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    The best place to watch a movie ANNUAL REPORT AND ACCOUNTS 2016


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    STR ATEGIC REPORT 1 Highlights 2016 2 At a Glance 4 Chairman’s Statement 6 Chief Executive Officer’s Statement 8 Market Overview 10 Business Model 12 Strategy and KPIs 18 Resources and Relationships 22 Principal Risks and Uncertainties 28 Financial Review GOVERNANCE 33 Directors’ Biographies 37 Corporate Governance Statement 37 Chairman’s Introduction 38 Compliance Statement 40 Leadership 42 Effectiveness 43 Nomination Committee Report 45 Accountability 48 Audit Committee Report We are a 53 Insurance 53 Relations with Shareholders 54 Directors’ Remuneration Report 55 Remuneration Policy business with a 64 Annual Report on Remuneration 73 Directors’ Report 78 Statement of Directors’ simple strategy Responsibilities 79 Independent Auditor’s Report FINANCIAL STATEMENTS 82 Consolidated Statement of Profit or Loss Our Vision… 83 Consolidated Statement of Other Comprehensive To be the best place to watch a movie Income 84 Consolidated Statement of Financial Position 85 Consolidated Statement Our Strategy is to: of Changes in Equity 86 Consolidated Statement 1. Deliver a great cinema experience of Cash Flows for all cinemagoers, every time. 87 Notes to the Consolidated Financial Statements 129 Company Statement of 2. Continue to expand our estate and Financial Position look for profitable opportunities 130 Company Statement of to grow. Changes in Equity 131 Notes to the Company 3. Ensure that we enhance our existing Financial Statements 138 Shareholder Information estate so we deliver a consistent level of quality across the Group. 4. Be leaders in the industry by offering customers the latest audio and visual technology. 5. Drive value for shareholders by delivering our growth plans in an efficient and effective way. For more information visit: www.cineworldplc.com/investors


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    STR ATEGIC REPORT u Highlights 2016 Key Financial Highlights STR ATEGIC REPORT PROFIT ADJUSTED PROFIT (£m) GROUP REVENUE (£m) EBITDA (1) (£m) AFTER TAX (5) (£m) AFTER TAX (4) +13.0% +13.2% +0.9% +18.3% 797.8 93.8 705.8 175.8 82.0 155.3 81.3 79.3 2015 2016 2015 2016 2015 2016 2015 2016 ADJUSTED (p) DIVIDEND (p) TOTAL SHAREHOLDER RETURN DILUTED EPS (4) PER SHARE 900 Total shareholder return (rebased to 100) 800 +16.8% +8.6% 700 600 G OV E R N A N C E 500 34.7p 19.0p 29.7p 17.5p 400 300 200 100 2015 2016 2015 2016 0 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Cineworld FTSE 250 FTSE All Share Travel and Leisure Other Financial Highlights Operational Highlights uu Group revenue growth of 13.0% uu Statutory profit before tax uu Reached the milestone of over 100 on a statutory basis and 8.7% on decreased 1.5% to £98.2m; million customers coming through a constant currency basis (2); uu Diluted EPS remained constant our doors to watch a movie; • Solid UK and Ireland revenue at 30.4p; uu Acquisition of five Empire cinemas, growth of 6.0%; uu Final dividend increased by 8.6% 64 screens, including the iconic • Strong ROW(3) revenue growth of to 19.0p; Empire Leicester Square; 26.6% on a statutory basis and uu Net cash generated from operating uu Eight new site openings, four in the 13.3% on a constant currency basis activities of £150.1m; and UK and four in the ROW, adding 78 F I N A N C I A L S TAT E M E N T S with record performances in uu Net debt increased to £282.3m due screens, bringing the total number of Poland, Romania, Hungary and to the acquisition of five Empire screens to 2,115 at 31 December 2016; Czech Republic; cinemas compared to £245.2m at uu Nine major refurbishments uu EBITDA double digit growth of 31 December 2015 with EBITDA to completed in 2016, six in the UK 13.2%, 8.4% on a constant currency net debt ratio remaining at 1.6 times. and three in the ROW; basis; uu Leading technological innovation uu Adjusted profit before tax(4) with five new IMAX screens and increased by 12.5% to £111.4m; 13 new 4DX screens, including the first 4DX screen in London; and uu CEO, Moshe Greidinger awarded the Global Achievement Award in Exhibition at Cinemacon 2016. 1 EBITDA is defined as profit before interest, tax, depreciation and amortisation, onerous leases and other non-recurring charges, impairments and reversals of impairments, transaction and reorganisation costs, profit on disposals of assets and the settlement of the defined benefit pension liability. 2 To provide information on a comparable basis, where % change vs. prior year information includes performance generated in currencies other than sterling, the % is presented on a constant currency basis. Constant currency movements have been calculated by applying the 2016 average exchange rates to 2015 performance. 3 ROW is defined as Rest of the World and includes Poland, Israel, Romania, Hungary, Czech Republic, Bulgaria and Slovakia. 4 Adjusted profit before tax is calculated by adding back amortisation of intangible assets (excluding acquired movie distribution rights), and certain non- recurring, non-cash items and foreign exchange 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. 5 Statutory profit after tax was impacted by the following items: a one-off cost of £4.8m in relation to the buy-out of the defined benefit pension scheme, removing all risks in relation to the scheme; adverse currency movements of £6.1m compared to an exchange rate gain of £7.7m in the prior year due to the translation of the Euro Term loan at the Balance Sheet date; and no one-off gains, such as the gain on the disposal of Cambridge for £6.4m in 2015. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 1


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    STR ATEGIC REPORT u At a Glance We are an international cinema chain operating in nine different territories with 226 sites and 2,115 screens. We are focused on providing our customers with the best possible cinema experience, offering a variety of movies, as well as different formats using the latest technologies. Our vision is always to be “The Best Place to Watch a Movie”. UK&I REVENUE (£m) ROW REVENUE (£m) UK&I ADMISSIONS (£m) ROW ADMISSIONS (£m) +6.0% +26.6% +1.8% +13.6% 494.0 303.8 48.5 50.9 51.8 42.7 465.9 239.9 2015 2016 2015 2016 2015 2016 2015 2016 Our brands: UK and Ireland 971 Screens | 96 Sites 71 Screens | 22 Sites Cineworld is one of the UK’s leading cinema chains by admissions Picturehouse is an arthouse chain which has a cosier and box office revenues. The cinemas are modern, well designed atmosphere. It offers freshly-cooked food, bars and special multiplexes offering great customer service with high quality events, which provides an alternative experience to the technology, stadium seating, and online ticketing services. The multiplexes. The sites generally have five screens or fewer and sites are situated mostly in leisure and retail parks. Cineworld provide unique, local and intimate film viewing in cinemas that shows a broad range of films to a large number of customers with are both of high quality and of architectural merit. The flagship a wide demographic and offers the highly successful “Unlimited” cinema is Picturehouse Central, located in Piccadilly which was card which allows customers access to an unlimited number of fully renovated two years ago. It reopened as one of the most films for a monthly subscription. Refurbishment of older sites, beautiful and special cinemas in London’s West End, and is investment in new technologies and diversification of retail equipped with the most advanced technology. It also has two offerings are a key focus for Cineworld. During 2016 six sites were unique restaurants and an exclusive Members Bar. Picturehouse refurbished, four new cinema sites were opened and five Empire operates in 13 towns and cities, with eight located in London sites were acquired, including the iconic Empire Leicester Square. ‘villages’, and focuses on cinemagoers looking for art house Cineworld is the only exhibitor in the UK to offer the highly movies and events side by side with mainstream commercial successful 4DX experience, which includes motion seats, and movies. Picturehouse has its own membership scheme which several environmental effects such as water splash, wind, smell includes a range of benefits such as discounts on tickets and and more. These are built into an increasing number of movies to concession items, access to exclusive previews and special make the audience feel they are part of the action. At the end of events, and more. The Picturehouse team works closely with 2016, Cineworld operated nine 4DX screens including the first independent movie creators and hosts movie festivals, and 4DX in London which opened in December in Wandsworth. many other events. Cineworld also has 20 IMAX screens and its own Superscreen format. Two sites have VIP auditoriums which include a full movie and dining experience. Cineworld currently has 24 Starbucks coffee outlets within its circuit. 2 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Theatre Operations STR ATEGIC REPORT UK, Ireland, Central and Eastern Europe and Israel In 2016, there were over 100 million customer admissions across all our cinemas. COUNTRY NO. OF CINEMAS SCREENS 1 2 1. UK & Ireland 118 1,042 5 8 2. Poland 33 354 4 3. Romania 24 223 3 4. Hungary 19 163 7 5. Czech Republic 13 115 6. Israel 10 124 7. Bulgaria 6 65 8. Slovakia 3 29 6 G OV E R N A N C E Total 226 2,115 Our Brands: Rest of the World F I N A N C I A L S TAT E M E N T S 949 Screens | 98 Sites 124 Screens | 10 Sites Cinema City operates in six Central and Eastern European Yes Planet and Rav-Chen are the two brands which the Group territories, and is either the number one or two chain in each operates in Israel. Yes Planet is the market leader, operating of the markets in which it operates. The cinemas are modern, cinemas which, include IMAX, 4DX and VIP screens. The well-designed multiplexes offering a high quality cinema Rav-Chen cinemas are a smaller version of the multiplexes. experience, showing a variety of movies, and providing great As in the other territories, all the cinemas in Israel provide a customer service. In each of the markets, Cinema City work high level of quality and service. The styles and designs of the closely with the local communities to provide its customers with cinemas are modern and all have stadium seating, large screens a great tailored viewing experience for both international and and the latest digital technology. The cinemas show a range local productions. The cinemas have large screens (among the of popular films from both international and local producers. highest screen/hall ratio in the world), significant stadium During 2016 a state-of-the art 18 screen cinema was opened seating and market leading technologies such as IMAX, 4DX in Beer Sheva with IMAX, 4DX, and VIP screens, and another and VIP auditoriums. In order to maintain Cinema City’s position modern 12 screen multiplex site is due to be opened in Zichron as the leading chain, both in number of screens and the quality during 2017. of the experience, constant renovation of the circuit takes place, and new sites are developed. While Cinema City opened new cinemas in a number of the territories, Romania was the most important market for expansion in 2016 with three new cinema sites opened. In 2017 there are two sites planned to be opened in Poland, one in Romania and one in Czech Republic. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 3


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    STR ATEGIC REPORT u Chairman’s Statement Anthony Bloom Chairman (right) Moshe (Mooky) Greidinger Chief Executive Officer (left) Overview together with the gratifying operating performance of the I am pleased to report that 2016 was another record year Group enabled the Board to declare an increased full year for the Cineworld Group (the “Group”) and its shareholders. dividend of 19.0p per share, which represents 8.6% growth. We achieved an important milestone – over 100 million The Group has increased its dividend in seven out of the people came through our doors to watch a movie. I would 10 years since it was listed, an achievement of which I am have found this inconceivable when we started the particularly proud. Company with one multiplex in Stevenage in 1996! In 2016 we successfully completed the acquisition of five Group EBITDA for the year increased by 13.2% to £175.8m Empire cinemas, including the iconic Empire Leicester (2015: £155.3m), on revenue which improved by 13.0% to Square. Pleasingly we were able to fulfil our long-held £797.8m (2015: £705.8m). Statutory profit after tax objective of obtaining a prestigious West End site. Together increased by 0.9% to £82.0m (2015: £81.3m). the five Empire sites added 64 additional screens to our circuit. Along with expansion, renovation and modernisation We achieved this strong growth in EBITDA as a result of the of the existing circuit is of equal importance to us, ensuring full impact of our new cinemas which opened in 2015, the that we have high quality, well-designed, modern cinemas completed refurbishments of a number of our important across the whole estate. During 2016 we completed nine cinemas, the acquisition of five Empire cinemas and the major refurbishments and the improvement in operating ongoing operating efficiencies which are constantly sought performance at those sites is already evident. and implemented across the Group. All of these factors resulted in increased admissions, particularly in the ROW Shareholders will be pleased to know that we lead the way territories. Operating in nine different countries provides in offering the latest technology. We are the only operators geographic diversification and a range of opportunities in of 4DX in the UK, a format proving increasingly popular both mature and growth markets. with our customers. The first one opened in London at our Wandsworth site in December, and as part of the planned The Group’s Balance Sheet remains strong. Although there refurbishment of the Empire Leicester Square we intend to was a slight rise in net debt to £282.3m (due to the Empire introduce 4DX. At the end of 2016 we had 27 4DX screens, acquisition and impact of foreign exchange movements on 33 IMAX screens and six of our own Superscreen formats. the Euro Term loans), the EBITDA to net debt ratio at the year end remained at 1.6 times. This Balance Sheet strength, 4 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Martina for the energy and rigour that she brought to the STR ATEGIC REPORT Board during a period which has seen the Group expand considerably, both in the UK and internationally. Martina made a significant contribution to our affairs, and I wish her every success in her other ventures. In 2016, over 100 million Nisan Cohen was appointed as CFO and joined the Board as people came through an Executive Director. Nisan is a member of the Institute of our doors to watch a Certified Public Accountants in Israel and has been part of the Cineworld Group, and formerly the Cinema City Group movie – a fantastic for 16 years. As Vice President of Finance, he led the integration of the finance teams in the Group across nine milestone for the territories after the combination between Cineworld and Cinema City International N.V. Lately, he served as Deputy Group.” CFO, working closely with the then interim CFO, Dean Moore. I have had the pleasure of working with Nisan since Anthony Bloom the combination with Cinema City in 2014 and have no doubt that his extensive experience, both commercial and Chairman financial, will continue to be an asset to the Group. G OV E R N A N C E Dean Moore, the previous interim CFO, was appointed to the Board as an independent Non-Executive Director, Chair of the Remuneration Committee and a member of the Audit Committee. Dean brings over 20 years of experience as a plc executive Director. The Board is satisfied that Dean meets the requisite criteria to be considered as independent, notwithstanding his brief ten month interim employment with the Group, during which his mandate was to focus primarily on the CFO succession planning process. I look forward to continuing to work with Nisan and Dean in their new roles. As a Board we take corporate governance standards extremely seriously and we always strive to attain the highest standards possible. We periodically review areas The wellbeing of our staff is fundamental to the efficient such as gender, diversity, health and safety and the operation of the business. Without them we would not be environment and where appropriate improve our practices able operate 2,115 screens in 226 sites, as we did at the end in those areas. F I N A N C I A L S TAT E M E N T S of 2016. This is not a trivial task – we show over 10,000 movies every day, every week across nine different On behalf of myself and the Board I would like to express territories. The logistics involved are formidable and rely on my sincere appreciation to the Group’s executive highly motivated and dedicated staff. Accordingly, internal management and all its employees for their continued hard promotion and succession planning is a key part of our work, competence, professionalism and their gratifying people strategy. achievements during 2016. We are currently scheduled to open a further 441 screens Outlook over the next four years – 264 of which are in the ROW As we go into 2017, I look forward with confidence. There is territories and 177 in the UK. This expansion will be financed a strong film release programme planned for the year. We from internally generated funds and will provide excellent have an excellent estate which will continue to grow (with a growth potential in the future. further 13 cinemas due to open this year), and number of major refurbishments planned. We have a strong Balance In summary, we went from strength to strength in 2016 and Sheet and can undertake our strategic objectives without I believe we will continue to do so in 2017 and provide financial strain. We are at the forefront of providing the significant value to our shareholders. latest technology to our customers and most importantly of all we have an excellent management team with extensive Board experience which is focused on ensuring Cineworld is There were no changes to the Board during 2016; however always “The Best Place to Watch a Movie”. on 11 January 2017, after the year end three changes took place. Martina King, Non-Executive Director, Chair of the Remuneration Committee and member of the Audit Anthony Bloom Committee, stepped down following six years of service to Chairman focus on her other business interests. I would like to thank 9 March 2017 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 5


