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Edited Transcript of CINE.L earnings conference call or presentation 14-Mar-19 9:31am GMT

Full Year 2018 Cineworld Group PLC Earnings Call

London Apr 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Cineworld Group PLC earnings conference call or presentation Thursday, March 14, 2019 at 9:31:00am 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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* Alexander Mees

JP Morgan Chase & Co, Research Division - Head of UK Small and Mid Cap Research

* Ali Hamza Naqvi

HSBC, Research Division - Analyst

* Julian Kenneth Easthope

RBC Capital Markets, LLC, 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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Hi. Good morning, everyone. Thank you very much for coming.

I think that if I have to start by saying 2 words, I would summarize this year as exceeding expectations. I think this is approximately what we feel -- what we felt already through the year. It was a very challenging year. It's only 12 months since we have acquired Regal. For us, it looks like it is already 5 years. And really the acquisition was completed 1st of March, 28th of February last year, $5.8 billion acquisition. We had a record year of admissions, 308 million admissions for the year. And really, as I started, exceeding expectation, this is the way to describe where we are today.

Synergies are greater than what was originally expected. And we are very happy to show a number today of $150 million synergies that really were delivered from so many directions, so many aspect on the side of the revenue, on the side of the cost and many other things. If we're talking about the financial reviews. So the revenue, $4.7 billion, is up 7.2%. The group EBITDA, which is usually in our eyes the main number, of -- is over $1 billion for the group. And I think that mainly was driven by strong performance in the U.S. and really solid performance we can call it this year in the U.K. and Rest of the World. And we are really looking forward as we are on track and according what we expect to have in 2019.

We have -- we will talk in this presentation about the new business initiatives, mainly about our strategy, which continue to be same as it was before. Part of it is really introducing best technology. We have a new technology on board since this year, which is the ScreenX. We have the 4DX, which really became a phenomenon proven success story and, of course, our IMAX agreements, which are going across the 2 sides of the ocean now.

The rollout continues. We opened 13 new cinemas in the U.S., U.K. and Rest of the World last year. This is another big important part in our strategy. And in addition and maybe the most important aspect of the activity is really refurbishing the cinemas, the amazing sites that we now have in the U.S., doing the same what we have done and still doing in the U.K.

So Cineworld today, you see the map, the map have changed since the acquisition of Regal. 70% -- something like 75% of our cinemas or our screens are now in the U.S. U.K. is our second-largest territory followed by Poland, then Romania and all the other territories. All together, 10 territories across the 2 sides of the ocean.

We move it now to Nisan.

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

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Thank you. Thank you. Good morning, everybody. So if we move to the financial section, financial highlight. As Mooky mentioned before, it was really a very impressive year for us after the Regal acquisition and a record performance in terms of admission revenue and the pro forma EBITDA. The revenue of the group grew to $4.7 billion, which is more than 7% increase compared to last year. And our EBITDA of the group reached a level of $1,072,000,000, increase of over 9%. We'll get into the margins in the territories in a second. Just want to mention, we are showing here pro forma number, meaning including the 2 months operation of Regal. The acquisition was on 28th of February. In order to compare apple-to-apple, we're doing it on a pro forma basis.

If we move to the pro forma performance and looking on the group, we mentioned the admission. We mentioned the revenue growth. You can see that the EBITDA margin of the group reached 22.8%, which is increase of 0.7%. And main part of this coming really from the U.S. segment. We can see a very strong level of EBITDA margin of 23.2%. Part of this is coming from the fact that the U.S., we see the admission level grew almost close to 5%. And part of this is really the acceleration of the synergies and the successful implementation of the synergy level. We'll talk about the synergies in detail in the next slides.

The revenue in the U.S., also we see increase of 8.6%. I was asked in the morning, if we can have the footprint of the management of Cineworld in this level? And the answer is yes. I think that, as we said before, the synergies are coming also from the revenue side. The synergies are coming also from the cost sides. But definitely, there is a footprint of the Cineworld management in these lines.

And you can see also strong level of EBITDA in the U.S., $817 million, which is also reflecting really the successful year we had the last year. We'll come into the territories in a second to give more light on each territory itself. Again the U.S., I think, we discussed about it. If we look on the table on the right, we see the breakdown of the box office, retail, which is also a very important segment in our business. Retail grew by 8.2%. We did a lot of things in the U.S. on the side of the retail, starting from the mini and giving more offers, adding some more concession, I would say, alternative to our customers. The seat reservation project is also moving ahead, have some good impact on the concession. It performed really according to our expectation.

The other income line, in the U.S., I think, also a very important part of our business, coming also with strong margin. We see a nice increase here of 18%. It include many, many, I'll say, streams of income starting from events, online, advertising business. So all together, I think, we are showing really stronger -- strong performance.

