Good day everyone. Welcome to Cineplex Inc.'s Q4 year-end 2018 analyst call. This is a reminder, today's call is being recorded. At this time, I would like to turn the call over to your host for today, Melissa Prosecco. Please go ahead, ma'am.
Good morning. Before beginning the call, we would like to remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liabilities, and general economic conditions. I will now turn the call over to our President and CEO, Ellis Jacob.
Thank you, Melissa. Good morning and welcome to Cineplex Inc.'s fourth quarter and year-end 2018 conference call. We are glad you could join us today. I will begin by providing a brief overview of our top-line results, as well as a summary of our key accomplishments during the fourth quarter. I will also highlight what is in store for the balance of 2019. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials. As always, once Gord has concluded his remarks, we will hold a question-and-answer period. I'm pleased to report that 2018 was a record year for Cineplex. Total revenue increased 3.8% to CAD 1.6 billion and adjusted EBITDA increased 8.7% to CAD 256.4 million, the highest EBITDA since going public.
As we continue to focus on managing our costs, in addition to seeing our diversification initiatives build scale and show more meaningful returns. This was accomplished in a year with one of the largest increases in minimum wage, which required us to mitigate roughly CAD 13 million in additional costs. As supported by the strong box office in 2018, the movie industry continues to be vibrant. Last year, we had two of the highest-grossing films ever in North America with "Avengers: Infinity War" and "Black Panther." Other standout performers included "Incredibles 2," "Jurassic World: Fallen Kingdom," and "Deadpool 2." Simply put, guests will come to the movies when quality content is available, and they still want to experience it in a social setting in the theater on a big screen with great sound and great amenities. The offering has only improved over the years.
Compared to the limited offerings when we went public in 2003, you can now enjoy a movie in a number of different formats, including 2D, 3D, 4DX, ScreenX, UltraAVX, IMAX, D-BOX, the Clubhouse, and VIP Cinemas. These are key differentiators in the out-of-home movie experience. Looking at the fourth quarter, many key revenue segments delivered strong results, including total revenue, which increased 0.4% to a fourth-quarter record of CAD 428.2 million, and adjusted EBITDA up 2.5% year-over-year to CAD 81.6 million. Box office revenue decreased slightly due to the strong comparative in 2017, which saw "The Last Jedi." However, theater food service revenue increased 0.6% to CAD 111 million with a CPP of CAD 6.53, representing a fourth-quarter record. Gord will go into greater detail about the fourth-quarter results in a few moments. Now I would like to highlight some of our key accomplishments during the quarter.
Beginning with film entertainment and content. Despite the marginal decrease, the box office performed better than expected in the fourth quarter with films like "The Grinch," "A Star Is Born," "Venom," "Bohemian Rhapsody," and "Fantastic Beasts: The Crimes of Grindelwald" representing the top five. During the quarter, we announced plans to open our second standalone adult-only VIP cinema theater in Calgary's University district. Scheduled to open in 2021, the theater will be dedicated exclusively to adult moviegoers with five specifically designed auditoriums and a fully licensed lounge. As we continue to provide the newest and most innovative movie-going experiences to our guests, we opened Canada's first ScreenX auditorium at Cineplex Cinema Queensway and VIP during the quarter. ScreenX provides a panoramic movie-watching experience that surrounds audiences with imagery beyond the frame of the traditional movie screen and provides them with a sense of being inside the movie.
Initial results have far exceeded our expectations, and we will expand both ScreenX and 4DX to additional locations throughout the year. Alternative programming recorded growth in revenue and attendance for the fourth quarter with strong performances from documentaries "Burn the Stage" and "They Shall Not Grow Old," the opera "Aida," and stage performances "King Lear" and "The King and I," which pulled two large audiences. Looking at our digital products, cineplex.com registered a 9.4% increase in visits in the fourth quarter, and online and mobile ticketing represented 29.8% of total admissions. During the quarter, we continued to update the new Cineplex mobile app, including the addition of Apple Wallet support.
