Pinewood Studios: Business Case and Economic Impact Assessment

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Pinewood Studios LtdPinewood Studios: Business Case and Economic Impact AssessmentJanuary 20132.4.2 Pinewood’s operating model – pipeline management and revenues2.4.2.1 Whilst Pinewood has a range of revenue sources, its core business is providing the requiredfacilities (including stages, production offices, production workshops and back lot space) toenable major productions to take place. Pipeline management (the tracking and managementof potential production opportunities) is critical to the business to ensure that usage oroccupancy of the facilities is maximised, that the mix of facilities is optimised and that it canaccommodate in the region of two major productions at any one time. Pinewood’s relationshipwith its major clients 10 is crucially important in successfully managing its pipeline and drivingfinancial performance. This is especially important as there are also times when the lead in timebetween a firm booking and start on site is quite tight.2.4.2.2 Each film is different but the production process of a major film has similar characteristics. Allproductions hire sound stages on a weekly basis with revenues calculated on the basis of aweekly tariff multiplied by a discount factor which is at the discretion of Pinewood. For businessplanning and operational management purposes, Pinewood management assumes an averageoccupancy level across all facilities of 70% per annum.2.4.2.3 Other revenues are driven by the occupancy of sound stages with productions increasinglyhaving more ancillary requirements for workshop space, production offices, wardrobe areas,make-up areas and outside production space. These are calculated on a weekly basis driven byspace occupied.2.4.2.4 Film production tends to use a lot of space for several months at a time but the creation ofother content such as high end television is resulting in more continuous use of studios andother space due to the high number of episodes and series. The choice of production location isinfluenced by tax incentives. This will become increasingly important to the UK and Pinewoodshould globally competitive tax incentives for high end television, games and animation beintroduced in the UK.2.5 Pinewood recent financial performance2.5.1 Pinewood Shepperton plc (the Group or PSP) is one of the world’s most successful providers ofstudio and related services to the global film and television industry and includes PSL as one ofits key subsidiaries, which is 100% owned by the Group. The Group has a clear growth strategywhich is to:optimise the use of its existing facilities;enhance its studios through improvement and expansion; anddevelop other opportunities that provide benefits to the Group.2.5.2 The expansion of Pinewood is essential to the Group’s and PSL’s growth strategy.10Major clients include studios such as Disney, Fox, Warner Bros, Paramount, Sony, Universal, Marvel and Working Title (film) and Endemol,Talkback Thames, Sky and Celador (television)8
Pinewood Studios LtdPinewood Studios: Business Case and Economic Impact AssessmentJanuary 20132.5.3 The Group has performed well in recent years with increasing annual revenues and EBITDA 11 assummarised in Table 2.2. Group sales reached £63m for the 15 months ending 31 st March2012 12 (equivalent to £50 million over a twelve month period), which is an increase of £13million on 2007 (a 35% increase). This has been driven by the growing global market forproduction and content as discussed further in Section 3.2.2.5.4 The Group’s profitability has also improved considerably with an increase in EBITDA to almost£18 million for the 15 months ending 31 st March 2012 (equivalent to £14 million over a twelvemonth period) which is an increase of £3 million (a 27% increase) on 2007.2.5.5 The Group generates its income from four key revenues sources:provision of studio space and production related ancillary space for film and televisionproduction;providing a comprehensive package of support services including post production services;rental income from lease-backed occupiers; andother investments including international joint ventures and film financing.2.5.6 From a reporting perspective it splits its income under the three core headings of film, televisionand tenants (see Table 2.2).Table 2.2: Pinewood Shepperton plc – Profit and Loss Summary (£m)2007 2008 2009 2010 2011 2011/201212 months ending 31/12/2007 31/12/2008 31/12/2009 31/12/2010 31/12/2011 15 monthsending 31/3/12Revenues:Film 19.5 24.2 22.6 29.1 35.9 44.9Television 12.1 12.7 11.3 8.2 8.3 10.1Tenants 5.8 6.0 6.3 6.2 6.5 8.0Total 37.4 42.9 40.3 43.4 50.7 63.0Cost of sales (22.6) (26.2) (24.7) (26.0) (29.7) (38.1)Gross profit 14.8 16.7 15.6 17.4 21.0 24.9Other costs (6.6) (8.3) (7.9) (8.4) (10.6) (11.7)Operating profit 8.2 8.4 7.7 9.0 10.4 13.2EBITDA 11.1 12.0 11.4 12.8 14.0 17.7Note: may not sum due to rounding1112Earnings before interest, taxation, depreciation and amortisationThe group changed to year end from 31 st December to 31 st March during the financial year ending 20129
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