Moving into the KPI of the U.S., we can see really the increase -- the nice increase in admission. It was a good year in terms of movies. And we reached close to 207 million visitors in the U.S., a very impressive number. ATP and SPP also grew. ATP is on the level of $10.3 average ticket price. I think we discussed a lot about average. There are many impact or many factor that are, by the end of the day, impacting the average ticket price, starting from the type of the movies, location, where we are -- where our cinemas are located and so on. And the SPP is the sparing the concession, how much a person is spending in the concession. You can see that in the U.S., the number are close to $5. We've reached $4.9 per person. It's increase of 3%, also very important segment in our business, which performed well in the U.S.

If we move to the U.K. and Ireland, representing today 15% of our business. It was an interesting year in the U.K. and with some, I would say, long period of hot weather and some sport event that have some impact on the admission. We see slight decrease in admission of 2.6%. All the other lines of box office, retail, other income, we performed well, with strong level of EBITDA of $126 million, with a margin of 18%. Again, the margin here affected by the admission. There is no structural things that happened that reduced the margin. It's a matter really of admission, and revenue grew by 3.3%. Again, the U.K. is a very important territory for us. We managed to maintain our leadership in the market share in the U.K. The refurbishing program is moving well and very successful in the U.K., and we are very happy with the result.

If you look on the KPI, again on constant currency. So we spoke about the admission. ATP grew by 1.2% in the U.K. and SPP by 2.5%. Also important element for us. No doubt that our target to take the SPP from $3.3 to $4.9. We just need to convince people to buy bigger popcorn in the U.K. But that's our goal. Nevertheless, I think, the KPI in the U.K. are strong. And definitely, our aim is to work on this and to improve it in the coming years.

Rest of the World, a very important territory for us. Lot of growth stories still exist in the Rest of the World, representing today 10% of our overall business. We managed to produce close to $130 million of EBITDA with a very impressive margin of 26.4%, is a slight decrease in the margin of 0.5%, mainly because of our VPF contract. You know, it's coming into end. Again, it's something that we all know and was expected. Box office, retail, other income, strong results.

No doubt that Rest of the World and mainly the KPI, which we see now, as you can see, really the -- where is the ATP in territories like Poland, Hungary, Romania spending. And to the slide that we showed before, U.K. and U.S., we are saying all the time maybe to reach the level of the U.S. of $10 will be hard. But definitely our target is to increase the ATP and to see some increase in the ATP and to see some increase in the SPP. And if there are territories that there is a growth potential, definitely Rest of the World is the territories -- Rest of the World are part of them.

If we move into the statutory group, profit and loss. Here just to say statutory meaning only the 10 months of Regal without the first -- without January and February. Adjusted EBITDA of $925 million. Exceptional cost of $84 million, and you see the breakdown, the main part of the exceptional are the transactional cost. We did a huge deal in the U.S., involved many bankers and the fees, and that's the result of this.

And some other lines of exceptional, which -- if I'm going down below to the net finance cost, $170 million. It's also if I need to break it into 2 part. There is the cash element of the interest of the 10 months, which is approximately $150 million. And there is also a noncash element that mainly coming from the accounting, I will say, changes of IFRS 15, that we have some noncash interest on top of this -- on top of the cash interest.

On the other hand, we, I will say, benefited from some FX gain on the euro loan. Remember, our debt is divided into a U.S. dollar loan of $3.3 million and around EUR 600 million. And there is some FX impact here. The bottom line is the adjusted profit after tax of $345 million, which giving us an EPS growth of over 20%. No doubt that this deal is accretive deal for us from day 1, above what we expected by the way.

When we initiated, even builds our model in -- per deal we are very happy with this level of EPS and the DPS. We'll come to this in a second. You can see the breakdown of the things that have been adjusted. We saw it before. And the big part really the transactional cost and the FX, which we are adjusting in order to come from the statutory profit into the adjusted profit. EPS -- adjusted EPS is $0.272. Again, I think, it's a strong number, reflecting the overall results of Cineworld.

If I moving into the debt profile. So I think the result of the EBITDA and also the free cash flow that we produced in the last 12 months help us to reduce the debt into a net debt-to-EBITDA of 3.7x. That was a net debt-to-EBITDA that we focused also at the beginning of the year. Saying this, we need to remember that we bought shares of National CineMedia and we invested $80 million that -- plus all the other elements of the cash, which are CapEx, interest, stocks, we managed really to reach the level that we planned.

And our goal is, I think -- and we said it also prior the launching of the deal is to be on 3x net debt-to-EBITDA in 18 months from now. And if all goes well, we'll be in this level in this time of period. I want to mention here that 2 weeks ago, we repaid $150 million from the Term Loan B without withdrawing the revolver, which will impact the net cash interest in 2019. I think it's a good move, showing really the strength of the -- and the management of the cash flow that we're all the time trying to really to achieve best results for us. And again, I will just mention that our target is to be on the level of 3x in 18 months from now.

