JPMorgan Cazenove Lehman Brothers Prospectus

Global Offer of Shares in Cineworld Group plc and admission to listing on the Official List and to trading on the London Stock Exchange

Joint Global Co-ordinators, Joint Bookrunners and Joint Sponsors

JPMorgan Cazenove

Lehman Brothers Prospectus

07lon1886-1 Cineworld (inside)

24/4/07

00:08

Locations 1. Cheltenham 2. Bury St. Edmunds 3. Cambridge 4. London (Wandsworth) 5. Ashton-under-Lyme 6. Castleford 7. Chichester 8. Jersey (St. Helier) 9. Braintree (Chapel Hill) 10. Ilford 11. Yeovil 12. Bradford 13. Solihull 14. Glasgow (Renfrew Street) 15. Cardiff 16. Middlesbrough (Riverside Stadium) 17. Llandudno 18. Falkirk 19. Didsbury (Parrs Wood) 20. St. Helens 21. Nottingham 22. Rugby 23. Burton upon Trent 24. Enfield 25. London (Wood Green) 26. Isle of Wight (Coppins Bridge, Newport) 27. Huntingdon 28. Birmingham (Broad Street) 29. Milton Keynes 30. London (West India Quay, Canary Wharf) 31. Kingston upon Hull 32. Weymouth 33. Runcorn 34. Edinburgh 35. Dundee 36. Ashford 37. Crawley 38. Shrewsbury 39. Bolton 40. Sheffield 41. Luton

Page 1

50

Locations 42. Chesterfield 43. Ipswich 44. Bexleyheath 45. Bristol (Hengrove) 46. Newport (Newport Retail Park) 47. Wolverhampton 48. Boldon 49. Feltham 50. Aberdeen 51. Wakefield 52. Rochester 53. Stevenage 54. Dublin 55. Northampton (Sixfields Park) 56. London (Shaftesbury Avenue) 57. Stockport (Grand Central Leisure Park) 58. Liverpool (Edge Lane) 59. Brighton (Marina Village) 60. Harlow 61. Swindon (Shawridge Leisure Park) 62. London (Staples Corner, Hendon) 63. Gloucester (Peel Centre) 64. Chester 65. Bedford (Aspect Leisure Park) 66. Eastbourne (The Crumbles) 67. Southampton (Ocean Village) 68. Glasgow (Parkhead) 69. London (Hammersmith) 70. London (Fulham Road) 71. London (Haymarket) 72. London (Chelsea)

4

35 18 34

68 14

48 New Openings (2007-2009) 1. Didcot 2. Haverhill 3. High Wycombe 4. Aberdeen 5. Witney

16

12

6

39 58

54 17

51 40

57 5 20 33 19

42

64

21 23

38 28

47

22 13 63 1

60 24 62 25 10 71 56 4 49 72 70 30 69 44

31

46 61

15

55

27 65

53 29 41

5 1

32

2 2

43 9

3

45 11

3

52 67

37 7

59 66

26

8

36

This document comprises a prospectus relating to Cineworld Group plc (the ‘‘Company’’) prepared in accordance with the Prospectus Rules of the United Kingdom Financial Services Authority (the ‘‘FSA’’) made under section 73A of the Financial Services and Markets Act 2000, as amended (‘‘Prospectus Rules’’ and the ‘‘FSMA’’, respectively) and has been prepared in connection with the offer to certain institutional and certain other investors described in ‘‘Part 4: Global Offer’’ (the ‘‘Global Offer’’) of ordinary shares of 1 pence each (the ‘‘Shares’’). Application has been made to the FSA and to the London Stock Exchange plc (the ‘‘London Stock Exchange’’) respectively for admission of all of the Shares issued and to be issued: (i) to the Official List of the FSA (the ‘‘Official List’’ and ‘‘Admission to Listing’’, respectively); and (ii) to the London Stock Exchange’s main market for listed securities (‘‘Admission to Trading’’). Conditional dealings in the Shares are expected to commence on the London Stock Exchange on 27 April 2007. It is expected that Admission (as defined in ‘‘Part 10: Definitions’’) will become effective and that unconditional dealings in the Shares will commence on the London Stock Exchange at 8.00 a.m. (London time) on 2 May 2007. All dealings in the Shares before the commencement of unconditional dealings will be on a ‘‘when issued’’ basis and will be of no effect if Admission does not take place. Such dealings will be at the sole risk of the parties concerned. No application has been, or is currently intended to be, made for the shares to be admitted to listing or dealt with on any other stock exchange. The Company and the Directors (as defined in ‘‘Part 10: Definitions’’) accept responsibility for the information contained in this document. To the best of the knowledge of the Company and the Directors who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. Prospective investors should read the entire document and, in particular, the section headed ‘‘Risk Factors’’, when considering an investment in the Company.

12MAY200618423021

Cineworld Group plc (incorporated and registered in England and Wales under the Companies Act 1985 with registered no. 5212407)

Global Offer of 61,381,075 Shares of 1p each and admission to listing on the Official List and to trading on the London Stock Exchange at an Offer Price of 170p per Share Share capital immediately following Admission Authorised Issued and fully paid Nominal value Number Nominal value Number £2,000,000 200,000,000 Shares of 1p each £1,417,215.09 141,721,509 Joint Global Co-ordinators, Joint Bookrunners and Joint Sponsors

JPMorgan Cazenove

Lehman Brothers

The Company is offering 61,381,075 new Shares (the ‘‘New Shares’’) under the Global Offer. The Shares to be issued pursuant to the Global Offer will, following Admission, rank pari passu in all respects with the other issued Shares and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the issued Shares after Admission. JPMorgan Cazenove Limited and Lehman Brothers International (Europe) (together, the ‘‘Joint Global Co-ordinators’’), each of which is authorised and regulated in the United Kingdom by the Financial Services Authority, are acting for Cineworld Group plc in relation to the Global Offer and no one else and will not be responsible to anyone other than Cineworld Group plc for providing the protections afforded to their respective clients, nor for providing advice in relation to the Global Offer, the contents of this document or any transaction or arrangement referred to herein.

The distribution of this document and the offer of the Shares in certain jurisdictions may be restricted by law. No action has been or will be taken by the Company or the Joint Global Co-ordinators to permit a public offering of the Shares or to permit the possession or distribution of this document (or any other offering or publicity materials) in any jurisdiction where action for that purpose may be required. Accordingly, neither this document nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities law of any such jurisdictions. The Global Offer and the distribution of this document are subject to the restrictions set out in paragraph 13 of ‘‘Part 9: Additional Information’’. Investors should rely only on the information in this document. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been authorised by the Company, either of the Joint Global Co-ordinators or J.P. Morgan Securities Ltd. (together with Lehman Brothers International (Europe), the ‘‘Underwriters’’). Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and paragraph 3.4 of the Prospectus Rules, neither the delivery of this document nor any subscription or purchase of shares made pursuant to this document shall, under any circumstances, create any implication that there has been no change in the affairs of the Group since, or that the information contained herein is correct at any time subsequent to, the date of this document. In the event the Company is required to publish a supplementary prospectus pursuant to section 87G of FSMA and paragraph 3.4 of the Prospectus Rules, investors will have a statutory right to withdraw their acceptance to buy Shares in the Global Offer before the end of the period of two working days beginning with the first working day after the date on which the supplementary prospectus was published pursuant to section 87Q of FSMA. The contents of this document are not to be construed as legal, financial, business or tax advice. Each prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice. In connection with the Global Offer, the Joint Global Co-ordinators and the Underwriters and any of their respective affiliates acting as an investor for its or their own account(s) may subscribe for Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in such securities, any other securities of the Company or other related investments in connection with the Global Offer or otherwise. Accordingly, references in this document to the Shares being issued, offered, subscribed or otherwise dealt with should be read as including any issue or offer to, or subscription or dealing by, the Joint Global Co-ordinators and the Underwriters or any of them and any of their affiliates acting as an investor for its or their own account(s). The Joint Global Co-ordinators and the Underwriters do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. Over-allotment and Stabilisation In connection with the Global Offer, Lehman Brothers International (Europe) (the ‘‘Stabilising Manager’’) may, for stabilisation purposes, over-allot Shares up to a maximum of 20 per cent. of the total number of Shares comprised in the Global Offer. For the purposes of allowing the Stabilising Manager to cover over-allotments or further allotments, if any, in connection with the Global Offer and/or to cover short positions resulting from stabilisation transactions, Blackstone Capital Partners (Cayman) IV L.P., Blackstone Capital Partners (Cayman) IV-A L.P. and Blackstone Family Investment Partnership (Cayman) IV-A L.P. (each a ‘‘Blackstone Shareholder’’ and together the ‘‘Blackstone Shareholders’’) have granted the Stabilising Manager, on behalf of the Joint Global Co-ordinators, an option which is exercisable in whole or in part, upon notice by the Stabilising Manager, for the period commencing on the date of publication of the Offer Price and ending 30 days thereafter pursuant to which the Stabilising Manager, in consultation with JPMorgan Cazenove Limited, may require the Blackstone Shareholders to sell up to 9,207,161 Shares (the ‘‘Existing Shares’’) in aggregate (being 15 per cent. of the total number of shares comprised in the Global Offer). Any Existing Shares sold by the Blackstone Shareholders following the exercise of the Over-allotment Option will be sold on the same terms and conditions as the Shares being issued in the Global Offer.

ii

In connection with the Global Offer, the Stabilising Manager or any of its agents, in consultation with JPMorgan Cazenove Limited, may (but will be under no obligation to) over-allot or effect transactions with a view to supporting the market price of the Shares or any options, warrants or rights with respect to, or interests in, the Shares, in each case at a level higher than that which might otherwise prevail. Such transactions may be effected on the London Stock Exchange, on over-the-counter markets or otherwise and may be undertaken at any time during the period commencing on the date of publication of the Offer Price and ending no later than 30 days thereafter. However, there may be no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and no assurance that stabilising transactions will be undertaken. Such transactions, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Shares above the Offer Price. Save as required by any legal or regulatory obligation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotment and/or stabilisation transactions under the Global Offer. Notice in connection with the United States, Australia, Canada and Japan This document does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, Shares in any jurisdiction in which such offer or solicitation is unlawful and is not for distribution in or into the United States, Australia, Canada or Japan. In particular, the Shares offered by this document have not been and will not be registered under the Securities Act, under the applicable state securities laws of the United States or under the applicable securities laws of Australia, Canada or Japan and, subject to certain exceptions, may not be offered or sold directly, or indirectly, in or into the United States, Australia, Canada or Japan, or to or for the account or benefit of any national, resident or citizen of the United States, or any person resident in Australia, Canada or Japan. The Shares have not been and will not be registered under the United States Securities Act of 1933 (as amended) (the ‘‘Securities Act’’), and may not be offered or sold within the United States except in certain transactions exempt from the registration requirements of the Securities Act. No US federal or state securities commission or regulatory authority has approved or disapproved of the Shares or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offence in the United States. Notice in connection with Member States of the European Economic Area This document has been prepared on the basis that all offers of Shares will be made pursuant to an exemption under the Prospectus Directive, as implemented in member states of the European Economic Area (‘‘EEA’’), from the requirement to produce a prospectus for offers of Shares. Accordingly any person making or intending to make any offer within the EEA of Shares which are the subject of the Global Offer contemplated in this should only do so in circumstances in which no obligation arises for the Company or any of the Joint Global Co-ordinators to produce a prospectus for such offer. Neither the Company nor the Joint Global Co-ordinators have authorised, nor do they authorise, the making of any offer of Shares through any financial intermediary, other than offers made by Joint Global Co-ordinators which constitute the final placement of Shares contemplated in this document. No Incorporation of Website Information The contents of the Company’s website do not form part of this document. References to Defined Terms Certain terms used in this document, including certain capitalised terms and certain technical and other terms are defined in ‘‘Part 10: Definitions’’.

iii

CONTENTS Page

SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

GLOBAL OFFER STATISTICS AND EXPECTED TIMETABLE FOR THE GLOBAL OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS . . . . .

15

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . . . . . . .

17

PART 1:

INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

PART 2:

BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

PART 3:

DIRECTORS, SENIOR MANAGERS AND CORPORATE GOVERNANCE . . .

38

PART 4:

THE GLOBAL OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43

PART 5:

REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

PART 6:

OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49

PART 7:

FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

PART A: Accountant’s report and special purpose combined and consolidated historical financial information relating to Cineworld Group plc . . . . . .

62

PART B: Accountant’s report and special purpose restated consolidated historical financial information relating to Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited) . . . . . . . . . . . . . . . . . . . . .

109

PART 8:

PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .

136

PART 9:

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142

PART 10: DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

186

iv

SUMMARY INFORMATION The following summary information should be read as an introduction to the more detailed information appearing elsewhere in this document. Any decision by a prospective investor to invest in Shares should be based on consideration of the document as a whole. Where a claim relating to the information contained in this document is brought before a court, a plaintiff investor may, under any relevant national legislation of a member state of the European Economic Area which has implemented the relevant provisions of the Prospectus Directive (Directive 2003/71/EC), be required to bear the costs of translating this document before legal proceedings are initiated. Civil liability attaches to the Responsible Persons (as defined in ‘‘Part 10: Definitions’’) and any persons who are responsible for any translation of the summary, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document. 1.

INFORMATION ON THE GROUP

The Group is one of the leading cinema groups in the United Kingdom in terms of the numbers of sites, screens and admissions, with a portfolio of 72 sites and 753 screens operating under the ‘‘Cineworld’’ brand. Based on information in ‘‘Cinemagoing 16’’, a report produced by independent film research organisation Dodona Research in March 2007 (the ‘‘Dodona Report’’), the Group’s portfolio of 71 sites in the United Kingdom represented approximately 21.4 per cent. of the total number of screens in the United Kingdom in January 2007. The Group also operates one site in Dublin which, according to information collated by Nielsen EDI, a provider of box office information to the film industry, was the second highest grossing cinema in the United Kingdom and Ireland in 2006 (after the Group’s Glasgow site). Since its foundation in 1995 by members of its current senior management, the Group has developed its business through a combination of new-builds and acquisition. All but three of the Group’s sites are ‘‘multiplex’’ cinemas with five or more screens per site. In the year ended 28 December 2006, the Group accounted for approximately 43.4 million admissions, or approximately 27.7 per cent. of the total admissions, in the United Kingdom and 1.8 million admissions in Ireland. In the year ended 28 December 2006, the Group had revenue of £278.5 million and an EBITDA (calculated as operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of cinema sites) of £48.6 million. 2.

STRENGTHS

The Directors believe that the Group’s strengths are that it: ɀ

is one of the leading UK cinema groups in terms of sites, screens and admissions;

ɀ

has a high quality young estate of multiplex cinemas in well-sited locations;

ɀ

has a proven financial track record of growth and profitability with excellent cash generation;

ɀ

has an experienced management team; and

ɀ

has demonstrated ability to expand the estate profitably, both organically and via acquisition.

3.

STRATEGY

The Group intends to consolidate its position as one of the leading cinema groups in the United Kingdom in terms of sites, screens and admissions and to improve its operating margins. In order to achieve this, the Group intends to: ɀ

grow box office revenues;

ɀ

increase retail spend per customer;

ɀ

increase other revenue streams; and

ɀ

continue to grow the estate through selective new openings, expansions and acquisitions.

1

4.

SUMMARY FINANCIAL INFORMATION

The table below sets out the Company’s summary financial information for the periods indicated. The data has been extracted without material adjustment from ‘‘Part 6: Operating and Financial Review’’ and ‘‘Part 7: Financial Information’’. Summary income statement and balance sheet financial information Group 52 week period ended 30 December 2004 £m

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

117.8 34.7 (19.0)

52 week period ended 29 December 2005 £m

272.7 42.1 (54.9)

52 week period ended 28 December 2006 £m

278.5 48.6 (58.8)

Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited) 52 week period ended 30 December 2004 £m

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

154.4 18.9 48.4

Other selected data Group(2) 52 week period ended 30 December 2004 Excluding assets held (3) Group for sale(4) £m

Revenue . . . . . . . . . . EBITDA(1) . . . . . . . . EBITDA after transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites . . . . . . . . . . . EBITA(2) pre-onerous lease and other non-recurring property and fixed asset impairment charges . . . . . . . . . EBITA(2) . . . . . . . . . Operating profit/ (loss) . . . . . . . . . .

52 week period ended 29 December 2005 Excluding assets held Group for sale(4) £m

52 week period ended 28 December 2006 Excluding assets held Group for sale(4) £m

260.4 34.7

243.0 31.2

272.7 42.1

253.2 38.4

278.5 48.6

264.6 46.0

37.7

34.2

39.2

35.5

48.0

42.6

14.3 (10.1)

17.3 12.8

14.2 9.7

28.1 23.6

22.7 18.2

(10.4)

4.5

6.5

20.5

15.1

(1) EBITDA is calculated as operating profit before depreciation, amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites. EBITDA is not a standard measure under International Financial Reporting Standards (‘‘IFRS’’) as adopted by the European Union (‘‘Adopted IFRS’’). Not all companies subject to Adopted IFRS calculate EBITDA in the same way. (2) EBITA is calculated as operating profit before amortisation of other intangibles and goodwill impairment. EBITA is not a standard measure under Adopted IFRS. Not all companies subject to Adopted IFRS calculate EBITA in the same way.

2

(3) In respect of the financial results and statistics for 2004, the results for the period are based on the financial information for Cine-UK Limited for the 40 week period ended 7 October 2004, the financial information for the UGC business for the 47 week period ended 30 November 2004 and the consolidated financial information for Cineworld Group plc (including Cine-UK Limited and the UGC business using acquisition accounting, for the period from 7 October 2004 and 30 November 2004, respectively). (4) The assets held for sale are the sites at Swindon (Greenbridge Park), Bishop’s Stortford, Sunderland, Birmingham (Great Park, Rubery), Ealing, Wigan (Robin Park) and Slough (Queensmere Centre).

5.

DIVIDENDS AND DIVIDEND POLICY

Following Admission, the Directors intend to adopt a dividend policy which will take into account the profitability of the Group’s business and underlying growth, as well as its capital requirements and cash flows, whilst maintaining an appropriate level of dividend cover. In the absence of unforeseen circumstances, the Directors intend to recommend, on an ongoing basis from 2008, an annual dividend equal to a target pay out ratio of 60 per cent. of the net income before exceptional items for each financial year, with the interim and final dividend being in each case in the approximate proportions of one third to two thirds respectively. In respect of the financial year ending 27 December 2007, in the absence of unforeseen circumstances and subject to the availability of sufficient distributable reserves, the Directors expect to follow the policy set out above. The Directors expect to declare an interim dividend for the period ending 28 June 2007, which is expected to be payable in October 2007. This interim dividend is expected to reflect one third of the anticipated dividend for the 52 week period ending 27 December 2007, which will be calculated as if the Company’s capital structure immediately following Admission had been in place for the whole period. The Directors may revisit the Company’s dividend policy from time to time. 6.

CURRENT TRADING AND PROSPECTS

During the period from 29 December 2006 to 19 April 2007, according to information collated by Nielsen EDI, gross box office in the United Kingdom and Ireland was approximately £269.1 million, compared to approximately £255.9 million during the same period in 2006. Of this gross box office, according to information collated by Nielsen EDI, the market share of the Group’s current portfolio increased from 23.04 per cent. for the period from 30 December 2005 to 20 April 2006 to 23.75 per cent. for the period from 29 December 2006 to 19 April 2007. During the period from 29 December 2006 to 19 April 2007, the Group’s portfolio of cinemas included the top two cinemas and five out of the top eight cinemas in the United Kingdom and Ireland by gross box office revenues according to information collated by Nielsen EDI. During the period from 29 December 2006 to 19 April 2007, the average ticket price per admission (net of VAT) at the Group’s sites increased to £4.05, compared with £3.87 in the same period in 2006 and £4.01 for the year ended 28 December 2006, whilst the average retail spend per head (net of VAT) increased to £1.57, compared with £1.55 for the same period in 2006. The increases in average ticket price per admission and average retail spend per head were in line with the Directors’ expectations. Since 28 December 2006, the Group’s other revenues, including advertising revenues under the arrangement with Carlton Screen Advertising, have grown in line with management’s expectations. Since 28 December 2006, the overall level of the Group’s revenues and growth have continued to develop as expected. Overall, with the major Hollywood films for 2007 including Pirates of the Caribbean: At World’s End, Spider-man 3, Shrek the Third and Harry Potter and the Order of the Phoenix, the outlook for the Group’s trading for 2007 remains in line with the Directors’ expectations, and the Directors are confident of the Group’s prospects for the year. 7.

CONTROLLING SHAREHOLDER

The Blackstone Shareholders are the current controlling shareholders of the Group. Immediately following Admission, the Blackstone Shareholders will in aggregate control the exercise of 53.5 per cent. of the rights to vote at general meetings of the Company (or 47.0 per cent. if the Over-allotment Option is exercised in full). The Company and the Blackstone Shareholders have entered into a relationship agreement (the ‘‘Relationship Agreement’’) to regulate the relationship between the Blackstone Shareholders and the Company following Admission. The Relationship Agreement includes an undertaking from the Blackstone Shareholders to exercise their voting rights in relation to the Company to ensure that the Company is capable of carrying on its business for the benefit of shareholders of the Company as a whole and independently of the Blackstone Shareholders.

3

8.

LOCK-UP ARRANGEMENTS

The Company, the Blackstone Shareholders and the Directors, amongst others, have agreed to certain lock-up arrangements. Shares sold by the Blackstone Shareholders pursuant to the Over-allotment Option are not subject to the lock-up arrangements. 9.

DESCRIPTION OF GLOBAL OFFER

Pursuant to the Global Offer, the Company will issue 61,381,075 New Shares. In addition, the Stabilising Manager may, for stabilisation purposes, over-allot Shares up to a maximum of 20 per cent. of the total number of Shares comprised in the Global Offer. For the purposes of allowing the Stabilising Manager to cover over-allotments or further allotments, if any, in connection with the Global Offer and/or to cover short positions resulting from stabilisation transactions, the Blackstone Shareholders have granted the Stabilising Manager, on behalf of the Joint Global Co-ordinators, the Over-allotment Option which is exercisable in whole or in part, upon notice by the Stabilising Manager for the period commencing on the date of publication of the Offer Price and ending 30 days thereafter, to purchase, or procure purchasers for, up to an additional 9,207,161 Shares in aggregate (being 15 per cent. of the total number of Shares comprised in the Global Offer). The Global Offer is being made by way of an offering of Shares to persons in the UK and the rest of the world in offshore transactions meeting the requirements of Regulation S. Pursuant to the Global Offer, which is fully underwritten by the Underwriters in accordance with the terms of the Underwriting Agreement, the Company will receive approximately £92.3 million from the subscription of New Shares, net of underwriting commissions and other fees and expenses of approximately £12.0 million. The Company will not receive any proceeds from the sale of Existing Shares pursuant to the Over-allotment Option. Immediately following Admission, approximately 37.1 per cent. of the Company’s Shares will be held in public hands, assuming no exercise of the Over-allotment Option, and 43.6 per cent. will be held in public hands if the Over-allotment Option is exercised in full. 10. REASONS FOR THE GLOBAL OFFER, USE OF PROCEEDS AND REFINANCING The Company is seeking a listing and is making the Global Offer in order to reduce its indebtedness. In addition, the Directors believe that the Global Offer and Admission will position the Group for its next stage of development. The Directors believe that the Global Offer and Admission will raise the profile of the Group, assist in retaining and incentivising senior management and provide it with a structure for future growth. Concurrent with Admission, the Company will use: ɀ

approximately £38.0 million of the net proceeds to reduce borrowings under the £246 million senior credit agreement with, amongst others, Barclays Bank PLC dated 22 June 2006 as amended and restated on 21 August 2006 (the ‘‘Existing Senior Credit Agreement’’);

ɀ

approximately £1.3 million of the net proceeds to redeem in full the 10 per cent. bonds due 2014 issued by Augustus 1 Limited, one of its subsidiaries, in October 2004 (the ‘‘Subordinated Bonds’’ and the ‘‘SB Redemption’’, respectively);

ɀ

approximately £25.9 million of the net proceeds to redeem in part the zero coupon deep discount bonds due 2014 issued by Augustus 1 Limited in October 2004 (the ‘‘First Deep Discount Bonds’’); and

ɀ

approximately £27.2 million of the net proceeds to redeem in part the zero coupon deep discount bonds due 2014 issued by Augustus 1 Limited in December 2004 (the ‘‘Second Deep Discount Bonds’’ and, together with the First Deep Discount Bonds, the ‘‘Deep Discount Bonds’’).

Concurrent with Admission, the Group will refinance the Existing Senior Credit Agreement in full and pay certain associated fees, costs and expenses (the ‘‘Refinancing’’ and, together with the Global Offer, the DDB Redemption, the SB Redemption and the Conversion, the ‘‘Transactions’’) using a combination of borrowings under a new £165 million senior credit agreement with, amongst others, Barclays Bank PLC dated 26 April 2007 (the ‘‘New Senior Credit Agreement’’) and a portion of the net proceeds of the Global Offer, together with cash from operating activities. The New Senior Credit Agreement comprises term loans in an aggregate principal amount of £135 million and a revolving credit facility of £30 million. The

4

Directors expect to draw down on Admission the full amounts available under the term loans in connection with the Refinancing. Future borrowings under the revolving credit facility may be used for general corporate and working capital purposes. In addition, the Company will assume, conditional on Admission, the rights and obligations of Augustus 1 Limited in respect of £49.5 million in aggregate principal amount of the First Deep Discount Bonds and £28.4 million in aggregate principal amount of the Second Deep Discount Bonds (together, the ‘‘Outstanding Deep Discount Bonds’’) being the aggregate principal amount of the Deep Discount Bonds which will not be redeemed from the net proceeds of the Global Offer. Upon Admission, the Company will redeem the Outstanding Deep Discount Bonds in full at their accreted value on such date, being in aggregate approximately £77.8 million (together with the redemption in part of the First Deep Discount Bonds and the redemption in part of the Second Deep Discount Bonds, the ‘‘DDB Redemption’’), by issuing to the holders thereof 45,777,434 new Shares at the Offer Price (the ‘‘Conversion’’). In order to facilitate the Transactions and to put the Company’s subsidiaries in a position to be able to pay dividends, the Company will make capital contributions to certain of its subsidiaries, which in turn will enter into certain intra-group transactions. 11. RISK FACTORS Prior to investing in the Shares, prospective investors should consider, together with the other information in this document, the factors and risks attaching to an investment in the Company. The risks which are described in the section headed ‘‘Risk Factors’’ are summarised below. Risks relating to the Group’s business ɀ

the Group’s revenues are dependent on box office revenues;

ɀ

the Group is dependent on Hollywood film content;

ɀ

the level of the Group’s box office sales, and hence the Group’s revenues, fluctuates throughout the course of any given year;

ɀ

the Group’s business could suffer as a result of extreme or unseasonal weather conditions or other exceptional events;

ɀ

the Group’s ability to license films on acceptable terms is largely dependent on its relationships with film distributors;

ɀ

revenues from retail sales form an important part of the gross profits of the Group;

ɀ

screen advertising accounts for a significant contribution to the profits of the Group;

ɀ

the Group is dependent on key members of its senior management;

ɀ

the Group’s profitability may be reduced due to increases in labour, rent and energy costs;

ɀ

consolidation of the Group’s competitors may weaken its negotiating position with distributors;

ɀ

the Group’s expansion may be affected by planning laws;

ɀ

the Group’s brand may cease to be viewed favourably;

ɀ

the Group may face competition in its local markets; and

ɀ

the Group may be required to increase the level of contribution it makes to its pension schemes.

Risks relating to the cinema industry in the United Kingdom ɀ

the cinema industry may be negatively affected by alternative forms of entertainment;

ɀ

the United Kingdom cinema industry may experience similar over-capacity to that witnessed in the United States;

ɀ

the introduction of digital technology may impact on the Group’s capital expenditure requirements and/or operating expenses;

ɀ

the Group’s business is subject to government regulation; and

ɀ

there can be no assurance that the introduction of restrictions on smoking in public places or other factors beyond the Group’s control will not adversely affect the Group’s business.

5

Considerations relating to an investment in the Shares ɀ

the Blackstone Shareholders will continue to be able to exercise substantial influence over the Group’s business following the Global Offer;

ɀ

substantial future sales of Shares could impact the market price of the Shares;

ɀ

if an active trading market in the Shares does not develop or continue, the liquidity and trading price of the Shares could be adversely affected;

ɀ

the Company may not be able to pay dividends; and

ɀ

exchange rate fluctuations may expose an investor whose principal currency is not sterling to foreign currency rate risk.

6

RISK FACTORS Before investing in Shares, prospective investors should carefully consider the following risk factors in addition to the other information contained in this document. If any of the risks described below were to occur, it could have a material adverse effect on the Group’s business, results of operations or financial condition. If this were to lead to a decline in the trading price of the Shares, prospective investors may lose all or part of their investment. The risks and uncertainties described below are not the only ones faced by the Group. Additional risks and uncertainties not presently known or currently deemed immaterial may also have a material adverse effect on the Group’s business, results of operations or financial condition. Prospective investors should read this document as a whole and not rely solely on the information set out in this section. The financial information set out in this section has been extracted without material adjustment from ‘‘Part 7: Financial Information’’ and from ‘‘Part 8: Pro Forma Financial Information’’. Prospective investors should read this section in conjunction with ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’ and the other detailed information contained elsewhere in this document. Risks Relating to the Group’s Business The Group’s revenues are dependent on box office revenues The majority of the Group’s revenues are generated by box office sales. As a result, the Group’s financial position is largely dependent on the continued popularity and the overall quantity and quality of the films which it shows. Although cinema-going has generally remained popular in the United Kingdom for the last twenty years and the frequency of attendance at cinemas has increased during that period, there can be no assurance that the Group will maintain its current levels of box office revenues, which could have a material adverse effect on the Group’s business, operating or financial results or financial position. The Group is dependent on Hollywood film content The cinema exhibition industry is heavily dependent on films produced by Hollywood, with box office attendance closely correlated with the quality and quantity of films produced by Hollywood. Since 1995, the top 20 grossing box office films have accounted for between 48 per cent. and 59 per cent. of the United Kingdom cinema industry box office revenue in any one year. Dependence on Hollywood films is partially offset by the fact that independent films which attract lower attendance typically generate higher gross margins for exhibitors, due to the film rental agreements between distributors and cinema exhibitors, which offer some measure of margin protection to exhibitors for less popular films. The Group benefits from the trend towards niche products, directed at specific target audiences, which typically generate higher margins for exhibitors. However, since a significant proportion of the Group’s revenue (approximately 65 per cent. for the financial year ended 2006) is generated by box office revenue, a reduction in the quality, quantity or popularity of Hollywood films could have a material adverse effect on the cinema industry and on the Group’s business, operating or financial results or financial position. The level of the Group’s box office sales, and hence the Group’s revenues, fluctuates throughout the course of any given year The level of the Group’s box office sales, and hence the Group’s revenues, fluctuate throughout the course of any given year and are largely dependent on the timing of release of major films produced by Hollywood, over which the Group has no control. Whilst the timing of release of films varies from year to year, many major Hollywood films are released during the summer and year-end holiday seasons. Also, in general terms films which are targeted at children tend to be released during periods which coincide with school holidays. As a result, the Group’s revenues may vary significantly from month to month within any given financial year. In the event that major films are not released during these periods, it may adversely affect the level of the Group’s admissions, and hence box office and retail sales. The Group’s business could suffer as a result of extreme or unseasonal weather conditions or other exceptional events Historically, cinema admissions have also been affected by periods of abnormal, severe or unseasonal weather conditions. For example, admissions were adversely affected during the summer of 2006 by the exceptionally hot weather that affected parts of Western Europe during that time. In addition, heavy snowfall, such as that experienced in northern parts of the United Kingdom in late February and early March 2006, or other extreme weather conditions, such as floods, may make it difficult for the the public to

7

travel to the cinema. Prolonged unseasonal weather which coincides with the release of a major film could adversely affect the Group’s admissions and hence box office and retail sales. In addition, cinema admissions may occasionally be impacted by large events such as the football World Cup which was held in the summer of 2006. The Group’s ability to license films on acceptable terms is largely dependent on its relationships with film distributors The distribution of films involves their licensing for exploitation in various markets and in various media according to established release patterns, including by theatrical release in cinemas. Cinema film rental arrangements typically provide for the sharing of box-office revenues between distributors and exhibitors such as the Group. Box office revenues are shared between exhibitor and distributor on a sliding scale on a screen-by-screen, cinema-by-cinema basis, such that, in general terms, the higher the box office revenues, the higher the margin paid to the distributor. Film licensing fees are negotiated on a film-by-film basis whilst sliding scales of revenues shared between exhibitor and distributor are reviewed on a periodic basis. As a result, there is no assurance that the Group will be able to continue to negotiate film licensing fees or revise such scales on acceptable terms, or that current film hire margins can be maintained. The Group’s relative market position in the United Kingdom, its quality nationwide asset portfolio and the strength of its largest multiplexes, underpin its long-standing film distributor relationships, allowing it to obtain blockbuster films on acceptable terms from the major distributors. However, there is no assurance that the Group can maintain this position and/or its relationship with film distributors or that the studios and distributors will not permit simultaneous releases of blockbuster films at more of the Group’s competitors’ sites. Failure to continue to renew film rental agreements on favourable terms, to maintain current film hire margins or to continue to receive preferential access to new titles could have a material adverse effect on the Group’s business, operating or financial results or financial position. Revenues from retail sales form an important part of the gross profits of the Group Retail sales of confectionary items (such as ice-cream, sweets and chocolate), food (such as hot dogs and popcorn) and drinks (such as alcoholic drinks sold in bar areas and soft drinks and coffee) form an important part of the gross profits of the Group. The Group’s retail sales generally fluctuate in line with admissions and there is no assurance that attendance can be maintained at the current level or increased. There can be no assurance that the Group will maintain its current levels of retail sales in any event, nor that retail spend per head will not decline, either or both of which could have a material adverse effect on the Group’s business, operating or financial results or financial position. Screen advertising accounts for a significant contribution to the profits of the Group Advertising accounts for a significant contribution to the profits of the Group. Whilst the Group has in place a contract until 2011 in relation to advertising revenues, there can be no assurance that upon its expiry, this contract will be renewed or replaced on terms similar to, or more favourable than, those which currently apply. Furthermore, advertising revenues are partially indexed to the level of admissions and the size of the Group’s portfolio of properties, and as such may decrease in the event that admissions do not meet a specified threshold. Any decline in the Group’s advertising revenues, whether due to a failure to renew or replace any agreement relating to advertising revenues on favourable terms or otherwise, could have a material adverse effect on the Group’s business, operating or financial results or financial position. The Group is dependent on key members of its senior management The Group benefits from a senior management team with many years of experience in the cinema industry in the United Kingdom, the United States and throughout Europe. A loss of one or more members of the Group’s senior management without adequate replacement could have a material adverse effect on the Group’s business, operating or financial results or financial position. The Group’s profitability may be reduced due to increases in labour, rent and energy costs The Group’s operating costs include employment, rent and energy costs. These costs may increase more than management currently anticipates, for example in the event that the level of the minimum wage in the United Kingdom was to increase or through unfavourable periodic rent reviews, or may be volatile, for

8

example due to increased market fluctuations in the price of gas and electricity. The cost of energy rose in 2005 and 2006, due principally to the rise in the cost of gas and electricity. If the cost of energy was to rise further and the Group was unable to implement measures to mitigate costs relating to energy consumption, it could have a material adverse effect on the Group’s business, operating or financial results or financial position. Consolidation of the Group’s competitors may weaken its negotiating position with distributors Based on the Dodona Report, in 2006 the Group’s market share of cinema screens in the United Kingdom was 21.4 per cent., compared with 24.4 per cent. for Odeon UCI and 16.1 per cent. for Vue (formerly Warner Village Cinemas). The remainder of the cinema screens in the United Kingdom are split between smaller chains and independent cinemas. There is a risk that the Group may lose relative market position in the event of consolidation between other cinema operators in the United Kingdom, which could in turn jeopardise the Group’s negotiating position with distributors. The Group’s management believes that favourable contracts with film distributors depend on maintaining a strong, rather than leading, market position. However, any material consolidation within the United Kingdom cinema market could nevertheless weaken the Group’s negotiating position with distributors which, in turn, could result in the Group being unable to continue to agree favourable terms for licensing films and, as a result could have a material adverse effect on the Group’s business, operating or financial results or financial position. The Group’s expansion may be affected by planning laws New cinema developments are governed by local government planning policies. In the United Kingdom, planning permission is required for the construction of almost all new premises and applications are considered individually against the local development plan, which includes policies relating to commercial and industrial development. One of the current aims of United Kingdom planning policy is to protect out-of-town greenfield sites, support urban regeneration and encourage the use of public transport. Any increase in restrictions on developing out-of-town greenfield sites may impact on the Group’s ability to continue to expand its portfolio of sites in such locations, may limit the construction of additional capacity and may give rise to rent increases in respect of sites in such locations. The Group’s brand may cease to be viewed favourably In ‘‘Cineworld’’, the Group benefits from a nationally recognised brand. The Directors believe that the Group is able to derive significant value from the brand through customer awareness and retention, as well as through marketing and promotional campaigns and through the wide circulation of the Unlimited magazine. There is a risk that the Group’s brand may lose its positive image with customers as a result of any negative publicity. Although the Directors are confident that the Company will continue to enjoy a favourable brand image and, furthermore, the Group invests in the maintenance and promotion of its brand image, there can be no assurance that the Group’s brand will continue to be viewed in a favourable light. The Group may face competition in its local markets Certain towns and cities in the United Kingdom have relatively few cinema screens per person. Local authorities in such areas are often interested in supporting new sites. Accordingly, where the Group has an existing cinema, in areas such as these it could be subject to competition from new and/or upgraded cinemas operated by other cinema chains, which could materially adversely affect the performance of the Group’s cinemas. As with any retail business, the Group may become subject to more aggressive price competition than currently exists. Although price competition typically arises on a local basis and for a limited period, there is no guarantee that the Group would not be materially adversely affected by more aggressive price competition. Furthermore, price is only one factor in the purchase decision, with selection also made on the basis of convenience, accessibility and quality of experience. Cinema tickets also remain relatively low cost items when compared to other forms of leisure activities outside of the home. There can be no assurance that the current market pricing environment will remain unchanged. In the event that the Group were to face aggressive price competition or increased competition from other forms of leisure activities outside of the home, it could have a material adverse effect on the Group’s business, results of operations and financial position.

9

The Group may be required to increase the level of contribution it makes to its pension schemes The Group operates a number of pension arrangements, most of which are defined contribution schemes. The Group operates two defined benefit plans, the MGM Pension Scheme and the Adelphi-Carlton Limited Contributory Pension Plan. As at 28 December 2006 the MGM Pension Scheme had an estimated deficit of approximately £4.7 million. Further information on the funding status of these plans is contained in note 21 of Part A of ‘‘Part 7: Financial Information’’. The trustees of the MGM Pension Scheme have discretion as to the contributions paid by the participating employers. As part of the clearance discussions with the Pension Regulator described below, the Company and the trustees have agreed that Cineworld Cinemas Holdings Limited (the principal employer of the MGM Pension Scheme) would make good the scheme’s ongoing deficit (which stood at £6.7 million at that time) in equal instalments over five years. In addition, Cineworld Cinemas Holdings Limited would make annual payments of £100,000 for future benefit accrual. The Pensions Regulator has granted clearance that it would not be reasonable for it to use its powers to impose an order requiring companies in the same group as Cineworld Cinemas Holdings Limited to fund the MGM Pension Scheme as a result of the Global Offer. The trustees recently commissioned an actuarial valuation of the MGM Pension Scheme as at 5 April 2006 as part of the three-year valuation cycle. Following this, discussions between the trustees and the Company in relation to the future funding of the MGM Pension Scheme remain ongoing. No assurance can be given that these discussions will not lead to the Group being required to increase contribution rates in the future. Any requirement to increase pension contributions may negatively affect the Group’s cashflows, and an increase in the value of the net liabilities may negatively affect the Group’s balance sheet and distributable reserves, any of which could have a material adverse effect on the Group’s business, operating or financial results or financial position. As with many pension schemes, it is unclear whether the scheme has fully complied with European law as regards equal treatment of men and women, and non-compliance could increase the scheme’s liabilities. Risks Relating to the Cinema Industry in the United Kingdom The cinema industry may be negatively affected by alternative forms of entertainment Alternative technologies such as video, DVD and cable television, and the increased availability of technologies which permit at home on-demand viewing, represent significant alternative platforms for the distribution of movie content. The home-cinema industry has also introduced digital surround sound, large-screen projection and other hallmarks of the cinematic experience to the home. As the popularity of such home entertainment systems grows, profits of cinema operators may diminish accordingly. It is also possible that content owners will discontinue the practice of maintaining the theatrical release window which currently stands at approximately 18 to 19 weeks. However, cinema represents a communal, out-of-home experience, which cannot be entirely replicated through home content delivery. Also it has been shown that DVD users have historically been the most stable and frequent cinema-goers (satisfying the demand to see films as early as possible following release). Cinematic exhibition represents an effective method of marketing and pricing content as it moves through the delivery platform value chain: DVD releases, cable, satellite and terrestrial TV contracts can be priced according to box office sales, thus enhancing the importance to the studios of the cinematic release window. The cinematic release window allows studios to follow a market ‘‘skimming’’ strategy whereby film-based products (such as DVDs and television broadcasts) are sold and distributed over a period of time, thereby optimising overall profits. Notwithstanding the above, there can be no assurance that the increasing popularity of enhanced home entertainment technology or a reduction in the theatrical release window would not have a material adverse effect on cinema admissions and on the Group’s business, operating or financial results or financial position. As home entertainment technology becomes more widespread and advanced, there is a risk that piracy could impact revenues along the entire life cycle of a film, in particular at the DVD stage. This could, in turn, impact both the quality and quantity of studio output as studios reduce their investment in future content. Although studios and numerous public bodies take measures to limit piracy and copyright infringement, there can be no assurance that such measures will continue to be successful.

10

The cinema industry is also in competition with other forms of entertainment, such as theatre, sports, concerts, computer games, bars and clubs. The popularity of these other forms of entertainment relative to cinema is subject to a number of factors. Although cinema-going has generally remained popular in the United Kingdom for the last twenty years, particularly with key demographic groups, there can be no assurance that it will remain so, and competition from these other sources could have a material adverse effect on the Group’s business, operating or financial results or financial position. The United Kingdom cinema industry may experience similar over-capacity to that witnessed in the United States During the 1990s, the United States cinema industry witnessed a number of ‘‘Chapter 11’’ bankruptcies principally as a result of the over-building of new cinema auditoria and the inability of many operators to terminate leases relating to legacy sites. The United Kingdom remains relatively under-screened in comparison with the United States, and further build-out in the United Kingdom market is likely to be constrained by, amongst other factors, planning restrictions and a lack of economic development opportunities. Nevertheless, there is no assurance that excess capacity in the number of cinemas or the number of screens may not arise in the markets in which the Group operates. Excess capacity in the markets in which the Group operates could have a material adverse effect on the Group’s business, operating or financial results or financial position. The introduction of digital technology may impact on the Group’s capital expenditure requirements and/or operating expenses As digital equipment is currently more expensive than traditional film print projection equipment, the future acquisition and maintenance of digital technology by film exhibitors may represent a substantial capital or lease expenditure. Any such additional expenditure will not necessarily lead to material increases in admissions. However, whilst the major film distributors in the United Kingdom have advised the Company that they are willing to supply digital prints of major releases if that format is available, distribution of digital prints to individual cinemas is still constrained by current technology as a commercially viable solution has yet to be developed for distributing digital prints by satellite. There can be no assurance that the move to digital technology would not have a material impact on the capital expenditure requirements and/or operating expenses of the Group and, consequently, on the Group’s business, operating or financial results or financial position. The Group’s business is subject to government regulation The operation of a cinema business is subject to certain central and local governmental regulations including planning regulation, environmental and health and safety legislation, licensing laws, regulations applicable to the operation of food and drink concessions, and minimum wage legislation. Specifically, in England, Scotland and Wales, all cinemas must comply with The Cinematograph (Safety) Regulations 1955, The Cinematograph (Safety) (Amendment) Regulations 2002 and the Cinema Act 1985 which deal with safety issues within a cinema and the licensing of cinema houses, respectively. The Directors believe that the Group is in substantial compliance with all applicable regulations and industry standards. However, no assurance can be given that the Group will not be adversely affected by any legal or regulatory changes in the future. There can be no assurance that the introduction of restrictions on smoking in public places or other factors beyond the Group’s control will not adversely affect the Group’s business There has been a recent consultation exercise on smoking in public places which will lead to the introduction of regulations controlling smoking in public. By the summer of 2007, smoking will be prohibited in all indoor public places in the United Kingdom. The introduction of these restrictions will only affect the bars and restaurants at the Group’s cinema sites as the Group has never allowed smoking in its auditoria. Whilst the Group believes the experience of a similar ban affecting cinemas in Scotland and the Republic of Ireland suggests it will not have a material impact on its business, there can be no assurance that this will be the case. Any terrorist attacks or armed conflicts or other geopolitical uncertainty or any restrictions on movement or government actions imposed in the United Kingdom in the event of an outbreak of bird flu, could result in a significant reduction in cinema admissions and thereby have a material adverse effect on the Group’s business, operating or financial results or financial position.

11

Considerations relating to an investment in the Shares The Blackstone Shareholders will continue to be able to exercise substantial influence over the Group’s business following the Global Offer Immediately after the Global Offer, the Blackstone Shareholders will hold approximately 53.5 per cent. of the Shares (assuming no exercise of the Over-allotment Option). Whilst the Company has entered into the Relationship Agreement with the Blackstone Shareholders to ensure that the Group is capable of carrying on its business independently of the Blackstone Shareholders, by virtue of the level of its shareholding the Blackstone Shareholders may be able to influence certain matters requiring approval of the Company’s shareholders, such as the election of directors and the approval of certain business decisions. In addition, the Blackstone Shareholders will have sufficient voting power, on Admission, to, among other things, delay or deter a change of control, which could deprive shareholders of an opportunity to earn a premium for the resale of their Shares over the then prevailing market price. There could also be a conflict between interests of the Blackstone Shareholders and the interest of the Company’s other shareholders with respect to, for instance, dividend policy. In addition to ownership of the Shares, the Blackstone Shareholders will have certain rights in respect of the Company under the Relationship Agreement, including, among others, the right to appoint up to two non-executive directors to the board of directors of the Company (the ‘‘Board’’) (depending on the level of the Blackstone Shareholders’ holding in the Company). For more information on the Relationship Agreement, see paragraph 18.9 of ‘‘Part 9: Additional Information’’. Substantial future sales of Shares could impact the market price of the Shares Upon completion of the Global Offer, the Blackstone Shareholders will in aggregate hold 75,786,010 Shares (or 66,578,849 Shares if the Over-allotment Option is exercised in full), representing 53.5 per cent. of the issued Shares (47.0 per cent. if the Over-allotment Option is exercised in full). These Shares will be subject to lock-up arrangements, described in further details in paragraph 12.2 of ‘‘Part 9: Additional Information’’. Sales of substantial amounts of Shares following the expiration of the lock-up periods could adversely affect the prevailing market price of the Shares. These sales may also make it difficult for the Company to issue equity securities in the future at a time and at a price that it deems appropriate. If an active trading market in the Shares does not develop or continue, the liquidity and trading price of the Shares could be adversely affected Prior to the Global Offer, there has been no public trading market for the Shares. The Offer Price may not be indicative of the market price for the Shares following Admission. Following Admission, the trading price of the Shares may be subject to wide fluctuations in response to many factors, including those referred to in this section, as well as stock market fluctuations and general economic conditions that may adversely affect the market price of the Shares, regardless of the Group’s actual performance or conditions in its key markets. The Company may not be able to pay dividends As a matter of English law, the Company can pay dividends only to the extent that it has distributable reserves available which, as the Company is a group holding company with no independent operations, is dependent on the Company’s ability to receive funds for such purposes, directly or indirectly, from its operating subsidiaries in a manner which creates distributable reserves for the Company. The Company’s ability to pay dividends to shareholders is therefore a function of its existing Group distributable reserves, future Group profitability and the ability to distribute or dividend profits from its operating subsidiaries up the Group structure to the Company. The Company’s subsidiaries report under UK GAAP and the Directors’ intention is for the subsidiaries to continue to report under UK GAAP for so long as this is permitted. If the Company’s subsidiaries were to be required to adopt IFRS in the future due to a change in legal, accounting or regulatory regime applicable to it or for any other reason, this could potentially lead to a material reduction in the Company’s distributable reserves (although no analysis of the potential effect of the adoption of IFRS by the Company’s subsidiaries on its distributable reserves has been carried out to date). In such event, this could have a detrimental effect on the Company’s ability to pay dividends.

12

Certain of the Group’s subsidiaries are unable to pay dividends to their direct parent companies as these subsidiaries do not have distributable reserves. In order to enable the payment of dividends by these subsidiaries in the future, following Admission the Company and its subsidiaries will take certain steps which are intended to put these subsidiaries in a position to be able to pay dividends and make payments to their direct parent companies. Depending on the method which the Company choses to remove these dividend blocks, the Company may need to seek the prior consent of certain third parties, such as its creditors. Whilst the Company intends to take these steps, if for any reason the Company is unable to or if for any reason the Company decides not to take these steps or if any third party whose consent is required withholds such consent or if the effect of these steps is not as the Company intended, the Company may not be able to pay dividends in line with its dividend policy as set out in ‘‘Part 2: Business Overview— Dividends and Dividend Policy’’. Exchange rate fluctuations may expose an investor whose principal currency is not sterling to foreign currency rate risk The Shares are, and any dividends to be paid in respect of them will be, denominated in pounds sterling. An investment in Shares by an investor whose principal currency is not sterling exposes the investor to foreign currency rate risk. Any depreciation of sterling in relation to such foreign currency will reduce the value of the investment in the Shares or any dividends in foreign currency terms, and any appreciation of sterling will increase the value in foreign currency terms.

13

GLOBAL OFFER STATISTICS Offer Price per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

170p

Number of New Shares being offered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61,381,075

Number of Existing Shares subject to the Over-allotment Option(1) . . . . . . . . . . . . . . .

9,207,161

(2)

Percentage of enlarged issued share capital being offered

.....................

43.3%

Number of Shares in issue following the Global Offer . . . . . . . . . . . . . . . . . . . . . . . .

141,721,509

Market capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

£240.9 million

Proceeds receivable by the Company, after expenses (3) . . . . . . . . . . . . . . . . . . . . . . . .

£92.3 million

(1) The number of Shares subject to the Over-allotment Option is, in aggregate, equal to 15 per cent. of the total number of Shares to be issued in the Global Offer. (2) This assumes no exercise of the Over-allotment Option. (3) The proceeds receivable by the Company are stated after deduction of estimated underwriting commissions and other fees and expenses of the Global Offer payable by the Company and are expected to be approximately £12.0 million. The Company will not receive any of the proceeds from any sale of Existing Shares pursuant to the Over-allotment Option.

EXPECTED TIMETABLE FOR THE GLOBAL OFFER Each of the times and dates is subject to change without further notice. References to a time of day are to London time (unless stated otherwise). Conditional dealings in Shares commence(1) . . . . . . . . . . . . . . . . .

27 April 2007

Admission and unconditional dealings in Shares commence . . . . . .

8.00 a.m. on 2 May 2007

Shares credited to CREST accounts

(2)

......................

2 May 2007

Despatch of definitive share certificates (where applicable) . . . . . .

16 May 2007

(1) It should be noted that, if Admission does not occur, all conditional dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned. (2) Or as soon as practicable thereafter. No temporary documents of title will be issued.

14

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS Directors

Anthony Herbert Bloom

(Non-Executive Director and Chairman)

Lawrence Hall Guffey

(Non-Executive Director and Deputy Chairman)

Stephen Mark Wiener

(Chief Executive Officer)

Richard David Jones

(Chief Financial Officer and Company Secretary)

Thomas Berard McGrath

(Non-Executive Director)

Matthew David Tooth

(Non-Executive Director)

David Ossian Maloney

(Non-Executive Director and Senior Independent Director)

Peter Wodehouse Williams

(Non-Executive Director)

all of Power Road Studios, Power Road, Chiswick, London W4 5PY, United Kingdom Registered and head office

Power Road Studios Power Road Chiswick London W4 5PY United Kingdom

Joint Global Co-ordinators, Joint Bookrunners and Joint Sponsors

JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA United Kingdom

Financial Adviser to the Company

NM Rothschild & Sons Limited New Court St. Swithin’s Lane London EC4P 4OU United Kingdom

Legal Advisers to the Company as to English law

Clifford Chance LLP 10 Upper Bank Street London E14 5JJ United Kingdom

Legal Advisers to the Joint Global Co-ordinators as to English law

Lovells Atlantic House Holborn Viaduct London EC1A 2FG United Kingdom

Auditors to the Company and Reporting Accountants

KPMG LLP 8 Salisbury Square London EC4Y 8BB United Kingdom

Registrar

Capita IRG Plc The Registry 34 Beckenham Road Kent BR3 4TU United Kingdom

15

Lehman Brothers International (Europe) 25 Bank Street London E14 5LE United Kingdom

FORWARD-LOOKING STATEMENTS Some of the statements under ‘‘Summary Information’’, ‘‘Risk Factors’’, ‘‘Part 1: Industry Overview’’, ‘‘Part 2: Business Overview’’, and ‘‘Part 6: Operating and Financial Review’’ and elsewhere in this document include forward-looking statements which reflect the Company’s or, as appropriate, the Directors’ current views with respect to financial performance, business strategy, plans and objectives of management for future operations (including development plans relating to the Company’s products and services). These statements include forward-looking statements both with respect to the Group and the sectors and industries in which the Company operates. Statements which include the words ‘‘expects’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘projects’’, ‘‘anticipates’’, ‘‘will’’, ‘‘targets’’, ‘‘aims’’, ‘‘may’’, ‘‘would’’, ‘‘could’’, ‘‘continue’’ and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. These factors include but are not limited to those described in ‘‘Risk Factors’’, which should be read in conjunction with the other cautionary statements that are included in this document. Any forward-looking statements in this document reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Company’s operations, results of operations, growth strategy and liquidity. These forward-looking statements speak only as of the date of this prospectus. Subject to any obligations under the Prospectus Rules, the disclosure and transparency rules made by the FSA under Part VI of FSMA (the ‘‘Disclosure and Transparency Rules’’) and the listing rules made by the FSA under Part VI of FSMA (the ‘‘Listing Rules’’) and save as required by law, the Company undertakes no obligation to update publicly or to review any forward-looking statement, whether as a result of new information, future developments or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on behalf of the Company are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION 1.

FINANCIAL DATA

Certain figures contained in this document, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables contained in this document may not conform exactly to the total figure given for that column or row. 2.

EBITDA AND EBITA

EBITDA means operating profit before depreciation, amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites. EBITA means operating profit before amortisation of other intangibles and goodwill impairment. EBITDA, EBITA and the related ratios presented in this document are supplemental measures of the Group’s performance and liquidity that are not required by, or presented in accordance with, Adopted IFRS. Furthermore, EBITDA and EBITA are not measures of the Group’s financial performance or liquidity under Adopted IFRS and should not be considered as an alternative to gross profit, operating profit or any other performance measures derived in accordance with Adopted IFRS or as an alternative to cash flow from operating activities as a measure of the Group’s liquidity. The EBITDA figures for the 52 week periods, ended 28 December 2006, 29 December 2005 and 30 December 2004 have been directly extracted from the historical financial information contained in Part A of ‘‘Part 7: Financial Information’’. The Directors believe EBITDA and EBITA facilitate operating performance comparisons from period to period and company to company by eliminating potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and, in the case of EBITDA, the age and book depreciation of tangible assets (affecting relative depreciation expense). EBITDA and EBITA are presented in this document as the Directors believe securities analysts, investors and other interested parties frequently use it to evaluate similar issuers. Finally, EBITDA and EBITA are presented in this document as a supplemental measure of the Group’s ability to service its debt and pay dividends. Nevertheless, EBITDA and EBITA have limitations as an analytical tool, and potential investors should not consider either measure in isolation from, or as a substitute for analysis of, the Group’s results of operations, as reported under Adopted IFRS. Some of these limitations are: ɀ

they do not reflect the Group’s cash expenditures, or future requirements for, capital expenditures or contractual commitments;

ɀ

they do not reflect changes in, or cash requirements for, the Group’s working capital needs;

ɀ

they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Group’s debt. The Group’s historical interest expense is not indicative of the Group’s interest payment obligations following the Global Offer because, as more fully described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Refinancing and Conversion’’, concurrent with Admission the Group will refinance the Existing Senior Credit Agreement in full using a combination of a portion of the net proceeds and borrowings under the New Senior Credit Agreement, together with cash from operating activities. The Company intends to apply the remainder of the net proceeds of the Global Offer to redeem in part the Deep Discount Bonds and the Subordinated Bonds;

ɀ

although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often have to be replaced in the future, and EBITDA measures do not reflect any cash requirements for such replacements;

ɀ

they are not adjusted for all non-cash income or expense items that are reflected in the Company’s consolidated statements of cash flows; and

ɀ

other companies may calculate these measures differently than the Company, limiting their usefulness as comparative measures.