Launched in the third quarter, the new app offers a more simplified ticket purchase process, digital tickets for paperless entry, and mobile food and beverage ordering in VIP auditoriums for our guests. We continue to see strong growth quarter-over-quarter in all of our digital commerce initiatives. On the Cineplex Store, active monthly users grew by 30% in 2018, reaching over 980,000 users. Moving to media. Faced with a tough year-over-year comparison as a result of the record fourth quarter in 2017, total media revenue decreased 5.4% as expected, primarily due to lower cinema advertising and digital media project installation revenue.
The 6.8% decrease in cinema media was a result of lower on-screen revenues compared to the prior year record fourth quarter, which was due to the highly anticipated "Star Wars: The Last Jedi." Looking at Cineplex Digital Media, the 1.9% decline in revenue was primarily due to the strong comparator from last year's initial rollout of the Citizens Bank contract, which deployed in the fourth quarter of 2017. We also have a number of significant installations still in the pipeline from our most recently announced contracts, including Arcos Dorados and Subway Europe. Shifting to amusement gaming and leisure. Amusement revenue continues to become a more important part of our business, with total revenue of CAD 205.8 million in 2018 as a result of contributions from Player One Amusement Group in our theaters and The Rec Room.
The Rec Room reported strong growth during the fourth quarter as a result of the contributions from the additional locations and operational refinements, and achieved a store-level margin EBITDA of 22%. During the quarter, we announced plans to open a new location at Park Place in Barrie, with construction scheduled to begin early next year and a targeted opening of summer 2020. Player One Amusement Group had strong fourth-quarter revenue due to increased route revenue in the U.S., which was in part a result of the Cinemark agreement signed in the second quarter of 2018. WorldGaming, in partnership with AliSports, held the World Electronic Sports Games Canadian and U.S. Regional Championships in Toronto and Los Angeles in the fourth quarter. Winners from the eight separate competitions in the world's only Olympic-style e-sports tournament will represent their countries at the global grand finals in China next month.
Also during the quarter, Collegiate StarLeague launched its 10th annual season of collegiate e-sports leagues, the longest standing and largest footprint for competitive gaming programming between schools in the U.S. and Canada. Moving to SCENE. Membership in Canada's top entertainment loyalty program continued to grow as we added 200,000 members during the quarter, bringing our total to 9.6 million members as of December 31st, 2018. As mentioned in last quarter's call, SCENE announced the pilot of a new premium SCENE Gold loyalty card that offers guests exclusive perks and more points. Only available in Edmonton, the pilot is still in its early days, but we are encouraged by the initial results. Cineplex has gained tremendous insight into customer behavior with over ten years of data collected.
We will continue to focus on leveraging the information through marketing automation, artificial intelligence, and machine learning to drive customer behavior and expand our insights. Let's take a look at the film slate. Even though the first quarter is off to a softer start, we anticipate another strong year at the box office, driven by several highly anticipated films. We like to see a combination of action, adventure, comedy, drama, science fiction, and animated children's features throughout the year, in addition to strong film sequels. This year has a variety of genres available in traditional and premium formats. Opening today, we have the Robert Rodriguez and James Cameron film, "Alita: Battle Angel." It's "How to Train Your Dragon: The Hidden World," the latest in the popular animated series, opening February 22nd.
One of the most anticipated films of 2019, "Captain Marvel," starring Brie Larson, Gemma Chan, and Samuel L. Jackson, opens on March 8th. With three weeks still remaining until its release, pre-sales for "Captain Marvel" are already tracking ahead of "Black Panther." Moving ahead to the second quarter on April 26th, we have the latest Avengers film with Marvel's "Avengers: Endgame." In May, we have the live-action adaptation of the Disney classic, "Aladdin," starring Will Smith, and the space adventure "Ad Astra" starring Brad Pitt and Tommy Lee Jones, both opening on May 24th. We close out the month with the Elton John film, "Rocketman," coming to theaters on May 31st.