If I moving into a more accounting, I will say, issue, IFRS 16 update. I think very important to mention, IFRS 16 impacting many companies around the world. For us, while we are leasing most of our sites, 90% of our sites are leased, there is also some accounting impact on us. However, there is no impact on operation. There is no impact on economy, and there is no impact on cash. And if we're going to summarize this, there is no impact on the day to day of how we run the business or how we, as a management, look on our dealing over net debt.

I think the slide before, where we mentioned the 3x, this is really the, I will say, the cash debt that we are looking. IFRS 16, I'm not saying not important, important. We are looking on this, analyzing it. We are working also with our rating agent that are looking on this also before the IFRS 16 came into this. But by the end of the day, there is no impact really on our day-to-day operational business.

I will say, if we look on the financial statements, how we think it will look like, first we'll implement it will be on the interim -- in the coming interim on August. So I think, as all of you know, debt and asset will grow. EBITDA and margin will grow as well, because of not -- we'll not show our rent expense on the EBITDA anymore. And probably, PBT and EPS will have some decrease. We are working to gather the exact number. We'll probably come into the market soon with the -- how it will look, but that's probably will be the impact on financial statements going forward.

We are estimating today that the IFRS lease adjusted of 2018. On 2018 number, leverage will be between 4.2 to 4.4 compared to the 3.7, I would say, net debt-to-EBITDA on cash level. So that's our estimation now. There is no change in delivering for financial plans. IFRS 16 statement to be published first on the interim result on 2019. And I think the conclusion is really there is no bearing on our plans of financial ambition.

Dividend payment, we are declaring today morning a dividend -- a full year dividend of $0.15, increase of 17.6% compared to last year. It's a final dividend of $0.1015. We already paid interim of $0.0485 in October. The full year dividend will be paid in July this year. From 2019 and onwards, the board of Cineworld has decided to move into a quarterly payment of dividend, very similar to our peers, to other big cinema operators, public operators across the world. We are moving in line to this approach. And the first 3 quarter of the year will be equal to the 2018 EPS or DPS, which is a $0.0375, which is $0.15 divide by 4. And the last dividend or the Q4 dividend will be based on the final results of the year 2019.

If I move into the financial outlook. So this is on track to deliver revised synergies planned for 2019, and we'll talk about the synergies in a second. We are expecting to invest approximately $300 million on CapEx across the -- both sides of the Atlantic, approximately $200 million in the U.S., $100 million in the other territories. It's including new opening, including refurbishments, including some other elements in the CapEx. Tax rate expected to be on the level of 19% to 20%. We are focusing on cash generation in order to reduce the leverage. It's one of our main target as management as a company.

We are going to maintain the historical dividend payout of 55% of adjusted EPS as last year's. IFRS 16, again, no impact on our operation economic and cash flow going forward. And trading for the current full year remains in line with our expectation. Last weekend, we have an amazing movie in the U.S., Captain Marvel. A lot of good movies in front of us in the coming months. Mooky will give some more light on this in the coming slides.

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

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Thank you, Nisan. Okay. So I'm going to talk now a little bit about the business update. I think that we chose to start the start of the presentation by saying, I don't know how many of you are aware to it, but when we arrived to Regal in the U.S., Regal was created in a way, we can say, in the end of something like 90 -- the early '90s, where there was a wave of Chapter 11s in the U.S. cinema industry. And [freelancers] at that time bought Regal. And bought -- together we did few amazing other circuits, United Artists, Edwards, Hollywood.

And through the years, Regal was really building an amazing group of theaters all over the U.S. We currently operate in 48 states in the U.S. All of them, when we arrived, we saw continue to carry their brand. There was no really integration from point of view of how we are presented to our customers. And we decided to one of our first moves, although it's not a synergy and it's not a business immediate -- doesn't have any business immediate reaction. We said we should come with a new logo. We want whole cinemas to be behind this logo.

This is not a project. It will take 1 year. It's also a big investment. But every new cinema, every refurbished cinema, every important cinema at the beginning will grow under the new Regal brand, and every customer that comes into our cinemas in the U.S. will see a new recognized brand on the screen prior to the beginning of the movie. Cineworld, Cinema City in Central Europe, Yes Planet in Israeli are very well recognized leading brands. And Regal within, not a long time, will be the leading brand of cinemas in the U.S. So we decided to start by representing to you just what everybody is seeing on the screens today on the U.S. when he enter a Regal cinema.

(presentation)

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

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Okay. So the integration. Started with restructuring first day on the Regal estate, where already were changes in the management, new operating structure. We can say that in a very short time, we have created a great synergy between the management teams on both sides of the ocean. You know us already that we are very hands-on management. We're traveling between ourselves, senior executives of the company. We are almost every 2 weeks in the U.S. And really together with an amazing U.S. team that we found in Regal really we've done this restructuring very quickly.

If we talk about management and we talk about leadership, of course, is a very important word. And everyone, a lot of activities of U.S. managers is done in Europe and vice versa. A lot of the people from the U.K., from Poland and from other countries are traveling into the U.S. I think, we're really utilizing very well the skills of the management team of the group.

