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REPORT OF THE MANAGEMENT BOARD DATED 30 JANUARY 2017 TO THE SPECIAL MEETING OF THE SHAREHOLDERS HOLDING CLASS B SHARES OF 13 MARCH 2017
This is a free translation into English of the Report of the Management Board to the special meeting of the shareholders holding Class B Shares of 13 March 2017 issued in the French language and is provided solely for the convenience of English speaking readers.
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NOTICE
Forward -looking statements
This report includes objectives, forecasts and other forward-looking statements that may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “ outlook ” and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Such objectives, forecasts and other forward -looking statements, with respect to revenus, earnings , performance, strategies, outlook s or other aspects of the businesses of Mediawan, Groupe AB or the combined company after completion of the Initial Business Combination (as such term is defined below), are based on current data (including information provided to Mediawan by Groupe AB and its shareholders in connection with the proposed transaction), as well as assumptions and analyses made by Mediawan in light of its views on historical trends, current conditions and expected future developments and other factors it believes are appropriate in the circumstances. . Such forward-looking statements may change or be revised due to a certain number of risks and uncertainties, including in particular the risk factors contained in this report. The reader is cautioned not to place undue reliance upon any forward-looking statements, which are valid only as of the date that they are made. Medi awan expressly declines any obligation or undertaking to update or revise any objectives, forecasts or other forward -looking statements contained in this report, whether as a result of new information, future events or otherwise, except to the extent required by applicable laws or regulations.
Estimates
Th e historical financial information and the estimated financial information for the financial year ended as of 31 December 2016 related to Groupe AB included in this report have been provid ed to Mediawan by Groupe AB and its shareholders in connection with the proposed transaction described in this report. The estimated financial information for the financial year ended as of 31 December 2016 related to Groupe AB that is presented in this re port has not been audited or subject to a limited review by Groupe AB’s statutory auditors. Regarding estimated financial data, such data may differ from the results that are actually realised and as set forth in Groupe AB’s audited consolidated financial statements for the financial year ended 31 December 2016 which shall be published subsequently to the date hereof.
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MEDIAWAN A limited liability corporation with a management board and supervisory board (société anonyme à directoire et conseil de surveillance ) With a share capital of €312,808.15 registered office: 16, rue Oberkampf, 75011 Paris 815 286 398 RCS Paris
REPORT OF THE MANAGEMENT BOARD DATED 30 JANUARY 2017 TO THE SPECIAL MEETING OF THE SHAREHOLDERS HOLDING CLASS B SHARES OF 13 MARCH 2017
Dear Shareholders:
We have convened you in accordance with the law and Article 20 of Mediawan’s (the “Company ”) Articles of Association at a special meeting of the shareholders holding class B shares (the “ Special Meeting ”) for the purpose of submi tting to your approval the proposed acquisition by the Company of Groupe AB as announced by a joint press release dated 30 January 2017.
For this purpose, a meeting notice shall be published on 3 February 2017 in the Bulletin des Annonces Légales Obligatoires (BALO). Such notice shall also be available on the Company’s website (www.mediawan.fr).
Pursuant to legal provisions currently in effect, a meeting notice shall be included in a legal notices publication and in the Bulletin des Annonces Légales Obligatoires (BALO), and published on the Company’s website (www.mediawan. fr).
The purpose of this report is to present and describe the context, principal terms and conditions of the proposed acquisition of Groupe AB by the Company.
The draft resolutions that will be submitted to you during the Special Meeting are included as Annex 2 to this report.
oOo
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Table of contents
1. Overview of the proposed business combination: Context of the Transaction and pending negotiations ...... 4 2. Conditions precedent to the completion of a proposed Business Combination ...... 4 2.1 Conditions contained in the Prospectus...... 5 2.2 Conditions imposed by the Articles of Association ...... 5 2.2.1 Prior approval of the proposed Business Combination by the Company’s Supervisory Board 6 2.2.2 Prior approval of the proposed Business Combination by the Special Meeting of the shareholders that hold Class B Shares ...... 6 3. Presentation of Groupe AB and financial information ...... 6 3.1 History and evolution of Groupe AB ...... 6 3.2 Groupe AB’s activities ...... 7 3.2.1 Operation and distribution of TV channels and digital services (“TV Channels & Digital”) ..... 7 3.2.2 Production and television programme distribution activities (Production & Distribution) ... 10 3.3 Summary of Groupe AB’s competitive position ...... 11 3.4 Groupe AB’s financial information ...... 11 3.4.1 Groupe AB’s audited historical financial information ...... 11 3.4.2 Groupe AB’s 2016 estimated financial data ...... 16 3.4.3 Groupe AB’s development prospects over the course of future years following its acquisition by Mediawan ...... 16 3.5 Simplified Groupe AB structure chart ...... 17 3.6 Governance ...... 18 3.7 Groupe AB employees ...... 19 3.8 Groupe AB’s principal disputes ...... 19 3.9 Brief presentation of the regulatory authorisations applicable to Groupe AB ...... 19 3.10 Principal fixed assets ...... 20 3.11 Intellectual property ...... 21 3.12 Risk factors ...... 21 4. Purpose of the transaction ...... 23 4.1 A unique position in the French television content market ...... 24 4.2 A portfolio of themed channels with strong and well-recognised brands ...... 24 4.3 A large and rich content catalogue ...... 24 4.4 Leading production capacities ...... 25 4.5 An experienced management team ...... 25 4.6 A key acquisition for the Company ...... 25 5. Groupe AB’s fair market value and valuation assessment factors ...... 26
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5.1 Price paid ...... 26 5.2 Criteria for assessing the offer price – fair market value ...... 26 5.3 Evaluation methods used ...... 27 5.3.1 Discounted cash flows ...... 27 5.3.2 Comparable listed company multiples ...... 27 5.3.3 Precedent transaction multiples ...... 27 5.3.4 Rejected methods ...... 28 6. Financing methods envisaged for the Initial Business Combination ...... 28 7. Principal illustrative terms of the transaction ...... 28 8. Management Package ...... 30 9. Legal mechanism for the IBC and related conditions precedent ...... 30 10. Exceptional financial benefits granted in the context of the IBC ...... 32 11. Consequences of a negative vote during the Special Meeting ...... 32 11.1 Conditions for the redemption of the Class B Shares ...... 32 11.2 Terms for the redemption of the Class B Shares ...... 33 12. Indicative calendar – Next steps ...... 34 13. Recommendation of the Management Board on the proposed resolutions submitted to the Special Meeting ...... 34
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1. OVERVIEW OF THE PROPOSED BUSINESS COMBINATION : CONTEXT OF THE TRANSACTION AND PENDING NEGOTIATIONS
Mediawan was formed by Messrs. Pierre-Antoine Capton, Xavier Niel and Matthieu Pigasse (the “ Founders ”) and incorporated on 15 December 2015 as a limited liability corporation with a management board and a supervisory board ( société anonyme à directoire et conseil de surveillance ).
Mediawan’ s objective is to complete the acquisition of one or more target companies operating in the traditional and digital media content and entertainment industries (a “Business Combination ”) within 24 months following the admission to trading of its class B sha res (the “ Class B Shares ”) as defined in Article 11.4 of the Company’s Articles of Association) on the professional segment of the regulated market of Euronext Paris, which occurred on 22 April 2016.
The first Business Combination transaction to be completed by the Company (hereinafter referred to as the “ Initial Acquisition ” or the “ Initial Business Combination ” or “ IBC”) shall involve one or more companies that are active in Europe.
In this context, a high-quality target with a strong potential for growth acceleration was identified as an eligible IBC. Further to a competitive process, the Company was chosen by the selling shareholders of this target company and accordingly was granted exclusivity with respect to the negotiations to be conducted in view of its acquisition.
A put option (the “ Put Option ”) was offered by the Company and accepted as an option by the shareholders of the target company. In addition, a management package (described below in Section 8) was provided for in favour of certain managers and employees of the target company. The completion of the proposed transaction is subject to the completion of various conditions precedent which are described in the Put Option (as described under Section 9 below).
The target company referred to above is Groupe AB, a simplified joint stock company, whose registered office is located at 132, avenue du président Wilson, 93210 La Plaine Saint-Denis, and which is registered with the Bobigny Trade and Companies Register under number 519 053 755 (hereinafter “ Groupe AB ”). Groupe AB is one of the leading independent content producers and distributors in France (see Section 3 below).
2. CONDITIONS PRECEDENT TO THE COMPLETION OF A PROPOSED BUSINESS COMBINATION
Pursuant to the Company’s articles of association (the “ Articles of Association ”) and the Company’s prospectus approved by the French Market Authority ( Autorité des marchés financiers ) on 11 April 2016 under visa no. 16-132 (the “ Prospectus ”), a proposed Business Combination may be completed only if certain conditions are met.
First, the potential target for a Business Combination must meet certain conditions contained in the Prospectus (2.1 ). The Company has required the assistance of an M&A advisory bank to assist it with the valuation of Groupe AB.
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In addition, pursuant to Article 14.3 of the Company’s Articles of Association the Company’s supervisory board (the “ Supervisory Board ”) must authorise any proposed Business Combination which the management board (the “ Management Board ”) intends to submit to the approval of a Special Meeting of the shareholders holding Class B Shares, and accordingly must authorise the Management Board to convene such Special Meeting for this purpose (2.2 ).
2.1 Conditions contained in the Prospectus
Pursuant to the terms of the Prospectus (see the section of the Prospectus entitled “ Effecting the Initial Business Combination ”) , in order for a transaction to be eligible as an Initial Acquisition, such transaction must relate to a target with a fair market value of at least 75% (the “ 75% Threshold ”) of the amount deposited on the deposit account opened by the Company with Société Général e (the “ Secured Deposit Account ”), less deferred underwriting commissions, on the date on which the Management Board, after being authorized by the Supervisory Board of the Company, resolves to submit the proposed Business Combination for approval to shareholders holding Class B Shares i.e., an amount of approximately €187.5 million.
In addition, pursuant to the above-mentioned section of the Prospectus, the Management Board must take into account a certain number of factors at the time it evaluates any potential target:
· the enterprise value of the target, which should be between the 75% Threshold and €1,500 million;
· the target’s results of operation, and its potential for increased growth and profitability;
· the regulatory environment in which the target operates;
· the ability of the Company to acquire at least a majority of the target’s shares carrying voting rights, and to acquire significant representation on the executive bodies of the target thereby allowing the Company to influence their decision-making processes.
The 75% Threshold is met in this case: based on information provided by the sellers and the Company’s analyses, the fair market value estimated by the Company significantly exceeds the €241.5 million enterprise value of Groupe AB which was retained for the purpose of the Initial Acquisition (the price of Groupe AB’s securities was estimated to be approximately €27 1 million (see Section 5 below)).
2.2 Conditions imposed by the Articles of Association
In addition to the above conditions contained in the Prospectus, as an Initial Acquisition, a proposed Business Combination must (i) be approved by the Supervisory Board after review by the Company’s strategic committee (the “ Strategic Committee ”) (Art. 2 of the internal regulations of the Company’s Supervisory Board) (ii) before it may be submitted by the Management Board for the approval of the Special Meeting of the shareholders holding Class B Shares (Article 20 of the Articles of Association).
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2.2.1 Prior approval of the proposed Business Combination by the Company’s Supervisory Board
On 22 December 2016, upon the recommendation of the Strategic Committee, the Supervisory Board unanimously (including its independent members) approved the proposed Business Combination and authorised the Management Board to convene a Special Meeting of the shareholders holding Class B Shares for the purpose of approving the Business Combination.
2.2.2 Prior approval of the proposed Business Combination by the Special Meeting of the shareholders that hold Class B Shares
In this context and pursuant to Article 20 of the Articles of Association, the Management Board has decided to convene a Special Meeting of holders of Class B Shares, which has “sole authority to approve any proposed Business Combination submitted by the Management Board .” This same Article 20 of the Articles of Association specifies that the “ deliberations of a Special Meeting shall be taken upon a two-third majority of the votes held by the shareholders holding Shares of the relevant category that are present or represented. ”
Consequently, the proposed Business Combination which is submitted to you as an Initial Acquisition must be approved by a 2/3 majority of the votes cast by shareholders holding Class B Shares that are present or represented during the Special Meeting deciding in accordance with the quorum requirements provided for by Article 20 of the Articles of Association (shareholders holding Class B Shares that are present or represented must represent 1/3 of the Class B Shares present at the first meeting called to vote and 1/5 of the Class B Shares present at the second meeting called to vote).
3. PRESENTATION OF GROUPE AB AND FINANCIAL INFORMATION
The information presented below results from documents provided to the Company and its advisors by the sellers and Groupe AB (including estimated financial information for the financial year ended 31 December 2016), as well as (i) Groupe AB’s consolidated financial statements for the financial years ended 31 December 2015, 2014 and 2013 prepared in accordance with IFRS, and certified without reservation by Groupe AB’s statutory auditors and (ii) Groupe AB’s interim consolidated financial statements prepared in accordance with IFRS for the six-month periods ended 30 June 2015 and 30 June 2016 which were subject to a limited review by Groupe AB’s statutory auditors.
3.1 History and evolution of Groupe AB
Founded in 1977, Groupe AB has become a significant producer and distributor of television content in French-speaking Europe. Throughout its history, Groupe AB has regularly realigned its activities in order to adapt to changes in the market.
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As part of its external growth strategy, Groupe AB notably acquired Auteurs Associés (September 2013), producer of the “Section de recherches ” series (TF1), and Ego Production (February 2016), producer of the “ Alice Nevers, le juge est une femme ” series (TF1).
3.2 Groupe AB ’s activities
Groupe AB is a leading independent content producer and distributor in France.
Groupe AB’s activities are organised around two segments: (i) the operation and distribution of television channels and related digital services ( “TV Channels & Digital” 1) and (ii) the production and distribution of television programmes (“Production & Distribution”).
The “TV Channels & Digital 2” segment represents approximately two-thirds of estimated consolidated 2016 sales 3, compared to approximately one-third of estimated consolidated 2016 sales generated by the “Production & Distribution ” segment.
The “TV Channels & Digital 4” segment generated approximately one-quarter of Groupe AB’s estimated 2016 consolidated operating income, compared with three-quarters of its estimated 2016 consolidated operating income generated by the “Production & Distribution ” segment.
3.2.1 Operation and distribution of TV channels and digital services (“ TV Channels & Digital 5”)
Groupe AB operates 19 television channels and related digital services in France and Belgium under strong brands and themes, such as RTL9, AB3, Science & Vie TV , Action , AB Moteurs and Mangas .
Groupe AB’s channels and digital services are broadcast by satellite and aired by the principal French satellite, cable and ASDL operators, such as Canalsat, Orange, SFR, Free and Bouygues, and internationally, by operators such as Voo, Proximus, Canal+, Overseas, Swisscom, Cablecom, M7 and StarTimes.
AB3, a Belgian channel, is principally distributed in French-speaking Belgium. AB3 is the third leading free-to-air channel, with a 9.7% market share among 18-44 year-olds in French- speaking Belgium, less than one point lower than La Une . (Source: Audimétrie CIM Sud, PRA 18-44, 2016 ).
Regarding television channels, Groupe AB operates three types of channels:
· Entertainment (consisting of three channels, i.e.: RTL9, AB3 and AB1, with more than 33 million subscribers in total);
· Special Interest (consisting of 12 channels, and in particular Action and Action Max, AB Moteurs, Golf Channel, Crime District, Mangas, Chasse et Pêche, and Animaux, with more than 56 million subscribers in total); and
1 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 2 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 3 Excluding intragroup income. 4 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 5 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website.
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· Documentaries (consisting of 4 channels, i.e.: Science & Vie TV, Mon Science & Vie Junior, Ultra Nature and Toute l’Histoire , with more than 11 million subscribers in total).
The Entertainment channels have significant advertising potential. These channels are widely distributed in the basic offerings of most pay television operators in France (CanalSat, Orange, Free, SFR, Bouygues), Switzerland (Swisscom, UPC Cablecom) and Belgium (Proximus, M7, Telenet, Voo). This broad distribution has enabled the channels to develop their audience and to grow advertising revenues. The principal characteristics of the Entertainment channels are summarised below:
The Special Interest channels are positioned on strong themes and quality programs, which allows high average revenues per user (ARPU) to be generated. These channels have high digital and community potential, which Groupe AB plans to develop through catch-up TV services, websites and applications related to the channels, community platforms and editorial digital services. The principal characteristics of the Special Interest channels are summarised below:
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Finally, the Documentary channels work in synergy with Groupe AB’s production activity, which produces approximately 50 documentaries per year distributed in France and internationally, along with original television magazines for its channels. Group AB’s strategy consists of investing in highly recognised brands, original programming and using innovative technology (such as Ultra HD and developing a hybrid interactive channel for Mon Science & Vie Junior). The principal characteristics of the Documentary channels are summarised below:
The “TV Channels & Digital 1” activity’s principal revenues are essential ly composed of:
i. royalties paid by the operators (generally set by contract for three-year periods), which represent approximately 68% of the “TV Channel s & Digital 1” activity’s estimated 2016 revenues.
