2007 Annual Report Cineplex Galaxy Income Fund 1
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PASSIONATELY DELIVERING AN EXCEPTIONAL ENTERTAINMENT EXPERIENCE BEYONDMOVIES 2007 Annual Report Cineplex Galaxy inCome Fund 1 2 3 4 5 oFFerinG our Guests more than movies The year 2007 was focused on innovation: 1. We expanded our range of food choices to include the most popular fast food brands in Canada. 2. We launched our SCENE loyalty program, capturing more than 600,000 members. 3. We expanded alternative programming to extend our demographic reach and enhance revenues. 4. We revolutionized the entertainment landscape by bringing many amenities and services together under one roof at SilverCity Oakville. 5. Our dedicated employees continued to create an exceptional entertainment experience with their enthusiasm. Letter to unitholders As the leader in the Canadian industry, we remain focused on improving and expanding our entertainment offering while delivering solid financial performance to our unitholders Ellis Jacob chief executive officer 2007 was the best year on record for Cineplex Entertainment. Although we focus on growth, we remain vigilant in controlling We generated record results in all of our key metrics. It was also costs without compromising the guest experience. Our adjusted a year of innovation in which our focus remained on creating EBITDA margin increased to 17.0% in 2007 from 15.9% in 2006. an exceptional entertainment experience for our guests and Distributable cash per unit increased by 20.1% to $1.7217 from diversifying our reach beyond movies. Our goal is to make $1.4330 in 2006. Net income increased 237.8% to $26.5 million Cineplex the entertainment destination of choice for our guests from $7.8 million in 2006. in our theatres and on our website. During 2007, our total revenue for the year increased 8.8% to Beyond movies – $805 million. We enjoyed box office revenue growth of 6.5% reaching our guests in new ways compared to Canadian industry growth of approximately 1.3%. Engaging our guests – and building a sustainable platform for This growth was driven by stronger overall film product; new growth – demands more than exhibiting great movies. We have theatres, including the acquisition of three Cinema City theatres diversified the business beyond the traditional movie exhibition in Western Canada; programs designed to drive incremental visits; model by launching our SCENE loyalty program, enhancing our discounted ticket pricing initiatives in select markets; and the website and further capitalizing on Cineplex Media. Each of these SCENE loyalty program. Concession revenues increased 10.1% initiatives is essentially a different way to reach our guests and to $235 million as a result of successful product and pricing will be a major focus in the future. programs implemented throughout the year and increased attendance volumes. Other revenue grew 19.4% to $81 million, primarily due to the continued growth and success of Cineplex Media. 2007 AnnuAl report 1 letter to unitholders (Cont’d) theatre exhiBition Most of this programming is premium-priced and attracts a wider In 2007, we continued to focus on growing our exhibition business spectrum of people to our theatres expanding our demographic and unveiled the next generation in theatre entertainment reach and enhancing our revenues. Tapping into Canada’s with the opening of our SilverCity Oakville theatre in Ontario. multicultural dynamic, we are also expanding the exhibition of This entertainment destination is a prototype that brings many Bollywood movies and films from around the world. The evolving amenities and services together under one roof including bowling, breadth and strength of this business will continue to provide our VIP auditoriums, lounges, child minding services, billiards and guests with choices and reduce our exposure to the fluctuating game areas, party rooms and a retail store offering a selection of quality of Hollywood film product. DVDs, CDs, books, magazines and movie collectables. This theatre We continually strive to find new ways to drive attendance and has set a new standard for theatre exhibition in Canada and is this year, in addition to the launch of our SCENE loyalty program, revolutionizing the entertainment landscape. we implemented the Big Ticket Tuesday program. In select SilverCity Oakville also features Canada’s largest digital projection markets, we offered guests a value package that included theatre installation with nine Christie CP2000 series DLP Cinema digital admission, popcorn and a fountain drink for one low price. This projectors delivering visually stunning, razor-sharp images. This has proven to be very successful. As a result, Cineplex is one of theatre is on the cusp of both an industry-wide and corporate the few top tier circuits in North America to achieve an increase in rollout aimed at replacing 35 mm projectors with digital across attendance in 2007. North America. This technology will expand Cineplex’s exhibition In addition to building SilverCity Oakville this past