Surprising signals

Kinowelt posts big revs and bigger writeoffs

LONDON — Fueled by substantial growth in its home entertainment arm, German distribution giant Kinowelt Medien said Friday that revenues for last year hit DM608 million ($276 million) — up 59% on 1999’s $173 million.

Analysts described the results as disappointing, however, after the company unveiled $14 million in write-offs and announced that TV sales were 64% less than forecast. All other divisions came in above the company’s projected figures.

“The figures were more than modest,” said DG Bank’s Bernd Mull. “Revenues were OK, but (it was) everything beyond that. We weren’t expecting this writeoff in merchandising, and the debt ($13 million) is also shocking. They don’t have much room to play with. There’s a projected negative cash flow for 2001 of $68 million to $91 million.”

Expectations not met

Kinowelt said its licensing sales were lower than expected, because no U.S. fare has yet come out of its new production pacts, and German distribs continue to experience difficulty selling to the television market. Company had also planned to consolidate its Sportwelt division, which would have added sales.

Kinowelt surprised observers by revealing it has yet to complete its acquisitions of a 50% stake in distribution company Momentum Pictures in the U.K., announced last year, and Munich Animation. Kinowelt said completion of the Momentum Pictures deal was pending ongoing discussions with partner Alliance Atlantis as to the direction the company should take.

Licensing leads

Breakdown of the company’s figures sees the lion’s share of revenues coming from licensing ($94 million). Theatrical releases plus exhibition followed at $72 million. Home entertainment showed the biggest increase, 170%, to hit $50 million in revenues.

Leading to the increase, Kinowelt’s share of the homevideo rental market went from 6% to 11%, while the company took a 13% slice of the sell-through DVD market.

Further sales were generated by the company’s merchandising business ($40 million) and in-flight entertainment ($19.5 million).

A large part of the writeoff came down to Kinowelt’s sport merchandising division. Company said it will now cease to invest in merchandising and the Internet.

In the exhibition business, company recorded $6 million in writedowns, as it closed six arthouse cinemas in the wake of buying into the Kinopolis cinema group.

At $22 million, earnings before interest and tax were down $7 million on the previous year due to the writeoffs.

“Our core business is, operatively speaking, well running,” said CEO Michael Koelmel. “With the exception of the two extraordinary writeoffs, Kinowelt has taken an uncomfortable but consequent decision to reduce future risks for the company.”

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