A world of entertainment Entertainment One Ltd. Annual Report and Accounts 2014 We are Entertainment One. Contents

Strategic Report 1 Highlights Entertainment One’s goal is to be 2 Group at a Glance 4 Chairman’s Statement the world’s leading independent 6 Chief Executive’s Summary 8 Group Objectives and Strategy entertainment group, through the 10 Business Model 12 Market Overview production and acquisition of 14 Film Review 18 Television Review entertainment content rights for 22 Financial Review 26 Principal Risks and Uncertainties exploitation across all consumer 30 Corporate Social Responsibility media throughout the world. Corporate Governance 32 Board of Directors 34 Corporate Governance 40 Audit Committee Report 44 Directors’ Remuneration Report 61 Nomination Committee Report 62 Directors’ Report: Additional Information 64 Statement of Directors’ Responsibilities

Consolidated Financial Statements 65 Index to the Consolidated Financial Statements 66 Independent Auditor’s Report 69 Consolidated Income Statement 69 Consolidated Statement of Comprehensive Income 70 Consolidated Balance Sheet 71 Consolidated Statement of Changes in Equity 72 Consolidated Cash Flow Statement 73 Notes to the Consolidated Financial Statements

Television

Chief Executive’s Summary Film Review Darren Throop’s review of the year A review of our Film Division for the is set out on pages 6 and 7. year is set out on pages 14 to 17.

Television Review A review of our Television Division for the year is set out on pages 18 to 21. Film

entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Highlights

Operational Highlights Strategic Highlights

Growth in revenues and The Television Division delivered The Company transferred the underlying EBITDA reflecting a 317 half hours of television listing category of all of its strong underlying performance programming (2013: 295 half common shares from the across the Group, including hours) and signed new distribution standard listing segment to the the first full year of results for agreements with AMC Networks premium listing segment of the Alliance which was acquired and El Rey Network, and has a Official List of the Financial on 8 January 2013 strong pipeline of new network Conduct Authority on 1 July 2013 orders and renewals already The Film Division released 275 commissioned Entertainment One became titles theatrically (2013 pro a constituent member of forma1: 311), delivering improved Peppa Pig continues to grow the UK’s FTSE 250 Index margins driven by the realisation its international presence with on 23 September 2013 of Alliance synergies and has a licensing agreements now strong slate of films in place for numbering more than 300 The directors have declared future years, including those globally – and is expanding a final dividend for the financial from the renewal of key output further into new markets including year of 1.0 pence per share, agreements and its own Latin America, China, South-East being the Company’s inaugural production slate Asia, France and Germany dividend

Financial Highlights

Revenue Adjusted diluted earnings per share3 £819.6m +30% (2013: £629.1m) 20.9 pence +2% (2013 pro forma1: £800.7m) +31% (2013: 15.9 pence) Adjusted profit before tax3 £77.9m +45% (2013: £53.8m) Underlying EBITDA2 Adjusted net debt4 £92.3m £111.1 m +48% (2013: £62.5m) +£23.3m (2013: £87.8m) +24% (2013 pro forma1: £74.6m)

1 Pro forma includes the results of Alliance, which was acquired on 8 January 2013 as if that business had been acquired on the first day of the comparative period. 2 Underlying EBITDA is operating profit before operating one-off items, share-based payment charges, depreciation and amortisation of acquired intangibles. Underlying EBITDA is reconciled to operating profit in the “Financial Review” section on page 22. 3 Adjusted profit before tax is profit before tax before operating one-off items, share-based payment charges, amortisation of acquired intangibles and one-off items within net finance charges; adjusted diluted earnings is adjusted for the tax effect of these items. 4 Adjusted net debt includes net borrowings under the Group’s senior debt facility but excludes production net debt.

1 ENTERTAINMENT ONE LTD. Group at a Glance

Acquire. Produce. Market. Distribute. Film revenue eOne is the largest independent global distributor of films in the industry, exploiting content rights across all consumer media platforms – movie theatres, DVD/Blu-ray, £686.9m digitally and on television. –1% (2013 pro forma: £696.4m) The Group’s multi-territory film distribution Film network occupies strong market positions in Canada, the UK, the Benelux, Spain and Australia, as well as a presence in the US and Film underlying EBITDA distribution partnerships in France, Germany, Scandinavia, South Africa and South Korea.

eOne is also focused on expanding its Film Production and International Film activities, £74.1m enabling it to move up the film value chain to +19% (2013 pro forma: £62.5m) increase its access to quality content and further enhance profitability.

Films released theatrically

311 275

200 152

2012 2013 2013PF 2014

PF – pro forma, see page 16 for further details.

Group Strategy

Grow Extend Enhance Achieve the content global content investment long-term portfolio reach returns financial goals Create future Expand reach of Use size and scale value by growing a content by both to drive improved diversified film and geography and financial returns TV rights portfolio content platform

2 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Produce. Acquire. Distribute. License. Television revenue eOne operates a leading independent television business with operations in the US, Canada and the UK. The Group produces high-quality scripted drama and non-scripted £162.2m format programming, owning all rights to this +28% (2013: £126.6m) content in perpetuity across all geographies. Television Additional content is brought into the Group through co-production, co-development, first-look and output deals with leading Television underlying EBITDA content partners.

These rights are exploited across well- established in-house distribution networks into North American and international markets £24.3m across all media formats. +44% (2013: £16.9m)

eOne also develops and produces award- winning family content which is currently broadcast in many territories around the world, supported by global brand Television half hours delivered management expertise with licensing and 317 merchandising operations in the UK, 295 Australia and North America. 237

2012 2013 2014

Our territories

eOne territories 1 Canada 9 2 UK 1 2 3 3 Benelux 7 8 5 4 Spain 4 11 5 US 6 Australia

Partner territories 7 France 8 Germany 9 Scandinavia 10 South Africa 11 South Korea 10 6

3 ENTERTAINMENT ONE LTD. Chairman’s Statement

Demand for the Group’s content from “an expanding number of entertainment networks and platforms is being driven by long-term, global consumer trends.”

Allan Leighton Non-executive Chairman

FTSE 250 Index membership in September 2013 1.0 pence dividend per share

4 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

I am delighted to be joining Entertainment One The last 12 months have also seen important at a time when the business is in robust health. corporate milestones achieved. In July 2013, Demand for the Group’s content from an the Company’s shares were premium listed on expanding number of entertainment networks the Official List in London, enabling the stock and platforms is being driven by long-term, to become a constituent of the FTSE 250 global consumer trends. Index in September 2013. The increased investor attention this brought helped the Technology is enabling innovative and more Company to reach a market capitalisation in convenient ways to consume content, in turn excess of £1 billion for the first time, a creating new revenue opportunities for the remarkable achievement given the Company’s business. In a changing media landscape, £90 million market value when it listed on AIM access to high-quality and differentiated just seven years ago. Another first for the content that consumers demand remains Group has been the announcement of its key to success. Against this backdrop, the inaugural dividend alongside this year’s Group’s strategy remains as potent today as financial results. ever before. This success has also been built on the people Entertainment One continues to develop, and the unique culture that exists within the produce, acquire and distribute a broad range Group, something we have not lost sight of of film, television and family content, creating a as we have grown. Indeed, the establishment substantial (and growing) portfolio of rights. of a set of core values across the Group This strategy has been supported by the full (which are set out on page 30) underlines integration of Alliance during the year, giving our commitment to maintaining the highest the enlarged Group the scale and reach possible levels of professionalism and In a changing media to drive both competitive advantage and responsibility, both internally and externally. “landscape, access to high- operational efficiencies. The Group has also Our two London offices have been developed expertise in the licensing and successfully brought together under one roof quality and differentiated merchandising markets, adding new teen in a new facility, with similar plans to bring all of content that consumers lifestyle brands for exploitation through the the Toronto teams together in a single building demand remains key to acquisition of Art Impressions during the year. in the city’s entertainment district in 2015. success. Against this Balancing acquisitive expansion, the Group The achievements of the last year have given backdrop, the Group’s has also been growing organically to secure us much to be proud of and we dedicate this strategy remains as potent content for exploitation across its networks. successful year to everyone across our today as ever before. In Film, Entertainment One has partnership businesses for their tireless work. In particular, ” agreements with many of the leading we recognise the experience, expertise and independent producers through output deals stewardship that James Corsellis has brought and single picture acquisitions. In tandem, the as he relinquishes the role of non-executive Television business is also partnering with Chairman; his ongoing contribution to the independent producers and programming Board will be much valued. We also say a developers to access content, including well-deserved thank you to Mark Watts and the recent signing of two new multi-year to Patrice Theroux, who after seven years is output deals. stepping down from the Board to focus on managing the growth strategy of the enlarged Our Family brands also continue to make Film Division. We have appointed Linda strong progress. Peppa Pig consolidated its Robinson, who brings a wealth of legal and position in the US and was successfully corporate experience in the communications launched into new territories during the last and media industries, to the Board. year, supported by licensing and merchandising programmes. We will maintain our careful Finally, I thank our shareholders for their management of the brand to create a valuable, ongoing support as we look forward to trusted and evergreen children’s property. delivering further growth in the new financial Other brands are being developed alongside year with a sense of confidence, optimism Peppa Pig and Ben & Holly’s Little Kingdom and ambition. to bring critical mass to the business. Allan Leighton Non-executive Chairman 19 May 2014

5 ENTERTAINMENT ONE LTD. Chief Executive’s Summary

Our strong operating performance again “demonstrates the strength of our strategy of investing in content rights and exploiting them across multiple territories and multiple consumer platforms.”

Darren Throop Chief Executive Officer

275 films released theatrically in the year 317 half hours of television programming delivered

6 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Delivering the strategy The Group’s goal remains the same – to The success of the Group’s strategy is reflected Following the successful integration of the become the world’s leading independent in another strong financial performance in the Alliance business, which was acquired in entertainment group through the production year, delivering EBITDA of £92.3 million on January 2013, the Group has now reached a and acquisition of entertainment content rights revenues of £819.6 million. The business enters size and scale where it can more fully realise for exploitation across all consumer media the new financial year well-positioned in both its potential through delivering on its strategy. throughout the world – and the business Divisions and in all of its core territories. The financial strength of the enlarged Group continues to focus on its three strategic pillars: has enabled eOne to increase its investment Premium listing and FTSE inclusion in exclusive film and television content, while • Grow the content portfolio: create Entertainment One transferred the listing delivering higher EBITDA margins in both future value by growing a diversified film category of all of its common shares from the the Film and Television Divisions. The Film and TV rights portfolio standard listing segment to the premium listing business is now the leading independent Investment in acquired content rights and segment of the Official List of the Financial distributor in its core territories and the productions increased by 27% to £271.2 Conduct Authority on 1 July 2013 and became expansion of the Television business, including million (2013 pro forma: £214.2 million). a constituent member of the FTSE UK Index Peppa Pig’s international presence, has further Based on the independent valuation as at Series on 23 September 2013. increased the geographical footprint of the March 2013, the Group’s content library has Group’s revenues. increased in value by 85% to over US$650 The Company’s premium listing has broadened million (2013: over US$350 million) its range of investors and enhanced the liquidity of its shares. • Extend global content reach: expand reach of content by both geography and Declaration of dividend Based on the foundation of content platform The directors have declared a final dividend for “ strong financial performance As well as taking market leading positions the financial year of 1.0 pence per share, being and consistently delivering in its core territories during the year, the Company’s inaugural dividend under its the Group has continued to grow its progressive dividend policy, reflecting the on its strategy, the Group’s international business (outside these Board’s confidence in Entertainment One’s outlook for the new financial territories), which now delivers over 23% medium and long-term prospects. year is very positive. of Group revenues (2013 pro forma: 18%). ” eOne’s Television business distributes Outlook programming to over 150 countries and Based on the foundation of strong financial the Group has re-launched its International performance and consistently delivering on Film business to also exploit film rights its strategy, the Group’s outlook for the new Digital revenues as a proportion of total Group outside its core territories financial year is very positive.

• Enhance investment returns: use size The Film Division has a strong slate of over 275 21% and scale to drive improved financial returns films set for release in the coming year and a 16% Digital sales, which now account for 21% much larger library of titles for exploitation. of Group revenues, increased by 38% year- on-year to £172.0 million (2013 pro forma: In Television Production & Sales there is £124.5 million) and synergies from the continued growth in the roster of new 2013PF 2014 Alliance acquisition, which have delivered programming and renewals and, against the PF – pro forma, see page 16 for further details. ahead of the C$20 million target, helped backdrop of healthy demand for content from increase EBITDA margin to 11.3% (2013 digital platforms and traditional television pro forma: 9.3%) networks, revenues from its new output agreements will start to be delivered during the As we execute on these strategic pillars, new financial year. Family remains focused on our performance will be reflected in the growing its international licensing and marketing achievement of our long-term financial presence with its existing properties, while objectives, which include growing adjusted building its portfolio through the development earnings per share, return on capital employed of new properties. and cash conversion.

7 ENTERTAINMENT ONE LTD. Group Objectives and Strategy

Grow Extend the content portfolio global content reach Create future value by Expand reach of content growing a diversified film by both geography and and TV rights portfolio content platform

Strategy Strategy • Acquire high-quality rights from independent • Extend distribution networks in film, film producers TV and licensing • Drive Film Production and International • Expand into new geographic regions Film activities • Develop effective partnerships with all • Produce and acquire compelling, repeat- leading digital platforms commission television shows

Progress Progress Investment in content is key to building a growing content portfolio, The Group continues to develop its distribution capabilities across a with content revenues being generated over a number of years. number of large geographic markets. Tracking international sales is therefore an important metric across both Film and Television. In 2014, the Group increased investment in content to £271.2m (2013 pro forma: £214.2m), of which £194.6m and £76.6m was During the year, the proportion of international revenues rose from 18% attributable to Film and Television, respectively. to 23% of Group revenue.

Investment in content (£m) International revenues as a proportion of total Group

76.6 Television eOne territories Film 18% 23% International 77.9 79.6 74.9 77% 82% 60.9 95.4 136.3 194.6 2012 2013 2013PF 1 2014 2013PF1 2014

The annual independent valuation of our content library is The growth of digital content platforms has brought new opportunities to a measure of how successful the Group has been in increasing monetise content across new audiences. its asset base. These opportunities are being harnessed through deepening relationships Based on the independent valuation as at 31 March 2013, the value has with these new platform owners, with digital revenues becoming increased from US$350m to over US$650m, a result of both organic growth increasingly important. and the impact of the Alliance library.

Content library valuation (US$m) Digital revenues as a proportion of total Group

650+ 21.0%

15.5% 14.3% 13.1% 350 220 250

2010 2011 2012 2013 2012 2013 2013PF 1 2014

1 PF – pro forma, see page 16 for further details.

8 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Enhance Achieve investment returns long-term financial goals

Earnings per share (“EPS”) Use size and scale to drive The Group targets 15% compound annual growth in fully diluted adjusted improved financial returns EPS over a three-year period ending March 2016. In 2014, the accretive effect of the Alliance acquisition and growth in the underlying business helped the Group achieve adjusted EPS growth of 31%.

Strategy Adjusted EPS (pence) • Leverage size and scale of the Group to improve revenue conversion and cost efficiency 20.9 15.4 15.9 • Maximise value across new windows 13.0 • Drive improved profitability and cash flow

2011 2012 2013 2014

Progress Return on capital employed (“ROCE”) Underlying EBITDA margin is the core metric used by the Group Return on capital employed measures the efficiency with which a business to monitor financial performance. generates a return on its assets.

In the Film Division, the enlarged size and scale of the business has The Group targets an average ROCE of 11.5% over the three-year period enabled cost synergies and economies of scale to be achieved, lifting ending March 2016. During the year to March 2014, eOne achieved a margins significantly during the year from 9.0% to 10.8%. ROCE of 12.6%, compared to 9.9% in the prior year.

Film underlying EBITDA (£m) and margin (%) ROCE (%) 10.8% Underlying EBITDA 9.5% 9.5% 9.0% 74.1 EBITDA margin % 62.5 49.3 12.6 12.6 39.5 10.2 9.9

2012 2013 2013PF 1 2014 2011 2012 2013 2014

During the year, the Television Division also improved margin through Total shareholder return (“TSR”) growth of Peppa Pig into new geographic regions, supported by high The Group targets upper quartile TSR (versus the FTSE 250 Index) for margin licensing activities and also underlying improvement in Television the three years ended March 2016. Production & Sales’ operating margin.

Television underlying EBITDA (£m) and margin (%) TSR (%), (Index: March 2013 equals 100) 200 15.0% Underlying EBITDA 15.0% 13.5% 13.3% EBITDA margin % 180 24.3 160 140 17.5 18.0 16.9 120 100 80

2012 2013 2013PF 1 2014 Mar May Jul Sep Nov Jan Mar 2013 2013 2013 2013 2013 2014 2014 1 PF – pro forma, see page 16 for further details. eOne FTSE 250 Index

9 ENTERTAINMENT ONE LTD. Business Model

Entertainment One’s goal is to be the world’s leading independent entertainment group, through the production and acquisition of entertainment content rights for exploitation across all consumer media throughout the world. With a growing library of film, television and music titles, the content portfolio underpins the Group’s business model.

Value creation

Building a Proven Attractive Creation diversified creative and TV financing of leading and valuable production reduces Family brands content capabilities production portfolio risk

Strong Benefiting producer and from new relationships n ent revenue io ont opportunities it f c is o u n q io c t c A Exclusive u Global

d

rights t licensing and o a

r i

ownership n merchandising p

d e

t e n o m

c r f e o m Financial n u Experienced o s resources ti n management for content ita o team, Explo c investment all successful across track record

International Distribution Leverage size Global film expansion expertise and scale and TV across all across both presence Film windows Divisions

Value enhancement

10 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Film Value creation: Value enhancement: Following the acquisition • Building a diversified and valuable • Global film presence. The global strength of Alliance last year, content portfolio. This currently consists of of the Group and its leading positions in its Entertainment One is now over 35,000 movie titles and, alongside the territories helps acquire high-quality film Group’s Television and Music portfolios, is content, at competitive rates, while the largest independent independently valued at over US$650m. diversifying geographic risk. film distributor in the world, • Strong producer relationships. Important • Experienced management team, with leading market positions relationships with independent film production successful track record. The eOne team in Canada, the UK, the studios bring some of the best movie content has significant experience of successfully into the Group’s portfolio, in some cases acquiring and exploiting film content in each Benelux and Spain, as well underpinned by exclusive multi-year of its territories. as a growing market share output deals. • Distribution expertise across all Film in Australia. • Exclusive rights ownership. Film content windows. The Group’s film marketing rights are acquired on a territorial basis across experience and strong relationships eOne’s global distribution network. Rights are with cinemas, retailers, broadcasters owned exclusively across all content windows and digital content platforms enables (theatrical, home entertainment, digital and improved revenue conversion, improving broadcast) for an extended licence period, investment returns. typically 15 to 25 years. • Leverage size and scale. The enhanced • Financial resources for content size of the Group enables it to achieve better investment. The Group has the financial scale operating efficiencies and economies of to commit to the level of investment required scale, supporting underlying margin growth. each year to attract the best high-quality • International expansion. International Film content. In 2014 £195m was invested in and Film Production activities extend the 275 theatrical releases, generating over Group’s presence into new markets, improve US$500m of box office takings. access to content and offer the opportunity for margin enhancement.

Television Value creation: Value enhancement: Entertainment One is a major • Proven creative and production • Global TV presence. An extensive TV sales producer of TV content, last capabilities. A demonstrable track record network, made up of over 500 broadcaster year creating 317 half hours in developing high-quality, primetime scripted and digital platform relationships in more than drama shows for major North American TV 150 territories around the world, underpins of content which alongside networks and international broadcasters. the Group’s revenue opportunities. its library of 2,800 hours of • Strong producer relationships. The • Experienced management team, programming was sold Group’s co-production and first-look successful track record. Significant through its in-house sales agreements with independent producers and experience in the creation, financing, broadcasters bring additional TV content into production and distribution of TV content, team to North American and the portfolio. delivering an increasing number of successful international partners in over • Exclusive rights ownership. The TV shows with high audience ratings. 150 territories globally. ownership of global TV content rights across These shows have been consistently all exploitation windows in perpetuity gives re-commissioned, driving further value to the Group the ability to maximise revenues the Group. through its global sales distribution network. • Benefiting from new revenue • Attractive TV financing reduces opportunities. eOne’s strong relationships production risk. The Group’s Canadian with the major digital platforms ensures that heritage gives its Production business access eOne’s content features in their plans as they to tax credits and other incentives which help expand their operations internationally. underwrite investment in new programmes • Global licensing and merchandising. and reduce risk. The Group has established a substantial • Creation of leading Family brands. licensing and merchandising network The successful launch of kids’ brands drives alongside its core TV activities. This revenue growth opportunities in the licensing generates high margin royalty fee and merchandising markets. Peppa Pig is revenues from licensed products which currently the leading pre-school brand in the include the Group’s Family properties and UK, Spain, Italy and Australia and rapidly recently acquired brands So So Happy gaining traction in the US. and Skelanimals.

11 ENTERTAINMENT ONE LTD. Market Overview

Market developments Film Theatrical 2013 saw steady global box office The outlook for the global cinema business growth, with revenues reaching an is strong, with cinema-going remaining an estimated US$36.0 billion, and a affordable night out for many consumers. 1 Cinema has remained relatively resilient in the 5.2% CAGR expected from 2013 face of competing pressures for consumer to 2017. dollars from the growth of social media, video gaming and general internet use. Cinema- More significant for eOne was the growth in box going is seen as a communal activity, with office takings outside the US, which reached an consumers prepared to pay a premium to estimated US$25.3 billion in 2013, an increase watch the latest movies, paying higher ticket of over 5% against 2012. The global film prices for digital 3D and premium seating. industry generates an estimated US$90 billion of revenues annually through cinema, home Home entertainment entertainment (DVD and Blu-ray) and digital The home entertainment market continued to (downloads, streaming and television). decline in line with expectations, with global sales reducing by 5% per annum in 2013, driven Total revenue is expected to increase to by a growing consumer preference for digital US$106 billion by 2017, driven by growth in access to content. The home entertainment digital more than offsetting the decline in market is expected to continue to decline at 5% physical formats. Almost two-thirds of global per annum, on average, over the forecast period box office revenues are generated in markets to 2017. The decline in physical formats is more where eOne already has existing operations than offset by significant growth in digital. and partnerships. These markets are expected to continue to grow over the next five years. Broadcast and Digital Expanding broadband penetration and The industry is dominated by six major US increasing ways of accessing content, as studios, which operate their own distribution well as the roll-out of movie streaming services eOne is the largest global networks and supply approximately three- like Netflix, is boosting the growing digital “ independent distributor of quarters of content for the global market. The film market. films in the industry. smaller independent studios and producers, ” who account for the remaining quarter, Over-the-top/streaming revenues reached generally do not own international distribution US$6.6 billion in 2013 (an increase of 25% infrastructure and consequently sell the against 2012) and revenues generated long-term rights to distributors such as eOne to through television subscription providers manage the exploitation of their films. eOne is reached US$6.8 billion (an increase of 14% the largest global independent distributor of against 2012). films in the industry. These segments are expected to increase to Global Film Box Office (US$bn) US$26.9 billion by 2017 driven by increasing broadband speeds, improved hardware US Spain (including tablets) and new digital downloading Canada Australia and streaming services led by iTunes, Amazon, UK Rest of World The Benelux Netflix and Hulu.

eOne believes that, despite the decline in 10.7 home entertainment, absolute revenues and margins will be protected, if not enhanced, as US$36.0bn the market shifts to digital formats which can 19.8 be delivered more cost efficiently than physical product. 1.7 1.1 1.4 0.5 Revenues from television subscription/licence 0.8 fees and television advertising, which underpin broadcasters’ spending on content, are Source: PwC Global entertainment and media expected to grow by 3.8% and 5.2%, outlook, 2013–2017 respectively, per annum to 2017.

1 CAGR – compound annual growth rate.

12 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

There are opportunities for content producers Television but many will also see challenges with their Global television subscriptions, operating models. fees and advertising revenues were estimated to be worth The licensing and merchandising arm of our Family business looks to develop product over US$385 billion in 2013 lines in conjunction with our licensee partners and are expected to grow by across a variety of different categories over 4% annually. including toys, video games, apparel, footwear, publishing, home furnishings, foods and North America makes up approximately stationery. eOne manages and approves all 40% of global revenues and is the core products at the development stage. market for eOne’s production strategy. Financing available for production is partly Market developments dependent on TV advertising revenue, which eOne’s Television Production & Sales business grew in North America by 4% in 2013, and benefits from its Canadian Heritage status. also TV subscriber and licence fees, which Canada is unique globally in the extent to which grew in North America by almost 2%. government-sponsored financing is available to producers to create high-quality English- The IBISWorld Industry Report, published in speaking television content for domestic January 2014, forecasts that the US television broadcast and international distribution. The production industry will generate revenues of range of public and private subsidies available in US$37.0 billion in 2014, and grow at a rate of Canada means that producers are able to 3.7% per annum to 2019. produce programming at lower cost and with lower risk to their own capital. The US television market is going through a period of disruption with incumbent cable This allows the business to continue to deliver networks being threatened by IPTV services high-quality content while also maintaining Forecast global broadcasting market from telecom companies and streaming the rights to its programmes in perpetuity. growth 2013–2017 services such as Netflix. Competition for The Group continues to expand its slate of consumer audiences continues to provide productions for broadcast on the major North opportunities for producers of exclusive American and European networks. +4.2% television programming. In respect of the Family business, the dynamics While the traditional broadcast television model of licensing and merchandising markets vary remains robust, the market for “television-like” fundamentally in different territories around the content is changing faster than ever with new world and are more dependent on consumer forms of viewing emerging, more catch-up, reactions to the product, television airtime and more consumption on connected and mobile marketing and advertising strategies than devices and the advent of multi-screen viewing. macro-economic factors. Growth in markets outside the US and Europe is expected to continue to accelerate.

Global Broadcast Revenues, by Region, 2013–2017 (US$bn)

180 +3.0%

+2.6% 120 +6.5%

60 +8.0%

00.00 2013 2014 2015 2016 2017

North America EMEA Asia Pacific Latin America

Source: PwC Global entertainment and media outlook, 2013–2017

13 ENTERTAINMENT ONE LTD. Film Review

14 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

15 ENTERTAINMENT ONE LTD. Film Review

Overview and strategy its existing territories, with growing International The Group’s Film business, which comprises Film and Film Production bringing further operations in the UK, Canada, the US, Spain, the content into the portfolio. Benelux and Australia, is the largest independent film distributor in the world. The Division’s focus The number of multi-territory theatrical titles is on the acquisition of exclusive film content released during the year continued to expand in rights and the exploitation of these rights on a line with the Group’s operating strategy and key multi-territory basis across all media channels. output agreements were signed or renewed with Relativity Media and CBS Films during the year, eOne is also developing its own film production and with The Weinstein Company in April 2014, capability which enables it to retain upside in a helping to secure the baseline for future film’s performance, whilst reducing its financial release schedules. exposure to a level comparable to a typical third-party produced content acquisition. The combination of the enlarged Film business, During the year, the Group also re-launched its eOne’s portfolio approach of delivering a International Film business under new leadership significant number of releases spread across its to improve access to new content and to enable six territories, together with upfront visibility of the Group to benefit from the exploitation of film US box office performance, results in a low-risk content rights outside its core territories. model which means that the Group is not reliant upon the success of a small number of titles. This financial year was a period of consolidation Whilst it is expected that the performance of in the Film Division, with a planned rationalisation individual titles will vary, the effect of the portfolio of the Group’s activities in Canada and the UK, is to deliver a consistent margin performance at where the legacy Alliance and eOne businesses the overall Film Division level. had competing operations. A reduction in the number of theatrical and home entertainment On a reported basis, revenue increased by 33% releases removed the overlap in film release to £686.9 million (2013: £518.0 million) and slates, and the combination of back-office underlying EBITDA increased by 50% to £74.1 The effect of the film departments and rationalisation of suppliers million (2013: £49.3 million), supported by “portfolio is to deliver a delivered cost savings in excess of the Group’s increased investment in acquired content rights consistent margin synergy targets. The Group will continue to drive and productions, up 104% to £194.6 million (2013: £95.4 million). performance at the overall economies of scale and operational efficiencies in the new financial year. Film Division level. On a pro forma basis, primarily driven by the ” The Film business is now well-positioned in each rationalisation of the Canadian business, of its international territories and is of a scale revenues were 1% lower (2013: £696.4 million). where it can more fully realise the potential of its However, the delivery of operating efficiencies strategy. Investment in content is set to grow to and synergies drove an increase in pro forma over £200 million in the new financial year, underlying EBITDA of 19% to £74.1 million targeted on maintaining the Group’s presence in (2013: £62.5 million), with underlying EBITDA margin higher at 10.8% (2013 pro forma: 9.0%).

Summary financial performance: Film Pro forma/constant Reported (audited) currency1 (unaudited) 2014 2013 Change 2013 Change Revenue (£m) 686.9 518.0 +33% 696.4 –1% % of revenue: – Theatrical (%) 19% 17% +2pts 21% –2pts – Home entertainment (%) 41% 53% –12pts 47% –6pts – Broadcast and Digital (%) 32% 24% +8pts 28% +4pts – Other (%) 8% 6% +2pts 4% +4pts

Underlying EBITDA (£m) 74.1 49.3 +50% 62.5 +19%

EBITDA margin (%) 10.8% 9.5% +1.3pts 9.0% +1.8pts

Investment in acquired content and productions (£m) 194.6 95.4 +104% 136.3 +43% 1 In order to provide like-for-like comparisons, the above table includes the prior year figures on a pro forma and constant currency basis. For the purposes of this analysis, pro forma includes the results of Alliance, which was acquired on 8 January 2013 as if that business had been acquired on the first day of the comparative period. Constant currencies have been calculated by retranslating the comparative figures using monthly average exchange 16 entertainmentone.com rates for the year to 31 March 2014. ANNUAL REPORT AND ACCOUNTS 2014

Pro forma investment in acquired content rights Paddington, Suite Française, Insurgent, therefore falling outside the current financial and productions was 43% higher at £194.6 St. Vincent de Van Nuys, The Water Diviner, year. Digital revenues were supported by a new million (2013: £136.3 million), reflecting Nativity 3 and Expendables 3. library deal which was agreed with Netflix for underlying growth in the UK, Canada, the Canadian titles. Benelux and Australia, and the timing of Home entertainment minimum guarantee payments at the year end. The Group handled 611 home entertainment Key broadcast/digital releases in the year releases in the year (2013: 777) with overall included The Twilight Saga: Breaking Dawn – Changes in the overall mix of revenues in the revenues 14% lower than the prior year, Part 2, Now You See Me, The Woman in Black, Film business reflect the rationalisation of the comprising 41% of overall Film revenues. Looper, The Impossible, Nativity 2, The Sweeney, theatrical and home entertainment slate and the Warm Bodies, The Perks of Being a Wallflower, anticipated market shift from physical to digital The lower revenue was primarily driven by the Song for Marion, Sinister, Riddick and Gnomeo distribution, as well as growth in other sales overall anticipated market decline, reflecting the & Juliet. which include the Film Production business, move from physical to digital formats, and by the reflecting the increased focus on this area of the planned rationalisation of the Group’s home Film Production Film Division. entertainment release schedule in Canada, eOne’s Film Production business has had following the Alliance acquisition. a good first full year. The Group’s biggest Operating performance success in the period, Insidious: Chapter 2, Theatrical The UK and Australia saw growth in their opened as number one at the box office in the The Group released 275 titles theatrically in the respective home entertainment sales reflecting US, the UK and Canada and has delivered over year (2013: 311), generating box office takings box office release timings, but performance in all US$150 million in global box office revenues. of US$540 million (2013: US$609 million) and other territories reflected the general market Other productions delivering revenues for the delivering theatrical revenues that were 11% trends and was in line with management business during the current year were Dark lower than the prior year and comprising 19% of expectations. This decline was partly offset by Skies and The Woman in Black. overall film revenues. the significant increase in digital revenues, reflecting the anticipated growth in demand from Films produced by eOne are managed through Theatrical revenues were lower in the UK, partly new media channels for entertainment content. a combination of owned and joint-venture driven by the exceptional performance of production companies and are financed in a The Twilight Saga: Breaking Dawn – Part 2 in Key releases included Safe Haven, Red 2, way that ensures eOne retains upside in the the prior year, and Canada where the planned Welcome to the Punch, Django Unchained, Silver performance of each title, whilst reducing its rationalisation of the combined film slate of the Linings Playbook, The Impossible, Quartet, financial exposure to a level comparable to a eOne and Alliance businesses resulted in fewer Prisoners, Warm Bodies, Now You See Me and typical third-party produced content acquisition. releases. Lower performance in the UK and The Hunger Games: Catching Fire. Suite Française is currently in post-production Canada was partially offset by growth in the The Group plans over 575 home entertainment Benelux and Australia which was particularly and due for release in late 2014 and the releases during the next financial year, including business has other productions in the pipeline strong with eOne’s investment strategy driving 12 Years a Slave, Divergent, Hunger Games: increases in theatrical revenues of 44% and including Sinister 2, The Woman in Black: Angel Mockingjay Part 1, Paddington, Expendables 3 of Death and Insidious: Chapter 3. 82%, respectively. and Need for Speed. International Film The Hunger Games: Catching Fire and Divergent Broadcast and Digital opened as number one at the box office in eOne’s International Film business is a full The Group’s combined broadcast and digital service agent for independent producers and Canada, whilst number one releases in the UK revenues increased by 15% year-on-year, with included Prisoners, Need for Speed and directors, and connects eOne’s global film growth in all core territories, and now accounts activities including Film Production and Academy Award winner 12 Years a Slave. Other for 32% of overall Film revenues (2013: 28%). key theatrical releases in the year included Now worldwide acquisitions. It provides an integrated You See Me, Rush, American Hustle, The Butler, In the UK, digital revenues increased as the financing and investment model to offer film 2 Guns, Philomena, Blue Jasmine, Dallas Buyers combined business now has ongoing producers a more efficient and concentrated Club, Red 2 and Behind the Candelabra. agreements in place with both Amazon and route to market for their films, supported by Additionally, Insidious: Chapter 2, which was Netflix. The year also saw new broadcast deals external funding relationships and leveraging produced as well as distributed by eOne, opened with Channel 4 and the BBC. In the Benelux, eOne distribution territories. as number one at the box office in the US, digital revenues were higher than the previous For eOne, the business delivers earlier access Canada and the UK and grossed over US$150 year because of increased revenue from Netflix, to content creators to acquire worldwide rights million in global box office revenues. which launched in the territory during the year. and secure distribution for eOne territories Based on box office takings for the 2013 Australian television and digital sales continued and supports the monetisation of productions calendar year, eOne was the leading independent to grow, reflecting the increased investment in through its international distribution network. distributor in Canada, the UK, the Benelux and content since acquisition in 2011, which helped Collaboration with eOne’s own Film business Spain. Canada remains the Group’s largest the business conclude a three-year agreement territories allows the Group to maximise territory where its box office share is over 20%. with local broadcaster, Foxtel. distribution potential of films and improve margins.

