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Edited Transcript of CINE.L earnings conference call or presentation 8-Aug-19 8:30am GMT

Half Year 2019 Cineworld Group PLC Earnings Call

London Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Cineworld Group PLC earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* 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

* David Andrew Holmes

BofA Merrill Lynch, Research Division - VP

* Harry J. Gowers

JP Morgan Chase & Co, Research Division - Analyst

* Julian Kenneth Easthope

RBC Capital Markets, LLC, Research Division - Analyst

* Natasha Brilliant

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. Thank you for coming. We are going to take you, through our presentation for the interim results of 2019. Before we start, and I'm taking you into the slide of the highlights. I think it is important to say that in our industries, the results are very much dependent on the product. We saw it clearly in 2018, where the first 6 months were amazing, reminding you just of the huge breakout of Black Panther, for example.

And the second 6 months in a way were a bit slow, in comparison, but at the end of the year, the yield results were good. I think the 2019 would be characterized by relatively slow 6 months mainly January to March, but also after that. It's funny to say it because in these 6 months we had the biggest movie of all time, which is Avengers: Endgame, has chose the potential of our industry, we just crossed $2.8 billion worldwide.

But in general, the first 6 months were a bit slower. And if we look already, we can say, also in July that we have already the results, huge successful Spider-Man and for Lion King. But if we look forward and we will talk about it and we'll show you the product, which is out coming, we are expecting the strong 6 months. And in general, we can say with strong confidence that we are looking to have same results as we expected, for the year -- for the whole year of 2019.

So if we start with the strategic progress, I think that synergies from the legal deal, as you all recall, we said that we are expecting $100 million synergies within the first 2 years, and we are now showing after 15 months $150 million and we expect even to improve this, according to things that are going on in the company.

Successful launch of the unlimited program, we'll talk about it in the later slides, but really everybody was expecting us to come, I remind you that Cineworld is operating one of the more veteran solid and sustainable subscription program in the world. And we have now implemented it into the U.S. after long preparations and really the welcome that we got from our customers on the first 10 days is beyond what we expected. The U.S. refurbishment program strong really important [tempo] for our strategic progress.

We have already 6 sites currently under refurbishment. 60 deals with landlords already and we are really looking to do 100 cinemas in the first 3 years. And firstly actions that we get for the style of the cinemas from new cinemas that we are opening and all we get a very positive response from our customers. And of course, continuing, expanding the premium new formats.

Financial reviews, we see here an 11% drop in revenue and in EBITDA. I think that where you can feel the synergies and the work which is being done on the side that we can control more. We always say that we control in a way but in a limited way. The income line, but we are much more in control with the expense line.

So you'll see that, despite the drop and the fixed expenses that we have, our margin went slightly up. And as I said already, the trading of the 6 months was not a surprise to us, it's according to expectations and we are looking forward for the next 6 months. We have declared a special dividend, in view of the sale in this big deal. And one of the points which is really under focus of management is all the time, the issue of the debt and we are on track to and even ahead of schedule, I would say. And we'll talk about it later.

The operating development, so all out continues, 7 new sites, 9 additional site to be opened in the second half of 2019. I mentioned already $556 million proceeds of the sale and leaseback, which was very important, and we continue investing in technologies. When you look at investing in the projectors, Christie and Barco, which are coming now with the later generation. I think it's important to point out, this is not just giving a bigger or more impressive quality on the screen. But it is also saving big cost once the projector is installed because of the change of the light system from regular Xenon bulbs into laser things.

And finally, as I said when I started in our strong performance of Lion King and Spider-Man, it given us a very strong July and we wait for the coming months.

Where are we today? 786 sites with touching 9,500 screens, and we are operating, as we all know, in 10 different countries with different brands and I think that I will turn it now to Nisan and talk to you a little bit more about the business in few slides.

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

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Good morning. I will start and say it before jumping into the slides that similar to other companies worldwide, that we will need to implement the new standard of IFRS 16, selling also has impact here and we are operating more than 750 leases across the world, more than 500 in the U.S., so we need also to adopt the new standard and what keeping the finance department, I guess in the many other companies in the world busy. On the other hand, the most of the slide that you will see here are on a comparable basis. So like pre-IFRS 16 that help us to really compare the results of last year, before the adoption to the result of 2019.

Saying this, there are some slides that will show really the impact of IFRS 16 and there is some specific disclosure in the financial statement, which are showing really the bridge between the pre-IFRS 16 number to the IFRS 16 result. As I'm moving to the H1 '19 highlight, the mission revenue EBITDA is, I think, Moshe mentioned it in the before there is a reduction in admission impact the revenue EBITDA, mainly because of the timing of the release of the movies that was the main reason for the reduction in admission.

Saying this, strong implementation of synergies help us to maintain a really good level of EBITDA will come also look on the margin in the second, but this is supported and compensated most of the reduction that we have been impacted by the admission. If you look on the geographical, the U.S. similar to I think, last year represent 75% of the revenue, U.K. and Ireland 15% and the rest of the world 10% and I believe this chart probably will look more or less the same, it depends where we are opening sites, where we are closing sites. But we expect more or less this charter to behave in a very similar way. Looking on the product and service, I will highlight here maybe one thing. We look on the other income, and it represented a 12% of our total revenue compared to 10.5%.

In the end of last year, this is the result of, I think all improvement in the all other income line, which is the advertising, booking fees, events and so on, in lines, which are coming with a high margin. Then in the box office and the retail. If I'm moving to the H1 performance in the -- I think from Group point of view, we can say here that is I've mentioned really the margin which is reaching 22.7%, slightly increase in the period of last year, we can look on the margin in the U.S. grow by 0.4%.

