Pepper Pig-owner and film distributor Entertainment One (ETO) (eOne) will report a £47m one-off hit to profits in the year to 31 March 2017. The charges relate to the restructuring of its film division and changes made to a major distribution deal.
The London and Toronto-based business wants to become more involved in the creative process of major movies and so has renegotiated one of its largest film distribution deals. The identity of the distribution partner has not been made public but the new agreement will see eOne make a one-off $25m (£19.4m approx) payment to its partner.
STREAMING MOVIES
This is part of a wider restructuring of eOne's film business aimed at driving long-term improvement in profitability and cash flow. This involves concentrating of digital distribution via the explosion of streaming services worldwide and away from physical DVD sales.
Last year eOne's film business enjoyed considerable success with the UK box office hit The BFG, which is thought to have taken £30 million during summer 2016.
‘This should give Entertainment One better control than a traditional output deal, but it is hard to know what the future financial benefit will be,’ say Johnathan Barrett, analyst at broker N+1 Singer.
On the assumption that half the physical distribution costs are cash costs, Barratt speculates that net debt will be around £33m higher than the range of £190m to £200m guided by the company.
‘These changes are part of the reshaping of our Film business for the future and are expected to have a positive impact on both cash flow and underlying EBITDA for the company,’ says founder and chief executive Darren Throop.
Shares in the FTSE 250 firm are 1.4% lower at 240p, implying that investors see the longer-term benefits to the business beyond short-run pain.