Cost optimization, very important, 2 main lines, of course, the OpEx and the CapEx. In both regions and in both aspects, we really found good ground to work. This, as you know, this morning, went beyond our expectation, in a big way. And we are sure that this is not the end. We can do even more, and we feel very confident about the moves that we have taken and the changes that we have implied in the company.

Revenue, very important. Premium formats have been always a very big growth potential for us in the Cineworld Group. We have went far -- and you will see it in the coming slides -- with the 4DX implementation in the U.S. Regal had 4 4DXs. We will have at the end of this year, and it will close to 40 4DXs. And really the results are good. ScreenX, the new technology, and others. Seat reservation, which also affect the online income, also affects the concession income. People do not have to rush into the auditorium to grab a seat. It is also another very big revenue contributor. And, of course, best practices across sales and marketing.

Refurbishment, big part of what we are doing. We'll talk about it in the next slides, of course. The plans are progressing well. We have already 2 cinemas that are under refurbishment in the U.S. Not to mention, of course, the new cinemas that are being open all the time across all the territories.

If we are talking about the synergies, just to remind everyone, we were talking and expecting somewhere in the region of $45 million integration benefits in 2018. We ended up with $70 million. This is a number, which is known already and done. 2018, we were planning $100 million...

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

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2019.

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

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2019, sorry. We were planning $100 million, and we are now confident about a number of $150 million to be done in this year.

The strategy. So you know our strategy, in general, says the best planning of the cinemas, the best technology, best service and best marketing. Here if we look at it, we're really talking about enhancing the customer value, which is, I think, self-explanatory. The refurbishment of the cinemas in the U.S. and the U.K. is a big part of this strategy, introducing really new generation of cinemas into the U.S. Regal, same as Cineworld had 5 years ago, have amazing sites, great locations, huge buildings. But most of them are a bit tired. They are 30 years old, 25 years old. And really with the refurbishment, we see already the enthusiasm of our customers. And we are not expecting anything less than the success we had in this refurbishment in the U.K.

Expanding the revenue opportunities. This is also big on the agenda. I mentioned already the 4DX, the IMAX, the ScreenX, better facilities, also increased income from concession, new food offerings. Our big success story, the U.K. of Starbucks is going to have a similar, not with Starbucks story in the U.S., and many other initiatives are going there. And finally, the right loyalty program that we already have in Regal, Regal has 14 million members in the loyalty program. And I know, everybody is asking about subscriptions. Subscription, this is planned. We are analyzing, which is the best way to do it in the U.S. It's not exactly same market as in the U.K. But I would say that we're running the best subscription program in the world in Unlimited in the U.K. And we are analyzing and preparing ourselves of what would be the best offer to our customers in the U.S.

Cost control, really effective planning and procurement, whether it is on the OpEx side, whether it is on the CapEx side is very, very important part of the strategy. We're continuing the rollout. We opened 6 new cinemas in the U.S. last year, 6 new cinemas in the U.K. We have 2 cinemas in the U.S., which are completely ready and will be opened in the next -- I think, 1 is opening next week and the other one in another 3 weeks. The other one that I'm talking would be the first new big multiplex to be opened in Manhattan, which is a very, very difficult to get location of this place, which is very, very difficult to get, as you can guess location there. And many others to come also this year. Rest of the World, this year opened only one site. Next year is going to open more.

I think continuation of the refurbishments. You can look here, some of the locations that we've just done, naturally Cineworld, Leicester Square, which is really, I would say, the flagship in the U.K., at least from location point of view. And really this cinema, a great look now. Most of you probably have seen it already. If you don't, it's just around the corner here. You can go and have a look there. And getting really the huge amount of world or European premieres of the movies in our Cineworld Leicester Square.

We have already over 25 deals signed and agreed with landlord when we're talking about refurbishments in the U.S. So anywhere else, it is very important to, first of all, choose, which cinemas we are doing, then make the right plans, then get an agreement with the landlord first for landlord consent, but also getting his participation in the project. The situation today in the shopping mall market is well known. The cinema as an anchor became much more important than it was 5 or 7 years ago. The change in the retail culture moved the shopping mall owners, most of them, to understand how important is the cinema for them and for all the offer around us of restaurants, coffee shops and even fashion.

So dealing with the landlords, and of course, later on to go get building permit and make the changes, you see here pictures of how the 2 cinemas that are under construction. Now Union Square is in Manhattan, one of the leading cinemas of Regal, and Irvine Spectrum is on Ontario, on the other side of the U.S. on the West Coast. This is how they're going to look, and I'm sure it will appeal in a big way to our customers.

