Registered number:
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
COMPANY INFORMATION
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ARROW FILM DISTRIBUTORS LIMITED
CONTENTS
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ARROW FILM DISTRIBUTORS LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2020
Arrow Films is an entertainment company, focused on the licensing of popular media content for distribution through mulitple platforms such as theatrical, home entertainment, digital and television. The company strives to provide the best possible quality product to its markets through its selective acquisition process but also through its own product enhancement to distribute to its main market in the UK and other territories in line with licensing.
The very nature of the business and the changing practices of the market place creates a speculative model, particularly in the theatrical segment which presents a real financial risk given the high cost of entry. Arrow Films has developed a detailed appraisal process and model in order to mitigate against this risk where possible.
The business trades mainly through it’s core brands as follows:
• Arrow Video • Arrow Academy • Arrow Films • Arrow TV (with sub- brand: Nordic Noir) Arrow Films invests in licensed content in order to distribute via the brands where the content itself may be classified into distinct areas: New Release: product that is new to market and may be suited to a theatrical release. This could be both feature film or television series and may include overseas product in foreign language content that will require additional investment to bring to our home markets. Catalogue: product that is not new to market but might be newly available in the market. Arrow is a world leader in restoring, packaging and distributing cult and genre films through exclusive packaging, new value added content and world class customer engagement. The business distributes content through a variety of channels including traditional bricks & mortar retail, online retailers and digital & television broadcasters as well as theatrical venues. Arrow also trades through its own online retail store which underwent significant investment during the financial year.
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ARROW FILM DISTRIBUTORS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
Arrow is exposed to longevity in the cycle between acquisition and distribution, especially on the lengthy produced catalogue product. This increases the working capital requirement.
A certain amount of credit risk exists in Arrow’s key markets, particularly on the physical distribution of product to its smaller customers. This risk is mitigated by having a large share of custom with larger blue chip retailers such as Amazon and an increasing share of business going through its own website. The shift towards digital distribution in the market has long been identified by management and continues to be addressed by investing in staff with relevant expertise and systems in this area. The theatrical sector has a high-risk factor given the high costs of entry and also relative volatility in the sector and as such, management are focussing on this part of the business in terms of a strategic review. As the physical distribution (Home Entertainment) market segment continues to consolidate, the business sees itself in a good position to offer its services and expertise to other 3rd party distributors and licensors in the UK. The business has considered any potential impact of the UK leaving the EU. As it currently stands, there is the possibility for some delay in movement of goods within the EU, the main consideration being the purchase of newly manufactured stocks being produced in mainland Europe on behalf of the company. Provision is being made to mitigate any potential delay in this regard by forward planning. Any exchange rate risk regarding Brexit has already been factored into the company’s operating costs.
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ARROW FILM DISTRIBUTORS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
Turnover increased by 32% on the year, the company benefiting from increased sales penetration into its catalogue titles. With the UK going into lockdown at the end of the first quarter, there was some initial negative impact on the retail and wholesale part of the Home Entertainment, particularly that relating to high street outlets. Following an initial adjustment, the business increased its revenue across all platforms and most of its customer base from key new release titles and a degree of success on its own eCommerce promotional activities as well as partnered promotions with key customers.
The company launched its own B2C channels using the Vimeo platform towards the end of the financial year. This will benefit its subscription based streaming revenue in both the UK and USA territories and has long been part of the company’s strategy and works in tandem with its continuing channel operations on established 3rd party global platforms. Gross profit improved to 53% (2019: 38%) significantly as a direct result of the company selling greater volumes of its catalogue business and also taking advantage of major new release titles from the final quarter of the previous year, this financial year benefiting from lower minimum guarantee costs accordingly. The company has successfully implemented the transfer and has been distributing via a new supplier since early January 2020. Management are satisfied with the financial performance of the business and feel the reported profit reflects this. Going Concern Due to the Covid-19 pandemic business was interrupted from March 2020. As at the date of approval of these financial statements, the impact of Covid-19 on the company's trading continues to be assessed and is subject to rapidly changing external factors, including Government responses to controlling the spread of the virus towards future business. The Company has a net current assets position of £5.7 million and net assets of £5.9 million as at 31 December 2020 generating a profit of £2.3 million. The directors have considered the impact, risk and uncertainty that surrounds Covid-19 in so far as the business’s operations and of its principal markets. A decision was taken early on to close its offices and to widen the ability of remote working for all staff, a situation which is being monitored regularly. The impact on customers has also been felt in the short term, measures have already been taken to limit the potential business risk whilst continuing to support the market where possible, in order that consumer reach is maintained. A major focus was also given to the supply chain in the UK given the direct impact and delay to physical distribution. The longer-term impact of Covid-19 is unknown but management remain vigilant and ensure that the business is fully compliant with all recommended guidelines provided by the authorities. Where necessary, the directors have taken steps to reduce outgoings by controlling overhead expenses, utilising the Government Job Retention Scheme to furlough staff and obtaining additional grants where appropriate. Based on the strength of the balance sheet the directors are confident that the company, will have sufficient funds and cash reserves to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis. On the 5 of March 2021 Arrow Film Distributors Limited was acquired by The Hut.com Limited. The company is now a wholly owned trading subsidiary for the on-demand division of THG PLC. Future Developments The company are looking to launch a US D2C platform in the new financial year. Also, a significant investment
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ARROW FILM DISTRIBUTORS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
into its D2C channels platform (Arrow Player)
This report was approved by the board
and signed on its behalf.
