Pinewood Shepperton plc Annual Report ... - Pinewood Studios

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Pinewood Shepperton plc Annual Report ... - Pinewood Studios

Pinewood Shepperton plcAnnual Report & Accounts 2010


Pinewood Shepperton plc is a leading provider of studio andrelated services to the global film and television industry.Our services support film production, filmed television and studiotelevision recording, digital content services and facilities formedia related businesses.The Group’s strategy is to:• Optimise the use of existing facilities;• Enhance the Studios through improvement and expansion; and• Develop other opportunities that provide benefits to the Group.ContentsHighlights 01Chairman’s statement 03Operating review 05Financial review 12Board of Directors 16Directors’ report 18Key business risks 23Corporate governance 26Employees 32Corporate responsibility 34Directors’ remuneration report 36Consolidated financial statementsIndependent auditors’ report 48Group income statement 50Group statement of other51comprehensive incomeGroup statement of financial 52positionGroup statement of cash flows 53Group reconciliation of movement 54in net debtGroup statement of changes 55in equityNotes to the consolidated financial 56statementsCompany financial statements(UK GAAP)Independent auditors’ report 93Company statement of financial 95positionNotes to the financial statements 96Company information 108


Pinewood Shepperton plc Annual Report & Accounts 2010 1Highlights• Revenue increased 8% to £43.4m (2009: £40.3m)• Operating profit increased 20% to £9.1m (2009: £7.6m)• Profit before tax increased 31% to £5.8m (2009: £4.5m)• Basic earnings per share 9.3p (2009: 9.1p)• EBITDA increased 13% to £12.8m (2009: £11.4m)• Increased total dividend of 3.60p (2009: 3.45p)• Further progress on international strategy• Additional stage capacity to be built at Pinewood Studios• Commitment to low risk investment in smaller UK films


2 Pinewood Shepperton plc Annual Report & Accounts 2010Harry Potter and the Deathly Hallows: Part 1 on D Stage at Pinewood Studios© 2011 Warner Bros. Entertainment Inc. Harry Potter Publishing Rights © J.K.R.Harry Potter Characters, names and related indicia are trademarks of and © Warner Bros. Ent. All rights reserved.


4 Pinewood Shepperton plc Annual Report & Accounts 2010Dancing On Ice broadcast live in HD from Shepperton Studios on J and K Stages © ITV Studios


Pinewood Shepperton plc Annual Report & Accounts 2010 5Operating reviewCompany OverviewPinewood Shepperton plc is a world-class film studio that has an unrivalled heritage and access to an invaluable skill basefor makers of film and television programmes. The Company owns substantial freehold land and has a media park with adiverse range of media related tenants.The Company’s unique assets in the UK, together with its international and strategic initiatives, mean that it is well placedto cater for the existing and planned global growth in creative content. Pinewood is now an expanding global brand,allowing access to premium services around the world.The global entertainment and media market is expected to grow by 5.0% compounded annually between now and 2014reaching US$1.7trn 1 . Global film box-office sales have reached an all-time high at US$31.8bn 2 . Meanwhile, globaltelevision is expected to increase from US$185.9bn in 2009 to US$258.1bn in 2014 3 . More than 245 European televisionchannels were launched in 2009, bringing the total to 7,200 4 . UK television industry revenue in 2009 was £11.1bn 5 .Pinewood Shepperton plc has three complementary revenue streams – film, television and media park.In film, the Company aims to capitalise on the strength of its infrastructure, service offering and brand by maximisingutilisation of its studio facilities in the UK. It is also taking opportunities to extend the brand to other global regions,through joint venture and operating agreements with minimal capital commitment. This has been evidenced so far by fourlong-term agreements with strategic partners in Canada, Germany, Malaysia and most recently the Dominican Republic.The Company has developed a leading television business which often utilises its film stages to host major televisionproductions (and vice versa). This ability to interchange the Company’s assets to meet market demand gives the businessa competitive edge. During the course of the year, several television productions were recorded on film stages and,conversely, a major film used all the television facilities at Pinewood Studios during the second half of 2010.The third revenue stream is Media Park. The Company has invested for the long-term in its Media Park assets to ensurethat its studios remain the preferred destination for leading companies in the screen-based industries. The Companystands ready to take full advantage of its unique property assets and infrastructure which it has outline planning consentsto expand and develop as soon as the economy and demand allow.FilmFilm revenues for 2010 were £29.1m (2009: £22.6m), an increase of 28%. In the second half of 2010, film generatedrevenues of £18.2m (2009: £10.8m). Despite the increasingly competitive international market, both Pinewood Studiosand Shepperton Studios were near full capacity during the second half of 2010.On 14 January 2011 the American Federation of Television and Radio Artists (AFTRA) and Screen Actors Guild (SAG)ratified a new three-year agreement with the Alliance of Motion Picture and Television Producers. This latest agreementwill be effective from 1 July 2011, until 30 June 2014 and will provide certainty around US film production. This is awelcome development.1 Global Entertainment and Media Outlook: 2010–2014, PricewaterhouseCoopers 15 June 20102 Theatrical Market Statistics Report for 2010, Motion Picture Association of America, 23 Feb 20113 Global Entertainment and Media Outlook: 2010–2014, PricewaterhouseCoopers 15 June 20104 European Audiovisual Observatory, 2009 Yearbook, 13 January 20105 The Communications Market 2010, Ofcom, 2010


6 Pinewood Shepperton plc Annual Report & Accounts 2010Operating review continuedMeet the Doyles recorded at Teddington Studios in Studio 1 © Caryn Mandabach Productions


Pinewood Shepperton plc Annual Report & Accounts 2010 7Operating review continuedFilm continuedThe Company’s film facilities include 34 high quality stages which range from 2,000 sq ft to the 59,000 sq ft 007 Stage.In addition, Pinewood Studios offers globally unique water filming facilities, which include one of the world’s largest watertanks with an 800,000 gallon capacity and a specialist underwater stage. All of the Company’s stages are fully equippedwith power, lighting, heating, large loading doors and many have internal water tanks. There are 67 workshops totalling218,646 sq ft, 286 production offices totalling 67,277 sq ft and three ‘backlots’ for outdoor filming.The largest film production based at Pinewood Studios during the year was Pirates of the Caribbean: On Stranger Tides(Disney) and the largest production based at Shepperton Studios was Hugo Cabret (GK Films). Other productions thatused Pinewood Shepperton facilities included Clash of the Titans (Warner Bros), Captain America: The First Avenger(Marvel), X-Men: First Class (Fox), Dark Tide (Magnet Media), Johnny English Reborn (Working Title), Jane Eyre(Ruby Films), My Week with Marilyn (Trademark Films), The Woman in Black (Hammer Films) and Harry Potter andthe Deathly Hallows (Warner Bros).The Company’s state-of-the-art facilities offer attractive options for clients, enabling it to win significant business frominternational productions. The film stages and television studios were deployed interchangeably to ensure maximumutilisation of both the facilities and services. The flexibility of the film stages also allow them to be used for tour rehearsalsand promotional videos. During the course of the year the stages were used by artists such as Kylie Minogue, Shakira,Chris Rea, Stevie Wonder, Rod Stewart, Eric Clapton, Tom Jones, Status Quo and Kasabian.The Company provided digital content services generating revenues of £5.8m (2009: £6.4m), now reflecting thetransition to a fully digital and more efficient process. These services were provided to a number of high profile film andtelevision productions, including Harry Potter and the Deathly Hallows (Warner Bros), 127 Hours (Cloud 8/Film 4), Hanna(Focus Features) and the fourth television series of Would I Lie to You. Digital content services were also provided to anumber of computer games, including Driver: San Francisco (Ubisoft) and Enslaved (Ninja Theory). These digital servicesprovide game developers with premium facilities and reaffirm the Company’s strategy of a flexible offering.Following an agreement with StudioCanal in late 2009 to digitise and preserve its extensive library of film and television,audio and picture assets, the Company has completed work on a number of films and television series includingMurder on the Orient Express, Whisky Galore, Cross of Iron, Peeping Tom, Brighton Rock, Poirot, and the digital cinemare-release of The Railway Children. During 2010, the Company entered into a new agreement with Associated Press tohouse the GMTV programme library. The development of a digital restoration, preservation and archive facility allowed theCompany to invest in expanding its digital infrastructure providing film and television productions and tenants such as ITVand Associated Press with technology which meets their increasing needs.The long-term agreement with Disney Character Voices International is performing well. The Company also providedinternational language versions to a wide range of other productions, including Iron Man 2 (Marvel), How to Train YourDragon (Dreamworks) and Karate Kid (Sony).The Company opened its on-site data centre in April 2010 which is also performing well. Combined with the Sohonetmedia network, the data centre provides co-location and hosting services tailored to the requirements of the media andentertainment industries and adds to the wide range of innovative facilities at the Studios. These improvements form partof the Company’s ongoing commitment to add value through investment in its technical infrastructure.The Company won Best Film Mix Facility of the Year in October 2010 at the UK Screen Sound Awards (‘The Conch’).During the year the demand for use of the Company’s stage and studio assets continued to grow. Accordingly the Boardhas approved, subject to detailed planning consent, the building of a unique 30,000 sq ft stage suitable for both film andtelevision. This significant addition to stage capacity for the Company of 7% is at an anticipated cost of £5.1m.Completion of this new stage, is anticipated by the second half of 2012.


8 Pinewood Shepperton plc Annual Report & Accounts 2010Operating review continuedFilm continuedThe Company has continued to monitor the market demand for film production in the UK. 2010 has once againdemonstrated strong growth in inward investment film production. Despite the overall growth in production, smallerbudget, UK productions, have struggled to maintain a sustainable level of output as financial markets have constrictedaccess to film finance.These smaller budget films are a valuable part of the Company’s mix of revenues. The Government offers attractive fiscalincentives for such productions. The Company’s unique offering and market standing provides the Company with theability to support productions from this segment of the market. Without unduly risking capital, the Company will targeta limited number, up to four per annum, of films, with total production budgets of circa £2m each. To that end, theCompany intends to provide facilities and co-investment of up to 20% in the equity of such small budget films.InternationalThe Pinewood brand is well recognised and highly regarded internationally. The Company’s international offering seeks tobuild on that reputation and selectively leverage its brand strength and expertise.The Company’s first sales and marketing agreement was in Canada. Pinewood Toronto Studios is proving popular with awide range of US production companies and US television networks. Film and television productions that have used thefacilities include Scott Pilgrim vs. the World (Universal), Dreamhouse (Morgan Creek), The Thing (Universal), BreakoutKings (Fox) and Battle of the Blades (CBC).Phase one construction of Pinewood Iskandar Malaysia Studios, the Company’s second international agreement, whichwill comprise 100,000 sq ft of film stages (ranging from 15,000 sq ft to 30,000 sq ft) and 24,000 sq ft of TV studios(2 x 12,000 sq ft) plus a number of offices, workshops and post production facilities is on schedule. The detailed designwork is now significantly completed and the construction phase commenced in February 2011 with a view to opening inearly 2013.In February 2010, Pinewood Studios and Studio Hamburg entered into a joint venture that allows European andinternational filmmakers to take advantage of our joint infrastructure and skills when producing feature films in Germany.The newly created entity, ‘Pinewood Studios Berlin Film Services’, offers international filmmakers a full range ofproduction service opportunities, targeting European producers. The venture is on track to host its first productionlater this year.The Company entered into a long-term agreement with the Indomina Group, an investment managed by VICINI, aleading asset management company with investments in food and beverages, retail, energy, finance, tourism and realestate in the Caribbean and Central America. This agreement is for the operation of new film and television studios to bebuilt in the Dominican Republic. Pinewood will receive annual fees for its sales and management services and an equityparticipation which accrues over time from 2013. The construction will be funded by the Indomina Group. This newventure, ‘Pinewood Indomina Studios’ is expected to commence initial operations in 2012, targeting the growing Latinofilm and television market.International revenues in 2010 of £0.6m (2009: £0.5m) are in line with the Company’s expectations. Once all fourinternational studios are fully operational they will make incremental contributions to revenue and provide access tokey expanding markets such as in the Asia Pacific and South American regions.TelevisionThe Company’s television revenues were, as expected, reduced for the year at £8.2m (2009: £11.3m). Revenues wereimpacted by ITV and BBC deciding to direct their productions to their own in-house studio facilities. The competition forproviders of smaller television studio space has increased significantly as a result. Demand for the Company’s large scaleflexible facilities is growing. This has given the Company a competitive advantage in hosting the big event televisionshows. The Company’s full service television offering and range of facilities which produce high quality, cost effectivesolutions continues to prove attractive to broadcasters and programme makers.


Pinewood Shepperton plc Annual Report & Accounts 2010 9Operating review continuedTelevision continuedPinewood and Teddington television studios played host to new and repeat business from My Family (DLT), A Leagueof Their Own (CPL), Britain’s Best Dish (ITVS), Would I Lie to You (Zepperton), Perrin (Objective Productions), The RobBrydon Show (Talkback Thames), Grounded for Life (Caryn Mandabach), Dick & Dom (BBC), Piers Morgan’s Life Stories(ITV) and IT Crowd (talkbackTHAMES).During the year, television productions such as Episodes (Hat Trick Productions), Dragons' Den (BBC), New Tricks (Wallto Wall) and Grandma's House (Tiger Aspect) used large film stages at Pinewood Studios. R and S stages at PinewoodStudios were used for two large ITV game shows Ant & Dec’s Push The Button (Gallowgate) and The Whole 19 Yards(Endemol) both of which required the space to accommodate large sets and large audiences. The live ITV programmeDancing on Ice commenced pre-production late in 2010 and continues to use film stages at Shepperton Studios to hostcomplex sets and large audiences.The Company’s television facilities and film stages were used during the course of the year for a variety of televisionadvertising campaigns, including Virgin Atlantic’s 'Your airline's either got it or it hasn't', Stella Artois’ online TV show,‘CO2eux Soirée’ and the Speedo 2010 campaign, ‘MySpeedo’.The transmission facilities at Teddington Studios provide additional services which are attractive to smaller channels.During the course of the year channel hosting facilities were provided to CBeebies, Racing UK, Turf TV, Chinese Channeland Ulster TV. The Company is bidding to renew its contract with Racing UK on enhanced channel hosting needs.The Company notes the recent formal announcement by the BBC to redevelop for other uses the BBC’s studio facilitiesat Television Centre, White City, London.Media ParkThe Company’s Media Park is an integral part of the creative industries cluster that exists at the studios – the benefits ofwhich are well known. Media Park is a unique asset offering a variety of complementary services for film and televisionproductions utilising the studios. Media Park is an important component of the Company’s strategy. Despite tough marketconditions, Media Park comprises 297 (2009: 300) media related businesses ranging from small to large, offering servicesto the film, television and video game industries. The Company will continue to target prospective media tenants as itseeks to expand its unique network of related services and businesses on an occupier led basis.Media Park revenues for 2010 were £6.2m (2009: £6.3m) including the Group’s 50% interest in the Shepperton StudiosProperty Partnership (SSPP). Occupancy was 90% (2009: 88%) which was a resilient performance in a depressedcommercial property market. A contributing factor to the reduced revenues was the diversion of 30,000 sq ft of tenantspace to meet the requirement from film productions.The Media Park facilities comprise 380,000 sq ft of tenanted areas used by technology, digital service companies, a filmprocessing laboratory and numerous other support businesses related to the film, television, video game and widercreative industries.The Company continues to look to exploit its master planning consents at each of the Pinewood and Shepperton Studiosites for market led demand for new Media Park facilities.In 2010, the Company committed to capital expenditure of £3.3m over three years for a major electricity supply upgradeat Pinewood Studios, increasing power to the site from 4.5 MVA to 15 MVA. This significant infrastructure improvementwill not only allow the Company to increase the permanent power provision available to productions at the Studio but alsoto meet future demand.The Company continues to invest in its studios, ensuring it can meet the needs of businesses that want to relocate intoone of Europe’s foremost creative clusters. During the course of the year the Company invested £0.7m on a 10,000 sq ftfacility for a new tenant on a 10 year lease, Take 2 Lighting, at Pinewood Studios. This new facility, the North Lamp Store,was opened on 12 November 2010.


10 Pinewood Shepperton plc Annual Report & Accounts 2010Operating review continuedProject PinewoodProject Pinewood is a long-term scheme of national significance to create a living and working community for the creativeindustries. Project Pinewood is aimed at building upon the creative hub developing at Pinewood Studios. The Companybelieves that Project Pinewood will benefit individuals, the creative industries and more widely ‘UK plc’, through jobcreation, its emphasis on skills and training and access to affordable housing. Project Pinewood’s green credentials willalso enable film and television productions significantly to reduce their carbon emissions and it is a project of nationaland regional significance which will be of long-term benefit to all stakeholders.The Coalition Government has recognised that the creative industries have a crucial role to play in driving economicrecovery in the UK. Their significance to future economic prosperity has been recognised by the Prime Minister whohighlighted the need to support the growth of the creative industries in his speech “Transforming the British economy:Coalition strategy for economic growth” on 28 May 2010. Private sector initiatives such as Project Pinewood are animportant contribution to the process of economic recovery.The Company’s appeal by way of Public Inquiry against the initial refusal by South Bucks District Council of planningpermission for Project Pinewood will commence on 5 April 2011. The decision will be made by the Secretary of Statefor Communities and Local Government. Separately an application by local residents in opposition to Project Pinewoodto register part of the proposed site as a Town or Village Green was heard in September 2010. On 21 December 2010the Buckinghamshire County Council Rights of Way Committee unanimously upheld the recommendation from theIndependent Inspector appointed by Buckinghamshire County Council to reject this application. Total costs incurredsince the project inception to 31 December 2010, including the Town or Village Green defence costs were £6.0m(2009: £4.8m).Return on Capital Employed (“ROCE”)As we set out in the overview section of this report, since its IPO in May 2004 the Company has followed a clearly definedstrategy for developing its business. This long-term strategy and the Company’s significant and integral property assetsdistinguish the Company from other businesses in the media sector.The Company’s long-term property investments add to the capital employed by the Company and returns from theseinvestments will impact the ROCE measure whilst the Company continues to build out its Studios in accordance with theconsented Masterplan. It is therefore particularly pleasing to see that ROCE has grown to 7.7% for 2010 (2009: 6.6%).The Board is always mindful of the need to improve ROCE as one of a basket of measures of performance and seniormanagement remains incentivised accordingly.DividendThe Board is recommending an increased final dividend of 2.50p (2009: 2.40p) making a total dividend for the year of3.60p (2009: 3.45p).OutlookThe year has begun positively. The Company is hosting a number of international big budget films and has also attractedlarge television shows such as Dancing on Ice (ITV) and Got to Dance (Sky). Media Park revenues continue to beconsistent, reflecting the value of the Company’s offering in the market place.As a result of this performance to date, and the visibility of contracted revenues from major films for the rest of the year,the Company expects continuing growth in revenues in 2011.Looking to the longer term, the Company intends to add to its film stage capacity to help meet an increasing demand forits services in the UK. The Company looks to the future with confidence.Ivan DunleavyChief Executive7 March 2011


Pinewood Shepperton plc Annual Report & Accounts 2010 11Operating review continuedVirgin Atlantic commercial "Your airline's either got it or it hasn't" by ad agency RKCR and Partizan, shot atPinewood Studios


12 Pinewood Shepperton plc Annual Report & Accounts 2010Financial reviewThe Board use a number of key performance indicators (“KPIs”) to monitor the Company’s performance, as well asto measure progress against the Company’s objectives. The KPIs used are: revenue, profitability, return on capitalemployed, cash flow and net debt which are discussed as part of this Financial Review:RevenueTotal revenues for the year were £43.4m (2009: £40.3m), the 8% increase in total revenues reflected strong growthin film revenues.Film revenues of £29.1m (2009: £22.6m) increased 28%, benefitting from the Company’s strong performance during thesecond half of 2010 where revenues were £18.3m, compared to £10.8m for the first half of the year. Film revenues weregenerated from the provision of services and facilities, including: stages, workshops, wardrobes, dressing rooms,production offices, outdoor filming facilities, ancillary services and digital content services.International revenues of £0.6m (2009: £0.5m) were generated from providing sales and marketing services in Canadaand Malaysia. These revenues provide a meaningful margin contribution with minimal capital employed.Television revenues of £8.2m (2009: £11.3m) reflected the difficult commissioning environment and the diversion of theCompany’s television facilities at Pinewood for film production where there has been high demand. The Company providesdedicated digital television studios on a fully serviced basis which includes freelance contractors, lighting, cameras,technical equipment, dressing rooms and production offices, all of which are priced into the contract in accordance withthe requirements of each television customer.Within film and television are revenues generated from digital content services, which covers sound and picture postproduction, foreign language versioning and archive and restoration services. For the full year revenues were £5.8m(2009: £6.4m) now reflecting the transition to a fully digital and more efficient process.Media Park revenues were £6.2m (2009: £6.3m) including the Company’s 50% interest of £0.9m (2009: £0.9m) fromthe Shepperton Studios Property Partnership. The reduction in revenue reflected a loss of a number of tenants during theyear, and the removal of 30,000 sq ft from the tenanted property estate for future redevelopment.Tenants within the Media Park are contracted on a range of terms inclusive of service, utility and facility charges whichvary from six months to 15 years, supporting the sustainability and resilience of the Company’s overall revenues.Profit performance and earnings per shareGross profit was £17.4m (2009: £15.6m) with gross margins achieving 40% (2009: 39%).Reported operating profit increased 20% to £9.1m (2009: £7.6m), resulting in an operating profit margin of 21%(2009: 19%). EBITDA, i.e. earnings before exceptional items, interest, tax, depreciation and amortisation, was £12.8m(2009: £11.4m). Profit before tax increased 31% to £5.8m (2009: £4.5m).Basic earnings per share were 9.3p (2009: 9.1p). Basic earnings per share after adjusting for the effects of the releaseof the provision for the potential capital gains taxation on properties and for exceptional items were 8.0p (2009: 6.3p).Diluted earnings per share were 8.9p (2009: 8.8p). Diluted earnings per share after adjusting for the effects of therelease of the provision for potential capital gains taxation on properties and for exceptional items were 7.7p(2009: 6.2p).The weighted average number of shares in issue was 46.2m (2009: 46.1m). Adjusting for shares potentially issuableas a result of employee share schemes, the average number would be 48.2m (2009: 47.3m).


Pinewood Shepperton plc Annual Report & Accounts 2010 13Financial review continuedReturn on capital employedThe Company measures return on capital employed which for the 12 months ended 31 December 2010 increased to7.7% (2009: 6.6%) by reference to annual operating profit, before exceptional items as a percentage of average capitalemployed, being total equity plus interest-bearing loans and borrowings.Exceptional incomeExceptional income amounted to £0.6m. The Company negotiated a business rates rebate of £0.5m relating to priorperiods. In addition, following a review of the Total Shareholder Return component of the Company’s Long-Term IncentivePlan awards, granted in 2008, £0.1m of the IFRS 2 charges to the Company income statement in previous years werereversed as an exceptional credit in the year.Exceptional costsExceptional costs for the year amounted to £0.6m. The Company incurred costs of £0.4m in restructuring certainadministrative functions and wrote off £0.2m of the set-up costs of establishing its international initiatives.DividendThe Board is recommending a final dividend of 2.50p (2009: 2.40p), taken together with the interim dividend of 1.10p(2009: 1.05p), the total dividend is 3.60p (2009: 3.45p). The dividend for 2010 is covered 2.6 times (2009: 2.5 times)by profit for the year after tax.The dividends reflected in the statutory accounts for the 12 months to December 2010 are the final dividend in respectof 2009 of 2.40p and the interim dividend in respect of 2010 of 1.10p. The final dividend for 2010 will be accounted forin 2011.Subject to approval by the shareholders at the Annual General Meeting to be held on 31 May 2011, the final dividendwill be paid on 10 June 2011 to shareholders on the register at 13 May 2011 (ex-dividend date of 11 May 2011).It remains the Board’s intention to continue its progressive dividend policy.Cash flow and net debtThe Company generated operating cash flow of £13.0m (2009: £10.7m). After adjusting for movements in workingcapital, including a £4.4m increase in deferred income, cash generated from operations was £17.6m (2009: £8.5m)from which finance costs of £3.0m (2009: £2.8m) and corporation tax £1.9m (2009: £1.5m) were paid.During the year cash outflow on capital expenditure was £6.7m (2009: £6.3m), including £1.9m of capital expenditurepayable carried forward from 31 December 2009. The main items of capital expenditure during the year were: investmentin the archiving and data centre projects amounting to £1.0m, life cycle expenditure of £3.0m, infrastructure powerupgrade of £1.0m, the completed 10,000 sq ft pre-let of £0.5m and Project Pinewood costs of £1.2m.Net debt at 31 December 2010 was £42.7m (31 December 2009: £46.1m) which included £12m (2009: £12m) relatingto the Group’s 50% interest in the non-recourse Aviva loan to the Shepperton Studios Property Partnership (“SSPP”).The reduction in debt reflects improved trading.The Company has banking facilities of up to £70m which comprise a £35m revolving credit facility, a £30m facility forpre-let development and a £5m overdraft facility, all of which are secured by a floating charge over the Company’s assets.The revolving and pre-let facilities contain no scheduled repayments and mature in August 2013. The £5m overdraftfacility is available until August 2013 and is subject to annual reviews. At 31 December 2010, £22.5m (2009: £26m) ofthe revolving credit facility and £6m (2009: £6m) of the pre-let development facility were drawn. The overdraft facilitywas undrawn at 31 December 2010 (2009: £0.9m). During the year the Company also drew down a further £1.3m ofasset financing which at 31 December 2010 totalled £1.8m (2009: £0.9m).