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    STR ATEGIC REPORT u Chief Executive Officer’s Statement We want to provide our customers with choice – the choice of which movie to watch, the choice of how to watch a movie and the choice of retail offerings whilst always receiving Our Strategy During 2016, we have made great progress in delivering our great customer service.” strategy and vision to be “The Best Place to Watch a Movie”. We served over 100 million customers who came through our Moshe (Mooky) Greidinger doors, and provided them with the choice of which movie to Chief Executive Officer watch, the choice of format and the choice of an expanded range of retail offerings - all with great customer service. Our strategy is to: can enjoy unlimited buffet food, popcorn and soft drinks • Above all deliver a great cinema experience for all before watching the movie in a dedicated auditorium with cinemagoers, every time; luxurious reclining seats. Three new VIP sites were opened • Expand our estate and look for profitable opportunities during the year in Glasgow Renfrew Street (UK), Beer Sheva to grow – through consistent cash generation and our (Israel) and Bucharest Titan (Romania). At 31 December debt facility we have the financial strength to take 2016 we had nine VIP auditoriums in the Group. advantage of opportunities which present themselves; • Enhance our existing estate and new sites, ensuring we Our membership schemes, the most significant being the deliver a consistently high quality offering across the Cineworld Unlimited programme, continue to provide our Group – our refurbishment and construction programme customers with a range of benefits, and are one of the pillars is at the heart of achieving this; of our strategy for growing revenues and admissions. The • Be leaders in the industry by offering customers the schemes also bring operational benefits by encouraging latest audio and visual technology – expanding the repeat visits, often at off-peak times. The Unlimited premium formats such as IMAX, 3D, 4DX, Superscreen programme was launched in Poland at the end of 2015 and VIP auditoriums and ensuring we invest in the latest and has performed in line with expectations during 2016. innovative technology; and • Drive value for shareholders by delivering our growth We also focused attention on our wider communities – the plans in an efficient and effective way. Group undertakes a range of activities and initiatives with charities, schools, and community groups. As an example, Our main achievements in 2016 are summarised below. part of our schools’ programme, included holding over 400 education screenings on weekday mornings with a total of Customer Experience over 32,000 students attending from 450 different schools Our cinemas now offer up to six different formats of how to across the UK. Similar activities are also undertaken in each watch movies; regular screens, 3D, 4DX, IMAX, Superscreen of our ROW territories. In 2016 for the first time we were a and VIP auditoriums. Through both our expansion and partner with BBC’s Children In Need fundraising initiative refurbishment programme, we are focused on ensuring as where we raised over £400,000. many of our sites as possible have a range of these choices for our customers. Cinema Expansion Following the record number of 18 openings in 2015, we As well as developing our exhibition offerings and capacity, opened a further eight cinemas during 2016, four in the UK, we continue to pay particular attention to our retail products (Yate, Loughborough, Dalton Park and Harlow) and four in and services. Our on-site concessions aim to be best in class, the ROW, (Beer Sheva - Israel, Timisoara Nepi, Bucharest providing a variety of food, drink and snack options. During Titan and Piatra Neamt - Romania). We have a further 441 2016, the Group has increased the number of Starbucks coffee screens scheduled to open in the next four years, 132 which outlets in our cinemas in the UK, taking the total number to are scheduled to open in 2017. New sites will be opened in 24 at 31 December 2016 with further outlets planned for 2017. both our growth markets in the ROW as well as in the more We have expanded the number of VIP auditoriums where mature markets of the UK and Israel. Our growth markets customers experience a premium offering from the moment still hold significant potential for the Group, as the culture they walk through the door. A VIP ticket includes access to a of going to the cinema becomes more established and private lounge ahead of the movie screening where customers attendance increases with the rising standard of living. 6 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u During the year we announced the acquisition of the five We are also proud that many amongst our current Senior STR ATEGIC REPORT Empire sites which has enabled the Group to increase Management team have worked their way up into those its London presence, an area of the UK where we have positions after having started as trainees. previously been underrepresented. The Hemel Hempstead cinema was recently refurbished and is in line with our Another key part of our people strategy is our fair wage “new generation” style sites. In the near future we plan to policy – we are amongst the highest payers in the industry also refurbish the Basildon and Poole sites. As the Bromley and we pay more than our statutory obligations, across all site is smaller, with four screens, we feel it is more age groups and in all territories. appropriate to form part of the Picturehouse circuit. Value for Shareholders As we proactively focus on the management of our estate The cash generative nature of our business underpins our this may occasionally include closing specific sites where business model. Our priorities for the use of our cash have lease terms expire and it is not commercially beneficial remained consistent; to invest in the business to support or feasible to renew the lease. During 2016 we closed five organic growth in revenue and earnings, for selective sites, three in the UK, (Staples Corner, Hammersmith and merger and acquisition opportunities and to grow the Liverpool), one in Hungary, (Mammut), and one in Romania, dividend. During 2016 we have been able to reward (Arad GTC). shareholders with growth in both the dividend and adjusted diluted earnings per share, 8.6% and 16.8% respectively. The Refurbishments total full year dividend declared for 2016 is 19.0p Our refurbishment programme was a key focus for 2016, (2015:17.5p). G OV E R N A N C E with nine major refurbishments completed, six in the UK, (Stevenage, Glasgow Renfrew Street, Crawley, Cardiff, Future Outlook Wandsworth and Birmingham Broad Street) and three in As a management team we will continue to devote time and the ROW (Polus and Au Park - Slovakia and Campona - energy to assessing new site opportunities and potential Hungary). As previously highlighted, the UK estate is acquisitions, identifying key sites for renovation and generally older than in the ROW and we will continue ensuring we provide the latest innovative technology to our to renovate the estate further in 2017 to ensure all our customers. cinemas are of the highest quality and equipped with the latest technology. Looking forward, we are well positioned to continue delivering on our strategy in 2017. We have an excellent Digital Film and Technological Innovation estate which is growing and constantly being upgraded We continued to expand the IMAX and 4DX formats across where necessary to ensure the cinemas remain a selection of our sites. IMAX and 4DX are both extremely contemporary and of a high quality. We have a dedicated popular, especially for major releases such as “Star Wars: team who are focused on providing the best customer Rogue One” and “Fantastic Beasts and Where To Find service and we are investing in the latest technology to Them”. In 2017 “Fast and Furious 8”, “Pirates of the maintain our position as leaders in the industry. In addition, Caribbean: Dead Men Tell No Tales”, “Transformers: The Last there is an exciting film slate for 2017, which includes a Knight” and “Guardians of the Galaxy Vol. 2” are expected to number of sequels such as “Star Wars: Episode VIII”, do well in both the IMAX and 4DX formats. We opened two “Despicable Me 3”, “Justice League”, “Paddington 2”, “Fast F I N A N C I A L S TAT E M E N T S IMAX screens during the year in Timisoara Nepi (Romania) and Furious 8”, “Pirates of the Caribbean: Dead Men Tell No and Beer Sheva (Israel) and also acquired three as part of Tales”, “Transformers: The Last Knight” as well as new titles the Empire acquisition in Basildon, Hemel Hempstead and such as “Beauty and the Beast”, “Wonder Woman”, Leicester Square. By the end of 2016, the Group was “Dunkirk”, “Coco” and many more. operating 33 IMAX screens in total and 27 4DX screens. Whilst we remain cautious, we do not believe the expected Towards the end of 2016 new mobile applications were exit of the UK from the European Union will have a soft-launched to our customers across both Android and significant impact on the underlying trading performance iOS platforms. The key features, as well as a new look and of the Group going forward based on the nature of our feel, were the ability to sign-up for Unlimited membership, business which has a proven consumer appeal throughout and easier navigation to find tickets for performances all economic cycles. across all of our formats. As I have said before, teamwork is the secret of our success Our People and the key to our future. Without our people we would not Once again, 2016 saw considerable investment in people able to be “The Best Place to Watch a Movie”. I would like to initiatives across the Group as we recognise that motivated take this opportunity to thank the whole Cineworld team for and engaged people are pivotal to delivering our vision to their continued hard work and dedication during 2016 and I be the “Best Place to Watch a Movie”. look forward to working alongside them in 2017. Nurturing internal talent is a key part of our people strategy, and we are proud that over the last 12 months over 50% of cinema management positions have been filled by internal applicants. This success rate is underpinned by our regular Moshe Greidinger training programmes and talent development reviews, Chief Executive Officer which link directly to our learning and development offering. 9 March 2017 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 7


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    STR ATEGIC REPORT u Market Overview The geographic spread of the Group provides us with diversification and opportunities across both mature and growth markets. Characteristics of the Cinema Market External Factors The Group operates in nine territories and, as measured by The cinema industry is dependent upon the customer number of screens, is either the number one or two choosing to spend disposable income on watching a movie. operator in each. The nine territories are a blend of mature Value for money remains an important factor and cinema and growth markets which provides the Group with varying has tended to be a less expensive form of entertainment in opportunities, including expansion and modernisation. the wider leisure market in which the Group competes. Historical trends and patterns show that cinema attendance Mature markets such as the UK and Israel tend to be is most closely related to the quality of the movies rather characterised by higher admissions per capita, higher than the gross domestic product (GDP) of a country. average ticket prices and a lower population per screen ratio. Growth markets have the opposite characteristics and Although there continue to be developments in the online provide great investment potential for the Group. Romania video sector, superior experiences offered by technologies is an example of such a growth market where the Group such as IMAX and 4DX are ensuring that watching a movie invested significantly during 2015 and 2016 and will continue in the cinema is a unique experience which cannot be to do so in 2017. replicated at home or on a portable electronic device. Going to the cinema has also become more that just watching a Structure of the Market and Competitive Landscape movie, with the expansion of the retail offerings including There are four significant cinema chains in Europe, the coffee shops and bars. Middle East and Africa, with over 1,000 screens. The cinema industry globally has recently seen an increase in acquisition The customer experience has also been assisted by activity, with AMC Entertainment acquiring Odeon during developments in technology, such as the ability to book 2016 and subsequently they also recently announced the online and through mobile applications. In addition, the proposed acquisition of the Nordic Cinema Group. Outside digitalisation of cinemas has resulted in both a greater of the top four chains, the rest of the market is represented range of films being offered, and the streaming of live by smaller multiplex operators, which only operate in one or events such as opera, theatre and ballet. two territories, and independent operators which are specific to local markets. Market Performance The industry is largely dependent on the quality of films and European Cinema Industry(1) therefore the appeal of such films to the cinemagoing RANK COMPANY NO. OF SCREENS public. Box office revenue is driven by admissions and average ticket price. Admissions depend on the number, 1. AMC Entertainment 2,261 timing and popularity of films. The average ticket price is 2. Cineworld 2,201 driven by film mix, format of the film i.e. IMAX, 3D, Superscreen or 4DX, the demographics of admissions and 3. Vue Cinemas 1,841 local economic factors such as local levels of disposable 4. Les Cinemas Gaumont Pathe 1,043 income and competition. 5. CJCGV 761 Following the strong film slate of 2015 with a number of 6. Nordic Cinema Group 666 global blockbusters including “Spectre”, “Star Wars: The 7. CGR 466 Force Awakens” and “Jurassic World”, 2016 demonstrated that there was still an undiminished appetite for cinema 8. Ster-Kinekor 460 attendance. The top performing movies for 2016 globally 9. UGC 459 were “Captain America: Civil War” with global revenues of 10. Kinepolis 446 $1,153.3m, “Rogue One: A Star Wars Story” which managed to gross revenues of $1,034.0m in the last two weeks of (1) Source: Dodana – information compiled across 2016 December, “Finding Dory” with global revenues of $1,028.1m and “Zootopia”, which generated $1,023.8m (Source: Boxofficemojo.com). However, in certain territories, especially Poland and the Czech Republic, local films proved to be extremely popular and accounted for a greater percentage of annual admissions. In 2016 the top three films in Poland were all local movies. 8 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u STR ATEGIC REPORT COUNTRY TOP 3 FILMS FOR THE TERRITORY ORIGIN development opportunities tends to be greater. As a Group, UK & Ireland 1. Star Wars: Rogue One US we have opened 12 new sites in less mature markets over the last two years. Where there are site closures, especially 2. Fantastic Beasts and Where UK/US of older sites in the UK, this also provides further To Find Them opportunities for new investments. 3. Bridget Jones’s Baby UK Poland 1. Pitbull. Poland Other Income Retail and screen advertising revenues are significant G OV E R N A N C E Niebezpieczne kobiety additional sources of income for cinema chains. Popcorn 2. Planeta singli Poland and soft drinks remain the most popular retail items. There 3. Pitbull. Nowe porządki Poland is, however, a growing demand for cinemas to offer a wider range of products, including healthier variants of traditional Romania 1. Suicide Squad US offerings. There is also an increase in supplementary 2. The Jungle Book UK/US products including branded coffee outlets such as 3. Doctor Strange US Starbucks in the UK. Israel 1. The Secret Life of Pets US Screen advertising revenue varies depending on the type 2. Zootopia US of films screened, the number of minutes and value of advertising sold, the volume of attendees who view the film, 3. Trolls US and the placement of advertisements close to the start of Czech Republic 1. Deadpool US the film. The strength of the film slate in 2015 and the 2. The Revenant US success of major films in the current year had a positive impact on the screen advertising revenues in 2016, 3. Lida Bacrova Czech especially in the Group’s ROW territories. Slovakia 1. Finding Dory US Distribution income is generated in certain territories in the 2. The Secret Life of Pets US ROW. The revenue is generated by acquiring rights to a F I N A N C I A L S TAT E M E N T S 3. Deadpool US specific title, or acting as a local country distributor for a Bulgaria 1. Ice Age: Collision Course US main Hollywood studio. Where rights are directly acquired, the revenue is earned through royalties from cinema 2. Zootopia US exhibition and also from Video on Demand, DVDs and TV 3. Star Wars: Rogue One US screenings. Future Market Trends Property Market and Development Although streaming and downloading of films at home is The rate of new cinema openings is dependent upon increasingly popular, a multiplex cinema provides a unique local market conditions. Planning laws, the economic experience which cannot be replicated at home. A trip to environment, and the ability of developers to finance their the cinema is a social occasion and watching a movie on projects are factors which impact on cinema location. These a large screen with superb sound is attractive to all age characteristics differ by territory. In more mature markets groups. Cinema auditoriums are also increasingly being (such as the UK and Israel), the rate of new cinema used for purposes other than just exhibiting feature movies, openings has been slower in recent years, partly due to the such as the streaming of live events, for example, opera and limited number and long lead time of new retail and leisure ballet and for corporate events. developments. Despite this, the Group has been successful in opening 16 new sites over the past two years in the The cinema industry continues to believe that the interests mature UK and Israel markets. As the estate is generally of the film industry and the customer are generally best older in the mature markets, refurbishment of existing served by the existence of the cinematic window, the period cinemas, in particular in the UK, is vitally important and between the release of a film in a cinema and on any other accordingly six major refurbishments were completed in the platform. There is no expectation that the current cinema UK during 2016 by the Group. The opposite can be seen in window will significantly change in the near future. developing markets (such as Romania) where the number of C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 9


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    STR ATEGIC REPORT u Business Model We create value for shareholders through our focus on continually aiming to enhance the experience for our customers. We share the value we generate by reinvesting in the business and expanding our offer to customers, rewarding our employees and paying dividends to our shareholders. Our primary customers are the cinemagoing public Trusted Commercial Relationships who rely on us to provide the best entertainment Delivering a high quality film slate is one of the key external experience. We aim to give our customers, not just the drivers of our business. Whilst we do not have control over choice of cinema, but also the choice of how to watch what is produced, our close and long-standing relationships movies. In many cinemas, we have up to six different with the film distributors are fundamental to providing the offerings of how to watch movies: regular screens, best and most varied selection for our customers at the 3D, 4DX, IMAX, Superscreen and VIP theatres. right time. Our brands are important to our commercial partners, helping to deepen our relationships with the film We provide the films our customers want to see in the distributors, retail suppliers, advertisers and landlords. most appropriate venues and locations, using the best technology, with the right retail offerings and great Risk Management and Governance customer service. Our ticket price represents the various Monitoring and maintaining an effective system of risk offerings of how to watch a movie. Our major source management and internal control ensures that the Group’s of revenue is driven by admissions, and our ability to assets are safeguarded and that material financial errors maximise this income is dependent on the quality of and irregularities are prevented or detected with a the film slate and on the experience we can offer. Our minimum delay. admissions also have a direct effect on screen advertising revenues, and on retail sales, primarily of food and drink. Outputs Customer Experience Our business model is underpinned by the Our customers experience is fundamental to our success. following: By delivering our vision to be “The Best Place to Watch a People and Culture Movie”, we are ensuring that our customers have a positive Our people underpin the whole of our operations as experience and increase the likelihood of their repeat visits. they are the face of our cinemas. They are focused on ensuring that our customers enjoy the best possible Motivated Team experience during their visit. A well-established training and The investment we make and the way we operate is key to development programme is used to maintain standards as maintaining a happy and motivated workforce. For more on well as support the Group focus on internal succession. our people refer to Resources and Relationships on page 18. Financial Strength Group Financial Performance By continuing to achieve healthy margins and and KPIs maintaining a strong Balance Sheet we can continue The Group’s financial results and our progress against to invest in our business, expanding and modernising our KPIs are the key measurable outcomes of what the estate. Our continued investment in technology we achieve. These are outlined in detail in our KPIs is a pivotal part of evolving the viewer experience on page 12 and the Financial Review on page 28. we offer, but it also plays a role in ensuring we have flexibility in the use of our auditoriums. Shareholder Returns To be able to reward our shareholders we remain focused on driving revenues, increasing earnings and prudently managing our cash position, to ultimately provide returns to shareholders. 10 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Our Vision: To be the best place to watch a movie Our Purpose: To provide the films our customers want to see in the most appropriate venues and locations, using the best technology with the right retail offerings and great customer service STR ATEGIC REPORT Our Market & Brands Outputs uUK & Ireland u Rest of World Cineworld, Cinema City, Picture House Yes Planet uCustomer Experience Our Portfolio of Locations High Street Shopping Centres Motivated G OV E R N A N C E u u u Teams u Retail & u Stand Alone Leisure Parks Our Operations u Cinema Operations u Property & u Group Construction Financial Profit Reinvestment Profit Reinvestment u Group Support u Film buying, Performance Functions programming and and KPI Delivery distribution F I N A N C I A L S TAT E M E N T S Our Offering Box Office u u Advertising u Shareholder 4DX, 3D IMAX, Returns VIP, Unlimited, u Retail Superscreen Starbucks, Candy King, Baskin Robbins u Distribution UNLIMITED People Financial Trusted Risk Management & Culture Strength Commercial & Governance Relationships C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 11


