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Edited Transcript of CINE.L earnings conference call or presentation 9-Aug-18 8:30am GMT

Q2 2018 Cineworld Group PLC Earnings Call

London Aug 28, 2018 (Thomson StreetEvents) -- Edited Transcript of Cineworld Group PLC earnings conference call or presentation Thursday, August 9, 2018 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Israel Greidinger

Cineworld Group plc - Deputy CEO & Executive Director

* Moshe Greidinger

Cineworld Group plc - CEO & Executive Director

* Nisan Cohen

Cineworld Group plc - CFO & Executive Director

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Conference Call Participants

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* Ali Hamza Naqvi

HSBC, Research Division - Analyst

* Alistair Guy Ross

Investec Bank plc, Research Division - Research Analyst

* Jeffrey Robert Harwood

Stifel, Nicolaus & Company, Incorporated, Research Division - Former Analyst

* Michael Goltsman

Citigroup Inc, Research Division - VP

* Owen Shirley

Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst

* Richard Michael Taylor

Barclays Bank PLC, Research Division - Analyst

* Richard Paul Stuber

Numis Securities Limited, Research Division - Analyst

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Presentation

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [1]

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Good morning, everyone. Welcome to Picturehouse Central.

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [2]

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Nice cinema in the West End of London.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [3]

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After the Cineworld, West End. It's the second. Nobody from Picturehouse here? Yes. Okay. So this is one of the 2 best cinemas in the West End. And we are happy to start the presentation for 6 months results. The first time that we are going with the results, which are including the U.S. And if we really see and look at the key highlights, we can say, first of all, the transaction was completed as you all know. As a 1st of March, we are officially running the U.S., the Regal estate. Total of the acquisition was at the end $5.8 billion. We went through the Rights Issue of $2.3 million (sic)[$2.3 billion] , and the integration process is going well. We are happy with the time, and we are happy with the results.

And as we said before, it's not a 1-day process it's not also 1-month process, but we believe that we are on track. Even in some cases, we are ahead of schedule. And in 2019, we'll see already most of the synergies and the integration and results on board.

From financial point of view, we have a 10.8 increase in revenue. The group pro forma EBITDA is 14% up, and we are very satisfied with this result. Strong performance in the U.S. market is the main contributor for this. The U.S. didn't have a great year in 2017, although, it was in my eyes, at least, very exaggerated. And at the end of the day, we see today that the business is good. First 6 months were the biggest 6 months ever in the U.S. And this was a good result. This was accompanied with a solid result in the U.K. And we'll talk about the territories more in details in a minute.

And in Central Europe and in Israel, we had small drop, but this is normal. We need all of us to remember that in these territories, the importance of local product is much more important for the business, and a lack of local product can change or move the numbers, some of these territories. And we see it also in the U.K. always the first 6 months are always slower than the second 6 months, and we see this also in the results.

We're continuing our investment in technology, we'll talk about it later in the presentation. ScreenX is the new technology that we are bringing into the market, and the rollout across the new sites, whether it is in the U.S., U.K., are going according to the plan.

Change the slide. You see clearly the size of the U.S., about 75% of the screens are in the U.S. The numbers in the U.K., Central Europe and Israel have not changed dramatically. In the last 6 months, we had some new few new cinemas. And altogether, we have today 130 IMAXs across the territories, 121 either Superscreen or RPX as we call them in the U.S., which is Regal premium experience and 43 4DXs, and we are going forward with the 4DX, which is a big success on a very big way.

Turning now to Nisan

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [4]

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Thank you, Mooky. Going to the financial review. And first, I will just make some description forward. The first slides will talk about the pro forma performance. And when I'm saying pro forma performance, meaning we are comparing here apple-to-apple, meaning the 6 full months of Regal plus full 6 months of Cineworld compared to the same period of 2017. If we start with the group results, you can see on the left that after the post-deal United States -- the U.S. represents 76% of our business from revenue point of view, the U.K. 15% and Central Europe and Israel, what we call rest of the world, represent 9% from the revenue.

From product and the service portfolio, this is more or less very comparable to last year's performance, the box office represents over 60%; the retail, the concession, what we call, 28%; and the other income, which contain mainly advertising, online sales and some other elements, contain 10%.

On the right, we have the fresh numbers that I will go away in details in the later slide. But we definitely see the increasing admission in revenue, in adjusted pro forma, EBITDA plus margin above 22%.

If we move to the H1 pro forma by geography, we definitely see the strong result in the U.S., starting from admission, down to revenue. EBITDA is up by 20%. We produced in the first 6 months in U.S. $441 million of EBITDA, which reflected also by the way in the cash flow, very nice, I'll say, percentage on the free cash flow and EBITDA. And then we see also nice improvement in the EBITDA margin that reaching 23.5%. Again, if you compare apple-to-apple here, it's another 1% in the margin, in the group level, is close to 1%, a level of 22.5%. In the U.K., like Mooky said before, slightly decrease in admission, mainly because of the movie release, the timing, the dates some of the movies were scheduled from June to July. However, we manage to perform good level of EBITDA and contain a similar margin of 16.3%. Very typical results and very similar to last year when H1 is usually on this level. H2 usually is in a higher level, 22%, 23%, which by the end of the year, is we are landing more or less on the level of 20% in the U.K.

