

                     13,146,871

 

 

                   113,079,243

                     70,137,244

Assets classified as held for sale

20

                                   -  

                          216,044

Current assets

 

                   113,079,243

                     70,353,288

Total assets

 

                   168,222,564

                     90,325,606

 

 

 

 

Equity and liabilities

 

 

 

Equity

 

 

 

Share capital (2017 restated, see note 2.2)

12

                       2,035,570

                       1,763,402

Share premium

8

                     38,539,508

                                   -  

Other reserve (2017 restated, see note 2.2)

8

                     14,731,074

                     14,731,074

Merger reserve (2017 restated, see note 2.2)

8

                   (16,384,976)

                   (16,384,976)

Foreign exchange

 

                          (87,292)

                        (324,367)

Share based payment reserve

13

                       3,807,511

                                   -  

Retained earnings

 

                     19,423,978

                     17,995,209

Total equity attributable to owners of the Company

                     62,065,373

                     17,780,342

Non-controlling interests

19

                          103,911

                          139,120

Total equity

 

                     62,169,284

                     17,919,462

 

 

 

 

Liabilities

 

 

 

Non-current

 

 

 

Borrowings

25

                          379,415

                          590,163

Other payables

33

                     15,208,995

                       1,709,000

Deferred tax liabilities

9

                       1,631,578

                       4,667,661

Non-current liabilities

 

                     17,219,988

                       6,966,824

 

 

 

 

Current

 

 

 

Trade and other payables

26

                     28,004,345

                     21,737,427

Income tax payable

 

                          316,323

                       1,287,635

Payables to production

23

                     56,119,649

                     36,265,379

Provision for losses

27

                          609,556

                          777,246

Borrowings

25

                       3,783,419

                       5,371,633

Current liabilities

 

                     88,833,292

                     65,439,320

Total liabilities

 

                   106,053,280

                     72,406,144

Total equity and liabilities

 

                   168,222,564

                     90,325,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFI Holdings Plc

Consolidated statement of cash flows

 

 

 

for the year ended 31 March 2018

 

 

 

 

 

2018

2017

 

 

USD

USD

Cash flows from operating activities

 

 

 

Profit before taxation including discontinued operations

 

                       5,259,482

                     13,140,636

Adjustments for:

 

 

 

Share based payments

13

                       3,807,511

                                   -  

Depreciation

18

                       1,680,328

                          214,770

Amortisation of intangible assets

15

                          643,513

                            82,694

Finance costs

 

                            99,643

                          202,205

Loss/(profit) on disposal of subsidiary

34/35

                            10,872

                     (2,810,569)

Net foreign exchange loss/(gain)

 

                          245,890

                        (327,133)

 

 

                     11,747,239

                     10,502,603

Increase in working capital:

 

 

 

Increase in restricted cash

23

                     (6,851,698)

                          (58,086)

Increase in accounts receivable

21

                        (640,836)

                        (920,128)

Decrease/(increase) in other assets

 

                       2,202,656

                     (1,686,628)

Decrease in trade and other payables

26

                     (2,480,107)

                        (717,149)

(Decrease)/increase in provision for losses

27

                        (167,690)

                          319,614

(Decrease)/increase in deferred revenue

26

                     (1,218,839)

                       1,510,019

Cash generated from operations

 

                       2,590,725

                       8,950,245

Interest paid

 

                          (67,733)

                        (202,205)

Income taxes paid

 

                     (8,420,884)

                     (2,013,859)

Net cash (used in)/generated from operating activities

 

                     (5,897,892)

                       6,734,181

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds on sale of financial assets

20

                          216,044

                                   -  

Purchases of intangible assets

15

                     (3,897,010)

                     (2,989,016)

Purchase of property, plant and equipment

18

                     (1,502,812)

                        (260,167)

Loan amounts advanced to employees

21

                                   -  

                     (4,862,113)

Loan repayments by employees

21

                       3,275,871

                       1,867,030

Net cash outflow on acquisition of subsidiaries

33

                   (18,223,228)

                     (3,016,503)

Net cash used in investing activities

 

                   (20,131,135)

                     (9,260,769)

 

 

 

 

Cash flows from financing activities

 

 

 

Net proceeds from issue of share capital

8

                     38,811,676

                                   -  

Distribution of capital to non-controlling interests

 

                        (106,964)

                            (7,660)

Proceeds from borrowings

25

                       3,500,000

                       5,157,707

Repayment of borrowings

25

                     (5,770,065)

                     (4,405,372)

Net cash generated by financing activities

 

                     36,434,647

                          744,675

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

                     10,405,620

                     (1,781,913)

Cash and cash equivalents at the beginning of the year

24

                     13,146,871

                     14,928,784

Cash and cash equivalents at the end of the year

24

                     23,552,491

                     13,146,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFI Holdings Plc

Consolidated statement of changes in equity

for the year ended 31 March 2018

 

Equity attributable to owners of the parent

 

 

 

 

Share

Share

Treasury

Other

Merger

Foreign

Share

Retained

Total equity

Non-

Total

 

capital

premium

shares

reserve

reserve

exchange

based

earnings

attributable

controlling

equity

 

 

 

 

 

 

 

payment

 

to owners of

interest

 

 

 

 

 

 

 

 

reserve

 

the parent

 

 

 

USD

USD

USD

USD

USD

USD

USD

USD

USD

USD

USD

Balance at 31 March
   2016

       1,763,402

-  

-  

     14,731,074

   (16,384,976)

          (17,297)

-  

     12,376,285

     12,468,488

          (25,859)

     12,442,629

Profit for the period

-  

-  

-  

-  

-  

-  

-  

       8,429,493

       8,429,493

          192,702

       8,622,195

Other comprehensive
   income for the period

 -  

-  

-  

-  

 -

        (307,070)

 -

        (307,070)

          (20,063)

        (327,133)

Total comprehensive
   income for the period

-  

-  

-  

-  

-  

        (307,070)

-  

       8,429,493

       8,122,423

          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)

-  

     (2,810,569)

Balance at 31 March
   2017

       1,763,402

-  

-  

     14,731,074

   (16,384,976)

        (324,367)

-  

     17,995,209

     17,780,342

          139,120

     17,919,462

Profit for the period

-  

-  

-  

-  

-  

-  

-  

       1,428,769

       1,428,769

            62,940

       1,491,709

Other comprehensive
   income for the period

-  

-  

-  

-  

-  

          237,075

-  

-  

          237,075

              8,815

          245,890

Total comprehensive
   income for the period

-  

                    -  

-  

-  

-  

          237,075

-  

       1,428,769

       1,665,844

            71,755

       1,737,599

Issue of shares during period

          272,168

     40,553,072

-  

-  

-  

-  

-  

-  

     40,825,240

-  

     40,825,240

Issuance costs

 

     (2,013,564)

 

-  

-  

-  

-  

-  

     (2,013,564)

-  

     (2,013,564)

Equity settled share based
   payments

-  

-  

-  

-  

-  

-  

       3,807,511

-  

       3,807,511

-  

       3,807,511

Disposal of subsidiary
   (note 34)

-  

-  

-  

-  

-  

-  

-  

-  

-  

            (1,930)

            (1,930)

Distribution of capital to
   non-controlling interests

-  

-  

-  

-  

-  

-  

-  

-  

-  

        (105,034)

        (105,034)

Balance at 31 March
   2018

       2,035,570

     38,539,508

-  

     14,731,074

   (16,384,976)

          (87,292)

       3,807,511

     19,423,978

     62,065,373

          103,911

     62,169,284

 

 

FFI Holdings Plc

Notes

 

1.       General Information

FFI Holdings Plc. (the 'Company') is the holding company of a group of companies (the 'Group') whose principal activity is to provide completion contracts to financers 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.  The Group also provides film editing equipment and editing suite rentals, post-production technical services, investment in content and entertainment-related insurance services. 

