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ODEON & UCI Cinemas

Annual Review 2009


Highlights Chairman's Statement Chief Executive's Review UK Divisional Review Continental Europe Divisional Review Corporate Social Responsibility Our People Chief Financial Officer's Report Our Directors Corporate Governance Report

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ODEON & UCI Cinemas Annual Review 2009

highlights 2009

ODEON & UCI Cinemas Group Europe's Leading Cinema Operator


Number 1 Operator in Europe

n n n n n n n

Number 1 operator in the UK, Spain and Italy Significant presence also in Germany, Austria, Portugal and Ireland Largest operator outside the Americas 1.5 million guests visit cinemas weekly 5.6 million active online users 5 acquisitions over previous 4 years delivering good value 5 new cinemas opened and 3 cinemas taken over from competitors in 2009


increased 11%*

Revenue growth ahead of market

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Revenue up 11%, increasing in all markets= Attendance averagev of main markets up 6% Investment in cinemas and customer offer driving revenue growth - Ticket price average increased 9%u - Retail per guest average increased 4%u

International Exhibitor of the Year 2009

Presented at the Annual Cine Expo Global Industry Conference in Amsterdam

Strong EBITDA growth +11%

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2009 EBITDA increased by 11% to £80m despite fall in advertising income

2006-2009 EBITDA CAGR of 7%

Further investment to continue proven growth record

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Capital Expenditure of £37m in 2009 Full digital roll out commenced in April 2010



Average across four main markets weighted by Group attendance. ODEON & UCI Cinemas Group comprises ODEON & UCI Cinemas Holdings Ltd and ODEON Property Group LLP as described in the CFO's Report. Earnings before interest, tax, depreciation, amortisation, exceptional items and strategic costs. * Compared to previous year. u Major territory weighted average, at constant foreign exchange rate. = At constant foreign exchange rate.


ODEON & UCI Cinemas Annual Review 2009

Leaders in Cinema


Number 1 Cinema Operator in Europe Only cinema chain successfully operating in 7 Western European markets Europe's flagship cinema ­ ODEON Leicester Square Service standards ahead of competition* Highest retail revenue per head of any major cinema chain Ben & Jerry's biggest franchisee in the world Co-owner of Europe's largest screen advertising company - DCM Biggest circuit of IMAX screens in Western Europe Leaders in customer loyalty and guest services

­ Biggest cinema loyalty scheme in Europe with schemes in all territories ­ Total members 1.4m as at December 2009 ­ Total customer database grew 24% on 2008 to 4.6m ­ Consistently ahead of competition in Mystery Shopper scores ­ Leading website









Active Internet Users (Total Group)


3,705 Number of active internet users in month '000 3,270 2,483 2,540 3,172


Dec 06

* See page 10.

Jun 07

Dec 07

Jun 08

Dec 08

Jun 09

Dec 09


ODEON & UCI Cinemas Annual Review 2009

Leaders in Digital Cinema


More 3D digital screens than any other cinema group in UK/Ireland; more 3D digital screens than any other cinema group in Europe. First successful all digital multiplex in Europe in 2007 First cinema chain outside USA to sign directly five major studio digital deals to enable 100% UK roll out First to sign a pan European deal for supply of in-auditorium 3D equipment with supplier Real D First live 3D sports event First live 3D football in cinema More alternative content events than any other European exhibitor More digital screens than any other cinema group in Europe

Accelerating Digital/3D Screen Roll-out 491








Number of Digital/3D Screens Digital 3D Digital 38 34 Dec 2008 127 Jun 2009 130

221 469 201

Dec 2009

Jun 2010


ODEON & UCI Cinemas Annual Review 2009

Chairman's Statement

ODEON & UCI Cinemas Group continued to make good progress u in this fifth full year of Terra Firma ownership.


I am delighted to report that 2009 has been another strong year for ODEON & UCI Cinemas Group. EBITDA1 was £80m, an increase of 11% over the prior year. The Group is firmly established as Europe's number 1 cinema chain and is the largest operator outside of the Americas. We continue to expand, with five new sites opened and three sites taken over from our competitors in 2009, bringing the total number of screens to 1,850 at 204 sites at the year end. At ODEON we work consistently hard to provide the best possible customer experience, as shown by our positive customer feedback. During the year we have continued to invest in new initiatives to further improve the customer experience, including additional premium seats, IMAX screens, 3D screens and further retail developments. Since the original acquisition of the ODEON and UCI businesses in 2004, Terra Firma has supported further investment of £89m in bolt-on acquisitions and £143m in capital expenditure, of which £37m was invested in 2009. Further investment will continue during 2010.

Further progress was made in 2009 with regard to preparing the Group for the full roll out of digital projection. We have signed roll out agreements with 5 Hollywood studios which now allows us to commence full digital roll out in the UK. We are pleased to be the first cinema group in Europe to do this and we are planning to do the same in Continental Europe later in the year. The full roll out in the UK commenced in April 2010 and is anticipated to start later in the year for the rest of the group. These exciting developments are enabling the business to enhance its operational capability and flexibility as well as providing exciting new content for customers such as 3D films. The excellent team at ODEON & UCI Cinemas Group is led by Rupert Gavin our Chief Executive. I would again like to extend my thanks to all the Group's employees for their high level of professionalism, commitment and enthusiasm which really do make a difference to customers' enjoyment of their cinema experience. Mike Kinski Chairman=

£89 million

in bolt-on acquisitions

Terra Firma has supported substantial investment in ODEON & UCI Cinemas Group over 5 years

£143 million

further capital investment in the estate

Defined on page 3. u Terra Firma is described on page 24. = Mike is Chairman of ODEON & UCI Cinemas Holdings Ltd, see page 26. 1 Defined on page 3.



ODEON & UCI Cinemas Annual Review 2009

Chief Executive's Review

2009 has been a very successful year for ODEON & UCI Cinemas Group. Our continued investment in new sites, improved retail offerings, digital and 3D have all contributed to a strong set of results. 3D in particular has caught the imagination of the cinema going public and given rise to increased volumes and ticket prices.

The Cinema Market ODEON & UCI Cinemas Group operates in four major European markets: UK, Spain, Italy and Germany; and three smaller markets: Austria, Portugal and Ireland. The performance of these markets depends primarily on the strength of the film line-up. The film line-up consists of a combination of major global Hollywood blockbusters (such as the `Harry Potter' franchise, the `Bond' films, `Shrek' and `Ice Age'), secondary major Hollywood titles (which are often not franchises but are single stand alone titles, such as `Slumdog Millionaire' or `2012'), niche titles and local film titles. The performance of the market in each year is dependent on the interaction of all four categories. This means that markets in different countries do not always move in the same direction. In 2009, these markets experienced an average increase of 6% in attendance. Germany saw exceptional growth, the UK and Spain saw a moderate uplift, while in Italy the market remained level. 3D The biggest impact on the markets in 2009 was the improved slate of 3D films. `Avatar' exceeded all expectations, but there were also very strong performances from `Up', `Ice Age 3', `A Christmas Carol' and `Monsters vs Aliens'. On average 3D attendance was 80% of the total when a film was shown in both 3D and 2D with customer feedback being excellent. The tables on the following page show the significant growth in the number of 3D titles released, demonstrating the studios' commitment to this exciting new format, which has caught the imagination of the cinema going public.

Country: UK Brand: ODEON Rank*: 1st Total Cinemas: 104 Total Screens: 832 Market Share: 26%

Country: Germany Brand: UCI-Kinowelt Rank*: 3rd Total Cinemas: 24 Total Screens: 211 Market Share: 7%

Country: Ireland Brand: UCI/Storm - under management Total Cinemas: 9 Total Screens: 67 Country: Spain Brand: Cinesa Rank*: 1st Total Cinemas: 36 Total Screens: 393 Market Share: 15%

Country: Austria Brand: UCI-Kinowelt Total Cinemas: 3 Total Screens: 38 Country: Italy Brand: UCI Rank*: 1st Total Cinemas: 24 Total Screens: 257 Market Share: 9%

Country: Portugal Brand: UCI Total Cinemas: 4 Total Screens: 52

Europe Rank*: 1st Total Cinemas: 204 Total Screens: 1,850 The above represents owned and managed sites as at end of December 2009

* Rankings measured by screen counts.


ODEON & UCI Cinemas Annual Review 2009

Up (3D)

Slumdog Millionaire

Transformers 2

2008: 6 3D releases Beowulf Fly Me To The Moon Hannah Montana Journey to the Centre of the Earth Scar U2 3D 2009: 13 3D releases My Bloody Valentine Bolt Monsters vs. Aliens Coraline Jonas Brothers Ice Age 3: Dawn of the Dinosaurs G-Force The Final Destination Cloudy With a Chance of Meatballs Toy Story Up A Christmas Carol Avatar 2010: 25 3D releases Toy Story 2 Battle for Terra Alice in Wonderland How to Train Your Dragon Clash of the Titans Streetdance Space Chimps 2 Shrek Forever After Toy Story 3 The Last Airbender Step Up 3 Cats and Dogs 2 Piranha Resident Evil: Afterlife The Hole Despicable Me Guardians of Gahoole Alpha and Omega Saw 7 Jackass 3

Harry Potter and the Deathly Hallows: Part 1

Strong Film Product 2009 saw the return of a good number of high quality, dependable franchises led by `Harry Potter', `Star Trek' and `Transformers'. Local titles did not feature as strongly as in previous years with the exception of Germany. In Germany the strong local titles contributed to the market increases in the year, with local titles featured at numbers three and six in the top 10. The UK benefited from the unexpected hit `Slumdog Millionaire'. In Italy, where the market was flat, there was only one local title in the top six, compared to three titles last year and the `Avatar' release was scheduled for 2010. A film première at ODEON's prestigious Leicester Square cinema remains the best location for global exposure today, and was the perfect choice for the groundbreaking and eagerly anticipated `Avatar'.

