Company overview - Village Roadshow Limited is engaged in theme park and water park operations, cinema exhibition operations, film and digital versatile disc (DVD) distribution operations, and sales promotion and loyalty program operations. The Company's segments include Theme Parks, Cinema Exhibition, Film Distribution, Marketing Solutions and Other. The Theme Parks segment is engaged in theme park and water park operations. The Cinema Exhibition segment is engaged in cinema exhibition operations. The Film Distribution segment is engaged in film and DVD distribution operations. The Marketing Solutions segment is engaged in sales promotion and loyalty program operations. In addition, the Company has an equity interest in Village Roadshow Entertainment Group Limited, which is engaged in film production activities. The Company's other activities include corporate overheads, financing activities, and digital and information technology development.

 

VRL Details
Finished transcoding Showcase: Village Roadshow Ltd (ASX: VRL) and Linius Technologies Ltd have recently completed transcoding Showcase and are now on track for commercialization launch by the first quarter of 2017. Moreover, the Showcase has confirmed that the Linius Video Virtualization Engine has removed the need for many kinds of transcoding, particularly transcoding for the broadcast on different size or shape devices, or through different media players. This is not required if the players are fully compliant with the MPEG-4 specification. Moreover, the need for transcoding being removed offers a reduction in additional video files and the related storage. This is on the back of immediate play out of a video file saved in one format when the original video file is in an entirely different format while the video file in size and aspect ratios might differ from the original video file.
 
Ongoing focus on the Cinema Exhibition division growth: VRL is putting efforts to revive their overall performance with the Cinema Exhibition division growth. The division had reported strong FY16 result which is in fact the fifth consecutive record result. This is due to the popularity of the exceptional Gold Class, max and premium concepts and the high-quality offering across the company’s sites. VRL in FY 17 continues to grow their Cinema circuit, and has opened two exciting new bar concepts in Victoria. These include Roc’s at the Jam Factory and nineteenforty on the Rivoli Rooftop. VRL has introduced junior in December 2016, which is a children and family cinema experience and was never seen before in Australia. The concept incorporates play and interactive equipment, specialized seating, programming and food and beverage options. The Cinema Exhibition division has started FY 17 on a positive note given the good performance by Finding Dory, Suicide Squad and Secret Life of Pets. But, the division had a weak September performance at Wet’n’Wild Sydney. As a result, VRL has launched new exhibition and several guest service initiatives including Dinosaur Lagoon, better food menu, a summer concert series, Halloween and Christmas special events to boost FY17 performance. VRL has lined up more products for a strong FY 17 with the Rogue One: A Star Wars Story, Fantastic Beasts & Where to Find them and The Lego Batman Movie. Moreover, VRL Pictures renewed the film financing facilities for USD775 million until 2021. VRL is expanding and developing the joint Australian cinema circuit and new complexes are planned in key population growth corridors and target upgrades that will include max and Gold Class auditoria. The Singapore Circuit and iPic Theaters are both continued to expand during 2017.

 

Fiscal year of 2016 Cinema Exhibition Performance (Source: Company Reports)
 
Theme Parks division leveraging growing opportunity at Southeast Queensland: Southeast Queensland has become increasingly popular, especially for Chinese tourists, and as the flights are being continually added to the region, VRL expects that this will substantially increase the tourism growth curve. At the start of FY 17, VRL has opened a number of popular attractions and upgrades including the DC Comics Super Villains Unleashed area, the thrilling Doomsday Destroyer ride and a groundbreaking Australian first virtual reality option on the Arkham Asylum rollercoaster, all at Warner Bros Movie World. Additionally, VRL has recently re-opened the Plaza area at Sea World which includes refurbished food and retail offerings. The company has taken a new exhibition and a number of guest service initiatives at Wet’n’Wild Sydney. However, there was a tragic incident at Dreamworld in October, but the company has indicated the safety and wellbeing of guests measures as its top priority, and as usual invested in its safety and maintenance processes.  The company does the third-party safety auditing on the rides on an annual basis. In addition, VRL in FY 17 is launching Topgolf, the highly successful American golfing entertainment concept to Australia and the same is expected to open in late calendar 2017. As per their Asian performance, the group is making agreements with Mission Hills and Lai Sun targeting projects in 2017 and 2018. Despite these agreements, the group is pursuing other opportunities in Asia like Village Cube mini indoor theme park concept, while discussions are advancing for the roll-out in China.

 

FY 16 Theme Park performance (Source: Company Reports)
 
Film Distribution division focusingon digital online: In FY 16, the results of the Film Distribution division were disappointing. To revive the division in FY 17, VRL has indicated for fast uptake on digital online sales which are low cost and high margin, and the sector is expected to have real future growth potential. Moreover, VRL has lined up strong products like Fantastic Beasts and Where to Find Them, which are already released and the yet to release ones include Red Dog: True Blue, Passengers, Arrival and Wonder Woman. Additionally, the division has strong relationships with both Stan and Netflix, which offer exposure to the subscription video on demand market and are continuing to gain the popularity. This division is also focusing on content ownership as a key growth strategy. The Film Production division in FY 17 started well, with Sully and other upcoming titles including King Arthur: Legend of the Sword. Moreover, VRL for international theme parks space in Asia has made consulting and management agreements for opening the projects in 2017 and 2018. As per the group’s Film production highlights, VREG is now focusing on global brands and franchises. Accordingly, the upcoming releases, include King Arthur: Legend of the Sword, Oceans Eight and Ready Player One. Village Roadshow Entertainment Group (VREG) is seeing to partner with global studio partners for co-producing and co-financing TV series leveraging original content and IP based on the division’s film library. With this move, VREG intends to further enhance the value of their film production business while capturing growth of their Hollywood content business.
 
Marketing Solutions division highlights: VRL reported that their Marketing Solutions division would expand both its markets and products in FY 17. The Marketing Solutions division delivered an outstanding performance in fiscal year of 2016 generating an EBITDA rise of 172.0% to $8.0 million while PBT increased to $5.6 million, as compared to $2.2 million in the prior corresponding period. Opia acquisition in 2015 contributed to this performance. Meanwhile, VRL is making efforts to enhance their Europe and North America performance. The division would play an integral part for the group’s growing adoption of digital promotional solutions, from digital platforms to digital rewards and reporting.
 
Stock Performance: VRL stock fell over 33.9% in the last one year (as of January 06, 2017) impacted by the weak bottom line, concerns over tourism impact from China and Dreamworld incident. The stock was also removed from S&P/ASX All Australian 200 Index post December 16, 2016 market close. On the other hand, the stock recovered over 9.1% (as of January 06, 2017) in the last four weeks given the group’s efforts and improving market sentiments. VRL is taking a cautious approach to invest in China, and is working productively with local partners and government on some significant projects. But, VRL is targeting the growing quality of television content in China. The group’s revamping efforts across all its divisions is expected to lead to a better performance in FY 17. The Theme Park risk also looks manageable while the group may need to address the debt scenario. Various favorable trends such as rise in visitors to the Gold Coast etc., are indicative of growth going forward. We give a “Buy” recommendation on the stock at the current price of – $ 4.74  

 
VRL Daily Chart (Source: Thomson Reuters)

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