Cinram International Income Fund announced its second quarter 2011 financial results.
According to the company, Cinram operates facilities in both North America and Europe and has the capacity to manufacture roughly 2.1 billion DVDs, 61 million Blu-ray Discs and 459 million CDs per year. At the end of June, it employed roughly 7,200 people worldwide including contract and agency workers.
Cinram trades on the TSX under the symbol CRW.UN
For more information visit: www.cinram.com
Unedited press release follows:
Cinram Reports 2011 Second Quarter Results
(All figures in U.S. dollars unless otherwise indicated)
TORONTO, Aug. 15, 2011 – Cinram International Income Fund (“Cinram” or the “Fund”) (TSX: CRW.UN) today reported its 2011 second quarter and year to date financial results.
Q2-2011 Operating Results
• Consolidated revenue of $147.5 million in the 2011 second quarter compared to $256.2 million in the second quarter of 2010.
– Revenue from the pre-recorded multimedia products fell to $124.5 million from $234.4 million in the second quarter of 2010, primarily as a result of the loss of the Warner Home Video (WHV) contract in 2010 and a general softness in new releases in the second quarter of 2011 compared with the second quarter of 2010, which had hits such as Avatar, It’s Complicated, Tooth Fairy and Valentine’s Day. Excluding revenue associated with the loss of the WHV contract, revenue declined by 14% over the comparable prior year period.
– Revenue from the Video Games segment in the second quarter of 2011 was $6.4 million, down from $10.5 million in 2010, primarily as a result of the loss of major clients that were sold during 2010.
– Revenue from our other businesses, including Wireless, Retail services and our new digital offerings, grew 46% to $16.6 million from $11.4 million in 2010.
• Earnings before interest, taxes and amortization (EBITA1), excluding other charges, was $(12.3) million in 2011, compared to $24.2 million in the second quarter of 2010.
– EBITA from the pre-recorded multimedia business was down significantly, from $23.1 million in the second quarter of 2010 to $(15.3) million in the second quarter of 2011. The significant drop in volume put a major negative pressure on earnings and cash generation. While some direct manufacturing costs closely track production volumes, other cost elements, even semi variable costs, are required to be maintained in order to ensure that the proper competencies and capabilities are in place to handle the growth in demand that we normally experience in the third and fourth quarters.
– EBITA generated by the Video Games business segment in the second quarter of 2011 was essentially flat, despite the drop in revenue.
– EBITA from the Other business units increased significantly from $0.3 million in the second quarter of 2010, or 3.0% of revenue, to $3.5 million in 2011, or 21.2% of revenue.
Steve Brown, Cinram’s CEO, commented that “Obviously, the loss of the Warner contract continues to impact our revenues and earnings. In addition, the extremely soft first half performance from our remaining clients is disappointing. Our business does have cyclical trends and will be impacted by the success of our clients’ offerings. On a more positive note, we were delighted to announce earlier this year the signing of service contracts with a number of new clients, including Relativity Media, Wm Morrisons in the UK, TF1 in France and some additional offload volumes related to Warner Home Video in Europe. These new contracts were completed in Q2 and are just now starting to contribute to the revenues of the Fund. A very positive trend in Q2 was the double digit growth in our Digital Media Group, Wireless and Cinram Retail Services.” Brown commented further that “Although the first half of 2011 was weak, we remain confident that the future will see growth in both our revenues and our profitability.”
Credit facility amendment
On April 11, 2011, Cinram closed the refinancing and recapitalization transaction which was initially disclosed on January 25, 2011. That refinancing and recapitalization plan resulted in a $120 million reduction in the Fund’s gross senior debt, significantly de-leveraging the Fund.
The extremely disappointing results for the second quarter resulted in the Fund having to seek additional amendments to its credit agreements. As announced last Friday August 12, Cinram completed amendments to Cinram’s first and second lien senior secured credit facilities. Significant changes resulting from the amendment, which were detailed in Cinram’s press release issued Wednesday, August 10, involved re-setting of certain financial covenants and changes to the pricing of the various tranches of debt. The latest amendment also included some modifications to various other credit conditions.
Other financial highlights
Pre-recorded multimedia segment:
• Second quarter pre-recorded multimedia revenue (which includes replication and distribution of Blu-ray discs, DVDs and CDs) was down 47% to $124.5 million from $234.4 million in 2010, as the prior year results included revenue associated with Warner Home Video combined with a more robust slate of studio releases.
• Cinram replicated 81.9 million DVDs in the second quarter of 2011, compared to 203.4 million units in 2010.
