Entertainment one posts mounting losses

Increased costs, write-offs offset higher revenues

TORONTO -- Canadian producer Entertainment One on Wednesday posted a widened pre-tax loss for the first half of the year on higher costs and one-off items, despite sharply higher revenue.

Toronto-based E1, which trades on London Stock Exchange's AIM market and released its interim statement Wednesday, recorded a pre-tax loss of $12.6 million for the six months to Sept. 30, against a loss of $8.8 million in 2008.

"We're quite pleased with the operating results in a pretty tough economic climate for the last 12 months," E1 CEO Darren Throop commented.

Revenue for the year rose 24.8% to $274.5 million, against a year-earlier $220 million.

E1 Distribution, the North American music, DVD and video game wholesale division, saw overall revenue fall 6% to $162 million, while E1's entertainment division saw revenue rise 73% to $119.4 million, as higher film and TV revenues offset lower music sales.

As E1 continues its shift from a traditional wholesaler to filmed entertainment, the company released over 50 film titles and invested heavily in TV series production, including the upcoming series "The Bridge" for CBS and "Copper" for ABC.

At the same time, E1 widened its six-month loss due to increased amortization of acquired intangible assets and financing charges rising to $8.9 million, from a year-earlier $2.85 million.

E1 invested around $65.4 million in content rights and TV shows during the first six months, compared to $28.7 million in 2008. That investment went mostly into TV businesses acquired last year and film content, mostly in the U.K.

The content investment drove up E1's debt to $186.3 million at Sept. 30, against $149.3 million at March 31, 2009.

E1's Throop said the increased content investment, while taking a bite out of the balance sheet in the short term, underpinned a long-term growth strategy designed to build value as the company moves from physical to digital media.

He pointed to underlying EBITDA rising 38% to $15.6 million, and an independent library valuation increasing 26% to $220 million.

"Over the next year or two years, you're going to see substantial cash generation, you're going to see continued EBITIDA growth," Throop insisted.

He said the content investment will eventually stabilize, reducing up-front amortization charges, as cash generation continues to grow.

E1 is to release Summit Entertainment's "The Twilight Saga: New Moon" in Canada and the U.K. from this Friday.

Throop predicted boxoffice for the sequel will equal, or even surpass, the first "Twilight" film release.
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