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    STR ATEGIC REPORT u Strategy and Key Performance Indicators (“KPIs”) In order to implement and measure the Group’s strategic performance, we monitor the following Key Performance Indicators in addition to the Group’s overall financial performance. 1. 2. 3. Delivering a great cinema Expanding our estate and Ensuring that we enhance our experience for all cinemagoers, looking for profitable existing estate so we deliver a every time. opportunities to grow. consistent level of quality across the Group. Our people are the face of our When selecting new sites for Providing our customers with high business. They are key to delivering a development we consider the location, quality cinemas throughout the estate great customer experience to all of our accessibility, competition, and other is of upmost importance. As the UK customers. It is therefore important local economic factors. estate is generally older than in the to us that we recruit high quality ROW, refurbishments are key to employees and invest in them. What we achieved in 2016 ensuring the cinemas remain Completed the acquisition of five contemporary and include the We want to ensure our customers have Empire sites including the iconic latest technology, stadium seating, choice – this includes the movies they Empire Leicester Square which and retail offerings. can watch, how they watch the movies, the type of venue they watch a movie increases our London presence. The five cinemas comprised: What we achieved in 2016 in and a variety of retail offerings provided to cater for all demographics. A record nine major refurbishments uuBasildon – 18 screens uuBromley – 4 screens were completed, six in the UK and three What we achieved in 2016 uuHemel Hempstead – 17 screens in the ROW. Achieved record customer admissions, uuLeicester Square – 9 screens reaching the fantastic milestone of uuPoole – 16 screens UK&I over 100m admissions across the Group. uuStevenage Built on the previous record number of uuGlasgow Renfrew Street Employee engagement levels 18 openings in 2015 with an additional uuCrawley increased to 75% from 70% in 2015 eight openings, four in the UK&I and uuCardiff with an outstanding response rate four in the ROW. uuWandsworth of 98%. uuBirmingham Broad Street Our “BeMore” programme, which UK&I supports our top talent displaying ROW potential and fulfils our internal uuYate – 6 screens succession requirements, saw the uuLoughborough – 8 screens uuPolus (Slovakia) graduation of 24 junior managers. uuDalton Park – 7 screens uuAu Park (Slovakia) uuHarlow – 6 screens uuCompania (Hungary) ROW NUMBER OF REFURBISHMENTS COMPLETED ADMISSIONS uuTimisoara Nepi (Romania) – (£m) 13 screens uuBeer Sheva (Israel) – 18 screens 9 +7.2% uuBucharest Tital (Romania) – 14 screens 2015: 3 uuPiatra Neamt – 6 screens 93.6 100.3 We have a pipeline of 441 new screens which are contracted to come on- stream over the next four years. 2015 2016 NO. OF NEW SITES: 13 2015: 18 TOTAL NO. OF SCREENS 2,115 2015: 2,011 12 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u STR ATEGIC REPORT 4. 5. Being leaders in the industry Driving shareholder value by delivering our growth plans by offering our customers in an efficient and effective way. the latest audio and visual technology. We want to continue the roll-out of To be able to reward our shareholders we remain focused on driving revenues, the latest technology across the increasing earnings and prudently managing our cash position. Group, by continuing to strengthen our partnership and relationships What we achieved in 2016 with IMAX and 4DX. Delivered growth in underlying profitability, with an increase in EBITDA, adjusted EPS and dividends. What we achieved in 2016 Continued to focus on driving efficiencies across the Group for example by the The first 4DX was opened in London extension of the shared service centre in Poland. Having successfully established at our Wandsworth site in December. the customer service call centre in 2015, during 2016 our tier 1 IT and UK There were thirteen 4DX screens purchasing functions were transitioned to Poland to unlock further efficiencies G OV E R N A N C E opened across the Group in total across the Group. during 2016, bringing the total number of 4DX screens to 27 as at 31 December 2016. Two new IMAX screens were opened, in addition to the three IMAX screens acquired from Empire. We are now EBITDA currently the largest IMAX exhibitor in (£m) the UK and have a total of 33 screens across the Group as at 31 December 2016. +13.2% NUMBER OF PREMIUM FORMATS 175.8 155.3 4DX 27 2015 2016 2015: 14 F I N A N C I A L S TAT E M E N T S DIVIDEND PER SHARE AVERAGE TICKET PRICE IMAX (p) (£m) 33 +8.6% £4.82 £4.99 2015: 28 19.0p 17.5p 2015 2016 2015 2016 ADJUSTED DILUTED EPS RETAIL SPEND PER PERSON (p) (£m) +16.8% £1.74 £1.90 34.7p 29.7p 2015 2016 2015 2016 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 13


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    STR ATEGIC REPORT u The best customer experience Cinema just keeps getting better We are transforming our customers’ experiences through continued investment in refurbishments, new technologies and customer service. IMAX The ultimate in ‘big screen’ experience, IMAX is the most immersive cinematic experience. 33 LOCATIONS 1 UK & Ireland SCRE E NS 20 2 Poland 5 3 Israel 3 4DX VIP Customers travel from far and wide A premium cinema experience which 4 Romania 2 to enjoy the hugely-exhilarating includes access to a private lounge 5 Bulgaria 1 multi-sensory 4DX experience. ahead of the movie screening where 27 6 Czech Republic 1 customers can enjoy unlimited buffet food, popcorn and soft drinks before 7 Hungary 1 watching the movie in a dedicated auditorium with luxurious reclining seats. 9 LOCATIONS SCRE E NS 1 UK & Ireland 9 2 Poland 5 3 Israel 4 LOCATIONS SCRE E NS 4 Romania 3 1 Israel 3 5 Hungary 1 2 Poland 2 6 Czech Republic 2 3 UK & Ireland 2 7 Bulgaria 2 4 Hungary 1 8 Slovakia 1 5 Romania 1 14 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Foyer Experience Customers are wowed entering our fully digital foyers with huge LED screens that make the trailers come alive. STR ATEGIC REPORT G OV E R N A N C E Starbucks Cineworld opened its 24th Starbucks at Cineworld Wandsworth. Number of screens Superscreen 2,115 Our in-house big screen IMAX Laser experience has jaw-dropping Crystal clear laser projection F I N A N C I A L S TAT E M E N T S Dolby Atmos sound and from IMAX provides the comfortable designer sharpest on-screen experience. Italian seats. Number of cinemas 226 LOCATIONS 1 UK & Ireland CINE MAS 118 SCRE E NS 1,042 2 Poland 33 354 3 Romania 24 223 4 Hungary 19 163 5 Czech Republic 13 115 6 Israel 10 124 7 Bulgaria 6 65 8 Slovakia 3 29 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 15


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    STR ATEGIC REPORT u Employee engagement Investing in our people Our teams are trained to enhance the excitement of going to the movies by making the experience as effortless as possible. TRAINING COURSES We offer a range of courses, including our BeReady, BeMore and BeGreat programmes which are tailored for employees at varying levels of their career. APPRENTICE PROGRAMME We now have 64 apprentices in our programme, providing opportunities for young people to learn straight from school as well as offering an exciting career into the cinema industry. 64 NEW EMPLOYEES Staff retention is at an all time high. 16 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Cineworld Group events in 2016 Company Conference Children in Need STR ATEGIC REPORT Over 300 management team Cineworld teams raised over members, suppliers and partners £400,000 in support of BBC’s attend our annual conference, held Children in Need – the first time in 2016 at both Cineworld Wembley Cineworld has supported such a and the famous Wembley Stadium. major national campaign. Multiple events were hosted across cinemas and all box office income from our Movies for Juniors programme was donated during Children in Need week. G OV E R N A N C E Awards The highlight of the year is the awards dinner at the company conference, with the Department of the year award in 2016 won by the Learning and Development team. Training Programmes Our BeMore training programme ensures that we prepare the managers of tomorrow; as we continue to grow our estate we invest in the people who will be the future General Managers of our cinemas. F I N A N C I A L S TAT E M E N T S C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 17


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    STR ATEGIC REPORT u Resources and Relationships Our business model and strategy are underpinned by key resources and relationships. Introduction honesty and integrity in its dealings with customers, Our key relationships for the Group are with our customers, employees, shareholders, regulators, suppliers and our people, our commercial partners and our wider our wider community. communities. How we behave and interact with each of these parties reflects on our reputation, which is a key asset Health and safety is of major importance to us when underpinning the successful delivery of our strategy. considering the day-to-day health, safety and welfare of our customers, employees and contractors. With over 100 Our Group policy on ethics seeks to guide the behaviour million customer visits a year and over 9,000 employees, of our people by specifying 12 principles which establish the Group seeks to maintain the highest standards in the common values through which we do business. We strive effective management of our health and safety obligations, to ensure that we act in appropriate ways to maintain and and our duty of care to our customers and staff. enhance our reputation. The Group seeks to act with th and Safety Heal s er O u om rP t us Our Ethical Principles eo rC 1 We will act truthfully ple 2 We will act with integrity Ou 3 We will respect our customers 4 We will treat individuals properly 5 We compete fairly 6 We will treat our suppliers properly 7 We will manage relations with shareholders effectively 8 We will maintain high standards of financial record keeping and reporting Key C 9 We will comply with the rules on inside information and share dealing 10 We will maintain high standards of s om health and safety itie 11 We will respect the environment m 12 We will seek to contribute un to the community er m al ci m Re o lat urC ion O ship s 18 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 21

    STR ATEGIC REPORT u Each year, every cinema in the Group is subject to health The Group actively encourages our future film-going STR ATEGIC REPORT and safety assessments (including aspects of fire, food audience by specifically tailoring film schedules to attract and occupational) self-assessments and audits. Results families and young people. Where necessary, these are compared year-on-year and any significant issues performances are dubbed into the native language to ensure are followed up with the assistance of specialist external that all customers can enjoy the full cinema experience. consultants where needed. Overall, the results have shown Concessionary rates are offered for senior citizens and that standards remain high. All incidents are logged, students at certain times of the day. Throughout the Group, investigated and action taken, where appropriate, to ensure all national regulators’ film classification guidelines are that the chances of a reoccurrence are reduced as far as followed, unless the local regulators require otherwise. In reasonably possible. some of our territories, there are no classification guidelines, and in such cases we provide information to customers Our Customers about films so they can make informed choices about the Our customers are fundamental to our success. We focus type of film being shown. We also ensure that all trailers are on ensuring that they have a positive experience every time complementary in terms of suitability to the main feature. to increase the likelihood of repeat visits. We aim to deliver a broad range of films, in high quality venues with retail Our People offerings to suit our customers’ tastes all of which Once again, 2016 saw considerable investment in people contribute to achieving our vision. initiatives across the Group as we recognise that motivated and engaged teams are pivotal to delivering our vision to be We also have initiatives which aim to extend the relationship the ‘Best Place to Watch a Movie’. G OV E R N A N C E with the customer beyond a single visit. In the UK, and from the end of 2015 in Poland, we have our Unlimited subscription Nurturing talent is a key part of our people strategy and, service which is a fixed monthly (or annual) subscription in support of our growth strategy, we are proud that over enabling customers to watch as many 2D films as they wish. the last 12 months more than 50% of cinema management We also have a number of other membership schemes across positions were filled by internal applicants. This success rate the UK and other territories which offer discounts and allow is underpinned by our regularly held talent development us to interact frequently with our customer base. reviews which directly link to our learning and development offering. The talent review process allows us to identify high Event cinema screenings bring a wider range of content to performing and high potential talent from across the estate our customers, enabling our audiences to see live shows and invest in their development so they can achieve their taking place around the world. Operating in this way supports full potential. Much of our learning and development focus such productions, making them more commercially viable, in 2016 has been on developing content for our various and accessible to more people and, in turn, brings more people to extensive programmes. the cinema and, frequently, a different type of customer. There are three core parts to our learning and development As many of our customers still associate going to the offering: cinema as a treat or special occasion, they expect traditional cinema snacks as part of their experience. However, we offer • BeReady - trains people who are ‘New to Role’ to enable a range of products to our customers, and we work closely them to feel part of our family and to develop their F I N A N C I A L S TAT E M E N T S with our partners to provide healthier alternatives where competence and confidence, whilst they learn on the job. appropriate. We ensure that we provide good nutrition and • BeGreat - supports people with their performance and allergen advice to enable our customers to make informed capability; employees are up-skilled in the technical and choices, with the latter now being available on our website. soft skill aspects of their role. All training is delivered in a At our Picturehouse circuit, the food and drink proposition is workshop format, where learnings are embedded and more akin to that found in restaurants and closely tailored transferred back into the workplace. to the audience profile to which it caters. A wide range of • BeMore – supports the top talent displaying potential and snacks and meals are available, many of which include fulfils our internal succession requirements. 2016 saw the ingredients sourced from local producers and suppliers. graduation of 24 junior managers who took part in our 12 month residential management ‘BeMore’ programme. The Group actively promotes a philosophy of access for all Since graduation, 17 of these managers have either by offering accessible cinemas for the handicapped that progressed to a higher management position or moved show a wide range of films and event cinema. Employees into a new, larger complexity cinema. This year’s receive disability awareness training and specific advice programme also offers an opportunity to complete a on welcoming disabled customers. Many of our cinemas qualification (accredited by the Institute of Leadership and offer audio-descriptive, autism-friendly and subtitled Management “ILM”). Additionally, we extended the performances, and in some territories, the Group allows opportunity of completing an optional NVQ qualification customers with disabilities to be accompanied by a carer, to our Team Members and Supervisors on our ‘BeMore’ free of charge. All new cinemas are designed to exceed programme. We have around 250 Team Members and current statutory requirements and to provide buildings Supervisors being supported in the programme in order which are technically advanced, accessible and safe. to prepare them for their next role and a number are now When cinemas undergo major refurbishment as part of completing an NVQ in Customer Service or an NVQ in an ongoing programme of improvements and renovations, Team Leading. the opportunity is taken to enhance access within cinemas where practicable to do so. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 19


