02 Dec KNCC Financials Ratios

Company Brief

Kuwait National Cinema was established on 05 October 1954 with a paid-up capital of 7M rupees. Upon establishment, the company was given a 50-year exclusivity by the Amir. On September 1984, KNCC became listed on the Kuwait Stock Exchange (KSE) as a shareholding company. At the time, KNCC had assets with a value of more than KD 36 million (US $122 million). Current paid-up capital of the company is KD 10M. The company is engaged in everything related to cinema and its aspects of education & entertainment activity both locally and abroad. The company utilizes its available surplus by investing them in diversified portfolios. Company has high investment in properties KD 49M mainly consists of properties under development (Warehouse Project) KD 44.5M and Investment properties (Sama Khaitan Mall) KD 4.7M. Company is building a new mall (The Warehouse) at South Sabahiya area on a land owned by KNCC. The project has estimated cost of KD 80M and is around 90% complete now.

During 1996, KNCC focused on commencing its operations in shopping centers to introduce ‘multi-screen theaters’ for a larger group of audience being in the same place at the same time. In addition, they took the initiation to plan & renovate older theaters which will eventually enable them to enhance their corporate image. Further, during late 2003, KNCC was able to introduce the first e-ticket service in the Middle East.

The Kuwait National Cinema Company joined alliances with Front Row Filmed Entertainment in 2005. Front Row Filmed Entertainment is mainly engaged in distributing major independent films from studios such as:  New Line Cinema,  Paramount Vantage,  Exclusive Media Group HanWay Films,  Lakeshore Entertainment,  Studio Canal,  TF1 International,  Celluloid Dreams,  Peace Arch Films,  Wild Bunch,  Studio Ghibli,  National Lampoon's and many more. Cinescape plays a major role in distribution of major independent films in the  Middle East through its associates.

Since joining alliances with Front Row Filmed Entertainment, more than 600 titles have been distributed across the Middle East region. KNCC is a distributor of Arabic language films in the  Persian Gulf region. It also distributes films from Bollywood, and other foreign languages across the GCC region.

Theater Locations

Cinescape was previously distributed between 13 locations across Kuwait. However, some locations closed during 2021 as a result from the worldwide pandemic that affected many industries globally. The company currently has 10 locations around different areas in the country with 69 screens. The screens used by KNCC are Digital Cinema Technology and has 3D capabilities. Cinescape owns the second IMAX theater in Kuwait which is located at Cinescape 360 Mall. The theaters have a capacity level of around 11,000 seats across all locations. In addition, there are four VIP screens, with two in Cinescape the Avenues Mall and two in Cinescape 360 Mall. To further entice customers to visit Cinescape theaters more regularly and have an increased number of ‘walk-ins’, KNCC launched premium offerings for Cinescape Al Kout Mall.

Below is a breakdown of locations/branches across Kuwait that the theaters are operated through prior and post Covid-19 outbreak.

Operating Theaters:

# Of Locations	Ranking by Revenue	As of Date	FY 2021
1	1	360 Mall	360 Mall
2	3	The Avenues Mall	The Avenues Mall
3	5	Al Fanar Mall	Al Fanar Mall
4	2	Al Kout Mall	Al Kout Mall
5	8	Ajial Mall	Ajial Mall
6	6	Al Bairaq Mall	Al Bairaq Mall
7	4	Marina Mall	Marina Mall
8	7	Muhallab Mall	Muhallab Mall
9	9	1954 Film House	1954 Film House
10	10 (ranking expected to be between 1-3 in FY2023)	Al Assima Mall (opened in December 2021)	Sharq Mall
11	–	Closed	Laila Gallery Mall
12	–	Closed	Plaza Mall – 1
13	–	Closed	Plaza Mall – 2

Upcoming Theaters: 1 location in Al Khiran

Ownership Structure

The shares of the company has a trade price of 908 Fils (as of 31-October-2022) with a market capitalization of KD 91.765M. Major shares holders include Tamdeen Imtiazat Holding (44.23%) and Tamdeen Holding Group (10.36%).

