day, everyone. And welcome to the of Flex East Q4 year end twenty eighteen analyst call. Just as 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 Persacco. 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. Fourth quarter and year end twenty eighteen 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 $1,600,000,000 and adjusted EBITDA increased 8.7% to $256,400,000 our 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 $13,000,000 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 Infinity War and Black Panther. Other standout performers included Incredibles two, Fallen Kingdom and Deadpool two.
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 02/2003, you can now enjoy a movie in a number of different formats, including two d, three d, 4DX, ScreenX, Ultra AVX, 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 $428,200,000 and adjusted EBITDA up 2.5% year over year to $81,600,000 Box office revenue decreased slightly due to strong comparator in 2017 with The Last Jedi.
However, theater foodservice revenue increased 0.6% to $111,000,000 with a CPP of $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 The Primes of Grindelwald representing the top five. During the quarter, we announced plans to open our second stand alone 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 moviegoing experiences to our guests, we opened Canada's first ScreenX auditorium at Cineplex Cinemas 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 screens 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 in the year and The King and I, which go through 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 the most 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 Show, 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 twenty seventeen, 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 revenue as compared to the prior year record fourth quarter, which was due to the highly anticipated 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 occurred in the 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 $205,800,000 in 2018 as a result of contributions from Player One, amusement gaming 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 requirements and achieved a store level margin EBITDA of 22%. During the quarter, we announced plans to open a new location at Plough Place in Barrie with construction scheduled to begin early next year and a targeted opening of summer twenty twenty. 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 2018. World Gaming in partnership with Audi Sports 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 Star esports tournament will represent their countries at the global grand finals in China next month.
Also during the quarter, Collegiate Star League launched its tenth annual season of Collegiate Esports Leagues, the longest standing and largest footprint for competitive gaming programming between schools in The U. S. And Canada. Moving to Theme, membership in Canada's top entertainment loyalty program continued to grow as we added 200,000 members during the quarter, bringing our total to 9,600,000 members as of December 3138. As mentioned in last quarter's call, 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 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. Now 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. For playing today, we have the Robert Rodriguez and James Cameron film Alita Battle Angel, then it's How to Train Your Dragon, The Hidden World, the latest in the popular animated series opening Feb twenty two. And one of the most anticipated films of 2019, Captain Marvel starring Brie Larson, Gemma Chan and Samuel L. Jackson opens on March 8.
With three weeks still remaining until its release, presales for Captain Marvel are already tracking ahead of Black Panther. Looking ahead to the second quarter, on April 26, we have the latest Avengers film with Marvel's Endgame. Then 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 24. We closed out the month with the Elton John film Rocketman coming to theaters on May 31. And 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 Secret Life of Pets two and a new toy will join Woody and the gang in Pixar's Toy Story four, all opening in the month.
Looking to the second half of 2019, I am equally encouraged by the strongest slate of films set to hit theaters, including titles like Far From Home, The Lion King, Hobbs and Shaw, Chapter two, Joker, Frozen two, a Jumanji sequel and Episode IX. Also, as we enter an eventful year for our location based entertainment team, we are looking forward to opening four locations in The Rec Room and two Palladium locations in 2019. We also hope to announce our first Stop Vault location very soon. The quarter 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, Alex. I'm pleased
to present the fourth quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD and A have been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com. We continue to execute our diversification strategy. And for the fourth quarter, total revenue increased 0.4% through a Q4 record 4 and $28,200,000 and adjusted EBITDA increased by 2.5% to 81,600,000 If we look at specific items, Cineplex's fourth quarter box office revenue decreased 1.5% to $182,400,000 compared to $185,000,000 in the prior year, primarily due to the strength of 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 $10.73 up from $10.54 in 2017.
Foodservice revenue increased 1% to $120,700,000 Included in Foodservice revenue was $9,700,000 from The Rec Room. Excluding revenue from The Rec Room, theater foodservice revenue increased by 0.6% from the prior year due to the 3.8% increase to concession revenue per patron to a fourth quarter record of $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 $3,300,000 or 5.4% to $58,200,000 for the quarter. Cinema media revenue, which is primarily theater based, decreased 6.8% due to lower preshow advertising as compared to the prior period.
