Cineplex Inc. Reports Third Quarter Results
(firmenpresse) - TORONTO, ONTARIO -- (Marketwire) -- 11/08/12 -- Cineplex Inc. ("Cineplex") (TSX: CGX) today released its financial results for the third quarter of 2012.
Third Quarter Results
First Nine Months Results
"Total revenues for the third quarter increased 1.7% compared to a year ago and our merchandising and media businesses delivered strong results," said Ellis Jacob, President and CEO, Cineplex Entertainment. "New third quarter records were established for CPP of $4.68, up 5.6%, BPP of $8.84, up 0.8% and concession revenues of $85.9 million, an increase of 4.6% versus the same period last year. On a year-to-date basis, total revenues were up 4.8% and Adjusted EBITDA was up 7.4%."
"In other areas of our business, we completed the conversion of our circuit to digital projection and approximately 36% of our screens are 3D enabled. We completed the acquisition of four theatres (86 screens) from AMC and are in the process of implementing a number of our programs to improve the business results. Our SCENE loyalty program reached a new milestone surpassing 4 million members and continues to grow. The Cineplex mobile app has now been downloaded more than 4.1 million times and recorded approximately 85 million app sessions. We are pleased with the progress in our key initiatives and are encouraged by the industry box office results for October and the quality of the film product for the balance of the quarter."
EBITDA and adjusted free cash flow are not measures recognized by generally accepted accounting principles ("GAAP") and do not have standardized meanings in accordance with such principles. Therefore, EBITDA and adjusted free cash flow 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, gains on acquisition of businesses and the share of income or 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. Management uses adjusted EBITDA and adjusted free cash flow 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 provided by operating activities to adjusted free cash flow, please refer to Cineplex's management's discussion and analysis filed on .
KEY DEVELOPMENTS IN THE THIRD QUARTER OF 2012
The following describes certain key business initiatives undertaken during the third quarter of 2012 in each of Cineplex's core business areas:
THEATRE EXHIBITION
MERCHANDISING
MEDIA
ALTERNATIVE PROGRAMMING
INTERACTIVE
LOYALTY
OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
Total revenues
Total revenues for the three months ended September 30, 2012 increased $4.7 million, 1.7% to $281.4 million as compared to the prior year period. Total revenues for the nine months ended September 30, 2012 increased $36.7 million (4.8%) to $793.2 million as compared to the prior year period. Exhibition revenues for the current year periods were positively impacted by the acquisition of the four theatres from AMC during the third quarter of 2012. 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 year to date (in thousands of Canadian dollars, except attendance reported in thousands of patrons, and per patron amounts, unless otherwise noted):
Third Quarter
Box office revenues decreased $0.4 million, or 0.2%, to $162.1 million during the third quarter of 2012, compared to $162.5 million recorded in the same period in 2011. The decrease was due to a 1.0% decrease in attendance. The top five films during the quarter outperformed the top five films from the prior year period ($74.3 million compared to $67.6 million), but the remainder of the film slate underperformed compared to the prior year period. The decrease was also mitigated by the acquisition of the four theatres from AMC during the quarter which are not included in the prior period results.
The decrease in box office revenues due to the attendance decline was partially offset by a 0.8% increase in BPP, from $8.77 in the third quarter of 2011 to $8.84 in the current year period. This BPP increase was due to the films during the period catering to more mature audiences than the product in the prior year period, as well as the contribution from the four theatres acquired from AMC which are located in major metropolitan areas and have higher ticket prices than those in smaller markets. Premium-priced product (3D, UltraAVX, IMAX and VIP) accounted for 31.4% of box office revenues in the current quarter, down from 35.7% in the prior year period as only two of the top five releases during the period were screened in 3D, compared to all four of the top releases in the prior year period shown in 3D.
Cineplex's investment in premium-priced formats over the last four years has positioned it to take advantage of the price premiums offered on these formats, which has contributed to Cineplex's BPP growth in the current period compared to the prior year period. This investment in premium-priced offerings contributed to Cineplex outperforming the Canadian industry during the third quarter.