 

These results for the year ended 31 March 2018 are an excerpt from the Annual Report & Accounts 2018 and do not constitute the Group's statutory accounts for 2018 or non-statutory accounts for 2017. Non-statutory accounts for Film Finances, Inc for the year to 31 March 2017 are available on the Group's website, and the FFI Holdings PLC statutory accounts for the year to 31 March 2018 will be delivered to the Registrar of Companies by 14 September 2018. The Auditor has reported on both those accounts; their reports were unqualified, did not draw attention on to any matters by way of emphasis and did not contain statements under Sections 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. Whilst the financial information included in this Annual Results Release has been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union (EU), this announcement does not itself contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS are included in the Annual Report & Accounts 2018 which will be available at www.filmfinances.com.

 

The preliminary announcement was approved by the board and authorised for issue on 31 August 2018.

 

2.       Segmental Information

For management purposes, the Group is organised into six operating segments; completion contracts, editing equipment rentals, technical services, insurance agency, tax credit financing, and content distribution.  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 Captive costs are included with the completion contracts. 

 

The principal activities of the operating segments are as follows:

 

Completion Contracts

The main segment of the Group is to provide completion contracts to financers and distributors in connection with the production of film and television content.

 

Editing Equipment Rental

A segment of the Group provides film editing equipment and editing suite rentals.  The Group acquired EPS-Cineworks, Inc. on 10 November 2017 to expand the editing equipment rentals segment.  EPS-Cineworks, Inc. provides post-production equipment rental and software services with a focus on theatrical and television productions in North America.  In the prior year, Rainbow Production Services, LLC was acquired on 28 February 2017.  See note 33.

 

Technical Services

Buff Dubs was acquired on 1 December 2017 and is a post-production services company in Australia with capabilities in encoding, transcoding, media duplication, and mastering for film and television productions (see note 33).  This is a new operating segment for the Group.   

 

Insurance Agency

Reel Media LLC was acquired on 20 December 2017 and is an insurance agency that helps provide insurance agency services for a variety of entertainment events including film, television, theatre, and concerts (see note 33).  This is a new operating segment for the Group. 

 

Tax Credit Financing

A segment of the Group provides tax credit financing in the entertainment industry.

 

Content Distribution

A segment of the Group acquires and distributes film content.

 

 

 

For the year

 ended 31

 March 2018

Completion contracts

 

USD

Editing equipment rental

USD

Technical

services

 

USD

Insurance

agency

 

USD

Tax credit financing

 

USD

Content

distribution

 

USD

Unallocated corporate expenses

USD

Group

 

 

USD

Total revenue

39,527,383

13,806,215

1,073,939

2,191,835

290,370

2,000,000

-

58,889,742

Gross profit

34,284,721

7,551,319

460,909

1,268,296

287,718

1,000,000

-

44,852,963

Operating   

 profit/(loss)

 

13,695,764

 

2,430,585

 

(203,971)

 

(1,196,557)

 

280,907

 

1,000,000

 

(10,698,413)

 

5,308,315

Finance income

31,784

-

-

4,175

-

-

-

35,959

Finance costs

(33,421)

(41,617)

(1,657)

-

(22,948)

-

-

(99,643)

Net profit from

  joint venture

 

-

 

-

 

-

 

25,723

 

-

 

-

 

-

 

25,723

Profit/(loss) 

 before taxation

 

13,694,127

 

2,388,968

 

(205,628)

 

(1,166,659)

 

257,959

 

1,000,000

 

(10,698,413)

 

5,270,354

 

 

For the year   

 ended 31

 March 2017

Completion contracts

 

USD

Editing equipment rental

USD

Technical services

 

USD

Insurance

agency

 

USD

Tax credit financing

 

USD

Content

distribution

 

USD

Unallocated corporate expenses

USD

Group

 

 

USD

Total revenue

37,564,994

931,397

-

-

315,734

-

-

38,812,125

Gross profit

29,493,805

560,252

-

-

267,518

-

-

30,321,575

Operating

 Profit/(loss)

 

11,863,380

 

272,548

 

-

 

-

 

214,351

 

-

 

(1,894,445)

 

10,455,834

Finance income

42,310

-

-

-

-

-

-

42,310

Finance costs

-

-

-

-

(202,205)

-

-

(202,205)

Profit/(loss)

 before taxation

 

11,905,690

 

272,548

 

-

 

-

 

12,146

 

-

 

(1,894,445)

 

10,295,939

 

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

 

 

 

2018

USD

2017

USD

Asia

 5,302,189

 6,293

Australia

 2,964,810

 2,156,006

Europe

 6,357,528

 5,499,305

Middle East & Africa

 146,179

 130,771

North America

 42,119,036

 31,019,750

South America

 2,000,000

 -  

 

 58,889,742

 38,812,125

 

There were no single customers that contributed 10% or more of the Group's revenue for the years ended 31 March 2018 (2017: $nil). 

There was no dividend income earned for the year ending 31 March 2018 (2017: $nil).  See Note 20 for more information on the investment in the joint venture. 

 

3.       Cost of sales

The cost of sales is made up of the following charges/(credits):

 

 

 

2018

USD

2017

USD

Staff costs

 4,047,089

 193,776

Insurance costs

 11,636,243

 15,977,127

Insurance rebate

 (8,086,849)

 (7,688,559)

Net claims/(recoveries)

 1,273,708

 (295,662)

Content/distribution fees

 1,000,000

 -  

Commissions expense

 923,539

 -  

Monitoring

 189,804

 19,645

Legal

 14,233

 44,188

Depreciation

 1,532,238

 81,923

Other

 1,506,774

 158,112

 

 14,036,779

 8,490,550

 

4.       Expenses

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

 

 

 

2018

USD

2017

USD

Staff costs

 15,537,590

 10,915,773

Operating lease rentals

 4,537,855

 1,591,143

Depreciation of property, plant and equipment

 148,090

 132,847

Amortisation of intangible assets

 643,513

 82,694

Exchange rate transactional differences

 80,990

 (263,911)

Bad debt expense

 -  

 334,071

Other administrative costs

 8,486,600

 6,060,712

 

 29,434,638

 18,853,329

 

 

 

2018

USD

2017

USD

Exceptional costs

 

 

Initial public offering costs (note 8)

9,506,943

-

Acquisition costs (note 33)

1,191,470

-

Disposal of Realta Production Group, Inc. (note 34)

-

1,579,306

Other

-

315,139

Total exceptional costs

10,698,413

1,894,445

 

Costs of $9,506,943 were recognised during the year related to the initial public offering costs (see note 8).  Included in these costs was $3,807,511 of stock compensation costs and $369,275 in consulting fees paid to a director as part of a pre-IPO arrangements.  Costs of $1,191,470 were recognised during the year related to acquisition costs (see note 33). 

 

Costs of $1,579,306 were recognised during the prior year in respect of the disposal of Realta Production Group, Inc. (see note 34) and to other legal matters connected with pre-IPO shareholder transactions. Costs of $315,139 were recognised during the prior year in respect to failed share purchase transactions. 

 

These costs have been included as exceptional costs on the statement of comprehensive income. 

 

 

 

2018

USD

2017

USD

Employment costs for the Group (including Executive Directors)

 

 

Wages, salaries and commissions

 16,758,384

 9,479,595

Social security costs

 1,209,531

 763,013

Benefits

 1,197,540

 668,852

Pension-defined contribution plan

 419,224

 198,089

 

 19,584,679

 11,109,549

Included in the wages, salaries and commissions are the following amounts paid to the Directors:

 

 

Directors emoluments

 1,323,356

 2,809,650

Pension-defined contribution plan

 7,950

 21,200

 

 1,331,306

 2,830,850

 

Wage and salary costs were inclusive of bonus payments totalling $1,338,731 (2017: $1,540,885). 