The prior year was an all time quarterly record due to the highly anticipated 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 and 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 five seventy six new locations to a total of 13,502 locations. Amusement revenue increased $4,200,000 or 8.5% due to strong revenue growth from The Rec Room, which contributed 7,500,000 of amusement, gaming and other revenue. With respect to The Rec Room, total revenue grew $1,000,000 over the prior year with five locations opened for the full quarter. Margins were up 2% through a quarterly record of 22% on the strength of the holiday season and continued improvement and optimization of operations.
Q1 AG revenues increased by $3,400,000 due in part to an increase in route 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 2017. Cost of food service for Q4 twenty eighteen, excluding the $2,300,000 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 $228,600,000 increased $7,600,000 or 3.5%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $52,000,000 for the quarter versus a prior year actual of $50,100,000 primarily due to the relative impact of onetime items and other nonrent increases. Other operating expenses were $163,800,000 for the quarter versus a prior year actual of $155,100,000 an increase of $8,700,000 Increases included a net $700,000 related to The Rec Room, which was comprised of a $1,400,000 increase due to new locations, offset by $700,000 in cost efficiencies at existing locations a $3,900,000 increase for P1AG due to increased business volumes and timing of certain expenditures a $2,500,000 increase in same store theater payroll, mainly due to the impact of minimum wage increases of $3,300,000 which were offset by volume and labor efficiencies realized in the quarter and a $2,800,000 increase in scene costs due to the timing of expenses. These increases were offset by a decrease in media costs of $2,300,000 due to the cost reduction program and a decrease in business volumes and business interruption proceeds of $1,700,000 resulting from the fire in 2017 at Cineplex, Cinemas, Seaton and VIP.
This represents the final amount of insurance proceeds for the fire. Preopening costs for The Rec Room of $300,000 as compared to $700,000 in the prior year were also reduced due to the timing of openings.
G and A expenses were $12,800,000
for the quarter, which was $2,900,000 lower than the prior year due to a $2,600,000 decrease in share based compensation expenses, mainly due to Cineplex's lower share price, which decreased $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 $1,000,000 related to our $25,000,000 cost reduction program. Business unit level cost reductions will be reflected in the other operating expenses as detailed in our MD and A. Interest expense increased $4,100,000 during the quarter to $10,700,000 but included a onetime charge of $2,700,000 related to the amendment and accession of our credit facility and an increase of $1,000,000 in noncash swap expense related to the interest rate environment. Net CapEx for the fourth quarter was $21,400,000 as compared to $46,200,000 in the prior year.
Due to the impact
of timing, net CapEx for the year was $95,300,000 The difference between our original target of $125,000,000 and revised target of $115,000,000 was a result of timing. And as a result, we are increasing our 2019 net CapEx estimates by the same amount of the shortfall to approximately 175,000,000 Thereafter, we continue to forecast to be at the previously communicated $150,000,000 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 onetime charge of $2,700,000 and the increased noncash swap charges of $1,000,000 As Ellis 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 sheet 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, and 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. I would now like to turn the call over to the conference operator for questions.
Thank you. Press star then 1 on your touch tone 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 1 We'll go first to Kenneth Tye of Raymond James.
Thank you, and 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 in the middle, that sort of those midrange titles, etcetera. But 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?
Cedric, great question. And as you've seen during the year, as we go quarter by quarter, the gap between The U. S. And Canada continues to close. And 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. And we ended up with just being slightly down against the prior, whereas The U. S. Was just slightly up over 2017. So 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. I appreciate the color. Gordon, maybe just
a quick one for you. I noticed a little bit of a,
for a better term, step change in the SCENE's 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 Steen? Or how should we think about that increase in costs in quarter? And is that sort of indicative of a run rate going forward?
