Palace sales on the path to recovery
Palace Amusement Company is still a far way from recovery but its ticket sales have climbed back to around half of their pre-pandemic peak levels, driving down annual losses at the cinema company in the process as Jamaicans returned to its movie houses in search of entertainment.
Net losses at $261 million at year ended June was an improvement on the $383 million that the company bled in the previous year.
Revenue rose sixfold from $105 million to $649 million. At their low point in 2021, revenue had fallen to around a tenth of the pre-pandemic turnover of $1.1 billion.
The release of more exciting movies, as well as movie producers reprioritising the release of movies in theatres first before distribution to online platforms, aided the growth in revenue numbers.
Palace’s working capital position improved in the past year but remained in deficit, while its accumulated deficits nearly tripled to $414 million, eroding its capital base by nearly half to $391 million.
Marketing Manager Melanie Graham is banking on current movies such as The Woman King and the release of pictures such as Black Adam, Black Panther and Avatar to keep Palace’s financial performance steady over the upcoming festive season.
Concurrently, the company continues to look for ways to minimise expenses for the 2022/23 financial year, which includes its decision to not renew lease arrangements for the New Kingston Drive-In cinema in August due to declining patronage.
“The drive-in was something we did in response to the pandemic because patrons had nowhere else they could go, but once we reopened the indoor theatres, the numbers started to slow down. And so it really didn’t make any financial sense to keep it going,” Graham told the Financial Gleaner.
The New Kingston Drive-In had grown annual revenues by 128 per cent to $38.8 million in the current period, while losses dipped to $6.12 million from $9.18 million at the close of the 2021 financial year.
All four indoor movie houses – Carib 5 and Palace Cineplex in Kingston, Sunshine Palace in St Catherine, and Palace Multiplex in Montego Bay – are now open to the public.
Part of Palace’s strategy to survive the fallout from the pandemic was dependent on injections of debt capital. The cinema operator first obtained a loan of $170 million to shore up its pandemic-hit operations that had suffered multiple movie theatre closures; while restructuring a loan facility with Scotiabank totalling $55.3 million.
The loans were, however, paid in full during 2021 after Palace Amusement obtained new borrowings totalling $653 million from Victoria Mutual Investments Limited, VMIL, which was in part used for working capital as a result of diminished earnings during the pandemic.
The loan is repayable over a five-year period and has a moratorium on principal repayment for a period of two years,
For the 2022 financial year, Palace received a one-year waiver from VMIL having breached financial covenants regarding minimum debt to service coverage and total debt to tangible net worth ratios.
The year before that the company also received a waiver from Scotiabank for breach of the ratios.
“In the last two audits there was a going concern note because the entire industry was affected by COVID-19. Once your ratios are a little out of whack, meaning you don’t have that strong revenue flow coming into the business, there will be challenges. And so whatever requirements held before COVID would not be met,” Palace’s Chief Financial Officer Carol Lee told the Financial Gleaner.
“But the financial institutions recognised the difficulties and were prepared to give us a waiver. If it were that serious then we would not have gotten a waiver. Business is improving, but it’s going to take some time,” Lee added.
On Tuesday, the cinema company’s stock traded at $750, down $50 relative to the previous day’s closing price.