Market Prospects for 2010 and Beyond Looking to the future, there is reason to be confident about the film slate. 3D films look set to continue to feature highly in the rankings for 2010, with 25 films being released in 2010 compared to 13 in 2009. So far in 2010 `Avatar' and `Alice in Wonderland' have both performed strongly and there are high expectations for a number of other 3D films such as `Toy Story 3' and `Shrek Forever After'. The most successful long running franchises are being successfully continued and revitalised. For example, `Potter' returns in 2010 and again in 2011. `Chronicles of Narnia', `Little Fockers' and `The Twilight Saga' also feature in 2010. In 2011, there is an above average number of blockbusters scheduled, including: `Pirates of the Caribbean',

UK Spain

MarketBoxOffice(£m) Growth YoY (Attendance) GrowthYoY(BoxOffice) ODEONBoxOffice(£m) ShareofBoxOffice Market Attendance (m)\ Growth YoY (Attendance) Cinesa Attendance (m) Share of Attendance Market Attendance (m)\ Growth YoY (Attendance) UCI Attendance (m) Share of Attendance Market Attendance (m)\ Growth YoY (Attendance) UCI Attendance (m) Share of Attendance

946 6% 11% 250 26% 111 3% 16 15% 109 0% 10 9% 149 15% 10 7%



Megamind Chronicles of Narnia Tron Legacy 3D Gullivers Travels



Full market estimate (provisional data).

ODEON & UCI Cinemas Annual Review 2009

Harry Potter & the Half-Blood Prince

Avatar (3D)

`Mission Impossible', `Transformers', `Puss in Boots' (Shrek spin off), `Hangover' and `Kung Fu Panda'. Recent successes are now making their bid for franchise credentials. 2010 sees the second outings for `Nanny McPhee', `Sex and the City' and `Iron Man', building on the performance of their initial offerings. Our Strategy Our strategy has the following key components to it. 1. Leveraging the benefits of scale We actively seek opportunities to increase our scale, whether through acquisitions or new site investment opportunities. The initial combination of ODEON & UCI in the UK market made us number one even after the disposal of 11 of our sites as a condition of the OFT competition clearance. This integration of the two businesses delivered around £12m per annum of synergy benefits. We have also successfully acquired and integrated two businesses in Spain (Warner Lusomundo and AMC), making us No. 1 in that market, and two businesses in Italy (Europlex and Cinestar) making us No. 1 in that market too. In Germany our acquisition of 4 Kinoplex sites in 2008 consolidated our No.3 position. On average we have been able to improve the EBITDA margin of the acquired businesses by about 10%, exceeding our acquisition plans. In 2009 we invested £15m in new sites, opening five new sites and taking over three sites from our competitors.

Top 6 Titles in Spain 2009 1 2 3 4 5 6 Up (3D) Ágora Ice Age 3: Dawn of the Dinosaurs (3D) Avatar (3D)* New Moon Angels & Demons

Top 20 Titles in the UK 2009 1 2 3 4 5 6 7 8 9 Harry Potter & the Half-Blood Prince Ice Age 3: Dawn of the Dinosaurs (3D) Up (3D) Slumdog Millionaire Transformers 2 Avatar (3D)* New Moon The Hangover Monsters vs. Aliens (3D)

Top 6 Titles in Italy 2009 1 2 3 4 5 6 Ice Age 3: Dawn of the Dinosaurs (3D) Harry Potter & the Half-Blood Prince Angels & Demons New Moon Natale `09 2012

10 Star Trek 11 Night at the Museum 2 12 A Christmas Carol (3D) 13 2012 14 Angels & Demons 15 Bolt (3D) 16 X-Men Origins: Wolverine 17 Bruno 18 Marley and Me 19 Terminator Salvation 20 Fast & Furious *Avatarhasbeenthebiggestfilmof all time in all our markets. The rankings abovereflect2009screeningsonly.

Top 6 Titles in Germany 2009 1 2 3 4 5 6 Ice Age 3: Dawn of the Dinosaurs (3D) Harry Potter & the Half-Blood Prince Wickie & Die Starken Mäner Illuminati (Angels & Demons) Avatar (3D)* Zweiohrküken


ODEON & UCI Cinemas Annual Review 2009


Natale A Beverly Hills

Wickie und die starken Männer

2. Improving the yield value of each customer Our strategy is to continue to invest in the quality of our cinemas, the skill of our employees and the range and presentation of the retail products that we offer. By doing this, we have positively impacted the value of each customer. We have achieved successful growth in our average ticket prices in all of our major markets over the past five years, directly as a result of introducing improved seats, upgraded facilities and better film presentation.

We have also achieved good growth in the sales per head of retail products in the major markets over the past five years. This follows investment in: · broader ranges of popular products, such as Ben & Jerry's Ice Cream, DVDs, Pizzas and Juice Bars · operational training for our staff · exciting new ways of presenting merchandise. We monitor the performance of our employees by external mystery shoppers visiting on a regular basis every single cinema in our network. The chart below shows the continuing lead in the

standard of service that we maintain in all our markets versus our competitors. We also take very seriously all matters relating to risk, health & safety which may affect both customers and our employees. We have a dedicated team focused on these issues, and continuously improve our procedures and reporting as well as our cinemas and other places of work. 3. Utilising technology to improve our business Technology can be used beneficially in a number of areas of our business. In particular, we are rolling out digital projectors, 3D technology, developing our websites and customer loyalty programmes and further leveraging our investment in point of sale infrastructure. The next major technological innovation is the transformation of our cinema projection infrastructure to digital. In April 2010 the full roll out of digital projectors in the UK commenced, and is expected to be complete by 2012. The full roll out for the rest of the group is anticipated to start later in 2010. As of June 2010 we already have the largest network of digital screens both in the UK/Ireland market and in Europe as a whole.

Customer Service Scores

UK Spain Italy Germany ODEON Competition Cinesa Competition UCI Competition UCI Competition 93% 87% 84% 76% 91% 87% 88% 83%

These customer service scores are based on independently conducted mystery shopper visits to our sites and those of our competitors.


ODEON & UCI Cinemas Annual Review 2009


Director James Cameron and stars of Avatar outside ODEON Leicester Square at the world premiere of the world'smostsuccessfulfilmever

This deployment will enable the studios to save dramatic sums from their global cost of 35mm prints. Apart from enabling 3D, it means that we can be much more flexible in our film offering to respond to customer demand. It improves the cinema as an advertising medium. It also allows the cinema to show a range of alternative content offerings. To date we have successfully offered our customers a diverse range of digital programming including opera, rugby, live Formula One racing, international football and contemporary music. Technology has now been developed and tested for live 3D performances culminating recently in the showing of the Rugby 6 Nations live in 3D. Our websites, in each country, have become a major point of contact between us and our customers and have provided us with an extensive and rapidly growing database that is proving to be a very valuable marketing resource. Our websites deliver an excellent environment to understand the full breadth of the product we have to offer, as well as a slick single click method of choosing seats and buying tickets. We are regularly in touch with our customers electronically. In Spain, Italy, Germany and most recently in the UK we have launched very successful loyalty programmes for our customers, which have managed to stimulate a greater number of visits. We have also been transforming our point of sale infrastructure over the last few years. These are major programmes of investment which enable us to achieve operational savings through combined sales of tickets and retail items, as well as the much greater promotional flexibility and improved customer data capture that underpins our loyalty and reward programmes.

Summary Customer Database Growth CE and UK Territory UK Germany Spain Italy Austria Portugal Total database 2008 2,372,957 594,466 453,700 158,129 103,747 69,918 3,752,917 2009 2,863,646 810,835 526,053 221,122 132,967 83,844 4,638,467 Growth 21% 36% 16% 40% 28% 20% 24%

Total number of 3D screens has increased significantly 469

201 127 34

Dec 2008

Jun 2009

Dec 2009

Jun 2010


ODEON & UCI Cinemas Annual Review 2009

The Nutcracker

Cliff Richard Don Carlo Alternativecontentexhibitionsincreasedsignificantlyin2009usingnewdigitaltechnology.


pan-European cinema operator

Summary Our overall strategy is positioning us well to capitalise on the long term improvement in the film slate and withstand the occasional weaker year as we reap the benefits of the recent investment in the efficiency of our organisation, the quality of our cinemas and the attractiveness of our customer offering. The film community has continued to produce commercially appealing titles in good quantity over the last few years. This trend looks set to continue, with a focus on a greater slate of 3D films. Our ability to invest in digital technology will enable us to provide even more of our customers with more of the 3D experience that has proved so successful in 2009. There remain some challenges in the short term. Growth in retail spend is held back in some areas by the poor economic conditions and we have had to take increasingly direct responsibility for the advertising operations in our major territories, UK and Spain. Screen advertising is an aspect of our business which has been clearly affected by the economic cycle, but is now showing good signs of recovery. However, 2009 was a further demonstration that overall our results appear resilient to the poor economic conditions. While the past is no guaranteed indicator of the future, we have not managed to find any historic correlation between previous consumer recessions and cinema-going. The biggest impact on the cinema market has consistently been the quality of the film line-up, and of course, the weather. There are significant opportunities in the business, not least in continuing to improve and to grow our estate, investing further in our retail offer and from digital technology and 3D. Rupert Gavin Chief Executive Officer



ODEON & UCI Cinemas Annual Review 2009

UK Divisional Review

ODEON increased earnings and retained its market leading position with estate development and new technology.

