CINE.L Regulatory News (CINE)

9 August 2018

CINEWORLD GROUP plc Interim Results - Pro Forma Group Revenue +10.8%, Pro Forma Adjusted EBITDA +14.1%

Cineworld Group plc ("the Group") is pleased to announce its interim results for the 6 month period ended 30 June 2018. The interim financial statements include the results of Regal Entertainment Group ("Regal") following the completion of its acquisition on the 28 February 2018. These results are presented in US dollars following the Group's change in its presentational currency from pound sterling to remove the largest driver of currency translation volatility and provide greater transparency in the underlying trading performance of the Group.

Financial Highlights

· Pro-forma(2) Admissions of 158.9m up 4.9%;

· Pro-forma(2) Revenue up 10.8%;

o US pro-forma(2) revenue growth of 14.3%;

o UK & Ireland constant currency(3) revenue growth of 2.5%; and,

o CEE & I(5) constant currency(3) revenue decline of 1.3%.

· Pro Forma Adjusted EBITDA(4) up +14.1%;

· Adjusted diluted EPS of 13.2 cents, reflecting a 50.0% increase from the prior year;

· Interim dividend 4.85 cents per share;

· Net debt of $3,650.0m and Adjusted Net debt(6) of $3,852.0m, which is equal to 3.8x Pro-forma LTM(7) Adjusted EBITDA.

Operational Highlights

· Following the acquisition of Regal, Cineworld is now the second largest cinema chain in the world (by number of screens);

· 6 new sites (56 screens) were opened during the period, taking the Group to 9,542 screens at 30 June 2018;

· 12 further sites, 111 screens, openings are planned for the second half of 2018;

· Significant new agreements were signed with IMAX (55 screens), 4DX (80 screens) and ScreenX (100 screens); 

· Refurbishment programme progressing well across the estate, creating high quality, next generation cinemas with the latest audio and visual technology; and

· Integration plans for Regal are progressing well, further integration benefit opportunities being reviewed by management.

Anthony Bloom, Chairman of Cineworld Group plc, said:

"The first half of the current financial year was a successful and exciting time for the Group. It completed -

· the transformative $5.8 billion acquisition of the Regal Entertainment Group in the US;

· a successful $2.3 billion Rights Issue; and

· the renegotiation of the Group's debt facilities on advantageous terms.

At the same time, the existing operations in the Group were expanded, refurbished where necessary in accordance with our strategic policy and performed successfully in line with our expectations. This was not a trivial challenge and on behalf of the Board, I would like to convey appreciation for the exceptional amount of hard work that this entailed on the part of the Group's executive management, very competently led by our CEO and Deputy CEO.

Details of the strong financial performance are set out above and in the CEO's Report, and these results together with the Board's confidence for the Group's prospects in the forthcoming 6 months, enabled it to declare an interim dividend for the period of 4.85 cents per share.

I look forward to the second six months with confidence and to once again being able to demonstrate the ability of the Group to enhance shareholder value."

Commenting on these results, Mooky Greidinger, Chief Executive Officer of Cineworld Group plc, said:

"We are pleased to announce strong first half results following the successful acquisition of the Regal Entertainment Group. Following the completion of the transaction, I have spent a lot a time in the United States getting to know our US business and implementing our strategy. I am very pleased with the Regal acquisition, we have already identified a significant number of opportunities. We are focused on delivering on the full potential of the combination through the strengths of our brands, focus on customer experience and investment in technology.

The second half of 2018 has started well with the release in July of "Mission Impossible: Fallout", "Mamma Mia! Here We Go Again" and "Equalizer 2", as well as the UK and CEE & I release of "Incredibles 2". Still to come in 2018 there is "Fantastic Beasts: The Crimes of Grindelwald", "Venom", "Aquaman" and "Mary Poppins Returns" and many more. Based on the film slate in the second half and our first half results, we remain confident of delivering a performance for the year as a whole in line with management's expectations."

Cautionary note concerning forward looking statements

The results presentation is accessible via a listen-only dial-in facility and the presentation slides can be viewed online. The appropriate details are stated below:

Date: 9 August 2018Time: 09:30amDial in: UK Number: 020 3059 5868 All other locations: +44 20 3059 5868Participant Instructions: Please state "Cineworld Interim results" and state your name and company Webcast link: https://secure.emincote.com/client/cineworld/cineworld008

1 Restated to present the Group's results for the 6 month period ended 30 June 2017 in US dollars.

2 Pro-forma results reflect the Group and US performance had Regal been consolidated for the entirety of the period from 1 January 2018. For the purposes of percentage movements, the same comparative period has been applied. Performance against the comparative period has been calculated by taking the Cineworld Group 2017 reported interim period and adding the Regal performance, converted to IFRS, for the same period from 1 January 2017 to 30 June 2017, to present the consolidated performance as if Regal had been acquired on 1 January 2017

