Cinema City International N.V. Annual Report
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Cinema City International N.V. Annual Report for the year ended 31 December 2010 Cinema City International N.V. GENERAL INFORMATION Management Board Moshe Greidinger Amos Weltsch Israel Greidinger Supervisory Board Coleman Kenneth Greidinger, Chairman Scott Rosenblum, Vice-Chairman Carrie Twist Frank Pierce Peter Weishut Yair Shilhav Company secretary Malek Ballan Registered office Weena 210-212 3012 NJ Rotterdam The Netherlands Auditors KPMG Accountants N.V. Laan van Langerhuize 1 1186 DS Amstelveen The Netherlands Cinema City International N.V. LETTER FROM THE CEO Dear Shareholders, 2010 has been a transformational year for the Cinema City Group. With a combination of solid organic growth and the completion of a meaningful acquisition at the very beginning of 2011 covering three territories, we enter the New Year as the third largest cinema chain in all of Europe, operating 90 multiplexes with 863 screens in 7 countries. In 2010, we reported another consecutive year of record growth and profitability. With all-time high sales of 30.5 million tickets in 2010, our theatre operations continued to perform impressively. We witnessed a strong year in all our countries of operations, benefiting from our ambitious theatre expansion program, from another year of well received international titles – highlighted by the unprecedented success of Avatar – and from strong domestic movie products in most of our countries of operation. We achieved record cinema related revenues of EUR 234.5 million and cinema related EBITDA of EUR 53.1 million. The consolidated revenue of Cinema City, which includes the sale of our Bulgarian real estate assets, soared to EUR 325.8 million, EBITDA rose to EUR 56.2 million and a record net profit of EUR 30.4 million was achieved. During 2010, we invested approximately EUR 40 million in new theatres, in installing over 100 new digital projectors, and in renovating older theatres. We opened a total of 63 new screens and we closed 9 obsolete screens in Israel as part of our ongoing redevelopment strategy in that country. We also laid the groundwork for the construction of our third megaplex in Israel, in Rishon Letzion, which began construction at the beginning of 2011. This landmark project is scheduled to open in the first half of 2012. In 2010, we continued our aggressive expansion program in Romania. During the year, we opened our second megaplex in Bucharest, in the newly completed Sun Plaza mall, and two more multiplexes in Arad and in Baia Mare, which together brought our Romanian operations to 88 screens at the end of the year. We continue to believe that Romania will remain one of our most active territories of development, currently supported by 26 binding lease agreements signed for new locations. During 2010, we opened two cinemas in Bulgaria, in Russe and Stara Zagora, and two cinemas in Poland, in Walbrzych and Bytom. During the year, we also continued our rapid conversion from traditional to digital projection. More than one third of our screens now employ digital technology. In 2010, approximately 33% of the tickets sold were for premium priced 3-D movies, compared to 17% in 2009. In August 2010, we amended our general agreement with the Imax Corporation. We agreed to upgrade our existing 9 IMAX® theatres to incorporate the latest digital technology. In addition, Israel was added as the sixth territory for which we have exclusive development and exhibition rights for IMAX® theatres. The Company believes that the enhanced viewer experience associated with IMAX®’s big screen and big sound format will continue to be a very popular choice as the digital and 3-D movie revolution continues. In April 2010, in a move intended to allow us to deleverage our balance sheet and to concentrate on our movie chain expansion, we sold our real estate operations in Bulgaria to our parent company, Israel Theatres, and realised EUR 91.2 million in revenues. Prior to this transaction, Israel Theatres already had real estate interests in Bulgaria and the region. In addition, Israel Theatres has a longer and more focused history than Cinema City in real estate development in general. In January 2011, in a bid to accelerate our expansion activities, to enhance our leading position in Hungary and the Czech Republic, and to enter into our seventh territory, Slovakia, we consummated the acquisition of the Palace Cinema chain for EUR 28 million. Under the agreement we acquired 15 multiplexes with 141 screens: 8 multiplexes with 65 screens in the Czech Republic, plus a leasing agreement for 1 multiplex with 8 screens in Ostrava, Czech Republic, planned to be opened in 2012, 4 multiplexes with 47 screens in Hungary; and 3 multiplexes with 29 screens in Slovakia. We financed the acquisition from existing cash and from available credit lines. We are now in the process of integrating these theatres into our existing operations and