year, we opened opportunities to anything digital, including 3D movies and a seven-screen Galaxy Cinema in Collingwood, Ontario, and live or recorded events or programs. acquired three Cinema City branded discount theatres – two in Cineplex has been exhibiting alternative programming for many Winnipeg and one in Edmonton. This brought our circuit to 1,327 years. By 2007, alternative programming had expanded to include screens in 131 theatres by the end of 2007. In March, we plan to National Hockey League games, The Metropolitan Opera, The open a new Galaxy Cinema in Red Deer, Alberta. In the spring, National Ballet of Canada’s Nutcracker and several concerts. construction will begin on four theatres in Ontario – in Toronto at Fairview Mall, Brantford, Hamilton and London. Each of these theatres is scheduled to open this fall. cinEplEx EntErtainmEnt lp Financial highlights (expressed in thousands of dollars except per unit, per patron and attendance data) 2007 2006 2005 Revenue $ 805,019 $ 740,244 $ 490,299 Adjusted EBITDA 137,162 117,622 68,770 Net income 26,471 7,836 12,976 Total assets 778,013 819,691 798,751 Cash distributions declared per LP unit 1.1832 1.1496 1.1496 Distributable cash per LP unit 1.7217 1.4330 1.0273 Box office revenue per patron 7.99 7.99 7.73 Concession revenue per patron 3.84 3.72 3.44 Other revenue per patron 1.33 1.18 1.11 Attendance 61,148 57,425 39,945 2 Cineplex GAlAxy inCome Fund In December, Cineplex unwrapped the next generation in theatre Our merchandising business, which comprises Cineplex’s food services and gaming businesses, represents approximately 30% entertainment in Oakville, of our total revenue. Offering our guests a range of food choices enhances their theatre experience and generates strong profit Ontario. This SilverCity margins. We’re proud to feature some of the most popular fast food brands in Canada including Burger King®, New York Fries®, Pizza entertainment destination has Pizza®, Taco Bell®, KFC®, Yogen Fruz® and Tim Hortons®. many amenities and services In 2008, we will focus on growing the merchandising business further by refining and expanding the food and beverages offered under one roof in our theatres, creating promotions that drive traffic to our concessions and improving our overall operating efficiencies. making a scene In 2006, a partnership was established with Scotiabank to create cineplex interactive the SCENE loyalty program. SCENE was launched nationally During 2007 we made significant progress building a clicks- in May 2007. By the end of the year, we had engaged just over and-mortar business upon the foundation of our traditional 618,000 members, significantly exceeding our targets. bricks-and-mortar business. We substantially expanded our cineplex.com website adding many new features designed to Our objective in creating SCENE was to gain a more thorough make it the premier Canadian entertainment destination on the understanding of our guests, drive frequency, increase revenue Internet. The website now offers streaming video, increased search per visit and establish the ability to communicate directly and capabilities, more movie and entertainment news, user ratings regularly with our guests. To date, we are achieving all of these and box office reports as well as new advertising opportunities. objectives and the program has been well received. These features and others are a platform for building an online SCENE is in its infancy. As membership grows, we believe its value community where we can engage and interact with our guests will increase exponentially and the program will become very and our guests can interact with each other. attractive to potential partners. With 60% of our membership We have also begun to attract top tier advertisers to our site and, under 30 years old, we believe there are a range of partners who as our traffic continues to build to a critical mass, cineplex.com would appreciate the value of this creative marketing opportunity will become a premier advertising channel delivering meaningful and its ability to reach this much coveted demographic. By results for our media business. expanding both the opportunity to collect and redeem points, the program’s value is enhanced by enabling members to get more life In 2007, we also implemented mobile ticketing technology that from life – and Cineplex benefits by drawing more people into our allows our guests to use their cell phones to purchase tickets and theatres more often. download the bar code. This bar code replaces the traditional paper ticket. The program also includes SCENE-branded VISA® and debit cards launched by Scotiabank. The SCENE debit card was the first debit Currently, we are building the e-commerce infrastructure on our card in Canada that offered cardholders the ability to earn rewards. website to sell DVDs and movie downloads among other products. This initiative is planned to launch in late 2008. We know there are numerous ways for people to access movies today, but Cineplex reaches the customer first with the film’s initial release in our theatres.