As the world descended into the Great Depression, so recent accounts go,
cinema admissions and screens expanded massively. It was the perfect
The resonance of this small detail of the world’s most severe financial
crisis has not gone unnoticed by Richard Jones, group finance director of the
UK’s second biggest cinema chain
It’s also the first topic of conversation as we sit down to talk about the
‘It’s what we’ve been going round telling our investors, and we’ve been able
to demonstrate through our results that this is a resilient business. In times
of downturn people want to get out still and it’s still low-cost entertainment
and its escapism. What better movie than Mamma Mia to get people out and singing
and dancing, so they forget their troubles?’
What Cineworld is declaring to the analysts and investors is that the
business is very well placed indeed to ride out the coming recession even
prosper from it. Given that the company is also vying with Odeon to be the
country’s biggest exhibitor of movies in the UK makes Cineworld a compelling
company to watch.
This year has been a case in point. Cineworld launched on the markets in the
spring of last year, after some time under private equity ownership.
The results for the six months to the end of June were uninspiring. Group
revenues were up just 0.9% on the same period in 2007 with box office receipts
up just 1% at £89.6m. Admissions were actually down almost 5% at 20.6 million
people, from 21 million previously.
This, of course, led to speculation that the downturn was beginning to bite.
After that came analysts’ reports, especially Panmure, which labelled top-line
growth prospects as ‘pedestrian’ and ‘steady’. Though they also declared the
business had ‘solid growth prospects’.
But then came the most recent set of results for the period up to October and
things looked very different.
After a summer in which Mamma Mia unexpectedly proved a massive hit, and the
Batman movie Dark Knight brought in the punters in droves, Cineworld could
report total revenues up 2.2% and box office up nearly 4%.
The old legend about cinema proving countercyclical and resilient to
recession looks well founded.
Certainly Jones feels some of the analysts may have been a little on the
pessimistic side, especially the ‘pedestrian’ jibe. ‘I think it’s a little
harsh,’ he makes a point of saying.
Having said that, he confesses a certain enjoyment in having to spend more of
his time on analysts since the flotation.
‘I’ve found it very interesting and I’ve certainly learned one or two things
about the business.’ He admits a couple of analysts are bearish, but it’s no
more stressful than being under private equity ownership. ‘They push you hard as
well. You’ve got higher debt to service, so its swings and roundabouts,’ he
The fact is Cineworld is hugely cash generative, which reassures the analysts
on its debt position (around £125m as of June) and on the balance sheet, which
looks weird because as a cash business it always works on negative working
For Jones though as one of only two executive directors, alongside CEO
Stephen Wiener, the work is all about the strategy. Cinema audiences are
reasonably static with a ‘steady flow of people’, so growth has to come in other
ways. Jones is focused on three. Rolling out new cinema complexes around three
a year; taking more money through on-screen advertising; and, introducing new
technology in the form of digital projectors to make Cineworld screens more
Out of all of these he is most excited about the technological advancements.
‘The biggest growth opportunity is digital and if we can get digital and 3D
into the cinemas, not only will you will be able to show films, you’ll be able
to show alternative content which we’ve started.’
In fact what Cineworld hopes for is showing more live events such as the New
York Metropolitan Opera, which it has had on its screens recently.
As yet though, while the analysts may recognise the introduction of digital
projection and films as on the horizon, they are hardly gleeful about it. This,
says Jones, is because digital’s prospects cannot yet be quantified.
Digital presents Jones with a fascinating challenge however. The technology
evolving because the film producers have essentially agreed to pay for the
exhibitors to buy the projectors. Jones is currently caught up in tricky
negotiations so that the equipment will be paid off across ten years while the
producers guarantee to make digital movies.
‘It’s a very exciting time,’ says Jones. ‘People have likened the change from
2D to 3D to the change from black and white to colour. It brings a whole new
experience and we have to keep refreshing the experience of the cinema to
attract the audiences.’
The other big project on Jones’ desk is the rebuilding of an advertising
business. In a 50/50 venture with Odeon, Cineworld has helped acquire the old
assets of Carlton Screen Advertising to set up a new company, Digital Cinema
Media. This is crucial because observers estimate Cineworld lost £4m through the
termination of its contract with Carlton.
Jones believes digital will bring advertising costs down and make it much
more accessible. Cineworld and Odeon also have the benefit of having cut out the
middle man by buying Carlton. They will still have to compete with Pearl and
Dean, but they have made a substantial saving by not having to share revenue
with Carlton as before. Jones says it’s going well, ‘we have a captive
audience’, though the business will have to get to know its audience better.
And what about Jones? Doe he live for the magic of cinema? The bright lights,
the smell of popcorn? After all, he joined when the business was a start up un
der private equity ownership in 1995 and has seen it through to joining the
board in 2006 and launching on the stock market last year.
‘It’s the business,’ he says answering the question about what gets him up in
the morning. ‘I mean, I like the movies. I don’t go every week, though I am
going to see James Bond. But it’s the business. It’s an exciting business, lots
of young people and its constantly changing and it’s something we all like to
talk about. I’d rather be here than a nuts and bolts manufacturer. It’s consumer
facing but, it is resilient.’
In fact it was Cinewold in a previous incarnation that drew Jones out of
‘Having worked a bit in private equity on secondment from Touche Ross, I saw
people running and owning their own business and that’s what I wanted to do. I
saw this opportunity and I met the chief executive and the head of construction
and I was sold on it. I really saw the opportunity. They had money behind them
and it was very exciting to roll out cinemas across the UK. I was employee
number six, and now we have 5,000.’
There’s optimism a plenty about Jones, perhaps one of the few FDs around
feeling that way at the moment. At least someone will be happy in the downturn.
FACTS AND FIGURES
Favourite Movie: Brassed Off
Favourite actors: Pete Postlethwaite and Angelina Jolie
Why is popcorn so expensive in cinemas? ‘Because its freshly popped.
We pop more fresh popcorn than anyone else. There’s a lot of labour involved in
Revenue £147.9 (1.6%)
2008 (26 weeks to 26 June
Revenue £137m (up 0.9%)
Admissions 20.6m (down 4.8%)
2008 (43 weeks to 23 October)
Revenues up 2.2% on same period in 2007
Top earners for Summer 2008
Mamma Mia, The Dark Knight, Hancock, Wall-E
Prospects for last quarter 2008
James Bond: Quantum of Solace
High School Musical 3
The Day the Earth Stood Still
Harry Potter Half And The Blood Prince postponed until 2009
HMRC breaches client confidentiality; and partner profits fall at EY. These stories and more discussed in Friday Afternoon Live
Two new audit partners have been appointed at the firm BDO in its audit practice following continued growth and investment
Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group
Six new partners have been revealed by top ten firm Mazars