1 Also referred as “Channels & Broadcasting” in the investor presentation on available Mediawan’s website.
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ii. advertising revenues, which are managed by an internal advertising department or third parties and which represent approximately 20% of the “TV Channel s & Digital 2” activity’s estimated 2016 revenues. Advertising revenues are almost exclusively generated by Entertainment channels and have strongly increased over the last few years, increasing from approximately €17.9 million in 2014 to €19.8 million in 2015 (+10 .5%) and approximately €21.8 million estimated in 2016 (+10.1%). iii. other revenues, including teleshopping and hotline revenues, and re-invoicing of operators for technical services (including channel transport), representing approximately 12% of estimated revenues of the “TV Channel s & Digital 3” activity in 2016.
3.2.2 Production and television programme distribution activities (Production & Distribution)
Groupe AB produces highly successful fiction and animation programs, including the “Alice Nevers ” and “Section de Recherches ” franchises (the last season of “Section de Recherches ” had 7.9 million viewers (Source: Médiamétrie )), and documentaries that it airs on television channels owned by Groupe AB. In 2016, the “ Alice Nevers ” and “ Section de Recherches ” programmes were part of the 10 most watched fiction series in France.
With respect to distribution, Groupe AB distributes programmes from its own catalogue in France and abroad, as well as programmes from the biggest French and international producers, such as the Friends series, films from the Paramount catalogue and successful series (“Engrenages ”, “Fais pas Ci Fais pas Ça ”, both of which were nominated and rewarded in the first 2015 International Emmy Awards).
The “Production & Distribution” activity’s principal revenues are essentially composed of (i) production revenues, which correspond to broadcasters’ orders for original programmes produced by Group e AB’s various production companies (Auteurs Associés, Ego Productions, AB Productions), and represented approximately one-third of the “Production & Distribution” activity’s estimated 2016 revenues, (ii) distribution revenues which corresponds to the sale of secondary broadcast rights to French and international broadcasters, and which represented approximately two-thirds of the “Production & Distribution” activity’s estimated 2016 revenues, and (iii) other revenues including royalties (and other rights), along with technical revenues of AB Télévision.
An increasing portion of catalogue sales are generated internationally (approximately 20% of estimated 2016 distribution sales), notably due to the strengthening of international rights withi n Groupe AB’s catalogue. On the basis of information furnished by Groupe AB, the value of the existing catalogue is estimated by Mediawan to be between €130 million and €150 million at 31 December 2016. 4
1 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 2 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 3 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 4 Valuation established on the basis of a discount rate of about 8%.
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3.3 Summary of Groupe AB’s competitive position
2016 Audience Share in France – Total 2016 Audience Share in France – Pay Channels*
* Audience share of channels between 23 December 2015 and 12 June 2016 – individuals older than four years. (Source: Mediamétrie )
3.4 Groupe AB ’s financial information
3.4.1 Groupe AB ’s audited historical financial information
The selected financial data presented below result from the audited consolidated financial statements of Groupe AB for the financial years ended 31 December 2015, 2014, 2013 and the summarized interim consolidated financial statements for the six-month period ended 30 June 2016.
The audited consolidated financial statements for the financial year ended 31 December 2015 and the interim summary consolidated financial statements for the six-month period ended 30 June 2016 are included as Annex 1 to this report.
These financial statements were prepared in accordance with IFRS. The consolidated financial statements for the financial years ended 31 December 2015, 2014 and 2013 were certified without qualification by PricewaterhouseCoopers Audit and RBA, G roupe AB’s statutory auditors. The interim consolidated financial statements of Groupe AB for the six-month period ended 30 June 2016 were subject to a limited review by Groupe AB’s statutory auditors.
For the financial year ended 31 December 2015, Groupe AB generated consolidated sales of €160 .0 million, and EBITDA of €36.9 million. At 30 June 2016, the Group ’s consolidated sales amounted to €87.8 million, and EBITDA reached €27.2 million.
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(a) Analysis of Groupe AB’s sales and results over the 2013 – H1 2016 period
Groupe AB ’s income statement over the 2013 – H1 2016 period
(1) At 30 June 2016, sales and net income included €3.7 million in non -recurring income arising from a termination indemnity resulting from the termination of the Jook SVOD service. (2) This item contains amortisation of the fair value of the assets of Groupe AB companies following the allocation of goodwill generated by the formation of a new holding company in 2010. During the first half of 2015, the group decided to revisit the amortisation plan for the “Custome r relations” intangible asset (straight -line amortisation planned up until 31 December 2016) and to shorten such period (end of amortisation at 31 December 2015).
Groupe AB ’s sales over the 2013 – 2015 period
Groupe AB’s consolidated sales slightly decreased over the 2013-2015 period, from €169.6 million in 2013 to €160.0 million in 2015 .
Sales in the “TV Channels & Digital 1” activity decreased in 2015, due to the termination of the Jook SVOD service (impact of approximately -€7 million), the renego tiation of certain distribution agreements and a difference in the presentation of sales between 2014 and 2015 (without an impact on net income).
Sales in the “Production & Distribution” activity increased during the period. Since the acquisition of the Auteurs Associés production company in September 2013, the Group has developed a prime-time fiction series production activity. As a result, production sales increased from €4.6 million in 2013 to €12.1 million in 2015, hitting a peak of €16.4 million in 2014 (due to a lag in the delivery of 2013 productions to 2014).
1 Also referred as “Channels & Broadcasting” in th e investor presentation available on Mediawan’s website.
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The breakdown of Groupe AB’s sales by client reflects the structure of the French television landscape, both with respect to the “TV Channels & Digital 1” activity aimed at Pay-TV operators, and with respect to the “Production & Distribution” activity aimed at national broadcasters.
Groupe AB’s sales at 30 June 2016
At 30 June 2016, growth in advertising revenues and sales by the “Production & Distribution” activity offset the impact of the cessation of the Jook SVOD service and renegotiations with operators. Sales at 30 June 2016 were therefore stable as compared to sales at 30 June 2015 (after adjusting for 2016 non-recurring income arising from the termination indemnity resulting from cessation of the Jook SVOD service).
Groupe AB’s EBITDA margin over the 2013 – June 2016 period
Over the 2013-2015 period, Groupe AB’s EBITDA margin (which is stated after amortisation of programmes) decreased, going from approximately 27% in 2013 to 23% in 2015 as a result of the decrease in sales over the period:
· cost of sales consisting principally of amortisation of rights, which vary depending on the production volume for the year and the mix of programmes sold (certain programmes having already been more or less amortised). Such expenses as a proportion of sales amounted to between 56% and 64%; and
· selling, general and administrative expenses remained stable, amounting to approximately 18% of sales during the period. At 30 June 2016, selling, general and administrative expenses amounted to 15%, a slight decrease as compared to the first half of 2015 (arising from seasonality in the first half of 2016, during which there were significant production volumes).
1 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website.
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(b) Analysis of the Groupe AB ’s balance sheets over the 2013 - H1 2016 period
In 2014, bank loan of €80 .0 million was incurred to repay a shareholder current account resulting from a capital reduction carried out in 2013 for a total amount of €240 million (see also the cash flow statement hereafter). At 30 June 2016, net cash of € 26.3 million was made up of (i) ( €45.1 million) in bank debt, financial debt and current accounts in debit, and (ii) cash in the amount of €71.3 million, including investment securities.
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(c) Changes in Groupe AB’s ca sh flows over the 2013 – H1 2016 period
Cash flow generation remained stable at more than €25 million in 2013 and 2014, and increased in 2015 and at 30 June 2016 as a result of a decrease in taxes paid by Groupe AB, i.e., a deduced conversion ratio of approximately 70%1 over 2013-2014 (and approximately 100% in 2015 and 75% at 30 June 2016).
· Amortisation of rights Amortisation of rights includes amortisation of broadcast rights acquired by Groupe AB from third parties for its catalogue, amortisation of the group’s productions and the amortisation of rights acquired specifically for TV channels. Amortisation varies with the use of rights acquired specifically for TV channels, the volume of production delivered and the programme-mix that is sold.
The level of amortisation of rights observed over the period is relatively stable and is in line with the increase of entertainment products.
· Working capital requirements WCR may undergo significant variations from one year to the next in light of the distribution activity (significant amounts, rates, payment terms and the length of purchase and sale
1 Conversion ratio equal to net cash from operations over EBITDA.
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transaction periods which result in significant variations), which explains the changes observed over the period.
However, it should be noted that working capital requirements for the “Production & Distribution” activity are structurally negative, even while such requirements depend on variable payment terms (resulting from commercial negotiations) and production schedules, while the working capital requirements of the “TV Channels & Digital 1” activity are slightly positive.
· Investments / Capital expenditures
Capital expenditures include Groupe AB’s investments in broadcast rights for its channels, broadcast rights for the purpose of enriching its catalogue, and investments in new productions and co-productions.
Levels of capital expenditures over the period show relative stability, and demonstrate a level of recurring capital expenditures allowing for the activity to be supported over future years.
3.4.2 Groupe AB ’s 2016 estimated financial data
The estimated financial data for the financial year ended 31 December 2016 presented below result from the information provided to the Company and its advisors by the sellers and Groupe AB. This estimated financial data has not been the subject of an audit report or limited review by Groupe AB’s statutory auditors. The estimated financial data may differ from results that are actually realised and as set forth in Groupe AB’s audited consolidated financial statements for the financial year ended 31 December 2016 which will be published subsequent to the date hereof.
For the financial year ended 31 December 2016, estimated sales amounted to approximately €158 million.2 Estimated EBITDA amounted to approximately €36 million,1 i.e., EBITDA margin of approximately 23% for the financial year ended 31 December 2016, which was globally in line with the levels of the financial year ended 31 December 2015 despite the impact of the termination of the Jook SVOD service during the course of 2015. Without such impact, sales and EBITDA would have increased by +€7 million and +€4 million , respectively, between 2015 and 2016, due to growth in advertising revenues and the development of the production activity (bolstered by the acquisition of Ego Productions in 2016). Operating cash flow generation is estimated to be approximately €30 million (i.e., a conversion ratio of approximately 80% 3).
3.4.3 Groupe AB’s devel opment prospects over the course of future years following its acquisition by Mediawan
Over the next few years, the Company intends to rely upon clearly identified levers to accelerate Groupe AB’s growth and to shore up its profitability:
1 Also referred as “Channels & Broadcasting” in the investor presentation available on Mediawan’s website. 2 Excluding €7.5 million in non -recurring income relating to the termination indemnity arising in connection with the cessation of the Jook SVOD service. 3 Conversion ratio equal to net cash from operating activities over EBITDA.
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· consolidate the position of the channels and their distribution on the Pay-TV market, by strengthening content and developing new brands;
· develop advertising revenues from television and digital platforms by leveraging the notoriety of the channels and the current subscriber base;
· accelerate production development strategy, including through the gradual launch of new programmes over the next few years, particularly fiction;
· pursue the current strategy on exploiting the catalogue, which will be renewed and strengthened through the acquisition of rights, production activities and investments in co-productions, which will allow international revenues to be developed; and
· optimise the cost structure through commercial and costs synergies with other acquisitions that could be contemplated by the Company in line with its objective of creating a leading independent content platform.
By activating these principal levers, the Company projects an organic increase in Groupe AB’s sales of about 3%, i.e., approximately €163 million in 2017 (compared to €158 million in 2016 (estimated)), and stabilisation of EBITDA margin to approximately 23% in 2017, i.e., EBITDA of approximately €37 million.
In the medium term, the Company forecasts (i) continued increases in Groupe AB ’s revenues at a rate exceeding 5%, (ii) combined with the stabilisation and even slight improvement of its profitability through improved operational efficiency and investments allowing the group’s growth to be supported, and (ii) stable operating cash flow generation.
The Company plans to adopt a prudent capital structure, while maintaining sufficient financial flexibility in view of future investments.
3.5 Simplified Groupe AB structure chart
(1) The outstanding 35% of RTL9 is held by the RTL group.
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3.6 Governance
Claude Berda
· Principal shareholder (53% through Port Noir Investment, which is itself controlled by Claude Berda) and Chairman of Groupe AB · Founded the company in 1977
· Education: Masters in Management, Université Paris Dauphine
Orla Noonan
· Groupe AB’s Chief Executive Officer since 2014 · Ms. Noonan joined the group in 1996, initially with finance responsibilities · Former chair of NT1 television channel · Member of the board of directors of Iliad SA · Ms. Noonan previously worked at Salomon Brothers International · Education: HEC and Trinity College (Dublin)
Denis Bortot
· Chief Operating Officer · Mr. Bortot joined the group in 1985 and is responsible for managing operations
· Mr. Bortot previously worked at Hachette Filipacchi
Richard Maroko
· Executive Vice President in charge of TV Channels , Content Acquisition and Documentary Production · Mr. Maroko joined the group in 1996 and is responsible for channel
programming, acquiring TV rights and producing documentaries · Education: Graduate and DEA , IEP Paris
Valérie Vleeschhouwer
· Executive Vice President in charge of Distribution and International Co-productions · Ms. Vleeschhouwer joined the group in 1996 and is responsible for all
external programme sales, along with relationships with independent producers and putting in place international co-productions · Ms. Vleeschhouwer previously worked at Pathé Distribution and
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Deloitte & Touche · Education: ESC Bordeaux and ESCP As from the completion of the Business Combination: · Mr. Pierre-Antoine Capton shall be appointed as chairman of Groupe AB;
· Ms. Orla Noonan shall be appointed as Chief Executive Officer of Groupe AB, which will become a subsidiary of Mediawan. Ms. Noonan will also be a member of Mediawan’s Strategic Committee; and
· Ms. Valérie Vleeschhouwer and Mr. Richard Maroko, who are also currently deputy CEOs of Groupe AB (see 4.5 below), shall be appointed as deputy-CEOs of Groupe AB. The governance of the other companies of the group will remain almost unchanged. Regarding the Company, the composition of its Management Board will not be modified after the consummation of the Business Combination.
3.7 Groupe AB employees
At 31 December 2016, Groupe AB employed 298 permanent employees and approximately 370 full time equivalents.
Groupe AB also has recourse to interim entertainment workers ( intermittents du spectacle ), principally with respect to production and post-production activities.
3.8 Groupe AB ’s principal disputes
In the ordinary course of its activities, Groupe AB is a party to certain disputes relating to labour and commercial matters (notably regarding the performance, creation or validity of distribution mandates or in the sale of TV programming). At 30 June 2016, provisions for other liabilities (including notably provisions for commercial litigation and those linked to group personnel) amounted to approximately €2.5 million in Group AB ’s summarized consolidated interim financial statements.
In this regard, it was agreed that the exercise of the Put Option will be accompanied by the execution of a sellers’ warranty agreement by Groupe AB’s majority shareholder and by the management shareholders, which will include representations and warranties that are customary in such matters (see Section 9).
3.9 Brief presentation of the regulatory authorisations applicable to Groupe AB
TV channels activities are regulated. To this end, Groupe AB has obtained various authorisations in France, Belgium and Luxembourg. As a result, the change of control of the companies that operate such channels are subject to certain formalities in each of these countries.
France
In France, pursuant to Article 33-1 of law no. 86-1067 relating to freedom of communication, television services with an annual budget exceeding €150,000 may be broadcast by networks that do not use frequencies assigned by the French Conseil supérieur de l’audiovisu el (CSA)
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only after an agreement has been entered into with the French CSA defining the specific obligations of such television services.
AB Thématiques thus entered into agreements with the French CSA relating to broadcasting and distribution by networks not using frequencies assigned by the CSA with respect to the AB Moteurs, AB 1, Action, Animaux, Chasse & Pêche, Ciné FX, Ciné Polar, Mangas, Science & Vie TV, Mon Science & Vie Junior, Toute l’histoire and Trek services, which agreements provide for AB Thématiques ’ obligations regarding the operation of these channels.
A change in control of AB Thématiques must be notified to the French CSA pursuant to these agreements. Indeed, Article 1.2, of these agreements require AB Thématiques to inform the French CSA as soon as possible of any change in the composition of its share capital and the allocation of its voting rights, and of any change affecting control over the company or one of its shareholders.
Belgium
AB Thématiques has filed declarations with the Belgian CSA with respect to the operation of AB Shopping, AB 3 and AB 4 television services.
A change in the indirect shareholding of AB Thématiques must be notified in advance to the Belgian CSA by registered mail. Receipt of such prior notification is an Exercise Condition of the Put Option (as such terms are defined in Section 9 below).
Luxembourg
Pursuant to Article 23 of the law of 27 July 1991 (modified) on electronic media and Grand- Duchy regulation of 17 March 1993 (modified) relating to the terms pursuant to which the government grants concessions for Luxembourger cable programmes, as well as the general rules governing such concessions and the related specifications, the Government of Luxembourg granted concessions to AB Entertainment, RTL Shopping and RTL9 for the operation of the following channels: Golf Channel, Lucky Jack, RTL Shopping, RTL 9, Crime District and Ultra Nature.