Hacienda, a cinema in San Francisco, just showing a little bit of the picture. You can see the look of today and the new look, which is planned for this cinema in the near future. Atlantic Station, Atlanta, just a little bit letting you to see the refurbs plans, which are going. All these cinemas, I believe, will be under construction within the next 2 or 3 coming months. It's only up now to permits. The deals with the landlord, as I said, are done and the planning is done. We are only waiting for permit from the authorities to move forward. Sawgrass, Florida is one of the biggest mall in the U.S., Warrington. And here we have the 2 cinemas, which are ready. These are not designs picture. These are really pictures from the cinemas, Essex, Manhattan, New York and Bricktown in Staten Island.

Some other new sites, these are not refurbishments that are planned to be opened this year. And finally, we put here and are talking a lot in our presentation about this Icon Cinema in Israel, which is the Yes Planet, south of Tel Aviv, which is the #1 cinema in admission in the circuit and really have a stand-alone building with other offerings as restaurants. This is what we call the big project. If you recall, from our presentation of last year, the plans in Regal is to do anywhere between 10 to 20 big projects like this. This is the first one, which is already under construction in Houston, Texas and going to be a 24-plex with activities for conferencing, with a lot of places for events, having all our offerings across the board from IMAX to Superscreen to 4DX to ScreenX to VIP and a big section of restaurants and kids activities outside of the cinema.

Technology investment. A change in the world of the projectors. We are moving now for Xenon lamps into laser. This is a higher quality and different quality of picture on the screen, again a good upgrade for the industry. But the good news here for us, which we are talking about numbers, is that there is a huge saving in these projectors. They cost a bit more, but the saving there that we don't need to change lamps almost every 3 months or 4 months. And the saving in electricity cost is amazing. We've been running now laser projectors in about 6 cinemas already for more than a year, some in the U.K., some in Central Europe. This is a very positive development for us that will save us also a lot of money.

New 4DXs, we made -- extended our deal with 4DX from Europe into the U.S., going and targeting 80 new screens. IMAX, 55 screens, some will be upgraded to lasers, some will be new IMAXs, also very important place. And what we call the new baby in the family, ScreenX, 270 degrees on the screen. Very, very warm welcome, successful here today in London. I think, we can see it in the O2 and also Wandsworth is already opened, good success, good reaction. But the most important thing is to understand here the case of the chicken and the egg. In a way the studios are the ones that need to provide the movies in this format. So once 4DX became a proven success, if we had in the first year in 4DX 8 or 10 movies, we have now almost every week a new 4DX release.

And the ScreenX was the same. Huge success in China and in South Korea, but it was not enough in order to trigger the studios to supply with product, which costed more money, of course. And really our deal with our partners from Korea, CJ, that provided us also with the 4DX, really gave a push to the studios. And we see now Disney are on board, Warner are on board, and many other studios are already joining. Bohemian Rhapsody, for example, on ScreenX was outstanding, and we see this as a big advantage for us, for our cinemas and this being implemented very quickly. It's more simple to implement by the way than 4DX, implemented very quickly across the U.S., the U.K. and all our other territories.

Digital posters. Every refurbished cinema today in Cineworld Group, whether it is in the U.S. or in Europe, is what we call a paperless cinema. Good for the environment, good for the operation and also income generating, because a lot of the distributors of the studios are interested in buying more significant, I would say, recognition for the upcoming movies in our digital offering, including the large format LED screens.

So what's coming? We're expecting 7 new cinemas to open this year in the U.S., 6 in the U.K. and another 4 in Rest of the World. This is a very big task to our very busy construction team, because the refurbishment are in much bigger numbers than this. And we are really going just -- because we are here in the U.K., we're going to gain some significant markets for Cineworld, where we are not -- where we do not operate today. So the new cinema in Plymouth is coming, new cinema in New York is coming, Rushden and many others, which are not only places where we've been operating, some of them are really brand-new markets for us in the U.K., which shows, as we were saying in the last 5 years, that the potential in the U.K. market is still existing and still we can grow our business in the U.K.

Finally, I would say, last but not least, the movies. The lineup of the movies is very important. And really this year, we have a very unique year. We have just hit, what we can say, on our biggest opening ever for March. We had -- all the titles in the world were given to Brie Larson and to Captain Marvel in the last weekend. The movie have grossed already until now worldwide $500 million. This is amazing number. And really going up very, very big. This would be followed by Dumbo; Shazam! which is a very promising title, which is coming; Avengers, supposed to become -- Avengers supposed -- no, one...we lost the screen. Okay. Never mind. I'll keep telling you about the movies without the photos of them.

But Avengers supposed to have the biggest opening ever in the history in the U.S. The rumors are now somewhere north to $260 million for the first 3 days of this movie. And on and on, we've prepared a short clip for you that will give you the taste of the product which is coming, including the end of the year, I think, this is now being presented as the most anticipated movie by cinema lovers ever, which is Star Wars IX, supposed to be the last chapter of Star Wars. This is a 9 movie saga, until Disney will decide that they are doing 10, 11 and 12. But right now, this is the last chapter. This is how it's been.