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    STR ATEGIC REPORT u Resources and Relationships continued We also have a 24 month apprenticeship programme, Our Commercial Relationships attendance in which has trebled during 2016. We now have We work hard at developing good relationships with a range 64 apprentices in our programme, providing opportunities of film studios and distributors, both major and independent. for young people to learn straight from school by offering Our focus on driving cinema admissions and on providing an exciting career path into the cinema industry. Many our customers with a wide range of movies has resulted in apprentices go on to become Cinema Supervisors. many opportunities for us to work with film studios on simplifying the film buying process and on promoting We are also very proud of our online Learning Management smaller films to a wider audience. We also work closely with System ‘CineLearn’ – CineLearn has grown to become the industry bodies, including the Film Content Protection foundation of our learning and development offering, with Agency (FCPA), to combat film piracy. During 2016 the over 4500 employees now having access to the platform, Group were awarded a total of 22 awards out of a possible which supports their personal and professional development. 32 awards from the FCPA, demonstrating our dedication to The system is now being accessed 90 times per day across the UK’s theatrical protection programme. the estate, demonstrating the ease and accessibility of the platform as well as the culture of learning within the Group. The Group is committed to protecting the intellectual property rights of films and Event Cinema. Policies and Another key part of our people strategy is our fair wage procedures are constantly reviewed and developed to policy, across all age groups and in all territories. In addition, ensure cinema management are able to effectively monitor we update and improve bonus schemes, rewarding people and prevent film piracy. Night-vision technology is utilised across a range of measures from Group performance to and there is an increased vigilance around high profile titles personal performance, to driving sales and more. We also which are particularly vulnerable. offer an extensive range of benefits including unlimited free cinema tickets, guest tickets, discounts on food and drinks, The Group will continue to work closely with relevant bike to work schemes, childcare vouchers and many other industry and law enforcement organisations in order to help benefits which suit our people’s needs. reduce and prevent film piracy. We are enormously proud of our employee engagement We build relationships with developers, landlords and local scores. For the fourth consecutive year, engagement levels planners to ensure that we maintain a pipeline of new sites have increased and in 2016 we achieved an engagement for the future. We also work closely with suppliers of score of 75% (up from 70% in 2015) and a truly outstanding technological enhancements, for instance IMAX and 4DX, participation rate of 98%. These scores have been achieved which enables us to ensure that we are delivering the best by continuing to listen to our people through our surveys possible experience to our customers, as well as looking to then implementing initiatives which are important to them maximise box office revenues. and their needs, such as increased levels of pay, succession planning and promotions, and learning and development Strong relationships with our principal retail suppliers, such opportunities. as Coca-Cola, Baskin Robbins, Candy King, Starbucks and Pepsi enable us to work together on promotions that help Diversity and Human Rights drive retail sales. We seek to manage relationships with our The Group is an equal opportunity employer and seeks suppliers fairly, and to work in accordance with our to recruit, retain and promote staff on the basis of their aspirations as set out in our ethical policy. qualifications, skills, aptitude and attitude. A wide range of applicants are encouraged to apply for all roles. In The Group also works as a venue partner for numerous film employment-related decisions, the business complies with festivals. While many are well known and high profile, in all relevant legislation, including that specifically targeted certain territories the Group sponsors festivals showcasing at preventing discrimination, and such principles are local film producers’ work and runs short film competitions embedded through the business by requisite policies. for students encouraging the development of future talent. This involvement once again helps to promote the Group’s Gender Breakdown of Cineworld People brands through the wider film industry. BOARD OF SENIOR TOTAL DIRECTORS MANAGERS (1) EMPLOYEES Male 6 6 5,094 Female 3 3 4,852 (1) Senior managers are those people who report directly to an Executive Director. Data is based on the average headcount for 2016. 20 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u Our Communities Our cinema websites enable e-tickets to be purchased STR ATEGIC REPORT Our work with charities, schools, and community groups and used, avoiding the need to print tickets. In new and across all our territories is very important to us. We are refurbished cinemas, poster cases are now digital reducing involved with a wide range of activities including working the need to deliver, install, and ultimately throw away large with distributors on charity screenings, providing free shows paper posters. All these efforts help to reduce our use of for organisations and working closely with local schools and resources and carbon footprint. organisations. In 2016, for the first time, Cineworld partnered with the BBC’s Children In Need initiative, where as a team we raised over £400,000. Our Picturehouse cinemas work very closely with their charity of choice, Plan International UK, and host regular awareness-raising and fundraising activities in venues, including free preview screenings and interactive activities for audiences. In 2016, Picturehouse Cinemas also donated 10p from every bottle of water sold in their cinemas to Plan International UK. For 2017, Picturehouse Cinemas have now changed bottled water supplier to Life Water. Life donated a significant G OV E R N A N C E amount of their proceeds to charity and the plastic bottles used by it are amongst the most environmentally-friendly in the market. Our schools’ programme saw us working with a variety of partners to deliver a wide range of educational screenings for primary and secondary schools, including the Holocaust Memorial Day Trust, London International Film Festival, World Book Day and the National Literacy Trust. We worked with our distributors to create special schools promotions and programmes for films such as Macbeth, Suffragette and The Stanford Prison Experiment. We ran talks and screenings for Black History Month, Anti Bullying Week, Science and Engineering Week, Refugee Week, Roald Dahl’s Centenary, World Book Day and Holocaust Memorial Day. Across the last academic year, our key achievements F I N A N C I A L S TAT E M E N T S included: • We held over 400 education screenings on weekday mornings with a total of over 32,000 students attending from 450 different schools across the UK. • We showed 942 Saturday morning Kids’ Club screenings, with an audience of circa 55,000. • We showed 1,246 weekday morning Toddler Time screenings, with an audience of circa 27,500. • We held 224 Autism Friendly screenings with a total of circa 3,764 total admissions. • Dementia Friendly Screenings - Picturehouse launched this strand at Hackney and Liverpool, with 11 screenings taking place and a total of 380 admissions. We seek to comply with all relevant environmental legislation and to operate in an environmentally sensitive manner. The Directors acknowledge the impact that the business has on the environment and seek to mitigate it. Often changes which help to mitigate our environmental impact also reduce our operating costs. Being a multisite business, the Group is conscious of its total energy consumption and amount of waste materials generated and is actively working on reducing both. The Group’s mandatory greenhouse gas report can be found in the Directors’ Report on pages 76 to 77. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 21


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    STR ATEGIC REPORT u Principal Risks and Uncertainties Operating as a cinema chain across nine different territories presents a number of risks and uncertainties that continue to be the focus of the Board’s ongoing attention. Cineworld’s approach to risk management and internal Principal Risks Summary Strategic Risk control is designed to manage risk at all levels, of the Relevance Trend business, recognising that although we can take mitigating actions on all risks the mitigation is not guaranteed to 1. Technology and Data 1/2/3/4/5 address the full impact of any risk. Therefore, where 2. Availability and Performance 1/4/5 possible, the Group has implements appropriate mitigation of Film Content strategies to reduce the overall risk exposure in line with the Board’s risk appetite. 3. Expansion and Growth of 2/3/4/5 Our Cinema Estate During the year the Group further strengthened the 4. Viewer Experience and 1/3/4/5 components of the Risk Management Framework through Competition its programme of ongoing monitoring and reporting. This 5. Revenue from Retail/ 1/5 ensured that the risk profile remained up-to-date and Concession Offerings accurately reflected the Group’s risk exposure. 6. Cinema Operations 1/5 The Board undertook a formal annual review of risk 7. Regulatory Breach 1/2/3/5 appetite, ensuring that the view it has established for each of the principal risks reflects its current perspective and 8. Strategy and Performance 1/2/3/4/5 its willingness to accept risk in pursuit of the strategic 9. Retention and Attraction of 1/2/3/4/5 objectives of the Group. Full details of the Group approach Senior Management and Key to risk management are set out on page 45. Employees 10. Governance and Internal 1/2/3/4/5 In addition, the Directors’ viability assessment has taken into Control consideration the potential impact of the principal risks in the business model, future performance, solvency and 11. Terrorism and Civil Unrest 1/5 liquidity over the period, including principal mitigating actions such as reducing capital expenditure. More details Key about the viability assessment may be found on pages 49 Increase to 50. Decrease No significant change The Board has undertaken a robust assessment of the principal risks facing the Group during the year, including The Group’s principal risks are set out on the following those that would threaten its business model, future pages together with: performance, solvency and liquidity. The time-frame horizon • a description of the risk and its potential impact; for consideration of the principal risks is aligned to the three • examples of the current controls and mitigation; year period used when considering the future viability of • a summary of developments in the year; the Group (please see the Group’s viability statement on • an indication of the direction of travel of the risk page 38). exposure; and • an indication of the link to the Group’s strategic The specific impact of Brexit on our principal risks has been objectives as set out on pages 12 and 13. considered by the Board and Senior Management. Whilst we remain vigilant, we do not believe the result of the EU referendum will have a significant impact on the underlying trading performance of the Group going forward based on our business, which has a proven consumer appeal through all economic cycles. 22 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u STR ATEGIC REPORT 1 Technology and Data Control Risk Trend Owner: Deputy CEO Strategic Relevance: 1/2/3/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend The Group continues to grow its The Group IT function monitors, The continual increase in global criminal reliance on IT systems and data. manages and optimises our systems, cyber activity and the ongoing From online ticket sales to managing including ensuring their resilience implementation of a number of new IT financial information and everything through regular back-ups and the systems in the Group has necessitated in between, the Group is reliant on its implementation of security measures. that the Board specifically focus on this IT systems remaining operational and Additional external experts are area continues to remain high. An secure. Therefore, any critical system employed where necessary to oversee, enhancement in the resilience of Group interruption for a sustained period and help manage, major projects systems has occurred during the year. could have a significant impact on the involving the upgrading or replacement All IT systems and Data have now been Group’s performance. In addition, any of key systems. The Group continually transitioned to an outsourced data breach (cyber or otherwise) of data reviews its approach to information centre that is then backed up by a protection rules or security measures security, specifically controlling the secondary centre at a different location. surrounding the storage of confidential sensitive data it holds through and proprietary information (including restricted access. G OV E R N A N C E movie content) could result in unauthorised access, loss or disclosure of this information. This could lead to claims, regulatory penalties, disruption of operations of the Group and ultimately reputational damage. 2 Availability and Performance of Film Content Risk Trend Owner: CCO Strategic Relevance: 1/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Underpinning the overall success of We work closely with film distributors In part due to significant global sporting the Group is the quality of the film to acquaint ourselves, as early as events, there were fewer blockbusters slate, the timeliness of release and the possible, with the upcoming film released in 2016 compared to 2015. appeal of such films to our customers. slate in order to forecast likely film However, the level of admissions Where the film studios do not produce performance. Although access to demonstrated there remains an sufficiently attractive films, or films the latest film slate is reliant on our undiminished appetite for cinema F I N A N C I A L S TAT E M E N T S underperform, this has a direct impact relationship with the film distributors, attendance, especially for family titles in on cinema attendance and, therefore, the Cineworld Group strategy is to the ROW territories. In addition, locally the principal box office revenue for the show a wide range of films over and produced movies continue to be popular, Group may decline. above the traditional Hollywood with the top three films in Poland for blockbusters. This allows us to reduce 2016 all being produced locally. (For the exposure to reduced attendance further information see Market Overview by meeting specific local area demand on page 8 and 9). There is a strong film for type and content of films shown. release programme for 2017 and, The operating flexibility of having therefore, we expect these to drive digital projection technology available continued growth in admissions. in all our cinemas has enhanced the capacity utilisation of the Group, as digital film content can be easily moved to and from auditoriums to maximise admissions. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 23


  • Page 26

    STR ATEGIC REPORT u Principal Risks and Uncertainties continued 3 Expansion and Growth of Our Cinema Estate Risk Trend Owner: CEO Strategic Relevance: 2/3/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Growth in the estate is dependent The Group devotes a considerable The Group grew the state as a further on the development of new sites or amount of time to assessing new site eight new cinemas (four in the UK and the acquisition of existing cinemas. opportunities and this, along with four in ROW) opened during the year. Planning laws, the economic further acquisitions, is a key part of A further 441 screens are scheduled to environment, availability of capital for our future growth strategy. We also open across the next four years, with 132 developers and location choice are maintain good relationships with scheduled to open in 2017. (For further some of the factors that may impact potential key development partners. details see CEO’s statement on pages 6 the Group’s development and growth This allows us to be aware of and 7). plans. the availability of space in new developments and to ensure factors such as local planning laws and demographic changes are understood and monitored. Board approval is obtained for all new sites and significant refurbishments. 4 Viewer Experience and Competition Risk Trend Owner: COO Strategic Relevance: 1/3/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Although cinema admissions are Our strategy is focused on continually As many as six different formats predominantly driven by the quality improving the quality of services we (regular screens, 3D, 4DX, IMAX, and availability of films, ensuring that offer to customers. This includes Superscreen and VIP auditoriums) are the Group continually enhances the increasing the efficiency of online available, to give our customers the viewer experience is crucial. Any booking, removing clutter from the widest viewing choice. decrease in the quality of the services foyers, investing in technical we offer, from the ease of booking, innovation and premium offerings We reinforced our market-leading the technology we use, to a friendly (4DX and other large screen formats), position in technology by introducing farewell on departure, could result upgrading seating options (further 4DX into a further 13 sites and IMAX into in loss of customers to competitors roll-out of the VIP offering) and a further five sites (for further details see and/or other leisure/entertainment improving retail offers. Customer CEO’s statement on pages 6 and 7). attractions. Furthermore, the interaction with the Group outside of development of existing and new the cinema environment is also technology (such as 3D television important. We have enhanced and internet streaming) has also subscription and membership introduced competitive forces as they programmes to offer added value offer alternative ways to view films. through offers and information. 24 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u STR ATEGIC REPORT 5 Revenue from Retail/Concession Offerings Risk Trend Owner: CCO Strategic Relevance: 1/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Retail/concession sales generally A key strategy for the Group is to The retail spend per customer increased fluctuate in line with admissions and maintain a strong relationship with the with a 5.1% rise in 2016. The retail the type of film on show. Therefore, if principal retail suppliers. We run offering continued to expand and admissions were to fall, revenue from targeted promotions, as well as bring diversify with a further seven Starbucks retail sales could decrease. Retail in different ranges of products to meet outlets opened during the year, taking spend may also decrease due to changing customer demand. The the total circuit to 24 at 31 December changes in customer preferences, introduction of franchising models for 2016, with a number of further openings decreased disposable income or other some of the key suppliers has also scheduled for 2017. The second UK VIP economic and cultural factors. In been an important way of enhancing site was opened in the UK (Glasgow addition, the price of items such as the range of offerings. Renfrew Street) and there are plans to energy and foodstuffs has a direct open additional sites where there is the impact on costs. The ability of the appropriate market opportunity (for Group to understand and react quickly further details see CEO’s statement on to the changing customer need is a pages 6 and 7 and Financial Review on G OV E R N A N C E key part to maintaining and increasing pages 28 to 32). revenue. 6 Cinema Operations Risk Trend Owner: COO Strategic Relevance: 1/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Operating cinemas well is pivotal to Cinema management continually There is continual improvement in the the overall success of the Group. Key monitor their staffing requirements, operational and financial performance to this is to ensure that management making adjustments to scheduling of the Cinemas in the Group driven by understand the local market (film based on customer demand, forecasts a combination of ongoing process scheduling, pricing and retail offerings), and film scheduling. On a monthly evolution and underpinned by continual effectively manage their employees, basis, detailed operational and investment in learning and development maintain service standards, and are financial reviews are undertaken by programmes (please see Resources and able to react to incidents should they cinema management teams to ensure Relationships on pages 18 to 21). A key occur. A reduction in performance in performance matches expected focus in the later part of 2016 was, any area can have a direct effect on the targets. and continues to be, the alignment of F I N A N C I A L S TAT E M E N T S overall viewer experience, reputation of operational processes and procedures the cinemas and ultimately the Group’s of the five cinemas acquired from Empire financial performance. with those of Cineworld. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 25


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    STR ATEGIC REPORT u Principal Risks and Uncertainties continued 7 Regulatory Breach Risk Trend Owner: Deputy CEO Strategic Relevance: 1/2/3/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend The Group’s business and operations Management operates an ongoing The results of our cinema compliance are affected by regulations covering cinema compliance programme, programmes, health and safety such matters as planning, the supplemented by independent assessments, and wider assurance environment, health and safety compliance assurance reviews by activity continue to indicate no (cinemas and construction sites), external advisers where appropriate. significant increase in risk exposure, licensing, food and drink retailing, data Group support functions use a with standards of compliance protection and the minimum wage. combination of ongoing staff in all areas remaining high (for Failure to ensure ongoing compliance development as well as updates from further details see Resources and with regulation/legislation could result professional advisers to ensure Relationships on pages 18 to 21). in fines and/or suspension of activity. management are aware of the latest regulations in key areas. 8 Strategy and Performance Risk Trend Owner: Deputy CEO Strategic Relevance: 1/2/3/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Delivery of our long-term objectives A structure is in place to support The 2016 annual management requires the effective setting, effective strategy development, as conference provided the platform communicating, monitoring and well as ongoing reporting and to reconfirm the Group’s strategy executing of a clear strategy. monitoring of business performance with Senior Management and ensure on a daily, weekly, monthly, quarterly a clear understanding of execution and annual basis. Monitoring Senior requirements. There have been changes Management performance against at a Senior Executive level with Nisan their agreed personal objectives is an Cohen (CFO), Renana Teperberg (CCO) ongoing exercise. and Matt Eyre (COO) all now holding Group-wide roles and joining the CEO There are various communication and Deputy CEO for an expanded strategies (e-mails, meetings and Executive Management Team. They are conferences) used to ensure the supported by Senior Vice Presidents strategic goals of the Group are clearly who lead on specific functional areas understood and executed by Senior and support them in monitoring Management. current business performance and looking at future strategic direction. 9 Retention and Attraction of Senior Risk Trend Management and Key Employees Strategic Relevance: 1/2/3/4/5 Owner: Deputy CEO Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend The Group’s performance and its To ensure the long-term success of the Nurturing talent across the Group ability to mitigate significant risks Group, it uses a variety of techniques is a key part of our strategy and, in within its control depends on its to attract, retain and motivate its staff, support of that, internal succession employees and senior management with particular attention to those in plays a key part with more than 50% of teams. Therefore, reliance is placed on key roles. These techniques include cinema management positions filled by the Group’s ability to recruit, develop the regular review of remuneration internal applicants. This success rate is and retain Senior Management and packages, share incentive schemes, underpinned by regularly-held talent other key employees. If the Group training, regular communication with development reviews which directly loses key people this could have an staff and an annual performance link to the learning and development impact on its ability to deliver business review process. As an overall approach programmes (please see Resources objectives. internal promotion is preferred where and Relationships on pages 18 to 21). possible. 26 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