Because of these limitations, prospective investors should not solely consider EBITDA or EBITA as a measure of discretionary cash available to the Group to invest in the growth of its business. For more information, see ‘‘Part 6: Operating and Financial Review’’ and ‘‘Part 7: Financial Information’’.

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3.

MARKET, ECONOMIC AND INDUSTRY DATA

Market, economic and industry data used throughout this document is derived from independent industry sources. Such sources generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed and that the projections they contain are based on significant assumptions. The market, economic and industry data used throughout this document has been derived from Dodona Research, Nielsen EDI and the UK Film Distributors Association. The Company has accurately reproduced the information that has been derived from Dodona Research, Nielsen EDI and the UK Film Distributors Association and, so far as the Company is aware and has been able to ascertain from that published information, no facts have been omitted which would render the reproduced information inaccurate or misleading. Where third party information has been used in this document the source of such information has been identified. 4.

CURRENCY PRESENTATION

Unless otherwise indicated, all references in this document to ‘‘pounds sterling’’, ‘‘£’’, ‘‘pence’’ or ‘‘p’’ are to the lawful currency of the UK.

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PART 1: INDUSTRY OVERVIEW 1.

MARKET OVERVIEW

In 2006, according to the Dodona Report the combined box office revenue, retail sales and advertising revenue of the United Kingdom cinema exhibition industry was approximately £944 million, having experienced average annual growth of approximately 5.5 per cent. since 2000. Cinema has proven to be a consistently popular low-cost form of entertainment and, according to the Dodona Report, the United Kingdom industry experienced a 45 per cent. growth in attendance between 1995 and 2006. Box office revenues have also been driven by increasing ticket prices. Box office revenues typically accounted for between approximately 69 and 72 per cent. of total industry revenues between 2000 and 2006 whilst retail sales and advertising revenue typically accounted for approximately 20 to 23 per cent. and approximately 7 per cent. respectively over the same period. Admissions have grown at a compound annual rate of approximately 1.6 per cent. since 2000 and this growth has historically demonstrated very little correlation with broader economic trends, such as GDP growth. The key driver of attendance is, rather, the attractiveness of Hollywood studio output. Since 1995, the top 20 grossing box office films have accounted for between 48 per cent. and 59 per cent. of the United Kingdom cinema industry box office revenue in any given year. High admissions levels also drive retail sales and contribute to screen advertising revenues, as well as fostering repeat business through the viewing of trailers and promotional material. According to the Dodona Report, cinema admissions in the United Kingdom in 2006 were approximately 157 million, compared to approximately 142 million in 2000. In 1985, the year the first multiplex cinema opened in the United Kingdom, cinema admissions were approximately 68 million. Dodona Research forecasts that cinema admissions in the United Kingdom will rise to approximately 175 million in 2007 and 186 million in 2010. The table below shows total cinema admissions and cinema admissions per capita in the United Kingdom since 1995. Year

1995 . 1996 . 1997 . 1998 . 1999 . 2000 . 2001 . 2002 . 2003 . 2004 . 2005 . 2006 .

Total admissions (million)

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108.0 124.0 139.5 135.5 139.5 142.5 156.5 176.0 167.5 171.5 164.7 156.6

Admissions per person

1.86 2.13 2.39 2.32 2.38 2.43 2.66 2.99 2.84 2.87 2.74 2.59

Source: UK Film Distributors Association, Dodona Report

Rising ticket prices have also contributed to box office revenues, having grown at a compound annual rate of 3.2 per cent. over the six year period between 2000 and 2006, compared to a compound annual rate of 4.4 per cent over the five year period between 1995 and 2000. The Directors believe that increases in ticket

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prices have been accepted by customers in return for the improved comfort and experience offered by the multiplex format and rejuvenated city-centre sites.

Year

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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Average ticket price (£)

Increase in average ticket price on previous year (%)

£3.26 £3.27 £3.53 £3.69 £3.91 £4.04 £4.22 £4.29 £4.43 £4.49 £4.68 £4.87

N/A 0.3% 8.0% 4.5% 6.0% 3.3% 4.5% 1.7% 3.3% 1.4% 4.0% 4.1%

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Source: Dodona Report

Whilst the multiplex build-out and regeneration of the cinema estate in the United Kingdom during the late 1990s and early years of the new millennium increased the average number of screens from 3.6 per site in 1998 to 4.6 in 2001, this increase has slowed in recent years and stood at 4.9 in 2006. Whilst this rapid build-out and regeneration caused population per screen to fall rapidly during the period from 1995 to 2000, this decline has slowed during the six year period from 2000 to 2006, falling from 19,883 in 2000 to 17,564 in 2006, reflecting the slower rate of construction of new sites. The Directors believe that the investment by cinema operators in their estate over this period and the impact of the flexibility afforded by multiplex sites to address demand better and offer customers a wider choice of programming contributed to an increase in visits per person during the period between 1995 and 2006. Visits per person increased rapidly in the period from 1995 to 2000, rising from 1.86 in 1995 to 2.43 in 2000. However, the rate of increase slowed during the five-year period to 2005 and stood at 2.59 in 2006. A combination of higher admissions and an increase in the average ticket price has contributed to a growth in box office revenues over the same period. The following table shows gross box office revenues in the UK since 1995: Gross box office revenues (£ million)

Year

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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352 405 492 500 545 575 660 755 742 770 771 763

Increase/(decrease) in gross box office revenues on previous year (%)

N/A 15.1% 21.5% 1.6% 9.0% 5.5% 14.8% 14.4% (1.7)% 3.8% (0.0)% (1.0)%

Source: Dodona Report

2.

TOTAL CINEMA MARKET REVENUE

According to the Dodona Report, total cinema market revenue (the sum of box office revenue, retail spend, advertising and other income) was £944 million in 2006, a fall of £4 million, or 0.4 per cent., on 2005. This reflected a balance between a 4.9 per cent. fall in admission numbers and a 4.7 per cent. increase in revenue per admission, the latter being driven primarily by a 4.1 per cent. increase in the

20

average ticket price and an increase in retail spend per customer and which offset slightly lower advertising income. One of the factors behind the fall in admissions was that there was a net gain of only 83 operating screens in 2006, which was a significant reduction compared to the 100 to 200 screens that were being added to the market around the turn of the decade. Notwithstanding that in 2006 June was the warmest since 1976 and July and September were the hottest for at least three centuries and that admissions were negatively impacted in June 2006 due to the football World Cup, UK cinema admissions in 2006 remained strong. 3.

MARKET PARTICIPANTS

Following a period of consolidation, there are now three major exhibitors in the United Kingdom cinema exhibition industry, Odeon UCI, Cineworld and Vue. In 2004, the Blackstone Shareholders, affiliates of The Blackstone Group, acquired the Cine-UK business and all of UGC’s cinema operations in the United Kingdom and Ireland whilst Terra Firma Capital Partners acquired Odeon and UCI. In 2005, Vue acquired the former Ster Century business. The remainder of the market consists of smaller circuits and independent cinema operators. In June 2006, the management of Vue, in partnership with the Bank of Scotland (a subsidiary of HBOS), bought out the shareholdings of Boston Ventures, Clarity Partners and Legal and General Ventures for £350 million. This gave the management 51 per cent. control of Vue. As part of the buy out, Vue took full ownership of the four sites it had been operating under contract from Village Roadshow. As of January 2007 the approximate market share in terms of screens of the three leading cinema operators was as follows:

Cinema operator

Odeon UCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cineworld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

% of total screens in the United Kingdom

% of screens in portfolio built after 1995

24.4% 21.4% 16.1%

63.1% 86.2% 82.4%

Source: Dodona Report

4.

THE CINEMA ESTATE IN THE UNITED KINGDOM

Following a period of significant growth in the number of cinema screens in the United Kingdom between 1995 and 2002, the number of screens levelled off in the last few years, with both the number of new screen openings and closures significantly reduced compared to that period. However, this trend was reversed in 2006 with an increase in the number of new screen openings. The past ten years has seen a significant shift in the nature of the cinema estate in the United Kingdom with the rise of the predominance of multiplex cinemas. The shift towards multiplex cinemas in the United Kingdom reflects the experience in the United States where traditional movie theatres started to be replaced by multiplex cinemas in the mid-1960s. A cinema is generally considered to be a multiplex cinema where a single foyer is shared between five or more screens. This arrangement allows the operating company to provide a wider choice of films without a commensuate increase in staff and to reduce the overheads. In addition, where appropriate, high demand for popular films can be met by showing such films on multiple screens at the same cinema, thereby reducing the choice of movies but offering more choice of viewing times. Whilst multiplexes may be created either through renovating traditional cinemas by dividing up larger auditoria into two or three smaller auditoria, it is more common for multiplexes to be newly built. Historically multiplex sites were typically edge-of-town or out-of-town operations and/or part of a larger retail or leisure development. However, multiplex sites are increasingly being built in city centres. These sites are typically leasehold. Until relatively recently, city centre locations have tended to be both older and smaller, typically freehold operations. As a result of local government regulations designed to encourage urban regeneration, an increased number of multiplexes are being built in city centres. According to the Dodona Report, whereas in 1995 only 36.4 per cent. of all cinema screens were located in multiplex cinemas, by the end of 2006 this percentage had increased to 73.02 per cent.. Mirroring the rapid period of growth in the total number of screens, the shift from traditional cinemas to multiplexes occurred in the period between 1995 and 2002, during which time the number of multiplex screens as a percentage

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of the total cinema estate in the United Kingdom increased from 36.4 per cent. to 70.6 per cent.. In 2005, the number of new multiplex cinema openings was as low as in any year since 1987, and the number of new multiplex screen openings the lowest since that year. However, 2006 saw a reversal of this trend with eight new multiplex cinema openings with 65 new screens, the highest number of new openings since June 2002. New cinema developments are governed by local government planning policies. In the United Kingdom, planning permission is required for the construction of almost all new premises and applications are considered individually against the local development plan, which includes policies relating to commercial and industrial development. One of the current aims of United Kingdom planning policy is to protect out-of-town greenfield sites, support urban regeneration and encourage the use of public transport. Furthermore, the planning application process can be long and involves a high degree of consultation with both regulatory bodies and other interested third parties. As such, it is expected to act as a brake on further site build-out and limit the construction of additional capacity. 5.

FILM DISTRIBUTION

Cinemas are the primary initial distribution channel for film releases. The box office success of a film is often the most important factor in establishing its value in subsequent film distribution channels. Following release for cinemas screening, films are generally made available through several alternative distribution methods, including DVD, cable television, broadcast television, and satellite and pay-per-view services. Box office success can establish a film’s success and substantiate the film’s revenue potential for alternative distribution channels. For example, the value of DVD and pay cable distribution agreements frequently depends on the success of a film’s box office success. Furthermore, studios’ revenue-sharing percentage and ability to control the choice of distribution channels generally declines as a film moves further from its cinema release. As the primary distribution window for the public’s evaluation of films, cinema distribution remains the cornerstone of a film’s overall financial success. The development of additional distribution channels has given film producers the ability to generate a greater portion of a film’s revenues through channels other than through box office admissions. This increased revenue potential after a film’s initial release has enabled major studios and some independent producers to increase the budgets for film production and advertising. 6.

FILM CONTENT

Films released in 2006 The following table shows the gross box office revenue in the United Kingdom as at 15 April 2007 for the top twenty films released in 2006: Rank

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Gross UK box office revenues(1)

Film title

Casino Royale . . . . . . . . . . . . . . . . . . . . . . . Pirates Of The Caribbean: Dead Man’s Chest The Da Vinci Code . . . . . . . . . . . . . . . . . . . Ice Age II . . . . . . . . . . . . . . . . . . . . . . . . . . Borat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Night At The Museum . . . . . . . . . . . . . . . . . X-Men 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Happy Feet . . . . . . . . . . . . . . . . . . . . . . . . . Cars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Superman Returns . . . . . . . . . . . . . . . . . . . . Mission Impossible 3 . . . . . . . . . . . . . . . . . . The Devil Wears Prada . . . . . . . . . . . . . . . . . Chicken Little . . . . . . . . . . . . . . . . . . . . . . . Over The Hedge . . . . . . . . . . . . . . . . . . . . . The Departed . . . . . . . . . . . . . . . . . . . . . . . The Holiday . . . . . . . . . . . . . . . . . . . . . . . . . Flushed Away . . . . . . . . . . . . . . . . . . . . . . . The Break Up . . . . . . . . . . . . . . . . . . . . . . . Walk The Line . . . . . . . . . . . . . . . . . . . . . . . Brokeback Mountain . . . . . . . . . . . . . . . . . .

(1) Source: Nielsen EDI

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£55,307,716 £52,008,665 £30,370,910 £29,487,909 £24,054,709 £20,720,940 £19,149,442 £18,787,974 £16,309,097 £16,059,431 £15,527,591 £13,898,435 £13,567,622 £13,083,491 £12,825,665 £12,342,369 £11,175,399 £10,270,529 £10,144,294 £10,110,567

Films to be released in 2007 Following the box office success of sequels in 2006, which saw five sequels out of the top ten films in terms of UK gross box office revenues, a significant number of sequels are scheduled to be released in 2007. The following table shows some of the films scheduled to be released in 2007: Planned release

Film title

4 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Spider-Man 3

24 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pirates Of The Caribbean 3: At World’s End

8 June 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ocean’s Thirteen

15 June 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fantastic Four: Rise of the Silver Surfer Rush Hour 3

29 June 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shrek the Third

4 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Die Hard 4.0

13 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Harry Potter and the Order of the Phoenix

27 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Simpsons Transformers

3 August 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evan Almighty

17 August 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Bourne Ultimatum

14 September 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Atonement

5 October 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ratatouille

2 November 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Golden Age

23 November 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fred Claus

23

PART 2: BUSINESS OVERVIEW The following information should be read in conjunction with the more detailed information appearing elsewhere in this document, including the financial and other information in ‘‘Part 6: Operating and Financial Review’’ and ‘‘Part 7: Financial Information’’. The financial information included in this ‘‘Part 2: Business Overview’’ has been extracted without material adjustment from ‘‘Part 6: Operating and Financial Review’’, ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’, or has been extracted without material adjustment from the Group’s accounting records, which formed the underlying basis of the Financial information in ‘‘Part 7: Financial Information’’. 1. OVERVIEW The Group is one of the leading cinema groups in the United Kingdom in terms of the numbers of sites, screens and admissions, with a portfolio of 72 sites and 753 screens operating under the ‘‘Cineworld’’ brand. Based on information in the Dodona Report, the Group’s portfolio of 71 sites in the United Kingdom represented approximately 21.4 per cent. of the total number of screens in the United Kingdom in January 2007. The Group also operates one site in Dublin which, according to information collated by Nielsen EDI, was the second highest grossing cinema in the United Kingdom and Ireland in 2006 (after the Group’s Glasgow site). The following table sets out the top ten cinemas in the UK and Ireland by gross box office revenues in 2006: Rank

1. . 2. . 3. . 4. . 5. . 6. . 7. . 8. . 9. . 10.

. . . . . . . . . .

Cinema

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

Glasgow Dublin Bluewater Dublin Trafford Centre Sheffield Milton Keynes Crawley London (West End) London (Greenwich)

Owner

Cineworld Cineworld Showcase Vue Odeon Cineworld Cineworld Cineworld Vue Odeon

Source: Nielsen EDI

Since its foundation in 1995 by members of its current senior management, the Group has developed its business through a combination of new-builds and acquisition. All but three of the Group’s sites are ‘‘multiplex’’ cinemas with five or more screens per site. In the year ended 28 December 2006, the Group accounted for approximately 43.4 million admissions, or approximately 27.7 per cent. of the total admissions, in the United Kingdom and 1.8 million admissions in Ireland. In the year ended 28 December 2006, the Group had a turnover of £278.5 million and an EBITDA (calculated as operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of cinema sites) of £48.6 million. 2. HISTORY The Group’s origins date back to 1995 when the Cine-UK business was founded by a management team including Steve Wiener, the current Chief Executive Officer, with three other members of the current senior management, together with Anthony Bloom, the current Chairman of the Company, joining the business shortly thereafter. This management team has been responsible for the Group’s development from a start-up to one of the leading cinema groups in the United Kingdom in terms of sites, screens and admissions. The Group operates a modern estate with approximately 82 per cent. of the screens in the portfolio being built since 1995. The management has pursued a clearly defined strategy of developing or acquiring cinemas in key locations which satisfy strict criteria, including population size and proximity, demographic profile, the presence of local competition and the existence of other leisure operators.

24

Cine-UK’s first multiplex cinema was opened in Stevenage in July 1996. Between 1996 and October 2004, Cine-UK opened more multiplex cinemas than any other exhibitor in the United Kingdom, with 34 multiplex cinemas being built across the United Kingdom with an aggregate of 384 screens, an average of more than four new multiplexes per year. In October 2004, the Blackstone Shareholders, affiliates of The Blackstone Group, a private investment and advisory firm, acquired the Cine-UK business from a consortium of private equity investors, with the management team reinvesting a proportion of their interests in the business. In December 2004, the Group completed the acquisition of UGC’s cinema operations in the United Kingdom and Ireland (the ‘‘UGC Acquisition’’). At the time, UGC was the largest operator of cinemas in the United Kingdom after Odeon UCI, operating an aggregate of 408 screens in 42 cinemas. As a result of the acquisition, the Group became the second largest cinema operator in the United Kingdom both in terms of screens and cinemas. All of the UGC cinemas have now been re-branded and now operate under the Cineworld brand. For more information on the UGC Acquisition, see paragraph 18.11 of ‘‘Part 9: Additional Information’’. In connection with the UGC Acquisition, the Group agreed to dispose of six specified cinemas to address concerns raised by the Office of Fair Trading. The Group also agreed to sell a further site in connection with this transaction. For more information on these disposals, see ‘‘—Business Description—Operations— Disposals’’ and paragraph 18.10 of ‘‘Part 9: Additional Information’’. Since the UGC Acquisition, the Group has continued to invest in expanding its portfolio, opening a new eight screen multiplex in Bury St. Edmunds in November 2005 and a new 11 screen multiplex in Cheltenham in March 2006, with other new multiplexes scheduled to be opened later in 2007, and in 2008 and 2009. From the time the Group was founded in 1995, management’s philosophy has been to provide a modern, clean environment which makes cinema-going a pleasurable experience and encourages more frequent return visits. It has sought to complement this by optimising the use of auditorium space, which enables screening of a wide choice of films designed to appeal to a variety of age groups, and the provision of an enhanced range of products and services. 3. KEY STRENGTHS The Directors believe that the Group’s key strengths are that: The Group is one of the leading UK cinema groups in terms of sites, screens and admissions The Group is one of the leading cinema operators in the United Kingdom, with a current portfolio of 72 sites and 753 screens operating under the Cineworld brand. The Group accounted for approximately 27.7 per cent. of cinema admissions in the United Kingdom in 2006 (including admissions at the Disposed Sites). According to information collated by Nielsen EDI, in the 16 week period to 19 April 2007, the Group’s portfolio of 72 sites, together with its one site in Dublin, included the two top cinemas, and in 2006 included five out of the top eight cinemas, in the United Kingdom and Ireland by gross box office revenue. The Group’s 18 screen Glasgow site and 17 screen Dublin site, were the two highest grossing cinemas in the United Kingdom and Ireland in 2006 according to information collated by Nielsen EDI. The Group has a high quality young estate of multiplex cinemas in well-sited locations Of the Group’s portfolio of 753 screens, more than 98.5 per cent. are located in multiplex cinemas. The Group has the highest number of screens per cinema of the top three cinema operators in the United Kingdom with an average 10.4 screens per cinema. Between 1996 and October 2004, the Group opened more multiplex cinemas than any other exhibitor in the United Kingdom. The success of the Group’s young estate of multiplex cinemas is reflected by 93.2 per cent. of the Group’s cinema level EBITDA (i.e. before central overheads) in 2006 being generated by its cinemas built in 1996 or later (which, for these purposes, includes Dublin which originally opened in November 1995 but was significantly expanded in November 2003).

25

The Group has a proven financial track record of growth and profitability with excellent cash generation Over the past three years, the Group has demonstrated a proven track record of profitable growth, with revenues increasing from £260.4 million in 2004 to £272.7 million in 2005 and £278.5 million in 2006, whilst EBITDA margin and EBITDA have increased from 13.3 per cent. to 15.4 per cent. and 17.4 per cent. and £34.7 million to £42.1 million and £48.6 million, respectively, over the same period. The Group has also experienced strong cash flow generation from its operations over this period with cash flow from operating activities equal to 80.8 per cent. of EBITDA and cash flow before interest, tax and financing equal to 118.5 per cent. of EBITDA in the financial year ended 28 December 2006. The Group has an experienced management team The Group has a highly experienced and motivated senior management team. The Group’s Executive Directors and senior management have a detailed knowledge of the UK cinema industry, market and customer base, together with strong operating and management skills to formulate and implement the Group’s strategy. The Group’s Chief Executive Officer alone has more than 37 years’ experience in the cinema industry worldwide and has served as Chief Executive Officer since founding the business in 1995. The Group has demonstrated ability to expand the estate profitably, both organically and via acquisition The Group’s management has significant expertise and experience in expanding the Group both organically and through acquisition, whilst maintaining profitability through economies of scale and other cost savings. This is reflected by the Group’s expansion from a start-up business in 1995, through both the construction of 37 multiplex cinemas and also the integration of 42 cinemas following the UGC Acquisition. 4. BUSINESS DESCRIPTION Operations Cinema portfolio The Group is the second largest cinema operator in the United Kingdom in terms of both screens and sites with a current portfolio of an aggregate of 72 sites and 753 screens, together with one site in Dublin with 17 screens, operating under the Cineworld brand. The Group primarily operates multiplex cinemas, which typically contain between eight and 20 screens per cinema, with auditoria typically ranging from 100 to 400 seats. This emphasis on multiplex cinemas provides the Group with greater flexibility on the scheduling and licensing of films, thereby enabling the Group to attract a wide range of customers through showing a broad selection of films at convenient showing times. Many of the Group’s cinemas also feature modern facilities such as bars, a variety of food and drink retail facilities, digital surround-sound, stadium seating with integrated cup holders and retractable arm-rests and video game areas adjacent to the cinema foyer. In addition, some of the Group’s cinemas contain VIP areas, with private boxes of usually between eight and 12 seats, with their own sound system and fully licensed at seat service. These boxes are available for corporate or private hire and may be block booked, or individual seats may be reserved. The Group’s multiplex cinemas are designed to maximise profitability per square foot by optimising revenues and reducing costs. Auditorium seating capacities vary within each multiplex cinema allowing the Group to show films for a longer period on a cost efficient basis by moving films, for example, to smaller auditoria as demand decreases over time. In addition, large multiplex cinemas provide significant operating efficiencies, enabling the Group to offset costs, such as payroll, advertising and rent, against higher operating revenues. Film showing times are staggered to reduce congestion in the foyer and in parking facilities whilst optimising staffing levels and spend per person on retail sales.

26

The following table shows the composition of the Group’s cinema portfolio:

Type of cinema

Pre-sale of Disposed Sites Sites Screens % of % of Number total Number total

Multiplex . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . .

75 4

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

79

94.9 5.1

806 14

98.3 1.7

820

Post-sale of Disposed Sites Sites Screens % of % of Number total Number total

69 3

95.8 4.2

72

742 11

98.5 1.5

753

Geographical spread The Group operates cinemas in 9 out of the top 10 conurbations with more than 100,000 persons in the United Kingdom. The following table sets out the location, size and age of the Group’s current portfolio as at 16 March 2007: Location

Cheltenham . . . . . . . . . . . . . . . . . . . . . . . Bury St. Edmunds . . . . . . . . . . . . . . . . . . Cambridge . . . . . . . . . . . . . . . . . . . . . . . . London (Wandsworth) . . . . . . . . . . . . . . . Ashton-under-Lyme . . . . . . . . . . . . . . . . . Castleford . . . . . . . . . . . . . . . . . . . . . . . . Chichester . . . . . . . . . . . . . . . . . . . . . . . . Jersey (St. Helier) . . . . . . . . . . . . . . . . . . Braintree (Chapel Hill) . . . . . . . . . . . . . . Ilford . . . . . . . . . . . . . . . . . . . . . . . . . . . Yeovil . . . . . . . . . . . . . . . . . . . . . . . . . . . Bradford . . . . . . . . . . . . . . . . . . . . . . . . . Solihull . . . . . . . . . . . . . . . . . . . . . . . . . . Glasgow (Renfrew Street) . . . . . . . . . . . . . Cardiff . . . . . . . . . . . . . . . . . . . . . . . . . . Middlesbrough (Riverside Stadium) . . . . . Llandudno . . . . . . . . . . . . . . . . . . . . . . . . Falkirk . . . . . . . . . . . . . . . . . . . . . . . . . . Didsbury (Parrs Wood) . . . . . . . . . . . . . . . St. Helens . . . . . . . . . . . . . . . . . . . . . . . . Nottingham . . . . . . . . . . . . . . . . . . . . . . . Rugby . . . . . . . . . . . . . . . . . . . . . . . . . . . Burton upon Trent . . . . . . . . . . . . . . . . . . Enfield . . . . . . . . . . . . . . . . . . . . . . . . . . London (Wood Green) . . . . . . . . . . . . . . . Isle of Wight (Coppins Bridge, Newport) . . Huntingdon . . . . . . . . . . . . . . . . . . . . . . . Birmingham (Broad Street) . . . . . . . . . . . Milton Keynes . . . . . . . . . . . . . . . . . . . . . London (West India Quay, Canary Wharf) Kingston upon Hull . . . . . . . . . . . . . . . . . Weymouth . . . . . . . . . . . . . . . . . . . . . . . . Runcorn . . . . . . . . . . . . . . . . . . . . . . . . . Edinburgh . . . . . . . . . . . . . . . . . . . . . . . . Dundee . . . . . . . . . . . . . . . . . . . . . . . . . . Ashford . . . . . . . . . . . . . . . . . . . . . . . . . . Crawley . . . . . . . . . . . . . . . . . . . . . . . . . . Shrewsbury . . . . . . . . . . . . . . . . . . . . . . . Bolton . . . . . . . . . . . . . . . . . . . . . . . . . . . Sheffield . . . . . . . . . . . . . . . . . . . . . . . . . Luton . . . . . . . . . . . . . . . . . . . . . . . . . . .

Screens

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 8 9 14 14 14 10 10 12 11 10 16 9 18 15 11 9 12 11 11 14 9 9 15 12 11 10 12 16 10 9 9 9 13 9 12 15 8 15 20 11

Seats

2,024 1,470 1,700 2,801 2,813 2,754 1,932 1,783 2,263 2,236 1,895 3,285 1,856 4,232 3,183 2,519 1,615 2,314 2,826 2,022 2,658 1,598 1,620 3,392 1,932 1,872 1,793 3,343 3,416 2,238 2,019 1,626 1,591 3,014 1,830 2,103 3,307 1,425 3,476 4,906 2,146

Opening date

March 2006 November 2005 May 2004 May 2004 December 2003 October 2003 March 2003 December 2002 November 2002 May 2002 April 2002 December 2001 September 2001 September 2001 July 2001 June 2001 April 2001 April 2001 April 2001 March 2001 March 2001 February 2001 October 2000 October 2000 August 2000 August 2000 July 2000 July 2000 June 2000 June 2000 May 2000 December 1999 December 1999 November 1999 September 1999 July 1999 January 1999 December 1998 December 1998 November 1998 October 1998

Location

Screens

Chesterfield . . . . . . . . . . . . . . . . . . . . . Ipswich . . . . . . . . . . . . . . . . . . . . . . . . Bexleyheath . . . . . . . . . . . . . . . . . . . . . Bristol (Hengrove) . . . . . . . . . . . . . . . . Newport (Newport Retail Park) . . . . . . Wolverhampton . . . . . . . . . . . . . . . . . . Boldon . . . . . . . . . . . . . . . . . . . . . . . . Feltham . . . . . . . . . . . . . . . . . . . . . . . . Aberdeen . . . . . . . . . . . . . . . . . . . . . . Wakefield . . . . . . . . . . . . . . . . . . . . . . Rochester . . . . . . . . . . . . . . . . . . . . . . Stevenage . . . . . . . . . . . . . . . . . . . . . . Dublin . . . . . . . . . . . . . . . . . . . . . . . . Northampton (Sixfields Park) . . . . . . . . London (Shaftesbury Avenue) . . . . . . . . Stockport (Grand Central Leisure Park) Liverpool (Edge Lane) . . . . . . . . . . . . . Brighton (Marina Village) . . . . . . . . . . Harlow . . . . . . . . . . . . . . . . . . . . . . . . Swindon (Shawridge Leisure Park) . . . . London (Staples Corner, Hendon) . . . . Gloucester (Peel Centre) . . . . . . . . . . . Chester . . . . . . . . . . . . . . . . . . . . . . . . Bedford (Aspect Leisure Park) . . . . . . . Eastbourne (The Crumbles) . . . . . . . . . Southampton (Ocean Village) . . . . . . . . Glasgow (Parkhead) . . . . . . . . . . . . . . . London (Hammersmith) . . . . . . . . . . . . London (Fulham Road) . . . . . . . . . . . . London (Haymarket) . . . . . . . . . . . . . . London (Chelsea) . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Seats

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 11 9 14 13 14 11 14 9 9 9 16 17 9 7 10 8 8 6 7 6 6 6 6 6 5 7 4 6 3 4

1,834 2,591 1,469 2,663 2,899 2,610 2,476 2,640 2,152 1,815 1,686 3,013 3,360 2,028 1,292 1,622 2,093 2,057 1,536 1,866 1,340 1,639 1,603 1,461 1,577 1,648 1,913 1,180 1,422 845 683

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

753

157,843

Opening date

July 1998 April 1998 March 1998 December 1997 November 1997 October 1997 October 1997 July 1997 July 1997 December 1996 August 1996 July 1996 November 1995 December 1994 October 1991 September 1991 August 1991 May 1991 April 1991 March 1991 January 1991 December 1990 December 1990 December 1990 August 1990 July 1989 April 1989 September 1936 December 1930 June 1928 Around 1910

The following table sets out the location, size and age of the Group’s sites sold in 2006 as described in ‘‘—Disposals’’ below: Location

Sunderland . . . . . . . . . . . . . . . . . Bishop’s Stortford . . . . . . . . . . . . Swindon (Greenbridge Park) . . . . Birmingham (Great Park, Rubery) Wigan (Robin Park) . . . . . . . . . . . Slough (Queensmere Centre) . . . . Ealing . . . . . . . . . . . . . . . . . . . . .

Screens

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

Seats

. . . . . . .

12 6 12 13 11 10 3

2,200 1,237 2,036 2,909 2,527 1,834 1,138

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67

13,881

Total (before the sale of the Disposed Sites referred to under ‘‘—Disposals’’ below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

820

171,724

Opening date

November 2004 December 2000 November 1998 April 1998 December 1996 November 1987 April 1934

New openings and expansion of existing sites In addition to the Group’s current portfolio of 72 sites and 753 screens, as part of the Group’s strategy to grow its estate through selective new openings, expansions and acquisitions the Group has entered into legal agreements in relation to the development of five new sites with 37 new screens in the next two years. These new sites comprise a five screen multiplex in Didcot which is scheduled to open in May 2007, a five screen multiplex in Haverhill, Suffolk which is due to be completed late 2007 or early 2008, a 12 screen multiplex in High Wycombe which is due to be completed in 2008 and a 10 screen multiplex in Aberdeen and a five screen multiplex in Witney, each of which is scheduled to open in 2009. The Group intends to fund these new openings from its operating cashflows.

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In identifying key locations in which to develop or acquire new cinemas, the Group follows strict criteria, including population size and proximity, demographic profile, the proximity of local competition and the presence of other leisure operators. In evaluating whether it is viable to build a new multiplex cinema in a particular location, the Group generally seeks to identify catchment populations with a minimum of 100,000 people or more within a 20 minute drive of the proposed site. Whilst the Group has decided in specific instances that smaller new cinemas are viable in smaller catchment populations, the Group generally uses this metric as a minimum benchmark for assessing whether a particular area could support a cinema with eight screens or more. In addition, the Group seeks to identify larger urban areas which either do not currently have a multiplex cinema or which have a low number of cinema screens per person. Other factors which are taken into account include whether there are opportunities to compete with poorer quality first generation multiplexes or those which are poorly located. In addition to the developments at Didcot, Haverhill, High Wycombe, Aberdeen and Witney, the Group has identified a further 30 markets in the United Kingdom for the potential construction of new multiplex cinemas in the future and management intends to continue to expand the Group’s portfolio by up to three cinemas per year. As well as opening new sites, the Group is in the process of identifying sites in its current portfolio which are suitable for expansion, subject to receipt of any necessary planning permission. For more information on the Group’s strategy to grow the estate, see ‘‘—Growth Strategy—Continue to grow the estate through selective new openings, expansions and acquisitions’’. Disposals As part of the UGC Acquisition, the Group undertook to dispose of six cinemas to address concerns raised by the Office of Fair Trading. As a result, during the course of 2006 the Group sold its cinemas at Swindon (Greenbridge Park), Bishop’s Stortford, Sunderland, Birmingham (Great Park, Rubery), Ealing and Wigan (Robin Park). The Group also sold its site at Slough (Queensmere Centre) in 2006 as it no longer fitted with the requirements of the Group’s portfolio (these seven sites together, the ‘‘Disposed Sites’’). The sale of the Disposed Sites comprised an aggregate of 67 screens and 13,881 seats. All of the sites were sold to Cinema Holdings 2 Limited, a company controlled by Thomas Anderson, a senior member of the Ward Anderson family. Ward Anderson operates cinemas in Ireland under the Cineplex, IMC and Ominiplex brands. The consideration for these disposals was approximately £25.7 million, adjusted to reflect the value of stock and other liabilities transferred to the purchaser. On 26 May 2006, the Group completed the sale of four of the Disposed Sites, comprising the sites at Bishop’s Stortford, Ealing, Slough (Queensmere Centre) and Sunderland. The sales of the remaining three Disposed Sites were completed on 24 November 2006 (Swindon, Greenbridge Park), 1 December 2006 (Birmingham (Great Park, Rubery)) and 22 December 2006 (Wigan). Sale and leaseback On 15 March 2007, the Group completed a sale and leaseback transaction in respect of its Swindon (Shawridge Leisure Park) site and on 27 March 2007, the Group completed a sale and leaseback transaction in respect of its Southampton site, realising aggregate proceeds of approximately £12.2 million. Of these proceeds, the Group’s management intends to apply approximately £1.5 million towards refurbishing and upgrading the Swindon and Southampton sites and £8.5 million to reduce existing indebtedness under the Existing Senior Credit Agreement, with the remainder being applied to meet the costs associated with the transactions and for general corporate purposes. The assets subject to the sale and leaseback transactions will not be retained on the Group’s balance sheet. The Directors do not currently intend to enter into any other sale and leaseback transactions. Revenues The Group generates revenues from three primary sources: box offices sales; retail sales; and screen advertising. Box office The majority of the Group’s revenues are generated by box office sales which, save for the revenue generated by the Group’s Unlimited Card programme, are a function of admissions and ticket price, less VAT. Tickets may be bought either in advance or at the time of screening, through automated telephone booking lines, the Group’s website or in person at the relevant cinema.

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As a key component in the Group’s revenues, both film selection and film scheduling are actively managed to maximise admissions at each cinema throughout the year. The Group closely monitors box office admissions on a daily and a screen-by-screen basis and utilises the flexibility afforded by the large proportion of multiplex cinemas within its portfolio to ensure that each film at each cinema is being screened in an appropriately sized auditorium. Major films are shown initially in the Group’s larger auditoria on or soon after their opening and are moved over time to auditoria with fewer seats to reflect any reduction in demand. In addition, the Group seeks to increase admissions during periods outside of the peak weekend hours through a series of promotions at reduced admission prices. For more information on these marketing initiatives, see ‘‘—Marketing’’ below. The Group also seeks to maximise its box office admissions through selecting films aimed specifically at a cinema’s particular relevant catchment population by reflecting local preferences. For example, at its Feltham, Bradford and Ilford multiplexes, the Group screens a relatively high proportion of films targeted at the British-Asian audience and, based on information collated by Nielsen EDI, the Group accounts for approximately half of the Bollywood box office revenue in the United Kingdom tracked by Nielsen EDI. Following the UGC Acquisition, the Group adopted a single Group-wide website which allows customers to book tickets online, which was not previously possible for all the Group’s sites. Retail sales In addition to box office admissions revenues, the Group generates revenues from retail sales of confectionary items (such as ice-cream, sweets and chocolate), food (such as hot dogs and popcorn) and drinks (such as soft drinks, coffee and alcoholic drinks sold in bar areas) through either self-service or customer service sites. The Group continually seeks to increase retail sales and margins by optimising product mix. For example, the Group currently offers premium ice cream products in 26 cinemas and intends to expand the number of cinemas in which it offers these types of products to at least a further ten locations during the course of 2007, with a view to increasing retail sales per person. The Group also periodically introduces special promotions, incentivising employees by linking remuneration to retail sales of specific products and offering customers combinations of specific confectionery, food and drink items at promotional prices. The Group’s multiplex cinemas are designed to maximise profitability by optimising revenues from both box office admissions and retail sales. The scheduling flexibility afforded by having a large number of screens permits the staggering of admission times. This minimises congestion in the foyer and encourages customers to take advantage of the confectionary, food and drink retail facilities and video games on offer, whilst optimising staffing levels. The Group enters into supply contracts with food and drink suppliers pursuant to which suppliers sell products to the Group for onward sale to customers. The terms of these contracts vary between one and five years, some of which contain provision for volume based rebates. Subsequent to the UGC Acquisition, the Group has achieved considerable synergies through re-negotiating several of its supply contracts on a Group-wide basis, including its contracts for soft drinks, frozen goods, popcorn, confectionary, hot dogs and nachos. Advertising Screen advertising accounts for a significant proportion of the revenues and profits of the Group. Following the Group’s acquisition of UGC, the Group entered into a single long-term screen advertising contract with Carlton Screen Advertising Limited granting Carlton exclusive rights to the provision of screen advertising across the expanded portfolio. The contract grants Carlton rights in respect of both on-screen advertising and film marketing, including film trailers, film posters, point of sale materials, T-shirts and other related merchandise. Under the contract, the Group receives a minimum guaranteed payment every six months which is adjusted in the event of the addition of new sites or the disposal of existing sites or in the event of a significant decline in admissions. The Group participates in the industry-wide ‘‘Orange Wednesday’’ promotion pursuant to which Orange mobile phone customers are able to purchase two cinema tickets for the price of one every Wednesday. The Group also participates in an industry-wide arrangement pursuant to which the final minute of on-screen advertising prior to the commencement of all films shown at the Group’s portfolio (known as the

30

‘‘golden minute’’) has been sold to Orange. The Group also generates advertising revenues from the sale of advertising space in its Unlimited magazine to distributors. Other revenues The Group also derives revenues from booking fees, automated teller machines and video games machines located in the foyer and bar areas of its multiplex cinemas and the cost of calls to its telephone booking lines. In two sites, excess space is sub-let to third party leisure operators. In addition, the Group has sub-let space at its Wakefield site to two restaurant operators. Digital projectors Pursuant to a National Lottery funded scheme, the UK Film Council is funding the installation of a network of digital projectors in 210 cinema sites around the United Kingdom. Under this scheme, the UK Film Council has agreed to provide the Group with 72 digital projectors with an estimated value of approximately £5 million, comprising approximately 33 per cent. of the total UK Film Council funding, in return for agreeing to devote a specified number of screenings per year to specialised content approved by the UK Film Council. All but four of these digital projectors have been installed at the Group’s sites to date. Provided it meets these specified targets for specialised content, the Group has discretion to screen other films of its choice for the reminder of the year. With all of the major film distributors in the United Kingdom committed to providing digital prints of major releases upon request, as the industry evolves, the Directors hope to be able to offer audiences an enhanced visual experience whilst benefiting from the reduced distribution costs associated with distribution of digital prints. Film Buying Relationship with film distributors The major film distributors in the United Kingdom are Buena Vista International (UK), Entertainment Film Distributors, Sony Pictures Releasing, Twentieth Century Fox Film Co., United International Pictures (UK) and Warner Bros. Distributors. In January 2007, United International Pictures (UK) split into Universal Pictures International and Paramount Pictures International. According to the Dodona Report, these six distributors (before the split of United International Pictures (UK)) accounted for approximately 83.08 per cent. of box office revenues in the United Kingdom in 2006, with the remaining 16.92 per cent. of box office revenues deriving from films provided by a variety of distributors. Whilst there are a limited number of distributors, no single distributor dominates the market. The Group ‘‘buys’’ films from each of the major distributors and the Group’s management believes that its relationships with these distributors are good. From year-to-year, the revenues attributable to individual distributors often vary widely, depending on the number and quality of the films that each one distributes. Negotiation of film licences Through its film buying department, the Group ‘‘buys’’ films on a film-by-film basis and cinema-by-cinema basis by negotiating directly with film distributors. Whilst it is commonly referred to as film ‘‘buying’’, the Group in fact agrees a licence with the distributor to use the film for a specified period for a specific use. Prior to entering into negotiations with a distributor, the Group’s film buying department evaluates the prospects of forthcoming films and, in particular, estimates the likely box office admissions which any particular film will generate. Factors which are taken into account include the cast, the director, the plot, the performance of any previous films in the series (if the film is a sequel) or the performance of films of a similar genre or subject matter, reviews of the film from the trade and broadsheet press, the performance of the film in any countries where it has already opened and the expected rating from the British Board of Film Classification. The success of the Group’s film buying strategy is largely dependent on assessing accurately the preferences of the target catchment population for each of the Group’s cinemas. The information collated by the Group’s information technology systems on box office admissions on a cinema by cinema basis assists in the film buying process. The film buying process is often negotiated within the framework of standard terms and conditions published by the Film Distribution Association Limited, a trade body representing theatrical film distributors in the United Kingdom. These standard terms and conditions provide that films are either licensed on a fixed fee basis or by the payment of a percentage of the box office receipts which a film

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generates on any given screen. The percentage of the box office receipts is generally negotiated after deduction of a ‘‘house allowance’’ which loosely represents the estimated operating expenses per seat associated with a particular cinema, taking into account rent, staffing and other operating costs, subject to the distributor receiving a minimum amount of the box office receipts. The ‘‘house allowance’’ per seat associated with a particular cinema is negotiated with the distributors prior to, or shortly after, the opening of the cinema, although it may be re-negotiated from time to time. The percentage of box office receipts paid to distributors varies depending on a number of factors, including the estimated box office takings, the length of time the film has been showing, the identity of the studio which has produced the film, considerations relevant to each distributor, and other factors specific to each individual film. Marketing Marketing and advertising for new film releases is typically organised by film distributors who orchestrate and finance multimedia advertising campaigns for major film releases. Marketing strategy Whilst the Group’s box office revenues to a large extent are dependent on the level of marketing and advertising undertaken for a new film release, the Group actively seeks to increase market awareness of its cinemas, film selections and screening times through media advertising generally in the local press. Much of the Group’s expenditure on promotion through these means is undertaken at a local level. The Group also uses its internet site as a means of raising brand awareness and, following the UGC Acquisition, the Group adopted a single Group-wide website which not only provides information on current and forthcoming film releases and screening times, but also allows customers to book tickets online, which was not previously possible for all of the Group’s sites. The Group’s Unlimited magazine, which has an estimated circulation of approximately 500,000 and is available free of charge in the foyers of the Group’s cinemas, is another marketing tool used to increase market awareness of forthcoming programming and of the Cineworld brand. The Group’s current marketing strategy is to retain and develop admissions from its existing customers, to attract new customers, to attract and retain admissions from people who usually visit cinemas operated by one of the Group’s competitors, to build brand awareness and to improve the quality of its relationship with customers in order to increase customer loyalty. The Group’s cinema managers are an important part of its marketing strategy. The Group’s management believes that building customer loyalty in local markets is a major factor in increasing admissions and growing revenues, and the Group seeks to encourage the marketing and business skills of individual cinema managers and his or her team in order to maximise the potential of a local market. Marketing initiatives To achieve these objectives, the Group conducts a number of marketing efforts which are aimed at increasing box office admissions outside of the peak weekend periods. These include: ɀ

Unlimited Card The Unlimited Card is marketed at a majority of the Group’s cinemas and permits customers unlimited admissions to the Group’s cinemas in the United Kingdom and Ireland at any time for a fixed monthly or annual subscription, with the average Unlimited Card holder viewing significantly more films per year than the average person. On average, the Group has in excess of 150,000 cardholders at any one time. The standard monthly fee of £10.99 permits access to all but the Group’s portfolio in central London, which can be included within the scope of the Unlimited Card through the payment of an additional £3.00 per month. In addition to being given unlimited access, cardholders receive certain other benefits, including receiving a fortnightly newsletter by email including details of current screenings and offers and being offered invitations to advance screenings and special events. In April 2006, the Group commenced marketing the Unlimited Card at 13 further cinemas within its portfolio on a pilot basis with a view to assessing the commercial attractiveness of rolling out the marketing of the Unlimited Card across the Group’s entire portfolio. The subscription monies received from the programme provide the Group with a steady revenue stream throughout the course of the year and helps smooth the effect of the seasonality of box office

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admissions resulting from the timing of releases of films by the major distributors. The Unlimited Card programme also has the effect of encouraging admissions during off-peak periods as it is generally not possible to make advance bookings with an Unlimited Card as card holders are required to purchase their tickets on the same day as the performance. ɀ

Monday Classics Under the Group’s ‘‘Monday Classics’’ programme, many of the Group’s cinemas offer weekly screenings at 1.00 pm each Monday of film classics aimed at encouraging admissions in particular from senior citizens. Admission prices are reduced to £2.50 and selected free refreshments are provided.

ɀ

Bargain Tuesday Since 1995, the Group has offered a reduced admission price for one day a week at selected sites, including all of its legacy Cine-UK sites, which permits customers to see the current programmes at a discounted price. This initiative has helped to increase admissions outside of the peak weekend periods.

ɀ

Wednesday Specials Launched in 1998, many of the Group’s cinemas offer a ‘‘Wednesday Specials’’ programme which gives customers the chance to watch ‘‘blockbuster’’ films they may have missed the first time around or art house films that may not have received a wide release. The films shown as part of the ‘‘Wednesday Specials’’ programme are specifically chosen on a cinema-by-cinema basis to maximise the appeal to the relevant catchment population and reflect local preferences.

ɀ

Movies for Juniors To encourage children to enjoy the cinema experience offered by the Group at an early age, each Saturday morning 63 out of the Group’s 72 cinemas offer admission, together with organised activities and games, for a reduced admission fee of £1. The reduced admission price applies to both the child and the accompanying adult.

ɀ

Film Festivals The Group regularly organises film festivals at selected cinemas targeted at raising the Group’s awareness in the surrounding catchment population, as well as promoting films in general, including the Edinburgh and Dublin film festivals.

Property Property portfolio The Group currently operates 72 sites, of which 69 are multiplex sites with five screens or more. All of these sites are held under leases. Of these, five are held under leases with over 35 years remaining and the remaining 67 leased sites are held on shorter-term leases of typically 25 to 35 years at inception, and of these one lease (in respect of the Group’s site at London (Hammersmith)) terminates before 2011. The Group leases its principal executive office, which is located at Power Road Studios, Power Road, Chiswick, London W4 5PY. The Group is also the tenant of three non-operational properties, including its previous head office at Chapter House, Chapter Street, London SW1 and sites in Doncaster and Salford Quays. The Company is currently actively seeking either to dispose of the relevant lease or to sub-let the relevant premises to mitigate its tenant liabilities and recently completed a sub-let of part of the previous head office premises at Chapter House, Chapter Street, London SW1 for a term expiring at the same time as the head lease (less two months). In 2006, rental costs on the Group’s leased cinema portfolio were approximately £41.1 million. The Group also owns two non-operational freehold properties. Construction process Once the site for a new multiplex cinema has been identified, whilst the Group’s Chief Executive Officer is typically responsible for negotiating the commercial terms of new leases, the Group’s in-house construction department is responsible for overseeing the construction process from agreeing the scope of the construction of the shell of the cinema by the developer through to fitting-out the interior of the cinema.

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This department is able to draw on an in-house team of experienced professionals, including an engineer and an architect, enabling the Group to limit the need to instruct outside consultants. Leases also include requirements for the number and size of the various auditoria and the size and positioning of the foyer area. Once the shell of the cinema has been completed by the developer, the Group takes responsibility for fitting out the interior of the cinema, with fixtures, fittings and equipment being contracted out to a limited number of contractors who specialise in fitting out cinemas pursuant to detailed design contracts specifying the precise scope of work. Maintenance As part of the Group’s philosophy of providing a modern, clean environment, management aims to ensure that the highest standards of cleanliness are met throughout the Group’s portfolio, with all screens being cleaned by cinema staff after every screening and by professional cleaners once a day. Management believes that the Group’s facilities meet its present needs and that its portfolio is generally well maintained. At present, the Group’s construction department is responsible for maintenance of the legacy UGC sites, whilst the legacy Cine-UK sites are trialling a maintenance arrangement with a facility management company. Refurbishment The Group has a rolling programme of refurbishment throughout its portfolio, typically on a five-year cycle, depending on the age and size of cinemas in question, which is managed in-house by the Group’s construction department. In addition, the Group periodically re-seats and/or upgrades selected cinemas within its portfolio. For example, in 2006 the Group re-seated all of its screens at its Chelsea, Eastbourne, Gloucester, Nottingham and Northampton cinemas. Refurbishment is generally planned with the intention that whilst discrete sections of a cinema may be closed whilst work is undertaken during off-peak periods, no site will be entirely closed to the public at any given time. Environmental issues Between August 2003 and December 2005, European Asbestos Services, an independent firm of asbestos specialists, carried out eight separate surveys of the Group’s properties. The surveys were undertaken in accordance with Health and Safety Executive guidance and had regard to the requirements of the new asbestos regulations. The Group has completed all of the remedial work recommended by European Asbestos Services and all management actions have been complied with. Information Systems The Group has a variety of management information systems designed to ensure that management are able to monitor the operation and financial performance of all of the Group’s portfolio of cinemas on a daily basis. The Group’s key information technology applications include systems which provide customers with information about current films, such as the Group’s website and telephone booking service, systems in individual cinemas which provide management information on box office and retail sales and centralised systems which provide management information across the Group’s entire portfolio and enable interaction with individual cinemas. The combination of these systems enables management to monitor admissions on a screen by screen basis throughout the Group’s portfolio. This information is used for, among other things, maximising revenues per screen and per film, and for negotiations between the Group’s film booking department and film distributors. The Group manages and supports its information and technology requirements through a dedicated in-house team of eight information technology professionals and through utilising third party partners and contractors to provide additional support and capacity. The Group has recently conducted an extensive review of its business and information technology systems which led to the harmonisation and rationalisation of several systems, including the telephone booking systems. The Group has recently introduced asymmetric digital subscriber line technology and scanning technology and is also currently upgrading its credit card authorisation facilities and harmonising payroll and human resources systems.

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Insurance The Group maintains insurance of such types and in such amounts as the Group’s management believes are commercially reasonable and available to operators in the cinema industry. The main liability exposures faced in relation to the Group’s activities are in the area of personal injury for customers and employees, as well as property damage and business interruption. The Group maintains insurance policies in respect of property damage, business interruption, terrorism, combined liability and public liability and, save where it is the responsibility of the landlord under the relevant lease, property damage and terrorism, among others. Intellectual Property The Group’s operations use the name ‘‘Cineworld’’ and the related Cineworld logo for each of its cinemas. The Group has registered ‘‘Cineworld’’ in conjunction with certain logos as UK trademarks, and ‘‘Cineworld’’ in conjunction with its star logo as an EU trademark. It has also registered the domain names of ‘‘cineworld.co.uk’’ and ‘‘ugccinemas.co.uk’’, although the ‘‘ugccinemas.co.uk’’ website was replaced by the single ‘‘cineworld.co.uk’’ in the second quarter of 2006. Employees The average number of the Group’s employees for 2004, 2005 and 2006 were 4,632, 4,623 and 4,366, respectively. During 2006 approximately 97.3 per cent. of the Group’s employees comprised staff at its cinemas and approximately 2.7 per cent. comprised head-office staff, all of whom were located in the United Kingdom and Ireland. As part of the integration process following the UGC Acquisition, the Group made 19 head-office staff redundant during the course of 2005. A significant proportion of the Group’s employees are employed on a part-time basis, which is typical for the major cinema operators in the United Kingdom and other operators in the leisure industry. The Group’s management believes that attracting, motivating and retaining employees of the right calibre is vital to the continued success of the Group and, whilst management believes that the Group has little difficulty in attracting sufficient employees of the right calibre for its business, the Group runs several training schemes which are aimed at improving levels of customer service and impacting positively on the performance and retention of employees. The Group has developed standard operating procedures which apply across its portfolio to ensure that customers receive a high level of care in all of the Group’s cinemas and training in relation to these procedures is conducted at a local level by individual cinema managers. The Group also seeks to incentivise and reward employees through the payment of periodic performance related bonuses. As part of its incentive arrangements for executives and employees, the Board will adopt the Cineworld Group 2007 Sharesave Scheme and the Cineworld Group 2007 Performance Share Plan (the ‘‘Employee Share Schemes’’). For more information on the Employee Share Schemes, see paragraph 8 of ‘‘Part 9: Additional Information’’. In order to optimise weekly staffing levels during periods of low, medium and high admissions, since 2006 the Group has moved from a three-tiered staff rota to a five-tiered staff rota. Certain projectionists are members of the Broadcasting Entertainment Cinematograph and Theatre Union. The Group’s management believes that its relations with employees and the unions with which certain of its employees are affiliated are good. None of the Group’s cinemas has suffered a material work stoppage or strike since the establishment of the Cine-UK business in 1995. 5. GROWTH STRATEGY The Group intends to consolidate its position as one of the leading cinema groups in the United Kingdom in terms of sites, screens and admissions and to improve its operating margins. In order to achieve this, the Group intends to: Grow box office revenues In order to continue to grow revenues from box office admissions, the Group’s management intends to position the Group to benefit from what they believe will be attractive forthcoming films in 2007 and thereafter. With a view to maximising capacity utilisation rates, the Group will continue to focus on continually adjusting its programming mix on a cinema-by-cinema basis. The Group also intends to optimise its pricing strategy through the targeted expansion of marketing initiatives, such as the Unlimited

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Card, to selected cinemas. In addition, the Group’s management intends to continue to expand the Group’s market leading position in the Bollywood market which, according to information collated by Nielsen EDI, currently accounts for approximately half of the Bollywood box office revenue in the United Kingdom tracked by Nielsen EDI, and ensure appropriate focus is placed on other niche markets in areas which they consider appropriate. The Group’s management also believes that the results of the Group’s ongoing maintenance and refurbishment programme will continue to provide customers with an attractive and comfortable environment and encourage growth in box office revenues. Increase retail spend per customer As part of the strategy of improving the customer experience and growing non-box office revenues, the Group intends to replace certain of its self-service retail facilities with customer service facilities and continue to improve the selection of products available, thereby encouraging increased retail spend per customer. In addition, the Group intends to optimise programme scheduling across its portfolio so as to reduce congestion in the foyer area further during peak periods and encourage retail sales. Increase other revenue streams The Group intends to continue to focus on increasing revenues from sources other than box office revenues and retail spend. For example, in 2006 the Group entered into a new contract for the provision of video games, such as Trivial Pursuit, in the bar and foyer areas and installed automated teller machines at some of its cinemas. The Group also intends to identify opportunities to sub-let space at its multiplex cinemas to third party retailers. In addition, with 68 digital projectors installed across the Group’s sites to date and a further four digital projectors scheduled to be installed, the Group’s management believes that the Group is well placed to offer audiences an enhanced visual and audio experience which may drive further box office growth, whilst benefiting from any reduced costs allocated with the distribution of digital prints. Continue to grow the estate through selective new openings, expansions and acquisitions The Group intends to pursue selective cinema and screen expansion and acquisition opportunities that meet its strategic and financial return criteria. The Group entered into legal agreements in relation to the development of five new multiplex cinemas which are all scheduled to be in operation by the end of 2009, representing an aggregate of 37 screens. The Group has identified a further 30 markets in the United Kingdom for the possible construction of new multiplex cinemas in the future, and intends to continue to expand the Group’s portfolio by up to three cinemas per year. The Group’s management also intends to enhance the Group’s operations by selectively renovating, upgrading and expanding existing properties to ensure high standards of quality throughout the Group’s cinemas and optimise the Group’s local competitive position. In addition, the Group intends to pursue selective acquisitions to the extent that suitable existing sites are available for sale from either its competitors or other small cinema operators. 6. CURRENT TRADING AND PROSPECTS During the period from 29 December 2006 to 19 April 2007, according to information collated by Nielsen EDI, gross box office in the United Kingdom and Ireland was approximately £269.1 million, compared to approximately £255.9 million during the same period in 2006. Of this gross box office, according to information collated by Nielsen EDI, the market share of the Group’s current portfolio increased from 23.04 per cent. for the period from 30 December 2005 to 20 April 2006 to 23.75 per cent. for the period from 29 December 2006 to 19 April 2007. During the period from 29 December 2006 to 19 April 2007, the Group’s portfolio of cinemas included the top two cinemas and five out of the top eight cinemas in the United Kingdom and Ireland by gross box office revenues according to information collated by Nielsen EDI. During the period from 29 December 2006 to 19 April 2007, the average ticket price per admission (net of VAT) at the Group’s sites increased to £4.05, compared with £3.87 in the same period in 2006 and £4.01 for the year ended 28 December 2006, whilst the average retail spend per head (net of VAT) increased to £1.57, compared with £1.55 for the same period in 2006. The increases in average ticket price per admission and average retail spend per head were in line with the Directors’ expectations. Since 28 December 2006, the Group’s other revenues, including advertising revenues under the arrangement with Carlton Screen Advertising, have grown in line with management’s expectations.

