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Eros International Plc Reports Second Quarter Fiscal Year 2018 ResultsEros International Plc (NYSE: EROS) ("Eros" or "the Company"), a leading global company in the Indian film entertainment industry, today reported its quarterly financial results for the three and six months ended September 30, 2017. Key Highlights
A reconciliation of the non-GAAP financial measures discussed within this release to our GAAP operating results are included at the end of this release. See also "Non-GAAP Financial Measures." Management Comments: Jyoti Deshpande, Eros' Group Chief Executive Officer and Managing Director said: "We are pleased to announce another strong quarterly performance. We continue to transition the company from a leading film studio to a digital company as we build on the momentum of our Eros Now platform which has crossed over 3.7 million paying subscribers. 4G telecom based growth in India continues to be bouyant and Eros Now continues to grow favourably due to the exclusive and dynamic relationships we have built with the leading telcos in India. We are confidently on track to hit our 6-8 million paying subscriber target by the end of fiscal 2018 and at least doubling that by the end of fiscal 2019. Over the past few months we have entered into several new distribution partnerships with both OEM's and distributors - including Roku, LG and Telecel Global in South Africa. As we grow our Eros Now userbase outside of India, these partnerships will be very important for us to reach as many new markets and customers as possible growing our base in the most efficient and effective ways. Throughout the past year, we have strategically chosen to concentrate on medium and lower budget content driven films rather than high budget star driven films. This strategy is paying off as we saw several of our films generate strong returns this quarter, including the hit comedy 'Shubh Mangal Savdhan', 'Munna Michael' and 'Newton" which went on to become India's official entry to this year's Academy Awards. Looking ahead, we will continue to pursue our strategy of content driven films that are green-lit at an appropriate budget with attractive ROI possibilities while leveraging our strong library of films to generate margin-enhancing performance." Prem Parameswaran, Group Chief Financial Officer and President of North America also commented: "We delivered strong financial results in the quarter and first six months of Fiscal Year 2018. On the operational side, we had several well-received theatrical releases this quarter as well as robust TV syndication revenues. We posted one of our best ever quarters for digital and ancillary revenues, buoyed by the success of Eros Now and growth in paying subscribers, which we had highlighted last month. For the six months ended September 30, 2017, operating profit increased substantially compared to the year ago period, with operating profit and Adjusted EBITDA margins of 21.1% and 24.9%, respectively. With over $113 million of cash on our balance sheet and a reduction in short-term borrowings, our balance sheet remains strong and we are well capitalized for future growth. Our trailing twelve month net leverage stands at 2.5x and our total debt to capitalisation ratio is 21%." Recent Operational Highlights
Eros Now and Partnerships Eros Now holds rights to more than 10,000 films, of which approximately 5,000 films are owned in perpetuity, and across Hindi and regional languages. Eros Now is committed to bringing exciting fresh content to its audiences. Eros Now's contemporary original programs spanning genres such as comedies, drama, mythological dramas, thrillers as well as satires will release over Fiscal Year 2018 and Fiscal Year 2019. At least 50% of Eros' programs have been conceptualized by its writers' rooms across Trinity and Eros Now. A few of our originals include:
In addition to the originals, Eros Now also has 5 straight to digital films in various stages of production. These comprise short films as well as longer format films. Eros Now continues to focus on numerous partnerships spanning OEMs, Telco's and broadband providers.