3 Constant currency movements have been calculated by applying the 2018 average exchange rates to the 2017 performance.

4 Adjusted EBITDA is defined as Operating profit plus share of profits from joint ventures using the equity accounting method net of tax adjusted for depreciation and amortisation, onerous lease charges and releases, impairments and reversals of impairments, transaction and reorganisation costs, gains/losses on disposals of assets and subsidiaries, share based payment charges, and share of profits received from associates in excess of distributions or any undistributed such profits. Adjusted profit before tax is calculated by adding back amortisation of intangible assets (excluding acquired film distribution rights), and certain non-recurring or non-cash items and foreign exchange difference arsing on monetary assets and liabilities as set out in Note 5. Adjusted profit before tax is an internal measure used by management, as they believe it better reflects the underlying performance of the Group and therefore a more meaningful comparison of performance from period to period. Adjusted profit after tax is arrived at by applying an effective tax rate to taxable adjustments and deducting the total from adjusted profit before tax. Pro-forma results have also been adjusted to reflect acquisition related adjustments for the entire pro-forma period.

5 CEE & I is defined as Central, Eastern Europe & Israel and includes Poland, Israel, Romania, Hungary, Czech Republic, Bulgaria, Slovakia and Israel.

6 Adjusted Net Debt is calculated by adding $202m outstanding payable to Regal shareholders to Net Debt

7 Last Twelve Months

Chief Executive Officer's Statement

Overview

The results for the first six months of the year, along with the completion of the Regal acquisition demonstrate continued delivery of our strategy to create value for our shareholders. Although the Group has expanded significantly, our strategy and vision remains the same, to be "The best place to watch a movie" by continually focusing on providing the best customer experience, maintaining technological leadership, expanding and upgrading the estate and training and retaining highly motivated, experienced and loyal staff.

The film slate in the US performed particularly well in the period, largely driven by the success of "Black Panther" and "Avengers: Infinity War". The latter exceeded the previous opening weekend box office record in the US. Our European markets had a very strong comparative film slate in first six months of 2017, which included "Beauty and the Beast" and "The Fate of the Furious", and as expected this presented a challenging comparable admissions basis. The UK performed as expected with the highest grossing films being "Avengers: Infinity War", "Black Panther" and "The Greatest Showman".

During the period, we opened six sites (56 screens - 37 in the US, 13 in the UK and 6 in CEE & I). As at 30 June 2018, the Group had a total of 792 sites and 9,542 screens. We expect to open a further 12 sites (111 screens) by the end of 2018. We closed four sites (36 screens) during the period, all in the US, which were planned prior to the acquisition of Regal.  Subsequent to the period end one site in the UK was closed, as active management of our estate remains a high priority.

Our refurbishment program is progressing well. Two refurbishments were completed in the UK, including our flagship Leicester Square site. A further four refurbishments are due to be completed before the year end in the UK and a further one in Hungary. During the period five 4DX screens were opened, three in the UK, including one at the Leicester Square cinema, and two in CEE & I. We have started the refurbishment plans in the US with a number of sites already identified for the first phase of the program.

Investment in technology continues to be a key pillar of our strategy. During the period we announced significant new agreements with both IMAX and 4DX, with plans to install a total of 55 new IMAX Laser projectors across the estate and 80 4DX screens in the US, which will bring the Group's total number of IMAX screens to 130 and 4DX screens to 145.

In addition, we recently announced our agreement to install 100 ScreenX auditoriums across the Group, with the first one opening today in Speke. ScreenX is the world's first multi-projection immersive cinema auditorium which provides a panoramic 270-degree viewing experience. The technology goes beyond the frame of a traditional screen by expanding the film scenes onto the side walls.

The integration with Regal is progressing well. We have assembled a great management team that leads the US operation, including our most talented people from both sides of the Atlantic, each fully aligned with our strategy and the goals we wish to achieve. Four months post-acquisition, we are encouraged by what we have learned to date and remain excited by the opportunities within Regal. We are confident that we will be able to achieve the transaction benefits identified during the deal process.

Without the dedication of our employees - across all departments and territories, we would not be able to continue delivering on our vision to be "The best place to watch a movie". I have been impressed by how well our teams across both sides of the Atlantic have been working together and sharing best practices. I would like to thank them all for their continued hard work.

Current trading and outlook

The second half of 2018 has started well with the release in July of "Mission Impossible: Fallout", "Mamma Mia! Here We Go Again" and "Equalizer 2" and in the UK and CEE & I release of "Incredibles 2". Still to come in 2018 are "Fantastic Beasts: The Crimes of Grindelwald", "Venom", "Aquaman", "Mary Poppins Returns" and many more. Based on the film slate in the second half and our first half results, we remain confident of delivering a performance for the year as a whole in line with management's expectations."