Central Europe, we see some reduction in admission, but if we look on the -- what's happened in the last full year, the (inaudible) gross of admission was approximately 5%. So I think that we need to remember it's coming here really after a very strong comps, and we'll talk about it in a second.

Going to the territories themself. In the U.S., we see the breakdown of the revenue of box office, retail, other income, all of them had strong results and supported by some increase in the ATP, in the per head. This is helping also to the revenue lines, and the thing that's by the end of the day, we're very happy with the performance in the U.S.

If we move to the next slide, the performance in the U.K. I mentioned before, there is some reduction in admission. However, in the box office, in the retail and in the other income, which contain also our advertising business, which performed well and some other elements like online, I think it was performing good in the U.K. By the end of the day, this help us really to maintain 2.5% revenues growth in this segment.

If we move to the KPIs in the U.K. I think we see the ATP and SPP and there is a growth of 4% and 3.8%. The main reason for increasing the ATP is inflation increase, and there is also the impact talking about it a lot of the type of the movies. If we have more kids movies, less kids movies, there is some impact on this -- on the average ticket price.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [5]

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And also to remember, the premium.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [6]

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And the premium format.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [7]

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Formats which are more expensive like more IMAXs, more 4DX are also influencing the average ticket price.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [8]

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The average ticket price.

Moving to central Europe and Israel. So here, we see the slight decrease in revenue to $229 million of revenue. We are saying all the time this is a business of cost base -- of cost -- fixed cost base. So a decrease in admission sometimes see a bit more impact on the EBITDA. However, we believe that this is not really reflecting the overall attitude of that market. We are very confident with this market. With the growth potential in Central Europe, we'll have some more local production in the second half, and we very confident on those territories.

The KPI in Central Europe and Israel, ATP 2.5% increase, concession SPP 8.2% increase. I think it's also related the fact that in the last year, we didn't go up dramatically in the concession prices. Here, we have some improvement in some of the territories. By the end of the day, this is a very good result.

If you look on the statutory group profit and loss. This, again, 4 months of Regal and 6 months of Cineworld. This is mainly to calculate the net profit and the EPS. The adjusted EBITDA of statutory basis is $414 million. We see operating profit $213 million. By the end of the day, giving us a profit after tax of $128 million. There are some adjustments, which I will explain in the next slide, which reaching us, adjustment profit after tax, of $152 million. And this was the base of the calculation of the earning per share.

If we try to break down here the exceptional cost and other, I think the main big items here are really the transaction cost, the deal cost, that -- where bankers that most of that money we need to pay to them in order to finalize the deal. In the net final cost, I will mention there is also a one-time gain of approximately $37 million. This relate to the Euro loan that we took out of the debt -- structure of the debt. Then Cineworld contain also approximately $600 million Euro loan. The exchange rate here compared to the dollar create a profit here that compensates some of the finance cost.

If we move to the next slide and breaking down the $24 million of adjustment from the statutory profit after tax to the adjustment profit after tax. I will mention here 2 really important line. One is the transaction cost, approximately $50 million. On the other hand, we are adjusting the FX, which is $35.5 million. There are also some other small elements that netting of $24 million adjustment, which giving us by the end of the day adjusted diluted EPS of $0.132.

Looking on the net debt analysis. We try here to really take you through the build the bridge from 1st of January through the deal in February till the end of June. And I think the -- we are generally happy with where we are. We started with the net debt EBITDA of 4.1x. We managed to reduce it with the strong cash flow to 3.8x.

If you remember in the second half of the year, there are some cash elements like, one, we acquire some shares of National CineMedia approximately $80 million. There is some payments of the dividend. However, we believe that if all goes well, there is also a potential to reduce the net debt-to-EBITDA further. Difficult to assess exactly where it will land, but I think -- the bottom line is that as we said, we are reducing the net debt, and we are happy with this.

Some technical, I will say, slide about the interim dividend. Cineworld is declaring today $0.0485 of dividend per share. The declaration is in the U.S. dollars. However, we are giving an option to our shareholder to select the currency until September 14, and there is a technical way to do it. It's by the way on our website. We announced also a list today about the way to do it. On September 21, we'll decide about the exchange rate between the pound and the dollar. In the 1st week of October, the payment of the dividend will be done.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [9]

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And the default currency for people would be pounds.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [10]

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The default currency. Financial outlook before we're moving to the business side. We're seeing business on track to deliver synergies plans for '18 and '19. We'll have some slides about it in a second. The total capital expenditure for the year expected to be between $220 million to $240 million on a statutory basis. We will start to see some more investment in the second half, start to renovate cinemas. Mooky will discuss about it, but it will have some impact on the CapEx in the second half.

Normalized tax rate expected to trend towards 19% to 20% as we expected prior the deal. And focus on cash generation, we're delivering profile on track. I think, looking on the cash flow, we managed to produce operating cash flows close to $400 million on statutory basis, which is very close to the EBITDA. I think it's a good sign really of the business, which is contributing cash and will help us also to reduce the net debt.