The Group plans to release over 275 films Canadian broadcast revenues were in line with Following its re-launch in January 2014, eOne theatrically during the next financial year, prior year despite the extension of the Bell Media has announced international distribution deals Hunger Games: Mockingjay Part 1, including contract only being concluded in April 2014 and for Trumbo and Eye in the Sky.

17 ENTERTAINMENT ONE LTD. Television Review

18 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

19 ENTERTAINMENT ONE LTD. Television Review

Overview and strategy On a reported basis, revenue increased by The Group’s Television Division comprises the 22% to £162.2 million (2013: £133.4 million) North American-based Television Production & and underlying EBITDA increased by 35% Sales business and the UK-based Family to £24.3 million (2013: £18.0 million), with business. It also incorporates the results of investment in acquired content rights and the Group’s US-based music label. productions marginally lower at £76.6 million (2013: £79.6 million). The Division’s focus is on the production of television programming, the acquisition of Revenues were 28% higher on a constant television content rights and the exploitation currency basis. Underlying EBITDA was up of branded properties through licensing and 44% to £24.3 million (2013: £16.9 million) merchandising activities. driven by higher EBITDA margins at 15.0% (2013: 13.3%). Investment in acquired content The Television Production & Sales business has rights and productions was broadly in line with had a strong financial year. As well as increasing prior year at £76.6 million (2013: £77.9 million), its own programming output and library sales reflecting an increase in investment in Television during the year, eOne signed significant new Production & Sales offset by a reduction in distribution agreements with AMC Networks Music (which included the acquisition of Death and El Rey Network. As the Television Row Records in the prior year) and Family. Production & Sales business continues to grow, the Group will continue to look for new output, Operating performance co-production and co-development deals to Television Production & Sales supplement its own programming output. Television Production & Sales comprises the Group’s production and international For the first time, syndication opportunities distribution businesses. for Rookie Blue are now being explored, and these are expected to take 18-24 months to Increased production activities resulted in come to fruition – however, once in place, another year of revenue and underlying EBITDA During the year, eOne signed these agreements will further improve margins growth with eOne continuing to strengthen “ significant new distribution in the Television Production & Sales business. its position as a leading North American agreements with AMC independent producer. Production revenues The Family business has seen particularly increased due to the higher number of half Networks and El Rey strong growth in the year, with the continued hours of production delivered (317 half hours Network. international expansion of Peppa Pig and versus 295 half hours in 2013) and improved ” its other existing properties. Licensing library sales, with underlying EBITDA margin agreements now number more than 450 increasing year-on-year. globally, and the Group continues to develop new properties for exploitation, supported by strong broadcasting partnerships.

Summary financial performance: Television Constant currency Reported (audited) (unaudited)

2014 2013 Change 2013 Change Revenue (£m) 162.2 133.4 +22% 126.6 +28% % of revenue: – Television Production & Sales (%) 66% 73% –7pts 72% –6pts – Family (%) 22% 13% +9pts 14% +8pts – Music (%) 12% 14% –2pts 14% –2pts

Underlying EBITDA (£m) 24.3 18.0 +35% 16.9 +44%

EBITDA margin (%) 15.0% 13.5% +1.5pts 13.3% +1.7pts

Investment in acquired content and productions (£m) 76.6 79.6 –4% 77.9 –2%

20 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Good progress was made in obtaining renewals Revenues from international television sales of Revenues from Ben & Holly’s Little Kingdom for existing shows and commissioning new the Group’s own productions and third-party have grown in the year, supported by strong programmes. 40% of deliveries related to new content continued to develop well. Exclusive broadcast ratings in the UK, and a new commissions (2013: 51%) indicating a positive multi-year television distribution agreements for Character Options toy line will launch in the inflow of new productions to drive future original scripted series with US-based AMC autumn. Ben & Holly has also been launched renewals. Current year renewals accounted for Networks’ AMC and Sundance Channel and exclusively in Australia via ABC stores and 60% of deliveries (2013: 49%) representing the recently-launched El Rey Network were in Spain with eOne’s existing broadcaster 190 half hours compared to 146 in the previous concluded during the year and are expected to and agent. year. The pipeline remains robust. Whilst deliver strong international sales revenues in the contracted sales not yet recognised at the year new financial year through productions including The acquisition of Art Impressions (a Los end relating to work in progress were lower at Halt and Catch Fire and Turn. Angeles-based brand and licensing agency) in £15 million (2013: £35 million), this was July 2013, marks an expansion of eOne Family’s because two significant renewals for Hell on Family licensing business into the “lifestyle” segment. Wheels and Haven, which together total £31 The Family business had a strong year of Key brands owned and managed by Art million, were concluded in April 2014 and growth in licensing and merchandising sales. Impressions are So So Happy and Skelanimals, therefore fell outside the 2014 financial year. Revenues were more than double prior year both of which are teen/tween brands driven levels, driven by increased international sales, by design concepts rather than television Significant digital subscription on demand sales and delivered strong growth in underlying programming. So So Happy branded products were made during the year, with digital revenues EBITDA. The cumulative number of Peppa Pig are featured in speciality shops around the world now comprising 12.9% of revenues (2013: 2.4%). licensing agreements has now reached and were also launched in Walmart Canada more than 300 globally, with a further 150 during the year. Highlights of new commissions have included agreements for the Group’s other licensing Klondike, the Discovery Channel’s first scripted properties. In addition, eOne is in production of a new project (which helped drive Discovery Channel animated show for 6–12 year-olds, called to deliver its most-watched Monday primetime Peppa Pig has held its position as the leading Winston Steinburger and Sir Dudley Ding Dong, to-date and best ever month for viewership), and pre-school toy licensed property in the UK for broadcast in association with Teletoon Bitten, which premiered on Syfy and Space. (winning the award for Best Pre-school Canada and ABC3 Australia. Licensed Property for the fourth time at Other major primetime shows delivered during the Annual Licensing Awards) and delivered Two more shows are currently in production and the year included season two of Saving Hope, its highest level of UK royalties to-date. will be announced when the series are closer season two of Rogue, season three of Hell on Demand remains strong enabling eOne to to delivery. One is a pre-school property with Wheels and season four of Haven. eOne’s continue to retain good support from existing strong licensing potential for boys that will most successful show to-date, Rookie Blue, and new licensees. complement well the girl-skewed licensing commenced delivery of a new season in March programmes for Peppa Pig and Ben & Holly’s 2014. Deliveries of movies of the week for Peppa is also the number one property in Little Kingdom. The second is an action the Hallmark Channel included Window Italy, Spain and Australia. In Italy, Peppa has adventure property aimed at boys in the 5–8 Wonderland, My Gal Sunday and Riverboat experienced significant growth with support year-old age group, again with strong licensing Mystery Cruise. Non-scripted deliveries included from our local broadcasting partners RAI potential. eOne has worldwide licensing rights Undercover Boss, Mary Mary 3, Sisters with YOYO and Disney Jr. for both of these properties, including television, Voices and The Sheards. digital and licensing on a global basis. March 2014 saw Peppa increase its US The new financial year’s production slate already television presence, where it now airs for three Both of these properties demonstrate the includes commissioned renewals for season hours on Nick Jr. on a daily basis. In March 2014, strategy of the Family business which is to three of Saving Hope, season four of Hell on the first Peppa Pig DVD launched in the US, develop, produce and brand-manage strong Wheels and seasons five of Haven and Rookie shipping to key retailers including Walmart, properties targeting every key demographic Blue, as well as new commission Book of Target and Toys‘R’Us with sales far exceeding of the licensing industry. Negroes for Black Entertainment Television. initial forecasts. Peppa toys launched in January Commissions for eOne’s most successful shows 2014 on Amazon.com and will launch on Music have renewed with expanded orders – Hell on Walmart.com in the third quarter, adding to the Revenue in eOne’s music label was 11% higher Wheels renewed with 13 episodes (up from range of Peppa merchandise already available than the prior year, benefiting from the 2013 10 episodes), Rookie Blue renewed with 22 online and in stores at Toys‘R’Us. purchase of the rights to the Death Row episodes (up from 13 episodes) and Haven Records catalogue and a higher level of digital renewed for a double season of 26 episodes. Peppa’s international marketing for the next two sales. There were strong catalogue sales in the Television movies commissioned include years will be focused on Latin America, China, year on the label from 2Pac’s album All Eyez on Mother’s Day Off and The Memory Book South-East Asia, France and Germany. Me, as well as major releases from DJ Drama, (both ordered by the Hallmark Channel). Pop Evil, Snoop Dogg and Jake Miller. The new financial year will see releases from Kelly Price, The Game, Michelle Williams and Ace Frehley.

21 ENTERTAINMENT ONE LTD. Financial Review

The Group delivered strong The Group’s reported profit before tax of £21.0 growth in the year, increasing million (2013: £5.5 million) increased by 282% reported revenue by 30% to on the prior year. £819.6 million (2013: £629.1 Amortisation of acquired intangibles million) and reported underlying Amortisation of acquired intangibles increased EBITDA (operating profit before by £17.8 million to £36.0 million, reflecting the operating one-off items, share- full year charge following the increase in acquired intangibles resulting from the Alliance based payment charges, acquisition. depreciation and amortisation of acquired intangibles) by 48% to Capital expenditure and depreciation £92.3 million (2013: £62.5 million). Capital expenditure increased by 45% to £4.2 million (2013: £2.9 million), driven by systems This was driven by a full year’s ownership of the and leasehold property spending as a result of Alliance business compared to only three the integration of the Alliance businesses. months in the prior year, delivery of synergies Depreciation, which includes the amortisation and a strong underlying performance, of software, was in line with the prior year at particularly in Television. On a pro forma £2.6 million. constant currency basis (including the results of Alliance, which was acquired on 8 January Share-based payment charge 2013, as if that business had been acquired on During the year a new Long Term Incentive the first day of the comparative period) Group Plan (“LTIP”) was implemented by the Group. revenues and underlying EBITDA increased by The new scheme has been extended to an 2% and by 24%, respectively. increased number of employees. Two grants were made under the LTIP during the year Adjusted operating profit (which excludes covering approximately 100 employees which amortisation of acquired intangibles, share- have resulted in the share-based payment Adjusted profit before tax based payment charges and operating one-off charge increasing by £1.5 million to £2.7 million items) increased by 50% to £89.7 million for the year ended 31 March 2014. (2013: £59.9 million) reflecting the growth in underlying EBITDA, helping drive a 45% £77.9m increase in adjusted profit before tax to £77.9 million. +45% (2013: £53.8m)

Reported (audited) Adjusted (audited) 2014 2013 2014 2013 £m £m £m £m Revenue 819.6 629.1 819.6 629.1 Underlying EBITDA 92.3 62.5 92.3 62.5 Amortisation of acquired intangibles (36.0) (18.2) – – Depreciation (2.6) (2.6) (2.6) (2.6) Share-based payment charge (2.7) (1.2) – – One-off items (22.1) (26.8) – – Operating profit 28.9 13.7 89.7 59.9 Net finance charges (7.9) (8.2) (11.8) (6.1) Profit before tax 21.0 5.5 77.9 53.8 Tax (1.3) (6.6) (19.4) (15.0) Profit/(loss) for the year 19.7 (1.1) 58.5 38.8

22 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

One-off items Tax One-off items totalled £22.1 million and included The reported tax charge for the year was £1.3 £19.5 million of net Alliance-related costs and million (2013: £6.6 million) giving an effective £2.6 million of other corporate projects and tax rate of 6.2% (2013: 120.0%). On an acquisition costs, mainly related to the transfer adjusted basis (excluding operating one-off of the listing category of all of the Company’s items, amortisation of acquired intangibles, common shares from the standard listing share-based payment charges and one-off segment to the premium listing segment of the items in net finance costs and the tax effect Official List of the Financial Conduct Authority. of excluded items), the effective tax rate was 24.9% (2013: 27.9%). The year-on-year The Alliance-related costs comprise decrease in the effective tax rate is due to the £14.2 million of restructuring expenditure impact of a lower UK tax rate and changes in and a charge of £5.3 million resulting from a the mix of profits between jurisdictions with reassessment of the amount of contingent differing tax rates. consideration payable in respect of box office targets, net of charges for under-performing Earnings per share titles, related to the Alliance acquisition. Reported basic earnings per share was 7.1 pence (2013: loss of 0.5 pence). The increase Net finance charges reflects the strong underlying EBITDA Reported net finance charges were £7.9 million. performance in the year. On an adjusted basis, These included one-off gains of £3.9 million profit after tax was £58.5 million, 51% ahead relating primarily to the revaluation of certain of the prior year with the adjusted diluted monetary assets and liabilities acquired as earnings per share up 31% at 20.9 pence part of the Alliance acquisition and also on (2013: 15.9 pence). This reflects a higher the implementation of a finance structure. adjusted profit after tax which was partially Excluding one-off gains, adjusted finance offset by the impact of a higher weighted charges of £11.8 million were £5.7 million average number of shares compared to the higher in the current year, reflecting the full prior year. year impact of the higher average net debt levels since the Alliance acquisition. Dividends The increase in EPS reflects The directors have declared a final dividend for “ the strong underlying EBITDA The weighted average interest cost was 5.1% the year ended 31 March 2014 of 1.0 pence compared to 5.2% in the prior year, giving a per share, which is expected to result in a performance in the year. cash interest cover of 8.6 times underlying total payment to shareholders of £2.9 million. ” EBITDA (2013: 9.9 times). It will be paid on or around 9 September 2014 to shareholders who are on the register of members on 11 July 2014 (the record date). This dividend is expected to qualify as an eligible dividend for Canadian tax purposes. The dividend will be paid net of withholding tax, based on the residency of the individual shareholder. The directors did not recommend the payment of a dividend for the year ended 31 March 2013.

23 ENTERTAINMENT ONE LTD. Financial Review continued

Cash flow The net cash outflow from the acquisition of Net cash from operating activities of £258.3 subsidiaries was £6.1 million. £3.9 million million was 45% ahead of the previous year, related to the acquisition of Art Impressions reflecting the improved underlying EBITDA and Inc. (£6.4 million including acquired debt), £1.8 strong cash generation from the enlarged million was paid into an escrow account in business and the Group’s content acquisition relation to the Alliance box office target and and production activities. £0.4 million was paid in respect of other smaller acquisitions. Consistent with the Group’s strategy to grow its content portfolio, investment in acquired Foreign exchange movements of £24.2 million content rights and productions totalled £271.2 are non-cash movements and primarily relate million, compared to £175.0 million in the to the translation impact of the strengthening prior year. of pounds sterling against the Canadian dollar.

Free cash outflow was £13.0 million higher at £17.1 million (2013: £4.1 million) as a result of higher investment in acquired content rights and productions, partly offset by higher cash from operating activities.

31 March 2014 Adjusted Production 31 March net debt net debt Total 2013 £m £m £m £m Net debt at 1 April (87.8) (56.7) (144.5) (90.2)

Net cash from operating activities Net cash from operating activities 180.0 78.3 258.3 178.0 Investment in acquired content rights and productions (199.5) (71.7) (271.2) (175.0) Purchase of acquired intangibles –––(4.2) Purchase of other non-current assets¹ (4.1) (0.1) (4.2) (2.9) £258.3m Free cash flow (23.6) 6.5 (17.1) (4.1) +45% (2013: £178.0m) Acquisition of subsidiaries, net of cash acquired (6.1) – (6.1) (141.0) Debt acquired (2.5) – (2.5) (2.7) Interest paid (8.7) (2.0) (10.7) (6.3) Net proceeds from issue of common shares 4.1 – 4.1 107.4 Fees paid on amendment to senior bank facility (0.6) – (0.6) – Amortisation of deferred finance charges (1.7) – (1.7) (1.3) Write-off of unamortised deferred finance charges –––(1.8) Foreign exchange 15.8 8.4 24.2 (4.5) Net debt at 31 March (111.1) (43.8) (154.9) (144.5) 1 Other non-current assets comprise property, plant and equipment and software.

24 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Financing The net debt balance at 31 March 2014 comprised the following:

2014 2013 £m £m Cash and other items (excluding production) (25.5) (26.3) Senior credit facility 136.6 114.1 Adjusted net debt 111.1 87.8 Production net debt 43.8 56.7 Net debt 154.9 144.5 Adjusted net debt leverage 1.2x 1.4x

Adjusted net debt was £111.1 million, up £23.3 million from the previous year. The increase is driven primarily by the increase in investment in acquired content rights and productions, partly offset by strong cash flow from operating activities. Adjusted net debt leverage reduced year-on-year to 1.2x (2013: 1.4x).

Production net debt, which comprises interim production financing in relation to the Group’s Film and Television Production businesses, Investment in content decreased by £12.9 million year-on-year to £43.8 million. This financing is independent of the Group’s senior credit facility. It is excluded from the calculation of adjusted net debt as it £271.2m is secured over the assets of individual film +55% (2013: £175.0m) and television production companies and represents shorter-term working capital financing that is arranged and secured on a production-by-production basis.

Financial position and going concern basis The Group’s net assets decreased by £23.4 million to £307.4 million at 31 March 2014 (2013: £330.8 million). The decrease primarily reflects the significant foreign exchange movements year-on-year, particularly the weakening of the Canadian dollar against pounds sterling.

The directors acknowledge guidance issued by the Financial Reporting Council relating to going concern. The directors consider it appropriate to prepare the accounts on a going concern basis, as set out in Note 3 to the consolidated financial statements.

25 ENTERTAINMENT ONE LTD. Principal Risks and Uncertainties The Board considers that the principal risks to achieving its objectives are set out below. The Board recognises that the nature and scope of the risks can change and so regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them. The Corporate Governance section on pages 32 to 64 describes the systems and processes through which the directors manage and mitigate risks.

Risk Mitigation

Key personnel The performance of the Group is dependent on its ability to attract, recruit and retain quality staff in a highly competitive labour market. We continue to invest in our people, ensuring that we recruit and retain the right calibre of staff with the skills, experience and talent to grow the business. We seek to ensure we have appropriate management development programmes to assess, manage and develop our people’s leadership skills, talents and experience throughout the organisation.

Strategy execution The entertainment industry is constantly changing and developing, for example the increasing shift in consumption from physical formats to digital downloads and streaming. The Group seeks to identify and anticipate risks regarding our assumptions and understanding of the industry and economic environment in order to ensure the strategy remains appropriate. Corporate planning processes are in place to ensure that the strategies of the individual businesses within the Group are aligned and contribute to the delivery of shareholder value. These processes culminate in the setting of an annual budget for the year, together with long-range plans for the two following years, for each business and the Group on a consolidated basis in March of every year. Over the course of the year these budgets and plans are reconsidered, in light of any market changes, through business reviews and formal reforecasts in September and January.

Regulatory/market The Group operates in a regulated environment and changes in this environment can impact the Group and its various partners. In addition, the Group benefits environment from its Canadian Heritage status through government-sponsored financing for its Film and Television Production businesses. The Group carefully monitors the regulatory environment in which it operates and ensures that its strategies remain appropriate through its corporate planning processes. The Group’s international footprint ensures that its regulatory risk is spread across a number of different jurisdictions.

26 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Risk Mitigation

Acquisition effectiveness Our strategy includes growth through acquisitions in new territories around the world and consolidation opportunities in the markets in which we operate. The risks associated with this approach are mitigated through clearly defined investment criteria, detailed due diligence by the Group and its professional advisers, the requirement (where appropriate) for management to remain with the target business post-acquisition and robust financial and operational post-acquisition and integration plans. For material acquisitions, a Board Committee is established to oversee a formal steering group which manages the integration process whilst individual work streams are established to deliver the key integration activities. Acquisition-related Board Committees meet regularly and receive updates on the integration through detailed planning checklists for each work stream.

Content investment Investment in acquired content rights and productions is fundamental to achieving the Group’s aim of providing shareholders with improving and opportunities sustainable returns. The availability of high-quality content is considered as part of the corporate planning process. The Group mitigates the risk of reduced availability of content through the continual development of relationships with producers and other key stakeholders across the entertainment industry. The Group enters into long-term output agreements to provide exclusive access to content from various key producers, where the terms are favourable, whilst recognising that these agreements also place constraints upon the Group. In addition, as the business grows it is becoming an ever more attractive partner for the sellers of entertainment rights.

Content distribution The Group acquires the rights to distribute films and television programmes and produces film and television content to exploit across all media. agreements Relationships with key broadcast partners and digital distribution networks are essential to the Group’s ability to provide shareholders with returns from the Group’s investment in acquired content rights and productions. The Group enters into long-term distribution agreements where the terms are favourable to provide guaranteed revenues from its various distribution and exploitation windows. The Group considers the renewal of these arrangements as part of the corporate planning process.

27 ENTERTAINMENT ONE LTD. Principal Risks and Uncertainties continued

Risk Mitigation

Financial risk management The Board considers that the main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk, liquidity risk and covenant risk. The Group’s Treasury department is principally responsible for managing the financial risks to which the Group is exposed. The use of financial derivatives is governed by the Group’s policies which are approved by the Board. The Group does not use derivative financial instruments for speculative purposes.

Interest rate risk The Group has an exposure to interest rate risk arising principally from changes in US dollar, Canadian dollar, Australian dollar, pound sterling and euro interest rates. The exposure to fluctuating interest rates is managed by fixing portions of debt using interest rate swaps, which aims to optimise net finance expense and reduce excessive volatility in reported earnings. At 31 March 2014, the longest term of any debt held by the Group was until January 2018, being the maturity date of the Group’s senior bank facility. Further details of this risk can be found in Note 29 to the consolidated financial statements.

Foreign exchange risk The Group’s operating activities expose it to the financial risks of changes in foreign currency exchange rates. These risks comprise translation risk (resulting from the requirement to present the results from different territories in the Group’s reporting currency) and transactional risk (which arises where business units enter into contracts denominated in a currency other than their local reporting currency). These include minimum guarantee payments to film studios which are often denominated in US dollars. The Group uses foreign exchange forward contracts when appropriate, and otherwise uses natural hedging methods where possible, to minimise exposure in these areas.

28 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Risk Mitigation

Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Group controls credit risk by entering into arrangements only with highly credit-rated counterparties. The Group has no significant concentrations of credit risk, with exposure spread over a large number of counterparties and customers.

Liquidity risk In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group uses a mixture of long-term and short-term debt finance. At 31 March 2014, the Group had £37.1 million of cash and cash equivalents and gross debt of £192.0 million (net debt was £154.9 million). The Group’s policy throughout the year has been to minimise risk by paying down debt with surplus funds where available. The Group meets its day-to-day working capital requirements and funds its investment in content through a revolving credit facility which matures in January 2018 and is secured on assets in the Group. The amounts drawn down by currency at 31 March 2014 are shown in Note 23 to the consolidated financial statements.

Covenant risk The Group must comply with a number of financial covenants as part of its senior facility. The covenants under the facility include, inter alia, gross debt/ underlying EBITDA, fixed interest cover and net worth. The Group monitors actual and forecast compliance with these covenants and reports regularly to its bankers. At the date of this report the Group has operated within its covenants and at 31 March 2014 had undrawn committed amounts of £97.2 million under the facility. The directors consider that should the covenants be adversely impacted by the risks set out above there are a number of mitigating actions which would enable it to continue in compliance with the terms of its facility.

29 ENTERTAINMENT ONE LTD. Corporate Social Responsibility

Charity and community The Group recognises that the performance The Group and its employees sponsored or supported many charitable initiatives involving of its business is reliant on close relationships both professional and non-profit organisations with a range of stakeholders, including in all of our main territories during the year. customers, suppliers, investors, employees, During the year, the Group teamed-up with a number of charities in Canada. Over C$9,000 the wider community and the environment. was raised for UNICEF for families in need of emergency assistance, over C$1,000 was raised in financial aid to support victims of the Calgary flood in Alberta, more than C$7,000 Ethical and responsible practices and a People was raised for Philippines Typhoon Aid and commitment to minimise our impact on the The Group recognises that the skills, motivation over 420lb of food was donated to the Knight’s environment are key motivators behind the and energy of our workforce are key drivers for Table Food Bank. Group’s corporate responsibility framework. success. The Group’s structure ensures that The following is a summary of the many our staff are aware of our goals and are clear Also in Canada, over 80 staff members corporate responsibility activities in which on how their roles help the Group succeed. volunteered in a project called Habitat for we are involved. Our business is fundamentally a people Humanity. As a major sponsor, our employees business and the ability to attract, recruit went on-site to help build homes for low Our values and retain quality staff is key to our success. income communities. Volunteers worked in In February 2014, the Group formalised teams on various projects: building stud- and communicated its shared values which We seek to ensure we have appropriate framed walls, exterior wall-framing and highlight the distinctiveness of our Group. They processes to assess, manage and develop insulation, draining a flooded basement, communicate what is important to our business our people’s leadership skills, talents and framing interior walls and securing porch and what makes us different in the industry. experiences throughout the organisation. covers. During the year, three houses were They influence our overall behaviour, how we completed for three families with over treat each other and our partners, and help us The Group has numerous initiatives to promote C$125,000 in donations raised. in the decision-making process. Our values the engagement of our employees including: influence the recruiting and retention of our The Group is particularly proud of Peppa Pig’s teams, shape our organisational culture and • regular “Town Hall” broadcasts to staff exclusive partnership in the UK with the contribute to our overall success. from our CEO; charity Tommy’s. Tommy’s funds research into • our internal intranet site which also offers pregnancy problems and provides information We Connect discounts on Group and other products; to parents. Since 2005, this partnership has • By treating all of our colleagues and • regular newsletters and global updates; raised over £1 million through a variety of partners with fairness, honesty and respect • team building events and an annual senior engaging events benefiting children, their • By creating an environment where all can management retreat; and parents and the charity. Through its association flourish and succeed to their true potential • frequent film screenings and premieres as with Peppa, Tommy’s is now the official charity • By supporting our industry and our local well as access to film and television libraries. partner of Peppa Pig World in the UK. Peppa communities also proudly sponsored the following causes Through our annual succession review and throughout the year: We Create internal leadership framework we also aim • By bringing great ideas and stories to life to nurture talent and provide our employees • Activity week at Busy Bees nurseries • By working with people of different with a framework to advance their careers, nationwide raising £30,000 for viewpoints, talents, experiences and thereby providing Entertainment One with its Splashathon, a charity event to raise money backgrounds future leaders. for premature and sick babies, which raised • By respecting local culture and knowledge £475,000 in total in the UK in 2013. We are committed to equality and diversity in • Peppa is the official charity partner of Life’s We Deliver our workforce and in addition to employing Little Treasures, a national Australian • By setting and achieving ambitious goals people with a wide mix of ethnic and cultural charity dedicated to providing support, • By meeting our commitments backgrounds, we also have a good balance friendship and information specifically • By taking responsibility for our actions between genders. Gender mix across the tailored for families of children born sick • By recognising the contribution of every business is as follows: or prematurely. team member Percentage Percentage of female of male Category staff staff Senior management 41% 59% Rest of workforce 62% 38% Total workforce 59% 41%

30 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

The Group is also proud that in 2013 another Environment Greenhouse gas (“GHG”) emissions of its brands, Humf, began a charity partnership Our activities are mainly office-based but also This year we have extended our Corporate with the children’s communication charity include warehousing and television production Social Responsibility report to include a report I CAN, raising over £95,000. operations. We do not physically manufacture on the Group’s GHG emissions. The Group DVDs/Blu-rays, CDs or merchandise but use collated data across all of our businesses with Entertainment One continues to partner with third-party suppliers. As such, our main respect to their annual electricity and gas MediCinema, an organisation that aims to environmental impacts come from the running consumption. We have used the ISO 14064- enrich the lives of patients, many of whom are of our businesses around the world, through 1:2006 methodology to collate the data used critically ill or disabled and spend extensive the consumption of gas and electricity, in our GHG emissions report. The data collated periods of time in hospital or undergoing transport activities and commuting as well was in kWh and was converted into tCO2 using treatment. MediCinema installs and manages as office-based waste such as paper and guidelines from the UK Government’s GHG permanent state-of-the-art cinemas in printer toners. Conversion Factors for Carbon Reporting. hospitals and places of care which show the latest releases the film industry has to offer. We take our responsibilities seriously and We deemed that the collation of data from all work hard to minimise our impact on the eOne offices and warehouses was appropriate, In the Benelux, we are donating €0.50 for environment. In all of our locations we have and therefore no materiality level was applied. every theatre ticket sold for the newly released a recycling, conservation and usage policy. movie Kankerlijers, a movie about young people We monitor our supplier relationships and, This is the first financial year that eOne has living with cancer, to KWF, a local cancer fund. wherever possible, make use of suppliers collated data for GHG emission reporting and with consistent environmental aims. therefore there is no comparative data. On behalf of the So So Happy brand, we have GHG emissions by Scope Unit Quantity donated over US$20,000 to organisations Our Canadian business is also part of the H.I.P. such as Music Saves Lives, The Trevor Project, (Health for the Individual and the Planet) Scope 2 Tonnes CO2e 2,785 Girls Inc., Love Our Children, The Let It Be programme. This focuses on better living for Tonnes CO2e/ Foundation, BeatBullying, Walk For Miracles, employees through the provision of information Scope 2 intensity £m revenue 3.40 Born This Way Foundation, National Tourette on fitness, nutrition, environment and smoking Syndrome Association, Together We Rise, cessation. During the year, the Canadian Cerebral Palsy International Research operations participated in Brampton’s annual eOne is committed to reducing its impact on Foundation and Love Our Children USA. Corporate Cleanup on Earth Day, where the the environment and ensures that new office team helped to collect over 1,000lb of refuse spaces have environmentally-friendly lighting In Australia, our staff charity committee from the local Brampton parks. and recycling points for staff use. supported the Fact Tree Youth Service to purchase 25 Christmas gifts for local boys and The Group does not cause significant pollution Health and safety girls in need, aged 8–17. In addition, our office and the Board is committed to further The Group has implemented a health and hosted charity screening events for the improving the way in which its activities affect safety policy across all of its operations which Starlight Children’s Foundation. the environment by: meets at least the minimum legal requirements of the countries in which it operates and We continue to be proud of the success of • minimising the extent of the impact of emphasises the principles of good safety the Entertainment One Golf FORE Charity operations within the Group’s areas management. The Group is committed to Tournament which has been held in Canada of influence; providing a safe working environment and to since 2007. The tournament is an annual event • conserving energy through reducing caring for the health and safety of its sponsored by our vendors and is attended by consumption and increasing efficiencies; employees, visitors and contractors. our major customers and partners. The event • minimising emissions that may cause has now raised over £300,000 in total for the environmental impacts; and Regular health and safety reviews are carried SickKids Foundation, including £54,000 in the • promoting efficient purchasing and out on the offices and warehouses of the current year. encouraging materials to be recycled Group. Each location has a nominated where appropriate. individual responsible for health and safety and for ensuring a safe environment for our colleagues.

We recognise that health and safety is important to our workforce. Our services do not pose great risk to either our employees or our customers. However, we work to maintain a safe environment at all times.