2009 Highlights

Growth despite weak advertising revenues

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UK Market attendance up +6% at 173m. Strong growth in ticket prices and retail spend. EBITDA increased 5% to £58m despite significant reduction in screen advertising revenue.

ODEON is the market leader in the UK, with a box office revenue share of 26% in 2009. UK market attendance was up 6% yearon-year and the highest for seven years, largely thanks to the strong film slate which included good 3D titles (4 of the Top 10), strong sequels and surprise successes. `Harry Potter', originally scheduled for 2008, was the number one film of the year closely followed by the proven franchise `Ice Age 3' (3D), `Up' (3D), and the sequels `Transformers 2' (3D) and `Twilight New Moon'. The outstanding success stories of `Slumdog Millionaire' and `Avatar' (3D) contributed to the excellent growth for the year. The results of ODEON and other exhibitors were impacted by a significant drop in screen advertising in 2009. Despite this, ODEON delivered a 5% growth in EBITDA over 2008, a testament to the strength of the underlying business, which delivered impressive growth in revenues per customer and rigorous cost control. In the UK, we continued to replace traditional cinemas with new, modern multiplex cinemas, whilst also up-grading existing multiplexes through retail and refurbishment programmes. Roll out of 3D ODEON continued to increase its investment in 3D technology throughout 2009 in order to take advantage of the 3D phenomenon. 3D films grew in number and popularity during the year and our 3D screen numbers expanded to allow us to

Improved cinema estate


20 screens in 2 new flagship cinemas with 840 premium seats. 1,251 premium seats installed at existing cinemas. 5 new Costa Coffee houses and 1 new Ambar.

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Additional Digital IMAX screens


At the Cardiff and Gateshead MetroCentre cinemas.

Digital Projectors for 3D


The agreements necessary for 100% digital roll-out have been negotiated and secured. 102 digital 3D screens (12% of estate) at end of 2009. Full estate conversion expected by end 2011.

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Launch of Loyalty Scheme

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ODEON Première Club fully rolled out during the year. After just 8 months, by early 2010 ODEON Première Club was by far the largest loyalty scheme in the UK film industry with 500,000 members.


ODEON & UCI Cinemas Annual Review 2009

New ODEON Gateshead MetroCentre

Gallery seating at ODEON Gateshead MetroCentre

VIP bar at ODEON Gateshead MetroCentre


EBITDA in 2009

exploit this opportunity and benefit from the ticket premia charged (up to £2.50). By the end of 2009 ODEON had 102 digital 3D screens in the UK representing 12% of our total screens. 15% of ODEON Box Office was 3D and we achieved a 28% share of the 3D market. Testament to our 3D capabilities was the hosting in December of the `Avatar' world première at Leicester Square. New Cinemas ODEON relocated its Wrexham cinema in March (8 screens, 1,467 seats). The Gateshead cinema was relocated in December within the MetroCentre, the successful North East flagship shopping and leisure development (12 screens, 2,762 seats). The cinema was built across two levels and is fully digital, including a digital IMAX screen and six 3D screens. There are premium seats in all auditoria and a Gallery offer for 5 screens with a VIP bar. Retail offers include the traditional cinema offers as well as Ben & Jerry's Ice Cream, Costa Coffee and an Ambar. Retail Improvements ODEON continued to focus on improving the variety of retail offers and upgrading existing retail facilities. Building on the success of the existing three Costa Coffee franchises and the two at the newly relocated sites of Wrexham and Gateshead MetroCentre (now the largest and best performing franchise), a further

three were added at Lincoln, Guildford and Chelmsford. In addition, a new milk shake concept (`Milk Shak') was launched at Lee Valley, with plans to add further stores in 2010. Seating Improvements A key strategy for ODEON remains a focus on the cinema experience itself in terms of both comfort and technology. To that end we added a total of 840 premium seats in the two new sites at Wrexham and Gateshead MetroCentre in 2009, which are more comfortable, are situated in the best viewing locations within the auditorium and attract a premium of between £1.50 and £2.00 above the normal ticket price. Guildford, Norwich, Putney and Exeter also had a total of 1,251 premium seats upgraded during the year. Exeter also benefited from the installation of new seating throughout. IMAX IMAX theatres provide a combination of the world's sharpest images, crystal-clear digital surround sound and customdesigned auditoriums enabling a more immersive film experience. Based on the continuing success of the IMAX screen at Manchester Printworks, and the addition of the first digital IMAX screens in Europe at Wimbledon and Greenwich in 2008, a further 2 digital IMAX screens were installed in December,


ODEON & UCI Cinemas Annual Review 2009


Couples Retreat

Can these Hollywood pairs go the distance?

0ctober 2009

NOVEMber 2009



december 2009



robert Downey Jr takes us behind the scenes

Sherlock Holmes

faNtastiC mr fox

roald Dahl's cunning hero pops up on screen

win! to a trip

Benicio Del Toro unleashes his inner beast!


A Christmas Carol

Jim Carrey goes digital on us...

An out-ofthis-world trip with Planet 51!


Returns ... ...With The Princess And The Frog St Trinian's 2

The naughtiest girls in school are back!




oN LoND w witH NE aL musiCE NIN

The Twilight Saga returns... does edward still love Bella?

ODN22.cover 1

new moon

takes us to a spectacular new world!

6/11/09 15:38:28


James Cameron's

ODEON Première Club loyalty card scheme

The revamped ODEON Magazine was launched in October 2009

in time for the release of `Avatar': one at Cardiff and one at the new Gateshead MetroCentre. The IMAX brand is well established in the UK and capable of delivering higher attendance per screen at a higher ticket price. The film slate in 2010 will feature at least 12 new IMAX films including 2D and also 3D titles such as `Avatar', `Alice In Wonderland', `How To Train Your Dragon', `Shrek Forever After' and `Harry Potter 7: Part 1'. A sixth IMAX has already been opened in 2010 at Southampton. Loyalty The ODEON loyalty programme, ODEON Première Club (OPC), was fully rolled-out across all cinemas by September. By the end of 2009 almost 250,000 cards had been sold, making OPC the largest cinema loyalty programme within the UK after only 4 months. This provides a great opportunity for us to interact with our customer base. Our analysis has proven that OPC members transact more online after joining the scheme. Spend per transaction is also increased compared to non-OPC members. DCM In its first full year, ODEON's screen advertising joint venture, Digital Cinema Media (DCM), was impacted by a weak advertising market. DCM remains well

placed to maximise recovery in advertising and the transition to digital advertising in the longer term. The focus, in the short term, is to drive advertising revenues and brand campaigns. Expansion in Ireland Our management agreement with Entertainment Enterprises continues to run successfully. Entertainment Enterprises opened a new UCI-branded cinema at Newbridge in Dublin in December 2009. 2010 outlook The benefits of the investments made in the cinema experience and retail operations will continue to flow through to 2010. 3D and IMAX programming represent significant opportunities to drive box office and market share based on the 2010 film slate. Further digital 3D and IMAX screens will be added throughout the year. By the end of April 2010, ODEON had signed digital roll-out agreements with 5 of the major Hollywood studios which will enable digital roll-out across the entire UK estate. The primary benefit of digital transformation lies with the studios, in terms of lower print costs. As a result,

the studios have agreed, in the digital rollout agreements, to fund the bulk of the cost by way of Virtual Print Fees (VPFs). Once fully digitised, in addition to having 3D capabilities, cinemas will also benefit from greater flexibility in both advertising and programming and from non-film based events (such as sport, opera and theatre). Around 50 alternative content events are planned for 2010 across approximately 80 cinemas. Roger Harris Chief Operating Officer, UK & Ireland


RogerHarris-ChiefOperatingOfficer, UK & Ireland


ODEON & UCI Cinemas Annual Review 2009

Continental Europe Divisional Review

The Continental Europe division consists of 91 cinemas and 951 screens spread over 5 territories: Spain, Portugal, Italy, Germany and Austria (as at December 2009). The cinemas trade under the name `Cinesa' in Spain, `UCI Kinowelt' in Germany & Austria and `UCI Cinemas' in Italy & Portugal.

2009 Highlights

Significant volume and EBITDA growth overall, despite the economic recession

n n n

ODEON & UCI Cinemas is the number one exhibitor in terms of market share in both Spain and Italy, and number three in Germany, with further key locations in Portugal, where we have the top two cinemas*, and in Austria where we have the number one performing multiplex*. Growth through further potential acquisitions and new builds will continue to form part of our strategy for 2010 onwards. The increased 3D slate for 2010 represents a significant opportunity for us as we continue investment in 3D screens across all territories. Trading Performance Continental Europe delivered 28m EBITDA in 2009, a 31% increase on the prior year. Box office revenue per customer was significantly above 2008 in all territories, benefiting from the strength of 3D product and the premia charged. Local product in Spain was stronger than in 2008 thanks to the success of `Agora'. Despite good attendance in this territory, EBITDA was 0.5% down due to the economic downturn having a heavier impact on retail spend and also on the advertising industry. In Italy EBITDA was also a little down year-on-year (0.3m), reflecting a flat market and pressure on screen advertising. In Germany EBITDA was up significantly versus 2008, boosted by the successful integration of the Kinoplex cinemas (acquired September 2008), high attendance, strong performance on ticket price and retail per head (bolstered by intermissions on some films) and firm cost control. Investment in the cinema experience continued throughout the estate, including digital and 3D technology, premium seats and a significant investment in the retail facilities. In all markets, we monitored the performance of our cinema employees and managers through external mystery visitors. All cinemas were visited on a regular basis and scored ahead of the competition in 2009. José Batlle Chief Operating Officer, Continental Europe

Spanish market attendance up 3%, Germany up 15%. Strong growth in ticket prices, bolstered by 3D. EBITDA increased 31% to 28m.

