Credits roll on Sky City’s cinema investment

Sky City has finally found a buyer for its cinema business after turning the division around following years of disappointing results.

The entertainment company revealed today it had entered an agreement with ASX-listed Amalgamated Holdings to acquire its core cinema businesses in New Zealand, including its joint venture interests in the Rialto group and in Fiji.

Sky City will net $59 million from the sale, with the transaction due to be completed by mid-February, provided all the necessary regulatory approvals are met.

The sale does not include the company’s 50% shareholding in ticketing company Vista Entertainment Solutions, all cash deposits and all freehold and long-term leasehold land and buildings.

It said these assets, together with sale proceeds, represented a realisable value 5% to 10% percent above the book value of $61 million.

Sky City currently operates more than 100 screens around the country.

Amalgamated Holdings already has cinema interests in Australia through the Greater Union brand, while also maintaining a presence in Germany and the Middle East through the CineStar chain of cinemas.

The New Zealand deal will bring the total number of screens around the world to amore than 1300.

Amalgamated Holdings also has a long-standing investment in the New Zealand hotel market through its ownership of the Rydges Hotels and Resorts group.

The sale comes a year after Sky City failed in an earlier bid to sell the cinema chain after the proposed buyer could not get a satisfactory financing arrangement.

Earlier that year, Sky City wrote down the value of the chain by $60 million, more than half the book value of the asset.

That write-down saw net profit for the entire group in 2008 fall by 49%, even though the cinema business only represented about 3% of the value of the group.

Sky City purchased the cinema chain in 2001 as part of a joint venture with Australian exhibition company Village, with the sale price believed to be more than $100 million.

In 2006 it bought out Village's 50% for $49.5 million, giving it total control of the business.

The cinema business continued to struggle along for several years but had seen a turnaround in the past 18 months, with business benefiting from a new management team led by Jane Hastings and new initiatives like showing Bollywood and Chinese language films.

At its recent annual meeting, Sky City revealed a 14% rise in revenues from its cinema business for the first three months of the financial year, with overall cinema admissions up 17%.

Sky City chief executive Nigel Morrison said the opportunity to divest the non-core business was a result of the “excellent work” done by the cinemas team, which had significantly enhanced the performance of the business over the last 18 months.

"I am delighted that AHL, a high calibre Australian based, cinema and exhibition
operator has chosen to acquire our cinema business and wish them every success in continuing to grow and enhance this important New Zealand business.”