Eros International Plc Financial Highlights:
(1)Reconciliations of the non-GAAP financial measures discussed within this release to our GAAP operating results are included at the end of this release. See also "Non-GAAP Financial Measures." Financial Results for the Three and Six Months Ended September 30, 2017 Revenue In the three months ended September 30, 2017, the Eros film slate was comprised of seven films of which two were medium budget and five were low budget as compared to 18 films in the three months ended September 30, 2016, of which two were high budget, four were medium budget and twelve were low budget. In the three months ended September 30, 2017, the Company's slate of seven films comprised of four Hindi film and three regional films as compared to the same period last year where its slate of 18 films comprised five Hindi films, seven Tamil/Telugu films and six regional films. In the six months ended September 30, 2017, the Eros film slate was comprised of 12 films of which one film was high budget, three were medium budget and eight were low budget films as compared to 32 films in the six months ended September 30, 2016, of which five were high budget, six were medium budget and 21 were low budget. In the six months ended September 30, 2017, the Company's slate of 12 films comprised of five Hindi films, one Tamil/Telugu film and six regional films as compared to the same period last year where its slate of 32 films comprised of ten Hindi films, thirteen Tamil/Telugu films and nine regional films. For the three months ended September 30, 2017, revenue decreased by 12% to $63.3 million, compared to $71.9 million for the three months ended September 30, 2016. In the six months ended September 30, 2017, revenue decreased by 13.2% to $124.1 million, compared to $143 million for the six months ended September 30, 2016. For the three months ended September 30, 2017, aggregate theatrical revenues decreased by 38% to $19.4 million from $31.3 million for the three months ended September 30, 2016, mainly due to a lower number of films, especially high and medium budget Hindi films. In the six months ended September 30, 2017, revenue decreased by 37.4% to $43 million, compared to $68.7 million for the six months ended September 30, 2016. The decrease in theatrical revenue reflects the mix of films released in each period as mentioned above. For the three months ended September 30, 2017, aggregate revenues from television syndication decreased by 11.1% to $23.2 million from $26.1 million for the three months ended September 30, 2016, mainly due to lower new release television revenues partially offset by catalogue revenues. In the six months ended September 30, 2017, revenue decreased by 11.2% to $40.6 million, compared to $45.7 million for the six months ended September 30, 2016. This was due to lower catalogue sales in six months ended September 30, 2017. For the three months ended September 30, 2017, the aggregate revenues from digital and ancillary increased by 42.1% to $20.6 million from $14.5 million for the three months ended September 30, 2016 primarily on account of contribution from Eros Now and catalogue revenues. In the six months ended September 30, 2017, revenue increased by 41.6% to $40.5 million, compared to $28.6 million for the six months ended September 30, 2016.
Revenue from India decreased by 36.3% to $25.4 million in the three months ended September 30, 2017, compared to $39.9 million in the three months ended September 30, 2016 mainly due to lower theatrical revenues associated with fewer films released in the quarter ended September 30, 2017. In the six months ended September 30, 2017, revenue from India decreased by 38.5% to $50.8 million, compared to $82.6 million for the six months ended September 30, 2016. The decrease in overall theatrical revenue was offset by stronger catalogue revenue contribution. Revenue from Europe increased by 8.5% to $5.1 million in the three months ended September 30, 2017, compared to $4.7 million in the three months ended September 30, 2016. This was due to higher catalogue sales partially offset by lower theatrical revenues associated with fewer films released in the quarter ended September 30, 2017. In the six months ended September 30, 2017, revenue from Europe increased by 58.7% to $14.6 million, compared to $9.2 million for the six months ended September 30, 2016. Revenue from North America decreased by 20% to $0.4 million in the three months ended September 30, 2017, compared to $0.5 million in the three months ended September 30, 2016 mainly due to lower theatrical revenues associated with fewer films released in the quarter ended September 30, 2017. In the six months ended September 30, 2017, revenue from North America decreased by 68.4% to $0.6 million, compared to $1.9 million for the six months ended September 30, 2016. Revenue from the rest of the world increased by 20.9% to $32.4 million in the three months ended September 30, 2017, compared to $26.8 million in the three months ended September 30, 2016. This was due to higher catalogue sales partially offset by lower theatrical revenues associated with fewer films released in the quarter ended September 30, 2017. In the six months ended September 30, 2017, revenue from rest of world increased by 18.1% to $58.2 million, compared to $49.3 million for the six months ended September 30, 2016. Cost of sales For the three months ended September 30, 2017, cost of sales decreased by 28% to $35.2 million compared to $48.9 million in the three months ended September 30, 2016. The decrease was mainly due to lower amortization costs, lower marketing, advertising and distribution costs associated with fewer films released in the quarter ended September 30, 2017. In the six months ended September 30, 2017, cost of sales decreased by 27.7% to $70.1 million, compared to $96.9 million for the six months ended September 30, 2016. Gross profit For the three months ended September 30, 2017, gross profit increased by 23.1% to $28.2 million, compared to $22.9 million in the three months ended September 30, 2016. As a percentage of revenues, the Company's gross profit margin was 44.4% in the three months ended