New sites

n n

3 new sites taken over from competition. 3 new builds.

3D cinema


Increased amount of 3D product during 2009 in all territories. Continued investment in the roll out of 3D projectors. By December 2009 there were 93 3D enabled screens across our European territories. Roll-out will accelerate in 2010.


645,000 active cardholders, total database 1.8m


Total cardholders reached 1.2m, an increase of 19% year on year. Total customer database grew to 1.8m, a 29% increase year on year, and a valuable marketing resource.




Retail installations included 9 new coffee lounges, a Billiards offer, 4 ceiling height Pick & Mix walls, 3 Pane e Sapori (sandwich) offers, new Impulse Counters and a new IT solution in Spain to allow greater flexibility in retail promotions.

* Based on attendance


ODEON & UCI Cinemas Annual Review 2009

New cinema: La Gavia, Madrid

Retail refurbishment in Spain

New cinema: UCI Dolce Vita, Lisbon


The cinemas trade under the Cinesa brand in Spain. Total attendance for the Spanish market in 2009 was 111m*, an increase against the previous year of 3%. Cinesa improved its market share, partly due to opening two new sites (Barnasud ­ Barcelona acquisition, and La Gavia ­ Madrid new build). EBITDA was 12.4m, 0.5% down on 2008, despite stronger attendances and ticket prices. This was due to the particularly heavy impact the recession had in Spain on retail spend and also on the advertising sector, which led us to take a more active role in managing advertising going forward. Key highlights for 2009 One cinema acquired from a competitor and opened in May at Barnasud (Barcelona) One new build cinema opened in La Gavia (Madrid) in July 3D digital screen numbers increased to 39 projectors (10% of estate) by the end of the year. Implementation of new retail promotions IT system. 2009 saw further development of Cinesa's retail areas with the introduction of new impulse counters across all cinemas and new menu boards in many sites Retail promotions were launched, in co-operation with film distributors, for certain blockbuster films throughout the year, to drive revenue in key periods. Loyalty cards increased by 72,000 (+16%) and the total database increased to 526,000 (+16%). 22% of tickets were sold to loyalty card holders in 2009. Several promotions were launched to drive additional traffic with vouchers and specific promotions aimed at senior citizens. Alternative Content events including football, opera, circus and music were screened successfully throughout the year.


The group operates cinemas in Portugal under the UCI brand. Total attendance for the Portuguese market in 2009 was 16.9m*, a 2% decrease on the previous year. EBITDA was 1.4m, a decline on 2008 of 0.5m despite strong ticket prices due to market volumes and impacts on retail spend and screen advertising from the recession. Key highlights during 2009 included the opening of a new 11 screen cinema in Lisbon as part of the Dolce Vita project - the largest shopping centre development in Portugal.


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n n

Spain: Portugal:





2010 outlook The film slate for 2010 looks very strong, especially for 3D films. Cinesa is in a good position to benefit from this with 86 screens equipped with 3D capabilities by June 2010. Alternative content will be expanded further following its success in 2009. Cinesa will continue to invest in retail initiatives together with a major refurbishment at one site. Firm cost control will continue, reinforcing the competitive position of the business.

* Provisional data

José Batlle ChiefOperatingOfficer, Continental Europe


ODEON & UCI Cinemas Annual Review 2009

Retail refurbishment: new impulse POS

Loyalty card scheme: 16% growth YoY

Pick & Mix wall at UCI Firenze


Key highlights for 2009

n n

Opened a new 10 screen cinema at Milan in April. Acquired two cinemas from competitors, at Florence (11 screens) in May and at Venice (12 screens) in August. 3D digital screen numbers increased to 24 projectors (9% of estate) by the end of the year. Loyalty cards increased to 196,000 during the year (+16%) and the total customer database increased to 221,000 (+40%). Increased retail revenue per head year on year through better presentation, scheduling, promotions and training. Added Pane e Sapori (sandwich bar) to 3 locations. Introduced 4 new ceiling height Pick & Mix walls. Installed new premium seating at 2 locations.




n n n

New cinema: UCI Milano Fiori, Milan

Total attendance for the Italian market* in 2009 was 109m, flat on the previous year. Local product, while not as strong as the previous few years, continued to be a significant factor in driving the Italian box office, with 7 of the Top 20 films being Italian. EBITDA at 8.7m was 0.3m below last year, as a result of lower screen advertising revenues. Retail revenues increased because of additional investment in the estate, and ticket prices were higher because of 3D premia.

2010 outlook The film slate for 2010 looks strong, starting with the release of `Avatar'. A new cinema has been opened in Palermo, Sicily. Further acquisitions will be pursued and additional investment is also planned on retail facilities and premium seats, as well as the installation of more digital projectors for 3D at a number of locations. There were 33 screens with 3D capability by June 2010.

Italy: Number of UCI Screens

257 233




* Full market estimate (provisional data).




ODEON & UCI Cinemas Annual Review 2009

New retail seating areas, auditorium premium seating and billiards all installed at UCI Bochum, Ruhr Park


Total attendance for the German market in 2009 was 149m*, a 15% increase against the previous year. Local product was strong as `Wicki & Die Starken Manner, `Zweiohrkuken', `Die Papstin' and `Mannerherzen' complemented the success of the top film `Ice Age 3' (3D). Market share was 6.8%, up 0.8% on the previous year, including the benefit of the first full year with the four cinemas acquired from Kinoplex in September 2008. The success of the loyalty card scheme introduced in 2007 continued to drive incremental admissions and revenues. Key highlights for 2009



The group trades at 3 cinemas in Austria, including the largest in the country. Total attendance for the Austrian market in 2009 was 19.2m*, which was 23% above the previous year. Market share was 9.9%, a decline on the prior year of 0.7%, due to having fewer 3D screens in Vienna than the competition. Key highlights during 2009


Loyalty cards increased by 66,000 during the year (25%) and the total online database increased to 811,000 (+36%). 19% of tickets were sold to loyalty card holders. Alternative content screenings increased, with ladies nights, midnight DVD screenings and live concerts. Bars and retail areas improved, including the installation of an additional 9 coffee bar areas. New billiards offer at Bochum. Increased retail spend from loyalty scheme customers through the active and targeted use of points and promotions. Further retail promotions were introduced, supported by film distributors, to promote films and grow retail spend per head, with free gadgets and advertising materials.

Loyalty card membership grew 21% to 66,000 during the year and the total online database grew to 133,000, up 28% year on year. Bar areas were improved with new seating in 2 locations.




Germany & Austria Total Customer Database 944,000 698,000 558,000

n n


2010 outlook 3D performances have been particularly well received in Germany and we are looking forward to a strong film slate in 2010 featuring a number of 3D films. 2010 will see the introduction of Super Loge seating, which offers additional comfort versus premium and standard seating. Development of the loyalty scheme will continue with additional customer offers and detailed behavioural analysis to drive performance. Retail offers will be enhanced through further investments in coffee bars and refurbishments to existing facilities. Negotiation of rent and lease terms will continue to be a priority, as will the roll-out of digital projectors in order to capitalise on the significant increase in 3D titles which are slated. There were 58 screens with 3D capability by June 2010.




* Provisional data

Germany: Austria:


ODEON & UCI Cinemas Annual Review 2009

Corporate Social Responsibility

ODEON & UCI Cinemas Group continues to focus on the responsible management and development of the business for the long-term benefit of all key stakeholders.

Local Communities ODEON & UCI Cinemas Group continues to support local communities and seeks to be an integral part of local life. Customer safety, security, enjoyment, comfort and choice remain the key elements at the heart of our service proposition. In the UK, ODEON continues to work closely with the Employers' Forum on Disability in order to further improve the cinema-going experience of customers with disabilities. Reducing Environmental Impact In Continental Europe energy consumption has decreased significantly over the past two years as a consequence of the efficient usage policy application in all our cinemas; quarterly consumption controls are used in each territory to ensure that the cinemas continue to minimise usage and regular

energy audits are undertaken to ensure high performance is maintained. Water consumption continues to decrease across Continental Europe as we have continued to instal flow reduction systems. In the UK, ODEON is developing plans to adopt the standards laid down by the Carbon Trust. An ODEON Energy Committee has been established to work with cinemas in the UK to facilitate reductions in utility consumption and to help local cinema Energy Champions achieve this goal. Each year cinemas which have achieved their energy consumption reduction target are recognised via an award. During 2009 we witnessed a significant increase in the availability of 3D film content, along with a corresponding increase in customers' use of 3D glasses. We have actively implemented a policy of recycling the glasses where possible and have moved towards customer ownership of glasses during 2010, in order to further reduce wastage. In the UK and across Continental Europe we are actively evaluating energy efficiency for air conditioning and other high usage equipment. In the UK ODEON has previously implemented cardboard recycling across the majority of the estate. We are working with a major recycling organisation to reduce further the level of compacted waste. In Continental Europe we follow the European Directive 94/62/EC applicable to Packaging Waste Management. Each territory participates in an Integrated Management System (IMS). All cups and popcorn bags carry the "Green Dot"