Subsidiaries of the Company

The consolidated financial statements incorporate the entities controlled by Kuwait National Cinema Company.

Name	Ownership	Country	Distribution
International Film Distribution Company – K.S.C.C	99.25%	Kuwait	Publishing & film distribution
Al Kout Film Production & Distribution Company – S.A.E	100%	Egypt	Production & film distribution

Investments in Associates

An associate is an entity over which the Group has significant influence over. The significant influence is the power to participate in the financial statement and operating policy decisions of the investee. However, it does not control or joint control over these policies. Kuwait National Cinema Company has an investment in associate which represents the Groups investment in Tamdeen Shopping Centers K.S.C.C with a 30% stake.

KNCC Board of Directors

Name	Position	BOD Type
Abdulaziz Dawoud AlMarzouq	Chairman	Non-Executive
Hisham Fahad AlGhanim	Vice Chairman	Non-Executive
Naser Bader AlRoudhan	Director	Executive
Marzouq Jasem Khalid AlMarzouq	Director	Non-Executive
Osama Rashid AlArmali	Director	Independent

KNCC Executive Management

Name	Position
Naser Bader AlRoudhan	Chief Executive Officer
Fawaz Abdulaziz AlFadhalah	Deputy GM – Finance and Administration
Ghalia Emad Hayat	Deputy GM – Programs and Marketing
Kareem Ahmed Amer	Senior Finance Manager

Competition in the Kuwaiti Market

Competition from new players started to arise in Kuwait a short while after the 50-year exclusivity ended in 2004. New competitors entered the Kuwaiti market in the last few years which has adversely affected KNCC’s performance since then. However, KNCC still maintains near monopoly in Kuwait with a large network of screens. KNCC is expected to withstand the competition in the short-to-medium term. Below is a list of KNCC’s local competitors.

1. VOX Cinema: 1 theater location, 17 screens with over 1,500 seats

2. Grand Cinema: 2 theater locations, 18 screens with 2,200 seats

3. Sky Cinema: 1 theater location

4. Ozone Cinema: 1 theater location with 4 screens

SWOT Analysis

STRENGTHS	WEAKNESSES
· Not a lot of competitors in the market, making them one of the top players in Kuwait. · Widely spread locations all around Kuwait (it has largest number of branches in the industry in Kuwait). · User friendly Online booking service making booking easy for customers · Collaborations with Banks to offer discounts to a specific segment (youth, e.g., NBK Shabab account) · Consistently profitable in most of the years (except for the pandemic year in 2020). · Company entered new market by offering food and beverages delivery (through applications such as Deliveroo).	· Food and Beverages variety and quality doesn’t satisfy all customers’ needs · Limited VIP options (number of seats and type of VIP screen) · Consumers are shifting towards OTT platforms (Netflix, Shahid)
OPPORTUNITIES	THREATS
· Future tourism plans in Kuwait include several shopping centers which will create an opportunity for KNCC to further expand. · Additional collaborations with more Banks to provide discounts/offers · Expansion abroad. · Content creation · Acquiring new online platforms.	· Piracy used by online platforms. · Threat of substitutes; Competing cinemas (indoor and outdoor) · Restrictive licenses because of culture and religion (ex: overly cut scenes) · People switching to online streaming (online platform are increasing substantially).

Industry Overview

One of the most important sectors in any country is the tourism and entertainment sector. The country relies heavily on tourism and entertainment sector to ensure the diversification and development of the local economy. Some economies consider this sector as ‘mainstay’.

Company vs. Industry

Kuwait is considerably a small country in the MENA region with a population of KD 4.67M. Out of the total population, 1.85M are Kuwaiti citizens while the remaining 2.8M is comprised of all other nationalities. Since many screens display movies from all over the world, all nationalities in Kuwait, highly depend on visiting the cinema as a source of entertainment. Cinema theaters enjoy a significant role in the Kuwait life, as it is the major mass entertainment cost-effective option in Kuwait. It is considered as one of the best ways of entertainment and an ideal means of relaxation with comparatively lower cost. For that reason, the theatres are usually crowded in the weekends and during the holidays. The theaters in Kuwait are equipped with latest technology and exhibiting latest international films.

