Entertainment One profit to take £47m hit from film division restructuring

Peppa Pig owner Entertainment One said it expects to report around £47m of one-off costs for the year to the end of March 2017 after it renegotiated one of its larger film distribution arrangements as part of its wider reshaping of the film division.

The company, which still expects underlying core earnings for the year to be in line with management forecasts, said the previous arrangement has been terminated and replaced with a new distribution arrangement. Associated with the termination, it will make a one-time payment of $25m which will be included in its financial results for the year ended 31 March 2017.

In addition, Entertainment One has incurred one-off costs of around £27m related to the accelerated reshaping of the film division, including transitioning its physical distribution activities towards a digital content focused business model. This reshaping is also expected to drive improved underlying profitability and cash flow.

Chief executive officer Darren Throop said:" These changes are part of the reshaping of our film business for the future and are expected to have a positive impact on both cash flow and underlying EBITDA for the company."

Neil Wilson, senior market analyst at ETX Capital, said: "Whilst clearly negative for free cash (underlying earnings in the first half of the year were £38m with reported profit before tax of £4m) it is part of an ongoing strategy that is seeing eOne tilt more towards film.

"It had front-loaded a lot of investment in the first half of the year and reported in March that it had delivered ‘significant improvement in profitability’ in the division in the second half. It had said underlying earnings should be in line with last year on box office revenues that were 25% ahead of last year."

Investec said new film one-off costs are a near-term negative, but show that ETO is pushing forward with its Film restructuring under the new chief financial officer and making the right pro-active decisions after several years of disappointment in this specific division.

"Film box office performance has already begun to improve, but this should improve mid-term returns on these films. We await more detail at the FY figures on 23 May."

At 0954 BST, the shares were down 0.7% to 241.70p.