The Village Roadshow Ltd (ASX: VRL) share price ploughed 14% lower today following the release of its half-year financial report.
For the six-month period ended 31 December 2015, Village Roadshow reported an 11.5% rise in revenue to $523.6 million but a net loss of $3.46 million, down from a profit of $13.8 million in the prior corresponding period.
Despite the rise in income, the company was hit by a significant lift in expenses, which jumped from $450 million to $502 million.
Village's popular China Exhibition's business reported meaningful operating profit growth, but those gains were offset by a fall in profit from the Film Distribution business. The Film Distribution business is expected to underperform last year's result.
Nonetheless, management are upbeat about the company's outlook.
"With so many commercial sectors severely challenged by new technology, it's great to be in the business of entertainment and tourism – people will always want to go out and 'escape'!' Our growth plans are dynamic across Theme Parks, Cinema Exhibition, Film Production and our new Marketing Solutions division," Village Roadshow's Co-Executive Chairman and CEO, Robert Kirby, said.
"With powerful and resilient cash flows and new financing bedded down, we have never been in a better place," Co-Chair and CEO, Graham Burke, said.
Pleasingly, the company declared an interim dividend of 14 cents per share. The fully franked dividend is in-line with last year's payment and will be paid to shareholders on April 6, 2016.
Foolish takeaway
Village Roadshow is a low margin business, generating gross profit margins of just 4%. Ultimately, this means that unexpected increases in expenses will realise sharp falls in profit.
While the company is focused on returning excess cash to shareholders, investors may be wise to wait on the sidelines until the dust settles around the Village Roadshow share price, in my opinion. Other companies investors might consider include Star Entertainment Group Ltd (ASX: SGR) or Crown Resorts Ltd (ASX: CWN).
