Category Archives: Investigative2017_1

Cineplex is expanding diversifying incomes to offset box office short


Though it’s still earning profits, Canada’s leading theatre chain is looking for other ways to generate revenue in order to make up for its declining sales at the box office, according to an analysis of its more recent financial statement.

Cineplex’s box office has sluggish income .
Photo was taken at Cineplex on Quinpool Road, Halifax, by Sixian Zuo.

Cineplex by mckied on
Cineplex’s shares have been recently declining.

Cineplex‘s box office sales accounted for $712 million of total revenue in 2016. The proportion of sales as a percent of total revenue has declined 48 per cent since 2011.

In 2016, box office and food services  accounted for 77 per cent of Cineplex’s $1,478 million in total revenue.  Another two components, “media” and “other”, made up the rest.

“They are in a generally stagnant business (not much growth in movie attendance)”, says Christopher Hartt, a professor of Department of Business & Social Sciences in Dalhousie University in an emailed interview. In 2016, Cineplex attendance was $74,594 million. In 2016 the fourth-quarter, the attendance was 12 per cent down compared with the same period in 2015.

“They are essentially dependent on their suppliers to produce movies that the public wants to see”, says Hartt, “they try to control this by having long term arrangements with the more successful movie companies.”

Cineplex has refused to respond to requests for an interview about declining box-office sales. “We’re in our quiet period right now,” said Sarah Van Lange, the Director of Communications, Cineplex Entertainment, in an emailed statement.

To deal with declining box-office sales, Cineplex is trying to pivot from movies to other services like games and on-screen art exhibitions. “They(‘ll) create an experience, and create a reason for you to go”, says Rick Nason, a professor at the Rowe School of Business.

“They have tried to expand through acquisitions in related industries (gaming etc.),” says Dalhousie’s Christopher Hartt.

From the 2016 financial report, revenues from other column was doubled. Other revenues contain money from games, the Rec Room, Cineplex exhibition and others.

The Rec Room, a location based entertainment, which was kicked off in 2016, brought $2.36 million new income.

Games excluding Cineplex exhibition and The Rec Room are expanding as well. Compared with 2015, games brought near four times revenue than 2015. However, this is a tiny contribution to offset  their whole expenses, $1,369 million, in 2016.

“Movie theaters in general are under attack, it is not just about Cineplex,” said Nason, “so that is why they want to create more experience, like having drink service, having a restaurant experience, having the gaming experience, having seating areas, having pre-seating area. But Nason says these experiences are “mediocre”.

Revenue from food services has been steadily been declining since 2015. For the first three months of its most recent fiscal year, revenue from selling popcorn, chocolate bars and chips made up 28.8 per cent of revenues.

Indigo Books and Music Inc. nets record revenue


Canada’s biggest bookstore posted record revenues last year, according to an analysis of its most recent financial returns. Indigo Books and Music Inc. took in over $1 billion (CAD) in sales for the first time since 2011, and increased its revenue from the previous year by about 2.5%.

Although the returns seem promising on the surface, Dalhousie Professor of Finance Dr. Greg Hebb points out that financial results can’t be properly analyzed in a vacuum.

“Whenever you look at financial statements, it’s always relative. It’s hard to just say, ‘that’s good, that’s bad,’” said Hebb. “If you’re analyzing Indigo, you might want to look at… some other comparable company… and how it is compared to that.”

In Indigo’s press release for the annual financial returns, CEO Heather Reisman did exactly that.

“We are delighted to report our highest revenues ever in what was a tough year for many retailers,” she said.

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Indigo has seen its stock prices decline since June.

In an analyst and investor conference call the day after Indigo’s press release, Reisman elaborated on the company’s success.

“We’re very pleased to report earnings growth, along with the fourteenth straight quarter of year-over-year sales growth,” she said.

The entrance to a Coles bookstore, which is owned Indigo Books and Music Inc., in Scotia Square, Halifax

It is true that Indigo increased their revenue and earnings before income taxes compared to the previous year. However, Hebb says those factors are not the best way to determine the financial state of a company.

One thing to keep in mind here, accountants created this. And accountants have very unique specific rules on how they create this,” Hebb said, referring to the earnings sections of the financial returns. “It’s not how you and would generally think. For instance, you and I go out, we have money in our pocket to buy what we want to buy. That’s not really what this is showing. This may show they made $20 mil, but they may have no cash.”