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    STR ATEGIC REPORT u STR ATEGIC REPORT 10 Governance and Internal Control Risk Trend Owner: CFO Strategic Relevance: 1/2/3/4/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Maintaining corporate governance The Group uses various mechanisms Continued evolution of the Group’s standards and an effective and to support the implementation and risk management programme, and the efficient risk management and internal effectiveness of controls. These delivery of supporting assurance activity, control system proportionate to the include: is providing ongoing improvements to needs of the Group is a key part of • Implementation of the Group Risk the overall system of internal control short and long-term success. Any Management Framework; (please see Corporate Governance failure and/or weakness in this area • Ongoing self-assessment process report pages 46 to 47). The creation (financial and non-financial) could for monitoring cinema compliance of a new role within the Group of have an impact on the efficient and and financial control standards; Head of Risk and Assurance in August effective operations of the Group. • Work of Internal Auditors; 2016 is a further step by the Group to • Regular consultation and advice ensure ongoing compliance with its from external advisers; governance standards, risk management • A risk based cinema compliance assessment and internal controls. and financial control audit G OV E R N A N C E programme; • The delivery of targeted risk based internal audit reviews; and • The use of technology for live forensic monitoring. 11 Terrorism and Civil Unrest Risk Trend Owner: CEO Strategic Relevance: 1/5 Description and Impact Controls and Mitigation Activity Commentary and Rationale for Trend Cinema businesses could be affected We receive communications from Incidents of terrorism across the globe by civil unrest or terrorist acts/threats, relevant government authorities and means the Group continues to focus on resulting in the public avoiding going law enforcement agencies which keep this as part of its ongoing cinema to the cinemas. This could be due to us informed and allow us, when operations. incidents in the locations in which the needed, to monitor any potential Group operates that increase general impact external events could have on unease. The Group may be subject to the security of our cinema estate. F I N A N C I A L S TAT E M E N T S an increased risk of boycott, targeted Business continuity and disaster civil unrest or terrorist action/threat as recovery plans are in place to ensure a result of operating in and being that management can react linked to certain countries or types of appropriately should an incident occur film. This could adversely impact the at a Group site. Appropriate insurance financial performance of the Group. is in place to mitigate the financial consequences. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 27


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    STR ATEGIC REPORT u Financial Review Performance Overview YEAR ENDED 31 DECEMBER YEAR ENDED 31 DECEMBER 2016 2015 CONSTANT UK & REST OF THE TOTAL STATUTORY CURRENCY IRELAND WORLD GROUP TOTAL GROUP MOVEMENT MOVEMENT Admissions 51.8m 48.5m 100.3m 93.6m 7.2% 7.2% £M £M £M £M Box office 324.0 176.9 500.9 451.6 10.9% 7.0% Retail 117.5 73.3 190.8 162.7 17.3% 12.6% Other income 52.5 53.6 106.1 91.5 16.0% 9.8% Total revenue 494.0 303.8 797.8 705.8 13.0% 8.7% Cineworld Group plc results are presented for the year UK and Ireland ended 31 December 2016 and reflect the trading and YEAR ENDED YEAR ENDED CONSTANT financial position of the UK and Ireland and the Rest of the 31 DECEMBER 31 DECEMBER STATUTORY CURRENCY 2016 2015 MOVEMENT MOVEMENT World (‘ROW’) operating segments (the ‘Group’). The five Empire cinemas acquired from Cinema Holdings Limited Admissions 51.8m 50.9m 1.8% 1.8% became part of the Group on 11 August 2016 and their £M £M results since acquisition have been included within the UK Box office 324.0 311.9 3.9% 3.9% and Ireland segment. Retail 117.5 107.2 9.6% 9.6% Other income 52.5 46.8 12.2% 12.2% Unless explicitly referenced, all percentage movements Total revenue 494.0 465.9 6.0% 6.0% 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 The results for the UK and Ireland include the two cinema of fluctuations in exchange rates over time. Constant chain brands in the UK, Cineworld and Picturehouse, and for currency movements have been calculated by applying the first time also include the five Empire cinemas acquired the 2016 average exchange rates to 2015 performance. on 11 August 2016. Total revenue for the year ended 31 December 2016 was Box Office £797.8m, an increase of 13.0% on a statutory basis, and 8.7% Box office revenue represented 65.6% (2015: 66.9%) of total on a constant currency basis. Overall admissions increased revenues for the UK and Ireland. Admissions in the year by 7.2%, whilst average ticket pricing remained broadly flat increased by 1.8% and combined with an increase in the on a constant currency basis at £4.99, giving an overall average ticket price of 2.1% this resulted in revenue growth increase in total box office revenues of 7.0%. Spend per of 3.9%. This is a pleasing result as admissions in the UK and person increased by 5.1% to £1.90 resulting in retail revenue Ireland cinema industry as a whole were down 2.1% during growth of 12.6%. Other revenues increased by 9.8%. the same period (Source: UK Cinema Association). The principal income for the Group is box office revenue. The overall box office performance was underpinned Box office revenue is a function of the number of by a solid film slate in 2016, despite 2015 being a strong admissions and the ticket price per admission, less VAT. comparative. In 2016, in the UK overall, the top three films In addition, the Group operates membership schemes grossed £149.4m (“Star Wars: Rogue One” - £50.7m, which provide customers with access to screening in “Fantastic Beasts and Where To Find Them” - £50.6m and exchange for subscriptions fees, and this revenue is also “Bridget Jones’s Baby” - £48.1m) compared to the top three reported as part of box office. Admissions (one of our key films in 2015 which grossed £245.4m (“Spectre” – £93.8m, performance indicators), depend on the number, timing and “Star Wars: The Force Awakens” – £87.3m and “Jurassic popularity of the films we are able to show in our cinemas. World” – £64.3m). Admissions are also a key driver for the two other main The average ticket price achieved in the UK and Ireland revenues for the Group. These are retail revenue, the sale grew by 2.0% to £6.25 (2015: £6.13). The increase in average of food and drink for consumption within our cinemas ticket price was in part due to price rises during the period, and screen advertising income, from advertisements but is mainly reflective of the continued expansion and shown on our screens prior to feature presentations. popularity of premium offerings. The most popular IMAX and 4DX films during the year were “Star Wars: Rogue One”, “Fantastic Beasts and Where To Find Them” and “Star Wars: The Force Awakens”. 28 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 31

    STR ATEGIC REPORT u Retail Box Office STR ATEGIC REPORT Food and drink sales are the second most important source Box office revenue represented 58.2% (2015: 58.2%) of total of revenue and represented 23.8% (2015: 23.1%) of total revenues for the ROW. Admissions in the year increased by revenues for the UK and Ireland. Total retail revenues in 13.6%, while average ticket prices remained broadly flat on the UK and Ireland were £117.5m (2015: £107.2m) increasing a constant currency basis at £3.65, resulting in an overall by 9.6%. increase in box office revenues of 13.2%. Double digit admissions growth was seen in four of the ROW territories, Net retail spend per admission increased by 7.6% in the year Romania, Czech Republic, Poland and Hungary. These levels to £2.27 (2015: £2.11). This was partly due to the film mix, but of growth are partly due to improvements in the local predominantly reflects the expansion of our cinemas’ retail economies but largely due to significant expansion, with 33 offerings, strong promotions, growth in the Unlimited new screens opened during the year in Romania, in addition customer base and operational improvements. In addition, to the 44 screens opened there in 2015 and the 15 screens a further seven Starbucks outlets were opened during the opened in Poland in 2015. Growth was achieved in all year taking the total to 24 at 31 December 2016, with a other territories apart from in Bulgaria where there was a number of further openings scheduled for 2017. The second marginal decrease. VIP site offering food, drink and snacks as part of the entry price was opened in Glasgow Renfrew Street and there are The average ticket price was impacted primarily by the plans to open additional sites where there is the appropriate nature of the film slate in 2016, which included a number of market opportunity. family movies. In the ROW, family films with generally lower ticket prices, account for a higher proportion of total G OV E R N A N C E Other Income admissions and, with the strong family film slate in 2016 this Other Income includes all revenue streams other than box had an impact on the overall average ticket price achieved office and retail and represents 10.6% (2015: 10.0%) of total and offset increases from the continued expansion of revenue. It increased to £52.5m (2015: £46.8m) and grew premium offerings where a further seven 4DX screens by 12.2%. and two IMAX screens were opened. In addition, locally produced movies continued to be popular particularly in The largest single element of Other Income is screen Poland and Czech Republic, with the top three movies in advertising revenue. Screen advertising revenue is earned Poland for the year all being produced locally. through our shareholding in Digital Cinema Media Limited (“DCM”), our joint venture screen advertising business. Retail DCM’s primary function is to sell advertising time on cinema Food and drink sales are the second most important screens on behalf of the UK cinema industry. It also engages source of revenue and represent 24.1% (2015: 23.1%) of in related promotional work between advertisers and total revenues for the ROW. Total retail revenues were cinemas. Screen advertising revenue varies depending on £73.3m (2015: £55.5m) increasing by 17.9%. the type of films screened, the number of minutes and value of advertising sold, the number of attendees who view the Retail spend per admission increased by 3.9% to £1.51 (2015: film and the placement of advertisements in relation to the £1.30) during the year with the greatest increases achieved start of the film. As a result of the nature of the film slate in Romania and the Czech Republic, which saw increases of and the admissions levels in 2016 the advertising revenues 11.1% and 7.2% respectively. The increase was predominantly F I N A N C I A L S TAT E M E N T S were broadly in line with 2015. Also included within Other driven by the film mix but also the expansion of offerings, Income is the online booking fee. The trend towards with two new VIP sites, one in Beer Sheva (Israel) and booking online continues which is supported by our Bucharest Titan (Romania), as well as ongoing operational investment in online and mobile booking facilities. Revenue improvements. from event hire has also continued to increase during the year. Other income Other income includes distribution, advertising and other Rest of the World (“ROW”) revenues and represents 17.7% (2015: 18.7%) of the total YEAR ENDED YEAR ENDED CONSTANT revenues. Forum Film is the Group’s film distribution 31 DECEMBER 31 DECEMBER STATUTORY CURRENCY business for ROW. Forum Film operates across the ROW 2016 2015 MOVEMENT MOVEMENT region and distributes films on behalf of major Hollywood Admissions 48.5m 42.7m 13.6% 13.6% studios as well as owning the distribution rights to certain £M £M independent movies. New Age Media is the Group’s Box office 176.9 139.7 26.6% 13.2% advertising and sponsorship arm for the ROW. The main Retail 73.3 55.5 32.1% 17.9% driver for the overall increase in other income was the Other Income 53.6 44.7 19.9% 7.6% advertising revenue which performed very strongly in 2016, Total revenue 303.8 239.9 26.6% 13.3% predominantly as a result of the increase in admissions. The distribution revenues decreased year-on-year largely due to the strong comparative in 2015, when Forum Film had The results for the ROW include the cinema chain brands - the distribution rights for three blockbusters, “Spectre”, Cinema City in the Central and Eastern Europe territories “Hunger Games: Mockingjay Part 2” and “Star Wars: The and Yes Planet and Rav-Chen in Israel. The information Force Awakens”. is presented on a constant currency basis to provide information on a comparable basis unless otherwise stated. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 29


  • Page 32

    STR ATEGIC REPORT u Financial Review continued Financial Performance YEAR ENDED 31 DECEMBER YEAR ENDED 31 DECEMBER 2016 2015 UK & IRELAND ROW TOTAL GROUP TOTAL GROUP Admissions 51.8m 48.5m 100.3m 93.6m £M £M £M £M Box office 324.0 176.9 500.9 451.6 Retail 117.5 73.3 190.8 162.7 Other Income 52.5 53.6 106.1 91.5 Total revenue 494.0 303.8 797.8 705.8 EBITDA (1) 97.1 78.7 175.8 155.3 Operating profit 60.2 52.6 112.8 103.1 Financial income 2.4 0.6 3.0 8.7 Financial expense (15.8) (1.8) (17.6) (12.1) Net financing costs (13.4) (1.2) (14.6) (3.4) Share from joint venture – – – – Profit on ordinary activities before tax 46.8 51.4 98.2 99.7 Tax on profit on ordinary activities (10.1) (6.1) (16.2) (18.4) Profit for the year attributable to equity holders of the Group 36.7 45.3 82.0 81.3 The following commentary focuses on Group profitability, Operating profit of £112.8m was 9.4% higher than the prior cash flow and the Balance Sheet except where stated. year (2015: £103.1m). Operating profit included a number of non-recurring and non-trade related items that have a net EBITDA and Operating Profit negative impact of £4.4m (2015: £2.8m). These primarily Overall, the Group’s EBITDA increased by 13.2% to £175.8m related to: (2015: £155.3m). EBITDA margin remained consistent with the prior year at 22.0%. • The one-off cost related to the MGM defined benefit pension scheme buy-out of £4.8m (2015: nil); EBITDA generated by the UK and Ireland increased by 1.5% • Transaction and reorganisation net costs of £1.5m (2015: during the year to £97.1m (2015: £95.7m). The EBITDA £1.9m), £0.8m of costs related to the integration and margin of 19.7% represented a 0.8 percentage point decline relocation of head office functions and redundancy from 2015, largely as a result of the cessation of VPF income costs, £0.5m of costs incurred on the acquisition of five during the year and the slight decrease in admissions on a Empire cinemas, £1.0m incurred on the early termination like-for-like basis, which is consistent with the overall UK of contracts and a credit of £0.8m for VAT recovered on market. EBITDA generated by the ROW increased by 32.0% previously incurred transactions; to £78.7m (2015: £59.6m). The EBITDA margin of 25.9% • A net credit of £1.5m (2015: £1.7m) of which £1.7m represented a 1.1 percentage point improvement from 2015, primarily was the release of specific onerous lease predominantly driven from the increase in admissions, provisions due to improvements in future trading increase in spend per person as well as a savings across a assumptions, a further release of £1.0m due to the number of direct cost lines. closure of a site with an onerous lease provision in place, a gain on property provisions of £0.1m and the write-off As the Group operates in nine territories, it is exposed to of £1.3m lease-related assets no longer considered exchange rate fluctuations. Wherever possible, cash income recoverable, and expenditure are settled in local currency to mitigate • A net credit in relation to impairments of £0.4m (2015: exchange losses. However, there are translation exchange cost of £9.0m) - £1.7m related to the write-back of capital differences arising when presenting the year-on-year expenditure for sites previously impaired which are now performance of the ROW in the reporting currency of performing and £1.3m related to the write off of capital the Group. expenditure for sites which were not performing satisfactorily, and During 2016, the EU referendum in the UK had a significant • There are no one off gains or losses from disposals impact on the value of the British pound, causing it to during the year (2015: £6.4m). depreciate against other foreign currencies. Whilst this had a positive benefit to the Group when translating the results The total depreciation and amortisation charge (included of the overseas operations it had a negative impact on in administrative expenses) in the year totalled £58.6m translation of the Euro Term loan at 31 December 2016. (2015: £49.4m). Of this, £28.9m related to depreciation During the year EBITDA of £175.8m was £8.1m higher than and amortisation in the UK and Ireland (2015: £25.6m) it would have been had it been translated by applying the and £29.7m related to depreciation and amortisation exchange rates at the start of the year, and £8.2m higher in the ROW (2015: £23.8m). The increase year-on-year based on the average rate for the comparable 2015 period. is predominantly due to the additional number of sites in the Group. (1) The Group defines EBITDA as reported in the Consolidated Statement of Profit and Loss as Operating profit before depreciation and amortisation, onerous leases and other non-recurring charges, impairments and reversals of impairments, transaction and reorganisation costs, profit on disposals of assets and the settlement of the defined benefit pension liability. EBITDA is considered an accurate and consistent measure of the Groups trading performance, and items adjusted to arrive at EBITDA are considered to be outside the Groups ongoing trading activities. 30 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 33

