Cineplex Inc. Reports Annual Results
(firmenpresse) - TORONTO, ONTARIO -- (Marketwire) -- 02/09/12 -- Cineplex Inc. ("Cineplex") (TSX: CGX) today released its financial results for the fourth quarter and the full year of 2011.
"2011 was another strong year for Cineplex" said Ellis Jacob, President and CEO, Cineplex Entertainment. "New annual records were established for adjusted EBITDA, which increased 3.2% to $173.2 million, concession revenue per patron, which increased 3.3% to $4.41; and media revenues which, despite a challenging advertising environment, increased 11.1% to $91.2 million. Throughout 2011 we continued to enhance the quality of the circuit through renovations, new theatre openings and expanded premium offerings. We also continued to expand the SCENE loyalty program, make significant advancements in our interactive and media initiatives and deliver strong results in our six key businesses."
EBITDA, adjusted free cash flow and distributable cash are not measures recognized by generally accepted accounting principles ("GAAP") and do not have standardized meanings in accordance with such principles. Therefore, EBITDA, adjusted free cash flow and distributable cash may not be comparable to similar measures presented by other issuers. EBITDA is calculated by adding back to net income, income tax expense, amortization and interest expense net of interest income. Adjusted EBITDA is calculated by adjusting EBITDA for gains and losses on disposal of assets, the change in fair value of financial instruments and the share of loss of the Canadian Digital Cinema Partnership ("CDCP"). Adjusted free cash flow is a non-GAAP measure generally used by Canadian corporations, as an indicator of financial performance and it should not be seen as a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Distributable cash is a non-GAAP measure generally used in Canadian open- ended trusts, as an indicator of financial performance and it should not be seen as a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Management uses adjusted EBITDA, adjusted free cash flow and distributable cash to evaluate performance primarily because of the significant effect certain unusual or non-recurring charges and other items have on EBITDA from period to period. For a detailed reconciliation of net income to EBITDA and adjusted EBITDA and from cash used in operating activities to adjusted free cash flow and distributable cash, please refer to Cineplex's management's discussion and analysis filed on .
KEY DEVELOPMENTS IN 2011
The following describes certain key business initiatives undertaken during 2011 in each of Cineplex's core business areas:
THEATRE EXHIBITION
MERCHANDISING
MEDIA
ALTERNATIVE PROGRAMMING
INTERACTIVE MEDIA
LOYALTY
CORPORATE
Adoption of International Financial Reporting Standards
Cineplex has commenced reporting under International Financial Reporting Standards ("IFRS") in 2011. Subject to certain transitional elections disclosed in the financial statements, Cineplex has consistently applied the same accounting policies under IFRS in its opening IFRS balance sheet at January 1, 2010 and throughout all periods presented, as if these accounting policies under IFRS had always been in effect.
Fourth Quarter and Full Year Results
Cineplex's results for the three and twelve months ended December 31, 2011 as compared to the Fund's results for the three and twelve months ended December 31, 2010 are presented below.
Total revenues
Total revenues for the three months ended December 31, 2011 increased $1.1 million (0.5%) to $241.7 million as compared to the prior year period. Total revenues for 2011 decreased $8.2 million (0.8%) to $998.2 million as compared to the prior year period. A discussion of the factors affecting the changes in box office, concession and other revenues for the periods is provided on the following pages.
Box office revenues
The following table highlights the movement in box office revenues, attendance and BPP for the quarter and the full year (in thousands of Canadian dollars, except attendance reported in thousands of patrons, and per patron amounts, unless otherwise noted):
Fourth Quarter
Box office revenues decreased $4.4 million, or 3.2%, to $133.7 million during the fourth quarter of 2011, compared to $138.1 million recorded in the same period in 2010. This decrease was primarily due to a 4.1% decrease in attendance, partially offset by a 0.9% increase in BPP. The fourth quarter of 2011 lacked a blockbuster with the wide demographic appeal of Harry Potter and the Deathly Hallows Part 1, which contributed to the decreased attendance period over period. Strong performing product in regions where Cineplex is under represented resulted in the Canadian industry sustaining less of a decrease in box office revenue in the fourth quarter of 2011 than Cineplex.
BPP increased $0.08, from $8.79 in the fourth quarter of 2010 to $8.87 in the same period in 2011 mainly due to premium-priced product (3D, UltraAVX and IMAX) accounting for 30.2% of box office revenues in the current quarter, up from 29.2% in the prior year period. The increase in the percentage of box office revenues from premium priced product was due to the impact of UltraAVX installations, as there were nine installations during the fourth quarter of 2010 (bringing the total to 11 UltraAVX screens at December 31, 2010) compared to 23 UltraAVX screens being in place for the entire fourth quarter of 2011.