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Since 28 December 2006, the overall level of the Group’s revenues and growth have continued to develop as expected. Overall, with the major Hollywood films for 2007 including Pirates of the Caribbean: At World’s End, Spider-man 3, Shrek the Third and Harry Potter and the Order of the Phoenix, the outlook for the Group’s trading for 2007 remains in line with the Directors’ expectations, and the Directors are confident of the Group’s prospects for the year. 7. DIVIDENDS AND DIVIDEND POLICY Following Admission, the Directors intend to adopt a dividend policy which will take into account the profitability of the Group’s business and underlying growth, as well as its capital requirements and cash flows, whilst maintaining an appropriate level of dividend cover. In the absence of unforeseen circumstances, the Directors intend to recommend, on an ongoing basis from 2008, an annual dividend equal to a target pay out ratio of 60 per cent. of the net income before exceptional items for each financial year, with the interim and final dividend being in each case in the approximate proportions of one third to two thirds respectively. In respect of the financial year ending 27 December 2007, in the absence of unforeseen circumstances and subject to the availability of sufficient distributable reserves, the Directors expect to follow the policy set out above. The Directors expect to declare an interim dividend for the period ending 28 June 2007, which is expected to be payable in October 2007. This interim dividend is expected to reflect one third of the anticipated dividend for the 52 week period ending 27 December 2007, which will be calculated as if the Company’s capital structure immediately following the Admission had been in place for the whole period. The Directors may revisit the Company’s dividend policy from time to time.

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PART 3: DIRECTORS, SENIOR MANAGERS AND CORPORATE GOVERNANCE 1.

DIRECTORS

The Company’s Directors are: Name

Age

Anthony Herbert Bloom . . . . . . .

68

Lawrence Hall Guffey . . . . . . . .

39

Stephen Mark Wiener . . . . . . . . Richard David Jones . . . . . . . . .

55 45

Thomas Berard McGrath . . . . . . Matthew David Tooth . . . . . . . . . David Ossian Maloney . . . . . . . .

51 31 51

Peter Wodehouse Williams . . . . .

53

Position

Non-Executive Director and Chairman Non-Executive Director and Deputy Chairman Chief Executive Officer Chief Financial Officer and Company Secretary Non-Executive Director Non-Executive Director Non-Executive Director and Senior Independent Director Non-Executive Director

Date appointed to Board

Notice period

7 October 2004

1 month

21 December 2004

1 month

7 October 2004 28 March 2006

12 months 12 months

24 August 2004 24 August 2004 22 May 2006

1 month 1 month 1 month

22 May 2006

1 month

The business address of each of the Directors is Power Road Studios, Power Road, Chiswick, London W4 5PY. The management expertise and experience of each of the Directors is set out below: Anthony Herbert Bloom, Chairman Anthony Bloom joined the Board in October 2004 as Chairman and has served as chairman of Cine-UK since the business was founded in 1995. He was previously chairman and chief executive of The Premier Group Ltd (South Africa) and a director of Barclays Bank (South Africa), Legal and General Assurance (South Africa), Liberty Life Association of Africa Limited (South Africa), South African Breweries Limited (South Africa), CNA-Gallo Ltd (South Africa), Merck-Generics BV, Caminus Corp, AXS-One Inc, and Cherokee International Corporation (USA). In addition, Mr. Bloom has served as deputy chairman of Sketchley plc in the United Kingdom. He is currently director of Rio Narcea Gold Mines, Orthoworld plc, Cortiva Group and Xantrex Technology Inc. (USA). Mr. Bloom holds Bachelor of Commerce and Bachelor of Law degrees from the University of Witwatersrand in South Africa and a Masters of Law degree from Harvard Law School. Mr. Bloom was a Sloan Fellow at the Stanford Graduate School of Business. In 2002, Mr. Bloom was awarded the degree of Doctor of Law (H.C.) by the University of Witwatersrand. Lawrence Hall Guffey, Non-Executive Director and Deputy Chairman Lawrence Guffey joined the Board in December 2004. Mr. Guffey is a Senior Managing Director at The Blackstone Group and leads Blackstone’s media and communications investment activities. Mr. Guffey has led or co-led Blackstone’s efforts in virtually all media and communications-related investments and has day-to-day responsibility for management of Blackstone Communications Advisors. Before joining Blackstone, Mr. Guffey worked in the Acquisitions Group at Trammell Crow Ventures, the principal investment arm of Trammell Crow Company. He currently serves as a director of Axtel and TDC, and is a director of Deutsche Telekom. He also serves on the board of The Paris Review, the literary foundation. Stephen Mark Wiener, Chief Executive Officer Steve Wiener joined the Board in October 2004 and has served as the chief executive of Cine-UK since the business was founded in 1995. Mr. Wiener has 37 years’ experience in the cinema industry having begun his career in the United States in 1970 with ABC Florida State Theatres while a full time student, rising from usher to Cinema Manager in under one year. He remained in the cinema industry in a variety of roles throughout the U.S., culminating in New York City as a Vice President for Cineplex Odeon. While in this role he was approached by Warner Bros. and he moved to Europe in 1991 where he became Managing Director of Warner Bros. Theatres with responsibility for cinema operations in the UK, Germany, Holland, Denmark, Spain and Portugal. After three years in this position he left to found Cine-UK in 1995, with the

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first Cine-UK cinema opening in July 1996. He developed the business into a chain of 34 cinemas with a 10 per cent. share of the United Kingdom market before it was acquired by the Blackstone Shareholders in October 2004. Shortly after the UGC Acquisition he was appointed chief executive officer of the combined group. Richard David Jones, Chief Financial Officer Richard Jones joined the Board on 28 March 2006. Mr. Jones joined Touche Ross in 1984 where he qualified as a chartered accountant and worked in the audit and corporate finance teams. In 1993, Mr. Jones joined the corporate finance division at Clark Whitehill and in November 1995 he joined the team at Cine-UK. He was appointed Group chief financial officer in 2005. He has responsibility for all aspects of finance for the Group including accounting, taxation, treasury and business planning. He is also responsible for human resources. Mr. Jones holds a degree in Mathematics from the University of Warwick. Thomas Berard McGrath, Non-Executive Director Thomas McGrath joined the Board in August 2004. Previously he was Chief Operating Officer of Viacom Entertainment Group and President of Time Warner International Broadcasting, prior to which he worked for Columbia Pictures. Mr. McGrath is currently a Senior Managing Director of Crossroads Media Inc. and serves on the board of directors of BUF Music, Screen Capital International and Universal Studios, Orlando. Mr. McGrath holds an AB and an MBA from Harvard University. Matthew David Tooth, Non-Executive Director Matthew Tooth joined the Board in August 2004. Mr. Tooth is a Principal in the Private Equity group at The Blackstone Group. Prior to joining Blackstone in 2003, Mr. Tooth worked as an investment banker at CSFB. David Ossian Maloney, Non-Executive Director David Maloney joined the Board on 22 May 2006. Mr. Maloney is currently the Chairman of Hoseasons Holdings Ltd and a non-executive director of Carillion plc., Micro Focus International plc and Ludorum plc. Previously, Mr. Maloney was a director of Virgin Mobile Holdings (UK) plc and he held senior positions in a number of service sector companies, including Chief Financial Officer for Le Meridien Hotels & Resorts and Chief Financial Officer for Thomson Travel Group plc. He also spent 12 years working with Avis Europe plc latterly as group Finance Director, overseeing the group’s flotation on the London Stock Exchange in 1997, and as Managing Director of the group’s Spanish subsidiary. Mr. Maloney spent the early part of his career with Paramount Pictures Corporation and Mobil Oil Corporation. Mr. Maloney holds a degree in Economics from Heriot Watt University, Edinburgh and is a fellow of the Chartered Institute of Management Accountants. Peter Wodehouse Williams, Non-Executive Director Peter Williams joined the Board on 22 May 2006. Mr. Williams is currently Chief Executive Officer of Alpha Airports Group plc. Previously Mr. Williams was Chief Executive of Selfridges plc. Prior to this Mr. Williams acted as Finance Director at Selfridges plc for over ten years. Mr. Williams has also held senior finance positions in Freemans plc, Bandive Limited and Aiwa Limited. Mr. Williams is also an nonexecutive director of Asos plc, GCap Media plc and Pratt & Leslie Jones Limited. Mr. Williams has a degree in mathematics from Bristol University and is a chartered accountant. 2.

SENIOR MANAGEMENT

In addition to the executive management on the Board of the Company, the following senior managers (the ‘‘Senior Managers’’) are considered relevant to establishing that the Company has the appropriate expertise and experience for the management of its business: Name

Al Alvarez . . . . . . . . . . . . . . . . . . . . . . . Paul Stefka . . . . . . . . . . . . . . . . . . . . . . .

Age

50 61

Position

Vice President of Operations Vice President of Design and Construction

The business address of each of the Senior Managers is Power Road Studios, Power Road, Chiswick, London W4 5PY.

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Al Alvarez, Vice President of Operations Al Alvarez has over 30 years experience in the cinema industry, mostly in the United States, including roles for AMC Theatres and Cineplex Odeon in New York where he was regional manager until he moved to the United Kingdom to form part of the original management team of Cine-UK. Al’s Operations department now includes a framework of over 500 managers who oversee the training, customer service, human resources, maintenance, retail facilities and daily operations. Paul Stefka, Vice President of Design and Construction Paul Stefka is a qualified Chartered Engineer and has over 30 years of construction experience. He joined Warner Brothers Theatres in 1988 as director, with responsibility for the planning of their expansion programme in the United Kingdom and Europe. Paul joined Cine-UK as part of the original management team and was responsible for the completion of design and construction phases of 36 multiplex cinemas. Since April 2005, Paul has also been responsible for managing the delivery of a quality repair and maintenance service to the Group’s existing portfolio of sites as well as working on improvements and alterations. 3.

COMPENSATION

In the financial year ended 28 December 2006, the aggregate total remuneration paid (including contingent or deferred compensation) and benefits in kind granted (under any description whatsoever) to each of the Directors and Senior Managers by members of the Group was approximately £1.5 million. Such remuneration was paid as follows: Fees/Basic Salary

Name of Director

Directors Anthony Herbert Bloom . . . Lawrence Hall Guffey . . . . . Stephen Mark Wiener . . . . . Richard David Jones . . . . . . Thomas Berard McGrath . . Matthew David Tooth . . . . . David Ossian Maloney(1) . . . Peter Wodehouse Williams(1)

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

Bonus

Benefits

Total

. . . . . . . .

43,945 — 306,452 148,118 29,918 — 18,082 18,082

— — 183,871 88,871 — — — —

— — 50,295 32,445 — — — —

43,945 — 540,618 269,434 29,918 — 18,082 18,082

Former Directors Walid Nabil Kamhawi(2) . . . . . . . . . . . . . . . . . . . David Marks(3) . . . . . . . . . . . . . . . . . . . . . . . . .

— —

— —

— —

— —

Senior Managers Al Alvarez . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paul Stefka . . . . . . . . . . . . . . . . . . . . . . . . . . . .

144,850 156,963

86,910 94,178

31,866 33,403

263,626 284,544

(1) Messrs. Maloney and Williams were appointed as Directors on 22 May 2006. (2) Mr. Kamhawi resigned from his position on 22 May 2006. (3) Mr. Marks resigned from his position on 22 May 2006.

The total amount set aside or accrued by the Group to provide pension, retirement or other benefits to the Directors and Senior Managers in 2007 is £2.4 million. 4.

CORPORATE GOVERNANCE

The Combined Code on Corporate Goverance published in June 2006 by the Financial Reporting Council (the ‘‘Combined Code’’) recommends that, in the case of smaller companies incorporated in England and Wales which are below the FTSE 350, at least two non-executive members of the board of directors should be independent in character and judgment and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgment. The Directors expect the Company to be classified as a smaller company for the purposes of the Combined Code and, accordingly, consider that full compliance with the Combined Code requires the Company to comply with the Combined Code as it applies to smaller companies.

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The Combined Code also recommends that the Board should appoint one of the independent non-executive directors as senior independent director. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of chairman, chief executive or finance director has failed to resolve or for which contact is inappropriate. The Board has appointed David Maloney, a Non-Executive Director, as senior independent director conditional upon Admission. On Admission, the Board will be composed of eight members, consisting of two Executive Directors and six Non-Executive Directors, three of whom are independent. Accordingly, no individual or group of individuals dominates the Board’s decision-taking. Anthony Herbert Bloom, a Non-Executive Director and the Chairman of the Company, is not deemed by the Board to be independent under the Combined Code as at the time of his appointment as Chairman of the Company he also served as chairman on the board of another company within the Group and had held this position since the foundation of the Cine-UK business in 1995. In addition, at the time of Mr. Bloom’s original appointment as chairman of the Cine-UK business in 1995, he was a representative of one of Cine-UK’s significant shareholders at that time. Lawrence Hall Guffey, a Non-Executive Director and Deputy Chairman of the Company and Matthew David Tooth, a Non-Executive Director, are deemed by the Board not to be independent under the Combined Code by virtue of their positions at The Blackstone Group, with whom the Blackstone Shareholders are affiliated. The Blackstone Shareholders are significant shareholders in the Company. Thomas Berard McGrath, David Ossian Maloney and Peter Wodehouse Williams are deemed by the Board to be independent under the Combined Code. Accordingly, on Admission the Company will comply with the provisions of the Combined Code applicable to smaller companies that at least two members of the Board should be independent non-executive directors. The Board intends to comply fully with the requirements of the Combined Code applicable to smaller companies and will report to shareholders on compliance with the Combined Code in accordance with the Listing Rules. The Board has established Nomination, Remuneration and Audit Committees, with formally delegated duties and responsibilities with written terms of references. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises. Nomination Committee The Nomination Committee assists the Board in discharging its responsibilities relating to the composition of the Board. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience on the Board, the size, structure and composition of the Board, retirements and appointments of additional and replacement directors and will make appropriate recommendations to the Board on such matters. The Combined Code provides that a majority of the members of the Nomination Committee should be independent non-executive directors. The Company’s Nomination Committee is composed of three members, all of whom are independent Non-Executive Directors (namely Thomas Berard McGrath, David Ossian Maloney and Peter Wodehouse Williams). The Chairman of the Nomination Committee is Thomas Berard McGrath. The Company therefore considers that it complies with the Combined Code recommendations regarding the composition of the Nomination Committee. The Nomination Committee will meet formally when appropriate. Remuneration Committee The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the Company’s policy on executive remuneration, determining the individual remuneration and benefits package of each of the executive directors and recommending and monitoring the remuneration of senior management below Board level. The Combined Code provides that the Remuneration Committee of a smaller company which is below the FTSE 350 should consist of at least two members who are both independent non-executive directors. In addition, the chairman may also be a member of the committee but not its chair, if he or she was considered to be independent on appointment as chairman.

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The membership of the Company’s Remuneration Committee comprises two Non-Executive Directors (namely David Ossian Maloney and Peter Wodehouse Williams). The Chairman of the Remuneration Committee is Peter Wodehouse Williams. The Company therefore considers that it complies with the Combined Code recommendations regarding the composition of the Remuneration Committee having regard to a company of its size. The Remuneration Committee will meet formally at least twice a year and otherwise as required. Audit Committee The Audit Committee assists the Board in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing the Company’s annual financial statements, reviewing and monitoring the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the Company’s internal audit activities, internal controls and risk management systems. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board. The Combined Code recommends that the audit committee of a smaller company which is below the FTSE 350 should comprise of at least two members who should both be independent non-executive directors, and that at least one member should have recent and relevant financial experience. The membership of the Company’s Audit Committee comprises two independent Non-Executive Directors (namely, David Ossian Maloney and Peter Wodehouse Williams) who are both considered by the Board to have recent and relevant financial experience. The Chairman of the Audit Committee is David Ossian Maloney. The Company therefore considers that it complies with the Combined Code recommendations regarding the composition of the Audit Committee having regard to a company of its size. The Audit Committee will meet formally at least three times a year and otherwise as required.

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PART 4: THE GLOBAL OFFER 1.

THE GLOBAL OFFER

The Global Offer comprises an offer of 61,381,075 New Shares representing 43.3 per cent. of the enlarged issued share capital of the Company. The New Shares being issued by the Company will rank pari passu in all respects with the Existing Shares, including the right to vote and the right to receive all dividends and other distributions declared, made or paid on the Company’s share capital after Admission. The Shares will, immediately following Admission, be freely transferable under the Articles of Association. The Global Offer has been fully underwritten by the Underwriters. Immediately following Admission, 37.1 per cent. of the Shares will be held in public hands, assuming no exercise of the Over-allotment Option, and 43.6 per cent. if the Over-allotment Option is exercised in full. The shareholders in the Company as at the date of this document will be diluted by 43.3 per cent. assuming no exercise of the Over-allotment Option and by 49.8 per cent. if the Over-allotment Option is exercised in full. The Global Offer is being made by means of an offer of Shares to certain institutional investors in the United Kingdom and elsewhere outside the United States pursuant to Regulation S. The Company, the Blackstone Shareholders and the Joint Global Co-ordinators expressly reserve the right to determine, at any time prior to Admission, not to proceed with the Global Offer. If such right is exercised, the Global Offer will lapse and any monies received in respect of the Global Offer will be returned to investors without interest. 2.

AMOUNT AND USE OF PROCEEDS, REFINANCING AND CONVERSION

Reasons for the Global Offer The Company is seeking a listing and is making the Global Offer in order to reduce its indebtedness. In addition, the Directors believe that the Global Offer and Admission will position the Group for its next stage of development. The Directors believe that the Global Offer and Admission will raise the profile of the Group, assist in retaining and incentivising senior management and provide it with a structure for future growth. Amount and Use of Proceeds The gross proceeds the Company expects to receive from the issue of New Shares pursuant to the Global Offer are £104.3 million. After deducting commissions and other estimated fees and expenses incurred in connection with the Global Offer, the Company expects to receive net proceeds of £92.3 million. The Company will not receive any of the proceeds from the sale of Existing Shares pursuant to the Overallotment Option. Concurrent with Admission, the Company will use: ɀ

approximately £38.0 million of the net proceeds to reduce borrowings under the Existing Senior Credit Agreement;

ɀ

approximately £1.3 million of the net proceeds to redeem in full the Subordinated Bonds;

ɀ

approximately £25.9 million of the net proceeds to redeem in part the First Deep Discount Bonds; and

ɀ

approximately £27.2 million of the net proceeds to redeem in part the Second Deep Discount Bonds.

As at 26 April 2007 (being the latest practicable date prior to the publication of this document): ɀ

the Blackstone Shareholders held in aggregate £73.6 million First Deep Discount Bonds at their accreted value at such date and £53.2 million Second Deep Discount Bonds at their accreted value at such date;

ɀ

certain Directors and Senior Managers (together with persons connected with such Directors and Senior Managers) held in aggregate £1.3 million in aggregate principal amount of the Subordinated Bonds and £1.0 million Second Deep Discount Bonds at their accreted value at such date; and

ɀ

Carisan Investments Limited (a Jersey incorporated subsidiary of a Jersey based discretionary trust of which Anthony Bloom, the Chairman of the Company, is one of the potential beneficiaries) held in

43

aggregate £1.6 million First Deep Discount Bonds at their accreted value at such date and £1.2 million Second Deep Discount Bonds at their accreted value at such date. Refinancing Concurrent with Admission, the Group will refinance the Existing Senior Credit Agreement in full and pay certain associated fees, costs and expenses using a combination of borrowings under the New Senior Credit Agreement and a portion of the net proceeds of the Global Offer, together with cash from operating activities. The New Senior Credit Agreement comprises term loans in an aggregate principal amount of £135 million and a revolving credit facility of £30 million. The Directors expect to draw down on Admission the full amounts available under the term loans in connection with the Refinancing. Future borrowings under the revolving credit facility may be used for general corporate and working capital purposes. Conversion In addition, the Company will assume, conditional on Admission, the rights and obligations of Augustus 1 Limited in respect of the Outstanding Deep Discount Bonds. Upon Admission, the Company will redeem the Outstanding Deep Discount Bonds in full at their accreted value on such date, being in aggregate approximately £77.8 million, by issuing to the holders thereof 45,777,434 new Shares at the Offer Price. In order to facilitate the Transactions and to put the Company’s subsidiaries in a position to be able to pay dividends, the Company will make capital contributions to certain of its subsidiaries, which in turn will enter into certain intra-group transactions. For more information on the New Senior Credit Agreement, the Existing Senior Credit Agreement, the First Deep Discount Bonds, the Subordinated Bonds, the Second Deep Discount Bonds and the assumption by the Company of the rights and obligations of Augustus 1 Limited in respect of the Outstanding Deep Discount Bonds, see paragraphs 18.1, 18.2, 18.4, 18.5, 18.6 and 18.13, respectively, of ‘‘Part 9: Additional Information’’. For more information regarding the effect of the Global Offer and the Transactions, see ‘‘Part 8: Pro Forma Financial Information’’. 3.

ALLOCATION AND PRICING

Allocations of Shares under the Global Offer were determined at the discretion of the Joint Global Co-ordinators (following consultation with the Company and the Blackstone Shareholders) after indications of interest from prospective investors had been received. A number of factors were considered in deciding the Offer Price and the bases of allocation under the Global Offer, including the level and nature of the demand for Shares and the objective of encouraging the development of an orderly aftermarket in the Shares. All Shares issued or sold pursuant to the Global Offer will be issued or sold at the Offer Price. The rights attaching to the Shares issued pursuant to the Global Offer and any Shares sold pursuant to the Over-allotment Option will be uniform in all respects and such Shares will form a single class for all purposes. 4.

OVER-ALLOTMENT AND STABILISATION

In connection with the Global Offer, the Stabilising Manager may, for stabilisation purposes, over-allot Shares up to a maximum of 20 per cent. of the total number of Shares comprised in the Global Offer. For the purposes of allowing the Stabilising Manager to cover over-allotments or further allotments, if any, in connection with the Global Offer and/or cover short positions resulting from stabilisation transactions the Blackstone Shareholders have granted the Stabilising Manager, on behalf of the Joint Global Co-ordinators, an Over-allotment Option which is exercisable in whole or in part, upon notice by the Stabilising Manager, for the period commencing with the date of publication of the Offer Price and ending 30 days thereafter pursuant to which the Stabilising Manager, in consultation with JPMorgan Cazenove Limited, may require the Blackstone Shareholders to sell up to 9,207,161 Existing Shares in aggregate (being 15 per cent. of the total number of Shares comprised in the Global Offer). Any Existing Shares sold by the Blackstone Shareholders following the exercise of the Over-allotment Option will be sold on the same terms and conditions as the Shares being sold in the Global Offer. In connection with the Global Offer, the Stabilising Manager or any of its agents, in consultation with JPMorgan Cazenove Limited, may (but will be under no obligation to) over-allot or effect transactions with a view to supporting the market price of the Shares or any options, warrants or rights with respect to, 44

or interests in, the Shares, in each case at a level higher than that which might otherwise prevail. Such transactions may be effected on the London Stock Exchange, in over-the-counter markets or otherwise and may be undertaken at any time during the period commencing on the date of publication of the Offer Price and ending 30 days thereafter. However, there may be no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and no assurance that stabilising transactions will be undertaken. Such transactions, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Shares above the Offer Price. Save as required by any legal or regulatory obligations, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over allotments and/or stabilisation transactions under the Global Offer. 5.

DEALING ARRANGEMENTS

The Global Offer is subject to the satisfaction of certain conditions contained in the Underwriting Agreement, including Admission occurring and becoming effective by 8.00 a.m. (London time) on 2 May 2007 or such later time and/or date (not later than 15 May 2007) as the Joint Bookrunners may agree with the Company, and to the Underwriting Agreement not having been terminated. Further details of the Underwriting Agreement are set out in paragraph 12.1 of ‘‘Part 9: Additional Information’’. Application has been made to the Financial Services Authority for all the Shares to be listed on the Official List and application has been made to the London Stock Exchange for the Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities. It is expected that dealings in the Shares will commence on a conditional basis on the London Stock Exchange at 8.00 a.m. (London time) on 27 April 2007. The expected date for settlement of such dealings will be 2 May 2007. All dealings between the commencement of conditional dealings and the commencement of unconditional dealings will be on a ‘‘when issued basis’’. If the Global Offer does not become unconditional in all respects, any such dealings will be of no effect and any such dealings will be at the risk of the parties concerned. It is expected that Admission will become effective and that dealings in the Shares will commence on an unconditional basis on the London Stock Exchange at 8.00 a.m. (London time) on 2 May 2007. It is intended that Shares allocated to investors who wish to wish hold Shares in uncertificated form will take place through CREST on Admission. It is intended that, where applicable, definitive share certificates in respect of the Global Offer will be distributed from 16 May 2007 or as soon as practicable thereafter. Temporary documents of title will not be issued. Dealings in advance of crediting of the relevant CREST stock account shall be at the risk of the person concerned. 6.

CREST

CREST is a paperless settlement procedure enabling securities to be transferred from one person’s CREST account to another without the need to use share certificates or by written instruments of transfer. On Admission, the Articles of Association will permit the holding of Shares under the CREST system. The Company has applied for the Shares to be admitted to CREST with effect from Admission. Accordingly, settlement of transactions in the Shares following Admission may take place within the CREST system if any shareholder so wishes. CREST is a voluntary system and holders of Shares who wish to receive and retain share certificates will be able to do so. Investors applying for Shares under the Global Offer may, however, elect to receive Shares in uncertificated form if they are a system-member (as defined in the Uncertificated Securities Regulations 2001) in relation to CREST. 7.

UNDERWRITING ARRANGEMENTS

The Company, the Joint Global Co-ordinators, the Underwriters, the Directors and the Blackstone Shareholders have entered into the Underwriting Agreement, pursuant to which the Joint Global Coordinators have agreed, subject to certain conditions, to procure subscribers for, and failing which the Underwriters shall themselves subscribe for, the Shares made available in the Global Offer. Further details of the terms of the Underwriting Agreement are set out in paragraph 12.1 of ‘‘Part 9: Additional Information’’.

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8.

LOCK-UP ARRANGEMENTS

The Company, the Blackstone Shareholders and the Directors, amongst others, have agreed to certain lock-up arrangements. Further details of these arrangements are described in paragraph 12.2 of ‘‘Part 9: Additional Information’’. Shares sold by the Blackstone Shareholders pursuant to the Over-allotment Option are not subject to the lock-up arrangements.

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PART 5: REGULATION 1.

REGULATION OF THE CINEMA INDUSTRY

General The operation of a cinema business is subject to certain central and local governmental regulations including planning regulation, environmental and health and safety legislation, licensing laws, regulations applicable to the operation of food and drink concessions, and minimum wage legislation. Specifically, in England, Scotland and Wales, all cinemas must comply with The Cinematograph (Safety) Regulations 1955, The Cinematograph (Safety) (Amendment) Regulations 2002 and the Cinema Act 1985 which deal with safety issues within a cinema and the licensing of cinema houses, respectively. Management believes that it is in substantial compliance with all applicable regulations and industry standards. However, no assurance can be given that the Company will not be adversely affected by any legal or regulatory changes in the future. Licensing of Premises Under the Cinema Act 1985, subject to certain exceptions, all cinemas which are open to the public are required to be licensed. Licences are granted by the local authority in whose area the relevant cinema is situated, which, in the case of a cinema located in England, will be a London borough council, the Common Council of the City of London or a district council, and in the case of a cinema located in Wales, will be a county council or a county borough council. Unless revoked, licences are valid for one year or for such shorter period as the licensing authority, on the grant of the licence, may determine. The licensing authority may transfer any licence granted by it to such other person as it thinks fit. The local authority is required to approve the plans for any cinema which is planned to be constructed, extended or altered and certain local authorities have the ability to grant provisional licences which are conditional upon the cinema being completed in accordance with the plans, or in accordance with those plans as modified with the approval of the authority. Conditions which the local authority may imposed for the grant of the licence are not limited to matters of safety, but may deal with the suitability of the films to be exhibited, especially their suitability for children. The discretion of the licensing authority in imposing conditions is unlimited, save that it must be exercised in a reasonable way. Application procedure An applicant for the grant, renewal or transfer of a licence must give to the licensing authority, the fire authority and the chief officer of police for the police area in which the premises are situated not less than 28 clear days’ notice of the intention to make the application, although the licensing authority may in such cases as it thinks fit, after consulting with the fire authority and the chief officer of police, grant an application for the grant, renewal or transfer of a licence notwithstanding the fact that the applicant has failed to give such notice. In the event a licence is refused or revoked, an applicant objects to any terms, conditions or restrictions on or subject to which a licence is granted, an application for renewal or transfer of a licence is refused, an application for the cinema to be used on Sundays is refused or an applicant objects to any conditions imposed in connection with Sunday opening is allowed, the applicant or any other aggrieved person may appeal to the Crown Court. In Greater London, appeal may also be made in respect of the variation of a licence. Health and safety Specific regulations apply to cinemas relating to safety in connection, including the keeping and handling of cinematograph film and other articles and equipment. Regulations impose specific requirements on cinemas in relation to exits, seats, staff, fire precautions, the structure of projection and rewinding rooms, the automatic control of film projectors and their design, and the lighting and electrical installations and equipment. Additional requirements apply in relation to cinemas where inflammable film is used. Copies of the regulations must be displayed in premises used in connection with the giving of exhibitions to which any part of the regulations apply, so that they can easily be seen by members of the staff.

47

Children’s health and welfare Specific regulations restrict the admission of children who are unaccompanied by persons under the age of 16. A prescribed proportion of attendants is required in specified positions at screenings organised wholly or mainly for children. In granting a licence, the licensing authority is under a positive obligation to impose conditions or restrictions prohibiting the admission of children to screenings involving films designated as works unsuitable for children. The British Board of Film Classification The suitability of a film for screening is the concern of the local licensing authorities, and is dealt with by conditions attached to the licences issued in respect of cinemas. There is no central or national authority exercising powers of censorship prior to the showing of any film. The British Board of Film Classification (formerly the British Board of Film Censors), a private organisation set up with the co-operation of the film industry, and maintained by fees based on the footage of films examined, examines films before their release and issues its own certificates of suitability, whether for general showing or for particular age groups. These certificates have no legal effect but are in the main accepted by local licensing authorities as a measure of suitability, although local licensing authorities retain the right to dispense with or override the board’s certificate. The result is a certain variety of local standards both as regards general suitability and as to the particular categories in which any film may be placed or the conditions under which it may be shown. 2.

OTHER REGULATIONS

The Group is subject to various national and local laws and regulations affecting the operation of the Group’s business, including various health, sanitation, planning permission, licensing and fire and safety standards. The Group is also subject to various United Kingdom laws and EU regulations governing the Group’s relationship with employees, including such matters as minimum wage requirements, the treatment of part-time workers, employers’ national insurance contributions, overtime and other working conditions. The main hourly minimum wage rate for workers aged 22 and over increased from £4.85 to £5.05 in October 2005 and from £5.05 to £5.35 in October 2006, which increased the Group’s labour costs. Additionally, the Group’s operations are regulated pursuant to the United Kingdom Health and Safety at Work etc. Act 1974 and related laws. Britain’s Health and Safety Commission and Health and Safety Executive, as well as local authorities, are responsible for enforcing most work-related health and safety guidelines, codes and regulations. Moreover, certain health and safety obligations may exist or arise under EU law, such as local regulations based on European Directives. Under the United Kingdom Disability Discriminations Act 1995 and other laws, the Group has a duty to make its cinemas accessible to disabled customers. The Group has not had any material violations of any health regulations or any material violations of any safety standards. Certain of the Group’s cinemas sell alcoholic beverages in bar areas and are therefore subject to licensing and regulation by a number of governmental authorities, including the United Kingdom Department of Culture, Media and Sport, pursuant to the United Kingdom Licensing Act 2003 and related laws and regulations. By the summer of 2007, smoking will be prohibited in all indoor public places in the United Kingdom. Whilst the Group believes the experience of such a ban in Scotland and the Republic of Ireland suggests it will not have a material impact on its business, there can be no assurance that this will be the case. Since 1995, the Company has not allowed smoking in any of its cinema auditoria.

48

PART 6: OPERATING AND FINANCIAL REVIEW The following is a discussion of the Group’s results of operations and financial condition. Prospective investors should read the following discussion, together with the whole of this document, including ‘‘Risk Factors’’, the historical financial information included in ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’ and should not just rely on the key or summarised information contained in this ‘‘Part 6: Operating and Financial Review’’. Unless otherwise stated, the financial information in this ‘‘Part 6: Operating and Financial Review’’ relates to, and all financial information has been extracted without material adjustment from, the historical financial information contained in Part A and Part B of ‘‘Part 7: Financial Information’’ or the Group’s accounting records that formed the underlying basis of the financial information in Part A and Part B of ‘‘Part 7: Financial Information’’. In making an investment decision, prospective investors must rely on their own examination of the Company, the terms of the Global Offer and the financial information in this document. EBITDA (which means operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation cost and less profit on disposal of fixed assets and cinema sites), EBITA (which means operating profit before amortisation of other intangibles and goodwill impairment) and the related ratios presented in this ‘‘Part 6: Operating and Financial Review’’ and elsewhere in this document are supplemental measures of the Group’s performance and liquidity that are not required by, or presented based on, Adopted IFRS. Furthermore, EBITDA and EBITA are not measures of the Group’s financial performance or liquidity under Adopted IFRS and should not be considered as an alternative to gross profit, operating profit or any other performance measures based on Adopted IFRS or as an alternative to cash flow from operating activities as a measure of the Group’s liquidity. The EBITDA figures in this document have been directly extracted from ‘‘operating profit before depreciation and amortisation, impairment charges, onerous lease and other nonrecurring property charges, transaction and reorganisation costs and profit on disposal of cinema sites’’ as set out in the combined and consolidated income statement of the Company and the consolidated income statement of Cineworld Cinemas Holdings Limited set out in Parts A and B of ‘‘Part 7: Financial Information’’, as the case may be. This section contains ‘‘forward-looking statements’’. Those statements are subject to risks, uncertainties and other factors that could cause the Company’s future results of operations or cash flows to differ materially from the results of operations or cash flows expressed or implied in such forward-looking statements. Basis of presentation The discussion and analysis set out in this Part is based on the financial information on the Group set out in Part A and Part B of ‘‘Part 7: Financial Information’’. In respect of financial information presented for the 52 week periods ended 28 December 2006, 29 December 2005 and 30 December 2004 for the Group and the 52 week period ended 30 December 2004 for Cineworld Cinemas Holdings Limited, certain line items have been calculated from figures extracted without material adjustment from the financial information set out in ‘‘Part 7: Financial Information’’ as follows: ɀ

cost of sales and administration expenses, before depreciation, amortisation of other intangibles, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation expenses and profit on disposal of fixed assets and cinema sites This is calculated as cost of sales, plus administrative expenses, less other operating income, less depreciation, less amortisation, less goodwill and fixed asset impairment charges, less onerous lease and other non-recurring property charges, less transaction and reorganisation costs less profit on disposal of fixed assets and cinema sites.

ɀ

EBITDA This is calculated as operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites.

ɀ

EBITDA after transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites This is calculated as EBITDA less transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites.

49

ɀ

EBITA pre onerous lease and other non-recurring property and fixed asset impairment charges This is calculated as operating profit after adding back amortisation of other intangibles, goodwill and fixed asset impairment charges and onerous lease and other non-recurring property charges.

ɀ

EBITA This is calculated as operating profit after adding back amortisation of other intangibles and goodwill impairment charges.

The Group’s financial information includes the results from the Disposed Sites. Unless indicated to the contrary, the financial information in this ‘‘Part 6: Operating and Financial Review’’ includes the results from the Disposed Sites. In respect of financial information for the Group which is presented as excluding the Disposed Sites (which are presented as assets held for sale): ɀ

for the 52 week periods ended 28 December 2006 and 29 December 2005, these line items have been calculated from figures extracted without material adjustment from the financial information set out in Part A of ‘‘Part 7: Financial Information’’ as described above, less the amount specified for the seven disposal sites in note 4 of Part A of ‘‘Part 7: Financial Information’’; and

ɀ

for the 52 week period ended 30 December 2004, these line items have been calculated from figures extracted without material adjustment from the financial information set out in Parts A and B of ‘‘Part 7: Financial Information’’ as described above, less the amount specified for the seven disposal sites set out in the Group’s unaudited accounting records.

52 weeks ended 29 December 2005 compared with 52 weeks ended 30 December 2004—Group The Group has operated as one integrated estate since 2004. Commentary is provided on the results of the 52 weeks ended 29 December 2005 and 52 weeks ended 30 December 2004. However calendarised figures have been prepared as follows: ɀ

in respect of the financial results and statistics for 2004, the results for the period are based on the financial information for Cine-UK Limited for the 40 week period ended 7 October 2004, the financial information for the UGC business for the 47 week period ended 30 November 2004 and the consolidated financial information for Cineworld Group plc (including Cine-UK Limited and the UGC business using acquisition accounting, for the period from 7 October 2004 and 30 November 2004, respectively); and

ɀ

in respect of the financial results and statistics for 2005, the results for the year are based on the Group consolidated accounts for the 52 week period ended 29 December 2005.

The Company’s financial year ends on the last Thursday of the relevant calendar year.

50

Summary Historical Financials 52 week period ended 28 December 2006 compared to the 52 week periods ended 29 December 2005 and 30 December 2004 The tables below set out management’s analysis of operating profit for the Group and include assets held for sale (as set out in note 4 of Part A of ‘‘Part 7: Financial Information’’). The financial information presented has been derived, as described in ‘‘—Basis of Preparation’’ above, from the financial information set out in ‘‘Part 7: Financial Information’’. EBITDA(1)/EBITA(2)—Operating profit 52 week period ended 30 December 2004 (£ millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . Cost of sales and administration expenses, before depreciation, amortisation of other intangibles, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites . . . . . . . . . (1)

EBITDA . . . . . . . . . . . . . . . . . . . . Transaction and reorganisation costs . Profit on disposal of fixed assets and cinema sites . . . . . . . . . . . . . . . . .

260.4

(225.7) 34.7 (0.3)

52 week period ended 29 December 2005 (£ millions)

%

100%

(87)% 13% —

272.7

52 week period ended 28 December 2006 (£ millions)

%

100%

278.5

%

100%

(230.6)

(85)%

(229.9)

(83)%

42.1 (2.9)

15% (1)%

48.6 (3.4)

17% (1)%

2.8

1%

3.3

1%

—

—

37.7 (23.4)

14% (9)%

39.2 (21.9)

14% (8)%

48.0 (19.9)

17% (7)%

14.3

5%

17.3

6%

28.1

10%

(24.4)

(9)%

(4.5)

(1)%

(4.5)

(2)%

EBITA . . . . . . . . . . . . . . . . . . . . . . Amortisation of other intangibles and goodwill impairment . . . . . . . . . . .

(10.1)

(4)%

12.8

5%

23.6

8%

—

(8.3)

(3)%

(3.1)

(1)%

Operating profit/(loss) . . . . . . . . . . .

(10.4)

4.5

2%

20.5

7%

(1)

EBITDA after transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . EBITA(2) pre-onerous lease and other non-recurring property charges and fixed asset impairment charges . . . Onerous lease and other nonrecurring property and fixed asset impairment charges . . . . . . . . . . . . (2)

(0.3)

51

(4)%

EBITDA(1)/EBITA(2)/Operating profit—excluding assets held for sale(3) 52 week period ended 30 December 2004 (£ millions)

Revenue . . . . . . . . . . . . . . . . . . . . . . Cost of sales and administration expenses, before depreciation, amortisation of other intangibles, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites . . . . . . . . . (1)

EBITDA . . . . . . . . . . . . . . . . . . . . Transaction and reorganisation costs . Profit on disposal of fixed assets and cinema sites . . . . . . . . . . . . . . . . .

243.0

(211.8) 31.2 (0.3)

52 week period ended 29 December 2005 (£ millions)

%

100%

(87)% 13% —

253.2

52 week period ended 28 December 2006 (£ millions)

%

100%

264.6

%

100%

(214.8)

(85)%

(218.6)

(83)%

38.4 (2.9)

15% (1)%

46.0 (3.4)

17% (1)%

3.3

1%

—

34.2

14%

35.5

—

—

—

(1)

EBITDA after transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . .

14%

42.6

16%

(21.3)

(8)%

(19.9)

(7)%

14.2

6%

22.7

9%

(4.5)

(2)%

(4.5)

(2)%

(2)

EBITA pre-onerous lease and other non-recurring property and fixed asset impairment charges . . . . . . . Onerous lease other non-recurring property charges and fixed asset impairment charges . . . . . . . . . . . . EBITA . . . . . . . . . . . . . . . . . . . . . . . Amortisation of other intangibles and goodwill impairment . . . . . . . . . . .

9.7

4%

18.2

7%

(3.2)

(1)%

(3.1)

(1)%

Operating profit . . . . . . . . . . . . . . . .

6.5

3%

15.1

6%

52

Other financial information Revenue The information presented below is derived from the Group’s unaudited IFRS accounting records. 52 week period ended 30 December 2004 (£ millions)

52 week period ended 29 December 2005 (£ millions)

%

%

52 week period ended 28 December 2006 (£ millions)

%

Revenue Box office . . . . . . . . . . . . . . . . . . . . Retail . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . .

173.1 69.0 18.3

67% 26% 7%

179.1 72.8 20.8

65% 27% 8%

181.3 73.3 23.9

65% 26% 9%

Total revenue . . . . . . . . . . . . . . . . . .

260.4

100%

272.7

100%

278.5

100%

Revenue—excluding assets held for sale(3) 52 week period ended 30 December 2004 (£ millions)

52 week period ended 29 December 2005 (£ millions)

%

%

52 week period ended 28 December 2006 (£ millions)

%

Revenue Box office . . . . . . . . . . . . . . . . . . . . Retail . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . .

161.7 64.3 17.0

67% 26% 7%

166.6 67.4 19.2

65% 27% 8%

172.4 69.4 22.8

65% 26% 9%

Total revenue . . . . . . . . . . . . . . . . . .

243.0

100%

253.2

100%

264.6

100%

Cash flow The table below sets out the main components of the Group’s operating free cash flow and cash flow before tax and financing. The information presented has been derived, as described in ‘‘—Basis of Preparation’’ above, from the financial information set out in Part A ‘‘Part 7: Financial Information’’ and from the Group’s unaudited accounting records. Year ended 29 December 2005 (£ millions)

EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . Change in working capital . . . . . . . . . . . Reduction in existing property provision . Transaction and reorganisation expenses .

. . . .

100% 24% (8)% (7)%

48.6 (3.1) (3.9) (2.3)

100% (6)% (8)% (5)%

Operating cash flow . . . . . . . . . . . . . . . . . . . . .

45.8

109%

39.3

81%

Disposal of fixed assets and cinema sites Capital expenditure . . . . . . . . . . . . . . . . Purchase of subsidiary undertakings . . . . Payments to reduce the pension deficit .

— (8.4) (2.3) (0.4)

— (20)% (6)% (1)%

25.1 (6.4) — (0.4)

52% (13)% —% (1)%

34.7

82%

57.6

119%

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

As a % of EBITDA

42.1 10.1 (3.5) (2.9)

. . . .

. . . .

As a % of EBITDA

52 week period ended 28 December 2006 (£ millions)

. . . .

Cash flow before interest, tax and financing . . . .

(1) EBITDA is calculated as operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites. EBITDA is not a standard measure under Adopted IFRS and not all companies subject to Adopted IFRS calculate it in the same way. For more information, see ‘‘Presentation of Financial and Other Information—EBITDA and EBITA’’. (2) EBITA is calculated as operating profit before amortisation of other intangibles and goodwill impairment. EBITA is not a standard measure under Adopted IFRS and not all companies subject to Adopted IFRS calculate it in the same way. For more information, see ‘‘Presentation of Financial and Other Information—EBITDA and EBITA’’. (3) Assets held for sale are as set out in note 4 of Part A of ‘‘Part 7: Financial Information’’.

53

The table below sets out the key financial statistics:

Calendarised annual admissions (millions) . . . . . . . Average ticket price per admission (£) (net of VAT) . . . . . Average retail spend per head (£) (net of VAT) . . . . . . . .

52 week period ended 30 December 2004

Total 52 week period ended 29 December 2005

52 week period ended 28 December 2006

Excluding assets held for sale 52 week 52 week 52 week period ended period ended period ended 30 December 29 December 28 December 2004 2005 2006

47.4

47.3

45.2

44.3

43.9

42.9

3.65

3.79

4.01

3.65

3.79

4.02

1.46

1.54

1.62

1.44

1.54

1.62

52 weeks ended 28 December 2006 compared with the 52 weeks ended 29 December 2005 Overview The Group’s revenue increased by 2.1 per cent. in the 52 weeks to 28 December 2006 compared with the 52 weeks to 29 December 2005. Of the increase of £5.8 million, £6.5 million was generated from like-for-like cinema sites (i.e. sites open for more than two years) principally as a result of the increase in screen advertising income combined with increases in average ticket prices and an increase in retail spend per head. Sites opened in the 2006 financial year or the 2005 financial year added £4.7 million of revenues which was offset by the disposal of seven sites during the year which reduced revenue by £5.6 million compared to the previous year. The Group has been impacted by a year on year decline in admissions, principally caused by lower quality film product combined with the hot weather in the UK and the football World Cup in June 2006. However, as a result of the benefit of synergies arising from the integration of the Cine-UK and UGC businesses, and management’s continued focus on cost control, EBITDA increased by 15.4 per cent. from £42.1 million in the 52 weeks ended 29 December 2005 to £48.6 million in the 52 weeks ended 28 December 2006. Over the same period, the EBITDA margin increased from 15.4 per cent. to 17.4 per cent. Revenue Revenue increased by £5.8 million, or 2.1 per cent. from £272.7 million in the 52 weeks ended 29 December 2005 to £278.5 million in the 52 weeks ended 28 December 2006. The increase was driven by higher screen advertising revenue, improved customer spends (in terms of ticket prices and retail spend) and new sites openings. Admissions declined by 4.2 per cent. in the 52 weeks to 28 December 2006 compared to the 52 weeks to 29 December 2005 which compares with a United Kingdom industry-wide market decline of 4.9 per cent. Admissions were 47.3 million in the 52 weeks ended 29 December 2005 compared with 45.2 million in the 52 weeks ended 28 December 2006. Excluding the impact from new cinema openings and disposals (i.e. presenting a comparison on a like-for-like basis), the period-on-period decline for the 52 weeks to 28 December 2006 was 3.9 per cent.. On this basis, the admissions decline was lower than that experienced by the market. Despite a decline in admissions period-on-period, box office revenue has increased from £179.1 million in the 52 weeks to 29 December 2005 compared to £181.3 million in the 52 weeks to 28 December 2006. This increase was driven by average ticket prices which increased by 5.8 per cent. from £3.79 to £4.01. Retail revenue increased from £72.8 million in the 52 weeks to 29 December 2005 to £73.3 million in the 52 weeks to 28 December 2006. As with box office revenue, the increase has been achieved despite a decline in admissions. Retail spend per admission increased by 5.2 per cent. from £1.54 to £1.62. Other revenue increased from £20.8 million to £23.9 million principally because of an increase in screen advertising revenue.

54

Costs and overheads (before depreciation, amortisation of other intangibles, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and profit on disposal of cinema sites) Costs and overheads decreased from £230.6 million to £229.9 million against increased revenues of 2.1 per cent.. Box office gross margin improved in the 52 weeks to 28 December 2006 compared to the 52 weeks to 29 December 2005. This is in part due to the lower proportion of blockbuster films released in the 52 weeks to 28 December 2006 compared to the 52 weeks to 29 December 2005 as blockbusters generally have higher film hire costs and conversely, lower margins. Retail gross margins in the 52 weeks to 28 December 2006 were higher than that achieved in the 52 weeks to 29 December 2005 primarily as a result of cost synergies being realised following the ongoing integration of the Group. The Group’s other overhead costs increased as a result of above inflationary increases in the minimum wage and utilities expenses. This was to some extent offset by continued cost savings from integrating the management activities of the two estates. The average number of employees in the 52 weeks to 28 December 2006 was 4,366 compared to 4,623 in the 52 weeks to 29 December 2005. Employment costs have a variable element, a key driver of which is admissions. The 2.3 per cent. increase in employment costs per admission principally reflects annual salary increases including the increase in the national minimum wage offset by savings from lower admissions and operational efficiencies. Property costs increased by 9 per cent., from £52.2 million in the 52 weeks to 29 December 2005 to £56.8 million in the 52 weeks to 28 December 2006. Of this increase, like-for-like property costs excluding rate rebates contributed £3.7 million, representing a 7 per cent. increase over the 52 weeks to 29 December 2005. Excluding new site openings which accounted for £0.9 million of additional costs, the increase was in the result of property rental increases following rent reviews at certain sites and the full year effect of higher business rates following the revised rateable values effective from April 2005. In addition, the 52 weeks to 29 December 2005 were favourably impacted by the receipt of business rate rebates relating to prior years, totalling £1.5 million. Following the start of the new rates cycle from April 2005, business rates rebates for the 52 week period to 28 December 2006 were £0.3 million as new claims against revised rates are processed. In the 52 weeks to 28 December 2006, the Group’s reported property costs included a £0.9 million benefit in respect of the partial unwinding of the reverse lease premium creditor and a £2.9 million benefit in respect of the partial unwinding of the onerous lease provision. In the 52 weeks to 29 December 2005, the equivalent amounts were £0.7 million and £2.8 million. The Group maintained its repairs, maintenance and refurbishment spend in the 52 weeks to 28 December 2006 broadly in line with the 52 weeks to 29 December 2005. EBITDA EBITDA increased to £48.6 million in the 52 weeks to 28 December 2006 compared to £42.1 million in the 52 weeks to 29 December 2005 as a result of the factors discussed above. As a percentage of revenue, EBITDA was approximately 17 per cent. in the 52 weeks to 28 December 2006 compared to 15 per cent. in the 52 weeks to 29 December 2005. Transaction and reorganisation costs In the 52 weeks to 28 December 2006, the Group incurred £1.1 million of costs primarily in respect of certain aborted transactions and the restructuring of operations as part of the integration of Cine-UK and UGC. A further £2.3 million of costs were incurred preparing for the aborted flotation of the Company in May 2006. In the prior period, the £2.9 million principally related to the restructuring of operations as part of the integration of Cine-UK and UGC. Profit from disposal of cinema sites The Group recognised a £2.8 million profit on the disposal of seven sites to Cinema Holdings 2 Limited arising in May 2006 (four sites) November 2006 (one site) and December 2006 (two sites). Six of these sites

55

were identified by the Office of Fair Trading as sites necessary for disposal following the acquisition of Cine-UK and UGC. The Group agreed to sell a further site in connection with this transaction. Depreciation The depreciation charge reduced from £21.9 million in the 52 weeks to 29 December 2005 to £19.9 million in the 52 weeks to 28 December 2006. The principal reason for the decrease is a lower asset base in 2006 following the impairment of a number of assets in 2005 and the sale of the disposed sites. Onerous lease and other non-recurring property charges and fixed asset impairment charges In the 52 weeks to 29 December 2005 a charge of £4.5 million was made in respect of onerous lease and other non-recurring property charges and fixed asset impairment charges across the Cine-UK and UGC circuits. In the 52 weeks to 28 December 2006, a charge of £4.5 million was made. The charge reflects provisions against four sites in 2006. Amortisation of other intangibles and goodwill impairment charges Excluding the impact of an impairment of goodwill of £5.1 million in the 52 weeks to 29 December 2005, the amortisation charge for the 52 weeks to 28 December 2006 is materially unchanged from that made in the 52 weeks to 29 December 2005 of £3.2 million reflecting the straight-line basis of calculation. Operating profit The operating profit in the 52 weeks to 28 December 2006 was £20.5 million compared to a profit of £4.5 million in the 52 weeks to 29 December 2005. As a percentage of revenue, operating profit was 7 per cent. in the 52 weeks to 28 December 2006 compared with 2 per cent. in the 52 weeks to 29 December 2005. Taxation As at 28 December 2006, the Group had gross tax assets of approximately £68 million available to carry forward and set off against future profits, however some of the losses represented by these tax assets are streamed in relation to the type of profit they can be set off against or the company in which they can be offset. The Group’s gross trading tax assets amounted to approximately £19 million as at 28 December 2006. Following the utilisation of any such tax assets, the Directors expect the Company’s effective tax rate to be between 25 per cent. and 30 per cent., depending in part on the timing and amount of the Group’s future capital expenditure. Retained loss The retained loss for the 52 weeks to 28 December 2006 was £5.9 million. Cash flow The Group’s principal source of funds continue to be long-term borrowings, term loans, revolving credit note facilities, issues of loan notes to shareholders, equity from shareholders and cash flows from operating activities following the Group’s refinancing on 22 June 2006. In the 52 weeks ended 28 December 2006, there was an aggregate cash in flow before financing amounting to £57.6 million compared to £34.7 million in the year to 29 December 2005. Capital expenditure and financial investment by the Group in the year to 28 December 2006 amounted to £6.8 million compared to £11.1 million in the year ended 29 December 2005. Net debt has reduced from £346.7 million as at 29 December 2005 to £314.2 million as at 28 December 2006. The Group’s principal uses of funds have been to fund acquisitions and the construction of new cinema sites, for capital expenditure to repair and refurbish cinemas, and to pay interest and repay debt on borrowed funds. The Group expects to fund further acquisitions, the construction of new cinema sites and other capital expenditure with cash generated from operating activities, certain of the proceeds of the Global Offer and borrowings under available credit facilities.

56

Financing Existing Senior Credit Agreement Augustus 2 Limited, Cineworld Cinemas Limited and Cine-UK Limited, as initial borrowers, and Augustus 2 Limited and certain of its subsidiaries, as initial guarantors, entered into the Existing Senior Credit Agreement on 22 June 2006, with Barclays Capital, as arranger, Barclays Bank PLC as original lender, Barclays Bank PLC as original lender, issuing bank and agent. The Existing Senior Credit Agreement provides for senior facilities in a maximum aggregate principal amount of £246 million, consisting of (i) £226 million of term facilities, in tranches of £45 million, £81.5 million and £81.5 million, (ii) a £18 million bridge facility and (iii) a £20.0 million revolving facility. Concurrent with Admission, the Group will refinance the Existing Senior Credit Agreement in full using a combination of borrowings under the New Senior Credit Agreement and a portion of the net proceeds of the Global Offer. For more information regarding the effect of the Global Offer and the Refinancing, see ‘‘Part 4: Amount and Use of Proceeds, Refinancing and Conversion’’ and ‘‘Part 8: Pro Forma Financial Information’’. New Senior Credit Agreement Cineworld Group plc, Augustus 2 Limited, Cineworld Cinemas Limited, and Cine-UK Limited, as initial borrowers, and Cineworld Group plc and certain of its subsidiaries, as initial guarantors, entered into the New Senior Credit Agreement on 26 April 2007, with Barclays Capital, as mandated lead arranger, and Barclays Bank PLC as original lender, issuing bank and agent. The New Senior Credit Agreement will become available for drawing upon Admission to Listing. The New Senior Credit Agreement will provide for senior facilities in a maximum aggregate principal amount of £165 million consisting of a £135 million term facility and a £30 million revolving facility. In addition, the New Senior Credit Agreement will also provide for ancillary facilities in place of part of the revolving facility up to a maximum amount of £10 million (other than with the prior consent of Barclays Bank PLC as agent, acting on the instructions of the majority lenders). The Directors expect to draw down the full amount available under the term loans in connection with the Refinancing. Future borrowings under the revolving credit facility are to be applied towards general corporate and working capital purposes of the Group. The New Senior Credit Agreement contains certain operating and financial covenants. For more information on these covenants, the relevant ratios and the other terms of the New Senior Credit Agreement, see paragraph 18.1 of ‘‘Part 9: Additional Information’’. Capital expenditure In the 52 weeks ended 28 December 2006, the Group spent £6.4 million on capital expenditure compared to £8.4 million in the year to 29 December 2005. This included £2.0 million in relation to the construction of a new site at Cheltenham which opened in March 2006. The remaining £4.4 million of capital expenditure was spent on refurbishment and maintenance of the existing portfolio. The Group will make capital expenditure related to acquisitions and new site opening as suitable opportunities arise. Working capital The Group, in common with other cinema operators, receives box office and retail sales payment from its customers at the time of sale but generally is able to obtain trade credit on purchasing supplies. This is combined with rental payments made quarterly in advance and screen advertising revenue received in advance. The level of the Group’s box office and retail sales fluctuates throughout the course of any given year and is largely dependent on the timing of release of major films produced by Hollywood. In the 52 weeks ended 28 December 2006, there was a working capital outflow of £3.1 million compared to an inflow of £10.1 million in the year to 29 December 2005. This outflow was driven by the unwinding of a relatively high level of creditors at the beginning of the period caused by a relatively strong period of trading at the end of 2005 which was not as pronounced in December 2006. Historically the Group has managed movements in its working capital requirements though the use of a revolving credit facility. As at 28 December 2006, there had been no draw down against the revolving facility under the Existing Senior Credit Agreement.