31 ENTERTAINMENT ONE LTD. Board of Directors

Allan Leighton Darren Throop Giles Willits Clare Copeland Bob Allan Non-executive Chairman Chief Executive Officer Chief Financial Officer Senior Independent Non-executive director Director

Background and experience Background and experience Background and experience Background and experience Background and experience Formerly chief executive Over 20 years of executive Formerly director of group Formerly the chairman of Formerly vice-president of officer of ASDA, chairman management in the finance at J Sainsbury plc Toronto Hydro Corporation, MDS Capital Corp, of Royal Mail and entertainment industry from 2005 to 2007 and chairman and chief vice-president of financial Lastminute.com, deputy has held a number of executive of OSF Inc. and operations at the laboratory chairman of Selfridges & Formerly the owner of financial and operational chief executive officer of services division of MDS Co Limited and George Urban Sound Exchange management roles within People’s Jewellers Inc., vice-president of Unitel Weston Limited and also between 1991 and 1999 Woolworths plc, Kingfisher Corporation Communications Inc. a former president and before it was acquired by plc and Sears plc deputy chairman of Loblaw the Group Chartered accountant and Companies Limited Chartered accountant a member of the Canadian Joined eOne in 1999 having qualified with Institute of Chartered Formerly a non-executive PricewaterhouseCoopers Accountants director of British Sky Broadcasting plc and Dyson Ltd

Date of appointment Date of appointment Date of appointment Date of appointment Date of appointment Appointed non-executive Appointed Chief Executive Appointed to the Board in Appointed non-executive Appointed non-executive Chairman in March 2014 Officer in July 2003 March 2007 and director in May 2007 director in May 2007 appointed Chief Financial Officer in May 2007

External appointments External appointments External appointments External appointments External appointments President and Chief None None Vice-chair of Falls Director of the Dr Tom Executive of Pandora A/S Management Company Pashby Sports Safety Chairman of Office Retail Trustee of Chesswood Fund Group Limited, Matalan Group Limited, RioCan Retail Ltd and Pace plc Real Estate Investment Trust, Danier Leather Inc., Non-executive director of Telesat Canada and Bighams Limited MDC Corporation

Committee memberships Committee memberships Committee memberships Committee memberships Committee memberships None None None Chairman of Remuneration Chairman of Audit and Nomination Committee Committees

32 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Ronald Atkey James Corsellis Garth Girvan Mark Opzoomer Linda Robinson Non-executive director Non-executive director Non-executive director Non-executive director Non-executive director (formerly non-executive Chairman1)

Background and experience Background and experience Background and experience Background and experience Background and experience Formerly a partner at Osler, Formerly a director of Formerly a director of Previously chief executive A retired partner at Osler, Hoskin & Harcourt LLP Breedon Aggregates, Corby Distilleries Limited officer of Rambler Media Hoskin & Harcourt LLP Concanteo plc, and Silcorp Limited Ltd, regional vice-chair of Extensive experience icollector plc and Yahoo! Europe, deputy Extensive experience in in government regulation Catalina Holdings Ltd Called as a barrister and chief executive officer of the communications and of Canadian cultural solicitor in Ontario (1978), Hodder Headline, director media industries industries and corporate Alberta (1982) and New of Sega Europe Ltd and transactions in the arts, York (1986) Virgin Communications Ltd Formerly a director of entertainment and media a number of public and sectors Formerly non-executive private companies director of Web Previously Chair of the Reservations International Security Intelligence Ltd, Newbay Software Ltd, Review Committee Autonomy plc and Miva Inc

Date of appointment Date of appointment Date of appointment Date of appointment Date of appointment Appointed non-executive Appointed non-executive Appointed non-executive Appointed non-executive Appointed non-executive director in November 2010 director in May 2007 director in May 2007 director in May 2007 director in March 2014

External appointments External appointments External appointments External appointments External appointments Director of Time Retail Co-founder and Partner at the Canadian Partner Bond Capital Director and vice-chair Canada Inc. and Warner managing partner at law firm McCarthy Partners of Infrastructure Ontario Bros. Television (B.C.) Inc. Marwyn Investment Tétrault LLP Management LLP Non-executive director of Director and corporate Non-executive director of Blinkx plc secretary of Women Imax Corporation Lawyers Joining Hands

Committee memberships Committee memberships Committee memberships Committee memberships Committee memberships Member of Nomination Member of Audit, Member of Remuneration Member of Audit None Committee Remuneration and Committee Committee Nomination Committees

1 James Corsellis was replaced as non-executive Chairman by Allan Leighton on 31 March 2014. 33 ENTERTAINMENT ONE LTD. Corporate Governance

Allan Leighton Non-executive Chairman

Chairman’s introduction The Board recognises the importance of interaction with operational Entertainment One is committed to achieving high standards of management and access to senior management is achieved through corporate governance and the Group has well-established policies regular business review presentations provided to the Board. In addition, and procedures which are designed to facilitate good governance the Audit Committee has a rolling programme of presentations from in a practical and workable way. senior finance leaders from across the business focusing on the internal control environments of individual operating units. The reports on the following pages explain our governance arrangements in detail and describe how we have applied the principles of corporate During the year, the Group implemented an Internal Audit function and governance contained in the UK Corporate Governance Code. a new risk management framework to reflect its step-up to a premium listing on the London Stock Exchange. We have expanded the information provided in our Audit Committee Report to take account of the new Code requirements. In addition, Following this year’s corporate governance review, an Executive Risk considerable time and effort has also been spent during the year in the Committee is being implemented to coordinate the Group’s risk review of our Remuneration Policy and in ensuring that the Directors’ management process and a more formal Executive Management Remuneration Report provides the required level of disclosure. Committee is being put in place to ensure the effective implementation of the Group’s strategy. The performance of the Group is dependent on its ability to attract, recruit and retain quality staff in a highly competitive labour market and Allan Leighton succession planning is an important contributor to the long-term Non-executive Chairman success of the business. Our Nomination Committee carefully reviews 19 May 2014 succession plans for the executive directors and senior management and our Remuneration Committee ensures that our Remuneration Policy supports the succession planning process.

34 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Corporate governance compliance statement The Group fully supports the principles of corporate governance contained in the UK Corporate Governance Code issued by the Financial Reporting Council in 2012 (“the Code”).

At 31 March 2014, the Group complies with the principles set out in the Code, other than the following matters:

• James Corsellis, who was non-executive Chairman during the year, was not independent upon appointment due to his relationship with Marwyn, a significant shareholder of the Company; Allan Leighton was appointed as independent non-executive Chairman on 31 March 2014; • the Code recommends that directors should have notice periods of one year or less; Darren Throop has an effective notice period in excess of one year (see further explanations in the Directors’ Remuneration Report on page 49); • as noted in the Company’s Circular published on 23 May 2013 (in relation to its step-up to a premium listing), James Corsellis is a member of the Company’s Audit Committee; James Corsellis was also non-executive Chairman of the Company during the financial year, but was not independent upon appointment; • as noted in the Company’s Circular published on 23 May 2013 (in relation to its step-up to a premium listing), James Corsellis is a member of the Company’s Remuneration Committee; James Corsellis was also non-executive Chairman of the Company during the financial year, but was not independent upon appointment; and • Clare Copeland, the Senior Independent Director, has not attended meetings with a range of major shareholders; the Board considers that Mr Copeland has a good understanding of the issues and concerns of major shareholders and that attendance at such meetings was impractical to facilitate because of geographical constraints.

An overview of the Group’s corporate governance procedures is given below.

Board and Committee structure

Board Membership: Key responsibilities: • Non-executive Chairman • Determining strategy • Seven non-executive directors • Setting controls • Two executive directors • Managing risk • Monitoring performance • Approving Board-reserved matters

Audit Committee Remuneration Committee Nomination Committee Membership: Membership: Membership: • Three non-executive directors • Three non-executive directors • Three non-executive directors

Key responsibilities: Key responsibilities: Key responsibilities: • The integrity of financial reporting • Policy for remuneration of executive • Composition, size and structure of • External auditor relationship directors the Board • Oversight of Internal Audit • Implementation of Remuneration Policy, • Succession planning process for • Internal controls and risk management including agreeing executive director executive directors and senior targets management • Alignment of Remuneration Policy with succession planning process

For more detailed information on the For more detailed information on the For more detailed information on the Audit Committee, see pages 40 to 43 Remuneration Committee, see pages 44 Nomination Committee, see page 61 to 60

35 ENTERTAINMENT ONE LTD. Corporate Governance continued

Board overview The Chief Executive Officer The aim of the Board is to promote the long-term success of the Group. The Chief Executive Officer is responsible for the day-to-day On behalf of shareholders, it is responsible for creating a framework of management of the business and for the development of strategy strategy and controls within which eOne operates and for the Group’s for approval by the Board. proper management. The Board takes account of the impact of its decisions not only on its shareholders but also on a wider group of There is a clear division of responsibility between the non-executive stakeholders including employees, the communities it operates in and Chairman and the Chief Executive Officer which is formally documented its production and financing partners. and agreed by the Board.

The Board is responsible for overseeing the implementation of strategy The Chief Executive Officer is Darren Throop. by the management team, setting the Group’s overall risk framework and monitoring the Group’s financial and operational performance. Senior Independent Director The role of the Senior Independent Director is to act as a sounding A number of matters are specifically reserved for the Board’s approval. board to the non-executive Chairman and to provide an additional point For example, the approval of annual budgets and forecasts, the of contact for shareholders. He acts as an intermediary for other approval of interim and annual results, setting and monitoring strategy, directors and is responsible for coordinating the process for the considering major acquisitions and approving investments in content evaluation of the performance of the non-executive Chairman. and capital expenditure in excess of pre-agreed value thresholds. Other matters are delegated to the Audit, Remuneration and The Senior Independent Director is Clare Copeland. Nomination Committees. There are terms of reference for each of these Committees specifying their responsibilities, which are Non-executive directors available on the Group’s website. The non-executive directors bring a wide range of experience and expertise to the Group’s activities and provide a strong balance to the The Board operates both formally, through Board and Committee executive directors. Their role is to provide an independent element to meetings, and informally, through regular contact between directors the Board and to constructively challenge management. and senior executives. Independence of non-executive directors The directors can obtain independent professional advice at the The Board has reviewed the independence of the non-executive Company’s expense in the performance of their duties as directors. directors and concluded that seven non-executive directors, including the Company’s non-executive Chairman, are independent. The Board membership independent directors are: Allan Leighton, Clare Copeland, Bob Allan, As at 31 March 2014, the Board comprised a non-executive Chairman, Ronald Atkey, Garth Girvan, Mark Opzoomer and Linda Robinson. two executive directors and seven other non-executive directors. The review took into account the results of the Board’s annual The Company’s Articles of Amalgamation set specific requirements performance evaluation, together with the factors listed in the Code. with respect to the Company’s directors, as follows: One non-executive director, James Corsellis, is not considered to • At least two-thirds of the directors must be Canadian be independent due to his relationship with Marwyn, a significant • A majority of the directors must be resident Canadians shareholder of the Company, as further outlined in Note 34 to the • A majority of the directors must be independent consolidated financial statements.

For the financial year and as at 31 March 2014, the Board has complied Time commitment with these requirements. The non-executive Chairman is expected to spend approximately one day per week and other non-executive directors are expected to spend Information about the directors, including their background and approximately one day per month on Group business. This includes experience, is given on pages 32 and 33. attendance at Board and Committee meetings, preparation for the meetings and the provision of advice and assistance to the Group The non-executive Chairman outside of Board and Committee meetings. The role of the non-executive Chairman is to provide leadership to the Board and to ensure that the Board and its Committees operate Board meetings effectively. He sets the agenda for Board meetings and chairs the There are regular, scheduled Board and Committee meetings throughout meetings to facilitate open and constructive debate. the year and additional ad hoc meetings are held as necessary. During the current financial year, there were 11 Board meetings. The non-executive Chairman is Allan Leighton. There are annual work plans which list the recurring items to be dealt with at each scheduled Board and Committee meeting, as well as specific items which are addressed at different points during the year.

36 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Board papers Board Committees The Board is supplied with detailed Board papers, in a timely manner, in The Board Committees comprise the Audit Committee, the a form and quality appropriate to enable it to discharge its duties. These Remuneration Committee and the Nomination Committee, each of include routine reports on the performance of the business and on any which operates within defined terms of reference which are displayed matters for Board approval. Standard formats have been developed for on the Group’s website. the reports to make it easy to track progress against targets and identify key facts. In addition to written reports, presentations are also given to During the year, the Audit Committee comprised Bob Allan (Chairman) the Board reviewing the performance and outlook of the Group’s Film with James Corsellis and Mark Opzoomer as the other non-executive and Television Divisions. members. Bob Allan and Mark Opzoomer have recent and relevant financial experience. Mark Watts was also a member of the Committee A detailed agenda is prepared for each meeting to make sure there is until his resignation on 28 June 2013. sufficient time allocated to deal with each issue. During the year, the Remuneration Committee comprised Clare Conflicts of interest Copeland (Chairman) with James Corsellis and Garth Girvan as the The Group has adopted and follows a procedure under which directors other non-executive members. must declare actual or potential conflicts of interest as they arise. The Board reviews potential conflict of interest situations arising from other The Nomination Committee comprised Clare Copeland (Chairman) with posts held by directors on an annual basis. James Corsellis and Ronald Atkey as the other non-executive members.

No actual conflicts of interest arising in respect of any specific Further details of the operation of these Board Committees are given arrangement or transaction have been declared to the Board during on pages 40 to 61. the financial year. Board and Committee meeting attendance Board performance evaluation The table below sets out the attendance at Board and Committee Each year the Board undertakes a formal internal evaluation of its meetings by presence or by telephone of individual directors. own performance and that of its Committees and individual directors. Audit Remuneration Nomination This review also includes an evaluation of the non-executive Board Committee Committee Committee Chairman’s performance. Total held in year 11 4 4 2 An evaluation questionnaire has been developed covering the key Allan Leighton1 –– –– attributes of an effective Board, the role of the non-executive Chairman, Darren Throop 11 – – – the role of the Senior Independent Director and the role of executive Patrice Theroux2 8– –– and non-executive directors which is provided to each director to enable Giles Willits 11 – – – them to provide specific feedback. These questionnaires are collated Clare Copeland 10 – 4 2 and used as input to a performance discussion at the relevant Board Bob Allan 11 4 – – meeting on an annual basis. Ronald Atkey 10 – – 2 James Corsellis 10 4 4 2 Separate questionnaires are developed for each Committee and Garth Girvan 11 – 4 – these are completed by Committee members and collated as input to Mark Opzoomer 11 4 – – a performance discussion at the relevant Committee meeting, annually. Linda Robinson3 –– –– In addition, specific feedback is sought on the performance of the Audit Mark Watts4 21 –– Committee from the Group’s Chief Executive Officer, Chief Financial 1 Appointed on 31 March 2014. Officer and the Company’s external auditor. 2 Resigned on 31 March 2014. 3 Appointed on 31 March 2014. The non-executive Chairman and the Senior Independent Director meet 4 Resigned on 28 June 2013. to evaluate the performance of individual directors and this evaluation enables the Group to confirm on an annual basis that the individual directors continue to perform their roles effectively and that non- executive directors continue to demonstrate ongoing time commitment to their roles. The evaluation also informs the Group’s determination of the independence of individual directors, as noted in this report.

The Senior Independent Director leads a discussion amongst the non-executive directors, on an annual basis, to consider the performance of the Company’s non-executive Chairman.

37 ENTERTAINMENT ONE LTD. Corporate Governance continued

Dialogue with shareholders Risk management and internal controls The Group maintains a regular dialogue with analysts and institutional The directors are responsible for the Group’s system of internal control shareholders to discuss its performance and future prospects and holds and for reviewing its effectiveness, whilst the role of management is to regular meetings with them. In the current financial year, the executive implement Board policies on risk management and control. It should be directors have undertaken an extended round of meetings with recognised that the Group’s system of internal control is designed to investors both in the UK and abroad – these took place at the time manage, rather than eliminate, the risk of failure to achieve the Group’s of the Group’s preliminary and interim results, and as part of specific business objectives and can only provide reasonable, and not absolute, investor programmes in Europe and North America. assurance against material misstatement or loss.

In order to assist non-executive directors to develop an understanding The Group operates a series of controls to meet its needs. These of the views of major shareholders, the Board are presented with controls include, but are not limited to, a clearly defined organisational a shareholder report covering key shareholder issues, share price structure, written policies, minimum financial controls and Group performance, the composition of the shareholder register and analysts’ authority limits, a comprehensive annual strategic planning and expectations at each regular Board meeting. budgeting process and detailed monthly reporting. The Group’s internal controls fall into four key areas: financial controls, operational controls, The Company responds formally to all queries and requests for compliance and risk management. information from existing and prospective shareholders. In addition, the Company seeks to regularly update shareholders through stock Financial controls exchange announcements and wider press releases on its activities. Financial reporting It publishes regular trading updates as well as a full Annual Report All operating units complete business plans and budgets for the year. and Accounts. The annual budget is approved by the Board as part of its normal responsibilities. In addition, the budget figures are regularly re-forecast Clare Copeland, the Senior Independent Director, has not attended to facilitate the Board’s understanding of the Group’s overall position meetings with any major shareholders as suggested by Code provision throughout the year and this re-forecasting is reported to the Board. E.1.1. The Board considers that Mr Copeland has a good understanding of the issues and concerns of major shareholders, through regular Each month, operating units produce written reports in a defined format updates provided to the Board, and that his attendance at such meetings on their performance against these plans and provide updated business was impractical to facilitate because of geographical constraints. forecasts. The reports and forecasts are reviewed by the executive directors. Reports from operating units are consolidated into monthly The Annual General Meeting (“AGM”) provides an opportunity for management accounts and presented to the Board on a regular basis, shareholders to address questions to the non-executive Chairman or with significant issues discussed by the Board, as appropriate. the Board directly. All the directors attend the meeting and are available to answer questions. Time is set aside after the formal business of the Accounting policies and procedures AGM for shareholders to talk informally with the directors. The Group has written accounting policies and procedures. Local management are required to provide written confirmation of compliance Shareholders can access further information on the Group via the with the policies and procedures. Group’s website at www.entertainmentone.com. There is a formal review process overseen by the Audit Committee Annual General Meeting which seeks to verify that policies and procedures have been correctly The 2013 AGM was held on 28 June 2013 at the offices of Osler, applied and to confirm that there is an effective process of management Hoskin & Harcourt LLP in Toronto, Canada. and control within the business. A self-assessment is carried out by management as part of the Group’s half year and full year reporting All resolutions were passed, with votes in favour of all resolutions being processes, with the full year review being independently verified. in excess of 90% of votes cast. Information technology security All directors were re-elected to the Board with at least 95% of the votes The Group relies on financial and management information processed cast in favour of each individual director. by, and stored on, computer systems. Controls and procedures have been established to endeavour to protect the security and integrity of The Company plans to hold its 2014 AGM in Toronto, Canada. At the data held on the systems, with disaster recovery arrangements in the next AGM, the Company will propose a resolution to allow it to hold event of failure of a major system. Tests are conducted on an annual future shareholder meetings in London, in recognition of the location basis to assess the security of the systems. This year there has been of its stockmarket listing and major shareholders. a particular focus on cyber-security and regular updates have been presented to the Audit Committee on this issue.

Treasury The Treasury function operates under guidelines and policies approved by the Board and regular reports are made to the Board on treasury activities.

38 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Investments In addition, the Audit Committee receives reports from management The Group has defined procedures for the review and control of and the external auditors concerning the system of internal control and acquisitions, investments in content and capital expenditure. any material control weaknesses. Any significant risk issues are referred Expenditure requires different levels of approval according to the to the Board for consideration. amount. Significant expenditure requires full Board approval and all approval requests are presented in a defined format to ensure During the year, the Group implemented an Internal Audit function to that full justification is provided, including projected financial returns reflect its step-up to a premium listing and it is currently in the process on the investment. of finalising a formal internal audit programme for the new financial year.

Operational controls Board review process All Group businesses are required to operate in accordance with At least annually, the Board conducts a review of the effectiveness of detailed standards and procedures which cover all material aspects the Group’s system of internal control, covering all material controls, of their operations. Compliance with these standards is subject to including financial, operational and compliance controls and risk assessment by internal and external review. management systems.

As part of the Group’s half year and full year reporting processes, local To assist with this the Board appoints a firm of external consultants to management confirm by way of a Corporate Governance Statement of undertake a number of specific reviews and report back to the Audit Compliance and a Letter of Representation that their operating units Committee, in the process making recommendations to help strengthen have complied with Group control requirements. the risk management framework and internal control processes within the Group. There have been no significant control failures during the year. As a premium listed Company, the Group’s approach to its control Compliance environment is codified in its Financial Position and Prospects There is a Group Code of Business Conduct which sets out standards Procedures. These procedures are maintained on an ongoing basis and of conduct and business ethics which the Group requires its staff are formally reviewed and re-adopted by the Board on an annual basis. to comply with. All members of senior management sign-off on the Code of Business Conduct on an annual basis, including that The independence and objectivity of the external auditors is considered members of their teams understand the Code. Separate Anti-bribery on a regular basis, with particular regard to non-audit fees. The split and Whistleblowing Policies are also in place across the Group. between audit and non-audit fees for the year under review is set out in All Group polices are available to staff via the Company’s intranet. Note 6 to the consolidated financial statements.

There is a schedule of delegated authority designed to ensure that all The external auditors have in place processes to ensure their material transactions are considered at the appropriate level within the independence is maintained including safeguards to ensure that where Group and are subject to review by Group Finance. they provide non-audit services their independence is not threatened. In this context, the Audit Committee considers that it is appropriate for When acquisitions are made, the Group’s controls and accounting the external auditors to provide tax advice and other accounting and policies are implemented during the first full year of ownership. transactional services to the Group, including those in connection with supporting and reporting on financial representations in public Risk management documentation and due diligence on acquisitions. During the year, the Company implemented a Group risk register, which will be reviewed formally by the Board on a quarterly basis, and Internal control and compliance statement following this year’s corporate governance review, an Executive Risk The directors acknowledge their overall responsibility for the system Committee is being implemented to coordinate the Group’s risk of internal control and for reviewing its effectiveness. They have management process. established a system that is designed to provide reasonable but not absolute assurance against material misstatement or loss The Executive Risk Committee will be chaired by Darren Throop, the and to manage rather than eliminate the risk of failure to achieve Chief Executive Officer, and is expected to meet quarterly. The role of business objectives. the Committee will be to: There is a continuing process for identifying, evaluating and managing • promote effective identification and management of risk the key risks faced by the Group that has been in place for the year throughout the Group; under review and up to the date of approval of the Annual Report • maintain a risk register identifying significant risks, risk control and Accounts. measures and responsibility for control measures; • review and confirm that all significant risks have been identified The process is regularly reviewed by the Board and is in accordance and suitable control measures adopted; with the recommendations of Internal Control: Guidance to Directors • monitor implementation of risk control measures for all significant (formerly known as the Turnbull Guidance). Steps continue to be taken risks; and to embed internal control further into the operations of the business and • ensure all operating units operate an effective risk management to deal with any issues that come to the Board’s attention. process. The directors have reviewed the effectiveness of the system of internal control and are satisfied that the Group’s internal controls are operating effectively. 39 ENTERTAINMENT ONE LTD. Audit Committee Report

Committee membership During the year, the Audit Committee comprised Bob Allan (Chairman) with James Corsellis and Mark Opzoomer as the other non-executive members. Bob Allan and Mark Opzoomer have recent and relevant financial experience. Mark Watts was also a member of the Committee until his resignation on 28 June 2013.

Audit planning Bob Allan The Committee oversees the plans for the external audit to ensure it is Audit Committee Chairman comprehensive, risk-based and cost effective.

The Chair of the Audit Committee’s As in previous years, Deloitte drafted an initial external audit plan in conjunction with executive management and presented it for review by Annual Statement the Committee. The plan set out the proposed scope of their work and the approach to be taken. It also proposed the materiality levels to be Dear Shareholders used, based on forecast normalised adjusted profit before tax.

I am pleased to present the Audit Committee Report for 2014 which In order to focus the audit work on the right areas, the external auditor describes our work during the past year. identified particular risk issues based on its knowledge of the business and operating environment, discussions with management and the half During the year, recognising its increasing complexity and reflecting year review. Agreement was reached on the audit approach for different its step-up to a premium listing, the Group implemented an Internal areas of the business, based on their scale and complexity. This has Audit function. A Director of Risk and Assurance has been appointed resulted in an audit approach which has provided for a full scope audit and further resources are being recruited to complement the team. for the Group’s largest operating units, a focused scope approach for A process for finalising a formal internal audit programme for the new smaller operating units and a desktop review of units with less financial year is underway. significant operations.

The Group has rolled out a more formal risk management process to its Review of consolidated financial statements and audit findings operating units and implemented a Group risk register, which will be The Committee reviewed the full and half year consolidated financial reviewed formally by the Board on a quarterly basis. statements and the report of the external auditor on these statements. The Deloitte partner responsible for the eOne audit attended the Audit The Committee has added a fourth meeting to its annual programme Committee meetings to present the reports and answer questions from and has had a particular focus on risk management, including cyber- Committee members. Senior Deloitte staff who had day-to-day security, in the current financial year. involvement in the conduct of the audit also attended. The Committee has implemented a rolling programme of presentations from senior operational finance staff, focused on enhancing the Committee’s understanding of financial and internal controls in the Group’s operating units.

The Committee’s report has been expanded to provide more detail on the significant issues considered in relation to the consolidated financial statements and on how these issues were addressed.

Bob Allan Audit Committee Chairman 19 May 2014

40 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

The Committee considered the following significant accounting issues as part of its review:

Issue Assessment Accounting for In the absence of any prescribed IFRS accounting treatment for film rights, the Group applies the guidance acquired content rights included in US GAAP “Accounting Standards Codification 926, Entertainment – Films” under which the carrying and productions value of investments in acquired content rights and productions, and associated charges to the consolidated income statement, are directly linked to management estimates of future revenues. The Committee is satisfied that processes exist to ensure that the carrying value of investments in acquired content rights and productions is assessed on a regular basis and that operating management have sufficient expertise to assess the recoverability of investments, based on their local market knowledge. In addition, this is an area of focus for the external audit and Deloitte carry out detailed testing, which has been centralised in the current year to provide further consistency of approach. Deloitte provide a detailed report on this issue to the Audit Committee and report explicitly on the matter in their audit opinion in the consolidated financial statements.

Impairment of The Group holds significant intangible assets including acquired intangibles and goodwill from past acquisitions. goodwill and other In accordance with IFRS, management conducts an annual impairment review of intangible assets with indefinite intangible assets useful economic lives to ensure that the value-in-use of the cash generating units support the carrying value in the consolidated financial statements. The Committee is satisfied that the assumptions made by management are reasonable, and that appropriate sensitivities are applied, to ensure that the annual impairment testing process is robust. In addition, Deloitte review and challenge the assumptions made by management to confirm that they are reasonable in comparison to industry peers and analyst assumptions, and that they reflect current market conditions. Deloitte provide a detailed report on this issue to the Audit Committee and report explicitly on the matter in their audit opinion on the consolidated financial statements.

Presentation of The Group records exceptional income and expenditure in respect of one-off items and transactions that fall outside one-off items the normal course of business to assist users of the accounts in understanding the underlying business performance. The Committee is satisfied that management have made appropriate judgements in determining one-off items, that policies have been applied consistently and that disclosures are appropriately made in the Annual Report and Accounts. Deloitte provide a detailed report on this matter to the Audit Committee and report explicitly on it in their audit opinion on the consolidated financial statements.

Revenue recognition Revenue recognition and management override of controls are items which Deloitte are required to report on explicitly. and management The Committee is satisfied that accounting policies which set out revenue recognition policy are in place and override of controls communicated to operating units and that a robust system of internal control exists in the Group. The Group’s internal controls are tested as part of the half and full year reporting process and are scrutinised independently on an annual basis. In addition, Deloitte carry out direct testing and analytical procedures on journal data and report explicitly on these matters in their audit opinion on the consolidated financial statements.

Provisions and liabilities The Group holds a number of provisions and liabilities in relation to potential future obligations. These include those in relation to the acquisition of Alliance, including restructuring provisions, onerous contract provisions, liabilities in relation to contingent consideration (including box office targets), net of provisions for certain underperforming film titles, as well as open tax items. The calculation of provisions is inherently judgemental, but the Committee is satisfied that management have sufficiently robust processes in place to be able to support the basis for these provisions. In addition, Deloitte perform review procedures and challenge management assumptions as part of their audit work.

Going concern and The directors are required to confirm on an annual basis that their continued adoption of a going concern basis covenant compliance of accounting is appropriate in preparing the Group’s Annual Report and Accounts. Management is required to consider the impact of trading conditions and other commercial risks in the context of its banking facilities which are subject to various covenants. The Committee is satisfied that processes are in place to ensure that management are able to make an appropriate assessment of the appropriate accounting basis used in the Annual Report and Accounts. These processes include an annual budget and planning process which is approved by the Board (covering the following financial year in detail and two additional years), ongoing re-forecasts in the year and a robust process to manage the Group’s banking facility and compliance with covenants. In addition, Deloitte include a critical assessment of management’s forecasts and the assumptions made as part of their audit work.

41 ENTERTAINMENT ONE LTD. Audit Committee Report continued

The Committee has reviewed the Annual Report and Accounts to The Committee considered the nature of the potential threat to ensure that they are fair, balanced and understandable and provide independence posed by the provision of non-audit services and the the information necessary for shareholders to assess the Group’s safeguards applied. It concluded that the non-audit work undertaken by performance, business model and strategy. The Committee considers the external auditor did not impair independence. whether the Annual Report and Accounts contains sufficient information to enable shareholders to make this assessment. It also considers Internal Audit whether the information is presented in a comprehensible and balanced During the year, recognising its increasing complexity and reflecting manner and that sufficient prominence is given to critical matters. its step-up to a premium listing, the Group implemented an Internal Audit function. A Director of Risk and Assurance has been appointed Assessment of external auditor and further resources are being recruited to complement the team. The Committee is required to assess the qualifications, expertise, A process for finalising a formal internal audit programme for the new resources and independence of the external auditor and the objectivity financial year is underway. and effectiveness of the audit process. This assessment was carried out during the year on the basis of the Committee’s own appraisal The Director of Risk and Assurance, who heads the Internal Audit of the performance of the external auditor and the views of the senior function, has a direct reporting line to the Chairman of the Committee, management team as well as consideration of materials provided by and attends Audit Committee meetings. the external auditor. The criteria used for this assessment remained unchanged from last year and were as follows: Risk management review The Audit Committee receives reports from management and the • effectiveness of audit objectives and planning; external auditor concerning the system of internal control and any • leadership and coordination demonstrated by the audit team; material control weaknesses. • qualifications and expertise of the audit team; • quality assurance processes; During the year, the Company implemented a Group risk register, • independence processes and policies; which will be reviewed formally by the Board on a quarterly basis, and • value provided against fees incurred; and following this year’s corporate governance review, an Executive Risk • responsiveness of the audit team. Committee is being implemented to coordinate the Group’s risk management process. Based on the assessment carried out, the Committee was able to confirm to the Board that the external auditor was operating effectively. As part of the remit of the Committee in overseeing risk, regular updates are provided by management in relation to litigation and insurance Independence of external auditor coverage to ensure that the Group is appropriately monitoring and The Committee monitors arrangements to ensure that the partner in managing such risks. charge of the audit is changed every five years and that the relationship between the external auditor and management does not affect the Whistleblowing Policy external auditor’s independence. The Committee is responsible for monitoring the Group Whistleblowing Policy. Any concerns raised are reported to the Audit Committee. The Committee is responsible for monitoring the independence of the Company’s external auditor on an ongoing basis and ensuring that Meetings appropriate controls are in place. The Committee met four times during the year and all Committee members attended each meeting. During the year Deloitte has provided the following non-audit services: Representatives of the external auditor, including the partner responsible • services relating to corporate finance transactions; for the eOne audit, also attended each meeting. The executive directors are • tax advisory services; and invited to attend the meetings but at each meeting the Committee also • other services, including remuneration services. arranged to speak with the external auditor without the executive Fees paid to Deloitte for non-audit services were as follows: directors being present.

Year ended Year ended 31 March 2014 31 March 2013 £m £m Services relating to corporate finance transactions 0.4 1.8 Tax advisory services 0.5 0.2 Other services 0.1 0.1 Total 1.0 2.1

None of this work was carried out on a contingent fee basis.

42 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

The following table lists the standing agenda items which have been External auditor tenure dealt with by the Committee. Deloitte has been the Group’s external auditor since 2007 and there has been no tender held for audit services during that time. Date Agenda items The Committee considers that the external auditor’s knowledge of May • Corporate governance update the Group’s business and systems gained through experience has 2013 – Review of risk management system significantly contributed to the rigour and effectiveness of the audit and framework process. However, the Committee intends to comply fully with the FRC – Review of external auditor independence Audit Committees Guidance regarding the frequency of audit tender. and fees – Evaluation of effectiveness of the Terms of reference and evaluation Audit Committee The Committee keeps its terms of reference under review and makes – Audit Committee terms of reference recommendations for changes to the Board. The full terms of reference • Litigation update are available on the Company’s website. • Review of minimum financial controls • Accounting update (including changes An evaluation questionnaire has been developed for the Committee and to segmental reporting) these are completed annually by Committee members and collated as • Update on Alliance acquisition input to a performance discussion at the relevant Committee meeting. • Review of going concern basis of accounting In addition, specific feedback is sought on the performance of the Audit • Update from external auditor Committee from the Group’s Chief Executive Officer, Chief Financial • Review of draft preliminary announcement Officer and the Group’s external auditor. • External auditor’s private meeting with non-executive directors • Review of effectiveness of external auditor

September • Litigation and insurance update 2013 • Role of Committee in reviewing announcements • Discussion on implementation of Internal Audit function • Discussion on risk management framework • Discussion on Group’s tax payment profile • Update on regulatory/compliance requirements • Follow-up actions on Deloitte 2013 management letter • External auditor’s private meeting with non-executive directors

November • Litigation and insurance update 2013 • Review of internal controls • Update on Internal Audit • Accounting update • Review of going concern basis of accounting • Review of interim announcement • Update on cyber-security • Update from external auditor • External auditor’s private meeting with non-executive directors

March • Litigation and insurance update 2014 • Review of internal controls year end programme • Update on internal audit testing plan and implementation • Canada Film business overview (presented by VP Finance, Canada Film) • Update on cyber-security • Update from external auditor, including audit planning • External auditor’s private meeting with non-executive directors

43 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report

The new LTIP, which was approved by shareholders in June 2013, replaces the previous Management Participation Scheme (“MPS”) and has been designed to align the long-term interests of executive directors and shareholders. The performance conditions of the LTIP are equally weighted between adjusted earnings per share (“EPS”) growth, total shareholder return (“TSR”) growth and average return on capital employed (“ROCE”), all over the three-year period ending 31 March 2016, and support our long-term strategic goals. Annual LTIP awards Clare Copeland are granted at 125% of base salary for Darren Throop (Chief Executive Remuneration Committee Chairman Officer) and 100% of base salary for Giles Willits (Chief Financial Officer). Further details of the LTIP are set out on page 46 and also The Chair of the Remuneration Committee’s pages 55 and 56. Annual Statement The annual bonus scheme was amended in the current year such that the performance condition is now solely Group adjusted profit before Dear Shareholders tax (having historically been a combination of adjusted profit before tax and personal targets). The Remuneration Committee believes this On behalf of the Board, I am pleased to present the Directors’ better motivates and rewards superior performance. The annual bonus Remuneration Report for 2014, which sets out the Remuneration Policy scheme continues to have a maximum opportunity of 100% of base for the directors of eOne and the amounts earned in respect of the salary which is only achieved when 110% of the budgeted target is met. year ended 31 March 2014. This report has been prepared by the Remuneration Committee and approved by the Board. Incentive out-turns in the current year As described in the Strategic Report, the Group has enjoyed a The Report complies with The Large and Medium-sized Companies and successful year with underlying EBITDA growth in both our Film and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Television Divisions. This has translated into the Group making an 2012 UK Corporate Governance Code (“the Code”) and the Financial adjusted profit before tax of £77.9 million (an increase of 45% on the Conduct Authority Listing Rules. To reflect the requirements of the prior year) which has resulted in an annual bonus of 84.4% of base revised remuneration reporting regulations, this report is presented in salary being earned by the three executive directors (including Patrice two sections: the Directors’ Remuneration Policy and the Annual Report Theroux). Further details of this award are set out on page 54. on Remuneration. The Directors’ Remuneration Policy sets out eOne’s forward-looking Remuneration Policy. It will be subject to a binding vote During the year, the out-performance incentive plan and the MPS (which at the AGM. The Annual Report on Remuneration provides details of the had been in place since 2007 and 2010, respectively) vested, having amounts earned in respect of the year ended 31 March 2014 and how met their performance conditions, resulting in cash payments and share the Directors’ Remuneration Policy will be operated for the year awards being made to the executive directors. Further details are set out commencing 1 April 2014. This is subject to an advisory vote at the on page 54. 2014 AGM. Patrice Theroux stood down as an executive director on 31 March 2014 and therefore the look-forward Policy does not apply Proposed changes in executive director remuneration in the to him. coming financial year As set out on page 45, the Remuneration Committee has approved pay Major decisions taken during the year increases for the coming year for the two executive directors in line with In anticipation of the move to a premium listing in July 2013 and the our Remuneration Policy. There are no proposed changes to either the subsequent inclusion in the FTSE 250 in September 2013, the annual bonus scheme or the LTIP for the coming financial year. Remuneration Committee determined that, based on appropriate benchmarking with comparable companies, it would be appropriate to We remain committed to taking a responsible approach in respect of put in place a new executive director incentive plan that was broadly executive director pay. The Company will continue to actively engage similar to that of other FTSE 250 companies. The new plan saw with and seek to incorporate the views of its key shareholders in increases to the base pay of the executive directors of over 30% from any major changes to the Directors’ Remuneration Policy. the prior year, changes to the annual bonus scheme and the introduction of a new Long Term Incentive Plan (“LTIP”) – all of which Clare Copeland were done with the intention of setting executive directors’ remuneration Remuneration Committee Chairman at a level which enables eOne to attract and retain talented individuals 19 May 2014 who have the necessary skills and experience to support the continued development of the Group and motivate them to deliver its strategy. These changes reflect the transition of the Company’s Remuneration Policy from a private equity-style package to that representative of a premium listed FTSE 250 company, and also the acquisition of Alliance in early 2013 which has significantly increased the size and complexity of the Group.

