## OPERATING AND FINANCIAL REVIEW (continued) 

## Operational Results (continued) 

## Theme Parks (continued) 

– signing of Memorandum of Understanding agreements with the government of the Gyeongsangnam-do Province in South Korea to join Twentieth Century Fox in the design and management of a world class theme park in Korea, and with Guangxi Longxianggu Investment Co., who are working with Mission Hills China, for a planned water park in Guangxi Province, Southern China; 

– signing of a Consultancy Services Project Coordination agreement with China Studio Theme Parks Investment Ltd. for a planned “Destination” Theme Park in Guangdong Province, China; and 

– working collaboratively with Sunway Group Malaysia to assess the potential market in Johor Bahru for a hybrid Sea World/Ride Park similar in style and content to VRL’s Sea World on the Gold Coast. 

While the VRL group has multiple other opportunities under review, these will continue to be assessed to ensure only the best are progressed and will lead to medium and long term future profitability. 

## Cinema Exhibition 

The Cinema Exhibition division operates predominantly in Australia, Singapore and the United States through joint ventures including with Amalgamated Holdings in Australia and other cinema operators. EBITDA for the year ended 30 June 2014 for the division was $62.6 million, compared to $58.5 million in the prior year, and PBT was $43.8 million, compared to $40.4 million in the prior year. 

At 30 June 2014, the division had 532 screens at 52 sites in Australia, 87 screens at 11 sites in Singapore, 73 screens at 10 sites in the United States, and 12 screens at one remaining site in the United Kingdom. Some of the best performing films during FY2014 included; The Hunger Games: Catching Fire, The Hobbit: The Desolation of Smaug, Frozen, The LEGO Movie, Transformers 4, How to Train Your Dragon 2, Man of Steel, The Wolf of Wall Street, Thor: The Dark World, X-Men: Days of Future Past  and Gravity . 

In Australia, Cinema Exhibition’s successful strategy to focus on incremental revenue initiatives, including loyalty programs, film marketing, retail gifting and extended use of digital ticketing, together with a number of cost saving initiatives, has resulted in the delivery of an impressive 7.6% ($2.8 million) increase in PBT and 6.2% ($3.4 million) increase in EBITDA compared to FY2013. 

During the year, the division completed upgrades and refurbishment at a number of key sites, which is aimed at ensuring continued delivery of superior offerings in terms of comfort and state of the art technology to VRL’s customers. The expansion of premium offerings in Gold Class and  continue to drive improved average overall spend per person. The steady conversion of patrons from VRL’s traditional cinemas to the circuit’s higher yield premium offerings is having the desired positive impact on the bottom line. 

VRL owns 50% of the Golden Village Cinema Exhibition circuit which is the number one circuit in Singapore with a commanding 43% market share. On the back of record results in FY2013, strong performance continued in FY2014, delivering an impressive 10% increase in NPAT and EBITDA. Dividends of $20.9 million were received by the Group during the year, compared to $3.9 million received in the prior year. The inclusion of the much anticipated Suntec City complex, scheduled to open in November 2014, will be an important addition to what is continuing to be a lucrative cinema circuit in Singapore. 

The Company’s 30%-owned iPic Theaters in the USA continues to progress its expansion plans with the successful opening of iPic Wilshire Boulevard, Los Angeles in May 2014. This takes the total number of sites to 10 and, with plans progressing for a further two sites in Washington and Houston slated for opening in FY2015, together with other key strategic and iconic sites already identified for potential development, VRL is confident that as a critical mass of locations is reached, this circuit will be a great asset and addition to VRL’s cinema portfolio. The Company’s single UK site in Belfast continued to be loss making in FY2014, and VRL continues to actively seek an exit strategy for this site. 

In line with the Group’s growth strategy, Cinema Exhibition is targeting significant population growth corridors for new developments. At present there are a number of opportunities at various stages of negotiation. VRL is confident that the expansion of sites into the right locations will continue to build and grow VRL’s prominent market position and revenues well into the future. Supported by one of the best film slates seen for many years, VRL is confident of delivering continued year on year growth in FY2015. 