This is a direct impact of the margins. I think in this slide, I can say that the things that was in our control, which are the cost in some initiative things, we managed to implement it fully, things that are behind our control and say like the movies, we're not producing the movies. We can see the impact on the admission and on the revenue.

If I'm moving to specific territories and going to the U.S., I will say here first that in the last 12 months in the U.S., we close approximately 20 sites. So in one hand, there is an impact, negative impact on the revenue because we closed the sites. On the other hand, those sites, by the way, we plan to, it was part of our initial plan to close them.

Those sites didn't generate profit into the EBITDA into the net profit. So there is maybe negative impact on revenue. But there is a positive impact going forward and also on the 6 months on the EBITDA. I think it's important to seal the retail result which if you look on the SPP went down by close to 11%. It's a purely results of all the new initiative things we did like the sitting reservations that creates more traffic on the concession.

And more offering in the concession we'll talk about it in the next slide. Other income despite the reduction, despite the reduction we managed to keep similar level of other income, as we saw in the last year, again, the result of full implementation of the synergies. And I think this is a very positive point. Going into Ukraine, Ireland. I think it was 6 months. It also was impacted by the timing of the release ATP, more or less flat. There is a nice increase in SPP. other income went up by 12.6% with good 6 months on the advertising business. Here, it' performed well and it's helped us to maintain, I think, good margin. I would say about the margin typically in U.K. in the first half, this is more or less the margin that we are generating about 16%. Second half is much stronger and I think on a full year basis, usually the U.K. is maintaining between 19% to 20% that's the margin we are expected to see on the year-end.

If I'm moving to rest of the world, territories good 6 months, admission almost flat. We mention here again the potential on the ATP and SPP in territories like Romania, Bulgaria, Poland. We still have potential to see increase in ATP and SPP. You see the number are growing. Other income in line with the other lines, good margins and here we have some more impact on local movies. Sometimes we have more, sometime we have less. But in general, I think we find, we are showing you really good 6 months.

If I'm going to the group profit and loss, and again pre-IFRS 16, I will take you through the numbers. I will mention a few highlights. One, we have a onetime gain from the sale and the leaseback. We conclude 2 transaction, with a proceed of $560 million. It's yet a gain of $80.4 million. We are adjusting this gain, but again, I think it's an important figure. On the other hand, if you look on the financial cost, the interest cost to bank $88.7 million, if you compare it to last year, it went down. I think first, I will -- I would say, interest cost to interest margin, which we are paying when done by a 25 point due to some achieving some covenant level and reducing the debt. They all say the amount of the debt by $570 million help us also to reduce the interest cost. We just got and used. We could go that also the LIBOR is going down. This is also will have some impact going forward on our financial cost. After we are adjusting all the element that you can see on the right, the adjusted profit after tax $162 million compared to $152 million last year. There is a increase of $10 million here on that under the EPS, you see a bit different because we are dividing it by a different number of sales because the right issue was on 1st of March, last year, but I think the clear message is that the net adjusted profit after tax is going up.

If I move into IFRS 16, I think we touch base it last, in the end of last year. I think the first message that I do want to say there is no impact really on operation, no impact on economic and no impact on cash flow. It's -- don't want to say, if it's a purely accounting issue, but probably it is, we elected the modify a retrospective approach, meaning we are showing the impact from now on. So there is no comparable numbers here for 2018, we probably, our impact is similar to other companies impact meaning debt and assets, debt is going up, asset will go up. Adjusted EBITDA increased because there is no [lengthening mode] that affecting the EBITDA.

And PBT, EPS decrease because usually in the first years of operation, the depreciation in the interest are higher than the rent. It's going to -- we've seen much lower effect in the years to come. If you look on the IFRS lease adjusted leverage, we are in 4.7x in June 2019, we will come and see a bit more detail in the next slides.

We calculate the liability on our minimum rent obligation, what is the contractual rent obligation, plus cinema that we know that are, we are going to prolong and there is an option to prolong and we are 100% sure that we are taking the option. Again, no change in deleveraging and no bidding on our plans on the financial ambitions.

If we want to see really the bridge between pre-IFRS 16 number and the post-IFRS 16, we divided it into 2, I would say section. Because we have sale and leaseback transaction and it is a onetime. I think in this year, we separate this from the purely impact on the IFRS 16 number. I suggest in order to help our eyes the best to look really on the box on the right H1 that's summarizing really the impact. We see the EBITDA is going up by $270 million, this is the 6 months rent impact. On the other, net depreciation finance cost going up by $183 million, $132 million, there is tax impact here on a $12 million and the net-net impact on the profit to loss is approximately $34 million on 6-month basis, we are estimating that on a full year basis, the impact on the net profit will be between $60 million to $65 million, and again this is the first year, in the year to follow, this number will be much lower.

If you look on the balance sheet impact. So again, we see total assets went up by $2.8 billion and this is really what we call the right-of-use, the right-of-use of the assets. On the other hand, we see that the gross debt went up by $3.3 billion. This is the number that we need to add really to the cash debt. There is some impact on other liability like really to some things that connect accounting to the rent like straight line or market rent that are eliminated when you are moving to IFRS 16. But bottom line liability is also going up by $2.8 billion, very minor impact on equity and that's really the main, I think impacts on the balance sheet, operating balance sheet of the company.

If I'm moving to the debt, I think take you back to the deal time when we started with the debt -- the level of debt of $4 billion and now we are in $3.3 billion. It's a reduction of $700 million and I just want to mention, this is the reduction in debt is coming on top of really keeping the CapEx in the level that we said. We invested $180 million in the first 6 months. On top of the dividend that we are repaying and now we are paying it quarterly. So there is an impact also on the quarterly dividend and need to remember that the last year we invested also $80 million on National CineMedia, we increased our share in National CineMedia.

