EX-99.1 2 d596902dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and

31 March 2011


CONTENTS

 

Independent Auditors’ Report

   2

Combined Carve-out Statements of Income

   3

Combined Carve-out Statements of Comprehensive Income

   4

Combined Carve-out Statements of Financial Position

   5

Combined Carve-out Statements of Changes in Invested Equity

   6

Combined Carve-out Statements of Cash Flows

   7

Notes to the Combined Carve-out Financial Statements

   8-42

 

1


Independent Auditors’ Report

The Directors

PLG Holdco Limited

Report on the Combined Carve-out Financial Statements

We have audited the accompanying combined carve-out financial statements of the entities listed in Note 1 and forming the Parlophone Label Group (“PLG”), which comprise the combined carve-out statements of financial position as at March 31, 2013, 2012 and 2011, and the related combined carve-out statements of income and comprehensive income, changes in invested equity, and cash flows for the years then ended, and the related notes to the combined carve-out financial statements.

Management’s Responsibility for the Combined Carve-out Financial Statements

Management is responsible for the preparation and fair presentation of these combined carve-out financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined carve-out financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined carve-out financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined carve-out financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined carve-out financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined carve-out financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined carve-out financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined carve-out financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined carve-out financial statements present fairly, in all material respects, the financial position of Parlophone Label Group as at March 31, 2013, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with IFRS as issued by the IASB.

Emphasis of Matter

Note 1 to the accompanying combined carve-out financial statements explains the basis of preparation, including the approach to and the purpose for preparing them. These combined carve-out financial statements were prepared for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X of the Securities Act of 1933, as amended. Our opinion is not modified with respect to this matter.

KPMG LLP

London, United Kingdom

September 10, 2013

 

2


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Combined Carve-out Statements of Income

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

          Year ended 31     Year ended 31     Year ended 31  
          March 2013     March 2012     March 2011  
     Note    £m     £m     £m  

Revenue

        295        371        368   

Cost of sales and distribution costs

        (159     (208     (212
     

 

 

   

 

 

   

 

 

 

Gross profit

        136        163        156   

Operating expenses

        (59     (70     (63

Restructuring costs

   5      (6     (10     (5

Pension curtailment expense

   2, 19      (312     —          —     

Net profit on disposal of assets

   2      166        —          —     
  

 

  

 

 

   

 

 

   

 

 

 

(Loss)/ profit from operations

   2      (75     83        88   

Net finance charges:

         

Finance income

   4      32        26        7   

Finance costs

   4      (15     (25     (6
  

 

  

 

 

   

 

 

   

 

 

 

Total net finance charges

        17        1        1   
     

 

 

   

 

 

   

 

 

 

(Loss)/ profit before taxation

        (58     84        89   

Taxation:

         

Overseas

   6      (4     (8     (4

UK

   6      (13     (27     (28
  

 

  

 

 

   

 

 

   

 

 

 

Total Taxation

        (17     (35     (32
     

 

 

   

 

 

   

 

 

 

(Loss)/ profit for the year

        (75     49        57   
     

 

 

   

 

 

   

 

 

 

Attributable to:

         

Equity holders of the parent companies

        (75     49        57   
     

 

 

   

 

 

   

 

 

 

(Loss)/ profit for the year

        (75     49        57   
     

 

 

   

 

 

   

 

 

 

The notes on pages 8 to 42 form part of these financial statements.

 

3


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Combined Carve-out Statements of Comprehensive Income

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

     Year ended 31     Year ended 31     Year ended 31  
     March 2013     March 2012     March 2011  
     £m     £m     £m  

(Loss)/profit for the year

     (75     49        57   

Other comprehensive (loss)/income:

      

Foreign exchange translation

     (1     (2     1   
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss)/income for the year

     (1     (2     1   
  

 

 

   

 

 

   

 

 

 

Total comprehensive (loss)/income for the year

     (76     47        58   
  

 

 

   

 

 

   

 

 

 

Attributable to:

      

Equity holders of the parent companies

     (76     47        58   
  

 

 

   

 

 

   

 

 

 

Total comprehensive (loss)/income for the year

     (76     47        58   
  

 

 

   

 

 

   

 

 

 

The notes on pages 8 to 42 form part of these financial statements.

 

4


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Combined Carve-out Statements of Financial Position

As at 31 March 2013, 31 March 2012 and 31 March 2011

 

          2013     2012     2011  
     Note    £m     £m     £m  

Assets

         

Non-current assets

         

Music catalogues

   7      5        5        —     

Goodwill

   8      2        2        —     

Property, plant and equipment

   9      24        39        39   

Deferred taxation

   16      34        9        11   

Other receivables

   10      3        3        2   
  

 

  

 

 

   

 

 

   

 

 

 
        68        58        52   
     

 

 

   

 

 

   

 

 

 

Current assets

         

Trade receivables

   10      51        44        44   

Advances

   10      8        4        22   

Corporation tax recoverable

   10      —          —          1   

Other receivables

   10      18        36        26   

Inter-division receivables

   10      54        49        34   

Financial assets

   14      71        1,495        901   

Inventories

   11      1        2        2   

Cash and cash equivalents

   12      24        25        25   
  

 

  

 

 

   

 

 

   

 

 

 
        227        1,655        1,055   
     

 

 

   

 

 

   

 

 

 

Total assets

        295        1,713        1,107   
     

 

 

   

 

 

   

 

 

 

Liabilities

         

Current liabilities

         

Trade and other payables

   13      (140     (192     (181

Inter-division payables

   13      (42     (47     (35

Corporation tax payable

   13      (41     (29     (25

Financial liabilities

   14      (330     (818     (335

Other provisions for liabilities

   17      (5     (12     (11
  

 

  

 

 

   

 

 

   

 

 

 
        (558     (1,098     (587
     

 

 

   

 

 

   

 

 

 

Non-current liabilities

         

Other payables

   13      (7     (6     (7

Other financial liabilities

   14      (13     (214     (216
  

 

  

 

 

   

 

 

   

 

 

 
        (20     (220     (223
     

 

 

   

 

 

   

 

 

 

Total liabilities

        (578     (1,318     (810
     

 

 

   

 

 

   

 

 

 

Net (liabilities)/assets

        (283     395        297   
     

 

 

   

 

 

   

 

 

 

Invested equity

        (283     395        297   
     

 

 

   

 

 

   

 

 

 

The notes on pages 8 to 42 form part of these financial statements.

 

5


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Combined Carve-out Statements of Changes in Invested Equity

As at 31 March 2013, 31 March 2012 and 31 March 2011

 

     Invested equity  
     £m  

At 1 April 2010

     242   
  

 

 

 

Profit for the year

     57   

Other comprehensive income for the year

     1   

Dividends paid to external EMI entities

     (3
  

 

 

 

At 31 March 2011

     297   
  

 

 

 

Profit for the year

     49   

Other comprehensive loss for the year

     (2

Dividends paid to external EMI entities

     (9

Capital contributions

     60   
  

 

 

 

At 31 March 2012

     395   
  

 

 

 

Loss for the year

     (75

Other comprehensive loss for the year

     (1

Capital contributions

     263   

Dividends paid to external EMI entities

     (3

Distributions

     (862
  

 

 

 

At 31 March 2013

     (283
  

 

 

 

Distributions and Capital contributions relate to transactions between PLG entities and external EMI entities which have transferred value either into or out of PLG as explained in the Basis of preparation in Note 1.

The notes on pages 8 to 42 form part of these financial statements.

 

6


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Combined Carve-out Statements of Cash Flows

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

          Year ended     Year ended     Year ended  
          31 March     31 March     31 March  
          2013     2012     2011  
     Note    £m     £m     £m  

(Loss) / profit before taxation

        (58     84        89   

Net finance charges

   4      (17     (1     (1

Depreciation

   9      7        7        7   

Amortisation

   2, 7      1        —          —     

Pension curtailment expense

        312        —          —     

Gain on sale of assets

        (166     —          —     

Change in inventories

   11      1        —          —     

Change in receivables

        9        —          33   

Change in payables

        (66     18        (31

Change in provisions

        (7     1        (2
     

 

 

   

 

 

   

 

 

 

Cash generated from operations

        16        109        95   

Tax paid

        (6     (2     (2
     

 

 

   

 

 

   

 

 

 

Net cash generated from operating activities

        10        107        93   
     

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

         

Purchase of businesses, net of cash acquired

        (1     (2     —     

Purchase of property, plant and equipment

        (13     (7     (6

Purchase of music catalogues and other intangibles

        (1     —          —     
     

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (15     (9     (6
     

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

         

Financing:

         

Group dividends received/ (paid)

        (1     (8     (3

Cash changes in loan financing

        6        (88     (110

Capital element of finance lease repayments

        (1     (2     (2
     

 

 

   

 

 

   

 

 

 

Net cash generated / (used) in financing activities

        4        (98     (115
     

 

 

   

 

 

   

 

 

 

Net increase / (decrease) in cash and cash equivalents

        (1     —          (28

Cash and cash equivalents at the beginning of the year

        25        25        53   
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

        24        25        25   
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year are comprised of:

         

Cash at bank and in hand

   12      24        25        25   
  

 

  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

        24        25        25   
     

 

 

   

 

 

   

 

 

 

The notes on pages 8 to 42 form part of these financial statements.