Full year
Box office revenues for 2011 were $577.3 million, 3.4% lower than the prior year period. Cineplex's top grossing film during the year, Harry Potter and the Deathly Hallows Part 2 accounted for 4.4%, or $25.4 million of Cineplex's box office revenue, compared to 7.0%, or $42.0 million for Avatar in the prior year period. The tough comparator to Avatar during the first quarter was primarily responsible for the lower attendance and box office revenue in 2011 compared to 2010.
BPP for 2011 increased $0.07, from $8.67 in 2010 to $8.74 in 2011. This $8.74 BPP represents an annual record for Cineplex. The BPP increase was primarily due to the higher proportion of box office revenues from premium products during the year, which accounted for 29.4% of box office revenues, up from 29.0% in the prior year period. Select price increases introduced at the end of March 2010 and therefore not fully reflected in the prior year also contributed to the increase in the BPP amount.
Cineplex's investment in digital and 3D technology over the last three years has positioned it to take advantage of the price premiums offered on 3D product. This investment in 3D technology, as well as other premium-priced technology such as UltraAVX, contributed to Cineplex outperforming the Canadian industry during 2011.
Concession revenues
The following table highlights the movement in concession revenues, attendance and CPP for the quarter and the full year (in thousands of Canadian dollars, except attendance and same store attendance reported in thousands of patrons, and per patron amounts):
Fourth Quarter
Concession revenues decreased 0.2% as compared to the prior year quarter, due to the 4.1% decrease in attendance during the period, partially offset by the 4.1% increase in CPP. CPP increased from $4.34 in the fourth quarter of 2010 to $4.52 in the same period in 2011, and represents a quarterly record for Cineplex, exceeding the previous record of $4.44 recorded in the second quarter of 2011. Cineplex believes that revised concession offerings as well as process improvements designed to increase the speed of service contributed to this increased CPP period over the period.
While the 10% SCENE discount and SCENE points issued on concession combo purchases have a negative impact on CPP, Cineplex believes that this program drives incremental visits and concession purchases, resulting in higher overall concession revenues.
Full year
Concession revenues decreased 1.0% as compared to the prior year period, due to the 4.2% decrease in attendance, offset by the 3.3% increase in CPP. CPP increased from $4.27 in 2010 to $4.41 in 2011. This represents the highest annual CPP in Cineplex's history, $0.14 higher than the previous record established in 2010.
Other revenues
The following table highlights the movement in media, games and other revenues for the quarter and the full year (in thousands of Canadian dollars):
Other revenues increased 16.5% from $34.2 million in the fourth quarter of 2010 to $39.8 million in the same period in 2011. This increase was due to higher revenues in all categories. Media revenues for the fourth quarter of 2011 were $28.7 million, up $3.5 million, or 14.0%, when compared to the prior year period. The increase was primarily due to higher full motion and digital pre-show revenues ($2.2 million) and growth in CDM revenues ($1.6 million), offset by lower magazine and other media revenues ($0.3 million).
The games revenue increase is due to the acquisition of NWS in the second quarter of 2011 ($0.9 million) and therefore not included in the prior year comparative. The increase in Other is primarily due to higher breakage revenues associated with increased sales of gift cards and coupons.
Full year
Other revenues increased 13.5% from $113.9 million in 2010 to $129.2 million during 2011. Media revenues for 2011 were up $9.1 million, or 11.1%, from the prior year period. This increase was primarily due to higher CDM revenues ($5.9 million) as well as higher full motion and digital pre-show revenues ($3.9 million). These increases were offset by lower magazine and other revenues ($0.7 million). CDM includes the results of CDS which was acquired during the third quarter of 2010 and is therefore not fully reflected in the prior period comparative. The increase in games revenue was primarily due to the acquisition of NWS ($2.5 million) as well as the addition of the three new XSCAPE centres (SilverCity St. Vital which opened in December 2011, SilverCity Oakville which opened in March 2011, and SilverCity Cross Iron Mills which opened on June 30, 2010 and therefore not fully reflected in the prior year comparative). The increase in the Other category is primarily due to higher breakage revenues associated with increased sales of gift cards and coupons.
