Cineworld Group plc
Power Road Studios
114 Power Road
Chiswick
London W4 5PY
020 8987 5000
www.cineworld.com
www.cineworldplc.com
Cineworld Group plc
Annual Report and Accounts 2010
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Business Review
Highlights 2010
A Real Cinema Experience
Chairman’s Statement
Our Strategy
The Business Model
UK and Ireland Market Overview
Chief Executive and Chief Financial
Officers’ Review
Risks and Uncertainties
Corporate Responsibility
Governance
Directors’ Biographies
Directors’ Report
Corporate Governance Statement
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
in respect of the Annual Report and
the Financial Statements
Independent Auditor’s Report to the
Members of Cineworld Group plc
01
02
04
06
07
07
08
16
19
24
26
31
36
41
42
43
44
Financial Statements
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated
Financial Statements
Company Balance Sheet
Company Reconciliation of Movements
in Shareholders’ Funds
79
Notes to the Company Financial Statements 80
84
Shareholder Information
45
46
47
78
Cineworld is one
of the UK’s leading
cinema groups
Highlights
2010
For comparability purposes all of the review below is on a 52 week to
52 week basis. A review against the prior year statutory reported results
(53 week basis) is included in the Financial Performance section of
this statement.
Key Performance Indicators (“KPIs”)
Group revenue
£m
09
09
10
09
Reported 53 weeks
55.7
+4.8%
EBITDA*
£m
333.4
327.1
342.8
09
09
10
09
Reported 53 weeks
+8.1%
55.7
54.6
59.0
55.7
Profit before tax
£m
09
09
10
09
Reported 53 weeks
+0.3%
Adjusted pro-forma diluted EPS
pence
+11.7%
09
10
30.8
30.3
30.4
55.7
16.2
18.1
Proposed final dividend
pence
Proposed full year dividend
pence
+5.0%
09
10
6.8
7.1
09
10
10.0
10.5
* EBITDA is defined as operating profit before depreciation, impairments, reversals of impairments and amortisation,
onerous lease and other non-recurring or non-cash property charges, transaction and reorganisation costs
Other Key Highlights
•
Number 1 cinema operator in the UK for 2010 with a box office market
share of 26.2% (Rentrak/EDI);
Box office up 4.1% at £235.8m against 2009;
Admissions 2.1% lower than 2009 at 47.2m;
Average ticket price per admission up 5.9% to £4.99 (2009: £4.71) with
average retail spend per person holding firm at £1.73;
Screen advertising revenues up almost 21%;
Strong progress on digital conversion with over 50% of the estate now
using digital projectors;
Roll out of a new site at The O2 and deals signed for sites at the
Wembley City retail development and at Aldershot and Leigh;
Credit approvals received from a banking group for a new facility of
£170m to finance future expansion and other opportunities.
•
•
•
•
•
•
•
Cineworld Group plc
Annual Report and Accounts 2010
01
A Real Cinema
Experience tHE stAtE
Of PlAy
Cineworld Group was founded in 1995
and is now one of the leading cinema
groups in the UK and Ireland. We are
dedicated to ensuring that every visit
is memorable – unparalleled quality
of service, great shows, comfortable
seating and tempting retail offers.
With 78 cinemas, Cineworld offers a
range of exceptional venues for
corporate or private events. Our state-
of-the-art digital projection facilities
can display any type of media, from
PowerPoint presentations to feature
films. With stadium seating and
capacity ranging from 15 to over 500
seats, Cineworld can offer the perfect
size venue for every audience.
We continue to lead the way in digital
and 3D technology. Cineworld
currently has one of the largest
number of digital projectors across
the UK – showcasing 3D, live sport,
live opera, interactive gaming or
corporate presentations.
Our theatres offer excellent facilities
and most have full disabled access.
26.2%
UK Box office share
4/10
4 out of top 10 grossing cinemas
were Cineworld cinemas
+4.8%
Revenue increase 2009–2010
02
Cineworld Group plc
Annual Report and Accounts 2010
screens
801
78cinemas
+1mVisits to Cineworld.com
per week
> 1/4m
Unlimited customer membership
No.1
In 2010 Cineworld became
the UK market leader
Cineworld Group plc
Annual Report and Accounts 2010
03
Chairman’s
statement
In 2010, we achieved a milestone by
becoming the largest cinema operator
in the UK by total box office.
Anthony Bloom
Chairman
It gives me much satisfaction to report another
successful year of trading for the Group. The
business has continued to deliver healthy
growth in revenues and profits, and strong
cash generation over the year. This good
performance is despite a trading environment
impacted by the football World Cup in June
2010 and the heavy snowfalls across the
whole country during December 2010.
In view of this performance, the Group is
able to propose a 5% increase in the full year
dividend for 2010 to 10.5p, which follows the
increase declared last year.
Considerable progress was made in 2010.
The increase in numbers of 3D films has been
widely publicised and cinema attendances for
3D films supported our strong performance.
Our advertising business, Digital Cinema
Media Limited (“DCM”), made further progress
in the market as advertising spend showed
good levels of recovery. We also continued
to grow other revenue streams such as
screening alternative content (including live 3D
events such as the Six Nations rugby and the
football World Cup) and providing venues for
conferencing and other similar uses.
On 14 June, we announced our partnership
with Arts Alliance Media (“AAM”) which will
lead to the roll out of digital projection facilities
across the remainder of our cinema estate. It is
an attractive deal which enables us to recoup a
substantial proportion of our anticipated £40m
investment as we earn the financial benefits
from digital programming and 3D.
On 25 June, we signed a 25 year lease to
operate the multiplex cinema at The O2 in
London. The O2 is a major landmark and
significantly raises our profile. We also
announced an agreement for a 25 year lease
for a new nine screen cinema at the Wembley
City retail and leisure development, which is
scheduled to open in 2013.
We remain committed to improving our
operations through continual enhancement of
the customer service and experience at our
cinemas. Recent work carried out in our cinema
in Wandsworth, London, to create a new look
and feel for our customers, is a prime example.
In 2010, we achieved a milestone by becoming
the largest cinema operator in the UK by total
box office. This is a notable advancement
over the previous year and demonstrates
the success of our efforts to increase the
competitiveness of our film and retail offers,
our pricing and the comfort and accessibility of
our cinemas.
The Blackstone Group sold its remaining 20.1%
shareholding on 16 November 2010 through a
placing which was well supported by a number
of institutional investors. The Blackstone Group
has been an excellent partner and has made
a significant contribution to the Group over the
last six years. Alan Roux left the Board following
the divestment of the Blackstone holding
and I would like to thank him for his valuable
contribution to the business. Matthew Tooth,
also originally appointed by the Blackstone
Group, has agreed to remain on the Board.
I would also like to welcome two new members
of the Board: Martina King and Rick Senat, who
both joined on 2 July 2010 as independent
Non-Executive Directors. They bring with them a
wealth of experience in areas particularly relevant
to Cineworld’s activities, and have already made
a significant contribution to the business.
I am pleased to report that terms and
conditions for a new £170 million, five year
facility have recently been negotiated with a
group of banks and which is expected to be
signed in the near future. This will provide the
Group with a stable financial platform to enable
it to carry out its expansion plans.
On behalf of the Board, I would like to thank
our management and our employees for their
accomplishments and hard work. We cannot
rest on our laurels because the economic and
financial outlook remains challenging. The Group,
however, is in a strong financial and competitive
position and possesses a very able management
team and committed staff. This gives me full
confidence in our ability to continue to deliver
value to our shareholders in the future. It
remains a pleasure to be associated with such
a successful and well run business.
Anthony Bloom
Chairman
10 March 2011
04
Cineworld Group plc
Annual Report and Accounts 2010
We will be bringing
a new friendly look
to our cinemas in 2011
Wandsworth
flagship
A brighter, lively, more
informative environment has
resulted from the recent
refurbishment of Cineworld’s
Wandsworth cinema.
Completed in October
2010, the refurbishment
and rebrand has created a
friendly, relaxing atmosphere
in the foyer. The new look
cinema incorporates fresh
designs that zone key areas
for the customer. If they
choose, customers can
chill-out in the new relax
zone while they watch trailers
of upcoming films or even
better still they can skip the
queues and use the new and
improved fast ticket zones.
According to General
Manager, Henock Osei-Kissi,
the redesign has improved
the whole experience for
customers. Results to date
have been good with staff
enjoying the positive feedback
from customers who are
responding well to the more
welcoming environment.
for more information visit
www.cineworldplc.com
Cineworld Group plc
Annual Report and Accounts 2010
05
Our strategy
The Group’s primary objective is to consolidate and advance its position as one of the leading
cinema businesses in the UK and Ireland in terms of sites, screens and admissions and to
improve its operating margins, thereby growing shareholder value. In order to achieve this,
the Group will continue to:
Our strategy
In action
the future
Develop and improve its offer
to its customers
Grow box office revenues
We provide the widest range
of films of any of the major UK
exhibitors. This is facilitated by a
high average number of screens
per cinema.
Our bargain day and concession
prices have been successful
in reaching out to the value
segment of the market.
Our success in screening 3D with
the associated price premium.
We will continue to grow our
strong knowledge of films and
good relationships with film
distributors.
We will seek to improve our
understanding of our customers
and their interests.
We will continue to use pricing to
improve capacity utilisation and
to encourage cinema-going.
We will continue to convert to
digital to maximise our flexibility
in screenings.
We have developed strategic
partnerships with household
names.
We will aim to increase the
number of customers on our
Unlimited programme.
Our Unlimited programme has in
excess of 250,000 subscribers.
Increase retail spend per
customer
Our success in retail promotions
from our staple Combo range to
promotions targeted to customer
types or linked to film activity.
We will continue to develop our
product ranges and selected
promotions that appeal to
different consumer groups.
Increase other revenue streams Our screen advertising business,
Grow the estate through
selective new openings,
expansions and acquisitions
DCM, has made good progress
in attracting a wider range of
advertisers.
In 2010, we acquired the cinema
at The O2 centre, London and
signed a deal for a cinema at the
new Wembley city development
to open in 2013.
look to expand into
complementary markets
Use technology to improve our
customers’ experience and the
efficiency of our operations
We have increased the range
of alternative content screened
this year and started to develop
venue hire as a revenue stream.
In June 2010 we announced our
partnership with AAM which
will lead to roll out of digital
projection facilities across the
remainder of our cinema estate.
By increasing our digital estate
we aim to improve our offer to
advertisers.
We will open a cinema at Leigh,
outside Manchester at the end
of 2011.
Continue to develop relationships
with developers.
Identify untapped smaller
markets which may sustain
smaller multiplexes.
Continue to keep abreast of
opportunities within the cinema
industry at home and overseas.
We will further develop both
propositions and seek to identify
further opportunities and
improve capacity utilisation at
our cinemas.
By increasing our digital estate
we aim to improve efficiencies
in the delivery of film and other
content to provide a wider
choice for our customers and
advertisers.
We will develop our IT
infrastructure to increase our
capability to handle the widening
range of customer offers and to
understand our customers better
and their requirements.
06
Cineworld Group plc
Annual Report and Accounts 2010
the Business
Model
The key driver of our business is customers
visiting our cinemas to see feature films
(produced by the film studios). With 75 of
our 78 cinemas being multiplex, we are able
to show a broad range of films. The number
of visits (“admissions”) multiplied by the net
average entrance price (“ticket price”) gives the
box office revenue.
The principal direct costs to the business
are film rental paid to the film distributors
and the costs of food and drink sold paid to
suppliers. The main cinema operating costs
are staff salaries and wages, energy, repairs
and maintenance and property related costs.
Cinema sites are acquired on leaseholds of
typically 25 years and property related costs
consist of rent, rates and service charges.
Admissions, in turn, drive the two other main
income sources which are:
y
y
Retail sales to our customers comprising
principally food and drink; and
Revenue from advertisements shown on
our screens prior to feature presentations.
We aim to promote customer admissions by
offering clean, comfortable, well-run facilities in
well sited locations, which makes cinema going
a pleasurable experience and encourages more
frequent return visits. We seek to complement
this by optimising the use of auditorium space,
providing more screens to show a wide choice
of films to appeal to a variety of customer
groups and the provision of an enhanced
range of products and services.
High Quality
of Venue
High Quality
of film Offer
High Quality
of Retail Offer
Operational Delivery
sales and
Marketing Delivery
the Customer
Admissions and
Revenues
“A Great Cinema
Experience”
Repeat visits
UK and
Ireland Market
Overview
The UK/Ireland cinema market continues to
be dominated by three major UK exhibitors,
Cineworld, Odeon UCI, and Vue. In total they
account for over 70% of the total market
box office and provide over 60% of the total
screens in the UK. Cineworld is listed on the
London Stock Exchange, while Odeon UCI and
Vue are both privately owned groups.
The rest of the market is represented by
smaller multiplex operators and independents
which tend to operate non-multiplex cinemas
(less than five screens). Of the three major
chains, Cineworld has the smallest presence
in Ireland with one, albeit significant, cinema
in Dublin, being the fifth biggest cinema in
UK/Ireland in 2010 by gross box office
(Rentrak/EDI).
The market situation has remained largely
constant for a number of years though the
ownership of Vue changed in late 2010. There
are significant barriers to entry, both through
acquisition and organically. Competition law
limits the potential scope for major consolidation
in the industry. The rate of new cinema openings
has been falling in recent years, partly due to
the limited number of new retail and leisure
development opportunities and the long time
to bring developments to fruition. This has
been exacerbated more recently by reduced
availability of funding for developers in the
present financial climate, though confidence
has started to improve.
Gross box office revenue in UK/Ireland
increased 2.7% to £1.08bn (Rentrak/EDI)
whilst UK admissions remained stable at
c169m (CEA) demonstrating the resilience
of cinema in the economic and consumer
environment. The low price of going to the
cinema compared to other forms of leisure and
the desire for escapism have remained key
attractions. Underpinning the overall success
in 2010 was the strong line-up of films, the
ongoing conversion to digital and the growth in
the number of films released in the 3D format,
up from 13 in 2009 to 25 in 2010 with over 30
anticipated in 2011.
Cineworld Group plc
Annual Report and Accounts 2010
07
Chief Executive
and Chief
financial
Officers’
Review
Cineworld’s success in 2010 was
underpinned by a strong film line-up
with an increased number of 3D films.
stephen Wiener
Chief Executive Officer
Richard Jones
Chief Financial Officer
Performance Overview
For comparability purposes all of the review
discussion below is on a 52 week to 52
week basis.
Story 3” (the highest grossing film of the year
and the second highest grossing film of all
time in the UK), “Alice in Wonderland”, “Shrek
Forever After”, and “Clash of the Titans”.
In the 52 week financial year box office revenue
increased 4.1% to £235.8m (2009: £226.5m),
representing a box office market share in the
UK and Ireland of 24.6% (2009: 23.9%). The
Group’s admissions were 1.0m, 2.1% lower
than the prior year. Average ticket price per
admission increased by 5.9% to £4.99 (2009:
£4.71). Retail spend per person increased by
1p to £1.73 (2009: £1.72).
Cineworld’s success in 2010 was underpinned
by a strong film line up with an increased
number of 3D films (25 films compared with
13 in 2009). Average ticket prices were higher
because of modest general price increases
and the benefit of the price uplift from 3D
admissions. Almost 28.0% of market box
office was from 3D for the full year, up from
approximately 12.0% in 2009.
By the end of 2010, Cineworld had become the
number one cinema operator in the UK for the
period in terms of UK box office (Rentrak/EDI)
with a market share of 26.2%.
Box Office
A combination of modest price increases,
the premium on 3D performances and stable
admissions in the year enabled Cineworld’s
box office to increase 4.1% to £235.8m.
Average ticket price per admission increased
5.9% to £4.99 (2009: £4.71). The increase
was partly aided by the premium pricing on
3D performances. The average ticket price
excluding VAT of 3D is in excess of £6.10
compared to 2D of almost £4.50. Cineworld
nevertheless continues to offer its customers
compelling value with the lowest average ticket
price of any of the major UK cinema groups.
There were strong performances in the year
from a number of core blockbusters which
included “Harry Potter and the Deathly Hallows
Part 1”, “Inception”, “Sex and the City 2”,
“The Twilight Saga: Eclipse” and “Iron Man
2”. All these films performed above or in line
with industry expectations. The year also saw
the continued rise of 3D films with 25 films
released in 3D, the most notable being “Toy
In line with our stated strategy, we continued
to offer customers the broadest range of
films on the market. There were a number of
smaller and mid range films which performed
well during the year including “Streetdance
3D”, “The Prince of Persia: The Sands of
Time”, “Kick Ass” and “The Tourist” where we
achieved higher individual market shares than
our overall market average. We also remained
the biggest exhibitor of Bollywood films in the
UK with a market share in excess of 50%. We
remained the only major chain to screen
Tamil language films such as “Endhiran: The
Robot”, where we had an 87% market share.
In addition, we showcased a series of other
successful foreign language films such as
the trilogy of films “The Girl with the Dragon
Tattoo”, “The Girl Who Played with Fire” and
“The Girl Who Kicked the Hornets’ Nest” which
contributed favourably to our full year results.
We continued to make good progress during
the year in developing our alternative content
offering which has been made possible by
our digital conversion. The notable events
of the year included the 25th Anniversary
shows of Les Miserables from The O2, the
Big 4 Live (from Sofia) and Bon Jovi and Green
Day concerts. Furthermore the successful
broadcast of two live sporting events in 3D,
namely the Six Nations Rugby and the latter
stages of the football World Cup showed the
possibility of screening such live events and
proved that it was technically and logistically
possible to exhibit such events from around
the world. In the field of the performing arts,
we screened a series of live shows from the
New York Metropolitan Opera, the National
Theatre and Glyndebourne, all of which were
well attended. Alternative content is growing,
but is currently still a niche offer and therefore
a small contributor to revenues compared
with film.
Retail
It is pleasing to report that net retail spend
per person held firm in 2010 at £1.73 (2009:
£1.72). This is a reflection of the competitive
offers and strength of our promotions.
08
Cineworld Group plc
Annual Report and Accounts 2010
Cineworld delivered
a strong financial
performance for the year.
Our alternative content
offering included the 25th
Anniversary shows of Les
Miserables from The O2,
the Big 4 Live (from Sofia)
and Bon Jovi and Green
Day concerts.
Admissions
Box office
Retail
Other
Total revenue
52 week
period ended
30 December
2010
total
47.2m
£m
235.8
81.6
25.4
342.8
Pro rated
52 week
period ended
31 December
2009
Total
48.2m
£m
226.5
82.8
17.8
327.1
53 week
period ended
31 December
2009
Total
49.1m
£m
230.9
84.4
18.1
333.4
As expected, our customers have become more
value conscious given the tough economic
backdrop, and we responded with a number of
value initiatives which have been successful.
We also continued to invest in new equipment
such as the roll out of new hot dog machines,
enabling faster service and reduced wastage,
and expanded the number of coffee machines
to meet growing demand. The retail stand at
Wandsworth was redesigned towards the end
of the year, as part of a new design concept
trialed at the cinema.
As previously reported, we renewed long-term
arrangements with Coca Cola in the first
quarter and the continuation of our partnership
with this recognised brand has helped us to
maintain the value of our overall drinks offer.
Advertising
Trading at Digital Cinema Media Limited
(“DCM”), our joint venture screen advertising
business formed in July 2008, improved
markedly with screen advertising revenues
rising almost 21% against the previous period.
DCM’s primary function is to sell advertising
time on cinema screens on behalf of Cineworld
and its other clients. It also engages in
related promotional work between advertisers
and cinemas. The increase in revenues
generated for Cineworld against the previous
period largely reflected the improvements in
confidence amongst advertisers in general
which helped to increase overall levels of
demand. The management team at DCM
has been driving operational efficiencies and
effectiveness so that the business is well
positioned to capitalise on the increased
flexibility offered to advertisers via the digital
format as well as on any improvements in the
overall advertising market.
A major success for DCM was winning
the account to provide screen advertising
to the Vue Cinema circuit with effect from
1 January 2011.
Since the year end Martin Bowley, Managing
Director of DCM has resigned and a
replacement is being sought.
Investment in Digital
At the end of December 2010, Cineworld
had one of the largest digital estates of any
cinema operator in the UK. Digital projection
is an important part of our strategy which
enables the screening of films (2D and 3D) and
other content using digital media. During the
first quarter of 2010 we installed 102 digital
projectors and, by the end of January 2011, we
had completed the installation of a further 150
digital projectors, thereby resulting in over 50%
of our estate having digital projectors.
On 14 June 2010, we announced our
agreement with Arts Alliance Media (“AAM”)
to roll out digital projection facilities across
the remainder of our cinema estate. The deal
will transform Cineworld and will enable us to
convert our estate to fully digital within three
years. The roll out will cost in the region of
£25m, in addition to the c£15m already spent
to date.
Under the AAM deal, Cineworld acquires the
digital projectors directly from a third party
and retains full control over the timing of
their purchase and over their installation and
operation. Cineworld benefits from AAM’s
systems, technical capabilities and utilising
AAM’s Virtual Print Fee (“VPF”) agreements
with film distributors and exhibitors. The VPF
deal covers a ten year period during which
AAM collect VPFs from film studios on behalf
of Cineworld the first time a film is played in
digital on a screen rather than in 35mm. VPFs
are, for up to ten years, discounted from the
cost Cineworld pays for film rental and reflects
the cost savings to the studios of the move to
digital. These discounts are expected to refund
a substantial proportion of the total conversion
cost of c£40m over a 7–10 year period before
taking into account the associated benefits of
3D and digital.
Unlimited Card Programme
Our unique subscription service, Unlimited,
offers a competitive value proposition to our
customers. The service offers customers the
opportunity to pay a fixed monthly (or annual)
subscription which enables them to watch
as many 2D films at our cinemas as they
wish. Cineworld prides itself on being the only
cinema operator in the UK and Ireland to offer
this service which increased its membership
Cineworld Group plc
Annual Report and Accounts 2010
09
Chief Executive
and Chief
financial
Officers’
Review
continued
further during the year. The service is one
of the pillars which underpin our strategy of
growing other revenues and admissions. It
brings to the Group the financial benefits of
regular subscription income reducing the level
of fluctuation in our revenues. It also brings
operational benefits by encouraging repeat
visits, often at off-peak times. This, in turn,
enables us to improve capacity utilisation at
our cinemas, provide more retail opportunities
and introduce a wider range of films than our
competitors. As a result, we continued to enjoy
significant market share among the smaller,
less mainstream films in 2010.
Initiatives and Developments
Activity on our consumer website increased
in the year, recording almost 54m visits
which put it comfortably in the top 50 most
visited websites in the UK (as reported in the
IMRG Experian Hitwise Hit Shops List). The
“My Cineworld” membership on the website
continued its expansion with a total database
of over 500,000 members. The growth of this
portal is an important part of our strategy to
engage further with our customers and, in turn,
should enable us to improve our customer
retention and to encourage more frequent
visits to our cinemas. We extended our mobile
enabled web booking service by being the first
UK cinema chain in 2010 to launch an app for
the iPhone.
Our corporate website was upgraded and
relaunched in May 2010 as part of our plan
to introduce electronic communications with
our shareholders which went live towards the
end of the year thereby helping to reduce our
environmental impact.
Our partnership with Tesco through its Clubcard
programme continued to flourish, aided by its TV
advertising to promote the ticket offer, helping to
raise Cineworld’s brand profile nationally.
In addition, we have started to focus on
improving utilisation of cinemas at off peak
times particularly through the hire of individual
auditoriums. We continue to make progress
in offering our cinemas as venues for other
purposes from corporate conferences and
private film hires, through to educational
meetings and religious gatherings on
Sunday mornings.
Our People
Attracting, developing and retaining talented
staff is important for our business. It is vital for
our continued success that we encourage our
employees’ personal development and career
progression. A new performance management
process was successfully trialled in 2010
and was rolled out to the organisation at the
start of 2011. It involved all senior and line
managers with the aim of providing meaningful
employees’ objective setting and structured
performance reviews. By using this framework
we aim to increase further the high proportion
of cinema management and supervisory
positions which are held by internally promoted
employees, thereby bringing operational
and financial benefits to the Group. The new
recruitment website, launched in early 2010,
has produced positive feedback from cinema
management. The website has proven to be a
useful tool for improving the efficiency of the
candidate selection process and ultimately
improved staff retention.
Expansion
We continue to look for opportunities to expand
our estate. On 25 June we acquired the trade
and assets of the multiplex cinema at The O2
in London and agreed a 25 year lease with
the Waterfront Limited Partnership, part of
the Anschutz Entertainment Group (“AEG”), to
operate it. The O2 is the world’s most popular
music venue by ticket sales (Source: Pollstar
listed ticket sales) and the cinema is an 11
screen multiplex seating a total of 2,844
people with gross box office revenues of £4.1
million in 2009 (source: Rentrak/EDI). On 24
May we announced an agreement for a 25
year lease for a new nine screen cinema at the
Wembley City retail and leisure development
which will seat 1,800 people in total and which
is scheduled to open in 2013.
In respect of 2011, we have plans to open
a seven screen cinema in Leigh towards the
end of the year and will commence fit out of a
seven screen cinema in Aldershot (planned for
opening in the first quarter of 2012). Whilst the
uncertainty over development financing and
timing of new projects continues, we have seen
a rise in confidence in the property market
during the year with renewed interest in existing
proposals as well as new plans and ideas being
tabled. Expansion remains a key strategic
priority for the Group over the medium term
10
Cineworld Group plc
Annual Report and Accounts 2010
The successful live
screening of certain high
profile rugby and football
events in 3D in 2010 has
given us confidence to
widen our horizons.
and we are ensuring that we have the financial
capability, through a new increased bank
facility, to pursue such opportunities. We are
working with well known retail names on new
developments as well as reviewing potential
acquisition opportunities.
At 30 December 2010, the Group had increased
its estate to 78 cinemas with 801 screens.
Key trends and factors Potentially Affecting
the future
The future success of the Group in 2011 will
remain principally dependent on the strength
of the film releases during the year. Sequels
and franchises will continue to contribute
a significant number of the higher profile
blockbuster films. Many such films outperform
the original film or concept, so the film studios
will continue to look to capitalise on proven
successful formulae. The overall film release
programme for 2011 is known and there is a
strong line up of potential blockbusters.
The major product for the cinema industry will
remain 2D films, though 3D films and other
content will continue to gain popularity as
more content is provided digitally. Our plans
for digital mirror these trends and include
converting our entire estate to digital which
will provide greater flexibility in screening
arrangements.
Alternative
content and
conferencing
With some unique features to
offer the corporate market,
the Cineworld cinema in
The O2 has already started
building its reputation as
a specialist conference
venue as well as a cinema.
According to Marketing
Manager, Alice Serras, its
11 digital state-of-the-art
screens, including the Sky
Superscreen -the largest
in Europe – combined with
Cineworld’s customer service
credentials have helped it
start to compete successfully
in this highly competitive
market. Events to date have
included regional conferences
from businesses based in
Canary Wharf and hosting
premieres for major theatrical
releases.
for more information visit
www.cineworldplc.com
Cineworld Group plc
Annual Report and Accounts 2010
11
In 2010 there were 25 3D films released. In
2011 there are over 30 3D films scheduled for
release and studios are reportedly planning to
convert some older film titles to 3D as well.
