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Entertainment One dips as it swings to loss in half year amid restructuring of film distribution arm

The FTSE 250 mass media firm reported a pre-tax loss of £40mln, swinging from a £2mln profit in the same period a year ago, while revenues dipped to £405mln from £413mln

Peppa Pig
Peppa Pig has helped boost the company's earning thanks to its popularity in China

Entertainment One Ltd (LON:ETO) shares dipped in early trading Tuesday after it swung to a pre-tax loss in the first half amid a restructuring of its film distribution business.

The FTSE 250 mass media firm reported a pre-tax loss of £40mln, swinging from a £2mln profit in the same period a year ago, while revenues dipped to £405mln from £413mln previously.

Restructuring bites into earnings

The swing was largely attributed to one-off costs of £59.4mln relating to the restructuring of the group’s film distribution business as consumer home entertainment usage continued to decline.

Revenues were mostly supported by the company’s family & brands division, which grew 29% to £76mln, largely offsetting a 7% decline in its film & television business to £331.5mln.

Peppa Pig brings home the bacon

The firm’s Family segment has been boosted by the success of brands such a Peppa Pig in the Chinese market, while the Film & TV division is hoping to recover as it shifts away from distribution and more towards the production of its own content, which includes shows such as zombie drama series The Walking Dead.

EOne added that the integration of Film & TV divisions such as Sierra/Affinity, in which it gained full ownership in July, and The Mark Gordon Company were on track to deliver around £13mln-£15mln of annualised cost savings by the end of 2020.

In its outlook for the full year, the group said performance would be in line with management expectations, with Peppa Pig continuing to drive growth of its Family & Brands segment in the second half, particularly with “clear demand” for the franchise in China and the launch of a Peppa Pig film in the country in early 2019.

READ: Entertainment One fails to provide much sizzle

For Film & Television, eOne said underlying earnings (EBITDA) would be “more skewed to the second half” with a stronger release slate of its films as well as a strong schedule for TV programming with season 3 of Netflix drama Designated Survivor and international distribution of seasons 5 and 9 of The Walking Dead.

The company added that changes in consumer behaviour in regard to content were “accelerating at an unprecedented level” over the year and was fuelling demand for high-quality content, influencing its decision to focus on growing its content ownership.

Restructuring not a "major worry", says analyst

Russ Mould, investment director at AJ Bell, said that the latest results were “an unhappy reminder that certain types of media inevitably go out of fashion”.

He added that the impairment charge from the restructuring “isn’t a major worry” due to the success of its other divisions, with the continual release of content being “mopped up” by streamers like Amazon and Netflix.

Mould also said that the part owner of Entertainment One’s PJ Masks brand, Disney, could potentially want to increase its position given that it is becoming “a very lucrative asset” and could potentially buy up the company given the “great fit” of Peppa Pig and PJ Masks among its other brands.

Shares were down 1.5% at 378.6p.

--Adds analyst comment and updates share price--

Quick facts: Entertainment One

Price: 558 GBX

Market: AIM
Market Cap: £2.78 billion

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