Therefore, according to Hebb, the statement of cash flows is the most important in determining a company’s profitability.

“[The statement of cash flows] basically takes that accounting statement and says, ‘ok, how does that convert into actual cash coming in and cash coming out?’ Because at the end of the day that’s what you care about: do you have cash? Employees don’t get paid with net income. Net income is some number at the bottom of a sheet. They get paid with cash.”

Indigo made over $35 million (CAD) in cash flow from their operating activities, which essentially means their day-to-day business. That amount was actually a decrease of about 8% from the previous fiscal year, when that same number was upwards of $38 million (CAD).

That decrease seems bad, but as Hebb said, context is important in judging financial returns. When compared to Barnes and Noble, the largest bookstore chain in the United States, that 8% dip is negligible. Barnes and Noble is a much bigger company than Indigo, and its cash flow from operating activities was over $145 million (USD) last year, according to the NASDAQ stock market website. However, that represents a decrease in cash flow of over 25% from their previous year of almost $200 million (USD). Barnes and Noble is one of the struggling retailers that Reisman was referring to in her statement for the press release.

Comparison of Indigo and Barnes and Noble’s net cash flow by year (millions of USD)

In the aforementioned conference call, Reisman also noted a few other factors that made this year’s financial returns unique. One of them was the presence of a new book from the Harry Potter series, the play Harry Potter and the Cursed Child.

“There’s nothing like a Harry Potter book that we can see on the horizon,” she said of her projections for the upcoming year.

The other factor was the decline of the adult colouring book phenomenon. Adult colouring books had been a solid source of revenue for Indigo, but Reisman said the craze “is just about petered out.”

Canabo Medical Inc. ramping up spending


A medical marijuana company that recently opened a new clinic in Nova Scotia has posted over a $1 million loss in its last quarter, according to financial documents. The loss came after a rapid increase in spending over the same time last year.

Canabo Medical Inc.’s expenses rose by over 300 per cent from the end of January to the end of April 2017, compared to those months in 2016.

Julia Sawicki, an accounting professor at Dalhousie University, said this is likely because the company is only just starting to get up and running. It has yet to post a profit.

Canabo Medical Inc. by mckied on

Julia Sawicki, an accounting professor at Dalhousie University, says it’s normal for companies like Canabo Medical Inc. to lose money when they’re starting out.

“In 2016 they really weren’t spending that much money… now it seems like they’re online and paying salaries… expanding facilities,” she said.

Canabo Medical Inc.’s expenses have gone up faster than revenue in 2017.

Sawicki said it is normal for a new company to lose money in its first few years as it starts business, but it is hard to determine where it is going in the future. Canabo Medical Inc. did not respond to a request for comment on its financials despite several attempted contacts.

The company makes money in three ways: medical marijuana consultations, collecting data for research, and selling cannabis related products, according to the recent quarterly report. Most of its revenue is generated by medical consultation fees.

The company operates 22 clinics around Canada under the name Cannabinoid Medical Clinic. It operates two clinics in Nova Scotia, one in Halifax on Spring Garden Road and a new one in Wolfville. Others clinics are in Toronto, Ottawa, St. John’s, and Vancouver. It serves 20,000 patients across the country, according to the company’s website.

The Cannabinoid Medical Clinic office in Halifax is located at 5991 Spring Garden Road. Credit: Drew May 

Canabo Medical also started selling shares to the public, which allowed it to raise around $8 million. The company lists this as a cash asset in its financials, while last year it had only around $2.5 million in cash.

In the six months before April 30, 2017 the company reported spending over $5 million in expenses. Around $2.4 million went towards the cost of starting to sell shares to the public, which is a “one-off” expense, according to Sawicki, and is not representative of its long-term financials.

One of the most dramatic spending increases for the company in its last quarter was on marketing and advertising, which was $275,848, compared to $805 during the same time in 2016. Travel costs also rose to $54,848 from $16,465, according to the quarterly report.

Sawicki said this type of spending is not uncommon for a new company that is getting on its feet.

“They seem pretty normal for a firm that really wasn’t doing that much for the first six months to a firm that’s really cranking up now,” she said.

In the management discussion and analysis, the company states that the reason for the dramatic increase in expenses is due to its clinic expansion and new salaries and benefits. In April 2017 Canabo Medical paid around $355,000 in salaries and benefits, but no amount is stated for April 2016.