    STR ATEGIC REPORT u Finance Costs Taxation STR ATEGIC REPORT The Group entered into a five-year facility in January 2014 The overall tax charge during the year was £16.2m giving an which was used to part-finance the combination with overall effective tax rate of 16.5% (2015:18.5%).The reduction Cinema City, repay the pre-combination facilities of both from the prior year largely results from the Group’s Cineworld and Cinema City and fund the general working geographical mix of profits. The corporation tax charge in capital requirements of the Group. The facility included respect of the current year was £12.4m (2015: £11.2m) and term loans of £165.0m and €132.0m and revolving credit the deferred tax charge was £3.8m (2015: £7.2m), resulting facilities of £75.0m and €60.0m. in a current year effective tax rate of 18.1% (2015: 18.5%). The deferred tax charge principally related to temporary On 29 July 2015 the Group signed an amendment and differences on the movements of fixed assets. In the extension to its existing banking facility which was effective medium-term future we expect our effective tax rate to immediately upon signing and extends the facility to June remain at a similar level. 2020. As a result, the term loans were reduced from £157.5m and €126.0m to £130.0m and €63.0m. In August The Group takes a responsible attitude to tax, recognising 2016 the Group extended the single currency revolving that it affects all of our stakeholders. The Group seeks at credit facility of £190.0m to £215.0m to partly fund the all times to comply with the law in each of the jurisdictions empire acquisition. in which we operate, and to build open and transparent relationships with those jurisdictions’ tax authorities. The The facility remains subject to the existing two covenants: Group’s tax strategy is aligned with commercial activities of the ratio of EBITDA (as defined in Note 1) to net debt and the business, and within our overall governance structure G OV E R N A N C E the ratio of EBITDAR (pre-rent EBITDA) to net finance the governance of tax and tax risk is given a high priority by charges. A margin, determined by the results of the the Board. covenant tests at a given date is added to LIBOR or EURIBOR. The margins currently applicable to Group are Earnings 1.40% on the term loans and 1.15% on the revolving credit Profit on ordinary activities after tax for the year was facility. £82.0m, (2015: £81.3m). The profit after tax has remained broadly flat as a result of the one off items in the year; the The Group has hedging arrangements in place to mitigate loss incurred on the Euro Term loan of £6.1m compared to a the potential risk of a material impact arising from interest gain of £7.7m in 2015, the one-off cost of £4.8m relating to rate fluctuations. At 31 December 2016, the Group had the buy-out of the MGM defined benefit pension scheme seven (2015: six) interest rate swaps, four GBP denominated and no significant one-off gains in the year, such as the swaps which hedged 82% (2015: 59%) of the Group’s Cineworld Cambridge disposal in the prior year for £6.4m. variable rate GBP unsecured term loan and, three Euro denominated swaps hedging 100% (2015:100%) of the Euro Basic earnings per share amounted to 30.8p (2015: 30.7p). denominated unsecured loan. Eliminating the one-off, non-trade related items described above (totalling £4.4m within operating profit), amortisation Net financing costs totalled £14.6m during the year (2015: of intangibles of £4.6m, exceptional finance credits of £1.9m £3.4m) which is a net increase of £11.2m. The main reason and net foreign exchange losses of £6.1m, adjusted diluted for the increase is the net movement of exchange rates earnings per share were 34.7p (2015: 29.7p). F I N A N C I A L S TAT E M E N T S during the year which gave rise to a loss on the translation of the Euro Term loan at the Balance Sheet date of £6.1m Acquisition of Empire cinemas (2015:foreign exchange gain of £7.7m). On 28 July 2016 the Group announced the acquisition of five cinemas from Cinema Holdings Limited by means Finance income of £3.0m (2015: £8.7m) included a gain of of an acquisition of 100% of the shares. The acquisition £1.9m (2015: £nil) primarily from hedging arrangements was completed on 11 August 2016, at which point the which have ceased during the year, £0.7m (2015: £0.3m) consideration equated to £94.5m which would be settled related to interest income and £0.4m (2015: £0.4m) related equally in cash, and in Cineworld Group plc ordinary shares to finance income on assets held by defined benefit pension in addition to the transfer of the trade and assets of the schemes. Group’s Haymarket cinema to Cinema Holdings Limited. The shares will be issued in five instalments during a 12 Finance expense of £17.6m (2015: £12.1m) included £7.8m in month period, based on an issue price reflecting 20 days’ respect of interest on bank loans and overdrafts (2015: average trading price prior to the date of each issuance. £9.3m), with the decrease being the result of the reduction The first issue of shares took place on 18 November 2016. of the term loans and £6.7m primarily due to foreign currency losses on the Euro Term loan (2015:gain £8.0m). The fair value of net assets acquired with the five Empire Other net finance costs of £3.1m (2015: £2.8m) included cinemas totalled £33.9m. We have attributed the fair value amortisation of prepaid finance costs of £1.4m (2015: £1.3m) to the acquired assets and liabilities and as a result the and £1.7m (2015: £1.2m) in respect of the unwind of discount acquired net assets were increased by £2.4m. The residual and interest charges on property-related leases. goodwill of £60.6m represents a number of factors including the strategic location of the sites acquired, the established benefit of the sites being established sites, the value the acquired sites can add to Cineworld’s existing brand and products as well as synergies expected to be realised post-acquisition. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 31


  • Page 34

    STR ATEGIC REPORT u Financial Review continued Balance Sheet Overall, net assets have increased by £128.7m, to £663.4m since 31 December 2015. This is due to the acquisition of the five Empire cinemas, £57.5m, movements in non-current assets of £99.5m, which predominantly relates to the foreign currency gains on translation of £86.3m and the opening of new sites, refurbishments completed during the year and movements in other net liabilities of £29.3m. MGM Pension Scheme Buy-out On 15 December 2016 the MGM defined benefit pension scheme was bought out by Aviva Annuity UK Limited, with all risks in relation to the scheme passing to Aviva Annuity UK Limited as of the buy-out date. This transition was treated as a settlement occurring on 15 December 2016 (the inception date). Following this transaction, all members of the Scheme have had their benefits secured with Aviva Annuity UK Limited. The past service liabilities at 31 December 2016 are therefore shown as nil (2015: net asset of £10.5m). Cash Flow and Net Debt The Group continued to be cash generative at the operating level. Total net cash generated from operations in the year was £150.1m (2015: £165.9m). Net cash spent on investing activities during the year was £130.3m (2015: £80.3m), £47.0m for the acquisition of the five Empire cinemas, £83.7m on the development of new sites, refurbishments and technology and £0.7m related to interest received. Net debt increased by £37.1m to £282.3m at 31 December 2016 (2015: £245.2m). The main movements were due to the net drawdown on the revolving credit facility of £28.0m during the year, offset by repayments during the year on the term loans (net of foreign exchange movements) of £6.4m, an additional finance lease liability of £8.2m and fair value gains in respect of financial instruments of £0.5m. Net debt at the year-end represented 1.6 times the rolling 12 month EBITDA figure for the Group. Dividends The Directors are recommending to shareholders for approval a final dividend in respect of the year ended 31 December 2016 of 13.8p per share, which taken together with the interim dividend of 5.2p per share paid in September 2016 equates to a total dividend in respect of 2016 of 19.0p per share (2015: 17.5p per share). The record date for the dividend is 26 May 2017 and the payment date is 22 June 2017. Post Balance Sheet Events On 7 February 2017 the Group disposed of it 100% interest in Picturehouse Entertainment Limited for £2.3m. No significant impact is expected on the Group’s Statement of Profit or Loss or Statement of Financial Position. By order of the Board The Strategic Report is set out on Pages 1 to 32. By order of the Board Nisan Cohen Moshe Greidinger Israel Greidinger Chief Financial Officer Chief Executive Officer Deputy Chief Executive Officer 9 March 2017 9 March 2017 32 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 35

    GOVERNANCE u Directors’ Biographies As at 31 December 2016 STR ATEGIC REPORT Anthony Bloom Israel Greidinger Moshe (Mooky) Greidinger Chairman Deputy Chief Executive Officer Chief Executive Officer Age 77 Age 55 Age 64 Date appointed as Chairman: Date appointed to Board: Date appointed to Board: October 2004 February 2014 February 2014 Tenure on Board: Tenure on Board: Tenure on Board: 12 years 2 months 2 years 10 months 2 years 10 months GOVERNANCE Independent: Independent: Independent: No No No Committee memberships: Committee memberships: Committee memberships: No formal memberships, but has None None attended all meetings by invitation Relevant skills, qualifications, Relevant skills, qualifications, Relevant skills, qualifications, and experience: and experience: and experience: • Over 20 years’ senior executive • Over 40 years’ senior executive • Extensive Board-level and Chairman experience in the cinema industry in experience in the cinema industry in experience in a range of companies, central and eastern Europe, and Israel central and eastern Europe, and Israel sectors and jurisdictions • 1994–2014 Cinema City International • 1994–2014 Cinema City International • Bachelor of Commerce and Bachelor N.V. (“CCI”), appointed Chief N.V. (“CCI”) of Law, University of Witwatersrand, Financial Officer 1995 • Cinema City Group, various executive South Africa (cum laude) • 1985–1992 Managing Director of positions since 1984 • Master of Law, Harvard Law School C.A.T.S. Limited (Computerised • “Exhibitor of the Year Award” at • Sloan Fellow, Graduate School of Automatic Ticket Sales) ShoWest in Las Vegas in 2004 Business, Stanford University • 1992 to 1994 President and Chief • “International Exhibitor of the Year • Doctor of Law (H.C.), University Executive Officer of Pacer C.A.T.S. Award” at CineEurope, in Amsterdam F I N A N C I A L S TAT E M E N T S of Witwatersrand, awarded in Inc in 2011, with special recognition for recognition of his contribution having developed new markets in Principal external appointments: towards establishment of a non-racial central and eastern Europe • Director of Israel Theatres Limited society in South Africa • “Global Achievement in Exhibition since 1994 Award” at CinemaCon in Las Vegas Previous Directorships in 2016 • Chairman and Chief Executive of The Israel is the brother of Moshe Greidinger. Premier Group Limited (South Africa) Principal external appointments: • Director of Barclays Bank (South • Director of Israel Theatres Limited Africa) since 1983 • Director of South African Breweries • Co-Chairman of the Cinema Owners • Director of Liberty Holdings (South Association in Israel since August Africa) 1996 • Director of RIT Capital Partners PLC • Head of the Board of Trustees of the • Deputy Chairman of Sketchley PLC Hebrew Reali School of Haifa Principal external appointments: Moshe is the brother of Israel Greidinger. • Non-Executive Director of London Symphony Orchestra • Non-Executive Director of TechnoServe, Inc. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 33


  • Page 36

    GOVERNANCE u Directors’ Biographies continued As at 31 December 2016 Alicja Kornasiewicz Scott S. Rosenblum Arni Samuelsson Non-Executive Director Non-Executive Director Non-Executive Director Age 65 Age 67 Age 74 Date appointed to Board: Date appointed to Board: Date appointed to Board: May 2015 February 2014 February 2014 Tenure on Board: Tenure on Board: Tenure on Board: 1 year 7 months 2 years 10 months 2 years 10 months Independent: Independent: Independent: Yes No Yes Committee memberships: Committee memberships: Committee memberships: • Audit Committee • Nomination Committee • Nomination Committee Relevant skills, qualifications, Relevant skills, qualifications, Relevant skills, qualifications, and experience: and experience: and experience: • Extensive central and eastern Europe • Extensive experience of management • Over 40 years of cinema exhibition financial and political experience of an international law firm, and of and film distribution experience, • 2011–2012 Chairwoman of the corporate governance and disclosure principally through SAMfélagið Supervisory Board of Bank Pekao matters (Samfilm) – a cinema exhibitor and S.A. • Extensive experience and expertise film distributor in Iceland, of which • 2010–2011 President of the in areas of general corporate and he has been joint owner and Chief Management Board of Bank Pekao securities law, corporate finance, Executive Officer since it was formed S.A. mergers and acquisitions, and joint in 1975 • 2000–2010 Executive management ventures • 1972–1982 Director and owner of roles at UniCredit Bank • 2004–2014 member of the Vikurbaer, a supermarket business in • 1997–2000 Secretary of State for the Supervisory Board of Cinema City Keflavik Ministry of the State Treasury of the International N.V. (“CCI”), appointed Principal external appointments: Republic of Poland Chairman of the Supervisory Board • Chief Executive Officer of Samfilm of CCI in 2011. Also Chairman of the Principal external appointments: EHF (SAMfélagið’s distribution arm) CCI Remuneration Committee and • Managing Director and Head of since 1975 the CCI Appointment Committee CEE for Morgan Stanley & Co, • Chief Executive Officer of from November 2006 and was a International PLC since 2012 SAMcinema (SAMfélagið’s cinema member of the CCI Audit Committee arm) since 1975 • Licensed as a lawyer and admitted to the New York Bar Association Principal external appointments: • Partner, Executive Committee and Co-Chairman of Corporate Department in the law firm of Kramer Levin Naftalis & Frankel LLP, New York since 1991, and Managing Partner 1994–2000 • Serves, and has served, as a director and advisor to the boards of various public and private companies 34 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 37

    GOVERNANCE u STR ATEGIC REPORT Eric (Rick) Senat Julie Southern Non-Executive Director and Senior Non-Executive Director Independent Director Age 57 Age 67 Date appointed to Board: Date appointed to Board: May 2015 July 2010 Tenure on Board: Tenure on Board: 1 year 7 months GOVERNANCE 6 years 5 months Independent: Independent: Yes Yes Committee memberships: Committee memberships: • Audit Committee (Chair) • Nomination Committee (Chairman) • Remuneration Committee • Remuneration Committee Relevant skills, qualifications, Relevant skills, qualifications, and experience: and experience: • Experience as a Chief Financial • Over 40 years’ experience in the Officer and Chief Commercial film industry Officer, driving strategy, revenue and • 1976–2001 Warner Bros, becoming commercial planning, and working Senior Vice President for Business across multiple industry sectors and Affairs in Europe. Closely associated sizes of organisations with the “Harry Potter” films, • 2010–2013 Chief Commercial Officer “Greystoke”, “Batman”, “Superman” of Virgin Atlantic Airways and many others • 2000–2010 Chief Financial Officer of • 2001 – 2007 Director of Hammer Virgin Atlantic Airways F I N A N C I A L S TAT E M E N T S Film Productions • 1996–2000 Group Financial Director • 1999 – 2003 Deputy Chair of the of Porsche Cars GB Ltd British Film Institute • 1988–1995 Finance Director of • Solicitor and Bachelor of Law, H J Chapman & Co University College London • Chartered Accountant (ICAEW) and graduate of Cambridge University Principal external appointments: (Economics B.S) • Non-Executive Chairman of the London Film Museum since 2009 Principal external appointments: • Non-Executive Chairman of Mad Dog • Non-Executive Director and Chair Casting Limited since 2016 of the Audit Committee at Rentokil- Initial Plc since 2014 • Non-Executive Director and Chair of the Audit Committee at DFS Furniture Plc since 2015 • Non-Executive Director at NXP Semiconductors N.V. since 2013 • Non-Executive Director and Chair of Remuneration Committee of Stagecoach Group Plc since 2016 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 35


  • Page 38

    GOVERNANCE u Directors’ Biographies continued As at 31 December 2016 Changes since the year-end Appointment Relevant skills, qualifications, Nisan Cohen and experience: Chief Financial Officer • Part of the Cineworld Group for Age 44 sixteen years. Previously, as Vice President of Finance, he led the Date appointed to Board: integration of the finance teams in January 2017 the Group across nine countries after the combination of Cineworld with Independent: Cinema City International N.V. More No recently he served as Deputy Chief Committee memberships: Financial Officer None • Member of The Institute of Certified Public Accountants in Israel Appointment Relevant skills, qualifications, Dean Moore and experience: Non-Executive Director • Chief Financial Officer of N Brown Age 59 Group plc (2004-2015) • Chief Financial Officer of T&S Date appointed to Board: Stores plc January 2017 • Chief Financial Officer of Graham Group plc (1996 to 1999) Independent: • Chartered Accountant Yes Committee memberships: • Remuneration Committee (Chairman) • Audit Committee Martina King stepped down from Committee memberships: the Board on 11 January 2017. • Audit Committee Martina King • Remuneration Committee (Chair) Non-Executive Director Relevant skills, qualifications, Age 55 and experience: Date appointed to Board: • Extensive experience in company July 2010 turnaround, management, marketing, online media, and data analytics. Tenure on Board: • 2011–2012 Managing Director 6 years 5 months of Aurasma • 2005–2014 Non-Executive Director Independent: Capita plc Yes • 1999–2004 Managing Director of Yahoo! UK and Europe • 1993–1999 Managing Director of Capital Radio plc Principal external appointments: • CEO of Featurespace since 2012 • Non-Executive Director of Debenhams Plc since 2009 36 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 39