44 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

The Directors’ Remuneration Policy This section of the Directors’ Remuneration Report sets out the Directors’ Remuneration Policy which, subject to shareholder approval at the 2014 AGM, shall take binding effect from the date of that meeting and will apply for the three financial years ending 31 March 2017.

Remuneration Policy table Executive directors The table below provides an overview of each element of the proposed remuneration for the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). To the extent that additional executive directors are employed in the future by the Company, this Policy will apply on a consistent basis.

Link to Group objectives Framework used to Component and strategy Operation Opportunity assess performance Base salary Core element of fixed Usually reviewed annually No maximum base salary n/a remuneration that provides (but may be reviewed more has been set under the the basis to recruit and retain frequently) with any changes Remuneration Policy. talent necessary to deliver effective as follows: To the extent pay increases are the business strategy. • CEO: 1 April awarded, these are considered Reflects individual experience, • CFO: 1 April on a case-by-case basis and skill and scope of responsibility. will generally be based on the The review process considers a factors set out. Takes into account wider range of factors including, but contribution to the Group. not limited to: Where appropriate and merited, the Policy is to • role, experience and position base salaries for each performance; executive director at an upper • average change in quartile level of the relevant broader workforce salary; comparator group. • increases in size and complexity of the Group; and The expected base salaries for • market and competitive the year ended 31 March 2015 factors. are as follows: External benchmark data • CEO: C$960,000 against companies of a similar • CFO: £402,000 size and complexity is also considered. Annual bonus To motivate and reward superior Usually a cash payment. Up to 100% of base salary. Bonus performance condition performance measured against is Group adjusted profit Awards approved by the annual financial targets of before tax. Remuneration Committee the Group. after the year end, based Award of 30% and 65% on performance against of maximum opportunity annual targets. for threshold and target performance, respectively. Subject to a clawback provision Award of 100% of maximum which extends for a period of opportunity for achieving 110% 12 months following payment of target. The threshold level of the bonus. for bonus payments is 90% of target, below which level no bonus is payable. The performance period is one year.

45 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Remuneration Policy table continued

Link to Group objectives Framework used to Component and strategy Operation Opportunity assess performance LTIP To reinforce the alignment Usually an award of shares, but Annually: 125% of base salary These awards will normally of the interests of executive may be settled in another form, for the CEO. vest, subject to continued directors and shareholders. e.g. cash. employment with a Group Annually: 100% of base salary company and any applicable To motivate long-term Awards are made annually to for the CFO. performance and other shareholder value creation. the executive directors. Certain This replaces the MPS scheme conditions, on the later of senior managers who are in To help the Group retain its key which was the long-term the third anniversary of the a position to influence the executive director talent. incentive scheme previously date of award and the date performance of the Group are operated by the Group until the on which the Remuneration also included in the LTIP. current financial year. Committee determines that LTIP awards are subject to the performance and other performance conditions to conditions have been satisfied be met over a three-year (in whole or in part). performance period. Performance conditions will be The achievement of one of the a combination of the following targets will not be dependent financial measures over a upon the others in order for that three-year period: element to be earned. • adjusted EPS growth The LTIP is subject to a (33% weighting); clawback provision which • TSR growth extends for a period of 12 (34% weighting); and months following the vesting • average ROCE of the LTIP. (33% weighting). Each performance condition vests 30% of the maximum opportunity at threshold performance level. Details of thresholds are shown on pages 55 and 56. Threshold performance is determined for each award based on targets derived from the Group long-term business plan, as approved by the Board. Between threshold and maximum, vesting will usually take place on a straight-line basis. In exceptional circumstances, an executive director may receive an award under the LTIP in any financial year of up to 200% of base salary.

46 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Remuneration Policy table continued

Link to Group objectives Framework used to Component and strategy Operation Opportunity assess performance Pension Part of a competitive package The Company may make CEO: the maximum allowable n/a contributions to help the Group retain its key payments into an approved contribution to the Registered executive director talent. pension scheme (up to limit Retirement Savings Plan of pensionable pay) and/or a (“RRSP”) in Canada (C$23,820 salary supplement. for the year ended 31 March 2014; C$24,270 for the Where pension contributions forthcoming year ended exceed relevant limits for a tax 31 March 2015). Amounts free pension accrual, executive for 2016 and 2017 are not directors have the option to available from the Canada receive excess contributions Revenue Agency. as a salary supplement (which is subject to tax and national CFO: 17.5% of base salary. insurance or equivalent The Remuneration Committee contributions). has the right to change the Bonus and other benefits above levels of pension received by executive contributions (percentage and directors are excluded from absolute amount) if it deems it pensionable pay. appropriate. Taxable benefits Part of a competitive package Base salary is supplemented While the Remuneration n/a to help the Group retain its key with a range of benefits based Committee has not set an executive director talent. on the role and individual absolute maximum on the level circumstances. of benefits executive directors may receive, the value of These benefits include, but are benefits is set to a level which not limited to, car allowance, the Committee considers to payments in lieu of pension, life be appropriately positioned, and disability assurance and taking into account relevant healthcare arrangements. market levels based on nature Other benefits may be and location of the role and provided based on individual individual circumstances. circumstances, such as, but not limited to, housing or relocation allowances, travel allowances or other expatriate benefits. Benefits are reviewed by the Remuneration Committee in the context of market practice from time-to-time. Shareholding Share ownership is a key Executive directors are n/a n/a policy element of the Group’s reward expected to build and maintain Policy and is designed to help a significant holding in eOne maintain commitment over the shares, with expected holdings long-term, and to ensure that valued at: the interests of the executive • CEO: 3x times base salary director are aligned with those • CFO: 2x times base salary of shareholders.

47 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Remuneration Policy table continued LTIP Non-executive Chairman and non-executive directors Performance condition Reason for selecting measure The table below sets out the proposed Remuneration Policy for the Adjusted EPS growth Adjusted EPS growth is considered to be an non-executive Chairman and non-executive directors. appropriate long-term measure as it reflects the Element Approach of the Company recognised measure of shareholder earnings. Typical adjustments to reported EPS would be the Non-executive The remuneration of the non-executive Chairman is set add-back of amortisation of acquired intangibles, Chairman fees by the executive directors. Fees are set at a level which and would be consistent with the treatment reflects the skills, knowledge and experience of the adopted by the Company since listing in 2007, and individual, whilst taking into account appropriate market in line with the approach taken by equity analysts data. The fee is set as a fixed annual fee and may be paid and other relevant comparator groups. wholly or partly in cash or Company shares. Fees are ratified by the Board. TSR growth TSR growth (share price growth plus dividends) is a commonly used metric for measuring the Non-executive The executive directors are responsible for deciding non- relative performance of companies. Our proposed director fees executive directors’ fees. Fees are set taking into account approach will directly link the reward of executive several factors including the size and complexity of the directors to that of the absolute return for the business, fees paid to non-executive directors of UK- shareholder, including the setting of a minimum listed companies of a similar size and complexity and the threshold, and allows the Company to be viewed expected time commitment and contribution for the role. on a relative basis by comparing the performance Fees are structured as a basic fee with additional fees of the Company to an appropriate comparator payable for Chairmanship or membership of a Committee Index (for example the FTSE 250). or other additional responsibilities, as appropriate. The fee is set as a fixed annual fee and may be paid wholly Average ROCE Average ROCE provides a measure that or partly in cash or Company shares. Fees are ratified by ensures the executive directors are seeking to the Board. deliver improved returns from the investment decisions being made each year. It therefore complements the adjusted EPS measure (which In setting the Remuneration Policy, the Company reserves the right is income statement-focused) as it ensures that to make any remuneration payments and payments for loss of office the executive directors are also managing the (including exercising any discretions available to it in connection with efficiency of the assets on the consolidated such payments) notwithstanding that they are not in line with the Policy balance sheet which are used to generate the set out above where the terms of the payment were agreed (i) before earnings of the Company. ROCE is a commonly the Policy came into effect or (ii) at a time when the relevant individual used metric to measure return on investment was not a director of the Company and, in the opinion of the Company, and can be easily derived from the audited the payment was not in consideration for the individual becoming a consolidated financial statements each year. director of the Company. For these purposes “payments” includes the Company satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time The Remuneration Committee carefully considers the target ranges the award is granted. to be attached to bonus and long-term incentive awards, taking into account a number of factors which could include future growth The Company may make minor amendments to the Policy set out above expectations, the market environment and the requirement to set (for regulatory, exchange control, tax or administrative purposes or to stretching but achievable targets. take account of a change in legislation) without obtaining shareholder approval for that amendment. The Committee retains the ability to adjust or set different performance measures if events occur (such as a change in strategy, a material In exceptional circumstances, the Company may make share awards acquisition and/or a divestment of a Group business or a change in to non-executive directors to facilitate the recruitment or retention of prevailing market conditions) which cause the Committee to determine individuals that are judged to be important in delivering the Company’s that the measures are no longer appropriate and that an adjustment is strategic goals, the awards being subject to shareholder approval required so that they achieve their original purpose. where appropriate. Awards under the LTIP may be adjusted in the event of a variation of Explanation of chosen performance measures and how targets capital in accordance with the scheme rules. are set Annual bonus Pay policy for other employees The annual bonus is assessed against the Group adjusted profit before The Remuneration Policy for senior management is similar to the Policy tax target determined by the Remuneration Committee, based on the for the executive directors in that salary and benefit packages are linked annual financial plan approved by the Board. This motivates and rewards to performance. Senior management participate in the Group’s LTIP with performance with increasing profit before tax achievement, and is performance measures focused on Group profitability targets to ensure linked to delivery of our strategic goals which are aligned closely to alignment of individual performance with Group performance. The key those of shareholders. principles of the remuneration philosophy are applied consistently across the Group below this level, taking account of seniority and local market

48 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

practice. The Remuneration Policy for all employees is designed to Where necessary, the Company will pay appropriate benefits in line with provide a level of remuneration which enables eOne to attract and retain those provided to other executive directors. Relocation costs and expatriate talented individuals who have the necessary skills and experience to benefits may be paid on a case-by-case basis. The Remuneration support the continued development of the Group. Committee will seek to ensure that no more is paid than is required.

Remuneration Policy for new appointments The maximum level of variable remuneration (excluding buy-out awards) In the case of recruiting or appointing a new executive director, the which may be awarded to a new executive director is 300% of base Remuneration Committee will typically align the remuneration package salary, comprising: with the above Remuneration Policy (and will therefore generally consider base salary, pension, benefits, annual bonus and LTIP awards). • annual bonus 100%; and However, the Remuneration Committee retains the discretion to make • LTIP award 200% (in exceptional circumstances only; a more payments or awards which are outside the Remuneration Policy to typical award would be 100%-125%). facilitate the recruiting of candidates of the appropriate calibre required to implement the Group’s strategy, subject to the principles and limits set Subject to this overall maximum variable remuneration, incentive awards out below. The individual would be expected to move, over time, onto a may be granted within the first 12 months of appointment above the remuneration package that is consistent with the Remuneration Policy normal maximum annual award opportunities. The Remuneration set out in the table on pages 45 to 47. Committee will ensure that such awards are linked to the achievement of appropriate and challenging performance measures and will be forfeited In determining appropriate remuneration, the Remuneration Committee if performance or continued employment conditions are not met. will take into consideration all relevant factors (including the quantum and nature of remuneration) to ensure that arrangements are in the best Any share awards referred to in this section will be granted as far as interests of both eOne and its shareholders. This may, for example, possible under the Company’s existing share plans. If necessary, and include (but is not limited to) the following circumstances: subject to the limits referred to above, in order to facilitate the awards mentioned above, the Committee may rely on exemption 9.4.2. of the • an interim appointment is made to fill an executive director role on Listing Rules which allows for the grant of awards to facilitate the a short-term basis; recruitment of a director, in certain circumstances. • exceptional circumstances require that the non-executive Chairman or a non-executive director takes on an executive function on a Where a position is filled internally, any ongoing remuneration short-term basis; obligations or outstanding variable pay elements shall be allowed to • an executive director is recruited at a time in the year when it would continue according to the original terms. be inappropriate to provide a bonus or long-term incentive award for that year as there would not be sufficient time to assess Fees payable to a newly-appointed non-executive Chairman or performance (subject to the limit on variable remuneration set out non-executive director will be in line with the fee Policy in place at the below, the quantum in respect of the months employed during the time of appointment, subject to any deviation in policy permitted under year may be transferred to the subsequent year so that reward is Listing Rule 9.4.2. provided on a fair and appropriate basis); • the executive director received benefits at his/her previous Service contracts employer which the Committee considers it appropriate to offer; and Effective term Notice period • “buy-out” of previous employer benefits. Darren Throop 24 months No notice by the Company, The Committee may also alter the performance measures, performance 6 months by the executive director period and vesting period of the annual bonus or LTIP (subject to the rules Giles Willits 12 months 12 months by the Company, of the scheme) if the Committee determines that the circumstances 6 months by the executive director of the recruitment merit such alteration in these situations. If such circumstances were to arise, the rationale would be clearly explained. Darren Throop If dismissed without cause he is entitled to a lump sum equal to 24 The Remuneration Committee may make an award in respect of months’ compensation (comprising base salary, pension and benefits). recruitment to buy-out remuneration arrangements forfeited on leaving Benefits provided in connection with termination of employment may a previous employer. In doing so the Remuneration Committee will take also include, but are not limited to, outplacement and legal fees. account of relevant factors regarding the forfeited arrangements which may include any performance conditions attached to awards forfeited This is in line with market practice in North America. The Remuneration (and the likelihood of meeting those conditions), the time over which Committee has carefully considered this aspect of the contract and they would have vested and the form of the awards (e.g. cash or shares). concluded it is necessary for eOne to remain competitive in the North It will generally seek to structure buy-out awards on a comparable basis American market, a key consideration for the Group, particularly as this is to remuneration arrangements forfeited. These payments or awards are where the CEO is based. In addition, the Company has sought the views excluded from the maximum level of variable remuneration referred to of key shareholders on the principles of its Remuneration Policy and below, however, the Remuneration Committee’s intention is that the believes that the Policy is in the best interests of shareholders, generally. value awarded would be no higher than the expected value of the forfeited arrangements. Where considered appropriate, buy-out awards will be subject to forfeiture or clawback on early departure.

49 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Service contracts continued Giles Willits If dismissed without cause he is entitled to a lump sum equal to 12 months’ compensation (comprising base salary, pension and benefits). Benefits provided in connection with termination of employment may also include, but are not limited to, outplacement and legal fees.

Non-executive directors The non-executive directors, including the non-executive Chairman, serve under letters of appointment which are subject to the Articles of the Company. Most recent letter Notice from Notice of appointment the Company from director Allan Leighton 31 March 2014 6 months 6 months Clare Copeland 21 May 2010 6 months 6 months Bob Allan 21 May 2010 6 months 6 months Ronald Atkey 12 November 2010 6 months 6 months James Corsellis 21 May 2010 6 months 6 months Garth Girvan 21 May 2010 6 months 6 months Mark Opzoomer 21 May 2010 6 months 6 months Linda Robinson 31 March 2014 1 month 1 month

Payments for loss of office

Obligation Policy Base salary, pension Refer to “Service contracts” on page 49 and above for further details. and benefits Annual bonus The Remuneration Committee has the discretion to determine appropriate bonus amounts taking into consideration the circumstances in which an executive director leaves. Typically for “good leavers”, bonus amounts (as estimated by the Remuneration Committee) will be pro-rated for time in service to termination and will be, subject to performance, paid at the usual time. “Good leavers” typically include leavers due to death, illness, injury, disability, redundancy, retirement with the consent of the Company or any other reason as determined by the Remuneration Committee. “Bad leavers” will not receive any annual bonus payments. The bonus will be subject to a clawback provision which extends for a period of 12 months following payment of the bonus. This will entitle the Company, on the recommendation of the Board, to clawback up to 100% of the bonus payment where there is evidence of personal misconduct on behalf of the executive director which results in a misstatement of the Group’s financial results which subsequently materially reduces the Company’s share price or results in significant reputational damage to the Group. LTIP Options awarded under the LTIP will normally lapse immediately upon an executive director ceasing to be employed by or to hold office with a Group company. However, if an executive director is deemed by the Remuneration Committee to be a “good leaver” and has completed at least 12 months’ service from the date of grant, the LTIP award will vest on the date when it would have vested if he had not so ceased to be an employee or director of a Group company, subject to: (i) the satisfaction of any applicable performance conditions measured over the original performance period; (ii) the satisfaction of any other relevant conditions; (iii) the operation of any malus or clawback provisions; and (iv) pro-rating to reflect the reduced period of time between grant and the executive director’s cessation of employment as a proportion of the normal vesting period. “Good leavers” typically include leavers due to death, illness, injury, disability, redundancy, retirement with the consent of the Company or any other reason as determined by the Remuneration Committee. If an executive director ceases to be an employee or director of a Group company for a “good leaver” reason having completed at least 12 months’ service from the date of grant, the Remuneration Committee may decide that his LTIP award will vest early when he leaves, subject to an assessment of performance against the relevant conditions for that shortened period. To the extent that LTIP awards vest in accordance with the above provisions, they may be exercised for a period of six months following vesting and will otherwise lapse at the end of that period. To the extent that a participant who leaves for a “good leaver” reason held vested options, they may be exercised for a period of six months following the date of cessation and will otherwise lapse at the end of that period. LTIP awards will be subject to the operation of clawback and malus provisions. The Remuneration Committee will have the ability to clawback up to 50% of vested LTIP awards within 12 months of the vesting date where there is evidence of personal misconduct on behalf of the executive director which results in a misstatement of the Group’s financial results which subsequently materially reduces the Company’s share price or results in significant reputational damage to the Group. The clawback or malus may be satisfied by way of the vesting of any existing share options/awards, or the number of shares under any vested but unexercised option. In addition, the employee (or former employee) may be required to make a cash payment to the Company. Should an event as set out above occur during the vesting period of an LTIP award, the Remuneration Committee shall have the discretion to reduce the proportion of the award that vests by up to 100% regardless of the extent to which the performance conditions attaching to the award are met.

50 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Payments for loss of office continued Assumptions used in determining the level of pay-out under the given It is the Company’s policy to set notice periods for executive and scenarios are as follows: non-executive directors to be in line with the recommendations of the Scenario Description Code. In exceptional circumstances, where notice periods of more than a year are required, these are considered by the Board on a case-by- Minimum Fixed elements of remuneration only – comprising base case basis. performance salary, benefits and pension. On-target Total fixed pay as above, plus: Under the terms of their engagement, the notice period to be given by performance the non-executive directors on the Company is not more than six Assumes 65% of maximum pay-out under the annual months and the Company is obliged to give notice of not more than six bonus scheme (i.e. 65% of base salary) based on the months, as set out above. Group achieving budgeted adjusted profit before tax. Assumes 65% of maximum pay-out under the LTIP based Discretion is retained to terminate with or without due notice or paying on the Group achieving the median point between the any payment in lieu of notice dependent on what is considered to be in threshold performance and maximum performance for the best interests of the Company in the particular circumstances. The each performance condition. This equates to 81% of base Committee reserves the right to make additional exit payments where salary for the CEO and 65% of base salary for the CFO. such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by Maximum Total fixed pay as above, plus: performance way of settlement or compromise of any claim arising in connection with Assumes 100% of maximum pay-out under the annual the termination of a director’s office or employment. bonus scheme (i.e. 100% of base salary) based on the Group achieving 110% or more of budgeted adjusted Illustrations of application of the Remuneration Policy profit before tax. The chart below seeks to demonstrate how pay varies with performance for the executive directors based on our stated Remuneration Policy. Assumes 100% of maximum pay-out under the LTIP based on the Group achieving the maximum performance for Element Description each performance condition. This equates to 125% of base Fixed Total amount of base salary, pension and benefits. salary for the CEO and 100% of base salary for the CFO. Annual Remuneration where performance measures or targets variable relate to one financial year (i.e. annual bonus payments). As required by the regulations, the scenarios do not include any share Maximum annual bonus opportunity is 100% of base price growth assumptions or take into account any dividends that may salary for executive directors. be paid. Long-term Remuneration where performance measures or targets variable relate to more than one financial year (i.e. LTIP payments). Base salary is the latest known salary (i.e. the salary effective from 1 April Maximum LTIP opportunity is 125% of base salary for the 2014) and the value for pension and benefits has been assumed to be CEO and 100% of base salary for the CFO. equivalent to that included in the single-figure calculation on page 52. Wider workforce remuneration When determining the remuneration arrangements for executive directors, the Remuneration Committee takes into consideration, as a £000 Darren Throop £000 Giles Willits 2,000 2,000 matter of course, the pay and conditions of employees throughout the 38% Group. In particular, the Remuneration Committee is kept informed on:

1,500 1,500 32% • salary increase for the general employee population; 31% • overall spend on annual bonus; and 30% 1,000 1,000 • participation levels in the annual bonus and share plans. 27% 26% 31% 26% Although no consultation with employees takes place in relation to 500 100% 41% 32% 500 100% 48% 38% determining the Remuneration Policy for executive directors, the Group has various ways of engaging employees collectively, as teams and 0 0 one-to-one. Minimum On-target Maximum Minimum On-target Maximum Long-term variable Long-term variable Consideration of shareholder views Annual variable Annual variable The Company engages in regular dialogue with key shareholders to Fixed Fixed discuss and seek feedback on its Remuneration Policy and governance matters and, in particular, the Company discusses any significant changes to Policy or measures used to assess performance.

During the year, the Company sought approval from shareholders on the adoption of the new LTIP. The Company will continue to actively engage with and seek to incorporate the views of shareholders in any major changes to executive director Remuneration Policy.

51 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Annual Report on Remuneration Single total figure of remuneration The information in this section has been audited. This section of the Directors’ Remuneration Report contains details of how the Company’s Remuneration Policy for directors was implemented Executive directors during the year ended 31 March 2014. The tables below set out the single total figure of remuneration and breakdown for each executive director earned in the years ended 31 Remuneration philosophy March 2014 and 2013. Figures provided have been calculated in The Company’s proposed Remuneration Policy is designed to provide accordance with the new remuneration disclosure regulations (The the executive directors with a level of remuneration which enables eOne Large and Medium-sized Companies and Groups (Accounts and to attract and retain talented individuals who have the necessary skills Reports) (Amendment) Regulations 2013). and experience to support the continued development of the Group and motivate them to deliver its strategy. The Policy intends to incentivise Year ended 31 March 2014 management to provide long-term value growth for the Company’s Taxable Annual Long-term shareholders whilst taking account of internal and external risks. Salary benefits bonus incentives5 Pensions Total £000 £000 £000 £000 £000 £000 The package has been designed based on the following key principles: Darren Throop1,2 594 5 507 9,149 14 10,269 Principle Explanation Patrice Theroux1,3 534 22 451 8,242 14 9,263 4 Reward package to To ensure that the Company is in a position to attract Giles Willits 390 47 329 5,748 40 6,554 attract and retain and retain the best executive directors, the total 1 Canadian director remuneration has been translated at the C$:£ rate of 1.6767. the best talent remuneration package will target to pay at an upper 2 Darren Throop’s salary includes C$63,000, or £38,000, in respect of retrospective quartile level, based on meeting relevant performance salary adjustments from September 2012 to March 2013. Consequently, the annual criteria. bonus amount in the table above of £507,000 includes a retrospective payment of £38,000 at the prior year bonus rate of 100%. Relevant The principal external comparator group (which is 3 Patrice Theroux resigned as an executive director on 31 March 2014. comparator group used for reference purposes only) is made up of 4 Taxable benefits for Giles Willits include £28,000 of payment in lieu of pension. constituents of the FTSE 250 Index (as the Company 5 Amounts included as long-term incentives relate to the out-performance incentive plan and the MPS which vested during the year. See page 54 for further details. is a constituent member of the Index), with reference also made to UK and North American sector specific Year ended 31 March 2013 companies and other Canadian listed companies (against which the Company competes to attract and Taxable Annual Long-term retain executive director talent). Salary benefits bonus incentives Pensions Total £000 £000 £000 £000 £000 £000 Reward assessed The remuneration package provided to the executive Darren Throop1 444 5 444 – 16 909 on a total directors is reviewed annually on a total compensation Patrice Theroux1 410 17 410 – 1 838 compensation basis (i.e. single elements of the package are not Giles Willits 297 19 297 – 50 663 basis reviewed in isolation). Packages are reviewed in the context of individual and Company performance, 1 Canadian director remuneration has been translated at the C$:£ rate of 1.5818. internal relativities, criticality of the individual to the business, experience and the scarcity or otherwise Taxable benefits consist of costs relating to the provision of a motor of executive directors with the relevant skill set. vehicle, private medical insurance, health insurance, dental insurance and income protection. Pay for performance The Remuneration Committee consistently aims to set stretching targets and ensure that maximum Non-executive directors or near maximum pay-outs are only delivered for The tables on page 53 set out the single total figure of remuneration achievement against these. and breakdown for each non-executive director earned in the years Incentive target When designing the incentive packages for executive ended 31 March 2014 and 2013. measures linked to directors the Board have considered performance business strategy measures and targets that support delivery of the Company’s strategic objectives. Alignment to The package is designed to align the interests of shareholder the executive directors with those of shareholders, interests with an appropriate proportion of total remuneration dependent upon sustained long-term performance. Share ownership is a key element of the Company’s reward Policy. It is designed to help maintain commitment over the long-term and to ensure that the interests of the executive director are aligned with those of shareholders.

52 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Single total figure of remuneration continued Salary and fees Year ended 31 March 2014 The table below sets out the base salaries of the executive directors from 1 April 2013 together with the increase from the prior year. Taxable Fees benefits Total Base salary from £000 £000 £000 1 April 2013 Increase Allan Leighton1 1–1 (per annum) (per annum) Clare Copeland2 94 – 94 Darren Throop C$932,000 Increase of C$229,000 Bob Allan2 60 – 60 from C$703,000 Ronald Atkey2 81 – 81 Patrice Theroux C$896,144 Increase of C$247,244 James Corsellis 133 – 133 from C$648,900 Garth Girvan2 51 – 51 Giles Willits £390,000 Increase of £93,000 Mark Opzoomer 46 – 46 from £297,000 Linda Robinson1 ––– 3 9–9 Mark Watts As set out above, each of the executive director’s base salaries has 1 Appointed on 31 March 2014. Allan Leighton’s and Linda Robinson’s fees per annum increased by over 30% from the prior year. This represents the transition for the current year are £200,000 and C$90,000, respectively. of the Company’s Remuneration Policy from a private equity-style 2 Canadian director remuneration has been translated at the C$:£ rate of 1.6767. package to that representative of a premium listed FTSE 250 company. 3 Resigned 28 June 2013. The new Policy is also set in the context of the acquisition of Alliance in early 2013 which has significantly increased the size and complexity of Year ended 31 March 2013 the Group. Taxable Fees benefits Total As part of the step-up to the premium listing, fees for non-executive £000 £000 £000 directors increased with effect from 1 July 2013, as follows: Clare Copeland1 57 – 57 1 Fee to Fee from Bob Allan 54 – 54 30 June 2013 1 July 2013 Increase Ronald Atkey1 47 – 47 (per annum) (per annum) (per annum) James Corsellis 60 – 60 Allan Leighton1 n/a £200,000 n/a Garth Girvan1 47 – 47 Clare Copeland2 C$90,000 C$112,500 C$22,500 Mark Opzoomer 35 – 35 Bob Allan3 C$85,000 C$105,000 C$20,000 Robert Lantos1,2 40 – 40 Ronald Atkey4 C$75,000 C$90,000 C$15,000 Mark Watts 35 – 35 James Corsellis5,6 £60,000 £120,000 £60,000 1 Canadian director remuneration has been translated at the C$:£ rate of 1.5818. Garth Girvan C$75,000 C$90,000 C$15,000 2 Resigned 1 February 2013. Mark Opzoomer £35,000 £50,000 £15,000 Linda Robinson1 n/a C$90,000 n/a Additional details on variable pay in single figure table Mark Watts £35,000 n/a n/a The information in this section has been audited. 1 Fees for Allan Leighton and Linda Robinson are from 31 March 2014, being the date The Remuneration Policy is designed to provide a level of remuneration they were appointed to the Board. 2 For being the Senior Independent Director, Clare Copeland was paid C$10,000 per which enables eOne to attract and retain talented individuals who annum to 30 June 2013 and C$15,000 per annum from 1 July 2013. As Chairman of have the necessary skills and experience to support the continued the Remuneration Committee, he was paid C$5,000 per annum to 30 June 2013 and development of the Group and motivate them to deliver its strategy. C$7,500 per annum from 1 July 2013. His fees exclude a one-off fee of C$50,000 as member of the Alliance sub-committee. Including this amount, the total fee earned in The Policy intends to incentivise management to provide long-term the year ended 31 March 2014 was C$157,000. 3 As Chairman of the Audit Committee, Bob Allan was paid C$10,000 per annum to value growth for our shareholders whilst taking account of internal 30 June 2013 and C$15,000 per annum from 1 July 2013. and external risks. The operation of an annual bonus plan with targets 4 Fees exclude a one-off fee of C$50,000 as member of the Alliance sub-committee. reflecting core financial measures linked to the Group’s growth strategy Including this amount, the total fee earned in the year ended 31 March 2014 together with the LTIP (which provides for awards of nil cost shares to was C$136,000. be earned over a three-year period, based on meeting stretching targets 5 On 31 March 2014, James Corsellis stepped-down from being non-executive linked to financial metrics and the creation of shareholder value) help to Chairman and as such his fee reduced to £50,000. 6 Fees exclude a one-off fee of £28,000 as member of the Alliance sub-committee. achieve this. Including this amount, the total fee earned in the year ended 31 March 2014 was £133,000. The main components of the Remuneration Policy, and how they are linked to and support the Group’s business strategy, are summarised in Canadian dollar amounts in the above table have been translated into each of the following sections. pounds sterling amounts in the single figure total remuneration table.

53 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Additional details on variable pay in single figure table continued Annual bonus plan awards In respect of the current year, the executive directors’ performance was carefully reviewed by the Remuneration Committee. The performance against the annual bonus plan measures in relation to the executive directors is set out below.

Annual bonus value Threshold Maximum for threshold performance performance and maximum Annual bonus value achieved required required performance Actual Darren Patrice Giles Weighting (90% of target) (110% of target) (% of salary) performance Throop1 Theroux1 Willits All executive directors Group adjusted profit before tax 100% £66.4m £81.2m 30%–100% £77.9m 84.4% 84.4% 84.4% Total £000 £469 £451 £329 1 Canadian executive director bonuses have been translated at the C$:£ rate of 1.6767.

If actual performance is less than 110% but greater than 90% of the target then the bonus is calculated based on a straight-line basis between the full 100% bonus and 30% of the maximum in relation to the measure. As such, on-target performance would earn the executive director 65% of the maximum bonus award.

The bonus is subject to a clawback provision which extends for a period of 12 months following payment of the bonus. No part of these bonuses was deferred.

Out-performance plan From March 2007, the Group had in place an out-performance incentive plan for the benefit of the executive directors. Under this plan, a total amount of £5.0 million was payable to the executive directors, conditional on the Company’s share price achieving a 180-day volume-weighted average price of £2.25 per share. The conditions were met on 6 February 2014 and this amount was paid out during the current year, having been fully provided for as at 31 March 2013 (see Note 26 to the consolidated financial statements).