• DVD revenue (which includes replication and distribution services) was $91.2 million, compared to $198.1 million in the prior year.
• Blu-ray disc replication revenue was $5.7 million in the second quarter of 2011, compared to $6.0 million in the comparable 2010 period.
• CD revenue (including replication and distribution of CDs) was down 9% to $27.6 million from $30.3 million due to lower unit shipments, consistent with industry declines for this format.
Revenue from this segment was down 46% in the first half of 2011 to $274.3 million compared with $503.7 million in the prior year, given the lower CD and DVD shipments compared to the prior year. This segment represented 85% of consolidated revenue in the first half of 2011, compared with 91% in the prior year period.
On April 14, 2011, Cinram announced that it had signed a new multi-year contract with Twentieth Century Fox Home Entertainment (“Fox”). Under the renewed service agreements Cinram will continue to serve as the primary supplier for replication and distribution services for Fox across North America and Europe, extending Cinram and Fox’s long standing relationship.
Geographic revenue:
Second quarter North American revenue decreased 44% to $85.8 million from $153.7 million in 2010, principally as a result of lower pre-recorded multimedia product revenue and lower video game distribution revenue, offset by growth in the other business segments. North America accounted for 58% of second quarter consolidated revenue, compared with 60% in the prior year period.
For the first half of 2011, revenue from North America was down 42% to $189.6 million compared with $327.6 million in the prior year. North America revenue represented 58% of the first six months consolidated revenue, compared with 59% in the prior year.
European revenue was down 40% in the second quarter to $61.7 million from $102.5 million in 2010, consistent with North America, due primarily to the loss of the Warner Home Video contract combined with a weak film slate release. Second quarter European revenue represented 42% of consolidated sales, compared with 40% in the second quarter of 2010.
For the first half of 2011, revenue from Europe was down 41% to $134.6 million compared with $227.2 million in the prior year. European revenue represented 42% of the first six months consolidated revenue compared with 41% in the prior year.
The Fund reported a net loss from continuing operations for the 2011 second quarter of $97.4 million or $1.60 per unit (basic) compared with a net loss from continuing operations of $6.4 million or $0.12 per unit (basic) in 2010. The loss includes an impairment charge of $17.3 million resulting from carrying values of certain assets exceeding recoverable amounts and $52.1 million of net finance costs, including both cash and non-cash charges associated with the refinancing and recapitalization completed in April 2011.
IFRS Reporting Commenced First Quarter of 2011
Starting with the first quarter of 2011, Cinram has reported its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the Fund prepared its financial results under Canadian generally accepted accounting standards (GAAP). The comparative financial information has been restated to reflect the adoption of IFRS, with effect from January 1, 2010. Periods prior to January 1, 2010 will not be presented under IFRS.
The Fund has included reconciliations between IFRS and the amounts previously reported under GAAP in the attached second quarter of 2011 interim financial statements.
1 EBITA is defined in this report as earnings (loss) from continuing operations before impairment charges, net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, transaction costs, lender consent fees, issuance of Fund units and warrants and change in fair value of derivatives), income taxes, and amortization and is a standard measure that is commonly reported and widely used in the Fund’s industry to assist in understanding and comparing operating results. EBITA is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. A reconciliation of EBITA to net earnings (loss) under IFRS is found in the table above.
2 EBIT is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income, transaction costs, lender consent fees, issuance of Fund units and warrants and change in fair value of derivatives) and income taxes, and is a standard measure that is commonly reported and widely used in the Fund’s industry to assist in understanding and comparing operating results. EBIT is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. A reconciliation of EBIT to net earnings (loss) under IFRS is found in the table above.
About Cinram
Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is one of the world’s largest providers of pre-recorded multimedia products and related logistics services. With facilities in North America and Europe, Cinram International Inc. manufactures and distributes pre-recorded DVDs, Blu-ray Discs, CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram now also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiaries. The Fund’s units are listed on the Toronto Stock Exchange under the symbol CRW.UN. The Cinram group of companies now also incorporates 1K Studios, a digital media firm based in Los Angeles specializing in building enhanced consumer experiences for movies, TV shows, music, books and games. For more information, visit www.cinram.com.
Certain statements included in this release constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, or results of the multimedia duplication/replication industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: the Fund’s ability to retain major customers; general economic and business conditions, which will, among other things, impact the demand for the Fund’s products and services; multimedia replication industry conditions and capacity; the ability of the Fund to implement its business strategy; the Fund’s ability to invest successfully in new technologies and other factors which are described in the Fund’s filings with the securities commissions.