Year to Date
Box office revenues for the first nine months of 2012 were $467.8 million or 5.4% higher than the prior year period. The strong performance of the three major blockbusters released in 2012 (Marvel's The Avengers, The Dark Knight Rises and The Hunger Games) were the main contributors to the $24.2 million increase in box office revenue during the period. Attendance during the 2012 period also benefited from the first week of January 2012 being a school holiday week in most markets, whereas the same week in 2011 was not. The acquisition of the four theatres from AMC during the third quarter of 2012 also contributed to the box office revenue increase in the current year period.
Cineplex's BPP for the first nine months of 2012 increased $0.19, or 2.2%, from $8.70 in 2011 to $8.89 in the same period in 2012. This increase was primarily due to the increase in revenues from premium-priced product. Premium-priced offerings accounted for 31.6% of Cineplex's box office revenues in the 2012 period, compared to 29.1% in the prior year period. The top five films in the 2012 period were screened in IMAX and three in 3D (2011 - three in IMAX and three in 3D).
Concession revenues
The following table highlights the movement in concession revenues, attendance and CPP for the quarter and the year to date (in thousands of Canadian dollars, except attendance and same store attendance reported in thousands of patrons, and per patron amounts):
Third Quarter
Concession revenues increased 4.6% as compared to the prior year quarter despite the 1.0% decrease in attendance. CPP increased from $4.43 in the third quarter of 2011 to $4.68 in the same period in 2012, a 5.6% increase and a quarterly record for Cineplex, $0.02 higher than the previous record set in the second quarter of 2012. Cineplex believes a focus on revised concession offerings, its retail branded outlet program and improved product promotion through the expansion of a digital menu board program have all contributed to the higher CPP in the current period compared to the prior year period.
While the 10% SCENE discount and SCENE points issued on concession combo purchases reduce individual transaction values which impacts CPP, Cineplex believes that this program drives incremental visits and concession purchases, resulting in higher overall concession revenues.
Year to Date
Concession revenues increased 8.7% as compared to the prior year period, due to the 3.2% increase in attendance and the 5.5% increase in CPP. CPP increased from $4.38 in the first nine months of 2011 to $4.62 in the same period in 2012. This represents the highest CPP Cineplex has recorded through the first nine months of a given year.
Other revenues
The following table highlights the movement in media, games and other revenues for the quarter and the year to date (in thousands of Canadian dollars):
Third Quarter
Other revenues increased 3.9% to $33.3 million in the third quarter of 2012. This increase was due to higher media revenues, which during the third quarter of 2012 were $23.0 million, up $0.8 million, or 3.6%, when compared to the prior year period. This increase was primarily due to higher revenues in Cineplex's Digital Media business ($0.7 million). Showtime and pre-show advertising returned to prior year levels in the third quarter of 2012.
The games revenue decrease is due to the formation of CSI on January 31, 2012, with the acquisition by New Way Sales ("NWS") of the gaming business of Starburst Coin Machines Inc. With the creation of the CSI joint venture, revenues from CSI are included in the 'Share of loss (income) of joint ventures' line in the Statements of Operations. The Games revenues for the third quarter of 2011 include the results of NWS ($1.2 million). The addition of two new XSCAPE entertainment centres since the third quarter of 2011 partially offset the decrease in games revenue due to the creation of CSI and related movement of CSI results to the joint ventures line in the Statements of Operations. Other revenues also increased due primarily to additional revenue arising from enhanced guest service initiatives ($1.1 million).
Year to Date
Other revenues decreased 7.8% from $89.4 million in the first nine months of 2011 to $82.5 million during the same period in 2012. Media revenues for the first nine months of 2012 decreased $8.7 million, or 13.9%, from the prior year period. Declines in Cineplex's media business were due in part to the challenging media environment prevalent during the first half of 2012, partially mitigated by the stronger CDM revenues in the third quarter. Cineplex enjoys strong relationships with a number of national advertisers and during the first half of the year the reduction in campaigns from three major categories of these advertisers contributed to the decrease in media revenues.