The change of control of RTL Shopping SA, RTL9 SA and AB Entertainment SA must be submitted to the prior approval of the Government of Luxembourg pursuant to the concessions entered into between the companies and the Government of Luxembourg. Such prior approval of the Government of Luxembourg is an Exercise Condition of the Put Option (as such terms are defined in Section 9 below).
3.10 Principal fixed assets
Groupe AB’s registered office and its broadcast infrastructure are located in La Plaine-Saint- Denis, where Groupe AB owns two buildings with a total surface area of approximately 11,000m2.
In addition, Groupe AB rents certain properties:
· in La Plaine-Saint-Denis for AB Télévision (these premises are currently used for storage purposes only and will soon be vacated by AB Télévision);
· in Paris for Auteurs Associés;
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· in Neuilly-Plaisance (Seine-Saint-Denis) and in Paris for Ego Productions;
· in Luxembourg for the Luxembourger channels (premises rented from RTL Group).
In addition, in 2014, Groupe AB invested in a new HD broadcasting centre with a capacity of 24 channels.
3.11 Intellectual property
Groupe AB has a portfolio of 180 trademarks, including numerous variations of the term “AB”: AB1, AB3, AB Moteurs, AB Africa, AB Cinéma, AB Communications, AB Disques, AB Junior, AB Moteurs, AB Presse, AB Productions, AB Shopping, AB Télévision, etc. (the “ AB Trademarks ”).
The AB Trademarks are in effect and are the exclusive property of Groupe AB.
Groupe AB holds a license for the RTL9 and RTL Shopping trademarks. This license is currently provided until 31 December 2020.
3.12 Risk factors
In addition to the information contained in this report, the Company draws your attention to the risk factors discussed below. These risk factors are, at the date of this report, those that the Company believes could, if they were to materialise, have a material adverse effect on the future group created by the acquisition of Groupe AB, its activities, financial situation, results of operations and its ability to meet its objectives. The Company draws the attention of shareholders to the fact that the risks and uncertainties discussed below are not the only risks and uncertainties the future group will face. Other risks and uncertainties of which the Company is not currently aware or that it does not consider to be significant at the date of this report may also have a material adverse effect on the activities of the future group, its financial situation, results of operations or prospects.
The risk factors described below supplement those discussed in the section of the Prospectus entitled “ Risk Factors ”.
- Risks relating to potentially incomplete information provided to the Company by the sellers
The due diligence and analyses carried out by the Company and its advisors on the acquisition of Groupe AB and its direct and indirect subsidiaries were carried out on the basis of information furnished by the sellers in an electronic data room and exchanges with Groupe AB’s leadership team. Consequently, if material information was not provided to the Company, the analysis of Groupe AB carried out by the Company could be impacted.
In this regard, it was agreed, however, that the exercise of the Put Option will be accompanied by the execution of a sellers’ warranty agreement by Groupe AB’s m ajority shareholder and by the management shareholders, containing representations and warranties that are customary in such matters.
- Risks relating to the non-exhaustive nature of the due diligence process
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The Company delegated the due diligence process to its advisors on the acquisition. While it was able to familiarise itself with its advisors’ observations, it did not independently verify such information.
- Risks relating to the failure to satisfy the conditions relating to the transaction
If one or more conditions of the Initial Acquisition are not met and results in the Initial Acquisition not being completed before 30 June 2017, the Put Option shall automatically lapse and the parties shall be released from their obligations thereunder.
In such a case, the Company will notably be required to reimburse the Lenders (as such term is defined in Section 6 below) the attorneys’ fees that they have incurred with respect to (i) putting in place and negotiating the financing documents relating to the bank loan requested to partially finance the Initial Acquisition, and (ii) the syndication and related expenses.
In addition, the Company will be required to bear the fees of the advisors that it retained in connection with preparations for the Initial Acquisition.
Finally, pursuant to the Prospectus, the Company shall continue to be required to complete a Business Combination within 24 months following the admission to trading of its Category B Shares on the professional segment of the regulated market of Euronext Paris.
In the framework of the Put Option, if the conditions thereof are satisfied but the commitment’s beneficiaries do not exercise such commitment (or failure to perform following the exercise of such commitment), such beneficiaries shall be liable to pay the Company - jointly, but not severally – an indemnity of €20 million.
However, in such a case, the Company cannot guarantee that the above-mentioned indemnity will be paid in full.
- Risks relating to a delay in the satisfaction of the conditions for the transaction
The Lenders’ undertaking to finance the Initial Acquisition under the terms referred to above (see Section 6) shall expire on 31 March 2017. Consequently, any extension of the commitment of the Lenders may lead to a dema nd that the Company bear the Lenders’ additional expenses.
If the Initial Acquisition and the implementation of the bank financing necessary for this purpose occurs after 23 February 2017, the acquisition vehicle created by the Company for the Initial Acquisition will be required to pay a ticking fee of 1.5% per year between 23 February and the signature date of the financing agreement, which rate shall be increased to 3% per year commencing 23 March 2017 ( the basis being €130 million, the amount of the l oan).
- Risks relating to dependence on the advertising market
A significant portion of Groupe AB’s sales are generated from selling advertising space and advertising slots to advertisers. Changes in these revenues depends notably on (i) changes in the publicity market, which is cyclical, volatile and strongly correlated to the economic environment, (ii) arbitrage by advertisers among the various media (television, radio, internet, mobile and press), and (iii) channel audiences.
- Risks relating to dependence on pay TV operators
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A significant portion of the revenues of Groupe AB’s TV Channels & Digital activities are generated by carriage fees arising from agreements between Groupe AB and the principal French pay TV operators regarding the distribution of channels operated by Groupe AB. The renewal and terms of these agreements notably depend on the strategy adopted by such operators with respect to their pay TV offering.
- Risks relating to changes in the French television landscape
In France, television channels represent a principal source of financing and outlets for selling fictional, animation and documentary programming. For this reason, changes in the television landscape can have a material impact on Group A B’s results. A decrease in sales of French fictional and documentary programming in favour of light entertainment (games, variety shows, reality TV) and American series could significantly penalise development of the television production activities in France.
- Risks relating to production times and budget overruns for television fiction works, documentaries and animation series
In France, advance financing usually covers the full production budget. Due to this economic model, managing production costs is essential to maintaining the activity’s financial balance.
- Ris ks relating to the group’s ability to acquire and finance programmes and television content
Revenues from distribution activities are generated by the sale of programmes from Groupe AB’ s catalogue. This catalogue is made up of content produced by the company itself and also by acquisitions of content by Groupe AB. The group faces significant competition when acquiring rights and certain acquisitions may require significant advance investments before commercialisation.
- Dependence on key managers and employees
Groupe AB’s success is linked to the quality of its editorial, creative and commercial teams, as well as its leadership team. Groupe AB’s future success also depends on its capacity to retain and motivate key employees, which it may not always be able to do. The loss of one or more key employees could have a significant adverse effect on the company’s sales, results of operations, financial situation and its ability to achieve its objectives.
- Financial risks
Credit and/or counterparty risks, customer default risk, risk of dependence on customers, market risks (notably interest and exchange rate risk).
4. PURPOSE OF THE TRANSACTION
The Management Board recommends the acquisition of Groupe AB under the terms described herein due to the specific assets presented by Groupe AB, and in particular:
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· its unique position of the French television market, where it is one of the leading independent content producers and distributors;
· its themed channel portfolio which contains strong and well-recognised brands;
· its rich and diverse library rights with more than 12,000 hours of programmes;
· its significant and growing production capacity;
· its experienced management team, which possesses renowned expertise in the management of TV content;
· its appeal and capacity to consolidate in order to attract talent and develop the company more widely in the area of content in Europe.
4.1 A unique position in the French television content market
Groupe AB is a leading independent content producer and distributor in France. The Company has a unique position in the television content market due to its expertise and its commercial successes allowing it to work with a wide range of players in the sector, both in France and internationally.
With consolidated sales of close to €160 million in 2015, Groupe AB is one of the only large independent players operating in France today.
In addition, its presence in television channel production and distribution makes Groupe AB a “one stop shop”, allowing it to be an essential player in the sector for its commercial partners.
4.2 A portfolio of themed channels with strong and well-recognised brands
Groupe AB has a portfolio of 19 themed channels that are structured around recognised brands and strong themes. These channels are distributed by a large number of French and European operators and re-aired in France, French-speaking Europe and in Africa, representing total aggregate distribution of all channels in more than 100 million households ( Source : information provided by operators, at 30 June 2016 ).
Groupe AB has created close commercial relationships with a significant number of pay TV operators, both in France (CanalSat, Orange, Free, SFR, Bouygues) and abroad (Swisscom, UPC and Cablecom in Switzerland, Proximus, M7, Telenet and Voo in Belgium).
4.3 A large and rich content catalogue 1
Groupe AB possesses a catalogue of over 12,000 hours of diverse programmes. On the basis of information furnished by Groupe AB, the value of this catalogue is estimated by Mediawan to be bet ween €130 million and €150 million at 31 December 2016. 2
1 Catalogue shares presented in the following section are expressed in numbers of hours. 2 Valuation established on the basis of a discount rate of approximately 8%.
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This catalogue is composed of programmes produced by the group (representing approximately 44% of the catalogue) and programmes from the largest French and international producers (representing approximately 56% of the catalogue 1), including the Friends series, films from Paramount’s catalogue, and successful series such as Engrenages or Fais pas Ci, Fais pa Ca.
This catalogue offers diverse programmes in fiction (series and sitcoms represent about 60%, while films and TV-movies represent about 14% of the catalogue), animation (representing about 12% of the catalogue), including the Alice Nevers, Section de Recherches and Sept Nains et Moi franchises, and documentaries (representing about 14% of the catalogue).
Groupe AB also has renowned experience in managing programming rights, both with respect to rights sales and identifying and acquiring new content with high potential.
4.4 Leading production capacities
Groupe AB also has strong production capacity (more than 80 hours of original programming per year, both in prime-time fiction (Sections de Recherches and Alice Nevers) and in documentary programming ( Le Mode de Demain collection)) and also acts as an animation co- producer in partnerships ( Miraculous ) and, as the case may be, a co-producer ( Sept Nains et Moi ). This production development strategy offers the group secured access to premium content and control over world-wide rights.
4.5 An experienced management team
Groupe AB is led by an experienced team with a track-record and expertise that are recognised in the television industry (see also Section 3.6 above).
Among the principal managers of Groupe AB are:
· Ms. Orla Noonan, Chief Executive Officer since 2014;
· Mr. Richard Maroko, Executive Vice President in charge of TV Channels, Content Acquisition and Documentary Production;
· Ms. Valérie Vleeschhouwer, Executive Vice President in charge of Distribution and International Co-Productions.
4.6 A key acquisition for the Company
With its strategic positioning over all of the content value chain, Groupe AB is a unique consolidation platform which will allow the Company to deploy its strategy with a view of creating a leader in premium content in Europe through the consolidation of independent companies having complementary expertise in film, animation and TV series.
Indeed, the Groupe AB acquisition offers the Company the opportunity to evolve towards all content-related areas (flexibility to evolve towards upstream production/acquisition activities
1 Including acquired rights (approximately 41% of the catalogue), as well as programmes under mandates (approximately 15% of the catalogue).
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and down-stream distribution/broadcasting activities), with the objective of creating significant synergies (income and expenses) that could be developed at the time of future acquisitions by the Company.
In this context, the Company could leverage G roupe AB’s solid and consistent performance and its outlook in terms of medium-term cash generation to invest in content and in the acquisition of other companies.
5. GROUPE AB’ S FAIR MARKET VALUE AND VALUATION ASSESSMENT FACTORS
5.1 Price paid
The Company is seeking to acquire, directly or indirectly, 100% of the share capital of Groupe AB for an estimated price of approximately €271 million at the date of the completion of the transaction.
Groupe AB’s enterprise value is set at €2 41.5 million in the Put Option. In order to calculate the definitive price of the Groupe AB shares at the completion date, such enterprise value we be increased, as applicable, by its net cash (or, if net cash is negative, decreased from its absolute value) and adjusted in light of the financial factors referred to in the Put Option.
5.2 Criteria for assessing the offer price – fair market value
Based on information provided by the sellers, notably including access to an electronic data room and numerous exchanges with Groupe AB’s leadership team, the Company, and its advisors on the acquisition conducted due diligence on Groupe AB for the purpose of esta blishing a business plan and to assess Groupe AB’s valuation.
This exercise was conducted with reference to several customary methodologies for this type of transaction, including in particular a discounted cash flow method, the comparison of EBITDA multiples of comparable companies, and the comparison of EBITDA multiples retained in comparable transactions.
Based on these analyses, the Company believes that Groupe AB’s fair market value significantly exceeds (i) Groupe AB’s enterprise value of €241.5 million and thus (ii ) the 75% Threshold. Indeed:
· the application of a discounted cash flow method results in valuations of between € 325 million and € 400 million, with a discount rate of between 9% and 10%, and a constant growth rate of between 1% and 2%;
· the enterprise value of € 241.5 million corresponds to an adjusted 1 multiple of about [6.6x 2016 EBITDA and 6.4x 2017 EBITDA (based on estimated 2016 and 2017 EBITDA of approximately €36 million and €37 million , respectively)), which is significantly less than (i) the market references observed by the Company, which include both television channel broadcasters and distributors as well as TV programming
1 Enterprise value adjusted for amounts to be received in 2017 in connection with the termination indemnity resulting from the cessation of the Jook SVOD service (amounts not included in net cash as defined in the Put Option).
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production/distribution specialists, and (ii) multiples deduced from previous transactions in the sector of television channels and production/distribution of TV programming.
5.3 Evaluation methods used
The acquisition price offered by the Company was calculated using a multi-criteria approach based on the following methods:
5.3.1 Discounted cash flows
The discounted cash flow method was applied to the business plan in a fair and realistic manner by the Company on the basis of the current scope of activities and taking into account all information provided by the sellers a nd Groupe AB’ s management, as well as the Company’ s prudent assessment of market dynamics.
The application of this evaluation method leads to a valuation of Groupe AB within a range of between €325 million and €400 million assuming (i) WACC between 9% and 10% and (ii) a constant growth rate between 1% and 2%.
5.3.2 Comparable listed company multiples
The absence of listed French peers that are directly comparable to Groupe AB, as well as the differ ences observed between the model and valuation of the group’s two activities limits the relevancy of a valuation using listed multiples. However, the Group used an illustrative sample including:
· specialists in distribution of pay television channels, notably British Sky and American Discovery, Scripps Networks, Viacom and AMC. The stock market valuation of these companies points to a median multiple of approximately 9x 2017 EBITDA (Source: Factset at 26 January 2017 );
· specialists in distribution of free television channels in Europe, notably Mediaset, Modern Times Group, ProsiebenSat, ITV, RTL Group, M6 Group and TF1 Group. The market value of these companies brings forward a median multiple of approximately 10x 2017 EBITDA ( source: Factset at 26 January 2017 ).
· producers and distributors of TV programming, notably Lionsgate, Entertainment One and Eros International. The stock market valuation of these companies points to an average multiple of more than 10x 2017 EBITDA (source: Factset at 26 January 2017 ).
On the basis of an illustrative range of between 9x and 10x 2017 EBITDA, the valuation of Groupe AB is between €330 million and € 370 million (corresponding to an enterprise value superior to the value contained in the Put Option and the 75% Threshold).
5.3.3 Precedent transaction multiples
The Company did not identify precedent transactions that were perfectly comparable to Groupe AB and for which publicly available information would have allowed deduced multiples to be determined for the valuation of Groupe AB, thereby limiting the relevancy of this valuation approach.
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However, the Company used an illustrative sample composed of the following transactions: (i) the takeover of Newen Network by TF1 in 2016 carried out on the basis of a deduced multiple of approximately 10x EBITDA; (ii) the takeover of Eurosport by Discovery in 2014 resulting in the acquisition of an additional 31% shareholding (Discovery going from holding 20% to 51% of Eurosport’s capital) carried out on a basis of a deduced multiple of about 11x EBIT; (iii) the acquisition of TVN by Scripps Networks in 2015 carried out on the basis of a deduced multiple of about 13x EBTIDA; (iv) the acquisition of NextRadioTV by Groupe News Participations (Groupe Altice) in 2015 carried out on the basis of a deduced multiple of more than 16x EBITDA; and (v) the acquisition by Liberty Global of a minority interest in ITV in 2014 carried out on the basis of a deduced multiple of about 11x to 12x EBITDA.
These transactions lead to multiples of greater than 10x EBITDA. On the basis of such a multiple applied to Groupe AB’s 2016 EBITDA, the illustrative valuation of Groupe AB exceeds €360 million.
5.3.4 Rejected methods
Certain evaluation methods, such as comparable net asset, revalued net asset, and discounted dividend methods were rejected by the Company as they were deemed to be inappropriate for evaluating Groupe AB.