June doesn't appear to slow down with films like "Dark Phoenix," the Marvel X-Men film with Jennifer Lawrence and Jessica Chastain, the animated sequel, "The Secret Life of Pets 2," and a new toy will join Woody and the gang in Pixar's "Toy Story 4," all opening in the month. Looking to the second half of 2019, I am equally encouraged by the strong slate of films set to hit theaters, including titles like "Spider-Man: Far From Home," "The Lion King," "Hobbs & Shaw," "It Chapter Two," "Joker," "Frozen II," a Jumanji sequel, and "Star Wars: Episode 9." As we enter an eventful year for our location-based entertainment team, we are looking forward to opening four locations of The Rec Room and two Playdium locations in 2019. We also hope to announce our first Dark Vault location very soon.
With what appears to be a strong film slate for the year, combined with our continued focus on growing our diversified businesses, I am very confident that we are positioning the company for success. In the months and years ahead, we will remain diligent and continue to control costs and invest wisely to build the business for the future. With that, I'll turn the call over to Gord.
Thanks, Ellis. Please present the fourth quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD&A have been filed on SEDAR this morning and are also available on our investor relations website at cineplex.com. We continued to execute our diversification strategy for the fourth quarter. Total revenue increased 0.4% through a Q4 record, CAD 428.2 million, and adjusted EBITDA increased by 2.5% to CAD 81.6 million. If we look at specific items, Cineplex's fourth quarter box office revenue decreased 1.5% to CAD 182.4 million compared to CAD 185 million in the prior year, primarily due to the strength of "Star Wars: The Last Jedi" in the prior year. Attendance declined 3.2%, but this was partially offset by a DPP increase of 1.8%, which established a fourth-quarter record of CAD 10.73, up from CAD 10.54 in 2017. Food service revenue increased 1% to CAD 120.7 million.
Included in food service revenue is CAD 9.7 million from The Rec Room. Excluding revenue from The Rec Room, theater food service revenue increased by 0.6% from the prior year, due to the 3.8% increase in concession revenue per patron to a fourth-quarter record of CAD 6.53, partially offset by the previously mentioned decrease in attendance. The CPP grosses are attributed in part to expanded food offerings, including those available at Cineplex's VIP Cinemas, Outtakes, and additional licensed locations. Total media revenue decreased CAD 3.3 million or 5.4% to CAD 58.2 million for the quarter. Cinema media revenue, which is primarily theater-based, decreased 6.8% due to lower pre-show advertising as compared to the prior period.
The prior year was an all-time quarterly record due to the highly anticipated Star Wars: The Last Jedi. Digital place-based media revenue decreased 1.9% compared to the prior year period, primarily due to the strong comparator in 2017 as a result of the large initial rollout for Citizens Bank. We have started to break out the project revenue versus other revenues in our MD&A disclosure this quarter. For the quarter, project revenue was down 10.6%, primarily as a result of the aforementioned Citizens Bank rollout in the prior year. The other category includes software, maintenance, support, creative, and advertising revenue. This category is up 2.4% in the quarter with the software support and creative component up 6.6%, and the advertising component down 1.8%. Year-to-date, we have increased our location count by 4.5% or 576 new locations to a total of 13,502 locations.
Amusement revenue increased CAD 4.2 million or 8.5% due to strong revenue growth from The Rec Room, which contributed CAD 7.5 million of amusement gaming and other revenue. With respect to The Rec Room, total revenue grew CAD 1 million over the prior year, with five locations open for the full quarter. Margins were up 2% to a quarterly record of 22% on the strength of the holiday season and continued improvement and optimization of operations. P1AG revenues increased by CAD 3.4 million, due in part to an increase in revenue in the United States as a result of the Cinemark agreement. Turning briefly to our key expense line items, film costs for the quarter came in at 50.2% of box office revenue as compared to 53.4% reported in the prior year, which reflects the impact of the strong titles in the fourth quarter of 2017.