 

7


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies

Basis of preparation

The Parlophone Label Group (“PLG” or “the Group”) as used in these Combined Carve-out Financial Statements comprises the following entities (the “PLG entities”) which are the subject of a Share Sale & Purchase Agreement between certain affiliates of Universal Music Group and certain affiliates of Warner Music Group Corp. (collectively, “Warner Music Group”) dated 6 February 2013 and which have historically operated as part of EMI Recorded Music. The entities are 100% owned unless otherwise stated.

Belgium

Parlophone Music Belgium BVBA (formerly EMI Music Belgium BVBA)

Czech Republic

EMI Czech Republic SRO

Denmark

Parlophone Music Denmark AS (formerly EMI Music Denmark A/S)

France

Parlophone Music France SAS (formerly EMI Music France SAS)

PlayOn SAS (51%)

Norway

Parlophone Group Norway AS (formerly EMI Group Norway AS)

Parlophone Music Norway AS (formerly EMI Music Norway AS)

Absolute Music AS

Poland

Parlophone Music Poland sp zoo (formerly EMI Music Poland sp.z.o.o.)

Duzy Dom Dystrybucyjny sp.z.o.o. (50%)

Portugal

Parlophone Group Portugal SGPS Lda (formerly EMI Group Portugal SGPS Lda)

Parlophone Music Portugal SGPS Lda (formerly EMI Music Portugal Lda)

Slovakia

Parlophone Slovak republic s.r.o (formerly EMI Slovakia Republic SRO)

Spain

Parlophone Music Spain SL (formerly EMI Music Spain SL)

Parlophone Hispavox SL (formerly EMI Torrelaguna SL)

Trimeca Estudios y producciones, S.L.U

Sweden

Parlophone Music Sweden AB (formerly EMI Music Sweden AB)

Grand Recordings Sweden AB

Eva Records HB (25%)

UK

PLG Holdco Limited (“PLG Holdco”)

Parlophone Records Ltd (formerly EMI Records Limited)

Parlophone Music International Services Ltd (formerly EMI Music International Services Limited)

Chrysalis Records International Limited

Chrysalis Records Limited

Ensign Records Limited

Trooper Enterprises Limited (75.8%)

Food Limited

Music for Pleasure Limited

Erato Record Classics Ltd (formerly Virgin Record Classics Limited)

 

8


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Basis of preparation (continued)

 

Throughout the period presented in the Combined Carve-out Financial Statements, PLG did not exist as a separate, legally constituted Group. The Combined Carve-out Financial Statements have therefore been derived from the consolidated financial statements of EMI Group Worldwide Holdings Limited (“EMI”) together with the financial statements of its subsidiaries and in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) to represent the financial position and performance of PLG on a standalone basis throughout that period. The directors of PLG Holdco determined that this presentation represents PLG most appropriately based on several factors, including (1) the scope of PLG is clearly defined within the above agreement; (2) the entities forming PLG have been under common control and management throughout the period covered by the financial statements; and (3) the approach is consistent with custom and practice in relation to broadly equivalent transactions within the US market.

The Combined Carve-out Financial Statements comprise an aggregation of the earnings, financial position and cash flows of the PLG entities after making such adjustments as were considered appropriate in relation to the items set out below.

 

1) Outstanding balances, investments, transactions and cash flows between PLG entities have been eliminated.

 

2) Investments held in non-PLG entities have been excluded, with any dividends received by the PLG entity or sale proceeds arising on their disposal to other non-PLG entities in the period covered by these Combined Carve-out Financial Statements, being treated as capital contributions within Invested Equity.

 

3) Amounts payable by PLG entities to non-PLG entities to acquire interests in entities already within the PLG boundary have been treated as distributions from Invested Equity.

All transactions between PLG and non-PLG entities are reflected in the Combined Carve-out Financial Statements as normal third party transactions. Any trading results in relation to artists’ contracts or other assets which have been sold by PLG to non-PLG entities are included up to the point at which the sale of those assets occurred. Any profit or loss on the sale of those assets is also included. As a result of the way EMI operated in the past and the basis on which recharges have already been made between entities within EMI, it has not been deemed necessary to make reallocations of any expenses or other items between PLG and non-PLG entities. All transactions between PLG and other EMI entities are disclosed as related party transactions. Transactions and balances relating to EMI entities outside of PLG are referred to as “external EMI entities” throughout the Combined Carve-out Financial Statements.

The Combined Carve-out Financial Statements may not necessarily be indicative of PLG’s financial position, results of operating activities or cash flows had it operated as a separate entity throughout the period presented or for future periods.

The Invested Equity balance within the Combined Carve-out Financial Statements represents the deficit or excess of total assets over total liabilities. The movements in Invested Equity throughout the period (including those movements relating to foreign exchange translation differences charged or credited directly to equity) are analysed within the Combined Carve-out Statements of Changes in Invested Equity, and Comprehensive Income. Given the nature of the financial statements, it is not possible to establish a separate balance for foreign exchange translation differences within the Invested Equity balance at 1 April 2010 and so no such split is provided.

For those entities located in countries where they were included in the tax grouping of other EMI entities within the same tax jurisdiction, the current tax payable or receivable of these PLG companies has been included in these Combined Carve-out Financial Statements on a separate return basis. Income tax payable or receivable includes amounts to be paid to or received via the EMI holding company in that country responsible for liaison with the relevant tax authority. For the purpose of the Combined Carve-out Financial Statements it is assumed that only the current year tax payments are outstanding. Where PLG tax liabilities have been settled by the surrender of tax losses by other EMI entities without any payment being made between those entities this has been treated as a capital contribution to PLG.

Material events which have occurred subsequent to 31 March 2013 are disclosed in note 24.

These Combined carve-out financial statements were authorized for issuance by an Executive Officer of Warner Music Group, who is duly authorized to provide this approval on behalf of PLG in such capacity (and not individually), on September 10, 2013.

All amounts are in millions of UK £ (Pounds Sterling) except for headcount figures or unless otherwise stated.

 

9


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Going concern

Following the acquisition of EMI Group by Universal Music Group on 28 September 2012, the organization and funding structure of EMI Group was rationalised to simplify the divestment of PLG. This resulted in PLG having net liabilities as at 31 March 2013.

PLG’s intermediate holding company, WMG Acquisition Corp. has indicated that it intends to provide PLG with sufficient funding to enable it to meet its liabilities as they fall due over a period of at least the next 12 months and as a result, the directors have adopted the going concern basis in preparing these financial statements.

Estimates

The preparation of the combined financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of the assets, liabilities, income and expenses. Actual results may differ from these estimates. A summary of the key estimates made and judgements taken in drawing up these financial statements is included in Note 23.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

None of the changes in estimates has a material effect on the Group’s financial statements as at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011.

Foreign currency translation

At an entity level, transactions in foreign currencies are initially recorded in the functional currency at the rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the statements of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair values were determined.

On aggregation, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on aggregation, are translated into sterling at the rate of exchange ruling at the balance sheet date and their statements of income are translated at the average exchange rates for the period. The exchange differences arising on the retranslation of foreign operations are taken directly to a separate component of equity. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statements of income.

The average and period end exchange rates of the principle currencies used in preparing these financial statements are as follows:

 

     As at      Year ended      As at      Year ended      As at      Year ended  
     31 March      31 March      31 March      31 March      31 March      31 March  
     2013      2013      2012      2012      2011      2011  

US Dollar to £1

     1.52         1.56         1.60         1.60         1.60         1.60   

Euro to £1

     1.18         1.21         1.20         1.20         1.13         1.13   

 

10


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Business combinations and goodwill

The Group measures goodwill at the acquisition date as:

 

    The fair value of the consideration transferred; plus

 

    The recognised amount of any non-controlling interests in the acquisition; plus

 

    If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquisition; less

 

    The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee.