    GOVERNANCE u Corporate Governance Statement In March 2016, we also announced the promotion of Renana STR ATEGIC REPORT Teperberg and Matthew Eyre to the roles of Chief Commercial Officer and Chief Operations Officer respectively. Renana and Matthew are long-standing members of the executive team, and their promotions underline again the Company’s commitment to nurturing the internal pipeline of talent, and, in the case of Renana, the objective of cultivating and expanding opportunities for talented women to progress within Cineworld. In addition, I am delighted to welcome Dean Moore to the Board. Dean was appointed as an Independent Non-Executive Director in January 2017, following the stepping down of Martina King. He also became Chairman of the Remuneration Committee and a member of the Audit Committee. The Board is satisfied that Dean meets the requisite criteria to be considered independent, notwithstanding his brief interim employment of ten months from March 2016 by Cineworld, during which his mandate was to focus on the Chief Financial GOVERNANCE I am pleased to present the Corporate Officer succession planning process. I believe that Dean’s Governance Statement for 2016, which extensive experience, both financial and commercial, will be a great asset to the Group, and his contribution will strengthen has been a busy year for the Board the rich combination of skills, culture and independence that and its Committees. already exists on our Board. The Remuneration Committee had a full agenda this year, updating the Company’s Remuneration Policy and developing a new Long Term Incentive Plan, both of which are due to be voted on at this year’s AGM. As part of the process the views of the investment community were taken into account to ensure that future targets for our Executive Directors are stretching and appropriate. Details of the work of the Remuneration Committee in this area are set out in the Directors’ Remuneration Report on pages 54 to 72. The Audit Committee was also been fully occupied in 2016. Introduction In the early part of 2016 it oversaw an audit tender process, Dear Shareholders which resulted in the reappointment of KPMG as our External F I N A N C I A L S TAT E M E N T S I am pleased to present the Corporate Governance Statement Auditor. Full details of the process and its outcome may be for 2016, which has been a busy year for the Board and its found on pages 51 to 52. The Committee has continued work Committees. on its key agenda items of oversight of the External Audit, and a robust evaluation of risk management policies. Information As ever, the Board remains committed to ensuring that a high on these and other areas of focus for the Committee are standard of corporate governance is continuously maintained outlined in the Audit Committee Report on pages 51 to 52. throughout the Group, and that we meet all the standards expected of a FTSE 250 company. We believe that good The Board’s evaluation this year was carried out by an governance is the bedrock of the Group’s strategy, and is external facilitator, as required by the Code. The process was essential to the way the business operates on a daily basis. constructive, and I am pleased to report that the evaluation supported the view that the Board and its Committees are During the year, significant initiatives undertaken include operating efficiently and productively. working on the appointment of the new Chief Financial Officer, reviewing the Company’s Remuneration Policy (which is due Lastly, I would like to extend my thanks to Martina King, to be voted on at our 2017 AGM), continuing to develop our who stepped down from the Board in January 2017. Martina’s system of risk management and internal control as part of the contribution over her six years on the Board was of significant culture of the Group, and undertaking an external audit tender value to the Group, the Board and me, in particular in her role process at the beginning of the year. as Remuneration Committee Chair. We announced the appointment of the new Chief Financial Anthony Bloom Officer, Nisan Cohen, at the beginning of 2017. Nisan has been Chairman with the Group for over 15 years, latterly as Deputy Chief Financial Officer. It has always been important to Cineworld to develop internal talent at all levels, and Nisan’s promotion to the Board is an endorsement of these principles. The Nomination Committee provided substantial support in this process. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 37


  • Page 40

    GOVERNANCE u Corporate Governance Statement continued Directors’ Statements Compliance with the UK Corporate Governance Code The principal governance rules applying to UK companies listed on the London Stock Exchange for the year covered by this statement are contained in the 2014 UK Corporate Governance Code (the “Code”) published by the UK Financial Reporting Council in September 2014, and a copy is available on its website www.frc.org.uk. For the year ended 31 December 2016, the Board considers that the Company was compliant with the provisions of the Code. Going Concern The Directors consider that the Group has adequate resources to continue in operational existence for 12 months from the date of signing these accounts. Thus they continue to adopt the going concern basis in preparing the annual financial statements. In adopting the going concern basis for preparing the financial statements, the Directors have considered the business activities as set out on pages 1 to 32 and the Principal Risks and Uncertainties on pages 22 to 27. The financial position of the Group, its cash flows, liquidity position and borrowing facilities, as well as the Group’s objectives, policies and processes for managing capital, are described on pages 28 to 32. Financial risk management objectives, details of financial instruments and hedging activities, and exposure to credit risk and liquidity risk are described in Note 21 of the financial statements. Viability The Directors have assessed the viability of the Group over a three year period, taking into account the Group’s current position and the potential impact of the Principal Risks and Uncertainties set out on pages 22 to 27. Based on this assessment, and having considered the established controls for the risks, and the available mitigating actions, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period to 2019. For more information on the viability assessment, please see pages 49 to 50 of the Audit Committee Report. Robust Assessment of Principal Risks The Directors consider they have undertaken a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. Please refer to pages 22 to 27 for further information on the Company’s Principal Risks and Uncertainties, and their impact on the prospects of the Company. Review of Internal Control and Risk Management The Directors have carried out a review of internal control and risk management. Please refer to pages 45 to 47 for further information. Fair, Balanced and Understandable The Directors consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Please refer to page 49. 38 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 41

    GOVERNANCE u STR ATEGIC REPORT Application of Code Principles B.6 Board and Committee Performance Evaluation The information below explains how the Company has applied The Board and its Committees have this year undertaken the main principles of the Code. The information required to an external evaluation of their respective performances, in be disclosed by the Disclosure and Transparency Rule (“DTR”) accordance with the Code. Details of the evaluation can be 7.2.6 is set out in the Directors’ Report on pages 73 to 77 and found on page 42. is incorporated into this statement by reference. B.7 Re-election of Directors A. Leadership All Directors are subject to shareholder election or re-election A.1 The Role of the Board at the Annual General Meeting. The Board met formally seven times during the year (including a strategy day) and held other meetings on an ad hoc basis C. Accountability as required. There is a clear schedule of matters reserved for C.1 Financial and Business Reporting the Board, together with delegated authorities throughout the The Strategic Report is set out on pages 1 to 32 and provides Group. information about the performance of the Group, the business model, strategy and the principal risks and uncertainties A.2 Division of Responsibilities relating to the Group’s future prospects. The roles of the Chairman and Chief Executive are clearly defined. The Chairman is responsible for the leadership and C.2 Risk Management and Internal Control effectiveness of the Board and for overseeing the Board’s The Board decides the Group’s risk appetite and annually setting of strategy. The Chief Executive Officer is responsible reviews the effectiveness of the Group’s risk management and GOVERNANCE for leading the day-to-day management of the Group and the internal control systems. The activities of the Audit Committee, implementation of the strategy. which assists the Board with its responsibilities in relation to A.3 The Chairman the management of risk, are summarised on page 49. The Chairman sets the agendas for the meetings, manages the meeting timetable (in conjunction with the Company C.3 Audit Committee and Auditors Secretary) and facilitates open and constructive dialogue The Board has delegated a number of responsibilities to the during the meetings. Audit Committee, which is responsible for overseeing the Group’s financial reporting processes, internal control and risk A.4 The Role of the Non-Executive Directors management framework, the work undertaken by the External The Chairman promotes an open and constructive Auditor, and the internal audit work of PwC and the Risk and environment in Board meetings and actively invites the Non- Assurance Team. The Chair of the Audit Committee provides Executive Directors’ views. The Non-Executive Directors regular updates to the Board. provide objective, rigorous and constructive challenge to management and meet during the year in the absence of the D. Remuneration Executive Directors. D.1 Level and Components of Remuneration The Remuneration Committee sets levels of remuneration B. Effectiveness appropriately with a view to ensuring the long-term success B.1 The Composition of the Board of the Company, and structures remuneration so as to link it to The Nomination Committee is responsible for regularly both corporate and individual performance, thereby aligning F I N A N C I A L S TAT E M E N T S reviewing the composition of the Board. In making management’s interests with those of the shareholders. appointments to the Board, the Nomination Committee Benchmarking exercises are carried out as appropriate considers the wide range of skills, knowledge, independence by external advisers to ensure remuneration levels are and experience required in order to maintain an effective appropriate. Board. D.2 Procedure for Development of Remuneration Policy and B.2 Appointments to the Board Setting Remuneration Packages The appointment of new Directors to the Board is led by the Details of the work of the Remuneration Committee and the Nomination Committee. Further details of the activities of the approach to setting the remuneration policy and packages Nomination Committee can be found on pages 43 and 44. can be found in the Directors’ Remuneration Report on pages 54 to 72. B.3 Time Commitment On appointment, Directors are notified of the time E. Relations with Shareholders commitment expected from them and details are set out in E.1 Shareholder Engagement and Dialogue their letter of appointment. External directorships of Executive The Board takes an active role in engaging with shareholders. Directors, which may impact existing time commitments, are The Board particularly values opportunities to meet with discussed and cleared by the Chairman. shareholders and the Chairman ensures that the Board is kept informed of shareholder views. B.4 Development All Directors receive induction training on joining the Board E.2 Constructive Use of the Annual General Meeting and, as part of the annual effectiveness evaluation, the The AGM provides the Board with an important opportunity to development needs of each Director are checked. meet with shareholders, who are invited to meet the members of the Board informally following the formal business of the B.5 Information and Support meeting. The Chairman, in conjunction with the Company Secretary, ensures that all Board members receive accurate and timely information. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 39


  • Page 42

    GOVERNANCE u Corporate Governance Statement continued Leadership The Board The Group is ultimately controlled by the Board of Directors of the Company. The Board is responsible for the overall leadership of the Group and for determining its long-term objectives and commercial strategy to create and deliver strong and sustainable financial performance to enhance shareholder value. In fulfilling its role, the Board ensures that necessary financial and other resources are available to enable the Group’s objectives to be met. The basis on which the Board seeks to preserve value over the longer term and the strategy for delivering the objectives is set out in the Strategic Report on pages 1 to 32. The Board meets regularly at least six times a year and also once for a strategy day. Ad hoc meetings of the Board take place as required. The meetings follow a formal agenda, which includes matters specifically reserved for decision by the Board. The Board also meets, as and when necessary, to discuss and approve, if appropriate, specific issues. All Directors receive notice of such meetings and are given the opportunity to comment on the issues being discussed if they are unable to attend the meeting. A schedule of matters specifically reserved for decision by the Board has been agreed and adopted. These matters include: setting Group strategy; approving an annual budget and medium-term forecasts; reviewing operational and financial performance; approving major acquisitions, divestments and capital expenditure; approval of site selection; succession planning; approving appointments to the Board and of the Company Secretary, and approving policies relating to Directors’ remuneration and contracts. The Board is supplied on a monthly basis with detailed management accounts and an overview of Group financial and operational information. Regular briefings by the management team are given to the Board, to deepen the collective understanding of the business, leading in turn to more effective debate. The Roles of the Chairman and Chief Executive Officer The posts of Chairman and Chief Executive Officer are separate. The division of responsibility between the Chairman of the Board, Anthony Bloom, and the Chief Executive Officer, Moshe Greidinger, is clearly defined in writing. The Chairman, together with the Chief Executive Officer, leads the Board in determination of its strategy having regard to the Group’s responsibilities to its shareholders, customers, employees and other stakeholders. He is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda. The Chairman also facilitates the effective contribution of Non-Executive Directors and oversees the performance evaluation of the Board and he, when appropriate, discusses matters with the Non-Executive Directors without the Executive Directors being present. The Chief Executive Officer has direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group. He holds regular meetings with his executive team. Board Committees In accordance with best practice, the Board has appointed three Committees, an Audit Committee, a Nomination Committee, and a Remuneration Committee, to which certain Board functions have been delegated. Each of these Committees has formal written terms of reference which clearly define their responsibilities. The terms of reference of each of the Board’s three Committees are available on the Company’s website (www.cineworldplc.com/about-us/corporate-governance). Membership of the Audit, Nomination and Remuneration Committees During the financial year, there were no changes to the membership of the Audit, Nomination and Remuneration Committees. Membership was as follows: Chair Member Member Audit Committee Julie Southern Martina King Alicja Kornasiewicz Nomination Committee Rick Senat Scott Rosenblum Arni Samuelsson Remuneration Committee Martina King Rick Senat Julie Southern All the Committees remained compliant with the Governance Code as regards their membership during the year. Changes to Membership of the Audit and Remuneration Committees since the Year End On 11 January 2017, Martina King stepped down as a Director on the Board, including as Chair of the Remuneration Committee, and as a member of the Audit Committee. Dean Moore, who was appointed to the Board as an Independent Non-Executive Director on 11 January 2017, took over as Chair of the Remuneration Committee and also became a member of the Audit Committee. 40 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 43

    GOVERNANCE u Attendance at Meetings STR ATEGIC REPORT The number of scheduled Board meetings and Committee meetings attended by each Director during the year was as follows: Board (including Audit Remuneration Nomination strategy day) Committee Committee Committee Number of meetings in year 7 5 4 2 Attended Attended Attended Attended Directors for the whole year Anthony Bloom 7/7(1) 5/5(2) 4/4(2) 2/2(2) Israel Greidinger 7/7 N/A N/A N/A Moshe Greidinger 7/7 N/A N/A N/A Martina King 7/7 4/5 4/4 (1) N/A Alicja Kornasiewicz 7/7 4/5 N/A N/A Scott Rosenblum 7/7 N/A N/A 2/2 Arni Samuelsson 7/7 N/A N/A 2/2 GOVERNANCE Rick Senat 7/7 N/A 4/4 2/2(1) Julie Southern 7/7 5/5 (1) 4/4 N/A (1) Chairman of Board/Board Committee. (2) Anthony Bloom, the Chairman of the Company, attended these meetings by invitation. F I N A N C I A L S TAT E M E N T S C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 41


  • Page 44

    GOVERNANCE u Corporate Governance Statement continued Effectiveness Performance Evaluation Directors and Directors’ Independence The Board evaluation for 2016 was undertaken by an For the duration of the year, the Board was composed of external facilitator, Edis-Bates Associates. As they have no nine members, five of whom were considered independent. other connections with the Company, they were therefore Scott Rosenblum is not viewed as independent because of his considered independent in accordance with the Code. The previous business dealings with the Greidinger family and its process, which was initiated in July 2016, was constructive and interests. The names of the Directors at the year-end, together confirmed that the Board and its Committees are operating with their biographical details, are set out on pages 33 to 36. effectively. The terms and conditions of appointment of the Non- Re-election and Election Executive Directors are set out in letters of appointment All the Directors will be retiring and will be offering themselves and are made available for inspection by any person at the for re-election or election at this year’s AGM, reflecting current Company’s registered office during normal business hours, best practice under the Code. Biographical details of all the and will be available at the AGM. Further details of the letters current Directors are set out on pages 33 to 36. In view of of appointment of the Non-Executive Directors and the the performance evaluation, the Board is satisfied that each service contracts of the Executive Directors can be found in Director standing for re-election or election continues to show the Directors’ Remuneration Report on pages 54 to 72. the necessary commitment and continues to be an effective member of the Board due to his or her skills, expertise and For a FTSE 250 company, the Code recommends that a business acumen. majority of non-executive members of the Board of Directors should be independent in character and judgement, and The Board believes that the re-election of Anthony Bloom as free from relationships or circumstances which are likely to Chairman of the Board is in the best interests of shareholders. affect, or could appear to affect, their judgement. The Board Anthony has a comprehensive understanding of the Company’s considers that Martina King, Arni Samuelsson, Rick Senat, business and operations and played a key role in the Company’s Julie Southern and Alicja Kornasiewicz were, for the year, combination with Cinema City in 2014. He also brings to the role Independent Non-Executive Directors. extensive board-level and chairman experience in a range of companies, sectors and jurisdictions. Dean Moore, who was appointed a Non-Executive Director on 11 January 2017, following Martina King’s stepping down Chairman’s Commitments from the Board at the same time, is considered by the Board The Chairman performs a limited number of external roles, but to be independent. The Board is satisfied that Mr Moore the Board is satisfied that these are not such as to interfere meets the requisite criteria to be considered independent, with the performance of the Chairman’s duties to the Group. notwithstanding his previous interim employment within the Group, given the nature of the role he performed in the ten-month period from March 2016, where his mandate was to focus on the Chief Financial Officer succession planning process. The Independent Non-Executive Directors bring an objective viewpoint and range of experience to the Company and ensure that no individual or group of individuals is able to dominate the Board’s decision-making. They play a key role in reviewing proposals and providing constructive challenge generally and in particular in respect of strategy. They also ensure that appropriate standards are maintained. All the Non- Executive Directors have access to independent legal advice subject to consulting with the Board and following the agreed procedure. Rick Senat, the Senior Independent Director, is available to shareholders if they have concerns which contact through the normal channels of Chairman, Chief Executive Officer, Deputy Chief Executive Officer or Chief Financial Officer has failed to resolve or for which contact is inappropriate. The Company Secretary is responsible for advising and supporting the Chairman and the Board on corporate governance matters, ensuring Board procedures are followed and facilitating the good information flow within the Board and the Board-appointed Committees. 42 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 45