September 30, 2017, compared to 31.8% in the three months ended September 30, 2016. This was mainly due to lower cost of sales linked to film mix and contribution from high margin catalogue revenues. In the six months ended September 30, 2017, gross profit increased by 17.4% to $54 million, compared to $46 million for the six months ended September 30, 2016. EBIT (Non- GAAP) For the three months ended September 30, 2017, EBIT increased by 161.8% to $14.4 million compared to $5.5 million in the three months ended September 30, 2016. This was mainly due to lower cost of sales linked to film mix and contribution from high margin catalogue revenues. In the six months ended September 30, 2017, EBIT increased by 105.5% to $26.1 million, compared to $12.7 million for the six months ended September 30, 2016. Adjusted EBITDA (Non- GAAP) For the three months ended September 30, 2017, Adjusted EBITDA increased by 10.2% to $15.1 million compared to $13.7 million in the three months ended September 30, 2016 due to fewer theatrical releases in the quarter partially offset by strong catalogue sales. In the six months ended September 30, 2017, adjusted EBITDA decreased by 2.8% to $30.9 million, compared to $31.8 million for the six months ended September 30, 2016 due to fewer theatrical releases in the quarter partially offset by strong catalogue sales. Administrative costs For the three months ended September 30, 2017, administrative costs decreased by 21.3% to $13.7 million compared to $17.4 million for the three months ended September 30, 2016 mainly due to decrease in share based compensation. In the six months ended September 30, 2017, administrative costs decreased by 16.5% to $ 27.9 million, compared to $33.4 million for the six months ended September 30, 2016. Net finance costs For the three months ended September 30, 2017, net finance costs increased by 18.2% to $5.2 million, compared to $4.4 million in the three months ended September 30, 2016 mainly due to lower income from financing activities and increased borrowing costs. In the six months ended September 30, 2017, net finance costs increased by 39.5% to $10.6 million, compared to $7.6 million for the six months ended September 30, 2016. Income tax expense For the six months ended September 30, 2017, income tax expenses decreased by 42.4% to $3.8 million, compared to $6.6 million in the six months ended September 30, 2016. Effective income tax rates were 20.0% and 28.6% for September 30, 2017 and September 30, 2016, respectively excluding non-deductible share-based payment charges and gain/loss on fair valuation of derivative liabilities. The change in effective rate principally reflects a change in the mix of the profits earned from taxable and non- taxable jurisdictions. Net Income For the three months ended September 30, 2017, net income increased by 257.1% to $2.2 million, compared to $ (1.4) million in the three months ended September 30, 2016. For the six months ended September 30, 2017, net income increased by 100% to 4.0 million, compared to $2.0 million in the six months ended September 30, 2016. Trade Receivables As of September 30, 2017, Trade Receivables increased to $237.2 million from $226.8 million as of March 31, 2017 mainly due to higher catalogue sales in this quarter. Catalogue sales have payment terms that sometimes extend up to a year. The Company collected over $13 million of trade receivables post September 30, 2017. Net Debt As of September 30, 2017, net debt decreased to $137.2 million from $157.6 million as of March 31, 2017. Conference Call The Company will host a conference call on Monday November 27th, 2017, at 8:30 AM Eastern Standard Time. To access the call please dial 718 354 1359 or 877 280 2342 from the United States, or +44 (0)20 3427 1910 or +44 (0)80 0279 5736 from outside the U.S. The conference call I.D. number is 6917202. Participants should dial in 5 to 10 minutes before the scheduled time. A replay of the call can be accessed through December 3, 2017 by dialing 719 457 0820 or 888 203 1112 from the U.S., or +44 (0)20 7984 7568 or +44 (0)80 8101 1153 from outside the U.S. The conference call I.D. number is 6917202. The call will be available as a live webcast, which can be accessed at Eros' Investor Relations website. A replay of the webcast recording will be available until November 21, 2018. Non-GAAP Financial Measures Net Income The Company uses the term Net Income, as the International Financial Reporting Standards ("IFRS") define the term as synonymous with profit for the period. Adjusted EBITDA In addition to the results prepared in accordance with IFRS provided in this release, the Company uses Adjusted EBITDA. The company uses Adjusted EBITDA along with other IFRS measures to evaluate operating performance. Adjusted EBITDA is defined by the Company as net income before interest expense, income tax expense and depreciation and amortization (excluding amortization of capitalized film content and debt issuance costs) adjusted for impairments of financial assets and available-for-sale financial assets, profit/loss on held for trading liabilities (including profit/loss on derivatives) share based payments and transaction costs related to equity transactions. Adjusted EBITDA, as used and defined by us, may not be comparable to similarly-titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. Adjusted EBITDA provides no information regarding a company's capital structure, borrowings, interest costs, capital expenditures and working capital movement or tax position. However, our management team believes that Adjusted EBITDA is useful to investors in evaluating our results of operations because this measure: • is widely used by investors to measure a company's operating performance without regard to items excluded from the calculation of such, term, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; • help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and • is used by our management team for various other purposes, including presentations to our board of directors, as a basis for strategic planning and forecasting. See the supplemental financial schedules for a reconciliation of Adjusted EBITDA to Net Income. Cautionary