Pacific Partners Proposed to Acquire Entertainment Co – Village Roadshow

Shares of Village Roadshow ended the session with 21.56 per cent gain at $3.89 on 19 December 2019. And, the volume reached over a million shares during the trading.

Village Roadshow (ASX: VRL) traces its roots back to mid-1950s when founder Roc Kirby started running country’s first drive-in cinemas. Presently, the footprint of the business expands to theme parks, cinema exhibition, film distribution and marketing solutions. Since 1988, it is a listed entity on ASX.

In a statement to exchange on 19 December 2019, Village Roadshow reported that it received a conditional, non-binding and indicative proposal from Pacific Equity Partners (PEP) on behalf of its advised funds.

PEP intends to acquire the company at $3.9 per share for 100 per cent of the issued share capital of VRL through a scheme of arrangement. Also, the Board was made aware that a call option was entered between both the parties.

VRL’s largest shareholder –Village Roadshow Corporation Pty Ltd has entered into a call option on 19 per cent of issued shares with an associate of a PEP. And, the bidder has suggested that it could offer cash and scrip based consideration in a newly incorporated acquisition entity.

Further, the proposal remains contingent on various conditions, including FIRB approval, due diligence, finance availability, and VRL Board recommendation.

Moreover, it is conditional, and certainty of completing the transaction remains bleak.

VRL’s Board Stance

With regards to the proposal, the Board has advised the shareholders to not take any action as of now. And, the Board is presently evaluating the proposal, including implications from financial and legal advisors.

The Board wishes to serve the shareholder’s interests in the best way through in-depth discussions with the bidder.

Subject to the confidentiality agreement, VRL would provide PEP with the required due diligence details.

Past Year Performance

In the year ended 30 June 2019, the group reported an attributable net loss of $6.6 million compared to $0.2 million in the previous year. In FY2019, the attributable net loss from material items was $27.2 million compared to $7.5 million in the previous year.

Excluding material items and discontinued operations, the attributable net profit was $20.6 million compared to an attributable net loss of $7.3 million in the previous year. From continuing operations, the basic loss per share was 3.4 cents against 0.14 cents in the previous year.

New Atlantis Theme Park is a major project (Source: VRL Investor Presentation)

Further, the net cash from operating activities was $82.4 million in FY2019 against $21.4 million in the previous year. The cash flows used in investing and financing activities was $84.7 for the period compared to $55.8 million in the previous year.

In FY2019, its proceeds from the sale of investments, businesses and leaseback of the property were $52.2 million, proceeds from the issue of shares was $49.2 million, and net repayment of borrowings in FY2019 was $124.8 million.

During the period, the group has delivered in corporate overheads, including a 25 per cent reduction in base remuneration and fees of Executive Director and Non-Executive Director, respectively.

In the past two financial years, there had been no senior executive bonuses, and if the relevant targets are achieved, these bonuses would be reinstated in FY2020, equating to a maximum of approx. $4 million.

In FY2020, the group would be undertaking technology upgrades across all divisions in order of $2 million to $3 million, and the cost would be reflected in Digital & IT within Corporate & Other.

The material items that dampened the FY 2019 financials include the following;

• Profit on sale and leaseback profit of $10.2 million.
• Non-cash adjustments and impairment totalling $18 million pre-tax.
• Other provision adjustment totalling $15.7 million pre-tax.
• Restructuring and borrowing costs of $11.4 million pre-tax.

At the year-end, the group’s net debt was $219.6 million, depicting a gearing ratio of 34 per cent compared to net debt of $338.5 million with a gearing ratio of 46% in previous corresponding period. The total debt stood at $281.3 million, with $6 million in current liabilities and remaining under non-current liability.

In December 2018, the group refinanced its finance facility of $230 million and a five-year term debt facility of $110 million, allowing VRL to have sufficient finances for the medium-term.

In FY 2019, the group utilised the proceeds from sale and leaseback of properties to reduce the debt along with 5 for 26 entitlement offer. In addition, the group declared a final fully franked dividend of 5 cents per share.

Since FY 2019 End

In late July, the group had notified that iPic Entertainment Inc. had missed an interest payment under its credit facility, and in August, iPic filed for bankruptcy protection under the laws.

Therefore, the group made a payment of $8 million to settle its liability, and the payment did not impact the financial covenants of the group. In the year-end disclosure, the group had recognised this payment, and the investment in iPic was carried at nil.

Later in August, the group had reported to offload its promotional solutional company, Edge Loyalty Systems. The transaction was agreed at an enterprise value of $32.3 million with Blackhawk Network, and the proceeds would be utilised to repay debt.

FY 20 Trading & Outlook

In October 2019, the group released its Investor Presentation. For Theme Parks, it was said that FY 20 had started well with an increased first quarter admission over previous corresponding period.

Also, deferred revenue as at 30 June 2019, from the sale of tickets increased by $6.9 million from $17.6 million from $10.7 million in FY18, and this deferred revenue would hit FY 20 number as the tickets expire.

In Cinema, the division had made a promising start with better screen advertising, underpinned by new releases. In Roadshow, the group is intending to exploit opportunities arising out of new SVOD platforms.

It is expected that declining sales in DVDs and Blu-day would continue, and the performance of upcoming titles is likely to impact full-year earnings results. In Marketing, the group is expecting an improvement in FY20, and pipeline of promotions in the UK, US and Europe are confirmed.

On 20^th December, VRL traded at $3.780, down 2.8% (3:00 PM AEDT).

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