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Cinema City Analysis

The subsequent years were marked by the development of the company’s business in the Israeli market, including such landmark events as the launch of the first multiplex in Israel in the early 1980s. Today Cinema City is opening in Israel state-of-the-art megaplexes, which will replace the first generation of mulitplex theatres. In the second half of 1990s, Cinema City began to expand internationally. The company’s primary focus was Central and Eastern Europe. In 1997, the company launched its first multiplex in Budapest, Hungary, and in 1999, it entered the Czech and Polish markets.

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In 1999 Cinema City signed a strategic agreement with IMAX? and since that time the company has been? the exclusive operator of IMAX? theatres in Poland, the Czech Republic, Bulgaria, Romania and Hungary. In 2000 the Company opened its first multiplex in Poland – Sadyba Best mall in Warsaw.? In 2002 Cinema City achieved a leading position in Poland by acquiring four multiplexes from one of its main competitors at the time. Also in 2002 the company’s New Age Media subsidiary was established to run the growing cinema advertising activity in the Cinema City multiplexes.

In 2003 the company established its film distribution company – Forum Film Poland, to represent Walt Disney as well as other leading US and Polish studios in Poland.? In 2005 the film distribution company – Forum Film Hungary, was established in Hungary.? In 2006, the company opened? New Age Media Hungary. In 2004 the Company launched its activity? in Bulgaria, which culminated in 2006 with the opening of its first multiplex and IMAX? cinema in Sofia. In 2006 Cinema City signed its first lease agreements for the multiplexes in Romania. The first Cinema City multiplex in Romania opened in November 2007.

This was driven primarily by the revaluation of the company’s long-term investment in the Mall of Russe, Bulgaria, to its increased fair market value, as described in the notes to the Consolidated Financial Statements. During the year, we bought out the interests of our former partner, Ocif, in two of our Bulgarian mall development projects. This transaction was driven by Ocif’s failure to satisfy certain commitments to us (including meeting payment deadlines) and our ongoing concerns with Ocif’s ability to meet future obligations.

We currently plan to seek a new joint venture partner to replace Ocif, but this may take some time given current market conditions. Nonetheless, our real estate activities are otherwise progressing well. We currently expect in March to open our second mall in Bulgaria in Plovdiv. We are very excited about this opening, which is currently proceeding as planned even in today’s challenging real estate market. In the course of 2009, we expect to complete opening 13 new multiplexes with about 140 screens.

In January 2009, we opened an 8 screen multiplex in Pardubice, the Czech Republic, and an 8 screen multiplex in Bacau, Romania. Together with the Plovdiv opening scheduled for March that would account for 27 new screens by the end of the first quarter of 2009. 2009 has already begun strongly for the company, supported by a continuing well received supply of international and local movies. With that said, we are of course cognisant of the financial and real estate crisis that has swept the world and that has begun to have a material impact in our territories of operation.

While we are aware that a sustained downturn in the economy could have a materially adverse impact on movie theatre admissions and on our ability to execute our aggressive growth strategy, we will accordingly monitor the external environment diligently. We continue to remain optimistic that our industry will emerge relatively unscathed. Indeed, we have noted that during past economic downturns movie going often increases. Consumers desire to spend their smaller pools of discretionary funds on relatively inexpensive forms of “escapist” entertainment such as the movies.

I would like to take this opportunity to express my gratitude to our Cinema City employees for helping make 2008 such a successful year and for their continued hard work and dedication. With our ambitious plans for continued growth and development, we are committed more than ever to becoming the premier cinema exhibitor in Europe. We know that our ultimate success will continue to largely depend on the ongoing contribution of each one of them. And last but not least, I would like to thank our millions of customers in six countries who continue to share in our never ending love for the movies.

As we say in the movie business? to be continued? Moshe Greidinger, CEO 11 March 2009 III. Goals and aims3 Cinema City’s strategic goal is to become the number 1 cinema operator in Europe. The company will continue to strengthen its position as the largest multiplex operator and film distributor in Central and Eastern Europe and to maintain its position as one of the leading operators in Israel.? The company plans on expanding its operations into other countries of the CEE region as well as it researches expansion into the markets very distant from CEE.

The company’s current investment plan through 2011 call for developing? over 45 new multiplexes with over 470 screens? in all the countries in which it currently operates, with a particular focus on Romania, where in 2007 it opened first 2 multiplexes and so far has signed over 30 lease agreements to develop multiplex operations in most of the country’s major cities. Cinema City growth will be sustained by strong demand for modern entertainment venues. The company’s key strategic objectives include:?

Strengthening its position in its existing markets. Cinema City intends to consolidate its position as the largest multiplex operator in Poland by expanding its activities in Poland while strengthening its position as a leading operator in Hungary, the Czech Republic, Bulgaria, Romania and Israel. Expanding into new markets in Central and Eastern Europe. Based on the same operating model as used in Central Europe, Cinema City plans to launch its activities in other countries of the region.

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