14 Pinewood Shepperton plc Annual Report & Accounts 2010Financial review continuedCash flow and net debt continuedThere are a range of covenants appropriate to the revolving credit facility, pre-let development facility and overdraftfacility. The Company was covenant compliant with adequate headroom on all covenants at 31 December 2010.In addition to the £70m banking facilities, there are non-recourse facilities provided to SSPP by our joint venture partnerAviva, which total £40m, of which £24m was drawn at the year end. This loan which is 50% consolidated at £12m(2009: £12m) is included in the Company statement of financial position. These facilities are available until 2026 and arecovenant free with no scheduled repayments.The Company’s financial risk management, objectives and policies are discussed in more detail in Note 26 to the financialstatements.Investment propertyInvestment property is recognised in accordance with IAS 40 as a category within assets in the Company statement offinancial position. At 31 December 2010, investment property is recorded at a carrying cost of £6.4m (2009: £6.3m).This compares to the Director’s assessment of the fair value of £7.1m (2009: £6.8m). Further information can be foundin Note 15 to the financial statements.Capital commitmentsThe Company had capital commitments of £2.3m at 31 December 2010 (2009: nil) relating to its additional powerupgrade.Financial gearingAt 31 December 2010, net debt including the Company’s share of the SSPP non-recourse drawn loan was £42.7m(2009: £46.1m). Financial gearing at the year end, excluding fair value and loan issue costs, was 55.8% (2009: 63.2%).Finance costs and hedgingNet finance costs were £3.3m (2009: £3.2m) which are comparable to the previous year and include the relevantfees and margins incurred under the facilities. The Company has at its disposal undrawn facilities on which it paysnon-utilisation fees which are a percentage of the margin. Interest capitalised during the period on Project Pinewoodwas £150,000 (2009: £0.1m). Net finance costs were covered 2.8 times (2009: 2.4 times) by operating profit.The Company continued to use interest rate derivatives to manage interest rate exposure. The Company has a £7.5mhedge with an effective rate of 2.89% plus a variable margin of 2.5% that was entered into in April 2009 and expires inJuly 2013. The Company also has a £15m hedge with an effective rate of 5.15% plus a variable margin of 2.5% that wasentered into in October 2008 and expires in July 2013. At 31 December 2010, £22.5m (2009: £22.5m) of the company’sfacilities were under interest rate swaps and £1.8m (2009: £0.9m) was under a fixed interest rate asset financing facility.At 31 December 2010, 57% (2009: 51%) of the Company’s borrowings were at a fixed rate of interest. The Boardregularly reviews the hedging arrangements to manage interest rate exposure. Further details on interest rate riskmanagement can be found in Note 26 of the financial statements.Project PinewoodIncluded within ‘Property, plant and equipment’ on the statement of financial position, is £6.0m of costs incurredto 31 December 2010 (2009: £4.8m) in relation to Project Pinewood. Capitalisation of costs is based on the Board’sjudgement that the economic benefits expected from the asset will exceed the carrying costs of Project Pinewood.Costs are reviewed monthly by the Board. Taking into consideration all aspects of the project, the Board views thecarrying cost of the capitalised expenditure incurred up to 31 December 2010 to be appropriate.


Pinewood Shepperton plc Annual Report & Accounts 2010 15Financial review continuedTaxationThe current corporation tax expense for the year ended 31 December 2010, based on profit before tax of £5.8m, was£2.0m, a current tax rate of 35% (2009: 21%). After adjusting £0.5m for the effect of the release of a provision forpotential capital gains taxation on properties and other deferred tax adjustments, the tax charge is 26% (2009: 6%).On 22 June 2010, the UK Government announced its intention to reduce the main rate of corporation tax from 28% to24%. The fall will be phased in over a period of four years with a 1% reduction in the main corporation tax rate for eachyear starting on 1 April 2011. The Finance (No. 2) Act 2010 enacted on 27 July 2010, included legislation on the initialphase to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011. It is expected that the ratechanges will have an effect of reducing the net UK deferred tax position recognised at 31 December 2010 byapproximately £0.1m.Going concernIn assessing the going concern basis, the Directors considered the Company’s business activities, the financial positionof the Company and the Company’s financial risk management objectives and policies. The Directors considered that theCompany has adequate resources to continue in operational existence for the foreseeable future and that it is thereforeappropriate to adopt the going concern basis in preparing these financial statements.Patrick Garner FCAFinance Director7 March 2011


16 Pinewood Shepperton plc Annual Report & Accounts 2010Board of DirectorsNon-Executive ChairmanLord Grade of Yarmouth, CBE † (67) began his career as a sports journalist; previous positions include Chief Executiveof Channel 4 (1988–1997), Chairman and Chief Executive of First Leisure plc and Chairman of the Governors of the BBCand Chairman and Chief Executive of ITV plc. He is Non-Executive Chairman of Ocado and the entertainment talentservices company, James Grant Group. Lord Grade has been Chairman of Pinewood Shepperton since February 2000.He was created a Peer in 2010.Executive DirectorsIvan Dunleavy, Chief Executive (51) has spent his career in media businesses initially in finance roles. Prior to his currentrole he was Chief Executive of VCI plc, until it was acquired by Kingfisher plc in November 1998. He is a Director of UKScreen Association Limited, the industry trade body, and has been Chief Executive of Pinewood Shepperton sinceFebruary 2000.Patrick Garner FCA, Finance Director (65) was a Director of Trafalgar House Property Limited and Finance Director ofCanary Wharf Limited from 1993 to 1995 (appointed by the secured lenders on exit from administration), Vice PresidentProperty and Finance for Village Cinemas Limited. He joined Pinewood Shepperton in September 2001 and was appointedto the Board in October 2001.Nicholas Smith, Commercial Director (48) joined Pinewood Shepperton in May 2002 and was appointed to the Board inJuly 2005. Previous positions include Head of European Sales for Nokia (Home Communications), European Sales Directorfor beenz.com, Broadcast Director for TSMS Ltd and Marketing Manager at London Weekend Television. He is currently onthe management Board of the Production Guild of Great Britain.Non-Executive DirectorsAdrian Burn FCA *†‡ (65) trained as a chartered accountant. He has spent most of his career in professional practice,becoming Managing Partner and then Senior Partner of Binder Hamlyn and a member of the UK Board of ArthurAndersen. He is currently a Non-Executive Director of GE Money Home Lending and a trustee of the Royal British Legion.He was appointed to the Board in April 2000 and is the Senior Independent Director and Chairman of the AuditCommittee.Nigel Hall FCA *†‡ (55) trained as a chartered accountant. He joined the Burton Group in 1984 (renamed Arcadia Groupplc following the demerger of Debenhams in January 1998) being appointed to its Board in August 1997 and becomingGroup Finance Director in November 1997, a role he continued in until March 2003. He is currently Non-ExecutiveChairman of Countrywide Farmers plc and a Non-Executive Director of Unite Group plc and C & J Clark Limited.He was appointed to the Board in April 2004 and is Chairman of the Remuneration and Nomination Committees.James Donald FRICS *‡ (66) was Chairman of Strutt & Parker for seven years until his retirement from the partnership in2004. He continues to act as a consultant to the firm and a number of previous clients. For many years his main focus hasbeen the development or redevelopment of large commercial or mixed use sites, advising occupiers, developers andinvestors. He was appointed to the Board in March 2006.Steven Underwood ACA (36) trained as a chartered accountant with Coopers & Lybrand. He joined the Board of thePeel Group as Corporate Development Director in March 2007, after eight years in Investment Banking with Rothschild.He represents the Peel Group on the Boards of a number of its investee companies. He was appointed to the Board inJune 2010.* Member of the Audit Committee† Member of the Nomination Committee‡ Member of the Remuneration Committee


Pinewood Shepperton plc Annual Report & Accounts 2010 17Board of Directors continuedCompany SecretaryAndrew M. Smith (48) Joined in June 2008, as Group Director Corporate Affairs and is responsible for communications,public affairs, human resources and corporate and social responsibility. He was appointed Company Secretary on20 December 2010. He is a member of the Film Skills Council. Prior to this he was Managing Partner of The PolicyPartnership.


18 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ reportThe Directors present their Annual Report together with the financial statements for the year ended 31 December 2010.Principal activities, business review and future developmentsThe principal activity of the Company is the provision of studio and related services to the global film and televisionindustry. The Board considers the Company to be well placed and views its future prospects with confidence.The information that fulfils the requirements of the Business review can be found in the following sections, which areincorporated into this report by reference: Operating review, Financial Review, Key Business Risks, CorporateGovernance, Employees and Corporate Responsibility (pages 5 to 35).Future developments are discussed within the Chairman’s Statement and Operating Review (pages 3 to 11).Results and dividendProfit for the financial year ended 31 December 2010 was £4.3m (2009: £4.2m). A final dividend of 2.50p (2009: 2.40p)per share is recommended for the year ended 31 December 2010.Directors and their interestsThe Directors at 31 December 2010 and their interests in the share capital of the Company, other than those interestsin options and awards in respect of ordinary shares (which are contained within the Directors’ remuneration report), wereas follows:Number ofordinaryshares at1 January2010Acquiredduringthe yearNumber ofordinaryshares at31 December2010Lord Grade of Yarmouth 620,486 – 620,486Ivan Dunleavy 1,266,458 20,000¹ 1,286,458Patrick Garner 208,822 – 208,822Nicholas Smith 25,196 – 25,196Adrian Burn 66,660 – 66,660Nigel Hall 18,289 – 18,289James Donald 10,000 – 10,000Steven Underwood² – – –1. Purchased in connection with long-term incentive plan grants.2. Steven Underwood is an Executive Director of the Peel Group which indirectly owns 26.64% of the issued share capital through Goodweather InvestmentManagement.Since 31 December 2010, there have been no changes in the Directors’ interests in shares.The Company has complied with the Financial Services Authority announcement on 9 January 2009 with respect toDisclosure and Transparency Rule 3.1.2, and discloses relevant information to the market via Regulatory News Servicebulletins as soon as it receives notification of transactions.


Pinewood Shepperton plc Annual Report & Accounts 2010 19Directors’ report continuedDirectors and their interests continuedLord Grade and Nigel Hall will retire by rotation at the forthcoming Annual General Meeting on 31 May 2011 and, beingeligible, will offer themselves for re-election. In accordance with the Company’s Articles of Association, Steven Underwoodwill offer himself for election as he has been appointed to the Board since the Company’s last Annual General Meeting.In accordance with the Company’s Articles of Association, Adrian Burn will offer himself for re-election as he has heldoffice as a Non-Executive Director for more than nine years. For the reasons set out in the section on CorporateGovernance on page 26 the Board considers that notwithstanding the fact that Adrian Burn has served on the Board for11 years, he is independent for the purposes of the Combined Code and his level of experience brings a significant andvaluable contribution to the Board.Details of Directors’ service contracts are provided in the Directors’ remuneration report. Directors’ interests in contractsin the Group’s business are disclosed as related party transactions in Note 25 to the accounts.The Company appoints and replaces Directors in accordance with the Company’s Articles of Association and has a processof selection and recruitment of replacements as noted in the Nomination Committee section of the Corporate GovernanceReport.Corporate governanceDetails of the Company’s corporate governance policies are incorporated into the report by reference and can be foundon pages 26 to 31.Annual General MeetingThe notice convening the Annual General Meeting of the Company, to be held at J.P. Morgan Cazenove Limited,20 Moorgate, London EC2R 6DA, at 10.30 am on 31 May 2011, together with an explanation of the resolutions to beproposed at the meeting, is contained in a circular to shareholders enclosed with this Annual Report.Share capitalThe Company’s share capital comprises one class of ordinary shares which carry no restrictions on the transfer of sharesor on voting rights (other than set out in the Company’s Articles of Association).There are no agreements known to the Company between holders of shares in the Company which may result inrestrictions on the transfer of shares or on voting rights in relation to the Company.Details of issued share capital are contained in Note 20 to the accounts.At 2 March 2011, the beneficial interests amounting to 3% or more of the issued share capital of the Company, as notifiedto the Company, comprised:PercentageNumber of sharesheldCrystal Amber Advisers (UK) LLP 12,930,861 27.97Goodweather Investment Management 12,318,000 26.64Aberdeen Asset Management Group 4,577,500 9.90SVG Capital Plc 3,410,148 7.38Warren James Holdings Limited 2,175,000 4.70Aegon Asset Management 1,643,602 3.56No holder of shares in the Company has any special rights with regard to control of the Company, nor does the SharesaveScheme (details in the Remuneration Committee report) provide rights with regards to the control of the Company.


20 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ report continuedShare capital continuedThe Board invited Steven Underwood, currently a full-time executive of the Peel Group (“Peel”), to join the Board as aNon-Executive Director with effect from 29 June 2010.Peel holds 26.64% of the issued share capital of Pinewood Shepperton plc via Goodweather Investment Management.In connection with the appointment of Steven Underwood, Peel has provided undertakings pursuant to which, inter alia,it has agreed that during the period that Steven Underwood or any other representative of Peel is a director of theCompany (the “Peel Representative”) and, in the event that there ceases to be a Peel Representative, for a further periodof six months thereafter, Peel shall not, without the recommendation of the Board, make an offer for the Company or putitself in a position where it is obliged to make such an offer under the Takeover Code. These restrictions shall not apply inthe event that an unconnected third party announces a firm intention to make an offer for the Company.In addition, it has been agreed that whilst there is a Peel Representative the Company shall at all-times operateindependently of the Peel Group, in particular, there should always be a majority of directors of the Company who areindependent of the Peel Group and that all transactions, dealings and other relationships between the Peel Group andthe Pinewood Group shall be on arm's length terms and on a normal commercial basis.In the event of a change of control of the Group, the banking facilities become repayable on demand if the Group and thesyndicate banks’ agent are unable to agree alternative terms within thirty days of the Group’s notification of a change ofcontrol. There are no other significant agreements to which the Company is a party to, that take effect, alter or terminateupon a change of control of the Company following a takeover bid, nor are there any agreements between Directors orEmployees providing for compensation for loss of office or employment that occurs because of a takeover bid.The Directors have the authority to buy-back the Company’s shares provided that the maximum number is 4,623,200and subject to minimum and maximum price levels as defined in a resolution passed at the Annual General Meeting on29 June 2010. The authority to buy-back shares expires on the date of the next Annual General Meeting, 31 May 2011.Creditor payment policyGroup trade creditors at 31 December 2010 were equivalent to 26 days (2009: 33 days) of purchases during the year inline with Group policy; specific terms are agreed between operating companies and their respective suppliers, and thatpayments are made to suppliers in accordance with those terms.Charitable donationsDuring the year the Group donated £9,000 to charitable causes, and has continued to demonstrate its commitment tothe support of local charities and causes, in addition to supporting media related charities. Further details are containedin the Corporate responsibility report on page 34. No political donations were made during the year.Financial instrumentsThe financial risk management objectives and policies of the Group are included in Note 26 to the accounts.Subsequent developmentsThe Company has entered into a long-term agreement with the Indomina Group, an investment managed by VICINI,a leading asset management company with investments in food and beverages, retail, energy, finance, tourism and realestate in the Caribbean and Central America. The agreement is for the operation of new film and television studios to bebuilt in the Dominican Republic. Pinewood will receive annual fees for its sales and management services and an equityparticipation which accrues over time from 2013. The construction will be funded by the Indomina Group. This newventure, ‘Pinewood Indomina Studios’ is expected to commence initial operations in 2012.


Pinewood Shepperton plc Annual Report & Accounts 2010 21Directors’ report continuedPrincipal risks and analysis of Key Performance IndicatorsThe principal risks to which the Group and Company are exposed are disclosed in the ‘Key business risks’ section of theAnnual Report and in Note 26 to the accounts.In monitoring and assessing business performance the Board uses a number of key performance indicators which arecovered on pages 12 to 15 in the ‘Financial Review’ section of the Annual Report.Directors’ liabilitiesThe Company has granted an indemnity to all its Directors against liability brought by third parties, subject to theconditions set out in the Companies Act 2006. Such qualifying third party indemnity provision remains in force as atthe date of approving the Directors’ report.Going concernThe Group’s business activities, together with the key business risks that may impact its future development, performanceand position are within the following sections: Operating review, Financial review, Key business risks, Corporategovernance and Corporate responsibility which form part of the Business review within the Directors’ report. The FinanceDirector’s Financial review covers the financial position of the Group and its cash flows, liquidity position and borrowingfacilities on pages 12 to 15. In addition, Notes 21 and 26 to the financial statements include the Group’s objectives,policies and processes for managing its capital; its financial risk management objectives; details of its financialinstruments and hedging activities; and its exposure to credit risk and liquidity risk.The Group has primary banking facilities and an overdraft facility in place until 2013, the overdraft is subject to an annualreview. In addition, the Shepperton Studios Property Partnership joint venture partnership with Aviva has a non-recoursefacility in place until 2026. The Group also has a strong brand and reputation in the marketplace with a wide number ofcustomers and suppliers in the film and television industry. As a consequence, the Directors believe that the Group is wellplaced to manage its business risks and operations successfully despite the current economic environment.The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existencefor the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financialstatements, as there are no material uncertainties related to events or conditions that may cast significant doubt aboutthe ability of the Group to continue as a going concern. The going concern assessment has been prepared in accordancewith ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’, published by the FinancialReporting Council in 2009.Directors’ statement as to disclosure of information to auditorsThe Directors who were members of the Board at the time of approving the Directors’ report are listed on page 16.Having made enquiries of fellow directors and of the Group’s auditors, each of these Directors confirms that:• so far as he is aware, there is no relevant information of which the Group’s auditors are unaware; and• he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevantaudit information and to establish that the Group’s auditors are aware of that information.


22 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ report continuedRegistered auditorsIn accordance with Section 489 of the Companies Act 2006 resolutions proposing the reappointment of Ernst & Young LLPas auditors to the Group will be proposed at the Annual General Meeting at a level of remuneration to be agreed by theDirectors.Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and the Group financial statements in accordance withapplicable United Kingdom law and International Financial Reporting Standards as adopted by the European Union.The Directors are required to prepare Group financial statements for each financial year which present fairly the financialposition of the Group and the financial performance and cash flows of the Group for that period. In preparing those Groupfinancial statements, the Directors are required to:• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates andErrors and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• present information, including accounting policies, in a manner that provides relevant, reliable, comparable andunderstandable information;• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable usersto understand the impact of particular transactions, other events and conditions on the Group’s financial position andfinancial performance; and• state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financialstatements.The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any timethe financial position of the Group and parent company and enable them to ensure that the Group financial statementscomply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding theassets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and otherirregularities.Each of the Directors, whose names and functions are listed on page 16, confirms that, to the best of their knowledge:• the Group financial statements, prepared in accordance with International Financial Reporting Standards as adopted bythe European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and• the Chairman’s statement, Operating review, Financial review and the Directors’ report, when taken together, includea true and fair review of the development and performance of the business and the position of the Group together witha description of the principal risks and uncertainties that it faces.By order of the BoardAndrew M. SmithCompany Secretary7 March 2011


Pinewood Shepperton plc Annual Report & Accounts 2010 23Key business risksThe Board views effective risk management as a primary part of the Group’s wider strategy and is fully committed to theidentification, evaluation and management of significant risks facing the Group. The table below outlines the key risks anduncertainties identified by the Board together with an outline of mitigation activities.1. General risksRisk Description MitigationImportance of keycustomers and bigbudget filmsThe Group’s largest customers account for ahigh percentage of revenues. If ‘big budget’filmmakers cease to choose the Group’sfacilities this would reduce revenues.Maintaining strong, long-standing relationshipsthrough consistent levels of service and retainingemployees to offer continuity.Diversification of revenues through thedevelopment of the Group’s strategy.Loss of reputationProviding services to the worldwide film industryand representing studios internationally requires arobust reputation. Damage to the reputationcould have an adverse impact on the Group.Maintaining strong relationships and an openline of communication with customers andinternational ‘partners’ through the Directorsand executive management team.Guild/UniondisruptionsMembers of the various trade guilds/unions workon a high proportion of UK inward investmentfilms.No direct mitigating actions can be taken.Delay in therecovery of theeconomyA delay in the recovery of the economicenvironment may lead to a reduction incustomers and revenue.The Board monitors the external environmentand its impact on the industry and has a numberof strategic initiatives to respond to anticipatedchanges.InternationalagreementsLess direct and indirect control.The Board regularly monitors the performance ofthe entities it has agreements with and the widergeopolitical context.


24 Pinewood Shepperton plc Annual Report & Accounts 2010Key business risks continued2. Financial risksRisk Description MitigationFiscal incentivesThe UK’s film tax incentives help ensure the UKis a competitive location for film production.No direct mitigating actions can be taken.Reasoned evidence-based arguments are putforward to the Government highlighting theeconomic contribution that film makes to theeconomy.Exchange ratesThe majority of international film customers arein the US and an adverse movement in exchangerates may result in a reduction in the Group’scompetitive edge versus other European orinternational locations.No direct mitigating actions can be takenhowever, the reputation of the Group and thelong-standing relationships assist in reducingthis risk.TreasuryRisk is in a number of areas including credit risk,liquidity risk, interest rate risk and market risk.These are discussed in detail in Note 26 to theAnnual Report.Increases tobusiness rates andvaluationPotential increase in business ratesand valuation would adversely impactthe business.No direct mitigating actions can be taken albeitrepresentations would be made to Government.


Pinewood Shepperton plc Annual Report & Accounts 2010 25Key business risks continued3. Operational risksRisk Description MitigationHealth and safety,environmental anddisaster recoveryA significant incident could put people and/or theenvironment at risk as well as damage theGroup’s reputation.A major incident such as a fire or explosion mayresult in a number of issues including revenueloss and reputational damage.A dedicated health, safety and fire team carriesout regular risk evaluation. Further details can befound in the Corporate responsibility section ofthe Annual Report.A Business Continuity Team has been establishedand a policy is in place to ensure that operationalbusiness continues as far as possible in the eventof a major incident.Adequate insurance cover is in place to mitigatethe risk of the business suffering no permanentlong-term detrimental effects from a significantnegative event.Property PlanningThe Group has exposure to risk if not able tocommercially exploit existing and proposedplanning consents to the fullest potential inaccordance with long range plans.The Group would assess alternative uses that arein line with the wider Group strategy should sucha situation occur.Failure of keysuppliersThe current economic climate could result in keysuppliers to the Group being unable to maintainan effective supply chain.The Group retains good supplier relationships andalternative suppliers for generic services could besourced in the medium term.Health risk ofpandemics, acts ofterrorism andnatural disastersDiseases, terrorist threats and natural disastersmay reduce the appeal to customers to travel andmay impact local operational capability.With UK-based studios and operational partnersin a number of international locations the Groupconsider that the availability of location optionswould reduce the risk in this area.The Business review contains forward-looking statements that are made by the Directors in good faith. This informationis based on the view of the Board of Directors at the date of approval of this Annual Report and based on knowledgeand information at that time together with what are considered to be reasonable judgements. By their nature, forwardlookingstatements involve risks and uncertainties because they relate to events and depend on circumstances that willoccur in the future. There are a number of factors outside of the Group’s control which could cause actual results anddevelopments to differ materially from those expressed or implied by these forward-looking statements, including factorsoutside of the Group’s control. Any forward-looking statements speak only as of the date that they are made, and theGroup gives no undertaking to update forward-looking statements to reflect any changes in its expectations with regardthereto or any changes to events, conditions or circumstances on which any such statement is based.


