Cineworld expands east

Along with the deal came a new wave of management. Last November, Mr Weiner announced his departure after 18 years at the helm and following news of the Polish deal Mooky Greidinger, former chief executive of CCI, took his place. The newly enlarged board now hosts 10 directors, of which six came from Cineworld.

With new management comes a new outlook. Chief financial officer Philip Bowcock said more than 500 new screens are planned for the next three years, with half of those set to open in Romania - one of CCI's most attractive markets which currently accounts for only a tenth of revenue. Poland, which accounts for a third of CCI's sales, will also play host to more than a third of the expansion. Mr Bowcock insists this won't come at the expense of improvements in the UK business.

But the growth profile of eastern Europe clearly offers bigger opportunities than the UK. Poland's GDP is forecast to grow at 3.5 per cent this year, with unemployment falling and wage inflation at 4 per cent exceeding cost inflation of 1 per cent. And there is plenty of scope for cinema attendance and ticket prices to increase. In Romania, for example, cinema trips per year currently stand at just 0.4 per capita for its 21.4m population. Importantly, this is not a demand problem, but one of supply. Indeed, annual per capita attendance is expected to rise to 0.5 this year with the potential for that figure to reach one visit per capita further into the future. More multiplexes are expected to drive admissions growth, while a growing economy should provide a buoyant pricing environment.

Another key benefit of the deal, according to Mr Bowcock, is that Cineworld is no longer reliant on one economy, one culture and one audience. Instead, poor reception of a movie in one country can be offset by a better reception in another. Similarly, expansion in eastern Europe has catalysed changes in the UK, namely the possible introduction of booking fees. CCI customers are currently subject to a 10 per cent booking fee when paying for tickets online, and analysts at broker Numis Securities believe introducing the same measures for Cineworld's UK customers could boost profits by £6m.

Mr Bowcock points out that Cineworld is at the mercy of developers of new shopping malls and multiplexes in Romania and Poland to realise its growth ambitions. The good news from relying on developers, he adds, is that "no new sources of funding are necessary" for the group's expansion plans over the next three years. The net debt-to-cash profits ratio is approximately 2.5 times, but Mr Bowcock says that within 18 months this could be down to just two times. A two- to three-year payback is expected on much of the expansion. And if there is a building hiatus, Mr Bowcock says the group will simply run as "a highly cash-generative machine".

The CCI deal should also stem any lingering investor disappointment with Cineworld's £47m acquisition of City Screen, owner of the Picturehouse chain, at the end of 2012. The deal was initially lauded by analysts for diversifying the business by targeting an older and higher value independent film audience.

However, the deal fell foul of the Competition Commission and an investigation dragged on into 2013 resulting in Cineworld being told to offload three sites the Commission identified as causing "considerable overlap" between audiences. These included Bury St Edmunds, Cambridge and Aberdeen, causing more than £1m of restructuring costs in 2013. That might not sound significant, but coupled with more than £6m in transaction costs from the CCI deal, statutory pre-tax profits suffered a double-digit dip to £31m in 2013 (from £38m in 2012). The results slump prompted some profit-taking by long-standing investors, some of whom may have doubted the group's next steps.