Group Performance Overview

Cineworld Group plc results are presented for the period ended 30 June 2018 and reflect the trading and financial position of the US, UK & Ireland ("UK") and Central, Eastern Europe & Israel ("CEE & I") reporting segments (the "Group"). Regal Entertainment Group ("Regal") became part of the Group from 1 March 2018 and their post-acquisition results are reflected within the US reporting segment. The 2017 comparatives have been restated following the change in the Group's presentational currency to US dollars as from 1 January 2018.

Unless explicitly referenced, all percentage movements which are given reflect performance on a constant currency basis to allow a year-on-year assessment of the performance of the business without the impact of fluctuations in exchange rates over time. Constant currency movements have been calculated by applying the 2018 average exchange rates to 2017 performance. Pro-forma results reflect the Group and US performance had Regal been consolidated for the entirety of the period from 1 January 2017. Pro-forma results have also been adjusted to reflect acquisition related adjustments for the entire pro-forma period.

The principal income for the Group is box office revenue. Box office revenue is a function of the number of admissions and the ticket price per admission, less sales tax. In addition, the Group operates membership schemes, which provide customers with access to screenings in exchange for subscriptions fees, and this revenue is also reported as part of box office. Admissions (one of the Group's key performance indicators), depend on the number, timing and popularity of the films the Group is able to show in our cinemas.

Admissions are also a key driver for the two other main revenue streams for the Group. These are retail revenue, the sale of food and drink for consumption within our cinemas and screen advertising income, from advertisements shown on our screens prior to feature presentations.

US

The results below show the Group's performance in the United States (US). For consistency, the 2018 information for the US has been presented on a pro forma basis by including the two months pre-acquisition results for 2018, adjusted for indicative acquisition accounting entries, as well as the post-acquisition financial information for six month period to 30 June 2018. For the purposes of percentage movements, the same comparative period and acquisition accounting adjustments have been applied.

Box Office

Box office admissions and revenue increase by 9.2% and 14.3% respectively on a pro forma basis during the six month period to 30 June 2018. These results reflect the strength of the US cinema market in 2018 compared with 2017. Total US box office revenue for the six-month period was 9.6% higher compared to the prior period (Source: Comscore). The top three films during the period were "Black Panther", "Avengers: Infinity War" and "Incredibles 2" which together grossed $1,849m. This compares with the first six months of 2017 during which the top three titles were "Beauty and the Beast", "Guardians of the Galaxy: Volume 2" and "Wonder Woman", grossing $1,247m (Source: Comscore).

The average ticket price achieved in the US increased 4.6% on a pro-forma basis to $10.42 (2017: $9.96). The increase reflects inflationary price rises and importantly the expansion and popularity of our premium offerings. The top three films in the first half were available in a range of formats - IMAX, RPX (an alternative large-screen auditorium technology) and 3D.

Retail

Retail revenue increased by 13.6% from the prior period on a pro-forma basis. Retail spend per person increased by 4.0% on a pro-forma basis. The revenue increase is due to higher admissions, inflationary price rises and the nature of the film slate during the period. The US retail offering has also been expanded, mainly through the addition of food and alcohol sales at a number of theatres across the estate.

Other Income

Other income includes all revenue streams outside of box office and retail, predominantly advertising and booking fee revenue. Advertising revenue is earned through the sale of on and off-screen advertising space as well as online advertising through the website. Advertising revenue is impacted by the film slate and level of admissions. Booking fee income is driven by admissions levels and the proportion of tickets purchased through online channels. The overall increase of 16.4% in Other Income on a pro forma basis has been driven by the increase in admissions during the period.

UK & Ireland

The results below for the UK & Ireland include the two cinema brands in the UK, Cineworld and Picturehouse.

Box Office

Box office admissions decreased by 2.7% during the six-month period to 30 June 2018. Box Office revenue increased by 1.3% on a constant-currency basis. In the context of challenging weather conditions in the period and the popularity of the World Cup, this reflects a steady performance for the six-month period, compared with a very strong comparative period in 2017. In the UK and Ireland, the top three grossing films in the first six months of 2018 were, "Avengers: Infinity War", "Black Panther" and "The Greatest Showman". This compares to the first half of 2017 where the top three titles were "Beauty and the Beast", "Guardians of the Galaxy Vol. 2" and "The Fate of the Furious".

The average ticket price achieved in the UK and Ireland increased 4.1% on a constant currency basis to $9.09 (2017: $8.73). The increase reflects inflationary price increases and the increased availability and popularity of our premium offerings such as IMAX and 4DX. The top three films in the first half were available in a range of formats - IMAX, 3D and 4DX.

Retail

Retail revenue increased by 1.0% from the prior period on a constant-currency basis. Retail spend per person increased by 3.7% on a constant currency basis to $3.29 (2017: $3.17). Spend per person was positively impacted by the nature of the film mix in the first half, as well as the broader range of retail offerings, including Starbucks and our VIP offering. As at 30 June 2018, the Group had 29 Starbucks sites, an additional four sites compared to June 2017, and two VIP auditoriums.