So on top of all this investment, dividend and keeping all the other lines of business, we managed to reduce the debt and I think it's very positive point. I think this was we said also a year ago. This is one of our priority to see the debt going down and there is a fair bit I think at the type of see the debt in the coming 12 months below 3x, you can see down that if you look on the lease adjusted debt, we are in $4.7 billion and also here we assume that in the next 12 months, this will go below $4.3 billion. As I said before, we conclude 2 transaction of sale and leaseback. We use half of the money to reduce the debt, half of the money was paid in the July as especially dividend, but I think it's clear message that debt is going down.

Summarizing EBIT, where we are, just take you through where we will, where we were 15 months ago and where we are now. You know we started in December '17 before the acquisition 2,200 screens, it's now we are operating 9,500 screen across the world in one more bigger territory, sites went up by 554 more sites, coming really from the U.S. and some openings that we did.

If you look at our adjusted EBITDA, and here we are doing LTM for the last 12 months and I remind it's LTM of really, call it a softer period, as in the -- so we see with the softer period still adjusted EBITDA is going up by 3%, synergies we started with 100, we upgraded it to 150. I think we said also today morning, we are working hard to achieve more. As the management, we believe there is a potential to achieve more than this side of the operation. U.S. adjusted EBITDA went up by 1.7%, this is coming a lot from the synergy implementation and net debt, as I mentioned before, went down by $700 million to a level of $3.3 billion.

Summarizing the financial outlook. Net capital expenditure, we remain on track on what we are expecting approximately $300 million CapEx, in the first half it was $180 million, it sometimes depend really when we are opening sites. We open some more sites in the first half than in the second half, but again we are not expecting any change in the CapEx focus this year and also going forward. Tax rates. Before the implementation of the IFRS 16, between 19% to 20%, after IFRS 16, there is also here some impact in probably the effective tax rate. After the adoption of IFRS 16, we will go probably by 1% to 2% lower than the 19% or 20%. It's relatively well. The impact is happening.

Focus on cash generation, and as I said before, we are targeting the next 12 months to be below 3x and keeping our dividends 55% on adjusted EPS, again, pre-IFRS 16. And I would say that the trading for current full year remains in line with our expectation. We are looking, we started the year, we started the second half July with a very strong performance, Spider-Man, Lion King, and we move on into August also with good results.

And I think as Mooky mentioned earlier, and there are some 3, 4 big blockbuster in front of us in October, November, December. So we are in line with the market expectation. So just a few words before the clip, we're going to show now. We are going now for the business, developments in the business and really if I could say, not using too much of a big words, but maybe the most challenging and big move that this corporate done in the history, it was really launching down limited in the U.S., really collaboration between most of the departments of the companies, of course, IT head the main task is really creating this tool, which is amazing.

And anyone of you who is ready to join the app, not to join the plan, but to join the app and look at the app we'll see that, it's really high-end project there. Wisdom, of course, we've involved operation, it needs operation, preparations and a lot of naturally also marketing. The clip that just started is what we are showing right now on the digital media around the U.S. and on our screens in the cinemas.

It's 10 days old, very warm welcome from the customers' early to say about really well, it is going to go, but it's looking good. And I thin, as I said already today somewhere that's, if there is a group that has the experience with unlimited and knows really how to target and create a sustainable program, because this is the emphasize, this is a long-run game here, because we are really connecting to the people that love movies the most. If you go to the movies once a month, you don't need to buy unlimited. But if you really want to enjoy movies more, this is the plan for you, this is a long run. And this should, this mainly should be sustainable and really make sense from any point of view, whether it is for the customers or to the company.

So we'll go now and watch the sport and we'll talk a little bit more about it afterwards.

(presentation)

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

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Okay. So the plan was launched, as I said 10 days ago. We're not going to too many technical details, there are 3 tiers, in the U.S. that were divided by domains, staffing in $18, where cinema tickets are a bit lower. Going into $21 per month in the mid-range cinemas and $23.5 in the high-end price. I think that we should emphasize that we are charging in additional for premiums like we are doing in the U.K., and this is a necessity for this plan, it supports a lot of premium because customers love to go to the premium. They feel like they play -- they pay the surcharge and they're in. And in addition, like in the U.K., we want to commitment of the customer for 12 months, this is also one very important base for the plan and there you're moving into the [Black Card] and you're continuing your, I would say, loyalty plan with this [circuit].

Good reactions, we got from all around whether it is studios and whether it is mainly our customers, of course, and everybody is getting used to it, and we see, this is one of the lead point in our marketing towards our customers.

The refill program. So we have agreed and signed within the last 15 months over 60 projects already, in agreement with the landlords, this is not a easy process. But the landlords are accepting and looking at the retail situation today. I think most of the landlords in the world today understand the cinema, if it is a big cinema, is a main anchor in the shopping mall and we need to bring it up to date and really give the experience that will make people come again and again. And we got staff support from landlords. As I said 60, this is our deal. We are targeting 100 refurbishments in the 3 years you see here on photos just the first look of how Union Square, Manhattan, New York, one of the strongest cinemas of Regal, which is currently under construction is going to look at the end, which hopefully would be somewhere around November. And the other side of the U.S. in Ontario, California -- in the Orange County, California, [Irvan] spectrum, also, one of our strong cinemas which is currently already under construction and also there. We hope to be ready before the end of the year.

We are looking some other projects that are already started. Atlantic Station, one of our strong cinemas in Atlanta and others around the U.S., this is on progress. Currently, we have 6 projects in line. We want to be within the next, I would say, 8 weeks in line with anywhere between 12 to 15 project, which will be ongoing. So if we take into consideration that we are doing something around 5 to 6 months in average refurbishment and if we do 15 at all the time, we are going to reach this number of about 30-year. And which gives a lot of effort on our construction team, but on the other hand is very welcomed by our customers and we hope it will be embraced like our great refurbishments in the U.K.