 

 

 

2018

Average

USD

2017

Average

USD

Number of employees in the Group

 

 

Completion contracts

76

70

Editing equipment rental

35

4

Insurance agency

7

-

Technical services

9

-

 

127

75

 

The employee numbers reflect the average employees of the Group for the year, including those employees who joined the Group through acquisitions. 

 

More detailed information concerning the Directors' remuneration, pension entitlements, and other long term incentive plans is included in the Directors' Remuneration Report in the Annual Report.

 

5.       Audit, audit related and other non-audit services

The following fees were paid or are payable to the Group's auditors. 

 

 

2018

USD

2017

USD

Audit services:

 

 

The audit of the parent company and the consolidated financial statements

301,028

197,275

 

301,028

197,275

Other non-audit services:

 

 

Tax services

200,110

95,850

IPO related services

232,980

-

Other

7,004

-

 

440,094

95,850

Total services

741,122

293,125

 

6.       Financing income and finance costs

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

 

 

 

2018

USD

2017

USD

Financing income

 

 

Bank interest

 35,959

 42,310

Total financing income

 35,959

 42,310

Finance costs

 

 

Bank interest

 99,643

 202,205

Total finance expense

 99,643

 202,205

 

7.       Initial Public Offering

On 30 June 2017 the Group published its AIM Admission Document following its successful $38.8m fundraising.  Its ordinary shares of £0.01 each were admitted to trading on the AIM market on 30 June 2017. 

 

The Group issued 20,997,375 shares at a price of $1.94 per share, valuing the group at approximately $306m on issue and raising $40.8m before expenses.  Total expenses of the Initial public offering ('IPO') and fundraising were $11,520,507, of which $2,013,564 were directly attributable to the issue of the new shares and have been charged to the Share Premium account.  The balance of $9,506,943 has been charged to the Consolidated Income Statement and included within administrative expenses in the period ended 30 September 2017. 

 

To facilitate the IPO, FFI Holdings Plc was incorporated on 30 May 2017 and acquired the entire issued share capital of Film Finances, Inc. and Subsidiaries under a share for share exchange on 30 June 2017.

 

A number of one-off and non-cash items, totalling $9,506,943 are summarised in the following table. 

 

 

 

2018

USD

2017

USD

Exceptional Costs

 

 

Expenses of the IPO - one off

 5,699,432

 -  

Equity settled share based payment transactions - non-cash

 3,807,511

 -  

 

 9,506,943

 -  

 

8.       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:

 

 

2018

USD

2017

USD

Current

 7,567,079

 3,312,528

Deferred

 (3,799,306)

 1,205,913

 

 3,767,773

 4,518,441

 

 

 

 

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

 

 

 

2018

USD

2017

USD

Profit before tax from continuing operations

 5,270,354

 10,295,939

 

 

 

Tax on book income at Federal statutory rate (effective rate of 34%)

 1,662,797

 3,500,619

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

 192,104

 348,913

Non-deductible expenses

 1,883,905

 11,975

Effect of different tax rates of subsidiaries in foreign jurisdiction

 92,285

 68,656

Effect of tax credits of subsidiaries in foreign jurisdiction

 292,375

 103,152

Other return to provision adjustments

 (330,184)

 278,079

Change in statutory rate

(25,509)

-

Adjustment to deferred income tax

-

207,047

 

3,767,773

4,518,441

 

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:

 

 

 

2018

USD

2017

USD

Deferred tax assets

 

 

Net operating loss

-

49,542

Deferred revenue

137,534

-

Accrued bonus

276,666

 -  

Stock options

997,258

-

State taxes and other

215,435

 596,537

Total Assets

 1,626,893

646,079

 

 

 

Deferred tax liabilities

 

 

Deferred revenue

 -  

 2,386,420

Capitalised expenses

 522,495

 1,035,330

Customer relationships

 154,106

 311,921

Rebate receivable

 817,915

 863,577

Depreciation

 137,062

 70,413

Total liabilities

 1,631,578

 4,667,661

 

 

 

Net deferred tax assets and liabilities

 

 

Deferred tax assets

 1,626,893

 646,079

Deferred tax liabilities

 (1,631,578)

 (4,667,661)

Net deferred tax liability

(4,685)

 (4,021,582)

 

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 2015 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 returns for the years ended 31 March 2016 and 2017 are 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 event 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.

At 31 March 2018, the Group has no federal or state net operating loss carryforward (2017: $1,000 state net operating loss carryforward.   

 

FFI Holdings Plc is a taxable entity by the US IRS due to inversion tax laws. 

 

9.       Earnings per share

Basic earnings per share has been calculated on the earnings after tax for the period and the weighted average number of ordinary shares in issue during the period. 

 

 

 

2018

USD

2017

USD

Weighted average number of shares in issue

 151,791,904

 136,043,873

Profit for the year attributable to owners of the Company

 1,428,769

 8,429,493

Total basic earnings per share (cents)

 0.94

 6.20

 

 

 

Weighted average number of shares in issue

 151,791,904

 136,043,873

Share options

 1,918,219

 -  

Weighted average fully diluted number of shares in issue

 153,710,123

 136,043,873

Total fully diluted earnings per share (cents)

 0.93

 6.20

 

 

 

Continuing earnings for the year

 1,502,581

 5,777,498

Continuing basic earnings per share (cents)

 0.99

 4.25

Continuing fully diluted earnings per share (cents)

 0.98

 4.25

 

10.    Dividends

 

There were no dividends declared or paid in 2018 (2017: $nil). 

 

11.    Share capital

 

 

Number of ordinary

Shares of £0.01

Number of redeemable shares of £1.00 

Total

 

USD

At 30 May 2017 on incorporation

 1

 -  

 -  

Issued on 31 May 2017

-

50,000

64,810

Cancelation of shares 30 June 2017

-

(50,000)

(64,810)

Issued on 30 June 2017 related to share for share

  agreement (note 2.2)

 

 136,043,872

 

 -  

 1,763,402

Issued on 30 June 2017 related to IPO (note 8)

 20,997,375

 -  

 272,168

At 31 March 2018

 157,041,248

 -  

 2,035,570

 

12.    Share-based payments

On 30 June 2017, the date of admission, the Group granted to two directors and one employee executive options to subscribe for ordinary shares.  These options were issued at the time of the IPO to replace pre-IPO arrangements and vest on 15 June 2018.  All options are equity settled.  The executive options have an exercise price $0.40 per share. 

 

The table below shows the number of executive options granted to each recipient:

 

Kevin Hyman

President of Rainbow Production Services, LLC

 557,780

Timothy Trankina

Chief Financial Officer

 1,020,329

Antony Mitchell

Chief Operating Officer

 1,020,329

 

All executive options for Kevin Hyman and Timothy Trankina became fully vested and exercisable at the date of admission.  In the case of Antony Mitchell, one-third of his executive options became fully vested and exercisable at the date of admission, and one-third will vest and become exercisable on each of the first two anniversaries of such date thereafter. 

Once vested, the executive options may be exercised in full or in part by the recipient by following the procedures established by the Group. With respect to the executive options granted to Timothy Trankina, 765,247 of the executive options expired on 15 June 2018 and 255,082 of the executive options expire on the fifth anniversary of the date of grant.  All executive options granted to Kevin Hyman expired on 15 June 2018.  The executive options granted to Antony Mitchell expire no later than 15 June following the year in which such portion of his executive options vest.  In each case, if the recipient's employment is terminated, all executive options must be exercised within 90 days after the date of termination, or the date on which such executive options otherwise expire.