Other Income

Other income includes all other revenue streams outside of box office and retail. The main driver for the increase in other income was voucher and event ticket sales which performed strongly compared to the comparative period. Advertising performance was stable year on year.

Central Eastern Europe & Israel

The results below for Central Eastern Europe & Israel ("CEE & I") includes Poland, Romania, Hungary, Czech Republic, Bulgaria, Slovakia and Israel.

Box Office

Box office admissions and box office revenue in the CEE & I decreased by 5.7% and 3.2% respectively compared to the prior period on a constant currency basis. Admissions in Hungary increased from the prior year; however, admissions in Poland, Israel and Czech saw slight reductions, with Bulgaria, Romania and Slovakia experiencing more significant reductions. The comparative negative trends in admissions are the result of the record-breaking results in 2017 when box office admissions and revenue in the CEE & I increased by 10.4% and 14.1% respectively. In 2017, four territories experienced double-digit growth and only Hungary saw a decline.

The strong comparative results for 2017 were driven by "Beauty and the Beast" and "The Fate of the Furious", whilst the most successful films across CEE & I in the period to 30 June 2018 were "Avengers: Infinity War" and "Black Panther". There was also some strength in local films with "Kobiety Mafii" being the most successful film in Poland in 2018. The average ticket price increased by 2.6% to $5.80 on a constant currency basis. The increase is the results of inflationary price rises.

Retail Retail spend per person increased to $2.60 during the period - an increase of 8.2% on a constant currency basis. The growth was driven by a combination of retail initiatives and inflationary price increases.

Other income

Other income includes distribution, advertising and other revenues and represents 15.4% (2017: 15.1%) of the total revenues. Forum Film is the Group's distribution business for the CEE & I and distributes films on behalf of the major Hollywood studios as well as owning the distribution rights to certain independent films. Key titles distributed in the period included "Black Panther" and "Tomb Raider". Advertising revenues performed strongly during the period.

Statutory Financial Performance

1) Restated to present the Group's results for the period ended 30 June 2017 in US dollars.

2) Adjusted EBITDA is defined as Operating profit plus share of profits from joint ventures using the equity accounting method net of tax adjusted for depreciation and amortisation, onerous lease charges and releases, impairments and reversals of impairments, transaction and reorganisation costs, gains/losses on disposals of assets and subsidiaries, share based payment charges, and share of profits received from associates in excess of distributions or any undistributed such profits.

3) Results for the UK operating segment include transaction costs incurred in connection with the acquisition of Regal of $49.8m.

Adjusted EBITDA and Operating Profit

Group Adjusted EBITDA has increased by 284.7% to $413.6m (2017: $107.5m). The Group Adjusted EBITDA margin of 22.2% is 1.9% higher than the comparative period. Of this increase, $300.8m was generated by the contribution of Regal for the four month period to 30 June 2018.

Adjusted EBITDA generated by the UK & Ireland of $57.8m has increased by 11.8% compared to the prior period (2017: $51.7m). On a constant currency basis Adjusted EBITDA for the UK increased by 3.2%. The Adjusted EBITDA margin of 16.3% represents a level consistent with 2017. CEE & I generated Adjusted EBITDA of $55.0m, a decrease of 1.4% on the prior year (2017: $55.8m). The Adjusted EBITDA margin of 24.0% for CEE & I represents a decline of 2.4% compared to the prior period, driven by the lower admission levels due to the film slate, primarily as a result of the popularity of the slate in the prior period. On a constant currency basis Adjusted EBITDA for CEE & I decreased by 11.1%

Operating profit at $207.2m was 218.8% higher than the prior period (2017: $65.0m). Of the $207.2m, $191.6m related to the results of Regal. Operating profit included a number of non-recurring and non-trade related items that have a net negative impact of $51.0m (2017: $1.1m). These primarily related to:

· Impairment costs of $0.4m (2017: $0.8m);

· A credit of $2.2m from arising from the release of onerous lease provisions (2017: $0.8m);

· A one off loss of $1.4m relating to the profit on disposal of assets (2017: gain of $2.8m);

· Share based payment charges of $1.6m (2017: $1.4m); and

· Transaction costs associated with the acquisition of Regal of $49.8m (2017: $0.9m in respect of the Empire acquisition).

The total depreciation and amortisation charge (included in administrative expenses) in the period totaled $144.4m (2017: $41.5m). The charge continues to increase primarily because of the acquisition of Regal and the number of new sites across the Group.