Cost of food service for Q4 2018, excluding the CAD 2.3 million incurred at The Rec Room, was 21.4% as compared to 22% in the prior year. Cost of food service at The Rec Room was 24%, down 4.4% from 28.4% reported in the prior year as a result of improved cost management and menu optimization. Other costs of CAD 228.6 million increased CAD 7.6 million or 3.5%. Other costs include theater occupancy expenses, other operating expenses, and general and administrative expenses. Theater occupancy expenses were CAD 52 million for the quarter versus a prior year actual of CAD 50.1 million, primarily due to the relative impact of one-time items and other non-rent increases. Other operating expenses were CAD 153.8 million for the quarter versus a prior year actual of CAD 155.1 million, an increase of CAD 8.7 million.
Increases included a net CAD 0.7 million related to The Rec Room, which was comprised of a CAD 1.4 million increase due to new locations, offset by CAD 0.7 million in cost efficiencies at existing locations. CAD 3.9 million increase for P1AG due to increased business volumes and timing of certain expenditures. CAD 2.5 million increase in same-store theater payroll, mainly due to the impact of minimum wage increases of CAD 3.3 million, which were offset by volume and labor efficiencies realized in the quarter. CAD 2.8 million increase in SCENE costs due to the timing of expenses. These increases were offset by a decrease in media costs of CAD 2.3 million due to the cost reduction program and a decrease from business volume. Business interruption proceeds of CAD 1.7 million resulting from the fire in 2017 at Cineplex Cinemas Seton and VIP. This represents the final amount of insurance proceeds for the fire.
Pre-opening costs for The Rec Room of CAD 0.3 million as compared to CAD 0.7 million in the prior year were also reduced due to the timing of openings. G&A expenses were CAD 12.8 million for the quarter, which was CAD 2.9 million lower than the prior year due to a CAD 2.6 million decrease in share-based compensation expenses, mainly due to Cineplex's lower share price, which decreased CAD 9.56 during the current quarter as compared to a nominal increase in the prior year period. Partially offset by restructuring costs in the amount of CAD 1 million related to our CAD 25 million cost reduction program. Business unit-level cost reductions will be reflected in the other operating expenses as detailed in our MD&A. Interest expense increased CAD 4.1 million during the quarter to CAD 10.7 million.
That included a one-time charge of CAD 2.7 million related to the amendment and accession of our credit facility and an increase of CAD 1 million in non-cash swap expense related to the interest rates environment. Net CapEx for the fourth quarter was CAD 21.4 million as compared to CAD 46.2 million in the prior year. Due to the impact of timing, net CapEx for the year was CAD 95.3 million. The difference between our original target of CAD 125 million and revised target of CAD 115 million was a result of timing, as a result, we are increasing our 2019 net CapEx estimates by the same amount of the shortfall to approximately CAD 175 million. We continue to forecast to be at the previously communicated CAD 150 million level.
Despite the adjusted EBITDA growth, net income for the quarter was down 5.7% and basic EPS was down 4.4%, primarily due to the amendment of the credit facilities undertaken in the fourth quarter, which resulted in the one-time charge of CAD 3.7 million and the increased non-cash swap charges of CAD 1 million. I also mentioned earlier, we have steadfastly focused on creating a diversified entertainment and media company for the future. We are prepared to prudently use both our balance sheets and operating cash flow and our credit facilities to invest in these new businesses. We continue to remain comfortable with where Cineplex Inc. is positioned today. We are still in the early execution phase of a number of our diversification initiatives, our balance sheet allows us to continue to invest in these growth initiatives to deliver future value for our shareholders.
That concludes our remarks for this morning. We'd now like to turn the call over to the conference operator for questions.
Thank you. To the audience, if you have a question or comment today, please press star then one on your touchtone phone. For those of you joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again to the audience, please press star then one if you have a question or comment today. We'll go first to Henrik Thai of Raymond James.
Thank you. Good morning. I wonder if we could just touch on the box office performance in quarter. Specifically, yet another quarter where Canadian industry and your own box office performance tracked below that of the U.S. I know we've spoken before, the hollowing out of the middle, that sort of those mid-range titles, et cetera. Is there some other dynamic here that we should be aware of or mindful of as we look to 2019 with respect to the relative box office performance?