57

Receipts from sales of cinema sites The Group disposed of seven cinema sites for £25.1 million to comply with a Office of Fair Trading competition ruling. The proceeds were subsequently used to repay existing debt facilities. Disclosure about market risk The principal financial market risks that the Group faces are the risks of interest rate movements and liquidity risks. The Group has financed its operations through a mixture of equity share capital, loan notes and other bank debt. The Group borrows at both fixed and variable rates of interest. Accordingly, the Group utilises fixed and floating funding and derivatives instruments such as swaps to manage the primary market exposures associated with the underlying assets, liabilities and existing or known future positions. The Group does not use derivatives transactions to enhance profits or for speculative purposes. For further information regarding the risks to which the Group is exposed and the policies designed to manage those risks, see note 24 to Part A in ‘‘Part 7: Financial Information’’. Year ended 29 December 2005 compared to year ended 30 December 2004 Overview In contrast to the broadly flat UK market revenue growth in the 2005 financial year (as described in ‘‘Part 1: Industry Overview’’), the Group’s revenue increased by 4.7 per cent. Of the increase of £12.3 million, £9.0 million was generated by like-for-like cinema sites (i.e. sites open for more than two years) principally as a result of an increase in the average ticket price per admission and an increase in the average retail spend per head. The remaining £3.3 million related to sites either opened in the 2004 financial year or the 2005 financial year. However, unlike the market as a whole, this was not offset by a significant year-on-year admissions decline. The Group maintained annual admissions in the 2005 financial year broadly at their 2004 financial year levels, taking market share as a result. The Group also leveraged the greater purchasing power of the combined group which, coupled with management’s focus on cost control and the benefits from the integration and rationalisation of the cost base, led to an improvement in the EBITDA margin. As a result, EBITDA increased by 21 per cent. from £34.7 million in the 2004 financial year to £42.1 million in the 2005 financial year. The Disposed Sites generated EBITDA of £3.7 million in the 2005 financial year. Revenue Revenue increased by £12.3 million, or 4.7 per cent. from £260.4 million in the 2004 financial year to £272.7 million in the 2005 financial year. This increase mainly reflected the combination of improved customer spends and the contribution from new site openings (including trading from cinemas opened during the 2005 financial year and also the full year effect of cinemas that were opened in the 2004 financial year). Admissions were maintained broadly at the 2004 financial year levels which compares with a United Kingdom industry-wide market decline although it does include the effect of new cinema openings. Admissions were 47.4 million in the 2004 financial year and 47.3 million in the 2005 financial year. Excluding the benefit from new cinema openings (i.e., presenting a comparison on a like-for-like basis), the year-on-year admissions decline in the 2005 financial year was 1.4 per cent.. Even on this basis, the admissions decline was lower than that experienced by the market and as a result, the Group grew its market share in the United Kingdom by admissions in the 2005 financial year (from 27 per cent. in the 2004 financial year to 28 per cent. in the 2005 financial year). Despite broadly flat admissions levels year-on-year, box office revenue increased from £173.1 million to £179.1 million. This was driven by average ticket prices which increased by 3.8 per cent. from £3.65 to £3.79, in-line with the UK market increase. Retail revenue increased from £69.0 million to £72.8 million. As with box office revenue, the retail revenue increase was achieved despite relatively flat admissions. Retail spend per admission increased by 5.5 per cent. from £1.46 to £1.54. This increase was in-line with the uplift in the industry-wide spend in the United Kingdom in the 2005 financial year (retail spend per admission in the United Kingdom increased by 7.6 per cent.).

58

Other revenue increased from £18.3 million to £20.8 million principally because of a combination of higher screen advertising revenue and income from telephone bookings. Costs and overheads (before depreciation, amortisation of other intangibles, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and profit on disposal of fixed assets and cinema sites) Costs and overheads increased from £225.7 million to £230.6 million against increased revenues of 4.7 per cent.. Box office gross margin remained stable for the 2005 financial year compared with the 2004 financial year. This was in large part due to improved film hire terms and buying power following the combination of the two estates. This was offset, however, by the fact that the mix of films exhibited in the 2005 financial year comprised a greater constituent of blockbuster films than in the 2004 financial year and blockbusters generally have higher film hire costs and, conversely, lower margins. Combining the Cine-UK and UGC businesses allowed management to improve retail gross margins through renegotiating certain of its retail supply contracts. The Group’s other overhead costs increased as a result of above-inflationary increases in the minimum wage and property expenses. This was to some extent offset by cost savings from integrating the support and management activities of the two estates. The average number of employees in the 2005 financial year was 4,623, compared with 4,632 in the 2004 financial year. Employment costs have a variable element, a key driver of which is admissions. With broadly flat admissions, the 3 per cent. increase in employment costs in the 2005 financial year principally reflects annual salary increases including the increase in the national minimum wage. Property costs increased from £48.4 million in the 2004 financial year to £52.2 million in the 2005 financial year. Excluding new site openings, the increase was the result of property rental increases following rent reviews at certain sites and higher business rates following the revised rateable values effective from April 2005. In addition, reported costs in the 2005 financial year were favourably affected by the receipt of business rates rebates relating to prior years totalling £1.5 million. This was higher than the comparable rebates received in the 2004 financial year which totalled £0.7 million. Also, in the 2005 financial year reported costs included a £0.4 million benefit in respect of prior year rent review settlements. This was lower than the comparable settlements in the 2004 financial year when the benefit totalled £1.2 million. In the 2005 financial year reported property costs included a £0.7 million benefit in respect of the partial unwinding of the reverse lease premium creditor and a £2.8 million benefit in respect of the partial unwinding of the onerous lease provision. In the previous financial year the equivalent amounts were £0.6 million and £1.2 million respectively. The Group maintained its repairs, maintenance and refurbishment spend in the 2005 financial year broadly in line with the 2004 financial year. EBITDA EBITDA reached £42.1 million in the 2005 financial year, compared with £34.7 million in the 2004 financial year as a result of the factors discussed above. As a percentage of revenue, EBITDA was 15 per cent. in the 2005 financial year compared with 13 per cent. in the 2004 financial year. Transaction and reorganisation costs In the 2005 financial year, the Group incurred £2.9 million of costs principally in respect of the restructuring of operations following the integration of Cine-UK and UGC. Depreciation The depreciation charge reduced from £23.4 million in the 2004 financial year to £21.9 million in the 2005 financial year. The principal reason for the decrease was the review of the Group’s accounting for fixed assets and useful economic lives following the two acquisitions.

59

Onerous lease and other non-recurring property charges and fixed asset impairment charges In the 2004 financial year a charge of £24.4 million was made in respect of onerous lease and other non-recurring property charges and goodwill and fixed asset impairment charges across the Cine-UK and UGC circuits. In the 2005 financial year, a much lower charge of £4.5 million was made. The reduction in the charge reflects that fewer sites needed to be considered in 2005 after the 2004 exercise was performed. Amortisation of other intangibles and goodwill impairment charges The amortisation charge increased significantly in the 2005 financial year, reflecting the full year impact of the acquisitions made in the second half of the 2004 financial year. The 2005 charge also included a write down of £5.1 million in respect of the goodwill allocated to the Disposed Sites. Operating profit/(loss) The operating profit in the 2005 financial year was £4.5 million compared to a loss of £10.4 million in the previous year. As a percentage of revenue, operating profit was 2 per cent. in the 2005 financial year whereas in the 2004 financial year operating loss was 4 per cent. of revenue. Taxation There was no current tax charge in the year ended 29 December 2005 due to the availability of tax losses and other tax assets to cover taxable profits in the current year. Retained loss The retained loss for the year ended 29 December 2005 was £34.8 million. Cash flow In the financial year ended 29 December 2005, there was an aggregate cash inflow before interest, tax and financing amounting to £34.7 million. Capital expenditure and financial investment by the Group also in the financial year ended 29 December 2005 amounted to £11.1 million. Net debt has increased from £342.5 million as at 30 December 2004 to £346.7 million as at 29 December 2005. Capital Expenditure In the year ended 29 December 2005, the Group spent £8.4 million on capital expenditure. This comprised £3.3 million in relation to the construction of two new sites being Bury St Edmunds, which opened in November 2005 and Cheltenham, which opened in March 2006. In addition, capital expenditure of £5.1 million was spent on refurbishment and maintenance of the existing portfolio and rebranding. Included in this figure are the refurbishment of eight cinemas at an average cost of £0.2 million per cinema and approximately £2.0 million relating to the rebranding and integration of the UGC cinemas under the Cineworld brand. Working Capital In the 2005 financial year the Group benefited from a working capital inflow of £10.1 million. This inflow was driven by a relatively strong final two months of trading and the receipt of the advance screen advertising payment from Carlton Screen Advertising. Purchase of subsidiary undertakings The Group paid over £2.3 million of cash in respect of further consideration in respect of the UGC Acquisition. £1.5 million of this amount had previously been included within creditors at December 2004.

60

PART 7: FINANCIAL INFORMATION This ‘‘Part 7: Financial Information’’ contains: ɀ

in Part A, a report by KPMG Audit Plc and special purpose combined and consolidated historical financial information relating to Cineworld Group plc (formerly Cineworld UK Limited) for the 52 week periods ended 30 December 2004, 29 December 2005 and 28 December 2006; and

ɀ

in Part B, a report by KPMG Audit Plc and special purpose restated consolidated historical financial information relating to Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited) for the 52 week period ended 30 December 2004.

61

Part A: Accountant’s report and special purpose combined and consolidated historical financial information relating to Cineworld Group plc

21JUL200414412105 KPMG Audit Plc 8, Salisbury Square London EC4Y 8BB United Kingdom

Tel +44 (0) 20 7311 1000 Fax +44 (0) 20 7311 3311 DX 38050 Blackfriars

The Directors Cineworld Group plc Power Road Studios Power Road London W4 5PY 27 April 2007 Dear Sirs Cineworld Group plc (the ‘‘Company’’) We report on the financial information set out in Part A of ‘‘Part 7: Financial Information’’ of the prospectus dated 27 April 2007 (the ‘‘Prospectus’’). This financial information has been prepared for inclusion in the Prospectus on the basis of the accounting policies set out in note 2. This report is required by paragraph 20.1 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities The directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 1. It is our responsibility to form an opinion on the financial information and to report our opinion to you. Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus. Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. Opinion In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of Cineworld Group plc as at the dates stated and of its results, cash flows and

62

recognised income and expense for the periods then ended in accordance with the basis of preparation set out in note 1. Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation. Yours faithfully

26APR200709592853 KPMG Audit Plc

63

Combined and consolidated income statement

Note

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . Operating (loss)/profit . . . . . . . . . . . . . . . . . . . . . . . Operating (loss)/profit analysed as:

2

52 week period ended 28 December 2006 £m

272.7 (208.3)

278.5 (211.3)

6

22.8 — (27.5)

64.4 0.7 (60.6)

67.2 3.1 (49.8)

2, 7

(4.7)

4.5

20.5

16.2 (10.0) (3.8)

42.1 (25.1) (8.8)

48.6 (23.0) (2.2)

(6.8) — (0.3)

(0.8) — (2.9)

(2.3) 2.8 (3.4)

0.4 (17.7)

1.5 (40.8)

14.4 (40.8)

(17.3)

(39.3)

(26.4)

(22.0) (4.2)

(34.8) —

(5.9) —

(26.2)

(34.8)

(5.9)

9 9

Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52 week period ended 29 December 2005 £m

117.8 (95.0)

Operating profit before depreciation and amortisation, impairment charges, onerous lease and other nonrecurring property charges, transaction and reorganisation costs and profit on disposal of cinema sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortisation . . . . . . . . . . . . . . . . . . Goodwill and fixed asset impairment charges . . . . . . . Onerous lease and other non-recurring property charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit on disposal of cinema sites . . . . . . . . . . . . . . . . Transaction and reorganisation costs . . . . . . . . . . . . . Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . .

52 week period ended 30 December 2004 £m

10

Loss for the period attributable to equity holders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss per share (pence) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

(133.7)

(100.6)

(17.1)

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

(133.7)

(100.6)

(17.1)

All results are derived from continuing operations. As explained in note 1, certain administrative costs, and the interest and tax charges of the Group for the period prior to the Cine Acquisition on 7 October 2004 reflect the capital structure, financing and other arrangements of Cine-UK Limited prior to its acquisition by Blackstone Capital Partners (Cayman) IV L.P., Blackstone Capital Partners (Cayman) IV-A L.P. and Blackstone Family Investment Partnership (Cayman) IV-A L.P. (the ‘‘Blackstone Shareholders’’). Accordingly these amounts, together with the respective loss per share figures, may not be comparable between the financial periods shown above. The financial information above may not be representative of future results; for example, the historic capital structure does not reflect the current capital structure. Future financial income and expense, certain operating costs and tax charges may be significantly different from those that resulted from the Group’s previous ownership structure.

64

Combined and consolidated statement of recognised income and expense 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

23

0.4

—

—

21, 23

0.1

(1.5)

2.7

23

—

0.4

(0.7)

Note

Foreign exchange translation gain . . . . . . . . . . . . . . Actuarial gains and losses on defined benefit pension schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax recognised on income and expenses recognised directly in equity . . . . . . . . . . . . . . . . . . . . . . . . . Net income/(expense) recognised directly in equity . . Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 (26.2)

(1.1) (34.8)

2.0 (5.9)

Total recognised income and expense for the period attributable to equity holders of the company . . . .

(25.7)

(35.9)

(3.9)

65

Combined and consolidated balance sheet 30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

165.7 221.3 10.1 0.9 8.3

135.9 204.3 6.1 0.9 10.6

119.9 204.3 3.0 0.9 5.3

406.3

357.8

333.4

1.8 17.0 7.0 —

1.5 17.4 19.6 24.5

1.6 18.1 27.7 —

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . .

25.8

63.0

47.4

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

432.1

420.8

380.8

(9.0) (46.3) (0.1) (2.8)

(13.5) (53.9) (0.2) (2.3)

(1.0) (51.5) — (2.1)

(58.2)

(69.9)

(54.6)

(340.5) (22.1) (6.0) (17.8) (6.5)

(352.8) (21.2) (7.3) (16.3) (8.2)

(340.9) (19.4) (4.6) (16.2) (3.9)

Total non-current liabilities . . . . . . . . . . . . . . . . . .

(392.9)

(405.8)

(385.0)

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(451.1)

(475.7)

(439.6)

Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(19.0)

(54.9)

(58.8)

— 0.4 (19.4)

— 0.4 (55.3)

— 0.4 (59.2)

(19.0)

(54.9)

(58.8)

Note

Non-current assets Property, plant and equipment Goodwill . . . . . . . . . . . . . . . . Other intangible assets . . . . . . Other receivables . . . . . . . . . Deferred tax assets . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

12 13 13 17 15

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . Trade and other receivables . . . Cash and cash equivalents . . . . Assets classified as held for sale

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Current liabilities Interest-bearing loans, borrowings and other financial liabilities . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . Current taxes payable . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

16 17 18 4

19 20 22

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Interest-bearing loans, borrowings and other financial liabilities . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . Employee benefits . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Equity attributable to equity holders of the Company Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation reserves . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66

19 20 21 22 15

23 23 23

Combined and consolidated cash flow statement

Note

Cash flow from operating activities Loss for the period . . . . . . . . . . . . Adjusted for: Financial income . . . . . . . . . . . . Financial expense . . . . . . . . . . . Taxation . . . . . . . . . . . . . . . . . .

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

..............

(26.2)

(34.8)

(5.9)

.............. .............. ..............

(0.4) 17.7 4.2

(1.5) 40.8 —

(14.4) 40.8 —

(4.7) 10.0 3.8 —

4.5 25.1 8.8 —

20.5 23.0 2.2 (2.8)

9.1 (4.8) (0.5) 3.8

38.4 (0.4) 0.3 9.7

42.9 (0.7) (0.1) (2.3)

6.5

(2.2)

(0.5)

Cash generated from operations . . . . . . . . . . . . . . . . Tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.1 —

45.8 —

39.3 —

Net cash flows from operating activities . . . . . . . . . . .

14.1

45.8

39.3

— 0.3 (250.0) (11.5)

— 0.4 (2.3) (8.4)

25.1 0.6 — (6.4)

(0.4)

(0.4)

(261.2)

(10.7)

18.9

0.1 235.0 104.0 (7.4) (51.2) (22.4) — (10.0)

— — — (17.9) — — (0.4) —

— 226.0 — (18.8) (253.0) — (0.5) (3.8)

248.1

(18.3)

(50.1)

16.8 2.8 —

8.1 19.6 —

19.6

27.7

Operating (loss)/profit . . . . . . . . Depreciation and amortisation . Impairment charges . . . . . . . . . Profit on the disposal of cinema

.... .... .... sites

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Operating cash flow before changes in working capital and provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in trade and other receivables . . . . . . . . . . (Increase)/decrease in inventories . . . . . . . . . . . . . . Increase/(decrease) in trade and other payables . . . . Increase/(decrease) in provisions and employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from investing activities Proceeds from the sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . Acquisition of subsidiary, net of cash acquired Acquisition of property, plant and equipment . Surplus of pension contributions over current service cost . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

5 12

....

—

Net cash from investing activities . . . . . . . . . . . . . . . Cash flows from financing activities Proceeds from issue of share capital Proceeds from new loan . . . . . . . . . Discounted subordinated bonds . . . Interest paid . . . . . . . . . . . . . . . . . Repayment of bank loans . . . . . . . . Repayment of subordinated bonds . Payment of finance lease liabilities . Debt issuance costs . . . . . . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

19 19 19 19 19 19

Net cash from financing activities . . . . . . . . . . . . . . . Net increase in cash and cash equivalents . . . . . . . . Cash and cash equivalents at start of period . . . . . . Elimination of cash on Cine acquisition . . . . . . . . .

19

1.0 4.0 (2.2)

Cash and cash equivalents at end of period . . . . . . . .

18

2.8

Cash and cash equivalents in the cash flow statement comprise cash and cash equivalents and bank overdrafts included in the balance sheet.

67

Notes to the historical financial information 1.

Basis of preparation

Introduction The principal activity of Cineworld Group plc (the ‘‘Company’’) and its subsidiaries together (the ‘‘Group’’) is the operation of cinemas. The combined and consolidated financial information presented herein is for the 52 week period ended 30 December 2004, the 52 week period ended 29 December 2005 and the 52 week period ended 28 December 2006 (together ‘‘the track record period’’). The combined and consolidated financial information presented is in respect of the underlying business of Cine-UK Limited (‘‘Cine’’) which has been owned under various different corporate structures during the track record period together with the business of Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited) (‘‘UGC’’) since the date of its acquisition by the Group. The combined and consolidated financial information has been prepared in accordance with the requirements of the Prospectus Directive (‘‘PD’’) regulation including the implementing regulation as regards issuers with complex financial histories, the listing rules, and in accordance with this basis of preparation, including the significant accounting policies, described below. The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (Adopted IFRS) except as described below. In particular, Adopted IFRS does not provide for the preparation of combined financial information and accordingly in preparing the combined and consolidated financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from Adopted IFRS. In other respects Adopted IFRS has been applied. ɀ

Combined financial information for the 52 week period ended 30 December 2004 The combined and consolidated financial information combines the financial information for Cine-UK Limited for the period from 2 January 2004 to 6 October 2004 with the consolidated financial information for Cineworld Group plc (including Cine-UK Limited using acquisition accounting) for the period from 7 October 2004. Such an approach differs from the requirements of IFRS 3 (which would exclude the pre-acquisition period) in order to reflect the conventions commonly used in the preparation of historical financial information in investment circulars. In particular, as a result of the preparation of combined and consolidated financial information the loss per share presented in respect of the 52 week period ended 30 December 2004 is not the per share amount that would be required by Adopted IFRS for the period.

ɀ

Statement of compliance with Adopted IFRS As a result of the above matter, no statement of compliance with Adopted IFRS is included in respect of the 52 week period ended 30 December 2004.

Development of the operations included in the Group During the period 1 April 2002 to 7 October 2004 Cine was a stand alone private company. On 23 August 2004 Blackstone established an off the shelf company, Cineworld UK Limited (formerly JAD1 Limited), which in turn acquired an off the shelf company, Augustus 1 Limited, which in turn acquired an off-the-shelf company Augustus 2 Limited. On 7 October 2004 Augustus 2 Limited acquired the entire share capital of Cine-UK Limited, (the ‘‘Cine Acquisition’’). On 30 November 2004 Augustus 2 Limited acquired an off-the-shelf company Cineworld Holdings Limited (formerly JAD 1 Limited and Cineworld Group Limited). On 30 November 2004 Cineworld Holdings Limited acquired the entire share capital of UGC (the ‘‘UGC Acquisition’’).

68

On 17 May 2006 Cineworld UK Limited was re-registered as a public limited company with the name Cineworld Group plc. The Cine Acquisition The Cine Acquisition has been accounted for under the acquisition method within the consolidated financial information of Cineworld Group plc from the date of acquisition, 7 October 2004. All identifiable assets, liabilities and contingent liabilities have been recognised at their fair values at that date. The UGC Acquisition The UGC Acquisition has been accounted for under the acquisition method. Consequently the combined and consolidated financial information of the Group represents the following: For the 52 week periods ended 28 December 2006 and 29 December 2005 The financial information presented herein for the 52 week periods ended 28 December 2006 and 29 December 2005 has been prepared in accordance with Adopted IFRS. This combined and consolidated financial information does not constitute statutory accounts for the 52 week periods ended 28 December 2006, 29 December 2005 or 30 December 2004. The statutory accounts for the 52 weeks ended 28 December 2006, the 52 weeks ended 29 December 2005 and the period from 23 August 2004 to 30 December 2004 have been reported on by the company’s auditors and the 2005 and 2004 accounts (which were prepared under UK GAAP) have been delivered to the registrar of companies. The reports of the auditors were (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Annual Report, including the auditors’ report, can be obtained free of charge on request to the company at Power Road Studios, Power Road, Chiswick, London W4 5PY. The statutory financial statements of the Company for the 52 week period ended 29 December 2005 were prepared under UK GAAP. For the 52 week period ended 30 December 2004 The combined and the consolidated financial information for the 52 week period ended 30 December 2004 is an aggregation of: ɀ

the income and expenses of Cine-UK Limited (‘‘Cine’’) for the 40 week period from 2 January 2004 to 6 October 2004, the date of acquisition of Cine-UK Limited by the Group; and

ɀ

the consolidated financial information of Cineworld Group plc for the 12 week period from 7 October 2004 to 30 December 2004, including Cine-UK Limited using acquisition accounting (see below).

Certain administration costs and the interest and tax charges of Cine for the period prior to the Cine Acquisition on 7 October 2004 reflect the capital structure, financing and other arrangements of Cine prior to acquisition. These are significantly different to those that have existed since the Cine Acquisition. Accordingly these amounts, together with the respective earnings per share figures, may not be comparable within the 52 week period ended 30 December 2004 and between each of the financial periods. IFRS Transition date The Company was a first time adopter of IFRSs as adopted by the EU (Adopted IFRS) in its statutory consolidated financial statements for the 52 week period ended 28 December 2006. Those consolidated financial statements include comparative figures for the 52 week period ended 29 December 2005 and the 129 day period which started on 23 August 2004, the Company’s date of incorporation, and ended on 30 December 2004. In those statutory financial statements the date of transition to Adopted IFRS was 23 August 2004. The reconciliations required by IFRS 1 have been presented in the first IFRS financial statements of the Company for the 52 week period ended 28 December 2006. For the purposes of the income and expenses of Cine-UK Limited (‘‘Cine’’) for the 40 week period from 2 January 2004 to 7 October 2004, the exceptions and exemptions in IFRS 1 have been applied by analogy as if the date of transition to Adopted IFRS was 2 January 2004. The only significant adjustment in respect

69

of this period related to the requirement to spread any reverse lease premium over the full length of the non-cancellable period of the lease rather than over the period to the earlier of the end of the lease or the date of the first rent review. There were no adjustments necessary to reflect the move from this approach in adopting the company’s actual date of transition to Adopted IFRS of 23 August 2004. A reconciliation of the financial information to that included in Cineworld Group plc’s statutory financial statements for the 52 week period ended 28 December 2006 (including comparative figures) is given in note 5. 2.

Accounting policies

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods included within the financial information and in preparing an opening IFRS balance sheet at 2 January 2004 for the purposes of the transition to IFRS in preparing this financial information. Judgments made by the directors, in the application of these accounting policies that have a significant effect on the financial information and estimates with a significant risk of material adjustment in the next year are discussed below. The directors have reviewed the Group’s projected working capital requirements and fixed asset expenditure and believe that the Group has sufficient funding for the foreseeable future. The financial information has therefore been prepared on a going concern basis. Measurement convention The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and financial instruments classified as fair value through the profit or loss or as available-for-sale. Non-current assets and disposal groups held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. Functional and presentation currency This consolidated financial information is presented in sterling which is the Company’s functional currency. Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial information of subsidiaries is included in the consolidated financial information from the date that control commences until the date that control ceases. Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are taken directly to the translation reserve. They are released into the income statement upon disposal.

70

Derivative financial instruments and hedging Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement except where derivatives qualify for hedge accounting, when recognition of any resultant gain or loss depends on the nature of the item being hedged. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as leases. Where land and buildings are held under finance leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Other leases are operating leases. These leased assets are not recognised in the Group’s balance sheet. Lease payments are accounted for as described below. Depreciation is charged to the income statement to write assets down to their residual values on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: ɀ ɀ ɀ ɀ

Freehold buildings and long leasehold properties Leasehold improvements . . . . . . . . . . . . . . . . . . Plant and equipment . . . . . . . . . . . . . . . . . . . . . Fixtures and fittings . . . . . . . . . . . . . . . . . . . . .

. . . .

30 years or life of lease if shorter life of lease 5 to 10 years 4 to 10 years

No depreciation is provided on freehold land, assets held for sale or on assets in the course of construction. Depreciation methods, residual values and the useful lives of all assets are re-assessed annually. Intangible assets and goodwill All business combinations are accounted for by applying the acquisition method. Goodwill represents amounts arising on acquisition of subsidiaries. In respect of business acquisitions that have occurred since 2 January 2004, goodwill represents the difference between the cost of the acquisition and the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Negative goodwill arising on an acquisition is recognised immediately in the income statement.

71

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: ɀ ɀ

Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . .

10 years 3 years

Trade and other receivables Trade and other receivables are stated at cost less impairment losses. Inventories Inventories are stated at the lower of cost and net realisable value. The cost of inventories is based on the FIFO principle. Cost comprises expenditure incurred in acquiring the inventories and bringing them to their existing location and condition, and net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling costs. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows. Impairment The carrying amounts of the Group’s assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and assets that have an indefinite useful economic life, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Calculation of recoverable amount The recoverable amount is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist as a result of a change in the estimates used to determine the recoverable amount, including a change in fair value less costs to sell. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

72

Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Employee benefits Defined contribution pension plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Defined benefit pension plans The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets (at bid price) is deducted. The liability discount rate is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. The increase in the present value of the liabilities expected to arise from the employees’ services in the accounting period is charged to the income statement. The expected return on the schemes’ assets and the interest on the present value of the schemes’ liabilities during the accounting period are shown as finance income and finance expense respectively. Actuarial gains and losses are recognised immediately in equity. The amendments in revised IAS 19 have been applied from 2 January 2004. Share-based payment transactions The share option programme allows Group employees to acquire shares of the company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. Share appreciation rights are also granted by the Company to employees. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is measured, taking into account the terms and conditions upon which the instruments were granted. The liability is remeasured at each balance sheet date and at settlement date and any changes in fair value recognised in the income statement. The Group has taken advantage of the provisions of IFRS 1: First-time Adoption of International Financial Reporting Standards and has recognised an expense only in respect of equity-settled share based payment arrangements granted since 7 November 2002 that had not vested by 1 January 2005. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

73

Own shares held by Employee Benefit Trust (‘‘EBT’’) Transactions of the Group sponsored EBT are included in the Group financial information. In particular, the trust’s purchase of shares in the Company are debited directly to equity. Revenue Revenue represents the total amount receivable for services rendered or goods sold, excluding sales related taxes and intra group transactions. Revenue is recognised in the income statement at the point of sale for ticket and refreshment sales. Income from other related activities is recognised in the period to which they relate. Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Net financing costs Net financing costs comprise interest payable, amortisation of financing costs, unwind of discount on onerous lease provisions, finance lease interest, net gain/loss on re-measurement of interest rate swaps, interest receivable on funds invested, foreign exchange gains and losses and finance costs for defined benefit pension schemes. Sale and leaseback Where the Group enters into a sale and leaseback transaction whereby the risks and rewards of ownership of the assets concerned have not been substantially transferred to the lessor any excess of sales proceeds over the previous carrying amount are deferred and recognised in the income statement over the lease term. At the date of the transaction the assets and the associated finance lease liabilities are recognised on the Group’s balance sheet at the lower of fair value of the leased assets and the present value of the minimum lease payments. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

74

Assets held for sale A non-current asset or a group of assets containing a non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year. On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to the income statement. The same applies to gains and losses on subsequent remeasurement. In accordance with IFRS 1, the above policy is effective from 31 December 2004; no reclassifications are made in prior periods. No depreciation is charged on assets held for sale. Significant accounting judgements and estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In applying the Group’s accounting policies described above management has made the following judgements and estimates that have a significant impact on the amounts recognised in the financial statements. Onerous leases Provision is made for onerous leases where it is considered that the unavoidable costs of the lease obligations are in excess of the economic benefits expected to be received from operating it. The unavoidable costs of the lease reflect the lease net cost of exiting from the contract and are measured as the lower of the net cost of continuing to operating the lease and any penalties or other costs from exiting it. Claims and litigations In making provision for claims and litigations, management bases its judgement on the circumstances relating to each specific event, internal and external legal advice, knowledge of the industries and markets, prevailing commercial terms and legal precedents. Intangible assets When the Group makes an acquisition, management review the business and assets acquired to determine whether any intangible assets should be recognised separately from goodwill. If such an asset is identified, it is valued using appropriate valuation methodology. Where there is uncertainty over the amount of economic benefits and the useful life, this is factored into the calculation. Details of intangible assets are given in note 13. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimate of the value in use of the cash generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash generating unit that holds the goodwill at a determined discount rate to calculate the present value of those cash flows. Note 13 sets out details of the testing of the impairment at the balance sheet date. Employee post retirement benefit obligations The Group has two defined pension benefit plans. The obligations under these plans are recognised in the balance sheet and represent the present value of the obligations calculated by independent actuaries, with input from management. These actuarial valuations include assumptions such as discount rates, return on assets, salary progression and mortality rates. These assumptions vary from time to time according to prevailing economic and social conditions. Details of the assumptions used are provided in note 21.

75

Adopted IFRS not yet applied The following standards were available for early application under Adopted IFRS but have not been applied by the Group in these financial statements. ɀ

IFRIC 4 ‘‘Determining whether an arrangement contains a lease’’

ɀ

IFRIC 8 ‘‘Scope of IFRS 2’’

ɀ

IFRIC 9 ‘‘Reassessment of Embedded Derivatives’’

ɀ

IFRS 7 ‘‘Financial Instruments: Disclosures’’

ɀ

IFRS 8 ‘‘Operating Segments’’

ɀ

Amendments to IAS 1 ‘‘Presentation of Financial Statements: Capital Disclosures’’

ɀ

Amendments to IAS 21 ‘‘The Effects of Changes in Foreign Exchange Rates—Net Investment in a Foreign Operation’’

3.

Segmental information

Geographic sector analysis The Group’s activities in countries other than the UK in all financial periods were not material. Business sector analysis The Group has operated in one business sector in all financial periods, being cinema operations. 4.

Non-current assets held for sale

Assets held for sale/disposal group As part of Cineworld Group plc’s acquisition of Cineworld Cinemas Holdings Limited on 30 November 2004, the company undertook to the Office of Fair Trading (the ‘‘OFT’’) to make divestments in each of the identified six localities where Cineworld and UGC cinemas overlap. On 15 November 2005, the Company agreed to dispose of six sites in these localities together with a seventh cinema site. The seven sites are in the following locations: Sunderland; Bishop’s Stortford; Swindon; Wigan; Ealing; Birmingham and Slough. On 26 May 2006 completion of the sale of four of the sites (Bishops’ Stortford, Ealing, Sunderland and Slough) took place and, on the same date, the parties entered into a variation to the terms of sale agreement pursuant to which part of the consideration payable by Cinema Holdings 2 Limited in respect of certain of the Disposed Sites could be satisfied by the issue of shares in the purchasing company. At the same time a put option agreement would be entered into between certain Group companies and Thomas Anderson, pursuant to which Thomas Anderson could be required to purchase those shares at their issue price plus accrued dividends. On 22 December 2006 completion of the remaining three sites took place. The total sales proceeds were £25.6 million before costs of £0.5 million and the net assets of the sites on disposal was £22.3 million and therefore a gain of £2.8 million was realised in 2006.

76

The following table provides an analysis of assets and liabilities held for sale:

Assets classified as held for sale Intangible assets—goodwill . . . . . . . . . . Intangible assets—customer relationships Property, plant and equipment . . . . . . . Inventory . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Liabilities classified as held for sale Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

— — — —

12.7 0.8 11.1 0.1

— — — —

—

24.7

—

—

(0.2)

—

—

24.5

—

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

The contributions to the Group’s trading of these seven cinemas was as follows: 52 week period ended 30 December 2004 £m

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.8 (5.3)

19.5 (14.5)

13.9 (10.3)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administration expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.5 (1.0)

5.0 (1.9)

3.6 (0.9)

Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5

3.1

2.7

Analysed between: Operating profit before depreciation . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.9 (0.4)

3.7 (0.6)

2.7 —

Upon classification as ‘‘assets held for sale’’ at 29 December 2005, an impairment loss of £5.1 million was recognised which was allocated against goodwill. 5.

Acquisitions of subsidiaries

Cine acquisition On 7 October 2004, the Group acquired all of the ordinary shares of Cine-UK Limited for £53.1 million, satisfied in cash, plus costs of £3.5 million. As described in note 1 the combined and the consolidated financial information for the 52 week period ended 30 December 2004 includes financial information of Cine-UK Limited from 2 January 2004 to 7 October 2004.

77

Effect of Cine acquisition The Cine acquisition had the following effect on the Group’s assets and liabilities as at 7 October 2004.

Book value £m

Intangible assets £m

Other fair value adjustments £m

Fair value £m

Non-current assets Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . .

— 86.8 3.0

1.2 — 0.4

— — —

1.2 86.8 3.4

Current assets Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 9.7 2.2

— — —

— — —

0.5 9.7 2.2

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

102.2

1.6

—

103.8

Current liabilities Accruals and deferred income . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . .

(0.6) — (23.3)

— — —

— — —

(0.6) — (23.3)

Non-current liabilities Accruals and deferred income Loans . . . . . . . . . . . . . . . . . Trade and other payables . . . Deferred tax . . . . . . . . . . . . .

. . . .

(15.0) (70.0) (7.7) —

— — — (0.4)

— (1.5) — —

(15.0) (71.5) (7.7) (0.4)

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

(116.6)

(0.4)

(1.5)

(118.5)

Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

(14.4)

1.2

(1.5)

(14.7)

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Purchase consideration . . . . . . . . . . . . . . . . . . . Costs of acquisition . . . . . . . . . . . . . . . . . . . . . .

(53.1) (3.5) (56.6)

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(71.3)

Consideration paid plus costs . . . . . . . . . . . . . . Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . .

(56.6) 2.2

Net cash outflow . . . . . . . . . . . . . . . . . . . . . . . .

(54.4)

The intangible asset recognised on acquisition is the fair value of the Cineworld brand. The fair value adjustment to loans reflects an adjustment to the carrying value of debt on acquisition. Goodwill on acquisition represents non-contractual customer relationships, the value of the acquired workforce and future synergy benefits to be derived from the combined group. An analysis of the pre and post acquisition results for Cine, is set out below.

78

UGC acquisition On 30 November 2004, the Group acquired all the shares in UGC Cinema Holdings Limited (now Cineworld Cinemas Holdings Limited) (‘‘UGC’’) for £209.7 million, satisfied in cash, plus costs of £6.2 million. In the 5 weeks to 30 December 2004 UGC contributed a loss before tax of £0.7 million to the consolidated net profit for the period. If the acquisition had occurred on 2 January 2004, Group revenue for the 52 week period ended 30 December 2004 would have been £142.6 million higher at £260.4 million and the loss before tax would have been £6.8 million higher at £28.8 million. Effect of UGC acquisition The UGC acquisition had the following effect on the Group’s assets and liabilities as at 30 November 2004. Aquiree’s book value £m

Intangible assets £m

Other fair value adjustments £m

Fair value £m

Non-current assets Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . .

— 74.0 4.4

9.2 — 2.8

— 6.2 —

9.2 80.2 7.2

Current assets Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . .

1.0 6.5 18.8

— — —

— — —

1.0 6.5 18.8

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

104.7

12.0

6.2

122.9

Current liabilities Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . .

(1.3) (0.5) (22.9)

— — —

— — —

(1.3) (0.5) (22.9)

Non-current liabilities Provisions . . . . . . . . . . Finance lease . . . . . . . Other payables . . . . . . Deferred tax liabilities . Employee benefits . . .

. . . . .

(13.1) (6.0) (3.8) — (6.0)

— — — (2.8) —

— — (0.6) — —

(13.1) (6.0) (4.4) (2.8) (6.0)

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

(53.6)

(2.8)

(0.6)

(57.0)

Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51.1

9.2

5.6

65.9

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Purchase consideration . . . . . . . . . . . . . . . . . . . Costs of acquisition . . . . . . . . . . . . . . . . . . . . . .

(209.7) (6.2) (215.9)

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(150.0)

Consideration paid plus costs . . . . . . . . . . . . . . Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . .

(215.9) 18.8

Net cash outflow . . . . . . . . . . . . . . . . . . . . . . . .

(197.1)

The accounting policy alignment relates to a change in depreciation rates to those adopted by the Group. The intangible assets recognised on acquisition represent customer relationships with members of the UGC Unlimited Card Scheme (now the Cineworld Unlimited Card Scheme). The other fair value adjustment relates to attributing a market value to interests in leases where rental payments are below market value. Deferred tax liabilities have been recognised where appropriate which have in some instances allowed equivalent deferred tax assets also to be recognised.

79

Goodwill on acquisition relates to non-contractual customer relationships, the value of the acquired workforce and future synergy benefits to be derived from the combined Group. A summary of trading results of UGC for the 52 week period ended 30 December 2004 to show the pre and post acquisition element is given below: 47 week period ended 30 November 2004 £m

5 week period ended 30 December 2004 £m

52 week period ended 30 December 2004 £m

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142.6 (111.3)

11.8 (9.8)

154.4 (121.1)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31.3

2.0

33.3

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.6 (37.6)

— (3.2)

0.6 (40.8)

Operating profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5.7)

(1.2)

(6.9)

. . . . .

18.5 (13.7) (1.8) (12.0) 3.3

0.4 (1.3) (0.3) — —

18.9 (15.0) (2.1) (12.0) 3.3

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 (0.8)

0.2 —

0.3 (0.8)

Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.7)

0.2

(0.5)

Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.4)

(1.0)

(7.4)

Analysed between: Operating profit before depreciation, impairment charges, onerous lease charges, and profit on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . Onerous lease charges . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit on disposal of tangible fixed assets . . . . . . . . . . . . .

. . . . .

. . . . .

2004 acquisition summary Cine £m

UGC £m

Total £m

Consideration paid plus costs . . . . . . . . . . . . . . . . . . . . . . . . Fair value of net liabilities/(assets) . . . . . . . . . . . . . . . . . . . . .

56.6 14.7

215.9 (65.9)

272.5 (51.2)

Goodwill on acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71.3

150.0

221.3

Consideration paid plus cost . . . . . . . . . . . . . . . . . . . . . . . . . Cash aquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(56.6) 2.2

(215.9) 18.8

(272.5) 21.0

Net cash outflow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(54.4)

(197.1)

(251.5)

Of the above consideration, £250.0 million was paid in 2004 and £1.5 million was paid in 2005. In addition, further costs of £0.8 million were paid in 2005 with an associated increase in goodwill. No further consideration was paid in 2006. An analysis of the combined and consolidated Cineworld Group Plc results for the 52 week period ended 30 December 2004 to show the pre and post acquisition elements which also provides a reconciliation of

80

the income statement reported as a comparative in the financial statements for the 52 week period ended 28 December 2006, is given below. Combined and consolidated Cine-UK Cine-UK Cine-UK Cineworld Limited Limited Limited Other Group plc 40 week 12 week 52 week UGC 5 week 18 week 52 week period ended period ended period ended period ended period ended period ended 7 October 30 December 30 December 30 December 30 December 30 December 2004 2004 2004 2004 2004 2004 £m £m £m £m £m £m

Revenue . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . .

79.4 (65.3)

26.6 (19.9)

106.0 (85.2)

11.8 (9.8)

— —

117.8 (95.0)

Gross profit . . . . . . . . . . . . . Other operating income . . . . Administrative expenses . . . .

14.1 — (19.0)

6.7 — (5.3)

20.8 — (24.3)

2.0 — (3.2)

— — —

22.8 — (27.5)

Operating (loss)/profit . . . . . . Analysed between:

(4.9)

1.4

(3.5)

(1.2)

—

(4.7)

..

11.7

4.1

15.8

0.4

—

16.2

.. .. ..

(7.0) (3.5) (5.8)

(1.7) — (1.0)

(8.7) (3.5) (6.8)

(1.3) (0.3) —

— — —

(10.0) (3.8) (6.8)

..

(0.3)

—

(0.3)

—

—

(0.3)

Financial income . . . . . . . . . Financial expenses . . . . . . . .

0.1 (5.9)

— (1.0)

0.1 (6.9)

0.3 (0.1)

— (10.7)

0.4 (17.7)

Net financing costs . . . . . . . .

(5.8)

(1.0)

(6.8)

0.2

(10.7)

(17.3)

(Loss)/profit before tax . . . . .

(10.7)

0.4

(10.3)

(1.0)

(10.7)

(22.0)

Operating profit before depreciation and amortisation, impairment charges, onerous lease charges and transaction and reorganisation costs . Depreciation and amortisation . . . . . . . . . Impairment charges . . . . . Onerous lease charges . . . . Transaction and reorganisation costs . . . .

Other represents other Cineworld Group plc subsidiary undertakings (as disclosed in note 14) for the 18 week period ended 30 December 2004. The income statement for the 129 day (18 week) period ended 30 December 2004 disclosed as one of the comparative periods in the financial statements of Cineworld Group plc for the 52 week period ended 28 December 2006 comprises the post acquisition financial information disclosed above for: ɀ

Cine-UK Limited: 12 week period ended 30 December 2004;

ɀ

UGC: 5 week period ended 30 December 2004; and

ɀ

Other Cineworld Group plc companies for the 18 week period ended 30 December 2004.

The financial information for the 52 week period ended 29 December 2005 and the 52 week period ended 28 December 2006 are the same as the income statements, for the same periods, presented in the consolidated statutory financial statements of the Company for the 52 week period ended 28 December 2006.

81

6.

Other operating income 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

— —

0.7 —

0.3 2.8

—

0.7

3.1

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of cinema sites (note 4) . . . . . . . . . . . . . . . .

7.

Operating (loss)/profit

Included in operating (loss)/profit for the period are the following:

Depreciation (note 12) . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of intangibles (note 13) . . . . . . . . . . . . . . Impairment of goodwill (note 4) . . . . . . . . . . . . . . . . . Impairment of property, plant and equipment (note 12) Onerous lease and other non-recurring property charges (note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reorganisation costs . . . . . . . . . . . . . . . . . . . . . . . . . . Hire of other assets—operating leases . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

9.7 0.3 — 3.8

21.9 3.2 5.1 3.7

19.9 3.1 — 2.2

. . . .

. . . .

. . . .

. . . .

. . . .

6.8 0.3 — 16.9

0.8 0.5 2.4 39.6

2.3 2.7 0.7 39.9

Transaction costs relate to professional fees in relation to aborted transactions. Reorganisation costs relate to redundancy, rebranding costs and cancellation of material contracts as a result of the UGC acquisition. 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

0.1

0.3

0.2

—

—

—

Company—audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

Amounts received by auditors and their associates in respect of: Audit of financial statements of subsidiaries pursuant to legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other services relating to taxation . . . . . . . . . . . . . . . . . . Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or the Group . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 —

0.3 0.1

0.2 0.5

—

—

1.3

Auditors remuneration: Group—audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . fees receivable by the auditors and their associates in respect of other services . . . . . . . . . . . . . . . . . . . . . .

82

8.

Staff numbers and costs

The average number of persons employed by the group (including directors) during the period, analysed by category, was as follows: Number of employees 52 week 52 week 52 week period ended period ended period ended 30 December 29 December 28 December 2004 2005 2006

Head office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cinemas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63 1,828

133 4,490

116 4,250

1,891

4,623

4,366

Included in the average number of persons employed by the Group are part-time employees. No distinction is made between full time and part time employees in the above analysis. The aggregate payroll costs of these persons were as follows: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

18.0 1.3 0.2

41.1 2.7 0.5

39.8 2.7 0.4

19.5

44.3

42.9

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on re-measurement of interest rate swap to fair value Expected return on defined benefit pension plan assets . . . . . .

0.3 — 0.1

0.4 — 1.1

0.6 12.8 1.0

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.4

1.5

14.4

Interest expense on bank loans and overdrafts . . . . . . . . . . . . Interest expense on subordinated bonds . . . . . . . . . . . . . . . . . Interest accrued on deep discount bonds . . . . . . . . . . . . . . . . Write off of financing fees on redemption of loans . . . . . . . . . Amortisation of financing costs . . . . . . . . . . . . . . . . . . . . . . . Unwind of discount on onerous lease . . . . . . . . . . . . . . . . . . . Net loss on re-measurement of interest rate swap to fair value Finance cost for defined benefit pension scheme (note 21) . . . Recognition of expense relating to cash settled shares . . . . . . . Other financial costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.3 1.7 1.8 4.8 0.7 — 4.3 0.1 — —

17.2 — 10.5 — 2.2 0.3 8.8 1.2 0.3 0.3

18.4 — 11.6 3.1 3.7 0.6 — 1.3 0.9 1.2

Financial expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.7

40.8

40.8

Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

Finance income and expense

83

10. Taxation Recognised in the income statement 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

— —

— —

— —

—

—

—

Deferred tax expense Origination and reversal of temporary differences . . . . . . . . . . Benefit of tax losses recognised . . . . . . . . . . . . . . . . . . . . . . . Adjustment for prior years . . . . . . . . . . . . . . . . . . . . . . . . . .

— — 4.2

1.8 (1.8) —

4.6 (4.6) —

Total tax in income statement . . . . . . . . . . . . . . . . . . . . . . . .

4.2

—

—

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Current tax expense Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for prior years . . . . . . . . . . . . . . . . . . . . . . . . . .

Reconciliation of effective tax rate

Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax using the UK corporation tax rate of 30% (2004: 30%) . Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Differences in overseas tax rates . . . . . . . . . . . . . . . . . . . . Effect of tax losses utilised . . . . . . . . . . . . . . . . . . . . . . . . Losses not recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of deferred tax asset . . . . . . . . . . . . . . . . . . . . . . Temporary differences not recognised . . . . . . . . . . . . . . . . Accelerated capital allowances not recognised . . . . . . . . . . Capital gain on disposal of cinema sites . . . . . . . . . . . . . . .

. . . . . . . . .

(22.0)

(34.8)

(5.9)

(6.6) 2.1 0.1 (0.4) 4.8 4.2 — — —

(10.4) 1.0 — (2.5) 9.1 — 4.2 (1.4) —

(1.8) 4.8 — 0.2 — — (2.6) (3.3) 2.7

. . . . . . . . .

Total tax in income statement . . . . . . . . . . . . . . . . . . . . . . . .

4.2

—

—

During the period there was a deferred tax credit of £0.8 million (2004: £nil; 2005: debit of £0.4 million) credited directly to equity. See note 15. Factors that may affect future tax charges As at 28 December 2006 the Group had the potential gross tax assets relating to the following: ɀ

tax losses of approximately £nil;

ɀ

capital allowances in excess of depreciation of approximately £18.7 million; and

ɀ

other non-trading and capital losses of approximately £49.0 million.

No deferred tax assets were recognised at 28 December 2006 in respect of the above items, as at that date the Group’s funding structure was leading to substantial unrelieved non-trading deficits. Following the Global Offer it is intended to restructure the Group’s funding arrangements and on the assumption that this goes ahead as planned the Group would expect to start utilising the capital allowances in excess of depreciation against future total taxable profits. The Group has no expectation that it will be able to use its other losses in the foreseeable future except against a capital gain on future property disposals. The net tax benefit of utilising any of the above losses is expected to amount to approximately 30 per cent. of the losses utilised. To the extent that such potential deferred tax assets crystallise or are recognised in future, a tax credit will arise. Where such potential tax assets relate to Cineworld Group plc’s acquisitions of Cine or UGC an

84

equivalent reduction in goodwill will also be made via an additional amortisation charge within administrative expenses. 11. Loss per share The calculations of the basic and diluted loss per ordinary share has been based on the loss for the period and the number of shares for the relevant periods set out below. The number of shares represents the weighted average share capital of the Company after taking into account the restructuring of the existing share capital on admission (see note 28). The number of shares in the Company in issue prior to 7 October 2004 has been taken to be the number of shares issued on that date adjusted on a pro rata basis to reflect changes to the number of A ordinary Cine-UK Limited shares (or such other shares which were subsequently converted into ordinary shares) in issue during the period from 2 January 2004 to 7 October 2004. The loss per share calculated as set out above may not be comparable between periods or representative of future calculation: for example, the historical capital structure does not reflect the current capital structure. Further, interest income and expense, certain operating costs and tax charges may be significantly different from those that resulted from the Group’s previous ownership structure. Reconciliations of the loss and weighted average number of shares used in the calculations are set out below: 52 week period ended 30 December 2004

Loss £m

Loss attributable to shareholders . . . . . . . . . Weighted average number of shares (basic) . Loss per share (basic) . . . . . . . . . . . . . . . . . Weighted average number of shares (diluted) Loss per share (diluted) . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Weighted average number of shares millions

Per share amount pence

(26.2) 19.6 (133.7) 19.6 (133.7)

52 week period ended 29 December 2005

Loss £m

Loss attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . Weighted average number of shares (basic and diluted) . . . . . Loss per share (basic and diluted) . . . . . . . . . . . . . . . . . . . . .

Weighted average number of shares millions

Per share amount pence

(34.8) 34.6 (100.6)

52 week period ended 28 December 2006

Loss £m

Loss attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . Weighted average number of shares (basic and diluted) . . . . . Loss per share (basic and diluted) . . . . . . . . . . . . . . . . . . . . .

85

Weighted average number of shares millions

Per share amount pence

(5.9) 34.6 (17.1)

12. Property, plant and equipment 52 Week period ended 30 December 2004, 52 week period ended 29 December 2005 and 52 week period ended 28 December 2006 Land and buildings £m

Cost Balance at 2 January 2004 . . . . Additions . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . Transfers . . . . . . . . . . . . . . . . Eliminated on Cine acquisition UGC acquisition . . . . . . . . . . . Exchange movements . . . . . . .

. . . . . . .

. . . . . . .

62.7 2.8 — 5.2 (13.7) 42.3 0.1

50.6 4.8 (0.5) — (24.3) 4.8 —

0.8 0.5 — — (0.6) 32.2 0.1

2.1 3.4 — (5.2) — 0.9 —

116.2 11.5 (0.5) — (38.6) 80.2 0.2

Balance at 30 December 2004 . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . Transfers . . . . . . . . . . . . . . . . . . . . . Exchange movements . . . . . . . . . . . . Reclassification of assets held for sale

. . . . . .

. . . . . .

. . . . . .

99.4 1.3 — 0.1 (0.1) (7.8)

35.4 2.7 (0.2) — — (1.7)

33.0 3.2 (0.3) — (0.3) (1.6)

1.2 0.2 — (0.1) — —

169.0 7.4 (0.5) — (0.4) (11.1)

Balance at 29 Additions . . . Disposals . . . Transfers . . .

. . . .

. . . .

. . . .

92.9 1.3 (7.4) 1.0

36.2 1.7 (6.4) (0.8)

34.0 2.9 (6.8) 0.1

1.3 0.2 — (0.3)

164.4 6.1 (20.6) —

87.8

30.7

30.2

1.2

149.9

Balance at 28 December 2006 . Accumulated depreciation and impairment Balance at 2 January 2004 . . . . Charge . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . Eliminated on Cine acquisition Exchange movements . . . . . . .

. . . .

. . . .

. . . . . . .

. . . .

. . . . . . .

Total £m

. . . . . . .

. . . .

. . . . . . .

Fixtures and fittings £m

. . . . . . .

December 2005 ............ ............ ............

. . . . . . .

Plant and equipment £m

Assets in the course of construction £m

. . . .

. . . .

........

. . . . . .

. . . . . .

. . . . . .

. . . . . .

8.8 3.1 — 2.8 (13.7) —

19.5 5.6 (0.5) 1.0 (24.3) 0.1

0.5 1.0 — — (0.6) —

— — — — — —

28.8 9.7 (0.5) 3.8 (38.6) 0.1

Balance at 30 December 2004 . . . . . . Charge for period . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . Exchange movement . . . . . . . . . . . . . Reclassification of assets held for sale

. . . . . .

. . . . . .

. . . . . .

1.0 5.7 3.0 — (0.1) (0.2)

1.4 7.1 0.1 (0.1) — (0.2)

0.9 9.7 0.6 (0.3) 0.1 (0.2)

— — — — — —

3.3 22.5 3.7 (0.4) — (0.6)

Balance at 29 December 2005 Charge for period . . . . . . . . . Transfers . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

9.4 4.5 (0.1) (7.4) 1.4

8.3 6.6 — (6.4) 0.8

10.8 8.8 0.1 (6.8) —

— — — — —

28.5 19.9 — (20.6) 2.2

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . .

Balance at 28 December 2006 . . . . . . . . . Net book value At 2 January 2004 . . . . . . . . . . . . . . . . .

7.8

9.3

12.9

—

30.0

53.9

31.1

0.3

2.1

87.4

At 30 December 2004 . . . . . . . . . . . . . . .

98.4

34.0

32.1

1.2

165.7

At 29 December 2005 . . . . . . . . . . . . . . .

83.5

27.9

23.2

1.3

135.9

At 28 December 2006 . . . . . . . . . . . . . . .

80.0

21.4

17.3

1.2

119.9

86

The net book value of land and buildings comprised:

Freehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

1.3 5.2 91.9

1.3 2.0 80.2

0.1 3.1 76.8

98.4

83.5

80.0

Security The secured bank loans (see note 19) are secured by fixed and floating charges on the assets of the Group. The net book value of assets held under a finance lease was: 30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

The net book value of finance leases comprised: Opening net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . On acquisition of UGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— 6.8 (0.2)

6.6 — (0.3)

6.3 — (0.3)

Closing net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.6

6.3

6.0

Impairment testing Details of the impairment testing are set out in note 13.

87

13. Intangible assets 52 week periods ended 30 December 2004, 29 December 2005 and 28 December 2006

Goodwill £m

Customer relationships £m

Brand £m

Total £m

Cost Balance at 2 January 2004 . . . . . . . . . . . . . . . . . Acquisitions through business combinations . . . .

— 221.3

— 1.2

— 9.2

— 231.7

Balance at 30 December 2004 . . . . . . . . . . . . . .

221.3

1.2

9.2

231.7

Acquisitions through business combinations . . . . Reclassification of assets held for sale . . . . . . . .

0.8 (17.8)

— —

— (0.8)

0.8 (18.6)

Balance at 29 December 2005 . . . . . . . . . . . . . .

204.3

1.2

8.4

213.9

Balance at 28 December 2006 . . . . . . . . . . . . . .

204.3

1.2

8.4

213.9

Accumulated amortisation and impairment Balance at 2 January 2004 . . . . . . . . . . . . . . . . . Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— —

— —

— 0.3

— 0.3

Balance at 30 December 2004 . . . . . . . . . . . . . . Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— —

— 0.1

0.3 3.1

0.3 3.2

Balance at 29 December 2005 . . . . . . . . . . . . . . Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— —

0.1 0.1

3.4 3.0

3.5 3.1

Balance at 28 December 2006 . . . . . . . . . . . . . .

—

0.2

6.4

6.6

Net book value At 2 January 2004 . . . . . . . . . . . . . . . . . . . . . .

—

—

—

—

At 30 December 2004 . . . . . . . . . . . . . . . . . . . .

221.3

1.2

8.9

231.4

At 29 December 2005 . . . . . . . . . . . . . . . . . . . .

204.3

1.1

5.0

210.4

At 28 December 2006 . . . . . . . . . . . . . . . . . . . .