One short reminder is that we are not closing the cinemas. So of course, they're not performing full force when some of the screens are closed all the time, but on the other hand, the cinemas are not closed. We keep the contact with the customers. Customers love to see their cinema being renovated, they feel we are doing something for them and we are very positive with this. New builds, also very important. These are 2 cinemas that are upcoming in the U.K., you can already recognize from the picture's style. And what people like to call in our group the Cineworld look. So all the cinemas have the similar look and are going to be open still before the end of the year.

Technology, part of our strategy, just reminding you, saying that the basis of our strategy is really best planning, then the highest end of technology, then great service in the cinemas and then strong marketing. So technology is really strong base, we are growing our relations with IMAX and the ScreenX and the RPX, which are the other large format screens are very successful and we are going to grow these number into about 200 within the next 3 years. 4DX, big success story. I think we discussed it a lot already in the past. We just now celebrated 7 years to our first 4DX in the group, which is in Israel. And I think about that many people they told me 7 years ago, 4DX is a gimmick. Guys, it's not a gimmick, it's performed this July better than it performed in the first July, 7 years ago. So it is strong. It's a good offering. Public like it, many youngsters, but it's a great addition and the newcomer, which we have already 33 operational, the ScreenX, very warmly embraced by the customers.

Like 4DX in the beginning, it doesn't have a very strong flow of products to like the chicken and the egg situation. We need to grow the number of the ScreenX's and the studios will do more movies for ScreenX. But having on both fully committed Disney and Warner and many other studios that are already joining, this is going to become more and more important in our offerings, for example, Spider-Man, which is Sony, it was now really successful, and also an amazing experience by the way to watch.

Second line, we are talking about the offerings we give in the cinemas, which are the IMAX, then the 4DX, then the ScreenX, then the VIP offering and also our regular grade screens. In the lobby itself, also in the U.S., we are moving now into implementing other activities that will keep our customers longer in the cinema and we'll give them additional benefits of services. Cineworld today is I think the biggest franchisee of Starbucks in the U.K. In the U.S., we are going with Lavazza Coffee shop from Italy and we are going to make sum of up to 120 coffee shops inside the lobbies, the cinemas in the U.S. are enormous in size, same old lobbies and a lot of them are also on stand-alone basis. So there is no shopping mall that you can go out and have a coffee after the movie or before the movie and we need to provide some wider range of activity in the lobby. And this is going to be done with the coffee shops with B.Fresh, which is a kind of drinks based on foods and which is very successful now around the world in different names. Bars alcohol business is growing very strong in the U.S. now and we have already something like 20 bars operating with great results, increasing the spend per head and we are going to reach something like 100 or even more than 100 bars and working also on, what it called enhanced food menu, which is also getting bigger now in the U.S.

And in the big high-end cinemas, we will also add some kids activities like we have in few of our cinemas already. This is a very successful, we need area for this, but in the big cinemas for sure this is going to be part of the offer. Continued refurbishment in the U.K., so while we are very busy in the U.S., there is not 1 minute less of attention on the U.K. and rest of the world, which is Central Europe and Israel just showing here any one of you have the 16 minutes time, it takes in down the ground to go from here to the O2, I really recommend to go and see the extension in the O2, the full refurbished cinema. This is now the biggest cinema in London, 19 screens with 4,500 seats, the results since we opened the extension are really above expectation.

It's a big cinema now. It's really showing what we want to see as the cinema of this time. Side by side and I think it's good that they are in the pictures one near the other is the new Picturehouse in Bromley. This is an old cinema that we bought in the Empire deal, if you recall, we bought then five cinemas and now the Picturehouse Bromley is fully renovated and opened an amazing building, I know everybody here likes very much Picturehouse Central. So Picturehouse Bromley is not behind it and really just started operation, 2 months ago, and Newcastle also one of the refurbishment and it will just accomplish in the first half. And we are continuing with the refurbishment plan, it pays off very well and same is being done a little in Central Europe, then we talked about the cinemas are much younger. So there is much less need of refurbishment, we are more opening new cinemas.

So the rollout across of new sites, we still have 5 cinemas to open in the U.S. this year, 1 in the U.K. And no, so this is what we did, 5 cinemas and 1 in the U.K. and 1 in rest of the world. Rushden, the U.K. cinema in one of the biggest power centers here in the country opened really very, very strong and we are very, very happy with the results. Same goes for Essex in Manhattan, New York and the Bulgarian Cinema, the new additional cinema in Bulgaria.

And on the second half, we still have 2 cinemas to open in the United States, 4 coming in the U.K., some of them are very important cinemas for us because they are in markets that we have no income today, so it's not going to affect current cinemas, it's going to be additional like Plymouth, like York. These are significant cities that we don't have today presentation there and we have high hopes. You see that as we are always saying with new sites, it's not in our hand is in the hand of the developers. So you might see 1 time, 5 cinemas still we opened in the U.S. and one in the U.K. or vice versa. So we see here in the second half of this year U.K. is going to get a lot of emphasize and the rest of the world as usual is growing and we have 3 sites to open before the end of the year.