Net finance costs

As part the acquisition of Regal, the Group restructured its debt arrangement. The new arrangement consists of a USD and Euro term loan of $4.1bn and a $300.0m revolving credit facility. This new financing arrangement became effective on 28 February 2018, the Group's previous finance facilities were repaid at that date. The new facility is subject to floating interest rates, a margin of 2.5% for the USD denominated element and 2.625% for the EUR denominated element is added to the LIBOR and EURIBOR respectively. A floor of 0.0% is applied to the LIBOR and EURIBOR to calculate the interest charge. At 30 June 2018, the term loan totaled $4.0bn and the Revolving Credit Facility had not been drawn.

Net financing costs totaled $53.2m during the period (2017: $4.4m).

Finance income of $39.4m (2017: $2.1m) related to interest income of $2.0m (2017: $0.5m) and $37.3m of foreign exchange gains on monetary assets and non-USD$ denominated loans and $0.1m of amounts reclassified from equity to profit or loss in respect of settled cash flow hedges. The foreign exchange gains arose mainly on the retranslation of the Euro denominated portion of the Group's term loan.

The finance expense of $92.6m (2017: $6.5m) included $61.2m in respect of interest on bank loans and overdrafts (2017: $4.7m). The other finance costs of $31.4m (2017: $1.8m) included amortisation of prepaid finance costs of $6.3m (2017: $0.9m), $8.0m (2017: $0.9) in respect of the unwind of the discount and interest charges on property-related leases, $13.6m (2017: nil) in respect of the unwind of discount on deferred revenue and $3.5m (2017: nil) gains reclassified from equity to profit or loss in respect of settled net investment hedge.

Taxation

The overall tax charge during the period was $31.8m giving an overall effective tax rate of 19.9% (Full year 2017: 16.4%). The effective tax rate has increased because of the inclusion of the results of Regal following the acquisition, taxed at the higher US tax rate.

EarningsProfit on ordinary activities after tax in the period was $128.4m, an increase of $77.8m compared to the comparative period (2017: $50.6m).

The one off and other adjusting items in the period generated a loss of $30.0m compared to a loss of $4.1m in 2017. A gain of $35.5m was recognised on the Euro Term loan in the period, which forms a natural hedge against the Group's investment in Euro denominated businesses despite not being designated as such. This compared to no foreign exchange loss in the prior period as the previous Euro Term Loan was designated as a net investment hedge. Basic earnings per share amounted to 11.1c (2017: 8.3c rights adjusted). Eliminating the one-off, non-trade related items totaling $30.0m, adjusted diluted earnings per share were 13.2c (2017: 9.0c rights adjusted). Following the acquisition of Regal, the Group has taken the opportunity to consider how it presents its adjusted earnings per share calculation. After a review of comparable companies, a decision was made to add back the charge for share-based payments and the credit arising from onerous lease provisions, as they are non-cash items (see Note 6). Management believe that these charges do not form part of the underlying cash profits of the Group and therefore the change in presentation better reflect performance going forward.

Acquisition of Regal

On 5 December 2017, the Group announced the acquisition of Regal by means of an acquisition of the entire issued, and to be issued, share capital of Regal. The acquisition was based on an implied enterprise value of $5.8bn. Due to the size of the acquisition, it was classed as a reverse takeover under the UK Listing Rules. The acquisition of Regal completed on 28 February 2018. Consideration for the acquisition of $3.6bn of which $3.4bn was settled in cash, funded by the proceeds of the fully underwritten rights issue at the rights issue price of 157.0p per New Ordinary Share, which raised $2.3bn plus an additional US4.1bn was raised through committed Debt Facilities. The restructured debt arrangement consists of a USD and Euro term loan of $4.1bn and an undrawn $300.0m revolving credit facility. The previous financing arrangements in place as at 31 December 2017 for the Group and Regal have been settled and replaced with the new financing arrangements from 28 February 2018. As the consideration was entirely paid in cash the acquisition has been accounted for as an acquisition under IFRS 3 rather than as a reverse takeover acquisition under IFRS 3, notwithstanding the size of the acquisition.

Cash Flow and Balance Sheet

Overall, net assets have increased by $2,391.7m, to $3,436.3m since 31 December 2017. Total assets increased by $8,119.1m, this includes the recognition of the fair value of net liabilities acquired with Regal, totaling $794m and the residual goodwill recognised on acquisition totaling $4,521.0.

The Group continued to be strongly cash generative at the operating level. Total net cash generated from operations in the period was $366.2m (2017: $85.3m). Net cash outflows from investing activities were $3,387.6m during the period (2017: $69.6m), $3,325.9m related to the acquisition of Regal. Excluding the Regal acquisition, net cash flows from investing activities during the period were $61.7m (2017: $69.6m).

Net debt of $3,650.0m at the period end is higher than the balance at 31 December 2017 by $3,274.3m. Of the net increase $3,597.7m related to the restructuring of the Groups debt arrangement on acquisition of Regal and $93.2m to acquired finance leases. This was in part offset by cash acquired at Regal of $330.8m. The remaining movements relates to $29.2m net foreign exchange gains on cash held and bank debt denominated in currencies other than USD and $56.6m of other movements.