For an asset, such as goodwill, that does not generate largely independent cash flows, the recoverable amount, which is the higher of fair value less cost to sell and value in use, is determined for the smallest identifiable Group of assets including that asset that generates cash inflows that are largely independent of the cash inflows from other assets or Groups of assets (a ‘cash generating unit’).

Intangible assets

Intangible assets are carried at cost less accumulated amortisation and impairment losses.

Intangible assets acquired separately from a business are capitalised at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights, and its fair value can be measured reliably.

Following initial recognition, intangible assets with finite lives are amortised on a straight line basis over their estimated useful lives. These lives are estimated on an individual asset by asset basis, within the following limits:

 

Music catalogues   Up to 10 years

Intangible assets are tested for impairment at each balance sheet date if events or changes in circumstances indicate that the carrying value may not be recoverable. Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Intangible assets created within the businesses that cannot be distinguished from the cost of developing the business as a whole are not capitalised. Any relevant expenditure is charged against profit from operations in the period in which the expenditure is incurred.

 

11


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight line basis to write off the cost, less residual value, of assets over the estimated useful life of the asset. The useful lives used are:

 

Freehold buildings    Up to 50 years
Property held under finance leases and leasehold improvements    Lower of lease term and useful life
Plant, equipment and vehicles    3 – 10 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount, which is the higher of the asset’s fair value less costs to sell and value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Assets are 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 derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the statements of income in the period in which the item is derecognised.

Leases

Assets which are held under a finance lease, which transfers to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and a reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the lease liability. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statements of income on a straight line basis over the lease term.

Financial assets

Financial assets are recognised when the Group becomes party to the contracts that give rise to them and are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity financial assets, or as available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, being the transaction price and in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. All financial assets relate to external EMI entities.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is based on the weighted average method and includes expenditure incurred in acquiring the inventories, production and other costs in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Advances

In the ordinary course of business the Group pays advances and other expenses recoupable from future royalties to performing artists, producers and third party repertoire owners. The amounts paid are carried at cost less recoupment and less an allowance for any un-recoupable amounts. The allowance is based on past revenue performance, current popularity and projected revenue.

Advances are recoupable during the business operating cycle. All advances are therefore reported as current assets, including advances recoupable more than 12 months after the balance sheet date.

 

12


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Trade receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at the originally invoiced amount less an allowance for any doubtful debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the combined cash flow statement, cash and cash equivalents consist of cash at bank and in hand and short-term deposits net of outstanding bank overdrafts.

Financial liabilities

Borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received net of directly attributable transaction costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any directly attributable transaction costs associated with issuing the liability, as well as any discount or premium on settlement. Gains and losses on derecognition are recognised in finance charges.

Debt for equity swaps that are performed on the behalf of a shareholder are accounted for at book value with no gain or loss recognised in the statement of income or reserves.

Foreign currency denominated financial liabilities are used to fund subsidiary operations where the foreign currency is the primary currency used for operational activity.

Borrowings are classified as current when the borrowings are due to be settled within the next 12 months after the reporting date or when the Company does not have the unconditional right to defer settlement for at least 12 months after the reporting date. All other borrowings are classified as non-current.

 

13


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statements of income net of any reimbursement. If the effect of the time value of money on the quantification of the provision is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

Pensions and other employee benefits

The Group operates a number of defined contribution schemes. Contributions to defined contribution schemes are charged to the statement of income as incurred.

In addition, there is only one material defined benefit pension scheme arrangement in which the Group has participated. Parlophone Records Limited (formerly EMI Records Limited) was a member of the EMI Group Pension Fund (UK Fund) until its closure in May 2012.

EMI Group Limited (an external EMI entity) is the sponsoring employer of the above EMI group wide defined benefit pension plan. As there is no contractual agreement or group policy for charging the net defined benefit cost of the plan to participating entities, the net defined benefit cost of the pension plan is recognised fully by the sponsoring employer. The Group recognises a cost equal to its contributions payable.

Employee benefits other than post-employment benefits that can be carried forward if they have not been used are accrued as they are earned until the benefit is paid or used. Those employee benefits that are foregone if not taken at the time are expensed when incurred.

The cost of meeting payments under employee bonus schemes (other than share based payments) is accrued during the period to which any entitlement relates, based upon the expected ultimate payment and the proportion of the entitlement period which has elapsed. Bonuses which are triggered based solely on the occurrence of an uncertain future event are accrued only when the triggering event has occurred.

Further information on the UK Fund defined benefit scheme that Parlophone Records Ltd (formerly EMI Records Limited) was a member of is presented in Note 25.

 

14


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

 

    Sale of goods: revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, i.e. on despatch, and can be reliably measured. Revenue is measured at fair value after making provision in respect of expected future returns of goods and services supplied by the Group prior to the balance sheet date;

 

    Copyright, royalty, license and other income, including guaranteed access agreements: revenue is recognised based on the contractual arrangements entered into with third parties, which allow them to exploit the Group’s intellectual property in return for a fee. Where the fees due to the Group are dependent upon usage, revenue is recognised based upon that usage. Where no reliable basis is available for estimating such usage, revenue is recognised when reported to the Group by third parties. When revenue relates to a long term contract, revenue is recognised over the life of the contract as revenue is earned.

Where an agreement is, in substance, an outright sale, income is recognised as revenue immediately. For an outright sale to have occurred, the licensee must have signed a non-cancellable contract, paid a fixed fee which is not subject to adjustment based on future usage, been provided with the means to freely exploit its contractual rights, and have no significant ongoing reliance on the Group (as the Licensor) to perform any other delivery obligations. In addition, the artist royalty cost associated with the income must have been accurately quantified.

Revenue is measured with reference to its separate components where components are identified which have stand alone value to its customers and the fair value of these components can be measured reliably.

Interest income is recognised when it has been earned and can be reliably measured.

Distribution costs

The Group believes that distribution costs are largely variable in nature and as such are considered to be part of the gross margin of the business.

Finance charges

Finance costs comprise interest payable on borrowings calculated using the effective interest rate method and net foreign exchange losses.

Finance income comprises interest receivable on funds invested calculated using the effective interest rate method, dividend income, net foreign exchange gains and gains on derivative instruments.

 

15


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

1. Significant accounting policies (continued)

 

Income tax

For those entities located in countries where they were included in the tax grouping of other EMI entities within the same tax jurisdiction, the current tax payable or receivable of these PLG companies has been included in these Combined Carve-out Financial Statements on a separate return basis. Income tax payable or receivable includes amounts to be paid to or received via the EMI holding company in that country responsible for liaison with the relevant tax authority. For the purpose of the Combined Carve-out Financial Statements it is assumed that only the current year tax payments are outstanding. Where PLG tax liabilities have been settled by the surrender of tax losses by other EMI entities without any payment being made between those entities this has been treated as a capital contribution to PLG.

Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous periods.

Deferred tax is recognised for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax base. The following temporary differences are not provided for: the initial recognition of goodwill or of assets or liabilities that affect neither accounting nor taxable profit that is not a business combination, and temporary differences relating to investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and to the extent that it is probable that the temporary difference will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

New standards and interpretations not yet adopted

The following relevant new standards, amendments to standards and interpretations are not yet effective for the year ended 31 March 2013, and have not been applied in preparing these combined financial statements. The Group is currently assessing the impact of these improvements to its financial statements; however, their adoption is not expected to have a material effect on the financial statements:

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

Defined Benefit Plans – Amendments to IAS 19

Presentation of Items of Other Comprehensive Income – Amendments to IAS 1

Annual Improvements to IFRSs – 2009-2011 Cycle

Offsetting Financial Assets and Financial Liabilities - Amendment to IAS 32

Recoverable amount disclosures for non-financial assets - Amendment to IAS 36

 

16


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

2. Profit from operations

The following items have been included in arriving at loss or profit from operations:

 

     Year ended     Year ended      Year ended  
     31 March     31 March      31 March  
     2013     2012      2011  
     £m     £m      £m  

Staff Costs (see note 3)

     69        67         69   

Write down of inventories (included in cost of sales) (see note 11)

     —          1         1   

Depreciation of property, plant and equipment (see note 9):

       

Owned Assets

     6        6         6   

Leased Assets

     1        1         1   

Amortisation of music catalogues (see note 7)

     1        —           —     

Operating lease expense

     1        2         2   

Pension curtailment expense (see note 19)

     (312     —           —     

Net profit on disposal of assets

     166        —           —     

Profit on disposal of assets relates to the sale of various assets including the Beatles Recording rights, Abbey Road Studios, investment in Spotify, the NOW! compilation business, Robbie Williams and other Virgin Records artists’ recorded music contracts to external EMI entities in order to prepare for the sale of the Group.