26 Pinewood Shepperton plc Annual Report & Accounts 2010Corporate governanceDuring the year under review, the Board has continued to support the principles of corporate governance, as advocatedby the Combined Code which can be found at www.frc.org.uk/corporate/combinedcode.cfm. The Company’s approachto its application of the principles set out in the Combined Code is detailed below. The Company has remained compliantwith all requirements of the Code.Membership of the BoardThe Board comprises the Non-Executive Chairman, Lord Grade of Yarmouth; three Executive Directors, Ivan Dunleavy,Patrick Garner and Nicholas Smith; four Non-Executive Directors, Adrian Burn, Nigel Hall, James Donald and StevenUnderwood. Further details of the Board members can be found on page 16 of the Annual Report. The NominationCommittee is currently leading a process to recruit an additional independent Non-Executive Director.Independence of DirectorsAdrian Burn, the Senior Independent Director, joined the Board in April 2000. Nigel Hall joined the Board in April 2004,and James Donald joined the Board in March 2006. Adrian Burn, Nigel Hall and James Donald continue to contributesignificantly to the Group’s strategic direction.The Board considers Adrian Burn, Nigel Hall and James Donald to be independent for the purposes of the Combined Code.Adrian Burn has served on the Board for eleven years. The Combined Code points to a number of factors that may impactindependence including length of service on the Board. The Board’s view is that independence is determined by the nonexecutive’scharacter, objectivity and integrity and that the extended service of Adrian Burn does not compromise hisindependence and, indeed, his level of experience brings a significant and valuable contribution to the Board.The Nomination Committee is leading a process to recruit an additional independent Non-Executive Director.Conflicts of interestIn accordance with Section 175 of the Companies Act 2006, procedures have been put into place for the disclosure byDirectors of potential and/or actual conflicts of interest, and these have been operated effectively. Each potential and/oractual conflict is disclosed as it arises and is considered by an appropriate quorum of Directors. Directors leave a Boardmeeting when matters relating to them or which may constitute a conflict of interest are being discussed.The Group complies with the Model Code on share dealings and this extends beyond Directors to Persons DischargingManagerial Responsibilities (“PDMRs”). In accordance with the FSA requirements over PDMRs, a policy has beenintroduced to ensure that PDMRs disclose appropriate and relevant information directly to the Company Secretary.Role and responsibility of the BoardThe Board is responsible for determining corporate strategy, treasury policy, approval of capital expenditure projects inexcess of £50,000, dividend policy, interim and annual financial statements, all regulatory communications required bythe Group and appointments to the Board. In the continuing challenging economic climate the Board continues tomaintain and, where it considers necessary, enhance the financial disciplines across the Group.In advance of the monthly Board meeting the Board members are provided with comprehensive historic and forwardlookingfinancial and operational information to support their understanding of the business and related strategic andoperational issues, and to enable them to fulfil their responsibilities accordingly. Where there are specific items thatrequire Board approval, additional reports and supporting information are circulated. Directors are provided with regularaccess to the Company Secretary and to the executive management team to facilitate their understanding of significantoperational issues and assessment of the Group’s prospects, including the ongoing consideration of succession planning.This also ensures that the Directors can make further enquiries on financial, operational and strategic matters as andwhen required. There are also procedures in place to enable Board members to take independent professional adviceas necessary.


Pinewood Shepperton plc Annual Report & Accounts 2010 27Corporate governance continuedBoard evaluationThe Board regularly conducts evaluations of its performance. The Chairman reviews individual Board memberscontributions to the Board and its Committees. The Chairman’s performance is likewise reviewed by the SeniorIndependent Director. These evaluations are carried out on a rolling basis.Directors’ trainingPrior to their appointment to the Board, all Directors are provided with a detailed understanding of the Group, bymeeting with existing Directors, and being provided with comprehensive financial and operational information.Additionally, Directors are fully briefed and kept up-to-date on issues impacting their role and responsibilities as Directors.Directors continue to be updated on significant financial and operational issues via Board meetings and regularcommunications from the Group, as well as being provided with direct access to the Group’s executive managementteam.Meetings of DirectorsDuring the year under review the Board held 11 scheduled Board meetings. The following table sets out attendanceof the Directors at the Board and Committee meetings during 2010:BoardmeetingsAuditCommitteemeetingsRemunerationCommitteemeetingsNominationCommitteemeetingsChairmanLord Grade of Yarmouth 11/11 – – 2/2Executive DirectorsIvan Dunleavy 11/11 – – –Patrick Garner 11/11 – – –Nicholas Smith 11/11 – – –Non-Executive DirectorsAdrian Burn 11/11 3/3 5/5 2/2Nigel Hall 11/11 3/3 5/5 2/2James Donald 10/11 3/3 4/5 –Steven Underwood (appointed 29 June 2010) 5/5 – – –Communication with institutional shareholdersExecutive Directors maintain regular and structured dialogue with major shareholders via direct scheduled meetings andcommunication in response to ad hoc queries and requests from shareholders. In addition, the Chairman and the SeniorIndependent Director are available to meet significant shareholders, as required.Share capitalThe information about share capital required to be included in this statement can be found on page 19 in theDirectors’ report.


28 Pinewood Shepperton plc Annual Report & Accounts 2010Corporate governance continuedBoard CommitteesThe Board has established three Committees – Audit, Nomination and Remuneration. The Chairman and membersof these Committees are appointed by the Board on the recommendation of the Nomination Committee, followingconsultation with the appropriate Committee’s chairman.The terms of reference of the Audit, Nomination and Remuneration Committees are contained in the ‘Corporategovernance’ section of the Company’s Investor Relations website at www.pinewoodshepperton.com.Audit CommitteeAdrian Burn – ChairmanNigel HallJames DonaldAdrian Burn, Nigel Hall and James Donald are all independent Non-Executive Directors and contribute significant financialand commercial expertise following previously held senior positions in major commercial organisations.The Committee has written terms of reference reflecting the requirements of the Combined Code, which have beenapproved by the Board. The Committee provides the Board with assurance in respect of the integrity of the Group’sfinancial reporting procedures, policies and controls.The Group’s external auditors meet directly with the Audit Committee in advance of full year and interim results, and onother occasions as required.The Audit Committee reports to the full Board of the Company. The Committee also reviews the effectiveness of theexternal audit process including the issue of auditor independence. In line with best practice, the Audit Committeeintroduced a policy that defines non-audit services that the Group’s auditors may or may not provide. The key point of thepolicy is that the Audit Committee will not support the use of the appointed audit firm for book-keeping services and anyother services deemed incompatible with auditor independence by professional or government regulations. For certainother types of work including, but not limited to, taxation, governance, accounting advice and consultancy services thepolicy allows for a review of a range of suppliers and costs above a predetermined level are required to be approved bythe Audit Committee.Further unscheduled communication between the members of the Committee is conducted as required. The AuditCommittee continues to consider, that given the size of the Company, an internal audit function is not currently required.During the year matters considered by the Committee included:• The Annual Report and Accounts;• Preliminary results;• Interim report and results;• The Group accounting policies;• The use of the going concern basis in the preparation of the accounts;• Audit report from Ernst & Young on the interim and annual results;• A management letter report from Ernst & Young on recommendations of improvements to internal control;• Compliance with the Combined Code; and• Approval of the appointment of Ernst & Young as independent external auditor together with audit scope and fees.The Committee met on three occasions during 2010.


Pinewood Shepperton plc Annual Report & Accounts 2010 29Corporate governance continuedBoard Committees continuedNomination CommitteeNigel Hall – ChairmanAdrian BurnLord Grade of YarmouthThe Committee has written terms of reference reflecting the requirements of the Code, which have been approved by theBoard. The Committee’s purpose is to make recommendations to the Board on all proposed appointments of Directors, toreview succession plans for the Group and to review Board effectiveness. The Committee met on two occasions in 2010.When the need arises to recruit a director a role profile will be prepared that identifies the requirements of the roleand the experience and background of a candidate. This will then be used to assess the applicants. External searchconsultants will be engaged as necessary to undertake the identification of appropriate candidates. Should the need ariseto appoint a successor to the Chairman of the Committee, then the current Chairman, Nigel Hall, would not be permittedto chair relevant meetings.The Committee is currently leading a process to recruit an additional independent Non-Executive Director. The Committeehas engaged search consultants to undertake the identification of appropriate candidates.The executive management team are a key component of effective succession planning within the Group. The teamhave been selected based on experience, background and ability to support the Board in delivering the Group strategyand maximising stakeholder value. Their training and development needs are regularly reviewed as this is a critical partof the succession plan for the wider business to ensure that a pipeline of talent and knowledge is developed and retained.An overview of the executive management team can be found under the ‘Employees’ section of the Annual Report.Remuneration CommitteeNigel Hall – ChairmanAdrian BurnJames DonaldA detailed report on the Remuneration Committee’s activities is contained within the Directors’ remuneration report.The Committee met on five occasions in 2010.


30 Pinewood Shepperton plc Annual Report & Accounts 2010Corporate governance continuedInternal controlThe Board acknowledges that it is responsible for the Group’s system of internal control and has reviewed its effectivenessin accordance with the provisions of the Combined Code. The Audit Committee, in accordance with the terms of reference,has reviewed the effectiveness of the internal control systems and has found the systems to be effective. The internalcontrol system implemented at the Company for the year under review, and continuing, is structured in order that theGroup’s risks are effectively identified, evaluated and managed to provide reasonable but not absolute reassurance thatthere is no material misstatement or loss. This process is consistent with the requirements of the Turnbull Guidance.The main elements of the Group’s internal control system, including risk identification, are as follows:BoardThe Board of Directors is ultimately responsible for internal control procedures, with an organisational structure thatsupports clearly defined authority levels. The primary responsibility for the operation of the internal control systems lieswith the Executive Directors and the executive management team. Board meetings include consideration of strategic,financial, operational and compliance issues, which are endorsed through assessment by the Audit Committee of theeffectiveness of the internal, financial and operating control environment.Operating Company controlsThe identification and mitigation of major business risks is the responsibility of the Executive Directors and executivemanagement team who have ongoing operational responsibility. A part of this remit includes the maintenance and regularreview of procedures to identify and mitigate potential areas of risk, supported by the Group’s in-house legal counsel, inaddition to external advisor guidance. This process and review also ensures that procedures comply with Group policiesand guidelines.Authorisation proceduresThe authorisation procedures in respect of matters such as purchase commitments, capital expenditure, investment limitsand treasury transactions are clearly defined within the Group.InsuranceThe Company has granted an indemnity to all its Directors against liability brought by third parties, subject to theconditions set out in the Companies Act 2006. The continuing adequacy of insurance cover for the Group is evaluatedon an annual basis and the Board concluded that the insurance cover for the Group is currently adequateFinancial reportingIn advance of each financial year, the Board approves a comprehensive budget, incorporating a detailed appraisal ofunderlying assumptions and business risks. The Board is provided with financial information on a monthly basis detailinghistorical and forecast results against budget and prior year, incorporating monthly and year to date trading results,statement of financial position and summary notes, cash flow statements, capital expenditure, levels of indebtednessand covenant compliance. In addition, monthly Board meetings include an appraisal of current forecasts, treasury policy,financial resources, borrowing facilities and hedging strategy. The executive management team are also provided withkey financial data on a monthly basis, to assess performance against budgets and provide explanations on the results tothe Board.Treasury managementThe treasury function is managed in accordance with guidance approved by the Board and procedures are regularlyreviewed to ensure that they remain suitable. Appropriate segregation of duties is in place and significant transactions areauthorised by the Board. Financial reports and analysis are provided to the Board on a monthly basis as noted in financialreporting above.


Pinewood Shepperton plc Annual Report & Accounts 2010 31Corporate governance continuedInternal control continuedShareholder communicationPinewood Shepperton plc maintains a strong communication strategy with its shareholders. The Company alsocommunicates regularly with the employees of the Group, a number of who are direct shareholders in the Company,or are members of the Company Sharesave Scheme. All Company announcements are posted on the investor relationssection of the Company’s website at www.pinewoodshepperton.com as they are released. Relevant shareholderpresentations, notably those given to institutional shareholders on publication of the interim and annual results for theyear, are also accessible to all investors via the website. The Company’s dedicated investor relations section of its websiteincludes historic financial and share price information, as well as a link to ‘About us’ which provides information on thebusiness and the services and facilities available.Additionally, the Annual General Meeting, to be held this year on 31 May 2011, will provide shareholders with a furtheropportunity to meet and question the Company’s Board, and to review the previous year’s results and business.By order of the BoardAndrew M. SmithCompany Secretary7 March 2011


32 Pinewood Shepperton plc Annual Report & Accounts 2010EmployeesThe Company actively considers the position of its employees’ rights through comprehensive and regularly reviewedemployment practices in the areas of recruitment, training, welfare, remuneration, employee relations and health andsafety. The Chief Executive has Board responsibility for these areas and regularly updates the Board on relevant issues.At the executive management team level, the Group Director Corporate Affairs maintains responsibility for all operationalhuman resources issues and provides the Board with a monthly report.In addition to a published grievance policy, the Company maintains a ‘Whistleblower’ policy, providing an opportunity foremployees to raise grievances with senior management initially and ultimately with the Chairman of the Audit Committee.The Company’s stated policy on Equal Opportunities recognises the diversity of individuals, and has procedures in placeto ensure that recruitment and promotion recognises such diversity and is not biased by any consideration of age, gender,disability, colour, racial origin, religion or sexual orientation, as well as seeking to provide employees with reasonableconditions of employment and prospects.Employees also receive regular and relevant communication in terms of operational issues and trading performance,and where appropriate, the views of employees are sought in guiding business practices and strategy.The Group has adopted a training policy whereby all members of staff are actively encouraged to contribute to their owndevelopment. The Group believes that personal development is a partnership between the individual and the Company,and the attitude of the individual to their own development is a key element of this process.Training is seen as serving three main purposes: helping to meet the Group’s corporate aims and objectives; helpingto improve the individual’s performance in undertaking their current duties and developing the individual’s abilities andpotential by extending knowledge, skills and influencing attitudes. During the year 30% of training was health and safetyrelated and 70% skills training and career progression. Eight staff members are studying for NVQs in customer serviceand business administration and two apprentices in Drapes and Post Production Maintenance.Executive management teamThe executive management team members are the first line of support for the Board and their combined experienceand backgrounds assist in delivering the Group’s strategy and maximising stakeholder value. They are a key part of thesuccession plan for the Group and their training and development needs are reviewed regularly to ensure that the talentpool is developed and retained.Paul Baker MBA – Group Director Sales (37). Joined in 2006 as Head of Sales, responsible for sales of the Group’s filmand television facilities. In January 2008, he was promoted to Sales Director and his role expanded to cover the sale of allfacilities across the Group and late in 2010 he relocated to Los Angeles. He previously held commercial positions at DMGT,News Corporation and Pearson.Paul Darbyshire – Managing Director, Television (59). Joined Teddington Studios in 1998 and is responsible for theGroup’s television and channel hosting facilities. In addition he oversees operational responsibilities for all televisionstudios and related facilities across the Group. Before joining, Paul worked for BTTV as a Channel Development Managerand later Operations Director.Giles Farley – Managing Director, Group Digital Content Services (42). Joined in 2000 and, in 2010, was promoted toManaging Director, Group Digital Content Services. He was previously responsible for UK training, installations andtechnical sales at Avid and DigiDesign.David Godfrey MCMI – Director International Operations (49). Joined in 1985 and has held positions as Assistant StudioManager, Television and Commercials Manager, Studio Manager and Head of Group Studio Operations. He was appointedDirector of International Operations for the Group in 2010 with responsibility to develop international studio offeringsworldwide. David is also responsible for Group Health and Safety.


Pinewood Shepperton plc Annual Report & Accounts 2010 33Employees continuedEmployees continuedExecutive management team continuedPeter Hicks – Group Studio Manager (36). Joined in 1991 and has held positions at Shepperton such as Assistant StudioManager and Studio Manager. He was appointed Group Studio Manager in June 2010 and is responsible for theoperational running of both Pinewood and Shepperton studios.Magdalena Duke – Legal Counsel (31). Solicitor responsible for the Company’s legal matters including negotiation of stageand studio agreements, customer and supplier agreements and litigation. Joined in October 2010 from media law firmDavenport Lyons after a career as a broadcast journalist with the BBC.Chris Naisby FCCA – Group Financial Controller (39). Joined in 2001 as Finance Manager, having previously worked infinancial roles at various media companies, including Reed Elsevier. Promoted to Financial Controller in April 2008 withkey responsibilities of supporting the Finance Director and the Board with strategic financial information, preparation ofstatutory accounts and Board reports as well as managing the Finance team.Andrew M. Smith – Group Director Corporate Affairs & Company Secretary (48). Joined in June 2008, as Group DirectorCorporate Affairs and is responsible for communications, public affairs, human resources and corporate and socialresponsibility. He was appointed Company Secretary on 20 December 2010. He is a member of the Film Skills Council.Prior to this he was Managing Partner of The Policy Partnership.David Wight MA Cantab – Head of Group Property (52). Responsible for the Company’s real estate portfolio of land,buildings and Media Park occupiers, property development and planning. Joined in 2003 as Studio Manager of PinewoodStudios. Prior to this he was operations director in the independent sector of the cinema industry after a career as anofficer in the Royal Navy.Darren Woolfson – Group Director Technology (41). Joined in October 2007 having held a number of technical roles in thefilm and television post-production industry. He is responsible for the co-ordination and delivery of the Group’s strategy ofenhancing its technology infrastructure. Previously was the Technical Director at Molinare Limited.


34 Pinewood Shepperton plc Annual Report & Accounts 2010Corporate responsibilityThe Company remains committed to its staff and to the communities in which it operates. The Company is aware of theimportance of this role and continues to invest in and support programmes that benefit the industry it operates in andthe local community.Helping and advising those from diverse backgrounds to pursue careers in the film, television and wider creativeindustries remains a priority. The Company continues to support its nominated charity, ‘First Light’, and its follow-upscheme, ‘Second Light’, a new talent and development training scheme for young Black and Minority Ethnic filmmakersfrom across the UK. 31 work placements have been organised by Second Light as part of the scheme; and three of thesewill be taken up after March 2011 within the Company.The Company’s support for the Iver Heath Youth Project continued for a fourth year. The project, which aims to deliverpractical insights into the film industry for 12 young people from the immediate area, includes visits to the studios forworkshops and practical tutorials covering the basics of short film making. Follow up work experience is also organisedfor those who wish to further their interest.Created by Screen South with support from Skillset’s Film Skills Fund, the nationwide ‘On The Lot’ initiative was launchedin May 2009, attracting close to 600 applications. The programme enabled its five winning participants to gain paid, fulltime,work-based training with host companies based at Pinewood and Shepperton Studios. After successfully completingthe year-long training programme, all five participants have now secured positions in the industry, three of these withinthe Company.Health and Safety issuesThe Group is committed to building a safe working environment and to improve already high standards of health andsafety, acknowledging its responsibilities under the Health and Safety at Work Act and subordinate Regulations.To achieve this, the Group places the safety of all persons in high regard and has a detailed Policy that clearly sets outthe Group’s intentions and details everyone’s responsibilities.The Group has extended the Smoke Free campaign at Pinewood Studios throughout 2010 which was set-up in 2009 inconjunction with the NHS to assist staff, customers and tenants to stop smoking. A number of successful groups wereheld throughout 2010. Pinewood continues to promote this support facility with NHS posters and regular messagingacross the site.The Health and Safety Executive made one visit to the studios during 2010 and one official Notice was served to theGroup (2009: five visits and no notices).There were a total of 27 accidents in 2010 (35 in 2009). Out of these, two (nine in 2009) were notifiable accidents underthe Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (“RIDDOR”).Board responsibility for health and safety issues remains with the Finance Director, supported by the executivemanagement team with monthly monitoring by the Board of relevant issues.


Pinewood Shepperton plc Annual Report & Accounts 2010 35Corporate responsibility continuedEnvironmental issuesThe Group is very aware of its environmental responsibilities and has developed a comprehensive, Board reviewedEnvironmental Policy.This Policy seeks to minimise the adverse impact on the environment from the Group’s activities, to ensure compliancewith regulatory requirements, to reduce CO 2 emissions and to continuously improve its environmental performance.Practical measures in support of this policy that have been implemented include:• Recycling facilities at Pinewood and Teddington• Increased number of shuttle buses and number of services to local transport hubs• Measuring and monitoring CO 2 emissions• Green Travel Plan promotional activities.The recycling facility at Pinewood has significantly reduced the number of lorry movements to and from the site andcontinues to divert large amounts of waste away from landfill. The different waste streams that are being recycled atPinewood and Teddington are regularly monitored, with productions and tenants being actively encouraged to recycleas much waste as possible.New recycling facilities for Shepperton are currently under consideration.New Travel Plan measures have been introduced to reduce the number of vehicles arriving at all sites, to cut thesubsequent CO 2 emissions and to promote sustainable travel and wellbeing. These measures are in excess of thosethe Group is currently required to implement by the respective County Councils.Improvements to the shuttle bus timetables, the provision of additional services and the employment of larger buses haveresulted in an increase in the total number of passenger journeys made on both the Shepperton and Pinewood shuttle busservices. The 2010 Shepperton passenger figures of 11,325 showed an increase of 11% on the 2009 figure (10,198).Similarly, the 2010 Pinewood total of 67,256 showed a 19% increase on the 2009 figures (56,546).Pinewood Shepperton is a full participant in the Government’s Carbon Reduction Commitment Energy Efficiency Scheme(CRC), which aims to reduce CO 2 emissions by reducing energy consumption. The Group has successfully completedregistration with the CRC scheme and continues to comply with the regulations. The Group aims to comply with theGovernment’s stated aim of reducing CO 2 emissions by setting a target of reducing its own emissions by 10% in 2011(in relation to 2010’s benchmark).This will be achieved by:• Reporting CO 2 emissions on a monthly basis to the Finance Director• Installing a comprehensive system of Automatic Meter Readers on all gas and electricity supplies• Appointing an Environmental Manager to oversee the reduction target• Creation of a ‘Green Team’ and ‘Green Champions’ across the Group• Installing energy efficient products wherever possible.Ethical business practicesThe Board continues to consider the principles which support ethical business practices with a policy that guides employeeconduct in consideration of such issues and is mindful of the Group’s responsibility to consider human rights.


