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Exhibition giant and Regal owner Cineworld Group on Thursday reported a 59 percent revenue drop for the six months to June as results continued to be hit by the coronavirus pandemic, which left cinemas in various regions of the world closed for parts of the period.
The company also expressed confidence in the outlook for film release windows and said it was considering a potential U.S. stock market listing for the company or Regal.
CEO Moshe Greidinger said on an earnings conference call that a U.S. listing was just “one of the alternatives” being reviewed, with “many, many aspects” still having to be considered. “There is still a long way” to go before a decision, “if we do anything at all,” he said.
“Following the acquisition of Regal in 2018, Cineworld derives the substantial majority of its revenues and profits from the U.S., which remains a key market for future growth,” Cineworld explained in a statement. “U.S. equity capital markets are the largest and most liquid in the world and include a large number of publicly listed cinema companies, including peer group companies. These companies are typically covered by a significant number of North American equity analysts with a wide domestic investor following. The board is therefore considering options to maximize shareholder value now and into the future by accessing this liquidity through a listing of Cineworld or a partial listing of Regal in the U.S.”
It concluded: “The board will evaluate these options over the coming months and will consult with shareholders in due course if any formal proposals are to be made.”
As cinemas have reopened after closures due to the coronavirus pandemic, the company said it was confident in its ability to “rebound strongly” after reopening cinemas. “Cineworld has delivered a resilient performance in a very challenging market, strengthening its liquidity position and continuing to demonstrate tight control over its operating costs and cash usage,” it said. “The group is in a strong position to benefit from the expected industry recovery.”
The U.K.-based company added: “While our results still carry the effect of COVID and related lack of product, we are encouraged by the upcoming lineup of big releases, especially for the upcoming four months. This will include four new Marvel movies as well as Top Gun Maverick, the new Bond, Matrix, Dune and many more. Nonetheless, we will need to remain alert to any new COVID-related developments — currently, it appears that the booster vaccination is on its way but as we have seen in the past, we need to be reactive and ready to handle all scenarios.”
Total revenue for the six months ended June 30 fell to $292.8 million, “due primarily to the 70.3 percent decline in admissions, partially offset by increases in average ticket prices and spend per person across all territories, as well as a lesser decline in other income due to the contractual advertising revenue in the U.S.”
Cineworld’s operating loss of $208.9 million narrowed from $1.34 billion in the year-ago period, “which has been reduced by asset impairment reversals of $95.6 million resulting from lease modifications,” the company said. Its overall first-half loss narrowed to $576.4 million from $1.64 billion.
“Despite the challenges, the actions we have taken have ensured that Cineworld has emerged a more focused business with significant liquidity and a clear vision for the future,” said Greidinger. “Trading has been encouraging since we started to reopen our sites in April.”
During an earnings conference call, he said cinemas were open across all of the company’s territories since June, with admissions “growing” and “demand” for cinemas rising “step by step” despite no full slate of movies so far, while concession spending is seeing “huge growth,” which management did not expect. He said July admissions were at 57 percent of the 2019 monthly average, with admissions steadily increasing on a weekly basis. Touting management’s expectations for a strong fourth quarter, Greidinger said vaccination progress in many countries means more parts of the world are trying to “live with COVID,” but he said the road to recovery could remain bumpy.
Management also said that 2022 revenue could end up near the pre-pandemic 2019 depending on how the pandemic impact plays out.
Greidinger said management would look at the cost of the cinema experience later in the year, but has decided “not to touch ticket pricing” for now to give customers a simple and clear way back.
Management also touted that the firm’s monthly cash burn rate of around $45 million has been below the previously targeted $60 million, helping its financial flexibility. And the company said it continues to focus on preserving cash.
Addressing the theatrical window, Cineworld said: “The main topic in focus throughout the pandemic was the length of the theatrical window. In view of the situation related to COVID-19, the studios entered into various experiments which we believe ultimately will lead to a situation whereby there is a theatrical window but it is shorter than in the past and dependent on the theatrical revenue potential of the movie itself. Currently, movies are being released with windows that are anywhere between 0 and 60 days. We expect that by 2022, the window will stabilize to somewhere between 20 and 60 days, but subject to each movie’s potential.”
On the call, Greidinger said bigger films may see exclusive theatrical windows of around 45 days, as in the firm’s deal with Warner Bros. He said that was a “relatively comfortable number for us.”
Cineworld also highlighted Thursday “the influence of high-quality pirated copies of movies from PVOD day and date releases, which can affect a movie’s total revenue in a big way, not only in cinemas but also in ancillary markets.” It concluded: “As the most affordable out-of-home entertainment option, we believe that cinemas will be back and continue to be the main locomotive of the industry.”
Last year, Cineworld, the second-largest cinema chain in the world behind AMC Theatres, drew up possible downside scenarios for the coronavirus, including one that included “a risk of breaching the group’s financial covenants, unless a waiver agreement is reached with the required majority of lenders.” This could “cast significant doubt about the group’s ability to continue as a going concern,” a phrase meaning it could go out of business. It then received a waiver from its lenders on a debt covenant and raised additional liquidity.
In March, Cineworld reported lower 2020 financials, including its first-ever full-year loss, due to the pandemic and said it had secured binding commitments for $213 million in additional cash via a bond to boost its financial flexibility “in the event of continued disruption as a result of COVID-19.”
And in late July, the company announced that it had secured $200 million of incremental loans maturing in May 2024 from a group of its existing lenders. Buoyed by cinemas reopening in its key markets of the U.S., U.K. and Europe, Cineworld also agreed to covenant amendments on certain of its existing debt facilities, including reducing the minimum liquidity requirement and relaxing limitations on the use of cash.
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