Risks and uncertainties

The Board retains ultimate responsibility for the Group's Risk Management Framework, and continues to undertake on-going monitoring to review the effectiveness of the Framework and ensure the principal risks of the Group are being appropriately mitigated in line with its risk appetite.

The principal risks and uncertainties which could impact the Group for the remainder of the current financial year remain those detailed on pages 18-22 of the Group's Annual Report for 2017, a copy of which is available from the Group's website www.cineworldplc.com. A summary of the principal risks is included after the Independent Review Report.

Related party transactions

Details of related party transactions are set out in Note 15 of the interim financial statements.

Going concern

At the year end the Group met its day-to-day working capital requirements through its bank loan, which consisted of a term loan

and a revolving facility. As a result of the Regal acquisition, on 28 February 2018 the Group restructured its debt arrangements. The previous financing arrangements in place as at 31 December 2017 for the Group and Regal Entertainment Group were settled and replaced by the new financing arrangements for the enlarged Group which consist of a USD and Euro term loan totalling $4.1bn and an undrawn $300.0m revolving credit facility. The revolving credit facility is currently undrawn and subject to springing covenants which are triggered above 35% utilisation.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its new facilities for at least 12 months from the approval date of these interim consolidated financial statements. Accordingly, the Group continues to adopt the going concern basis in preparing its interim consolidated financial statements.

Dividends

On 11 May 2018, the Company announced that for financial periods beginning on or after 1 January 2018, the Company would change the presentational currency in which the Group presents its consolidated financial results from pounds sterling to US dollars. As a consequence of this change, dividends will be declared in US dollars and eligible shareholders will be able to elect to receive dividend payments in either US dollars or pounds sterling. The default payment currency for dividends will remain pounds sterling, unless shareholders elect for payment to be made in US dollars by providing an election form stating their preference to receive dividends in US dollars to the Company's registrars.

The exchange rate at which dividends declared in US dollars will be translated into pounds sterling will be announced in advance of the payment date of each dividend. Following an election to receive dividends in US dollars, that election will be maintained unless a subsequent election form is submitted to the Company's registrars.

Shareholders that hold shares in uncertificated form may elect to receive their dividend in US dollars by inputting a valid Dividend Election Input Message in accordance with the CREST procedures described in the CREST Manual. Shareholders may revoke an election once made in accordance with the procedures described in the CREST Manual. Shareholders that hold shares in certificated form and wish to elect to receive dividends in US dollars should contact Link Asset Services, the Company's registrars, to request an election form on: +44 (0)371 664 0321, at enquiries@linkgroup.co.uk, or via www.signalshares.co.uk.

The timetable for the dividend announced on 9 August 2018 is as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the period ended 30 June 2018

The notes on pages 14 to 26 are an integral part of these interim condensed consolidated financial statements. 

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

for the period ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the period ended 30 June 2018

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

Reporting entity

Cineworld Group plc (the "Company") is a Company domiciled in the United Kingdom. The interim condensed consolidated financial statements of the Company as at and for the period ended 30 June 2018 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in jointly controlled entities.

The consolidated financial statements of the Group as at and for the year ended 31 December 2017 are available upon request from the Company's registered office at 8th Floor, Vantage London, Great West Road, Brentford,TW8 9AG.

Statement of compliance

These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2017. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2017.

The comparative figures for the financial year ended 31 December 2017 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Presentational currency

Following the acquisition of Regal, which completed on 28 February 2018, the majority of the Group's revenue and trading profit is now generated in US dollars. The Group has therefore elected to change its presentational currency to US dollars from 1 January 2018 to remove the largest driver of currency translation volatility and provide greater transparency of the underlying trading performance of the Group.  

A change in presentational currency is a change in accounting policy which is accounted for retrospectively. Financial information included in the interim condensed consolidated financial statements for the six months ended 30 June 2017 and annual results for the year ended 31 December 2017 previously reported in sterling have been restated into US dollars using the procedures outlined below:

· Assets and liabilities denominated in non-US dollar currencies were translated into US dollars at the closing rates of exchange on the relevant balance sheet date;

· Non-US dollar income and expenditure were translated at the average rates of exchange prevailing for the relevant period; and

· Share capital, share premium and the other reserves were translated at the historic rates prevailing on the date of each transaction. The cumulative foreign currency translation reserve has been restated on the basis that the Group has reported in US dollars since 2004, the inception date of the Company.

Joint operations

Where the Group is a party to a joint operation, the consolidated financial statements include the Group's share of the joint operations assets and liabilities, as well as the Group's share of the entity's profit or loss and other comprehensive income, on a line-by-line basis

Significant accounting policies

These condensed consolidated interim financial statements are unaudited and, have been prepared on the basis of accounting policies consistent with those applied in the consolidated financial statements for the year ended 31 December 2017, except for the adoption of new and amended standards as set out below.