The decrease in games revenue was due to the impact of NWS and the formation of CSI. The results of NWS are included in the comparative period for May to September 2011 (following its acquisition in May 2011) and for January 2012 (prior to the formation of CSI described above - $0.4 million for the 2012 period and $1.6 million for the 2011 period). This decrease was partially offset by the impact of the new XSCAPE entertainment centres added in the fourth quarter of 2011 as well as the higher attendance in the current year period bringing more games traffic through the theatres. The increase in the other category is primarily due to higher auditorium rental and screening revenues as well as additional revenue arising from enhanced guest service initiatives.
Film cost
The following table highlights the movement in film cost and Film Cost Percentage for the quarter and the year to date (in thousands of Canadian dollars, except film cost percentage):
Third 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 third quarter of 2012 compared to the prior year period was due to the decrease in box office revenue and the 0.9% decrease in film cost percentage. The decrease in film cost percentage is primarily due to the settlement rate on certain strong performing titles during the third quarter of 2012 being lower than the average film settlement rate in the 2011 period.
Year to Date
The year to date increase in film cost was due to the 5.4% increase in box office revenues and the 0.1% increase in film cost percentage during the period. The increase 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 2012 period being higher than the average settlement rate in the 2011 period.
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 year to date (in thousands of Canadian dollars, except concession cost percentage and concession margin per patron):
Third Quarter
Cost of concessions varies primarily with theatre attendance as well as the quantity and mix of concession offerings sold. The increase in concession cost as compared to the prior year period was due to the 4.6% increase in concession revenues, partially offset by the 0.3% increase in the concession cost percentage during the period. The concession margin per patron increased from $3.52 in the third quarter of 2011 to $3.71 in the same period in 2012, reflecting the impact of the higher CPP during the period.
Year to Date
The increase in concession cost during the period was due to the 8.7% increase in concession revenues partially offset by the 0.2% decrease in the concession cost percentage. Despite the 10% discount offered to SCENE members, which contributes to a higher concession cost percentage, Cineplex believes the SCENE program drives incremental attendance and purchase incidence which increases concession revenues and CPP.
Depreciation and amortization
The following table highlights the movement in depreciation and amortization expenses during the quarter and the year to date (in thousands of Canadian dollars):
The quarterly and annual decrease in amortization of property, equipment and leaseholds of $0.6 million and $1.8 million respectively is due in part to the transfer of digital projection equipment to CDCP in June 2011 resulting in lower asset values to depreciate, as well as certain assets becoming fully amortized in the third quarter of 2012. The declining 35 millimeter projector base due to the circuit's conversion to digital also contributed to the decrease in amortization of property, equipment and leaseholds. The decrease in amortization of intangible assets and other relates to certain intangible assets that became fully amortized during the first quarter of 2012.
Loss on disposal of assets
The following table shows the movement in the loss on disposal of assets during the quarter and year to date (in thousands of Canadian dollars):
Third Quarter
For the third quarter of 2012, Cineplex recorded a loss of $0.1 million on the disposal of assets (2011 - $0.5 million).
Year to Date
For the nine months ended September 30, 2012, disposal of assets resulted in a loss of $0.8 million on the disposal of assets. For the nine months ended September 30, 2011, disposal of assets resulted in a loss of $4.0 thousand, comprised of losses recorded on assets that were sold or otherwise disposed of, offset by a gain on the sale of the theatre during the second quarter of 2011 ($1.4 million) and a nominal gain recorded on the transfer of digital projection assets to CDCP.
Gain on acquisition of business
The gain on acquisition represents the gain recorded on the acquisition of AMC Ventures Inc. during the third quarter of 2012 (see Section 1.3, Business acquisition).
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 year to date (in thousands of Canadian dollars):
Theatre occupancy expenses
The following table highlights the movement in theatre occupancy expenses for the quarter and the year to date (in thousands of Canadian dollars):
Third Quarter
Theatre occupancy expenses increased $4.8 million during the third quarter of 2012 compared to the prior year period. This increase was primarily due to the four theatres acquired from AMC on July 12 ($4.3 million). The increase in the Other category primarily relates to higher real estate taxes in the current quarter compared to the prior year period.
Year to Date
The increase in theatre occupancy expenses of $4.9 million for the first nine months of 2012 compared to the prior year period was primarily due to the four theatres acquired from AMC on July 12 ($4.3 million). The increase in the Other category primarily relates to higher real estate taxes in the current year period compared to the prior year.