Release schedule. So we've talked already about the second 6 months of the year will show you 3 of the most highly anticipated trailers, one of them for sure is going to be huge in the U.K., which is Downton Abbey, but also very, very well known in the U.S. and really if we look here at Hobbs & Shaw, which is already showing, always good success. We have many other offerings coming in. IT, remind you 2 years ago in September was a huge surprise from Warner Brothers, IT 2 is coming and there is very high expectations and new Brad Pitt movie, which is Ad Astra. Joker, which I saw some pieces of in looking very, very promising. Maleficent 2, coming again with Angelina Jolie from Disney, Terminator and many others. And of course, Jumanji, which was such a great surprise, 2 years ago is coming now with a new chapter. Frozen 2, Frozen, just to remind everyone is until to-date, the biggest animated movie of all times in the box office very high expectation for Frozen 2. And probably the most anticipated movie of recent years is the last chapter of Star Wars, which is coming with Star Wars IX at 13th of December. People asked me also, you're going to have only 2 weeks of Star Wars before the end of the year. These 2 weeks in the U.S. could mean a box office of $600 million to $700 million don't be worried too much from this, but the overflow in the remaining $200 million or $250 million, which are coming in January are very significant because this is like the first blockbuster of 2020, so I want to talk also about 2020, a few words. But first, let's go and see the trailers.

(presentation)

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [4]

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Okay. So I think we saw here and there some hints, when Disney decided to move Avatar from the end of 2020 to the end of 2021, the 2020 might not be a great year. I don't know what it was based, but this was a little bit a buzz, let's say for a few weeks. I think if we look here on the list of the some of the titles of 2020, it looks very, very promising.

So as I said before, we know the year will start with what will be remaining of the box office of Star Wars probably anywhere between $250 million and $300 million only in the U.S. in January, but then if you look them with me, quickly for the slate here, I think we'll start by saying that we have here 3 Marvel movies, Black Widow will be released in May. We have 2 new Pixar movies. We saw already short parts of them are very, very impressive. We have 2 new live actions, which are coming again from Disney, which is one of them is Cruella: The Legendary Villain from 101 Dalmatians, and also Jungle Cruise. Other studios are bringing the Minions 2, Fast and the Furious 9, all these are huge franchisees. Wonder Woman 2 is coming up and really we have here a line of just to go through, West Side Story by the way, if you notice it here it's being directed by Steven Spielberg and we hear great things about it.

So really, there is a very wide range of movies with a lot and really to mention one for the U.K., for sure, but also internationally huge, huge title is 25, a number 25 Bond, which is under production now, going to be released in March and really a lot I'll saying you know how much is sequels, how much is not sequels, I think the biggest proof, if you do good movies. Sequels are sustainable, is this legendary series of Bond, which is reaching now movie number 25.

And I think that to end this part of the presentation and we move to the Q&A, I would mention a movie here, which you see it's called Tenet. Tenet is the new Chris Nolan movie. Chris Nolan works under big secrecy when he is producing his movies, we all admired Dark Knight, we all admired Inception, we all admired Dunkirk and many other more movies that he have done.

Chris Nolan is really a great alley, to the theatrical business. He believes in the big screens, he believes that his movies and also other movies should be shown on the big screen, this is the way. Really to see movies and this time really he made something which is very special and the first trailer of Tenet, and the first scenes from Tenet that were ever seen. He released the trailer only in cinemas, for the beginning, of course. Because today as you know, when a new trailer is coming, it goes to the website and then they have millions of people looking at it, it will for sure reach the website, but like, gesture salute to the importance he see for the big screen, he gave the trailer of Tenet about 10 days ago, exclusively to the cinemas and we have here this trailer with you in order to finalize this first part of the presentation. And we'll go to the Q&A. So please roll the trailer.

(presentation)

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

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So this will be on our screens on the summer of 2020. Okay. Q&A.

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Questions and Answers

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [1]

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Richard Stuber from Numis. Two questions, please. The first is on Regal -- Regal Unlimited. I know it's very early days, but can you give some sort of expectations, do you expect it to be as in the U.S. is because City Unlimited is in the U.K. Do you think that what AMC have achieved is something which you can replicate or will be bigger just any sort of color around that? And will it be giving updated numbers like AMC does in terms of how successful is going? And the second question is of given the sort of the second half, some closures in refurbs, do you, would you be disappointed if you did not equal the U.S. box office at the industry level in the second half, because I know the first half were slightly underperformed, probably because of the closures?

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

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So first of all, unlimited, I would say that we are not of course revealing numbers or any information after 10 days, we've been just saying it is -- overall, the business plan that we had, AMC started it almost a year ago or more than a year ago. There is for sure the market for subscription. There is no doubt. Many other areas as well. There is a market for this. It will be early to estimate today, where we're going, but I can carefully let's say estimate that it is not going to be less successful. Turning the U.K., I believe it will be even more because usually Americans are going slightly more to the cinemas than in England.

As for the second half of the year, we are in the process. I don't know how many of you recall, our first year in Cineworld in the U.K., we have our targets, we have our strategy, we know clearly where we are going, whether this cinema will have more effect or less effect, their state is huge.

We are refurbishing currently 6 cinemas and we will be refurbishing 15 at a time, which will bring us to 30 yield. New cinemas have impact, new openings of us and of competition are having an impact. But if you look at Cineworld where it was 5 years ago and became market leader within about 4 years. We want to be there and I believe that although market share is not the main thing. Because the main thing is at the end of the day, the bottom line, we are on the right direction and we think that the changes that we are doing implementing will take us forward in a big way.

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Unidentified Analyst, [3]

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And if you find more synergies, more cost savings, would you announce them as a separate number or will they just get ramped up into the performance of the business? And when might you know if you have more cost savings? And then in the cash flow, there is quite a big working capital outflow in the first half, is that significant?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [4]

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I would say first of all, additional synergies, there is a stage when you -- I think stop calling it synergies. But cost savings are happening all the time. Even in countries where we are operating already for, let's take Israel, we are close to our 19th year, 2020 will be the 19th year of operation. We always look at the cost, we always look at it, if you define them, in addition synergy or not a synergy, it will be difficult to say. But we are looking at the cost and there is still a potential of good savings in the cost, in the U.S.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [5]

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But if you've found another $30 million of cost savings, would you announce it. Do you want to make an announcement about...