Group to maintain historical dividend payout. I think we have said it also prior the deal. Our goal is to maintain the 55% of EPS dividend and that's part of our, I think, policy, and we are going to maintain it. That's the financial outlook. I will move you to Mooky for the business outlook.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [11]

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Okay. So the integration update, I think we start with the team. I would say first and foremost, we found a very professional team, a lot of people that have been many years in the industry with a lot of knowledge in the U.S. saying that, we, of course, needed to do some significant changes, mainly on the top position. On day 1, the new management team, according to us, took its place. And we really respect the contribution of the old management to the company and for what they've done in Regal. And on the day 1, this was changed. Later on in the next coming weeks, we make some other changes in some of the departments. Some of the departments did not have big changes. And we are going still on analyzing all ways of integration between the teams. We are making some changes of activities into the U.S., some of the things are being managed more from Europe. We moved some people. Our COO have moved into the U.S. He's concentrating only on operating the cinemas on the day to day in the U.S., which was an important move. We already made some operating startup changes there with dividing into new regions, into different way a bit of how we run the cinemas, all this was taken place. We are still in the process, again, as I said, especially when you deal with people, things are not being done overnight, and -- but we're in a good way there.

The global head office remains in London. And the Regal offices, of course, became a big part of our management. We are positioned in Knoxville. I didn't know that Knoxville exists maybe a year ago. I knew about Tennessee, but not about Knoxville. Today, every 2 weeks, I'm there. Every other week, Israel and Nisan there. So we are really almost all the time have a presence of top management in the U.S., and things are moving good.

Senior management team is really now integrated. We have people that took the [ted] Group tasks and took over also these responsibilities for the U.S., departments like construction, departments like HR. Some of the departments remained separate in view of the geographical gap, I would say. But in general, if we look to date the really of Cineworld Group, you might look at it as a more as really a United Nations management. We have people from all over, and I think we can be proud about our management team. We have a great team, which is really taking big part in the new activities in the U.S., not forgetting for a moment our basic activities here in Europe.

The strategy, best practice sharing is clear. We are dealing a lot with alignment of the IT and the reporting system. The whole group will talk probably by the end of the year the same language in all this aspect. Corporate expense optimization, needless to say even. The rollout is allocated -- of allocated seating is taking place. We have already changed 10% of the cinemas in the U.S. into reserve seating on top of what Regal had before, and we are pushing this also. It has an effect on the service to the customer, much better service when you have allocated seating. And we are getting more online penetration with this. It's also, of course, brings more income. People are more relaxed. They have more time in the lobby to use the concession, and they don't have to run into the hall in order to get your seat.

Marketing and advertising is also in full force of change. We are going to introduce within the next 10 days, the new logo of Regal, which is going to be there. I remind you that Regal was operating under 4 or 5 or maybe 6 brand names, different brand names. Some of them big like United Artist, like Edwards in California. It is at the end of the day going to be -- all of them are going to be Regal. We are not going to do it overnight because it's a heavy investment, but every new refurbished cinema, every new opening, some of our big guns are going to get the new logo and the new look very soon.

NCMI (sic)[NCM] , which is the advertising similar to what we have here in the U.K. with DCM. Because of regulatory issues, AMC had to sell their shares. This company was founded by AMC, Cinemark and Regal. Similar to what we have here, DCM is owned by Odeon and Cineworld, but has also a special agreement with Vue. So there -- this was the situation. At a certain time, this company became public in the U.S. And because of the Carmike acquisition, AMC were told by the Justice Department that they should sell their shares in NCM. We felt it is on one hand an opportunity and on another hand, something that we will do also good for us to get us more involved into NCM. We will greatly believe in the potential of screen advertising in the cinemas. And together with Cinemark, we invested the money in order to buy the AMC shares. And today, we have approximately 25%, and Cinemark approximately 25%. And we see improvement in NCM already in the first 6 months of the year, and we have plans in order to improve more this line of income.

Plans for the first cinemas. Refurbishment are progressing well. I believe we'll start, hopefully, if all goes well this permit some in September do the refurbishment of one of the first cinemas. It will take time a little bit to ignite it, but after probably in 2019, we'll be already full force ahead with the plan. We need to discuss it with the landlords. We have different agreement that we are doing with the landlords. So it takes some time really to prepare and also to design, but the plans are good and you'll see some first designs in the coming slides.

So expected combination benefits. 2018, we're aiming at anywhere between $40 million and $50 million. We will be there. 2019, we're planning get into $100 million. I think we have already achieved significant savings until today. You know that we are going on a conservative way with what we say. And we believe that we are on track with the synergies and aiming for even a higher result.

Business continues. It's not U.S., U.S. and only the U.S. We opened 3 new cinemas in the first 6 months, 2 of them in the U.K., 1 of them in Romania, which added to our offer and proposition in these markets. Every opening is important, and we are there continuing and having plans. We'll talk about it in a minute for the second half of the year.

United States, meanwhile, another 3 cinemas were opened since we took over. So since the 1st of April, we opened 1 cinema in New York, 1 in Florida and 1 in California. All these cinemas, we didn't have a lot of impact on the design of them. It was already and almost one of them opened just when we arrived; the Delta Shores in California. But we are getting more and more into changing some of the designs, creating, what we call, the Cineworld experience and we believe that we are on the right way.