6. FINANCING METHODS ENVISAGED FOR THE INITIAL BUSINESS COMBINATION
The Initial Acquisition will be financed in part by bank borrowing(s) in the amount of €130 million from BNP Paribas, Crédit Industriel et Commercial and Société Générale (the “Lenders ”), the prin cipal conditions of which have already been negotiated and finalised with such banks. The balance of the purchase price for Groupe AB ’s shares will be financed through drawings on amounts deposited on the Secured Deposit Account (as such term is defined in 2.1 ).
If the shareholders holding Class B Shares vote in favour of the Business Combination, the amounts deposited on the Secured Deposit Account will also serve to redeem, at the Company’s initiative as the case may be, the shares of shareholders holding Class B Shares that did not vote in favour of the Business Combination under the conditions contemplated by Article 11.4 of the Articles of Association (see Section 11 below).
7. PRINCIPAL ILLUSTRATIVE TERMS OF THE TRANSACTION
As presented above in Section 5, the Company is seeking to acquire, directly or indirectly, 100% of the share capital of Groupe AB for an estimated acquisition price of approximately €271 million at the transaction completion date, i.e., a total amount to be financed by the Company of approximately €285 million after taking into account transaction fees estimated to be approximately €14 million.
The Initial Acq uisition will be financed in the amount of €130 million by bank borrowings and approximately €155 million through available cash at the level of the Company (out of total post-transaction available cash of about €250 million).
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On a pro forma basis after taking into account the transaction, consolidated available cash at the level of the Company would amount to approximately €129 million, 1 composed of (i) approximately €95 million of remaining cash at the level of the Company, and (ii) approximately €34 mi llion of estimated adjusted available cash at the transaction completion date at the level of Groupe AB (net of, in particular, the purchase of minority interests at the level of RTL9 and the Ego Productions price supplement and other adjustments), resulting in pro forma net financial deb t of approximately €1 million.
Pro forma sources and uses 2 3
For illustrative purposes, on the basis of a price per share of €10 (initial subscription price) and 31.3 million shares (including 25 million Class B Shares of the Company listed on the professional segment of Euronext Paris and 6.3 million class A shares belonging to the Founders), the value of the Company’s shareholders’ equity would amount to approximately €313 million, resulting in an enterprise value o f approximately €314 million after taking into account estimated net financial debt on the Initial Acquisition completion date of approximately €1 million.
1 Assuming that no shareholder of the Company has requested the redemption by the Company of the Class B Shares under the conditions provided for in Article 11.4 of the Articles of Association and described in Section 11 below. 2 This table assumes that no shareholder of the Company will have requested the redemption, by the Company, of its Class B Shares under the conditions provided for in Article 11.4 of the Articles of Association and discussed in Section 11 above. 3 Estimated available cash on the date of the legal and actual completion of the Initial Acquisition of approximately €95 million at the level of the Company and of approximately €34 million at the level of Groupe AB (net, in particular, of the purchase of minority interests in RTL9 and the supplemental price of Ego Productions and other adjustments).
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This pro forma enterprise value thus brings out an illustrative deduced multiple of about 8.5x 2017 EBITDA (less than the market references observed by the Company and the deduced multiples of precedent transactions presented in Section 5 above).
8. MANAGEMENT PACKAGE
A management package has been provided for in favour of certain managers and employees of the target company. If the Initial Acquisition is completed, the management package will take the form of a grant of free shares to be issued by the Company.
The free share grant plan (i) will have two vesting periods, each covering half of the free shares and respectively expiring at the end of the general shareholders’ meetings called to approve the consolidated financial statements of Groupe AB and the entities that it controls for the 2019 and 2020 financial years, and (ii) will not provide for a holding period.
The plan will contain an annual vesting period over the 2019 and 2020 financial years with performance conditions and will thus take into account EBITDA generated over the relevant financial year as compared to EBITDA contained in Groupe AB ’s business plan. This plan will also include cross-commitments (good-leaver and bad-leaver provisions) that are customary under similar circumstances.
Such issuance of free shares shall be submitted to the vote of an extraordinary shareholders’ meeting which shall be convened for this purpose.
9. LEGAL MECHANISM FOR THE IBC AND RELATED CONDITIONS PRECEDENT
On 27 January 2017, the Put Option was signed by Mediawan and accepted, as an option only, by the direct and indirect holders of 100% of the share capital of Groupe AB (the “ Put Option Beneficiaries ”) .
Groupe AB’s share capital is currently directly and indirectly held by its main shareholder (the company Port Noir Investment, which is controlled by Mr. Claude Berda) in the amount of 53%, TF 1 in the amount of 33.5% and by managers of Groupe AB in the amount of 13.5%.
The Put Option relate s to the Company’s direct and indirect acquisition of 100% of the share capital and voting rights of Groupe AB (including through the acquisition of the shares of a holding company that currently holds 8.55% of Groupe AB).
The exercise of the Put Option by Groupe AB’s majority shareholder is subject to the following exercise conditions (the “ Exercise Conditions ”):
a. approval of the Business Combination by the Special Meeting;
b. completion of the information and consultation process with the representatives of Groupe AB and its subsidiaries;
c. prior approval by the Government of the Grand Duchy of Luxembourg of the change of control to occur between the major shareholder of Groupe AB and the Company due to the proposed Business Combination, as required in the specifications of the relevant concessions; and
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d. reception of the receipt notice from the Conseil supérieur de l’audiovisuel de la communauté française de Belgique approval committee concerning the prior notice of the modification of AB Thématique’s declarati on.
If the Put Option is not exercised by all of the Put Option Beneficiaries despite all of the Exercise Conditions being satisfied, each defaulting beneficiary shall be liable to pay the Company, jointly, but not severally, an indemnity amounting to €20 million divided by its share of the price for the shares.
If completed, the Initial Acquisition shall be carried out by an acquisition vehicle based in France that was formed by the Company for such purpose.
At the request of the banks financing the Business Combination, the above-mentioned acquisition vehicle must be the head of the tax consolidation group of which Group AB and its subsidiaries will be members.
To this end, since the company heading a tax consolidation group cannot be more than 95%- owned by a company subject to corporate income tax (CIT), 94.9% of the share capital of the above-mentioned acquisition vehicle will be owned by the Company (a company subject to CIT) and 5.2% of the share capital of such acquisition vehicle will be owned by a company to be formed for this purpose prior to the completion of the Initial Acquisition, which company will be a partnership ( société en nom collectif ) not subject to CIT.
In addition, the capital of the above-mentioned partnership must be held by at least two partners. Therefore, 99.9% of the partnership’s capital shall be held by the Company and 0.1% of its capital will be held by another company (a société par actions simplifiée that will be 100% owned by the Company) to be formed for this purpose prior to the completion of the Initial Acquisition.
If the Put Option is exercised, the completion of the Initial Acquisition will occur subject to the condition precedent that the Company, and/or a company formed by the Company for this purpose, and the Lenders enter into a credit agreement detailing the summarized terms annexed to the Put Option, which has already been approved by the banks that have been solicited.
If the Initial Acquisition is not completed before 30 June 2017, the Put Option shall lapse as of right and be null.
In addition, the change of control of Groupe AB shall entitle the third-party shareholder within two Luxembourger subsidiaries the possibility to transfer its minority shareholding in such subsidiaries. The potential exercise of such exit right shall not have an impact on the cost of the Initial Acquisition (net of Groupe AB’s cash) .
In any event, the completion of the Initial Acquisition shall occur even if no agreement is reached with the third-party shareholder on the price of the shares for the Luxembourg subsidiaries that it holds on such date, as such purchase is not a condition precedent to the completion of the change of control.
Finally, the exercise of the Put Option shall be accompanied with the execution of a warranty agreement containing representations and warranties customary in similar transactions and granted by Groupe AB’s majority shareholder and t he management shareholders. Such
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agreement shall have a 24-month term, other than with regards to warranties as to tax, customs and labour matters, which warranties shall terminate 60 days after the expiration of the applicable statutes of limitation.
The performance of the seller’s warranty shall be secured by one or more first -ranking pledges to be granted by Groupe AB’s majority shareholder relating to, at such shareholder’ s option, savings or life-insurance products and/or debt, equity or hybrid instruments issued by companies located in Europe, Switzerland, the United Kingdom or the United States that are immediately liquid and the value of which shall be verified by a banking institution. Groupe AB’s majority shareholder may at any time substitute such pledges for a joint and several bank guarantee.
Groupe AB’s majority shareholder must also jointly and severally guarantee the undertakings of the managers under t he sellers’ warranty agreement. Mr. Claude Berda will also jointly and severally guar antee Groupe AB’s majority shareholder.
10. EXCEPTIONAL FINANCIAL BENEFITS GRANTED IN THE CONTEXT OF THE IBC
No exceptional financial benefit is contemplated for the managers or founders of Mediawan in connection with the Initial Business Combination. The management package planned in favour of Groupe AB’s principal managers is described in Section 8 of this report.
11. CONSEQUENCES OF A NEGATIVE VOTE DURING THE SPECIAL MEETING
Pursuant to Article 11.4 of the Articles of Association, “ when deciding to submit for approval to the Special Meeting of shareholders holding Class B Shares a proposed Business Combination, the Company may take the initiative of redeeming the Class B Shares .”
11.1 Conditions for the redemption of the Class B Shares
You are reminded that, in accordance with Article 11.4 of the Articles of Association, the option to redeem the Class B Shares is open to the Company only if the Special Meeting approves the proposed Initial Business Combination.
Consequently, if the Special Meeting does not approve the proposed Initial Business Combination by a two-thirds majority, no Class B Shares will be redeemed by the Company.
Conversely, if the Special Meeting approves the proposed Business Combination, the Company may take the initiative to redeem the Class B Shares held by shareholders that voted against the proposed Business Combination and wishing to benefit from the redemption of the Class B Shares initiated by the Company, subject to such shareholders satisfying the following conditions:
· he/she/it has notified the Company, by registered letter with a request for an acknowledgement of receipt sent to the registered office of the Company to the attention of the chairman of the Management Board or by way of electronic telecommunication to the address specified in the notice, no later than the fourth business day prior to the date of the Special Meeting convened to vote on the
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proposed Business Combination, his/her/its intention to vote against such proposed Business Combination;
· he/she/it has placed into pure or administrative registered form ( forme nominative pure ou administrée ), no later than the second business day preceding the date of the Special Meeting convened to vote on the proposed Business Combination, all the Class B Shares that he/she/it holds;
· he/she/it has held, as the date of the Special Meeting that approved the proposed Business Combination full and entire ownership of his/her/its Class B Shares held in pure or administrative registered;
· he/she/it has attended, or has been represented at, the Special Meeting that approved the proposed Business Combination and have voted, or in the event of representation, has given an imperative proxy to vote, against such proposed Business Combination;
· he/she/it has placed his/her/its Class B Shares exclusively into pure registered form (forme nominative pure ) at the latest on the date of the effective and legal completion of the Business Combination approved by the Special Meeting and has maintained such Class B Shares in such form until the date of redemption of the Class B Shares by the Company; and
· he/she/it has not transferred the full ownership of his/her/its Class B Shares to a third party as at the date of the redemption of the Class B Shares by the Company.
It is specified that only Class B Shares (the ownership of which has not been separated (démembré ) owned by a shareholder that has strictly complied with the conditions described above may be redeemed, and only within the limit of the number of Class B Shares taken into account for purposes of calculating the quorum of the Special Meeting having approved the proposed Business Combination.
11.2 Terms for the redemption of the Class B Shares
The Management Board takes the decision to carry out the redemption of the relevant Class B Shares, sets the precised date for such redemption and completes such redemption within the deadline mentioned in the following paragraph, with the option of sub-delegation under the conditions set by applicable laws and regulations, after having acknowledged that all the above-described conditions for such redemption have been met.
In accordance with Article 11.4 of the Articles of Assocation, the Company shall redeem the Class B Shares within a period ending no later than the 30th calendar day following the date of the legal and effective completion of the Business Combination, or on the next business day if this date is not a business day, it being specified that the Company shall have no obligation to redeem the Class B Shares if the Business Combination approved by the Special Meeting is not consumated.
The redemption price for a Class B Share shall be €10 .
The Company’s shareholders shall be informed of the implementation of the redemption of the Class B Shares by a redemption notice made available to the shareholders in accordance
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with applicable laws and regulations no later than 15 calendar days prior to the redemption date of of the Class B Shares.
The Class B Shares redeemed by the Company will be cancelled immediately after their redemption through a reduction of the Company’s share capital under the terms and conditions set out by applicable laws and regulations, including in particular the provisions of Article 11.4 of the Articles of Assocation and Article L. 228-12-1 of the French Commercial Code (Code de commerce ). The Management Board shall acknowledge the number of Class B Shares redeemed and cancelled and shall amend the Articles of Association accordingly.
The amount corresponding to the total redemption price of the Class B Shares redeemed by the Company shall first be charged against the share capital up to the amount of the share capital decrease mentioned in the previous paragraph and then, for the balance, against distributable amounts (within the meaning of Article L. 232-11 of the French Commercial Code (Code de commerce ) in accordance with the applicable laws and regulations.
12. INDICATIVE CALENDAR – NEXT STEPS
The announcement that the Company has entered into exclusive negotiations with Groupe AB’s shareholders in view of its acquisiti on occurred on 30 January 2017. A press release was issued in French and English on the Company’s website ( www.mediawan.fr) on such date.
The Management Board convened the Special Meeting of the shareholders holding Class B Shares in view of deciding on, notably, the Initial Acquisition submitted to it. A meeting notice relating to such meeting shall be published in the Bulletin des Annonces Légales Obligatoires (BALO) on 3 February 2017 and shall be available on the Company’s website in French and English. A meeting notice will be published under the same conditions in a legal notices publication at least 15 days before the day the Special Meeting of the holders of Class B Shares will be held.
All of the documents relating to the Special Meeting of the shareholders holding Class B Shares (including this report) shall be made available to such shareholders on Mediawan’s website (www.mediawan.fr) no later than 21 days before the date of the Special Meeting, i.e., 20 February 2017.
The vote of the Special Meeting of the shareholders holding Class B Shares on the proposed Initial Acquisition of Groupe AB will take place on 13 March 2017.
Subject to the satisfaction of the Exercise Conditions and the condition precedent referred to in Section 9 above (including the vote in favour of the Initial Acquisition by the Special Meeting of shareholders holding Class B Shares, under the quorum and majority requirements contained in the Articles of Association), the legal and actual completion of the Initial Acquisition should occur during the first half of 2017.
13. RECOMMENDATION OF THE MANAGEMENT BOARD ON THE PROPOSED RESOLUTIONS SUBMITTED TO THE SPECIAL MEETING
In view of the elements discussed herein and given the quality of the proposed target, you are hereby invited to approve the proposed Business Combination with Groupe AB as presented by the Management Board.
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The draft resolutions that will be proposed to you by the Management Board during the Special Meeting are set forth in Annex 2 of this report.
The Management Board recommends voting in favour of these resolutions to the shareholders holding Class B Shares.
oOo The Management Board
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ANNEX 1
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF GROUPE AB AT 31 DECEMBER 2015
AND INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2016
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CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF GROUPE AB AT 31 DECEMBER 2015
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GROUPE AB Registered office: 132 avenue du Président Wilson 93210 La Plaine Saint-Denis
Consolidated Accounts for the financial year ended 31 December 2015
This is a free translation into English of the Consolidated Accounts for the financial year ended 31 December 2015 of Groupe AB issued in the French language and is provided solely for the convenience of English speaking readers.
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I. ANNUAL CONSOLIDATED ACCOUNTS CONSOLIDATED BALANCE SHEET FINANCIAL YEARS ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
31 Dec. 2014 Notes 31 Dec. 2015 In thousands of euros restated* ASSETS
Non-current assets
Goodwill 4.1 132 635 132 635 Other intangible assets 4.2 - 44 242 Entertainment products, net 4.3 71 938 82 428 Property, plant and equipment, net 5 22 994 23 795 Deferred tax assets 9 - - Other financial assets 6 1 290 2 193 Total non-current assets 228 857 285 293
Current assets
Inventories, net 1 273 1 375
Trade receivables 7 45 142 58 366 Other receivables 8 12 085 22 414 Other current financial assets 6 1 336 1 919 Cash and cash equivalents 10 70 594 47 997 Total current assets 130 430 132 071
Total assets 359 287 417 364
EQUITY AND LIABILITIES
Equity 11
Share capital 11.1 222 691 222 691 Consolidated reserves (1 366) (5 514)
Result for the financial year (12 164) 4 093
Group ’s equity 209 161 221 270
Non controlling interests 2 808 2 510
Consolidated total equity 211 969 223 780
Non-current liabilities
Deferred tax liabilities 9 13 879 28 565 Long-term debt 12 35 181 50 772 Provisions for pensions and other post-employment 13 732 753 benefits Other liabilities (Co-financing) 1 072 1 862
Financial instruments 12 355 447 Total Non-current liabilities 51 219 82 399
Current liabilities
Trade payables 15 40 794 51 369 Other payables 16 33 572 32 614 Deferred income 17 3 492 2 701 Provisions for other liabilities 14 2 642 8 860 Current portion of Long-term debt and short-term 12 15 599 15 641 debt Total Current liabilities 96 099 111 185
Total Equity and Liabilities 359 287 417 364 * The restatements are further explained in note 3.3.