 

3. Director and employee costs

 

     Year ended      Year ended      Year ended  
     31 March
2013
     31 March
2012
     31 March
2011
 
     £m      £m      £m  

Wages and salaries

     56         52         55   

Social Security costs

     10         10         8   

Pension costs

     3         4         3   

Termination and other payments

     —           1         3   
  

 

 

    

 

 

    

 

 

 
     69         67         69   
  

 

 

    

 

 

    

 

 

 

The average number of persons employed by the Group (including Directors) during the period was as follows:

 

     Year ended      Year ended      Year ended  
     31 March      31 March      31 March  
     2013      2012      2011  

Average employees

     791         777         797   

 

17


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

3. Director and employee costs (continued)

 

Key management personnel

The aggregate cost of the key management of the Group is as follows:

 

     Year ended
31 March
2013
     Year ended
31 March
2012
     Year ended
31 March
2011
 
     £m      £m      £m  

Salaries & short-term employee benefits

     3         2         1   

Key management personnel, comprised of the senior PLG management team, employed during the year totalled 2 (2012 and 2011: 2).

 

4. Net finance charges

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  
     £m     £m     £m  

Finance Income:

      

Other interest income

     —          —          2   
  

 

 

   

 

 

   

 

 

 

Total interest income

     —          —          2   

Interest income from external EMI entities

     19        26        3   

Foreign exchange gain on foreign currency borrowings

     13        —          2   
  

 

 

   

 

 

   

 

 

 

Total finance income

     32        26        7   
  

 

 

   

 

 

   

 

 

 

Finance costs:

      

Other interest cost

     —          (1     (4
  

 

 

   

 

 

   

 

 

 

Total interest costs

       (1     (4

Interest cost to external EMI entities

     (15     (12     (2

Foreign exchange loss on foreign currency borrowings

     —          (12     —     
  

 

 

   

 

 

   

 

 

 

Total finance costs

     (15     (25     (6
  

 

 

   

 

 

   

 

 

 

Total net finance income

     17        1        1   
  

 

 

   

 

 

   

 

 

 

 

18


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

5. Restructuring costs

The restructuring costs included within loss or profit before taxation are as follows:

 

     Year ended
31 March
2013
     Year ended
31 March
2012
     Year ended
31 March
2011
 
     £m      £m      £m  

Restructuring costs

     6         10         5   

The restructuring initiatives in each year included redundancy and other costs following staff reductions as well as staff retention costs.

 

6. Taxation

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  
     £m     £m     £m  

Current period

     43        32        31   
  

 

 

   

 

 

   

 

 

 

Current tax expense for the period

     43        32        31   
  

 

 

   

 

 

   

 

 

 

Deferred tax (income) / expense

      

Deferred tax (income) / expense

     (28     —          (1

Reduction in tax rates

     —          (1     —     

Tax losses

     2        4        2   
  

 

 

   

 

 

   

 

 

 

Total deferred tax (credit)/ charge (note 16)

     (26     3        1   
  

 

 

   

 

 

   

 

 

 

Total taxation charge

     17        35        32   
  

 

 

   

 

 

   

 

 

 

A difference exists between the taxation charge recognised in the accounts and the theoretical charge calculated using the company’s statutory tax rate. This arises from local tax rates applied to the results.

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  
     £m     £m     £m  

(Loss)/ profit before tax

     (58     84        89   

Tax calculated at the UK tax rate applicable to profits in the respective countries

     (14     22        25   

Expenses not deductible for tax / (income not chargeable to tax)

      

Pension contribution

     39        —          —     

Others

     (11     11        6   

Reduction in tax rates

     —          (1     —     

Additional withholding tax incurred

     1        1        1   

Tax rates of subsidiaries operating in other jurisdictions

     2        2        —     
  

 

 

   

 

 

   

 

 

 

Total tax charge in the income statement

     17        35        32   
  

 

 

   

 

 

   

 

 

 

On 23 March 2011, a Bill passed by Parliament in the United Kingdom reduced the main rate of corporation tax from 28% to 26% from 1 April 2011. Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013.

The movement to 20% will reduce the company’s future current tax charge accordingly and reduce the deferred tax asset at 31 March 2013 (which has been calculated based on the rate of 23% substantively enacted at the balance sheet date) by £4 million.

 

19


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

7. Music catalogues

 

     Music catalogues  
     £m  

Cost

  

At 1 April 2010

     18   

Currency retranslation

     —     
  

 

 

 

At 31 March 2011

     18   
  

 

 

 

Additions

     5   

Currency retranslation

     (1
  

 

 

 

At 31 March 2012

     22   
  

 

 

 

Additions

     1   

Currency retranslation

     —     
  

 

 

 

At 31 March 2013

     23   
  

 

 

 

Amortisation and impairment

  

At 1 April 2010

     18   

Amortisation charge for the year

     —     

Currency retranslation

     —     
  

 

 

 

At 31 March 2011

     18   
  

 

 

 

Amortisation charge for the year

     —     

Currency retranslation

     (1
  

 

 

 

At 31 March 2012

     17   
  

 

 

 

Amortisation charge for the year

     1   

Currency retranslation

     —     
  

 

 

 

At 31 March 2013

     18   
  

 

 

 

Net book value

  

At 31 March 2010

     —     
  

 

 

 

At 31 March 2011

     —     
  

 

 

 

At 31 March 2012

     5   
  

 

 

 

At 31 March 2013

     5   
  

 

 

 

Artists’ and songwriters’ contracts relate to legally enforceable contractual agreements.

 

20


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

8. Goodwill

 

     Goodwill  
     £m  

At 1 April 2010

     —     
  

 

 

 

At 31 March 2011

     —     
  

 

 

 

Acquisitions

     2   
  

 

 

 

At 31 March 2012

     2   
  

 

 

 

Acquisitions

     —     
  

 

 

 

At 31 March 2013

     2   
  

 

 

 

No impairment expense has been recognised in the years ended 31 March 2013, 2012 or 2011 as a result of annual impairment testing.

Acquisitions in the period to 31 March 2012

In January 2012, the Group (via EMI Music France SAS) acquired 51% of the ordinary shares in PlayOn SARL for €4.1 million (£3.5 million), satisfied in cash and deferred consideration, with a put/call option with a fair value of €3.9 million (£3.3 million) to acquire the remaining 49%. The option is exercisable by either party and is expected to be exercised. The company operates as a music label and was acquired due to its success as an independent label in France and to acquire its accomplished artists. In the three months to March 2012 the subsidiary contributed a net loss of €0.1 million (£0.1 million) to the combined net profit for the year.

Effect of acquisition

The acquisition had the following effect on the Group’s assets and liabilities.

 

     Recognised values  
     on acquisition  
     £m  

Acquiree’s net assets at the acquisition date:

  

Intangible assets

     4   

Other assets

     1   
  

 

 

 

Net identifiable assets and liabilities

     5   

Consideration paid:

  

Initial cash price paid

     2   

Deferred consideration at fair value

     2   

Put/call option

     3   
  

 

 

 

Total consideration at fair value

     7   
  

 

 

 

Goodwill on acquisition

     2   
  

 

 

 

Acquisitions in the period to 31 March 2013

During the period ended March 2013, the Group (via EMI Music Spain SL) acquired Trimeca Estudios producciones, S.L.U. The acquisition was not considered to be a business combination since it is a shell company holding an artist contract and therefore, it has been treated as an artist advance contract.