Mike Stevens - Group and UK HR Director

symbol and we pay a yearly fee per each product pack we use to ensure the waste is appropriately recycled or disposed. In addition, some territories participate in a deposit, collection and return system in order to reduce the impact of packaging waste on the environment. Health & Wellbeing In the UK as part of our customer health and wellbeing strategy ODEON has developed a new range of smaller dispensed carbonated drinks. In addition, sugar free soft drink options are available as well as healthy juices. A healthy food range consisting of nuts, seeds and dried fruit is available in most cinemas thus offering customers greater choice. In all Continental European territories, significant progress has also been made to source, promote and merchandise healthier food alternatives. This has been achieved by actively promoting non-sugared drinks, introducing larger sizes of bottled water, using sunflower oil to produce popcorn and introducing alternative drink choices such as fruit smoothies. Charity Activities In the UK ODEON continues to work closely with its charity partners, the NSPCC and The Variety Club. In 2009 employees raised over £80,000 in additional donations. In total nearly £200,000 has been raised to date. For the second year in succession arrangements are being made to donate a further Variety Club Sunshine Coach to a local school. A full calendar of events is being developed by the ODEON Charity Team to generate further donations in the UK for 2010. Mike Stevens Group and UK HR Director


ODEON & UCI Cinemas Annual Review 2009

Our People

Our employees are passionate about delivering consistently high levels of customer service. We continue to invest in employees and support their development to enable them to meet the high performance standards we and our customers expect.

Our cinemas are visited anonymously on a regular basis by mystery shoppers who evaluate service quality. In 2009 we employed over 9,000 people in the UK and Continental Europe. Developing our people We have redesigned our learning and development programmes to identify and train the next generation of leaders, as well as to ensure talented people within our business are given the right sort of training and encouragement to develop. All of our UK in-cinema employees are supported by ODEON Career Path training and learning programmes. Incinema, our team members complete a thorough induction of up to 16 weeks and work through various learning modules and programmes to support their training and job performance across all areas of the cinema. In addition, Team Leaders, Cinema Managers and General Managers receive focused workshops, designed to improve business and personal performance. In Continental Europe we have extended the use of the on-line learning and development resources. Rewarding our people Attracting and retaining the industry's best talent is at the heart of our people strategy. We continue to assess individual performance against agreed objectives and reward accordingly. Our incentive programmes are intended to focus individual and team attention and effort on the key business priorities and reward employees for their delivery.

Leadership development and succession planning During the year there was an improved focus on succession planning within the Group and we continue to identify and develop internal talent, as well as bringing in new people, to make sure we have the right skills in key areas of business focus. We continue to invest in management and executive development to enable senior managers to better lead their teams and our organisation to drive business success. It is a critical component of our future people strategy. Employee engagement We have maintained our commitment to employee involvement and participation at all levels of the business. Employees are kept well informed of the performance and objectives of the business through email, newsletters, personal briefings, regular meetings and conferences. We hold annual managers' meetings in each territory, the purpose of which is to share the details of the business plan and to facilitate engagement and communications between cinemas. In the UK we also hold quarterly briefing meetings for our Support Office employees.

Our UK Cinema Management Forum (`CMF') is the network of elected employee representatives who represent their colleagues in every cinema and region in the UK. Through the CMF the Group informs, involves and consults with employees who have the chance to suggest improvements, voice their opinions and ideas, get answers and have their views represented when the business considers changes which affect them. The tenth meeting of the European Employee Forum (`EEF') (established in 1999) took place in July 2009. This group provides an additional forum for informing, consulting and involving employee representatives from the countries in the European Community.

Headcount* UK & Ireland Spain Portugal Germany Austria Italy Total Group 5,628 1,109 157 1,231 181 704 9,010

* Full year average; includes part-time employees.

1. Engagement 2. Development 3. Reward and recognition 4. Communication


ODEON & UCI Cinemas Annual Review 2009

Chief Financial Officer's Report

EBITDA performance was strong in 2009, increasing by £8m to £80m, despite significant external challenges including the economic recession and its impact on screen advertising revenue.

Group Structure ODEON & UCI Cinemas Holdings Ltd ("OpCo") and ODEON Property Group LLP ("PropCo") are distinct entities, each with its own corporate governance arrangements and consolidated financial results. Both are owned by Terra Firma. The structure is summarised in the diagram below. PropCo owns the freehold or leasehold interests in 31 properties in the UK and leases them to OpCo. PropCo's income is limited to the rent from OpCo on those properties.

achieved in the first half of 2010. External funding was secured for the deployment of the digital equipment in the UK, which will improve returns. Having signed the major studio deals, the full roll-out of digital commenced in Q2 2010 in the UK and is expected to start later in the year in Continental Europe. In advance of the full roll-out, the Group deployed 201 digital screens in 2009 to show the growing slate of 3D product, which performed very well at the box office. Portfolio development ­ The portfolio of cinemas was developed further during the year, with the closure or disposal of 5 cinemas and 8 new openings (3 in Italy, 2 in the UK, 2 in Spain and 1 in Portugal). These include the opening of two new flagship locations in the UK, in Wrexham and Gateshead. Acquisitions ­ The group benefited in 2009 from the first full year of trading of 4 German cinemas previously trading under the Kinoplex brand, which were acquired in mid-2008. The price of 1m was offset by a contribution of 1m for rent subsidy, so that the net cash cost was minimal. EBITDA in 2009 was over 2m. PropCo Debt Reduction ­ The PropCo bank facility of April 2007 included a loan-to-value test, to be measured for the first time in March 2009. As a result of the general fall in property values, there was a risk that the loan-to-value ratio would not be adequate. £20m of new capital from Terra Firma was injected into OpCo and on-lent to PropCo, in order to pay down debt. As a result, the loan-to-value test for 2009 and future dates was removed. PropCo has always serviced the bank debt and no difficulty is foreseen in meeting covenant tests going forward. Pensions ­ Further progress was made on reducing long term risk. The Group's two defined benefit (DB) schemes were closed to new members in 2005. One of the DB schemes was closed to future accrual in 2008 and the other scheme was closed to future accrual during 2009. Active members have been transferred to a defined contribution scheme and all pension benefits are now by way of defined contribution. The combined deficit (FRS17) on the DB schemes reduced from £4m to £2m in the year. Rental Guarantees ­ Lease negotiations in Germany and Austria reduced the rental guarantee bank facility by a further 11m. The original 161m facility had been reduced to 44m by the end of 2009 and is expected to fall to, at most, 29m by 2014.

Terra Firmas

Terra Firmas

ODEON & UCI Cinemas Holdings Ltd

ODEON Property Group LLP

ODEON & UCI Cinemas Group Ltd

Bank Debt

rent Subsidiaries Subsidiaries

Bank Debt

Presentation of Financial Results The financial accounts for OpCo and PropCo are available on the website: In general in this review, the revenue and EBITDA quoted exclude the rent payable by OpCo to PropCo. This CFO's report summarises the results of OpCo first, then PropCo. Activity Highlights 2009 Digital and 3D ­ Significant progress was made in 2009 towards the transformation of the entire estate to digital projection. Long-term agreements were signed with 3 of the major Hollywood studios to fund the bulk of the digital conversion over time. Support of 2 more of the majors was required for these agreements to become effective and this was


s Terra Firma is described on page 24.

ODEON & UCI Cinemas Annual Review 2009


Attendance Attendance for 2009 was 74.9m compared to 71.0m in 2008, an increase of 5.5%. Global economic recession continued to be a concern for many businesses in 2009, but the cinema sector was again resistant to its effects. Three of the four major markets in which the Group operates saw year-onyear increases in attendance volume as a result of successful film releases, some of which were in 3D format. The Italian market was flat year-on-year, but nevertheless strong compared to historic levels. The weighted average growth in the Group's market attendance was 6%. EBITDA EBITDA* performance was strong in 2009 despite significant external challenges including the economic recession and its impact on screen advertising revenue. The EBITDA for 2009 of £80.2m was £8.2m ahead of the prior year despite a reduction of £8.6m= in revenue from screen advertising due to adverse market conditions.

EBITDA (£m) 2006 to 2009

Profit & Loss Account The Profit & Loss account for OpCo is summarised below. There were cost increases arising from new activities to drive revenue growth, such as the new UK loyalty card and IMAX. Nevertheless, the increase in costs overall was 3.6% (at constant fx, excluding some one-off benefits in both years) and EBITDA margin was close to flat at approximately 13% in 2008 and 2009. PropCo rent in total for the year was £10.9m (2008: £10.5m). Of this total, £8.8m was shown as P&L operating lease rentals for statutory accounts purposes. The remainder relates to finance leases (5 of the 31 properties) and was therefore included in finance cost in OpCo. Strategic costs were related to the development of new business. Some of these activities led to ongoing new business, some were aborted. The increase in 2009 was because of the extensive effort to organise the digital transformation. Depreciation was £4.9m higher in 2009. The increase was primarily because of the additional new sites including the 4 sites from the Kinoplex acquisition in Germany as well as the write down of asset values on loss-making sites. Amortisation of goodwill was in line with the previous year.

recoverability and concluded that it was prudent to reduce their carrying values whilst property market valuations remain below historic levels. Operating loss after exceptional items increased in the year from £(0.7m) to £(24.5m). Stronger EBITDA was offset by higher non-cash depreciation and noncash exceptional costs. Loss on disposals was the non-cash write-offs on site disposals in both years. Bank interest decreased year-on-year because of lower floating interest rates (on the unhedged portion of the debt) and lower margins as a result of strong performance on covenant ratios. Accrued/other finance costs included the non-cash accruals of £30m on loan notes, the loan from PropCo, amortisation of capitalised loan issue costs and unwinding of discounts on provisions. Tax in the Profit & Loss account was £2.1m in 2009. The £2.2m credit in 2008 related mostly to deferred tax. The loss after tax in 2009 of £(87m) was higher than 2008 primarily because of the non-cash exceptional provision. Capex Capex in the year was £37m. Estate maintenance was £8m, which was lower than recent years, reflecting refurbishments of the estate. Investment continued at a higher level, which has grown through Terra Firma ownership. Expenditure on new sites was £15m and £14m was invested across a variety of earnings enhancing projects, including 3D projectors for which there will be some refund from external sources in 2010.