Henrik, great question. As you've seen during the year, as we go quarter by quarter, the gap between the U.S. and Canada continues to close. It really has a lot to do with the types of films that are released during the quarter that affect Canada versus the U.S. We ended up with just being slightly down against the prior, whereas the U.S. was just slightly up over 2017. I wouldn't see that as a trend, but there are certain movies where we basically aren't able to deliver the same kinds of box offices as the U.S. because of the demographics between the two countries.
Great. Thank you, Ellis. I appreciate the color. Gord, maybe just a quick one for you. I noticed a little bit of a, for want of a better term, step change in the SCENE loyalty or loyalty cost in quarter. Is that a function of sort of a new approach with respect to how you're using or need to be using SCENE? How should we think about that increase in cost in quarter, and is that sort of indicative of a run rate going forward?
Yeah, Henrik, in my remarks, I mentioned that it's primarily timing of expenses. If you remember, there's a JV, we typically share 50% of the cost of the program. In certain quarters, particularly in Q4 in this year versus the prior year, there's a little bit of an elevated expense level. You may see that on a short-term basis as new programs are being introduced and then revert back.
Sure. Sorry, Gord, I should have perhaps clarified on the question. I was just really trying with some of the tweaks we've seen in here, there's not sort of a change with respect to the value proposition or something that would dilute the economics. I'm going forward this is just timing, there's nothing else we should be worrying about then?
Yeah. Sorry, when we call out the number that appears in other operating expenses, which is what we were chatting about, those are really the cost of running the SCENE infrastructure as opposed to potentially the benefits and what we're recording in Cineplex's books when points are being redeemed at our theater or being issued for programs that are specific to our theater.
Great. I appreciate it. Thanks, Gord. I'll leave it there.
Next up, Aravinda Galappatthige, Canaccord Genuity .
Good morning. Thanks for taking my question. A couple from me. First of all, Ellis, talk a little bit about how you're looking at Cineplex Media in 2019. Obviously, a softer second half in 2018. Perhaps touch on some of your, not just the expectations, but also some of the initiatives that you put in place or hope to put in place to sort of get that side of the business back in growth territory. Secondly, for Gord, with respect to the P1AG, I know that the long-term target is to get to 15% margins. It looks like there was some variance again, there's some extra cost, I know you talked about timing. How do you feel about sort of bridging that variance from 2018 to 2019, getting to that sort of targeted margin levels?
What needs to be done from here on, given that a lot of the restructuring was completed last year?
Arvind, on your question on Cineplex Media, we really feel strongly about 2019, we are not really seeing any changes to what our clients base has moved forward with. There's great interest from automotive and a number of other sectors. I think when you look at the fourth quarter, fourth quarter of 2017 was a record because of Star Wars and Jumanji and other products. In 2018, we didn't have that Star Wars lead, we ended up not in bad shape when you compare it with the record in 2017. We were down middle single digits. To me, I think 2019 we will be well on our way and back on track.
On the P1AG question, yeah, we're still firm on the target margins of 13% and to elevate those up to ultimately 15% over time. Throughout 2018, when we ran through our cost reduction program, I would say the largest opportunities were in some of the businesses where we've done M&A, and where we were able to consolidate operations. As you know, P1AG was the one where we had the most number of acquisitions, and therefore there was the most opportunity to kind of consolidate. With that comes additional costs as you go and look to consolidate operations. I would say throughout 2018, we've been focused on managing and looking for cost savings opportunities. With that came some one-time elements that we don't foresee occurring in the future.
Thanks, Gord. Just a quick follow-up on the CapEx number you indicated, CAD 175 for 2019. Does that include a full sort of amount of CAD 25 or something close to that for the Topgolf location? Is that only partly factored into 2019?
Yeah. Look, that's fully factored in. I do have in my number of CAD 175, I do have a full CAD 25 in for Topgolf. Now that could, depending on the timing of the opening, that could potentially shift. In terms of being conservative for this year, I'm including the full amount in my guidance for the CAD 175.