Looking a little bit beyond, 2020, we have Avatar finally is done and will be released in December. The movie is not done 100%, but it's going. It's in production, will be released on December 2020. We'll have a new Jurassic World chapter, a new Indiana Jones chapter. The 25th Bond is going to start production after a lot of issues, probably in the next month, so we will have a new Bond there, a new Wonder Woman. And really to summarize it, I would say that if you need any proof that the Hollywood studios are 100% behind the theatrical business, they're investing more and more money in the movies, and they are generating bigger and bigger income all around.

So we'll move now and we'll show you the clip, and then we'll move to Q&A.

(presentation)

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

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Good. So if we can have a little bit light in the hall, we will move into Q&A.

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Questions and Answers

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

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So who is the first?

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [2]

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Richard Stuber from Numis. Please can I ask 3 questions? The first one, in terms of online ticket sales in the U.S., what percentage are you at, at the moment? Where were you 12 months ago? And where do you expect to be in 12 months' time? The second question is on the U.K. and the competitive environment. I think you have been particularly aggressive in terms of cinema, in terms of ticket pricing. What do you see there? Do you think that's sustainable? And what can you do about it? And the final question is on the interest charge calculation. I think the vector if you fall -- if your net debt-to-EBITDA falls below 3.5x, obviously that's on the pre-IFRS 16 metric. And there was increase in the run rate of synergies. Can you just confirm that? And what your interest guidance for this year would be?

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

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I think we'll start -- the interest charge is a difficult question, so Nisan will answer this one, and then I will answer the other two.

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

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Okay. The interest charge is I will bucket into 2. As I said before, it's -- one part is the cash interest charge and second part is noncash interest charge. And we're estimating an interest charge -- cash interest charge in 2019 to be in the level of 100 -- between $160 million to $170 million. And the noncash interest charge probably in the level of approximately $60 million. Regarding the covenants, I think, that was our banks. So first, we need to fulfill a full year result, which we're doing right now, and then we can apply really to the covenants. But all the numbers I'm showing that will be below the 3.5, so we can manage really to look on the interest again with our banks.

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

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Okay. On the online tickets, I think, that the main growth potential in the U.S. in this field comes from the fact that there is no really a big reason why to order ticket in line unless you have reserved tickets, because you can reserve tickets 2 months in advance and then find yourself sitting on the first row on the night that Star Wars opened. So the U.S. started a bit of reserved seating before we arrived, of course, which was something new for the U.S. market. We have accelerated it in a big way, and this really -- in every cinema where we're doing reserved seating, even if it is before refurbishment, we immediately see an increase of the number of tickets that are being ordered in line. And this is growing the revenue stream from this activity. Second thing is that we have launched the independent, I would call it, Regal website just a few months ago, which giving us also a bigger share in the booking fee that we are getting. Still we are working with third parties in this. The U.S. is big and there are very big companies that are dealing with online booking. And so part of the tickets are sold only by us. Part of them we are sharing the booking fee with some of the suppliers. But I think the main message is that this is a very important part of the service. And by reserving more and more seats, while also increasing the level of the experience that we give to our customers, more and more people are using it. And apart from the booking fee, as we said before, we are also enjoying higher income in the concession because people do not have really to rush the minute they arrive to the cinema to grab a seat. They can stand in the lobby for a little bit more, maybe have a coffee and, of course, never go into the cinema without popcorn and Coke. The second question is the competitive market in the U.K. Look, each circuit have their strategy and the way they grow. We were never believers of aggressive pricing unless in special cases or special occasions. We believe that the customer at the end of the day value the whole package that he is getting, the quality of the cinema, the location, of course, the movie, the technology, which is around. And one of our competitors took the road of being much more aggressive in the prices. I would not say that it doesn't have any impact, where we are close to them, but it doesn't have a significant income -- impact on this. And in some, I think 1 or 2 cases, we needed also to make some move on our side. But in general, I would say that our strategy of keeping solid pricing, you need to remember that we have another competitor in the U.K. which is selling more expensive than us and handling this famous blockbuster tasks, et cetera. I think that we're giving a clear message to our customers, we are not judging the movies, which movie should cost more and which movie should cost less. And people that really want to go a lot to the movies have our Unlimited solution, which gives them the affordability to go even twice a week, even more than twice a week into the movies without going into -- this is -- this entertainment needs to be affordable. And if you go once a month, you don't really care so much if you pay GBP 10 or GBP 7. But if you want to go a lot, you'll need to get some offering, and this is what we do with the earnings. So I think we're in a good place.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [6]

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Ali Naqvi from HSBC. Just wanted to understand, what drove the synergy beats in FY '19 and how -- sorry, in FY '18? And then how we should think about the synergies in terms of cost of revenues for 2019? And what is the more medium-term outlook either synergies or margins?