Customers have been prepared to pay higher
ticket prices to see 3D films, even though
certain sections of the customer base prefer
to see 2D for cost reasons. Higher prices for
3D films are expected to continue and with
an increasing number of 3D films planned for
release, should support further revenue growth.
Within the area of alternative content, the
successful live screening of certain high profile
rugby and football events in 3D in 2010 has
given us confidence to widen our horizons
beyond traditional art-based content such
as plays, opera and concerts. The source of
alternative content is currently fragmented.
Stabilisation and consolidation amongst
suppliers should increase the range of content,
improve the operational delivery and result in
financial savings. Revenues from alternative
content are anticipated to grow further, albeit
from a small base.
We have seen increased demand from
advertisers which have benefited our screen
advertising revenues in 2010 and anticipate that
demand in the advertising industry in general will
continue to hold up, supported by the greater
flexibility offered by our conversion to digital.
Chief Executive
and Chief
financial
Officers’
Review
continued
The major element of
other revenue is screen
advertising revenue which
reported strong growth
of almost 21.0%, a reflection
of the recovery in
advertising demand.
Cineworld O2
Cineworld’s
premier site
Located in the prestigious
O2 arena, the newly acquired
Cineworld O2 cinema is now a
Cineworld flagship venue. The
General Manager has focused
on staff training and recruited
a new management team to
bring customer services up to
Cineworld’s exacting standards
and meet the high level of
customer’s expectation from
such an impressive venue.
Today the Cineworld sparkle
is evident. Staff are proud of
their venue and the “mystery
shopper” scores were some
of the highest in the Group in
December 2010. Admissions
have been growing and in
February 2011 it successfully
hosted the opening event of
Justin Bieber’s first Motion
Picture – “Never Say Never”.
for more information visit
www.cineworldplc.com
12
Cineworld Group plc
Annual Report and Accounts 2010
We aim to deliver the best
experience to O2 from
fresh popcorn to state-
of-the-art 3D screens.
As reported last year, we continued to enjoy
strong mid week business, particularly in
conjunction with “Bargain Tuesdays” and
“Orange Wednesdays” promotions which
demonstrates that customers are seeking
greater value in the current economic climate.
Plans for new cinemas will remain less certain
until finance for developers becomes more
readily available. Nevertheless we remain
committed to expanding our business –
through the development of complementary
activities, opening more cinemas and through
the acquisition of other cinema portfolios,
facilitated by our strong financial position.
Cineworld will continue to offer a highly
compelling choice within the wider range of
entertainment and leisure activities. We believe
going to the cinema remains one of the best
value forms of popular entertainment and
financial Performance
Admissions
Box office
Retail
Other
Total revenue
EBITDA*
Operating profit
Financial income
Financial expenses
Net financing costs
Share of loss from joint venture
Profit on ordinary
activities before tax
Tax on profit on ordinary activities
Profit for the period attributable to
equity holders of the Company
will continue to attract audiences who seek
quality film product and the immersive viewing
experience that remains unmatched by any
other media.
Revenues
Total revenue for 2010 was £342.8m a rise
of 4.8% on the prior period (2009: £327.1m)
or a 2.8% rise on a reported 53 week basis
for 2009.
As a result of strong film product, we enjoyed
excellent trading during the period. Box office
revenue was 4.1% higher at £235.8m (2009:
£226.5m) though admissions were 2.1% lower.
Compared to the reported 53 week basis for
2009, box office revenue was 2.1% higher than
2009 on 3.9% less admissions.
Retail sales for the year were 1.4% lower at
£81.6m (2009: £82.8m) or 3.2% lower against
52 week
period ended
30 December
2010
total
47.2m
Pro rated
52 week
period ended
31 December
2009
Total
48.2m
53 week
period ended
31 December
2009
Total
49.1m
£m
235.8
81.6
25.4
342.8
59.0
37.1
1.6
(8.2)
(6.6)
(0.1)
30.4
(9.4)
£m
226.5
82.8
17.8
327.1
54.6
38.9
1.2
(9.7)
(8.5)
(0.1)
30.3
(10.2)
21.0
20.1
£m
230.9
84.4
18.1
333.4
55.7
39.6
1.2
(9.9)
(8.7)
(0.1)
30.8
(10.4)
20.4
* EBITDA is defined as operating profit before depreciation, impairments, reversals of impairments and amortisation,
onerous lease and other non-recurring or non-cash property charges, transaction and reorganisation costs.
Cineworld Group plc
Annual Report and Accounts 2010
13
Chief Executive
and Chief
financial
Officers’
Review
continued
the reported 53 week basis. The fall in retail
sales was due to reduced admissions given
that the sales per person held firm at £1.73
(2009: £1.72), a satisfactory outcome given
the challenging consumer environment.
Other revenues increased by 42.7% to £25.4m
(2009: £17.8m). Compared to the 53 week
reported basis for 2009 the increase was
40.3%. The major element of other revenue
is screen advertising revenue which reported
strong growth of almost 21.0%, a reflection
of the recovery in advertising demand. Other
revenues from non screen advertising such
as ticket bookings, theatre hires and sales
of 3D glasses were up 75.4% mainly due to
the change to selling 3D glasses separately
towards the end of 2009.
EBItDA and Operating Profit
EBITDA was up 8.1% at £59.0m against the
2009 figure of £54.6m (5.9% higher than the
reported 53 week basis for 2009) and was
achieved through better customer spend levels
and cost margins and continued management
of operating costs. The estimated contribution
to EBITDA from the additional week in 2009
is approximately £1.1m and approximately
£0.6m to operating profit. Operating profit
at £37.1m was lower than 2009 of £38.9m
(reported 2009: £39.6m) due to property
related provisions and net impairments of
£0.8m and £3.2m respectively. A provision
of £0.8m was made during the year to cover
potential increases in dilapidations for two
non-trading properties, where the Group
believed it probable that it will exit the leases,
and this was charged to administrative
expenses. In addition, the Group made a
net impairment charge of £3.2m. £4.5m of
assets was impaired at sites where the Group
considered that the carrying values of their
assets exceeded the present values of the
future expected cash flows generated at those
sites and there were also impairment reversals
of £1.3m of assets that had been impaired in
the past. These assets related to sites where
the conditions supporting the improvements
in trading were considered sustainable in
the future.
Earnings
Overall profit on ordinary activities before tax
was £30.4m compared with £30.3m in 2009.
Basic earnings per share amounted to 14.8p
and adjusted pro-forma diluted earnings per
share were 18.1p (using a normalised tax rate
of 28.0%). This compares favourably with the
2009 adjusted pro-forma earnings per share of
16.2p. The weighted average number of shares
during 2010 was 141.7m including 20,088
shares issued during the year.
finance Costs
The falls in interest rates in 2009 continued
to benefit the Group in 2010, aided by the
reduction in net debt. The interest expense in
the year relates primarily to interest on bank
debt. The majority of the remaining interest
charge is non-cash interest on onerous leases,
the pension scheme and the finance lease.
taxation
The overall tax charge was £9.4m giving an
overall effective tax rate of 30.9% for the year
(2009: 33.8%). The corporation tax charge
consisted of the charge in respect of the current
year of £8.3m and a credit of £0.6m relating
to prior years. The balance of the tax charge of
£1.7m principally resulted from the utilisation
of a deferred tax asset relating to capital
allowances (the difference between the tax
written down value of the capital allowance and
the net book value of the underlying assets).
Cash flow and Balance sheet
The Group continued to be strongly cash
generative at the operating level. Total cash
generated from operations was lower than for
2009 (£50.7m compared to £54.6m in 2009)
primarily due to the significantly lower trading
levels in the weather affected December 2010
compared with 2009 and meant much lower
creditor levels at the end of 2010 compared
with 2009. The recovery in trading since the
end of the year has helped to reverse the short-
term outflow of operating cash in December
and it will improve further in line with continued
strong trade.
Net cash spent on capital for the year was
£20.3m. Included in this cash expenditure was
£9.4m in relation to the purchase of digital
projectors (the balance of the cost of £10.5m
was paid after the year end) and £4.2m for new
sites including expenses for the acquisition
of the cinema at The O2. The balance of
other capital expenditure of £6.7m was for
14
Cineworld Group plc
Annual Report and Accounts 2010
equipment replacement, site refurbishments
and expenditure on various initiatives such
as website enhancements and upgrading of
automated ticket sales points. The high level of
internally generated cash has funded our entire
capital expenditure whilst repaying term debt of
£9m and paying dividends of £14.5m.
Net debt at the end of December 2010 fell to
£100.8m (2009: £104.3m). Net debt included
a £2.8m liability valuation of the interest rate
swap hedge on the bank loan (2009: £3.9m
liability). The liability position arose because
the fixed rate of interest payable on the swap
was higher than the three month LIBOR rate
receivable on the hedged portion of the loan for
the remainder of its term.
Like the previous year, the Group remained well
within its banking covenants and continued to
achieve the financial targets which enabled it
to benefit from a low margin on its bank debt of
0.7% above three month LIBOR. Bank debt at
the end of the year was comfortably below two
times the EBITDA of 2010. The Group enjoys
the security of a revolving credit facility of up
to £30.0m (undrawn at the end of the year) as
part of the overall bank facility which further
enhances the Group’s overall liquidity.
Since the year end the Group has received
commitments from a group of banks for a
new five year facility of £170m to replace its
existing facility which is due to expire in May
2012. The new facility will provide the Group
with more flexibility to finance future expansion
plans as well as other growth opportunities.
Documentation is being drafted between the
Group and the participating banks and all
parties are working to complete the process in
the near future.
Dividends
The Directors are recommending to
shareholders for approval a final dividend in
respect of the period ended 30 December
2010 of 7.1p per share, which taken together
with the interim dividend of 3.4p per share
paid in October 2010, gives a total dividend
in respect of 2010 of 10.5p per share, a 0.5p
increase on the level in 2009. Subject to
shareholder approval, the final dividend will
be paid on 6 July 2011 to shareholders on the
register at 10 June 2011.
Board Changes
On 2 July 2010, Martina King and Rick Senat
were appointed to the Board as independent
Non-Executive Directors. Martina King was
the first Managing Director of Yahoo! UK and
Ireland before becoming the Managing Director
of Yahoo! Europe. Rick Senat has sat on the
Boards of a number of film companies and
worked for 24 years at Warner Bros. Martina
King and Rick Senat were also appointed
to the Remuneration and Audit Committees
respectively. Both Directors bring with them
a wealth of experience in areas particularly
relevant to Cineworld’s activities.
On 18 November 2010, Alan Roux left the Board,
following the divestment by the Blackstone
Group (“Blackstone”) of its 20.1% interest in
the Group. Blackstone’s and Alan’s contribution
have been of great value. Matthew Tooth, the
second Blackstone appointed director, agreed
to stay on in an independent capacity.
Current trading and looking Ahead
With the improvement in the weather, the New
Year has started well. We were pleased to see
admissions return to levels expected for the
time of year and have enjoyed some carry-over
of business from the Christmas period, in
particular with “Little Fockers” and “Gulliver’s
Travels”. Moreover, the success of “The King’s
Speech” has exceeded box office expectations,
grossing over £40m in the UK to date as well
as winning 4 Oscar awards.
A combination of strong current trading and
long-term balance sheet stability following the
expected refinancing provides the Group with
attractive additional flexibility to push ahead
with its expansion plans.
With a strong film release schedule in 2011,
including over 30 3D films, the continued roll out
of our digital projectors, increasing expectations
for screen advertising and the roll out of new
sites, we are confident of the prospects for the
business in the forthcoming year.
stephen Wiener
Chief Executive Officer
Richard Jones
Chief Financial Officer
10 March 2011
Cineworld Group plc
Annual Report and Accounts 2010
15
Risks and
Uncertainties
Cineworld has one of the largest digital
and 3D estates in the UK and is better
placed to address digital conversion.
Cinema-going in the UK
is driven primarily by
output from Hollywood,
which is dominated by
six film studios.
The following is a summary of the principal
business specific risks and uncertainties
facing the Group rather than all risks. If
any of these risks or other unforeseen
risks materialise, they could have a serious
adverse effect on the Group’s business and
its financial condition, in turn impacting upon
the value of its securities in issue. Where
possible and appropriate, the Group seeks to
mitigate these risks and uncertainties. Some
factors which may mitigate particular risks
and uncertainties are also set out below. In
determining whether a risk is principal or not
regard has been taken of the Group’s risk
register, the probability of a particular risk
crystallising and the impact it would have if
it did.
Availability of film Content
Cinema-going in the UK is driven primarily by
output from Hollywood, which is dominated
by six film studios. There is a risk that these
studios may seek to negotiate film hire terms
less favourable to Cineworld. Such a move
could be countered in part by Cineworld’s
negotiating position due to its market share in
the UK and Irish markets.
During periods where there are fewer or no
major films to drive cinema attendance, our
box office revenues may decline. Cineworld’s
Unlimited card subscription service generates
regular subscription revenues which helps to
offset lower box office receipts during quieter
trading periods. It is also part of Cineworld’s
wider strategy to promote interest in a range
of films beyond the traditional Hollywood
blockbuster in such areas as Bollywood, other
foreign language and small and mid-range films.
Poor film scheduling
After release, the commercial success of a
film can easily be measured by the level of box
office revenues. There are however inherent
risks in trying to forecast the success of a
film due to the subjective qualities of the
product and preferences of the customer.
Cineworld employs a specialist team which
focuses specifically on such matters and is
experienced in film booking and scheduling.
Digital Conversion
Although over half of Cineworld’s projection
facilities are now digital, a significant
proportion remains in 35mm, as is the case
with the whole UK cinema industry. The slow
conversion to digital within the UK cinema
industry is mainly due to the high costs of new
equipment. The film studios stand to make
significant savings from producing digital prints
due to lower film distribution and production
costs and there is a risk that the film studios
will be encouraged to reduce the supply of new
films in 35mm. This, in turn, could make 35mm
prints more difficult to obtain and more costly to
hire, and require conversion to happen faster.
Cineworld currently has one of the largest digital
and 3D estates in the UK and is financially
better placed than many other exhibitors in the
UK to address the digital conversion issue. As
conversion continues, the risk will reduce.
Alternative Media
Film studios may choose to release their films
through other channels instead of primarily
through exhibition at cinemas. The box
office success of a film is often, however, an
important factor in establishing its value in
subsequent film distribution channels such as
streaming, DVD, cable and pay television and
the internet.
Also the film studios may seek to reduce
the release window (the period between the
film being released at the cinema and other
distribution channels as mentioned above). The
window is currently agreed at approximately 16
weeks, to capitalise on box office awareness
and success. Cinema exhibitors have,
historically, mitigated this threat by refusing to
screen films which has minimised reductions in
the release window to date.
The existence of DVD (and video before that)
has proven the ability of cinema to co-exist with
alternative media. Additionally the increase in
use of digital and 3D technology in cinemas
should encourage the film studios to continue
to use cinemas as the primary release channel.
Advancement of technology
The continuing development of existing and
new technology (such as 3D television) may
introduce new competitive forces for the film-
going audience. The cinema does, however,
provide a unique social experience that to date
cannot be matched by watching films at home.
16
Cineworld Group plc
Annual Report and Accounts 2010
film Piracy
Film piracy (aided by technological advances)
has long-term implications for the business and
industry as it may eventually force film studios
to invest less in films resulting in the release
of fewer films and/or an increase in the use of
other channels for releasing films. So far, the
impact of piracy has been higher on alternative
media (especially on DVD) than on cinema.
Furthermore, it is currently not possible to
produce a 3D pirated version of the original film
from a portable recording device used
in a cinema.
screen Advertising Revenue
Screen advertising accounts for a significant
proportion of the Group’s profits and the
level of revenues earned will be affected by
the overall demand for advertising and the
competitive pressures for that advertising
spend. The formation of Digital Cinema Media
Limited in 2008, with a joint venture partner,
was a positive step towards taking closer
control of future screen advertising revenues.
The advantages of screening advertisements to
a captive audience in cinemas and the flexibility
of digital media to deliver more and varied
advertising are potential opportunities
to attract more advertisers and to generate
higher revenues.
Poor location selection
The selection of the wrong location for the
development of a new cinema could result
in lower than expected returns and a series
of poor decisions on location could seriously
impact the Group. Each potential site is
reviewed carefully and the management team
are experienced in the choice of location for,
and development of, new sites.
Extreme Weather Conditions
Unusual weather patterns such as
unseasonably warm summers or extreme
snowfalls in winter can impact attendances at
cinemas and, particularly where this coincides
with major film releases, it could have a
significant effect on revenues. In 2010, heavy
snowfalls prevented staff and customers
travelling to cinemas resulting in their
temporary closure and lower admission levels.
Most of our cinemas are air conditioned and, in
periods of extended warm weather, historically
audience levels have returned to near normal
seasonal levels after a while.
UK and Global Economy
The main driver of cinema-going is the film,
although it is recognised that macro-economic
influences may affect cinema-going and the
level of retail spend per customer on each visit.
With cinema being a less expensive form of
entertainment and leisure, economic downturns
may benefit cinemas at the expense of other
entertainment and leisure activities.
Any reduced consumer demand may impact
the level of advertising spend which may lead
to reduced screen advertising revenues. In
addition, the price of energy and foodstuffs has
a direct impact on costs which we may not be
able to pass on to customers.
The failure of one of the banks used by the
Group could result in the loss of deposits and/
or banking facilities. Banks are monitored
and reviewed and deposits spread between a
number of institutions to reduce the risk.
Availability of Capital
The cost and availability of finance, both debt
and equity, will affect the Group’s ability to
undertake investment and expansion. This has
been highlighted by the recent developments in
the financial world which have caused severe
reductions in lending and reduced investor
confidence. Limited availability of capital has
impacted property developers who have not
been able to proceed with developments which
would have included new cinemas. Reduced
lending may also affect the financing of film
productions which could reduce the supply
of films and/or delay their production and
releases in cinemas.
Existing and New Competitors
Existing competitors could change their
strategies or a new competitor could enter the
market at a local or national level reducing
trade. The cost of developing new sites or
acquiring existing cinemas are, however,
barriers to entry as is the lack of readily
available cinemas for acquisition.
Cineworld Group plc
Annual Report and Accounts 2010
17
Risks and
Uncertainties
continued
Cineworld aspires to be
a quality employer, seeking
to provide the conditions
to enable all employees
to progress.
Government Regulations and Actions
Cineworld’s business and operations are
affected by central and local regulations
covering such matters as planning, the
environment, health and safety, licensing,
food and drink retailing, data protection and
the minimum wage. Failure to comply with this
type of legislation may result in fines and/or
suspension of the activity or entire business
operation. In addition, changes to pension
legislation and regulation relating to the
Group’s defined benefit schemes, could
result in additional costs from funding the
scheme’s liabilities or from changes in the
way it is administered.
terrorism
Terrorist attacks, civil unrest, or other
geopolitical uncertainty could adversely impact
cinema attendances and the efficient operation
of the Group’s business.
loss of Key Management (or failure to attract
or retain the talent required for its business)
The policy of the Board is to attract, retain
and motivate executives of the calibre and
experience required, through competitive
remuneration packages which may have
a cost implication. Cineworld aspires to
be a quality employer, seeking to provide
the conditions to enable all employees to
progress in their employment and develop their
skills and abilities and to promote internally
where possible.
failure of It systems and suppliers
The failure of the Group’s IT systems, including
its website, telephone booking service and
Unlimited card scheme administration, could
seriously impact its continued success. The
Group’s website, telephone booking service
and Unlimited card scheme administration
are hosted by different specialist companies.
The cost of Cineworld’s digital conversion is
to be recovered via the “Virtual Print Fee”
arrangement which will be administered via
Arts Alliance Media (“AAM”) on behalf of
Cineworld. Any significant failure to recover
these sums would adversely impact Cineworld’s
financial position.
Cineworld chose AAM because of the quality
of its systems and experience in administering
this type of contract. In addition, all suppliers
are monitored and the Group employs an
appropriately qualified team to maintain its
in-house systems.
18
Cineworld Group plc
Annual Report and Accounts 2010
Corporate
Responsibility
Cineworld seeks to integrate CsR
considerations relating particularly
to social, ethical, health and safety,
and environmental issues in its
day-to-day operations.
Cineworld has continued
to show a wider range of
film including non-English
language titles, smaller
British releases and
independent American
productions.
The Board is committed to ensuring that an
appropriate standard of corporate governance
is maintained throughout the Group. This
commitment includes recognition by the Group
of the importance of taking into account its
corporate social responsibilities (“CSR”)
in operating the business. In this context,
Cineworld seeks to integrate CSR considerations
relating particularly to social, ethical, health
and safety, and environmental issues in its
day-to-day operations. The Board acknowledges
its duty to ensure the Group conducts its
activities responsibly and with proper regard
for all its stakeholders including employees,
shareholders, business partners, suppliers and
the local communities. Further information in
respect of the Group’s activities is set out below
together with illustrative examples.
Community
Cineworld observes the British Board of Film
Classification’s guidelines for film classification
unless the local authority specifies otherwise;
within this, however, it seeks to show as wide a
range of film product and other screen content
as possible. This is frequently driven by the
local community and its needs. Cineworld has
been once again the number one exhibitor in
the UK for Bollywood product with over 50%
box office share over 47 titles. In addition,
Cineworld has continued to show a wider range
of film product than its main competitors in
the multiplex industry including non-English
language titles, smaller British releases and
independent American productions. Cineworld
has also continued to increase the amount of
non-film alternative content which it exhibits.
Live screenings from the Metropolitan Opera
and the National Theatre have attracted
different audiences to Cineworld cinemas
across the country. There have also been live
screenings of acts and shows as diverse as
Bon Jovi, Metallica, Andre Rieu, Les Miserable
and Simply Red. Cineworld has also shown live
sport in 3D in the form of Six Nations Rugby
and the FIFA World Cup. Screening such a
wide range of content means that we attract
a wider range of audiences into our cinemas
and are able to distinguish ourselves in the
marketplace from our principal competitors by
offering more.
In 2010, Cineworld once again worked with
various charities, local government and
community groups. Cineworld took part in
a screening programme in conjunction with
BAFTA and local children’s hospices. In
addition, Cineworld hosted the second annual
screening for the British Forces Foundation for
families whose members are serving abroad.
Cineworld also hosted the national Times
Spelling Bee competition. Many cinemas also
work on their own individual projects with
local charities. All these events increase the
profile of the Cineworld brand and help place
Cineworld at the centre of local communities as
well as supporting worthy causes.
Cineworld was, once again, the major venue
partner for the Edinburgh International Film
Festival, the Jameson Dublin International Film
Festival and the Bradford International Film
Festival as well as taking part in a number
of smaller regional and local festivals. It
also continued its sponsorship of two MA
scholarships at the National Film and Television
School. These activities continue to increase
awareness of the Cineworld brand in audiences
that might not normally associate Cineworld
with this kind of wider film based activity.
Access for All
Cineworld has been keen to promote a “Movies
for All” policy. Increasing accessibility results
in local cinemas playing a fuller role in the
communities in which they operate and offer
larger potential audiences. On Saturday
mornings it is still possible for children to see
films for £1 which is a price that has not been
increased for over 14 years. Senior citizens
and students also receive discounts at certain
times. Free tickets are offered to helpers of
wheelchair users registered with the Cinema
Exhibitor Association (“CEA”).
All new cinemas are designed to exceed current
statutory requirements to provide buildings
which are technically advanced, yet meet
high operational standards in terms of public
service, safety and accessibility. They are
designed to remove physical features which
can hinder the use of the facility by the less
physically able, so that auditoriums are as
accessible as possible given the restrictions of
any particular location. The opportunity is also
taken to enhance access within cinemas when
they undergo major refurbishment as part of an
on-going programme of improvements.
Cineworld Group plc
Annual Report and Accounts 2010
19
Corporate
Responsibility
continued
The business has a
Disability Focus Group
which meets regularly
to review all aspects of
disability access and
the improvement in
the services provided
in this area.
The business has a Disability Focus Group
which meets regularly to review all aspects
of disability access and the improvement
in the services provided in this area which
include regular screenings of subtitled and
audio descriptive films, the installation of
infrared systems in all new build cinemas and a
programme of replacing induction loop systems
in older cinemas during refurbishments. All
these changes have helped to improve overall
coverage for the hard of hearing within the
cinemas and are linked to digital projection
becoming more widespread. With an ongoing
programme being implemented for the
installation of digital projection to existing
cinemas and full digital projection being
installed in new cinemas, it will be possible to
provide further improvements in our facilities
for the hard of hearing and the partially sighted.
By 31 December 2010, 377 screens with
digital projection had been upgraded in this
way with plans to complete upgrades for all
cinemas by late 2012.
film Piracy
With the increase in simultaneous worldwide
film releases and UK first releases, there
remains a significant risk of piracy within
the cinema industry. Cineworld continued to
work closely with the CEA, Federation Against
Copyright Theft (“FACT”) and INFA©T Ireland in
order to help reduce and prevent film piracy. In
line with Cineworld’s operational strategy, each
cinema management team is responsible for
ensuring that they do everything reasonably
practicable, including the use of night vision
technology, to protect the intellectual property
rights of films and alternative content exhibited
within our cinemas.
With the ever changing threat of evolving
technologies and smaller undetectable
recording devices, Cineworld mitigates this
risk by constantly reviewing and developing its
training programme, policies and procedures
to ensure its staff are able to combat film
piracy effectively. Each member of cinema
staff is now required to complete the FACT
Film Test as part of their induction and ongoing
training. Cineworld also increases the level of
vigilance around high-profile vulnerable titles
when released.
There were a number of notable successes
in 2010 such as the police in Glasgow
arresting and charging an individual with five
counts relating to copyright laws following
a very complex investigation with FACT, the
police and Cineworld working together. This
investigation has now led to many further
arrests in the Midlands area and the resulting
prosecutions are currently on-going. In another
case, Birmingham police prosecuted an
individual following a recording incident at
Cineworld in Broad Street earlier in the year.
These successes have resulted in a number of
awards for our staff including four being made
by FACT to Cineworld employees for the work
done in detecting piracy activity at a ceremony
in September hosted by Paramount Pictures,
one of the major film distributors.
Environment
Cineworld seeks to comply with all relevant
environmental legislation and to operate in an
environmental sensitive manner. The Directors
acknowledge the impact that the business has
on the environment and is operating a number
of processes to reduce the quantity of paper
and packaging that is used in the business.
Employees are encouraged to eliminate
unnecessary travel and use other methods
of communication in its place. Computer and
other office equipment that has reached the
end of its working life is resold, recycled or
donated to local organisations as appropriate.
Being a multi-site business, the Group is
conscious of its total energy consumption and
the amount of waste materials generated and
is actively working to reduce both energy usage
and the quantity of waste materials produced
that cannot be recycled. The Group continues
to run pilot projects to evaluate possible
measures to reduce its environmental impact.
One such trial which is currently being run is
the installation of LED lamps, detector switches
and daylight sensors at the Cardiff cinema to
help reduce energy usage. The impact of such
work is evaluated and rolled out to further sites
if appropriate.