At 30 June 2017, the date of admission, the Group has charged $3,174,652 as a share-based payment expense for all executive options fully vested and exercisable at the date of admission.   At 31 March 2018, the Group has charged an additional $632,859 as a share-based payment expense for the additional shares for Antony Mitchell that became fully vested and exercisable.  At 31 March 2018 the Group has charged an aggregate amount of $3,807,511 as a share-based payment expense for all executive options fully vested and exercisable. 

Options were valued using a Black-Scholes model and will be charged through the profit and loss account over the vesting period. Volatility has been determined based on the historical common stock price volatility of selected guideline public companies over the last three years, as there is no historical stock price volatility for the Group.   The risk free rate represents the yield on US Treasury notes with a maturity that approximates the expected term of each series of options. 

 

The assumptions used in valuing the executive options are a risk free rate range of 1.23% - 1.45%, volatility range of 29% - 30.3%,  and an expected life between 0.96 years and 2.5 years.   The weighted average remaining contractual life of the options is 1 year.  The fair value of the series of options has been calculated as $1.65 - $1.66.  

 

In addition to the executive options, the Group intends to implement a new discretionary equity incentive plan under which awards can be granted in the form of options to acquire ordinary shares (stock options) or rights to receive a payment equal to the appreciation of an ordinary share (stock appreciation rights).  The plan is currently being reviewed by management and is subject to board approval.

 

13.    Goodwill

 

 

2018

USD

2017

USD

Cost

 9,871,423

 8,540,934

Additional amount recognised from business combinations occurring during the year (note 33)

 21,644,531

 1,330,489

Adjustment to prior year

(300,000)

-

Balance at end of year

31,215,954

9,871,423

 

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:

 

 

 

2018

USD

2017

USD

Completion contracts

8,240,934

8,540,934

Editing equipment rental

5,219,695

1,330,489

Insurance agency

16,411,760

-

Technical services

1,343,565

-

Total

31,215,954

9,871,423

 

The recoverable amount for each CGU is determined using a value in use calculation.  This calculation uses pre-tax cash flow projections derived from 2019 budgets, as approved by the Directors, with an underlying growth rate of 1% - 3% per annum in years 2 to 5.  After year 5 a terminal value has been applied using an underlying long-term growth rate of 1%.  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 15%.  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.

 

14.    Intangible assets

 

 

Film distribution rights

USD

Capitalised film costs

 

USD

Trade names

 

USD

Non-competition agreement

USD

Customer relationships

 

USD

Software

 

 

USD

Total

 

 

USD

Cost

 

 

 

 

 

 

 

At 1 April 2017

 1,000,000

 1,989,016

 220,000

 250,000

 2,280,000

 -  

 5,739,016

Additions

 -  

 3,897,010

 1,133,941

 907,029

 9,973,441

 122,096

 16,033,517

Disposal

(1,000,000)

 -  

 -  

-

 -  

 -  

(1,000,000)

Reclass to receivable

-

(4,394,633)

-

-

-

-

(4,394,633)

At 31 March 2018

 -  

1,491,393

1,353,941

1,157,029

12,253,441

122,096

16,377,900

Amortisation

 

 

 

 

 

 

 

At 1 April 2017

 -  

 -  

 (3,667)

 (3,472)

 (258,889)

 -  

 (266,028)

Charge for the period

 -  

 -  

 (115,597)

 (101,564)

 (420,538)

 (5,814)

 (643,513)

At 31 March 2018

 -  

 -  

 (119,264)

 (105,036)

 (679,427)

 (5,814)

 (909,541)

Net carrying amount

   at 31 March 2018

 

-

 

1,491,393

 

1,234,677

 

1,051,993

 

11,574,014

 

116,282

 

15,468,359

 

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 the 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

 

Amortisation costs are charged through administrative and other expenses. 

 

Customer relationships exist due to the acquisition of additional subsidiaries each year.  The estimated useful lives of these relationships range from 12 - 15 years.   The remaining amortisation period of these relationships range from 11 - 15 years. 

 

No amortisation costs were recognised on the film distribution rights or capitalised film costs during the year.  The film distribution rights were sold during the year for $2,000,000, which has been included in total revenues on the statement of comprehensive income.  No amortisation was recognised on the film distribution rights in the prior year as the film had not yet been released, therefore no revenues had been recognised. 

The capitalised film costs are related to a documentary film that the Group has funded.  The film was released subsequent to year end in April 2018.  Although all costs are currently being incurred by the Group, 78.125% of the total costs will be recovered from outside investors, therefore a portion of the costs was reclassified to accounts receivable during the period (see note 21).  The remaining costs will be amortised over the expected life of the film. 

 

15.    Investments

Investments are related to the Group's 2.5% ownership in Chinese Theatres Holdings LLC, which owns and operates the Chinese Theatre in Hollywood.  Investments are carried at costs less impairment. 

 

 

2018

USD

2017

USD

Total investments

283,113

283,113

 

16.    17.  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. 

 

 

2018

USD

2017

USD

Prepaid expenses

191,519

326,819

Loans due from related parties (note 31)

487,083

-

Deposits

812,288

414,460

Total

1,490,890

741,279

 

 

17.     Property, plant, and equipment

 

 

Editing equipment

USD

Automobiles

 

USD

Leasehold improvements

USD

Fixtures and fittings

USD

Total

 

USD

Cost

 

 

 

 

 

At 1 April 2017

9,036,774

-

166,417

1,631,783

10,834,974

Additions

1,247,245

31,734

125,644

98,189

1,502,812

Acquired through acquisition

   (note 33)

 

6,513,417

 

87,704

 

216,798

 

451,577

 

7,269,496

At 31 March 2018

16,797,436

119,438

508,859

2,181,549

19,607,282

Depreciation

 

 

 

 

 

At 1 April 2017

(6,611,249)

-

(29,527)

(1,236,762)

(7,877,538)

Charge for period

(1,491,916)

(8,834)

(37,195)

(142,383)

(1,680,328)

Acquired through acquisition

   (note 33)

 

(4,899,511)

 

(43,699)

 

(70,161)

 

(352,766)

 

(5,366,137)

Adjustment

-

-

-

(35,890)

(35,890)

At 31 March 2018

(13,002,676)

(52,533)

(136,883)

(1,767,801)

(14,959,893)

Net book value at 31 March 2018

3,794,760

66,905

371,976

413,748

4,647,389

 

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

   (note 33)

 

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

   (note 33)

 

(6,530,881)

 

-

 

(19,901)

 

(2,313)

 

(6,553,095)

Disposal

-

-

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

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

 

18.    Group Undertakings

FFI Holdings Plc owns 100% of Film Finances, Inc. and FFI Insurance Limited (the 'Captive').  All other holdings are held indirectly through Film Finances, Inc.  Details of the interest in subsidiaries held directly and indirectly at the end of the reporting period are as follows:

 

Name of subsidiary

Country of incorporation/

principal operation

2018

USD

2017

USD

Held directly:

 

 

 

Film Finances, Inc.

100%

100%

FFI Insurance Limited (xi)

100%

Nil

 

 

 

Held indirectly:

 

 

Film Finances Canada Ltd.

100%

100%

Film Finances Scandinavia AB

60%

60%

Film Finances Limited (formerly Film Finances  

   Services Limited)

100%

100%

Film Finances GmbH-Munich (dormant)

100%

100%

Realta Production Group, Inc. (i)

Nil

Nil

DaDa Productions, Inc. (dormant) (vii)

n/a (vii)

n/a (vii)

Film Finances GmbH-Germany

100%

100%

KSD Holdings LLC

70%

70%

Nordic Capital Media AB (ix)

n/a (ix)

60%

Film Finances Singapore PTE LTD

100%

100%

Film Finances Hungary

100%

100%

PBL Finance

100%

100%

FF Network

100%

100%

Great Outlook

100%

100%

FF Asia

100%

100%

Film Finances China Cultural Services Ltd.