Refurbishment plan, which is a big part of our activity. I don't know how many of you have been already to Cineworld Leicester Square. It's by far today, the leading cinema in London. We have there the biggest IMAX in the U.K. We have an amazing Superscreen there. And just recently we opened with great success the 4DX. This is the first 4DX in Central London and was a big day for the 4DX activity. And soon we are going -- we have already 1 in Wandsworth, and we are going to open early 2019 the third 4DX in the London area in the O2. Dublin also had a new 4DX, and we made some renovations there.

If we look on the next slide, just a taste. This is one of the leading cinemas of Regal in the U.S. in a project called Urban Spectrum. And really an amazing project there. This is 22 or 24 screens. It's not going to look at -- the out though is not going to look this way because it will get the new logo of Regal. Currently, this cinema is called Edwards. But it will be a full Regal as of the end of the refurbishments. And you can have a first look at the lobby that we are planning there.

If we moved to the next slide, this is Union Square, New York. This is the best Regal cinema today in the U.S., very tired, all still performing very, very well. This is just a peek into the new look of the Union Square in Manhattan.

Technology investment. Part of our strategy is clearly to invest in technologies and in new technologies. We are today only buying laser projectors. We're not doing [Xenon] projectors anymore. The Xenon projectors are good, but the laser projectors are better and also more efficient and saving costs quite significantly in OpEx, which is important for us. We have signed new deals with 4DX for 80 4DXs in the U.S. It's a big breakthrough for 4DX and a big breakthrough for us. In Regal, we have today already 5 4DXs and we are growing this business.

IMAX, 55 screens. Some of them will be only a change from regular into laser, some of them will be new. But our relationship with the IMAX Group are also very strong and important. And the newcomer to the family is now what is called ScreenX. ScreenX is a 270-degree panoramic film viewing. It is effective not through all the movie. It's not like the 4DX where you have the effects for all the movie. It covers something like 30 to 40 minutes out of the movie. It needs much more involvement of the studios. And I would say there was a little situation in a way of a little bit the chicken and the egg. The studios love the technology and wanted to invest in it, it's a big investment. On the other hand, on our side of the world, ScreenX was looking really for a strong leading partner that the studios were asking them to show. There are already more than 200 ScreenXs in China and in Korea and they are very successful. And this gave the studios already the push to make some of the big movies on ScreenX. The deal with us, I think, is really now, let's say, strengthening a lot the commitment from the studios. Warner have signed with them already a deal. Disney have signed with them a deal and it's going to develop nicely.

If we move to the next slide, I would say that last night, we opened -- we are talking about the business continuing also on this side. We opened one of our most prestigious projects in the U.K. which is in Speke. This is the third or the second strongest power center in the U.K. In Liverpool, we opened that an amazing project of 11 screens. And tonight or tomorrow night, we are opening the first ScreenX in the U.K. together with the ScreenX that we're opening on the O2. So 2 ScreenXs will be open tomorrow to the public in the U.K. It's a big event for us. And -- so this is where we are standing with the new technology that will go all over in all the territories. And we think we are bringing here something new to our customers. And we'll share it with you a short clip that explains what is the ScreenX better than I do.

(presentation)

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [12]

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Good. So I think that -- I don't think, I know, that the movies that are opening ScreenX in the U.K. tomorrow will be MEG, which is the new shark movie coming from Warner Bros, and we will be also showing Ant-Man. Although, Ant-Man is already here on the third -- starting, I think the third week, but we wanted to give a variation. Black Panther was a mover that was already in ScreenX. There are many big blockbusters which are coming this way and let's see then what is coming.

So we have 12 cinemas to open before the end of the year. 111 screens altogether, 8 of them will be in the U.S., 4 of them will be in U.K. We have further refurbishment plans in the U.K. We are currently on the 4 sites. And in Central Europe, we are only on 1. I just remind, in general, that the estate in Central Europe is much younger. So refurbishment there is not something which is so common as in the U.K. and now in the U.S.

First cinemas refurbishment will start in the U.S., as we said. And further integration benefits, opportunities from the combination are being reviewed all the time by management, and we are moving step-by-step. Naturally, some of the points that we are touching are taking a little bit more time, involvement of third parties, negotiations, et cetera. Everything is on-schedule, and we are confident in the direction where we are going. And we are, of course, continuing to emphasize and continue to go again and again with our team and also with our customers to our main point and strategy, and this is being the best place to watch a movie. And I think once everybody in the team understands that we're giving a better service and a better experience to our customers.

And last, but for sure, not least are the movies. We have year a look at second half of 2018. Some of the movies Mamma Mia, working very, very strong in the U.K., but also performing well in other countries. Mission Impossible was one of the most successful Mission Impossible in the series, #6. We still expect Wreck-It Ralph from Disney, which is coming and the rumors are saying it's very, very big. There is some other big movies like Fantastic Beasts, of course, the Incredibles is right now on the screen doing very well. And more and more, the rumors by the way of Mary Poppins that is going to Mary Poppins Returns with Emily Blunt this time are really very, very high. And this will be probably the last blockbuster in the year, which will release towards Christmas. 6 months of 2018, and then 2019 and beyond, I think most of you are aware to the product, which is coming. Hollywood believes in this business, we believe in the cinematic and the theatrical business. And I think if you look for the movies that are coming up, there is a lot to wait for in 2019 and afterwards.