we believe that once this process is completed, the combined company will emerge as the most dynamic and fastest growing circuit in all of Europe. We eagerly look ahead to 2011, which we believe will be another year of growth and success for Cinema City, supported by what appears to be an excellent slate of upcoming international movies, including a Cinema City International N.V. LETTER FROM THE CEO number of potential ‘blockbuster’ titles in 3-D.While it will not be easy to follow a year with such huge hits like Avatar and Alice in Wonderland, we remain optimistic about our 2011 prospects, which should also be supported by a robust pipeline of promising domestic productions, especially in Poland . While difficult real estate market conditions continue to impact the construction of a number of the malls in the region, we expect to open approximately 70 new screens during the year. The first opening is scheduled to be a Cinema City theatre in Braila, Romania. In addition to these new screens, in 2011, we also intend to work hard to integrate the 141 screens we acquired at the beginning of the year from Palace Cinemas into our theatre circuit. As always I am particularly pleased to thank all our dedicated Cinema City employees for their day-to-day work and their commitment to inspire our customers to come to Cinema City again and again. In the fall of 2010, we celebrated our 10th anniversary in Poland.The particularly high volume of movie tickets sold that day (over a quarter of a million visitors in Poland in one day!) was a wonderful demonstration of the success of our very special relationship with our loyal Polish movie-going customers. And last but not least, I would like to thank our millions of customers in now seven countries who continue to share in our never ending love for the movies. We are committed more than ever to deliver to each one of them every day unparalleled service and the best movie going experience, supporting our saying – Cinema City is your best way to see a movie! Moshe Greidinger, CEO 14 March 2011 Cinema City International N.V. Annual Report for the year ended 31 December 2010 Contents Page Supervisory Board Report 1 Corporate Governance 3 Risk Profile and Risk Management 12 Remuneration Report 14 Directors’ Report 16 Consolidated Financial Statements for the year ended 31 December 2010 Consolidated Statement of Financial Position as of 31 December 2010 36 Consolidated Income Statement for the year ended 31 December 2010 38 Consolidated Statement of Comprehensive Income for the year ended 31 December 2010 40 Consolidated Statement of Changes in Shareholders’ Equity for the year ended 31 December 2010 41 Consolidated Statement of Cash Flows for the year ended 31 December 2010 42 Notes to the Consolidated Financial Statements 44 Company Financial Statements Company Statement of Financial Position as of 31 December 2010 103 Company Income Statement for the year ended 31 December 2010 104 Company Statement of Changes in Shareholders’ Equity for the year ended 31 December 2010 105 Company Statement of Cash Flows for the year ended 31 December 2010 106 Notes to the Company Financial Statements 107 Other Information 112 Independent auditor’s report 113 Cinema City International N.V. Supervisory Board report Supervisory Board Report We take pleasure in presenting the financial statements of Cinema City International N.V. for the financial year 2010, accompanied by the report of the Management Board. KPMG Accountants N.V. audited the financial statements and issued an unqualified auditor’s report. We recommend the shareholders adopt the financial statements as presented. We concur with the Management Board’s proposal as taken up on page 112 to allocate the net profit for the year 2010 amounting to EUR 30,410,000 to retained earnings. Supervision During the year 2010, five meetings were held by the Supervisory Board and the Management Board during which the following topics, among others, were discussed: the Company’s business strategy; the corporate governance structure of the Company and the implementation of the Dutch corporate governance code; risk management; internal audit reports; sale of the Company’s Bulgarian real estate development activities and assets; the Management Board remuneration policy, including the implementation of a long-term incentive plan; financial results and other related issues. All Supervisory Board meetings held in 2010 were attended by the majority of the members of the Supervisory Board. None of the members of the Supervisory Board has been absent during more than one Supervisory Board meeting in 2010, other than C.K. Greidinger who missed 4 meetings for health related issues. Mr Rosenblum has acted as chairman in absence of Mr C.K. Greidinger. As the Bulgarian real estate previously owned by the Company was sold to the Company’s main shareholder, Israel Theatres, the sale transaction which took place in the first half of 2010, was treated as a ‘related party transaction’.