 

21


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

9. Property, plant and equipment

 

                 Plant,        
     Freehold     Leasehold     equipment and        
     property     property     vehicles     Total  
     £m     £m     £m     £m  

Cost

        

At 1 April 2010

     7        29        96        132   

Additions

     —          —          6        6   

Currency retranslation and reclassification

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2011

     7        29        102        138   
  

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     1        —          6        7   

Currency retranslation and reclassification

     —          (2     (1     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2012

     8        27        107        142   
  

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     —          —          13        13   

Disposals

     (3     (4     —          (7

Disposals to external EMI entities

     —          —          (77     (77

Currency retranslation and reclassification

     (2     1        2        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2013

     3        24        45        72   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

        

At 31 March 2010

     3        4        85        92   

Depreciation charge for the year

     —          1        6        7   

Currency retranslation and reclassification

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2011

     3        5        91        99   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation charge for the year

     1        1        5        7   

Currency retranslation and reclassification

     —          —          (3     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2012

     4        6        93        103   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation charge for the year

     —          1        6        7   

Additions

     —          —          —          —     

Disposals

     (1     (2     —          (3

Disposals to external EMI entities

     —          —          (59     (59

Currency retranslation and reclassification

     (1     (2     3        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2013

     2        3        43        48   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

        

At 31 March 2010

     4        25        11        40   
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2011

     4        24        11        39   
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2012

     4        21        14        39   
  

 

 

   

 

 

   

 

 

   

 

 

 

At 31 March 2013

     1        21        2        24   
  

 

 

   

 

 

   

 

 

   

 

 

 

The carrying values of property, plant and equipment include the following:

 

     Leasehold property      Plant, equipment and vehicles  
     31 March      31 March      31 March      31 March      31 March      31 March  
     2013      2012      2011      2013      2012      2011  
     £m      £m      £m      £m      £m      £m  

Finance lease assets

     21         21         24         —           —           —     

 

22


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

10. Trade and other receivables

 

            Year ended             Year ended             Year ended  
            31 March             31 March             31 March  
            2013             2012             2011  
            £m             £m             £m  

Current receivables:

                 

Trade receivables

        51            44            44   

Advances

        8            4            22   

Corporation tax recoverable

        —              —              1   

Other receivables:

                 

Trade debtors collected on behalf of external EMI entities

     16            9            2      

Amounts owed by external EMI entities

     38            40            32      

Other debtors

     5            7            9      

Prepayments and accrued income

     13            29            17      
  

 

 

       

 

 

       

 

 

    
        72            85            60   
     

 

 

       

 

 

       

 

 

 

Total current receivables

        131            133            127   
     

 

 

       

 

 

       

 

 

 

Non current receivables:

                 

Prepayments, accrued income and other debtors

        3            3            2   
     

 

 

       

 

 

       

 

 

 

Total

        134            136            129   
     

 

 

       

 

 

       

 

 

 

The Group’s exposure to credit and currency risk and impairment losses related to trade and other receivables excluding corporation tax recoverable, where there is a contracted right to receive cash, are disclosed in Note 18.

 

11. Inventories

 

     Year ended      Year ended      Year ended  
     31 March      31 March      31 March  
     2013      2012      2011  
     £m      £m      £m  

Finished goods

     1         2         2   

During the year the Group has written down inventories by nil (2012: £1 million; 2011: £1 million).

 

12. Cash and cash equivalents

 

     Year ended      Year ended      Year ended  
     31 March      31 March      31 March  
     2013      2012      2011  
     £m      £m      £m  

Cash at bank and in hand

     20         21         22   

Short-term deposits

     4         4         3   
  

 

 

    

 

 

    

 

 

 

Cash and cash equivalents

     24         25         25   
  

 

 

    

 

 

    

 

 

 

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are ordinarily made for periods varying between one day and one month, although can extend to periods of up to three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

The Group has balances of cash and cash equivalents totalling £13 million (2012: £9 million; 2011: £15 million) held with banks within the UK and £11 million (2012: £16 million; 2011: £10 million) held with banks outside, but freely transferable to the UK. The Group does not have any cash and cash equivalents held with banks outside the UK, but not freely transferable back to the UK.

 

23


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

13. Trade and other payables

 

     Year ended      Year ended      Year ended  
     31 March      31 March      31 March  
     2013      2012      2011  
     £m      £m      £m  

Current payables:

        

Trade payables

     24         35         25   

Royalties and fees payable

     83         111         100   

Corporation tax payable

     41         29         25   

Other taxes including VAT and social security costs

     2         3         1   

Other payables

     3         4         2   

Accruals and deferred income

     28         39         53   

Trade creditors paid on behalf of external EMI entities

     16         6         2   

Amounts owed to external EMI entities

     26         41         33   
  

 

 

    

 

 

    

 

 

 

Total current payables

     223         268         241   
  

 

 

    

 

 

    

 

 

 

Non current payables:

        

Other payables

     7         6         7   
  

 

 

    

 

 

    

 

 

 

Total payables

     230         274         248   
  

 

 

    

 

 

    

 

 

 

The Group’s exposure to currency and liquidity risks related to trade and other payables, excluding corporate tax payable and other taxes, where there is a contracted obligation to pay cash, are disclosed in Note 18.

 

14. Loans and borrowings

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  
     £m     £m     £m  

Financial assets

      

Loans—external EMI entities

     71        1,495        901   
  

 

 

   

 

 

   

 

 

 

Current

     71        1,495        901   

Loans—external EMI entities

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Non-current

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total financial assets

     71        1,495        901   
  

 

 

   

 

 

   

 

 

 

Financial liabilities

      

Loans—external EMI entities

     (329     (816     (333

Finance leases (note 15)

     (1     (2     (2
  

 

 

   

 

 

   

 

 

 

Current

     (330     (818     (335

Redeemable preference shares

     —          (200     (200

Finance leases (note 15)

     (13     (14     (16
  

 

 

   

 

 

   

 

 

 

Non-current

     (13     (214     (216
  

 

 

   

 

 

   

 

 

 

Total financial liabilities

     (343     (1,032     (551
  

 

 

   

 

 

   

 

 

 

Net financial (liabilities)/ assets

     (272     463        350   
  

 

 

   

 

 

   

 

 

 

At 31 March 2012 and 31 March 2011, EMI Group Holdings (UK) Ltd (an external EMI entity) held £200 million cumulative redeemable non-voting preference shares in Parlophone Records Limited (formerly EMI Records Limited). On 20 December 2012, the preference shares were transferred through the holding entities to EMI Limited at which point the preference shares were converted to 200 million £1 ordinary shares. In line with the Basis of preparation as set out in Note 1 this gave rise to a capital contribution to the Group of £200 million on that date.

Loan balances with external EMI entities are repayable on demand. Loan facilities are mainly interest bearing, with the exception of certain loan positions between UK entities that are interest free.

 

24


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

15. Obligations under finance leases

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  

Minimum lease payments

   £m     £m     £m  

Amounts payable under finance leases:

      

Within one year

     1        2        2   

Between one and five years

     13        14        6   

After more than five years

     —          —          10   
  

 

 

   

 

 

   

 

 

 

Present value of lease obligations

     14        16        18   

Less: Current portion (shown under current liabilities)

     (1     (2     (2
  

 

 

   

 

 

   

 

 

 

Non-current portion

     13        14        16   
  

 

 

   

 

 

   

 

 

 

The finance lease at 31 March 2013, 2012 and 2011 was a sale and leaseback scheme relating to a property in Rue Mont Cenis, Paris. The lease runs for a term of 15 years, although the Group has the option to repurchase the property at any time between years five and twelve. If the Group opts not to take up this option, then ownership of the property will revert to the lessor at the end of the lease however it is expected that this option will be exercised.

 

16. Deferred taxation

The major deferred tax assets and liabilities recognised by the Group and the movements thereon, are as follows:

Deferred tax assets

 

     Property, plant      Tax     Pension                
     and equipment      losses     assets      Other      Total  
     £m      £m     £m      £m      £m  

At 1 April 2010

     —           12        —           —           12   

(Charge)/credit to income statement for the year

     —           (2     —           1         (1
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

At 31 March 2011

     —           10        —           1         11   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

(Charge)/credit to income statement for the year

     —           (3     —           —           (3

Currency retranslation

     —           1        —           —           1   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

At 31 March 2012

     —           8        —           1         9   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

(Charge)/credit to income statement for the year

     2         (2     26         —           26   

Currency retranslation

     —           (1     —           —           (1
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

At 31 March 2013

     2         5        26         1         34   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

See note 6 for deferred taxation commentary.

 

25


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

17. Other provisions for liabilities and charges

 

     Restructuring     Trading     Total  
     £m     £m     £m  

Current

      

At 31 March 2010

     3        10        13   

Provisions utilised

     (3     (3     (6

Charged in the year

     1        4        5   

Provision released in the year

     —          (1     (1
  

 

 

   

 

 

   

 

 

 

At 31 March 2011

     1        10        11   
  

 

 

   

 

 

   

 

 

 

Provisions utilised

     (1     (4     (5

Charged in the year

     3        3        6   
  

 

 

   

 

 

   

 

 

 

At 31 March 2012

     3        9        12   
  

 

 

   

 

 

   

 

 

 

Provisions utilised

     (4     (3     (7

Charged in the year

     —          3        3   

Provision released in the year

     1        —          1   

Disposal of provision to external EMI entities

     —          (4     (4
  

 

 

   

 

 

   

 

 

 

At 31 March 2013

     —          5        5   
  

 

 

   

 

 

   

 

 

 

Trading provisions include royalty audit claims and legal and other provisions charged through loss or profit from operations. The restructuring provision relates primarily to employee termination and retention costs.