And I think we will move from here to the Q&A.

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Questions and Answers

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Alistair Guy Ross, Investec Bank plc, Research Division - Research Analyst [1]

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Alistair Ross from Investec. Just a quick one in terms of net debt-to-EBITDA and taking into account the NCM step-up in dividends and refurbs. I'll take think these questions one at a time. Where you do you think we can see net debt to EBITDA getting to at the end of the year? Do you think 3.8x is sort of where we should peg it? Or do you think it could be lower than that or higher?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [2]

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Okay. I think as I said before, we started the year with 4.1x. We managed to reduce it to 3.8x. There are some elements that we need to consider when we are thinking about H2, which is the NCM acquisition, which is approximately $80 million to dividend payments. But if all goes well and the performance will be fine, I see some potential to decrease a bit more, but don't think it will be a big decrease, but a level of 3.7x and 3.8x, I think, is achievable.

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Alistair Guy Ross, Investec Bank plc, Research Division - Research Analyst [3]

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Fantastic. And just a quick one in terms of consensus, and I'm working this out on your dividend. I think consensus for the full year looks like it's something like about 990. If I deduct the pro -- if I deduct H1 pro forma of the 554, I'm getting to a very sort of low implied number for consensus for H2. Given what you've said in terms of openings, refurbs, obviously combination benefits should start coming through in H2 more strongly, I guess. Just in terms of that consensus number, how do you see that moving?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [4]

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Look, I think I discussed it the morning with most of you. It's too early to comment, to judge now, to focus how full year will look like. We have a very good set of result in the first half, like you say, $550 million of EBITDA. I suggest to wait a bit see to see the how the Q3 will perform. Need to remember that not like Cineworld before, which usually we used to see, first half represent approximately 40% or 45% and the second half used to represent 55%, 60%. If you look and analyze the results in the U.S., not just for Regal, overall in the market, you'll find a big different ratios between the first half and the second half. That's why I think in this business, we know it is not our first time, we're not focusing really the year-end. Need to be a bit patient. Need to see how the Q3 will perform. July was good. It's not just the beginning of the second half. And I believe that in the coming 2, 3 months, we'll have a much more clear view how the year-end will look like.

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Alistair Guy Ross, Investec Bank plc, Research Division - Research Analyst [5]

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Just on the debt. The interest charge on the debt and how you see that progressing in future.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [6]

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Look, we started with as I said before, first a debt of $4.1 billion with a margin of 2.5% plus [LIBOR] . I think we're all aware there is some increase in the LIBOR . Saying this, I think, we said it also in the past, we believe that in our business model, there is a built-in hedge that allowing us to compensate some potential increase in the interest rate. We are monitoring it all the time. It's not we are saying this and we are not looking at this. We are monitoring very carefully on a weekly basis and following this. But again, we think that today we don't see it as something that you need to be done in order to hedge it, we believe that as I said before, and there is a built-in hedge protecting us I think from some future increases in the interest rate.

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Alistair Guy Ross, Investec Bank plc, Research Division - Research Analyst [7]

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And just on NCM. You commented on the performance there. And obviously, that step up has recently occurred. The run rate, how should we think about that sort of in terms of '19 and possibly even H2 '18?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [8]

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Look, NCM, it's an important part of our business. It's contributing a nice level of advertising revenue. And few lines by the way, some you see it in the other income. Some, we see it in the profit we're generating from the subsidiaries. We increase our shares. So definitely, it will increase also the profitability of this business. And I think this increase of share will also help us to try to improve the results there. And we need to wait a bit and to see how the year-end will look like and then we will be able to get more clear picture of how to, let's say, analyze and get to the exact contribution of NCM in the future.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [9]

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Ali Naqvi from HSBC. Just 2 from me. On the synergies, you've historically given a bit of detail on the 100 million you're trying to achieve. But in terms of the further integration benefit opportunities, could give us a little bit more color in where that's going to come from? What you have identified so far? And I guess, what kind of quantum you might be looking at?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [10]

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It's a bit early. We are working to achieve the 100 million there. A lot of opportunities that we see we are working very hard on them. I think it's -- it will not make sense to go into details here, because the details are complicated, end of the day, like Mooky said, we are -- when we came at the beginning, we acquired a public company and we really don't know much. And we came in with these estimates of 100 million achievable on 2019. We are much more comfortable today then we were 4 months ago in achieving it, but I think, for now it's enough for us target and that's what we're going to work toward. Of course, more opportunities that we see all the time, but it's very early to try and assess them and see what it was.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [11]

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And on the refurbs, it looks like you brought some of them forward in Q4. Do you have any targets on what kind of returns you were expecting on the refurbs in the U.S.? And maybe thoughts on whether comparing to the U.K. and whether there's a difference sort of first mover advantage in terms of returns.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [12]

