Children’s cartoon PJ Masks is proving to be a major hit for Entertainment One (ETO) with the brand now accounting for 36% of its Family division revenue versus 8% a year earlier. Peppa Pig accounts for the majority of the remaining Family division sales.

A surge in merchandise sales for PJ Masks is a key reason behind Entertainment One reporting a 36% rise in underlying EBITDA (earnings before interest, tax, depreciation and amortisation) to £51.4m in the half year to 30 September despite a 1% drop in revenue to £395.7m. Also contributing to the EBITDA boost were cost savings in its Film division.

Revenue from all PJ Masks activity increased by more than 600%, year on year, to £22.3m versus £3m in the first half of 2016.

The news helps to push up its share price by 2.7% to 299.5p.

The company says PJ Masks merchandise and TV content will continue to be rolled out across Europe and Asia, as well as enhancing an already-strong position in the US including a recently-launched stage show. It says the brand is generating significant interest in China and a full launch is planned in the next financial year.

If we assume no changes to foreign exchange rates during the period, revenue would have been down 5% and EBITDA would have been up by 33.5%.

Entertainment One increased its investment in its Television division by 30% during the past half year period on the content production side to £115.8m and spent 19% more on content acquisitions at £15.7m.

Its Television division consists of its own TV interests as well as a joint venture with The Mark Gordon Company (a film and TV studio), music operations and a digital content studio called Secret Location.

The company believes it will see increase revenue and profit from the Television from next year as a result of merging its TV and film sales team into a single unit.

Don’t be overly concerned by negative free cash flow in the half year period at £66.6m, which is greater than the previous year’s £65.3m negative free cash flow figure. Chief executive Darren Throop says the business has been free cash flow positive for the past two years when looking at a full 12 month period.

‘Seventy per cent of our earnings and revenue come in the back end of the financial year,’ he explains.

Elsewhere, a new exclusive deal has been struck with Amazon whereby the internet giant gets Entertainment One TV and film content ahead of other streaming providers like Netflix.

This isn’t the first time the two companies have struck such a deal. Throop says exclusivity agreements typically have two to three year terms; upon expiry Entertainment One holds a competitive bidding process across the broadcasting/streaming industry.

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Issue Date: 21 Nov 2017