As required during the year, the Group
registered in the Environment Agency’s Carbon
Reduction Commitment Energy Efficiency
Scheme (“CRC”) which will track carbon
emission from energy consumption of our
20
Cineworld Group plc
Annual Report and Accounts 2010
UK cinemas. The majority of our cinemas
already have half-hour read electricity meters
or automated meter reading (“AMR”) meters.
To improve monitoring of energy usage, AMR
meters are being installed in the remaining
cinemas that have old style electricity meters
and this is expected to be completed in the
first half of 2011. The installation of AMR gas
meters has also been commenced with 41
installed by the end of 2010. Cinemas that
have the up-to-date meters receive a weekly
consumption report which enables them to
monitor actual usage against expected energy
usage. In addition, an Energy Champion has
been appointed at each cinema to focus on
best practices in order to drive reduction in
energy consumption. As a consequence of the
steps already taken, over half of our cinemas
used less electricity than in the prior year and
the Group achieved in total a 2% reduction in
electricity use across 67 comparable sites.
The conversion to digital technology, which
continued during the year, further reduced
Cineworld’s environmental impact. The move
away from 35mm celluloid prints represents
a direct reduction in the use of raw materials
for the production of these bulky prints using
chemical processes, but also the amount of
waste that is ultimately produced as these
prints are shredded and are unable to be
recycled at the end of their relatively short life.
In addition, the distribution of digital content
through small hard drives is greatly reducing
the delivery costs and associated carbon
footprint. Throughout the year, over 25% of film
content and 100% of all alternative content
was delivered in digital format. One film was
successfully delivered solely by satellite
to sixteen sites during the year as a trial.
Ultimately cable or satellite delivery should
remove the carbon impact almost completely.
The introduction of 3D technology has brought
its own challenges. Throughout the UK, the
use of special disposable 3D glasses to
enable this format has been the norm. In
early 2009, Cineworld started to recycle these
glasses and this had a significant impact on
the amount of wastage. In November 2009,
it altered its pricing structure from a premium
for 3D films with “free” glasses to a smaller
premium but with customers being required to
purchase glasses separately. This change has
significantly encouraged customers to retain
their glasses for future use and, during 2010,
on average around 40% of audiences for 3D
films brought with them glasses obtained from
previous visits. In addition, the marketing of
special 3D glasses has, and should, continue
to help the level of reuse accelerate.
Retail
Cineworld takes a proactive stance on how
it markets food and drink in its cinemas and
continually looks to respond to the challenges
of marketing responsibly through offering more
healthy options and reducing its impact on
the environment, whilst maintaining the wide
overall choice that customers demand.
2010 saw the full roll out of two key initiatives
commenced last year. Firstly, all of Cineworld’s
sites now serve popcorn made using GM free
rapeseed oil, a much healthier option than the
previous coconut oil to which customer reaction
has been favourable. In addition in the first
quarter, we completed the switch to the new,
slimmer popcorn bag reducing raw materials by
some 39% in this respect.
We are now working with our principal suppliers
on improving aspects of our products and
range in the area of both sizing and distribution.
We are also undertaking a review of all sizes
and combo packages to ensure that they meet
customers’ expectations and offer greater
choice. As part of this review, we will also be
exploring what we can offer in the way of more
healthy options and how we can communicate
more clearly the nutritional information for our
unpackaged goods such as popcorn, hot dogs,
nachos and dispensed soft drinks.
We continue to look to reduce the number of
weekly deliveries into all of our sites. Each
time a contract comes up for renewal, the
renewal arrangements are carefully reviewed
to ensure that they are not only commercially
beneficial, but also that full account is taken of
environmental considerations.
Our People
Cineworld’s people remain central to its
success and a number of Human Resources
(“HR”) initiatives were launched in 2010 to
continue the business’s on-going success.
Cineworld Group plc
Annual Report and Accounts 2010
21
Corporate
Responsibility
continued
For site managers, a
series of bespoke “core
courses” ensure continual
professional development,
ensuring that learning
is at the heart of the
cinema operation.
Stevenage
A 100% focus on the customer
was one of the key reasons for
Stevenage’s Georgina Jones’ success
in being chosen as General Manager
of the Year. Winner of this coveted
award in 2010, Georgina’s and her
team’s approach is helping the cinema
produce strong results: attendances
are rising steadily year-on-year and
spend per customer is up.
The focus on customers begins with
induction training and is reinforced by
a hands-on management style where
line managers are expected to be role
models and set the standards for their
teams to follow. Team meetings focus
on “Mystery shopper” feedback and
competitions, incentives and staff
screenings keep staff involved and
motivated. The team are proud of their
site and it shows.
for more information visit
www.cineworldplc.com
Two HR initiatives were aimed at our most
senior people. The first was a leadership
development programme for our Executive
Directors and Senior Managers and this
involved 360 degree profiling combined with
bespoke development plans. The second
initiative called “The Academy” has been
developed over the year and will commence
in March 2011. It is over and above our core
development programmes and is aimed at
high potential managers. The Academy will
develop existing high potential talent for our
largest and most critical sites by providing
skills in executive management and strategic
leadership and will result in delegates achieving
a qualification which is the equivalent to a
master’s degree. It will provide a route for
progression to those who want to advance
and will ensure that the Group has sufficient
quality candidates when vacancies arise at the
largest sites.
Additionally, our ongoing learning and
development programmes ensure that every
employee receives a thorough induction and
thereafter further development opportunities
are available to help them progress within the
Group. For site managers, a series of bespoke
“core courses” ensure continual professional
development, ensuring that learning is at the
heart of the cinema operation. Our annual
learning and development “event” course
focuses on a particular aspect of the business
with a film based theme. Our most recent event
course, aimed at General Managers, was called
“The Greatest Show on Earth”. It centred on
customer service and recognised that, when
people visit our cinemas, they should have the
best experience possible.
In 2009, Cineworld introduced work based
vocational qualifications (“NVQs”) into the
business and developed this programme
over 2010 with candidates being provided
with support and encouragement to complete
qualifications during work time. At present,
49 employees have completed qualifications
with a further 77 learners on programmes at
the beginning of 2011. It provides a route for
progression for those people at lower levels
in the organisation who want to advance
and helps to ensures that the Group has
the skills in its workforce which are key to
its ongoing success.
22
Cineworld Group plc
Annual Report and Accounts 2010
Cineworld is proud that
a high proportion of
management and
supervisory positions are
held by employees who
have started within the
organisation at lower levels.
safety to a high standard within its site to keep
all our staff, customers and other visitors as
safe as possible.
During the 2009/10 year, all cinemas were
again subject to a Fire, Food and Health and
Safety Audit and overall achieved an average
mark of 86% (with 85% now being considered
the acceptable level of performance – up
from 70% the previous year). The process was
overseen and verified by external consultants.
Follow-up audits were undertaken at sites
where standards were not found to be at
the level expected by the Group and regular
monthly compliance monitoring was completed
for all remaining sites by way of reviewing
monthly audit update submissions.
To strengthen further the safety regime, in the
last quarter of 2010, new compliance audits
were introduced for all General Managers.
These audits were followed by compliance
audits undertaken by the Regional Managers.
These two tiered audits were aimed at
providing the General Managers of each
cinema with a means of focusing on the major
fire, food, health and safety and maintenance
issues arising within their cinemas and to help
the identification of any new issues arising
as well as confirming how existing issues are
being managed.
Early indications from the 2010/11 year audit
cycle are that site standards have once again
improved on last year’s results with an average
pass mark in excess of the previous figure. Like
the audits in 2009/10, this year’s audits are
being undertaken on an unannounced basis in
order to reflect the true operation of health and
safety at each site.
An annual review of documented health and
safety policies and procedures was also carried
out in the latter part of the year to ensure that
they reflected changing legislative standards as
well as recommended good practices.
Cineworld is proud that a high proportion of
management and supervisory positions are
held by employees who have started within the
organisation at lower levels. To ensure staff are
engaged, motivated, developed and retained
there is a performance management framework
in place. All Head Office and site management
employees have objectives set followed by a
number of performance review discussions to
support and stretch their performance allowing
their full potential to be achieved. As part of
this, development opportunities are identified
and, in the summer of 2010, a “learning at
work” day was launched for our Head Office
people with 75 people attending sessions such
as “Lead and Succeed”, “The Communication
Edge”, “Win Win Negotiating Skills” and “Time-
tastic Time Management Skills”.
All employees participate in the success
of Cineworld through bonus schemes
and Cineworld is proud that for the 16th
consecutive year bonuses were paid to all
qualifying staff in 2010. Cineworld is also
committed to increasing the number of
employees who hold shares in the Group. In
December, 75 staff benefited from the first
maturity of the SAYE Share Option Scheme,
initially offered in 2007, and were able to
acquire shares at £1.60, a price well below the
prevailing market value.
All of our HR initiatives are aimed at ensuring
Cineworld remains a great place to work and in
turn, a great place to watch films. A number of
focus groups were held throughout the year to
ensure that working practices are continuously
developed and, as part of this, employees were
encouraged to share their views. Employees
are also able to share their views and make
suggestions to management at any time via
a dedicated email address. Good ideas are
captured and incorporated into ways of working
going forward for the benefit of all.
safety
The ongoing management of the day-to-day
health, safety and welfare of Cineworld’s
customers, staff and contractors is of prime
concern with over 47 million customer visits a
year. Further steps have been taken this year
to ensure that each cinema management team
has the knowledge, understanding and tools
necessary to effectively manage health and
Cineworld Group plc
Annual Report and Accounts 2010
23
Directors’
Biographies
1
2
3
4
1. Anthony Herbert Bloom, Chairman – Age 72
Anthony Bloom joined the Board in October
2004 as Chairman and has served as
Chairman of Cine-UK Limited since the
business was founded in 1995. He was
previously Chairman and Chief Executive of
The Premier Group Limited (South Africa) and
a director of Barclays Bank (South Africa).
Mr Bloom holds Bachelor of Commerce and
Bachelor of Law degrees from the University of
Witwatersrand in South Africa and a Masters
of Law degree from Harvard Law School. He
was a Sloan Fellow at the Stanford Graduate
School of Business. In 2002, Mr Bloom was
awarded the degree of Doctor of Law (H.C.) by
the University of Witwatersrand in recognition
of his contribution towards the establishment
of a non-racial society in South Africa.
2. Richard David Jones, Chief financial
Officer – Age 49
Richard Jones joined the Board in March 2006.
Mr Jones joined Touche Ross in 1984 where he
qualified as a chartered accountant and worked
in the audit and corporate finance teams. In
1993, Mr Jones moved to the corporate finance
division at Clark Whitehill and, in November
1995, he joined the team at Cine-UK Limited.
He was appointed Group Chief Financial Officer
in 2005 and has responsibility for all aspects
of finance for the Group including accounting,
taxation, treasury and business planning.
He is also responsible for IT. Mr Jones holds
a degree in mathematics from the University
of Warwick.
3. Matthew David tooth, Non-Executive
Director – Age 35
Matthew Tooth joined the Board in August
2004. Mr Tooth is a Managing Director in the
Private Equity group at the Blackstone Group
International Limited and is responsible for
Blackstone’s investments in the European
leisure and consumer sectors. He is also
a Director of ICS Group. Prior to joining
Blackstone in 2003, Mr Tooth worked in
the M&A and leveraged finance teams at
CSFB. Mr Tooth was previously a Director of
Orangina-Schweppes, Southern Cross and
Merlin Entertainments. Mr. Tooth holds a
first class honours degree in economics from
Exeter University.
4. Peter Wodehouse Williams, Non-Executive
Director – Age 57
Peter Williams joined the Board in May
2006. He is Chairman of the Remuneration
Committee and a member of the Audit and
Nomination Committees. He is the Senior
Independent Director of ASOS plc and
Sportech PLC, a Non-Executive Director
of Silverstone Holdings Limited and is a
member of the Design Council. Peter recently
worked for EMI Group during 2010 as an
Executive Director of Maltby Investment
Limited. From December 2008 to May 2009,
he was an Executive Director of JJB Sports
Plc, responsible for the turnaround strategy
and business restructuring. Previously he
was Chief Executive at Alpha Group plc and
prior to that Chief Executive of Selfridges
plc where he also acted as Chief Financial
Officer for over ten years. Mr Williams
has a degree in Mathematics from Bristol
University and is a chartered accountant.
24
Cineworld Group plc
Annual Report and Accounts 2010
9
5
6
7
8
5. stephen Mark Wiener, Chief Executive
Officer – Age 59
Stephen Wiener joined the Board in October
2004. He has 41 years’ experience in the
cinema industry, starting in the US as an
usher whilst a full time student, and rising
through various roles culminating in Vice
President for Cineplex Odeon in New York
City. He then moved to Warner Bros Europe
in 1991 to become Managing Director. In
1995, he left to found Cine-UK Limited
and developed the business into a chain
of 34 cinemas before it was acquired by
Blackstone in October 2004. At the time
of the UGC acquisition, he was appointed
Chief Executive Officer of the combined
Group. He is also a Director of the Cinema
Exhibitors Association and a Non-Executive
Director of Digital Cinema Media Limited,
the screen advertising company 50% owned
by Cineworld.
6. thomas Berard McGrath, Non-
Executive Director – Age 55
Thomas McGrath joined the Board in May
2005 and is Chairman of the Nomination
Committee. Previously he was Chief
Operating Officer of Viacom Entertainment
Group and President of Time Warner
International Broadcasting, prior to which
he worked for Columbia Pictures. Mr
McGrath is currently a Senior Managing
Director of Crossroads Media Inc. and
serves on the board of directors of BUG
Music and Key Brand Entertainment. Mr.
McGrath holds a BA and an MBA from
Harvard University.
7. Martina Ann King, Non-Executive
Director – Age 50
Martina King joined the Board in July 2010.
She is a member of the Remuneration
Committee. Her career started in Sales at
the Observer newspaper followed by ten
years at The Guardian before becoming
the Sales Director at Capital Radio and
Managing Director of the London Stations.
She became the first Managing Director
of Yahoo! UK and Ireland in October 1999,
then Chief Operating Officer of Yahoo!
Europe in 2002 and Managing Director of
Yahoo! Europe in 2003. Ms King is currently
a Non-Executive Director of The Capita
Group Plc, Debenhams Plc, IMD Plc and
Tradedoubler AB, a Swedish company, as
well as being a Trustee of Coram and a
Governor of the Seckford Foundation.
8. Eric (Rick) Hartley senat, Non-Executive
Director – Age 61
Rick Senat joined the Board in July 2010
and is a member of the Audit Committee.
Rick has over 30 years’ experience of the
film industry. He joined Warner Bros in
1976, becoming its Senior Vice-President
for Business Affairs in Europe. Among the
projects with which he was closely associated
are the Harry Potter films, Greystoke,
Batman, Superman and many more. He
retired from Warner Bros after 25 years’
service. He was a Director of the legendary
and newly revived film company Hammer
Film Productions, and has served as Vice
Chair of the British Film Institute. Currently,
he is a Non-Executive Director of Bank
Leumi (UK) plc and Chairman of the London
Film Museum. Mr Senat is a solicitor and
graduate of University College London.
9. David Ossian Maloney, Non-Executive
Director – Age 55
David Maloney joined the Board in May
2006. He is the Senior Independent
Director, Chairman of the Audit Committee
and a member of the Nomination and
Remuneration Committees. Mr Maloney
is currently a Non-Executive Director of
Carillion plc, Enterprise Inns plc, Micro
Focus International plc and Ludorum
plc and the Chairman of the Board of
Trustees of Make A Wish Foundation
(UK). Previously, he was the Chairman of
Hoseasons Holdings Ltd, a Director of
Virgin Mobile Holdings (UK) plc and held a
number of senior positions, including Chief
Financial Officer for Le Meridien Hotels &
Resorts, Thomson Travel Group plc and Avis
Europe plc. Mr. Maloney holds a degree
in Economics from Heriot Watt University,
Edinburgh and is a fellow of the Chartered
Institute of Management Accountants.
Cineworld Group plc
Annual Report and Accounts 2010
25
Directors’ Report
The Directors present their Annual Report and the audited
financial statements for the 52 week period ended 30 December
2010. The comparative period is for the 53 week period ended
31 December 2009.
Box Office Revenue
This measure represents the principal revenue stream of the
Group and is used generally within the cinema industry as the
measure of market share (as reported by Rentrak/EDI).
Principal activity
The Company acts as an investment holding company for a group
of companies whose principal activity is the operation of cinemas
in the UK and Ireland for the exhibition of films and related retail
activity. The Directors do not expect any change in the principal
activity during the next financial period.
Strategy and Business Review
The strategy of the Group is set out on page 6 and a review of its
business and operations, including the main trends and factors
likely to affect its future development and performance, is set out
in the Chief Executive and Chief Financial Officers’ Review on
pages 8 to 15.
Key performance indicators are set out below and the principal
risks and uncertainties are set out on pages 16 to 18. Information
about environmental, employee and community issues is set out
in part below and also in the Corporate Responsibility (“CR”)
section on pages 19 to 23.
The Strategy, Chief Executive and Chief Financial Officers’ Review,
Risks and Uncertainties and CR sections are incorporated by
reference into this Directors’ Report. Certain statements in these
sections are forward looking and so involve risk and uncertainty
because they relate to events, and depend upon circumstances,
that will occur in the future and therefore results and
developments can differ materially from those anticipated. The
forward looking statements reflect knowledge and information
available at the date of preparation of this Annual Report and the
Company undertakes no obligation to update these forward-
looking statements. Nothing in this Annual Report should be
construed as a profit forecast.
To the extent it is material, the Group’s approach to the use of
financial instruments in respect of its financial risk management
objectives and its exposure to price, liquidity and cash flow risk is
set out in Note 21 to the financial statements and are also
incorporated in this report by reference.
Key Performance Indicators (“KPI’s”)
52 week
53 week
period ended period ended
30 December 31 December
2009
2010
Admissions
Box Office Revenue
Average ticket price
Retail spend per customer
EBITDA
47.2m
49.1m
£235.8m £230.9m
£4.71
£1.72
£55.7m
£4.99
£1.73
£59.0m
The Board of Directors and executive management receive a wide
range of management information. The following are the principal
measures of achievement that are reviewed on a regular basis to
monitor the development of the Group:
Admissions
This measure is the ultimate driver of the business and primary
indicator of business volume.
26
Cineworld Group plc
Annual Report and Accounts 2010
Average Ticket Price and Retail Spend per Customer
Average ticket price is calculated by dividing total net box office
revenue by total admissions. It is a composite of the various
pricing structures operated during the day and for different
promotions for each cinema. Together with admissions this gives
box office, which is the primary economic measurement for the
industry. Retail spend per head is a measure of the value of the
retail activity and our ability to generate other revenues directly
from our customers. Both box office and retail measures are
stated excluding VAT.
EBITDA
EBITDA (as defined on Note 1 to the financial statements) serves
as a useful proxy for cash flows generated by operations and of
the Group’s ability to finance its capital expenditure and
pay dividends.
Results and Dividends
The results for the Group for the 52 week period ended
30 December 2010 are presented under International Financial
Reporting Standards (“IFRS”) as adopted by the EU. The results
for the period are set out in the Group Consolidated Statement of
Comprehensive Income on page 43. The results for the parent
company are drawn up under UK GAAP.
An interim dividend of 3.4p per share was paid on 8 October 2010.
The Directors are recommending a final dividend of 7.1p which, if
approved by the shareholders at the Annual General Meeting
(“AGM”), will be paid on 6 July 2011 to shareholders on the
register on 10 June 2011.
Financial Risk Management
The Board of Cineworld regularly reviews the financial
requirements of the Group and the risks associated therewith.
The Group does not use complicated financial instruments, and
where financial instruments are used it is for reducing interest
rate risk. The Group does not use derivative financial instruments
for trading purposes. Group operations are primarily financed from
retained earnings and bank borrowings (including an overdraft
facility). Further details of Capital management are set out in
Note 21. In addition to the primary financial instruments, the
Group also has other financial instruments such as debtors and
trade creditors that arise directly from the Group’s operations.
The Group considers the currency risk on consolidation of the
assets and liabilities of its Irish subsidiary, Adelphi-Carlton
Limited, to be of low materiality and no hedging is provided. The
Group’s trade and operations are otherwise based in the UK.
On 26 April 2007, as part of the IPO, the Group refinanced its
bank loan and entered into a new five year facility agreement
consisting of £135m loan and £30m revolving credit and
overdraft facility to replace its previous facility of £246m. Half of
the loan, an amount of £67.5m, was hedged in accordance with
the terms of the facility agreement on a fixed rate of 5.35% whilst
the remaining loan attracted interest at LIBOR. The whole loan
attracted a margin of 0.7% during the year (originally 1.35%). The
Group has taken steps to ensure that the swap is accounted for
as a hedge and that changes in its valuation are recognised
through reserves. Further information is provided in Note 21 to
the financial statements.
Directors and Directors’ Interests
Short biographical details of the Directors of the Company, whom
held office at the end of the period under review, are given on
pages 24 and 25.
For so long as the Blackstone Shareholders (as defined below in
the Major Shareholdings section) together held (i) at least 20% of
the voting rights, they were entitled to appoint (and remove and
reappoint) two Non-Executive Directors to the Board (each a
“Blackstone Director”), one of whom was to be the Deputy
Chairman of the Board and (ii) at least 10% of the voting rights,
they were entitled to appoint (and remove and reappoint) one
Non-Executive Director.
Following the sale by the Blackstone Shareholders of their total
interest in the Company in November 2010, Alan Roux, the first
Blackstone Director, stepped down as a Director with effect from
18 November 2011. Matthew Tooth, the second Blackstone
Director, following a request from the Board, remained as a
Director, but in an independent capacity.
In accordance with the Articles of Association (the “Articles”),
one third of the Directors are retiring by rotation at the AGM and,
being eligible, are offering themselves for re-election. The
Directors retiring by rotation, are Anthony Bloom, Matthew Tooth
and Peter Williams. In addition under the Articles, any Director
appointed during the year must resign and stand for re-election at
the next AGM and so both Martina King and Rick Senat will also
be offering themselves for election. Following the Board
evaluation process undertaken in November 2010, the Board is
satisfied that each Director standing for election continues to
show the necessary commitment and to be an effective member
of the Board due to their skills, expertise and business acumen.
Details of the Directors’ interests in the issued share capital of
the Company at the beginning and end of the year under review
are set out below. Details of the Directors’ remuneration and
information on their service contracts are set out in the Directors’
Remuneration Report on pages 36 to 40.
Details of the Directors’ interests in the ordinary shares of the
Company arising under the Group’s Share and Option Schemes
are set out in the Remuneration Report on page 40. No rights
to subscribe for shares in or debentures of Group companies
were granted to any of the Directors or their immediate families,
or exercised by them, during the financial period.
None of the other Directors had any disclosable interest in the
shares of Group companies and there have been no changes to
Directors’ share interests between 30 December 2010 and the
date of this report.
None of the Directors has a material interest in any contract of
significance to which the parent company or a subsidiary was a
party during the financial year, other than as disclosed above, in
their service contracts or letters of appointment described on
page 38 and in Note 24, related parties.
Conflicts of Interest
The Articles were amended at the 2008 AGM to permit the Board
to consider, and if it sees fit, to authorise situations where a
Director has an interest that conflicts, or may possibly conflict,
with the interests of the Company. There is in place a formal
system for the Board to consider authorising such conflicts
whereby the Directors who have no interest in the matter decide
whether to authorise the conflict. In deciding whether to authorise
the conflict, the non-conflicted Directors are required to act in the
way which they consider would be most likely to promote the
success of the Company for the benefit of all shareholders and
they may, and do, impose conditions to be attached to such
authorisations. The Board believes that the arrangements for
reporting and considering such conflicts operate effectively.
Share Capital and Control
The Company has only one class of share capital formed of
ordinary shares. All shares forming part of the ordinary share
capital have the same rights and each carries one vote. Details of
the share capital, and changes in it over the period, are shown in
Note 20 to the financial statements. There has been an increase
in the issued share capital between 30 December 2010 and the
date of this report as a result of the issue of 15,960 ordinary
shares to satisfy options being exercised under the Cineworld
Group Sharesave Scheme.
The holders of ordinary shares are entitled to receive Company
reports and accounts, to attend and speak at General Meetings
of the Company, to appoint proxies and to exercise voting rights.
There are no restrictions on transfers of, or limitations on the
holding of, ordinary shares and there is also no requirement of
any prior approval of any transfers other than those which may be
applicable from time to time under existing laws or regulation or if
a person with an interest in 0.25% of the issued share capital
held in certificated form has been served with a disclosure notice
and fails to respond with the required information concerning
interests in that share capital. No ordinary shares carry any
special rights with regard to control of the Company. There are no
restrictions on voting rights attaching to the ordinary shares. The
Company is not aware of any known agreements between
shareholders that restrict the transfer of voting rights attached to
ordinary shares.
The Directors who held office at the end of the financial period had the following interests in the ordinary shares of the Company:
Director
Anthony Bloom
Stephen Wiener
Richard Jones
Thomas McGrath
David Maloney
Peter Williams
Ordinary shares held directly
|||||
Ordinary shares held by
companies in which a Director
has a beneficial interest
30 December
2010
–
1,593,800
247,939
131,000
10,000
10,000
31 December
2009
30 December
2010
31 December
2009
–
1,593,800
247,939
131,000
10,000
10,000
1,723,224* 1,723,224*
– –
– –
– –
– –
– –
* Shares are held by a nominee for a Jersey based discretional trust, of which Mr Bloom is one of the potential beneficiaries.
Cineworld Group plc
Annual Report and Accounts 2010
27
Directors’ Report continued
The Company’s Articles set out the rules governing the
appointment and replacement of Directors. In addition the
Articles, together with English law, define the Board’s powers.
Changes to the Articles must be approved by shareholders in
accordance with the Articles themselves and legislation in force
at the relevant time. Updated Articles were adopted at the
Company’s AGM in May 2010 mainly to reflect the implementation
of the final provisions of the Companies Act 2006.
Major Shareholder Voting Arrangements
Until November 2010, Blackstone Capital Partners (Cayman) IV
L.P., Blackstone Capital Partners (Cayman) IV-A L.P. and
Blackstone Family Investment Partnership (Cayman) IV-A L.P.
(together the “Blackstone Shareholders”) in aggregate controlled
the exercise of 20.09% of the rights to vote at general meetings of
the Company. The Company and the Blackstone Shareholders
entered into a Relationship Agreement dated 26 April 2007 to
regulate the relationship between them. The Blackstone
Shareholders undertook to exercise their voting powers to ensure
that the Company was capable of carrying on its business for the
benefit of shareholders of the Company as a whole and
independently of the Blackstone Shareholders and further agreed
not to exercise their voting rights in favour of any amendment to
the Memorandum and Articles of Association of the Company in a
manner which would be contrary with the principle of
independence of the Company. The Relationship Agreement
terminated in November 2010 when the Blackstone Shareholders
and their affiliates collectively held less than 10% of the voting
rights of the Company by selling their entire shareholding.
No Director or employee is contractually entitled to compensation
for loss of office or employment as a result of a change in control;
however, provisions in the Company’s share schemes may cause
options or awards granted to employees to vest on a change
of control.