Cinemas in Kuwait represent unique modern features for art of architecture in the twenty first century. However, this sector is highly impacted, whether positively or negatively, by the economic situation of the country and the region.

Economic Impact

The worldwide pandemic had an extraordinary impact on almost all sectors across the world. The travel and entertainment sector in the Middle East and North Africa (MENA) were highly impacted since it’s highly dependent on patterns of consumption. The damage heavily impacted physical media spending (cinemas, concerts, corporate events, advertising etc.). Hence revenues in the region were expected to fall. Due to Covid-19 outbreak and full lockdown, the company’s operating performance was adversely affected. KNCC stopped operating starting from March 2020 until May 2021. However, the company had a solid cash position during the period. They resumed operations in May 2021.

Another aspect that impacted the physical media spending is increased competition from streaming services: Cinema Exhibitors world-wide are facing increased competition from streaming services and OTT (Over The Top) platforms. Viewers started to take control over their own media consumption. Global streaming platforms such as Netflix, Amazon Prime & Disney+ and local platforms in the Middle East such as Shahid & Starzplay have gained popularity during coronavirus lockdown and has made cuts in the revenues of theatres. However, post-covid viewers started to return to theaters.

The changes in consumer media consumption and consumer media behavior will eventually force media companies and organizations to reconsider their business models. Companies might have to adapt to models that include subscriptions, direct relationships with customers and monetizing content. The MENA region has some of the highest internet/mobile phone usage. Hence, streaming at home and content consumption ‘on-the-go’ is effortless.

Below is an in-depth overview on the shifting to digital media and paid content, new business models & infrastructure required to support the change and what regulators can do to support the change.

The Shift to Digital Media: OTT and Gaming

By 2024 digital revenue is expected to make 46% of total entertainment revenues in the MENA region. Globally, digital spending will is expected to make 51% of total revenue.

The adoption of streamed video content (OTT video) in the region was accelerated by the pandemic. Also, the popularity of online gaming was boosted.

Over the Top (OTT)

When the lockdown began in early 2020 across the world, 50% of OTT subscribers increased the amount of time they spent streaming and gaming.

Streaming platforms such as Netflix and local platforms in the Middle East such as Shahid & Starzplay Arabia added more content due to the increased number of users and increased number of hours spent streaming in 2020.

OTT video revenues are expected to grow by 12.3% CAGR by 2024 in the regional and international platforms. However, this basically means OTT video services is tapping into the pay-TV market share, which is forecasted to remain at steady levels by 2024.

New Business Models

Due to consumer behavior changes, it is vital that entertainment and media companies adapt new business models to enable them to capitalize on areas with opportunities of growth. The advertising market is expected to grow at 1.4% CAGR by 2024. Consumer-paid revenues is expected to grow by 3.5% CAGR by 2024.

Cinema Revenues Will Shine

Cinema revenues is expected to grow by 4% CAGR to $1bn in MENA region by 2024, compared to a 2.4% decline worldwide. In contrast to the global revenue overview, cinema revenues in the region have a positive outlook. In addition, considering the presence of a large youth population in the country and across the region, cinema revenues will be able to improve its operating and financial performance.

References:

https://www.boursakuwait.com.kw/en/stock/profile#601

 

 

https://e.gov.kw/sites/kgoenglish/Pages/Visitors/TourismInKuwait/ActivitiesInKuwaitCinemas.aspx

 

 

https://www.tamdeen.com/about-tamdeen-group

 

 

https://en.wikipedia.org/wiki/Cinescape

 

 

https://www.pwc.com/m1/en/publications/mena-entertainment-media-outlook-2020-2024.html

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