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CONSOLIDATED PROFIT AND LOSS ACCOUNT FINANCIAL YEARS ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
2014 In thousands of euros Notes 2015 restated*
TV Channels & Digital, 112 540 124 733
Production & Distribution 47 461 59 351
Holding company 320 44 026
Total sales 160 033 184 116
Cost of goods sold (97 214) (117 629)
Gross margin 62 819 66 487
Selling, general and administrative expenses (29 451) (31 678) EBIT 33 368 34 809
Goodwill amortisation and PPA (50 411) (29 656) EBIT after goodwill amortisation and PPA (17 043) 5 153
Non-controlling interests & Equity associates 19 (801) (193) Net financial income (expense) 18 (1 779) (2 313) Income before tax (19 623) 2 647 Current and deferred taxes 9.2 7 754 2 018 Net income (11 869) 4 665 Of which
Attributable to owners (12 164) 4 093
Attributable to non-controlling interests 295 572
Net earnings per share (in euros) (0,026) 0,009
Diluted earnings per share (in euros) (0,026) 0,009
In thousands of euros 2015 2014 Notes restated* Net income (11 869) 4 665 Goodwill amortisation and PPA 50 411 29 656
Impact of deferred taxes on goodwill amortisation and PPA (17 386) (11 232)
Net profit excluding the net impact of goodwill amortisation and PPA 21 156 23 089
Of which
Attributable to owners 20 861 22 517
Attributable to non-controlling interests 295 572
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE
FINANCIAL YEARS ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
2015 2014 In thousands of euros Notes restated* Net income (11 869) 4 665
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Translation adjustments 58 12
Income and expense recognized directly in equity - -
Total Recognized income and expense (11 811) 4 677 Of which
Attributable to owners (12 109) 4 105
Attributable to non-controlling interests 298 572
* The restatements are further explained in note 3.3.
VARIATIONS OF THE GROUP'S CONSOLIDATED EQUITY FINANCIAL YEARS ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014
Non- Total of Number of Share Consolidated Result of Total Group ’s controlling consolidated securities capital reserves the period equity interests equity In thousands of euros
As at 1st January 2014 462 686 567 222 691 14 063 108 236 862 1 938 238 800
IFRIC21 Restatement * - - 303 - 303 - 303
As at 1 January 2014 as 462 686 567 222 691 14 366 108 237 165 1 938 239 103 restated Change in Translation - - 12 - 12 - 12 adjustments
Net result of the period - - - 4 093 4 093 572 4 665
Comprehensive result of - - 12 4 093 4 105 572 4 677 the period Net income attributable to owners of the previous - - 108 (108) - - - financial year
Dividends - - (20 000) - (20 000) - (20 000)
As at 31 December 2014 462 686 567 222 691 (5 514) 4 093 221 270 2 510 223 780 as restated Change in Translation - - 55 - 55 3 58 adjustments
Net result of the period - - - (12 164) (12 164) 295 (11 869)
Comprehensive result of - - 55 (12 164) (12 109) 298 (11 811) the period Net income attributable to owners of the previous - - 4 093 (4 093) - - - financial year
Dividends ------
As at 31 December 2015 462 686 567 222 691 (1 366) (12 164) 209 161 2 808 211 969
* The restatements are further explained in note 3.3.
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CONSOLIDATED CASH FLOW STATEMENT ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2014 In thousands of euros 31 December 2015 31 December 2014 Operating activities
Net income (loss) (11 869) 4 665 Non-controlling interests & Equity associates 801 193 Amortisation of Entertainment products, Goodwill and PPA (intangible) 103 800 93 660 Depreciation of Property, plant and equipment 3 518 3 593 Provisions and other operating income/expense (6 239) 4 949 Provisions for depreciation of receivables and other 1 239 (175) Revenue, Expenses valuation at fair value of financial assets / liabilities (480)
Other revenue and expenses without impact on cash 469 901 Disposal of Assets 423 1 024 Revenue, Deferred tax expenses and other – net (14 686) (10 289) Revenue, Current tax expenses 6 931 8 271 Operating cash flow before entertainment products cost, net financial 83 907 106 792 indebtedness cost, and taxes
Increase of Entertainment products (51 878) (52 440) Subsidies allocated to productions 2 692 2 962 Taxes paid 18 (14 392) Change in Working capital 5 404 (16 641) Net cash generated by operating activities 40 143 26 281 Investment
Advances to Equity associates 124 157 Acquisition of other intangible assets (310) (1 334) Acquisition of Property, plant and equipment (2 776) (2 519) Revenue from financial fixed assets disposal 65 114 Acquisition/ disposal of financial fixed assets 623 (96) Investments in consolidated companies (net of cash acquired) (200) (600)
Disposals of consolidated entities (net cash transferred) - 10 000 Other (net) 970 (23) Net cash (used) generated by investment activities (1 504) 5 699 Financing
Dividends paid - (20 000) Capital reduction - (79 996) Loan issued (net of expenses) - 77 954 Repayment of debt (16 000) (12 000) Advance from shareholders - 2 400 Net cash used for financing activities (16 000) (31 642) Net increase (decrease) in cash and cash equivalents 22 639 338 Cash and cash equivalents at the beginning of the period 47 947 47 609 Cash and cash equivalents at the end of the period (1) 70 586 47 947 Short term investsments and cash 70 594 47 997 Bank overdrafts (8) (50)
(1) cash and equivalent non adjusted of bank overdrafts (2) borrowings, debt and bank overdrafts
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II. NOTES TO THE CONSOLIDATED STATEMENTS
1. GROUP PRESENTATION AND OF THE KEY EVENTS OF THE FINANCIAL YEAR
1.1 GROUP PRESENTATION
Groupe AB (the “ Group ”) is the main independent producer and distributor of TV content in France. Groupe AB operates 19 TV channels and associated digital services focused on strong brands and themes, such as RTL9, AB3 (the 3rd Belgian free-to-air channel), Science & Vie TV, Action, AB Moteurs, Trek, Mangas, etc. The Group’s channels and digital services are broadcast by satellite and distributed by the main French satellite, cable and ADSL operators, such as Canalsat, Orange, NC Numéricable, SFR, Free and Bouygues. The Belgian channel AB3 is mainly broadcast in French-speaking Belgium.
Groupe AB produces successful prime-time fiction, animation and documentary programming. The Group also distributes movies and series of the most prestigious French and international producers in France and abroad, and owns one of the largest libraries of French-speaking TV rights.
1.2 SIGNIFICANT EVENTS OVER THE FINANCIAL YEAR
Nil
2. ACCOUNTING AND SCOPE
2.1 Accounting standards
The Group’s consolidated accounts were prepared in compliance with the International Financial Reporting Standards, as adopted by the European Union, which are available on the European Commission’s website (http://ec.europa.eu/internal_market/accounting/ias/index_fr.htm ).
Groupe AB is a French simplified joint-stock company (société par action simplifiée ).
These accounts are published in thousands of euros.
The consolidated accounts were adopted closed by the Board of Directors on March 31 st ,2016 and will be submitted to approval on the next 2016 general meeting of the shareholders .
The accounting principles retained for the preparation of the annual accounts are identical to those applied for the preparation of the consolidated accounts of the financial year ended 31 December 2014, except for the IFRIC 21 “Rights and Taxes” interpretation, which was applied retrospectively as at 1 January 2014 and the impact of which are described in Note 3.
The other standards, interpretations and amendments brought to the published standards, which are of mandatory application as from the financial year 2015, have no significant impact on Groupe AB ’s consolidated accounts as at 31 December 2015.
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The new standards, interpretations and amendments to existing standards and applicable to the accounting periods opened as from 1 January 2016 or afterwards have not been adopted in anticipation by the Group. They concern mainly:
IAS 16 and IAS 38 Clarification on the acceptable amortization modes and amendment on the re- Amendment valuation method IAS 19 Amendment Employee benefits and discount rate (regional market issue) IFRS 11 Amendment Accounting treatment of joint arrangements IAS 27 Amendment Use of the equity method of accounting in the individual financial statements IFRS 3 Amendment Business Combinations – Accounting for conditional payments IFRS 5 Amendment Non-current assets held for sales – amendment of terms of sale IFRS 7 – Financial instruments: Information to provide on the management mandates IFRS 7 Amendment and applicability of the IFRS 7 changes to the summarized interim financial statements Operating segments – Combination of operational segments and reconciliation of the IFRS 8 Amendment assets per segment Amendment of the IFRS 13 conclusion Short-term debtors and creditors bases IAS 24 Amendment Information relating to related parties – main managers
IFRS 15 At the end of May 2014, the IASB published the IFRS 15 “Revenue from Contracts from Customers ” standard. This standard concerns the accounting treatment and valuation of the revenue of the ordinary activities generated from contracts with customers, in other words the turnover. This standard will replace the IAS 18 “Revenue for ordinary activities ” and IAS 11 “Construction contracts ” standards. The entry into force of this standard, which the European Union has not yet accepted, is scheduled for the financial years opened as from 1 January 2018. This standard introduces a single analysis grid whatever the transactions (sale of goods, sale of services, granting of licenses) comprising five successive steps: - identification of the contract(s); - identification of the various contractual obligations of the seller (performance obligation); - determination of the transaction price; - allocation of the transaction price among the various identified obligations; - accounting treatment of the corresponding turnover.
IFRS 16 “Rental agreements ” In January 2016, the IASB published the standard IFRS 16 “Rental agreements ”, applicable as from the financial year 2019, which aligns the accounting for simple rental agreements with that of the financial lease agreements (i.e.: the accounting for the balance sheet of the future rents and of the associated rights of use).
The Group intends to analyze the potential impacts of these 2 standards on the consolidated accounts during the next financial years.
2.2 Changes in consolidation
The table set forth in note 26 provides the list of the Group’s companies, the holding percentage, the consolidation method retained and the date of entry into the scope.
The company Panorama (a company which, until then, was fully-consolidated in the consolidated accounts of the Groupe AB) was cancelled from the registry further to the universal transfer of its assets and liabilities to Groupe AB on 29 December 2015.
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3. ACCOUNTING PRINCIPLES
3.1 Consolidation principles
3.1.1 Consolidation scope and principles
Full consolidation The companies in which the Group has exclusive control, directly or indirectly, are consolidated in full. The Group has control if the Group (i) holds power over an entity, (ii) is exposed or is entitled to variable returns by reason of its relations with the entity, and (iii) is able to exercise its power on the entity so as to influence the amount of the returns which it obtains. In practice, the companies of which the Group owns directly or indirectly the majority of the voting rights are generally deemed to be controlled by the Group.
Equity accounting The companies within which the Group exercises a significant influence, direct or indirect, are accounted for using the equity method. Significant influence is characterized by the power to take part in the decisions relating to the financial and operational policies of the entity, without however controlling or jointly controlling these policies.
The accounts of the consolidated companies are restated in order to be harmonized with the accounting principles hereafter.
3.1.2 Intragroup transactions
All intragroup assets and liabilities and revenue and expenses operations and transactions between consolidated companies are deleted in the consolidated accounts.
3.1.3 Foreign currency translation
Receivables and debts in foreign currencies are valued on the basis of the exchange rate applicable as at the end of the financial year. The exchange differentials on the transactions in closed out currencies are recorded in the profit and loss account of the financial year. The potential gains or latent losses on forward currency purchases are treated in the same manner. The financial statements of the foreign companies the operating currency of which is different from the currency used to present the Gro up’s consolidated accounts are translated at the year-end price, with respect to the balance sheet items, and at the average price of the period, with respect to the items of the profit and loss account. The translation differentials resulting thereof are recorded as translation differentials in the consolidated reserves.
3.2 Valuation rules and methods
3.2.1 Sales
The revenue resulting from the fees paid by the cable, ADSL and satellite operators are accounted for, either on the basis of the subscribers’ declarations received each month from the operators, or on the basis of the fixed fees contractually provided for.
The revenue resulting from the sale of the c hannels’ advertising spaces is accounted for on the basis of the declarations provided by the advertising sales houses, the sales commissions being accounted for as expenses. This advertising revenue is accounted for in the revenue of the period during which the commercials are broadcast. The revenue of exchange transactions is recognized if the goods or services being the subject of exchanges are of a different nature, and if the revenue of these transactions can be measured in a reliable manner. The revenue of exchange transactions is valued at the fair value of the goods or services received.
Sales generated by licenses of broadcasting rights on TV programming, purchased or produced by the Group, is recognized as revenue insofar as the broadcaster accepted the equipment, and insofar as the right is available for broadcasting.
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The broadcaster ’s acceptance is considered to have been obtained, either:
- where it is formalized in writing by the customer; - upon the broadcasting or according to the specific contractual conditions; - when the invoices are paid.
The revenue received in the context of the commercialization of TV programming is shared between the co- producers and co-owners of the rights, depending on their involvement in the work. The share to be repaid to these co-producers and co-owners is recognized as an expense when the Group records its turnover share.
The sales of DVDs and derivative products are accounted for as revenue, at the time of delivery.
The revenue resulting from the provision of services is accounted for as revenue when the service is provided.
3.2.2 Trade receivables and depreciations
The accounts receivables are analyzed individually. They are the subject of depreciations when it is considered that there is a risk of non-recoverability.
3.2.3 Goodwill
The Group applies the acquisition method to account for the business combinations.
The acquisition price, also referred to as “transferred consideration” for the acquisition of a subsidiary is the sum of the fair values of the assets transferred and of the liabilities assumed by the buyer at the acquisition date and of the equity instruments issued by the buyer. The acquisition price includes the potential price additions valued and accounted for at their fair value as at the acquisition date.
The direct costs related to the acquisition are recorded as expenses in the period during which they are incurred.
At the time of each business combination, the Group may opt for an accounting of the non-acquired fraction of interests: - either at its fair value as at the acquisition date with, as a result, the accounting of a goodwill on this non- acquired fraction (the so-called “full goodwill” method) ; - or on the basis of its share in the identifiable net asset of the acquired company valued at the fair value, which leads to recognize only the goodwill attributable to the owners of the parent company (the so- called “partial goodwill” method, which is the method preferred by the Group ).
Any premium acquisition price compared to the share of the buyer in the fair values of the acquired assets and liabilities is accounted for as a goodwill. Any negative difference between the acquisition price and the fair value of the acquired assets and liabilities is recognized as a result during the financial year of the acquisition.
The initial valuation of the acquisition price and of the fair values of the assets acquired and liabilities assumed is finalized within the twelve months following the acquisition date, and any adjustment is accounted for in the form of a retroactive correction of the goodwill. Beyond this twelve month-period, any adjustment is recorded directly in the profit and loss account.
The price premium is initially recorded at their fair value, and the subsequent value variations taking place beyond the twelve month-period following the acquisition are systematically accounted for as a result consideration.
The goodwill is not amortised, but is subject to depreciation tests on an annual basis, on the year-end date, or more frequently if events or circumstances show that a reduction of value is likely to have occurred (see 3.2.5 below).
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3.2.4 Entertainment products - Amortisations and provisions
The productions are recorded as fixed assets for their production costs, excluding the financial and marketing costs. The shares of the co-producers, as well as the subsidies allocated by the Centre National de la Cinématographie come as a deduction from the gross value recorded as a fixed asset.
The library of TV rights, resulting from the acquisition of broadcasting rights produced by the third-parties, is recorded as a fixed asset as at the date of entitlement of the rights, for its acquisition price, and to which the potential dubbing costs are added. The guaranteed credits and minima are also recorded as fixed assets.
The amortisation is determined by category of programs on the basis of sales, compared to the revenue made and to the estimated future revenue. These categories of programs are determined based on the Group’ strategy in terms of acquisition and program production, and reflect the functioning of the marketing or rights market.
A category of programs generally corresponds to either: - A group of programs brought together and/or of the same producer, - A group of programs belonging to the same type (determined on the basis of the origin of programs, type of programs, etc.). These groups of programs which are often acquired or produced over time, result from a business decision to constitute a volume sufficient for optimal marketing, and - A program or a series identified as “key ” at the time of its acquisition or production and intended to be marketed in an autonomous manner.
The acquired rights intended to be broadcast on the Group’s channels are recorded as fixed assets and amortised upon broadcasting and over a maximum duration equal to that granted by the supplier.
3.2.5 Monitoring of the goodwill, of the other intangible assets and of entertainment products
The net book value of the goodwill, of the other intangible assets and of the entertainment products is the subject of a minimum review at least once a year and/or when events or circumstances show that a reduction of value is likely to have occurred.