Kenric, in my remarks, I mentioned that it's primarily timing of expenses. So if you remember, there's a JV, what we typically reshare in 50% of the cost of the program. So in certain quarters, particularly in Q4 in this year versus the prior year, there's a little bit
of an elevated expense level.
So you may see that on a short term basis as new programs are being introduced and then revert back.
Sure. I'm sorry, I should have 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 the value proposition or similar that would dilute the economics on a go forward. This is just timing, and there's there's nothing else we should
be worrying about that. Yeah. So sorry. When we call out when we call out
the number that appears in in other operating expenses, which is what we were chatting about, those are really the the cost of the 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.
We'll go next to Arun Nagalapatthige of 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 Cinema Media in 2019. Obviously, a softer second half in 2018.
Perhaps touch on some of your not just your 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 sort of in growth territory? And secondly, for Gord, with respect to 100 I know that the longer 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 'eighteen to 'nineteen, 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?
So, Arvinda, on your question on Cinema Media, we really feel strongly about 2019, and we are not really seeing any changes to what our clients' take us move forward with and there's great interest from automotive and a number of other sectors. And I think when you look
at the fourth quarter, 2017
was a record because of Star Wars and Jumanji and other products. In 2018, we didn't have that Star Wars lead and we ended up not in bad shape when you compare it with the record in 2017, we were down middle single digits. And to me, I think 2019, we will be well on our way and back on track. And then on the P1AT question,
yes, we're still firm on the target margins of 13% until it goes up to ultimately 15% over time. The throughout 2018, when we ran through our cost reduction program, I would say the our largest opportunities were in some
of the businesses where we've done M and A
and where we're able to consolidate operations. And as you know, P1AG was the
one where we had the most
number of acquisitions. And therefore, there's the most opportunity to kind of consolidate. And with that comes additional costs as you go in with the consolidated operations.
So I'd say throughout 2018, we've been focused on managing and looking for cost savings opportunities, but with that
came some onetime elements that we don't foresee occurring in the future.
And just a quick follow-up on
the CapEx number you indicated, dollars 175,000,000 for 2019. Does that include the full sort of amount of 35,000,000 or something close to that for the Topgolf location? Or is that only partly factored into 'nineteen?
Yeah. And and look, it's that's fully factored in. So I do have in my number of $1.75. I do have a full 25 in for Topgolf. Now that could depending on the timing of the opening, that could potentially shift.
But for in terms of kind of being conservative for this year, I put in I mean, they're putting the full amount in my guidance for the $175,000,000
From From Scotiabank, we'll go to
Jeff Fan.
Thank you, and good morning.
So Hi, Jeff.
Yeah. Good morning. Question around The Rec Room. So when we look at 2019, it's gonna 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 Palladium, how much we're gonna how much you're
gonna spend there? Maybe a little bit on
the just the timing of when these locations come online and on the operating side, maybe a bit on the startup costs as well? Thanks.
Yes, sure. So, Jeff, in terms of let me take capital and let me take startup. On capital, and as we've communicated, the boxes can
be of various sizes. I've got roughly in that $175,000,000
number, roughly $80,000,000 related to The Rec Room, which is somewhat close to six of them at around $13,000,000 each, including some costs from the 20 deals that will occur in 'nineteen. So that's the rough number for The Rec Room and the overall capital number. When you look at start up costs or preopening, and we started to in anticipation of the more expanded rollout next year, we'll start breaking out the preopening costs in our MD and A. And again, depending on the size of the box, they'll range right around the $1,000,000 number from slightly less to slightly more. So in terms of modeling, I would use $1,000,000 on average in six locations.
And then in terms of the timing of the of the various locations, so we have Square 1, which is scheduled to come online in March. Avalon in April. In q three, we'll have Orion Gate. And then the other three, so Whitby, Brentwood, and Winnipeg will be in q four.
Okay. Great.
Stepping back, as you look at the locations that you have opened, how 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 comfort that you're gonna continue to get the the return, especially and also the working take up from from these new new areas, new new locations.