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [6]

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Clever guys on my side, they know what we enhance and what not.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [7]

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If I'm not wrong, the rule is that we are announced, we are updating the synergies for 2 years. Yes. Which means, so we'll follow the rules and the rule makes sense because it's really in a certain time now Mooky is saying, is it synergies. So we'll follow the rule and announced for 2020 now.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [8]

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Working capital.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [9]

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Yes. The working capital, I think the moment you are comparing December to June, that's what maybe the difference because December 2018, was a very strong month compared to June, which was a bit weaker that's what compare the outflow. You have very busy month in December when you need in January, February to pay to your studios the concession other than in June, there is a difference. So that's what create and explain the major part of the outflow. On the other hand, you considered on the other side, we managed to collect some receivables amount that on the other side of the -- on the working capital.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [10]

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Ali Naqvi from HSBC. You mentioned in the release, you're confident of delivering what you say in an expectation on EBITDA for the year-end in line with your expectations. Could you just talk about your assumptions for the market box office growth for the rest of the year? What's going to come through from either unlimited program, margin cost synergies to make up the outflow -- to make a bit of the delta in H2 because H1 was so weak?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [11]

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I think that's all weakest overstatement, first. And second, I think it's a bit hard to comment exactly what is going to come from. I think it down to date. We believe that the performance of the movies in the second half is going to be stronger. I think that this is clear. And if you add into this the improved margins that we are seeing is, which is continuing to develop. We are confident that we can achieve it. And I know that there if you look on the split of last year between first 6 months and second 6 months and you assume this year its looks at the other way around, the numbers work out. So it's not that we are now a 50% behind in our EBITDA and we're saying, how we're going to close. It is the first 6 months were slow this year compared to last year that were very strong and the second 6 months would be the other way around, and we're confident about it and it's coming from a lot of things.

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

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I'll just remind you that in a fixed cost business, when you fixed costs, any additional tickets contributing much more to the EBITDA? That's we are confident as Israel say that, was the movies that work in front of us seeing the results of the first on July and the half of August. There is a good base to assume that we'll reach the target.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [13]

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Great. And just one final one, if I may. What are your thoughts on royalty costs more structurally? Because now, I guess, Disney is taking a bigger portion of the box office slate maybe longer term, do you think they'll -- where it's going to be increasing? And is that sort of sustainable for you?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [14]

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As we always say, as we said, we went to the U.S., we did not expect royalties to go down. We also did not expect royalties to go up, we think. It's a very conservative industry from this point of view.

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David Andrew Holmes, BofA Merrill Lynch, Research Division - VP [15]

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It's Dave Holmes from Merrill Lynch. Firstly, on the other income line in the U.S. in particular. Can you just help us understand how you've managed to keep that flat with admissions down 18%? And is that online booking penetrations. And if so, where are we now on online booking penetrations?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [16]

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Part of this is online, not all, and the other income is includes booking fee includes events, include advertising, includes some other lines of income that we are generating from the business. We managed to keep it flat because that part of this is implementing the synergies. Remind you, we went into a full reservation of seats, in Regal in the last, there's some impact on. Retail there is some impact on online. But I think by the end of the day, we are happy with the result. There's still, a way to go. I think we still have potential to see more, I would say online sales, definitely we're now unlimited the day it was launched, there is a new application, we have a friendly one, people can use. And we are a big supporter of the other lines of income out of the traditional one in the cinema, which is a box office.

This is one. But we are doing, I think you saw the presentation, many things in the retail, many things in the operational day to day within the cinema. We want people that are coming to see movie and coming, let's say, in another and a half to stay in another hour in the cinema. That's why we have the VIP. That's why we have the bars, that's why we've nice lobbies because another hour for us that family stays in the cinema mean more profit and more income.

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David Andrew Holmes, BofA Merrill Lynch, Research Division - VP [17]

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Okay. And just a follow up on that. To help us understand the shape of the other income line, I think the recent trading statement in May.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [18]

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I cannot tell you, so.

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David Andrew Holmes, BofA Merrill Lynch, Research Division - VP [19]

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Sorry. The trading statement in May, the other income line was up 6 and obviously finished the half flat. Can you help us understand the shape of that?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [20]

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Yes. Definitely. Definitely. So that's on the other incomes, in the last 6 months of the -- in the first half, you compare it to the sample of last year was a bit softer. We have a huge movie last June, which is a Jurassic World and Incredible which really performed fantastic. On the other hand, this June was good, but not as June last year. Again it's easily, we are talking here about timing of the release. You look now in the end of July, you'll see the opposite line. So there is no any structural things here, it's a major, so it's really a timing release of the movies. There is no other things that affecting it.

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David Andrew Holmes, BofA Merrill Lynch, Research Division - VP [21]

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Understood. And just final question. Clearly, there's a gap between your U.S. box office revenues and industry box office revenues. Some of that is closures, can you help us understand what are the moving parts go into that bridge?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [22]

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Yes, I think, the closure I think we mentioned it in the last 12 months, we closed approximately 20 sites. So in one hand, it's affecting the revenue talking about 35% impact here. But on the other hand, it was part of our plan to close sites, which are not operating successfully. I think because if you look on the bottom line, on EBITDA, on net profit, probably it's just to improve the numbers. So this is one impact.

Second one, it's related also to the opening of the sites because I can give you an example. We plan to open a cinema in New York Essex in January and then because of some building permits issue. A thing like this we'll open it in June, such cinema can generate in the first 6 months, something like $10 million, $15 million, which is 0.5% of all the revenue. So you multiplied by 6, 7 sites like this, it be reopening delay the completed those open maybe in December or January. It's all of this, by the end of the day impacting the -- like you say or explaining the differences that you are mentioning it.