204.3

1.0

2.0

207.3

Details of acquisitions are set out in note 5. Impairment testing Goodwill on acquisition is allocated to individual Cash Generating Units (CGU’s). Each individual cinema is considered to be a CGU, however for the purpose of testing goodwill for impairment, it is acceptable under IAS 36 to group CGU’s. This is because the CGU’s were acquired as part of the same investment and are involved in the same business operation. Accordingly three groups of CGU’s have been identified: ɀ

ex Cine-UK sites

ɀ

ex UGC sites excluding Dublin

ɀ

Dublin

Dublin is considered as a separate CGU as a CGU cannot be larger than a segment, and Ireland is considered to be a separate segment. The key assumptions behind the impairment review, which also drives the fixed asset impairment review and calculation of the onerous lease provisions, are as follows: 2007 forecast earnings before interest, tax, depreciation, and amortisation was used as the basis of the future cash flow calculation. This is adjusted to add back rent (EBITDAR). In line with long term industry growth rates, EBITDAR is assumed to grow at 3% per annum for the first five years. Thereafter it is assumed that the growth rate will decline over the remaining 15 years of cash flows. ɀ

Property costs are factored into the model, but are assumed to grow at 2.5% per annum over the life of the model. Cash flows are not assumed in perpetuity

ɀ

A discount rate of 11.8% has been used which was based on the group’s WACC.

88

Amortisation charge The amortisation of intangible assets is recognised in the following line items in the income statement:

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

0.3

3.2

3.1

0.3

3.2

3.1

14. Investments in subsidiaries The principal subsidiary undertakings for the periods ended 30 December 2004, 29 December 2005 and 28 December 2006 were as follows: Subsidiary undertakings

Country of Incorporation

Principal activity

Class and percentage of shares held

Augustus 1 Limited . . . . . . . . . . . . . . .

England & Wales

Holding company

Ordinary 100

Augustus 2 Limited . . . . . . . . . . . . . . .

England & Wales

Holding company

Ordinary 100

Cineworld Holdings Limited . . . . . . . .

England & Wales

Holding company

Ordinary 100

Cine-UK Limited . . . . . . . . . . . . . . . .

England & Wales

Cinemas operations

Ordinary 100

Cineworld Cinemas Holdings Limited .

England & Wales

Holding company

Ordinary 100

Cineworld Cinemas Limited . . . . . . . .

England & Wales

Holding company and cinema operations

Ordinary 100

Cineworld Estates Limited . . . . . . . . .

England & Wales

Cinema property leasing

Ordinary 100

Adelphi-Carlton Limited . . . . . . . . . . .

Eire

Cinema operation

Ordinary 100

Cineworld Cinema Properties Limited .

England & Wales

Property company

Ordinary 100

Classic Cinemas Limited . . . . . . . . . . .

England & Wales

Retail services company

Ordinary 100

Augustus 1 Limited, Augustus 2 Limited and Cineworld Holdings Limited were acquired for the nominal value of their share capital with no goodwill arising on acquisition.

89

15. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities for the 52 week periods ended 30 December 2004 and 29 December 2005 Deferred tax assets and liabilities are attributable to the following: Assets 30 December 29 December 2004 2005 £m £m

Property, plant and equipment . . . . . . . Intangible assets . . . . . Assets held for sale . . . Employee benefits . . . Tax value of loss carryforward . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

Liabilities 30 December 29 December 2004 2005 £m £m

Net 30 December 29 December 2004 2005 £m £m

. . . .

— — — 1.8

— — — 2.2

(5.1) (3.2) — —

(6.9) (3.0) (0.2) —

(5.1) (3.2) — 1.8

(6.9) (3.0) (0.2) 2.2

.....

8.3

10.1

—

—

8.3

10.1

10.1 (1.8)

12.3 (1.7)

(8.3) 1.8

(10.1) 1.7

1.8 —

2.2 —

8.3

10.6

(6.5)

(8.4)

1.8

2.2

Tax assets/(liabilities) . . . . . . Set-off tax . . . . . . . . . . . . . .

Recognised deferred tax assets and liabilities for the 52 week period ended 28 December 2006 Deferred tax assets and liabilities are attributable to the following: Asssets 28 December 2006 £m

Property, plant and equipment Intangible assets . . . . . . . . . . . Assets held for sale . . . . . . . . . Employee benefits . . . . . . . . . Tax value of loss carry-forward

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Liabilities 28 December 2006 £m

Net 28 December 2006 £m

— — — 1.4 5.5

(4.9) (0.6) — — —

(4.9) (0.6) — 1.4 5.5

Tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Set off tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.9 (1.6)

(5.5) 1.6

1.4 —

Net tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.3

(3.9)

1.4

At 28 December 2006 the Group had net deferred tax assets totalling £20.0 million which have not been recognised for the reasons set out in note 10. These tax assets have no expiry date. Movement in deferred tax during the 52 week periods ended 30 December 2004, 29 December 2005 and 28 December 2006 2 January 2004 £m

Property, plant and equipment Intangible assets . . . . . . . . . . . Employee benefits . . . . . . . . . Tax value of loss carry-forwards

...... ...... ...... utilised

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Recognised in income £m

Acquisition of UGC £m

30 December 2004 £m

. . . .

1.6 — — —

(7.5) (3.2) — 6.5

0.8 — 1.8 1.8

(5.1) (3.2) 1.8 8.3

Tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . .

1.6

(4.2)

4.4

1.8

90

31 December 2004 £m

Property, plant and equipment Intangible assets . . . . . . . . . . . Assets held for sale . . . . . . . . . Employee benefits . . . . . . . . . Tax value of loss carry-forward

. . . . .

Tax assets/(liabilities) . . . . . . . .

. . . . .

Tax assets/(liabilities) . . . . . . . .

Reclassification £m

Recognised in equity £m

29 December 2005 £m

(5.1) (3.2) — 1.8 8.3

(2.0) 0.2 — — 1.8

0.2 — (0.2) — —

— — — 0.4 —

(6.9) (3.0) (0.2) 2.2 10.1

1.8

—

—

0.4

2.2

30 December 2005 £m

Property, plant and equipment Intangible assets . . . . . . . . . . . Assets held for sale . . . . . . . . . Employee benefits . . . . . . . . . Tax value of loss carry-forward

Recognised in income £m

Recognised in income £m

Reclassification £m

Recognised in equity £m

28 December 2006 £m

(6.9) (3.0) (0.2) 2.2 10.1

2.0 2.4 0.2 — (4.6)

— — — — —

— — — (0.8) —

(4.9) (0.6) — 1.4 5.5

2.2

—

—

(0.8)

1.4

16. Inventories

Raw materials and consumables . . . . . . . . . . . . . . . . . . . . . . . Goods for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

0.1 1.7

0.1 1.4

0.1 1.5

1.8

1.5

1.6

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

1.1 1.1 14.8

1.6 0.5 15.3

1.7 1.5 14.9

17.0

17.4

18.1

17. Trade and other receivables Current

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . .

Non-current Non-current trade and other receivables at 30 December 2004, 29 December 2005, and 28 December 2006 were £0.9 million, £0.9 million and £0.9 million, respectively, and relate to land lease premiums which are being amortised over the lives of the leases. 18. Cash and cash equivalents 30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

Cash and cash equivalents per balance sheet . . . . . . . . . . . . . Bank overdrafts (see note 19) . . . . . . . . . . . . . . . . . . . . . . . .

7.0 (4.2)

19.6 —

27.7 —

Cash and cash equivalents per cash flow statement . . . . . . . . .

2.8

19.6

27.7

91

19. Other interest-bearing loans and borrowings and other financial liabilities This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings.

Non-current liabilities Deep discounted bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% interest bearing unsecured bonds . . . . . . . . . . . . . . . . Secured bank loans, less issue costs of debt to be amortised Liabilities under finance leases . . . . . . . . . . . . . . . . . . . . . Current liabilities Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities under finance leases . . . . . . . . . . . . . . . . . . . . . Secured bank loans, less issue costs of debt to be amortised Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

104.7 1.0 228.8 6.0

115.1 1.1 230.9 5.7

126.6 1.2 206.7 6.4

340.5

352.8

340.9

4.3 0.5 — 4.2

13.1 0.4 — —

0.3 0.5 0.2 —

9.0

13.5

1.0

Deep discounted bonds The bonds are zero coupon and unsecured and bear an effective interest rate of 10 per cent. per annum which is payable on redemption of the bonds. The amounts redeemable are: £152.8 million on 7 October 2014 (book value £105.7 million) and £103.9 million on 1 December 2014 (book value £116.2 million). The bonds are measured at amortised cost. Subject to having given no less than 30 days and not more than 60 days notice in writing to the bondholders the Group may, at any time, with the consent of the bondholders having the majority of the bonds, redeem the whole or any part of the bonds. 10 per cent. interest bearing unsecured bonds The 10 per cent. interest bearing unsecured bonds have a redemption date of 7 October 2014. Interest is payable on repayment or redemption of the bonds. Secured bank loans (2004 and 2005) The secured bank loans (Term A & B) are repayable by 30 November 2007. The interest rate charged is LIBOR plus 2.25 per cent for the Term A loan and LIBOR plus 6 per cent. for the Term B loan. The interest rates increase by 0.25 per cent. per annum at 3 monthly intervals. These loans are measured at amortised cost. Bank loans and bank overdrafts are secured by a fixed charge and floating charge over the entirety of the Group’s assets and undertakings. Secured bank loans (2006) On 22 June 2006 the bank loans were refinanced on new terms, comprising: ɀ

Term A: £45 million drawn down at 28 December 2006, repayable over the term to 22 June 2013 at 2.25% above LIBOR.

ɀ

Term B: £81.5 million drawn down at 28 December 2006, repayable in full on 22 June 2014 at 2.5% above LIBOR.

ɀ

Term C: £81.5 million drawn down at 28 December 2006, repayable in full on 22 June 2015 at 3.0% above LIBOR.

ɀ

Term D: undrawn, repayable in full on 22 December 2016 at 2.75% above LIBOR.

The bank loans are secured by fixed and floating charges on the assets of the group. On 25 August 2006 the loans were syndicated.

92

As at 28 December 2006, the Group had drawn down a total of £208 million on the available £246 million facility. The Group intends to refinance in April 2007, accordingly, the bank loan issue costs are being amortised over 9 months, being the expected term of the loans. Finance lease liabilities The maturity of obligations under finance leases is as follows:

Within one year . . . . . . . . Between one and two years In the second to fifth years Over five years . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

0.5 0.5 1.5 13.3

0.5 0.5 1.6 12.7

0.5 0.5 1.7 12.1

15.8 (9.3)

15.3 (9.2)

14.8 (7.9)

6.5

6.1

6.9

0.5 6.0

0.4 5.7

0.5 6.4

6.5

6.1

6.9

. . . .

Less future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . Analysed as: Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . More than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Analysis of net debt 52 week periods ended 30 December 2004, 29 December 2005 and 28 December 2006 Cash at bank and in hand £m

At 2 January 2004 . . . . . . Cash flows . . . . Acquired on acquisition of UGC . . . . . . Eliminated on Cine acquisition . . Non cash movement . .

Cash and Overdraft overdrafts £m £m

Bank Loans £m

. .

4.0 5.2

— (4.2)

4.0 1.0

.

—

—

—

—

—

.

(2.2)

—

(2.2)

—

.

—

—

—

At 30 December 2004 . . . . . . . Cash flows . . . . .

7.0 12.6

Non cash movement . . .

—

At 29 December 2005 . . . . . . . Cash flows . . . . . Non cash movement . . . At 28 December 2006 . . . . . . .

— (104.0)

Finance leases £m

Interest Rate swap £m

Net debt £m

— —

(68.1) (254.4)

—

(6.5)

—

(6.5)

—

—

—

—

(2.2)

(5.3)

—

(1.7)

—

(4.3)

(11.3)

2.8 16.8

(228.8) —

— —

(105.7) —

(6.5) 0.4

—

—

(2.1)

—

(10.5)

—

19.6 8.1

— —

19.6 8.1

(230.9) 30.8

— —

(116.2) —

(6.1) 0.5

—

—

—

(6.8)

—

(11.6)

(1.3)

12.8

27.7

—

27.7

(206.9)

—

(127.8)

(6.9)

(0.3) (314.2)

93

(22.4) 22.4

Deep Discounted Bonds £m

— —

(4.2) 4.2

(49.7) (173.8)

Subordinate bonds £m

(4.3) (342.5) — 17.2 (8.8)

(21.4)

(13.1) (346.7) — 39.4 (6.9)

The non-cash movements relating to bank loans represent the write-off or amortisation of bank fees previously capitalised, and those on bonds to interest accrued but not payable until the redemption of the bonds. The cash of £2.2 million held by Cine on its acquisition is eliminated as it is also taken into account in the net purchase consideration. The financial information shows the continuing track record of Cine as described in note 1 (Basis of preparation). 20. Trade and other payables

Current Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . .

Non current Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

13.1 4.0 29.2

18.3 5.6 30.0

16.0 6.6 28.9

46.3

53.9

51.5

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

22.1

21.2

19.4

21. Employee benefits Pension plans The group operates two externally funded defined benefit pension schemes, one in the United Kingdom, the MGM Pension Scheme, and one in Ireland, the Adelphi-Carlton Limited Contributory Pension Plan. Under the MGM Pension Scheme, the Company contributed at a rate of 14 per cent. of Contribution Salary until 31 March 2004 and at the rate of 10.7 per cent. of New Contribution Salary from 1 April 2004 to the MGM Pension Scheme (the main Defined Benefit pension scheme sponsored by the Company). In addition the Company made a special contribution of £375,000 in March 2004 and makes further special contributions of £31,250 per month from April 2004. The latest actuarial valuation of the MGM Pension Scheme took place on 5 April 2006. The principal assumptions used by the independent qualified actuaries in updating the latest valuation of the scheme for IAS 19 are stated further below. The Adelphi-Carlton Limited Contributory Pension Plan is closed to new entrants and therefore the current service cost is £nil. The trustees of the Adelphi-Carlton Contributory Pension Plan have not agreed that any surplus on the plan can be refunded to the Company. Accordingly the surplus has not been recognised. Actuaries for Adelphi-Carlton Limited carried out the last actuarial valuation of the scheme as at 1 October 2003. Based on this assessment, the actuarial value of the assets of the scheme was more than sufficient to cover 100 per cent. of the benefits that had accrued to members. In view of this, a suspension of company contributions was in force from 1 April 2001 to 28 December 2006. Total contributions for the 52 weeks ended 29 December 2005 and 52 weeks ended 28 December 2006 were £nil and £nil, respectively. Actuarial gains and losses are recognised immediately in equity. The net deficit in the pension scheme is:

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

MGM Pension scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adelphi-Carlton Limited Contributory Pension . . . . . . . . . . . .

(6.0) —

(7.3) —

(4.6) —

Net deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0)

(7.3)

(4.6)

94

MGM Pension scheme

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

Present value of funded defined benefit obligations . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24.4) 18.4

(28.2) 20.9

(26.4) 21.8

Deficit in scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0)

(7.3)

(4.6)

Movements in present value of defined benefit obligation: 52 week period ended 30 December 2004 £m

At beginning of period . . . . . . . . . . . . . . Present value of defined benefit obligation UGC . . . . . . . . . . . . . . . . . . . . . . . . . Current service cost . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . Contributions by scheme participants . . . . Actuarial gains/(losses) . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . .

............. on acquisition of ............. ............. ............. ............. ............. .............

.. . . . . . .

—

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

(24.4)

(28.2)

. . . . . .

(24.4) — (0.1) — 0.1 —

— (0.1) (1.2) (0.1) (3.4) 1.0

— (0.1) (1.3)

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24.4)

(28.2)

(26.4)

2.3 0.9

Movements in fair value of plan assets: 52 week period ended 30 December 2004 £m

At start of period . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets on acquisition of UGC Expected return on plan assets . . . . . . . . . . . . Actuarial gains . . . . . . . . . . . . . . . . . . . . . . . . Contributions by employer . . . . . . . . . . . . . . . Contributions by members . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

. . . . . . .

— 18.2 0.1 0.1 — — —

18.4 — 1.0 1.9 0.5 0.1 (1.0)

20.9 — 1.0 0.4 0.5 0.1 (1.1)

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.4

20.9

21.8

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Income/(expense) recognised in the consolidated income statement:

Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on defined benefit pension plan obligation . . . . . . . . . Expected return on defined benefit pension plan assets . . . . . .

— (0.1) 0.1

(0.1) (1.2) 1.0

(0.1) (1.3) 1.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(0.3)

(0.4)

95

The income/(expense) is recognised in the following line items in the consolidated income statement: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— (0.1) 0.1

(0.1) (1.2) 1.0

(0.1) (1.3) 1.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(0.3)

(0.4)

Actuarial gains/losses recognised in equity: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Actuarial gains/(losses) recognised in the period . . . . . . . . . . . Cumulative amount at start of period . . . . . . . . . . . . . . . . . . .

0.1 —

(1.5) 0.1

2.7 (1.4)

Cumulative amount at end of period . . . . . . . . . . . . . . . . . . .

0.1

(1.4)

1.3

The fair value of the plan assets and the return on those assets were as follows: Long-term rate of return expected at 30 December 2004

Equities . . . . . . . . . Fixed interest bonds Index linked bonds . Other . . . . . . . . . . .

. . . .

7.55% 4.55% 4.30% 4.80%

Long-term rate of return expected at 29 December 2005

52 week period ended 30 December 2004 £m

9.3 2.7 6.3 0.1

7.50% 4.00% 3.75% 4.60%

18.4

52 week period ended 29 December 2005 £m

10.5 3.1 7.3 —

Long-term rate of return expected at 28 December 2006

8.00% 4.50% 4.25% 5.30%

20.9

52 week period ended 28 December 2006 £m

11.2 3.1 7.4 0.1 21.8

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Expected return on scheme assets . . . . . . . . . . . . . . . . . . . . . Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 0.1

1.0 1.9

1.0 0.4

Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . .

0.2

2.9

1.4

52 week period ended 30 December 2004 %

52 week period ended 29 December 2005 %

52 week period ended 28 December 2006 %

2.9 4.4 2.10-3.60 5.25

2.9 4.4 2.40-3.50 4.70

3.1 4.6 2.70-3.50 5.2

Principal actuarial assumptions (expressed as weighted averages):

Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of general long-term increase in salaries . Rate of increase to pensions in payment . . . . Discount rate for scheme liabilities . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Demographic assumptions have been taken to be the same as those adopted for the actuarial valuation, except in relation to post retirement mortality. The IAS 19 assumptions at 28 December 2006 have adopted standard mortality tables that estimate life expectancies from age 65 for future pensioner male and females of 20.1 years and 22.7 years respectively (for prior year 19.3 years and 22.2 years respectively).

96

History of plans The history of the plans for the current and prior periods is as follows: Balance sheet 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Present value of defined benefit obligation . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24.4) 18.4

(28.2) 20.9

(26.4) 21.8

Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0)

(7.3)

(4.6)

Experience adjustments 52 week period ended 30 December 2004 £m

Experience adjustments on plan assets . . . . . . . . . . . . . . . . . . Experience adjustments on plan liabilities . . . . . . . . . . . . . . . . Gains/(losses) on change in actuarial assumptions . . . . . . . . . .

0.1 0.1 —

52 week period ended 29 December 2005 £m

1.9 (0.1) (3.3)

52 week period ended 28 December 2006 £m

0.3 1.1 —

The Group expects to contribute approximately £0.4m to its defined benefit plans in the next financial period. Adelphi-Carlton Limited Contributory Pension 30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

Present value of funded defined benefit obligations . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1) 1.6

(1.1) 1.7

(1.0) 1.7

Surplus in scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrecoverable surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 (0.5)

0.6 (0.6)

0.7 (0.7)

—

—

—

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Movements in present value of defined benefit obligation

At beginning of period . . . . . . . . . . . . . . Present value of defined benefit obligation UGC . . . . . . . . . . . . . . . . . . . . . . . . . . . Current service cost . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . Actuarial gains/(losses) . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . Contributions by members . . . . . . . . . . . . Exchange adjustments . . . . . . . . . . . . . . .

............. on acquisition of ............. ............. ............. ............. ............. ............. .............

..

—

(1.1)

(1.1)

. . . . . . .

. . . . . . .

(1.1) — — — — — —

— — — — — — —

— — — — 0.1 — —

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1)

(1.1)

(1.0)

97

Movements in fair value of plan assets 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

..

—

1.6

1.7

. . . . .

. . . . .

1.6 — — — —

— 0.1 0.2 (0.1) (0.1)

— 0.1 — (0.1) —

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.6

1.7

1.7

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on defined benefit pension plan obligation . . . . . . . . . Expected return on defined benefit pension plan assets . . . . . .

— — —

— — 0.1

— — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

0.1

—

At start of period . . . . . . . . . . . . . . . . . . Present value of defined benefit obligation UGC . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . Actuarial gains . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . Exchange adjustments . . . . . . . . . . . . . . .

............. on acquisition of ............. ............. ............. ............. .............

Expense recognised in the consolidated income statement

The income is recognised in the following line items in the consolidated income statement: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

—

0.1

—

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Actuarial gains recognised in the period . . . . . . . . . . . . . . . . . Cumulative amount at start of period . . . . . . . . . . . . . . . . . . .

— —

0.1 —

— 0.1

Cumulative amount at end of period . . . . . . . . . . . . . . . . . . .

—

0.1

0.1

Expected rate of return

26 week period ended 28 December 2006 £m

7.50% 5.60% 4.20% 3.50%

0.6 0.1 1.0 —

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gains recognised directly in equity:

The fair value of the plan assets and the return on those assets were as follows:

Equities . . . . . . . Property . . . . . . . Corporate bonds . Other . . . . . . . . .

. . . .

. . . .

. . . .

Expected rate of return

52 week period ended 30 December 2004 £m

Expected rate of return

52 week period ended 29 December 2005 £m

8.00% 6.00% 3.60% 2.50%

0.5 — 1.0 0.1

7.90% 5.80% 3.40% 2.50%

0.6 0.1 1.0 —

1.6

1.7

98

1.7

Actual return on plan assets: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Expected return on scheme assets . . . . . . . . . . . . . . . . . . . . . Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— —

0.1 0.2

0.1 —

Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . .

—

0.3

0.1

Principal actuarial assumptions (expressed as weighted averages):

Inflation rate . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . Rate of pension increases in payment . Rate of pension increases in deferment

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Material demographic assumptions . . . . . . . . . . . . . .

52 week period ended 30 December 2004 %

52 week period ended 29 December 2005 %

52 week period ended 28 December 2006 %

2.25 4.5 5.04 3.00 2.25 PMA92c10 for Males PFA92c10 for Females

2.25 4.1 5.06 3.00 2.25 PMA92c10 for Males PFA92c10 for Females

2.35 4.5 5.44 3.00 2.25 PMA92c10 for Males PFA92c10 for Females

History of plans The history of the plans for the current and prior periods is as follows: Balance sheet 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Present value of defined benefit obligation . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1) 1.6

(1.1) 1.7

(1.0) 1.7

Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrecoverable surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 (0.5)

0.6 (0.6)

0.7 (0.7)

—

—

—

52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Experience adjustments

Experience adjustments on plan assets . . . . . . . . . . . . . . . . . . Experience adjustments on plan liabilities . . . . . . . . . . . . . . . . Gains/(losses) on change in actuarial assumptions . . . . . . . . . .

— — —

0.2 — (0.1)

— — 0.1

The Group expects to contribute approximately £nil to its defined benefit plans in the next financial period. Defined contribution plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was £267,000 (2005: £370,000; 2004: £96,000).

99

Share-based payments Management Equity Scheme The members of the Group’s senior management team are included in a scheme under which they have subscribed for ordinary shares in Cineworld Group plc (the ‘‘Management Equity Scheme’’). These shares vest on a listing change in ownership of the Group. If an employee leaves employment as a result of death, permanent disability, retirement or wrongful termination a proportion of the shares will vest depending on the length of time that has elapsed and the extent to which certain performance targets have been met. In such a circumstances, the company has an option to repurchase these shares at the higher of their market value and their subscription cost. Regardless of whether this option is exercised, the remaining (unvested) subscribed shares are repurchased at the lower of their market value and their acquisition cost. If an employee leaves employment for any reason other than death, permanent disability, retirement or wrongful termination, all unvested shares will be forfeited and the employee will receive the lower of subscription cost or their fair value on termination of employment (although the Remuneration Committee has a discretion to treat such leavers more favourably). On the basis that the company consider the most likely vesting condition to be satisfied is a listing or change of ownership of the Group, the scheme has been accounted for as equity-settled under IFRS 2. The amount subscribed for the shares by the employees was £0.01 per share. This was estimated to be the fair value of the shares at the time. Accordingly no incremental value was considered to have been awarded to the employees and hence no share-based payment expense had been recognised. Roll-over Equity Scheme In addition to the above, certain individuals have subscribed to shares in Cineworld Group Plc prior to the acquisition of Cine-UK Limited (the ‘‘Roll-over Equity Scheme’’). There are no vesting conditions associated with these shares. However, there are restrictions on the transfer of these shares as they may only be sold upon a change in ownership of the Group, the flotation of Cineworld Group plc or upon the departure of the employee from the company. These restrictions are lifted in the event of a flotation of Cineworld Group plc. The scheme has been determined to be a fully vested cash-settled scheme under IFRS 2 and hence a liability has been measured and recognised in the balance sheet at the date of subscription and each subsequent reporting date. The numbers of shares included in each of the schemes are as follows: Cash— settled at 30 December 2004

Equity— settled at 30 December 2004

Cash— settled at 29 December 2005

Equity— settled at 29 December 2005

Cash— settled at 28 December 2006

Equity— settled at 28 December 2006

Outstanding at the beginning of the period . . . . . . . . . . . Subscribed during the period . . . . . . . . . . .

—

—

3,755

6,300

3,755

14,031

3,755

6,300

—

7,731

—

—

Outstanding at the end of the period . . .

3,755

6,300

3,755

14,031

3,755

14,031

The total expenses recognised for the period arising from share based payments are as follows: 52 week period ended 30 December 2004 £m

52 week period ended 29 December 2005 £m

52 week period ended 28 December 2006 £m

Equity settled share based payment expense . . . . . . . . . . . . . . Cash-settled share based payment expense . . . . . . . . . . . . . . .

— —

— 0.3

— 0.9

Total share based expenses . . . . . . . . . . . . . . . . . . . . . . . . . .

—

0.3

0.9

100

22. Provisions 52 week periods ended 30 December 2004, 29 December 2005 and 28 December 2006 Property £m

Balance at 2 January 2004 . . . . . . . . . . . . Provisions made during the period . . . . . . Amounts arising from acquisition of UGC Utilised . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

— 6.8 14.1 (0.3)

Balance at 30 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20.6

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.8 2.8

Balance at 30 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20.6 0.8 (2.8)

Balance at 29 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.6

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16.3 2.3

Balance at 29 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions made during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.6 2.3 (2.6)

Balance at 28 December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.3

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16.2 2.1 18.3

Property provisions relate to onerous leases, dilapidations and other property liabilities. The provision for onerous leases covers the rent payable on particular cinema sites that is in excess of the economic benefits expected to be derived from their operation on a discounted basis. The remaining provision will be utilised over the period to the next rent review date or the remaining lease life depending on the term of the lease. The discount rate used was 11 per cent.

101

23. Capital and reserves Reconciliation of movement in capital and reserves 52 weeks ended 30 December 2004, 52 weeks ended 29 December 2005 and 52 weeks ended 28 December 2006 Shares to be issued £m

Share capital £m

At 2 January 2004 . . . . . . . . . . . . . . . . . Retained loss for the period to 7 October 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . Shares to be issued . . . . . . . . . . . . . . . . . Elimination on Cine Acquisition . . . . . . . Retained loss for the period from 7 October 2004 . . . . . . . . . . . . . . . . . . Actuarial gain on defined benefit pension scheme . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange translation gain . . . . . .

Translation reserve £m

Retained earnings £m

Total £m

3.1

—

—

(12.4)

(9.3)

— — (3.1)

— 0.1 (0.1)

— — —

(6.7) — 19.1

(6.7) 0.1 15.9

—

—

—

(19.5)

(19.5)

— —

— —

— 0.4

0.1 —

0.1 0.4

. .

— —

— —

0.4 —

(19.4) (34.8)

(19.0) (34.8)

.

—

—

—

(1.5)

(1.5)

.

—

—

—

0.4

0.4

. . . . .

— — — — —

— — — — —

0.4 — — — —

(55.3) (5.9) 2.7 (0.7) —

(54.9) (5.9) 2.7 (0.7) —

At 28 December 2006 . . . . . . . . . . . . . . .

—

—

0.4

(59.2)

(58.8)

At 30 December 2004 . . . . . . . . . . . . . . Loss for the period . . . . . . . . . . . . . . . . Actuarial loss on defined benefit pension scheme . . . . . . . . . . . . . . . . . . . . . . . Tax recognised on income and expenses recognised directly in equity . . . . . . . . At 29 December 2005 . . . . . . . . . . . . . Loss for the period . . . . . . . . . . . . . . . Actuarial loss on pension scheme . . . . . Tax recognised on income and expenses Purchase of own shares . . . . . . . . . . . .

. . . . .

Share capital 30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

Cineworld Group plc Authorised 173,515 ordinary shares of £0.01 each . . . . . . . . . . . . . . . . . .

—

—

—

Allotted, called up and fully paid 172,815 ordinary shares of £0.01 each . . . . . . . . . . . . . . . . . .

—

—

—

On 12 May 2006, the authorised share capital of the Company was increased from £1,735.15 to £50,007.15 by the creation of 48,272 redeemable shares of £1.00 each and on 12 May 2006, 48,272 redeemable shares of £1.00 each were issued for cash fully paid against an undertaking by the subscriber to pay £48,272 to the Company on or before 1 June 2007. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.

102

Own shares During 2006 an Employee Benefit Trust acquired 1,383 ordinary shares of £0.01 each in the Company at a cost of £41,000 which it held at 28 December 2006, and were included within retained deficit. Dividends No dividends were paid or proposed in 2006 (2005; £nil; 2004: £nil). 24. Financial instruments The Group’s primary financial instruments, other than derivatives, comprise discounted bonds issued to shareholders, bank loans received, bank overdrafts, finance leases, cash and cash equivalents. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations and are disclosed in notes 17 and 20 respectively. It is the Group’s policy that no trading in financial instruments should be undertaken. Hedge accounting under IAS 39 has not been applied by the Group. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and credit risk. These are summarised below. Credit risk The Group’s credit risk is primarily attributable to its trade receivables, however due to the nature of the Group’s business trade receivables are not significant which limits the related credit risk. The credit risk on liquid funds and derivative financial instruments is also limited because the counterparties are banks with high credit-ratings. Interest rate risk The Group’s policy is to manage its cost of borrowing by securing fixed interest rates on non-current debt. Whilst fixed rate interest bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a reduction in borrowing costs in markets where rates are falling. In addition, the fair value risk inherent in fixed rate borrowing means that the group is exposed to unplanned costs should debt be restructured or repaid early as part of the liquidity management the process. The Group uses interest rate swaps agreed with other parties to hedge all of its bank loans that have variable interest rates including the expected refinancing of these loans in 2007. Interest rate swaps are measured at fair value, which have been calculated by discounting the expected future cash flows at prevailing interest rates. The Group’s exposure to the risk for changes in market interest rates relates only to the Group’s bank overdraft as it is not hedged. At the period end, 100 per cent. (2005: 100 per cent.; 2004: 99 per cent.) of the Group’s borrowings were at fixed rates after taking account of interest rate swaps.

103

Effective interest rates and repricing analysis In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they mature or, if earlier, are repriced. 30 December 2004 Effective interest rate %

Cash and cash equivalents . Secured bank loans*/** . . . Deep discounted bonds* . . Finance lease liabilities* . . Bank overdrafts . . . . . . . .

. . . . .

. . . . .

3.97% 7.6% 10.0% 7.2% 7.0%

Total £m

0 to 1 year £m

1 to 2 years £m

2 to 5 years £m

5 years and over £m

(7.0) 235.0 105.7 6.5 4.2

(7.0) — — 0.5 4.2

— — — 0.5 —

— 235.0 — 1.5 —

— — 105.7 4.0 —

344.4

(2.3)

0.5

236.5

109.7

29 December 2005 Effective interest rate %

Cash and cash equivalents . Secured bank loans*/** . . . Deep discounted bonds* . . Finance lease liabilities* . .

. . . .

. . . .

4.0% 7.6% 10.0% 7.2%

Total £m

0 to 1 year £m

1 to 2 years £m

2 to 5 years £m

5 years and over £m

(19.6) 235.0 116.2 6.1

(19.6) — — 0.4

— 235.0 — 0.5

— — — 1.6

— — 116.2 3.6

337.7

(19.2)

235.5

1.6

119.8

28 December 2006 Effective interest rate %

Cash and cash equivalents . Secured bank loans*/** . . . Deep discounted bonds* . . Finance lease liabilities* . .

. . . .

. . . .

4.9% 8.0% 10.0% 7.2%

Total £m

0 to 1 year £m

1 to 2 years £m

2 to 5 years £m

5 years and over £m

(27.7) 208.0 127.8 6.9

(27.7) 1.3 — 0.5

— 3.7 — 0.5

— 24.5 — 1.7

— 178.5 127.8 4.2

315.0

(25.9)

4.2

26.2

310.5

*

These liabilities bear interest at fixed rates after taking account of interest rate swaps.

**

Secured bank loans at 28 December 2006 exclude unamortised debt issuance costs of £1.1 million (2005: £4.1 million; 2004: £6.2 million).

Foreign currency risk The majority of the Group’s operations are in the United Kingdom and hence for these operations there is no exposure to foreign currency risk other than in respect of certain purchases that may be denominated in currencies other than sterling. In addition there is an operation in Eire where non-sterling revenues, purchases, financial assets and liabilities and cash flows can be affected by movements in Euro rates. However, the exposure is limited as Euro operations are not significant. Fair values Set out below is a comparison by category of carrying amounts and fair values of the Group’s financial instruments that are carried in the financial statements.

104

Short term debtors and creditors have been excluded from the following disclosures on the basis that their carrying amount is a reasonable approximation to fair value. Carrying amount 30 December 2004 £m

Cash and cash equivalents . Secured bank loans . . . . . . Deep discounted bonds . . . Finance lease liabilities . . . Bank overdrafts . . . . . . . . Interest rate swaps . . . . . .

Cash and cash equivalents . Secured bank loans . . . . . . Deep discounted bonds . . . Finance lease liabilities . . . Interest rate swaps . . . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . . .

. . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Fair value 30 December 2004 £m

Carrying amount 29 December 2005 £m

Fair value 29 December 2005 £m

(7.0) 228.8 105.7 6.5 4.2 4.3

(7.0) 235.0 105.7 6.5 4.2 4.3

(19.6) 230.9 116.2 6.1 — 13.1

(19.6) 235.0 116.2 6.1 — 13.1

342.5

348.7

346.7

350.8

Carrying amount 28 December 2006 £m

Fair value 28 December 2006 £m

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

(27.7) 206.9 127.8 6.9 0.3

(27.7) 208.0 127.8 6.9 0.3

314.2

315.3

The fair value of derivatives and borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates. The fair value of loan notes and other financial assets has been calculated using the market interest rates. The difference between net carrying amount and estimated fair value reflects unrealised gains or losses inherent in the instruments based on valuations at 28 December 2006, 29 December 2005 and 30 December 2004. The volatile nature of the markets means that values at any subsequent date could be significantly different from the values reported above. At 28 December 2006 the Group held one interest rate swap, which was not designated as a hedge under IAS 39. 25. Operating leases 52 week periods ended 30 December 2004 and 29 December 2005 Non-cancellable operating lease rentals commitments are as follows: Land and buildings £m

Less than one year . . . . . . . . Between one and five years . . More than five years . . . . . . .

30 December 2004 £m

Other £m

Land and buildings £m

29 December 2005 £m

Other £m

38.7 173.7 1,098.7

— — —

38.7 173.7 1,098.7

42.5 177.6 1,052.3

0.2 0.3 —

42.7 177.9 1,052.3

1,311.1

—

1,311.1

1,272.4

0.5

1,272.9

105

52 week period ended 28 December 2006 Non-cancellable operating lease rentals commitments are as follows: Land and buildings £m

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . . . More than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 December 2006 £m

Other £m

42.8 180.7 928.2

0.1 0.5 —

42.9 181.2 928.2

1,151.7

0.6

1,152.3

The Group’s operating leases relate predominately to cinemas and office buildings. 26. Capital commitments Capital commitments at the end of the financial period for which no provision has been made:

Contracted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

29 December 2005 £m

28 December 2006 £m

4.6

5.1

8.3

27. Related parties The compensation of key management personnel (including the directors) is as follows: Compensation for loss of office £000

Pension contributions £000

1,133 25 — — 484 364 462

— — — — — — —

24 — — — 13 13 13

1,157 25 — — 497 377 475

2,468

—

63

2,531

Salary and fees £000

52 weeks ended 30 December 2004 S Wiener . . . . . . . . . . . . . . . . . . . A Bloom . . . . . . . . . . . . . . . . . . . L Guffey . . . . . . . . . . . . . . . . . . . M Tooth . . . . . . . . . . . . . . . . . . . . P Stefka . . . . . . . . . . . . . . . . . . . . R Jones . . . . . . . . . . . . . . . . . . . . A Alvarez . . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

Total £000

Included with salary and fees are cash settlement of share options of £1.4 million. Salary and fees including bonus £000

52 weeks ended 29 December 2005 S Wiener . . . . . . . . . . . . . . . . . . . A Bloom . . . . . . . . . . . . . . . . . . . T McGrath . . . . . . . . . . . . . . . . . . L Guffey . . . . . . . . . . . . . . . . . . . D Marks . . . . . . . . . . . . . . . . . . . W Kamhawi . . . . . . . . . . . . . . . . . M Tooth . . . . . . . . . . . . . . . . . . . . P Stefka . . . . . . . . . . . . . . . . . . . . R Jones . . . . . . . . . . . . . . . . . . . . A Alvarez . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . .

106

Compensation for loss of office £000

Pension contributions £000

465 35 19 — — — — 254 235 234

— — — — — — — — — —

28 — — — — — — 15 14 14

493 35 19 — — — — 269 249 248

1,242

—

71

1,313

Total £000

Salary and fees including bonus £000

52 weeks ended 28 December 2006 S Wiener . . . . . . . . . . . . . . . . . . . A Bloom . . . . . . . . . . . . . . . . . . . T McGrath . . . . . . . . . . . . . . . . . . L Guffey . . . . . . . . . . . . . . . . . . . D Marks . . . . . . . . . . . . . . . . . . . W Kamhawi . . . . . . . . . . . . . . . . . M Tooth . . . . . . . . . . . . . . . . . . . . P Stefka . . . . . . . . . . . . . . . . . . . . R Jones . . . . . . . . . . . . . . . . . . . . P Williams . . . . . . . . . . . . . . . . . . D Maloney . . . . . . . . . . . . . . . . . . A Alvarez . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

. . . . . . . . . . . .

Compensation for loss of office £000

Pension contributions £000

513 44 30 — — — — 269 254 18 18 249

— — — — — — — — — — — —

28 — — — — — — 16 15 — — 15

541 44 30 — — — — 285 269 18 18 264

1,395

—

74

1,469

Total £000

Share based compensation benefit charges for key management personnel (including directors) was £0.9m (2005: £0.3m; 2004: £nil). Other related party transactions 52 week period ended 30 December 2004 £4,337,396 was paid to subsidiaries and joint ventures of Capital & Regional Properties plc of which M Chandos served as a director during the period. Included in the results for the period were amounts accruing to the Blackstone Shareholders in respect of management fees of £78,132 and interest of £1,757,450 on the deep discounted bonds. S Wiener has 10 per cent. interest bearing loan notes (nominal value of £699,998) which accrued interest of £17,391 from 7 October 2004, the date of the Cine acquisition. The loan outstanding at the end of the period was £717,389. P Stefka has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £4,238 from 7 October 2004, the date of the Cine acquisition. The loan outstanding at the end of the period was £104,236. R Jones has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £4,238 from 7 October 2004, the date of the Cine acquisition. The loan outstanding at the end of the period was £104,236. A Alvarez has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £4,238 from 7 October 2004, the date of the Cine acquisition. The loan outstanding at the end of the period was £104,236. 52 week period ended 29 December 2005 Included in the results for the period were amounts accruing to the Blackstone Shareholders in respect of management fees of £500,679 and interest of £10,541,399 on the deep discounted bonds. S Wiener has 10 per cent. interest bearing loan notes (nominal value of £699,998) which accrued interest of £71,528 during the period. The loan outstanding at the end of the period was £788,917. P Stefka has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £10,393 during the period. The loan outstanding at the end of the period was £114,629. R Jones has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £10,393 during the period. The loan outstanding at the end of the period was £114,629. A Alvarez has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £10,393 during the period. The loan outstanding at the end of the period was £114,629.

107

52 week period ended 28 December 2006 Included in the results for the period were amounts accruing to the Blackstone Shareholders in respect of management fees of £500,000 and interest of £11,620,605 on the deep discounted bonds. S Wiener has 10 per cent. interest bearing loan notes (nominal value of £699,998) which accrued interest of £78,254 during the period. The loan outstanding at the end of the period was £867,171. P Stefka has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £11,179 during the period. The loan outstanding at the end of the period was £125,808. R Jones has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £11,179 during the period. The loan outstanding at the end of the period was £125,808. A Alvarez has 10 per cent. interest bearing loan notes (nominal value of £99,998) which accrued interest of £11,179 during the period. The loan outstanding at the end of the period was £125,808. 28. Subsequent events Capital restructuring The shareholders of the company resolved at an extraordinary general meeting of the company held on 26 April 2007 that, conditional on Admission and with effect immediately prior to Admission, a bonus issue of 199 ordinary shares to be granted for every 1 ordinary share of £0.01 held; each share with a nominal value of 1 pence. Sale and leaseback On 15 March 2007, the Group completed a sale and leaseback transaction in respect of its Swindon site, realising proceeds of approximately £5.7 million, and is expected to generate a profit on disposal of £3.4 million (after costs). On 27 March 2007, the Group completed a sale and leaseback transaction in respect of its site in Southampton, realising proceeds of approximately £6.6 million, and is expected to generate a profit on disposal of £4.8 million (after costs).

108

Part B: Accountant’s report and special purpose restated consolidated historical financial information relating to Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited)

21JUL200414412105 KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB United Kingdom

Tel +44 (0) 20 7311 1000 Fax +44 (0) 20 7311 3311 DX 38050 Blackfriars

The Directors Cineworld Group plc Power Road Studios Power Road London W4 5PY 27 April 2007 Dear Sirs Cineworld Cinemas Holdings Limited We report on the financial information set out in Part B of ‘‘Part 7: Financial Information’’ of the prospectus dated 27 April 2007 (the ‘‘Prospectus’). This financial information has been prepared for inclusion in the Prospectus on the basis of the accounting policies set out in note 2. This report is required by paragraph 20.1 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities The directors of Cineworld Group plc are responsible for preparing the financial information on the basis of preparation set out in note 1. It is our responsibility to form an opinion on the financial information and to report our opinion to you. Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus. Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.

109

Opinion In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of Cineworld Cinemas Holdings Limited as at the dates stated and of its results, cash flows and recognised income and expense for the periods then ended in accordance with the basis of preparation set out in note 1. Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation. Yours faithfully

26APR200709592853 KPMG Audit Plc

110

Consolidated income statement

Note

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Analysed between: Operating profit before depreciation, impairment charges, onerous and profit on disposal of tangible fixed assets . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed asset impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . Onerous lease charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . .

lease .... .... .... .... ....

charges ...... ...... ...... ...... ......

. . . . .

2

33.3 0.6 (40.8)

2, 5

(6.9)

18.9 (15.0) (2.1) (12.0) 3.3

8 8

Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss for the period attributable to equity holders of the Company . . . . . . . . . . . . All results are derived from continuing operations.

111

154.4 (121.1)

4

. . . . .

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52 week period ended 30 December 2004 £m

1.4 (1.9) (0.5)

9

(7.4) — (7.4)

Consolidated statement of recognised income and expense

Note

Foreign exchange translation gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss on defined benefit pension schemes . . . . . . . . . . . . . . . . . . . . . . . . .

20 20

52 week period ended 30 December 2004 £m

0.4 (0.1)

Net income recognised directly in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.3 (7.4)

Total recognised income and expense attributable to equity holders of the company .

(7.1)

112

Consolidated balance sheet

Note

Non-current assets Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 11

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30 December 2004 £m

74.3 5.1 79.4

12 13 14

1.3 20.6 4.1

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26.0

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105.4

Current liabilities Bank overdraft . . . . . . . . . . . . . . . . . . . . . Other interest-bearing loans and borrowings Trade and other payables . . . . . . . . . . . . . . Current taxes payable . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

15 15 17 19

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Other interest-bearing loans and borrowings Other payables . . . . . . . . . . . . . . . . . . . . . Employee benefits . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

(0.2) (0.5) (21.8) (0.1) (2.0) (24.6)

15 17 18 19 11

(6.0) (5.2) (6.0) (11.9) (3.3)

Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(32.4)

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(57.0)

Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

48.4

Equity attributable to equity holders of the company Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . Translation reserve . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

20 20 20 20 20

— 50.2 2.6 0.4 (4.8) 48.4

Consolidated cash flow statement

Notes

Cash flow from operating Loss for the period . . . . Adjustments for: Financial income . . . . . . Financial expense . . . . . . Taxation . . . . . . . . . . . .

52 week period ended 30 December 2004 £m

activities ..........................................

(7.4)

.......................................... .......................................... ..........................................

(1.4) 1.9 —

Operating loss . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . Impairment charges . . . . . . . . . . . . . . . . Profit on disposal of tangible fixed assets .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

(6.9) 15.0 2.1 (3.3)

and provisions . ............ ............ ............

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

6.9 (15.7) (9.0) 11.2

Cash absorbed by operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.6) —

Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.6)

Cash flows from investing activities Proceeds from sale of property, plant and equipment . . . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surplus of pension contributions over current service cost . Acquisition of property, plant and equipment . . . . . . . . . .

4.1 0.3 (0.4) (3.1)

Operating cash flows before changes in working capital Increase in trade and other receivables . . . . . . . . . . . . Decrease in trade and other payables . . . . . . . . . . . . . Increase in provisions and employee benefit obligations

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities Proceeds on sale and leaseback . . . . Interest paid . . . . . . . . . . . . . . . . . Repayment of borrowings . . . . . . . . Payment of finance lease liabilities .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

0.9

15 15

6.8 (0.8) (6.5) (0.3)

Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.8)

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalent at start of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.5) 10.4

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.9

Cash and cash equivalents in the cash flow statement comprise cash and cash equivalents and bank overdrafts included in the balance sheet.

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Notes to the historical financial information 1.

Basis of preparation

Introduction The principal activity of Cineworld Cinemas Holdings Limited (‘‘CCHL’’) and its subsidiaries together (the ‘‘CCHL Group’’) is the operation of cinemas. CCHL was acquired by Cineworld Group plc on 30 November 2004 and has been included in the historical financial information of Cineworld Group plc from that date. As a company seeking admission to the Official List as a result of the ‘‘Global Offer’’, Cineworld Group plc is required to present certain historical financial information in its prospectus in respect of certain acquisitions it has made during its track record period on a basis consistent with the accounting policies to be adopted in its financial statements for its next financial period. In order to establish a track record period for a three year period, in addition to the special purpose financial information of Cineworld Group plc for the 52 week period ended 30 December 2004, the 52 week period ended 29 December 2005 and the 52 week period ended 28 December 2006, this special purpose financial information has been prepared in respect of Cineworld Cinemas Holdings Limited for the 52 week period ended 30 December 2004. Basis of preparation The financial information presented herein is for the 52 week period ended 30 December 2004. The financial information has been prepared in accordance with the requirements of the Prospectus Directive (‘‘PD’’) regulation including the implementing regulation as regards issuers with complex financial histories, the listing rules, and in accordance with this basis of preparation, including the significant accounting policies, described below. The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (Adopted IFRS) except as described below. In preparing the financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from Adopted IFRS. In other respects, Adopted IFRS has been applied. ɀ

Presentation of financial information without comparative information Adopted IFRSs require financial statements that are prepared in accordance with IFRSs as adopted by the EU to include comparative information for the immediately preceding period. However, the 2004 restated financial information has been prepared in accordance with the recommendations of CESR for the consistent implementation of the European Commission’s Regulation on Prospectuses 809/2004 (CESR/05-054b) as to the presentation of one-financial period, information in prospectuses for entities transitioning to accounting standards as adopted for use in the EU. Consistent with that guidance no comparative information has been included.

ɀ

First-time adoption of IFRSs CCHL is not a first time adopter of Adopted IFRS and will continue to prepare its statutory financial statements in accordance with UK GAAP for the foreseeable future. It is consolidated into the financial statements of Cineworld Group plc since the date of acquisition by that company. Cineworld Group plc prepares its consolidated financial statements in accordance with Adopted IFRS. This financial information is prepared by applying the exceptions and exemptions of IFRS 1 by analogy, as described below.

ɀ

Statement of compliance with Adopted IFRS As a result of the above matters, no statement of compliance with Adopted IFRS is included in respect of the 52 week period ended 30 December 2004.

Note 2 below describes the accounting policies that the Directors have applied when preparing the CCHL 2004 restated financial information, including, by analogy the first-time adoption provisions set out in

115

IFRS 1 and the assumptions they have made about the standards and interpretations expected to be effective for Cineworld Group plc. This historical financial information does not constitute statutory accounts for the 52 weeks ended 30 December 2004. The statutory accounts for that period (which were prepared under UK GAAP) have been reported on by the company’s auditors and have been delivered to the registrar of companies. The report of the auditors were (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2.

Accounting policies

The accounting policies set out below have been applied consistently to the financial information presented and in preparing an opening balance sheet at 2 January 2004. Judgements made by the directors, in the application of these accounting policies that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next period are discussed below. The directors have reviewed the CCHL Group’s projected working capital requirements and fixed asset expenditure and believe that the CCHL Group has sufficient funding for the foreseeable future. The financial statements have therefore been prepared on a going concern basis. Adopted IFRSs This note explains the extent to which and how the Directors have applied accounting policies that are consistent with adopted IFRSs in preparing the restated financial information and identifies any significant departures from Adopted IFRS. While CCHL is not a first time adopter in this financial information, the main differences for the Company between Adopted IFRSs and the previously adopted UK GAAP are summarised below. (i) Reverse lease premiums Under IAS 17 ‘‘Leases’’, lessees are required to spread any reverse lease premium over the full length of the non-cancellable period of the lease. Under UK GAAP, lease incentives were spread over the period to the earlier of the end of the lease or the date of the first rent review. (ii) Tax The recognition of deferred tax assets differed under IFRS. (iii) Pensions Under IAS 19 when accounting for the defined benefit pension scheme liabilities no provision is made for future scheme expenses. The principles and certain exemptions of IFRS 1 are being applied by analogy in determining the accounting policies. These include: ɀ

Business combinations—Business combinations that took place prior to 2 January 2004 have not been restated.

ɀ

Cumulative translation differences—Cumulative translation differences for all foreign operations have been set to zero at 2 January 2004.

Measurement convention The financial statements are prepared on the historical cost basis. Non-current assets and disposal groups held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. Functional and presentation currency This consolidated financial information is presented in sterling which is the company’s functional currency.

116

Basis of consolidation Subsidiaries are entities controlled by the CCHL Group. Control exists when the CCHL Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Foreign currency Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations after 2 January 2004 are taken directly to the translation reserve. They are released into the income statement upon disposal. Derivative financial instruments and hedging Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement except where derivatives qualify for hedge accounting, when recognition of any resultant gain or loss depends on the nature of the item being hedged. The fair value of interest rate swaps is the estimated amount that the CCHL Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Leases in which the CCHL Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under finance leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted for as described below. Depreciation is charged to the income statement to write assets down to their residual value on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: ɀ ɀ ɀ ɀ

Freehold buildings and long leasehold properties Leasehold improvements Plant and equipment Fixtures and fittings

— 30 years or life of lease if shorter — life of lease — 5 to 10 years — 4 to 10 years

No depreciation is provided on freehold land or on assets in the course of construction. Depreciation methods, residual values and the useful lives of all assets are re-assessed annually.

117

Trade and other receivables Trade and other receivables are stated at cost less impairment losses. Inventories Inventories are stated at the lower of cost and net realisable value. The cost of inventories is based on the FIFO principle. Cost comprises expenditure incurred in acquiring the inventories and bringing them to their existing location and condition, and net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling cost. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents only for the purpose of the statement of cash flows. Impairment The carrying amounts of the CCHL Group’s assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Calculation of recoverable amount The recoverable amount of assets is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist as a result of a change in the estimates used to determine the recoverable amount, including a change in fair value less costs to sell. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Employee benefits Defined contribution pension plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Defined benefit pension plans The CCHL Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value

118

of any plan assets (at bid price) is deducted. The liability discount rate is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the CCHL Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. The increase in the present value of the liabilities expected to arise from the employees’ services in the accounting period is charged to the income statement. The expected return on the schemes’ assets and the interest on the present value of the schemes’ liabilities during the accounting period are shown as finance income and finance expense respectively. Actuarial gains and losses are recognised immediately in equity. The amendments in revised IAS 19 have been applied from 2 January 2004. Provisions A provision is recognised in the balance sheet when the CCHL Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Revenue Revenue represents the total amount receivable for services rendered or goods sold, excluding sales related taxes and intra group transactions. Revenue is recognised in the income statement at the point of sale for ticket and refreshment sales. Income from other related activities is recognised in the period to which they relate. Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Net financing costs Net financing costs comprise interest payable, finance leases interest, interest receivable on funds invested, foreign exchange gains and losses and finance costs for defined benefit pension schemes. Sale and leaseback Where the CCHL Group enters into a sale and leaseback transaction whereby the risks and rewards of ownership of the assets concerned have not been substantially transferred to the lessor any excess of sales proceeds over the previous carrying amount are deferred and recognised in the income statement over the lease term. At the date of the transaction the assets and the associated finance lease liabilities are recognised on the Group’s balance sheet at the lower of fair value of the leased assets and the present value of the minimum lease payments. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

119

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Significant accounting judgements and estimates In applying the CCHL Group’s accounting policies described above management has made the following judgements and estimates that have a significant impact on the amounts recognised in the financial statements. Onerous leases Provision is made for onerous leases where it is considered that the unavoidable costs of the lease obligations are in excess of the economic benefits expected to be received from operating it. The unavoidable costs of the lease reflect the lease net cost of exiting from the contract and are measured as the lower of the net cost of continuing to operating the lease and any penalties or other costs from exiting it. Employee post retirement benefit obligations The CCHL Group has two defined pension benefit plans. The obligations under these plans are recognised in the balance sheet and represent the present value of the obligations calculated by independent actuaries, with input from management. These actuarial valuations include assumptions such as discount rates, return on assets, salary progression and motility rates. These assumptions vary from time to time according to prevailing economic and social conditions. Details of the assumptions used are provided in note 18. Financial guarantee contracts Where CCHL enters into financial guarantee contracts to guarantee the indebtedness of other Companies within the CCHL Group, CCHL considers these to be insurance arrangements, and accounts for them as such. In this respect, CCHL treats the guarantee contract as a contingent liability until such time as it becomes probable that CCHL will be required to make a payment under the guarantee. Adopted IFRS not yet applied The following standards were available for early application under Adopted IFRS but have not been applied by the CCHL Group in this financial information. ɀ

IFRIC 4 ‘‘Determining whether an arrangement contains a lease’’.

ɀ

IFRIC 8 ‘‘Scope of IFRS 2’’.

ɀ

IFRIC 9 ‘‘Reassessment of Embedded Derivatives’’.

ɀ

IFRS 7 ‘‘Financial Instruments: Disclosures’’.

ɀ

IFRS 8 ‘‘Operating Segments’’.

ɀ

Amendments to IAS 1 ‘‘Presentation of Financial Statements: Capital Disclosures’’.

ɀ

Amendments to IAS 21 ‘‘The Effects of Changes in Foreign Exchange Rates—Net Investment in a Foreign Operation’’.

120

3.

Segmental information

Geographic sector analysis The CCHL Group’s activities in countries other than the UK in all financial periods were not material. Business sector analysis The CCHL Group has operating activities in one business sector in all financial periods, being cinema operations. 4.

Other operating income 52 week period ended 30 December 2004 £m

Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

0.6

Operating loss

Included in operating loss for the period are the following: 52 week period ended 30 December 2004 £m

Depreciation (note 10) . . . . . . . . . . . . . . . Impairment of fixed assets (note 10) . . . . . Onerous lease charges (note 19) . . . . . . . . Profit on disposal of tangible fixed assets . . Operating lease rentals: land and buildings .

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15.0 2.1 12.0 (3.3) 20.4

Auditors remuneration: Group—audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —fees receivable by the auditors and their associates in respect of other services . .

0.1 —

Company—audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Amounts received by auditors and their associates in respect of: —Audit of financial statements of subsidiaries pursuant to legislation . . . . . . . . . . . . . . —Other services relating to taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or the Group . . . . . . . . . . . . . . . . . . .

121

0.1 — —

6.