36 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration reportRemuneration CommitteeThe Board presents its remuneration report to shareholders of the Company. The Board has established a RemunerationCommittee (“the Committee”) to advise it on appropriate policies and procedures in determining suitable remunerationpackages for Directors and senior management, and continues to take advice from external advisers as considerednecessary by the Committee.The Committee comprises Nigel Hall (Chairman), Adrian Burn and James Donald. During 2010, the Committee met onfive separate occasions. All members of the Committee were present on each occasion, save for one meeting for whichJames Donald was unavailable.The Committee’s responsibilities include the monitoring, review and recommendation to the Board on the Group’s broadpolicy for the remuneration of all Executive Directors, and to determine, and thereafter review at least annually, theremuneration packages of all Executive Directors, including basic salary, pension arrangements and annual and long-termincentives, and, as appropriate, make recommendations in respect of other senior management. In addition, theCommittee reviews the corporate targets and objectives relating to the Executive Directors’ compensation, including anevaluation of their performance. The Committee’s terms of reference are contained in the ‘Corporate Governance’ sectionof the Company’s Investor Relations website at www.pinewoodshepperton.com.The Committee continues to take advice, where appropriate, in order to support its up-to-date understanding of currentmarket trends, comparable remuneration packages in similar organisations, and general issues for consideration indetermining appropriate rewards. During the year the Committee sought advice from PricewaterhouseCoopers LLP, theGroup’s remuneration advisers on Executive Directors remuneration, Non-Executive Directors remuneration, long-termincentives and how the long-term incentive plan is monitored, in addition to updates on performance criteria and theaccounting implications for existing grants.In addition, appropriate legal advice relating to contractual issues is taken as necessary to ensure compliance with bestpractice.General policyThe Group’s remuneration policy is to provide remuneration packages to Executive Directors and senior managementwhich align their interests to those of shareholders, whilst retaining appropriate flexibility to cater for potential futurechanges in remuneration policy best practice and the environment in which the Group operates. Group policy aims toprovide competitive rewards based on the achievement of recognised short-term and long-term performance basedtargets, recognising that the value of awards to Directors and employees should be commensurate with individualresponsibilities within the Group.In establishing remuneration packages, the Committee’s remuneration policy seeks to benchmark the componentsof Executive Directors’ remuneration against comparators drawn from UK listed companies in the media sector(FTSE All Share, Fledgling and AIM). The policy has been defined against these comparators as follows: basic salary –lower quartile to median; bonus potential – upper quartile; benefits – market rate and share incentives – median toupper quartile.The Committee reviews on an annual basis whether its remuneration policy remains appropriate for the relevant financialyear. Factors taken into account by the Committee include: market conditions affecting the Group; current financial macroeconomic conditions; the recruitment market in the Group’s sector; changing market practice; and the changing views ofinstitutional shareholders and their representative bodies.The Committee has concluded that the remuneration policy remains valid for 2011.


Pinewood Shepperton plc Annual Report & Accounts 2010 37Directors’ remuneration report continuedBalance between fixed and variable elements of remunerationThe following table shows the balance between fixed and variable performance based compensation for 2010, where thefixed component is made up of salary, benefits and pension contributions and the variable component comprises:• the maximum potential bonus, and• the market value at the date of grant of the maximum number of shares which could vest by virtue of the LTIP awards ifall relevant performance conditions are fully met.Fixed%Variable%Ivan Dunleavy 24 76Patrick Garner 24 76Nicholas Smith 31 69Overview of equity participationThe Company actively encourages share ownership by its employees and operates a Sharesave Scheme. Employeeswere invited to participate in the scheme in 2004, 2006, 2007, 2009 and a further invitation was made in 2010.Details of the options made to Executive Directors’ are set out under the table in this report entitled ‘Directors’share options’.Details of awards made to Executive Directors during 2010 under the Pinewood Shepperton plc 2006 Long-Term IncentivePlan, are contained within the section of this report entitled ‘Long-Term Incentive Plan’.The Committee is responsible for selecting performance measures relating to the Company Share Option Plans and theLong-Term Incentive Plan, and for determining whether or not targets have been met.Components of the Executive Directors’ RemunerationThe key components of the Executive Directors’ remuneration are:Basic salary and benefits in kindThe basic salary for each Executive Director reflects the Committee’s assessment of performance, responsibilities andmarket value for comparable positions, as guided by independent advice. The Committee has access to information onthe pay and conditions of other employees in the Group when determining the remuneration packages for ExecutiveDirectors. The Committee actively considers the relationship between general changes to employees pay and conditionsand any proposed changes in the remuneration packages for Executive Directors to ensure it can be sufficiently robust inits determinations in light of the position of the Company as a whole. The basic salary and benefits in kind of all ExecutiveDirectors are reviewed annually. The following table shows the basic salary in 2010:2009salary2010salaryPercentageincreaseIvan Dunleavy £290,000 £290,000 nilPatrick Garner £200,000 £200,000 nilNicholas Smith £170,000 £170,000 nilThe Committee has reviewed basic salary for the Executive Directors taking into account the above criteria with effectfrom 1 January 2011 as basic salary has been unchanged since 2008 and 2009 in the case of Nicholas Smith.• Ivan Dunleavy’s salary has been increased to £305,000. Although this remains below comparable market positions forhis role, at his request the increase was restricted to 5.1%.


38 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration report continuedComponents of the Executive Directors’ Remuneration continuedBasic salary and benefits in kind continued• Patrick Garner’s salary has been increased to £206,000.• Nicholas Smith’s salary has been increased to £200,000 to recognise the experience and expertise he has gained in hisrole over the past period, along with his performance, justifying a move closer to the Company’s stated salary policy forExecutive Director’sBenefits in kind include provision of a car allowance, pension, medical and life insurance, and permanent health insurance.Annual bonusThe Executive Directors participate in an annual bonus scheme, which is linked to the achievement of annual financialtargets set by the Committee, based on the Group’s budget approved prior to the commencement of the financial year.For 2010, bonus was payable on the achievement of 100% of budgeted earnings before interest and tax (“EBIT”)performance and at this level of earnings, bonus payable was 33% of salary. The maximum bonus entitlement for theExecutive Directors was 100% of salary, payable on the achievement of 120% of budgeted EBIT performance, with astraight line mechanism operating between 100% and 120% of budgeted EBIT performance.In approving the 2010 bonus levels the Committee measured the level of achievement against the performance targetsset and also the contribution of the individual Executive Directors.The targets for the annual bonus scheme and the maximum annual bonus potential are reviewed and agreed by theCommittee at the beginning of each financial year to ensure that they are appropriate to the current market conditionsand position of the Group in order to ensure that they continue to remain challenging. Following this review during 2010,the Committee decided that the target should be amended.The Committee agreed that for 2011 the bonus structure would remain based on achievement of budgeted EBIT andwould be triggered when 100% of the budget is achieved. At this level the bonus payable would be 25% of salary.The maximum bonus entitlement remains 100% of salary and would be payable on the achievement of 120% ofbudgeted EBIT performance. A straight line mechanism operates between 100% and 120% of budgeted EBITperformance.


Pinewood Shepperton plc Annual Report & Accounts 2010 39Directors’ remuneration report continuedComponents of the Executive Directors’ Remuneration continuedLong-Term Incentive Plan (“LTIP”)During 2010, the Company granted awards of shares to the Executive Directors and certain members of staff inaccordance with the rules of the Pinewood Shepperton plc 2006 Long-Term Incentive plan. Such an element of totalremuneration based on the achievement of financial targets for the Company over a sustained period, as part of anoverall competitive package, is considered vital to the retention of key employees.Full details of awards granted to Executive Directors that are yet to vest, are contained within the table in this reportentitled ‘Long-Term Incentive Plan’ on page 44. The Plan seeks to align the Executive Directors’ interests with those ofshareholders, and ensure transparency in terms of associated performance hurdles. The nature of the awards alsoprovides for the requirement for Executive Directors to build up meaningful shareholdings in the Company.Share optionsThe Company established a Sharesave Scheme at the time of the Initial Public Offering. Sharesave Scheme options havebeen issued at a 20% discount to the then prevailing market value. Employees were invited to participate in the schemein 2004, 2006, 2007, 2009 and a further invitation was made during 2010.Details of the options made to Executive Directors’ are set out under the table on page 43 in the report entitled ‘Directors’share options’.DilutionThe Company operates all of its share arrangements (both discretionary and “all employee”) within the ABI Guidelines ondilution. The ABI Guidelines provide that the Company can issue a maximum of 10% of its issued share capital in a rollingten-year period to employees under all its share plans. In addition, of this 10% the Company can only issue 5% to satisfyawards under discretionary or executive plans.Pension arrangementsFor Executive Directors, only basic salary is pensionable. All Executive Directors are eligible to become members of thepersonal pension plan arranged by the Group, which is a defined contribution scheme. The Company’s contribution forthe Executive Directors is set at a maximum of 12.5% of basic salary. All other employer contributions for the executivemanagement team and employees reflect longevity of service with the Group but are capped at a maximum of 10% ofbasic salary.


40 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration report continuedExecutive Directors’ service agreementsThe Executive Directors have rolling service agreements, which are all subject to 12 months’ notice. The Committeeregards the notice period on these contracts as being appropriate in the event of termination of an Executive Director’sservice agreement. The service agreements for the Executive Directors (other than for Nicholas Smith) specify thecompensation which must be paid to the Executive Director where the Company terminates the agreement either withoutnotice or without cause, which is limited to salary and benefits payable during the Executive Director’s notice period.The service agreement for Nicholas Smith provides that the Company may opt to terminate the agreement with noticeor a payment in lieu of notice, and provides for inherent mitigation. The Committee will ensure that there have been nounjustified payments for failure on an Executive Director’s termination of employment. There are no special provisions inthe service agreements extending notice periods on a change of control, liquidation of the Company or termination ofemployment.The dates of Executive Directors’ service agreements are:Ivan Dunleavy 20 April 2004Patrick Garner 20 April 2004Nicholas Smith 1 July 2005Chairman and Non-Executive Directors’ service agreements and remunerationThe Chairman and Non-Executive Directors’ have specific letters of engagement, the dates of which are:Michael Grade 19 April 2004Adrian Burn 19 April 2004Nigel Hall 19 April 2004James Donald 27 March 2006Steven Underwood 25 June 2010The Chairman is appointed for an initial term of one year and Non-Executive Directors’ for an initial term of three years,subject to normal provisions as to retirement by rotation. Subsequent additional terms of one or three years may beawarded with notice to terminate being six months and immediate under specific circumstances including breach of terms.


Pinewood Shepperton plc Annual Report & Accounts 2010 41Directors’ remuneration report continuedChairman and Non-Executive Directors’ service agreements and remuneration continuedRetirements by rotation are noted in the Directors’ report. The appointment and reappointment of the Chairman and Non-Executive Directors’ are matters reserved for the full Board.Fees for Non-Executive Directors, including the Chairman, are determined by the full Board, reflecting market practice,levels of service, as well as their contribution of time and expertise in support of the Group, and are reviewed annually.The Chairman and Non-Executive Directors have service agreements, each with a notice period of six months.They are not eligible for pension scheme membership and do not participate in any of the Group’s bonus or share plans.Steven Underwood does not receive any fees in connection with his role as a Non-Executive Director.The fees of the Chairman and Non-Executive Directors were last adjusted with effect from 1 January 2008. During theyear the Board reviewed these fees taking into account a bench marking exercise carried out by PricewaterhouseCoopersLLP. As a result the basic Non-Executive Director fee has been increased by £1,500 to £40,000, and the additional feespaid to those who chair Committees increased by £1,500 to £4,000. The fee payable to the Chairman has been increasedby £2,500 to £105,000.As a result the following changes were made on 1 January 2011:• the fee paid to the Chairman, Lord Grade of Yarmouth, will increase by 2.5% to £105,000,• the fee paid to the Chairman of the Audit Committee and Senior Independent Director, Adrian Burn, will increaseby 7.3% to £44,000,• the fee paid to the Chairman of the Remuneration and the Nomination Committee, Nigel Hall, will increase by 7.3%to £44,000,• the fee paid to James Donald will increase by 3.8% to £40,000.


42 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration report continuedPerformance graphThe graph below details the percentage change in total shareholder return for the six-year period from 31 December 2005to 31 December 2010 against both the FTSE Small Cap and the FTSE Media and Photography index, which the Boardconsiders to be appropriate peer groups for the Company.Total shareholder return: Pinewood Shepperton plc vs FTSE Small Cap and FTSE Media and Photography for the five-yearperiod from 31 December 2005 to 31 December 2010 (rebased to 100).1601401201008060402001/09/1001/05/1001/01/1001/09/0901/05/0901/01/0901/09/0801/05/0801/01/0801/09/0701/05/0701/01/0701/09/0601/05/0631/03/05Pinewood Shepperton – Total Return FTSE All Share Media £ – Total Return FTSE Small Cap – Total ReturnThe starting value for the Company is based on the market price of 242.0p on 31 December 2005.


Pinewood Shepperton plc Annual Report & Accounts 2010 43Directors’ remuneration report continuedDirectors’ remunerationChairmanBasic salaryand fees2010£Benefitsin kind2010£Annualbonus2010£Pensioncontributions2010£Totalremuneration2010£Totalremuneration2009£Lord Grade of Yarmouth 102,500 n/a n/a n/a 102,500 102,500Executive DirectorsIvan Dunleavy 290,000 22,786 90,800 36,240 439,826 351,677Patrick Garner 200,000 18,395 63,500 25,000 306,895 242,602Nicholas Smith 170,000 14,642 63,500 21,250 269,392 204,005Non-Executive DirectorsAdrian Burn 41,000 n/a n/a n/a 41,000 41,000Nigel Hall 41,000 n/a n/a n/a 41,000 41,000James Donald 38,500 n/a n/a n/a 38,500 38,500Steven Underwood nil nil nil nil nil nilNone of the above Directors received reimbursement for expenses during the year requiring separate disclosure asrequired by The Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008.Directors’ share optionsCompanySchemeDate ofgrantHeld at31 December2009Held at31 December2010Exerciseprice(pence)Earliestexercise dateExpiry dateIvan Dunleavy Sharesave 27 Apr 2009 16,234 16,234 96.4 1 Aug 2014 1 Feb 2015Nicholas Smith Sharesave 27 Apr 2009 9,941 9,941 96.4 1 Aug 2012 1 Dec 2013No Directors’ Sharesave options were exercised, lapsed or vested during the year.


44 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration report continuedLong-Term Incentive PlanThe Pinewood Shepperton plc 2006 LTIP provides for the grant of Level 1 and Level 2 awards to Executive Directors, to amaximum, in aggregate, of 250% of basic salary, on an annual basis.IvanDunleavyPatrickGarnerNicholasSmithDate ofgrant30 Mar200711 May20077 May200824 Jun20081 April201018 May201030 Mar200711 May200707 May200824 Jun20081 April201030 Mar200711 May200707 May200824 Jun20081 April2010AwardtypeNumber of sharessubject to awardsheld at31 December 2009Number of sharessubject to awardslapsed during theyearNumber ofshares subjectto awardsgranted duringthe yearNumber of sharessubject to awardsheld at31 December 2010Market value ofawards grantedat date of grant(£) Release dateLevel 2 156,609 (156,609) – – 340,625 30 Mar2010Level 1 40,000 (40,000) – – 102,000 11 May2010Level 2 152,954 – – 152,954 362,500 07 May2011Level 1 63,130 – – 63,130 145,200 24 Jun2011Level 2 – – 288,079 288,079 434,999 31 Mar2013Level 1 – – 40,000 40,000 55,000 17 May2013Level 2 97,701 (97,701) – – 212,500 30 Mar2010Level 1 73,500 (73,500) – – 200,290 11 May2010Level 2 105,485 – – 105,485 250,000 07 May2011Level 1 23,558 – – 23,558 58,660 24 Jun2011Level 2 – – 198,675 198,675 299,999 31 Mar2013Level 2 80,459 (80,459) – – 175,000 30 Mar2010Level 1 6,232 (6,232) – – 16,612 11 May2010Level 2 84,388 – – 84,388 200,000 07 May2011Level 1 2,430 – – 2,430 5,796 24 Jun2011Level 2 – – 168,874 168,874 255,000 31 Mar2013


Pinewood Shepperton plc Annual Report & Accounts 2010 45Directors’ remuneration report continuedLong-Term Incentive Plan continuedIn order for Level 1 awards to be granted, Executive Directors are required to have purchased shares in the Company(to a maximum value of 50% of Level 2 awards), which are matched on a two for one basis up to a maximum of 125%of salary. The number of executive shares purchased is detailed in the section entitled ‘Directors and their interests’ in theDirectors’ report. Level 2 awards are restricted to a maximum of 150% of basic salary.Awards granted on 30 March and 11 May 2007 failed to meet the Total Shareholder Return and Return on Capitalemployed targets over the three year measurement period and therefore lapsed.In respect of the grants during 2010, the value of Level 2 awards was set at 125% of basic salary. Level 1 awards weregranted on the basis of two matching shares for every executive share purchased during the 30 business days from1 April 2010, the date of grant of the Level 2 awards.The Committee intends to satisfy 2010 LTIP awards with new issue shares.Basis of performance condition selection and measurementThe shares subject to the LTIP awards will only be released to Executive Directors in three years from the date of grant,subject to the retention of the related executive shares purchased for three years, the continued employment of theExecutive Directors, and the satisfaction of performance conditions based 50% on Total Shareholder Return and 50%on annual average Return on Capital Employed (“ROCE”) performance, both measured over the three year period.Total shareholder return (“TSR”)Comparative TSR was selected as a performance condition for part of the awards granted by the Committee as it ensuresthat the executives have outperformed their peers over the measurement period in delivering shareholder value beforebeing entitled to receive any of their awards, irrespective of general market conditions.Prior to the measurement of the TSR performance of the Company the Remuneration Committee will determine whetherthe precondition has been satisfied. The precondition has to be satisfied prior to determining the actual level of releaseof the part of the award subject to the TSR performance condition. The test used by the Remuneration Committee todetermine whether this part of the award is capable of release will be the level of financial performance of the Companyover the measurement period against budgeted levels for the following financial criteria:(a) ROCE;(b) EBITDA; and(c) Normalised Earnings per Share.If the Remuneration Committee on measurement finds that the majority of these criteria have not been met and thatsuitable justification for this has not been provided by the Board, this part of the award will be incapable of releaseirrespective of the TSR performance of the Company.TSR is measured against an appropriate comparator group of companies consisting of those forming the FTSE SmallCap index. This is set for each award year by reviewing and updating the comparator group data to ensure that theinformation reflects those companies who have moved in or out of the index. The 2007 comparator group was set at30 March 2007, the 2008 group was set at 7 May 2008 and the 2010 group was set at 1 April 2010.Where the performance measure is TSR PricewaterhouseCoopers LLP, the Committee’s advisers, shall calculate theTSR in accordance with the rules of the LTIP and approve those figures prior to the release of any award.


46 Pinewood Shepperton plc Annual Report & Accounts 2010Directors’ remuneration report continuedThe comparative performance targets set for the minimum and maximum award releases are as follows:Year of grant Period of measurement 20% release of award 100% release of award2007 3 years Median Upper decile2008 3 years Median Upper decile2010 3 years Median Upper decileReturn on capital employed (“ROCE”)It is the view of the Committee that ROCE is an appropriate performance condition for part of the awards granted underthe LTIP because it is one of the key investment criteria used throughout the business and a consistent return enhancesshareholder value over the medium to longer term; ROCE measures consistent value creation and is, therefore, aparticularly valuable measure in a cyclical business and ROCE is a measure well understood by the executive team andsomething that they can directly influence.The Committee determines whether the performance conditions for share awards or options are satisfied. Where theperformance requirements are based on ROCE the Committee will use the principles behind the audited figures disclosedin the Group’s financial statements, and may take advice from independent advisers as to whether any adjustments arerequired to ensure consistency in accordance with the terms of the performance conditions.ROCE targets set for the minimum and maximum award releases are as follows:Year of grant Period of measurement 20% release of award 100% release of award2007 3 years 12.5% 17.0%2008 3 years 8.0% 11.0%2010 3 years 9.0% 12.0%The Committee took into account the following factors when setting the ROCE targets for the 2010 LTIP: the median andupper quartile historic levels of ROCE for the comparator group companies and the projected ROCE for the Group providedby external analysts, the increase in capital investment in the performance period focussed predominantly on capitalprojects relating to the Group’s Media Park development strategy and Project Pinewood which will not flow through toincreased earnings within the 2010 LTIP performance period; and the challenging economic climate for earnings over thisperformance period. The Committee will continue to be mindful of the timing of the Group’s capital investments and theexpected period over which returns will be generated when setting the ROCE targets for future years’ LTIP awards.


Pinewood Shepperton plc Annual Report & Accounts 2010 47Directors’ remuneration report continuedImpact on profit for the yearThe impact, by Executive Director, of all share plans on the Group income statement of Pinewood Shepperton plc for theyear ended 31 December 2010 is summarised as follows:Currentyear charge£000IFRS 2exceptionalcredit£000Impact onprofit forthe year£000Ivan Dunleavy 31 (38) (7)Patrick Garner 19 (24) (5)Nicholas Smith 17 (16) 1Following a review of the TSR component of the Group’s LTIP awards, granted in 2008, part of the total IFRS 2 charges tothe Group income statement were reversed. This resulted in the impact on profit for the year for the Executive Directorsbeing a credit to the Group income statement. Further details are contained in Note 7 on page 67 of the Annual Report.On behalf of the BoardNigel HallChairman of the Remuneration Committee7 March 2011


48 Pinewood Shepperton plc Annual Report & Accounts 2010Independent auditor’s reportto the members of Pinewood Shepperton plcWe have audited the financial statements of Pinewood Shepperton plc for the year ended 31 December 2010 whichcomprise of the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flows,the Statement of Changes in Equity and the related notes 1 to 26. The financial reporting framework that has beenapplied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted bythe European Union.This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of theCompanies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members thosematters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as abody, for our audit work, for this report, or for the opinions we have formed.Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement set out on page 22, the directors are responsible forthe preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility isto audit and express an opinion on the financial statements in accordance with applicable law and International Standardson Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standardsfor Auditors.Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to givereasonable assurance that the financial statements are free from material misstatement, whether caused by fraud orerror. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstancesand have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimatesmade by the directors; and the overall presentation of the financial statements.Opinion on financial statementsIn our opinion the financial statements:• give a true and fair view of the state of the Company’s affairs as at 31 December 2010 and of its profit for the year thenended;• have been properly prepared in accordance with IFRSs as adopted by the European Union; and• have been prepared in accordance with the requirements of the Companies Act 2006.Opinion on other matters prescribed by the Companies Act 2006In our opinion:• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with theCompanies Act 2006; and• the information given in the Directors’ Report for the financial year for which the financial statements are prepared isconsistent with the financial statements.