100%

100%

Film Finances SA PTY LTD

100%

100%

Film Finances S.R.O.

100%

100%

DSK Productions Inc. (dormant) (vii)

n/a (vii)

n/a (vii)

FF Sales, Inc. (dormant) (vii)

n/a (vii)

n/a (vii)

Film Finances New Mexico, LLC

100%

100%

Film Finances Louisiana, LLC

100%

100%

FF of Carolina, LLC (viii)

n/a (viii)

100%

Film Finances Pennsylvania, LLC

100%

100%

Film Finances Alabama, LLC

100%

100%

Film Finances Scandinavia APS (dormant) (ix)

n/a (ix)

100%

DSK Ventures Limited (ii)

Nil

Nil

Cashet Card, LLC (iii)

Nil

Nil

Cashet Card Holdings, LLC (formerly Film Travel

   Holdings) (iii)

Nil

Nil

Rainbow Production Services, LLC (iv)

100%

100%

Rainbow Digital Services LLC (iv)

100%

100%

Pivotal Post Limited (iv)

100%

100%

Post Production Pivotal (Quebec) Inc. (iv)

100%

100%

Pivotal Post Corporation (iv)

100%

100%

Film Finances, Inc. (Bahamas) (v)

100%

100%

Panda Productions LLC (vi)

(vi)

Nil

FFI Media Holdings Inc. (x)

100%

Nil

Buff Dubs Pty. Ltd. (xii)

100%

Nil

EPS-Cineworks, Inc. (xii)

100%

Nil

Reel Media, LLC (xii)

100%

Nil

 

(i)                   Realta Production Group, Inc. was sold in the prior year.  See note 35.   

(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 formerly fully owned subsidiary.  Cashet Card Holdings, LLC is 100% owned by Cashet Card, LLC.  Realta Production Group, Inc. was sold during the prior year; therefore the Group no longer had control over Cashet Card Holdings LLC and Cashet Card, LLC as of 31 March 2017.  See note 35. 

(iv)                Rainbow Production Services, LLC and subsidiaries (Rainbow Digital Services LLC, Pivotal Post Limited, Post Production Pivotal (Quebec) Inc. and Pivotal Post Corporation) were purchased during the prior year.  See note 33.

(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 in the prior year:

a.         DaDa Productions, Inc.,  9 May 2016

b.        DSK Productions, Inc.,  7 November 2016

c.         FF Sales, Inc.,  7 November 2016

(viii)             On 17 July 2017 the dormant entity FF of Carolina was dissolved. 

(ix)                The following entities were disposed of during the year (note 34):

a.         Film Finances Scandinavia APS, 16 May 2017

b.        Nordic Capital Media, 26 October 2017

(x)                  FFI Media Holdings Inc. was incorporated on 25 October 2017.  The Company was set up to acquire Reel Media, LLC. 

(xi)                FFI Insurance Limited was incorporated on 12 July 2017 and became a subsidiary at that date. 

(xii)               Buff Dubs Pty. Ltd., EPS-Cineworks, Inc., and Reel Media, LLC were purchased during the year.  See note 33.   

 

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

 

 

 

2018

2017

2018

USD

2017

USD

2018

USD

2017

USD

 

 

 

Name of subsidiary

Place of incorporation and principal place of business

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

 

Other comprehensive income allocated to non-controlling interest

 

 

Accumulated non-controlling interests

KSD Holdings LLC (i)

USA

30%

30%

85,424

(1,484)

38,285

57,895

Cashet Card, LLC (ii)

USA

0%

0%

-

143,346

-

-

Individually immaterial subsidiaries with

   non-controlling interests

 

 

 

(13,669)

 

30,777

 

65,626

 

81,225

Total

 

 

71,755

172,639

103,911

139,120

 

(i)                   A distribution to holders of non-controlling interest of $105,034 was made by KSD Holdings, LLC during the year. 

(ii)                 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 in the prior year.  See note 34. 

 

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

 

 

 

2018

USD

2017

USD

Current assets

1,670,659

5,561,204

Non-current assets

-

-

Current liabilities

(7,285)

(4,182,578)

Non-current liabilities

-

-

Equity attributable to owners of the Company

1,663,374

1,378,626

Non-controlling interests

-

-

 

 

 

 

2018

USD

2017

USD

Revenue

290,370

315,734

Expenses

(33,709)

(307,871)

Profit for the year

256,661

7,863

 

 

 

Profit attributable to owners of the Company

179,663

5,504

Profit attributable to the non-controlling interests

76,998

2,359

Profit for the year

256,661

7,863

 

 

 

Other comprehensive income attributable to owners of the Company

19,661

(5,061)

Other comprehensive income attributable to the non-controlling interests

8,426

(3,843)

Other comprehensive income for the year

284,748

(8,904)

 

 

 

Dividends paid to non-controlling interests

-

7,660

 

 

 

Net cash outflow from operating activities

(105,150)

(1,900,754)

Net cash outflow from financing activities

-

(7,660)

Net cash outflow

(105,150)

(1,908,414)

 

 

19.    Investments in joint ventures

 

 

 

2018

USD

2017

USD

Joint venture at equity method accounting

 

 

Opening cost of joint venture at equity method accounting

-

-

Capital contributions

385,000

-

Closing cost of joint venture at equity method accounting

385,000

-

Cumulative share in earnings (losses) of joint venture

25,723

-

Closing value of joint venture at equity method accounting

410,723

-

 

The Group owns a 50% interest in Reel Media Canada, Inc.  Reel Media Canada, Inc. is an insurance agency that helps provide insurance agency services for a variety of entertainment events including film, television, theatre, and concerts in Canada. The purpose for the investment in Reel Media Canada, Inc. was to expand the services provided by Reel Media LLC.  Reel Media LLC was acquired on 20 December 2017 (note 33). 

 

 

 

2018

USD

2017

USD

Investment in joint venture held for sale

-

216,044

 

The Group owned 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.

 

The Group disposed of the investment in EP Financial Solutions on 20 December 2017 at its carrying value.  As such, no gain/loss was recognised on the sale. 

 

20.    Trade and other receivables

Trade and other receivables consist of the following:

 

 

 

2018

USD

2017

USD

Trade receivables

4,684,233

2,091,695

Rebate receivable

3,122,784

2,302,824

Insurance receivable

723,524

194,473

Insurance agency receivable

4,353,349

-

Film costs receivable (note 15)

4,394,633

-

Due from joint venture

430,143

-

Due from related parties

498,941

3,423,999

Other receivables

305,056

-

Total trade and other receivables

18,512,663

8,012,991

Loans receivable

 

 

Loan receivable (i)

-

4,151,795

Total

18,512,663

12,164,786

 

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

 

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

 

 

 

2018

USD

2017

USD

Not past due

17,254,899

11,856,229

Past due 1 to 30 days

721,795

148,447

Past due 31 to 90 days

382,149

143,915

Past due 91 days

153,820

16,195

Total

18,512,663

12,164,786

 

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

 

21.    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. 

 

 

 

2018

USD

2017

USD

Prepaid expenses

2,517,070

3,032,438

Tax and other

114,866

1,395,934

Total

2,631,936

4,428,372

 

22.    Restricted cash

Restricted cash comprises the following:

 

 

 

2018

USD

2017

USD

Held in fiduciary capacity for production (i)

56,119,649

36,265,379

Insurance premiums held in escrow (ii)

2,656,910

4,131,836

Insurance agency (iii)

1,782,127

-

Captive (iv)

7,823,467

-

Restricted cash

68,382,153

40,397,215

 

(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 exceeds 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.