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Just to clarify, first, I don't think we will see a lot of refurbishments in the second half of 2018. We might start these processes in these big cinemas; will take something like 4 to 6 months each. I'll remind you that we are not closing the cinema, which is very important. We are not closing the cinemas through refurbishments, our competition. If you look, for example, here now to the audio in Leicester Square, is closed for about 8 months for refurbishment. We did Cineworld there. We had to close for 1 month because of asbestos issues, and this was a really an issue of health and safety. Otherwise, we don't close the cinemas for the renovation. So there is not going to be a dramatic move in 2018. If we get into the process, I believe that we'll be refurbishing on an ongoing basis all the time something like 5 or 6 cinemas. And if we look at the return on investment is a very, very difficult. I think we said it already in the past to estimate because on one hand, cinema is better, you have the possibility to charge a bit more. We are not running dramatically, but I would say in the U.K. the experience shows us we're getting about something like another GBP 1 per full ticket. We are implementing the new premium formats, if you can call it, into these refurbishments. So of course, if you have an IMAX now that you didn't have before, or 4DX you didn't have before, it's also generating additional income. The concession income is going because the concession is more inviting and is more -- it's in the U.S., we'll also generate from the issues of the reserved seating, income online, et cetera. So this is one side of the refurbishments. On the other hand, we need to remember that it is in a way also partially a defensive move. Because first, maybe our competition are also either refurbishing or opening a new cinemas in the surrounding of the cinema. So if you will not do anything in the cinema, the cinema at the end will die. And second thing, there is a limit to how much a cinema, which is 30 years old even if it is well maintained and if it is a well-run, can hold with this more narrow rows, with the old seats, with the whole facility being in a way quite tired, I would say. So if you take the 2 sites together, I think the return on investment that we're getting on the refurbishment according experience is very good. In some of the cases goes over 25%, over 30%. It's very difficult to really go and say what is (inaudible). Every site has its own story. But for sure, that we have proved that this policy is paying back in a good way.

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [13]

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We decided not to renovate everything together. So we are not starting 600 renovations in order to examine the numbers and see how it works.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [14]

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Just one final one for me. What's the online penetration across the group in the different regions?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [15]

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I think it's hard to say exactly how it is. I think it's definitely much more in the U.K. When compared in the U.S., and we want to increase in the U.S. But specific numbers are difficult to say.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [16]

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Richard Stuber from Numis. 2 questions, please. The first is on the U.S. margins. They were up 1.1%. Could you say how much of that is due to operating leverage? And how much is that due to synergies? Or to put that another way I guess is, how many millions dollars of synergies have you already realized in the first half?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [17]

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I think you, look, as I said before, the first the increase in the EBITDA margins are really comparable to last year, that's I think the first point. Second, as much as I want to take the glory of the EBITDA increase in the first 6 months and say it's all because of us, I think we should be reasonable. It's mostly coming from the increasing admission. There are some footprint that we managed to do in the first 4 months. It's not 6 months because we're just onboard from 1st of March. I think it's only good news because by the end of day, this is the margin. And before I will say our material footprint, we just need to expect some improvement in the future.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [18]

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Okay. So you're saying the vast majority of the synergies in the first half in year 1 would be H2 weighted.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [19]

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Probably, yes.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [20]

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And the second question could you give us some idea in terms of strategy given MoviePass and the demise of that? And in particular when you expect to rollout Unlimited in the U.S.?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [21]

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So MoviePass, I think is we will discuss a lot on the press in the media and everything had some substantial issues with regards to how a project can work in a way where you're collecting $10 from your customers. And even if they go once to the movies, they are already in profit, especially if you do it in New York. In Union Square, the cinema that I showed you, ticket price for a regular movie on the weekend is $18. How can you give an Unlimited, or a MoviePass, as they called it, for $10 a month. It didn't make sense. I think that they will considering that they will get income from other sources like advertising and this was the story. And I never got deep into this and not to all the details. But it looked as something, which was a not so reasonable. MoviePass is still there, they are changing their conditions of the program every week now. They took the price up to $14, then they took it back. Now they're saying it only 3 movies a month. There is a kind of a struggle there. I'm not the one to sit here and to say how long it will last, but I believe it is a negative cash flow business. So we need to see how it is. Unlimited is a completely different program. If we will look at MoviePass and we look in some of the other programs, which are looking more as a bargain program, come and see and do. Unlimited, part of the success of Unlimited that this is directed into people that really left to go to the movie. If you go to the movie once a month, which is a lot, they don't need to buy Unlimited. There is no gain there for you. If you go 2x you're on the edge in a way, because some months maybe you'll go a little bit more. You're already considering Unlimited. And if you like to go 3x a month, so you like to go every week and there are people -- these people I think we should embrace, these people I think we should give them the opportunity to see the movies on a much better conditions. They are committing to us for 12 months. So it's also meaningful in the way where they do it in MoviePass there was a not -- this element did not exist. I think MoviePass -- I think Unlimited will reach the states. It takes time how to position it. It is of course, not so natural to come with a program, which is serious and solid as Unlimited when there is a program, which is saying pay $10 and see as many movies as you want. But we are getting prepared for this. We need to agree with the studios also because we should remember they are our biggest partners in this business. I will say, again, Unlimited is a big success in the U.K. We believe very much in the plan. We think it has a big benefit in the U.S. It will take a little bit more time, and we will come with a plan that our customers will love and also our suppliers.