Film cost
The following table highlights the movement in film cost and film cost as a percentage of box office revenue ("film cost percentage") for the quarter and the full year (in thousands of Canadian dollars, except film cost percentage):
Fourth Quarter
Film cost varies primarily with box office revenue, and can vary from quarter to quarter based on the relative strength of the titles exhibited during the period. The decrease in the fourth quarter of 2011 compared to the prior year period was due to the decrease in box office revenue and the 0.4% decrease in film cost percentage.
Full year
The full year decrease in film cost was due to the 3.4% decrease in box office revenues and the 2.1% decrease in film cost percentage during the period. The decrease in the film cost percentage as compared to the prior year period is primarily due to the settlement rate on certain strong performing titles during the first half of 2010 being higher than the average settlement rate.
Cost of concessions
The following table highlights the movement in concession cost and concession cost as a percentage of concession revenues ("concession cost percentage") for the quarter and the full year (in thousands of Canadian dollars, except concession cost percentage and concession margin per patron):
Fourth Quarter
Cost of concessions varies primarily with theatre attendance as well as the quantity and mix of concession offerings sold. The nominal decrease in concession cost as compared to the prior year period was due to the 0.2% decrease in concession revenues. The concession cost percentage of 20.6% was in line with the prior year period. The concession margin per patron increased from $3.45 in the fourth quarter of 2010 to $3.59 in the same period in 2011, reflecting the impact of the higher CPP during the period.
Full year
The decrease in concession cost during the period was due to the 1.0% decrease in concession revenues and the 1.4% decrease in the concession cost percentage. Changes in Cineplex's reduced price Tuesday program resulted in a decrease in concession cost percentage, partially offset by the impact of the SCENE 10% discount which had a greater impact in 2011 compared to 2010 due to the increased membership in the SCENE program.
Depreciation and amortization
The following table highlights the movement in depreciation and amortization expenses during the quarter and full year (in thousands of Canadian dollars):
The fourth quarter decrease in amortization of property, equipment and leaseholds of $1.9 million primarily relates to the transfer of digital projection equipment to CDCP in June 2011 resulting in lower asset values to depreciate. In addition, certain valuation adjustments that arose as part of Cineplex's acquisition of the Partnership were fully amortized during the third quarter of 2010, contributing to the lower amortization in the 2011 period. Lower depreciation relating to 35 millimeter projectors due to the circuit's conversion to digital also contributed to the decrease in amortization of property, equipment and leaseholds.
The annual decrease of $12.1 million for the amortization of property equipment and leaseholds was due to the Fund recording an impairment charge of $3.9 million in amortization of property, equipment and leaseholds during the third quarter of 2010. Additionally, certain valuation adjustments that arose as part of Cineplex's acquisition of the Partnership were fully amortized during 2010 which contributed to the lower amortization in 2011. The $2.1 million decrease for intangible assets are primarily due to certain intangible assets becoming fully amortized during the second quarter of 2010.
Loss on disposal of assets
The following table shows the movement in the loss on disposal of assets during the quarter and the full year (in thousands of Canadian dollars):
Fourth Quarter
The loss on disposal of assets represents the loss recorded on certain assets that were sold or otherwise disposed. For the fourth quarter of 2011, Cineplex recorded a loss of $0.7 million on the disposal of assets, compared to $1.0 million in the prior year period.
Full year
For 2011, disposal of assets resulted in a loss of $0.7 million, comprised of losses recorded on assets that were sold or otherwise disposed, offset by a gain recorded on the sale of a theatre during the second quarter of 2011 ($1.4 million) and a nominal gain recorded on the transfer of digital projection assets to CDCP. For 2010, disposal of assets resulted in a loss of $2.4 million.
Other costs
Other costs include three main sub-categories of expenses, including theatre occupancy expenses, which capture the rent and associated occupancy costs for Cineplex's various operations; other operating expenses, which include the costs related to running Cineplex's theatres and ancillary businesses; and general and administrative expenses, which includes costs related to managing Cineplex's operations, including the head office expenses. Please see the discussions below for more details on these categories. The following table highlights the movement in other costs for the quarter and the full year (in thousands of Canadian dollars):
Theatre occupancy expenses
The following table highlights the movement in theatre occupancy expenses for the quarter and the full year (in thousands of Canadian dollars):
Fourth Quarter
Theatre occupancy expenses increased $0.1 million during the fourth quarter of 2011 compared to the prior year period. This increase was primarily due to higher real estate taxes partially offset by the impact of non-recurring items.