The document says the company employs 28 people in total at it clinics and seven corporate staff. Canabo expects this number, and the salary expenses associated with it, to increase over the next year as it expands, according to the documents.

While the federal government has said it will legalize recreational marijuana by 2018, Canabo Medical Inc. does not anticipate this will have a significant impact on its business, according to the discussion of the quarterly report.

The next report the company is scheduled to release is for the period ending July 30, 2017.

ZoomerMedia’s net income drops while its operating expenses remain high


A Canadian multimedia company that targets consumers over the age of 45 earned less money in the first nine months of its fiscal year compared with the same period for the previous year, according to an analysis of its most recent financial statement.

ZoomerMedia’s net income for the nine-month period covered by the financial statement was $48,160 — 99 per cent less than the same period of time for the previous year.

The company’s operating expenses continue to eat into its revenues.

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The company’s stock prices been decreasing.

From 2012 to 2016 the company’s operating expenses comprised more than 85 per cent of  revenues, according to an analysis of previous annual reports. “That’s actually pretty typical for a media company.” Said Dr. Richard Nason, finance Professor at Dalhousie University.

During the first nine months of the company’s current fiscal year that situation hasn’t changed;  operating expenses make up 96 per cent of its revenue.

Television is the company’s division with the highest operating expenses. This area experienced an increase of 18 per cent in operating expenses, compared to the same period during the previous year.

According  to the company’s Management Discussion and Analysis (MD&A) for the nine months ended May 2017, was increase is attributable to higher programming and transmission costs, as well as employee salaries.

The company spent $ 12.4 million on salaries and wages, 34 per cent of its total operating expenses, according to an analysis of the nine months ended May 2017.

ZoomerMedia which did not respond to repeated requests for an interview, claims to be “Canada’s only diversified media company uniquely devoted to creating content, services and experiences for people aged 45-plus,” according to its website. For Dr. Nason this is “a strong niche.”

“I don’t know if they’ll be around in 40 years but I think for the next ten years they’re looking pretty good simply because of their target market”.  Dr. Nason said.

Cineplex’s Box Office Decreased in the First Season of 2017


Canada’s largest entertainment and media company suffered a $3.3 million decrease in box office sales during the first three months of its most recent fiscal year compared with the same period last year.  The figures are contained in Cineplex’s 2017 first quarter report.

A Cineplex theatre on Spring Garden Road, Halifax.

According to the statement, Cineplex gained $195.4 M through box office in the first three months in its fiscal year. There is a 1.7 per cent decrease from $198.6 M in 2016.

Cineplex considers that the decrease is due to films. On the statement of Management’s Discussion and Analysis, Cineplex says because of “a weak film slate,” its attendance decreased 4.8 per cent from 20.6 M in 2016 to 19.6 M in the first quarter of 2017.

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Cineplex’s stock prices have been decreasing.

Cineplex used the same reason to explain the significant increase in 2016. When box office in the first quarter increase 23.5 per cent from $156.0 M in 2015, Cineplex contributed that change to “an all-time quarterly attendance.”

The most popular movies in 2017 take a larger percentage of box office revenues than 2016. Figures are from Cineplex’s Managemant’s Discussion and Analysis of the first season in 2017.


James Power, a business professor at Dalhousie University, thinks this phenomenon is normal in theatre industry. “The change from 2015 to 2016 was because of some all-time high attendance in 2016. And yet in 2017, that continuation of increased attendance didn’t continue, it dropped a bit in 2017. So probably 2016 was an exceptional year,” Power says.

Despite the lower lower box-office sales, Cineplex gained revenue in other areas, which means that, overall, the company still had a 4.0 per cent increase in revenue: $394.2 M in 2017 compared to $378.9 M in 2016.

Cineplex’s first quarter amusement revenues in 2017 are $41.4 M, an increase of 37.2 per cent over the prior year period. The majority of the significant increase is from Tricorp and SAW, which were acquired in the fourth quarter of 2016. Tricorp is a provider of interactive video and amusement game services in the United States. And SAW is a provider of coin-operated rides.

“What companies are always looking for is, as far as I know, a new source of revenue. They are always looking something new that will allow them to get new sources of revenues,” Power says. “Because of revenue patterns, companies can’t always grow so much.”