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ARROW FILM DISTRIBUTORS LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2020
The Directors present their report and the financial statements for the year ended 31 December 2020.
The profit for the year, after taxation, amounted to £
2,261,732
(2019 -
£
468,924
)
. Dividends paid in the year £126,800 (2019 - £478,000)
Directors' liabilities The Company has provided an indemnity for its directors, which is a qualifying third party indemnity provision for the purposes of s.234 of the Companies Act 2006. An indemnity is in place in relation to the financial year and up to the date of approval of the financial statements.
The Director who served during the year and thereafter were:
Mr N N Agran (resigned 4 March 2021) Mrs A M Agran (resigned 4 March 2021) Mr A M Agran (resigned 4 March 2021) Mr J A Gallemore (appointed 4 March 2021)
Mr J P Pochin (appointed 4 March 2021)
The Company's operations involve exposure to credit risk, liquidity risk and currency risk. The Board's policies
for managing these financial risks are implemented by the Chief Financial Officer. Credit risk The Company monitors and reviews exposure to credit risk on an ongoing basis and makes best efforts to ensure recoverability of amounts owed to the Company. Liquidity risk The Company regularly forecasts cash flow and maintains an appropriate balance of cash and debt facilities to ensure that sufficient funds are available to cover future expenses and capital expenditure.
Future developments for the company are included within the Strategic report.
Refer to note 27 for further details on post balance sheet events.
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ARROW FILM DISTRIBUTORS LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
The auditor, Elman Wall Limited, will be proposed for reappointment in accordance with
section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
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ARROW FILM DISTRIBUTORS LIMITED
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2020
The Directors are responsible for preparing the Strategic Report, the Directors' Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year
. Under that law the Directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
∙
select suitable accounting policies for the Company's financial statements and then apply them consistently;
∙
make judgments and accounting estimates that are reasonable and prudent;
∙
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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ARROW FILM DISTRIBUTORS LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW FILM DISTRIBUTORS LIMITED
We have audited the financial statements of Arrow Film Distributors Limited (the 'Company') for the year ended 31 December 2020, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows, the Statement of Changes in Equity
and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards,
including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements
concerning the company's ability to continue as a going concern. The financial statements do not include any adjustments that would result from a failure to continue as a going concern.
In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
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ARROW FILM DISTRIBUTORS LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW FILM DISTRIBUTORS LIMITED (CONTINUED)
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our Auditors' Report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In our opinion, based on the work undertaken in the course of the audit:
∙
the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙
the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors' Report.
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ARROW FILM DISTRIBUTORS LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW FILM DISTRIBUTORS LIMITED (CONTINUED)
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
• Enquiry of management and those charged with governance around actual and potential litigation and claims; • Enquiry of management and those charged with governance to identify any instances of non-compliance with laws and regulations; • Reviewing minutes of meetings of those charged with governance; • Performing audit work over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for bias. Owing to the inherent limitations of an audit there is unavoidable risk that we may not have detected some material misstatements in the financial statements even though we have properly planned and performed our audit in accordance with auditing standards. In addition as with any audit there remained a higher risk of non-detection of irregularities as these may involve collusion, forgery, intentional omissions, misrepresentation or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
. This description forms part of our Auditors' Report.
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ARROW FILM DISTRIBUTORS LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ARROW FILM DISTRIBUTORS LIMITED (CONTINUED)
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditors' Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
for and on behalf of
Statutory Auditor
Chartered Accountants
8th Floor
Becket House
36 Old Jewry
EC2R 8DD
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ARROW FILM DISTRIBUTORS LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
REGISTERED NUMBER:
02584648
STATEMENT OF FINANCIAL POSITION
AS AT
31 DECEMBER 2020
The financial statements were approved and authorised for issue by the board and were signed on its behalf by
:
The notes on pages 17 to 31 form part of these financial statements.