Amount paid £000 Darren Throop 1,667 Patrice Theroux 1,667 Giles Willits 1,667

MPS In 2010, the executive directors subscribed for shares in a subsidiary of the Company that were exchangeable for common shares of an equivalent value upon satisfaction of certain conditions. The exchange for common shares under the MPS was conditional, amongst other things, on the performance of the Company’s share price exceeding a compound annual growth rate of at least 12.5% in the three-year period ending 31 March 2013. This condition was achieved and therefore during the year the executive directors received common shares in the Company as follows:

Volume-weighted average share price over the 30 dealing days immediately Monetary preceding the equivalent of the Number of award date MPS award shares awarded Pence £000 Darren Throop 3,970,227 188.5 7,482 Patrice Theroux 3,488,987 188.5 6,575 Giles Willits 2,165,578 188.5 4,081

54 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Long-term incentives awarded during the financial year The information in this section has been audited.

The table below sets out the details of the LTIP awards granted in the year ended 31 March 2014 where vesting will be determined according to the achievement of performance conditions that will be tested in future reporting periods.

Percentage of Maximum Face value award vesting percentage of LTIP awarded (% of of award2 at threshold face value that Award type base salary1) £000 performance could vest Performance period Performance conditions Darren Throop 125% 737 Adjusted EPS LTIP – first annual 1 April 2013 to Patrice Theroux 100% 567 30% 100% growth, TSR growth cycle of awards 31 March 2016 Giles Willits 100% 390 and average ROCE 1 The LTIP award has been calculated based on the salaries of the executive directors as at 1 April 2013. For Darren Throop and Patrice Theroux, Canadian dollar base salaries of C$932,000 and C$896,000 respectively were converted to pounds sterling at the C$:£ rate of 1.5797. 2 Maximum number of shares multiplied by 186.1 pence (being the volume-weighted average share price over the three dealing days immediately preceding the award date of 1 July 2013).

These awards will normally vest, subject to continued employment with a Group company and any applicable performance and other conditions, on the later of the third anniversary of the date of award and the date on which the Remuneration Committee determines that the performance and other conditions have been satisfied (in whole or in part). Detailed explanations of each performance condition are set out below.

Adjusted EPS growth Adjusted EPS is calculated before one-off operating and finance items, share-based payment charges and amortisation of acquired intangibles (net of any related tax effects) and is as disclosed in the relevant Annual Report and Accounts. The measure is calculated after adjusting the weighted average number of shares in issue for a year to assume conversion of all potentially dilutive shares.

Vesting of 33% of the LTIP award for each executive director will be determined by an assessment of the annualised adjusted EPS growth from 1 April 2013 to 31 March 2016 as follows:

Annualised adjusted Vesting of As % of total EPS growth this portion LTIP award Threshold 10% per annum 30% 9.9% Maximum 15% per annum 100% 33.0%

The growth rate will be calculated based on adjusted EPS as disclosed in the relevant Annual Report and Accounts (subject to such adjustments as the Board may determine from time-to-time). As set out in Note 14 to the consolidated financial statements, adjusted EPS at 31 March 2013 (the denominator in any growth rate calculations) was 15.9 pence.

Awards will vest on a straight-line basis for performance between threshold and maximum performance. No vesting of this portion will occur if performance is below threshold.

TSR growth The comparator group comprises those companies constituting the FTSE 250 Index on 1 April 2013 (excluding investment trusts).

Vesting of 34% of the LTIP award for each executive director will be determined by ranking the Company and each member of the comparator group by TSR and the extent to which the award vests will be determined as follows:

Rank of the Company’s TSR Vesting of As % of total within the comparator group this portion LTIP award Threshold Median 30% 10.2% Maximum Upper quartile 100% 34.0%

For these purposes, a company with a more negative TSR will rank lower than a company with a less negative TSR. If any member of the comparator group ceases to exist, its shares cease to be listed on a recognised stock exchange, or otherwise is so changed as to make it, in the opinion of the Board, unsuitable as a member of the comparator group, the Board will exclude that company unless it decides to: (i) in the event of a takeover of that company, replace that company with the acquiring company; (ii) include a substitute for that company; (iii) track the future performance of that company by reference to an Index; or (iv) treat the company in any other way it decides is appropriate.

55 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Long-term incentives awarded during the financial year continued Awards will vest on a straight-line basis for performance between median and upper quartile performance. No vesting of this portion will occur if either (i) performance is below “median” or (ii) the Company’s TSR is less than 5%.

Average ROCE ROCE is calculated by dividing adjusted net operating profit charges (“adjusted NOP”) by net operating assets, where adjusted NOP is calculated before one-off operating and finance items, share-based payment charges and amortisation of acquired intangibles (net of any related tax effects) and is stated before adjusted net finance costs (after tax). Adjusted NOP can be derived from the audited consolidated financial statements.

Net operating assets means, for any financial year, the average of opening and closing total assets as shown in the audited consolidated financial statements less average current liabilities (excluding current debt balances). The calculation will also take into account any of the adjustments which the Committee determine are required to ensure it is consistent with the calculation of adjusted NOP.

Vesting of 33% of the LTIP award will be determined by an assessment of the average ROCE over the three consecutive years ending 31 March 2016 as follows:

Average Vesting of As % of total ROCE this portion LTIP award Threshold 10.0% 30% 9.9% Maximum 11.5% 100% 33.0%

Awards will vest on a straight-line basis for performance between threshold and maximum performance. No vesting of this portion will occur if performance is below threshold.

Pension entitlements The information in this section has been audited.

The Company does not operate any defined benefit retirement plans. In the year ended 31 March 2014, Darren Throop and Patrice Theroux received pension contributions up to the maximum permitted for an RRSP in Canada (C$23,820 for the current financial year). Giles Willits currently receives pension contributions and supplements up to a maximum of 17.5% of base salary. The Remuneration Committee has the authority to change the above levels of pension contributions (percentage and absolute amount) if it deems it appropriate.

Payments to past directors The information in this section has been audited.

There were no payments made to past directors during the year in respect of services provided to the Company as a director.

Payments for loss of office The information in this section has been audited.

There were no payments for loss of office during the year.

Statement of directors’ shareholding The information in this section has been audited.

Unvested share options Shares (without performance measures) (with performance measures) 31 March 2014 31 March 2013 31 March 2014 31 March 2013 Number Number Number Number Darren Throop 8,400,000 5,965,562 396,305 – Patrice Theroux1 3,598,188 1,609,201 304,685 – Giles Willits 3,061,322 1,645,744 209,572 – 1 Patrice Theroux resigned as an executive director on 31 March 2014.

56 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Statement of directors’ shareholding continued To further promote alignment with the interests of our shareholders, executive directors are expected to build up and maintain significant holdings of eOne shares as follows:

• CEO 3x times base salary • CFO 2x times base salary

The table below summarises the executive directors’ interests in shares and the extent to which the shareholding expectation applicable to executive directors has been achieved as at 31 March 2014.

Value of Beneficial beneficial Value of shares interests interests to be held1 in shares2 in shares3 Shareholding £000 Number £000 expectation met? Darren Throop £1,519 8,400,000 27,720 Yes Giles Willits £780 3,061,322 10,102 Yes 1 This has been calculated based on the salaries of the executive directors as at 1 April 2013. For Darren Throop, his Canadian dollar salary has been translated at the 31 March 2014 C$:£ rate of 1.8402. 2 Beneficial interests include shares held directly or indirectly by connected persons. 3 Based on the closing share price at 31 March 2014 of £3.30.

At 31 March 2014, the shareholding expectation has been achieved for both executive directors. There is no shareholding expectation for non- executive directors. Notwithstanding James Corsellis’ relationship with Marwyn as set out on page 36, no non-executive director had any beneficial interest in shares at 31 March 2014.

Performance and pay The following graph shows the Company’s performance, measured by TSR, compared with the performance of the FTSE All-Share Index also measured by TSR, since IPO in March 2007. The FTSE All-Share Index has been used as a comparator up until September 2013 as up to that date the Company’s shares were on the standard listing segment of the London Stock Exchange.

350

300

250

200

150

100 Index (March 07 equals 100) (March Index 50

0 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14

eOne FTSE All-Share

57 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Performance and pay continued The following graph shows the Company’s performance, measured by TSR, compared with the performance of the FTSE 250 Index also measured by TSR, since 31 March 2013. The FTSE 250 Index has been used as a comparator from 1 April 2013 as that is the start of the three-year performance period of the LTIP and the Company became a constituent member of the FTSE UK Index Series on 23 September 2013.

200

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Index (March 13 equals 100) (March Index 100

80 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14

eOne FTSE 250

The table below shows the single figure total remuneration and the levels of pay-out under the annual bonus plan for the CEO over the past five years. As the LTIP is new in the current financial year, no vesting percentage can be provided. Additionally, the MPS arrangements were such that there was no theoretical maximum vesting percentage. Instead, the historical vesting percentage of the now closed Executive Share Plan (“ESP”) has been provided.

2010 2011 2012 2013 2014 CEO single figure of total remuneration (£000)1 1,718 1,441 899 909 10,269 Annual bonus pay-out % against maximum (%) 100.0% 100.0% 100.0% 100.0% 84.4% ESP vesting rates against maximum opportunity (%) 66.0% 66.0% n/a n/a n/a 1 In 2011 and 2010, awards vested under the now closed ESP. Therefore the figures for 2011 and 2010 have been restated to include the value of the vested share options, being the number of options vested multiplied by the share price on the vesting date.

58 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Percentage increase in the CEO’s remuneration The table below compares the percentage increase in the CEO’s pay (salary, taxable benefits and annual bonus) with the average for the employees of the Group taken as a whole (excluding amounts for the CEO).

2014 2013 £000 £000 % change CEO1 Salary 594 444 +34% Taxable benefits 5 5 – Annual bonus 507 444 +14% Employees of the Group taken as a whole Salary 46 44 +5% Taxable benefits 6 4 +50% Annual bonus 3 3 – 1 Based on the single total figure of remuneration table on page 52.

Relative importance of spend on pay The table below sets out the relative importance of spend on pay in the years ended 31 March 2014 and 2013.

Remuneration paid to or receivable by Total all employees investment Dividend of the Group in content Year ended 31 March 2014 £2.9m £74.5m £271.2m Year ended 31 March 2013 n/a £61.0m £175.0m Percentage change n/a +22% +55%

The directors have declared a dividend in respect of the year ended 31 March 2014. As this is an inaugural dividend, no change from the prior year can be disclosed.

Total investment in content represents the total cash outflow relating to investment in acquired content rights (2014: £199.4 million; 2013: £101.6 million) and investment in productions, net of grants received (2014: £71.8 million; 2013 £73.4 million), as set out in the consolidated cash flow statement on page 72. This metric has been included in the table above due to its size and strategic importance to the Group.

Terms of reference and evaluation The Remuneration Committee is responsible for overseeing the Policy regarding executive remuneration and approving the remuneration packages for the Group’s executive directors and senior managers over agreed thresholds and its terms of reference include:

• the framework or broad policy regarding executive director remuneration and individual remuneration and incentive packages; • the participation in any discretionary employee share schemes operated by the Company; • targets for any performance-related payments; • the participation in any discretionary incentive schemes and bonus arrangements operated by the Company; • the policy for and scope of any pension arrangements; • the policy for and scope of any termination payments and the severance terms; and • the provision of benefits.

The Remuneration Committee is also responsible for recommending and monitoring the level and structure of senior management remuneration and also determines the issue and terms of all share schemes operated by the Company for the benefit of certain Group employees. In addition, the Remuneration Committee will review, at least annually, a succession plan, prepared by the Company that sets out details in relation to succession planning for executive directors and senior management in order to consider an appropriate remuneration framework to fit with the succession plan.

The Committee keeps its terms of reference under review and makes recommendations for changes to the Board. The full terms of reference are available on the Company’s website. An evaluation questionnaire has been developed for the Committee and these are completed annually by Committee members and collated as input to a performance discussion at the relevant Committee meeting.

The executive directors determine the remuneration of the non-executive directors with the support of external professional advice, if required, and ratification by the Board. No director participates in any discussion regarding his or her own remuneration.

59 ENTERTAINMENT ONE LTD. Directors’ Remuneration Report continued

Committee membership During the year, the Remuneration Committee comprised Clare Copeland (Chairman) with James Corsellis and Garth Girvan as the other non- executive members. The CEO (Darren Throop) and CFO (Giles Willits) are invited to attend Remuneration Committee meetings but do not participate in decisions. These attendees were present when the Remuneration Committee considered matters relating to the executive directors’ remuneration for the year ended 31 March 2014.

Meetings The Committee met four times during the year and all Committee members attended each meeting.

The Committee’s activities for the year ended 31 March 2014 have included:

Date Agenda items

May 2013 • Approval of executive director bonuses for the year ended 31 March 2013 • Approval (subject to Board approval and shareholder approval for the LTIP) of proposed changes to executive director remuneration, including remuneration objectives, principles, policy recommendations and the LTIP • Approval of executive director bonus targets for the year ended 31 March 2014 • Approval of Alliance Committee payments • Terms of reference

July 2013 • Non-executive director fees • Senior management appointments • Share option awards under the LTIP

September 2013 • Senior management bonus plan • Performance conditions for LTIP awards made to senior management • 2014 Remuneration Report, including the Company’s Remuneration Policy • Succession planning

February 2014 • Approval of LTIP awards made to senior management

The Remuneration Committee adopts the principles of good governance as set out in the Code and complies with the Listing Rules of the Financial Conduct Authority and Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

Advisers to the Remuneration Committee During the year, Deloitte LLP (“Deloitte”) has provided advice to the Committee on executive director remuneration and remuneration benchmarking. During the year, the Group paid £51,000 to Deloitte for this service. Deloitte is a member of the Remuneration Consultants’ Group and, as such, voluntarily operates under the Code of Conduct in relation to executive director remuneration consulting in the UK. The Committee is satisfied that the advice received during the year from Deloitte, who also act as auditor to the Group, was objective and independent.

Shareholder context The table below shows the advisory vote on the 2013 Remuneration Report at the AGM on 28 June 2013:

Votes for % Votes against % Votes withheld % 2013 Remuneration Report 390,691,835 98.0% 7,678,794 1.9% 379,000 0.1%

The table above includes 204,891,366 votes in respect of the Company’s preferred variable voting shares which are discussed further in Note 30 to the consolidated financial statements.

60 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Nomination Committee Report

Committee membership During the year, the Nomination Committee comprised Clare Copeland (Chairman) with James Corsellis and Ronald Atkey as the other non-executive members. Board composition The Committee keeps the membership of the Board under review to ensure that it has the required combination of skills, knowledge and Clare Copeland experience. The Board fully appreciates the benefits of diversity and Nomination Committee Chairman is committed to equal opportunities for all. During the year, the Company appointed a new non-executive Chairman and a new non-executive director. In accordance with the Committee’s terms of reference, the The Chair of the Nomination Committee’s appointment of Allan Leighton as non-executive Chairman was Annual Statement considered by the Board; given the proximity of the two appointments, the appointment of Linda Robinson was also dealt with by the Board. Dear Shareholders Whilst, because of the particular circumstances and timing of the appointments, these roles were not advertised externally, an I am pleased to present the Nomination Committee Report for 2014 evaluation against formal criteria was carried out. which describes our work during the past year. The Committee carried out a formal review of its composition, size and The performance of the Group is dependent on its ability to attract, structure including criteria for assessing the skills, knowledge and recruit and retain quality staff in a highly competitive labour market experience of individual directors as well as diversity, including gender, and succession planning is an important contributor to the long-term and the particular requirements of the Board as set out in the success of the business. Company’s Articles of Amalgamation. Succession planning The Nomination Committee carefully reviews succession plans for the There is a detailed succession plan which is reviewed by the Committee executive directors and senior management, as well as evaluating the on an annual basis. In the plan, all senior posts are graded according size, structure, composition and diversity of the Board. to the impact and likelihood of the post-holder leaving the Company. Where possible, suitable internal successors are identified together The Committee has evaluated the Board during the year and is content with the training and experience required by the potential successor to that the Board’s size, structure, composition and diversity is appropriate take over the post. Where no immediate successor is identified the plan for the specific circumstances of the Group. includes details of interim arrangements and staff development Clare Copeland schemes necessary to progress internal candidates, as well as Nomination Committee Chairman highlighting roles where external successors may be required. 19 May 2014 Board and Committee evaluation The Board has not undertaken an external evaluation, but plans to do so in line with the requirements of the Code. Meetings The Committee met twice during the year and all Committee members attended each meeting. The following table lists the standing agenda items which have been dealt with by the Committee. Date Agenda items September Agreement of succession planning process: 2013 • Executive directors • Non-executive directors

March • Review of Board structure, size and composition 2013 • Succession planning outputs • Committee self-evaluation • Terms of reference review

Terms of reference and evaluation The Committee keeps its terms of reference under review and makes recommendations for changes to the Board. The full terms of reference are available on the Company’s website.

An evaluation questionnaire has been developed for the Committee and these are completed annually by Committee members and collated as input to a performance discussion at the relevant Committee meeting. 61 ENTERTAINMENT ONE LTD. Directors’ Report : Additional Information

The directors present their report and audited consolidated financial Directors statements for the year ended 31 March 2014. All directors served throughout the year under review, except Patrice Theroux who resigned on 31 March 2014 and Mark Watts who Principal activities resigned on 28 June 2013, and Allan Leighton and Linda Robinson who Entertainment One Ltd. is a leading independent entertainment group were appointed on 31 March 2014 as non-executive Chairman and focused on the acquisition, production and distribution of film and non-executive director, respectively. Details for all present directors are television content rights across all media throughout the world. listed, together with their biographical details, on pages 32 and 33. The Company has agreed to indemnify the directors as permitted by law Strategic Report against liabilities they may incur in the execution of their duties as The Strategic Report on pages 1 to 31 sets out a comprehensive review directors of the Company. The Company may, by ordinary resolution, of the development and performance of the business for the year ended appoint or remove a director to the Board. The responsibilities of the 31 March 2014. directors are detailed in the Corporate Governance section on pages 32 to 64. Results and dividends During the year the Group made a profit after tax of £19.7 million Directors’ interests (2013: loss after tax of £1.1 million). The Company did not pay an interim The beneficial interests of the directors and their families in the dividend during the year ended 31 March 2014, however the directors common shares of the Company are shown below. Options granted have declared a final dividend in respect of 2014 of 1.0 pence per share. under the Company’s employee share plans are shown in the Remuneration Report on page 56. Risk management and internal controls Number of Disclosures can be found in Note 29 to the consolidated financial common shares at statements and the Corporate Governance section on pages 38, 39 31 March 2014 and 42. Darren Throop 8,400,000 Patrice Theroux (resigned 31 March 2014) 3,598,188 Capital structure Giles Willits 3,061,322 At 31 March 2014, the Company had common shares only that carry the right to one vote at general meetings of the Company. They have no par value and the authorised number of common shares is unlimited. The directors do not hold interests in contracts of significance to the There are no specific restrictions on the size of a holding nor on the Group’s business. transfer of shares, which are both governed by the general provisions of the Articles of the Company and prevailing legislation. At 31 March Substantial shareholdings 2013, the Company also had preferred variable voting shares (“PVVS”) At 30 April 2014 the Company was aware of the following holdings which carried no right to income but acted as a safeguard to ensure the representing 3% or more in its issued common shares: Company met its requirements for Canadian control which enabled the Number of Group to qualify for Canadian Heritage status. In order to satisfy certain common shares Percentage of eligibility criteria for premium listing, during the year the removal of the held as at voting rights and PVVS voting structure was approved by shareholders and replaced 30 April 2014 issued shares with other safeguards that have been incorporated into the Company’s Marwyn Value Investors L.P. 79,424,894 27.5% Articles so as to ensure that Canadian control requirements continue M&G Investment Management Ltd 33,968,154 11.7% to be met for the purposes of Canadian Heritage status. Further Capital Research and Management 17,845,082 6.2% information regarding the capital structure, together with details of new Schroders plc 10,484,351 3.6% share issues during the year, are shown in Note 30 to the consolidated Fidelity 9,123,209 3.2% financial statements.

62 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Corporate responsibility The Group has an open, honest and responsible approach towards its stakeholders which include employees, suppliers, customers, investors and the wider community. Ethical and responsible practices and a commitment to minimise our impact on the environment are key motivators behind the Group’s corporate responsibility framework. Further details on the Group’s approach to such matters are set out in the Corporate Social Responsibility report on pages 30 and 31.

Disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Going concern The directors continue to adopt the going concern basis in preparing the Annual Report and Accounts. Further details are set out in Note 3 to the consolidated financial statements.

Auditors A resolution to reappoint Deloitte LLP as auditors will be proposed at the forthcoming AGM.

Disclosure of information to auditors The following applies to each of those persons who were directors at the time this report was approved:

• so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • he/she has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

Annual General Meeting Notice of the AGM will be sent under separate cover.

By order of the Board

Giles Willits Director 19 May 2014

63 ENTERTAINMENT ONE LTD. Statement of Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and Responsibility statement Accounts and the consolidated financial statements in accordance with We confirm that to the best of our knowledge: applicable law and regulations. • the consolidated financial statements, prepared in accordance with The directors are required to prepare the consolidated financial IFRSs as adopted by the European Union, give a true and fair view statements in accordance with International Financial Reporting of the assets, liabilities, financial position and profit or loss of the Standards (“IFRSs”) as adopted by the European Union and Article 4 Group as a whole; of the IAS Regulation. The directors must not approve the accounts • the Strategic Report on pages 1 to 31 includes a fair review of the unless they are satisfied that they give a true and fair view of the state of development and performance of the business and the position of affairs of the Group and of the profit or loss of the Group for that period. the Group, together with a description of the principal risks and In preparing these consolidated financial statements, International uncertainties that it faces; and Accounting Standard 1 requires that directors: • the Annual Report and Accounts and the consolidated financial statements, taken as a whole, are fair, balanced • properly select and apply accounting policies; and understandable and provide the information necessary for • present information, including accounting policies, in a manner shareholders to assess the Group’s performance, business model that provides relevant, reliable, comparable and understandable and strategy. information; • provide additional disclosures when compliance with the By order of the Board specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events Giles Willits and conditions on the entity’s financial position and financial Director performance; and 19 May 2014 • make an assessment of the Group’s ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

64 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Index to the Consolidated Financial Statements

Consolidated Financial Statements Independent Auditor’s Report 66 Consolidated Income Statement 69 Consolidated Statement of Comprehensive Income 69 Consolidated Balance Sheet 70 Consolidated Statement of Changes in Equity 71 Consolidated Cash Flow Statement 72

Notes to the Consolidated Financial Statements 1. Nature of operations and general information 73 2. New, amended, revised and improved Standards 73 3. Significant accounting policies 73 4. Significant accounting judgements and key sources of estimation uncertainty 80 5. Segmental analysis 81 6. Operating profit 83 7. Key management compensation and directors’ emoluments 83 8. Staff costs 84 9. One-off items 84 10. Finance income and finance costs 86 11. Ta x 87 12. Deferred tax assets and liabilities 88 13. Dividends 88 14. Earnings per share 89 15. Goodwill 90 16. Other intangible assets 91 17. Investment in productions 92 18. Property, plant and equipment 93 19. Inventories 93 20. Investment in acquired content rights 93 21. Trade and other receivables 94 22. Cash and cash equivalents 95 23. Interest-bearing loans and borrowings 96 24. Net debt reconciliation 97 25. Trade and other payables 98 26. Provisions 99 27. Interests in joint ventures 100 28. Derivative financial instruments 101 29. Financial risk management 101 30. Stated capital, own shares and other reserves 104 31. Share-based payments 105 32. Commitments 107 33. Business combinations 108 34. Related party transactions 111 35. Subsidiaries 112

65 ENTERTAINMENT ONE LTD. Independent Auditor’s Report to the Members of Entertainment One Ltd.

Opinion on the consolidated financial statements of Going concern Entertainment One Ltd. We have reviewed the directors’ statement contained within Note 3 to In our opinion the consolidated financial statements: the consolidated financial statements that the Group is a going concern. We confirm that: • give a true and fair view of the state of the Group’s affairs as at 31 March 2014 and of the Group’s profit for the year then • we have concluded that the directors’ use of the going concern ended; and basis of accounting in the preparation of the consolidated • have been properly prepared in accordance with International financial statements is appropriate; and Financial Reporting Standards (“IFRSs”) as adopted by the • we have not identified any material uncertainties that may cast European Union. significant doubt on the Group’s ability to continue as a going concern. The consolidated financial statements comprise the consolidated income statement, the consolidated statement of comprehensive However, because not all future events or conditions can be predicted, income, the consolidated balance sheet, the consolidated statement this statement is not a guarantee as to the Group’s ability to continue of changes in equity, the consolidated cash flow statement and the as a going concern. related Notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as Our assessment of risks of material misstatement adopted by the European Union. The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:

Risk How the scope of our audit responded to the risk Accounting for investment in acquired content rights and We have assessed management’s process in estimating future investment in productions revenues, specifically by: The Group continues to acquire film and television content rights and invest in television and film productions. The accounting for • assessing the completeness and consistency of their process; the amortisation of these assets requires significant judgement • challenging the expectations of major titles/shows by looking and is directly affected by management’s best estimate of future at box office/home entertainment performance, current sales revenues, which are determined from opening box office data and other title/shows specific market information; and performance or initial sales data, the pattern of historical revenue • reviewing their past forecasting history. streams for similar genre productions and the remaining life of the Group’s rights. We have specifically assessed management’s calculations in respect of the profitability of titles which have yet to be released. We challenged the judgements and assumptions for estimating future cash inflows and outflows by assessing minimum guarantee commitments, past performance on similar titles and expected print and advertising spend. We considered whether the asset carrying value was deemed recoverable and if any required provisions for onerous contracts were made appropriately. Impairment of goodwill and other intangible assets We challenged management’s assumptions used in the impairment The Group has £191.9m of goodwill and a further £91.5m of model for goodwill and other intangible assets, as described in Note other intangible assets on the consolidated balance sheet at 31 15 to the consolidated financial statements. March 2014. Management is required to carry out an annual goodwill impairment test, which is judgemental and based on a We considered whether management’s impairment review number of assumptions including in respect of future profitability methodology is compliant with IAS 36 Impairment of Assets. Our and discount rates. audit work focused on the assumptions used in the impairment model, including specifically:

• using valuation experts to determine the appropriateness of the discount rates; • comparison of growth rates against those achieved historically and external market data where available; and • agreeing the underlying cash flow projections for Film and Television to Board-approved forecasts and corroborating trends to our other audit work to understand the drivers of any potential impairment.

66 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

Risk How the scope of our audit responded to the risk The presentation and consistency of the income and We reviewed the nature of one-off items, challenged management’s expenditure presented separately as one-off items judgements in this area and agreed the quantification to The Group has recorded exceptional income and expenditure in supporting documentation. respect of one-off items and transactions that fall outside of the normal course of trading. We assessed whether they are in line with both the Group’s accounting policies and the guidance issued by the Financial Reporting Council in December 2013.

We considered whether management’s application of their policies have been applied consistently with previous accounting periods, including whether the reversal of any items originally recognised as exceptional are appropriately classified as exceptional items.

We also assessed whether the disclosures within the consolidated financial statements provide sufficient detail for the reader to understand the nature of these items. Deferred tax assets We involved our tax specialists to consider the appropriateness of In accordance with IAS 12 Income Taxes, deferred tax assets should management’s assumptions and estimates in relation to the only be recognised to the extent that it is probable that future taxable likelihood of generating suitable future taxable profits to support the profit will be available against which they can be utilised. recognition of deferred tax assets, challenging those assumptions and considering supporting forecasts and estimates. There is a risk that inappropriate judgements are made by management, which could affect the quantum of the deferred tax assets that are recognised. Revenue recognition Our procedures included understanding the Group’s revenue The Group derives its revenues from the licensing, marketing recognition policy and confirming the consistent application of the and distribution of feature films, television, video programming and policy across the Group through substantive testing. music rights. We performed detailed testing on the returns provision calculations, Judgement is exercised by management in providing for returns of and assessed whether the methodology applied is appropriate for physical home entertainment products. each business unit based on the historical level of returns.

The Audit Committee’s consideration of these risks is set out in We determined materiality for the Group to be £2.9m, which is their Report on pages 40 to 43. approximately 7.5% of normalised adjusted profit before tax. Normalised adjusted profit before tax is adjusted profit before tax, Our audit procedures relating to these matters were designed in the as defined and analysed in Note 3, adding back the deductions context of our audit of the consolidated financial statements as a made for amortisation of acquired intangibles and share-based whole, and not to express an opinion on individual accounts or payment charges. We use this normalised profit as a base for our disclosures. Our opinion on the consolidated financial statements is materiality measure as it is a key measure of underlying business not modified with respect to any of the risks described above, and performance for the Group. we do not express an opinion on these individual matters. We agreed with the Audit Committee that we would report to the Our application of materiality Committee all audit differences in excess of £58,000, as well as We define materiality as the magnitude of misstatement in the differences below that threshold that, in our view, warranted consolidated financial statements that makes it probable that the reporting on qualitative grounds. We also report to the Audit economic decisions of a reasonably knowledgeable person would Committee on disclosure matters that we identified when assessing be changed or influenced. We use materiality both in planning the the overall presentation of the consolidated financial statements. scope of our audit work and in evaluating the results of our work.

67 ENTERTAINMENT ONE LTD.

Independent Auditor’s Report continued to the Members of Entertainment One Ltd.

An overview of the scope of our audit In particular, we are required to consider whether we have identified Our Group audit scope was based on a quantitative risk assessment any inconsistencies between our knowledge acquired during the considering metrics including revenue and adjusted profit before tax audit and the directors’ statement that they consider the Annual as well as a qualitative risk assessment, considering significant risks Report and Accounts are fair, balanced and understandable and of material misstatement and our assessment of local market risk. whether the Annual Report and Accounts appropriately disclose those matters that we communicated to the Audit Committee which In selecting the business units in scope each year, we update our we consider should have been disclosed. We confirm that we have understanding of the Group and its environment, its principal risks, not identified any such inconsistencies or misleading statements. performance, and our understanding of the Group’s system of internal controls, in order to check that the business units selected Respective responsibilities of directors and auditor provide an appropriate basis on which to undertake audit work to As explained more fully in the Statement of Directors’ address the identified risks of material misstatement. Such audit Responsibilities, the directors are responsible for the preparation of work represents a combination of procedures, all of which are the consolidated financial statements and for being satisfied that designed to target the Group’s identified risks of material they give a true and fair view. Our responsibility is to audit and misstatement in the most effective manner possible. express an opinion on the consolidated financial statements in accordance with applicable law and International Standards on Our Group audit scope focused primarily on the Group’s UK and Auditing (UK and Ireland). Those standards require us to comply Canadian business units. Of the Group’s 14 business units, five were with the Auditing Practices Board’s Ethical Standards for Auditors. subject to a full scope audit, and seven were subject to focused audit We also comply with International Standard on Quality Control 1 (UK procedures where the extent of our testing was based on our and Ireland). Our audit methodology and tools aim to ensure that our assessment of the risks of material misstatement and of the quality control procedures are effective, understood and applied. materiality of the Group’s operations at those locations. The five full Our quality controls and systems include our dedicated professional scope divisions represent the principal business units and account for standards review team, strategically-focused second partner approximately 70% of the Group’s revenue and 93% of the Group’s reviews and independent partner reviews. adjusted profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of This report is made solely to the Company’s members, as a body, in material misstatement identified above. Our audit work at the different accordance with Disclosure and Transparency Rule 4.1. Our audit locations was executed at levels of materiality applicable to each work has been undertaken so that we might state to the Company’s individual entity which were lower than Group materiality. members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent At the parent entity level we also tested the consolidation process permitted by law, we do not accept or assume responsibility to and carried out analytical procedures to confirm our conclusion that anyone other than the Company and the Company’s members as there were no significant risks of material misstatement of the a body, for our audit work, for this report, or for the opinions we aggregated financial information of the remaining components not have formed. subject to audit or audit of specified account balances. Scope of the audit of the consolidated financial statements The Group audit team continued to follow a programme of planned An audit involves obtaining evidence about the amounts and visits that has been designed so that the Senior Statutory Auditor or disclosures in the consolidated financial statements sufficient to senior member of the Group audit team visits each of the locations give reasonable assurance that the consolidated financial where the Group audit scope was focused at least once a year. statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the Matters on which we are required to report by exception accounting policies are appropriate to the Group’s circumstances Corporate Governance and have been consistently applied and adequately disclosed; the Under the Listing Rules we are also required to review the part of reasonableness of significant accounting estimates made by the the Corporate Governance section relating to the Company’s directors; and the overall presentation of the consolidated financial compliance with nine provisions of the UK Corporate Governance statements. In addition, we read all the financial and non-financial Code. We have nothing to report arising from our review. information in the Annual Report and Accounts to identify material inconsistencies with the audited consolidated financial statements Our duty to read other information in the Annual Report and to identify any information that is apparently materially incorrect and Accounts based on, or materially inconsistent with, the knowledge acquired by Under International Standards on Auditing (UK and Ireland), we are us in the course of performing the audit. If we become aware of any required to report to you if, in our opinion, information in the Annual apparent material misstatements or inconsistencies we consider Report and Accounts is: the implications for our report.

• materially inconsistent with the information in the audited Deloitte LLP consolidated financial statements; or Chartered Accountants and Statutory Auditor • apparently materially incorrect based on, or materially London, United Kingdom inconsistent with, our knowledge of the Group acquired in the 19 May 2014 course of performing our audit; or • otherwise misleading.