A loss of value is recognized when their recoverable value is lower than their net book value. The recoverable value corresponds to the highest of the following values: the fair value reduced by the sale costs and the value in use: - The fair value reduced by the sale costs corresponds to the sale price, net of costs, which could be obtained by the Group in the context of a transaction carried out under usual market conditions or for multiples of so-called market results; - The value in use is determined, notably, on the basis of the net present value of future cash flows of the Cash Generating Unit ( Unité Génératrice de Trésorerie (“UGT”) ) to which the tested items are attached.
The UGT or groups of UGTs correspond to subsidiaries or groupings of subsidiaries belonging to the same business segment and generating cash flows which are clearly independent from those generated by other UGTs or groups of UGTs. The conditions under which the Group carries out its activity have led to the identification of the following UGTs: - TV Channels & Digital; - Production & Distribution.
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Goodwill
The tests for loss of value relating to the goodwill are implemented at the level of the UGT or groups of UGTs, depending on the expected level of investment return. The cash flows which are used as the basis for calculating the value in use come from the business plans of the UGTs or groups of UGTs covering the next four financial years, and generally extended to a period of five years based on the most recent projections. Then, they are extrapolated by applying a perpetual growth rate specific to each UGT or group of UGTs. The cash flows are the subject of an actualization taking into account a weighted average cost of the capital determined based of the specific risks of the activities to which the UGTs are attached.
The goodwill is tested at the level of the “TV Channels & Digital ” and “ Production & Distribution ” UGTs .
Other intangible assets (Customer relations)
When Group AB acquired the companies which constitute the current Group in 11 June 2010, an intangible asset “Customer relations ” representing the fair value and the future cash flows expected from the operation of the Group’ TV channels has been accounted for an amount of EUR 147.4 million. As at 31 December 2015, the net book value of this asset is nil.
Entertainment products
Upon each annual financial year end, or when an internal or external index of loss of value is identified, an estimate of the net cash flows is made. The latter take into account the future revenue relating to each of the TV program categories as at the date of valuation, the commercial costs, the repayments to the right holders and tax. If the current value of this net revenue is not sufficient to cover the net book value, a depreciation is accounted for to bring it to the amount of the current value of the estimated future revenue.
3.2.6 Property, plant and equipment & software
The tangible fixed assets (property, plant and equipment) and software are recorded at their historical costs of acquisition, acquisition expenses included, and are amortised depending on the contemplated duration of use of the good, i.e.;
Nature of tangible assets Duration Mode Constructions and lay-outs 10 to 25 years Linear Production technical equipment 4 to 10 years Linear Software 1 year Linear Other equipment 5 years Linear
The maintenance costs are recorded in the year during which they have been incurred.
Where circumstances or events indicate that a tangible fixed asset may have lost value, the recoverable value of this fixed asset, or of the group of assets to which it belongs, is reviewed. A loss of value is recognized when their recoverable value is lower than their net book value.
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The recoverable value corresponds to the highest of the following values: the fair value reduced by the sale costs and the value in use: - The value in use is estimated by way of an actualization of the future cash flows expected from this tangible asset or group of assets to which its belongs, in the context of the contemplated usual conditions of use; - The fair value reduced by the sale costs corresponds to the sale price, net of the costs, which could be obtained in the context of a transaction carried out under usual market conditions.
3.2.7 Copyrights
The copyrights to be paid on the operating revenue are borne in the financial year during which the revenue have been recognized. The advances on copyrights paid to the artists are recorded as receivables if the Group considers that they are recoverable, on the basis of the rights paid in the past and of the popularity of the relevant artist. The advances are deducted from the copyrights received by the artist.
3.2.8 Subsidies
Public subsidies are accounted for at their fair value where there exists a reasonable guarantee that they will be received and that the company will comply with the conditions for granting these subsidies. These public subsidies mainly consist of the subsidies paid by the Centre National de la Cinématographie (“CNC” ).
The subsidies are deducted from the cost of the program to which they relate.
3.2.9 Financial assets and liabilities
The financial assets include the financial assets available for sale, the financial assets held until their maturity date, the financial assets valued at fair value by profit and loss account, the operating loans and receivables and the cash and cash equivalents. The financial liabilities include the current portion of long-term debt and short-term debt ,
The above-described financial assets and liabilities are accounted for and valued in accordance with the terms defined in the IAS 39 “Financial i nstruments: Accounting and valuation” standard. a) The financial assets falling within the category “Loans and receivables at amortised cost ” and accounted for in the non-current assets as “Other financial assets” mainly include the security deposits. When initially accounted for, these loans and receivables are accounted for at their fair value, increased by the directly attributable transaction costs. On each year-end date, these assets are valued at the amortised price by applying the so-called effective interest rate method. b) The financial assets available for sale mainly include the shares and bonds classified in the current assets as “Other financial assets” . After having been accounted for, they are valued at fair value and any variation thereof is accounted for directly as financial result. The investments whose initial maturity date exceed three months, without any option of early exit, as well as the bank accounts which are the subject of restrictions (blocked accounts) other than those related to regulations specific to certain countries or industries (exchange controls, etc.) are not classified as cash equivalents, but among the “Other financial assets” . c) The trade and other receivables have maturity dates which are shorter than six months. They are valued at their nominal value. Those which present uncertainties as to their recovery are the subject of a depreciation. d) The cash and cash equivalents are valued at fair value by profit and loss account. They include the balances in the bank, the monetary UCITS in euros, the short-term deposits on their date of entry in the balance sheet and the other short-term investments, which are very liquid, easily convertible, subject to a marginal change of value and which have a maturity date of three month or less. e) The current portion of long-term debt and short-term debt is initially valued at fair value, reduced by the transaction costs, then at the amortised cost according to the Effective Interest Rate ( Taux d'Intérêt Effectif (TIE)) method. f) The derivative financial instruments, held by the Group in order to cover its exposure to the exchange rate variation risks, are initially accounted for at the fair value. The subsequent fair value variations, obtained from the issuing financial institutions, are directly accounted for as result, the Group not applying the coverage accounting. 12
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With respect to the financial assets actively traded on the organized financial markets, the fair value is determined by reference to the market price published on the year-end date. With respect to the financial assets for which there is no market price published on an active market, the fair value is the subject of an estimate. The Group values as a last resort the financial assets at the historical value, less any potential loss of value, when no reliable estimate of their fair value may be made by a valuation technique, in the absence of an active market.
3.2.10 Provisions for pensions and other post-employment benefits
The retired employees receive pension benefits which are paid by the State. According to the legal framework, the employees and the Group pay mandatory salary-based contributions to bodies in charge of the pension obligations. These costs are borne by the Group in the financial year during which they have been incurred. Except for these payments, there are no particular commitments.
The Group must, in accordance with the applicable collective bargaining agreements, pay to the employees when they retire, indemnities based on their seniority, their remuneration and their rank. The amount of these commitments is calculated by using a prospective actuarial method, which takes into account the life expectancy, age, seniority, remuneration and status of the employees. Provisions are set aside for these commitments in the balance sheet progressively as the rights are acquired by the employees.
3.2.11 Current and deferred taxes
The tax payable is the estimated amount of the tax due with respect to the taxable profit of the financial year, determined by using the tax rates which have been adopted or quasi-adopted as at the year-end date, and any adjustment of the amount of the payable tax with respect to the previous periods.
The deferred tax assets and liabilities are calculated at the tax rate voted or quasi-voted as at the year-end date according to the balance sheet based approach based on the time differences existing between the accounting and tax values of the assets and liabilities shown on the balance sheet.
The deferred tax assets relating to loss carry forwards and to temporary differences, for which the utilization is considered more improbable than probable, are not recognized in the consolidated balance sheet.
3.2.12 Dividends
The distributions of dividends to the shareholders of the company are accounted for as debt in the financial statements of the Group during the period during which the dividends are approved by the shareholders of the company.
3.2.13 Earning per share
The net earnings per share is calculated by dividing the net Group share result by the weighted average number of outstanding shares during the financial year. The diluted earnings per share is calculated by taking into account the average number of outstanding shares during the financial year, increased by the number of shares which would have resulted from the conversion of all the dilutive instruments existing as at the year-end date. The diluted earnings which is presented is equal to the base result per share in the absence of dilutive instruments.
3.2.14 Reclassifications
The presentation of certain items of the financial statements of the previous period may have been amended, as the case may be, in order to render it consistent with the rules adopted for the last presented period.
3.2.15 Uncertainties resulting from the use of estimates
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The preparation of the consolidated accounts requires Management to make estimates and assumptions that affect the amounts of assets and liabilities shown in the balance sheet, the potential assets and liabilities mentioned in the annex, as well as the expenses and revenue of the profit and loss account. These assumptions or estimates are made on the basis of the information or the situations existing as at the date of the preparation of the consolidated accounts, which may, as the case may be, turn out to be different from the reality, notably in the context of an economic crisis.
These assumptions and estimates mainly concern the following items: - Valuation of the intangible assets, including the goodwill; - Provisions for risks and liabilities.
3.3 Impact of the first application of the IFRIC 21 interpretation
On 20 May 2013, the IASB published a new interpretation relating to the treatment of the taxes levied by a public authority. This interpretation was adopted by the European Union on 13 June 2014 in view of a mandatory application for the financial years opened as from 17 June 2014. Thus, the interpretation is applied in a retrospective manner as from 1 January 2014. The impact consists mainly in a different allocation of the expense at the interim end dates. Indeed, the strict taking into account of the due date of the taxes leads to a full accounting of the expenses as of this date, instead of spreading it over the financial year. The consolidated balance sheet as at 31 December 2014 has been restated, so as to enable a comparison to be made. The impacts of this interpretation are not significant.
4. GOODWILL AND INTANGIBLE ASSETS
4.1 Goodwill
As at 31 December 2015, the goodwill is allocated as follows: - TV Channels & Digital UGT: EUR 81 535 K - Production & Distribution UGT: EUR 51 100K No variation of the goodwill over the period.
The goodwill is not amortised, but are the subject of annual depreciation tests. In accordance with the IAS 36 “Depreciation of assets” standard, the goodwill has been the subject of value tests as at 31 December 2015 according to the method described in paragraph 3.2.5. No loss of value has been identified as at 31 December 2015.
The actualization rate applied to the future cash flows are of 8.0 % for the TV Channels & Digital UGT and of 8.5 % for the Production & Distribution UGT. The perpetual growth rate retained for both UGTs is of 1.5 %.
Variations of 1% of the actualization rate or of the perpetual growth rate would not result in a depreciation of the valuation of the goodwill.
4.2 Other intangible assets (Customer Relations)
In thousands of euros Amortisations and 31/12/2014 provisions Reclass 31/12/2015
Customer relations 44 242 (44 242) - -
In light of a more difficult economic environment and considering the longer and less favorable than expected commercial renegotiations, the Management decided during the 1st semester 2015 to review the amortisation plan of the intangible asset “Customer relations” (linear amortisation expected to run until 31 December 2016) and to shorten it (end of the amortisation on 31 December 2015).
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4.3 Entertainment products
In thousands of euros 31/12/2014 Increase Reduction Reclass. 31/12/2015 Gross value Library 195 544 8 747 (19 354) 16 746 201 683 Broadcasting rights 49 618 23 703 (37 554) - 35 767 Ongoing production 7 111 16 736 (50) (16 746) 7 051 Other 3 205 310 (26) - 3 489 Total gross value 255 478 49 496 (56 984) - 247 990 Amortisations and Provisions Library (145 314) (33 942) 19 354 - (159 902) Broadcasting rights (27 100) (24 905) 37 184 - (14 821) Ongoing production - - - - - Other (636) (711) 18 - (1 329)
Total amortisations and provisions (173 050) (59 558) 56 556 - (176 052) Net book values - Library 50 230 (25 195) - 16 746 41 781 Broadcasting rights 22 518 (1 202) (370) - 20 946 Ongoing production 7 111 16 736 (50) (16 746) 7 051 Other 2 569 (401) (8) - 2 160 Total net book values 82 428 (10 062) (428) - 71 938
5. PROPERTY, PLANT AND EQUIPMENT
In thousands of euros 31/12/2014 Increase Reduction Reclass. 31/12/2015 Gross value Lands and plant 17 844 620 - - 18 464 Technical installations and equipment 14 203 1 248 (191) (156) 15 104
Other fixed assets and ongoing fixed assets 1 571 907 (155) 156 2 479
Total gross value 33 618 2 775 (346) - 36 047 Cumulated amortisations Lands and plant (4 202) (867) - - (5 069) Technical installations and equipment (4 750) (2 178) 142 - (6 786)
Other fixed assets and ongoing fixed assets (871) (472) 145 - (1 198)
Total cumulated amortisations (9 823) (3 517) 287 - (13 053) Net book values Lands and plant 13 642 (247) - - 13 395 Technical installations and equipment 9 453 (930) (49) (156) 8 318
Other fixed assets and ongoing fixed assets 700 435 (10) 156 1 281
Total net book values 23 795 (742) (59) - 22 994
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6. OTHER CURRENT AND NON-CURRENT FINANCIAL ASSETS
The other non-current financial assets are mainly composed of securities of the company On Entertainment (a non-consolidated company) and of deposits.
The other current financial assets as at 31 December 2015 are composed of a portfolio of listed shares.
7. TRADE RECEIVABLES
In thousands of euros 31 December 2015 31 December 2014
Accounts receivables – Gross 48 463 60 720 Accounts receivable provisions (3 321) (2 354) Accounts receivables – Net 45 142 58 366 Short-term receivables 45 142 58 366
The accounts receivables include three major clients which represent together 30% of the receivables as at 31 December 2015.
8. OTHER RECEIVABLES
In thousands of euros 31 December 2015 31 December 2014
State 5 657 11 198 Allocated subsidies 1 020 1 485 Prepaid expenses 1 187 1 570 Other debtors 4 221 8 161 TOTAL 12 085 22 414
9. DEFERRED TAX
9.1 The deferred tax assets and liabilities are broken down as follows:
31 December 2014 In thousands of euros 31 December 2015 restated Deferred tax assets - - Deferred tax liabilities (13 879) (28 565) Net Deferred Taxes (13 879) (28 565)
The deferred tax liabilities mainly relate: - to the differences between the tax treatment and the accounting treatment relating to the re- valuations of tangible and intangible assets, as well as to the recognition of intangible assets on the consolidated balance sheet; - to the differences between the tax treatment and the accounting treatment of the turnover, of the inter-company margins and of the amortisations.
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The basis of calculation of the deferred taxes are broken down as follows:
In thousands of euros Basis of calculation Deferred taxes Sales 17 082 5 881 Revaluation of library of rights 10 332 3 534 Revaluation of real estate 8 260 2 794 Internal margins / Amortisations (2 472) (851) Other (including temporary gaps) 7 321 2 521 Total 40 523 13 879
9.2 The tax expense/revenue on the results per year is as follows:
In thousands of euros 2015 2014 Current tax 6 931 8 271 Deferred tax (14 685) (10 289) Tax expense / (Tax revenue) (7 754) (2 018)
9.3 The effective tax rate for each period is analyzed as follows:
In thousands of euros (except for the percentages) 31 December 2015 31 December 2014 Profit before tax (19 623) 2 647 Permanent differences (12) (149) Taxable profit at normal rate (19 635) 2 498 Tax rate 34,43% 34,43% Tax expense/revenue at the normal rate (6 760) 860 Impact of change of tax rate (29) (1 021) Impact of rate differentials, including foreign companies (152) (324) Tax repayment and regularizations (134) (886) Use of unrecognized tax loss carry forwards (679) (647)
Effective tax burden / (Effective tax income) (7 754) (2 018)
10. CASH AND CASH EQUIVALENTS
In thousands of euros 31 December 2015 31 December 2014 Cash 5 031 2 224 Short term investments – Net Values 65 563 45 773 Net book values 70 594 47 997
The variation of cash and cash equivalents between both financial years is linked to the flows shown in the table of cash flows.
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11. EQUITY
11.1 Share Capital
As at 31 December 2015, the share capital of Groupe AB is composed of 462 686 567 common shares, fully paid up, with a nominal value of EUR 0.4813 each. The shareholding of Groupe AB as at 31 December 2015 remains unchanged compared to 31 December 2014: - Port Noir Investment SARL: 53.0% - TF1 SA: 33.5% - Managers: 13.5%
11.2 Dividends
Groupe AB has not distributed any dividends to its shareholders during the period.
12. DEBT LOANS AND FINANCIAL DEBTS
In thousands of euros 31 December 2015 31 December 2014 Bank overdrafts 8 50 Debts from financial institutions 52 000 68 000 Capitalised debt issuance costs (1 228) (1 637) Financial instruments 355 447 Total 51 135 66 860
On 13 February 2014, Groupe AB subscribed, from a pool of 5 French banks, to a bank loan with a variable rate (Euribor indexation) of an amount of EUR 80 million repayable over 5 years.