Other operating expenses
The following table highlights the movement in other operating expenses during the quarter and the year to date (in thousands of Canadian dollars):
Third Quarter
Other operating expenses during the third quarter of 2012 were in line with the prior year period. The impact of new and acquired net of disposed theatres was a $1.2 million increase to the category primarily due to the four theatres acquired from AMC. Other increases included higher marketing costs ($0.3 million) and higher same-store payroll costs ($0.2 million). These increases were partially offset by the impact of NWS ($0.9 million) as expenses for NWS are included in other operating expenses in 2011 but not in 2012 due to the creation of CSI, and a $1.0 million termination payment paid to a landlord in the prior year period to refurbish theatre space for a disposed theatre.
The major movement in the Other category include the following:
Total theatre payroll costs accounted for 45.3% of total operating expenses during the third quarter of 2012 as compared to 43.1% for the same period one year earlier due in part to minimum wage increases.
Year to Date
For the nine months ended September 30, 2012, other operating expenses increased $2.7 million, due in part to the higher business volumes in the 2012 period compared to the prior year. The impact of new and acquired net of disposed theatres was a $1.7 million increase to the category primarily due to the four theatres acquired from AMC. Cost increases included higher same-store payroll expenses related to the increased business volumes ($1.5 million), higher marketing costs ($1.1 million) and the $2.7 million increase in the Other category. These cost increases were partially offset by lower media expenses due to the lower media sales during the period ($2.3 million) and the impact of NWS which was contributed into CSI in January 2012 ($1.0 million) as well as a $1.0 million termination payment paid to a landlord in the prior year period to refurbish theatre space for a disposed theatre.
The major movement in the Other category include the following:
Total theatre payroll accounted for 45.5% of total other operating expenses in the first nine months of 2012, compared to 44.6% in the prior year period due in part to minimum wage increases.
General and administrative expenses
The following table highlights the movement in general and administrative ("G&A") expenses during the quarter and the year to date, including share and unit based compensation costs, and G&A net of these costs (in thousands of Canadian dollars):
(i) LTIP includes the expense for the LTIP program as well as the expense for the executive and Board deferred share unit plans.
Third Quarter
G&A expenses increased $1.1 million during the third quarter of 2012 compared to the prior year period, due to a $0.6 million increase in professional fees in part relating to the acquisition of the theatres from AMC and a $1.0 million increase in payroll related and general cost increases. These increases were partially offset by lower expenses under the option plan ($0.4 million) and lower LTIP expenses ($0.1 million).
Effective January 1, 2012, the Board of Directors of Cineplex invoked Cineplex's right to substitute a cashless exercise for any requested exercise of options for cash, in accordance with the terms of the option plan. As a result of the change in administrative policy, the options may only be equity-settled, and are considered equity, not liabilities. The expense amount for options is determined at the time of their issuance, recognized over the vesting period of the options. Existing options at the time of the change in administrative policy have their remaining expense determined at the time of the change in administrative policy, recognized over the remaining vesting periods.
Year to Date
G&A expenses for the first nine months of 2012 decreased $1.5 million compared to the prior year period, due to the $5.7 million decrease in the option plan expense. This decrease was partially offset by higher professional fees ($1.4 million) relating to the creation of CSI, an internal corporate reorganization effected on January 1, 2012 and the theatres acquired from AMC, higher payroll related and general cost increases ($2.6 million), and higher LTIP costs ($0.2 million).