80.2 72.0








Revenue Revenue increased 17% to £641m, or 11% excluding foreign exchange (fx) difference. The Group benefited from a 9% increase in box office revenue per head, with premia from 3D performances a significant factor. Retail spend per head improved 4% despite the impact of the economic recession.

Exceptional items were principally a non-cash £33m provision against loans to PropCo in 2009 and a £6m provision for litigation in 2008. The provision against the PropCo loans arose because the directors of OpCo considered the

OpCo Profit & Loss £m

Revenue EBITDA* EBITDA % PropCo rent (excl finance leases) Strategic costs Depreciation Amortisation Exceptional items Operating loss after exceptional items Share of JV results Loss on disposals Bank interest Accrued/other finance costs (Loss) before tax Tax (Loss) after tax

2009 2008

640.9 80.2 13% (8.8) (3.6) (49.4) (10.3) (32.6) (24.5) (0.3) (3.4) (18.9) (37.3) (84.4) (2.1) (86.5) 548.1 72.0 13% (8.6) (2.8) (44.5) (10.5) (6.3) (0.7) 0.3 (2.0) (21.5) (31.5) (55.4) 2.2 (53.2)

Historic Development Capex £m

Revenue Growth Table=

% Growth 2009 vs 2008

9% 4% (29%) 9% 5% 7% 11%

16 4 14 15


Average Ticket Price (ATP) Retail Revenue per Head (RPH) Screen Advertising Other Revenue Revenue per customer Yield per customer Total Revenues


2 3 2006







2007 is stated on a 52 week basis. Earnings before PropCo rent, interest, tax, depreciation, amortisation, exceptional items and strategic costs. w ATP and RPH net of associated direct costs. = At constant foreign exchange rate.

New Sites

Revenue Generators


ODEON & UCI Cinemas Annual Review 2009

Cashflow The main movements in net bank debt for OpCo during the year are set out in the table below. Net bank debt remained broadly unchanged across the year despite significant capital investment, which was funded by cash generated from operations. PropCo rent was paid for 5 quarters in 2009, but only 3 in 2008, because of the timing of year end dates and public holidays. The movement in provisions relates principally to the utilisation of onerous lease provisions. Change in working capital was strong in 2009 as a result of the busy trading at year end. There will be some reversal in 2010. Payments for capex reduced to £35m in 2009 as capital creditors reduced because of project timing. Exceptional / one-off costs were primarily the strategic costs of £3.6m (referred-to in the Profit & Loss Account description) and two items that were fully provided-for in previous years (£6m cash costs relating to litigation, against which recovery is expected in future settlements, and a £3m payment under a tax deed). Acquisitions spend of £0.5m in 2009 was ongoing investment into the existing JVs. The spend in 2008 was primarily Europlex Italy deferred consideration and investment in JVs. Disposal proceeds in 2008 related to a small number of site sales to third parties. A statutory presentation of the cashflow statement is included in the OpCo statutory accounts. Balance Sheet A summary balance sheet for OpCo is set out to the right of this page. The increase in the shareholders' deficit compared to 2008 was primarily the result of the retained P&L loss (£87m) net of the increase in share capital (£23m) and fx retranslation of the underlying local currency balance sheets and OUCGL share capital (£9m). Goodwill decreased because of amortisation and an fx movement.

Tangible fixed assets decreased as a result of depreciation, impairment charges and fx movements, net of capex during the year. Debtors long term are primarily the loans due from PropCo plus related interest. The decrease in the year results from the provision made (described on page 23), net of interest accrued. Cash is generally at a seasonal peak at the end of the calendar year, including revenues collected during the busy Christmas trading period but prior to payment of the related film hire. Net current assets are naturally favourable (negative) in this business, because revenues are collected from customers close to the day of attendance, whereas most direct costs and expenses are paid after a period of credit. The particularly busy period in late December, following the release of `Avatar' in most territories, led to a higher trade creditor balance than at the previous year-end. Creditors long term are primarily the bank loans, loan notes and finance lease creditors. The increase from 2008 is primarily due to the loan note interest. Provisions included the onerous lease provisions and litigation provisions. Pension deficit of £2.1m decreased by £1.9m from 2008, due to an increase in the asset values (£6.4m) in excess of the increase in the present value of scheme liabilities (£3.6m) and the associated change in deferred tax (£0.9m).

Terra Firma The directors regard TFCP Holdings Ltd, a company registered in Guernsey, as the ultimate parent entity. Terra Firma means TFCP Holdings Limited and its affiliates. Terra Firma raises funds from external investors including pension funds, insurance companies, sovereign wealth funds and individuals from around the world. Terra Firma's funds make investments in selected businesses across the world, but with particular focus on Europe. These portfolio businesses currently operate in over 60 countries globally. Funding and Going Concern The group has a sound funding structure, comprising bank facilities, loan notes and equity funding from Terra Firma via intermediate entities. The bank facilities require compliance with certain covenant ratios. Forecasts show ongoing compliance with these ratios. Consequently, the financial statements have been prepared on a going concern basis. The Group has no refinancing requirements in the foreseeable future. Principal Risks and Risk Management The principal risk to the business is lower attendance. There is some volatility year on year, depending on the film slate, which in turn depends on production from Hollywood and local content in each country. The risk to financial performance is mitigated by cost savings in film hire and staff, which reduce at lower attendances, and by controlling discretionary costs and capital expenditure.

OpCo Cashflow £m

EBITDA Propco rent (operating and finance leases) Movement in provisions Change in working capital / other Payments for capex Lease restructuring Exceptional and strategic / one-off Refinancing net impact Acquisitions Disposals Pension deficit funding Shares issued Loans to PropCo Tax (paid) / refunds received

OpCo Balance Sheet 2009 2008

80.2 (13.6) (7.5) 11.6 (12.7) (0.5) (1.4) 22.9 (20.0) (0.1) 72.0 (8.0) (8.4) 7.1 (0.5) (4.7) (0.2) (2.0) 5.4 (1.4) (0.1)


Goodwill Tangible fixed assets Investments in JVs Debtors long term Cash Net current assets Creditors long term Provisions Pension deficit Shareholders' deficit


139.8 354.5 1.6 55.6 63.1 (94.1) (639.9) (72.1) (2.1) (193.6)


153.7 379.0 1.5 60.9 58.5 (80.8) (623.1) (86.1) (4.0) (140.4)

(35.2) (42.7)

Finance costs paid (excl finance leases) (23.4) (25.9)

Change in Net Bank Debt




ODEON & UCI Cinemas Annual Review 2009

The economic recession has caused a reduction in screen advertising and slower growth in retail revenue, but cinema attendance has been resilient. The Group's earnings have increased significantly through the recession. Some commentators are concerned about the impact of the increasing penetration of home cinema equipment and online film downloads on cinema attendance. Similar concerns were expressed with the introduction of TV, Video Cassettes and DVDs. The directors believe that cinema continues to offer excellent value in the "going out" market and that there will be ongoing demand for the cinema experience for the foreseeable future. The value to the customer of the cinema experience has been further demonstrated and reinforced by the arrival of high quality 3D product exemplified by `Avatar'. The principal financial risk to the Group would be the movement of interest rates. To manage this risk, interest rates are swapped to fixed rate on between 50% and 100% of bank debt. Interest rates on the unfixed portion of the debt improved during 2009. The Group is also hedged against currency movements by maintaining a proportion of debt in Euros. Key Contractual Arrangements Major contracts fundamental to the performance of the business are the bank financing agreement, referred to above, and the cinema property leases. Property leases vary by country and by location, but typically are for terms of 15 to 25 years, with rent adjusted by general or property inflation. A minority include an element of rent related to turnover. Some retail goods are bought at prices reflecting contracts of up to 5 years and a proportion of utilities are bought forward for up to 24 months in advance, to smooth market price fluctuations. Screen advertising revenue is arranged with advertisers by agencies who are usually on multi-year contracts. In Spain, we employ our own sales force and in the UK we own 50% of the agency Digital Cinema Media (DCM). The rental paid to distributors for each film is determined within framework agreements, but subject to specific negotiation on a title by title basis. In some territories staff costs are subject to collective bargaining agreements. The Group's other revenues and costs are determined largely at market rates over short terms.