Issue of New Shares and Purchase of Own Shares
At the AGM held on 12 May 2010, shareholders gave authority for
the allotment of shares up to an aggregate nominal value of up to
£944,810 subject to certain conditions. This authority will expire
on the earlier of the 2011 AGM and 11 August 2011. No shares
have been issued under this authority except 36,048 ordinary
shares in respect of the exercise of share options maturing under
the Cineworld Group Sharesave Scheme. Details of the 20,088
ordinary shares issued in the period in this respect are set out in
Note 20.
Also at the AGM held on 12 May 2010, shareholders gave
authority for the purchase of up to 21,244,054 ordinary shares in
the Company for cancellation or placing into treasury. No shares
have been acquired under this authority.
The Board proposes to seek shareholder approval at the AGM to
renew both the Company’s authority to issue new shares and its
authority to purchase its own ordinary shares for cancellation or
placing in treasury. Details of the proposed resolutions are set out
in the Notice of AGM dispatched to shareholders with the Annual
Report and Accounts (or notification of their availability)
(the “AGM circular”).
Essential Contracts and Arrangements
The Group has a number of contractual agreements with its
suppliers in support of its business. While the loss of some of
these arrangements may cause temporary disruption, none on
their own are considered essential to the business of the Group.
Annual General Meeting
The Notice convening the AGM, to be held at The Cineworld
Cinema at The O2, Peninsular Square, London SE10 0AX at
11.00 am on 18 May 2011, is contained in the AGM circular.
Details of all the resolutions to be proposed are set out in the
AGM circular.
Change of Control
There are no significant agreements which take effect, alter or
terminate in the event of a change of control of the Company
except that under its current banking arrangements a change of
control may trigger a right for lenders to require early repayment of
all sums outstanding.
Directors’ and Officers’ Insurance and Indemnities
The Company maintains insurance cover for all Directors and
Officers of Group companies against liabilities which may be
incurred by them whilst acting as Directors and Officers. As at the
date of this report, indemnities are in force under which the
Company has agreed to indemnify the Directors as permitted by
law and by the Articles against liabilities they may incur in the
execution of their duties as Directors of the Company.
Substantial Shareholdings
At 10 March 2011, the Group had been notified, pursuant to the Disclosure and Transparency Rules of the following interests in the
voting rights of the Company:
Artemis Investment Management Limited
Parvus Asset Management (UK) LLP
HSBC Holdings plc
Standard Life Investments Limited
AXA S.A.
Legal & General Group Plc
Tosca Fund Asset Management LLP
Rathbone Brothers PLC
BlackRock Inc
Voting Rights
22,535,349
14,370,528
14,163,717
11,925,194
7,201,070
7,084,364
7,077,557
7,024,615
6,958,733
% of Total
Voting Rights
Nature of Holding
15.90 Direct interest
10.14 See Note 1 below
10.00 Direct and indirect interest
8.42 Direct and indirect interest
5.08 Direct and indirect interest
4.99 Direct interest
4.99 See Note 2 below
4.95
4.91 See Note 3 below
Indirect interest
Note 1: Disclosed as an equity swap being a financial instrument with similar economic effect to a Qualifying Financial Instrument.
Note 2: Disclosed as a CFD being a financial instrument with similar economic effect to a Qualifying Financial Instrument.
Note 3: Disclosed as an indirect interest in 6,488,958 shares plus a CFD (covering 688,357 voting rights) being a financial instrument with similar economic effect to a
Qualifying Financial Instrument.
28
Cineworld Group plc
Annual Report and Accounts 2010
Political and Charitable Contributions
The Group’s policy, which it has followed, is to make no donations
to political parties. During the year, the Group made charitable
donations of £38,000 (2009: £45,686) to a variety of local and
national charities in the UK. In addition the Group supported over
20 film screenings on behalf of various charities in the year and
responded to over 1,300 requests from charities and schools for
free tickets.
Payment of Suppliers
Cineworld Group plc, which holds the investments in the Group’s
companies, does not trade itself and does not have suppliers as
defined by the Companies Act 2006. The Directors believe,
however, it would be helpful to give the disclosures on a
consolidated basis. The Group seeks the best possible terms
from suppliers appropriate to its business and in placing orders
gives consideration to quality, delivery, price and terms of
payment. The Group does not follow a specific payment code but
has a policy to pay its suppliers in accordance with the specific
terms agreed with each supplier. The average number of days
payments to suppliers were outstanding at 30 December 2010
for the Group was 24 days (2009: 32 days).
Employees
The policy is to recruit, employ and develop staff on the basis of
the suitability of their qualifications and experience, regardless of
sex, marital status, race, nationality, age, sexual orientation or
religion. It is Company policy to give full and fair consideration to
applications for employment from disabled people, having regard
to their particular abilities and aptitudes. Full consideration is
given to continuing the employment of staff who become disabled,
including considering them for other reasonable positions.
The health, welfare and development of the Group’s employees
remain a priority. With the intent of attracting, recruiting,
developing and retaining key employees, Cineworld maintains a
number of policies and procedures for the benefit of its
employees, which can be accessed by employees via the Human
Resources department and via the Human Resources manual
on the Company intranet. Continuing education, training and
development are important to ensure the future success of the
Group and employee development is encouraged through
appropriate training. The Group supports individuals who wish to
obtain appropriate further education qualifications and
reimburses tuition fees up to a specified level.
Regular and open communication between management and
employees is essential for motivating the workforce. Briefings are
held regularly to provide updates on Group business and to
provide opportunity for questions and feedback. There is regular
consultation with the Broadcasting Entertainment Cinematograph
and Theatre Union (“BECTU”). The Company also maintains both
an internet website which is freely accessible and an intranet site
accessible to all head office employees and at all cinemas.
Corporate Governance
Details of the Group’s Corporate Governance arrangements are
set out in the Corporate Governance statement on pages 31 to
35 which together with the Directors’ Remuneration report and
the Directors’ responsibilities statement form part of this report
together with any other parts cross referenced from it.
Corporate Responsibility
Cineworld recognises its responsibilities to the communities in
which it operates and to operate in a way that respects the
environment and people within those communities. Further details
on its approach to such matters are set out in the Corporate
Responsibility section on pages 19 to 23.
Significant Events since the Year End
There were no significant events.
Disclosure of information to Auditors
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
Auditors are unaware; and each Director has taken all the steps
that he ought to have taken as a Director to make himself aware
of any relevant audit information and to establish that the
Company’s Auditors are aware of that information.
Auditors
KPMG Audit Plc have confirmed that they are willing to continue in
office and a resolution proposing their reappointment, at a fee to
be agreed by the Directors, will be proposed at the AGM.
Funding and Liquidity
Information regarding the Group’s business activities, together
with the factors likely to affect its future development,
performance and position is set out in the Chief Executive and
Chief Financial Officer’s report and the Risks and Uncertainties
section on pages 8 to 18. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities are described
in the Chief Executive and Chief Financial Officer’s Report on
pages 8 to 15. In addition Note 21 to the financial statements
includes the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its
exposures to credit risk and liquidity risk.
As highlighted in Note 16 to the financial statements, the Group
meets its day-to-day working capital requirements through its
bank facilities which consist of a £102 million term loan plus
£30 million revolver which matures in 2012. The current economic
conditions create uncertainty particularly over (a) the level of
demand for the Group’s products; and (b) the availability of bank
finance in the foreseeable future.
The bank facility is subject to two covenants: the ratio of EBITDA
to net debt and the ratio of EBITDAR (pre-rent EBITDA) to net
finance charges. The Group’s forecasts and projections, taking
account of reasonably possible changes in trading performance,
show that the Group should be able to operate within the level of
its current facility, including compliance with the bank
facility covenants.
Since the end of the period, the Group has received commitments
from a group of banks for a new five year facility of £170m to
replace its existing facility which is due to expire in May 2012. The
new facility will provide the Group with more flexibility to finance
future expansion plans as well as other growth opportunities.
Documentation is being drafted between the Group and the
participating banks and all parties are working to complete the
process in the near future.
Cineworld Group plc
Annual Report and Accounts 2010
29
Directors’ Report continued
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis in preparing the annual financial statements.
By order of the Board
R B Ray
Company Secretary
Cineworld Group plc
10 March 2011
Registered Office:
Power Road Studios
114 Power Road
Chiswick
London W4 5PY
Registered: England
No: 5212407
30
Cineworld Group plc
Annual Report and Accounts 2010
Corporate Governance Statement
Compliance with the Combined Code
The Board is committed to ensuring that an appropriate standard
of corporate governance is maintained throughout the Group. The
principal governance rules applying to UK companies listed on the
London Stock Exchange for the period covered by this statement
are contained in the Combined Code on Corporate Governance
published by the Financial Reporting Council in June 2008
(the “Combined Code”) and which is available on its website
www.frc.org.uk. For the year ended 30 December 2010, the Board
considers that the Company was compliant with the provisions of
the Combined Code except that the Chairman did not meet the
independence criteria on his appointment (Code Provision A2.2).
Further details are set out below under the heading “Directors and
Directors’ Independence”, otherwise this report explains how the
Company has complied with the provisions of the Combined Code.
The information required to be disclosed by the Disclosure and
Transparency Rules (“DTR”) 7.1 and 7.2 is set out in this
statement except that information required by DTR 7.2.6 which is
set out in the Directors’ Report on pages 26 to 30 and is
incorporated in this statement by reference.
The Board
The Group is ultimately controlled by the Board of Directors of the
Company. The Board is responsible for the overall leadership of
the Group and for determining its long-term objectives and
commercial strategy to create and deliver strong and sustainable
financial performance to maintain and enhance shareholder value.
In fulfilling its role, the Board ensures that necessary financial
and other resources are available to enable the Group’s objectives
to be met.
The Board meets regularly six times a year and also once for a
strategy day. The meetings follow a formal agenda which includes
matters specifically reserved for decision by the Board. The Board
also meets as and when necessary to discuss and approve
specific issues. All Directors receive notice of such meetings and
are given the opportunity to comment on the issues being
discussed if they are unable to attend the meeting.
A schedule of matters specifically reserved for decision by the
Board has been agreed and adopted. These matters include:
setting Group strategy; approving an annual budget and
medium-term forecasts; reviewing operational and financial
performance; approving major acquisitions, divestments and
capital expenditure; succession planning; approving appointments
to the Board and of the Company Secretary, and approving
policies relating to Directors’ remuneration and contracts.
The Board is supplied on a monthly basis with detailed
management accounts and an overview of Group financial and
operational information.
Directors and Directors’ Independence
At the start of the year, the Board was composed of
eight members, consisting of two Executive Directors and
six Non-Executive Directors, three of whom were independent. In
July 2010, two additional independent Non-Executive Directors
were appointed and, in November 2010, a Non-Executive Director,
not considered independent, resigned. Consequently, at the end
of the year, the Board was composed of nine members, five of
whom were independent.
Under provision A2.2 and A3.1 of the Combined Code, Anthony
Bloom, a Non-Executive Director and Chairman of the Company,
was not considered by the Board to be independent as at the time
of his appointment as Chairman of the Company he also served
as chairman on the board of another company, Cine-UK Limited,
within the Group and had held this position since its foundation in
1995. The Board considers that, although Anthony Bloom was not
viewed as independent on appointment, his knowledge and
understanding of the business are such as to justify him retaining
the role as Chairman. Alan Roux (who resigned in November
2010) and Matthew Tooth, both Non-Executive Directors, were
also considered by the Board not to be independent by virtue of
their positions at the Blackstone Group, with whom the
Blackstone Shareholders were affiliated. Until November 2010,
the Blackstone Shareholders were significant shareholders in the
Company. The names of the Directors at the year end together
with their biographical details are set out on pages 24 and 25.
The terms and conditions of appointment of Non-Executive
Directors are set out in letters of appointment and are made
available for inspection by any person at the Company’s registered
office during normal business hours and will be available at the
Annual General Meeting (“AGM”). Further details of the letters of
appointment of the Non-Executive Directors and the service
contracts of the Executive Directors can be found in the Directors’
Remuneration Report on pages 36 and 40.
The Roles of the Chairman and Chief Executive
The posts of Chairman and Chief Executive Officer are separate.
The division of responsibility between the Chairman of the Board,
Anthony Bloom, and the Chief Executive Officer, Stephen Wiener,
is clearly defined in writing.
The Chairman, together with the Chief Executive Officer, leads the
Board in determination of its strategy having regard to the Group’s
responsibilities to its shareholders, customers, employees and other
stakeholders. The Chairman is responsible for organising the
business of the Board ensuring its effectiveness and setting its
agenda. The Chairman facilitates the effective contribution of
Non-Executive Directors and oversees the performance evaluation of
the Board and he regularly discusses matters with the Non-Executive
Directors without the Executive Directors being present.
The Chairman performs a number of external roles but the Board
is satisfied that these are not such as to interfere with the
performance of the Chairman’s duties to the Group.
The Chief Executive Officer has direct charge of the Group on a
day-to-day basis and is accountable to the Board for the financial
and operational performance of the Group. He holds regular
meetings with his Senior Management Team consisting of senior
executives who assist him in this task.
Independent Directors and the Company Secretary
The Combined Code recommends that, in the case of smaller
companies incorporated in England which are below the
FTSE 350, at least two non-executive members of the Board of
Directors should be independent in character and judgement and
free from relationships or circumstances which are likely to affect,
or could appear to affect, their judgement.
The Board considers that Martina King, David Maloney, Thomas
McGrath, Rick Senat and Peter Williams are all Independent
Non-Executive Directors being independent of management and
have no business relationship or other relationship which could
interfere materially with the exercise of their judgement.
David Maloney has been appointed as the Senior Independent
Non-Executive Director and he, together with Peter Williams, is
available to shareholders if they have concerns which contact
through the normal channels of Chairman, Chief Executive Officer
or Chief Financial Officer has failed to resolve or for which contact
is inappropriate.
Cineworld Group plc
Annual Report and Accounts 2010
31
Corporate Governance Statement continued
The independent Non-Executive Directors bring an objective view
point and range of experience to the Company and ensure that no
individual or group of individuals is able to dominate the Board’s
decision making. All the Non-Executive Directors also have access
to independent legal advice subject to consulting with the Board
and following the agreed procedure.
The Company Secretary is responsible for advising and supporting the
Chairman and the Board on Corporate Governance matters, ensuring
Board procedures are followed and facilitating the good information
flow within the Board and the Board appointed Committees.
The Audit Committee assists the Board in discharging its
responsibility with regard to financial reporting, external and
internal audits and controls, including monitoring the financial
reporting process, reviewing the Company’s annual financial
statements, reviewing and monitoring the extent of the non-audit
work undertaken by external auditors, advising on the
appointment of external auditors and reviewing the effectiveness
of the Company’s internal audit activities, internal controls and
risk management systems. The ultimate responsibility for
reviewing and approving the Annual Report and Accounts and
half-yearly reports remains with the Board.
Professional Development and Performance Evaluation
Under the direction of the Chairman, the Board’s responsibilities
include facilitating induction and professional development. Any
new Director receives a comprehensive, formal and tailored
induction into the Company’s operations. Appropriate training is
provided to new Directors and is also available to other Directors
as required.
During the year, a performance evaluation was carried out in
respect of the Board, the Audit, Remuneration and Nomination
Committees and each individual director including the Chairman.
The process involved the completion of assessment
questionnaires by each of the Directors and Committee Members.
The results were then collated by the Company Secretary and a
summary presented to the relevant Committee and the Board.
The evaluation confirmed that overall the Board and Committee
processes were working appropriately and the Directors including
the Chairman were performing satisfactorily; however, there were
a few matters identified where Directors felt that processes could
be further improved and steps have been, and are being, taken to
address these concerns.
Although Cineworld Group plc is not a FTSE350 company, the
Board anticipates that, with effect from 2011 financial year,
performance evaluations will be externally facilitated at least once
every three years in accordance with The UK Corporate
Governance Code (which will apply to the Group for the financial
year commencing 1 January 2011).
Board Committees
In accordance with best practice, the Board has appointed a
number of Committees, as set out below, to which certain Board
functions have been delegated. Each of these Committees has
formal written terms of reference which clearly define their
responsibilities. The terms of reference of each of the Board’s
three Committees are available on the website or from the
Company Secretary.
Audit Committee
At the start of the year, the Company’s Audit Committee
comprised two independent Non-Executive Directors (namely
David Maloney and Peter Williams). Rick Senat, another
independent Non-Executive Director, was appointed as an
additional member in July 2010. It met five times during the
financial year. Both David Maloney and Peter Williams are
considered by the Board to have recent and relevant financial
experience. The Company considers that it complied with the
Combined Code throughout the year as it recommends that the
Audit Committee of a smaller company which is below the
FTSE 350 should comprise of at least two members who should
both be independent non-executive directors, and at least one
member should have recent and relevant financial experience.
The Chairman, the Chief Executive Officer, the Chief Financial
Officer, other senior executives, the internal auditors and the
external auditors may be invited to attend meetings, but are not
members. During the period, the main activities of the Audit
Committee during the period were:
y
y
y
y
y
y
y
y
Monitoring the financial reporting process and reviewing the
half-year and annual financial statements with particular
reference to accounting policies, together with significant
estimates and financial reporting judgements and the
disclosures made therein;
Reviewing the management representations made to the
external auditors and the Company’s procedures to ensure all
relevant information has been disclosed;
Discussing any issues arising out of the interim review and full
year audit with the external auditors (in the absence of
management where appropriate);
Reviewing the risk register and the measures implemented to
mitigate the principal risks facing the Group;
Monitoring and reviewing the effectiveness of the internal audit
function and the Group’s internal financial controls together with
its broader internal controls and risk management systems;
Considering the reports of Grant Thornton UK LLP review of
specific areas of risk (following their appointment in November
2008 to help implement a three year internal audit plan);
Making recommendations to the Board with regard to continuing
the appointment and remuneration of the external auditor;
overseeing the Company’s relations with the external auditor
and monitoring the effectiveness of the audit process; and
Reviewing its terms of reference and recommending changes
to the Board.
The Committee also considers on an ongoing basis the
independence of the external auditors and has established
policies to consider the appropriateness or otherwise of
appointing the external auditors to perform non-audit services. As
detailed on page 29 the external auditors are KPMG, who have
provided certain non-audit services to the Company, principally in
respect of advice on taxation and corporate finance matters. The
Committee is satisfied that such work was best undertaken by
KPMG and their objectivity has not been impaired by reason of
this further work. The Committee also reviewed and continues to
oversee the whistleblowing arrangements which enable
employees to raise concerns about improprieties in financial
reporting and other matters on a confidential basis.
Nomination Committee
The Company’s Nomination Committee is comprised of three
members, all of whom are independent Non-Executive Directors
(namely Thomas McGrath, David Maloney and Peter Williams) and
it met three times during the financial year. The Company
considers that it complies with the Combined Code, which
provides that a majority of the members of the Nomination
32
Cineworld Group plc
Annual Report and Accounts 2010
Committee should be independent non-executive directors. Due
to the importance that the Directors play in the success of the
Group, the Chairman is invited to attend meetings and does so
except when his own position is being discussed.
executive remuneration, determining the individual remuneration
and benefits package of each of the Executive Directors and
monitoring and approving the remuneration of senior management
below Board level.
The Nomination Committee assists the Board in discharging its
responsibilities relating to the composition of the Board. It is
responsible for evaluating the balance of skills, knowledge and
experience on the Board, the size, structure and composition of
the Board, retirements and appointments of additional and
replacement Directors and makes appropriate recommendations
to the Board on such matters.
During the year, two additional Non-Executive Directors were
appointed. An external search consultancy was utilised to identify
suitable candidates who were considered together with individuals
recommended by the existing Directors. The whole process was
carried with a particular regard both to strengthening the Board’s
collective understanding of the UK film industry and on-line
operations and also the benefits of diversity. Following interviews
carried out by members of the Committee and the Chairman of
the Company, the Committee recommended to the Board that
Martina King and Rick Senat should be appointed.
Remuneration Committee
At the start of the year, the Company’s Remuneration Committee
comprised two Non-Executive Directors (namely David Maloney
and Peter Williams). Martina King, another independent Non-
Executive Director, was appointed as an additional member in July
2010. It met three times during the financial year. The Company
considers that it complied with the Combined Code which
provides that the Remuneration Committee of a smaller company
which is below the FTSE 350 should consist of at least two
members who are both independent non-executive directors.
The Remuneration Committee assists the Board in determining its
responsibilities in relation to remuneration, including making
recommendations to the Board on the Company’s policy on
The Remuneration Committee appointed Towers Watson as an
external advisor in November 2008 and again took advice from
them during the year. Towers Watson have no other connection
with the Group except as the actuary to the pension schemes of
Adelphi-Carlton Limited, the Group’s operating company in Ireland.
The Chief Executive Officer is consulted on the remuneration
packages of the other senior executives and attends discussions
by invitation except when his own position is being discussed.
Given the essential part remuneration plays in the success of the
Group, the Chairman is also invited to attend meetings of the
Committee and does so except when his own remuneration is
being considered. The Committee does not deal with the fees
paid to the Non-Executive Directors. The report of the
Remuneration Committee is set out on pages 36 to 40.
Re-election
Under the Company’s Articles of Association, at each AGM each
year one third of the Directors (or if their number is not three or a
multiple of three, the nearest number to, but not less than one
third) must retire by rotation and being eligible may stand for
re-election. A Director must retire (and will be counted in the one
third to retire) if he was last appointed or reappointed three years
of more prior to the AGM or has served more than eight years as a
Non-Executive Director (excluding as Chairman of the Board).
Although not a FTSE 350 company, the Directors anticipate that,
with effect from the AGM to be held in 2012, they will all voluntarily
offer themselves for re-election each year in accordance with The
UK Corporate Governance Code (which will apply to the Group for
the financial year commencing 1 January 2011).
Attendance at Meetings
The number of scheduled Board meetings and Committee meetings attended by each Director during the year was as follows:
Number of meetings in year
Director
Anthony Bloom
Richard Jones
Martina King
David Maloney
Thomas McGrath
Alan Roux
Rick Senat
Matthew Tooth
Stephen Wiener
Peter Williams
Board
(including
strategy day)
Audit Remuneration Nomination
Committee Committee
Committee
7
5
3
3
Attended
Attended
Attended
Attended
7*
7
3§
7
6
7
3§ 2
6
7
7
4† 3
† 3
n/a
n/a
5*
n/a
n/a
§
n/a
n/a
5
n/a
1§
3
n/a
n/a
n/a
n/a
n/a
3* 3
†
n/a
n/a
3
3*
n/a
n/a
n/a
n/a
* Chairman of Board/Committee.
† Anthony Bloom attended these meetings by invitation.
§
Martina King and Rick Senat were appointed as Directors on 18 July 2010. Between this date and 30 December 2010, there were three Board meetings, two Audit
committee meetings and one Remuneration Committee meeting.
Cineworld Group plc
Annual Report and Accounts 2010
33
Corporate Governance Statement continued
Investor Relations
The Directors value contact with the Company’s institutional and
private investors. An Interim and Annual Report and Accounts
have historically been sent to all shareholders and these in future
will be made available to shareholders via the Company’s website
unless shareholders have specifically requested that a copy is
sent to them. Presentations are given to shareholders and
analysts following the announcement of the interim results and
the preliminary announcement of the full year results. Interim
management statements are issued twice each year in respect of
the first and third quarters and, in addition, trading updates are
issued in early January and late June immediately before the
Company enters into its close period leading up to the interim and
preliminary results announcement.
Separate announcements of all material events are made as
necessary. In addition to the Chief Executive Officer and Chief
Financial Officer, who have regular contact with investors over
such matters, Anthony Bloom (the Chairman), David Maloney
(Senior Independent Director), and Peter Williams (an Independent
Non-Executive Director) are available to meet with shareholders
as, and when, required. Additionally, the Chief Executive Officer
and Chief Financial Officer provide focal points for shareholders’
enquiries and dialogue throughout the year. The whole Board is
kept up to date at its regular meetings with the views of
shareholders and analysts and it receives reports on changes in
the Company’s share register and market movements.
The Board uses the AGM to communicate with private and
institutional investors and welcomes their participation. The
Chairman aims to ensure that the Chairmen of the Audit
Committee, Remuneration Committee and Nomination Committee
are available at the AGM to answer questions, and that all
Directors attend.
The Company’s website (www.cineworldplc.com) provides an
overview of the business. Major Group announcements are
available on the website and new announcements are published
without delay. All major announcements are approved by the
Chairman and Executive Directors and circulated to the Board
prior to issue. The Group also has internal and external checks to
guard against unauthorised release of information.
Internal Controls
The Board is responsible for maintaining an effective system of
internal control that provides reasonable assurance that the
Group’s assets are safeguarded and that material financial errors
and irregularities are prevented or detected with a minimum
of delay.
The Group has in place internal control and risk management
arrangements in relation to the Group’s financial reporting
processes and the preparation of its consolidated accounts. The
arrangements include policies and procedures to ensure the
maintenance of records which accurately and fairly reflect
transactions to enable the preparation of financial statements in
accordance with International Financial Reporting Standards or
UK Generally Accepted Accounting Principles, as appropriate, with
reasonable assurance and that require reported data to be
reviewed and reconciled, with appropriate monitoring internally
and by the Audit Committee.
More generally the Directors are committed to implementing
measures to ensure that there is an ongoing review of the
effectiveness of the internal control system with procedures to
capture and evaluate failings and weaknesses, and in the case of
those categorised by the Board as significant, that procedures
exist to ensure that necessary action is taken to remedy
the failings.
The Board is satisfied that throughout the financial period in
question such measures were in place throughout the Group and
the Company fully complies with the requirements of the
Combined Code in this regard.
The system of internal control manages rather than eliminates
the risks to business objectives. In pursuing these objectives,
internal controls can only provide reasonable and not absolute
assurance against material loss or misstatement of the financial
statements.
Reflecting the Board’s commitment to the ongoing development
of the Group’s system of risk management and internal control,
Grant Thornton UK LLP, continued its appointment during the
year, undertaking a number of specific reviews and reporting back
to the Committee in the process making recommendations to
help strengthen the risk management framework and internal
control processes within the Group.
Under the Audit Committee’s terms of reference, it is tasked with
reviewing the Company’s financial reporting and internal control
procedures and to make recommendations to the Board in this
area. Key elements of the Group’s risk management and internal
control framework during 2010 were:
y
y
y
y
y
y
y
The day-to-day involvement of executive members of the Board in
all aspects of the business and their attendance at regular
meetings with senior management, at which operational and
financial performance and operational matters are reviewed.
Financial performance was monitored and action taken through
regular reporting to the Executive Directors and monthly
reporting to the Board against annual budgets approved by the
Board.
Small groups of members of the senior management team
meeting to review current and future risks in their particular
areas of responsibility and expertise and to confirm the current
measures in place to mitigate those risks.
An established organisational structure with clear lines of
responsibility and reporting requirements. Capital investment
and all revenue expenditure being regulated by a budgetary
process and authorisation levels (manual and systems), with
appraisals and post-investment and period end reviews. Policy
manuals setting out agreed standards and control procedures
which include human resources related policies, information
technology and health and safety.
An established internal audit function headed by an
experienced internal auditor who had access to all areas of the
cinema operations and prepared reports which were available
to the Board and reported regularly to senior management and
the Audit Committee.