Share of loss (income) of joint ventures
Cineplex's joint ventures in 2012 include its 50% share of one theatre in Quebec and one IMAX screen in Ontario, its 50% interest in SCENE LP, its 78.2% interest in CDCP (formed in June 2011) and its 50% interest in CSI (formed January 31, 2012). For the 2011 period, Cineplex's joint ventures included one theatre in Quebec, one IMAX screen in Ontario, its interest in SCENE LP and its 78.2% interest in CDCP. The following table highlights the movement in the share of loss (income) of joint ventures during the quarter and the year to date (in thousands of Canadian dollars):
Third Quarter
The movement from income of $1.5 million in the third quarter of 2011 to a loss of $1.0 million in the current period is primarily due to the activities of SCENE, CDCP and CSI:
Year to Date
The movement from income of $1.1 million in the first nine months of 2011 to a loss of $0.8 million in the current period is primarily due to the activities of SCENE, CDCP and CSI:
EBITDA and adjusted EBITDA
The following table represents EBITDA and adjusted EBITDA for the three and nine months ended September 30, 2012 as compared to the three and nine months ended September 30, 2011 (expressed in thousands of Canadian dollars, except adjusted EBITDA margin):
Adjusted EBITDA for the third quarter of 2012 decreased $2.9 million, or 5.0%, as compared to the prior year period. The decrease over the prior year period was primarily due to the lower exhibition revenues recorded in the period, as well as the impact of the four theatres acquired from AMC in the third quarter of 2012, which had a $0.8 million, or 1.5%, negative impact on adjusted EBITDA in the quarter. Adjusted EBITDA margin, calculated as adjusted EBITDA divided by total revenues, was 19.4%, down 1.4% from 20.8% in the prior year period. Excluding the impact of the theatres acquired from AMC, adjusted EBITDA margin was 20.3%.
Adjusted EBITDA for the nine months ended September 30, 2012 increased $9.9 million, or 7.4%, as compared to the prior year period. The increase is primarily due to the higher exhibition and concession revenues due to the higher theatre attendance. The impact of the four theatres acquired from AMC in the third quarter of 2012 had a $0.8 million, or 0.6%, negative impact on adjusted EBITDA in the year-to-date period. Adjusted EBITDA margin, calculated as adjusted EBITDA divided by total revenues, was 18.0%, compared to 17.6% in the prior year period.
Cineplex believes its operating and programming expertise, combined with its merchandising, media, marketing, interactive and SCENE loyalty programs will positively and significantly improve the operations of the four acquired theatres. Cineplex will invest in each of the locations and may add UltraAVX auditoriums, VIP auditoriums or XSCAPE entertainment centres to one or more of the locations.
Adjusted Free Cash Flow
For the third quarter of 2012, adjusted free cash flow per common share of Cineplex was $0.5737 as compared to $0.7133 in the prior year period. The declared dividends per common share of Cineplex were $0.3375 in the third quarter of 2012 and $0.3225 in the prior year period. The payout ratios for these periods were 59% and 45%, respectively.
For the first nine months of 2012, adjusted free cash flow per common share of Cineplex was $1.5378 as compared to $1.6100 in the prior year period. The declared dividends per commons share of Cineplex were $0.9925 in the first nine months of 2012 and $0.9575 in the prior year period. The payout rations for these periods were 65% and 60%, respectively.
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. or Cineplex Entertainment Limited Partnership, their financial or operating results or their securities.
About Cineplex Inc.
Cineplex is one of Canada's leading entertainment companies and operates one of the most modern and fully digitized motion picture circuits in the world. A top-tier Canadian brand, Cineplex operates numerous businesses including theatrical exhibition, food services, gaming, alternative programming (Front Row Centre Events), Cineplex Media, Cineplex Digital Solutions and the online sale of home entertainment content through CineplexStore.com and on apps embedded in various electronic devices. Cineplex is also a joint venture partner in SCENE - Canada's largest entertainment loyalty program.
Cineplex is headquartered in Toronto, Canada, and operates 133 theatres with 1,437 screens from British Columbia to Quebec, serving approximately 70 million guests annually through the following theatre brands: Cineplex Odeon, SilverCity, Galaxy Cinemas, Colossus, Coliseum, Scotiabank Theatres, Cineplex VIP Cinemas, Famous Players and Cinema City. Cineplex also owns and operates the UltraAVX, Poptopia, and Outtakes brands. Cineplex trades on the Toronto Stock Exchange under the symbol "CGX". More information is available at .
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 416-644-3418 or outside of Toronto dial 1-800-814-4861 at least five to ten minutes prior to 10:00 a.m. Eastern Time. Please quote the conference ID 4570375 to access the call.
Reconciliation to Adjusted EBITDA
Components of Other Costs
Adjusted Free Cash Flow
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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