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Orange Sky Golden Harvest Struggles for Profitability in China

Profits were up by 20% in 2013. But making money from the China cinema boom is slow going.

'No Man Land' directed by Ning

HONG KONG – Pan-Asian movie theater group Orange Sky Golden Harvest delivered profits that were up by 20% in 2013, on full year revenues that increased 16%. But its annual statement showed that making money from the mainland China cinema boom is slow going.

Revenues for the full year were announced as HK$929 million (US$120 million) in the year to December 2013, compared with HK$798 million (US$103 million) in 2012. Net profit after tax was HK$115 million (US$14.8 million), compared with HK$96 million (US$12.4 million.)

The Hong Kong-listed group operates cinemas in China and Hong Kong and has joint ventures in Taiwan and Singapore.

The group added 7 multiplexes in China with 48 additional screens, bringing its China total to 49 complexes with 354 screens. Ticket sales jumped by 56% to 12.9 million admissions, but average admission prices fell by 11% from RMB35 (US$5.64) per ticket to RMB31 (US$5). The group pointed to fewer premium-priced 3D films as part of the reason, along with discount promotions needed to maintain competitiveness with rival firms.

Exhibition revenues in China were HK$674 million (US$87 million) compared with HK$524 million (US$67.6 million) – a 29% growth that was in line with nationwide box office expansion in 2013 – but segment income after tax in China dropped from HK$3.86 million (US$498,000) to HK$3.56 million (US$459,000).

“The contribution from the exhibition business in Mainland China to the Group is still under pressure due to the incubation period of newly-opened cinemas,” it said in a statement. It also revealed that two other Chinese multiplexes are completed, but mothballed while waiting for permits to be granted.

Under a deal signed last week it expects to add a further 220 screens at 29 mainland China venues, brought in to the group on a leasehold basis, by the end of 2015.

The Taiwanese operations consist of only 109 screens at 11 venues, but with 42% of the Taiwan market, they sold 15.3 million tickets, albeit at slightly softening average prices. Awkwardly, too, auditors have not signed off the Taiwan accounts.

In discussion of forward prospects Orange Sky Golden Harvest management pointed heavily to expansion of its non-exhibition activities – film distribution, TV program production and an small expansion into film-making. In 2013 it handled releases of 127 films, with “Colombiana” and “The Iron Lady” being given outings in China. It also had a minority investment stake in “No Man’s Land,” (pictured), which censors had kept on the shelf for three years.