As at 31 December 2015, the payment schedule of this loan is broken down as follows
- Less than a year 16 million euros - From 1 to 5 years 36 million euros
An amount of EUR 2 046 000, corresponding to the debt issuance costs was accounted for as a deduction of the financial debts. This amount is amortised over the duration of the loan.
This bank debt contains the usual clauses in the event of a default, as well as undertakings which subject Groupe AB to certain restrictions, notably in terms of investments, sale or external growth transactions. In addition, its maintenance is subject to compliance with financial ratios calculated on a semi-annual basis. The failure to comply with one of these ratios could lead to the early repayment of the loan. As at 31 December 2015, Groupe AB was in compliance with these various ratios.
13. PROVISIONS FOR PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The indemnities to be paid when the employees of French companies retire are based on the number of years worked, the annual remuneration and the status of employee. The Group did not subscribe to an insurance policy in this respect.
In thousands of euros 31 December 2015 31 December 2014 Cumulated amount of the entitlements 732 753 Amount set aside as provision 732 753 18
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Adjustment cost (gain) of the period - - Assumptions used: Discount rate 2,03% 1,49% Salary increase rate 1.5% 1.5%
14. PROVISIONS FOR OTHER LIABILITIES
In thousands of euros 31/12/ 2014 Addition Utilisations Reversal 31/12/ 2015
Provisions for lawsuits 3 248 225 (712) (826) 1 935
Provisions for other liabilities 5 612 212 (1 737) (3 380) 707
Total 8 860 437 (2 449) (4 206) 2 642
15. TRADE PAYABLES
In thousands of euros 31 December 2015 31 December 2014
Trade payables 16 961 19 566 Payables on entertainment products 23 833 31 803 Total 40 794 51 369
16. OTHER TRADE PAYABLES
In thousands of euros 31 December 2015 31 December 2014
Liability current accounts 2 819 2 773 Personnel and taxes 9 417 11 572 Repayments to right holders 18 859 16 930 Other 2 477 1 801 Total 33 572 33 076
The line “Other ” mainly includes credit notes, deposits and guarantees received and miscellaneous debts.
17. DEFERRED INCOME
In thousands of euros 31 December 2015 31 December 2014
Deferred income 3 449 2 604 Other deferred income 43 97 Total 3 492 2 701
18. NET FINANCIAL INCOME
In thousands of euros 2015 2014
Net revenue on VMP 998 847 Net foreign exchange losses (553) (229) Interests (1 739) (2 125) Costs of borrowings issuance (409) (409) Valuation of rate swap 92 (447)
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Depreciations of the non-consolidated equity holdings (288) - Other 120 50 Net financial result (1 779) (2 313)
19. NON-CONTROLLING INTERESTS & EQUITY ASSOCIATES
Depreciation of the In thousands of euros Result 2015 Equity 31/12/2015 securities BFC (580) (221) (623) TOTAL (580) (221) (623)
As at 31 December 2015, the total assets of BFC, as shown in the accounts, amount to EUR 1.5 M, the turnover of the financial year 2015 is EUR 43 thousand. The company BFC being subject to an amicable liquidation procedure since 2 October 2015, the value of its securities is valued at 0.
20 FINANCIAL RISK MANAGEMENT
20.1 Market risk
Exchange risk : Exposure to exchange risk
Groupe AB acquires a certain number of TV rights abroad. As a result, it is exposed to the exchange risks resulting from these purchases in foreign currencies, mainly in US Dollars, given that the Group’s operational currency is the euro.
The Group may be led to set up a coverage policy aimed at covering the highly probable commercial transactions denominated in US Dollars.
A variation of 10% of the US Dollar price would have an impact on the profit and loss account of approximately EUR 0.6 M.
Risk exposure to interest rate
So as to cover its exposure to the interest rate risk, Groupe AB subscribed to a derivative financial instrument enabling them to convert, at a fixed rate, the bank loan which was subscribed to at a variable rate. As at 31 December 2015, the fair value of this swap is EUR 355 K (derivative liability).
As indicated in Note 3, Groupe AB does not apply the hedge accounting, and the variations of fair value of the derivative financial instruments are directly accounted for as financial result.
Risks on the shares
The Group holds shares in the context of its investments. An upward or downward variation of 10% of the price of the shares held by the Group would have a positive or negative impact of EUR 0.1M on the Group’s result.
20.2 Liquidity risk
As indicated in note 12, in 2014, the Group subscribed to a bank loan, the maintenance of which is subject to the compliance with financial ratios calculated on a semi-annual basis. Failure to comply with one of these ratios could lead to the early repayment of the loan.
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20.3 Credit risk
Groupe AB ’s main clients are major actors in the television market for which the counterparty risk is considered low.
21. SEGMENT INFORMATION: BREAKDOWN OF SALES AND OF EBIT
A business segment is a group of assets and transactions delivering products or services and which is exposed to risks and to a profitability different from the risks and profitability of other business segments.
The Group is organized in two business segments:
1. TV Channels & Digital: this business line includes RTL9, the channels of AB Thématiques and AB Entertainment, broadcast on the French-speaking pay-TV services, as well as the company ABSat which markets the channels to the operators. The Group ’s channels are financ ed by fees and/or by advertising, which is determined by their success with TV viewers. The transactions of the TV channels, in particular procurement of TV content, use and broadcasting of all the channels (except for RTL9 and the channels of AB Entertainment, broadcast from Luxemburg), are centralized so as to benefit from economies of scale. This business manages an audiotel activity and website activity.
2. Production & Distribution: this business line consists in the production and sale of TV programming to broadcasters. The costs of the programs produced by the Group and related to the purchase of TV rights acquired from third-parties are recorded as fixed assets as entertainment products. The services provided by this business also include the sale of DVD and VOD, as well as the marketing of licenses.
The Group’s activity is carried out mainly in France.
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21.1 SEGMENT INFORMATION : Breakdown of sales and EBIT relating to the financial year 2015
Production TV Channels Intragroup & Holding TOTAL & Digital deletion In thousands of euros Distribution
Sales 112 540 47 461 32 160 033 Intragroup sales 1 007 59 663 1 205 (61 875) -
Total sales 113 547 107 124 1 237 (61 875) 160 033
Cost of goods sold (77 813) (74 905) 3 55 501 (97 214)
Selling, general and administrative (21 540) (13 045) (1 240) 6 374 (29 451) expenses
EBIT 14 194 19 174 - - 33 368
Goodwill amortisation and PPA (44 242) (6 169) - - (50 411)
EBIT after goodwill amortisation (30 048) 13 005 - - (17 043) and PPA Non-controlling interests & Equity (801) associates Net financial income (expense) (1 779)
Current and deferred taxes 7 754
Net income (11 869) Other intangible assets (Customer - - - - relations) Entertainment products 21 521 50 417 - 71 938
Accounts receivables 31 811 13 331 - 45 142
Trade and other payables 11 725 28 579 490 40 794
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21.2 SEGMENT INFORMATION : Breakdown of sales and EBIT relating to the financial year 2014
Production TV Channels Intragroup & Holding TOTAL & Digital deletion In thousands of euros Distribution
Sales 124 733 59 351 32 184 116 Intragroup sales 1 059 64 494 1 247 (66 800) -
Total sales 125 792 123 844 1 279 (66 800) 184 115
Cost of goods sold (90 470) (86 953) 6 59 788 (117 629)
Selling, general and administrative (21 265) (16 140) (1 285) 7 012 (31 678) expenses
EBIT 14 057 20 752 - - 34 809
Goodwill amortisation and PPA (22 102) (7 554) - - (29 656)
EBIT after goodwill amortisation (8 045) 13 198 - - 5 153 and PPA Non-controlling interests & Equity (193) associates Net financial income (expense) (2 313)
Current and deferred taxes 2 018
Net income 4 665 Other intangible assets (Customer 44 242 - - 44 242 relations) Entertainment products 22 927 59 501 - 82 428
Accounts receivables 30 791 27 575 - 58 366
Trade and other payables 17 860 33 076 433 51 369
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22. HEADCOUNT, PERSONNEL COSTS AND MANAGEMENT REMUNERATION
The allocation of the personnel, by segment and by status, present as at 31 December 2015 is as follows:
Entertainment Permanent workers Total (Intermittents) TV Channels & Digital 141 12 153 Production & Distribution 90 61 151 Administration 67 0 67 Total as at 31/12/2015 298 73 371 Total as at 31/12/2014 311 80 391
In thousands of euros 2015 2014 Wages 21 681 21 580 Social and personnel costs 10 304 10 712 Total 31 985 32 292
The remuneration of Groupe AB SAS ’ manage ment, paid by the company and by controlled companies, amount to 1 007 thousand euros.
23. RELATED PARTIES TRANSACTIONS
23.1 Property rentals
The premises in which the Group’s activities are carried out include 5 neighboring properties, of which 4 are rented and one is owned by the Group. The rented properties belong to companies held indirectly by Claude Berda, who holds indirectly the control of Groupe AB SAS. The rents paid to the SCI CP14 Montjoie and CR71, as well as to SNC ACM and ABC over the financial year, amount to 134, 118, 219 and 268 thousand euros, respectively.
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23.2 Current commercial transactions carried out under normal conditions
The Group has supplier-client relations with Groupe TF1 which are listed below:
Amount (in K of Relations between Groupe AB and Groupe TF1 Nature euros)
Trade receivables as at 31 December 2015 7 624 - Re. operating revenue
- Re. operating costs Trade payables as at 31 December 2015 2 466 & acquisition of TV rights
- TV rights and pre-purchases - Production of programs – Broadcasting rights Operating revenue 24 354 - Provision of technical and audiovisual services - Teleshopping
- Repayments Audiotel Operating costs 2 428 - Operation of the channels
Acquisition of TV rights 615 - Acquisition of TV rights
The Group has a common manager with the companies Thematic Netherlands and Thematic Holding BV. The relations between these companies are the following:
Relations between the Groupe AB and Amount (in K Nature Thematic Netherlands of euros)
Trade receivables as at 31 December 2015 83 - Re. operating revenue
Trade payables as at 31 December 2015 806 - Re. operating costs
Operating revenue 500 - Provision of technical and audiovisual services
Operating costs 5 892 - Operation of the channels
Since October 2013, the company Port Noir Investment has been providing assistance in commercial negotiation and in research of new commercial or associative opportunities for Groupe AB. The amount of these services for 2015 amounted to 840 thousand euros.
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24. OFF-BALANCE SHEET COMMITMENTS
The Group’s off -balance sheet commitments, presented in the table below, include agreements entered into in the context of the current activity of the business areas, such as commitments related to the acquisition of contents, simple lease and sub-lease agreements and long-term service agreements. Most of these undertakings are reciprocal commitments.
Less than one From one to five More than five Total year years years
Commitments given
Simple lease agreements 400 300 100 -
Transponder lease agreements 7 147 3 660 3 487 - Irrevocable options to purchase 25 585 23 173 2 412 - programs
Other 636 636 - -
TOTAL 33 768 27 769 5 999 -
Commitments received Subsidies acquired and not 3 512 1 783 1 729 - allocated to a production Commercial commitments, sale 15 483 15 483 - - of rights
TOTAL 18 995 17 266 1 729 -
25. SUBSEQUENT EVENTS
On 3 February 2016, the Group finalized the acquisition of 100% of the securities of the company EGO Productions, this company produces in particular the TV series “Alice Nevers, la juge est une femme” .
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26. LIST OF THE CONSOLIDATED SUBSIDIARIES AS AT 31 DECEMBER 2015
Date of Total number of Number of % of control Method entry into shares or units shares held Companies the scope
France
AB Droits Audiovisuels (SAS) 174 605 174 605 100,00 % FC 11/06/10 AB Productions (SAS) 278 832 278 832 100,00 % FC 11/06/10 AB SAT (SAS) 1 579 901 1 579 900 100,00 % FC 11/06/10 AB Télévision (SAS) 1 882 911 1 882 911 100,00 % FC 11/06/10 BFC Productions (SAS) 2 500 1 251 50,04 % EA 11/06/10 AB Thématiques (SAS) 360 927 360 927 100,00 % FC 11/06/10 AB Services (SAS) 4 000 4 000 100,00 % FC 11/06/10 Auteurs Associés (1) 1 474 1 474 40,00 % FC 24/09/13 Luxemburg AB Entertainment SA (SA) 335 773 335 773 100,00 % FC 11/06/10 RTL9 SA (SA) 1 000 650 65,00 % FC 11/06/10 RTL9 SA & Cie SECS (SECS) 30 690 19 974 65,00 % FC 11/06/10 RTL Shopping SA & Cie SECS (SECS) 1 250 813 65,00 % FC 11/06/10 Switzerland Pay TV SA 49 000 46 055 93,99 % FC 11/06/10 (1) Considering the existing contractual agreements between the Group and the other shareholders, Groupe AB owns the control of the company and consolidates it up to 100%.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2016
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GROUPE AB Registered office: 132 avenue du Président Wilson 93210 La Plaine Saint-Denis
Condensed consolidated accounts as at 30 June 2016
CONFIDENTIAL
This is a free translation into English of the Summarized semestrial consolidated accounts as at 30 June 2016 of Groupe AB issued in the French language and is provided solely for the convenience of English speaking readers.