68 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Consolidated Income Statement for the year ended 31 March 2014

Year ended Year ended 31 March 2014 31 March 2013 Notes £m £m Revenue 5 819.6 629.1 Cost of sales (639.4) (490.6) Gross profit 180.2 138.5 Administrative expenses (151.3) (124.8) Operating profit 6 28.9 13.7 Analysed as: Underlying EBITDA 5 92.3 62.5 Amortisation of acquired intangibles 16,17 (36.0) (18.2) Depreciation 5 (2.6) (2.6) Share-based payment charge 31 (2.7) (1.2) One-off items 9 (22.1) (26.8) 28.9 13.7 Finance income 10 4.5 1.0 Finance costs 10 (12.4) (9.2) Profit before tax 21.0 5.5 Income tax charge 11 (1.3) (6.6) Profit/(loss) for the year 19.7 (1.1)

Earnings/(loss) per share (pence) Basic 14 7.1 (0.5) Diluted 14 7.0 (0.5) Adjusted earnings per share (pence) Basic (2013 restated) 14 21.1 16.8 Diluted 14 20.9 15.9

All activities relate to continuing operations. All of the profit/(loss) for the year is attributable to the owners of the ultimate parent company.

Consolidated Statement of Comprehensive Income for the year ended 31 March 2014

Year ended Year ended 31 March 2014 31 March 2013 £m £m Profit/(loss) for the year 19.7 (1.1)

Items that may be reclassified subsequently to profit or loss: Exchange differences on foreign operations (46.5) 9.2 Fair value movements on cash flow hedges (2.4) 1.5 Reclassification adjustments for movements on cash flow hedges (0.6) 0.5 Tax related to components of other comprehensive income 0.8 (0.5) Total comprehensive (loss)/income for the year (29.0) 9.6

All of the total comprehensive (loss)/income for the year is attributable to the owners of the ultimate parent company.

69 ENTERTAINMENT ONE LTD. Consolidated Balance Sheet at 31 March 2014

31 March 2014 31 March 2013 Note £m £m ASSETS Non-current assets Goodwill 15 191.9 218.5 Other intangible assets 16 91.5 130.6 Investment in productions 17 61.2 70.2 Property, plant and equipment 18 5.5 5.3 Trade and other receivables 21 12.1 8.7 Deferred tax assets 12 5.3 8.7 Total non-current assets 367.5 442.0 Current assets Inventories 19 47.2 50.0 Investment in acquired content rights 20 230.1 202.4 Trade and other receivables 21 230.5 252.1 Cash and cash equivalents 22 37.1 33.4 Current tax assets 0.3 2.5 Derivative financial instruments 28 2.1 1.7 Total current assets 547.3 542.1 Total assets 5 914.8 984.1

LIABILITIES Non-current liabilities Interest-bearing loans and borrowings 23 150.3 131.9 Other payables 25 6.7 18.3 Provisions 26 2.8 12.9 Deferred tax liabilities 12 3.2 7.4 Total non-current liabilities 163.0 170.5 Current liabilities Interest-bearing loans and borrowings 23 41.7 46.0 Trade and other payables 25 370.3 399.4 Provisions 26 13.2 17.0 Current tax liabilities 15.9 19.1 Derivative financial instruments 28 3.3 1.3 Total current liabilities 444.4 482.8 Total liabilities 607.4 653.3 Net assets 307.4 330.8

EQUITY Stated capital 30 286.0 282.4 Own shares 30 (3.6) (7.2) Other reserves 30 8.2 11.0 Currency translation reserve (4.2) 42.3 Retained earnings 21.0 2.3 Total equity 307.4 330.8

The restatement of the consolidated balance sheet at 31 March 2013 relates to a reclassification between investment in productions and investment in acquired content rights and is further explained in Note 17.

These consolidated financial statements were approved by the Board of Directors on 19 May 2014.

Giles Willits Director

70 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Consolidated Statement of Changes in Equity for the year ended 31 March 2014

Other reserves Cash flow Currency Stated Own hedge Warrants Restructuring translation Retained Total capital shares reserve reserve reserve reserve earnings equity £m £m £m £m £m £m £m £m At 1 April 2012 173.9 (7.7) (0.4) 0.6 9.3 33.1 2.9 211.7 Loss for the year – – – – – – (1.1) (1.1) Other comprehensive income – – 1.5 – – 9.2 – 10.7 Total comprehensive income/(loss) for the year – – 1.5 – – 9.2 (1.1) 9.6 Issue of common shares – for cash1 110.0 – – – – – – 110.0 Transaction costs relating to issue of common shares for cash (net of deferred tax of £1.1m)1 (3.0) – – – – – – (3.0) Issue of common shares – on exercise of share options1 0.2 – – – – – – 0.2 Issue of common shares – on exercise of share warrants1 1.3 – – – – – – 1.3 Credits in respect of share-based payments – 0.5 – – – – 0.5 1.0 At 31 March 2013 282.4 (7.2) 1.1 0.6 9.3 42.3 2.3 330.8 Profit for the year – – – – – – 19.7 19.7 Other comprehensive loss – – (2.2) – – (46.5) – (48.7) Total comprehensive (loss)/income for the year – – (2.2) – – (46.5) 19.7 (29.0) Issue of common shares – on exercise of share options1 0.1 – – – – – – 0.1 Issue of common shares – on exercise of share warrants1 4.0 – – – – – – 4.0 Reclassification of warrants reserve on exercise of share warrants1 0.6 – – (0.6) – – – – Distribution of shares to beneficiaries of the Employee Benefit Trust – 3.6 – – – – (3.6) – Credits in respect of share-based payments – – – – – – 2.8 2.8 Reversal of deferred tax asset previously recognised on transaction costs relating to issue of common shares1 (1.1) – – – – – – (1.1) Deferred tax movement arising on share options – – – – – – (0.2) (0.2) At 31 March 2014 286.0 (3.6) (1.1) – 9.3 (4.2) 21.0 307.4 1 See Note 30 for further details.

71 ENTERTAINMENT ONE LTD. Consolidated Cash Flow Statement for the year ended 31 March 2014

(restated) Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Operating activities Operating profit 28.9 13.7 Adjustments for: Depreciation of property, plant and equipment 18 1.4 1.5 Amortisation of software 16 1.2 1.1 Amortisation of acquired intangibles 16 36.0 17.8 Amortisation of investment in productions 17 72.4 63.8 Amortisation of investment in acquired content rights 20 168.9 75.5 Impairment of investment in acquired content rights 20 – 4.1 Foreign exchange movements (0.8) (0.6) Share-based payment charge 31 2.7 1.2 Operating cash flows before changes in working capital and provisions 310.7 178.1 (Increase)/decrease in inventories (5.7) 2.4 (Increase)/decrease in trade and other receivables (14.1) 11.2 Decrease in trade and other payables (14.0) (11.1) (Decrease)/increase in provisions (12.7) 6.4 Cash generated from operations 264.2 187.0 Income tax paid (5.9) (9.0) Net cash from operating activities 258.3 178.0

Investing activities Acquisition of subsidiaries, net of cash acquired 33 (6.1) (141.0) Purchase of investment in acquired content rights (199.4) (101.6) Purchase of investment in productions, net of grants received (71.8) (73.4) Purchase of acquired intangibles – (4.2) Purchase of property, plant and equipment 18 (2.4) (1.5) Purchase of software 16 (1.8) (1.4) Net cash used in investing activities (281.5) (323.1)

Financing activities Proceeds on issue of common shares 30 4.1 111.5 Transaction costs related to issue of common shares 30 – (4.1) Drawdown of interest-bearing loans and borrowings 182.6 322.2 Repayment of interest-bearing loans and borrowings (147.8) (261.7) Net drawdown of interim production financing 0.4 5.9 Interest paid (10.7) (6.3) Fees paid in relation to the Group’s senior bank facility (1.0) (8.5) Net cash from financing activities 27.6 159.0

Net increase in cash and cash equivalents 4.4 13.9 Cash and cash equivalents at beginning of the year 22 31.8 17.4 Effect of foreign exchange rate changes on cash held (2.5) 0.5 Cash and cash equivalents at end of the year 22 33.7 31.8

The restatement of the consolidated cash flow statement for the year ended 31 March 2013 relates to (i) a £1.9m reclassification between amortisation of investment in productions and amortisation of investment in acquired content rights and is further explained in Note 17 and (ii) the bifurcation of amortisation of other intangible assets between software and acquired intangibles to match with the current year’s presentation.

72 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014 Notes to the Consolidated Financial Statements for the year ended 31 March 2014

1. Nature of operations and general information

Entertainment One Ltd. is a leading independent entertainment group focused on the acquisition, production and distribution of film and television content rights across all media throughout the world. Entertainment One Ltd. (“the Company”) is the Group’s ultimate parent company and is incorporated and domiciled in Canada. The registered office of the Company is 175 Bloor Street East, Suite 1400, North Tower, Toronto, Ontario, M4W 3R8. On 1 July 2013, the Company transferred the listing category of all of its common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority. Segmental information is disclosed in Note 5.

Entertainment One Ltd. presents its consolidated financial statements in pounds sterling, which is also the functional currency of the parent company. These consolidated financial statements were approved for issue by the directors on 19 May 2014.

2. New, amended, revised and improved Standards

New Standards and amendments, revisions and improvements to Standards adopted during the year During the year, the following were adopted by the Group:

New, amended, revised and improved Standards Effective date Amendment to IAS 1 Presentation of Items of Other Comprehensive Income 1 July 2012 Amendment to IAS 1 Government Loans 1 January 2013 Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013 IFRS 13 Fair Value Measurement 1 January 2013 IAS 19 (as revised in 2011) Employee Benefits 1 January 2013 Annual improvements to IFRS (May 2012) 1 January 2013

The above items have had no material impact on the Group’s financial position, performance or its disclosures.

New, amended and revised Standards issued but not adopted during the year At the date of authorisation of these consolidated financial statements, the following Standards, which have not been applied in these consolidated financial statements, are in issue but not yet effective for periods beginning 1 April 2013:

New, amended and revised Standards Effective date IFRS 10 Consolidated Financial Statements 1 January 2014 IFRS 11 Joint Arrangements 1 January 2014 IFRS 12 Disclosures of Interests in Other Entities 1 January 2014 Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities 1 January 2014 Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance 1 January 2014 IAS 27 (as revised in 2011) Separate Financial Statements 1 January 2014 IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures 1 January 2014 Amendment to IAS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014 Amendments to IAS 36 Recoverable Amount Disclosure for Non-Financial Assets 1 January 2014 Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting 1 January 2014 Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosures 1 January 2015

The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.

3. Significant accounting policies

Use of additional performance measures The Group presents underlying EBITDA, one-off items, adjusted profit before tax and adjusted earnings per share information. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms “underlying”, “one-off items” and “adjusted” may not be comparable with similarly titled measures reported by other companies. The term “underlying EBITDA” refers to operating profit or loss excluding operating one-off items, share-based payment charges, depreciation and amortisation of other intangible assets. The terms “adjusted profit before tax” and “adjusted earnings per share” refer to the reported measures excluding operating one-off items, amortisation of acquired intangibles arising on acquisitions, one-off items relating to the Group’s financing arrangements, share-based payment charges and, in the case of adjusted earnings per share, one-off tax items.

73 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

3. Significant accounting policies continued

Basis of preparation: (i) Preparation of the consolidated financial statements on the going concern basis The Group’s activities, together with the factors likely to affect its future development are set out in the Strategic Report on pages 1 to 31.

The Group meets its day-to-day working capital requirements and funds its investment in content through a revolving credit facility which matures in January 2018 and is secured on assets held by the Group. Under the terms of the facility the Group is able to draw down in the local currencies of its operating businesses. The amounts drawn down by currency at 31 March 2014 are shown in Note 23.

The facility is subject to a series of covenants including fixed charge cover, gross debt against underlying EBITDA and capital expenditure. The Group has a track record of cash generation and is in full compliance with its existing bank facility covenant arrangements. At 31 March 2014 the Group had £37.1m of cash and cash equivalents, £154.9m of net debt and undrawn amounts under the facility of £97.2m.

The Group is exposed to uncertainties arising from the economic climate and also in the markets in which it operates. Market conditions could lead to lower than anticipated demand for the Group’s products and services and exchange rate volatility could also impact reported performance. The directors have considered the impact of these and other uncertainties and factored them into their financial forecasts and assessment of covenant headroom. The Group’s forecasts and projections, taking account of reasonable possible changes in trading performance (and available mitigating actions), show that the Group will be able to operate within the expected limits of the facility and provide headroom against the covenants for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the consolidated financial statements.

Basis of presentation: (ii) Other These consolidated financial statements have been prepared under the historical cost convention (except for derivative financial instruments and share-based payment charges that have been measured at fair value) and in accordance with applicable International Financial Reporting Standards as adopted by the EU and IFRIC interpretations (“IFRS”). The Group’s financial statements comply with Article 4 of the EU IAS Regulation.

Basis of consolidation The consolidated financial statements comprise the financial statements of the Company (Entertainment One Ltd.) and its subsidiaries (“the Group”). The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company, using consistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date of disposal. All intra-group balances, transactions, income and expenses and unrealised profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.

Business combinations Business combinations are accounted for using the acquisition method. The cost of a business combination is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.

The cost of a business combination is measured as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the consolidated income statement as incurred.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, is recognised either in the consolidated income statement or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured until it is finally settled within equity.

Goodwill arising on a business combination is recognised as an asset and initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets acquired (including other intangible assets) and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary or business acquired, any negative goodwill is recognised immediately in the consolidated income statement.

74 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

3. Significant accounting policies continued

Revenue recognition Revenue represents the amounts receivable for goods and services provided in the normal course of business, net of discounts and excluding value added tax (or equivalent). Revenue is derived from the licensing, marketing and distribution of feature films, television, video programming and music rights. Revenue is also derived from film and television production and licensing and merchandising sales. The following summarises the Group’s main revenue recognition policies:

• Revenue from the exploitation of film and music rights is recognised based upon the contractual terms of each agreement. • Revenue is recognised where there is reasonable contractual certainty that the revenue is receivable and will be received. • Revenue from television licensing represents the contracted value of licence fees which is recognised when the licence term has commenced, the production is available for delivery, substantially all technical requirements have been met and collection of the fee is reasonably assured. • Revenue from the sale of own or co-produced film or television productions is recognised when the production is available for delivery and there is reasonable contractual certainty that the revenue is receivable and will be received. • Revenue from the sale of home entertainment and audio inventory is recognised at the point at which goods are despatched. A provision is made for returns based on historical trends. • Revenue from licensing and merchandising sales represents the contracted value of licence fees which is recognised when the licence terms have commenced and collection of the fee is reasonably assured.

Pension costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

Operating leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the lease term.

Borrowing costs Borrowing costs, including finance costs, are recognised in the consolidated income statement in the period in which they are incurred. Borrowing costs are accounted for using the effective interest rate method.

Borrowing costs directly attributable to the acquisition or production of a qualifying asset (such as investment in productions) form part of the cost of that asset and are capitalised.

Foreign currencies Within individual companies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign exchange differences arising on the settlement of such transactions and from translating monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognised in the income statement.

Retranslation within the consolidated financial statements For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rate ruling at the date of each transaction during the period. Foreign exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or expenses in the period in which the operation is disposed of.

One-off items One-off items are items of income and expenditure that are non-recurring and, in the judgement of the directors, should be disclosed separately on the basis that they are material, either by their nature or their size, in order to provide a better understanding of the Group’s underlying financial performance and enable comparison of financial performance between years.

75 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

3. Significant accounting policies continued

Tax Income tax The income tax charge/credit represents the sum of the income tax currently payable and deferred tax.

The income tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s asset or liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets and liabilities Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction (other than in a business combination) that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options or vesting of share awards under each jurisdiction’s tax rules. A share-based payment charge is recorded in the consolidated income statement over the vesting period of the relevant options and awards. As there is a temporary difference between the accounting and tax bases, a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company’s share price at the balance sheet date) with the cumulative amount of the share-based payment charge recorded in the consolidated income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the compensation expense at the statutory rate, the excess is recorded directly in equity, against retained earnings.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities. This applies when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Goodwill Goodwill arising on a business combination is recognised as an asset and initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the fair value of net identifiable assets acquired (including other intangible assets) and liabilities assumed. Transaction costs directly attributable to the acquisition form part of the acquisition cost for business combinations prior to 1 January 2010 but from that date such costs are written-off to the consolidated income statement and do not form part of goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is allocated to cash generating units (“CGUs”) which are tested for impairment annually, or more frequently if there are indications that goodwill might be impaired. The CGUs identified are the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other groups of assets. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Other intangible assets Other intangible assets acquired by the Group are stated at cost less accumulated amortisation. Amortisation is charged to administrative expenses in the consolidated income statement on a straight-line basis over the estimated useful life of intangible fixed assets unless such lives are indefinite.

76 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

3. Significant accounting policies continued

Other intangible assets mainly comprise amounts arising on consolidation of acquired subsidiaries such as exclusive content agreements and libraries, trade names and brands, exclusive distribution agreements, customer relationships and non-compete agreements. Other intangible assets also include amounts relating to costs of software.

Other intangible assets are generally amortised over the following periods:

Exclusive content agreements and libraries 3–14 years Trade names and brands 1–10 years Exclusive distribution agreements 9 years Customer relationships 9–10 years Non-compete agreements 2–5 years Software 3 years

Investment in productions Investment in productions that are in development and for which the realisation of expenditure can be reasonably determined are classified and capitalised in accordance with IAS 38 Intangible Assets as productions in progress within investment in productions. On delivery of a production, the cost of investment is reclassified as productions delivered. Also included within investment in productions are programmes acquired on acquisition of subsidiaries.

Amortisation of investment in productions, including government grants credited, is charged to cost of sales unless it arises from revaluation on acquisition of subsidiaries in which case it is charged to administrative expenses. The maximum useful life is considered to be 10 years.

Government grants A government grant is recognised and credited as part of investment in productions when there is reasonable assurance that any conditions attached to the grant will be satisfied and the grants will be received and the programme has been delivered. Government grants are recognised at fair value.

Property, plant and equipment Property, plant and equipment are stated at original cost less accumulated depreciation. Depreciation is charged to write off cost less estimated residual value of each asset over their estimated useful lives using the following methods and rates:

Leasehold improvements Over the term of the lease Fixtures, fittings and equipment 20%–30% reducing balance

The carrying amounts of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Group reviews residual values and useful lives on an annual basis and any adjustments are made prospectively. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset (determined as the difference between the sales proceeds and the carrying amount of the asset) is recorded in the consolidated income statement in the period of derecognition. Interests in joint ventures The Group has interests in joint ventures which are jointly controlled entities. The Group recognises its interest in joint ventures using proportionate consolidation, under which the Group combines its share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line-by-line, in its consolidated financial statements. The financial statements of the Group’s joint ventures are generally prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets are tested annually for impairment (as required by IFRS, in the case of goodwill) or when circumstances indicate that the carrying amounts may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered to be impaired and is written-down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.

77 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

3. Significant accounting policies continued

Inventories Inventories are stated at the lower of cost, including direct expenditure and other appropriate attributable costs incurred in bringing inventories to their present location and condition, and net realisable value. The cost of inventories is calculated using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Investment in acquired content rights In the ordinary course of business the Group contracts with film and television programme producers to acquire content rights for exploitation. Certain of these agreements require the Group to pay minimum guaranteed advances (“MGs”), the largest portion of which often becomes due when the film or television programme is received by the Group, usually some months subsequent to signing the contract. MGs are recognised in the consolidated balance sheet when a liability arises, usually on delivery of the film or television programme to the Group.

Investments in acquired content rights are recorded in the consolidated balance sheet if such amounts are considered recoverable against future revenues. These costs are amortised to cost of sales on a revenue forecast basis over a period not exceeding 10 years from the date of initial release. Acquired libraries are amortised over a period not exceeding 20 years. Amounts capitalised are reviewed at least quarterly and any portion of the unamortised amount that appears not to be recoverable from future net revenues is written-off to cost of sales during the period the loss becomes evident. Balances are included within current assets if they are expected to be realised within the normal operating cycle of the Film and Television businesses. The normal operating cycle of these businesses can be greater than 12 months. In general 65%–75% of film and television programme content is amortised within 12 months of theatrical release/delivery.

Trade and other receivables Trade receivables are generally not interest-bearing and are stated at their fair value as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and cash equivalents Cash and cash equivalents in the consolidated balance sheet comprise cash at bank and in-hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated balance sheet.

Interest-bearing loans and borrowings All interest-bearing loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised, as well as through the amortisation process.

Interim production financing relates to short-term financing for the Group’s film and television productions. Interest payable on interim production financing loans is capitalised and forms part of the cost of investment in productions.

Deferred finance charges All costs incurred by the Group that are directly attributable to the issue of debt are initially capitalised and deducted from the amount of gross borrowings. Such costs are then amortised through the consolidated income statement over the term of the instrument using the effective interest rate method.

Should there be a material change to the terms of the underlying instrument, any remaining unamortised deferred finance charges are immediately written-off to the consolidated income statement as a one-off finance item. Any new costs incurred as a result of the change to the terms of the underlying instrument are capitalised and then amortised over the term of the new instrument, again using the effective interest rate method.

Trade and other payables Trade payables are generally not interest-bearing and are stated at their nominal value.

Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, where the obligation can be estimated reliably, and where it is probable that an outflow of economic benefits will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance expense.

78 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

3. Significant accounting policies continued

Derivative financial instruments and hedging Derivative financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

The Group uses derivative financial instruments to reduce its exposure to foreign exchange and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes.

Derivative financial instruments are classified as held-for-trading and recognised in the consolidated balance sheet at fair value. Derivatives designated as hedging instruments are classified on inception as cash flow hedges, net investment hedges or fair value hedges.

Changes in the fair value of derivatives designated as cash flow hedges are recognised in equity to the extent that they are deemed effective. Ineffective portions are immediately recognised in the consolidated income statement. When the hedged item affects profit or loss then the amounts deferred in equity are recycled to the consolidated income statement.

Fair value hedges record the change in the fair value in the consolidated income statement, along with the changes in the fair value of the hedged asset or liability.

Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are immediately recognised in the consolidated income statement.

Dividends Distributions to equity holders are not recognised in the consolidated income statement under IFRS, but are disclosed as a component of the movement in total equity. A liability is recorded for a dividend when the dividend is declared by the Company’s directors.

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Own shares The Entertainment One Ltd. common shares held by the Trustees of the Company’s Employee Benefit Trust (“EBT”) are classified in total equity as own shares and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to revenue reserves. No gain or loss is recognised on the purchase, sale, issue or cancellation of equity shares.

Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by means of a binomial valuation model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations.

Segmental reporting The Group’s operating segments are identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Chief Executive Officer has been identified as the chief operating decision maker. The Group has two reportable segments: Film and Television, based on the types of products and services from which each segment derives its revenues.

The Film segment includes revenues from all of the Group’s activities in relation to the production, acquisition and exploitation of film content rights.

The Television segment includes revenues from all of the Group’s activities in relation to the production, acquisition and exploitation of television and music content.

79 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

4. Significant accounting judgements and key sources of estimation uncertainty

The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the amounts reported for assets and liabilities at the balance sheet date and amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates.

Estimates and judgements are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects that period only, or in the period of the revision and future periods if the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below.

Impairment of goodwill The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value-in-use of the CGUs to which the goodwill is allocated. Estimating a value-in-use amount requires the directors to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. At 31 March 2014, the carrying amount of goodwill was £191.9m (2013: £218.5m). Further details of goodwill are contained in Note 15.

Acquired intangibles The Group recognises intangible assets acquired as part of a business combination at fair value at the date of acquisition. The determination of these fair values is based upon the directors’ judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Furthermore, the directors must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. At 31 March 2014, the total carrying amount of the Group’s acquired intangibles was £87.5m (2013: £126.5m). Further details of acquired intangibles are contained in Note 16.

Investment in productions and investment in acquired content rights The Group capitalises investment in productions and investment in acquired content rights and then amortises these balances on a revenue forecast basis, recording the amortisation charge in cost of sales. Amounts capitalised are reviewed at least quarterly and any that appear to be irrecoverable from future net revenues are written-off to cost of sales during the period the loss becomes evident. The estimate of future net revenues depends on the directors’ judgement and assumptions based on the pattern of historical revenue streams and the remaining life of each contract. At 31 March 2014, the carrying amount of investment in productions was £61.2m (2013: £70.2m, as restated) and the carrying amount of investment in acquired content rights was £230.1m (2013: £202.4m, as restated). Further details of investment in productions and investment in acquired content rights are contained in Notes 17 and 20, respectively.

Provisions for onerous film contracts The Group recognises a provision for an onerous film contract when the unavoidable costs of meeting the obligations under the contract exceed the expected benefits to be received under it. The estimate of the amount of the provision requires management to make judgements and assumptions on future cash inflows and outflows and also an assessment of the least cost of exiting the contract. To the extent that events, revenues or costs differ in the future, the carrying amount of provisions may change. At 31 March 2014, the carrying amount of onerous film contracts was £13.7m (2013: £20.1m). Further details of onerous film contracts are contained in Note 26.

Share-based payments The charge for share-based payments is determined based on the fair value of awards at the date of grant by use of the binomial model which requires judgements to be made regarding expected volatility, dividend yield, risk free rates of return and expected option lives. The list of inputs used in the binomial model to calculate the fair values is provided in Note 31.

Deferred tax Deferred tax assets and liabilities require the directors’ judgement in determining the amounts to be recognised. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration to the timing and level of future taxable income. At 31 March 2014, the Group had a net deferred tax asset of £2.1m (2013: £1.3m). Further details of deferred tax are contained in Note 12.

Income tax The actual tax on the result for the year is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is unclear, estimates are used in determining the liability for tax to be paid on past profits which are recognised in the consolidated financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the consolidated financial statements.

80 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

5. Segmental analysis

Operating segments For internal reporting and management purposes, the Group is organised into two main reportable segments based on the types of products and services from which each segment derives its revenue – Film and Television. These divisions are the basis on which the Group reports its operating segment information.

The types of products and services from which each reportable segment derives its revenues are as follows:

• Film – the production, acquisition and exploitation of film content rights across all media.

• Television – the production, acquisition and exploitation of television and music content across all media.

Inter-segment sales are charged at prevailing market prices.

Segment information for the year ended 31 March 2014 is presented below.

Film Television Eliminations Consolidated Notes £m £m £m £m Segment revenues External sales 680.9 138.7 – 819.6 Inter-segment sales 6.0 23.5 (29.5) – Total segment revenues 686.9 162.2 (29.5) 819.6 Segment results Segment underlying EBITDA 74.1 24.3 – 98.4 Group costs (6.1) Underlying EBITDA 92.3 Amortisation of acquired intangibles 16 (36.0) Depreciation (2.6) Share-based payment charge 31 (2.7) One-off items 9 (22.1) Operating profit 28.9 Finance income 10 4.5 Finance costs 10 (12.4) Profit before tax 21.0 Tax 11 (1.3) Profit for the year 19.7

Segment assets Total segment assets 694.2 214.7 – 908.9 Unallocated corporate assets 5.9 Total assets 914.8

Other segment information Amortisation of acquired intangibles (32.1) (3.9) – (36.0) Depreciation and amortisation of software 16,18 (2.5) (0.1) – (2.6) One-off items (21.9) (0.2) – (22.1)

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Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

5. Segmental analysis continued

Segment information for the year ended 31 March 2013 is presented below.

Film Television Eliminations Consolidated Notes £m £m £m £m Segment revenues External sales 512.6 116.5 – 629.1 Inter-segment sales 5.4 16.9 (22.3) – Total segment revenues 518.0 133.4 (22.3) 629.1 Segment results Segment underlying EBITDA 49.3 18.0 0.1 67.4 Group costs (4.9) Underlying EBITDA 62.5 Amortisation of acquired intangibles 16,17 (18.2) Depreciation (2.6) Share-based payment charge 31 (1.2) One-off items 9 (26.8) Operating profit 13.7 Finance income 10 1.0 Finance costs 10 (9.2) Profit before tax 5.5 Tax 11 (6.6) Loss for the year (1.1)

Segment assets Total segment assets 777.3 201.8 – 979.1 Unallocated corporate assets 5.0 Total assets 984.1

Other segment information Amortisation of acquired intangibles (15.1) (3.1) – (18.2) Depreciation 16,18 (2.4) (0.2) – (2.6) One-off items: – Impairment of investment in acquired content rights 6, 20 (4.1) – – (4.1) – Other one-off items (22.7) – – (22.7)

Geographical information The Group’s operations are located in Canada, the UK, the US, Australia, the Benelux and Spain. The Film Division is located in all of these geographies. The Group’s Television operations are located in Canada, the US and the UK. The following table provides an analysis of the Group’s revenue based on the location of the customer and the carrying amount of segment non-current assets by the geographical area in which the assets are located for the years ended 31 March 2014 and 2013.

External Non-current External Non-current revenues assets1 revenues assets1 2014 2014 2013 2013 £m £m £m £m Canada 284.4 206.6 238.8 249.3 UK 215.0 75.1 159.2 95.0 US 145.5 33.7 119.3 19.4 Rest of Europe 113.8 35.4 68.2 41.4 Other 60.9 11.4 43.6 14.9 Total 819.6 362.2 629.1 420.0 1 Non-current assets by location exclude amounts relating to deferred tax assets.

82 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

6. Operating profit

Operating profit for the year is stated after charging/(crediting): (restated) Year ended Year ended 31 March 2014 31 March 2013 Notes £m £m Amortisation of investment in productions 17 72.4 63.8 Amortisation of investment in acquired content rights 20 168.9 75.5 Amortisation of acquired intangibles 16 36.0 17.8 Amortisation of software 16 1.2 1.1 Depreciation of property, plant and equipment 18 1.4 1.5 Impairment of investment in acquired content rights 5, 20 – 4.1 Staff costs 8 74.5 61.0 Net foreign exchange gains (0.8) (0.6) Operating lease rentals 5.9 5.6

The restatement of amounts for the year ended 31 March 2013 relates to a reclassification of £1.9m between amortisation of investment in productions and amortisation of investment in acquired content rights and is further explained in Note 17.

The total remuneration during the year of the Group’s auditor was as follows: Year ended Year ended 31 March 2014 31 March 2013 £m £m Audit fees – Fees payable for the audit of the Group’s annual accounts 0.4 0.4 – Fees payable for the audit of the Group’s subsidiaries 0.3 0.2 Other services – Services relating to corporate finance transactions 0.4 1.8 – Tax advisory services 0.5 0.2 – Other services 0.1 0.1 Total 1.7 2.7

Fees for corporate finance services in the table above for the year ended 31 March 2014 of £0.4m primarily relate to fees paid to the Group’s auditor in respect of the transfer of the Company’s common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority. The amount of £1.8m in the prior year relates to fees paid to the Group’s auditor in respect of the Alliance acquisition (see Note 33 for further details).

7. Key management compensation and directors’ emoluments

Key management compensation The directors are of the opinion that the key management of the Group in the years ended 31 March 2014 and 2013 comprised the three executive directors. These persons had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Compensation for Patrice Theroux (who stood down from the Board, effective 31 March 2014, in order to focus on leading the Group’s global Film business) is included in the table below.

The aggregate amounts of key management compensation are set out below: Year ended Year ended 31 March 2014 31 March 2013 £m £m Short-term employee benefits1 3.1 2.6 Other long-term benefits2 5.2 – Share-based payment benefits 0.6 0.4 Total 8.9 3.0 1 Short-term employee benefits comprise salary, taxable benefits, annual bonus and pensions and includes employer social security contributions of £0.2m (2013: £0.2m). 2 Other long-term benefits represents the out-performance incentive plan payment of £5.0m and the social security contributions thereon of £0.2m. A provision for the full amount was recognised in the prior year as the directors assessed that it was more likely than not that this obligation would be settled. As set out in Note 26, in early 2014 the conditions attached to the potential award were achieved and therefore it is only in the current year that the directors earned the aggregate amount of £5.0m (excluding social security contributions), although no charge has been recorded in the year ended 31 March 2014.

83 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

7. Key management compensation and directors’ emoluments continued

Directors’ emoluments Further details of directors’ emoluments can be found in the Directors’ Remuneration Report on pages 44 to 60.

8. Staff costs

The average number of employees, including directors, are presented below: Year ended Year ended 31 March 2014 31 March 2013 Number Number Average number of employees: Canada 816 721 US 253 241 UK 146 126 Australia 35 30 Rest of Europe 81 51 Total 1,331 1,169

The table below sets out the Group’s staff costs (including directors’ remuneration). Year ended Year ended 31 March 2014 31 March 2013 £m £m Wages and salaries 65.1 53.8 Share-based payment charge 2.7 1.2 Social security costs 5.6 5.0 Pension costs 1.1 1.0 Total 74.5 61.0

Included within total staff costs of £74.5m for the year ended 31 March 2014 (2013: £61.0m) is £7.0m (2013: £5.5m) of one-off staff costs, as described in further detail in Note 9.

9. One-off items

One-off items are items of income and expenditure that are non-recurring and, in the judgement of the directors, should be disclosed separately on the basis that they are material, either by their nature or their size, to provide a better understanding of the Group’s underlying financial performance and enable comparison of financial performance between years. Items of income or expense that are considered by management for designation as one-off are as follows:

Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Alliance-related costs Alliance-related restructuring costs 14.2 9.8 Alliance-related acquisition costs 5.3 9.9 Total Alliance-related costs 19.5 19.7

Other items Other corporate projects and acquisitions costs 2.6 0.2 Out-performance incentive plan charge – 5.2 HMV and Blockbuster charge – 1.7 Total other items 2.6 7.1 Total one-off costs 14 22.1 26.8

84 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

9. One-off items continued

Alliance related costs Alliance-related restructuring costs During the year ended 31 March 2014, the Group incurred £14.2m (2013: £9.8m) of restructuring costs relating to the Alliance acquisition, which was completed in January 2013. During the year, the Alliance synergy-realisation programme, the costs of which are reflected in restructuring costs, has delivered higher than expected savings. A charge of £7.0m (2013: £5.5m) was recorded for staff redundancy costs associated with the Group’s synergy-realisation programme. A charge of £3.8m was incurred due to higher inventory returns arising from the inventory consolidation programme to integrate the acquired Alliance film catalogue. In addition, a charge of £2.4m has been recorded during the year in respect of unused office space as a result of the integration of the operations in Canada and the UK. Other restructuring costs of £1.0m were recognised during the year and included charges associated with systems integration.