But I want to say something. I think that I think Mooky mentioned it, and I will repeat it again. Market share is important. We are looking it, we are analyzing it. It's something that we as the management, of course, analyzing it. But by the end of the day, the main priority and the main goal is to bring more profit, that's -- and that's our first priority obviously. And -- but definitely, we are looking on this and I think we said it before with the implementation that we are doing now, which and the changes that we are adopting now. I'm not worried about this.

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

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I think it is very important to remember what we said already that we do not control openings of projects, nor do our competitors. So you can have 6 months where competition opened 30 new sites across the U.S. and we opened only 2, which is not our size and in another 6 months, we might open 10 new cinemas and the competition will open only another 10 cinemas and this of course, takes up and down the market share and this is why market share needs to be taken very carefully is not really the main thing. It's nice to have, but the main thing is really what are the revenues and what is the margin you do for the revenues and the bottom line.

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Julian Kenneth Easthope, RBC Capital Markets, LLC, Research Division - Analyst [24]

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It's Julian Easthope from RBC. And I've got 3 questions, if I may. The first one really follows on from the market share question. It does seem to be speaking the market a little bit today. Do you think you also lose out from attendances at the moment because other people have effectively there unlimited all their subscription packages and therefore, people just go regardless of what the movies are and during weaker periods that you probably lose out in that, that could be a factor behind the attendance numbers?

The second question I have is in terms of CapEx of the $300 million. And obviously, you've got plans to do more refurbs going on the 30-year and is it fair to say that the landlord participations will be a large enough component to make sure that the CapEx, that doesn't spike up so much. What sort of, how our landlord participations and what sort of, at what percentage do they actually pay the refurbs?

And the last question just on rents as well. We're hearing all sorts of comments about rent you've in terms of renewals, when you come to the end of the lease that rents are going down, because of the weakness within various different parts of the retail side. I just wondered whether you are seeing in cinemas as well.

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

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Okay, so we'll start with the unlimited. Unlimited is a very strong tool. As we said all the time, naturally, if there is a period competition has unlimited and we don't, it has an impact. I think strongest example goes in the U.S., the disaster of movie pass, last year. In a way movie pass was a very good business, for us, because they are not only Regal, all cinemas in the U.S. enjoyed the full price ticket, but someone was collecting only $10 a month, from its customers.

So this is now going to the extreme, talking about sustainability. So they spent what they had to spend $600 million or $700 million and the business is not there anymore. You need to be very careful with these tools, really to build them to prepare them. There is a lot of cooperation here with our partners, which are the studios, which also takes time and everything. Yes, I think that if you ask if there is an impact somewhere if we are without unlimited and others have all kind of subscription, by the way, cinema had a different plan, which is not unlimited, but different, but it works well for them is what I understand from the announcement. And all this, we have now unlimited, we have now the right unlimited. And I think this unlimited is going to take us forward in the U.S. So this is one answer.

The CapEx of the $300 million, of course, we cannot reveal what is the share of landlords. We are satisfied with what we see from the landlords. We see their wish to participate and acceptance to participate, their understanding, that they need to participate and at the end of the day, if you look at it, we are keeping our CapEx line approximately in line, it might be $320 million or might be $280 million, it's again here issues of permit, contractors, invoicing, et cetera. But this is the line that we have. If we get more participation with the landlords, we'll simply do more projects. So this is with regards to the CapEx.

Rent renewals, one of the natures of this business you know is the landlord always wants more and we always want to pay less. In renewals, there are many places that we achieved positive changes for our side. Naturally, if it's a very, very strong cinema, there is not a lot to talk about. First of all, we do good monitor. And second, competition will be happy to take the cinema away from us. We have the options in all the projects here and there, some we still have another 3 option periods, some we have 1 option period in some of the places, we don't have an option period. So it's a complicated game, but in general, I believe, as I said already before, we are now, I'll say it carefully, but we are now more important to the project, to the shopping malls, then we were 15 years ago and then also we were important. So we are now more important, it gives us some leverage, but at the end of the day, we need the good projects and we did growth for relation with the landlords.

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Harry J. Gowers, JP Morgan Chase & Co, Research Division - Analyst [26]

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It's Harry Gowers from JPMorgan. Few questions. Just on the, so I think you closed 11 sites in the first half or so in the U.S., do you plan on doing a similar quantum in H2 or that fade away? And secondly just on the sale and leasebacks, how many freehold sites do you have left? And could they be monetized as well in the future? And I think last week there was a small luxury train could iPic which went past in U.S., does that kind of picture how style, luxury cinema opportunity not exist in the U.S. as it has done in the U.K.?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [27]

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Okay. So we start with Pixar sales. Comparing iPic to Pixar House is making insulting pre-sales in a way, iPic is iPic. iPic in a way is a business and by the way Regal had some shares there, it's not significant because of some settlement in court filed before our time, but iPic in a way it was a business or is a business is not -- is a business of restaurants with cinemas. It's not a business of cinemas that are adjacent with some food offering very, very expensive projects and very luxurious, looks amazing, probably not to manage in a way that it could give the return that was needed. And we just saw the news, the same as you. We have no, any other information. It happens in the business. There are some dineries in the U.S. that are doing well. There are some that are not doing well. It's not our line of business. And it's really not, it's not because of the movies. Here is a big business of restaurants, which have some cinemas [newer then].

Are we going to close more cinemas? Any cinema that is generating a negative result for us and we don't feel that by refurbishing it, we can turn the numbers for this cinema. And we will have the opportunity legally to close because of contract. We will close. We don't see a big number of closures coming up, more than the normal ones in the coming 6 months.