Loss before tax

On 30 November 2004 Cineworld Cinemas Holdings Limited (formerly UGC Cinemas Holdings Limited) was acquired by Cineworld Cinemas Limited. An analysis of the loss before tax for the pre and post acquisition periods is detailed below: 47 week period ended 30 November 2004 £m

5 week period ended 30 December 2004 £m

52 week period ended 30 December 2004 £m

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142.6 (111.3)

11.8 (9.8)

154.4 (121.1)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administration expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31.3 3.9 (40.9)

2.0 — (3.2)

33.3 3.9 (44.1)

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Analysed between:

(5.7)

(1.2)

(6.9)

. . . . .

18.5 (13.7) (1.8) (12.0) 3.3

0.4 (1.3) (0.3) — —

18.9 (15.0) (2.1) (12.0) 3.3

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 (1.8)

0.3 (0.1)

1.4 (1.9)

Net financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.7)

0.2

(0.5)

Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.4)

(1.0)

(7.4)

Operating profit before depreciation, impairment charges, onerous lease charges and profit on disposal of tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed asset impairment charges . . . . . . . . . . . . . . . . . . . . Onerous lease charges . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit on disposal of tangible fixed assets . . . . . . . . . . . . .

7.

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Staff numbers and costs

The average number of persons employed by the group (including directors) during the period, analysed by category, was as follows: Number of employees 52 week period ended 30 December 2004

Head office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cinemas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101 2,640 2,741

No distinction is made between full time and part time employees in the above analysis. The aggregate payroll costs of these persons were as follows: 52 week period ended 30 December 2004 £m

Wages and salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social security costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25.0 1.7 0.5 27.2

122

8.

Financial income and expense 52 week period ended 30 December 2004 £m

Interest income on loans to related undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other interest income on cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on defined benefit pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .

0.2 0.1 1.1

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.4

Interest expense on bank loans and overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses on other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance costs of defined benefit pension schemes (note 18) . . . . . . . . . . . . . . . . . . . . . . .

0.2 0.3 1.4

Financial expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.9

9.

Taxation

Recognised in the income statement 52 week period ended 30 December 2004 £m

Current tax expense Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— — —

Deferred tax expense Origination and reversal of temporary differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefit of tax losses recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.2 (5.2) —

Total tax in income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Reconciliation of effective tax rate 52 week period ended 30 December 2004 £m

Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7.4)

Tax using the UK corporation tax rate of 30% Non-deductible expenses . . . . . . . . . . . . . . . . Effect of tax losses utilised . . . . . . . . . . . . . . Losses not recognised . . . . . . . . . . . . . . . . . . Reversal of deductible temporary differences . Temporary differences not recognised . . . . . . Accelerated capital allowances not recognised

(2.2) 2.6 (0.9) 4.5 2.1 (0.6) (5.5)

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Total tax in income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Factors that may affect future tax charges At 30 December 2004, the CCHL Group had potential deferred tax assets of £2.3 million which are available to carry forward and set off against future profits. Due to the uncertainty of suitable profits arising in the future no deferred tax asset has been recognised in relation to these assets. These tax assets have no expiry date.

123

10. Property, plant and equipment Land and buildings £m

Plant and equipment £m

Fixtures and fittings £m

Total £m

Cost Balance at 1 January 2004 . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92.7 0.5 (1.4)

23.5 0.1 (0.4)

117.0 2.5 (0.6)

233.2 3.1 (2.4)

Balance at 30 December 2004 . . . . . . . . . . . . . .

91.8

23.2

118.9

233.9

Depreciation and impairment Balance at 1 January 2004 . . . Charge . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . .

52.5 2.2 (0.7) 0.8

17.5 1.4 (0.4) —

74.1 11.4 (0.5) 1.3

144.1 15.0 (1.6) 2.1

Balance at 30 December 2004 . . . . . . . . . . . . . .

54.8

18.5

86.3

159.6

Net book value At 1 January 2004 . . . . . . . . . . . . . . . . . . . . . .

40.2

6.0

42.9

89.1

At 30 December 2004 . . . . . . . . . . . . . . . . . . . .

37.0

4.7

32.6

74.3

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30 December 2004 £m

The net book value of land Freehold . . . . . . . . . . . . . Long leasehold . . . . . . . . . Short leasehold . . . . . . . . .

and buildings comprised: .............................................. .............................................. ..............................................

1.3 5.2 30.5 37.0

Leased plant and machinery At 30 December 2004 the net carrying amount of leased plant and machinery was £6.6 million. Depreciation on leased assets amounted to £0.2 million. Security The Secured Bank loans of Cineworld Group plc, the ultimate parent company, are secured by fixed and floating charges on the assets of the CCHL Group. Impairment testing The key assumptions behind the impairment review are as follows: Each individual cinema is considered to be a Cash Generating Unit (‘‘CGU’’). 2005 forecast earnings before interest, tax and depreciation was used as the basis of the future cash flow calculation. This is adjusted to add back rent (EBITDR). In line with long term industry growth rates, EBITDR is assumed to grow at 3 per cent. per annum for the first five years. Thereafter it is assumed that the growth rate will decline over the remaining 15 years of cash flows. ɀ

Property costs are factored into the model, but are assumed to grow at 2.5 per cent. per annum over the life of the model. Cash flows are not assumed in perpetuity.

ɀ

A discount rate of 11.8 per cent. has been used which was based on the Group’s WACC.

124

11. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets 30 December 2004 £m

Property, plant and equipment Employee benefits . . . . . . . . . Deferred income . . . . . . . . . . Tax value of loss carry-forwards

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Liabilities 30 December 2004 £m

Net 30 December 2004 £m

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— 1.8 1.4 1.9

(3.3) — — —

(3.3) 1.8 1.4 1.9

Tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1

(3.3)

1.8

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries as the CCHL Group has control over the timing of such remittances and should have no liability to additional taxation should such amounts be remitted due to the availability of double taxation relief. Movement in deferred tax during the period 1 January 2004 £m

Property, plant and equipment Employee benefits . . . . . . . . . Deferred income . . . . . . . . . . Tax value of loss carry-forwards

......... ......... ......... recognised .

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Recognised in income £m

Recognised in equity £m

30 December 2004 £m

(8.1) 1.9 1.0 7.1

4.8 — 0.4 (5.2)

— (0.1) — —

(3.3) 1.8 1.4 1.9

1.9

—

(0.1)

1.8

12. Inventories 30 December 2004 £m

Raw materials and consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goods held for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 1.2 1.3

13. Trade and other receivables 30 December 2004 £m

Trade receivables . . . . . . . . . . . . . . . . Other trade receivables . . . . . . . . . . . . Prepayments and accrued income . . . . Amounts owed by related undertakings

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1.0 0.3 8.7 10.6 20.6

14. Cash and cash equivalents 30 December 2004 £m

Cash and cash equivalents per balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank overdrafts (see note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 (0.2)

Cash and cash equivalents per cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.9

125

15. Other interest-bearing loans and borrowings This note provides information about the contractual terms of the CCHL Group’s interest-bearing loans and borrowings. 30 December 2004 £m

Non-current liabilities Unsecured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— 6.0 6.0

Current liabilities Current portion of secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.2 0.5 0.7

Analysis of net funds/(debt): Cash at bank and in hand £m

Cash and overdrafts £m

Overdraft £m

Short term loans £m

Finance leases £m

Net debt £m

At 2 January 2004 . . . . . . . . Cash flows . . . . . . . . . . . . . .

10.4 (6.3)

— (0.2)

10.4 (6.5)

(6.5) 6.5

— (6.5)

3.9 (6.5)

At 30 December 2004 . . . . . .

4.1

(0.2)

3.9

—

(6.5)

(2.6)

Finance lease liabilities The maturity of obligations under finance leases is as follows: 30 December 2004 £m

Within one year . . . . . . . . Between one and two years In the second to fifth years Over five years . . . . . . . . .

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Less future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 0.5 1.5 13.3 15.8 (9.3) 6.5

Analysed as: Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . More than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 6.0 6.5

16. Principal subsidiary undertakings The principal subsidiary undertaking includes within the consolidated financial information are: Country of incorporation

Share class held

%

Cineworld Cinemas Limited . . . . . . . .

England

Ordinary

100

Cineworld Estates Limited . . . . . . . . Adelphi-Carlton Limited . . . . . . . . . Cineworld Cinema Property Limited Classic Cinemas Limited . . . . . . . . .

England Eire England England

Ordinary Ordinary Ordinary Ordinary

100 100 100 100

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126

Nature of business

Cinema operation and management Cinema property leasing Cinemas operation Property company Rental services company

17. Trade and other payables 30 December 2004 £m

Current Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.9 3.4 11.5 21.8

Non-Current Non-current trade and other payables of £5.2 million at 30 December 2004 relate to accruals and deferred income. 18. Employee benefits Pension plans The CCHL Group operates two externally funded defined benefit pension schemes, one in the United Kingdom, the MGM Pension Scheme, and one in Ireland, the Adelphi-Carlton Limited Contributory Pension Plan. Under the MGM Pension Scheme, CCHL contributed at a rate of 14 per cent. of Contribution Salary until 31 March 2004 and at the rate of 10.7 per cent. of New Contribution Salary from 1 April 2004 to the MGM Pension Scheme (the main Defined Benefit pension scheme sponsored by CCHL). In addition CCHL made a special contribution of £375,000 in March 2004 and makes further special contributions of £31,250 per month from April 2004. The latest actuarial valuation of the MGM Pension Scheme took place on 5 April 2006. The principal assumptions used by the independent qualified actuaries in updating the latest valuation of the scheme for IAS 19 are stated further below. The Adelphi-Carlton Limited Contributory Pension Plan is closed to new entrants and therefore the current service cost is £nil. The trustees of the Adelphi-Carlton Contributory Pension Plan have not agreed that any surplus on the plan can be refunded to CCHL. Accordingly the surplus has not been recognised. Actuaries for Adelphi-Carlton Limited carried out the last actuarial valuation of the scheme as at 1 October 2003. Based on this assessment, the actuarial value of the assets of the scheme was more than sufficient to cover 100 per cent. of the benefits that had accrued to members. In view of this, a suspension of company contributions was in force from 1 April 2001 to 30 December 2004. Total contributions for the period ended 30 December 2004 were £nil. Actuarial gains and losses are recognised immediately in equity. The net deficit in the pension schemes are: 30 December 2004 £m

MGM Pension Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adelphi-Carlton Limited Contributory Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0) —

Net deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0)

MGM Pension Scheme 30 December 2004 £m

Present value of funded defined benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24.4) 18.4

Deficit in schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.0)

127

Movements in present value of defined benefit obligation: 30 December 2004 £m

At beginning of period . . . . . . . . . . Current service cost . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . Contribution by scheme participants Actuarial losses . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . .

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(23.3) (0.1) (1.3) (0.1) (0.7) 1.1

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24.4)

Movements in fair value of plan assets: 30 December 2004 £m

At start of period . . . . . . . . . . Expected return on plan assets Actuarial gains . . . . . . . . . . . . Contributions by employer . . . Contributions by members . . . . Benefits paid . . . . . . . . . . . . .

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At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.0 1.0 0.7 0.7 0.1 (1.1) 18.4

Income/(expense) recognised in the consolidated income statement: 52 week period ended 30 December 2004 £m

Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on defined benefit pension plan obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on defined benefit pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.1) (1.3) 1.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.4)

The income/(expense) is recognised in the following line items in the consolidated income statement: 52 week period ended 30 December 2004 £m

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.1) (1.3) 1.0 (0.4)

Actuarial gains/losses recognised directly in equity: 52 week period ended 30 December 2004 £m

Actuarial losses recognised directly in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative amount at start of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.1) —

Cumulative amount at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.1)

128

The fair value of the plan assets and the return on those assets were as follows:

Equities . . . . . . . . . Fixed interest bonds Index linked bonds . Other . . . . . . . . . . .

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Long-term rate of return expected at 30 December 2004 (% p.a)

52 week period ended 30 December 2004 £m

7.55% 4.55% 4.30% 4.80%

9.3 2.7 6.3 0.1

. . . .

18.4 Actual return on plan assets: 52 week period ended 30 December 2004 £m

Expected return on scheme assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 0.6

Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.7

Principal actuarial assumptions (expressed as weighted averages): 52 week period ended 30 December 2004 %

Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of general long-term increase in salaries . Rate of increase to pensions in payment . . . . Discount rate for scheme liabilities . . . . . . . .

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2.9 4.4 2.10–3.60 5.25

Demographic assumptions have been taken to be the same as those adopted for the actuarial valuation, except in relation to post retirement mortality. The IAS 19 assumptions at 30 December 2004 have adopted standard mortality tables that estimate life expectancies from age 65 for future pensioner male and females of 19.3 years and 22.2 years respectively. Experience adjustments: 52 week period ended 30 December 2004 £m

Experience adjustments on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experience adjustments on plan liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses on change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.7 (0.1) (0.7)

The CCHL Group expects to contribute approximately £31,250 per month to its defined benefit plans in the next financial period.

129

Adelphi-Carlton Limited Contributory Pension Plan 52 week period ended 30 December 2004 £m

Present value of funded defined benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1) 1.6

Surplus in scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrecoverable surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 (0.5)

Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Movements in present value of defined benefit obligation: 52 week period ended 30 December 2004 £m

At beginning of period Current service cost . . Interest cost . . . . . . . . Actuarial losses . . . . . Benefits paid . . . . . . .

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(1.0) — (0.1) (0.1) 0.1

At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1)

Movements in fair value of plan assets: 52 week period ended 30 December 2004 £m

At start of period . . . . . . . . . . Expected return on plan assets Actuarial gains . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . .

. . . .

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At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5 0.1 0.1 (0.1) 1.6

Income/(expense) recognised in the consolidated income statement: 52 week period ended 30 December 2004 £m

Current service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on defined benefit pension plan obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on defined benefit pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .

— (0.1) 0.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

130

Actuarial gains/losses recognised directly in equity: 52 week period ended 30 December 2004 £m

Actuarial gains and losses recognised in the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative amount at start of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— —

Cumulative amount at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

The fair value of the plan assets and the return on those assets were as follows: Expected rate of return % p.a.

Equities . Property . Bonds . . Other . . .

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8.00% 6.00% 3.60% 2.50%

52 week period ended 30 December 2004 £m

0.5 — 1.0 0.1 1.6

Actual return on plan assets: 52 week period ended 30 December 2004 £m

Expected return on scheme assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 0.1

Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.2

Principal actuarial assumptions (expressed as weighted averages): 52 week period ended 30 December 2004 %

Inflation rate . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . Expected rate of return on plan assets . Rate of pension increases in payment . Rate of pension increases in deferment

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Material demographic assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

131

2.25 4.5 5.04 3.00 2.25 PMA92c10 for Males PFA92c10 for Females

Balance sheet 52 week period ended 30 December 2004 £m

Present value of defined benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.1) 1.6

Surplus in scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Irrecoverable surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5 (0.5)

Deficit/surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Experience adjustments 52 week period ended 30 December 2004 £m

Experience adjustments on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experience adjustments on plan liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses on change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.1 — (0.1)

The CCHL Group expects to contribute approximately £nil to its defined benefit plans in the next financial year. Defined contribution plans The CCHL Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was £285,000. 19. Provisions Property £m

Deferred tax £m

Total £m

Balance at 2 January 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . Provided during the period . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions utilised during the period . . . . . . . . . . . . . . . . . . .

2.7 12.0 (0.8)

1.7 (1.7) —

4.4 10.3 (0.8)

Balance at 30 December 2004 . . . . . . . . . . . . . . . . . . . . . . . .

13.9

—

13.9

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.9 2.0

— —

11.9 2.0

The property provision relates to onerous leases and dilapidations. The provision for onerous leases covers the rent payable on particular cinema sites that is in excess of the economic benefits expected to be derived from their operation on a discounted basis. The remaining provision will be utilised over the period to the next rent review date or the remaining lease life depending on the term of the lease. The discount rate used was 11 per cent.

132

20. Capital and reserves Reconciliation of movement in capital and reserves Share capital £m

At 2 January 2004 . . . . . . . Loss for the period . . . . . . . Transfer of depreciation on revaluation . . . . . . . . . . . Foreign exchange translation gain . . . . . . . . . . . . . . . . Actuarial loss on defined benefit pension schemes .

Share premium £m

. .

— —

50.2 —

.

—

.

Revaluation reserve £m

Translation reserve £m

Retained earnings £m

Total £m

2.8 —

— —

2.5 (7.4)

55.5 (7.4)

—

(0.2)

—

0.2

—

—

—

—

0.4

—

0.4

.

—

—

—

—

(0.1)

(0.1)

At 30 December 2004 . . . . . .

—

50.2

2.6

0.4

(4.8)

48.4

Share capital 30 December 2004 £m

Cineworld UK Limited Authorised 2,000 ordinary shares of £1 each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Allotted, called up and fully paid 1,308 ordinary shares of £1 each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Dividends No dividends were paid or proposed in 2004. 21. Financial instruments The CCHL Group’s primary financial instruments comprise bank overdrafts, finance leases, cash and cash equivalents. The main purpose of these financial instruments is to finance the CCHL Group’s operations. The CCHL Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations and are disclosed in Notes 13 and 17 respectively. The CCHL Group does not use derivative financial instruments. It is the Group’s policy that no trading in financial instruments should be undertaken. The main risks arising from the CCHL Group’s financial instruments are credit risk and interest rate risk. These are summarised below. Credit risk The CCHL Group’s credit risk is primarily attributable to its trade receivables, however due to the nature of the CCHL Group’s business trade receivables are not significant which limits the related credit risk. The credit risk on liquid funds is also limited because the counterparties are banks with high credit-ratings. Interest rate risk The CCHL Group’s exposure to the risk of changes in market interest rates relates only to the Group’s bank overdraft as it is not hedged.

133

Effective interest rates and repricing analysis In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they mature. 2004 Effective interest rate %

Cash and cash equivalents . . . . . . . . . Finance lease liabilities* . . . . . . . . . . Bank overdrafts . . . . . . . . . . . . . . . .

*

Total £m

5.7% 7.2% N/A

0 to 1 years £m

1 to 2 years £m

2 to 5 years £m

5 years and over £m

(4.1) 6.5 0.2

(4.1) 0.5 0.2

— —

— 2.0

— 4.0

2.6

(3.4)

—

2.0

4.0

These liabilities bear interest at fixed rates.

Fair values Set out below is a comparison by category of carrying amounts and fair values of the CCHL Group’s financial instruments, that are carried in the financial statements. Short term debtors and creditors have been excluded from the following disclosures on the basis that their carrying amount is a reasonable approximation to fair value. Carrying amount 2004 £m

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair value 2004 £m

4.1 6.5 0.2

4.1 6.5 0.2

10.8

10.8

22. Operating leases Non-cancellable operating lease rentals are payable as follows: 52 week period ended 30 December 2004 £m

Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . More than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22.8 103.5 607.5 733.8

The group’s operating leases relate predominantly to cinemas and office buildings. During the period ended 30 December 2004 £31.1 million was recognised as an expense in the income statement in respect of operating leases.

134

23. Related parties The compensation of key management personnel (including the directors) is as follows: Compensation for loss of office £000

Pension contributions £000

— 340 134 84

— 320 — —

— 25 15 11

— 685 149 95

558

320

51

929

Salary and fees £000

Period ended 30 December 2004: S Wiener (appointed 1 December 2004) M Taylor (resigned 9 December 2004) . G Hyatt . . . . . . . . . . . . . . . . . . . . . . . Barbara Austin . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

Total £000

24. Post balance sheet events Disposal of sites As part of Cineworld Group plc’s acquisition of Cineworld Cinema Holdings Limited in December 2004, CCHL undertook to the Office of Fair Trading (the ‘‘OFT’’) to make divestments in each of the identified six localities where Cineworld and UGC cinemas overlap. On 15 November 2005, CCHL agreed to dispose of these six sites together with a seventh cinema site. The seven sites are in the following locations: Sunderland; Bishop’s Stortford; Swindon; Wigan; Ealing; Birmingham; and Slough. Four of the sites were UGC Cinemas (Wigan, Ealing, Birmingham and Slough) The sale is conditional on OFT approval, which was obtained on 20 December 2005, and on obtaining the relevant landlords’ consent. On 26 May 2006, the disposals of Ealing and Slough were completed. The disposal of the remaining 2 UGC sites was completed on 22 December 2006. The total sales proceeds (less costs) were £11.3 million and the net book value of assets sold were £17.3 million and therefore a loss of £6.0 million was realised in 2006. The contribution to the company’s trading during 2004 of the four UGC cinemas was as follows: 47 week period ended 30 November 2004

5 week period ended 30 December 2004

52 week period ended 30 December 2004

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.5 (7.5)

1.0 (0.7)

10.5 (8.2)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.0 (1.1)

0.3 (0.2)

2.3 (1.3)

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.9

0.1

1.0

1.6 (0.7)

0.2 (0.1)

1.8 (0.8)

Analysed between Operating profit before depreciation . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of name On 31 January 2005, CCHL changed its name from UGC Cinema Holdings Limited to Cineworld Cinemas Holdings Limited. Sale and leaseback On 15 March 2007, the Group completed a sale and leaseback transaction in respect of its Swindon site, realising proceeds of approximately £5.7 million, and is expected to generate a profit on disposal of £3.4 million (after costs). On 27 March 2007, the Group completed a sale and leaseback transaction in respect of its site in Southampton, realising proceeds of approximately £6.6 million, and is expected to generate a profit on disposal of £4.8 million (after costs).

135

PART 8: PRO FORMA FINANCIAL INFORMATION

21JUL200414412105 KPMG Audit Plc 8 Salisbury Square London EC4V 8BB United Kingdom

Tel +44 (0) 20 7311 1000 Fax +44 (0) 20 7311 2063 DX 38050 Blackfriars

The Directors Cineworld Group plc Power Road Studios Power Road London W4 5PY 27 April 2007 Dear Sirs Cineworld Group plc We report on the pro forma financial information (the ‘‘Pro forma financial information’’) set out in Part 8: Pro Forma Financial Information of the prospectus dated 27 April 2007 (the ‘‘Prospectus’’), which has been prepared on the basis described therein, for illustrative purposes only, to provide information about how the Transactions (as defined in ‘‘Part 10: Definitions’’) might have affected the financial information presented on the basis of the accounting policies adopted by Cineworld Group plc in preparing the financial statements at 30 December 2005 (the first day of the 52 week period ended 28 December 2006) for the purposes of the income statement and 28 December 2006 for the purposes of the balance sheet. This report is required by paragraph 20.2 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities It is the responsibility of the directors of Cineworld Group plc to prepare the Pro forma financial information in accordance with paragraph 20.2 of Annex I of the Prospectus Directive Regulation. It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of Cineworld Group plc.

136

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of Cineworld Group plc. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion: ɀ

the Pro forma financial information has been properly compiled on the basis stated; and

ɀ

such basis is consistent with the accounting policies of Cineworld Group plc.

Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation. Yours faithfully

26APR200709592853 KPMG Audit plc

137

UNAUDITED PRO FORMA FINANCIAL INFORMATION Basis of preparation The unaudited pro forma financial information set out in this ‘‘Part 8: Pro Forma Financial Information’’ is based on the historical financial information of Cineworld Group plc as at 28 December 2006 for the purposes of the balance sheet and for the 52 week period ended 28 December 2006 for the income statement, as set out in Part A of ‘‘Part 7: Financial Information’’. The unaudited pro forma financial information is prepared for illustrative purposes only to show the effect of the Transactions on the Group as if they had occurred on 28 December 2006 with respect to the Group’s balance sheet and on 30 December 2005 (first day of the 52 week period ended 28 December 2006) with respect to the Group’s income statement. The unaudited pro forma financial information, because of its nature, addresses a hypothetical situation, and, therefore, does not represent the Group’s actual financial position or results. The unaudited pro forma financial information has been prepared on a basis consistent with the accounting policies of the Group as set out in note 2 of Part A of ‘‘Part 7: Financial Information’’. The unaudited pro forma financial information should be read in conjunction with ‘‘Risk Factors’’, ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Refinancing and Conversion’’, ‘‘Part 6: Operating and Financial Review’’, ‘‘Part 7: Financial Information’’ and ‘‘Part 9: Additional Information’’. Unaudited pro forma balance sheet As at 28 December 2006 Note 1 £m

Note 2 £m

Adjustments Note 3 Note 4 £m £m

Note 5 £m

Pro forma as at 28 December 2006 £m

Non-current assets Property, plant and equipment Goodwill . . . . . . . . . . . . . . . Other intangible assets . . . . . . Trade and other receivables . . Deferred tax assets . . . . . . . .

119.9 204.3 3.0 0.9 5.3

— — — — —

— — — — —

— — — — —

— — — — —

119.9 204.3 3.0 0.9 5.3

Total non-current assets . . . .

333.4

—

—

—

—

333.4

Current assets Inventories . . . . . . . . . . . . . . Trade and other receivables . . Cash and cash equivalents . . .

1.6 18.1 27.7

— — 93.8

— — 133.5

— — (262.6)

— — —

1.6 18.1 (7.6)

47.4

93.8

133.5

(262.6)

—

12.1

Total assets . . . . . . . . . . . . . . .

380.8

93.8

133.5

(262.6)

—

345.5

Current liabilities Interest-bearing loans, borrowings and other financial liabilities . . . Trade and other payables Current taxes payable . . Provisions . . . . . . . . . . .

(1.0) (51.5) — (2.1)

— — — —

0.3 — — —

0.5 — — —

— — — —

(0.2) (51.5) — (2.1)

(54.6)

—

0.3

0.5

—

(53.8)

(340.9) (19.4) (4.6) (16.2) (3.9)

— — — — —

(133.8) — — — —

261.0 — — — —

73.5 — — — —

(140.2) (19.4) (4.6) (16.2) (3.9)

Non current liabilities Interest-bearing loans, borrowings and other financial liabilities . . . Trade and other payables Employee benefits . . . . . Provisions . . . . . . . . . . . Deferred tax liabilities . .

. . . .

. . . . .

. . . .

. . . . .

. . . .

. . . . .

. . . .

. . . . .

(385.0)

—

(133.8)

261.0

73.5

(184.3)

Total liabilities . . . . . . . . . . . . .

(439.6)

—

(133.5)

261.5

73.5

(238.1)

Net (liabilities)/assets . . . . . . . .

(58.8)

93.8

73.5

107.4

138

—

(1.1)

Unaudited pro forma income statement For 52 week period ended 28 December 2006 Note 1 £m

Adjustments* Note 3 £m

Note 2 £m

Pro forma 52 week period ended 28 December 2006 £m

Note 4 £m

Revenue . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . .

278.5 (211.3)

— —

— —

— —

278.5 (211.3)

Gross Profit . . . . . . . . . . . . . . . Other operating income . . . . . Administrative expenses . . . . .

67.2 3.1 (49.8)

— — (1.5)

— — —

— — —

67.2 3.1 (51.3)

Operating profit . . . . . . . . . . . .

20.5

(1.5)

—

—

19.0

Financial income . . . . . . . . . . Financial expenses . . . . . . . . .

14.4 (40.8)

— —

— (9.4)

(12.8) 32.7

1.6 (17.5)

Net financing costs . . . . . . . . . .

(26.4)

—

(9.4)

19.9

(15.9)

(Loss)/profit before tax . . . . . . . Taxation . . . . . . . . . . . . . . . .

(5.9) —

(1.5) —

(9.4) —

19.9 —

3.1 —

(Loss)/profit for the year . . . . . .

(5.9)

(1.5)

(9.4)

19.9

3.1

*

The adjustments to administrative expenses and financial expenses include non-recurring expenses of £1.5 million relating to the expenses associated with the Global Offer and £4.1 million relating to the write-off of capitalised debt issue costs in relation to the Existing Senior Credit Agreement in the balance sheet at 29 December 2005.

Notes: 1.

Information on Cineworld Group plc has been extracted without material adjustment from the historical financial information for Cineworld Group plc set out in Part A of ‘‘Part 7: Financial Information’’.

2.

In contemplation of and in connection with the Global Offer the following adjustments have been made in relation to the proceeds of the Global Offer: £m Balance sheet Cash and cash equivalents (i) gross proceeds from the Global Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) expenses associated with the Global Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104.3 (10.5) 93.8

Income statement Administrative expenses—non-recurring (iii) expenses associated with the Global Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.5)

Approximately £1.5 million of the expenses associated with the Global Offer are expected to be charged through the income statement, as shown above, and approximately £9.0 million are expected to be charged against the share premium account. 3.

In contemplation of and in connection with the Refinancing the following adjustments have been made in relation to the New Senior Credit Agreement: £m Balance sheet Cash and cash equivalents (i) the drawdown under the Term Facility (as defined in paragraph 18.1 of ‘‘Part 9: Additional Information’’) under the New Senior Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) fees associated with the facilities under the New Senior Credit Agreement referred to in (i) above . . . . . . .

135.0 (1.5) 133.5

139

£m Current liabilities—Interest bearing loans, borrowings and other financial liabilities (iii) the drawdown under the Revolving Facility under the New Senior Credit Agreement . . . . . . . . . . . . . . . . (iv) deferred fees associated with the facilities, to be offset against outstanding loan balances and classified according to the relevant period of amortisation, under the New Senior Credit Agreement referred to in (i) above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

0.3 0.3

Non-current liabilities—Interest bearing loans, borrowings and other financial liabilities (v) the drawdown under the Term Facility under the New Senior Credit Agreement . . . . . . . . . . . . . . . . . . . (vi) deferred fees associated with the facilities, to be offset against outstanding loan balances and classified according to the relevant period of amortisation, under the New Senior Credit Agreement referred to in (i) above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(135.0)

1.2 (133.8)

Income statement Finance expenses—recurring (vii) interest charges on the facilities under the New Senior Credit Agreement referred to in (i) above of £9.1 million. This uses an average interest rate of 6.95% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (viii) the amortisation of the New Senior Credit Agreement fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9.1) (0.3) (9.4)

4.

In contemplation of and in connection with the Refinancing, the DDB Redemption and the refinancing of interest rate swaps, the following adjustments have been made: £m Balance sheet Cash (i) the part redemption of the Deep Discount Bonds . . . (ii) the redemption of the Subordinated Bonds . . . . . . . (iii) the repayment of borrowings under the Existing Senior (iv) refinancing of interest rate swaps . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . Credit Agreement . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

(53.1) (1.2) (208.0) (0.3) (262.6)

Current liabilities—Interest bearing loans, borrowings and other financial liabilities (v) the repayment of borrowings under the Existing Senior Credit Agreement . . . . . . (vi) the write-off of capitalised debt issue costs in relation to the Existing Senior Credit balance sheet at 28 December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (vii) refinancing of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . Agreement in the . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.3 (1.1) 0.3 0.5

Non-current liabilities—Interest bearing loans, borrowings and other financial liabilities (viii) the part redemption of the Deep Discounted Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ix) the redemption of the Subordinated Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (x) the repayment of borrowings under the Existing Senior Credit Agreement . . . . . . . . . . . . . . . . . . . . . . .

53.1 1.2 206.7 261.0

Income statement Financial income—recurring (xi) the reversal of previously expensed interest rate swap fair value movements which did not qualify for hedge accounting under the requirements of IAS 39. Financial expenses—recurring (xii) the reversal of previously amortised debt issue costs relating to the previous capital structure which is now being refinanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (xiii) the elimination of interest rate charges on the Deep Discount Bonds, the Subordinated Bonds and the Existing Senior Credit Agreement referred to in (i), (ii) and (iii) above of £11.5 million, £0.1 million and £18.4 million respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(12.8)

6.8

30.0 36.8

Financial expenses—non-recurring (xiv) the write-off of capitalised debt issue costs in relation to the Existing Senior Credit Agreement in the balance sheet at 29 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4.1)

Total financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32.7

140

5.

In contemplation of and in connection with the conversion of the Outstanding Deep Discount Bonds to equity the following adjustments have been made in relation to the Outstanding Deep Discount Bonds: £m Balance sheet Non-current liabilities—Interest bearing loans, borrowings and other financial liabilities (i) the conversion of the Outstanding Deep Discount Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73.5

6.

No adjustment has been made to deferred tax balances to reflect the above adjustments because of the availability to the Group of unrecognised capital allowances in excess of depreciation and tax losses throughout the relevant periods. As set out in note 10 of Part A of ‘‘Part 7: Financial Information’’, to the extent that potential deferred tax assets relating to Cineworld Group plc acquisitions of Cine-UK or UGC crystallise or are recognised in the future a tax credit will arise. Any such credit would be matched by an equal charge to administrative expenses representing an equivalent reduction in the carrying value of goodwill. No such adjustments have been made in the above pro forma financial information although the impact of the Transactions make it more likely that certain potential deferred tax assets which have not been recognised in the paset could be recognised in the future.

7.

No account has been taken of trading results or other cash flows of Cineworld Group plc since 28 December 2006.

8.

This pro forma financial information does not constitute financial information within the meaning of section 240 of the Companies Act.

141

PART 9: ADDITIONAL INFORMATION 1.

RESPONSIBILITY

1.1 The Company and the Directors accept responsibility for the information contained in this document. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. 1.2 KPMG Audit Plc whose registered address is at 8 Salisbury Square, London EC4Y 8BB, accepts responsibility for its Accountants’ Reports and its letter set out in ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’, respectively. To the best of the knowledge of KPMG Audit Plc (which has taken all reasonable care to ensure that such is the case) the information contained therein is in accordance with the facts and contains no omissions likely to affect its import. 2.

INFORMATION

2.1 The Company was incorporated in England and Wales on 23 August 2004 with registered number 05212407 under the Act as a private company limited by shares with the name Augustus 2 Limited. 2.2 The Company changed its name to: 2.2.1 JAD 1 Limited on 24 August 2004; 2.2.2 Cineworld UK Limited on 6 October 2004; and 2.2.3 Cineworld Group Limited on 17 May 2006. 2.3 The Company was re-registered as a public limited company on 17 May 2006. 2.4 The principal legislation under which the Company operates is the Act and the 2006 Act. 2.5 The registered office and principal place of business of the Company in the United Kingdom is at Power Road Studios, Power Road, Chiswick, London W4 5PY (Tel. No. +44(0) 20 8987 5000). 3.

SHARE CAPITAL

3.1 The authorised, issued and fully paid share capital of the Company as at 28 December 2006 (being the end of the Company’s last financial year) was as follows: Authorised Number Amount (£)

Nominal Value

Issued and fully paid Number Amount (£)

Redeemable preference shares . . . . . . .

48,272

48,272

£1.00 each

48,272

48,272

Ordinary shares . . . . . . . . . . . . . . . . . .

173,515

1,735.15

£0.01 each

172,815

1,728.15

Total . . . . . . . . . . . . . . . . . . . . . . . . . .

50,007.15

50,000.15

3.2 The authorised, issued and fully paid share capital of the Company immediately following Admission will be as follows: Authorised Number

Amount (£)

Nominal Value

200,000,000

2,000,000

£0.01 each

Issued and fully paid Number Amount (£)

141,721,509

1,417,215.09

3.3 On incorporation the authorised share capital of the Company was £1,000 divided into 1,000 ordinary shares of £1.00 each, of which one was issued nil paid to Olswang Nominees Limited. 3.4 Since incorporation there have been the following changes in the authorised and issued share capital of the Company: 3.4.1 on 7 October 2004, the issued and unissued ordinary shares of £1.00 were sub-divided into 100,000 ordinary shares of £0.01 each; 3.4.2 on 7 October 2004, 99,200 ordinary shares of £0.01 each were issued for cash at par;

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3.4.3 on 30 November 2004, the authorised share capital of the Company was increased from £1,000 to £1,735.15 by the creation of 73,515 ordinary shares of £0.01; 3.4.4 on 30 November 2004, 73,515 ordinary shares of £0.01 each were issued for cash at par; 3.4.5 on 12 May 2006, the authorised share capital of the Company was increased from £1,735.15 to £50,007.15 by the creation of 48,272 redeemable shares of £1.00 each, the terms of which provide for automatic redemption at par upon Admission; and 3.4.6 on 12 May 2006, 48,272 redeemable shares of £1.00 each were issued for cash fully paid, against an undertaking by the subscriber to pay £48,272 to the Company on or before 1 June 2007. 3.5 The shareholders of the Company resolved at an extraordinary general meeting of the Company held on 26 April 2007 with effect from and conditional upon Admission: 3.5.1 the authorised share capital of the Company be increased from £50,007.15 to £2,048,272 by the creation of 199,826,485 Shares; 3.5.2 in substitution for all existing authorities and/or powers, the Directors be generally and unconditionally authorised for the purposes of section 80 of the Act to exercise all powers of the Company to allot relevant securities up to an aggregate nominal amount of £1,887,315.92, such authority to expire on the earlier of 26 July 2008 and the conclusion of the annual general meeting of the Company to be held in 2008 (but the Company may make an offer or agreement which would or might require relevant securities to be allotted after the expiry of the authority and the Directors may allot relevant securities pursuant to that offer or agreement as if the authority has not expired); 3.5.3 in substitution for all existing authorities and/or powers, the Directors be generally empowered pursuant to section 95 of the Act to allot equity securities within the meaning of section 94(2) of the Act for cash, pursuant to the general authority referred to in paragraph 3.5.2 above as if section 89(1) of the Companies Act (statutory pre-emption rights) did not apply to such allotment, such power to expire on the earlier of 26 July 2008 and the conclusion of the annual general meeting of the Company to be held in 2008 (but the Company may make an offer or agreement which would or might require equity securities to be allotted after the expiry of the power and the Directors may allot equity securities pursuant to such offer or agreement as if the power had not expired), provided that such authority be limited to: (i) the allotment of 61,381,075 Shares to be issued by the Company in connection with the Global Offer; (ii) the allotment of 45,777,434 Shares to be issued by the Company in connection with the Conversion; (iii) the allotment of equity securities in connection with a rights issue, open offer or any other pre-emptive offer in favour of ordinary shareholders but subject to such exclusions as may be necessary to deal with fractional entitlements or legal or practical problems under any laws or requirements of any regulatory body in any jurisdiction; and (iv) the allotment (other than pursuant to (i) to (iii) above) of equity securities for cash up to an aggregate nominal amount equal to 5 per cent. of the issued and unconditionally allotted share capital of the Company following the allotment of Shares in connection with the Global Offer, the Conversion and the Bonus Issue described in paragraph 3.5.4 below; 3.5.4 conditional upon the Company’s share premium account being credited with the net proceeds of the Global Offer receivable by the Company, the Directors be authorised to capitalise £343,901.85, being part of the sum which will stand to the credit of the Company’s share premium account and to apply such sum on behalf of the holders of Shares on the register of members at the close of business on the business day before Admission (the ‘‘Record Date’’) in paying up in full new Shares to be allotted to such holders in proportion to the number of Shares held by them on the Record Date (the ‘‘Bonus Issue’’); 3.5.5 the redeemable shares of £1 each in the capital of the Company, subject to them having been redeemed, be cancelled from the authorised share capital of the Company and the authorised share capital of the Company accordingly be diminished;

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3.5.6 the Company adopt the Articles of Association summarised in paragraph 4.2 below; and 3.5.7 the Company be generally and unconditionally authorised to make one or more market purchases (within the meaning of section 163(3) of the Act) of Shares provided that: (i) the maximum aggregate number of shares authorised to be purchased is 14,172,150 (representing 10 per cent. of the issued share capital immediately following Admission); (ii) the minimum price which may be paid for a Share is its nominal value; (iii) the maximum price which may be paid for a Share is an amount equal to 105 per cent. of the average of the middle market quotations for a Share as derived from The London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that Share is purchased; (iv) the authority expires at the earlier of 26 July 2008 and the conclusion of the annual general meeting of the Company held in 2008; and (v) the Company may make a contract to purchase Shares under the authority before the expiry of the authority which will or may be executed wholly or partly after the expiry of the authority, and may make a purchase of Shares in pursuance of any such contract. 3.6 The Company will be subject to the continuing obligations of the Listing Rules with regard to the issue of securities for cash and the provisions of section 89 of the Act (which confers on shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to the balance of the authorised but unissued share capital of the Company which is not the subject of the disapplication referred to above. 3.7 The Shares are in registered form and, from Admission, will be capable of being held in uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the Regulations). Where Shares are held in certificated form, share certificates will be sent to the registered members by first class post. Where Shares are held in CREST, the relevant CREST stock account of the registered members will be credited. 3.8 Immediately following the Global Offer, the Blackstone Shareholders will in aggregate control the exercise of 53.5 per cent. of the rights to vote at general meetings of the Company (or 47.0 per cent. if the Over-allotment Option is exercised in full). On Admission, the City Code on Takeovers and Mergers (the ‘‘Takeover Code’’) will apply to the Company. Rule 9 of the Takeover Code provides that if any person or group of persons acting in concert with each other, acquire an interest in Shares which, when taken together with Shares in which that person of group of persons are already interested, (i) would increase their aggregate interests to an amount carrying 30 per cent. or more of the voting rights in the Company, or (ii) where the person or group of persons are interested in Shares which in aggregate carry more than 30 per cent. of the voting rights in the Company but do not hold Shares carrying more than 50 per cent. of such voting rights, would increase their percentage of shares carrying voting rights in which they are interested, the person and, depending on the circumstances, its concert parties, would be required (except with the consent of the Panel on Takeovers and Mergers) to make a cash offer for the outstanding shares in the Company as well as any other class of transferable securities carrying voting rights in the Company at a price not less than the highest price paid for interests in shares by the acquirer or its concert parties during the previous 12 months. 3.9 Under the 2006 Act, which will apply to the Company from Admission, an offeror in respect of a takeover offer for the Company has the right to buy out minority shareholders where he has acquired (or conditionally contracted to acquire) 90 per cent. in value of the shares to which the offer relates. The notice to acquire shares from minority shareholders must be sent within three months of the last day on which the offer can be accepted. The squeeze out of minority shareholders can be completed at the end of six weeks from the date the notice has been given. In addition, where there has been a takeover offer for the Company, minority shareholders can require the offeror to purchase the remaining shares provided that at any time before the end of the period within which the offer can be accepted, the offeror has acquired (or contracted to acquire) at least 90 per cent. in value of all voting shares in the Company, which carry not less than 90 per cent. of the voting rights. A minority shareholder can exercise this right at any time until three months after

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the period within which the offer can be accepted. An offeror shall give the remaining shareholders notice of their rights within one month from the end of the period in which the offer can be accepted. 4.

MEMORANDUM AND ARTICLES OF ASSOCIATION

4.1 The Memorandum of Association of the Company provides that the Company’s principal objects are to carry on business as a general commercial company and to carry on any other trade or business whatsoever which, in the opinion of the Board, may be capable of being advantageously carried on by the Company in connection with or ancillary to any other business of the Company, or may further any of the Company’s objects. The objects of the Company are set out in full in clause 3 of its Memorandum of Association which is available for inspection in the manner specified in paragraph 23 below. 4.2 The Articles of Association adopted pursuant to a resolution passed at an extraordinary general meeting of the Company held on 26 April 2007 subject to and conditional upon Admission contain provisions to the following effect: 4.2.1 Rights Attaching to Shares (i) Voting rights of members Subject to any special terms as to voting for the time being attached to any shares (as to which there are none at present, and subject to disenfranchisement in the event of non-payment of any call or other sum due and payable in respect of any share or non-compliance with any statutory notice requiring disclosure of the beneficial ownership of any shares, on a show of hands every member at a general meeting who (being an individual) is present in person, or (being a corporation) is present by a representative, has one vote and on a poll every member present in person, by proxy or by representative has one vote for each share of which he is the holder. In the case of joint holders, the vote of the person whose name stands first in the register of members and who tenders a vote is accepted to the exclusion of any votes tendered by any other joint holders. Unless the Board decides otherwise, no member shall be entitled to be present or vote (whether in person or by proxy), at a general meeting or at a separate meeting of the holders of any class of shares in the capital of the Company, in respect of any share held by him if a call or other amount due and payable in respect of the share is unpaid. (ii) Dividends Subject to the provisions of the Act and the Articles, the Company may by ordinary resolution declare dividends to be paid to its members in accordance with their respective rights and interests, provided that no dividend may exceed the amount recommended by the Board. Except as provided by the rights attached to, or the terms of issue of, any shares, dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is declared and paid, but no amount paid up on a share in advance of a call may be treated for these purposes as paid up on the share. Except as otherwise provided by the rights attached to shares, all dividends shall be apportioned and paid proportionately according to the amounts paid up on the share during any portion of the period in respect of which the dividend is paid. Except as otherwise provided by the rights attached to shares, dividends may be declared or paid in any currency. Any unclaimed dividend, interest or other amount payable by the Company in respect of a share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. Any dividend which has remained unclaimed for twelve years from the date it was declared or became due for payment is forfeited and ceases to remain owing by the Company. Subject to the provisions of the Act, the Board may pay interim dividends and also any fixed rate dividend, if it appears to the Board to be justified by the profits of the Company available for distribution. If the Board acts in good faith, it is not liable to holders of shares with preferred rights for any loss arising from the payment of interim dividends on other

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shares. No dividend or other moneys payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to the share. There are no fixed dates on which entitlement to dividends arise. The Board may, with the prior authority of an ordinary resolution of the Company, direct that payment of a dividend may be satisfied wholly or in part by the distribution of specific assets and in particular of paid-up shares or debentures of another company. Subject to the provisions of the Act, the Board may, with the prior authority of an ordinary resolution of the Company, offer to holders of shares the right to elect to receive shares credited as fully paid instead of cash in respect of all or part of a dividend or dividends. The Company is not obliged to send or transfer a dividend or other amount payable to a shareholder if a cheque, warrant or money order is returned undelivered or left uncashed or transfer not accepted on two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish another address or account of the person entitled to the payment, until the shareholder notifies the Company of an address or account to be used for that purpose. (iii) Return of Capital On a voluntary winding-up of the Company, the liquidator may, on obtaining any sanction required by law, divide among the members in kind the whole or any part of the assets of the Company, whether or not the assets consist of property of one kind or of different kinds, and vest the whole or any part of the assets in trustees upon such trusts for the benefit of the members. For such purpose the liquidator may set the value he deems fair on a class or classes of property, and may determine on the basis of that valuation and in accordance with the then existing rights of members how the division is to be carried out between members or classes of members. The liquidator may not, however, distribute to a member without his consent an asset to which there is attached a liability or potential liability for the owner. 4.2.2 Transfer of Shares (i) Shares in certificated form may be transferred by an instrument of transfer in writing in any usual form, or in such other form as the Board may approve. The instrument of transfer shall be executed by or on behalf of the transferor and (in the case of a share which is not fully paid) by or on behalf of the transferee. Subject to the requirements of the FSA, the Board may, in its absolute discretion and without giving any reason, refuse to register any transfer of any certificated share which is not fully paid up (but not so as to prevent dealings in listed shares from taking place on an open and proper basis) or any certificated share on which the Company has a lien. Subject to the requirements of the FSA, the Board may also refuse to register any transfer of a share in certificated form unless: (a) it is only in respect of only one class of shares and is in favour of a single transferee or not more than four joint transferees; (b) it is duly stamped (if required); and (c) it is delivered for registration to the office or such other place as the Board may decide, accompanied by the certificate for the shares to which it relates (except where the shares are transferred by a recognised person where a certificate has not been issued) and such other evidence of ownership as the Board may reasonably require to prove the title of the intending transferor. (ii) Subject to and in accordance with the provisions of the Regulations (as defined in ‘‘Part 10: Definitions’’), the Operator of the relevant system shall register a transfer of title to any uncertificated share which is a participating security held in uncertificated form, but so that the Operator of the relevant system may refuse to register such a transfer in circumstances permitted by the Regulations. (iii) In accordance with and subject to the provisions of the Regulations, where title to an uncertificated share is transferred by means of a relevant system to a person who is to hold such share in certificated form thereafter, the Company as participating issuer shall register

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the transfer in accordance with the relevant Operator-instruction, but so that the Company may refuse to register such a transfer in any circumstance permitted by the Regulations. 4.2.3 Changes in Capital and Purchase of Own Shares (i) The Company may by way of ordinary resolution: (a) increase its share capital by a sum to be divided into shares of an amount prescribed by the resolution; (b) consolidate and divide all or any of its share capital into shares of a larger amount; (c) subject to the Act, sub-divide all or part of its shares into shares of a smaller amount and may by the resolution decide that the shares resulting from the sub-division have amongst themselves a preference or other advantage or be subject to a restriction; and (d) cancel any shares which have not, at the date of the resolution, been taken or agreed to be taken by a person and diminish the amount of its share capital by the amount of the shares so cancelled. (ii) Subject to the Act and the rights attached to existing shares, the Company may also: (a) by special resolution, reduce its share capital, any capital redemption reserve, share premium account or other undistributable reserve; and (b) purchase, or agree to purchase in the future, its own shares. 4.2.4 Variation of Rights Subject to the Act, whenever the share capital of the Company is divided into different classes of shares, all or any of the rights for the time being attached to any class of shares may be varied, as provided by those rights or, if there is no such provision, then either with the consent in writing of the holders of at least three-fourths in nominal value of the issued shares of that class (excluding any shares of that class held as treasury shares) or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the issued shares of that class validly held in accordance with the Articles. In addition to the provisions of the Act regarding the variation of class rights, the Articles provide that the rights attached to a class of shares are not, unless otherwise expressly provided by those rights, deemed to be varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or by the purchase or redemption by the Company of its own shares in accordance with the Act and the Articles. 4.2.5 Forfeiture The Company may serve notice on the members in respect of any amounts unpaid on their shares. The member shall be given not less than 14 clear days notice to pay the unpaid amount, together with any interest and all costs, charges and expenses incurred by the Company. In the event of non-compliance, a share in respect of which the notice is given may be forfeited by resolution of the Board. 4.2.6 Redeemable Shares Subject to the Acts (as defined in the Articles) and to the rights attached to existing shares, shares may be issued on terms that they are to be redeemed or, at the option of the Company or the holder, are liable to be redeemed. 4.2.7 General Meetings An annual general meeting and an extraordinary meeting called for the passing of a special resolution shall be called by not less than 21 clear days’ notice, and an extraordinary meeting of the Company other than an annual general meeting or a meeting for the passing of a special resolution shall be called by not less than 14 clear days’ notice. The notice shall specify whether the meeting is an annual general meeting or an extraordinary general meeting, the place, the date and time of meeting and, in the case of any special business, the general nature of that business. A notice convening a meeting to pass an extraordinary resolution or a special resolution as the case may be shall specify the intention to propose the resolution as such.

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The notice of the meeting may also specify a time which shall not be more than 48 hours before the time fixed for the meeting by which a person must be entered on the register in order to have the right to attend or vote at the meeting. The accidental omission to send notice of a meeting or any document relating to the meeting or the non-receipt of such notice or document shall not invalidate the proceedings at that meeting. All shareholders present in person or by duly appointed corporate representative, and their duly appointed proxy or proxies shall be entitled to attend all general meetings of the Company. 4.2.8 Notices (i) A notice to be given to or by a person pursuant to the Articles (other than a notice convening a meeting of the Board or of a committee of the Board) shall be in writing or in an electronic communication to an address for the time being notified for that purpose to the person giving the notice. (ii) A notice or other document may be served by the Company on any member personally or by post in a pre-paid envelope at his address stated in the register of members (or another address notified for the purpose) or by leaving it at such address in an envelope addressed to the member or by giving it by electronic communication to an address for the time being notified to the Company by the member for that purpose or by any other means authorised in writing by the member concerned. In the case of joint holders of a share, a notice or other document shall be given to whichever of them is named first in the register in respect of the joint holding. If postal services in the UK are suspended or curtailed and the Company is unable effectively to convene a general meeting by notices sent by post to those members who have not notified an address for electronic communications pursuant to the Articles, a general meeting may be convened by advertisement in at least one UK national newspaper. A member whose address in the register of members of the Company is outside the UK and who gives to the Company an address within the UK at which notices or other documents may be served on him shall be entitled to have notices served on him at that address but, unless he does so, shall not be entitled to receive notices or other documents from the Company. 4.2.9 Directors (i) Appointment There is no age limit for Directors. Directors may be appointed by the Company by ordinary resolution or by the Board. A director appointed by the Board holds office only until the dissolution of the next annual general meeting and is not taken into account in determining the Directors who are to retire by rotation at that meeting. Unless and otherwise determined by ordinary resolution, the number of Directors shall be not less than two and must not be more than ten. A Director of the Company need not be a member of the Company. (ii) Remuneration Unless otherwise decided by the Company by ordinary resolution, the Company shall pay to the Directors by way of remuneration for their services as Directors, such fees as the Board decides (as determined by the Board from time to time in consultation with the Company’s independent advisers). Such fees shall be divided among the Directors in such proportion as the Board decides or, if no decision is made, equally. Subject to the Act and Articles and the requirements of the FSA, the Board may arrange for part of a fee payable to a Director to be provided in the form of fully paid shares in the capital of the Company. Any Director who is appointed to any executive office shall be entitled to such remuneration as the Board may determine, and may be in addition to, or instead of, any fees payable to him for his services as a Director. The Board shall also be repaid all reasonable travelling, hotel and other expenses properly incurred by them in the performance of their duties, including the expenses of attending the meetings of the Board, committee meetings, general meetings and separate meetings of the holders of any class of securities of the Company.

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The Board may grant reasonable additional remuneration and expenses in addition to a Director’s ordinary remuneration (if any) to any Director of the Company who goes or resides abroad at the request of the Board or who performs any special service on behalf of the Company. The Board may exercise all the powers of the Company to provide pensions or other retirement or superannuation benefits and to provide death or disability benefits or other allowances or gratuities to a person who is or has at any time been a Director of the Company or a Director of any company which is or was a subsidiary undertaking of or allied to or associated with the Company or a subsidiary of the Company or a predecessor in business of the Company or of a subsidiary undertaking of the Company and to the relatives or dependants of any such person. For this purpose the Board may establish, maintain, subscribe and contribute to any scheme, trust or fund and pay premiums. (iii) Retirement by Rotation At each annual general meeting one-third of the Directors (or, if their number is not three or a multiple of three, the number nearest to but not less than one-third) who are subject to retirement by rotation will retire by rotation and be eligible for re-election, provided that if there are fewer than three Directors who are subject to retirement by rotation, one shall retire from office. The Directors to retire will be those who wish to retire and those Directors who have been longest in office since their last appointment or reappointment or, in the case of those who were appointed or reappointed on the same day, will (unless they otherwise agree) be determined by lot. (iv) Directors’ Interests A Director who, to his knowledge, is in any way, whether directly or indirectly, interested in a contract, arrangement, transaction or proposal with the Company shall declare the nature of his interest at a meeting of the Directors at which the question of entering into the contract, arrangement, transaction or proposal is first considered, if he knows his interest then exists, or, in any other case, at the first meeting of the Board after he knows that he is or has become interested. A Director may not vote on or be counted in any quorum in relation to a resolution of the Board or of a committee of the Board concerning any contract, arrangement, transaction or proposal to which the Company is or is to be a party and in which he has an interest which is, to his knowledge, a material interest (otherwise than by virtue of his interest in shares or debentures or other securities of or otherwise in or through the Company). Notwithstanding the above, this prohibition does not apply to a resolution concerning any of the following matters: (a) the giving of a guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of, or for the benefit of, the Company or any of its subsidiary undertakings; (b) the giving of a guarantee, security or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility under a guarantee or indemnity or by the giving of security; (c) any contract, arrangement, transaction or proposal concerning an offer of shares, debentures or other securities of the Company or any of its subsidiary undertakings for subscription or purchase, in respect of which he is or may be entitled to participate as a holder of any such securities or in the underwriting or sub-underwriting of which he is to participate; (d) any contract, arrangement, transaction or proposal to which the Company is or is to be a party concerning another company (including a subsidiary undertaking of the Company) in which he is interested (directly or indirectly) whether as an officer, shareholder, creditor or otherwise if he does not to his knowledge hold an interest in shares (within the meaning of sections 820 to 825 of the Companies Act 2006) representing one per cent. or more of either any class of equity share capital of such company or of the voting rights of that company;

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(e) any contract, arrangement, transaction or proposal for the benefit of employees of the Company or any of its subsidiary undertakings which does not award him a privilege or benefit not generally awarded to the employees to whom it relates; and (f) any contract, arrangement, transaction or proposal concerning the purchase or maintenance of an insurance policy for the benefit of directors. Subject to the Act and provided he has disclosed to the Board the nature and extent of any direct or indirect interest of his, a Director, notwithstanding his office: (a) may enter into or otherwise be interested in any contract, arrangement, transaction or proposal with the Company or in which the Company is otherwise interested, either in connection with his tenure of an office or place of profit or as seller, buyer or otherwise; (b) may hold another office or place of profit with the Company (other than the office of auditor of the Company or auditor of any subsidiary) in conjunction with his office as Director and he (or his firm) may also act in a professional capacity for the Company and may be remunerated for doing so as the Board may decide; (c) may be a director or other officer of, or may be employed by, or be party to a contract, transaction, arrangement or proposal with or otherwise interested in, a company promoted by the Company or in which the Company is otherwise interested or as regards which the Company has a power of appointment; and (d) is not liable to account to the Company for a profit, remuneration or other benefit realised by any such contract, arrangement, transaction, proposal, office or employment and no such contract, arrangement, transaction or proposal is avoided on the grounds of any such interest or benefit. A Director shall not vote or be counted in the quorum at a meeting of the Directors or committee meeting in respect of any resolution concerning his own appointment (including fixing and varying the terms of his appointment or its termination), as the holder of any office or place of profit with the Company or any other company in which the Company is interested but, where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment or its termination) of two or more Directors to offices or places of profit with the Company or a company in which the Company is interested, those proposals shall be divided and considered in relation to each Director separately; and in such case each of the Directors concerned (if not otherwise debarred from voting under the Articles) shall be entitled to vote and be counted in the quorum in respect of each resolution except that concerning his own appointment. 4.2.10 Failure to Disclose Interests in Shares If any member or other person appearing to be interested in shares of the Company has been duly served with a notice under section 793 of the Companies Act 2006 and is in default for 14 days from the date of service of the notice in supplying to the Company the information thereby required, or, in purported compliance with such a notice, has made a statement which is false in a material particular, then the Board may impose restrictions upon the relevant shares. The restrictions available are the suspension of voting or other rights conferred by membership in relation to meetings of the Company in respect of the relevant shares and, additionally, in the case of shareholders representing at least 0.25 per cent. of their class of shares (excluding any shares of their class held as treasury shares), the withholding of payment on dividends on, and in certain cases the restriction of transfers of, the relevant shares. The restrictions shall cease to apply seven days after the earlier of, receipt by the Company of notice of an excepted transfer (but only in relation to the shares transferred) and, receipt by the Company (in a form satisfactory to the Board) of all the information required by the section 793 notice.