Power also points out Cineplex’s food service revenues have an “interesting increase” from $33.1 M in 2016 to $ 33.9 M in 2017.  “It goes against what you would expect, because the box office revenue is decreased. That means Cineplex might increase their selling prices. And on the other hand, the cost of selling might decrease.”

Cineplex doesn’t reply to its food services revenue yet.

Canada’s second largest airline dropped half of its net income due to the declining domestic economy


In WestJet’s newest quarterly financial statements, its net income has dropped almost 50 percent by March 1, 2017. Although the company has managed to obtain a slight growth in revenue, it still ended up in a worse state financially when compared to the same time last year.


The net earning of WestJet has reached to the lowest point in 2017 for the last three years.

This is mainly due to two big increases in the company’s expenses: airplane fuel and maintenance.

“Maintenance has always been a main cost for most airlines,” says Mohammad Rahaman, a professor at Saint Mary’s University who is currently teaching finance and economics.

But this number increased drastically because of the declining economy in Canada.

“It’s like you have a car and you are planning to buy a new car, but you suddenly lost your job. What are you going to do? Instead of buying a new car, you would spend a lot of money on maintaining it keeping it in good shape.”

Another big increase in its expense is the aircraft fuel, which is not a big surprise to a lot of people since the three major oil companies have increased their oil price from 2016 to 2017.

WestJet has been in the spotlight for their unionization. The workers voted to form a union in May, 2017. Along with this considerable net income drop, the stock market is expected to go down. However, the company’s stocking price is at one of its historical highest levels in years, even after the discussion of unionization.

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WesJet’s stock prices have been showing a steady increase since May 16, 2017.

“It looks like the marketers think they believe the company is going to deal with the unionization very well,” Rhanmad says, “it’s the uncertainty that the stock holders fear. Once they know they are or aren’t going to unionize, they are more confident.”

According the company’s financial reports from 2015 to 2017, WestJet has decreased their employ benefit share three years in a row. The company says in their newest annual report that the profit share system is a “variable cost” and the awards for its employees corresponds to how well the company does that year.

WestJet is not the only airline that has been suffering from the increased oil price and a declining domestic economy. In fact, Canada’s largest airline Air Canada also experienced a very similar financial year. The company also ended up with a deficit of 37 million after a surplus in the previous year.

WestJet didn’t respond to voicemail or email about this article.

Excess inventory causing significant losses during the ‘reset year’ for David’s Tea

Excess Inventory: David’s Tea currently has an excess inventory problem, causing a net income loss despite an increase in sales. Source: Haley MacLean

According to its 2017 First Quarter Financial Results, Canada’s largest tea boutique saw a near 10% increase in sales despite a 120% overall net income loss when compared to numbers collected the same time last year.

David’s Tea saw over 48 M in sales compared to 44M in the first quarter of 2016, with the number of stores increasing by one to reach a total of 232 locations across Canada and the United States, compared to 198 at the end of 2016.

Despite the improvements in sales, the loose-leaf tea manufacturer and retailer saw a net loss of $360,000 compared to a 2016 net income of $1.5 M.

David’s Tea by mckied on
David’s Tea has seen its stock prices fall.

David’s Tea President and Chief Executive Officer Joel Silver, who took on the role in March 2017, referred to 2017 as a “reset year” for the company, with the drops in income related to the excess inventory across all of their stores. In a First Quarter 2017 Earnings Conference Call regarding the financial results, Silver says, “We will concentrate more in energizing the current store base,” and expects a return to normal inventory levels by the fourth quarter of 2017.

David’s Tea Chief Financial Officer Luis Borgen also addressed the excess inventory issue in the conference call, stating “Going forward we continue to plan to reduce our buy and have fewer selling seasons as we continue to work through excess inventory, and expect this will take us several quarters to work through.”

On a per store basis, David’s Tea locations have seen their inventories increased by 39% in this first quarter of 2017. There are currently plans to open five more stores during the second quarter, four in Canada and one in the US.

Source: Haley MacLean

Silver also states the company plans to expand further into the US market, although growth in the US store base will be limited in the short term. The CEO stated, “There has been significant effort trying to penetrate the US market, while there has been some success, it has been limited. We will not abandon the US market, but we do intend to emulate the Canadian success in the US.” Currently, 80% of sales for David’s Tea are done in Canada.