New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period and the Group has changed its accounting policies as a result of adopting the following standards:

· IFRS 9 Financial instruments, and

· IFRS 15 Revenue from Contracts with Customers

The impact of the adoption of these standards and the new accounting policies are disclosed in note 2 below. The impact of change in accounting policies due to adopting these new standards did not result in retrospective adjustments being made.

As a result of the acquisition of Regal some asset classes were depreciated over a useful economic life different to that of the existing Group. As a result, the useful economic lives of the following asset classes have been revised:

The useful economic lives of all other asset classes remains consistent to those disclosed at 31 December 2017.

Impact of standards issued but not yet applied by the entity

IFRS 16 Leases

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The only exceptions are short-term and low value leases.

The standard will primarily affect the accounting for the Group's operating leases. The adoption of IFRS 16 is expected to materially affect the Group's lease accounting and financial statements. One of the first considerations is the transition method which the Group should adopt. There are three options: fully retrospective; modified; and modified retrospective. Each option has a slightly different impact on the financial statements on the initial transition date and going forward. Initial assessments have been undertaken for each of these options based on a sample of leases and management are in the process of concluding which will be the transition method selected. From the initial analysis performed the Group's profit after tax, operating profit, finance costs EBITDA and Adjusted EBITDA will be materially affected by the adoption of IFRS 16. The Group's finance costs and depreciation charge will materially increase; however, the rental charge for leases classified as finance leases under IFRS 16, which will substantially be all of the Group's property leases, will no longer be recognised in the Consolidated Statement of Comprehensive Income. The Group's Statement of Financial Position will be materially impacted in respect of total assets, total liabilities, net debt and equity. For all leases which fall under the scope of IFRS 16 a right of use asset and related lease liability will be recognised in the Statement of Financial Position. At the reporting date, the Group has non-cancellable operating lease commitments of $5,288.2m. However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future lease payments and how this will affect the Group's profit and classification of cash flows.

Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under IFRS 16.

The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The Group does not intend to adopt the standard before its effective date.

Alternative performance measures

The Group uses alternative performance measures (APM's), which are not defined or specified under IFRS. The Group believes that these APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide comparable information across the Group.

The Group uses the following APMs:

Adjusted EBITDA

Adjusted EBITDA as reported in the Consolidated Statement of Profit and Loss is defined as Operating profit plus share of profits from associates using the equity accounting method net of tax adjusted for depreciation and amortisation, onerous lease charges and releases, impairments and reversals of impairments, transaction and reorganisation costs, gains/losses on disposals of assets and subsidiaries, share based payment charges, and share of profits received from joint ventures in excess of distributions or any undistributed such profits. Adjusted EBITDA is considered an accurate and consistent measure of the Group's trading performance. Items adjusted to arrive at Adjusted EBITDA are considered to be primarily non-cash items or items outside the Group's ongoing trading activities.

The Group believes including cash distributions from associates up to the level of the profits earned in the period is an appropriate reflection of the contribution that these investments make to the Group's operations and reflects the way these operations have been and will continue to be monitored.

Adjusted profit before tax

Adjusted profit before tax is calculated by adding back amortisation of intangible assets (excluding acquired film distribution rights), and certain non-recurring or non-cash items and foreign exchange differences arising on the translation of non USD$ denominated monetary assets and liabilities as set out in Note 5. Adjusted profit before tax is an internal measure used by management, as they believe it better reflects the underlying performance of the Group and therefore a more meaningful comparison of performance from period to period.

Adjusted profit after tax

Adjusted profit after tax is arrived at by applying an effective tax rate to taxable adjustments and deducting the total from adjusted profit before tax.

Constant currency

The Group measures some financial metrics on both a reported basis and at constant exchange rates. The constant exchange rate basis re-translates the prior period financial information at the current period exchange rate to eliminate the effect of exchange rate translation differences when comparing information year-on-year.

2. Changes in accounting policies

This note explains the impact of the adoption of IFRS 9 Financial instruments and IFRS 15 Revenue from Contracts with Customers on the Group's financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.

Despite a change in the entity's accounting policies both IFRS 9 and IFRS 15 were adopted without materially changing the application of the existing policies in place and therefore the comparative information has not been restated.

IFRS 9 Financial Instruments - Impact of adoption

IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

Classification and measurement

On 1 January 2018 (the date of initial application of IFRS 9), the Group's management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. There has been no reclassification of previously held assets or liabilities as a result of this.

Derivatives and hedging activities

The interest rate swaps in place as at 31 December 2017 qualified as cash flow hedges under IFRS 9. The Group's risk management strategies and hedge accounting documentation are aligned with the requirements of IFRS 9 and these relationships are therefore treated as continuing hedges.