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Michael Goltsman, Citigroup Inc, Research Division - VP [22]

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Michael Goltsman from Citi. Just one question. On the progress of the allocated seating, you've done 10% of cinemas in Regal just about 4 months. How should we think about that conversion for the rest of the estate?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [23]

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I think that today, we have already more than 25% of the cinemas, which are allocated seating. Or cinemas that Regal reclined, what they call, and changed seatings. They are already -- we're already on-reserve seating and this is what drove the online usage for that. We did now within 3 or 4 weeks 45 cinemas. We are doing now the second bunch. We're starting now the second bunch of 50 cinemas. I'm not sure that we will go to reserve seating in all the 600 cinemas, maybe 50 or 60 will stay as they are for various reasons. But I believe that somewhere in the middle of the 2019 most of the estate will be allocated seating.

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Richard Michael Taylor, Barclays Bank PLC, Research Division - Analyst [24]

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Richard Taylor from Barclays. Question on NCM. You have increased the shareholder there. You got your [MP] from the board. Has that allowed you any greater influence or control as yet, in terms of what you're going to do in terms of upside on advertising income?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [25]

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The structure of NCM is an interesting structure I would say. But there are 2 kinds shares there that are what is called the shares that are held by the founders and what is called the shares that are held by the public. It is a very complicated system that was structured about 10 years ago there. I think we clearly made the big improvement of the influence of the founders, which are now Regal and Cinemark in the company. I think we see eye to eye with other shareholders, or with some of the other shareholders, the changes that need to be made in the strategy and in the way we sell screen advertising there in order improve and to grow the cake for all sides. But definitely, without getting into too many details, technical details there, the influence of Regal 4 months after we have entered into Regal and through that into NCM and the influence of Cinemark with us, is much bigger than it was 4 or 5 months ago.

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Richard Michael Taylor, Barclays Bank PLC, Research Division - Analyst [26]

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And just a quick follow-up on this point more seats being bookable online. Historically this hasn't been case as much in the U.S. So are you seeing any cultural differences? Are customers over there happy to pay a booking fee to get their seats in advance?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [27]

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I think that unlike the situation that existed in the U.S. maybe 30 years ago, where a U.S. exhibitor would almost kill you if you will offer him to reserve seats. Today, there is a big change in the habits. A big change in what people are expecting the service. There is no doubt at the end of the day, even if you were not used to it, this is a much better service and much better way. You book Star Wars months in advance. You don't want at the end of the day to sit in the first row and the side. So there are some, here and there, customers that are talking mainly, I don't want to even say complaining, but asking questions in smaller sites that we did now. But the whole reporting from the cinemas are coming that within 2 to 3 weeks people are just praising the move, happy with the move. And I believe there is no issue at all.

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Jeffrey Robert Harwood, Stifel, Nicolaus & Company, Incorporated, Research Division - Former Analyst [28]

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Jeffrey from Stifel. 2 questions. First of all, could you update us on the opening program for the rest of the world? And secondly, on the dividend policy. How did you determine the interim dividend? And how should we think about the dividend going forward?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [29]

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About the dividend I would say we're continuing. As we said, we intend a policy of aiming to pay 55% of our EPS as dividend. Historically, we are paying an interim dividend, which is 1/3 of this expected dividend, and the way that our board is doing it, they are just looking on analyst forecast and paying 1/3 of this. So we're not forecasting it ourself, we're following you guys and our board is what analysts are saying. And usually at end of the year we pay a bit more, so we hope this year will be the same.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [30]

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If you talk about opening in U.K. and the rest of the world, I think that, in general, we have -- as usual, I would say, delays. This is not in our hands. I remind you that we are in this case in the hands of the landlords, in the hands of the developers. They have their own issues, so sometimes things are a bit slowing down. On the other hand, we need to remember that we do not invest except in the design, which is I would say something in the region of GBP 100,000. We do not invest anything in the cinema until we had a really 4 or 5 months prior to opening. So these delays, although, we're sorry, to have them because I wish we had already these cinemas on the estate. But they are coming and we're awaiting also some very big guns. And Speke was the one that opened last night. But we have underway an amazing projects, which are in York and Primeau's and places where we don't have today business. Rushden is I think the biggest power center today in the U.K. and many more are on the way. In addition, if we talk about the refurbishments, it's going to cities that we have old cinemas like Newcastle, is under construction now. Middlesbrough is going to go under way. And so I think we're there. The same goes for a central Europe. The nature of the new projects in central Europe is that a lot of them are now much bigger. We opened last year 18 plex in Prague, 20 plex in (inaudible). We are about to open in (inaudible) in a year. And another 20 plex, but there are many more cinemas. The potential -- the growth central Europe is still there. We are doing good. The development there stopped a bit; economy is now back on track. So we see more projects coming up. But we're in a good way with any openings and also with refurbishments.

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Unidentified Analyst, [31]

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Just one back on your net debt. As you kind of got into the business and looked about what you think you need to invest in the CapEx levels, are you still comfortable with the, by the end of next year, being around 3x leverage? Or do you think that's sort of stood up with the rate?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [32]

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I think we said we want to get close to 3x. I don't think we said, 3x. And we're still comfortable, let's say, in the direction that we go. I don't think anything have changed in the last 4 months in our way to look to this. To be honest, I personally don't think will reach 3x, but I think we'll get close to it. That's what we're hoping.