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STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
Arrow Film Distributors Limited is a private company limited by shares incorporated in England. The address of the registered office is given in the company information page of these financial statements. The nature of the company's operations and principal activities recorded in the Strategic Report and page 1 of the directors' report.
2.
Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in
the UK and the Republic of Ireland and the Companies Act 2006
.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies (see note 3).
The company’s functional and presentational currency is GBP.
Due to the Covid-19 pandemic business was interrupted from March 2020. As at the date of approval of these financial statements, the impact of Covid-19 on the company's trading continues to be assessed and is subject to rapidly changing external factors, including Government responses to controlling the spread of the virus towards future business. The Company has a net current assets position of £5.7 million and net assets of £5.9 million as at 31 December 2020 generating a profit of £2.3 million.
Where necessary, the directors have taken steps to reduce outgoings by controlling overhead expenses, utilising the Government Job Retention Scheme to furlough staff and obtaining additional grants where appropriate. Based on the strength of the balance sheet the directors are confident that the company, will have sufficient funds and cash reserves to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis. On the 5 of March 2021 Arrow Film Distributors Limited was acquired by The Hut.com Limited. The company is now a wholly owned trading subsidiary for the on-demand division of THG PLC.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
2.
Accounting policies (continued)
Revenue consists of sale of films and media related services and goods. It is recognised to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes.
Revenue is generated from the licensing, marketing and distribution and restoring of feature films and television. The folowing summarises the company's revenue recognition policies: Revenue is recognised when there is reasonable contractual certainty that the revenue is receivable and will be received. Revenue from the sale of home entertainment physical DVD and Blu-ray goods are recognised at the point at which the goods are despatched. A provision is made for returns based on historical trends. Revenue from television licensing represents the contractual value of license fee which is recognised when the licence term has commenced, the production is available for delivery and collection of the fee is reasonably assured. Revenue from the exploitation of television and film rights is recognised based upon the completion of contractual obligation relevant to individual agreement. Revenue from digital sales is recognised on customer download activity.
Minimum guarantee prepayments consist of amounts paid by the company in advance of royalties due on film and television titles.
Grants of a revenue nature are recognised in the Statement of Comprehensive Income in the same period as the related expenditure
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
2.
Accounting policies (continued)
Loyalty points are accrued according to the value of customer expenditure at the point of sale, with accrued amount equal to the estimated fair value of the points issued recognised when the original transaction occurs. On redemption, the cost of the redemption is offset against the accrued balance.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
2.
Accounting policies (continued)
All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.
The estimated useful lives range as follows:
The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
Stock represents all costs directly incurred in the production of physical stock of DVDs.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
2.
Accounting policies (continued)
Provisions are charged as an expense to profit or loss in the year that the Company becomes aware of the obligation, and are measured at the best estimate at the Statement of Financial Position date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties. When payments are eventually made, they are charged to the provision carried in the Statement of Financial Position.
Equity instruments issued by the Company are recorded at the fair value of cash or other resources received or receivable, net of direct issue costs.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of revision and future periods where the revision affects both current and future periods. Critical judgements Loyalty provision In formulating a provision for the estimated value of earnt discounts that will subsequently be redeemed, management makes judgements that are based on historic redemption data. Stock provision Management review stock on a regular occurrence, based on this a provision is formulated to account for out of license and obsolete items
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
11.
Taxation (continued)
The standard rate of Corporation Tax in the UK is 19%. The effective tax rate may differ mainly due to non-qualifying depreciation, disallowable acquisition costs, non-deductible share based payment costs, other non-deductible items in the UK, prior year adjustments and overseas tax rates.
All deferred tax balances as at 31 December 2020 have been calculated at 19% (2019: 17%), being the enacted rate applicable at this date.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
22.
Deferred taxation (continued)
Profit and loss account
The company operates a defined contributions pension scheme. The assets of the scheme are held
separately from those of the company in an independently administered fund.The pension cost charge represents contributions payable by the company to the fund and amounted to £33,833 (2019: £39,644). Contributions totalling £15,069 (2019: £nil) were payable to the fund at the balance sheet date.
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ARROW FILM DISTRIBUTORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
The immediate parent company is The Hut.com Limited. The ultimate parent company and controlling party is THG PLC. The registered address of these entities is 5th Floor Voyager House, Chicago Avenue, Manchester Airport, Manchester, England, M90 3DQ.
Previous to the acquisition and at the reporting date there is no controlling party as a result of the equal shareholdings by the directors that served in the year.
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