Ownership and structure "PropCo" refers to ODEON Property Group LLP and its subsidiaries which own 31 cinema properties. The 31 properties are leased to OpCo. Funding The initial PropCo bank debt of £142m was raised using the properties as security (approx 80% of the property values), £135m was used to part pay OpCo for the purchase of the properties, with the balance to pay fees or retained. During April 2009, amendments were made to the bank loan facility agreement which put PropCo in a stronger position going forward. These included the removal of a loan-to-value (LTV) covenant ratio test, removal of some administrative restrictions and an increase of the interest margin on the bank debt from 1.375% to 1.625%. As part of the same process, OpCo flowed through £20m of new equity from Terra Firma by way of a loan to PropCo, which was used to repay £17.3m of the bank loans and pay for a reduction in interest rate hedging contracts, so that 100% of the revised bank borrowings remained swapped to fixed interest rates. The audited financial accounts for PropCo are available on the website Profit and Loss Account Revenue in PropCo represents rents receivable from OpCo. Of the 31 leases between PropCo and OpCo, 5 are accounted for as finance leases and the remaining 26 as operating leases. Finance lease accounting is applied to properties where the external lease is similar in length to the OpCo/PropCo lease. PropCo incurs a very low level of administrative costs. Interest is the main cost. Interest payable to OpCo is noncash in the short term (until the bank funding is repaid). The amortisation of loan issue fees is also a non-cash P&L item. With the reduction in the bank debt, the cost of reducing the interest rate swap accordingly was £2.6m. Property Valuation and Balance Sheet In accordance with the requirements of the UK accounting standard relating to investment properties (SSAP19), updated valuations were performed as at both December 2008 and December 2009.

The average rental yield in the December 2009 valuation was 8.5% (2008: 8.6%). This gave rise to an upward revaluation of £3.6m, increasing the total value of the 31 properties to £128.8m. Of this total, £108.1m is accounted-for within Fixed Assets (26 operating leases). The remaining property assets are shown in the balance sheet as finance lease debtors, and are not subject to annual revaluations. Cashflow The main ongoing cashflows in PropCo are the quarterly receipt of rents from OpCo which are applied predominantly to the payment of bank interest and bank loan principal. Funding and Going Concern PropCo has a sound funding structure, comprising the bank loans and the related party (OpCo) balances. The bank funding continues to be contractually available provided the terms of the agreement with the lenders are followed. Projections indicate ongoing compliance with required covenant ratios. Consequently, the financial statements have been prepared on a going concern basis. Furthermore, the ability of PropCo to comply with covenants has been strengthened by the removal of the loan-to-value test described above. The funding from OpCo is contractually subordinated beneath the bank debt. Jonny Mason Chief Financial Officer

Jonny Mason Chief Financial Officer


ODEON & UCI Cinemas Annual Review 2009

Our Directors

Mike Kinski

Fraser Duncan

Lorenzo Levi

Mayamiko Kachingwe

Tim Money

Professor Gordon Edge

Rupert Gavin

Jonny Mason

José Batlle

Roger Harris

Mike Stevens

Fraser Duncan Fraser has been involved with ODEON & UCI Cinemas Group since 2004 and was appointed Chairman of ODEON Property Group LLP in March 2007. He was with Terra Firma from 1997 to 2009, during which time his responsibilities included pre- and post-acquisition operational change planning and implementation, performance monitoring and governance processes. Prior to joining Terra Firma, Fraser held positions within Rentokil Initial, Cameron Consultants and Unilever. He left Terra Firma in 2009 but continues to act as a non-executive director of ODEON & UCI Cinemas Holdings Ltd and non-executive chairman of the management committee of ODEON Property Group LLP.

Mike Kinski Mike was appointed Chairman of Odeon & UCI Cinemas Holdings Limited on 5 April 2007. He has been involved in a large number of Terra Firma's investments since 2000 including Hyder plc, some of the pub companies, WRG and East Surrey Holdings. He was the acting Chief Executive Officer of the Voyager Pub Company for a period up to its sale in 2002. His other current Terra Firma responsibilities are Chairman of Infinis Capital Limited (a renewable energy business in the UK), and a Director of Lakewood Holdings Pty. Ltd the governance company for Consolidated Pastoral Company (Terra Firma's cattle business in Australia). He is also supporting the development of EverPower (Terra Firma's recently acquired wind development business in the USA). Prior to joining Terra Firma in 2000, Mike was Group Chief Executive Officer of Stagecoach Holdings Plc and Chief Executive Officer of Power Distribution and Water Operations for Scottish Power Plc. He was also a government appointed Non-Executive Director of the UK post office from 1998 to 2002.


ODEON & UCI Cinemas Annual Review 2009

December 2009 Board

Odeon & UCI Cinemas Holdings Ltd Audit Finance Committee Committee Renumeration and Nominations Committee 3

ODEON & UCI Cinemas Group Ltd Board Executive Committee

ODEON Property Group LLP Management Committee

Mike Kinski Fraser Duncan Lorenzo Levi Mayamiko Kachingwe Tim Money Gordon Edge Rupert Gavin Jonny Mason Roger Harris José Batlle Mike Stevens

3 3 3 3 3 3 3 3

3 3 3

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Lorenzo Levi Lorenzo has been involved with the ODEON & UCI Cinemas since Terra Firma's acquisition in 2004. He has been with Terra Firma since 2002 focusing on operational and commercial due diligence for new deals as well as the implementation of Terra Firma's operational and strategic agendas in portfolio companies. Prior to joining Terra Firma, Lorenzo was Director of Corporate Development and Ventures in Europe for Nortel Networks. Mayamiko Kachingwe Mayamiko was appointed a director of ODEON & UCI Cinemas Holdings Limited on 23 September 2009. He has been involved in a number of Terra Firma's investments since 2001 including the simultaneous acquisitions of Odeon and UCI, and he also led both AWAS and Pegasus Aviation Finance Company investments. Prior to joining the group in 2001, Mayamiko worked in the London office of the Boston Consulting Group, where he focused on strategy development in the financial services and industrial goods sectors. Tim Money Tim was appointed to the Board on 22 April 2009. He has been involved with ODEON & UCI Cinemas since December 2008. Tim has been with Terra Firma since 2007 and is also involved in a number of Terra Firma's other investments including Tank & Rast and Consolidated Pastoral Company. His responsibilities include focusing on the implementation of operational and change agendas in portfolio companies as well as performance monitoring and governance processes. Prior to joining Terra Firma, Tim was Chief Financial Officer of P&O Nedlloyd. Tim is a Chartered Accountant. Professor Gordon Edge Gordon has been a non-executive director of ODEON & UCI Cinemas Holdings Limited since May 2007. He is a long term serial scientific entrepreneur and in 1986 founded The Generics Group; a leading laboratory based international technology and business consulting and investment company (now the Sagentia group).

Rupert Gavin Rupert was appointed as Chief Executive Officer of ODEON & UCI Cinemas in July 2005. Prior to joining the business, he was Chief Executive of BBC Worldwide, and a member of the BBC's Executive Committee. He led BBC Worldwide through a period of rapid expansion. Rupert's earlier roles included Managing Director at British Telecom and Deputy Managing Director at Dixons Store Group. Jonny Mason Jonny joined ODEON & UCI Cinemas in March 2006 as Chief Financial Officer. Previously, Jonny was a member of the Operating Board and Finance Director of Sainsbury's. Prior to that Jonny's roles included the CFO of a private equity-backed fitness chain and financial management positions in Hanson and Shell. José Batlle José is the Chief Operating Officer (Continental Europe) of ODEON & UCI Cinemas Group. He joined the cinema industry in 1986 as Chief Executive of Cinesa, Spain. He was appointed Vice President of UCI when Cinesa was sold to UCI in 1991 and later established UCI Brazil, started operations in Italy and Portugal, and continued the rapid expansion of Cinesa in Spain. In 2003 he was appointed Senior VP Continental Europe and made additional acquisitions in Germany and Austria. Roger Harris Roger is the Chief Operating Officer (UK and Ireland) of ODEON & UCI Cinemas Group. He joined UCI in 2002, working closely with the Executive and UK Senior Management Team to develop a five-year plan for the UK business. Roger has been in the cinema business since 1988. He held a number of positions at Famous Players in Canada, including Senior Executive Vice President and General Manager. Mike Stevens Mike has worked in the cinema industry for over 7 years and was previously employed by UCI between 1997-2001. He returned to the company in 2005 having spent the intervening period in a senior HR role in the UK media sector. Mike has over 30 years' experience as an HR practitioner.


ODEON & UCI Cinemas Annual Review 2009

Corporate Governance Report

The boards of ODEON & UCI Cinemas Holdings Ltd and ODEON Property Group LLP are committed to the highest standards of corporate governance as set out in the Combined Code on corporate governance.