In the prior year, post-acquisition and in the light of the combining of two large film catalogues, the Group assessed the carrying value of certain balance sheet items, particularly investment in acquired content rights and inventory. This review involved, amongst other items, reassessing the Group’s ultimate revenues from home entertainment sales. As a result of this review, a one-off charge of £4.3m was recorded in the consolidated income statement in the year ended 31 March 2013, including an impairment of investment in acquired content rights of £2.5m.

Alliance-related acquisition costs During the year ended 31 March 2014, the Group reassessed the amount of contingent consideration payable in respect of box office targets related to the Alliance acquisition, resulting in a one-off credit to the consolidated income statement of £9.8m, representing a full release of the provision which had been established in the prior year. A subset of the film titles (which were included in the box office targets), which have significantly under-performed in the year or which are expected to significantly under-perform in the following financial year, have been identified by the directors as being the principal reason for the box office targets being missed and therefore charges relating to these film titles have also been recognised as one-offs costs during the year, resulting in a net charge of £5.3m.

During the year ended 31 March 2013, the Group incurred £9.9m of Alliance-related acquisition costs. These costs included fees in respect of due diligence work performed, a competition review process and other advisory and legal expenses.

Other corporate projects and acquisitions costs Charges related to other corporate projects and acquisitions during the year ended 31 March 2014 of £2.6m (2013: £0.2m) mainly relate to the transfer of the listing category of all of the Company’s common shares from the standard listing segment to the premium listing segment of the Official List of the Financial Conduct Authority. Acquisition costs incurred during the year ended 31 March 2014 include fees related to the Group’s acquisition of Art Impressions Inc., a US brand and licensing agency, on 16 July 2013 (see Note 33 for further details).

Out-performance incentive plan charge Since March 2007, the Group had in place an out-performance incentive plan for the benefit of the executive directors. Under this plan, a total amount of £5.0m was payable to the executive directors, conditional on the Company’s share price achieving a 180-day volume-weighted average price of £2.25 per share. At 31 March 2013, the directors assessed that it was more likely than not that this obligation would be settled and therefore made a provision for the full amount of £5.0m (plus related social security of £0.2m). This amount was settled in full during the current year.

HMV and Blockbuster charge In early 2013, the entire UK operations of HMV Group (“HMV”) and Blockbuster Entertainment Ltd and Blockbuster GB Ltd (together “Blockbuster”) went into administration. Although both were subsequently sold out of administration, the businesses were restructured with a significant number of store closures. Due to this reduction in shelf-space, the Group reduced its projected ultimate home entertainment revenue across a number of titles, recording a one-off charge of £1.6m during the year ended 31 March 2013 to write down certain film titles to their recoverable amount. In addition, a one-off bad debt expense was recorded of £0.1m in the prior year.

85 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

10. Finance income and finance costs

Finance income and finance costs comprise: Year ended Year ended 31 March 2014 31 March 2013 Notes £m £m Finance income Net foreign exchange gains 3.8 1.0 Gain on fair value of derivative financial instruments 0.7 – Total finance income 4.5 1.0 Finance costs Interest on bank loans and overdrafts (9.3) (5.8) Amortisation of deferred finance charges 24 (1.7) (1.3) Other accrued interest charges (0.8) – Fees payable on amendment to senior bank facility 23 (0.6) – Write-off of unamortised deferred finance charges 23, 24 – (1.8) Loss on fair value of derivative financial instruments – (0.3) Total finance costs (12.4) (9.2) Net finance costs (7.9) (8.2) Of which: Adjusted net finance costs (11.8) (6.1) One-off net finance income/(costs) 14 3.9 (2.1)

Adjusted net finance costs are £8.0m (2013: £4.4m) after tax. This measure forms part of the calculation of average return on capital employed and is further explained in the Directors’ Remuneration Report on page 56.

One-off net finance income of £3.9m (2013: costs of £2.1m) comprises foreign exchange gains of £4.5m (2013: £nil), a gain of £0.7m (2013: loss of £0.3m) arising on the mark-to-market of derivative financial instruments, a charge of £0.6m (2013: £nil) in respect of fees incurred on amendments made to the Group’s senior bank facility during the year and £0.7m (2013: £nil) of non-cash accrued interest charges on certain liabilities. The prior year amount also includes £1.8m related to the write-off of unamortised deferred finance charges arising on the re-financing of the Group’s bank borrowings in January 2013.

As set out above, of the net foreign exchange gains of £3.8m recognised during the year ended 31 March 2014, a credit of £4.5m has been treated as a one-off item (with a charge of £0.7m being included within adjusted net finance costs). Part of the one-off amount has arisen on the revaluation of certain monetary assets and liabilities acquired as part of the Alliance acquisition. The remaining one-off foreign exchange gain is as a result of the implementation in the current year of a finance structure to manage the portfolio of multi-currency intercompany loans that form the basis of the long-term financing of the Group’s international operations. During the year, the exposures giving rise to these foreign exchange gains have been substantially mitigated.

86 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

11. Tax

Analysis of charge in the year Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Current tax (charge)/credit: – in respect of current year (6.1) (9.9) – in respect of prior years 0.4 0.2 Total current tax charge (5.7) (9.7) Deferred tax credit/(charge): – in respect of current year 2.4 3.4 – in respect of prior years 2.0 (0.3) Total deferred tax credit 4.4 3.1 Income tax charge (1.3) (6.6) Of which: Adjusted tax charge on adjusted profit before tax (19.4) (15.0) One-off net tax credit 14 18.1 8.4

The one-off tax credit comprises tax credits of £7.2m (2013: £4.7m) on the one-off items described in Note 9, tax credits of £8.5m (2013: £4.6m) on amortisation of acquired intangibles (see Note 16), a tax charge of £0.5m (2013: tax credit of £0.6m) on one-off net finance items as described in Note 10, a tax charge of £0.1m (2013: £nil) on share-based payment charges as described in Note 31 and a tax credit of £3.0m (2013: tax charge of £1.5m) on other non-recurring tax items.

The charge for the year can be reconciled to the profit in the consolidated income statement as follows:

Year ended 31 March 2014 Year ended 31 March 2013 £m % £m % Profit before tax 21.0 5.5 Taxes at applicable domestic rates (4.5) (21.4)% (1.2) (21.8)% Effect of income that is exempt from tax 1.8 8.6% –– Effect of expenses that are not deductible in determining taxable profit (2.5) (11.9)% (5.2) (94.6)% Effect of losses/temporary differences not recognised 1.6 7.6% (0.2) (3.6)% Effect of tax rate changes (0.1) (0.5)% (0.1) (1.8)% Prior year items 2.4 11.4% 0.1 1.8% Income tax charge and effective tax rate for the year (1.3) (6.2)% (6.6) (120.0)%

Income tax is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 26.5% in Canada (2013: 26.5%), 38.5% in the US (2013: 38.5%), 23.0% in the UK (2013: 24.0%), 25.0% in the Netherlands (2013: 25.0%), 30.0% in Australia (2013: 30.0%) and 30.0% in Spain (2013: 30.0%).

Analysis of tax on items taken directly to equity Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Deferred tax credit/(charge) on cash flow hedges 0.8 (0.5) Deferred tax charge on share options (0.2) – Deferred tax (charge)/credit on transaction costs relating to issue of common shares 30 (1.1) 1.1 Total (charge)/credit taken directly to equity 12 (0.5) 0.6

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Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

12. Deferred tax assets and liabilities

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the year:

Accelerated tax Other intangible Unused Financing depreciation assets tax losses items Other Total Note £m £m £m £m £m £m At 1 April 2012 (0.5) (6.0) 0.3 2.0 2.6 (1.6) Acquisition of subsidiaries 33 – (21.6) 21.4 – (0.5) (0.7) (Charge)/credit to income (0.2) 3.7 (0.5) (0.7) 0.8 3.1 Credit to equity 11 – – – 0.6 – 0.6 Exchange differences – (0.6) 0.4 – 0.1 (0.1) At 31 March 2013 (0.7) (24.5) 21.6 1.9 3.0 1.3 Acquisition of subsidiaries 33 – (3.5) – – – (3.5) Credit/(charge) to income 0.5 10.7 (4.3) (1.4) (1.1) 4.4 Charge to equity 11 – – – (0.3) (0.2) (0.5) Exchange differences 0.2 2.4 (2.4) 0.1 0.1 0.4 At 31 March 2014 – (14.9) 14.9 0.3 1.8 2.1

The category “Other” includes temporary differences on share options, accrued liabilities, certain asset valuation provisions, foreign exchange gains, investment in productions and investment in acquired content rights.

The deferred tax balances have been reflected in the consolidated balance sheet as follows:

31 March 2014 31 March 2013 £m £m Deferred tax assets 5.3 8.7 Deferred tax liabilities (3.2) (7.4) Total 2.1 1.3

Utilisation of deferred tax assets is dependent on the future profitability of the Group. The Group has recognised net deferred tax assets relating to tax losses and other short-term temporary differences carried forward as the Group considers that, on the basis of the most recent forecasts, there will be sufficient taxable profits in the future against which these items will be offset.

At the balance sheet date, the Group has unrecognised deferred tax assets of £39.9m (2013: £45.4m) relating to tax losses and other temporary differences available for offset against future profits. The assets have not been recognised due to the unpredictability of future profit streams. Included in unrecognised deferred tax assets are £25.8m (2013: £21.6m) relating to losses that will expire in the years ending 2023 to 2034.

At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was £3.4m (2013: £1.8m). There were no temporary differences arising in connection with interests in joint ventures.

The UK corporation tax rate reduced to 23% from 1 April 2013. Legislation was substantially enacted in July 2013 to reduce the rate of corporation tax to 21% from 1 April 2014, with a further reduction to 20% from 1 April 2015. These new rates have been used in the calculation of the UK’s deferred tax assets and liabilities at 31 March 2014.

13. Dividends

The directors have declared a final dividend in respect of the financial year ended 31 March 2014 of 1.0 pence per share which will absorb an estimated £2.9m of total equity. It will be paid on or around 9 September 2014 to shareholders who are on the register of members on 11 July 2014 (the record date). This dividend is expected to qualify as an eligible dividend for Canadian tax purposes. The dividend will be paid net of withholding tax based on the residency of the individual shareholder. The directors did not declare a dividend for the financial year ended 31 March 2013.

88 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

14. Earnings per share

Year ended Year ended 31 March 2014 31 March 2013 Pence Pence Basic earnings/(loss) per share 7.1 (0.5) Diluted earnings/(loss) per share 7.0 (0.5) Adjusted basic earnings per share (2013 restated) 21.1 16.8 Adjusted diluted earnings per share 20.9 15.9

Basic earnings per share is calculated by dividing earnings for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding treasury shares held by the EBT which are treated as cancelled.

Adjusted basic earnings per share is calculated by dividing adjusted earnings for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding treasury shares held by the EBT which are treated as cancelled. Adjusted earnings are the profit for the year attributable to shareholders adjusted to exclude one-off operating and finance items, share-based payment charges and amortisation of acquired intangibles (net of any related tax effects).

Diluted earnings per share and adjusted diluted earnings per share are calculated after adjusting the weighted average number of shares in issue during the year to assume conversion of all potentially dilutive shares.

There have been no transactions involving common shares or potential common shares between the reporting date and the date of authorisation of these consolidated financial statements.

The weighted average number of shares used in the earnings per share calculations are set out below.

(restated) Year ended Year ended 31 March 2014 31 March 2013 Million Million Weighted average number of shares for basic earnings per share and adjusted basic earnings per share 277.7 230.7 Effect of dilution: Employee share awards 2.1 11.8 Share warrants – 1.8 Weighted average number of shares for diluted earnings per share and adjusted diluted earnings per share 279.8 244.3

As noted above, shares held by the EBT, classified as treasury shares, are excluded from basic earnings per share and adjusted basic earnings per share. In 2013, 3.5m shares were excluded from the earnings per share calculation on this basis, despite these shares being allocated to specific beneficiaries’ sub-trusts and having voting rights attached to them. In the current year, the directors no longer consider that shares in such sub-trusts should be treated as treasury shares and therefore these have not been excluded from the earnings per share calculations. Accordingly, the weighted average number of shares for both basic earnings per share and adjusted earnings per share for the year ended 31 March 2013 have been restated to match the current year’s presentation. Consequently, adjusted basic earnings per share for the year ended 31 March 2013 has been restated.

Adjusted earnings per share The directors believe that the presentation of adjusted earnings per share, being the diluted earnings per share adjusted for one-off operating and finance items, share-based payment charges and amortisation of acquired intangibles (net of any related tax effects), helps to explain the underlying performance of the Group. A reconciliation of the earnings used in the diluted earnings per share calculation to earnings used in the adjusted earnings per share calculation are set out below.

Year ended 31 March 2014 Year ended 31 March 2013 Note £m Pence per share £m Pence per share Profit/(loss) for the year 19.7 7.0 (1.1) (0.5) Add back one-off items 9 22.1 7.9 26.8 11.0 Add back amortisation of acquired intangibles1 16 36.0 12.9 18.2 7.4 Add back share-based payment charge 31 2.7 1.0 1.2 0.5 (Deduct)/add back one-off net finance (income)/costs 10 (3.9) (1.4) 2.1 0.9 Deduct net tax effect of above and other one-off tax items 11 (18.1) (6.5) (8.4) (3.4) Adjusted earnings 58.5 20.9 38.8 15.9 1 As set out in Note 17, amortisation of acquired intangibles above for the year ended 31 March 2013 includes £0.4m in respect of acquired investment in productions.

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Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

14. Earnings per share continued

Profit before tax (IFRS measure) of £21.0m (2013: £5.5m) is reconciled to adjusted profit before tax and adjusted earnings as follows:

Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Profit before tax (IFRS measure) 21.0 5.5 Add back one-off items 22.1 26.8 Add back amortisation of acquired intangibles1 36.0 18.2 Add back share-based payment charge1 2.7 1.2 (Deduct)/add back one-off net finance (income)/costs (3.9) 2.1 Adjusted profit before tax 77.9 53.8 Adjusted tax charge thereon 11 (19.4) (15.0) Adjusted earnings 58.5 38.8 1 As set out on page 67, these items are not added back to the IFRS measure of profit before tax in the auditor’s calculation of materiality.

15. Goodwill

Total Note £m Cost and carrying amount At 1 April 2012 108.9 Acquisition of subsidiaries 33 103.9 Exchange differences 5.7 At 31 March 2013 218.5 Exchange differences (26.6) At 31 March 2014 191.9

Goodwill arising on a business combination is allocated to the CGUs that are expected to benefit from that business combination. As explained below, the Group’s CGUs are Film and Television.

Amounts recorded within “acquisition of subsidiaries” in the prior year relate to the goodwill arising on the acquisition of Alliance which is explained in further detail in Note 33. The acquired Alliance business has been integrated into the Film CGU.

Impairment testing for goodwill The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. An impairment loss is recognised if the carrying value of a CGU exceeds its recoverable amount.

The recoverable amount of a CGU is determined from value-in-use calculations based on the net present value of discounted cash flows. In assessing value-in-use, the estimated future cash flows are derived from the most recent financial budgets and plans and an assumed growth rate. A terminal value is calculated by discounting using an appropriate weighted discount rate. Any impairment losses are recognised in the consolidated income statement as an expense.

Key assumptions used in value-in-use calculation Key assumptions used in the value-in-use calculations for each CGU are set out below.

31 March 2014 31 March 2013 Terminal Period of specific Terminal Period of specific CGU Discount rate growth rate cash flows Discount rate growth rate cash flows Film 11.0% 2.8% 5 years 11.1% 2.8% 5 years Television 10.5% 3.0% 5 years 10.7% 2.9% 5 years

The calculations of the value-in-use for both CGUs are most sensitive to the operating profit, discount rate and growth rate assumptions. Operating profits – Operating profits are based on budgeted/planned growth in revenue resulting from new investment in acquired content rights, investment in productions and growth in the relevant markets. Discount rates – A pre-tax discount rate is applied to calculate the net present value of the CGU. The pre-tax discount rate is based on the Group weighted average cost of capital of 9.5% (2013: 9.7%). The discount rate is adjusted where specific country and operational risks are sufficiently significant to have a material impact on the outcome of the impairment test.

90 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

15. Goodwill continued

Terminal growth rate estimates – The terminal growth rates for Film and Television, 2.8% and 3.0% respectively (2013: Film 2.8%; Television 2.9%), are used beyond the end of year five and do not exceed the long-term projected growth rates for the relevant market.

Period of specific cash flows – Specific cash flows reflect the period of detailed forecasts prepared as part of the Group’s annual planning cycle.

The carrying value of goodwill, translated at year-end exchange rates, is allocated as follows:

31 March 2014 31 March 2013 CGU £m £m Film 173.6 197.2 Television 18.3 21.3 Total 191.9 218.5

Sensitivity to change in assumptions Film The Film calculations show that there is in excess of £300m of headroom when compared to carrying values at 31 March 2014 (2013: in excess of £200m). Consequently the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to materially exceed its recoverable amount.

Television The Television calculations show that there is in excess of £100m of headroom when compared to carrying values at 31 March 2014 (2013: in excess of £25m). Consequently the directors believe that no reasonable change in the above key assumptions would cause the carrying value of this CGU to materially exceed its recoverable amount.

16. Other intangible assets Acquired intangibles Exclusive content Exclusive agreements Trade names distribution Customer Non-compete and libraries and brands agreements relationships agreements Software Total Note £m £m £m £m £m £m £m Cost At 1 April 2012 42.6 12.2 26.1 40.1 7.4 5.3 133.7 Acquisition of subsidiaries 33 56.1 20.5 – – 6.8 0.5 83.9 Additions 2.2 1.2 – – 0.8 1.4 5.6 Exchange differences 2.0 1.0 1.1 1.6 0.5 0.2 6.4 At 31 March 2013 102.9 34.9 27.2 41.7 15.5 7.4 229.6 Acquisition of subsidiaries339.9–––––9.9 Additions –––––1.81.8 Exchange differences (9.4) (3.5) (3.5) (6.9) (1.9) (1.4) (26.6) At 31 March 2014 103.4 31.4 23.7 34.8 13.6 7.8 214.7 Amortisation At 1 April 2012 (22.1) (7.4) (23.4) (15.1) (7.0) (2.1) (77.1) Amortisation charge for the year 6 (6.2) (5.5) (0.7) (4.2) (1.2) (1.1) (18.9) Exchange differences (0.6) (0.3) (1.0) (0.7) (0.3) (0.1) (3.0) At 31 March 2013 (28.9) (13.2) (25.1) (20.0) (8.5) (3.3) (99.0) Amortisation charge for the year 6 (11.8) (15.1) (1.6) (4.0) (3.5) (1.2) (37.2) Exchange differences 2.2 2.0 3.1 3.6 1.4 0.7 13.0 At 31 March 2014 (38.5) (26.3) (23.6) (20.4) (10.6) (3.8) (123.2) Carrying amount At 31 March 2013 74.0 21.7 2.1 21.7 7.0 4.1 130.6 At 31 March 2014 64.9 5.1 0.1 14.4 3.0 4.0 91.5

Additions in the prior year of £4.2m (excluding software) related to the acquisition of certain assets of Death Row Records, a well-known label within the music industry.

The amortisation charge for the year ended 31 March 2014 comprises £36.0m (2013: £17.8m) in respect of acquired intangibles and £1.2m (2013: £1.1m) in respect of software. 91 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

17. Investment in productions

(restated) Year ended Year ended 31 March 2014 31 March 2013 Productions Productions in delivered progress Total Total Note £m £m £m £m Cost Balance at 1 April 232.5 17.4 249.9 156.5 Acquisition of subsidiaries 33 –––15.3 Additions – 76.1 76.1 70.1 Transfer between categories 73.4 (73.4) – – Exchange differences (43.6) (2.8) (46.4) 8.0 Balance at 31 March 262.3 17.3 279.6 249.9 Amortisation Balance at 1 April (179.7) – (179.7) (110.9) Amortisation charge for the year 6 (72.4) – (72.4) (63.8) Exchange differences 33.7 – 33.7 (5.0) Balance at 31 March (218.4) – (218.4) (179.7) Carrying amount 43.9 17.3 61.2 70.2

During the year ended 31 March 2014, the Group reassessed the presentation of its investment in film productions as a result of the directors making a strategic decision to make further investment in this business. These assets were acquired as part of the Alliance acquisition in January 2013 and had been provisionally classified within investment in acquired content rights at 31 March 2013. The directors now consider it is more appropriate to classify these assets within investment in productions.

Consequently, the Group has retrospectively reclassified £13.3m (representing a fair value, i.e. cost, of £15.2m as at the acquisition date less £1.9m of post-acquisition amortisation) from investment in acquired content rights to investment in productions. In the table above, the adjustment to cost at 1 April 2013 of £15.2m has been split between productions delivered (£8.5m) and productions in progress (£6.7m), with an additional amount of foreign exchange of £0.1m also being recognised in productions delivered. The adjustment has been made at the acquisition date as under IFRS 3 (Revised) Business Combinations the adjustment is within the “measurement period”.

Included in the amortisation charge for the year ended 31 March 2013 of £63.8m was £0.4m attributable to productions valued on acquisition of subsidiaries (which had been fully amortised by 31 March 2013) and which was charged to administrative expenses. As set out in Note 14, this amount has been added back to the loss for the year ended 31 March 2013 in order to calculate adjusted earnings per share.

Borrowing costs of £2.4m (2013: £2.2m) related to Television’s interim production financing have been included in the additions to investment in productions during the year.

92 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

18. Property, plant and equipment

Leasehold Fixtures, fittings improvements and equipment Total Note £m £m £m Cost At 1 April 2012 1.4 9.9 11.3 Acquisition of subsidiaries 33 1.0 0.5 1.5 Additions 0.7 0.8 1.5 Exchange differences – 0.5 0.5 At 31 March 2013 3.1 11.7 14.8 Additions 1.4 1.0 2.4 Disposals (0.2) (0.4) (0.6) Exchange differences (0.4) (1.5) (1.9) At 31 March 2014 3.9 10.8 14.7 Depreciation At 1 April 2012 (0.8) (7.0) (7.8) Depreciation charge for the year 6 (0.4) (1.1) (1.5) Exchange differences – (0.2) (0.2) At 31 March 2013 (1.2) (8.3) (9.5) Depreciation charge for the year 6 (0.4) (1.0) (1.4) Disposals 0.2 0.4 0.6 Exchange differences 0.2 0.9 1.1 At 31 March 2014 (1.2) (8.0) (9.2) Carrying amount At 31 March 2013 1.9 3.4 5.3 At 31 March 2014 2.7 2.8 5.5

19. Inventories

Inventories at 31 March 2014 comprise finished goods of £47.2m (2013: £50.0m).

20. Investment in acquired content rights

(restated) Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Balance at 1 April 202.4 97.7 Acquisition of subsidiaries 33 – 75.5 Additions 213.6 103.3 Amortisation charge for the year 6 (168.9) (75.5) Impairment charge for the year – (4.1) Exchange differences (17.0) 5.5 Balance at 31 March 230.1 202.4

The restatement in the prior year relates to a net amount of £13.3m which, as explained in Note 17, has been reclassified from investment in acquired content rights to investment in productions.

93 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

21. Trade and other receivables

31 March 2014 31 March 2013 Current Note £m £m Trade receivables 134.3 149.6 Less: provision for doubtful debts (3.8) (7.7) Net trade receivables 29 130.5 141.9 Prepayments and accrued income 47.9 45.2 Other receivables 52.1 65.0 Total 230.5 252.1

Non-current Trade receivables 8.7 1.5 Prepayment and accrued income 2.6 6.5 Other receivables 0.8 0.7 Total 12.1 8.7

Trade receivables are generally non-interest bearing. The average credit period taken on sales is 72 days (2013: 77 days).

Provisions for doubtful debts are based on estimated irrecoverable amounts, determined by reference to past default experience and an assessment of the current economic environment.

Non-current trade receivables represent the long-term portion of subscription video on demand sales.

Included in the Group’s trade receivable balance are debtors with a carrying amount of £29.3m (2013: £19.1m) which are past due at the reporting date for which the Group has not recognised a provision as there has not been a significant change in credit quality and the amounts are still considered recoverable. These trade receivables are aged as follows:

31 March 2014 31 March 2013 £m £m Less than 60 days 19.4 9.2 Between 60 and 90 days 3.2 2.7 More than 90 days 6.7 7.2 Total 29.3 19.1

The Group does not hold any collateral over these balances.

The movements in the provision for doubtful debts in years ended 31 March 2014 and 2013 were as follows:

Year ended Year ended 31 March 2014 31 March 2013 £m £m Balance at 1 April (7.7) (1.1) Acquisition of subsidiaries – (6.0) Provision recognised in the year (1.5) (1.2) Provision reversed in the year 3.0 0.3 Utilisation of provision 1.9 0.3 Exchange differences 0.5 – Balance at 31 March (3.8) (7.7)

In determining the recoverability of a trade receivable the Group considers any change to the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.

Management has credit policies in place and the exposure to credit risk is monitored by individual operating divisions on an ongoing basis. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

94 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

21. Trade and other receivables continued

The table below sets out the ageing of the Group’s impaired receivables.

31 March 2014 31 March 2013 £m £m Less than 60 days (0.1) (1.7) Between 60 and 90 days (0.1) (0.8) More than 90 days (3.6) (5.2) Total (3.8) (7.7)

Trade and other receivables are held in the following currencies at 31 March 2014 and 2013. Amounts held in currencies other than pounds sterling have been converted at the respective exchange rate ruling at the balance sheet date.

Pounds Canadian sterling Euros dollars US dollars Other Total £m £m £m £m £m £m Current 47.0 30.4 96.9 51.1 5.1 230.5 Non-current 0.3 – 2.3 9.5 – 12.1 At 31 March 2014 47.3 30.4 99.2 60.6 5.1 242.6 Current 46.7 28.0 123.3 48.0 6.1 252.1 Non-current 1.3 – 1.7 5.7 – 8.7 At 31 March 2013 48.0 28.0 125.0 53.7 6.1 260.8

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Included within other receivables at 31 March 2014 is £28.5m (2013: £37.5m) of government assistance (in the form of Canadian and US tax credits) owing to the production businesses. During the year £11.4m (2013: £11.0m) in government assistance was received, which has been netted against the cost of investment in productions.

22. Cash and cash equivalents

Cash and cash equivalents are held in the following currencies at 31 March 2014 and 2013. Amounts held in currencies other than pounds sterling have been converted at their respective exchange rate ruling at the balance sheet date.

31 March 2014 31 March 2013 Notes £m £m Cash and cash equivalents: Pounds sterling 2.6 4.8 Euros 10.4 5.5 Canadian dollars 13.0 8.4 US dollars 8.0 10.2 Australian dollars 2.8 4.4 Other 0.3 0.1 Cash and cash equivalents per the consolidated balance sheet 24, 29 37.1 33.4 Bank overdrafts: Pounds sterling 23 (3.4) – Canadian dollars 23 – (1.6) Cash and cash equivalents per the consolidated cash flow statement 33.7 31.8

Cash and cash equivalents comprise only of cash on-hand and demand deposits. The Group had no cash equivalents at either 31 March 2014 or 2013. The credit risk with respect to cash and cash equivalents is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Within cash and cash equivalents per the consolidated cash flow statement at 31 March 2014 is £25.5m (2013: £26.3m) that is included within adjusted net debt (see Note 24 for further details).

95 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

23. Interest-bearing loans and borrowings

31 March 2014 31 March 2013 Note £m £m Bank overdrafts 22 3.4 1.6 Bank borrowings (net of deferred finance charges) 136.6 114.1 Interim production financing 51.5 60.4 Other loans 0.5 1.8 Total 24 192.0 177.9 Shown in the consolidated balance sheet as: Non-current 150.3 131.9 Current 41.7 46.0

Gross bank borrowings under the Group’s senior facility before deferred finance charges at 31 March 2014 were £142.7m (2013: £122.4m).

The carrying amounts of the Group’s borrowings at 31 March 2014 and 2013 are denominated in the following currencies. Amounts held in currencies other than pounds sterling have been converted at the respective exchange rate ruling at the balance sheet date.

Pounds Canadian sterling Euros dollars US dollars Total £m £m £m £m £m Bank overdrafts 3.4 – – – 3.4 Bank borrowings (net of deferred finance charges) 38.5 6.1 56.8 35.2 136.6 Interim production financing 1.0 2.1 28.1 20.3 51.5 Other loans – – 0.5 – 0.5 At 31 March 2014 42.9 8.2 85.4 55.5 192.0 Bank overdrafts – – 1.6 – 1.6 Bank borrowings (net of deferred finance charges) 35.6 8.4 62.6 7.5 114.1 Interim production financing – – 40.4 20.0 60.4 Other loans – – 1.8 – 1.8 At 31 March 2013 35.6 8.4 106.4 27.5 177.9

The weighted average interest rates on all bank borrowings are not materially different from their nominal interest rates. The weighted average interest rate on all interest-bearing loans and borrowings is 5.1% (2013: 5.2%). The directors consider that the carrying amount of interest- bearing loans and borrowings approximates to their fair value.

Bank borrowings Terms of bank borrowings at 31 March 2014 and 2013 The Group has a US$400m (2013: US$425m) multi-currency, five-year secured facility which expires in January 2018. The facility comprises (i) a US$275m (equivalent to £165m and £181m at 31 March 2014 and 2013, respectively) revolving credit facility (“RCF”) which can be funded in US dollars, Canadian dollars, pounds sterling and euros and (ii) two amortising term loans equivalent to US$124.7m, or £74.8m, (2013: US$146.6m, or £96.6m), comprising a Canadian dollar term loan and a pound sterling term loan. These borrowings are secured by the assets of the Group (excluding film and television production assets). The facility is with a syndicate of banks managed by JP Morgan Chase N.A.

At 31 March 2014, the Group had available £97.2m (2013: £153.2m) of undrawn committed bank borrowings under the RCF in respect of which all conditions precedent had been met.

96 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

23. Interest-bearing loans and borrowings continued

The two term loans (which totalled £74.8m at 31 March 2014 and £96.6m at 31 March 2013 at respective closing GBP:CAD exchange rates) are subject to mandatory repayments as follows:

Period 31 March 2014 31 March 2013 Year ended 31 March 2014 (£11.2m actually repaid in 2014; amount repayable at 31 March 2013 based on the then closing GBP:CAD exchange rate) – £12.0m Years ended 31 March 2015, 2016 and 2017 (£3.2m repayable quarterly; 2013: £3.6m based on the then closing GBP:CAD exchange rate) £38.4m £43.2m June and September 2017 (£3.2m repayable at the end of each month stated; 2013: £3.6m based on the then closing GBP:CAD exchange rate) £6.4m £7.2m January 2018 £30.0m £34.2m Total (GBP) £74.8m £96.6m Total (USD) US$124.7m US$146.6m Canadian dollar amounts included in the above table at 31 March 2014 have been converted at a GBP:CAD exchange rate of 1.8402 (2013: 1.5425). Total US dollar amounts at 31 March 2014 have been converted at a GBP:USD exchange rate of 1.6673 (2013: 1.5181).

The facility is subject to a number of financial covenants, including leverage ratio (calculated as gross debt divided by underlying EBITDA), fixed cover charge and capital expenditure.

As set out in Note 10, during the current year the Group paid £0.6m in respect of fees incurred on two amendments made to the Group’s bank facility. This amount was immediately written-off to the consolidated income statement.

As a result of the Group materially altering its banking arrangements in the prior year, the then remaining unamortised deferred finance charges of £1.8m that related to the previous facility were written-off to the consolidated income statement in the year ended 31 March 2013. As explained in Note 10, this amount was recorded as a one-off finance cost. Additionally, in the prior year the Group incurred fees of £8.9m (of which £0.4m was accrued at 31 March 2013 and paid during the current year) due to the re-financing in January 2013 which were initially capitalised and deducted from the amount of gross borrowings. These fees are being amortised through the consolidated income statement over the term of the borrowings using the effective interest rate method.

Interim production financing The Film and Television production businesses have Canadian dollar and US dollar interim production credit facilities with various banks. Interest is charged at bank prime rate plus a margin. Amounts drawn down under these facilities at 31 March 2014 were £51.5m (2013: £60.4m). These facilities are secured by the assets of the individual Film and Television production companies.

Other loans The Television production business has a general Canadian dollar bank facility which attracts interest at bank prime plus a margin. This facility is not secured by the assets of the individual Television production companies.

24. Net debt reconciliation

Year ended Year ended 31 March 2014 31 March 2013 Note £m £m Balance at 1 April (144.5) (90.2) Net increase in cash and cash equivalents 4.4 13.9 Net drawdown of borrowings (35.2) (66.4) Capitalised re-financing fees paid 0.4 8.5 Amortisation of deferred finance charges 10 (1.7) (1.3) Write-off of unamortised deferred finance charges 10 – (1.8) Debt acquired 33 (2.5) (2.7) Exchange differences 24.2 (4.5) Balance at 31 March (154.9) (144.5) Represented by: Cash and cash equivalents 22 37.1 33.4 Interest-bearing loans and borrowings 23 (192.0) (177.9)

97 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

24. Net debt reconciliation continued

Net debt at 31 March 2014 of £154.9m (2013: £144.5m) is split between net borrowings under the Group’s senior debt facility (“adjusted net debt”) and net borrowings secured over the assets of individual Film and Television production companies (“production net debt”) as follows:

31 March 2014 31 March 2013 £m £m Adjusted net debt (111.1) (87.8) Production net debt (43.8) (56.7) Total (154.9) (144.5)

25. Trade and other payables

31 March 2014 31 March 2013 Current £m £m Trade payables 83.7 104.7 Accruals and deferred income 272.1 277.3 Other payables 14.5 17.4 Total 370.3 399.4

Non-current Other payables 6.7 18.3

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. For most suppliers no interest is charged, but for overdue balances interest is charged at various interest rates.