(iii)   The insurance agency restricted cash is related to monies collected by Reel Media, LLC, which are due to underwriters.  

(iv)   The captive restricted cash, is the cash held by FFI Insurance Limited to cover any potential claims (see note 30). 

 

23.    Cash and cash equivalents

Cash and cash equivalents consist of the following:

 

 

 

2018

USD

2017

USD

Cash in hand

15,200

2,443

Cash at bank

23,537,291

13,144,428

Cash and cash equivalents

23,552,491

13,146,871

 

24.    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, was renewed, and matured on 30 September 2017. The average interest rate on the loan for the year ended 31 March 2018 was 2.23% (2017: 2.23%).  The outstanding balance of the loan as of 31 March 2018 was $nil (2017: $4,173,954).

The second is a $1,000,000 promissory note in connection to the acquisition of film distribution rights (note 15), which bears interest at 12% per annum when called upon and is due on demand.  During the year, the promissory note was paid off and the film distribution rights were sold.  The outstanding balance at 31 March 2018 was $nil (2017: $1,000,000). 

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 31.  The outstanding balance at 31 March 2018 was $589,753 (2017: $787,842).

The fourth is related to two equipment loans that were acquired as part of the acquisition of Buff Dubs PTY Ltd.  The first equipment was taken on 27 November 2014 in the amount of $58,134.  The loan is payable in 60 monthly instalments of $924 with a lump sum payment due at the end of the loan of $11,627.  The second equipment loan was taken on 4 December 2015 in the amount of $49,992.  The loan is payable in 60 monthly instalments of $722 with a lump some payment due at the end of the loan of $14,754.

The fifth is a production loan agreement.  The production loan is to finance the production of a documentary film and the loan is secured by the future distribution proceeds of the film.  The maturity date is the earlier of the abandonment of the film or 6 July 2018.  The loan bears interest equal to prime plus prime rate margin (0.25%) with the aggregate rates ranging from 4.5% - 5.0% during the period the loan was outstanding. 

 

 

 

2018

USD

2017

USD

Non-Current

 

 

Term loan (related party) 2-5 years

379,415

590,163

 

379,415

590,163

Current

 

 

Term loan (secured by a tax credit receivable)

-

4,173,954

Term loan

-

1,000,000

Term loan (related party)

210,338

197,679

Equipment loans

73,081

-

Production loan

3,500,000

-

 

3,783,419

5,371,633

Total borrowings

4,162,834

5,961,796

 

 

25.    Trade and other payables

 

 

2018

USD

2017

USD

Trade payables

1,286,475

811,450

Accruals

2,125,479

2,230,703

Deferred revenue

5,265,479

6,484,318

No-claim bonus payable

2,609,726

3,903,393

Insurance payable

5,187,468

7,289,844

Insurance agency

6,040,900

-

Other payables

5,328,818

1,017,719

Due to related parties

160,000

-

Total

28,004,345

21,737,427

 

Included in "other payables" balance is an amount of $62,590 (2017: $500,000) relating to a tax liability accrual, $4,066,228 (2017:  $491,000) of contingent earn-out payments generated as part of the acquisition of several subsidiaries, and $1,200,000 (2017: $nil) related to a deferred payment related to an acquisition of a subsidiary (see note 33). 

 

26.    Provision for losses

 

 

 

2018

USD

2017

USD

At beginning of year

777,246

457,632

Losses charged to income

817,736

445,157

Claims paid

(1,858,330)

(634,686)

Recoveries on claims paid

872,904

509,143

At end of year

609,556

777,246

 

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 $5,000,000 (prior to 30 September 2017: $500,000).  The change in 30 September 2017 occurred in conjunction with the formation of the captive.  Claim payments are typically made directly to productions 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.

 

27.    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 as follows:

 

 

 

2018

USD

2017

USD

Not later than 1 year

6,445,647

2,398,688

Later than 1 year and not later than 5 years

21,257,789

8,011,515

Later than 5 years

10,611,498

615,424

Total

38,314,934

11,025,627

 

28.     Capital commitments

The Group has entered into an agreement to fund the production of a film.  At of 31 March 2018 the total amount funded is $53,354 (2017: $nil), which is included in other current assets.  Per the agreement, the Group is required to fund an additional $175,000. 

 

29.    Contingent liabilities

The Group issues Completion Bonds.  The Group 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 Group incorporated FFI Insurance Limited during the year, and as of 1 October 2017, the Group is self insured for 90% of the first $5 million in losses per title, with an aggregate cap of $8 million.  The Group utilises one or more insurance companies to cover the remainder of the losses as well as anything above the stated limits.  While no liability is recorded with respect to the Completion Bond obligation to the third parties, as there is no history of claims against the Completion Bonds, 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.

 

30.    Related party transactions

The Directors do not consider there is 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. 

 

Advances to employees totalled $986,025 at 31 March 2018 (2017: $144,380).   A portion of the balance, $220,608 (2017: $144,360), are noninterest bearing and are due on demand.  The remaining balance, $765,417 (2017: $nil), bears interest at 2% and are due in equal instalments over the next three years. 

 

Advances to officers totalled approximately $nil at 31 March 2018 (2017: $3,257,000).  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 $17,527 (2017: $34,698).  The prior year balance includes a $3,000,000 promissory note to an officer, which was secured against 3,216 shares in Film Finances, Inc. as at 31 March 2017.  This promissory was 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 (2017: $160,000).  The loan is payable on closing of the production bank loan.

 

A shareholder of the Group participates in the syndicate that insures the Group's completion contracts.  Gross premiums paid to the shareholder totals $3,129,724 for the year ended 31 March 2018 (2017: $1,148,911). 

 

The Group has a three-year term loan from an employee in the amount of $804,497.  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 of $20,000. The outstanding balance at 31 March 2018 was $589,753 (2017: $787,842). 

 

During the year the Group disposed of a subsidiary, Nordic Capital Media to the 40% non-controlling interest (see note 34). 

 

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 from 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 completion guarantee fees of the Group's customers. Total bonus expense under this agreement totalled $284,449 for the year ended 31 March 2018 (2017: $178,946). 

 

For the year ended 31 March 2018, the Group paid consulting fees to a director as part of a pre-IPO arrangement totalling $369,275 (2017: $nil), which has been included in the exceptional costs line item in the statement of comprehensive income. 

 

 

 

2018

USD

2017

USD

Compensation of the five key management personnel

 

 

Short-term employee benefits

2,511,146

1,421,759

 

2,511,146

1,421,759

 

31.    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 2018 and 2017:

 

 

 

2018

USD

2017

USD

Financial assets:

 

 

Classified as loans and receivables:

 

 

Cash and cash equivalents

23,552,491

13,146,871

Restricted cash

68,382,153

40,397,215

Accounts receivable

18,512,663

12,164,786

Total financial assets

110,447,307

65,708,872

Financial liabilities:

 

 

Classified as financial liabilities at amortised cost:

 

 

Accounts and other payables

28,004,345

21,737,427

Non-current other payables

15,208,995

1,709,000

Payables to production

56,119,649

36,265,379

Borrowings - current

3,783,419

5,371,633

Borrowings - non-current

379,415

590,163

Total financial liabilities

103,495,823

65,673,602

 

All non-derivative financial assets are categorised as 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 risks 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, 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 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

 

2018

USD

2017

USD

2018

USD

2017

USD

Currency of United Kingdom

143,136

280,216

3,068,460

2,649,918

Currency of Canada

8,974,053

4,102,732

8,932,281

4,098,523

Currency of China

7,201,915

309,919

6,572,941

447,650

Others

827,845

86,729

7,950,360

500,897

 

 

 

 

 

The Group is mainly exposed to the currency of the United Kingdom (GBP), 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.