Great. Thank you. I'll pass the mic.
Thank you.
Let's go to Jeff. We'll go to Jeff Fan.
Thank you, and good morning.
Thanks, Jeff.
Good morning. Question around The Rec Room. When we look at 2019, it's going to be a big year, very busy year in terms of the number of locations that you plan to open. Can you just walk us through, now that you've got, I guess, five openings now, the capital program specifically allocated towards The Rec Room and Playdium, how much you're going to spend there? Maybe a little bit on just the timing of when these locations come online and on the operating side, maybe a bit on the startup costs as well. Thanks.
Yeah, sure. Jeff, in terms of let me take capital and let me take startup. On capital, as we've communicated, the boxes can be of various sizes. I've got roughly in that CAD 175 million number, roughly CAD 80 million related to The Rec Room, which is somewhat close to six of them at around CAD 13 million each, including some costs from the 20 bills that'll occur in 2019. That's the rough number for The Rec Room and the overall capital number. When you look at startup costs or pre-opening, we started to, in anticipation of the more expanded rollout next year, we started breaking out the pre-opening costs in our MD&A. Again, depending on the size of the box, they'll range right around the million-dollar number, from slightly less to slightly more.
In terms of modeling, I would use CAD 1 million on average in six locations. In terms of the timing of the various locations, we have Square One, which is scheduled to come online in March, Avalon in April. In Q3, we'll have Orion Gate, the other three, Whitby, Brentwood, and Winnipeg, will be in Q4.
Okay, great. Stepping back, as you look at the locations that you have opened, how satisfied are you about the performance coming from these locations? Obviously, Toronto seems to be doing really well, but I'm curious about your thoughts on the other locations and how those are doing to give you confidence that you're going to continue to get the return, and also the booking take-up from these new areas, new locations.
Jeff, we are quite happy with the numbers from The Rec Room. As you know, we were having challenges in one of the locations. We continue to work on that. At the same time, we are focusing on our costs. As you saw, we ended up with a 22% margin, and if we took out the one that's problematic, we would be close to over our numbers moving forward. We've also felt a little bit, because three out of the five locations are in Alberta, we felt a little bit of the economic impact, because in the fourth quarter, we had less parties that were booked in Alberta than we would have expected.
Okay.
Overall, we're quite confident as far as our moving forward and the targets that we have set for the overall business.
Okay. Thanks, Ellis.
Next from Echelon, [Anulog Ahluwalia].
Thank you, and thank you very much for taking my question. Actually, two questions if I could. First, on the Cineplex Media, when you make reference to it being back on track, should we look at revenue growth here as being primarily correlated with the box office, or to what extent do you have leverage to increase utilization or higher rates? Changing foot a bit, could you perhaps give us an update on esports? What has surprised you in 2018, where you see the strategic shifts? Thank you.
I'll deal with the media and let Gord speak about esports. Again, our focus is on utilization within the media space. One of the advantages we have and continue to build on is the great portfolio that we are able to offer our agencies and clients with all of the different businesses, all the way from the Cineplex Digital Media in malls, to the Cineplex Media, to all of these different facets. Attendance does play a role, but much more important is the bigger films that drive the business. To me, it's about the big event movies and not really the overall box office that we see driving the media business moving forward.
On your esports question, what did we see throughout the past year? I guess one thing is you'll see the publishers taking more control over their titles at the pro level. We've been created pros or publishers selling franchises in Overwatch and now Call of Duty. We also see traditional sports players looking to tap into the esports audience through titles related to their traditional sports games. We see brands still in early stages of more traditional brands looking to connect with the impressions that are created in the esports landscape. You see content providers and distribution platforms, the emergence of new players in that space. We've always been focused in sort of the more, the path to the pro, the 99% of the players that are out there.
The follow-up question is what we kind of see going forward, I'd say as the ecosystem evolves is more commercial relationships, strategic partnerships with some of the other players in the system as we look to enhance our value and help them enhance their value in the space.