Pinewood Shepperton plc Annual Report & Accounts 2010 49Independent auditor’s report continuedMatters on which we are required to report by exceptionWe have nothing to report in respect of the following:Under the Companies Act 2006 we are required to report to you if, in our opinion:• Adequate accounting records have not been kept, or returns adequate for our audit have not been received frombranches not visited by us; or• The financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement withthe accounting records and returns; or• Certain disclosures of directors’ remuneration specified by law are not made; or• We have not received all the information and explanations we require for our audit.Under the Listing Rules we are required to review:• The Directors’ statement, set out on page 21, in relation to going concern;• The part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of theUK Corporate Governance Code specified for our review; and• Certain elements of the report to the shareholders by the Board on directors’ remuneration.Iain Wilkie (Senior statutory auditor)for and on behalf of Ernst & Young LLP, Statutory AuditorLondon7 March 2011Notes:1. The maintenance and integrity of the Pinewood Shepperton plc web site is the responsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financialstatements since they were initially presented on the web site.2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


50 Pinewood Shepperton plc Annual Report & Accounts 2010Group income statementfor the year ended 31 DecemberRevenueRendering of services 3 43,409 40,321Cost of sales (26,007) (24,742)Gross profit 17,402 15,579Selling and distribution expenses (1,561) (1,573)Administrative expenses (6,766) (6,337)Operating profit before exceptional items 9,075 7,669Exceptional income 7 632 804Exceptional costs 8 (579) (851)Operating profit 9,128 7,622Finance costs 9 (3,309) (3,171)Profit before tax 5,819 4,451Current tax expense (2,016) (955)Deferred tax expense (97) (406)Effect of release of deferred tax provision on property 582 1,092Total corporation tax expense 11 (1,531) (269)Profit for the year 4,288 4,182Attributable to:Equity holders of the parent company 4,288 4,182Earnings per share– basic for result for the year 12 9.3p 9.1p– diluted for result for the year 12 8.9p 8.8pNotes2010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 51Group statement of other comprehensive incomefor the year ended 31 DecemberProfit for the year 4,288 4,1822010£0002009£000Net movement on cash flow hedges (1,185) (672)Transfer of cash flow hedge reserve to income statement 848 757Deferred taxation credit/(charge) 78 (24)Other comprehensive (loss)/income for the year, net of tax (259) 61Total comprehensive income for the year, net of tax 4,029 4,243Attributable to:Equity holders of the parent company 4,029 4,243


52 Pinewood Shepperton plc Annual Report & Accounts 2010Group statement of financial positionat 31 DecemberAssetsNon-current assetsProperty, plant and equipment 14 115,385 112,570Investment property 15 6,360 6,342Intangible assets 16 5,604 5,604Long-term asset 17 347 –127,696 124,516Current assetsInventories 19 491 337Trade and other receivables 18 5,355 2,424Prepayments 1,980 2,771Cash 495 –8,321 5,532Total assets 136,017 130,048Equity and liabilitiesEquity attributable to equity holders of parentShare capital 20 4,623 4,610Share premium 20 43,692 43,692Capital redemption reserve 20 135 135Merger reserve 20 348 348Fair value of cash flow hedge 20 (1,186) (927)Retained earnings 27,448 24,692Total equity 75,060 72,550Non-current liabilitiesInterest-bearing loans and borrowings 21 43,190 45,149Deferred tax liabilities 11 1,306 1,89444,496 47,043Current liabilitiesTrade and other payables 22 15,387 8,548Interest-bearing loans and borrowings 21 – 944Tax payable 1,074 96316,461 10,455Total liabilities 60,957 57,498Total equity and liabilities 136,017 130,048The financial statements were approved by the Board of Directors on 7 March 2011 and are signed on its behalf by:Patrick Garner FCAFinance DirectorNotes2010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 53Group statement of cash flowsfor the year ended 31 DecemberNotesCash flow from operating activitiesProfit before tax 5,819 4,451Adjustments to reconcile profit before tax to net cash flowsExceptional items – non cash 7 (126) (804)Depreciation 4 3,755 3,699Share-based payment charges 202 196Finance costs 9 3,309 3,171Cash flow from operating activities before changes in working capital 12,959 10,713(Increase)/decrease in trade and other receivables (2,140) 252(Increase)/decrease in inventories (154) 76Increase/(decrease) in trade and other payables 6,891 (2,537)Cash generated from operations 17,556 8,504Finance costs paid (2,990) (2,831)Corporation tax paid (1,906) (1,499)Net cash flow from operating activities 12,660 4,174Cash flow from/(used in) investing activitiesProceeds from insurance for 007 Stage – 439Purchase of property, plant and equipment (6,673) (5,652)Additions to investment property – (696)Additions to long-term assets (347) –Net cash flow used in investing activities (7,020) (5,909)Cash flow (used in)/from financing activitiesPayment of asset financing liabilities (379) (77)Payment of loan issue fees – (24)Dividends paid 12 (1,619) (1,541)Proceeds from asset financing 1,297 1,000Proceeds from borrowings of joint venture – 631Repayment of bank borrowings (3,500) –Proceeds from bank borrowings – 2,000Net cash flow from financing activities (4,201) 1,989Net increase in cash 1,439 254Overdraft at the start of the year (944) (1,198)Cash/(overdraft) at the end of the year 495 (944)2010£0002009£000


54 Pinewood Shepperton plc Annual Report & Accounts 2010Group reconciliation of movement in net debtfor the year ended 31 DecemberNotesReconciliation of net cash flow to movement in net debtIncrease in cash 1,439 254Repayments of asset financing obligations 379 77Proceeds from asset financing (1,297) (1,000)Loan issue costs – 24Amortisation of loan issue costs (286) (277)Proceeds from borrowings of joint venture – (631)Repayment of bank borrowings 3,500 –Proceeds from bank borrowings – (2,000)Movement in fair value of cash flow hedge (337) 85Movement in net debt 3,398 (3,468)Net debt at start of year (46,093) (42,625)Net debt at end of year (42,695) (46,093)2010£0002009£000Attributable to:Cash 495 –Current liabilitiesInterest-bearing loans and borrowings 21 – (944)Non-current liabilitiesRevolving credit facility loan 21 (22,500) (26,000)Pre-let development facility loan 21 (6,000) (6,000)Drawn facility loan (28,500) (32,000)Fair value of cash flow hedge 21 (1,624) (1,287)Unamortised loan issue costs 21 777 1,063Asset financing 21 (1,841) (923)Share of joint venture loan 21 (12,002) (12,002)Interest bearing loans and borrowings (43,190) (46,093)Net debt at end of year (42,695) (46,093)


Pinewood Shepperton plc Annual Report & Accounts 2010 55Group statement of changes in equityFrom 1 January 2010 to 31 December 2010Sharecapital£000Sharepremium£000Capitalredemptionreserve£000Mergerreserve£000Fair value ofcash flowhedgereserve£000Retainedearnings£000At 1 January 2010 4,610 43,692 135 348 (927) 24,692 72,550Profit for the year – – – – – 4,288 4,288Totalequity£000Other comprehensive incomenet of tax – – – – (259) – (259)Total net comprehensiveincome – – – – (259) 4,288 4,029Equity dividends (Note 12) – – – – – (1,619) (1,619)New shares issued (Note 20) 13 – – – – (13) –Share-based payments – – – – – 100 100At 31 December 2010 4,623 43,692 135 348 (1,186) 27,448 75,060From 1 January 2009 to 31 December 2009Sharecapital£000Sharepremium£000Capitalredemptionreserve£000Mergerreserve£000Fair value ofcash flowhedgereserve£000Retainedearnings£000At 1 January 2009 4,594 43,692 135 348 (988) 22,220 70,001Profit for the year – – – – – 4,182 4,182Other comprehensive incomenet of tax – – – – 61 – 61Total net comprehensiveincome – – – – 61 4,182 4,243Equity dividends (Note 12) – – – – – (1,541) (1,541)New shares issued (Note 20) 16 – – – – – 16Share-based payments – – – – – (169) (169)At 31 December 2009 4,610 43,692 135 348 (927) 24,692 72,550Totalequity£000


56 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statementsat 31 December 20101. Authorisation of financial statements and statement of compliance with IFRSThe Group financial statements of Pinewood Shepperton plc for the year ended 31 December 2010 were authorised forissue by the Board of the Directors on 7 March 2011 and the statements of financial position were signed on the Board’sbehalf by the Finance Director. Pinewood Shepperton plc is a public limited company incorporated and domiciled inEngland and Wales. The registered office is located at Pinewood Studios, Pinewood Road, Iver Heath, BuckinghamshireSL0 0NH, United Kingdom. The Group’s ordinary shares are traded on the London Stock Exchange.The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards(“IFRS”) as adopted by the European Union as they apply to the financial statements of the Group for the year ended31 December 2010. The Group’s financial statements are also consistent with IFRSs as issued by the IASB. The principalaccounting policies adopted by the Group are set out in Note 2.2. Accounting policiesBasis of preparation and statement of complianceThe consolidated financial statements of Pinewood Shepperton plc and all of its subsidiaries and joint ventures have beenprepared in accordance with IFRS as adopted by the European Union as they apply to the financial statements of theGroup for the year ended 31 December 2010 and applied in accordance with the Companies Act 2006.The accounting policies which follow set out those policies which apply in preparing the financial statements for the yearended 31 December 2010. The Group financial statements are presented in UK sterling and all values are rounded to thenearest thousand pounds (£000) except when otherwise indicated.Going concernIn assessing the going concern basis, the Directors considered the Group’s business activities, the financial position of theGroup and the Group’s financial risk management objectives and policies. The Directors considered that the Group hasadequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate toadopt the going concern basis in preparing these financial statements.The Group’s assessment of going concern is explained further in the Directors’ report on page 21 of the Annual Report.Basis of consolidationThe Group consolidated financial statements comprise the financial statements of Pinewood Shepperton plc and itssubsidiaries and joint ventures as at 31 December each year. All intercompany balances and transactions have beeneliminated in full.Subsidiaries and joint ventures are consolidated from the date on which control is transferred to the Group and ceaseto be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of asubsidiary, the consolidated financial statements include the results for the part of the reporting year during whichPinewood Shepperton plc has control.Changes in accounting policy and disclosuresThe accounting policies adopted are consistent with those of the previous financial year except as follows:The following new and amended IFRS and IFRIC interpretations are mandatory as of 1 January 2010 unless otherwisestated and the impact is described below.IAS 27 (amended) Consolidated and Separate Financial StatementsThe amended standard requires that a change in the ownership interest of a subsidiary (without loss of control) isaccounted for as a transaction with owners in their capacity as owners and these transactions will no longer give rise togoodwill or gains and losses. The standard also specifies the accounting when control is lost and any retained interest isre-measured to fair value with gains or losses recognised in profit or loss. This amendment did not have any impact onthe financial position or performance of the Group, as the Group does not have such arrangements.


Pinewood Shepperton plc Annual Report & Accounts 2010 57Notes to the consolidated financial statements continued2. Accounting policies continuedChanges in accounting policy and disclosures continuedAmendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible hedged itemsThe amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variabilityof a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion inparticular situations. The Group has concluded that the amendment did not have any impact on the financial position orperformance of the Group, as the Group has not entered into any such hedges.Improvements to IFRSs (issued 2009)In May 2009 the Board issued its second omnibus of amendments to its standards, primarily with a view to removinginconsistencies and clarifying wording. There are separate transitional provisions for each amendment. The adoption ofthe amendments resulted in changes to accounting policies but did not have any impact on the financial position orperformance of the Group.Standards and interpretations issued but not yet applied*The following standards and interpretations have an effective date after the date of these financial statements but theGroup has not early adopted them.IAS 24 Related Party Disclosures (Amendment) (effective 1 January 2011)The amended standard clarified the definition of a related party to simplify the identification of such relationships and toeliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirementsfor government related entities. The Group does not expect any impact on its financial position or performance.IFRS 9 Financial Instruments: Classification and Measurement (effective 1 January 2013)IFRS 9 as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification andmeasurement of financial assets as defined in IAS 39. In subsequent phase, the IASB will address classification andmeasurement of financial liabilities, hedge accounting and de-recognition. The completion of this project is expected inearly 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of theGroup’s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to presenta comprehensive picture.IFRIC 19 Extinguishing financial Liabilities with Equity Instruments (effective 1 July 2010)IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as a considerationpaid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, theinstruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately inprofit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.Improvement to IFRS (issued in May 2010)The Group expects no impact from the adoption of the amendments on its financial position or performance.Summary of significant accounting policiesInterest in a joint ventureThe Group has an interest in three joint ventures which are jointly controlled entities. A joint venture is a contractualarrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointlycontrolled entity is a joint venture that involves the establishment of a separate entity in which each venturer has aninterest.*The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statementsin accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having beenendorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in theoriginal standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards.


58 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedInterest in a joint ventureThe Group recognises its joint ventures interests using the proportionate consolidation method. The Group combines itsshare of each of the assets, liabilities, income and expenses of the joint venture with the similar items, line by line, in itsconsolidated financial statements. The financial statements of the joint ventures are prepared for the same reporting yearas the parent company. Accounting policies are consistent with the exception that the joint ventures carries its property,plant and equipment at valuation rather than cost. Adjustments are made to bring such dissimilar accounting policiesinto line with the Group accounting policies. If the Group purchases assets from the joint ventures, the Group does notrecognise its share of the profits of the joint venture from the transaction until it resells the assets to an independentparty.Foreign currency translationThe functional and presentation currency of Pinewood Shepperton plc and its subsidiaries is UK sterling (UK £).Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the datesof transactions. Exchange differences resulting from the settlement of such transactions and from the translation atexchange rates ruling at the statement of financial position date of monetary assets and liabilities denominated incurrencies other than the functional currency are recognised in the consolidated income statement.Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenuecan be reliably measured. Revenue is measured at the fair value of the consideration receivable, excluding discounts,rebates, VAT and other sales taxes or duty. The Group has assessed its revenue arrangements and has concluded thatit is acting as a principal in all of its revenue arrangements. Where a contract spans an accounting cut off date, the valueof the revenue recognised is the time proportion of the total value of the contract completed by the cut off date.The following specific recognition criteria apply:• Film customers utilise services for a period of time. Film revenues are also derived from international agreementsproviding sales and marketing services. Revenue is recognised as the Group earns the right to consideration for theservice provided and this is time apportioned and earned as time elapses.• Television revenue is derived from the provision of services and is recognised on a time apportioned basis in relationto the television production process.• Media Park revenue, which includes revenue from Investment property, is derived from customers contracting to usethe Group’s facilities for a period of time. Revenue is recognised on a straight line basis over the term of the agreement.• Royalty revenue is recognised on an accruals basis in accordance with the relevant contracted agreement. Revenueis recognised as the Group earns the right to consideration for the royalty and this is time apportioned and earned astime elapses.TaxDeferred taxDeferred corporation tax is provided, using the liability method, on all temporary differences at the statement of financialposition date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred corporation tax liabilities are recognised for all taxable temporary differences:• except where the deferred corporation tax liability arises from the initial recognition of an asset or liability in atransaction that is not a business combination and, at the time of the transaction, affects neither the accounting profitnor taxable profit or loss; and• in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint venturesexcept where the timing of the reversal of the temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future.


Pinewood Shepperton plc Annual Report & Accounts 2010 59Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedDeferred tax continuedDeferred corporation tax assets are recognised for all deductible temporary differences, carry-forward of unused taxassets and unused tax losses, to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilisedexcept:• where the deferred corporation tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and• in respect of deductible temporary differences associated with investments in subsidiaries deferred tax assets are onlyrecognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future andtaxable profit will be available against which the temporary differences can be utilised.The carrying amount of deferred corporation tax assets is reviewed at each statement of financial position date andreduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of thedeferred corporation tax asset to be utilised.Deferred corporation tax assets and liabilities are measured at the tax rates that are expected to apply to the year whenthe asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantivelyenacted at the statement of financial position date.Corporation taxCorporation tax relating to items recognised directly in equity is recognised in other comprehensive income and thestatement of changes in equity and not in the income statement.Value added taxThe net amount of value added tax recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the statement of financial position.Revenues, expenses and assets are recognised net of the amount of value added tax except:• where the value added tax incurred on a purchase of goods and services is not recoverable from the taxation authority,in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expenseitem as applicable; and• receivables and payables are stated with the amount of value added tax included.Pensions and other post-employment benefitsThe Group operates a defined contribution scheme. Contributions are charged to the income statement as they becomepayable in accordance with the rules of the schemes.Share-based payment transactionsEmployees (including Directors) of the Group may receive part of their remuneration in the form of share-based paymenttransactions, whereby employees render their services in exchange for shares or rights over shares (‘equity-settledtransactions’).The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at whichthey are granted. The fair value is determined by an external valuer using the binomial method. In valuing equity-settledtransactions, no account is taken of any performance conditions, other than the conditions linked to the price of theshares of Pinewood Shepperton plc (‘market conditions’).


60 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedShare-based payment transactions continuedThe cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period inwhich the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitledto the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting dateuntil the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in theopinion of the Directors of the Group at that date based on the best available estimate of the number of equityinstruments, will ultimately vest.No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upona market condition and in circumstances where holders of awards with no performance conditions attached cancel theirawards whilst remaining in the employment of the Group. These are treated as vesting irrespective of whether or notthe market condition is satisfied, provided that all other performance conditions are satisfied.Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms hadnot been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result ofthe modification.Where an equity-settled award is cancelled by the award holder whilst remaining in the employment of the Group, it istreated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognisedimmediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award onthe date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award,as described in the previous paragraph.Where an equity-settled award is cancelled due to the holder of the award no longer remaining in the employment of theGroup, no expense is recognised.The dilutive effect of outstanding issuable awards is reflected as additional share dilution in the computation of earningsper share. Awards that are contingently issuable are not considered dilutive unless the performance conditions forultimate vest are met.Cash and cash equivalentsCash and short-term deposits in the statement of financial position comprise cash at bank and in hand. For the purposeof the Group statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as described above,net of outstanding bank overdrafts.Interest-bearing loans and borrowingsObligations for loans and borrowings are recognised when the Group becomes party to the related contracts and aremeasured initially at the fair values of consideration received less directly attributable transaction costs. After initialrecognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effectiveinterest method, allocating the interest income or interest expense over the relevant period. The loan issue costs areamortised in the income statement over the remaining maturity of the loans at a constant carrying amount and arereviewed for changes in circumstances that may indicate that the loans will not be held to maturity.Derivative financial instrumentsThe Group has interest rate swaps to hedge against risks associated with interest rate fluctuations. These derivativefinancial instruments are stated at fair value.The fair values of the interest rate swap contracts are determined by reference to market values for similar instruments.The interest rate swaps are cash flow hedges which hedge exposure to variability in cash flows that are attributable to theinterest rate risk on the Group’s external borrowings.


Pinewood Shepperton plc Annual Report & Accounts 2010 61Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedDerivative financial instruments continuedThe portion of the gain or loss on the hedging instruments that is determined to be an effective hedge is recogniseddirectly in other comprehensive income and the statement of changes in equity in a cash flow hedge reserve and theineffective portion is recognised in the Group income statement in finance costs. Amounts taken to other comprehensiveincome and the statement of changes in equity are transferred to the income statement when the hedged transactionaffects Group income.Hedge accounting is discontinued when the hedging instruments expire, or are sold, terminated or exercised, or no longerqualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instruments recognisedin other comprehensive income and the statement of changes in equity is kept in other comprehensive income and thestatement of changes in equity until the forecasted transactions occur. If a hedged transaction is no longer expected tooccur, the net cumulative gain or loss recognised in other comprehensive income and the statement of changes in equityis transferred to the Group income statement for that year.Property, plant and equipmentProperty, plant and equipment are stated at cost to the Group less accumulated depreciation and any impairment loss.Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset andincludes costs directly attributable to making the asset capable of operating as intended. Depreciation is calculated on allproperty, plant and equipment, other than land, from the time they are available for use on a straight line basis over theestimated useful life as follows:Freehold buildingsFreehold improvementsFixtures, fittings and equipmentLeasehold improvements– 50 years– 25 years– 3 to 10 years– shorter of 25 years or the term of the leaseLand and assets under construction are not depreciated.The carrying value of freehold land and buildings within ‘Property, plant and equipment’ in the statement of financialposition is based on external valuations undertaken by an independent firm of Chartered Surveyors in February 2000(as amended in January 2001) and November 2000, on each occasion to establish the fair values of the Pinewood Studiosand Shepperton Studios businesses acquired. Subsequent to these valuations, which established the cost to the Groupof freehold land and buildings, additions, disposals and depreciation have been recorded in line with Group accountingpolicies.The carrying value of property, plant and equipment is reviewed for impairment if events or changes in circumstancesindicate the carrying value may not be recoverable, and is written down immediately to the recoverable amount.Useful lives residual values are reviewed annually and where adjustments are required these are made prospectively.An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits areexpected to arise from the continued use of the asset. Any gain or loss arising in de-recognition of the asset (calculatedas the difference between the net disposal proceeds and the carrying amount of the item) is included in the incomestatement in the year the item is derecognised.


62 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedLeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangements atthe inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or thearrangement conveys a right to use the asset.Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leaseditem, are capitalised at the commencement of the lease at the fair value of the leased item, or if lower, at the presentvalue of the minimum lease payments. Lease payments are apportioned between the finance charges and the reductionof the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability, using the effectiveinterest rate method. Finance charges are recognised in the income statement on a straight line basis.Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.Leases, where the lessor retains substantially all the risks and benefits of ownership of the asset, are classified asoperating leases. Operating lease payments are recognised as an expense in the income statement on a straight linebasis over the lease term.Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or development of certain investment capitalexpenditure projects that necessarily take a substantial period of time to get ready for their intended use, or sale, arecapitalised as part of the cost of the respective assets. All other borrowing costs are recognised as an expense in theperiod in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connectionwith the borrowing of funds.The Group capitalises borrowing costs for all eligible assets where development or construction was commenced onor after 1 January 2007. No changes have been made for borrowing costs incurred prior to this date that have beenexpensed.Investment propertyAs defined by IAS 40, investment property is property held to earn rental income and/or for capital appreciation.Assets classified as investment property are carried at cost (including transaction costs) less accumulated depreciationand any recognised impairment in value, and exclude the costs of the day to day servicing of an investment property.The depreciation policies for investment property are in accordance with the Group depreciation policy, as defined within‘Property, plant and equipment’ in Note 2 to the financial statements. In accordance with IAS 40, the Group hasdetermined the fair value of assets classified as investment. The key assumptions used in arriving at the fair value andthe fair value are contained in Note 15, ‘Investment property’, on page 75.Impairment of assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any suchindication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’srecoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair valueless costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of anasset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific to the asset.In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroboratedby valuation multiples, quoted share price for the publicly traded Pinewood Shepperton plc or other fair value indicators.


Pinewood Shepperton plc Annual Report & Accounts 2010 63Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedImpairment of assets continuedImpairment losses of continuing operations are recognised in the income statement in those expense categoriesconsistent with the function of the impaired asset. An assessment is made at each reporting date as to whether thereis any indication that previously recognised impairment losses may no longer exist or may have decreased. If suchindication exists, the Group estimates assets or CGUs recoverable amount. A previously recognised impairment loss isreversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since thelast impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverableamount. That increased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in theincome statement. After such reversal the depreciation charge is adjusted in future periods to allocate the asset’s revisedcarrying amount, less any residual value, on a systematic basis over the remaining useful life.GoodwillGoodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over theacquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initialrecognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is reviewed for impairmentannually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.For the purpose of impairment testing, goodwill is allocated to the related cash-generating unit monitored bymanagement. Where the recoverable amount of the cash-generating unit is less than the carrying amount, includinggoodwill, an impairment loss is recognised in the income statement.Intangible assetsIntangible assets, when identified, are capitalised at cost and subsequently amortised over their useful economic life.Available-for-sale financial assetsAvailable-for-sale financial investments include equity securities. Equity investments classified as available-for-sale arethose which are neither classified as held for trading nor designated at fair value though profit or loss.The Group evaluates its available-for-sale financial assets and whether the ability to sell them is still appropriate.The Group assesses at each reporting date whether there is objective evidence that an investment or a group ofinvestments is impaired.In the case of equity investments classified as available-for-sale, objective evidence would include a significant orprolonged decline in the fair value of the investment below its cost, where ‘significant’ is estimated to be around 20% ofthe original cost of the investment and ‘prolonged’ is no less than 12 months. Where there is evidence of impairment, thecumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairmentloss on that investment previously recognised in the income statement – is removed from other comprehensive incomeand recognised in the income statement. Impairment losses on equity investments are not reversed through the incomestatement; increases in their fair value after impairment are recognised directly in other comprehensive income.InventoriesInventories are valued at the lower of cost and net realisable value. Cost includes all costs incurred in bringing eachproduct to its present location and condition. Net realisable value is based on the estimated selling price less anyestimated further costs expected to be incurred to completion and disposal.


64 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued2. Accounting policies continuedSummary of significant accounting policies continuedTrade and other receivablesTrade receivables are recognised and carried at the lower of their original invoice value and recoverable amount.An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written offwhen identified and are determined using business knowledge and individual circumstances specific to each customer.Exceptional items of income and expenseThe Group discloses as exceptional items on the face of the income statement those material items of income andexpense which, because of the nature and expected infrequency of the events giving rise to them, merit separatedisclosure to allow shareholders to understand better the elements of financial performance in the year, so as to facilitatecomparison with prior periods and to assess better trends in financial performance.DividendsThe equity transaction is recognised when the shareholders’ right to receive payment is established.Share issue costsCosts directly attributable to the raising of equity are charged to the share premium account.Significant accounting judgements, estimates and assumptionsEstimatesThe preparation of the Group’s consolidated financial statements requires management to make judgements, estimatesand assumptions that affect reported amounts at the end of the period. In the process of applying the Group’s accountingpolicies, the Director’s have made the following judgement in relation to the carrying amounts of assets and liabilitieswithin the next financial year:Project PinewoodThe costs incurred to 31 December 2010 of £6,015,000 on Project Pinewood have been capitalised and classified withinProperty, Plant and Equipment in Note 14. Capitalisation of costs is based on the Board’s judgement that the economicbenefits expected from the asset will exceed the carrying costs of Project Pinewood. Costs are reviewed monthly by theBoard. Taking into consideration all aspects of the project, the Board views the carrying cost of the capitalised expenditureincurred up to 31 December 2010 to be appropriate.JudgementsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date arediscussed below.Impairment of goodwillThe carrying amount of goodwill at 31 December 2010 was £5,604,000 (2009: £5,604,000). The Group determineswhether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cashgeneratingunit to which the goodwill is allocated. The Group considers Pinewood Shepperton plc and its subsidiariesto be one cash-generating unit.Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cashgeneratingunit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.The cash flows are derived from the Board approved budget for the next year and the Board approved long range planand do not include non-cash generating assets, any activities that the Group is not yet committed to or significant futureinvestments that will enhance the asset’s performance of the cash-generating unit. This calculation is sensitive to thediscount rate used for the calculation of present values of cash flows.The key assumptions used to determine the value in use are further explained in Note 16.