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

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I think that, as we said in the presentation, the synergies were driven from both sides of the map, we would say, from the cost side, saving in costs and on the other hand increasing revenues. So this was done. I think we were talking about the proportion of something like 60-40. Although the number have grown, this is coming in the same level or the same way. Naturally, we cannot go into too many details, because it deals with our suppliers and with all the environment, which is around us. But in general, I think, it's coming from the same sources we expected it. I think we have also a very pleasant surprise from the -- surprise is a big word. We knew that we will also have CapEx synergies, but the CapEx synergies are bigger than we expected, which is also -- it's not part of the $150 million, but also will have an impact on the whole refurbishment plan. We will need less capital probably or we will be able to do more cinemas in the capital that we plan to invest. But in general, I think, this is coming from same sources, but we either went deeper. We have to found more things. It's very difficult when you sit outside this much as due diligence that you will make really to analyze how is the potential there. The potential will found out to be bigger. And I think the team of Cineworld, together with Regal team, made really a great job in the first 12 months. And this is why we are where we are, with 50% increase in our synergy number for 2019.

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Ali Hamza Naqvi, HSBC, Research Division - Analyst [8]

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And just finally, in terms of your U.S. peers, are you being impacted by the movie subscription offers? Or are you seeing more competition around that side? And how do you propose to think about that going forward?

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

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Yes. I think that -- our both big -- 2 big competitors have different schemes. We're analyzing both of them. We know what we feel is the right scheme, and we believe anywhere it will be similar to the Unlimited scheme in the U.K. is the right way for us to move. We are talking to our partners, the studios. We believe that we have to have the studios on board with us. It might be taking a little bit more time. It is not impacting dramatically the business. Here and there, there might be some people. The U.S. is so big that moved because of subscription plan for 1 cinema to another, but is not something that we really see in a big way. And I'm sure that we will come with a right solution on the right time for the U.S. market. There is for sure a need of a wish from our customers to have some kind of a program for them.

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Alexander Mees, JP Morgan Chase & Co, Research Division - Head of UK Small and Mid Cap Research [10]

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It's Alex Mees from JPMorgan. Three, please. Just firstly, on admissions in the U.S., really strong performance in 2018, given, obviously, a very positive slate. I wonder if you would expect to see further positive growth in 2019. Clearly, the slate looks good, but very difficult comps. The second one, I wonder if you can comment on your ATP expectations, particularly in the U.S., for 2019 just given that the slate is, I suppose, very heavy on family films. Would you expect that to have a dilutive effect? And thirdly, I wonder if you can just give some color on where you think the reclining seat program is for you these days?

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

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Okay. So the growth for 2019, I think, that we're still on track on the optimistic side of continue growing number of admissions in Regal. It's not a secret. January and February were as expected. Not great months for 2 reasons. In 2017, December was the release of Star Wars VIII and overflow through January, and the big success of Showman -- The Greatest Showman effective January. In February 2018, Black Panther became one of the biggest movies ever. So -- and now, Captain Marvel opened bigger than Black Panther. I don't know if it will be bigger at the end of the day, but opened bigger. So it's a matter of scheduling. Here in March already, Captain Marvel is turning. And the scheduling of the movies have a lot to do with what is going, but we're still very optimistic. Now I mentioned already, Avengers is the end of April. We have the Aladdin, the live-action version. We have a new X-Men. We have a new Life of Pet, Lion King. Some people in Disney would say that probably it will be going to be the biggest movie of all times, who knows, but it will be a big movie for sure. And so on and so on. So I don't think that 2019 has any issue with the growth. I think it's going to be an amazing year. ATP on one hand, it's true, family movies sometimes are impacting...

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [12]

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Average.

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

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The average ticket price, but it depends how we consider family movies. And Avengers is not -- doesn't have any change from Avengers that we had last year. Star Wars probably will sell less family tickets than Mary Poppins. So there are movies that are coming on this side and that side. I think that our premium formats are impacting at the end of the day the screen, the ATP. So I don't think that there would be a huge change in the ATP in the U.S., probably a little bit going upwards. We also looked a lot for the special program, special promotions that Regal had cheaper days. We made some changes there as well. So I think, in general, ATP will be on the positive side. The last question that you had was the recliners. There are people in the U.S. that believe a lot in recliners. There are some people that believe less in the recliners. I believe that we are in this camp. I think that the big difference that the recliners made at the beginning in the U.S. came because they were coming instead of 30 or 25 years old seats in huge cinemas that were really for a long time underperforming. I think the more you get to the better cinemas, which we did in this -- in Cineworld, and this is the reason we didn't go to recliner direction, because you -- we cannot afford to lose in a cinema like Sheffield, which is doing about 1.5 million admissions a year to lose 50% of the seats. And recliners means losing 50% of the seats. And in the era of huge blockbusters like we had last weekend, you clearly immediately see in the markets recliners might be sold out, but they have 80 seats in the auditorium. And if you have a high-quality cinema, look at this auditorium. I don't think that you are coming here really to lie down and sleep. You have a comfortable seat, you have a good leg room, and you have a great picture and great sound. This is what really counts. So I think that the recliners had an effect. Regal have some reclined cinemas, which are doing well. But I think, at the end of the day, if we look at the potential and the way this industry is going to, we don't need only the recliner as a gimmick, I would say, but we need really comfortable cinemas with capacities to get the big number of audiences that are rushing in this first weekend, second weekends of this huge movies.