And last. Yes. So we have some more assets for Regal which currently, we have no plan to sell them. Some of them can change, can change till use, some of them are very good cinemas that will keep at this stage like this. And we might use it in a certain stage depends on the market, depends on this. But currently I think we do, we did a very good deal with the sale and leaseback first round, and that’s it.

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Richard Michael Taylor, Barclays Bank PLC, Research Division - Analyst [28]

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Richard Taylor from Barclays. Sort of 2 questions, please. On your CapEx, we should think of the 30 projects per annum. Can you give us an idea -- of the sort of annual EBITDA uplift that you would target from that? Or if not an uplift sort of duration of cash payback on your CapEx there, please? And secondly, can you just walk through the rough outline of the effects on the P&L from the sale and leasebacks, the change in rent roughly in the depreciation forego?

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

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Can you just repeat the second question, Richard?

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Richard Michael Taylor, Barclays Bank PLC, Research Division - Analyst [30]

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Thinks regarding the sale and leasebacks.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [31]

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Okay.

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Richard Michael Taylor, Barclays Bank PLC, Research Division - Analyst [32]

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The rough effects on the P&L, we know the consideration, but sort of rough rental yields and how much depreciation will disappear once you’ve done this sale and leasebacks?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [33]

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Let me start with the first question about refurbishment. I think we have a good experience from the U.K. and we refurbishing the last 4 years, approximately 50% of our sites in the U.K. and we see a very good return. There is no reason why we will not see similar return on, maybe even better in the U.S., we still didn't open any refurb this year. So I don't want really to tie in and make an assumption, I want to see how it's working, but all the numbers, or all the business model to our base on, we want to see even better return than we have in the U.K. So if the average return, now we see in England is between, let's say 2 to 4 years. I want to see better return in the U.S. Because I think that the market is built in a way that we can gain much more market share in the U.S. territory. That's for the first question.

For the second question, the sale and the leaseback impact are going forward on the P&L. So in one hand, we are going to pay about $40 million rent. On the other hand, because we took out the asset out of our portfolio, there is about $50 million, I would say, call it saving in depreciation. And also there is impact also on the finance cost because we repay some debt from this transaction. There are also some tax impacting. But I would say, the bottom line, it's really a natural impact, if you look on the net profit lines.

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Owen Shirley, Joh. Berenberg, Gossler & Co. KG, Research Division - UK Mid-Cap Analyst [34]

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Owen Shirley, Berenberg. Just a few questions. So on the refurbishments, I think you said 100 over the next 3 years now. Is that an increase versus, I think you'd said $15 million in 3 years previously. And the thought is correct. What's kind of driven that decision? On net debt to EBITDA, where do you, I know you said below 3 and 12 months, where would you hope for that to be at the end of this year? And also on debt, what was the rationale for paying the special rather than using all of the proceeds to pay down debt? And just the final one, CapEx for 2020 and beyond was it right in thinking, you were just saying sort of still around $300 million or presumably that will go off of that?

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [35]

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Okay. So I would answer that. The first one, I think that we said carefully at the beginning $50 million within the first 3 years. There is of course the potential there to do even more than 100, in a way, but there is a limit also to the capabilities that we can have, I think the positive note we got from landlords, which means also money, of course, pushed us to be able to increase in the number.

We're talking about starting 100 projects. So let's say it will slip into the let's say first 6 months of the fourth year, or something like this. And -- but yes it is substantial bigger number without increasing CapEx, again, I'm saying, we are talking about $300 million will be $330 million. This can happen, especially as the more successful who would be, who will push forward more. But on the other hand, it can have also another impact when some of the refurbishment will open and would be very successful. Other landlords, that said, no, or didn't want to give us enough, we will change their mind and when come and say, I want the same cinema as you have in Atlantic Station. So this could have a positive, as for ratios of debt to EBITDA, and this...

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [36]

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I would say, I will answer the other two questions. The ratio of the 2 EBITDA were same, targeting 12 months less than 3, and our target at the end of the year is to start moving forward, which means, I think it's a bit difficult to give very short-term targets about this. Regarding the rationale, the well booked on this was that there was an extra cash coming into the company that was not expected when we have done the deal. The Board reviewed it and whether the option of, sort of the best ways from one end to return some value to shareholders that invest, invested the lot in the right issue, year before. Now that reduce the debt and we thought mainly looking on the debt, on the debt focus going forward that we can well serve our debt and don't need all this extra cash to go to reduce the debt. So this was the rationale behind this decision.

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

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I think you asked about the CapEx also, going forward. So I think the CapEx is going forward affecting also before we maintain our focused to be approximately $300 million going forward again, it will be $321 million here, $290 million next year. Really, it's not exactly in our control. It depend on those contracts, invoicing and cash flow and things like this. But there is no way to change the forecast. I think if you look on the first half, you see $180 million CapEx and this is mainly because we opened, most of our new sites in the first half of this year. And that's why we'll see probably the number in the H2, lower than the H1.

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Natasha Brilliant, Citigroup Inc, Research Division - VP [38]

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Natasha Brilliant from Citi. Just going back to the synergies, if what you've achieved to date was the split between costs and revenues and with the potential incremental synergies that you're yet to identify, would that be mainly on the cost side, or would you see there could be upside on the revenue side as well?

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

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The split is approximately 60% cost saving and 40% revenue initiative. And I guess also going forward, this probably will be the split. Again if it's, there is some, if there is 65%, 35% going forward. It's not material I think, but that's more or less there in the ratios. Any more questions?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [40]

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Thank you very much.

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

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Thank you very much.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [42]

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Thanks a lot.