Non-current other payables of £6.7m at 31 March 2014 (31 March 2013: £18.3m) principally relates to contingent consideration in respect of the Alliance acquisition and which is explained further in Note 33.

Trade and other payables are held in the following currencies. Amounts held in currencies other than pounds sterling have been converted at the respective exchange rate ruling at the balance sheet date.

Pounds Canadian sterling Euros dollars US dollars Other Total £m £m £m £m £m £m Current 76.9 32.0 179.5 71.7 10.2 370.3 Non-current – – 6.6 – 0.1 6.7 At 31 March 2014 76.9 32.0 186.1 71.7 10.3 377.0 Current 99.0 29.9 207.8 54.9 7.8 399.4 Non-current – – 18.3 – – 18.3 At 31 March 2013 99.0 29.9 226.1 54.9 7.8 417.7

The directors consider that the carrying amount of trade and other payables approximates to their fair value.

98 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

26. Provisions

Onerous Restructuring and Out-performance contracts redundancy incentive plan Total £m £m £m £m At 31 March 2013 20.8 3.9 5.2 29.9 Provisions recognised in the year 11.1 3.9 – 15.0 Provisions reversed in the year (4.9) (2.0) – (6.9) Utilisation of provisions (11.9) (4.0) (5.2) (21.1) Exchange differences (0.7) (0.2) – (0.9) At 31 March 2014 14.4 1.6 – 16.0 Shown in the consolidated balance sheet as: Non-current 2.8 – – 2.8 Current 11.6 1.6 – 13.2

Onerous contracts Onerous contracts principally represent provisions in respect of loss-making film titles and vacant leasehold properties. Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met.

Loss-making film titles These provisions represent future cash flows relating to film titles which are forecast to make a loss over their remaining lifetime at the balance sheet date. As required by IFRS, before a provision for an onerous film title is recognised the Group first fully writes-down any related assets (generally these are investment in acquired content rights balances).

These provisions are expected to be utilised within three years (2013: two years) from the balance sheet date.

Vacant leasehold properties Provisions for vacant leasehold properties relate to properties in Canada and are calculated by reference to an estimate of any expected sub-let income, compared to the head rent, and the possibility of disposing of the Group’s interest in the lease, taking into account conditions in the property market. Where a leasehold property is disposed of earlier than anticipated, any remaining provision balance relating to that property is released to the consolidated income statement.

These provisions are expected to be utilised within one year from the balance sheet date.

Restructuring and redundancy Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met.

These provisions are expected to be utilised within one year (2013: one year) from the balance sheet date.

Out-performance incentive plan As explained in further detail in Note 9, during the prior year the Group recognised a provision of £5.2m (including £0.2m of social security costs) in respect of an out-performance incentive plan for the benefit of the executive directors. Under this plan, a total of £5.0m was payable to the executive directors, conditional upon the Company’s share price achieving a 180-day volume-weighted average share price over £2.25. In February 2014, this target was achieved and consequently the provision was fully settled.

99 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

27. Interests in joint ventures

Details of the Group’s significant joint ventures at 31 March 2014 are as follows:

Country of Proportion Name incorporation held Principal activity HOW S3 Productions Inc. Canada 49% Production of television programmes HOW S4 Productions Inc. Canada 49% Production of television programmes 7757310 Canada Inc. Canada 49% Production of television programmes 8175730 Canada Inc. Canada 49% Production of television programmes Hope Zee Two Inc. Canada 49% Production of television programmes Klondike Alberta Productions Inc. Canada 49% Production of television programmes She-Wolf Season 1 Productions Inc. Canada 51% Production of television programmes Squid Distribution LLC US 50% Production of films Suite Distribution Ltd England and Wales 50% Production of films

Contractual arrangements establish joint control over each joint venture listed above. No single venturer is in a position to control the activity unilaterally.

The following presents, on a condensed basis, the effect of including joint ventures in the consolidated financial statements using the proportional consolidation method:

Year ended Year ended 31 March 2014 31 March 2013 Impact on the consolidated income statement £m £m Revenue 3.2 3.2 Cost of sales (2.7) (1.9) Administrative expenses1 0.1 – Profit before tax 0.6 1.3 Income tax credit/(charge) 0.1 (0.1) Profit for the year 0.7 1.2 1 The credit of £0.1m within administrative expenses in the current year relates to foreign exchange gains.

31 March 2014 31 March 2013 Impact on the consolidated balance sheet £m £m Investment in productions 7.1 5.0 Trade and other receivables 15.8 10.2 Cash and cash equivalents 2.4 3.3 Total assets 25.3 18.5 Trade and other payables (3.6) (5.9) Interest-bearing loans and borrowings (19.4) (10.4) Total liabilities (23.0) (16.3)

Net assets 2.3 2.2

100 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

28. Derivative financial instruments

31 March 2014 31 March 2013 £m £m Derivative financial instruments – assets Foreign exchange forward contracts 1.9 1.7 Interest rate swaps 0.2 – Total 2.1 1.7

Derivative financial instruments – liabilities Foreign exchange forward contracts (3.1) (0.6) Interest rate swaps (0.2) (0.7) Total (3.3) (1.3)

Net derivative financial instruments (1.2) 0.4

Foreign exchange forward contracts The Group uses forward currency contracts to hedge transactional exposures. The majority of these contracts are denominated in US dollars and primarily cover MG payments in Canada, the UK, Australia, the Benelux and Spain. At 31 March 2014, the total notional principal amount of outstanding currency contracts was €38.2m, C$52.0m, A$42.5m, £79.1m and R11.6m (2013: €7.3m, C$78.1m, A$17.6m, £35.9m and Rnil).

Interest rate swaps Interest rate swaps are put in place by the Group in order to limit interest rate risk.

The notional principal amounts of the outstanding interest rate swaps at 31 March 2014 and 2013 are shown below. These interest rate swaps are recognised at fair value which is determined using the discounted cash flow method based on market data.

31 March 2014 31 March 2013 Local Fixed Local Fixed currency interest rate Fair value currency interest rate Fair value Currency m % £m m % £m US dollars US$9.8 0.45 – US$9.5 0.45 – Euros €6.5 0.37 – €7.1 0.37 – Pounds sterling £5.6 0.74 – £12.6 0.74 – Pounds sterling £18.2 1.00 0.2 £20.8 1.00 (0.2) Canadian dollars C$27.9 1.49 – C$30.0 1.49 (0.1) Canadian dollars C$69.8 1.84 (0.2) C$79.7 1.84 (0.4)

29. Financial risk management

The Group’s overall risk management programme seeks to minimise potential adverse effects on its financial performance and focuses on mitigation of the unpredictability of financial markets as they affect the Group.

The Group’s activities expose it to certain financial risks including interest rate risk, foreign currency risk, credit risk and liquidity risk. These risks are managed by the Chief Financial Officer under policies approved by the Board which are summarised below.

Interest rate risk management The Group is exposed to interest rate risk from its borrowings and cash deposits. The exposure to fluctuating interest rates is managed by fixing portions of debt using interest rate swaps, which aims to optimise net finance costs and reduce excessive volatility in reported earnings. Interest rate hedging activities are monitored on a regular basis. At 31 March 2014, the longest term of any debt held by the Group was until 2018.

Interest rate sensitivity A simultaneous 1% increase in the Group’s variable interest rates in each of pounds sterling, euros, US dollars and Canadian dollars at the end of 31 March 2014 would result in a £0.5m (2013: £0.1m) decrease to the Group’s profit before tax and a decrease of 1% would result in a £0.7m (2013: £0.3m) increase to the Group’s profit before tax.

101 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

29. Financial risk management continued

Foreign currency risk management The Group is exposed to exchange rate fluctuations because it undertakes transactions denominated in foreign currency and it is exposed to foreign currency translation risk through its investment in overseas subsidiaries.

The Group manages transaction foreign exchange exposures by undertaking foreign currency hedging using forward foreign exchange contracts for significant transactions (principally US dollar MG payments). The implementation of these forward contracts is based on highly probable forecast transactions and qualifies for cash flow hedge accounting. Further detail is disclosed in Note 28.

The majority of the Group’s operations are domestic within their country of operation. The Group seeks to create a natural hedge of this exposure through its policy of aligning approximately the currency composition of its net borrowings with its forecast operating cash flows.

Foreign exchange rate sensitivity The following table illustrates the Group’s sensitivity to foreign exchange rates on its derivative financial instruments. Sensitivity is calculated on financial instruments at 31 March 2014 denominated in non-functional currencies for all operating units within the Group. The sensitivity analysis includes only outstanding foreign currency denominated monetary items including external loans.

The percentage movement applied to each currency is based on management’s measurement of foreign exchange rate risk.

31 March 2014 31 March 2013 Impact on Impact on consolidated consolidated income statement income statement Percentage movement +/- £m +/- £m 10% appreciation of the US dollar 0.2 1.3 10% appreciation of the Canadian dollar 3.3 – 10% appreciation of the euro 0.1 0.8 10% appreciation of the Australian dollar 0.2 0.3

Credit risk management Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Group manages credit risk on cash and deposits by entering into financial instruments only with highly credit-rated authorised counterparties which are reviewed and approved regularly by management. Counterparties’ positions are monitored on a regular basis to ensure that they are within the approved limits and there are no significant concentrations of credit risk. Trade receivables consist of a large number of customers spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of counterparties.

The carrying amount of cash and cash equivalents and net trade receivables recorded in the consolidated balance sheet represent the Group’s maximum exposure to credit risk.

The Group considers its maximum exposure to credit risk as follows:

31 March 2014 31 March 2013 Note £m £m Cash and cash equivalents 22 37.1 33.4 Net trade receivables 21 130.5 141.9 Total 167.6 175.3

Liquidity risk management The Group maintains an appropriate liquidity risk management position by having sufficient cash and availability of funding through an adequate amount of committed credit facilities. Management continuously monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows in the short, medium and long-term. At 31 March 2014, the undrawn committed facility amount was £97.2m (2013: £153.2m). The facility was re-financed in January 2013 and matures in January 2018.

102 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

29. Financial risk management continued

Analysis of the maturity profile of the Group’s financial liabilities, which will be settled on a net basis at the balance sheet date, is shown below. Interest-bearing Trade and other loans and payables borrowings Total Amount due for settlement at 31 March 2014 £m £m £m Within one year 178.9 50.5 229.4 One to two years – 34.2 34.2 Two to five years – 141.4 141.4 Total 178.9 226.1 405.0

Amount due for settlement at 31 March 2013 (restated) Within one year 122.1 55.4 177.5 One to two years 0.1 26.5 26.6 Two to five years – 133.3 133.3 Total 122.2 215.2 337.4 Amounts for interest-bearing loans and borrowings for 2014 include interest payments. Amounts for 2013 have been restated to match with the current year’s presentation.

Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to grow the business, provide returns for shareholders, provide benefits for other stakeholders, optimise the weighted average cost of capital and achieve tax efficiencies. The objectives are subject to maintaining sufficient financial flexibility to undertake its investment plans. There are no externally imposed capital requirements. The management of the Group’s capital is performed by the Board. In order to maintain or adjust the capital structure, the Group may issue new common shares or sell assets to reduce debt.

Financial instruments at fair value Under IFRS, fair value measurements are grouped into the following levels:

Level 1 – Fair value measurements are derived from unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 – Fair value measurements are derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – Fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

At 31 March 2014 the Group had the following derivative financial instrument assets and liabilities grouped into Level 2:

31 March 2014 31 March 2013 Level 2 £m £m Derivative financial instrument assets 2.1 1.7 Derivative financial instrument liabilities (3.3) (1.3)

The carrying value of the Group’s financial instruments approximate to their fair value. See Note 28 for further details of the Group’s derivative financial instruments.

103 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

30. Stated capital, own shares and other reserves

Stated capital Year ended 31 March 2014 Year ended 31 March 2013 Number of Number of common shares Value common shares Value ’000 £m ’000 £m Balance at 1 April 273,619 282.4 191,980 173.9 Shares issued on exercise of share options 11,546 0.1 5,806 0.2 Shares issued on exercise of share warrants 4,000 4.0 2,500 1.3 Reclassification of warrants reserve on exercise of share warrants – 0.6 –– Issue of common shares – for cash ––73,333 110.0 Transaction costs relating to issue of common shares (net of tax) ––– (3.0) Reversal of deferred tax asset previously recognised on transaction costs relating to issue of common shares – (1.1) –– Balance at 31 March 289,165 286.0 273,619 282.4

At 31 March 2014, the Company had common shares only. At 31 March 2013, the Company had in issue common shares and preferred variable voting shares (“PVVS”) which carried no right to income but acted as a safeguard to ensure the Company met its requirements for Canadian control which enabled the Group to qualify for Canadian Heritage status. In order to satisfy certain eligibility criteria for premium listing, during the year the removal of the PVVS voting structure was approved by shareholders replaced with other safeguards that have since been incorporated into the Company’s Articles so as to ensure that Canadian control requirements continue to be met for the purposes of Canadian Heritage status.

During the year ended 31 March 2014, 11,545,342 common shares (2013: 5,806,115 common shares) were issued to employees exercising share options granted under various schemes. The current year amount includes 9,624,792 common shares that were issued to the executive directors under the Management Participation Scheme (see Note 31 for further details). The total consideration received by the Company on the exercise of these options was £0.1m (2013: £0.2m).

As set out in Note 31, on 6 March 2014 the Company issued 4,000,000 common shares at £1.00 per common share to Marwyn Value Investors L.P. (“Marwyn”) relating to the outstanding warrants previously granted. The total consideration received by the Company on the exercise of these warrants was £4.0m. As a result of this exercise, £0.6m was transferred from the warrants reserve to stated capital.

On 2 November 2012, the Company issued 2,500,000 common shares at £0.50 per common share to Lions Gate Entertainment Inc., the parent company of Summit Entertainment LLC (“Summit”) relating to outstanding warrants previously granted to Summit. The total consideration received by the Company on the exercise of these warrants was £1.3m.

On 1 October 2012, the Company issued 73,333,333 common shares at £1.50 per common share, raising gross equity proceeds of £110.0m. These proceeds were used to part-finance the acquisition of Alliance. The Company incurred related transaction fees of £3.0m (net of deferred tax of £1.1m) which were recorded against stated capital. In the year ended 31 March 2014, the Group assessed the deferred tax asset recognised in the prior year as non-recoverable and therefore wrote-off the balance of £1.1m through equity.

In total, the gross proceeds received by the Company during the year on the issue of new common shares was £4.1m (2013: £111.5m).

Subsequent to these transactions, and at the date of authorisation of these consolidated financial statements, the Company’s stated capital comprised 289,164,656 common shares (although for earnings per share purposes 3,463,706 common shares held by the EBT are treated as cancelled). See below for further details.

Own shares At 31 March 2014, 3,463,706 common shares (2013: 7,005,286 common shares) were held as own shares by the EBT to satisfy the exercise of options under the Group’s share option schemes (see Note 31 for further details). During the year, 3,541,580 common shares (2013: 505,000 common shares) previously issued to the EBT were used to satisfy certain employee share awards, resulting in £3.6m being transferred from own shares to retained earnings. Consequently, the book value of own shares at 31 March 2014 was £3.6m (2013: £7.2m).

104 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

30. Stated capital, own shares and other reserves continued

Other reserves Other reserves comprise the following:

• a cash flow hedging reserve with a debit balance of £1.1m at 31 March 2014 (2013: credit balance £1.1m). • a permanent restructuring reserve of £9.3m at 31 March 2014 and 2013 which arose on completion of the Scheme of Arrangement (“the Scheme”) in 2010 and represents the difference between the net assets and share capital and share premium in the ultimate parent company immediately prior to the Scheme.

31. Share-based payments

Equity-settled share schemes At 31 March 2014, the Group operated two equity-settled share-based payment schemes for its employees (including the executive directors). These are the new Long Term Incentive Plan (“LTIP”) and the Executive Share Plan (“ESP”). During the year, final distributions were made from the EBT and previous awards made under the Management Participation Scheme (“MPS”) were converted into common shares. Both the EBT and MPS plans are closed at 31 March 2014 and no further awards will be made from either of these schemes.

The total charge in the year relating to the Group’s equity-settled schemes was £2.7m (2013: £1.2m), net of a credit of £0.1m (2013: charge of £0.2m) relating to movements in associated social security liabilities.

LTIP On 28 June 2013, a new LTIP for the benefit of employees (including executive directors) of the Group was approved by the Company’s shareholders. A summary of the arrangements is set out below.

Nature Grant of nil cost options Service period Three years Performance conditions (for executive directors) (i) Annualised adjusted earnings per share growth over the performance period; (ii) average return on capital employed over the performance period; and (iii) total shareholder return over the performance period. Performance conditions (for other employees) Majority based on a performance condition of 50% vesting over the three year service period and 50% vesting dependent on performance against annual Group underlying EBITDA targets for FY14, FY15 and FY16. Maximum term 10 years

During the year, two grants were made under the LTIP. The fair value of each grant was measured at the date of grant using a binomial model. The assumptions used in the model were as follows:

Grant date 1 July 2013 14 February 2014 Fair value at measurement date (pence) 159.01 325.0 Number of options granted 910,562 1,861,687 Performance period (three years ending) 31 March 2016 31 March 2016 Share price on date of grant (pence) 201.0 335.6 Exercise price Nil Nil Expected volatility 45% 25% Expected life 10 years 10 years Dividend yield 0.5% 1.0% Risk free interest rate 1.4% 1.9% 1 The fair value of the 1 July 2013 grant of 159.0 pence is the weighted average fair value of each of the three performance conditions, as set out above.

The expected volatility is based on the Company’s share price from the period since trading first began adjusted where appropriate for unusual volatility. Actual future dividend yields may be different to the assumptions made in the above valuations.

105 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

31. Share-based payments continued

Details of share options granted and outstanding at the end of the year are as follows: 2014 2014 Weighted average Number exercise price Million Pence Outstanding at 1 April –– Granted 2.8 – Outstanding at 31 March 2.8 – Exercisable ––

The weighted average contractual life remaining of the LTIP options in existence at the end of the year was 9.7 years.

ESP A summary of the arrangements is set out below:

Nature Grant of options, generally with an exercise price of C$0.01 Service period Three years Performance conditions Majority based on a performance condition of 50% vesting over the three year service period and 50% vesting dependent on performance against annual Group underlying EBITDA targets. Maximum term Five years

Details of share options exercised, lapsed and outstanding at the end of the year are as follows:

2014 2013 Weighted Weighted 2014 average 2013 average Number exercise price Number exercise price Million Pence Million Pence Outstanding at 1 April 2.6 3.6 5.6 11.6 Exercised (1.9) 3.8 (2.6) 9.6 Lapsed (0.1) 0.6 (0.4) 74.3 Outstanding at 31 March 0.6 0.5 2.6 3.6 Exercisable 0.4 0.5 1.4 5.8

The weighted average contractual life remaining of the ESP options in existence at the end of the year was 1.7 years (2013: 2.4 years) and their weighted average exercise price was 0.5 pence (2013: 3.6 pence).

EBT Details of share awards distributed and outstanding at the end of the year are as follows:

2014 2013 Weighted Weighted 2014 average 2013 average Number exercise price Number exercise price Million Pence Million Pence Outstanding at 1 April 3.5 – 4.0 – Distributed (3.5) – (0.5) – Outstanding at 31 March – – 3.5 – Exercisable ––3.5 –

106 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

31. Share-based payments continued

MPS Since 31 March 2010, the Group had operated an MPS for executive directors. The extent to which rights vested depended upon the Company’s performance over a three year period from 31 March 2010. Participants were only rewarded if shareholder value was created, thereby aligning the interests of the participants directly with those of shareholders. The growth condition required to be met was that the compound annual growth of the Company’s share price from 31 March 2010 must be at least 12.5% per annum. The growth condition was measured at 31 March 2013 and was met. During the current year the executive directors exercised their option in relation to this scheme, converting their MPS shares into common shares of the Company as follows:

Number of common shares awarded Director Note Million Darren Throop 4.0 Giles Willits 2.1 Patrice Theroux 3.5 Total 30 9.6

No share-based payment charge was recorded in respect of the MPS in the current year. The new LTIP has replaced the MPS meaning no further grants will be made from this scheme.

Warrants over shares Marwyn warrants On completion of the acquisition of Entertainment One Income Fund in 2007, warrants over 4,000,000 common shares were issued to Marwyn at an exercise price of £1.00 per common share. The vesting conditions relating to these warrants, being 50% when the Company’s share price reached £1.25 and the remaining 50% when the Company’s share price reached £1.50, were achieved prior to the start of the current financial year. On 6 March 2014, the Company issued 4,000,000 common shares at £1.00 per common share to Marwyn, relating to the outstanding warrants previously granted. The total consideration received by the Company on the exercise of these warrants was £4.0m.

No share-based payment charge was recorded in respect of the Marwyn warrants in either the current or prior year.

Summit warrants On 24 May 2010, in association with the ongoing commercial relationship with Summit, warrants over 2,500,000 common shares were issued to Summit at an exercise price of £0.50 per common share. On 2 November 2012, the Company issued 2,500,000 common shares at £0.50 per common share to Lions Gate Entertainment Inc., the parent company of Summit, relating to the outstanding warrants previously granted to Summit. The total consideration received by the Company on the exercise of these warrants was £1.3m.

No share-based payment charge was recorded in respect of the Summit warrants in either the current or prior year.

32. Commitments

Operating lease commitments The Group operates from properties in respect of which commercial operating leases have been entered into.

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

31 March 2014 31 March 2013 £m £m Within one year 6.3 7.4 Later than one year and less than five years 15.0 19.5 After five years 1.0 4.1 Total 22.3 31.0

107 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

32. Commitments continued

Future capital expenditure 31 March 2014 31 March 2013 £m £m Investment in acquired content rights contracted for but not provided 187.6 201.4

33. Business combinations

Year ended 31 March 2014 Art Impressions On 16 July 2013, the Group acquired 100% of the issued share capital of Art Impressions Inc. (“Art Impressions”), a Los Angeles-based brand and licensing agency, for a total cash consideration of £5.0m. This purchase was accounted for as an acquisition.

The acquisition of Art Impressions marks an expansion of the Group’s Family licensing business into the “lifestyle” segment. Key brands owned and managed by Art Impressions are So So Happy and Skelanimals, both of which are teen/tween brands driven by design concepts rather than television programming.

The following table summarises the fair values of the assets acquired and liabilities assumed as part of this acquisition.

Fair value Note £m Other intangible assets 16 9.9 Cash and cash equivalents 1.1 Interest-bearing loans and borrowings 24 (2.5) Deferred tax liabilities 12 (3.5) Net assets acquired 5.0 Satisfied by: Cash 5.0 Total consideration transferred 5.0

Other intangible assets of £9.9m represent the fair value of Art Impression’s brands and trade names. These assets are not deductible for income tax purposes.

The net cash outflow arising in the current year arising from this acquisition was £3.9m, made up of:

£m Cash consideration 5.0 Less: cash and cash equivalents acquired (1.1) Total 3.9

Acquisition-related costs amounted to £0.2m in the current year and have been charged to the consolidated income statement within one-off items (see Note 9 for further details).

Art Impressions contributed £0.5m to the Group’s revenue and £1.1m loss before tax to the Group’s profit before tax for the period from the date of the acquisition to 31 March 2014. If the acquisition of Art Impressions had been completed on 1 April 2013, Group revenue for the year would have been £820.5m and Group profit before tax would have been £19.7m.

The acquired Art Impressions business has been integrated into the Television CGU.

Other acquisitions During the year the Group made other minor acquisitions for total cash consideration of £0.4m. This amount, combined with the net cash outflows arising on Art Impressions and Alliance (see below) of £3.9m and £1.8m, respectively, resulted in a total net cash outflow in the current year arising on acquisitions of £6.1m.

108 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

33. Business combinations continued

Year ended 31 March 2013 Alliance On 8 January 2013, the Group acquired 100% of the issued share capital of Alliance Films Holdings Inc. (“Alliance”) for a total consideration of £157.0m (as restated, see below), comprising £149.7m cash consideration and £7.3m contingent consideration (as restated, see below). This purchase was accounted for as an acquisition.

Alliance, a Canadian group of companies, was a leading independent film distributor in Canada, the UK and Spain. The acquisition established the largest independent film distributor in each of the Canadian and UK markets and added a new territory, Spain, to the Group’s global footprint. In addition, the acquisition meant the Group gained access to Alliance’s library of more than 11,500 film and television titles, including some of the most commercially successful independently produced titles of recent times. Furthermore, the acquisition provided the Group with increased access to film content via output agreements with a number of successful independent film studios. In summary, the acquisition strengthened the Group’s existing film distribution business, helping to drive growth and provided significant strategic and commercial benefits.

For the reasons outlined above, combined with the enhanced access to future operating synergies, the Group paid a premium on the acquisition, giving rise to goodwill. None of the goodwill recognised is expected to be deductible for income tax purposes.

The following table summarises the fair values of the assets acquired and liabilities assumed as part of this acquisition:

Provisional Final fair value1 fair value Note £m £m Goodwill 15 103.9 103.9 Other intangible assets 16 83.9 83.9 Investment in productions2 17 0.1 15.3 Property, plant and equipment 18 1.5 1.5 Inventories 4.4 4.4 Investment in acquired content rights2 20 90.7 75.5 Trade and other receivables 107.0 107.0 Cash and cash equivalents 9.0 9.0 Interest-bearing loans and borrowings (2.7) (2.7) Trade and other payables (197.5) (197.5) Provisions (22.7) (22.7) Tax: Current tax assets 0.4 0.4 Current tax liabilities (9.9) (9.9) Net deferred tax liabilities 12 (0.7) (0.7) Net assets acquired 167.4 167.4 Satisfied by: Cash 149.7 149.7 Contingent consideration (see below) 17.7 7.3 Total consideration transferred 167.4 157.0 Effect of reassessment of contingent consideration (including foreign exchange difference of £0.6m recognised directly in equity) – 10.4 Total 167.4 167.4 1 Provisional fair values are consistent with numbers disclosed in the 2013 Annual Report and Accounts. In calculating final fair values, no revisions have been made to the provisional amounts unless otherwise stated. 2 As explained in Note 17, £15.2m has been reclassified from investment in acquired content rights to investment in productions.

The provisional amount of contingent consideration of £17.7m represented amounts payable to the former shareholders of Alliance subject to (i) Alliance meeting certain box office targets over a two year period and (ii) certain tax liabilities being settled for less than the amount provided in Alliance’s financial statements within the first three years post-completion. At 31 March 2013, this liability was held in the consolidated balance sheet within non-current payables at an amount of £18.2m (after the effect of foreign exchange). During the year ended 31 March 2014, the Group reassessed the amount of contingent consideration payable in respect of box office targets related to the Alliance acquisition, resulting in a one-off credit to the consolidated income statement of £9.8m, representing a full release of the provision which had been established in the prior year. See Note 9 for further details of this.

109 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

33. Business combinations continued

The potential undiscounted amount of all future payments that the Group could be required to make in respect of the contingent consideration arrangement is C$47.0m (equivalent to £25.5m at 31 March 2014 closing exchange rate; equivalent to £30.5m at 31 March 2013 closing exchange rate).

Below is an analysis of the other intangible assets acquired as part of the acquisition of Alliance.

£m Exclusive content agreements and libraries 56.1 Trade names and brands 20.5 Non-compete agreements 6.8 Software 0.5 Total 83.9

The net cash outflow arising in the prior year arising from this acquisition was £140.7m, made up of:

£m Cash consideration 149.7 Less: cash and cash equivalents acquired (9.0) Total 140.7

During the current year, the Group paid £1.8m into an escrow account in respect of the contingent consideration arrangements described above. At 31 March 2014, this amount is held as a receivable in the consolidated balance sheet.

Acquisition-related costs amounted to £9.9m in the prior year and were charged to the consolidated income statement within one-off items (see Note 9 for further details).

Alliance contributed £69.7m to the Group’s revenue and £5.3m loss before tax to the Group’s profit before tax for the period from the date of the acquisition to 31 March 2013. If the acquisition of Alliance had been completed on 1 April 2012, Group revenue for the year would have been £832.3m and Group profit before tax would have been £12.3m.

The acquired Alliance business has been integrated into the Film CGU.

Other acquisitions During the prior year, the Group paid £0.3m relating to the finalisation of completion accounts in respect of an acquisition made in the year ended 31 March 2012. This amount, combined with the net cash outflow arising on Alliance of £140.7m (see above), resulted in a total net cash outflow in the prior year arising on acquisitions of £141.0m.

110 entertainmentone.com ANNUAL REPORT AND ACCOUNTS 2014

34. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

Transactions relating to the year ended 31 March 2014 Marwyn held 79,424,894 common shares in the Company at 31 March 2014 (2013: 75,424,894), amounting to 27.5% (2013: 27.6%) of the issued capital of the Company. Marwyn is deemed to be a related party of Entertainment One Ltd. by virtue of this significant shareholding.

James Corsellis and Mark Watts (who resigned as a director of the Company on 28 June 2013) are partners of Marwyn Capital LLP, partners of Marwyn Investment Management LLP, directors of Marwyn Partners Limited and directors of Marwyn Investments Group Limited and are therefore deemed to be related parties of Entertainment One Ltd. by virtue of a common director or member (up to 28 June 2013 in respect of Mr Watts).

During the year the Company paid fees of £0.4m (2013: £0.3m) to Marwyn Capital LLP for corporate finance advisory services under the terms of their advisory agreement pursuant to which Marwyn Capital have agreed to provide general strategic and corporate finance services to the Company for a fixed monthly fee of £15,000 (2013: £25,000 plus expenses up to August 2012; from September 2012 the corporate activities decreased and the fee returned to £15,000 with additional fees for each corporate transaction to be agreed).

At 31 March 2014 the Group owed Marwyn Capital LLP less than £0.1m (2013: less than £0.1m). The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.

The Group owed £6.9m (2013: £1.5m) to its joint venture film and television production companies and was owed £3.0m (2013: £2.2m) by its joint venture film and television production companies at 31 March 2014.

Transactions relating to the year ended 31 March 2013 During the prior year loans were granted by the Company of £1.3m to Darren Throop and £1.3m to Patrice Theroux, both executive directors of the Company, to fund the payment of tax liabilities arising on the exercise of options under certain Entertainment One share schemes. The exercise of these options took place on 27 March 2012 and 3 July 2012 and, in each case, had they not have been exercised by 29 March 2012 and 5 July 2012, respectively, would have lapsed. The loans were required as neither executive director were able to dispose of any shares resulting from the exercise of such options at the time that the tax liabilities became due because they were restricted from dealing in the Company’s common shares under the Company’s share dealing code. These loans were repaid in full in October 2012.

Robert Lantos, who resigned as a director of the Company on 1 February 2013, is the owner of Serendipity Point Films (“Serendipity”). The Group has an output agreement with Serendipity covering distribution of all Serendipity titles within the Canadian market. Serendipity also co-produces a number of television productions with the Group. The Group owed Serendipity £nil at 31 March 2013.

During the prior year payments of £0.1m were made to One Voice Media Inc., a joint venture of the Group up until its liquidation in November 2012. No amount was owed to One Voice Media Inc. at 31 March 2013.

111 ENTERTAINMENT ONE LTD.

Notes to the Consolidated Financial Statements continued for the year ended 31 March 2014

35. Subsidiaries

The Group’s principal subsidiary undertakings are as follows:

Name Country of incorporation Principal activity Entertainment One Films Canada Inc. Canada Content ownership Alliance Films Inc. Canada Content ownership Seville Pictures Inc. Canada Content ownership Entertainment One Limited Partnership Canada Content ownership and distribution 7508999 Canada Inc. Canada Holding company 4384768 Canada Inc. Canada Holding company Entertainment One Television BAP Ltd. Canada Production of television programmes Entertainment One Television International Ltd. Canada Sales and distribution of films and television programmes Entertainment One Television Productions Ltd. Canada Production of television programmes Videoglobe 1 Inc. Canada Content distribution Entertainment One UK Limited England and Wales Content ownership Alliance Films (UK) Limited England and Wales Content ownership Entertainment One UK Holdings Limited England and Wales Holding company Entertainment One US LP US Content ownership and distribution Earl Street Capital Inc. US Holding company Aurum Producciones S.A.U. Spain Content ownership Entertainment One Benelux BV Holland Content ownership Coöperatieve Entertainment One Finance U.A. Holland Financing company Entertainment One Films Australia Pty Ltd (formerly Entertainment One Hopscotch Pty Ltd) Australia Content ownership

All of the above subsidiary undertakings are 100% owned and, other than 7508999 Canada Inc., are owned through intermediate holding companies.

The proportion held is equivalent to the percentage of voting rights held.

All of the above subsidiary undertakings have been consolidated in the consolidated financial statements under the acquisition method of accounting.

112 entertainmentone.com Company Information

Registered office Joint broker 175 Bloor Street East JP Morgan Cazenove Suite 1400 25 Bank Street North Tower Canary Wharf Toronto London Ontario E14 5JP M4W 3R8 UK Canada Joint broker Bankers Cenkos Securities plc JP Morgan Chase N.A. 6.7.8 Tokenhouse Yard 25 Bank Street London Canary Wharf EC2R 7AS London UK E14 5JP UK Registrars Capita Registrars (Jersey) Limited Legal advisers to the Company (Canada) 12 Castle Street Osler, Hoskin & Harcourt LLP St. Helier 100 King Street West JE2 3RT 1 First Canadian Place Jersey Toronto Ontario Auditor M5X 1B8 Deloitte LLP Canada 2 New Street Square London Legal advisers to the Company (UK and US) EC4A 3BZ Mayer Brown International LLP UK 201 Bishopsgate London EC2M 3AF UK Entertainment One Ltd. 175 Bloor Street East Suite 1400, North Tower Toronto, ON, M4W 3R8 Canada T: +1 416 646 2400 F: +1 416 646 2399 www.entertainmentone.com