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5.

OTHER DIRECTORSHIPS

5.1 In addition to their directorships of the Company (in the case of the Directors), the Directors and the Senior Managers hold or have held the following directorships, other (in the case of the Directors) than of subsidiaries of the Company, and are or were members of the following partnerships, within the past five years. Directors

Current directorships/ Partnerships

Name

Previous directorships/ Partnerships

Anthony Herbert Bloom . . .

Rockridge Consolidated Limited Orthoworld Limited United Trust Ltd Buildings Trust (Pty) Ltd Rio Narcea Gold Mines Ltd Tracker Investments (Pty) Ltd Xantrex Technology Inc Cortiva Group

Studychoice Limited TV Newsweb Limited Ballet Rambert Limited Rambert Trust Limited Sungard Energy Caminus Energy Limited Afri-Can Marine Minerals Corp Power Measurement Limited Docpharma Ashtour Limited Cherokee International Corporation Dragon Mountain Holdings International Ltd Dragon Mountain Investments International Ltd

Lawrence Hall Guffey . . . . .

The Blackstone Group International Limited Axtel SA TDC A/S Deutsche Telekom

LiveWire Systems LLC LiveWire Corp HO Systems LiveWire Media LLC Enterprise Software Inc LiveWire Labs LiveWire Utilities LLC Ovcom Inc Fibrenet Inc New Skies Satellite Holdings Centennial Communications Corp CTI Holdings SA Kabel BW

Richard David Jones . . . . . .

—

—

David Ossian Maloney . . . .

Hoseasons Holdings Ltd Carillion plc Micro Focus International plc Ludorum plc

Meridien Services Company plc Thompson Travel Group (Holdings) Ltd Virgin Mobile Holdings (UK) plc

Thomas Berard McGrath . .

Crossroads Media Inc. Screen Capital International BUF Music Universal Studios, Orlando

V-Media

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Name

Current directorships/ Partnerships

Previous directorships/ Partnerships

Matthew David Tooth . . . . .

Black Lion Beverages S.A.R.L. Sapphire European Beverages Limited

The Gourmet Ready Meal Company Limited Wizard EquityCo Limited Wizard AcquisitionCo Limited Wizard BondCo Limited Wizard NewCo Limited Southern Cross EquityCo Limited Southern Cross BondCo Limited Southern Cross CCLNCO Limited Southern Cross PropCo HoldCo Limited Southern Cross PropCo Limited Southern Cross BidCo Limited Southern Cross SLBCO Limited

Stephen Mark Wiener . . . . .

The Cinemas Exhibitors’ Association Limited

—

Peter Wodehouse Williams .

Asos plc GCap Media plc GCap Charities Alpha Airports Group plc Alpha Airports Holdings (UK) Limited Alpha Catering Services Limited Alpha Overseas Holdings Limited Alpha ASD Limited Alpha Airport Catering (Ireland) Limited Alpha Flight Services Ireland Limited Airport Catering Services (Northern Ireland) Limited Airport Catering Services (Scotland) Limited Airport Duty Free Shops Limited Alpha Euroservices Limited Alpha Airport Services Limited Alpha In-Flight Retail Limited Alpha Services Group Limited Alpha Airport Holdings BV Alpha Flight Services Pty Limited Alpha Airport Services Inc. Alpha Rocas SA Alpha Retail Catering Sweden AB Jordan Flight Catering Company Limited Orient Lanka (Private) Limited Teddys Limited Alpha Airports (Furlos) Trustees Limited Alpha MVKB Maldives Pvt. Limited Pratt & Leslie Jones Limited

British Retail Consortium Selfridges plc Selfridges (2) Limited Selfridges (3) Limited Selfridges Retail Limited Selfridges Retail Services Limited Selfridges Trustee Company Limited The New West End Company Woodhouse UK Limited Motif Limited Portman Limited Sears Pension Trustees Selfridges & Co. Limited

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Senior Managers None of the Senior Managers holds or has held a directorship or is or was a member of a partnership within the past five years. 5.2 Save as set out below, within the period of five years preceding the date of this document, none of the Directors or Senior Managers: 5.2.1 has any convictions in relation to fraudulent offences; 5.2.2 has been a director or senior manager (who is relevant to establishing that a company has the appropriate expertise and experience for the management of that company) of any company at the time of any bankruptcy, receivership or liquidation of such company; or 5.2.3 has received any official public incrimination and/or sanction by any statutory or regulatory authorities (including designated professional bodies) or has been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of a company. The Le Meridien Hotels and Resorts group was acquired in July 2001 by private investors who undertook a number of related financing transactions at the same time. Mr. Maloney joined the group in January 2002. On 7 October 2002 Mr. Maloney was appointed a director of Waldorf Hotel Company Limited, Grosvenor House (Park Lane) Limited, Meridien Property Company I Limited and Meridien Property Company II Limited. He remained a director of these companies until 19 December 2003. On 30 July 2003 each of these companies was placed into administrative receivership. The Statement of Affairs for each company as at 30 July 2003 showed (i) for Waldorf Hotel Company Limited an estimated shortfall to creditors of £566,754,864, (ii) for Grosvenor House (Park Lane) Limited an estimated shortfall to creditors of £597,419,617, (iii) for Meridien Property Company I Limited an estimated shortfall to creditors of £447,302,114 and (iv) for Meridien Property Company II Limited an estimated shortfall to creditors of £527,670,832. However, as a result of agreements made between the principal secured creditor and the Le Meridien Hotels and Resorts group, Mr. Maloney believes that the final estimated shortfall to unsecured creditors is no more than £5 million. 5.3 Save as disclosed in paragraphs 5.4 and 18.9 below, none of the Directors or Senior Managers has any potential conflicts of interests between their duties to the Company and their private interests or other duties. 5.4 The Company and the Blackstone Shareholders have entered into the Relationship Agreement to regulate the relationship between them following Admission. As well as being Non-Executive Directors of the Company, Mr. Guffey is a Senior Managing Director of The Blackstone Group and Mr. Tooth is a Principal at The Blackstone Group. The Blackstone Shareholders are affiliates of The Blackstone Group. Mr. Guffey and Mr. Tooth are the current Blackstone Directors (as defined in paragraph 18.9 below) under the Relationship Agreement. Under the terms of their respective letters of appointment, Mr. Guffey and Mr. Tooth have each agreed to use their best endeavours to promote and advance the interests of the Company and its subsidiary undertakings and to comply with the Company’s code on share dealings (which is consistent with the model code on directors’ dealings in securities as set out in the Listing Rules (the ‘‘Model Code’’)). For more information on the Relationship Agreement, see paragraph 18.9 in this ‘‘Part 9: Additional Information’’.

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6.

DIRECTORS’ AND OTHER INTERESTS

6.1 The table below sets out the voting rights held, directly or indirectly, by the Directors and Senior Managers in respect of the share capital of the Company as at 26 April 2007 (being the latest practicable date prior to publication of this document) and immediately following Admission. As at 26 April 2007

Number of ordinary shares currently held

Directors(1) Anthony Herbert Bloom(2) Lawrence Hall Guffey . . . Richard David Jones . . . . Thomas Berard McGrath . Matthew David Tooth . . . Stephen Mark Wiener . . . David Ossian Maloney . . Peter Wodehouse Williams

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. . . . . . . .

. . . . . . . .

Immediately prior to Admission(3)

Immediately prior to Admission(3)(4)

Immediately following Admission

% of voting % of voting % of voting % of voting rights in rights in rights in rights in respect of respect of respect of respect of issued issued issued issued ordinary ordinary ordinary ordinary share Number of share Number of share Number of share capital Shares capital Shares capital Shares capital

. . . . . . . .

— — 1,383 655 — 7,969 — —

— — 0.8 0.4 — 4.6 — —

— — 276,600 131,000 — 1,593,800 — —

— — 0.8 0.4 — 4.6 — —

— — 276,600 131,000 — 1,593,800 — —

— — 0.3 0.2 — 2.0 — —

— — 276,600 131,000 — 1,593,800 — —

— — 0.2 0.1 — 1.1 — —

Senior Managers(1) Al Alvarez . . . . . . . . . . . . . . Paul Stefka . . . . . . . . . . . . . .

1,383 1,383

0.8 0.8

276,600 276,600

0.8 0.8

276,600 276,600

0.3 0.3

276,600 276,600

0.2 0.2

(1)

As at the date of this document, the Executive Directors and Senior Managers and all other employees of the Group are potential beneficiaries in respect of 1,383 Shares held by the trustees of the Cineworld Employee Benefit Trust (or 0.8 per cent. of the voting rights in respect of the issued share capital of the Company as at the date of this document and 0.2 per cent. of the voting rights in respect of the issued share capital of the Company immediately following Admission).

(2)

Carisan Investments Limited, a Jersey incorporated subsidiary of a Jersey based discretionary trust, of which Mr. Bloom is one of the potential beneficiaries: (i) held 3,630 Shares as at 26 April 2007 (or 2.1 per cent. of the voting rights in respect of the issued share capital of the Company); (ii) will hold 726,000 Shares immediately prior to Admission on the assumption that the Bonus Issue had taken place at such time (or 2.1 per cent. of the voting rights in respect of the issued share capital of the Company); (iii) will hold 1,723,224 Shares immediately prior to Admission on the assumption that (A) the Bonus Issue had taken place at such time and (B) the Conversion as described in ‘‘Part 4: The Global Offer— Amount and Use of Proceeds, Conversion and Refinancing—Conversion’’ had taken place at such time (or 2.1 per cent. of the voting rights in respect of the issued share capital of the Company); and (iv) will hold 1,723,224 Shares immediately following Admission (or 1.2 per cent. of the voting rights in respect of the issued share capital of the Company).

(3)

On the assumption that the Bonus Issue had taken place at such time.

(4)

On the assumption that the Conversion as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Refinancing—Conversion’’ had taken place at such time.

6.2 No options have been granted to Directors or Senior Managers under the Company’s Employee Share Schemes as at the date of this document. 6.3 Save as set out in this ‘‘Part 9: Additional Information’’, following the Global Offer no Director or Senior Manager will hold, directly or indirectly, any voting rights in respect of the share capital of the Company or any of its subsidiaries. 6.4 So far as the Company is aware, as at 26 April 2007 (being the latest practicable date prior to publication of this document) the following persons (other than the Directors and Senior Managers)

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hold voting rights directly or indirectly in respect of three per cent. or more of the Company’s issued share capital or will hold such rights immediately following Admission:

Name

Blackstone Capital Partners (Cayman) IV L.P.(1) . . . . Blackstone Capital Partners (Cayman) IV-A L.P. . . . . Blackstone Family Investment Partnership (Cayman) IV-A L.P. . . . .

Immediately prior to Admission(2) % of voting rights in respect of issued No. of share Shares capital

As at 26 April 2007 % of voting rights in respect of No. of issued ordinary share shares capital

Immediately prior to Admission(2)(3) % of voting rights in respect of issued No. of share Shares capital

Immediately following Admission(4) % of voting rights in respect of issued No. of share Shares capital

144,976

83.9

28,995,200

83.9

55,867,708

69.5

55,867,708

39.4

2,302

1.3

460,400

1.3

1,698,467

2.1

1,698,467

1.2

7,751

4.5

1,550,200

4.5

18,219,835

22.7

18,219,835

12.9

(1) On 12 May 2006, the Company issued Blackstone Capital Partners (Cayman) IV L.P. 48,272 redeemable shares of £1.00 each which will be redeemed by the Company upon Admission. (2) On the assumption that the Bonus Issue had taken place at such time. (3) On the assumption that the Conversion as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Refinancing—Conversion’’ had taken place at such time. (4) Assuming no exercise of the Over-allotment Option.

Save as set out in this ‘‘Part 9: Additional Information’’, the Company is not aware of any person who holds or will immediately following Admission hold voting rights (within the meaning of the Disclosure and Transparency Rules), directly or indirectly, in respect of three per cent. or more of the issued share capital of the Company. 6.5 None of the Shareholders referred to in paragraph 6.4 above has different voting rights from any other holder of Shares in respect of any Shares held by them. 6.6 Save as set out in this ‘‘Part 9: Additional Information’’, the Company is not aware of any person who immediately following Admission directly or indirectly, jointly or severally, will own or could exercise control over the Company. 7.

DIRECTORS’ SERVICE AGREEMENTS AND LETTERS OF APPOINTMENT

7.1 Executive Directors 7.1.1 Service agreements applicable during the last financial year (ended 28 December 2006) Stephen Mark Wiener During the 2006 financial year ended 28 December 2006, Mr. Wiener, the Company’s Chief Executive Officer, was employed by Cine-UK Limited under a service agreement dated 1 April 2003 (as amended by an amendment letter dated 7 October 2004). The service agreement for Stephen Wiener provided that the notice required from the employing company to terminate the employment was 12 months and the notice required from Mr. Wiener was 12 months. Cine-UK Limited had the right to elect to terminate the employment of Mr. Wiener without notice by making a payment in lieu of notice equivalent to the sum that would have been payable to Mr. Wiener as gross salary (including bonus, and any other benefits) had he worked out the remainder of his notice period. Eligibility for any bonus payment during this period was to be determined by reference to a ‘‘Banking Plan’’ and ‘‘Equity Plan’’ which in summary provided for bonuses to be payable dependent on achievement of projections of total admissions, total turnover and total gross margin for Cine-UK up to financial year ended March 2011. There are no provisions relating to Mr. Wiener’s employment entitling him to payment on a change of control of the company that employed him.

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The employment of Mr. Wiener was terminable with immediate effect if he: (i) became bankrupt or the subject of an interim order under the Insolvency Act 1986 or made any arrangement or composition with his creditors; or (ii) became a patient as defined in the Mental Health Act 1983; or (iii) was convicted of a criminal offence (other than an offence under road traffic legislation for which a penalty other than imprisonment for three months or more was imposed); or (iv) committed an act of dishonesty; or (v) was prevented by illness or otherwise from performing his duties for a consecutive period of six months in any 12 months; or (vi) was guilty of serious misconduct or any conduct tending to bring Cine-UK Limited or any associated company into disrepute; or (vii) materially breached or non-observed any of the provisions of his service agreement, and was stated to terminate automatically on Mr. Wiener’s 65th birthday. Mr. Wiener was entitled to receive the following benefits under the terms of his service agreement: (i) basic salary, as set out in paragraph 3 of ‘‘Part 3: Directors, Senior Managers and Corporate Governance’’; (ii) eligibility to participate in a bonus scheme on the basis of achievement of a ‘‘Banking Plan’’ and ‘‘Equity Plan’’ (as summarised above); (iii) entitlement to participate in the group personal pension scheme with an annual employer contribution of 10 per cent. of annual salary (payable in equal monthly instalments) subject to Mr. Wiener making a contribution of 5 per cent. of annual salary; (iv) entitlement to seven weeks’ holiday per annum; and (v) other customary benefits (including permanent health insurance, death in service benefits, a company car up to a value of £35,000 or car allowance of £750 per month, travel allowance of £6,000 per annum and private medical insurance for himself and his spouse during employment and for three years following termination of his employment). Richard David Jones During the 2006 financial year ended 28 December 2006, Mr. Jones was the Company’s Chief Financial Officer and was employed by Cine-UK Limited under an employment contract which commenced on 13 November 1995 (as amended by an amendment letter dated 16 December 1999 and an amendment letter dated 7 October 2004). The service agreement for Richard Jones provided that the notice required from the employing company to terminate the employment was 12 months and the notice required from Mr. Jones was six months. Cine-UK Limited had the right to elect to terminate the employment of Mr. Jones without notice by making a payment in lieu of notice equivalent to the sum that would have been payable to Mr. Jones as gross salary (including bonus, and any other benefits) had he worked out the remainder of his notice period. Eligibility for any bonus payment during this period was to be determined by reference to a ‘‘Banking Plan’’ and ‘‘Equity Plan’’ which in summary provided for bonus to be payable dependent on achievement of projections of total admissions, total turnover and total gross margin for Cine-UK up to financial year ended March 2011. There are no provisions relating to Mr. Jones’s employment entitling him to payment on a change of control of the company that employed him. The employment of Mr. Jones was terminable with immediate effect if he: (i) became bankrupt or the subject of an interim order under the Insolvency Act 1986 or made any arrangement or composition with his creditors; or (ii) became a patient as defined in the Mental Health Act 1983; or

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(iii) was convicted of a criminal offence (other than an offence under road traffic legislation for which a penalty other than imprisonment for three months or more was imposed); or (iv) committed an act of dishonesty; or (v) was prevented by illness or otherwise from performing his duties for a consecutive period of six months in any 12 months; or (vi) was guilty of serious misconduct or any conduct tending to bring Cine-UK Limited or any associated company into disrepute; or (vii) materially breached or non-observed any of the provision of his service agreement, and was stated to terminate automatically on Mr. Jones’s 65th birthday. Mr. Jones was entitled to receive the following benefits under the terms of his service agreement: (i) basic salary, as set out in paragraph 3 of ‘‘Part 3: Directors, Senior Managers and Corporate Governance’’; (ii) eligibility to participate in a bonus scheme on the basis of achievement of a ‘‘Banking Plan’’ and ‘‘Equity Plan’’ (as summarised above); (iii) entitlement to participate in the group personal pension scheme with an annual employer contribution of 10 per cent. of annual salary (payable in equal monthly instalments) subject to Mr. Jones making a contribution of 5 per cent. of salary; (iv) entitlement to five weeks’ holiday per annum; and (v) other customary benefits (including permanent health insurance, death in service benefits, a company car up to a value of £35,000 or car allowance of £700 per month, travel allowance of £6,000 per annum and private medical insurance for himself, his spouse and his dependents during employment). Save as set out above there are no specific provisions in the service agreements of Messrs. Wiener and Jones providing for benefits on termination of employment. 7.1.2 Current service agreements Stephen Wiener and Richard Jones have entered into new service agreements with the Company (in Mr. Wiener’s case, replacing the service agreement described above and in Mr. Jones’s case replacing his existing service agreement with Cine-UK Limited described above). The terms of the current service agreements for Mr. Wiener and Mr. Jones are deemed to take effect on and are subject to Admission. The current service agreement for Mr. Wiener provides that the notice required to terminate Mr. Wiener’s employment is 12 months by Mr. Wiener or the Company; the current service agreement for Mr. Jones provides that the notice required to terminate Mr. Jones’s employment is 12 months from the Company and six months from Mr. Jones. The Company has the right to elect to terminate Mr. Wiener’s or Mr. Jones’s employment without notice or with less than 12 months’ notice by making a termination payment within 28 days of the date on which Mr. Wiener or Mr. Jones’s employment terminates equivalent to: (i) any salary due, accrued holiday, unpaid but accrued bonus and any pro-rata bonus due in respect of the financial year in which their employment terminates up to the termination date; and (ii) a payment in lieu of notice which Mr. Wiener or Mr. Jones would otherwise be entitled to receive at a rate of 95% of salary and contractual benefits (excluding bonus). The termination payment may be contrary to the Combined Code which states that the Remuneration Committee should take a robust line on reducing compensation to reflect departing directors’ obligations to mitigate loss. However, the Remuneration Committee believes that in the case of Mr. Wiener and Mr. Jones the pre-calculated termination payment is justified in securing the retention of Mr. Wiener and Mr. Jones and reflects what would normally be payable pursuant to a payment in lieu of notice provision on early termination.

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There are no provisions relating to the employment of Mr. Wiener or Mr. Jones entitling either of them to payment on a change of control of the Company. The employment of Mr. Wiener and Mr. Jones is terminable with immediate effect if they: (i) seriously or persistently breach the terms of their service agreement or the rules of any applicable regulatory authority (unless capable of remedy within 14 days of the Company informing Mr. Wiener or Mr. Jones); or (ii) are guilty of gross misconduct or serious negligence; or (iii) are guilty of conduct which brings or is likely to bring themselves or the Company into disrepute in the reasonable opinion of the Board; or (iv) are convicted of an arrestable criminal offence (other than a road traffic offence for which a non-custodial sentence is imposed); or (v) are adjudged bankrupt or makes any arrangement or composition with their creditors or has an interim order made against them pursuant to section 252 of the Insolvency Act 1986; or (vi) becomes prohibited by law, a regulatory authority or the articles of association from being director of the Company; or (vii) voluntarily resign as director of the Company. Mr. Wiener and Mr. Jones are entitled to receive the following benefits under the terms of their service agreements: (i) Mr. Wiener receives a basic annual salary of £340,000; Mr. Jones receives a basic salary of £206,000. Mr. Wiener’s salary is subject to annual review by the Remuneration Committee with a minimum annual increase in line with increases in the Retail Price Index. Mr. Jones is entitled to an annual salary review on the same terms as Mr. Wiener; (ii) eligibility to participate in a bonus scheme based on the Company’s achievement of EBITDA budget each financial year as approved by the Remuneration Committee; (iii) Mr. Jones is entitled to a one-off bonus of £175,000 on Admission and Mr. Wiener is entitled to a one-off bonus of £350,000 on Admission; (iv) entitlement to remain members of the group personal pension scheme with employer contributions of 20 per cent. of annual salary (payable in equal monthly instalments) subject to Mr. Wiener and Mr. Jones each making contributions of 5 per cent. of annual salary; (v) entitlement to 35 working days holiday per annum (30 days in the case of Mr. Jones); (vi) other customary benefits (including life assurance cover of four times salary, permanent health insurance, a company car up to a value of £38,000 or car allowance of £800 per month, private medical insurance for themselves, their spouse and dependent children during employment and for Mr. Wiener and his spouse only for three years following termination of his employment (in the latter case except in the event of summary dismissal)); (vii) Mr. Wiener is also entitled to a driver for business and reasonable personal use; and (viii)Mr. Wiener is also entitled to a cinema season ticket for himself and his spouse for life. Mr. Wiener is (subject to obtaining prior written consent of the Board) entitled to be engaged as a non-executive director outside the Group and retain any fee paid in connection with such non-executive directorship. Save as set out above there are no specific provisions in the service agreements of Messrs. Wiener and Jones providing for benefits on termination of employment. 7.2 Non-Executive Directors 7.2.1 Letters of appointment applicable during the last financial year (ended 28 December 2006) Anthony Bloom, Thomas McGrath, Lawrence Guffey, Matthew Tooth, Walid Kamhawi, David Marks, David Maloney and Peter Williams have all served as Non-Executive Directors of the Company during the financial year ended 28 December 2006.

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Walid Kamhawi and David Marks resigned from the Board on 22 May 2006; Peter Williams and David Maloney were appointed on 22 May 2006. All other Non-Executive Directors have served on the Board throughout the last financial year ended 28 December 2006. Mr. McGrath was initially appointed pursuant to a letter of appointment dated 6 May 2005 which was subject to the articles of association of the Company and was terminable on 30 days notice by either party. However, Mr. McGrath was provided with a new letter of appointment on 17 July 2006 (described below). On 17 July 2006, David Maloney, Peter Williams, Thomas McGrath and Anthony Bloom were issued with letters of appointment with the Company (described further under paragraph 7.2.2 below). Matthew Tooth and Lawrence Guffey were not issued with letters of appointment during the last financial year ended 28 December 2006. The fees paid to the Non-Executive Directors of the Company during the financial year ended 28 December 2006 were as follows: Fees received during the last financial year (ended 28 December 2006) (£)

Non-Executive Director

Anthony Bloom . Thomas McGrath Lawrence Guffey Matthew Tooth . . Walid Kamhawi . . David Marks . . . . David Maloney . . Peter Williams . .

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43,945 29,918 — — — — 18,082 18,082

In the period since the end of the financial year ended 28 December 2006 to Admission, the fees payable to the Non-Executive Directors of the Company are as follows: Fees received since 28 December 2006 (£)

Non-Executive Director

Anthony Bloom . Thomas McGrath Matthew Tooth . . Lawrence Guffey David Maloney . . Peter Williams . .

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12,500 7,500 — — 7,500 7,500

7.2.2 Current letters of appointment On 17 July 2006, David Maloney, Peter Williams, Thomas McGrath and Anthony Bloom were issued with letters of appointment with the Company. On 23 April 2007, Matthew Tooth and Lawrence Guffey were issued with letters of appointment with the Company. The letters of appointment for Matthew Tooth and Lawrence Guffey are conditional upon and will take effect upon Admission. The letters of appointment for each Non-Executive Director is subject to the provisions of the Articles. The fees payable to the Non-Executive Directors with effect from Admission will be set

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by the Board (with recommendations from the Remuneration Committee) and will initially be as follows: Fees to be received with effect from Admission during 2007 financial year (£)

Non-Executive Director

Anthony Bloom . Thomas McGrath Matthew Tooth . . Lawrence Guffey David Maloney . . Peter Williams . .

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56,250 22,500 22,500 22,500 22,500 22,500

The appointment of each Non-Executive Director is terminable without notice in accordance with the articles of association of the Company and does not give rise to any entitlement of the relevant director to compensation for loss of office. In addition to the fees and benefits mentioned above, the Company will reimburse all expenses reasonably incurred by the Non-Executive Directors in the proper performance of their duties and has in place directors and officers liability insurance and public offering of securities insurance cover. Save as set out above, there are no existing or proposed letters of appointment between any of the Non-Executive Directors and the Company or any Group company. 7.3 Termination benefits Save as set out in this ‘‘Part 9: Additional Information’’, there are no existing or proposed service agreements between any Director and any member of the Group providing or benefits upon termination of employment. 8.

EMPLOYEE SHARE SCHEMES

The Company will adopt the following employee share schemes: 8.1 The Cineworld Group 2007 Sharesave Scheme (the ‘‘Sharesave Scheme’’) The Sharesave Scheme is a savings related share option scheme designed to be approved by the UK tax authority, HM Revenue & Customs (‘‘HMRC’’). The following is a summary of the main features of the Sharesave Scheme: 8.1.1 Administration The Board or a duly authorised committee shall administer the Sharesave Scheme. 8.1.2 Approval The Sharesave Scheme has been designed for approval by HMRC as a savings-related share option scheme under Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003 (‘‘ITEPA’’). 8.1.3 Eligibility An individual must be an employee or full-time director of the Company or a participating subsidiary of the Company on the date that options are granted and must have been such an employee or full-time director for such qualifying service period (not exceeding five years) as the Board may determine. An individual is a full-time director if he is obliged to devote not less than 25 hours per week to his duties with the company concerned. The Board has a discretion to nominate employees who do not satisfy the above conditions to participate in the Sharesave Scheme. 8.1.4 Grant of Options The Board may invite all eligible employees to apply for options during the 6-week period after the Sharesave Scheme has received HMRC approval. Thereafter, invitations may normally be issued only in the 6 weeks beginning on the dealing day following the date on which the

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Company announces its results for any period or at any other time when the Board considers that there are exceptional circumstances justifying the invitation. No options may be granted after 22 April 2017 (that is, the expiry of the period of ten years beginning with the date on which the Sharesave Scheme was adopted by the Company). Options granted under the Sharesave Scheme are personal to the optionholder and, except on the death of the optionholder, may not be transferred. Options granted under the Sharesave Scheme are not pensionable. 8.1.5 Savings Contracts An eligible employee who applies for an option under the Sharesave Scheme must also enter into a savings related contract approved by HMRC for a specified period of three, five or seven years. The Board has discretion to determine which of the savings contracts will be available in respect of any invitation to apply for options. Under this contract, the employee will agree to make monthly savings contributions of a fixed amount (currently not less than £5 and not more than £250 per month). Shares may only be acquired under the Sharesave Scheme on the exercise of the option using the payments under this contract. Payment will be taken as including the bonus payable under the savings contract, unless otherwise decided by the Board. 8.1.6 Price The Board shall determine the price payable for each Share under option, provided that it shall not be less than 80 per cent. of the market value of a Share when invitations are issued to eligible employees (or at any other time agreed with HMRC). 8.1.7 Limit The number of Shares which may be issued on the exercise of options or awards granted in any period of ten years under all the Company’s employee share schemes may not exceed such number of Shares as represents 10 per cent. of the Company’s ordinary share capital in issue on the date of grant of such options or awards. Options and awards granted before Admission (whether or not granted conditional on Admission) are not counted towards this limit. Shares may be transferred out of treasury to satisfy options under the Sharesave Scheme. Any Shares so transferred shall be treated as issued for the purposes of the limit to the extent that they are required to be so treated under institutional shareholder guidelines. 8.1.8 Scaling Down Applications to participate in the Sharesave Scheme may be scaled down by the Board if applications exceed the number of Shares available for the grant of options. Such scaling down may include: (i) restricting the level of bonus to be used to acquire Shares; (ii) reducing monthly contributions above a certain level pro-rata; or (iii) reducing the length of the savings contract. 8.1.9 Exercise of Options An option granted may not normally be exercised until the optionholder has completed his savings contract (which will usually be three, five or seven years from the date of commencement of the savings contract) and then not more than six months thereafter. Special provisions allow early exercise in the case of death, injury, disability, redundancy, retirement or because the company or business which employs the optionholder is transferred out of the Group. If an optionholder ceases employment for any other reason, his option will lapse. Special provisions also allow early exercise in the event of a change of control, reconstruction or winding-up of the Company. Internal reorganisations may not automatically trigger the early exercise of options.

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8.1.10 Variation of Capital In the event of any increase or variation of the share capital of the Company, the Board may make such adjustments as it considers appropriate to the number of Shares under option and the price at which they may be acquired. Adjustments to the terms of options must be approved by HMRC. 8.1.11 Amendments The Board may at any time amend or add to all or any of the provisions of the Sharesave Scheme in any respect, provided that no amendment to a feature of the Sharesave Scheme that is necessary for it to be approved under Schedule 3 to ITEPA may be made without the prior approval of HMRC. In addition, the prior approval of the Company in general meeting is required for an amendment to the advantage of optionholders to the provisions relating to eligibility, the maximum amount of savings, the determination of the exercise price, the limit on the number of Shares that may be issued under the Sharesave Scheme, leavers, takeover, reconstruction and winding-up of the Company and variations of capital. Minor amendments to benefit the administration of the Sharesave Scheme to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for an optionholder or any member of the Group do not require the approval of the Company in general meeting. Any amendment that is to the disadvantage of the optionholders requires the approval of a majority of them. 8.2 The Cineworld Group 2007 Performance Share Plan (‘‘PSP’’) 8.2.1 Administration The Remuneration Committee will be responsible for the operation of the PSP. The PSP is not intended to be approved by HMRC. Awards under the PSP are not pensionable. The PSP is intended to operate in conjunction with the Cineworld Group Employee Benefit Trust (the ‘‘Trust’’), established by the Company on 24 March 2006 with independent trustees based in Jersey. 8.2.2 Eligibility The Remuneration Committee may select any employee (including executive directors) of the Company or any of its subsidiaries to participate in the PSP. It is anticipated that only the Executive Directors and certain members of the senior management, at the discretion of the Remuneration Committee, will initially participate in the PSP. 8.2.3 Awards An award takes the form of a deferred right to acquire Shares in the future at no cost to the participant. The Remuneration Committee may also decide that an award should take the form of an option in respect of which the Remuneration Committee shall determine the exercise price (if any) on or before grant or forfeitable shares (if it would be advantageous for tax or other reasons for a participant to hold forfeitable shares rather than holding an option or a deferred right to acquire Shares) or such other form of award as has substantially the same economic effect. If forfeitable shares are awarded under the PSP, a participant holding forfeitable Shares will not be automatically entitled to receive dividends or be able to vote the Shares until the Shares have vested (vesting will be on the same terms as for options and deferred rights to acquire Shares). However, whatever the form of the award, the Remuneration Committee may determine that the participant should receive at the time an award vests a cash sum equivalent to the dividends that would have been paid on the vested Shares in respect of dividend record dates occurring between grant and vesting (or such number of additional Shares as those dividends could have been used to purchase). Awards may be made during the six weeks following Admission and thereafter during the period of six weeks from the announcement by the Company of its results for any period and at any other time when the Remuneration Committee considers that exceptional circumstances exist

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which justify the award. No awards may be made after 22 April 2017 (that is, the expiry of the period of ten years beginning with the date on which the PSP was adopted by the Company). The maximum number of Shares subject to an award to an individual in any financial year will be equal to 100 per cent. of annual base salary as at the award date, unless the Remuneration Committee decides that exceptional circumstances exist in relation to the recruitment or retention of an employee, in which case the limit will be 150 per cent. of annual base salary. The first grants of awards under the PSP will be made following the announcement of the Company’s results for the financial year ending 27 December 2007. The Remuneration Committee will grant awards to each of the Executive Directors with a total market value equal to 50 per cent. of annual base salary as at the award date. Awards are personal to a participant and, except on death, may not be transferred. 8.2.4 Performance Conditions The Remuneration Committee will determine the performance conditions before awards under the PSP are made. The performance conditions applicable to awards granted in any year will be described in the Annual Report and Accounts of the Company for that year. The performance condition applicable to the first grant of awards will be linked to the increase in normalised undiluted earnings per Share excluding any deferred tax charge relating to tax assets in existence at Admission and exceptional items (‘‘EPS’’) calculated by comparing EPS for the financial year ending 27 December 2007 and EPS for the financial year ending 30 December 2010. EPS for the financial year ending 27 December 2007 will be adjusted to take account of costs incurred in connection with Admission and to reflect the capital structure of the Company following Admission. An award will vest in respect of 30 per cent. of the Shares subject to the award if the average annual growth in EPS is at least equal to 3.2 per cent. per annum. The award will vest in respect of all the Shares subject to the award if the average annual growth in EPS is at least equal to 9.2 per cent. per annum. For average annual growth in EPS between 3.2 per cent. per annum and 9.2 per cent. per annum, the award will vest between 30 per cent. and 100 per cent. of the Shares under award determined on a straight-line basis between these points. There will be no retesting of the performance condition. The Remuneration Committee will regularly review the performance conditions for future awards to ensure they are appropriate for the Company and the prevailing recruitment market. The conditions may be varied in exceptional circumstances following the grant of an award so as to achieve their original purpose but not so as to make their achievement any more or less difficult to satisfy. 8.2.5 Vesting and Exercise of Awards Awards will normally vest three years after their date of grant, but only to the extent that the performance conditions have been met. Normally, a participant must remain employed by the Group to receive his Shares. However, if the participant ceases employment before the award vests for any reason other than resignation or cause, the award will vest three years after grant to the extent that the performance conditions have been met. The Remuneration Committee also retains a discretion to permit vesting of an award in the event of a participant ceasing employment by reason of resignation or for cause. The Remuneration Committee has determined that if either of Stephen Wiener or Richard Jones resigns from his employment after the first anniversary of Admission, it will exercise its discretion in his favour in respect of the award that will be granted to him following the announcement of the Company’s results for the financial year ending 27 December 2007. The number of Shares in respect of which an award may vest in the event of cessation of employment in circumstances where the award is permitted to vest shall be reduced proportionately on a time basis, unless the Remuneration Committee decides otherwise. In these circumstances, the Remuneration Committee may also allow awards to vest before their third anniversary of grant based on the Remuneration Committee’s assessment of the Company’s performance and on the basis that the number of Shares in respect of which an award may vest shall be reduced proportionately on a time basis, unless the Remuneration Committee decides otherwise.

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8.2.6 Limits The PSP is subject to the following limits: (i) in any ten year period, the number of Shares which may be issued under the PSP and under any other executive share scheme established by the Company may not exceed 5 per cent. of the issued ordinary share capital of the Company from time to time; and (ii) in any ten year period, the number of Shares which may be issued under the PSP and under any employees’ share scheme established by the Company may not exceed 10 per cent. of the issued ordinary share capital of the Company from time to time. Options and awards granted before Admission (whether or not granted conditional on Admission) are not counted towards the above limits. Shares may be transferred out of treasury to satisfy options and awards under the PSP. Any Shares so transferred shall be treated as issued for the purposes of the limits to the extent that they are required to be so treated under institutional shareholder guidelines. 8.2.7 Change of Control If there is a change of control, scheme of arrangement or winding up of the Company, awards will vest to the extent that the performance conditions have been met as at that time, but on the basis that the number of Shares in respect of which awards will vest shall be reduced proportionately on a time basis, unless the Remuneration Committee decides otherwise. An internal reorganisation may not automatically trigger the exercise of awards. 8.2.8 Variation of Capital In the event of any increase or variation of the share capital of the Company, or a demerger, special dividend or other similar event which affects the market price of Shares to a material extent, the Remuneration Committee may make such adjustments as it considers appropriate to the number of Shares which a participant can acquire under his awards. 8.2.9 Amendments The Remuneration Committee may amend the PSP at any time. However, the prior approval of the Company in general meeting will be required for amendments to the advantage of participants relating to eligibility, limits, the basis for determining a participant’s entitlement to, and the terms of, shares or cash provided under the PSP and variations of capital except for minor amendments to benefit the administration of the PSP, to take account of changes in legislation or to obtain or maintain favourable tax treatment, exchange control or regulatory treatment for participants or any member of the Group. Any amendment to the disadvantage of participants requires their majority approval. 8.2.10 Cash Alternative Where an award has vested, the Remuneration Committee, instead of issuing, or procuring the transfer of, Shares, may pay cash to the executive concerned. The amount to be paid shall be equal to the value of the Shares at the time of exercise. 8.2.11 Shareholding Requirement The Remuneration Committee is proposing to introduce a share retention policy under which each Executive Director will be expected to retain 50 per cent. of Shares that he acquires under his PSP awards or following the exercise of options, after allowing for sales of Shares to pay tax, until such time as he has built up a shareholding equal in value to 100 per cent. of his salary. 8.3 The Trust 8.3.1 The Trust is resident in Jersey and was established on 24 March 2006 for the benefit of employees of the Company and its subsidiaries. On Admission, the Trust will hold 276,600 Shares, or approximately 0.2 per cent. of the Company’s issued share capital. The Trust may hold up to five per cent. of the Company’s issued share capital at any one time. 8.3.2 Some or all of the Shares held by the Trust will, within seven days following Admission, be transferred to certain members of the senior management of the Company (other than the

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Directors and the Senior Managers). Following such transfers a sufficient number of Shares will be sold on behalf of these members of senior management to realise an amount equal to the income tax and employee National Insurance contributions due on the distribution. Pursuant to lock-up arrangements with the Company, the relevant managers will, ordinarily, only be able to sell or otherwise deal with these Shares as follows: (i) up to one third of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 27 December 2007; (ii) up to two thirds of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 25 December 2008; and (iii) any of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 31 December 2009. 9.

PROPERTY

No property in the Group accounts for 10 per cent. or more of the Group’s annual turnover. The Group owns two freehold properties at Northampton and Fareham, both of which are non-operational land sites. All its other properties are held under leases, including the Company’s registered office and principal place of business located at Power Road Studios, Power Road, Chiswick, London W4 5PY. 10. SUBSIDIARIES The Company is the holding company of the Group. The Company has the following significant subsidiary undertakings, each of which is incorporated in England and Wales having its registered office at Olswang Cosec Limited, 90 High Holborn, London WC1V 6XX, United Kingdom (save for Adelphi-Carlton Limited, which is incorporated in Ireland having its registered office at 84 Northumberland Road, Dublin 4, Ireland) and is consolidated into the annual financial statements of the Company:

Name

Augustus 1 Limited

Principal activity

Holding company

Issued share capital

Class

Percentage of shares and proportion of voting rights held

£1,753

Ordinary shares of £1

100%

Augustus 2 Limited

Holding company

£103,921,598

Ordinary shares of £1

100%

Cineworld Holdings Limited

Holding company

£214,740,300

Ordinary shares of £1

100%

Cine-UK Limited

Cinema operation

£7,173,426

Ordinary shares of £1

100%

Cineworld Cinemas Holdings Limited

Holding company

£1,308

Ordinary shares of £1

100%

Cineworld Cinemas Limited

Holding company and cinema operation

£12

Ordinary shares of £1

100%

Cineworld Finance Limited

Financial intermediation

£2,000,002

Ordinary shares of £1

100%

Cineworld Estates Limited

Cinema property leasing

£20,000,012

Ordinary shares of £1

100%

Cineworld South East Cinemas Limited

Holding company

£2,000,000

Ordinary shares of £1

100%

Cineworld Exhibition Limited

Development/sale of real estate

£8,920

Ordinary shares of £1 10% non-cumulative preference shares of £1

100% 100%

Gallery Holdings Limited

Holding company

£2,322,223

Ordinary shares of £1 ‘‘A’’ ordinary shares of £1 Preference shares of £1

100% 100% 100%

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Name

Principal activity

Issued share capital

Class

Percentage of shares and proportion of voting rights held

Gallery Cinemas Limited

Motion picture/ video distribution

£14,600,000

Ordinary shares of £1

100%

Slough Movie Centre Limited

Motion picture/ video distribution

£575,000

Ordinary shares of £1

100%

Adelphi-Carlton Limited

Cinema operation

A384,120.10

Ordinary shares of A1.738

100%

Cineworld Cinema Properties Limited

Property company

£1,000,010

Ordinary shares of £1

100%

Cineworld Elite Pictures Theatre (Nottingham) Limited

Non-trading

£30,246.75

Ordinary shares of £0.25 5% cumulative preference shares of £0.25

Classic Cinemas Limited

Data processing

£2

Ordinary shares of £1

100%

Computicket Limited

Dormant

£1,000

Ordinary shares of £1

100%

98.762% 99.615%

11. UNITED KINGDOM TAXATION 11.1 General The following statements are only a guide to the general position and are based on current UK taxation legislation and published practice of HMRC, both of which are subject to change, possibly with retrospective effect. Except where the position of non-UK residents is expressly referred to, these statements relate solely to persons who are resident or ordinarily resident in the UK for UK tax purposes, who are the beneficial owners of Shares, who hold their Shares as an investment and not as trading stock and who have not (and are not deemed to have) acquired their Shares by reason of an office or employment. The comments below may not apply to certain classes of shareholders such as (but not limited to) dealers in securities, insurance companies and collective investment schemes. If you are in any doubt as to your tax position or if you are subject to tax in a jurisdiction other than the UK, you should consult your own professional advisers. 11.2 Dividends Under current UK taxation legislation, no tax will be withheld at source from dividend payments by the Company. 11.2.1 Individuals UK resident individual shareholders who receive a dividend from the Company will generally be entitled to a tax credit, which can be set off against the individual’s income tax liability on the dividend payment. The rate of tax credit on dividends paid by the Company will be 10 per cent. of the total of the dividend payment and the tax credit (the ‘‘gross dividend’’), or one-ninth of the dividend payment. UK resident individual shareholders will generally be taxable on the gross dividend, which will be regarded as the top slice of the shareholder’s income. UK resident individual shareholders who are not liable to income tax in respect of the gross dividend will generally not be entitled to reclaim any part of the tax credit. In the case of a UK resident individual shareholder who is not liable to income tax at the higher rate (taking account of the gross dividend he or she receives), the tax credit will satisfy in full such shareholder’s liability to income tax. To the extent that a UK resident individual shareholder’s income (including the gross dividend) exceeds the threshold for higher rate income tax, such shareholder will be subject to income tax on the gross dividend at 32.5 per cent. but will be able to set the tax credit off against this liability. An individual shareholder who is liable to the higher rate of income tax will therefore be liable to income tax equal to 22.5 per cent. of the gross dividend (i.e. after allowing for the tax credit) (or 25 per cent. of the dividend payment actually received).

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11.2.2 Companies A corporate shareholder resident in the UK (for tax purposes) will generally not be subject to corporation tax on dividend payments by the Company. Corporate shareholders will not, however, be able to claim repayment of tax credits attaching to the dividend payment. 11.2.3 Non-Residents Non-residents will also generally be liable to UK income tax on dividends paid by the Company. In general, the right of non-UK resident shareholders to reclaim tax credits attaching to dividend payments by the Company will depend upon the existence and the terms of an applicable double tax treaty between their jurisdiction of residence and the UK. In most cases, the amount that can be claimed by non-UK resident shareholders will be nil as a result of the terms of the relevant treaty. They may also be liable to tax on the dividend income under the tax law of their jurisdiction of residence. Non-UK resident shareholders should consult their own tax advisers in respect of their liabilities on dividend payments, whether they are entitled to claim any part of the tax credit and, if so, the procedure for doing so. 11.2.4 Pension Funds UK resident shareholders who are not liable to income tax, including pension funds, charities and individuals holding shares through a personal equity plan or individual savings account, are not entitled to reclaim the tax credits on dividends paid by the Company. 11.3 Chargeable Gains A disposal of the Shares by a shareholder who is resident or, in the case of an individual, ordinarily resident for tax purposes in the UK, or a shareholder who is neither resident nor ordinarily resident in the UK for tax purposes, but who carries on a trade, profession or vocation in the UK through a permanent establishment (where the shareholder is a company) or through a branch or agency (where the shareholder is not a company) and has used, held or acquired the Shares for the purposes of such trade, profession or vocation or such permanent establishment, branch or agency (as appropriate) may, depending on the shareholder’s circumstances and subject to any available exemption or relief, give rise to a chargeable gain or an allowable loss for the purposes of UK taxation on chargeable gains. An individual shareholder who for a period of less than five years either has ceased to be resident and ordinarily resident for tax purposes in the UK or has become resident in a territory outside the UK for purposes of double taxation relief arrangements and who disposes of the Shares during that period, may be liable on his or her return to the UK to UK capital gains tax on any chargeable gain realised. Nothing in any double taxation relief arrangements shall prevent such an individual from being subject to UK capital gains tax in those circumstances. 11.4 UK Inheritance and Gift Taxes Shares beneficially owned by an individual shareholder will be subject to UK inheritance tax on the death of the shareholder (even if the shareholder is not domiciled or deemed domiciled in the UK). For UK inheritance tax purposes, a transfer of assets to another individual or trust could potentially be subject to UK inheritance tax, based on the loss of value to the donor. Particular rules apply to gifts where the donor reserves or retains some benefit. UK inheritance tax is not chargeable on gifts to individuals if the transfer is made more than seven complete years prior to the death of the donor. Such a gift is called a potentially exempt transfer or ‘‘PET’’. The same PET treatment was hitherto available for transfers to trusts other than discretionary trusts, but paragraph 9 of Schedule 20 to the Finance Act 2006 amended Section 3A Inheritance Taxes Act 1984 by restricting PET treatment for transfers to trusts to transfers to trusts for disabled persons, with effect from 22 March 2006. Special rules apply to close companies and to trustees of settlements who hold shares, which could bring them within the charge to UK inheritance tax. Shareholders should consult an appropriate professional adviser if they intend to make a gift of any kind or intend to hold any Shares through trust arrangements. They should also seek professional advice in a situation where there is a potential for a double charge to UK inheritance tax and an equivalent tax in another country.

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11.5 Stamp Duty and Stamp Duty Reserve Tax (‘‘SDRT’’) In relation to the New Shares being issued by the Company, no liability to stamp duty or SDRT will arise on the issue of, or on the issue of definitive Share certificates in respect of, such shares by the Company other than in circumstances involving depositary receipts or clearances services referred to below. Holders of Shares will be registered on the Company’s register in the UK. Shareholders who are ‘‘system members’’ of CREST may elect to hold their Shares in CREST for trading on the main market. The conveyance or transfer on sale of Shares held in certificated form will generally be subject to ad valorem stamp duty on the instrument of transfer at the rate of 0.5 per cent. of the amount of value of the consideration given (rounded up if necessary to the nearest multiple of £5). Stamp duty is normally paid by the purchaser of the Shares. An unconditional agreement to transfer Shares will normally give rise to a charge to SDRT at the rate of 0.5 per cent. of the amount or value of the consideration for the Shares. However, where within six years of the date of the agreement an instrument of transfer is executed pursuant to the agreement and duly stamped, the SDRT liability will be cancelled and any SDRT which has been paid will be repaid. SDRT is specifically the liability of the purchaser of the Shares. Where a trade in Ordinary Shares is settled electronically within CREST, SDRT will normally automatically be collected in the system. Where Shares are issued or transferred (a) to, or to a nominee for, a person whose business is or includes the provision of clearance services or (b) to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts, stamp duty (in the case of a transfer to such person) or SDRT (in the case of a transfer or issue to such person) may be payable at a rate of 1.5 per cent. (rounded up if necessary, in the case of stamp duty, to the nearest multiple of £5) of the amount or value of the consideration payable or, in certain circumstances, the value of the Shares. This liability for stamp duty or SDRT will strictly be accountable by the depositary or clearance service operator or their nominee, as the case may be, but will in practice generally be reimbursed by participants in the clearance service or depositary receipt scheme. Clearance service providers may opt under certain circumstances for the normal rates of SDRT (0.5 per cent. of the consideration paid) to apply to issues or transfers of Shares into, and to transactions within, the service instead of the higher rate applying to an issue or transfer of Shares into the clearance service, in which case a liability to SDRT would arise (at the rate of 0.5 per cent. of the consideration paid) on any subsequent transfers of Shares whilst in the service. Paperless transfers of Shares within CREST are generally subject to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount or value of the consideration payable. CREST is obliged to collect SDRT on relevant transactions settled within the system. Deposits of Shares in CREST will generally not be subject to SDRT or stamp duty, unless the transfer into CREST is itself for consideration in money or money’s worth, in which case a liability to SDRT will arise, usually at the rate of 0.5 per cent. of the value of the consideration. Special rules apply to agreements made by market intermediaries in the ordinary course of their business. Prospective purchasers of Shares should consult their own tax advisers with respect to the tax consequences to them of acquiring, holding and disposing of Shares. 12. UNDERWRITING ARRANGEMENTS AND LOCK-UP ARRANGEMENTS 12.1 Description of Underwriting Arrangements Pursuant to an agreement dated 27 April 2007 between and among the Company, the Directors, the Blackstone Shareholders, the Joint Bookrunners and the Underwriters (the ‘‘Underwriting Agreement’’): 12.1.1

the Company has appointed JPMorgan Cazenove Limited and Lehman Brothers International (Europe) as joint sponsors in connection with the Admission to Listing and as joint bookrunners for the purposes of co-ordinating the Global Offer;

168

12.1.2

the Company has agreed, subject to certain conditions, to issue the New Shares to be issued under the Global Offer at the Offer Price;

12.1.3

the Joint Bookrunners have agreed, subject to certain other conditions that are typical for an agreement of this nature, including Admission, to procure subscribers for or, failing which, the Underwriters have agreed to subscribe for the New Shares to be issued under the Global Offer at the Offer Price;

12.1.4

the Blackstone Shareholders have granted the Over-allotment Option to the Stabilising Manager, pursuant to which the Stabilising Manager may, subject to certain conditions, procure purchasers for or purchase itself up to such number of Existing Shares as represent 15 per cent. of the total number of New Shares issued under the Global Offer at the Offer Price, for the purposes, amongst other things, of allowing the Joint Bookrunners to meet over-allocations or further allocations, if any, in connection with the Global Offer and to cover short positions resulting from stabilising transactions. The number of Existing Shares to be transferred pursuant to the Over-allotment Option, if any, will be determined not later than 30 days from the date of publication of the Offer Price. Settlement of the Over-allotment Option will take place shortly after the exercise of the Over-allotment Option;

12.1.5

the Company has agreed to pay to the Joint Bookrunners a commission of 3.0 per cent. of the amount equal to the Offer Price multiplied by the number of New Shares which the Joint Bookrunners have agreed to procure subscribers for, or failing which the Underwriters have agreed to purchase themselves, pursuant to the terms of the Underwriting Agreement. In addition, the Company may pay the Joint Bookrunners a further commission of 1.5 per cent. of the amount equal to the Offer Price multiplied by the number of New Shares which the Joint Bookrunners have agreed to procure subscribers for, or failing which the Underwriters have agreed to purchase themselves, pursuant to the terms of the Underwriting Agreement. The amount of any such further commission, if any, and the allocation between the Joint Bookrunners, shall be determined by the Company in its sole discretion;

12.1.6

the Blackstone Shareholders have agreed to pay to the Joint Bookrunners a commission of 3.0 per cent. of the amount equal to the Offer Price multiplied by the number of Existing Shares (if any) sold pursuant to the Over-allotment Option. In addition, the Blackstone Shareholders may pay to the Joint Bookrunners a further commission of 1.5 per cent. of the amount equal to the Offer Price multiplied by the number of Existing Shares (if any) sold pursuant to the Over-allotment Option. The amount of any such further commission, if any, and the allocation between the Joint Bookrunners, shall be determined by the Blackstone Shareholders in their sole discretion;

12.1.7

the obligations of the Company to issue New Shares and the obligations of the Joint Bookrunners pursuant to the Underwriting Agreement are subject to certain conditions including, among others, Admission occurring by not later than 8.00 a.m. (London time) on 2 May 2007 or such later time and/or date (not later than 15 May 2007) as the Joint Bookrunners may agree with the Company. The Joint Bookrunners may terminate the Underwriting Agreement in certain circumstances that are typical for an agreement of this nature prior to Admission. These circumstances include the occurrence of certain significant changes in the condition (financial or otherwise), prospects or earnings of the Company and certain changes in financial, political or economic conditions (as more fully set out in the Underwriting Agreement);

12.1.8

the Company has agreed to pay by way of reimbursement to the Joint Bookrunners or as otherwise set out in the Underwriting Agreement, any stamp duty or stamp duty reserve tax arising on the issue of New Shares by it under the Global Offer;

12.1.9

the Company has agreed to pay or cause to be paid (together with any related value added tax) certain costs, charges, fees and expenses of, or in connection with, or incidental to, amongst others, the Global Offer, Admission or the other arrangements contemplated by the Underwriting Agreement; and

12.1.10 the Company has given certain representations, warranties, undertakings and indemnities to the Joint Bookrunners and the Underwriters. The liabilities of the Company under the Underwriting Agreement are not limited as to amount or time. The Directors have given certain representations, warranties and undertakings to the Joint Bookrunners and the

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Underwriters. The liabilities of the Directors under the Underwriting Agreement are limited as to time and amount. The Blackstone Shareholders have given certain representations, warranties and undertakings to the Joint Bookrunners and the Underwriters. The liabilities of the Blackstone Shareholders under the Underwriting Agreement are limited as to amount. 12.2 Description of Lock-Up Arrangements 12.2.1 The Company has undertaken in the Underwriting Agreement that during a period of 180 days from the date of Admission it will not, without the prior written consent of the Joint Bookrunners, directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing, save in respect of Shares issued pursuant to the Global Offer, the Conversion or pursuant to the exercise of options under share option schemes in existence on the date of Admission and described in this document. 12.2.2 The Blackstone Shareholders and each of the Directors have undertaken in the Underwriting Agreement that, in the case of the Blackstone Shareholders, during a period of 180 days from the date of Admission and, in the case of the Directors until 31 March 2009, they or he will not, without the prior written consent of the Bookrunners, directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing, save that the above restrictions shall not apply in respect of Shares issued pursuant to the exercise of options under share option schemes in existence on the date of Admission and described in this document. These restrictions are subject to certain specified exceptions including: (i) in the case of the Blackstone Shareholders only, making any loan or disposal of Shares pursuant to the Over-allotment Option; (ii) accepting a general offer made to all holders of issued and allotted Shares for the time being made in accordance with the Takeover Code; (iii) executing or delivering an irrevocable commitment or undertaking to accept a general offer as referred to in paragraph (ii); (iv) selling or otherwise disposing of Shares pursuant to an offer by the Company to purchase its own Shares; (v) transferring or disposing of Shares pursuant to a compromise or arrangement between the Company and its creditors or members; (vi) taking up any rights granted in respect of a rights issue or other pre-emptive share offering by the Company; (vii) transferring or otherwise disposing of any Shares pursuant to an order from a court of competent jurisdiction or otherwise as required pursuant to any applicable laws; (viii) in the case of the Blackstone Shareholders only, entering into and transferring Shares in accordance with the terms of the stock lending arrangements; (ix) in the case of the Directors only, transferring Shares to a personal representative on the death of the Director provided that the sale of any Shares in the Company by such personal representatives during such period shall be effected in accordance with the reasonable requirements of the Joint Bookrunners so as to ensure an orderly market for the issued share capital of the Company; (x) in the case of the Directors only, transferring Shares to immediate family members provided that the transferee shall have entered into an agreement with the Joint Bookrunners in which he or she undertakes to be bound by the lock-up arrangements; (xi) in the case of the Blackstone Shareholders only, transferring Shares to any affiliate of the Blackstone Shareholders provided that the transferee is an affiliate of the Blackstone 170

Shareholders and that the transferee shall have entered into an agreement with the Joint Bookrunners in which it undertakes to be bound by the lock-up arrangements; and (xii) in the case of the Directors only, transferring or otherwise disposing of up to 50 per cent. of the Shares he owns as at Admission after 31 March 2008. 12.2.3

Pursuant to separate arrangements, certain persons connected with the Executive Directors have each agreed, subject to the same exceptions set out in paragraphs (ii) to (vii) inclusive, (ix), (x) and (xii) above, that during the period from Admission to 31 March 2009 they will not, without the prior written consent of the Joint Bookrunners, dispose of any Shares.

