Palace wrestles down debt, taxes to score a profit - Sells old Rialto cinema property
published:
Friday | September 12, 2008
Douglas Graham, managing director of Palace Amusement Company had predicted a surplus at year end June 2008. - file
Cinema operator Palace Amusement Company has climbed out of the red, shaking off millions in losses last year to post net profit of $15.7 million or $10.75 per share at year end June 30.
The company also announced the sale of a non-performing asset, the old Rialto Cinema property in a deal worth $8.5 million.
Palace, which is principally controlled by the Graham family, made losses of $5.5 million in 2007, on declining seat sales.
Its customers were turning instead to cable, but the issue was also complicated by piracy - the illegal and often open street sales of illicitly copied movies retailed at prices as low as one-third that of a box office ticket.
Movie goers currently pay $500 to $680 for tickets on average, while pirated DVDs sell for about $200.
Palace has responded in part by increasing admission prices, most recently on May 16, but the cinema operator also tries to bring hit movies to its screens almost as soon as they are released.
In the year just ended revenues from four cinemas in three parishes climbed by 16 per cent to $480 million, while cost of sales grew at a similar pace, rising to $382 million.
Gross margins also improved, but by less than half a point, while operating profit tripled to $17.7 million.
The results are in line with projections by managing director Douglas Graham, who told shareholders in December last year at Palace's annual general meeting that a surplus was on the horizon, drawing his confidence from a 13 per cent increase in revenue at that point.
There is no indication, however, that Palace has done anything more spectacular in the period ending June 30.
Debt and taxes.
Said one New Kingston analyst who spoke on condition of anonymity: "It's not that they were fabulous this year; it's just that they had a bad prior year."
Two factors seem to be in play - debt and taxes.
At year end June 2007, the company made an operating profit of $5.6 million, but that was totally erased by $3.6 million of debt servicing costs, and a tax bill of $7.6 million, pushing Palace into loss position.
This year, its finance charges were about half of last year's at just under $2 billion, while the company's tax bill was zero.
Long-term liability
Palace's balance sheet indicates that it has shed almost all debt, with only $327,000 of long-term liability still on the books. The company paid off $7.4 million of loans in the period.
This year, Palace also got a bump in earnings - both from top line revenue which rose by $60 million, but it was the boost in 'other' income that appears to have made the difference.
That line item climbed by 62 per cent to $30 million, including a $4 million insurance payout from Hurricane Dean, to supplement gross profit and give Palace enough cushion for the $110 million of administrative/operating expenses that the company racked up over the year.
Gross profit, after direct selling expenses, was $97 million.
Palace's balance sheet has grown in the year just ended to $258 million, up from $244 million, notwithstanding the sale of a piece of property.
Fixed assets were cut in value by $13 million in the year just ended to $150 million.
It also has $63 million in payables, almost double the position in the prior year, but that liability is well covered by the company's $95 million cash that falls within a wider pool of $140 million of liquid or current assets.
business@gleanerjm.com
A front view of the old Rialto Theatre on Windward Road in Kingston. Palace Amusement says the property has been sold. - Norman Grindley /Acting Photography Editor