The boards of ODEON & UCI Cinemas Holdings Ltd and ODEON Property Group LLP are committed to the highest standards of corporate governance as set out in the Combined Code on corporate governance. ODEON & UCI Cinemas Holdings Ltd ODEON & UCI Cinemas Holdings Ltd's Board believes that effective corporate governance is a fundamental aspect of a well run company and is committed to achieving the highest standards of corporate governance, corporate responsibility and risk management in directing and controlling the business. The following paragraphs describe the key governance structures and internal controls operating within the company. Through these mechanisms, the company aims to apply the highest standards of corporate governance and to conform with the spirit of the `Combined Code'. Board Constitution and Procedures The Board comprises of 8 members: a non-executive Chairman, 2 executive directors and 5 non-executive directors. The Chairman is responsible for the effective running of the Board and for communications with all directors and shareholders. He ensures that the Board receives sufficient information on financial trading and corporate issues prior to the Board meetings. The executive directors are responsible for day-to-day operations and the development of strategic plans for consideration by the Board as a whole. The Board meets regularly during the year. In 2009, 9 scheduled meetings were held, 8 in the UK and 1 in Spain. All members of the Board receive detailed financial information and regular presentations from executives on the business performance, in addition to


items for decision and minutes of board committees in advance of each board meeting, whether they are able to attend or not. This enables the directors to make informed decisions on corporate and business issues under consideration. The Board adopted a formal schedule of delegated authorities on 5th April 2007 whilst ensuring that key policy and strategic decisions are made by the full board. Such matters include, but are not limited to, the final approval of the annual accounts and budget, major acquisitions and disposals, and any changes to the Company's financing arrangements and financial policies. Regular updates on risk management, health and safety, and other key company policies are given to the Board. Where urgent decisions are required on matters specifically reserved for the Board in between meetings, there is a process in place to facilitate discussion and decision-making. The directors also have access to the advice and services of the Company Secretary and external advisers, as appropriate. Board Committees The Board has established several committees, each with clearly defined terms of reference, procedures, responsibilities and powers. Finance Committee The Finance Committee is chaired by Mike Kinski and consists of 5 nonexecutive directors and 2 executive directors. This committee is responsible for making recommendations to the board on funding strategy, capital structure and management of financial risks and the policies and control procedures, approval of investments and divestments, raising of external financing and the granting of securities, guarantees and indemnities as set out within the delegated authorities. In certain specific circumstances the Board has delegated

authorities to the committee to make decisions in these areas. Audit committee The Audit committee is chaired by Fraser Duncan and consists of 4 of the non-executive directors. The Chief Executive Officer, Chief Financial Officer, Director of Group Finance and external auditors are normally invited to attend the meeting. The committee meets at least twice during the financial year at appropriate times in the reporting and audit cycle. The committee oversees the relationship with the external auditors. It reviews their audit plan and discusses audit findings with them. In addition, the committee reviews the effectiveness of the Company's internal controls and risk management systems and also ensures that there is proportionate and independent investigation of any matter bought to their attention. The committee is required to assist the Board to fulfil its responsibilities related to external financial reporting and associated announcements. During the year the committee reviewed either as a committee or as part of the Board: the annual financial statements, including the requirements for financial reporting; n changes proposed to the Company's accounting policies and practices; n significant accounting issues; n the audit plan and processes, and; n the Company's risk management process.


The committee is also responsible for the development, implementation and monitoring of the Company's policy on external audit. The committee has oversight responsibility for monitoring independence, objectivity and compliance with ethical and regulatory requirements. The committee recommends the

ODEON & UCI Cinemas Annual Review 2009

Risk management processes and systems of internal control are designed to manage, rather than eliminate, the risk of failure to achieve the group's strategic objectives.

appointment and reappointment of the Company's external auditors and annually reviews a formal letter provided by the external auditors confirming their independence and objectivity within the context of applicable regulatory requirements and professional standards. The committee also reviews the terms, areas of responsibility and scope of the audit (including schedules of unadjusted errors and representation letters) as set out in the external auditors' engagement letter; the overall work plan for the forthcoming year, together with the costeffectiveness of the audit as well as the auditors' remuneration and performance; any major issues which arise during the course of the audit and their resolution; key accounting and audit judgements; the level of errors identified during the audit; and the recommendations made to management by the auditors and management's response. Remuneration and Nominations Committee The remuneration and nominations committee is chaired by Mike Kinski and consists of 3 non-executive directors and an executive director. The committee meets at least twice a year and at such other times as the Board requires. The committee's specific duties and responsibilities are as follows: to establish criteria to be used in selecting Directors and ensure the remuneration packages are designed to attract, motivate and retain staff of the highest calibre n to approve the remuneration of the executive directors and management, to provide independent and objective assessment of any benefits granted to directors and management, and n to ensure that the pension arrangements throughout the Group are appropriate, well supervised and conform to applicable law.


The committee will also review the design of incentive and performance related pay plans for approval by the Board and will review the Company's remuneration policies as a whole and remuneration trends across the Company. Risk Management and Internal Controls The Company's aim is to manage risk and to control its business and financial activities cost-effectively and in a manner that enables it to exploit profitable business opportunity in a disciplined way. The Board has overall responsibility for the systems of internal controls, which are designed to manage risk of failure to achieve the objectives of the business where such risk cannot be eliminated. The Board has considered the systems of internal control for the accounting year under review and is satisfied that they are appropriate. There is a programme of regular review and development which is monitored by the audit committee. ODEON Property Group LLP ODEON Property Group LLP ("PropCo") is also committed to meeting the high standards of corporate governance within the legal framework that it is subject to. PropCo has entered into a Limited Liability Partnership agreement with Aurelius Property LLP and Metellus Property LLP which outlines the duties and responsibilities of the designated members. The members have appointed a management committee to carry out the day to day business of the company. The management committee must have at least one representative of each of Aurelius and Metellus and the senior executives of the company. The Management Committee meets at least twice a year, with the senior executives of the business, to carry out its duties and to discuss the progress of the business.

In 2009 the Committee met 4 times. The meetings included a review of the policies, strategy and financial position of the Group. The Management Committee also oversees the relationship with the external auditors. It reviews their audit plan and discusses audit findings with them. In addition, it reviews the effectiveness of internal controls and risk management systems and also ensures that there is proportionate and independent investigation of any matter brought to their attention. The Management Committee also has to fulfil its responsibilities related to external financial reporting and associated announcements.


ODEON & UCI Cinemas Annual Review 2009

Cinemas by Territory

As at December 2009

UK & Ireland Aylesbury Ayr Banbury Barnet Basingstoke Bath Beckenham Belfast Birmingham Blackpool Bournemouth Bournemouth ABC Bracknell Braehead Bridgend Brighton Bristol Bromborough Camden Canterbury Cardiff Chatham* Chelmsford Colchester Covent Garden Coventry Darlington Derby Dudley Dumfries Dundee Dunfermline East Kilbride Edinburgh Lothian Road Edinburgh Wester Hailes Epsom Esher Exeter Gateshead Gerrards Cross Glasgow Quay Greenwich Guildford


* managed sites

Harrogate Hastings Hatfield Hereford Holloway Huddersfield Hull Kensington Kettering Kilmarnock Kingston Lee Valley Leeds Leicester Leicester Square Lincoln Liverpool Liverpool Switch Island Maidenhead Maidstone Manchester Mansfield Marble Arch Milton Keynes Muswell Hill Norwich Nuneaton Oxford George Street Oxford Magdalen Street Panton Street Port Solent Preston Putney Richmond Rochdale Salisbury Sheffield Silverlink South Woodford Southampton Southend Stoke-on-Trent Streatham Surrey Quays Swansea Swiss Cottage

Tamworth Taunton Telford Tottenham Court Road Trafford Tunbridge Wells Uxbridge Warrington West End West Thurrock Weston-Super-Mare Whiteleys Wimbledon Worcester Wrexham Ireland Blanchardstown* Cavan* Coolock* Limerick* Naas* Newbridge* Portlaoise* Tallaght* Waterford* Spain Aldaia Area Central (Santiago De Compostela) Artea (Leioa) Augusta (Zaragoza) Barnasud (Barcelona) Diagonal (Barcelona) Diagonal Mar (Barcelona) El Foro (Merida) El Muelle (Las Palmas) Equinoccio (Majadahonda) Festival Park (Marratxi) Gran Casa (Zaragoza) Heron City (Barcelona) La Cañada (Marbella) La Farga (Hospitalet) La Gavia (Madrid)

La Maquinista (Barcelona) La Moraleja (Alcobendas) Las Rosas (Madrid) Las Rozas Loranca (Fuenlabrada) Maremagnum (Barcelona) Mataró New Capitol* (Madrid) Nueva Condomina* (Murcia) Oviedo Panoramis (Alicante) Parc Vallès (Terrassa) Parquesur (Leganes) Principe Pio (Madrid) Proyecciones (Madrid) Sant Cugat Santander Sevilla Siete Palmas (Las Palmas) Xanadu (Arroyomolinos) Portugal Dolce Vita (Lisbon) Lisbon Oporto Freeport* (Alcochete) Germany Bad Oeynhausen Berlin Colosseum* Berlin Eastgate Berlin Friedrichshain Berlin Gropius Berlin Zoo Bochum Ruhr Park Cottbus Lausitz Park Dessau Dresden Elbe Park Duesseldorf Duisburg Flensburg Gera Hamburg East Hamburg Mundsburg Hamburg West

Huerth Kaiserslautern Leipzig Nova Eventis Neuss Paderborn Potsdam Wilhelmshaven Austria Graz Vienna MEC Vienna SCS Italy Alessandria Arezzo Bergamo Bicocca (Milan) Casoria (Naples) Certosa (Milan) Como Ferrara Genoa Fiume Vento Firenze Lissone (Milan) Marcon (Venice) Marconi (Rome) Meridiana (Bologna) Messina Mestre Milano Fiori Molfetta Piacenza Pioltello Reggio Emilia Sinalunga (near Siena) Verona

Website Enquiries ODEON & UCI Cinemas Group 54 Whitcomb Street London WC2H 7DN Tel: +44 20 7321 0404 Public Relations Red 41-44 Great Windmill Street London W1D 7NF Tel: +44 20 7025 6524 Terra Firma Capital Partners Ltd 2 More London Riverside London SE1 2AP Tel: +44 20 7015 9500

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© Richard Young/Rex Features

© Richard Young/Rex Features

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