## Film Distribution 

Despite a strong second half compared to the corresponding period in FY2013, the Film Distribution division finished FY2014 with an EBITDA of $41.7 million, down 9.8%, and PBT of $34.8 million, down 8.3%, as compared to the previous year’s results of $46.2 million and $38.0 million respectively. The FY2014 result was largely the outcome of a challenging slate for Theatrical and underperforming commercial content (Film and TV), particularly Transcendence  which resulted in an approximate $2 million minimum guarantee write off, however the division is focused on the identification of further opportunities across the release windows, whilst progressing initiatives to reduce overhead costs. 

Roadshow Films finished the financial year as the lead distributor in the market commanding a 28.4% market share, up 2.9% on last year. This was aided by the delivery of some outstanding performances in the second half as the stronger films began to flow through the schedule. Best performers in FY2014 included The Hunger Games: Catching Fire, The Wolf of Wall Street, The LEGO Movie, The Hobbit: The Desolation of Smaug, American Hustle  and Gravity . Warner Bros. continues to be a key supplier for the Theatrical division, providing some major film titles during FY2014. Roadshow also renewed the Lionsgate output agreement for an additional three year term from January 2015. 

The Australian Film industry continues to provide ongoing film distribution opportunities with two releases during the year; Wolf Creek 2  and The Rover . There are currently a number of films forecast for release in FY2015, including Paper Planes  and Felony , and the upcoming slate is looking increasingly optimistic with a number of scheduled releases. Roadshow Films also continues to be active within the independent film market – upcoming key titles include The Imitation Game  (Film Nation), Point Break (Lionsgate) and The Story of Your Life  (Film Nation). 

Roadshow Entertainment experienced a challenging year impacted by many changes in the market for packaged media. Despite these challenges, Roadshow remained the number one independent retail distributor of DVD’s in Australia, holding a market share of 14.5%. The first half results were adversely impacted by the reduction of theatrical product available, however the division benefited from the stronger theatrical content released in the second half. Retail sales of TV on DVD delivered solid results throughout the year, primarily driven by strong library sales and the content from Roadshow’s output deals with the BBC, ABC, ITV and Shine. 

The Australian digital market showed strong growth of approximately 22% at the retail level and 25% at the trade level over the year, and Roadshow now holds a 16% share of this market. Subscription Video on Demand (“SVOD”) is expected to grow in 2015 with the anticipated launch of several SVOD services in both Australia and NZ, including the potential entrance of Netflix. VRL is well positioned with three of Roadshow’s four TV output contracts in a non-exclusive position to SVOD rights. 

Roadshow Television holds strong output deals across each of the four major television segments in Australia and New Zealand. During the year, the Channel 9 Free to Air output contract in Australia was renewed for a further 4 years, solidifying the future revenue streams from this sector. In the financial year, Roadshow Television delivered strong revenue and profit results off the back of better than average film performance, as well as several additional sales packages placed across the independent television market. 

## Film Production 

Village Roadshow Entertainment Group (“VREG”) is 47.12% owned by the VRL group, and as detailed in Note 11(b) to the Financial Statements, the VRL group has no carrying value for the equity-accounted investment in VREG. In addition, there were no amounts included in the VRL group results as no cash dividends were received from VREG in the year ended 30 June 2014 (2013: $3.8 million profit included in the VRL group results in relation to cash dividends received). 

VREG consists of Village Roadshow Pictures (“VRP”) and Village Roadshow Pictures Asia (“VRP Asia”). VRP released three films in the second half of FY2014: The LEGO Movie , which grossed USD 468 million worldwide, Winter’s Tale , which grossed USD 31 million worldwide and Edge of Tomorrow , which has grossed USD 364 million worldwide to date. 

VRP’s goal of 6-8 film releases per year is on track with an increased number of titles slated for FY2015. Upcoming releases being co-produced with Warner Bros. include The Judge, American Sniper, Jupiter Ascending, In the Heart of the Sea, Mad Max: Fury Road , and San Andreas . VRP is also in advanced discussions to enter a co-production agreement with Sony Pictures. 

VRP Asia released one film during the year, Man of Tai Chi , in July 2013. VRP Asia continues to build its Chinese film business with upcoming releases Zhong Kui: Snow Girl and The Dark Crystal , IPO  and Mountain Cry . The continued growth of the Chinese film business will create a valuable portfolio of films to solidify VRP Asia’s presence in film production in this region. 