As a result of the Regal transaction on 28 February 2018, the Sterling and Euro term loans held at 31 December 2017 were repaid. The interest rate swaps attached to the Sterling term loan was settled resulting in a profit of $0.6m. Prior to resettlement on 28 February 2018 the fair value of these swaps recognized within the hedging reserve was $0.5m. On settlement this was recycled from the hedging reserve.

A Euro term loan was drawn down as part of the new facilities and therefore the existing Euro interest rate swap remains in place to mitigate the Group's interest rate risk. As the swap was designated to the previous Euro term loan it no longer qualifies for hedge accounting. The fair value of this swap recognized within the hedging reserve prior to repayment on 28 February 2018 was $0.1m and it was recycled to the profit or loss on this date. Any subsequent movements in fair value of this swap should be recognised directly within the profit or loss.

The existing Euro term loan was designated as a net investment hedge to mitigate translation exposure on certain net investments in subsidiary companies. On repayment of this loan on 28 February 2018 the value recognised in the hedging reserve in relation to this net investment hedge was $3.5m. This portion of the hedging reserve was recycled to the profit or loss on repayment date.

Impairment of financial assets

The Group's trade receivables resulting from sales (30 June 2018: $128.1m; 31 December 2017: $40.3m) are subject to IFRS 9's new expected credit loss model. The Group was required to revise its impairment methodology under IFRS 9 for this class of asset. There was no material impact as a result in this change in impairment methodology.

Trade receivables

The Group applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.

At 31 December 2017, the Group's loss allowance in place was $0.5m. We have recalculated the loss allowance at 1 January 2018 as a result of adopting the new approach. The loss allowance in place remained at $0.5m.

IFRS 9 Financial Instruments - Accounting policies applied from 1 January 2018

Derivative Financial Instruments and Hedging

Cash Flow hedges and Interest swap policy.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, within other income (expenses).

Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows:

· The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit or loss within finance cost at the same time as the interest expense on the hedged borrowings.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.

Trade and Other Receivables

Trade and other receivables are measured at amortised cost. The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivable.

Trade and other payables

Trade and other payables are measured at amortized cost.

Interest-Bearing Borrowings

Interest-bearing borrowings are measured at amortised cost less transaction costs. Any difference between cost and redemption value is recognised within the Statement of Profit or Loss over the period of the borrowings on an effective interest basis.

IFRS 15 Revenue from Contracts with Customers - Impact of adoption

The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018. IFRS 15 now applies a five-step model for revenue recognition. In assessing the impact of the adoption of IFRS 15 management considered each revenue stream individually and applied the five step model in recognising revenue for each respective stream. On conclusion of this assessment, revenue for each revenue stream would be recognised at the same point as if the existing policy had remained in place and therefore there has been no changes to the Group's existing revenue recognition policy.

3. Operating segments

The acquisition of Regal has led to the Cineworld Group Board (the "CODM") realigning its management information. This change has given rise to the inclusion of an additional operating and reporting segment for Regal, referred to as the "US". The combination has not affected the information provided to the Board in respect of Cineworld Cinemas or Picturehouse operating segments and they continue to be presented on a consistent basis to the prior period within the UK & Ireland reporting segment. The reporting segment previously referred to as the "ROW" has been re-named to Central Eastern Europe and Israel "CEE & I". The operating segments included in the CEE & I reporting segment continue to be presented on a consistent basis to the prior period and include; Poland, Romania, Hungary, Czech Republic, Bulgaria, Slovakia and Israel.

The Group has determined that is has three reporting segments: the US, the UK and CEE & I.

 (1) All revenues are from third parties 

4. Taxation

The taxation charge has been calculated by reference to the expected effective corporation tax rates in the UK for the year ending on 31 December 2018 applied against the profit before tax for the period ended 30 June 2018. The overall tax charge during the period was $31.8m giving an overall effective tax rate of 19.9% (Full year 2017: 16.5%). The effective tax rate has increased from the prior period. This primarily results from the inclusion of results of the Regal US business following the acquisition, taxed at an effective US tax rate which is higher than that of the other markets in which the Group operates. Additionally, one-off acquisition costs may not be fully tax deductible.

In the medium term we expect our effective tax rate to be in the range of 19-20%, reflecting the Group's geographical mix of profits.

 Tax recognised in the income statement during the period is as follows:

5. Finance income and expense

6. Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, after excluding the weighted average number of non-vested ordinary shares held by the employee ownership trust.

Adjusted earnings per share is calculated in the same way except that the profit for the period attributable to ordinary shareholders is adjusted by adding back the amortisation of intangible assets recognised as part of business combinations and other one-off income or expense and then adjusting for the tax impact on those items which is calculated at the effective tax rate for the current period. The performance of adjusted earnings per share is used to determine awards to Executive Directors under the Group Performance Share Plan ("PSP"). Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by weighted average number of any non-vested ordinary shares held by the employee share ownership trust and after adjusting for the effects of dilutive options.