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DESCRIPTION OF THE MAIN
BUSINESS RISKS
On an annual basis, the Board of Directors and
Management conduct a risk assessment to gain insight
into the main business risks, which assessment is subse-
quently analyzed and approved by the Board of Directors.
As in previous years, in 2014 this again occurred on the
basis of a written survey of the participants to gain both
quantitative and qualitative results, enabling risks to be
assessed in order of scale. Although this way of working
enables Kinepolis to distinguish important risks from less
important risks in a well-founded way, it remains an
estimation that, inherent to the definition of risk, provides
no guarantee whatsoever of the actual occurrence of
risk events. The following list (in random order) therefore
contains only some of the risks to which Kinepolis
is exposed.
Availability and quality of supplied material
Bearing in mind that Kinepolis Group NV does not produce
any material itself (such as films), it is dependent on the
availability, diversity and quality of films as well as the
possibility of being able to rent this material from distribu-
tors. Kinepolis Group NV endeavors to protect itself
wherever possible by maintaining good long-term
relations with the major distributors or producers, by
pursuing a content diversification policy and by playing a
role as distributor in Belgium. The investments in Tax
Shelter projects should also be viewed in this light.
Seasonal effects
The operating revenue of Kinepolis Group can vary from
period to period, because the producers and distributors
decide when their films are released completely
independently of the cinema operators and because
certain periods, such as holidays, can traditionally have
an impact on visitor numbers. The weather can also play
an important role in the frequency of cinema visits.
Kinepolis largely accepts this risk, considering that the
costs of a financial hedging policy would exceed the
revenue from it, but endeavors to mitigate the conse-
quences among other things by variabilizing its cost
structure to a maximum degree.
Competition
Kinepolis Group’s position as a cinema operator is subject
to competition just like every other product or service for
which substitution exists. Kinepolis Group’s position is
impacted by increasing competition from other leisure
activities, such as concerts and sporting events, which
can influence the behaviour of Kinepolis customers.
This competition also comes from the cinemas of other
operators – both existing and prospective – in the
markets where the Group is active and from the increas-
ing distribution and availability of films through non-cin-
ema channels, such as video-on-demand, pay-per-view
and internet. This development can also be influenced by
the shortening of the period ordinarily observed by the
distributors, between the first screening of a film in the
cinema and its availability through other channels, as
well as the constant technical improvement in the quality
of these alternative ways of watching films. Besides
these legal alternatives, the cinema industry also has to
deal with illegal downloads. Kinepolis is working actively
with distributors to agree measures to counter any
increasing illegal sharing of material online.
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KINEPOLIS GROUP
ANNUAL REPORT 2014
03 / MANAGEMENT REPORT