 

26


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments

Fair values

There are no financial assets and liabilities recognised at fair value through profit and loss at 31 March 2013, 31 March 2012 or 31 March 2011.

The fair values for each class of financial asset and financial liability, together with their carrying amounts shown in the balance sheet are as follows:

 

     Carrying amount     Fair value  
     31 March     31 March     31 March     31 March     31 March     31 March  
     2013     2012     2011     2013     2012     2011  
     £m     £m     £m     £m     £m     £m  

Cash and cash equivalents (note 12)

     24        25        25        24        25        25   

Loans—external EMI entities (note 14)

     71        1,495        901        71        1,495        901   

Trade and other receivables (note 10)

     118        104        109        118        104        109   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and receivables

     213        1,624        1,035        213        1,624        1,035   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financial assets

     213        1,624        1,035        213        1,624        1,035   

Loans—external EMI entities (note 14)

     (329     (816     (333     (329     (816     (333

Redeemable preference shares (note 14)

     —          (200     (200     —          (200     (200

Obligations under finance leases (note 15)

     (14     (16     (18     (14     (16     (18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total borrowings

     (343     (1,032     (551     (343     (1,032     (551

Trade and other payables (note 13)

     (159     (203     (169     (159     (203     (169
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financial liabilities measured at amortised cost

     (502     (1,235     (720     (502     (1,235     (720
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financial liabilities

     (502     (1,235     (720     (502     (1,235     (720
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net financial (liabilities)/ assets

     (289     389        315        (289     389        315   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

Trade and other payables

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

 

27


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments (continued)

 

Fair values (continued)

 

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not repayable on demand, the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date, if material.

Interest-bearing borrowings

The fair value of interest-bearing borrowings, which after initial recognition is determined for disclosure purposes only, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.

There has been no change in valuation technique over the financial periods.

Risk

The Group has exposure to the following risks from its use of financial instruments:

 

    Credit risk

 

    Liquidity risk

 

    Market risk including interest rate and foreign currency risk

This note presents information about the Group’s exposure to the above risks, as well as outlining the Group’s objectives, policies and processes for measuring and managing financial risks.

Credit risk

Credit or counterparty risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

The Group’s objectives in relation to credit risk are to minimise the likelihood that the Group will experience financial loss due to counter party failure and to ensure that in the event of a single loss, the failure of any single counterparty would not materially impact the financial wellbeing of the Group.

The Group does not have a significant credit risk relating to amounts owed by external EMI entities. These represent amounts due from other subsidiaries of the common control EMI Group, are repayable on demand and have always been settled as required. On completion of the PLG sale all intercompany balances will be settled as part of the completion mechanism.

Trade receivables are assessed for risk of default by customers and terms of trade are adjusted accordingly. Receivables are insured on risk and cost grounds.

 

28


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments (continued)

 

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £233 million (2012: £1,632 million, 2011: £1,032 million) being the total of the carrying amount of financial assets shown in the previous fair value comparison table.

The ageing of external trade receivables at the balance sheet date was as follows:

 

     Gross receivable      Provision  
     31 March      31 March      31 March      31 March     31 March     31 March  
     2013      2012      2011      2013     2012     2011  
     £m      £m      £m      £m     £m     £m  

Not past due

     43         46         34         —          (3     —     

Past due 0-30 days

     3         —           9         (3     (2     —     

Past due 31-120 days

     2         1         1         (1     —          —     

More than 120 days

     13         9         16         (6     (7     (16
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     61         56         60         (10     (12     (16
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Based on historic default rates, the group believes that, apart from the above, no impairment allowance is necessary in respect of external trade receivables.

The movement in the provision for bad debts in respect of the external trade receivables during the year was as follows:

 

     Year ended     Year ended     Year ended  
     31 March     31 March     31 March  
     2013     2012     2011  
     £m     £m     £m  

At beginning of the period

     12        16        14   

Charged to the income statement during the period.

     (2     (4     2   
  

 

 

   

 

 

   

 

 

 

At end of period

     10        12        16   
  

 

 

   

 

 

   

 

 

 

The maximum exposure to credit risk of the external trade receivables by geographic region was as follows:

 

     Year ended      Year ended      Year ended  
     31 March      31 March      31 March  
     2013      2012      2011  
     £m      £m      £m  

United Kingdom

     22         18         27   

Rest of Europe

     29         26         17   
  

 

 

    

 

 

    

 

 

 
     51         44         44   
  

 

 

    

 

 

    

 

 

 

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group’s primary financial liabilities relate to amounts owed to external EMI entities, whilst the Group’s primary financial assets relate to amounts owed to external EMI entities.

As demonstrated by the net financial assets/ liabilities in note 14, the Group has historically been a net contributor to the broader common control EMI Group.

 

29


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments (continued)

 

Liquidity risk (continued)

 

These amounts formed part of a broader liquidity policy by the common control EMI Group. EMI Group’s policy was to manage liquidity to ensure, as far as possible, that it always had sufficient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the EMI Group. The EMI Group was reliant on committed funding at EMI Group and subsidiary company level to meet the anticipated needs of the EMI Group for the period covered by the EMI Group’s budget.

Following the acquisition of EMI Group by Universal Music Group on 28 September 2012, the organisation and funding structure of EMI Group was rationalised to simplify the divestment of the Parlophone Label Group.

This has resulted in PLG becoming a net liability group (see basis of preparation in note 1). As at 31 March 2013 and prior to the Group’s disposal on 1 July 2013, the Universal Music Group committed to continue to fund the Group. Subsequent to disposal, the acquirers, Warner Music Group, committed to continue to fund the Group.

The Group forecasts on a regular basis the expected cash flows that will occur on a weekly and monthly basis. This information is used in conjunction with the weekly reporting of actual cash balances at bank in order to calculate the level of funding that will be required in the short and medium term.

The contractual cash flows of financial liabilities on an undiscounted basis, including interest payments is shown in the table below (interest on redeemable preference shares were waived in each respective period).

 

            Total                              
     Carrying      contractual      1 year      1 to 2      2 to 5      5 years  
     amount      cash flows      or less      years      years      and over  

2013

   £m      £m      £m      £m      £m      £m  

Redeemable preference shares

     —           —           —           —           —           —     

Loans—external EMI entities

     329         329         329         —           —           —     

Obligations under finance leases

     14         14         1         1         12         —     

Trade and other payables

     159         159         148         7         1         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

     502         502         478         8         13         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
            Total                              
     Carrying      contractual      1 year      1 to 2      2 to 5      5 years  
     amount      cash flows      or less      years      years      and over  

2012

   £m      £m      £m      £m      £m      £m  

Redeemable preference shares

     200         200         —           —           —           200   

Loans—external EMI entities

     816         816         816         —           —           —     

Obligations under finance leases

     16         16         2         2         12         —     

Trade and other payables

     203         203         194         5         1         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

     1,235         1,235         1,012         7         13         204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
            Total                              
     Carrying      contractual      1 year      1 to 2      2 to 5      5 years  
     amount      cash flows      or less      years      years      and over  

2011

   £m      £m      £m      £m      £m      £m  

Redeemable preference shares

     200         200         —           —           —           200   

Loans—external EMI entities

     333         333         333         —           —           —     

Obligations under finance leases

     18         18         2         2         4         10   

Trade and other payables

     170         170         164         1         1         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

     721         721         499         3         5         214   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments (continued)

 

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within an acceptable range.

Foreign currency risk

The Group manages currency risk with the objective of maximising the hedging effect that derives from the diversity of the Group’s operations whilst avoiding creating currency exposure in addition to that derived from the Group’s underlying position.

The Group is exposed to currency risk in respect to sales and purchases. A global netting system is used to minimise transaction costs associated with the sale and purchase of foreign currency to finance purchases and sales.

Historically, within the broader EMI Group, loans have been made between the UK central entity and global subsidiaries. To minimise the exposure of purchasing currency at spot rates, small currency balances were maintained to fund local currency requirements.

Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily GBP and Euros. This provides an economic hedge without the need for entering into foreign exchange derivatives.