Reports from Grant Thornton following their reviews of specific
areas of risk as part of their on-going assistance with the
Internal Audit programme.
An independent external consultant conducting annual health
and safety audits and reporting to the Group Health and Safety
Committee (comprising of members of the senior management
team meeting on a quarterly basis) and the Audit Committee.
The external auditors providing a supplementary, independent
and autonomous perspective on those areas of the internal
control system, which they assess in the course of their work.
Their findings were reported to both the Audit Committee and
the Board.
34
Cineworld Group plc
Annual Report and Accounts 2010
y
y
y
y
y
The Audit Committee reviewing the risk register, receiving
reports on risk management and internal controls and
monitoring the overall position and reviewing actions taken to
address areas of weakness.
Each cinema having its own risk register prepared by undertaking
an annual review of all risks affecting the cinema and detailing
the control measures in place to mitigate those risks with key
controls being reviewed by the internal audit function.
Business Continuity Plans for Head Office and each cinema
being in place with components of the Head Office plan being
reviewed and tested during the year.
A specialist company conducting quarterly penetration testing
on the Group’s IT networks.
A whistle-blowing policy being in place ensuring that members
of staff who were concerned about impropriety, financial or
otherwise, could raise such matters without fear of
victimisation or reprisal.
Accountability, Audit and Financial
The Board is responsible for the preparation of financial
statements that present a balanced assessment of the Group’s
financial position and prospects. Responsibility is administered
primarily by the Audit Committee, of which the terms of reference
are referred to above.
A comprehensive budgeting system allows managers to submit
detailed budgets which are reviewed and amended by the
Executive Directors prior to submission to the Board for approval.
Human Resources
The Group endeavours to appoint employees with appropriate
skills, knowledge and experience for the roles they undertake. The
Group has a range of policies which are aimed at retaining and
providing incentives for key staff. Objectives are set for
departments and employees that are derived from the Group’s
business objectives. The Group has a clear and well-understood
organisational structure and each employee knows his or her line
of accountability.
Insurance
It is not practical or possible to insure against every risk to the
fullest extent. The Group has in place an insurance programme to
help protect it against certain insurable risks. The portfolio of
insurance policies is kept under regular review with its insurance
broker to ensure that the policies are appropriate to the Group’s
activities and exposures in light of cost, and the likelihood and
magnitude of the risks involved.
By order of the Board
Anthony Bloom
Chairman
10 March 2011
Cineworld Group plc
Annual Report and Accounts 2010
35
Directors’ Remuneration Report
Introduction
I am pleased to present the Remuneration Committee’s Report on
Directors’ remuneration for 2010 and the forthcoming financial
year. 2010 was another successful year for Cineworld, with the
Group delivering healthy growth in revenues and profits enabling a
5% increase in the full year dividend to be made and executive
remuneration decisions were made in this context.
This report has been prepared by the Remuneration Committee
and has been approved by the Board. It complies with Regulation
11 and Schedule 8 of the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008 and also
with the Combined Code. The report will be put to shareholders
for approval at the forthcoming Annual General Meeting.
The Companies Act 2006 (the “Act”) requires the Auditors to
report on certain parts of the report and to state whether, in their
opinion, those parts of the report have been properly prepared in
accordance with the Act. The report has therefore been divided
into separate sections for audited and unaudited information.
Unaudited Information
Remuneration Committee
The Company’s Remuneration Committee currently comprises
three Non-Executive Directors (namely Martina King, David
Maloney and Peter Williams) who are all deemed to be
independent. Martina King was appointed as an additional
member of the Committee on 2 July 2010. The Chairman of the
Remuneration Committee is Peter Williams and the Secretary
of the Committee is the Company Secretary. The Committee
met three times in the financial period. The Committee’s terms
of reference are available for inspection on the Company’s
website (www.cineworldplc.com) or on request from the
Company Secretary.
The Remuneration Committee monitors and recommends to the
Board for approval the structure and level of remuneration for
each member of the Senior Management Team (“SMT”) including
the Executive Directors. The Committee received advice from
Towers Watson during the year in relation to the Company’s
remuneration policy and its implementation. Towers Watson was
appointed by the Remuneration Committee in November 2008.
Towers Watson has no other connections with the Company
except as the actuary to the pension scheme of Adelphi-Carlton
Limited, the Group’s operating company in Ireland. The Committee
also received assistance from the Chairman of the Company, the
Chief Executive Officer, the Chief Financial Officer, the Head of
Human Resources and the Company Secretary, although they do
not participate in discussions relating to the setting of their
own remuneration.
The objective of the Group’s remuneration policy is that all
employees, including Executive Directors, should receive
appropriate remuneration for their performance, responsibility,
skills and experience. Remuneration packages are designed to
enable the Group to attract and retain key employees by ensuring
they are remunerated appropriately and competitively and that they
are motivated to achieve the highest level of Group performance in
line with the best interests of shareholders. To determine the
elements and level of remuneration appropriate for each member of
the SMT, the Committee considers benchmark remuneration data
for selected comparable companies and seeks to ensure that fixed
costs are no higher than market median, that an appropriately
significant proportion of potential pay is performance-related and
that total pay opportunity is consistent with appropriate superior
levels of pay for superior performance. Currently, the expected
value of the performance related element of the Executive
Directors’ packages is around 55% at the target performance level.
The arrangements are reviewed on a regular basis.
Remuneration Package
Executive Directors’ remuneration currently comprises an annual
salary, a performance-related bonus, a share-based long-term
incentive scheme, pension contributions and other benefits.
Following a review in late 2009, the Remuneration Committee
decided that, with effect from the 2011 financial year, bonus
arrangements should be more heavily weighted towards longer
term performance. In 2011 and thereafter, it is planned to
increase awards for Executive Directors under the Long-term
Incentive Plan (“LTIP”) from a level equivalent to 50% in value of
annual salary to 75% and then to 100%. With effect from the
2013 financial year and thereafter, the Remuneration Committee
intends to reduce the level of the Performance Related Bonus
which pays out for target performance, reflecting the potential
greater benefit yielded by the higher LTIP awards starting to vest.
This approach has been taken to ensure a smooth transistion
from the current to the new arrangements.
Annual Salary
Salaries are reviewed annually by the Remuneration Committee.
The Board approves the overall budget for employee salary
increases and the Committee agrees the specific increases for
the SMT. For members of the SMT below Board level, the
Committee receives a recommendation from the Chief Executive
Officer which it reviews and approves as appropriate. In
determining appropriate salary levels for each Executive Director,
the Committee considers both the nature and the status of the
Company’s operations and the responsibilities, skills, experience
and performance of the Executive Director. The Committee
compares the Group’s remuneration packages for its Executive
Directors and employees with those for directors and employees
of similar seniority in companies whose activities are comparable
with the Group. It also takes into account the progress made by
the Group, contractual considerations and salary increases
across the rest of the Group (which for the year were generally in
the range of 3% to 3.5%).
Performance-Related Bonus
The Executive Directors and all other employees participate in a
performance-related bonus scheme. The level of bonus is based
on overall Group performance in meeting its primary financial
objectives in earnings before interest, tax, depreciation and
amortisation (“EBITDA”). The Committee ensures that challenging
and clearly-assessable targets are set for Executive Directors.
Details of bonuses paid to Executive Directors in the year to
30 December 2010 are included in the remuneration tables set
out below. Bonuses are awarded wholly in cash.
Stephen Wiener is eligible for a bonus payable of up to 100% of
salary on achievement by the Group of 95% to 120% of full year
budgeted EBITDA. Richard Jones is eligible for a bonus payable of
up to 95% of salary on achievement by the Group of 95% to 120%
of full year budgeted EBITDA. Bonuses are not payable unless a
threshold of 95% of full year budgeted EBITDA is achieved.
The Cineworld Group Performance Share Plan (“PSP”)
The PSP was implemented at IPO and the first grant of awards
was made in March 2008 after the announcement of the
Company’s results for the financial year ended 27 December
2007. Further awards were made in March 2009 and March
2010 – in each case after the announcement of the Company’s
results for the preceding financial year. Only the Executive
36
Cineworld Group plc
Annual Report and Accounts 2010
Directors and members of the SMT, decided at the discretion of
the Remuneration Committee, participated in each grant. Details
of the awards to the Executive Directors are set out below.
Non-Executive Directors, including the Chairman, are not eligible
to participate in the PSP.
Under the PSP, either awards of conditional shares are made that
vest after three years or nil cost options over shares are granted
which become exercisable after three years subject in both cases
to continued employment and the achievement of specified
performance conditions (“Awards”). The performance conditions
applying to all Awards to the Executive Directors in each year
are that:
y
y
y
30% of the Awards will vest if the average annual growth in
earnings per share (“EPS”)* (calculated by comparing the
EPS for the last financial year prior to the date of grant and the
EPS for the financial year ending three years later) is not less
than 3.2%.
100% of the Awards will vest if the average annual growth in
EPS (calculated by comparing the EPS for the last financial year
prior to the date of grant and the EPS for the financial year
ending three years later) is at least 9.2%.
Where the average annual growth in EPS (calculated by
comparing the EPS for the last financial year prior to the date
of grant and the EPS for the financial year ending three years
later) is between the two limits above, the Awards shall vest on
a straight-line basis between 30% and 100%.
* EPS for the 2008 grant is defined as the normalised undiluted earnings per share
excluding any deferred tax charge relating to tax assets in existence on listing
and exceptional items and for the 2009 and 2010 grants are defined as the
adjusted pro-forma diluted earnings per share as calculated in Note 5 to the
financial statements.
Total shareholder return has been considered as an alternative or
additional performance measure, but difficulties in identifying
appropriate comparator companies has resulted in the Committee
deciding to use EPS as the sole performance measure. The
Remuneration Committee review the performance conditions for
each grant to ensure they are appropriate for the Company and
the prevailing internal and external expectations. The conditions
may be varied in exceptional circumstances following the grant of
an award so as to achieve their original purpose, but not so as to
make their achievement any more or less difficult to satisfy.
The maximum value of shares subject to an award to an individual
in any financial year is 100% of annual base salary as at the
award date, unless the Remuneration Committee decides that
exceptional circumstances exist in relation to the recruitment or
retention of an employee, in which case the limit is 150% of
annual base salary. On vesting, participants will also receive
additional shares or a cash sum equivalent to the dividends that
would have been paid on the vested shares in respect of dividend
record dates occurring between grant and vesting.
The Cineworld Group Sharesave Scheme (the “Sharesave Scheme”)
Executive Directors are eligible to participate in the Sharesave
Scheme, which is an HM Revenue and Customs approved scheme
open to all employees of nominated companies who have a
minimum of three months’ service at the date of invitation. Under
the Sharesave Scheme, employees are eligible to acquire shares
in the Company at a discount of up to 20% of the market value at
grant if they agree to enter into a savings contract for a three-year
period. Consistent with the relevant legislation, no performance
conditions apply. No options were granted under the Sharesave
Scheme during the year as no fresh invitation was made to
eligible participants. The first Sharesave grant made in 2007 did
vest in the period and participants were able to exercise their
options. Details of the interests of the Executive Directors in the
Sharesave Scheme are set out below.
The Cineworld Group Company Share Option Plan (the “CSOP”)
The CSOP was approved by shareholders at the Annual General
Meeting (“AGM”) in 2010 and the first grant of awards was made
in July 2010. Only the Executive Directors and members of the
SMT, decided at the discretion of the Remuneration Committee,
participated in the grant which consisted solely of HM Revenue
and Customs approved options. In 2010, participants in the PSP
were offered the opportunity to swap part of their PSP award for a
HM Revenue and Customs approved share option. Details of the
awards to the Executive Directors under the CSOP are set out
below which included identical performance conditions to the
2010 PSP awards. No unapproved share options were granted.
Non-Executive Directors, including the Chairman, are not eligible
to participate in the CSOP.
Satisfaction of Share Options and Awards
Awards under the PSP, the Sharesave Scheme and the CSOP can
be satisfied using either new issue shares or shares purchased
in the market in conjunction with the Cineworld Group Employee
Benefit Trust (the “Trust”), established by the Company on
24 March 2006 with independent trustees based in Jersey.
However, if new issue shares are used, the following limits
will apply:
y
y
In any ten year period, the number of shares which may be
issued under the PSP and under any other executive share or
option scheme established by the Company may not exceed
5% of the issued ordinary share capital of the Company from
time to time.
In any ten year period, the number of shares which may be
issued under the PSP and under any employees’ share or
option scheme established by the Company may not exceed
10% of the issued ordinary share capital of the Company from
time to time.
Share Retention Policy
A share retention policy exists under which each Executive
Director is expected to build up over a period of time and then
retain a holding in shares equal to 100% of his/her salary. As part
of the process, he/she is expected to retain 50% of any shares
he/she acquires under the Performance Share Plan or on the
exercise of options, after allowing for the sale of shares to pay
tax, until such time as he/she has built up such a holding.
Pension Contributions
All employees, including Executive Directors, are invited to
participate in a Group Personal Pension Plan which is a money
purchase plan. All the major schemes operated by the Group are
money purchase in nature and have no defined benefits. Two
defined benefit schemes are operated in the UK and in Ireland
and both have been closed to new members for a number of
years. Details of these schemes are shown in Note 18 of the
financial statements. The Group has no obligation to the pension
scheme beyond the payment of contributions. The Company
contributions for the Executive Directors are 20% of salary.
Bonuses are not pensionable.
Other Benefits
Benefits in kind for Executive Directors include the provision of a
company car or car allowance, life insurance, permanent health
insurance, private medical cover and, for the Chief Executive Officer
only, a driver and, for the Chief Financial Officer only, fuel for private use.
Cineworld Group plc
Annual Report and Accounts 2010
37
Directors’ Remuneration Report continued
Performance Graph
The graph below compares the Company’s total shareholder return performance against the FTSE 250 and FTSE All Share Travel and
Leisure indices since IPO in April 2007*. The Remuneration Committee believes these indices to be the most appropriate comparators
as the Group looks to benchmark itself against smaller companies within the FTSE 250 and is a member of the FTSE All Share Travel
and Leisure sector.
Cineworld
FTSE all share travel & leisure
FTSE 250
300
250
200
150
100
50
0
26/04/2007 07/09/2007 19/01/2008 02/06/2008 14/11/2008 26/02/2009 10/07/2009 21/11/2009 05/04/2010 17/08/2010 30/12 /2010
* Rebased to 170p
The Shares of the Company commenced trading on the London Stock Exchange on 26 April 2007 at an offer price of 170p per share.
Admission became effective and unconditional dealings in the shares commenced on the London Stock Exchange on 2 May 2007.
The mid market closing price on 30 December 2010 was 216p and the range during the period 1 January 2010 to 30 December 2010
was 154.5p to 231.75p.
Executive Directors’ Contracts
The Group’s policy in entering into service contracts with Executive Directors is to enable the recruitment of high-quality executives and to
obtain protection from their sudden departure, whether or not to competitor companies. In addition, service contracts are an important
element in maintaining maximum protection for the Group’s intellectual property rights and other commercially sensitive information.
The details of the Executive Directors’ contracts are summarised in the table below:
Director
Stephen Wiener
Richard Jones
Date of contract
Notice period from company
Notice period from employee
23 April 2007
23 April 2007
12 months
12 months
12 months
6 months
Both Executive Directors are, under the terms of their service contracts, entitled to an annual review of their base salary and a
minimum increase in line with the Retail Prices Index.
The Company may, in lieu of giving notice, terminate an Executive Director’s service contract by making a payment equivalent to 95% of
base salary and contractual benefits for the notice period. In this event the Director would not be entitled to any bonus for his notice
period, but would be eligible for a pro-rata bonus for the period up to the date of the termination of his contract.
The Company’s policy is to endeavour to minimise any payment on early termination by insisting on mitigation of any loss where possible.
Non-Executive Directors’ Letters of Appointment
The Non-Executive Directors, including the Chairman, do not have service contracts with the Company. The terms and conditions of
their appointment as Non-Executive Directors are set out in letters of appointment, which are subject to the provisions of the Articles
of Association.
Non-Executive Directors receive fees for services as members of the Board and its Committees. The level of fees is determined by the
Board after taking into account appropriate advice (except in the case of the Chairman whose level of fee is determined by the
Remuneration Committee), and no Director participates in discussions relating to the setting of his or her own remuneration.
Non-Executive Directors do not participate in the Group’s share incentives or otherwise receive performance-related pay. Where a
Non-Executive Director does not serve until the end of his term, the policy is to pay the fees due pro rata to the date of cessation.
38
Cineworld Group plc
Annual Report and Accounts 2010
The appointment of each Non-Executive Director is terminable on the notice period stated below unless their appointment is
terminated by a resolution of the shareholders in general meeting or if they fail to be re-elected by shareholders in general meeting in
which case no notice is necessary.
Their appointments were made as follows:
Director
Anthony Bloom
Martina King
David Maloney
Thomas McGrath
Rick Senat
Matthew Tooth
Peter Williams
Audited Information
Aggregated Directors’ remuneration
The total amounts for Directors’ remuneration were as follows:
Date of appointment
Notice period
7 October 2004
2 July 2010
22 May 2006
16 May 2005
2 July 2010
24 August 2004
22 May 2006
1 month
1 month
1 month
1 month
1 month
1 month
1 month
Emoluments
(i) Executive
Name of Director
Stephen Wiener
Richard Jones
2010
Fees/
Basic
salary
£’000
2009
Fees/
2009
2010
Basic Performance Performance
bonus
salary
£’000
£’000
2009
2010
bonus Benefits Benefits
£’000†
£’000
£’000
2009
Company
2010
Total
including
2009
Total
2010
Company
including
contributions contributions contribution contribution
to money
purchase
pension
scheme
£’000
to money
purchase
pension
schemes
£’000
to money
purchase
pension
scheme
£’000
to money
purchase
pension
schemes
£’000
2009
2010
Total
Total
£’000 £’000
419* 400
246* 235
665
635
343
189
532
341
189
530
31
16
47
37
18
793 778
451 442
84
49
80
47
877
500
858
489
55 1244 1220
133
127
1377
1347
*
†
With effect from 1 July 2010, Stephen Wiener’s and Richard Jones’ basic salaries were both increased by 4.4%.
Other benefits include a company car or car allowance, life assurance, permanent health insurance, private medical cover and, for Stephen Wiener only, a driver and, for
Richard Jones only, fuel for private use.
(ii) Non-Executive
Name of Director
Anthony Bloom
Lawrence Guffey*
Martina King†
David Maloney
Thomas McGrath
Alan Roux*
Rick Senat†
Matthew Tooth*
Peter Williams
2010
Fees/Basic
salary
£’000
2009
Fees/Basic
salary
£’000
100
–
19 –
51
38
29 3
19 –
33
51
340
100
30
48
38
33
48
300
* Lawrence Guffey, Alan Roux and Matthew Tooth were appointed by the Blackstone Group and their respective Directors’ fees were payable to the Blackstone Group.
Alan Roux was appointed a Director on 23 November 2009 in place of Lawrence Guffey. Following the sale by the Blackstone Group of its shareholding in the Company on
18 November 2010, Alan Roux stepped down from the Board. Matthew Tooth remained a Director in an independent capacity, although his Director’s fees continue to be
paid to the Blackstone Group. No compensation was paid in respect of Alan Roux’s departure.
† Martina King and Rick Senat were appointed on 2 July 2010.
During the year, it was agreed that an additional fee of £5,000 p.a. would be paid to each of the Chairman of the Audit and
Remuneration Committees with effect from 1 July 2010. Otherwise there was no increase in the fees paid to the Chairman or the
Non-Executive Directors. The basic fee for a Non-Executive Director was £33,000 p.a. An additional fee of £5,000 p.a is paid for being
a member of a particular committee. The Non-Executive Directors do not receive any share options, bonuses or other performance-
related payments nor do they receive any pension entitlement or other benefits.
Cineworld Group plc
Annual Report and Accounts 2010
39
Directors’ Remuneration Report continued
Directors’ Share and Share Option Scheme Interests
Details of share options of those Directors who served during the period are as follows:
(a) Cineworld Group Sharesave Scheme
Name of Director
Stephen Wiener
Richard Jones
At
31 Dec
2009
10,322
10,322
Granted
during
year
Exercised
during
year
Lapsed
during
year
At
30 Dec
2010
–
–
–
–
–
–
10,322
10,322
Exercise
price
£0.93
£0.93
Earliest
date of
exercise
Expiry
date
01/12/11
01/12/11
01/05/12
01/05/12
(b) Cineworld Group Performance Share Plan
Name of Director
Stephen Wiener
Richard Jones
At
31 Dec
2009
142,308*
152,343†
82,692*
89,843†
Awarded
during
year
–
–
109,774§
–
–
64,058§
Vested
during
year
Lapsed
during
year
At
30 Dec
2010
Exercise
price
–
–
–
–
–
–
– 142,308
– 152,343
– 109,774
–
–
–
82,692
89,843
64,058
£Nil
£Nil
£Nil
£Nil
£Nil
£Nil
Market
value at
date of
vesting
Vesting
date or
execise
period¶
–
–
–
–
–
–
20/03/11
26/03/12
30/03/13 –
30/09/13
20/03/11
26/03/12
30/03/13 –
30/09/13
*
†
§
¶
Mid-market price of a Cineworld Group plc share the day before grant was £1.30.
Mid-market price of a Cineworld Group plc share the day before grant was £1.28.
Mid-market price of a Cineworld Group plc share the day before grant was £1.85.
Subject to satisfaction of the relevant performance conditions (details of which are set on page 37). Awards made during the year were granted as nil cost options rather
than as conditional awards of shares as in the previous two years.
(c) Cineworld Group Company Share Option Plan
Name of Director
Stephen Wiener
Richard Jones
At
31 Dec
2009
0
0
Granted
during
year
5,050*
5,050*
Exercised
during
year
Lapsed
during
year
–
–
–
–
At
30 Dec
2010
5,050
5,050
Exercise
price
£1.98
£1.98
Earliest
date of
exercise†
Expiry
date
01/07/13
01/07/13
30/06/20
30/06/20
* HM Revenue and Customs approved share options
†
Subject to satisfaction of the relevant performance conditions (details of which are set on page 37).
By order of the Board
Peter Williams
Chairman of the Remuneration Committee
10 March 2011
40
Cineworld Group plc
Annual Report and Accounts 2010
Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law
(UK Generally Accepted Accounting Practice).
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 Group and parent company and of their profit or loss for that period. In preparing each of the Group and
parent company financial statements, the Directors are required to:
y
y
y
y
y
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the parent company financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent
company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to
ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors confirm that to the best of our knowledge:
1. the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a
whole; and
2. the Chief Executive and Chief Financial Officers’ Review together with the Risks and Uncertainties section, which are incorporated in
the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Richard Jones
Chief Financial Officer
10 March 2011
Cineworld Group plc
Annual Report and Accounts 2010
41
y
y
y
y
y
Independent Auditors’ Report
to the Members of Cineworld Group plc
We have audited the financial statements of Cineworld Group plc for the year ended 30 December 2010 set out on pages 43 to 83.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in
the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted
Accounting Practice).
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 auditor’s 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.
Respective Responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 41, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and
express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKP.
Opinion on Financial Statements
In our opinion:
y
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 December
2010 and of the Group’s and the parent company’s profit for the 52 week period then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting
Practice;
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
y
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006; and
the information given in the Directors’ Report for the 52 week period then ended for which the financial statements are prepared
is consistent with the financial statements; and
the information given in the Corporate Governance Statement set out on pages 31 to 35 with respect to internal control and
risk management systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements.
Matters on which we are required to Report by Exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
y
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit, or
a Corporate Governance Statement has not been prepared by the company.
y
y
y
y
Under the Listing Rules we are required to review:
y
y
the Directors’ statement, set out on pages 29 and 30, in relation to going concern;
the part of the Corporate Governance Statement on pages 31 to 35 relating to the company’s compliance with the nine provisions
of the June 2008 Combined Code specified for our review; and
certain elements of the report to shareholders by the Board on directors’ remuneration.
y
Mark Summerfield (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
10 March 2011
42
Cineworld Group plc
Annual Report and Accounts 2010
Consolidated Statement of Comprehensive Income
for the Period Ended 30 December 2010
Revenue
Cost of sales
Gross profit
Other operating income
Administrative expenses
Operating profit
Analysed between:
Operating profit before depreciation, impairments, reversals of impairments
and amortisation, onerous lease and other non-recurring or non-cash
property charges, transaction and reorganisation costs
– Depreciation and amortisation
– Onerous leases and other non-recurring or non-cash property charges
– Impairments and reversals of impairments
– Transaction and reorganisation costs
Finance income
Finance expenses
Net finance costs
Share of loss of jointly controlled entities using equity accounting method, net of tax
Profit on ordinary activities before tax
Tax charge on profit on ordinary activities
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
342.8
(259.7)
333.4
(253.8)
Note
2
3
4
4
4
4
4
7
7
8
83.1
0.6
(46.6)
79.6
0.7
(40.7)
37.1
39.6
59.0
55.7
(17.2)
(1.3)
(3.2) –
(0.2)
1.6
(8.2)
(6.6)
(0.1)
30.4
(9.4)
(15.3)
(0.4)
(0.4)
1.2
(9.9)
(8.7)
(0.1)
30.8
(10.4)
Profit for the period attributable to equity holders of the Company
21.0
20.4
Other comprehensive income
Movement in fair value of cash flow hedge
Foreign exchange translation gain/(loss)
Actuarial (losses)/gains on defined benefit pension schemes
Income tax on other comprehensive income
Other comprehensive income for the period, net of income tax
1.1
0.2
(0.7)
(0.1)
0.5
0.3
(0.5)
0.8
(0.3)
0.3
Total comprehensive income for the period attributable to equity holders of the Company
21.5
20.7
Basic earnings per share
Diluted earnings per share
5
5
14.8p
14.7p
14.4p
14.4p
The Notes on pages 47 to 77 are an integral part of these consolidated financial statements.