David’s Tea’s cash flow related to operating activities, or the amount generated from buying and selling tea and tea accessories, saw a massive decrease from $-780,000 in 2016 to $-6.6 M the same time this year. This over seven times loss is the result of what Financial Analyst and Dalhousie Finance Professor Dr. Rick Nason refers to as “stuffing the channel.”

“When you open up your second or third store you are increasing your expenses and you are basically tripling the amount of tea or inventory you have on hand, but you’re not necessarily tripling the amount of customers,” says Nason. “Their administrative costs and their rents are growing faster than their sales, so that’s why their results are so disastrous. They’re growing faster than their customer base.”

Meanwhile, massive competitive beverage company Starbucks, which also includes David’s Tea’s main tea competitor Teavana, saw a 20% decrease in its own net operating cash flow during the same time period. Indicating the possibility that the market for tea and tea accessories is currently in a decline.

David’s Tea did not respond when contacted for comment regarding its first-quarter 2017 financial statements. 

Rogers keeps losing cable television customers

Rogers Communications Inc. first quarter numbers show decline in cable television customers. Rogers store in Halifax. Credit: Gabriele Roy

Canada’s fastest internet provider is constantly losing cable television customers but claims it has the solution this fall back, according to its most recent financial statement.

Rogers Communications Inc. ended the first three months of 2017 with 1,796,000 cable television subscribers compared to 1,870,000 subscribers at the same period last year. This decline has been constantly increasing in the past five years.

To remedy to its losses, the telecommunication giant announced at the end of 2016 a partnership with Comcast Corp. to license the X1 cloud-based TV platform, which will launch in early 2018.

The system initially launched in the United States in 2012 and provides a cloud-based DVR, an advance guide, voice-activated remote controls and internet applications.

Comcast Corp. X1 product is comparable to Apple TV, as it currently provides Netflix and will soon be adding YouTube.

Alan Douglas Horn, president and chief executive officer of Rogers said during the 2017 first quarter analysts conference call that, as the company heads into the first quarter of next year and launches “the excellent Comcast platform,” the expectation is that it will “drive positive net adds.”

Dalhousie University assistant professor at Rowe School of Business said in an email that “the question of whether Rogers can continue to compensate for failing cable demand depends on whether the company can deliver cable far more efficiently than they have to date, or else leapfrog effectively from behind into next generation technologies their non-cable company competitors are into.”

Despite the constant fall in cable television subscribers, cable revenues decreased marginally this quarter due to more home phone and internet subscribers.

Rogers ended the first quarter of 2017 with $855 M in revenues for its cable services as opposed to $858 M to end of the last quarter of 2016.

“When we look at customers either staying with us or coming in, we find that over half of them are choosing their in-home services provider based first on internet”, says Horn.

Growth in wireless business

Rogers Communications Inc. increased its net income by 28 per cent and ended the first quarter of its 2017 fiscal year with $290 M in net income, up from $230 M for the same period last year.

Rogers Communications Inc. Stock Prices by arvinjoaquin on

The company’s stock prices have been increasing after a slight dip.

It attributed the net income increase to its growth in wireless business, after acquiring 60,000 new wireless subscribers, compared to 14,000 subscribers in the first three months of 2016.

The wireless subscribers have been increasing steadily in the past year, but Rogers considered this year’s addition of wireless subscribers the strongest one since 2009, therefore extensively contributing to a higher net income.

“Wireless revenue and subscriber growth was impressive, and importantly, this robust growth did not come at the expense of profit”, said chief financial officer at Rogers Communications Inc. Anthony Staffieri during an analysts teleconference.

Rogers Share Everything plans gained in popularity among the new wireless subscribers.

Share everything plans are wireless plans with data. Customers can either keep the data for themselves or share the data between family, friends or other devices such as a tablet. Subscribers of these plans also get to use other services such as Spotify, Texture and Rogers NHL GameCentre LIVE.

In its management discussion and analysis document, Rogers said it believes the increases in gross and net additions this quarter were results of its strategic focus on enhancing the customer experience by providing higher-value offerings, such as the Share Everything.

Staffieri said that although he won’t disclose the number of devices per plan, “when looking at the numbers, we continue to see that we are moving in the right direction.”

The number of tablets added into this type of plan remains very low, said Staffieri, but “it’s certainly something that consumers find helpful and they share everything and more value from that.”