The analysis of principal financial assets and liabilities by major currency is as follows:

 

     Euro     Sterling  
     Year ended     Year ended     Year ended     Year ended     Year ended     Year ended  
     31 March     31 March     31 March     31 March     31 March     31 March  
     2013     2012     2011     2013     2012     2011  
     €m     €m     €m     £m     £m     £m  

Financial Liabilities—Loans from external EMI entities

     —          (1     (1     (316     (808     (321

Financial Assets—Loans to external EMI entities

     51        377        216        21        1,162        699   

Cash and cash equivalents

     8        10        12        12        9        10   

Receivables

     42        41        37        71        76        75   

Payables

     (66     (77     (63     (94     (135     (106
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     35        350        201        (306     304        357   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A five per cent strengthening of the Euro against the pound sterling at 31 March 2013 would have decreased the foreign exchange reserve within equity by £1 million (2012: increased the foreign exchange reserve within equity by £4 million; 2011: increased the foreign exchange reserve within equity by £2 million) and decreased the loss by £3 million (2012: increased profit by £12 million; 2011: increased profit by £8 million). A five per cent weakening of the Euro against the pound sterling at 31 March 2013 would have increased the foreign exchange reserve within equity by £1 million (2012: decreased the foreign exchange reserve within equity by £3 million; 2011: decreased the foreign exchange reserve within equity by £2 million) and increased the loss by £3 million (2012: decreased the loss by £11 million; 2011: decreased the loss by £7 million). These calculations assume that all other variables remain constant.

 

31


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

18. Financial instruments (continued)

 

Interest rate risk

Loan facilities of the Group are at fixed interest rates although there are certain loan positions between UK entities that are interest free. The only exceptions to this are new cash management loan positions since 28 September 2012 when Universal Music Group acquired the broader EMI Group. These variable rates are not materially impacted by likely forecast interest rate movements.

Hence the Group is not presently exposed to interest rate risk on its financing facilities.

An analysis of the significant interest bearing loan facilities is as follows:

 

            Year ended     Year ended     Year ended  
            31 March     31 March     31 March  
            2013     2012     2011  
            £m     £m     £m  

Floating debt

     GBP         (33     —          —     

Floating debt

     EUR         43        —          —     

Fixed debt

     GBP         (207     (71     (11

Fixed debt

     EUR         —          314        191   
     

 

 

   

 

 

   

 

 

 
        (197     243        180   
     

 

 

   

 

 

   

 

 

 

Capital management

The Group’s capital management policy is determined by the Group’s parent (which has changed over the accounting periods presented). See liquidity risk disclosures.

In all cases, the objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, to maintain an optimal capital structure to reduce the cost of capital and have funds available for business uncertainties.

 

32


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

19. Pensions

There is only one significant defined benefit pension scheme arrangement in which the Group has participated. Parlophone Records Limited (formerly EMI Records Limited) was a member of the broader EMI Group Pension Fund (UK Fund).

EMI Group Limited (an external EMI entity) is the sponsoring employer of the above group wide defined benefit pension plan. As there is no contractual agreement or group policy for charging the net defined benefit cost of the plan to participating entities, the net defined benefit cost of the pension plan is recognised fully by the sponsoring employer. The Group recognises a cost equal to its contributions payable.

On 15 May 2012, after a period of consultation, an agreement was reached between EMI Group and the employee members of the UK defined benefit pension scheme and the scheme was closed to future accrual as of 30 June 2012. All members transferred into a new defined contribution scheme. The closure of the plan did not impact current pensioners, or the benefits already accrued by current employees who were still contributing to the scheme.

Separately, at the end of August 2012, ownership of the UK defined benefit pension scheme was transferred out of the EMI Group to Citigroup (the sale of the EMI Recorded Music business was conditional on Citigroup taking over the responsibility for EMI’s UK defined benefits pension scheme). As part of this transfer, Parlophone Records Ltd (formerly EMI Records Limited), made a £150 million contribution to the UK pension fund, and an additional payment of $257 million (USD) (£162 million) to Citigroup for taking on the UK defined benefit pension obligation. The total of these payments was £312 million.

The total cost of contributions made by Parlophone Records Ltd (formerly EMI Records Limited) relating to the UK Fund was £312 million during the year ended 31 March 2013, £2 million during the year ended 31 March 2012 and £1 million during the year ended 31 March 2011.

Further information on the UK Fund defined benefit scheme that Parlophone Records Limited (formerly EMI Records Limited) was a member of is presented in Note 25.

 

33


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

20. Lease commitments

Commitments under operating leases were as follows:

 

     Year ended      Year ended      Year ended  
     31 March
2013
     31 March
2012
     31 March
2011
 
     £m      £m      £m  

Operating leases:

        

In the first year

     1         1         1   

In the second to fifth years inclusive

     1         2         3   

After the fifth year

     —           1         2   
  

 

 

    

 

 

    

 

 

 

Total

     2         4         6   
  

 

 

    

 

 

    

 

 

 

 

21. Contingent liabilities

The Group is not aware of any significant legal or arbitration proceedings, pending or threatened, against any member of the Group which may result in a liability materially in excess of the provision in the financial statements.

There are no legal or arbitration proceedings involving members of the Group which, so far as the Group is aware, may have a material effect on the financial position of the Group.

Advance commitments

The Group has commitments, which are largely performance related, to pay advances to artists and repertoire owners amounting to approximately £45 million at 31 March 2013 (2012: £43 million, 2011: £53 million).

Tax

The Group operates in several European countries and is subject to a wide range of complex tax laws and regulations. At any point in time it is normal for there to be a number of open years in any particular territory which may be subject to enquiry by local authorities. Where the effect of the laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on past profits which are recognised in the 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 financial statements.

 

34


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

22. Related party transactions

 

     2013     2012     2011  
     £m     £m     £m  

Statement of financial position

      

Interdivisional balances receivable from external EMI entities

     38        40        32   

Interdivisional balances payable to external EMI entities

     (26     (41     (33

Financial assets receivable from external EMI entities

     71        1,495        901   

Financial liabilities payable to external EMI entities

     (329     (816     (333

Income statement

      

Interdivisional revenue from external EMI entities

     69        76        54   

Interdivisional costs to external EMI entities

     (73     (79     (62

Net management charges to external EMI entities

     14        8        5   

Interest receivable from external EMI entities

     19        26        3   

Interest payable to external EMI entities

     (15     (12     (2

Compensation to key management personnel (including Directors)

See note 3 for disclosures in respect of compensation to key management personnel.

Sale of assets to external EMI entities

During the year the Group recognised a profit of £199 million relating to the disposal of various assets at fair market value including the Beatles Recording rights, Abbey Road Studios, investment in Spotify, the NOW! compilation business, Robbie Williams and other Virgin Records artists’ recorded music contracts. As per the basis of preparation, £33 million has been recognised within Invested Equity.

The Group also disposed of property, plant and equipment with a carrying value of £18 million to external EMI entities.

All disposals were based on externally prepared valuations and were considered to be at arm’s length.

Defined benefit pension plans

As discussed in note 19, there is only one material defined benefit pension scheme arrangement in which the Group participated. This has now been closed. See note 19 for further details.

 

35


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

23. Accounting estimates and judgements

The Group prepares its combined financial statements in accordance with IFRS as issued by the IASB, which require management to make judgements, estimates and assumptions which affect the application of the accounting policies, and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates change and in any future periods.

The following areas are considered to involve a significant degree of judgement or estimation:

Artists’ advances

The Group regularly commits to, and pays advances to artists in respect of their anticipated future sales. These advances are capitalised as assets when management believes that the advances are fully recoverable from future royalties to be earned by the artist.

The decision to capitalise an advance requires significant judgement as to the recoverability of these advances. Each advance is assessed upon initial commitment and at each reporting date, based on management’s forecast of anticipated revenues from the sale of existing and future products, taking into account the current and past popularity of the artist, the historic sales of previous products and other relevant information.

Based on this information, management expenses advances which it believes are not recoverable; all royalty advances to artists without a history of commercial success are expensed immediately. All advances carried on the balance sheet are at each reporting date assessed for recoverability.

Revenue recognition

Some contracts which the Group enters into cover a period of several years and generate revenue from a range of different rights granted to counterparties. In assessing whether different rights should be treated as separate income streams and whether the revenue recognition triggers for each income stream have been achieved, the Group makes reference to its stated accounting policies and where necessary applies its judgement to assess the appropriate approach for each contract.