And, Jeff, you know, we are quite happy with the numbers from The Rec Room. I mean, as you know, we were having challenges in one of the locations. We continue to work on that. But at the same time, we are focusing on our costs. And 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. And we've also felt a little bit because three locations are in Alberta, we felt a little bit of the economic impact. But in the fourth quarter, we had less parties that were booked in Alberta than we would have expected.
Okay.
But overall, we are quite confident as far as our moving forward and the, targets that we
have set for the overall business.
Okay. Thanks, Rahul.
Noah. Next
from Eglon, Mr. Rob Goff.
Thank you, and thank you very much for taking my question. I've got two questions, if I could. First, on the cinema media, also 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? And then changing put 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. So I'll deal with the media and let Gord speak about e sports. But again, our focus is on utilization within the media space. And 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 digital media in malls to The Sims TV to all of these different facets. And attendance does play a role, but much more important is the bigger films that drive the business.
And 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.
And so on your e sports question, I guess, 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. So 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. See brands just still in early stages of more traditional brands looking to connect with the impressions that are created in the esports landscape.
And then 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. And so the final question is what we kind of see going forward. I'd say as the ecosystem evolves is, you know, 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 this space.
Thank you very much.
Thank you.
We'll hear next from Derek Lessard of TD Securities.
Hey, guys. Just two quick ones
for me and maybe, just back to the cinema media. You did point out in the MD and A to a challenging advertising environment. I wonder if
you could just add some color to that comment.
Think in the fourth quarter, as you know, in the prior year, we had the benefit of massive films, whereas this year, as we saw, the films were basically quite spread out. You had a StarzBond, Bohemian Rhapsody, a lot of different movies that delivered. So it didn't drive the advertisers as much as the year before with Star Wars. And in 2019, you have the repeat of the 2017 with Jumanji and Star Wars both opening in the fourth quarter. So I think we'll be back on that higher trajectory.
So 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. And maybe one for Gord. I was wondering if there's any impact from IFRS 16.
Yes. So 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 kind of reference to you guys, as readers, Note 27, which is our lease commitment note, which is our minimum lease commitments. So this was a contractual commitment amount that we need to pay. It's roughly $1,100,000,000 When you look at the adoption of IFRS 16,
you expand the scope of
the leases outside property leases, and then you look at you kind of expect what would happen in the future in terms of which leases you would actually take options on and extend and renew. So we do provide some language in there about typical theater leases of about twenty years with often four to five year, four or five year options related to that. I'm going to give you two kind of benchmarks as you'll have the minimum with commitments that would mean you could have potentially much higher amount based on if you extended all the options, it'll somewhere fall in between on there. Obviously, it's going to impact both the forecasted 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.
RBCs, Drew McReynolds. Please go ahead.
Thank you. A couple of
from 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 kind of restatements for prior years? I know it's on a prospective basis, but, you know, will you kind of help us square this off?
Presumably, there's no free cash flow impact over the life of the leases.
No. No, you're exactly right. I mean,
look, there's going be some nuances. Will provide a bridge in our MD and A to help you get back to kind of how we hit what have historically reported after taking into account any differences that may not exist under the new adopted standard. So we will provide a level of bridging. We could potentially provide an initial session to help explain through the adoption of IFRS 16 when we when we when we do that.
Okay. That that would be helpful. And then finally, on the twenty five million in targeted cost savings, wondering if you hit that on a run
rate basis by the end of
the quarter. And guess any thoughts for additional efficiencies through the system going forward?
Yes. So as we ramped
up over the three quarters, so we have the program in the second quarter, we said we would sort of we believe that we would kind of evenly ramp up for that $25,000,000 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, a little bit about $12,000,000 to $13,000,000 So we're comfortable that we've executed and delivered on the $25,000,000 As we look to the future, I mean, I would say that was kind of Phase one. A lot of and 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. What I look going forward is 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. So opportunity to manage the overall operations to extract value from the strength that we have in the various businesses.
Thank you.
And with that, I would 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 9 for our Q1 conference call. Thanks so much.
And again, that does conclude today's conference. We thank you all for joining.