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Julian Kenneth Easthope, RBC Capital Markets, LLC, Research Division - Analyst [14]

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It's Julian Easthope from RBC. Three questions, well, if I may. First of all, in terms of the U.S. You've now obviously had a good time to look at the portfolio. And do you have many loss-making cinemas? Will there be closes this year? And what leverage -- I'd imagine you're in quite a strong position there with the landlords. What leverage do you have in terms of rents and sort of having a benefit on rents? And the other 2 questions are more industry based. Looking at the films like this year, there is obviously an awful lot of sequels and prequels and whatever. Do you think that the film industry has derisked the business that they are now doing films that they know are guaranteed success. And that actually makes your forecasting far more predictable and, therefore, gives you greater confidence in your CapEx. And the third question is as it comes to other nonrevenues from feature films. I think there's -- I've at least heard gossip that there's going to be Game of Thrones -- the last 2 episodes of Game of Thrones being put on mainstream cinemas and other things that you wouldn't normally expect. Do you see this as being an important source moving forward, recognizing, of course, that it's actually relatively small now?

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

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Okay. So I'll start with loss-making cinemas. I think we have somewhere like 20, maybe 25 loss-making cinemas across the estate. I think we closed last year in Regal about 7...

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [16]

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9.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [17]

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9 of these cinemas. But there are some that are coming on. I believe, that anywhere when we are around 800 locations worldwide, we will always have some 20 loss-making cinemas. And loss-making also need to be defined. Some of them are losing $50,000, and some of them are losing $200,000. But it's not really significant. There is no impact on the business. This is part of the new neighborhood. People are moving. A new competitor is coming. In the U.S., they like to build one on top of the other. And it happens -- I think, this is in a good way, in a good place, there's not an issue there. Leveraging the rent with the landlords. I guess, we have here and there a leverage. I guess, some of the locations that we feel that we must have are costing us more. There is no really trend in this. I think there is much more openness from the landlords today to participate in our capital investments. They also want to have the new formats or the new line of cinemas in their shopping malls. It is important to them. A lot of them are investing a lot of money in the shopping malls themselves and with this also creating a bigger traffic of customers, not only from the cinema, but also from the mall side. But I think we're in a very good place with the landlords. Sequels, naturally, is very easy on the slide that we're talking, to show you the sequels. Because this is something everybody knows what is Star Wars IX and what is Bond 25 and what is Avengers 6 or whatever. So this is good for creating like you said. I think we know what to expect of these movies, of course, with some up and downs. But it doesn't say that the original product or the original movies are not there. Nobody would have guessed that Black Panther would gross over $1 billion worldwide 1 year ago. Nobody expected the success of Bohemian Rhapsody. Nobody expected the success of The Greatest Showman. But these movies, if I would put a name of Bohemian Rhapsody a year before, on the slide, everybody would say, you know, what is Bohemian Rhapsody, the new movie about Queen. But if you take it today, everybody knows what is Bohemian Rhapsody, one of the best movies of the year. So I think there is a lot of original product, which is coming. The most successful of them will become sequels and we'll see them. Black Panther 2, I guess, is on the way, although I don't know, but, I guess, it's on the way, same is Captain Marvel 2, which is probably on the way. So every new original movie, which is successful is good news for the industry. And the last one, I didn't hear the rumor about Game of Thrones. I think that showing the first chapter or first 2 chapters 1-night event in the cinema can be a good gimmick, a good (inaudible). Money wise, it's not a big source of income. It's not significant. It's great [feint] and could be a nice initiative being on the large, on the big screens, giving the people opportunity really to enjoy the quality of the big screen. But it's not something, which is going to become significant in the income. We have a lot of activity of alternative content, what we talked or what we call, which we are showing live authorized concerts at theater in the U.K., also in the U.S. It is nice to have. It gives another angle. It can fill up your Wednesday nights sometime. But if we look at the business plan, it's not something which is becoming significant. It is important, but not so much from the money point of view. Okay. Any other questions?

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [18]

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Last question.

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Moshe Greidinger, Cineworld Group plc - CEO & Executive Director [19]

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Last question.

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

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It's Richard again from Numis. Just on leverage, again. In terms of priority, if you were to deliver synergies, again, faster-than-expected, would you prefer to put that money into traditional CapEx into the U.S. or pay down debt more quickly?

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

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We'd always be happy to invest good investment and to reduce the debt if we can. So it's not -- it's not -- first, we're not talking about material amount of money as on this point of view, but at the end of the day, I think, our first priority will always be to invest.

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

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Good. Okay. Thank you very much.

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

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Guys, thank you very much.

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Nisan Cohen, Cineworld Group plc - CFO & Executive Director [24]

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Thanks a lot.

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

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Thank you very much.