1 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY I. CONDENSED CONSOLIDATED ACCOUNTS
CONSOLIDATED BALANCE SHEET ACCOUNTS AS AT 30 JUNE 2016 AND AS AT 31 DECEMBER 2015
In thousand s of euros Notes 30 June 2016 31 dec. 2015 ASSETS Non-current assets Goodwill 3.1 141 368 132 635 Entertainment products, net 3.2 75 139 71 938
Property, plant and equipment, net 22 443 22 994 Deferred tax assets - - Other financial assets 1 417 1 290 Total non-current assets 240 367 228 857
Current assets Inventories, net 3 677 1 273 Trade receivables 4 42 958 45 142 Other receivables 10 893 12 085
Other current financial assets - 1 336 Cash and cash equivalents 71 327 70 594 Total current assets 128 855 130 430
Total assets 369 222 359 287
EQUITY AND LIABILITIES Equity 5
Share capital 222 691 222 691
Consolidated reserves (13 531) (1 366)
Result for the financial year 14 362 (12 164)
Group’s equity 223 522 209 161
Non-controlling interests 3 210 2 808
Consolidated total equity 226 732 211 969
Non-current liabilities Deferred tax liabilities 13 420 13 879 Long-term debt 6 27 386 35 181 Provisions for pensions and other post-employment 732 732 benefits Other liabilities (co-financing) 995 1 072 Financial instruments 6 239 355 Total non-current liabilities 42 773 51 219
Current liabilities Trade payables 39 958 40 794 Other payables 35 690 33 572
Deferred income 4 101 3 492 Provisions for other liabilities 2 542 2 642 Current portion of long-term debt and short-term 6 17 427 15 599 debt Total Current liabilities 99 718 96 099
Total Equity and Liabilities 369 222 359 287
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I.2. CONSOLIDATED PROFIT AND LOSS STATEMENT AS AT 30 JUNE 2016 AND AS AT 30 JUNE 2015
In thousands of euros 30 June 2016 30 June 2015
TV Channels & Digital 57 115 60 879 Production & Distribution 30 715 23 809 Holding company 160 160 Total sales 87 846 84 704 Cost of goods sold (49 687) (44 353) Gross margin 38 159 40 351 Selling, general and administrative expenses (12 849) (15 079) EBIT 25 310 25 272 Goodwill amortisation and PPA (3 763) (26 574) EBIT after goodwill amortisation and PPA 21 547 (1 302) Non-controlling interests & Equity associates - - Net financial income (expense) (658) (215) Income before tax 20 889 (1 517) Current and deferred taxes (6 127) 1 667 Net income 14 762 150 Of which Attributable to owners 14 362 (85) Attributable to non-controlling interests 400 235 Net earnings per share (in euros) 0,0310 (0,000) Diluted earnings per share (in euros) 0,0310 (0,000)
In thousands of euros 30 June 2016 30 June 2015 Net income 14 762 150 Goodwill amortisation and PPA 3 763 26 574
Impact of deferred taxes on goodwill amortisation and PPA (1 296) (9 163)
Net profit excluding the net impact of Goodwill amortisation and PPA 17 229 17 561
Of which Attributable to owners 16 829 17 326 Attributable to non-controlling interests 400 235
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE ACCOUNT AS AT 30 JUNE 2016 AND 30 JUNE 2015
In thousands of euros 30 June 2016 30 June 2015 Net income 14 762 150 Items reclassifiable to profit or loss - - Translation adjustments (1) 80
3 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY
Income and expense recognized directly in equity - - Total recognized income and expense 14 761 230 Of which Attributable to owners 14 361 (10) Attributable to non-controlling interests 400 240
Non Total Number of Share Consolid ated Results of Total Group’s controlling consolidated securities capital results the period equity interests equity In thousands of euros
As at 1st January 2015 462 686 567 222 691 (5 514) 4 093 221 270 2 510 223 780
Change in translation - - 75 - 75 5 80 adjustments
Net result of the period - - - (85) (85) 235 150
Comprehensive result of - - 75 (85) (10) 240 230 the period Net income attributable to owners of the previous - - 4 093 (4 093) - - - financial year
As at 30 June 2015 462 686 567 222 691 (1 346) (85) 221 260 2 750 224 010
Change in translation - - (20) - (20) (2) (22) adjustments
Net result of the period - - - (12 079) (12 079) 60 (12 019)
Comprehensive result of - - (20) (12 079) (12 099) 58 (12 041) the period Net income attributable to owners of the previous - - - - - financial year
Dividends ------
As at 31 December 2015 462 686 567 222 691 (1 366) (12 164) 209 161 2 808 211 969
As at 1st January 2016 462 686 567 222 691 (1 366) (12 164) 209 161 2 808 211 969
Change in translation - - (1) - (1) - (1) adjustments
Net result of the period - - 14 362 14 362 400 14 762
Comprehensive result of - - (1) 14 362 14 361 400 14 761 the period Net income attributable to owners of the previous - - (12 164) 12 164 - - financial year
As at 30 June 2016 462 686 567 222 691 (13 531) 14 362 223 522 3 210 226 732
4 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY CONSOLIDATED CASH FLOW STATEMENT ENDED 30 JUNE 2016 AND 30 JUNE 2015
In thousands of euros 30 June 2016 30 June 2015 Operating activities Net income (loss) 14 762 150 Non-controlling interests & Equity associates - - Amortisation of Entertainment products, Goodwill and PPA (intangible) 32 404 53 146 Depreciation of Property, plant and equipment 1 840 1 689 Provisions and other operating income/expense (192) (4 740) Provisions for depreciation of the receivables and other (605) 314 Revenue, Expenses valuation at fair value of the financial assets / liabilities 1 292 (674) Other revenue and expenses without impact on cash 219 235 Disposal of assets (1) 47 Revenue, Deferred tax expenses and other – net (459) (6 497) Revenue, Current tax expenses 6 587 4 830
Operat ing cash flow before entertainment products cost, net financial 55 847 48 500 indebtedness cost, and taxes
Increase of Entertainment products (28 992) (28 952) Subsidies allocated to productions 687 1 344 Taxes paid (748) 4 570 Change in Working capital (6 329) 3 454 Net cash generated by operating activities 20 465 28 916 Investment Advances to equity associates (3) 12 Acquisition of other intangible assets (287) (310) Acquisition of Property, plant and equipment (1 285) (2 262) Revenue from financial fixed assets disposal 1 082 18 Acquisition/ disposal of financial fixed assets 435 630 Investments in consolidated companies (net of cash acquired) (13 500) (200) Disposals of consolidated entities (net cash transferred) - - Other (net) - (1) Net cash (used) generated by investment activities (13 558) (2 113) Financing Dividends paid - - Capital reduction - - Loan issued (net of expenses) - - Repayment of debt (8 000) (8 000) Advance from shareholders - - Net cash used for financing activities (8 000) (8 000) Net increase (decrease) in cash and cash equivalents (1 093) 18 803 Cash and cash equivalents at the beginning of the period 70 586 47 947 Cash and cash equivalents at the end of the period (1) 69 491 66 752 Short term investments and cash 71 327 66 799 Bank overdrafts (1 836) (47) (1) cash and cash equivalent non adjusted of bank overdrafts (2) borrowings, debt and bank overdrafts
5 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY II. NOTES TO THE INTERIM CONDENSED CONSOLIDATED ACCOUNTS
1. GROUP PRESENTATION AND OF THE KEY EVENTS OF THE FINANCIAL YEAR
1.1 GROUP PRESENTATION
Groupe AB (the “Group”) is an operator of TV channels, with 19 French-speaking TV channels focused on strong themes, including notably RTL9, one of the leading channels of the cable and satellite, Science & Vie TV, Trek, AB1, AB Moteurs and Mangas . The Group’s channels are broadcast by satellite and by the main French cable and ADSL operators, such as Canalsat, Orange, SFR Group and Free. The Belgian channels AB3 and AB4 are mainly broadcast in French-speaking Belgium. The Group also provides digital services which are available from the main French operators.
Groupe AB is a leading actor in the production and distribution of TV content. The Group owns and distributes one of the largest libraries of French-speaking TV rights in France and abroad and produces fiction programming (including the series “Section de Recherches”, a Prime-Time series broadcast on TF1) and documentaries.
1.2 SIGNIFICANT EVENTS OVER THE FINANCIAL YEAR
Scope entry
Early 2016, the Group finalized the acquisition of 100% of the securities of the company EGO Productions. The difference between the net book value of the assets acquired and of the liabilities assumed (before being adjusted to their fair value) and the acquisition price of the securities is accounted for as at 30 June 2016, provisionally, as a “ Goodwill ”. In accordance with the IFRS 3 standard, the Group has 12 months following the acquisition date to finalize the conversion at the fair value of the assets acquired and of the liabilities assumed.
New offers
In 2016, The Group also launched three new TV channels: Ultra Nature, the first French UHD channel, Crime District, a channel dedicated to investigation and criminal investigations, and Mon Science & Vie Junior, an interactive channel relating to science intended for the young public.
2. ACCOUNTING STANDARDS
2.1 IFRS Standards
The Groupe AB ’s and its subsidiaries’ annual consolidated accounts (the “Group”) are prepared in accordance with the “IFRS” (International Financial Reporting Standards) referential, as adopted by the European Union, which is available on the European Commission’s website (http://ec.europa.eu/internal_market/accounting/index_fr.htm).
The Group’s consolidated accounts for the semester ended on 30 June 2016 are presented and have been prepared in accordance with the IAS 34 – Interim Financial Reporting standard, which constitutes a standard of the IFRS referential as adopted in the European Union relating to interim financial reporting. This standard provides that the condensed accounts do not include all the information required for the IFRS referential for the preparation of annual consolidated accounts. These condensed accounts must therefore be read in connection with the consolidated accounts of the financial year ended on 31 December 2015. The Group’s activity and operational results relating to the semester ended on 30 June 2016 do not present a significant seasonal nature, compared to the activity and operational results of the financial year 2015 (the activity relating to the assignment of TV rights being in essence potentially variable from one period to another).
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The accounting principles used for the preparation of the interim accounts are identical to those applied for the preparation of the consolidated accounts of the financial year ended 31 December 2015 (see Note 2 of the annex to the consolidated accounts of the financial year ended on 31 December 2015) with the exception of the income tax for which specific valuation methods were applied.
2.2. New IFRS standards and IFRIC interpretations entered into force over the period
They concern mainly the amendments to the IAS 38 – Intangible fixed assets standard relating to the clarifications on the acceptable amortization method, which application is mandatory as from 1 January 2016. These amendments do not have any significant impact over the period. Indeed, in the context of its TV program production and distribution activities, the use of an amortization mode based on the revenue resulting from these activities properly reflect the strong correlation between the products and the consumption of the economic benefits.
3. GOODWILL AND INTANGIBLE FIXED ASSETS
3.1 Goodwill
As at 30 June 2016, the goodwill results mainly from the acquisition of the various companies forming the Groupe AB by the holding Groupe AB Bis (which became Groupe AB) on 11 June 2010, for an amount of EUR 132 635 K, allocated as follows:
- UGT TV Channels & Digital: EUR81 535 K - UGT Categories of Production & Distribution: EUR51 100 K
As at 30 June 2016, the Group considers that the assumptions retained to determine the recoverable value of the goodwill as at 31 December 2015 have not undergone changes such as requiring the conduct of a depreciation test as at 30 June 2016.
7 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY 3.2 Entertainment products
In thousands of euros 31 Dec. 2015 Increase Reduction Reclass. 30/06/2016 Gross value Library 201 683 3 589 (9 342) 16 769 212 699 Broadcasting rights 35 767 13 923 (12 981) 175 36 884 Ongoing production 7 051 18 868 (16 944) 8 975 Others 3 489 302 - - 3 791 Total gross value 247 990 36 682* (22 323) - 262 349 Amortisations and Provisions
Library (159 902) (19 537) 9 342 - (170 097)
Broadcasting rights (14 821) (12 556) 11 940 - (15 437) Ongoing production - - - - - Others (1 329) (347) - - (1 676)
Total amortisations and provisions (176 052) (32 440) 21 282 - (187 210)
Net book values - - Library 41 781 (15 948) - 16 769 42 602 Broadcasting rights 20 946 1 367 (1 041) 175 21 447 Ongoing production 7 051 18 868 - (16 944) 8 975 Others 2 160 (45) - - 2 115 Total net book values 71 938 4 242 (1 041) - 75 139
* The impact of the company EGO Productions on the library is of EUR 837 K.
4. TRADE RECEIVABLES
June December In thousands of euros 2 016 2 015
Gross in trade and other 46 539 48 464 receivables Trade and other receivables (3 581) (3 321) provisions TRADE RECEIVABLES 42 958 45 143
5. EQUITY
5.1 Share capital
As at 30 June 2016, the share capital of Groupe AB is composed of 462 686 567 common shares, fully paid up, with a nominal value of EUR 0.4813 each. The shareholding of Groupe AB as at 30 June 2016 remains unchanged compared to 31 December 2015: - Port Noir Investment SARL: 53.0%
- TF1 SA: 33.5%
- Managers: 13.5%
8 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY
5.2 Dividends
Groupe AB has not distributed any dividends to its shareholders during the 1 st semester 2016.
6. DEBT LOANS AND FINANCIAL DEBTS
On 13 February 2014, Groupe AB subscribed, from a pool of 5 French banks, to a bank loan with a variable rate (Euribor + margin) of an amount of EUR 80 million repayable over 5 years.
As at 30 June 2016, the payment schedule of this loan is broken down as follows:
- Less than a year 16 million of euros - From 1 to 5 years 28 million of euros
An amount of EUR 2 046 thousand, corresponding to the debt issuance costs was accounted for as a deduction of the financial debts. This amount is amortized over the duration of the loan.
This bank loan contains usual clauses in the event of a default, as well as undertakings which subject Groupe AB to certain restrictions, notably in terms of investments, sale or external growth transactions. In addition, its maintenance is subject to compliance with financial ratios calculated on a semi-annual basis. The failure to comply with one of these ratios could lead to the early repayment of the loan. As at 30 June 2016, Groupe AB was in compliance with these various ratios.
7. INFORMATION RELATING TO THE FINANCIAL RISK MANAGEMENT
7.1 Risk exposure to interest rate
So as to cover its exposure to the interest rate risk, Groupe AB subscribed to a derivative financial instrument enabling it to convert for a fixed rate the bank loan which had been subscribed to for a variable rate. As at 30 June 2016, the fair value of this swap is EUR 239 K (derivative liability).
As indicated in Note 3 of the notes to the consolidated accounts of the financial year ended on 31 December 2015, Groupe AB does not apply hedge accounting and the variations of fair value of the derivative financial instruments are directly accounted for as financial result.
7.2 Other risks
The other main risks (share risk, exchange risk and credit and counterparty risks) are described in note 20 of the annual consolidated financial statements as at 31 December 2015. They have not evolved in a significant manner over the 1st semester of 2016.
8. RELATED PARTY TRANSACTIONS During the first semester 2016, there has not been any significant change in the nature of the transactions with related parties, compared to those as at 31 December 2015 (the latter are mentioned in note 23 of the annual consolidated financial statements as at 31 December 2015).
9 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY 9. OFF-BALANCE SHEET COMMITMENTS
The Group’s off -balance sheet commitments, presented in the table below, include agreements entered into in the context of the current activity of the business lines, such as commitments related to the acquisition of contents, simple lease and sub-lease agreements and long-term service agreements. Most of these commitments are reciprocal commitments.
Commitments given Total Less than one From one to five More than five year years years Simple lease agreements 250 150 100 - Transponders lease agreements 5 025 2 675 2 350 - Irrevocable options to purchase programs 21 251 19 536 1 715 - Other 2 137 1 092 1 045 - TOTAL 28 663 23 453 5 210 -
Commitments received Subsidies acquired and not allocated to a production 6 597 2 589 4 008 - Commercial commitments, sale of rights 6 443 6 443 - - TOTAL 13 039 9 032 4 008 -
10. SUBSEQUENT EVENTS
Nil
11. SEGMENT INFORMATION: BREAKDOWN OF SALES AND EBIT
A business segment is a group of assets and transactions delivering products or services and which is exposed to risks and to a profitability different from the risks and profitability of other business segments. A geographical sector is a group of assets and transactions delivering products or services in a specific economic environment and which is exposed to risks and to a profitability different from the risks and profitability of the other geographical environments in which the group operates.
The Group is organized in two business segments:
1. TV Channels & Digital: this business line includes the companies RTL9, AB Thématiques and AB Entertainment, which operates TV channels and associated digital services broadcast on the pay-TV services in France, in Europe and in Africa, as well as the company ABsat which markets the channels with the operators and on the BIS platform. The Group’s channels are financed by fees and/or by advertising. The transactions of the TV channels, in particular procurement of TV content, use and broadcasting of all the channels (except for RTL9 and the channels of AB Entertainment, broadcast from Luxemburg), are centralized so as to benefit from economies of scale.
2. Production & Distribution : this business line consists in the sale of TV programs to broadcasters and in technical services. The costs of the programs produced by the Group and the purchase of TV rights acquired from third parties are recorded as fixed assets as entertainment products. The revenue of this business also includes the sales of DVD and VOD, as well as
10 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY royalties and copyrights related to library rights. Lastly, this business line includes, since their respective acquisitions in September 2013 and in February 2016, the fiction production activity of the companies Auteurs Associés and Ego Productions.
The Group’s activity is carried out mainly in France.
12. Segment information – Semester ended on 30 June 2016
Production TV Channels Intragroup & Holding & Digital deletion In thousands of euros Distribution TOTAL
Sales 57 115 30 715 16 - 87 846 Intragroup sales 391 27 021 566 (27 977) - Total sales 57 506 57 736 582 (27 977) 87 846 Cost of goods sold (38 461) (36 244) - 25 019 (49 687) Selling, general and administrative (9 189) (6 036) (582) 2 958 (12 849) expenses
EBIT 9 855 15 456 - 0 25 310
Goodwill amortisation and PPA - (3 763) - - (3 763) EBIT after goodwill amortization 11 693 - 0 21 547 and PPA Non-controlling interests & Equity - associates Net financial income (expense) (658) Current and deferred taxes (6 127) Net income 14 762 Other intangible assets (Customer - relations) Entertainment products 21 898 53 241 - 75 139 Accounts receivables 27 253 15 697 8 42 958 Trade and other payables 12 575 26 745 638 39 958
11 FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY 13. Segment information – Semester ended on 30 June 2015
Production TV Channels & & Holding Intragroup deletion In thousands of euros Digital Distribution TOTAL
Sales 60 879 23 809 16 84 704 Intragroup sales 375 32 443 581 (33 399) - Total sales 61 254 56 252 597 (33 399) 84 704 Cost of goods sold (38 287) (36 051) 3 29 982 (44 353) Selling, general and (11 047) (6 849) (600) 3 417 (15 079) administrative expenses
EBIT 11 920 13 352 - - 25 272
Goodwill amortisation and PPA (22 121) (4 453) - - (26 574) EBIT after goodwill (10 201) 8 899 - - (1 302) amortization and PPA Non-controlling interests & - Equity associates Net financial income (expense) (215) Current and deferred taxes 1 667 Net income 150 Other intangible assets 22 121 22 121 (Customer relations) Entertainment products 22 901 56 370 - 79 271 Accounts receivables 36 258 19 006 8 55 272 Trade and other payables 16 515 34 627 404 51 546
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FREE TRANSLATION – FOR INFORMATION PURPOSES ONLY
ANNEX 2
DRAFT RESOLUTIONS PRESENTED TO THE SPECIAL MEETING
First Resolution (Approval of the proposed Business Combination in the framework of the provisions of Articles 11.3 and 20 of the Company’s Articles of Association )
The Special Meeting of the shareholders holding Class B Shares, deliberating under the quorum and majority conditions required by Article L. 225-99 of the French Commercial Code ( Code de commerce ), after having familiarised themselves with the report of the Management Board, decide to approve in accor dance with the provisions of Articles 11.3 and 20 of the Company’s Articles of Association the proposed Business Combination with Groupe AB, a société par actions simplifiée registered in the Bobigny Trade and Companies Register under no. 519 053 755, and whose registered office is located at 132 avenue du président Wilson 93210 La Plaine Saint- Denis, and authorises to this effect the chairman of the Management Board to negotiate and enter into any contractual agreement, and more generally, to accomplish any act allowing for the completion of such Business Combination.
Second Resolution (Powers in view of accomplishing formalities)
The Special Meeting of the shareholders holding Class B Shares, deliberating under the quorum and majority conditions required by Article L. 225-99 of the French Commercial Code ( Code de commerce ), grants all powers to the holder of an original, a copy or a certified extract of the minutes of this Special Meeting for the purpose of carrying out all filings and necessary formalities.
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