Pinewood Shepperton plc Annual Report & Accounts 2010 65Notes to the consolidated financial statements continued3. Segment information and revenue analysisThe chief operating decision-maker is the Board of Directors. The Group operates in one principal continuing area ofactivity, that of media services, primarily arising in the United Kingdom. It provides studio and related services to the film,television and wider creative industries.Revenues from these activities can be further analysed by type of customer as follows:Year ended31 December2010£000Year ended31 December2009£000Film 29,051 22,635Television 8,206 11,339Media Park 6,152 6,34743,409 40,321Other information provided to the Board of Directors is in a format consistent with that in the financial statements.Information about major customersRevenue from two customers, operating through several separate subsidiaries, of £12.1m and £5.0m (2009: threecustomers of £4.0m, £3.9m and £3.9m) was recognised in the year.4. Operating profit before exceptional itemsThis is stated after charging:Cost of inventories recognised as an expense 1,709 1,432Depreciation of property, plant and equipment 3,624 3,575Depreciation of investment property 131 124Operating lease payments 1,559 1,554Operating lease payments relating to the cost to the Group of the operating lease of the Shepperton Studios premiseswere £897,000 (2009: £892,000) and relating to the Teddington Studios premises were £662,000 (2009: £662,000).5. Auditors’ remunerationAudit of the Group financial statements 85 87Other fees to auditors:– audit of the Group pension scheme 2 2– taxation services 110 84– other services 3 2115 882010£0002010£0002009£0002009£000


66 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued6. Interests in joint ventures(a) The Group has a 50% interest in Shepperton Studios Property Partnership, an entity controlled jointly with a thirdparty, Aviva Group, which holds a 996 year lease on the Shepperton Studios property. The Group’s consolidated shareof the joint venture’s assets, liabilities and results, which are proportionately consolidated in the consolidated financialstatements, are as follows:Share of joint venture balance sheetProperty, plant and equipment 20,168 20,623Current assets 733 7320,901 20,696Interest-bearing loans and borrowings (12,002) (12,002)Current liabilities (406) (511)(12,408) (12,513)Share of joint venture income and expensesRevenue 790 852Cost of sales (1,013) (507)Administrative expenses (48) (10)Finance costs (780) (739)Net loss (1,051) (404)The Group’s share of the capital commitments in respect of property, plant and equipment was £nil (2009: nil).(b) The Group also has a 50% interest in Pinewood Studio Berlin Film Services GmbH in Germany. The Group’sconsolidated share of this joint venture’s assets, liabilities and results are proportionately consolidated in the consolidatedfinancial statements as follows:Share of joint venture balance sheetCurrent assets 23 –2010£0002010£0002009£0002009£000Share of joint venture income and expensesRevenue – –Cost of sales (10) –Selling and distribution expenses (97) –Net loss (107) –The Group’s share of the capital commitments in respect of property, plant and equipment was £nil (2009: nil).(c) The Group also has a 50% interest in Shepperton Studios (General Partner) Limited. There are no material amountsconsolidated for this joint venture.


Pinewood Shepperton plc Annual Report & Accounts 2010 67Notes to the consolidated financial statements continued7. Exceptional incomeExceptional income for the year was £632,000 and consists of:Rates rebateThe Group successfully negotiated an exceptional business rates rebate during the year, £506,000 of which relates toprior years.Share-based paymentFollowing a review of the Total Shareholder Return component of the Group’s Long-Term Incentive Plan awards, grantedin 2008, £126,000 of the IFRS 2 charges to the Group income statement was reversed as an exceptional credit in the yearended 31 December 2010.8. Exceptional costsExceptional costs for the period were £579,000 and consist of:Group reorganisationThe Group incurred exceptional reorganisation costs of £386,000 in relation to the restructuring of certain business areasin the year ended 31 December 2010.International venturesThe Group also incurred exceptional start up costs of £193,000 in relation to the commencement of the joint venture withStudio Hamburg GmbH and establishment of international offices in the USA and Canada in the year ended 31 December2010.9. Finance costsBank loans and overdrafts 1,455 1,543Interest rate hedging 848 759Share of joint venture loan 780 739Bank charges 142 27Finance charges payable under asset financing 60 43Other loans 24 603,309 3,171Finance costs of £150,000 (2009: £120,000) directly attributable to the development of capital items have beencapitalised based on LIBOR plus a variable margin consistent with the Group’s secured bank loan. The capitalisation ratewas 3.15% (2009: 6.0%).2010£0002009£000


68 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued10. Staff costs and Directors’ emoluments(a) Staff costs including DirectorsWages and salaries 8,809 9,102Social security costs 918 1,000Pension costs 510 320Share-based payments 76 (169)Other employee benefits 359 32110,672 10,574(b) The average monthly number of employees, including Directors during the year was made up as follows:Management 23 25Administration 51 60Operating and technical 144 150218 235Details of Directors’ remuneration are included in the audited portion of the Directors’ remuneration report.2010£0002010No.2009£0002009No.


Pinewood Shepperton plc Annual Report & Accounts 2010 69Notes to the consolidated financial statements continued11. Taxation(a) The major components of corporation tax expense are:Year ended31 December2010£000Year ended31 December2009£000Consolidated income statementCurrent corporation tax:UK corporation tax 1,906 1,122Amounts under/(over) provided in previous years 110 (167)Total current corporation tax 2,016 955Deferred tax:Relating to origination and reversal of temporary differences (483) (558)Amounts (over)/under provided in previous years (2) (128)Tax charge in the income statement 1,531 269The tax charge in the income statement comprises:Tax on profit before exceptional items 1,357 659Tax under/(over) provided in previous years 110 (167)Tax provision adjustments relating to exceptional items 19 (223)Tax under provided in previous years on exceptional items 45 –Tax charge in the income statement 1,531 269Tax relating to items charged or credited to equityDeferred tax:Deferred tax (credit)/charge on movements in provisions for cash flow hedges (78) 24Deferred tax reported in equity on share-based payments (24) –Tax (credit)/charge in the statement of changes in equity (102) 24The Group statement of changes in equity is set out on page 55.


70 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued11. Taxation continued(b) Reconciliation of the total tax chargeA reconciliation between tax expense and the product of accounting profit multiplied by the standard rate of corporationtax in the UK for the years ended 31 December 2010 and 2009 is as follows:Accounting profit before corporation tax 5,819 4,451Profit on ordinary activities multiplied by UK rate of 28% (2009: 28%) 1,629 1,246Adjustments in respect of:Corporation tax under/(over) provided in previous years 110 (167)Deferred tax over provided in previous years (2) (128)Non-allowable depreciation on buildings 469 521Other non-allowable expenses 147 149Release of provision for potential capital gains tax on properties (582) (1,092)Industrial buildings allowances (174) (232)Acquired goodwill – (28)Effect of taxation rate change on provision for deferred taxation (66) –Corporation tax expense reported in the Group income statement 1,531 2692010£0002009£000(c) Deferred taxDeferred tax relates to the following:Deferred tax in the income statementConsolidated income statementDeferred tax (credit)/charge:Accelerated capital allowances 149 248Share-based payments (52) 15897 406Release of provision for potential capital gains tax on properties (582) (1,092)(485) (686)2010£0002009£000Deferred tax liability:Accelerated capital allowances 1,820 1,672Potential capital gains tax liability on Group properties – 582Deferred tax asset relating to share-based payments (75) –1,745 2,254Deferred tax asset arising on the fair value of the cash flow hedge (439) (360)Net deferred tax liabilities 1,306 1,8942010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 71Notes to the consolidated financial statements continued11. Taxation continued(c) Deferred tax continuedDeferred tax in the income statement continuedIn accordance with generally accepted accounting principles, the Company‘s policy is to maintain a deferred taxationprovision to reflect the potential capital gains tax that would be payable if the Company’s properties were sold at anamount equivalent to the net book value included in the Group accounts. The amount of this provision has been reducedeach year as the potential tax liability has reduced as a result of depreciation reducing the net book value, and indexationallowances increasing the base value for capital gains tax purposes. During the year to 31 December 2010, the effect ofthese two factors has been to reduce the potential capital gains tax to nil and the remaining deferred taxation liability hasbeen released.(d) Potential deferred tax assets unrecognisedA potential deferred tax asset of £143,760 (31 December 2009 and 1 January 2009: £149,084) in respect of £4,307 nontradinglosses and £501,376 capital losses in Pinewood-Shepperton Studios Limited and £26,760 (31 December 2009 and1 January 2009: £26,760) trading losses in Teddington Studios Limited has not been recognised as it is not anticipatedthat suitable gains will arise to enable the reversal of these temporary differences.12. Earnings per ordinary share and dividendEarnings per ordinary shareBasic earnings per ordinary share are calculated by dividing profit for the year attributable to the holders of ordinaryequity of the parent by the weighted average number of ordinary shares outstanding during the year.Diluted earnings per ordinary share are calculated by dividing profit for the year attributable to the holders of ordinaryequity of the parent by the weighted average number of ordinary shares outstanding during the year adjusted for theeffects of the dilution of potential ordinary shares resulting from employee share schemes.The Group presents as exceptional items on the face of the income statement those items where the cost or income isof such size or incidence that the additional disclosure is required for the reader to understand the financial statements.Basic and diluted earnings per share are also presented on this basis.Basic and diluted earnings per share is also presented adjusting for the combined effect of the exceptional items and theeffects of the release of deferred tax provision on property assets. In order to provide a meaningful comparison the prioryear deferred tax number has been revised to include the effects of property depreciation (2010: £469,000, 2009:£521,000) as explained in Note 11(c).The following reflects the profit and number of shares used in the basic and diluted earnings per ordinary sharecomputations:Profit attributable to equity holders of the parent 4,288 4,182Adjustments to profit for calculation of adjusted earnings per share:Exceptional income (632) (804)Exceptional costs 579 851Taxation adjustments on exceptional items 19 (223)Tax adjustment on prior years exceptional items 45 –Effect of release of deferred tax provision on property assets (582) (1,092)Adjusted profit for adjusted earnings per share 3,717 2,9142010£0002009£000


72 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued12. Earnings per ordinary share and dividend continuedEarnings per ordinary share continuedThousandsThousandsBasic weighted average number of ordinary shares 46,201 45,985Dilutive potential ordinary shares resulting from employee share schemes 2,024 1,342Diluted weighted average number of ordinary shares 48,225 47,327Earnings per share 2010 2009– basic for result for the year 9.3p 9.1p– diluted for result for the year 8.9p 8.8p– basic for result for the year adjusted for exceptional items and effect of release ofprovision for potential capital gains tax on properties 8.0p 6.3p– diluted for result for the year adjusted for exceptional items and effect of release ofprovision for potential capital gains tax on properties 7.7p 6.2pDividend paidFinal dividend for 2008 paid at 2.30p per share – 1,057Interim dividend for 2009 paid at 1.05p per share – 484Final dividend for 2009 paid at 2.40p per share 1,110 –Interim dividend for 2010 paid at 1.10p per share 509 –1,619 1,541The Board is recommending a final dividend of 2.50p per ordinary share for approval at the Annual General Meeting and,based on the shares in issue at the date the Board approved the Group financial statements, this would amount to a totaldividend payment of £1,155,800. The final dividend has not been recognised as a liability at 31 December 2010.13. Share-based payment plansCompany Sharesave Scheme (“SAYE”)The Group has an SAYE under which options to subscribe for the Group’s shares have been granted to employees wishingto participate in the scheme. Options have been granted at a discount of 20% to the market value on the date of grant.The contractual lives of options are three and a half and five and a half years. The options are equity settled and there areno cash settlement alternatives.The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of, and movements in,SAYE options during the year.Outstanding at the beginning of the year 356,679 120.0p 223,918 200.7pGranted during the year 73,238 108.4p 276,024 96.4pLapsed during the year (26,293) 195.8p – –Cancelled during the year (50,543) 115.5p – –Forfeited during the year (183) 208.8p (143,263) 178.4pOutstanding at the end of the year 352,898 112.6p 356,679 120.0p2010No.2010WAEP2010£0002009No.2009£0002009WAEP


Pinewood Shepperton plc Annual Report & Accounts 2010 73Notes to the consolidated financial statements continued13. Share-based payment plans continuedCompany Sharesave Scheme (“SAYE”) continuedThe weighted average remaining contractual life for the SAYE options outstanding as at 31 December 2010 is 2.23 years(2009: 2.94 years).The weighted average fair value of the options granted during the year was 47.6p (2009: 56.0p).The range of exercise prices for options outstanding at the end of the year was 96.4p – 208.8p (2009: 96.4p – 208.8p).The fair value of equity-settled options granted is estimated as at the date of grant using a binomial model taking intoaccount the terms and conditions upon which the options were granted.Company Long-Term Incentive Plan (“LTIP”)The Group has an LTIP under which Executive Directors and senior managers may be granted annual equity awards upto a maximum value of 250%, and 100% respectively, of basic salary. Please see the Director’s report on pages 18 to 22for additional information. Awards issued will vest subject to performance criteria, being based 50% on Total ShareholderReturn and 50% on annual average Return on capital employed and minimum performance criteria. The contractual lifeof each award is ten years. The awards are equity-settled and there are no cash settlement alternatives.The following table illustrates the number (“No.”) and movements in LTIP awards during the year.Outstanding at the beginning of the year 1,299,461 1,902,651Forfeited during the year (662,641) (443,075)Exercised during the year – (160,115)Granted during the year 1,245,628 –Outstanding at the end of the year 1,882,448 1,299,461The weighted average remaining contractual life for the LTIP awards outstanding as at 31 December 2010 is 8.59 years(2009: 7.85 years).The weighted average fair value of the awards granted during the year was 110.0p (2009: nil).The fair value of equity-settled options and grants are estimated as at the date of grant using binomial and Monte Carlomodels taking into account the terms and conditions upon which the options or grants were awarded. The following tablelists the inputs to the model used for the years ended 31 December 2010 and 31 December 2009.SAYE2010SchemeLTIP2010SchemeSAYE2009SchemeLTIP2008SchemeLTIP2007Scheme2010No.SAYE2007Scheme2009No.SAYE2006SchemeDividend yield (%) 2.40 2.29 2.35 1.50 1.15 1.08 1.10Expected volatility (%) 34.60 33.00 38.25 31.71 32.00 33.00 31.00Risk-free interest rate (%) 1.84 1.83 2.22 4.65 5.45 4.97 4.80Expected life (years) 3.95 3.00 4.05 3.00 3.00 3.79 4.10Weighted average share price 142.5p 150.6p 142.5p 240.0p 229.0p 208.8p 204.5pThe expected life of the options and awards is based on the Group’s best estimate and is not necessarily indicative ofexercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicativeof future trends, which may also not necessarily be the actual outcome.


74 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued14. Property, plant and equipmentCost:Freeholdland£000Freeholdbuildings andimprovements£000Leaseholdimprovements£000Fixtures,fittings andequipment£000Assets underconstruction£000At 1 January 2009 50,968 56,454 1,110 25,183 2,598 136,313Additions 1,598 1,426 314 788 931 5,057Disposals – – – (54) – (54)Transfers 326 611 353 110 (1,400) –At 31 December 2009 52,892 58,491 1,777 26,027 2,129 141,316Additions 968 3,628 193 1,650 – 6,439Transfers 291 21 – 63 (375) –At 31 December 2010 54,151 62,140 1,970 27,740 1,754 147,755Depreciation:At 1 January 2009 – 8,789 379 16,028 – 25,196Provided during the year – 1,579 242 1,754 – 3,575Depreciation on disposals – – – (25) – (25)At 31 December 2009 – 10,368 621 17,757 – 28,746Provided during the year – 1,783 215 1,626 – 3,624At 31 December 2010 – 12,151 836 19,383 – 32,370Net book value:At 31 December 2010 54,151 49,989 1,134 8,357 1,754 115,385At 31 December 2009 52,892 48,123 1,156 8,270 2,129 112,570At 1 January 2009 50,968 47,665 731 9,155 2,598 111,117Included within ‘Freehold land’ is £6.0m of capitalised costs in relation to Project Pinewood. Pages 10 to 64 of the AnnualReport provides further information on the project and the management judgement applied in supporting the carryingvalue of the costs.Assets under construction at 31 December 2010 primarily relates to building refurbishment and infrastructure costs, theseare not depreciated in this period.The Group’s long-term loan is secured by a floating charge over the Group’s assets.Shepperton Studios Property Partnership’s (“SSPP”) long leasehold interest in the Shepperton Studios site was valued at£35,730,000 by an independent firm of Chartered Surveyors in December 2010 (2009: £32,830,000). The Group carriesits 50% interest in the long leasehold of SSPP at £20,168,000 (2009: £20,623,000) being depreciated cost.Total£000


Pinewood Shepperton plc Annual Report & Accounts 2010 75Notes to the consolidated financial statements continued15. Investment propertyCost:At 31 December 2008 6,122Additions 344At 31 December 2009 6,466Additions 149At 31 December 2010 6,615Depreciation:At 31 December 2008 –Provided during the year 2009 124At 31 December 2009:Provided during the year 2010 131At 31 December 2010 255Net book value:At 31 December 2010 6,360At 31 December 2009 6,342At 31 December 2008 6,122No independent valuation has been undertaken. A Directors valuation was carried out to determine the fair value of theinvestment property. A yield based valuation has been used which provided a fair value of £7.1m at 31 December 2010using a 7.25% yield and allowing for purchasers costs of 5.76%. The fair value at 31 December 2009, again using theyield based valuation method provided a fair value of £6.8m, assuming a 7.25% yield and allowing for purchaser’s costsof 5.75%.16. Intangible assets and impairment testing£000Goodwill£000At 31 December 2010 and 2009 5,604Goodwill has been acquired through business combinations and has been allocated to the Group’s single cash-generatingunit.The recoverable amount of the cash-generating unit is based on a value in use calculation and is tested at least annuallyfor impairment. Other than goodwill there are no intangible assets with indefinite lives.Outcome of impairment reviewThe recoverable amount of the Group’s cash-generating unit exceeds its carrying value and no impairment charge hasbeen recognised (2009: no impairment charge recognised).


76 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued16. Intangible assets and impairment testing continuedKey assumptionsThe value in use calculations use five year cash flow projections derived from the Board approved budget for the nextyear and the Board approved long range plan and do not include non-cash generating assets, any activities that theGroup is not yet committed to or significant future investments that will enhance the asset’s performance of the cashgenerating unit. The key assumptions used in the value in use calculations are:Discount rateThe discount rate reflects the current market assessment of the risks specific to the cash-generating unit. The discountrate was calculated using the Group’s cost of debt together with an estimate based on the average cost of equity for theindustry, adjusted to reflect the market assessment of any risk specific to the cash-generating unit for which futureestimates of cash flows have not been adjusted. The pre-tax discount rate used for 2010 is 8.8% which is compared to9.3% in the prior year.Perpetuity growth rateThe cash flows subsequent to the Board approved period are based on the long-term growth rate prospects of theindustry in which the Group operates. The perpetuity growth rate used is 2.5% (2009: 2.5%).Cash flow from operationsCash flow projections have been estimated using a combination of assumptions including, but not limited to, facilityutilisation, income growth and Media Park void ratios and rent increases. Considering previously achieved trading levelsand the anticipated future operating environment for the business and taking into account any cost efficiencies which maybe achieved, the Company has retained the assumptions used in its Board approved budget and its long range plan.SensitivitiesThe Group’s impairment review is sensitive to a change in the key assumptions used, notably the discount rate.The discount rate would need to move to 14.2% to result in a breakeven position and, should the discount rate remainat 8.8%, the perpetuity growth rate would need to be a negative 5.3% to reach a breakeven point. Based on theGroup’s sensitivity analysis, a reasonable possible change in a single factor would not cause an impairment charge.17. Long-term assetToronto sales and marketing agreement transaction costs 94 –Malaysia long-term agreement 188 –Dominican Republic transaction costs 65 –347 –The Group signed a 10 year sales and marketing agreement with Pinewood Toronto Studios on 26 May 2009.Transaction costs of £94,000 in relation to this agreement have been recognised as a long-term asset and are beingamortised over the term of the agreement.Pinewood Malaysia Limited signed a long-term agreement on 16 December 2009 until the 10th anniversary of the openingof Pinewood Iskandar Malaysia Studios to provide marketing, operations and management support. Transaction costs of£188,000 in relation to this agreement have been recognised as a long-term asset.Pinewood Dominican Republic Limited signed an agreement on 20 May 2010 with a term of 15 years to provide sales,marketing and operations support to Pinewood Dominican Republic Studios. Transaction costs of £65,000 in relation tothis agreement have been recognised as a long-term asset.2010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 77Notes to the consolidated financial statements continued18. Trade and other receivablesTrade receivables 5,355 2,391Related parties – 335,355 2,424As at 31 December, the ageing analysis of trade receivables is as follows:2010£0002009£000Total£000Neither pastdue norimpaired£000


78 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued20. Share capital and reserves continuedIssued, called up and fully paid2010 2009No. £000 No. £000Ordinary shares of 10p each 46,104,906 4,610 45,944,791 4,594Shares issued under the Pinewood Shepperton plcSharesave scheme:10p ordinary shares issued on 14 September 2009 101,990 1010p ordinary shares issued on 30 October 2009 58,125 610p ordinary shares issued on 31 March 2010 127,100 13 – –46,232,006 4,623 46,104,906 4,610The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one voteper share at the general meetings of the Company.Share option schemesThe Group has one share-based payment plan under which options to subscribe for the Group’s shares have beengranted. At 31 December 2010, 352,898 shares were outstanding (2009: 356,679). Details of this scheme can be foundin Note 13.Long-term incentive planThe Group has a long-term incentive plan under which awards for the Group’s shares have been granted to certainexecutives and senior employees. At 31 December 2010, 1,882,448 share awards were outstanding (2009: 1,299,461).Details of this scheme can be found in Note 13.Nature and purpose of reserveReserve for own sharesIncluded within the cash capital account are the costs of Pinewood Shepperton plc shares purchased in the market andheld by the Pinewood Shepperton plc Employee Benefit Trust to satisfy future exercise of awards under the Companyshare option scheme. As at 31 December 2010 the Company held 127,100 (2009: nil) of its own shares at an averagecost of 10p per share. The market value of these shares at 31 December 2010 was £187,473 (2009: nil).Share premium reserveThe share premium increased by nil (2009: nil) in the year as a result of the issue of share issues noted in the tableabove.Capital redemption reserveThe capital redemption reserve arose as a result of the repurchase of shares in 2001.Merger reserveOn acquiring Shepperton Studios Limited the Group issued ordinary shares as part of the consideration. Merger relief wastaken in accordance with Section 131 of the Companies Act 1985 (since succeeded by Section 612 of the Companies Act2006), and hence £348,000 was credited to the merger reserve.Fair value of cash flow hedge reserveThe cash flow hedge reserve is used to record the fair value gains or losses, and related deferred tax, on the hedginginstruments used by the Group to manage interest rate risk. The cash flow hedges are determined to be effective hedges.