Full year
The increase in theatre occupancy expenses of $2.6 million for 2011 compared to the prior year was primarily due to the impact of new and acquired theatres net of the impact of disposed theatres ($2.1 million), as well as higher real estate taxes.
Other operating expenses
The following table highlights the movement in other operating expenses during the quarter and the full year (in thousands of Canadian dollars):
Fourth Quarter
Other operating expenses increased $2.5 million during the fourth quarter of 2011 as compared to the prior year period. Costs associated with NWS which was acquired in 2011 and therefore not included in the 2010 comparative ($0.9 million) and higher media costs ($0.7 million) due to the growth of CDM comprise the majority of the period over period variance. The $1.5 million increase in Other includes increased utility costs ($0.6 million), higher technology royalty costs ($0.2 million) and digital projector rental fees paid to CDCP ($0.2 million). Payroll costs were lower than the prior year due to lower theatre attendance, partially offset by the impact of minimum wage increases enacted throughout 2010. Total theatre payroll accounted for 41.4% of total other operating expenses in the fourth quarter of 2011, compared to 44.5% in the prior year period.
Full year
For 2011, other operating expenses are $10.4 million higher than the prior year, despite the lower theatre business volumes in the current year. The increase is due to the net increase in media costs arising from the record annual media revenues and the acquisition of CDS in July 2010 ($4.0 million). NWS also contributed to the cost increase as it was acquired in 2011 and not included in the prior year comparative ($2.2 million). Other increases are due to the net impact of new and disposed theatres ($3.4 million) and the $1.0 termination payment paid to a landlord in 2011 to refurbish theatre space for a disposed theatre. The Other category includes higher utility costs ($2.0 million). These increases were partially offset by lower same-store payroll of $1.4 million due to the lower business volumes. Total theatre payroll accounted for 43.7% of total other operating expenses in 2011, compared to 45.7% in the prior year period.
General and administrative expenses
The following table highlights the movement in general and administrative ("G&A") expenses during the quarter and the full year, including share and unit based compensation costs, and G&A net of these costs (in thousands of Canadian dollars):
Fourth Quarter
G&A expenses decreased $2.9 million during the fourth quarter of 2011 compared to the same period in the prior year. This decrease was due to a $1.5 million decrease in Cineplex's long-term incentive plan ("LTIP") expense and a $1.7 million decrease in option expense during the period. Option expense decreased period over period as the Share price decreased from $26.30 at September 30, 2011 to $25.72 at December 31, 2011 whereas the Unit price increased from $20.78 at September 30, 2010 to $22.41 at December 31, 2010.
Full year
G&A expenses for 2011 were $2.8 million lower than the prior year period. The $4.8 million decrease in the LTIP expense was the main reason for the variance, partially offset by the $1.5 million increase in the option plan expense during the year. The LTIP plan prior to 2011 had one-third of the award vest in the first year, with an additional one-third vesting on the second and third anniversaries of the award. The related expense is recognized using a graded vesting method, whereby a higher proportion of the expense is recognized over the first year of the award. Awards under the 2011 LTIP plan vest over three years with the entire payout occurring at the end of the three-year period, resulting in a lower proportion of vesting in the first and second years of the award resulting from a straight-line recognition of the overall expense. This difference in vesting has contributed to the lower cost in 2011 compared to the prior year period. The option expense increase is primarily due to higher option exercises during 2011 compared to 2010.
Share of loss of joint ventures
Cineplex's joint ventures in 2011 included its share of one theatre in Quebec, one IMAX screen in Ontario, its interest in SCENE LP and its interest in CDCP, which was formed in June 2011. The Fund's joint ventures in the fourth quarter of 2010 included its share of one theatre in Quebec, one IMAX screen in Ontario, and its interest in SCENE LP. During the full year of 2010, the Fund's joint ventures included its share of four theatres in Quebec, one IMAX screen in Ontario and its interest in SCENE LP. The following table highlights the movement in the share of loss of joint ventures during the quarter and the full year (in thousands of Canadian dollars):
Fourth Quarter
The loss recorded in the fourth quarter of 2011 is primarily related to activity in the SCENE loyalty program, partially offset by the income from the operations of CDCP.