12.2.4

Pursuant to separate arrangements, Carisan Investments Limited (a Jersey incorporated subsidiary of a Jersey based discretionary trust of which Anthony Bloom, the Chairman of the Company, is one of the potential beneficiaries) has agreed, subject to the same exceptions set out in (ii) to (vii) inclusive and (xi) above, that during the period from Admission to the date falling 180 days after Admission it will not, without the prior written consent of the Joint Bookrunners, dispose of any Shares.

12.2.5

Pursuant to separate arrangements, certain members of the senior management of the Company (other than the Directors and the Senior Managers) will have Shares distributed to them from the Trust (as referred to in paragraph 8.3.2 above) and they have agreed with the Company that, ordinarily, they will only be able to sell or otherwise deal with those Shares as follows: (i) up to one third of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 27 December 2007; (ii) up to two thirds of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 25 December 2008; and (iii) any of the Shares distributed to each manager (after the Shares sold to realise income tax and employee National Insurance contributions due on the distribution have been deducted) may be sold after publication of the Company’s report and accounts for the year ending 31 December 2009.

12.3 Description of Stock Lending Arrangements In connection with settlement and stabilisation, the Blackstone Shareholders have entered into a stock lending agreement with the Stabilising Manager. Pursuant to this agreement, the Stabilising Manager is able to borrow up to 9,207,161 Shares. This agreement will allow the Stabilising Manager to settle on Admission over-allotments, if any, made in connection with the Global Offer. If the Stabilising Manager borrows any Shares pursuant to the stock lending agreement, it will be required to return equivalent securities to the lenders in accordance with the terms of the stock lending agreement. 13. SECURITIES LAWS The distribution of this document and the offer of Shares in certain jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any restrictions, including those set out in the paragraphs that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. 13.1 United States of America The Shares have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States except in certain transactions exempt from the registration requirements of the Securities Act. In addition, until 40 days after the commencement of the Global Offer, an offer or sale of Shares within the United States by a dealer or person receiving a concession, fee or remuneration in respect of the Shares (whether or not participating in the Global Offer) may violate the registration requirements of the Securities Act. 171

13.2 Australia This document does not constitute a disclosure document under Part 6D.2 of the Corporations Act 2001 of the Commonwealth of Australia (the ‘‘Australian Corporations Act’’) and will not be lodged with the Australian Securities and Investments Commission. The Shares will be offered to persons who receive offers in Australia only to the extent that such offers of Shares for issue or sale do not need disclosure to investors under Part 6D.2 of the Australian Corporations Act. Any offer of Shares received in Australia is void to the extent that it needs disclosure to investors under the Australian Corporations Act. In particular, offers for the issue or sale of Shares will only be made in Australia in reliance on various exemptions from such disclosure to investors provided by section 708 of the Australian Corporations Act. Any person to whom Shares are issued or sold pursuant to an exemption provided by section 708 of the Australian Corporations Act must not, within 12 months after the issue, offer those Shares for sale in Australia unless that offer is itself made in reliance on an exemption from disclosure provided by that section. 13.3 Canada The Shares have not been and will not be qualified by a prospectus in accordance with the prospectus requirements under applicable securities law in any Canadian jurisdiction and therefore may not be offered or sold, directly or indirectly, in Canada except in compliance with applicable Canadian securities laws. Accordingly, no sales of Shares will be made in Canada except in the provinces of Ontario, Quebec and British Columbia (i) through an appropriately registered securities dealer or in accordance with an available exemption from the registration requirements of applicable Canadian securities laws, and (ii) pursuant to an exemption from the prospectus requirements of such laws. 13.4 Japan The Shares have not been and will not be registered under the Securities and Exchange Law of Japan (Law No. 25 of 1948 as amend) (the ‘‘Securities and Exchange Law’’), and may not be offered or sold, directly or indirectly, in Japan or to a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and other relevant laws and regulations of Japan. 13.5 European Economic Area Each of the Joint Global Co-ordinators has represented, warranted and undertaken that, in relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a ‘‘Relevant Member State’’), an offer to the public of any Shares which are the subject of the Global Offer contemplated by this document may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: 13.5.1

to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

13.5.2

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than A43,000,000 and (3) an annual net turnover of more than A50,000,000, as shown in its last annual or consolidated accounts;

13.5.3

by the Joint Global Co-ordinators to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Joint Global Co-ordinators for any such offer; or

13.5.4

in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Shares shall result in a requirement for the publication by the Company or any Joint Global Co-ordinators of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an ‘‘offer to the public’’ in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression ‘‘Prospectus

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Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. In the case of any Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the Shares acquired by it in the Global Offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to persons in circumstances which may give rise to an offer of any Shares to the public other than their offer of resale in a relevant Member State to Qualified Investors as so defined or in circumstances in which the prior consent of the Underwriters has been obtained to each such proposed offer or resale. The Company, the Blackstone Shareholders, the Underwriters and their affiliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the Underwriters of such fact in writing may, with the consent of the Underwriters, be permitted to purchase Shares in the Global Offer. 13.6 United Kingdom Each Joint Global Co-ordinators has represented and agreed that: (a) it has not made and will not make an offer of the Shares to the public in the United Kingdom prior to the publication of a prospectus in relation to the Shares that has been approved by the FSA except that it may make an offer of the Shares to persons who fall within the definition of ‘‘qualified investor’’ as that term is defined in section 86(1) of FSMA or otherwise in circumstances which do not require the publication by the Company of a prospectus pursuant to section 85(1) of FSMA; (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of the Shares in circumstances in which section 21(1) of FSMA does not apply; and (c) it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom. 13.7 General No action has been or will be taken in any jurisdiction, other than the United Kingdom, the Channel Islands or the Isle of Man, that would permit a public offering of the Shares, or possession or distribution of this document or any other offering material, in any country or jurisdiction where action for that purpose is required. Accordingly, the Shares may not be offered or sold, directly or indirectly, and neither this document nor any other offering material or advertisement in connection with the Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. Persons into whose possession this document comes should inform themselves about and observe any restrictions on the distribution of this document and the offer of Shares, including those in the paragraphs above. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This document does not constitute an offer to subscribe for or buy any of the Shares offered hereby to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction. 14. WORKING CAPITAL The Company is of the opinion that, taking into account the New Senior Credit Agreement and the net proceeds of the Global Offer receivable by the Company, the Group has sufficient working capital for its present requirements, that is, for at least the 12 months following the date of publication of this document. For more information on the New Senior Credit Agreement, see paragraph 18.1 of this ‘‘Part 9: Additional Information’’. 15. SIGNIFICANT CHANGE Save for the sale and leaseback of the Group’s Swindon (Shawbridge Leisure Park) and Southampton sites in March 2007, which realised aggregate proceeds of approximately £12.2 million, there has been no significant change in the financial or trading position of the Group since 28 December 2006, the date to 173

which the report of KPMG Audit Plc in respect of the Company contained in ‘‘Part: 7 Financial Information’’ has been prepared. 16. CAPITALISATION AND INDEBTEDNESS The following tables set out the capitalisation and indebtedness of the Group. The information in the capitalisation and indebtedness tables below is extracted without material adjustment from Part A of ‘‘Part 7: Financial Information’’.

Indebtedness as at 28 December 2006 £ million

Total current debt Secured(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.2 0.8 1.0

Total non-current debt Secured(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

206.7 134.2 340.9

Total indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

341.9 Capitalisation as at 28 December 2006 £ million

Shareholders’ equity(2) Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— 0.4

Capital and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.4

Notes: (1) Secured by fixed and floating charges over the assets of the Group. (2) Shareholders’ equity excludes retained losses of £59.2 million as at 28 December 2006.

There has been no significant change to the Group’s capital, as set out in the above table, since 28 December 2006. The Group’s current and non-current net financial indebtedness at 28 December 2006 and at 22 February 2007 was: 28 December 2006 £ million

22 February 2007 (unaudited) £ million

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27.7

33.0

Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of non-current debt . . . . . . . . . . . . . . . . . . . . . . . . Other current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27.7 (0.2) (0.8)

33.0 (2.0) (0.1)

Current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.0)

(2.1)

Net current financial liquidity/(debt) . . . . . . . . . . . . . . . . . . . . . . . . Non-current bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26.7 (206.7) (134.2)

30.9 (205.6) (136.2)

Non-current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . .

(340.9)

(341.8)

Net financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(314.2)

(310.9)

17. LITIGATION Save for the settlement of a claim against Cineworld Estates Limited (formerly UGC Estates Limited) in respect of the development of the cinema at Renfrew Street, Glasgow which was settled for approximately

174

£2 million, and the settlement of a related claim in respect of unpaid rent for £0.8 million plus costs and interests, neither the Company nor any member of the Group is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) during the 12 months preceding the date of this document which may have, or have had, a significant effect on the financial position or profitability of the Company and/or the Group. For more information on the claims against Cineworld Estates Limited, see paragraph 18.11 of this ‘‘Part 9: Additional Information’’. 18. MATERIAL CONTRACTS The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by a member of the Group within the two years immediately preceding the date of this document and are, or may be, material or have been entered into at any time by any member of the Group and contain provisions under which any member of the Group has an obligation or entitlement which is, or may be, material to the Group as at the date of this document: 18.1 New Senior Credit Agreement Concurrent with Admission, the Group will refinance the Existing Senior Credit Agreement in full using a combination of borrowings under the New Senior Credit Agreement and a portion of the net proceeds of the Global Offer, together with cash from operating activities. For more information regarding the effect of the Global Offer and the Refinancing, see ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Refinancing’’ and ‘‘Part 8: Pro Forma Financial Information’’. Cineworld Group plc, Augustus 2 Limited, Cineworld Cinemas Limited and Cine-UK Limited, as initial borrowers, and Cineworld Group plc and certain of its subsidiaries, as initial guarantors, entered into the New Senior Credit Agreement on 26 April 2007, with Barclays Capital, as mandated lead arranger, and Barclays Bank PLC as original lender, issuing bank and agent (the ‘‘Agent’’). The New Senior Credit Agreement will become available for drawing upon Admission to Listing. The New Senior Credit Agreement will provide for senior facilities in a maximum aggregate principal amount of £165 million consisting of a £135 million term facility (the ‘‘Term Facility’’) and a £30 million revolving facility (the ‘‘Revolving Facility’’). In addition, the New Senior Credit Agreement will also provide for ancillary facilities in place of part of the Revolving Facility up to a maximum amount of £10 million (other than with the prior consent of the Agent acting on the instructions of the majority lenders) (the ‘‘Ancillary Facilities’’). Interest Rates and Fees Advances under the New Senior Credit Agreement will bear interest for the first 12 months at a rate per annum equal to the sum of LIBOR, certain mandatory costs and 1.35 per cent. per annum with the margin varying between 0.70 per cent. and 1.35 per cent. per annum in subsequent interest periods depending on the ratio of consolidated net debt to the consolidated EBITDA of the Group. Guarantees The obligations of the borrowers under the New Senior Credit Agreement will be guaranteed by, amongst others, Cineworld Group plc, Augustus 2 Limited, Cineworld Holdings Limited, Cine-UK Limited, Cineworld Cinemas Holdings Limited, Cineworld Cinemas Limited, Cineworld Estates Limited, Cineworld Exhibition Limited, Gallery Holdings Limited, Gallery Cinemas Limited, Cineworld South East Cinemas Limited, Cineworld Cinema Properties Limited, Classic Cinemas Limited and Adelphi-Carlton Limited. The obligations of the guarantors are joint and several. The guarantors have represented and warranted that their aggregate EBITDA and aggregate gross assets on Admission will exceed 85 per cent. of the consolidated EBITDA and consolidated gross assets of the Group. Maturity The Term Facility will mature on the fifth anniversary of the date of the New Senior Credit Agreement and is repayable in instalments from 31 December 2007. The Revolving Facility will mature on the earlier of (a) the date on which the Term Facility is repaid in full and/or or cancelled and (b) the fifth anniversary of the date of the New Senior Credit Agreement. 175

Each advance under the Revolving Facility must be repaid on the last day of each interest period with respect to such advance and amounts repaid may be redrawn (subject to satisfaction of certain conditions). The Revolving Facility is available for utilisation until one month before its final maturity. Use of Proceeds The proceeds of the Term Facility are to be applied towards the Refinancing and associated transaction costs. The Revolving Facility and any Ancillary Facilities are to be applied towards general corporate and working capital purposes of the Group. Voluntary and Mandatory Prepayment The Term Facility and the Revolving Facility will allow for voluntary prepayments, and require mandatory prepayments in full or in part in certain circumstances, including a change of control of the Company. Representations, Warranties and Undertakings The New Senior Credit Agreement will contain customary representations, warranties and undertakings. In addition, it will contain restrictions that prohibit each member of the Group (subject to certain exceptions as outlined in the New Senior Credit Agreement), including (amongst others) from: (i) creating or permitting to subsist any security interest on any of its assets or entering into certain transactions having similar effect; (ii) incurring, granting or permitting to subsist any financial indebtedness or guarantee; (iii) merging or consolidating with or into any other person; (iv) materially changing the general nature of their business; (v) selling, transferring, leasing or otherwise disposing of any of their assets; and (vi) conducting certain acquisitions or investments. In addition, the New Senior Credit Agreement will require the borrowers to maintain specified financial ratios which are tested quarterly on a rolling aggregate basis for each 12 month period ending on the relevant testing date including: (i) consolidated net debt to consolidated EBITDA of the Group, which must not be greater than specified ratios in respect of any relevant 12 month period ranging from 4.25 to 1 during the 12 month period ending on or about 31 December 2007 to 3.00 to 1 during the 12 month period ending on or about 31 March 2012; and (ii) consolidated EBITDAR (prior to rent) to net finance charges and rent, which must not be less than specified ratios in respect of any relevant 12 month period ranging from 1.35 to 1 during the 12 month period ending on or about 31 December 2007 to 1.45 to 1 during the 12 month period ending on or about 31 March 2012. If the Group’s consolidated net debt to consolidated EBITDA ratio is 2.75 to 1 or less for two consecutive financial quarters, the financial convenants summarised above will be tested each six month period. The New Senior Credit Agreement will contain customary affirmative undertakings including (amongst others) undertakings related to: (i) the maintenance of all relevant authorisations; (ii) information and accounting; (iii) compliance with laws, including environmental laws and regulations; and (iv) maintenance of certain insurances.

176

The New Senior Credit Agreement will contain customary events of default including (amongst others): (i) non-payment of amounts due under the New Senior Credit Agreement subject to a three business day grace period solely in relation to any non-technical or administrative error or specified disruption events; (ii) breach of other covenants (including financial covenants) or representations or warranties; (iii) cross default where any financial indebtedness of any member of the Group of £1 million or more in aggregate is not paid when due or is capable of being declared due and payable; (iv) certain insolvency, receivership, liquidation, winding up or related events; and (v) an event or circumstance occurs which would be reasonably likely to have a material adverse effect. At any time after the occurrence of an event of default the lenders may terminate the availability of the facilities, declare any outstanding advances due and payable, require any borrower to prepay certain liabilities, and/or take any other action allowed under the documents or law. 18.2 Existing Senior Credit Agreement On 22 June 2006 Augustus 2 Limited, Cine-UK Limited and Cineworld Cinemas Limited, as initial borrowers and Augustus 2 Limited and certain of its subsidiaries, as initial guarantors, Cine-UK Limited, entered into the Existing Senior Credit Agreement which was subsequently amended and restated on 21 August 2006. Concurrent with Admission, the Group will refinance the Existing Senior Credit Agreement in full using a combination of borrowings under the New Senior Credit Agreement and a portion of the net proceeds of the Global Offer, together with cash from operating activities. For more information on the New Senior Credit Agreement, see paragraph 18.1 of this ‘‘Part 9: Additional Information’’. The Existing Senior Credit Agreement provides for senior facilities in a maximum aggregate principal amount of £246.0 million consisting of a £45.0 million facility (the ‘‘Existing Term A Facility’’), a £81.5 million facility (the ‘‘Existing Term B Facility’’), a £81.5 million facility (the ‘‘Existing Term C Facility’’), a £18 million bridge facility (the ‘‘Existing Bridge Facility’’) and a £20.0 million facility (the ‘‘Existing Revolving Facility’’). Advances under the Existing Senior Credit Agreement bear interest for each interest period at a rate per annum equal to the sum of LIBOR, certain mandatory costs and: (i) for the Existing Term A Facility, 2.25 per cent. per annum with the margin varying between 1.5 per cent. and 2.25 per cent. per annum in subsequent interest periods depending on the ratio of consolidated net debt of Augustus 2 Limited and its subsidiaries (the ‘‘Borrower Group’’) (less cash and cash equivalents and less advances under the Existing Bridge Facility) to the consolidated EBITDA of the Borrower Group (the ‘‘Leverage Ratio’’); (ii) for the Existing Term B Facility, 2.5 per cent. per annum with the margin varying between 2.5 per cent. and 1.75 per cent. per annum on subsequent interest periods depending on the Leverage Ratio; (iii) for the Existing Term C Facility, 3.0 per cent. per annum; (iv) for the Existing Bridge Facility, 2.0 per cent. per annum; and (v) for the Existing Revolving Facility, 2.25 per cent. per annum with the margin varying between 2.25 per cent. and 1.5 per cent. per annum on subsequent interest periods depending on the Leverage Ratio. The Existing Senior Credit Agreement benefits from a first ranking fixed and floating charge over all the assets of Augustus 2 Limited and Cineworld Holdings Limited and the other guarantors of the Existing Senior Credit Agreement, including the shares of Cineworld Holdings Limited, to secure all monies owing by the borrowers and guarantors from time to time. Pursuant to the terms of the Existing Senior Credit Agreement and the Existing Intercreditor Deed, Augustus 2 Limited entered into an interest rate hedging arrangement with Barclays Bank PLC as counterparty, documented by an ISDA Master Agreement. 177

The Existing Term A Facility will mature on the seventh anniversary of the date of the Existing Senior Credit Agreement. The Existing Term B Facility will mature on the eighth anniversary of the date of the Existing Senior Credit Agreement. The Existing Term C Facility will mature on the ninth anniversary of the date of the Existing Senior Credit Agreement. The Existing Bridge Facility will mature on the second anniversary of the date of the Existing Senior Credit Agreement. The Existing Revolving Facility is available until the earlier of (a) the date on which the Existing Term A Facility is repaid in full and/or cancelled and (b) the seventh anniversary of the date of the Existing Senior Credit Agreement. The proceeds of the Existing Term A Facility, the Existing Term B Facility, the Existing Term C Facility and the Existing Bridge Facility were applied towards refinancing borrowings under the Initial Senior Credit Agreement. The Existing Revolving Facility is available to fund the working capital requirements of the Borrower Group and for other general corporate requirements. The Existing Term A Facility, the Existing Term B Facility the Existing Term C Facility, the Existing Bridge Facility and the Existing Revolving Facility allow for voluntary prepayments, and require mandatory prepayments in full or in part in certain circumstances, including: (i) a change of control, listing or a disposal of all or substantially all of the business or assets of Augustus 2 Limited or its direct or indirect subsidiaries; and (ii) the receipt of certain amounts resulting from the disposal of assets, certain insurance and other claim proceeds, permitted sale leaseback arrangements or excess cash flow. The Existing Senior Credit Agreement contains customary representations, warranties and undertakings. The Existing Senior Credit Agreement requires the borrowers to maintain specified EBITDA to total net cash interest ratios and maintain specified cashflow cover and restricts the amounts and timing of capital expenditures for the Borrower Group. The Existing Senior Credit Agreement contains customary events of default. At any time after the occurrence of an event of default the lenders may terminate the availability of the facilities, declare any outstanding advances due and payable, require any borrower to prepay certain liabilities, and/or take any other action allowed under the documents or law. 18.3 Existing Intercreditor Deed On 22 June 2006, Augustus 2 Limited and certain of its subsidiaries as debtors, Barclays Capital as arranger, Barclays Bank PLC, as original lender, issuing bank, facility agent, security agent and hedge counterparty entered into an intercreditor deed which was subsequently amended and restated on 21 August 2006 (the ‘‘Existing Intercreditor Deed’’). The Existing Intercreditor Deed sets out: (i) the relative ranking of certain debt of the Borrower Group; (ii) when payments can be made in respect of that debt; (iii) when enforcement actions can be taken in respect of that debt; (iv) the terms pursuant to which that debt will be subordinated upon the occurrence of certain insolvency events; (v) turnover provisions; and (vi) agreements among secured creditors of the obligors regarding enforcement of their security. The Existing Intercreditor Deed provides that certain outstanding debt of the Borrower Group will have the following priority: (i) first, the ‘‘senior liabilities’’ (which consists of any and all present and future sums, liabilities and obligations (actual or contingent and including by way of cash collateral and whether incurred solely or jointly with any other person and whether as principal or surety) owing to any finance parties under the terms of the finance documents, including the Existing Senior Credit Agreement) and any ‘‘associated liabilities’’ and ‘‘hedging liabilities’’ (which consists of any and all present and future sums, liabilities and obligations (actual or contingent) owing from time to time by any debtor in accordance with the terms of any hedging agreement);

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(ii) second, the ‘‘intra-group liabilities’’ which consists of any and all present and future sums, liabilities and obligations (actual or contingent) owing by any debtor to any intra-group lender whether pursuant to any intra-group loan or otherwise together with all related associated liabilities; and (iii) third, the ‘‘junior liabilities’’ (which consists of any and all present and future indebtedness which is or becomes owing from Augustus 2 Limited and any of its subsidiaries to a junior creditor (as specified in the Existing Intercreditor Deed from time to time) together with any related associated liabilities). The junior creditors and the intra-group lenders under the Existing Intercreditor Deed have agreed in relation to the relevant subordinated obligations that, prior to the discharging in full of all amounts and obligations owing under the Existing Senior Credit Agreement, upon the receipt or recovery of any payment or distribution in cash or in kind (including by way of set-off or continuation of accounts) otherwise than in accordance with the provisions of the Existing Intercreditor Deed, to notify the security agent of such receipt or recovery, and will on demand pay to the security agent for application as provided for in the Existing Intercreditor Deed, an amount determined by the security agent. 18.4 First Deep Discount Bonds On 7 October 2004, Augustus 1 Limited issued a nominal amount of £152,769,058 First Deep Discount Bonds constituted by a loan note instrument. The First Deep Discount Bonds do not bear interest but were issued at a substantial discount to their principal amount at maturity, generating aggregate gross proceeds on issue of £58,899,086. The accreted value of each First Deep Discount Bond increases from the initial accreted value until 7 October 2014 at a rate of 10 per cent. per annum compounded annually on 7 October, such that the accreted value would equal the principal amount at maturity of each First Deep Discount Bond on 7 October 2014. The First Deep Discount Bonds are subject to customary events of default including the insolvency of Augustus 1 Limited or any of its subsidiaries. Concurrent with Admission, the Group will redeem in full the First Deep Discount Bonds as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Refinancing and Conversion’’. 18.5 Subordinated Bonds On 7 October 2004, Augustus 1 Limited issued £999,982 Subordinated Bonds constituted by the same loan note instrument which constituted the First Deep Discount Bonds. Interest on the Subordinated Bonds accrues at an annual rate of 10% on the nominal amount outstanding compounded annually on 7 October. Accrued interest is payable on the date such bonds are redeemed or repaid. The Subordinated Bonds are subject to customary event of default including the insolvency of Augustus 1 Limited or any of its subsidiaries. Concurrent with Admission, the Group will redeem in full the Subordinated Bonds as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Refinancing and Conversion’’. 18.6 Second Deep Discount Bonds On 1 December 2004, Augustus 1 Limited issued a nominal amount of £114,254,262 Second Deep Discount Bonds constituted by a loan note instrument. The Second Deep Discount Bonds do not bear interest but were issued at a substantial discount to their principal amount at maturity, generating aggregate gross proceeds on issue of £44,049,963. The accreted value of each Second Deep Discount Bond increases from the initial accreted value until 1 December 2014 at a rate of 10 per cent. per annum compounded annually on 1 December, such that the accreted value would equal the principal amount at maturity of each Second Deep Discount Bond on 1 December 2014. The Second Deep Discount Bonds are subject to customary events of default including the insolvency of Augustus 1 Limited or any of its subsidiaries.

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Concurrent with Admission, the Group will redeem in full the Second Deep Discount Bonds as discussed in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Refinancing and Conversion’’. 18.7 Shareholders’ Agreement The Company, Augustus 1 Limited and Augustus 2 Limited entered into a subscription and shareholders’ agreement with the Blackstone Shareholders and certain other shareholders in the Company on 7 October 2004 (the ‘‘Shareholders’ Agreement’’), which includes, among other things, provisions regarding the conduct of the parties following the execution of such agreement. The Shareholders’ Agreement contains certain covenants restricting the senior managers from, among other things, competing with the business of the Group or disclosing confidential information. The agreement provides the Blackstone Shareholders with the right to appoint and remove non-executive directors of any member of the Group. Further, the Company has an ongoing obligation to provide certain information to the Blackstone Shareholders and, for the purposes of a sale or an initial public offering of the Company, is permitted to disclose all information made available to the Board and the boards of directors of its subsidiaries, including market information relating to its business and customers. Subject to certain restrictions, the Blackstone Shareholders are also permitted to disclose such information to any proposed buyer, underwriter, sponsor or broker involved in such sale or initial public offering. The Shareholders’ Agreement also regulates the conduct of the Group, including, among other things, the conduct of board meetings, expansion of the Group, maintenance of insurance policies, management of the business and conduct in relation to the finance documents. Under the provisions of the agreement, the Company must seek the consent of the Blackstone Shareholders, or in some cases the directors nominated by the Blackstone Shareholders, in relation to, among other things, any changes to its capital structure, constitutive documents or the nature of its business; the declaration or payment of dividends or other distributions; the incurrence of debt or the granting of security; and the sale or initial public offering of the Company. In the event of a sale or an initial public offer of the Company, each manager has undertaken to enter into an agreement not to sell, assign, transfer or dispose of some or all its shares or any interest therein for a certain period of time with each of the underwriters and the Blackstone Shareholders. The Shareholders’ Agreement also provides that the assets available for distribution on a sale or initial public offering of the Company shall, after payment of all other debts and liabilities of the Company (including costs and expenses in connection with such sale or initial public offering), be applied, first, in redeeming the First Deep Discount Bonds and all sums due thereon, and second, in pari passu distribution amongst the holders of the Shares. The provisions of the Shareholders’ Agreement will be terminated upon Admission pursuant to a deed of termination. 18.8 Underwriting Agreement For information on the Underwriting Agreement, see paragraph 12.1 of this ‘‘Part 9: Additional Information’’. 18.9 Relationship Agreement On 26 April 2007, the Blackstone Shareholders entered into the Relationship Agreement with the Company governing the exercise by the Blackstone Shareholders of their rights in respect of the Company following Admission for the purposes of the Prospectus Rules. The Relationship Agreement takes effect upon Admission. The Blackstone Shareholders have undertaken to exercise their voting powers in relation to the Company to ensure that the Company is capable of carrying on its business for the benefit of shareholders of the Company as a whole and independently of the Blackstone Shareholders and have further agreed not to exercise their voting rights in favour of any amendment to the memorandum and articles of association of the Company in a manner which would be contrary with the principle of independence of the Company. For so long as the Blackstone Shareholders together hold: (i) at least 20 per cent. of the Shares, the Blackstone Shareholders shall be entitled to appoint (and remove and reappoint) two non-executive

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directors to the Board (each a ‘‘Blackstone Director’’) one of whom shall be the Deputy Chairman of the Board. Immediately following Admission, the Blackstone Directors shall be Lawrence Hall Guffey (who shall be Deputy Chairman) and Matthew David Tooth; and (ii) at least 10 per cent. of the Shares, the Blackstone Shareholders shall be entitled to appoint (and remove and reappoint) one Blackstone Director. Where a Blackstone Director receives information in a capacity other than as a director of the Company which imposes on him a duty of confidentiality, he shall not be obliged to disclose that information to the Company. This obligation will be reflected in the terms of the letter of appointment of any Blackstone Director. All transactions and relationships between any member of the Group and the Blackstone Shareholders or any of their associates shall be conducted at arm’s length, on a normal commercial basis and in accordance with the related party transaction rules set out in chapter 11 of the Listing Rules. Only independent directors shall be entitled to vote on any matter giving rise to a conflict of interest between a Group Company and the Blackstone Shareholders. Any material amendment to or waiver in respect of any rights of a Group Company under any agreement with the Blackstone Shareholders must be agreed by a majority of independent directors. The Blackstone Shareholders shall, until such a time as they cease to have the right to appoint a director to the Board and subject to the Company’s obligations under all applicable laws (including, without limitation, the Listing Rules and the Disclosure and Transparency Rules), be provided with information reasonably required by them or their affiliates to complete any tax returns or filings that they are required by law or regulation to make from time to time. The Company has undertaken that for so long as the Blackstone Shareholders together hold at least 20 per cent. of the Shares, the Company will not issue any Shares or other equity securities, or grant any right to subscribe for Shares or other equity securities, without the prior written consent of the Blackstone Shareholders, provided that such consent shall not be required for: (i) any issue of Shares or other securities which has been specifically approved by shareholders at a general meeting of the Company; (ii) the grant of options under any share scheme described in paragraph 8 of this ‘‘Part 9: Additional Information’’ and the issue of Shares pursuant to the exercise of any such options; (iii) allotments of equity securities in connection with any rights issue which the Directors are authorised to make pursuant to any applicable general authority; and (iv) allotments of Shares for cash pursuant to any applicable general authority to allot Shares held by Directors. For a period of two years from Admission, the Blackstone Shareholders have undertaken that they shall not, without the prior written consent of the Company, operate, establish or acquire an undertaking which competes with the business of the Group in the United Kingdom. The restriction shall not prohibit the Blackstone Shareholders from: (i) owning for investment purposes securities in any company dealt with on a stock exchange (where the investor is not actively involved in the management of such company) and not exceeding 10 per cent. in nominal value of the securities of that class in such company; and (ii) acquiring any one or more companies and/or businesses whose primary business competes with the Group, provided that within 12 months of completion of any acquisition, such business is sold by the relevant acquiring party to a purchaser which is not an affiliate of the Blackstone Shareholders. The Blackstone Shareholders have agreed that, save with the prior written consent of the Company, they shall not solicit for employment any of the Directors or Senior Managers for a period of two years following Admission. The Relationship Agreement will terminate, and Blackstone will no longer have the right to appoint a Blackstone Director, if the Blackstone Shareholders and their affiliates collectively cease to hold Shares carrying not less than 10 per cent. of the Shares in issue or upon the delisting of the Company

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or the occurrence of certain insolvency events. Any such termination will not affect a party’s accrued rights and obligations under the Relationship Agreement. 18.10 OFT Sale Agreement On 15 November 2005 a sale and purchase agreement was entered into between Cine-UK Limited, Cineworld Cinemas Limited, Cineworld Properties Limited, Cineworld Estates Limited (together the ‘‘Cineworld Sellers’’) and Cinema Holdings 2 Limited (the ‘‘Purchaser’’) pursuant to which the Purchaser agreed to acquire (or procure that another of its subsidiaries acquire) the Disposed Sites (and related assets) from the Cineworld Sellers. On 26 May 2006 completion of the sale of four of the Disposed Sites (Bishops’ Stortford, Ealing, Sunderland and Slough) took place and, on the same date, the parties entered into a variation to the terms of OFT Sale Agreement pursuant to which part of the consideration payable by the Purchaser in respect of certain of the Disposed Sites could be satisfied by the issue of shares in the purchasing company. On 24 November 2006 completion of the sale of the cinema at Swindon (Greenbridge Park) took place. Part of the consideration payable by the Purchaser was satisfied by the issue of 200,000 preference shares in the purchasing company. On 1 December 2006 completion of the sale of the cinema at Birmingham (Great Park, Rubery) took place. Part of the consideration payable by the Purchaser was satisfied by the issue of 200,000 preference shares in the purchasing company. On 22 December 2006 completion of the sale of the cinema at Wigan (Robin Park) took place, further to which confirmation from the Office of Fair Trading that their file on this matter has now been closed was received. The Cineworld Sellers remained responsible for all liabilities incurred in relation to the Disposed Sites (and related assets) subject to the agreement up to completion and have undertaken to indemnify the Purchaser for any losses incurred during this period. The parties also entered into a transitional services agreement on 15 November 2005 in respect of certain functions, services, facilities, agreements and licences the enjoyment which were necessary for the Purchaser. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘‘TUPE’’) apply in respect of the disposals such that certain contracts of employment will be treated after completion as if they were originally made with the Purchaser. The Cineworld Sellers have agreed to indemnify the Purchaser in respect of any claims made by employees in relation to any breaches of the Cineworld Sellers’ obligations under TUPE. The Cineworld Sellers have undertaken to offer employment on substantially the same terms to any employee (other than employees employed in connection with the Disposed Sites (and related assets) identified by the Cineworld Sellers who are to transfer to the Purchaser) whose contract after completion is found or is alleged to have effect as if originally made with the Purchaser, whereupon the Purchaser shall terminate the employment of any such employee. Subject to certain restrictions, the Cineworld Sellers granted the Purchaser a non-exclusive, royalty free, non-transferable licence to use certain trademarks in connection with the Disposed Sites (and related assets) for a period of up to six months after the completion of sale of each site (with the exception of Swindon (Greenbridge Park), where such licence was granted for a period of up to three months after completion of the sale of that site). The Cineworld Sellers have entered into a restrictive covenant whereby, subject to certain limitations, each Cineworld Seller shall not for a period of two years (and shall procure that each member of the Group shall not) develop, acquire or operate a new cinema business within a 20 minute drive time of any of the Disposed Sites (and related assets) (calculated by applying the methodology adopted by the OFT as part of its investigation into the UGC Acquisition). The Cineworld Sellers will however be entitled to relocate or acquire an existing business as if this restriction did not apply. The Cineworld Sellers have made certain representations and given certain customary warranties to the Purchaser. The aggregate liability of the Cineworld Sellers under the agreement is limited to the consideration received thereunder (other than in the case of the Cineworld Sellers fraud) and is further limited to £13,500,000 in respect of all warranty claims. The relevant limitation period in respect of warranty claims is 12 months from completion of the sale of the relevant Disposed Site. 182

18.11 UGC Acquisition Agreement On 30 November 2004 a share sale and purchase agreement was entered into between JAD 1 Limited (subsequently renamed Cineworld Group Limited and then Cineworld Holdings Limited), the Company, UCG Cin´ e Cit´ e S.A. and UGC S.A. pursuant to which JAD 1 Limited agreed to acquire the entire issued share capital of UGC Cinemas Holdings Limited, the parent company of the UGC group of companies based in the UK and Ireland, from UCG Cin´ e Cit´ e S.A.. Completion of the UGC Acquisition took place on 1 December 2004. The Company irrevocably undertook to guarantee the obligations of JAD 1 Limited under the agreement. UGC S.A. guaranteed the obligations of UCG Cin´ e Cit´ e S.A. A related tax deed of covenant was entered into by UGC Cin´ e Cit´ e S.A., UGC S.A. and JAD 1 Limited, pursuant to which UGC Cin´ e Cit´ e S.A undertook to pay specified tax liabilities relating to the period before completion of the UGC Acquisition. UGC S.A. guaranteed the obligations of UGC Cin´ e Cit´ e S.A. under the tax deed of covenant. The agreement provided for an indemnity to be given by UGC Cin´ e Cit´ e S.A. to JAD 1 Limited in respect of litigation existing at the time of the agreement between E & J Glasgow Limited and UGC Estates Limited in respect of the development of the cinema at Renfrew Street, Glasgow. In particular, the litigation related to allegations that UGC Estates Limited was refusing to acknowledge any liability in respect of a number of late and varied instructions during the design and construction phases. The claim against UGC Estates Limited was for approximately £5 million. On 8 September 2006, the claim against UGC Estates Limited was settled. The settlement required UGC Estates Limited to make a payment of approximately £2 million to E & J Glasgow Limited, which amount was met in full by UGC Cin´ e Cit´ e S.A. pursuant to the terms of its indemnity. A separate claim for approximately £1.8 million plus costs and interests was brought against UGC Estates Limited (the ‘‘Pearl Claim’’) for allegedly unpaid rent pursuant to the terms of a lease from 7 September 2001. On 28 March 2007, the Pearl Claim was settled with the Group making a payment of £0.8 million (including costs and interest). The tax deed included a specific indemnity in relation to transactions to be undertaken by UGC Cinemas Holdings Limited and its subsidiaries in connection with waiving or discharging certain debts by those companies. 18.12 Deed of Amendment and Novation On 26 April 2007, the Company, Augustus 1 Limited and the holders of the First Deep Discount Bonds, the Second Deep Discount Bonds and the Subordinated Bonds entered into a deed of amendment and novation pursuant to which: 18.12.1

the Company agreed to assume the rights and obligations of Augustus 1 Limited in respect of the Outstanding Deep Discount Bonds by way of novation, conditional on Admission and with effect immediately prior to Admission, in consideration of the provision of a non-interest bearing inter-company loan by Augustus 1 Limited to the Company; and

18.12.2

the bondholders agreed to the terms of the Conversion in respect of the Outstanding Deep Discount Bonds.

For more information on the novation and redemption of the Outstanding Deep Discount Bonds, see ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Refinancing—Conversion’’. 19. RELATED PARTY TRANSACTIONS Save as disclosed in relation to the Blackstone Shareholders and the current and former Directors of the Company in the financial information set out in ‘‘Part 7: Financial Information’’, no related party transactions between the Company and members of the Group were entered into during the 52 week periods ended 30 December 2004, 29 December 2005 or 28 December 2006. During the period between 29 December 2006 and 26 April 2007 (the latest practicable date prior to the publication of this document), interest has continued to accrue to Richard Jones, Stephen Wiener (who are each Directors of the Company), Al Alvarez and Paul Stefka (who are each Senior Managers of the Company) by virtue of their respective interests in the Subordinated Bonds, management and other fees have continued to accrue to the Blackstone Shareholders and interest in respect of the Deep Discount Bonds has continued to accrue to the Blackstone Shareholders and Carisan Investments Limited (a Jersey incorporated subsidiary

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of a Jersey based discretionary trust of which Anthony Bloom, Chairman of the Company, is one of the potential beneficiaries). On 26 April 2007, the Company, Augustus 1 Limited and the holders of the First Deep Discount Bonds, the Second Deep Discount Bonds and the Subordinated Bonds entered into a deed of amendment and novation as described in paragraph 18.13 in this ‘‘Part 9: Additional Information’’. On Admission, the Company will redeem the Subordinated Bonds and the Deep Discount Bonds in full as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Refinancing’’. 20. BLACKSTONE SHAREHOLDERS The following table sets out voting rights held, directly and indirectly, by the Blackstone Shareholders in respect of the Company’s share capital immediately prior to and immediately following the Global Offer: Immediately prior to Admission(1)

Shareholder and Business Address

Blackstone Capital Partners (Cayman) IV L.P.(3)(4) . . . . . Blackstone Capital Partners (Cayman) IV-A L.P.(4) . . . . . Blackstone Family Investment Partnership (Cayman) IV-A L.P.(4) . . . . . . . . . . . TOTAL . . . . . . . . . . . . . .

Number of ordinary shares

% of voting rights in respect of ordinary share capital

28,995,200 460,400

Immediately prior to Admission(1)(2)

Number of ordinary shares

% of voting rights in respect of ordinary share capital

83.9

55,867,708

1.3

1,550,200 31,005,800

Immediately after Admission (assuming no exercise of the Overallotment Option)

Number of ordinary shares

% of voting rights in respect of ordinary share capital

69.5

55,867,708

1,698,467

2.1

4.5

18,219,835

89.7

75,786,010

Shares to be sold if the Over-allotment Option is exercised by full

Immediately after Admission (if the Overallotment Option is exercised in full)

Number of ordinary shares

% of voting rights in respect of ordinary share capital

Number of ordinary shares

% of voting rights in respect of ordinary share capital

39.4

6,787,308

4.8

49,080,400

34.6

1,698,467

1.2

206,345

0.1

1,492,122

1.1

22.7

18,219,835

12.9

2,213,508

1.6

16,006,327

11.3

94.3

75,786,010

53.5

9,207,161

6.5

66,578,849

47.0

(1) On the assumption that the Bonus Issue had taken place at such time. (2) On the assumption that the Conversion as described in ‘‘Part 4: The Global Offer—Amount and Use of Proceeds, Conversion and Redemption’’ had taken place at such time. (3) On 12 May 2006, the Company issued Blackstone Capital Partners (Cayman) IV L.P. 48,272 redeemable preference shares of £1.00 each which will be redeemed by the Company upon Admission. (4) c/o Walkers SPV Limited, Walkers House, PO Box 908 GT, George Town, Grand Cayman.

21. CONSENTS KPMG Audit Plc whose registered office is at 8 Salisbury Square London EC4Y 8BB is a member of the Institute of Chartered Accountants in England and Wales and has given and has not withdrawn its written consent to the inclusion of its reports set out in ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’ and the references to its reports and its name in the form and context in which they are respectively included and has authorised the contents of its reports for the purposes of Prospectus Rule 5.5.3 R(2)(f). 22. GENERAL 22.1 The financial information concerning the Group contained in this document does not constitute statutory accounts within the meaning of section 240(5) of the Act. Full individual accounts of the Company and each of its subsidiary undertakings for each financial year to which the financial information relates and on which the auditors gave unqualified reports have been delivered to the Registrar of Companies. The consolidated financial statements of the Company in respect of the 52 week periods ended 28 December 2006, 29 December 2005 and 31 December 2004 were reported on by KPMG Audit Plc of 8 Salisbury Square, London EC4Y 8BB United Kingdom, a member of the Institute of Chartered Accountants for England and Wales, the auditors of the Company within the meaning of section 235 of the Act. 22.2 The Offer Price which is to be paid in cash represents a premium of 169p over the nominal value of 1p per Share. 22.3 The Global Offer is being underwritten in full by the Underwriters pursuant to the Underwriting Agreement, details of which are set out in paragraph 12.1 above. 22.4 The total costs, charges and expenses payable by the Company in connection with the Global Offer are estimated to be £12.0 million (exclusive of VAT). 22.5 The Shares will be admitted with the ISIN GB00B15FWH70.

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23. DOCUMENTS FOR INSPECTION Copies of the following documents will be available for inspection during normal business hours on any weekday (Saturday, Sundays and public holidays excepted) at the offices of Clifford Chance Limited Liability Partnership at 10 Upper Bank Street, London E14 5JJ, United Kingdom until the later of 14 days from the date of this document and Admission: 23.1 the Memorandum of Association and Articles of Association of the Company; 23.2 the reports by KPMG Audit Plc set out in ‘‘Part 7: Financial Information’’ and ‘‘Part 8: Pro Forma Financial Information’’; 23.3 the audited consolidated accounts of the Group for the 52 week periods ended 28 December 2006 and 29 December 2005; and 23.4 this document. Dated: 27 April 2007

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PART 10: DEFINITIONS The following definitions apply throughout this document unless the context requires otherwise: ‘‘Act’’

the Companies Act 1985 of England and Wales (as amended)

‘‘Admission’’

Admission to Listing and Admission to Trading and a reference to Admission becoming ‘‘effective’’ is to be construed in accordance with the Listing Rules or the Standards (as applicable)

‘‘Admission to Listing’’

the admission to listing on the Official List of the Shares

‘‘Admission to Trading’’

the admission to trading on the London Stock Exchange’s market for listed securities of the Shares

‘‘Adopted IFRS’’

IFRS as adopted by the European Union

‘‘Agent’’

Barclays Bank PLC as agent in relation to the New Senior Credit Agreement

‘‘Ancillary Facilities’’

ancillary facilities in place of part of the Revolving Facility up to a maximum amount of £10.0 million (other than with the prior consent of the Agent (acting on the instructions of the majority lenders)) under the New Senior Credit Agreement

‘‘Articles of Association’’ or ‘‘Articles’’

the articles of association of the Company

‘‘Australian Corporations Act’’

the Corporations Act 2001 of the Commonwealth of Australia

‘‘Blackstone Director’’

each non-executive director which the Blackstone Shareholders are entitled to appoint (and remove and reappoint) pursuant to the Relationship Agreement

‘‘Blackstone Shareholders’’

Blackstone Capital Partners (Cayman) IV L.P., Blackstone Capital Partners (Cayman) IV-A L.P. and Blackstone Family Investment Partnership (Cayman) IV-A L.P.

‘‘Board’’

the board of directors of the Company

‘‘Borrower Group’’

Augustus 2 Limited and its subsidiaries

‘‘Cineworld Sellers’’

Cine-UK Limited, Cineworld Cinemas Limited, Cineworld Properties Limited and Cineworld Estates Limited

‘‘Combined Code’’

the Combined Code on Corporate Governance published in June 2006 by the Financial Reporting Council

‘‘Company’’ or ‘‘Cineworld’’

Cineworld Group plc

‘‘Conversion’’

the redemption by the Company of the Outstanding Deep Discount Bonds in full at their accreted value on Admission by the issue of new Shares to the holders of the Outstanding Deep Discount Bonds

‘‘CREST’’

the system for paperless settlement of trades in listed securities, of which CRESTCo Limited is the operator

‘‘Deep Discount Bonds’’

the First Deep Discount Bonds and the Second Deep Discount Bonds

‘‘DDB Redemption’’

the redemption of the Outstanding Deep Discount Bonds, the redemption in part of the First Deep Discount Bonds and the redemption in part of the Second Deep Discount Bonds

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‘‘Directors’’

the Executive Directors and the Non-Executive Directors

‘‘Disclosure and Transparency Rules’’

the disclosure and transparency rules made by the FSA under Part VI of FSMA

‘‘Disposed Sites’’

Swindon (Greenbridge Park), Bishop’s Stortford, Sunderland, Birmingham (Great Park, Rubery), Ealing, Wigan (Robin Park) and Slough (Queensmere Centre)

‘‘Dodona Report’’

Cinemagoing 16, a report produced by independent film research organisation, Dodona Research, in March 2007

‘‘EBITA’’

operating profit before amortisation of other intangibles and goodwill impairment charges

‘‘EBITDA’’

operating profit before depreciation and amortisation of other intangible assets, goodwill and fixed asset impairment charges, onerous lease and other non-recurring property charges, transaction and reorganisation costs and less profit on disposal of fixed assets and cinema sites

‘‘EEA’’

European Economic Area

‘‘Employee Share Schemes’’

the Cineworld Group 2007 Sharesave Scheme and the Cineworld Group 2007 Performance Share Plan

‘‘EPS’’

normalised undiluted earnings per Share excluding exceptional items

‘‘Executive Directors’’

Richard David Jones and Stephen Mark Wiener

‘‘Existing Bridge Facility’’

the £18 million facility under the Existing Senior Credit Agreement

‘‘Existing Intercreditor Deed’’

the intercreditor deed dated 22 June 2006 as amended and restated on 21 August 2006 between Augustus 2 Limited and certain of its subsidiaries as debtors, Barclays Capital as arranger, Barclays Bank PLC, as original lender, issuing bank, facility agent, security agent and hedge counterparty

‘‘Existing Revolving Facility’’

the £20.0 million facility under the Existing Senior Credit Agreement

‘‘Existing Senior Credit Agreement’’

the £246 million senior credit agreement with, amongst others, Barclays Bank PLC dated 22 June 2006 as amended and restated on 21 August 2006

‘‘Existing Shares’’

the Shares that will be in issue immediately prior to Admission

‘‘Existing Term A Facility’’

the £45.0 million facility under the Existing Senior Credit Agreement

‘‘Existing Term B Facility’’

the £81.5 million facility under the Existing Senior Credit Agreement

‘‘Existing Term C Facility’’

the £81.5 million facility under the Existing Senior Credit Agreement

‘‘First Deep Discount Bonds’’

the zero coupon discount bonds due 2014 issued by Augustus 1 Limited in October 2004

‘‘FSA’’

The Financial Services Authority acting in its capacity as the competent authority for the purposes of Part IV of FSMA

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‘‘FSMA’’

Financial Services and Markets Act 2000, as amended

‘‘GAAP’’

generally accepted accounting principles

‘‘Global Offer’’

the offer to certain institutional and other investors described in ‘‘Part 4: Global Offer’’

‘‘gross dividend’’

the total of the dividend payment and the tax credit

‘‘Group’’

the Company and its subsidiaries and subsidiary undertakings, from time to time

‘‘HMRC’’

HM Revenue & Customs

‘‘IAS’’

International Accounting Standards

‘‘IAS Regulation’’

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards within the European Union

‘‘IFRS’’

International Financial Reporting Standards

‘‘Initial Senior Credit Agreement’’

the £255 million senior credit agreement with, amongst others, Barclays Bank PLC dated 30 November 2004

‘‘ITEPA’’

Income Tax (Earnings and Pensions) Act 2003

‘‘Joint Bookrunners’’ or ‘‘Joint Global Co-ordinators’’

JPMorgan Cazenove International (Europe)

‘‘Listing Rules’’

the listing rules made by the FSA under Part VI of FSMA

‘‘London Stock Exchange’’

London Stock Exchange plc

‘‘Memorandum of Association’’

the memorandum of association of the Company

‘‘Model Code’’

the Model Code on directors’ dealings in securities as set out in the Listing Rules

‘‘New Senior Credit Agreement’’

the £165 million senior credit agreement with, amongst others, Barclays Bank PLC dated 26 April 2007

‘‘New Shares’’

Shares to be issued by the Company under the Global Offer

‘‘Non-Executive Directors’’

Anthony Herbert Bloom, Lawrence Hall Guffey, Thomas Berard McGrath, Matthew David Tooth, David Ossian Maloney and Peter Wodehouse Williams

‘‘Offer Price’’

the price of 170p per Share at which Shares are to be issued or sold under the Global Offer

‘‘Official List’’

the Official List of the FSA

‘‘Outstanding Deep Discount Bonds’’

the outstanding Deep Discount Bonds following the redemption in part of the First Deep Discount Bonds and the redemption in part of the Second Deep Discount Bonds

‘‘Over-allotment Option’’

the option granted by the Blackstone Shareholders pursuant to which the Stabilising Manager, on behalf of the Joint Global Co-ordinators, may require the Blackstone Shareholders to sell Existing Shares at the Offer Price

‘‘Prospectus Directive’’

Directive 2003/7/EC

188

Limited

and

Lehman

Brothers

‘‘Prospectus Rules’’

the Prospectus Rules of the Financial Services Authority made under section 73A of FSMA

‘‘PET’’

potentially exempt transfer

‘‘PSP’’

the Cineworld Group 2007 Performance Share Plan

‘‘Purchaser’’

Cinema Holdings 2 Limited

‘‘Refinancing’’

the refinancing of the Existing Senior Credit Agreement in full and the payment of certain associated fees, costs and expenses using a combination of borrowings under the New Senior Credit Agreement and a portion of the net proceeds of the Global Offer

‘‘Registrar’’

Capita IRG Plc

‘‘Regulations’’

the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755)

‘‘Regulation S’’

Regulation S under the Securities Act

‘‘Relationship Agreement’’

the relationship agreement between the Company and the Blackstone Shareholders described in paragraph 18.9 of ‘‘Part 9: Additional Information’’

‘‘Relevant Member State’’

each Member State of the European Economic Area which has implemented the Prospectus Directive

‘‘Responsible Persons’’

the Company, the Directors, and, to the extent set out in paragraph 1.2 of ‘‘Part 9: Additional Information’’ only, KPMG Audit Plc

‘‘Revolving Facility’’

the £30 million revolving facility under the New Senior Credit Agreement

‘‘SB Redemption’’

the redemption of the Subordinated Bonds on Admission

‘‘SDRT’’

stamp duty reserve tax

‘‘Second Deep Discount Bonds’’

the zero coupon discount bonds due 2014 issued by Augustus 1 Limited in December 2004

‘‘Securities Act’’

the United States Securities Act of 1933 (as amended)

‘‘Securities and Exchange Law’’

the Securities and Exchange Law of Japan (Law No. 25 of 1948 as amended)

‘‘Senior Managers’’

Al Alvarez and Paul Stefka

‘‘Shareholders’ Agreement’’

the subscription and shareholders’ agreement dated 7 October 2004 between the Company, Augustus 1 Limited, Augustus 2 Limited, the Blackstone Shareholders and certain of their managers

‘‘Shares’’

ordinary shares of 1p each in the capital of the Company

‘‘Sharesave Scheme’’

the Cineworld Group 2007 Sharesave Scheme

‘‘Stabilising Manager’’

Lehman Brothers International (Europe)

‘‘Standards’’

the ‘‘Admission and Disclosure Standards’’ of the London Stock Exchange

189

‘‘Subordinated Bonds’’

the 10 per cent. bonds due 2014 issued by Augustus 1 Limited in October 2004

‘‘Takeover Code’’

the City Code on Takeovers and Mergers

‘‘Term Facility’’

the £135 million term facility under the New Senior Credit Agreement

‘‘Transactions’’

the Refinancing, the Global Offer, the DDB Redemption, the SB Redemption and the Conversion

‘‘Trust’’

the Cineworld Group Employee Benefit Trust

‘‘TUPE’’

the Transfer of Undertakings (Protection of Employment) Regulations 1981 or the Transfer of Undertakings (Protection of Employment) Regulations 2006, as appropriate

‘‘UGC Acquisition’’

the acquisition of UGC’s cinema operations in the United Kingdom and Ireland in December 2004

‘‘UK or United Kingdom’’

the United Kingdom of Great Britain and Northern Ireland

‘‘UK GAAP’’

generally accepted accounting principles in the United Kingdom

‘‘Underwriters’’

J.P. Morgan Securities Ltd. and Lehman Brothers International (Europe)

‘‘Underwriting Agreement’’

the underwriting agreement described in paragraph 12.1 of ‘‘Part 9: Additional Information’’

‘‘US’’ or ‘‘United States’’

United States of America, its territories and possessions, any state of the United States and the District of Columbia

In this document, words denoting any gender include all genders (unless the context otherwise requires).

190

(This page has been left blank intentionally.)

Merrill Corporation Ltd, London 07ZAA1886

07lon1886-1 Cineworld (inside)

24/4/07

00:08

Locations 1. Cheltenham 2. Bury St. Edmunds 3. Cambridge 4. London (Wandsworth) 5. Ashton-under-Lyme 6. Castleford 7. Chichester 8. Jersey (St. Helier) 9. Braintree (Chapel Hill) 10. Ilford 11. Yeovil 12. Bradford 13. Solihull 14. Glasgow (Renfrew Street) 15. Cardiff 16. Middlesbrough (Riverside Stadium) 17. Llandudno 18. Falkirk 19. Didsbury (Parrs Wood) 20. St. Helens 21. Nottingham 22. Rugby 23. Burton upon Trent 24. Enfield 25. London (Wood Green) 26. Isle of Wight (Coppins Bridge, Newport) 27. Huntingdon 28. Birmingham (Broad Street) 29. Milton Keynes 30. London (West India Quay, Canary Wharf) 31. Kingston upon Hull 32. Weymouth 33. Runcorn 34. Edinburgh 35. Dundee 36. Ashford 37. Crawley 38. Shrewsbury 39. Bolton 40. Sheffield 41. Luton

Page 1

50

Locations 42. Chesterfield 43. Ipswich 44. Bexleyheath 45. Bristol (Hengrove) 46. Newport (Newport Retail Park) 47. Wolverhampton 48. Boldon 49. Feltham 50. Aberdeen 51. Wakefield 52. Rochester 53. Stevenage 54. Dublin 55. Northampton (Sixfields Park) 56. London (Shaftesbury Avenue) 57. Stockport (Grand Central Leisure Park) 58. Liverpool (Edge Lane) 59. Brighton (Marina Village) 60. Harlow 61. Swindon (Shawridge Leisure Park) 62. London (Staples Corner, Hendon) 63. Gloucester (Peel Centre) 64. Chester 65. Bedford (Aspect Leisure Park) 66. Eastbourne (The Crumbles) 67. Southampton (Ocean Village) 68. Glasgow (Parkhead) 69. London (Hammersmith) 70. London (Fulham Road) 71. London (Haymarket) 72. London (Chelsea)

4

35 18 34

68 14

48 New Openings (2007-2009) 1. Didcot 2. Haverhill 3. High Wycombe 4. Aberdeen 5. Witney

16

12

6

39 58

54 17

51 40

57 5 20 33 19

42

64

21 23

38 28

47

22 13 63 1

60 24 62 25 10 71 56 4 49 72 70 30 69 44

31

46 61

15

55

27 65

53 29 41

5 1

32

2 2

43 9

3

45 11

3

52 67

37 7

59 66

26

8

36