 

 

Increase/(decrease)

 

2018

USD

Profit/(loss)

2018

USD

Equity

2017

USD

Profit/(loss)

2017

USD

Equity

Currency of United Kingdom

23,946

719,633

20,880

236,321

Currency of Canada

(326)

(4,159)

(1,198)

(420)

Currency of China

4,745

(62,244)

(58,073)

13,729

 

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 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 of $20,000. The outstanding balance at 31 March 2018 was $662,834 (2017: $787,842). 

 

The Group took out a new production loan during the year to fund production of a film.  The loan was entered into on 7 July 2017 and was due on the earlier of the abandonment of the film or 6 July 2018.  The loan bears interest equal to LIBOR and the average interest rate on the loan for the year ended 31 March 2018 was 0.36%. The film was completed subsequent to year end.  A significant portion of the costs are to be recovered from third party investors. 

 

The table below summarises the maturity profile of the Group's non-derivative financial liabilities at 31 March 2018 and 2017 based on contractual undiscounted payments, including estimated interest payments where applicable.

 

As at 31 March 2018

Within 1 year

USD

1-2 years

USD

2-3 years

USD

3+ years

USD

Total

USD

Obligation under loan facilities

3,783,419

379,415

-

-

4,162,834

Trade payables

28,004,345

-

-

-

28,004,345

Payable to production

56,119,649

-

-

-

56,119,649

Non-current other payables

-

4,036,596

4,344,664

6,827,735

15,208,995

Total

87,907,413

4,416,011

4,344,664

6,827,735

103,495,823

 

As at 31 March 2017

Within 1 year

USD

1-2 years

USD

2-3 years

USD

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

Non-current other payables

-

496,283

525,287

687,430

1,709,000

Total

63,374,439

706,258

905,475

687,430

65,673,602

 

 

 

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 comprise share capital, share premium, retained earnings and other reserves. 

 

32.    Business Combinations

 

Subsidiaries acquired

 

 

Principal Activity

Date of acquisition

Proportion of voting equity interest acquired

Consideration transferred

USD

2018

 

 

 

 

EPS-Cineworks, Inc.

Editing equipment rental

10 November 2017

100%

9,541,000

Buff Dubs Pty. Ltd.

Technical services

1 December 2017

100%

2,018,769

Reel Media, LLC

Insurance agency

20 December 2017

100%

24,054,000

Motorsports business   

   from All Risks, Ltd.

Insurance agency

10 January 2018

100%

1,825,000

 

 

 

 

37,438,769

2017

 

 

 

 

Rainbow Production

   Services, LLC and

   Subsidiaries (RPS)

Editing equipment rental

28 February 2017

100%

6,200,000

 

 

 

 

6,200,000

 

EPS-Cineworks, Inc. was acquired to expand the Group's editing equipment rentals segment.  EPS-Cineworks, Inc. has more of a television focus, which allows the Group to expand its services from film to television. 

 

Buff Dubs Pty. Ltd. was acquired to expand the Group's activities within the film industry, specifically in streaming content. 

 

Reel Media, LLC is an insurance agency acquired to further expand the services provided by the Group within the film industry.  The Group also acquired Motorsports business from All Risks, Ltd. a motorsports entertainment insurance book of business from All Risks, Ltd. to expand the Group's activities within the insurance agency services industry. 

 

Rainbow Production Services, LLC and Subsidiaries was acquired to expand the Group's activities within the film industry. 

 

Consideration transferred

 

 

 

 

2018

EPS-Cineworks, Inc.

 

USD

Buff Dubs Pty. Ltd.

 

USD

Reel Media, LLC

 

 

USD

Motorsports business from All Risks, Ltd.

USD

Total

 

 

USD

Cash

8,341,000

1,057,263

7,444,000

1,825,000

18,667,263

Contingent

   consideration (i)

 

-

 

961,506

 

16,610,000

 

-

 

17,571,506

Deferred payment (ii)

1,200,000

-

-

-

1,200,000

Total

9,541,000

2,018,769

24,054,000

1,825,000

37,438,769

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

Rainbow Production Services, LLC and Subsidiaries

USD

Total

 

 

 

USD

Cash

 

 

 

4,000,000

4,000,000

Contingent

   consideration (iii)

 

 

 

 

2,200,000

 

2,200,000

Total

 

 

 

6,200,000

6,200,000

             

 

(i)  Under the contingent consideration arrangement, the Group is required to pay Reel Media, LLC an additional 8.6% of trailing EBITDA at 6 times multiple over the next 5 years.  Reel Media, LLC has generated an EBITDA of $2 million for the trailing twelve months.  The fair value of the contingent consideration arrangement was estimated by applying the income approach.  A range of $11,724,000 to $19,682,000 was calculated for the potential liability using the Monte Carlo simulation.  The Group recorded $16,610,000 as the contingent liability.  This fair value estimate is based on an assumed discount rate between 2.1 - 3.2 per cent and assumed EBITDA in Reel Media, LLC of $6,800,000 - $11,700,000 for each of the next five years.  The liability will be adjusted within the measurement period if any new information is obtained about facts or circumstances that may affect these calculations.  At 31 March 2018, $3,457,000 is recorded as a short term liability in trade and other payables and $13,153,000 is recorded as a long term liability in other payables on the balance sheet. 

Under the contingent consideration arrangement, the Group is required to pay Buff Dubs Pty., Ltd. ('Buff Dubs') 12.5% of EBITDA at 4 times multiple for each of the next 5 years.  Buff Dubs' EBITDA for the last year has been approximately $400,000.  The fair value of the contingent consideration arrangement was estimated by applying the income approach.  A range of $893,000 to $1,495,000 was calculated for the potential liability using the Monte Carlo simulation.  The Group recorded $961,506 as the contingent liability.  This fair value estimate is based on an assumed discount rate of 2 - 3.1 per cent and assumed EBITDA in Buff Dubs of $200,000 - $900,000 for each of the next five years.  The liability will be adjusted within the measurement period if any new information is obtained about facts or circumstances that may affect these calculations. At 31 March 2018, $83,941 is recorded as a short term liability in trade and other payables and $877,565 is recorded as a long term liability in other payables on the balance sheet.

 

(ii)  Under the purchase agreement with EPS-Cineworks, Inc., a portion of the purchase price was deferred over the following two years.  Two equal payments of $600,000 are to be paid in late 2018 and early 2019.  At 31 March 2018 $1,200,000 is recorded as a short term liability in trade and other payables on the balance sheet. 

 

(iii)  Under the contingent consideration arrangement, the Group is required to pay the former owner of Rainbow Production Services, LLC ('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 EBITDA for the past two years has 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.  A range of $1,807,000 to $2,741,000 was calculated for the potential liability using the Monte Carlo simulation.  The Group recorded $2,200,000 as the contingent liability.  This fair value estimate is  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.  At 31 March 2018, $587,877 (2017: $1,709,000) is recorded as a short term liability in trade and other payables and $1,178,430 (2017: $491,000) is recorded as a long term liability in other payables on the balance sheet. 

 

Acquisition related costs amounting to $1,191,470 (2017: $19,236) have been recognised as an expense in the statement of comprehensive income, within the exceptional costs line item. 

 

Recognised amounts of identifiable assets acquired and liabilities assumed

 

 

 

 

2018

EPS-Cineworks, Inc.

 

USD

Buff Dubs Pty. Ltd.

 

USD

Reel Media, LLC

 

USD

Motorsports business from All Risks, Ltd.