Full year
The movement from a loss of $3.7 million in 2010 to a loss of $0.3 million in 2011 is primarily due to breakage revenue recognized by SCENE LP. Based on an analysis of point issuance and redemption activity during the first three years of the program, SCENE established a breakage rate and recognized revenue relating to breakage for the first time during the first quarter of 2011. This change in its accounting estimate for breakage resulted in a program-to-date adjustment to its outstanding points liability during the first quarter. Additionally, during the third quarter of 2011, SCENE points were expired for certain members due to inactivity in the program. This was the result of a change in the terms and conditions of the program communicated earlier in 2011 with the completion of the notice period occurring during the third quarter of 2011. The $1.7 million share of loss of CDCP is related to its start-up costs.
EBITDA and adjusted EBITDA
The following table represents EBITDA and adjusted EBITDA for the three months and full year ended December 31, 2011 as compared to the three months and full year ended December 31, 2010 (expressed in thousands of Canadian dollars, except adjusted EBITDA margin):
Adjusted EBITDA for the fourth quarter of 2011 increased $3.4 million, or 9.2%, as compared to the prior year period. This increase was primarily due to the higher media and other revenues recorded in the period, and the impact of the lower film cost percentage during the quarter. Adjusted EBITDA margin, calculated as adjusted EBITDA divided by total revenues, was 16.6%, up 1.3% from 15.3% in the prior year period.
Adjusted EBITDA for the full year ended December 31, 2011 increased $5.3 million, or 3.2%, as compared to the prior year. The increase is primarily due to the higher media and other revenues recorded in the period, as well as the impact of the lower film cost percentage and concession cost percentage in 2011 resulting in stronger margins. Adjusted EBITDA margin, calculated as adjusted EBITDA divided by total revenues, was 17.3%, up 0.6% from 16.7% in the prior year period.
Adjusted Free Cash Flow
For 2011, adjusted free cash flow per common share of Cineplex was $1.966 as compared to distributable cash per Fund unit of $2.245 in 2010. The declared dividends per common share of Cineplex were $1.280 in 2011 and the declared distributions per Fund unit were $1.260 in 2010. The payout ratios for these years were 65% and 56%, respectively. For the three months ended December 31, 2011, adjusted free cash flow per common share of Cineplex was $0.357 as compared to distributable cash per Fund unit of $0.467. The declared dividends per common share of Cineplex were $0.323 for the three months ended December 31, 2011 and the declared dividends per Fund unit were $0.315 for the three months ended December 31, 2010.
This news release contains "forward-looking statements" within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in our Annual Information Form and in this news release. Those risks and uncertainties include adverse factors generally encountered in the film exhibition industry such as poor film product and unauthorized copying; the risks associated with national and world events, including war, terrorism, international conflicts, natural disasters, extreme weather conditions, infectious diseases, changes in income tax legislation; and general economic conditions. Many of these risks and uncertainties can affect our actual results and could cause our actual results to differ materially from those expressed or implied in any forward-looking statement made by us or on our behalf. All forward-looking statements in this news release are qualified by these cautionary statements. These statements are made as of the date of this news release and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Cineplex Inc., Cineplex Galaxy Income Fund or Cineplex Entertainment Limited Partnership, their financial or operating results or their securities.
About Cineplex Inc.
Cineplex is the largest motion picture exhibitor in Canada and owns, leases or has a joint-venture interest in 130 theatres with 1,352 screens serving approximately 66 million guests annually. Headquartered in Toronto, Canada, Cineplex operates theatres from British Columbia to Quebec and is the exclusive provider of UltraAVX and the largest exhibitor of digital 3D and IMAX projection technologies in the country. Proudly Canadian and with a workforce of approximately 10,000 employees, the company operates the following top tier brands: Cineplex Odeon, Galaxy, Famous Players, Colossus, Coliseum, SilverCity, Cinema City and Scotiabank Theatres. Cineplex shares are traded on the Toronto Stock Exchange ("TSX") under the symbol "CGX". For more information, visit .
Further information can be found in the disclosure documents filed by Cineplex with the securities regulatory authorities, available at .
You are cordially invited to participate in a teleconference call with the management of Cineplex (TSX: CGX) to review our quarterly results. Ellis Jacob, President and Chief Executive Officer and Gord Nelson, Chief Financial Officer, will host the call. The teleconference call is scheduled for:
In order to participate in the conference call, please dial 416-644-3415 or outside of Toronto dial 1-877-974-0445 at least five to ten minutes prior to 10:00 a.m. Eastern Time. Please quote the conference ID 4507697 to access the call.
Contacts:
Cineplex Inc.
Gord Nelson
Chief Financial Officer
(416) 323-6602
Cineplex Inc.
Pat Marshall
Vice President Communications and Investor Relations
(416) 323-6648
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