Cineworld Group plc
Annual Report and Accounts 2010
43
Consolidated Statement of Financial Position
at 30 December 2010
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments in equity-accounted investee
Other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Interest-bearing loans, borrowings and other financial liabilities
Trade and other payables
Current taxes payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing loans, borrowings and other financial liabilities
Other payables
Employee benefits
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the Company
Share capital
Share premium
Translation reserves
Hedging reserves
Retained deficit
Total equity
30 December
2010
|
31 December
2009
Note
£m
£m
£m
£m
10
11
11
12
15
13
14
15
16
17
19
16
17
18
19
13
20
20
20
114.2
217.1
0.4
0.8
1.4
14.9
348.8
36.3
385.1
114.6
216.1
0.6
0.9
1.4
16.6
350.2
38.7
388.9
1.9
19.9
16.9
(11.9)
(46.5)
(8.9)
(1.2)
(69.4)
(68.5)
(109.3)
(53.5)
(0.7)
(10.6)
(1.8)
2.2
23.5
10.6
(11.7)
(47.5)
(7.9)
(2.3)
(99.7)
(52.5)
–
(9.6)
(1.9)
(163.7)
(233.1)
152.0
1.4
171.4
1.8
(2.8)
(19.8)
152.0
(175.9)
(244.4)
144.5
1.4
171.4
1.6
(3.9)
(26.0)
144.5
These financial statements were approved by the Board of Directors on 10 March 2011 and were signed on its behalf by:
Stephen Wiener
Director
Richard Jones
Director
44
Cineworld Group plc
Annual Report and Accounts 2010
Consolidated Statement of Changes in Equity
for the Period Ended 30 December 2010
Balance at 25 December 2008
Profit for the period
Other comprehensive income
Movement in fair value of cash-flow hedge
Retranslation of foreign currency denominated subsidiaries
Actuarial gain on defined benefit scheme
Tax recognised on income and expenses recognised
directly in equity
Contributions by and distributions to owners
Dividends paid in period
Movements due to share-based compensation
Balance at 31 December 2009
Profit for the period
Other comprehensive income
Movement in fair value of cash-flow hedge
Retranslation of foreign currency denominated subsidiaries
Actuarial loss on defined benefit scheme
Tax recognised on income and expenses recognised directly in equity
Contributions by and distributions to owners
Dividends paid in period
Movements due to share-based compensation
Issued
capital
£m
1.4
–
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Retained
deficit
£m
171.4
–
2.1
–
(4.2)
–
(33.8)
20.4
Total
£m
136.9
20.4
–
–
–
–
–
–
–
–
–
–
–
–
1.4
–
171.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.5)
–
–
–
–
1.6
–
–
0.2
–
–
–
–
0.3
–
–
–
–
–
–
–
0.8
0.3
(0.5)
0.8
(0.3)
(0.3)
(13.5)
0.4
(13.5)
0.4
(3.9)
–
(26.0)
21.0
144.5
21.0
1.1
–
–
–
–
–
(0.7)
(0.1)
1.1
0.2
(0.7)
(0.1)
–
–
(14.5)
0.5
(14.5)
0.5
Balance at 30 December 2010
1.4
171.4
1.8
(2.8)
(19.8)
152.0
Cineworld Group plc
Annual Report and Accounts 2010
45
Note
7
7
8
4
4
18
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
21.0
(1.6)
8.2
9.4
0.1
37.1
17.2
1.3
3.2 –
(1.6)
(3.5)
(0.3)
(0.5)
(2.2)
50.7
(8.7)
20.4
(1.2)
9.9
10.4
0.1
39.6
15.3
0.4
(1.6)
1.5
(0.2)
2.1
(2.5)
54.6
(4.8)
42.0
49.8
0.1
(20.3)
0.1
(15.6)
(20.2)
(15.5)
(14.5)
(4.0)
(9.0)
(0.6)
(28.1)
(6.3)
– –
16.9
10.6
(13.5)
(7.2)
(9.0)
(0.5)
(30.2)
4.1
12.8
16.9
Consolidated Statement of Cash Flows
for the Period Ended 30 December 2010
Cash flow from operating activities
Profit for the period
Adjustments for:
Financial income
Financial expense
Taxation
Share of loss of equity-accounted investee
Operating profit
Depreciation and amortisation
Non-cash property charges
Impairments and reversals of impairments
Surplus of pension contributions over current service cost
(Increase)/decrease in trade and other receivables
Increase in inventories
(Decrease)/increase in trade and other payables
Decrease in provisions and employee benefit obligations
Cash generated from operations
Tax paid
Net cash flows from operating activities
Cash flows from investing activities
Interest received
Acquisition of property, plant and equipment
Net cash flows from investing activities
Cash flows from financing activities
Dividends paid to shareholders
Interest paid
Repayment of bank loans
Payment of finance lease liabilities
Net cash from financing activities
Net increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
46
Cineworld Group plc
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
(Forming Part of the Financial Statements)
1 Accounting Policies
Basis of Preparation
Cineworld Group plc (the “Company”) is a company incorporated in the UK.
The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”) and equity
account the Group’s interest in jointly controlled entities. The parent company financial statements present information about the
Company as a separate entity and not about its Group.
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting
Standards as adopted by the EU (Adopted IFRSs). The Company has elected to prepare its parent company financial statements in
accordance with UK GAAP; these are presented on pages 78 to 83.
The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements,
except as described on page 53.
Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next financial period are set out below.
Information regarding the Group’s business activities, together with the factors likely to affect its future development, performance and
position is set out in the Chief Executive and Chief Financial Officer’s Review and the Risks and Uncertainties section on pages 8 to
18. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in the Chief Executive and
Chief Financial Officer’s Review on pages 8 to 15. In addition Note 21 to the financial statements includes the group’s objectives,
policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and
hedging activities; and its exposures to credit risk and liquidity risk.
As highlighted in Note 16 to the financial statements, the Group meets its day to day working capital requirements through its
bank facilities which consist of a £102m term loan plus £30m revolver which matures in 2012. The current economic conditions
create uncertainty particularly over (a) the level of demand for the Group’s products; and (b) the availability of bank finance in the
foreseeable future.
The current bank facility is subject to two covenants: the ratio of EBITDA to net debt and the ratio of EBITDAR (pre-rent EBITDA) to net
finance charges. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show
that the Group should be able to operate within the level of its current facility, including compliance with the bank facility covenants.
Since the end of the period the Group has received commitments from a group of banks for a new five year facility of £170m to replace
its existing facility which is due to expire in May 2012. The new facility will provide the Group with more flexibility to finance future
expansion plans as well as other growth opportunities. Documentation is being drafted between the Group and the participating banks
and all parties are working to complete the process in the near future.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.
Measurement Convention
The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their
fair value: derivative financial instruments and financial instruments classified as fair value through the income statement or as
available-for-sale.
The financial information of subsidiaries is included in the consolidated financial information from the date that control commences
until the date that control ceases.
Basis of Consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that
are currently exercisable or convertible are taken into account.
Jointly Controlled Entities (Equity Accounted Investees)
Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and
requiring the venturers’ unanimous consent for strategic financial and operating decisions. Jointly controlled entities are accounted for
using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill
identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share
of the total recognised income and expense and equity movements of equity accounted investees, from the date that joint control
commences until the date that joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted
investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the
Group has incurred legal or constructive obligations or made payments on behalf of an investee.
Cineworld Group plc
Annual Report and Accounts 2010
47
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
1 Accounting Policies continued
Transactions Eliminated on Consolidation
Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated
in preparing the consolidated financial statements.
Use of non-GAAP profit and loss measures
The Group believes that along with operating profit, the following measures:
y
y
y
EBITDA
Adjusted earnings
Net debt
provide additional guidance to the statutory measures of the performance of the business during the financial period.
EBITDA comprises of earnings before interest, tax, depreciation and amortisation, onerous lease and other non-recurring or non-cash
property charges, transaction and reorganisation costs and profit on disposal of cinema sites.
Adjusted earnings comprises profit after tax adjusted for certain non-recurring and non-cash items as set out in Note 5.
Net debt represents net borrowings including finance leases and financial liabilities offset by cash.
Foreign Currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange
rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at
foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average
rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations after 23 August 2004 (the date of incorporation) are taken
directly to the translation reserve. They are released into the income statement upon disposal.
Derivative Financial Instruments and Hedging
Cash Flow Hedges and Interest Swap Policy
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately
in the income statement except where derivatives qualify for hedge accounting when recognition of any resultant gain or loss depends
on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance
sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of
forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a
highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in
the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the statement of comprehensive income.
For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction affects profit or loss.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but
the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised
in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the
cumulative unrealised gain or loss recognised in equity is recognised in the statement of comprehensive income immediately.
Non-Derivative Financial Instruments
Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, interest
bearing borrowings, and trade and other payables.
Trade and Other Receivables
Trade and other receivables were initially measured on the basis of their fair value. Subsequently they are carried at amortised cost
using the effective interest method less any impairment losses. A bad debt allowance for receivables is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.
48
Cineworld Group plc
Annual Report and Accounts 2010
1 Accounting Policies continued
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the
statement of cash flows.
Trade and Other Payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost
using the effective interest method.
Interest‑Bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in
the income statement over the period of the borrowings on an effective interest basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of
property, plant and equipment.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance
leases. Where land and buildings are held under finance leases the accounting treatment of the land is considered separately from
that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and
the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Other leases are operating leases. These leased assets are not recognised in the Group’s balance sheet.
Depreciation is charged to the statement of comprehensive income to write assets down to their residual values on a straight-line basis
over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
y
y
y
Land and buildings: Short leasehold properties including leasehold improvements
Plant and machinery
Fixtures and fittings
30 years or life of lease if shorter
3 to 10 years
4 to 10 years
No depreciation is provided on assets held for sale or on assets in the course of construction.
Depreciation methods, residual values and the useful lives of all assets are reassessed annually.
In respect of borrowing costs relating to qualifying assets, the Group capitalises borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets as part of the cost of that asset. The Group has capitalised borrowing costs with
respect to the construction of new sites.
Business Combinations
In 2009 the Group early adopted IFRS 3 Business Combinations (2008) in accounting for business combinations. The change in
accounting policy has been applied prospectively and had a negative impact on basic and diluted earnings per share of 0.1p in the
current period as a result of being required to record transaction costs in the income statement. It has had no effect on adjusted
earnings per share or adjusted pro-forma earnings per share, as excluding the effect of this transaction forms one of the adjustments.
For acquisitions on or after 1 January 2010, the Group measures goodwill as the fair value of the consideration transferred (including
the fair value of any previously-held equity interest in the acquire) and the recognised amount of any non-controlling interests in the
acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured
as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in Income Statement.
Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a
business combinations are expensed as incurred. See Note 9 for the application of the new policy to the business combination that
occurred during the period.
There were no acquisitions in the prior period.
Intangible Assets and Goodwill
All business combinations are accounted for by applying the acquisition method. Goodwill represents amounts arising on acquisition of
subsidiaries. In respect of business acquisitions that have occurred since incorporation, goodwill represents the difference between
the cost of the acquisition and the Group’s interest in the fair value of the net identifiable assets acquired. Identifiable intangibles are
those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.
Cineworld Group plc
Annual Report and Accounts 2010
49
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
1 Accounting Policies continued
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised
but is tested annually for impairment.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights
are separable.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at
each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are
as follows:
y
Brands – 10 years
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of inventories is based on the First-In, First-Out (“FIFO”)
principle. Cost comprises expenditure incurred in acquiring the inventories and bringing them to their existing location and condition,
and net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling costs.
Impairment
The carrying amounts of the Group’s assets other than inventories and deferred tax assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill and intangible assets that have an indefinite useful economic life, the recoverable amount is estimated at each balance
sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash
generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Calculation of Recoverable Amount
The recoverable amount is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Reversals of Impairment
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment is reversed when there is an indication that the impairment loss may no longer exist as a
result of a change in the estimates used to determine the recoverable amount, including a change in fair value less costs to sell.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Employee Benefits
Defined Contribution Pension Plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
Defined Benefit Pension Plans
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount
of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets (at bid price) is deducted. The liability discount rate is the yield at the
balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The
calculation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the asset recognised is limited to the present value of benefits available in the
form of any future refunds from the plan, reductions in future contributions to the plan or settlement of the plan and takes into account
the adverse effect of any minimum funding requirements.
50
Cineworld Group plc
Annual Report and Accounts 2010
1 Accounting Policies continued
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised
as an expense in the statement of comprehensive income on a straight line basis over the average period until the benefits
become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the statement of
comprehensive income.
The increase in the present value of the liabilities expected to arise from the employees’ services in the accounting period is charged
to the income statement. The expected return on the schemes’ assets and the interest on the present value of the schemes’ liabilities
during the accounting period are shown as finance income and finance expense respectively. Actuarial gains and losses are recognised
immediately in equity.
Share‑Based Payment Transactions
The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is
recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date using the
Black-Scholes Model and spread over the period during which the employees become unconditionally entitled to the options. The
amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due
only to share prices not achieving the threshold for vesting.
Share appreciation rights are also granted by the Company to employees. The fair value of the amount payable to the employee is
recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over
the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is
measured taking into account the terms and conditions upon which the instruments were granted. The liability is remeasured at each
balance sheet date and at settlement date and any changes in fair value are recognised in the income statement.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material,
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the liability.
Own shares held by Employee Benefit Trust (“EBT”)
Transactions of the Group sponsored EBT are included in the Group financial information. In particular, the trust’s purchase of shares
in the Company are debited directly to equity.
Revenue
Revenue represents the total amount receivable for goods sold, excluding sales related taxes and intra-Group transactions. All the
Group’s revenue is received from the sale of goods.
y
y
y
y
y
Box office revenue is recognised on the date of the showing of the film it relates to.
Concessions revenue is recognised at point of sale.
Advertising revenue is recognised when the advertisement is shown.
Unlimited card revenue is received annually or monthly in advance. When revenue from the Unlimited card is received annually in
advance it is recognised on a straight line basis over the year. Monthly Unlimited card revenue is recognised in the period to which
it relates.
Other revenue is recognised in the period to which it relates.
Expenses
Virtual Print Fees
A Virtual Print Fee represents a discount from the cost Cineworld pays for film rental and reflects the cost saving to the studios of the
move to digital. They are receivable the first time a film is played digital on a screen rather than 35mm film.
Virtual Print Fees (“VPF”) are recognised on the date of the showing of the film it relates to and are included in cost of sales as a
reduction of the film hire costs.
Operating Lease Payments
Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the
term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.
Where the Group has operating leases that contain minimum guaranteed rental uplifts over the life of the lease, the Group recognises
the guaranteed minimum lease payment on a straight line basis over the lease term.
Finance Lease Payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance
of the liability.
Cineworld Group plc
Annual Report and Accounts 2010
51
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
1 Accounting Policies continued
Net Financing Costs
Net financing costs comprise interest payable, amortisation of financing costs, unwind of discount on onerous lease provisions,
finance lease interest, net gain/loss on remeasurement of interest rate swaps, interest receivable on funds invested, foreign exchange
gains and losses and finance costs for defined benefit pension schemes.
Sale and Leaseback
Where the Group enters into a sale and leaseback transaction whereby the risks and rewards of ownership of the assets concerned
have not been substantially transferred to the lessor, any excess of sales proceeds over the previous carrying amount are deferred and
recognised in the income statement over the lease term. At the date of the transaction the assets and the associated finance lease
liabilities on the Group’s balance sheet are stated at the lower of fair value of the leased assets and the present value of the minimum
lease payments.
Where the Group enters into a sale and leaseback transaction whereby the risks and rewards of ownership of the assets concerned
have been substantially transferred to the lessor, any excess of sales proceeds over the previous carrying amount is recognised in the
income statement on completion of the transaction, when the sale and subsequent lease back has been completed at fair value.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive
income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous periods.
Deferred tax is recognised using the balance sheet method, providing temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable
profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised.
Operating Segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating
segment’s operating results are reviewed regularly by the Board of Directors to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete financial information is available.
Significant Accounting Judgements and Estimates
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates
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 and in any future periods affected.
In applying the Group’s accounting policies described above the directors have identified that the following areas are the key estimates
that have a significant impact on the amounts recognised in the financial statements.
Onerous Leases
Provision is made for onerous leases where it is considered that the unavoidable costs of the lease obligations are in excess of the
economic benefits expected to be received from operating it. The unavoidable costs of the lease reflect the least net cost of exiting
from the contract and are measured as the lower of the net cost of continuing to operating the lease and any penalties or other costs
from exiting it.
When calculating the provision for onerous leases the Group is required to make certain assumptions about the future cash flows to be
generated from that cinema site. It is also required to discount these cash flows using an appropriate discount rate. The resulting
provision is therefore very sensitive to these assumptions however, the Directors consider that the assumptions made represent their
best estimate of the future cash flows generated by onerous cinema sites, and that the discount rate used is appropriate given the
risks associated with these cash flows.
52
Cineworld Group plc
Annual Report and Accounts 2010
1 Accounting Policies continued
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimate of the value in use of the
cash generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the
expected future cash flows from the cash generating unit that holds the goodwill at a determined discount rate to calculate the present
value of those cash flows.
Forecasting expected cash flows, and selecting an appropriate discount rate inherently requires estimation, however management has
also applied sensitivity analysis to the estimates which does not affect the outcome (see Note 10).
Impairment of Tangible Fixed Assets
The Group determines whether tangible fixed assets are impaired when indicators of impairments exist. This requires an estimate of
the value in use of the cash generating units to which the tangible fixed assets are allocated. Estimating the value in use requires the
Group to make an estimate of the expected future cash flows from the cash generating units that holds the tangible fixed assets at a
determined discount rate to calculate the present value of those cash flows.
When reviewing fixed assets for impairment, the Group is required to make certain assumptions about the future cash flows to be
generated from the individual cinema sites. It is also required to discount these cash flows using an appropriate discount rate. The
resulting calculation is therefore very sensitive to these assumptions. However, the Directors consider that the assumptions made
represent their best estimate of the future cash flows generated by the cinema sites, and that the discount rate used is appropriate
given the risks associated with these cash flows.
Employee Post Retirement Benefit Obligations
The Group has two defined benefit pension plans. The obligations under these plans are recognised in the balance sheet and
represent the present value of the obligations calculated by independent actuaries, with input from management. These actuarial
valuations include assumptions such as discount rates, return on assets, salary progression and mortality rates. These assumptions
vary from time to time according to prevailing economic and social conditions. Details of the assumptions used are provided in
Note 18.
Management consider that the assumptions used are the most appropriate but recognise that the resulting pension liability is very
sensitive to these assumptions.
Deferred Tax Assets
The Group recognises deferred tax assets for temporary differences arising at the balance sheet date. The Group applies
estimates when calculating the carrying value of these assets and considering whether future taxable profits are sufficient to ensure
their recoverability.
Judgements
In addition, the Directors are required to make certain judgements when applying the Group’s accounting policies described above. The
key judgements are:
Finance and Operating Leases
When the Group enters into a new lease it is required to consider whether it bears substantially all the risks and rewards of the asset.
The Group considers the requirements of IAS 17 “Leases” when determining whether it has an operating or finance lease, and in most
cases the outcome is clear.
Hedging Arrangements
The Group enters into interest rate swaps to fix a portion of its exposure to variable interest rates on its loan arrangements. In order to
apply the hedge accounting provisions of IAS 39 “Financial Instruments”, the Group must consider the effectiveness of its hedging
arrangements when deciding whether they can hedge account.
New standards and Interpretations
With effect from 1 January 2010 the Group adopted the following pronouncements:
IFRS 8 (Amendment) “Operating Segments – Disclosure about information about segment assets”; IFRS 8 was amended to state that
segment information for total assets is only required if such information is regularly reported to the chief operating decision-maker
(“CoDM”). There has been no effect on the consolidated financial statements as the Group has only one operating segment.
IAS 7 (Amendment) “Statement of Cash flows – Classification of expenditures on unrecognised assets”; IAS 7 was amended to state
explicitly that only expenditure that results initially in the recognition of an asset may be classified as a cash flow from investing
activities. The effect of the adoption of this standard is that transaction expenditures have now been classified differently in the
statement of cash flows.
IAS 36 (Amendment) “Impairments of Assets – Unit of accounting for goodwill impairment test”; the standards was amended to
confirm that the largest unit to which goodwill can be allocated is the operating segment level, as defined in IFRS 8, before applying the
aggregation criteria. The Group has reconsidered the allocation of goodwill in the current year (see Note 11).
Cineworld Group plc
Annual Report and Accounts 2010
53
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
1 Accounting Policies continued
The Directors considered the impact of other new and revised accounting standards, interpretations or amendments on the Group that
are currently endorsed but not yet effective. It was concluded that none were relevant to the Group’s results.
2 Operating Segments
Determination and presentation of operating segments:
Further to the adoption of IFRS 8, the Group has determined that it has one operating segment and therefore one reportable segment
being cinema operations. All the disclosable operating segment information required by IFRS8 can be found in the primary statements.
Revenue by destination and by origin from countries other than the UK in all financial periods was not material. Likewise non-current
assets located in other countries other than the UK in all financial periods are not material.
Entity Wide Disclosures:
Revenue by product and service provided
Box office
Retail
Other
Total revenue
52 week
period ended
30 December
2010
Total
£m
53 week
period ended
31 December
2009
Total
£m
235.8
81.6
25.4
230.9
84.4
18.1
342.8
333.4
All revenue streams are driven by admissions. The Group’s internal management reporting and operations are not separated into
these categories.
3 Other Operating Income
Rental income
4 Operating Profit
Included in operating profit for the period are the following:
Depreciation
Impairments
Reversals of impairments
Amortisation of intangibles (Note 11)
Onerous lease and other non-recurring or non-cash property charges
Transaction and reorganisation costs
Hire of other assets – operating leases
* Included in administrative expenses.
† £0.8m (2009: £nil) is included in administrative costs. The balance is included in cost of sales.
§ £0.9m (2009: £1.0m) is included in administrative costs. The balance is included in cost of sales.
See Note 10 for details of impairments and impairment reversals.
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
0.6
0.6
0.7
0.7
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
17.0*
4.5*
(1.3)* –
0.2*
1.3†
0.2*
46.5§
15.2*
–
0.1*
0.4†
0.4*
46.0§
In 2010 there were dilapidations charges of £0.8m (2009: £nil), a net £nil charge on onerous leases following changes in trading
assumptions (2009: credit of £0.5m) and non-cash property charges of £0.5m (2009: £0.9m).
54
Cineworld Group plc
Annual Report and Accounts 2010
4 Operating Profit continued
In 2010, transaction and reorganisation costs relate to professional fees incurred in connection with the O2 acquisition. In 2009 they
relate to professional fees incurred in connection with an aborted acquisition.
The total remuneration of the Group auditor’s, KPMG Audit Plc, and its affiliates for the services to the Group is analysed below.
52 week
period ended
30 December
2010
£000
53 week
period ended
31 December
2009
£000
Auditors’ remuneration:
Group – audit
Company – audit
Amounts received by auditors and their associates in respect of:
– Audit of financial statements pursuant to legislation
– Audit related regulatory reporting
– Other services relating to taxation
– Valuation and actuarial services
– Services relating to corporate finance transactions entered into by or on behalf of the Company or the Group
– Other
196
5 5
201
41
242
226
34
86
7 –
190
195
45
240
197
20
49
5 Earnings Per Share
Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period, after excluding the weighted average number of non-vested ordinary shares
held by the employee ownership trust. Adjusted pro-forma earnings per share is calculated in the same way except that the profit for
the period attributable to ordinary shareholders is adjusted by adding back the amortisation of intangible assets, the cost of share-
based payments, any other one-off income or expense and applying a tax charge at the statutory rate, to the adjusted profit.
Diluted earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period, after excluding the weighted average number of non-vested ordinary
shares held by the employee share ownership trust and after adjusting for the effects of dilutive options.
Earnings attributable to ordinary shareholders
Adjustments :
Amortisation of intangible assets
Share-based payments
Transaction and reorganisation costs
Impairments and reversals of impairments
Impact of straight lining of operating leases
Dilapidations costs
Adjusted earnings
Add back tax charge
Adjusted pro-forma profit before tax
Less estimated impact of 53rd week in period
Less tax at statutory rate (28%)
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
21.0
20.4
0.2
0.5
0.2
3.2 –
0.5
0.8 –
0.1
0.4
0.4
0.9
(52 weeks) 26.4
9.4
(53 weeks) 22.2
10.4
(52 weeks) 35.8
–
(10.0)
(53 weeks) 32.6
(0.6)
(9.0)
Adjusted pro-forma profit after tax
(52 weeks) 25.8
(52 weeks) 23.0
Cineworld Group plc
Annual Report and Accounts 2010
55
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
5 Earnings Per Share continued
Weighted average number of shares in issue
Basic and adjusted earnings per share denominator
Dilutive options
Diluted earnings per share denominator
Shares in issue at period end
Basic earnings per share
Diluted earnings per share
Adjusted pro-forma basic earnings per share
Adjusted pro-forma diluted earnings per share
52 week
period ended
30 December
2010
Number of
shares (m)
141.7
141.7
1.1 –
142.8
141.7
53 week
period ended
31 December
2009
Number of
shares (m)
141.7
141.7
141.7
141.7
Pence
Pence
(52 weeks) 14.8
(52 weeks) 14.7
(53 weeks) 14.4
(53 weeks) 14.4
(52 weeks) 18.2
(52 weeks) 18.1
(52 weeks) 16.2
(52 weeks) 16.2
6 Staff Numbers and Costs
The average number of persons employed by the Group (including Directors) during the period, analysed by category, was as follows:
Head office
Cinemas
Number of staff
2010
138
4,487
2009
131
4,350
4,625
4,481
Included in the average number of persons employed by the Group are part-time employees. No distinction is made between full-time
and part-time employees in the analysis above.
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs – Defined contribution
Share-based payments (see Note 18)
See pages 36 to 40 for Directors’ remuneration.
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
48.1
3.3
0.4
0.5
52.3
46.8
3.1
0.4
0.4
50.7
56
Cineworld Group plc
Annual Report and Accounts 2010
7 Finance Income and Expense
Interest income
Expected return on defined benefit pension plan assets (Note 18)
Finance income
Interest expense on bank loans and overdrafts
Amortisation of financing costs
Unwind of discount on onerous lease provision
Finance cost for defined benefit pension scheme (Note 18)
Interest charge as a result of change in discount rate relating to onerous lease provisions
Other financial costs
Finance expense
Net finance costs
Recognised within other comprehensive income:
Movement in fair value of interest rate swap
Foreign exchange translation gain/(loss)
Finance income
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
0.3
1.3
1.6
4.1
0.4
1.0
1.5
0.8
0.4
8.2
6.6
0.2
1.0
1.2
5.3
0.3
1.1
1.5
1.2
0.5
9.9
8.7
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
1.1
0.2
1.3
0.3
(0.5)
(0.2)
No borrowing costs were capitalised in the 52 week period ending 30 December 2010 (2009: £0.1m) since there were no significant
assets under construction during the period, see Note 10.
8 Taxation
Recognised in the Income Statement
Current tax expense
Current year
Adjustments in respect of prior years
Total current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Total tax charge in income statement
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
8.3
(0.6)
7.7
1.7
9.4
7.1
1.7
8.8
1.6
10.4
Cineworld Group plc
Annual Report and Accounts 2010
57
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
8 Taxation continued
Reconciliation of Effective Tax Rate
Profit before tax
Tax using the UK corporation tax rate of 28% (2009: 28%)
Differences in overseas tax rates
Accelerated capital allowances in excess of depreciation
Adjustments in respect of prior years
Effect of change in statutory rate to 27% on deferred tax
Total tax charge in income statement
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
30.4
8.5
(0.1)
1.1
(0.6)
0.5 –
30.8
8.6
(0.2)
0.3
1.7
9.4
10.4
During the period there was a deferred tax charge of £0.1m (2009: £0.3m) recognised directly in equity in connection with the actuarial
loss on the defined benefit scheme and the decrease in the fair value of the cash flow hedge on part of the Group’s bank loans,
together with the impact of those items of the change in statutory rate; see Note 13.
Factors that may affect future tax charges
As at 30 December 2010 the Group had potential tax assets relating to the following:
y
y
other non-trading losses of approximately £2.6m (2009: £2.6m)
capital losses of approximately £7.6m (2009: £7.6m)
A deferred tax asset has not been recognised in respect of non-trading and capital losses carried forward as it is unclear whether
non-trading income or capital gains against which the losses may be offset will arise in the Group for the foreseeable future. The net
tax benefit of utilising any of the above losses is expected to amount to approximately 27% of the losses utilised.