Sales returns provisions

In accordance with market practice in the music industry, the Group sells certain physical products to customers with the right to return certain unsold items. The Group recognises revenues from such sales at invoiced value after making provision in respect of expected future returns of goods supplied. In determining the level of returns provisioning, management is required to estimate the value of sales which may be returned, by analysing historic return trends, assessing the current economic trends, and estimating the future customer demand of the Group’s products. These assessments are performed for each market in which the Group operates, by measuring the percentage of each market’s product sales which have historically been returned and the lag period over which sales are returned and using this data to estimate the returns provision required.

Provisions

Provisions have been made for royalty audit claims, legal, employee termination and other restructuring costs. These provisions are the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The actual costs and timing of future cash flows are dependent on future events. Any difference between expectations and the actual future liability will be accounted for in the period when such determination is made.

Taxation

The Group is required to estimate the tax payable in each of the jurisdictions in which the Group operates. This involves estimating the actual current tax charge or credit together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which may be included on the combined statement of financial position of the Group. The calculation of the Group’s total tax charge necessarily involves a significant degree of estimation in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority, or, as appropriate, through a formal legal process.

 

36


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

23. Accounting estimates and judgements

Taxation (continued)

The Group has, from time to time, contingent tax liabilities arising from trading and corporate transactions in the UK and overseas jurisdictions. After appropriate consideration, management makes provision for these liabilities based on the probable level of economic loss that may be incurred and which is reliably measurable. The breadth of the Group’s structure with operations in several geographic locations makes the use of estimates and assumptions more challenging. The resolution of issues is not always within the control of the Group and can be reliant upon the efficiency of the legal processes in the relevant jurisdictions in which the Group operates, and as a result, issues can, and often do take many years to resolve.

 

24. Subsequent events

Subsequent events for 31 March 2013

Between 1 April 2013 and 1 July 2013 a number of assets were acquired from external EMI entities in preparation for the sale of the PLG group to Warner Music Group.

On 1 July 2013, the Group was sold from Universal Music Group to Warner Music Group.

 

37


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

25. EMI Group UK Pension Fund defined benefit scheme disclosures

Further information on the UK Fund that Parlophone Records Ltd (formerly EMI Records Limited) was a member of is disclosed below.

 

     UK Fund  
     £m  

Net pension asset / (liability)

  

30 August 2012 (see below )

     210   

31 March 2012

     —     

31 March 2011

     (70

As disclosed in note 19, on 15 May 2012, after a period of consultation, an agreement was reached between EMI Group and the employee members of the UK defined benefit pension scheme and the scheme was closed to future accrual as of 30 June 2012. All members were transferred into a new defined contribution scheme. The closure of the plan did not impact current pensioners, or the benefits already accrued by current employees who were still contributing to the scheme. A net past service gain of £3 million arose from this curtailment.

Separately, on 30 August 2012, the ownership of the UK defined benefit pension scheme was transferred out of the EMI Group to Citigroup. As a part of this transfer, EMI Group companies made contributions totalling £193 million to the UK pension fund, and additional payments totalling £208 million to Citigroup for taking on the UK defined benefit pension obligation. Of these payments £312 million were funded by PLG companies. Following the transfer, EMI Group companies have no further obligations towards the scheme or its members.

 

38


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

25. EMI Group UK Pension Fund defined benefit scheme disclosures (continued)

 

The assets and liabilities of this scheme were:

 

30 August 2012

   £m  

Fair value of scheme assets

  

Equities

     34   

Bonds

     933   

Property

     28   

Other

     309   
  

 

 

 
     1,304   

Present value of funded defined benefit obligations

     (1,094
  

 

 

 

Net pension asset

     210   
  

 

 

 

31 March 2012

   £m  

Fair value of scheme assets

  

Equities

     34   

Bonds

     933   

Property

     28   

Other

     111   
  

 

 

 
     1,106   

Present value of funded defined benefit obligations

     (1,106
  

 

 

 

Net pension asset / (liability)

     —     
  

 

 

 

31 March 2011

   £m  

Fair value of scheme assets

  

Equities

     30   

Bonds

     793   

Property

     30   

Other

     103   
  

 

 

 
     956   

Present value of funded defined benefit obligations

     (1,026
  

 

 

 

Net pension liability

     (70
  

 

 

 

 

39


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

25. EMI Group UK Pension Fund defined benefit scheme disclosures (continued)

 

Changes in the fair value of scheme assets are analysed as follows:

 

     £m  

At 1 April 2010

     935   

Expected return on scheme assets

     42   

Employer contributions

     21   

Benefits paid

     (59

Actuarial gains

     17   
  

 

 

 

At 31 March 2011

     956   
  

 

 

 

Expected return on scheme assets

     43   

Employer contributions

     24   

Benefits paid

     (55

Actuarial gains

     138   
  

 

 

 

At 31 March 2012

     1,106   
  

 

 

 

Expected return on scheme assets

     18   

Employer contributions

     10   

One-off employer contribution

     193   

Benefits paid

     (23

Actuarial gains / (losses)

     —     
  

 

 

 

At 30 August 2012

     1,304   
  

 

 

 

Changes in the present value of the defined benefit obligation are analysed as follows:

 

     £m  

At 1 April 2010

     (1,051

Service cost

     (5

Interest cost

     (56

Benefits paid

     59   

Actuarial gains

     27   
  

 

 

 

At 31 March 2011

     (1,026
  

 

 

 

Service cost

     (5

Interest cost

     (55

Benefits paid

     55   

Actuarial losses

     (75
  

 

 

 

At 31 March 2012

     (1,106
  

 

 

 

Service cost

     (1

Interest cost

     (23

Benefits paid

     23   

Curtailment gain

     3   

Actuarial gain

     10   
  

 

 

 

At 30 August 2012

     (1,094
  

 

 

 

 

40


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

25. EMI Group UK Pension Fund defined benefit scheme disclosures (continued)

 

The main assumption used in the valuation of the pension scheme was as follows:

 

30 August 2012

   %  

Main assumptions

  

Rate of general increase in salaries

     4.1   

Rate of increase to pensions in payment

     2.9   

Discount rate for scheme liabilities

     4.8   

Inflation—RPI

     3.1   

Inflation—CPI

     2.1   

Expected rates of return on scheme assets:

  

Equities

     7.2   

Bonds

     3.5   

Property

     5.4   

Other

     2.6   

Overall expected return on scheme assets

     3.7   

31 March 2012

   %  

Main assumptions

  

Rate of general increase in salaries

     4.3   

Rate of increase to pensions in payment

     3.1   

Discount rate for scheme liabilities

     5.0   

Inflation—RPI

     3.3   

Inflation—CPI

     2.3   

Expected rates of return on scheme assets:

  

Equities

     7.2   

Bonds

     3.5   

Property

     5.4   

Other

     2.6   

Overall expected return on scheme assets

     3.7   

31 March 2011

   %  

Main assumptions

  

Rate of general increase in salaries

     5.1   

Rate of increase to pensions in payment

     3.5   

Discount rate for scheme liabilities

     5.5   

Inflation—RPI

     3.6   

Inflation—CPI

     2.6   

Expected rates of return on scheme assets:

  

Equities

     7.8   

Bonds

     4.6   

Property

     6.2   

Other

     3.8   

Overall expected return on scheme assets

     4.8   

The expected return on plan assets is set by reference to historical returns on each of the main asset classes, current market indicators such as long term bond yields and expected long term strategic asset allocation of each plan. The overall expected weight of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plan’s investments portfolio.

 

41


Parlophone Label Group

Combined carve-out financial statements

As at and for the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

Notes to the Combined Carve-out Financial Statements (continued)

For the years ended 31 March 2013, 31 March 2012 and 31 March 2011

 

25. EMI Group UK Pension Fund defined benefit scheme disclosures (continued)

 

The table below sets out the sensitivity on the pension deficit for the two main assumptions:

 

30 August 2012

   £m  

Increase/ (decrease) in pension deficit

  

0.25% rise in discount rate

     (38

0.25% fall in discount rate

     40   

0.25% rise in inflation

     21   

0.25% fall in inflation

     (28

31 March 2012

   £m  

Increase/ (decrease) in pension deficit

  

0.25% rise in discount rate

     (38

0.25% fall in discount rate

     40   

0.25% rise in inflation

     21   

0.25% fall in inflation

     (28

31 March 2011

   £m  

Increase/ (decrease) in pension deficit

  

0.25% rise in discount rate

     (34

0.25% fall in discount rate

     36   

0.25% rise in inflation

     31   

0.25% fall in inflation

     (30

 

42