    GOVERNANCE u Nomination Committee Report STR ATEGIC REPORT Chairman’s Introduction Dear Shareholders I am pleased to present our report on the Nomination Committee and its activities during the year. It has been another busy year for the Committee in terms of Board succession planning, culminating in the announcement in January 2017 of the appointment of Nisan Cohen as the new Chief Financial Officer (CFO). Working in conjunction with the Chair of the Audit Committee and the acting CFO at the time, Israel Greidinger, the Committee played a key role in the planning process for this nomination. Following a formal recruitment process, and with the assistance of executive search firm, Norman Broadbent, Dean Moore was recruited to act as interim CFO in March 2016. At the same time, internal candidate Nisan Cohen was promoted to the role of Deputy CFO. GOVERNANCE It has been another busy period for As reported at the time, it was anticipated that Nisan would the Nomination Committee in terms of ultimately be appointed to the CFO position on a full- succession planning, culminating in the time basis, subject to his performance developing to the satisfaction of the Board. announcement of the appointment of the new Chief Financial Officer. Following a period of ten months, where Dean worked closely with Nisan on the development and strengthening of key skills and expertise in anticipation of a future promotion to the senior role, the Board considered and supported the Chairman Rick Senat promotion of Nisan to the role of CFO. Further details of the Committee Scott Rosenblum, Arni Samuelsson Committee’s work in relation to the appointments of Dean members Moore and Nisan Cohen are set out in the report below on page 44. 2 Number of meetings held in 2016 In January 2017, we also considered and recommended the appointment of Dean Moore as an independent Non- The Company Secretary acts as Secretary to the Committee. Executive Director, in place of Martina King, who stepped down from the Board at that time. Part of our ongoing work as a Committee is to review the effectiveness of the Board F I N A N C I A L S TAT E M E N T S and its Committees, mindful of the contributing factors to effectiveness such as diversity, independence, and the right mix of skills and experience. Dean Moore brings with him a wealth of financial and commercial experience and skills, which the Committee believes will be of tremendous benefit to the Board and the Group. Last year I was pleased to report that we had attained significant female representation on the Board, with a proportion of over 30% being female. This was indeed the case for 2016, too; however, following Martina King’s departure in January 2017, and the appointments of Dean and Nisan, this proportion has decreased. This is a reflection of our policy to appoint the best candidate for each role, but we are mindful of current recommendations, and give due regard to these when considering both external appointments and internal talent development. Rick Senat Chairman of the Nomination Committee C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 43


  • Page 46

    GOVERNANCE u Corporate Governance Statement continued Composition Recruitment Process for Board Directors During the year, the Committee comprised three Non- As part of the CFO succession planning process, the Executive Directors (namely Scott Rosenblum, Arni Nomination Committee, working in conjunction with the Samuelsson and Rick Senat). While Rick Senat and Arni Audit Committee Chair, Julie Southern, and acting CFO Samuelsson are considered to be independent, Scott at the time Israel Greidinger, engaged external search Rosenblum is not. The majority of the Committee are consultancy Norman Broadbent to assist with the search for independent as required by the Code. a candidate to fill the role. Further to a formal selection and interview process, during which several candidates were The Role, Responsibilities and Activities of the short-listed, Dean Moore was appointed as interim CFO in Nomination Committee March 2016. At the same time, it was announced that internal The Nomination Committee assists the Board in discharging candidate, Nisan Cohen, would become Deputy CFO, and its responsibilities relating to the composition of the Board. It would work closely with Dean in preparation for a potential is responsible for evaluating the balance of skills, knowledge promotion to the role of CFO which, subject to the Board and experience on the Board, the size, structure and being satisfied with Nisan’s development, would take place composition of the Board, retirements and appointments in around a year’s time. of additional and replacement Directors, the independence of Directors, and it makes appropriate recommendations to Following a ten-month period, it was announced on the Board on such matters. It is also responsible for ensuring 11 January 2017 that Nisan Cohen had been appointed to that Directors have sufficient time to discharge their duties the position of CFO and that he would join the Board as on appointment, and thereafter, with such matters being an Executive Director. It was also announced that Dean specifically addressed in the letters of appointment of the Moore had been appointed to the Board as an Independent Non-Executive Directors. The terms of reference of the Non-Executive Director, and would become Chair of the Committee are available on the Company’s website Remuneration Committee and a member of the Audit (www.cineworldplc.com/about-us/corporate-governance). Committee. Given the process undertaken at the time of Dean’s appointment as interim CFO, an external search The Committee met for two scheduled meetings during consultancy was not engaged in connection with his the financial year and for other meetings as required on an appointment as an Independent Non-Executive Director. adhoc basis. Due to the important role that the Directors play in the success of the Group, the Chairman is invited to attend The Board is satisfied that Mr Moore meets the requisite meetings, and does so, except when his own position or his criteria to be considered independent, notwithstanding his successor is being discussed. previous interim employment within the Group, given the nature of the role he performed in the ten-month period During the year, the Committee reviewed its own from March 2016, where his mandate was to focus on the performance, reviewed the structure of the Board and the CFO succession planning process. three Committees, and discussed succession and diversity issues. Norman Broadbent, the external search consultancy used for the search conducted in 2016, has no connections Board Diversity with the Group or any of its Directors, and was chosen While the Committee considers diversity to be important following a consideration of a number of prospective search when reviewing the composition of the Board and possible consultancies. new appointees, it believes that the single most important factor is to identify, recruit and retain the people it considers, on merit, to be the best candidates for each particular role. It is not currently in favour of setting specific targets for Board representation to be achieved by particular dates. As part of the process of recruiting new Directors, it has agreed that candidates from a wide variety of backgrounds should be considered and, where reasonably possible, shortlists should comprise of candidates of both sexes. During the year, there was over thirty percent female representation on the Board. However, this percentage has lowered following Martina King’s stepping down in January 2017 and the appointments of Nisan Cohen and Dean Moore. 44 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 47

    GOVERNANCE u Accountability The Board confirms that, in accordance with the Code: STR ATEGIC REPORT Accountability, Audit and Financial • there is an ongoing and robust process for identifying, The Board is responsible for the preparation of the Annual evaluating and managing the principal risks faced by the Report and ensuring that the financial statements present a Group (for more details please see Principal Risks and fair, balanced and understandable assessment of the Group’s Uncertainties on pages 22 to 27); financial position and prospects. The detailed work to ensure • the systems have been in place for the year under review; this, and to substantiate the fair, balanced and understandable • the systems are regularly reviewed by the Executive statement, is undertaken by the Audit Committee. Directors and the Board and are deemed to be effective with no significant weaknesses identified; and Risk Management and Internal Control • the systems comply with the FRC guidance on risk The Board has overall responsibility for establishing, monitoring management, internal control and related financial business and maintaining an effective system of risk management and reporting. internal control. These systems provide reasonable assurance that the Group’s assets are safeguarded and that material During the year, the Board has directly, and through delegated financial errors and irregularities are prevented or detected with authority to the executive management team and the Audit a minimum of delay. The Group approach has been developed Committee, overseen and reviewed the performance and using the principles of the Three Lines of Defence model (a evolution of the approach to risk management and internal simple but well-established governance and internal control control. model. Please see diagram below). As part of the continued focus on, and investment in, risk GOVERNANCE management and internal control, the Group recruited a Head of Risk and Assurance who took up the post in August 2016. The key responsibilities are to lead on: • Risk Management • Internal Audit • Fraud Detection and Loss Prevention • Insurance Board and Committees Executive Directors F I N A N C I A L S TAT E M E N T S Operations Group – Cineworld Support – Picturehouse – Cinema City Functions – Yes Planet First Line Second Line Third Line External Audit (provided by KPMG) Process and control implementation Group and Territory oversight/ Independent challenge to the levels of and development at cinemas monitoring and strategy/policy assurance provided by management on setting the effectiveness of governance, risk Operationalise: management and internal controls — Cinema operating manuals (policies Support and review: Regulators and process) — Operational performance reviews Challenge and Assure: — Regional/District Manager oversight — Executive Directors’ oversight — Risk-based audits (provided by PwC) — Training and development and challenge — Cinema compliance audit programme — Regulatory and compliance — Group Board and Committee’s — Cinema self–assessments requirements oversight and challenge — Annual health and safety audits — Financial oversight and review — Insurance inspections — Risk Management Framework — Fraud and loss prevention monitoring design and implementation — Mystery shopper visits — Assistance in process and control development — Management self-assessments — Customer satisfaction surveys C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 45


  • Page 48

    GOVERNANCE u Corporate Governance Statement continued Risk Management Internal Control The Board, supported by the Audit Committee and the Whilst the Board has overall responsibility for the Group’s executive management team, has overall responsibility system of internal control and for reviewing its effectiveness, for implementing an effective risk management approach. it has delegated responsibility for the operation of the system The Group approach is governed by its Risk Management of internal control to the executive management team. The Framework that sets out the policy, oversight structure, detailed review of internal control has been delegated to accountability, monitoring and reporting of risk within the Group, the Audit Committee. Senior Management within each part and facilitates the following objectives for risk management: of the Group are responsible for internal control and risk management within its own area and for ensuring compliance • identify, measure, control and report on business risk that with the Group’s policies and procedures. will undermine the achievement of the Group strategic objectives, both strategically and operationally, through The Audit Committee has oversight of the programme of appropriate analysis and assessment criteria; assurance activities to allow for its ongoing review of the • better allocate effort and resources for the management of effectiveness of internal control. The delivery of this assurance key and emerging risks; programme in the first half of the year was led and delivered • drive business improvements and improved intelligence for by PricewaterhouseCoopers LLP (“PwC”) with the support key decision-making; and of the in-house Internal Audit team and then from August • support and develop the Company’s reputation as a well was led by the new Head of Risk and Assurance with PwC governed and trusted organisation. providing specialist support where needed. Details of the activities that the Audit Committee has been involved in The application of the key components of the Risk during 2016 are set out on pages 48 to 53. Management Framework have been: Internal Audit – the Internal Audit Plan is a combination of Oversight Structure and Accountability – the implementation Group-wide risk based reviews (providing assurance over of a risk management oversight and accountability structure the key controls relied upon for the principal risks) as well as has ensured that risk consideration is undertaken from both a additional specific reviews requested by management. ‘top-down’ and ‘bottom-up’ perspective. The Group maintains a Group Strategic Risk Register as well as operational risk Cinema Compliance – the Cinema Compliance Plan is a registers for Group support functions and cinema operations. combination of one and three day reviews that are delivered across the Group. Each cinema in the Group is risk-assessed Ongoing Process – the approach taken is focused on risk based on financial, operational and management information identification (using cause and effect analysis), inherent and to determine which cinemas would be included in the audit residual risk assessment, key controls identification, and programme for the year. the development and implementation of further mitigation strategies where required. As part of this process, risk appetite In addition to the programme of on-site reviews conducted by is considered for each of the principal risks, allowing the Board the Risk and Assurance team, an annual self-assessment audit to clearly set out the nature and extent of the risk the Group is is undertaken by each cinema. willing to accept in pursuit of the Group’s strategic objectives. Fraud Detection and Loss Prevention – to support the Group Escalation, Monitoring and Reporting – a clear escalation policy in fraud detection and loss prevention, a software tool is used is in place to ensure changes to risk exposure are notified up for ongoing analysis of our key data sources to swiftly identify through the governance structure as required. Risk leads are any irregular transaction activity that could indicate instances identified for all risks and have the responsibility for ongoing of fraud, loss or failure of procedural compliance. In addition, monitoring of the effectiveness of current controls and the a programme of anonymous site visits are undertaken to progress against the implementation of further mitigating review the customer journey (from ticket purchase to cinema actions. departure). There is a cycle of ongoing monitoring and reporting activities External Audit – the External Auditor provides a supplementary, in place with risk information being presented to the Board, independent and autonomous perspective on those areas of the Audit Committee, and the executive management team. internal control system which they assess in the course of their work. Their findings are reported to the Audit Committee. Culture – to support embedding the application of the Risk Management Framework into the culture and behaviours of the Group, ongoing training and communication has been delivered by the Risk and Assurance team. Details of the Group’s principal risks and how they are being managed or mitigated are provided on pages 22 to 27. 46 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6


  • Page 49

    GOVERNANCE u Operational Controls – the Executive Directors, on a day-to- STR ATEGIC REPORT day basis, are involved in reviewing the key operations of the business through their interaction with Senior Management across the Group and their discussions on operational performance and delivery. Financial Control – the Group has internal control and risk management arrangements in relation to the Group’s financial reporting processes and the preparation of its consolidated accounts. The arrangements include procedures to ensure the maintenance of records which accurately and fairly reflect transactions to enable the preparation of financial statements in accordance with International Financial Reporting Standards as adopted by the EU or FRS 101, as appropriate, with reasonable assurance and that require reported data to be reviewed and reconciled, with appropriate monitoring internally and by the Audit Committee. Ongoing financial performance is monitored through regular reporting to Executive Directors and monthly reporting to GOVERNANCE the Board. Capital investment and all revenue expenditure is regulated by a budgetary process and authorisation levels, with post-investment and period end reviews as required. A comprehensive budgeting system allows managers to submit detailed budgets which are reviewed and amended by the Executive Directors prior to submission to the Board for approval. Across all territories, a financial controls checklist is in place for all Finance Directors. On an annual basis they are required to undertake a self-assessment sign-off of these controls which is then followed up by Internal Audit reviews for compliance validation. Other Assurance Activities – a programme of Health and Safety audits (delivered by our outsourced provider, NSF, for the UK) take place throughout the year across the Group. Customer surveys and mystery shopper visits also take place to ensure customers receive the optimum viewer experience. F I N A N C I A L S TAT E M E N T S Policies and Procedures – the Group has in place a range of governance-related policies which are regularly reviewed and communicated to employees. These include Whistleblowing, Gifts and Hospitality, and Health and Safety. C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6 47


  • Page 50

    GOVERNANCE u Corporate Governance Statement continued As I reported last year, the Committee instigated an audit tender process in February 2016. The audit had not been tendered since the Group listed in 2007 and, following the completion of the integration with Cinema City, it was considered to be an appropriate time to proceed with the tender. Led by the Committee, a tender document was distributed in February 2016 to four firms. Our assessment criteria included capability, understanding of key issues pertinent to the business, experience, independence , cultural fit, and an assessment of the overall audit approach and quality. After careful consideration and discussion, the Committee decided to recommend to the Board that KPMG should be reappointed. During the year, the Committee continued to review the effectiveness of the Group’s system of risk management and internal controls. As in 2015, the Group has been supported in the delivery of the internal audit programme by PwC, who have I am pleased to present this Report led on all aspects of the programme, including internal audit, on the activities of the Audit Committee cinema compliance, risk management and financial controls. In August, we were pleased to welcome Cineworld’s new Head for the year. of Risk and Assurance. This entailed a change in approach so that PwC’s role became that of a supporting co-source provider with their focus directed towards risk based internal audits and Chair Julie Southern financial controls reviews. This strengthening of the in-house Committee Dean Moore, Alicja Kornasiewicz team was further bolstered by the appointment of a new Head members (Martina King left the Committee in of Tax, a Group role that will further enhance the structure of January 2017 but served for the whole of the international finance team. the financial period) 5 Number of Throughout the year and supported by the Risk and Assurance meetings held team, we have reviewed our Principal Risks, including a in 2016 review of the potential impact on our business model, future The Company Secretary acts as Secretary performance, solvency and liquidity. We have also reviewed to the Committee. and assessed management’s proposals in relation to the Going Concern and Viability Statements. More details of our work on these areas may be found on page 49. Audit Committee Report A key focus for the Committee is the consideration of the Chair’s Introduction significant risks, issues and areas of judgement in relation Dear Shareholders to the financial statements. We have worked closely with I am pleased to present this report on the activities of the management and the External Auditor to ensure that we Audit Committee for 2016. The report sets out details of the have a firm understanding of these issues, so that we can work undertaken by the Committee during the year to support develop clear views on how they should be addressed. Areas the Board in its oversight and monitoring of the robustness of significance for 2016 include accounting for the acquisition and integrity of financial reporting, providing assurance on of five Empire cinemas, the valuation of property, plant and the effectiveness of the Group’s risk management and internal equipment, and onerous lease provisions. Further details of control systems, and in the appointment and supervision of our formal position on these areas may be found on page the external auditor. 50 to 51. Our Committee evaluation was conducted by an external facilitator this year, in accordance with the Code, and I am pleased to note that the evaluation confirmed that the Committee is considered to be performing well, and providing strong support to the Board. Lastly, I would like to take this opportunity to thank Martina King for her significant contribution to the Audit Committee over the years, and to welcome Dean Moore, who became a member of the Committee in January 2017. With his extensive experience and strong financial background, I am sure Dean will be a great asset. Julie Southern Chair of the Audit Committee 48 C I N E W O R L D G R O U P P L C | A N N UA L R E P O R T A N D AC C O U N T S 2 0 1 6

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