Deferred tax is not provided on unremitted earnings of subsidiaries and joint ventures where the Group controls the timing of
remittance and it is probable that the temporary difference will not reverse in the foreseeable future.
The government has announced further corporation tax deductions in 2012–2015 declining in 1% increments to 24%.
9. Purchase of Trade and Assets
On 25 June 2010 Cineworld purchased the trade and assets (largely fixtures, fittings, plant and machinery) of the cinema complex
located within The O2 in Greenwich, London, for £4.0m satisfied in cash. As part of the agreement Cineworld also signed a 25 year
lease on the cinema site at a market rate.
The acquisitions had the following provisional effect on the Company’s assets and liabilities.
Acquiree’s net assets at the acquisition date:
Fixtures, fittings, plant and equipment
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied in cash
Net cash outflow
Pre-acquisition
carrying
amounts
£m
Fair value
adjustments
£m
Provisional
fair values
on acquisition
£m
8.0
(5.0)
3.0
3.0
1.0
4.0
4.0
The Goodwill of £1.0m represents the opportunity for synergies from the combined operations as well as the employees transferred in
connection with the business.
Transaction costs of £0.2m have been expensed in the period. The Group has assessed the fair value of the assets acquired at £3.0m
based on appropriate valuation methodology.
Revenue of £3.0m relating to the acquiree was included in the consolidated statement of comprehensive income for the
reporting period. If the acquisition had occurred at the beginning of the financial period approximately £4.1m revenue would relate
to the acquiree.
58
Cineworld Group plc
Annual Report and Accounts 2010
10 Property, Plant and Equipment
Cost
Balance at 25 December 2008
Additions
Disposals
Transfers
Effects of movement in foreign exchange
Balance at 31 December 2009
Additions
Disposals
Transfers
Effects of movement in foreign exchange
Land and
buildings
£m
Plant and
machinery
£m
Fixtures and
fittings
£m
Assets in the
course of
construction
£m
83.3
0.8
–
4.6
(0.2)
88.5
2.1
–
–
(0.2)
33.6
4.9
(0.2)
–
(0.1)
38.2
10.6
(2.6)
–
(0.1)
42.0
7.5
(2.0)
–
(0.7)
46.8
7.3
(5.0)
–
(0.5)
Balance at 30 December 2010
90.4
46.1
48.6
Accumulated depreciation and impairment
Balance at 25 December 2008
Charge for the period
Disposals
Effects of movement in foreign exchange
Balance at 31 December 2009
Charge for the period
Disposals
Effects of movement in foreign exchange
Impairments
Reversal of impairments
Balance at 30 December 2010
Net book value
At 25 December 2008
At 31 December 2009
At 30 December 2010
8.9
4.8
–
(0.1)
13.6
5.0
–
(0.1)
3.7
(1.3)
20.9
74.4
74.9
69.5
13.2
4.7
(0.2)
(0.1)
17.6
5.8
(2.6)
(0.1)
0.6
–
21.3
20.4
20.6
24.8
24.5
5.7
(2.0)
(0.5)
27.7
6.2
(5.0)
(0.4)
0.2
–
28.7
17.5
19.1
19.9
Total
£m
159.2
17.5
(2.2)
–
(1.0)
173.5
20.0
(7.6)
–
(0.8)
185.1
46.6
15.2
(2.2)
(0.7)
58.9
17.0
(7.6)
(0.6)
4.5
(1.3)
70.9
0.3
4.3
–
(4.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
112.6
114.6
114.2
Land and Buildings are made up of short leasehold properties encompassing leasehold improvements.
Of the £20m of additions during the year, £10.5m relates to the acquisition and installation of digital projection equipment.
The net book value of assets held under a finance lease is:
The net book value of assets held under finance leases comprised:
Opening net book value
Depreciation charge
Closing net book value
30 December
2010
£m
31 December
2009
£m
5.1
(0.2)
4.9
5.4
(0.3)
5.1
The above assets held under finance leases relate to a finance lease held on one cinema site which is included within land and buildings.
No interest (2009: £0.1m) has been capitalised during the period because only a minimal amount of work relating to the construction
of a new site took place in the period.
Cineworld Group plc
Annual Report and Accounts 2010
59
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
10 Property, Plant and Equipment continued
With respect to the tangible fixed asset disposals, no proceeds were receivable in the period.
Impairment
The Group considers each Cinema site to be a cash generating unit (“CGU”) and each CGU is reviewed annually for indicators of
impairment. In assessing whether an asset has been impaired, the carrying amount of the CGU is compared to its recoverable amount.
The recoverable amount is the higher of its fair value less costs to sell and its value in use. In the absence of any information about
the fair value of a CGU, the recoverable amount is deemed to be its value in use. The Group estimates value in use using a discounted
cash flow model, which applies a pre-tax discount rate of 9.5% (2009: 10.1%). The future cash flows are based on assumptions from
the business plans and cover a five year period. Cash flows beyond this period are extrapolated using the assumptions used in the
impairment model (see Note 11). The £4.5m impairment loss was caused by trading not reaching expectations for the foreseeable
future in relation to two cinema sites.
Impairment Reversals
Following an improvement in trading performance and an increase in the estimated future cash flows of previously impaired sites,
reversals of £1.3m have been recognised at three sites.
Sensitivity to Changes in Assumptions
The level of impairment is predominantly dependent upon judgements used in arriving at future growth rates and the discount rate
applied to cash flow projections. The impact on the impairment charge of applying different assumptions to the growth rates used in
the five year business plan and in the discount rates would be as follows:
Impairment if business plan growth rates were reduced by 1% for first five years
Impairment if discount rate was increased by 1%
11 Intangible Assets
Cost
Balance at 25 December 2008
Balance at 31 December 2009
Additions
Balance at 30 December 2010
Accumulated amortisation and impairment
Balance at 25 December 2008
Amortisation
Balance at 31 December 2009
Amortisation
Balance at 30 December 2010
Net book value
At 25 December 2008
At 31 December 2009
At 30 December 2010
£m
4.8
4.6
Total
£m
225.0
225.0
1.0
226.0
8.2
0.1
8.3
0.2
8.5
216.8
216.7
217.5
Goodwill
£m
223.8
223.8
1.0
224.8
7.7
–
7.7
–
7.7
216.1
216.1
217.1
Brand
£m
1.2
1.2
–
1.2
0.5
0.1
0.6
0.2
0.8
0.7
0.6
0.4
Impairment Testing
Each individual cinema is considered to be a CGU. However, for the purpose of testing goodwill for impairment, it is acceptable under
IAS 36 to group CGUs. Furthermore, the ex-Cine-UK and ex-UGC (including Dublin) businesses are now fully integrated, meaning that
goodwill is now monitored on a Group wide level. The following assumptions have been applied to both individual CGUs when testing for
impairment of PPE and groups of CGUs for goodwill impairment testing.
The recoverable amount of Cineworld has been determined based on a value in use calculation. That calculation uses cash flow
projections based on financial budgets approved by management covering a one-year period. Cash flows beyond the first year period
have been extrapolated using the below assumptions. This growth rate does not exceed the long-term average growth rate for the
market in which Cineworld operates.
60
Cineworld Group plc
Annual Report and Accounts 2010
11 Intangible Assets continued
The key assumptions behind the impairment review are as follows:
2011 forecast earnings before interest, tax, depreciation, and amortisation (“EBITDA”) was used as the basis of the future cash flow
calculation. This is adjusted to add back rent (EBITDAR) and essential capex on existing sites. In line with long-term industry growth
rates, EBITDAR is assumed to grow at 3% per annum for the first five years. Thereafter for the purposes of the annual impairment
review, it is assumed that the growth rate will decline over the remaining 15 years of cash flows, and EBITDA will decline over the final
five years.
Property costs are factored into the model, but are assumed to grow at 2.5% per annum over the life of the model. Cash flows are not
assumed in perpetuity.
The Group has discounted forecast flows using a pre-tax discount rate of 9.5% being a market participant’s discount rate. This is
considered to reflect the risks associated with the relevant cash flows.
Management have sensitised the key assumptions including the discount rate and under base case and sensitised case no indicators
of impairment exist. Management believes that any reasonably possible change in the key assumptions on which Cineworld’s
recoverable amount is based would not cause Cineworld’s carrying amount to exceed its recoverable amount.
Amortisation Charge
The amortisation of intangible assets is recognised in the following line items in the income statement:
Administrative expenses
12 Investment in Equity Accounted Investee
The Group has the following investment in a jointly controlled entity:
Digital Cinema Media Limited
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
0.2
0.1
Country of
Incorporation
England
and Wales
Class of
shares held
Ordinary
Ownership
50%
On 8 February 2008 the Group jointly formed Digital Cinema Media Limited (“DCM”) with Odeon Cinemas Holdings Limited (“Odeon”).
On 10 July 2008 DCM acquired certain trade and assets (substantially employees, computer systems, leasehold office and existing
contracts) from Carlton Screen Advertising Limited, the Group’s former advertising supplier.
Under the terms of the shareholder agreement between the Group and Odeon, key business decisions in respect of DCM require the
unanimous approval of the shareholders. As a consequence, the Directors of the Group do not have total management control of DCM,
therefore the Group’s investment is accounted for as a joint venture.
Cost
Share of post acquisition reserves
Share of post tax loss
Carrying value
30 December
2010
£m
31 December
2009
£m
0.9
–
0.9
(0.1)
0.8
0.9
0.1
1.0
(0.1)
0.9
Cineworld Group plc
Annual Report and Accounts 2010
61
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
12 Investment in Equity Accounted Investee continued
Summary aggregated financial information on jointly controlled entities – 100%:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net (liabilities)/assets
Income
Expenses
Net loss
30 December
2010
£m
31 December
2009
£m
13.5
1.8
(13.2)
(2.3)
(0.2) –
44.5
(44.7)
(0.2)
14.7
1.8
(10.5)
(6.0)
41.9
(42.1)
(0.2)
Screen advertising represents an important part of the Group’s revenue streams and the joint venture partners recognise the
importance of protecting this revenue stream. The joint venture partners are able to reduce their share of the advertising income if
deemed necessary to support DCM.
13 Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
||
Liabilities
||
Net
30 December
2010
£m
31 December
2009
£m
30 December
2010
£m
31 December
2009
£m
30 December
2010
£m
31 December
2009
£m
Property, plant and equipment
Intangible assets
Employee benefits
Reverse premiums
Effect of straight lining operating lease accruals
Interest rate swap
3.9
–
0.3
2.8
7.9
0.7
5.7
–
0.4
2.9
8.1
1.0
Tax assets/(liabilities)
Set off tax
15.6
(0.7)
18.1
(1.5)
(2.5)
(0.1)
–
–
–
–
(2.6)
0.7
(3.1)
(0.2)
–
–
–
–
(3.3)
1.5
1.4
(0.1)
0.3
2.8
7.9
0.7
13.0
– –
2.6
(0.2)
0.4
2.9
8.1
1.0
14.8
Net tax assets/(liabilities)
14.9
16.6
(1.9)
(1.8)
13.0
14.8
See Note 8 for details of unrecognised tax assets.
Deferred taxation provided for in the financial statements at the period end represents provision at 27% (2009: 28%) on the above
items. The effect of the change in statutory rate from 28% to 27% resulted in a £0.5m charge recognised in income. In line with
government announcements (see Note 8), a further reduction in the net deferred asset is expected.
A review of the deferred tax will be performed at each balance date and adjustments made in the event of a change in any key assumptions.
62
Cineworld Group plc
Annual Report and Accounts 2010
13 Deferred Tax Assets and Liabilities continued
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Intangible assets
Employee benefits
Reverse premiums
Effect of straight lining operating lease accruals
Interest rate swap
31 December
2009
£m
Recognised
in income
£m
Recognised
in equity
£m
30 December
2010
£m
2.6
(0.2)
0.4
2.9
8.1
1.0
(1.2)
0.1
(0.3)
(0.1)
(0.2)
–
–
–
0.2
–
–
(0.3)
1.4
(0.1)
0.3
2.8
7.9
0.7
Tax assets/(liabilities)
14.8
(1.7)
(0.1)
13.0
Property, plant and equipment
Intangible assets
Employee benefits
Reverse premiums
Effect of straight lining operating lease accruals
Interest rate swap
Tax assets/(liabilities)
14 Inventories
Goods for resale
Goods for resale recognised in cost of sales in the period amounted to £19.1m (2009: £17.0m).
15 Trade and Other Receivables
Current
Trade receivables
Other receivables
Prepayments and accrued income
Non-current
Land lease premiums
Loan to jointly controlled entity
25 December
2008
£m
Recognised
in income
£m
Recognised
in equity
£m
31 December
2009
£m
4.0
(0.2)
0.9
3.1
7.8
1.1
(1.4)
–
(0.3)
(0.2)
0.3
–
–
–
(0.2)
–
–
(0.1)
2.6
(0.2)
0.4
2.9
8.1
1.0
16.7
(1.6)
(0.3)
14.8
30 December
2010
£m
31 December
2009
£m
2.2
2.2
1.9
1.9
30 December
2010
£m
31 December
2009
£m
2.4
1.2
19.9
23.5
1.2
0.3
18.4
19.9
30 December
2010
£m
31 December
2009
£m
0.9
0.5
1.4
0.9
0.5
1.4
Cineworld Group plc
Annual Report and Accounts 2010
63
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
16 Interest-Bearing Loans and Borrowings and Other Financial Liabilities
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.
Non-current liabilities
Interest rate swaps
Unsecured bank loan, less issue costs of debt to be amortised
Liabilities under finance leases
Current liabilities
Interest rate swaps
Unsecured bank loans, less issue costs of debt to be amortised
Liabilities under finance leases
30 December
2010
£m
31 December
2009
£m
0.5
93.0
6.2
1.3
101.7
6.3
99.7
109.3
2.3
8.8
0.6
2.6
8.7
0.6
11.7
11.9
The terms and conditions of outstanding loans were as follows:
Unsecured bank loan
Finance lease liability
Currency
GBP
GBP
Nominal
interest rate
LIBOR + 0.7%
7.2%
Year of
maturity
2012
2029
30 December 2010
|||||
31 December 2009
Face
value
£m
102.0
6.8
Carrying
amount
£m
101.8
6.8
Face
value
£m
111.0
6.9
Carrying
amount
£m
110.4
6.9
Total interest bearing liabilities
108.8
108.6
117.9
117.3
On 26 April 2007 the bank loans were refinanced with a new term loan of £135m for a term of five years and interest charged at
0.70% (2009: 0.95%) above LIBOR based on the current position with respect to the covenants. The range payable above LIBOR is
0.7%–1.35% depending on the covenant headroom. The balance of the loan at 30 December 2010 was £102m. In addition to the term
loan, the Group has a £30m revolver facility.
See Note 21 for bank loan maturity analysis.
Finance Lease Liabilities
The maturity of obligations under finance leases is as follows:
Within one year
Between one and two years
In the second to fifth years
Over five years
Less future finance charges
30 December
2010
£m
31 December
2009
£m
0.6
0.6
1.8
9.8
12.8
(6.0)
0.6
0.6
1.7
10.4
13.3
(6.4)
6.8
6.9
64
Cineworld Group plc
Annual Report and Accounts 2010
16 Interest-Bearing Loans and Borrowings and Other Financial Liabilities continued
Analysis of net debt
At 25 December 2008
Cash flows
Non-cash movement
At 31 December 2009
Cash flows
Non-cash movement
Cash at bank
and in hand
£m
12.8
4.1
–
16.9
(6.3)
–
Bank
loans
£m
(119.1)
9.0
(0.3)
(110.4)
9.0
(0.4)
Finance
leases
£m
Interest
rate swap
£m
(6.9)
0.5
(0.5)
(6.9)
0.6
(0.5)
(4.2)
–
0.3
(3.9)
–
1.1
Net debt
£m
(117.4)
13.6
(0.5)
(104.3)
3.3
0.2
At 30 December 2010
10.6
(101.8)
(6.8)
(2.8)
(100.8)
The non-cash movements relating to bank loans represent the amortisation of debt issuance costs.
17 Trade and Other Payables
Current
Trade payables
Other payables
Accruals and deferred income
Non current
Accruals and deferred income
30 December
2010
£m
31 December
2009
£m
12.3
5.5
29.7
47.5
21.8
4.7
20.0
46.5
30 December
2010
£m
31 December
2009
£m
52.5
53.5
Non-current accruals and deferred income include reverse-lease premiums and an accrual for straight lining operating leases.
18 Employee Benefits
Pension Plans
The Group operates two externally funded defined benefit pension schemes, one in the United Kingdom, the MGM Pension Scheme,
and one in Ireland, the Adelphi-Carlton Limited Contributory Pension Plan.
MGM Scheme
The Scheme is a funded Scheme of the defined benefit type, providing retirement benefits based on final salary. The Scheme closed to
future accrual from 31 May 2009, though the link to final pay at retirement was retained.
The valuation used for IAS19 disclosures has been based on a full assessment of the liabilities of the Scheme as at 5 April 2009. The
present values of the defined benefit obligation, the related current service cost and any past service costs were measured using the
projected unit credit method.
Actuarial gains and losses have been recognised in the period in which they occur, (but outside the Income Statement), through Other
Comprehensive Income.
Following the UK Government’s announcement in summer 2010, the inflation index to be used to derive statutory pension increases
has been changed from the Retail Prices Index (“RPI”) to the Consumer Prices Index (“CPI”). Due to differences between the indices,
including both constituents and construction, CPI is expected to be less than RPI over the long term which means that the Scheme
liabilities will reduce. After the period end, the Company and Trustees received legal advice that the Government’s change to statutory
indexation will apply automatically to pensions in deferment and to pension increases in payment on certain tranches of pension. The
reduction in the value placed on the Scheme’s liability, estimated at £0.9m, will be treated as a negative past service cost in the 2011
Statement of Comprehensive Income.
The Company made contributions of £1.6m during 2010 (2009: £1.6m).
Cineworld Group plc
Annual Report and Accounts 2010
65
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
18 Employee Benefits continued
Adelphi-Carlton Limited Contributory Pension Plan
The Adelphi-Carlton Limited Contributory Pension Plan is closed to new entrants and therefore the current service cost is £nil.
The trustees of the Adelphi-Carlton Contributory Pension Plan have not agreed that any surplus on the plan can be refunded to
the Company. Accordingly the surplus has not been recognised. The Scheme has a surplus of £0.6m as at 30 December 2010
(2009: £0.6m).
Actuaries for Adelphi-Carlton Limited carried out the last actuarial valuation of the scheme as at 1 April 2007. Based on this
assessment, the actuarial value of the assets of the scheme was more than sufficient to cover 100% of the benefits that had accrued
to members. In view of this, a suspension of Company contributions was in force from 1 April 2001 to 30 December 2010. Total
contributions for the 53 weeks ended 31 December 2009 and 52 weeks ended 30 December 2010 were £nil and £nil, respectively.
The net surplus/(deficit) in the pension scheme is:
30 December
2010
£m
31 December
2009
£m
–
–
(0.7)
(0.7)
30 December
2010
£m
31 December
2009
£m
(28.3)
28.3
(26.6)
25.9
–
(0.7)
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
(26.6)
(1.5)
–
(1.4)
1.2
(24.4)
(1.5)
(0.1)
(1.7)
1.1
(28.3)
(26.6)
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
25.9
1.3
0.7
1.6
–
(1.2)
21.8
1.0
2.5
1.6
0.1
(1.1)
28.3
25.9
MGM Pension scheme
Net surplus/(deficit)
MGM Pension Scheme
Present value of funded defined benefit obligations
Fair value of plan assets
Surplus/(deficit) in scheme
Movements in present value of defined benefit obligation:
At beginning of period
Interest cost
Contributions by scheme participants
Actuarial loss
Benefits paid
At end of period
Movements in fair value of plan assets:
At start of period
Expected return on plan assets
Actuarial gains
Contributions by employer
Contributions by members
Benefits paid
At end of period
66
Cineworld Group plc
Annual Report and Accounts 2010
18 Employee Benefits continued
Income/(expense) recognised in the consolidated statement of comprehensive income:
Interest on defined benefit pension plan obligation
Expected return on defined benefit pension plan assets
Total
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
(1.5)
1.3
(0.2)
(1.5)
1.0
(0.5)
The income/(expense) is recognised in the following line items in the consolidated statement of comprehensive income:
Financial expenses
Financial income
Total
Actuarial gains/(losses) recognised in the consolidated statement of comprehensive income:
Actuarial (losses)/gains recognised in the period
Cumulative amount at start of period
Cumulative amount at end of period
The fair value of the plan assets and the return on those assets were as follows:
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
(1.5)
1.3
(0.2)
(1.5)
1.0
(0.5)
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
(0.7)
1.0
0.3
0.8
0.2
1.0
Equities
Property
Fixed interest bonds
Index linked bonds
Corporate bonds
Other
Long-term
rate of return
expected at
30 December
2010
52 week
period ended
30 December
2010
£m
Long-term
rate of return
expected at
31 December
2009
53 week
period ended
31 December
2009
£m
7.70%
7.20%
4.20%
4.00%
5.20%
1.40%
8.00%
n/a
4.50%
4.25%
5.50%
1.00%
13.5
0.4
–
7.1
6.0
1.3
28.3
11.6
n/a
–
5.1
8.0
1.2
25.9
Cineworld Group plc
Annual Report and Accounts 2010
67
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
18 Employee Benefits continued
Cineworld Cinemas Limited employs a building block approach in determining the long-term rate of return on pension plan assets.
Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted
capital market principles. The assumed long-term rate of return on each asset class is set out within this note. The overall expected
rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the
Scheme at the accounting date.
Expected return on scheme assets
Actuarial gains
Actual return on plan assets
Principal actuarial assumptions (expressed as weighted averages):
RPI Inflation
CPI Inflation
Rate of general long-term increase in salaries
Rate of increase to pensions in payment
Discount rate for scheme liabilities
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
1.3
0.7
2.0
1.0
2.5
3.5
52 week
period ended
30 December
2010
53 week
period ended
31 December
2009
% %
3.8
2.9 –
4.8
2.6–3.9
5.4
3.9
4.9
2.7–4.0
5.7
The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are
that a member currently aged 65 will live on average for a further 22.0 years if they are male and for a further 24.0 years if they are
female. For a member who retires in ten years at age 65 the assumptions are that they will live on average for a further 23.2 years
after retirement if they are male and for a 25.2 years after retirement if they are female.
History of Plans
The history of the plans for the current and prior periods is as follows:
Balance Sheet
Present value of defined benefit obligation
Fair value of plan assets
(28.3)
28.3
(26.6)
25.9
(24.4)
21.8
(26.6)
24.2
(26.4)
21.8
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
52 week
period ended
25 December
2008
£m
52 week
period ended
27 December
2007
£m
52 week
period ended
28 December
2006
£m
Surplus/(deficit)
Experience Adjustments
–
(0.7)
(2.6)
(2.4)
(4.6)
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
52 week
period ended
25 December
2008
£m
52 week
period ended
27 December
2007
£m
52 week
period ended
28 December
2006
£m
Experience gain/(loss) on plan assets
Experience gain/(loss) on plan liabilities
0.7
0.2
2.5
2.7
(4.4)
–
0.3
–
0.3
(1.8)
The Group expects to contribute approximately £1.6m to its defined benefit plans in the next financial period.
Defined Contribution Plans
The Group operates a number of defined contribution pension plans.
The total expense relating to these plans in the current year was £0.4m (2009: £0.4m)
Share-Based Payments
As at 30 December 2010 there were three types of share option and share schemes: the Employee Sharesave Scheme, the Cineworld
Group Performance Share Plan and the Company Share Option Plan.
68
Cineworld Group plc
Annual Report and Accounts 2010
18 Employee Benefits continued
Employee Sharesave Scheme
Grants were made under the sharesave scheme in 2007 and 2008.
The fair value is measured at the grant date and spread over the period during which the employees become unconditionally entitiled to
the options.
Period ended 31 December 2009
A charge of £62,000 was recorded in the income statement for the period in respect of both the 2007 and 2008 Sharesave scheme grants.
Period ended 30 December 2010
A charge of £30,000 was recorded in the income statement for the period in respect of both the 2007 and 2008 Sharesave scheme grants.
The Cineworld Group Performance Share Plan (“PSP”)
Period ended 31 December 2009
Under the PSP, awards of conditional shares or nil cost options can be made that vest or become exercisable after three years subject
to continued employment and generally the achievement of specified performance conditions as follows:
y
y
y
30% of the shares under the award will vest if the average annual growth in earnings per share (“EPS”) (calculated by comparing the
EPS for the financial year ended 25 December 2008 and the EPS for the financial year ending 29 December 2011) is not less
than 3.2%
100% of the shares under the Award will vest if the average annual growth in EPS (calculated by comparing the EPS for the financial
year ended 25 December 2008 and the EPS for the financial year ending 29 December 2011) is at least 9.2%
Where the average annual growth in EPS (calculated by comparing the EPS for the financial year ended 25 December 2008 and the
EPS for the financial year ending 29 December 2011) is between the two limits above, the Award shall vest on a straight-line basis
between 30% and 100%.
Grants were made under the PSP scheme on 26 March 2009. Under these grants, awards over 242,186 shares were made with the
conditions above. Further awards over 137,451 shares were made which will vest after three years subject to continued employment
only, with no specified performance conditions attached.
EPS for the 2009 grant was defined as adjusted pro-forma diluted earnings per share as calculated in Note 5 to the financial statements.
A charge of £387,000 was recorded in the income statement in respect of the 2008 and 2009 PSP schemes.
Period ended 30 December 2010
Further grants were made under the PSP scheme on 30 March 2010. Under these grants, awards over 252,654 shares were made in
total. Awards over 173,832 shares were made with the same performance conditions as the 2009 grant, but with reference to the
financial years 31 December 2009 to 30 December 2012. Further awards over 78,822 shares were made which will vest after three
years subject to continued employment only, with no specified performance conditions attached.
EPS for the 2010 grant was defined as adjusted pro-forma diluted earnings per share as calculated in Note 5 to the financial statements.
A charge of £484,000 was recorded in the income statement in respect of the 2008, 2009 and 2010 PSP schemes.
The Company Share Option Plan (“CSOP”)
Period ended 30 December 2010
The first two grants under the CSOP took place on 1 July 2010. Under these grants awards over 75,750 shares were made in total.
Awards over 10,100 shares were made with the same conditions as the 2010 PSP grant. Awards over 65,650 shares were made with
no performance conditions attached.
EPS for the 2010 grant was defined as adjusted pro-forma diluted earnings per share as calculated in Note 5 to the financial statements.
The shares were valued using the Black-Scholes Model. A charge of £6,000 was recorded in the income statement in respect of
shares granted under the CSOP.