Pinewood Shepperton plc Annual Report & Accounts 2010 79Notes to the consolidated financial statements continued21. Interest-bearing loans and borrowingsEffective interest rate% MaturityCurrent borrowingsBase rate + 2.25%Bank overdraftmargin Annual renewal – 944– 944Non-current borrowingsRevolving credit facility LIBOR + variable margin 15 August 2013 22,500 26,000Pre-let development facility LIBOR + variable margin 15 August 2013 6,000 6,000Total drawn facility loan 28,500 32,000Asset financing Implicit rate of 7.3% 30 May 2014 1,841 923Share of joint venture loan Base rate + 2% margin 30 September 2026 12,002 12,002Non-current drawn loan facilities 42,343 44,925Cash flow hedge (£7.5m)2.89% + variablemargin 1 July 2013 257 42Cash flow hedge (£15m)5.195% + variablemargin 1 July 2013 1,367 1,245Secured bank loan arrangement costs (777) (1,063)43,190 45,1492010£0002009£000Total current and non-current interest-bearing loans and borrowings 43,190 46,093Banking facilitiesThe Group has agreements with a syndicate of banks, which provides facilities as follows:OverdraftA £5,000,000 (2009: £5,000,000) overdraft facility to support the future operating activities of the business, secured bya floating charge over the Group’s assets. This facility is in place until August 2013 and is subject to annual review withinterest charged at 225 basis points over bank base rate.Revolving credit facilityA revolving credit facility of up to £35,000,000 to support the operating activities of the business, secured by a floatingcharge over the Group’s assets. Interest is charged at LIBOR plus a variable margin of between 175 and 275 basis pointsbased on specific covenant levels. This facility is in place until August 2013.Pre-let development facilityA pre-let development facility of up to £30,000,000 to support the pre-let Media Park development strategy. Interest ischarged at LIBOR plus a variable margin of between 175 and 225 basis points based on the status of the pre-letdevelopment. This facility is in place until August 2013.


80 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued21. Interest-bearing loans and borrowings continuedThe banking facilities become repayable on demand following a change of control in the Group. If the Group and thesyndicate of banks’ agent are unable to agree alternative terms within thirty days of the Group’s notification of a changeof control.The overdraft, revolving credit facility and pre-let development facility are secured by a floating charge over the principleassets of the Group, other than those secured by a fixed charge by Shepperton Studios Property Partnership.CovenantsThe banking agreements contain a range of covenants appropriate for the revolving credit facility, pre-let developmentfacility and overdraft facility. The Group was covenant compliant at 31 December 2010.Cash flow hedgeAt 31 December 2010, the Group held interest rate swaps designated as hedges against drawn debt obligationsamounting to £22,500,000 (2009: £22,500,000). Further information can be found in Note 26.Asset financing facilityThe asset financing facility is a sterling chattel mortgage facility over a fixed term with fixed monthly payments and issecured over identifiable assets of an equal value. These assets are classified as ‘Fixtures, Fittings and Equipment’ within‘Property, Plant and Equipment’ in the statement of financial position.Share of joint venture loanThis relates to the Group’s 50% interest, £12,002,000 (2009: £12,002,000) of the joint venture’s £24,004,000 investorand development loan (2009: £24,004,000). These loans which have no financial covenants attached to them are securedby a fixed charge on the assets of Shepperton Studios Property Partnership, are non-recourse to the Group and arerepayable in full on 30 September 2026. Interest on the loans is at base rate plus 2% with an interest rate floor of 6.5%.The interest rate floor is an embedded derivative in the loan agreement; however the derivative has not been separatedfrom the loan agreement as it satisfies the criteria for non-separation in IAS 39.


Pinewood Shepperton plc Annual Report & Accounts 2010 81Notes to the consolidated financial statements continued21. Interest-bearing loans and borrowings continuedBorrowing facilitiesThe available but undrawn committed facilities at 31 December are as follows:Year ended 31 December 2010Within1 year£0001–2years£0002–3years£0003–4years£0004–5years£000More than5 years£000Facilities:Revolving credit facility – – 35,000 – – – 35,000Pre-let development facility – – 30,000 – – – 30,000Secured bank facility – – 65,000 – – – 65,000Asset financing facility – – – 1,841 – – 1,841Share of joint venture loan – – – – – 20,000 20,000Bank overdraft 5,000 – – – – – 5,000Total facilities 5,000 – 65,000 1,841 – 20,000 91,841Total£000Drawn loans:Revolving credit facility – – (22,500) – – – (22,500)Pre-let development facility – – (6,000) – – – (6,000)Asset financing facility – – – (1,841) – – (1,841)Share of joint venture loan – – – – – (12,002) (12,002)Total drawn loans – – (28,500) (1,841) – (12,002) (42,343)Undrawn facilities:Bank overdraft 5,000 – – – – – 5,000Revolving credit facility – – 12,500 – – – 12,500Pre-let development facility – – 24,000 – – – 24,000Share of joint venture loan – – – – – 7,998 7,998Total undrawncommitted facilities 5,000 – 36,500 – – 7,998 49,498


82 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued21. Interest-bearing loans and borrowings continuedBorrowing facilities continuedYear ended 31 December 2009Facilities:Within1 year£0001–2years£0002–3years£0003–4years£0004–5years£000More than5 years£000Revolving credit facility – – – 35,000 – – 35,000Pre-let development facility – – – 30,000 – – 30,000Secured bank facility – – – 65,000 – – 65,000Asset financing facility – – – – 923 – 923Share of joint venture loan – – – – – 20,000 20,000Bank overdraft 5,000 – – – – – 5,000Total facilities 5,000 – – 65,000 923 20,000 90,923Total£000Drawn loans:Bank overdraft (944) – – – – – (944)Revolving credit facility – – – (26,000) – – (26,000)Pre-let development facility – – – (6,000) – – (6,000)Asset financing facility – – – – (923) – (923)Share of joint venture loan – – – – – (12,002) (12,002)Total drawn loans (944) – – (32,000) (923) (12,002) (45,869)Undrawn facilities:Bank overdraft 4,056 – – – – – 4,056Revolving credit facility – – – 9,000 – – 9,000Pre-let development facility – – – 24,000 – – 24,000Asset financing facility – – – – – – –Share of joint venture loan – – – – – 7,998 7,998Total undrawn committedfacilities 4,056 – – 33,000 – 7,998 45,054


Pinewood Shepperton plc Annual Report & Accounts 2010 83Notes to the consolidated financial statements continued22. Trade and other payablesTrade payables 2,249 1,993Value added tax 915 416Payroll taxes 3 277Other payables 615 622Accruals 3,049 1,015Capital expenditure payables 1,824 1,908Deferred income 6,732 2,31715,387 8,548Terms and conditions of the above financial liabilities:• Trade payables are non-interest bearing and are settled, on average, on 26 day terms (2009: 33 days).• Other payables are non-interest bearing and are settled as they become due.• Accruals are non-interest bearing and are settled as they become due.• Deferred income is recognised as it is earned.23. Obligations under leasesOperating lease commitments – Group as a lesseeTeddington StudiosTeddington Studios Limited has entered into a commercial property lease on the Teddington Studios property with a thirdparty. The lease term expires on 23 August 2024, with a tenants break option exercisable after completion of the tenant’srent review which commenced on 24 August 2009. Teddington Studios Limited has three months following determinationof the 24 August 2009 rent review to give no less than 12 months, notice to terminate the lease. Under the terms of thelease the tenant may not assign the lease until the rent review has been settled. In accordance with the lease an externalexpert has been appointed to determine the rent review.Future minimum rentals payable on the non-cancellable Teddington Studios operating lease as at 31 December areas follows:Within one year 662 662After one year but not more than five years 993 9931,655 1,6552010£0002010£0002009£0002009£000


84 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued23. Obligations under leases continuedOperating lease commitments – Group as a lessee continuedShepperton StudiosShepperton Studios Limited entered into a commercial property lease on the Shepperton Studios property withShepperton Studios Property Partnership, its 50% owned joint venture partnership. The lease term expires on 18 August2026 with no break option.Under the terms of the agreement the tenant may not assign the lease until 18 August 2016.The net cost to the Group of future minimum rentals payable under the non-cancellable Shepperton Studios propertyoperating lease as at 31 December is as follows:Within one year 940 892After one year but not more than five years 3,760 3,568After five years but not more than 20 years 9,964 10,38014,664 14,8402010£0002009£000Operating lease commitments – Group as a lessorThe Group has entered into a commercial property lease on the property classified as Investment property. This noncancellablelease has a remaining term of between 9 and 14 years. The lease includes a clause to enable upward revisionof the principal rental charge on an annual basis subject to prevailing market conditions.Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:Within one year 518 518After one year but not more than five years 2,080 2,080After five years but not more than 20 years 1,562 2,0804,160 4,6782010£0002009£00024. Commitments and contingenciesCapital commitmentsAt 31 December 2010 the Group had capital commitments contracted for but not provided in the accounts in relationto the completion of the power upgrade of £2.3m (31 December 2009: nil).GuaranteesAt 31 December 2010, the Group had guarantees in place, in the form of documentary credits, that were not provided forin the accounts totalling £155,000 (2009: £163,250) in relation to certain Section 278 highways related infrastructure.


Pinewood Shepperton plc Annual Report & Accounts 2010 85Notes to the consolidated financial statements continued25. Related party disclosuresThe consolidated financial statements include the financial statements of Pinewood Shepperton plc, its subsidiaries and its50% interest in the joint ventures listed in the following table.% equity interestCountry of incorporation 2010 2009Pinewood Studios Limited United Kingdom 100 100Shepperton Studios Limited United Kingdom 100 100Pinewood-Shepperton Studios Limited United Kingdom 100 100Studiolink Limited United Kingdom 100 100Teddington Studios Limited United Kingdom 100 100The Studio Broadcasting Company Limited United Kingdom 100 100Baltray No.1 Limited United Kingdom 100 100Baltray No.2 Limited United Kingdom 100 100Shepperton Management Limited United Kingdom 100 100Saul’s Farm and Stables Limited United Kingdom 100 100Saul’s Farm Limited United Kingdom 100 100Pinewood Malaysia Limited United Kingdom 100 100Pinewood Germany Limited United Kingdom 100 100Pinewood Dominican Republic Limited United Kingdom 100 100Pinewood USA Inc USA 100 –Pinewood Film Production Studios Canada Inc Canada 100 –Pinewood Shepperton plc is the parent entity of the Group.% Joint venture interestJoint ventures 2010 2009Shepperton Studios (General Partner) Limited United Kingdom 50 50Shepperton Studios Property Partnership United Kingdom 50 50Pinewood Studios Berlin Film Services GmbH Germany 50 50


86 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued25. Related party disclosures continuedDuring the year the Group entered into transactions with the following related parties, involving the utilisation of mediafacilities at normal market rates and settlement terms. No impairment was recognised against the amounts owed at eachyear end.Sales torelated party£000Amountsowed byrelated party£000Entity with which Lord Grade of Yarmouth was associated during the year:ITV plc 2010 – –ITV plc 2009 425 33Effective as of 31 December 2009, Lord Grade of Yarmouth resigned as Chairman and Director of ITV plc.Joint ventures:Shepperton Studios Limited has a commercial property lease on the Shepperton Studios property. The net cost to theGroup of principal lease rentals during the year ended 31 December 2010 was £897,000 (2009: £892,000). In additionthe Group pays a top up rent to the joint venture partnership based on certain of its trading activities at the SheppertonStudios site. During the year the net cost to the Group of the top up rent was £288,000 (2009: nil). The Group’s share ofamounts owed to the 50% joint venture partnership at 31 December 2010 was £406,000 (2009: £511,000).Shepperton Management Limited manages the assets of the joint venture partnership and charges an asset managerfee based on independent valuations of the Shepperton Studios site. Asset manager fees charged during the year ended31 December 2010 were £99,000 (2009: £95,000).26. Financial risk management, objectives and policiesThe Group’s principal financial liabilities, other than derivatives, comprise loans and borrowings, asset financing chattelmortgage and trade and other payables. The main purpose of these financial liabilities is to provide finance for the Group’soperations. The Group has financial assets such as trade and other receivables and cash that arise directly from itsoperations.The Group is exposed to market risk, credit risk and liquidity risk.The Board of Directors oversee the management of these risks and are supported by the appropriate members of theExecutive Management Team together with specialist advisors as required. All derivative activities for risk managementpurposes are carried out with specialists involved who have the appropriate skills and experience. It is the Group’s policythat no trading in derivatives for speculative purposes shall be undertaken.


Pinewood Shepperton plc Annual Report & Accounts 2010 87Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedThe Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.Market riskMarket risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changesin market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, such asequity risk. The Group’s financial instruments affected by market risk include loans and borrowings and derivative financialinstruments.Interest rate riskInterest rate risk is the risk that the fair value or future values of a financial instrument will fluctuate because of changesin market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to theGroup’s long-term debt obligations with floating interest rates. In order to manage its interest rate risk the Group’s policyis to have a minimum of 50% (2009: up to 50%) of its borrowings at fixed rates of interest. To manage this, the Groupenters into interest rate swaps, in which the Group agrees to exchange, at specific intervals, the difference between fixedand variable rate interest amounts calculated by reference to an agreed-upon notional principle amount. These swaps aredesignated to hedge debt obligations and are monitored to ensure continued effectiveness.At 31 December, the Group had the following interest rate swaps in place to minimise the volatility in cash flows from achange in LIBOR:Effectiveinterest rate% MaturityCash flow hedge 2.89% + variable margin 1 July 2013 7,500 7,500Cash flow hedge 5.195% + variable margin 1 July 2013 15,000 15,00022,500 22,5002010£0002009£000


88 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedInterest rate risk continuedThe interest rate swaps held are determined to be effective hedges and the interest swap finance costs are charged to theGroup income statement when they are payable. These are payable on a quarterly basis in March, June, September andDecember. The change in the fair value is recognised in Other Comprehensive Income.At 31 December 2010, £28,500,000 of the Group’s revolving credit facility, overdraft facility and pre-let developmentfacility (2009: £32,944,000) and £12,002,000 (2009: £12,002,000) of the joint venture loan had been drawn (Note 21).£18,002,000 (2009: £22,446,000) of drawn facility is at a floating interest rate of LIBOR plus a margin, or UK Bank baserate plus a margin, and is therefore subject to market risk through interest rate fluctuations. The remaining drawn loan of£22,500,000 (2009: £22,500,000) has been converted to a fixed rate with interest rate swaps.During the year the Group entered into an asset financing agreement for a £1,297,000 asset financing facility over a fixedterm with fixed monthly payments and is secured over identifiable assets of an equal value. These assets are classifiedas ‘Fixtures, fittings and equipment’ within ‘Property, plant and equipment’ on the statement of financial position.At 31 December 2010, the balance payable was £1,841,000 (2009: £923,000).Taking into consideration the fixed rate instruments in place, a one percentage point increase in LIBOR would increase theinterest charge, and reduce the Group profit before taxation, by £60,000 (2009: £215,000).At 31 December 2010, after taking into account the effect of interest rate swaps and the chattel mortgage facility,approximately 57% (2009: 51%) of the Group’s borrowings are at a fixed rate of interest.A summary of fixed and floating rate debt at 31 December is as follows:Year ended 31 December 2010Within 1year£0001–2years£0002–3years£0003–4years£0004–5years£000More than5 years£000Secured bank loan at floating rate – – (28,500) – – – (28,500)– portion of loan effectivelyconverted to fixed rate with aninterest rate swap – – 22,500 – – – 22,500Effective floating portion ofsecured loan at floating rate – – (6,000) – – – (6,000)Share of joint venture loan – – – – – (12,002) (12,002)Floating rate drawn loan – – (6,000) – – (12,002) (18,002)Fixed rate asset financing – – – (1,841) – – (1,841)Fixed rate drawn loan – – (22,500) – – – (22,500)Total drawn loan – – (28,500) (1,841) – (12,002) (42,343)Total£000


Pinewood Shepperton plc Annual Report & Accounts 2010 89Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedInterest rate risk continuedYear ended 31 December 2009Within 1year£0001–2years£0002–3years£0003–4years£0004–5years£000More than5 years£000Secured bank loan at floating rate – – – (32,000) – – (32,000)– portion of loan effectivelyconverted to fixed rate with aninterest rate swap – – – 22,500 – – 22,500Effective floating portion ofsecured loan at floating rate – – – (9,500) – – (9,500)Share of joint venture loan – – – – – (12,002) (12,002)Bank overdraft (944) – – – – – (944)Floating rate drawn loan (944) – – (9,500) - (12,002) (22,446)Fixed rate drawn loan – – – – (923) – (923)Total drawn loan – – – (22,500) – – (22,500)(944) – – (32,000) (923) (12,002) (45,869)Foreign currency riskThe Group does not hedge against foreign currency exposure due to its minimal exposure to foreign currency movementsas its business is conducted primarily in UK sterling. The Board continues to review this area to identify any potentialexposure with the increase in international arrangements.Equity price riskThe Group does not hedge against equity price risk as it does not have exposure in this area.Credit riskCredit risk is the risk that counterparty will not meet its obligation under a financial instrument or customer contract,leading to a financial loss. The Group is exposed to credit risk from its operating activities, primarily trade receivables,and financial instruments.Credit risks related to receivablesCustomer credit risk is managed across the Group in accordance with policy, procedures and controls relating to customercredit risk management. The Group trades with recognised, creditworthy third parties and it is the Group’s policy that allcustomers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balancesare monitored on an ongoing basis to manage the Group’s exposure to bad debts. The requirement for impairment isreviewed each month on an individual customer basis and not on a collective basis. The review to assess the need forimpairment is not dependent on the age of the receivable and is determined using business knowledge and individualcircumstances specific to each customer. There were no changes to the Group policy during the year. As at 31 December2010 the Group’s maximum exposure to credit risk was £5,587,000 (2009: £3,107,000), of which £232,000 (2009:£683,000) is considered to be potentially impaired and £1,840,000 (2009: £859,000) has exceeded credit terms but hasnot been impaired. Note 18 provides further details of the ageing profile of receivables.Credit risks related to financial instrumentsWith respect to credit risk relating to cash, cash equivalents and other financial instruments the Group’s exposure to creditarises from default of the counterparty, with the maximum exposure equal to the carrying amount of these instruments.At 31 December 2010 the Group has a positive cash balance (31 December 2009: negative cash balance) and has a totalof £22,500,000 interest rate swaps (2009: £22,500,000) and a £1,841,000 (2009: £923,000) asset financing facilityagreement.Total£000


90 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedLiquidity riskThe Group’s objective is to maintain a balance between the continuity of operating and development funding and flexibilitythrough the use of an overdraft facility, a revolving credit facility, a pre-let development facility and a share of a jointventure loan. Short-term flexibility is achieved by the overdraft facility of £5,000,000 (2009: £5,000,000) which isavailable to the Group for drawdown until 15 August 2013 (subject to an annual review).The revolving credit facility, which supports the operating activities of the Group, and the pre-let development facilitywhich supports the pre-let Media Park development strategy, are both available for drawdown until 15 August 2013.The share of the joint venture loan is available until 30 September 2026.The Board has reviewed the Group’s banking facilities and current levels of headroom on those facilities and considers thatthere is sufficient capacity going forward.The table below summarises the maturity profile of the Group’s main financial liabilities based on contractual undiscountedpayments at 31 December:Year ended 31 December 2010On demand£000Less than3 months£0003–12months£0001 to 5years£000> 5 years£000Drawn facility loans – 211 633 32,720 – 33,564Share of joint venture loan – 181 543 2,635 15,226 18,585Cash flow hedge – 201 603 820 – 1,624Asset financing – 133 399 1,527 – 2,059Trade and other payables 8,656 – – – – 8,6568,656 726 2,178 37,702 15,226 64,488Year ended 31 December 2009On demand£000Less than3 months£0003–12months£0001 to 5years£000> 5 years£000Total£000Total(restated)£000Drawn facility loans – 234 705 39,520 – 40,459Share of joint venture loan – 181 543 2,635 15,534 18,893Cash flow hedge – 201 603 483 – 1,287Bank overdraft 944 – – – – 944Asset financing – 60 108 874 – 1,042Trade and other payables 6,231 – – – – 6,2317,175 676 1,959 43,512 15,534 68,856


Pinewood Shepperton plc Annual Report & Accounts 2010 91Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedFair valuesSet out below is a comparison by category of book values and fair values of all the Group’s financial assets and liabilitiesas at 31 December:Book valueFair value2010£0002009£0002010£0002009£000Financial assets:Cash 495 – 495 –Trade and other receivables 5,355 2,424 5,355 2,424Financial assets 5,850 2,424 5,850 2,424Financial liabilities:Bank overdraft – 944 – 944Interest-bearing loans and borrowings– Floating rate borrowings 6,000 9,500 6,000 9,500– Floating rate borrowings converted to fixed rate 22,500 22,500 22,500 22,500– Asset financing 1,841 923 2,059 1,042– Share of joint venture loan 12,002 12,002 18,585 18,893Interest-bearing loans and borrowings 42,343 44,925 49,144 51,935Trade and other payables 15,387 8,548 15,387 8,548Financial liabilities 57,730 54,417 64,531 61,427Derivative financial instruments held to managethe interest rate profile:Cash flow hedge (£7.5m at 5.525% + variable margin) – – – –Cash flow hedge (£7.5m at 2.89% + variable margin) 257 42 257 42Cash flow hedge (£15.0m at 5.195% + variable margin) 1,367 1,245 1,367 1,245Interest rate swaps – fair value of liability 1,624 1,287 1,624 1,287The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchangedin a current transaction between willing parties, other than in a forced or liquidation sale.The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuationtechnique:• Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities.• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,either directly or indirectly.• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based onobservable market data.


92 Pinewood Shepperton plc Annual Report & Accounts 2010Notes to the consolidated financial statements continued26. Financial risk management, objectives and policies continuedFair values continuedAt 31 December 2010 the Group held interest rate swap contracts, an asset financing liability and a share of a jointventure loan. The fair value of these contracts is valued using a level 2 technique as it is determined by reference tomarket values for similar instruments. During the year ended 31 December 2010, there were no transfers between thedifferent fair value measurement levels.Capital managementThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthycapital ratios in order to support its business and maximise shareholder value.The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions.To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital toshareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended31 December 2010 and 31 December 2009.The Group monitors capital using a gearing ratio, which is net debt divided by total equity. The Group includes within netdebt, interest-bearing loans and borrowings (excluding the fair value of the cash flow hedge and loan costs), joint ventureloans and cash. This ratio is reviewed regularly by management with the appropriate measures (noted above) beingconsidered to maintain a capital structure to support the business.Non-current liabilities:Non-current drawn loan facilities 42,343 44,925Fair value of cash flow hedge 1,624 1,287Secured bank loan arrangement costs (777) (1,063)Interest-bearing loans and borrowings: 43,190 45,149Current liabilities:Bank overdraft – 944Current assets:Cash (495) –Net debt 42,695 46,093Total equity 75,060 72,550Gearing ratio 56.9% 63.5%2010£0002009£000Net debt excluding fair value and loan costs 41,848 45,869Gearing ratio 55.8% 63.2%


Pinewood Shepperton plc Annual Report & Accounts 2010 93Company UK GAAP financial statementsIndependent auditors’ reportto the members of Pinewood Shepperton plcWe have audited the parent Company financial statements of Pinewood Shepperton plc for the year ended 31 December2010 which comprise Statement of Financial Position and the related notes 1 to 15. The financial reporting frameworkthat has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United KingdomGenerally Accepted Accounting Practice).This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of theCompanies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members thosematters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as abody, for our audit work, for this report, or for the opinions we have formed.Respective responsibilities of Directors and auditorsAs explained more fully in the Directors’ responsibilities statement set out on page 22, the Directors are responsible forthe preparation of the parent Company financial statements and for being satisfied that they give a true and fair view.Our responsibility is to audit the parent Company financial statements in accordance with applicable law and InternationalStandards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s EthicalStandards for Auditors.Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to givereasonable assurance that the financial statements are free from material misstatement, whether caused by fraud orerror. This includes an assessment of: whether the accounting policies are appropriate to the parent company’scircumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accountingestimates made by the Directors; and the overall presentation of the financial statements.In our opinion the parent Company financial statements:• give a true and fair view of the state of the Company’s affairs as at 31 December 2010;• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and• have been prepared in accordance with the requirements of the Companies Act 2006.Opinion on other matters prescribed by the Companies Act 2006In our opinion the information given in the Directors’ report for the financial year for which the financial statements areprepared is consistent with the parent company financial statements.