USD

Total

 

 

USD

Current assets

 

 

 

 

 

Cash and cash equivalents

-

74,017

370,019

-

444,035

Restricted cash

-

-

1,278,970

-

1,278,970

Trade and other receivables

646,522

489,334

3,452,422

-

4,588,278

Other current assets

-

102,204

74,415

-

176,619

 

646,522

665,554

5,175,826

-

6,487,902

Non-current assets

 

 

 

 

 

Plant and equipment

1,825,272

78,088

-

-

1,903,360

Investment in joint venture

-

-

385,000

-

385,000

Identifiable intangible assets

3,430,000

961,506

5,920,000

1,825,000

12,136,506

 

5,255,272

1,039,594

6,305,000

1,825,000

14,424,866

Current liabilities

 

 

 

 

 

Trade and other payables

(247,667)

(200,774)

(3,545,446)

-

(3,993,887)

Accrued liabilities

(2,333)

(302,590)

(137,325)

-

(442,248)

Taxes payable

-

(55,477)

(155,815)

-

(211,292)

Notes payable

-

(471,103)

-

-

(471,103)

 

(250,000)

(1,029,944)

(3,838,586)

-

(5,118,530)

Net balance acquired

5,651,794

675,204

7,642,240

1,825,000

15,794,238

 

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.

 

Goodwill arising on acquisition

 

 

 

 

2018

EPS-Cineworks, Inc.

USD

Buff Dubs Pty. Ltd.

 

USD

Reel Media, LLC

 

USD

Motorsports business from All Risks, Ltd.

USD

Total

 

 

USD

Consideration transferred

9,541,000

2,018,769

24,054,000

1,825,000

37,438,769

Less: fair value of identifiable

   net assets

 

(5,651,794)

 

(675,204)

 

(7,642,240)

 

(1,825,000)

 

(15,794,238)

Goodwill arising on acquisition

3,889,206

1,343,565

16,411,760

-

21,644,531

 

The goodwill of $21,644,531 arising from the acquisition of EPS-Cineworks, Inc., Buff Dubs Pty. and Reel Media, LLC consists largely of the expected synergies, revenue growth, future market development and the assembled workforce of each of these entities. 

 

The goodwill of $1,330,489 arising from the acquisition of RPS consists largely of the 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. 

 

 

Net cash outflow on acquisitions of subsidiaries

 

 

 

 

2018

EPS-Cineworks, Inc.

 

USD

Buff Dubs Pty. Ltd.

 

USD

Reel Media, LLC

 

USD

Motorsports business from All Risks, Ltd.

USD

Total

 

 

USD

Consideration paid in cash

8,341,000

1,057,263

7,444,000

1,825,000

18,667,263

Less: cash and cash equivalent

   balances acquired

 

-

 

(74,016)

 

(370,019)

 

-

 

(444,035)

Total

8,341,000

983,247

7,073,981

1,825,000

18,223,228

 

Impact of acquisitions on the results of the Group

Included in profit for the year is $546,139 attributable to the additional business generated by EPS-Cineworks, Inc., ($167,358) attributable to Buff Dubs Pty., and ($969,836) attributable to Reel Media, LLC.  Revenue for the year includes $3,680,534 in respect of EPS-Cineworks, Inc., $1,073,939 in respect of Buff Dubs, Pty., and $2,191,835 in respect of Reel Media, LLC.

 

Had these business combinations been effected as 1 April 2017, the revenue of the Group from continuing operations would have been $74,474,483, and the profit for the year from continuing operations would have been $8,491,898.  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. 

 

In determining the 'pro-forma' revenue and profit of the Group had EPS-Cineworks, Inc., Buff Dubs, Pty., Reel Media, LLC, and Motorsports business from All Risks, Ltd., been acquired at the beginning of the current year, the directors have:

·      Calculated depreciation of plant and equipment acquired on the basis of the fair values arising in the initial accounting for the business combination rather than the carrying amounts recognised in the pre-acquisition financial statements

·      Removed certain exceptional costs that are not part of the ongoing business post-acquisition

 

Included in the profit for the year ended 31 March 2017 was $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 ended 31 March 2017 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. 

 

33.    Disposal of subsidiaries

On 16 May 2017, the Group disposed of Film Finances Scandinavia APS, which was a fully owned subsidiary.  There was no consideration transferred for the disposal.  On 26 October 2017, the Group disposed of Nordic Capital Media, a 60% owned subsidiary, for no consideration.

 

Analysis of assets and liabilities over which control was lost

 

 

 

2018

Film Finances Scandinavia APS

USD

Nordic Capital Media

 

USD

Total

 

USD

Current assets

 

 

 

Cash and cash equivalents

5,744

15,812

21,556

Other assets

8,267

1,128

9,395

 

14,011

16,940

30,951

Current liabilities

 

 

 

Accounts payable

(487)

(12,115)

(12,602)

Other liabilities

-

-

-

 

(487)

(12,115)

(12,602)

Net assets disposed of

13,524

4,825

18,349

 

Loss on disposal of subsidiary 

 

 

2018

Film Finances Scandinavia APS

USD

Nordic Capital Media

USD

Total

 

USD

Consideration

-

-

-

Net assets disposed of

(13,524)

(4,825)

(18,349)

Non-controlling interests

-

1,930

1,930

Total loss on disposal

(13,524)

(2,895)

(16,419)

 

The loss on disposal is included in the (loss)/profit for the year from discontinued operations (see note 35). 

 

Net cash outflow on disposal of subsidiary

 

 

 

2018

Film Finances Scandinavia APS

USD

Nordic Capital Media

USD

Total

 

USD

Consideration received

-

-

-

Less: cash and cash equivalents

   disposed of

 

(5,744)

 

(15,812)

 

(21,556)

Total

(5,744)

(15,812)

(21,556)

 

34.    Discontinued operations

In the prior year, on 11 November 2016, the Group disposed of Realta Production Group, Inc., which owned 50% of Cashet Card, LLC, facilitates the issuance of credit cards sponsored by MasterCard.  Cashet Card 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. 

 

2018

USD

2017

USD

(Loss)/profit for the year from discontinued operations

 

 

Revenue

-

2,627,622

Expenses

(838)

(2,467,733)

Profit before tax

(838)

159,889

 

 

 

Attributable income tax expense

6,385

(59,798)

Profit after tax

5,547

100,091

 

 

 

Profit on disposal of operations

-

2,705,196

Attributable income tax expense

-

39,410

 

-

2,744,606

Loss on disposal of subsidiary (see note 34)

(16,419)

-

 

 

 

(Loss)/profit for the year from discontinued operations (attributable to owners of the  

  Company)

 

(10,872)

 

2,844,697

 

 

 

Cash flows from discontinued operations

 

 

Net cash inflows from operating activities

-

(127,372)

 

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

 

35.    Post balance sheet events

 

On 25 April 2018, the Group completed its acquisition of Signature Entertainment Limited ('Signature') for an initial cash payment of $5m followed by four annual payments of 13.75% of future EBIT at a five times multiple.  Signature is a film distributor in the United Kingdom and acts as an aggregator for streaming companies. The Group expects the acquisition to greatly enhance the Group's reach in the entertainment industry. 

 

On 15 June 2018, two directors and one employee exercised a combined 1,663,137 in options over ordinary shares of £0.01 each in the Group at a price of $0.40 per ordinary share.   These options were issued at the time of the IPO to replace pre-IPO arrangements and expire on 15 June 2018.  The Group has agreed to satisfy the exercise of options on a cashless basis and is thereby issuing 778,995 new ordinary shares bringing the total number of outstanding ordinary shares to 157,820,243. 

 

On 21 June 2018, the Group entered into a co-financing and distribution agreement for a documentary film.  The Group paid an initial funding of $2,000,000 and has the first and exclusive right to continue to participate in the additional funding of the picture during the production process.

 

On 3 July 2018, the Group, through its subsidiary, Buff Dubs, acquired an Australian company specializing in audio-visual digitisation for a total cash consideration of $2.0m AUD.

 

 

 

 

 


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