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Unidentified Analyst, [33]

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And just on a more general big picture point. Can you comment on how you think the big transactions going on in the U.S. with Disney, FOX, things like that, will kind of impact any of the relationships with the studios or the level of content, things like that?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [34]

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I think in general, the Disney, Fox deal, which is very important deal in the industry, have good signs for us. We need to remember first of all, Disney is the biggest player today. And they are very, very committed to big-budget theatrical movies and this is what we need. FOX is a great supplier of us. Our company exists now almost 90 years, and FOX have been there all the way. And they will continue from what we hear right now. FOX Searchlight, which is the specialty movie side, will be kept. Of course, all the Marvel stuff that FOX have will be continued to be produced like the X-Men and others. Avatar is of course, on the plan. So we don't think there are going to be major things. We are -- you need 2 to tango. So we're on the other side. Disney with all the quantity of movies, they still need cinemas to show the movies. The relations with them is a very good. And I would also add that last year, just maybe 12 months ago or maybe 14 months ago, the biggest topic was the windows and what's going to happen to the windows. In this case, Disney is maybe the most committed company into the windows and taking over FOX to their side is also I think in a way for a while for at least close the issue of the windows discussion.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [35]

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So another question for me. Do you have any comments on this Supreme Court decision about the vertical integration in the U.S., Sort of, exhibitors owning the studios? And what do you think the implications could be for you?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [36]

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No studio bought us until now. In the last 48 hours, we didn't sell the business to any studios, so. And they even did get in touch yet.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [37]

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I would say that it comes -- the historical background of this was that the studios were owning many cinemas in the U.S. At a certain stage the Justice Department decided not to allow it anymore. There are a lot of arguments if it was good or bad for the industry. I think that in general, it's something that we need to observe, we need to look at it. We need to remember for example, that the studios are very much involved on the multiplex revolution, mid-80s and '90s in the international market. And pushed very strong markets that had some -- even the U.K. Warner came here and opened cinemas, UCI, which is Paramount and Universal opened cinemas. Warner went to Japan. They went to different markets. And I think they wear a kind of an accelerator of developing this market. We need to see what it means, went to see how it goes. I'm sure that if certain studios or some of the studios will decided to invest on the theatrical, because it's not an initiative that came from the studios. But if they will decide to invest in the cinemas, it will in a way make them to understand even more the side of the exhibition, the business of the exhibition. Is a very big investment to go into exhibition. It will support issues probably like windows and like other points that are incorporating there. It's a very, very early stages in this, and we're still looking at it and trying to learn what it means. And if it's going to happen, it's not going to happen probably will be big debate around it in the U.S. and we will see.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [38]

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Owen Shirley from Berenberg. Just 3 questions, if I may. Firstly, I think your net debt-to-EBITDA nearly have been 3.6x if it wasn't for a $200 million provision. It looks like it's something to do with litigation. So could you just sort of give us some idea on what that relates to?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [39]

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In the U.S., you litigate everything. One of the shareholders of Regal didn't accept the price of $23 that we agreed to pay with the board of Regal. It's a process which is common on almost any acquisition of a public company in the U.S. And they're debating this amount with us. And that's why we're not paying them. It's a very common process. Which is happening like I said, in almost every acquisition of a public company.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [40]

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Okay. Is it plausible that could reverse if that -- if you don't ultimately have to pay that?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [41]

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Look, it's in a legal -- it's in a court battle, so I don't think it would make sense for me to comment about what I think.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [42]

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Okay. And secondly, I think the U.K. admissions, you were just slightly behind the market. Do think that's the case? Could you comment, was there any refurbishments that affected that?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [43]

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I don't think -- maybe it's an influence of some new cinemas. Some of the -- our competition have gone into quite aggressive price cuts in certain markets, which increased number of admissions, not necessarily including box office. But Cineworld is leading the market share in the U.K. market and intends to stay in that position.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [44]

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Our market should remain in the same level as last year, so there is no impact on the market share.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [45]

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And just finally, on MoviePass. If that does go to 0, which it looks like it will, would you consider buying their subscriber list out of administration?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [46]

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No.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [47]

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Is that even possible.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [48]

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No, we would not consider this. If we'll do, we will go to Unlimited, the Unlimited way, the Cineworld way. We will start from scratch. We will build our clientele with a very clear message, with a very solid message. I don't think we have any interest in MoviePass assets or at least or...

Okay. Any other questions?

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Israel Greidinger, Cineworld Group plc - Deputy CEO & Executive Director [49]

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I think we are done. I maybe before the (inaudible) I just want to say one word of thank you to the global finance team of Cineworld. We went through a very complicated process as you would imagine on the first time of consolidating together Regal into our group. Together with the (inaudible) department is on maternity leave, so there were good people who stepped in and really -- [Lauren], [Sunil], and [Manuela] which is our new joiner. All the U.K. team work very hard. [Mason] of course. We are generating the good numbers they have showed it. So they have done it well, and thank you for the efforts, all of you.