94 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedMatters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to youif, in our opinion:• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have notbeen received from branches not visited by us; or• the parent Company financial statements are not in agreement with the accounting records and returns; or• certain disclosures of Directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.Other mattersWe have reported separately on the Group financial statements of Pinewood Shepperton plc for the year ended31 December 2010.Iain Wilkie (Senior Statutory Auditor)For and on behalf of Ernst & Young LLP, Statutory AuditorsLondon7 March 2011Notes:1. The maintenance and integrity of the Pinewood Shepperton plc web site is the responsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financialstatements since they were initially presented on the web site.2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Pinewood Shepperton plc Annual Report & Accounts 2010 95Company UK GAAP financial statements continuedCompany statement of financial positionat 31 December 2010NotesAs at31 December2010£000As at31 December2009£000Fixed assetsInvestments 6 32,705 32,705Long-term assets 8 94 –32,799 32,705Current assetsDebtors:Amounts falling due after one year 9 63,463 57,751Amounts falling due within one year 9 676 614Cash – 77764,139 59,142Creditors: amounts falling due within one year 10 (16,106) (7,362)Net current assets 48,033 51,780Total assets less current liabilities 80,832 84,485Creditors: amounts falling due after more than one year 11 (30,685) (33,015)50,147 51,470Capital and reservesCalled up share capital 12 4,623 4,610Share premium account 12 43,692 43,692Capital redemption reserve 12 135 135Merger reserve 12 348 348Fair value of cash flow hedge 13 (1,186) (927)Retained earnings 13 2,535 3,612Equity shareholders’ funds 13 50,147 51,470The financial statements were approved by the Board of Directors on 7 March 2011 and were signed on its behalf by:Patrick Garner FCAFinance Director


96 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statementsat 31 December 20101. Authorisation of financial statementsThe Company’s ordinary shares are traded on the London Stock Exchange. The financial statements of PinewoodShepperton plc for the year ended 31 December 2010 were authorised for issue by the Board of the Directors on7 March 2011 and the statement of financial position was signed on the Board’s behalf by the Finance Director.Pinewood Shepperton plc is a public limited company incorporated and domiciled in England and Wales.The registered office is located at Pinewood Studios, Pinewood Road, Iver Heath, Buckinghamshire SL0 0NH,United Kingdom. The Company’s ordinary shares are traded on the London Stock Exchange.2. Accounting policiesAccounting conventionThe financial statements are prepared under the historical cost convention and in accordance with applicable accountingstandards.Basis of preparationThe Company has taken advantage of the exemption available under Section 408 of the Companies Act 2006 not topresent its own profit and loss account. The Company accounts have been prepared in accordance with UK GenerallyAccepted Accounting Policies as they apply to the financial statements of the Company for the year ended31 December 2010 and applied in accordance with the Companies Act 2006.The Company has taken advantage of the exemption in paragraph 2D of FRS 29 ‘Financial Instruments: Disclosures’ andhas not disclosed information required by that standard, as the Group’s consolidated financial statements, in which theCompany is included, provide equivalent disclosures for the Group under IFRS 7 ‘Financial Instruments: Disclosures’.Going concernThe Group’s assessment of going concern is explained in the Directors’ report on page 21 of the Annual Report.Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and therevenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excludingdiscounts, rebates, VAT and other sales taxes or duty. The Company has assessed its revenue arrangements andhas concluded that it is acting as a principal in all of its revenue arrangements.Fixed asset investmentsInvestments in subsidiaries are stated initially at cost. The carrying values are reviewed for impairment if events orchanges in circumstances indicate the carrying values may not be recoverable.Loan issue costsLoans are initially recorded at their net proceeds. The loan issue costs are amortised in the profit and loss account overthe remaining maturity of the loans at a constant carrying amount and are reviewed for changes in circumstances thatmay indicate that the loans will not be held to maturity.Share issue costsCosts directly attributable to the raising of equity are offset against share premium arising on share issuance.Share-based payment transactionsEmployees (including Directors) of the Group may receive part of their remuneration in the form of share-based paymenttransactions, whereby employees render their services in exchange for shares or rights over shares (‘equity-settledtransactions’).The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at whichthey are granted. The fair value is determined by an external valuer using the binomial method. In valuing equity-settledtransactions, no account is taken of any performance conditions, other than the conditions linked to the price of theshares of Pinewood Shepperton plc (‘market conditions’).


Pinewood Shepperton plc Annual Report & Accounts 2010 97Company UK GAAP financial statements continuedNotes to the financial statements continued2. Accounting policies continuedShare-based payment transactions continuedThe cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period inwhich the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitledto the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting dateuntil the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in theopinion of the Directors of the Group at that date based on the best available estimate of the number of equityinstruments, will ultimately vest.No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upona market condition and in circumstances where holders of awards with no performance conditions attached cancel theirawards whilst remaining in the employment of the Group. These are treated as vesting irrespective of whether or notthe market condition is satisfied, provided that all other performance conditions are satisfied.Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms hadnot been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result ofthe modification.Where an equity-settled award is cancelled by the award holder whilst remaining in the employment of the Group, it istreated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognisedimmediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award onthe date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award,as described in the previous paragraph.Where an equity-settled award is cancelled due to the holder of the award no longer remaining in the employment of theGroup, no expense is recognised.The dilutive effect of outstanding issuable awards is reflected as additional share dilution in the computation of earningsper share. Awards that are contingently issuable are not considered dilutive unless the performance conditions forultimate vest are met.The financial effect of awards by the parent company of options over its equity shares to the employees of subsidiaryundertakings are recognised by the parent company in its individual financial statements. In particular the parentcompany records an increase in its investment in subsidiaries with a credit to equity equivalent to the FRS 20 cost inthe subsidiary undertakings.Financial assetsFinancial assets in the scope of FRS 26 are classified as financial assets at fair value through profit or loss, loans andreceivables, held-to-maturity investments, or as available-for-sale financial assets, as appropriate. The Companydetermines the classification of its financial assets at initial recognition and re-evaluates this designation at each financialyear-end. When financial assets are recognised initially, they are measured at fair value.All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Companycommits to purchase or sell the asset. Regular way transactions require delivery of assets within the timeframe generallyestablished by regulation or convention in the marketplace. The subsequent measurement of financial assets depends ontheir classification, as follows:Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in anactive market, do not qualify as trading assets and have not been designated as either fair value through profit and lossor available-for-sale. Such assets are carried at amortised cost using the effective interest method if the time value of


98 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statements continued2. Accounting policies continuedLoans and receivables continuedmoney is significant. Gains and losses are recognised in profit when the loans and receivables are derecognisedor impaired, as well as through the amortisation process.If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has beenincurred, the carrying amount of the asset is reduced, with the amount of the loss recognised in administration costs.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carryingvalue of the asset does not exceed its amortised cost at the reversal date.Derivative financial instrumentsThe Company has interest rate swaps to hedge against risks associated with interest rate fluctuations. These derivativefinancial instruments are stated at fair value.The fair values of the interest rate swap contracts are determined by reference to market values for similar instruments.The interest rate swaps are cash flow hedges which hedge exposure to variability in cash flows that are attributable to theinterest rate risk on the Company’s external borrowings.The portion of the gain or loss on the hedging instruments that is determined to be an effective hedge is recogniseddirectly in other comprehensive income and the statement of changes in equity in a cash flow hedge reserve and theineffective portion is recognised in the income statement in finance costs. Amounts taken to other comprehensive incomeand the statement of changes in equity are transferred to the income statement when the hedged transaction affectsincome.Hedge accounting is discontinued when the hedging instruments expire, or are sold, terminated or exercised, or no longerqualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instruments recognisedin other comprehensive income and the statement of changes in equity is kept in other comprehensive income and thestatement of changes in equity until the forecasted transactions occur. If a hedged transaction is no longer expected tooccur, the net cumulative gain or loss recognised in other comprehensive income and the statement of changes in equityis transferred to the income statement for that year.PensionsThe Company operates defined contribution schemes. Contributions are charged to the profit and loss account as theybecome payable in accordance with the rules of the schemes.Corporation taxesCurrent tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxationauthorities, based on tax rates and laws that are enacted or substantively enacted by the statement of financial positiondate.Deferred tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and theircarrying amounts in the financial statements, with the following exception:• deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that therewill be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in whichtiming differences reverse, based on tax rates and laws enacted or substantively enacted at the statement of financialposition dates.


Pinewood Shepperton plc Annual Report & Accounts 2010 99Company UK GAAP financial statements continuedNotes to the financial statements continued3. Auditors’ remunerationAudit of the financial statements 5 5Other fees to auditors:– taxation services 5 54. Directors’ remunerationBasic salaryand fees2010£Benefitsin kind2010£Annualbonus2010£Pensioncontributions2010£2010£000Totalremuneration2010£2009£000Totalremuneration2009£ChairmanMichael Grade 102,500 n/a n/a n/a 102,500 102,500Executive DirectorsIvan Dunleavy 290,000 22,786 90,800 36,240 439,826 351,677Patrick Garner 200,000 18,395 63,500 25,000 306,895 242,602Nicholas Smith 170,000 14,642 63,500 21,250 269,392 204,005Non-Executive DirectorsAdrian Burn 41,000 n/a n/a n/a 41,000 41,000Nigel Hall 41,000 n/a n/a n/a 41,000 41,000James Donald 38,500 n/a n/a n/a 38,500 38,500Steven Underwood nil nil nil nil nil nilNone of the above Directors received reimbursement for expenses during the year requiring separate disclosure asrequired by the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008.


100 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statements continued5. Taxation(a) Analysis of charge for the year:Year ended31 December2010£000Year ended31 December2009£000Current tax:UK corporation tax – –Prior year adjustments – –Total current corporation tax – –Deferred tax:Origination and reversal of timing differences (52) –Total tax charge (52) –Tax relating to items charged or credited to equityDeferred tax:Deferred tax (credit)/charge reported in equity on cash flow hedges (78) 24Deferred tax credit reported in equity on share-based payments (24) –Tax (credit)/charge in the statement of changes in equity (102) 24(b) Factors affecting current tax charge for the year:Accounting profit before corporation tax 455 1,359Profit on ordinary activities multiplied by UK rate of 28% (2008: 28.5%) 127 381Non-deductible expenses 7 56Non-taxable amounts 64 (156)Group relief claimed (250) (281)Corporation tax expense reported in the income statement (52) –2010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 101Company UK GAAP financial statements continuedNotes to the financial statements continued6. InvestmentsCost:At 31 December 2009 and 31 December 2010 32,705Details of the investments in which the Group and the Company (unless indicated) holds 20% or more of the nominalvalue of any class of share capital or Joint Venture interests are as follows:£000Name of companyHoldingProportion of votingrights or shares heldNature of businessSubsidiary undertakingsPinewood Studios Limited* Ordinary shares 100% Media Service ProviderShepperton Studios Limited* Ordinary shares 100% Media Service ProviderPinewood-Shepperton Studios Limited Ordinary shares 100% Media Service ProviderPinewood Malaysia Limited * Ordinary shares 100% Media Service ProviderPinewood Germany Limited* Ordinary shares 100% Media Service ProviderStudiolink Limited Ordinary shares 100% Media Service ProviderTeddington Studios Limited Ordinary shares 100% Media Service ProviderThe Studio Broadcasting Company Limited** Ordinary shares 100% Media Service ProviderBaltray No.1 Limited* Ordinary shares 100% Limited PartnerBaltray No.2 Limited* Ordinary shares 100% Formerly General PartnerShepperton Management Limited* Ordinary shares 100% Asset ManagerSauls Farm and Stables Limited Ordinary shares 100% Asset ManagerSauls Farm Limited Ordinary shares 100% Asset ManagerPinewood Dominican Republic Limited* Ordinary shares 100% Asset ManagerPinewood USA Inc* Ordinary shares 100% Media Service ProviderPinewood Film Production Studios Canada Inc* Ordinary shares 100% Media Service ProviderShepperton Studios Property Partnership* Ordinary shares 50% LessorShepperton Studios (General Partner) Limited* Ordinary shares 50% General Partner*Held by Pinewood-Shepperton Studios Limited**Held by Teddington Studios LimitedThe Company accounts for its investments in subsidiaries using the cost model.


102 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statements continued7. DividendsFinal dividend for 2008 paid at 2.30p per share – 1,057Interim dividend for 2009 paid at 1.05p per share – 484Final dividend for 2009 paid at 2.40p per share 1,110 –Interim dividend for 2010 paid at 1.10p per share 509 –1,619 1,541The Board is recommending a final dividend of 2.50p per ordinary share for approval at the Annual General Meeting and,based on the shares in issue at the date the Board approved the Company financial statements, this would amount to atotal dividend payment of £1,155,800. This has not been recognised as a liability at 31 December 2010.8. Long-term assetToronto sales and marketing agreement transaction costs 94 –The Group signed a 10 year sales and marketing agreement with Pinewood Toronto Studios on 26 May 2009.Transaction costs of £94,000 in relation to this agreement have been recognised as a long-term asset and are beingamortised over the term of the agreement.9. DebtorsDue from subsidiary undertakings 63,463 57,751Deferred tax 154 –Prepayments and accrued income 522 61464,139 58,3652010£0002010£0002010£0002009£0002009£0002009£00020102009Amounts falling due after more than one year included above are:£000£000Due from subsidiary undertakings 63,463 57,751The above amounts due from subsidiary undertakings are due after one year.10. Creditors: amounts falling due within one yearAmounts due to subsidiary undertakings 9,446 6,814Other creditors 883 416Asset financing 503 132Bank overdraft 5,274 –16,106 7,3622010£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 103Company UK GAAP financial statements continuedNotes to the financial statements continued11. Creditors: amounts falling due after more than one year2010 2009Revolving credit facility 6,000 6,000Pre-let development facility 22,500 26,000Secured bank loan arrangement costs (777) (1,063)Asset financing 1,338 791Fair value of cash flow hedge 1,624 1,287Amounts falling due:30,685 33,015– in more than one year but not more than two years 503 132– in more than two years but not more than five years 30,182 32,883Banking facilitiesThe Group has agreements with a syndicate of banks, which provides facilities as follows:30,685 33,015OverdraftA £5,000,000 (2009: £5,000,000) overdraft facility to support the future operating activities of the business, secured bya floating charge over the Group’s assets. This facility is in place until August 2013 and is subject to annual review withinterest charged at 225 basis points over bank base rate.Revolving credit facilityA revolving credit facility of up to £35,000,000 to support the operating activities of the business, secured by a floatingcharge over the Group’s assets. Interest is charged at LIBOR plus a variable margin of between 175 and 275 basis pointsbased on specific covenant levels. This facility is in place until August 2013.Pre-let development facilityA pre-let development facility of up to £30,000,000 to support the pre-let Media Park development strategy. Interest ischarged at LIBOR plus a variable margin of between 175 and 225 basis points based on the status of the pre-letdevelopment. This facility is in place until August 2013.Long-term loan facilities become repayable on demand following a change in control of the Group.The overdraft, revolving credit facility and pre-let development facility are secured by a floating charge over the assetsof the Group.CovenantsThe banking agreements contain a range of covenants appropriate for the revolving credit facility, pre-let developmentfacility and overdraft facility. The Group was covenant compliant at 31 December 2009.Cash flow hedgeAt 31 December 2010, the Group held interest rate swaps designated as hedges against drawn debt obligationsamounting to £22,500,000 (2009: £22,500,000).Asset financing facilityThe asset financing facility is a £1,841,000 (2009: £923,000) chattel mortgage facility over a fixed term with fixedmonthly payments and is secured over identifiable assets of an equal value. These assets are classified as ‘Fixtures,fittings and equipment’ within ‘Property, plant and equipment’ on the statement of financial position.


104 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statements continued11. Creditors: amounts falling due after more than one year continuedCash flow hedgeThe Company borrows in sterling at floating rate and uses interest rate swap agreements to manage the exposure tointerest rate fluctuations. The interest rate swap is monitored to ensure its continued effectiveness. The fair value ofthe interest rate swap contracts are determined by reference to market values for similar instruments.At 31 December, the Group had the following interest rate swaps in place to minimise the volatility in cash flows froma change in LIBOR:Effective interest rate% MaturityCash flow hedge 2.89% + variable margin 1 July 2013 7,500 7,500Cash flow hedge 5.195% + variable margin 1 July 2013 15,000 15,00022,500 22,500The interest rate swaps held are determined to be effective hedges and the interest swap finance costs are charged tothe income statement when they are payable. These are payable on a quarterly basis in March, June, September andDecember.12. Share capitalAuthorisedOrdinary shares of 10p each 7,000 7,0007,000 7,000Issued, called up and fully paid2010 2009No. £000 No. £000Ordinary shares of 10p each 46,104,906 4,610 45,944,791 4,594Shares issued under the Pinewood Shepperton plcSharesave scheme:10p ordinary shares issued on 14 September 2009 – – 101,990 1010p ordinary shares issued on 30 October 2009 – – 58,125 610p ordinary shares issued on 31 March 2010 127,100 13 – –46,232,006 4,623 46,104,906 4,610The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one voteper share at the general meetings of the Company.2010£0002010£0002009£0002009£000


Pinewood Shepperton plc Annual Report & Accounts 2010 105Company UK GAAP financial statements continuedNotes to the financial statements continued12. Share capital continuedCompany Sharesave Scheme (“SAYE”)The Group has an SAYE under which options to subscribe for the Group’s shares have been granted to employees wishingto participate in the scheme. Options have been granted at a discount of 20% to the market value on the date of grant.The contractual lives of options are three and a half and five and a half years. The options are equity-settled and there areno cash settlement alternatives.The following table illustrates the number (“No.”) and weighted average exercise prices (“WAEP”) of, and movements in,SAYE options during the year.2010No.2010WAEPOutstanding at the beginning of the year 356,679 120.0p 223,918 200.7pGranted during the year 73,238 108.4p 276,024 96.4pLapsed during the year (26,293) 195.8p – –Cancelled during the year (50,543) 115.5p – –Forfeited during the year (183) 208.8p (143,263) 178.4pOutstanding at the end of the year 352,898 112.6p 356,679 120.0pThe weighted average remaining contractual life for the SAYE options outstanding as at 31 December 2010 is 2.23 years(2009: 2.94 years).The weighted average fair value of the options granted during the year was 47.6p (2009: 56.0p).The range of exercise prices for options outstanding at the end of the year was 96.4p – 208.8p (2009: 96.4p –208.8p).The fair value of equity-settled options granted is estimated as at the date of grant using a binomial model taking intoaccount the terms and conditions upon which the options were granted.Company Long-Term Incentive Plan (“LTIP”)The Group has an LTIP under which Executive Directors and senior managers may be granted annual equity awards up toa maximum value of 250%, and 100% respectively, of basic salary. Please see the Director’s report on pages 18 to 22 foradditional information. Awards issued will vest subject to performance criteria, being based 50% on Total ShareholderReturn and 50% on annual average Return on capital employed and minimum performance criteria. The contractual lifeof each award is ten years. The awards are equity-settled and there are no cash settlement alternatives.The following table illustrates the number (“No.”), and movements in, LTIP awards during the year.Outstanding at the beginning of the year 1,299,461 1,902,651Forfeited during the year (662,641) (443,075)Exercised during the year – (160,115)Granted during the year 1,245,628 –Outstanding at the end of the year 1,882,448 1,299,461The weighted average remaining contractual life for the LTIP awards outstanding as at 31 December 2010 is 8.59 years(2009: 7.85 years). The weighted average fair value of the awards granted during the year was 110.0p (200p: nil).2009No.2010No.2009WAEP2009No.


106 Pinewood Shepperton plc Annual Report & Accounts 2010Company UK GAAP financial statements continuedNotes to the financial statements continued12. Share capital continuedThe fair value of equity-settled options and grants are estimated as at the date of grant using binomial and Monte Carlomodels taking into account the terms and conditions upon which the options or grants were awarded. The following tablelists the inputs to the model used for the years ended 31 December 2010 and 31 December 2009.SAYE2010SchemeLTIP2010SchemeSAYE2009SchemeLTIP2008SchemeLTIP2007SchemeSAYE2007SchemeSAYE2006SchemeDividend yield (%) 2.40 2.29 2.35 1.50 1.15 1.08 1.10Expected volatility (%) 34.60 33.00 38.25 31.71 32.00 33.00 31.00Risk-free interest rate (%) 1.84 1.83 2.22 4.65 5.45 4.97 4.80Expected life (years) 3.95 3.00 4.05 3.00 3.00 3.79 4.10Weighted average share price 142.5p 150.6p 142.5p 240.0p 229.0p 208.8p 204.5pThe expected life of the options and awards is based on the Group’s best estimate and is not necessarily indicative ofexercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicativeof future trends, which may also not necessarily be the actual outcome.13. Reconciliation of shareholders’ funds and movements on reservesSharecapital£000Sharepremium£000Capitalredemptionreserve£000Mergerreserve£000Fair value ofcash flowhedge reserve£000Retainedearnings£000At 1 January 2009 4,594 43,692 135 348 (988) 3,882 51,663Profit for the year – – – – – 1,356 1,356Dividend paid (Note 7) – – – – – (1,541) (1,541)New shares issued 16 – – – – – 16Fair value of cash flow hedges – – – – 61 – 61Share-based payment – – – – – (85) (85)At 31 December 2009 4,610 43,692 135 348 (927) 3,612 51,470Profit for the year – – – – – 455 455Dividend paid (Note 7) – – – – – (1,619) (1,619)New shares issued 13 – – – – (13) –Fair value of cash flow hedges – – – – (259) – (259)Share-based payment – – – – – (14) (14)Share options awarded toemployees of subsidiaries – – – – – 114 114At 31 December 2010 4,623 43,692 135 348 (1,186) 2,535 50,147Totalequity£000


Pinewood Shepperton plc Annual Report & Accounts 2010 107Company UK GAAP financial statements continuedNotes to the financial statements continued14. Own sharesIncluded within the cash capital account are the costs of Pinewood Shepperton plc shares purchased in the market andheld by the Employee Benefit Trust to satisfy future exercise of awards under the Company share option scheme. As at31 December 2010 the Company held 127,100 (2009: nil) of its own shares at an average cost of 10p per share.The market value of these shares at 31 December 2010 was £187,473 (2009: nil).15. Related party disclosuresThe Company has taken the exemption available to it under FRS 8: Related party disclosures not to disclose itstransactions with related parties as the disclosures are included in the financial statements of the consolidated Group.


108 Pinewood Shepperton plc Annual Report & Accounts 2010Company informationCompany SecretaryA M SmithHead Office, Registered officeand Directors’ addressPinewood Shepperton plcPinewood RoadIver HeathBuckinghamshire SL0 0NHCompany registration number3889552Investor relations websiteavailable at www.pinewoodshepperton.comCorporate BrokerJ.P. Morgan Cazenove Limited20 MoorgateLondon EC2R 6DALegal Advisers to the CompanyTravers Smith LLP10 Snow HillLondon EC1A 2ALAuditorsErnst & Young LLP1 More London PlaceLondon SE1 2AFRegistrars and Receiving AgentsEquiniti LimitedApsect HouseSpencer RoadLancingWest Sussex BN99 6DAPrincipal BankersThe Royal Bank of Scotland plc135 BishopsgateLondon EC2M 3URLloyds TSB Bank plc25 Gresham StreetLondon EC2V 7HNAllied Irish Banks, p.l.c.St Helen’s1 UndershaftLondon EC3A 8ABAnnual General MeetingThe notice convening the Annual General Meeting of the Company, to be held at J.P. Morgan Cazenove Limited,20 Moorgate, London EC2R 6DA, at 10.30 am on 31 May 2011, together with an explanation of the resolutions tobe proposed at the meeting, is contained in a circular to shareholders enclosed with this Annual Report.


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Pinewood Shepperton plcPinewood RoadIver HeathBuckinghamshireSL0 0NHUnited KingdomRegistered number: 3889552tel: +44 (0) 1753 651700fax: +44 (0) 1753 656936www.pinewoodshepperton.com

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