Statement Concerning Forward-Looking Statements Some of the information presented in this press release and in related comments by Eros' management contains forward-looking statements. In some cases, these forward-looking statements are identified by terms and phrases such as "aim," ''anticipate,'' ''believe,'' "feel," "contemplate," ''intend,'' ''estimate,'' ''expect,'' ''continue,'' ''should,'' ''could,'' ''may,'' ''plan,'' ''project,'' ''predict,'' ''will,'' "future," "goal," "objective," and similar expressions and include references to assumptions and relate to Eros' future prospects, developments and business strategies. Similarly, statements that describe Eros' strategies, objectives, plans or goals are forward-looking statements and are based on information available to Eros as of the date of this press release. Forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by the relevant statement. Such risks and uncertainties include a variety of factors, some of which are beyond Eros' control, including but not limited to market conditions and economic conditions. Information concerning these and other factors that could cause results to differ materially from those contained in the forward-looking statements is contained under the caption "Risk Factors" in Eros' Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission. Eros undertakes no obligation to revise the forward-looking statements included herein to reflect any future events or circumstances, except as required by law. Eros' actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Seasonality The Groups' financial position and results of operations for any period fluctuate due to film release schedules. Film release schedules take account of holidays and festivals in India and elsewhere, competitor film releases and sporting events. About Eros International, Plc Eros International Plc (NYSE: EROS) is a leading global company in the Indian film entertainment industry that acquires, co-produces and distributes Indian films across all available formats such as cinema, television and digital new media. Eros International Plc was the first Indian media company to list on the New York Stock Exchange. Eros International has experience of over three decades in establishing a global platform for Indian cinema. The Company has a competitive advantage through its extensive and growing movie library comprising of over 3,000 films, which include Hindi, Tamil, and other regional language films for home entertainment distribution. Eros International has built a dynamic business model by combining the release of new films every year with the exploitation of its film library. The company also owns the rapidly growing OTT platform Eros Now. For further information please visit: www.erosplc.com
Supplemental Financial Data
An analysis of long-term borrowings is shown in the table below.
Bank Prime Lending Rate ("BPLR") and Marginal Cost Based Lending Rate ("MCLR") is an Indian equivalent to LIBOR. Asset backed borrowings are secured by fixed and floating charges over certain Group assets. Analysis of short-term borrowings
Fair value of the long-term borrowings as at September 30, 2017 is $135,429 (March 31, 2017: $155,923). Fair values of long-term financial liabilities except retail bonds have been determined by calculating their present values at the reporting date, using fixed effective market interest rates available to the respective entities within the Group. As at September 30, 2017, the fair value of retail bond amounting to $48,868 (March 31, 2017: $43,416) has been determined using quoted prices from the London Stock Exchange (LSE). Carrying amount of short-term borrowings approximates fair value.
Acceptances comprise of credit availed from financial institutions for payment to film producers for film co-production arrangement entered by the group. The carrying value of acceptances are considered a reasonable approximation of fair value.
On May 11, 2017, the Company issued 12,000 shares entered into an exit agreement with an employee pursuant to which the Board approved a grant of 12,000 'A' ordinary share awards with Nil exercise price and a fair market value of $10.8 per share. In May 2017, the company issued 90,000 shares entered into an exit agreement with an employee pursuant to which the Board approved a grant of 90,000 'A' ordinary share awards with Nil exercise price and a fair market value of $10 per share. These shares were issued in July and August 2017. Between the months of May to September, permitted Class B shares aggregating to 6,666,667 were converted into Class A shares. This was effected through the cancellation of 6,666,667 Class B shares and subsequent issuance of the equivalent amount of Class A shares. In June 2015, 300,000 'A' ordinary shares awards were granted to the Group CFO with a fair market value of $21.34 per share. Subject to continued employment, these awards with nominal value exercise price vest annually in three tranches beginning June 9, 2016. As at September 30, 2017, 200,000 shares were vested and issued. As at September30, 2017, none of the awards were forfeited.
The compensation cost recognized with respect to all outstanding plans and by grant of shares, which are all equity settled instruments, is as follows:
The above table does not split the earnings per share separately for the 'A' ordinary 30p shares and the 'B' ordinary 30p shares as there is no variation in their entitlement to participate in undistributed earnings.
The net (losses)/gains on held for trading financial liabilities in the three months ended September 30,2017 and 2016, respectively, principally relate to derivative instruments not designated in a hedging relationship.
Significant non-cash expenses except loss on sale of assets, share based compensation, depreciation, derivative interest and amortization were as follows:
11. NON GAAP-FINANCIAL MEASURES Adjusted EBITDA(Non-GAAP)
(1) Includes only amortization of intangible assets other than intangible content assets. (2) Consists of compensation costs recognized with respect to all outstanding plans and all other equity settled instruments.
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