Thank you very much.
Thank you.
Once again to the audience, hit star then one for questions. We'll hear next from Derek Lessard of TD Securities.
Hey, guys. Just two quick ones for me. Maybe just back to the Cineplex Media. You did point out in the MD&A to a challenging advertising environment. I wonder if you could just add some color to that comment.
I think in the fourth quarter, as you know, in the prior year, we had the benefits of massive films, whereas this year, as we saw, the films were basically quite spread out. You had A Star Is Born, Bohemian Rhapsody, a lot of different movies that delivered. It didn't drive the advertisers as much as the year before with Star Wars. In 2019, you have the repeat of the 2017 with Jumanji and Star Wars both opening in the fourth quarter. I think we'll be back on that higher trajectory. Overall, the advertising environment, I think on an overall basis, you have to look at the different segments where they are challenging, and we feel that we do provide, through the theater, a unique way of reaching guests and customers.
Okay, thanks for that. Maybe one for Gord. I was wondering if there's any impact from IFRS 16.
Yeah. In our disclosures, in our year-end statements, note 31, we talk about the adoption of that pronouncement. Look, I think I would also just reference to you guys as readers to note 27, which is our lease commitment note, which is our minimum lease commitments. Those are the contractual committed amounts that we need to pay. It's roughly CAD 1.1 billion. When you look at the adoption of IFRS 16, you expand the scope of the leases outside property leases, and then you protect what would happen in the future in terms of which leases you would actually take options on and extend and renew. We do provide some language in there about typical theater leases, about 20 years with often four or five-year options related to that.
I'm going to give you two benchmarks as you'll have the minimum lease commitment notes, and you could have potentially much higher amounts based on if you extended all the options, it'll somewhere fall in between on there. Obviously, it's an impact both to the asset number, the obligation of the financing lease number for the obligation on the balance sheet, and then there'll be significant impacts to both interest expense and depreciation.
Okay, thanks.
Next, RBC's Drew McReynolds. Please go ahead.
Thank you. Couple for me. Gord, back to IFRS 16. From a kind of year-over-year basis, I guess when you're doing Q1, we'll have IFRS 16 in the numbers. What kind of restatements for prior years? I know it's on a prospective basis, but will you help us square this off?
Yes.
Presumably, there's no free cash flow impact over the life of the leases.
You're exactly right. I mean, look, there's going to be some nuances. We will provide a bridge in our MD&A to help you get back to kind of how we hit what historically reported, after taking into account any differences that may not exist under the new adopted standard. We will provide a level of bridging. We could potentially provide an info session too to help explain through the adoption of IFRS 16 when we go through that.
Okay. That would be helpful. Finally, on the CAD 25 million in targeted cost savings, wondering if you hit that on a run-rate basis by the end of the quarter and I guess any thoughts for additional efficiencies through the system going forward?
As we ramped up over the three quarters, so we passed the program in the second quarter, and we said we believe that we would kind of evenly ramp up to that CAD 25 million in the run rate at the end of the year. I'd say yes, we are there at the end of the year. The impact in 2018, based on that ramp up that I just described, would've been about CAD 12 million-CAD 13 million. We're comfortable that we've executed and delivered on the CAD 25 million. As we look to the future, I would say that was kind of phase one. I talked a little bit about P1AG and some of the opportunities in new businesses of extracting synergies and opportunities. I would say that's kind of phase one.
As I look going forward, there's more ecosystem opportunities to take advantage of the skill sets that we have in our businesses and extract the benefits of that knowledge across our other businesses. Opportunity to manage the overall operations to extract value from the strengths that we have in the various businesses.
Okay. Thank you.
With that, I'd like to turn things back over to Ellis Jacob for closing remarks today.
Thank you all for joining us this morning. Have a wonderful long weekend, and we look forward to speaking with you on May 9th for our Q1 conference call. Thanks so much.
Again, that does conclude today's conference. We thank you all for joining.