Cineworld Group plc
Annual Report and Accounts 2010
69
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
18 Employee Benefits continued
The number and weighted average exercise prices of share options in equity settled schemes are as follows:
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Lapsed during the year
Weighted average
exercise price
2010 (£)
Equity settled
Number Weighted average
exercise price
2009 (£)
Equity settled
of options
2010
Equity settled
Number
of options
2009
Equity settled
0.44
1.63
0.46
1.13
1,378,886
0.67
1,085,819
(20,088) –
328,404
(81,687)
–
1.27
379,637
(86,570)
Outstanding at the end of the year
0.40
1,605,515
0.44
1,378,886
Exercisable at the end of the year
1.63
32,880
–
–
The average share price during 2010 was £1.92 (2009: £1.40).
Assumptions relating to grants of share options in 2009 were:
Scheme name
PSP
Date of grant
Share price
at grant (£)
Exercise
price (£)
Expected
volatility (%)
Expected
life (years)
Dividend
yield (%)
Risk free
rate (%)
Fair
value (£)
26 March 2009
1.28
nil
53
3.0
6.5
0.61
1.05
Assumptions relating to grants of share options in 2010 were:
Scheme name
PSP
CSOP
Date of grant
Share price
at grant (£)
Exercise
price (£)
Expected
volatility (%)
Expected
life (years)
Dividend
yield (%)
Risk free
rate (%)
Fair
value (£)
30 March 2010
1 July 2010
1.85
1.98
nil
1.98
49
3.0
49 3–10 years
5.5
5.5
0.76
0.76
1.52
0.44
The total expenses recognised for the period arising from share-based payments are as follows:
Equity-settled share-based payment expense
Share-based payments expenses
52 week
period ended
30 December
2010
£m
53 week
period ended
31 December
2009
£m
0.5
0.5
0.4
0.4
70
Cineworld Group plc
Annual Report and Accounts 2010
19 Provisions
Balance at 31 December 2009
Non-current
Current
Total
Balance at 31 December 2009
Provisions made during the period
Effect of change in discount rate during the period
Utilised against rent during the period
Unwound against interest during the period
Balance at 30 December 2010
Non-current
Current
Total
Property
provisions
£m
11.8
10.6
1.2
11.8
11.8
0.5
0.8
(2.2)
1.0
11.9
9.6
2.3
11.9
Property provisions relate to onerous leases, dilapidations and other property liabilities. The majority of the property provision relates
to onerous leases being the rent payable on particular cinema sites that is in excess of the economic benefits expected to be derived
from their operation on a discounted basis. The remaining provision will be utilised over the period to the next rent review date or the
remaining lease life depending on the term of the lease. This is between one and thirty years (see further analysis below). The discount
rate used in the period was 9.5% (2009: 10.1%).
Expected timing for utilisation of property provisions
Analysed as:
Within one year
Between one and two years
In the second to fifth years
Over five years
20 Capital and Reserves
Share Capital
Cineworld Group plc
Authorised
250,000,000 ordinary shares of £0.01 each
Allotted, called up and fully paid
141,741,597 (2009: 141,721,509) ordinary shares of £0.01 each
30 December
2010
£m
31 December
2009
£m
2.3
1.1
2.5
6.0
1.2
1.5
2.9
6.2
11.9
11.8
30 December
2010
£m
31 December
2009
£m
2.5
1.4
2.5
1.4
During the year 20,088 ordinary shares were issued of nominal value £0.01 as part of the employee sharesave scheme. Consideration
of £32,000 was received.
Translation Reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
Cineworld Group plc
Annual Report and Accounts 2010
71
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
20 Capital and Reserves continued
Hedging Reserve
The hedging reserve comprises the liability in relation to the interest rate swap entered into to hedge against variable interest
payments on £51.0m (2009: £57.8m) of the total £102.0m (2009: £111.0m) of bank debt. As hedge accounting has been adopted
the gains/losses are recorded through equity until such time as the cash flows being hedged occur, when they are recycled to the
income statement.
Dividends
The following dividends were recognised during the period:
Interim
Final (for the preceding period)
2010
£m
4.8
9.7
2009
£m
4.5
9.0
14.5
13.5
An interim dividend of 3.4p per share was paid on 8 October 2010 to ordinary shareholders (2009: 3.2p). The Board has proposed a
final dividend of 7.1p per share, which will result in total cash payable of £10.1m on 6 July 2011 (2009: final dividend £9.7m). In
accordance with IAS10 this had not been recognised as a liability at 30 December 2010.
21 Financial Instruments
Overview
The Group has exposure to the following risks from its use of financial instruments:
y
y
y
Credit risk
Liquidity risk
Market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes
for measuring and managing risk, and the Group’s management of capital.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The
Board has established the Risk Management Committee, which is responsible for developing and monitoring the Group’s risk
management policies. The committee reports regularly to the Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards
and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles
and obligations.
The Group’s Audit Committee oversees how management monitors compliance with the Group’s risk management policies and
procedures and reviews the adequacy of the risk management framework in relation to the risks by the Group. The Group’s Audit
Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of certain risk
management controls and procedures, the results of which are reported to the Audit Committee.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and investment securities.
The Group’s credit risk is primarily attributable to its trade receivables. However due to the nature of the Group’s business, trade
receivables are not significant which limits the related credit risk. The Group’s trade receivables are disclosed in Note 15. Of the total
balance of £2.4m (2009: £1.2m) due 81% (2009: 50%) are within credit terms. A further 8% (2009: 24%) outside credit terms cleared
after the period end and before signing of the financial statements. The bad debt provision as at 2010 is £nil (2009: £0.1m), with a
bad debt expense in the period of £nil (2009: £0.1m). Based on past experience the Group believes that no additional impairment
allowance is necessary in respect of the trade receivables that are past due. In 2010 the amount of trade receivables past due but
unimpaired is £0.2m. The credit risk on liquid funds and derivative financial instruments is also limited because the counterparties are
banks with high credit-ratings.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
In addition to the financial liabilities set out in the table below, the Group has a £30m revolver facility with Barclays Bank available to
May 2012. For more details, see Note 1 Basis of preparation.
72
Cineworld Group plc
Annual Report and Accounts 2010
21 Financial Instruments continued
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting
agreements. The amounts disclosed in the table are contractual undiscounted cash flows, including interest payments calculated using
interest rates in force at each balance sheet date, so will not always reconcile with the amounts disclosed on the balance sheet.
30 December 2010
Non-derivative financial liabilities
Unsecured bank loans
Finance lease liabilities
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
Carrying Contractual
cash flows
amount
£m
£m
6 mths
or less
£m
6–12
months
£m
1–2
years
£m
2–5 More than
5 years
£m
years
£m
101.8
6.8
12.3
(103.9)
(12.8)
(12.3)
(5.3)
(0.3)
(12.3)
(5.2)
(0.3)
–
(93.4)
(0.6)
–
–
(1.8)
–
–
(9.8)
–
2.8
(3.1)
(1.2)
(1.2)
(0.7)
–
–
123.7
(132.1)
(19.1)
(6.7)
(94.7)
(1.8)
(9.8)
The unsecured bank loan is subject to two covenants: the ratio of EBITDA to net debt and the ratio of EBITDAR (pre-rent EBITDA) to net
finance charges.
31 December 2009
Non-derivative financial liabilities
Unsecured bank loans
Finance lease liabilities
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
Carrying Contractual
cash flows
amount
£m
£m
6 mths
or less
£m
6–12
months
£m
1–2
years
£m
2–5
years
£m
More than
5 years
£m
110.4
6.9
21.8
(114.8)
(13.3)
(21.8)
(5.4)
(0.3)
(21.8)
(5.3)
(0.3)
–
(10.6)
(0.6)
–
(93.5)
(1.7)
–
–
(10.4)
–
3.9
(6.0)
(1.3)
(1.3)
(2.6)
(0.8)
–
143.0
(155.9)
(28.8)
(6.9)
(13.8)
(96.0)
(10.4)
Cash Flow Hedges
The following table indicates the periods in which the discounted cash flows associated with derivatives that are cash flow hedges are
expected to occur.
30 December 2010
Interest rate swaps:
Liabilities
31 December 2009
Interest rate swaps:
Liabilities
Carrying
amount
£m
Expected
cash flows
£m
6 mths
or less
£m
6–12
months
£m
1–2
years
£m
2–5 More than
5 years
£m
years
£m
(2.8)
(2.8)
(1.2)
(1.1)
(0.5)
–
–
Carrying
amount
£m
Expected
cash flows
£m
6 mths
or less
£m
6–12
months
£m
1–2
years
£m
2–5
years
£m
More than
5 years
£m
(3.9)
(3.9)
(1.3)
(1.3)
(1.1)
(0.2)
–
It is expected that the expected cash flows will impact profit and loss when the cash flows occur.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return on risk.
Cineworld Group plc
Annual Report and Accounts 2010
73
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
21 Financial Instruments continued
Foreign Currency Risk
The majority of the Group’s operations are in the United Kingdom and hence for these operations there is no exposure to foreign
currency risk other than in respect of certain purchases that may be denominated in currencies other than sterling. In addition there is
an operation in Ireland where non-sterling revenues, purchases, financial assets and liabilities and cash flows can be affected by
movements in Euro rates. However, the exposure is limited as euro operations are not significant. A 10% increase/(decrease) in the
value of €1 against sterling would increase/decrease the profit before tax for 2010 by approximately £23,000 (2009: £107,000.)
A 10% increase/(decrease) in the value of €1 against sterling would increase/decrease equity in 2010 by approximately £27,000
(2009: £139,000.)
Interest Rate Risk
The Group’s policy is to manage its cost of borrowing by securing fixed interest rates on a portion of its term loan.
Whilst fixed rate interest bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a
reduction in borrowing costs in markets where rates are falling.
In addition, the fair value risk inherent in fixed rate borrowing means that the Group is exposed to unplanned costs should debt be
restructured or repaid early as part of the liquidity management process.
The Group uses interest rate swaps agreed with other parties to hedge a portion of its bank loans that have variable interest rates.
Interest rate swaps are measured at fair value, which have been calculated by discounting the expected future cash flows at prevailing
interest rates.
At the period end the Group had one interest rate swap which hedged 50% (2009: 52.1%) of the Group’s variable rate unsecured
bank debt. As a result, there is no impact on the income statement relating to the hedged bank debt as a result of any changes in
interest rates.
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Fixed rates instruments
Financial liabilities (interest rate swap)
Financial liabilities (unsecured bank loans – hedged portion)
Variable rate instruments
Financial liabilities (unsecured bank loans – unhedged portion)
Carrying amount
2010
2009
(2.8)
(51.0)
(3.9)
(57.8)
(53.8)
(61.7)
(51.0)
(53.2)
£51.0m (2009: £57.8m) of the variable rate financial liability is hedged via the interest rate swap with the balance attracting a variable
interest rate.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group accounts for fixed rate derivative financial instruments (interest rate swaps) at fair value. The gain or loss on
remeasurement to fair value is recognised immediately in the income statement except where derivatives qualify for hedge accounting
when recognition of any resultant gain or loss depends on the nature of the item being hedged. Hedge accounting was adopted from
the year ended 27 December 2007 on the swap taken out in May 2007.
A change of 100 basis points in interest rates would have increased equity by £0.5m or decreased equity by £0.5m (2009: increase
£1.1m, decrease £1.1m) and would have increased or decreased profit or loss by £nil (2009: £nil).
74
Cineworld Group plc
Annual Report and Accounts 2010
21 Financial Instruments continued
Cash Flow Sensitivity Analysis for Variable Rate Instruments
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the
amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The
analysis is performed on the same basis for 2009.
Effect in GBP thousands
30 December 2010
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
31 December 2009
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
Profit or loss
||||||||||
Equity
100 bp
increase
100 bp
decrease
100 bp
increase
100 bp
decrease
(1,087)
543
1,087
(543)
(1,087)
543
1,087
(543)
(544)
544
(544)
544
(1,191)
595
1,191
(595)
(1,191)
595
1,191
(595)
(596)
596
(596)
596
Fair Values
Set out below is a comparison by category of carrying amounts and fair values of the Group’s financial instruments that are carried in
the financial statements.
Short-term debtors, creditors and cash and cash equivalents have been excluded from the following disclosures on the basis that their
carrying amount is a reasonable approximation to fair value.
Unsecured bank loans
Finance lease liabilities
Interest rate swaps
Carrying
amount
30 December
2010
£m
101.8
6.8
2.8
Fair value
30 December
2010
£m
99.3
6.8
2.8
Carrying
amount
31 December
2009
£m
110.4
6.9
3.9
Fair value
31 December
2009
£m
106.5
6.9
3.9
111.4
108.9
121.2
117.3
The fair value of derivatives and borrowings has been calculated by discounting the expected future cash flows at prevailing interest
rates. The carrying amount of unsecured bank loans is stated net of debt issuance costs and the fair value is stated gross of debt
issuance costs and is calculated using the market interest rates.
The difference between net carrying amount and estimated fair value reflects unrealised gains or losses inherent in the instruments
based on valuations at 30 December 2010 and 31 December 2009. The volatile nature of the markets means that values at any
subsequent date could be significantly different from the values reported above.
Fair Value Hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined
as follows:
y
y
y
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices);
Level 3: inputs for the assets or liability that are not based on observable market data (unobservable inputs).
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
30 December 2010
Derivative financial instruments
31 December 2009
Derivative financial instruments
–
–
2.8
3.9
–
–
Cineworld Group plc
Annual Report and Accounts 2010
2.8
3.9
75
Notes to the Consolidated Financial Statements continued
(Forming Part of the Financial Statements)
21 Financial Instruments continued
There have been no transfers between levels in 2009. No other financial instruments are held at fair value.
Capital Management
The capital structure of the Group consists of the following items:
Cash and cash equivalents
Loan notes outstanding
Equity attributable to equity holders of the parent
2010
£m
10.6
101.8
191.2
2009
£m
16.9
110.4
188.3
303.6
315.6
The Board of Directors constantly monitor the ongoing capital requirements of the business and have reviewed the current gearing
ratio, being the ratio of bank debt to equity and consider it appropriate for the Group’s current circumstances. Ratios used in the
monitoring of debt capital include the ratio of EBITDA to net debt and the ratio of EBITDAR (pre-rent EBITDA) to net finance charges.
The Group has a £30m revolver, which is used to manage uneven working capital requirements.
The Group’s objective when managing capital is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business, to provide returns for shareholders and to optimise the capital structure
to reduce the cost of capital. The Board of Directors monitors both the demographic spread of shareholders, as well as the return on
capital, which the Group defines as total shareholders’ equity and the level of dividends to ordinary shareholders.
22 Operating Leases
Non-cancellable operating lease rentals commitments are as follows:
Less than one year
Between one and five years
More than five years
Land and
buildings
£m
50.8
210.6
875.4
Other
£m
0.4
1.6
–
30 December
2010
£m
51.2
212.2
875.4
Land and
buildings
£m
46.9
190.7
688.9
Other
£m
0.4
1.3
–
31 December
2009
£m
47.3
192.0
688.9
1,136.8
2.0
1,138.8
926.5
1.7
928.2
23 Capital Commitments
Capital commitments at the end of the financial period for which no provision has been made:
Contracted
30 December
2010
£m
31 December
2009
£m
–
2.9
Since the end of the financial period and the signing of the financial statements, capital commitments were made of £6.2m relating to
digital projection equipment and £2.3m relating to new sites.
24 Related Parties
The compensation of key management personnel (including the Directors) is as follows:
52 weeks ended 30 December 2010
Total compensation for key management
Personnel (including the Directors)
53 weeks ended 31 December 2009
Total compensation for key management
Personnel (including the Directors)
76
Cineworld Group plc
Annual Report and Accounts 2010
Salary
and fees
including bonus
£000
Compensation
for loss
of office
£000
Pension
contributions
£000
Total
£000
1,698
–
142
1,840
Salary
and fees
including bonus
£000
Compensation
for loss
of office
£000
Pension
contributions
£000
Total
£000
1,841
–
147
1,988
24 Related Parties continued
During 2010, M Tooth and A Roux served as Directors appointed by Blackstone, a major shareholder. A Roux left the Board in
November 2010 following the divestment of the Blackstone holding. Their Directors’ fees of £33,000 and £28,875 respectively
(2009: £33,000, £3,300) are payable to Blackstone. L Guffey who was appointed by Blackstone resigned in November 2009
(2009 fees: £29,700) and A Roux was appointed in his place.
Share-based compensation benefit charges for key management personnel (including Directors) was £0.3m in 2010 (2009: £0.2m).
Other Related Party Transactions
Digital Cinema Media Limited (“DCM”) is a joint venture between the Group and Odeon Cinemas Holdings Limited set up on 10 July
2008. Revenue receivable from DCM in the 52 week period ending 30 December 2010 totalled £13.8m (53 week period ending
31 December 2009: £11.3m) and as at 30 December 2010 £2.0m (2009: £1.2m) was due from DCM in respect of receivables. In
addition the Group has a working capital loan outstanding from DCM of £0.5m (2009: £0.5m). The Group has guaranteed £2.75m of
DCM’s bank debt payable to Royal Bank of Scotland. The Group does not consider it is probable that it will be called on under the
terms of the guarantee.
Cineworld Group plc
Annual Report and Accounts 2010
77
Company Balance Sheet
at 30 December 2010
Fixed assets
Investments
Current assets
Debtors
Cash at bank
Creditors: amount falling due within one year
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Shareholders’ funds – equity
Note
28
29
30
31
31
31
30 December
2010
£000
30 December
2010
£000
31 December
2009
£000
31 December
2009
£000
132,313
131,798
123,667
53
123,720
(64,823)
105,667
5,003
110,670
(54,211)
58,897
191,210
1,417
171,386
18,407
191,210
56,459
188,257
1,417
171,354
15,486
188,257
These financial statements were approved by the Board of Directors on 10 March 2011 and were signed on its behalf by:
Stephen Wiener
Director
Richard Jones
Director
78
Cineworld Group plc
Annual Report and Accounts 2010
Company Reconciliation of Movements in Shareholders’ Funds
for the Period Ended 30 December 2010
Profit for the period
Dividends paid during the period
Equity instruments granted
Share issue
Net increase/(decrease) in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
Note
31
31
52 week
period ended
30 December
2010
£000
16,862
(14,456)
515
32 –
53 week
period ended
31 December
2009
£000
10,763
(13,463)
449
2,953
188,257
(2,251)
190,508
191,210
188,257
Cineworld Group plc
Annual Report and Accounts 2010
79
Notes to the Company Financial Statements
25 Accounting Policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s financial statements.
Basis of Preparation
The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost
accounting rules.
Information regarding the Group’s business activities, together with the factors likely to affect its future development, performance and
position is set out in the Chief Executive and Chief Financial Officer’s Report and the Risks and Uncertainties section on pages 8 to
18. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Executive
and Chief Financial Officer’s Report on pages 8 to 15. In addition Note 21 to the financial statements includes the Group’s objectives,
policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and
hedging activities; and its exposures to credit risk and liquidity risk.
As highlighted in Note 16 to the financial statements, the Group meets its day to day working capital requirements through its
bank facilities which consist of a £102m term loan plus £30m revolver which matures in 2012. The current economic conditions
create uncertainty particularly over (a) the level of demand for the Group’s products; and (b) the availability of bank finance in the
foreseeable future.
The current bank facility is subject to two covenants: the ratio of EBITDA to net debt and the ratio of EBITDAR (pre-rent EBITDA) to net
finance charges. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show
that the Group should be able to operate within the level of its current facility, including compliance with the bank facility covenants.
Since the end of the period the Group has received commitments from a group of banks for a new five year facility of £170m to replace
its existing facility which is due to expire in May 2012. The new facility will provide the Group with more flexibility to finance future
expansion plans as well as other growth opportunities. Documentation is being drafted between the Group and the participating banks
and all parties are working to complete the process in the near future.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account.
Under Financial Reporting Standard 1 the Company is exempt from the requirement to prepare a cash flow statement on the grounds
that its cash flows are included within the consolidated financial statements of Cineworld Group plc.
The Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with
entities which form part of the Cineworld Group where the Group controls 90% or more of the voting rights.
Investments
In the Company’s financial statements, investments in subsidiary undertakings are stated at cost less provision for any impairment
in value.
Impairment
The Group evaluates its investments for financial impairment where events or circumstances indicate that the carrying amount of such
assets may not be fully recoverable. When such evaluations indicate that the carrying value of an asset exceeds its recoverable value,
an impairment in value is recorded.
Deferred Taxation
The charge for taxation based on the profit for the year and takes into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes.
Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation
and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.
Classification of financial instruments issued by the Company
Following the adoption of FRS 25, financial instruments issued by the Company are treated as equity (i.e. forming part of shareholders’
funds) only to the extent that they meet the following two conditions:
a) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and
b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
80
Cineworld Group plc
Annual Report and Accounts 2010
25 Accounting Policies continued
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share
capital and share premium account exclude amounts in relation to those shares.
Share-Based Payment Transactions
The share options programme allows Group employees to acquire shares of the Company. The fair value of options granted is
recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over
the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is
measured using an evaluation model, taking into account the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of shares options that vest except where forfeiture is due only to
share prices not achieving the threshold for vesting.
Shares appreciation rights are also granted by the Company to employees. The fair value of the amount payable to the employee is
recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over
the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is
measured based on an option valuation model, taking into account the terms and conditions upon which the instruments were granted.
The liability is remeasured at each balance sheet date and at settlement date and any changes in fair value recognised in profit and
loss spread equally over the vesting period.
Where the Company grants options over its own shares to the employees of its subsidiaries it recognises an increase in the cost of
investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its subsidiary’s financial
statements with the corresponding credit being recognised directly in equity. Amounts recharged to or reimbursed by the subsidiary are
recognised as a reduction in the cost of investment in subsidiary.
Own Shares Held by Employee Benefit Trust (“EBT”)
Transactions of the Group sponsored EBT are included in the Group financial information. In particular, the trust’s purchase of shares
in the Company are debited directly to equity.
26 Staff Numbers and Costs
The Company has no employees. Non-Executive Directors salaries are recharged to the Company from its subsidiary Cineworld
Cinemas Ltd. Total salaries paid to Non-Executive Directors were £340,000 (2009: £300,000) See pages 36 to 40 for details of
directors emoluments.
27 Fixed Asset Investments
Company
Balance at 31 December 2009
Additions
Balance at 30 December 2010
Net book value
At 31 December 2009
At 30 December 2010
For details of £515,000 addition to investment see Note 31.
Shares in Group
undertakings
£000
131,798
515
132,313
131,798
132,313
Cineworld Group plc
Annual Report and Accounts 2010
81
Notes to the Company Financial Statements continued
27 Fixed Asset Investments continued
Subsidiary undertakings
Directly Held
Augustus 1 Limited
Indirectly Held
Augustus 2 Limited
Cineworld Holdings Limited
Cine-UK Limited
Cineworld Cinemas Holdings Limited
Cineworld Cinemas Limited
Cineworld Finance Limited
Cineworld Estates Limited
Cineworld South East Cinemas Limited
Cineworld Exhibition Limited
Gallery Holdings Limited
Gallery Cinemas Limited
Slough Movie Centre Limited
Adelphi-Carlton Limited
Cineworld Cinema Properties Limited
Cineworld Elite Pictures Theatre
(Nottingham) Limited
Classic Cinemas Limited
Computicket Limited
Digital Cinema Media Limited
28 Debtors
Amounts due from subsidiary undertakings
29 Creditors: Amounts Falling Due Within One Year
Amounts due to subsidiary undertakings
Corporation tax payable
30 Share Capital and Reserves
At 31 December 2009
Profit for the period
Dividends paid during the period
Equity instruments granted
Share issue
Country of incorporation
Principal activity
Class % of shares held
England and Wales
Holding company
Ordinary
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Eire
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Holding company
Holding company
Cinema operation
Holding company
Holding company
and cinema operation
Dormant
Cinema property leasing
Holding company
Dormant
Holding company
Dormant
Dormant
Cinema operation
Property company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
“A” Ordinary
Preference
Ordinary
Ordinary
Ordinary
Ordinary
Non-trading
Retail services company
Dormant
Screen Advertising
Ordinary
Cum 5% Pref
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
98.2
99.6
100
100
50
30 December
2010
£000
31 December
2009
£000
123,667
105,667
123,667
105,667
30 December
2010
£000
31 December
2009
£000
64,823
–
54,174
37
64,823
54,211
Share
capital
£000
1,417
–
–
–
–
Share
premium
account
£000
171,354
–
–
–
32
Profit and
loss account
£000
15,486
16,862
(14,456)
515
–
Total
£000
188,257
16,862
(14,456)
515
32
At 30 December 2010
1,417
171,386
18,407
191,210
82
Cineworld Group plc
Annual Report and Accounts 2010
30 Share Capital and Reserves continued
For details of share issue see Note 20.
Share premium is stated net of share issue costs.
Equity instruments granted of £515,000 represents the fair value of share options granted to employees of subsidiary undertakings.
There is a corresponding increase in investments, see Note 28.
This element of the profit and loss reserve is not distributable.
31 Share-Based Payments
See Note 18 of the Group financial statements.
Cineworld Group plc
Annual Report and Accounts 2010
83
Shareholder Information
(Non-Executive Director and Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Non-Executive Director)
(Non-Executive Director and Senior Independent Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
Directors
A H Bloom
S Wiener
R Jones
M King
D Maloney
T McGrath
R Senat
M Tooth
P Williams
Head Office
Power Road Studios
114 Power Road
Chiswick
London W4 5PY
Telephone Number
0208 987 5000
Website
www.cineworld.co.uk
www.cineworldplc.com
Place of Incorporation
England and Wales
Joint Brokers
JP Morgan Cazenove Ltd
20 Moorgate
London EC2R 6DA
Evolution Securities Limited
100 Wood Street
London EC2V 7AN
Legal Advisors to the Company
Olswang
90 High Holborn
London WC1V 6XX
Public Relations Advisors
M: Communications
1 Ropemaker Street
Ninth Floor
London EC2Y 9HT
Registered Office
Power Road Studios
114 Power Road
Chiswick
London W4 5PY
Company Number
Registered Number: 5212407
Registrar
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Auditors
KPMG Audit Plc
15 Canada Square
London E14 5GL
Final Dividend – 2010
Announcement
Ex Dividend
Record Date
Payment Date
10 March 2011
8 June 2011
10 June 2011
6 July 2011
84
Cineworld Group plc
Annual Report and Accounts 2010
Business Review
Highlights 2010
A Real Cinema Experience
Chairman’s Statement
Our Strategy
The Business Model
UK and Ireland Market Overview
Chief Executive and Chief Financial
Officers’ Review
Risks and Uncertainties
Corporate Responsibility
Governance
Directors’ Biographies
Directors’ Report
Corporate Governance Statement
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
in respect of the Annual Report and
the Financial Statements
Independent Auditor’s Report to the
Members of Cineworld Group plc
01
02
04
06
07
07
08
16
19
24
26
31
36
41
42
43
44
Financial Statements
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated
Financial Statements
Company Balance Sheet
Company Reconciliation of Movements
in Shareholders’ Funds
79
Notes to the Company Financial Statements 80
84
Shareholder Information
45
46
47
78
Cineworld is one
of the UK’s leading
cinema groups
Cineworld Group plc
Power Road Studios
114 Power Road
Chiswick
London W4 5PY
020 8987 5000
www.cineworld.com
www.cineworldplc.com
Cineworld Group plc
Annual Report and Accounts 2010
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